<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998
REGISTRATION NO. 333-46357
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
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)
<TABLE>
<S> <C>
MARYLAND 72-2541756
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
545 E. JOHN CARPENTER FRWY. LAWRENCE D. ROBINSON
SUITE 1300 SENIOR VICE PRESIDENT
IRVING, TEXAS 75062 AND GENERAL COUNSEL
(972) 444-4900 545 E. JOHN CARPENTER FRWY., SUITE 1300
(Address, including zip code and telephone number, IRVING, TEXAS 75062
including area code, of registrant's principal (972) 444-4900
executive offices) (Name, address, including zip code, and telephone
number, including area code, of agent for service)
</TABLE>
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Copies to:
<TABLE>
<S> <C>
ROBERT W. DOCKERY ALAN J. PRINCE
JENKENS & GILCHRIST, KING & SPALDING
A PROFESSIONAL CORPORATION 191 PEACHTREE STREET
1445 ROSS AVENUE, SUITE 3200 ATLANTA, GEORGIA 30303
DALLAS, TEXAS 75202 (404) 572-4600
(214) 855-4500
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to distribution or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with distribution or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<S> <C> <C> <C> <C>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
BEING REGISTERED REGISTERED PER SHARE/UNIT PRICE(1) REGISTRATION FEE(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value(3)............
Common Stock Warrants....................... N/A N/A $1,000,000,000 $223,537.00
Preferred Stock, $0.01 par value(4).........
Depositary Shares representing Preferred
Stock(5)..................................
Debt Securities(6)..........................
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</TABLE>
(1) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457(o) and based upon the maximum aggregate offering
price of all securities being registered. Pursuant to Rule 429 under the
Securities Act of 1933, as amended, this amount includes $242,250,000 of
securities being carried forward from an earlier Registration Statement of
FelCor Suite Hotels, Inc. (File No. 333-3170), which have not been sold.
(2) Pursuant to Rule 429(a) under the Securities Act of 1933, as amended, the
Prospectus contained herein also relates to $242,250,000 in Common Stock,
Common Stock Warrants, Preferred Stock and Debt Securities included in the
registration statement of FelCor Suite Hotels, Inc. on Form S-3 (File No.
333-3170). The amount of the filing fee associated with such securities that
was previously paid with such registration statement was $83,534.
(3) Such indeterminate number of shares of Common Stock as may from time to time
be issued at indeterminate prices or issuable upon conversion of shares of
the Preferred Stock or Debt Securities registered hereunder or upon exercise
of the Common Stock Warrants registered hereunder, as the case may be.
(4) Such indeterminate number of shares of Preferred Stock as may from time to
time be issued at indeterminate prices and which may be issued in one or
more classes or series.
(5) Such indeterminable number of Depositary Shares to be evidenceded by
Depositary Receipts representing an interest in all or a specified portion
of Preferred Stock.
(6) Such indeterminate amount of Debt Securities as may from time to time be
issued in one or more series.
PURSUANT TO RULE 429(a) UNDER THE SECURITIES ACT OF 1933, AS AMENDED, THE
PROSPECTUS INCLUDED IN THIS REGISTRATION STATEMENT IS A COMBINED PROSPECTUS,
WHICH ALSO RELATES TO SECURITIES REGISTERED PURSUANT TO A REGISTRATION STATEMENT
ON FORM S-3 (FILE NO. 333-3170), THAT WAS PREVIOUSLY FILED BY FELCOR SUITE
HOTELS, INC. AND DECLARED EFFECTIVE ON APRIL 25, 1996.
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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PROSPECTUS
$1,000,000,000
[FELCOR LOGO]
FELCOR SUITE HOTELS, INC.
DEBT SECURITIES, PREFERRED STOCK, DEPOSITARY SHARES, COMMON STOCK
AND COMMON STOCK WARRANTS
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FelCor Suite Hotels, Inc. ("FelCor") may offer from time to time in one or
more series (i) its unsecured senior or subordinated debt securities ("Debt
Securities"), (ii) whole or fractional shares of its preferred stock, $0.01 par
value per share ("Preferred Stock"), (iii) shares of Preferred Stock represented
by Depositary Shares ("Depositary Shares"), (iv) shares of its common stock,
$0.01 par value per share ("Common Stock"), or (v) warrants to purchase Common
Stock ("Common Stock Warrants") with an aggregate public offering price of up to
$1,000,000,000 (or its equivalent based on the exchange rate at the time of
sale) in amounts, at prices and on terms to be determined at the time of
offering. The Debt Securities, Preferred Stock, Depositary Shares, Common Stock
and Common Stock Warrants (collectively, "Securities") may be offered separately
or together, in separate series, in amounts, at prices and on terms to be set
forth in one or more supplements to this Prospectus (each a "Prospectus
Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, ranking, currency, form (which may be
registered or bearer, or certificated or global), authorized denominations,
maturity, rate (or manner of calculation thereof) and time of payment of
interest, terms for redemption at the option of FelCor or repayment at the
option of the holder, terms for sinking fund payments, terms for conversion into
Common Stock, Preferred Stock, Depositary Shares or Debt Securities of another
series, covenants and any initial public offering price; (ii) in the case of
Preferred Stock, the specific number of shares, designation, stated value per
share, any dividend, liquidation, redemption, conversion, exchange, voting and
other rights, and any initial public offering price per share; (iii) in the case
of Depositary Shares, the fractional share of Preferred Stock represented by
each such Depositary Share and any initial public offering price per Depositary
Share; (iv) in the case of Common Stock, the specific number of shares and any
initial public offering price per share; and (v) in the case of Common Stock
Warrants, the duration, offering price, exercise price and detachability. In
addition, such specific terms may include limitations on direct or beneficial
ownership and restrictions on transfer of the Securities, in each case as may be
consistent with FelCor's Charter (as herein defined) or otherwise appropriate to
preserve the status of FelCor as a real estate investment trust ("REIT") for
federal income tax purposes. See "Certain Charter, Bylaw and Statutory
Provisions -- Charter and Bylaw Provisions -- Restrictions on Ownership and
Transfer."
The applicable Prospectus Supplement will also contain information, where
appropriate, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered by FelCor directly to one or more purchasers,
through agents designated from time to time by FelCor or to or through
underwriters or dealers. If any agents or underwriters are involved in the sale
of any of the Securities, their names, and any applicable purchase price, fee,
commission or discount arrangement between or among them, will be set forth, or
will be calculable from the information set forth, in the Prospectus Supplement
describing the method and terms of the offering of such Securities. See "Plan of
Distribution." No Securities may be sold pursuant to this Prospectus without the
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
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SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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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 MARCH , 1998.
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AVAILABLE INFORMATION
FelCor has filed with the Securities and Exchange Commission ("SEC") a
Registration Statement on Form S-3 ("Registration Statement") under the
Securities Act of 1933, as amended ("Securities Act"), with respect to the
Securities. This Prospectus, which constitutes part of the Registration
Statement, omits certain of the information contained in the Registration
Statement and the exhibits thereto on file with the SEC pursuant to the
Securities Act and the rules and regulations of the SEC thereunder. The
Registration Statement, including exhibits thereto, may be inspected and copied
at the public reference facilities maintained by the SEC at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the SEC's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center,
500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies may
be obtained at the prescribed rates from the public reference Section of the SEC
at its principal office in Washington, D.C. Statements contained in this
Prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
FelCor is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports and proxy statements and other information with the SEC. Such
reports, proxy statements and other information can be inspected and copied at
the locations described above. Copies of such materials can be obtained by mail
from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates. In addition, certain of such
materials can be inspected at the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York, 10005. The SEC maintains a web site
(http://www.sec.gov) that contains registration statements, periodic reports,
proxy statements and other information regarding registrants that file documents
electronically with the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been previously filed by FelCor with
the SEC, under the Exchange Act (File No. 001-14236) are incorporated herein by
reference:
(i) Annual Report on Form 10-K for the year ended December 31, 1996;
(ii) Quarterly Report on Form 10-Q for the quarter ended March 31,
1997;
(iii) Quarterly Report on Form 10-Q for the quarter ended June 30,
1997;
(iv) Quarterly Report on Form 10-Q for the quarter ended September 30,
1997;
(v) Current Report on Form 8-K dated June 4, 1997;
(vi) Current Report on Form 8-K dated July 11, 1997, as amended by
Current Report on Form 8-K/A dated August 13, 1997;
(vii) Current Report on Form 8-K dated September 19, 1997;
(viii) Current Report on Form 8-K dated October 1, 1997; and
(ix) Description of FelCor's Common Stock and $1.95 Series A
Cumulative, Convertible Preferred Stock contained in FelCor's registration
statements on Form 8-A, including any amendments or reports filed for the
purpose of updating such descriptions.
All documents filed by FelCor pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Prospectus and prior to the termination
of the offering of the Securities made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of filing
of such documents.
Any statement contained herein, or in any document incorporated or deemed
to be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document which also is or is
deemed to be
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incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
FelCor will provide, without charge, to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, on the written
or oral request of any such person, a copy of any or all of the documents
incorporated herein by reference, except the exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Requests for such copies should be directed to FelCor at 545 E. John Carpenter
Frwy., Suite 1300, Irving, Texas 75062, Attention: General Counsel.
NOTE REGARDING FORWARD-LOOKING INFORMATION
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH
AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE" OR "CONTINUE" OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE
STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE 5 OF 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.
3
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THE COMPANY
FelCor Suite Hotels, Inc. ("FelCor") is a self-administered equity REIT
that, at December 31, 1997, owned an approximately 92.7% general partner
interest in FelCor Suites Limited Partnership ("FelCor LP"), which then owned,
directly or indirectly, interests in 73 hotels with an aggregate of 17,933
suites/rooms in 27 states (collectively, the "Current Hotels"). Fifty-two of the
Current Hotels are operated as Embassy Suites(R) hotels (of which 28 were
converted from other brands), 13 are operated as Doubletree Guest Suites(R)
hotels, seven are operated as Sheraton(R) hotels (five of which are upscale,
full-service traditional non-suite hotels) and one is operated as a Hilton
Suites(R) hotel. Sixty-three of the Current Hotels are managed by subsidiaries
of Promus Hotel Corporation ("Promus") which, following the recent merger of
Promus with Doubletree Corporation, include Doubletree Hotels Corporation and
its subsidiaries ("Doubletree"). Promus is the largest operator of full-service,
all-suite hotels in the United States. Of the remaining Current Hotels, seven
are managed by a subsidiary of ITT Sheraton Corporation ("Sheraton") and three
are managed by independent management companies. At December 31, 1997, the
Company (as herein defined) was the owner of the largest number of Embassy
Suites hotels in the world.
Unless otherwise described in the applicable Prospectus Supplement, FelCor
will (i) contribute all of the net proceeds from the sale of Common Stock,
Common Stock Warrants, Preferred Stock and Depositary Shares offered hereby to
FelCor LP in exchange for comparable units of partnership interest ("Units") and
(ii) loan all of the net proceeds from the sale of Debt Securities offered
hereby to FelCor LP. The specific terms of the Units to be so issued by FelCor
LP and of any such loan to FelCor LP, to the extent such terms are not described
herein, will be set forth in the Prospectus Supplement relating to such
offering. Unless otherwise indicated, all references herein to the business and
assets of the "Company" refer to FelCor, FelCor LP and their respective
subsidiaries, collectively.
To enable FelCor to satisfy certain requirements for qualification as a
REIT, neither FelCor nor FelCor LP can operate the hotels in which they invest.
Accordingly, the Company leases the Current Hotels (and expects to lease
additional hotels) to DJONT Operations, L.L.C., or a subsidiary thereof
("Lessee"), pursuant to leases providing for the payment of rent based primarily
upon the suite revenues of such hotels ("Percentage Leases"). The Lessee pays
rent to the Company under the Percentage Leases and, in addition, enters into
franchise agreements (where applicable) and engages independent, unaffiliated
third party professional managers to operate the hotels. Under the Percentage
Leases, the Lessee is required to pay all franchise fees, management fees and
other operating expenses of the hotels leased by it. All of the voting interests
in the Lessee (constituting a 50% equity interest) are owned beneficially by
Hervey A. Feldman and Thomas J. Corcoran, Jr., who are directors and executive
officers of FelCor, and the non-voting interests (constituting the remaining 50%
equity interest) are owned beneficially by the children of Charles N. Mathewson,
a major initial investor in the Company and a director of FelCor. Messrs.
Feldman and Corcoran, together with other executive officers and directors of
FelCor, beneficially owned an aggregate of approximately 3.9% of the Common
Stock and limited partner Units outstanding at December 31, 1997.
FelCor was formed as a Delaware corporation on May 16, 1994 and was
reincorporated as a Maryland corporation on June 23, 1995, primarily to
eliminate the franchise tax liability it incurred as a Delaware corporation. The
reincorporation did not result in any change in the business, properties or
management of FelCor. 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.
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RISK FACTORS
In addition to the other information contained in, or incorporated by
reference into, this Prospectus and in any Prospectus Supplement, prospective
investors should carefully consider the following factors in evaluating an
investment in the Securities offered hereby.
RISKS OF LEVERAGE; FLOATING RATE DEBT; INABILITY TO RETAIN EARNINGS
At December 31, 1997, the Company's outstanding indebtedness was
approximately $478.7 million, including approximately $136.0 million under the
Line of Credit (as herein defined) which bears interest at floating rates. Since
the Company intends to continue to acquire additional hotels, and FelCor must
distribute annually at least 95% of its taxable net income to maintain its REIT
status, the Company may borrow additional funds to make investments or
distributions. The Board of Directors of FelCor ("Board of Directors") has the
discretion to permit the Company to incur debt, subject to the current policy of
the Board of Directors limiting indebtedness to not more than 40% of the
Company's investment in hotel properties, at cost, on a consolidated basis,
after giving effect to the Company's use of proceeds from any indebtedness. The
Company has obtained the Line of Credit to provide, as necessary, funds for
investments in additional hotel properties, working capital and cash to make
distributions. The Company's use of the Line of Credit for working capital,
distributions and general corporate purposes is limited to 10% of the amount
available thereunder. The majority of the Company's floating rate debt bears
interest at LIBOR (5.656% at December 31, 1997) plus an amount between 0.45% and
1.5%.
There can be no assurance that the Company will be able to meet its present
or future debt service obligations and, to the extent that it cannot, it risks
the loss of certain of its assets to foreclosure. Changes in economic conditions
could result in higher interest rates which could increase debt service
requirements on the Company's floating rate debt. Adverse economic conditions
could cause the terms on which borrowings become available to be unfavorable. In
such circumstances, if the Company is in need of capital to repay indebtedness
in accordance with its terms or otherwise, it could be required to liquidate one
or more investments in hotel properties at times which may not permit
realization of the maximum return on such investments.
In order to qualify as a REIT, FelCor generally is required each year to
distribute to its shareholders at least 95% of its net taxable income (excluding
any net capital gain). In addition, FelCor is subject to a 4% nondeductible
excise tax on the amount, if any, by which certain distributions paid by it with
respect to any calendar year are less than the sum of (i) 85% of its ordinary
income, (ii) 95% of its capital gain net income for that year, and (iii) any
undistributed taxable income from prior periods. FelCor intends to continue to
make distributions to its shareholders to comply with the 95% distribution
requirement and to avoid the nondeductible excise tax. FelCor's income consists
primarily of its share of the income of FelCor LP, and FelCor's cash available
for distribution consists primarily of its share of cash distributions from
FelCor LP. Differences in timing between taxable income and cash available for
distribution due to the seasonality of the hospitality industry could require
the Company to borrow funds on a short-term basis to meet the 95% distribution
requirement and to avoid the nondeductible excise tax. In such a case, the
Company also would be required to borrow funds to make payments of principal and
interest on Indebtedness.
DEPENDENCE ON LESSEE'S HOTEL OPERATIONS
The Company's revenues consist primarily of lease revenue under the
Percentage Leases. The obligations of the Lessee under the Percentage Leases are
unsecured. The Lessee's only assets are cash, receivables, inventory, supplies
and prepaid expenses needed in the operation of the Current Hotels, the
franchise licenses for the Current Hotels, its rights and benefits under the
Percentage Leases and the management contracts relating to such hotels and,
subject to certain limitations, its right to borrow on a subordinated basis an
aggregate of up to approximately $16.1 million from its equity owners, partners
and managers of certain hotels. At December 31, 1997, the Lessee had a deficit
in total shareholders' equity of approximately $9.1 million. Consequently, both
the Company and the Lessee are substantially dependent upon the operations of
the Current Hotels. See "-- Hotel Industry Risks."
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CONFLICTS OF INTEREST
Mr. Feldman and Mr. Corcoran, who are officers and directors of FelCor, are
also officers and managers of the Lessee. All of the voting interests in the
Lessee (constituting a 50% equity interest) are beneficially owned by Messrs.
