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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 16, 1998
REGISTRATION NO. 333-50509
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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FELCOR SUITE HOTELS, INC.
(Exact name of registrant as specified in its charter)
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MARYLAND 7011 75-2541756
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
LAWRENCE D. ROBINSON, ESQ.
SENIOR VICE PRESIDENT & GENERAL COUNSEL
545 E. JOHN CARPENTER FRWY., SUITE 1300 545 E. JOHN CARPENTER FRWY., SUITE 1300
IRVING, TEXAS 75062 IRVING, TEXAS 75062
(972) 444-4900 (972) 444-4900
(Address, including zip code and telephone (Name, address, including zip code and
number, including area code, of registrant's telephone number, including area code,
principal executive offices) of agent for service)
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With copies to:
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ROBERT W. DOCKERY, ESQ. ROBERT A. PROFUSEK, ESQ.
JENKENS & GILCHRIST, JONES, DAY, REAVIS & POGUE
A PROFESSIONAL CORPORATION 599 LEXINGTON AVENUE, 32ND FLOOR
1445 ROSS AVENUE, SUITE 3200 NEW YORK, NEW YORK 10022
DALLAS, TEXAS 75202-2799 (212) 326-3939
(214) 855-4500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AT THE EFFECTIVE TIME OF THE PROPOSED MERGER (THE "MERGER") OF BRISTOL HOTEL
COMPANY ("BRISTOL") WITH AND INTO FELCOR SUITE HOTELS, INC. ("FELCOR"), AS
DESCRIBED IN THE AGREEMENT AND PLAN OF MERGER, DATED AS OF MARCH 23, 1998 (THE
"MERGER AGREEMENT"), ATTACHED AS ANNEX A TO THE JOINT PROXY STATEMENT/PROSPECTUS
FORMING A PART OF THIS REGISTRATION STATEMENT, WHICH SHALL OCCUR AS PROMPTLY AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AND THE
SATISFACTION OF ALL CONDITIONS TO THE CLOSING OF THE MERGER.
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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. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
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.
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SUBJECT TO COMPLETION DATED JUNE 16, 1998
[FELCOR LOGO] [BRISTOL LOGO]
MERGER PROPOSED--
YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of FelCor Suite Hotels, Inc. and Bristol Hotel
Company have unanimously approved and recommend to you a merger of the two
companies in a transaction that they believe will create two of the premier
lodging companies in the United States--one focused exclusively on hotel
ownership, and the other focused primarily on hotel operations. The transaction
includes the spin-off of Bristol's hotel operating business as a separate
publicly traded company named Bristol Hotels & Resorts. The spin-off will be
followed by the merger of Bristol's remaining assets, including 110 hotels, into
FelCor.
Each of the Bristol hotels acquired by FelCor in the merger will be leased
to and operated by the new spin-off company. Based on published information of
other lodging companies and hospitality trade publications, the merged company,
which will be renamed FelCor Lodging Trust Incorporated, will be the largest
non-paired share lodging REIT, and the spin-off company will be one of the
leading independent hotel operating companies in the U.S. The two companies will
be separately owned and managed, but are expected to work together in the
acquisition and leasing of additional hotels.
In the spin-off, Bristol stockholders will receive one common share of the
spin-off company for every two of their existing Bristol common shares. In the
merger, Bristol stockholders will receive 0.685 FelCor common shares for each of
their existing Bristol common shares. FelCor stockholders will continue to hold
their current FelCor common shares. As a result of these transactions, existing
Bristol stockholders will own all of the new spin-off company's equity and 44%
of FelCor's outstanding common equity. The spin-off will be taxable to Bristol
and its stockholders, while the merger will be tax-free to FelCor and Bristol
stockholders.
The merger cannot be completed unless you approve it and certain other
customary conditions are satisfied. We are asking you to approve the merger at
our annual stockholders meetings. At the annual meetings, you also will be asked
to approve other matters, including the election of directors, changes to
FelCor's charter to increase the authorized number of FelCor common shares and
preferred shares and to change its name to "FelCor Lodging Trust Incorporated,"
the approval and expansion of equity incentive programs and the adjournment or
postponement of the FelCor annual meeting.
WHETHER OR NOT YOU PLAN TO ATTEND A MEETING, PLEASE COMPLETE, SIGN AND MAIL
THE ENCLOSED PROXY CARD. IF YOU SIGN, DATE AND MAIL YOUR PROXY CARD WITHOUT
INDICATING HOW YOU WANT TO VOTE, YOUR PROXY WILL BE COUNTED AS A VOTE IN FAVOR
OF THE MERGER AND THE OTHER MATTERS DESCRIBED IN THE ENCLOSED MATERIALS. IF YOU
FAIL TO RETURN YOUR PROXY CARD OR TO VOTE IN PERSON AT A MEETING, THE EFFECT
WILL BE A VOTE AGAINST THE MERGER AND THE AMENDMENTS TO FELCOR'S CHARTER.
Additional information regarding the annual meetings follows:
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FOR FELCOR STOCKHOLDERS:
Date/Time: July 27, 1998,
at 10:00 a.m. Central Time
Place: Embassy Suites Park Central
13131 N. Central Expressway
Dallas, Texas 75243
Record Date: May 28, 1998
FOR BRISTOL STOCKHOLDERS:
Date/Time: July 27, 1998,
at 10:00 a.m. Central Time
Place: Crowne Plaza Hotel
14315 Midway Road
Dallas, Texas 75244
Record Date: May 28, 1998
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The accompanying Joint Proxy Statement/Prospectus provides additional
information about the proposed merger and other proposals. Please read this
entire document carefully. You may also obtain information about our companies
from documents that we have filed with the SEC.
- - ---------------------------------------------------------
Thomas J. Corcoran, Jr.
President and Chief Executive Officer
FelCor Suite Hotels, Inc.
- - ---------------------------------------------------------
J. Peter Kline
President and Chief Executive Officer
Bristol Hotel Company
FOR A DISCUSSION OF MATERIAL RISK FACTORS WHICH SHOULD BE CONSIDERED IN
EVALUATING THE MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 26.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE SECURITIES OR DETERMINED IF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus is being mailed to stockholders on
June , 1998.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS THAT ARE NOT PRESENTED IN OR DELIVERED WITH THIS JOINT PROXY
STATEMENT/PROSPECTUS. DOCUMENTS THAT RELATE TO BRISTOL ARE AVAILABLE UPON
REQUEST FROM BRISTOL AT 14295 MIDWAY ROAD, DALLAS, TEXAS 75244, ATTENTION:
SECRETARY, TELEPHONE NUMBER (972) 391-3910. DOCUMENTS THAT RELATE TO FELCOR ARE
AVAILABLE UPON REQUEST FROM FELCOR AT 545 E. JOHN CARPENTER FRWY., IRVING, TEXAS
75062, ATTENTION: SECRETARY, TELEPHONE NUMBER (972) 444-4900. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 20, 1998.
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS........................ 4
SUMMARY...................................... 7
The Companies.............................. 7
The Annual Meetings........................ 7
Recommendations to Stockholders............ 8
The Merger................................. 8
The Spin-Off............................... 12
Selected Consolidated Pro Forma and
Historical Financial Data of FelCor and
DJONT.................................... 14
Selected Consolidated Historical Financial
Data of Bristol.......................... 20
Selected Comparative Per Share Data........ 23
Comparative Market Data.................... 24
RISK FACTORS................................. 26
Fixed Exchange Ratio and Variable Merger
Consideration............................ 26
Inability to Integrate Bristol's Assets or
Realize Anticipated Benefits of Merger... 26
Increases in Leverage and Floating Rate
Debt; Inability to Retain Earnings or
Refinance Debt........................... 26
Dependence on Lessees' Hotel Operations.... 27
Conflicts of Interest...................... 27
Restrictive Debt Covenants................. 28
Matters that May Adversely Affect the Hotel
Industry................................. 29
Limitations on Acquisitions and
Improvements............................. 30
Potential Tax Risks........................ 30
Effect of Market Interests Rates on the
Price of FelCor Common Shares............ 31
Reliance on Key Personnel and Board of
Directors................................ 31
Matters That May Adversely Affect Real
Estate Ownership......................... 31
Ownership Limitation....................... 32
Certain Antitakeover and Corporate
Governance Provisions.................... 33
Contingent Fees Payable to and
Indemnification of Financial Advisors.... 33
Differences in Stockholder Rights of FelCor
and Bristol Stockholders................. 34
Adverse Consequences if Merger is not
Consummated.............................. 34
Impact of Year 2000 Issue.................. 34
THE ANNUAL MEETINGS.......................... 36
Times, Places and Dates of the Annual
Meetings................................. 36
Purposes of the FelCor Annual Meeting...... 36
Purposes of the Bristol Annual Meeting..... 36
Record Dates; Quorum....................... 36
Voting Rights; Votes Required for
Approval................................. 36
Proxies; Revocation and Solicitation of
Proxies.................................. 37
THE COMPANIES................................ 39
FelCor..................................... 39
Bristol.................................... 40
The Combined Company....................... 40
THE SPIN-OFF................................. 43
The Reorganization......................... 43
BHR Percentage Leases...................... 43
Conditions to the Spin-Off................. 43
Federal Income Tax Consequences............ 43
Business and Management of BHR............. 43
Employee Option Plans...................... 44
Listing.................................... 44
Stockholder Approval....................... 44
Additional Information About the
Spin-Off................................. 44
THE MERGER................................... 44
General.................................... 44
Effective Time............................. 44
Terms of the Merger........................ 44
Background of the Merger................... 45
FelCor's Reasons for the Merger;
Recommendations of the FelCor Board...... 47
Bristol's Reasons for the Merger;
Recommendations of the Bristol Board..... 49
Opinion of FelCor's Financial Advisor...... 51
Opinion of Bristol's Financial Advisor..... 56
Interests of Certain Persons in the
Merger................................... 62
Accounting Treatment....................... 64
No Appraisal Rights........................ 64
Resale Restrictions on Bristol
Affiliates............................... 64
THE MERGER AGREEMENT......................... 64
Exchange of Share Certificates............. 64
Treatment of Bristol Stock Options......... 65
Business Pending the Merger................ 65
Solicitation of Other Proposals; Break-up
Fee...................................... 65
Representations and Warranties............. 66
Certain Covenants of FelCor and Bristol.... 66
Conditions to the Merger................... 67
Termination; Amendment..................... 67
Interim Credit Facility.................... 67
Reconstitution of FelCor Board............. 68
Changes to FelCor Charter.................. 68
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THE VOTING AGREEMENT......................... 69
Agreement to Vote.......................... 69
Restrictions on Transfers Before Effective
Time..................................... 69
Other Agreements........................... 69
Redemption of BHR Common Shares............ 69
Contribution to Partnerships............... 69
Indemnification and Release................ 70
FelCor Stockholders' Agreement............. 70
PRO FORMA FINANCIAL INFORMATION.............. 72
DESCRIPTION OF FELCOR'S CAPITAL STOCK........ 90
Description of FelCor Common Shares........ 90
Description of FelCor Preferred Shares..... 90
Description of FelCor Series A Preferred
Shares................................... 91
Description of FelCor Series B Preferred
Shares and Depositary Shares............. 95
Certain Charter and Bylaw Provisions....... 99
Maryland Anti-Takeover Statutes............ 100
Comparison of Rights of Stockholders....... 102
FEDERAL INCOME TAX
CONSIDERATIONS............................. 109
The Merger, the Spin-Off and the
Post-Merger E&P Dividend................. 109
Qualification and Operation of FelCor as a
REIT; Ownership and Disposition of FelCor
Common Shares............................ 111
Other Tax Consequences..................... 127
OTHER FELCOR ANNUAL MEETING PROPOSALS........ 127
Election of FelCor Directors............... 127
Approval of FelCor Charter Amendment to
Increase Authorized Shares............... 130
Approval of FelCor Charter Amendment to
Change FelCor's Name..................... 131
Ratification of FelCor's 1998 Restricted
Stock and Stock Option Plan.............. 132
OTHER BRISTOL ANNUAL MEETING PROPOSALS....... 134
Election of Bristol Directors.............. 134
Information Concerning Bristol Board....... 136
Approval of Amendment to Bristol's 1995
Equity Incentive Plan.................... 137
Approval of BHR's 1998 Equity Incentive
Plan and 1998 Non-Employee Director Stock
Option Plan.............................. 138
MANAGEMENT AND OWNERSHIP OF FELCOR........... 145
Principal Stockholders of FelCor........... 145
Current Executive Officers of FelCor....... 147
Certain Transactions Relating to FelCor.... 149
FelCor's Executive Compensation............ 150
Report of Compensation Committee on FelCor
Executive Compensation................... 155
Performance Graph.......................... 158
MANAGEMENT AND OWNERSHIP OF BRISTOL.......... 159
Beneficial Ownership of Bristol............ 159
Bristol's Executive Compensation........... 160
Bristol's Compensation Plans and
Arrangements............................. 162
Report on Bristol's Executive
Compensation............................. 162
Performance Graph.......................... 164
Certain Relationships and Related
Transactions of Bristol.................. 164
SELLING SECURITYHOLDERS...................... 165
PLAN OF DISTRIBUTION......................... 166
LEGAL MATTERS................................ 167
EXPERTS...................................... 168
INDEPENDENT PUBLIC ACCOUNTANTS............... 168
ANNUAL REPORTS............................... 168
SUBMISSION OF STOCKHOLDER PROPOSALS.......... 169
WHERE YOU CAN FIND MORE INFORMATION.......... 169
Available Information...................... 169
Incorporation of Certain Documents by
Reference................................ 169
Certain Forward-Looking Statements......... 170
OTHER MATTERS................................ 170
INDEX OF CERTAIN DEFINED TERMS............... 172
ANNEXES
A. The Merger Agreement
B. BT Wolfensohn Fairness Opinion
C. Merrill Lynch, Pierce, Fenner & Smith
Fairness Opinion
D. FelCor 1998 Restricted Stock and Stock
Option Plan
E. BHR 1998 Equity Incentive Plan
F. BHR Non-Employee Directors Stock Option
Plan
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QUESTIONS AND ANSWERS
ABOUT THE FELCOR/BRISTOL MERGER
AND OTHER MATTERS TO BE VOTED ON
Q: WHY ARE THE TWO COMPANIES PROPOSING THE SPIN-OFF AND MERGER?
A: The Boards of Directors of FelCor and Bristol have each determined that the
merger is fair to and in the best interests of the stockholders of their
respective companies. The FelCor Board determined, among other things, that
the acquisition of Bristol's hotels in the merger was at a fair price, is
expected to be accretive to FelCor's estimated funds from operations (but
will reduce pro forma earnings per share) and, when combined with FelCor's
existing hotel portfolio, will give FelCor a total market capitalization in
excess of $4 billion, which should be sufficient to enable it to remain a
substantial participant in the rapidly consolidating lodging industry. The
transactions will also result in a strategic alignment of interests between
FelCor and the new spin-off company. The Bristol Board determined, among
other things, that the exchange ratio was fair and that the merger would
permit Bristol stockholders to participate in the ownership of hotel assets
in an entity having a lower overall cost of capital and greater financial
flexibility to fund future growth through hotel acquisitions. The Bristol
Board also determined that the merger transactions would provide Bristol
stockholders the opportunity to continue to own an equity stake in
Bristol's hotel operating business, which FelCor is not permitted to own
under the special limitations that apply to REITs.
Q: WHEN WILL THE SPIN-OFF OCCUR?
A: If the merger is approved by the stockholders of both companies, the
spin-off will occur on the business day before the merger. Completion of
the spin-off is a condition to the merger. If the merger is not approved,
the spin-off will not occur.
Q: WHAT DO I GET IN THE MERGER AND SPIN-OFF?
A: FelCor stockholders will continue to hold the shares they now own. Bristol
stockholders will receive:
- 0.685 FelCor common shares for each existing Bristol common share they
own at the time of the merger;
- One common share of the new spin-off company for every two existing
Bristol common shares they own at the time of the spin-off; and
- The opportunity to participate with all other stockholders of FelCor
in a special distribution in an amount at least equal to Bristol's
accumulated earnings and profits at the time of the merger. This
distribution is currently estimated to range from approximately $0.30
to $0.50 per FelCor common share. To obtain this special distribution,
you must be a FelCor stockholder on the record date for this
distribution, which is expected to be set for December 1998.
The Bristol board believed the value of spin-off company shares would be
between $5.00 and $7.00 each (or between $2.50 and $3.50 per Bristol share
before giving effect to the one-for-two distribution ratio). However, the
actual trading value of the spin-off company shares may be higher or lower
than the range of estimated values and will depend on many factors. For
purposes of its evaluation of the fairness of the merger exchange ratio and
the tax consequences to Bristol stockholders of the distribution to them of
the spin-off company shares, the Bristol board assigned the spin-off
company shares an estimated value of $6.38, after giving effect to the
spin-off at the distribution ratio of one spin-off company share for each
two Bristol common shares. This equates to a distribution in the spin-off
of $3.19 in estimated value of spin-off company shares for each Bristol
common share.
No stockholder will receive fractional shares from FelCor or Bristol.
Instead, Bristol stockholders will receive cash based on the market value
of any fractional FelCor or spin-off company shares.
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EXAMPLE:
- If you currently own 100 FelCor common shares, then after the merger,
your FelCor common shares continue unaffected by the transactions.
- If you currently own 100 Bristol common shares, then after the merger
and the spin-off, you will be entitled to receive 68 FelCor common
shares, 50 common shares of the spin-off company and a check for the
market value of the 0.5 fractional FelCor common share.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE SPIN-OFF AND MERGER?
A: If you currently own FelCor common shares, the merger will be tax-free to
you for federal income tax purposes. If you currently own Bristol common
shares, the merger will be tax-free to you for federal income tax purposes
except for cash paid instead of fractional shares. The shares of the new
spin-off company received by Bristol stockholders in the spin-off, however,
will be taxable to Bristol stockholders. To review the tax consequences to
stockholders in greater detail, see the discussion beginning on page 109.
Q: WILL THE MERGER BE APPROVED BY BRISTOL STOCKHOLDERS?
A: Yes. Bass America, Inc., Holiday Corporation and United/Harvey Holdings,
L.P., which collectively own 62% of the Bristol common shares outstanding
on the record date, have agreed to vote their shares in favor of the
merger. Consequently, the merger will be approved by Bristol's stockholders
as a result of the vote of these Bristol stockholders, regardless of how
other Bristol stockholders may vote. However, no stockholder of FelCor has
agreed to vote in favor of the merger.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE ANNUAL MEETINGS?
A: In addition to the merger, FelCor and Bristol stockholders will be asked to
elect certain directors pending completion of the merger. After the merger,
the Board of Directors of FelCor will be as described on page 68.
FelCor stockholders will also be asked to approve amendments to FelCor's
charter to increase the authorized number of FelCor common shares and
FelCor preferred shares, to change FelCor's name to FelCor Lodging Trust
Incorporated, to approve a new restricted stock and stock option plan for
FelCor personnel covering a total of 1 million FelCor common shares and to
authorize the adjournment or postponement of the FelCor annual meeting.
Bristol stockholders will also be asked to approve an amendment to
Bristol's equity incentive plan to increase the number of shares authorized
for issuance from 1,950,000 to 3,130,000 Bristol common shares and to
approve the adoption of new equity incentive plans for the spin-off
company.
Q: WHAT DO I NEED TO DO NOW?
A: Please mail your signed proxy card in the enclosed return envelope as soon
as possible so that your shares may be represented at the appropriate
annual meeting. The Bristol and FelCor annual meetings will both take place
on July 27, 1998.
Q: IF MY SHARES ARE HELD BY MY BROKER, WILL MY BROKER VOTE MY SHARES FOR ME?
A: Your broker may vote your shares as to the election of directors if you
have given him that power. Your broker will vote your shares on any other
matter, including this merger, only if you instruct your broker on how to
vote. You should follow the directions provided by your broker regarding
how to instruct your broker to vote your shares. If you do not tell your
broker how to vote, your shares will not be voted on these other matters.
Your failure to vote will have the effect of a vote against the merger and
the amendments to FelCor's charter.
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Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote at any time before your proxy is voted at the
stockholders meetings. You may do this by sending a written notice stating
that you would like to revoke your proxy or by completing and submitting a
new proxy card. You may also attend the stockholders meetings and vote in
person. Simply attending the meetings, however, will not revoke your proxy.
If you have instructed a broker to vote your shares, you must follow the
directions received from your broker to change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send Bristol stockholders
written instructions for exchanging their stock certificates for FelCor
common shares. FelCor stockholders will keep their existing FelCor stock
certificates.
Q: WHEN DO YOU EXPECT THE SPIN-OFF AND MERGER TO BE COMPLETED?
A: We are working towards completing the transactions as quickly as possible.
We expect to complete the transactions promptly after the stockholders
meetings.
Q: WHEN WILL BRISTOL STOCKHOLDERS BEGIN RECEIVING CASH DISTRIBUTIONS FROM
FELCOR?
A: If the merger is completed, Bristol stockholders will receive cash
distributions from FelCor beginning with its regular distribution for the
third quarter of 1998. The third quarter distribution is presently expected
to be paid in October 1998. FelCor's current regular quarterly distribution
rate is $0.55 per share.
Q: WILL FELCOR AND BRISTOL STOCKHOLDERS RECEIVE ANY SPECIAL CASH
DISTRIBUTIONS?
A: FelCor's stockholders will receive a 1998 fourth quarter distribution that
will include, in addition to FelCor's regular quarterly distribution, a
special cash distribution. This special distribution will at least equal
Bristol's accumulated earnings and profits at the time of the merger.
Bristol and FelCor stockholders will participate in this special
distribution to the extent they own FelCor common shares on the December
1998 record date for the special distribution. The amount of the special
distribution cannot be determined with specificity until after the spin-off
and merger and will depend upon the final determination of Bristol's
accumulated earnings and profits. FelCor currently estimates this
distribution to range from approximately $25 million to $40 million (or
approximately $0.30 to $0.50 per share based on the number of FelCor shares
expected to be outstanding after the merger). The entire amount of the
special cash distribution will be taxable to stockholders.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you are a FelCor stockholder, you should contact Randall L. Churchey,
Senior Vice President and Chief Financial Officer, at FelCor at (972)
444-4900 or by e-mail to "[email protected]". If you are a Bristol
stockholder, you should contact Ed Nolan, Vice President of Corporate
Finance, at Bristol at (972) 391-3231 or by e-mail to
"[email protected]".
If you would like additional copies of this Joint Proxy
Statement/Prospectus or related agreements or documents, you should contact
Corporate Investor Communications, at (888) 217-1274.
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SUMMARY
This summary highlights selected information from this Joint Proxy
Statement/Prospectus and may not contain all of the information that is
important to you. Accordingly, we encourage you to carefully read this entire
document and the documents to which we have referred you. See "Where You Can
Find More Information".
THE COMPANIES
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FELCOR SUITE HOTELS, INC. BRISTOL HOTEL COMPANY
545 E. John Carpenter Freeway, Suite 1300 14295 Midway Road
Irving, Texas 75062 Dallas, Texas 75244
(972) 444-4900 (972) 391-3910
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FelCor Suite Hotels, Inc. is a REIT that has focused on upscale
full-service and all-suite hotels and is the world's largest owner of Embassy
Suites(R) hotels. Its current portfolio of 85 hotels contains an aggregate of
20,795 suites and rooms and, assuming completion of pending conversions,
consists of 58 Embassy Suites hotels (of which 29 were converted from other
brands), 14 Doubletree Guest Suites(R) hotels, two Doubletree(R) hotels, five
Sheraton(R) hotels, four Sheraton Suites(R) hotels, one Hilton(R) hotel, and one
Hilton Suites(R) hotel.
Bristol Hotel Company is one of the largest owner/operators of full-service
hotels in the United States. Bristol operates 124 hotels in 27 states and
Canada, of which 110 will be acquired by FelCor. Bristol's hotels are primarily
full-service hotels that operate in the midscale to upscale segments of the
lodging industry. Bristol is the franchisee of the largest number of Holiday
Hospitality branded hotels, including Crowne Plaza(R), Holiday Inn Select(R),
Holiday Inn(R) and Holiday Inn Express(R), and also operates 28 hotels under
other brands, including Hampton Inn(R), Courtyard by Marriott(R) and Fairfield
Inn(R).
THE ANNUAL MEETINGS
DATE, TIME AND PLACE
The FelCor annual meeting will be held at 10:00 a.m. (Central time) on July
27, 1998 at the Embassy Suites Park Central hotel, 13131 North Central
Expressway, Dallas, Texas. The Bristol annual meeting will be held at 10:00 a.m.
(Central time) on July 27, 1998 at the Crowne Plaza Hotel, 14315 Midway Road,
Dallas, Texas.
MATTERS TO BE CONSIDERED
At the FelCor annual meeting, FelCor stockholders will be asked to adopt
the merger agreement. As contemplated by the merger agreement, FelCor
stockholders will be asked to approve amendments to FelCor's charter to increase
the number of authorized FelCor common shares and FelCor preferred shares and to
change FelCor's name to "FelCor Lodging Trust Incorporated." FelCor stockholders
will also be asked to elect two directors, to approve the adoption of a new
restricted stock and stock option plan for FelCor employees and directors and to
authorize the adjournment or postponement of the FelCor annual meeting.
At the Bristol annual meeting, Bristol stockholders will be asked to adopt
the merger agreement. Bristol stockholders will also be asked to elect nine
directors, to ratify an amendment to Bristol's equity incentive plan to increase
the number of shares reserved for issuance and to approve the adoption of new
equity incentive plans for spin-off company employees and directors.
RECORD DATE; QUORUM
Only FelCor and Bristol stockholders of record as of the close of business
on the May 28, 1998 record date are entitled to vote at the applicable annual
meeting. On that date, there were 36,591,080 FelCor common shares and 45,234,972
Bristol common shares entitled to vote. A majority of the FelCor or Bristol
7
<PAGE> 9
common shares must be present or represented at the appropriate annual meeting
in order for a quorum to exist. A quorum is required to hold an annual meeting.
REQUIRED VOTES
FelCor and Bristol stockholders each have one vote for each common share
owned on the record date. The affirmative votes of a majority of the FelCor
common shares and Bristol common shares outstanding on the record date are
required to approve the merger. The affirmative vote of a majority of the FelCor
common shares outstanding on the record date is required to approve the
amendments to FelCor's charter. Accordingly, if you fail to return your proxy
card or to vote in person at the applicable meeting, the effect will be a vote
against the merger and FelCor's charter amendments. The two candidates receiving
the most votes at the FelCor annual meeting will be elected as FelCor directors.
The nine directors receiving the most votes at the Bristol annual meeting will
be elected as Bristol directors. The affirmative vote of a majority of the
FelCor common shares actually voted on the proposal is required to approve
FelCor's incentive plan proposal and to adjourn or postpone FelCor's annual
meeting. The affirmative vote of a majority of the Bristol common shares
actually voted on the applicable proposal is required to approve the Bristol
incentive plan proposals.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
On the record date, FelCor directors and executive officers controlled
1,576,464 FelCor common shares (approximately 4.3% of FelCor's outstanding
common shares), and Bristol directors and executive officers owned 3,632,219
Bristol common shares (approximately 8.0% of Bristol's outstanding common
shares). These directors and executive officers have indicated that they intend
to vote in favor of the merger and the other proposals. Three Bristol
stockholders who own a majority of the outstanding Bristol common shares have
agreed to vote in favor of the merger. Accordingly, the merger will be approved
by Bristol's stockholders regardless of how other Bristol stockholders may vote.
RECOMMENDATIONS TO STOCKHOLDERS
THE FELCOR BOARD AND THE BRISTOL BOARD BELIEVE THAT THE MERGER AND THE
OTHER PROPOSALS OF THEIR RESPECTIVE COMPANIES ARE IN THE BEST INTERESTS OF THEIR
STOCKHOLDERS AND RECOMMEND THAT THEIR STOCKHOLDERS VOTE FOR THE MERGER AND ALL
SUCH OTHER PROPOSALS.
THE MERGER
The merger agreement is attached as Annex A to this Joint Proxy
Statement/Prospectus. The merger agreement is the legal document that governs
the merger. We encourage you to read it in its entirety.
WHAT FELCOR STOCKHOLDERS WILL RECEIVE IN THE MERGER
After the merger, each certificate representing FelCor common shares will,
without any action on the part of FelCor stockholders, continue to represent the
same number of common shares in the combined company. FelCor stockholders do not
need to exchange their stock certificates after the merger.
WHAT BRISTOL STOCKHOLDERS WILL RECEIVE IN THE MERGER
Bristol stockholders will receive in the merger 0.685 FelCor common shares
for each existing Bristol common share. No fractional shares will be issued.
Instead, Bristol stockholders will receive a check in payment for any FelCor
fractional shares. Immediately prior to the merger, FelCor will elect to pay an
amount per share equal to either the closing trading price for FelCor common
shares on the trading day immediately prior to the completion of the merger or
the per share proceeds from the sale of the aggregate fractional shares in the
open market promptly following the completion of the merger. Bristol
stockholders should not send in their stock certificates until instructed to do
so after the merger is completed.
8
<PAGE> 10
BOARD OF DIRECTORS AND MANAGEMENT OF FELCOR FOLLOWING THE MERGER
After the merger, FelCor's Board of Directors will add three members from
the current Bristol Board. Following the merger, none of FelCor's directors will
serve as a director of the spin-off company. Donald J. McNamara, the current
Chairman of the Board of Bristol, will become Chairman of the Board of FelCor.
Hervey A. Feldman, FelCor's current Chairman, will retire from FelCor's Board at
the annual meeting and assume the title of Chairman Emeritus. The remaining
management of FelCor will continue in the same positions following the merger.
SPECIAL INTERESTS OF CERTAIN DIRECTORS, OFFICERS AND STOCKHOLDERS OF BRISTOL IN
THE MERGER
Certain directors, executive officers and stockholders of Bristol have
interests in the merger transactions that are in addition to or different from
the interests of Bristol stockholders generally. These interests are:
- Director Interests: The election of Donald J. McNamara, Richard C. North
and Robert L. Lutz, Jr., who are members of Bristol's Board, to FelCor's
Board as previously described, the election of Mr. McNamara as Chairman
of the Board of FelCor and certain covenants in the merger agreement
providing for continuing indemnification of Bristol directors and
officers;
- Director and Executive Officer Options: Existing options to purchase
Bristol shares will be split into separate options to purchase spin-off
company shares and FelCor shares;
- Bass Interests: Holiday Corporation and Bass America, Inc., which are
subsidiaries of Bass plc and collectively own 31% of the outstanding
common shares of Bristol, will receive $25.8 million, or $4.86 per share
of the new spin-off company, in exchange for all spin-off company shares
exceeding 9.9% of its outstanding shares. This redemption is necessary to
prevent FelCor from losing its status as a REIT for federal income tax
purposes. Another subsidiary of Bass plc, Holiday Hospitality
Franchising, Inc., will continue as a franchisor of a substantial number
of the Bristol hotels acquired by FelCor in the merger. In addition, the
new spin-off company has undertaken to add at least 8,700 Holiday
Hospitality-branded rooms to its existing portfolio of owned and operated
hotels over a five-year period; and
- Other Stockholder Interests: United/Harvey Holdings, L.P. (or its
successors), presently a 31% stockholder of Bristol, together with
Holiday Corporation and Bass America, Inc., will enter into a
stockholders agreement under which they each agree to vote in favor of
election of one designee of the other to the FelCor Board. In addition,
subject to limitations, FelCor has agreed to waive the 9.9% stock
ownership limitation in its charter for these stockholders and grant them
preemptive and registration rights relating to their FelCor
stockholdings.
These interests are described in greater detail under the caption "Interests of
Certain Persons in the Merger" at pages 62 to 63. The Bristol Board was aware of
these interests and considered them in approving the merger and the spin-off. In
considering the recommendation of the Bristol Board in respect of the merger
agreement, Bristol stockholders should be aware of and consider these matters.
BENEFITS OF THE MERGER TO FELCOR AND ITS STOCKHOLDERS
We believe that FelCor and its stockholders will receive a number of
benefits from the acquisition of Bristol's hotel assets in the merger. These
benefits include the further extension of FelCor's developing multi-brand
strategy focused on full-service hotels, the establishment of FelCor as the
largest non-paired share lodging REIT in terms of market capitalization and the
creation of a new strategic alliance with the spin-off company, which will be
the first independent, third party lessee of hotels owned by FelCor. In
addition, the merger is expected to be accretive to FelCor's estimated per share
funds from operations in 1998, 1999 and 2000.
9
<PAGE> 11
DETRIMENTS OF THE MERGER TO FELCOR AND ITS STOCKHOLDERS
Stockholders should also consider certain potential detriments to FelCor
related to the merger. These detriments include the possible adverse perception
of the merger as a further departure from FelCor's original focus on upscale,
all-suite hotels managed by the brand owner, the possibility that the Bristol
hotels will not achieve the anticipated results from pending and planned
renovation and redevelopment programs, and the assumption by FelCor in the
merger of Bristol's debt. The increase in FelCor's debt leverage could adversely
affect FelCor's ability to obtain future debt financing and result in increased
borrowing costs. In addition, the merger has an adverse effect on FelCor's 1997
pro forma diluted earnings per share.
BENEFITS OF THE MERGER TO BRISTOL AND ITS STOCKHOLDERS
We believe that Bristol's stockholders will benefit from the opportunity to
continue their ownership interests in the Bristol hotels under FelCor's REIT
structure, which avoids double taxation of earnings and currently offers a lower
cost of capital and greater financial flexibility to fund future growth of the
combined companies. As stockholders in FelCor, Bristol stockholders will also
receive regular quarterly distributions. In addition, Bristol stockholders will
be able, through the spin-off, to continue to own an equity interest in
Bristol's hotel operating business, which FelCor is not permitted to own under
the special limitations that apply to REITs.
DETRIMENTS OF THE MERGER TO BRISTOL AND ITS STOCKHOLDERS
Bristol stockholders should also consider certain potential detriments from
the merger with FelCor. The spin-off company will have fixed obligations to
FelCor under the leases between the parties requiring, in certain circumstances,
payments regardless of the operating results of the leased hotels. In addition,
the spin-off will be a taxable transaction to Bristol and its stockholders for
federal income tax purposes. Further, the spin-off company will be substantially
dependent upon FelCor to finance future growth, but will have no contractural
right to lease and operate hotels that may be acquired by FelCor in the future.
CONDITIONS TO THE MERGER
The merger will be completed if a number of conditions are met, including
the following:
- The approval by the stockholders of FelCor and Bristol;
- The occurrence of the spin-off; and
- The receipt of legal opinions regarding certain tax consequences of the
merger and FelCor's status as a REIT for tax purposes.
The merger agreement permits FelCor and Bristol to waive any of the conditions
to the merger in favor of such party prior to obtaining the approval of its
stockholders. If the parties elect to waive any material condition to the
merger, they will amend or supplement this Joint Proxy Statement/Prospectus as
appropriate and recirculate it to the affected stockholders, if such waiver
occurs prior to receipt of stockholder approval. In the event that a material
condition to the merger is waived after the receipt of stockholder approval, the
stockholders of any party adversely affected by such waiver will be resolicited
to reapprove the merger.
TERMINATION OF THE MERGER AGREEMENT AND PAYMENT OF FEES
FelCor and Bristol could agree to terminate the merger agreement, and
either party may terminate the merger agreement if, in general:
- We do not receive stockholder approval;
- We do not complete the transactions by September 30, 1998;
- An injunction prevents the merger or the spin-off;
10
<PAGE> 12
- The other party materially breaches the merger agreement and cannot cure
the breach by September 30, 1998;
- The Board of Directors of the other party adversely changes its
recommendation of the merger; or
- The other party takes certain actions in connection with a competing
transaction.
Bristol also may terminate the merger agreement if the volume weighted average
trading price for the FelCor common shares is less than $28.00 per share over
any ten trading-day period.
The merger agreement generally requires FelCor or Bristol to pay to the
other a termination fee of $60 million if the merger agreement terminates under
the circumstances described in the last three indented clauses in the preceding
paragraph. The merger agreement also requires FelCor or Bristol to pay the other
$5 million as reimbursement of transaction costs if the merger agreement is
terminated in those circumstances or because such party's stockholders failed to
approve the merger.
OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the merger, our Boards considered opinions from our
respective financial advisors as to the fairness of the exchange ratio of 0.685
from a financial point of view. FelCor received an opinion from its financial
advisor, BT Wolfensohn, and Bristol received an opinion from its financial
advisor, Merrill Lynch, Pierce, Fenner & Smith, Incorporated.
These opinions are attached as Annexes B and C to this Joint Proxy
Statement/Prospectus. You are encouraged to read them. The financial advisors
performed several analyses in connection with delivering their opinions. These
analyses included comparing FelCor and Bristol historical stock prices,
comparing FelCor and Bristol to other publicly traded companies and other
business combinations and estimating the relative values of FelCor and Bristol
and their contributions to the combined company based on past and estimated
future financial performance. FelCor and Bristol have each agreed to pay its
advisors approximately $3 million in financial advisory fees in connection with
the services performed by its financial advisor. All or a substantial portion of
these financial advisory fees are payable only upon completion of the merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
We have structured the merger so that the stockholders of FelCor and
Bristol should recognize no gain or loss in the merger except for cash paid to
Bristol stockholders instead of fractional shares. The distribution of the
common shares of the spin-off company will be a taxable dividend to Bristol
stockholders. Jenkens & Gilchrist, a Professional Corporation, has delivered its
opinion to FelCor and Jones, Day, Reavis & Pogue has delivered its opinion to
Bristol that (based upon certain assumptions and representations referred to
therein) the merger will be treated as a tax free reorganization except as to
the cash received in payment for fractional shares. Jones Day has also delivered
its opinion to Bristol that (based upon certain assumptions referred to therein)
the spin-off will be treated as a taxable dividend of Bristol's earnings and
profits to the stockholders of Bristol. Hunton & Williams has delivered its
opinion that FelCor has qualified as a REIT since its formation and that the
merger will not adversely affect FelCor's continued qualification as a REIT.
These opinions are based on tax laws in existence on the date such opinions were
delivered and other customary conditions and are not binding on the IRS.
Tax matters are very complicated. The tax consequences of the merger and
the spin-off to you will depend on the facts of your own situation. You should
consult your tax advisor for a full understanding of the tax consequences to you
of the merger and spin-off.
NO APPRAISAL RIGHTS
Under applicable law, neither FelCor nor Bristol stockholders have rights
to an appraisal of the value of their shares in connection with the merger or
the spin-off.
11
<PAGE> 13
COMPARATIVE MARKET PRICE INFORMATION; LISTING
The FelCor common stock and Bristol common stock are each listed on the New
York Stock Exchange. FelCor will also list the FelCor common shares to be issued
in the merger on that exchange. On March 23, 1998, the last full trading day
prior to the public announcement of the transaction, FelCor common shares closed
at $36 1/8 per share and Bristol common shares closed at $27 5/8 per share. On
June , 1998, FelCor common shares closed at $ per share and Bristol common
shares closed at $ per share. We encourage you to obtain current market
quotations.
DIFFERENCES IN STOCKHOLDERS' RIGHTS
The rights of Bristol stockholders differ from the rights of FelCor
stockholders in a number of ways. FelCor is incorporated under the laws of the
State of Maryland and Bristol is incorporated under the laws of the State of
Delaware, which have different laws with respect to the rights of stockholders.
In addition, FelCor's charter and bylaws include a number of provisions that are
typical for the organizational documents of REITs like FelCor but are not
typically found in the organizational documents of "C" corporations like
Bristol. Bristol stockholders, whose rights as stockholders currently are
governed by Delaware law, Bristol's charter and Bristol's bylaws, upon
completion of the merger, will become stockholders of FelCor, and their rights
as stockholders then will be governed by Maryland law, FelCor's charter and
FelCor's bylaws. Among the material differences in rights and limitations which
will become applicable to Bristol stockholders following the merger are:
- FelCor's charter prohibits any person from owning more than 9.9% of any
class of its capital stock;
- FelCor has issued and outstanding 6,107,500 preferred shares that have
rights as to distributions and upon liquidation that are senior to
holders of its common shares;
- FelCor's directors serve staggered terms of three years, which may
prevent or delay stockholders from changing a majority of FelCor's board;
- FelCor's charter requires a majority of FelCor's directors to meet
certain independence standards;
- FelCor's charter and bylaws do not contain certain anti-takeover
provisions that are currently applicable to Bristol stockholders,
including requirements that a majority of the Bristol common shares, as
compared to 10% of FelCor's common shares, will be required to call a
special meeting of stockholders and that a vote of 80% of the Bristol
common shares, as compared to a majority of the FelCor common shares,
will be required to remove a director.
THE SPIN-OFF
WHY BRISTOL IS EFFECTING THE SPIN-OFF
The spin-off is a condition to the proposed merger of Bristol into FelCor.
The spin-off will permit Bristol stockholders to continue to own an equity stake
in Bristol's hotel operating business, which FelCor is not permitted to own
under the special limitations that apply to REITs.
WHEN THE SPIN-OFF WILL OCCUR
If the merger is approved by the stockholders of both companies, the
spin-off will occur on the business day before the merger. Completion of the
spin-off is a condition to the merger. If the merger is not approved, the
spin-off will not occur.
WHAT BRISTOL AND FELCOR STOCKHOLDERS WILL RECEIVE IN THE SPIN-OFF
In the spin-off, Bristol stockholders will receive one common share of the
spin-off company for every two existing Bristol common shares held by them on
the date the spin-off occurs. FelCor stockholders will not receive any shares in
the spin-off company.
12
<PAGE> 14
FEDERAL INCOME TAX CONSEQUENCES OF THE SPIN-OFF
The spin-off of the common shares of the spin-off company to Bristol
stockholders will be taxable to Bristol and a taxable dividend to Bristol's
stockholders. The amount of that dividend is based on various factors but is
currently estimated to be between $5.00 and $7.00 per spin-off company common
share (or $2.50 to $3.50 per Bristol common share). The final amount may be
higher or lower and will be reported to Bristol stockholders as promptly as
practicable after the spin-off. The tax basis of a Bristol stockholder in the
spin-off company common shares will equal the amount of dividend income reported
for federal income tax purposes.
BUSINESS OF SPIN-OFF COMPANY
Following the spin-off, by continuing Bristol's current hotel operating
business, the spin-off company will be one of the leading hotel operating
companies in the U.S. and will operate more Holiday Hospitality branded hotels
than any other company. The spin-off company will lease from FelCor the Bristol
hotels included in the merger. The initial terms of these leases will be from
five to 15 years, with optional renewals of up to a total term of 15 years. The
spin-off company will operate primarily full-service hotels in the upscale and
midscale segments of the hotel market and expects to work together with FelCor
in the acquisition and leasing of additional hotels.
BOARD OF DIRECTORS, MANAGEMENT AND EMPLOYEES OF SPIN-OFF COMPANY
After the merger, the employees and management of Bristol will generally
become the employees and management of the spin-off company. The spin-off
company's board of directors will initially consist of eight directors, five of
whom are current Bristol directors. J. Peter Kline will become Chairman of the
Board and Chief Executive Officer and John A. Beckert will become President and
Chief Operating Officer of the spin-off company.
LISTING OF SPIN-OFF COMPANY'S COMMON STOCK
The common shares of the spin-off company have been approved for listing on
the New York Stock Exchange, subject to notice of their distribution.
STOCKHOLDER APPROVAL
Stockholder approval of the spin-off is not required under applicable law,
and no such approval is being sought.
ADDITIONAL INFORMATION ABOUT THE SPIN-OFF
An information statement related to the new spin-off company is being
furnished to Bristol stockholders together with this document. Bristol
stockholders are encouraged to review the information statement in its entirety.
13
<PAGE> 15
SELECTED CONSOLIDATED PRO FORMA AND HISTORICAL
FINANCIAL DATA OF FELCOR AND DJONT
The following tables set forth selected pro forma and historical operating
and financial data for FelCor and DJONT and selected combined historical
financial data for the FelCor Initial Hotels that were the predecessor to
FelCor. The selected historical financial data for FelCor and DJONT for the
three months ended March 31, 1998 has been derived from the historical financial
statements and the notes thereto of FelCor and DJONT included in FelCor's
Quarterly Report on Form 10-Q for the three months ended March 31, 1998. The
selected historical financial data for FelCor and DJONT for the years ended
December 31, 1997, 1996 and 1995 and the period from July 28, 1994 (inception of
operations) to December 31, 1994 has been derived from the historical financial
statements of FelCor and DJONT and the notes thereto, audited by Coopers &
Lybrand, L.L.P., independent accountants. The selected historical financial data
for FelCor and DJONT is qualified in its entirety by, and should be read in
conjunction with, the Consolidated Financial Statements and Notes of FelCor and
DJONT contained in FelCor's Annual Report on Form 10-K and 10-K/A for the year
ended December 31, 1997 and in FelCor's Quarterly Report on Form 10-Q for the
three months ended March 31, 1998, which are incorporated herein by reference.
The selected combined historical financial statements for the FelCor
Initial Hotels are presented for the year ended December 31, 1993 and the period
from January 1, 1994 to July 27, 1994 and represent the operations of the six
hotels acquired by FelCor upon completion of FelCor's initial public offering of
common stock in July 1994. The FelCor Initial Hotels data is derived by
combining the selected combined historical financial data of the E-5 Hotels for
periods prior to the acquisition of such hotels by a FelCor affiliate and the
selected combined historical financial data of a FelCor affiliate prior to the
FelCor initial public offering. The selected combined historical financial data
for the E-5 Hotels and the FelCor Hotels have been derived from the historical
financial statements and notes thereto, audited by Coopers & Lybrand L.L.P.,
independent accountants.
The FelCor selected pro forma operating and financial data set forth below
is qualified in its entirety, by, and should be read in conjunction with, the
unaudited pro forma financial statements of FelCor included elsewhere herein.
The pro forma financial information is not necessarily indicative of what the
actual financial position and results of operations of 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.
14
<PAGE> 16
FELCOR SUITE HOTELS, INC.
SELECTED PRO FORMA AND HISTORICAL OPERATING AND FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
(UNAUDITED) ----------------------------------------------
--------------------------- THREE MONTHS
THREE MONTHS ENDED
ENDED YEAR ENDED MARCH 31, YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, 1998 -------------------------------
1998 1997 (UNAUDITED) 1997 1996 1995
------------ ------------ ------------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUE
Percentage lease revenue......... $116,773 $441,768 $ 56,060 $169,114 $ 97,950 $ 23,787
Equity in income from
unconsolidated entities........ 1,847 8,788 1,293 6,963 2,010 513
Other revenue.................... 175 574 984 1,691
-------- -------- -------- -------- -------- ---------
TOTAL REVENUE..................... 118,620 450,556 57,528 176,651 100,944 25,991
-------- -------- -------- -------- -------- ---------
EXPENSES
General and administrative....... 1,449 5,163 1,199 3,743 1,819 870
Depreciation..................... 31,460 121,817 15,887 50,798 26,544 5,232
Taxes, insurance and other....... 18,139 68,206 7,270 23,093 13,897 2,563
Interest expense................. 27,988 110,838 9,731 28,792 9,803 2,004
Minority interest in FelCor
Operating Partnership.......... 1,693 6,147 1,751 5,817 5,590 3,131
Minority interest in other
partnerships................... 243 1,157 190 573
-------- -------- -------- -------- -------- ---------
TOTAL EXPENSES.................... 80,972 313,328 36,028 112,816 57,653 13,800
-------- -------- -------- -------- -------- ---------
INCOME BEFORE EXTRAORDINARY
CHARGE........................... 37,648 137,228 21,500 63,835 43,291 12,191
Extraordinary charge from write
off of deferred financing
fees........................... (556) (185) (2,354)
-------- -------- -------- -------- -------- ---------
NET INCOME........................ 37,684 137,228 20,944 63,650 40,937 12,191
Preferred dividends.............. 6,183 24,735 2,949 11,797 7,734
-------- -------- -------- -------- -------- ---------
NET INCOME APPLICABLE TO COMMON
STOCKHOLDERS..................... $ 31,465 $112,493 $ 17,995 $ 51,853 $ 33,203 $ 12,191
======== ======== ======== ======== ======== =========
BASIC EARNINGS PER SHARE(1)
Income applicable to common
stockholders before
extraordinary charge........... $ 0.46 $ 1.66 $ 0.51 $ 1.67 $ 1.54 $ 1.71
Extraordinary charge............. (0.02) (0.01) (0.10)
-------- -------- -------- -------- -------- ---------
Net income applicable to common
stockholders................... $ 0.46 $ 1.66 $ 0.49 $ 1.66 $ 1.44 $ 1.71
======== ======== ======== ======== ======== =========
Weighted average common shares
outstanding.................... 67,672 67,630 36,539 31,269 23,023 7,137
======== ======== ======== ======== ======== =========
DILUTED EARNINGS PER SHARE(1)
Income applicable to common
stockholders before
extraordinary charge........... $ 0.46 $ 1.64 $ 0.51 $ 1.65 $ 1.53 $ 1.69
Extraordinary charge............. (0.02) (0.01) (0.10)
-------- -------- -------- -------- -------- ---------
Net income....................... $ 0.46 $ 1.64 $ 0.49 $ 1.64 $ 1.43 $ 1.69
======== ======== ======== ======== ======== =========
Weighted average common shares
outstanding.................... 68,707 68,626 36,905 31,610 23,218 7,199
======== ======== ======== ======== ======== =========
<CAPTION>
HISTORICAL
-------------------------
PERIOD FROM JULY 28, 1994
(INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
-------------------------
<S> <C>
OPERATING DATA:
REVENUE
Percentage lease revenue......... $6,043
Equity in income from
unconsolidated entities........
Other revenue.................... 207
------
TOTAL REVENUE..................... 6,250
------
EXPENSES
General and administrative....... 355
Depreciation..................... 1,487
Taxes, insurance and other....... 881
Interest expense................. 109
Minority interest in FelCor
Operating Partnership.......... 907
Minority interest in other
partnerships...................
------
TOTAL EXPENSES.................... 3,739
------
INCOME BEFORE EXTRAORDINARY
CHARGE........................... 2,511
Extraordinary charge from write
off of deferred financing
fees...........................
------
NET INCOME........................ 2,511
Preferred dividends..............
------
NET INCOME APPLICABLE TO COMMON
STOCKHOLDERS..................... $2,511
======
BASIC EARNINGS PER SHARE(1)
Income applicable to common
stockholders before
extraordinary charge........... $ 0.54
Extraordinary charge.............
------
Net income applicable to common
stockholders................... $ 0.54
======
Weighted average common shares
outstanding.................... 4,690
======
DILUTED EARNINGS PER SHARE(1)
Income applicable to common
stockholders before
extraordinary charge........... $ 0.54
Extraordinary charge.............
------
Net income....................... $ 0.54
======
Weighted average common shares
outstanding.................... 4,690
======
</TABLE>
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<PAGE> 17
FELCOR SUITE HOTELS, INC.
SELECTED PRO FORMA AND HISTORICAL OPERATING AND FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
(UNAUDITED) ------------------------------------------------
--------------------------- THREE MONTHS
THREE MONTHS ENDED
ENDED YEAR ENDED MARCH 31, YEAR ENDED DECEMBER 31,
MARCH 31, DECEMBER 31, 1998 ---------------------------------
1998 1997 (UNAUDITED) 1997 1996 1995
------------ ------------ ------------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Cash dividends per common
share(2)....................... $ 0.55 $ 2.10 $ 0.55 $ 2.10 $ 1.92 $ 1.84
Funds From Operations(3)......... 70,232 262,795 41,685 129,815 77,141 20,707
Weighted average common share and
units outstanding(4)........... 76,428 76,351 44,575 39,157 29,306 8,989
EBITDA(5)........................ 113,295 379,016 63,929 153,496 86,583 22,203
Ratio of EBITDA to interest
paid........................... 4.1x 3.5x 6.9x 7.2x 9.4x 15.1x
Ratio of earnings to combined
fixed charges and preferred
stock dividends(6)............. 2.0x 1.9x 2.6x 2.4x 3.1x 8.6x
Cash provided by financing
activities..................... -- -- (7,744) 600,132 251,906 407,897
Cash provided by operating
activities..................... -- -- 33,177 97,478 67,494 17,003
Cash used in investing
activities..................... -- -- (17,243) (687,860) (478,428) (259,197)
BALANCE SHEET DATA:
Cash and short term
investments.................... $ 25,733 -- $ 25,733 $ 17,543 $ 7,793 $ 166,821
Investment in hotel properties,
net............................ 3,803,352 -- 1,514,639 1,489,764 899,691 325,155
Investment in unconsolidated
entities....................... 130,728 -- 118,069 132,991 59,867 13,819
Total assets..................... 4,024,486 -- 1,708,836 1,673,364 978,788 548,359
Debt and capital lease
obligations.................... 1,452,041 -- 494,700 476,819 239,425 19,666
Minority interest in FelCor
Operating Partnership.......... 92,153 -- 76,792 73,451 76,112 58,837
Shareholders' equity............. 2,354,059 -- 1,078,276 1,078,498 641,926 461,386
<CAPTION>
HISTORICAL
-------------------------
PERIOD FROM JULY 28, 1994
(INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1994
-------------------------
<S> <C>
OTHER DATA:
Cash dividends per common
share(2)....................... $ 0.66
Funds From Operations(3)......... 4,905
Weighted average common share and
units outstanding(4)........... 6,385
EBITDA(5)........................ 5,014
Ratio of EBITDA to interest
paid........................... --
Ratio of earnings to combined
fixed charges and preferred
stock dividends(6)............. 32.4x
Cash provided by financing
activities..................... 97,952
Cash provided by operating
activities..................... 3,959
Cash used in investing
activities..................... (100,793)
BALANCE SHEET DATA:
Cash and short term
investments.................... $ 1,118
Investment in hotel properties,
net............................ 104,800
Investment in unconsolidated
entities.......................
Total assets..................... 108,305
Debt and capital lease
obligations.................... 8,750
Minority interest in FelCor
Operating Partnership.......... 25,685
Shareholders' equity............. 69,255
</TABLE>
- - ---------------
(1) In 1997, FelCor adopted Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" which established new standards for computing and
presenting earnings per share. Earnings per share for all periods presented
have been calculated according to this standard. Basic earnings per share
have been computed by dividing net income applicable to common shares by the
weighted average number of common shares outstanding. Diluted earnings per
share have been computed by dividing net income applicable to common shares
by the weighted average number of common shares and equivalents outstanding.
Common share and unit equivalents that have a dilutive effect represent
stock options issued to officers and key employees and unvested restricted
stock grants issued to certain officers of FelCor.
(2) Pro forma cash dividends per common share do not include a one-time
distribution of accumulated earnings and profits.
(3) The White Paper on Funds From Operations approved in March 1995 by the Board
of Governors of NAREIT, the National Association of Real Estate Investment
Trusts, defines Funds From Operations as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after comparable adjustments for FelCor's portion of these
items related to unconsolidated entities and joint ventures. FelCor believes
that Funds From Operations is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flow from operating
activities, financing activities and investing activities, it provides
investors with an indication of the ability of FelCor to incur and service
debt, to make capital expenditures and to fund other cash needs. FelCor
computes Funds From Operations in accordance with standards established by
NAREIT which may not be comparable to Funds From Operations reported by
other REITs that do not define the term in accordance with the
16
<PAGE> 18
FELCOR SUITE HOTELS, INC.
SELECTED PRO FORMA AND HISTORICAL OPERATING AND FINANCIAL DATA -- (CONTINUED)
current NAREIT definition or that interpret the current NAREIT definition
differently than FelCor. Funds From Operations does not represent cash
generated from operating activities determined by GAAP and should not be
considered as an alternative to net income (determined in accordance with
GAAP) as an indication of FelCor's financial performance or to cash flow
from operating activities (determined in accordance with GAAP) as a measure
of FelCor's liquidity, nor is it indicative of funds available to fund
FelCor's cash needs, including its ability to make cash distributions. Funds
From Operations may include funds that may not be available for management's
discretionary use due to functional requirements to conserve funds for
capital expenditures and property acquisitions, and other commitments and
uncertainties.
The following is a reconciliation of net income to Funds From Operations:
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------------
PRO FORMA PERIOD FROM
(UNAUDITED) JULY 28, 1994
--------------------------- THREE MONTHS (INCEPTION OF
THREE MONTHS ENDED OPERATIONS)
ENDED YEAR ENDED MARCH 31, YEAR ENDED DECEMBER 31, THROUGH
MARCH 31, DECEMBER 31, 1998 ---------------------------- DECEMBER 31,
1998 1997 (UNAUDITED) 1997 1996 1995 1994
------------ ------------ ------------ -------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income.............. $37,648 $137,228 $20,944 $ 63,650 $40,937 $12,191 $2,511
Less: Dividends on
nonconvertible
preferred shares...... (3,234) (12,938)
Add:
Minority interest in
FelCor Operating
Partnership........... 1,693 6,147 1,751 5,817 5,590 3,131 907
Depreciation............ 31,460 121,817 15,887 50,798 26,544 5,232 1,487
Depreciation from
unconsolidated
entities.............. 2,665 10,541 2,547 9,365 1,716 153
Extraordinary charge
from write off of
deferred financing
fees.................. 556 185 2,354
------- -------- ------- -------- ------- ------- ------
Funds From Operations
(FFO)................. $70,232 $262,795 $41,685 $129,815 $77,141 $20,707 $4,905
======= ======== ======= ======== ======= ======= ======
</TABLE>
(4) Weighted average common shares and units are computed including dilutive
options, unvested restricted stock grants and assuming conversion of
convertible preferred stock to common stock.
(5) EBITDA is computed by adding net income, minority interest in the FelCor
Operating Partnership, interest expense, FelCor's portion of interest
expense from unconsolidated entities, income taxes, depreciation expense,
amortization expense, extraordinary expenses and cash distributions paid by
17
<PAGE> 19
FELCOR SUITE HOTELS, INC.
SELECTED PRO FORMA AND HISTORICAL OPERATING AND FINANCIAL DATA -- (CONTINUED)
unconsolidated entities and deducting extraordinary income and equity in
income from unconsolidated entities. A reconciliation of Funds From
Operations to EBITDA is as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------------
PRO FORMA PERIOD FROM
(UNAUDITED) JULY 28, 1994
--------------------------- THREE MONTHS (INCEPTION OF
THREE MONTHS ENDED OPERATIONS)
ENDED YEAR ENDED MARCH 31, YEAR ENDED DECEMBER 31, THROUGH
MARCH 31, DECEMBER 31, 1998 ---------------------------- DECEMBER 31,
1998 1997 (UNAUDITED) 1997 1996 1995 1994
------------ ------------ ------------ -------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Funds From Operations... $ 70,232 $262,795 $41,685 $129,815 $77,141 $20,707 $4,905
Add back:
Interest expense.... 27,988 110,838 9,731 28,792 9,803 2,004 109
Interest expense
from
unconsolidated
entities.......... 1,629 6,453 1,629 5,896 819
Amortization
expense........... 214 1,110 214 1,110 592 158
Cash distributions
from
unconsolidated
entities.......... 14,510 4,211 14,510 4,211 1,954
Dividends on
nonconvertible
preferred
shares............ 3,234 12,938
Deduct:
Equity in income
from
unconsolidated
entities.......... (1,847) (8,788) (1,293) (6,963) (2,010) (513)
Depreciation from
unconsolidated
entities.......... (2,665) (10,541) (2,547) (9,365) (1,716) (153)
-------- -------- ------- -------- ------- ------- ------
EBITDA.................. $113,295 $379,016 $63,929 $153,496 $86,583 $22,203 $5,014
======== ======== ======= ======== ======= ======= ======
</TABLE>
(6) For purpose of computing the ratio of earnings to combined fixed charges and
preferred dividends, earnings consist of net income plus fixed charges and
minority interest in the FelCor Operating Partnership, excluding capitalized
interest, and fixed charges consist of interest, whether expensed or
capitalized, and amortization of loan costs.
18
<PAGE> 20
FELCOR INITIAL HOTELS
SELECTED COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 1, 1994 COMBINED E-5 HOTELS FELCOR HOTELS
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED
JULY 27, 1994 DECEMBER 31, 1993 DECEMBER 31, 1993 DECEMBER 31, 1993
--------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Suite revenue.............. $21,884 $33,550 $15,684 $17,866
Other revenue.............. 1,307 2,002 910 1,092
------- ------- ------- -------
Total revenue.... 23,191 35,552 16,594 18,958
Hotel expenses............. 15,238 22,048 10,006 12,042
Depreciation............... 2,325 4,092 2,331 1,761
Interest expense........... 3,446 5,437 2,615 2,822
Other corporate expenses... 620 3,260 1,670 1,590
------- ------- ------- -------
Net income....... $ 1,562 $ 715 $ (28) $ 743
======= ======= ======= =======
</TABLE>
DJONT OPERATIONS, L.L.C.
SELECTED HISTORICAL OPERATING AND FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994
MARCH 31, 1998 ----------------------------- (INCEPTION OF OPERATIONS)
(UNAUDITED) 1997 1996 1995 THROUGH DECEMBER 31, 1994
-------------- -------- -------- ------- -------------------------
<S> <C> <C> <C> <C> <C>
Suite/room revenue......... $143,284 $456,614 $234,451 $65,649 $16,094
Food and beverage rent..... 1,173 4,393 2,334 534 61
Food and beverage
revenue.................. 15,264 34,813 15,119 2,462 1,112
Other revenue.............. 11,368 38,690 17,340 3,924 1,020
-------- -------- -------- ------- -------
Total revenue.... 171,089 534,510 269,244 72,569 18,287
Hotel expenses............. 38,605 128,077 66,236 18,455 4,699
Operating expenses......... 62,912 189,783 98,727 26,575 7,330
Percentage lease
expenses................. 68,438 216,990 107,935 26,945 6,043
Lessee overhead expense.... 359 2,332 1,776 834 106
-------- -------- -------- ------- -------
Net income
(loss)......... $ 775 $ (2,672) $ (5,430) $ (240) $ 109
======== ======== ======== ======= =======
</TABLE>
19
<PAGE> 21
SELECTED CONSOLIDATED HISTORICAL
FINANCIAL DATA OF BRISTOL
The following tables set forth selected historical financial data for
Bristol for the three months ended March 31, 1998, the years ended December 31,
1997 and 1996, and the 11 months ended December 31, 1995 and for Bristol's
predecessor, a group of entities referred to as the "Harvey Hotel Companies",
for the two years ended December 31, 1994 and 1993, and for the month ended
January 31, 1995. The selected balance sheet data for Bristol is presented as of
March 31, 1998, December 31, 1997, 1996 and 1995. The selected balance sheet
data for the Harvey Hotel Companies is presented as of December 31, 1994 and
1993.
The selected financial data for Bristol set forth below is qualified in its
entirety by, and should be read in conjunction with, the consolidated financial
statements and notes thereto for Bristol included in Bristol's Annual Report on
Form 10-K/A as amended for the year ended December 31, 1997 and Bristol's Form
10-Q for the three months ended March 31, 1998, which is incorporated herein by
reference.
The selected financial data for the Harvey Hotel Companies has been derived
from financial statements audited by Price Waterhouse LLP, independent
accountants, each of which financial statements is included or incorporated by
reference herein. The selected financial data for the Harvey Hotel Companies set
forth below is qualified in its entirety by, and should be read in conjunction
with, the financial statements and notes thereto included in the Bristol 1997
10-K/A as amended, which is incorporated herein by reference.
20
<PAGE> 22
BRISTOL HOTEL COMPANY
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ELEVEN MONTHS
ENDED ENDED
MARCH 31, YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------- ----------------------- -------------
1998 1997 1996 1995
-------------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
OPERATING DATA:
REVENUE:
Rooms..................................... $ 120,372 $377,380 $149,794 $115,771
Food, beverage and other.................. 38,430 127,138 62,046 49,424
---------- -------- -------- --------
Total revenue..................... 158,802 504,518 211,840 165,195
OPERATING COSTS AND EXPENSES:
Departmental expenses:
Rooms.................................. 33,424 105,063 37,706 32,692
Food, beverage and other............... 23,694 79,092 35,810 31,376
Undistributed operating expenses:
Administration and general,
marketing............................ 27,117 78,694 33,821 28,254
Property operating costs............... 24,474 79,633 28,402 24,738
Depreciation and amortization.......... 12,906 39,690 18,377 13,505
Corporate expense...................... 6,290 24,450 10,958 8,035
---------- -------- -------- --------
Operating income.................. 30,897 97,896 46,766 26,595
---------- -------- -------- --------
Other expenses:
Interest expense....................... 12,513 44,591 18,616 18,374
Other non-operating expenses........... -- -- -- 430
Equity in income of joint ventures..... (554) (1,916) -- --
Income taxes........................... 7,576 22,007 10,401 2,822
---------- -------- -------- --------
Income before extraordinary item............ 11,362 33,214 17,749 4,969
Extraordinary loss on early extinguishment
of debt, net of income taxes.............. -- 12,741 -- 1,908
---------- -------- -------- --------
Net income.................................. $ 11,362 $ 20,473 $ 17,749 $ 3,061
========== ======== ======== ========
Diluted earnings per common and common
equivalent share:
Income before extraordinary item.......... $ 0.26 $ 0.87 $ 0.70 $ 0.28
Net income................................ $ 0.26 $ 0.53 $ 0.70 $ 0.17
Weighted average number of common and common
equivalent shares outstanding -- diluted
(in thousands)............................ 44,535 38,332 25,526 17,909
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------------------
1998 1997 1996 1995
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 79,649 $ 86,167 $ 4,666 $ 7,906
Property and equipment -- net................. 1,468,407 1,439,167 552,564 470,705
Total assets.................................. 1,693,167 1,666,638 592,788 512,901
Long-term debt including current portion...... 714,890 717,319 232,694 170,544
Stockholders' equity.......................... 661,873 648,794 252,157 236,122
</TABLE>
21
<PAGE> 23
HARVEY HOTEL COMPANIES (PREDECESSOR)
SELECTED HISTORICAL COMBINED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
MONTH ENDED ------------------
JANUARY 31, 1995 1994 1993
---------------- ------- -------
<S> <C> <C> <C>
OPERATING DATA:
REVENUE:
Rooms.................................................. $4,006 $44,972 $39,968
Food, beverage and other............................... 1,937 25,379 24,054
------ ------- -------
Total revenue.......................................... 5,943 70,351 64,022
------ ------- -------
OPERATING COSTS AND EXPENSES:
Departmental expenses:
Rooms.................................................. 1,124 10,344 9,469
Food, beverage and other............................... 1,055 14,835 14,600
Undistributed operating expenses:
Administrative and general, marketing.................. 579 11,369 10,285
Property operating costs............................... 629 10,563 10,086
Depreciation........................................... 309 4,041 3,963
Corporate expense...................................... 315 3,761 2,827
------ ------- -------
Operating income............................... 1,932 15,438 12,792
------ ------- -------
Other (income) expenses:
Interest expense, net.................................. 652 7,631 7,737
Other non-operating income............................. -- (337) (241)
------ ------- -------
Income before extraordinary item......................... $1,280 $ 8,144 $ 5,296
====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1993
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 4,118 $ 395
Property and equipment, net................................. 80,635 72,387
Total assets................................................ 109,874 99,635
Long-term debt, including current portion................... 114,054 112,963
Equity...................................................... (11,988) (20,604)
</TABLE>
22
<PAGE> 24
SELECTED COMPARATIVE PER SHARE DATA
The following table sets forth selected historical per share data for
FelCor and Bristol, selected unaudited pro forma per share data for FelCor
giving effect to the merger using the purchase method of accounting and the
equivalent pro forma per share amounts for Bristol. The pro forma data is not
necessarily indicative of actual financial position or future operating results
or that which would have occurred or will occur upon consummation of the merger.
The information shown below should be read in conjunction with (i) the
consolidated financial statements and notes thereto incorporated herein by
reference and (ii) the selected pro forma financial data included elsewhere in
this Joint Proxy Statement/Prospectus.
Unless otherwise indicated, all references to the number of shares and per
share amounts for Bristol have been restated to reflect the impact of the
3-for-2 stock split on the Bristol common shares effected in the form of a stock
dividend distributed on June 30, 1997.
COMPARATIVE PER SHARE INFORMATION
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31, 1998
------------------------------------------------------
BRISTOL
FELCOR BRISTOL FELCOR PRO FORMA
HISTORICAL HISTORICAL PRO FORMA(1) EQUIVALENT(2)
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Basic net income per common share before
extraordinary items.............................. $ .51 $ .26 $ .46 $ .32
Diluted net income per common share before
extraordinary items.............................. .51 .26 .46 .32
Cash distributions per common share................ .55 -- .55 .38
Book value per common share........................ 25.33(3) 15.11(3) 30.40(3) 20.82
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
------------------------------------------------------
BRISTOL
FELCOR BRISTOL FELCOR PRO FORMA
HISTORICAL HISTORICAL PRO FORMA(1) EQUIVALENT(2)
---------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Basic net income per common share before
extraordinary items.............................. $ 1.67 $ .89 $ 1.66 $ 1.14
Diluted net income per common share before
extraordinary items.............................. 1.65 .87 1.64 1.12
Cash distributions per common share................ 2.10 -- 2.10 1.44
Book value per common share........................ 25.33(3) 14.87(3) -- --
</TABLE>
- - ---------------
(1) The pro forma per share data for FelCor is presented as if the merger and
the transactions contemplated thereby, and certain other recent transactions
(which include the transactions described in "Pro Forma Financial
Information") had occurred as of January 1, 1997.
(2) The equivalent per share amounts of Bristol are calculated by multiplying
pro forma net income per FelCor common share, pro forma cash
distributions/dividends per FelCor common share and pro forma book value per
FelCor common share (post-merger) by the exchange ratio of 0.685.
(3) Book value per common share was calculated using stockholders' equity as
reflected in the historical and pro forma financial statements divided by
the number of FelCor or Bristol common shares outstanding.
DISTRIBUTION POLICIES
FelCor has adopted a policy of paying regular quarterly distributions on
FelCor common shares and has paid cash distributions on FelCor common shares
each quarter since its inception. In order to qualify for the tax benefits
accorded to REITs under the Internal Revenue Code of 1986, FelCor must make
annual distributions of at least 95% of its taxable income (which does not
include net capital gains). See "Federal Income Tax Considerations."
FelCor currently anticipates that it will maintain at least the current
dividend rate for the immediate future, unless actual results of operations,
economic conditions or other factors differ from its current
23
<PAGE> 25
expectations. Future distributions, if any, paid by FelCor will be at the
discretion of FelCor's Board of Directors and will depend on the actual cash
flow of FelCor, its financial condition, capital requirements, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the FelCor Board deems relevant. FelCor expects to make a special
cash distribution before the end of 1998 in an amount sufficient to eliminate
Bristol's accumulated earnings and profits at the time of the merger. See
"Federal Income Tax Considerations -- Qualification and Operation of FelCor as a
REIT; Ownership and Disposition of FelCor Common Shares -- Distribution
Requirements."
The provisions of the FelCor Series A and Series B preferred shares
prohibit the declaration and payment of distributions on FelCor common shares
unless full cumulative dividends on the FelCor Series A and Series B preferred
shares have been or contemporaneously are declared and paid or set aside for
payment. The annual dividend rate for the FelCor Series A preferred shares is a
minimum of $1.95 per share. The annual dividend rate for the depositary shares
representing the FelCor Series B preferred shares is $2.25 per depositary share.
All preferred dividends on the FelCor Series A and Series B preferred shares are
current. In addition, the terms of FelCor's debt instruments further restrict
FelCor's ability to make distributions with respect to its capital stock,
although FelCor generally is permitted to make distributions in amounts
necessary to maintain its status as a REIT.
Bristol has not paid any cash dividends on the Bristol common shares since
its inception in December 1995 and does not anticipate that it will do so in the
foreseeable future. Instruments governing certain of Bristol's indebtedness
restrict the payment of dividends on its common shares.
COMPARATIVE MARKET DATA
FelCor's common shares and Bristol's common shares are listed on the New
York Stock Exchange. FelCor common shares trade under the ticker symbol "FCH",
and Bristol common shares trade under the ticker symbol "BH". Prior to March 13,
1996, FelCor common shares traded on The Nasdaq Stock Market under the ticker
symbol "FLCO".
The following table sets forth the quarterly high and low closing sales
prices of FelCor common shares and Bristol common shares, as well as the
quarterly distributions declared per share with respect to FelCor common shares,
for the periods indicated below. Bristol has not paid any dividends on Bristol
common shares since Bristol's initial public offering in December 1995.
<TABLE>
<CAPTION>
BRISTOL COMMON
FELCOR COMMON SHARES SHARES
----------------------------------------- ----------------------
DISTRIBUTIONS
HIGH LOW PER SHARE HIGH(1) LOW(1)
---- --- ------------- ------- ------
<S> <C> <C> <C> <C> <C>
1996
First Quarter........................... $32 $27 1/8 $0.46 $19 1/12 $16 1/4
Second Quarter.......................... 31 5/8 28 1/2 0.46 21 2/3 18 1/4
Third Quarter........................... 32 1/2 27 3/4 0.50 21 5/12 17 1/2
Fourth Quarter.......................... 36 3/4 30 3/8 0.50 21 1/6 16 2/3
1997
First Quarter........................... $37 1/2 $33 1/2 $0.50 $29 2/3 $21 1/12
Second Quarter.......................... 37 3/4 34 1/2 0.50 28 11/12 24 1/12
Third Quarter........................... 41 1/2 36 0.55 28 1/4 25 1/2
Fourth Quarter.......................... 42 7/8 34 15/16 0.55 29 3/4 23 15/16
1998
First Quarter........................... $39 1/2 $34 9/16 $0.55 $28 1/2 $24 1/2
Second Quarter (through June ,
1998)................................
</TABLE>
- - ---------------
(1) As adjusted for a three-for-two stock split in the form of a stock dividend
distribution effective June 30, 1997.
24
<PAGE> 26
On March 23, 1998, the last full trading day prior to the public
announcement of the merger, FelCor common shares closed at $36 1/8 per share and
Bristol common shares closed at $27 5/8 per share.
BECAUSE THE 0.685 RATIO AT WHICH BRISTOL COMMON SHARES ARE EXCHANGED INTO
FELCOR COMMON SHARES AS A RESULT OF THE MERGER IS FIXED AND THE MARKET PRICE OF
FELCOR COMMON SHARES IS SUBJECT TO FLUCTUATION, THE MARKET VALUE OF FELCOR
COMMON SHARES THAT BRISTOL STOCKHOLDERS WILL RECEIVE IN THE MERGER MAY INCREASE
OR DECREASE PRIOR TO AND FOLLOWING THE MERGER. STOCKHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR FELCOR COMMON SHARES AND BRISTOL COMMON SHARES.
25
<PAGE> 27
RISK FACTORS
You should carefully consider the following risk factors, together with the
other information provided, before voting on the proposed merger. Each of these
risk factors could adversely affect the value of an investment in FelCor's
common shares.
FIXED EXCHANGE RATIO AND VARIABLE MERGER CONSIDERATION
Upon completion of the merger, each share of Bristol will be converted into
0.685 FelCor common shares. This exchange ratio is fixed and will not adjust to
reflect changes in the relative values of FelCor and Bristol stock. These
changes in relative value could occur due to changes in the business, operations
or prospects of either of the companies or other factors. In addition, the
trading prices of FelCor common shares will vary and, accordingly, the value of
the merger consideration will fluctuate with such changes in trading prices and
may differ between the date of this Joint Proxy/Prospectus, the date of the
annual meetings, and the effective time of the merger. The following table
illustrates how the implied value of the merger consideration will fluctuate
based on changes in the trading prices of FelCor common shares.
<TABLE>
<CAPTION>
IMPLIED VALUE PER IMPLIED AGGREGATE
BRISTOL COMMON SHARE VALUE OF FELCOR
OF COMMON
ASSUMED FELCOR FELCOR COMMON SHARES SHARES ISSUED IN
COMMON SHARE PRICE ISSUED IN MERGER(1) MERGER(2)
- - ------------------ -------------------------- -------------------
<S> <C> <C>
$40 $27.40 $1,245 million
35 23.98 1,090 million
30 20.55 934 million
28 19.18 872 million
</TABLE>
- - ---------------
(1) Value determined by multiplying FelCor common share price by the exchange
ratio of 0.685.
(2) Value determined by multiplying FelCor common share price by 31,133,000
shares, which is the approximate number of FelCor common shares that will be
issued to Bristol stockholders in the merger.
As of June , 1998, the last trading day prior to the date of this Joint
Proxy Statement/Prospectus, the reported closing per share price of FelCor
common shares on the NYSE was $ , making the implied value per Bristol
common share of the FelCor common shares to be issued in the merger $ and
the aggregate implied value of the FelCor common shares to be issued in the
merger $ million.
INABILITY TO INTEGRATE BRISTOL'S ASSETS OR REALIZE ANTICIPATED BENEFITS OF
MERGER
If the proposed merger is completed, it will more than double the number of
hotels owned by FelCor. Although the newly acquired hotels will be operated by
the spin-off company under long-term leases, FelCor will be required to
integrate these hotels into its hotel portfolio and may need additional people
and resources to handle the increased work load. If FelCor is unable to
successfully integrate the newly acquired hotels into its portfolio, FelCor's
business, financial condition and results of operations could suffer. A large
number of the Bristol hotels to be acquired by FelCor in the merger are in the
process of, or awaiting, substantial renovation, modernization and
repositioning. The exchange ratio was established, in part, based upon the
anticipated effects of such renovations, modernization and repositioning plans.
If the implementation of these plans do not yield the anticipated results, then
FelCor may have paid too much or too little for the Bristol hotels.
INCREASES IN LEVERAGE AND FLOATING RATE DEBT; INABILITY TO RETAIN EARNINGS OR
REFINANCE DEBT
Bristol is more highly leveraged than FelCor, which will result in an
increase in FelCor's leverage following the merger. At March 31, 1998, FelCor
had approximately $495 million in indebtedness and a debt to total market
capitalization of 23%. At March 31, 1998, on a pro forma basis (assuming that
the merger, acquisitions and related transactions had been completed), FelCor
would have had outstanding indebtedness of $1.5 billion, 46.3% of which would
have been secured, and a debt to total market capitalization of 33%.
26
<PAGE> 28
FelCor's historical and pro forma ratio of EBITDA to interest paid for the three
months ended March 31, 1998 was 6.9 to 1.0 and 4.1 to 1.0, respectively. At
March 31, 1998, FelCor had $103.7 million in indebtedness, or 20.9% of all
FelCor indebtedness, that provided for the payment of interest at floating
rates. Of FelCor's pro forma indebtedness at March 31, 1998, $860.9 million (or
59.3%) provided for the payment of interest at floating rates. Most of this
floating rate debt bears interest at a rate equal to between 0.45% and 1.75%
plus the 30-day LIBOR rate. At March 31, 1998, LIBOR was 5.56%. Changes in
economic conditions could result in higher interest rates, thereby increasing
FelCor's interest expense on its floating rate debt and reducing funds available
for distribution to FelCor's stockholders.
In order to qualify as a REIT, FelCor must distribute to its stockholders,
annually, at least 95% of its net taxable income (excluding capital gains) and,
accordingly, cannot retain any substantial portion of its earnings to meet its
capital needs. After the merger, FelCor anticipates refinancing a substantial
portion of Bristol's long-term debt. However, the capital markets are volatile,
and there can be no assurance that FelCor will be successful in refinancing
Bristol's debt. Because of cross-default provisions in certain of FelCor's loan
agreements, a default in outstanding debt of more than $10 million could result
in the acceleration of most of FelCor's consolidated indebtedness. FelCor may be
unable to refinance or repay this indebtedness in full under these
circumstances.
DEPENDENCE ON LESSEES' HOTEL OPERATIONS
FelCor's revenues currently and in the future will consist primarily of
rents received under its leases. The lessees' payment of such rental obligations
is generally unsecured. As the lessee of the hotels being acquired by FelCor in
the merger, the spin-off company will initially have a net worth of $30 million
and will be obligated to maintain certain net worth and liquidity requirements.
DJONT Operations, L.L.C., which leases FelCor's current hotels, has limited
assets, derives its revenue solely from the operation of FelCor's hotels and, at
March 31, 1998, had a stockholders' deficit of approximately $8.3 million.
However, DJONT or its subsidiaries have the right to borrow, on a subordinated
basis and subject to certain limitations, up to an aggregate of $17.0 million to
meet its rental obligations from FelCor, Inc., Promus Hotels, Inc., Doubletree
Hotel Corporation, Lee & Urbahns, L.P. and ITT Sheraton Corporation, which are
equity owners and/or managers of hotels leased by it. FelCor will be
substantially dependent upon the operations of its hotels to enable the lessees
(particularly DJONT) to meet their rental obligations under the leases.
The leases with DJONT and the spin-off company have varying terms,
generally no longer than 15 years. At the expiration of the lease terms, FelCor
will be required to negotiate renewals or seek replacement leases, which could
adversely affect its results of operations.
CONFLICTS OF INTEREST
CERTAIN FELCOR DIRECTORS. DJONT currently leases all of FelCor's current
hotels, either directly or through subsidiaries. All of the voting interests
(and a 50% equity interest) in DJONT are beneficially owned by Hervey A. Feldman
and Thomas J. Corcoran, Jr. All of the non-voting interests (and the remaining
50% equity interest) in DJONT are beneficially owned by the children of Charles
N. Mathewson. Mr. Feldman is a co-founder and the current Chairman of the Board
of FelCor. He plans to retire from the board and become Chairman Emeritus
following the 1998 annual meeting of stockholders. Mr. Corcoran is a co-founder
and the President and Chief Executive Officer of FelCor and, together with Mr.
Mathewson, will continue to serve as a director of FelCor following the merger.
All of the Bristol hotels to be acquired by FelCor in the merger will be
leased to the spin-off company. It is not anticipated that any person who is an
officer or director of the spin-off company will also be an officer or director
of FelCor. However, Donald J. McNamara, who will become the Chairman of the
Board of FelCor following the merger, is a principal in a firm that controls the
general partner of United/Harvey Holdings, L.P., which will beneficially own
approximately 40.6% of the stock of the spin-off company and approximately 13.3%
of the FelCor common shares. In addition, Michael D. Rose and Richard C. North
are expected to join FelCor's Board. Mr. Rose is a director of Promus Hotel
Corporation. Mr. North is the Group Finance Director of the parent of Holiday
Hospitality Franchising, Inc. Promus is, and will continue to be, the franchisor
and manager of most of FelCor's current hotels. Holiday Hospitality will be the
franchisor of
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most of the Bristol hotels to be acquired by FelCor in the merger and, together
with its affiliates, will own approximately 9.9% of the stock of the spin-off
company and approximately 13.3% of the FelCor common shares.
Issues may arise under these leases, franchise agreements and management
contracts, and in the allocation of acquisition and leasing opportunities, that
present conflicts of interest due to the affiliations of these directors. As an
example, any decreases in lease rental rates payable by DJONT may increase the
profits of DJONT, in which Messrs. Feldman and Corcoran and Mr. Mathewson's
children have a direct economic interest, at the expense of FelCor and its
stockholders. Following the merger, in the event FelCor enters into new or
additional hotel leases or other transactions with the spin-off company, the
interests of Mr. McNamara and Mr. North, as affiliates of significant investors
in the spin-off company, may conflict with the interests of FelCor and its
stockholders. For example, any decrease in lease rental rates payable by the
spin-off company may decrease FelCor's profits to the benefit of the spin-off
company. Also, in the selection of franchises under which FelCor's hotels will
be operated, Mr. Rose and Mr. North, as affiliates of Promus Hotel Corporation
and Holiday Hospitality Franchising, Inc., respectively, which are hotel
franchising companies, may have interests which conflict with those of FelCor
and its stockholders. It is anticipated that any director who has a conflict of
interest with respect to an issue presented to the FelCor Board will abstain
from voting upon that issue although he will have no legal obligation to do so.
FelCor has no provisions in its bylaws or charter that require an interested
director to abstain from voting upon an issue, although each director will have
a fiduciary duty of loyalty to FelCor. There is a risk that, should an
interested director vote upon an issue in which he or one of his affiliates has
an interest, his vote may reflect a bias which could be contrary to the best
interests of FelCor. In addition, even if an interested director abstains in the
actual vote, the director's participation in the meeting and discussion of an
issue in which he or his affiliates have an interest could influence the votes
other directors in respect of the matter.
NO ARMS-LENGTH BARGAINING ON PERCENTAGE LEASES. The terms of the leases
between FelCor and DJONT were not negotiated on an arms-length basis.
Accordingly, these percentage leases may not reflect fair market values or
terms. However, the management of FelCor believes that the terms of these leases
are fair to FelCor. The rental terms of these leases are set based upon
historical financial information and projected operating performance of the
applicable hotel. The other terms of the leases are typical of the provisions
found in other leases entered into in similar circumstances. The leases have
been approved by a majority of the directors of FelCor who are not officers or
employees of FelCor, DJONT or affiliates of either of them.
ADVERSE TAX CONSEQUENCES TO CERTAIN AFFILIATES ON A SALE OF CERTAIN
HOTELS. Messrs. Feldman, Corcoran and Mathewson may have additional tax
liability if FelCor sells its investments in six hotels acquired by FelCor in
July 1994 from partnerships controlled by these individuals. Consequently, the
interests of FelCor and of Messrs. Feldman, Corcoran and Mathewson could be
different in the event that FelCor decided to consider a sale of any of these
hotels. Decisions regarding a sale of any of these six hotels must be made by a
majority of the directors of FelCor who are not officers or employees of FelCor,
DJONT or affiliates of either of them.
RESTRICTIVE DEBT COVENANTS
At March 31, 1998, FelCor's unsecured bank line of credit provided for
borrowings of up to $550 million, of which FelCor had borrowed $153 million.
FelCor also had issued and outstanding $300 million in principal amount of
senior notes at March 31, 1998. The agreements governing FelCor's line of credit
and senior notes contain various restrictive covenants, including, among others,
provisions restricting FelCor from incurring indebtedness, making investments,
engaging in transactions with stockholders and affiliates, incurring liens,
merging or consolidating with another person, disposing of all or substantially
all of its assets or permitting limitations on its subsidiaries with respect to
the payment of dividends or other amounts to FelCor. In addition, these
agreements require FelCor to maintain certain specified financial ratios. Under
the most restrictive of these provisions, FelCor's maximum additional pro forma
indebtedness that could be incurred for the acquisition of hotel properties
would have been limited to approximately $270 million at March 31, 1998. These
covenants also may restrict FelCor's ability to engage in certain transactions.
In addition, any breach
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of these limitations could result in the acceleration of most of FelCor's
outstanding indebtedness. FelCor may not be able to refinance or repay this
indebtedness in full under such circumstances.
MATTERS THAT MAY ADVERSELY AFFECT THE HOTEL INDUSTRY
FEWER GROWTH OPPORTUNITIES. There has been substantial consolidation in,
and capital allocated to, the U.S. lodging industry since the early 1990s. This
has generally resulted in higher prices for hotels and fewer attractive
acquisition opportunities. An important part of FelCor's growth strategy is the
acquisition and, in many instances, the renovation and repositioning of hotels
at less than replacement cost. Continued industry consolidation and competition
for acquisitions could adversely affect FelCor's growth prospects. FelCor
competes for hotel investment opportunities with other companies, some of which
have greater financial or other resources. Certain competitors may be able to
pay higher prices or assume greater risks than would be appropriate for FelCor.
POTENTIAL ADVERSE EFFECTS ON HOTEL OPERATIONS. The hotels owned by FelCor
are subject to all of the risks common to the hotel industry. These risks could
adversely affect hotel occupancy and the rates that can be charged for hotel
rooms, and generally include:
- The existence of competition from other hotels;
- The construction of more hotel rooms in a particular area than needed to
meet demand;
- The increase in energy costs and other travel expenses that reduce
business and leisure travel;
- The adverse effects of declines in general and local economic activity;
and
- The risks generally associated with the ownership of hotels and real
estate, as discussed in the following four paragraphs and under
"-- Matters That May Adversely Affect Real Estate Ownership."
In addition, annual adjustments (based on changes in the Consumer Price Index)
are made to the base rent and the thresholds used to compute percentage rent
under FelCor's percentage leases. These adjustments, unless offset by increases
in hotel revenues, would reduce the amount of rent payable to FelCor under its
percentage leases and, consequently, FelCor's results of operations.
COMPETITION. Each of FelCor's hotels competes with other hotels in its
geographic area. A number of additional hotel rooms have been or may be built in
a number of the geographic areas in which FelCor's hotels are located, which
could adversely affect the results of operations of these hotels. According to
Smith Travel Research, total hotel room supply in the United States increased by
3.4%, or approximately 116,000 rooms, from 1996 to 1997. This is compared to an
average annual increase in hotel room supply in the United States of 1.1% from
1991 to 1996. Management believes that most of the increase in United States
hotel room supply has been in the limited service or extended stay segments of
the hotel industry which, following the merger, will include approximately 6.7%
of FelCor's suites/rooms. It is possible that a significant increase in the
supply of midscale and upscale hotel suites/rooms could occur which, if demand
fails to increase proportionately, could have an adverse effect on FelCor's
operations.
SEASONALITY. The hotel industry is seasonal in nature. Generally, hotel
revenues are highest in the second and third quarters of each year. Seasonality
causes quarterly fluctuations in FelCor's revenue. FelCor may be able to reduce,
but not eliminate, the effects of seasonality by continuing to diversify the
geographic location and primary customer base of its hotels.
INVESTMENT CONCENTRATION IN A SINGLE INDUSTRY. Historically, FelCor has
only invested in hotel-related assets. In the event of a downturn in the hotel
industry, the adverse effect on FelCor may be greater than on a more diversified
company with assets outside of the hotel industry.
REQUIREMENTS OF FRANCHISE AGREEMENTS. Most of FelCor's hotels are and,
following the proposed merger will be, operated under various franchise
licenses. Each license agreement requires that the franchised hotel be
maintained and operated in accordance with certain standards. The franchisors
also may require substantial improvements to FelCor's hotels, for which FelCor
would be responsible under the percentage
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leases, as a condition to the renewal or continuation of these franchise
licenses. Ninety-five of the Bristol hotels being acquired by FelCor in the
merger are currently operated under franchise licenses with Holiday Hospitality
or Promus. Holiday Hospitality has consented to the transfer of its licenses to
the spin-off company. Promus has indicated that upon performance of certain
conditions, Promus will approve the merger and related transactions, and no
liquidated damages will be owed. The consents of franchisors other than Holiday
Hospitality and Promus to the transfer of ten of the Bristol hotels to FelCor in
the merger are being sought but have not yet been obtained. Such consents are
not conditions to the merger. Accordingly, if a consent is withheld, the merger
could result in the termination of such licenses. If a franchise license
terminates due to FelCor's failure to make required improvements or to obtain
necessary consents (and under certain other circumstances), FelCor may be liable
to the franchisor for a termination payment. These termination payments would
vary among the various franchise agreements and by hotel, although in the event
of termination of all franchises for which consents have not yet been obtained,
the aggregate claims for such termination payments could be within the range of
$4.5 to $6.5 million. The loss of a substantial number of franchise licenses and
the related termination payments could have a material adverse effect on
FelCor's results of operations.
LIMITATIONS ON ACQUISITIONS AND IMPROVEMENTS
FelCor intends to continue its current growth strategy, which includes
acquiring and improving hotel properties. FelCor generally cannot fund its
growth from cash from its operating activities because FelCor must distribute to
its stockholders at least 95% of its taxable income each year to maintain its
status as a REIT. Consequently, FelCor must rely primarily upon the availability
of debt or equity capital to fund hotel acquisitions and improvements. There can
be no assurance that FelCor will continue to have access to the capital markets
to fund future growth at an acceptable cost. In addition, FelCor's Board has
adopted a policy of limiting indebtedness to not more than 40% of FelCor's
investment in hotel assets, at historical cost, which could also limit FelCor's
ability to incur additional indebtedness to fund its continued growth. At March
31, 1998, on a pro forma basis, FelCor's indebtedness would represent 35.9% of
its investment in hotel assets at historical cost.
POTENTIAL TAX RISKS
FAILURE TO QUALIFY AS A REIT WOULD SUBJECT FELCOR TO FEDERAL INCOME
TAX. FelCor has operated and, following the merger, will continue to operate in
a manner that is intended to qualify it as a REIT under federal income tax laws.
The REIT qualification requirements are extremely complicated and
interpretations of the federal income tax laws governing qualification as a REIT
are limited. Accordingly, FelCor cannot be certain that it has been or will
continue to be successful in operating so as to qualify as a REIT. At any time,
new laws, interpretations or court decisions may change the federal tax laws or
the federal income tax consequences of qualification as a REIT.
If FelCor failed to qualify as a REIT, FelCor would be required to pay
federal income tax on its taxable income. FelCor might need to borrow money or
sell hotels in order to pay any such tax. FelCor's payment of income tax would
decrease the amount of its income available to be paid out to its stockholders.
In addition, FelCor would no longer be required to pay out most of its taxable
income to its stockholders. Unless its failure to qualify as a REIT were excused
under federal income tax laws, FelCor could not re-elect REIT status until the
fifth calendar year following the year in which it failed to qualify.
Hunton & Williams, special tax counsel to FelCor, has given FelCor an
opinion letter to the effect that (i) commencing with its taxable year ended
December 31, 1994, FelCor has qualified as a REIT and (ii) the merger will not
prevent FelCor from continuing to qualify as a REIT. This opinion, however, is
based upon customary assumptions, representations and limitations, including
assumptions regarding Bristol's estimate of its accumulated earnings and profits
for federal income tax purposes through the completion of the merger, and will
not be binding upon the Internal Revenue Service.
FAILURE TO MAKE REQUIRED DISTRIBUTIONS WOULD SUBJECT FELCOR TO TAX. In
order to qualify as a REIT, each year FelCor must pay out to its stockholders at
least 95% of its taxable income (other than any net
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capital gain). In addition, FelCor would be subject to a 4% nondeductible tax if
the actual amount it pays out to its stockholders in a calendar year were less
than the minimum amount specified under federal tax laws. FelCor has paid out
and intends to continue to pay out its income to its stockholders in a manner
intended to satisfy the 95% test and to avoid the 4% tax. In doing so, FelCor
may be required to borrow money or sell assets to pay out enough of its taxable
income to satisfy the 95% test and to avoid the 4% tax in a particular year.
FAILURE TO DISTRIBUTE BRISTOL'S EARNINGS AND PROFITS IN 1998 WOULD CAUSE
FELCOR TO FAIL TO QUALIFY AS A REIT. At the end of any taxable year, a REIT may
not have any accumulated earnings and profits (described generally for federal
income tax purposes as cumulative undistributed net income) from a non-REIT
corporation. Accordingly, by the end of 1998, FelCor must pay out to its
stockholders an amount equal to Bristol's accumulated earnings and profits
through the date of the merger. If FelCor failed to pay out such amount for its
1998 taxable year, it would fail to qualify as a REIT.
Prior to the merger, Bristol will provide FelCor with an estimate of
Bristol's earnings and profits through the date of the merger and a confirmation
of that estimate from Arthur Andersen LLP. Within three months after the merger,
Arthur Andersen LLP will prepare a final computation of Bristol's accumulated
earnings and profits through the date of the merger. However, the determination
of a company's accumulated earnings and profits for federal income tax purposes
is extremely complex and the computations by Bristol and Arthur Andersen LLP
will not be binding upon the Internal Revenue Service. In giving its REIT
qualification opinion, Hunton & Williams will rely on these computations of
Bristol's earnings and profits. Should the Internal Revenue Service successfully
assert that Bristol's accumulated earnings and profits were greater than the
amount distributed by FelCor for 1998, based on such calculations, FelCor would
fail to qualify as a REIT.
SALE OF ASSETS ACQUIRED FROM BRISTOL WITHIN TEN YEARS AFTER THE MERGER WILL
RESULT IN CORPORATE TAX. If FelCor sells any asset acquired from Bristol within
ten years after the merger and recognizes gain, FelCor will be taxed at the
highest corporate rate on an amount equal to the fair market value of the asset
minus the adjusted basis of the asset as of the merger.
EFFECT OF MARKET INTEREST RATES ON THE PRICE OF FELCOR COMMON SHARES
One of the factors that may affect the price of FelCor common shares is the
amount of its distributions to stockholders in comparison to yields on other
financial instruments. An increase in market interest rates would provide higher
yields on other financial instruments, which could adversely affect the price of
FelCor common shares.
RELIANCE ON KEY PERSONNEL AND BOARD OF DIRECTORS
As a stockholder, you will have no right to participate in FelCor's
management, except through the exercise of your voting rights. FelCor's Board of
Directors will be responsible for oversight of the management of FelCor.
FelCor's future success will be dependent in part on its ability to retain key
personnel, including Mr. Corcoran.
MATTERS THAT MAY ADVERSELY AFFECT REAL ESTATE OWNERSHIP
GENERAL. FelCor's investments in hotels are, and following the merger will
continue to be, subject to the numerous risks generally associated with owning
real estate. These risks include, among others, adverse changes in general or
local economic or real estate market conditions, zoning laws, traffic patterns
and neighborhood characteristics, real estate tax assessments and rates,
governmental regulations and fiscal policies, the potential for uninsured or
underinsured casualty and other losses, the impact of environmental laws and
regulations (discussed below) and other circumstances beyond the control of
FelCor. Moreover, real estate investments are relatively illiquid, which means
that FelCor's ability to vary its portfolio in response to changes in economic
and other conditions may be limited.
POSSIBLE LIABILITY FOR ENVIRONMENTAL MATTERS. There are numerous federal,
state and local environmental laws and regulations to which owners of real
estate are subject. Under these laws a current or prior owner of
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real estate may be liable for the costs of cleaning up and removing hazardous or
toxic substances found on its property, whether or not it was responsible for
their presence. In addition, if an owner of real property arranges for the
disposal of hazardous or toxic substances at another site, it may also be liable
for the costs of cleaning up and removing such substances from the disposal
site, even if it did not own or operate the disposal site. A property owner may
also be liable to third parties for personal injuries or property damage
sustained as a result of its release of hazardous or toxic substances (including
asbestos-containing materials) into the environment. Environmental laws may
require FelCor to incur substantial expenses and limit the use of its
properties. FelCor could be liable for substantial amounts for a failure to
comply with applicable environmental laws, which may be enforced by the
government or, in certain instances, by private parties. The existence of
hazardous or toxic substances on a property can also adversely affect the value
of, and the owner's ability to use, sell or borrow against, the property.
Generally, FelCor obtains a Phase I environmental audit from an independent
environmental engineer prior to its acquisition of a hotel. With respect to the
hotels to be acquired by FelCor in the merger, it has relied upon the Phase I
audits obtained by Bristol in connection with its acquisition of these
properties. No updates or new environmental audits were obtained.
The primary purpose of a Phase I environmental audit is to identify
indications of potential environmental contamination at a property and,
secondarily, to make a limited assessment as to the potential for environmental
regulatory compliance costs. Consistent with current industry standards, the
Phase I environmental audits on which FelCor has relied did not include an
assessment of potential off-site liability or involve any testing of
groundwater, soil or air conditions. Accordingly, they would not reveal
information that could only be obtained by such tests. In addition, the
assessment of environmental compliance contained in such reports is general in
nature and was not a detailed determination of the property's complete
compliance status.
The Phase I environmental audits relied upon by FelCor disclose the
existence of certain hazardous or toxic substances at or near a limited number
of the FelCor and Bristol hotels. In these instances, FelCor and Bristol made
such additional investigations, if any, as they considered necessary to evaluate
the risk of liability. However, FelCor's management does not believe that the
identified conditions, or any other environmental conditions known to it, will
have a material adverse effect on FelCor's business, assets or profits. It is
possible, however, that such environmental audits and investigations do not
reveal all environmental conditions or liabilities for which FelCor could be
liable and there could be potential environmental liabilities of which FelCor is
unaware.
COSTS OF COMPLYING WITH AMERICANS WITH DISABILITIES ACT. Under the
Americans with Disabilities Act of 1990 ("ADA"), all public accommodations
(including hotels) are required to meet certain federal requirements for access
and use by disabled persons. FelCor's management believes that both its hotels
and the Bristol hotels are substantially in compliance with the requirements of
the ADA. However, a determination that the hotels are not in compliance with the
ADA could result in liability for both governmental fines and damages to private
parties. If FelCor were required to make unanticipated major modifications to
the hotels to comply with the requirements of the ADA, it could adversely affect
its ability to pay its obligations and make distributions to its stockholders.
OWNERSHIP LIMITATION
In order for FelCor to maintain its status as a REIT, no more than 50% in
value of its outstanding stock may be owned (actually or constructively under
the applicable tax rules) by five or fewer persons during the last half of any
taxable year. In connection with this requirement, FelCor's charter prohibits,
subject to certain exceptions, any person from owning more than 9.9% (determined
in accordance with the Internal Revenue Code and the Securities Exchange Act of
1934, as amended) of the number of outstanding shares of any class of its
capital stock. FelCor's charter also prohibits any transfer of its capital stock
that would result in a violation of the 9.9% ownership limit, reduce the number
of stockholders below 100 or otherwise result in FelCor failing to qualify as a
REIT. Any attempted transfer in violation of the charter prohibitions will be
void and the intended transferee will not acquire any right in the shares
resulting in such violation. FelCor has the
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right to take any lawful action that it believes necessary or advisable to
ensure compliance with these ownership and transfer restrictions and to preserve
its status as a REIT, including refusing to recognize any transfer of capital
stock in violation of its charter.
If you hold or attempt to acquire shares in excess of FelCor's ownership
and transfer restrictions, these shares will be immediately designated as
"shares-in-trust" and transferred automatically and by operation of law, in
trust, to a trustee designated by FelCor. The trustee will have the right to
receive all distributions on, to vote and to sell these shares. You will have no
right or interest in these shares, except the right (under certain
circumstances) to receive the lesser of: (i) the proceeds of any sale of these
shares by the trustee to a permitted owner and (ii) the amount you paid for
these shares (or the market value of these shares, determined in accordance with
the charter, if you received them by gift, bequest or otherwise without
payment). Accordingly, if you are the record owner of any shares designated as
shares-in-trust you would suffer a financial loss if the price at which these
shares are sold to a permitted owner is less than what you paid for these
shares.
If the merger had been completed on the date the merger agreement was
signed, the two largest beneficial owners of Bristol's shares would have each
beneficially owned more than 9.9% of FelCor's common shares. Subject to certain
limitations, FelCor has agreed to waive the 9.9% ownership limit in its charter
with respect to such Bristol stockholders, each of which initially will be
allowed to own up to 15% of FelCor's common shares.
CERTAIN ANTITAKEOVER AND CORPORATE GOVERNANCE PROVISIONS
OWNERSHIP LIMIT. The ownership and transfer restrictions of FelCor's
charter may have the effect of discouraging or preventing a third party from
attempting to gain control of FelCor without the approval of the FelCor Board.
Therefore, it is less likely that a change in control, even if beneficial to
stockholders, could be effected without the approval of the FelCor Board.
STAGGERED BOARD. The FelCor Board is divided into three classes. Directors
in each class are elected for terms of three years. As a result, the ability of
stockholders to effect a change in control of FelCor through the election of new
directors is limited by the inability of stockholders to elect a majority of the
FelCor Board at any particular meeting.
AUTHORITY TO ISSUE ADDITIONAL SHARES. Under the FelCor charter, the FelCor
Board may issue preferred stock without stockholder action. The preferred stock
may be issued, in one or more series, with the preferences, qualifications and
terms, designated by the FelCor Board that may discourage, delay or prevent a
change in control of FelCor, even if such change were in the best interests of
stockholders. FelCor currently has outstanding 6,050,000 shares of its $1.95
Series A Cumulative, Convertible Preferred Stock and 57,500 shares of its 9%
Series B Cumulative Redeemable Preferred Stock. The preferred stock reduces the
amount of dividends available, and has dividend, liquidation and other rights
superior, to the holders of FelCor's common shares. The charter and bylaws of
FelCor contain other provisions that also may have the effect of delaying or
preventing a change in control of FelCor.
