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Filed Pursuant to Rule 424(b)(2)
Registration No. 333-50509
PROSPECTUS
22,486,234 SHARES
FELCOR LODGING TRUST INCORPORATED
(FORMERLY FELCOR SUITE HOTELS, INC.)
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
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This prospectus ("Prospectus") relates to the offer and sale by FelCor
Lodging Trust Incorporated (formerly FelCor Suite Hotels, Inc.) ("FelCor") of up
to 1,273,259 shares of common stock, par value $0.01 per share (the "Common
Stock"), pursuant to outstanding options (the "Options") granted under the terms
of the Second Amended and Restated 1995 Equity Incentive Plan (the "Incentive
Plan") and the Stock Option Plan for Non-Employee Directors (the "Non-Employee
Director Plan") (together with the Incentive Plan, the "Plans"). The Plans were
originally adopted by Bristol Hotel Company ("Bristol"), which was merged with
and into FelCor effective July 28, 1998 (the "Merger"). FelCor assumed Bristol's
obligations under the Plans and Options as a result of the Merger. See
"Description of the Plans."
This Prospectus also relates to the offer and sale by certain selling
shareholders named herein under "Selling Shareholders" ("Selling Shareholders")
of up to 21,212,975 shares of Common Stock. FelCor will receive no part of the
proceeds of any sales by the Selling Shareholders. With respect to 19,249,619 of
these shares, certain Selling Shareholders have agreed not to transfer them for
a period of six months after the Merger except in certain circumstances. All
expenses of registration incurred in connection with this offering are being
borne by FelCor, but all selling expenses and commissions incurred by Selling
Shareholders will be borne by the Selling Shareholders. The outstanding shares
of Common Stock held by the Selling Shareholders were originally issued by
FelCor pursuant to the Merger in exchange for shares of Common Stock of Bristol
owned by the Selling Shareholders. The Selling Shareholders were affiliates of
Bristol at the time of the Merger and under applicable securities regulations
cannot freely resell their shares without registration or an exemption
therefrom. This Prospectus is required by FelCor's contractual obligations to
register the shares of the Selling Shareholders for resale, and the Selling
Shareholders are under no obligation to resell their shares. See "Selling
Shareholders."
The Common Stock of FelCor is listed on the New York Stock Exchange
(the "NYSE") under the symbol "FCH." The last reported sale price of Common
Stock on August 10, 1998, on the NYSE was $26-1/16 per share. To preserve its
status as a real estate investment trust ("REIT"), FelCor's Charter limits the
Common Stock that may be owned by any single person or affiliated group, subject
to certain exceptions, to 9.9% of the outstanding shares and restricts the
transferability thereof under certain circumstances.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CAREFULLY CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS AUGUST 12, 1998.
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WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE INFORMATION
FelCor files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (the "SEC").
Prospective purchasers may read and copy any reports, statements or other
information FelCor files at the SEC's public reference facilities 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 facilities. FelCor's
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 filings can be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
FelCor registered with the SEC the shares of Common Stock covered by
this Prospectus. This Prospectus is a part of a Post-Effective Amendment No. 1
on Form S-3 to Form S-4 Registration Statement (File No. 333-50509) filed with
the SEC (the "Registration Statement"). As allowed by SEC rules, this Prospectus
does not contain all the information contained in the Registration Statement or
in the exhibits to the Registration Statement. The Registration Statement may be
inspected and copied at the public reference facilities of the SEC described
above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows FelCor to include certain information in this document
by "incorporating by reference." The following documents filed with the SEC by
FelCor (File No. 001-14236) pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), are incorporated by reference in this Prospectus:
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 July 11, 1997 and
amended on August 14, 1997;
4. Current Report on Form 8-K filed with the SEC on April 23, 1998;
5. Current Report on Form 8-K filed with the SEC on May 29, 1998;
6. Current Report on Form 8-K filed with the SEC on August 10, 1998;
7. Pro forma financial information contained in the definitive Joint
Proxy Statement/Prospectus dated June 19, 1998 filed with the SEC in
connection with the Registration Statement; and
8. The description of the Common Stock 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.
All documents and reports filed by FelCor pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and
prior to the date all of the shares of Common Stock are sold will be deemed to
be incorporated by reference in this 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 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 Prospectus.
THE DOCUMENTS INCORPORATED 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 PROSPECTUS
IS DELIVERED ON WRITTEN OR ORAL REQUEST, WITHOUT CHARGE, DIRECTED TO FELCOR
LODGING TRUST INCORPORATED, 545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING,
TEXAS 75062 (TELEPHONE NUMBER (972) 444-4900), ATTENTION: SECRETARY.
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THE COMPANY
FelCor Lodging Trust Incorporated (formerly FelCor Suite Hotels, Inc.)