Feldman and Corcoran, and the non-voting interests (constituting the remaining
50% equity interest) are owned beneficially by the children of Mr. Mathewson, a
major initial investor in the Company and a director of FelCor.
General
Because of the direct and indirect ownership interests of Messrs. Feldman,
Corcoran and Mathewson in, and their positions with, the Company and the Lessee,
there are inherent conflicts of interest in connection with the Company's
purchase of the Initial Hotels (as herein defined), in which such persons held
an interest, and in the ongoing lease and operation of the Company's hotels.
Accordingly, the interests of the Company's equity owners may not have been, and
in the future may not be, solely reflected in all decisions made or actions
taken by such officers and directors. In an effort to address one of the primary
continuing conflicts, Messrs. Feldman and Corcoran have entered into an
agreement with the Company to utilize any amounts distributed to them from the
Lessee, in excess of their tax liability for the earnings of the Lessee, to
purchase from the Company additional shares of Common Stock (or Units) at the
then current market price.
No Arms-Length Bargaining on Percentage Leases
The terms of the Percentage Leases were not negotiated on an arms-length
basis and, accordingly, may not reflect fair market values or terms. Management
of the Company believes, however, that the terms of such agreements are fair to
the Company and are upon terms as favorable to the Company as could be obtained
from a financially responsible unrelated third party. The lease payments under
the Percentage Leases have been, and will be, calculated with reference to
historical financial data and the projected operating and financial performance
of the hotels. The terms of the Percentage Leases are believed by management of
the Company to be typical of provisions found in other leases entered into in
similar transactions. The Percentage Lease terms are approved by FelCor's
"Independent Directors," being those directors who are not officers or employees
of FelCor or affiliates of any subsidiary or lessee thereof. The Company does
not own any interest in the Lessee. All of the voting Class A membership
interest in the Lessee (representing a 50% equity interest) is owned
beneficially by Messrs. Feldman and Corcoran and all of the non-voting Class B
membership interest in the Lessee (representing the remaining 50% equity
interest) is held by RGC Leasing, Inc., a Nevada corporation owned by the
children of Mr. Mathewson, a major initial investor in the Company and a
director of FelCor. As a result, such persons may have a conflict of interest
with the Company in the performance of their management services to the Company
in connection with the Percentage Leases.
Adverse Tax Consequences to Certain Affiliates on a Sale of Initial Hotels
Certain affiliates of the Company may have unrealized gain in their
investments in the six hotels acquired by the Company at its inception on July
28, 1994 (the "Initial Hotels"). A subsequent sale of such hotels by the
Company, although not restricted by agreement, may cause adverse tax
consequences to such persons. Therefore, the interests of the Company and
certain of its affiliates, including Messrs. Feldman, Corcoran and Mathewson,
could be different in connection with the disposition of any of such hotels.
However, decisions with respect to the disposition of all hotel properties in
which the Company invests will be made by a majority of the Board of Directors,
which majority must include a majority of the Independent Directors when the
disposition involves any of the Initial Hotels.
RESTRICTIVE DEBT COVENANTS
The terms of the Line of Credit and the Senior Note Indenture (as herein
defined) contain certain restrictive covenants, including, among others,
covenants which may prohibit or significantly restrict the ability of the
Company, to incur indebtedness, make investments, engage in transactions with
shareholders and affiliates, incur liens, create restrictions on the ability of
certain subsidiaries to pay dividends or make certain payments to the Company,
merge or consolidate with any other person or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of the assets of such
entities. In addition, the Company is required
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under the Line of Credit to maintain certain specified financial ratios. There
can be no assurance that the Company will be able to maintain such ratios or
that such covenants will not adversely affect the Company's ability to finance
its future operations or capital needs or to engage in other business activities
that may be in the interest of the Company. The breach of any of these covenants
or the inability of the Company to comply with the required financial ratios
could result in a default under the Line of Credit or the Senior Note Indenture.
In the event of any such default, all amounts borrowed under the Line of Credit
or the Senior Note Indenture, together with accrued interest, could be declared
to be due and payable. If the Indebtedness under the Line of Credit or the
Senior Note Indenture were to be accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay such Indebtedness in full.
HOTEL INDUSTRY RISKS
Operating Risks
The Company's hotels are subject to all operating risks common to the hotel
industry. These risks include, among other things, intense competition from
other hotels; over-building in the hotel industry which has adversely affected
occupancy, average daily rate ("ADR") and revenue per available room or suite
("RevPAR") in the past; increases in operating costs due to inflation and other
factors, which increases have not always been, and may not necessarily in the
future be, offset by increased suite/room rates; dependence on business and
commercial travelers and tourism; increases in energy costs and other expenses
of travel; and adverse effects of general and local economic conditions. Such
factors could adversely affect the Lessee's ability to make lease payments and,
consequently, the Company's ability to make any required payments of principal
and interest on indebtedness. Further, annual adjustments to the base rent and
the thresholds for computation of percentage rent, based upon a formula taking
into account changes in the U.S. Consumer Price Index ("CPI"), would (in the
absence of offsetting increases in suite revenue and in the event of any
decrease in suite revenues) result in decreased revenues to the Company under
the Percentage Leases and decreased amounts available for required payments of
principal and interest on indebtedness.
Competition
Competition for Guests; Operations. The hotel industry is highly
competitive. Each of the Company's hotels experiences competition primarily from
other upscale hotels in its immediate vicinity, but also competes with other
hotel properties in its geographic market. Some of the competitors of the
Company's hotels have substantially greater marketing and financial resources
than the Company and the Lessee. A number of additional hotel rooms are in
development, have been announced or have recently been completed in a number of
the Company's markets, and additional hotel rooms may be developed in the
future. Such additional hotel rooms could have an adverse effect on the revenues
of the Company's hotels in such markets.
Competition for Acquisitions. The Company may be competing for investment
opportunities with entities which have substantially greater financial resources
than the Company. These entities may generally be able to accept more risk than
the Company prudently can manage. Competition may generally reduce the number of
suitable investment opportunities offered to the Company and increase the
bargaining power of property owners seeking to sell.
Seasonality of Hotel Business
The hotel industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
Through diversity in the geographic location and in the primary customer base of
the Company's hotels, the Company may be able to lessen, but not eliminate, the
effects of seasonality. Accordingly, seasonality can be expected to cause
quarterly fluctuations in the Company's lease revenue, to the extent it receives
percentage rent.
Investment Concentration in Single Industry
The Company's current strategy is to acquire interests exclusively in hotel
properties. The Company will not seek to invest in assets selected to reduce the
risks associated with investments in the hotel industry, and will be subject to
risks inherent in concentrating investments in a single industry. Therefore, the
adverse effect on the Company's lease revenue and amounts available for required
payments of principal and interest on
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<PAGE> 9
indebtedness and to make distributions to shareholders resulting from a downturn
in the hotel industry will be more pronounced than if the Company had
diversified its investments outside of the hotel industry. In addition, the
Current Hotels are concentrated in the Upper Upscale category of the hotel
industry (as published by Smith Travel Research), particularly the all-suite
segments therein.
Emphasis on Embassy Suites Hotels; Market Concentration
Fifty-two of the Company's 73 Current Hotels are operated under the Embassy
Suites brand. Accordingly, the Company is subject to risks inherent in
concentrating the Company's investments in the Embassy Suites brand, such as a
reduction in business following adverse publicity related to the brand, which
could have an adverse effect on the Company's lease revenues and amounts
available for required payments of principal and interest on indebtedness and to
make distributions to shareholders.
The Current Hotels are located in 27 states; however, almost one-half of
such hotels are located in three states, with 11 hotels located in each of
Florida and California and nine hotels located in Texas. Therefore, adverse
events or conditions which affect those areas particularly (such as natural
disasters or adverse changes in local economic conditions) could have a more
pronounced negative impact on the operations of the Company and amounts
available for required payments of principal and interest on indebtedness and
for distributions to shareholders than events affecting other areas.
RISKS OF OPERATING HOTELS UNDER FRANCHISE AGREEMENTS
At December 31, 1997, 52 of the Current Hotels were being operated under
the Embassy Suites brand. Of the 21 remaining Current Hotels, 13 are operated as
Doubletree Guest Suites hotels, under management contracts with Doubletree,
seven are operated as Sheraton hotels, under management contracts with Sheraton,
and one is, and may continue to be, operated under a franchise license as a
Hilton Suites hotel. No assurance can be provided that the Company will not be
required to make and fund significant additional improvements to the Current
Hotels in the future to obtain or maintain its franchise licenses. Failure to
complete improvements, when required, in a manner satisfactory to the franchisor
could result in the failure to issue, or the cancellation, of one or more
franchise licenses. In addition, the Company may desire to operate additional
hotels acquired by it under franchise licenses from Promus or another
franchisor, and such franchisors may require that significant capital
expenditures be made to such additional hotels as a condition of granting such
franchise licenses.
The continuation of franchise licenses for the Current Hotels is subject to
the maintenance of specified operating standards and other terms and conditions.
Promus periodically inspects its licensed properties to confirm adherence to its
maintenance and operating standards. Under each Percentage Lease, the Company is
obligated, among other things, to pay the costs of maintaining the structural
elements of each hotel and to set aside as a reserve 4% of hotel suite revenues
per month, on a cumulative basis, and to fund from the reserve or from other
sources capital expenditures (subject to approval by the Board of Directors) for
the periodic replacement or refurbishment of furniture, fixtures and equipment
required for the retention of such franchise licenses. During the period from
the closing of FelCor's initial public offering to December 31, 1997, the
Company made, and in the future may be obligated or deem it advisable to make,
capital investments in the Current Hotels in excess of 4% of the suite revenues
thereof. Should the Company be required or elect to do so in the future, such
investments may necessitate the use of borrowed funds or the reduction of
distributions. The Lessee is responsible for routine maintenance and repair
expenditures with respect to the Current Hotels. The failure to maintain the
standards or adhere to the other terms and conditions of the Embassy Suites or
other franchise licenses could result in the loss or cancellation of such
franchise licenses. It is possible that a franchisor could condition the
continuation of a franchise license upon the completion of substantial capital
improvements, which the Board of Directors may determine to be too expensive or
otherwise unwarranted in light of general economic conditions or the operating
results or prospects of the affected hotel. In that event, the Board of
Directors may elect to allow the franchise license to lapse, in which event the
Company will be obligated to indemnify the Lessee against any loss or liability
incurred by it as a consequence of such decision. In any case, if a franchise is
terminated, the Company and the Lessee may seek to obtain a suitable replacement
franchise, or to operate the affected hotel independent of a franchise license.
The loss of any franchise license could have a material adverse effect upon the
operations or the underlying value of the hotel
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<PAGE> 10
covered by such license because of the loss of associated name recognition,
marketing support and centralized reservation systems provided by the
franchisor. The loss of a number of the franchise licenses for the Current
Hotels could have a material adverse effect on the Company's revenues under the
Percentage Leases and the Company's cash available to make required payments of
principal and interest on indebtedness and to make distributions to its equity
owners.
OPERATIONAL RISKS OF RAPID GROWTH
The Company's acquisition of interests in 60 hotels between late 1995 and
December 31, 1997, has resulted in a substantial increase in the number and
geographic dispersion of the hotels owned by the Company and leased to the
Lessee. As a result, FelCor has added five senior management personnel as well
as additional accounting and administrative personnel between mid-1995 and
December 31, 1997. To the extent FelCor is unable to retain or hire experienced
personnel to manage the Company's business and assets, its operations could be
adversely affected. Continued growth may result in increased demands upon, or
additions to, FelCor's staff. The increased demand upon the time of such
employees, particularly if additional qualified staff cannot be obtained, could
adversely affect the operations and revenues of the Company.
CONSTRAINTS ON ACQUISITIONS AND IMPROVEMENTS
The Company intends to continue to pursue its current growth strategy,
which includes acquiring and improving hotel properties. There is a risk that
the Company will not have access to sufficient equity or debt capital to pursue
its acquisition strategies indefinitely. The Company generally cannot retain
cash generated by operating activities. To qualify as a REIT, FelCor must
distribute at least 95% of its net taxable income annually. The Company has a
$550 million line of credit ("Line of Credit") which, as of December 31, 1997,
had approximately $304.6 million available thereunder. The Board of Directors
has adopted a policy to limit the Company's indebtedness to 40% of its
investment in hotel properties, at cost. The terms of the Line of Credit impose
the same limitation upon the Company. Since the Company generally cannot retain
earnings and the term and amount available under the Company's Line of Credit
are limited, the Company's ability to continue to make hotel acquisitions
following the expiration or utilization of such facility will depend primarily
on its ability to obtain additional private or public equity or debt financing.
There can be no assurance that such financing will be available to make future
investments.
TAX RISKS
Failure to Qualify as a REIT
FelCor operates, and will continue to operate, so as to qualify as a REIT
for federal income tax purposes. However, FelCor has not requested, and does not
expect to request, a ruling from the Internal Revenue Service ("Service") that
it qualifies as a REIT. Furthermore, the continued qualification of FelCor as a
REIT will depend on FelCor's continuing ability to meet various requirements
concerning, among other things, the ownership of its outstanding stock, the
nature of its assets, the sources of its income, and the amount of its
distributions to its shareholders. See "Federal Income Tax
Considerations -- Taxation of the Company."
If FelCor were to fail to qualify as a REIT in any taxable year, it would
not be allowed a deduction for distributions to shareholders in computing its
taxable income and would be subject to federal income tax (including any
applicable alternative minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under certain provisions of the Internal
Revenue Code of 1986, as amended ("Code"), FelCor also would be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification was lost. As a result, the funds available for required
payments of principal and interest on indebtedness and to make distributions to
shareholders would be reduced for each of the years involved. Although FelCor
operates in a manner designed to allow it to qualify as a REIT, it is possible
that future economic, market, legal, tax or other considerations may cause the
Board of Directors, with the consent of a majority of the shareholders, to
revoke the REIT election. See "Federal Income Tax Considerations."
REIT Minimum Distribution Requirements
In order to qualify for the tax benefits accorded to REITs under the Code,
FelCor generally is required each year to distribute to its shareholders at
least 95% of its net taxable income (excluding any net capital
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<PAGE> 11
gain). In addition, FelCor is subject to a 4% nondeductible excise tax on the
amount, if any, by which certain distributions paid by it with respect to any
calendar year are less than the sum of (i) 85% of its ordinary income, (ii) 95%
of its capital gain net income for that year, and (iii) any undistributed
taxable income from prior periods. To the extent that FelCor elects to retain
and pay income tax on its net capital gain, such retained amounts will be
treated as having been distributed for purposes of the 4% excise tax.
FelCor intends to continue to make distributions to its shareholders to
comply with the 95% distribution requirement and to avoid the nondeductible
excise tax. FelCor's income consists primarily of its share of the income of
FelCor LP, and FelCor's cash available for distribution consists primarily of
its share of cash distributions from FelCor LP. Differences in timing between
taxable income and cash available for distribution due to the seasonality of the
hospitality industry could require FelCor, through FelCor LP, to borrow funds on
a short-term basis to meet the 95% distribution requirement and to avoid the
nondeductible excise tax. For federal income tax purposes, distributions paid to
shareholders may consist of ordinary income, capital gains, nontaxable return of
capital, or a combination thereof. FelCor provides, and will continue to
provide, its shareholders with an annual statement as to its designation of the
taxability of distributions.
Distributions by FelCor will be determined by its Board of Directors and
will be dependent on a number of factors, including the amount of the Company's
cash available for distribution, the Company's financial condition, any decision
by the Board of Directors to reinvest funds rather than to distribute such
funds, the Company's capital expenditures, the annual distribution requirements
under the REIT provisions of the Code and such other factors as the Board of
Directors deems relevant. See "Federal Income Tax Considerations -- Requirements
for Qualification -- Distribution Requirements."
Failure of FelCor LP to be Classified as a Partnership for Federal Income Tax
Purposes; Impact on REIT Status
The Company believes that FelCor LP (and its subsidiaries) is classified as
a partnership for federal income tax purposes. If the Service were to challenge
successfully the tax status of FelCor LP as a partnership for federal income tax
purposes, FelCor LP would be taxable as a corporation. In such event, FelCor
would cease to qualify as a REIT for a variety of reasons. Furthermore, the
imposition of a corporate tax on FelCor LP would substantially reduce the amount
of cash available for distribution to FelCor and its shareholders.
EFFECT OF MARKET INTEREST RATES ON PRICE OF CAPITAL STOCK
One of the factors that may influence the price of FelCor's Common Stock
and any Preferred Stock or Depositary Shares in public trading markets is the
annual yield from distributions by FelCor on the Common Stock and any Preferred
Stock, as compared to yields on other financial instruments. Thus, an increase
in market interest rates will result in higher yields on other financial
instruments, which could adversely affect the market price of FelCor's Common
Stock and any Preferred Stock or Depositary Shares.