MARYLAND ANTI-TAKEOVER STATUTES. As a Maryland corporation, FelCor is
subject to various provisions under the Maryland General Corporation Law,
including the Maryland business combination statute, which sets forth certain
procedures that must be followed in, and otherwise restricts, certain takeovers
and business combinations. FelCor's charter currently exempts FelCor from the
operation of the Maryland share control statute, which may deny voting rights to
shares involved in an acquisition of one-fifth or more of the voting stock of a
Maryland corporation. To the extent these laws are applicable to FelCor, they
may have the effect of delaying or preventing a change in control of FelCor even
though beneficial to FelCor's stockholders.
CONTINGENT FEES PAYABLE TO AND INDEMNIFICATION OF FINANCIAL ADVISORS
The financial advisors for each of FelCor and Bristol have rendered their
opinions that the merger is fair to FelCor and the holders of Bristol common
shares, respectively, and have provided financial advice to the respective
Boards of Directors of FelCor and Bristol concerning the merger and, in the case
of Bristol, the
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spin-off. The Boards of Directors of FelCor and Bristol have relied on the
advice and opinions of the financial advisors. All, or a substantial portion, of
the fees payable to the financial advisors are contingent upon consummation of
the merger. FelCor and Bristol have each agreed to indemnify its financial
advisor from liabilities arising in connection with the merger. These factors
could adversely affect the objectivity of the financial advisors in providing
such advice and opinions.
DIFFERENCES IN STOCKHOLDER RIGHTS OF FELCOR AND BRISTOL STOCKHOLDERS
As a result of the merger, Bristol stockholders will no longer own shares
of Bristol and will become stockholders of FelCor. While Bristol is a Delaware
corporation, FelCor is a Maryland corporation and the different laws governing
the two corporations, together with differences in the provisions of the
respective corporate charters and bylaws of FelCor and Bristol, result in
differences in the rights of the stockholders of the two corporations. The
rights of FelCor stockholders may in some cases be considered less favorable
than the rights of Bristol stockholders. See "Description of FelCor's Capital
Stock -- Comparison of Rights of Stockholders."
ADVERSE CONSEQUENCES IF MERGER IS NOT CONSUMMATED
In the merger agreement, FelCor and Bristol have agreed not to seek
competing transactions. If FelCor or Bristol takes certain actions in connection
with a competing transaction, adversely changes its recommendation of the merger
or materially breaches the merger agreement without curing the breach by
September 30, 1998, it will be liable to the other party for payment of a
break-up fee of $65 million upon termination of the merger agreement. The other
party may be unable to collect the termination fee without legal proceedings.
The break-up fee may not adequately compensate the other party for loss of the
benefits to be obtained from the merger. The payment of the break-up fee may
adversely affect the financial condition of the breaching party. Bristol may
terminate its obligation to consummate the merger if the trading price of FelCor
common shares is less than $28 without payment of the break-up fee. If the
merger agreement is terminated by either party because of the failure of the
other party to obtain stockholder approval for the merger, the terminating party
may collect an expense reimbursement fee of $5 million payable by the other
party.
If the merger is not consummated under certain circumstances and a
competing transaction had been proposed to a party prior to the termination of
the merger agreement, the break-up fee would be payable by each party if it
entered into any similar transaction within 12 months after such termination.
This provision could deter a party from entering into a material transaction for
up to 12 months following.
Bristol has borrowed $120 million on a secured basis from FelCor. After any
termination of the merger agreement, other than as a result of a failure of
FelCor's stockholders to approve the merger, this loan will be payable within
120 days following such termination or, if later, when FelCor pays to Bristol
the break-up fee, if it is so obligated. If FelCor's stockholders fail to
approve the merger, $56.2 million of the loan will be converted to an unsecured
loan due December 31, 2003, and the remainder of the loan will continue to be
secured and due within 120 days after termination of the merger agreement.
Bristol may be unable to pay or refinance this debt in a timely manner.
Pursuant to the merger agreement, both Bristol and FelCor agreed to certain
affirmative and negative covenants, including covenants affecting the conduct of
their respective businesses outside the ordinary course of business.
Accordingly, both parties may forego opportunities which otherwise would be
available to them had the merger agreement not been executed. In addition,
transactions such as the merger and the spin-off can disrupt relationships with
employees and others with whom the parties to a merger or similar agreement have
existing or prospective relationships. Accordingly, if the merger agreement is
terminated and the spin-off abandoned, the ability of Bristol or FelCor to
continue their pre-merger business plans could be adversely affected.
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IMPACT OF YEAR 2000 ISSUE
The year 2000 issue relates to computer programs that were written using
two digits rather than four to define the applicable year. In those programs,
the year 2000 may be incorrectly identified as the year 1900, which could result
in a system failure or miscalculations causing a disruption of operations,
including a temporary inability to process transactions, prepare financial
statements or engage in other normal business activities.
FelCor has recently assessed its internal computer systems and believes
that they will properly utilize dates beyond December 31, 1999. FelCor has been
informed that the companies leasing and managing hotels owned by it are in the
process of studying the year 2000 issue, including inquiries of their vendors.
Upon completion of these studies, which are expected in late 1998, FelCor will
determine the extent to which it may be vulnerable to third parties' failure to
remedy their year 2000 issues and potential effects of any such failures. FelCor
estimates that the expense associated with year 2000 compliance will not be
material to FelCor's business, operations or financial condition.
Bristol expects to cause its desktop systems to be compliant by continuing
its existing program of replacing all desktop computers every two to three
years. This desktop replacement program is expected to make all desktop
computers year 2000 compliant. Bristol is also evaluating whether to upgrade or
replace various automated time clock systems to make them year 2000 compliant.
Bristol and the hotel owners expect to spend approximately $4 million over the
next 18 months on these programs.
Bristol has begun to evaluate its non-information technology systems to
determine whether they are year 2000 compliant, including embedded systems that
operate elevators, phone systems, energy management systems, security systems
and other systems. Bristol is also surveying its major vendors to determine
whether they are year 2000 compliant. Bristol expects that these studies will be
completed by December 31, 1998. Holiday Inns and Promus, franchisors for 106 of
Bristol's hotels, have indicated to Bristol that their reservation systems will
be year 2000 compliant by the end of 1998. Year 2000 compliance surveys have
been sent to Bristol's other franchisors. At that time, Bristol will determine
the extent to which additional actions will be required by Bristol, including
the extent to which Bristol will replace non-compliant vendors. Bristol
anticipates that all reprogramming efforts and hardware replacement will be
implemented and tested by June 30, 1999. This gives adequate time prior to
January 1, 2000 for Bristol to correct any problems that did not surface during
the implementation and testing.
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THE ANNUAL MEETINGS
TIMES, PLACES AND DATES OF THE ANNUAL MEETINGS
FelCor's 1998 Annual Meeting of Stockholders (the "FelCor Annual Meeting")
will be held at 10:00 a.m., local time, on Monday, July 27, 1998, at the Embassy
Suites Park Central hotel, located at 13131 North Central Expressway, Dallas
Texas. Bristol's 1998 Annual Meeting of Stockholders (the "Bristol Annual
Meeting") will be held at 10:00 a.m., local time, on Monday, July 27, 1998, at
the Crowne Plaza Hotel, located at 14315 Midway Road, Dallas, Texas.
PURPOSES OF THE FELCOR ANNUAL MEETING
At the FelCor Annual Meeting, FelCor stockholders will be asked to consider
and vote upon a proposal to adopt the Agreement and Plan of Merger between
Bristol and FelCor (the "Merger Agreement"). Pursuant to the Merger Agreement,
Bristol will be merged with and into FelCor (the "Merger"). A copy of the Merger
Agreement is attached to this Joint Proxy Statement/Prospectus as Annex A. In
addition, FelCor stockholders will be asked (i) to elect two directors to the
FelCor Board of Directors (the "FelCor Board"), in each case to serve until the
earlier of the consummation of the Merger and FelCor's 2001 annual meeting of
stockholders, (ii) to approve an amendment to FelCor's Articles of Amendment and
Restatement, as previously amended and supplemented (the "FelCor Charter") to
increase the authorized number of shares of FelCor's common stock (the "FelCor
Common Shares") from 100 million to 200 million and of shares of FelCor's
preferred stock from 10 million to 20 million, (iii) to approve an amendment to
FelCor's Charter to change the name of FelCor to "FelCor Lodging Trust
Incorporated," (iv) to ratify the adoption of FelCor's 1998 Restricted Stock and
Stock Option Plan (the "FelCor 1998 Plan"), and (v) to authorize the FelCor
Board, if necessary, to adjourn or postpone the FelCor Annual Meeting to permit
the further solicitation of proxies.
PURPOSES OF THE BRISTOL ANNUAL MEETING
At the Bristol Annual Meeting, Bristol stockholders will be asked to
consider and vote upon a proposal to adopt the Merger Agreement. In addition,
Bristol stockholders will be asked (i) to elect nine directors to the Bristol
Board of Directors (the "Bristol Board"), in each case to serve until the
earlier of the consummation of the Merger and Bristol's 1999 annual meeting of
stockholders, (ii) to approve adoption of the Bristol Hotels & Resorts, Inc.
("BHR") 1998 Equity Incentive Plan, (iii) to approve BHR's adoption of a 1998
Non-Employee Directors Stock Option Plan (collectively, the "BHR Incentive
Plans"), and (iv) to approve the adoption of an amendment that increases the
number of shares of Bristol's common stock (the "Bristol Common Shares")
reserved for issuance pursuant to Bristol's 1995 Amended and Restated Equity
Incentive Plan (the "Bristol Incentive Plan") from 1,950,000 to 3,130,000.
RECORD DATES; QUORUM
Stockholders of record of FelCor and Bristol at the close of business on
May 28, 1998 (the "Record Date") will be entitled to notice of and to vote at
their respective Annual Meetings and at any adjournments or postponements
thereof. There were issued and outstanding 36,591,080 FelCor Common Shares, as
of the Record Date, held by approximately 250 stockholders of record. There were
issued and outstanding 45,234,972 Bristol Common Shares as of the Record Date,
held by approximately 110 stockholders of record.
Holders of a majority of the FelCor Common Shares or Bristol Common Shares
entitled to vote at the respective Annual Meetings, represented in person or by
proxy, will constitute a quorum for each meeting. A quorum is necessary for a
valid Annual Meeting.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL
Each holder of FelCor Common Shares or Bristol Common Shares will be
entitled to cast one vote for each share so held. The adoption of the Merger
Agreement by the stockholders of FelCor and Bristol requires the affirmative
vote of the holders of at least a majority of each of the outstanding FelCor
Common Shares
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and Bristol Common Shares. The approvals of the amendments to the FelCor Charter
require the affirmative vote of the holders of at least a majority of the
outstanding FelCor Common Shares.
The two candidates for director receiving the highest number of affirmative
votes cast at the FelCor Annual Meeting will be elected as directors of FelCor.
The nine candidates for director receiving the highest number of affirmative
votes cast at the Bristol Annual Meeting will be elected as directors of
Bristol. The affirmative vote of the holders of a majority of FelCor Common
Shares or Bristol Common Shares voting thereon at the respective Annual Meetings
is required to approve each of the other proposals.
As of the Record Date, 1,576,464 FelCor Common Shares (approximately 4.3%
of the shares outstanding as of the Record Date) were entitled to be voted by
the directors and officers of FelCor and their affiliates, and 4,014,479 Bristol
Common Shares (approximately 9.0% of the shares outstanding as of the Record
Date) were entitled to be voted individually by the directors and officers of
Bristol. These directors and officers have indicated that they intend to vote in
favor of the proposals expected to be presented at the FelCor Annual Meeting or
Bristol Annual Meeting, as appropriate. Bass America, Inc., Holiday Corporation
and United/ Harvey Holdings, L.P. (collectively, the "Bristol Majority
Stockholders") have entered into a Voting and Cooperation Agreement, dated as of
March 23, 1998, with FelCor (the "Voting Agreement") pursuant to which the
Bristol Majority Stockholders have agreed to vote their Bristol Common Shares in
favor of the adoption of the Merger Agreement. See "The Voting Agreement." The
Bristol Majority Stockholders beneficially owned as of the Record Date an
aggregate of 28,101,639 Bristol Common Shares, constituting approximately 62% of
the Bristol Common Shares outstanding on the Record Date. Accordingly, the
adoption of the Merger Agreement will be approved regardless of how other
Bristol stockholders vote.
PROXIES; REVOCATION AND SOLICITATION OF PROXIES
FelCor Common Shares and Bristol Common Shares represented by properly
executed and unrevoked proxies will be voted at the FelCor or Bristol Annual
Meeting, as the case may be, in accordance with the directions contained
therein. BRISTOL STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS. If no direction is made in a properly executed and unrevoked proxy,
the FelCor Common Shares or Bristol Common Shares represented by such proxy will
be voted FOR the adoption of the Merger Agreement and FOR each other proposal
expected to be considered at the respective Annual Meeting. The authority
granted in proxies of Bristol stockholders who vote against any proposal will
not be used by management of Bristol to vote for any adjournment of the Bristol
Annual Meeting.
Any FelCor or Bristol stockholder may revoke a proxy at any time before its
exercise. A proxy may be revoked by filing with the Secretary of FelCor or
Bristol, as the case may be, a written revocation or a duly executed proxy
bearing a later date. Any written notice revoking a proxy for the FelCor Annual
Meeting should be sent to: FelCor Suite Hotels, Inc., 545 East John Carpenter
Freeway, Suite 1300, Irving, Texas 75062, Attention: Secretary, or hand
delivered to the Secretary at or before the taking of the vote at the FelCor
Annual Meeting. Any written notice revoking a proxy for the Bristol Annual
Meeting should be sent to: Bristol Hotel Company, 14295 Midway Road, Dallas,
Texas 75244, Attention: Secretary, or hand delivered to the Secretary at or
before the taking of the vote at the Bristol Annual Meeting. Any FelCor or
Bristol stockholder may attend the FelCor or Bristol Annual Meeting, as the case
may be, and vote in person, whether or not he has previously given a proxy.
FelCor and Bristol will bear their respective costs of soliciting proxies
from FelCor and Bristol stockholders. In addition to soliciting proxies by mail,
directors, officers and employees of FelCor and Bristol may solicit proxies by
telephone, in person or otherwise, each without receiving additional
compensation therefor. Arrangements will also be made with brokerage firms and
other custodians, nominees and fiduciaries (collectively, "Fiduciaries") to
forward solicitation materials to the beneficial owners of FelCor Common Shares
or Bristol Common Shares held of record by such persons, and arrangements may be
made with Fiduciaries to obtain authority to sign proxies. FelCor and Bristol
will reimburse such Fiduciaries for reasonable out-of-pocket expenses incurred
by them in connection therewith.
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Shares represented at the meetings but not voted for or against a proposal,
such as abstentions or "broker non-votes," will be counted in determining a
quorum. For purposes of determining the votes required for adoption of the
Merger Agreement and the proposed changes to the FelCor Charter, FelCor Common
Shares or Bristol Common Shares that are not voted in favor of those matters,
including abstentions and "broker non-votes," will have the same legal effect as
a vote against those matters. Abstentions and "broker non-votes" will have no
effect on the outcome of the votes on any other matters proposed for adoption at
the Annual Meetings. A "broker non-vote" refers to shares represented at an
Annual Meeting in person or by proxy by a broker or nominee where such broker or
nominee does not vote the shares because it (i) has not received voting
instructions on a particular matter from the beneficial owners or persons
entitled to vote and (ii) does not have discretionary voting power on such
matter.
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THE COMPANIES
FELCOR
FelCor is a real estate investment trust ("REIT") which, at May 26, 1998,
owned interests in 85 hotels with an aggregate of 20,795 suites/rooms in 28
states (collectively the "FelCor Hotels") through its 92.7% general partner
interest in FelCor Suites Limited Partnership (the "FelCor Operating
Partnership"). Limited partner units ("Units") in the FelCor Operating
Partnership are redeemable for FelCor Common Shares or cash, at the option of
FelCor, and have terms which make them substantially similar in economic effect
to FelCor Common Shares. Assuming completion of pending conversions, 58 of the
FelCor Hotels are operated as Embassy Suites hotels (of which 29 were converted
from other brands), 14 are operated as Doubletree Guest Suites hotels, five are
operated as Sheraton hotels, four are operated as Sheraton Suites hotels, two
are operated as Doubletree hotels, one is operated as a Hilton hotel and one is
operated as a Hilton Suites hotel. Seventy-two of the FelCor Hotels are managed
by subsidiaries of Promus Hotel Corporation ("Promus") which, following its
recent merger with Doubletree Corporation, includes Doubletree Hotels
Corporation and its subsidiaries ("Doubletree"). Promus is the largest operator
of all-suite, full-service hotels in the United States. Of the remaining FelCor
Hotels, nine are managed by affiliates of ITT Sheraton Corporation ("Sheraton"),
three are managed by independent management companies and one is managed by
Bristol. At May 26, 1998, FelCor was the owner of the largest number of Embassy
Suites hotels in the world.
To enable FelCor to satisfy certain requirements for qualification as a
REIT, neither it nor the FelCor Operating Partnership can operate the hotels in
which they invest. Accordingly, the FelCor Operating Partnership and its
subsidiaries typically lease the FelCor Hotels to DJONT Operations, L.L.C., or
one of its consolidated subsidiaries (collectively, "DJONT"), pursuant to leases
("Percentage Leases") generally with initial terms of ten years that provide for
rent equal to the greater of a minimum base rent ("Base Rent") or a percentage
rent ("Percentage Rent") based on hotel suite/room revenues and food and
beverage revenues and rents. See "Management and Ownership of FelCor -- Certain
Transactions relating to FelCor."
Recent Developments
Recent Acquisitions
During the period from April 1, 1998 to May 26, 1998, FelCor acquired two
hotels with an aggregate 549 rooms for approximately $47.6 million in cash.
These two hotels are a 301-room Hilton hotel located in Secaucus, New Jersey and
a 248-room Doubletree hotel located in Aurora, Colorado.
On May 1, 1998, FelCor purchased eight hotels from Starwood Hotels &
Resorts ("Starwood") for an aggregate cash purchase price of approximately $245
million. The hotels have a total of 1,898 suites and consist of five Embassy
Suites and three Doubletree Guest Suites located in seven states. Six of the
eight hotels, following the acquisition, are operated as Embassy Suites hotels
and managed by Promus. The remaining two hotels are expected to be operated as
Sheraton Suites hotels and will continue to be managed by Starwood Hotels &
Resorts Worldwide, Inc.
In May 1998, FelCor raised approximately $139.1 million from the sale of
$143.8 million in aggregate liquidation preference of preferred stock to finance
the costs of its acquisition of hotels from Starwood.
Recent Loan to Bristol
In contemplation of the Merger, FelCor has loaned to Bristol pursuant to an
interim secured credit facility, $120 million which bears interest at LIBOR plus
2%. Bristol has used these funds to retire $30 million in senior notes, which
bore annual interest at a rate of 11.22% and to pay $2.8 million in related
interest and prepayment penalties, to fund $20 million of the purchase price for
and repay $25 million in debt assumed in connection with Bristol's acquisition
of 20 midwestern hotels containing a total of 3,456 rooms (the "Omaha
Acquisition"), to pay the $9 million acquisition price of one hotel and to pay
$33.2 million in certain renovation costs pursuant to Bristol's redevelopment
and rebranding program. The loan is secured by mortgages on 14 of the hotels
acquired by Bristol with the borrowed funds and one other hotel owned by
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Bristol. If the Merger Agreement is terminated for any reason other than the
failure of FelCor's stockholders to approve the Merger, the loan will be due
120 days after such termination or, if later, when FelCor pays to Bristol the
break-up fee, if it is so obligated (the "Post-Termination Maturity Date"). If
the Merger Agreement is terminated because FelCor's stockholders fail to
approve the Merger, $56.2 million of the loan balance will be converted to
unsecured indebtedness of Bristol with a maturity of December 31, 2003. The
remaining loan balance will continue to be secured and due on the
Post-Termination Maturity Date.
BRISTOL
Bristol is one of the largest owner/operators of full-service hotels in
the United States, currently operating 124 hotels containing over 32,000 rooms,
of which 110 hotels will be acquired by FelCor. Bristol's hotels are primarily
full-service hotels that operate in the mid-scale to upscale segments of the
lodging industry. Bristol is the franchisee of the largest number of Holiday
Hospitality Franchising, Inc. ("Holiday Hospitality") branded hotels, including
Crowne Plaza, Holiday Inn, Holiday Inn Select and Holiday Inn Express hotels.
Holiday Hospitality is a direct subsidiary of Bass Hotels & Resorts Inc., which
recently announced its name change from Holiday Hospitality Corporation.
Bristol also operates 29 hotels under other hotel brands, including Hampton
Inn, Courtyard by Marriott and Fairfield Inn. Bristol's hotels are located in
27 states and Canada, with hotels concentrated in major metropolitan areas of
the South, East, Southwest and Pacific regions of the United States.
Recent Developments
Recent Acquisitions
On April 30, 1998, Bristol acquired 20 midwestern hotels with a total of
3,456 rooms in the Omaha Acquisition. The total consideration for the Omaha
Acquisition was $20.0 million in cash, $40.0 million in assumed debt and 1.43
million newly issued Bristol Common Shares.
The hotels in the Omaha Acquisition consist of nine full-service Holiday
Inn hotels, five Holiday Inn Express hotels, five Hampton Inn hotels and one
Homewood Suites hotel, with locations in Omaha, Nebraska; Moline, Illinois;
Davenport, Iowa; central Kansas and Midland/Odessa, Texas. Seven of the nine
full-service hotels have undergone major property improvement plans over the
past 24 months. Of the five Holiday Inn Express hotels, one is a new
construction project set to open for business in mid-1998 and two others are
newly built hotels that opened in the past two years.
Since March 31, 1998, Bristol has also acquired the 187-room Sheraton
Four Points-Leominster, Massachusetts hotel, and a third-party management
agreement for the Meadowlands Hilton in Secaucus, New Jersey, with 301 rooms
and has leased the Hampton Inn -- Las Vegas, which has 128 rooms.
Redevelopment and Rebranding
In November 1997, Bristol initiated a comprehensive redevelopment and
rebranding program (the "Redevelopment and Rebranding Program") which entails
exterior and interior reconstruction of and renovations to 41 of its hotels
that were acquired from Holiday Inns, Inc. in April 1997 and three hotels
acquired during 1997, as well as the rebranding of seven hotels operated under
Bristol's own brand names to Crowne Plaza and Holiday Inn & Suites properties.
The Redevelopment and Rebranding Program is expected to be substantially
complete by the end of 1999.
In addition to the renovations, Bristol expects to rebrand 13 of its 41
Holiday Inn hotels primarily to the Crowne Plaza brand. Bristol believes the
conversions to the Crowne Plaza brand will enable the hotels to more
effectively compete in the markets in which they operate.
THE COMBINED COMPANY
General. As a result of the Merger, Bristol will be merged into FelCor,
which will be the surviving corporation. FelCor will succeed to the ownership,
either directly or through Bristol's subsidiaries, of 110 of Bristol's owned
and leased hotels (the "Bristol Hotels") and continue to operate as a REIT. It
is expected that
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FelCor will contribute ownership of the Bristol Hotels to the FelCor Operating
Partnership, following which FelCor will have a 95.7% general partner interest
in the FelCor Operating Partnership. If the proposal to change FelCor's name is
approved by FelCor stockholders, FelCor's name will be "FelCor Lodging Trust
Incorporated."
FelCor will own interests in 195 hotels after the Merger with an aggregate
of 49,713 suites/rooms in 34 states and Canada (collectively the "Hotels"),
which, upon completion of the Redevelopment and Rebranding Program, are shown in
the following table.
COMBINED COMPANY PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
COMBINED
------------------
BRAND HOTELS ROOMS
----- ------ ------
<S> <C> <C>
Upscale All Suite
Embassy Suites............................................ 58 14,265
Doubletree Guest Suites................................... 14 2,713
Sheraton Suites........................................... 4 984
Hilton Suites............................................. 1 174
Crowne Plaza Suites....................................... 1 295
Homewood Suites........................................... 1 108
Bristol House............................................. 1 127
--- ------
Subtotal............................................. 80 18,666
Upscale Full Service
Crowne Plaza.............................................. 19 6,814
Doubletree Hotel.......................................... 2 402
Harvey Hotel.............................................. 4 1,262
Sheraton.................................................. 5 1,956
Hilton.................................................... 1 301
--- ------
Subtotal............................................. 31 10,959
Full Service
Holiday Inn............................................... 48 13,139
Holiday Inn Select........................................ 6 2,145
Ramada.................................................... 1 220
Days Inn.................................................. 1 157
Courtyard by Marriott..................................... 2 420
Holiday Inn & Suites...................................... 2 509
Sheraton Four Points...................................... 1 187
Independent............................................... 1 181
--- ------
Subtotal............................................. 62 16,734
Limited Service
Holiday Inn Express....................................... 8 1,113
Fairfield Inn............................................. 5 931
Hampton Inn............................................... 9 1,310
--- ------
Subtotal............................................. 22 3,354
Total............................................. 195 49,713
</TABLE>
The FelCor Hotels will continue to be leased by the FelCor Operating
Partnership to DJONT. DJONT is currently considering the possibility of
transferring its leasehold interests to unrelated third parties, including the
possible transfer of leases covering ten hotels to BHR. The Bristol Hotels will
be leased by the FelCor Operating Partnership to BHR, pursuant to leases similar
to the Percentage Leases. BHR and FelCor will be independent public companies
with no overlap in management or boards of directors. However, BHR's two largest
stockholders will also have significant ownership interests in FelCor and will
have representatives on the Boards of Directors of both companies, including the
Chairman of the Board of FelCor. Because of this
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ownership and the substantial relationship between the two companies arising out
of BHR's leasing and operation of the Bristol Hotels following the Merger, it is
anticipated that the two companies will have a strategic alliance in the
acquisition and redevelopment of additional hotels. FelCor will maintain its
existing headquarters facilities in Dallas, and BHR will assume responsibility
for Bristol's employees and existing headquarters facilities in Dallas.
FelCor and BHR intend to continue Bristol's Redevelopment and Rebranding
Program following the Merger.
Indebtedness, Liquidity and Financial Resources. Assuming the consummation
of the Merger, at March 31, 1998, FelCor would have had approximately $1.5
billion of pro forma total indebtedness, as compared to $495 million in actual
total indebtedness for FelCor alone as of March 31, 1998. The pro forma ratio of
EBITDA to interest paid for the three months ended March 31, 1998 would have
been 4.1 to 1.0, compared to 6.9 to 1.0 for FelCor alone. Of FelCor's pro forma
indebtedness at March 31, 1998, 59.3% would have provided for the payment of
interest at floating rates.
FelCor is in the process of increasing its existing primary unsecured
credit facilities from $550 million to $1.2 billion. The new credit facilities
are expected to be comprised of a three-year unsecured revolving line of credit
and an 18-month unsecured term loan. The amount available to FelCor under the
new credit facilities will be limited to $850 million until the effectiveness of
the Merger, at which time the balance of the credit facilities will become
available. These facilities will be used to refinance approximately $500 million
of Bristol's indebtedness upon consummation of the Merger. This refinancing is
expected to reduce interest cost and replace certain existing secured debt of
Bristol with unsecured debt financing. No assurance can be given that FelCor
will be successful in effecting such refinancing.
Directors and Officers of Surviving Corporation. In connection with the
Merger, the FelCor Board will be reconstituted. See "The Merger
Agreement -- Reconstitution of FelCor Board." The number of directors will
increase from seven to 10 members. The seven directors of FelCor, two of whom
will be elected at the FelCor Annual Meeting, will continue as directors of
FelCor following the Merger but their terms of office will be revised as a
result of the Merger. Hervey A. Feldman will retire from the FelCor Board at the
FelCor Annual Meeting and will assume the title of Chairman Emeritus. See "Other
FelCor Annual Meeting Proposals -- Election of FelCor Directors" for a
description of the identities and business experiences of each of the seven
directors. In addition, the following three Bristol directors will be added to
the FelCor Board in connection with the Merger: Donald J. McNamara, Robert L.
Lutz, Jr. and Richard C. North. See "Other Bristol Annual Meeting
Proposals -- Election of Bristol Directors" for a description of the business
experience of each of the three new directors. In connection with the Merger,
the Bristol Majority Stockholders will agree to vote their FelCor Common Shares
to elect one designee each of Bass America, Inc. and Holiday Corporation (the
"Holiday Entities"), on the one hand, and the two entities (the "Holdings
Entities") that succeed to the Bristol shares held by United/Harvey Holdings,
L.P. ("Holdings"), on the other hand, to the FelCor Board, so long as each of
the Holiday Entities and their affiliates, on the one hand, and the Holdings
Entities and their affiliates, on the other hand, continues to own at least 25%
of their respective FelCor Common Shares obtained in the Merger.
Other than Mr. Feldman's retirement and the appointment of Donald J.
McNamara as Chairman of the Board of FelCor, the officers of FelCor are not
expected to change as a result of the Merger.
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THE SPIN-OFF
Bristol will distribute to its stockholders (the "Spin-Off") one share of
common stock of BHR ("BHR Common Shares") for every two Bristol Common Shares
(the "Spin-Off Ratio") held by them on the date the Spin-Off occurs. FelCor
stockholders will not receive BHR Common Shares in the Spin-Off. The Spin-Off is
a condition precedent to the Merger and is expected to occur on the business day
before the Effective Time of the Merger.
THE REORGANIZATION
Prior to the Spin-Off, Bristol will effect a series of mergers, asset and
stock transfers and liability assumptions among itself and its subsidiaries in
order to separate all of the management and operating business of Bristol from
Bristol's hotel real estate assets. BHR will retain all the assets and assume
the liabilities associated with the management and operating business, and
Bristol will retain all the other assets and liabilities, including all of
Bristol's existing indebtedness other than trade accounts payable. The
reorganization will take place pursuant to the terms of an agreement (the
"Spin-Off Agreement") entered into among Bristol, BHR and Bristol Hotel
Management Corporation.
Pursuant to the Spin-Off Agreement, Bristol has agreed (i) to contribute,
if necessary, sufficient assets to BHR so that BHR will have a net worth of $30
million and (ii) to lend, if necessary, sufficient cash to BHR so that BHR will
have at least $15 million in cash at the time of the Spin-Off. These agreements
were made to ensure that BHR would have sufficient liquidity to satisfy its
obligations immediately following the Spin-Off. Under the Percentage Leases, BHR
will be obligated to maintain certain minimum levels of net worth and liquidity.
Each of Bristol and BHR has agreed to indemnify the other for all
liabilities that have been assumed by such party pursuant to the Spin-Off
Agreement, other than liabilities resulting from the intentional misconduct or
gross negligence of the other party that have not previously been disclosed.
BHR PERCENTAGE LEASES
BHR will lease all of the Bristol Hotels acquired by FelCor in the Merger
pursuant to long-term leases. The leases will be for initial terms of five to 15
years, with optional renewals upon the same terms for up to a total, including
the initial term, of 15 years. The lease will require BHR to pay FelCor a
monthly rent equal to the greater of base rent and percentage rent based on
specified percentages of certain hotel revenues. The leases may be terminated by
FelCor if BHR fails to satisfy certain performance targets, if BHR fails to
maintain a minimum liquid net worth or otherwise breaches its material
obligations under the leases.
CONDITIONS TO THE SPIN-OFF
The obligation of Bristol to consummate the Spin-Off is subject to the
satisfaction or waiver of the same conditions to the consummation of the Merger
set forth in the Merger Agreement. Accordingly, the Spin-Off will not occur if
the Merger is not approved.
FEDERAL INCOME TAX CONSEQUENCES
The distribution of BHR Common Shares to Bristol stockholders will be a
taxable dividend to Bristol stockholders. A more detailed discussed of the
federal income tax consequences to Bristol stockholders is contained in the
Information Statement that is being distributed together with this document to
Bristol stockholders.
BUSINESS AND MANAGEMENT OF BHR
Following the Spin-Off, BHR will operate 124 primarily full-service hotels
in the upscale and midscale segments of the hotel market, 110 of which will be
operated under leases from FelCor. BHR will be one of the leading independent
operators of third party owned and branded hotels in the U.S. and will be the
franchisee of the largest number of Holiday Hospitality branded hotels. BHR has
also agreed to add 8,700 Holiday
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Hospitality branded rooms to its portfolio of owned or managed hotels over the
next five years. BHR intends to work with FelCor after the Merger in the
acquisition and leasing of additional hotels. BHR will continue to pursue leases
and management contracts for large, full-service hotels, especially those that
can be redeveloped and repositioned.
EMPLOYEE OPTION PLANS
Effective as of the date of the Spin-Off, each outstanding Bristol stock
option will be split into two options, one to purchase Bristol Common Shares and
the other to purchase BHR Common Shares. The BHR options will be assumed by BHR
in the Spin-Off. The options to purchase Bristol Common Shares will be assumed
by FelCor in the Merger and converted into options to purchase FelCor Common
Shares. See "The Merger Agreement -- Treatment of Bristol Stock Options."
LISTING
The BHR Common Shares have been approved for listing on the New York Stock
Exchange ("NYSE"), subject to notice of their distribution.
STOCKHOLDER APPROVAL
Stockholder approval of the Spin-Off is not required under applicable law,
and no such approval is being sought.
ADDITIONAL INFORMATION ABOUT THE SPIN-OFF
An Information Statement related to BHR is being furnished to Bristol
stockholders together with this document. Bristol stockholders are encouraged to
review the Information Statement in its entirety.
THE MERGER
GENERAL
The Merger Agreement provides for a business combination between FelCor and
Bristol in which Bristol would be merged with and into FelCor and Bristol Common
Shares would be converted into the right to receive FelCor Common Shares. As a
result of the Merger, FelCor would be the surviving corporation, and the
separate existence of Bristol would cease. The discussion in this Joint Proxy
Statement/Prospectus of the principal terms of the Merger is subject to and
qualified in its entirety by reference to the Merger Agreement, a copy of which
is attached to this Joint Proxy Statement/Prospectus as Annex A.
EFFECTIVE TIME
If the Merger Agreement is adopted by the requisite vote of the
stockholders of FelCor and Bristol and the other conditions to the Merger are
satisfied or waived (if permissible), the Merger will be consummated and
effected at the time a Certificate of Merger is filed with the Secretary of
State of Delaware and Articles of Merger are accepted for recording by the
Maryland State Department of Assessments and Taxation or at such later time as
the parties to the Merger Agreement agree and specify in such Certificate of
Merger and Articles of Merger. The Merger Agreement provides that FelCor and
Bristol will cause the effective time of the Merger (the "Effective Time") to
occur at 9:00 a.m., New York City time, on the first NYSE trading day after the
Merger closing, which will occur no later than the third business day (unless
the parties agree to another date) following the satisfaction or waiver of all
the conditions set forth in the Merger Agreement.
TERMS OF THE MERGER
In the Merger, each Bristol Common Share outstanding at the Effective Time
(other than Bristol Common Shares held in Bristol's treasury or owned by FelCor
or any subsidiary of FelCor) will be converted
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into the right to receive 0.685 (the "Exchange Ratio") FelCor Common Shares. No
fractional FelCor Common Shares will be issued, and cash will be paid in lieu of
any such fractional shares.
BACKGROUND OF THE MERGER
In 1997, FelCor determined that it would be advisable for it to consider
pursuit of one or more possible strategic relationships with entities in
addition to Promus/Doubletree. Accordingly, in June 1997, FelCor completed the
acquisition of five Sheraton hotels, establishing a new strategic alliance with
Sheraton. Sheraton has subsequently been acquired by Starwood, another lodging
REIT. FelCor's management determined that it was desirable for FelCor to develop
another strategic alliance through a substantial business combination
transaction with another lodging company. Such transaction would also provide
FelCor with sufficient scale to continue to be a substantial participant in the
rapidly consolidating lodging industry. FelCor considered a number of possible
acquisition targets and, during the period from September 1997 through
mid-January 1998, FelCor engaged in informal discussions with another publicly
traded lodging REIT regarding a possible acquisition of this REIT by FelCor. The
parties exchanged information regarding the companies and discussed various
acquisition structures, but the companies were unable to agree upon an exchange
ratio and ultimately determined to terminate such discussions in January 1998.
Also among the possible companies considered by FelCor was Bristol. FelCor's
management believed that the pursuit of a possible business combination
transaction with Bristol would be consistent with its strategy of broadening its
strategic relationships and would not preclude it from pursuing other
opportunities that may from time to time become available to it.
From time to time, Bristol's management has considered various strategic
alternatives, including possible recapitalization and business combination
transactions, in light of, among other things, the high level of consolidation
in the lodging industry and the generally higher stock market valuations
accorded in the past several years to REITs and other tax pass-through real
estate companies than have been accorded C corporations that own real estate. In
connection therewith, Bristol engaged in discussions with representatives of
other lodging and real estate related companies relating to possible business
combination transactions. However, none of those business combination
discussions with potential parties other than FelCor advanced beyond the
preliminary stage. In addition, Bristol management explored various alternative
transactions, including recapitalizations involving the split-up of Bristol's
management and hotel ownership businesses in a so-called "clipped" equity
ownership structure. Clipped ownership structures involve separate REIT real
estate ownership and C-corporation management entities, the equity securities of
which trade separately in the public securities markets, but can be held or
traded together to obtain the benefit of owning and operating the REIT's assets.
Clipped entities also cooperate to pursue specified common objectives pursuant
to long-term contractual arrangements.
On December 24, 1997, Thomas J. Corcoran, Jr., FelCor's President and Chief
Executive Officer, and Donald J. McNamara, Bristol's Chairman of the Board, met
at Mr. Corcoran's suggestion and discussed a possible business combination
involving FelCor and Bristol. These discussion were exploratory in nature, but
Mr. McNamara was generally familiar with FelCor and its assets, having served as
a member of FelCor's Board of Directors until November 1997. Following that
meeting, FelCor, Bristol and their respective financial and legal advisors
exchanged certain financial and operational information and considered possible
alternative transactions and structures over the course of the next several
weeks.
At a meeting on January 13, 1998, Randall L. Churchey, the Chief Financial
Officer of FelCor met with Jeffrey P. Mayer, Chief Financial Officer of Bristol
and Kurt Read, a director of Bristol, to discuss the historical financial
information that had been exchanged and to review possible transaction
structures. As a result of the review of exchanged information and this meeting,
Bristol and FelCor determined that there was mutual interest in continuing to
explore a possible business combination. To obtain advice and assistance in
considering the possible transaction and the issues that would be required to be
considered if such a transaction were to be pursued, Bristol requested the
assistance of Jones, Day, Reavis & Pogue ("Jones Day"), which is Bristol's
regular outside counsel in respect of securities, transactional and finance
matters, and Merrill, Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch"),
which had acted as Bristol's lead underwriter in Bristol's initial public
offering and as Bristol's financial advisor in the acquisition of Holiday
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Inns, Inc. FelCor requested the assistance of BT Wolfensohn, which firm had from
time to time provided financial advisory assistance to FelCor, Jenkens &
Gilchrist, a Professional Corporation ("Jenkens & Gilchrist"), FelCor's regular
outside counsel in respect of securities, transactional and finance matters, and
Hunton & Williams, FelCor's primary outside REIT tax counsel. Over the course of
the next several weeks, representatives of the companies and their respective
legal and financial advisors had numerous discussions of the operational,
financial, structural and tax considerations involved in a possible business
combination transaction and exchanged information with respect thereto. Among
the issues discussed were possible transaction structures, board representation,
employee and compensation matters, current redevelopment and rebranding
programs, the Holiday Hospitality brands and their positions and prospects in
the United States lodging market, the existing Bristol debt and the possibility
of refinancing the same upon more desirable terms, the REIT structure and
required lease terms and the companies' respective acquisition pipelines. Also
discussed was FelCor's desire that the Bristol Majority Stockholders enter into
the Voting Agreement to vote their shares in favor of a transaction, if approved
by the respective boards of directors of Bristol and FelCor. Among the exchanged
information were copies of the companies' existing debt instruments, 1998
budgets, forms of franchise, management and lease agreements and summaries of
various other agreements.
The Boards of Directors of FelCor and Bristol considered the possible
transaction on a number of occasions. The FelCor Board was initially advised of
a possible transaction and preliminary information was informally communicated
to the directors during January and February, 1998. Following such
communications, management received preliminary approval to proceed with
discussions. The transaction was reviewed in detail by the FelCor Board at a
regular meeting on March 5, 1998. Members of FelCor's senior management and
representatives of Jenkens & Gilchrist, FelCor's outside counsel, and BT
Wolfensohn, its financial advisor, were also present and participated in the
meeting. At this meeting, the FelCor Board received specific information
regarding the terms of the proposed transaction, information regarding Bristol,
the status of negotiations, issues relating to the transaction and a timetable
for completion of the transaction. The directors were provided with a
preliminary analysis prepared by BT Wolfensohn regarding the possible
transaction. The directors were also provided with notebooks containing copies
of Bristol's filings under the Exchange Act since January 1, 1997 and copies of
certain filings by Bristol under the Securities Act. At this meeting, the
discussion among the directors focused primarily upon the strategic implications
of the transaction, including the desirability of expansion into the mid-scale,
full-service segment of the lodging industry, the present and anticipated
perception of the Holiday Hospitality brands in the market place and the
abilities and experience of Bristol in the acquisition, redevelopment,
rebranding and operation of hotels.
The possible transaction was first reviewed by the Bristol Board at a
regular meeting on February 17, 1998. Bristol's senior management, as well as
representatives of Jones Day and Merrill Lynch participated in the meeting. At
the February 17, 1998 meeting, Bristol's senior management reviewed the
preliminary discussions regarding possible business combination transactions
conducted with other lodging industry companies, none of which were ongoing at
the time that the preliminary discussions with FelCor commenced in late December
1997. In addition, Bristol's senior management reviewed, with the assistance of
Merrill Lynch and Jones Day, the recapitalization alternatives that had been
under consideration, focusing on the clipped-share alternative. That alternative
was believed by management to be potentially the most attractive
recapitalization concept in light of, among other factors, the general reaction
to other clipped-share real estate companies in the public securities markets.
Following discussion, it was the consensus of the Bristol Board that management
should continue to pursue preliminary discussions with FelCor, although no
decision was made to pursue or not to pursue any particular strategic
alternative.
The Bristol Board met again on March 10, 1998. Bristol's senior management
and representatives of Jones Day and Merrill Lynch also participated in the
meeting. At the March 10 meeting, Bristol's senior management updated the Board
regarding the course of the discussions with representatives of FelCor. In
addition, a representative of Jones Day reviewed the structural alternatives
under consideration and outlined a possible timetable for the completion of
discussions, which contemplated that a decision could be made as to whether to
pursue a transaction with FelCor by the end of March 1998.
At about this time, the parties' respective legal and financial advisors
had jointly determined that a transaction structure involving a spin-off of
Bristol's hotel operations business and subsequent parent-to-parent
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merger would be workable, exchanged drafts of definitive documentation and began
a substantially continuous series of discussions and negotiations regarding the
terms of a possible transaction which culminated in daily meetings during the
week of March 16, 1998. In a series of meetings leading up to and including the
weekend of March 21, 1998, the parties discussed and resolved key financial and
other issues, including the Exchange Ratio, conditions to the Merger, the
allocation of liabilities between FelCor and BHR, the composition of the FelCor
Board following the Merger and other matters. Substantially simultaneously
therewith, representatives of FelCor and the Bristol Majority Stockholders
discussed and resolved issues relating to the relationship of Holiday Entities
and Holdings with FelCor following the Merger, and representatives of Bristol
and the Holiday Entities negotiated the price for the redemption of a portion of
the Holiday Entities' equity interest in BHR and amendments to certain
agreements between Bristol and the Holiday Entities described in "Interests of
Certain Persons in the Merger -- Redemption of Holiday Entities' BHR Common
Shares" and "-- Hotel Properties Agreement."
A special meeting of the FelCor Board was held on March 23, 1998 at which
the possible transaction with Bristol was reviewed in detail with the FelCor
Board by FelCor's senior management with the assistance of Jenkens & Gilchrist
and BT Wolfensohn. The presentations and discussions at the meeting were
wide-ranging and detailed and included, among other things, (i) a presentation
by management regarding the terms of the proposed transaction and the relative
benefits and risks thereof, (ii) a written and oral presentation by BT
Wolfensohn regarding the transaction and the fairness of the transaction from a
financial point of view to FelCor and (iii) presentations by Lawrence Robinson,
FelCor's General Counsel, and by representatives of Jenkens & Gilchrist,
FelCor's outside counsel, regarding the duties of the directors and issues
relating to the transaction. Thereafter, BT Wolfensohn orally advised the FelCor
Board, which advice was subsequently confirmed in writing as of March 23, 1998,
of BT Wolfensohn's opinion that, as of March 23, 1998, the Exchange Ratio was
fair from a financial point of view to FelCor. Thereafter, the FelCor Board, by
unanimous vote, approved the Merger Agreement and related documents.
A special meeting of the Bristol Board was held on March 23, 1998, at which
the possible transaction with FelCor was reviewed in detail with the Bristol
Board by Bristol's senior management with the assistance of Jones Day and
Merrill Lynch. The presentations and discussions at the meeting were
wide-ranging and detailed and included, among other things, (i) a presentation
by management regarding events since the March 10, 1998 meeting of the Bristol
Board, (ii) a description by Jones Day of the material terms of the Merger
Agreement and related documents, including the Voting Agreement, (iii) a
presentation by Jones Day regarding the duties of the directors, (iv)
presentations by Merrill Lynch regarding the fairness of the possible
transaction with FelCor from a financial point of view, and (v) a presentation
by Jones Day regarding the provisions of the documentation in respect of the
Merger and other matters in which management, Holiday or Holdings might be said
to have interests different from or in addition to the interests of Bristol
stockholders generally. Thereafter, Merrill Lynch orally advised the Board,
which advice was subsequently confirmed in writing as of March 23, 1998, of
Merrill Lynch's opinion that, as of March 23, 1998, the Exchange Ratio was fair
from a financial point of view to Bristol's stockholders. Thereafter, the
Bristol Board, by unanimous vote, approved the Merger Agreement and related
documents.
Following additional discussions of the terms of the definitive
documentation, the parties executed the Merger Agreement and the Voting
Agreement, and publicly announced the transaction during the evening of March
23, 1998. The Voting Agreement was entered into at the request of FelCor and for
the purpose of inducing FelCor to enter into the Merger Agreement by providing
assurance that the Bristol stockholders would approve the Merger, and that the
REIT rules applicable to FelCor would be complied with by providing for the
redemption of a portion of the BHR shares to be distributed to the Holiday
Entities and by providing for the distribution to two separate entities of the
Bristol Common Shares held by Holdings.
FELCOR'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE FELCOR BOARD
The FelCor Board believes that the terms of the Merger are fair to, and the
Merger is in the best interests of, FelCor and its stockholders. Accordingly,
the FelCor Board has approved and adopted the Merger Agreement, including the
Merger and amendments to the FelCor Charter provided for therein, and determined
to submit the Merger Agreement to FelCor's stockholders for consideration and
adoption. In
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forming this belief, the FelCor Board consulted with FelCor's management, as
well as FelCor's outside legal counsel, accountants and its financial advisor,
BT Wolfensohn, and considered the following material positive factors:
1. The Merger would represent a further extension of FelCor's
developing multi-brand strategy that focuses on full-service hotels;
2. The addition of Bristol's real estate assets would enhance FelCor's
critical mass and market presence, and result in FelCor being the largest
non-paired share lodging REIT (one whose shares are not traded together
with those of a hotel operating company) and the third largest lodging REIT
in terms of total market capitalization. In this regard, the FelCor Board
determined that the surviving company's size itself would enhance overall
financing ability, access to deal flow and acquisition opportunities;
3. The Merger would result in an on-going, strategic alliance with
BHR, the management of which has a demonstrated expertise in hotel
acquisitions, management and repositioning strategy, and with Bristol's
principal stockholders, including the parent of Holiday Hospitality which
franchises Holiday Inns and Crowne Plaza hotels. The Holiday Inns name is
one of the most recognized brand names in America. While there will be
significant ownership of FelCor by the Bristol Majority Stockholders, the
Board believed that FelCor's flexibility would continue by its decision not
to adopt a so-called "clipped" share structure under which BHR's future
operations would be more closely linked, contractually, to FelCor;
4. The introduction of BHR as an independent, third party lessee is
expected to be viewed positively by investors. The execution of new
Percentage Leases with BHR covering the Bristol Hotels as part of the
Spin-Off would constitute the initial step in a new strategy of seeking
independent, third party lessees to operate FelCor's hotels;
5. The Merger is expected to be accretive to FelCor's estimated per
share funds from operations in 1998, 1999 and 2000, which the Board
considered to be more important than the resulting pro forma decrease in
earnings per share;
6. The real estate assets of Bristol would further diversify FelCor's
assets by category of hotel and by geographic location. Diversification by
geographic location and category of hotel should improve FelCor's stability
and performance during economic downturns affecting one region or type of
hotel;
7. The ongoing program of Holiday Hospitality to upgrade its image and
franchise system by substantial system-wide upgrades and refurbishment,
which was believed to create a potential for growth in revenues of the
Bristol hotels; and
8. FelCor's enhanced size and financing capabilities, the ongoing
strategic alliance with BHR, the post-Merger relationship between BHR and
the Holiday Entities and the significant ownership of FelCor Common Shares
by the Holiday Entities should provide new opportunities to FelCor to
acquire, upgrade and reposition hotels, especially those franchised by
Holiday Hospitality.
The FelCor Board also considered the presentations and analyses of BT
Wolfensohn, financial advisor to FelCor, BT Wolfensohn's opinion to the effect
that, as of March 23, 1998, the Exchange Ratio is fair to FelCor from a
financial point of view and the terms and structure of the Merger, including the
provisions of the Merger Agreement and the Voting Agreement. See "-- Opinion of
FelCor's Financial Advisor," "The Merger Agreement" and "The Voting Agreement."
In view of the wide variety of factors considered, the FelCor Board did not
find it practicable to, and did not, quantify or otherwise attempt to rank or
assign relative weights to the specific factors considered in making its
determination. In addition, individual members of the FelCor Board may have
given different weights to different factors. However, FelCor believes that, in
general, the most important factors considered by the FelCor Board in its
analysis of the Merger were those described in paragraphs 1, 2, 3, 4 and 5 above
and BT Wolfensohn's fairness opinion. The factors described in paragraphs 1 and
3 above are important because they are consistent with and enhance the
attainment of FelCor's objectives of developing multiple relationships with high
quality hotel operators that either own, or have a unique relationship with the
owner of,
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recognized brands appropriate to the range of full-service hotels in which
FelCor invests. FelCor believes that this multi-brand strategy should provide
FelCor with the diversity necessary to select the best operator and brand for a
particular hotel and market. The increase in size discussed in paragraph 2 above
is important in that increased size generally results in increased opportunities
to raise capital upon favorable terms. The factor discussed in paragraph 4 above
is important in that it introduces an independent third party lessee for FelCor
hotels, thereby reducing potential direct conflicts of interest. The
accretiveness of the transaction to FelCor's estimated FFO per share and BT
Wolfensohn's fairness opinion are important because they relate directly to the
economic benefits to be received by FelCor in the Merger and the fairness of the
Merger, from a financial point of view, to FelCor. The FelCor Board did not
specifically adopt the conclusions of the BT Wolfensohn fairness opinion, other
than the conclusion that the Merger is fair to FelCor, which the Board
independently determined after considering all of the foregoing factors
including the fairness opinion.
The FelCor Board also considered the following potential risks and
detriments related to the Merger:
1. The Merger would represent a further departure from FelCor's
historical upscale, all-suite hotel strategy;
2. The likelihood of achieving the anticipated results of operations
for the Bristol Hotels as a result of Bristol's repositioning strategy;
3. The substantial debt of Bristol being assumed could adversely
affect FelCor's ability to obtain additional financing and result in higher
borrowing costs;
4. The risk that the Merger may negatively impact FelCor's existing
strategic alliances;
5. The relative market perception of the Holiday Inns brand versus the
Embassy Suites, Doubletree and Sheraton brands under which most of FelCor's
current hotels are operated;
6. The differences between FelCor's existing strategic alliances and
the new strategic alliance with BHR, and BHR's lack of control over the
Holiday Hospitality brands; and
7. The risk that third parties may make alternative proposals to
Bristol.
In considering the foregoing potential risks and detriments, the FelCor
Board concluded that the benefits to be derived from Merger outweighed the
potential risks and detriments listed above. The FelCor Board concluded that the
$65 million break-up fee in the Merger Agreement would compensate FelCor
adequately for its losses should Bristol pursue a competing transaction. The
FelCor Board believed that FelCor should be able to refinance the Bristol debt
assumed as a result of the Merger. While the FelCor Board recognized that
relying on the anticipated results of operations for the Bristol Hotels
presented some risk, it believed that the substantial benefits, in the form of
increased rental revenue warranted the assumption of this risk. The FelCor Board
concluded that these potential risks and detriments were outweighed by the
potential positive factors considered by the FelCor Board described above.
Accordingly, the FelCor Board voted unanimously to approve and adopt the Merger
Agreement and to submit the Merger proposal to the stockholders of FelCor for
consideration and approval.
THE FELCOR BOARD BELIEVES THE MERGER IS FAIR AND IN THE BEST INTERESTS OF
FELCOR AND ITS STOCKHOLDERS. THE FELCOR BOARD UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF FELCOR VOTE FOR THE ADOPTION OF THE MERGER AGREEMENT.
BRISTOL'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BRISTOL BOARD
On March 23, 1998, the Bristol Board determined by unanimous vote that the
Merger is in the best interests of Bristol and Bristol stockholders and resolved
to recommend that Bristol stockholders vote for adoption of the Merger
Agreement. The decision of the Bristol Board to approve the Merger Agreement and
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recommend the adoption thereof by Bristol stockholders was based upon various
factors, including, in addition to the factors relevant to Bristol referred to
in "-- Background of the Merger," the following:
1. The Bristol Board's understanding of conditions in the lodging
industry in the United States, the strategic options available to Bristol
and the likelihood of future consolidation in the lodging industry. In this
regard, it was the consensus of the Bristol Board and senior management
that it was not likely that a superior transaction involving the
combination of Bristol's owned hotels with another REIT or other entity
would be available in the near or intermediate term and that the Merger and
the Spin-Off were superior to any clipped share or other recapitalization
transaction available to Bristol;
2. Bristol's prospects as a standalone entity, including that, with
respect to Bristol's owned hotels, the belief that those assets would
receive a higher valuation in the public securities markets if owned by a
REIT or other tax pass-through entity;
3. The Bristol Board's consideration of information regarding the
business, financial condition, results of operations, prospects and
management of Bristol and FelCor, the fit between Bristol's owned assets
and the FelCor Hotels and the expectation that, based on the Exchange
Ratio, the Merger would be accretive to FelCor's estimated per share funds
from operations;
4. The Exchange Ratio and related terms of the Merger Agreement,
including the possibility that, because the Exchange Ratio was fixed, the
market value of FelCor Common Shares into which Bristol Common Shares would
be converted as of the Effective Time could be lower than the price per
FelCor Common Share prior to the execution of the Merger Agreement as a
result of changes in the market prices for FelCor Common Shares, the
historical trading prices for FelCor and Bristol Common Shares, Bristol's
right to terminate the Merger Agreement if the volume weighted average
sales price for FelCor Common Shares was less from $28.00 per share over a
10 trading day period and the course of the negotiations relating to the
terms of the Merger (see "-- Background of the Merger");
5. The support for the transaction by the Holiday Entities and
Holdings and their willingness to modify existing agreements between or
among them and Bristol to facilitate the transaction, including the Holiday
Entities amendment of the Bristol-Holiday Entities Hotel Properties
Agreement to eliminate the requirement that, in general, 85% of Bristol's
hotels operate under a Holiday Hospitality brand (see "-- Interests of
Certain Persons in the Merger -- Hotel Properties Agreement");
6. The other terms of the Merger Agreement, including the terms
relating to the relationship between the Holiday Entities, Holdings and
FelCor following the Merger, the composition of the FelCor Board and the
terms of the Voting Agreement and the other matters described in
"-- Interests of Certain Persons in the Merger," including the interests of
Bristol Board members in such matters;
7. The expectation that the Merger could be accomplished on a tax-free
basis to Bristol stockholders (other than cash received in lieu of
fractional shares);
8. The willingness of Messrs. Kline and Beckert to modify their
existing employment and option agreements so that the Merger and the
Spin-Off would not constitute events that would give them rights to
severance or other benefits;
9. The no-shop and related terms of the Merger Agreement, as well as
the terms of the Merger Agreement which, subject to certain restrictions,
would permit Bristol to terminate the Merger Agreement upon payment of a
$60 million termination fee and a $5 million expense reimbursement to
FelCor if a superior proposal were made to Bristol prior to the vote by
Bristol stockholders on the Merger (see "The Merger
Agreement -- Solicitation of Other Proposals; Break-up Fee"); and
10. The opinion of Merrill Lynch described below that, as of March 23,
1998, the Exchange Ratio was fair from a financial point of view to holders
of the Bristol Common Shares (see "-- Opinion of Bristol's Financial
Advisor").
In view of the variety of factors considered in connection with its
evaluation of the Merger, the Bristol Board did not find it practicable to and
did not attempt to rank or assign relative weights to the foregoing
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factors. In addition, individual members of the Bristol Board may have given
different weights to different factors. However, Bristol believes that, in
general, the most important factors considered by the Bristol Board in its
analysis of the Merger were those described in paragraphs 1, 2, 3, 4, 5 and 10
above. The factors described in paragraphs 1 and 2 above were important because
they relate to Bristol's strategic alternatives and the ability of the Bristol
stockholders to continue their ownership in Bristol's hotels through a REIT
structure and in Bristol's hotel operating business through BHR. The factors
described in paragraphs 3 and 4 above and the Merrill Lynch fairness opinion
were important because they relate to the terms of the Merger and the Merger's
fairness to Bristol stockholders. The factor described in paragraph 5 was
important because it modified obligations that would not be assumed by FelCor.
The Bristol Board did not specifically adopt the conclusions of Merrill Lynch's
fairness opinion, but did rely on it in reaching its conclusion that the Merger
is fair to and in the best interests of Bristol and its stockholders and
considered it an important factor in determining whether to approve the Merger
Agreement.
The Bristol Board also considered possible detriments and risk in approving
the Merger Agreement and the Spin-Off, including the following:
1. BHR would have fixed obligations to FelCor under the leases between
the parties requiring, in certain circumstances, payments regardless of the
operating results of the leased hotels;
2. The Spin-Off would be a taxable transaction for federal income tax
purposes;
3. BHR would be strategically dependent on FelCor, but would not have
contractual rights to operate properties FelCor might acquire in the
future; and
4. The matters referred to in "Risk Factors" above.
The factors referred to in paragraphs 2 and 4 above were regarded by the Bristol
Board as inherent in the Merger and Spin-Off transactions. Based upon analyses
prepared by Bristol's senior management, it was the consensus of the Bristol
Board and Bristol's senior management that it was unlikely that the fixed
obligations under the FelCor leases would have a material adverse effect on
BHR's future prospects. The absence of a contractual right to operate FelCor's
future properties was believed to be offset by the flexibility resulting
therefrom and the belief by Bristol's senior management that Bristol and FelCor
would likely continue to pursue future business in any event due to the
substantial relationship they would have after the Merger and other factors.
Finally, the Bristol Board concluded that these potential risks and detriments
outlined in this paragraph were outweighed by the potential positive factors
considered by the Bristol Board described above.
THE BRISTOL BOARD BELIEVES THAT THE MERGER IS FAIR TO AND IN THE BEST
INTERESTS OF BRISTOL AND ITS STOCKHOLDERS. THE BOARD UNANIMOUSLY RECOMMENDS THAT
BRISTOL STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
OPINION OF FELCOR'S FINANCIAL ADVISOR
BT Wolfensohn has acted as financial advisor to FelCor in connection with
the Merger. At the March 23, 1998 meeting of the FelCor Board, BT Wolfensohn
delivered its oral opinion, subsequently confirmed in writing as of the same
date, and as of the date hereof, to the FelCor Board to the effect that, as of
the respective date of such opinion, the Exchange Ratio was fair, from a
financial point of view, to FelCor.
THE FULL TEXT OF BT WOLFENSOHN'S WRITTEN OPINION, DATED AS OF THE DATE OF
THIS JOINT PROXY STATEMENT/ PROSPECTUS (THE "BT WOLFENSOHN OPINION"), WHICH SETS
FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS
ON THE REVIEW UNDERTAKEN BY BT WOLFENSOHN IN CONNECTION WITH THE OPINION, IS
ATTACHED AS ANNEX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED
HEREIN BY REFERENCE. FELCOR STOCKHOLDERS ARE URGED TO READ THE BT WOLFENSOHN
OPINION IN ITS ENTIRETY. BT WOLFENSOHN WILL NOT UPDATE THE BT WOLFENSOHN OPINION
BETWEEN THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE DATE OF THE
FELCOR ANNUAL MEETING OR THE EFFECTIVE TIME OF THE MERGER. THE SUMMARY OF THE BT
WOLFENSOHN OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE BT WOLFENSOHN
OPINION.
In connection with BT Wolfensohn's role as financial advisor to FelCor, and
in arriving at its opinion, BT Wolfensohn has, among other things, reviewed
certain publicly available financial information and other
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information concerning FelCor and Bristol and certain internal analyses and
other information furnished to it by FelCor and Bristol. BT Wolfensohn also held
discussions with the members of the senior managements of FelCor and Bristol
regarding the businesses and prospects of their respective companies and the
joint prospects of a combined enterprise. In addition, BT Wolfensohn (i)
reviewed the reported prices and trading activity for the common stock of both
FelCor and Bristol, (ii) compared certain financial and stock market information
for FelCor and Bristol with similar information for selected companies whose
securities are publicly traded, (iii) reviewed the financial terms of selected
recent business combinations which it deemed comparable in whole or in part,
(iv) reviewed the financial terms of certain hotel portfolio transactions it
deemed comparable in whole or in part, (v) reviewed the terms of the Merger
Agreement and certain related documents, and (vi) performed such other studies
and analyses and considered such other factors as it deemed appropriate. Except
to the extent disclosed below, the studies and analyses referenced in clause
(vi) were not material to the BT Wolfensohn Opinion. There were no specific
factors that did not support the BT Wolfensohn Opinion.
In preparing its opinion, BT Wolfensohn did not assume responsibility for
the independent verification of, and did not independently verify, any
information, whether publicly available or furnished to it, concerning FelCor or
Bristol, including, without limitation, any financial information, forecasts or
projections, considered in connection with the rendering of its opinion.
Accordingly, for purposes of its opinion, BT Wolfensohn assumed and relied upon
the accuracy and completeness of all such information. BT Wolfensohn did not
conduct a physical inspection of any of the properties or assets, and did not
prepare or obtain any independent evaluation or appraisal of any of the assets
or liabilities of FelCor or Bristol. With respect to the financial forecasts
made available to BT Wolfensohn and used in its analysis, BT Wolfensohn has
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of FelCor or
Bristol as to the matters covered thereby. In rendering its opinion, BT
Wolfensohn expressed no view as to the reasonableness of such forecasts or the
assumptions on which they are based. The BT Wolfensohn Opinion was necessarily
based upon economic, market and other conditions as in effect on, and the
information made available to BT Wolfensohn as of, the date of such opinion. In
requesting the BT Wolfensohn Opinion, neither FelCor nor any affiliate of FelCor
gave any special instruction to BT Wolfensohn.
For purposes of rendering its opinion, BT Wolfensohn has assumed that, in
all respects material to its analysis, the representations and warranties of
FelCor and Bristol contained in the Merger Agreement are true and correct, that
FelCor and Bristol will each perform all of the covenants and agreements to be
performed by it under the Merger Agreement and all conditions to the obligation
of each of FelCor and Bristol to consummate the Merger will be satisfied without
any waiver thereof. BT Wolfensohn has also assumed that all material
governmental, regulatory or other approvals and consents required in connection
with the consummation of the transactions contemplated by the Merger Agreement
will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which
either FelCor or Bristol is a party or subject or by which it is bound, no
limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on
FelCor or Bristol or materially reduce the contemplated benefits of the Merger
to FelCor. In addition, BT Wolfensohn has assumed that following the
consummation of the Merger, FelCor will continue to qualify as a REIT under the
Internal Revenue Code of 1986, as amended (the "Code"). In addition, BT
Wolfensohn has been advised by FelCor, and accordingly has assumed for purposes
of its opinion, that the Merger will be tax-free to the stockholders of each of
FelCor and Bristol except for the receipt of cash in lieu of fractional shares
by Bristol stockholders. The Spin-Off will be taxable to Bristol and its
stockholders.
Set forth below is a brief summary of certain financial analyses performed
by BT Wolfensohn in connection with its opinion and reviewed with the FelCor
Board at its meeting on March 23, 1998 as updated through the date of this Joint
Proxy Statement/Prospectus. In analyzing Bristol, BT Wolfensohn gave pro forma
effect to the Spin-Off, which will result in Bristol owning only its real estate
assets.
Analysis of Selected Publicly Traded Companies. BT Wolfensohn compared
certain financial information and commonly used valuation measurements for
Bristol to corresponding information and measurements
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for a group of ten publicly traded lodging companies (consisting of American
General Hospitality Corporation, Sunstone Hotel Investors, Inc., Innkeepers USA
Trust, Hospitality Properties Trust, Boykin Lodging Company and Equity Inns,
Inc. (the "Selected REITs") and Host Marriott Corporation, CapStar Hotel
Company, Servico, Inc. and Prime Hospitality Corp. (the "Selected C-Corps", and
together with the Selected REITs, the "Selected Companies"). Such financial
information and valuation measurements included, among other things, (i) common
equity market valuation, (ii) common equity market valuation as adjusted for
debt and cash ("Enterprise Value"), and (iii) in the case of the Selected REITs,
the ratio of common equity market valuation to estimated 1998 funds from
operations ("FFO") and the ratio of Enterprise Value to number of rooms, or, in
the case of the Selected C-Corps, the ratio of Enterprise Value to earnings
before interest expense, income taxes, depreciation and amortization ("EBITDA").
To calculate the trading multiples for Bristol and the Selected Companies, BT
Wolfensohn used publicly available information concerning historical and
projected financial performance, including published historical financial
information and earnings and FFO estimates reported by Institutional Brokers
Estimate System ("IBES") and First Call Corporation ("First Call"),
respectively. IBES and First Call are data services that monitor and publish
compilations of earnings and FFO estimates by selected research analysts
regarding companies of interest to institutional investors. BT Wolfensohn
calculated that on a one-year forward-looking basis, the multiple of Equity
Value to FFO implied for Bristol in the Merger was 8.3x compared to a range for
the Selected REITs of 7.3x to 8.7x, with a median of 8.3x. These FFO multiples
imply exchange ratios of 0.607 to 0.723 with a median of 0.690, compared to the
exchange ratio of 0.685 in the Merger. The ratio of Enterprise Value to number
of rooms implied for Bristol in the Merger was approximately $61,800 compared to
a range of $52,900 to $109,100, with a median of $75,100, for the Selected
REITs. These per room ratios imply exchange ratios of 0.396 to 1.302 with a
median of 0.754, compared to the exchange ratio of 0.685 in the Merger. BT
Wolfensohn also calculated that the multiple of Enterprise Value to one-year
forward-looking EBITDA implied for Bristol in the Merger was 9.8x compared to a
range of 5.6x to 8.5x, with a median of 8.2x, for the Selected C-Corps. These
EBITDA multiples imply exchange ratios of 0.194 to 0.532 with a median of 0.497,
compared to the exchange ratio of 0.685 in the Merger.
None of the companies utilized as a comparison is identical to Bristol or
FelCor. Accordingly, BT Wolfensohn believes the analysis of publicly traded
comparable companies is not simply mathematical. Rather, it involves complex
considerations and qualitative judgments, reflected in BT Wolfensohn's opinion,
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies.
Analysis of Selected Precedent Transactions. BT Wolfensohn reviewed the
financial terms, to the extent publicly available, of 13 proposed, pending or
completed mergers and acquisition transactions since January 1996 involving
companies in the lodging industry (the "Selected Transactions"). BT Wolfensohn
calculated various financial multiples based on certain publicly available
information for each of the Selected Transactions and compared them to
corresponding financial multiples and premiums over market value for the Merger,
based on the Exchange Ratio. The transactions reviewed (and the dates of their
announcement) were: Inter-Continental Hotels/Bass plc (2/20/98), Chartwell
Leisure/Whitehall Real Estate L.P. (11/13/97), Doubletree Corporation/Promus
Hotel Corporation (9/2/97), Vacation Break U.S.A., Inc./ Fairfield Communities,
Inc. (8/11/97), Clubhouse Hotels, Inc./Wyndham Hotel Corporation (7/22/97),
Renaissance Hotel Group/Marriott International, Inc. (2/18/97), Studio Plus
Hotels, Inc./Extended Stay America, Inc. (1/17/97), Red Lion Hotels/Doubletree
Corporation (9/12/96) (collectively, the "Selected C-Corp Transactions") and
American General Hospitality Corporation/CapStar Hotel Company (3/15/98), La
Quinta Inns, Inc./Meditrust Corporation (1/4/98), Interstate Hotels
Company/Patriot American Hospitality, Inc.(12/2/97), ITT Corp./Starwood Lodging
Trust (10/20/97) and Wyndham Hotel Corporation/Patriot American Hospitality,
Inc. (4/14/97) (collectively, the "Selected REIT Transactions"). BT Wolfensohn
calculated that the multiple of Enterprise Value to one-year forward-looking
EBITDA was 9.8x for the Merger compared to a range of 9.6x to 29.8x latest 12
months EBITDA, with a median of 16.3x, for the Selected C-Corp Transactions and
10.2x and 11.0x one-year forward-looking EBITDA for the two Selected C-Corp
Transactions for which there was publicly available information. The latest
twelve months EBITDA multiples for Selected C-Corp Transactions imply exchange
ratios of 0.354 to 2.060 with a median of 0.920 and the one-year forward-looking
EBITDA multiples for the Selected C-Corp Transactions for which
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there was publicly available information imply exchange ratios of 0.729 to
0.822, compared to the exchange ratio of 0.685 in the Merger. BT Wolfensohn
calculated that the multiple of Enterprise Value to a one-year forward-looking
EBITDA for the Selected REIT Transactions was a range of 10.2x to 12.7x, with a
median of 10.9x. These EBITDA multiples imply exchange ratios of 0.729 to 1.020
with a median of 0.811, compared to the exchange ratio of 0.685 in the Merger.
BT Wolfensohn further calculated that the multiple of Equity Value to one-year
forward-looking FFO was 8.3x for the Merger compared to a range of 9.3x to
14.5x, with a median of 9.9x, for the Selected REIT Transactions. These FFO
multiples imply exchange ratios of 0.773 to 1.205 with a median of 0.823
compared to the exchange ratio of 0.685 in the Merger.
Analysis of Selected Precedent Portfolio Transactions. BT Wolfensohn also
reviewed the financial terms, to the extent publicly available, of fourteen
proposed, pending or completed hotel portfolio acquisitions announced since
December 1996 (collectively, the "Selected Portfolio Transactions"). The
transactions reviewed were: Equity Inns Inc.'s acquisition of AmeriSuites brand
hotels from Prime Hospitality Corporation (5/7/98), Innkeepers USA Trust's
acquisition of Residence Inn brand hotels from Marriott International, Inc.
(4/27/98), Host Marriott Corporation's acquisition of various luxury and full
service properties from Blackstone Group (4/18/98), Boykin Lodging Company's
acquisition of Doubletree licensed hotels from Red Lion Inns Limited Partnership
(12/31/97), Innkeepers USA Trust's acquisition of Marriott brand hotels from
Marriott International, Inc. (12/23/97), American General Hospitality
Corporation's acquisition of various full-service hotels from Financial Security
Assurance Corporation (12/15/97), American General Hospitality Corporation's
acquisition of various full-service assets from Prime Hospitality Corporation
(12/3/97), Hospitality Properties Trust's acquisition of Candlewood brand
properties from Candlewood Hotel Company, Inc. (11/20/97), Hospitality
Properties Trust's acquisition of various Sumner Suites brand hotels from
ShoLodge, Inc. (10/27/97), Hospitality Properties Trust's acquisition of
Marriott brand hotels from Marriott International, Inc. (10/13/97), Equity Inns
Inc.'s acquisition of AmeriSuites brand hotels from Prime Hospitality
Corporation (9/22/97), Sunstone Hotel Investors' acquisition of various
full-service hotels from Kahler Hotels, Inc. (8/6/97), Hospitality Properties
Trust's acquisition of Marriott brand hotels from Marriott International, Inc.
(4/3/97), and Bristol Hotel Company's acquisition of Holiday Inn brand hotels
from Bass plc (12/16/96). BT Wolfensohn calculated the multiple of Enterprise
Value to number of rooms was approximately $61,800 for the Merger compared to a
range of $35,700 to $306,400, with a median $86,400, for the Selected Portfolio
Transactions. These per room ratios imply exchange ratios of 0.118 to 4.483 with
a median of 0.936, compared to the exchange ratio of 0.685 in the Merger.
All multiples for the Selected Transactions and the Selected Portfolio
Transactions were based on public information available at the time of
announcement of such transaction, without taking into account differing market
and other conditions during the two-year period during which the Selected
Transactions or the Selected Portfolio Transactions occurred. Because the
reasons for, and circumstances surrounding, each of the precedent transactions
analyzed were so diverse, and due to the inherent differences between the
operations and financial conditions of Bristol and FelCor and the companies
involved in the Selected Transactions and the Selected Portfolio Transactions,
BT Wolfensohn believes that a comparable transaction analysis is not simply
mathematical. Rather, it involves complex considerations and qualitative
judgments, reflected in BT Wolfensohn's opinion, concerning differences between
the characteristics of these transactions and the Merger that could affect the
value of the subject companies and businesses and Bristol and FelCor.
Discounted Cash Flow Analysis. BT Wolfensohn performed a discounted cash
flow analysis ("DCF") for Bristol. BT Wolfensohn calculated the discounted cash
flow values of Bristol as the sum of the net present values of (i) the estimated
future cash flow that Bristol will generate for the years 1998 through 2002,
plus (ii) the value of Bristol at the end of such period. The estimated future
cash flows were based on internal forecasts for Bristol for the years 1998
through 2002 prepared by Bristol's management. The terminal value of Bristol was
calculated based on projected EBITDA for 2002 and a range of multiples of 8.0x
to 10.0x. BT Wolfensohn used discount rates ranging from 9.5% to 10.5%. BT
Wolfensohn used such discount rates based on its judgment of the estimated
weighted average cost of capital of Selected REITs, and used such multiples
based on its review of the trading characteristics of the common stock of the
Selected REITs and the Selected C-Corps. This analysis indicated a range of
equity values of $1,304 million to $1,780 million
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compared to an Equity Value of $1,058 million for Bristol in the Merger. These
equity values imply exchange ratios of 0.845 to 1.153, compared to the exchange
ratio of 0.685 in the Merger.
Contribution Analysis. BT Wolfensohn analyzed the relative contributions of
Bristol and FelCor, as compared to FelCor's relative ownership of approximately
58% of the outstanding capital of the combined company, to the pro forma income
statement of the combined company, based on managements' internal forecasts for
their respective companies. This analysis showed that on a pro forma combined
basis (excluding non-recurring expenses relating to the Merger), based on the
one-year periods ending 1998, 1999 and 2000, Bristol and FelCor would account
for approximately 42% and 58%, respectively, 48% and 57%, respectively, and
approximately 46% and 54%, respectively, of the combined company's pro forma
FFO.
Pro Forma Combined FFO Analysis. BT Wolfensohn analyzed the pro forma
effects of the Merger on FelCor's estimated future FFO per share. The estimated
FFO for FelCor and Bristol was based on internal forecasts for the years 1998
through 2000 provided by respective managements. Based on such analysis, BT
Wolfensohn computed the resulting dilution/accretion to the FelCor's FFO per
share estimate for the fiscal years ending 1998, 1999 and 2000 before
non-recurring costs relating to the Merger. BT Wolfensohn noted that, before
taking into account non-recurring costs, the Merger would be accretive in 1998,
1999 and 2000 to FelCor's internally estimated FFO per share.
Pro Forma Share Price Analysis. BT Wolfensohn performed an analysis of
FelCor's potential share price assuming the Merger were to be consummated. Based
on hypothetical multiples of 1998 FFO ranging from FelCor's current multiple
minus one to FelCor's current multiple plus one, and after giving effect to the
Exchange Ratio of 0.685, BT Wolfensohn calculated pro forma equity market values
per share ranging from $30.10 to $38.02 compared to FelCor's price of $33.31 on
June 8, 1998.
Other Analyses. BT Wolfensohn analyzed the pro forma impact of the Merger
on FelCor's coverage ratios. In this regard, BT Wolfensohn noted that while the
pro forma debt/capital ratios for the combined company are greater than
FelCor's, the pro forma EBITDA/interest expense ratio and FFO/debt (calculated
without considering non-recurring charges associated with the Merger) of the
combined company were lower than FelCor's and the pro forma debt/EBITDA of the
combined company was higher than FelCor's, they remain within published S&P
credit statistics for BB-rated companies. BT Wolfensohn also considered pro
forma DCF values for the combined company, prepared by combining stand-alone
projections provided by respective managements and in accordance with the
procedures described under the caption "Discounted Cash Flow Analysis" above. BT
Wolfensohn compared pro forma DCF value ranges implied for FelCor stockholders
(the "Implied Combined DCF Valuation") with the FelCor stand-alone DCF value
range (the "Stand-alone FelCor DCF Valuation"). BT Wolfensohn noted that the
Implied Combined DCF Valuation was approximately 3% to 6% greater than the
Stand-alone FelCor DCF Valuation without considering any cost savings.
The foregoing summary describes all analyses and factors that BT Wolfensohn
deemed material in its presentation to the FelCor Board, but is not a
comprehensive description of all analyses performed and factors considered by BT
Wolfensohn in connection with preparing its opinion. The preparation of a
fairness opinion is a complex process involving the application of subjective
business judgment in determining the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, is not readily susceptible to summary description.
BT Wolfensohn believes that its analyses must be considered as a whole and that
considering any portion of such analyses and of the factors considered without
considering all analyses and factors could create a misleading view of the
process underlying the opinion. In arriving at its fairness determination, BT
Wolfensohn did not assign specific weights to any particular analyses.
In conducting its analyses and arriving at its opinions, BT Wolfensohn
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling BT Wolfensohn to provide its opinion
to the FelCor Board as to the fairness to FelCor of the Exchange Ratio and does
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold, which are inherently subject to
uncertainty. In connection with its analyses, BT Wolfensohn made, and was
provided by FelCor management with, numerous assumptions with respect to
industry performance, general
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business and economic conditions and other matters, many of which are beyond
FelCor's or Bristol's control. Analyses based on estimates or forecasts of
future results are not necessarily indicative of actual past or future values or
results, which may be significantly more or less favorable than suggested by
such analyses. Such analyses are inherently subject to uncertainty, being based
upon numerous factors or events beyond the control of FelCor, Bristol or their
respective advisors, and future results or actual values may be materially
different from these estimates, forecasts or assumptions.
The terms of the Merger were determined through negotiations between FelCor
and Bristol and were approved by the FelCor Board. Although BT Wolfensohn
provided advice to FelCor during the course of these negotiations, the decision
to enter into the Merger was solely that of the FelCor Board. As described
above, the opinion and presentation of BT Wolfensohn to the FelCor Board were
only one of a number of factors taken into consideration by the FelCor Board in
making its determination to approve the Merger. BT Wolfensohn's opinion was
provided to the FelCor Board to assist it in connection with it consideration of
the Merger and does not constitute a recommendation to any holder of FelCor
Common Shares as to how to vote with respect to the Merger.
FelCor selected BT Wolfensohn as financial advisor in connection with the
Merger based on BT Wolfensohn's qualifications, expertise, reputation and
experience in mergers and acquisitions. BT Wolfensohn is engaged in the merger
and acquisition and client advisory business and, for legal and regulatory
purposes, is a division of BT Alex. Brown Incorporated, a registered broker
dealer and member of the New York Stock Exchange. FelCor has retained BT
Wolfensohn pursuant to a letter agreement, dated March 21, 1998 (the "Engagement
Letter"). As compensation for BT Wolfensohn's services in connection with the
Merger, FelCor will pay a cash fee of $3 million if the Merger is consummated.
Regardless of whether the Merger is consummated, FelCor has agreed to pay BT
Wolfensohn a cash fee of $1 million and to reimburse BT Wolfensohn for
reasonable fees and disbursements of BT Wolfensohn's counsel and all of BT
Wolfensohn's reasonable travel and other out-of-pocket expenses incurred in
connection with the Merger or otherwise arising out of the retention of BT
Wolfensohn under the Engagement Letter. FelCor has also agreed to indemnify BT
Wolfensohn and certain related persons to the full extent lawful against certain
liabilities, including certain liabilities under the federal securities laws
arising out of its engagement or the Merger.
FelCor selected BT Wolfensohn as its financial advisor based upon its
reputation as an internationally recognized investment banking firm experienced
in providing advice in connection with mergers and acquisitions and related
transactions, particularly in the lodging industry. BT Wolfensohn or one of its
affiliates (together, the "BT Group") has, from time to time, provided
investment banking services to FelCor and Bristol or their affiliates and has
provided commercial lending services to Bristol or its affiliates for which it
has received compensation. The BT Group will also provide commercial lending
services to BHR after consummation of the Spin-Off. BT Wolfensohn and its
affiliates may actively trade securities of FelCor or Bristol for their own
account or the account of their customers and, accordingly, may from time to
time hold a long or short position in such securities.
OPINION OF BRISTOL'S FINANCIAL ADVISOR
Bristol retained Merrill Lynch to act as its financial advisor in
connection with the Merger. On March 23, 1998, Merrill Lynch rendered its oral
opinion to the Bristol Board, which was subsequently confirmed in letters, dated
as of such date and the date hereof that, as of such respective date and based
upon and subject to the factors and assumptions set forth therein, the Exchange
Ratio was fair from a financial point of view to the holders of Bristol Common
Shares.
THE FULL TEXT OF THE OPINION OF MERRILL LYNCH, DATED AS OF THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS (THE "MERRILL LYNCH OPINION"), WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS ANNEX C
HERETO AND IS INCORPORATED HEREIN BY REFERENCE. THE MERRILL LYNCH OPINION IS
NECESSARILY BASED ON ECONOMIC, MARKET AND OTHER CONDITIONS IN EFFECT ON, AND THE
INFORMATION MADE AVAILABLE TO IT AS OF, THE DATE THEREOF. MERRILL LYNCH WILL NOT
UPDATE THE MERRILL LYNCH OPINION BETWEEN THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE DATE OF THE BRISTOL ANNUAL MEETING OR THE EFFECTIVE
TIME OF THE MERGER. SUBSEQUENT DEVELOPMENTS MAY
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THEREFORE AFFECT SUCH OPINION THAT MAY CAUSE SUCH OPINION TO NO LONGER BE TRUE.
ACCORDINGLY, STOCKHOLDERS OF BRISTOL ARE URGED TO READ THE MERRILL LYNCH OPINION
IN ITS ENTIRETY AND CONSIDER IT CAREFULLY AND NOT PLACE UNDUE RELIANCE ON THE
OPINION. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THE MERRILL LYNCH OPINION. THE MERRILL LYNCH OPINION WAS PROVIDED
TO THE BRISTOL BOARD FOR ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS
FROM A FINANCIAL POINT OF VIEW OF THE EXCHANGE RATIO TO THE HOLDERS OF THE
BRISTOL COMMON SHARES AND DOES NOT ADDRESS THE MERITS OF THE UNDERLYING DECISION
BY BRISTOL TO ENGAGE IN THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER OF BRISTOL AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE
ADOPTION OF THE MERGER AGREEMENT OR ANY MATTER RELATED THERETO. MERRILL LYNCH
WAS NOT ASKED TO AND DID NOT RENDER A FAIRNESS OPINION WITH REGARD TO THE
SPIN-OFF. IN ADDITION, MERRILL LYNCH WAS NOT ASKED TO CONSIDER, AND THE MERRILL
LYNCH OPINION DOES NOT IN ANY MANNER ADDRESS, THE PRICES AT WHICH FELCOR COMMON
SHARES WILL ACTUALLY TRADE FOLLOWING CONSUMMATION OF THE MERGER OR THE PRICES AT
WHICH THE BHR COMMON SHARES WILL TRADE FOLLOWING THE SPIN-OFF.
The Exchange Ratio was determined through an analysis by the managements of
both Bristol and FelCor of current and projected financial and operating data,
in addition to negotiations between Bristol and FelCor, and after substantial
analysis and consideration was authorized by the Bristol Board.
The summary set forth below does not purport to be a complete description
of the analyses underlying the Merrill Lynch Opinion or the presentation made by
Merrill Lynch to the Bristol Board. The preparation of a fairness opinion is a
complex and analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, Merrill Lynch did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor forming part of each
such analysis. While each factor set forth below is separate and none of the
factors failed to support Merrill Lynch's opinion, Merrill Lynch believes that
its analyses must be considered as a whole and that selecting portions of its
analyses, without considering all of its analyses, would create an incomplete
view of the process underlying the Merrill Lynch Opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Merrill Lynch, Bristol and FelCor. Any estimates contained in the analyses
performed by Merrill Lynch are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, estimates of the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
such businesses or securities might actually be sold. Accordingly, such analyses
and estimates are inherently subject to substantial uncertainty. In addition,
Merrill Lynch's opinion was among several factors taken into consideration by
the Bristol Board in making its determination to approve the Merger.
Consequently, the Merrill Lynch analyses described below should not be viewed as
determinative of the decision of the Bristol Board or Bristol's management with
respect to the fairness of the Exchange Ratio.
In arriving at its opinion, Merrill Lynch, among other things: (i) reviewed
certain publicly available business and financial information relating to
Bristol and FelCor that Merrill Lynch deemed to be relevant; (ii) reviewed
certain information, including internal financial forecasts, relating to the
business, earnings, cash flow, assets, liabilities and prospects of Bristol and
FelCor, furnished by Bristol and FelCor, respectively; (iii) conducted
discussions with members of senior management of Bristol and FelCor concerning
the matters in clauses (i) and (ii) above, as well as their respective
businesses and prospects before and after giving effect to the Spin-Off and the
Merger; (iv) reviewed the market prices and valuation multiples for Bristol
Common Shares and the FelCor Common Shares and compared them with those of
certain publicly traded companies that Merrill Lynch deemed to be relevant; (v)
reviewed the results of operations of Bristol and FelCor and compared them with
those of certain publicly traded companies that Merrill Lynch deemed to be
relevant; (vi) participated in certain discussions and negotiations among
representatives of Bristol and FelCor and their financial and legal advisors;
(vii) reviewed the potential pro forma impact of the Merger; (viii) reviewed the
Merger Agreement and certain other agreements referred to therein; and (ix)
reviewed such other financial studies and analyses (described more fully below)
and took into account such other matters as Merrill Lynch
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deemed necessary, including Merrill Lynch's assessment of general economic,
market and monetary conditions.
In preparing its opinion, Merrill Lynch assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to
Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly
available, and Merrill Lynch did not assume any responsibility for independently
verifying such information, did not undertake an independent evaluation or
appraisal of any of the assets or liabilities of Bristol or FelCor and was not
furnished with any such evaluation or appraisal. In addition, Merrill Lynch did
not conduct any physical inspection of the properties or facilities of Bristol
or FelCor. With respect to the financial forecast information furnished to or
discussed with Merrill Lynch by Bristol or FelCor, Merrill Lynch assumed that
they were reasonably prepared and reflected the best currently available
estimates and judgments of Bristol's or FelCor's management as to the expected
future financial performance of Bristol or FelCor, as the case may be. Merrill
Lynch further assumed that the Merger will qualify as a tax-free reorganization
for U.S. federal income tax purposes and that, following the Merger, FelCor will
retain its status as a real estate investment trust for such purposes.
Merrill Lynch's opinion is necessarily based upon market, economic and
other conditions as they existed and could be evaluated on the date of such
opinion. Merrill Lynch was not authorized by Bristol to solicit, nor did it
solicit, third-party indications of interest for the acquisition of all or any
part of Bristol. In requesting its opinion, neither Bristol nor any affiliate of
Bristol gave any special instructions to Merrill Lynch or imposed any
limitations on the scope of Merrill Lynch's analyses.
At the meeting of the Bristol Board held on March 23, 1998, Merrill Lynch
presented certain financial analyses in connection with such firm's delivery of
its opinion. The following is a summary of the material financial and
comparative analyses presented to the Bristol Board at the March 23, 1998
meeting. In arriving at its opinion, Merrill Lynch relied primarily on its
analyses of Bristol after giving effect to the Spin-Off ("Bristol REIT") and
FelCor. The additional analyses described below relating to Bristol (prior to
the Spin-Off) and BHR were provided to the Bristol Board for informational
purposes and were not relied upon by Merrill Lynch in rendering its opinion.
The analyses described below relating to discounted cash flows of Bristol
REIT and a comparison of Bristol REIT to selected publicly traded comparable
companies are financial techniques used by Merrill Lynch as part of its fairness
analysis to assist in the valuation generally of Bristol REIT. The analyses
described below relating to discounted cash flows of FelCor and a comparison of
FelCor to selected publicly traded companies are financial techniques used by
Merrill Lynch as part of its fairness analysis to assist in the valuation
generally of FelCor. While Merrill Lynch did not determine specific valuations
for either Bristol REIT or FelCor, the analyses assisted Merrill Lynch in making
the qualitative judgements reflected in its fairness opinion.
Historical Trading Performance and Current Capitalization. Merrill Lynch
reviewed certain trading information for Bristol and FelCor and, on the basis
thereof, calculated their respective trading multiples based on closing stock
prices of $27.94 for Bristol as of March 19, 1998, and $36.25 for FelCor as of
March 19, 1998. Merrill Lynch then calculated Bristol's Enterprise Value
("Enterprise Value" or "Market Capitalization" is defined as the product of the
number of shares outstanding and market price, plus total debt, plus minority
interest, plus liquidation value of redeemable preferred stock less cash and
marketable securities as of the latest available public disclosure) as multiples
of estimated EBITDA, based on recent publicly available equity research reports.
For Bristol, Market Capitalization as multiples of EBITDA for 1997, 1998 and
1999 were 14.2x, 10.0x and 8.4x, respectively. Merrill Lynch then calculated the
market value of FelCor as a multiple of FFO (based on mean estimates of funds
from operations provided by First Call). FelCor's FFO multiples for 1997, 1998
and 1999 were 10.9x, 9.5x and 8.5x, respectively.
Comparable Public Company Trading Analysis -- Bristol. Merrill Lynch
reviewed and compared certain financial information, ratios and public market
multiples relating to Bristol to corresponding financial information, ratios and
public market multiples for the following publicly traded companies: Marriott
International, Inc., Hilton Hotels Corporation, Host Marriott Corporation,
Promus Hotel Corporation, Prime Hospitality Corporation, CapStar Hotel Company,
Choice Hotels International Inc., Red Roof Inns Inc.,
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John Q. Hammons Inc., Servico Inc. and Sunburst Hospitality Corporation
(collectively, the "Bristol Comparable Companies"). The Bristol Comparable
Companies were chosen because they are publicly traded companies with financial
and operating characteristics which Merrill Lynch deemed to be similar to those
of Bristol. Merrill Lynch calculated various financial ratios for the Bristol
Comparable Companies and compared them to the Bristol financial ratios. The
ratios for the Bristol Comparable Companies were based on estimates of EBITDA
provided by recent equity research reports and estimates of EPS provided by
First Call. This analysis indicated for the Bristol Comparable Companies that
(i) Market Capitalization multiples of 1998 estimated EBITDA ranged from 5.3x to
14.2x, with a mean of 9.3x and a median of 8.8x (as compared to 10.0x for
Bristol), (ii) price to earnings multiples, based on 1998 estimated earnings per
share ("EPS"), ranged from 12.9x to 27.3x, with a mean and median of 20.1x and
21.4x, respectively (as compared to 24.3x for Bristol), and (iii) price to
earnings multiples, based on 1999 estimated EPS, ranged from 12.5x to 23.0x,
with a mean and median of 17.7x and 17.8x, respectively (as compared to 20.1x
for Bristol). Merrill Lynch observed that Bristol's financial ratios exceeded
the mean and median of the Bristol Comparable Companies' financial ratios but
did not exceed the range of financial ratios for the Bristol Comparable
Companies, and Merrill Lynch noted that Bristol common shares trade within the
range of the Bristol Comparable Companies.
None of the Bristol Comparable Companies is identical to Bristol.
Accordingly, an analysis of the results of the foregoing is not purely
mathematical. Rather, it involves complex considerations and judgements
concerning differences in financial and operating characteristics of the Bristol
Comparable Companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
Discounted Cash Flow Analysis -- Bristol. Merrill Lynch performed DCF
analyses (i.e., an analysis of the present value of the projected unlevered free
cash flows (EBIT tax effected, plus depreciation and amortization minus capital
expenditures minus (plus) increases (decreases) in working capital) for the
periods and using the discount rates indicated) of Bristol as of December 31,
1997 using internal forecasts for the years 1998 -- 2002 provided by Bristol
management and a year-end 2002 terminal value of Bristol based upon a range of
multiples of internally forecasted year 2002 EBITDA. Using discount rates based
upon a weighted average cost of capital analysis for Bristol and the Bristol
Comparable Companies of from 10.0% to 12.0% and terminal value multiples of
calender year 2002 estimated EBITDA ranging from 8.0x to 9.0x, the DCF analysis
yielded a range of equity per share values for the Bristol Common Shares of
approximately $25.00 to $33.00.
Comparable Public Company Trading Analysis -- Bristol REIT. Merrill Lynch
reviewed certain financial information, ratios and public market multiples for
the following publicly traded companies: FelCor Suite Hotels, Inc., Hospitality
Properties Trust, Sunstone Hotel Investors, Inc., Innkeepers USA Trust, Equity
Inns, Inc., RFS Hotel Investors, Inc., American General Hospitality Corporation,
Boykin Lodging Company, Winston Hotels, Inc. and Jameson Inns, Inc.
(collectively, the "Bristol REIT Comparable Companies"). The Bristol REIT
Comparable Companies were chosen because they are publicly traded companies with
financial and operating characteristics which Merrill Lynch deemed to be similar
to those of Bristol REIT. Merrill Lynch calculated various financial ratios for
the Bristol REIT Comparable Companies. The ratios for the Bristol REIT
Comparable Companies were based on estimates of EBITDA provided by recent equity
research reports and estimates of FFO provided by First Call. This analysis
indicated for the Bristol REIT Comparable Companies that (i) Market
Capitalization multiples of 1998 estimated EBITDA ranged from 6.1x to 10.2x,
with a mean of 8.1x and a median of 8.2x, (ii) price to FFO multiples, based on
1998 estimated FFO, ranged from 7.6x to 9.6x, with a mean of 8.8x and median of
9.0x, and (iii) price to FFO multiples, based on 1999 estimated FFO, ranged from
7.2x to 9.0x, with a mean and median of 8.1x. Based upon this analysis of the
Bristol REIT Comparable Companies, Merrill Lynch observed that implied value for
Bristol REIT (i.e., after giving effect to the Spin-Off) would be 7.5x to 9.0x
1998 estimated FFO or $21.00 to $25.50 per Bristol Common Share.
None of the Bristol REIT Comparable Companies is identical to Bristol REIT.
Accordingly, an analysis of the results of the foregoing is not purely
mathematical. Rather, it involves complex considerations and judgements
concerning differences in financial and operating characteristics of the Bristol
REIT Comparable Companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
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Discounted Cash Flow Analysis -- Bristol REIT. Merrill Lynch estimated the
net present value of the future FFO per Bristol Common Share as of December 31,
1997 using internal forecasts for the years 1998 -- 2002 provided by Bristol
management and a year-end 2002 terminal value of Bristol REIT per share based
upon a range of multiples of internally forecasted year 2002 FFO per share.
Based on an analysis of the Bristol REIT Comparable Companies, discount rates
reflecting an equity cost of capital ranging from 16.0% to 18.0% and terminal
value multiples of calender year 2002 estimated FFO ranging from 8.0x to 9.0x
were used to calculate a range of equity per share values of approximately
$23.00 to $28.00 per Bristol Common Share.
Comparable Public Company Trading Analysis -- BHR. Merrill Lynch reviewed
certain financial information, ratios and public market multiples for a group of
publicly traded companies comprising two large capitalization lodging companies:
Marriott International, Inc. (reflecting pro forma estimates for its pending
spin-off of "New Marriott International") and Promus Hotel Corporation, three
mid-capitalization lodging companies: Prime Hospitality Corporation, CapStar
Hotel Company and Service, Inc. and three non-lodging companies: Central Parking
Corporation, CB Commercial Real Estate Services Group, Inc. and Insignia
Financial Group, Inc. (collectively, the "BHR Comparable Companies"). The BHR
Comparable Companies were chosen because they are publicly traded companies with
financial and operating characteristics which Merrill Lynch deemed to be similar
to BHR. Merrill Lynch calculated various financial ratios for the BHR Comparable
Companies and applied them to the BHR financial statistics. The ratios for the
BHR Comparable Companies were based on estimates of EBITDA provided by recent
equity research reports and estimates of earnings provided by First Call. This
analysis indicated for the BHR Comparable Companies that (i) Enterprise Value
multiples of 1997 estimated EBITDA ranged from 8.6x to 16.7x, with a mean of
12.9x and a median of 12.5x, (ii) Enterprise Value multiples of 1998 estimated
EBITDA ranged from 6.4x to 13.4x, with a mean of 9.5x and a median of 8.9x,
(iii) price to earnings multiples, based on 1998 estimated EPS, ranged from
16.3x to 27.1x, with a mean and median of 21.0x and 20.1x, respectively, (iv)
projected five year annual EPS growth rates ranged from 18.0% to 27.0%, with a
mean and median of 22.5%, and (v) the ratio of 1998 price to earnings multiples
to five year annual EPS growth rates ("PEG Ratio") ranged from 0.65x to 1.65x,
with a mean of 1.07x and a median of 0.95x. Based upon this analysis of the BHR
Comparable Companies, Merrill Lynch advised the Bristol Board that the implied
value for BHR would be 12.0x to 14.0x 1998 net income or $2.75 to $3.25 per
Bristol Common Share.
Merrill Lynch is of the view that none of the BHR Comparable Companies is
identical to BHR. Accordingly, an analysis of the results of the foregoing is
not purely mathematical. Rather, it involves complex considerations and
judgements concerning differences in financial and operating characteristics of
the BHR Comparable Companies and other factors that could affect the public
trading value of the comparable companies or company to which they are being
compared.
Discounted Cash Flow Analysis -- BHR. Merrill Lynch estimated the net
present value of the future cash flows per share of BHR as of December 31, 1997
using internal forecasts for the years 1998 through 2002 provided by Bristol
management and a year-end 2002 terminal value of BHR based upon a range of
multiples of projected year 2002 EBITDA. Based on Merrill Lynch's judgment,
discount rates reflecting a weighted average cost of capital ranging from 13.0%
to 15.0% and terminal value multiples of calender year 2002 estimated EBITDA
ranging from 7.0x to 8.0x were used to calculate a range of equity per share
values of approximately $3.60 to $4.20 per Bristol Common Share.
Comparable Public Company Trading Analysis -- FelCor. Merrill Lynch
reviewed and compared certain financial information, ratios and public market
multiples relating to FelCor to corresponding financial information, ratios and
public market multiples for the following publicly traded companies: Hospitality
Properties Trust, Sunstone Hotel Investors, Inc., Innkeepers USA Trust, Equity
Inns, Inc., RFS Hotel Investors, Inc., American General Hospitality, Boykin
Lodging Company, Winston Hotels, Inc. and Jameson Inns, Inc. (collectively, the
"FelCor Comparable Companies"). The FelCor Comparable Companies were chosen
because they are publicly traded companies with financial and operating
characteristics which Merrill Lynch deemed to be similar to those of FelCor.
Merrill Lynch calculated various financial ratios for the FelCor Comparable
Companies and compared them to the FelCor financial ratios. The ratios for the
FelCor
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Comparable Companies were based on estimates of EBITDA provided by recent equity
research reports and estimates of FFO provided by First Call. The ratios for
FelCor were provided by First Call estimates. This analysis indicated for the
FelCor Comparable Companies that (i) Market Capitalization multiples of 1998
estimated EBITDA ranged from 6.1x to 10.2x with a mean and median of 7.9x (as
compared to 10.8x for FelCor), (ii) price to FFO multiples, based on 1998
estimated FFO, ranged from 7.6x to 9.6x, with a mean of 8.8x and median of 9.0x
(as compared to 9.5x for FelCor), and (iii) price to FFO multiples, based on
1999 estimated FFO, ranged from 7.2x to 9.0x, with a mean of 8.0x and a median
of 8.1x (as compared to 8.5x for FelCor). Based upon the analysis of the FelCor
Comparable Companies, Merrill Lynch observed that implied value for FelCor would
be 9.0x to 10.0x 1998 estimated FFO, implying a value of $34.50 to $38.50 per
FelCor Common Share.
None of the FelCor Comparable Companies is identical to FelCor.
Accordingly, an analysis of the results of the foregoing is not purely
mathematical. Rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the FelCor
Comparable Companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
Discounted Cash Flow Analysis -- FelCor. Merrill Lynch estimated the net
present value of the future FFO per FelCor Common Share as of December 31, 1997
using internal forecasts for the years 1998 through 2002 provided by FelCor
management and a year-end 2002 terminal value per share based upon a range of
multiples of projected year 2002 FFO per share. Based on Merrill Lynch's
judgment and an analysis of the FelCor Comparable Companies, discount rates
reflecting an equity cost of capital ranging from 15.0% to 17.0% and terminal
value multiples of calender year 2002 estimated FFO ranging from 9.5x to 10.5x
were used to calculate a range of equity values of approximately $37.00 to
$43.00 per FelCor Common Share.
Merger Consequences and Relative Valuation
Based upon forecasts provided to Merrill Lynch by Bristol and FelCor and
assuming, among other things, the distribution of Bristol's accumulated earnings
and profits at the time of the Merger and corporate tax resulting from the
Spin-Off, Merrill Lynch analyzed certain pro forma effects of the Merger. This
analysis indicated that the Merger would be accretive to estimated FFO per share
for FelCor based on both FelCor's estimates and First Call estimates in 1998 and
beyond.
Using a DCF valuation analysis, Merrill Lynch compared the respective value
per share of Bristol REIT of $23.00 to $28.00 to the respective value per share
of FelCor of $37.00 to $43.00 and calculated the implied exchange ratios
resulting from such relative values as ranging from 0.54 to 0.76. Using a
comparable public company valuation analysis, Merrill Lynch compared the
respective value per share of Bristol REIT of $21.00 to $25.50 to the respective
value per share of FelCor of $34.50 to $38.50 and calculated the implied
exchange ratio resulting from such relative values as ranging from 0.55 to 0.74.
Merrill Lynch analyzed the respective contributions of each of Bristol REIT
and FelCor to the estimated FFO and free cash flow of the combined company after
giving effect to the Merger on a pro forma basis for the years 1998 and 1999.
Such analysis indicated that (i) Bristol REIT and FelCor would contribute 42.8%
and 57.2%, respectively, of estimated FFO for 1998 and 43.7% and 56.3%,
respectively, of 1999 estimated FFO, and (ii) FelCor would contribute 100% of
1998 and 1999 forecasted free cash flow.