("FelCor") is a self- administered equity REIT that, at August 10, 1998, owned
an approximate 95.6% general partner interest in FelCor Lodging Limited
Partnership (formerly FelCor Suites Limited Partnership), a Delaware limited
partnership (the "Partnership"). At August 10, 1998, following the merger
("Merger") of Bristol Hotel Company ("Bristol") with an into FelCor, the
Partnership owned interests directly, or through subsidiaries, in 193 hotels
(the "Hotels") with an aggregate of approximately 50,000 suites and rooms in 35
states and Canada. Assuming completion of currently planned conversions with
respect to 10 of the Hotels, 80 of the Hotels are operated as all-suite upscale
hotels, 32 are operated as upscale full service hotels, 61 are operated as
traditional full service hotels, and 21 are operated as limited service hotels.
The Hotels are operated primarily under the following brands: Embassy Suites(R)
(58 hotels), Holiday Inn(R) and Holiday Inn Select(R) (53 hotels), Crowne
Plaza(R) (19 hotels), Doubletree(R) and Doubletree Guest Suites(R) (17 hotels),
Sheraton(R) and Sheraton Suites(R) (9 hotels) and other brands (37 hotels).
Seventy-three of the Hotels are managed by a subsidiary of Promus Hotel
Corporation ("Promus"), which includes Doubletree Hotels Corporation and its
subsidiaries. Promus is the largest operator of full-service, all-suite hotels
in the United States. Nine of the remaining Hotels are managed by a subsidiary
of Starwood Hotels & Resorts, which includes ITT Sheraton Corporation and its
subsidiaries, and three are managed by two independent management companies. The
remaining 108 Hotels, including all of the hotels acquired from Bristol in the
Merger, are leased or managed by subsidiaries of Bristol Hotels & Resorts,
itself a former subsidiary of Bristol that was spun-off by Bristol to its
stockholders prior to the Merger. Bristol Hotels & Resorts has succeeded to
Bristol's hotel operating business and is one of the largest independent hotel
operating companies in the United States. See "--Recent Developments--Merger
with Bristol Hotel Company." Unless the context otherwise requires, all
references herein to "FelCor" are references to FelCor Lodging Trust
Incorporated, the Partnership and their respective subsidiaries, on a
consolidated basis.
To enable FelCor to satisfy certain requirements for qualification as a
REIT, neither it nor the Partnership can operate the hotels in which they
invest. Accordingly, on August 10, 1998, the Partnership and its subsidiaries
had leased 86 Hotels to DJONT Operations, L.L.C., or one of its consolidated
subsidiaries (collectively, "DJONT"), and 107 Hotels to Bristol Hotels &
Resorts, or one of its consolidated subsidiaries (collectively, "BHR") pursuant
to leases ("Percentage Leases") generally with initial terms (including lessee
renewal options) of 10 to 15 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 revenues.
FelCor was formed as a Delaware corporation on May 16, 1994 and was
reincorporated as a Maryland corporation on June 23, 1995. FelCor's executive
offices are located at 545 E. John Carpenter Frwy., Suite 1300, Irving, Texas
75062, and its telephone number is (972) 444-4900.
RECENT DEVELOPMENTS
MERGER WITH BRISTOL HOTEL COMPANY. Effective July 28, 1998, Bristol was
merged with and into FelCor. As a consequence of the Merger, Bristol's
stockholders acquired approximately 46% of FelCor's outstanding Common Stock,
and FelCor succeeded to Bristol's interest in 109 owned or leased hotels (the
"Bristol Hotels"). References in this Prospectus to the Hotels includes the
Bristol Hotels. In connection with the Merger, Bristol distributed to its
stockholders all of the common stock of BHR as a separate public company (the
"Spin-Off"). The Bristol Hotels have been leased by FelCor to BHR pursuant to
Percentage Leases. BHR has continued Bristol's former hotel operating business
and, as of August 10, 1998, operated 122 hotels, including hotels not owned by
FelCor.
BHR and FelCor are independent public companies with no overlap in
management or their boards of directors. However, BHR's two largest stockholders
also have significant ownership interests in FelCor and have representatives on
the Boards of Directors of both companies, including the Chairman of the Board
of FelCor. FelCor has maintained its existing headquarters facilities in Dallas,
and BHR assumed responsibility for Bristol's employees and existing headquarters
facilities in Dallas.
OTHER RECENT ACQUISITIONS AND DISPOSITIONS. During the period from
April 1, 1998, to August 10, 1998, FelCor acquired interests in 11 hotels with
an aggregate of 2,749 suites and rooms for approximately $324 million in cash.