RELIANCE ON KEY PERSONNEL AND BOARD OF DIRECTORS
Shareholders have no right or power to take part in the management of the
Company except through the exercise of voting rights on certain specified
matters. The Board of Directors is responsible for managing the Company. The
Company's future success, including particularly the implementation of the
Company's acquisition growth strategy, is substantially dependent on the active
participation of Messrs. Feldman and Corcoran. The loss of the services of both
of these individuals could have a material adverse effect on the Company.
REAL ESTATE INVESTMENT RISKS
The Company's investments are subject to varying degrees of risk generally
incident to the ownership of real property, including, in addition to the risks
discussed below, adverse changes in general or local economic conditions, zoning
laws, traffic patterns and neighborhood characteristics, tax rates, governmental
rules and fiscal policies, and by civil unrest, acts of war, and other adverse
factors which are beyond the control of the Company.
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Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of the Company
to vary its portfolio in response to changes in economic and other conditions
will be limited. Also, no assurances can be given that the market value of any
of the Current Hotels will not decrease in the future. There can be no assurance
that the Company will be able to dispose of an investment when it finds
disposition advantageous or necessary or that the sale price realized in any
disposition will recoup or exceed the amount of the Company's investment
therein.
Uninsured and Underinsured Losses
Each of the Current Hotels is covered by comprehensive policies of
insurance, including liability, fire and extended coverage. Management believes
such specified coverage is of the type and amount customarily obtained by owners
of real property assets. However, there are certain types of losses, generally
of a catastrophic nature, such as earthquakes, hurricanes and floods, that may
be uninsurable or not economically insurable. Eleven of the Current Hotels are
located in California, which is subject to relatively higher seismic risks.
Although each of such hotels was constructed under the more recent and stringent
post-1984 building codes that were intended to reduce the likelihood or extent
of damage from seismic activity, no assurance can be given that an earthquake
would not cause substantial damage and losses. Additionally, 16 of the Current
Hotels are located in the coastal areas of Florida, Georgia, Louisiana, South
Carolina or Texas and may, therefore, be particularly susceptible to potential
damage from hurricanes or high-wind activity. The Company presently maintains
and intends to continue to maintain earthquake insurance on each of the Current
Hotels located in California and wind damage insurance on such Florida, Georgia,
Louisiana, South Carolina and Texas hotels, to the extent practicable. The Board
of Directors may exercise discretion in determining amounts, coverage limits and
the deductibility provisions of insurance, with a view to maintaining
appropriate insurance coverage on the Company's investments at a reasonable cost
and on suitable terms. This may result in insurance coverage that, in the event
of a substantial loss, would not be sufficient to pay the full current market
value or current replacement cost of the Company's lost investment. Inflation,
changes in building codes and ordinances, environmental considerations, and
other factors also might make it impractical to use insurance proceeds to
replace the property after such property has been damaged or destroyed. Under
such circumstances, the insurance proceeds received by the Company might not be
adequate to restore its economic position with respect to such property.
Environmental Matters
Under various federal, state, and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. Liability also may extend to persons holding a
security interest in the property, under certain limited circumstances. In
addition, the presence of contamination from hazardous or toxic substances, or
the failure to properly remediate such contaminated property, may adversely
affect the owner's ability to dispose of such property, to fully utilize such
property without restriction or to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances may also be liable for the costs of removal or remediation of such
substances at the disposal or treatment facility, whether or not such facility
is or ever was owned or operated by such person. Certain environmental laws and
common law principles could be used to impose liability for release of hazardous
or toxic substances, including the release of asbestos-containing materials
("ACMs") into the air, and third parties may seek recovery from owners or
operators of real properties for personal injury or property damage associated
with such releases, including exposure to released ACMs. Environmental laws also
may impose restrictions on the manner in which property may be used or
businesses may be operated, and these restrictions may require expenditures.
Environmental laws provide for sanctions in the event of noncompliance and may
be enforced by governmental agencies or, in certain circumstances, by private
parties. In connection with the ownership of the Current Hotels and any
subsequently acquired hotels, the Company may be potentially liable for such
costs. The cost of defending against claims of liability, of compliance with
environmental regulatory requirements or of remediating a
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contaminated property could materially adversely affect the business, assets or
results of operations of the Company and, consequently, amounts available for
required payments of principal and interest on indebtedness and to make
distributions to the Company's equity owners.
Phase I environmental audits from independent environmental engineers were
obtained with respect to each of the Current Hotels prior to the acquisition
thereof by the Company. The principal purpose of Phase I audits is to identify
indications of potential environmental contamination for which the Current
Hotels may be responsible and, secondarily, to assess, to a limited extent, the
potential for environmental regulatory compliance liabilities. The Phase I
audits of the Current Hotels were designed to meet the requirements of the then
current industry standards governing Phase I audits, and consistent with those
requirements, none of the audits involved testing of groundwater, soil or air.
Accordingly, they do not represent evaluations of conditions at the studied
sites that would be revealed only through such testing. In addition, their
assessment of environmental regulatory compliance issues was general in scope
and was not a detailed determination of the Current Hotels' complete compliance
status. Similarly, the audits did not involve comprehensive analysis of
potential off-site liability. The Phase I audit reports have not revealed any
environmental liability that management believes would have a material adverse
effect on the Company's business, assets or results of operations, nor is the
Company aware of any such liability. Nevertheless, it is possible that these
reports do not reveal all environmental liabilities or that there are material
environmental liabilities of which the Company is unaware.
Compliance with Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990 ("ADA"), all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While management of FelCor believes that,
based upon an examination thereof and consultation with professionals, the
Current Hotels are substantially in compliance with these requirements, a
determination that the Company is not in compliance with the ADA could result in
the imposition of fines or an award of damages to private litigants. If the
Company were required to make substantial modifications at the Current Hotels to
comply with the ADA, the Company's ability to make required payments of
principal and interest on indebtedness and to make distributions to its equity
owners could be adversely affected.
Increases in Property Taxes
Each Current Hotel is subject to real and personal property taxes. The real
and personal property taxes on hotel properties in which the Company invests may
increase as property tax rates change and as the properties are assessed or
reassessed by taxing authorities. If property taxes increase, the Company's
ability to make required payments of principal and interest on indebtedness and
to make distributions to its equity owners could be adversely affected.
OWNERSHIP LIMITATION
In order for FelCor to maintain its qualification as a REIT, not more than
50% in value of its 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 any taxable year. For the purpose of preserving FelCor's REIT
qualification, FelCor's articles of incorporation, as amended and restated
("Charter"), prohibit ownership (taking into account applicable constructive
ownership provisions of the Code) of more than 9.9% of the number of outstanding
shares of any class of FelCor's capital stock by any person ("Ownership Limit"),
and, subject to certain exceptions, prohibits any transfer that would result in
(i) any person owning shares in excess of the Ownership Limit, (ii) FelCor's
shares being beneficially owned by fewer than 100 persons (determined without
reference to any constructive ownership rules), (iii) FelCor being "closely
held" within the meaning of the Code or otherwise failing to qualify as a REIT
under the Code, or (iv) FelCor owning, actually and constructively under the
applicable constructive ownership provisions of the Code, 10% or more of the
ownership interests in any tenant or subtenant of FelCor's property. Any
attempted transfer of shares that would violate any one or more of such
prohibitions will be void and of no force or effect whatsoever with respect to
any shares in excess of such limits (and, in the case of the prohibition against
FelCor having fewer than 100 shareholders, will be entirely void), and the
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attempted transferee will not acquire any right or interest in such excess
shares. FelCor may take any lawful action deemed necessary or advisable to
ensure compliance with the Ownership Limit provisions and to preserve its status
as a REIT, including without limitation refusing to recognize or record any
prohibited transfer.
Should any person at any time hold any shares in violation of the Ownership
Limit (other than a violation of the requirement that a REIT have at least 100
shareholders), then that number of shares in excess of the number such person
could hold without violating the Ownership Limit will be immediately designated
as "Shares-in-Trust" and transferred automatically and by operation of law to,
and be held in, a trust for the benefit of such beneficiaries as may be
designated by the trustee of such trust (which trustee shall be designated by
FelCor and be a person that is unaffiliated with FelCor or any prohibited
owner). The trustee will be entitled to receive all distributions on, and to
exercise all voting rights of, any Shares-in-Trust. The record holder of any
shares so designated as Shares-in-Trust and transferred to a trustee shall have
no right or interest in such shares or trust, except the right (upon
satisfaction of certain conditions) to receive from the proceeds of sale of such
shares to a qualified person or entity an amount equal to the lesser of (i) the
amount paid therefor by such record holder (if acquired by him for value), or
the market price of such shares determined as provided in the Charter (if
acquired by him otherwise than for value), and (ii) the amount received by the
trustee from the sale of such Shares-in-Trust.
FelCor or its designee may elect, within specified time limits, to purchase
from the trustee any Shares-in-Trust at the lesser of (a) the amount to which
the record holder would be entitled pursuant to clause (i) of the immediately
preceding paragraph or (b) the market price of such shares, determined as
provided in the Charter, on the date of its election to purchase such shares.
Accordingly, the record holder of any shares that are designated as
Shares-in-Trust may experience a financial loss if the price at which such
shares are sold to a qualified person or entity, or FelCor, is less than that
paid by such record holder therefor. See "Certain Charter, Bylaw and Statutory
Provisions -- Charter and Bylaw Provisions -- Restrictions on Ownership and
Transfer" and "Federal Income Tax Considerations -- Requirements for
Qualification."
LIMITATION ON ACQUISITION AND CHANGE IN CONTROL
Ownership Limit
The Ownership Limit, which provides that no person may own more than 9.9%
in value of the number of outstanding shares of any class of stock of FelCor,
may have the effect of precluding an acquisition of control of FelCor by a third
party without the approval of the Board of Directors, even if such change of
control were to be in the shareholders' interests.
Staggered Board
The Board of Directors of FelCor has three classes of directors. The terms
of FelCor's current directors expire in 1998, 1999 and 2000, respectively.
Directors for each class are elected for a three-year term upon the expiration
of the term of that class. The staggered terms of directors may affect the
shareholders' ability to change control of FelCor even if such a change in
control were to be in the shareholders' interests. See "Certain Charter, Bylaw
and Statutory Provisions -- Charter and Bylaw Provisions -- Restrictions on
Ownership and Transfer."
Authority to Issue Preferred Stock
The Charter authorizes the Board of Directors to issue up to 10,000,000
shares of Preferred Stock, in one or more series, and to establish the relative
preferences and rights of any series of Preferred Stock so issued. FelCor has
issued and outstanding 6,050,000 shares of its $1.95 Series A Cumulative,
Convertible Preferred Stock ("Series A Preferred Stock"), with an additional
3,950,000 shares of Preferred Stock available for future issuance. The issuance
of such Preferred Stock could have the effect of delaying or preventing a change
in control of FelCor even if such a change in control were to be in the
shareholders' interests.
Maryland Anti-Takeover Statutes
As a Maryland corporation, FelCor is subject to various legislative acts
set forth under the Maryland General Corporation Law ("MGCL"), including (i) the
Maryland Business Combination Statute, which
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imposes certain restrictions upon, and mandates that certain procedures be
followed in connection with, certain takeovers and business combinations, and
(ii) the Maryland Control Share Statute, which denies voting rights with respect
to shares acquired in certain transactions involving the acquisition of
one-fifth or more of the voting control of the subject company. Although
FelCor's Charter contains a provision exempting any and all acquisitions from
the provisions of the Maryland Control Share Statute, if such provision is
subsequently amended or eliminated, it may deter any shareholder from acquiring
any substantial amount of the outstanding stock of FelCor. In addition, to the
extent that the foregoing statutes discourage or make more difficult a proxy
contest or the assumption of control by a holder of a substantial block of
FelCor's stock, they could increase the likelihood that incumbent directors of
FelCor would retain their positions, and may also have the effect of
discouraging a tender offer or other attempts to obtain control of FelCor even
though such attempts might be beneficial to FelCor and its shareholders. See
"Certain Charter, Bylaw and Statutory Provisions -- Maryland Anti-Takeover
Statutes."
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer program
that has date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. The Company has recently assessed its
internal computer systems and believes that the current systems used will
properly utilize dates beyond December 31, 1999. The Company has been informed
that companies that manage the hotels owned by the Company are in the process of
studying the Year 2000 issue, including inquiries of their vendors. Upon the
completion of the management companies' study, which is expected in late 1998,
the Company will determine the extent to which the Company is vulnerable to
third parties' failure to remediate their own Year 2000 issues and the costs
associated with resolving this issue.
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USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, FelCor
will (i) contribute all of the net proceeds from the sale of Common Stock,
Common Stock Warrants, Preferred Stock and Depositary Shares offered hereby to
FelCor LP in exchange for comparable Units and (ii) loan all of the net proceeds
from the sale of Debt Securities offered hereby to FelCor LP. FelCor LP expects
to use such net proceeds for various purposes, which may include the acquisition
of additional hotel assets, the repayment of outstanding indebtedness, the
improvement and/or expansion of one or more of its hotel properties or for
working capital purposes. Pending such uses, the net proceeds of any offering of
Securities may be invested in short-term, investment grade securities or
instruments, interest-bearing bank accounts, certificates of deposit, mortgage
participations or similar securities, to the extent consistent with FelCor's
qualification as a REIT, FelCor's Charter, and the Company's agreements with its
lenders.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratios of earnings to fixed
charges and of earnings to fixed charges and preferred stock dividends for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Ratio of Earnings to Fixed Charges.......................... 8.6x 5.3x 3.3x
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends........................................... 8.6x 3.1x 2.4x
</TABLE>
For purposes of computing this ratio, earnings have been calculated by
adding income from continuing operations plus fixed charges and minority
interest, and deducting capitalized interest. Fixed charges consist of interest
(including capitalized interest) and amortization of deferred financing costs.
Preferred stock dividends represent the amount required to meet the dividend
requirements of the Series A Preferred Stock, which was initially issued in May
1996.
DISTRIBUTION POLICY
In order to qualify for the tax benefits accorded to REITs under the Code,
FelCor must distribute to its shareholders at least 95% of its annual net
taxable income (which does not include net capital gains). While future
distributions paid by FelCor will be at the discretion of the Board of Directors
and will depend on the actual cash flow of the Company, its financial condition,
capital requirements, the annual distribution requirements under the REIT
provisions of the Code, and such other factors as the Board of Directors deem
relevant, it is the present intention of FelCor to pay regular quarterly
distributions.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be direct unsecured obligations of FelCor. The
Debt Securities will be issued under one or more indentures ("Indentures"), each
dated as of a date prior to the issuance of the Debt Securities to which it
relates, in each case between FelCor and a trustee ("Trustee") meeting the
requirements of the Trust Indenture Act of 1939, as amended ("TIA"), and in the
form that has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part, subject to such amendments or supplements as may be
adopted from time to time. The Indentures will be subject to and governed by the
TIA.
At December 31, 1997, the total outstanding debt of the Company was $478.7
million, all of which was unsubordinated indebtedness, including $175 million of
7 3/8% Senior Notes Due 2004 and $125 million of 7 5/8% Senior Notes Due 2007
(collectively, "Senior Notes") issued by FelCor LP pursuant to an Indenture
dated as of October 1, 1997 ("Senior Notes Indenture"). Of such outstanding
debt, $17.0 million was secured debt.
The statements made under this heading relating to the Debt Securities and
the Indentures are summaries of the anticipated provisions thereof, do not
purport to be complete and are qualified in their
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entirety by reference to the description of such Debt Securities contained in
the applicable Prospectus Supplement and to the Indentures relating to such Debt
Securities.
Capitalized terms used, but not defined, under this caption shall have the
meanings assigned to them in the applicable Indentures.
TERMS
The indebtedness represented by the Debt Securities will rank equally with
all other unsecured and unsubordinated indebtedness of FelCor. The particular
terms of the Debt Securities offered by a Prospectus Supplement will be
described in the applicable Prospectus Supplement, along with any applicable
modifications of or additions to the general terms of the Debt Securities as
described herein and in the applicable Indenture and any applicable federal
income tax considerations. Accordingly, for a description of the terms of any
series of Debt Securities, reference must be made to both the Prospectus
Supplement relating thereto and the description of the Debt Securities set forth
in this Prospectus.
Except as set forth in any Prospectus Supplement, the Debt Securities may
be issued without limit as to aggregate principal amount, in one or more series,
in each case as established from time to time by FelCor or as set forth in the
applicable Indenture or in one or more indentures supplemental to such
Indenture. All Debt Securities of one series need not be issued at the same
time, and, unless otherwise provided in the applicable Prospectus Supplement, a
series may be reopened, without the consent of the holders of the Debt
Securities of such series, for the issuance of additional Debt Securities of
such series.