Merrill Lynch Financial Advisor Fee
Pursuant to a letter agreement dated March 23, 1998, between Bristol and
Merrill Lynch (the "Merrill Fee Letter"), Bristol has agreed to pay Merrill
Lynch a fee of $3 million if, during the period Merrill Lynch is retained by
Bristol or within one year thereafter, (i) a Business Combination (as defined in
the Merrill Fee Letter, which definition includes the Merger) is consummated
with FelCor or (ii) Bristol enters into an agreement with FelCor which
subsequently results in a Business Combination, payable in cash upon the closing
of such Business Combination. If no Business Combination is consummated with
FelCor, Bristol will not be obligated to pay Merrill Lynch any fee. Bristol has
also agreed to reimburse Merrill Lynch for its reasonable out-of-pocket
expenses, including subject to certain limitations reasonable fees and
disbursements of its legal counsel. Additionally, Bristol has agreed to
indemnify Merrill Lynch and certain related persons for
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certain liabilities related to or arising out of its engagement, including
certain liabilities under federal securities laws.
Bristol retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking and
advisory firm. Merrill Lynch, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. Merrill Lynch has in the past
provided financial advisory and/or financing services to Bristol and FelCor and
may continue to do so and has received, and may receive, fees for the rendering
of such services. In the ordinary course of its business, Merrill Lynch and its
affiliates may actively trade the debt and equity securities of Bristol and
FelCor (and anticipates trading after the Merger and Spin-Off in the securities
of FelCor and BHR) for their own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Bristol Board to adopt the Merger
Agreement, stockholders should be aware that certain directors and executive
officers of Bristol have interests that are in addition to or may be different
from the interests of Bristol stockholders generally, and that the directors
having such interests participated in the discussion, deliberation and voting of
the Bristol Board to adopt the Merger Agreement.
Election of New FelCor Directors and Chairman of the Board. Upon
consummation of the Merger, three persons designated by Bristol will become
directors of FelCor. These directors are expected to be Donald J. McNamara,
Richard C. North and Robert L. Lutz, Jr. Mr. McNamara will also become FelCor's
Chairman of the Board. At the Effective Time, the Bristol Majority Stockholders
will enter into a stockholders' and registration rights agreement (the "FelCor
Stockholders' Agreement") that requires such stockholders to vote their FelCor
Common Shares and take all other necessary action to ensure that one designee of
each of the Holiday Entities, on the one hand, and the Holdings Entities, on the
other hand, is elected to the FelCor Board. This obligation will terminate if
either party no longer holds at least 25% of its ownership of FelCor Common
Shares at the Effective Time.
Treatment of Bristol Options. The officers and directors of Bristol hold
options to purchase Bristol Common Stock under the Bristol Incentive Plan and
the Bristol Non-Employee Directors Stock Option Plan (collectively, the "Bristol
Plans"). At the Effective Time, these options will continue on the same terms
and conditions as set forth in the Bristol Plans, except that they will be split
into options exercisable for FelCor Common Shares, and options exercisable for
BHR Common Shares. FelCor will assume the Bristol Plans and Bristol's
obligations under the options to purchase FelCor Common Shares, while BHR will
assume all of Bristol's obligations for each option to purchase BHR Common
Shares. The exercise prices and numbers of shares covered by the newly split
options will be adjusted as appropriate to reflect the Spin-Off Ratio and the
Exchange Ratio. Service with BHR or FelCor will satisfy the vesting requirements
for all options. Accordingly, officers and directors of Bristol will preserve
the current value of their existing Bristol options and be able to participate
as option holders in future stock appreciation of both FelCor and BHR. As of
March 31, 1998, the officers and directors of Bristol held options to purchase
an aggregate of 1,212,750 Bristol Common Shares at a weighted average price of
$12.29 per share (at exercise prices ranging from $8.33 to $26.00 per share), of
which options to purchase 556,050 shares were exercisable at a weighted average
price of $9.59. As a result of the Merger these options will be converted into
options to purchase an aggregate of 830,734 FelCor Common Shares at a weighted
average price of $15.90 per share and 606,375 BHR Common Shares at a weighted
average price of $2.80 per share.
Franchise Agreements. A subsidiary of Bass plc, Holiday Hospitality
Franchising, Inc., is the franchisor for the existing 95 Holiday Hospitality
branded hotels owned or leased by Bristol. Bristol is in the process of
redeveloping, rebranding and/or making renovations to 44 of these hotels and
rebranding seven of its other hotels to Crowne Plaza and Holiday Inn hotels,
which will also be franchised by Holiday Hospitality. Bristol has undertaken an
extensive refurbishment and renovation of these hotels, which will be continued
following the Merger through funds provided by FelCor. See "The
Companies -- Bristol -- Redevelopment and
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Rebranding." Any increases in revenues from these hotels will result in
increased franchise fees payable to Holiday Hospitality.
Redemption of Holiday Entities' BHR Common Shares. After the Spin-Off but
prior to the Effective Time, BHR will redeem all BHR Common Shares received by
the Holiday Entities in the Spin-Off that exceed 9.9% of the outstanding BHR
Common Shares for $25.8 million (or $4.86 per share). This redemption was agreed
to in order to assure that the Merger does not result in FelCor losing its
status as a REIT for federal income tax purpose as a result of the Holiday
Entities owning more than 10% of both BHR and FelCor. See "Federal Income Tax
Considerations -- Qualification and Operation of FelCor as a REIT; Ownership and
Disposition of FelCor Common Shares -- Income Tests." Because the redemption of
the Holiday Entities' BHR Common Shares is being funded from cash contributed by
Bristol pursuant to the Spin-Off Agreement for this purpose, such redemption
will not result in a reduction in BHR's value. The estimated value of the BHR
Common Shares outstanding after the redemption ($5.00-$7.00 per share) reflects
the increase in per share value of BHR as a result of the reduction in the
number of BHR Common Shares outstanding after such redemption.
Hotel Properties Agreement. In connection with the Spin-Off, BHR will agree
to add 8,700 Holiday Hospitality branded rooms to its existing portfolio of
owned and operated hotels over the next five years. If BHR fails to meet certain
threshold targets for adding additional rooms over that period, BHR is required
to pay the Holiday Entities damages in accordance with a specified formula
unless it satisfies certain exceptions. In return, the Holiday Entities have
agreed to offer BHR each opportunity it may have to acquire or develop a mid
scale lodging facility in the U.S. or Canada, subject to certain exceptions, and
to terminate their existing agreement with Bristol that required Bristol to
offer the Holiday Entities franchise rights with respect to at least 85% of
Bristol's owned and managed hotel rooms.
Waiver of Ownership Limit. The FelCor Charter prohibits ownership by any
person of more than 9.9% of the outstanding FelCor Common Shares. See
"Description of FelCor's Capital Stock -- Certain Charter and Bylaw
Provisions -- Restrictions on Ownership and Transfer." This prohibition may be
waived by the FelCor Board. The FelCor Board has waived, subject to certain
conditions, this limitation for the Holdings Entities and the Holiday Entities,
each of which may initially own up to 15% of the outstanding FelCor Common
Shares. This percentage will be reduced to the extent such stockholder fails to
exercise its preemptive rights with respect to future issuances of FelCor equity
securities.
Preemptive Rights. FelCor has agreed that the Bristol Majority Stockholders
will have the preemptive right, in connection with any offering for cash in
excess of $100 million of FelCor Common Shares, to purchase on the same terms as
such offering a sufficient number of FelCor Common Shares to maintain their
respective percentage ownerships of FelCor Common Shares immediately prior to
the offering. This right will expire as to any Bristol Majority Stockholder who
does not exercise such right with respect to three offerings or who no longer
owns at least 50% of the FelCor Common Shares owned by it at the Effective Time.
Indemnification; Insurance. Under the Merger Agreement, FelCor has agreed
to honor existing indemnification rights of Bristol directors, officers and
employees. FelCor does not maintain and has no current plans to maintain
directors and officers liability insurance. Bristol has agreed to extend its
existing directors and officers liability insurance for a period beyond the
Effective Time to provide coverage for Bristol's officers and directors.
Registration Rights. This Joint Proxy Statement/Prospectus covers the
reoffer and resale of FelCor Common Shares received by the Bristol Majority
Stockholders and those officers and directors who may be deemed to be
"affiliates" of Bristol for purposes of Rule 145. See "Plan of Distribution" and
"Selling Securityholders." FelCor agreed to register these shares with the SEC
for this purpose in connection with the Voting Agreement and the FelCor
Stockholders' Agreement and to maintain such registration until such shares have
been resold or may be otherwise resold without restriction under Rules 144 and
145. The Bristol Majority Stockholders will agree, however, not to sell or
transfer their FelCor Common Shares until the six-month anniversary of the
Effective Time.
The Bristol Board was aware of the foregoing interests but did not consider
them to be of a nature that would affect the objectivity of any director's
determination that the Merger was in the best interests of all of the Bristol
stockholders. See "-- Bristol's Reasons for the Merger; Recommendation of the
Bristol Board."
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ACCOUNTING TREATMENT
The Merger will be accounted for by FelCor under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations." Under the purchase method of accounting, the aggregate
Merger consideration will be allocated to Bristol's assets and liabilities based
on their estimated fair values at the Effective Time, and the results of
operations of Bristol will be included in the results of operations of FelCor
only for periods subsequent to the Effective Time.
NO APPRAISAL RIGHTS
Holders of Bristol Common Shares and FelCor Common Shares will not have
appraisal or dissenters' rights under applicable law with respect to the Merger
or the Spin-Off.
RESALE RESTRICTIONS ON BRISTOL AFFILIATES
All FelCor Common Shares received by Bristol stockholders in the Merger
will be freely transferable, except that FelCor Common Shares received by
persons who are deemed to be "affiliates" (as such term is defined under the
Securities Act) of Bristol are restricted in transferability. In general,
"affiliates" of Bristol may not publicly resell the FelCor Common Shares
received in the Merger except pursuant to a registration statement under the
Securities Act or in a transaction permitted by Rule 145 under the Securities
Act. Pursuant to the requirements of the Voting Agreement and the FelCor
Stockholders' Agreement, FelCor has registered with the SEC, and this Joint
Proxy Statement/Prospectus covers, the resale of such FelCor Common Shares by
the Bristol Majority Stockholders and those officers and directors who may be
deemed to be "affiliates" of Bristol for purposes of Rule 145. However, the
Holiday Entities and Holdings Entities have each agreed not to sell FelCor
Common Shares received by them in the Merger for six months following the
Effective Time. See "Plan of Distribution" and "Selling Securityholders."
THE MERGER AGREEMENT
The following summarizes the material terms of the Merger Agreement, which
is attached hereto as Annex A. The Merger Agreement is the legal document that
governs the Merger. Accordingly, stockholders of FelCor and Bristol are urged to
read the Merger Agreement in its entirety for a more complete description of the
terms of the Merger.
EXCHANGE OF SHARE CERTIFICATES
Promptly after the Effective Time, FelCor will cause its transfer agent
(the "Exchange Agent") to mail to each stockholder of record of Bristol as of
the Effective Time instructions for exchanging certificates of Bristol Common
Shares for certificates of FelCor Common Shares and cash in payment for any
fractional shares resulting from the exchange. Upon surrender of a certificate
representing Bristol Common Shares, the holder of such certificate will receive
in exchange (i) a certificate representing a whole number of FelCor Common
Shares; (ii) a check representing the amount of unpaid distributions, if any,
that have been declared since June 15, 1998; and (iii) a check or the right to
receive a check representing the amount of cash in lieu of fractional shares
such surrendering holder is entitled to receive. A Bristol stockholder will not
be paid dividends with respect to his FelCor Common Shares until he has
delivered his Bristol stock certificate to the Exchange Agent. No stockholder
will be paid interest on any unpaid dividends or cash in lieu of fractional
shares.
Fractional FelCor Common Shares will not be issued in the Merger. No
stockholder will be entitled to dividends, voting rights or any other
stockholder rights in respect of any fractional share. Instead, the Exchange
Agent will deliver to each affected Bristol stockholder a check in payment for
his fractional share. Immediately prior to the consummation of the Merger,
FelCor will elect to pay an amount per share equal to either the closing trading
price for FelCor Common Shares on the trading day immediately prior to the
Effective Time or the per share proceeds from the sale of the aggregate
fractional shares in the open market by the Exchange Agent promptly after the
Effective Time.
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TREATMENT OF BRISTOL STOCK OPTIONS
In connection with the Spin-Off and the Merger, each outstanding option
under the Bristol Plans will continue on the same terms and conditions as set
forth in the Bristol Plans, except that they will be split into options
exercisable for FelCor Common Shares, and options exercisable for BHR Common
Shares. FelCor will assume the Bristol Plans and Bristol's obligations under the
options to purchase FelCor Common Shares, while BHR will assume all of Bristol's
obligations for each option to purchase BHR Common Shares. The exercise prices
and numbers of shares covered by the newly split options will be adjusted as
appropriate to reflect the Spin-Off Ratio and the Exchange Ratio. Service with
BHR or FelCor will satisfy the vesting requirements for all options.
BUSINESS PENDING THE MERGER
Prior to the consummation or termination of the Merger Agreement, FelCor
and Bristol have agreed to conduct their respective businesses in the ordinary
course and in substantially the same manner as prior to the execution of the
Merger Agreement. FelCor and Bristol have agreed to take certain actions and to
refrain from taking certain actions during such period that are customary in
merger transactions. Except for pending acquisitions and indebtedness assumed or
incurred in connection with these acquisitions, FelCor and Bristol have agreed
not to acquire (other than pursuant to existing agreements), sell or lease any
additional real property, borrow any additional money (other than under existing
agreements) or encumber or create any liens on their respective properties.
FelCor has agreed not to enter into any new, or amend any existing,
agreement or commitment to improve, develop or construct real estate projects or
to make any other capital expenditure other than expenditures that are within
FelCor's 1998 capital expenditures budget. In addition, Bristol has agreed not
to enter into any new, or amend any existing, agreement or commitment to
improve, develop or construct real estate projects or to make any other capital
expenditure where the amount involved exceeds $1.0 million, except that Bristol
may continue transactions, projects or other capital expenditures relating to
the improvement, development or construction of real estate projects to the
extent the expenditures are within Bristol's 1998 capital expenditures budget
and for which Bristol has commenced paying expenditures to third parties or
obligated itself to do so.
FelCor is permitted to continue payment of its regular quarterly
distributions on its stock, to redeem Units for FelCor Common Shares or cash and
to issue FelCor Common Shares upon conversion of FelCor Series A Preferred
Shares. Without FelCor's consent, Bristol may not amend any contract in a manner
that would adversely affect FelCor after the merger in order to obtain the
consent of a third party to the Merger or Spin-Off. Both parties may continue to
issue stock upon the exercise of outstanding options.
FelCor and Bristol have established a committee of their respective chief
executive officers to approve actions that are prohibited pending completion of
the Merger.
SOLICITATION OF OTHER PROPOSALS; BREAK-UP FEE
Prior to the Effective Time or the termination of the Merger Agreement,
FelCor and Bristol have agreed not to initiate, solicit, engage in negotiations
or discussions concerning, or provide confidential information in connection
with any competing transaction, including a merger, acquisition, tender offer,
exchange offer, business combination, consolidation, sale of assets or similar
transaction involving more than 10% of the equity securities of Bristol or
FelCor or a substantial portion of Bristol's or FelCor's assets (an "Acquisition
Proposal"). Each of FelCor and Bristol has agreed to notify the other
immediately if it receives any offer relating to an Acquisition Proposal. If in
response to an unsolicited Acquisition Proposal, the Bristol Board or the FelCor
Board determines after consultation with its financial adviser that such
Acquisition Proposal, if consummated, would result in a transaction more
favorable to such company's stockholders (a "Superior Proposal") than the
Merger, it may explore the Superior Proposal following notice to the other party
of the discussions.
If FelCor or Bristol takes any of the actions described above with respect
to an Acquisition Proposal, withdraws or fails to confirm its recommendation of
the Merger, recommends or approves a Superior Proposal or enters into a letter
of intent or other agreement with respect to an Acquisition Proposal, the other
party may
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terminate the Merger Agreement and receive from the other party a break-up fee
of $60 million plus $5 million as reimbursement for its transaction costs. The
break-up fee is also payable to FelCor or Bristol if such party terminates the
Merger Agreement due to a material breach by the other party of its
representations, warranties or covenants under the Merger Agreement which cannot
be cured prior to September 30, 1998. If the Merger Agreement is terminated due
to the failure by FelCor or Bristol to obtain the approval of its stockholders,
the other party is entitled to receive from the company whose stockholders did
not approve the Merger a break-up expense fee of $5 million as reimbursement for
its transaction costs. If (i) the Merger is not consummated under certain
circumstances, (ii) at the time of the termination of the Merger Agreement an
Acquisition Proposal had been received by FelCor or Bristol, and (iii) within 12
months after the termination of the Merger Agreement such party or any of its
subsidiaries enters into an agreement providing for an Acquisition Proposal that
is subsequently consummated, then such party must pay the other party the
break-up fee and the break-up expenses.
Any payment of the break-up fee or break-up expenses by Bristol may be
reduced or delayed for up to five years to the extent FelCor's receipt of the
payment would cause FelCor not to satisfy the REIT qualification requirements.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties by
FelCor and Bristol in which they each make representations regarding, among
other things: (i) their due incorporation or qualification and good standing in
their respective states of incorporation and in certain other jurisdictions;
(ii) the identity and ownership of their respective subsidiaries; (iii) the
numbers of shares of their capital stock outstanding and that may be issued
under outstanding options or other rights; (iv) their power and authority to
enter into the various agreements relating to the Merger and the nature of any
consents, approvals, registrations and filings required to enable them to
consummate the Merger and the related transactions; (v) their filing of all
required reports and documents with the SEC and the accuracy of the information
contained therein; (vi) the absence of material adverse changes or events since
December 31, 1997; (vii) the absence of material litigation; (viii) the nature
and extent of their ownership interests in, and the absence of material adverse
conditions affecting, their respective properties; (ix) their timely filing of
all required tax returns and their payment of all taxes due; (x) their
compliance, in all material respects, with laws, rules, regulations, permits and
agreements; and (xi) the receipt, from their respective financial advisors, of
an opinion with respect to the fairness of the Merger to them from a financial
point of view. The foregoing summary is qualified in its entirety by reference
to the Merger Agreement attached hereto as Annex A, in which such
representations and warranties, and the exceptions thereto and limitations
thereon, are set forth in full.
CERTAIN COVENANTS OF FELCOR AND BRISTOL
The Merger Agreement contains customary covenants by FelCor and Bristol
relating to, among other things, the preparation and filing of this Joint Proxy
Statement/Prospectus, access to properties and records, the obtaining of
necessary covenants from third parties for the Merger and the Spin-Off, the
qualification of the Merger as a tax-free reorganization under the Code, press
releases and publicity, real property transfer taxes, the prohibition of any
dividends on distributions other than the Spin-Off and FelCor's regular
distributions and the listing of the FelCor Common Shares to be issued in the
Merger on the NYSE. In addition, FelCor has agreed to deliver a waiver of the
stock ownership limits in the FelCor Charter, which would permit the Bristol
Majority Stockholders to initially own up to 15% of the outstanding FelCor
Common Shares and, after the Effective Time, to exculpate and indemnify the
officers and directors of Bristol and its subsidiaries to the same extent as
they would have been exculpated or indemnified under the charter documents of
Bristol and its subsidiaries as in effect on the date of the Merger Agreement.
FelCor has no obligation to purchase directors and officers liability insurance.
Bristol also agreed (i) to use all reasonable efforts to obtain the
resignations of the officers and directors of Bristol and its remaining
subsidiaries after the Spin-Off, (ii) to purchase an extension of Bristol's
existing directors and officers liability insurance to cover claims made after
the Effective Time against Bristol's officers and directors, (iii) to deliver
prior to the closing of the Merger an estimate of the accumulated earnings and
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<PAGE> 68
profits ("E&P") of Bristol after the Spin-Off and a confirmation of that
estimate from Arthur Andersen LLP, and (iv) to take such actions as may be
reasonably necessary to preserve FelCor's status as a REIT under the Code so
long as these actions have no material adverse economic effect on Bristol if the
Merger is not consummated or on BHR if the Merger is consummated.
CONDITIONS TO THE MERGER
The Merger is subject to the satisfaction or waiver of various customary
conditions, including, among others:
(i) Approval of the stockholders of FelCor and Bristol;
(ii) The occurrence of the Spin-Off;
(iii) No law, injunction or order prohibits the Merger or the
Spin-Off;
(iv) The receipt of legal opinions regarding certain tax consequences
of the Spin-Off and Merger and FelCor's status as a REIT for federal income
tax purposes;
(v) The absence of any governmental actions that causes or could
reasonably be expected to cause FelCor to cease to qualify as a REIT for
federal income tax purposes;
(vi) The absence of any material adverse change with respect to either
party; and
(vii) The performance by each party of its material obligations under
the Merger Agreement, including the delivery by Bristol to FelCor of a
statement of its accumulated E&P confirmed by Arthur Andersen LLP.
The merger agreement permits FelCor and Bristol to waive any of the
conditions to the merger in favor of such party prior to obtaining the approval
of its stockholders. If the parties elect to waive any condition after the
receipt of stockholder approvals, they will comply with applicable law in
determining whether the waiver of such condition would require the
resolicitation of stockholder approvals of the merger.
TERMINATION; AMENDMENT
The Merger Agreement may be terminated at any time prior to filing of the
Articles of Merger with the State of Maryland by the mutual written consent of
FelCor and Bristol. Either FelCor or Bristol may also terminate the Merger
Agreement if:
(i) The other party materially breaches the Merger Agreement and
cannot cure the breach by September 30, 1998;
(ii) An injunction prevents the Merger or the Spin-Off;
(iii) The Merger is not consummated by September 30, 1998, other than
due to the fault of the party terminating the Merger Agreement;
(iv) Stockholder approval is not received;
(v) The Merger is not consummated by September 30, 1998; or
(vi) The other party adversely changes its recommendation of the
Merger or takes certain actions with respect to a competing transaction.
Bristol may terminate the Merger Agreement if the volume weighted average
trading price for FelCor Common Shares is less than $28.00 per share over any
ten trading day period.
INTERIM CREDIT FACILITY
In contemplation of the Merger, FelCor has loaned $120 million to Bristol
pursuant to an interim secured credit facility (the "Interim Credit Facility").
The loan under the Interim Credit Facility was used by Bristol
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to (i) fund $20 million of the cash purchase price and to prepay $25 million of
indebtedness assumed by Bristol in connection with the Omaha Acquisition, (ii)
fund $32.8 million of principal, interest and prepayment penalties to retire $30
million in outstanding principal amount of Bristol's Senior Secured Notes
bearing interest at 11.22%, (iii) fund the $9 million purchase price of a hotel
in Leominster, Massachusetts and (iv) fund $33.2 million of the renovation costs
under Bristol's Redevelopment and Rebranding Program. The Interim Credit
Facility is secured by mortgages on 14 of the 21 hotels acquired by Bristol
using the borrowed funds and on one additional hotel owned by Bristol. The
Interim Credit Facility bears interest at LIBOR plus 2%. If the Merger Agreement
is terminated due to the failure of FelCor's stockholders to approve the Merger,
$56.2 million of the loan balance will be converted into unsecured indebtedness
of Bristol with a maturity of December 31, 2003; however, the loan balance in
excess of $56.2 million will remain secured and be due 120 days after the
termination of the Merger Agreement or, if later, on the Post-Termination
Maturity Date. If the Merger Agreement is terminated for any other reason, the
Interim Credit Facility will be due on the Post-Termination Maturity Date.
RECONSTITUTION OF FELCOR BOARD
Upon the effectiveness of the Merger, the Merger Agreement provides that
FelCor Board will be reconstituted as follows: (i) the number of directors
comprising the FelCor Board will be increased from seven to 10; (ii) the
existing directors of FelCor (assuming election of the Nominees) will continue
as directors and three new directors designated by Bristol, Donald J. McNamara,
Richard C. North and Robert H. Lutz, Jr., each of whom is currently a director
of Bristol, will become directors of FelCor; (iii) Mr. McNamara will become
Chairman of the Board of Directors; and (iv) the directors will be reclassified
and will serve for the terms expiring with the annual meetings of stockholders,
or until their successor shall be elected and shall qualify or until their
earlier resignation or removal, as set forth below:
<TABLE>
<CAPTION>
NAME CLASS TERM EXPIRES
---- ----- ------------
<S> <C> <C>
Thomas J. Corcoran, Jr................................... II 1999
Thomas A. McChristy...................................... II 1999
Donald J. McNamara....................................... II 1999
Richard C. North......................................... II 1999
Richard S. Ellwood....................................... III 2000
Richard O. Jacobson...................................... III 2000
Charles N. Mathewson..................................... III 2000
Charles A. Ledsinger, Jr................................. I 2001
Robert H. Lutz, Jr....................................... I 2001
Michael D. Rose.......................................... I 2001
</TABLE>
Information regarding the three Bristol directors is set forth under the
caption "Other Bristol Annual Meeting Proposals -- Election of Bristol
Directors." Information regarding the FelCor directors is set forth under the
caption "Other FelCor Annual Meeting Proposals -- Election of FelCor Directors."
CHANGES TO FELCOR CHARTER
Pursuant to the Merger Agreement, upon the effectiveness of the Merger, the
FelCor Charter will be amended and restated and become the charter for the
surviving corporation. If approved by FelCor's stockholders, the FelCor Charter
will be amended (i) to change the name of FelCor to "FelCor Lodging Trust
Incorporated" and (ii) to increase the authorized number of FelCor Common Shares
from 100 million to 200 million and the authorized number of FelCor Preferred
Shares from 10 million to 20 million. See "Other FelCor Annual Meeting
Proposals -- Approval of FelCor Charter Amendment to Increase Authorized Shares"
and "-- Approval of FelCor Charter Amendment to Change Name."
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THE VOTING AGREEMENT
The following summarizes the material terms of the Voting Agreement, which
is filed as an exhibit to the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part.
AGREEMENT TO VOTE
Under the Voting Agreement, each of the Bristol Majority Stockholders
agreed to vote its Bristol Common Shares in favor of the adoption of the Merger
Agreement, and the actions contemplated thereby, and against any Adverse
Proposal. The term "Adverse Proposal" includes any Acquisition Proposal, any
change in the composition of the majority of the Bristol Board, and any act
intended or reasonably expected to hinder, delay or result in the failure of the
Merger to occur.
RESTRICTIONS ON TRANSFERS BEFORE EFFECTIVE TIME
Prior to the Effective Time, the Bristol Majority Stockholders may not sell
or transfer their shares in Bristol if the aggregate number of Bristol Common
Shares held by the Bristol Majority Stockholders would be less than a majority
of the outstanding Bristol Common Shares as of the Record Date. Otherwise, the
Bristol Majority Stockholders are not prohibited from transferring or disposing
of their Bristol Common Shares except that a transfer of more than 100,000
shares to a single purchaser requires the agreement of the purchaser to be bound
by the Voting Agreement.
OTHER AGREEMENTS
Before the Spin-Off is effective, the Holiday Entities will review and
approve the form of lease between BHR and FelCor, and when the Spin-Off is
effected, the Holiday Entities will enter into the following agreements: (i)
Hotel Properties Agreement between Holiday Hospitality and BHR, relating to
certain agreements for the franchise, ownership, development and management of
hotels; (ii) Confirmation Agreement among Bristol, BHR, the Holiday Entities,
FelCor and the FelCor Operating Partnership, relating to the confirmation of
certain indemnification rights and obligations; (iii) the FelCor Stockholders'
Agreement among FelCor, the Holiday Entities and the Holdings Entities, relating
to, among other things, registration rights with respect to FelCor Common Shares
owned by the Holiday Entities and the Holdings Entities, restrictions on the
transfer of such shares and preemptive right to purchase additional securities
of FelCor under certain circumstances; (iv) Stockholders' Agreement ("BHR
Stockholders' Agreement") among BHR, the Holiday Entities and Holdings, relating
to, among other things, corporate governance of BHR, restrictions on transfer of
BHR Common Shares and preemptive rights to acquire additional securities of BHR;
and (v) Registration Rights Agreement among Bristol, the Holiday Entities and
Holdings relating to registration rights with respect to BHR Common Shares owned
by the Holiday Entities and Holdings.
REDEMPTION OF BHR COMMON SHARES
After the Spin-Off and prior to the Effective Time, the Holiday Entities
will transfer to BHR for redemption their BHR Common Shares in excess of 9.9% of
the total number of outstanding BHR Common Shares as of the Spin-Off Time after
giving effect to the redemption (the "Aggregate Excess Shares") in consideration
for payment by BHR to the Holiday Entities of $4.86 per BHR Common Share or an
aggregate of $25.8 million (the "Aggregate Excess Shares Redemption Amount").
If, before the Spin-Off, the Holiday Entities or their Affiliates (i) decrease
the number of Bristol Common Shares held by them, then the Aggregate Excess
Shares Redemption Amount will be decreased proportionately by an amount
corresponding to the decrease in Aggregate Excess Shares or (ii) increase the
number of Bristol Common Shares held by them, resulting in an increase in
Aggregate Excess Shares, then the additional Aggregate Excess Shares will also
be redeemed, with no corresponding increase in the Aggregate Excess Shares
Redemption Amount. Neither the Holiday Entities nor their Affiliates will
increase or decrease the number of BHR Common Shares they hold.
CONTRIBUTION TO PARTNERSHIPS
Immediately after the Spin-Off and prior to the Effective Time, Holdings
will contribute all the Bristol Common Shares it owns to the Holdings Entities,
which will be organized by Holdings and its partners, in the
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proportion Holdings deems appropriate and with FelCor approval. This step will
reduce the beneficial ownership of each of the Holdings Entities, for REIT tax
purposes, to less than 9.9% of the outstanding FelCor Common Shares.
INDEMNIFICATION AND RELEASE
FelCor has agreed to indemnify and defend each Bristol Majority Stockholder
to the fullest extent permitted by law against any judgments, penalties, and
expenses, paid or incurred in connection with the investigation or defense of
any claim relating to the Voting Agreement and the transactions contemplated
thereby. The indemnity will not include any loss incurred by a Bristol Majority
Stockholder as a result of any breach of a representation, warranty or covenant.
Each Bristol Majority Stockholder has released any and all claims it had against
Bristol and its directors, officers or employees for actions or events arising
prior to and including the Effective Time that would give rise to a claim for
indemnification by such directors, officers or employees under the Bristol
Charter, the Bristol Bylaws or any indemnification agreement or under Bristol's
insurance policy for directors' and officers' liability.
FELCOR STOCKHOLDERS' AGREEMENT
Transfer Restrictions. Pursuant to the FelCor Stockholders' Agreement, each
of the Bristol Majority Stockholders will agree that it will not, directly or
indirectly, transfer, sell, pledge or otherwise dispose of, any of the FelCor
Common Shares received by the Bristol Majority Stockholder pursuant to the
Merger until the six-month anniversary of the Effective Time (the "Lock-Up
Period"), except (i) to a Permitted Transferee (as defined in the FelCor
Stockholders' Agreement), (ii) in compliance with the limitations of Rule 145 of
the Securities Act, (iii) pursuant to a tender offer or other transaction
approved by the Bristol Board and made to all holders of FelCor Common Shares,
(iv) any pledge made in connection with a bona fide loan to the Bristol Majority
Stockholder, (v) any involuntary transfer resulting from a lender foreclosing on
any pledge, or (vi) any transfer made with FelCor's prior written consent.
FelCor will agree that after the Lock-Up Period and as long as necessary to
permit each Bristol Majority Stockholder to sell its FelCor Common Shares
pursuant to Rule 144, FelCor will use its reasonable efforts to file on a timely
basis all reports required to be filed by it pursuant to the Exchange Act and
the regulations thereunder.
Registration Rights. Pursuant to the FelCor Stockholders' Agreement, FelCor
will agree to file with the SEC a registration statement under Rule 415 with
respect to the FelCor Common Shares received by the Holiday Entities and the
Holdings Entities in the Merger and other FelCor Common Shares (subject to
certain limitations) (the "Registrable Securities") and use its reasonable best
efforts to cause such registration statement to become effective no later than
the expiration of the Lock-Up Period. FelCor, in its sole discretion, may
convert the Registration Statement of which this Joint Proxy
Statement/Prospectus is a part to a registration statement on another form for
use as a registration statement relating to the resale of the Registrable
Securities. In connection with any underwritten offering of FelCor's capital
stock in which the expected gross proceeds of the offering equal or exceed $100
million, the Holiday Entities and the Holdings Entities will agree not to sell
any Registrable Securities without the prior written consent of the underwriter;
provided, however, that the period of time may not exceed 90 calendar days
during any 12-month period. In no event will the Holiday Entities and the
Holdings Entities be required to enter into more than two such agreements in any
12-month period. FelCor will bear all fees and expenses relating to the
preparation and filing of such registration statement, other than underwriting
discounts and commissions and transfer taxes, if any, relating to the sale or
disposition of Registrable Securities, which will be borne by the stockholders.
Preemptive Rights. Except for the issuance of certain equity securities
(generally employee stock options, securities issued upon exercise of previously
outstanding option or upon conversion or redemption of previously outstanding
securities or any securities issued to all stockholders), FelCor will agree to
provide the Holiday Entities and the Holdings Entities with written notice of
any sale by it for cash of any equity security of FelCor in which the gross
proceeds of such sale to FelCor equals or exceeds $100 million (a "Qualified
Offering") no later than the closing date of such Qualified Offering. Not later
than five calendar days after receipt of such notice, each stockholder must
deliver to FelCor a written notice stating whether such stockholder desires to
acquire the same type of securities that were issued and the number of
securities it intends to purchase. The
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<PAGE> 72
rights to purchase such securities will terminate (i) with respect to any
stockholder that fails three times to elect to purchase the full number of
securities purchasable following receipt of notice of a Qualified Offering and
(ii) as to the Holiday Entities or the Holdings Entities, as applicable, on the
date the Holiday Entities or the Holdings Entities, respectively, beneficially
own less than 50% of the FelCor Common Shares owned by such parties as of the
Effective Time.
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<PAGE> 73
PRO FORMA FINANCIAL INFORMATION
FELCOR SUITE HOTELS, INC.
INTRODUCTION TO
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BACKGROUND
FelCor is a self-administered real estate investment trust formed to own
hotel properties. At March 31, 1998, FelCor owned interests in 75 hotels with an
aggregate of 18,348 suites/rooms (the "FelCor Hotels") through its 92.4% general
partnership interest in FelCor Operating Partnership. The following table sets
forth information regarding the acquisitions of the FelCor Hotels:
<TABLE>
<CAPTION>
HOTELS NUMBER OF
ACQUIRED SUITES/ ROOMS
-------- -------------
<S> <C> <C>
1994.................................. 7 1,730
1995.................................. 13 2,649
1996.................................. 23 5,769
1997.................................. 30 7,608
1998, through March 31................ 2 348
Suites constructed since
acquisition......................... 244
-- ------
75 18,348
== ======
</TABLE>
FelCor owns 100% equity interests in 56 of the FelCor Hotels (13,691
suites/rooms), a 90% or greater interest in partnerships owning five of the
FelCor Hotels (1,195 suites/rooms), and 50% interests in separate unconsolidated
entities that own 14 of the FelCor Hotels (3,462 suites/rooms). At March 31,
1998, 52 of the FelCor Hotels were operated as Embassy Suites hotels, 14 as
Doubletree Guest Suites hotels, five as Sheraton hotels, two as Sheraton Suites
hotels, one as a Hilton Suites hotel and one was in the process of being
converted to a full-service Doubletree hotel. The FelCor Hotels are located in
28 states, with 31 hotels in California, Florida and Texas.
FelCor leases all of the FelCor Hotels to DJONT or a consolidated
subsidiary thereof under operating leases providing for the payment of
percentage rent (the "Percentage Leases"). DJONT is a Delaware limited liability
company, of which all the voting interests (constituting a 50% equity interest)
are beneficially owned by Hervey A. Feldman and Thomas J. Corcoran, Jr., who are
directors and officers of FelCor, and the non-voting interests (constituting the
remaining 50% equity interest) is owned by RGC Leasing, Inc., a Nevada
corporation owned by the children of Charles N. Mathewson, a director of and
major initial investor in FelCor. DJONT has entered into management agreements
pursuant to which, at March 31, 1998, 65 of the FelCor Hotels were managed by
subsidiaries of Promus Hotel Corporation ("Promus"), seven were managed by
subsidiaries of ITT Sheraton Corporation ("Sheraton"), and three were managed by
two independent management companies.
1998 ACQUISITIONS
Through March 31, 1998, FelCor completed the acquisitions of two hotels. On
February 17, 1998, FelCor acquired a 194-suite Doubletree Guest Suites hotel in
Columbus, Ohio for total consideration of approximately $19.1 million
(approximately $14.1 million in cash and approximately 134,000 Units valued at
$37.06 each). On March 23, 1998, FelCor completed the acquisition of a 90%
interest in a 154-room Radisson Hotel in Wilmington, Delaware (to be converted
to a Doubletree Hotel) for approximately $12.6 million in cash.
Since March 31, 1998, FelCor has completed the acquisition of ten hotels.
On April 14, 1998, FelCor completed the acquisition of a 90% interest in a
248-room Doubletree Hotel located in Denver, Colorado for approximately $21.8
million in cash.
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On May 1, 1998, FelCor completed the acquisition of eight hotels from
Starwood with an aggregate of 1,898 suites for a total purchase price of $245
million in cash. Five of the eight hotels are currently operated as Embassy
Suites and three are operated as Doubletree Guest Suites. It is anticipated that
one of the Doubletree Guest Suites will be converted to an Embassy Suites hotel
and the other two Doubletree Guest Suites will be converted to Sheraton Suites
hotels. The two hotels acquired in the first quarter of 1998, the Denver,
Colorado hotel acquisition on April 14, 1998, and the eight hotels acquired on
May 1, 1998 from Starwood are collectively referred to as the 1998 Acquisitions.
On April 30, 1998, FelCor purchased a 301-room Hilton hotel in Secaucus,
New Jersey for approximately $23.4 million in cash. This hotel is not included
in the pro forma financial statements.
1997 AND 1998 FINANCING TRANSACTIONS
During 1997, FelCor completed two secondary equity offerings (collectively,
the "1997 Offerings") of 3.0 million common shares at $35.50 per share on
February 3, 1997 and of 11.2 million common shares at $36.625 per share on June
30, 1997. Proceeds from the 1997 Offerings amounted to approximately $489
million, net of offering costs, and were used to fund acquisitions, reduce
amounts outstanding under FelCor's unsecured revolving line of credit (the "Line
of Credit"), and repurchase 1.2 million FelCor common shares from Promus at
$36.625 per share less the related offering costs.
On October 1, 1997, FelCor completed a private placement of $300 million in
aggregate principal amount of its long term senior unsecured notes (the
"Notes"). The Notes were issued in two maturities, consisting of $175 million of
7 3/8% senior notes due 2004 priced at 99.489% to yield 7.47% and $125 million
of 7 5/8% senior notes due 2007 priced at 99.209% to yield 7.74%. The proceeds
from the Notes were used to fund acquisitions and reduce amounts outstanding
under the Line of Credit. On March 21, 1998, FelCor completed an exchange
offering for the Notes, issuing new notes which were identical in amount and
terms except that the new notes were registered under the Securities Act.
On May 7, 1998, FelCor sold 5.75 million depositary shares representing
57,500 shares of 9% cumulative redeemable preferred stock (the "1998 Offering")
at $25 per depositary share. The net proceeds of approximately $139.1 million
were used to reduce borrowings on the Line of Credit.
THE BRISTOL MERGER
On March 24, 1998, FelCor and Bristol announced a proposed merger whereby
FelCor will acquire all the real estate assets and related liabilities of
Bristol existing at the merger date. Pursuant to the Merger Agreement and the
transactions contemplated thereby, each of Bristol's outstanding common shares
and equivalents will be exchanged for 0.685 newly issued FelCor Common Shares
and Bristol will merge with and into FelCor, with FelCor being the surviving
corporation. Prior to the Merger, Bristol will spin-off, as a taxable dividend,
all of its non-real estate holdings into BHR. As part of the Merger, all of
Bristol's hotels will be leased to BHR by FelCor under Percentage Leases.
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At May 1, 1998, Bristol owned the Bristol Hotels, comprised of 110 hotels
(which includes the acquisition of 20 hotels on April 30, 1998 pursuant to the
Omaha Acquisition) which in the aggregate contain 28,918 rooms. The Bristol
Hotels, upon conversion, will include three upscale all-suite hotels, 24 upscale
full service hotels, 61 full-service hotels and 22 limited service hotels. The
Bristol Hotels will be operated under the following franchise affiliations:
<TABLE>
<CAPTION>
TOTAL
FRANCHISE BRISTOL HOTELS ROOMS
--------- -------------- ------
<S> <C> <C>
Upscale All Suite:
Crowne Plaza Suites....................................... 1 295
Homewood Suites........................................... 1 108
Bristol House............................................. 1 127
Upscale Full Service:
Crowne Plaza.............................................. 19 6,814
Harvey Hotel.............................................. 4 1,262
Full Service:
Holiday Inn............................................... 48 13,139
Holiday Inn Select........................................ 6 2,145
Courtyard by Marriott..................................... 2 420
Independent............................................... 1 181
Ramada.................................................... 1 220
Holiday Inn and Suites.................................... 2 509
Sheraton Four Points...................................... 1 187
Days Inn.................................................. 1 157
Limited Service:
Hampton Inn............................................... 9 1,310
Holiday Inn Express....................................... 8 1,113
Fairfield Inn............................................. 5 931
--- ------
110 28,918
=== ======
</TABLE>
Included in the 110 Bristol Hotels is a Sheraton Four Points hotel in
Leominster, Massachusetts which was acquired on April 30, 1998 for $9.0 million
in cash. This hotel is not included in the pro forma financial statements.
74
<PAGE> 76
FELCOR SUITE HOTELS, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
The following unaudited Pro Forma Consolidated Statements of Operations for
the three months ended March 31, 1998 and the year ended December 31, 1997 are
based in part upon:
(i) the Consolidated Statements of Operations of FelCor for the three
months ended March 31, 1998 and the year ended December 31, 1997
incorporated by reference herein;
(ii) the Consolidated Statements of Operations of Bristol for the
three months ended March 31, 1998 and the year ended December 31, 1997
incorporated by reference herein;
(iii) the Pro Forma Condensed Combined Statements of Operations of the
Combined Lessees for the three months ended March 31, 1998 and the year
ended December 31, 1997 included elsewhere herein.
The Pro Forma Consolidated Statements of Operations for the three months
ended March 31, 1998 and the year ended December 31, 1997 assume that all the
following occurred on January 1, 1997: (i) the acquisition of the interests in
30 hotels during 1997 (the "1997 Acquisitions"), (ii) the consummation of the
1997 Offerings, (iii) the 1997 placement of the Notes, (iv) the 1998
Acquisitions, (v) the 1998 Offering, (vi) the Omaha Acquisition, (vii) the
Spin-Off, and (viii) the Merger.
In management's opinion, all material adjustments necessary to reflect the
effects of the foregoing transactions have been made. The following unaudited
pro forma consolidated statements of operations are not necessarily indicative
of what the actual results of operations of FelCor would have been assuming such
transactions had been completed as of January 1, 1997, nor do they purport to
represent the results of operations for future periods.
75
<PAGE> 77
FELCOR SUITE HOTELS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FELCOR 1998 BRISTOL
HISTORICAL ACQUISITIONS MERGER OTHER PRO FORMA
(A) (B) (C) ADJUSTMENTS TOTAL
---------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Percentage lease revenue..................... $56,060 $8,959(D) $ 51,754(D) $116,773
Equity in income of unconsolidated
entities................................... 1,293 554(E) 1,847
Other revenue................................ 175 $ (175)(F)
------- ------ -------- --------
Total revenue.......................... 57,528 8,959 52,308 (175) 118,620
------- ------ -------- ------- --------
Expenses:
General and administrative................... 1,199 250(G) 1,449
Depreciation................................. 15,887 2,033(H) 13,540(H) 31,460
Taxes, insurance and other................... 7,270 1,020(I) 9,849(I) 18,139
Interest..................................... 9,731 4,876(J) 13,381(J) 27,988
Minority interest in FelCor Operating
Partnership................................ 1,751 $ (58)(K) 1,693
Minority interest in other partnerships...... 190 53(L) 243
------- ------ -------- ------- --------
Total expenses......................... 36,028 7,982 37,020 (58) 80,972
------- ------ -------- ------- --------
Net income..................................... 21,500 $ 977 $ 15,288 (117) 37,648
====== ======== =======
Preferred dividends............................ 2,949 3,234(M) 6,183
------- ------- --------
Net income applicable to common stockholders... $18,551 $(3,351) $ 31,465
======= ======= ========
Net income per common share -- basic........... $ .51 $ .46
======= ========
Weighted average common shares outstanding --
basic........................................ 36,539 31,133 67,672
======= ======== ========
Net income per common share -- diluted......... $ .51 $ .46
======= ========
Weighted average common shares outstanding --
diluted...................................... 36,905 31,802 68,707
======= ======== ========
</TABLE>
See notes to pro forma consolidated statements of operations.
76
<PAGE> 78
FELCOR SUITE HOTELS, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FELCOR 1997 1998 BRISTOL
HISTORICAL TRANSACTIONS ACQUISITIONS MERGER OTHER PRO FORMA
(A) (N) (B) (C) ADJUSTMENTS TOTAL
---------- ------------ ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Percentage lease revenue..... $169,114 $34,808(D) $35,345(D) $202,501(D) $441,768
Equity in income of
unconsolidated entities.... 6,963 (26)(E) 1,851(E) 8,788
Other revenue................ 574 (574)(F)
-------- ------- ------- -------- --------
Total revenue.......... 176,651 34,208 35,345 204,352 450,556
-------- ------- ------- -------- --------
Expenses:
General and administrative... 3,743 420(G) 1,000(G) 5,163
Depreciation................. 50,798 8,389(H) 8,470(H) 54,160(H) 121,817
Taxes, insurance and other... 23,093 2,840(I) 3,940(I) 38,333(I) 68,206
Interest..................... 28,792 8,735(J) 20,843(J) 52,468(J) 110,838
Minority interest in FelCor
Operating Partnership...... 5,817 $ 330(K) 6,147
Minority interest in other
partnerships............... 573 90(L) 494(L) 1,157
-------- ------- ------- -------- -------- --------
Total expenses......... 112,816 20,474 33,747 145,961 330 313,328
-------- ------- ------- -------- -------- --------
Net income..................... 63,835 $13,734 $ 1,598 $ 58,391 (330) 137,228
======= ======= ======== ========
Preferred dividends............ 11,797 12,938(M) 24,735
-------- -------- --------
Net income applicable to common
stockholders................. $ 52,038 $(13,268) $112,493
======== ======== ========
Net income per common share --
basic........................ $ 1.67 $ 1.66
======== ========
Weighted average common shares
outstanding -- basic......... 31,269 5,227 31,134 67,630
======== ======= ======== ========
Net income per common share --
diluted...................... $ 1.65 $ 1.64
======== ========
Weighted average common shares
outstanding -- diluted....... 31,610 5,227 31,789 68,626
======== ======= ======== ========
</TABLE>
See notes to pro forma consolidated statements of operations.
77
<PAGE> 79
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(A) Represents FelCor's historical results of operations for the three months
ended March 31, 1998 and the year ended December 31, 1997, excluding a
$556,000 and $185,000 extraordinary charge from write off of deferred
financing fees, respectively.
(B) Represents adjustment to FelCor's historical results of operations assuming
the 1998 Acquisitions had occurred as of January 1, 1997.
(C) Represents adjustment to FelCor's results of operations assuming the Omaha
Acquisition, the Spin-Off and the Merger and related transactions had
occurred as of January 1, 1997.
(D) With respect to the FelCor Hotels, represents pro forma lease revenue from
DJONT to FelCor calculated by applying the contractual rent provisions of
the Percentage Leases to the historical suite/room revenues, food and
beverage rents, food and beverage revenues and other revenues for all the
FelCor Hotels which are consolidated for financial reporting purposes. With
respect to the Bristol Hotels, represents pro forma lease revenue from BHR
to FelCor calculated pursuant to the master hotel agreement between FelCor
and BHR.
The following table presents historical suite/room revenues for the 1997
and 1998 Acquisitions for the time period from the beginning of the periods
presented to the acquisition by FelCor and the related pro forma Percentage
Lease revenue, and with respect to the Bristol Merger, the table presents
historical suite/room revenues for the entire period presented (including
periods prior to ownership by Bristol) and the related pro forma Percentage
Lease revenue.
<TABLE>
<CAPTION>
PERCENTAGE LEASE REVENUE
SUITE REVENUE FOR THE PERIOD FOR THE PERIOD
PRIOR TO ACQUISITION PRIOR TO ACQUISITION
---------------------------- ------------------------
(IN THOUSANDS)
<S> <C> <C>
Consolidated hotels for the
three months ended March 31,
1998:
1998 Acquisitions............. $ 18,377 $ 8,959
Bristol Merger................ 128,676 51,754
-------- --------
Total consolidated
hotels.............. $147,053 $ 60,713
======== ========
Consolidated hotels for the year
ended December 31, 1997:
1997 Acquisitions............. $ 73,113 $ 34,808
1998 Acquisitions............. 65,841 35,345
Bristol Merger................ 503,099 202,501
-------- --------
Total consolidated
hotels.............. $642,053 $272,654
======== ========
Unconsolidated entity hotels:
1997 Acquisitions (See Note
E)......................... $ 7,053 $ 3,071
======== ========
</TABLE>
78
<PAGE> 80
(E)With respect to the Bristol Merger, represents Bristol's historical
equity in income of unconsolidated entities, which will not be subject
to Percentage Leases.
With respect to the 1997 Transactions, represents pro forma equity in
income of unconsolidated entities of FelCor calculated by applying
FelCor's pro rata ownership percentage to the net earnings of the
unconsolidated entities, computed using the contractual rent provisions
of the Percentage Leases to the historical suite/room revenues, food and
beverage rents, food and beverage revenues and other revenues of the
FelCor Hotels; historical taxes, insurance, and other; historical
depreciation expense; and historical interest expense. The amortization
of FelCor's cost in excess of net book value of the entities assets is
deducted to arrive at equity in income of unconsolidated entities. The
computation is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
Statements of operations information:
Percentage lease revenue................................. $3,071
Depreciation............................................. 1,262
Taxes, insurance and other............................... 509
Interest expense......................................... 1,115
------
Net income............................................... 185
50% of income attributable to the Company................ 93
Amortization of cost in excess of net book value......... (119)
------
Loss from unconsolidated entities........................ $ (26)
======
</TABLE>
(F)Represents elimination of historical interest income earned on excess
cash.
(G)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
1998 expenses.
(H)Represents depreciation on the FelCor Hotels and the Bristol 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 adjustments for the three months ended March 31, 1998
and the year ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
ASSET COST
------------------------------------------------------------------
BUILDING AND FURNITURE CONSTRUCTION
LAND IMPROVEMENTS AND FIXTURES IN PROGRESS TOTAL
-------- ------------ ------------ ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated Hotels for
the three months ended
March 31, 1998:
1998 Acquisitions...... $ 23,755 $ 237,417 $ 8,078 $ 269,250
Bristol Merger......... 195,174 1,698,010 58,552 $67,727 2,019,463
-------- ---------- ------- ------- ----------
Total Consolidated
Hotels................. $218,929 $1,935,427 $66,630 $67,727 $2,288,713
======== ========== ======= ======= ==========
Consolidated Hotels for
the year ended December
31, 1997:
1997 Acquisitions...... $ 64,233 $ 492,369 $26,488 $ 583,090
1998 Acquisitions...... 27,064 266,215 9,071 302,350
Bristol Merger......... 195,174 1,698,010 58,552 $67,727 2,019,463
-------- ---------- ------- ------- ----------
Total Consolidated
Hotels................. $286,471 $2,456,594 $94,111 $67,727 $2,904,903
======== ========== ======= ======= ==========
<CAPTION>
PRO FORMA DEPRECIATION EXPENSE
-------------------------------------
BUILDING AND FURNITURE
IMPROVEMENTS AND FIXTURES TOTAL
------------ ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Consolidated Hotels for
the three months ended
March 31, 1998:
1998 Acquisitions...... $ 1,597 $ 436 $ 2,033
Bristol Merger......... 10,612 2,928 13,540
------- ------- -------
Total Consolidated
Hotels................. $12,209 $ 3,364 $15,573
======= ======= =======
Consolidated Hotels for
the year ended December
31, 1997:
1997 Acquisitions...... $ 5,830 $ 2,559 $ 8,389
1998 Acquisitions...... 6,656 1,814 8,470
Bristol Merger......... 42,448 11,712 54,160
------- ------- -------
Total Consolidated
Hotels................. $54,934 $16,085 $71,019
======= ======= =======
</TABLE>
79
<PAGE> 81
(I)Pro forma real and personal property taxes, property insurance, ground
lease and other expenses for the three months ended March 31, 1998 and
the year ended December 31, 1997 represent expenses to be paid by the
FelCor Operating Partnership. Such amounts were primarily derived from
historical amounts paid with respect to the 1997 Acquisitions, 1998
Acquisitions and the Bristol Hotels. The pro forma adjustments for
property taxes, insurance, and ground leases and other derived from the
historical amounts paid for the Hotels during the three months ended
March 31, 1998 and the year ended December 31, 1997 are as follows:
<TABLE>
<CAPTION>
GROUND LEASES
PROPERTY TAXES PROPERTY INSURANCE AND OTHER TOTAL
-------------- ------------------ ------------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Consolidated Hotels for the three
months ended March 31, 1998:
1998 Acquisitions................ $ 896 $ 55 $ 69 $ 1,020
Bristol Merger................... 5,959 688 3,202 9,849
------- ------ ------- -------
Total Consolidated Hotels.......... $ 6,855 $ 743 $ 3,271 $10,869
======= ====== ======= =======
Consolidated Hotels for the year
ended December 31, 1997:
1997 Acquisitions................ $ 2,706 $ 402 $ (268) $ 2,840
1998 Acquisitions................ 3,610 214 116 3,940
Bristol Merger................... 20,065 2,827 15,441 38,333
------- ------ ------- -------
Total Consolidated Hotels.......... $26,381 $3,443 $15,289 $45,113
======= ====== ======= =======
Unconsolidated entity hotels
acquired during 1997 (See Note
E)............................... $ 419 $ 28 $ 62 $ 509
======= ====== ======= =======
</TABLE>
80
<PAGE> 82
(J)Represents both historical and pro forma interest expense computed based
on borrowings multiplied by the applicable fixed or variable interest
rate as stated in the applicable debt instruments. 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 three months ended March 31,
1998 and the year ended December 31, 1997. The period ending pro forma
debt balances, average interest rates and pro forma interest expense for
the three months ended March 31, 1998 and the year ended December 31,
1997 are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 YEAR ENDED DECEMBER 31, 1997
---------------------------------- ----------------------------------
DEBT INTEREST INTEREST DEBT INTEREST INTEREST
BALANCE RATE EXPENSE(1) BALANCE RATE EXPENSE(1)
---------- -------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Line of Credit............. $ 455,248 7.31% $ 8,560 $ 457,964 7.10% $ 32,336
Senior mortgage note
payable.................. 455,000 7.66 8,713 455,000 7.66 34,835
Senior mortgage note
payable.................. 144,328 7.46 2,691 144,834 7.46 10,802
$175M Senior unsecured
notes, net of discount... 174,154 7.47 3,420 174,122 7.47 13,612
$125M Senior unsecured
notes, net of discount... 124,048 7.74 2,480 124,023 7.74 10,017
Renovation Loan............ 25,000 6.28 402 25,000 6.40 1,610
Mortgage note payable --
Harvey Hotels............ 16,031 8.55 343 16,126 8.55 1,379
Mortgage note payable --
Philadelphia............. 13,324 9.00 300 13,400 9.00 1,206
Mortgage note payable --
St. Louis................ 8,320 9.50 198 8,365 9.50 795
Mortgage note payable --
Omaha Central............ 6,700 11.25 188 6,776 11.25 762
Mortgage note payable --
Salina................... 5,164 10.38 134 5,196 10.38 539
Mortgage note payable --
Express Moline I......... 1,786 13.13 59 2,009 13.13 264
Mortgage note payable --
Express Moline II........ 679 12.00 20 785 12.00 94
Mortgage note
payable -- Hays &
Hampton.................. 795 9.75 19 932 9.75 91
Collateralized mortgage
note..................... 7,331 10.22 86 5,931 10.22 612
Other...................... 650 7.83 13 650 7.97 52
Capital leases............. 13,483 9.36 362 15,491 10.70 1,832
---------- -------- ---------- --------
$1,452,041 $ 27,988 $1,456,604 $110,838
========== ======== ========== ========
</TABLE>
-----------------------
(1) Pro forma interest expense represents interest expense applicable to
the pro forma weighted average borrowings outstanding during the
period presented which at times differs from the pro forma
borrowings outstanding at the end of the period.
(K)Represents pro forma adjustment to minority interest in the FelCor
Operating Partnership to reflect FelCor's increased ownership in the
FelCor Operating Partnership following the Merger, calculated as
approximately 4.3% of income before minority interest.
(L)Represents pro forma adjustment to minority interest related to six
hotels (four of the 1997 Acquisitions and two of the 1998 Acquisitions)
in which FelCor 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/room
revenues, food and beverage rents, food and beverage revenues and other
revenues; historical taxes, insurance and other; historical depreciation
81
<PAGE> 83
expense; and historical interest expense. This computation for the three
months ended March 31, 1998 and the year ended December 31, 1997
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998 YEAR ENDED DECEMBER 31, 1998
------------------ -------------------------------
1998 1997 1998
ACQUISITIONS ACQUISITIONS ACQUISITIONS
------------------ ------------ ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Statements of operations
information:
Percentage lease
revenue................ $912 $2,040 $5,307
Depreciation............. 268 671 301
Taxes, insurance and
other.................. 119 251 64
Interest expense......... -- 217
---- ------ ------
Net income before
minority interest...... $525 $ 901 $4,942
==== ====== ======
Minority interest
expense -- 10% of net
income................. $ 53 $ 90 $ 494
==== ====== ======
</TABLE>
(M) Represents pro forma dividends of 9% on the $143.8 million of preferred
stock issued in the 1998 Offering.
(N) Represents adjustment to FelCor's historical results of operations
assuming the 1997 Acquisitions, the 1997 Offerings, and the placement
of the Notes had occurred as of January 1, 1997.
82
<PAGE> 84
FELCOR SUITE HOTELS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
The following unaudited Pro Forma Consolidated Balance Sheet assumes that
(i) the 1998 Acquisitions, (ii) the 1998 Offering, (iii) the Omaha Acquisition,
(iv) the Spin-Off, and (v) the Merger transactions all occurred as of March 31,
1998.
In management's opinion, all material adjustments necessary to reflect the
effect of these transactions have been made.
The following unaudited Pro Forma Consolidated Balance Sheet is derived
from FelCor's and Bristol's Consolidated Balance Sheets as of March 31, 1998 and
should be read in conjunction with the consolidated financial statements of
FelCor and Bristol incorporated by reference herein.
The following Pro Forma Consolidated Balance Sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of March 31, 1998, nor does it purport to
represent the future financial position of FelCor.
83
<PAGE> 85
FELCOR SUITE HOTELS, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
FELCOR 1998 BRISTOL
HISTORICAL ACQUISITIONS MERGER OTHER PRO FORMA
(A) (B) (C) ADJUSTMENTS TOTAL
---------- ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net investment in hotels........... $1,514,639 $269,250 $2,019,463 $3,803,352
Investment in unconsolidated
entities......................... 118,069 12,659 130,728
Cash and cash equivalents.......... 25,733 25,733
Cash held in escrow................ 7,000 7,000
Due from DJONT..................... 33,815 33,815
Deferred expenses, net............. 10,105 10,105
Other assets....................... 6,475 7,278 13,753
---------- -------- ---------- ----------
Total assets................ $1,708,836 $269,250 $2,046,400 $4,024,486
========== ======== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt and capital lease
obligations...................... $ 494,700 $266,825 $ 829,613 $(139,097)(D) $1,452,041
Accrued expenses and other
liabilities...................... 24,159 64,740 88,899
Distributions payable.............. 24,747 24,747
Minority interest in FelCor
Operating Partnership............ 76,792 15,361(E) 92,153
Minority interest in other
partnerships..................... 10,162 2,425 12,587
---------- -------- ---------- --------- ----------
Total liabilities........ 630,560 269,250 894,353 (123,736) 1,670,427
---------- -------- ---------- --------- ----------
Stockholders equity:
Preferred stock.................. 151,250 143,750(D) 295,000
Common stock..................... 378 311 689
Additional paid-in capital....... 1,005,011 1,150,863 (20,014)(F) 2,135,860
Unearned officers' and directors'
compensation.................. (1,355) 873 (482)
Distributions in excess of
earnings...................... (35,902) (35,902)
Less common stock in treasury, at
cost.......................... (41,106) (41,106)
---------- ---------- --------- ----------
Total stockholders'
equity................... 1,078,276 1,152,047 123,736 2,354,059
---------- -------- ---------- --------- ----------
Total liabilities and
stockholders' equity... $1,708,836 $269,250 $2,046,400 $4,024,486
========== ======== ========== ==========
</TABLE>
See notes to Pro Forma Consolidated Balance Sheet
84
<PAGE> 86
FELCOR SUITE HOTELS, INC.
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED)
(A) Represents the historical consolidated balance sheet of FelCor as of March
31, 1998.
(B) Represents adjustments to reflect the purchase of those 1998 Acquisitions
acquired after March 31, 1998 for an aggregate purchase price of $269.2
million. This was funded from borrowings of $266.8 million on the Line of
Credit. The remaining $2.4 million of the purchase price was contributed by
a ten percent minority partner in one hotel of the 1998 Acquisitions. These
acquisitions extended only to the investment in hotels and no other assets
or liabilities were acquired.
(C) Represents the allocation of the purchase price to the Bristol assets
acquired and liabilities assumed in accordance with the purchase method of
accounting as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
HISTORICAL
COST BASIS OF
ASSETS AND
LIABILITIES
ACQUIRED FROM BRISTOL
BRISTOL ADJUSTMENTS AS ADJUSTED
-------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
Investment in hotels.................... $1,468,407 $ 551,056(1) $2,019,463
Investment in unconsolidated entities... 12,659 12,659
Cash and cash equivalents............... 64,649 (64,649)(2)
Cash held in escrow..................... 7,000 7,000
Other assets............................ 7,278 7,278
---------- ---------- ----------
Total assets.................. $1,559,993 $ 486,407 $2,046,400
========== ========== ==========
Debt and capital lease obligations...... $ 713,519 $ 116,094(3) $ 829,613
Accrued expenses and other
liabilities........................... 12,506 52,234(4) 64,740
---------- ---------- ----------
Total liabilities............. 726,025 168,328 894,353
---------- ---------- ----------
Net book value of Bristol assets
acquired.............................. 833,968 (833,968)(5)
Common stock............................ 311(6) 311
Additional paid-in capital.............. 1,150,863(6) 1,150,863
Unearned officers' and directors'
compensation.......................... 873(7) 873
---------- ---------- ----------
833,968 318,079 1,152,047
---------- ---------- ----------
Total liabilities and
stockholders' equity........ $1,559,993 $ 486,407 $2,046,400
========== ========== ==========
</TABLE>
(1) Represents allocation of the Bristol purchase price to the hotels
acquired after allocation to the other assets and liabilities acquired.
This approximates the fair value of the hotels acquired and, no
goodwill has been recorded.
(2) Represents the use of Bristol cash acquired as follows:
<TABLE>
<S> <C>
Cash paid by Bristol in the Omaha Acquisition (April 30,
1998)..................................................... $(20,000)
Cash acquired by FelCor used to repay indebtedness.......... (44,649)
--------
$(64,649)
========
</TABLE>
85
<PAGE> 87
(3) Represents additional debt to be assumed or incurred in connection with
the Merger and related transactions as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Omaha Acquisition debt assumed.............................. $ 40,000
Purchase of land leases under contract...................... 11,499
Prepayment penalties incurred in May 1998 Bristol debt
refinancing............................................... 33,000
Bristol borrowings to repurchase approximately 5.3 million
shares of BHR stock from Holiday Entities................. 25,800
Tax liability for BHR Spin-Off from Bristol................. 31,800
Merger expenses............................................. 18,644
Less cash acquired.......................................... (44,649)
--------
$116,094
========
</TABLE>
(4) Represents the following liabilities to be assumed or incurred in
connection with the Bristol Merger and related transactions as follows:
<TABLE>
(IN THOUSANDS)
<S> <C>
Estimated earnings and profits distribution................. $40,000
Working capital advance to BHR.............................. 11,915
Other....................................................... 319
-------
$52,234
=======
</TABLE>
(5) Represents elimination of historical net book value of Bristol assets
and liabilities acquired.
(6) Represents issuance of 31.1 million FelCor Common Shares at $36.25 per
share in connection with the Bristol Merger plus the Black-Scholes
valuation ($22.6 million) of options for approximately 1.3 million
shares to be issued by FelCor to Bristol stock option holders.
(7) Represents adjustment to remove the unearned compensation of Hervey
Feldman, FelCor's current chairman of the board, who will retire and
become Chairman Emeritus following the Merger.
(D) Represents adjustment for the issuance of preferred stock in connection
with the 1998 Offering. The net proceeds of $139.1 million were used to
reduce borrowings on FelCor's Line of Credit.
(E) Represents adjustment to reflect minority interest in the FelCor Operating
Partnership at 4.3%.
(F) Represents adjustments to additional paid in capital as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Adjustment for minority interest (see note (E))... $(15,361)
Adjustment for 1998 Offering expenses............. $ (4,653)
--------
$(20,014)
========
</TABLE>
86
<PAGE> 88
COMBINED LESSEES
INTRODUCTION TO
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND THE YEAR ENDED DECEMBER 31, 1997
FelCor leases each of the 75 hotels owned at March 31, 1998, and leases or
will lease its hotels acquired after March 31, 1998, to DJONT or BHR.
Additionally, FelCor intends to lease the Bristol Hotels to BHR. DJONT and BHR
are collectively referred to as the "Combined Lessees".
The Combined Lessees' unaudited Pro Forma Combined Statements of Operations
for the three months ended March 31, 1998 and the year ended December 31, 1997
are presented as if all of the hotels owned or to be owned by FelCor are leased
to DJONT or BHR pursuant to Percentage Leases as of January 1, 1997. The pro
forma information is based in part upon the Consolidated Statements of
Operations of DJONT and the Consolidated Statements of Operations of Bristol for
the three months ended March 31, 1998 and for the year ended December 31, 1997,
incorporated by reference herein. In management's opinion, all adjustments
necessary to reflect the effects of these transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the Combined
Lessees would have been assuming such transactions had been completed as of
January 1, 1997, nor do they purport to represent the results of operations for
future periods.
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<PAGE> 89
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DJONT 1998 COMBINED
HISTORICAL ACQUISITIONS BHR PRO FORMA
(A) (B) (C) TOTAL
---------- ------------ -------- ---------
<S> <C> <C> <C> <C>
Revenue:
Suite/room revenue.......................... $143,284 $18,377 $128,676 $290,337
Food and beverage revenue................... 15,264 2,901 30,817 48,982
Other revenue............................... 12,541 1,792 8,521 22,854
-------- ------- -------- --------
Total revenue....................... $171,089 $23,070 $168,014 $362,173
-------- ------- -------- --------
Expenses:
Property operating costs...................... 52,118 7,138 71,299 130,555
Other operating costs......................... 38,231 4,454 28,943 71,628
Management and franchise fees................. 9,635 1,572 6,523 17,730
Taxes, insurance and other.................... 1,533 165 827 2,525
Percentage lease.............................. 68,438 8,959 51,754 129,151
Lessee overhead............................... 359 5,945 6,304
-------- ------- -------- --------
Total expenses...................... 170,314 22,288 165,291 357,893
-------- ------- -------- --------
Net income before taxes....................... 775 782 2,723 4,280
Income tax provision.......................... 1,089 1,089
-------- ------- -------- --------
Net income.................................... $ 775 $ 782 $ 1,634 $ 3,191
======== ======= ======== ========
</TABLE>
See notes to pro forma condensed combined statements of operations
88
<PAGE> 90
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DJONT 1997 1998 COMBINED
HISTORICAL TRANSACTIONS ACQUISITIONS BHR PRO FORMA
(A) (D) (B) (C) TOTAL
---------- ------------ ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Revenue:
Suite/room revenue............ $456,614 $ 80,166 $65,841 $503,099 $1,105,720
Food and beverage revenue..... 34,813 27,460 12,427 122,766 197,466
Other revenue................. 43,083 2,167 7,237 37,203 89,690
-------- -------- ------- -------- ----------
Total revenue......... $534,510 $109,793 $85,505 $663,068 $1,392,876
-------- -------- ------- -------- ----------
Expenses:
Property operating costs........ 161,196 39,860 29,133 289,091 519,280
Other operating costs........... 124,079 24,815 19,061 106,769 274,724
Management and franchise fees... 25,286 4,372 1,505 24,506 55,669
Taxes, insurance and other...... 7,299 1,414 828 6,685 16,226
Percentage lease................ 216,990 37,732 35,345 202,501 492,568
Lessee overhead................. 2,332 146 54 22,858 25,390
-------- -------- ------- -------- ----------
Total expenses........ 537,182 108,339 85,926 652,410 1,383,857
-------- -------- ------- -------- ----------
Net income (loss) before
taxes......................... (2,672) 1,454 (421) 10,658 9,019
Income tax provision............ 4,253 4,253
-------- -------- ------- -------- ----------
Net income (loss)............... $ (2,672) $ 1,454 $ (421) $ 6,405 $ 4,766
======== ======== ======= ======== ==========
</TABLE>
- - ---------------
(A) Represents DJONT's historical results of operations for the periods
presented.
(B) Represents adjustments to DJONT's historical results of operations assuming
the 1998 Acquisitions had occurred as of January 1, 1997 and the related
hotels were leased to DJONT pursuant to the Percentage Leases beginning on
January 1, 1997.
(C) Represents BHR's pro forma results of operations (relating only to the
Bristol Hotels) assuming the Omaha Acquisition, the Spin-Off and the Merger
and related transactions occurred as of January 1, 1997 and the Bristol
Hotels were leased to BHR pursuant to the Percentage Leases beginning on
January 1, 1997.
(D) Represents adjustments to DJONT's historical results of operations assuming
1997 Acquisitions had occurred as of January 1, 1997 and the related hotels
were leased to DJONT pursuant to the Percentage Leases beginning on January
1, 1997.
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<PAGE> 91
DESCRIPTION OF FELCOR'S CAPITAL STOCK
DESCRIPTION OF FELCOR COMMON SHARES
The description of the FelCor Common Shares set forth below does not
purport to be complete and is qualified in its entirety by reference to FelCor's
Charter and Bylaws. See "-- Certain Charter and Bylaw Provisions."
General
Under the Charter, FelCor has authority to issue up to 100,000,000 FelCor
Common Shares and 10,000,000 shares of preferred stock (the "FelCor Preferred
Shares"). Under Maryland law, stockholders generally are not responsible for the
corporation's debts or obligations. At March 31, 1998, FelCor had outstanding
36,591,080 FelCor Common Shares. The FelCor Board has adopted an amendment to
the FelCor Charter to increase the authorized number of FelCor Common Shares to
200,000,000 and of FelCor Preferred Shares to 20,000,000. If approved by the
FelCor stockholders, the amendment would be effective upon the effectiveness of
the Merger.
Terms
Subject to the preferential rights of any series of FelCor Preferred Shares
outstanding, the holders of FelCor Common Shares are entitled to one vote per
share on all matters voted on by stockholders, including in the election of
directors. FelCor's Charter does not provide for cumulative voting in the
election of directors. Except as otherwise required by law or provided in
Articles Supplementary relating to FelCor Preferred Shares of any series, the
holders of FelCor Common Shares exclusively possess all voting power. See
"-- Certain Charter and Bylaw Provisions."
Subject to any preferential rights of any series of FelCor Preferred Shares
outstanding, the holders of FelCor Common Shares are entitled to such dividends,
if any, as may be declared from time to time by the FelCor Board from funds
legally available therefor and, upon liquidation, are entitled to receive, pro
rata, all assets of FelCor available for distribution to such holders. All
FelCor Common Shares will, when issued, be fully paid and nonassessable and will
have no preemptive rights. FelCor may, however, enter into contracts with
certain stockholders to grant such holders preemptive rights.
Restrictions on Ownership and Transfer
The FelCor Common Shares are subject to certain restrictions upon the
ownership and transfer thereof which were adopted for the purpose of enabling
FelCor to preserve its status as a REIT. For a description of such restrictions
and the Maryland Anti-Takeover Statutes, see "-- Certain Charter and Bylaw
Provisions -- Restrictions on Ownership and Transfer" and "-- Maryland
Anti-Takeover Statutes."
Exchange Listing
The FelCor Common Shares are listed on the NYSE under the symbol "FCH."
Transfer Agent
The transfer agent and registrar for the FelCor Common Shares is SunTrust
Bank, Atlanta, Georgia.
DESCRIPTION OF FELCOR PREFERRED SHARES
The FelCor Preferred Shares may be issued from time to time in one or more
series, without stockholder approval, with such preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption thereof as shall be established by the
FelCor Board. Thus, without stockholder approval, FelCor could authorize the
issuance of FelCor Preferred Shares with voting, conversion and other rights
that could dilute the voting power and other rights of the holders of
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<PAGE> 92
FelCor Common Shares. Pursuant to such authority, the FelCor Board has
authorized the issuance of two classes of FelCor Preferred Shares, as described
below.
DESCRIPTION OF FELCOR SERIES A PREFERRED SHARES
The summary of certain terms and provisions of FelCor's $1.95 Series A
Cumulative Convertible Preferred Stock (the "FelCor Series A Preferred Shares")
set forth below does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the terms and provisions of FelCor's Charter
(including the Articles Supplementary to the Charter setting forth the
particular terms of the FelCor Series A Preferred Shares ("Series A Articles
Supplementary")), and Bylaws.
General
In April 1996, the FelCor Board authorized FelCor to classify and issue the
FelCor Series A Preferred Shares as part of the authorized FelCor Preferred
Shares.
The outstanding FelCor Series A Preferred Shares are validly issued, fully
paid and nonassessable. The holders of the FelCor Series A Preferred Shares have
no preemptive rights with respect to any shares of capital stock of FelCor or
any other securities of FelCor convertible into or carrying rights or options to
purchase any such shares. The FelCor Series A Preferred Shares are not subject
to any sinking fund or other obligation of FelCor to redeem or retire the FelCor
Series A Preferred Shares. Unless converted or redeemed by FelCor into FelCor
Common Shares, the FelCor Series A Preferred Shares will have a perpetual term,
with no maturity.
Ranking
The FelCor Series A Preferred Shares rank pari passu with the outstanding
FelCor Series B Preferred Shares (as defined below) and senior to the FelCor
Common Shares with respect to the payment of dividends and amounts upon
liquidation, dissolution or winding up of FelCor.
While any FelCor Series A Preferred Shares are outstanding, FelCor may not
authorize, create or increase the authorized amount of any class or series of
stock that ranks senior to the FelCor Series A Preferred Shares with respect to
the payment of dividends or amounts upon liquidation, dissolution or winding up
without the consent of the holders of two-thirds of the outstanding FelCor
Series A Preferred Shares. However, FelCor may create additional classes of
stock, increase the authorized number of FelCor Preferred Shares or issue series
of FelCor Preferred Shares ranking junior to or on a parity with the FelCor
Series A Preferred Shares with respect, in each case, to the payment of
dividends and amounts upon liquidation, dissolution and winding up without the
consent of any holder of FelCor Series A Preferred Shares. See "-- Voting
Rights" below.
Dividends
Holders of FelCor Series A Preferred Shares are entitled to receive, when,
as and if declared by the FelCor Board, out of funds of FelCor legally available
for payment, cash distributions declared or paid for the corresponding period
payable in an amount per share equal to the greater of $0.4875 per quarter
(equivalent to $1.95 per annum) or the cash dividends (determined as of the
record date for each of the respective quarterly dividend payment dates referred
to below) on the number of FelCor Common Shares, or portion thereof, into which
a FelCor Series A Preferred Share is then convertible. Dividends on the FelCor
Series A Preferred Shares are payable quarterly in arrears on the last calendar
day of January, April, July and October of each year, commencing July 31, 1996
(and, in the case of any accrued but unpaid dividends, at such additional times
and for such interim periods, if any, as determined by the FelCor Board). Each
such dividend is payable to holders of record as they appear on the stock
records of FelCor at the close of business on such record dates, not exceeding
60 days preceding the payment dates thereof, as shall be fixed by the FelCor
Board. Dividends will be cumulative, whether or not in any dividend period or
periods there shall be funds of FelCor legally available for the payment of such
dividends. Accumulations of dividends on FelCor Series A Preferred Shares will
not bear interest. Dividends payable on the FelCor Series A Preferred Shares for
any period greater or less
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<PAGE> 93
than a full dividend period will be computed on the basis of a 360-day year
consisting of twelve 30-day months.
Except as provided in the next sentence, no dividend will be declared or
paid on any Parity Stock (as herein defined) unless full cumulative dividends
have been or contemporaneously are declared and paid, or declared and a sum
sufficient for the payment thereof is set apart for such payment, on the FelCor
Series A Preferred Shares for all prior dividend periods and the then current
dividend period. If accrued dividends on the FelCor Series A Preferred Shares
and any Parity Stock for all prior dividend periods have not been paid in full,
then any dividend declared on the FelCor Series A Preferred Shares and any
Parity Stock for any dividend period will be declared ratably in proportion to
accrued and unpaid dividends on the FelCor Series A Preferred Shares and such
Parity Stock.
Unless all dividends then required to be paid on the FelCor Series A
Preferred Shares and any Parity Stock have been or contemporaneously are
declared and paid, or declared and a sum sufficient for the payment thereof is
set apart for payment, FelCor will not (i) declare, pay or set apart funds for
the payment of any dividend or other distribution with respect to any Junior
Stock (as herein defined) or (ii) except as set forth in the following sentence,
redeem, purchase or otherwise acquire for consideration any Junior Stock
(subject to certain exceptions), through a sinking fund or otherwise.
Notwithstanding the foregoing limitations, FelCor may, at any time, acquire
shares of its capital stock, without regard to rank, for the purpose of
preserving its status as a REIT or for purposes of an employee benefit plan of
FelCor.
As used herein, (i) the term "dividend" does not include dividends payable
solely in shares of Junior Stock on Junior Stock, or in options, warrants or
rights to holders of Junior Stock to subscribe for or purchase any Junior Stock
and (ii) the term "Junior Stock" means the FelCor Common Shares, and any other
class of capital stock of FelCor now or hereafter issued and outstanding that
ranks junior to the FelCor Series A Preferred Shares as to the payment of
dividends or amounts upon liquidation, dissolution or winding up of FelCor and
(iii) the term "Parity Stock" means any other class or series of capital stock
of FelCor now or hereafter issued and outstanding (including the FelCor Series B
Preferred Shares) that ranks equally with the FelCor Series A Preferred Shares
as to the payment of dividends and amounts upon liquidation, dissolution or
winding up of FelCor.
Redemption
FelCor Series A Preferred Shares are not redeemable by FelCor prior to
April 30, 2001. On and after April 30, 2001, the FelCor Series A Preferred
Shares will be redeemable, in whole or in part, at the option of FelCor, for (i)
such number of FelCor Common Shares as are issuable at a conversion rate of
0.7752 FelCor Common Shares for each FelCor Series A Preferred Share, subject to
adjustment in certain circumstances, or (ii) cash in an amount equal to the
aggregate market value (determined as of the date of the notice of redemption)
of such number of FelCor Common Shares as specified by FelCor in the notice of
redemption. FelCor may exercise this redemption option only if for 20 trading
days within any period of 30 consecutive trading days, including the last
trading day of such period, the closing price of the FelCor Common Shares on the
NYSE equals or exceeds the Conversion Price (as defined in the Series A Articles
Supplementary) per share, subject to adjustment in certain circumstances. If
fewer than all of the FelCor Series A Preferred Shares are to be redeemed, the
shares shall be selected by lot or pro rata or in some other equitable manner
determined by FelCor.
On the redemption date, FelCor must pay on each share of FelCor Series A
Preferred Shares to be redeemed any accrued and unpaid dividends, in arrears,
for any dividend period ending on or prior to the redemption date. In the case
of a redemption date falling after a dividend payment record date and prior to
the related payment date, the holders of the FelCor Series A Preferred Shares at
the close of business on such record date will be entitled to receive the
dividend payable on such shares on the corresponding dividend payment date,
notwithstanding the redemption of such shares prior to such dividend payment
date. Except as provided for in the preceding sentence, no payment or allowance
will be made for accrued dividends on any FelCor Series A Preferred Shares
called for redemption or on the shares of FelCor Common Shares issuable upon
such redemption.
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<PAGE> 94
Unless all dividends then required to be paid on the FelCor Series A
Preferred Shares and any Parity Stock have been or contemporaneously are
declared and paid, or declared and a sum sufficient for the payment thereof set
apart for payment, the FelCor Series A Preferred Shares may not be redeemed in
whole or in part and FelCor may not, except as set forth in the following
sentence, redeem, purchase or otherwise acquire for consideration any FelCor
Series A Preferred Shares, otherwise than pursuant to a purchase or exchange
offer made on the same terms to all holders of FelCor Series A Preferred Shares.
Notwithstanding the foregoing limitations, FelCor may, at any time, acquire
shares of its capital stock, without regard to rank, for the purpose of
preserving its status as a REIT or for purposes of an employee benefit plan of
FelCor.
On and after the date fixed for redemption, provided that FelCor has made
available at the office of the registrar and transfer agent a sufficient number
of FelCor Common Shares and/or an amount of cash to effect the redemption,
dividends will cease to accrue on the FelCor Series A Preferred Shares called
for redemption (except that, in the case of a redemption date after a dividend
payment record date and prior to the related dividend payment date, holders of
FelCor Series A Preferred Shares on the dividend payment record date will be
entitled on such dividend payment date to receive the dividend payable on such
shares), such shares shall no longer be deemed to be outstanding and all rights
of the holders of such FelCor Series A Preferred Shares shall cease, except for
the right to receive the FelCor Common Shares and/or any cash payable upon such
redemption, without interest from the date of such redemption. At the close of
business on the redemption date, each holder of FelCor Series A Preferred Shares
(unless FelCor defaults in the delivery of the FelCor Common Shares or cash)
will be, without any further action, (i) deemed a holder of the number of FelCor
Common Shares for which such FelCor Series A Preferred Shares are redeemable or
(ii) be entitled to receive the cash amount applicable to such shares.
Fractional FelCor Common Shares are not to be issued upon redemption of the
FelCor Series A Preferred Shares, but, in lieu thereof, FelCor will pay a cash
adjustment based on the current market price of the FelCor Common Shares on the
day prior to the redemption date.
Liquidation Preference
The holders of FelCor Series A Preferred Shares are entitled to receive in
the event of any liquidation, dissolution or winding up of FelCor, whether
voluntary or involuntary, $25.00 per FelCor Series A Preferred Share plus an
amount per FelCor Series A Preferred Share equal to all dividends (whether or
not earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders ("Series A Liquidation Preference"), and no more.
Until the holders of the FelCor Series A Preferred Shares have been paid
the Series A Liquidation Preference in full, no payment will be made to any
holder of Junior Stock upon the liquidation, dissolution or winding up of
FelCor. If, upon any liquidation, dissolution or winding up of FelCor, the
assets of FelCor, or proceeds thereof, distributable among the holders of the
FelCor Series A Preferred Shares and any Parity Stock are insufficient to pay in
full the Series A Liquidation Preference and the liquidation preference
applicable with respect to any such Parity Stock, then such assets, or the
proceeds thereof, will be distributed among the holders of FelCor Series A
Preferred Shares and any such Parity Stock, ratably, in accordance with the
respective amounts which would be payable on such FelCor Series A Preferred
Shares and any such Parity Stock if all amounts payable thereon were to be paid
in full. Neither a consolidation or merger of FelCor with another corporation, a
statutory share exchange by FelCor nor a sale, lease or transfer of all or
substantially all of FelCor's assets will be considered a liquidation,
dissolution or winding up, voluntary or involuntary, of FelCor.
Voting Rights
Except as indicated below, or except as otherwise from time to time
required by applicable Maryland law, the holders of FelCor Series A Preferred
Shares have no voting rights.
If six quarterly dividends (whether or not consecutive) payable on the
FelCor Series A Preferred Shares, or any Parity Stock, are in arrears, whether
or not earned or declared, the number of directors then constituting the FelCor
Board will be increased by two and the holders of FelCor Series A Preferred
Shares
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and any such other Parity Stock, voting together as a single class ("Voting
Preferred Shares"), will have the right to elect two additional directors to
serve on the FelCor Board at an annual meeting of stockholders or a properly
called special meeting of the holders of the Voting Preferred Shares and at each
subsequent annual meeting of stockholders until all such dividends, together
with the dividends for the current quarterly period, on the Voting Preferred
Shares have been paid or declared and set aside for payment.
The approval of two-thirds of the outstanding FelCor Series A Preferred
Shares and any Parity Stock similarly affected, voting together as a single
class, is required in order to amend the FelCor Charter to affect materially and
adversely the rights, preferences or voting power of the holders of the FelCor
Series A Preferred Shares and such Parity Stock, or to amend the FelCor Charter
to authorize, create or increase the authorized amount of any class of stock
having rights senior to the FelCor Series A Preferred Shares and such Parity
Stock with respect to the payment of dividends or amounts upon the liquidation,
dissolution or winding up of FelCor. However, FelCor may create additional
classes of Parity Stock and Junior Stock, increase the authorized number of
shares of Parity Stock and Junior Stock and issue additional series of Parity
Stock and Junior Stock, all without the consent of any holder of FelCor Series A
Preferred Shares.
Except as required by law, the holders of FelCor Series A Preferred Shares
are not entitled to vote on any merger or consolidation involving FelCor or a
sale, lease or transfer of all or substantially all of the assets of FelCor. See
"-- Conversion Price Adjustments" below.
Conversion Rights
FelCor Series A Preferred Shares are convertible, in whole or in part, at
any time, at the option of the holders thereof, into FelCor Common Shares at a
conversion price of $32.25 per share of FelCor Common Shares (equivalent to a
conversion rate of 0.7752 FelCor Common Shares for each FelCor Series A
Preferred Share), subject to adjustment as described below ("-- Conversion Price
Adjustments"). The right to convert FelCor Series A Preferred Shares called for
redemption will terminate at the close of business on such redemption date.
Holders of FelCor Series A Preferred Shares at the close of business on a
dividend payment record date will be entitled to receive the dividend payable on
such shares on the corresponding dividend payment date, notwithstanding the
conversion of such shares following such dividend payment record date and prior
to such dividend payment date. However, FelCor Series A Preferred Shares
surrendered for conversion during the period between the close of business on
any dividend payment record date and the opening of business on the
corresponding dividend payment date (except shares converted after the issuance
by FelCor of a notice of redemption providing for a redemption date during such
period, which shares will be entitled to such dividend) must be accompanied by
payment of an amount equal to the dividend payable on such shares on such
dividend payment date. A holder of FelCor Series A Preferred Shares on a
dividend payment record date who (or whose transferee) tenders any such shares
for conversion into FelCor Common Shares on such dividend payment date will
receive the dividend payable by FelCor on such FelCor Series A Preferred Shares
on such date, and the converting holder need not include payment of the amount
of such dividend upon surrender of FelCor Series A Preferred Shares for
conversion. Except as provided above, FelCor will make no payment or allowance
for unpaid dividends, whether or not in arrears, on converted shares or for
dividends on the FelCor Common Shares issued upon such conversion.
Fractional FelCor Common Shares are not to be issued upon conversion but,
in lieu thereof, FelCor will pay a cash adjustment based on the current market
price of the FelCor Common Shares on the day prior to the conversion date.
Conversion Price Adjustments
The Conversion Price is subject to adjustment upon certain events,
including (i) dividends (and other distributions) payable in FelCor Common
Shares, (ii) the issuance to all holders of FelCor Common Shares of certain
rights or warrants entitling them to subscribe for or purchase FelCor Common
Shares at a price per share less than the fair market value per FelCor Common
Share, (iii) subdivisions, combinations and reclassifications of FelCor Common
Shares and (iv) distributions to all holders of FelCor Common Shares of
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<PAGE> 96
evidences of indebtedness of FelCor or assets (including securities, but
excluding those dividends, rights, warrants and distributions referred to above
for which an adjustment previously has been made and excluding Permitted FelCor
Common Stock Cash Distributions (as herein defined), and cash dividends which
result in a payment of an equal cash dividend to the holders of the FelCor
Series A Preferred Shares). "Permitted FelCor Common Stock Cash Distributions"
means cash dividends and distributions paid with respect to the FelCor Common
Shares after December 31, 1995 not in excess of the sum of FelCor's cumulative
undistributed net earnings at December 31, 1995, plus the cumulative amount of
funds from operations, as determined by the FelCor Board on a basis consistent
with the financial reporting practices of FelCor, after December 31, 1995, minus
the cumulative amount of dividends accrued or paid on the FelCor Series A
Preferred Shares or any other class of FelCor Preferred Shares after January 1,
1996. In addition to the foregoing adjustments, FelCor will be permitted to make
such reductions in the Conversion Price as it considers to be advisable in order
that any event treated for Federal income tax purposes as a dividend of stock or
stock rights will not be taxable to the holders of the FelCor Common Shares, or,
if that is not possible, to diminish any income taxes that are otherwise payable
because of such event.
In case FelCor shall be a party to any transaction (including without
limitation a merger, consolidation, statutory share exchange, tender offer for
all or substantially all of the FelCor Common Shares or sale of all or
substantially all of FelCor's assets), in each case as a result of which FelCor
Common Shares will be converted into the right to receive stock, securities or
other property (including cash or any combination thereof), each FelCor Series A
Preferred Share, if convertible after the consummation of the transaction, will
thereafter be convertible into the kind and amount of shares of stock and other
securities and property receivable (including cash or any combination thereof)
upon the consummation of such transaction by a holder of that number of shares
or fraction thereof of FelCor Common Shares into which one FelCor Series A
Preferred Share was convertible immediately prior to such transaction (assuming
such holder of FelCor Common Shares failed to exercise any rights of election
and received per share the kind and amount received per share by a plurality of
non-electing shares). FelCor may not become a party to any such transaction
unless the terms thereof are consistent with the foregoing.
No adjustment of the Conversion Price will be required to be made in any
case until cumulative adjustments amount to 1% or more of the Conversion Price.
Any adjustments not so required to be made will be carried forward and taken
into account in subsequent adjustments.
Exchange Listing
The FelCor Series A Preferred Shares are listed on the NYSE under the
symbol "FCHpA".
Transfer Agent
The transfer agent and registrar for the FelCor Series A Preferred Shares
is SunTrust Bank, Atlanta, Georgia.
DESCRIPTION OF FELCOR SERIES B PREFERRED SHARES AND DEPOSITARY SHARES
The summary of certain terms and provisions of FelCor's 9% Series B
Cumulative Redeemable Preferred Stock (the "FelCor Series B Preferred Shares")
set forth below does not purport to be complete and is qualified in its entirety
by reference to the pertinent sections of the FelCor Charter (including the
Articles Supplementary to the Charter setting forth the particular terms of the
FelCor Series B Preferred Shares ("Series B Articles Supplementary")), and the
FelCor Bylaws.
General
In April 1998, the FelCor Board authorized FelCor to classify and issue the
FelCor Series B Preferred Shares as part of the authorized FelCor Preferred
Shares.
The FelCor Series B Preferred Shares are represented by depositary shares
(the "Depositary Shares"). Each Depositary Share represents a 1/100 fractional
interest in a share of FelCor Series B Preferred Shares. The
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FelCor Series B Preferred Shares have been deposited with SunTrust Bank Atlanta,
Georgia, as Depositary (the "Preferred Stock Depositary"), under a Deposit
Agreement (the "Deposit Agreement") among FelCor, the Preferred Stock Depositary
and the holders from time to time of the depositary receipts (the "Depositary
Receipts") issued by the Preferred Stock Depositary thereunder. The Depositary
Receipts evidence the Depositary Shares. Subject to the terms of the Deposit
Agreement, each holder of a Depositary Receipt evidencing a Depositary Share is
entitled to all the rights and preferences of a 1/100 fractional interest in a
share of FelCor Series B Preferred Shares (including dividend, voting,
redemption and liquidation rights and preferences).
Ranking
The FelCor Series B Preferred Shares rank pari passu with the outstanding
FelCor Series A Preferred Shares and senior to the FelCor Common Shares with
respect to the payment of dividends and amounts upon liquidation, dissolution or
winding up of FelCor.
While any FelCor Series B Preferred Shares are outstanding, FelCor may not
authorize, create or increase the authorized amount of any class or series of
stock that ranks senior to the FelCor Series B Preferred Shares with respect to
the payment of dividends or amounts upon liquidation, dissolution or winding up
without the consent of the holders of two-thirds of the outstanding FelCor
Series B Preferred Shares. However, FelCor may create additional classes of
stock, increase the authorized number of FelCor Preferred Shares or issue series
of FelCor Preferred Shares ranking junior to or on a parity with the FelCor
Series B Preferred Shares with respect, in each case, to the payment of
dividends and amounts upon liquidation, dissolution and winding up without the
consent of any holder of FelCor Series B Preferred Shares. See "-- Voting
Rights" below.
Dividends
Holders of FelCor Series B Preferred Shares are entitled to receive, when,
as and if declared by the FelCor Board, out of funds legally available for
payment, cash distributions declared or paid for the corresponding period
payable at the rate of 9% of the liquidation preference per annum (equivalent to
$2.25 per annum per Depositary Share). Dividends on the FelCor Series B
Preferred Shares are payable quarterly in arrears on the last calendar day of
January, April, July and October of each year, commencing July 31, 1998 (and, in
the case of any accrued but unpaid dividends, at such additional times and for
such interim periods, if any, as determined by the FelCor Board). Each such
dividend is payable to holders of record as they appear on the stock records of
FelCor at the close of business on such record dates, not exceeding 60 days
preceding the payment dates thereof, as shall be fixed by the FelCor Board.
Dividends will be cumulative, whether or not in any dividend period or periods
there shall be funds of FelCor legally available for the payment of such
dividends and whether or not such dividends are authorized. Accumulations of
dividends on the FelCor Series B Preferred Shares will not bear interest.
Dividends payable on the FelCor Series B Preferred Shares will be computed on
the basis of a 360-day year consisting of twelve 30-day months.
Except as provided in the next sentence, no dividend will be declared or
paid on any Parity Stock (as herein defined) unless full cumulative dividends
have been or contemporaneously are declared and paid, or declared and a sum
sufficient for the payment thereof is set apart for such payment, on the FelCor
Series B Preferred Shares for all prior dividend periods and the then current
dividend period. If accrued dividends on the FelCor Series B Preferred Shares
and any Parity Stock for all prior dividend periods have not been paid in full,
then any dividend declared on the FelCor Series B Preferred Shares and any
Parity Stock for any dividend period will be declared ratably in proportion to
accrued and unpaid dividends on the FelCor Series B Preferred Shares and such
Parity Stock.
Unless all dividends then required to be paid on the FelCor Series B
Preferred Shares and any Parity Stock have been or contemporaneously are
declared and paid, or declared and a sum sufficient for the payment thereof is
set apart for payment, FelCor will not (i) declare, pay or set apart funds for
the payment of any dividend or other distribution with respect to any Junior
Stock (as herein defined) or (ii) except as set forth in the following sentence,
redeem, purchase or otherwise acquire for consideration any Junior Stock
(subject to certain exceptions), through a sinking fund or otherwise.
Notwithstanding the foregoing limitations, FelCor
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may, at any time, acquire shares of its capital stock, without regard to rank,
for the purpose of preserving its status as a REIT or for purposes of an
employee benefit plan of FelCor.
As used herein, (i) the term "dividend" does not include dividends payable
solely in shares of Junior Stock on Junior Stock, or in options, warrants or
rights to holders of Junior Stock to subscribe for or purchase any Junior Stock
and (ii) the term "Junior Stock" means the FelCor Common Shares, and any other
class of capital stock of FelCor now or hereafter issued and outstanding that
ranks junior to the FelCor Series B Preferred Shares as to the payment of
dividends or amounts upon liquidation, dissolution or winding up of FelCor and
(iii) the term "Parity Stock" means any other class or series of capital stock
of FelCor now or hereafter issued and outstanding (including the FelCor Series A
Preferred Shares) that ranks equally with the FelCor Series B Preferred Shares
as to the payment of dividends and amounts upon liquidation, dissolution or
winding up of FelCor.
Redemption
FelCor Series B Preferred Shares are not redeemable by FelCor prior to May
7, 2003. On and after May 7, 2003, FelCor at its option upon not less than 30
nor more than 60 days' written notice, may redeem the FelCor Series B Preferred
Shares (and the Preferred Stock Depositary will redeem the number of Depositary
Shares representing the shares of FelCor Series B Preferred Shares so redeemed
upon not less than 30 days' written notice to the holders thereof), in whole or
in part, at any time or from time to time, at a redemption price of $2,500.00
per share (equivalent to $25.00 per Depositary Share), plus all accrued and
unpaid distributions thereon to the date fixed for redemption (except as
provided below), without interest, to the extent FelCor has funds legally
available therefor. The redemption price of the FelCor Series B Preferred Shares
(other than any portion thereof consisting of accrued and unpaid distributions)
may be paid solely from the sale proceeds of other capital stock of FelCor and
not from any other source. For purposes of the preceding sentence, "capital
stock" means any common stock, preferred stock, depositary shares, interests,
participations, or other ownership interests (however designated) and any rights
(other than debt securities convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing.
The FelCor Series B Preferred Shares have no stated maturity and will not
be subject to any sinking fund or mandatory redemption provisions.
Unless all dividends then required to be paid on the FelCor Series B
Preferred Shares and any Parity Stock have been or contemporaneously are
declared and paid, or declared and a sum sufficient for the payment thereof set
apart for payment, the FelCor Series B Preferred Shares and any Parity Stock may
not be redeemed in whole or in part and FelCor may not, except as set forth in
the following sentence, redeem, purchase or otherwise acquire for consideration
any shares of FelCor Series B Preferred Shares and any Parity Stock, otherwise
than pursuant to a purchase or exchange offer made on the same terms to all
holders of FelCor Series B Preferred Shares and any Parity Stock.
Notwithstanding the foregoing limitations, FelCor may, at any time, acquire
shares of its capital stock, without regard to rank, for the purpose of
preserving its status as a REIT or for purposes of an employee benefit plan of
FelCor.
Liquidation Preference
The holders of FelCor Series B Preferred Shares are entitled to receive in
the event of any liquidation, dissolution or winding up of FelCor, whether
voluntary or involuntary, $2,500 per share of FelCor Series B Preferred Shares
(equivalent to $25 per Depositary Share) plus an amount per share of FelCor
Series B Preferred Shares equal to all dividends (whether or not earned or
declared) accrued and unpaid thereon to the date of final distribution to such
holders ("Series B Liquidation Preference"), and no more.
Until the holders of the FelCor Series B Preferred Shares have been paid
the Series B Liquidation Preference in full, no payment will be made to any
holder of Junior Stock upon the liquidation, dissolution or winding up of
FelCor. If, upon any liquidation, dissolution or winding up of FelCor, the
assets of FelCor, or proceeds thereof, distributable among the holders of FelCor
Series B Preferred Shares and any Parity Stock are insufficient to pay in full
the Series B Liquidation Preference and the liquidation preference applicable
with respect to any such Parity Stock, then such assets, or the proceeds
thereof, will be distributed among the holders of FelCor Series B Preferred
Shares and any such Parity Stock, ratably, in accordance with the
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respective amounts which would be payable on FelCor Series B Preferred Shares
and any such Parity Stock if all amounts payable thereon were to be paid in
full. Neither a consolidation or merger of FelCor with another corporation, a
statutory share exchange by FelCor, nor a sale, lease or transfer of all or
substantially all of FelCor's assets will be considered a liquidation,
dissolution or winding up, voluntary or involuntary, of FelCor.
Voting Rights
In any matter in which the FelCor Series B Preferred Shares is entitled to
vote (as expressly described herein or as may be required by law), including any
action by written consent, each share of FelCor Series B Preferred Shares shall
be entitled to 100 votes, each of which 100 votes may be directed separately by
the holder thereof (or by any proxy or proxies of such holder). With respect to
each share of FelCor Series B Preferred Shares, the holder thereof may designate
up to 100 proxies, with each such proxy having the right to vote a whole number
of votes (totaling 100 votes per share of FelCor Series B Preferred Shares). As
a result, each Depositary Share will be entitled to one vote.
If six quarterly dividends (whether or not consecutive) payable on the
FelCor Series B Preferred Shares, or any Parity Stock, are in arrears, whether
or not earned or declared, the number of directors then constituting the FelCor
Board will be increased by two and the holders of the Depositary Shares
representing the FelCor Series B Preferred Shares and any other Parity Stock,
voting together as a single class ("Series B Voting Preferred Shares"), will
have the right to elect two additional directors to serve on the FelCor Board at
an annual meeting of stockholders or a properly called special meeting of the
holders of the Series B Voting Preferred Shares and at each subsequent annual
meeting of stockholders until all such dividends, together with the dividends
for the current quarterly period, on the Series B Voting Preferred Shares have
been paid or declared and set aside for payment.
The approval of two-thirds of the outstanding Depositary Shares
representing the FelCor Series B Preferred Shares and any Parity Stock similarly
affected, voting together as a single class, is required in order to (i) amend
the FelCor Charter to affect materially and adversely the rights, preferences or
voting power of the holders of the FelCor Series B Preferred Shares and such
Parity Stock, (ii) enter into a share exchange that affects the FelCor Series B
Preferred Shares, consolidate with or merge into another entity, or permit
another entity to consolidate with or merge into FelCor, unless in each such
case, each share of FelCor Series B Preferred Shares remains outstanding without
a material and adverse change to its terms and rights or is converted into or
exchanged for a share of preferred stock of the surviving entity having
preferences, rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms and conditions of redemption identical
to those of a share of FelCor Series B Preferred Shares (except for changes that
do not materially and adversely affect the holders of the FelCor Series B
Preferred Shares) or (iii) amend the FelCor Charter to authorize, reclassify,
create or increase the authorized amount of any class of stock having rights
senior to the FelCor Series B Preferred Shares and such Parity Stock with
respect to the payment of dividends or amounts upon the liquidation, dissolution
or winding up of FelCor. However, FelCor may increase the authorized number of
FelCor Preferred Shares and may create additional classes of Parity Stock and
Junior Stock, increase the authorized number of shares of Parity Stock and
Junior Stock and issue additional series of Parity Stock and Junior Stock, all
without the consent of any holder of FelCor Series B Preferred Shares.
Conversion Rights
FelCor Series B Preferred Shares are not convertible into or exchangeable
for any other property or securities of FelCor.
Exchange Listing
The FelCor Series B Preferred Shares are listed on the NYSE under the
symbol "FCHpB".
Transfer Agent
The transfer agent and registrar for the Depositary Shares is SunTrust
Bank, Atlanta, Georgia.
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CERTAIN CHARTER AND BYLAW PROVISIONS
Restrictions on Ownership and Transfer
For FelCor to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding stock. Specifically,
not more than 50% in value of FelCor's outstanding stock may be owned, actually
and constructively under the applicable attribution provisions of the Code, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year (the "5/50 Rule"), and FelCor must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year or during a proportionate part of a shorter taxable year. See "Certain
Federal Income Tax Considerations -- Qualification and Operation of FelCor as a
REIT; Ownership and Disposition of FelCor Common Shares." For the purpose of
preserving FelCor's REIT qualification, the FelCor Charter contains certain
provisions that restrict the ownership and transfer of FelCor's capital stock
under certain circumstances (the "Ownership Limitation Provisions").