These 11 hotels consist of (i) a traditional 248-room upscale full-service
Doubletree hotel with approximately 11,000 square feet of meeting space located
in Aurora, Colorado, (ii) a 301-room upscale full
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service Hilton(R) hotel with approximately 19,000 square feet of meeting and
convention space and an exhibition center of approximately 10,000 square feet
located in Secaucus, New Jersey, (iii) eight hotels, located in seven states and
having a total of 1,898 suites that were acquired from Starwood Hotels & Resorts
including five Embassy Suites Hotels and three Doubletree Guest Suites hotels
(two of which have subsequently been converted to the Sheraton Suites brand and
one of which is being converted to an Embassy Suites hotel), and (iv) a
traditional 302-room upscale full-service Doubletree hotel with approximately
14,000 square feet of meeting space in Dallas, Texas.
FelCor has disposed of its interests in the Holiday Inn-Orlando
North/Winter Park hotel in Orlando, Florida and the Holiday Inn
Express(R)-Atlanta N.E. hotel near Atlanta, Georgia for total cash consideration
of $7.7 million, in two separate transactions. FelCor may sell a limited number
of the Bristol Hotels in the near future.
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RISK FACTORS
Prospective purchasers should carefully consider the following risk
factors, together with the other information provided, before deciding to
purchase shares of Common Stock. Each of these risk factors could adversely
affect the value of an investment in the Common Stock.
INABILITY TO INTEGRATE BRISTOL'S ASSETS OR REALIZE ANTICIPATED BENEFITS OF
MERGER
As a result of the Merger, the number of hotels owned by FelCor more
than doubled. Although the Bristol Hotels are operated by BHR under long-term
leases, FelCor must integrate these hotels into its hotel portfolio and may need
additional people and resources to handle the increased work load. If FelCor is
unable successfully to integrate the Bristol Hotels into its portfolio, FelCor's
business, financial condition and results of operations could suffer. A large
number of the Bristol Hotels are in the process of, or awaiting, substantial
renovation, modernization and repositioning. If the implementation of these
plans do not yield the anticipated results, then FelCor may have paid too much
for the Bristol Hotels in the Merger.
INCREASES IN LEVERAGE AND FLOATING RATE DEBT; INABILITY TO RETAIN EARNINGS OR
REFINANCE DEBT
As a result of the Merger, FelCor's leverage has increased. At March
31, 1998, on a pro forma basis (assuming completion of the Merger), 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 ratio of 33%. FelCor's
pro forma ratio of EBITDA to interest paid for the three months ended March 31,
1998 would have been 4.1 to 1.0. 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. 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 Bristol Hotels, BHR initially had a
net worth of $30 million and is obligated to maintain certain net worth and
liquidity requirements. DJONT, which leases FelCor's other hotels, has limited
assets, derives its revenue solely from the operation of FelCor's hotels and, at
June 30, 1998, had a stockholders' deficit of approximately $6.1 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 $17.3 million to
meet its rental obligations from FelCor, Inc., Promus, Doubletree Hotel
Corporation, Lee & Urbahns, L.P. and ITT Sheraton Corporation, which are equity
owners and/or managers of hotels leased by DJONT. 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 BHR 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. As of August 10, 1998, DJONT leased 86 of the
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
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and the current Chairman Emeritus of FelCor. Mr. Corcoran is a co-founder and
the President and Chief Executive Officer of FelCor. Mr. Mathewson and Mr.
Corcoran serve as directors of FelCor.
All of the Bristol Hotels are leased to BHR. No officer or director of
BHR is also an officer or director of FelCor. However, Donald J. McNamara, the
Chairman of the Board of FelCor, is a principal in a firm that controls the
general partner of United/Harvey Holdings, L.P. ("United Harvey"), which
beneficially owns approximately 39.5% of the stock of BHR. Five partnerships
that own substantial equity interests in United Harvey also own in the aggregate
approximately 14.2% of FelCor's outstanding Common Stock. In addition, Michael
D. Rose and Richard C. North have joined FelCor's Board. Mr. Rose is a director
of Promus. Mr. North is the Group Finance Director of the parent of Holiday
Hospitality Franchising, Inc. ("Holiday Hospitality"). Promus is, and will
continue to be, the franchisor and manager of many of the Hotels. Holiday
Hospitality is the franchisor of most of the Bristol Hotels and, together with
its affiliates, owns approximately 9.9% of the stock of BHR and approximately
14.2% of FelCor's outstanding Common Stock.
Issues may arise under these leases, franchise agreements and
management contracts, and in the allocation of acquisition and leasing
opportunities, that present conflicts of interests due to the affiliation 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. In the event FelCor enters into new or additional
hotel leases or other transactions with BHR, the interests of Mr. McNamara and
Mr. North, as affiliates of significant investors of BHR, may conflict with the
interests of FelCor and its stockholders. For example, any decrease in lease
rental rates payable by BHR may decrease FelCor's profits to the benefit of BHR.