Each Indenture will designate one or more than one Trustee thereunder, each
with respect to one or more series of Debt Securities. Any Trustee under an
Indenture may resign or be removed with respect to one or more series of Debt
Securities and a successor Trustee may be appointed to act with respect to such
series. In the event that two or more persons are acting as Trustee with respect
to different series of Debt Securities, each such Trustee shall be a Trustee of
a trust under the applicable Indenture separate and apart from the trust
administered by any other Trustee, and, except as otherwise indicated herein,
any action described herein to be taken by each Trustee may be taken by each
such Trustee with respect to, and only with respect to, the one or more series
of Debt Securities for which it is trustee under the applicable Indenture.
The following summaries set forth certain general terms and provisions of
the Debt Securities and the Indentures. The Prospectus Supplement relating to
the series of Debt Securities being offered will contain further terms of such
Debt Securities, including the following specific terms:
(1) The title of such Debt Securities and whether such Debt Securities
are senior securities or subordinated securities;
(2) The aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) The price (expressed as a percentage of the principal amount
thereof) at which such Debt Securities will be issued and, if other than
the principal amount thereof, the portion of the principal amount thereof
payable upon declaration of acceleration of the maturity thereof, or (if
applicable) the portion of the principal amount of such Debt Securities
that is convertible into Common Stock, Preferred Stock or Debt Securities
of another series, or the method by which any such portion shall be
determined;
(4) If convertible, the terms on which such Debt Securities are
convertible into Common Stock, Preferred Stock or Debt Securities of
another series, including the terms and conditions upon which such
conversion will be effected, the initial conversion price or rate, the
conversion period or periods and any applicable limitations on the
ownership or transferability of any Common Stock or Preferred Stock
receivable on conversion;
(5) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be payable;
(6) The rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
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(7) The date or dates, or the method for determining such date or
dates, from which any such interest will accrue, the date or dates on which
any such interest will be payable, the regular record dates for such
interest payment dates, or the method by which such dates shall be
determined, the persons to whom such interest shall be payable, and the
basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(8) The place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, where such
Debt Securities may be surrendered for conversion or registration of
transfer or exchange and where notices or demands to or upon FelCor in
respect of such Debt Securities and the applicable Indenture may be served;
(9) The period or periods, if any, within which, the price or prices
at which and the other terms and conditions upon which such Debt Securities
may, pursuant to any optional or mandatory redemption provisions, be
redeemed, as a whole or in part, at the option of FelCor;
(10) The obligation, if any, of FelCor to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a holder thereof and the period or periods within which,
the price or prices at which, and the other terms and conditions upon
which, such Debt Securities will be redeemed, repaid or purchased, as a
whole or in part, pursuant to such obligation;
(11) If other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(12) Whether the amount of payments of principal of (premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not, be based on a currency, currencies, currency unit
or units, or composite currency or currencies) and the manner in which such
amounts shall be determined;
(13) Whether such Debt Securities will be issued in certificated
and/or book-entry form and, if so, the identity of the depository for such
Debt Securities;
(14) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(15) The applicability, if any, of the defeasance and covenant
defeasance provisions described herein or set forth in the applicable
Indenture, or any modification thereof;
(16) Whether and under what circumstances FelCor will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether FelCor will have the
option to redeem such Debt Securities in lieu of making such payment;
(17) Any deletions from, modifications of or additions to the events
of default or covenants of FelCor, to the extent different from those
described herein or set forth in the applicable Indenture with respect to
such Debt Securities, and any change in the right of any Trustee or any of
the holders to declare the principal amount of any such Debt Securities due
and payable; and
(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, any special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
Except as may be set forth in any Prospectus Supplement, the Debt
Securities and Indentures will not prohibit, restrict, or require FelCor to
obtain the consent of the holders of any Debt Securities, or to redeem or permit
holders to cause a redemption of Debt Securities, in the event of, (i) a
consolidation, merger, sale of assets or other similar transaction that may
adversely affect the creditworthiness of FelCor or the successor or
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combined entity, (ii) a change in control of FelCor or (iii) the incurrence of
unsecured debt, whether or not in a highly leveraged transaction, involving
FelCor whether or not involving a change in control. Accordingly, the holders of
the Debt Securities would not have protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving FelCor that may adversely affect the holders of the Debt Securities.
The existing protective covenants applicable to the Debt Securities would
continue to apply to FelCor in the event of a leveraged buyout initiated or
supported by FelCor, the management of FelCor, or any affiliate of FelCor or its
management, but may not prevent such a transaction from taking place.
Restrictions set forth in FelCor's Charter with respect to the ownership and
transfer of Common Stock and Preferred Stock, which are designed to preserve
FelCor's status as a REIT, may also act to prevent or hinder a change of
control. See "Certain Charter, Bylaw and Statutory Provisions -- Charter and
Bylaw Provisions -- Restrictions on Ownership and Transfer." Reference is made
to the applicable Prospectus Supplement for information with respect to any
deletions from, modifications of or additions to the events of default or
covenants of FelCor that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
If any Debt Securities are to be offered that provide for the optional
redemption, prepayment or conversion of such Debt Securities upon the occurrence
of the events described in the foregoing paragraph, the Prospectus Supplement
relating to such Debt Securities will provide information with respect to the
following:
(a) the effects that such provisions may have in deterring certain
mergers, tender offers or other takeover attempts, as well as any possible
adverse effect on the market price of FelCor's securities or FelCor's
ability to obtain additional financing in the future as a result of such
provisions;
(b) certain specific risk factors associated with the occurrence of
the specified events, including, if applicable, that the occurrence of such
events may give rise to cross-defaults on other indebtedness such that the
payment on the Debt Securities may be effectively subordinated, that there
may be no assurance that sufficient funds will be available at the time of
the occurrence of an event to make any required repurchases and that there
may be limitations on FelCor's financial or legal ability to repurchase the
Debt Securities upon the occurrence of an event requiring such a repurchase
or offer to repurchase;
(c) FelCor's compliance, if necessary, with the requirements of Rule
13e-4 and Rule 14e-1 under the Exchange Act and any other applicable
securities laws in connection with any repurchase of such Debt Securities;
(d) the impact, if any, under the Indenture of the failure to make the
required repurchase, including whether, and under what circumstances, such
failure would be an event of default under the Indenture; and
(e) if the Debt Securities are to be subordinated to other obligations
of FelCor that would be accelerated upon the occurrence of one of the
specified events, the material effects of such an acceleration upon the
specified events and the Debt Securities.
In addition, the Indenture under which any such Debt Securities will be issued
will contain, and the applicable Prospectus Supplement will include, if
applicable, a definition of "change in control" for purposes of such Debt
Securities, including sufficient information to enable a holder of Debt
Securities to determine when a change in control has occurred.
DENOMINATION, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for any
authorized denomination of other Debt Securities of the same series and of a
like aggregate principal amount and tenor upon surrender of such Debt Securities
at the corporate trust office of the applicable Trustee or at the office of any
transfer agent designated by FelCor for such purpose. In addition, subject to
certain limitations imposed upon Debt Securities issued in book-entry form, Debt
Securities of any series may be surrendered for conversion or registration of
transfer or exchange thereof at the corporate trust office of the applicable
Trustee or at the office of any transfer agent designated by
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FelCor for such purpose. Debt Securities surrendered for conversion,
registration of transfer or exchange must be duly endorsed or accompanied by a
written instrument of transfer, and the person requesting such action must
provide evidence of title and identity satisfactory to the applicable Trustee or
transfer agent. No service charge will be made for any registration of transfer
or exchange of any Debt Securities, but FelCor may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith. If the applicable Prospectus Supplement refers to any transfer agent
(in addition to the applicable Trustee) initially designated by FelCor with
respect to any series of Debt Securities, FelCor may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that FelCor will be required
to maintain a transfer agent in each place of payment for such series. FelCor
may at any time designate additional transfer agents with respect to any series
of Debt Securities.
Neither FelCor nor any Trustee or transfer agent shall be required (i) to
issue, register the transfer of or exchange Debt Securities of any series during
a period beginning at the opening of business 15 days before the date of mailing
of a notice of redemption of any Debt Securities that may be selected for
redemption and ending at the close of business on the date of such mailing; (ii)
to register the transfer of or exchange any Debt Securities, or portion thereof,
so selected for redemption, in whole or in part, except the unredeemed portion
of any Debt Securities being redeemed in part; or (iii) to issue, register the
transfer of or exchange any Debt Securities that have been surrendered for
repayment at the option of the holder, except the portion, if any, of such Debt
Securities not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indentures will provide that FelCor may, without the consent of the
holders of any outstanding Debt Securities, lease all or any portion of its
assets to the Lessee, or any other entity, to the extent required to maintain
FelCor's status as a REIT, and neither the Lessee nor any such other entity
shall be required to assume any obligation or liability of FelCor with respect
to the Debt Securities. In addition, the Indentures are expected to provide that
FelCor may, without the consent of the holders of any outstanding Debt
Securities, otherwise sell, transfer or convey all or substantially all of its
assets to, or consolidate with or merge with or into, any other entity; provided
that (a) either FelCor shall be the continuing entity, or the successor entity
(if other than FelCor) formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such assets is organized
under the laws of any domestic jurisdiction and assumes FelCor's obligations to
pay principal of (premium, if any) and interest, if any, on all of the Debt
Securities and the due and punctual performance and observance of all of the
covenants and conditions contained in each Indenture; (b) immediately after
giving effect to such transaction and treating any indebtedness that becomes an
obligation of FelCor or any subsidiary as a result thereof as having been
incurred by FelCor or such subsidiary at the time of such transaction, no event
of default under the Indentures, and no event which, after notice or the lapse
of time, or both, would become such an event of default, shall have occurred and
be continuing; and (c) an officers' certificate and legal opinion covering such
conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
Existence. Except as permitted under "-- Merger, Consolidation or Sale of
Assets," the Indentures will require FelCor to do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence.
Maintenance of Properties. The Indentures will require FelCor to cause all
of its material properties used or useful in the conduct of its business or the
business of any subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment, and will make or
cause to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of FelCor may be necessary so that
the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that FelCor and its
subsidiaries shall not be prevented from selling, leasing or otherwise disposing
of their properties for value in the ordinary course of business.
Limitations on Liens. The Indenture will provide that FelCor may not, nor
may it permit any subsidiary to, issue, assume or guarantee evidences of
indebtedness for money borrowed which are secured by any
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mortgage, security interest, pledge or lien ("mortgage") of or upon any
principal property or of or upon any shares of stock or evidences of
indebtedness for borrowed money issued by any subsidiary that owns principal
property and owned by FelCor or any subsidiary, whether owned at the date of the
Indenture or thereafter acquired, without effectively providing that the
principal amount of the Debt Securities from time to time outstanding shall be
secured equally and ratably by (or at the option of FelCor, prior to) such
mortgage, except that this restriction will not apply to (i) mortgages for taxes
or other governmental charges either not yet delinquent or the nonpayment of
which is being contested in good faith by appropriate proceedings; mortgages
comprising landlord's liens or liens of carriers, warehousemen, mechanics or
materialmen incurred in the ordinary course of business for sums not yet due and
payable or which are being contested in good faith by appropriate proceedings;
and any other mortgages incurred or created in the ordinary course of business
not arising in connection with indebtedness that do not materially impair the
use or value of the assets of FelCor and its subsidiaries; (ii) mortgages
existing on the date of the Indenture; (iii) mortgages on any property existing
at the time of its acquisition; (iv) mortgages on property of a corporation
existing at the time such corporation is merged into or consolidated with, or
disposes of substantially all its properties (or those of a division) to, FelCor
or a subsidiary; (v) mortgages on property of a corporation, shares of capital
stock or debt of any corporation existing at the time such corporation first
becomes a subsidiary; (vi) mortgages securing indebtedness of a subsidiary to
FelCor or to another subsidiary; (vii) mortgages to secure the cost of
acquisition, construction, development or substantial repair, alteration or
improvement of property if the commitment to extend the credit secured by any
such mortgage is obtained within 12 months after the later of the completion or
the placing in operation of the acquired, constructed, developed or
substantially repaired, altered or improved property; (viii) mortgages securing
current indebtedness; (ix) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any mortgage
referred to in clauses (i) through (viii), provided, however, that the principal
amount of indebtedness secured thereby and not otherwise authorized by said
clauses (i) to (viii), inclusive, shall not exceed the principal amount of
indebtedness, plus any premium or fee payable in connection with any such
extension, renewal or replacement, so secured at the time of such extension,
renewal or replacement; (x) mortgages in favor of the United States or any State
thereof, or any department, agency or instrumentality or political subdivision
of the United States or any State thereof, to secure partial progress, advance
or other payments pursuant to any contract or statute or to secure any
indebtedness incurred for the purpose of financing all or any part of the
purchase price or the cost of constructing or improving the property subject to
such mortgages; (xi) mortgages arising out of a final judgment for the payment
of money aggregating not in excess of $10,000,000 or mortgages related to any
legal proceeding being contested in good faith by appropriate proceedings,
provided that the enforcement of any lien has been stayed; and (xii) easements
or similar encumbrances, the existence of which do not materially impair the use
of the property subject thereto. However, FelCor or any subsidiary may issue,
assume or guarantee indebtedness secured by mortgages which would otherwise be
subject to the foregoing restriction in an aggregate amount which, together with
all other such indebtedness outstanding does not at the time exceed the
limitations set forth in FelCor's Charter.
Additional Covenants. Any additional covenants of FelCor with respect to
any series of Debt Securities will be set forth in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture will provide that if an Event of Default shall have occurred
and be continuing with respect to a series of Debt Securities or if certain
indebtedness in excess of $25,000,000 for money borrowed by FelCor shall have
been accelerated, then either the Trustee or the holders of not less than 25% in
outstanding principal amount of the Debt Securities of such series may declare
to be due and payable immediately the principal amount of such Debt Securities,
together with interest, if any, accrued thereon.
Under the Indenture, an Event of Default with respect to each series of
Debt Securities will be any one of the following events: (a) default for 30 days
in payment of any interest due with respect to any Debt Security of such series;
(b) default in payment of principal of any Debt Security of such series when
due; (c) default for 90 days after notice to FelCor by the Trustee or by holders
of not less than 25% in principal amount of the Debt Securities then outstanding
of such series in the performance of any other covenant for the benefit of such
Debt Securities of such series; and (d) certain events of bankruptcy, insolvency
and reorganization.
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The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default with respect to a series of Debt Securities, give to the
holders of the Debt Securities of such series notice of such default known to
it, unless cured or waived; provided that, except in the case of default in the
payment of principal or interest, if any, in respect of any of the Debt
Securities of such series, the Trustee will be protected in withholding such
notice if it in good faith determines that the withholding of such notice is in
the interests of the holders of the Debt Securities of such series. The term
"default" for the purpose of this provision means any event which is, or after
notice or lapse of time, or both, would become, an Event of Default.
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during the continuance of an Event of Default to act with
the required standard of care, to be indemnified by the holders of the Debt
Securities of such series before proceeding to exercise any right or power under
the Indenture at the request of such holders. The Indenture provides that the
holders of a majority in outstanding principal amount of the Debt Securities of
such series may, subject to certain exceptions, on behalf of the holders of the
Debt Securities of such series direct the time, method and place of conducting
proceedings for remedies available to the Trustee, or exercising any trust or
power conferred on the Trustee.
The Indenture includes a covenant that FelCor will file annually with the
Trustee a certificate of no default, or specifying any default that exists.
In certain cases, the holders of a majority in outstanding principal amount
of the Debt Securities of a given series may on behalf of the holders of the
Debt Securities of such series rescind a declaration of acceleration or waive,
as to the Debt Securities of such series, any past default or Event of Default
relating to the Debt Securities of such series, except a default not theretofore
cured in payment of the principal of or interest, if any, on any of such Debt
Securities of such series or in respect of a provision which under the Indenture
cannot be modified or amended without the consent of the holder of each Debt
Security of such series.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES OR STOCKHOLDERS
No director, officer, employee or stockholder of FelCor, as such, shall
have any liability for any obligations of FelCor under any Debt Securities,
under any Indenture relating thereto or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each holder of Debt
Securities by accepting the same, waives and releases all such liability. This
waiver and release is part of the consideration for the issuance of such Debt
Securities. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the SEC that such a waiver is
against public policy.