The "Ownership Limitation Provisions" provide that, subject to certain
exceptions specified in the FelCor Charter, no person may own, or be deemed to
own by virtue of the applicable attribution provisions of the Code, more than
9.9% of the outstanding shares of any class of FelCor's capital stock (the
"Ownership Limit"). The FelCor Board may, but in no event will be required to,
waive the Ownership Limit if it determines that such ownership will not
jeopardize FelCor's status as a REIT. As a condition of such waiver, the FelCor
Board may require opinions of counsel satisfactory to it and/or undertakings or
representations from the applicant with respect to preserving the REIT status of
FelCor. The FelCor Board has waived the Ownership Limit, subject to certain
conditions, to permit Franklin Resources, Inc. to own, directly or
constructively, up to 50% of the FelCor Series A Preferred Shares and up to 20%
of the FelCor Common Shares. In addition, the FelCor Board has waived the
Ownership Limit, subject to certain conditions, to permit each of the Holdings
Entities, as a group, and the Holiday Entities, as a group, initially to own,
directly or constructively, up to 15% of the FelCor Common Shares following the
Merger. In determining that it is appropriate to provide such waivers of the
Ownership Limit, the FelCor Board has consulted with counsel, has obtained or
will obtain appropriate undertakings or representations and has imposed or will
impose appropriate conditions with respect to such waivers to assure that the
5/50 Rule will not be violated. The Ownership Limitation Provisions will not
apply if the FelCor Board and the holders of 66 2/3% of the outstanding shares
of capital stock entitled to vote on such matter determine that it is no longer
in the best interests of FelCor to attempt to qualify, or to continue to
qualify, as a REIT.
Any purported transfer of capital stock of FelCor and any other event that
would otherwise result in any person or entity violating the Ownership Limit
will be void and of no force or effect as to that number of shares in excess of
the Ownership Limit, and the purported transferee ("Prohibited Transferee")
shall acquire no right or interest (or, in the case of any event other than a
purported transfer, the person or entity ("Prohibited Owner") holding record
title to any such shares in excess of the Ownership Limit ("Excess Shares")
shall cease to own any right or interest) in such Excess Shares. In addition, if
any purported transfer of capital stock of FelCor or any other event otherwise
would cause FelCor to become "closely held" under the Code or otherwise fail to
qualify as a REIT under the Code (other than as a result of a violation of the
requirement that a REIT have at least 100 stockholders), then any such purported
transfer will be void and of no force or effect as to that number of shares in
excess of the number that could have been transferred without such result, and
the Prohibited Transferee shall acquire no right or interest (or, in the case of
any event other than a transfer, the Prohibited Owner shall cease to own any
right or interest) in such Excess Shares. Also, if any purported transfer of
capital stock of FelCor or any other event would otherwise cause FelCor to
violate the 5/50 Rule or to own, or be deemed to own by virtue of the applicable
attribution provisions of the Code, 10% or more of the ownership interests in
DJONT or the subsidiaries of BHR that will lease the Bristol Hotels or in any
sublessee, then any such purported transfer will be void and of no force or
effect as to that number of shares in excess of the number that could have been
transferred without such result, and the Prohibited Transferee shall acquire no
right or interest (or, in the case of any event other than a transfer, the
Prohibited Owner shall cease to own any right or interest) in such Excess
Shares.
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Any such Excess Shares will be transferred automatically, by operation of
law, to a trust, the beneficiary of which will be a qualified charitable
organization selected by FelCor (the "Beneficiary"). The trustee of the trust
who shall be designated by FelCor and be unaffiliated with FelCor and any
Prohibited Owner, will be empowered to sell such Excess Shares to a qualified
person or entity and distribute to a Prohibited Transferee an amount equal to
the lesser of the price paid by the Prohibited Transferee for such Excess Shares
or the sales proceeds received by the trust for such Excess Shares. In the case
of any Excess Shares resulting from any event other than a transfer, or from a
transfer for no consideration, the trustee will be empowered to sell such Excess
Shares to a qualified person or entity and distribute to the Prohibited Owner an
amount equal to the lesser of the fair market value of such Excess Shares on the
date of such event or the sales proceeds received by the trust for such Excess
Shares. Prior to a sale of any such aggregate fractional shares by the trust,
the trustee will be entitled to receive, in trust for the benefit of the
Beneficiary, all dividends and other distributions paid by FelCor with respect
to such Excess Shares, and also will be entitled to exercise all voting rights
with respect to such Excess Shares.
Any purported transfer of capital stock of FelCor that would otherwise
cause FelCor to be beneficially owned by fewer than 100 persons will be null and
void in its entirety, and the intended transferee will acquire no rights in such
stock.
All certificates representing shares of capital stock will bear a legend
referring to the restrictions described above.
Every owner of more than 5% (or such lower percentage as may be required by
the Code or Treasury Regulations) of the outstanding shares of capital stock of
FelCor must file a written notice with FelCor containing the information
specified in the FelCor Charter no later than January 30 of each year. In
addition, each stockholder shall upon demand be required to disclose to FelCor
in writing such information as FelCor may request in order to determine the
effect, if any, of such stockholder's actual and constructive ownership on
FelCor's status as a REIT and to ensure compliance with the Ownership Limit.
The Ownership Limitation Provisions may have the effect of precluding an
acquisition of control of FelCor without approval of the FelCor Board.
Operations
FelCor generally is prohibited from engaging in certain activities,
including acquiring or holding property or engaging in any activity that would
cause FelCor to fail to qualify as a REIT.
Other Provisions
See "-- Comparison of Rights of Stockholders" for a discussion of certain
provisions in the FelCor Charter and FelCor Bylaws regarding directors and
officers.
MARYLAND ANTI-TAKEOVER STATUTES
Under the Maryland General Corporation Law (the "Maryland Law"), certain
"business combinations" (including a merger, consolidation, share exchange or,
in certain circumstances, an asset transfer or issuance or reclassification of
equity securities) between a Maryland corporation and (i) any person who
beneficially owns 10% or more of the voting power of the corporation's shares,
(ii) an affiliate of the corporation who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10% or more of the
voting power of the then outstanding voting stock of the corporation (an
"Interested Stockholder"), or (iii) an affiliate thereof are prohibited for five
years after the most recent date on which the Interested Stockholder became an
Interested Stockholder. Thereafter, any "business combination" must be
recommended by the board of directors of the corporation and approved by the
affirmative vote of at least (a) 80% of the votes entitled to be cast by holders
of outstanding voting shares of the corporation and (b) two-thirds of the votes
entitled to be cast by holders of outstanding voting shares of the corporation
other than shares held by the Interested Stockholder with whom the business
combination is to be effected, unless, among other conditions, the corporation's
stockholders receive a minimum price (as defined under the Maryland Law) for
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their shares and the consideration is received in cash or in the same form as
previously paid by the Interested Stockholder for its shares. These provisions
of the Maryland Law do not apply, however, to business combinations that are (i)
with respect to specifically identified or unidentified existing or future
Interested Stockholders, approved or exempted by the board of directors of the
corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder, or (ii) if the original articles of incorporation of the
corporation contain a provision expressly electing not to be governed by Section
3-602 of the Maryland Law or the stockholders of the corporation adopt a charter
amendment by a vote of at least 80% of the votes entitled to be cast by
outstanding shares of voting stock of the corporation, voting together in a
single group, and two-thirds of the votes entitled to be cast by persons (if
any) who are not Interested Stockholders. The FelCor Charter has exempted from
these provisions of Maryland law, any business combination involving Mr. Feldman
or Mr. Corcoran or any present or future affiliates, associates or other persons
acting in concert or as a group with Mr. Feldman or Mr. Corcoran.
Sections 3-701 et seq. of the Maryland Law (the "Control Share Statute")
provides that "control shares" of a Maryland corporation acquired in a "control
share acquisition" have no voting rights except to the extent approved by a vote
of two-thirds of the votes entitled to be cast on the matter, excluding shares
of stock owned by the acquiring person, or by officers or directors who are
employees of the corporation. "Control shares" are voting shares of stock which,
if aggregated with all other shares of stock previously acquired by that person
or in respect of which the acquiring person is able to exercise or direct the
exercise of voting power, would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority or more of all voting power. Control shares do
not include shares the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions. Voting
rights will not be denied to "control shares" if the acquisition of such shares,
as to specifically identified or unidentified future or existing stockholders or
their affiliates, has been approved in the charter or bylaws of the corporation
prior to the acquisition of such shares.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any stockholders' meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition or of any meeting of stockholders at which the voting rights of such
shares are considered and not approved. If voting rights for control shares are
approved at a stockholders meeting and the acquiring person becomes entitled to
vote a majority of the shares entitled to vote, all other stockholders may
exercise appraisal rights. The fair value of the shares as determined for
purposes of the appraisal rights may not be less than the highest price per
share paid by the acquiring person in the control share acquisition. Certain
limitations and restrictions otherwise applicable to the exercise of dissenters'
rights do not apply in the context of a control share acquisition.
The Maryland Control Share Statute does not apply to shares acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions approved or exempted by a corporation's articles
of incorporation or bylaws.
The FelCor Charter and FelCor Bylaws contain a provision exempting any and
all acquisitions of FelCor's shares of capital stock from the Control Share
Statute. There can be no assurance that this provision will not be amended or
eliminated in the future. If the foregoing exemption in the bylaws is rescinded,
the control share acquisition statute could have the effect of discouraging
offers to acquire FelCor and of increasing the difficulty of consummating any
such offer.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
FelCor is organized as a corporation under the laws of the State of
Maryland, and Bristol is organized as a corporation under the laws of the State
of Delaware. FelCor is governed by the Maryland Law and by its Articles of
Amendment and Restatement, as amended and supplemented (the "FelCor Charter"),
and Bylaws (the "FelCor Bylaws"). Bristol is governed by the Delaware General
Corporation Law (the "Delaware Law"), and by its Fourth Amended and Restated
Certificate of Incorporation (the "Bristol Charter") and Amended and Restated
Bylaws (the "Bristol Bylaws").
The following comparison of the Maryland Law, the FelCor Charter and the
FelCor Bylaws, on the one hand, and the Delaware Law, the Bristol Charter and
the Bristol Bylaws, on the other hand, is not intended to be complete and is
qualified in its entirety by reference to the FelCor Charter and FelCor Bylaws,
and the Bristol Charter and the Bylaws. Copies of the FelCor Charter and FelCor
Bylaws are available for inspection at the principal executive offices of FelCor
and copies will be sent upon request. Copies of the Bristol Charter and Bristol
Bylaws are available for inspection at the principal executive offices of
Bristol and copies will be sent upon request.
Although it is impractical to note all of the differences between the
Maryland Law and Delaware Law, the most significant differences, in the judgment
of the management of FelCor, are summarized below. The summary is not intended
to be complete and reference should be made to the Maryland Law and Delaware
Law. Since this summary may not contain all the information that is important to
you, we encourage you to read carefully all the documents we refer to in this
discussion.
Directors
The Maryland Law permits a classified board of directors. Under the FelCor
Charter and FelCor Bylaws, the number of directors of FelCor may not be less
than three. The FelCor Charter currently provides that the FelCor Board of
Directors will consist of not fewer than three nor more than nine directors
unless otherwise determined by a resolution of 80% of the Board. The FelCor
Board has taken the action necessary to increase the maximum number of directors
to 10. The FelCor Charter provides for a staggered Board consisting of three
classes as nearly equal in size as practicable. Assuming consummation of the
Merger, one class will hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1999, another class will hold office
initially for a term expiring at the annual meeting of stockholders to be held
in 2000 and another class will hold office initially for a term expiring at the
annual meeting of stockholders to be held in 2001. As the term of each class
expires, directors in that class will be elected for a term of three years and
until their successors are duly elected and qualify.
The classification of directors has the effect of making it more difficult
for stockholders to change the composition of the FelCor Board. FelCor believes,
however, that the longer time required to elect a majority of the FelCor Board
will help to ensure continuity and stability of FelCor's management and
policies. The classification provisions could also have the effect of
discouraging a third party from accumulating large blocks of FelCor's stock or
attempting to obtain control of FelCor, even though such an attempt might be
beneficial to FelCor and its stockholders. Accordingly, stockholders could be
deprived of certain opportunities to sell their FelCor Common Shares at a higher
price than might otherwise be the case.
At all times a majority of the directors of FelCor shall be Independent
Directors, as defined by the FelCor Charter, except that upon the death, removal
or resignation of an Independent Director, such requirement shall not be
applicable for 60 days. As of December 31, 1997, there were seven directors,
four of whom were Independent Directors. The FelCor Charter provides that,
subject to any rights of holders of FelCor Preferred Shares, and unless the
FelCor Board otherwise determines, any vacancies will be filled by the
affirmative vote of a majority of the remaining directors, though such directors
may constitute less than a quorum. Any director so elected may qualify as an
Independent Director only if he has received the affirmative vote of at least a
majority of the remaining Independent Directors, if any. Accordingly, the FelCor
Board could temporarily prevent any holder of FelCor Common Shares from
enlarging the FelCor Board and filling the new directorships with such
stockholder's own nominees. Any director so elected shall serve for the
unexpired term of the class to which he is elected.
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Holders of FelCor Common Shares have no right to cumulative voting for the
elections of directors. Consequently, at each annual meeting of stockholders,
the holders of a majority of outstanding FelCor Common Shares will be able to
elect all of the successors of the class of directors whose term expires at that
meeting. Any vacancy on the FelCor Board will be filled, at any regular meeting
or at any special meeting called for that purpose, by a majority of the
remaining directors, even though such directors may constitute less than a
quorum, except that a vacancy resulting from an increase in the number of
directors will be filled by an affirmative vote of a majority of the entire
board of directors.
The Delaware Law permits the certificate of incorporation or the bylaws of
a corporation to establish the number and qualifications of directors. If the
certificate of incorporation or bylaws contain provisions fixing the number of
directors, such number may not be changed without amending the certificate of
incorporation or bylaws, as applicable.
The Bristol Charter provides for a minimum of three and a maximum of 15
directors, which number is determined by (i) a majority of the entire Board or
(ii) the holders of at least 80% of Bristol's voting shares, voting together as
a single class. There are currently nine directors serving on the Bristol Board.
Each director is elected to serve until his successor is elected and qualified.
Pursuant to the Bristol Bylaws, persons may be nominated for election as
directors of Bristol at the annual stockholders' meeting only (i) by the Board
or (ii) by any stockholder who delivers a notice to the principal executive
offices of Bristol not less than 60 calendar days prior to the annual
stockholders' meeting or, if public notice of such meeting has not been made
more than 75 calendar days prior to the date of the annual stockholders'
meeting, within ten calendar days following the day on which public announcement
is first made of the date of the annual stockholders' meeting.
These provisions of the Bristol Charter and Bristol Bylaws relating to the
number and term of office of directors and the advance notice of stockholder
nominations may discourage or make more difficult the acquisition of control of
Bristol by means of a tender offer, open market purchase, proxy contest or other
transaction not supported by the Bristol Board.
Removal of Directors; Vacancies on the Board of Directors
Under the Maryland Law, if the directors have been divided into classes,
unless the corporation's charter provides otherwise, the stockholders of a
corporation may remove any director, with cause, by the affirmative vote of a
majority of all the votes entitled to be cast for the election of directors
except an increase in the number of directors for which the vote of a majority
of the entire board of directors is required.
The Maryland Law permits the stockholders or the directors of a Maryland
corporation to fill vacancies in its Board of Directors. Under the Maryland Law,
stockholders may elect a successor to fill a vacancy on the Board of Directors
which results from the removal of a director. Otherwise, a majority of the
remaining directors, whether or not a quorum, may fill a vacancy on the board of
directors which results from any cause.
A director may be removed with cause by the vote of the holders of a
majority of the outstanding shares of FelCor Common Shares at a special meeting
of the stockholders called for the purpose of removing him. Additionally, the
FelCor Charter and the Maryland Law provide that if stockholders of any class of
capital stock of FelCor are entitled separately to elect one or more directors,
such directors may not be removed except by the affirmative vote of a majority
of all of the shares of such class or series entitled to vote for such
directors. This provision, when coupled with the provision in the FelCor Bylaws
authorizing the FelCor Board to fill vacant directorships, could preclude
stockholders from removing incumbent directors except upon an affirmative vote
of the stockholders electing such director and from filling the vacancies
created by such removal with their own nominees.
Under the Delaware Law, directors generally may be removed, with or without
cause, by the holders of a majority of shares entitled to vote at an election of
directors. The Bristol Bylaws, however, permit a director to be removed from
office (a) with or without cause by the vote of a majority of the whole Bristol
Board and (b) by the stockholders only for cause and only if the holders of at
least 80% of the outstanding voting shares, voting together as a single class,
have voted for such removal.
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As permitted under the Delaware Law, the Bristol Bylaws provide that
vacancies and newly created directorships resulting from an increase in the
authorized number of directors may be filled only by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Bristol Board, or by a sole remaining director. Any director elected in
accordance with the preceding sentence will hold office until such director's
successor is elected and qualified. No decrease in the number of directors
constituting the Bristol Board may shorten the term of an incumbent director.
Additionally, if, at the time of filling any vacancy or newly created
directorship, the directors then in office constitute less than a majority of
the whole Bristol Board (as constituted immediately prior to such increase), the
Delaware Court of Chancery may, if requested by stockholders holding at least
10% of the total number of outstanding voting shares, require that an election
be held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office.
Limitation on Personal Liability of Directors
The FelCor Charter limits the monetary liability of FelCor's directors and
officers to FelCor and its stockholders to the fullest extent permitted from
time to time by Maryland statutory or decisional law as amended or interpreted.
The Maryland Law presently permits the liability of directors and officers to a
corporation or its stockholders for money damages to be limited, except (i) to
the extent that it is proved that the director or officer actually received an
improper benefit or profit, or (ii) if a judgment or other final adjudication is
entered in a proceeding based on a finding that the director's or officer's
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the proceeding. This
provision does not limit the ability of FelCor or its stockholders to obtain
other relief, such as an injunction or rescission.
Delaware corporations are permitted to adopt charter provisions limiting,
or even eliminating, the liability of a director of a corporation and its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such liability does not arise from certain proscribed conduct,
including breach of the duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law or liability
to the corporation based on unlawful dividends or distributions or improper
personal benefit.
Under the Bristol Charter, Bristol directors are indemnified to the full
extent of the Delaware Law for acts or omissions in the performance of their
duties as Bristol directors.
Indemnification of Officers and Directors and Advancement of Expenses
The Maryland Law presently permits a corporation to indemnify its
directors, officers, employees and agents against judgments, penalties, fines,
settlements 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 to
the corporation, unless it is established that (i) the act or omission of the
indemnified party was material to the matter giving rise to the proceeding, and
was committed in bad faith or was the result of active and deliberate
dishonesty; or (ii) the indemnified party actually received an improper personal
benefit in money, property or services; or (iii) in the case of any criminal
proceeding, the indemnified party had reasonable cause to believe that the act
or omission was unlawful. Unless limited by the charter, indemnification is
mandatory if the indemnified party has been successful on the merits or
otherwise in the defense of any proceeding unless such indemnification is not
otherwise permitted as provided in the preceding sentence. In addition to the
foregoing, a court of competent jurisdiction, under certain circumstances, may
order indemnification if it determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances. A director may not be indemnified if the proceeding was an action
by or in the right of the corporation and the director was adjudged to be
liable, or the proceeding involved a determination that the director received an
improper personal benefit.
The FelCor Charter and FelCor Bylaws require FelCor to indemnify its
directors, officers, employees and agents to the fullest extent permitted from
time to time by the Maryland Law.
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Delaware and Maryland have similar provisions regarding indemnification by
a corporation of its officers, directors, employees and agents. However, the
Delaware Law permits a court to allow indemnification where the person seeking
indemnification has been found liable to the corporation, whereas the Maryland
Law does not permit indemnification, other than fees and expenses, in that
circumstance. Under the Delaware Law, a corporation may indemnify any person who
is or was a director, officer, employee or agent of the corporation or who is or
was acting at the request of the corporation in a similar capacity against his
reasonable expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement of any judicial or administrative proceeding. Such
indemnification is limited to situations in which such person acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
Under the Delaware Law, no indemnification may be made in respect of any
claim in which such person has been found liable to the corporation unless and
only to the extent that the Delaware court in which such action was brought
determines that such person is fairly and reasonably entitled to be indemnified
for his expenses only. Unless limited by a corporation's charter, a Delaware
corporation must indemnify any such person for his reasonable expenses in
connection with his successful defense of any proceeding subject to the Delaware
Law's indemnification provisions.
Delaware and Maryland law differ in their provisions for advancement of
expenses incurred by an officer or director in defending a civil or criminal
action, suit or proceeding. Both give the corporation discretion to advance
expenses incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding prior to the final
disposition of the action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined that he is not entitled to be indemnified by the corporation.
However, the Maryland Law does not require security for the undertaking to repay
or verification of financial ability to repay, which would be required by the
Delaware Law.
The Bristol Charter and the Bristol Bylaws require Bristol to indemnify its
officers and directors in the manner described above and to advance expenses
incurred by such officers and directors to the full extent permitted by the
Delaware Law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors and officers of FelCor or Bristol pursuant to the
foregoing provisions or otherwise, FelCor and Bristol have been advised that, in
the opinion of the SEC, such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable.
Stockholder Inspection
Any stockholders of a Maryland corporation who (individually or in the
aggregate) own five percent of the outstanding stock of any class and have been
stockholders for at least six months are entitled to inspect and copy (among
other things) the corporation's stock ledger, and if the corporation does not
maintain its stockholders list at its principal place of business, to request in
writing a list of stockholders. Upon such request, the corporation has 20 days
to provide such a list. The Delaware Law permits any stockholder to inspect the
stockholder list of the corporation for certain permitted purposes. Bristol
stockholders also have a right to examine a list of stockholders of the
corporation for a period of ten calendar days prior to any stockholders' meeting
and during such meeting for any proper purpose.
Action by Written Consent
The Maryland Law and FelCor Bylaws provide that actions may be taken
without a stockholders' meeting but only by unanimous written consent. Because
of the number of FelCor stockholders, it is unlikely that any such unanimous
written consent could be obtained.
Under the Delaware Law, unless otherwise provided in the certificate or
articles of incorporation, stockholders may take action without a meeting,
without prior notice and without a vote, upon the written consent of
stockholders having not less than the minimum number of votes that would be
necessary to
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authorize the proposed action at a meeting at which all shares entitled to vote
were present and voted. The Bristol Charter does not permit action to be taken
by stockholders by written consent.
These provisions both deter hostile takeovers because a holder or group of
holders controlling a majority of voting shares would not be able to take
actions outside of a stockholders' meeting.
Special Meetings
Under the Maryland Law, a special meeting of stockholders may be called by
the President, the Board of Directors or any other person specified in the
corporation's charter or bylaws. Additionally, the Chairman, Chief Executive
Officer, or President may, and the Secretary shall, at the request of a majority
of the Board or a majority of the Independent Directors call a special meeting
under the FelCor Bylaws. In order for FelCor stockholders to call special
meetings, the FelCor Bylaws require the written request of stockholders owning
not less than 10% of the shares of the entire capital stock issued, outstanding
and entitled to vote. Such provisions do not, however, affect the ability of
stockholders to submit a proposal to the vote of all stockholders of FelCor in
accordance with the FelCor Bylaws, which provide for the additional notice
requirements for stockholder nominations and proposals at the annual meetings of
stockholders as described herein.
The Bristol Bylaws provide that special meetings of the stockholders may
only be called by (i) the Chairman or a Vice Chairman of Bristol and (ii) the
Secretary of Bristol within ten calendar days after receipt of the written
request of a majority of the whole Bristol Board. Written notice of every
meeting of stockholders, stating the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, must be given not less than ten nor more than 60 calendar days before
the date of the meeting to each stockholder entitled to vote at such meeting.
The business permitted to be conducted at any special meeting is limited to that
brought before the meeting by Bristol's Chairman or Vice Chairman or a majority
of the total number of directors of Bristol. The Bristol Board, the Chairman or
a Vice Chairman of Bristol may postpone and reschedule any previously scheduled
annual or special stockholders' meeting.
Upon the written request of the holders of not less than a majority of
Bristol's voting stock, the Bristol Board must (i) call a meeting of
stockholders for any lawful purpose, other than the election of directors and
(ii) fix a record date within 60 calendar days after such notice for the
determination of stockholders entitled to notice of and to vote at such meeting.
No separate special meeting of stockholders as so requested will be required to
be convened if the Bristol Board calls an annual or special meeting of
stockholders to be held not later than 90 calendar days after receipt of any
such written request, and the purposes of such annual or special meeting
includes those specified in such written request of the stockholders.
The effect of this provision, together with the provisions of the Bristol
Charter that do not permit stockholder action by written consent, is to prevent
or make it more difficult for Bristol stockholders to take stockholder actions
other than at an annual stockholders' meeting.
Cumulative Voting
Under both the Delaware Law and the Maryland Law, cumulative voting of
stock applies only when so provided in the certificate or articles of
incorporation. Neither the FelCor Charter nor the Bristol Charter provide for
cumulative voting.
Distributions
Unless prohibited by a corporation's charter, the Maryland Law permits a
corporation to make a distribution, including the payment of dividends, unless
the corporation would not be able to pay its debts in the ordinary course as
they become due or the corporation's total assets would be less than the sum of
the corporation's total liabilities plus, unless the charter permits otherwise,
the amount that would be needed, if the corporation were to be dissolved at the
time of such dividends, to satisfy the preferential rights upon dissolution of
stockholders whose preferential rights on dissolution are superior to those
receiving the dividends. Subject to the foregoing restrictions, holders of
FelCor Common Shares are entitled to distributions
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if, as and when declared by the FelCor Board. Current distributions are $0.55
per share per quarter. Future distributions are at the discretion of the FelCor
Board.
Under the Delaware Law, unless otherwise provided in the certificate of
incorporation, a corporation may declare and pay dividends, out of surplus, or
if no surplus exists, out of net profits for the fiscal year in which the
dividend is declared and/or the preceding fiscal year, provided that the amount
of capital of the corporation following the declaration and payment of the
dividends is not less than the aggregate amount of the capital represented by
the issued and outstanding stock of all classes having a preference upon the
distribution of assets. Surplus is defined by the Delaware Law to be the excess
of the net assets of the corporation over the amount determined as its capital.
In addition, the Delaware Law provides that a corporation may redeem or
repurchase its shares only out of surplus.
Amendment or Repeal of the Certificate of Incorporation and Bylaws
Under the Maryland Law, the affirmative vote of at least two-thirds of the
votes entitled to be cast is required to amend a Maryland corporation's charter,
provided that a Maryland corporation may require in its charter a greater or
lesser proportion of the votes cast to approve a charter amendment as long as
the vote is not less than a majority of the votes entitled to be cast. Under the
Maryland Law, the power to amend a Maryland corporation's bylaws is vested in
the corporation's stockholders, except to the extent the corporation's charter
or bylaws vest it in the Board of Directors.
Subject to the rights of any FelCor Preferred Shares outstanding from time
to time (including the rights of the FelCor Series A Preferred Shares), the
FelCor Charter may be amended by the affirmative vote of the holders of a
majority of the outstanding FelCor Common Shares entitled to vote on the matter
after the directors have adopted a resolution proposing the amendment and
submitted the resolution to the stockholders at either an annual or special
meeting, with the stockholders voting as a class with one vote per share;
provided, that the FelCor Charter provision providing for the classification of
the FelCor Board into three classes may not be amended, altered, changed or
repealed without the affirmative vote of at least 80% of the members of the
FelCor Board and the affirmative vote of holders of 75% of the outstanding
shares of capital stock entitled to vote generally in the election of directors
voting as a class. The Ownership Limitation Provisions may not be amended,
altered, changed or repealed without the affirmative vote of a majority of the
members of the FelCor Board and adopted by an affirmative vote of the holders of
not less than 66 2/3% of the outstanding shares of capital stock of FelCor
entitled to vote generally in the election of directors, voting together as a
class.
The FelCor Charter provides that the FelCor Board may amend, alter, change
or repeal the Bylaws.
Under Delaware law, the approval of the Bristol Board, in addition to
stockholder approval, is required to adopt any amendment to the Bristol Charter.
The Bristol Bylaws may be amended either by action of Bristol stockholders or,
if the Bristol Charter or Bristol Bylaws so permit, by action of the Bristol
Board. Pursuant to the Bristol Charter and the Bristol Bylaws, the provisions
relating to (i) the calling of stockholders' meetings, (ii) the nomination
procedures for directors, (iii) the number and term of office of directors, (iv)
the removal of directors, (v) the filling of director vacancies, and (vi) the
restriction on the taking of stockholder action by written consent may not be
amended or repealed by the stockholders, nor may any provision inconsistent
therewith be adopted by the stockholders, unless approved by the holders of at
least 80% of Bristol's voting shares, voting together as a single class. If any
such action (other than with respect to the requirement that stockholder action
be taken at a meeting of stockholders rather than by written consent in lieu of
a meeting) is approved by the holders of a majority, but less than 80%, of the
then-outstanding voting shares (in addition to any other approvals required by
law, including approval by the Bristol Board with respect to any amendment to
the Bristol Charter), such action will be effective as of 15 months from the
date of adoption. The Bristol Bylaws which relate to the right of stockholders
to cause special meetings of stockholders to be called and to the composition of
certain directorate committees may not be amended by the Board without
stockholder approval.
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Advance Notice of Director Nominations and New Business
The FelCor Bylaws provide that (i) with respect to an annual meeting of
stockholders, nominations of persons for election to the FelCor Board and the
proposal of business to be considered by stockholders may be made only (a)
pursuant to FelCor's notice of the meeting, (b) by the FelCor Board, or (c) by a
stockholder who is entitled to vote at the meeting and has complied with the
advance notice procedures set forth in the FelCor Bylaws, and (ii) with respect
to special meetings of stockholders, only the business specified in FelCor's
notice of meeting may be brought before the meeting of stockholders, or provided
that the FelCor Board has determined that directors shall be elected at such
meeting, nominations of persons for election to the FelCor Board may be brought
by a stockholder who is entitled to vote at the meeting and has complied with
the advance notice provisions set forth in the FelCor Bylaws.
The Bristol Bylaws allow a stockholder to nominate persons for election as
directors if the stockholder is of record at the time of giving notice, entitled
to vote for the election of directors at such meeting and complies with the
advance notice procedures more fully set forth in the Bristol Bylaws.
Restrictions on Business Combinations/Corporate Control
Both the Delaware Law and the Maryland Law contain provisions restricting
the ability of a corporation to engage in business combinations with an
interested stockholder.
Under the Delaware Law, a corporation is not permitted to engage in a
business combination with any interested stockholder for a three-year period
following the time such stockholder became an interested stockholder, unless (i)
approved by the board of directors and holders of at least two-thirds of the
outstanding voting shares (other than shares controlled by the interested
stockholder), (ii) the board of directors approved the acquisition of voting
shares pursuant to which such person became an interested stockholder, or (iii)
an exemption is available. The Delaware Law defines an interested stockholder,
generally, as a person who owns 15% or more of the outstanding shares of such
corporation's voting stock.
For provisions of the Maryland Law, see "-- Maryland Anti-Takeover
Statutes."
Stockholder Vote for Mergers
Except with respect to certain mergers with subsidiary corporations, both
the Delaware Law and the Maryland Law generally require the affirmative vote of
the outstanding shares of the constituent corporations in a merger. The Delaware
Law requires a majority vote, and, unless the charter provides otherwise, the
Maryland Law requires a two-thirds vote. The FelCor Charter contains a provision
reducing the proportion of votes required to approve a merger to a majority of
all votes entitled to be cast on the matter. Neither the Delaware Law nor the
Maryland Law require a stockholder vote of the surviving corporation in a merger
if (a) the merger agreement does not amend the existing certificate or articles
of incorporation, (b) the merger agreement does not reclassify or change its
stock, and (c) the number of shares to be issued by the surviving corporation in
a merger does not exceed 20% (Delaware Law) or 15% (Maryland Law) of the shares
outstanding immediately prior to such issuance.
Dissenters' Rights in Mergers
Both the Delaware Law and the Maryland Law provide that stockholders have
the right, in some circumstances, to dissent from certain corporate
reorganizations and to instead demand payment of the fair cash value of their
shares. Unless a corporation's certificate or articles of incorporation provides
otherwise, neither the Delaware Law nor the Maryland Law provides for presently
applicable dissenters' rights of appraisal. In the case of the Delaware Law,
dissenters' rights of appraisal do not apply to a merger or consolidation by a
corporation, the shares of which are either listed on a national securities
exchange or widely-held (by more than 2,000 stockholders), if such stockholders
receive shares of the surviving corporation or of such a listed or widely-held
corporation. Dissenters' rights are not available under the Maryland Law for
shares registered on a national securities exchange on the record date for the
meeting at which the transaction is considered by the stockholders.
Additionally, the Delaware Law does not provide for
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such dissenters' rights of appraisal with respect to a sale-of-assets
reorganization. Like the Delaware Law, the Maryland Law generally does not
provide for dissenters' rights if no vote of the stockholders of the surviving
corporation is required in a merger.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the Merger and related transactions to FelCor, Bristol and their
respective stockholders as well as certain other tax considerations for U.S.
holders of FelCor Common Shares. The following discussion is based upon current
provisions of the Code, existing temporary and final regulations thereunder and
current administrative rulings and court decisions. No assurance can be given
that future legislative, judicial or administrative actions or decisions, which
may be retroactive in effect, will not affect the accuracy of any statements in
this Joint Proxy Statement/Prospectus with respect to the transactions entered
into or contemplated prior to the effective date of such changes. No attempt has
been made to comment on all United States federal income tax consequences of the
Merger and related transactions that may be relevant to U.S. stockholders of
FelCor and Bristol. The tax discussion set forth below is included for general
information only and should not be construed to be legal or tax advice to a
particular stockholder of FelCor or Bristol. Jenkens & Gilchrist, a Professional
Corporation ("Jenkens & Gilchrist"), counsel for FelCor, and Jones, Day, Reavis
& Pogue ("Jones Day"), counsel for Bristol, have reviewed the summary below in
"The Merger, the Spin-Off and the Post-Merger E&P Dividend" and are of the
opinion that such summary fairly summarizes the United States federal income tax
consequences of the transactions referred to therein that are likely to be
material to U.S. stockholders of FelCor or Bristol. Hunton & Williams, special
tax counsel for FelCor, has reviewed the summary set forth below in
"Qualification and Operation of FelCor as a REIT; Ownership and Disposition of
FelCor Common Shares" and is of the opinion that such summary fairly summarizes
the federal income tax consequences that are likely to be material to FelCor or
Bristol stockholders. Each of the opinions discussed herein have been filed as
exhibits to the Registration Statement. These opinions are based on various
assumptions and subject to certain limitations, including assumptions regarding
the accuracy of certain factual representations made by FelCor, Bristol or BHR
and the parties to the Merger Agreement taking certain actions contemplated by,
and otherwise satisfying, their obligations under the Merger Agreement and are
not binding on the IRS or any court. No assurance can be given that the IRS will
not challenge part or all of these opinions or that a challenge would not be
successful.
THE FOLLOWING DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF FELCOR
OR BRISTOL STOCKHOLDERS SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, BROKER-DEALERS, TAX-EXEMPT
ORGANIZATIONS (EXCEPT AS PROVIDED BELOW), NON-U.S. STOCKHOLDERS (EXCEPT AS
PROVIDED BELOW) AND HOLDERS WHOSE SHARES WERE ACQUIRED PURSUANT TO THE EXERCISE
OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION. STOCKHOLDERS OF FELCOR
AND BRISTOL ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX
CONSEQUENCES OF THE TRANSACTIONS AND MATTERS REFERRED TO HEREIN, INCLUDING THE
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE TRANSACTIONS AND MATTERS
REFERRED TO HEREIN, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
THE MERGER, THE SPIN-OFF AND THE POST-MERGER E&P DIVIDEND
Tax Consequences of the Merger
Jenkens & Gilchrist has delivered an opinion to FelCor to the effect that,
based upon representations, assumptions and conditions substantially in the form
set forth in Exhibit D to the Merger Agreement, the Merger will be treated for
United States federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code. Jones Day has delivered an opinion to Bristol to
the effect that, based upon representations, assumptions and conditions
substantially in the form set forth in Exhibit D to the Merger Agreement, the
Merger will be treated for United States federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code.
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Assuming, consistent with the above-described opinions, the Merger is
treated for United States federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code and, consistent with the opinion
described below, the Spin-Off is treated as a taxable dividend of Bristol's
earnings and profits to the stockholders of Bristol the following United States
federal income tax consequences generally will occur:
(i) Neither FelCor nor Bristol will recognize gain or loss with
respect to their transfers of assets and stock pursuant to the Merger;
(ii) No gain or loss will be recognized by the stockholders of Bristol
as the result of the exchange in the Merger of Bristol Common Shares for
FelCor Common Shares, except as provided in (v) below;
(iii) The aggregate tax basis of the FelCor Common Shares received by
a stockholder of Bristol in the Merger (including any fractional FelCor
Common Shares for which cash is received) will be the same as the aggregate
tax basis of the stockholder's Bristol Common Shares exchanged therefor;
(iv) The holding period for the FelCor Common Shares received by a
stockholder of Bristol in the Merger will include the period that such
Bristol Common Shares were held by such stockholder, provided such shares
were held as capital assets (as defined in Section 1221 of the Code, which
generally refers to assets held for investment purposes) at the Closing
Date; and
(v) Cash received by a stockholder of Bristol in lieu of a fractional
FelCor Common Share will be treated as received in exchange for such
fractional interest, and gain or loss will be recognized in an amount equal
to the difference between the amount of cash received and the portion of
the such stockholder's adjusted tax basis in the Bristol Common Shares
allocated to such fractional interest. Such gain or loss generally will be
treated as capital gain or loss if the stockholder holds its Bristol Common
Shares as a capital asset at the Closing Date.
Tax Consequences of the Spin-Off
At or prior to the Closing Date, Jones Day will deliver an opinion to
Bristol to the effect that the Spin-Off will be treated as a taxable dividend of
Bristol's earnings and profits (as determined for federal income tax purposes)
("E&P") to the stockholders of Bristol. Each stockholder of Bristol will
recognize taxable ordinary dividend income pursuant to the Spin-Off in an amount
equal to the fair market value ("FMV") of the BHR Common Shares received by such
stockholder assuming for this purpose that Bristol's E&P (calculated after the
Spin-Off, but before reduction for the distribution of BHR Common Shares)
exceeds the aggregate FMV of the BHR Common Shares distributed in the Spin-Off.
The aggregate tax basis of the BHR Common Shares received by a stockholder of
Bristol in the Merger will be equal to the FMV of the BHR Common Shares received
as of effective time of the Spin-Off. The holding period for the BHR Common
Shares received by a stockholder of Bristol pursuant to the Spin-Off will begin
on the day such shares are distributed. The Spin-Off will result in the
recognition of taxable gain to Bristol in an amount equal to the difference
between the FMV of the BHR Common Shares and the adjusted tax basis of Bristol
in such shares. The tax liability relating to such gain will be assumed by
FelCor by virtue of the Merger. The amount of such taxable gain will increase,
and the amount of such tax liability will decrease, Bristol's E&P.
Post-Merger E&P Dividend
To maintain its qualification as a REIT, following the Merger, FelCor will
be required to distribute any current or accumulated E&P of Bristol remaining at
the Effective Time (the "Post-Merger E&P Dividend"). The Post-Merger E&P
Dividend will be taken into account by the stockholders of FelCor (including
former stockholders of Bristol who become FelCor stockholders in the Merger and
remain FelCor stockholders as of the record date for the Post-Merger E&P
Dividend) as ordinary dividend income. Although the law is not entirely clear,
such Post-Merger E&P Dividend should be eligible for the dividends received
deduction generally available for corporate stockholders.
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QUALIFICATION AND OPERATION OF FELCOR AS A REIT; OWNERSHIP AND DISPOSITION OF
FELCOR COMMON SHARES
General
FelCor elected to be taxed as a REIT under sections 856 through 860 of the
Code commencing with its short taxable year ended December 31, 1994. FelCor
believes that, commencing with such taxable year, it has been organized and has
operated in such a manner as to qualify for taxation as a REIT under the Code,
and FelCor intends to continue to operate in such a manner, but no assurance can
be given that FelCor will continue to operate in a manner so as to continue to
qualify as a REIT.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following discussion sets forth the
material aspects of the Code sections that govern the federal income tax
treatment of a REIT and its stockholders. The discussion is qualified in its
entirety by the applicable Code provisions, Treasury Regulations promulgated
thereunder and administrative and judicial interpretations thereof, all of which
are subject to change prospectively or retrospectively.
Hunton & Williams has acted as special tax counsel to FelCor in connection
with the Merger. In the opinion of Hunton & Williams, beginning with its taxable
year ended December 31, 1994, FelCor was organized and has operated in
conformity with the requirements for qualification as a REIT under the Code, and
the Merger will not adversely affect FelCor's continued qualification as a REIT
under the Code. It is a condition to Bristol's obligations under the Merger
Agreement that Hunton & Williams deliver an opinion to that effect as of the
Closing Date. Investors should be aware, however, that opinions of counsel are
not binding upon the Service or any court. It must be emphasized that Hunton &
Williams' opinion is based on various assumptions and is conditioned upon
certain representations made by FelCor as to factual matters, including
representations regarding the nature of FelCor's properties and the future
conduct of its business. Moreover, such qualification and taxation as a REIT
depend upon FelCor's ability to meet on a continuing basis, through actual
annual operating results, distribution, stock ownership and various other
qualification tests imposed under the Code as discussed below. While Hunton &
Williams has reviewed and will review those matters to its satisfaction in
connection with the foregoing opinions, Hunton & Williams will not review
FelCor's compliance with those tests on a continuing basis. Accordingly, no
assurance can be given that the actual results of FelCor's operation for any
particular taxable year will satisfy such requirements. For a discussion of the
tax consequences of failure to qualify as a REIT, see "-- Failure to Qualify."
As a REIT, FelCor generally is not subject to federal corporate income tax
on its net income that is distributed currently to its stockholders. That
treatment substantially eliminates the "double taxation" of income (i.e.,
taxation at both the corporate and stockholder levels) that generally results
from investment in a corporation. However, FelCor will be subject to federal
income tax in the following circumstances. First, FelCor will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, FelCor may
be subject to the "alternative minimum tax" on its undistributed items of tax
preference. Third, if FelCor has (i) net income from the sale or other
disposition of "foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if FelCor has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property (other than foreclosure property) held primarily for sale to customers
in the ordinary course of business), such income will be subject to a 100% tax.
Fifth, if FelCor should fail to satisfy the 75% gross income test or the 95%
gross income test (as discussed below), and has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on the gross income attributable to the greater of
the amount by which FelCor fails the 75% or 95% gross income test, multiplied by
a fraction intended to reflect FelCor's profitability. Sixth, if FelCor should
fail to distribute during each calendar year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from prior periods,
FelCor would be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. To the extent that FelCor
elects to retain and pay income tax on its net capital gain, but elects to treat
such amount as having
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been distributed to its stockholders, such amount also will be deemed to have
been distributed for purposes of the 4% excise tax.
Finally, if FelCor acquires any asset from a C corporation (i.e., a
corporation such as Bristol that generally is subject to full corporate-level
tax) in a transaction in which the basis of the asset in FelCor's hands is
determined by reference to the basis of the asset (or any other asset) in the
hands of the C corporation and FelCor recognizes gain on the disposition of such
asset during the 10-year period beginning on the date on which such asset was
acquired by FelCor, then to the extent of such asset's "built-in gain" (i.e.,
the excess of the fair market value of such asset at the time of acquisition by
FelCor over the adjusted basis in such asset at such time), such gain will be
subject to tax at the highest regular corporate rate applicable (as provided in
Treasury Regulations that have not yet been promulgated). The results described
above with respect to the recognition of "built-in gain" assume that FelCor
would make an election pursuant to IRS Notice 88-19 if it were to make any such
acquisition. FelCor intends to make an election pursuant to IRS Notice 88-19
with respect to the assets it acquires from Bristol in the Merger (the "Bristol
Assets"). Accordingly, assuming FelCor makes such election, any gain recognized
by FelCor on the disposition of any Bristol Asset during the 10-year period
beginning on the Closing Date, to the extent of such asset's "built-in gain,"
will be subject to tax at the highest regular corporate rate. See "-- Proposed
Tax Legislation."
Requirements for Qualification
The Code defines a REIT as a corporation, trust or association (i) that is
managed by one or more directors or trustees; (ii) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (iii) that would be taxable as a domestic corporation, but
for sections 856 through 860 of the Code; (iv) that is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(v) the beneficial ownership of which is held by 100 or more persons; (vi) not
more than 50% in value of the outstanding capital stock of which is owned,
directly or indirectly, by five or fewer individuals (as defined in the Code to
include certain entities) during the last half of each taxable year; (vii) that
makes an election to be a REIT (or has made such election for a previous taxable
year) and satisfies all relevant filing and other administrative requirements
established by the Service that must be met in order to elect and to maintain
REIT status; (viii) that uses a calendar year for federal income tax purposes
and complies with the recordkeeping requirements of the Code and Treasury
Regulations promulgated thereunder; and (ix) that meets certain other tests,
described below, regarding the nature of its income and assets. The Code
provides that conditions (i) to (iv), inclusive, must be met during the entire
taxable year and that condition (v) must be met during at least 335 days of a
taxable year of 12 months, or during a proportionate part of a taxable year of
less than 12 months. FelCor has issued sufficient FelCor Common Stock with
sufficient diversity of ownership to allow it to satisfy requirements (v) and
(vi). In addition, FelCor's Charter provides for restrictions regarding
ownership and transfer of its capital stock that are intended to assist FelCor
in continuing to satisfy the share ownership requirements described in (v) and
(vi) above.
For purposes of determining share ownership under the 5/50 Rule, a
supplemental unemployment compensation benefits plan, a private foundation or a
portion of a trust permanently set aside or used exclusively for charitable
purposes generally is considered an individual. A trust that is a qualified
trust under Code section 401(a), however, generally is not considered an
individual and the beneficiaries of such trust are treated as holding shares of
a REIT in proportion to their actuarial interests in the pension trust for
purposes of the 5/50 Rule.
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share
(based on the REIT's interest in partnership capital) of the assets of the
partnership and is deemed to be entitled to the gross income of the partnership
attributable to such share. In addition, the character of the assets and gross
income of the partnership retain the same character in the hands of the REIT for
purposes of section 856 of the Code, including satisfying the gross income and
asset tests, described below. Thus, FelCor's proportionate share of the assets,
liabilities and items of income of the Operating Partnership and its subsidiary
partnerships (the "Subsidiary Partnerships") are treated as assets and gross
income of FelCor for purposes of applying the requirements described herein.
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Income Tests
In order for FelCor to maintain its qualification as a REIT, there are two
requirements relating to FelCor's gross income that must be satisfied annually.
First, at least 75% of FelCor's gross income (excluding gross income from
prohibited transactions) for each taxable year must consist of defined types of
income derived directly or indirectly from investments relating to real property
or mortgages on real property (including "rents from real property" and, in
certain circumstances, interest) or temporary investment income. Second, at
least 95% of FelCor's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived from such real property or
temporary investments, and from dividends, other types of interest, and gain
from the sale or disposition of stock or securities, or from any combination of
the foregoing. The specific application of these tests to FelCor is discussed
below.
Rent received by FelCor will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if FelCor, or an owner of 10% or more of FelCor, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," FelCor generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an "independent contractor" who is adequately compensated and from
whom FelCor derives no revenue. The "independent contractor" requirement,
however, does not apply to the extent the services provided by FelCor are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant." In
addition, FelCor may furnish or render a de minimis amount of "noncustomary
services" to the tenants of a Hotel other than through an independent contractor
as long as the amount that FelCor receives that is attributable to such services
does not exceed 1% of its total receipts from the Hotel. For that purpose, the
amount attributable to FelCor's noncustomary services will be at least equal to
150% of FelCor's cost of providing the services.
Pursuant to the Percentage Leases (including the leases that FelCor will
enter into with subsidiaries of BHR (collectively, the "BHR Lessee")) with
respect to the Bristol Hotels, the Lessee and the BHR Lessee (together, the
"Lessees") lease or will lease from the FelCor Operating Partnership or the
Subsidiary Partnerships (together, the "Hotel Partnerships") the land,
buildings, improvements, furnishings and equipment comprising the Hotels, for
terms of five to 10 years, with options to renew for total terms, including the
initial term, of not more than 15 years. The Percentage Leases provide that the
Lessees are obligated to pay to the Hotel Partnerships (i) the greater of Base
Rent or Percentage Rent (collectively, the "Rent") and (ii) "Additional Charges"
or other expenses, as defined in the Percentage Leases. Percentage Rent is
calculated by multiplying fixed percentages by gross room/suite revenues, and
food and beverage revenues and rent for each of the Hotels. Both Base Rent and
the thresholds in the Percentage Rent formulas are adjusted for inflation. Base
Rent and Percentage Rent accrues and is due monthly.
In order for Base Rent, Percentage Rent, and the Additional Charges to
constitute "rents from real property," the Percentage Leases must be respected
as true leases for federal income tax purposes and not treated as service
contracts, joint ventures, or some other type of arrangement. The determination
of whether the Percentage Leases are true leases depends on an analysis of all
the surrounding facts and circumstances. In making such a determination, courts
have considered a variety of factors, including the following: (i) the intent of
the parties, (ii) the form of the agreement, (iii) the degree of control over
the property that is retained by the property owner (e.g., whether the lessee
has substantial control over the operation of the property or whether the lessee
is required simply to use its best efforts to perform its obligations under the
agreement), and (iv) the extent to which the property owner retains the risk of
loss with respect to the
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property (e.g., whether the lessee bears the risk of increases in operating
expenses or the risk of damage to the property) or the potential for economic
gain (e.g., appreciation) with respect to the property.
In addition, Code section 7701(e) provides that a contract that purports to
be a service contract (or a partnership agreement) will be treated instead as a
lease of property if the contract is properly treated as such, taking into
account all relevant factors, including whether or not: (i) the service
recipient is in physical possession of the property, (ii) the service recipient
controls the property, (iii) the service recipient has a significant economic or
possessory interest in the property (e.g., the property's use is likely to be
dedicated to the service recipient for a substantial portion of the useful life
of the property, the recipient shares the risk that the property will decline in
value, the recipient shares in any appreciation in the value of the property,
the recipient shares in savings in the property's operating costs or the
recipient bears the risk of damage to or loss of the property), (iv) the service
provider does not bear any risk of substantially diminished receipts or
substantially increased expenditures if there is nonperformance under the
contract, (v) the service provider does not use the property concurrently to
provide significant services to entities unrelated to the service recipient, and
(vi) the total contract price does not substantially exceed the rental value of
the property for the contract period. Since the determination whether a service
contract should be treated as a lease is inherently factual, the presence or
absence of any single factor may not be dispositive in every case.
FelCor believes that the Percentage Leases will be treated as true leases
for federal income tax purposes. Such belief is based, in part, on the following
facts: (i) the Hotel Partnerships and the Lessees intend for their relationship
to be that of a lessor and lessee and such relationship is documented by lease
agreements, (ii) the Lessees have the right to the exclusive possession, use and
quiet enjoyment of the Hotels during the term of the Percentage Leases, (iii)
the Lessees bear the cost of, and are responsible for, day-to-day maintenance
and repair of the Hotels, other than the cost of maintaining underground
utilities, structural elements and capital improvements, and generally dictate
how the Hotels are operated, maintained, and improved, (iv) the Lessees bear all
of the costs and expenses of operating the Hotels (including the cost of any
inventory used in their operation) during the term of the Percentage Leases
(other than real estate and personal property taxes and property and casualty
insurance premiums), (v) the Lessees benefit from any savings in the costs of
operating the Hotels during the term of the Percentage Leases, (vi) the Lessees
generally have indemnified the Hotel Partnerships against all liabilities
imposed on the Hotel Partnerships during the term of the Percentage Leases by
reason of (A) injury to persons or damage to property occurring at the Hotels,
(B) the Lessees' use, management, maintenance or repair of the Hotels, (C) any
environmental liability caused by acts or grossly negligent failures to act of
the Lessees, (D) taxes and assessments in respect of the Hotels that are the
obligations of the Lessees, or (E) any breach of the Percentage Leases or of any
sublease of a Hotel by the Lessees, (vii) the Lessees is obligated to pay
substantial fixed rent for the period of use of the Hotels, (viii) the Lessees
stand to incur substantial losses (or reap substantial gains) depending on how
successfully they operate the Hotels, (ix) the Hotel Partnerships cannot use the
Hotels concurrently to provide significant services to entities unrelated to the
Lessees, and (x) the total contract price under the Percentage Leases does not
substantially exceed the rental value of the Hotels for the term of the
Percentage Leases.
Investors should be aware that there are no controlling Treasury
Regulations, published rulings or judicial decisions involving leases with terms
substantially the same as the Percentage Leases that discuss whether such leases
constitute true leases for federal income tax purposes. If the Percentage Leases
are characterized as service contracts or partnership agreements, rather than as
true leases, part or all of the payments that the Hotel Partnerships receive
from the Lessees may not be considered rent or may not otherwise satisfy the
various requirements for qualification as "rents from real property." In that
case, FelCor likely would not be able to satisfy either the 75% or 95% gross
income test and, as a result, would lose its REIT status.
In order for the Rent to constitute "rents from real property," several
other requirements must be satisfied. One requirement is that the Percentage
Rent must not be based in whole or in part on the income or profits of any
person. The Percentage Rent, however, will qualify as "rents from real property"
if it is based on percentages of receipts or sales and the percentages (i) are
fixed at the time the Percentage Leases are entered into, (ii) are not
renegotiated during the term of the Percentage Leases in a manner that has the
effect of basing Percentage Rent on income or profits, and (iii) conform with
normal business practice. More generally, the Percentage Rent will not qualify
as "rents from real property" if, considering the Percentage Leases and all
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the surrounding circumstances, the arrangement does not conform with normal
business practice, but is in reality used as a means of basing the Percentage
Rent on income or profits. Since the Percentage Rent is based on fixed
percentages of the gross revenues from the Hotels that are established in the
Percentage Leases, and FelCor has represented that the percentages (i) will not
be renegotiated during the terms of the Percentage Leases in a manner that has
the effect of basing the Percentage Rent on income or profits and (ii) conform
with normal business practice, the Percentage Rent should not be considered
based in whole or in part on the income or profits of any person. Furthermore,
FelCor has represented that, with respect to other hotel properties that it
acquires in the future, it will not charge rent for any property that is based
in whole or in part on the income or profits of any person (except by reason of
being based on a fixed percentage of gross revenues, as described above).
Another requirement for qualification of the Rent as "rents from real
property" is that FelCor must not own, actually or constructively, 10% or more
of any Lessee. The constructive ownership rules generally provide that, if 10%
or more in value of the stock of FelCor is owned, directly or indirectly, by or
for any person, FelCor is considered as owning the stock owned, directly or
indirectly, by or for such person. FelCor does not own any stock of the Lessees.
The Holiday Entities are stockholders of the BHR Lessee and own in the aggregate
more than 10% of FelCor Common Shares. However, because the Holiday Entities
own, directly and indirectly, less than 10% of the stock of the BHR Lessee, the
BHR Lessee will not be a Related Party Tenant after the Merger as a result of
attribution of the Holiday Entities' stock in the BHR Lessee to FelCor. In
addition, the Charter prohibits transfers of FelCor Common Shares or FelCor
Preferred Shares that would cause FelCor to own, actually or constructively, 10%
or more of the ownership interests in a tenant of FelCor's real property, within
the meaning of section 856(d)(2)(B) of the Code. Thus, FelCor should never own,
actually or constructively, 10% of more of any Lessee. Furthermore, FelCor has
represented that, with respect to other hotel properties that it acquires in the
future, it will not rent any property to a Related Party Tenant. However,
because the Code's constructive ownership rules for purposes of the Related
Party Tenant rules are broad and it is not possible to monitor continually
direct and indirect transfers of FelCor Common Shares, no absolute assurance can
be given that such transfers or other events of which FelCor has no knowledge
will not cause FelCor to own constructively 10% or more of a Lessee at some
future date.
A third requirement for qualification of the Rent as "rents from real
property" is that the Rent attributable to the personal property leased in
connection with the Percentage Lease with respect to a Hotel must not be greater
than 15% of the total Rent received under the Percentage Lease. The Rent
attributable to the personal property contained in a Hotel is the amount that
bears the same ratio to total Rent for the taxable year as the average of the
adjusted bases of the personal property at the beginning and at the end of the
taxable year bears to the average of the aggregate adjusted basis of both the
real and personal property contained in the Hotel at the beginning and at the
end of such taxable year (the "Adjusted Basis Ratio"). With respect to each
Hotel (or interest therein) that the FelCor Operating Partnership has acquired
or will acquire in exchange for Units and the Bristol Hotels, the initial
adjusted basis of both the real and personal property contained in such Hotel
generally was or will be the same as the adjusted bases of such property in the
hands of the previous owner. With respect to each Hotel (or interest therein)
that the FelCor Operating Partnership has acquired or will acquire for cash, the
initial adjusted basis of the real and personal property contained in such Hotel
generally equaled or will equal the purchase price paid for the Hotel by the
FelCor Operating Partnership. Such basis generally will be allocated among real
and personal property based on relative fair market values. The Percentage
Leases provide that the Adjusted Basis Ratio for each Hotel may not exceed 15%.
With respect to each Hotel, FelCor believes either that the Adjusted Basis Ratio
for the Hotel is less than 15% or that any income attributable to excess
personal property will not jeopardize FelCor's ability to qualify as a REIT.
There can be no assurance, however, that the IRS would not challenge FelCor's
calculation of an Adjusted Basis Ratio, or that a court would not uphold such
assertion. If such a challenge were successfully asserted, FelCor could fail to
satisfy the 95% or 75% gross income test and thus lose its REIT status.
A fourth requirement for qualification of the Rent as "rents from real
property" is that, other than within the 1% de minimis exception described
above, FelCor cannot furnish or render noncustomary services to the tenants of
the Hotels, or manage or operate the Hotels, other than through an independent
contractor who is
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adequately compensated and from whom FelCor itself does not derive or receive
any income. Provided that the Percentage Leases are respected as true leases,
FelCor should satisfy that requirement, because no Hotel Partnership performs or
will perform any services other than customary ones for the Lessees.
Furthermore, FelCor has represented that, with respect to other hotel properties
that it acquires in the future, it will not perform noncustomary services with
respect to the tenant of the property.
If a portion of the Rent from a Hotel does not qualify as "rents from real
property" because the Rent attributable to personal property exceeds 15% of the
total Rent for a taxable year, the portion of the Rent that is attributable to
personal property will not be qualifying income for purposes of either the 75%
or 95% gross income test. Thus, if such Rent attributable to personal property,
plus any other income that is nonqualifying income for purposes of the 95% gross
income test, during a taxable year exceeds 5% of FelCor's gross income during
the year, FelCor would lose its REIT status. If, however, the Rent from a
particular Hotel does not qualify as "rents from real property" because either
(i) the Percentage Rent is considered based on the income or profits of the
related Lessee, (ii) FelCor owns, actually or constructively, 10% or more of the
Lessee, or (iii) FelCor furnishes noncustomary services to the tenants of the
Hotel, or manages or operates the Hotels, other than through a qualifying
independent contractor, none of the Rent from that Hotel would qualify as "rents
from real property." In that case, FelCor likely would lose its REIT status
because it would be unable to satisfy either the 75% or 95% gross income test.
In addition to the Rent, the Lessees are required to pay to the Hotel
Partnerships the Additional Charges. To the extent that the Additional Charges
represent either (i) reimbursements of amounts that the Hotel Partnerships are
obligated to pay to third parties or (ii) penalties for nonpayment or late
payment of such amounts, the Additional Charges should qualify as "rents from
real property." However, to the extent that the Additional Charges represent
interest that is accrued on the late payment of the Rent or Additional Charges,
such Additional Charges will not qualify as "rents from real property," but
instead should be treated as interest that qualifies for the 95% gross income
test.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Furthermore, to the extent that interest from a loan that is based on
the residual cash proceeds from the sale of the property securing the loan
constitutes a "shared appreciation provision" (as defined in the Code), income
attributable to such participation feature will be treated as gain from the sale
of the secured property.
The net income derived from any prohibited transaction is subject to a 100%
tax. The term "prohibited transaction" generally includes a sale or other
disposition of property (other than foreclosure property) that is held primarily
for sale to customers in the ordinary course of a trade or business. All
inventory required in the operation of the Hotels will be owned by the tenants
under the terms of the Percentage Leases. Accordingly, FelCor believes no asset
owned by FelCor or the Hotel Partnerships is held for sale to customers and that
a sale of any such asset will not be in the ordinary course of business of
FelCor or a Hotel Partnership. Whether property is held "primarily for sale to
customers in the ordinary course of a trade or business" depends, however, on
the facts and circumstances in effect from time to time, including those related
to a particular property. Nevertheless, FelCor will attempt to comply with the
terms of safe-harbor provisions in the Code prescribing when asset sales will
not be characterized as prohibited transactions. Complete assurance cannot be
given, however, that FelCor can comply with the safe-harbor provisions of the
Code or avoid owning property that may be characterized as property held
"primarily for sale to customers in the ordinary course of a trade or business."
FelCor will be subject to tax at the maximum corporate rate on any income
from foreclosure property (other than income that would be qualifying income for
purposes of the 75% gross income test), less expenses directly connected with
the production of such income. However, gross income from such foreclosure
property will qualify under the 75% and 95% gross income tests. "Foreclosure
property" is defined as any real property (including interests in real property)
and any personal property incident to such real property (i) that is acquired by
a REIT as the result of such REIT having bid in such property at foreclosure, or
having otherwise
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reduced such property to ownership or possession by agreement or process of law,
after there was a default (or default was imminent) on a lease of such property
or on an indebtedness that such property secured and (ii) for which such REIT
makes a proper election to treat such property as foreclosure property. However,
a REIT will not be considered to have foreclosed on a property where such REIT
takes control of the property as a mortgagee-in-possession and cannot receive
any profit or sustain any loss except as a creditor of the mortgagor. Under the
Code, property generally ceases to be foreclosure property with respect to a
REIT at the end of the third taxable year following the taxable year in which
the REIT acquired such property (or longer if an extension is granted by the
Secretary of the Treasury). The foregoing grace period is terminated and
foreclosure property ceases to be foreclosure property on the first day (i) on
which a lease is entered into with respect to such property that, by its terms,
will give rise to income that does not qualify for purposes of the 75% gross
income test or any amount is received or accrued, directly or indirectly,
pursuant to a lease entered into on or after such day that will give rise to
income that does not qualify for purposes of the 75% gross income test, (ii) on
which any construction takes place on such property (other than completion of a
building, or any other improvement, where more than 10% of the construction of
such building or other improvement was completed before default became
imminent), or (iii) which is more than 90 days after the day on which such
property was acquired by the REIT and the property is used in a trade or
business which is conducted by the REIT (other than through an independent
contractor from whom the REIT itself does not derive or receive any income). As
a result of the rules with respect to foreclosure property, if a Lessee defaults
on its obligations under a Percentage Lease for a Hotel, FelCor terminates the
Lessee's leasehold interest and FelCor is unable to find a replacement lessee
for such Hotel within 90 days of such foreclosure, gross income from hotel
operations conducted by FelCor from such Hotel would cease to qualify for the
75% and 95% gross income tests. In such event, FelCor likely would be unable to
satisfy the 75% and 95% gross income tests and, thus, would fail to qualify as a
REIT.
It is possible that, from time to time, FelCor or a Hotel Partnership will
enter into hedging transactions with respect to one or more of its assets or
liabilities. Any such hedging transactions could take a variety of forms,
including interest rate swap contracts, interest rate cap or floor contracts,
futures or forward contracts and options. To the extent that FelCor or a Hotel
Partnership enters into an interest rate swap or cap contract, option, futures
contract, forward rate agreement or similar financial instrument to reduce
interest rate risk with respect to indebtedness incurred or to be incurred to
acquire or carry real estate assets, any periodic income or gain from the
disposition of such contract should be qualifying income for purposes of the 95%
gross income test, but not the 75% gross income test. To the extent that FelCor
or a Hotel Partnership hedges with other types of financial instruments or in
other situations, it may not be entirely clear how the income from those
transactions will be treated for purposes of the various income tests that apply
to REITs under the Code. FelCor intends to structure any hedging transactions in
a manner that does not jeopardize its status as a REIT.
If FelCor fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it nevertheless may qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. Those relief
provisions generally will be available if FelCor's failure to meet such tests is
due to reasonable cause and not due to willful neglect, FelCor attaches a
schedule of the sources of its income to its return, and any incorrect
information on the schedule was not due to fraud with intent to evade tax. It is
not possible, however, to state whether in all circumstances FelCor would be
entitled to the benefit of those relief provisions. As discussed above in
"Qualification and Operation of FelCor as a REIT; Ownership and Disposition of
FelCor Common Shares -- General," even if those relief provisions apply, a 100%
tax would be imposed with respect to the gross income attributable to the
greater of the amount by which FelCor fails the 75% or 95% gross income test,
multiplied by a fraction intended to reflect FelCor's profitability.
Asset Tests
FelCor, at the close of each quarter of each taxable year, also must
satisfy two tests relating to the nature of its assets. First, at least 75% of
the value of FelCor's total assets must be represented by cash or cash items
(including certain receivables), government securities, "real estate assets" or,
in cases where FelCor raises new capital through stock or long-term (at least
five-year) debt offerings, temporary investments in stock or debt instruments
during the one-year period following FelCor's receipt of such capital. The term
"real estate
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assets" includes interests in real property, interests in mortgages on real
property, to the extent the principal balance of the mortgage does not exceed
the value of the associated real property, and shares of other REITs. For
purposes of the 75% asset test, the term "interest in real property" includes an
interest in land and improvements thereon, such as buildings or other inherently
permanent structures (including items that are structural components of such
buildings or structures), a leasehold in real property and an option to acquire
real property (or a leasehold in real property). Second, of the investments not
included in the 75% asset class, the value of any one issuer's securities owned
by FelCor may not exceed 5% of the value of FelCor's total assets and FelCor may
not own more than 10% of any one issuer's outstanding voting securities (except
for its ownership interest in the Hotel Partnerships and any qualified REIT
subsidiary). See "-- Proposed Tax Legislation."
For purposes of the asset tests, FelCor is deemed to own its proportionate
share of the assets of the Hotel Partnerships, rather than its partnership
interests in the Hotel Partnerships. FelCor believes that immediately after the
Merger, at least 75% of the value of its total assets will be represented by
real estate assets, cash and cash items (including receivables) and government
securities. The FelCor Operating Partnership owns 100% of the nonvoting stock of
Kingston Plantation Development Corp. ("Kingston"), which represents 97% of the
value of the outstanding stock of such entity. FelCor is deemed to own its
proportionate share of the Kingston stock owned by the FelCor Operating
Partnership. FelCor does not own, directly or indirectly, any of the voting
stock of Kingston, and FelCor believes that the value of its proportionate share
of the Kingston stock owned by the FelCor Operating Partnership does not exceed
5% of the value of FelCor's total assets. See "-- Proposed Tax Legislation." In
addition, FelCor has represented that it will not acquire or dispose, or cause a
Hotel Partnership to acquire or dispose, of assets in the future in a way that
would cause it to violate either asset test.
If FelCor should fail to satisfy the asset tests at the end of a calendar
quarter, such a failure would not cause it to lose its REIT status if (i) it
satisfied all of the asset tests at the close of the preceding calendar quarter
and (ii) the discrepancy between the value of FelCor's assets and the asset test
requirements arose from changes in the market values of its assets and was not
wholly or partly caused by an acquisition of one or more nonqualifying assets.
If the condition described in clause (ii) of the preceding sentence were not
satisfied, FelCor still could avoid disqualification by eliminating any
discrepancy within 30 days after the close of the calendar quarter in which it
arose.
Distribution Requirements
FelCor, in order to qualify for the tax benefits accorded to REITs under
the Code, is required to distribute dividends (other than capital gain dividends
or retained capital gains) to its stockholders in an amount at least equal to
(i) the sum of (A) 95% of its "REIT taxable income" (computed without regard to
the dividends paid deduction and its net capital gain) and (B) 95% of the net
income (after tax), if any, from foreclosure property, minus (ii) the sum of
certain items of noncash income. Such distributions must be paid in the taxable
year to which they relate, or in the following taxable year if declared before
FelCor timely files its tax return for such year and if paid on or before the
first regular dividend payment date after such declaration. To the extent that
FelCor does not distribute all of its net capital gain or distributes at least
95%, but less than 100%, of its "REIT taxable income," as adjusted, it will be
subject to tax thereon at regular ordinary and capital gains corporate tax
rates. Furthermore, if FelCor should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year, and (iii) any undistributed
taxable income from prior periods, FelCor would be subject to a 4% nondeductible
excise tax on the excess of such required distribution over the amounts actually
distributed. FelCor may elect to retain and pay income tax on the net long-term
capital gain it receives in a taxable year. Any such retained amounts would be
treated as having been distributed by FelCor for purposes of the 4% excise tax.
FelCor has made, and has represented that it will continue to make, timely
distributions sufficient to satisfy all annual distribution requirements.
It is possible that, from time to time, FelCor may experience timing
differences between (i) the actual receipt of income and actual payment of
deductible expenses and (ii) the inclusion of that income and deduction of such
expenses in arriving at its REIT taxable income. For example, it is possible
that, from time
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to time, FelCor may be allocated a share of net capital gain attributable to the
sale of depreciated property that exceeds its allocable share of cash
attributable to that sale. In addition, FelCor may incur expenditures (such as
repayment of loan principal) that do not give rise to a deduction. Therefore,
FelCor may have less cash available for distribution than is necessary to meet
its annual 95% distribution requirement or to avoid corporate income tax or the
excise tax imposed on certain undistributed income. In such a situation, FelCor
may find it necessary to arrange for short-term (or possibly long-term)
borrowings or to raise funds through the issuance of additional shares of common
or preferred stock.
Under certain circumstances, FelCor may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
its stockholders in a later year, which may be included in FelCor's deduction
for dividends paid for the earlier year. Although FelCor may be able to avoid
being taxed on amounts distributed as deficiency dividends, it will be required
to pay to the Service interest based upon the amount of any deduction taken for
deficiency dividends.
To maintain its qualification as a REIT following the Merger, FelCor will
be required to distribute the accumulated E&P of Bristol as of the Effective
Time by the end of 1998. If FelCor fails to distribute such amount by December
31, 1998 (or January 31, 1999 if certain declaration and record date
requirements are met), it will fail to qualify as a REIT.
At least 21 days before the Closing Date, Bristol will deliver to FelCor an
estimate of Bristol's accumulated E&P as of the Closing Date, together with a
confirmation of that estimate from Arthur Andersen LLP (the "E&P Statement").
Within three months after the Effective Time, Arthur Andersen LLP will prepare a
final computation of Bristol's accumulated E&P as of the Effective Time (the
"Final Statement"). In giving its opinion regarding FelCor's qualification as a
REIT, Hunton & Williams will rely upon the E&P Statement. In addition, in
determining the amount it must distribute during 1998, FelCor will rely on both
the E&P Statement and the Final Statement.
FelCor's distribution(s) will be treated as made first from Bristol's
earliest accumulated E&P. Accordingly, even if Bristol's actual accumulated E&P
as of the Closing Date exceeds the calculation of such E&P in the Final
Statement, it is possible that FelCor will have distributed all of Bristol's
accumulated E&P in 1998 and, thus, will not fail to qualify as a REIT. In that
case, FelCor likely would incur corporate income and/or excise tax for failing
to distribute sufficient amounts of its taxable income in 1998. However, if
Bristol's actual accumulated E&P as of the Closing Date greatly exceeds the
calculation of such E&P in the Final Statement, FelCor likely would not
distribute all of Bristol's accumulated E&P by the end of 1998 and, as a result,
would fail to qualify as a REIT.
Recordkeeping Requirements
Pursuant to applicable Treasury Regulations, FelCor must maintain certain
records and request on an annual basis certain information from its stockholders
designed to disclose the actual ownership of its outstanding capital stock.
FelCor has complied and intends to continue to comply with such requirements.
Failure to Qualify
If FelCor fails to qualify for taxation as a REIT in any taxable year, and
the relief provisions do not apply, FelCor will be subject to tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Distributions to the stockholders in any year in which FelCor fails to
qualify will not be deductible by FelCor nor will they be required to be made.
In such event, to the extent of current and accumulated E&P, all distributions
to stockholders will be taxable as ordinary income and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, FelCor also will be disqualified from taxation as a REIT for the
four taxable years following the year during which FelCor ceased to qualify as a
REIT. It is not possible to state whether in all circumstances FelCor would be
entitled to such statutory relief.
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Taxation of Taxable U.S. Stockholders
As long as FelCor qualifies as a REIT, distributions made to FelCor's
taxable U.S. stockholders out of current or accumulated E&P (and not designated
as capital gain dividends or retained capital gains) will be taken into account
by such U.S. stockholders as ordinary income and will not be eligible for the
dividends received deduction generally available to corporations. For purposes
of determining whether distributions on FelCor Common Shares are out of current
or accumulated E&P, the E&P of FelCor will be allocated first to outstanding
FelCor Preferred Shares and then allocated to FelCor Common Shares. As used
herein, the term "U.S. stockholder" means a holder of FelCor Common Shares that
for U.S. federal income tax purposes is (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or of any political subdivision thereof,
(iii) an estate whose income from sources without the United States is
includible in gross income for U.S. federal income tax purposes regardless of
its connection with the conduct of a trade or business within the United States,
or (iv) any trust with respect to which (a) a U.S. court is able to exercise
primary supervision over the administration of such trust and (b) one or more
U.S. persons have the authority to control all substantial decisions of the
trust.
Distributions that are designated as capital gain dividends will be taxed
as long-term capital gains (to the extent they do not exceed FelCor's actual net
capital gain for the taxable year) without regard to the period for which the
stockholder has held his FelCor Common Shares. However, corporate stockholders
may be required to treat up to 20% of certain capital gain dividends as ordinary
income. FelCor may elect to retain and pay income tax on the net long-term
capital gain it receives in a taxable year. In that case, FelCor's stockholders
would include in income their proportionate share of FelCor's undistributed
long-term capital gain. In addition, the stockholders would be deemed to have
paid their proportionate share of the tax paid by FelCor, which would be
credited or refunded to the stockholders. Each stockholder's basis in his FelCor
Common Shares would be increased by the amount of the undistributed long-term
capital gain, included in the stockholder's income, less the stockholder's share
of the tax paid by FelCor.
Distributions in excess of FelCor's current and accumulated E&P will not be
taxable to a stockholder to the extent that they do not exceed the adjusted
basis of the stockholder's FelCor Common Shares, but rather will reduce the
adjusted basis of such stock. To the extent that such distributions in excess of
current and accumulated E&P exceed the adjusted basis of a stockholder's FelCor
Common Shares, such distributions will be included in income as long-term
capital gain (or short-term capital gain if the FelCor Common Shares has been
held for one year or less), assuming the FelCor Common Shares are a capital
asset in the hands of the stockholder. In addition, any distribution declared by
FelCor in October, November or December of any year and payable to a stockholder
of record on a specified date in any such month will be treated as both paid by
FelCor and received by the stockholder on December 31 of such year, provided
that the distribution is actually paid by FelCor during January of the following
calendar year.
Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of FelCor. Instead, such losses would be
carried over by FelCor for potential offset against its future income (subject
to certain limitations). Taxable distributions from FelCor and gain from the
disposition of FelCor Common Shares will not be treated as passive activity
income and, therefore, stockholders generally will not be able to apply any
"passive activity losses" (such as losses from certain types of limited
partnerships in which the stockholder is a limited partner) against such income.
In addition, taxable distributions from FelCor generally will be treated as
investment income for purposes of the investment interest limitations. Capital
gains from the disposition of FelCor Common Shares (or distributions treated as
such) will be treated as investment income only if the stockholder so elects, in
which case such capital gains will be taxed at ordinary income rates. FelCor
will notify stockholders after the close of FelCor's taxable year as to the
portions of the distributions attributable to that year that constitute ordinary
income, return of capital and capital gain.
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Taxation of Stockholders on the Disposition of FelCor Common Shares
In general, any gain or loss realized upon a taxable disposition of FelCor
Common Shares by a stockholder who is not a dealer in securities will be treated
as long-term capital gain or loss if the FelCor Common Shares have been held for
more than one year and otherwise as short-term capital gain or loss. However,
any loss upon a sale or exchange of FelCor Common Shares by a stockholder who
has held such stock for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss to the extent of
distributions from FelCor required to be treated by such stockholder as
long-term capital gain. All or a portion of any loss realized upon a taxable
disposition of the FelCor Common Shares may be disallowed if other FelCor Common
Shares are purchased within 30 days before or after the disposition.
Capital Gains and Losses
A capital asset generally must be held for more than one year in order for
gain or loss derived from its sale or exchange to be treated as long-term
capital gain or loss. The highest marginal individual income tax rate is 39.6%.
The maximum tax rate on net capital gains applicable to noncorporate taxpayers
is 28% for sales and exchange of assets held for more than one year but not more
than 18 months, and 20% for sales and exchanges of assets held for more than 18
months. The maximum tax rate on net capital gain from the sale or exchange of
"section 1250 property" (i.e., depreciable real property) held for more than 18
months is 25% to the extent that such gain would have been treated as ordinary
income if the property were "section 1245 property." With respect to
distributions designated by FelCor as capital gain dividends and any retained
capital gains that FelCor is deemed to distribute, FelCor may designate (subject
to certain limits) whether such a distribution is taxable to its noncorporate
stockholders at a 20%, 25% or 28% rate. Thus, the tax rate differential between
capital gain and ordinary income for individuals may be significant. In
addition, the characterization of income as capital or ordinary may affect the
deductibility of capital losses. Capital losses not offset by capital gains may
be deducted against an individual's ordinary income only up to a maximum annual
amount of $3,000. Unused capital losses may be carried forward. All net capital
gain of a corporate taxpayer is subject to tax at ordinary corporate rates. A
corporate taxpayer can deduct capital losses only to the extent of capital
gains, with unused losses being carried back three years and forward five years.
Information Reporting Requirements and Backup Withholding
FelCor reports to its U.S. stockholders and the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a stockholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
holder (i) is a corporation or comes within certain other exempt categories and,
when required, demonstrates this fact, or (ii) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with the applicable requirements of the
backup withholding rules. A stockholder who does not provide FelCor with his
correct taxpayer identification number also may be subject to penalties. Any
amount paid as backup withholding will be creditable against the stockholder's
income tax liability. In addition, FelCor may be required to withhold a portion
of capital gain distributions to any stockholders who fail to certify their
nonforeign status to FelCor. The IRS has issued final regulations regarding the
backup withholding rules as applied to non-U.S. stockholders. Those regulations
alter the current system of backup withholding compliance and are effective for
distributions made after December 31, 1999. See "-- Taxation of Non-U.S.
Stockholders."
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including qualified employee pension and profit
sharing trusts and individual retirement accounts ("Exempt Organizations"),
generally are exempt from federal income taxation. However, they are subject to
taxation on their unrelated business taxable income ("UBTI"). While many
investments in real estate generate UBTI, amounts distributed by FelCor to
Exempt Organizations generally should not constitute UBTI, provided that the
FelCor Common Shares are not otherwise used in an unrelated trade or business of
the Exempt Organization. However, if an Exempt Organization finances its
acquisition of FelCor Common Shares with debt, a portion of its income from
FelCor will constitute UBTI pursuant to the "debt-financed property" rules.
Furthermore, social clubs, voluntary employee benefit associations, supplemental
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unemployment benefit trusts, and qualified group legal services plans that are
exempt from taxation under paragraphs (7), (9), (17) and (20), respectively, of
Code section 501(c) are subject to different UBTI rules, which generally will
require them to characterize distributions from FelCor as UBTI. In addition, in
certain circumstances, a pension trust that owns more than 10% of FelCor's stock
is required to treat a percentage of the dividends from FelCor as UBTI (the
"UBTI Percentage"). The UBTI Percentage is the gross income derived by FelCor
from an unrelated trade or business (determined as if FelCor were a pension
trust) divided by the gross income of FelCor for the year in which the dividends
are paid. The UBTI rule applies to a pension trust holding more than 10% of
FelCor's stock only if (i) the UBTI Percentage is at least 5%, (ii) FelCor
qualifies as a REIT by reason of the modification of the 5/50 Rule that allows
the beneficiaries of the pension trust to be treated as holding stock of FelCor
in proportion to their actuarial interests in the pension trust, and (iii)
either (A) one pension trust owns more than 25% of the value of FelCor's capital
stock or (B) a group of pension trusts individually holding more than 10% of the
value of FelCor's capital stock collectively owns more than 50% of the value of
FelCor's capital stock.
Taxation of Non-U.S. Stockholders
The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships, and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex and no attempt
has been made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. STOCKHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE
THE IMPACT OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO OWNERSHIP
OF THE FELCOR COMMON SHARES, INCLUDING ANY REPORTING REQUIREMENTS.
Distributions to Non-U.S. Stockholders that are not attributable to gain
from sales or exchanges by FelCor of U.S. real property interests and are not
designated by FelCor as capital gains dividends or retained capital gains will
be treated as dividends of ordinary income to the extent that they are made out
of current or accumulated E&P of FelCor. For purposes of determining whether
distributions on the FelCor Common Shares are out of current or accumulated E&P,
the E&P of FelCor will be allocated first to FelCor's outstanding preferred
stock and then allocated to the FelCor Common Shares. Such distributions
ordinarily will be subject to a withholding tax equal to 30% of the gross amount
of the distribution unless an applicable tax treaty reduces or eliminates that
tax. However, if income from the investment in FelCor Common Shares is treated
as effectively connected with the Non-U.S. Stockholder's conduct of a U.S. trade
or business, the Non-U.S. Stockholder generally will be subject to federal
income tax at graduated rates, in the same manner as U.S. stockholders are taxed
with respect to such distributions (and also may be subject to the 30% branch
profits tax in the case of a Non-U.S. Stockholder that is a non-U.S.
corporation). FelCor expects to withhold U.S. income tax at the rate of 30% on
the gross amount of any such distributions made to a Non-U.S. Stockholder unless
(i) a lower treaty rate applies and any required form evidencing eligibility for
that reduced rate is filed with FelCor or (ii) the Non-U.S. Stockholder files an
IRS Form 4224 with FelCor claiming that the distribution is effectively
connected income. The Service has issued final regulations that modify the
manner in which FelCor complies with the withholding requirements. Those
regulations are effective for distributions made after December 31, 1999.
Distributions in excess of current and accumulated E&P of FelCor will not
be taxable to a stockholder to the extent that such distributions do not exceed
the adjusted basis of the stockholder's FelCor Common Shares, but rather will
reduce the adjusted basis of such stock. To the extent that such distributions
in excess of current and accumulated E&P exceed the adjusted basis of a Non-U.S.
Stockholder's FelCor Common Shares, such distributions will give rise to tax
liability if the Non-U.S. Stockholder otherwise would be subject to tax on any
gain from the sale or disposition of his FelCor Common Shares, as described
below. Because it generally cannot be determined at the time a distribution is
made whether or not such distribution will be in excess of current and
accumulated E&P, the entire amount of any distribution normally will be subject
to withholding at the same rate as a dividend. However, a Non-U.S. Stockholder
can file a claim for refund with the Service for the over withheld amount to the
extent it is determined subsequently that a distribution was, in fact, in excess
of the current and accumulated E&P of FelCor.
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FelCor is required to withhold 10% of any distribution in excess of its
current and accumulated E&P. Consequently, although FelCor intends to withhold
at a rate of 30% on the entire amount of any distribution, to the extent that
FelCor does not do so, any portion of a distribution not subject to withholding
at a rate of 30% will be subject to withholding at a rate of 10%.
For any year in which FelCor qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by FelCor of U.S. real property
interests will be taxed to a Non-U.S. Stockholder under the provisions of the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
distributions attributable to gain from sales of U.S. real property interests
are taxed to a Non-U.S. Stockholder as if such gain were effectively connected
with a U.S. business. Non-U.S. Stockholders thus would be taxed at the normal
capital gain rates applicable to U.S. stockholders (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals). Distributions subject to FIRPTA also may be
subject to a 30% branch profits tax in the hands of a non-U.S. corporate
stockholder not entitled to treaty relief or exemption. FelCor is required to
withhold 35% of any distribution that is designated by FelCor as a capital gains
dividend. The amount withheld is creditable against the Non-U.S. Stockholder's
FIRPTA tax liability.
Gain recognized by a Non-U.S. Stockholder upon a sale of his FelCor Common
Shares generally will not be taxed under FIRPTA if FelCor is a "domestically
controlled REIT," defined generally as a REIT in which at all times during a
specified testing period less than 50% in value of the stock was held directly
or indirectly by non-U.S. persons. However, because the FelCor Common Shares are
traded publicly, no complete assurance can be given that FelCor is or will
continue to be a "domestically controlled REIT." In addition, a Non-U.S.
Stockholder that owned, actually or constructively, 5% or less of the
outstanding FelCor Common Shares at all times during a specified testing period
will not be subject to tax under FIRPTA if the FelCor Common Shares are
"regularly traded" on an established securities market. Furthermore, gain not
subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i) investment in
the FelCor Common Shares is effectively connected with the Non-U.S.
Stockholder's U.S. trade or business, in which case the Non-U.S. Stockholder
will be subject to the same treatment as U.S. stockholders with respect to such
gain, or (ii) the Non-U.S. Stockholder is a nonresident alien individual who was
present in the United States for 183 days or more during the taxable year and
certain other conditions apply, in which case the nonresident alien individual
will be subject to a 30% tax on the individual's capital gains. If the gain on
the sale of the FelCor Common Shares were to be subject to taxation under
FIRPTA, the Non-U.S. Stockholder would be subject to the same treatment as U.S.
stockholders with respect to such gain (subject to applicable alternative
minimum tax, a special alternative minimum tax in the case of nonresident alien
individuals and the possible application of the 30% branch profits tax in the
case of non-U.S. corporations).
Proposed Tax Legislation
On February 2, 1998, President Clinton released his budget proposal for
fiscal year 1999 (the "Proposal"). Two provisions contained in the Proposal
potentially could affect FelCor if enacted in final form as presently proposed.
First, the Proposal would prohibit a REIT from owning, directly or indirectly,
more than 10% of the voting power or value of all classes of a C corporation's
stock (other than the stock of a qualified REIT subsidiary). Currently, a REIT
may own no more than 10% of the voting stock of a C corporation, but its
ownership of the nonvoting stock of a C corporation is not limited (other than
by the rule that the value of a REIT's combined equity and debt interests in a C
corporation may not exceed 5% of the value of a REIT's total assets). That
provision is proposed to be effective with respect to stock in a C corporation
acquired by a REIT on or after the date of "first committee action" with respect
to the provision. A REIT that owns stock in a C corporation in excess of the new
ownership limit prior to "first committee action" would be "grandfathered," but
only to the extent that the C corporation does not engage in a new trade or
business or acquire substantial new assets on or after the effective date of the
legislation. Through the FelCor Operating Partnership, FelCor currently owns
more than 10% of the value of the Kingston stock. If enacted as presently
proposed, that provision would prevent Kingston from expanding its business and
would limit the use by FelCor of other taxable subsidiaries to conduct
businesses the income from which would be nonqualifying income if received
directly by FelCor.
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Second, the Proposal would require recognition of any "built-in gain"
associated with the assets of a "large" C corporation (i.e., a C corporation
whose stock has a fair market value of more than $5 million) upon its conversion
to REIT status or merger into a REIT. That provision is proposed to be effective
for conversions to REIT status effective for taxable years beginning after
January 1, 1999 and mergers of C corporations into REITs that occur after
December 31, 1998. Because the Closing Date is expected to occur prior to
December 31, 1998, this provision should not require FelCor to recognize the
"built-in gain" associated with the Merger.
Neither of the two provisions described in this section is included in
Representative Archer's or Senator Roth's proposed tax legislation, introduced
on March 26, 1998, involving REITs. Neither of those provisions will become
effective unless legislation is duly passed by Congress and signed by the
President. However, legislation containing provisions similar to those described
in this section could be introduced in Congress at any time and, although it is
not believed to be likely, the effective date for any such legislation could be
March 26, 1998 (i.e., the date of "first committee action"). In addition, other
legislation, as well as administrative interpretations or court decisions, also
could change the tax laws with respect to FelCor's qualification as a REIT and
the federal income tax consequences of such qualification.
Tax Aspects of the Hotel Partnerships
The following discussion summarizes certain federal income tax
considerations applicable to FelCor's direct or indirect investment in the Hotel
Partnerships. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
Classification as a Partnership
FelCor is entitled to include in its income its distributive share of each
Hotel Partnership's income and to deduct its distributive share of each Hotel
Partnership's losses only if each Hotel Partnership is classified for federal
income tax purposes as a partnership rather than as a corporation or an
association taxable as a corporation. An entity will be classified as a
partnership rather than as a corporation for federal income tax purposes if the
entity (i) is treated as a partnership under Treasury regulations, effective
January 1, 1997, relating to entity classification (the "Check-the-Box
Regulations") and (ii) is not a "publicly traded" partnership. Pursuant to the
Check-the-Box Regulations, an unincorporated entity with at least two members
may elect to be classified either as an association or as a partnership. If such
an entity fails to make an election, it generally will be treated as a
partnership for federal income tax purposes. The federal income tax
classification of an entity that was in existence prior to January 1, 1997, such
as the Hotel Partnerships, will be respected for all periods prior to January 1,
1997 if (i) the entity had a reasonable basis for its claimed classification,
(ii) the entity and all members of the entity recognized the federal tax
consequences of any changes in the entity's classification within the 60 months
prior to January 1, 1997, and (iii) neither the entity nor any member of the
entity was notified in writing on or before May 8, 1996 that the classification
of the entity was under examination. The Hotel Partnerships reasonably claimed
partnership classification under the Treasury regulations in effect prior to
January 1, 1997, and the Hotel Partnerships intend to continue to be treated as
partnerships for federal income tax purposes. In addition, FelCor has
represented that no Hotel Partnership will elect to be treated as an association
taxable as a corporation under the Check-the-Box Regulations.
A publicly traded partnership is a partnership whose interests are traded
on an established securities market or are readily tradable on a secondary
market (or the substantial equivalent thereof). A publicly traded partnership
will not be taxed as a corporation, however, if 90% or more of its gross income
consists of "qualifying income" under section 7704(d) of the Code, which
generally includes any income that is qualifying income for purposes of the 95%
gross income test (the "90% Passive-Type Income Exception"). The U.S. Treasury
Department has issued regulations effective for taxable years beginning after
December 31, 1995 (the "PTP Regulations") that provide limited safe harbors from
the definition of a publicly traded partnership. Pursuant to one of those safe
harbors (the "Private Placement Exclusion"), interests in a partnership will not
be treated as readily tradable on a secondary market or the substantial
equivalent thereof if (i) all interests in the partnership were issued in a
transaction (or transactions) that was not required to be
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registered under the Securities Act of 1933, as amended, and (ii) the
partnership does not have more than 100 partners at any time during the
partnership's taxable year. In determining the number of partners in a
partnership, a person owning an interest in a flow-through entity (i.e., a
partnership, grantor trust, or S corporation) that owns an interest in the
partnership is treated as a partner in such partnership only if (a)
substantially all of the value of the person's interest in the flow-through
entity is attributable to the flow-through entity's interest (direct or
indirect) in the partnership and (b) a principal purpose of the use of the
flow-through entity is to permit the partnership to satisfy the 100-partner
limitation. Each Hotel Partnership qualifies for the Private Placement
Exclusion. If any Hotel Partnership is considered a publicly traded partnership
under the PTP Regulations because it is deemed to have more than 100 partners,
the Hotel Partnership should not be treated as a corporation because it should
be eligible for the 90% Passive-Type Income Exception.
FelCor has not requested, and does not intend to request, a ruling from the
IRS that the Hotel Partnerships will be classified as partnerships for federal
income tax purposes. Instead, at the Closing Date, Hunton & Williams will
deliver its opinion that the Hotel Partnerships will be treated for federal
income tax purposes as partnerships and not as corporations or associations
taxable as corporations or as publicly traded partnerships. Unlike a tax ruling,
an opinion of counsel is not binding upon the IRS, and no assurance can be given
that the IRS will not challenge the status of the Hotel Partnerships as
partnerships for federal income tax purposes. If such challenge were sustained
by a court, the Hotel Partnerships would be treated as corporations for federal
income tax purposes, as described below. The opinion of Hunton & Williams is
based on existing law, which to a great extent consists of administrative and
judicial interpretation. No assurance can be given that administrative or
judicial changes would not modify the conclusions expressed in the opinion.
If for any reason one of the Hotel Partnerships were taxable as a
corporation, rather than as a partnership, for federal income tax purposes,
FelCor would not be able to qualify as a REIT. See "-- Income Tests" and
"-- Asset Tests." In addition, any change in a Hotel Partnership's status for
tax purposes might be treated as a taxable event, in which case FelCor might
incur a tax liability without any related cash distribution. See
"-- Distribution Requirements." Further, items of income and deduction of such
Hotel Partnership would not pass through to its partners, and its partners would
be treated as stockholders for tax purposes. Consequently, such Hotel
Partnership would be required to pay income tax at corporate tax rates on its
net income and distributions to its partners would constitute dividends that
would not be deductible in computing such Hotel Partnership's taxable income.
Income Taxation of Each Hotel Partnership and its Partners
Partners, Not the Hotel Partnerships, Subject to Tax. A partnership is not
a taxable entity for federal income tax purposes. Rather, each partner is
required to take into account its allocable share of each Hotel Partnership's
income, gains, losses, deductions and credits for any taxable year of such Hotel
Partnership ending within or with the taxable year of such partner, without
regard to whether the partner has received or will receive any distribution from
the Hotel Partnership.
Tax Allocations With Respect to Contributed Properties. Pursuant to section
704(c) of the Code, income, gain, loss and deduction attributable to appreciated
or depreciated property that is contributed to a partnership in exchange for an
interest in the partnership must be allocated for federal income tax purposes in
a manner such that the contributor is charged with, or benefits from, the
unrealized gain or unrealized loss associated with the property at the time of
the contribution. The amount of such unrealized gain or unrealized loss
generally is equal to the difference between the fair market value of the
contributed property at the time of contribution and the adjusted tax basis of
such property at the time of contribution. The Department of the Treasury has
issued regulations requiring partnerships to use a "reasonable method" for
allocating items affected by section 704(c) of the Code and outlining several
reasonable allocation methods.
Under the partnership agreements of the Hotel Partnerships, depreciation or
amortization deductions of the Hotel Partnerships generally are allocated among
the partners in accordance with their respective interests in the Hotel
Partnership, except to the extent that Code section 704(c) requires otherwise
with respect to the Hotels contributed to the Hotel Partnerships in exchange for
partnership interests (the "Contributed
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Hotels"). In addition, gain on the sale of a Contributed Hotel will be specially
allocated to the partners who contributed the Hotel to the extent of any
"built-in" gain with respect to such Hotel for federal income tax purposes. The
application of section 704(c) to the Hotel Partnerships, however, is not
entirely clear and may be affected by Treasury Regulations promulgated in the
future.
Basis in Partnership Interest. FelCor's adjusted tax basis in its
partnership interest in the FelCor Operating Partnership generally is equal to
(i) the amount of cash and the basis of any other property contributed to the
FelCor Operating Partnership by FelCor, (ii) increased by (a) its allocable
share of the FelCor Operating Partnership's income and (b) its allocable share
of indebtedness of the FelCor Operating Partnership, and (iii) reduced, but not
below zero, by (a) its allocable share of the FelCor Operating Partnership's
loss and (b) the amount of cash distributed to FelCor, and by constructive
distributions resulting from a reduction in FelCor's share of indebtedness of
the FelCor Operating Partnership.
If the allocation of FelCor's distributive share of the FelCor Operating
Partnership's loss would reduce the adjusted tax basis of FelCor's interest in
the FelCor Operating Partnership below zero, the recognition of such loss will
be deferred until such time as the recognition of such loss would not reduce
FelCor's adjusted tax basis below zero. To the extent that the FelCor Operating
Partnership's distributions, or any decrease in FelCor's share of the
indebtedness of the FelCor Operating Partnership (such decrease being considered
a constructive cash distribution to FelCor), would reduce FelCor's adjusted tax
basis below zero, such distributions (including such constructive distributions)
will constitute taxable income to FelCor. Such distributions and constructive
distributions normally will be characterized as capital gain, and, if FelCor's
interest in the FelCor Operating Partnership has been held for longer than the
long-term capital gain holding period (currently one year), the distributions
and constructive distributions will constitute long-term capital gain.
Depreciation Deductions Available to the FelCor Operating Partnership. To
the extent that the FelCor Operating Partnership acquired or will acquire, as
the case may be, the Hotels in exchange for cash, the FelCor Operating
Partnership's initial basis in such Hotels for federal income tax purposes
generally was or will be equal to the purchase price paid by the FelCor
Operating Partnership. The FelCor Operating Partnership depreciates such
depreciable hotel property for federal income tax purposes under the modified
accelerated cost recovery system of depreciation ("MACRS"). Under MACRS, the
FelCor Operating Partnership generally depreciates furnishings and equipment
over a seven-year recovery period using a 200% declining balance method and a
half-year convention. If, however, the FelCor Operating Partnership places more
than 40% of its furnishings and equipment in service during the last three
months of a taxable year, a mid-quarter depreciation convention must be used for
the furnishings and equipment placed in service during that year. Under MACRS,
the FelCor Operating Partnership generally depreciates buildings and
improvements over a 39-year recovery period using a straight line method and a
mid-month convention. The FelCor Operating Partnership's initial basis in Hotels
acquired in exchange for Units and the Bristol Hotels for federal income tax
purposes should be the same as the transferor's basis in such Hotels on the date
of acquisition by the FelCor Operating Partnership. Although the law is not
entirely clear, the FelCor Operating Partnership generally depreciates such
depreciable hotel property for federal income tax purposes over the same
remaining useful lives and under the same methods used by the transferors. The
FelCor Operating Partnership's tax depreciation deductions are allocated among
the partners in accordance with their respective interests in the FelCor
Operating Partnership (except to the extent that Code section 704(c) requires
otherwise with respect to the Contributed Hotels).
Sale of FelCor's or a Hotel Partnership's Property
Generally, any gain realized by FelCor or a Hotel Partnership on the sale
of property held by it for more than one year will be long-term capital gain,
except for any portion of such gain that is treated as depreciation or cost
recovery recapture. Any gain recognized on the disposition of the Contributed
Hotels will be allocated first to the partners who contributed those hotels
under section 704(c) of the Code to the extent of such partners' "built-in gain"
on those Hotels at the time of the disposition for federal income tax purposes.
The contributing partners' "built-in gain" on the Contributed Hotels sold will
equal the excess of the contributing partners' proportionate share of the book
value of those Hotels as reflected in the Hotel Partnership's capital
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accounts over the contributing partners' adjusted tax basis allocable to those
Hotels at the time of the sale. Any remaining gain recognized by a Hotel
Partnership on the disposition of the Contributed Hotels will be allocated among
the partners in accordance with their respective percentage interests in the
Hotel Partnership.
FelCor's share of any gain realized by a Hotel Partnership on the sale of
any property held by a Hotel Partnership as inventory or other property held
primarily for sale to customers in the ordinary course of the Hotel
Partnership's trade or business will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. See "-- Income Tests." Such
prohibited transaction income also may have an adverse effect upon FelCor's
ability to satisfy the income tests for REIT status. FelCor, however, does not
presently intend to acquire or hold or allow the Hotel Partnerships to acquire
or hold any property that constitutes inventory or other property held primarily
for sale to customers in the ordinary course of FelCor's or a Hotel
Partnership's trade or business.
OTHER TAX CONSEQUENCES
FelCor, Bristol, or their respective stockholders may be subject to state
and local taxation in various state or local jurisdictions, including those in
which it or they transact business, own property or reside. The state and local
tax treatment of FelCor, Bristol and their respective stockholders may differ
from the federal income tax treatment described in this document. Consequently,
FelCor and Bristol stockholders should consult their own tax advisors regarding
the effect of state and local tax laws on the transaction and other matters
referred to herein.
OTHER FELCOR ANNUAL MEETING PROPOSALS
ELECTION OF FELCOR DIRECTORS
The FelCor Charter and Bylaws provide for three classes of directors, who
serve staggered three-year terms, with the term of each director expiring at the
annual meeting of stockholders held three years after his election. The FelCor
Board currently consists of seven members, four of whom are Independent
Directors. An "Independent Director" is a director of FelCor who is not an
officer or employee of FelCor, or any affiliate of FelCor or of an officer,
employee or affiliate of (i) any advisor to FelCor under an advisory agreement,
(ii) any lessee of any property of FelCor, (iii) any subsidiary of FelCor, or
(iv) any partnership which is an affiliate of FelCor.
The terms of two of FelCor's directors, Mr. Hervey A. Feldman and Mr.
Charles N. Mathewson, expire at the FelCor Annual Meeting. Mr. Feldman has
decided not to seek re-election as a director and will assume the role of
Chairman Emeritus following the FelCor Annual Meeting. As Chairman Emeritus, Mr.
Feldman will become an honorary non-voting member of the Board of Directors who
will be entitled to attend meetings of the Board, although his presence at or
absence from a meeting will not be considered for purposes of determining a
quorum of the Board of Directors. FelCor expects that Mr. Feldman will also be
available from time to time to consult with the Board of Directors and senior
management of FelCor on significant strategic and other corporate matters.
The FelCor Board has nominated Mr. Michael D. Rose, a new director, and Mr.
Mathewson, an incumbent Class I director ("Nominees"), to be elected as Class I
directors for a three-year term expiring with the annual meeting of stockholders
in 2001 or until their successors shall be elected and shall qualify or until
their earlier resignation or removal.
Set forth below is certain information regarding the existing directors of
FelCor. All of the following directors were initially elected or appointed as a
director in 1994, except for Mr. Ledsinger who was initially
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appointed as a director in November 1997 to fill the vacancy created by the
resignation of Mr. Donald J. McNamara, who had served as a director of FelCor
from 1994 until his resignation in November 1997.
<TABLE>
<CAPTION>
TERM
NAME POSITION CLASS EXPIRES
---- -------- --------- -------
<S> <C> <C> <C>
Hervey A. Feldman........... Chairman of the Board Class I 1998
Charles N. Mathewson........ Independent Director Class I 1998
Thomas J. Corcoran, Jr...... President and Chief Executive Officer, Class II 1999
Director
Charles A. Ledsinger, Jr.... Independent Director Class II 1999
Richard S. Ellwood.......... Independent Director Class III 2000
Richard O. Jacobson......... Independent Director Class III 2000
Thomas A. McChristy......... Independent Director Class III 2000
</TABLE>
The following discussion sets forth the names, ages and business histories
of the Nominees and of the five directors whose terms will continue after the
FelCor Annual Meeting and the year of the annual meeting of stockholders at
which each director's term will expire (assuming, in the case of the Nominees,
that they are elected).
Nominees for Class I Directors (Terms Expiring in 2001)
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.