Also, in the selection of franchises under which FelCor's hotels will be
operated, Mr. Rose and Mr. North, as affiliates of Promus and Holiday
Hospitality, 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 that 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 of other directors
regarding the issue.
NO ARMS-LENGTH BARGAINING ON DJONT 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 August 10, 1998, FelCor's unsecured bank credit facilities provided
for borrowings of up to $1.1 billion, of which FelCor had borrowed $930 million.
FelCor also had issued and outstanding $300 million in principal amount of
senior notes. The agreements governing FelCor's credit facilities 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
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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 $239 million at June 30, 1998. These
covenants also may restrict FelCor's ability to engage in certain transactions.
In addition, any breach 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:
o The existence of competition from other hotels;
o The construction of more hotel rooms in a particular area than needed
to meet demand;
o The increase in energy costs and other travel expenses that reduce
business and leisure travel;
o The adverse effects of declines in general and local economic
activity; and
o 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 the Percentage Leases. These adjustments, unless offset by increases in
hotel revenues, would reduce the amount of rent payable to FelCor under the
Percentage Leases and, consequently, FelCor's results of operations.
COMPETITION. Each of the 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 the Hotels are located, which could
adversely affect the results of operations of these hotels. According to Smith
Travel Research, total hotel room supply in the United States increased by 3.4%,
or approximately 116,000 rooms, from 1996 to 1997. This is compared to an
average annual increase in hotel room supply in the United States of 1.1% from
1991 to 1996. 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.
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REQUIREMENTS OF FRANCHISE AGREEMENTS. Most of the Hotels are 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 the
Hotels, for which FelCor would be responsible under the Percentage Leases, as a
condition to the renewal or continuation of these franchise licenses. If a
franchise license terminates due to FelCor's failure to make required
improvements or to otherwise comply with its terms, FelCor may be liable for
termination payments and for fees for a new franchise. These termination
payments and fees would vary among the various franchise agreements and by
hotel. The loss of a substantial number of franchise licenses and the related
termination payments and new franchise fees 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 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.
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 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 fails to pay out such amount for its
1998 taxable year, it will 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 10 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.
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<PAGE> 9
EFFECT OF MARKET INTEREST RATES ON THE PRICE OF THE COMMON STOCK
One of the factors that may affect the price of the Common Stock is the
amount of 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
the Common Stock.
RELIANCE ON KEY PERSONNEL AND BOARD OF DIRECTORS
FelCor's stockholders have no right to participate in FelCor's
management, except through the exercise of their 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 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 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 Bristol Hotels, FelCor 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 FelCor's hotels. In these instances, FelCor made such additional
investigations, if any, as it 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.
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<PAGE> 10
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 its 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 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 a person holds or attempts 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. The holder of
the excess shares 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 the shares were received by gift,
bequest or otherwise without payment). Accordingly, the record owner of any
shares designated as shares-in-trust would suffer a financial loss if the price
at which these shares are sold to a permitted owner is less than what was paid
for these shares.
CERTAIN ANTI-TAKEOVER 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 (represented by 5,750,000
Depository Shares, each representing a 1/100 fractional interest in a share of
such Series B preferred stock). The preferred stock reduces the amount of
dividends available, and has dividend, liquidation and other rights superior, to
the holders of the Common Stock. 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
10
<PAGE> 11
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.
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. Holiday
Hospitality and Promus, franchisors for 165 of the Hotels, have indicated to
FelCor that their reservation systems will be year 2000 compliant by the end of
1998. 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.
CERTAIN FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS IN THIS 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 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.
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<PAGE> 12
USE OF PROCEEDS
The amount of proceeds to be received by FelCor upon the exercise of
the Options by the Option holders will depend upon the extent to which the
Options are exercised. FelCor intends that the net proceeds from the sale of
Common Stock will be added to its general corporate funds and used for general
corporate purposes.
The Company will not receive any of the proceeds from sales of shares
of Common Stock by the Selling Shareholders.
DESCRIPTION OF THE PLANS AND OPTIONS
GENERAL
Copies of the Plans have been filed as exhibits to the Registration
Statement, of which this Prospectus forms a part. The summaries of certain
provisions of the Plans do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Plans, including the definitions therein of certain terms. Copies of the Plans
may be obtained by contacting FelCor. Capitalized terms not otherwise defined
below or elsewhere in this Prospectus have the meanings given to such terms in
the Plans.
The Plans were originally adopted by Bristol. The Incentive Plan was
designed to attract and retain qualified officers and other key employees of
Bristol. The Non-Employee Director Plan was designed to attract and retain
qualified outside directors for Bristol.