MODIFICATION OF THE INDENTURE
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the holder of each of the Debt
Securities affected thereby, (a) change the stated maturity of any installment
of the principal of (premium, if any) or interest, if any, on any such Debt
Securities; (b) reduce the principal amount of, the amount of any premium
payable on the redemption of, or the rate or amount of any interest on, any such
Debt Securities, or reduce the amount of principal of any Original Issue
Discount Securities that would be due and payable upon declaration of
acceleration of the maturity thereof or would be provable in bankruptcy, or
adversely affect any right of repayment of the holder of any such Debt
Securities; (c) change the place of payment, or the coin or currency, for
payment of principal of (premium, if any) or interest on any such Debt
Securities; (d) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Securities; (e) reduce the
above-stated percentage of outstanding Debt Securities of any series necessary
to modify or amend the applicable Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the applicable Indenture; or (f)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the holders of
such Debt Securities.
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The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of each series may, on behalf of all holders of Debt Securities
of that series, waive, insofar as that series is concerned, compliance by FelCor
with certain affirmative or restrictive covenants of the applicable Indenture.
Modifications and amendments of an Indenture will be permitted to be made
by FelCor and the respective Trustee thereunder without the consent of any
holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to FelCor, and the assumption by any such successor
of the covenants of FelCor herein and in the Securities; (ii) to add to the
covenants of FelCor, for the benefit of the holders of the Securities of any one
or more series of Securities (and if such covenants are to be for the benefit of
less than all series of Securities, stating that such covenants are expressly
being included solely for the benefit of such series), or to surrender any right
or power herein conferred upon FelCor; (iii) to add any additional Events of
Default for the benefit of the holders of all or any series of Securities (and
if such Events of Default are to be for the benefit of less than all series of
Securities, stating that such Events of Default are expressly being included
solely for the benefit of such series); (iv) to add to or change any of the
provisions of this Indenture to such extent as shall be necessary to permit or
facilitate the issuance of Securities in bearer form, registrable or not
registrable as to principal and with or without interest coupons, or to permit
or facilitate the issuance of Securities in uncertificated form; (v) to cure any
ambiguity, to correct or supplement any provision herein which may be defective
or inconsistent with any other provision herein, or to make any other provisions
with respect to matters or questions arising under this Indenture, provided that
such action shall not adversely affect the interests of the holders of the
Securities of any series in any material respect; (vi) to modify, eliminate or
add to the provisions of this Indenture to such extent as shall be necessary to
effect the qualification of this Indenture under TIA, or under any similar
federal statute hereafter enacted, and to add to this Indenture such other
provisions as may be expressly permitted by TIA, excluding, however, the
provisions referred to in Section 316(a)(2) of TIA or any corresponding
provision in any similar federal statute hereafter enacted; (vii) to provide for
the issuance under this Indenture of Securities in the form only of an entry or
entries in the Security Register and without delivery thereof in any form
(including all appropriate notification and publication and other provisions),
and to provide for exchangeability of such Securities with the Securities of the
same series issued hereunder; (viii) to set forth the forms and terms
(including, without limitation, additional covenants and changes in or
eliminations of covenants previously set forth in this Indenture) of any one or
more series of Securities not previously issued; (ix) to add to, change or
eliminate any of the provisions of this Indenture in respect of one or more
series of Securities, provided, however, that any such addition, change or
elimination shall become effective only when there is no Security outstanding of
any series authorized prior to the execution of such supplemental indenture
which is entitled to the benefit of such provision; (x) to evidence and provide
for the acceptance of appointment hereunder by a successor Trustee with respect
to the Securities of one or more series and to add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee; or (xi) to
supplement any of the provisions of this Indenture to such extent as shall be
necessary to permit or facilitate the defeasance and discharge of any series of
Securities; provided, however, that any such action shall not adversely affect
the interests of the holders of Securities of such series or any other series of
Securities in any material respect.
The Indentures will provide that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Securities
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Securities denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined as of the issue date
of such Debt Securities, of the principal amount thereof (or, in the case of an
Original Issue Discount Securities, the U.S. dollar equivalent on the issue date
of such Debt Securities of the amount determined as provided in (i) above),
(iii) the principal amount of an indexed security that shall be deemed
outstanding shall be the principal face amount of such indexed security at
original issuance, unless otherwise provided with respect to such indexed
security pursuant to such Indenture, and (iv) Debt Securities
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owned by FelCor or any other obligor upon the Debt Securities or any affiliate
of FelCor or of such other obligor shall be disregarded.
The Indentures will contain provisions for convening meetings of the
holders of Debt Securities of a series. A meeting will be permitted to be called
at any time by the applicable Trustee, and also, upon request, by FelCor or the
holders of at least 10% in principal amount of the outstanding Debt Securities
of such series, in any such case upon notice given as provided in such
Indenture. Except for any consent that must be given by the holder of each of
the Debt Securities affected by certain modifications and amendments of an
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the holders of a majority in principal amount of the outstanding Debt
Securities of that series; provided, however, that, except as referred to above,
any resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by the
holders of a specified percentage, which is less than a majority, in principal
amount of the outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened at which a quorum is present by the
affirmative vote of the holders of such specified percentage in principal amount
of the outstanding Debt Securities of that series. Any resolution passed or
decision taken at any meeting of holders of Debt Securities of any series duly
held in accordance with an Indenture will be binding on all holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the holders of
not less than a specified percentage in principal amount of the outstanding Debt
Securities of a series, the persons holding or representing such specified
percentage in principal amount of the outstanding Debt Securities of such series
will constitute a quorum.
Notwithstanding the foregoing provisions, the Indentures will provide that
if any action is to be taken at a meeting of holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver or other action that such Indenture expressly provides may be
made, given or taken by the holders of a specified percentage in principal
amount of all outstanding Debt Securities affected thereby, or by the holders of
such series and one or more additional series: (i) there shall be no minimum
quorum requirement for such meeting, (ii) the principal amount of the
outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under such Indenture and (iii) any such action may be taken by
the written consent, without a meeting, of the holders of the requisite
percentage in principal amount of the outstanding Debt Securities.
DEFEASANCE
FelCor will be discharged from any and all obligations in respect of Debt
Securities of a series (except for certain obligations to register the transfer
or exchange of Debt Securities, to replace stolen, lost or mutilated Debt
Securities, to maintain paying agencies and hold monies for payment in trust and
to pay the principal of and interest, if any, on Debt Securities), upon the
irrevocable deposit with the Trustee, in trust, of money and/or U.S. Government
Obligations which through the payment of interest and principal thereof in
accordance with their terms will provide money in an amount sufficient to pay
any installment of principal and interest, if any, in respect of Debt Securities
of such series on the dates on which such payments are due in accordance with
the terms of the Indenture and such Debt Securities. Such a trust may only be
established if establishment of the trust would not cause any Debt Securities of
such series listed on any nationally recognized securities exchange to be
de-listed as a result thereof. Also, such establishment of such a trust will be
conditioned on the delivery by FelCor to the Trustee of an Opinion of Counsel
(who may be counsel to FelCor) to the effect that, based upon applicable U.S.
federal income tax law or a ruling published by the United States Internal
Revenue Service, such a defeasance and discharge will not be deemed, or result
in, a taxable event with respect to holders of Debt Securities of such series.
FelCor may also omit to comply with the restrictive covenants described
under "Limitation on Liens" above (together with certain other covenants set
forth in the Indenture) and any such omission shall not be an
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Event of Default with respect to Debt Securities of a series, upon the deposit
with the Trustee, in trust, of money and/or U.S. Government Obligations which
through the payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay any
installment of principal and interest in respect of the Debt Securities of such
series on the dates on which such payments are due in accordance with the terms
of the Indenture and such Debt Securities. The obligations of FelCor under the
Indenture and such Debt Securities other than with respect to such covenants
shall remain in full force and effect. Such a trust may only be established if
establishment of the trust would not cause any Debt Securities of such series
listed on any nationally recognized securities exchange to be de-listed as a
result thereof. Also, such establishment of such a trust will be conditioned on
the delivery by FelCor to the Trustee of an Opinion of Counsel (who may be
counsel to FelCor) to the effect that such a defeasance and discharge will not
be deemed, or result in, a taxable event with respect to holders of Debt
Securities of such series.
In the event FelCor exercises its option to omit compliance with certain
covenants as described in the preceding paragraph with respect to Debt
Securities of a series and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default, then the amount of money and
U.S. Government Obligations on deposit with the Trustee will be sufficient to
pay amounts due on such Debt Securities at the time of the acceleration
resulting from such Event of Default. FelCor shall in any event remain liable
for such payments as provided in such Debt Securities.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock, Preferred Stock or Debt Securities of another
series will be set forth in the applicable Prospectus Supplement relating
thereto. Such terms will include whether such Debt Securities are convertible
into shares of Common Stock, Preferred Stock or Debt Securities of another
series, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the holders
or FelCor, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such Debt
Securities and any restrictions on conversion, including restrictions directed
at maintaining FelCor's REIT status.
PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (premium, if any) and interest, if any, on any series of Debt
Securities will be payable at the corporate trust office of the Trustee, the
address of which will be stated in the applicable Prospectus Supplement;
provided that, at the option of FelCor, payments of interest may be made by
check mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States.
All moneys paid by FelCor to a paying agent or a Trustee for the payment of
the principal of or any premium or interest on any Debt Securities which remain
unclaimed at the end of two years after such principal, premium or interest has
become due and payable will be repaid to FelCor, and the holder of such Debt
Securities thereafter may look only to FelCor for the payment thereof.
GLOBAL SECURITIES
Each series of Debt Securities may be represented by one or more global
securities (collectively with respect to each series, a "Global Security")
registered in the name of The Depository Trust Company (the "Depository").
Except as set forth below, a Global Security may be transferred in whole and not
in part, only to the Depository or another nominee of the Depository or to a
successor of the Depository or its nominee.
Upon the issuance of a Global Security, the Depository will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with the Depository or its nominee
("Participants"). The
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accounts to be credited will be designated by the Underwriters, dealers or
agents. Ownership of beneficial interests in a Global Security will be limited
to Participants or persons that may hold interests through participants.
Ownership of interests in such Global Security will be shown on, and the
transfer of those ownership interests will be effected only through, records
maintained by the Depository (with respect to Participants' interests) and such
Participants (with respect to the owners of beneficial interests in such Global
Security). The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to transfer or pledge beneficial
interests in a Global Security.
So long as the Depository, or its nominee, is the registered holder and
owner of such Global Security, the Depository or such nominee, as the case may
be, will be considered the sole owner and holder of the related Debt Securities
for all purposes of such Debt Securities and for all purposes under the
Indenture. Except as set forth below, owners of beneficial interests in a Global
Security will not be entitled to have the Debt Securities represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of Debt Securities in definitive form and will not be
considered to be the owners or holders of any Debt Securities under the
Indenture or such Global Security.
Accordingly, each person owning a beneficial interest in a Global Security
must rely on the procedures of the Depository and, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest, to exercise all rights of a holder of Debt Securities of a series
under the Indenture or such Global Security. FelCor understands that under
existing industry practice, in the event FelCor requests any action of holders
of Debt Securities of a series or an owner of a beneficial interest in a Global
Security desires to take any action that the Depository, as the holder of such
Global Security, is entitled to take, the Depository would authorize the
Participants to take such action, and that the Participants would authorize
beneficial owners owning through such Participants to take such action or would
otherwise act upon the instructions of beneficial owners owning through them.
The Prospectus Supplement relating to any Global Security will disclose the
terms under which any Depository may or shall take any action permitted or
required to be taken by it as the owner and holder of record of any such Global
Security.
Payment of principal and interest on notes represented by a Global Security
will be made to the Depository or its nominee, as the case may be, as the
registered owner and holder of such Global Security.
FelCor expects that the Depository, upon receipt of any payment of
principal or interest, will immediately credit the accounts of the Participants
with such payment in amounts proportionate to their respective holdings in
principal amount of beneficial interest in the Global Security as shown in the
records of the Depository. Payments by Participants to owners of beneficial
interests in a Global Security held through such Participants will be governed
by standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in "street name", and
will be the responsibility of such Participants. FelCor and the Trustee will not
have any responsibility or liability for any aspect of the records relating to,
or payments made on account of, beneficial ownership interests in a Global
Security for any Debt Securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests or for any other
aspect of the relationship between the Depository and its Participants or the
relationship between such Participants and the owners of beneficial interests in
such Global Security owned through such Participants.
Unless and until it is exchanged in whole or in part for Debt Securities in
definitive form, a Global Security may not be transferred except as a whole by
the Depository to a nominee of such Depository, by a nominee of such Depository
to such Depository or another nominee of such Depository, or to a successor of
the Depository or its nominee.
Debt Securities represented by a Global Security will be exchangeable for
Debt Securities in definitive form of like tenor as such Global Security in
denominations of $1,000 and in any greater amount that is an integral multiple
thereof if (i) the Depository notifies FelCor that it is unwilling or unable to
continue as Depository for such Global Security or the Depository ceases to be a
clearing agency registered under the Exchange Act, (ii) FelCor executes and
delivers to the Trustee a Company Order that such Global Security shall be so
transferable, registrable and exchangeable and such transfers shall be
registrable or (iii) there shall have occurred and be continuing an Event of
Default with respect to the Debt Securities evidenced by such
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Global Security. Any Global Security that is exchangeable pursuant to the
preceding sentence is exchangeable for Debt Securities issuable in authorized
denominations and registered in such names as the Depository shall direct and an
owner of a beneficial interest in a Global Security will be entitled to physical
delivery of such Security in definitive form. Subject to the forgoing, a Global
Security is not exchangeable except for a Global Security or Global Securities
of the same aggregate denominations to be registered in the name of the
Depository or its nominee.
The Depository has advised FelCor as follows: The Depository is a
limited-purpose trust company organized under the New York Banking Law, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. The Depository was created
to hold securities of Participants and to facilitate the clearance and
settlement of securities transactions among the Participants, thereby
eliminating the need for physical delivery of securities and certificates.
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations, some of which (and/or
their representatives) own the Depository. Access to the Depository's book-entry
system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with
Participants, either directly or indirectly ("Indirect Participants"). Persons
who are not Participants may beneficially own securities held by the Depository
only through Participants or Indirect Participants. The rules applicable to the
Depository and the Participants are on file with the SEC. The Depository
currently accepts only notes denominated and payable in U.S. dollars.
DESCRIPTION OF PREFERRED STOCK
GENERAL
Under the Charter, FelCor has authority to issue up to 10,000,000 shares of
Preferred Stock, of which 6,050,000 shares designated as the Series A Preferred
Stock were outstanding as of the date of this Prospectus. Accordingly, up to
3,950,000 additional shares of Preferred Stock may be issued from time to time,
in one or more series, as authorized by the Board of Directors thereof, subject
to the rights of the holders of the outstanding Series A Preferred Stock. See
"Description of Series A Preferred Stock." Prior to the classification of
unissued shares of a series, the Board of Directors is required by the MGCL and
FelCor's Charter to file Articles Supplementary with the Maryland Department of
Assessments and Taxation which fix for each series, subject to the Ownership
Limitation Provisions (as hereinafter defined) of FelCor's Charter, the
designation, voting powers, set or change preferences, conversion or limitations
as to other rights, dividends, qualifications or the terms and conditions of
redemption, of the series, as are permitted by Maryland law (a "Articles
Supplementary"). The Preferred Stock, when issued, will be fully paid and
nonassessable and will have no preemptive rights. The Board of Directors could
authorize the issuance of shares of Preferred Stock with terms and conditions
that could have the effect of delaying or preventing a change of control or
other transaction that holders of Common Stock might believe to be in their best
interests or in which holders of some, or a majority, of the shares of Common
Stock might receive a premium for their shares over the then market price of
such shares of Common Stock.
TERMS
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. The statements below describing the Preferred Stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of FelCor's Charter (including the applicable Articles
Supplementary) and its bylaws, as amended and restated ("Bylaws"). See "Certain
Charter, Bylaw and Statutory Provisions -- Charter and Bylaw Provisions."
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Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including, without limitation:
(1) The title and stated value of such Preferred Stock;
(2) The number of shares of such Preferred Stock offered, the
liquidation preference per share and the offering price of such Preferred
Stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred Stock;
(4) The date from which dividends on such Preferred Stock shall
accumulate, if applicable;
(5) The provision for a sinking fund, if any, for such Preferred
Stock;
(6) The provisions for redemption, if applicable, of such Preferred
Stock;
(7) Any listing of such Preferred Stock on any securities exchange;
(8) The terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock, Preferred Stock of another
series or Debt Securities, including the conversion price (or manner of
calculation thereof);
(9) A discussion of certain federal income tax considerations relevant
to a holder of such Preferred Stock;
(10) The relative ranking and preferences of such Preferred Stock as
to dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of FelCor;
(11) Any limitations on issuance of any series of Preferred Stock
ranking senior to or on a parity with such series of Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of FelCor;
(12) Any limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve
the status of FelCor as a REIT; and
(13) Any other specific terms, preferences, rights, qualifications,
limitations or restrictions applicable to such Preferred Stock.