Michael D. Rose (age 56) served as Chairman of the Board of Promus Hotel
Corporation from April 1995 through December 1997 and as a director since
December 1997. He served as Chairman of the Board of Harrah's Entertainment
Inc., from June 1995 until his retirement as of December 31, 1996. He also
served as Chairman of the Board of The Promus Companies Incorporated from
November 1989 through June 1995 and Chief Executive Officer from November 1989
to April 1994. Mr. Rose is also a director of Ashland, Inc., First Tennessee
National Corporation, General Mills, Inc., Stein Mart, Inc., and Darden
Restaurants, Inc.
Continuing Class III Directors (Terms Expiring in 2000)
Richard S. Ellwood (age 66) is the founder and principal owner of R. S.
Ellwood & Co., Incorporated, a real estate investment banking firm that 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 one additional REIT, Apartment
Investment and Management Company.
Richard O. Jacobson (age 61) is the Chairman of the Board of Jacobson
Warehouse Company, Inc., a privately held warehouse company with facilities in
17 locations in eight states, which Mr. Jacobson founded 31 years ago. He is
also Chairman of the Board 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 Atrion Corporation, Allied Group,
Inc., Firstar Bank Des Moines, N.A., Firstar Bank of Iowa, N.A. and Heartland
Express, Inc.
Thomas A. McChristy (age 71) was the President of T. A. McChristy Co. Inc.,
a real estate investment company, from 1957 to 1996. Mr. McChristy also served
as the President and Chief Operating Officer of
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Syntech International Inc., a lottery systems and equipment manufacturing
company, from 1986 to 1988 and as its Chief Executive Officer from 1989 to 1992.
Continuing Class II Directors (Terms Expiring in 1999)
Thomas J. Corcoran, Jr. (age 49) is the President and Chief Executive
Officer of FelCor 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.
Charles A. Ledsinger, Jr. (age 48) has served as an officer of St. Joe
Corporation since May 1997. He has served as President and Chief Operating
Officer since February 1998 and as Senior Vice President and Chief Financial
Officer prior to that. From June 1995 until May 1997, Mr. Ledsinger was Senior
Vice President and Chief Financial Officer of Harrah's Entertainment, Inc. For
more than three years prior, Mr. Ledsinger served as Senior Vice President and
Chief Financial Officer of The Promus Companies Incorporated, the former parent
of Harrah's Entertainment, Inc. Mr. Ledsinger is also a director of TBC
Corporation, Perkins Management Company, Inc. and Friendly Ice Cream
Corporation. He is a member and a past chairman of the Real Estate Financial
Advisory Council of the American Hotel and Motel Association.
There are no family relationships between any of the directors. Except as
described above, none of FelCor's directors hold directorships in any company
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 (the "Exchange Act") or pursuant to the requirements of
Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940. There are no arrangements or
understandings between any director and any other person pursuant to which that
director was nominated.
Committees and Meetings of the Board of Directors
Director Meetings. The business of FelCor is under the general management
of the FelCor Board as required by the FelCor Bylaws and the laws of Maryland,
FelCor's state of incorporation. The FelCor Charter requires that a majority of
FelCor's directors be Independent Directors. There are presently seven
directors, including four Independent Directors. The FelCor Board held 10
meetings during 1997. In addition, significant communications between the
directors and FelCor occur apart from the formal meetings of the FelCor Board
and the committees thereof. Accordingly, management does not regard attendance
at meetings to be the primary criterion in evaluating the contributions a
director makes to FelCor. Each of FelCor's directors other than Messrs. Feldman
and McNamara, attended at least 75% of the aggregate of all meetings of the
FelCor Board and all meetings of committees thereof on which such director
served.
The FelCor Board presently has an Executive Committee, an Audit Committee
and a Compensation Committee. In addition, FelCor has a Capital Approval
Committee consisting of the senior executive officers of FelCor. FelCor has no
standing Nominating Committee of the FelCor Board, with the entire FelCor Board
acting in such a capacity. FelCor may, from time to time, form other committees
as circumstances warrant. Such committees have authority and responsibility as
delegated by the FelCor Board.
Executive Committee. The FelCor Board has established an Executive
Committee consisting of Messrs. Corcoran, Feldman and Mathewson. The Executive
Committee is empowered to exercise the powers of the FelCor Board in the
management of the business and affairs of FelCor, except when the FelCor Board
is in session and except for certain powers which may be exercised only by the
FelCor Board. Although informal communication among members of the Executive
Committee occurred frequently during 1997 and certain actions were taken by
unanimous written consent, the Executive Committee held only one formal meeting
during the year.
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Audit Committee. The FelCor Board has established an Audit Committee
consisting of Messrs. Ellwood, Jacobson, McChristy and Ledsinger (who replaced
Mr. McNamara in November 1997), constituting all of the Independent Directors.
The Audit Committee makes recommendations concerning the engagement of
independent public accountants, reviews with the independent public accountants
the plans and results of the audit engagement, approves professional services
provided by the independent public accountants, reviews the independence of the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of FelCor's internal accounting controls. The Audit
Committee held two meetings in 1997.
Compensation Committee. The FelCor Board has established a Compensation
Committee consisting of Messrs. Ellwood, Jacobson, McChristy and Ledsinger (who
replaced Mr. McNamara in November 1997), constituting all of the Independent
Directors. The Compensation Committee determines compensation for FelCor's
executive officers and advises the FelCor Board on the adoption and
administration of employee benefit or compensation plans. The Compensation
Committee also administers the FelCor Stock Plans. The Compensation Committee
held five meetings in 1997.
Capital Approval Committee. The FelCor Board has established the Capital
Approval Committee consisting of FelCor's senior executive officers, Messrs.
Feldman (Chairman of the Board), Corcoran (President and Chief Executive
Officer), Randall L. Churchey (Senior Vice President, Chief Financial Officer
and Treasurer) and Lawrence D. Robinson (Senior Vice President and General
Counsel). The Capital Approval Committee has been delegated the authority to
authorize, take or cause to be taken, any action in connection with the
acquisition, improvement, disposition or financing of any hotel assets involving
an actual or reasonably anticipated investment by FelCor of up to $25 million
(relating to a single hotel transaction) and $50 million (relating to more than
a single hotel), subject, in both cases, to certain limitations.
Compensation of Directors
In lieu of cash compensation, on March 5, 1998, FelCor granted to each of
the Independent Directors, except Mr. Ledsinger, 1,500 shares of restricted
stock under the FelCor 1994 Plan or FelCor 1995 Plan for serving as a director
of FelCor during 1997. Mr. Ledsinger was granted 375 shares of restricted stock
from the FelCor 1995 Plan, reflecting the partial year he served as an
Independent Director. FelCor intends to provide a similar grant to each
Independent Director in lieu of cash compensation for service during 1998. None
of the other directors received any compensation for their service as directors
of FelCor during 1997 and 1996. FelCor reimburses directors for their
out-of-pocket expenses incurred in connection with their service on the FelCor
Board.
Effect of Merger Upon Board of Directors
If the Merger Agreement is adopted by the stockholders, it is expected that
the Merger will be consummated shortly after the FelCor Annual Meeting. Upon
effectiveness of the Merger, the FelCor Board will be reconstituted in the
manner described under "The Merger Agreement -- Reconstitution of FelCor Board."
APPROVAL OF FELCOR CHARTER AMENDMENT TO INCREASE AUTHORIZED SHARES
The FelCor Board has adopted an amendment to the FelCor Charter that would
increase the authorized shares of FelCor Common Shares from 100 million to 200
million and the authorized FelCor Preferred Shares from 10 million to 20
million. The FelCor Board proposes that the amendment be approved by the FelCor
stockholders. If approved by the FelCor stockholders, the amendment would be
effective upon the effectiveness of the Merger.
The FelCor Charter currently authorizes the issuance of up to 100 million
FelCor Common Shares. Of such authorized shares, as of March 31, 1998, 36.6
million FelCor Common Shares were issued and outstanding and an additional 9.5
million shares were reserved for issuance upon conversion of outstanding Series
A Preferred Shares, upon redemption of FelCor Operating Partnership Units, and
under existing FelCor stock-based compensation plans. In connection with the
Merger, FelCor expects to issue an additional
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31.1 million shares and to reserve an additional 1.3 million shares for issuance
under outstanding Bristol options assumed by FelCor, thereby utilizing a
substantial number of the authorized FelCor Common Shares. At a special meeting
of stockholders held October 22, 1997, the holders of FelCor Common Shares
approved an amendment to the FelCor Charter increasing the number of authorized
FelCor Common Shares from 50 million to 100 million in order, at that time, to
provide flexibility to FelCor in structuring its capitalization, in financing
future acquisitions and internal growth, and in accommodating the other needs of
FelCor for available FelCor Common Shares. Most of the additional availability
provided by such amendment will be used in connection with the Merger.
In addition, the FelCor Charter currently authorizes the issuance of up to
10 million FelCor Preferred Shares, of which 6.1 million shares were issued and
outstanding as of May 25, 1998.
The FelCor Board believes that if the Merger were to be consummated without
an increase in the number of authorized shares of stock, the flexibility
provided by the October amendment would be substantially restricted. FelCor
would not have a sufficient number of authorized but unissued shares of stock to
enable it to carry out its plans for the refinancing of the Bristol indebtedness
and have the flexibility to meet a variety of business needs as they may arise
and to enhance FelCor's flexibility in connection with possible future
opportunities.
Consequently, the amendment adopted by the Board to be effective upon the
effectiveness of the Merger, would amend Paragraph A of Article V of FelCor's
Charter to read in its entirety as follows:
"A. Authorized Shares. The total number of shares of capital
stock that the Corporation shall have authority to issue is Two
Hundred Twenty Million (220,000,000) shares, consisting of Two Hundred
Million (200,000,000) shares of Common Stock, of the par value of One
Cent ($0.01) each, and Twenty Million (20,000,000) shares of Preferred
Stock, of the par value of One Cent ($0.01) each, amounting in
aggregate par value to Two Million Two Hundred Thousand Dollars
($2,200,000.00)."
Stockholders generally do not have any preemptive or similar rights to
subscribe for or purchase any additional shares that may be issued in the future
and, therefore, future issuances of FelCor Common Shares or FelCor Preferred
Shares, depending upon the circumstances, may have a dilutive effect on the
earnings per share, book value per share, voting power and other interests of
the existing stockholders.
This increase in the authorized number of shares could have an
anti-takeover effect, although that is not its purpose. For example, if FelCor
were the subject of a hostile takeover attempt, it could try to impede the
takeover by issuing FelCor Common Shares or FelCor Preferred Shares, thereby
diluting the voting power of the other outstanding shares and increasing the
potential cost of the takeover. The availability of this defensive strategy to
FelCor could discourage unsolicited takeover attempts, thereby limiting the
opportunity for FelCor's stockholders to realize a higher price for their shares
than might otherwise be available in the public markets. The FelCor Board is not
aware of any attempt, or contemplated attempt, to acquire control of FelCor, and
the amendment is not being presented for the purpose of creating an
anti-takeover device.
THE FELCOR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE FELCOR CHARTER TO INCREASE FELCOR'S AUTHORIZED SHARES.
APPROVAL OF FELCOR CHARTER AMENDMENT TO CHANGE FELCOR'S NAME
The FelCor Board has adopted an amendment to the FelCor Charter that would
change FelCor's name to "FelCor Lodging Trust Incorporated." The FelCor Board
proposes that the amendment be approved by the FelCor stockholders. If approved
by the FelCor stockholders, the amendment would be effective upon the
effectiveness of the Merger.
The FelCor Board believes the name change is desirable to reflect FelCor's
diversification from primarily upscale, full service all-suite hotels prior to
the Merger into full service hotels primarily in the upscale and midscale
segments of the lodging industry as a result of the Merger and its intention to
seek further diversification to include properties in the resort segment of the
industry.
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THE FELCOR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
AMENDMENT TO THE FELCOR CHARTER TO CHANGE FELCOR'S NAME.
RATIFICATION OF FELCOR'S 1998 RESTRICTED STOCK AND STOCK OPTION PLAN
The FelCor Board has approved and recommends to FelCor's stockholders that
they adopt the FelCor 1998 Plan. The FelCor 1998 Plan was approved by the FelCor
Board in November 1997.
The FelCor 1998 Plan will be approved by FelCor's stockholders if a quorum
is present at the FelCor Annual Meeting and if the number of votes cast for
approval of the FelCor 1998 Plan exceeds the number of votes cast against
approval of the FelCor 1998 Plan.
The following summarizes certain significant aspects of the FelCor 1998
Plan. The summary is not intended to be complete and is subject in all respects
to the terms of the FelCor 1998 Plan, a complete copy of which is set forth as
Annex D to this Joint Proxy Statement/Prospectus.
Share Authorization. The FelCor 1998 Plan provides for the grant of stock
options to purchase a specified number of FelCor Common Shares ("Options") or
grants of FelCor Common Shares ("Restricted Shares"). Under the FelCor 1998
Plan, the total number of shares available for grant is equal to 1,000,000
FelCor Common Shares, of which not more than 50,000 shares may be grants of
Restricted Shares. Upon the occurrence of certain extraordinary events, the
FelCor Board or the Compensation Committee may make such adjustments in the
aggregate number and kind of shares reserved for issuance, the number of shares
and kind covered by outstanding awards and the exercise prices specified therein
as may be determined to be appropriate.
Purpose and Administration. The FelCor Board has approved the FelCor 1998
Plan to provide incentives to attract and retain Independent Directors,
executive officers and key employees. The FelCor 1998 Plan is administered by
the Compensation Committee or, in the case of grants to Independent Directors,
by the FelCor Board. The Compensation Committee generally has the authority,
within limitations set forth in the FelCor 1998 Plan, (i) to establish rules and
regulations concerning the FelCor 1998 Plan, (ii) to determine the persons to
whom Options and Restricted Shares may be granted, (iii) to fix the number of
FelCor Common Shares to be covered by each Option and the number of Restricted
Shares granted, and (iv) to set the terms and provisions of each grant of
Options or Restricted Shares to be granted. The Compensation Committee has the
right to cancel any outstanding Options and to issue new Options on such terms
and upon such conditions as may be consented to by the optionee affected.
Eligibility. Participants in the FelCor 1998 Plan may be directors,
officers or employees of the Company, its subsidiaries (including the FelCor
Operating Partnership) or designated affiliates, as are selected by the
Compensation Committee.
Options. Options granted under the FelCor 1998 Plan may be incentive stock
options ("ISOs") under Section 422 of the Code or non-qualified options, at the
discretion of the Compensation Committee. The FelCor 1998 Plan provides that the
exercise price of an Option will be fixed by the Compensation Committee on the
date of grant; however, the exercise price of an ISO must be not less than the
fair market value of a share of Common Stock on the date of the grant. In the
case of an ISO granted to any person who owns, directly or indirectly, stock
possessing more than 10% of the total combined voting power of all classes of
FelCor's stock ("Ten Percent Owner"), the option price will not be less than
110% of the Fair Market Value of a share of FelCor Common Shares on the date of
grant. Each Option must expire within ten years from the date of the grant
except that any ISO granted to a Ten Percent Owner must expire within five years
from the date of the grant. Moreover, Options granted under the FelCor 1998 Plan
will not be ISOs to an individual participant to the extent that the aggregate
fair market value of the FelCor Common Shares with respect to which such Options
under the FelCor 1998 Plan (or under any other plan maintained by the Company or
a subsidiary thereof) first become exercisable by such participant in any year
exceeds $100,000.
No Option may be exercised within six months after the date of grant or in
such circumstances where exercise would violate Federal or State securities
laws. Options will be non-transferable and non-assignable; provided, however,
that the estate of a deceased holder can exercise Options. Options generally
will be
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exercisable by the holder thereof subject to terms fixed by the Compensation
Committee. The right of any participant to exercise an Option may not be
transferred in any way other than by will or the laws of descent and
distribution.
Restricted Stock Awards. The FelCor 1998 Plan also permits the Compensation
Committee to grant up to 50,000 shares of Restricted Shares. Restricted Shares
will be subject to the terms and conditions imposed by the Compensation
Committee. Except for such restrictions on transfer as the Compensation
Committee may impose, the participants have all the rights of a holder of FelCor
Common Shares as to such Restricted Shares including the right to vote the
shares and the right to receive any cash distributions. Except as provided by
the Compensation Committee at the time of grant or otherwise, upon a termination
of employment for any reason during the restriction period, all unvested shares
will be forfeited by the participant.
Termination and Amendment. No Options shall be granted and no Restricted
Shares may be awarded under the FelCor 1998 Plan on or after November 1, 2007.
The FelCor Board may amend any award theretofore granted, prospectively or
retroactively. No such amendment may impair the rights of any participant under
any award without the consent of such participant (except for any amendment made
to cause the plan to qualify for an exemption provided by Rule 16b-3 under the
Exchange Act). The FelCor 1998 Plan may be terminated and may be modified or
amended by the FelCor Board at any time; however, (i) any modification or
amendment either increasing the aggregate number of shares which may be issued
under Options, increasing materially the benefits accruing to participants under
the FelCor 1998 Plan or materially modifying the requirements as to eligibility
to receive Options is subject to stockholder approval within one year of the
adoption of such amendment; and (ii) no such termination, modification or
amendment of the FelCor 1998 Plan will alter or affect the terms of any then
outstanding Options or Restricted Shares without the consent of the holders
thereof.
Initial Awards. Upon adoption of the FelCor 1998 Plan by the Compensation
Committee, the Compensation Committee also approved the grants of option to
purchase an aggregate of 270,500 FelCor Common Shares, subject to stockholder
approval of the FelCor 1998 Plan. See the table below captioned "New Plan
Benefits."
Federal Income Taxes. No income is recognized by a participant in the
FelCor 1998 Plan at the time the Option is granted. If the Option is an ISO, no
income will be recognized upon the participant's exercise of the Option. Income
is recognized by a participant when he disposes of shares acquired under an ISO.
The exercise of a nonqualified stock option generally is a taxable event that
requires the participant to recognize, as ordinary income, the difference
between the shares' fair market value and the option price.
A participant will recognize income on account of a Restricted Shares award
on the first day that the shares are either transferable or not subject to a
substantial risk of forfeiture. The amount of income recognized by the
participant is equal to the fair market value of the FelCor Common Shares
received on that date.
The employer (either FelCor or its affiliate) will be entitled to claim a
federal income tax deduction on account of the exercise of a nonqualified option
or the vesting of a stock award. The amount of the deduction is equal to the
ordinary income recognized by the participant. The employer will not be entitled
to a federal income tax deduction on account of the grant or the exercise of an
ISO. The employer may claim a federal income tax deduction on account of certain
dispositions of FelCor Common Shares acquired upon the exercise of an ISO.
THE FELCOR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE FELCOR
1998 PLAN.
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The following table sets forth information regarding the benefits that will
be received by each of the following persons and groups under the FelCor 1998
Plan should the FelCor 1998 Plan be approved by the stockholders at the FelCor
Annual Meeting.
NEW PLAN BENEFITS
FELCOR'S 1998 RESTRICTED STOCK AND STOCK OPTION PLAN
<TABLE>
<CAPTION>
MARKET PRICE
EXERCISE OF UNDERLYING NUMBER OF
NAME AND POSITION PRICE($)(2) STOCK($)(3) OPTIONS(1)
----------------- ------------ ------------- ----------
<S> <C> <C> <C>
Thomas J. Corcoran, Jr.,........................ 35.50 35.25 90,000
President and Chief Executive Officer
Lawrence D. Robinson............................ 35.50 35.25 20,000
Senior Vice President and General Counsel
Randall L. Churchey............................. 35.50 35.25 20,000
Senior Vice President and Chief Financial
Officer
William P. Stadler.............................. 35.50 35.25 40,000
Senior Vice President
Executive Officer Group......................... 35.50 35.25 235,000
Non-Executive Director Group.................... -- -- --
Non-Executive Officer Employee Group............ 35.50 35.25 35,000
</TABLE>
- - ---------------
(1) Shares purchasable upon the exercise of Options which vest over a five year
period at the rate of 20% per year and expire on the tenth anniversary of
the date of grant.
(2) The exercise price of the Option is based upon the closing price of FelCor
Common Shares on the date of grant (which is either the date of commencement
of employment in the case of new employees, or the date as of which the
grant is approved by the Compensation Committee, in the case of existing
employees).
(3) Market price represents the closing sale price of FelCor Common Shares as of
April 15, 1998 as reported by the NYSE.
OTHER BRISTOL ANNUAL MEETING PROPOSALS
ELECTION OF BRISTOL DIRECTORS
The management of Bristol is under the direction of the Bristol Board. Each
director is elected to serve until his or her successor is elected and
qualified. Set forth below is certain information regarding the directors and
executive officers of Bristol.
<TABLE>
<CAPTION>
NAME POSITION YEAR FIRST ELECTED
- - ---- -------- ------------------
<S> <C> <C>
John A. Beckert................. Chief Operating Officer, Executive 1995
Vice President and Director
Reginald K. Brack, Jr........... Director 1997
David A. Dittman................ Director 1995
Craig H. Hunt................... Director 1997
J. Peter Kline.................. Chief Executive Officer, President 1995
and Director
Robert H. Lutz, Jr.............. Director 1995
Donald J. McNamara.............. Chairman of the Board and Director 1994
Richard C. North................ Director 1997
Kurt C. Read.................... Director 1997
</TABLE>
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John A. Beckert, 44, has been a director of Bristol since February 1995.
Since 1981, Mr. Beckert has been the Chief Operating Officer and Executive Vice
President of Bristol (and its predecessor, Harvey Hotel Company). Mr. Beckert is
the brother of Richard N. Beckert, the Senior Vice President, Administration of
Bristol.
Reginald K. Brack, Jr., 60, has been a director of Bristol since May 1997.
Since July 1997, Mr. Brack has been the Chairman Emeritus of Time, Inc. Prior to
such period, Mr. Brack was the Chairman and Chief Executive Officer of Time,
Inc. from December 1986 to July 1997.
David A. Dittman, 52, has been a director of Bristol since December 1995.
Since 1990, Mr. Dittman has been the Dean of the Cornell University School of
Hotel Administration and an E.M. Statler Professor.
Craig H. Hunt, 45, has been a director of Bristol since April 1997. Mr.
Hunt has been President of Holiday Inns since 1997, and a member of the Holiday
Inns Board of Directors since 1990. During 1996 and 1997, Mr. Hunt was the
President of Americas Franchise Division of Holiday Inns. Prior to 1996, he
served as Senior Vice President and Chief Operating Officer for Company Managed
Hotels -- Americas, and Senior Vice President and managing director for the
United States, Caribbean and Latin American Region of Holiday Inn International.
J. Peter Kline, 50, has been a director of Bristol since February 1995.
Since 1981, Mr. Kline has been the President and Chief Executive Officer of
Bristol (and its predecessor, Harvey Hotel Company).
Robert H. Lutz, Jr., 48, has been a director of Bristol since December
1995. Since 1994, Mr. Lutz has been the Chairman and Chief Executive Officer,
and is a member of the executive committee, of Amresco, Inc., a financial
services company. From 1991 to 1994, Mr. Lutz served as President and Chief
Operating Officer of Balcor/Allegiance Realty Group, a subsidiary of American
Express Company engaged in real estate ownership and management.
Donald J. McNamara, 45, has been Chairman of the Board since November 1994.
Mr. McNamara has been the Chairman and Co-Chief Executive Officer of Hampstead,
a privately held real estate investment company and an affiliate of Holdings,
since the founding of the firm in 1988. Mr. McNamara also is a director of
Catellus Development Corporation. Mr. McNamara also served on the FelCor Board
from July 1994 until November 1997.
Richard C. North, 48, has been a director of Bristol since 1997. Mr. North
has been the Group Finance Director of Bass plc since 1994. Prior to 1994, Mr.
North served as the Group Finance Director of The Burton Group.
Kurt C. Read, 35, has been a director of Bristol since April 1997. Mr. Read
has been a Senior Vice President of Hampstead since 1989.
ALTHOUGH IT IS EXPECTED THAT THE MERGER WILL BE CONSUMMATED SHORTLY AFTER
THE BRISTOL ANNUAL MEETING, AND THEREUPON THE FELCOR BOARD WILL BE RECONSTITUTED
AS DESCRIBED UNDER "THE MERGER AGREEMENT -- RECONSTITUTION OF FELCOR BOARD," THE
BRISTOL BOARD HAS NOMINATED EACH OF THE ABOVE DIRECTORS FOR RE-ELECTION AS A
DIRECTOR OF BRISTOL AT THE BRISTOL ANNUAL MEETING.
The nine Bristol directors receiving the most votes at the Bristol Annual
Meeting will be elected as Bristol Directors. Each of such persons has consented
to being named in this document and to serve if elected. If any such person
should for any reason become unavailable for election, proxies may be voted with
discretionary authority by the persons named in the proxies for a substitute
designated by the Bristol Board.
Bristol Director Nomination Procedures
Bristol directors may be nominated for election by the Bristol Board or by
any stockholder entitled to vote in the election of Directors generally.
Stockholders intending to nominate candidates for election as Directors must
deliver written notice thereof to the Secretary of Bristol not later than 60
calendar days in advance of the stockholders' meeting. If the date of the
meeting is not publicly announced by Bristol more than 75 calendar days prior to
the meeting, stockholders must notify the Secretary of Bristol not later than
the close of business
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on the tenth day following the day on which the date of the meeting is so
announced. Stockholders must provide certain information concerning such
stockholder, such stockholder's stock ownership and the stockholder's nominees,
including their names and addresses, a description of all arrangements between
the stockholder and each nominee, such other information as would be required to
be included in a proxy statement soliciting proxies for the election of the
nominees of such stockholder, and the consent of each nominee to serve as a
director of Bristol if so elected. The chairman of the stockholders' meeting may
refuse to acknowledge the nomination of any person not made in compliance with
these requirements.
Pursuant to a stockholders' agreement, each of Holdings and the Holiday
Entities has agreed to vote its Bristol Common Shares and take all other
necessary actions in order to ensure that the Bristol Board is comprised of
three persons designated by Holdings, three persons designated by the Holiday
Entities and one person designated by Messrs. Kline and Beckert. This
stockholders' agreement will terminate upon the consummation of the Merger. One
of the three directors to be designated by each of Holdings and the Holiday
Entities, and the director designated by Messrs. Kline and Beckert, must be an
Outside Director. For this purpose, an "Outside Director" is a Director who is
not an employee, executive officer or affiliate of Bristol, the Holiday Entities
or Holdings and who is not an associate of a business primarily engaged in
operating, managing or developing Mid-Scale Lodging Facilities and who qualifies
as an "independent director" within the meaning of the NYSE Listed Company
Manual. A "Mid-Scale Lodging Facility" is a full-service lodging facility
providing a degree of sophistication and full-service amenities and facilities
which (i) are of a type and standard generally consistent with hotels operated
as Holiday Inn hotels, (ii) do not primarily offer suites, (iii) are not
designed to accommodate extended stays, and (iv) do not generally compete as
upscale or economy hotels.
Holdings has designated Donald J. McNamara, Kurt C. Read and Robert H.
Lutz, Jr. (Outside Director) as its designees; Messrs. Kline and Beckert have
designated David A. Dittman as their Outside Director designee; and the Holiday
Entities have designated Richard C. North, Reginald K. Brack, Jr. and Craig H.
Hunt (Outside Director) as their designees. Pursuant to a separate agreement,
Bass plc has agreed to cause the directors designated by the Holiday Entities to
vote for Donald J. McNamara to serve as Chairman of the Board so long as he is a
director of Bristol.
INFORMATION CONCERNING BRISTOL BOARD
The Bristol Board held a total of six meetings during 1997. No director
failed to participate in at least 75% of the meetings of the Bristol Board held
while he was a director. No director appointed to serve on one or more
committees of the Bristol Board failed to participate in at least 75% of the
meetings of such committee or committees held while he was a member thereof.
Bristol Board Committees
The Bristol Board has established five committees: the Executive Committee,
the Audit Committee, the Compensation Committee, the Director Plan Committee and
the Finance Committee.
Except as to certain matters for which action of the full Bristol Board is
required by law, the Executive Committee has the authority to exercise all of
the powers of the Bristol Board in the oversight of the management of the
business and affairs of Bristol. The Executive Committee also is responsible for
recommending to the Bristol Board nominees for election to the Bristol Board and
committees of the Bristol Board. During 1997, all actions by the Executive
Committee were taken by written consent. The current members of the Executive
Committee are Donald J. McNamara (Chairman), J. Peter Kline and Richard C.
North.
The Audit Committee reviews the professional services provided by Bristol's
independent accountants and the independence of such accountants from
management. The Audit Committee also reviews the scope of the audit by Bristol's
independent accountants, the annual financial statements of Bristol, Bristol's
system of internal accounting controls and the accounting, auditing and
financial reporting practices and procedures of Bristol. The Audit Committee
meets from time to time with members of Bristol's internal audit staff. The
Audit Committee met four times during 1997. At least two members of the Audit
Committee must be
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directors who are not employed by Bristol, Holdings, the Holiday Entities or any
of their respective affiliates. The current members of the Audit Committee are
David A. Dittman (Chairman), Reginald K. Brack, Jr., Craig H. Hunt and Kurt C.
Read.
The Compensation Committee reviews executive salaries, administers the
bonus, incentive compensation and stock option plans of Bristol and approves the
salaries and other benefits of the executive officers of Bristol. The
Compensation Committee also consults with Bristol's management regarding pension
and other benefit plans and compensation policies and practices of Bristol. This
committee met twice during 1997. Members of the Compensation Committee must be
persons who are not full time employees of Bristol and who are not eligible to
receive options or other rights under any employee stock or other benefit plan
(other than plans in which only directors may participate). The current members
of the Compensation Committee are Donald J. McNamara (Chairman), Robert H. Lutz,
Jr. and Richard C. North.
The sole function of the Director Plan Committee is to administer Bristol's
Stock Option Plan for Non-Employee Directors. This committee met once during
1997. The current members of the Director Plan Committee are Donald J. McNamara
(Chairman) and Richard C. North.
The Finance Committee has the authority to exercise all of the powers of
the Bristol Board in the oversight of the financial affairs of Bristol. The
Finance Committee did not meet in 1997. The current members of the Finance
Committee are Donald J. McNamara (Chairman) and J. Peter Kline.
Bristol's Director Compensation
Each director who is not a full-time employee of Bristol or an employee of
an affiliate of Bristol is granted annually a non-qualified option to purchase
7,500 Bristol Common Shares (after taking into account of the 3-for-2 stock
split in June 1997) at an exercise price equal to the market price of the
Bristol Common Shares at the close of business on the date of grant. Directors
are also reimbursed for their out-of-pocket expenses incurred in connection with
their attendance at meetings of the Bristol Board and committees of the Bristol
Board and other activities relating to their position as a director.
APPROVAL OF AMENDMENT TO BRISTOL'S 1995 EQUITY INCENTIVE PLAN
The Bristol Incentive Plan was amended by the Bristol Board on December 9,
1997 to increase the number of Bristol Common Shares available for issuance
under such Plan from 1,950,000 to 3,130,000, subject to the approval of
Bristol's stockholders. Bristol believes that it has been successful in the past
in attracting and retaining qualified employees, officers and directors in part
because of its ability to offer such persons options to purchase Bristol Common
Shares. Bristol believes that the increase in the number of shares reserved for
issuance pursuant to the Bristol Incentive Plan is necessary for Bristol to
continue to attract and retain qualified employees, officers and directors.
The Bristol Incentive Plan is administered by the Bristol Board or the
Compensation Committee. The Bristol Board or the Compensation Committee, as
appropriate, has discretionary authority (subject to certain restrictions) to
determine the individuals to whom options are granted, as well as the timing,
number and exercise price of such options. The Bristol Board or the Compensation
Committee may interpret the provisions of the Bristol Incentive Plan and may
prescribe, amend and rescind rules and regulations of the Bristol Incentive
Plan.
The option price of non-qualified options granted under the Bristol
Incentive Plan is determined by the Bristol Board or the Compensation Committee,
as appropriate, at the time such options are granted, but may in no event be
less than the minimum legal consideration required. Options granted at less than
fair market value are intended to qualify as performance-based compensation
under Section 162(m) of the Code, and are exercisable only upon the attainment
of pre-established, objective performance goals.
Employees and officers of Bristol are eligible to participate in the
Bristol Incentive Plan. As of April 1, 1998, there were approximately 170
Bristol employees and 6 officers currently eligible to participate in the
Bristol Incentive Plan. Assuming approval of the proposed amendment to the
Bristol Incentive Plan and after
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<PAGE> 139
giving effect thereto, there would be 1,149,380 Bristol Common Shares available
for issuance under the Bristol Incentive Plan.
Pursuant to the Merger Agreement, the Bristol Incentive Plan will be
amended at the Effective Time to convert all outstanding options to purchase
Bristol Common Shares under the Bristol Incentive Plan into options to purchase
FelCor Common Shares and options to purchase BHR Common Shares. All obligations
with respect to options to purchase FelCor Common Shares will be assumed by
FelCor in the Merger, and all obligations with respect to options to purchase
BHR Common Shares will be assumed by BHR in the Spin-Off.
APPROVAL OF BHR'S 1998 EQUITY INCENTIVE PLAN AND 1998 NON-EMPLOYEE DIRECTORS
STOCK OPTION PLAN
The Bristol Board and Bristol, as sole stockholder of BHR, has approved and
recommends that Bristol stockholders approve BHR's 1998 Equity Incentive Plan
(the "BHR Equity Incentive Plan") and 1998 Non-Employee Directors Stock Option
Plan (the "BHR Director Plan"). The BHR Equity Incentive Plan and the BHR
Director Plan (collectively, the "BHR Plans") will be approved by Bristol's
stockholders if a quorum is present at the Bristol Annual Meeting and the
holders of a majority of the shares actually voted at the Bristol Annual Meeting
thereon voted for approval of the BHR Plans. If Bristol's stockholders do not
approve the BHR Equity Incentive Plan, no awards will be granted under such
plan.
The following summarizes certain significant aspects of the BHR Plans. The
summary is not intended to be complete and is subject in all respects to the
terms of the BHR Equity Incentive Plan and the BHR Director Plan, a copy of
which is set forth as Annex E and F, respectively, to this Joint Proxy
Statement/ Prospectus.
BHR Equity Incentive Plan
General. In connection with the Spin-Off, BHR will establish the BHR Equity
Incentive Plan, effective as of the date of the Spin-Off. The BHR Equity
Incentive Plan is intended to be substantially similar to the Bristol 1995
Equity Incentive Plan, under which stock-based awards are currently granted to
executive officers and other key employees of Bristol. The BHR Equity Incentive
Plan is designed to attract and retain qualified officers and other key
employees of BHR. The BHR Equity Incentive Plan authorizes the grant of options
to purchase BHR Common Shares ("Stock Options"), stock appreciation rights
("Appreciation Rights"), restricted shares ("Restricted Shares"), deferred
shares ("Deferred Shares"), performance shares ("Performance Shares") and
performance units ("Performance Units"). Because benefits earned under awards
granted under the BHR Equity Incentive Plan may extend over a period of years
into the future, the plan is designed so that certain awards would qualify under
Section 162(m) of the Code and BHR would be allowed a tax deduction for certain
future compensation over $1 million that could be paid, or otherwise taxable, to
persons who are "covered employees" under Section 162(m). "Covered employees"
means the employees who, on the last day of the applicable taxable year, are
BHR's chief executive officer and the four other highest paid officers.
Qualifying performance-based compensation is not subject to this deduction limit
if certain requirements are met. The Plan is also designed to comply with
revised Rule 16b-3 under the Exchange Act.
Unless the administration of the BHR Equity Incentive Plan is expressly
assumed by the Board of Directors of BHR, the BHR Equity Incentive Plan will be
administered by the compensation committee of the Board of Directors, or a
subcommittee thereof (the "Committee"), which will determine to whom awards are
to be granted and the terms and conditions, including the number of shares and
the period of exercisability, thereof. To the extent the BHR Board of Directors
assumes administration of the BHR Equity Incentive Plan, the BHR Board of
Directors will have all the authority and responsibility described below with
respect to the Committee.
Eligibility. Officers, including officers who are members of BHR's Board of
Directors, and other key employees and consultants to BHR and its subsidiaries
may be selected by the Committee to receive benefits under the BHR Equity
Incentive Plan. The Committee may also make awards under the BHR Equity
Incentive Plan to a person who has agreed to commence serving in any such
capacity within 90 days of the date of grant.
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Shares Available under the BHR Equity Incentive Plan. Subject to adjustment
as provided in the BHR Equity Incentive Plan, the number of BHR Common Shares
that may be issued or transferred (a) upon the exercise of Stock Options or
Appreciation Rights, (b) as Restricted Shares, (c) as Deferred Shares, (d) in
payment of Performance Shares or Performance Units that have been earned, or (e)
in payment of dividend equivalents paid with respect to awards made under the
Plan may not exceed 5 million in the aggregate, which may be shares of original
issuance or treasury shares or a combination thereof. Upon the payment of any
option price by the transfer to BHR of BHR Common Shares or upon satisfaction of
any withholding amount by means of transfer or relinquishment of BHR Common
Shares, only the net number of BHR Common Shares actually issued or transferred
by BHR will be deemed to have been issued or transferred under the Plan.
Limitations on Specific Kinds of Awards. In addition to the general
limitation on the number of BHR Common Shares available under the BHR Equity
Incentive Plan, the plan specifically limits the number of Restricted Shares
that are not conditioned on attainment of Management Objectives (described
below) plus the number of Deferred Shares (after taking forfeitures into
account) to 1 million in the aggregate, subject to adjustment. Additionally, the
BHR Equity Incentive Plan provides for certain specific limits and other
requirements in order that awards of Stock Options, Appreciation Rights,
Performance Shares and Performance Units may qualify as performance-based
compensation for the purpose of Section 162(m) of the Code. No participant may
be granted Stock Options and Appreciation Rights, in the aggregate, for more
than 750,000 BHR Common Shares during any calendar year, subject to adjustment.
Moreover, no participant may receive in any calendar year an award of Restricted
Stock conditioned on attainment of Management Objectives, or an award of
Performance Shares or Performance Units, having an aggregate maximum value as of
their respective dates of grant of more than $250,000.
Stock Options. The Committee may grant Stock Options that entitle the
optionee to purchase BHR Common Shares at a price equal to or greater or less
than market value on the date of grant, and the Stock Options may be conditioned
on the achievement of specified Management Objectives (described below). The
Committee may provide that the option price is payable at the time of exercise
(i) in cash, (ii) by the transfer to BHR of nonforfeitable, unrestricted BHR
Common Shares that are already owned by the optionee, (iii) with any other legal
consideration the Committee may deem appropriate or (iv) by any combination of
the foregoing methods of payment. Any grant may provide for deferred payment of
the options price from the proceeds of sale through a broker on the date of
exercise of some or all of the BHR Common Shares to which the exercise relates.
Any grant may provide for automatic grant of reload options upon the
exercise of Stock Options, including reload Stock Options, for BHR Common Shares
or any other noncash consideration authorized under the BHR Equity Incentive
Plan; provided, however, that the term of any reload options shall not extend
beyond the term of the Stock Options originally exercised. The Committee has the
authority to specify at the time Stock Options are granted that BHR Common
Shares will not be accepted in payment of the option price until they have been
owned by the optionee for a specified period; however, the BHR Equity Incentive
Plan does not require any such holding period and would permit immediate
sequential exchanges of BHR Common Shares at the time of exercise of Stock
Options.
Stock Options granted under the BHR Equity Incentive Plan may be Stock
Options that are intended to qualify as "incentive stock options" within the
meaning of Section 422 of the Code, or Stock Options that are not intended to so
qualify. Any grant may provide for the payment of dividend equivalents to the
optionee on a current, deferred or contingent basis or may provide that dividend
equivalents be credited against the option price.
No Stock Option may be exercised more than 10 years from the date of grant.
Each grant must specify the period of continuous employment with, or continuous
engagement of consulting services by, BHR or any subsidiary that is necessary
before the Stock Options will become exercisable and may provide for the earlier
exercise of the Stock Options in the event of a change of control of BHR or
other similar transaction or event. Successive grants may be made to the same
optionee regardless of whether Stock Options previously granted to him or her
remain unexercised.
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Appreciation Rights. Appreciation Rights granted under the BHR Equity
Incentive Plan may be either freestanding Appreciation rights or Appreciation
Rights that are granted in tandem with Stock Options or any similar rights
granted under any other plan of BHR. An Appreciation Right represents the right
to receive from BHR up to 100% of the difference (the "Spread") between the base
price per BHR Common Share in the case of a free-standing Appreciation Right, or
the option price of the related Stock Option or similar right in the case of a
tandem Appreciation Right, and the market value of BHR Common Shares on the date
of exercise of the Appreciation Right. Tandem Appreciation Rights may only be
exercised at a time when the related Stock Options or similar right is
exercisable and the Spread is positive, and the exercise of a tandem
Appreciation Right must specify a base price, which may be equal to or greater
or less than the fair market value of a BHR Common Share on the date of grant,
must specify the period of continuous employment, or continuous engagement of
consulting services, that is necessary before the Appreciation Right becomes
exercisable (except that it may provide for its earlier exercise in the event of
a change in control of BHR or other similar transaction or event) and may not be
exercised more than 10 years from the date of grant. Successive grants of
free-standing Appreciation Rights may be made to the same participant regardless
of whether any free-standing Appreciation Rights previously granted to the
participant remain unexercised.
Any grant of Appreciation Rights may specify that the amount payable by BHR
upon exercise may be paid in cash, BHR Common Shares or a combination thereof
and may (i) either grant to the recipient or retain in the Committee the right
to elect among those alternatives or (ii) preclude the right of the participant
to receive, and BHR to issue, BHR Common Shares or other equity securities in
lieu of cash. In addition, any grant may specify that the Appreciation Right may
be exercised only in the event of a change in control of BHR. The Committee may
condition the award of Appreciation Rights on the achievement of one or more
Management Objectives and may provide with respect to any grant of Appreciation
Rights for the payment of dividend equivalents thereon in cash or BHR Common
Shares on a current, deferred or contingent basis.
Restricted Shares. An award of Restricted Shares involves the immediate
transfer by BHR to a participant of ownership of a specific number of BHR Common
Shares in consideration of the performance of services. The participant is
entitled immediately to voting, dividend and other ownership rights in the
shares, but the Committee may require that any dividends be automatically
deferred and reinvested in additional Restricted Shares. The transfer may be
made without additional consideration or for consideration in an amount that is
less than the market value of the shares on the date of grant, as the Committee
may determine. The Committee may condition the award on the achievement of
specified Management Objectives.
Restricted Shares must be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined by
the Committee. An example would be a provision that the Restricted Shares would
be forfeited if the participant ceased to serve BHR as an officer or other
salaried employee during a specified period of years. In order to enforce these
forfeiture provisions, the transferability of Restricted Shares will be
prohibited or restricted in a manner and to the extent prescribed by the
Committee on the date of grant. The Committee may provide for a shorter period
during which the forfeiture provisions are to apply in the event of a change in
control of BHR or other similar transaction or event.
Deferred Shares. An award of Deferred Shares constitutes an agreement by
BHR to deliver BHR Common Shares to the participant in the future in
consideration of the performance of services, subject to the fulfillment of such
conditions during the deferral period specified by the Committee. During the
deferral period, the participant has no right to transfer any rights covered by
the award and no right to vote the shares covered by the award. On or after the
date of any grant of Deferred Shares, the Committee may authorize the payment of
dividend equivalents thereon on a current, deferred or contingent basis in
either cash or additional BHR Common Shares. Grants of Deferred Shares may be
made without additional consideration or for consideration in an amount that is
less than the market value of the shares on the date of grant. Deferred Shares
must be subject to a deferral period, as determined by the Committee on the date
of grant, except that the Committee may provide for a shorter deferral period in
the event of a change in control of BHR or other similar transaction or event.
Performance Shares and Performance Units. A Performance Share is the
equivalent of one BHR Common Share, and a Performance Unit is the equivalent of
$1.00. A participant may be granted any number
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<PAGE> 142
of Performance Shares or Performance Units, which shall be specified in any such
grant and may be adjusted to reflect changes in compensation or other factors
(unless the adjustment for certain participants would cause an award to lose its
Section 162(m) exemption). The participant will be given one or more Management
Objectives to meet within a specified performance period. The specified
performance period may be subject to earlier termination in the event of a
change in control of BHR or other similar transaction or event. A minimum level
of acceptable achievement will also be established by the Committee. If the
participant has not achieved the Management Objectives but has attained or
exceeded the predetermined minimum level of acceptable achievement, the
participant will be deemed to have partly earned the Performance Shares and/or
Performance Units in accordance with a predetermined formula. To the extent
earned, the Performance Shares or Performance Units will be paid to the
participant at the time and in the manner determined by the Committee in cash,
BHR Common Shares or any combination thereof.
Management Objectives. The Committee may establish performance objectives
for participants who have received awards of Performance Shares or Performance
Units or, if so determined, Option Rights, Appreciation Rights, Restricted
Shares or dividend credits. Section 162(m) of the Code requires that the BHR
Equity Incentive Plan and the performance measures which must be attained to
earn compensation under performance-based awards be disclosed to and approved by
stockholders prior to the first regularly scheduled meeting of BHR's
stockholders that occurs more than 12 months after the date of the spin-off.
Such performance measures, or "Management Objectives," may be described either
in terms of company-wide objectives or objectives that are related to
performance of the individual participant or the division, subsidiary,
department or function within BHR or a subsidiary in which the participant is
employed. The Management Objectives applicable to any award to a participant who
is or is likely to become a "covered employee" within the meaning of Section
162(m) of the Code will be based on specified levels of or growth in one or more
of the following criteria: (i) cash flow/net assets ratio; (ii) debt/capital
ratio; (iii) return on total capital; (iv) return on equity; (v) earnings per
share growth; (vi) revenue growth; and (vii) total return to stockholders.
If the Committee determines that a change in the business, operations,
corporate structure or capital structure of BHR, or the manner in which it
conducts its business, or other events or circumstances render the Management
Objectives unsuitable, the Committee may modify such Management Objectives or
the related minimum acceptable level of achievement, in whole or in part, as the
Committee deems appropriate and equitable, except in the case of a "covered
employee" where such action would result in the loss of the otherwise available
exemption of the award under Section 162(m) of the Code. The Committee will
certify that Management Objectives have been met before any payments of
participants may be made.
Transferability. Except as otherwise determined by the Committee, no Stock
Option, Appreciation Right or other award under the BHR Equity Incentive Plan is
transferable by a participant other than by will or the laws of descent and
distribution. Except as otherwise determined by the Committee, only the
participant (or the participant's guardian or legal representative in the event
of the participant's legal incapacity) may exercise Stock Options or
Appreciation Rights during the participant's lifetime.
The Committee may specify at or after the date of grant that Stock Option,
Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares and
Performance Units are transferable by a participant to members of the
participant's immediate family, without payment by the transferee, if reasonable
prior notice of the transfer was given to BHR, and the transfer was made
according to the terms and conditions specified by the Committee or BHR. Any
transferee will be subject to the same terms and conditions under the BHR Equity
Incentive Plan as apply to the participant.
The Committee may specify that part or all of the BHR Common Shares that
are (i) to be issued or transferred by BHR upon exercise of Stock Options or
Appreciation Rights, upon termination of the deferral period applicable to
Deferred Shares or upon payment under any grant of Performance Shares or
Performance Units or (ii) no longer subject to the substantial risk of
forfeiture and restrictions on transfer in the case of Restricted Shares, shall
be subject to further restrictions on transfer.
Adjustments. The number, kind, and price of shares covered by outstanding
Stock Options, Appreciation Rights, Deferred Shares and Performance Shares and
the prices per share applicable thereto, are subject to adjustment in the event
of stock dividends, splits and combinations, changes in capital structure of
BHR,
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<PAGE> 143
mergers, spin-offs, partial or complete liquidation, and similar events. If any
such event occurs, the Committee has discretion to substitute for any or all
outstanding awards under the Plan such alternative consideration as it, in good
faith, may determine to be equitable in the circumstances and may require the
surrender of all awards so replaced. The Committee may also make or provide for
such adjustments in the numbers of shares available under the BHR Equity
Incentive Plan and available for specific kinds of awards under the plan as the
Committee may determine appropriate to reflect any such transaction or event.
Administration and Amendments. All of the members of the Committee, which
may not be less than two, are intended at all times to qualify as "non-employee
directors" within the meaning of Rule 16b-3; provided, however, that the failure
of a member of the Committee to so qualify shall not be deemed to invalidate any
award granted by the Committee. In connection with its administration of the BHR
Equity Incentive Plan, the Committee is authorized to interpret the BHR Equity
Incentive Plan related agreements and other documents. The Committee may make
grants to participants under any or a combination of all of the various
categories of awards that are authorized under the BHR Equity Incentive Plan and
may condition the grant of awards on the surrender or deferral by the
participant of the participant's right to receive a cash bonus or other
compensation otherwise payable by BHR or a subsidiary of the participant.
The BHR Equity Incentive Plan may be amended from time to time by the
Committee, but without further approval by the stockholders of BHR, no such
amendment may increase the aggregate number of BHR Common Shares that may be
issued or transferred and covered by outstanding awards or increase the number
of shares which may be granted to any participant in any calendar year.
The Committee may require participants, or permit participants to elect, to
defer issuance of shares or the settlement of cash awards and may provide for
payment of interest or dividend equivalents on the deferred amounts. The
Committee may also condition any award on the surrender or deferral by a
participant of his or her right to receive a cash bonus or other compensation.
Certain Terminations of Employment. If a participant holding (i) a Stock
Option or Appreciation Right that is not fully and immediately exercisable, (ii)
Restricted Shares where the restrictions on transfer have not yet lapsed, (iii)
Deferred Shares where the deferral period is not complete, (iv) Performance
Shares or Performance Units that have not been fully earned, or (v) BHR Common
Shares distributed under the BHR Equity Incentive Plan and subject to continuing
restrictions, terminates employment or consulting service by reason of death,
disability, normal retirement, early retirement approved by BHR, entry into
public or military service with the consent of BHR or leave of absence approved
by BHR, or in the event of hardship or other special circumstances, the
Committee may take any action it deems equitable or in BHR's best interest,
including waiving or modifying any limitation or requirement with respect to an
award.
BHR Non-Employee Directors Stock Option Plan
General. In connection with the spin-off, BHR will also establish the BHR
Director Plan is intended to encourage outside directors of BHR to own BHR
Common Shares and thereby to align their interests more closely with the
interests of the other stockholders of BHR, to encourage the highest level of
outside director performance by providing such directors with a direct interest
in BHR's attainment of its financial goals and to provide financial incentives
that will help attract and retain the most qualified outside directors. Only
members of BHR's Board of Directors who are not employees of BHR or an employee
of a 9% beneficial owner or an affiliate thereof (each an "Eligible Director"),
will be eligible to participant in the BHR Director Plan. For purposes of the
BHR Director Plan, an "employee" is a person whose compensation from BHR or such
9% beneficial owner, or an affiliate thereof, as the case may be, is subject to
withholding under the Code.
Unless the administration of the BHR Director Plan is expressly assumed by
the Board of Directors of BHR, the BHR Director Plan will be administered by a
committee (the "BHR Director Plan Committee") of the Board of Directors to be
comprised of not less than two directors. The BHR Director Plan Committee will
have the power to interpret the BHR Director Plan, to determine all questions
thereunder and to adopt and amend rules and regulations for the administration
of the BHR Director Plan. Any interpretation, determination or other action made
or taken by the BHR Director Plan Committee shall be final, binding and
conclusive. Notwithstanding the foregoing, the BHR Director Plan Committee will
have no authority,
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<PAGE> 144
discretion or power to determine the terms or timing of options to be granted
under the BHR Director Plan. The members of the BHR Director Plan Committee will
not be personally liable for any good faith interpretation, determination or
other action with respect to the BHR Director Plan. to the extent the BHR Board
of Directors assumes administration of the BHR Equity Incentive Plan, the BHR
Board of Directors will have all the authority and responsibility of the
Committee with respect to the BHR Director Plan.
Subject to adjustment as described below, the number of BHR Common Shares
issued or transferred, plus the number of shares covered by outstanding options,
under the BHR Director Plan may not exceed 500,000. BHR Common Shares covered by
an option which is cancelled or terminated will again be available to be issued
or to be the subject of a stock option granted under the BHR Director Plan. The
BHR Director Plan Committee will make or provide for adjustments to the maximum
number of shares issuable pursuant to the BHR Director Plan, the number and kind
of BHR Common Shares or other securities that are covered by outstanding
options, and the exercise price applicable to outstanding options as the BHR
Director Plan Committee will in good faith determine to be equitably required to
prevent dilution or expansion of the rights of optionees which would otherwise
result from any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of BHR, any merger,
consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial
or complete liquidation or other distribution of assets, issuance of warrants or
other rights to purchase securities or any other corporate transaction or event
having an effect similar to any of the foregoing.
Any person who becomes an Eligible Director will automatically receive at
such time an option to purchase 25,000 BHR Common Shares at an exercise price
per share equal to the market value of a BHR Common Share on the date the
individual becomes a director (the options described in this sentence are
hereinafter referred to as "Initial Options"). Initial Options will become
exercisable to the extent of 34% of the shares covered thereby after the
optionee continuously has served as director through the next annual
stockholders' meeting immediately following such grant date, and to the extent
of an additional 33% of the shares covered thereby in each of next two
successive years if the optionee has continuously served as a director in such
years. Notwithstanding the foregoing, if an optionee dies or becomes disabled,
all Initial Options held by such optionee will become immediately exercisable in
full to the extent the Initial Options would have been exercisable had the
optionee remained a director through the date of BHR's next annual stockholders'
meeting. To the extent exercisable, each Initial Option will be exercisable in
whole or in part.
On the date of the annual meeting of BHR's stockholders in each year,
commencing with the 1999 annual meeting, each Eligible Director elected at or
continuing his or her term after such meeting automatically will be granted a
non-qualified option to purchase 25,000 BHR Common Shares at an exercise price
per share equal to the fair market value of a BHR Common Share on such date
("Annual Option"). Annual Options will become exercisable to the extent of 100%
of the shares covered thereby on the date of the next annual stockholders'
meeting. Notwithstanding the foregoing, if an optionee dies or becomes disabled,
all Annual Options held by such optionee will become exercisable in full. To the
extent exercisable, each Annual Option will be exercisable in whole or in part.
The exercise price of stock options granted under the BHR Director Plan may
be paid in cash, BHR Common Shares held by the optionee for at least six months,
or a combination thereof. The requirement of payment in cash will be deemed to
be satisfied if the optionee provides for a broker who is a member of the
National Association of Securities Dealers, Inc. to sell a sufficient number of
BHR Common Shares being purchased so that the net sales proceeds equal, at
least, the exercise price, and such broker agrees to deliver the exercise price
to BHR not later than the settlement date of the sale. BHR Common Shares issued
pursuant to the BHR Director Plan may be authorized but unissued shares of
treasury stock. Fractional shares will not be issued in connection with the
exercise of a stock option, and cash in lieu thereof will be paid by BHR. Each
Initial Option and Annual Option (each an "Option") will terminate on the
earliest to occur of (i) three months after the optionee ceases to serve as a
director of BHR for a reason other than the optionee's death or disability, (in
one year following the optionee's death or disability, or (iii) five years from
the date of grant of the Option.
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Except as otherwise determined by the Committee, Options will not be
transferable other than by will or the laws of descent or distribution and will
be exercisable during the lifetime of the optionee only by the optionee or, in
the event of the optionee's incapacity, by the optionee's guardian or legal
representative acting in a fiduciary capacity. The Committee may specify at or
after the date of grant that an Option is transferable by a participant to
members of the participant's immediate family, without payment by the
transferee, if reasonable prior notice of the transfer was given to BHR, and the
transfer was made according to the terms and conditions specified by the
Committee or BHR. Any transferee will be subject to the same terms and
conditions under the BHR Director Plan as apply to the participant.
The BHR Board of Directors may at any time amend or terminate the BHR
Director Plan. Notwithstanding the foregoing, except for the adjustments
described above, without the approval of the stockholders of BHR no such
amendment will increase the maximum number of shares covered by the BHR Director
Plan or materially modify the requirements as to eligibility for participation
in the BHR Director Plan. No amendment or termination will adversely affect any
outstanding award without the consent of the Director holding such award.
Federal Income Tax Consequences
The following is a brief summary of the Federal income tax consequences of
certain transactions under the BHR Equity Incentive Plan, and of Options under
the BHR Director Plan, based on Federal income tax laws in effect on January 1,
1998. This summary is not intended to be complete and does not describe state or
local tax consequences.
Nonqualified Stock Options and Options under the BHR Director Plan. In
general, (i) no income will be recognized by an optionee at the time a
nonqualified Stock Option is granted; (ii) at the time of exercise of a
nonqualified Stock Option, ordinary income will be recognized by the optionee in
an amount equal to the difference between the option price paid for the shares
and the fair market value of the shares, if unrestricted, on the date of
exercise; and (iii) at the time of sale of shares acquired pursuant to the
exercise of a nonqualified Stock Option, appreciation (or depreciation) in value
of the shares after the date of exercise will be treated as a capital gain (or
loss). This paragraph applies to all Options granted under the BHR Director
Plan.
Incentive Stock Options. No income generally will be recognized by an
optionee upon the grant or exercise of an incentive Stock Option. If BHR Common
Shares are issued to the optionee pursuant to the exercise of an incentive Stock
Option, and if no disqualifying disposition of such shares is made by such
optionee within two years after the date of grant or within one year after the
transfer of such shares to the optionee, then upon sale of such shares, any
amount realized in excess of the option price will be taxed to the optionee as a
capital gain and any loss sustained will be a capital loss.
If BHR Common Shares acquired upon the exercise of an incentive Stock
Option are disposed of prior to the expiration of either holding period
described above, the optionee generally will recognize ordinary income in the
year of disposition in an amount equal to the excess (if any) of the fair market
value of such shares at the time of exercise (or, if less, the amount realized
on the disposition of such shares if a sale or exchange) over the option price
paid for such shares. Any further gain (or loss) realized by the participant
generally will be taxed as a capital gain (or loss).
Appreciation Rights. No income will be recognized by a participant in
connection with the grant of an Appreciation Right. When the Appreciation Right
is exercised, the participant normally will be required to include as taxable
ordinary income in the year of exercise an amount equal to the amount of cash
received and the fair market value of any unrestricted BHR Common Shares
received on the exercise.
Restricted Shares. The recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares (reduced by any amount paid by the participant for such
Restricted Shares) at such time as the shares are no longer subject to
forfeiture or restrictions on transfer for purposes of Section 83 of the Code
("Restrictions"). However, a recipient who so elects under Section 83(b) of the
Code within 30 days of the date of transfer of the shares will have taxable
ordinary
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income on the date of transfer of the shares equal to the excess of the fair
market value of such shares (determined without regard to the Restrictions) over
the purchase price, if any, of such Restricted Shares. If a Section 83(b)
election has not been made, any dividends received with respect to Restricted
Shares that are subject to the Restrictions generally will be treated as
compensation that is taxable as ordinary income to the participant.
Deferred Shares. No income generally will be recognized upon the award of
Deferred Shares. The recipient of a Deferred Share award generally will be
subject to tax at ordinary income rates on the fair market value of
nonrestricted BHR Common Shares on the date that such shares are transferred to
the participant under the award (reduced by any amount paid by the participant
for such Deferred Shares).
Performance Shares and Performance Units. No income generally will be
recognized upon the grant of Performance Shares or Performance Units. Upon
payment in respect of the earn-out of Performance Shares or Performance Units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any nonrestricted BHR Common Shares received.
Tax Consequences to BHR. To the extent that a participant recognizes
ordinary income in the circumstances described above, BHR or subsidiary for
which the participant performs services will be entitled to a corresponding
deduction provided that, among other things, the income meets the test of
reasonableness, is an ordinary and necessary business expense, is not an "excess
parachute payment" within the meaning of Section 280G of the Code and is not
disallowed by the $1 million limitation on certain executive compensation under
Section 162(m) of the Code.
MANAGEMENT AND OWNERSHIP OF FELCOR
PRINCIPAL STOCKHOLDERS OF FELCOR
Security Ownership of Certain Beneficial Owners of FelCor
The following table sets forth information, as of March 31, 1998, regarding
each person known to FelCor to be the beneficial owner of more than five percent
(5%) of the FelCor Common Shares. Unless otherwise indicated, such FelCor Common
Shares are owned directly and the indicated person has sole voting and
investment power with respect thereto.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP CLASS(1)
------------------- ---------- ----------
<S> <C> <C>
Franklin Resources, Inc..................................... 4,426,800(2) 11.7%
777 Mariners Island Blvd.
San Mateo, California 94404
FMR Corp.................................................... 3,182,956(3) 8.7%
82 Devonshire Street
Boston, Massachusetts 02109
</TABLE>
- - ---------------
(1) Based upon 36,591,080 shares outstanding as of March 31, 1998.
(2) Based solely upon information contained in Schedule 13G, dated January 16,
1998. Franklin Resources, Inc. reported that, through its subsidiaries, it
has sole voting and dispositive power with respect to 4,302,072 shares.
Includes 1,446,601 FelCor Common Shares issuable upon conversion of
1,866,100 FelCor Series A Preferred Shares.
(3) Based solely upon information contained in Schedule 13G, dated February 14,
1998. FMR Corp. reported that, through its subsidiaries, it had sole
dispositive power with respect to such shares and sole voting power with
respect to 566,070 of such shares.
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Security Ownership of Management of FelCor
The following table sets forth the beneficial ownership of FelCor Common
Shares and FelCor Series A Preferred Shares, as of March 31, 1998, by (i) each
director and director nominee, (ii) each FelCor Named Executive Officer and
(iii) all directors and executive officers as a group. Unless otherwise
indicated, such FelCor Common Shares and FelCor Series A Preferred Shares are
owned directly and the indicated person has sole voting and investment power.
<TABLE>
<CAPTION>
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL PERCENT BENEFICIAL PERCENT
NAME OF OWNERSHIP OF OF OWNERSHIP OF OF
BENEFICIAL OWNER COMMON SHARES CLASS(1) PREFERRED SHARES CLASS(1)
---------------- ------------- -------- ---------------- --------
<S> <C> <C> <C> <C>
Hervey A. Feldman........................ 524,515(2)(3) 1.4% 3,000(10) *
Thomas J. Corcoran, Jr................... 534,615(2)(4) 1.5% 3,000 *
Richard S. Ellwood....................... 6,000 * 0 0
Richard O. Jacobson...................... 15,000 * 0 0
Charles A. Ledsinger, Jr................. 375 * 0 0
Charles N. Mathewson..................... 609,777(5) 1.7% 90,000(11) 1.5%
Thomas A. McChristy...................... 47,400(6) * 0 0
Lawrence D. Robinson..................... 50,500(7) * 0 0
William S. McCalmont..................... 23,500(8) * 0 0
William P. Stadler....................... 13,577(9) * 100 *
All executive officers and directors as a
group (12 persons)..................... 1,576,464 4.3% 96,100 1.6%
</TABLE>
- - ---------------
* Represents less than 1% of the outstanding shares of such class.
(1) Based upon 36,591,080 shares outstanding as of March 31, 1998.
(2) Includes 294,915 shares issuable to FelCor, Inc. upon exercise of
redemption rights with respect to FelCor Operating Partnership Units issued
to it in connection with the FelCor IPO. Messrs. Feldman and Corcoran are
the sole stockholders and directors of FelCor, Inc. and each may be deemed
to own beneficially all of the FelCor Operating Partnership 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 167,200
shares are fully vested, (ii) 167,200 shares issuable pursuant to currently
exercisable stock options, and (iii) 2,325 shares issuable upon the
conversion of 3,000 FelCor Series A Preferred Shares. Does not include
283,800 shares issuable to Mr. Feldman and 333,800 shares issuable to Mr.
Corcoran 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.
(5) Includes 540,009 shares issuable to or for the benefit of Mr. Mathewson
upon exercise of redemption rights with respect to FelCor Operating
Partnership Units, which represents Mr. Mathewson's pro rata interest in
FelCor Operating Partnership Units issued in connection with the FelCor IPO
to partnerships in which Mr. Mathewson is a limited partner. Also includes
69,768 shares issuable upon conversion of 90,000 FelCor Series A Preferred
Shares.
(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 4,400
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 2,900 shares are fully vested, and (ii) 22,000 shares
issuable pursuant to currently exercisable stock options. Does not include
148,000 shares issuable pursuant to outstanding stock options which are not
currently exercisable.
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<PAGE> 148
(8) Represents (i) 5,000 shares issued in August 1996 pursuant to a stock
grant, which shares were fully vested prior to the termination of Mr.
McCalmont's employment on October 31, 1997, and (ii) 18,500 shares issuable
pursuant to currently exercisable stock options. Does not include shares
covered by stock grants or stock options which were forfeited or expired
upon the termination of Mr. McCalmont's employment with FelCor.
(9) Represents (i) 2,500 shares issued in July 1995 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 of which 1,000 shares are fully vested, (ii) 12,000
shares issuable pursuant to currently exercisable stock options and (iii)
77 shares issuable upon conversion of 100 FelCor Series A Preferred Shares.
Does not include 38,000 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.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires officers and directors, and
persons who beneficially own more than ten percent (10%) of any class of
FelCor's stock, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten percent (10%) beneficial owners are required by
SEC regulations to furnish FelCor with copies of all Section 16(a) forms they
file.
Based solely on a review of the copies furnished to FelCor and
representations from the officers and directors, FelCor believes that all
Section 16(a) filing requirements for the year ended December 31, 1997
applicable to its officers, directors and greater than ten percent (10%)
beneficial owners were satisfied.
Based on written representations from the officers and directors, FelCor
believes that no Form 5 for any director, officer or greater than ten percent
(10%) beneficial owner was required to be filed with the SEC for the period
ended December 31, 1997.
CURRENT EXECUTIVE OFFICERS OF FELCOR
The executive officers of FelCor, their respective ages, positions held and
tenure as officers are as follows:
<TABLE>
<CAPTION>
OFFICER OF THE
NAME AGE POSITION(S) HELD FELCOR COMPANY SINCE
---- --- ----------------------- --------------
<S> <C> <C> <C>
Hervey A. Feldman(1)............ 60 Chairman of the Board 1994
Thomas J. Corcoran, Jr.......... 49 President and Chief Executive 1994
Officer
Randall L. Churchey............. 37 Senior Vice President, Chief 1997
Financial Officer and Treasurer
Lawrence D. Robinson............ 54 Senior Vice President, General 1996
Counsel and Secretary
William P. Stadler.............. 43 Senior Vice President, Director 1995
of Corporate Acquisitions
Jack Eslick..................... 46 Vice President, Director of 1996
Asset Management
June H. McCutchen............... 47 Vice President, Director of 1995
Design and Construction
Larry J. Mundy.................. 47 Vice President, Director of 1998
Hotel Acquisitions
</TABLE>
- - ---------------
(1) Mr. Feldman will resign as Chairman of the Board and will become Chairman
Emeritus following the FelCor Annual Meeting.
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<PAGE> 149
Business Experience of Executive Officers
Information concerning the business experience of Mr. Corcoran is provided
under the section captioned "Other FelCor Annual Meeting Proposals -- Election
of FelCor Directors."
Hervey A. Feldman is the Chairman of the Board of FelCor and has served in
that 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 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.
Randall L. Churchey has served as Senior Vice President, Chief Financial
Officer and Treasurer of FelCor since November 1997. For approximately 15 years
prior to joining FelCor, 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 of that firm for the Southwestern United
States.
Lawrence D. Robinson has served as Senior Vice President, General Counsel
and Secretary of FelCor 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 firmwide hospitality group.
William P. Stadler began his employment with FelCor in July 1995 as Vice
President, Director of Acquisition and Development. On January 14, 1998, Mr.
Stadler was promoted to Senior Vice President, Director of Corporate
Acquisitions. 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 FelCor 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.
Jack Eslick joined FelCor 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 FelCor, 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 joined FelCor 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. 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.
Larry J. Mundy joined FelCor in January 1998 as Vice President, Director of
Hotel Acquisitions. From 1995 until he joined FelCor he was Vice President of
Franchise Development for Motel 6. From 1987 to 1995 he was Vice President of
Development in the South/Southeast for Hilton Hotels and prior to 1987 he served
as corporate counsel for Residence Inns and Embassy Suites.
The officers of FelCor are elected annually by the FelCor Board at a
meeting held following each annual meeting of stockholders, or as soon
thereafter as necessary and convenient in order to fill vacancies or newly
created offices. Each officer holds office until his successor is duly elected
and qualified or until his death,
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resignation or removal, if earlier. Any officer or agent elected or appointed by
the FelCor Board may be removed by the FelCor Board whenever in its judgment the
best interests of FelCor will be served thereby, but such removal shall be
without prejudice to the contractual rights, if any, of the person so removed.
There are no family relationships among the executive officers. There are
no arrangements or understandings between any officer and any other person
pursuant to which that officer was selected.
CERTAIN TRANSACTIONS RELATING TO FELCOR
Relationships with DJONT
All of the voting Class A membership interest in DJONT (representing a 50%
equity interest) is owned by FelCor, Inc., which is owned by Hervey A. Feldman
and Thomas J. Corcoran, Jr., the current Chairman of the Board and Chief
Executive Officer of FelCor, respectively. 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
Charles N. Mathewson, a director of FelCor. Mr. Feldman and Mr. Corcoran are
also officers and directors of DJONT. FelCor and the FelCor Operating
Partnership have entered into transactions with DJONT, as discussed below under
the captions "-- the Percentage Leases" and "-- Sharing of Offices and
Employees."
The Percentage Leases
The FelCor Operating Partnership and DJONT have entered into the Percentage
Leases, generally with terms of 10 to 15 years, relating to each hotel in which
FelCor owns an interest. Pursuant to the terms of the Percentage Leases, DJONT
is required to pay rent and certain other additional charges to the FelCor
Operating Partnership, and is entitled to all profits from the operation of the
hotels leased by it after the payment of operating, management and other
expenses. Lease rent paid by DJONT, to the FelCor Operating Partnership and/or
unconsolidated entities under the Percentage Leases totaled approximately $217.0
million for the year ended December 31, 1997.
Sharing of Offices and Employees
FelCor shares its executive offices and certain employees with FelCor, Inc.
and DJONT, 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), office supplies, telephones and depreciation of office
furniture, fixtures and equipment. Any such allocation of shared expenses to
FelCor must be approved by a majority of the Independent Directors. During 1997,
FelCor paid approximately $1.3 million (approximately 38%) of the allocable
expenses under this agreement. Mr. Feldman is a director and the Chairman of the
Board of FelCor and a manager and the Chairman of DJONT. Mr. Corcoran is a
director and the President and Chief Executive Officer of FelCor and a manager
and the President of DJONT. The salaries paid to Messrs. Feldman and Corcoran by
FelCor are borne solely by FelCor and are not allocated to DJONT. Messrs.
Feldman and Corcoran receive no other salaries.
Employment Agreements
FelCor has entered into employment agreements with each of Messrs. Feldman
and Corcoran. See "-- Executive Compensation -- Employment Agreements."
Compensation of Director for Special Services
In connection with FelCor's acquisition, during February 1997, of interests
in 10 hotels at an aggregate cost of approximately $139 million (including
FelCor's share of certain assumed indebtedness), Mr. Richard S. Ellwood, an
Independent Director of FelCor, was paid a one-time fee in the amount of
$200,000 for his services in facilitating this transaction.
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FELCOR'S EXECUTIVE COMPENSATION
The following table sets forth information, for the fiscal years ended
December 31, 1997, 1996 and 1995, regarding the compensation of FelCor's Chief
Executive Officer and the four other most highly compensated executive officers
during 1997 ("FelCor Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -------------------------
----------------------------------- SECURITIES
OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
COMPENSATION STOCK OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) AWARDS($)(4) SARS(#) ($)(13)
--------------------------- ---- --------- -------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas J. Corcoran, Jr.......... 1997 200,000 250,000 None 525,000(5) 201,000(12) 14,250
President and Chief 1996 123,240 None None None None 4,875
Executive Officer 1995 120,000 None None 194,625(6) 150,000 4,875
243,000(7)
Hervey A. Feldman............... 1997 150,000 None None 525,000(5) 151,000(12) 9,000
Chairman of the Board 1996 123,240 None None None None 4,875
1995 120,000 None None 194,625(6) 150,000 4,875
243,000(7)
Lawrence D. Robinson............ 1997 115,500 47,500 None 87,500(8) 70,000(12) None
Senior Vice President 1996(2) 66,667 None None 349,500(9) 100,000 None
General Counsel
William S. McCalmont............ 1997 140,291 34,500 None None 20,000(12) 38,733
Senior Vice President 1996 67,708 None None 457,500(10) 92,500 55,524
Chief Financial Officer(1)
William P. Stadler.............. 1997 99,383 115,000 None None 25,000(12) 14,250
Vice President, Director 1996 79,020 100,000 None None None 4,875
of New Development 1995(3) 34,125 45,000 None 66,100(11) 25,000 2,438
</TABLE>
- - ---------------
(1) Mr. McCalmont was employed as FelCor's Chief Financial Officer from August
14, 1996 until October 31, 1997. The information for 1996 includes
compensation only during the period from August 14, 1996 through December
31, 1996 and for 1997 includes compensation through the date of his
resignation.
(2) Includes compensation only during the period from the date of commencement
of Mr. Robinson's employment (May 1996) through December 31, 1996.
(3) Includes compensation only during the periods from the date of commencement
of Mr. Stadler's employment (July 1995) through December 31, 1995.
(4) An aggregate of 37,500 shares of restricted stock were awarded in the 1997
fiscal year. An aggregate of 35,000 of these restricted stock grants vest
over a five-year period and 2,500 shares vest fully within two months of
issuance. Holders of restricted stock are entitled to vote and receive
dividends on such shares from the date of grant. The amount reported in
this table represents the market value of the shares awarded on the date of
grant, determined by the closing price of the FelCor Common Shares on such
date, without giving effect to the diminution of value attributable to the
restrictions on such stock. As of December 31, 1997, the aggregate unvested
restricted stock holdings by the Named Executive Officers consisted of
65,200 shares as set forth below, with a then current aggregate market
value, determined in the same manner as of December 31, 1997, of
$1,924,000, as follows: Mr. Corcoran (25,800 shares, $758,604 value); Mr.
Feldman (25,800 shares, $758,604 value); Mr. Robinson (12,100 shares,
$367,132 value); and Mr. Stadler (1,500 shares, $39,660 value).
(5) Represents an award of 15,000 shares of restricted stock on February 19,
1997 which become vested over a five-year period at the rate of 20% per
year. The value is based upon the closing price of the FelCor Common Shares
on the date of grant of $35.00 per share.
(6) Represents an award of 9,000 shares of restricted stock on February 16,
1995 which becomes vested over a five-year period at the rate of 20% per
year. The value is based upon the closing price of the FelCor Common Shares
on the date of grant of $21.625 per share.
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<PAGE> 152
(7) Represents an award of 9,000 shares of restricted stock as of December 15,
1995, which become vested over a five-year period from the date of grant at
the rate of 20% per year. The value is based upon the closing price of the
FelCor Common Shares on the date of grant of $27.00 per share.
(8) Represents an award of 2,500 shares of restricted stock as of February 19,
1997, which become vested over a five-year period from the date of grant at
the rate of 20% per year. The value is based upon the closing price of the
FelCor Common Shares on the date of grant of $35.00 per share.
(9) Represents an award of 12,000 shares of restricted stock as of May 1, 1996
which become vested over a five-year period from the date of grant at the
rate of 20% per year. The value is based upon the closing price of the
FelCor Common Shares on the date of grant of $29.125 per share.
(10) Represents an award of 15,000 shares of restricted stock as of August 14,
1996 of which 2,500 shares vested on January 1, 1997 and 2,500 shares
vested on August 14, 1997. The unvested shares were forfeited upon the
termination of Mr. McCalmont's employment on October 31, 1997. The value is
based upon the closing price of the FelCor Common Shares on the date of
grant of $30.50 per share.
(11) Represents an award of 2,500 shares of restricted stock on July 24, 1995
which become vested over a five-year period at the rate of 20% per year.
The value is based upon the closing price of the FelCor Common Shares on
the date of grant of $26.44 per share.
(12) Represent shares purchasable pursuant to options granted in 1997. See
"-- Option Grants" below.
(13) These amounts represent FelCor's contributions to FelCor's employee savings
and investment plan in the amount of up to $14,250 to each executive
officer and, in the case of Mr. McCalmont, a moving allowance of $77,382
paid to Mr. McCalmont in connection with the commencement of his employment
with FelCor, $26,733 of which was paid in 1997.
The executive officers receive health and disability insurance benefits
which do not exceed 10% of their respective salaries. These benefits are also
provided to all other employees of FelCor.
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Option Grants
The following table sets forth information regarding grants of stock
options to the FelCor Named Executive Officers during the 1997 fiscal year. The
options were granted pursuant to either FelCor's 1994 Restricted Stock and Stock
Option Plan (the "FelCor 1994 Plan") or the 1995 Restricted Stock and Stock
Option Plan (the "FelCor 1995 Plan"). No stock appreciation rights ("SARs") were
granted during the 1997 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATE OF
SECURITIES OPTIONS MARKET PRICE STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR ON DATE OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE OF GRANT EXPIRATION -------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) ($/SHARE) DATE 0%($) 5%($) 10%($)
---- ---------- ------------ ----------- ------------ ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas J. Corcoran, Jr. 46,000 6.2% 29.50 35.00 2/19/07 253,000 3,979,520 5,532,925
30,000 4.0% 35.50 35.00 2/19/07 0 2,775,339 3,788,430
10,000 1.3% 35.00 35.00 2/19/07 0 920,113 1,257,810
65,000 8.8% 36.63 36.63 6/24/07 0 6,259,267 8,556,521
50,000 6.7% 37.56 37.56 8/13/07 0 4,937,064 6,749,048
Hervey A. Feldman 46,000 6.2% 29.50 35.00 2/19/07 253,000 3,979,520 5,532,925
30,000 4.0% 35.50 35.00 2/19/07 0 2,775,339 3,788,430
10,000 1.3% 35.00 35.00 2/19/07 0 920,113 1,257,810
65,000 8.8% 36.63 36.63 6/24/07 0 6,259,267 8,556,521
Lawrence D. Robinson 10,000 1.3% 35.00 35.00 2/19/07 0 920,113 1,257,810
10,000 1.3% 36.63 36.63 6/24/07 0 962,964 1,316,388
50,000 6.7% 37.56 37.56 8/13/07 0 4,937,064 6,749,048
William S. McCalmont 10,000 1.3% 35.00 35.00 2/19/07(1) 0 0 0
10,000 1.3% 36.63 36.63 6/24/07(1) 0 0 0
William P. Stadler 10,000 1.3% 35.00 35.00 2/19/07 0 920,113 1,257,810
5,000 0.7% 36.63 36.63 6/24/07 0 481,482 658,194
10,000 1.3% 37.56 37.56 8/13/07 0 987,413 1,349,810
</TABLE>
- - ---------------
(1) All of the options awarded to Mr. McCalmont during 1997 expired upon the
termination of his employment on October 31, 1997.
Each of the aforementioned options becomes exercisable over a five year
period, with 20% of the total number of shares covered thereby becoming
exercisable on each of the first five anniversaries of the date of grant, and
expires on the tenth anniversary of the date of grant.
The unexpired stock options to purchase FelCor Common Shares held by the
FelCor Named Executive Officers of FelCor at December 31, 1997 are summarized in
the following table:
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas J. Corcoran, Jr............. 150,000 351,000 $1,822,500 $1,946,000
Hervey A. Feldman.................. 150,000 301,000 1,822,500 1,946,000
Lawrence D. Robinson............... 20,000 150,000 127,600 515,400
William S. McCalmont............... 18,500 0(2) 92,500 0(2)
William P. Stadler................. 10,000 40,000 90,600 140,900
</TABLE>
- - ---------------
(1) Based on the difference between the option exercise price and the closing
sales prices for the FelCor Common Shares on the NYSE for December 31, 1997,
which was $35.50 per share.
(2) Mr. McCalmont's unvested options expired upon the termination of his
employment.
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Employment Agreements
FelCor has entered into employment agreements with each of Messrs. Feldman
and Corcoran (each an "Employment Agreement") 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 FelCor. Each was paid a base salary of $10,000 per month
in 1995 and $10,270 per month in 1996, and in 1997, Mr. Feldman received $12,500
per month and Mr. Corcoran received $16,667 per month. Effective January 1,
1998, Mr. Feldman is to receive $12,500 per month and Mr. Corcoran is to receive
$20,833 per month. In connection with Mr. Feldman's retirement from his position
as Chairman of the Board, effective upon the FelCor Annual Meeting, the
Compensation Committee has determined to continue to provide compensation to Mr.
Feldman under his Employment Agreement at the rate of $12,500 per month through
the end of its term on December 31, 1999. The Compensation Committee of the
FelCor Board may provide for additional compensation as a bonus should it
determine, in its discretion, based on merit, FelCor's anticipated financial
performance and other criteria, that such additional compensation is
appropriate. FelCor maintains a comprehensive medical plan for the benefit of
Messrs. Feldman and Corcoran and their dependents.
Savings Plan
FelCor has established an employee savings and investment plan ("Savings
Plan") covering substantially all employees, including executive officers. The
Savings Plan is designed to qualify under Section 401(k) of the Code. Each
participant has the option to defer taxation of a portion of his or her earnings
by directing FelCor to contribute a percentage of such earnings to the Savings
Plan. A participant may direct a minimum of 1% and a maximum of 20% of eligible
pre-tax earnings to the Savings Plan, subject to certain limitations set forth
in the Code. Participants may also elect after-tax contributions to the Savings
Plan in an amount not to exceed 10% of his or her eligible earnings. A
participant's contributions become distributable upon the termination of his or
her employment for any reason. The participants are fully vested at all times in
all amounts contributed by them to the Savings Plan.
Restricted Stock and Stock Option Plans
FelCor has adopted the FelCor 1994 Plan and the FelCor 1995 Plan
(collectively, the "Stock Plans"). The Stock Plans were adopted to provide
incentives to attract and retain Independent Directors, executive officers and
key employees. The Stock Plans are administered by the Compensation Committee
or, in the case of grants to Independent Directors, by the FelCor Board. The
Compensation Committee generally has the authority, within limitations set forth
in the Stock Plans, (i) to establish rules and regulations concerning the Stock
Plans, (ii) to determine the persons to whom Options (as defined below) and
Restricted Stock (as defined below) may be granted, (iii) to fix the number of
FelCor Common Shares to be covered by each Option and the number of Restricted
Shares granted, and (iv) to set the terms and provisions of each grant of
Options or Restricted Shares to be granted. The summary of the Stock Plans set
forth below is qualified in its entirety by reference to the text of the Stock
Plans.
The Stock Plans provide for the grant of stock options to purchase a
specified number of shares of Common Stock ("Options") or grants of restricted
shares of FelCor Common Shares ("Restricted Shares"). Under the FelCor 1994 Plan
the total number of shares originally available for grant was equal to 450,000
FelCor Common Shares, of which not more than 50,000 shares were to be grants of
Restricted Shares. Of the FelCor Common Shares, originally available under the
FelCor 1994 Plan, 433,500 shares were designated for grant to the officers and
employees of FelCor, of which 33,500 shares could be granted as Restricted
Shares. The remaining 16,500 FelCor Common Shares were designated for grant to
Independent Directors, all of which shares could be granted as Restricted
Shares. At March 10, 1998, there were no shares remaining available for the
grant of options to officers and eligible employees of FelCor and 2,500 shares
remaining available for grants to independent directors of FelCor under the
FelCor 1994 Plan. Under the FelCor 1995 Plan, the total number of shares
originally available for grant was equal to 1,200,000 FelCor Common Shares which
was subsequently amended to 1,500,000 FelCor Common Shares, of which not more
than
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133,333 shares could be grants of Restricted Shares. Of the FelCor Common Shares
originally available under the amended FelCor 1995 Plan, 1,450,000 shares were
designated for grants to the officers and eligible employees of FelCor, of which
83,333 shares could be granted as Restricted Shares. The remaining 50,000 FelCor
Common Shares were designated for grant to the Independent Directors, of which
50,000 shares could be granted as Restricted Shares. At March 10, 1998, there
remained available under the FelCor 1995 Plan only 65,167 shares available for
grants of options and 17,833 shares available for grants of Restricted Shares to
officers and eligible employees of FelCor. All of the 150,000 shares originally
available for grants to independent directors remained available. Upon the
occurrence of certain extraordinary events, the FelCor Board or the Compensation
Committee may make such adjustments in the aggregate number and kind of shares
reserved for issuance, the number of shares and kind covered by outstanding
awards and the exercise prices specified therein as may be determined to be
appropriate.
Participants in the Stock Plans, who may be directors, officers or
employees of FelCor, its subsidiaries (including the FelCor Operating
Partnership) or designated affiliates, are selected by the Compensation
Committee.
The Compensation Committee may amend any award granted, prospectively or
retroactively. No such amendment may impair the rights of any participant under
any award without the consent of that participant (except for any amendment made
to cause the plan to qualify for an exemption provided by Rule 16b-3 under the
Exchange Act).
Options granted under the Stock Plans may be incentive stock options
("ISOs") under Section 422 of the Code or non-qualified options, at the
discretion of the Compensation Committee, provided that no Independent Director
may receive a grant of ISOs. The Stock Plans provide that the exercise price of
an Option will be fixed by the Compensation Committee on the date of grant;
however, the exercise price of an ISO must be not less than the fair market
value of a share of FelCor Common Shares on the date of the grant. Any ISOs
granted to such participants also must expire within ten years from the date of
adoption of the Stock Plans. Moreover, Options granted under either Stock Plan
will not be ISOs to an individual participant to the extent that the aggregate
fair market value of the FelCor Common Shares with respect to which such Options
under the respective Stock Plan (or under any other plan maintained by FelCor or
a subsidiary thereof) first become exercisable by such participant in any year
exceeds $100,000. No Options shall be granted under the FelCor 1994 Plan on or
after March 31, 2004, or under the FelCor 1995 Plan on or after November 1,
2005.
No Option may be exercised within six months after the date of grant or in
such circumstances where exercise would violate Federal or State securities
laws. Options will be non-transferable and non-assignable; provided, however,
that the estate of a deceased holder can exercise Options. Options generally
will be exercisable by the holder thereof subject to terms fixed by the
Compensation Committee. The right of any participant to exercise an Option may
not be transferred in any way other than by will or the laws of descent and
distribution.
Grants of Restricted Shares under the Stock Plans are subject to the terms
and conditions imposed by the Compensation Committee. Except for such
restrictions on transfer as the Compensation Committee may impose, the
participants have all the rights of a holder of FelCor Common Shares as to such
Restricted Shares including the right to vote the shares and the right to
receive any cash distributions. Except as provided by the Compensation Committee
at the time of grant or otherwise, upon a termination of employment for any
reason during the Restriction Period, all unvested shares will be forfeited by
the participant.
The Stock Plans may be terminated and may be modified or amended by the
FelCor Board at any time; however, (i) any modification or amendment either
increasing the aggregate number of shares which may be issued under Options,
increasing materially the benefits accruing to participants under the Stock
Plans or materially modifying the requirements as to eligibility to receive
Options is subject to stockholder approval within one year of the adoption of
such amendment; and (ii) no such termination, modification or amendment of the
Stock Plans will alter or affect the terms of any then outstanding Options or
Restricted Shares without the consent of the holders thereof.
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Other Future Plans and Agreements
The FelCor Board authorized, in March 1998, the adoption of a deferred
compensation plan for its executives. The plan would be funded at the individual
option of each executive using compensation otherwise payable to such executive
and would not require any contributions by FelCor. The FelCor Board also
authorized individual severance agreements with certain of its executive
officers. These agreements would have the effect of requiring substantial
severance payments to the executive upon any hostile change of control and may
tend to discourage any attempt to takeover FelCor, even though a takeover may be
beneficial to FelCor's stockholders.
REPORT OF COMPENSATION COMMITTEE ON FELCOR EXECUTIVE COMPENSATION
The Compensation Committee of the FelCor Board is currently comprised of
Messrs. Ellwood, Jacobson, Ledsinger and McChristy, none of whom is or was an
employee or officer of FelCor. Mr. Ellwood serves as the Chairman of the
Committee. The Compensation Committee is authorized to determine the
compensation of FelCor's executive officers, administer FelCor's employee
benefit plans, including determining the terms and conditions of the benefits
and the recipients thereof in accordance with the plans, review all existing and
proposed employee benefit plans and advise the FelCor Board regarding the
results and benefits thereof, and perform such other functions as necessary,
advisable or appropriate in the efficient discharge of its duties.
Compensation Philosophy
The Compensation Committee works with senior management to develop and
implement FelCor's executive compensation philosophy and the policies upon which
the Committee's decisions are based. Generally, FelCor's philosophy regarding
executive compensation is to provide a base cash compensation level that is at
or below the average of other equity hotel REITs, and to provide additional
incentive compensation, in the form of cash bonuses and grants of options and
restricted stock, based upon the realization of stated objectives, such as hotel
acquisitions, financings and renovations, improvements in funds from operations
and other similar criteria linked to realized or anticipated improvements in
total stockholder return. No variation from the standard terms of grants of
options or restricted stock may be made without prior Compensation Committee
approval. FelCor believes that the award of significant incentive compensation
in the form of options and restricted stock provides management with incentives
consistent with the interests of stockholders. As a consequence of this
philosophy, executive compensation may be at or below other equity hotel REITs
during periods of average performance and above that of the competitive set
during periods of above average growth or performance. The competitive set
utilized by the Committee to measure performance includes other equity hotel
REITs, with particular emphasis placed on those whose capitalization, revenues,
assets, market value and total stockholder returns are most nearly comparable to
those of FelCor. Since REITs do not pay taxes at the corporate level, no policy
has been established with respect to qualifying compensation paid to executive
officers under Section 162(m) of the Internal Revenue Code.
Executive Compensation
During the year ended December 31, 1997, the base compensation payable to
Thomas J. Corcoran, Jr., FelCor's Chief Executive Officer, and Hervey A.
Feldman, its Chairman of the Board, were set in part by the terms of their
respective employment contracts, which were entered into by FelCor at the
closing of FelCor's IPO in July 1994 prior to the formation of the Compensation
Committee, and subsequently were ratified by the Board of Directors, including
the members of the Compensation Committee. The Board did not review any
particular criteria or factors in determining whether to ratify the contracts,
except that the existence and basic terms of the contracts were disclosed in the
IPO Prospectus, that copies of the form of the contracts were filed with the SEC
in connection with the registration of the IPO and that the terms of the
employment agreements had been negotiated with representatives of the IPO's
underwriters. In 1997, Mr. Feldman received $12,500 per month and Mr. Corcoran
received $16,667 per month. The base cash compensation for the executive
officers of FelCor is related primarily to competitive factors and is not based
on or tied to FelCor's financial performance. The base cash compensation of each
of FelCor's executive officers is adjusted annually based upon changes in the
Consumer Price Index. In determining whether to further adjust base cash
155
<PAGE> 157
compensation or to award additional cash compensation to an executive officer,
the Committee takes into account competitive factors as well as the individual's
overall performance, including the achievement of stated objectives established
by senior management or, in the case of the Chairman of the Board and Chief
Executive Officer, by the Committee. In evaluating an executive's total
compensation (base cash compensation plus incentive compensation and benefits)
both objective and subjective factors are considered. Additional cash
compensation may be awarded as bonuses to such persons, as well as to other
officers of FelCor, as determined by the Compensation Committee. In this regard,
the Compensation Committee awarded Mr. Corcoran a cash bonus of $250,000 in
1997. The bonus was awarded to Mr. Corcoran in 1997 based primarily upon the
performance of FelCor and Mr. Corcoran in 1996. The factors considered by the
Compensation Committee in determining the amount of the bonus awarded to Mr.
Corcoran included the completion in the fourth quarter of 1995 and the first
quarter of 1996 of the portfolio acquisition of the 18 former Crown Sterling
Suites hotels, which contributed to the substantial growth of FelCor from 20
hotels at December 31, 1995 to 43 hotels at December 31, 1996 (an increase of
115%), and the substantial growth over the same period in such key financial
performance measures such as revenues (288.1% increase), income before
extraordinary charge (254.9% increase) and net income applicable to common
stockholders (172.1% increase). The Compensation Committee weighed these factors
against the relatively low compensation paid to Mr. Corcoran in 1996 ($123,240
in salary with no bonus and no awards of restricted stock or stock options). It
is expected that future cash bonuses, if any, payable to FelCor's executive
officers will be similarly based upon FelCor's future growth and financial
performance, although no generally applicable policy or formula has been
established except as it relates to the Dividend Equivalent Rights ("DER") bonus
program described below.
FelCor added one new executive officer in 1997: Randall L. Churchey became
FelCor's Senior Vice President, Chief Financial Officer and Treasurer in
November 1997. The base compensation for Mr. Churchey ($175,000) was recommended
by the President and Chief Executive Officer and approved by the Compensation
Committee in accordance with the guidelines set forth above. In addition, in
connection with the commencement of employment of Mr. Churchey, the Compensation
Committee approved the grant of certain shares of restricted stock and options,
as discussed below.
Other Incentive Compensation
In connection with the employment of Mr. Churchey in November 1997, and as
an inducement to Mr. Churchey to accept such employment, the Compensation
Committee awarded a grant of 2,500 shares of Restricted Stock to him, which
shares vested on January 1, 1998. In addition, the Compensation Committee
awarded Mr. Churchey options to purchase 150,000 FelCor Common Shares at an
exercise price of $36.63 per share, the fair market value of the FelCor Common
Shares on the date of Mr. Churchey's employment. Such options will also become
vested over a five-year period at the rate of 20% per year.
In 1997, the Compensation Committee approved a DER bonus program whereby
the officers and certain employees can earn a cash bonus equal to the dividends
payable on shares subject to options held by such officers and employees (up to
a maximum of 10,000 shares) if FelCor achieves certain specified rates of return
with respect to the FelCor Common Shares. No bonuses were earned in 1997 under
the DER program.
In 1997, the Compensation Committee initially determined to continue the
practice of awarding options to Messrs. Feldman and Corcoran upon successful
completions of public offerings of equity securities by FelCor, with the options
to be granted equal to approximately 1% of the number of shares of Common Stock,
or Common Stock equivalents, sold by FelCor in the offering. In February 1997,
the Compensation Committee noted that Messrs. Feldman and Corcoran had not
previously received options in connection with FelCor's public offering of
6,000,000 Series A Preferred Shares at $25.00 per share in May 1996, and
consequently, consistent with this practice, awarded each of Messrs. Feldman and
Corcoran options to purchase 46,000 FelCor Common Shares at an exercise price of
$29.50 per share. The number of options awarded approximates the number of
FelCor Common Shares that would be issuable upon conversion of 1% of the Series
A Preferred Shares sold in the offering, and the exercise price was fixed at a
small premium over the closing price of the FelCor Common Shares on the date of
the offering. At the same time, the Compensation Committee awarded each of
Messrs. Feldman and Corcoran options to purchase 30,000 FelCor
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<PAGE> 158
Common Shares at an exercise price of $35.50 per share in connection with
FelCor's offering, on February 3, 1997, of 3,000,000 FelCor Common Shares at
$35.50 per share. Following the awards of such options, the Compensation
Committee determined to discontinue such practices for future equity offerings.
Consequently, no other options were issued to Messrs. Feldman and Corcoran with
respect to equity offerings undertaken by FelCor subsequent to February 1997.
In February 1997, Messrs. Feldman and Corcoran were each awarded 15,000
shares of Restricted Stock based upon 1996 performance. The Compensation
Committee adopted a policy to limit the number of grants of Restricted Stock
and, instead, to utilize grants of options as a means of providing incentive
compensation to the executive officers of FelCor. In this regard, during 1997,
the Committee granted options to the executive officers of FelCor to purchase an
aggregate of 345,000 FelCor Common Shares as follows: Mr. Corcoran, 125,000
shares; Mr. Feldman, 75,000 shares; Mr. Robinson, 70,000 shares; and Mr.
Stadler, Mr. Eslick and Ms. McCutchen, 25,000 shares each. These options were in
addition to the options granted to Messrs Corcoran and Feldman in connection
with FelCor's equity offering. The options were granted at an exercise price
equal to the fair market value of the FelCor Common Shares on the date of grant.
FelCor also maintains a 401(k) Plan, health insurance and other benefits
generally available to all employees.
This report has been furnished by the members of the Compensation
Committee.
Richard S. Ellwood, Chairman
Richard O. Jacobson
Thomas A. McChristy
Charles A. Ledsinger, Jr.
157
<PAGE> 159
PERFORMANCE GRAPH
The following graph compares the change in FelCor's stockholder return on
the FelCor Common Shares for the period July 28, 1994 (the date upon which the
FelCor Common Shares was issued in the IPO at $21.25 per share) through December
31, 1997, with the changes in Standard & Poor's 500 Stock Index (the "S&P 500
Index") and the National Association of Real Estate Investment Trust Equity
Index (the "NAREIT Equity Index") for the same period, assuming a base
investment of $100 in the FelCor Common Shares in each index for comparative
purposes. Total return equals appreciation in stock price plus dividends paid,
and assumes that all dividends are reinvested. During the period presented, the
FelCor Common Shares was traded on The Nasdaq Stock Market under the symbol
"FLCO" until March 13, 1996, when it commenced trading on the NYSE under the
symbol "FCH." FelCor will provide upon request the names of the companies
included in the NAREIT Equity Index. The NAREIT Equity Index is published
monthly by the National Association of Real Estate Investment Trusts, Inc.
("NAREIT") in its publication, REITWatch. The index is available to the public
upon request to NAREIT.
<TABLE>
<CAPTION>
Measurement Period FelCor Suite NAREIT S&P 500
(Fiscal Year Covered) Hotels, Inc. Equity Index Index
<S> <C> <C> <C>
07/28/94 100.00 100.00 100.00
09/30/94 108.24 98.44 101.56
12/31/94 92.96 98.45 101.54
03/31/95 115.96 98.28 111.42
06/30/95 126.13 104.07 121.99
09/30/95 150.94 108.96 131.69
12/31/95 141.86 113.48 139.54
03/31/96 160.35 116.06 147.03
06/30/96 160.26 121.23 153.63
09/30/96 172.18 129.26 158.36
12/31/96 191.09 153.50 171.62
03/31/97 202.07 154.6 176.2
06/30/97 207.68 162.3 206.9
09/30/97 231.86 181.4 222.4
12/31/97 203.47 184.6 228.8
</TABLE>
The foregoing graph is based upon the following data:
<TABLE>
<CAPTION>
07/28/94 09/30/94 12/31/94 03/31/95 06/30/95 09/30/95 12/31/95
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FelCor Suite Hotels,
Inc. .................. $100.00 $108.24 $ 92.96 $115.96 $126.13 $150.94 $141.86
NAREIT Equity Index...... 100.00 98.44 98.45 98.28 104.07 108.96 113.48
S&P 500 Index............ 100.00 101.56 101.54 111.42 121.99 131.69 139.54
</TABLE>
<TABLE>
<CAPTION>
03/31/96 06/30/96 09/30/96 12/31/96 03/31/97 06/30/97 09/30/97 12/31/97
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FelCor Suite Hotels,
Inc. .................. $160.35 $160.26 $172.18 $191.09 $202.07 $207.68 $231.86 $203.47
NAREIT Equity Index...... 116.06 121.23 129.26 153.50 154.6 162.3 181.4 184.6
S&P 500 Index............ 147.03 153.63 158.36 171.62 176.2 206.9 222.4 228.8
</TABLE>
There can be no assurance that FelCor's share performance will continue
into the future with the same or similar trends depicted in the graph above.
FelCor will not make or endorse any predictions as to future share performance.
158
<PAGE> 160
MANAGEMENT AND OWNERSHIP OF BRISTOL
BENEFICIAL OWNERSHIP OF BRISTOL
The following table sets forth certain information regarding the beneficial
ownership of Bristol Common Shares as of the close of business on April 1, 1998
by (i) each person known to Bristol to own beneficially more than 5% of Bristol
Common Shares, (ii) each director and Bristol Named Executive Officer, and (iii)
all directors and executive officers of Bristol as a group. Except as otherwise
indicated, the address for each of the individuals named below is 14295 Midway
Road, Dallas, Texas 75244. For purposes of the table, a person or group of
persons is deemed to have "beneficial ownership" of any shares as of a given
date, if that person has the right to acquire the shares within 60 calendar days
after such date.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------------
PERCENTAGE OF
NUMBER BRISTOL
OF BRISTOL OUTSTANDING
SHARES OWNED SHARES(1)
------------ -------------
<S> <C> <C>
United/Harvey Holdings, L.P.(2)............................ 14,059,677 31.08%
4200 Texas Commerce Tower West
2200 Ross Avenue
Dallas, Texas 75201
Bass plc(3)................................................ 14,041,962 31.04%
20 North Audley Street
London, W1Y1WE
Baron Capital(4)........................................... 5,384,200 11.90%
767 Fifth Avenue, 24th Floor
New York, New York 10153
Cohen & Steers Capital Management, Inc.(5)................. 2,438,500 5.39%
757 Third Avenue
New York, New York 10017
J. Peter Kline(6).......................................... 1,343,601 2.97%
Robert L. Miars(7)......................................... 977,154 2.16%
John A. Beckert(6)......................................... 848,604 1.88%
Edward J. Rohling(8)....................................... 382,260 *
Jeffrey P. Mayer(9)........................................ 69,000 *
David A. Dittman(10)....................................... 22,500 *
Robert H. Lutz, Jr.(10).................................... 22,500 *
Reginald K. Brack, Jr.(11)................................. 9,600 *
Donald J. McNamara(12)..................................... -- --
Craig H. Hunt.............................................. -- --
Richard C. North........................................... -- --
Kurt C. Read............................................... -- --
All directors and executives officers as a group (14
persons)................................................. 4,014,479 8.88%
</TABLE>
- - ---------------
* Less than 1%
(1) Assumes the issuance of 1,428,571 Bristol Common Shares in the Omaha
Acquisition.
(2) Includes 1,342,791 shares which may be purchased from Harvey Huie upon
exercise of a call option.
(3) Bass America Inc. owns 10,455,033 Bristol shares, which represents 23.11%
of outstanding Bristol shares, and Holiday Corporation owns 3,586,929
Bristol shares which represents 7.93% of outstanding Bristol shares. Both
corporations are subsidiaries of Bass plc.
(4) As reported in a Schedule 13 G/A filed with the SEC on February 13, 1998.
(5) As reported in a Schedule 13 G/A filed with the SEC on February 12, 1998.
(6) Includes 150,000 shares which Messrs. Kline and Beckert each have the right
to acquire through the exercise of options within 60 calendar days of the
Record Date.
159
<PAGE> 161
(7) Includes 3,000 shares which Mr. Miars has the right to acquire through the
exercise of options within 60 calendar days of the Record Date.
(8) Mr. Rohling left Bristol on March 15, 1998.
(9) Includes 69,000 shares which Mr. Mayer has the right to acquire through the
exercise of options within 60 calendar days of the Record Date.
(10) Includes 22,500 shares which Messrs. Dittman and Lutz each have the right
to acquire through the exercise of options, including 7,500 shares which
Messrs. Dittman and Lutz will each have the right to acquire after the
Bristol Annual Meeting.
(11) Includes 7,500 shares which Mr. Brack has the right to acquire after the
Bristol Annual Meeting through the exercise of options.
(12) Mr. McNamara is the founder, Chairman and Co-Chief Executive Officer of The
Hampstead Group, L.L.C. ("Hampstead"). Holdings and its general partner
were formed by Hampstead. The limited partners of Holdings include entities
affiliated with Hampstead and certain unaffiliated institutional investors,
none of which has the right to direct the management of the business of
Holdings. However, by virtue of the foregoing relationships, Mr. McNamara
may be deemed to beneficially own the Bristol Common Shares owned by
Holdings. Mr. McNamara disclaims beneficial ownership of all shares owned
by Holdings and, accordingly, such shares are not shown in the table as
being beneficially owned by him.