The Incentive Plan authorizes the grant of options to purchase shares
of Bristol common stock, stock appreciation rights, restricted shares, deferred
shares, performance shares and performance Units. As of July 28, 1998, only
nonqualified options had been granted and were outstanding under the Incentive
Plan. The Non-Employee Director Plan authorizes the grant of options to purchase
Bristol common stock. Under each of the Plans, Bristol issued options at various
times to purchase Bristol common stock (collectively, the "Original Options").
As a result of the Merger and the Spin-Off, each Original Option
outstanding on July 28, 1998 was restated and continued in the form of two
successor options, one successor option exercisable for Common Stock (an
"Option") and one successor option exercisable for shares of BHR common stock (a
"BHR Option"). Under the Merger Agreement, FelCor assumed the Plans and
Bristol's obligations under each Option, while BHR assumed all of Bristol's
obligations for each BHR Option. The exercise prices and numbers of shares
covered by the Original Options were adjusted as appropriate in the Options and
the BHR Options to reflect prior adjustments in Bristol common stock, the
Merger, and the Spin-Off. As required by certain agreements relating to the
Merger, the Plan has been amended to provide that service with FelCor or BHR
will satisfy the vesting requirements and will determine the date of termination
of employment for all Options and BHR Options.
The FelCor Board does not currently intend to authorize any additional
grants of Options under either of the Plans.
ADMINISTRATION OF THE PLANS
The Plans are administered by the Board of Directors of FelCor (the
"FelCor Board") or the Compensation Committee of the FelCor Board. The FelCor
Board or the Compensation Committee, as appropriate, has discretionary authority
(subject to certain restrictions) to determine the individuals to whom Options
are granted and the timing, number, vesting schedule and exercise price of each
Option, and to discharge all administrative and interpretive responsibilities
with respect to the Plans and the Options, including, without limitation, the
discretionary authority to prescribe, amend and rescind rules and regulations of
the Plans.
Under certain agreements relating to the Merger, all decisions relating
to the interpretation or amendment of the Options requires 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 Option in connection with
a transaction in which the Options are treated in the same manner as options
under other FelCor option plans.
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<PAGE> 13
SHARES COVERED
As of July 28, 1998, the total numbers of shares of Common Stock that
may be purchased under outstanding Options granted under the Non-Employee
Director Plan and the Incentive Plan were 35,966 and 1,237,293, respectively.
ELIGIBILITY
Under the Incentive Plan, the Original Options were granted by Bristol
to certain eligible persons prior to the Merger in amounts, and subject to
terms, as determined by the Compensation Committee of the Board of Directors of
Bristol. Eligible persons included officers, key employees, or consultants of
Bristol. As of July 28, 1998, there were 163 holders of outstanding Options
granted under the Incentive Plan.
Under the Non-Employee Director Plan, the Original Options were granted
by Bristol to eligible directors of Bristol prior to the Merger . These eligible
directors automatically received an Original Option for 7,500 shares of Bristol
common stock, upon becoming a director, one-third of which vested on each annual
meeting date occurring on or after the date of grant of the Initial Option.
Thereafter, eligible directors were automatically granted Original Options
covering an additional 7,500 shares of Bristol common stock on the date of each
annual meeting of Bristol stockholders, which Options become fully vested on the
next annual meeting date. As of July 28, 1998, there are three holders of
outstanding Options granted under the Non-Employee Director Plan.
OPTION PRICE AND EXERCISE
Under the Plans, the purchase price of each Original Option was
generally the closing price of the Bristol common stock on the NYSE on the date
of the grant.
Under either Plan, shares of Common Stock purchased pursuant to the
exercise of an Option must at the time of purchase be paid for in full in cash,
by check, with shares of Common Stock (to be valued at the fair market value on
the date of such exercise) or by a combination of such means. Under the
Non-Employee Director Plan, any of the Common Stock so delivered must have been
beneficially owned by the Option holder for a period of not less than six months
prior to the date of exercise. The Options outstanding under the Incentive Plan
contain a substantially similar six month requirement. The Incentive Plan also
requires the withholding of taxes due in connection with the exercise of the
Option. At the discretion of the FelCor Board or the Compensation Committee,
such taxes may be paid by voluntary or mandatory relinquishment of a portion of
any payment or benefit received upon exercise of the Options or by the surrender
of outstanding Common Stock (with respect to Options) or BHR common stock (with
respect to BHR Options).
VESTING
The Options granted under the Incentive Plans become exercisable over a
period of continuous employment or continuous consulting services specified in
each individual Option contract. Generally, the Option agreements specify a
twenty-five percent, or twenty percent, rate of vesting over a period of four or
five years, although some vest in their entirety only at the end of five years,
or nine years. Uninterrupted service with either FelCor, BHR or any of their
respective subsidiaries for the required period will satisfy the vesting
requirements under the Options.