RANKING
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of FelCor, rank (i) senior to all classes or series of
Common Stock of FelCor, and to all equity securities ranking junior to such
Preferred Stock with respect to dividend rights or rights upon liquidation,
dissolution or winding up of FelCor; (ii) on a parity with all equity securities
issued by FelCor the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of FelCor; and
(iii) junior to all equity securities issued by FelCor the terms of which
specifically provide that such equity securities rank senior to the Preferred
Stock with respect to dividend rights or rights upon liquidation, dissolution or
winding up of FelCor. The term "equity securities" does not include convertible
debt securities.
DIVIDENDS
Holders of the Preferred Stock of each series will be entitled to receive,
when, as and if declared by the Board of Directors of FelCor, out of assets of
FelCor legally available for the payment thereof, cash dividends at such rates
and on such dates as will be set forth in the applicable Prospectus Supplement.
Each such dividend shall be payable to holders of record as they appear on the
stock transfer books of FelCor on such record dates as shall be fixed by the
Board of Directors of FelCor.
Dividends on any series of the Preferred Stock may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Directors of FelCor fails to
declare a dividend payable on a dividend payment date on any series of the
Preferred Stock for which dividends are
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non-cumulative, then the holders of such series of the Preferred Stock will have
no right to receive a dividend in respect of the dividend period ending on such
dividend payment date, and FelCor will have no obligation to declare or pay the
dividend accrued for such period, whether or not dividends on such series are
declared and paid on any future dividend payment date.
If Preferred Stock of any series is outstanding, no dividends will be
declared or paid or set apart for payment on any capital stock of FelCor of any
other series ranking, as to dividends, on a parity with or junior to the
Preferred Stock of such series, for any period, unless (i) if such series of
Preferred Stock has a cumulative dividend, 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 Preferred Stock of
such series for all past dividend periods and the then current dividend period
or (ii) if such series of Preferred Stock does not have a cumulative dividend,
full dividends for the then current dividend period 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 Preferred Stock of
such series.
When dividends are not paid in full (or a sum sufficient for the full
payment thereof is not so set apart) upon Preferred Stock of any series and the
shares of any other series of Preferred Stock ranking on a parity as to
dividends with the Preferred Stock of such series, all dividends declared upon
Preferred Stock of such series and any other series of Preferred Stock ranking
on a parity as to dividends with such Preferred Stock shall be declared pro rata
so that the amount of dividends declared per share of Preferred Stock of such
series and of each other series of Preferred Stock ranking on a parity as to
dividends with such Preferred Stock shall in all cases bear to each other the
same ratio that accrued dividends per share on the Preferred Stock of such
series (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Stock does not have a cumulative
dividend) and such other series of Preferred Stock bear to each other. No
interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on Preferred Stock of any series which may be
in arrears.
Unless all dividends then required to be paid on Preferred Stock of any
series shall have been or contemporaneously are so declared and paid, or
declared and a sum sufficient for the payment thereof is set apart for payment,
no dividends or other distributions (other than in shares of Common Stock or
other shares of capital stock ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation) shall be declared or paid or set
aside for payment, upon the Common Stock or any other capital stock ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation, nor shall any shares of Common Stock or any other shares of capital
stock of FelCor ranking junior to or on a parity with the Preferred Stock of
such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys to be paid to or made
available for a sinking fund for the redemption of any such stock) by FelCor
(except by conversion into or exchange for other capital stock of FelCor ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation); provided, however, that the foregoing shall not prevent FelCor
from the purchase or other acquisition of any of its capital stock for the
purpose of preserving its status as a REIT.
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Stock
will be subject to mandatory redemption or redemption at the option of FelCor
subject to the restrictions set forth in MGCL, as a whole or in part, in each
case upon the terms, at the times and at the redemption prices set forth in such
Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by FelCor in each year commencing after a
date to be specified, at a redemption price per share to be specified, together
with an amount equal to all accrued and unpaid dividends thereon (which shall
not, if such Preferred Stock does not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property,
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as specified in the applicable Prospectus Supplement. If the redemption price
for Preferred Stock of any series is payable only from the net proceeds of the
issuance of shares of capital stock of FelCor, the terms of such Preferred Stock
may provide that, if no such shares of capital stock shall have been issued or
to the extent the net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, such Preferred Stock shall
automatically and mandatorily be converted into the applicable shares of capital
stock of FelCor pursuant to conversion provisions specified in the applicable
Prospectus Supplement.
Notwithstanding the foregoing, unless all dividends then required to be
paid on Preferred Stock of any series shall have been or contemporaneously are
declared and paid, or declared and a sum sufficient for the payment thereof set
apart for payment, (i) no shares of such series of Preferred Stock shall be
redeemed unless all outstanding shares of Preferred Stock of such series are
simultaneously redeemed; and (ii) provided, however, that the foregoing shall
not prevent FelCor from the purchase or acquisition of any Preferred Stock of
such series which is made pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Preferred Stock of such
series or made for the purpose of preserving FelCor's status as a REIT. In
addition, unless (i) if such series of Preferred Stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of such series of
Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, and (ii) FelCor shall not
purchase or otherwise acquire directly or indirectly any shares of Preferred
Stock of such series (except by conversion into or exchange for capital stock of
FelCor ranking junior to the Preferred Stock of such series as to dividends and
upon liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of shares of Preferred Stock of such series to preserve
the REIT status of FelCor or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding shares of Preferred Stock of such
series.
If fewer than all of the outstanding shares of Preferred Stock of any
series are to be redeemed, the number of shares to be redeemed will be
determined by FelCor and such shares may be redeemed pro rata from the holders
of record of such shares in proportion to the number of such shares held or for
which redemption is requested by such holder (with adjustments to avoid
redemption of fractional shares) or in any other equitable manner determined by
FelCor that will not result in a violation of the Ownership Limitation
Provisions of FelCor's Charter.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Stock of
any series to be redeemed at the address shown on the stock transfer books of
FelCor. Each notice shall state: (i) the redemption date; (ii) the number of
shares and series of the Preferred Stock to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (v) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (vi) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all the shares of Preferred Stock of any series are to
be redeemed, the notice mailed to each such holder thereof shall also specify
the number of shares of Preferred Stock to be redeemed from each such holder. If
notice of redemption of any Preferred Stock has been given and if the funds
necessary for such redemption have been set aside by FelCor in trust for the
benefit of the holders of any Preferred Stock so called for redemption, then
from and after the redemption date dividends will cease to accrue on such shares
of Preferred Stock, such shares of Preferred Stock shall no longer be deemed to
be outstanding and all rights of the holders of such shares of Preferred Stock
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of FelCor, then, before any distribution or payment shall be made to
the holders of any Common Stock or any other capital stock of FelCor ranking
junior to the Preferred Stock of any series in the distribution of assets upon
any liquidation, dissolution or winding up of FelCor, the holders of each series
of Preferred Stock shall be entitled to receive, out of assets of FelCor legally
available for distribution to shareholders, liquidating distributions in the
amount of the liquidation preference per share, if any, set forth in the
applicable Prospectus Supplement, plus an amount equal to all dividends accrued
and unpaid thereon (which shall not include any accumulation in respect of
unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative
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dividend). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Stock will have no right or
claim to any of the remaining assets of FelCor. In the event that, upon any such
voluntary or involuntary liquidation, dissolution or winding up, the legally
available assets of FelCor are insufficient to pay the amount of the liquidating
distributions on all outstanding shares of Preferred Stock and the corresponding
amounts payable on all shares of other capital stock of FelCor ranking on a
parity with the Preferred Stock in the distribution of assets upon any
liquidation, dissolution or winding up of FelCor, then the holders of the
Preferred Stock and all of such other capital stock shall share ratably in any
such distribution of assets, in direct proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
Preferred Stock, the remaining assets of FelCor shall be distributed among the
holders of any other shares of capital stock ranking junior to the Preferred
Stock upon liquidation, dissolution or winding up of FelCor, according to their
respective rights and preferences and in each case according to their respective
number of shares. For such purposes, the consolidation or merger of FelCor with
or into any other corporation, trust or entity, or the sale, lease or conveyance
of all or substantially all of the property or business of FelCor, shall not be
deemed to constitute a liquidation, dissolution or winding up of FelCor.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except (i)
as set forth below, (ii) as from time to time required by law or (iii) as
expressly provided in the Articles Supplementary for any series of Preferred
Stock and described in the applicable Prospectus Supplement.
Unless otherwise expressly provided in the Articles Supplementary for any
series of Preferred Stock and described in the applicable Prospectus Supplement,
so long as any shares of Preferred Stock of a series remain outstanding, FelCor
will not, without the affirmative vote of the holders of at least two-thirds of
the shares of such series of Preferred Stock outstanding (such series voting
separately as a class), amend, alter or repeal the provisions of the Articles
Supplementary for such series of Preferred Stock, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Stock or the holders thereof; provided, however, with respect to the
occurrence of any Event set forth above, so long as the Preferred Stock remains
outstanding with the terms thereof materially unchanged (whether or not as a
consequence of such Event FelCor is the surviving entity), the occurrence of any
such Event shall not be deemed to materially and adversely affect the rights,
preferences, privileges or voting powers of such series of Preferred Stock or
the holders thereof; and provided further that (x) any increase in the amount of
the authorized Preferred Stock or the creation or issuance of any other series
of Preferred Stock, or (y) any increase in the amount of authorized shares of
such series or of any other series of Preferred Stock, in each case whether
ranking senior to, on a parity with or junior to the Preferred Stock of such
series with respect to the payment of dividends or the distribution of assets
upon the liquidation, dissolution or winding up of FelCor, shall not be deemed
to materially and adversely affect such rights, preferences, privileges or
voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the Event with respect to which such vote otherwise would be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption and sufficient funds shall have been
deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Stock
is convertible into Common Stock, Preferred Stock of another series or Debt
Securities will be set forth in the applicable Prospectus Supplement relating
thereto. Such terms will include the number of shares of Common Stock or
Preferred Stock of another series or the amount of Debt Securities into which
shares of such series of Preferred Stock are convertible, the conversion price
(or manner of calculation thereof), the conversion period, provisions as to
whether conversion will be at the option of the holders of the Preferred Stock
or FelCor, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series of
Preferred Stock.
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RESTRICTIONS ON OWNERSHIP AND TRANSFERS
The Preferred Stock, including the Series A Preferred Stock, is 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, see "Certain Charter, Bylaw and Statutory
Provisions -- Charter and Bylaw Provisions -- Restrictions on Ownership and
Transfer."
TRANSFER AGENT
The transfer agent and registrar for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF SERIES A PREFERRED STOCK
The summary of certain terms and provisions of the Series A Preferred Stock
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 Series A Preferred Stock ("Series A Amendment")), and
Bylaws.
No series of Preferred Stock (other than the Series A Preferred Stock) have
been designated or issued. The Preferred Stock may be issued from time to time
in one or more series, without shareholder approval, with such voting powers
(full or limited), designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof as shall be established by the Board of Directors. See
"Description of the Preferred Stock." Thus, without shareholder approval, FelCor
could authorize the issuance of Preferred Stock with voting, conversion and
other rights that could dilute the voting power and other rights of the holders
of Common Stock and Series A Preferred Stock.
GENERAL
In April 1996, the Board of Directors authorized FelCor to classify and
issue the Series A Preferred Stock as part of the 10,000,000 shares of FelCor's
authorized Preferred Stock.
The outstanding Series A Preferred Stock is validly issued, fully paid and
nonassessable. The holders of the Series A Preferred Stock 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 Series A Preferred Stock is not subject to any sinking fund
or other obligation of FelCor to redeem or retire the Series A Preferred Stock.
Unless converted or redeemed by FelCor into shares of Common Stock, the Series A
Preferred Stock will have a perpetual term, with no maturity.
RANKING
The Series A Preferred Stock ranks senior to the Common Stock with respect
to the payment of dividends and amounts upon liquidation, dissolution or winding
up of FelCor.
While any shares of Series A Preferred Stock are outstanding, FelCor may
not authorize, create or increase the authorized amount of any class or series
of stock that ranks senior to the Series A Preferred Stock 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 shares of
Series A Preferred Stock and all other shares of Voting Preferred Stock, voting
as a single class. However, FelCor may create additional classes of stock,
increase the authorized number of shares of Preferred Stock or issue series of
Preferred Stock ranking junior to or on a parity with the Series A Preferred
Stock 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
Series A Preferred Stock. See "-- Voting Rights" below.
DIVIDENDS
Holders of shares of Series A Preferred Stock are entitled to receive,
when, as and if declared by the Board of Directors of FelCor, 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
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respective quarterly dividend payment dates referred to below) on the number of
shares of Common Stock, or portion thereof, into which a share of Series A
Preferred Stock is then convertible. Dividends on the Series A Preferred Stock
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 Board of Directors). 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 Board of Directors of FelCor.
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 shares of Series A Preferred Stock will
not bear interest. Dividends payable on the Series A Preferred Stock for any
period greater or less 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 Series
A Preferred Stock for all prior dividend periods and the then current dividend
period. If accrued dividends on the Series A Preferred Stock and any Parity
Stock for all prior dividend periods have not been paid in full, then any
dividend declared on the Series A Preferred Stock and any Parity Stock for any
dividend period will be declared ratably in proportion to accrued and unpaid
dividends on the Series A Preferred Stock and such Parity Stock.
Unless all dividends then required to be paid on the Series A Preferred
Stock 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, 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 Common Stock, and any other class of
capital stock of FelCor now or hereafter issued and outstanding that ranks
junior to the Series A Preferred Stock 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 that ranks equally with the Series A Preferred
Stock as to the payment of dividends and amounts upon liquidation, dissolution
or winding up of FelCor.
REDEMPTION
Shares of Series A Preferred Stock are not redeemable by FelCor prior to
April 30, 2001. On and after April 30, 2001, the shares of Series A Preferred
Stock will be redeemable, in whole or in part, at the option of FelCor, for (i)
such number of shares of Common Stock as are issuable at a conversion rate of
0.7752 shares of Common Stock for each share of Series A Preferred Stock,
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 shares of Common Stock 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 Common Stock on the
New York Stock Exchange ("NYSE") equals or exceeds the Conversion Price (as
defined in the Series A Amendment) per share, subject to adjustment in certain
circumstances. In order to exercise its redemption option, FelCor must issue a
press release announcing the redemption prior to the opening of business on the
second trading day after the conditions in the preceding sentences have been
met.
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Notice of redemption will be given by mail or by publication (with
subsequent prompt notice by mail) to the holders of the Series A Preferred Stock
not more than four business days after FelCor issues the press release. The
redemption date will be a date selected by FelCor not less than 30 nor more than
60 days after the date on which FelCor issues the press release announcing its
intention to redeem the Series A Preferred Stock. If fewer than all of the
shares of Series A Preferred Stock 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 Series A Preferred
Stock 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 Series A Preferred Stock 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 shares of Series A Preferred Stock called for
redemption or on the shares of Common Stock issuable upon such redemption.
Unless all dividends then required to be paid on the Series A Preferred
Stock 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 Series A Preferred 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 Series A Preferred Stock,
otherwise than pursuant to a purchase or exchange offer made on the same terms
to all holders of shares of Series A Preferred 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.
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 shares of Common Stock and/or an amount of cash to effect the redemption,
dividends will cease to accrue on the Series A Preferred Stock 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
Series A Preferred Stock 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 shares of Series A Preferred Stock shall cease, except for the right to
receive the shares of Common Stock 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 Series A Preferred Stock (unless FelCor
defaults in the delivery of the shares of Common Stock or cash) will be, without
any further action, (i) deemed a holder of the number of shares of Common Stock
for which such Series A Preferred Stock is redeemable or (ii) be entitled to
receive the cash amount applicable to such shares.
Fractional shares of Common Stock are not to be issued upon redemption of
the Series A Preferred Stock, but, in lieu thereof, FelCor will pay a cash
adjustment based on the current market price of the Common Stock on the day
prior to the redemption date.
LIQUIDATION PREFERENCE
The holders of shares of Series A Preferred Stock are entitled to receive
in the event of any liquidation, dissolution or winding up of FelCor, whether
voluntary or involuntary, $25.00 per share of Series A Preferred Stock plus an
amount per share of Series A Preferred Stock equal to all dividends (whether or
not earned or declared) accrued and unpaid thereon to the date of final
distribution to such holders ("Liquidation Preference"), and no more.
Until the holders of the Series A Preferred Stock have been paid the
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 shares of Series A
Preferred Stock and any Parity Stock are insufficient to pay in full the
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 shares of
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Series A Preferred Stock and any such Parity Stock, ratably, in accordance with
the respective amounts which would be payable on such shares of Series A
Preferred Stock 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 shares of Series A Preferred
Stock have no voting rights.