Section 16(a) Beneficial Ownership Compliance
Based solely on a review of copies of reports furnished to Bristol and
written representations of Bristol directors and executive officers that no
other reports were required with respect to their beneficial ownership of
Bristol Common Shares during 1997, Bristol believes that, with the exception of
Reginald K. Brack, Jr., all its directors and executive officers and all
beneficial owners of more than 10% of Bristol Common Shares outstanding complied
with all applicable filing requirements under Section 16(a) of the Exchange Act
with respect to their beneficial ownership of Bristol Common Shares during 1997.
Mr. Brack failed to file one transaction on Form 4 during Bristol's 1997 fiscal
year. The transaction was reported on a Form 5.
BRISTOL'S EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation paid
to Bristol's Chief Executive Officer and each of the four other most highly
compensated executive officers of Bristol who earned at least $100,000 in total
salary and bonus in 1997 (collectively, the "Bristol Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) COMPENSATION(3)
--------------------------- ---- -------- -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
J. Peter Kline.......................... 1997 $457,307 $91,461 30,000 $ 4,750
President and Chief 1996 250,502 69,350 -- --
Executive Officer 1995 231,353 87,183 225,000 2,073
John A. Beckert......................... 1997 457,307 91,461 30,000 4,750
Chief Operating Officer and 1996 250,502 69,350 -- --
Executive Vice President 1995 231,353 79,724 225,000 2,072
Jeffrey P. Mayer(4)..................... 1997 257,115 51,423 25,000 44,723
Senior Vice President and 1996 188,159 56,448 195,000 46,633
Chief Financial Officer 1995 -- -- -- --
Edward J. Rohling(5).................... 1997 232,404 46,481 -- 3,567
Senior Vice President, 1996 199,541 55,480 30,000 --
Corporate Development 1995 163,576 82,922 216,000 2,088
Robert L. Miars......................... 1997 229,604 68,881 20,000 4,750
Senior Vice President, 1996 144,503 35,037 15,000 --
Design, Construction & Engineering 1995 126,422 74,282 49,500 --
</TABLE>
160
<PAGE> 162
- - ---------------
(1) The bonus amounts for all years are based on amounts earned during the
calendar year regardless of when paid.
(2) Reflects options to acquire Bristol Common Shares granted pursuant to the
Bristol Incentive Plan, adjusted to reflect the 1997 stock split.
(3) Consists entirely of contributions by Bristol to Bristol's 401(k) Plan
except for Mr. Mayer, whose 1997 other compensation consists of $3,462 of
contributions to Bristol's 401(k) Plan and $41,261 for relocation expenses.
Mr. Mayer's 1996 other compensation consists entirely of relocation
expenses.
(4) Mr. Mayer joined Bristol in January 1996.
(5) Mr. Rohling left Bristol on March 15, 1998.
Stock Option Grants
The following table sets forth information with respect to options granted
to the Bristol Named Executive Officers during 1997.
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES OR BASE EXPIRATION -----------------------
NAME GRANTED IN 1997 PRICE DATE 5% 10%
---- ---------- ------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
J. Peter Kline................... 30,000 6.09% $26.00 2007 $490,538 $1,243,119
John A. Beckert.................. 30,000 6.09 26.00 2007 490,538 1,243,119
Jeffrey P. Mayer................. 25,000 5.07 26.00 2007 408,782 1,035,933
Edward J. Rohling................ -- -- -- -- -- --
Robert L. Miars.................. 20,000 4.06 26.00 2007 327,025 828,746
</TABLE>
- - ---------------
(1) The potential realizable value portion of the foregoing table illustrates
value that might be realized upon exercise of the options immediately prior
to the expiration of their term, assuming the specified compounded rates of
appreciation on Bristol Common Shares over the term of the options. These
numbers do not take into account provisions of certain options providing for
termination of the option following termination of employment,
nontransferability or vesting over periods. The use of the assumed 5% and
10% returns is established by the SEC and is not intended by Bristol to
forecast possible future appreciation of the price of Bristol Common Shares.
The following table sets forth certain information with respect to options
held at December 31, 1997 by the Bristol Named Executive Officers.
OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(1) DECEMBER 31, 1997(2)
---------------------------- ----------------------------
NAME UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
J. Peter Kline..................... 255,000 -- $4,756,013 --
John A. Beckert.................... 255,000 -- 4,756,013 --
Jeffrey P. Mayer................... 181,000 39,000 2,331,885 $563,831
Edward J. Rohling.................. 240,000 6,000 4,749,480 67,977
Robert L. Miars.................... 81,500 3,000 1,223,314 33,989
</TABLE>
161
<PAGE> 163
- - ---------------
(1) This represents the total number of shares subject to stock options held by
the Bristol Named Executive Officers at December 31, 1997. These options
were granted on various dates during the years 1995 through 1997.
(2) The closing price per Bristol Common Share as reported in the NYSE Composite
Transactions Report on December 31, 1997 was $29.0625. Value is calculated
on the basis of the difference between the option exercise price and
$29.0625 multiplied by the number of Bristol Common Shares covered by the
option.
BRISTOL'S COMPENSATION PLANS AND ARRANGEMENTS
Management Bonus Plan
Bristol's Management Bonus Plan provides key management employees of
Bristol with cash bonuses based upon the achievement of specified targets and
goals for Bristol and for the particular employees. Each officer of Bristol is
eligible to receive annual bonus awards based on the achievement of performance
criteria, as well as personal criteria, established by the Compensation
Committee.
401(k) Plan
Bristol maintains and offers to its employees and executive officers a
profit sharing plan with a 401(k) feature (the "Bristol 401(k) Plan"). Eligible
employees may contribute to the Bristol 401(k) Plan through salary deferral
elections of not less than 1% nor more than 16% of their salary. Bristol makes
matching contributions of $.50 for each dollar contributed, up to 6% of a
participant's salary. The Bristol Board may in its sole discretion grant
additional matching contributions, subject to statutory limitations.
Contributions by participants are 100% vested and contributions by Bristol vest
over a period of years, becoming fully vested after five years of continuous
employment. The Bristol 401(k) Plan is intended to qualify under Section 401 of
the Code so that contributions by participants or by Bristol to the Bristol
401(k) Plan, and income earned on such contributions, are not taxable to the
participants until withdrawn from the Bristol 401(k) Plan.
Incentive Plan
The Bristol Incentive Plan is designed to attract and retain qualified
officers and other key employees of Bristol. The Bristol Incentive Plan
authorizes the grant of options to purchase Bristol Common Shares, stock
appreciation rights, restricted shares, deferred shares, performance shares and
performance units. The Compensation Committee administers the Bristol Incentive
Plan and determines to whom awards are to be granted, as well as the number of
shares, the exercise period and other terms and conditions of a particular
grant.
As of December 31, 1997, there were outstanding options granted under the
Bristol Incentive Plan to purchase an aggregate of 2,069,441 Bristol Common
Shares. These options generally vest over four or five years from the date of
grant, with certain options becoming fully vested upon specified anniversary's
from the date of grant.
REPORT ON BRISTOL'S EXECUTIVE COMPENSATION
Bristol's executive compensation program has three principal components:
base salary, incentive bonus and long-term compensation in the form of stock
options. The Compensation Committee believes this mix of compensation provides
executive officers with a base salary that is competitive and an incentive
portion which is performance based.
Base Salary
Each of Bristol's executive officers receives an annual performance review.
In connection with this review, the Compensation Committee evaluates and adjusts
each executive officer's base salary based on existing
162
<PAGE> 164
compensation levels, the level and scope of responsibility, experience and
individual performance over the past year, as well as the pay practices of other
comparable lodging industry companies.
Base salaries for the Chief Executive Officer and other Bristol Named
Executive Officers were increased substantially in 1997 following the Holiday
Inn transactions. The Compensation Committee believed such increases were needed
in order to make Bristol's salaries competitive with those of companies of
similar size.
Bonus Program
During 1997, Bristol paid cash bonuses to its executive officers and other
key employees based upon the achievement of Bristol's performance criteria, as
well as personal performance criteria established by the Compensation Committee.
Under the 1997 program, each of Bristol's executive officers was eligible to
receive an incentive award of up to 50% of his base salary. Sixty percent of the
bonus potential for executives (forty percent for the Senior Vice President of
Design, Construction & Engineering) was based on Bristol's achievement of
budgeted EBITDA goals. The budgeted EBITDA goals were not met for 1997 and no
payout was paid to any executive per this component. The balance of the bonus
potential was based on the achievement of pre-established professional goals for
each executive. Such individual goals included, among others, success in meeting
redevelopment budgets and schedules, improving guest satisfaction measures and
acquiring new hotels.
Stock Options
Bristol has awarded stock options to the Bristol Named Executive Officers
and other senior management to provide incentives to Bristol's management. The
options become exercisable at the rate of 25% on each of the first four
anniversaries of the date of grant. In December 1997 the Compensation Committee
approved a formal Management Incentive Program which became effective January 1,
1998. This program provides for the granting of options to Bristol managers
earning between $60,000 and $150,000 per year based upon certain criteria. The
Compensation Committee authorized the grant of 73,400 options on November 10,
1997 to eligible Bristol managers pursuant to this program. Bristol's executive
officers are not eligible to receive these options due to the salary eligibility
requirements of such options.
Employment Agreements
Messrs. Kline and Beckert have entered into employment agreements with
Bristol that expire in 2001 and provide for the payment of an annual base salary
of at least $450,000. Messrs. Kline and Beckert are also eligible to receive
future grants of stock-based incentive awards and other benefits provided to
senior executives of Bristol, including bonuses of up to 50% of base pay.
Tax Effects
Bristol believes that the compensation paid to its executive officers
during 1997 is deductible to Bristol for federal income tax purposes. In
determining executive compensation in the future, the Compensation Committee
presently intends to consider, among other factors, whether such compensation
will be deductible for federal income tax purposes.
Respectfully submitted,
Robert H. Lutz, Jr.
Richard C. North
Donald J. McNamara, Chairman
163
<PAGE> 165
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return for
Bristol Common Shares with the Standard & Poor's 500 Stock Index and the BT
Alex. Brown Lodging Owner/Operator Index from the date trading of the Bristol
Common Shares on the NYSE commenced through December 31, 1997, assuming an
initial investment of $100 and the reinvestment of all dividends.
COMPARISON OF 24 MONTH CUMULATIVE TOTAL RETURN
AMONG BRISTOL HOTEL COMPANY, S&P 500 AND BT ALEX. BROWN LODGING OWNER/OPERATOR
INDEX
<TABLE>
<CAPTION>
BT ALEX.
BROWN
LODGING
MEASUREMENT PERIOD BRISTOL HOTEL OWNER/OPERATOR S&P 500
(FISCAL YEAR COVERED) COMPANY INDEX INDEX
<S> <C> <C> <C>
12/13/95 100.00 100.00 100.00
12/31/95 105.98 101.81 99.08
12/31/96 138.04 128.87 121.82
12/31/97 189.54 153.35 162.47
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF BRISTOL
Hotel Properties Agreement
In April 1997, Bristol and the Holiday Entities entered into a hotel
properties agreement (the "Hotel Properties Agreement") pursuant to which
Bristol agreed to offer to the Holiday Entities the opportunity to enter into a
standard Holiday franchise agreement for each hotel that Bristol acquires,
manages or develops that meets specified criteria. The Hotel Properties
Agreement requires that 85% of the rooms in Bristol's owned, leased and managed
hotel portfolio be operated under a Holiday Inn brand, subject to certain
limitations and approvals. The Hotel Properties Agreement will terminate upon
the consummation of the Merger, and will be replaced by a new arrangement with
BHR. See "The Merger -- Interests of Certain Persons in the Merger -- Hotel
Properties Agreement."
In April 1997, Bristol also agreed to enter into franchise agreements with
Holiday Hospitality pursuant to which certain Bristol properties will be
rebranded to Holiday Hospitality brands, subject to normal franchising
procedures. Franchise fees for these rebranded hotels will equal 1% of room
revenue in 1998, 3% in 1999 and 5% in 2000. Amounts paid to the Holiday Entities
pursuant to franchise agreements and related marketing, advertising and
reservation services were $21.8 million in 1997, including $13.1 million as
franchise royalty fees and $4.5 million as franchise marketing fees. Bristol's
obligations under the Holiday franchise agreements will be assumed by BHR in the
Spin-Off.
164
<PAGE> 166
As of April 1, 1998, the Holiday Entities owned approximately 31% of the
Bristol Common Shares. Richard C. North, Craig H. Hunt and Reginald K. Brack,
Jr. serve as designees of the Holiday Entities on the Bristol Board.
Interim Services Agreement
In April 1997, Bristol entered into an interim services agreement with
Holiday Hospitality pursuant to which Holiday Hospitality agreed to continue to
provide certain accounting, payroll, and employee benefit services to Bristol
during the transition period following Bristol's Holiday Inn acquisition.
Bristol reimbursed Holiday Hospitality $1.3 million for the estimated costs
incurred in providing such services during 1997. This agreement terminated in
October 1997.
SELLING SECURITYHOLDERS
This Joint Proxy Statement/Prospectus also relates to the potential offer
of the Stockholders' Shares from time to time following the Merger by the
holders of FelCor Common Shares identified in the table below (the "Registration
Rights Holders"). See "Plan of Distribution." The following table provides the
names of each Registration Rights Holder, the number of Bristol Common Shares
beneficially owned by such holder as of May 28, 1998, and the number of the
FelCor Common Shares that may be offered by each Registration Rights Holder, to
the best knowledge of FelCor.
<TABLE>
<CAPTION>
BRISTOL FELCOR COMMON PERCENT OF
COMMON SHARES SHARES OFFERED ALL OUTSTANDING
BENEFICIALLY BY THIS FELCOR
NAME OWNED PROSPECTUS(1) COMMON SHARES(1)(2)
- - ---- ------------- ------------------ -------------------
<S> <C> <C> <C>
United Harvey Investors I,
L.P.(3)......................... 6,156,338 4,217,091 6.2%
United Harvey Investors II,
L.P.(4)......................... 7,903,315 5,413,770 8.0%
Bass America, Inc................. 10,455,033 7,161,698 10.6%
Holiday Corporation............... 3,586,929 2,457,046 3.6%
J. Peter Kline(5)................. 1,448,601 992,292 1.5%
Robert L. Miars(6)................ 1,058,654 725,178 1.1%
John A. Beckert(5)................ 953,604 653,219 1.0%
</TABLE>
- - ---------------
(1) Assumes consummation of the Merger and issuance of FelCor Common Shares to
Bristol's stockholders.
(2) Based upon 67,672,000 FelCor Common Shares expected to be outstanding.
(3) Includes 402,759 shares which may be purchased from Mr. Huie upon exercise
of the United Harvey Investors I, L.P. portion of a call option.
(4) Includes 517,050 shares which may be purchased from Mr. Huie upon exercise
of the United Harvey Investors II, L.P. portion of a call option.
(5) Includes 255,000 shares which Messrs. Kline and Beckert each have the right
to acquire through the exercise of options.
(6) Includes 84,500 shares which Mr. Miars has the right to acquire through the
exercise of options.
Each of the Holdings Entities is an affiliate of Donald J. McNamara, who
prior to the Merger served as Chairman of the Board of Bristol and after the
Merger will serve as Chairman of the Board of FelCor, served as a director of
FelCor from July 1994 to November 1997, and is a principal in a firm which may
be deemed to be an affiliate of the Holdings Entities. Bass America, Inc. and
Holiday Corporation are affiliates of the entity that franchises the Holiday
Hospitality brands and of Richard L. North, who prior to the Merger served as a
director of Bristol and after the Merger will serve as a director of FelCor.
Each of Messrs. Kline, Beckert and Miars were executive officers of Bristol
prior to the Merger.
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<PAGE> 167
PLAN OF DISTRIBUTION
This Joint Proxy Statement/Prospectus also relates to the offer from time
to time following the Merger by the Registration Rights Holders of FelCor Common
Shares issued to them pursuant to the Merger (the "Stockholders' Shares").
FelCor has registered with the SEC the FelCor Common Shares issued pursuant to
the Merger. Such registration also applies to resales by the Registration Rights
Holders of Stockholders' Shares to satisfy FelCor's obligations under the FelCor
Stockholders' Agreement. Registration of the Stockholders' Shares does not
necessarily mean that any of the Stockholders' Shares will be offered or sold by
the Registration Rights Holders. Under the FelCor Stockholders' Agreement, the
Bristol Majority Stockholders will agree not to sell or transfer their FelCor
Common Shares for a period of six months after the Merger, except in compliance
with Rule 145 under the Securities Act. FelCor will not receive any of the
proceeds of the sale of the Stockholders' Shares offered by the Registration
Rights Holders.
The distribution of Stockholders' Shares may be effected from time to time
in one or more underwritten transactions at a fixed price or prices, which may
be changed, or in other transactions at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Any such underwritten offering may be on either a "best efforts" or a
"firm commitment" basis. In connection with any such underwritten offering,
underwriters or agents may receive compensation in the form of discounts,
concessions or commissions from the Registration Rights Holders and/or from
purchasers of the Stockholders' Shares for whom they may act as agents.
Underwriters may sell the Stockholders' Shares to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents.
The Registration Rights Holders and any underwriters, dealers or agents
that participated in the distribution of Stockholders' Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any profit on
the sale of Stockholders' Shares by them and any discounts, commissions or
concessions received by any such underwriters, dealers or agents might be deemed
to be underwriting discounts and commissions under the Securities Act.
At a time a particular offer of Stockholders' Shares is made by a
Registration Rights Holder, a prospectus supplement, if required, will be
distributed that will set forth the names of any underwriters, dealers or agents
and any discounts, commissions and other terms constituting compensation from
the Registration Rights Holders and any other required information.
The sale of Stockholders' Shares by the Registration Rights Holders may
also be effected from time to time by selling Stockholders' Shares directly to
purchasers or to or through broker-dealers. In connection with any such sale,
any such broker-dealer may act as agent for the Registration Rights Holders or
may purchase from the Registration Rights Holders all or a portion of the
Stockholders' Shares as principal, and sales may be made pursuant to any of the
methods described below. Such sales may be made on the NYSE or other exchanges
on which the Stockholders' Shares are then traded, in the over-the-counter
market, in negotiated transactions or otherwise, in each case at prices and at
terms then prevailing or at prices related to the then-current market prices or
at prices otherwise negotiated.
The Stockholders' Shares may also be sold in one or more of the following
transactions: (i) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such shares as agent but may position
and resell all or a portion of the block as principal to facilitate the
transaction; (ii) purchases by any such broker-dealer as principal and resale by
such broker-dealer for its own account pursuant to a prospectus supplement;
(iii) a special offering, an exchange distribution or a secondary distribution
in accordance with applicable NYSE or other stock exchange rules; (iv) ordinary
brokerage transactions and transactions in which any such broker-dealer solicits
purchasers; (v) sales "at the market" to or through a market maker or into an
existing trading market, on an exchange or otherwise, for such shares; and (vi)
sales in other ways not involving market makers or established trading markets,
including direct sales to purchasers. In effecting sales, broker-dealers engaged
by the Registration Rights Holders may arrange for other broker-dealers to
participate. Broker-dealers will receive commissions or other compensation from
the Registration Rights Holders in amounts to be negotiated immediately prior to
the sale that will not exceed those customary in the types of transactions
involved. Broker-dealers may also receive compensation from
166
<PAGE> 168
purchasers of Stockholders' Shares which is not expected to exceed that
customary in the types of transactions involved.
In connection with distributions of Stockholders' Shares or otherwise, the
Registration Rights Holders may enter into hedging transactions with
broker-dealers or others prior to or after the Effective Time of the Merger.
Such broker-dealers may engage in short sales of Stockholders' Shares or other
transactions in the course of hedging the positions assumed by such persons in
connection with such hedging transactions or otherwise. The Registration Rights
Holders may also sell Stockholders' Shares short and redeliver Stockholders'
Shares to close out such short positions; enter into option or other
transactions with broker-dealers or others which may involve the delivery to
such persons of Stockholders' Shares offered hereby, which Stockholders' Shares
such persons may resell pursuant to this Joint Proxy Statement/Prospectus;
and/or pledge Stockholders' Shares to a broker or dealer or others and, upon a
default, such persons may effect sales of Stockholders' Shares pursuant to this
Joint Proxy Statement/Prospectus. In addition, any Stockholders' Shares covered
by this Joint Proxy Statement/Prospectus that qualify for resale pursuant to
Rule 145 of the Securities Act may be sold under Rule 145 rather than with this
Joint Proxy Statement/Prospectus.
In order to comply with securities laws of certain states, if applicable,
Stockholders' Shares may be sold only through registered or licensed brokers or
dealers.
Until the distribution of Stockholders' Shares is completed, rules of the
SEC may limit the ability of any underwriters and selling group members to bid
for and purchase Stockholders' Shares. As an exception to these rules,
underwriters are permitted to engage in certain transactions that stabilize the
price of Stockholders' Shares. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of Stockholders'
Shares.
The lead underwriters may also impose a penalty bid on certain other
underwriters participating in the offering and selling group members. This means
that if the lead underwriters purchase Stockholders' Shares in the open market
to reduce the underwriters' short position or to stabilize the price of
Stockholders' Shares, they may reclaim the amount of any selling concession from
the underwriters and selling group members who sold those Stockholders' Shares
as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resale of the security before the distribution is completed.
FelCor makes no representation or prediction as to the direction or
magnitude of any effect that the transactions described above might have on the
price of Stockholders' Shares. In addition, FelCor makes no representation that
underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
All expenses incident to the offering and sale of Stockholders' Shares
(other than brokerage and underwriting commissions and certain taxes) will be
paid by FelCor. FelCor has agreed to indemnify the Registration Rights Holders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the FelCor Common Shares to be issued in
connection with the Merger has been passed upon for FelCor by Jenkens &
Gilchrist, a Professional Corporation, Dallas, Texas. Jenkens & Gilchrist,
Jones, Day, Reavis & Pogue, New York, New York, and Hunton & Williams, Richmond,
Virginia, have rendered their separate opinions with respect to certain federal
income tax consequences of the Merger and Spin-Off and certain federal income
tax considerations regarding Bristol, FelCor and the FelCor Operating
Partnership, as described under the caption "Federal Income Tax Considerations."
Jenkens & Gilchrist and Hunton & Williams have relied upon the opinion of Miles
& Stockbridge P.C., Baltimore, Maryland, with respect to matters involving
Maryland law.
167
<PAGE> 169
EXPERTS
The consolidated financial statements of FelCor as of December 31, 1997 and
1996 and for the years ended December 31, 1997, 1996 and 1995 and the
consolidated financial statements of DJONT Operations, L.L.C. as of December 31,
1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995, have
been incorporated by reference in this Joint Proxy Statement/Prospectus in
reliance on the reports of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Bristol as of December 31, 1997
and 1996 and for the years ended December 31, 1997 and 1996, and the
consolidated financial statements of Bristol Hotel Asset Company as of December
31, 1997 and 1996 and for the years ended December 31, 1997 and 1996
incorporated by reference in this Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
The consolidated financial statements of Bristol for the eleven months
ended December 31, 1995 and the combined financial statements of Harvey Hotel
Companies for the one month ended January 31, 1995 incorporated in this Joint
Proxy Statement/Prospectus by reference to the annual report on Form 10-K of
Bristol Hotel Company for the year ended December 31, 1997, have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P. has served as auditors for FelCor for
the year ended December 31, 1997 and will continue to so serve for the year
ending December 31, 1998 until and unless changed by action of the FelCor Board.
A representative of Coopers & Lybrand, L.L.P. is expected to be present and
available at the FelCor Annual Meeting to respond to appropriate questions and
will be given an opportunity to make a statement, if desired.
The firm of Arthur Andersen LLP has served as auditors for Bristol for the
year ended December 31, 1997 and will continue to so serve for the year ending
December 31, 1998 until and unless changed by action of the Bristol Board. A
representative of Arthur Andersen LLP is expected to be present and available at
the Bristol Annual Meeting to respond to appropriate questions and will be given
an opportunity to make a statement, if desired.
ANNUAL REPORTS
FelCor's 1997 Annual Report to Stockholders was mailed to FelCor
stockholders as of April 15, 1998 and will accompany this Joint Proxy
Statement/Prospectus in the case of persons who became record stockholders of
FelCor subsequent to that date. FelCor also will furnish to each beneficial
owner of FelCor Common Shares entitled to vote at the FelCor Annual Meeting,
upon written request to 545 E. John Carpenter Freeway, Suite 1300, Irving, Texas
75062, Attn: Corporate Secretary, a copy of FelCor's Annual Report on Form 10-K
and Form 10-K/A for the fiscal year ended December 31, 1997, including the
financial statements and financial statement schedules filed by FelCor with the
SEC.
Bristol's 1997 Annual Report to Stockholders is enclosed herewith to
Bristol stockholders. Bristol also will furnish to each beneficial owner of
Bristol Common Shares entitled to vote at the Bristol Annual Meeting, upon
written request to 14295 Midway Road, Dallas, Texas 75244, Attn: Corporate
Secretary, a copy of Bristol's Annual Report on Form 10-K, Form 10-K/A and Form
10-K/A2 for the fiscal year ended December 31, 1997, including the financial
statements and financial statement schedules filed by Bristol with the SEC.
168
<PAGE> 170
SUBMISSION OF STOCKHOLDER PROPOSALS
Any FelCor stockholder who wishes to present a proposal for action at
FelCor's 1999 annual meeting of stockholders and who wishes to have it set forth
in the proxy statement and identified in the form of proxy prepared by FelCor
must deliver such proposal to FelCor at its principal executive offices, no
later than March 1, 1999, in such form as is required under SEC regulations.
If the Merger does not occur and the separate corporate existence of
Bristol does not cease, any Bristol stockholder who wishes to present a proposal
for action at Bristol's 1999 annual meeting of stockholders and who wishes to
have it set forth in the proxy statement and identified in the form of proxy
prepared by Bristol must deliver such proposal to Bristol at its principal
executive offices, no later than March 1, 1999, in such form as is required
under SEC regulations.
WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
FelCor and Bristol file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov." In addition, FelCor's and Bristol's filings can be
inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
FelCor filed a Registration Statement on Form S-4 to register with the SEC
the FelCor Common Shares to be issued to Bristol stockholders in the Merger.
This Joint Proxy Statement/Prospectus is a part of that Registration Statement
and constitutes a prospectus of FelCor in addition to being a proxy statement of
FelCor for the FelCor Annual Meeting and of Bristol for the Bristol Annual
Meeting. As allowed by SEC rules, this Joint Proxy Statement/Prospectus does not
contain all the information contained in the Registration Statement or in the
exhibits to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to include certain information in this document by
"incorporating by reference." The following documents filed with the SEC by
FelCor and Bristol pursuant to the Exchange Act are incorporated by reference in
this Joint Proxy Statement/Prospectus:
FelCor Suite Hotels, Inc. (File No. 001-14236):
1. Annual Report on Form 10-K and Forms 10-K/A for the year ended
December 31, 1997;
2. Quarterly Report on Form 10-Q for the three months ended March 31,
1998;
3. Current Report on Form 8-K filed with the SEC on April 23, 1998;
4. Consent Report on Form 8-K filed with the SEC on May 29, 1998; and
5. The description of the FelCor Common Shares contained in the
Registration Statement on Form 8-A filed with the SEC, including
any amendments or reports filed for the purpose of updating such
description.
Bristol Hotel Company (File No. 001-14062):
1. Annual Report on Form 10-K and Forms 10-K/A for the year ended
December 31, 1997;
2. Quarterly Report on Form 10-Q for the three months ended March 31,
1998;
3. Current Report on Form 8-K filed with the SEC on March 30, 1998;
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<PAGE> 171
4. Current Report on Form 8-K filed with the SEC on May 14, 1998; and
5. The description of the Bristol Common Shares contained in the
Registration Statement on Form 8-A filed with the SEC on November
7, 1995, including any amendments or reports filed for the purpose
of updating such description.
All documents and reports filed by FelCor or Bristol pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date the Registration Rights Holders sell
all of their Stockholders' Shares will be deemed to be incorporated by reference
in this Joint Proxy Statement/Prospectus and to be a part hereof from the dates
of filing of such documents or reports. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein will be deemed to
be modified or superseded for purposes of this Joint Proxy Statement/ Prospectus
to the extent that a statement contained herein or in any other 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 will not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THE DOCUMENTS WE INCORPORATE BY REFERENCE (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS JOINT
PROXY STATEMENT/PROSPECTUS IS DELIVERED ON WRITTEN OR ORAL REQUEST, WITHOUT
CHARGE, IN THE CASE OF DOCUMENTS RELATING TO FELCOR, DIRECTED TO FELCOR SUITE
HOTELS, INC., 545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062
(TELEPHONE NUMBER (972) 444-4900), ATTENTION: SECRETARY, OR, IN THE CASE OF
DOCUMENTS RELATING TO BRISTOL, DIRECTED TO BRISTOL HOTEL COMPANY, 14295 MIDWAY
ROAD, DALLAS, TEXAS 75244 (TELEPHONE NUMBER (972) 391-3910), ATTENTION:
SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS
SHOULD BE MADE BY JULY 20, 1998.
FelCor has supplied all information contained in this Joint Proxy
Statement/Prospectus relating to FelCor and its subsidiaries, and Bristol has
supplied all information contained in this Joint Proxy Statement/ Prospectus
relating to Bristol and its subsidiaries.
Unless the context otherwise requires, "FelCor" refers to both FelCor Suite
Hotels, Inc. and its consolidated subsidiaries, and "Bristol" refers to both
Bristol Hotel Company and its consolidated subsidiaries.
CERTAIN FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS JOINT PROXY STATEMENT/PROSPECTUS CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995, AND 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 UNDER THE CAPTION "RISK FACTORS" IN THIS
JOINT PROXY STATEMENT/PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING
IMPORTANT FACTORS, INCLUDING MATERIAL 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.
OTHER MATTERS
FelCor's Board does not intend to bring any matters before the FelCor
Annual Meeting other than those specifically set forth in this Joint Proxy
Statement/Prospectus and it does not know of any matters to be brought before
the FelCor Annual Meeting by others. If any other matters properly come before
the FelCor Annual Meeting, it is the intention of the persons named in
accompanying proxies to vote such proxies in accordance with the judgment of the
FelCor Board.
The Bristol Board does not intend to bring any matters before the Bristol
Annual Meeting other than those specifically set forth in this Joint Proxy
Statement/Prospectus and it does not know of any matters to be brought before
the Bristol Annual Meeting by others. If any other matters properly come before
the Bristol
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<PAGE> 172
Annual Meeting, it is the intention of the persons named in accompanying proxies
to vote such proxies in accordance with the judgment of the Bristol Board.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FELCOR,
BRISTOL OR ANY OTHER PERSON. THIS JOINT PROXY STATEMENT/ PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FELCOR OR
BRISTOL SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
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<PAGE> 173
INDEX OF CERTAIN DEFINED TERMS
Certain defined terms and the definitions thereof are located on the pages
set forth as follows:
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Acquisition Proposal............... 65
Base Rent.......................... 39
BHR................................ 36
BHR Common Shares.................. 43
BHR Director Plan.................. 138
BHR Equity Incentive Plan.......... 138
BHR Incentive Plans................ 36
BHR Lessee......................... 113
BHR Stockholders' Agreement........ 69
Bristol............................ 1
Bristol Annual Meeting............. 36
Bristol Board...................... 36
Bristol Bylaws..................... 102
Bristol Charter.................... 102
Bristol Common Shares.............. 36
Bristol Hotels..................... 40
Bristol Incentive Plan............. 36
Bristol Majority Stockholders...... 37
Bristol Named Executive Officers... 160
Bristol Plans...................... 62
BT Wolfensohn Opinion.............. 51
Code............................... 52
Control Share Statute.............. 101
Delaware Law....................... 102
Depositary Receipts................ 96
Depositary Shares.................. 95
DJONT.............................. 39
Doubletree......................... 39
E&P................................ 67
EBITDA............................. 53
Effective Time..................... 44
EPS................................ 59
Exchange Act....................... 129
Exchange Agent..................... 64
Exchange Ratio..................... 45
FelCor............................. 1
FelCor 1998 Plan................... 36
FelCor Annual Meeting.............. 36
FelCor Board....................... 36
FelCor Bylaws...................... 102
FelCor Charter..................... 36
FelCor Common Shares............... 36
FelCor Hotels...................... 39
FelCor Named Executive Officers.... 150
FelCor Operating Partnership....... 39
FelCor Preferred Shares............ 90
FelCor Series A Preferred Shares... 91
FelCor Series B Preferred Shares... 95
FelCor Stockholders' Agreement..... 62
</TABLE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
FFO................................ 53
Hampstead.......................... 160
Holdings........................... 42
Holdings Entities.................. 42
Holiday Entities................... 42
Holiday Hospitality................ 40
Hotel Partnerships................. 113
Hotel Properties Agreement......... 164
Hotels............................. 41
Independent Director............... 127
Interim Credit Facility............ 67
Kingston........................... 118
Line of Credit..................... 73
Lock-Up Period..................... 70
Maryland Law....................... 100
Merger............................. 36
Merger Agreement................... 36
Merrill Lynch...................... 45
Merrill Lynch Opinion.............. 56
NAREIT............................. 158
Notes.............................. 73
NYSE............................... 44
Omaha Acquisition.................. 39
Outside Director................... 136
Ownership Limit.................... 99
Ownership Limitation Provisions.... 99
Percentage Leases.................. 39
Percentage Rent.................... 39
Post-Termination Maturity Date..... 40
Promus............................. 39
Record Date........................ 36
Redevelopment and Rebranding
Program.......................... 40
REIT............................... 39
Rent............................... 113
Restricted Shares.................. 138
SEC................................ 147
Sheraton........................... 39
Spin-Off........................... 43
Spin-Off Agreement................. 43
Spin-Off Ratio..................... 43
Units.............................. 39
Voting Agreement................... 37
1997 Acquisitions.................. 75
1997 Offerings..................... 73
1998 Acquisitions.................. 73
1998 Offering...................... 73
5/50 Rule.......................... 99
</TABLE>
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ANNEX A
================================================================================
AGREEMENT AND PLAN OF MERGER
BETWEEN
BRISTOL HOTEL COMPANY
AND
FELCOR SUITE HOTELS, INC.
DATED MARCH 23, 1998
================================================================================
<PAGE> 175
TABLE OF CONTENTS
(NOT A PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
I. THE MERGER AND CERTAIN RELATED TRANSACTIONS....................... 1
1.1. The Merger.................................................. 1
1.2. Pre-Merger Transactions..................................... 2
1.3. Closing..................................................... 2
1.4. Effective Time.............................................. 2
1.5. Articles of Amendment and Restatement of Surviving
Corporation................................................. 2
1.6. Bylaws of Surviving Corporation............................. 2
1.7. Directors and Officers of Surviving Corporation............. 2
1.8. Effect of the Merger on the Capital Stock of FelCor and
Bristol..................................................... 3
1.9. Exchange of Certificates.................................... 4
1.10. Bristol Stock Options....................................... 5
II. REPRESENTATIONS AND WARRANTIES OF FELCOR......................... 6
2.1. Organization, Standing and Power of FelCor.................. 6
2.2. FelCor Subsidiaries......................................... 7
2.3. Capital Structures.......................................... 7
2.4. Authority; Noncontravention; Consents....................... 8
2.5. SEC Documents; Financial Statements; Undisclosed
Liabilities................................................. 9
2.6. Absence of Certain Changes or Events........................ 10
2.7. Litigation.................................................. 10
2.8. Properties.................................................. 10
2.9. Environmental Matters....................................... 12
2.10. Absence of Changes in Benefit Plans; ERISA Compliance....... 12
2.11. Taxes....................................................... 12
2.12. Brokers..................................................... 13
2.13. Compliance with Laws........................................ 13
2.14. Labor Matters............................................... 13
2.15. Compliance with Agreements.................................. 14
2.16. Opinion of Financial Advisor................................ 14
2.17. State Takeover Statutes..................................... 14
2.18. Proxy and Registration Statements........................... 14
2.19. Definition of Knowledge of FelCor........................... 14
III. REPRESENTATIONS AND WARRANTIES OF BRISTOL....................... 14
3.1. Organization, Standing and Power of Bristol................. 14
3.2. Bristol Subsidiaries........................................ 15
3.3. Capital Structure........................................... 15
3.4. Authority; Noncontravention; Consents....................... 16
3.5. SEC Documents; Financial Statements; Undisclosed
Liabilities................................................. 17
3.6. Absence of Certain Changes or Events........................ 18
3.7. Litigation.................................................. 18
3.8. Properties.................................................. 18
3.9. Environmental Matters....................................... 19
3.10. Absence of Changes in Benefit Plans; ERISA Compliance....... 20
3.11. Taxes....................................................... 20
3.12. No Payments to Employees, Officers or Directors............. 21
3.13. Brokers..................................................... 21
3.14. Compliance with Laws........................................ 21
3.15. Labor Matters............................................... 21
3.16. Compliance with Agreements.................................. 21
</TABLE>
i
<PAGE> 176
TABLE OF CONTENTS -- (CONTINUED)
(NOT A PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.17. Opinion of Financial Advisor................................ 21
3.18. State Takeover Statutes..................................... 22
3.19. Proxy and Registration Statements........................... 22
3.20. Definition of Knowledge of Bristol.......................... 22
IV. COVENANTS........................................................ 22
4.1. Acquisition Proposals....................................... 22
4.2. Conduct of FelCor's and Bristol's Business Pending Merger... 23
4.3. Other Actions............................................... 25
V. ADDITIONAL COVENANTS.............................................. 26
5.1. Preparation of the Registration Statements and the Proxy
Statement; FelCor Stockholders Meeting and Bristol
Stockholders Meeting........................................ 26
5.2. Access to Information; Confidentiality...................... 27
5.3. Consents; Notifications; Other Actions...................... 27
5.4. Tax Treatment............................................... 27
5.5. Public Announcements........................................ 27
5.6. Listing..................................................... 28
5.7. Transfer and Gains Taxes.................................... 28
5.8. Indemnification............................................. 28
5.9. Spin-Off Transactions....................................... 28
5.10. Declaration of Dividends and Distributions.................. 29
5.11. Affiliates; Etc. ........................................... 29
5.12. Bristol's Accumulated and Current Earnings and Profits...... 29
5.13. REIT-Related Matters........................................ 29
5.14 Interim Credit Facility..................................... 29
VI. CONDITIONS....................................................... 30
6.1. Conditions To Each Party's Obligation To Effect the
Merger...................................................... 30
6.2. Conditions To Obligations of FelCor......................... 31
6.3. Conditions To Obligations of Bristol........................ 31
6.4. Frustration of Closing Conditions........................... 32
VII. TERMINATION, AMENDMENT AND WAIVER........................... 32
7.1. Termination................................................. 32
7.2. Certain Fees and Expenses................................... 33
7.3. Effect of Termination....................................... 35
7.4. Amendment................................................... 35
7.5. Extension; Waiver........................................... 35
VIII. GENERAL PROVISIONS............................................. 35
8.1. Nonsurvival of Representations and Warranties............... 35
8.2. Notices..................................................... 35
8.3. Certain Definitions......................................... 36
8.4. Interpretation.............................................. 37
8.5. Counterparts................................................ 37
8.6. Entire Agreement; No Third-party Beneficiaries.............. 37
8.7. Governing Law............................................... 37
8.8. Assignment.................................................. 38
8.9. Enforcement................................................. 38
8.10. Severability................................................ 38
</TABLE>
ii
<PAGE> 177
LIST OF EXHIBITS
(NOT A PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
EXHIBIT
-------
<S> <C>
Form of Affiliate's Agreement............................... A
Form of Tax Letters......................................... B
Form of REIT Opinion........................................ C
</TABLE>
LIST OF SCHEDULES
(NOT A PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
SCHEDULE
--------
<S> <C>
Modifications to Articles of Amendment and Restatement of
FelCor.................................................... 1.5
Directors and Officers...................................... 1.7
Joint Operating Committee................................... 4.2
Form of Bristol E&P Statement............................... 5.12
</TABLE>
LIST OF SCHEDULES TO FELCOR DISCLOSURE LETTER
(NOT A PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
SCHEDULE
--------
<S> <C>
Name, Formation Jurisdiction and Ownership of
Subsidiaries.............................................. 2.2
Outstanding Securities...................................... 2.3
Conflicts with Laws or Agreements and Necessary Consents.... 2.4
SEC Filings................................................. 2.5
Material Changes............................................ 2.6
Material Legal Proceedings.................................. 2.7
Properties.................................................. 2.8
Changes in Benefit Plans and Compliance with ERISA.......... 2.10
Tax Liabilities; Qualified REIT Subsidiaries................ 2.11
Union Contracts............................................. 2.14
Defaults in Agreements...................................... 2.15
Individuals Having "Knowledge".............................. 2.19
Acquisition Proposals....................................... 4.1
Exceptions to Pre-Closing Covenants......................... 4.2
</TABLE>
LIST OF SCHEDULES TO BRISTOL DISCLOSURE LETTER
(NOT A PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
SCHEDULE
--------
<S> <C>
Bristol Subsidiaries........................................ 3.2
Capital Structure........................................... 3.3
Authority; Noncontravention; Consents....................... 3.4
SEC Documents............................................... 3.5
Absence of Certain Changes or Events........................ 3.6
Litigation.................................................. 3.7
Properties.................................................. 3.8
Environmental Issues........................................ 3.9
Absence of Changes in Benefit Plans; ERISA Compliance....... 3.10
Taxes....................................................... 3.11
No Payments to Employees, Officers or Directors............. 3.12
</TABLE>
iii
<PAGE> 178
<TABLE>
<CAPTION>
SCHEDULE
--------
<S> <C>
Labor Matters............................................... 3.15
Compliance with Agreements.................................. 3.16
Definition of Knowledge of Bristol.......................... 3.20
Acquisition Proposals....................................... 4.1
Conduct of Bristol's Business Pending Merger................ 4.2
</TABLE>
iv
<PAGE> 179
INDEX OF DEFINED TERMS
(NOT A PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Acquisition Agreement....................................... 22
Acquisition Proposal........................................ 22
Affiliate................................................... 36
Agreement................................................... 1
Amended Bristol Exercise Price.............................. 6
Amended Bristol Option...................................... 5
Articles of Merger.......................................... 2
Bankruptcy Exception........................................ 8
Base Amount................................................. 33
BHMC........................................................ 1
BHR......................................................... 1
BHR Common Shares........................................... 1
BHR Option.................................................. 5
Break-Up Expenses........................................... 34
Break-Up Fee................................................ 33
Break-Up Fee Tax Opinion.................................... 33
Bristol..................................................... 1
Bristol Benefit Plans....................................... 20
Bristol Board............................................... 1
Bristol Bylaws.............................................. 15
Bristol Certificate......................................... 15
Bristol Certificates........................................ 4
Bristol Common Shares....................................... 1
Bristol Corporate Subsidiaries.............................. 1
Bristol Director Plan....................................... 5
Bristol Disclosure Letter................................... 14
Bristol Filed SEC Documents................................. 17
Bristol Financial Statement Date............................ 18
Bristol Hotel............................................... 36
Bristol Hotel Subsidiaries.................................. 36
Bristol Incentive Plan...................................... 5
Bristol Material Adverse Change............................. 18
Bristol Material Adverse Effect............................. 14
Bristol Preferred Shares.................................... 15
Bristol Properties.......................................... 18
Bristol SEC Documents....................................... 17
Bristol Stockholder Approval................................ 16
Bristol Stockholders Meeting................................ 26
Bristol Subsidiaries........................................ 15
Business Day................................................ 36
Cash Distribution........................................... 34
Certificate of Merger....................................... 2
Closing..................................................... 2
Closing Date................................................ 2
Closing Price............................................... 3
Code........................................................ 1
Confidentiality Agreements.................................. 27
Department.................................................. 2
DGCL........................................................ 1
</TABLE>
v
<PAGE> 180
INDEX OF DEFINED TERMS
(NOT A PART OF THE AGREEMENT) -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Drop Dead Date.............................................. 32
E&P......................................................... 29
Effective Time.............................................. 2
Encumbrances................................................ 10
Environmental Law........................................... 36
ERISA....................................................... 12
Excess Shares............................................... 3
Exchange Act................................................ 9
Exchange Agent.............................................. 4
Exchange Ratio.............................................. 3
Exemptions.................................................. 29
Expense Fee................................................. 34
Federal Legislative or Regulatory Change.................... 30
FelCor...................................................... 1
FelCor 1994 Option Plan..................................... 7
FelCor 1995 Option Plan..................................... 7
FelCor 1998 Option Plan..................................... 7
FelCor Articles............................................. 7
FelCor Benefit Plans........................................ 12
FelCor Board................................................ 1
FelCor Bylaws............................................... 7
FelCor Common Shares........................................ 7
FelCor Disclosure Letter.................................... 6
FelCor Filed SEC Documents.................................. 9
FelCor Financial Statement Date............................. 10
FelCor Hotel................................................ 36
FelCor Material Adverse Change.............................. 10
FelCor Material Adverse Effect.............................. 6
FelCor OP Units............................................. 7
FelCor Operating Partnership................................ 6
FelCor Operating Partnership Agreement...................... 7
FelCor Option Plans......................................... 7
FelCor Properties........................................... 10
FelCor SEC Documents........................................ 9
FelCor Series A Preferred Shares............................ 7
FelCor Stockholder Approval................................. 8
FelCor Stockholders Meeting................................. 26
FelCor Subsidiaries......................................... 7
First Dividend Date......................................... 4
GAAP........................................................ 9
Governmental Entity......................................... 9
Hazardous Material.......................................... 36
HSR Act..................................................... 17
Indebtedness................................................ 36
Indemnified Parties......................................... 28
IRS......................................................... 33
Joint Operating Committee................................... 23
Knowledge................................................... 25
Knowledge of Bristol........................................ 21
</TABLE>
vi
<PAGE> 181
INDEX OF DEFINED TERMS
(NOT A PART OF THE AGREEMENT) -- (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Knowledge of FelCor......................................... 14
Laws........................................................ 9
Leasing Transactions........................................ 1
Liens....................................................... 7
Measurement Date............................................ 7
Merger...................................................... 1
Merrill..................................................... 21
MGCL........................................................ 1
Non-Corporate Bristol Hotel Subsidiaries.................... 36
NYSE........................................................ 3
Original Bristol Option..................................... 5
Payor....................................................... 34
Permits..................................................... 13
Person...................................................... 36
Preliminary E&P Statement................................... 29
Principal Stockholders...................................... 1
Property Restrictions....................................... 11
Proxy Statement............................................. 9
Qualifying Income........................................... 33
REA Agreement............................................... 11
Recipient................................................... 34
Record Date................................................. 36
Registration Statements..................................... 9
REIT........................................................ 13
REIT Requirements........................................... 33
SEC......................................................... 9
Securities Act.............................................. 5
Spin-Off Agreement.......................................... 1
Spin-Off Transactions....................................... 37
Stockholder Approvals....................................... 16
Subsidiary.................................................. 37
Superior Proposal........................................... 23
Superior Proposal Transaction Notice........................ 23
Surviving Certificates...................................... 4
Surviving Corporation....................................... 1
Surviving Corporation Common Shares......................... 3
Taxes....................................................... 37
Trading Day................................................. 3
Transaction Documents....................................... 37
Transfer and Gains Taxes.................................... 28
Valuation Ratio............................................. 5
Volume Weighted Average Trading Price....................... 37
Voting Agreement............................................ 1
</TABLE>
vii
<PAGE> 182
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated March 23, 1998,
is by and between Bristol Hotel Company, a Delaware corporation ("Bristol"), and
FelCor Suite Hotels, Inc., a Maryland corporation ("FelCor").
RECITALS:
A. The Board of Directors of Bristol (the "Bristol Board") and the Board of
Directors of FelCor (the "FelCor Board") deem it advisable and in the best
interests of their respective companies that, subject to the conditions and
other provisions contained herein, Bristol merge with and into FelCor (the
"Merger"), with FelCor as the surviving corporation in the Merger (as such, the
"Surviving Corporation");
B. For federal income tax purposes, it is intended that the Merger qualify
as a tax-free reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code");
C. FelCor has advised Bristol that, in order for FelCor to maintain its
status as a real estate investment trust following the Merger, FelCor must not
acquire certain assets and liabilities of the hotel management and operation
business of Bristol and the Bristol Subsidiaries as a result of the Merger.
Accordingly, prior to and as a condition precedent to the Merger, (i) Bristol
will, or will cause the Bristol Subsidiaries to, (a) reorganize internally and
contribute to Bristol Hotel Management Corporation, a Delaware corporation
("BHMC"), or another subsidiary of BHR certain of the assets and liabilities of
Bristol and the Bristol Subsidiaries and contribute to Bristol Hotels & Resorts,
Inc., a Delaware corporation ("BHR"), all the capital stock of BHMC, and (b)
distribute to the holders of common stock, par value of $0.01 per share, of
Bristol ("Bristol Common Shares") all of the outstanding shares of common stock,
par value of $0.01 per share, of BHR (the "BHR Common Shares") in a transaction
expected to be treated for federal income tax purposes as a taxable dividend of
Bristol's earnings and profits, (ii) Bristol and/or the Bristol Hotel
Subsidiaries, as the case may be, will enter into leases with one or more wholly
owned subsidiaries of BHR and will cancel certain existing management contracts
(the "Leasing Transactions"), and (iii) Bristol will cause those Bristol Hotel
Subsidiaries that are taxable as corporations under the Code ("Bristol Corporate
Subsidiaries") to merge with and into one or more Non-Corporate Bristol Hotel
Subsidiaries, all as provided in the Spin-Off Agreement entered into by Bristol,
BHMC and BHR contemporaneously with this Agreement (the "Spin-Off Agreement");
D. Contemporaneously with the execution of this Agreement, Bristol, FelCor
and certain other Persons (such other Persons, collectively, the "Principal
Stockholders") have entered into a Voting and Cooperation Agreement (the "Voting
Agreement") pursuant to which the Principal Stockholders have agreed to vote
their capital stock holdings for adoption of the Merger Agreement and to refrain
from taking certain actions; and
E. In connection with the transactions contemplated hereby, (i) the Bristol
Board has approved the Voting Agreement and other transactions contemplated
hereby so as to render inapplicable the special stockholder voting requirements
of Section 203 of the DGCL and (ii) the FelCor Board has adopted resolutions
relating to ownership of FelCor Common Shares by the Principal Stockholders.
Now, therefore, in consideration of the foregoing and the representations,
warranties and covenants contained herein, the parties hereto hereby agree as
follows:
I. THE MERGER AND CERTAIN RELATED TRANSACTIONS
1.1. The Merger. (a) On the terms and subject to the conditions of this
Agreement, and in accordance with the Maryland General Corporation Law (the
"MGCL") and the Delaware General Corporation Law (the "DGCL"), at the Effective
Time, Bristol will be merged with and into FelCor, whereupon the separate
corporate existence of Bristol will cease and FelCor will be the Surviving
Corporation.
A-1
<PAGE> 183
(b) From and after the Effective Time, the Surviving Corporation will
possess all the rights, privileges and powers and will assume all of the
liabilities, obligations and duties of Bristol and FelCor, all as provided under
the MGCL and the DGCL.
1.2. Pre-Merger Transactions. Prior to the Effective Time, Bristol will
cause BHMC, BHR and the Bristol Subsidiaries to consummate the transactions
contemplated by the Spin-Off Agreement and take such actions as are required
under the Spin-Off Agreement to be taken by it.
1.3. Closing. The closing of the Merger (the "Closing") will take place at
a date and time to be specified by the parties, which (subject to satisfaction
or waiver of the conditions set forth in Article VI) will be no later than the
third Business Day after satisfaction or waiver of the conditions set forth in
Article VI (the "Closing Date") at the offices of Jones, Day, Reavis & Pogue,
2300 Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas, unless another time,
date or place is agreed to in writing by the parties.
1.4. Effective Time. As soon as practicable following the satisfaction or
waiver of the conditions set forth in Article VI, (i) the parties will execute
and file articles of merger (the "Articles of Merger") with the State Department
of Assessments and Taxation of the State of Maryland (the "Department") in
accordance with the MGCL, (ii) the Surviving Corporation will execute and file a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in accordance with the DGCL, and (iii) the parties will
make any other filings and recordings required under the MGCL and the DGCL. The
Merger will become effective (the "Effective Time") at 9:00 a.m., New York City
time, on the Trading Day immediately following the Closing Date or, if later,
such date and time as the Department accepts the Articles of Merger for
recording and the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware, or at such other time as Bristol and FelCor
agree should be specified in the Articles of Merger and Certificate of Merger
(not to exceed 30 calendar days after the Articles of Merger are accepted for
recording by the Department and the Certificate of Merger is accepted for filing
by the Secretary of State of the State of Delaware). Unless otherwise agreed,
the parties will cause the Effective Time to occur at 9:00 a.m., New York City
time, on the Trading Day immediately following the Closing Date.
1.5. Articles of Amendment and Restatement of Surviving Corporation. The
Articles of Amendment and Restatement of FelCor will be amended and restated at
the Effective Time in the manner specified in Schedule 1.5 or as otherwise
agreed between FelCor and Bristol, and will be the Articles of Amendment and
Restatement of the Surviving Corporation from and after the Effective Time until
further amended or restated in accordance therewith and the MGCL.
1.6. Bylaws of Surviving Corporation. From and after the Effective Time,
the Bylaws of the Surviving Corporation will be the Bylaws of FelCor as in
effect immediately prior to the Effective Time, until further amended or
restated in accordance therewith and the MGCL.
1.7. Directors and Officers of Surviving Corporation. From and after the
Effective Time, the individuals identified on or determined in accordance with
Schedule 1.7 will serve as directors of the Surviving Corporation and will be
divided into "Class I", "Class II" and "Class III" directors as specified on
Schedule 1.7 until the earlier of the resignation or removal of any such
individual or until their respective successors are duly elected and qualified,
as the case may be. In the event that any such person is unable or unwilling to
serve as a director at the Effective Time, the party that designated such
individual will have the right to designate a replacement for such individual,
which right of replacement will terminate at the Effective Time and is subject
to approval of the other party hereto, which approval may not be unreasonably
withheld or delayed. Upon such replacement, Schedule 1.7 will be, without
further action, deemed to have been amended to reflect such selection. The
officers of FelCor immediately prior to the Effective Time will be the officers
of the Surviving Corporation, until the earlier of their resignation or removal
or until their respective successors are duly elected and qualified, as the case
may be.
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<PAGE> 184
1.8. Effect of the Merger on the Capital Stock of FelCor and Bristol. At
the Effective Time, by virtue of the Merger and without any action by the holder
of any Bristol Common Shares, FelCor Common Shares or FelCor Series A Preferred
Shares:
(a) Each FelCor Common Share and FelCor Series A Preferred Share
outstanding immediately prior to the Effective Time will remain
outstanding, and each certificate representing outstanding FelCor Common
Shares and FelCor Series A Preferred Shares will thereafter represent an
equal number of Surviving Corporation Common Shares and Surviving
Corporation Series A Preferred Shares, as the case may be;
(b) Subject to the provisions of Sections 1.8(c) and 1.8(d), each
Bristol Common Share outstanding immediately prior to the Effective Time
will be converted into the right to receive 0.685 (the "Exchange Ratio") of
a validly issued, fully paid and nonassessable share of common stock, par
value of $0.01 per share, of the Surviving Corporation ("Surviving
Corporation Common Shares"), and each Bristol Common Share theretofore
outstanding will cease to be outstanding and will cease to exist, and each
holder of a Bristol Certificate will thereafter cease to have any rights
with respect to such shares, except the right to receive, without interest,
the Surviving Corporation Common Shares as calculated pursuant to this
Section 1.8(b) and cash in lieu of fractional Surviving Corporation Common
Shares in accordance with Section 1.8(c) or Section 1.8(d), upon the
surrender of such Bristol Certificate in accordance with Section 1.9;
(c) Notwithstanding any other provision hereof, no fractional
Surviving Corporation Common Shares will be issued in connection with the
Merger. No such holder will be entitled to dividends, voting rights or any
other stockholder rights in respect of any fractional share. Instead, as
soon as practicable after the Effective Time, the Exchange Agent will
determine the excess of (i) the number of whole Surviving Corporation
Common Shares delivered to the Exchange Agent by FelCor pursuant to Section
1.9(a) over (ii) the aggregate number of whole Surviving Corporation Common
Shares to be distributed to holders of Bristol Common Shares pursuant to
Section 1.8(b) (such excess, the "Excess Shares"). FelCor will instruct the
Exchange Agent (i) to sell the Excess Shares at then-prevailing prices on
the New York Stock Exchange (the "NYSE") through one or more member firms
of the NYSE and (ii) to use reasonable efforts to complete the sale of the
Excess Shares as promptly following the Effective Time as, in the Exchange
Agent's sole judgment, is practicable consistent with obtaining the best
execution of such sales in light of prevailing market conditions, and in
any event, within 90 calendar days following the Effective Time. The
Exchange Agent will hold such proceeds in trust for the holders of Bristol
Common Shares who would otherwise be entitled to receive a fraction of a
Surviving Corporation Common Share, and will determine the portion of the
proceeds to which each such holder is entitled, if any, by multiplying the
amount of the aggregate net proceeds of such sale by a fraction, the
numerator of which is the amount of the fractional share interest to which
such holder is entitled, and the denominator of which is the aggregate
amount of fractional share interests to which all such holders of Bristol
Common Shares are entitled. The Surviving Corporation will pay all
commissions, transfer taxes, Exchange Agent's fees and other out-of-pocket
transaction costs incurred in connection with the sale of such Excess
Shares;
(d) Notwithstanding the provisions of Section 1.8(c), FelCor may elect
at its option, exercised prior to the Effective Time, in lieu of the
issuance and sale of Excess Shares and the making of payments pursuant to
Section 1.8(c), to pay each holder of Bristol Common Shares who would
otherwise be entitled to receive a fraction of a Surviving Corporation
Common Share, an amount in cash equal to the Closing Price immediately
preceding the Effective Time multiplied by the fraction of a Surviving
Corporation Common Share to which such holder would otherwise be entitled.
For purposes of this Agreement, "Closing Price" means the closing price of
the FelCor Common Shares (as reported in the New York Stock Exchange, Inc.
Composite Tape) on the Closing Date and "Trading Day" means any day on
which the NYSE is open for trading; and
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<PAGE> 185
(e) Each Bristol Common Share issued and held in Bristol's treasury or
by FelCor or any wholly owned FelCor Subsidiary at the Effective Time, if
any, will cease to be outstanding and will be canceled and retired and will
cease to exist without payment of any consideration therefor.
1.9. Exchange of Certificates. (a) As of the Effective Time, FelCor will
deposit with FelCor's transfer agent (the "Exchange Agent"), for the benefit of
the holders of certificates (the "Bristol Certificates") representing Bristol
Common Shares for exchange in accordance with this Section 1.9, certificates
(the "Surviving Certificates") representing Surviving Corporation Common Shares
to be issued pursuant to Article I.
(b) Promptly after the Effective Time, the Surviving Corporation will cause
the Exchange Agent to mail to each holder of record of Bristol Common Shares as
of the Effective Time a letter of transmittal which will specify (i) that
delivery will be effected, and risk of loss and title to Bristol Certificates
will pass, only upon delivery of such Bristol Certificates to the Exchange
Agent, and will be in such form and have such other provisions as the Surviving
Corporation may reasonably specify, and (ii) instructions for use in effecting
the surrender of such Bristol Certificates in exchange for Surviving
Certificates and cash in lieu of fractional shares. In addition, the Surviving
Corporation will enter into such other arrangements as Bristol may reasonably
request prior to the Effective Time to permit hand delivery of Bristol
Certificates in exchange for Surviving Certificates at the office of the
Exchange Agent maintained for such purposes in New York City commencing promptly
after the Effective Time. Upon surrender of a Bristol Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, the
holder of such Bristol Certificate will be entitled to receive in exchange
therefor (A) a Surviving Certificate representing the number of whole Surviving
Corporation Common Shares, (B) a check representing the amount of unpaid
dividends and distributions, if any, which such holder has the right to receive
pursuant to the provisions of Section 1.9(c) in respect of the Bristol
Certificate surrendered, and (C) a check or the right to receive a check
representing the amount of cash in lieu of a fractional Surviving Corporation
Common Share, if any, which such holder has the right to receive pursuant to the
provisions of Section 1.8 in respect of the Bristol Certificate surrendered, in
each case, after giving effect to any required withholding Tax, and the Bristol
Certificates so surrendered will forthwith be canceled. No interest will be paid
or accrued on the cash in lieu of fractional Surviving Corporation Common Shares
and unpaid dividends and distributions, if any, payable to holders of Bristol
Certificates. In the event of a transfer of rights to receive the consideration
provided herein with respect to Bristol Common Shares which is not registered in
the transfer records of Bristol, a Surviving Certificate representing the proper
number of Surviving Corporation Common Shares, together with a check for the
cash to be paid in lieu of any fractional Surviving Corporation Common Shares,
if any, and unpaid dividends and distributions, if any, which such holder has
the right to receive pursuant to the provisions of Section 1.8 and Section
1.9(c), respectively, in respect of the Bristol Certificate so surrendered,
after giving effect to any required withholding Tax, may be issued to such
transferee if the Bristol Certificate is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer Taxes have been paid. All Bristol
Certificates so surrendered will be canceled forthwith.
(c) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions on Surviving Corporation Common Shares will be paid with
respect to any Bristol Common Shares represented by a Bristol Certificate until
the Bristol Certificate is surrendered for exchange as provided herein. Subject
to the effect of applicable escheat and other Laws, following surrender of any
Bristol Certificate, there will be paid to the holder of the Surviving
Certificate issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after July 15, 1998 (the "First Dividend Date") theretofore payable with
respect to such whole Surviving Corporation Common Shares and not paid, less the
amount of withholding Taxes, if any, which may be required thereon, and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the First Dividend Date but prior to surrender and a
payment date subsequent to surrender payable with respect to such whole
Surviving Corporation Common Shares, less the amount of withholding Taxes, if
any, which may be required thereon.
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<PAGE> 186
(d) From and after the Effective Time, there will be no transfers on the
stock transfer books of Bristol of the Bristol Common Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Bristol Certificates are presented to the Surviving Corporation, they will
be canceled and exchanged for certificates for Surviving Corporation Common
Shares and cash in lieu of fractional Surviving Corporation Common Shares, if
any, and unpaid dividends and distributions deliverable in respect thereof
pursuant to this Agreement in accordance with the procedures set forth in
Section 1.8 and this Section 1.9. Bristol Certificates surrendered for exchange
by any Person constituting an "affiliate" of Bristol for purposes of Rule 145(c)
under the Securities Act of 1933, as amended (the "Securities Act"), will not be
exchanged until the Surviving Corporation has received a written agreement from
such Person as contemplated by Section 5.11.
(e) Any portion of the Surviving Certificates made available to the
Exchange Agent pursuant to Section 1.9(a) which remains unclaimed by the holders
of Bristol Common Shares for 180 calendar days after the Effective Time will be
delivered to the Surviving Corporation, upon demand of the Surviving
Corporation, and any former Bristol stockholders who have not theretofore
complied with this Section 1.9 may look only to the Surviving Corporation for
payment of their Surviving Corporation Common Shares, cash in lieu of fractional
shares and unpaid dividends and distributions on the Surviving Corporation
Common Shares deliverable in respect of each Bristol Common Share such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon.
(f) None of FelCor, Bristol, the Exchange Agent or any other Person will be
liable to any former holder of Bristol Common Shares for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar Laws.
(g) In the event any Bristol Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
or the Surviving Corporation will issue in exchange for such lost, stolen or
destroyed Bristol Certificate the Surviving Corporation Common Shares and cash
in lieu of fractional Surviving Corporation Common Shares, and unpaid dividends
and distributions on Surviving Corporation Common Shares as provided in Section
1.8 and Section 1.9(c), respectively, deliverable in respect thereof pursuant to
this Agreement.
1.10. Bristol Stock Options. (a) At the Spin-Off Time (as defined in the
Spin-Off Agreement), each outstanding option (each, an "Original Bristol
Option") to purchase Bristol Common Shares under Bristol's Amended and Restated
1995 Equity Incentive Plan (the "Bristol Incentive Plan") or Stock Option Plan
for Non-Employee Directors (the "Bristol Director Plan"), whether or not then
exercisable or vested, all of which Original Bristol Options that are
outstanding as of the Measurement Date are listed in Schedule 3.3 to the Bristol
Disclosure Letter, will continue to have, and be subject to, the same terms and
conditions as set forth in the Bristol Incentive Plan or the Bristol Director
Plan (as the case may be) and related option agreements pursuant to which the
Original Bristol Options were granted, provided that each Original Bristol
Option will be redenominated into two options which will be continuations of the
Original Bristol Options, effected through amendment of Original Bristol Options
to an "Amended Bristol Option" and a "BHR Option," each having identical terms
and conditions to the Original Bristol Options except: (i) the BHR Option will
be an option to purchase that number of BHR Common Shares equal to the product
of the number of Bristol Common Shares covered by such Original Bristol Option
immediately prior to the Spin-Off Time and the Spin-Off Conversion Ratio (as
defined in the Spin-Off Agreement), rounded to the nearest whole number of BHR
Common Shares, (ii) service with either Bristol, BHR or their respective
Subsidiaries following the Effective Time will satisfy the vesting requirements
and termination terms thereof, (iii) the per share exercise price for each BHR
Option will be an amount equal to the quotient of (A) the product of (x)
0.11385, subject to adjustment if and to the extent necessary to ensure that no
additional compensation expense results as specified in accordance with Emerging
Issues Task Force 90-9 (the "Valuation Ratio"), and (y) the exercise price for
the Original Bristol Options, divided by (B) the Spin-Off Conversion Ratio, (iv)
the per share exercise price for the Amended Bristol Options will be the product
of (x) 1 minus the Valuation Ratio and
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(y) the exercise price for the Original Bristol Options (the "Amended Bristol
Exercise Price"), and (v) all references to the Bristol Board or Bristol will,
with respect to the BHR Options, be deemed to be references to the Board of
Directors of BHR and BHR, respectively. Effective as of the Spin-Off Time, (A)
BHR will assume all obligations with respect to each BHR Option, (B) BHR will
reserve for issuance the number of BHR Common Shares that become issuable upon
the exercise of such BHR Options, and (C) Bristol will have no obligations with
respect to any BHR Options. Not later than the Spin-Off Time, Bristol and BHR
will amend (and each may restate) the Bristol Incentive Plan and the Bristol
Director Plan to effect the foregoing changes to such Plans.
(b) At the Effective Time, the Surviving Corporation will expressly assume
the Bristol Incentive Plan and the Bristol Director Plan and Bristol's
obligations under the Amended Bristol Options on and after the Effective Time.
Each Amended Bristol Option will continue to have, and be subject to, the same
terms and conditions as set forth in the Bristol Incentive Plan or the Bristol
Director Plan (as the case may be) and related option agreements as modified by
Section 1.10(a), provided that the Amended Bristol Options will be further
amended to provide that, (i) all references to Bristol Common Shares will be
deemed to be references to Surviving Corporation Common Shares, (ii) service
with either BHR, the Surviving Corporation or their respective Subsidiaries
following the Effective Time will satisfy the vesting requirements and
termination terms thereof, (iii) each Amended Bristol Option will be exercisable
for that number of whole Surviving Corporation Common Shares equal to the
product of the number of Bristol Common Shares covered by the Amended Bristol
Option immediately prior to the Effective Time and the Exchange Ratio, rounded
to the nearest whole number of Surviving Corporation Common Shares, (iv) the
exercise price per Surviving Corporation Common Share under each Amended Bristol
Option will be equal to the Amended Bristol Exercise Price divided by the
Exchange Ratio, rounded to the nearest cent, and (v) all references to the
Bristol Board or Bristol will be deemed to be references to the Board of
Directors of the Surviving Corporation and the Surviving Corporation,
respectively; provided, however that all decisions relating to the
interpretation or amendment of the Amended Bristol Options will require the
approval of the Compensation Committee of BHR, except for adjustments to the
exercise price or nature of securities to be awarded upon exercise of an Amended
Bristol Option in connection with a transaction in which the Amended Bristol
Options are treated in the same manner as options under other FelCor Option
Plans. The Surviving Corporation will reserve for issuance the number of
Surviving Corporation Common Shares that become issuable upon the exercise of
such Amended Bristol Options. As soon as practicable, the Surviving Corporation
will (i) amend (and each may restate) the Bristol Incentive Plan and the Bristol
Director Plan to effect the foregoing changes to such Plans, effective as of the
Effective Time and (ii) file with the SEC a registration statement on Form S-8
or other appropriate form with respect to the Surviving Corporation Common
Shares issuable pursuant to the Amended Bristol Options.
II. REPRESENTATIONS AND WARRANTIES OF FELCOR
Except as set forth in the letter of even date herewith signed by the
President or Vice President of FelCor in his capacity as such and delivered to
Bristol simultaneously with the execution and delivery of this Agreement (the
"FelCor Disclosure Letter"), FelCor represents and warrants to Bristol as
follows:
2.1. Organization, Standing and Power of FelCor. FelCor is a corporation
duly incorporated, validly existing and in good standing under the Laws of the
State of Maryland and has the requisite corporate power and authority to carry
on its business as now being conducted. FelCor is duly qualified or licensed to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, could not be reasonably expected to have a
material adverse effect on the business, financial condition or results of
operations of FelCor and the FelCor Subsidiaries, taken as a whole (a "FelCor
Material Adverse Effect"). FelCor has delivered to Bristol complete and correct
copies of its Articles of Amendment and Restatement, its Bylaws and the Amended
and Restated Agreement of Limited Partnership of FelCor Suites Limited
Partnership, a Delaware limited partnership (the "FelCor Operating
Partnership"), in each case as amended
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or supplemented to the date of this Agreement and currently in force and effect
(respectively, the "FelCor Articles", the "FelCor Bylaws" and the "FelCor
Operating Partnership Agreement").
2.2. FelCor Subsidiaries. (a) Schedule 2.2 to the FelCor Disclosure Letter
sets forth (i) the name and jurisdiction of incorporation or formation of each
Subsidiary of FelCor and of each other Person in which FelCor owns, directly or
indirectly, an equity or ownership interest (collectively, the "FelCor
Subsidiaries"), (ii) the name of the FelCor Hotel, if any, in which any FelCor
Subsidiary owns or holds an interest and the nature of that ownership or other
interest, and (iii) if such FelCor Subsidiary is not wholly owned (directly or
indirectly) by FelCor, (A) the percentage of capital stock or other equity
interests held by FelCor, and (B) the record owners (or class of owners with
respect to the FelCor Operating Partnership) of outstanding shares of its
capital stock or other equity interests.
(b) All the outstanding shares of capital stock of each FelCor Subsidiary
that is a corporation have been validly issued and are fully paid and
nonassessable. Except as set forth in Schedule 2.2 to the FelCor Disclosure
Letter, (i) all the outstanding shares of capital stock of each FelCor
Subsidiary that is a corporation are owned by FelCor or by another FelCor
Subsidiary free and clear of all pledges, claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever (collectively, "Liens"),
and (ii) all equity interests of each FelCor Subsidiary that is a partnership,
joint venture, limited liability company or trust are owned by FelCor or by
another FelCor Subsidiary free and clear of all Liens. Each FelCor Subsidiary
that is a corporation is duly incorporated, validly existing and in good
standing under the Laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as now being
conducted, and each FelCor Subsidiary that is a partnership, limited liability
company or trust is duly organized, validly existing and in good standing under
the Laws of its jurisdiction of organization and has the requisite partnership,
limited liability company or trust power and authority to carry on its business
as now being conducted. Each FelCor Subsidiary is duly qualified or licensed to
do business and is in good standing in each jurisdiction in which the nature of
its business or the ownership or leasing of its properties makes such
qualification or licensing necessary, other than in such jurisdictions where the
failure to be so qualified or licensed, individually or in the aggregate, could
not reasonably be expected to have a FelCor Material Adverse Effect. FelCor has
delivered or made available to Bristol complete and correct copies of the
articles or certificate of incorporation, bylaws, partnership, joint venture and
operating agreements and other organizational documents of each FelCor
Subsidiary, in each case, as amended or supplemented to the date of this
Agreement and currently in force and effect.
2.3. Capital Structures. (a) The authorized capital stock of FelCor
consists of 110,000,000 shares of capital stock, of which 100,000,000 are shares
of Common Stock, par value $0.01 per share ("FelCor Common Shares"), and
10,000,000 are FelCor Preferred Shares, 6,050,000 of which have been designated
as $1.95 Series A Cumulative Convertible Preferred Stock, par value of $0.01 per
share (the "FelCor Series A Preferred Shares"). As of the close of business on
March 20, 1998 (the "Measurement Date"), (i) 36,591,080 FelCor Common Shares and
6,050,000 FelCor Series A Preferred Shares were issued and outstanding, (ii)
1,212,500 FelCor Common Shares and no FelCor Series A Preferred Shares were held
in the treasury of FelCor, (iii) no more than 400,000 FelCor Common Shares were
reserved for issuance pursuant to FelCor's 1994 Restricted Stock and Stock
Option Plan (the "FelCor 1994 Option Plan"), (iv) no more than 1,400,000 FelCor
Common Shares were reserved for issuance pursuant to FelCor's 1995 Restricted
Stock and Stock Option Plan (the "FelCor 1995 Option Plan"), (v) no more than
1,000,000 FelCor Common Shares were reserved for issuance pursuant to FelCor's
1998 Restricted Stock and Stock Option Plan (the "FelCor 1998 Option Plan", and
together with the FelCor 1995 Option Plan and the FelCor 1994 Option Plan, the
"FelCor Option Plans"), (vi) since December 31, 1997, FelCor has not granted
options to purchase more than 400,000 FelCor Common Shares pursuant to the
FelCor Option Plans and (vii) a sufficient number of FelCor Common Shares were
reserved for issuance to permit the conversion of the then-outstanding FelCor
Series A Preferred Shares and the redemption of the then-outstanding units of
limited partner interest ("FelCor OP Units") of the FelCor Operating
Partnership. As of the Measurement Date, except as set forth in this Section
2.3, no shares of capital stock or other voting securities of FelCor were
issued, reserved for issuance or outstanding and during the period from and
following the Measurement Date to the Effective Time, there will be no change in
the issued and outstanding FelCor Common Shares and FelCor Series A
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Preferred Shares other than pursuant to (A) the exercise of options to purchase
FelCor Common Shares issued pursuant to the FelCor Option Plans and referred to
in this Section 2.3, (B) the exercise of conversion or redemption rights with
respect to the FelCor Series A Preferred Shares and the FelCor OP Units referred
to in this Section 2.3, or (C) the issuance of FelCor OP Units in connection
with transactions referred to on Schedule 4.2 to the FelCor Disclosure Letter.
Without limiting the generality or effect of any other provision hereof, neither
the Merger nor any other transaction contemplated hereby will accelerate the
vesting of or have any other effect under any options or other rights relating
to the acquisition of equity or other securities of FelCor or the FelCor
Operating Partnership.
(b) All of the issued and outstanding shares of capital stock of FelCor are
duly authorized, validly issued, fully paid and nonassessable and are not
subject to preemptive rights. Except as set forth in this Section 2.3 or in
Schedule 2.3 to the FelCor Disclosure Letter, as of the date of this Agreement,
there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
FelCor or any FelCor Subsidiary is a party or by which such entity is bound
obligating FelCor or any FelCor Subsidiary to issue, deliver, sell, repurchase,
redeem or otherwise acquire, or cause to be issued, delivered, sold,
repurchased, redeemed or acquired, additional shares of capital stock, voting
securities or other ownership interests of FelCor or any FelCor Subsidiary (or
securities convertible into or exchangeable for such ownership interests) or
obligating FelCor or any FelCor Subsidiary to issue, grant, extend or enter into
any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking (other than to FelCor or a FelCor Subsidiary). There
are no bonds, debentures, notes or other Indebtedness of FelCor having the right
to vote (or convertible into, or exchangeable for, securities having the right
to vote) on any matters on which stockholders of FelCor may vote.
(c) As of the Measurement Date, the partnership interests in the FelCor
Operating Partnership consist of (i) the 36,591,080 units of general partner
interest and (ii) 2,897,019 FelCor OP Units. All of the units of general partner
interest in FelCor Operating Partnership are owned by FelCor, free and clear of
all Liens.
2.4. Authority; Noncontravention; Consents. (a) FelCor has the requisite
corporate power and authority (i) to enter into this Agreement and each
Transaction Document to which FelCor is a party, (ii) to perform its obligations
hereunder and thereunder, and (iii) subject to the requisite approval of the
Merger by the holders of a majority of the FelCor Common Shares outstanding as
of the Record Date (the "FelCor Stockholder Approval"), to consummate the
transactions contemplated hereunder and thereunder. The execution and delivery
by FelCor of this Agreement and each Transaction Document to which FelCor is a
party and the consummation by FelCor of the transactions contemplated hereunder
and thereunder have been duly authorized by the FelCor Board, the FelCor Board
has recommended adoption of this Agreement by its stockholders and directed that
this Agreement be submitted to a meeting of its stockholders for their
consideration, and no other corporate proceedings on the part of FelCor or its
stockholders are necessary to authorize any of the foregoing, other than the
FelCor Stockholder Approval. This Agreement and each Transaction Document to
which FelCor is a party have been duly executed and delivered by FelCor and
constitute valid and binding obligations of FelCor, enforceable against FelCor
in accordance with their respective terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors' rights and by
general principles of equity (the foregoing exception, the "Bankruptcy
Exception").
(b) Except as set forth in Schedule 2.4 to the FelCor Disclosure Letter,
the execution and delivery by FelCor of this Agreement and each Transaction
Document to which FelCor is a party do not, and the consummation of the
transactions contemplated hereunder and thereunder and compliance by FelCor with
the provisions hereof and thereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any material obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of FelCor or any
FelCor Subsidiary under (i) the FelCor Articles or the FelCor Bylaws or the
comparable charter or organizational documents or partnership or similar
agreement (as the case may be) of any FelCor Subsidiary, including without
limitation the FelCor Operating Partnership, each as amended or supplemented,
(ii) any loan or credit agreement, note, bond, mortgage, indenture or any other
agreement evidencing, Indebtedness, reciprocal easement agreement, lease,
management or other agreement, instrument
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or Permit applicable to FelCor or any FelCor Subsidiary or their respective
properties or assets, or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation (collectively, "Laws") applicable to
FelCor or any FelCor Subsidiary or their respective properties or assets, other
than, in the case of clause (ii) or (iii), any such conflicts, violations,
defaults, rights, loss or Liens that, individually or in the aggregate, could
not reasonably be expected to (A) have a FelCor Material Adverse Effect or (B)
prevent or delay in any material respect the consummation of the transactions
contemplated by this Agreement and the Transaction Documents or otherwise
prevent FelCor from performing its obligations hereunder or thereunder in any
material respect. No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal, state or local government
or any court, administrative or regulatory agency or commission or other
governmental authority or agency, domestic or foreign (a "Governmental Entity"),
is required by or with respect to FelCor or any FelCor Subsidiary, including
without limitation the FelCor Operating Partnership, in connection with the
execution and delivery by FelCor of this Agreement or any of the Transaction
Documents to which FelCor is a party or the consummation by FelCor of the
transactions contemplated hereunder or thereunder, except for (i) the filing
with the Securities and Exchange Commission (the "SEC") of (A) a joint proxy
statement relating to the approval by FelCor's stockholders and Bristol's
stockholders of the transactions contemplated by this Agreement (as amended or
supplemented from time to time, the "Proxy Statement"), (B) registration
statements on appropriate forms under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (as amended or
supplemented from time to time, the "Registration Statements"), and (C) such
reports under the Exchange Act as may be required in connection with this
Agreement and the Transaction Documents and the transactions contemplated
hereunder and thereunder, (ii) the filing of listing applications with the NYSE
with respect to the Surviving Corporation Common Shares to be issued in the
Merger, (iii) the filing of the Articles of Merger with the Department, the
Certificate of Merger with the Secretary of State of the State of Delaware and
other appropriate merger documents and filings with any local recording office
or authorities of other states in which FelCor or Bristol is qualified to do
business, and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations and filings (A) as are set forth in Schedule 2.4 to
the FelCor Disclosure Letter or (B) which, if not obtained or made, could not
reasonably be expected to prevent or delay in any material respect the
consummation of any of the transactions contemplated by this Agreement or any of
the Transaction Documents or otherwise prevent FelCor from performing its
obligations hereunder or thereunder in any material respect or have,
individually or in the aggregate, a FelCor Material Adverse Effect or a Bristol
Material Adverse Effect.
2.5. SEC Documents; Financial Statements; Undisclosed
Liabilities. (a) FelCor and the FelCor Subsidiaries have filed all required
reports, schedules, forms, statements and other documents with the SEC from July
28, 1994 through the date hereof (the "FelCor SEC Documents"). Schedule 2.5 to
the FelCor Disclosure Letter contains a complete list of all FelCor SEC
Documents filed by FelCor and the FelCor Subsidiaries with the SEC since January
1, 1996 and on or prior to the date of this Agreement (the "FelCor Filed SEC
Documents"). All of the FelCor SEC Documents (other than preliminary material),
as of their respective filing dates, complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and, in each
case, the rules and regulations promulgated thereunder applicable to such FelCor
SEC Documents. None of the FelCor SEC Documents at the time of filing contained
any untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except to the extent such statements have been modified or
superseded by later FelCor Filed SEC Documents.
(b) The consolidated financial statements of FelCor and the FelCor
Subsidiaries included in the FelCor SEC Documents (i) complied as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, (ii) have been prepared
in accordance with United States generally accepted accounting principles
("GAAP") (except, in the case of unaudited statements, as permitted by the
applicable rules and regulations of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto
included in or incorporated into any FelCor Filed SEC Documents), and (iii)
present fairly, in all material respects, the consolidated financial
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position of FelCor and the FelCor Subsidiaries as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal and immaterial year-end
audit adjustments). Except as set forth in Schedule 2.5 to the FelCor Disclosure
Letter, FelCor has no Subsidiaries which are not consolidated for accounting
purposes.
(c) Except for liabilities and obligations set forth in the FelCor Filed
SEC Documents or in Schedule 2.5 to the FelCor Disclosure Letter or for
liabilities and obligations specifically contemplated to be incurred in
connection with this Agreement, neither FelCor nor any of the FelCor
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by GAAP to be set forth on a
consolidated balance sheet of FelCor or in the notes thereto and which,
individually or in the aggregate, could be reasonably expected to have a FelCor
Material Adverse Effect.
(d) Each of the operating statements for the FelCor Hotels provided or to
be provided by FelCor to Bristol or its advisors was prepared in the ordinary
course of business consistent with past practice and was derived from the books
and records for the applicable FelCor Hotel.
2.6. Absence of Certain Changes or Events. Except as disclosed in (i) the
FelCor Filed SEC Documents or (ii) Schedule 2.6 to the FelCor Disclosure Letter,
since December 31, 1997 (the "FelCor Financial Statement Date"), FelCor and the
FelCor Subsidiaries have conducted their business only in the ordinary course
thereof, and there has not been (a) any material adverse change, event or
development in the business, financial condition or results of operations of
FelCor and the FelCor Subsidiaries, taken as a whole (a "FelCor Material Adverse
Change"), nor has there been any occurrence or circumstance that with the
passage of time could reasonably be expected to result in a FelCor Material
Adverse Change, (b) except for regular quarterly distributions (in the case of
FelCor) not in excess of $0.55 per FelCor Common Share, $0.55 per FelCor OP Unit
and $.4875 per FelCor Series A Preferred Share, in each case with customary
record and payment dates, any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of FelCor's capital stock, (c) any split, combination or reclassification
of any of FelCor's capital stock, (d) any damage, destruction or loss, whether
or not covered by insurance, that, individually or in the aggregate, could be
reasonably expected to have a FelCor Material Adverse Effect, or (e) any change
in accounting methods, principles or practices by FelCor or any FelCor
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in the FelCor Filed SEC Documents or required
by a change in GAAP. There are no accrued and unpaid dividends on the FelCor
Series A Preferred Shares that have not been paid on the date such payment is
due.
2.7. Litigation. Except as disclosed in the FelCor Filed SEC Documents or
in Schedule 2.7 to the FelCor Disclosure Letter, and other than personal injury
and other routine personal injury litigation arising from the ordinary course of
operations of FelCor and the FelCor Subsidiaries and which are covered by
adequate insurance, there is no suit, action, proceeding or investigation
pending or, to the Knowledge of FelCor, threatened against or affecting FelCor
or any FelCor Subsidiary that, individually or in the aggregate, if decided
adversely to FelCor, could be reasonably expected to (i) have a FelCor Material
Adverse Effect or (ii) prevent or delay in any material respect the consummation
of any of the transactions contemplated by this Agreement or any of the
Transaction Documents or otherwise prevent FelCor from performing its
obligations hereunder or thereunder in any material respect, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against FelCor or any FelCor Subsidiary which,
individually or in the aggregate, could reasonably be expected to have any such
effect.
2.8. Properties. (a) All of the real estate properties owned or leased by
FelCor and the FelCor Subsidiaries are listed on Schedule 2.8 to the FelCor
Disclosure Letter (the "FelCor Properties"). FelCor has no direct or indirect
ownership interest in any real property as of the date hereof other than the
FelCor Properties.
(b) Except as disclosed on Schedule 2.8 to the FelCor Disclosure Letter,
FelCor or one of the FelCor Subsidiaries owns fee simple title to, or a valid
leasehold or joint venture interest in, each of the FelCor Properties, free and
clear of all Liens, security interests or other encumbrances on title
("Encumbrances"), except for such Encumbrances which, individually and in the
aggregate, could not be reasonably expected to have a FelCor Material Adverse
Effect. Except as disclosed on Schedule 2.8 to the FelCor Disclosure Letter,
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the FelCor Properties are not subject to any easements, rights of way,
covenants, conditions, restrictions or other written agreements or Laws
affecting building use or occupancy, or reservations of an interest in title
(collectively, "Property Restrictions") or Encumbrances, except for (i) Property
Restrictions imposed or promulgated by Law or any Governmental Entity with
respect to real property, including zoning regulations, that do not adversely
affect the current use of the property, materially detract from the value of or
materially interfere with the present use of the property, (ii) Encumbrances and
Property Restrictions disclosed on existing title policies, commitments (and the
documents listed as exceptions therein) or surveys (in each case copies of which
title policies, commitments (and the documents listed as exceptions therein) and
surveys have been delivered or made available to Bristol), (iii) leases between
FelCor and DJONT Operations, L.L.C., a Delaware limited liability company and
its subsidiaries, which are described on Schedule 2.8 to the FelCor Disclosure
Letter, (iv) retail leases, including restaurant, gift shop and roof top leases,
and (v) mechanics', carriers', supplier's, workmen's or repairmen's Liens and
other Encumbrances, Property Restrictions and other limitations of any kind, if
any, which, individually and in the aggregate, could not be reasonably expected
to have a FelCor Material Adverse Effect.
(c) Except for such matters as, individually and in the aggregate, could
not be reasonably expected to have a FelCor Material Adverse Effect, valid
policies of title insurance have been issued insuring FelCor's or the applicable
FelCor Subsidiary's title to or interest in each of the FelCor Properties, and
such policies are, at the date hereof, in full force and effect and no claim has
been made against any such policy and FelCor has no Knowledge of any facts or
circumstances which would constitute the valid basis for such a claim.
(d) Except for such of the following as, individually and in the aggregate,
could not be reasonably expected to have a FelCor Material Adverse Effect, to
the Knowledge of FelCor, (i) no certificate, Permit or license from any
Governmental Entity having jurisdiction over any of the FelCor Properties or any
agreement, easement or other right which is necessary to permit the lawful use
and operation of the buildings and improvements on any of the FelCor Properties
as currently operated or which is necessary to permit the lawful use and
operation of all driveways, roads and other means of egress and ingress to and
from any of the FelCor Properties (an "REA Agreement") has not been obtained and
is not in full force and effect, and there is no pending threat of modification
or cancellation of any of the same, nor is FelCor or any of the FelCor
Subsidiaries currently in default under any REA Agreement and the FelCor
Properties are in full compliance with all Permits; (ii) no written notice of
any violation of any Law affecting any portion of any of the FelCor Properties
has been issued by any Governmental Entity; (iii) there are no material
structural defects relating to any of the FelCor Properties; (iv) there is no
FelCor Property whose building systems are not in working order; and (v) there
is no physical damage to any FelCor Property in excess of $500,000 for which
there is no insurance in effect (other than reasonable and customary
deductibles) covering the full cost of the restoration. Except for such of the
following as, individually and in the aggregate, could not be reasonably
expected to have a FelCor Material Adverse Effect, the use and occupancy of each
of the FelCor Properties complies in all material respects with all applicable
Laws, and FelCor has no Knowledge of any pending or threatened proceeding or
action that will in any manner affect the size of, use of, improvements on,
construction on, or access to any of the FelCor Properties, with such exceptions
as are not material and do not interfere with the use made and proposed to be
made of such FelCor Properties. Except for such of the following as,
individually and in the aggregate, could not be reasonably expected to have a
FelCor Material Adverse Effect, neither FelCor nor any of the FelCor
Subsidiaries has received any written notice to the effect that (x) any
betterment assessments have been levied against, or any condemnation or rezoning
proceedings are pending or threatened with respect to any of the FelCor
Properties or (y) any zoning, building or similar Law is or will be violated by
the continued maintenance, operation or use of any buildings or other
improvements on any of the FelCor Properties or by the continued maintenance,
operation or use of the parking areas. Except for such of the following as,
individually and in the aggregate, could not be reasonably expected to have a
FelCor Material Adverse Effect, following a casualty, each of the FelCor
Properties could be reconstructed and used for hotel purposes under applicable
zoning laws and regulations, except that in certain circumstances such
reconstruction would have to comply with the dimensional requirements of
applicable zoning Laws and regulations in effect at the time of reconstruction.
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(e) Except as otherwise could not be reasonably expected to have a FelCor
Material Adverse Effect, there are no outstanding abatement proceedings or
appeals with respect to the assessment of any FelCor Property for the purpose of
real property Taxes, and there are no agreements with any Governmental Entity
with respect to such assessments or Tax rates on any FelCor Property.
2.9. Environmental Matters. None of FelCor, any of the FelCor Subsidiaries
or, to FelCor's Knowledge, any other Person has caused or permitted (a) the
unlawful presence of any Hazardous Materials on any of the FelCor Properties or
(b) any unlawful spills, releases, discharges or disposal of Hazardous Materials
to have occurred or be presently occurring on or from the FelCor Properties,
which presence or occurrence, individually or in the aggregate, could reasonably
be expected to have a FelCor Material Adverse Effect; and, in connection with
the construction on or operation and use of the FelCor Properties, FelCor and
the FelCor Subsidiaries have not failed to comply in any material respect with
all applicable Environmental Laws, except to the extent such failure to comply,
individually or in the aggregate, could not be reasonably expected to have a
FelCor Material Adverse Effect. No notice, notification, demand, request for
information, citation, summons, complaint or order has been received by or is
pending, or to the Knowledge of FelCor, is threatened by, any Person against
FelCor or any FelCor Subsidiary, other than where such notice, notification,
demand, request for information, citation, summons, complaint or order has been
fully resolved, or where such resolution, individually and in the aggregate,
could not be reasonably expected to result in a FelCor Material Adverse Effect.
FelCor has previously delivered or made available to Bristol or its counsel true
and complete copies of all internally prepared or commissioned environmental
studies, assessments and reports in the possession or under the control of
FelCor that relate to the FelCor Properties and/or FelCor's compliance with
Environmental Laws.
2.10. Absence of Changes in Benefit Plans; ERISA Compliance. (a) Except as
disclosed in the FelCor Filed SEC Documents or in Schedule 2.10 to the FelCor
Disclosure Letter and except as specifically contemplated by this Agreement,
since the FelCor Financial Statement Date, there has not been any adoption or
amendment in any material respect by FelCor or any FelCor Subsidiary of any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other employee benefit plan, arrangement or understanding (whether or not
legally binding) providing benefits to any current or former employee, officer
or director of FelCor, any FelCor Subsidiary or any Person Affiliated with
FelCor under Section 414(b), (c), (m) or (o) of the Code (collectively, "FelCor
Benefit Plans").
(b) Except as described in the FelCor Filed SEC Documents or in Schedule
2.10 to the FelCor Disclosure Letter, (i) all FelCor Benefit Plans, including
any such plan that is an "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), are
in compliance in all material respects with all applicable requirements of Law,
including without limitation ERISA and the Code, and (ii) neither FelCor nor any
FelCor Subsidiary has any material liabilities or obligations with respect to
any such FelCor Benefit Plan, whether accrued, contingent or otherwise, except
for any such noncompliance or liabilities that could not be reasonably expected
to have a FelCor Material Adverse Effect. Except as set forth in Schedule 2.10
to the FelCor Disclosure Letter, the execution of, and performance of the
transactions contemplated in, this Agreement and the Transaction Documents to
which FelCor is a party will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any FelCor Benefit
Plan, policy, arrangement or agreement or any trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any employee, officer or director of
FelCor or any FelCor Subsidiary. The only severance agreements or severance
policies applicable to officers or directors of FelCor or any of the FelCor
Subsidiaries are the agreements and policies specifically referred to in
Schedule 2.10 to the FelCor Disclosure Letter.
2.11. Taxes. (a) Each of FelCor and the FelCor Subsidiaries has timely
filed all Tax returns and reports required to be filed by it and for any
partnerships for which any of them is a general partner (after giving effect to
any filing extension properly granted by a Governmental Entity having authority
to do so) and has paid (or FelCor has paid on its behalf) all Taxes shown on
such returns and reports as required to be paid by it and all such Tax returns
and reports are complete and accurate in all material respects, except where the
failure to file
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such Tax returns or reports, the failure to pay such Taxes and the failure to be
complete and accurate in all material respects could not be reasonably expected
to have a FelCor Material Adverse Effect. The most recent audited financial
statements contained in the FelCor Filed SEC Documents reflect in accordance
with GAAP an adequate accrual for Taxes and for all deferred Taxes payable by
FelCor and the FelCor Subsidiaries for all taxable periods and portions thereof
through the date of such financial statements. Since the FelCor Financial
Statement Date, FelCor has incurred no liability for Taxes under Sections
857(b), 860(c) or 4981 of the Code, including without limitation any Tax arising
from a prohibited transaction described in Section 857(b)(6) of the Code, and
neither FelCor nor any FelCor Subsidiary has incurred any liability for Taxes
other than in the ordinary course of business. No event has occurred, and no
condition or circumstance exists, which presents a material risk that any
material Tax described in the preceding sentence will be imposed upon FelCor. To
the Knowledge of FelCor, (i) no deficiencies for any Taxes have been proposed,
asserted or assessed against FelCor or any of the FelCor Subsidiaries, (ii) no
requests for waivers of the time to assess any such Taxes are pending, and (iii)
no Tax returns of FelCor or any of the FelCor Subsidiaries are currently being
audited by any applicable taxing authority or threatened with any such audit.
There are no Tax Liens on any assets of FelCor or the FelCor Subsidiaries other
than Liens for current Taxes not past due. All payments for withholding Taxes,
unemployment insurance and other amounts required to be withheld and deposited
or paid to all taxing authorities have been so deposited or paid by FelCor and
the FelCor Subsidiaries.
(b) FelCor (and its predecessors) (i) for all taxable years commencing with
its taxable year beginning July 28, 1994 and ended December 31, 1994, and
through the most recent December 31, has been subject to taxation as a real
estate investment trust (a "REIT") within the meaning of Section 856 of the Code
and has satisfied all requirements to qualify as a REIT for such years, (ii) has
operated, and will continue to operate, in such a manner as to qualify as a REIT
for the taxable year ending December 31, 1998, and (iii) to FelCor's Knowledge,
no action, proceeding or investigation that could reasonably be expected to
result in the termination of FelCor's status as a REIT is pending or threatened.
No FelCor Subsidiary has since its formation owned any assets (including without
limitation securities) that would cause FelCor to incur tax under Section
857(b)(4) of the Code. Except as set forth in Schedule 2.11 to the FelCor
Disclosure Letter, each FelCor Subsidiary which is a corporation has been since
its formation a qualified REIT subsidiary under Section 856(i) of the Code.
(c) Neither FelCor nor any of its Subsidiaries has taken any action that
would create a material risk that the Merger would not qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
2.12. Brokers. No broker, investment banker, financial advisor or other
Person, other than BT Wolfensohn, the fees and expenses of which will be paid by
FelCor, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of FelCor or any FelCor
Subsidiary. FelCor has furnished to Bristol true and complete copies of all
agreements under which any such fees or expenses are payable and all
indemnification and other agreements related to the engagement of BT Wolfensohn.
2.13. Compliance with Laws. Except as disclosed in the FelCor Filed SEC
Documents, neither FelCor nor any of the FelCor Subsidiaries has violated or
failed to comply with any Law, Permit, judgment, decree or order of any
Governmental Entity applicable to its business, properties or operations, except
to the extent that such violation or failure could not be reasonably expected to
have a FelCor Material Adverse Effect. Each of FelCor and each FelCor Subsidiary
has all licenses, franchises, permits, concessions, orders, approvals or
registrations from, of or with any applicable Governmental Entity (collectively,
"Permits") that are required in order to permit it to carry on its business as
it is presently conducted, except those Permits which the failure to have could
not, individually or in the aggregate, reasonably be expected to have a FelCor
Material Adverse Effect. All such Permits are in full force and effect, except
for any such Permit as to which the failure so to be in full force and effect
could not, individually or in the aggregate, reasonably be expected to have a
FelCor Material Adverse Effect.
2.14. Labor Matters. Schedule 2.14 to the FelCor Disclosure Letter sets
forth a true and complete list as of the Measurement Date of each labor union or
collective bargaining agreement to which FelCor or any of
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the FelCor Subsidiaries is a party or which governs the terms of employment of
any of their respective employees. There is no labor strike or work stoppage
pending or, to the Knowledge of FelCor, threatened against FelCor, any FelCor
Subsidiary or any of the FelCor Properties, except as could not reasonably be
expected to have a FelCor Material Adverse Effect.
2.15. Compliance with Agreements. Neither FelCor nor any FelCor Subsidiary
has received a written notice that FelCor or any FelCor Subsidiary is in
violation of or in default under (nor to the Knowledge of FelCor does there
exist any condition which upon the passage of time or the giving of notice or
both would cause such a violation of or default under) any material loan or
credit agreement, note, bond, mortgage, indenture or other agreement evidencing
Indebtedness, lease, Permit, concession, franchise, management, license or any
other material contract, agreement, arrangement or understanding, to which it is
a party or by which it or any of its properties or assets is bound, except to
the extent that such violation or default, individually or in the aggregate,
could not reasonably be expected to have a FelCor Material Adverse Effect or as
set forth in Schedule 2.15 to the FelCor Disclosure Letter.
2.16. Opinion of Financial Advisor. FelCor has received the opinion of BT
Wolfensohn, dated as of the date hereof, a copy of which has been provided to
Bristol, to the effect that, as of the date hereof, the consideration to be paid
by FelCor pursuant to the Merger is fair, from a financial point of view, to
FelCor.
2.17. State Takeover Statutes. FelCor has taken all action necessary to
exempt the transactions contemplated by this Agreement from the operation of any
"fair price," "moratorium," "control share acquisition" or any other
anti-takeover requirement existing under the Laws of the State of Maryland.
2.18. Proxy and Registration Statements. None of the information supplied
or to be supplied by FelCor or any of its representatives for inclusion or
incorporation by reference in the Proxy Statement or the Registration Statements
will at the time such Proxy Statement or Registration Statements are filed with
the SEC and at the time of the mailing of the Proxy Statement or Registration
Statements to the stockholders of FelCor and Bristol contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. No representation is
made by FelCor with respect to statements made in the Proxy Statement or
Registration Statements based on information supplied by Bristol or any of its
Affiliates for inclusion therein, or with respect to information concerning
Bristol or any of its Subsidiaries incorporated by reference therein.
2.19. Definition of Knowledge of FelCor. As used in this Agreement, the
phrase to the "Knowledge of FelCor" (or words of similar import) means the
actual knowledge of those individuals identified in Schedule 2.19 to the FelCor
Disclosure Letter.
III. REPRESENTATIONS AND WARRANTIES OF BRISTOL
Except as set forth in the letter of even date herewith signed by the
President of Bristol in his capacity as such and delivered to FelCor
simultaneously with the execution and delivery of this Agreement (the "Bristol
Disclosure Letter"), Bristol represents and warrants to FelCor as follows:
3.1. Organization, Standing and Power of Bristol. Bristol is a corporation
duly incorporated, validly existing and in good standing under the Laws of the
State of Delaware and has the requisite corporate power and authority to carry
on its business as now being conducted. Bristol is duly qualified or licensed to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed,
individually or in the aggregate, could not reasonably be expected to have a
material adverse effect on the business, financial condition or results of
operations of Bristol and the Bristol Subsidiaries, taken as a whole; provided,
however, that any determination of whether any state of facts, event, change or
event would have a Bristol Material Adverse Effect will be made after giving
pro-forma effect to the Spin-Off (a "Bristol Material Adverse Effect"). Bristol
has delivered to FelCor complete and correct copies of its Fourth Amended and
Restated Certificate of Incorporation and
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its Amended and Restated Bylaws, in each case as amended or supplemented to the
date of this Agreement and currently in force and effect (respectively, the
"Bristol Certificate" and the "Bristol Bylaws").
3.2. Bristol Subsidiaries. (a) Schedule 3.2 to the Bristol Disclosure
Letter sets forth (i) the name and jurisdiction of incorporation or formation of
each Subsidiary of Bristol and of each other Person in which Bristol owns,
directly or indirectly, an equity or ownership interest (collectively, the
"Bristol Subsidiaries"), (ii) the name of the Bristol Hotel, if any, in which
any Bristol Subsidiary owns or holds an interest and the nature of that
ownership or other interest, and (iii) if such Bristol Subsidiary is not wholly
owned (directly or indirectly) by Bristol, (A) its authorized capital stock or
other equity interests, (B) the number of issued and outstanding shares of its
capital stock or other equity interests, and (C) the record owners of
outstanding shares of its capital stock or other equity interests.
(b) All the outstanding shares of capital stock of each Bristol Subsidiary
that is a corporation have been validly issued and are fully paid and
nonassessable. Except as set forth in Schedule 3.2 to the Bristol Disclosure
Letter, (i) all the outstanding shares of capital stock of each Bristol
Subsidiary that is a corporation are owned by Bristol or by another Bristol
Subsidiary free and clear of all Liens, and (ii) all equity interests of each
Bristol Subsidiary that is a partnership, joint venture, limited liability
company or trust are owned by Bristol or by another Bristol Subsidiary free and
clear of all Liens. Each Bristol Subsidiary that is a corporation is duly
incorporated, validly existing and in good standing under the Laws of its
jurisdiction of incorporation and has the requisite corporate power and
authority to carry on its business as now being conducted, and each Bristol
Subsidiary that is a partnership, limited liability company or trust is duly
organized, validly existing and in good standing under the Laws of its
jurisdiction of organization and has the requisite partnership, limited
liability company or trust power and authority to carry on its business as now
being conducted. Each Bristol Subsidiary is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed, individually or in the aggregate, could not reasonably
be expected to have a Bristol Material Adverse Effect. Bristol has delivered to
FelCor complete and correct copies of the articles or certificate of
incorporation, bylaws, partnership, joint venture and operating agreements and
other organizational documents of each Bristol Subsidiary, in each case, as
amended or supplemented to the date of this Agreement and currently in force and
effect.