Initial Options granted pursuant to the Non-Employee Director Plan vest
at the rate of one-third over a period of three annual stockholders meetings,
and subsequent Options granted pursuant to the Non-Employee Director Plan vest
at the next annual stockholders meeting.
As of July 28, 1998, at the conclusion of the Merger, the total numbers
of shares of Common Stock that were subject to immediate purchase under
outstanding Options granted under the Non- Employee Director Plan and the
Incentive Plan were 32,541 and 786,096, respectively.
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<PAGE> 14
TERMINATION
The restated Option agreements generally provide that the Options will
terminate (i) 30 days after the holder of the Option ("Optionee") ceases to be
an employee of FelCor, BHR or any of their respective subsidiaries for any
reason other than death or disability, (ii) 90 days after the Optionee ceases to
be an employee of FelCor, BHR or any of their respective subsidiaries if the
termination of employment is under circumstances determined by the FelCor Board
to be for the convenience of FelCor or BHR or is retirement under a plan at or
after the earliest voluntary retirement age provided for in such plan or
retirement at an earlier age with the consent of the FelCor Board, (iii) one
year after the Optionee's death or disability incurred while employed (or, in
certain circumstances, incurred within 90 days after termination of employment),
or (iv) ten years after the date of grant. The Option will also terminate if the
Optionee commits an act that the FelCor Board determines in good faith to have
been intentionally committed and materially adverse to the interest of FelCor,
BHR or a subsidiary thereof.
Options granted pursuant to the Non-Employee Director Plan expire on
the first to occur of (i) three months following the director ceasing to serve
on either the FelCor Board or BHR Board of Directors (other than due to death or
disability); (ii) one year after ceasing to serve on either the FelCor Board or
BHR Board of Directors due to death or disability; or (iii) five years from the
date of grant.
AMENDMENT OF THE PLANS
Amendments to the Incentive Plan may be made from time to time by the
FelCor Board or Compensation Committee, while the Non-Employee Director Plan may
be amended by the FelCor Board. No amendment may increase the maximum authorized
number of shares of Common Stock or BHR Common Stock that may be issued under
the Plans, or amend the Plans in a manner that results in the Plans not
satisfying the applicable conditions of Rule 16b-3 of the Exchange Act, without
shareholder approval. Under some circumstances, the FelCor Board will be
required to obtain the consent and approval of the BHR Board or Compensation
Committee in order to adopt an effective amendment.
Options granted under the Incentive Plan may, with the consent of the
Optionee, be canceled and new Options granted in their place. The new Options
may or may not cover the same number of shares of Common Stock as the canceled
Options. No amendment of the Plans may adversely affect any outstanding Option
without the consent of the Optionee.
ADJUSTMENTS UPON CERTAIN TRANSACTIONS OR EVENTS
The Plans provide that the FelCor Board or the Compensation Committee
may make such adjustments to the numbers of shares covered by and the exercise
prices of outstanding Options, and the kind of shares (including shares of other
issuers) covered by the Options, as it determines in good faith may be equitably
required in order to prevent dilution or the expansion of the rights of the
Optionees that might occur due to (a) stock dividends, splits, combinations,
recapitalizations or other changes in the capital structure of FelCor or BHR, or
(b) merger, consolidation, spin-off, spin-out, split-off, split-up,
reorganization, or partial or complete liquidation of FelCor or BHR or other
distribution of assets. In such an event, the Committee may provide in
substitution for any or all outstanding Options 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 Options so replaced.
Unless such adjustments treat the Optionees and the Options in the same manner
as options under other FelCor option plans, the adjustments are subject to
approval of the Compensation Committee of BHR. The FelCor Board or the
Compensation Committee may also make or provide for such adjustments in the
maximum numbers of shares of Common Stock specified in the Plans as may be in
good faith determined to be appropriate in order to reflect any transaction or
event described above, subject to the same possible requirement of approval by
the Compensation Committee of BHR.
NON-ASSIGNABILITY
The Plans provide that no Option is assignable or transferable by the
Optionee other than by will or by the laws of descent and distribution. During
the lifetime of a Optionee, the Options are exercisable only by the Optionee or
a legal representative.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain federal income tax consequences of the
holding or exercise of the Options is based on the Code, as amended to date,
applicable proposed and final Treasury Regulations, judicial authority and
current administrative rulings and practice, all of which are subject to change.
This summary does not attempt to describe all of the possible tax consequences
that could result from the acquisition, holding, exercise, transfer or
disposition of an Option or the Common Stock purchasable thereunder.
Options granted under the Plans are intended to be non-qualified stock
options. An optionee will realize no taxable income at the time he or she is
granted a non-qualified stock option. Such conclusion is predicated on the
assumption that, under existing Treasury Department regulations, a non-qualified
stock option, at the time of its grant, has no readily ascertainable fair market
value. Ordinary income will be realized when a non-qualified stock option is
exercised. The amount of such income will be equal to the excess of the fair
market value on the exercise date of the shares of Common Stock issued to an
optionee over the exercise price. The Optionee's holding period with respect to
the shares acquired will begin on the date of exercise.