If six quarterly dividends (whether or not consecutive) payable on the
Series A Preferred Stock, or any Parity Stock, are in arrears, whether or not
earned or declared, the number of directors then constituting the Board of
Directors of FelCor will be increased by two and the holders of shares of Series
A Preferred Stock 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 FelCor's Board of Directors at an annual meeting of
shareholders or a properly called special meeting of the holders of the Voting
Preferred Shares and at each subsequent annual meeting of shareholders 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 shares of Series A Preferred
Stock and any Parity Stock similarly affected, voting together as a single
class, is required in order to amend the Series A Amendment to affect materially
and adversely the rights, preferences or voting power of the holders of the
Series A Preferred Stock and such Parity Stock, or to amend the Charter to
authorize, create or increase the authorized amount of any class of stock having
rights senior to the Series A Preferred Stock 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 Series A Preferred Stock.
Except as required by law, the holders of Series A Preferred Stock 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
Shares of Series A Preferred Stock are convertible, in whole or in part, at
any time, at the option of the holders thereof, into shares of Common Stock at a
conversion price of $32.25 per share of Common Stock (equivalent to a conversion
rate of 0.7752 shares of Common Stock for each share of Series A Preferred
Stock), subject to adjustment as described below ("-- Conversion Price
Adjustments"). The right to convert shares of Series A Preferred Stock called
for redemption will terminate at the close of business on such redemption date.
For information as to notices of redemption, see "-- Redemption" above.
Conversion of shares of Series A Preferred Stock, or a specified portion
thereof, may be effected by delivering a certificate or certificates evidencing
such shares, together with written notice of conversion and a proper assignment
of such certificate or certificates to FelCor or in blank, to the office or
agency to be maintained by FelCor for that purpose. Initially such office will
be the principal corporate trust office of SunTrust Bank, Atlanta located in
Atlanta, Georgia.
Each conversion will be deemed to have been effected immediately prior to
the close of business on the date on which the certificates for shares of Series
A Preferred Stock shall have been surrendered and notice shall have been
received by FelCor as aforesaid (and if applicable, payment of an amount equal
to the dividend payable on such shares shall have been received by FelCor as
described below) and the conversion shall be at the Conversion Price in effect
at such time and on such date.
Holders of shares of Series A Preferred Stock 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, shares of Series A Preferred Stock
surrendered for conversion during the
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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 shares of
Series A Preferred Stock on a dividend payment record date who (or whose
transferee) tenders any such shares for conversion into shares of Common Stock
on such dividend payment date will receive the dividend payable by FelCor on
such shares of Series A Preferred Stock on such date, and the converting holder
need not include payment of the amount of such dividend upon surrender of shares
of Series A Preferred Stock 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 shares of Common Stock
issued upon such conversion.
Fractional shares of Common Stock 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 Common Stock 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 Common Stock of
FelCor, (ii) the issuance to all holders of Common Stock of certain rights or
warrants entitling them to subscribe for or purchase Common Stock at a price per
share less than the fair market value per share of Common Stock, (iii)
subdivisions, combinations and reclassifications of Common Stock and (iv)
distributions to all holders of Common Stock of 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 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 Series A Preferred Stock). "Permitted Common Stock Cash
Distributions" means cash dividends and distributions paid with respect to the
Common Stock 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 Board of Directors 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 Series A Preferred Stock or any other class of Preferred Stock 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 Common Stock,
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 shares of Common Stock or sale of all or
substantially all of FelCor's assets), in each case as a result of which shares
of Common Stock will be converted into the right to receive stock, securities or
other property (including cash or any combination thereof), each share of Series
A Preferred Stock, 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 Common Stock into which one share of Series A
Preferred Stock was convertible immediately prior to such transaction (assuming
such holder of Common Stock 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 Series A Preferred Stock is listed on the NYSE under the symbol
"FCHpA".
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TRANSFER AGENT
The transfer agent and registrar for the Series A Preferred Stock is
SunTrust Bank, Atlanta, Georgia.
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
FelCor may issue receipts ("Depositary Receipts") to evidence Depositary
Shares, each of which Depositary Shares will represent a fractional interest of
a share of a particular series of Preferred Stock, as specified in the
applicable Prospectus Supplement. Shares of Preferred Stock of each series
represented by Depositary Shares will be deposited under a separate deposit
agreement (each, a "Deposit Agreement") among FelCor, the depositary named
therein (a "Preferred Stock Depositary") and the holders from time to time of
the Depositary Receipts. Subject to the terms of the applicable Deposit
Agreement, each holder of a Depositary Receipt will be entitled, in proportion
to the fractional interest of a share of a particular series of Preferred Stock
represented by the Depositary Shares evidenced by such Depositary Receipt, to
all the rights and preferences of the Preferred Stock represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Stock by FelCor to a Preferred Stock Depositary,
FelCor will cause such Preferred Stock Depositary to issue, on behalf of FelCor,
the Depositary Receipts. Copies of the applicable form of Deposit Agreement and
Depositary Receipt will be incorporated by reference in the Registration
Statement of which this Prospectus is a part, and the statements made hereunder
relating to the Deposit Agreement and the Depositary Receipts to be issued
thereunder are summaries, do not purport to be complete and are subject to, and
qualified in their entirety by reference to such documents. Copies of the
applicable Deposit Agreement and Depositary Receipt may be obtained from FelCor
upon request.
DIVIDENDS AND OTHER DISTRIBUTIONS
A Preferred Stock Depositary will be required to distribute all cash
dividends or other cash distributions received by it in respect of the
applicable Preferred Stock to the record holders of Depositary Receipts
evidencing the related Depositary Shares in proportion to the number of such
Depositary Receipts held by such holders, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary.
In the event of a distribution other than in cash, a Preferred Stock
Depositary will be required to distribute property received by it to the record
holders of Depositary Receipts entitled thereto, subject to certain obligations
of holders to file proofs, certificates and other information and to pay certain
charges and expenses to such Preferred Stock Depositary, unless such Preferred
Stock Depositary determines that it is not feasible to make such distribution,
in which case such Preferred Stock Depositary may, with the approval of FelCor,
sell such property and distribute the net proceeds from such sale to such
holders.
No distribution will be made in respect of any Depositary Share to the
extent that it represents any Preferred Stock which has been converted or
exchanged.
WITHDRAWAL OF STOCK
Upon surrender of the Depositary Receipts at the corporate trust office of
the applicable Preferred Stock Depositary (unless the related Depositary Shares
have previously been called for redemption or converted), subject to the terms
of the Deposit Agreement, the holders thereof will be entitled to delivery at
such office, to or upon each such holder's order, of the number of whole or
fractional shares of the applicable Preferred Stock and any money or other
property represented by the Depositary Shares evidenced by such Depositary
Receipts. Holders of Depositary Receipts will be entitled to receive whole or
fractional shares of the related Preferred Stock on the basis of the proportion
of Preferred Stock represented by each Depositary Share as specified in the
applicable Prospectus Supplement, but holders of such shares of Preferred Stock
will not thereafter be entitled to receive Depositary Shares therefor. If the
Depositary Receipts delivered by the holder
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evidence a number of Depositary Shares in excess of the number of Depositary
Shares representing the number of shares of Preferred Stock to be withdrawn, the
applicable Preferred Stock Depositary will be required to deliver to such holder
at the same time a new Depositary Receipt evidencing such excess number of
Depositary Shares. FelCor does not presently expect that there will be any
public trading market for Preferred Stock (other than the Series A Preferred
Stock) withdrawn from such Preferred Stock Depository.
REDEMPTION OF DEPOSITARY SHARES
Whenever FelCor redeems shares of Preferred Stock held by a Preferred Stock
Depositary, such Preferred Stock Depositary will be required to redeem as of the
same redemption date the number of Depositary Shares representing shares of the
Preferred Stock so redeemed, provided FelCor shall have paid in full to such
Preferred Stock Depositary the redemption price of the Preferred Stock to be
redeemed plus an amount equal to any accrued and unpaid dividends thereon to the
date fixed for redemption. The redemption price per Depositary Share will be
equal to the redemption price and any other amounts per share payable with
respect to the Preferred Stock. If fewer than all the Depositary Shares are to
be redeemed, the Depositary Shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional Depositary Shares) or
by any other equitable method determined by FelCor that preserves the REIT
status of FelCor.
From and after the date fixed for redemption, all dividends in respect of
the shares of Preferred Stock so called for redemption will cease to accrue, the
Depositary Shares so called for redemption will no longer be deemed to be
outstanding and all rights of the holders of the Depositary Receipts evidencing
the Depositary Shares so called for redemption will cease, except the right to
receive any moneys payable upon such redemption and any money or other property
to which the holders of such Depositary Receipts were entitled upon such
redemption upon surrender thereof to the applicable Preferred Stock Depositary.
VOTING OF THE PREFERRED STOCK
Upon receipt of notice of any meeting at which the holders of the
applicable Preferred Stock are entitled to vote, a Preferred Stock Depositary
will be required to mail the information contained in such notice of meeting to
the record holders of the Depositary Receipts evidencing the Depositary Shares
which represent such Preferred Stock. Each record holder of Depositary Receipts
evidencing Depositary Shares on the record date (which will be the same date as
the record date for the Preferred Stock) will be entitled to instruct such
Preferred Stock Depositary as to the exercise of the voting rights pertaining to
the amount of Preferred Stock represented by such holder's Depositary Shares.
Such Preferred Stock Depositary will be required to vote the amount of Preferred
Stock represented by such Depositary Shares in accordance with such
instructions, and FelCor will agree to take all reasonable action which may be
deemed necessary by such Preferred Stock Depositary in order to enable such
Preferred Stock Depositary to do so. Such Preferred Stock Depositary will be
required to abstain from voting the amount of Preferred Stock represented by
such Depositary Shares to the extent it does not receive specific instructions
from the holders of Depositary Receipts evidencing such Depositary Shares. A
Preferred Stock Depositary will not be responsible for any failure to carry out
any instruction to vote, or for the manner or effect of any such vote made, as
long as any such action or non-action is in good faith and does not result from
negligence or willful misconduct of such Preferred Stock Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of FelCor,
whether voluntary or involuntary, the holders of each Depositary Receipt will be
entitled to the fraction of the liquidation preference accorded each share of
Preferred Stock represented by the Depositary Share evidenced by such Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION OF PREFERRED STOCK
The Depositary Shares, as such, will not be convertible into Common Stock
or any other securities or property of FelCor. Nevertheless, if so specified in
the applicable Prospectus Supplement relating to an offering of Depositary
Shares, the Depositary Receipts may be surrendered by holders thereof to the
applicable Preferred Stock Depositary with written instructions to such
Preferred Stock Depositary to instruct
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FelCor to cause conversion of the Preferred Stock represented by the Depositary
Shares evidenced by such Depositary Receipts into whole shares of Common Stock,
other shares of Preferred Stock of FelCor or other shares of stock, and FelCor
will agree that upon receipt of such instructions and any amounts payable in
respect thereof, it will cause the conversion thereof utilizing the same
procedures as those provided for delivery of Preferred Stock to effect such
conversion. If the Depositary Shares evidenced by a Depositary Receipt are to be
converted in part only, a new Depositary Receipt or Receipts will be issued for
any Depositary Shares not to be converted. No fractional shares of Common Stock
will be issued upon conversion, and if such conversion will result in a
fractional share being issued, an amount will be paid in cash by FelCor equal to
the value of the fractional interest based upon the closing price of the Common
Stock on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF A DEPOSIT AGREEMENT
Any form of Depositary Receipt evidencing Depositary Shares which will
represent Preferred Stock and any provision of a Deposit Agreement will be
permitted at any time to be amended by agreement between FelCor and the
applicable Preferred Stock Depositary. However, any amendment that materially
and adversely alters the rights of the holders of Depositary Receipts or that
would be materially and adversely inconsistent with the rights granted to the
holders of the related Preferred Stock will not be effective unless such
amendment has been approved by the existing holders of at least two-thirds of
the applicable Depositary Shares evidenced by the applicable Depositary Receipts
then outstanding. No amendment shall impair the right, subject to certain
anticipated exceptions in the Deposit Agreements, of any holders of Depositary
Receipts to surrender any Depositary Receipt with instructions to deliver to the
holder the related Preferred Stock and all money and other property, if any,
represented thereby, except in order to comply with law. Every holder of an
outstanding Depositary Receipt at the time any such amendment becomes effective
shall be deemed, by continuing to hold such Depositary Receipt, to consent and
agree to such amendment and to be bound by the applicable Deposit Agreement as
amended thereby.
A Deposit Agreement will be permitted to be terminated by FelCor upon not
less than 30 days' prior written notice to the applicable Preferred Stock
Depositary if (i) such termination is necessary to preserve FelCor's status as a
REIT or (ii) a majority of each series of Preferred Stock affected by such
termination consents to such termination, whereupon such Preferred Stock
Depositary will be required to deliver or make available to each holder of
Depositary Receipts, upon surrender of the Depositary Receipts held by such
holder, such number of whole or fractional shares of Preferred Stock as are
represented by the Depositary Shares evidenced by such Depositary Receipts
together with any other property held by such Preferred Stock Depositary with
respect to such Depositary Receipts. FelCor will agree that if a Deposit
Agreement is terminated to preserve FelCor's status as a REIT, then FelCor will
use its best efforts to list the Preferred Stock issued upon surrender of the
related Depositary Shares on a national securities exchange. In addition, a
Deposit Agreement will automatically terminate if (i) all outstanding Depositary
Shares thereunder shall have been redeemed, (ii) there shall have been a final
distribution in respect of the related Preferred Stock in connection with any
liquidation, dissolution or winding up of and such distribution shall have been
distributed to the holders of Depositary Receipts evidencing the Depositary
Shares representing such Preferred Stock or (iii) each share of the related
Preferred Stock shall have been converted into stock of FelCor not so
represented by Depositary Shares.
CHARGES OF A PREFERRED STOCK DEPOSITARY
FelCor will pay all transfer and other taxes and governmental charges
arising solely from the existence of a Deposit Agreement. In addition, FelCor
will pay the fees and expenses of a Preferred Stock Depositary in connection
with the performance of its duties under a Deposit Agreement. However, holders
of Depositary Receipts will pay the fees and expenses of a Preferred Stock
Depositary for any duties requested by such holders to be performed which are
outside of those expressly provided for in the applicable Deposit Agreement.
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RESIGNATION AND REMOVAL OF DEPOSITARY
A Preferred Stock Depositary will be permitted to resign at any time by
delivering to FelCor notice of its election to do so, and FelCor will be
permitted at any time to remove a Preferred Stock Depositary, any such
resignation or removal to take effect upon the appointment of a successor
Preferred Stock Depositary. A successor Preferred Stock Depositary will be
required to be appointed within 60 days after delivery of the notice of
resignation or removal and will be required to be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
A Preferred Stock Depositary will be required to forward to holders of
Depositary Receipts any reports and communications from FelCor which are
received by such Preferred Stock Depositary with respect to the related
Preferred Stock.
Neither a Preferred Stock Depositary nor FelCor will be liable if it is
prevented from or delayed in, by law or any circumstances beyond its
control,performing its obligations under a Deposit Agreement. The obligations of
FelCor and a Preferred Stock Depositary under a Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Stock represented by the applicable Depositary Shares), gross negligence or
willful misconduct, and neither FelCor nor any applicable Preferred Stock
Depositary will be obligated to prosecute or defend any legal proceeding in
respect of any Depositary Receipts, Depositary Shares or shares of Preferred
Stock represented thereby unless satisfactory indemnity is furnished. FelCor and
any Preferred Stock Depositary will be permitted to rely on written advice of
counsel or accountants, or information provided by persons presenting shares of
Preferred Stock represented thereby for deposit, holders of Depositary Receipts
or other persons believed in good faith to be competent to give such
information, and on documents believed in good faith to be genuine and signed by
a proper party.
In the event a Preferred Stock Depositary shall receive conflicting
claims,requests or instructions from any holders of Depositary Receipts, on the
one hand, and FelCor on the other hand, such Preferred Stock Depositary shall be
entitled to act on such claims, requests or instructions received from FelCor.
DESCRIPTION OF COMMON STOCK
The description of FelCor's Common Stock set forth below describes certain
general terms and provisions of the Common Stock to which any Prospectus
Supplement may relate, including a Prospectus Supplement providing that Common
Stock will be issuable upon conversion of Debt Securities or Preferred Stock of
FelCor or upon the exercise of Common Stock Warrants issued by FelCor. The
following description does not purport to be complete and is qualified in its
entirety by reference to FelCor's Charter and Bylaws. See "Certain Charter,
Bylaw and Statutory Provisions -- Charter and Bylaw Provisions."
GENERAL
Under the Charter, FelCor has authority to issue up to 100,000,000 shares
of Common Stock. Under Maryland law, stockholders generally are not responsible
for the corporation's debts or obligations. At December 31, 1997, FelCor had
outstanding 36,596,214 shares of Common Stock.