(c) Following completion of the Spin-Off Transactions and immediately prior
to the Effective Time, except for interests in the Non-Corporate Bristol Hotel
Subsidiaries, Bristol will not own, directly or indirectly, any interest or
investment (whether equity or debt) in any corporation, partnership, joint
venture, trust or other entity.
3.3. Capital Structure. (a) The authorized capital stock of Bristol
consists of 200,000,000 shares of capital stock, of which 150,000,000 are
Bristol Common Shares and 50,000,000 are preferred shares, par value of $0.01
per share ("Bristol Preferred Shares"). As of the Measurement Date, (i)
43,800,401 Bristol Common Shares and no Bristol Preferred Shares were issued and
outstanding, (ii) no Bristol Common Shares were held in the treasury of Bristol,
(iii) 1,950,000 Bristol Common Shares were reserved for issuance pursuant to the
Bristol Incentive Plan, (iv) 150,000 Bristol Common Shares were reserved for
issuance pursuant to the Bristol Director Plan, and (v) 1,869,941 Bristol Common
Shares were issuable upon the exercise of outstanding Bristol Options. As of the
Measurement Date, except as set forth in this Section 3.3, no shares of capital
stock or other voting securities of Bristol were issued, reserved for issuance
or outstanding, and during the period from and following the Measurement Date to
the Effective Time, there will be no change in the issued and outstanding
Bristol Common Shares and Bristol Preferred Shares other than pursuant to the
exercise of outstanding Bristol Options referred to in this Section 3.3 or
Schedule 3.3 to the Bristol Disclosure Letter. Without limiting the generality
or effect of any other provision hereof, except as described in this Section 3.3
or Schedule 3.3 to the Bristol Disclosure Letter, neither the Merger nor any
other transaction contemplated hereby will accelerate the vesting of or have any
other effect under any options or other rights relating to the acquisition of
equity or other securities of Bristol.
(b) All of the issued and outstanding shares of capital stock of Bristol
are duly authorized, validly issued, fully paid and nonassessable and are not
subject to preemptive rights. Except as set forth in this Section 3.3 or
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in Schedule 3.3 to the Bristol Disclosure Letter, as of the date of this
Agreement, there are no outstanding securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which Bristol or any Bristol Subsidiary is a party or by which such entity is
bound obligating Bristol or any Bristol Subsidiary to issue, deliver, sell,
repurchase, redeem or otherwise acquire, or cause to be issued, delivered, sold,
repurchased, redeemed or acquired, additional shares of capital stock, voting
securities or other ownership interests of Bristol or of any Bristol Subsidiary
(or securities convertible into or exchangeable for such ownership interests) or
obligating Bristol or any Bristol Subsidiary to issue, grant, extend or enter
into any such security, option, warrant, call, right, commitment, agreement,
arrangement or undertaking (other than to Bristol or a Bristol Subsidiary).
There are no bonds, debentures, notes or other Indebtedness of Bristol having
the right to vote (or convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders of Bristol may vote.
3.4. Authority; Noncontravention; Consents. (a) Bristol has the requisite
corporate power and authority (i) to enter into this Agreement and each
Transaction Document to which Bristol is a party, (ii) to perform its
obligations hereunder and thereunder, and (iii) subject to the adoption of the
Merger Agreement by the holders of a majority of the Bristol Common Shares
outstanding as of the Record Date (the "Bristol Stockholder Approval" and,
together with the FelCor Stockholder Approval, the "Stockholder Approvals"), to
consummate the transactions contemplated hereunder and thereunder. The execution
and delivery by Bristol of this Agreement and each Transaction Document to which
Bristol is a party and the consummation by Bristol of the transactions
contemplated hereunder and thereunder have been duly authorized by the Bristol
Board, the Bristol Board has recommended adoption of this Agreement by its
stockholders and directed that this Agreement be submitted to a meeting of its
stockholders for their consideration, and no other corporate proceedings on the
part of Bristol or its stockholders are necessary to authorize any of the
foregoing, other than the Bristol Stockholder Approval. This Agreement and each
Transaction Document to which Bristol is a party have been duly executed and
delivered by Bristol and constitute valid and binding obligations of Bristol,
enforceable against Bristol in accordance with their respective terms, except as
enforceability may be limited by the Bankruptcy Exception.
(b) Except as set forth in Schedule 3.4 to the Bristol Disclosure Letter,
the execution and delivery by Bristol of this Agreement and each Transaction
Document to which Bristol is a party do not, and the consummation of the
transactions contemplated hereunder and thereunder and compliance by Bristol
with the provisions hereof and thereof will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any material obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of Bristol or any
Bristol Subsidiary under (i) the Bristol Certificate or the Bristol Bylaws or
the comparable charter or organizational documents or partnership or similar
agreement (as the case may be) of any Bristol Subsidiary, each as amended or
supplemented to the date of this Agreement, (ii) any loan or credit agreement,
note, bond, mortgage, indenture or any other agreement evidencing, Indebtedness,
reciprocal easement agreement, lease, management or other agreement, instrument
or Permit applicable to Bristol or any Bristol Subsidiary or their respective
properties or assets, or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any Laws applicable to Bristol or
any Bristol Subsidiary or their respective properties or assets, other than, in
the case of clause (ii) or (iii), any such conflicts, violations, defaults,
rights, loss or Liens that, individually or in the aggregate, could not
reasonably be expected to (A) have a Bristol Material Adverse Effect or (B)
prevent or delay in any material respect the consummation of the transactions
contemplated by this Agreement and the Transaction Documents or otherwise
prevent Bristol from performing its obligations hereunder or thereunder in any
material respect. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to Bristol or any Bristol Subsidiary in connection with the
execution and delivery by Bristol of this Agreement or any of the Transaction
Documents to which Bristol is a party or the consummation by Bristol of any of
the transactions contemplated hereunder or thereunder, except for (i) the filing
with the SEC of (A) the Proxy Statement, (B) the Registration Statements, and
(C) such reports under the Exchange Act as may be required in connection with
this Agreement and the Transaction Documents and the transactions contemplated
hereunder and thereunder, (ii) the filing of listing applications with the NYSE
with respect to the BHR Common Shares to be distributed in the Spin-Off, (iii)
the filing of
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the Certificate of Merger with the Secretary of State of the State of Delaware
and other appropriate merger documents and filings with any local recording
office or authorities of other states in which FelCor or Bristol is qualified to
do business, (iv) the filing of a premerger notification and report form under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") with respect to the Spin-Off, and (v) such other consents, approvals,
orders, authorizations, registrations, declarations and filings (A) as are set
forth in Schedule 3.4 to the Bristol Disclosure Letter or (B) which, if not
obtained or made, could not reasonably be expected to prevent or delay in any
material respect the consummation of any of the transactions contemplated by
this Agreement or any of the Transaction Documents or otherwise prevent Bristol
from performing its obligations hereunder or thereunder in any material respect
or have, individually or in the aggregate, a Bristol Material Adverse Effect or
a FelCor Material Adverse Effect.
(c) Each of the Bristol Corporate Subsidiaries will, at the time of its
merger with and into one of the Non-Corporate Bristol Hotel Subsidiaries, be
duly authorized and empowered to enter into such merger, and except as set forth
on Schedule 3.4 to the Bristol Disclosure Letter, none of such mergers will
conflict with or violate the terms of (i) any charter or bylaws of such Bristol
Corporate Subsidiary or (ii) any material agreement, mortgage, note, material
contract, deed of trust or security interest by which the Bristol Corporate
Subsidiary or its assets or properties are bound.
3.5. SEC Documents; Financial Statements; Undisclosed
Liabilities. (a) Bristol and the Bristol Subsidiaries have filed all required
reports, schedules, forms, statements and other documents with the SEC from
December 13, 1995 through the date hereof (the "Bristol SEC Documents").
Schedule 3.5 to the Bristol Disclosure Letter contains a complete list of all
Bristol SEC Documents filed by Bristol and the Bristol Subsidiaries with the SEC
since January 1, 1996 and on or prior to the date of this Agreement (the
"Bristol Filed SEC Documents"). All of the Bristol SEC Documents (other than
preliminary material), as of their respective filing dates, complied in all
material respects with all applicable requirements of the Securities Act and the
Exchange Act and, in each case, the rules and regulations promulgated thereunder
applicable to such Bristol SEC Documents. None of the Bristol SEC Documents at
the time of filing contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading, except to the extent such statements have been
modified or superseded by later Bristol Filed SEC Documents.
(b) The consolidated financial statements of Bristol and the Bristol
Subsidiaries included in the Bristol SEC Documents (i) complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, (ii) have been prepared
in accordance with GAAP (except, in the case of unaudited statements, as
permitted by the applicable rules and regulations of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto included in or incorporated into any Bristol Filed SEC Documents),
and (iii) present fairly, in all material respects, the consolidated financial
position of Bristol and the Bristol Subsidiaries as of the dates thereof and the
consolidated results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal and immaterial year-end
audit adjustments). Bristol has no Subsidiaries which are not consolidated for
accounting purposes.
(c) Except for liabilities and obligations set forth in (i) the Bristol
Filed SEC Documents, (ii) the draft copy of Bristol's Annual Report on Form 10-K
for the year ended December 31, 1997 provided to FelCor on the date of this
Agreement, or (iii) in Schedule 3.5 to the Bristol Disclosure Letter or for
liabilities and obligations specifically contemplated to be incurred in
connection with this Agreement, neither Bristol nor any Bristol Subsidiary has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by GAAP to be set forth on a consolidated
balance sheet of Bristol or in the notes thereto and which, individually or in
the aggregate, could be reasonably expected to have a Bristol Material Adverse
Effect.
(d) Each of the operating statements for the Bristol Hotels provided or to
be provided by Bristol to FelCor or its advisors was prepared in the ordinary
course of business consistent with past practice and was derived from the books
and records for the applicable Bristol Hotel.
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3.6. Absence of Certain Changes or Events. Except as disclosed in (i) the
Bristol Filed SEC Documents, (ii) Schedule 3.6 to the Bristol Disclosure Letter,
or (iii) the draft copy of Bristol's Annual Report on Form 10-K for the year
ended December 31, 1997 provided to FelCor on the date of this Agreement, since
December 31, 1997 (the "Bristol Financial Statement Date"), Bristol and the
Bristol Subsidiaries have conducted their business only in the ordinary course
thereof and there has not been (a) any material adverse change, event or
development in the business, financial condition or results of operations of
Bristol and the Bristol Subsidiaries, taken as a whole (a "Bristol Material
Adverse Change"), nor has there been any occurrence or circumstance that with
the passage of time could reasonably be expected to result in a Bristol Material
Adverse Change, (b) any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with respect to any of
Bristol's capital stock, (c) any split, combination or reclassification of any
of Bristol's capital stock, (d) any damage, destruction or loss, whether or not
covered by insurance, that, individually or in the aggregate, could be
reasonably expected to have a Bristol Material Adverse Effect, or (e) any change
in accounting methods, principles or practices by Bristol or any Bristol
Subsidiary materially affecting its assets, liabilities or business, except
insofar as may have been disclosed in the Bristol Filed SEC Documents or
required by a change in GAAP.
3.7. Litigation. Except as disclosed in (i) the Bristol Filed SEC
Documents, (ii) the draft copy of Bristol's Annual Report on Form 10-K for the
year ended December 31, 1997 provided to FelCor on the date of this Agreement,
or (iii) in Schedule 3.7 to the Bristol Disclosure Letter, and other than
personal injury and other routine personal injury litigation arising from the
ordinary course of operations of Bristol and the Bristol Subsidiaries and which
are covered by adequate insurance, there is no suit, action, proceeding or
investigation pending or, to the Knowledge of Bristol, threatened against or
affecting Bristol or any Bristol Subsidiary that, individually or in the
aggregate, if determined adversely to Bristol, could be reasonably expected to
(i) have a Bristol Material Adverse Effect or (ii) prevent or delay in any
material respect the consummation of any of the transactions contemplated by
this Agreement or any of the Transaction Documents or otherwise prevent Bristol
from performing its obligations hereunder or thereunder in any material respect,
nor is there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against Bristol or any Bristol Subsidiary
which, individually or in the aggregate, could reasonably be expected to have
any such effect.
3.8. Properties. (a) All of the real estate properties owned or leased by
Bristol and the Bristol Subsidiaries are listed on Schedule 3.8 to the Bristol
Disclosure Letter (the "Bristol Properties"). Bristol has no direct or indirect
ownership interest in any real property as of the date hereof other than the
Bristol Properties.
(b) Except as disclosed on Schedule 3.8 to the Bristol Disclosure Letter,
Bristol or one of the Bristol Subsidiaries owns fee simple title to, or a valid
leasehold interest or joint venture interest in, each of the Bristol Properties,
free and clear of all Encumbrances, except for such Encumbrances which,
individually and in the aggregate, could not be reasonably expected to have a
Bristol Material Adverse Effect. Except as disclosed on Schedule 3.8 to the
Bristol Disclosure Letter, the Bristol Properties are not subject to any
Encumbrances or Property Restrictions, except for (i) Property Restrictions
imposed or promulgated by Law or any Governmental Entity with respect to real
property, including zoning regulations, that do not adversely affect the current
use of the property, materially detract from the value of or materially
interfere with the present use of the property, (ii) Encumbrances and Property
Restrictions disclosed on existing title policies, commitments (and the
documents listed as exceptions therein) or surveys (in each case copies of which
title policies, commitments (and the documents listed as exceptions therein) and
surveys have been delivered or made available to FelCor), (iii) retail leases,
including restaurant, gift shop and roof top leases, and (iv) mechanics',
carriers', supplier's, workmen's or repairmen's Liens and other Encumbrances,
Property Restrictions and other limitations of any kind, if any, which,
individually and in the aggregate, could not be reasonably expected to have a
Bristol Material Adverse Effect.
(c) Except for such matters as, individually and in the aggregate, could
not be reasonably expected to have a Bristol Material Adverse Effect, valid
policies of title insurance have been issued insuring Bristol's or the
applicable Bristol Subsidiary's title to or interest in each of the Bristol
Properties, and such policies are, at
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the date hereof, in full force and effect and no claim has been made against any
such policy and Bristol has no Knowledge of any facts or circumstances which
would constitute the valid basis for such a claim.
(d) Except for such of the following as, individually and in the aggregate,
could not be reasonably expected to have a Bristol Material Adverse Effect, to
the Knowledge of Bristol, (i) no REA Agreement has not been obtained and is not
in full force and effect, and there is no pending threat of modification or
cancellation of any of the same, nor is Bristol or any of the Bristol
Subsidiaries currently in default under any REA Agreement and the Bristol
Properties are in full compliance with all Permits; (ii) no written notice of
any violation of any Law affecting any portion of any of the Bristol Properties
has been issued by any Governmental Entity; (iii) there are no material
structural defects relating to any of the Bristol Properties; (iv) except as set
forth on Schedule 3.8 to the Bristol Disclosure Letter, there is no Bristol
Property whose building systems are not in working order; and (v) there is no
physical damage to any Bristol Property in excess of $500,000 for which there is
no insurance in effect (other than reasonable and customary deductibles)
covering the full cost of the restoration. Except for such of the following as,
individually and in the aggregate, could not be reasonably expected to have a
Bristol Material Adverse Effect, the use and occupancy of each of the Bristol
Properties complies in all material respects with all applicable Laws, and
Bristol has no Knowledge of any pending or threatened proceeding or action that
will in any manner affect the size of, use of, improvements on, construction on,
or access to any of the Bristol Properties, with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
Bristol Properties. Except for such of the following as, individually and in the
aggregate, could not be reasonably expected to have a Bristol Material Adverse
Effect, neither Bristol nor any of the Bristol Subsidiaries has received any
written notice to the effect that (x) any betterment assessments have been
levied against, or any condemnation or rezoning proceedings are pending or
threatened with respect to any of the Bristol Properties or (y) any zoning,
building or similar Law is or will be violated by the continued maintenance,
operation or use of any buildings or other improvements on any of the Bristol
Properties or by the continued maintenance, operation or use of the parking
areas. Except for such of the following as, individually and in the aggregate,
could not be reasonably expected to have a Bristol Material Adverse Effect,
following a casualty, each of the Bristol Properties could be reconstructed and
used for hotel purposes under applicable zoning laws and regulations, except
that in certain circumstances such reconstruction would have to comply with the
dimensional requirements of applicable zoning Laws and regulations in effect at
the time of reconstruction.
(e) Except as otherwise could not be reasonably expected to have a Bristol
Material Adverse Effect, there are no outstanding abatement proceedings or
appeals with respect to the assessment of any Bristol Property for the purpose
of real property Taxes, and there are no agreements with any Governmental Entity
with respect to such assessments or Tax rates on any Bristol Property.
3.9. Environmental Matters. Except as disclosed in Schedule 3.9 to the
Bristol Disclosure Letter, none of Bristol, any of the Bristol Subsidiaries or,
to Bristol's Knowledge, any other Person has caused or permitted (a) the
unlawful presence of any Hazardous Materials on any of the Bristol Properties or
(b) any unlawful spills, releases, discharges or disposal of Hazardous Materials
to have occurred or be presently occurring on or from the Bristol Properties,
which presence or occurrence could, individually or in the aggregate, be
reasonably expected to have a Bristol Material Adverse Effect; and, in
connection with the construction on or operation and use of the Bristol
Properties, Bristol and the Bristol Subsidiaries have not failed to comply in
any material respect with all applicable Environmental Laws, except to the
extent such failure to comply, individually or in the aggregate, could not be
reasonably expected to have a Bristol Material Adverse Effect. No notice,
notification, demand, request for information, citation, summons, complaint or
order has been received by or is pending, or to the Knowledge of Bristol, is
threatened by, any Person against Bristol or any Bristol Subsidiary, other than
where such notice, notification, demand, request for information, citation,
summons, complaint or order has been fully resolved, or where such resolution,
individually and in the aggregate, could not be reasonably expected to result in
a Bristol Material Adverse Effect. Bristol has previously delivered or made
available to FelCor or its counsel true and complete copies of all internally
prepared or commissioned environmental studies, assessments and reports in the
possession or under the control of Bristol that relate to the Bristol Properties
and/or Bristol's compliance with Environmental Laws.
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3.10. Absence of Changes in Benefit Plans; ERISA Compliance. (a) Except as
disclosed in the Bristol Filed SEC Documents or in Schedule 3.10 to the Bristol
Disclosure Letter and except as specifically contemplated by this Agreement,
since the Bristol Financial Statement Date, there has not been any adoption or
amendment in any material respect by Bristol or any Bristol Subsidiary of any
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other employee benefit plan, arrangement or understanding (whether or not
legally binding) providing benefits to any current or former employee, officer
or director of Bristol, any Bristol Subsidiary or any Person Affiliated with
Bristol under Section 414(b), (c), (m) or (o) of the Code (collectively,
"Bristol Benefit Plans").
(b) Except as described in the Bristol Filed SEC Documents or in Schedule
3.10 to the Bristol Disclosure Letter, (i) all Bristol Benefit Plans, including
any such plan that is an "employee benefit plan" as defined in Section 3(3) of
the ERISA, are in compliance in all material respects with all applicable
requirements of Law, including without limitation ERISA and the Code, and (ii)
neither Bristol nor any Bristol Subsidiary has any material liabilities or
obligations with respect to any such Bristol Benefit Plan, whether accrued,
contingent or otherwise, except for any such noncompliance or liabilities that
could not be reasonably expected to have a Bristol Material Adverse Effect.
Except as set forth in Schedule 3.10 to the Bristol Disclosure Letter, the
execution of, and performance of the transactions contemplated in, this
Agreement and the Transaction Documents to which Bristol is a party will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Bristol Benefit Plan, policy, arrangement or
agreement or any trust or loan that will or may result in any payment (whether
of severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits with
respect to any employee, officer or director of Bristol or any Bristol
Subsidiary. The only severance agreements or severance policies applicable to
officers or directors of Bristol or any of the Bristol Subsidiaries are the
agreements and policies specifically referred to in Schedule 3.10 to the Bristol
Disclosure Letter.
3.11. Taxes. (a) Each of Bristol and the Bristol Subsidiaries has timely
filed all Tax returns and reports required to be filed by it and for any
partnerships for which any of them is a general partner (after giving effect to
any filing extension properly granted by a Governmental Entity having authority
to do so) and has paid (or Bristol has paid on its behalf) all Taxes shown on
such returns and reports as required to be paid by it and all such Tax returns
and reports are complete and accurate in all material respects, except where the
failure to file such Tax returns or reports, the failure to pay such Taxes and
the failure to be complete and accurate in all material respects could not be
reasonably expected to have a Bristol Material Adverse Effect. The most recent
audited financial statements contained in the Bristol Filed SEC Documents
reflect in accordance with GAAP an adequate accrual for Taxes and for all
deferred Taxes payable by Bristol and the Bristol Subsidiaries for all taxable
periods and portions thereof through the date of such financial statements. To
the Knowledge of Bristol, (i) no deficiencies for any Taxes have been proposed,
asserted or assessed against Bristol or any of the Bristol Subsidiaries, (ii) no
requests for waivers of the time to assess any such Taxes are pending, and (iii)
no Tax returns of Bristol or any of the Bristol Subsidiaries are currently being
audited by any applicable taxing authority or threatened with any such audit.
There are no Tax Liens on any assets of Bristol or the Bristol Subsidiaries
other than Liens for current Taxes not past due. All payments for withholding
Taxes, unemployment insurance and other amounts required to be withheld and
deposited or paid to all taxing authorities have been so deposited or paid by
Bristol and the Bristol Subsidiaries.
(b) Bristol (i) has not made or entered into, and does not own any asset
subject to, a consent filed pursuant to Section 341(f) of the Code or a "safe
harbor lease" subject to Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended before the Tax Reform Act of 1984, (ii) is not required to include in
income any amount for an adjustment pursuant to Section 481 of the Code, and
(iii) is neither a party to nor obligated under any agreement or other
arrangement providing for the payment of any amount that would be an "excess
parachute payment" under Section 280G of the Code.
(c) Neither Bristol nor any of its Subsidiaries has taken any action that
would create a material risk that the Merger would not qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
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(d) Assuming that the Spin-Off had been completed prior to the date hereof
and the Effective Time occurred on the date hereof, Bristol's E&P (excluding E&P
adjustments relating to the distribution of BHR stock, the taxable gain to
Bristol upon such distribution and the resulting income tax liability with
respect to such gain) would not be materially in excess of $125.0 million.
3.12. No Payments to Employees, Officers or Directors. Schedule 3.12 to the
Bristol Disclosure Letter sets forth a true and complete list of all cash and
non-cash payments which will become payable to each employee, officer or
director of Bristol or any Bristol Subsidiary as a result of the Merger, other
than the distribution of BHR Common Shares in the Spin-Off. Except as described
in Schedule 3.12 to the Bristol Disclosure Letter, or as otherwise provided for
in this Agreement, there is no employment or severance contract, or other
agreement requiring payments, cancellation of indebtedness or other obligation
to be made on a change of control or otherwise as a result of the consummation
of any of the transactions contemplated by this Agreement and the Transaction
Documents, with respect to any employee, officer or director of Bristol or any
Bristol Subsidiary.
3.13. Brokers. No broker, investment banker, financial advisor or other
Person, other than Merrill, Lynch, Pierce, Fenner & Smith Incorporated
("Merrill"), the fees and expenses of which will be paid by Bristol, is entitled
to any broker's, finder's, financial advisor's or other similar fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of Bristol or any Bristol Subsidiary. Bristol
has furnished to FelCor true and complete copies of all agreements under which
any such fees or expenses are payable and all indemnification and other
agreements related to the engagement of Merrill.
3.14. Compliance with Laws. Except as disclosed in the Bristol Filed SEC
Documents, neither Bristol nor any of the Bristol Subsidiaries has violated or
failed to comply with any Law, Permit, judgment, decree or order of any
Governmental Entity applicable to its business, properties or operations, except
to the extent that such violation or failure could not be reasonably expected to
have a Bristol Material Adverse Effect. Each of Bristol and each Bristol
Subsidiary has all Permits that are required in order to permit it to carry on
its business as it is presently conducted, except those Permits which the
failure to have could not, individually or in the aggregate, reasonably be
expected to have a Bristol Material Adverse Effect. All such Permits are in full
force and effect, except for any such Permit as to which the failure so to be in
full force and effect could not, individually or in the aggregate, reasonably be
expected to have a Bristol Material Adverse Effect.
3.15. Labor Matters. Schedule 3.15 to the Bristol Disclosure Letter sets
forth a true and complete list as of the Measurement Date of each labor union or
collective bargaining agreement to which Bristol or any of the Bristol
Subsidiaries is a party or which governs the terms of employment of any of their
respective employees. There is no labor strike or work stoppage pending or, to
the Knowledge of Bristol, threatened against Bristol, any Bristol Subsidiary or
any of the Bristol Properties, except as could not reasonably be expected to
have a Bristol Material Adverse Effect.
3.16. Compliance with Agreements. Neither Bristol nor any Bristol
Subsidiary has received a written notice that Bristol or any Bristol Subsidiary
is in violation of or in default under (nor to the Knowledge of Bristol does
there exist any condition which upon the passage of time or the giving of notice
or both would cause such a violation of or default under) any material loan or
credit agreement, note, bond, mortgage, indenture or other agreement evidencing
Indebtedness, lease, Permit, concession, franchise, management, license or any
other material contract, agreement, arrangement or understanding, to which it is
a party or by which it or any of its properties or assets is bound, except to
the extent such violation or default, individually or in the aggregate, could
not be reasonably expected to have a Bristol Material Adverse Effect or as set
forth in Schedule 3.16 to the Bristol Disclosure Letter.
3.17. Opinion of Financial Advisor. Bristol has received the opinion of
Merrill, dated the date hereof, a copy of which has been provided to FelCor, to
the effect that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of Bristol Common Shares.
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3.18. State Takeover Statutes. Bristol has taken all action necessary to
exempt the transactions contemplated by this Agreement from the operation of any
"fair price," "moratorium," "control share acquisition" or any other
anti-takeover requirement existing under the Laws of the State of Delaware.
3.19. Proxy and Registration Statements. None of the information supplied
or to be supplied by Bristol or any of its representatives for inclusion or
incorporation by reference in the Proxy Statement or the Registration Statements
will at the time such Proxy Statement or Registration Statements are filed with
the SEC and at the time of the mailing of the Proxy Statement or Registration
Statements to the stockholders of FelCor and Bristol contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of its
circumstances under which they were made, not misleading. No representation is
made by Bristol with respect to statements made in the Proxy Statement or
Registration Statements based on information supplied by FelCor or any of its
Affiliates for inclusion therein, or with respect to information concerning
FelCor or any of its Subsidiaries incorporated by reference therein.
3.20. Definition of Knowledge of Bristol. As used in this Agreement, the
phrase to the "Knowledge of Bristol" (or words of similar import) means the
actual knowledge of those individuals identified in Schedule 3.20 to the Bristol
Disclosure Letter.
IV. COVENANTS
4.1. Acquisition Proposals. (a) Prior to the Effective Time, each of FelCor
and Bristol agrees that:
(i) Neither it nor any of its Subsidiaries will (A) initiate or
solicit, directly or indirectly by furnishing any information or the making
of any proposal or offer (including without limitation any proposal or
offer to its stockholders), any Acquisition Proposal or (B) engage in any
negotiations concerning, provide any confidential information in connection
with or have any discussions with any Person relating to an Acquisition
Proposal. For purposes of this Agreement, "Acquisition Proposal" means any
proposal or offer from any Person (other than the transactions contemplated
by this Agreement or described in Schedule 4.1 to the FelCor Disclosure
Letter or Schedule 4.1 to the Bristol Disclosure Letter) relating to a
merger, acquisition, tender offer, exchange offer, business combination,
consolidation, sale of assets or similar transaction involving more than
10% of the equity securities of Bristol or FelCor or a substantial portion
of the assets or equity securities of Bristol and the Bristol Subsidiaries
or FelCor and the FelCor Subsidiaries (provided that, as to any sale or
exchange of assets, the transaction involves a total value including
assumed debt in excess of $100 million);
(ii) It will cause each of its officers, directors, employees,
financial advisors, attorneys, accountants and other representatives
retained by it or any of its Subsidiaries not to engage in any of the
activities described in Section 4.1(a)(i);
(iii) It will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any Persons conducted
heretofore with respect to any Acquisition Proposal and will take the
necessary steps to inform the Persons referred to in Section 4.1(a)(ii) of
the obligations undertaken in this Section 4.1; and
(iv) It will notify the other immediately if it receives any such
proposals or offers relating to an Acquisition Proposal, or any requests
for such information, which notice will describe the terms of any such
proposal, offer or request in reasonable detail, or if any such
negotiations or discussions relating to an Acquisition Proposal are sought
to be initiated or continued with it.
(b) Except as otherwise provided in Section 4.1(c), and in accordance with
Section 7.2, if applicable, neither the Bristol Board, the FelCor Board nor any
committee thereof may (i) withdraw or modify, or propose publicly to withdraw or
modify, in a manner adverse to the other party the approval or recommendation by
the Bristol Board or the FelCor Board or such committee thereof of the Merger or
this Agreement, (ii) approve or recommend, or propose publicly to approve or
recommend, any Acquisition Proposal, or (iii) authorize or otherwise cause
Bristol or FelCor, as applicable, to enter into any letter of intent, agreement
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in principle, acquisition agreement or other similar agreement related to any
Acquisition Proposal (each, an "Acquisition Agreement").
(c) Notwithstanding the foregoing, if, in response to an unsolicited
Acquisition Proposal, the Bristol Board, the FelCor Board or a committee
thereof, as applicable, determines after consultation with its financial
advisors that such Acquisition Proposal is reasonably capable of being completed
on the terms proposed and would, if consummated, result in a transaction more
favorable to such company's stockholders than the Merger and the other
transactions contemplated by this Agreement (taking into account the nature of
the proposed transaction, the nature and amount of the consideration, the
likelihood of completion and any other factors deemed appropriate by such Board)
(a "Superior Proposal"), such Board or committee may, or cause its
representatives to, engage in any negotiations concerning, or provide any
confidential information to, or have any discussions with, any Person relating
to the Superior Proposal or otherwise facilitate any effort or attempt to make
or implement the Superior Proposal; provided further, however, that, upon either
party's engaging in such negotiations or discussions, providing such information
or otherwise facilitating any effort or attempt to make or implement a Superior
Proposal, such party gives notice to the other party of its engagement in such
activities (a "Superior Proposal Transaction Notice"). Prior to furnishing
confidential information to, or entering into discussions or negotiations with,
any other Persons with respect to a Superior Proposal, such party must obtain
from such other Persons an executed confidentiality agreement with terms no more
favorable, taken as a whole, to such Person than those contained in the
applicable Confidentiality Agreements, but which confidentiality agreement may
not include any provision calling for an exclusive right to negotiate with such
Persons, and such party must advise the other party of the nature of such
confidential information delivered to such other Person reasonably promptly
following its delivery to the requesting party. With respect to any Superior
Proposal, the Bristol Board or the FelCor Board, as applicable, may, subject to
compliance with Section 7.2, on or after the fifth Trading Day following its
giving of a Superior Proposal Transaction Notice, (i) withdraw or modify its
approval or recommendation of the Merger or this Agreement, (ii) approve or
recommend such Superior Proposal, (iii) authorize or otherwise cause the company
of which it is the Board to enter into an Acquisition Agreement, and/or (iv)
terminate this Agreement pursuant to Section 7.1(h) or Section 7.1(i), as
applicable.
(d) Nothing contained in this Section 4.1 will prohibit Bristol or FelCor
from taking and disclosing to its stockholders a position contemplated by Rule
14e-1 under the Exchange Act or from making any disclosure to its stockholders
if such Board determines that such disclosure is necessary in order to comply
with such Board's fiduciary duties under applicable Law; provided, however, that
neither Bristol nor FelCor nor either of their respective Boards nor any
committee thereof may, except in accordance with Section 4.1(c), withdraw or
modify, or propose publicly to withdraw or modify, its position with respect to
this Agreement or the Merger or approve or recommend, or propose publicly to
approve or recommend, an Acquisition Proposal.
4.2. Conduct of FelCor's and Bristol's Business Pending Merger. Prior to
the Effective Time, except as (i) contemplated by this Agreement, (ii) necessary
to accomplish the Spin-Off Transactions, (iii) set forth on Schedule 4.2 to the
Bristol Disclosure Letter or Schedule 4.2 to the FelCor Disclosure Letter, or
(iv) consented to in writing by a majority of the individuals identified on
Schedule 4.2 or if either such individual is unable to serve in such capacity, a
replacement identified by the party that designated such individual (the "Joint
Operating Committee"), each of FelCor and Bristol will, and will cause each of
their respective Subsidiaries to:
(a) Conduct its business only in the usual, regular and ordinary
course and in substantially the same manner as heretofore;
(b) Use reasonable efforts to preserve intact its business
organization and goodwill and keep available the services of its officers
and key employees;
(c) Confer on a regular basis with one or more representatives of the
other party to report operational matters of materiality and, subject to
Section 4.1, any proposals to engage in material transactions;
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(d) Promptly notify the other party of any material emergency or other
material change in its business, financial condition, results of operations
or prospects;
(e) Promptly deliver to the other party true and correct copies of any
report, statement or schedule filed with the SEC by such party subsequent
to the date of this Agreement;
(f) Maintain its books and records in accordance with GAAP,
consistently applied, and not change in any material manner any of its
methods, principles or practices of accounting in effect at the applicable
Financial Statement Date, except as may be required by applicable Law or
GAAP;
(g) Duly and timely file all reports, Tax returns and other documents
required to be filed with federal, state, local and other authorities,
subject to extensions permitted by Law, provided such extensions do not
adversely affect FelCor's status as a qualified REIT under the Code;
(h) Not make or rescind any express or deemed election relative to
Taxes (unless required by Law or necessary to preserve FelCor's status as a
REIT or the status of any Subsidiary as a partnership for federal income
Tax purposes or as a qualified REIT subsidiary under Section 856(i) of the
Code, as the case may be);
(i) Not (i) acquire (other than pursuant to an existing agreement),
sell, lease, enter into any option to acquire, sell or lease, or exercise
an option or contract to acquire, sell or lease, additional real property,
(ii) make any loans, or advances to any other Person, except loans or
advances to employees in the ordinary course of business and except as
contemplated by Section 5.14, (iii) incur additional Indebtedness for
borrowed money other than under existing agreements or as permitted or
contemplated by this Agreement, (iv) encumber or subject to any Lien any of
its properties or assets, or (v) enter into any new agreement or
commitment, or amend any existing agreement or commitment, to improve,
develop or construct real estate projects or to make any other capital
expenditure after the date of this Agreement other than (A) with respect to
FelCor, expenditures that are within FelCor's 1998 budget attached to
Schedule 4.2 to the FelCor Disclosure Letter and (B) with respect to
Bristol, (1) in respect of transactions, projects or other capital
expenditures relating to the improvement, development or construction of
real estate projects, expenditures that are within Bristol's 1998 budget
attached to Schedule 4.2 to the Bristol Disclosure Letter as to which
Bristol or any of its Subsidiaries have either commenced the expenditure of
money to third parties or entered into agreements or obligations to do so,
(2) in respect of transactions, projects or other capital expenditures
approved by the Joint Operating Committee, which approval may not be
unreasonably withheld or delayed, and (3) amounts not otherwise covered by
subclauses (1) or (2) involving capital expenditures for purposes other
than the improvement, development or construction of real estate projects
of, in the aggregate, less than $1.0 million;
(j) Use reasonable efforts to enter into agreements to sell assets of
Bristol and the Bristol Subsidiaries as agreed from time to time by the
Joint Operating Committee on terms authorized by it, and to permit FelCor
and its financial and legal advisors a reasonable opportunity to
participate in such process; provided however, that (i) such agreements may
provide at Bristol's election that any such sale or disposition will not be
consummated until the Effective Time and that Bristol may terminate such
agreement if this Agreement is terminated for any reason and (ii) in no
event will any party bind Bristol or its Subsidiaries to any liability or
obligation with respect to a sale of any assets in respect of any
transaction not approved by the Joint Operating Committee in the sole
discretion of the members thereof;
(k) Except as contemplated by Section 1.5, not amend its articles or
certificate of incorporation, bylaws or comparable charter or
organizational document or the certificate or articles of incorporation,
bylaws, partnership agreement, operating agreement, joint venture agreement
or comparable charter or organizational document of any FelCor Subsidiary
or Bristol Hotel Subsidiary without the other party's prior written
consent, which consent will not be unreasonably withheld or delayed;
(l) Not amend any material terms of any contract of such party in a
manner adverse to the Surviving Corporation in order to obtain the consent
of the other party or parties to such contract to any of the transactions
contemplated by this Agreement or the Spin-Off Agreement without obtaining
the
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prior written consent of the other party hereto, which consent may not be
unreasonably withheld or delayed;
(m) Make no change in the number of shares of capital stock,
membership interests or units of limited partnership interest issued and
outstanding, other than pursuant to (i) the exercise of options disclosed
in the FelCor Filed SEC Documents, the Bristol Filed SEC Documents,
Schedule 3.3 to the Bristol Disclosure Letter or Schedule 2.3 to the FelCor
Disclosure Letter, (ii) the conversion of FelCor Series A Preferred Shares
pursuant to the terms of the FelCor Series A Preferred Shares, and (iii)
the redemption of FelCor OP Units for FelCor Common Shares pursuant to the
terms of the FelCor OP Units;
(n) Grant no options or other right or commitment relating to its
capital stock, membership interests or units of limited partnership
interest or any security convertible into its capital stock, membership
interests or units of limited partnership interest, or any security the
value of which is measured by shares of capital stock, or any security
subordinated to the claim of its general creditors;
(o) Not (i) authorize, declare, set aside or pay any dividend or make
any other distribution or payment with respect to any shares of its capital
stock or change such party's normal record date for the payment of any
permitted dividend or distribution, other than as provided in Schedule 4.2
to the FelCor Disclosure Letter or (ii) directly or indirectly redeem,
purchase or otherwise acquire any shares of capital stock, membership
interests or units of partnership interest or any option, warrant or right
to acquire, or security convertible into, shares of capital stock,
membership interests or units of partnership interest, other than pursuant
to (A) the conversion of FelCor Series A Preferred Shares pursuant to the
terms of the FelCor Series A Preferred Shares and (B) the redemption of
FelCor OP Units for FelCor Common Shares pursuant to the terms of the
FelCor OP Units;
(p) Not adopt any new employee benefit plan or amend any existing
plans or rights, except for changes which are required by Law or changes
which are not more favorable to participants than provisions presently in
effect;
(q) Not settle any stockholder derivative or class action claims
arising out of or in connection with any of the transactions contemplated
by this Agreement and the Transaction Documents;
(r) Not change the ownership of any of its Subsidiaries except
pursuant to the Spin-Off Agreement;
(s) Not amend any of the Transaction Documents in any material
respect;
(t) Not take any action that would cause the Merger not to qualify as
a tax-free reorganization under Section 368(a)(1)(A) of the Code;
(u) Promptly notify the other party of any action, suit, proceeding,
claim or audit pending against or with respect to such party or its
Subsidiaries in respect of any Taxes where there is a reasonable
possibility of a determination or decision which would materially increase
the Tax liabilities of such party, and not change any of the Tax elections,
accounting methods, conventions or principals which relate to such party or
its Subsidiaries that could reasonably be expected to increase such party's
liabilities;
(v) Continue to maintain and repair all of its assets and properties
in a manner consistent with past practices; and
(w) Maintain all licenses and Permits as may be required by any
Governmental Entity administering Laws regulating the sale of alcoholic
beverages at the Bristol Hotels or the FelCor Hotels and take whatever
actions are necessary to maintain the continuity of service of alcoholic
beverage at the Bristol Hotels or the FelCor Hotels.
4.3. Other Actions. Each of FelCor and Bristol will not, and will use
commercially reasonable efforts to cause its respective Subsidiaries not to,
take any action that would result in (i) any of the representations and
warranties of such party (without giving effect to any "Knowledge"
qualification) set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties (without
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giving effect to any "Knowledge" qualification) that are not so qualified
becoming untrue in any material respect, or (iii) except as contemplated by
Section 4.1, any of the conditions to the Merger set forth in Article VI not
being satisfied.
V. ADDITIONAL COVENANTS
5.1. Preparation of the Registration Statements and the Proxy Statement;
FelCor Stockholders Meeting and Bristol Stockholders Meeting. (a) As soon as
practicable following the date of this Agreement, FelCor and Bristol will
prepare and file with the SEC a preliminary Proxy Statement in form and
substance satisfactory to each of Bristol and FelCor and such Registration
Statements as may be required to effect the Merger and the Spin-Off. To the
extent practicable, the parties will utilize one document for transmittal to
their respective stockholders to meet applicable legal requirements. Each of
FelCor and Bristol will use its reasonable best efforts to (i) prepare and
provide the other party as promptly as practicable the financial information
required to be disclosed in the Proxy Statement, (ii) cause Merrill and BT
Wolfensohn, as appropriate, to bring-down the opinions referred to in Section
2.16 and Section 3.17 to the date of the Proxy Statement, (iii) respond to any
comments of the SEC, and (iv) have the Registration Statements declared
effective under the Securities Act and the rules and regulations promulgated
thereunder as promptly as practicable after such filing and to keep the
Registration Statements effective as long as is necessary to consummate the
Merger and the Spin-Off. Each of FelCor and Bristol will use its reasonable best
efforts to cause the Proxy Statement to be mailed to FelCor's stockholders and
Bristol's stockholders, respectively, as promptly as practicable after the
Registration Statements are declared effective under the Securities Act. Each
party agrees to date its Proxy Statement as of the same date, which will be the
approximate date of mailing to the stockholders of the respective parties. Each
party will notify the other promptly of the receipt of any comments from the SEC
and of any request by the SEC for amendments or supplements to the Registration
Statements or the Proxy Statement or for additional information and will supply
the other with copies of all correspondence between such party or any of its
representatives and the SEC with respect to the Registration Statements or the
Proxy Statement. The Registration Statements and the Proxy Statement will comply
in all material respects with all applicable requirements of Law. Whenever any
event occurs which is required to be set forth in an amendment or supplement to
the Registration Statements or the Proxy Statement, Bristol or FelCor, as the
case may be, will promptly inform the other of such occurrences and cooperate in
filing with the SEC and/or mailing to the stockholders of Bristol and the
stockholders of FelCor such amendment or supplement to the Registration
Statements or the Proxy Statement.
(b) Bristol will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Bristol Stockholders Meeting") for the purpose of obtaining
the Bristol Stockholder Approval. Bristol will, through the Bristol Board,
recommend to its stockholders adoption of this Agreement; provided that,
notwithstanding any other provision of this Agreement, prior to the Bristol
Stockholders Meeting, such recommendation may be withdrawn, modified or amended
to the extent that, as a result of a Superior Proposal, the Bristol Board
determines that such withdrawal, modification or amendment is appropriate.
(c) FelCor will, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "FelCor Stockholders Meeting") for the purpose of obtaining
the FelCor Stockholder Approval. FelCor will, through the FelCor Board,
recommend to its stockholders adoption of this Agreement and the transactions
contemplated by this Agreement; provided that, notwithstanding any other
provision of this Agreement, prior to the FelCor Stockholders Meeting, such
recommendation may be withdrawn, modified or amended to the extent that, as a
result of a Superior Proposal, the FelCor Board determines that such withdrawal,
modification or amendment is appropriate.
(d) Bristol and FelCor will use their respective best efforts to hold their
respective stockholder meetings on the same day.
(e) If on the date for the Bristol Stockholders Meeting and FelCor
Stockholders Meeting established pursuant to Section 5.1(d), either Bristol or
FelCor has not received a sufficient number of proxies to approve the adoption
of this Agreement, then both parties will adjourn their respective stockholders
meetings until the
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first to occur of (i) the date ten calendar days after the originally scheduled
date of the stockholders meetings or (ii) the date on which the requisite number
of proxies approving the Merger has been obtained.
5.2. Access to Information; Confidentiality. Subject to the requirements of
confidentiality agreements with third parties, each of FelCor and Bristol will,
and will cause each of its Subsidiaries to, afford to the other party and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours prior to the Effective Time to all their respective properties, books,
contracts, commitments, personnel and records and, during such period, each of
FelCor and Bristol will, and will cause each of its Subsidiaries to, furnish
promptly to the other party (a) a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of federal or state securities Laws and (b) all other information
concerning its business, properties and personnel as such other party may
reasonably request. Each of FelCor and Bristol will, and will cause its
Subsidiaries to, and will use commercially reasonable efforts to cause its
officers, employees, accountants, counsel, financial advisors and other
representatives and Affiliates to, hold any nonpublic information in confidence
to the extent required by, and in accordance with, and will comply with the
provisions of the letter agreements, dated as of January 14, 1998 and February
27, 1998, between FelCor and Bristol (the "Confidentiality Agreements").
5.3. Consents; Notifications; Other Actions. (a) Subject to the terms and
conditions herein provided, FelCor and Bristol will (i) use all reasonable best
efforts to cooperate with one another in (A) determining which filings are
required to be made prior to the Effective Time with, and which consents,
approvals, Permits or authorizations are required to be obtained prior to the
Effective Time from, any Governmental Entity and any third parties in connection
with the execution and delivery of this Agreement and the Transaction Documents
and the consummation of the transactions contemplated hereby and thereby and (B)
timely making all such filings and timely seeking all such consents, approvals,
Permits and authorizations, (ii) use all reasonable best efforts to obtain in
writing any consents required from third parties to effectuate the Merger, such
consents to be in such form and substance as may be reasonably satisfactory to
FelCor and Bristol, and in connection therewith, not pay any consent fees unless
approved by FelCor, and (iii) use all reasonable best efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement and the Transaction Documents. If,
at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
directors of FelCor and Bristol will take all such necessary action.
(b) Each of Bristol and FelCor will give prompt notice to the other (i) if
any representation or warranty made by it contained in this Agreement that is
qualified as to materiality becomes untrue or inaccurate in any respect or any
such representation or warranty that is not so qualified becomes untrue or
inaccurate in any material respect or (ii) of the failure by it to comply with
or satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement; provided, however, that
no such notification will affect the representations, warranties or covenants of
the parties or the conditions to the obligations of the parties under this
Agreement.
(c) Bristol will use all reasonable efforts to cause each of the directors
and officers of Bristol and the Bristol Subsidiaries (other than BHMC, BHR and
their respective Subsidiaries) to resign as a director or officer of each
applicable company effective as of the Effective Time.
5.4. Tax Treatment. Each of Bristol and FelCor will use its reasonable best
efforts to cause the Merger to qualify as a tax-free reorganization under the
provisions of Section 368(a)(1)(A) of the Code and to obtain the opinions of
counsel referred to in Sections 6.1(e), 6.1(f) and 6.2(f).
5.5. Public Announcements. Bristol and FelCor will consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any press release or other written public statements with respect to the
transactions contemplated by this Agreement and the Transaction Documents,
including the Merger and the Spin-Off, and will not issue any such press release
or make any such written public statement prior to such consultation, except to
the extent it may be advised by counsel that it is required by applicable Law or
legal process. The parties agree that the initial press release to be issued
with respect to the
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transactions contemplated by this Agreement will be in the form agreed to by the
parties hereto prior to the execution of this Agreement.
5.6. Listing. Prior to the Effective Time, (a) FelCor will use its best
efforts to have the NYSE approve for listing, upon official notice of issuance,
the Surviving Corporation Common Shares to be issued in the Merger and (b)
Bristol will cause BHR to use reasonable efforts to have the NYSE, the NASDAQ or
another national securities exchange approve for listing, upon official notice
of issuance, the BHR Common Shares to be distributed in the Spin-Off.
5.7. Transfer and Gains Taxes. Bristol and FelCor will cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp Taxes, any transfer, recording,
registration and other fees and any similar Taxes which become payable in
connection with the transactions contemplated by this Agreement (together with
any related interests, penalties or additions to Tax, "Transfer and Gains
Taxes"). From and after the Effective Time, the Surviving Corporation will, or
will cause FelCor Operating Partnership, as appropriate, to pay or cause to be
paid, without deduction or withholding from any amounts payable to the holders
of Surviving Corporation Common Shares, all Transfer and Gains Taxes.
5.8. Indemnification. (a) From and after the Effective Time, the Surviving
Corporation will provide exculpation and indemnification for each individual who
is now or has been at any time prior to the date hereof, or who becomes prior to
the Effective Time, an officer or director of Bristol or any Bristol Subsidiary
(the "Indemnified Parties") which is the same as the exculpation and
indemnification provided to the Indemnified Parties by Bristol and the Bristol
Subsidiaries immediately prior to the Effective Time in the Bristol Certificate
and Bylaws or the applicable charter or other organizational document of such
Bristol Subsidiary, as in effect on the date hereof; provided, that such
exculpation and indemnification covers actions on or prior to the Effective
Time, including without limitation all transactions contemplated by this
Agreement and the Transaction Documents. In no event will the Surviving
Corporation be obligated to provide directors' and officers' liability
insurance. If the Surviving Corporation has directors' and officers' insurance,
such insurance will apply to all directors and officers of the Surviving
Corporation serving as such during the period such coverage is in effect.
Notwithstanding anything in this Agreement to the contrary, Bristol will
purchase insurance coverage for the directors and officers of Bristol who are
covered under Bristol's directors' and officers' insurance policy as of the
Effective Time for claims made after the Effective Time with respect to
liabilities arising or relating to periods prior to the Effective Time, which
insurance coverage will provide that FelCor is a named insured thereunder.
(b) The Surviving Corporation will continue in force and effect after the
Effective Time each indemnification agreement between Bristol or any Bristol
Subsidiary, on the one hand, and any Person, on the other hand, which was in
force and effect immediately prior to the Effective Time.
(c) The provisions of this Section 5.8 are intended to be for the benefit
of, and will be enforceable by, each Indemnified Party or other Person referred
to in this Section 5.8, his or her heirs, and his or her personal
representatives and will be binding on all successors and assigns of Bristol and
FelCor.
(d) In the event that the Surviving Corporation or any of its respective
successors or assigns (i) consolidates with or merges into any other Person and
will not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any Person, then, and in each such case the successors
and assigns of such entity will assume the obligations set forth in this Section
5.8, which obligations are expressly intended to be for the irrevocable benefit
of, and will be enforceable by, each Person covered hereby.
5.9. Spin-Off Transactions. (a) Bristol will diligently seek and use
reasonable best efforts to obtain prior to the Closing Date all material
consents required to be obtained by BHMC and BHR to perform their respective
obligations under the Spin-Off Agreement and the other agreements contemplated
hereby to which BHMC and BHR is a party. Bristol will keep FelCor apprised in
reasonable detail of its progress in obtaining such consents.
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(b) Bristol will furnish to FelCor copies of all documentation relating to
or to be delivered in connection with the Spin-Off Transactions. Without
limiting the generality or effect of the foregoing, Bristol will furnish to
FelCor copies of all documentation relating to (i) the transfers to BHR of the
Spin-Off Assets (as defined in the Spin-Off Agreement) and the assumptions by
BHR of the Spin-Off Liabilities (as defined in the Spin-Off Agreement), (ii) the
formation and organizational documents for the Non-Corporate Bristol Hotel
Subsidiaries, and (iii) the merger documents between the Bristol Corporate
Subsidiaries and the Non-Corporate Bristol Hotel Subsidiaries, and provide
FelCor an opportunity to comment thereon and consent to any of such
documentation.
5.10. Declaration of Dividends and Distributions. From and after the date
of this Agreement, except for the Spin-Off, Bristol will not declare or pay any
dividend or distribution to its stockholders. From and after the date of this
Agreement, FelCor will not declare or pay any dividend or other distribution to
the stockholders except in accordance with Schedule 4.2 to the FelCor Disclosure
Letter.
5.11. Affiliates; Etc. Prior to the Closing Date, Bristol will deliver to
FelCor a letter identifying all Persons who are, at the time this Agreement is
submitted for adoption by to the stockholders of Bristol, "affiliates" of
Bristol for purposes of Rule 145 under the Securities Act. Bristol will use
reasonable efforts to cause each such Person to deliver to FelCor on or prior to
the Closing Date a written agreement substantially in the form attached as
Exhibit A.
5.12. Bristol's Accumulated and Current Earnings and Profits. Bristol will
use all reasonable efforts to assist FelCor and Arthur Andersen LLP in the
calculation of the current and accumulated earnings and profits (as determined
for federal income Tax purposes) ("E&P") of Bristol as of the Closing Date,
giving effect to the Spin-Off. Bristol will deliver to FelCor not later than 21
calendar days prior to the expected Closing Date, (i) a statement of accumulated
and current E&P of Bristol as of a date not more than 30 calendar days prior to
the Closing Date but after giving effect to the Spin-Off and (ii) a statement of
estimated accumulated and current E&P of Bristol as of the Closing Date after
giving effect to the Spin-Off (together, the "Preliminary E&P Statement").
Bristol will use reasonable efforts to obtain from Arthur Andersen LLP (i) upon
delivery of the Preliminary E&P Statement, such firm's computation, or
confirmation of Bristol's computation, of accumulated and current E&P of Bristol
as set forth in the Preliminary E&P Statement and (ii) an undertaking to provide
within three months after the Closing Date, such firm's final computation, or
confirmation of Bristol's computation, of accumulated and current E&P of Bristol
as of the Closing Date, in substantially the form set forth on Schedule 5.12
(with such changes thereto as FelCor may reasonably request and to which Arthur
Andersen LLP may agree).
5.13. REIT-Related Matters. (a) Bristol will take such further actions and
engage in such further transactions as determined by FelCor, based on written
advice of FelCor's counsel, as may be reasonably necessary to preserve FelCor's
status as a REIT under the Code, provided that no such actions could reasonably
be expected to have a material adverse economic effect on Bristol or its
stockholders if the Merger is not consummated or on BHR following the Spin-Off
Transactions.
(b) At the Closing, FelCor will deliver to each of the Principal
Stockholders an exemption from the stock ownership limitations in the FelCor
Articles that permits each of the Principal Stockholders to own at any time up
to 15% of the FelCor Common Shares outstanding (the "Exemptions"). The
Exemptions will be conditioned upon the continuing accuracy of the
representations provided by the Principal Stockholders as to their ownership of
FelCor Common Shares and BHR Common Shares in connection with obtaining the
Exemptions. The percentage of FelCor Common Shares that each Principal
Stockholder may own under the Exemption will be reduced automatically (i) to the
extent FelCor issues additional FelCor Common Shares which entitle such
Principal Stockholder to purchase additional FelCor Common Shares to maintain
its percentage ownership and such Principal Stockholder elects not to maintain
its percentage ownership of FelCor Common Shares by acquiring additional shares
in connection with such issuance and (ii) to the extent necessary for FelCor to
maintain its REIT status.
5.14. Interim Credit Facility. As promptly as practicable and in any event
not later than April 15, 1998, the parties will enter into an interim credit
facility providing for loans of (i) $25.0 million to fund a portion of the cash
required in connection with the Omaha Hotel, Inc. acquisition as described in
Schedule 4.2 to the
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Bristol Disclosure Letter, and (ii) $31.2 million to fund the prepayment on June
15, 1998 of the $30 million Senior Secured Notes described in Schedule 3.4 to
the Bristol Disclosure Letter. Such loans will be secured by certain of the
Omaha assets so acquired or other real estate acceptable to FelCor, will bear a
market rate of interest and be on other commercially reasonable terms and
conditions. The loans will be due and payable 120 days following the termination
of this Agreement pursuant to Section 7.1 hereof ; provided, however, that (i)
if FelCor is obligated to pay the Break-up Fee in connection with such
termination, the maturity date of such loan will be extended to the date on
which FelCor pays the Break-up Fee (but in no event beyond December 31, 2003)
and (ii) if this Agreement is terminated prior to the Effective Time pursuant to
Section 7.1(f), any loans then outstanding will be converted into unsecured
indebtedness of Bristol, will bear a market rate of interest and be on other
commercially reasonable terms and will be due and payable on December 31, 2003.
VI. CONDITIONS
6.1. Conditions To Each Party's Obligation To Effect the Merger. The
obligations of each party to effect the Merger will be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) Stockholder Approvals. The Bristol Stockholder Approval and the
FelCor Stockholder Approval shall have been obtained;
(b) Listing of Shares. The NYSE shall have approved for listing the
Surviving Corporation Common Shares to be issued in the Merger, subject to
official notice of issuance;
(c) Registration Statement. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings by the SEC seeking a stop order;
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Merger, the Spin-Off or any of the other
transactions contemplated hereby shall be in effect;
(e) Tax Opinion. Bristol and FelCor shall have received an opinion,
dated the Closing Date, from Hunton & Williams, Jenkens & Gilchrist or
Jones, Day, Reavis & Pogue, based upon certificates and letters
substantially in the form set forth in Exhibit B hereto and dated the
Closing Date (and which the parties agree to provide as reasonably
requested by counsel), to the effect that the Merger will qualify as a
tax-free reorganization under the provisions of Section 368(a)(1)(A) of the
Code;
(f) Opinion Relating to REIT Status and Partnership Status. Bristol
and FelCor shall have received an opinion of Hunton & Williams, counsel to
FelCor, or Jones, Day, Reavis & Pogue, counsel to Bristol, in each case in
substantially the form set forth in Exhibit C hereto dated the Closing Date
to the effect that (i) commencing with its taxable year ended December 31,
1994, FelCor was organized and has operated in conformity with the
requirements for qualification as a REIT under the Code,(ii) FelCor
Operating Partnership has been since its formation in 1994 and continues to
be treated for federal income Tax purposes as a partnership, and not as a
corporation or association taxable as a corporation, and (iii) the Merger
will not prevent FelCor from continuing to operate in conformity with the
requirements for qualification as a REIT under the Code; and
(g) Change in Tax Laws. There shall not have been any Federal
Legislative or Regulatory Change. For purposes of this Agreement, the term
"Federal Legislative or Regulatory Change" means any enacted, promulgated
or proposed legislative, administrative or judicial action, interpretation
or decision that causes or if effected could be reasonably expected to
cause FelCor to cease to qualify as a REIT for federal income tax purposes.
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6.2. Conditions To Obligations of FelCor. The obligations of FelCor to
effect the Merger and to consummate the other transactions contemplated to occur
on the Closing Date is further subject to the following conditions, any one or
more of which may be waived by FelCor:
(a) Representations and Warranties of Bristol. The representations and
warranties of Bristol set forth in this Agreement shall be true and correct
as of the date of this Agreement and as of the Closing Date (other than
changes thereto which occurred solely by reason of the Spin-Off
Transactions), as though made on and as of the Closing Date, except to the
extent the representation or warranty is expressly limited by its terms to
another date, and FelCor shall have received a certificate (which
certificate may be qualified by Knowledge to the same extent as the
representations and warranties of Bristol contained herein are so
qualified) signed on behalf of Bristol by the President of Bristol, in such
capacity, to such effect. For the purposes of Section 6.2(a), the
representations and warranties of Bristol will be deemed true and correct
unless the breach of such representations and warranties, in the aggregate,
could reasonably be expected to have a Bristol Material Adverse Effect;
provided, however, that for purposes of this Section 6.2(a), the
representation and warranty of Bristol set forth in Section 3.11(d) will be
deemed to be true and correct unless the breach thereof would have a FelCor
Material Adverse Effect;
(b) Performance of Covenants of Bristol. Bristol shall have performed
in all material respects all covenants required to be performed by it under
this Agreement at or prior to the Effective Time, and FelCor shall have
received a certificate signed on behalf of Bristol by the President of
Bristol, in such capacity, to such effect;
(c) Material Adverse Change. Since the date of this Agreement, there
shall have been no Bristol Material Adverse Change and FelCor shall have
received a certificate of the President of Bristol, in such capacity,
certifying to such effect;
(d) Spin-Off Transactions. The Spin-Off Transactions shall have been
completed and all documents required to be delivered in connection with the
Spin-Off Transactions pursuant to the Spin-Off Agreement shall have been
executed and delivered by all parties thereto;
(e) Delivery of E&P Statement. Arthur Andersen LLP shall have
delivered to FelCor its confirmation of Bristol's E&P set forth in the
Preliminary E&P Statement as required by Section 5.12; and
(f) Other Opinions. Bristol shall have received an opinion of Jones,
Day, Reavis & Pogue to the effect that (i) the Merger will not result in
either (A) the merger of Holiday Inns, Inc. with and into Bristol pursuant
to that certain Agreement and Plan of Merger dated as of December 15, 1996,
as amended as of April 1, 1997, among Holiday Corporation, Holiday Inns,
Inc., and Bristol or (B) the Exchange (as that term is defined in that
Agreement and Plan of Merger) failing to qualify for tax free treatment
under Section 368(a)(1)(D) of the Code and Section 355 of the Code and
Section 368(a)(1)(A) of the Code, respectively, and (ii) the distribution
to the holders of Bristol Common Shares of all of the BHR Common Shares as
provided in the Spin-Off Agreement will be treated for federal income tax
purposes as a taxable dividend by Bristol to the holders of Bristol Common
Shares.
6.3. Conditions To Obligations of Bristol. The obligations of Bristol to
effect the Merger and to consummate the other transactions contemplated to occur
on the Closing Date is further subject to the following conditions, any one or
more of which may be waived by Bristol:
(a) Representations and Warranties of FelCor. The representations and
warranties of FelCor set forth in this Agreement shall be true and correct
as of the date of this Agreement and as of the Closing Date, as though made
on and as of the Closing Date, except to the extent the representation or
warranty is expressly limited by its terms to another date, and Bristol
shall have received a certificate (which certificate may be qualified by
Knowledge to the same extent as the representations and warranties of
FelCor contained herein are so qualified) signed on behalf of FelCor by the
President of FelCor, in such capacity, to such effect. For the purposes of
this Section 6.3(a), the representations and warranties of
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FelCor will be deemed true and correct unless the breach of such
representations and warranties, in the aggregate, could reasonably be
expected to have a FelCor Material Adverse Effect;
(b) Performance of Covenants of FelCor. FelCor shall have performed in
all material respects all covenants required to be performed by it under
this Agreement at or prior to the Effective Time, and Bristol shall have
received a certificate signed on behalf of FelCor by the President of
FelCor, in such capacity, to such effect; and
(c) Material Adverse Change. Since the date of this Agreement, there
shall have been no FelCor Material Adverse Change and Bristol shall have
received a certificate of the President of FelCor, in such capacity,
certifying to such effect.
6.4. Frustration of Closing Conditions. Neither FelCor nor Bristol may rely
on the failure of any condition set forth in Section 6.1, 6.2 or 6.3, as the
case may be, to be satisfied if such failure was caused by such party's failure
to use reasonable efforts to consummate the Merger, the Spin-Off and the other
transactions contemplated by this Agreement and the Spin-Off Agreement, as
required by and subject to Sections 5.3 and 5.9.
VII. TERMINATION, AMENDMENT AND WAIVER
7.1. Termination. This Agreement may be terminated at any time prior to the
filing of the Articles of Merger with the Department, whether before or after
either of the Stockholder Approvals are obtained:
(a) By mutual written consent duly authorized by the FelCor Board and
the Bristol Board;
(b) By FelCor, upon a breach of any representation, warranty or
covenant on the part of Bristol set forth in this Agreement, in any case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b), as
the case may be, would be incapable of being satisfied by the Drop-Dead
Date;
(c) By Bristol, upon a breach of any representation, warranty or
covenant on the part of FelCor set forth in this Agreement, in any case
such that the conditions set forth in Section 6.3(a) or Section 6.3(b), as
the case may be, would be incapable of being satisfied by the Drop-Dead
Date;
(d) By either Bristol or FelCor, if any judgment, injunction, order,
decree or action by any Governmental Entity of competent authority
preventing the consummation of the Merger or the Spin-Off shall have become
final and nonappealable;
(e) By either FelCor or Bristol, if the Merger is not consummated by
September 30, 1998 or such later date to which the parties may agree in
their respective sole discretion (the "Drop Dead Date"); provided, in the
case of termination pursuant to this Section 7.1(e), the terminating party
shall not have breached in any material respect its obligations under this
Agreement in any manner that shall have proximately contributed to the
occurrence of the failure referred to in this Section;
(f) By either Bristol or FelCor if, upon a vote at a duly held FelCor
Stockholders Meeting or any adjournment thereof, the FelCor Stockholder
Approval shall not have been obtained;
(g) By either Bristol or FelCor if, upon a vote at a duly held Bristol
Stockholders Meeting or any adjournment thereof, the Bristol Stockholder
Approval shall not have been obtained;
(h) By Bristol, if (i) prior to the FelCor Stockholders Meeting, the
FelCor Board shall have withdrawn or modified in any manner adverse to
Bristol, or failed within ten Business Days of a request therefor to
reconfirm, its approval or recommendation of the Merger or this Agreement,
or approved or recommended or resolved to approve or recommend any Superior
Proposal, (ii) FelCor shall have entered into an Acquisition Agreement, or
(iii) FelCor or any of its officers, directors, employees or
representatives shall have taken any action that would be prohibited by
Section 4.1 but for the exceptions therein allowing certain actions to be
taken pursuant to Section 4.1(c);
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(i) By FelCor, if (i) prior to the Bristol Stockholders Meeting, the
Bristol Board shall have withdrawn or modified in any manner adverse to
FelCor, or failed within ten Business Days of a request therefor to
reconfirm, its approval or recommendation of the Merger or this Agreement,
or approved or recommended or resolved to approve or recommend any Superior
Proposal, (ii) Bristol shall have entered into an Acquisition Agreement, or
(iii) Bristol or any of its officers, directors, employees or
representatives shall have taken any action that would be prohibited by
Section 4.1 but for the exceptions therein allowing certain actions to be
taken pursuant to Section 4.1(c); and
(j) By Bristol if the Volume Weighted Average Trading Price for FelCor
Common Shares as reported in the NYSE Composite Transactions Report for any
ten Trading Day period prior to the Effective Time is less than $28.00 per
share.
7.2. Certain Fees and Expenses. (a) If this Agreement shall be terminated
(i) pursuant to Section 7.1(c) or 7.1(h), then FelCor will pay Bristol (provided
FelCor was not entitled to terminate this Agreement pursuant to Section 7.1(b)
at the time of such termination) a fee equal to the Break-Up Fee and (ii)
pursuant to Section 7.1(b) or 7.1(i), then Bristol will pay FelCor (provided
Bristol was not entitled to terminate this Agreement pursuant to Section 7.1(c)
at the time of such termination) an amount equal to the Break-Up Fee. If this
Agreement shall be terminated (i) pursuant to Section 7.1(g), then Bristol will
pay FelCor (provided Bristol was not entitled to terminate this Agreement
pursuant to Section 7.1(c) at the time of such termination), an amount equal to
the Break-Up Expenses, and (ii) pursuant to Section 7.1(f), then FelCor will pay
Bristol (provided FelCor was not entitled to terminate this Agreement pursuant
to Section 7.1(b) at the time of such termination), an amount equal to the
Break-Up Expenses. Notwithstanding the foregoing, if the Merger is not
consummated (other than due to the termination of this Agreement pursuant to
Section 7.1(a), 7.1(d) or 7.1(j) or Bristol's failure to perform its obligations
under this Agreement in such a manner so as to entitle FelCor to terminate this
Agreement pursuant to Section 7.1(b)) and at the time of the termination of this
Agreement an Acquisition Proposal has been received by FelCor, and either prior
to the termination of this Agreement or within 12 months thereafter FelCor or
any FelCor Subsidiary enters into any agreement providing for an Acquisition
Proposal which is subsequently consummated (whether or not such Acquisition
Proposal is the same Acquisition Proposal which had been received at the time of
the termination of this Agreement), then FelCor will pay the Break-Up Fee and
the Break-Up Expenses to Bristol. If the Merger is not consummated (other than
due to the termination of this Agreement pursuant to Section 7.1(a), 7.1(d) or
7.1(j) or FelCor's failure to perform its obligations under this Agreement in
such a manner so as to entitle Bristol to terminate this Agreement pursuant to
Section 7.1(c)) and at the time of the termination of this Agreement an
Acquisition Proposal has been received by Bristol, and either prior to the
termination of this Agreement or within 12 months thereafter Bristol or any
Bristol Subsidiary enters into any agreement providing for an Acquisition
Proposal which is subsequently consummated (whether or not such Acquisition
Proposal is the same Acquisition Proposal which had been received at the time of
the termination of this Agreement), then Bristol will pay the Break-Up Fee and
the Break-Up Expenses to FelCor.
(b) Any payment of the Break-Up Fee and, if applicable, Break-Up Expenses,
as aforesaid, will be compensation and liquidated damages for the loss suffered
by Bristol or FelCor, as applicable, as a result of the failure of the Merger to
be consummated and to avoid the difficulty of determining damages under the
circumstances, and neither party will have any other liability to the other
after such payment. The Break-Up Fee and/or the Break-Up Expenses will be paid
by FelCor to Bristol or Bristol to FelCor (as applicable), in immediately
available funds within ten Business Days after the date the event giving rise to
the obligation to make such payment occurred, provided, however, that neither
party may enter into any agreement providing for an Acquisition Proposal unless,
prior thereto, this Agreement is terminated in accordance with its terms and the
required Break-Up Fee and Break-Up Expenses are paid or otherwise provided for.
As used in this Agreement, "Break-Up Fee" will be an amount equal to the lesser
of (i) $60 million plus Break-Up Expenses (the "Base Amount") and (ii) in the
case of FelCor, the sum of (A) the maximum amount that can be paid to FelCor
without causing it to fail to meet the requirements of Sections 856(c)(2) and
(3) of the Code determined as if the payment of such amount did not constitute
income described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-(I) of the Code
("Qualifying Income"), as determined by
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independent accountants to FelCor, and (B) in the event FelCor receives a letter
from outside counsel (the "Break-Up Fee Tax Opinion") indicating that FelCor has
received a ruling from the Internal Revenue Service ("IRS") holding that
FelCor's receipt of the Base Amount would either constitute Qualifying Income or
would be excluded from gross income within the meaning of Sections 856(c)(2) and
(3) of the Code (the "REIT Requirements") (and therefore would not cause FelCor
to fail to satisfy the REIT Requirements) or that the receipt by FelCor of the
remaining balance of the Base Amount following the receipt of and pursuant to
such ruling would not be deemed constructively received prior thereto, the Base
Amount less the amount payable under clause (A) above. Bristol's obligation to
pay any unpaid portion of the Break-Up Fee will terminate five years from the
date of this Agreement. In the event that FelCor is not able to receive the full
Base Amount, Bristol will place the unpaid amount in escrow and will not release
any portion thereof to FelCor unless and until Bristol receives any one or
combination of the following: (i) a letter from FelCor's independent accountants
indicating the maximum amount that can be paid at that time to FelCor without
causing FelCor to fail to meet the REIT Requirements or (ii) a Break-Up Fee Tax
Opinion, in which event Bristol will pay to FelCor the lesser of the unpaid Base
Amount or the maximum amount stated in the letter referred to in clause (i)
above.
(c) The "Break-Up Expenses" payable to Bristol or FelCor, as the case may
be (the "Recipient"), will be an amount equal to the lesser of (i) $5 million as
payment for all of the Recipient's out-of-pocket costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including without limitation all attorneys', consultants', accountants' and
investment bankers' fees and expenses and all other costs and expenses such as
travel, fax, long-distance telephone and other costs) (the "Expense Fee") and
(ii) in the case of FelCor, the sum of (A) the maximum amount that can be paid
to the Recipient without causing it to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of such amount did
not constitute Qualifying Income, as determined by independent accountants to
the Recipient, and (B) in the event the Recipient receives a Break-Up Fee Tax
Opinion indicating that the Recipient has received a ruling from the IRS holding
that the Recipient's receipt of the Expense Fee would either constitute
Qualifying Income or would be excluded from gross income within the meaning of
the REIT Requirements (and therefore would not cause FelCor to fail to satisfy
the REIT Requirements) or that receipt by the Recipient of the remaining balance
of the Expense Fee following the receipt of and pursuant to such ruling would
not be deemed constructively received prior thereto, the Expense Fee less the
amount payable under clause (A) above. The obligation of Bristol or FelCor, as
applicable ("Payor"), to pay any unpaid portion of the Break-Up Expenses will
terminate five years from the date of this Agreement. In the event that the
Recipient is not able to receive the full Expense Fee, the Payor will place the
unpaid amount in escrow and will not release any portion thereof to the
Recipient unless and until the Payor receives any one or combination of the
following: (i) a letter from the Recipient's independent accountants indicating
the maximum amount that can be paid at that time to the Recipient without
causing the Recipient to fail to meet the REIT Requirements or (ii) a Break-Up
Fee Tax Opinion, in which event the Payor will pay to the Recipient the lesser
of the unpaid Expense Fee or the maximum amount stated in the letter referred to
in clause (i) above.
(d) Following the Effective Time, FelCor and BHR will each reasonably
consult with the other as to the computation of the contemplated distribution of
cash (the "Cash Distribution") sufficient, after giving effect to the Spin-Off,
to effect the complete elimination of Bristol's historical and current E&P
accumulated since the formation of Bristol until the Effective Time, such Cash
Distribution to be made on or before December 31, 1998. In the event that it is
determined, subsequent to the making of the Cash Distribution, that the Cash
Distribution did not eliminate Bristol's E&P as contemplated above, BHR will (i)
to the extent of any such shortfall, indemnify FelCor for an amount equal to the
costs incurred (including Tax payments and any associated interest and penalties
and reasonable accounting, legal and other out-of-pocket expenses) in disputing
any claim that the E&P had not been completely eliminated upon payment of the
Cash Distribution, provided, however, that BHR will be solely responsible under
this sentence for costs incurred up to a maximum of $5 million, and (ii) if such
costs exceed $5 million, (A) BHR will be responsible for 10% of any such costs
exceeding $5 million, up to a total of $5 million of additional payments by BHR,
and (B) any excess costs of this nature will be borne solely by FelCor.
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7.3. Effect of Termination. In the event of termination of this Agreement
by either FelCor or Bristol as provided in Section 7.1, this Agreement will
forthwith become void and have no effect, without any liability or obligation on
the part of Bristol or FelCor (other than the last sentence of Section 5.2,
Section 7.2, this Section 7.3 and Article VIII); provided that (a) if this
Agreement is terminated by FelCor pursuant to Section 7.1(b), Bristol will not
be entitled to any of the benefits of Section 7.2, or (b) if this Agreement is
terminated by Bristol pursuant to Section 7.1(c), FelCor will not be entitled to
any of the benefits of Section 7.2.
7.4. Amendment. This Agreement may be amended by the parties in writing by
action of their respective Boards at any time before or after any Stockholder
Approvals are obtained and prior to the filing of the Articles of Merger with
the Department or the Certificate of Merger with the Secretary of State of the
State of Delaware; provided, however, that, after the Stockholder Approvals are
obtained, no such amendment, modification or supplement will be made which by
Law requires the further approval of stockholders without obtaining such further
approval.
7.5. Extension; Waiver. At any time prior to the Effective Time, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement, or (c) subject to the proviso of Section
7.4, waive compliance with any of the agreements or conditions of the other
party contained in this Agreement. Any agreement on the part of a party to any
such extension or waiver will be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise will not
constitute a waiver of those rights.
VIII. GENERAL PROVISIONS
8.1. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement confirming the representations and warranties in this
Agreement will survive the Effective Time. This Section 8.1 will not limit any
covenant or agreement of the parties which by its terms contemplates performance
after the Effective Time.
8.2. Notices. All notices, requests, claims, demands and other
communications under this Agreement will be in writing and will be delivered
personally, sent by overnight courier (providing proof of delivery) to the
parties or sent by fax (providing confirmation of transmission) at the following
addresses or fax numbers (or at such other address or fax number for a party as
will be specified by like notice):
(a) if to Bristol, to:
Bristol Hotel Company
14295 Midway Road
Dallas, Texas 75244
Attention: President
Attention: General Counsel
Telecopy: (972) 391-1515
with a copy to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attention: Robert A. Profusek
Telecopy: (212) 755-7306
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(b) if to FelCor, to:
FelCor Suite Hotels, Inc.
545 E. John Carpenter Freeway
Suite 1300
Irving, Texas 75062
Attention: President
Attention: General Counsel
Telecopy: (972) 444-4949
with a copy to:
Jenkens & Gilchrist, P.C.
1445 Ross Avenue
Suite 3200
Dallas, Texas 75202
Attention: Robert W. Dockery
Telecopy: (214) 855-4300
All notices will be deemed given only when actually received.
8.3. Certain Definitions. As used in this Agreement, the following terms
have the following meanings when used herein with initial capital letters:
(a) "Affiliate" (or words of similar import) has the same meaning as
such term is defined in Rule 405 promulgated under the Securities Act.
(b) "Bristol Hotel" means each of the hotels listed in Schedule 3.2 to
the Bristol Disclosure Letter, which constitutes all of the hotels in which
Bristol owns, directly or indirectly, an ownership interest.
(c) "Bristol Hotel Subsidiaries" means the Bristol Subsidiaries that
own or hold, directly or indirectly, an interest in a Bristol Hotel.
(d) "Business Day" means a day other than Saturday, Sunday or any day
on which commercial banks in New York, New York or Dallas, Texas are
authorized or obligated to close.
(e) "Environmental Law" means any Law or order of any Governmental
Entity relating to the regulation or protection of human health, safety or
the environment or to emissions, discharges, releases or threatened
releases of Hazardous Materials into the environment (including without
limitation, ambient air, soil, surface water, ground water, wetlands, land
or subsurface strata), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
(f) "FelCor Hotel" means each of the hotels listed in Schedule 2.2 to
the FelCor Disclosure Letter, which constitutes all of the hotels in which
FelCor owns, directly or indirectly, an ownership interest.
(g) "Hazardous Material" means (i) any petroleum or petroleum
products, flammable explosives, radioactive materials, asbestos in any form
that is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid containing
levels of polychlorinated biphenyls (PCBs), (ii) any chemicals or other
materials or substances which are now or hereafter become defined as or
included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants" or words of similar import
under any Environmental Law, and (iii) any other chemical or other material
or substance, exposure to which is now or hereafter prohibited, limited or
regulated by any Governmental Entity under any Environmental Law.
(h) "Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money,
whether secured or unsecured, (ii) all obligations of such Person under
conditional sale or other title retention agreements relating to property
purchased by such Person, (iii) all
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capitalized lease obligations of such Person, (iv) all obligations of such
Person under interest rate cap, swap, collar or similar transaction or
currency hedging transactions (valued at the termination value thereof),
and (v) all guarantees of such Person of any such indebtedness of any other
Person.
(i) "Non-Corporate Bristol Hotel Subsidiaries" means those of the
Bristol Hotel Subsidiaries that are taxable as partnerships or are
disregarded as entities under the Code.
(j) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(k) "Record Date" means the date determined by the Bristol Board or
the FelCor Board as the record date for determining the stockholders
entitled to notice of, and to vote at, the Bristol Stockholders Meeting or
the FelCor Stockholders Meeting, as applicable.
(l) "Spin-Off Transactions" means, collectively, the Reorganization,
the Contribution, the Subsidiary Mergers, the Holdings Distribution, the
Excess Shares Redemption and the Spin-Off, each as defined in the Spin-Off
Agreement, and the Leasing Transactions.
(m) "Subsidiary" of any Person means another Person, at least 50% of
the equity or voting securities of which is owned, directly or indirectly,
by such first Person.
(n) "Taxes" means all federal, state, local and foreign income,
property, sales, franchise, employment, excise and other taxes, tariffs or
governmental charges of any nature whatsoever, together with penalties,
interest or additions to Tax with respect thereto.
(o) "Transaction Documents" means this Agreement, the Spin-Off
Agreement, the Voting Agreement, the FelCor Stockholders and Registration
Rights Agreement (as defined in the Voting Agreement), the BHR Stockholders
Agreement (as defined in the Voting Agreement), the BHR Registration Rights
Agreement (as defined in the Voting Agreement), the New Leases (as defined
in the Spin-Off Agreement), the Hotel Properties Agreement (as defined in
the Voting Agreement), the Articles of Merger, the Certificate of Merger
and each other agreement, document, certificate or instrument delivered in
connection with any of the foregoing and to which either FelCor, Bristol,
BHR, BHMC or any FelCor Subsidiary or Bristol Subsidiary is a party.
(p) "Volume Weighted Average Trading Price" means, during any relevant
period, the quotient of (i) the sum of the product of (A) the number of
shares sold at a particular price per share during such period and (B) such
per share trading price over (ii) the total number of shares sold during
such period.
8.4. Interpretation. When a reference is made in this Agreement to a
Section, Exhibit or Schedule such reference will be to a Section, Exhibit or
Schedule of or to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and will not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they will be deemed to be followed by the words "without
limitation."
8.5. Counterparts. This Agreement may be executed in one or more
counterparts, all of which will be considered one and the same agreement and
will become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
8.6. Entire Agreement; No Third-party Beneficiaries. This Agreement, the
FelCor Disclosure Letter, the Bristol Disclosure Letter, the Confidentiality
Agreement and the Transaction Documents (a) constitute the entire agreement of
the parties and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter of this
Agreement and (b) except as provided in Article I and Sections 5.8 and 5.9, are
not intended to confer upon any Person other than the parties hereto any rights
or remedies.
8.7. Governing Law. This Agreement will be governed by, and construed in
accordance with, the Laws of the State of Delaware, regardless of the Laws that
might otherwise govern under applicable conflict of laws principles thereof.
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8.8. Assignment. Neither this Agreement, nor any of the rights, interests
or obligations under this Agreement, may be assigned or delegated, in whole or
in part, by operation of law or otherwise by any of the parties without the
prior written consent of the other party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
8.9. Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Texas or Delaware or in any Texas or Delaware State
court, this being in addition to any other remedy to which they are entitled at
law or in equity. In addition, each of the parties hereto (a) consents to submit
itself (without making such submission exclusive) to the personal jurisdiction
of any federal court located in the State of Texas or Delaware or any Texas or
Delaware State court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement and (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court.
8.10. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision will be interpreted
to be only so broad as is enforceable.
IN WITNESS WHEREOF, Bristol and FelCor have caused this Agreement to be
signed by their respective officers thereunto duly authorized all as of the date
first written above.
BRISTOL HOTEL COMPANY
By: /s/ JOEL M. EASTMAN
----------------------------------
Joel M. Eastman
Vice President
FELCOR SUITE HOTELS, INC.
By: /s/ LAWRENCE D. ROBINSON
----------------------------------
Lawrence D. Robinson
Senior Vice President
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ANNEX B
[Letterhead of BT Wolfensohn]
June , 1998
Board of Directors
FelCor Suite Hotels, Inc.
545 E. John Carpenter Freeway
Suite 1300
Irving, TX 75062
Gentlemen:
BT Wolfensohn has acted as financial advisor to FelCor Suite Hotels, Inc.
("FelCor") in connection with the proposed merger of FelCor and Bristol Hotel
Company ("Bristol") pursuant to the Agreement and Plan of Merger, dated March
23, 1998, between Bristol and FelCor (the "Merger Agreement"), which provides,
among other things for the spin-off by Bristol of its hotel management
operations to its stockholders (the "Spin Off") and the merger of Bristol, which
will then own only the real estate assets, with and into FelCor (the
"Transaction"), with FelCor being the surviving corporation. As set forth more
fully in the Merger Agreement, as a result of the Transaction, each share of the
Common Stock, par value $0.01 per share, of Bristol ("Bristol Common Stock") not
owned directly or indirectly by Bristol or FelCor will be converted into the
right to receive 0.685 shares (the "Exchange Ratio") of Common Stock, par value
$0.01 per share, of FelCor ("FelCor Common Stock"). The terms and conditions of
the Transaction are more fully set forth in the Merger Agreement.
You have requested BT Wolfensohn's opinion, as investment bankers, as to
the fairness, from a financial point of view, of the Exchange Ratio to FelCor.
In connection with BT Wolfensohn's role as financial advisor to FelCor, and
in arriving at its opinion, BT Wolfensohn has reviewed certain publicly
available financial and other information concerning Bristol and FelCor and
certain internal analyses and other information furnished to it by Bristol and
FelCor. BT Wolfensohn has also considered the strategic objectives of FelCor as
outlined to BT Wolfensohn by FelCor management. BT Wolfensohn has also held
discussions with members of the senior managements of Bristol and FelCor
regarding the businesses and prospects of their respective companies and the
joint prospects of a combined company. In addition, BT Wolfensohn has (i)
reviewed the reported prices and trading activity for Bristol Common Stock and
FelCor Common Stock, (ii) compared certain financial and stock market
information for Bristol and FelCor with similar information for certain other
companies whose securities are publicly traded, (iii) reviewed the financial
terms of certain recent business combinations which it deemed comparable in
whole or in part, (iv) reviewed the financial terms of certain hotel portfolio
transactions it deemed comparable in whole or in part, (v) reviewed the
financial terms of the Merger Agreement and certain related documents, and (vi)
performed such other studies and analyses and considered such other factors as
it deemed appropriate.
BT Wolfensohn has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning Bristol or FelCor, including, without
limitation, any financial information, forecasts or projections considered in
connection with the rendering of its opinion. Accordingly, for purposes of its
opinion, BT Wolfensohn has assumed and relied upon the accuracy and completeness
of all such information and BT Wolfensohn has not conducted a physical
inspection of any of the properties or assets, and has not prepared or obtained
any independent evaluation or appraisal of any of the assets or liabilities, of
Bristol or FelCor. With respect to the financial forecasts and projections made
available to BT Wolfensohn and used in its analyses, BT Wolfensohn has assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Bristol or FelCor, as the
case may be, as to the matters covered thereby. In rendering its opinion, BT
Wolfensohn expresses no view as to the reasonableness of such forecasts and
projections, or the
<PAGE> 221
assumptions on which they are based. BT Wolfensohn's opinion is necessarily
based upon economic, market and other conditions as in effect on, and the
information made available to it as of, the date hereof.
For purposes of rendering its opinion, BT Wolfensohn has assumed that, in
all respects material to its analysis, the representations and warranties of
FelCor and Bristol contained in the Merger Agreement are true and correct,
FelCor and Bristol will each perform all of the covenants and agreements to be
performed by it under the Merger Agreement and all conditions to the obligations
of each of FelCor and Bristol to consummate the Transaction will be satisfied
without any waiver thereof. BT Wolfensohn has also assumed that all material
governmental, regulatory or other approvals and consents required in connection
with the consummation of the Transaction will be obtained and that in connection
with obtaining any necessary governmental, regulatory or other approvals and
consents, or any amendments, modifications or waivers to any agreements,
instruments or orders to which either FelCor or Bristol is a party or is subject
or by which it is bound, no limitations, restrictions or conditions will be
imposed or amendments, modifications or waivers made that would have a material
adverse effect on FelCor or Bristol or materially reduce the contemplated
benefits of the Transaction to FelCor. In addition, BT Wolfensohn has assumed
that following the consummation of the transaction, FelCor will continue to
qualify as a Real Estate Investment Trust under the Internal Revenue Code of
1986, as amended. In addition, you have informed BT Wolfensohn, and accordingly
for purposes of rendering its opinion BT Wolfensohn has assumed, that the
Transaction will be tax-free to each of FelCor and Bristol and their respective
stockholders and that the Spin Off will be taxable to Bristol and their
respective stockholders.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of FelCor and is not a recommendation to the stockholders of FelCor to
approve the Transaction. This opinion is limited to the fairness, from a
financial point of view, to FelCor of the Exchange Ratio.
BT Wolfensohn is engaged in the merger and acquisition and client advisory
business of Bankers Trust (together with its affiliates the "BT Group") and, for
legal and regulatory purposes, is a division of BT Alex. Brown Incorporated, a
registered broker-dealer and member of the New York Stock Exchange. BT
Wolfensohn will be paid a fee for its services as financial advisor to FelCor in
connection with the Transaction, a portion of which is contingent upon
consummation of the Transaction. One or more members of the BT Group have, from
time to time, provided investment banking services to FelCor and Bristol or
their affiliates for which it has received compensation. In the ordinary course
of business, members of the BT Group may actively trade in the securities and
other instruments and obligations of FelCor and Bristol for their own accounts
and for the accounts of their customers. Accordingly, the BT Group may at any
time hold a long or short position in such securities, instruments and
obligations.
Based upon and subject to the foregoing, it is BT Wolfensohn's opinion as
investment bankers that the Exchange Ratio is fair, from a financial point of
view, to FelCor.
Very truly yours,
BT WOLFENSOHN
B-2
<PAGE> 222
ANNEX C
[Letterhead of Merrill Lynch]
June , 1998
Board of Directors
Bristol Hotel Company
14285 Midway Road
Dallas, TX 75244
Members of the Board of Directors:
Bristol Hotel Company ("Bristol") and FelCor Suite Hotels Inc. ("FelCor")
have entered into an Agreement and Plan of Merger dated as of March 23, 1998 and
certain other agreements referred to therein (collectively, the "Agreements")
pursuant to which, among other transactions, each of Bristol's outstanding
common shares, $0.01 par value (the "Bristol Shares"), will be converted into
the right to receive 0.685 (the "Exchange Ratio") of a common share, $.01 par
value, of FelCor (the "FelCor Shares") (together, the "Transaction").
Immediately preceding the Transaction, a Spin-Off (as such term is defined in
the Agreements) shall occur in which all of the BHR Common Shares (as such term
is defined in the Agreements) shall be distributed to the shareholders of
Bristol prior to the merger of Bristol into FelCor (the "Merger").
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to the holders of the Bristol Shares.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to Bristol and FelCor that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of Bristol and FelCor;
(3) Conducted discussions with members of senior management of Bristol
and FelCor concerning the matters described in clauses (1) and (2) above,
as well as their respective businesses and prospects before and after
giving effect to the Transaction;
(4) Reviewed the market prices and valuation multiples for the Bristol
Shares and the FelCor Shares and compared them with those of certain
publicly traded companies that we deemed to be relevant;
(5) Reviewed the results of operations of Bristol and FelCor and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(6) Participated in certain discussions and negotiations among
representatives of Bristol and FelCor and their financial and legal
advisors;
(7) Reviewed the potential pro forma impact of the Transaction;
(8) Reviewed the Agreements; and
(9) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
<PAGE> 223
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of Bristol or FelCor or been furnished with any such evaluation or
appraisal. In addition, we have not assumed any obligation to conduct, nor have
we conducted, any physical inspection of the properties or facilities of Bristol
or FelCor. With respect to the financial forecast information furnished to or
discussed with us by Bristol or FelCor, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgment of Bristol's or FelCor's management as to the expected future financial
performance of Bristol or FelCor, as the case may be. We have also assumed that
the Merger will qualify as a tax-free reorganization for United States federal
income tax purposes and that, following the Transaction, FelCor will retain its
status as a real estate investment trust for such purposes.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the Transaction, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Transaction.
In connection with the preparation of this opinion, we have not been
requested to solicit, nor have we solicited, third-party indications of interest
for the acquisition of all or any part of Bristol.
We are acting as financial advisor to Bristol in connection with the
Transaction and will receive a fee from Bristol for our services, a significant
portion of which is contingent upon the consummation of the Transaction. In
addition, Bristol has agreed to indemnify us for certain liabilities arising out
of our engagement. We have, in the past, provided financial advisory and
financing services to Bristol and may continue to do so and have received, and
may receive, fees for the rendering of such services. In addition, in the
ordinary course of our business, we may actively trade the Bristol Shares and
other securities of Bristol, as well as the FelCor Shares and other securities
of FelCor, for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of
Bristol. Our opinion does not address the merits of the underlying decision by
Bristol to engage in the Transaction or the Spin-Off and does not constitute a
recommendation to any shareholder of Bristol as to how such shareholder should
vote on the proposed Transaction or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the
FelCor Shares will trade following the announcement or consummation of the
Merger or the prices at which the BHR Common Shares will trade following the
Spin-Off.
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the holders of the Bristol Shares.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
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ANNEX D
FELCOR SUITE HOTELS, INC.
1998 RESTRICTED STOCK AND STOCK OPTION PLAN
<PAGE> 225
FELCOR SUITE HOTELS, INC.
1998 RESTRICTED STOCK AND STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. Establishment, Purpose, and Effective Date of
Plan...................................................... 1
1.1 Establishment....................................... 1
1.2 Purpose............................................. 1
1.3 Effective Date...................................... 1
SECTION 2. Definitions..................................... 1
2.1 Definitions......................................... 1
2.2 Gender and Number................................... 2
SECTION 3. Eligibility and Participation................... 2
3.1 Eligibility and Participation....................... 2
SECTION 4. Administration.................................. 2
4.1 Administration...................................... 2
SECTION 5. Stock Subject to Plan........................... 2
5.1 Number.............................................. 2
5.2 Lapsed Awards....................................... 2
5.3 Adjustment in Capitalization........................ 2
SECTION 6. Shareholder Approval and Duration of Plan....... 3
6.1 Shareholder Approval................................ 3
6.2 Duration of Plan.................................... 3
SECTION 7. Stock Options................................... 3
7.1 Grant of Options.................................... 3
7.2 Option Agreement.................................... 3
7.3 Option Price........................................ 3
7.4 Duration of Options................................. 3
7.5 Exercise of Options................................. 3
7.6 Payment............................................. 4
7.7 Restrictions on Stock Transferability............... 4
7.8 Termination of Employment Due to Death or
Disability.......................................... 4
7.9 Termination of Employment Other than for Death or
Disability.......................................... 4
7.10 Nontransferability of Options....................... 4
SECTION 8. Restricted Stock................................ 4
8.1 Grant of Restricted Stock........................... 4
8.2 Transferability..................................... 4
8.3 Other Restrictions.................................. 4
8.4 Voting Rights....................................... 4
8.5 Dividends and Other Distributions................... 4
8.6 Termination of Employment........................... 4
SECTION 9. Rights of Employees............................. 5
9.1 Employment.......................................... 5
9.2 Participation....................................... 5
SECTION 10. Amendment, Modification, and Termination of
Plan...................................................... 5
10.1 Amendment, Modification, and Termination of Plan.... 5
SECTION 11. Miscellaneous Provisions....................... 5
11.1 Tax Withholding..................................... 5
11.2 Stock Withholding Elections......................... 5
</TABLE>
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<TABLE>
<S> <C>
SECTION 12. Indemnification................................ 5
12.1 Indemnification..................................... 5
SECTION 13. Requirements of Law............................ 6
13.1 Requirements of Law................................. 6
13.2 Governing Law....................................... 6
</TABLE>
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FELCOR SUITE HOTELS, INC.
1998 RESTRICTED STOCK AND STOCK OPTION PLAN
SECTION 1. Establishment, Purpose, and
Effective Date of Plan
1.1 Establishment. FelCor Suite Hotels, Inc., a Maryland corporation,
hereby establishes the "FELCOR SUITE HOTELS, INC. 1998 RESTRICTED STOCK AND
STOCK OPTION PLAN" (THE "PLAN") for Independent Directors, executive officers
and key employees. The Plan permits the grant of stock options and restricted
stock as a payout media for payments under the plan.
1.2 Purpose. The purpose of the Plan is to advance the interests of the
Company, by encouraging and providing for the acquisition of an equity interest
in the success of the Company by Independent Directors, executive officers and
key employees, by providing additional incentives and motivation toward superior
performance of the Company, and by enabling the Company to attract and retain
the services of Independent Directors, executive officers and key employees upon
whose judgment, interest, and special effort the successful conduct of its
operations is largely dependent.
1.3 Effective Date. The Plan shall become effective immediately upon its
adoption by the Board of Directors of the Company ("Effective Date"), although
it is subject to shareholder approval as provided in Section 6.1.
SECTION 2. Definitions
2.1 Definitions. Whenever used herein, the following terms shall have
their respective meanings set forth below:
(a) "Award" means any Stock Option or Restricted Stock granted under
this Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Compensation Committee of the Board;
provided, however, that for any grant to an Independent Director, the
remaining members of the Board shall serve as the Compensation Committee
with respect to such grant, including, but not limited to, the approval of
the grant. The Board, as a whole, may take any action which the Committee
is authorized to take hereunder.
(e) "Company" means FelCor Suite Hotels, Inc., a Maryland corporation.
(f) "Disability" means an individual who is unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death or
which has lasted, or can be expected to last, for a continuous period of
not less than twelve (12) months.
(g) "Employee" means an employee (including officers and directors who
are also employees) of the Company or its subsidiaries, affiliates
(including partnerships) or any branch or division thereof.
(h) "Fair Market Value" of a share of Stock means the reported closing
sales price of the Stock on the New York Stock Exchange Composite Tape on
that date, or if no closing price is reported on that date, on the last
preceding date on which such closing price of the Stock was so reported. If
the Stock is not traded on the New York Stock Exchange at the time a
determination of its Fair Market Value is required to be made hereunder,
its Fair Market Value shall be deemed to be equal to the average between
the closing bid and asked prices of the Stock on the most recent date on
which the Stock was publicly traded. In the event the Stock is not publicly
traded at the time a determination of its value is required to be made
hereunder, the determination of its Fair Market Value shall be made by the
Committee in such manner as it deems appropriate.
<PAGE> 228
(i) "Independent Director" means a director of the Company who is not
an officer or employee of the Company, any affiliate of an officer or
employee or any affiliate of (i) any advisor to the Company under an
advisory agreement, (ii) any lessee of any property of the Company, (iii)
any subsidiary of the Company or (iv) any partnership which is an affiliate
of the Company.
(j) "Option" means the right to purchase Stock at a stated price for a
specified period of time. For purposes of the Plan, an Option may be either
(i) an "incentive stock option" within the meaning of Section 422 of the
Code or (ii) a "nonstatutory stock option."
(k) "Participant" means any Employee or Independent Director
designated by the Committee to participate in the Plan.
(l) "Period of Restriction" means the period during which the transfer
of shares of Restricted Stock is restricted pursuant to Section 8 of the
Plan.
(m) "Restricted Stock" means Stock granted to a Participant pursuant
to Section 8 of the Plan.
(n) "Stock" means the common stock of the Company, par value of $.01.
2.2 Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender when used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
SECTION 3. Eligibility and Participation
3.1 Eligibility and Participation. Participants in the Plan shall be
selected by the Committee from among the independent Directors and Employees
who, in the opinion of the Committee, are in a position to contribute materially
to the Company's continued growth and development and to its long-term financial
success.
SECTION 4. Administration
4.1 Administration. The Committee shall be responsible for the
administration of the Plan. The Committee, by majority action thereof, is
authorized to interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, to provide for conditions and assurances
deemed necessary or advisable to protect the interests of the Company, and to
make all other determinations necessary or advisable for the administration of
the Plan. Determinations, interpretations, or other actions made or taken by the
Committee pursuant to the provisions of the Plan shall be final and binding and
conclusive for all purposes and upon all persons whomsoever.
SECTION 5. Stock Subject to Plan
5.1 Number. The total number of shares of Stock subject to Awards under
the Plan may not exceed 1,000,000, subject to adjustment upon the occurrence of
any of the events indicated in Section 5.3 hereof. Of this total number, not
more than 50,000 shares of Stock may be issued as Restricted Stock. The shares
to be delivered under the Plan may consist, in whole or in part, of authorized
but unissued Stock or treasury Stock, not reserved for any other purpose.
Notwithstanding any other provision hereof to the contrary, no Participant shall
be eligible to receive Awards pursuant to this Plan in excess of 250,000 shares
of Common Stock in any fiscal year (the "Section 162(m) Maximum").
5.2 Lapsed Awards. If any Award granted under the Plan terminates, expires
or lapses for any reason, any shares subject to such Award again shall be
available for the grant of an Award hereunder.
5.3 Adjustment in Capitalization. In the event of any change in the
outstanding shares of Stock that occurs after the Effective Date by reason of a
Stock dividend or split, recapitalization, merger, consolidation, combination,
exchange of shares, or other similar corporate change, the aggregate number of
shares of Stock
D-2
<PAGE> 229
subject to the Plan and to each Award hereunder, and to the stated Option price
of each Award, shall be adjusted appropriately by the Committee or the Board,
whose determination shall be conclusive; provided, however, that fractional
shares shall be rounded to the nearest whole share. In such event, the Committee
or the Board also shall have discretion to make appropriate adjustments in the
number and type of shares subject to an Award of Restricted Stock under the Plan
pursuant to the terms of such an Award.
SECTION 6. Shareholder Approval and Duration of Plan
6.1 Shareholder Approval. All Awards granted under this Plan are subject
to, and may not be exercised before, and will be rescinded and become void in
the absence of, the approval of this Plan by a majority of the shareholders
voting thereon at a meeting of shareholders, at which a quorum is present, held
prior to the first anniversary date of the board meeting held to approve this
Plan.
6.2 Duration of Plan. The Plan shall remain in effect, subject to the
Board's right to earlier terminate pursuant to Section 10 hereof, until all
Stock subject to it shall have been purchased or acquired pursuant to the
provisions hereof. Notwithstanding the foregoing, no Option may be granted under
the Plan on or after November 1, 2007.
SECTION 7. Stock Options
7.1 Grant of Options. Subject to the provisions of Section 5 and 6,
Options may be granted to Participants at any time and from time to time as
shall be determined by the Committee. The Committee shall have complete
discretion in determining the number of Options granted to each Participant. The
Committee may grant any type of Option to purchase Stock that is permitted by
law at the time of grant; provided however, that the aggregate Fair Market Value
(determined at the time the Option is granted) of the Stock, with respect to
which all incentive stock options granted under any plan of the Company are
exercisable for the first time by a Participant during any calendar year, may
not exceed $100,000. Nothing in this Section 7 of the Plan shall be deemed to
prevent the grant of nonstatutory stock options in amounts that exceed the
maximum established by Section 422 of the Code.
7.2 Option Agreement. Each Option shall be evidenced by an Option
agreement that shall specify the type of Option granted, the Option price, the
duration of the Option, the number of shares of Stock to which the Option
pertains, and such other provisions as the Committee shall determine.
7.3 Option Price. The Option price of each share of Stock subject to each
Option granted pursuant to this Plan shall be determined by the Committee at the
time the Option is granted and, in the case of incentive stock options, shall
not be less then 100% of the Fair Market Value of a share of Stock on the date
the Option is granted, as determined by the Committee. In the case of incentive
stock options granted to any person who owns, directly or indirectly, Stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of Stock ("Ten Percent Owner"), the Option price shall not be less than
110% of the Fair Market Value of a share of Stock on the date the Option is
granted. The Option price of each share of Stock subject to a nonstatutory stock
option under this Plan shall be determined by the Committee, in its sole
discretion, prior to granting the Option.
7.4 Duration of Options. Each Option shall expire at such time as the
Committee shall determine at the time it is granted, provided, however, that no
incentive stock option shall be exercisable later than ten (10) years from the
date of its grant, and no incentive stock option granted to a Ten Percent Owner
shall be exercisable later than five (5) years from the date of its grant.
7.5 Exercise of Options. Options granted under the Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for all
Participants. No Option may be exercised within six (6) months after the date of
grant. Each Option that is intended to qualify as an incentive stock option
pursuant to Section 422 of the Code shall comply with the applicable provisions
of the Code pertaining to such Options.
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<PAGE> 230
7.6 Payment. The Option price of Stock acquired upon exercise of any
Option shall be paid in full on the date of exercise, by certified or cashier's
check, by wire transfer, by money order, with Stock (but with Stock only if
expressly permitted by the terms of the Option), or by a combination of the
above. If the Option price is permitted to be, and is, paid in whole or in part
with Stock, the value of the Stock surrendered shall be its Fair Market Value on
the date surrendered. The proceeds from payment of Option prices shall be added
to the general funds of the Company and shall be used for general corporate
purposes.
7.7 Restrictions on Stock Transferability. The Committee shall impose such
restrictions on any shares of Stock acquired pursuant to the exercise of an
Option under the Plan as it may deem advisable, including, without limitation,
restrictions under applicable federal securities law, under the requirements of
any stock exchange upon which such shares of Stock are then listed, and under
any blue sky or state securities laws applicable to such shares.