The tax basis of the stock acquired upon the exercise of any Option
will be equal to the sum of (i) the exercise price of such option and (ii) the
amount included in income with respect to such Option. Any gain or loss on a
subsequent sale of the stock will be either a long-term or short-term capital
gain or loss, depending on the optionee's holding period for the stock disposed
of. Generally, if the Common Stock is held for more than twelve months after the
date of exercise, the Optionee will be taxed at a maximum 20% tax rate. If the
Optionee holds the shares for at least five years, the Optionee will be taxed at
a maximum 18% rate. It is not clear whether, and to what extent, the Company
will be entitled to a deduction for Federal income tax purposes as a result of
the exercise of the Options.
BECAUSE THE TAX CONSEQUENCES TO A PLAN PARTICIPANT MAY VARY DEPENDING
ON HIS OR HER INDIVIDUAL CIRCUMSTANCES, EACH PLAN PARTICIPANT SHOULD CONSULT HIS
OR HER PERSONAL TAX ADVISOR REGARDING THE FEDERAL AND ANY STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES TO HIM OR HER.
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<PAGE> 16
SELLING SHAREHOLDERS
This Prospectus also related to the potential offer of the
Shareholders' Shares from time to time following the Merger by the holders of
Common Stock identified in the table below (the "Selling Shareholders"). See
"Plan of Distribution." The following table provides the names of each Selling
Shareholder, the number of shares of Common Stock beneficially owned by such
holder as of July 28, 1998, and the number of shares of Common Stock that may be
offered by each Selling Shareholder, to the best knowledge of FelCor.
<TABLE>
<CAPTION>
Shares Shares Offered Percent of All
Beneficially by this Outstanding FelCor
Owned Prospectus Common Shares (1)
----- ---------- -----------------
<S> <C> <C> <C>
United/Harvey Investors I, L.P. 2,170,140 2,170,140 3.2%
United/Harvey Investors II, L.P. 2,034,746 2,034,746 3.0%
United/Harvey Investors III, L.P. 1,356,497 1,356,497 2.0%
United/Harvey Investors IV, 1,356,497 1,356,497 2.0%
L.P.
United/Harvey Investors V, L.P. 2,712,995 2,712,995 4.0%
Bass America Inc. 7,161,698 7,161,698 10.6%
Holiday Corporation 2,457,046 2,457,046 3.6%
J. Peter Kline 817,617 817,617 1.2%
Robert L. Miars 667,195 667,195 1.0%
John A. Beckert 478,544 478,544 0.7%
---------- ----------
Total 21,212,975 21,212,975
========== ==========
</TABLE>
- -------------------------------
(1) Based on 67,599,205 outstanding shares of FelCor's Common Stock.
Each of the five United/Harvey partnerships listed in the foregoing
table ("United/Harvey Partnerships") is an affiliate of Donald J. McNamara, who
served as Chairman of the Board of Bristol prior to the Merger and since the
Merger has served as Chairman of the Board of FelCor. Mr. McNamara also served
as a director of FelCor from July 1994 to November 1997, and is a principal in
The Hampstead Group which may be deemed to be an affiliate of these
partnerships. Bass America Inc. and Holiday Corporation (the "Bass Entities")
are affiliates of the entities that franchise the Bass Hotels & Resorts brands
of hotels and of Richard L. North, who served as a director of Bristol prior to
the Merger and since the Merger has served as a director of FelCor. Each of
Messrs. Kline, Beckert and Miars were executive officers of Bristol prior to the
Merger.
The Selling Shareholders were affiliates of Bristol at the time of the
Merger and under applicable securities regulations cannot freely resell their
shares without registration or an exemption therefrom. This Prospectus is
required by FelCor's contractual obligations to register the shares of the
Selling Shareholders for resale, and the Selling Shareholders are under no
obligation to resell their shares.
PLAN OF DISTRIBUTION
As part of the Merger between Bristol and FelCor, FelCor assumed
Bristol's obligations under the Plans and the outstanding Options previously
granted by Bristol under the Plans. Each Option entitles its holder to purchase
shares of Common Stock, subject to adjustment of certain circumstances. See
"Description of the Plans" for information regarding the terms of the Options,
including the manner of exercise. This Prospectus relates to the offer by FelCor
to issue shares of Common Stock from time to time upon exercise of the Options
by the Option holders. No commission or fee will be paid by FelCor in connection
with the exercise of any Option.