7.8 Termination of Employment Due to Death or Disability. Unless otherwise
expressly provided in the Option, if the employment of a Participant is
terminated by reason of death or Disability, the rights under any then
outstanding Option shall terminate upon the first to occur of (i) the expiration
date of the Option or (ii) the first anniversary of such date of termination of
employment.
7.9 Termination of Employment Other than for Death or Disability. Unless
otherwise expressly provided in the Option, if the employment of the Participant
shall terminate for any reason other than death or Disability, the rights under
any then outstanding Option shall terminate upon the first to occur of (i) the
expiration date of the Option or (ii) ninety (90) days after such date of
termination of employment.
7.10 Nontransferability of Options. No Option granted under the Plan may
be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
otherwise than by will or by the laws of descent and distribution. Further, all
Options granted to a Participant under the Plan shall be exercisable during his
lifetime only by such Participant.
SECTION 8. Restricted Stock
8.1 Grant of Restricted Stock. Subject to the provisions of Sections 5 and
6, the Committee, at any time and from time to time, may grant shares of
Restricted Stock under the Plan to such Participants and in such amounts as it
shall determine. Each grant of Restricted Stock shall be evidenced by a
Restricted Stock agreement.
8.2 Transferability. Except as provided in Sections 8.6 and 8.7 hereof,
the shares of Restricted Stock granted hereunder may not be sold, transferred,
pledged, assigned, or otherwise alienated or hypothecated for such period of
time as shall be determined by the Committee and shall be specified in the
Restricted Stock agreement, or upon earlier satisfaction of other conditions as
specified by the Committee in its sole discretion and set forth in the
Restricted Stock agreement.
8.3 Other Restrictions. The Committee may impose such other restrictions
on any shares of Restricted Stock granted pursuant to the Plan as it may deem
advisable including, without limitation, restrictions under applicable federal
or state securities laws, and may legend the certificates representing
Restricted Stock to give appropriate notice of such restrictions.
8.4 Voting Rights. Participants holding shares of Restricted Stock granted
hereunder may exercise full voting rights with respect to those shares during
the Period of Restriction.
8.5 Dividends and Other Distributions. During the Period of Restriction,
Participants holding shares of Restricted Stock granted hereunder shall be
entitled to receive all cash dividends distributed with respect to those shares
while they are so held.
8.6 Termination of Employment. Except as provided by the Committee at the
time of grant, in the event that a Participant terminates his employment with
the Company for any reason during the Period of Restriction (including death),
then any shares of Restricted Stock still subject to restrictions at the date of
such termination automatically shall be forfeited and shall again be available
for issuance under the Plan.
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SECTION 9. Rights of Employees
9.1 Employment. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
9.2 Participation. No Committee shall have a right to be selected as a
Participant, or, having been so selected, to be selected again as a Participant.
SECTION 10. Amendment, Modification,
and Termination of Plan
10.1 Amendment, Modification, and Termination of Plan. The Board at any
time may terminate, and from time to time may amend or modify the Plan, and may
amend or modify Awards hereunder; provided, however, that no amendment of the
Plan or of any Award hereunder, without approval of the shareholders within one
year after the adoption of such amendment, may:
(a) increase the aggregate number of shares of Stock that may be
issued under the Plan;
(b) extend the term of the Plan;
(c) effect a repricing of previously granted Options, whether directly
or indirectly through the cancellation of outstanding Options and the
concurrent reissuance of Options for a like number of shares but at a
lesser exercise price;
(d) extend the period during which Awards may be granted; or
(e) materially modify the requirements as to eligibility to receive
Awards under the Plan.
No amendment, modification, or termination of the Plan shall in any manner
adversely affect any Award theretofore granted under the Plan, without the
consent of the Participant.
SECTION 11. Miscellaneous Provisions
11.1 Tax Withholding. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
federal, state, and local withholding tax requirements on any Award under the
Plan.
11.2 Stock Withholding Elections. Subject to the consent of the Committee,
due to the (i) exercise of a nonstatutory stock option or (ii) lapse of
restrictions on a Restricted Stock Award, a Participant may make an irrevocable
election to (a) have shares of Stock otherwise issuable thereunder withheld or
(b) tender to the Company shares of Stock then held by the Participant (whether
received pursuant to (i) or (ii) or in any other transaction) having an
aggregate Fair Market Value sufficient to satisfy all or part of the
Participant's estimated total federal, state and local tax obligations
associated with the transaction. Such elections must be made by a Participant on
or prior to the tax date.
SECTION 12. Indemnification
12.1 Indemnification. Each person who is or shall have been a member of
the Committee or of the Board shall be indemnified and held harmless by the
Company against and from any loss, cost, liability or expense that may be
imposed upon or reasonably incurred by him in connection with or resulting from
any claim, action, suit or proceeding to which he may be a party or in which he
may be involved by reason of any action taken or failure to act under the Plan
made in good faith and against and from any and all amounts paid by him in
settlement thereof, with the Company's approval, or paid by him in satisfaction
of any judgment in any such action, suit or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not apply to any acts of willful
misconduct by any member of the
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<PAGE> 232
Committee or the Board. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Charter or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or hold them
harmless.
SECTION 13. Requirements of Law
13.1 Requirements of Law. The granting of Awards and the issuance of
shares of Stock upon the exercise of an Option shall be subject to all
applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
13.2 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Maryland.
FELCOR SUITE HOTELS, INC.
By: /s/ LAWRENCE D. ROBINSON
------------------------------------
Name: Lawrence D. Robinson
Title: Senior Vice President and
General Counsel
ATTEST:
/s/ LESTER C. JOHNSON
- - ------------------------------------
Lester C. Johnson, Vice President
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<PAGE> 233
ANNEX E
BRISTOL HOTELS & RESORTS
1998 EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of this Plan is to attract and retain qualified
officers and other key employees, or consultants, for Bristol Hotels & Resorts,
Inc. (the "Corporation") and its Subsidiaries and to provide such persons with
appropriate incentives.
2. DEFINITIONS. As used in this Plan,
"APPRECIATION RIGHT" means a right granted pursuant to Section 5 of this
Plan, including a Free-standing Appreciation Right and a Tandem Appreciation
Right.
"BASE PRICE" means the price to be used as the basis for determining the
Spread upon the exercise of a Freestanding Appreciation Right.
"BOARD" means the Board of Directors of the Corporation.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means the Compensation Committee of the Board of Directors, as
described in Section 14(a) of this Plan, and, to the extent the administration
of the Plan has been assumed by the Board pursuant to Section 14(a), the Board.
"COMMON SHARES" means (i) shares of the Common Stock, par value $0.01 per
share, of the Corporation and (ii) any security into which Common Shares may be
converted by reason of any transaction or event of the type referred to in
Section 10 of this Plan.
"DATE OF GRANT" means the date specified by the Committee on which a grant
of Option Rights, Appreciation Rights or Performance Shares or Performance Units
or a grant or sale of Restricted Shares or Deferred Shares shall become
effective, which shall not be earlier than the date on which the Committee takes
action with respect thereto.
"DEFERRAL PERIOD" means the period of time during which Deferred Shares are
subject to deferral limitations under Section 7 of this Plan.
"DEFERRED SHARES" means an award pursuant to Section 7 of this Plan of the
right to receive Common Shares at the end of a specified Deferral Period.
"FREE-STANDING APPRECIATION RIGHT" means an Appreciation Right granted
pursuant to Section 5 of this Plan that is not granted in tandem with an Option
Right or similar right.
"INCENTIVE STOCK OPTION" means an Option Right that is intended to qualify
as an "incentive stock option" under Section 422 of the Code or any successor
provision thereto.
"MANAGEMENT OBJECTIVES" means the achievement of a performance objective or
objectives established pursuant to this Plan for Participants who have received
grants of Performance Shares or Performance Units or, when so determined by the
Committee, Restricted Shares, Option Rights or Appreciation Rights. Management
Objectives may be described in terms of Corporation-wide objectives or
objectives that are related to the performance of the individual Participant or
the Subsidiary, division, department or function within the Corporation or
Subsidiary in which the Participant is employed or with respect to which the
Participant provides consulting services. The Management Objectives applicable
to any award to a Participant who is, or is determined by the Committee to be
likely to become, a "covered employee" within the meaning of Section 162(m) of
the Code (or any successor provision) shall be limited to specified levels of or
growth in:
(i) return on invested capital;
(ii) return on equity;
(iii) return on operating assets;
(iv) earnings per share; and/or
(v) market value per share.
<PAGE> 234
Except in the case of such a covered employee, if the Committee determines that
a change in the business, operations, corporate structure or capital structure
of the Corporation, or the manner in which it conducts its business, or other
events or circumstances render the Management Objectives unsuitable, the
Committee may modify such Management Objectives or the related minimum
acceptable level of achievement, in whole or in part, as the Committee deems
appropriate and equitable.
"MARKET VALUE PER SHARE" means the fair market value of the Common Shares
as determined by the Committee from time to time.
"NONQUALIFIED OPTION" means an Option Right that is not intended to qualify
as a Tax-qualified Option.
"OPTIONEE" means the person so designated in an agreement evidencing an
outstanding Option Right.
"OPTION PRICE" means the purchase price payable upon the exercise of an
Option Right.
"OPTION RIGHT" means the right to purchase Common Shares from the
Corporation upon the exercise of a Nonqualified Option or a Tax-qualified Option
granted pursuant to Section 4 of this Plan.
"PARTICIPANT" means a person who is selected by the Committee to receive
benefits under this Plan and (i) is at that time an officer, including without
limitation an officer who may also be a member of the Board, or other key
employee of or a consultant to the Corporation or any Subsidiary or (ii) has
agreed to commence serving in any such capacity.
"PERFORMANCE PERIOD" means, in respect of a Performance Share or
Performance Unit, a period of time established pursuant to Section 8 of this
Plan within which the Management Objectives relating thereto are to be achieved.
"PERFORMANCE SHARE" means a bookkeeping entry that records the equivalent
of one Common Share awarded pursuant to Section 8 of this Plan.
"PERFORMANCE UNIT" means a bookkeeping entry that records a unit equivalent
of $1.00 awarded pursuant to Section 8 of this Plan.
"PLAN" means this Bristol Hotels & Resorts 1998 Equity Incentive Plan, as
amended from time to time.
"RELOAD OPTION RIGHTS" means additional Option Rights automatically granted
to an Optionee upon the exercise of Option Rights pursuant to Section 4(f) of
this Plan.
"RESTRICTED SHARES" means Common Shares granted or sold pursuant to Section
6 of this Plan as to which neither the substantial risk of forfeiture nor the
restrictions on transfer referred to in Section 6 hereof has expired.
"RULE 16B-3" means Rule 16b-3, as promulgated and amended from time to time
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, or any successor rule to the same effect.
"SPREAD" means, in the case of a Free-standing Appreciation Right, the
amount by which the Market Value per Share on the date when the Appreciation
Right is exercised exceeds the Base Price specified therein or, in the case of a
Tandem Appreciation Right, the amount by which the Market Value per Share on the
date when the Appreciation Right is exercised exceeds the Option Price specified
in the related Option Right.
"SUBSIDIARY" means a corporation, partnership, joint venture,
unincorporated association or other entity in which the Corporation has a direct
or indirect ownership or other equity interest; provided, however, for purposes
of determining whether any person may be a Participant for purposes of any grant
of Incentive Stock Options, "Subsidiary" means any corporation in which the
Corporation owns or controls directly or indirectly more than 50% of the total
combined voting power represented by all classes of stock issued by such
corporation at the time of the grant.
"TANDEM APPRECIATION RIGHT" means an Appreciation Right granted pursuant to
Section 5 of this Plan that is granted in tandem with an Option Right or any
similar right granted under any other plan of the Corporation.
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<PAGE> 235
"TAX-QUALIFIED OPTION" means an Option Right that is intended to qualify
under particular provisions of the Code, including without limitation an
Incentive Stock Option.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as provided
in Section 10 of this Plan, the number of Common Shares which may be (i) issued
or transferred upon the exercise of Option Rights or Appreciation Rights, (ii)
awarded as Restricted Shares and released from substantial risk of forfeiture
thereof or Deferred Shares or (iii) issued or transferred in payment of
Performance Shares or Performance Units that have been earned, shall not in the
aggregate exceed 5 million Common Shares, which may be Common Shares of original
issuance or Common Shares held in treasury or a combination thereof; provided,
however, that the number of Restricted Shares shall not in the aggregate exceed
1 million (excluding any forfeitures), subject to adjustment as provided in
Section 10 of this Plan. For the purposes of this Section 3(a):
(i) Upon payment in cash of the benefit provided by any award granted
under this Plan, any Common Shares that were covered by that award shall
again be available for issuance or transfer hereunder.
(ii) Upon the full or partial payment of any Option Price by the
transfer to the Company of Common Shares or upon satisfaction of tax
withholding obligations in connection with any such exercise or any other
payment made or benefit realized under this Plan by the transfer or
relinquishment of Common Shares, there shall be deemed to have been issued
or transferred under this Plan only the net number of Common Shares
actually issued or transferred by the Corporation less the number of Common
Shares so transferred or relinquished.
(b) Notwithstanding anything in Section 3(a) hereof, or elsewhere in this
Plan, to the contrary, and subject to adjustment as provided in Section 10 of
this Plan, (i) the aggregate number of Common Shares actually issued or
transferred by the Corporation upon the exercise of the Incentive Stock Options
shall not exceed the total number of Common Shares first specified in Section
3(a) hereof; (ii) no Participant shall be granted Option Rights and Appreciation
Rights, in the aggregate, for more than 750,000 Common Shares during any
calendar year; and (iii) the number of shares issued as Restricted Shares that
are not conditioned on the attainment of Management Objectives, plus the number
of Deferred Shares, shall not exceed 1 million Common Shares in the aggregate.
(c) The number of Performance Units that may be granted under this Plan
shall not in the aggregate exceed 5 million. Performance Units that are granted
under this Plan and are paid in Common Shares or are not earned by the
Participant at the end of the Performance Period shall be available for future
grants of Performance Units hereunder.
(d) Notwithstanding any other provision of this Plan to the contrary, in no
event shall any Participant in any calendar year receive awards of Restricted
Stock conditioned on attainment of Management Objectives, Performance Shares or
Performance Units having an aggregate value as of their respective Dates of
Grant in excess of $250,000.
4. OPTION RIGHTS. The Committee may from time to time authorize grants to
Participants of options to purchase Common Shares upon such terms and conditions
as the Committee may determine in accordance with the following provisions:
(a) Each grant shall specify the number of Common Shares to which it
pertains.
(b) Each grant shall specify an Option Price per Common Share, which
may be equal to, or greater than, or less than the Market Value per Share
on the Date of Grant.
(c) Each grant shall specify the form of consideration to be paid in
satisfaction of the Option Price and the manner of payment of such
consideration, which may include (i) cash in the form of currency or check
or other cash equivalent acceptable to the Corporation, (ii)
nonforfeitable, unrestricted Common Shares, which are already owned by the
Optionee, (iii) any other legal consideration that the Committee may deem
appropriate, including without limitation any form of consideration
authorized under
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Section 4(d) below, on such basis as the Committee may determine in
accordance with this Plan and (iv) any combination of the foregoing.
(d) Any grant of a Nonqualified Option may provide that payment of the
Option Price may also be made in whole or in part in the form of Restricted
Shares or other Common Shares that are subject to risk of forfeiture or
restrictions on transfer. Unless otherwise determined by the Committee on
or after the Date of Grant, whenever any Option Price is paid in whole or
in part by means of any of the forms of consideration specified in this
Section 4(d), the Common Shares received by the Optionee upon the exercise
of the Nonqualified Option shall be subject to the same risks of forfeiture
or restrictions on transfer as those that applied to the consideration
surrendered by the Optionee; provided, however, that such risks of
forfeiture and restrictions on transfer shall apply only to the same number
of Common Shares received by the Optionee as applied to the forfeitable or
restricted Common Shares surrendered by the Optionee.
(e) Any grant may, if there is then a public market for the Common
Shares, provide for deferred payment of the Option Price from the proceeds
of sale through a broker of some or all of the Common Shares to which the
exercise relates.
(f) Any grant may provide for the automatic grant to the Optionee of
Reload Option Rights upon the exercise of Option Rights, including Reload
Option Rights, for Common Shares or any other noncash consideration
authorized under Sections 4(c) and (d) above; provided, however, that the
term of any Reload Option Right shall not extend beyond the term of the
Option Right originally exercised.
(g) Successive grants may be made to the same Optionee regardless of
whether any Option Rights previously granted to the Optionee remain
unexercised.
(h) Each grant shall specify the period or periods of continuous
employment, or continuous engagement of the consulting services, of the
Optionee by the Corporation or any Subsidiary and/or the Management
Objectives to be achieved before the Option Rights or installments thereof
shall become exercisable, and any grant may provide for the earlier
exercise of the Option Rights in the event of a change in control of the
Corporation or other similar transaction or event.
(i) Option Rights granted pursuant to this Section 4 may be
Nonqualified Options or Tax-qualified Options or combinations thereof.
(j) Any grant of an Option Right (other than Incentive Stock Options)
may provide for the payment to the Optionee of dividend equivalents thereon
in cash or Common Shares on a current, deferred or contingent basis, or the
Committee may provide that any dividend equivalents shall be credited
against the Option Price.
(k) No Option Right granted pursuant to this Section 4 may be
exercised more than 10 years from the Date of Grant.
(l) Each grant shall be evidenced by an agreement, which shall be
executed on behalf of the Corporation by any of the Chairman, the
President, a Vice President or a Secretary thereof and delivered to and
accepted by the Optionee and shall contain such terms and provisions as the
Committee may determine consistent with this Plan.
5. APPRECIATION RIGHTS. The Committee may also authorize grants to
Participants of Appreciation Rights. An Appreciation Right shall be a right of
the Participant to receive from the Corporation an amount, which shall be
determined by the Committee and shall be expressed as a percentage (not
exceeding 100%) of the Spread at the time of the exercise of an Appreciation
Right. Any grant of Appreciation Rights under this Plan shall be upon such terms
and conditions as the Committee may determine in accordance with the following
provisions:
(a) Any grant may specify that the amount payable upon the exercise of
an Appreciation Right may be paid by the Corporation in cash, Common Shares
or any combination thereof and may (i) either grant to the Participant or
reserve to the Committee the right to elect among those alternatives or
(ii) preclude
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the right of the Participant to receive and the Corporation to issue Common
Shares or other equity securities in lieu of cash.
(b) Any grant may specify that the amount payable upon the exercise of
an Appreciation Right shall not exceed a maximum specified by the Committee
on the Date of Grant.
(c) Any grant may specify (i) a waiting period or periods before
Appreciation Rights shall become exercisable, (ii) permissible dates or
periods on or during which Appreciation Rights shall be exercisable, and
(iii) the Management Objectives to be achieved before the Appreciation
Right or installments thereof will become exercisable.
(d) Any grant may specify that an Appreciation Right may be exercised
only in the event of a change in control of the Corporation or other
similar transaction or event.
(e) Any grant may provide for the payment to the Participant of
dividend equivalents thereon in cash or Common Shares on a current,
deferred or contingent basis.
(f) Each grant shall be evidenced by an agreement, which shall be
executed on behalf of the Corporation by any of the Chairman, the
President, a Vice President or a Secretary thereof and delivered to and
accepted by the Optionee and shall describe the subject Appreciation
Rights, identify any related Option Rights, state that the Appreciation
Rights are subject to all of the terms and conditions of this Plan and
contain such other terms and provisions as the Committee may determine
consistent with this Plan.
(g) Regarding Tandem Appreciation Rights only: Each grant shall
provide that a Tandem Appreciation Right may be exercised only (i) at a
time when the related Option Right (or any similar right granted under any
other plan of the Corporation) is also exercisable and the Spread is
positive and (ii) by surrender of the related Option Right (or such other
right) for cancellation.
(h) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each Free-standing
Appreciation Right a Base Price per Common Share, which shall be equal
to or greater than the Market Value per Share on the Date of Grant;
(ii) Successive grants may be made to the same Participant
regardless of whether any Free-standing Appreciation Rights previously
granted to the Participant remain unexercised;
(iii) Each grant shall specify the period or periods of continuous
employment, or continuous engagement of the consulting services, of the
Participant by the Corporation or any Subsidiary that are necessary
before the Free-standing Appreciation Rights or installments thereof
shall become exercisable; and any grant may provide for the earlier
exercise of the Free-standing Appreciation Rights in the event of a
change in control of the Corporation or other similar transaction or
event; and
(iv) No Free-standing Appreciation Right granted under this Plan
may be exercised more than 10 years from the Date of Grant.
6. RESTRICTED SHARES. The Committee may also authorize grants or sales to
Participants of Restricted Shares upon such terms and conditions as the
Committee may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute an immediate transfer of the
ownership of Common Shares to the Participant in consideration of the
performance of services, entitling such Participant to dividend, voting and
other ownership rights, subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter referred to.
(b) Each grant or sale may be made without additional consideration
from the Participant or in consideration of a payment by the Participant
that is less than the Market Value per Share on the Date of Grant.
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(c) Each grant or sale shall provide that the Restricted Shares
covered thereby shall be subject to a "substantial risk of forfeiture"
within the meaning of Section 83 of the Code for a period to be determined
by the Committee on the Date of Grant, and any grant or sale may provide
for the earlier termination of such period in the event of a change in
control of the Corporation or other similar transaction or event.
(d) Each grant or sale shall provide that, during the period for which
such substantial risk of forfeiture is to continue, the transferability of
the Restricted Shares shall be prohibited or restricted in the manner and
to the extent prescribed by the Committee on the Date of Grant. Such
restrictions may include without limitation rights of repurchase or first
refusal in the Corporation or provisions subjecting the Restricted Shares
to a continuing substantial risk of forfeiture in the hands of any
transferee.
(e) Any grant of Restricted Shares may specify Management Objectives
that, if achieved, will result in termination or early termination of the
restrictions applicable to such shares. Each grant may specify in respect
of such Management Objectives a minimum acceptable level of achievement and
may set forth a formula for determining the number of Restricted Shares on
which restrictions will terminate if performance is at or above the minimum
level, but falls short of full achievement of the specified Management
Objectives.
(f) Any grant or sale may require that any or all dividends or other
distributions paid on the Restricted Shares during the period of such
restrictions be automatically sequestered and reinvested on an immediate or
deferred basis in additional Common Shares, which may be subject to the
same restrictions as the underlying award or such other restrictions as the
Committee may determine.
(g) Each grant or sale shall be evidenced by an agreement, which shall
be executed on behalf of the Corporation by an officer thereof and
delivered to and accepted by the Participant and shall contain such terms
and provisions as the Committee may determine consistent with this Plan.
Unless otherwise directed by the Committee, all certificates representing
Restricted Shares, together with a stock power that shall be endorsed in
blank by the Participant with respect to the Restricted Shares, shall be
held in custody by the Corporation until all restrictions thereon lapse.
7. DEFERRED SHARES. The Committee may also authorize grants or sales of
Deferred Shares to Participants upon such terms and conditions as the Committee
may determine in accordance with the following provisions:
(a) Each grant or sale shall constitute the agreement by the
Corporation to issue or transfer Common Shares to the Participant in the
future in consideration of the performance of services, subject to the
fulfillment during the Deferral Period of such conditions as the Committee
may specify.
(b) Each grant or sale may be made without additional consideration
from the Participant or in consideration of a payment by the Participant
that is less than the Market Value per Share on the Date of Grant.
(c) Each grant or sale shall provide that the Deferred Shares covered
thereby shall be subject to a Deferral Period, which shall be fixed by the
Committee on the Date of Grant, and any grant or sale may provide for the
earlier termination of the Deferral Period in the event of a change in
control of the Corporation or other similar transaction or event.
(d) During the Deferral Period, the Participant shall not have any
right to transfer any rights under the subject award, shall not have any
rights of ownership in the Deferred Shares and shall not have any right to
vote the Deferred Shares, but the Committee may on or after the Date of
Grant authorize the payment of dividend equivalents on the Deferred Shares
in cash or additional Common Shares on a current, deferred or contingent
basis.
(e) Each grant or sale shall be evidenced by an agreement, which shall
be executed on behalf of the Corporation by any officer thereof and
delivered to and accepted by the Participant and shall contain such terms
and provisions as the Committee may determine consistent with this Plan.
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8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee may also
authorize grants of Performance Shares and Performance Units, which shall become
payable to the Participant upon the achievement of specified Management
Objectives, upon such terms and conditions as the Committee may determine in
accordance with the following provisions:
(a) Each grant shall specify the number of Performance Shares or
Performance Units to which it pertains, which may be subject to adjustment
to reflect changes in compensation or other factors.
(b) The Performance Period with respect to each Performance Share or
Performance Unit shall be determined by the Committee on the Date of Grant
and may be subject to earlier termination in the event of a change in
control of the Corporation or other similar transaction or event.
(c) Any grant of Performance Shares or Performance Units shall specify
Management Objectives that, if achieved, will result in payment or early
payment of the award, and each grant may specify in respect of such
Management Objectives a minimum acceptable level of achievement and may set
forth a formula for determining the number of Performance Shares or
Performance Units that will be earned if performance is at or above the
minimum level, but falls short of full achievement of the specified
Management Objectives. The grant of Performance shares or Performance Units
shall specify that, before the Performance Shares or Performance Units
shall be earned and paid, the Committee must certify that the Management
Objectives have been satisfied.
(d) Each grant shall specify in respect of the specified Management
Objectives a minimum acceptable level of achievement below which no payment
will be made and shall set forth a formula for determining the amount of
any payment to be made if performance is at or above the minimum acceptable
level but falls short of full achievement of the specified Management
Objectives.
(e) Each grant shall specify the time and manner of payment of
Performance Shares or Performance Units that shall have been earned, and
any grant may specify that any such amount may be paid by the Corporation
in cash, Common Shares or any combination thereof and may either grant to
the Participant or reserve to the Committee the right to elect among those
alternatives.
(f) Any grant of Performance Shares may specify that the amount
payable with respect thereto may not exceed a maximum specified by the
Committee on the Date of Grant. Any grant of Performance Units may specify
that the amount payable, or the number of Common Shares issued, with
respect thereto may not exceed maximums specified by the Committee on the
Date of Grant.
(g) On or after the Date of Grant of Performance Shares, the Committee
may provide for the payment to the Participant of dividend equivalents
thereon in cash or additional Common Shares on a current, deferred or
contingent basis.
(h) The Committee may adjust Management Objectives and the related
minimum acceptable level of achievement if, in the sole judgment of the
Committee, events or transactions have occurred after the Date of Grant
that are unrelated to the performance of the Participant and result in
distortion of the Management Objectives or the related minimum acceptable
level of achievement.
(i) Each grant shall be evidence by an agreement, which shall be
executed on behalf of the Corporation by any officer thereof and delivered
to and accepted by the Participant and shall contain such terms and
provisions as the Committee may determine consistent with this Plan.
9. TRANSFERABILITY. (a) Except as otherwise determined by the Committee,
(i) no Option Right, Appreciation Right or other derivative security (as that
term is used in Rule 16b-3) granted under this Plan may be transferred by a
Participant except by will or the laws of descent and distribution, and (ii)
Option Rights and Appreciation Rights granted under this Plan may not be
exercised during a Participant's lifetime except by the Participant or by his or
her guardian or legal representative.
(b) Any grant made under this Plan may provide that all or any part of the
Common Shares that are to be issued or transferred by the Corporation upon the
exercise of Option Rights or Appreciation Rights or upon the termination of the
Deferral Period applicable to Deferred Shares or in payment of Performance
Shares or
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Performance Units, or are no longer subject to the substantial risk of
forfeiture and restrictions on transfer referred to in Section 6 of this Plan,
shall be subject to further restrictions upon transfer.
10. ADJUSTMENTS. (a) The Committee may make or provide for such adjustments
in the number of Common Shares covered by outstanding Option Rights,
Appreciation Rights, Deferred Shares and Performance Shares granted hereunder,
the Option Prices per Common Share or Base Prices per Common Share applicable to
any such Option Rights and Appreciation Rights, and the kind of shares
(including shares of another issuer) covered thereby, as the Committee may in
good faith determine to be equitably required in order to prevent dilution or
expansion of the rights of Participants that otherwise would result from (i) any
stock dividend, stock split, combination of shares, recapitalization or similar
change in the capital structure of the Corporation or (ii) any merger,
consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial
or complete liquidation or other distribution of assets, issuance of warrants or
other rights to purchase securities or any other corporate transaction or event
having an effect similar to any of the foregoing. In the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding awards under this Plan such alternative consideration as it may in
good faith determine to be equitable under the circumstances and may require in
connection therewith the surrender of all awards so replaced. Moreover, the
Committee may on or after the Date of Grant provide in the agreement evidencing
any award under this Plan that the holder of the award may elect to receive an
equivalent award in respect of securities of the surviving entity of any merger,
consolidation or other transaction or event having a similar effect, or the
Committee may provide that the holder will automatically be entitled to receive
such an equivalent award. The Committee may also make or provide for such
adjustments in the maximum numbers of Common Shares specified in Section 3 of
this Plan as the Committee may in good faith determine to be appropriate in
order to reflect any transaction or event described in this Section 10.
(b) If another corporation is merged into the Corporation or the
Corporation otherwise acquires another corporation, the Committee may elect to
assume under this Plan any or all outstanding stock options or other awards
granted by such corporation under any stock option or other plan adopted by it
prior to such acquisition. Such assumptions shall be on such terms and
conditions as the Committee may determine; provided, however, that the awards as
so assumed do not contain any terms, conditions or rights that are inconsistent
with the terms of this Plan. Unless otherwise determined by the Committee, such
awards shall not be taken into account for purposes of the limitations contained
in Section 3 of this Plan.
11. FRACTIONAL SHARES. The Corporation shall not be required to issue any
fractional Common Shares pursuant to this Plan. The Committee may provide for
the elimination of fractions or for the settlement thereof in cash.
12. WITHHOLDING TAXES. To the extent that the Corporation is required to
withhold federal, state, local or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Corporation for the withholding are insufficient,
it shall be a condition to the receipt of any such payment or the realization of
any such benefit that the Participant or such other person make arrangements
satisfactory to the Corporation for payment of the balance of any taxes required
to be withheld. At the discretion of the Committee, any such arrangements may
without limitation include voluntary or mandatory relinquishment of a portion of
any such payment or benefit or the surrender of outstanding Common Shares. The
Corporation and any Participant or such other person may also make similar
arrangements with respect to the payment of any taxes with respect to which
withholding is not required.
13. CERTAIN TERMINATIONS OF EMPLOYMENT OR CONSULTING SERVICES, HARDSHIP,
AND APPROVED LEAVES OF ABSENCE. Notwithstanding any other provision of this Plan
to the contrary, in the event of termination of employment or consulting
services by reason of death, disability, normal retirement, early retirement
with the consent of the Corporation, termination of employment or consulting
services to enter public or military service with the consent of the Corporation
or leave of absence approved by the Corporation, or in the event of hardship or
other special circumstances, of a Participant who holds an Option Right or
Appreciation Right that is not immediately and fully exercisable, any Restricted
Shares as to which the substantial risk of forfeiture or the prohibition or
restriction on transfer has not lapsed, any Deferred Shares as to which the
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Deferral Period is not complete, any Performance Shares or Performance Units
that have not been fully earned, or any Common Shares that are subject to any
transfer restriction pursuant to Section 9(b) of this Plan, the Committee may
take any action that it deems to be equitable under the circumstances or in the
best interests of the Corporation, including without limitation waiving or
modifying any limitation or requirement with respect to any award under this
Plan.
14. ADMINISTRATION OF THE PLAN. (a) Unless the administration of the Plan
has been expressly assumed by the Board pursuant to a resolution of the Board,
this Plan shall be administered by the Compensation Committee of the Board (or a
subcommittee thereof), which shall be composed of not less than two members of
the Board. All of the members of the Committee (or a subcommittee thereof) are
intended at all times to qualify as "outside directors" within the meaning of
Section 162(m) of the Code, and as "non-employee directors" within the meaning
of Rule 16b-3, but the failure of a member of such Committee or subcommittee to
so qualify shall not be deemed to invalidate any award granted by such Committee
or subcommittee. A majority of the Committee (or subcommittee) shall constitute
a quorum, and the acts of the members of the Committee (or subcommittee) who are
present at any meeting thereof at which a quorum is present, or acts unanimously
approved in writing, shall be the acts of the Committee.
(b) The Committee has the full authority and discretion to administer the
Plan and to take any action that is necessary or advisable in connection with
the administration of the Plan, including without limitation the authority and
discretion to interpret and construe any provision of the Plan or of any
agreement, notification or document evidencing the grant of an award under the
Plan. The interpretation and construction by the Committee of any provision of
this Plan or any agreement, notification or document evidencing the grant of
Option Rights, Appreciation Rights, Restricted Shares, Deferred Shares,
Performance Shares or Performance Units, and any determination by the Committee
pursuant to any provision of this Plan or any such agreement, notification or
document, shall be final and conclusive. No member of the Committee shall be
liable for any such action taken or determination made in good faith.
15. AMENDMENTS AND OTHER MATTERS. (a) The Board may terminate the Plan at
any time, and may at any time and from time to time amend the Plan in whole or
in part; provided, however, that any amendment which must be approved by the
shareholders of the Company in order to comply with applicable law or the rules
of the New York Stock Exchange or, if the Common Shares are not traded on the
New York Stock Exchange, the principal national securities exchange upon which
the Common Shares are traded or quoted, shall not be effective unless and until
such approval has been obtained. Presentation of this Plan or any amendment
hereof for shareholder approval shall not be construed to limit the Company's
authority to offer similar or dissimilar benefits under other plans without
shareholder approval.
(b) With the concurrence of the affected Participant, the Committee may
cancel any agreement evidencing Option Rights or any other award granted under
this Plan. In the event of any such cancellation, the Committee may authorize
the granting of new Option Rights or other awards hereunder, which may or may
not cover the same number of Common Shares as had been covered by the cancelled
Option Rights or other award, at such Option Price, in such manner and subject
to such other terms, conditions and discretion as would have been permitted
under this Plan had the cancelled Option Rights or other award not been granted.
(c) The Board may permit Participants to elect to defer the issuance of
Common Shares or the settlement of awards in cash under the Plan pursuant to
such rules, procedures or programs as it may establish for purposes of this
Plan. The Board also may provide that deferred issuances and settlements include
the payment or crediting of dividend equivalents or interest on the deferral
amounts.
(d) The Committee may condition the grant of any award or combination of
awards authorized under this Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other compensation
otherwise payable by the Corporation or a Subsidiary to the Participant.
(e) This Plan shall not confer upon any Participant any right with respect
to continuance of employment or other service with the Corporation or any
Subsidiary and shall not interfere in any way with any right that
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the Corporation or any Subsidiary would otherwise have to terminate any
Participant's employment or other service at any time.
(f) To the extent that any provision of this Plan would prevent any Option
Right that was intended to qualify as a Tax-qualified Option from so qualifying,
any such provision shall be null and void with respect to any such Option Right;
provided, however, that any such provision shall remain in effect with respect
to other Option Rights, and there shall be no further effect on any provision of
this Plan.
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ANNEX F
BRISTOL HOTELS & RESORTS, INC.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. PURPOSES. The purposes of this Plan are to encourage outside directors
of Bristol Hotels & Resorts, Inc. (the "Company") to own shares of the Company's
stock and thereby to align their interests more closely with the interests of
the other stockholders of the Company, to encourage the highest level of
director performance by providing such directors with a direct interest in the
Company's attainment of its financial goals, and to provide financial incentives
that will help attract and retain the most qualified outside directors.
2. DEFINITIONS. As used in this Plan:
"ANNUAL OPTION" means an Option Right granted to an Eligible Director
pursuant to Section 5 of this Plan.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
"COMMITTEE" means a committee of the Board which shall be composed of not
less than two Directors and which is described in Section 9 of this Plan and, to
the extent the administration of the Plan has been assumed by the Board pursuant
to Section 9, the Board.
"COMMON SHARES" means (i) shares of the Common Stock, $.01 par value, of
the Company and (ii) any security into which Common Shares may be converted by
reason of any transaction or event of the type referred to in Section 7 of this
Plan.
"DATE OF GRANT" means the date on which an Initial Option or an Annual
Option is granted as provided in Sections 4(a) and 5(a), respectively.
"DIRECTOR" means a member of the Board.
"DISABILITY" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months. An Optionee shall
not be considered to be subject to a Disability until he or she furnishes a
certification from a practicing physician in good standing to the effect that
such Optionee meets the criteria described in this definition.
"EFFECTIVE DATE" means the date the spin-off of the Company from its
parent, Bristol Hotel Company, is effective.
"ELIGIBLE DIRECTOR" means a Director who does not beneficially own (within
the meaning of Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) 9% or more of the outstanding Common Shares and who is not an
employee of the Company or any person or entity which beneficially owns 9% or
more of the outstanding Common Shares or an affiliate thereof. For purposes of
this Plan, an employee is an individual whose wages are subject to the
withholding of federal income tax under Sections 3401 and 3402 of the Code.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time.
"FIRST ANNUAL MEETING" means the first annual meeting of stockholders of
the Company following the Date of Grant of an Option Right.
"INITIAL OPTION" means an Option Right granted to an Eligible Director
pursuant to Section 4 of this Plan.
"MARKET VALUE" as of a given date means the greater of (i) the stated par
value of the Common Shares or (ii) the closing sale price of the Common Shares
as reported on the Composite Tape of the New York Stock Exchange (the "NYSE") on
such date. If there are no Common Share transactions on such date, the
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Market Value per Share shall be determined as of the immediately preceding date
on which there were Common Share transactions.
"OPTIONEE" means a Director who has been granted an Option Right under the
Plan.
"OPTION PRICE" means the purchase price payable upon the exercise of an
Option Right.
"OPTION RIGHT" means the right to purchase Common Shares from the Company
upon the exercise of an Initial Option or an Annual Option granted pursuant to
this Plan. Option Rights may be evidenced by written agreements, notifications
or other documents containing terms and conditions not inconsistent with this
Plan.
"PLAN" means the Bristol Hotels & Resorts Stock Option Plan for
Non-Employee Directors, as the same may be amended from time to time.
"RULE 16B-3" means Rule 16b-3 or any successor rule to the same effect, as
promulgated and amended from time to time by the Securities and Exchange
Commission under the Exchange Act.
"TERMINATION OF SERVICE" means the time at which the Optionee ceases to
serve as a Director for any reason, with or without cause, which includes
termination by resignation, removal, death or retirement.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to Sections 3(b) and 7 of
this Plan, the number of Common Shares issued upon exercise of Option Rights,
plus the number of Common Shares covered by outstanding Option Rights, shall not
in the aggregate exceed 500,000 Common Shares, which may be Common Shares of
original issuance or Common Shares held in treasury or a combination thereof. In
connection with the issuance of Common Shares pursuant to the Plan, the Company
may repurchase Common Shares in the open market or otherwise.
(b) For the purposes of this Section 3, Common Shares subject to an Option
Right that has been cancelled or terminated prior to exercise shall again be
available for the grant of Option Rights to the extent of such cancellation or
termination.
4. INITIAL OPTIONS. (a) With respect to each person who first becomes an
Eligible Director of the Company after the Effective Date of this Plan, an
option to purchase 25,000 Common Shares shall be automatically granted to such
Eligible Director as of the date such person first becomes an Eligible Director.
(b) (i) Subject to subsection (ii) of this Section 4(b) and Section 13 of
this Plan, each Initial Option, until terminated as provided in Section 6(c),
shall become exercisable to the extent of 34% of the Common Shares subject
thereto after the Optionee has continuously served as a Director through the
date of the First Annual Meeting, and to the extent of an additional 33% of the
Common Shares subject to the Initial Option after the Optionee has continuously
served as a Director through the date of the annual stockholders' meeting
immediately succeeding the First Annual Meeting and to the extent of an
additional 33% of the Common Shares subject to the Initial Option after the
Optionee has continuously served as a Director through the date of the second
annual stockholders' meeting succeeding the First Annual meeting.
(ii) If an Optionee ceases to be a Director by reason of death or
Disability, all Initial Options held by such Optionee that would have otherwise
become exercisable had such Director continuously served as a Director through
the date of the Company's annual meeting of stockholders immediately following
such death or Disability shall, notwithstanding subsection (i) of this Section
4(b), become immediately exercisable in full.
5. ANNUAL OPTIONS. (a) On the date of each annual meeting of the Company's
stockholders (beginning with the annual meeting of stockholders in 1999), an
option to purchase 25,000 Common Shares shall be automatically granted as such
date to each Eligible Director who is elected a Director at such meeting or
whose term of office as a Director continues after such meeting.
(b) (i) Subject to subsection (ii) of this Section 5(b) and Section 13 of
this Plan, each Annual Option, until terminated as provided in Section 6(c),
shall become exercisable to the extent of 100% of the Common Shares subject
thereto after the Optionee has continuously served as a Director until the date
of the First Annual Meeting.
F-2
<PAGE> 245
(ii) If an Optionee ceases to be a Director by reason of death or
Disability, all Annual Options held by such Optionee shall, notwithstanding
subsection (i) of this Section 5(b), become immediately exercisable in full.
6. TERMS OF OPTION RIGHTS.
(a) The Option Price per share of each Option Right shall be equal to the
Market Value per Common Share on the Date of Grant.
(b) To the extent exercisable, each Option Right shall be exercisable in
whole or in part from time to time by written notice to the Company at its
principal executive office specifying the number of Common Shares with respect
to which the Option Right is being exercised and payment of the Option Price for
such Common Shares in accordance with Section 6(d) of the Plan.
(c) Each Option Right shall terminate on the earliest to occur of the
following dates:
(i) Three months following the effective date of the Optionee's
Termination of Service, if such Termination of Service results other than
from the Optionee's death or Disability;
(ii) One year following the effective date of the Optionee's
Termination of Service, if such Termination of Service results from the
Optionee's death or Disability; or
(iii) Five years from the Date of Grant.
(d) The Option Price shall be payable (a) in cash or by check acceptable to
the Company, (b) by transfer to the Company of Common Shares which have been
owned by the Optionee for more than six months prior to the date of exercise and
which have a Market Value on the date of exercise equal to the Option Price, or
(c) by a combination of such methods of payment. The requirement of payment in
cash shall be deemed satisfied if the Optionee shall have made arrangements
satisfactory to the Company with a broker who is a member of the National
Association of Securities Dealers, Inc. to sell on the exercise date a
sufficient number of Common Shares being purchased so that the net proceeds of
the sale transaction will at least equal the Option Price of the Common Shares
being purchased, and pursuant to which the broker undertakes to deliver the full
Option Price of the Common Shares being purchased to the Company not later than
the date on which the sale transaction will settle in the ordinary course of
business.
(e) No Optionee shall have any rights as a stockholder with respect to
Common Shares subject to an Option Right until a certificate or certificates
representing such Common Shares has been issued.
(f) Except as otherwise determined by the Committee no Option Right shall
be transferable other than by will or the laws of descent and distribution.
Except as otherwise determined by the Committee, during an Optionee's lifetime,
Option Rights held by such Optionee shall be exercisable only by the Optionee
or, in the event of the Optionee's incapacity, including incapacity arising from
a Disability, by the Optionee's guardian or legal representative acting in a
fiduciary capacity. Any transferee shall be subject to the same terms and
conditions hereunder as the Participant.
(g) Option Rights granted pursuant to this Plan shall be options that are
not intended to qualify under any particular provision of the Code.
7. ADJUSTMENTS. The Committee shall make or provide for such adjustments in
the number of Common Shares covered by outstanding Option Rights, the Option
Prices per Common Share applicable to any such Option Rights, and the kind of
shares (including shares of another issuer) covered thereby, as the Committee
shall in good faith determine to be equitably required in order to prevent
dilution or expansion of the rights of Optionees that otherwise would result
from (a) any stock dividend, stock split, combination of shares,
recapitalization or other change in the capital structure of the Company, or (b)
any merger, consolidation, spin-off, spin-out, split-off, split-up,
reorganization, partial or complete liquidation or other distribution of assets,
issuance of warrants or other rights to purchase securities or any other
corporate transaction or event having an effect similar to any of the foregoing.
The Committee shall also make or provide for such adjustments in the maximum
number of Common Shares specified in Section 3(a) of this Plan and the number of
Common Shares specified in Sections 4(a) and 5(a) of this Plan as the Committee
may in good faith determine to be appropriate in order to reflect any
transaction or event described in this Section 7.
F-3
<PAGE> 246
8. FRACTIONAL SHARES. The Company shall not be required to issue any
fractional Common Shares pursuant to this Plan. Whenever under the terms of this
Plan a fractional Common Share would otherwise be required to be issued, an
amount in lieu thereof shall be paid in cash based upon the Market Value of such
fractional Common Share.
9. ADMINISTRATION OF THE PLAN. Unless the administration of the Plan has
been expressly assumed by the Board pursuant to a resolution of the Board, the
Plan shall be administered by the Committee. The Committee has the full
authority and discretion to administer the Plan and to take any action that is
necessary or advisable in connection with the administration of the Plan,
including without limitation the authority and discretion to interpret and
construe any provision of the Plan or of any agreement, notification or document
evidencing the grant of an Option Right. The interpretation and construction by
the Committee of any provision of this Plan or any agreement, notification or
document evidencing the grant of Option Rights, and any determination by the
Committee pursuant to any provision of this Plan or any such agreement,
notification or document, shall be final and conclusive. No member of the
Committee shall be liable for any such action taken or determination made in
good faith.
10. AMENDMENTS AND OTHER MATTERS. This Plan may be terminated, and from
time to time amended, by the Board; provided, however, that any amendment which
must be approved by the shareholders of the Company in order to comply with
applicable law or the rules of the New York Stock Exchange or, if the Common
Shares are not traded on the New York Stock Exchange, the principal national
securities exchange upon which the Common Shares are traded or quoted, shall not
be effective unless and until such approval has been obtained. Presentation of
this Plan or any amendment hereof for shareholder approval shall not be
construed to limit the Company's authority to offer similar or dissimilar
benefits under other plans without shareholder approval. No amendment or
termination of the Plan shall adversely affect any outstanding Option Right
without the consent of the Optionee.
11. NO ADDITIONAL RIGHTS. Nothing contained in this Plan or in any award
granted under this Plan shall interfere with or limit in any way the right of
the stockholders of the Company to remove any Director from the Board pursuant
to state law or the Certificate of Incorporation or Bylaws of the Company, nor
confer upon any Director any right to continue in the service of the Company.
12. SECURITIES LAW MATTERS. (a) The Company may require any Optionee, as a
condition of receiving Option Rights, to give written assurances in substance
and form satisfactory to the Company and its counsel to the effect that such
person is acquiring the Common Shares subject to the Option Rights for his own
account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws.
(b) Each award of Option Rights shall be subject to the requirement that,
if at any time counsel to the Company shall determine that the listing,
registration or qualification of the Common Shares subject to such Option Rights
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, is necessary as a condition
of, or in connection with, the issuance of shares thereunder, such grant of
Option Rights may not be accepted or exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to such counsel. Nothing herein
shall be deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
(c) To the extent necessary for the grant of an Option Right, its exercise
or the sale of Common Shares acquired thereunder to be exempt from Section 16(b)
of the Exchange Act, such Option Right shall be held six months from the Date of
Grant, or at least six months shall elapse from the Date of Grant to the date of
disposition of the Common Shares acquired upon exercise of such Option Right.
13. TERMINATION OF THE PLAN. No further Option Rights shall be granted
under this Plan after the passage of ten years from the Effective Date.
F-4
<PAGE> 247
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger dated March 23, 1998 between
Bristol Hotel Company and Registrant (included as Annex A
to the Joint Proxy Statement/ Prospectus).
3.1 -- Articles of Amendment and Restatement dated June 22,
1995, amending and restating the Charter of Registrant,
as amended or supplemented by Articles of Merger dated
June 23, 1995, Articles Supplementary dated April 30,
1996, Articles of Amendment dated August 8, 1996,
Articles of Amendment dated June 16, 1997 and Articles of
Amendment dated October 30, 1997 (filed as Exhibit 3.1 to
the Registrant's Form 10-K for the year ended December
31, 1997 (the "1997 Form 10-K") and incorporated herein
by reference).
3.2 -- Bylaws of the Registrant, as amended (filed as Exhibit
3.2 to the Registrant's Registration Statement on Form
S-11 (File No. 33-98332) (the "December 1995 Registration
Statement") and incorporated herein by reference).
4.1 -- Form of Share Certificate for Common Stock (filed as
Exhibit 4.1 to the Registrant's Form 10-Q for the quarter
ended June 30, 1996 (the "1996 Second Quarter 10-Q) and
incorporated herein by reference).
4.2 -- Indenture dated as of April 22, 1996 by and between the
Registrant and Sun Trust Bank, Atlanta, Georgia, as
Trustee (filed as Exhibit 4.2 to the Registrant's Form
8-K dated May 1, 1996 (the "1996 Form 8-K") and
incorporated herein by reference).
4.3 -- Indenture dated as of October 1, 1997 by and among FelCor
Suites Limited Partnership, the Registrant, the
Subsidiary Guarantors named therein and Sun Trust Bank,
Atlanta, Georgia, as Trustee (filed as Exhibit 4.1 to the
Registration Statement on Form S-4 (File No. 333-39595)
filed by the Registrant and the other co-registrants
named therein (the "1997 Form S-4") and incorporated
herein by reference).
4.4 -- Form of Share Certificate for $1.95 Series A Cumulative
Convertible Preferred Stock (filed as Exhibit 4.4 to the
1996 Form 8-K and incorporated herein by reference).
4.5 -- Form of Share Certificate for 9% Series B Cumulative
Redeemable Preferred Stock (filed as Exhibit 4.5 to the
Form 8-K dated May 7, 1998 (the "1998 Form 8-K") and
incorporated herein by reference).
4.6 -- Deposit Agreement dated April 30, 1998, between the
Registrant and SunTrust Bank, Atlanta, as preferred share
depositary (filed as Exhibit 4.6 to the 1998 Form 8-K and
incorporated herein by reference).
4.7 -- Form of Depositary Receipt evidencing Depositary Shares
for the Series B Preferred Stock (filed as Exhibit 4.7 to
the 1998 Form 8-K and incorporated herein by reference).
5.1* -- Opinion of Jenkens & Gilchrist, a Professional
Corporation.
5.2* -- Opinion of Miles & Stockbridge P.C.
</TABLE>
II-1
<PAGE> 248
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
8.1* -- Opinion of Hunton & Williams as to tax matters.
8.2* -- Opinion of Jenkens & Gilchrist, a Professional
Corporation as to tax matters.
8.3* -- Opinions of Jones, Day, Reavis & Pogue as to tax matters.
23.1* -- Consent of Jenkens & Gilchrist, a Professional
Corporation (included in Exhibit 5.1).
23.2* -- Consent of Miles & Stockbridge P.C. (included in Exhibit
5.2).
23.3 -- Consent of Hunton & Williams (included in Exhibit 8.1).
23.4 -- Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 8.3).
23.5* -- Consent of Coopers & Lybrand L.L.P.
23.6* -- Consent of Arthur Andersen LLP.
23.7* -- Consent of Price Waterhouse LLP.
23.8 -- Consent of Merrill Lynch.
23.9 -- Consent of BT Wolfensohn.
24.1 -- Power of Attorney (included on signature page).
99.1 -- Form of Proxy Card for FelCor.
99.2 -- Form of Proxy Card for Bristol.
99.3 -- Consent of Donald J. McNamara.
99.4 -- Consent of Richard C. North.
99.5 -- Consent of Robert L. Lutz, Jr.
99.6 -- Consent of Michael D. Rose.
99.7 -- Voting and Cooperation Agreement dated as of March 23,
1998 among Registrant, Bristol Hotel Company, Bass
America Inc., Holiday Corporation and United/Harvey
Holdings, L.P.
99.8 -- Spin-Off Agreement dated as of March 23, 1998 among
Bristol Hotel Company, Bristol Hotel Management
Corporation and Bristol Hotel & Resorts, Inc., as agreed
to by Registrant.
99.9 -- Form of Stockholders' and Registration Rights Agreement.
99.10 -- Form of Master Hotel Agreement and Lease Agreement.
</TABLE>
- - ---------------
* Filed herewith; all other exhibits previously filed.
(b) Financial Statement Schedules. None
(c) Report, Opinion or Appraisal: The fairness opinions of Merrill Lynch,
Pierce, Fenner & Smith Incorporated and BT Wolfensohn are included in the Joint
Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS
The Registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, as amended, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, as amended, that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer
II-2
<PAGE> 249
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement (i) To
include any prospectus required by section 10(a)(3) of the Securities Act
of 1933; (ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and (iii) To include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offering therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under 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 Securities and Exchange 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.
II-3
<PAGE> 250
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form S-4, 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 the Registration Statement through the
date of responding to the request.
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 the Registration Statement when it became effective.
II-4
<PAGE> 251
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Dallas, State of
Texas on June 16, 1998.
FELCOR SUITE HOTELS, INC.
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------
Lawrence D. Robinson
Senior Vice President and General
Counsel
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board and Director
- - -----------------------------------------------------
Hervey A. Feldman
* President and Director (Chief June 16, 1998
- - ----------------------------------------------------- Executive Officer)
Thomas J. Corcoran, Jr.
* Senior Vice President (Chief June 16, 1998
- - ----------------------------------------------------- Financial Officer)
Randall L. Churchey
* Vice President and Controller June 16, 1998
- - ----------------------------------------------------- (Principal Accounting Officer)
Lester C. Johnson
* Director June 16, 1998
- - -----------------------------------------------------
Richard S. Ellwood
* Director June 16, 1998
- - -----------------------------------------------------
Richard O. Jacobson
* Director June 16, 1998
- - -----------------------------------------------------
Charles A. Ledsinger, Jr.
* Director June 16, 1998
- - -----------------------------------------------------
Charles N. Mathewson
* Director June 16, 1998
- - -----------------------------------------------------
Thomas A. McChristy
</TABLE>
*By: /s/ LAWRENCE D. ROBINSON
-------------------------------
Lawrence D. Robinson
Attorney-in-Fact
II-5
<PAGE> 252
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.1 -- Agreement and Plan of Merger dated March 23, 1998 between
Bristol Hotel Company and Registrant (included as Annex A
to the Joint Proxy Statement/ Prospectus).
3.1 -- Articles of Amendment and Restatement dated June 22,
1995, amending and restating the Charter of Registrant,
as amended or supplemented by Articles of Merger dated
June 23, 1995, Articles Supplementary dated April 30,
1996, Articles of Amendment dated August 8, 1996,
Articles of Amendment dated June 16, 1997 and Articles of
Amendment dated October 30, 1997 (filed as Exhibit 3.1 to
the Registrant's Form 10-K for the year ended December
31, 1997 (the "1997 Form 10-K") and incorporated herein
by reference).
3.2 -- Bylaws of the Registrant, as amended (filed as Exhibit
3.2 to the Registrant's Registration Statement on Form
S-11 (File No. 33-98332) (the "December 1995 Registration
Statement") and incorporated herein by reference).
4.1 -- Form of Share Certificate for Common Stock (filed as
Exhibit 4.1 to the Registrant's Form 10-Q for the quarter
ended June 30, 1996 (the "1996 Second Quarter 10-Q) and
incorporated herein by reference).
4.2 -- Indenture dated as of April 22, 1996 by and between the
Registrant and Sun Trust Bank, Atlanta, Georgia, as
Trustee (filed as Exhibit 4.2 to the Registrant's Form
8-K dated May 1, 1996 (the "1996 Form 8-K") and
incorporated herein by reference).
4.3 -- Indenture dated as of October 1, 1997 by and among FelCor
Suites Limited Partnership, the Registrant, the
Subsidiary Guarantors named therein and Sun Trust Bank,
Atlanta, Georgia, as Trustee (filed as Exhibit 4.1 to the
Registration Statement on Form S-4 (File No. 333-39595)
filed by the Registrant and the other co-registrants
named therein (the "1997 Form S-4") and incorporated
herein by reference).
4.4 -- Form of Share Certificate for $1.95 Series A Cumulative
Convertible Preferred Stock (filed as Exhibit 4.4 to the
1996 Form 8-K and incorporated herein by reference).
4.5 -- Form of Share Certificate for 9% Series B Cumulative
Redeemable Preferred Stock (filed as Exhibit 4.5 to the
Form 8-K dated May 7, 1998 (the "1998 Form 8-K") and
incorporated herein by reference).
4.6 -- Deposit Agreement dated April 30, 1998, between the
Registrant and SunTrust Bank, Atlanta, as preferred share
depositary (filed as Exhibit 4.6 to the 1998 Form 8-K and
incorporated herein by reference).
4.7 -- Form of Depositary Receipt evidencing Depositary Shares
for the Series B Preferred Stock (filed as Exhibit 4.7 to
the 1998 Form 8-K and incorporated herein by reference).
5.1* -- Opinion of Jenkens & Gilchrist, a Professional
Corporation.
5.2* -- Opinion of Miles & Stockbridge P.C.
8.1* -- Opinion of Hunton & Williams as to tax matters.
8.2* -- Opinion of Jenkens & Gilchrist, a Professional
Corporation as to tax matters.
8.3* -- Opinions of Jones, Day, Reavis & Pogue as to tax matters.
</TABLE>
<PAGE> 253
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
23.1* -- Consent of Jenkens & Gilchrist, a Professional
Corporation (included in Exhibit 5.1).
23.2* -- Consent of Miles & Stockbridge P.C. (included in Exhibit
5.2).
23.3* -- Consent of Hunton & Williams (included in Exhibit 8.1).
23.4* -- Consent of Jones, Day, Reavis & Pogue (included in
Exhibit 8.3).
23.5* -- Consent of Coopers & Lybrand L.L.P.
23.6* -- Consent of Arthur Andersen LLP.
23.7* -- Consent of Price Waterhouse LLP.
23.8 -- Consent of Merrill Lynch.
23.9 -- Consent of BT Wolfensohn.
24.1 -- Power of Attorney (included on signature page).
99.1 -- Form of Proxy Card for FelCor.
99.2 -- Form of Proxy Card for Bristol.
99.3 -- Consent of Donald J. McNamara.
99.4 -- Consent of Richard C. North.
99.5 -- Consent of Robert L. Lutz, Jr.
99.6 -- Consent of Michael D. Rose.
99.7 -- Voting and Cooperation Agreement dated as of March 23,
1998 among Registrant, Bristol Hotel Company, Bass
America Inc., Holiday Corporation and United/Harvey
Holdings, L.P.
99.8 -- Spin-Off Agreement dated as of March 23, 1998 among
Bristol Hotel Company, Bristol Hotel Management
Corporation and Bristol Hotel & Resorts, Inc., as agreed
to by Registrant.
99.9 -- Form of Stockholders' and Registration Rights Agreement.
99.10 -- Form of Master Hotel Agreement and Lease Agreement.
</TABLE>
- - ---------------
* Filed herewith; all other exhibits previously filed.
<PAGE> 1
EXHIBIT 5.1
[JENKENS & GILCHRIST LETTERHEAD]
June 16, 1998
FelCor Suite Hotels, Inc.
545 E. John Carpenter Freeway
Suite 1300
Irving, Texas 75062
Re: Registration Statement on Form S-4 (File No. 333-50509)
Gentlemen:
We refer to the Form S-4 Registration Statement of FelCor Suite Hotels, Inc., a
Maryland corporation (the "Company"), filed with the Securities and Exchange
Commission, and the Joint Proxy Statement/Prospectus contained therein (the
"Registration Statement"), for the purpose of registering under the Securities
Act of 1933, as amended, up to 31,133,057 shares of the Company's common stock,
$0.01 par value per share (the "Common Shares"). The Common Shares are to be
issued in connection with the merger (the "Merger") of Bristol Hotel Company, a
Delaware corporation ("Bristol"), with and into the Company pursuant to the
Agreement and Plan of Merger, dated as of March 23, 1998 (the "Merger
Agreement"), between the Company and Bristol.
We have examined copies, certified or otherwise identified to our satisfaction,
of the Company's Articles of Amendment and Restatement and Bylaws, including
any and all amendments thereto, and minutes of applicable meetings of the
stockholders and the board of directors of the Company, or written consents in
lieu of such meetings, together with such other corporate records and
certificates of public officials and of officers of the Company as we have
deemed relevant for the purposes of this opinion. Based upon the foregoing,
and having regard to the legal considerations that we deem relevant, it is our
opinion that:
1. Assuming that the Merger is approved by the requisite vote of the
stockholders of the Company, all necessary corporate actions on the
part of the Company will have been taken to authorize the issuance of
the Common Shares in connection with the Merger.
2. Assuming that all relevant corporate actions heretofore taken by the
Company remain in full force and effect, and that the Merger is
approved by the requisite vote of the stockholders of
<PAGE> 2
FelCor Suite Hotels, Inc.
June 15, 1998
Page 2
the Company, if and when the Common Shares are issued, sold, and
delivered by the Company in accordance with the terms and conditions
of the Merger Agreement and as contemplated by the Registration
Statement, the Common Shares will be legally issued, fully paid, and
nonassessable.
We are attorneys admitted to practice in the State of Texas. We express no
opinion concerning the laws of any jurisdiction other than the laws of the
United States of America, and the State of Texas. With respect to matters of
Maryland law, we have relied upon the opinion of Miles and Stockbridge P.C.,
Baltimore, Maryland.
We hereby consent to the reference to us under the caption "Legal Matters" in
the Joint Proxy Statement/Prospectus, which constitutes a part of the
Registration Statement referred to above. In giving our consent, we do not
thereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Securities and
Exchange Commission thereunder.
Sincerely,
JENKENS & GILCHRIST,
a Professional Corporation
By: /s/ ROBERT W. DOCKERY
---------------------------------------
Robert W. Dockery, Authorized Signatory
<PAGE> 1
EXHIBIT 5.2
[MILES & STOCKBRIDGE LETTERHEAD]
June 16, 1998
FelCor Suite Hotels, Inc.
545 E. John Carpenter Frwy.
Suite 1300
Irving, TX 75062
Ladies and Gentlemen:
We have acted as special Maryland counsel to FelCor Suite Hotels, Inc.,
a Maryland corporation (the "Corporation"), in connection with the preparation
of a Registration Statement on Form S-4 (Reg. No. 333-50509) filed by the
Corporation with the Securities and Exchange Commission on April 20, 1998 (as
amended June 1, 1998 and June 16, 1998, the "Registration Statement"). The
Registration Statement relates to the registration under the Securities Act of
1933, as amended (the "Act"), of shares of Common Stock of the Corporation (the
"Common Stock"), to be issued as part of the proposed merger (the "Merger") of
Bristol Hotel Company with and into the Corporation. In this capacity we have
reviewed the Charter and bylaws of the Corporation, the Registration Statement,
the corporate proceedings of the Corporation relating to the authorization of
the issuance of the Common Stock, and such certificates and other documents as
we deem necessary or advisable for the purposes of this opinion. Capitalized
terms used but not defined herein shall have the meaning ascribed to them in the
Registration Statement.
For the purposes of the opinion expressed herein, we have assumed that
the issuance of the Common Stock will not violate the "Ownership Limit" as
defined in Article V of the Corporation's Charter, or otherwise conflict with or
violate any Charter provisions relating to the
<PAGE> 2
FelCor Suite Hotels, Inc.
Page 2
June 16, 1998
Corporation's qualification as a real estate investment trust.
Based on the foregoing, we are of the opinion that: the Common Stock
has been duly and validly authorized, and when issued in accordance with the
terms of the Registration Statement and the resolutions of the Board of
Directors relating to the Merger, will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus. In giving our consent, we do not thereby admit that
we are in the category of persons whose consent is required under Section 7 of
the Act or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
Miles & Stockbridge P.C.
By: /s/ DAVID GIBBONS
-----------------------
Principal
<PAGE> 1
EXHIBIT 8.1
[HUNTON & WILLIAMS LETTERHEAD]
May 29, 1998
FelCor Suite Hotels, Inc.
545 E. John Carpenter Freeway, Suite 1300
Irving, Texas 75062
Bristol Hotel Company
14295 Midway Road
Midway Atriums II, #300
Dallas, Texas 75244
FelCor Suite Hotels, Inc.
Qualification as
Real Estate Investment Trust
Ladies and Gentlemen:
We have acted as tax counsel to FelCor Suite Hotels, Inc., a Maryland
corporation (the "Company"), in connection with the proposed merger (the
"Merger") of Bristol Hotel Company, a Delaware corporation ("Bristol"), into the
Company. You have requested our opinion regarding certain U.S. federal income
tax matters in connection with the Merger.
The Company currently owns equity interests in hotels and associated
personal property (the "Hotels") through FelCor Suites Limited Partnership, a
Delaware limited partnership (the "Operating Partnership"), which owns the
Hotels both directly and through the following entities: (i) FelCor/CSS
Holdings, L.P., a Delaware limited partnership, (ii) FelCor/St. Paul Holdings,
L.P., a Delaware limited partnership, (iii) Los Angeles International Airport
Associates, L.P., a Texas limited partnership, (iv) Promus/FelCor Lombard Joint
Venture, an Illinois general partnership, (v) MHV Joint Venture, a Texas general
partnership, (vi) Promus/FelCor Parsippany Joint Venture, a New Jersey general
partnership, (vii) E.S. Charlotte Limited Partnership, a Minnesota limited
partnership, (viii) E.S. North, an Indiana Limited Partnership, an Indiana
limited partnership, (ix) FCH/DT Holdings, L.P., a Delaware limited partnership,
(x) FCH/DT BWI Holdings, L.P., a Delaware limited partnership, and (xi) certain
joint ventures with Promus Hotels, Inc. and its subsidiaries ("Promus"), each of
which holds a Hotel (the
<PAGE> 2
FelCor Suite Hotels, Inc.
Bristol Hotel Company
May 29, 1998
Page 2
"Promus Joint Ventures"). The Company and/or the Operating Partnership also owns
equity interests in (a) FelCor/CSS Hotels, L.L.C., a Delaware limited liability
company, (b) FelCor/LAX Hotels, L.L.C., a Delaware limited liability company,
(c) FelCor/LAX Holdings, L.P., a Delaware limited partnership, (d) Promus/FCH
Development Company, L.L.C., a Delaware limited liability company, and (e)
FCH/DT Hotels, L.L.C., a Delaware limited liability company. The entities
referred to in this paragraph will be referred to collectively herein as the
"Subsidiary Partnerships."
The Operating Partnership or a Subsidiary Partnership, as applicable,
leases each Hotel to DJONT Operations, L.L.C., a Delaware limited liability
company, or an affiliate thereof (the "Lessee") pursuant to substantially
similar operating leases (collectively, the "Leases"). Each of Promus, Coastal
Hotel Group, Inc., American General Hospitality, Inc., and ITT Sheraton
Corporation operates and manages certain of the Hotels on behalf of the Lessee
pursuant to substantially similar management agreements (the "Management
Agreements") with the Lessee.
In connection with the opinions rendered below, we have examined the
following:
1. the Company's Articles of Amendment and Restatement, as duly filed with the
Department of Assessments and Taxation of the State of Maryland on June 22,
1995, as amended or supplemented by Articles of Merger dated June 23, 1995,
Articles Supplementary dated April 30, 1996, Articles of Amendment dated August
8, 1996, Articles of Amendment dated June 16, 1997, and Articles of Amendment
dated October 30, 1997;
2. the Company's Bylaws;
3. the minutes of meetings of the Company's board of directors held from
May 22, 1997 through May 4, 1998;
4. the Amended and Restated Agreement of Limited Partnership of the Operating
Partnership, dated June 28, 1994 (the "Operating Partnership Agreement"), among
the Company, as general partner, and several limited partners, as amended on
November 17, 1995, January 9, 1996, and January 10, 1996;
2
<PAGE> 3
FelCor Suite Hotels, Inc.
Bristol Hotel Company
May 29, 1998
Page 3
5. Addendums Number 1 (and Annexes Number 1 and 2 thereto), dated January 9,
1996, and Number 2, dated May 2, 1996, to the Operating Partnership Agreement;
6. the Amended and Restated Agreement of Limited Partnership of FelCor/CSS
Holdings, L.P., dated as of September 18, 1995, between FelCor/CSS Hotels,
L.L.C., as general partner, and the Operating Partnership, as limited partner,
as amended on March 31, 1996;
7. the Agreement of Limited Partnership of FelCor/St. Paul Holdings, L.P.,
dated as of November 8, 1995, between FelCor/CSS Hotels, L.L.C., as general
partner, and the Operating Partnership, as limited partner, as amended on
December 29, 1995;
8. the Amended and Restated Agreement of Limited Partnership of Los Angeles
International Airport Associates, L.P., dated as of January 22, 1996, between
FelCor/LAX Holdings, L.P., as general partner, and several limited partners, as
amended on January 22, 1996;
9. the Amended and Restated Joint Venture Agreement of Promus/FelCor Lombard
Venture, f.k.a. Embassy/Shaw Lombard Venture, dated August 1, 1995, between the
Operating Partnership, Promus, and Embassy Development Corporation;
10. the Amended and Restated Joint Venture Agreement of MHV Joint Venture,
dated as of July 18, 1996, between the Operating Partnership and Promus;
11. the Amended and Restated Joint Venture Agreement of Promus/FelCor
Parsippany Venture, dated as of July 31, 1996, between the Operating Partnership
and Promus;
12. the Amended and Restated Limited Partnership Agreement of E.S. Charlotte
Limited Partnership, dated as of September 16, 1996, between the Operating
Partnership and other venturers;
13. the Amended and Restated Limited Partnership Agreement of E.S. North, an
Indiana Limited Partnership, dated as of September 16, 1996, between the
Operating Partnership and other venturers;
14. the Agreement of Limited Partnership of FCH/DT Holdings, L.P., dated as of
3
<PAGE> 4
FelCor Suite Hotels, Inc.
Bristol Hotel Company
May 29, 1998
Page 4
February 27, 1997, among FCH/DT Hotels, L.L.C., as general partner, and the
Operating Partnership and DTR Santa Clara, Inc., an Arizona corporation ("DTR
Santa Clara"), as limited partners;
15. the Amended and Restated Agreement of Limited Partnership of FCH/DT BWI
Holdings, L.P., dated as of March 20, 1997, between FCH/DT Hotels, L.L.C., as
general partner, and FCH/DT Holdings, L.P., as limited partner;
16. the Limited Liability Company Agreement of FelCor/CSS Hotels, L.L.C.,
dated as of October 18, 1995, between the Company and the Operating Partnership;
17. the Limited Liability Company Agreement of FelCor/LAX Hotels, L.L.C.,
dated as of October 18, 1995, between the Company and the Operating Partnership;
18. the Agreement of Limited Partnership of FelCor/LAX Holdings, L.P., dated
as of December 14, 1995, between FelCor/LAX Hotels, L.L.C., as general partner,
and the Operating Partnership, as limited partner, as amended on April 1, 1996;
19. the Limited Liability Company Agreement of Promus/FCH Development Company,
L.L.C., dated November 1996, between the Company and Promus;
20. the Limited Liability Company Agreement of FCH/DT Hotels, L.L.C., dated as
of February 18, 1997, between the Company and DTR Santa Clara;
21. the Leases;
22. the Management Agreements;
23. the tax opinions given by Bracewell & Patterson, L.L.P., dated June 26,
1996, April 30, 1996, December 20, 1995, May 18, 1995, and July 13, 1994,
regarding the Company's qualification as a REIT for its taxable years ended
December 31, 1994 and December 31, 1995, and the tax opinion given by Bracewell
& Patterson. L.L.P., dated April 26, 1995, regarding the tax-free reorganization
of the Company (the "Bracewell & Patterson Opinions");
24. the Registration Statement on Form S-4 (No. 333-50509) under the Securities
Act
4
<PAGE> 5
FelCor Suite Hotels, Inc.
Bristol Hotel Company
May 29, 1998
Page 5
of 1933, as amended (the "1933 Act"), relating to the Merger (the "S-4");
25. the Agreement and Plan of Merger dated March 23, 1998 between Bristol and
the Company (the "Merger Agreement");
26. the Spin-Off Agreement dated March 23, 1998 by and among Bristol, Bristol
Hotel Management Corporation, and Bristol Hotels & Resorts, Inc. (the "Spin-Off
Agreement");
27. the Form of Master Hotel Agreement dated March __, 1998 among Bristol,
Bristol Hotels & Resorts, Inc., the Company, and the Operating Partnership;
28. the Form of Lease Agreement dated as of March __, 1998 between the
Operating Partnership and Bristol Hotels & Resorts, Inc.;
29. the statement of the current and accumulated earnings and profits ("E&P")
of Bristol as of a date not more than 30 calendar days prior to the closing date
of the Merger and after giving effect to Bristol's distribution of the stock of
Bristol Hotels & Resorts, Inc. to Bristol's stockholders (the "Spin-Off"), and
the estimated current and accumulated E&P of Bristol as of the closing date of
the Merger after giving effect to the Spin-Off (the "E&P Statements");
30. the opinion of Jenkens & Gilchrist regarding the tax-free treatment of the
Merger; and
31. such other documents (including all other ancillary documents relating to
the Merger) as we have deemed necessary or appropriate for purposes of this
opinion.
In connection with the opinions rendered below, we have assumed
generally that:
1. each of the documents referred to above has been duly authorized, executed,
and delivered; is authentic, if an original, or is accurate, if a copy; and has
not been amended;
2. during its taxable year ending December 31, 1998 and subsequent taxable
years, the Company has operated and will continue to operate in such a manner
that makes and
5
<PAGE> 6
FelCor Suite Hotels, Inc.
Bristol Hotel Company
May 29, 1998
Page 6
will continue to make the representations contained in a certificate, dated the
date hereof and executed by a duly appointed officer of the Company (the
"Officer's Certificate"), true for such years;
3. the Company will not make any amendments to its organizational documents,
the Operating Partnership Agreement, or the organizational documents of the
Subsidiary Partnerships (the "Subsidiary Partnership Agreements") after the date
of this opinion that would affect its qualification as a real estate investment
trust (a "REIT") for any taxable year;
4. each partner or member of the Operating Partnership and the Subsidiary
Partnerships (each, a "Partner") that is a corporation or other entity has a
valid legal existence;
5. each Partner has full power, authority, and legal right to enter into and
to perform the terms of the Operating Partnership Agreement and the Subsidiary
Partnership Agreements and the transactions contemplated thereby;
6. no action will be taken by the Company, the Operating Partnership, the
Subsidiary Partnerships, or the Partners after the date hereof that would have
the effect of altering the facts upon which the opinions set forth below are
based;
7. the Merger Agreement, the Spin-Off Agreement, and the other documents
relating to the Merger (the "Merger Documents") have not been amended and will
not be amended after the date of this opinion in a manner that would affect the
Company's qualification as a REIT for any taxable year;
8. all of the documents that we have reviewed will be complied with without
waiver;
9. the E&P Statements correctly calculate the current and accumulated E&P of
Bristol; and
10. the Company will distribute all E&P carried over from Bristol by December
31, 1998.
6
<PAGE> 7
FelCor Suite Hotels, Inc.
Bristol Hotel Company
May 29, 1998
Page 7
In connection with the opinions rendered below, we have relied upon the
Bracewell & Patterson Opinions and the correctness of the factual
representations contained in the Officer's Certificate. After reasonable
inquiry, we are not aware of any facts inconsistent with the representations set
forth in the Officer's Certificate. Furthermore, where such factual
representations involve terms defined in the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations thereunder (the "Regulations"),
published rulings of the Internal Revenue Service (the "Service"), or other
relevant authority, we have explained the relevant defined terms to the
Company's representatives and are satisfied that such representatives understand
such defined terms and are capable of making the related factual
representations.
Based on the documents and assumptions set forth above, the
representations set forth in the Officer's Certificate, and the discussions in
the S-4 under the caption "Federal Income Tax Considerations--Qualification and
Operation of FelCor as a REIT; Ownership and Disposition of FelCor Common
Shares" (which are incorporated herein by reference), we are of the opinion
that:
(a) beginning with its taxable year ended December 31, 1994, the
Company was organized and has operated in conformity with the
requirements for qualification as a REIT under the Code;
(b) the Operating Partnership has been since its formation in 1994 and
continues to be treated for federal income tax purposes as a
partnership, and not as a corporation or association taxable as a
corporation;
(c) the Merger will not adversely affect the Company's continued
qualification as a REIT under the Code; and
(d) the descriptions of the law and the legal conclusions contained in
the S-4 under the caption "Federal Income Tax
Considerations--Qualification and Operation of FelCor as a REIT;
Ownership and Disposition of FelCor Common Shares" are correct in all
material respects, and the discussions thereunder fairly summarize the
federal income tax considerations that are likely to be material to a
holder of FelCor common stock.
7
<PAGE> 8
FelCor Suite Hotels, Inc.
Bristol Hotel Company
May 29, 1998
Page 8
We will not review on a continuing basis the Company's compliance with
the documents or assumptions set forth above, or the representations set forth
in the Officer's Certificate. Accordingly, no assurance can be given that the
actual results of the Company's operations for its 1998 and subsequent taxable
years will satisfy the requirements for qualification and taxation as a REIT.
Except with respect to the discussions in the S-4 under the captions
"Risk Factors--Tax Risks" and "Federal Income Tax Considerations--Qualification
and Operation of FelCor as a REIT; Ownership and Disposition of FelCor Common
Shares," we have not participated in the preparation of the S-4 and we do not
assume any responsibility for, and make no representation that we have
independently verified, the accuracy, completeness, or fairness of the
statements contained in the S-4.
The foregoing opinions are based on current provisions of the Code and
the Regulations, published administrative interpretations thereof, and published
court decisions. The Service has not issued Regulations or administrative
interpretations with respect to various provisions of the Code relating to REIT
qualification. No assurance can be given that the law will not change in a way
that will prevent the Company from qualifying as a REIT.
We hereby consent to the filing of this opinion as an exhibit to the
S-4. We also consent to the references to Hunton & Williams under the captions
"Risk Factors--Tax Risks," "Federal Income Tax Considerations--Qualification and
Operation of FelCor as a REIT; Ownership and Disposition of FelCor Common
Shares," and "Legal Matters" in the S-4. In giving this consent, we do not admit
that we are in the category of persons whose consent is required by Section 7 of
the 1933 Act or the rules and regulations promulgated thereunder by the
Securities and Exchange Commission.
The foregoing opinions are limited to the U.S. federal income tax
matters addressed herein, and no other opinions are rendered with respect to
other federal tax or other matters or to any issues arising under the tax laws
of any other country, or any state or locality. We undertake no obligation to
update the opinions expressed herein after the date of this letter. This opinion
letter is solely for the information and use of the addressees and the
stockholders of the Company and Bristol, and it may not be distributed, relied
upon for any purpose by any other person, quoted in whole or in part or
otherwise reproduced in any document, or filed with any governmental agency
without our express written consent.
Very truly yours,
/s/ HUNTON & WILLIAMS
<PAGE> 1
EXHIBIT 8.2
[JENKENS & GILCHRIST LETTERHEAD]
June 16, 1998
FelCor Suite Hotels, Inc.
545 E. John Carpenter Freeway, Suite 1300
Irving, Texas 75062
Ladies and Gentlemen:
We have acted as counsel to FelCor Suite Hotels, Inc., a Maryland
corporation ("FelCor"), in connection with the proposed merger (the "Merger") of
Bristol Hotel Company, a Delaware corporation ("Bristol"), with and into FelCor
and the registration of 31,133,057 shares of the common stock of FelCor ("FelCor
Common Shares") that may be issued pursuant to the Agreement and Plan of Merger
(the "Merger Agreement") dated March 23, 1998, all as described in the Form S-4
registration statement filed with the Securities and Exchange Commission (the
"Commission") on April 20, 1998 (as thereafter amended from time to time and
together with all exhibits thereto, the "Registration Statement"). Except as
otherwise indicated, capitalized terms used herein shall have the meanings
assigned to them in the Registration Statement.
Set forth below are our opinions and the assumptions and documents upon
which we have relied in rendering our opinions.
A. Documents Reviewed
In connection with the opinions rendered below, we have reviewed and
relied upon the following documents:
1. the Registration Statement,
2. the Merger Agreement,
3. the Spin-Off Agreement,
<PAGE> 2
FelCor Suite Hotels, Inc.
June 16, 1998
Page 2
4. the Certificates of Bristol and FelCor attached
hereto as Exhibit "A" and Exhibit "B," respectively (collectively, the
"Certificates"), and
5. such other documents as we have deemed necessary or
appropriate for purposes of this opinion.
B. Assumptions
In connection with the opinions rendered below, we have assumed:
1. that all signatures on all documents submitted to us
are genuine, that all documents submitted to us as originals are authentic,
that all documents submitted to us as copies are accurate, that all information
submitted to us is accurate and complete, and that all persons executing and
delivering originals or copies of documents examined by us are competent to
execute and deliver such documents.
2. that the Merger and the other transactions specified
in the Registration Statement to be effected on or prior to the Closing Date
will be consummated as contemplated in the Registration Statement and without
waiver of any material provision thereof.
C. Opinions
Based solely upon the documents and assumptions set forth above, and
conditioned upon the initial and continuing accuracy of the factual
representations set forth in the Certificates as of the date hereof and as of
the date of the Effective Time of the Merger, it is our opinion that:
(a) the Merger will be a reorganization within the
meaning of section 368(a)(1)(A) of the Code; and
(b) the descriptions of the law and the legal conclusions
contained in the Registration Statement under the caption "Federal Income Tax
Considerations - The Merger, the Spin-Off and the Post-Merger E&P Dividend" are
correct in all material respects and that the discussion thereunder represents
an accurate summary of the United States federal income tax
<PAGE> 3
FelCor Suite Hotels, Inc.
June 16, 1998
Page 3
consequences of the Merger, the Spin-Off and the Post-Merger E&P Dividend that
are material to FelCor and the shareholders of FelCor.
D. Limitations
1. Except as otherwise indicated, the opinions contained in
this letter are based upon the Code and its legislative
history, the Treasury regulations promulgated thereunder (the
"Regulations"), judicial decisions, and current administrative
rulings and practices of the Internal Revenue Service, all as
in effect on the date of this letter. These authorities may be
amended or revoked at any time. Any such changes may or may
not be retroactive with respect to transactions entered into
or contemplated prior to the effective date thereof and could
significantly alter the conclusions reached in this letter.
There is no assurance that legislative, judicial, or
administrative changes will not occur in the future. We assume
no obligation to update or modify this letter to reflect any
developments that may occur after the date of this letter.
2. The opinions expressed herein represent counsel's best
legal judgment and are not binding upon the Internal Revenue
Service or the courts and are dependent upon the accuracy and
completeness of the documents we have reviewed under the
circumstances, the assumptions made and the factual
representations contained in the Certificates. To the extent
that any of the factual representations provided to us in the
Certificates is with respect to matters set forth in the Code
or the Regulations, we have reviewed with the individuals
making such factual representations the relevant portions of
the Code and the applicable Regulations and are reasonably
satisfied that such individuals understand such provisions and
are capable of making such factual representations. We have
made no independent investigation of the facts contained in
the documents and assumptions set forth above, the factual
representations set forth in the Certificates or the
Registration Statement. No facts have come to our attention,
however, that would cause us to question the accuracy and
completeness of such facts or documents in a material way. Any
material inaccuracy or incompleteness in these documents,
assumptions or factual representations (whether made by any or
all of Bristol or FelCor) could adversely affect the opinions
stated herein.
<PAGE> 4
FelCor Suite Hotels, Inc.
June 16, 1998
Page 4
3. We are expressing opinions only as to those matters
expressly set forth in Section C above. No opinion should be
inferred as to any other matters. This opinion does not
address the various state, local or foreign tax consequences
that may result from the Merger or the other transactions
contemplated by the Merger Agreement. In addition, no opinion
is expressed as to any federal income tax consequence of the
Merger or the other transactions contemplated by the Merger
Agreement except as specifically set forth herein, and this
opinion may not be relied upon except with respect to the
consequences specifically discussed herein.
4. This opinion letter is issued for your benefit and the
shareholders of FelCor and no other person or entity may rely
hereon without our express written consent. This opinion
letter may be filed as an exhibit to the Registration
Statement. Furthermore, we consent to the reference to Jenkens
& Gilchrist, a Professional Corporation, under the captions
"Legal Matters" and "Federal Income Tax Considerations - The
Merger, the Spin-Off and the Post-Merger E&P Dividend." In
giving this consent, we do not thereby admit that we are
within the category of persons whose consent is required under
section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Commission promulgated
thereunder.
Very truly yours,
JENKENS & GILCHRIST,
a Professional Corporation
By: /s/ William P. Bowers
------------------------
William P. Bowers,
Authorized Signatory
<PAGE> 5
EXHIBIT "A"
BRISTOL TAX REPRESENTATIONS
Officer's Certificate Relating to Federal Income Tax Opinion
On behalf of Bristol Hotel Company, a Delaware corporation ("Bristol"),
I hereby certify that all the information set forth below is (to the best of my
knowledge and belief) true, correct, and complete as of the date hereof and will
continue to be true and correct as of the Effective Time of the Merger. To make
this certification, I have made such inquiries as to matters of fact and intent
as I have considered necessary to verify information not within my personal
knowledge. I understand that Jenkens & Gilchrist and Jones, Day, Reavis & Pogue
will rely on this certification in rendering their respective opinions (the
"Federal Income Tax Opinion") regarding the federal income tax consequences of
the proposed statutory merger (the "Merger") of Bristol into FelCor Suite
Hotels, Inc., a Maryland corporation ("FelCor") pursuant to the Agreement and
Plan of Merger dated March 23, 1998, between Bristol and FelCor (the "Merger
Agreement"). Capitalized terms not defined herein have the meanings set forth in
the Merger Agreement.
1. The fair market value of the FelCor common stock (including any
fractional share interest) received by a Bristol stockholder in
exchange for Bristol common stock in the Merger will be approximately
equal to the fair market value of the Bristol common stock surrendered
in the exchange.
2. None of the compensation received by any stockholder-employee of
Bristol will be separate compensation for, or allocable to, any shares
of Bristol common stock; none of the FelCor common stock received by
any stockholder-employee of Bristol will be separate consideration for,
or allocable to, any employment agreement; and the compensation paid to
any stockholder-employee of Bristol will be for services actually
rendered or pursuant to existing employment agreements and will be
commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
3. The terms of the advances made by FelCor to Bristol pursuant to section
5.14 of the Merger Agreement (the "Bristol Advances") are commercially
reasonable.
4. The Bristol Advances will be treated as debt for federal income tax
purposes and for all non-tax purposes, including regulatory, rating
agency, or financial accounting purposes.
5. Except for the Bristol Advances, there is no indebtedness existing
between (a) Bristol or any subsidiary of Bristol, on the one hand, and
(b) FelCor, FelCor Operating Partnership ("FelCor OP"), or any
subsidiary of the foregoing on the other hand.
6. Bristol and Bristol's stockholders have each separately paid or will
separately pay their respective expenses, if any, incurred in
connection with the Merger.
7. The payment of cash in lieu of fractional shares of FelCor common stock
is solely for the purpose of avoiding the expense and inconvenience to
FelCor of issuing fractional shares
<PAGE> 6
and does not represent separately bargained-for consideration.
8. In consideration of or as part of the Merger, Bristol has not sold,
transferred or otherwise disposed of any assets, other than pursuant to
the Merger Agreement and the Spin-Off Agreement or pursuant to
transactions in the ordinary course of its trade or business, that
would prevent FelCor or members of its qualified group (within the
meaning of Treasury Regulation Section 1.368-1(d)(4)(ii)) from
continuing the historic business of Bristol or using a significant
portion of Bristol's historic business assets in a business after the
Merger.
9. Prior to and in connection with the Merger, no outstanding Bristol
common stock has been (i) redeemed by Bristol, (ii) acquired by a
"related person" of Bristol (within the meaning of Treasury Regulation
Section 1.368-1(e)(3)) for consideration other than FelCor common stock
or Bristol common stock, or (iii) other than as set forth in the Merger
Agreement and the Spin-Off Agreement, the subject of any extraordinary
distribution by Bristol (within the meaning of Treasury Regulation
Section 1.368-1T(e)(1)(ii)).
10. The liabilities of Bristol, the liabilities of any wholly-owned
subsidiary of Bristol, and the liabilities to which the assets of
Bristol or any wholly-owned subsidiary of Bristol are subject were
incurred in the ordinary course of business.
11. Neither FelCor nor any "related person" of FelCor (within the meaning
of Treasury Regulation Section 1.368-1(e)(3)) has transferred or will
transfer cash or other property to Bristol or any subsidiary of Bristol
in anticipation of the Merger or, except for the Bristol Advances, has
made or will make any loan to Bristol or any subsidiary of Bristol in
anticipation of the Merger.
12. On the effective date of the Merger, the fair market value of the
assets of Bristol transferred to FelCor will exceed the sum of
Bristol's liabilities assumed by FelCor plus (without duplication) the
amount of liabilities, if any, to which the transferred assets are
subject.
13. Bristol is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
14. Bristol is not an "investment company" within the meaning of section
368(a)(2)(F)(iii) or (iv) of the Code.
15. The Merger is not occurring pursuant to an agreement that was binding
on or before January 28, 1998.
16. Bristol has the independent financial capability to fund and is not
dependent upon Felcor, Felcor OP, or any subsidiary thereof to make the
payments referenced in paragraph 17 below.
<PAGE> 7
17. The following payments will be made solely from funds of Bristol and
will not be made from funds provided, directly or indirectly prior to
the Merger, by FelCor, FelCor OP, or any subsidiary of FelCor or FelCor
OP: (a) any cash transferred to the Management Group in connection with
the Spin-Off, and (b) any amount paid for any other liability of
Bristol fixed by or created pursuant to the Merger Agreement or the
Spin-Off Agreement.
18. The terms of the New Leases (as defined in the Spin-Off Agreement) are
commercially reasonable and were the result of arm's length
negotiations.
19. The fair market value of the BHR Common Shares at the Spin-Off Time
will not be materially in excess of the amount specified in section
3.11(d) of the Merger Agreement.
BRISTOL HOTEL COMPANY
By: /s/ JOEL M. EASTMAN
-------------------------------------------
Name: Joel M. Eastman
-----------------------------------------
Its: Vice President
------------------------------------------
Date: 5/28, 1998
-----
<PAGE> 8
EXHIBIT "B"
FELCOR TAX REPRESENTATIONS
OFFICER'S CERTIFICATE RELATING TO FEDERAL INCOME TAX OPINION
On behalf of FelCor Suite Hotels, Inc., a Maryland corporation
("FelCor"), I hereby certify that all the information set forth below is (to the
best of my knowledge and belief) true, correct, and complete as of the date
hereof and will continue to be true and correct as of the Effective Time of the
Merger. To make this certification, I have made such inquiries as to matters of
fact and intent as I have considered necessary to verify information not within
my personal knowledge. I understand that Jenkens & Gilchrist and Jones, Day,
Reavis and Pogue will rely on this certification in rendering their respective
opinions (the "Federal Income Tax Opinion") regarding the federal income tax
consequences of the proposed statutory merger (the "Merger") of Bristol Hotel
Company, a Delaware corporation ("Bristol"), into FelCor pursuant to the
Agreement and Plan of Merger dated March 23, 1998, between Bristol and FelCor
(the "Merger Agreement"). Capitalized terms not defined herein have the meanings
set forth in the Merger Agreement.
1. The fair market value of the FelCor common stock (including any
fractional share interest) received by a Bristol stockholder in
exchange for Bristol common stock in the Merger will be approximately
equal to the fair market value of the Bristol common stock surrendered
in the exchange.
2. None of the compensation received by any stockholder-employee of
Bristol will be separate compensation for, or allocable to, any shares
of Bristol common stock; none of the FelCor common stock received by
any stockholder-employee of Bristol will be separate consideration for,
or allocable to, any employment agreement; and the compensation paid to
any stockholder-employee of Bristol will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arm's length for similar services.
3. The payment of cash in lieu of fractional shares of FelCor common stock
is solely for the purpose of avoiding the expense and inconvenience to
FelCor of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be
paid in the Merger to Bristol stockholders in lieu of fractional shares
of FelCor common stock will not exceed one percent of the total
consideration that will be issued in the Merger to Bristol stockholders
in exchange for their Bristol common stock.
4. Neither FelCor nor any "related person" of FelCor (as such term is
defined by Treasury Regulation Section 1.368-1(e)(3)) has any current
plan or intention to repurchase or redeem any of the FelCor common
stock to be issued to the Bristol stockholders in connection with the
Merger or make any extraordinary distribution (within the meaning of
Treasury Regulation Section 1.368-1T(e)) with respect to such stock.
<PAGE> 9
5. Following the Merger, the historic business of Bristol will be
continued, or a significant portion of Bristol's historic business
assets will be used in a business, by (i) FelCor, (ii) a corporation
within FelCor's "qualified group" (within the meaning of Treasury
Regulation Section 1.368-1(d)(4)(ii)), or (iii) a partnership described
in Treasury Regulation Section 1.368-1(d)(4)(iii).
6. The terms of the advances made by FelCor to Bristol pursuant to section
5.14 of the Merger Agreement (the "Bristol Advances") are commercially
reasonable.
7. The Bristol Advances will be treated as debt for federal income tax
purposes and for all non-tax purposes, including regulatory, rating
agency, or financial accounting purposes.
8. Except for the Bristol Advances, there is no indebtedness existing
between (a) Bristol or any subsidiary of Bristol, on the one hand, and
(b) FelCor, FelCor Operating Partnership ("FelCor OP"), or any
subsidiary of the foregoing on the other hand.
9. Neither FelCor nor any "related person" of FelCor (within the meaning
of Treasury Regulation Section 1.368-1(e)(3)) has transferred or will
transfer cash or other property to Bristol or any subsidiary of Bristol
in anticipation of the Merger or, except for the Bristol Advances, has
made or will make any loan to Bristol or any subsidiary of Bristol in
anticipation of the Merger.
10. On the effective date of the Merger, the fair market value of the
assets of Bristol transferred to FelCor will exceed the sum of
Bristol's liabilities assumed by FelCor plus the amount of any
liabilities, without duplication, to which the transferred assets are
subject.
11. FelCor has no plan or intention to sell or otherwise dispose of any of
the assets of Bristol following the Merger, other than dispositions
made in the ordinary course of its trade or business or transfers of
assets to a corporation within FelCor's "qualified group" (within the
meaning of Treasury Regulation Section 1.368-1(d)(4)(ii)) or a
partnership described in Treasury Regulation Section
1.368-1(d)(4)(iii).
12. FelCor and its stockholders have each separately paid or will
separately pay their respective expenses, if any, incurred in
connection with the Merger and will not pay any of the expenses of
Bristol or Bristol's stockholders, if any, incurred in connection with
the Merger.
13. Neither FelCor nor any "related person" of FelCor (within the meaning
of Treasury Regulation Section 1.368-1(e)(3)) has acquired, nor will it
acquire, any shares of Bristol common stock within the five years
preceding the Merger.
<PAGE> 10
14. FelCor is not an "investment company" within the meaning of section
368(a)(2)(F)(iii) or (iv) of the Code, other than as a result of being
a real estate investment trust.
15. The Merger is not occurring pursuant to an agreement that was binding
on or before January 28, 1998.
16. FelCor will make an election pursuant to IRS Notice 88-19 to be subject
to the rules of section 1374 of the Code in connection with the Merger.
17. The following payments will be made solely from funds of Bristol and
will not be made from funds provided, directly or indirectly prior to
the Merger, by FelCor, FelCor OP, or any subsidiary of FelCor or FelCor
OP: (a) any cash transferred to the Management Group in connection with
the Spin-Off, and (b) any amount paid for any other liability of
Bristol fixed by or created pursuant to the Merger Agreement or the
Spin-Off Agreement.
18. The terms of the Lease Agreement and the Management Agreement are
commercially reasonable and were the result of arm's length
negotiations.
FELCOR SUITE HOTELS, INC.
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------------
Name: Lawrence D. Robinson
-----------------------------------------
Its: Senior Vice President
------------------------------------------
Date: May 28, 1998
-------
<PAGE> 1
EXHIBIT 8.3
May 28, 1998
Bristol Hotel Company
14295 Midway Road
Dallas, TX 75244
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed merger (the "Merger") of Bristol Hotel Company (the
"Company"), a Delaware corporation, with and into FelCor Suite Hotels, Inc.
("FelCor"), a Maryland corporation, pursuant to the statutory merger laws of the
States of Delaware and Maryland. For purposes of this opinion, we have relied
upon, and assumed the completeness, truth and accuracy of, the information
contained in the Agreement and Plan of Merger dated as of March 23, 1998, and
the Joint Proxy Statement/Prospectus filed with the Securities and Exchange
Commission on April 20, 1998 (as thereafter amended from time to time, and
together with all exhibits thereto) without having independently confirmed the
accuracy thereof. In addition, we have relied upon the representations of FelCor
and the Company in the certificates dated the date hereof.
Based upon the foregoing, and provided that the facts, assumptions, and
representations referenced above set forth the facts relating to the Merger
fully and accurately as of the date hereof, and will set forth such facts fully
and accurately as of the Effective Time of the Merger, we are of the opinion
that the Merger will constitute a "reorganization" within the meaning of section
368(a)(1)(A) of the Code, and that no gain or loss will be recognized by the
shareholders of the Company upon their exchange of the shares of the common
stock of the Company for FelCor common stock under section 354 of the Code,
except to the extent such shareholders receive cash in lieu of fractional shares
of FelCor common stock.
We are further of the opinion that the sections of the Joint Proxy
Statement/Prospectus entitled "Tax Consequences of the Merger," "Tax
Consequences of the Spin-Off," and "Tax Consequences of the Post-Merger E&P
Dividend" accurately summarize the United States federal income tax consequences
of the Merger, Spin-Off, and Post-Merger E&P Dividend that are likely to be
material to U.S. stockholders of the Company and FelCor, and we hereby consent
to the filing of this opinion with the Securities and Exchange Commission as an
exhibit to the Joint Proxy Statement/Prospectus.
<PAGE> 2
Bristol Hotel Company
May 28, 1998
Page 2
This opinion relates solely to the federal income tax consequences of
the Merger discussed herein, and no opinion is expressed as to the consequences
under any foreign, state or local tax law. Further, and notwithstanding anything
in the foregoing to the contrary, no opinion is expressed as to the effect upon
the opinion set forth above of any provision of law that may affect any
particular person differently than any other person by reason of such
first-mentioned person's special status, characteristics or situations,
including but not limited to status as (a) an employee of the Company or (b) a
person who is not a United States person (within the meaning of section
7701(a)(30) of the Code). Except as explicitly stated herein, no other opinion
is expressed or implied. This opinion is based upon the currently applicable
provisions of the Code, regulations thereunder, current published positions of
the Internal Revenue Service and judicial authorities published to date, all of
which are subject to change by the Congress, the Treasury Department, the
Internal Revenue Service or the courts. Any such change may be retroactive with
respect to transactions entered into prior to the date of such change. No
assurance can be provided as to the effect upon our opinion of any such change.
Finally, this opinion is not binding upon the Internal Revenue Service or the
courts, and no assurance can be given that they will accept this opinion or
agree with the views expressed herein.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
<PAGE> 3
May 28, 1998
Bristol Hotel Company
14295 Midway Road
Dallas, TX 75244
Ladies and Gentlemen:
We have acted as counsel to Bristol Hotel Company (the "Company"), a
Delaware corporation, in connection with the proposed distribution (the
"Spin-Off") by the Company of Bristol Hotels and Resorts, Inc. ("BHR"), a
Delaware corporation wholly owned (prior to the Spin-Off) by the Company, prior
and pursuant to the proposed merger (the "Merger") of the Company with and into
Felcor Suite Hotels, Inc. ("Felcor"), a Maryland corporation.
You have requested our opinion as to certain federal income tax
consequences of the Spin-Off. For purposes of this opinion, we have reviewed and
relied upon, and assumed the completeness, truth and accuracy of, the
information contained in the Agreement and Plan of Merger dated as of March 23,
1998, the Spin-Off Agreement dated as of March 23, 1998, the Form 10
Registration Statement of BHR filed with the Securities and Exchange Commission
(File No. 1-14047), the Joint Proxy Statement/Prospectus dated April 20, 1998
(including all attachments and exhibits attached to the foregoing documents),
and such other documents and information concerning the Spin-Off and the Merger
as we considered necessary or appropriate, without having independently
confirmed the accuracy thereof.
Based upon the foregoing, and provided that the documents, facts and
assumptions referenced above set forth the facts relating to the Spin-Off fully
and accurately as of the date hereof, and will set forth such facts fully and
accurately as of the Spin-Off Time, we are of the opinion that the distribution
of the BHR shares to the Company shareholders in the Spin-Off will constitute a
dividend of the Company's earnings and profits (to the extent thereof), as
defined in section 316 of the Code.
This opinion relates solely to the federal income tax consequences of
the Spin-Off discussed herein, and no opinion is expressed as to the
consequences under any foreign, state or local tax law. Except as explicitly
stated herein, no other opinion is expressed or implied. This opinion is based
upon the currently applicable provisions of the Code, regulations thereunder,
current published positions of the Internal Revenue Service and judicial
authorities published to date, all of which are subject to change by the
Congress, the Treasury Department, the Internal Revenue Service or the courts.
Any such change may be retroactive with respect to transactions
<PAGE> 4
Bristol Hotel Company
May 28, 1998
Page 2
entered into prior to the date of such
change. No assurance can be provided as to the effect upon our opinion of any
such change. Finally, this opinion is not binding upon the Internal Revenue
Service or the courts, and no assurance can be given that they will accept this
opinion or agree with the views expressed herein.
This opinion is intended for the sole benefit of the Company, and is
not to be relied upon by any other person without our prior written consent.
Very truly yours,
/s/ Jones, Day, Reavis & Pogue
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
FelCor Suite Hotels, Inc.
We consent to the incorporation by reference in Amendment No. 2 to the
registration statement of FelCor Suite Hotels, Inc. on Form S-4 (File No.
333-50509) of our report dated January 20, 1998, except for Note 14 as to which
the date is February 17, 1998, on our audits of the consolidated financial
statements and financial statement schedule of FelCor Suite Hotels, Inc. as of
December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996, and
1995 and our report dated March 13, 1998, on our audits of the consolidated
financial statements of DJONT Operations, L.L.C. as of December 31, 1997 and
1996, and for the years ended December 31, 1997, 1996, and 1995 which reports
are incorporated by reference herein. We also consent to the references to our
firm under the captions "Experts" and "Selected Financial Data."
/s/ COOPERS & LYBRAND L.L.P.
------------------------------------
Coopers & Lybrand L.L.P.
Dallas, Texas
June 16, 1998
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated February 6, 1998 (except with respect to the matter discussed in
Note 20 as to which the date is March 25, 1998) on the consolidated financial
statements of the Bristol Hotel Company and to the use of our report dated
February 6, 1998, (except with respect to the matter discussed in Note 18 as to
which the date is March 25, 1998) on the consolidated financial statements of
the Bristol Hotel Asset Company (and to all references to our Firm) incorporated
by reference into the Amendment No. 2 of the Registration Statement on Form S-4
of FelCor Suite Hotels Inc.
Dallas, Texas,
June 16, 1998
/s/ ARTHUR ANDERSEN, LLP
------------------------------------
Arthur Andersen, LLP
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 2 of the Registration Statement on Form
S-4 of FelCor Suite Hotels, Inc. of our report dated February 23, 1996 appearing
on page F-2 of Bristol Hotel Company's Annual Report on Form 10-K and Amended
Annual Reports, on Form 10-K/A for the year ended December 31, 1997. We also
consent to the references to us under the headings "Experts" and "Selected
Historical Combined Financial Data of Harvey Hotel Companies" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Historical Combined Financial Data of
Harvey Hotel Companies."
/s/ PRICE WATERHOUSE LLP
- - ------------------------------------------------------
PRICE WATERHOUSE LLP
Dallas, Texas
June 16, 1998