This Prospectus also relates to the offer and sale from time to time
following the Merger by the Selling Shareholders of Common Stock issued to them
pursuant to the Merger (the "Shareholders' Shares"). FelCor has
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<PAGE> 17
registered these offers and resales by the Selling Shareholders of Shareholders'
Shares to satisfy FelCor's obligations under the Stockholders' and Registration
Rights Agreement among FelCor, the Bass Entities and the United/Harvey
Partnerships (the "Shareholders' Agreement"). Registration of the Shareholders'
Shares does not necessarily mean that any of the Shareholders' Shares will be
offered or sold by the Selling Shareholders. Under the Shareholders' Agreement,
the Bass Entities and the United/Harvey Partnerships have agreed not to sell or
transfer their Common Stock 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 Shareholders' Shares offered by the
Selling Shareholders.
The distribution of Shareholders' 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 Selling Shareholders and/or from purchasers
of the Shareholders' Shares for whom they may act as agents. Underwriters may
sell the Shareholders' 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 Selling Shareholders and any underwriters, dealers or agents that
participated in the distribution of Shareholders' Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of Shareholders' 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 Shareholders' Shares is made by a
Selling Shareholder, 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
Selling Shareholders and any other required information.
The sale of Shareholders' Shares by the Selling Shareholders may also
be effected from time to time by selling Shareholders' 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 Selling Shareholders or may
purchase from the Selling Shareholders all or a portion of the Shareholders'
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 Shareholders' 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 Shareholders' 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 Selling Shareholders may arrange for other broker-dealers to participate.
Broker-dealers will receive commissions or other compensation from the Selling
Shareholders in amounts to be negotiated immediately prior to the sale that will
not exceed those customary in types of transactions involved. Broker-dealers may
also receive compensation from purchasers of Shareholders' Shares which is not
expected to exceed that customary in the types of transactions involved.
In connection with distributions of Shareholders' Shares or otherwise,
the Selling Shareholders may enter into hedging transactions with broker-dealers
or others. Such broker-dealers may engage in short sales of Shareholders' Shares
or other transactions in the course of hedging the positions assumed by such
persons in
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connection with such hedging transactions or otherwise. The Selling Shareholders
may also sell Shareholders' Shares short and redeliver Shareholders' 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 the
Shareholders' Shares offered hereby, which Shareholders' Shares such persons may
resell pursuant to this Prospectus; and/or pledge Shareholders' Shares to a
broker or dealer or others and, upon default, such persons may effect sales of
Shareholders' Shares pursuant to this Prospectus. In addition, any Shareholders'
Shares covered by this Prospectus that qualify for resale pursuant to Rule 145
of the Securities Act may be sold under Rule 145 rather than with this
Prospectus.
In order to comply with securities laws of certain states, if
applicable, Shareholders' Shares may be sold only through registered or licensed
brokers or dealers.
Until the distribution of Shareholders' Shares is completed, rules of
the SEC may limit the ability of any underwriters and selling group members to
bid for and purchase Shareholders' Shares. As an exception to these rules,
underwriters are permitted to engage in certain transactions that stabilize the
price of Shareholders' Shares. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of Shareholders'
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 Shareholders' Shares in the open market
to reduce the underwriters' short position or to stabilize the price of
Shareholders' Shares, they may reclaim the amount of any selling concession from
the underwriters and selling group members who sold those Shareholders' 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 Shareholders' Shares. In addition, FelCor makes no representation that
the 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 Shareholders' Shares
(other than brokerage and underwriting commissions and certain taxes) will be
paid by FelCor. FelCor has agreed to indemnify certain of the Selling
Shareholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the Common Stock has been passed upon
for FelCor by Jenkens & Gilchrist, a Professional Corporation, Dallas, Texas.
Jenkens & Gilchrist, a Professional Corporation has relied upon the opinion of
Miles & Stockbridge P.C., Baltimore, Maryland, with respect to matters involving
Maryland law relating to the Common Stock issued to the Selling Shareholders in
the Merger.
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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, 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, the
combined financial statements of the Sheraton Acquisition Hotels as of December
31, 1996 and for the year then ended, 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
have been incorporated by reference in this Prospectus in reliance on the
reports of PricewaterhouseCoopers LLP, 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, incorporated
by reference in this Prospectus 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.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY FELCOR. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF FELCOR SINCE THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
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<TABLE>
<S> <C>
Where You Can Find More Information.............. 2
The Company...................................... 3
Risk Factors..................................... 5
Use of Proceeds.................................. 12
Description of the Plans and Options............. 12
Selling Shareholders............................. 16
Plan of Distribution............................. 16
Legal Matters.................................... 18
Experts.......................................... 19
</TABLE>
22,486,234 SHARES
FELCOR LODGING TRUST
INCORPORATED
(FORMERLY FELCOR SUITE HOTELS, INC.)
COMMON STOCK
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PROSPECTUS
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