TERMS
Subject to the preferential rights of any series of Preferred Stock
outstanding, the holders of Common Stock 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 a Articles
Supplementary relating to Preferred Stock of any series, the holders of Common
Stock exclusively possess all voting power. See "Certain Charter, Bylaw and
Statutory Provisions -- Charter and Bylaw Provisions."
Subject to any preferential rights of any series of Preferred Stock
outstanding, the holders of Common Stock are entitled to such dividends, if any,
as may be declared from time to time by the Board of Directors from funds
legally available therefor and, upon liquidation, are entitled to receive, pro
rata, all assets of FelCor
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available for distribution to such holders. All shares of Common Stock will,
when issued, be fully paid and nonassessable and will have no preemptive rights.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
The Common Stock is 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, Bylaw and Statutory
Provisions -- Charter and Bylaw Provisions -- Restrictions on Ownership and
Transfer" and "-- Maryland Anti-Takeover Statutes."
EXCHANGE LISTING
FelCor Common Stock is listed on the NYSE under the symbol "FCH".
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is SunTrust Bank,
Atlanta, Georgia.
DESCRIPTION OF COMMON STOCK WARRANTS
The following description of Common Stock Warrants does not purport to be
complete and is qualified in its entirety by reference to the description of a
particular series of Common Stock Warrants contained in an applicable Prospectus
Supplement. For information relating to the Common Stock which may be purchased
pursuant to Common Stock Warrants, see "Description of Common Stock."
FelCor may issue one or more series of Common Stock Warrants for the
purchase of Common Stock. Common Stock Warrants of any series may be issued
independently of, or together with, any Securities offered pursuant to any
Prospectus Supplement. If offered together with other Securities, Common Stock
Warrants may be attached to, or separate from, such Securities. Each series of
Common Stock Warrants will be issued under a separate warrant agreement (each a
"Warrant Agreement") to be entered into between FelCor and the holder of such
Common Stock Warrants or, if the holders are expected to be numerous, a warrant
agent identified in the applicable Prospectus Supplement ("Warrant Agent"). Any
Warrant Agent, if engaged, will act solely as an agent of FelCor in connection
with the Common Stock Warrants of the series specified in the Warrant Agreement
relating thereto and such Warrant Agent will not assume any relationship or
obligation of agency or trust for or with any holders or beneficial owners of
Common Stock Warrants. Further terms of the Common Stock Warrants and the
related Warrant Agreements will be set forth in the applicable Prospectus
Supplement.
The Common Stock Warrants will be subject to certain restrictions upon the
exercise, 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,
Bylaw and Statutory Provisions -- Charter and Bylaw Provisions -- Restrictions
on Ownership and Transfer" and "-- Maryland Anti-Takeover Statutes.
CERTAIN CHARTER, BYLAW AND STATUTORY PROVISIONS
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, 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 "Federal Income Tax
Considerations -- Requirements for Qualification." For the purpose of preserving
FelCor's REIT qualification, FelCor's Charter contains the
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Ownership Limitation Provisions, which restrict the ownership and transfer of
FelCor's capital stock under certain circumstances.
The "Ownership Limitation Provisions" provide that, subject to certain
exceptions specified in the 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 Board of Directors 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 Board of Directors
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 Ownership Limitation Provisions will not apply if the Board of
Directors 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 holding record title to any such shares
in excess of the Ownership Limit ("Prohibited Owner") 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 shareholders), 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 own, or be
deemed to own by virtue of the applicable attribution provisions of the Code,
10% or more of the ownership interests in the Lessee 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.
Any such excess shares described above 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 excess 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 Charter no later than January 30 of each year. In addition,
each
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shareholder 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 shareholder'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 Board of Directors.
Staggered Board of Directors
The Charter provides that the Board of Directors will be divided into three
classes of directors, each class constituting approximately one-third of the
total number of directors and with the classes serving staggered three-year
terms. The classification of directors will have the effect of making it more
difficult for shareholders to change the composition of the Board of Directors.
FelCor believes, however, that the longer time required to elect a majority of
the Board of Directors 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 shareholders. Accordingly, shareholders could be deprived of
certain opportunities to sell their shares of Common Stock at a higher price
than might otherwise be the case.
Number of Directors; Removal; Filling Vacancies
The Charter and Bylaws provide that, subject to any rights of holders of
Preferred Stock to elect additional directors under specified circumstances, the
number of directors will consist of not less than three nor more than nine
persons, subject to increase or decrease by the affirmative vote of 80% of the
members of the entire Board of Directors, provided, however, that in no event
shall the number of directors be less than the minimum required by the MGCL. At
all times a majority of the directors shall be Independent Directors, as defined
by FelCor's 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 are Independent
Directors. The holders of Common Stock shall be entitled to vote on the election
or removal of directors, with each share entitled to one vote. The Charter
provides that, subject to any rights of holders of Preferred Stock, and unless
the Board of Directors otherwise determines, any vacancies will be filled by the
affirmative vote of a majority of the remaining directors, though 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 Board of Directors could
temporarily prevent any holder of Common Stock from enlarging the Board of
Directors and filling the new directorships with such shareholder's own
nominees. Any director so elected shall serve for the unexpired term of the
class to which he is elected.
A director may be removed with cause by the vote of the holders of a
majority of the outstanding shares of Common Stock at a special meeting of the
shareholders called for the purpose of removing him. Additionally, the Charter
and the MGCL provide that if shareholders 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.
Limitation of Liability
The Charter provides that to the maximum extent that Maryland law in effect
from time to time permits limitation of liability of directors and officers, no
director or officer of FelCor shall be liable to FelCor or its shareholders for
money damages.
Indemnification of Directors and Officers
The Charter and Bylaws require FelCor to indemnify its directors, officers,
employees and agents to the fullest extent permitted from time to time by
Maryland law. Maryland law permits a corporation to indemnify its directors,
officers, employees and agents against judgments, penalties, fines, settlements
and reasonable expenses (including attorneys fees) actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service to or at the request of the corporation, unless it is
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established that (i) the act or omission of the indemnified party was material
to the matter giving rise to the proceeding and the act or omission 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. 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.
Amendment
Subject to the rights of any Preferred Stock outstanding from time to time
(including the rights of the Series A Preferred Stock), the Charter may be
amended by the affirmative vote of the holders of a majority of the outstanding
shares of the Common Stock entitled to vote on the matter after the directors
have adopted a resolution proposing the amendment and submitted the resolution
to the shareholders at either an annual or special meeting, with the
shareholders voting as a class with one vote per share; provided, that the
Charter provision providing for the classification of FelCor's Board of
Directors into three classes may not be amended, altered, changed or repealed
without the affirmative vote of at least 80% of the members of the Board of
Directors 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 provisions relating to restrictions on transfer, designation of
shares-in-trust, shares-in- trust and ownership of the Lessee may not be
amended, altered, changed or repealed without the affirmative vote of a majority
of the members of the Board of Directors 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.
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.
MARYLAND ANTI-TAKEOVER STATUTES
Under the MGCL, 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 Shareholder"), or (iii) an
affiliate thereof are prohibited for five years after the most recent date on
which the Interested Shareholder became an Interested Shareholder. 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 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 Shareholder with whom the business combination is to be effected,
unless, among other conditions, the corporation's shareholders receive a minimum
price (as defined under Maryland law) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its shares. These provisions of Maryland law do not apply,
however, to business combinations that are (i) with respect to specifically
identified or unidentified existing or future Interested Shareholders, approved
or exempted by the board of directors of the corporation prior to the time that
the Interested Shareholder becomes an Interested Shareholder, 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 MGCL or the
shareholders 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
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group, and two-thirds of the votes entitled to be cast by persons (if any) who
are not Interested Shareholders. The 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 MGCL (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 shareholder 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 shareholders or
their affiliates, has been approved by 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 to call a special meeting of shareholders 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 shareholders' 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 shareholders at which the voting rights of such
shares are considered and not approved. If voting rights for control shares are
approved at a shareholders meeting and the acquiring person becomes entitled to
vote a majority of the shares entitled to vote, all other shareholders 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 Charter and Bylaws contain a provision exempting any and all
acquisitions of FelCor's shares of capital stock from the control shares
provision of Maryland law. 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.
PARTNERSHIP AGREEMENT
The following summary of the Partnership Agreement of FelCor LP
("Partnership Agreement"), and the descriptions of certain provisions thereof
set forth herein, are qualified in their entirety by reference to the
Partnership Agreement, which is an exhibit to the Registration Statement of
which this Prospectus is a part.
MANAGEMENT
FelCor LP is a Delaware limited partnership and was formed pursuant to the
terms of the Partnership Agreement. Pursuant to the Partnership Agreement,
FelCor, as the sole general partner of FelCor LP ("General Partner"), has full,
exclusive and complete responsibility and discretion in the management and
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control of FelCor LP, and the limited partners of FelCor LP ("Limited Partners")
have no authority to transact business for, or participate in the management
activities or decisions of, FelCor LP. However, any amendment to the Partnership
Agreement that would (i) affect the Redemption Rights described under
"-- Redemption Rights" below, (ii) adversely affect the Limited Partners' rights
to receive cash distributions, (iii) alter FelCor LP's allocations of income, or
(iv) impose on the Limited Partners any obligations to make additional
contributions to the capital of FelCor LP, requires the consent of Limited
Partners holding at least a majority of the Units.
TRANSFERABILITY OF INTERESTS
FelCor may not voluntarily withdraw from FelCor LP or transfer or assign
its interest in FelCor LP unless the transaction in which such withdrawal or
transfer occurs results in the Limited Partners receiving property in an amount
equal to the amount they would have received had they exercised their Redemption
Rights immediately prior to such transaction, or unless the successor to FelCor
contributes substantially all of its assets to FelCor LP in return for an
interest in FelCor LP. The Limited Partners may not transfer their interests in
FelCor LP without the consent of FelCor, which FelCor may withhold in its sole
discretion. FelCor may not consent to any transfer that would cause FelCor LP to
be treated as a separate corporation for federal income tax purposes.
CAPITAL CONTRIBUTIONS
FelCor and the original Limited Partners contributed cash and certain
interests in FelCor's six initial hotels to FelCor LP in connection with
FelCor's initial public offering of Common Stock in 1994 ("IPO"). Subsequently,
FelCor LP issued additional Units in exchange for cash contributions from Promus
and for interests in additional hotels. FelCor will contribute all of the net
proceeds from the sale of capital stock to FelCor LP in exchange for additional
Units having distribution, liquidation and conversion provisions substantially
identical to the capital stock so offered by FelCor. As required by the
Partnership Agreement, immediately prior to a capital contribution by FelCor,
the Partners' capital accounts and the Carrying Value (as that term is defined
in FelCor LP Agreement) of FelCor LP property shall be adjusted to reflect the
unrealized gain or unrealized loss attributable to FelCor LP property as if such
items had actually been recognized immediately prior to such issuance and had
been allocated to the Partners at such time.
The Partnership Agreement provides that if FelCor LP requires additional
funds at any time or from time to time in excess of funds available to FelCor LP
from borrowing or capital contributions, FelCor may borrow such funds from a
financial institution or other lender and lend such funds to FelCor LP on the
same terms and conditions as are applicable to FelCor's borrowing of such funds.
As an alternative to borrowing funds required by FelCor LP, FelCor may
contribute the amount of such required funds as an additional capital
contribution to FelCor LP. If FelCor so contributes additional capital to FelCor
LP, FelCor will receive additional Units.
REDEMPTION RIGHTS
Pursuant to the Partnership Agreement, the Limited Partners are entitled to
certain rights of redemption ("Redemption Rights"), which enable them to cause
FelCor to redeem their interests in FelCor LP (subject to certain restrictions)
in exchange for shares of Common Stock, cash or a combination thereof, at the
election of FelCor. The Redemption Rights may not be exercised if the issuance
of shares of Common Stock by FelCor, as General Partner, for any part of the
interest in FelCor LP sought to be redeemed would (i) result in any person
violating the Ownership Limit contained in FelCor's Charter, (ii) cause FelCor
to be "closely held" within the meaning of the Code, (iii) cause FelCor to be
treated as owning 10% or more of the Lessee or any sublessee within the meaning
of the Code, or (iv) otherwise cause FelCor to fail to qualify as a REIT. In any
case, FelCor LP or FelCor (as the case may be) may elect, in its sole and
absolute discretion, to pay the Redemption Amount in cash. The Redemption Rights
may be exercised by the Limited Partners, in whole or in part (in either case,
subject to the above restrictions), at any time or from time to time, following
the satisfaction of any applicable holding period requirements. At December 31,
1997, the aggregate number of shares of Common Stock issuable upon exercise of
the Redemption Rights by the Limited Partners was 2,899,510. The number of
shares issuable upon the exercise of the Redemption Rights will be adjusted upon
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the occurrence of stock splits, mergers, consolidations or similar pro rata
share transactions, which otherwise would have the effect of diluting the
ownership interests of the Limited Partners or the shareholders of FelCor.
REGISTRATION RIGHTS
The Limited Partners have, or will have, certain rights to the registration
for resale of any shares of Common Stock held by them or received by them upon
redemption of their Units. Such rights include piggyback rights and the right to
include such shares in a registration statement. In connection therewith, FelCor
has filed and caused to become effective a registration statement relating to
the resale of shares issued upon redemption of certain outstanding Units. FelCor
is required to bear the costs of such registration statements, exclusive of
underwriting discounts, commissions and certain other costs attributable to, and
to be borne by, the selling stockholders.
TAX MATTERS
Pursuant to the Partnership Agreement, FelCor is the tax matters partner of
FelCor LP and, as such, has authority to make tax elections under the Code on
behalf of FelCor LP.
Profit and loss of FelCor LP generally are allocated among the partners in
accordance with their respective interests in FelCor LP based on the number of
Units held by the partners.
OPERATIONS
The Partnership Agreement requires that FelCor LP be operated in a manner
that enables FelCor to satisfy the requirements for being classified as a REIT
and to avoid any federal income tax liability.
DISTRIBUTIONS
The Partnership Agreement provides that FelCor LP will distribute cash from
operations (including net sale or refinancing proceeds, but excluding net
proceeds from the sale of FelCor LP's property in connection with the
liquidation of FelCor LP) quarterly, in amounts determined by FelCor in its sole
discretion, to the partners in accordance with their respective percentage
interests in FelCor LP. Upon liquidation of FelCor LP, after payment of, or
adequate provision for, debts and obligations of FelCor LP, including any
partner loans, any remaining assets of FelCor LP will be distributed to all
partners with positive capital accounts in accordance with their respective
positive capital account balances. If any partner, including FelCor, has a
negative balance in its capital account following a liquidation of FelCor LP, it
will be obligated to contribute cash to FelCor LP equal to the negative balance
in its capital account.
TERM
FelCor LP will continue until December 31, 2044, or until sooner dissolved
upon (i) the bankruptcy, dissolution or withdrawal of FelCor as General Partner
(unless the Limited Partners elect to continue FelCor LP), (ii) the sale or
other disposition of all or substantially all the assets of FelCor LP, (iii) the
redemption of all limited partnership interests in FelCor LP (other than those
held by FelCor, if any), or (iv) the election by the General Partner.
FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal tax income tax
considerations relevant to a prospective holder of Securities. The discussion
does not purport to deal with all aspects of taxation that may be relevant to a
holder of Securities in light of its personal investment or tax circumstances,
or to certain types of shareholders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations,
and persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax laws.
EACH PROSPECTIVE PURCHASER SHOULD CONSULT HIS OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP, AND SALE OF THE SECURITIES
AND OF FELCOR'S ELECTION TO BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE,
AND ELECTION, AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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TAXATION OF THE COMPANY
FelCor has made an election to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its initial taxable year ended December
31, 1994. FelCor currently is qualified as a REIT and intends to continue to
operate in such manner, but no assurance can be given that FelCor will operate
in a manner so as to remain qualified 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 shareholders. The discussion is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder ("Treasury Regulations"), and administrative and judicial
interpretations thereof, all of which are subject to change prospectively or
retrospectively.
FelCor believes that it qualified to be taxed as a REIT for its taxable
years ended December 31, 1994 through December 31, 1997, and that its
organization and current and proposed method of operation will enable it to
continue to qualify as a REIT for its taxable year ended December 31, 1998 and
in the future. Prior to issuing Securities, FelCor expects to obtain an opinion
of Hunton & Williams, special tax counsel to FelCor, as to its REIT
qualification. Continued qualification and taxation as a REIT depends upon
FelCor's ability to meet on a continuing basis, through actual annual operating
results, distribution levels, and stock ownership, the various qualification
tests imposed under the Code discussed below. 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."
If FelCor continues to qualify for taxation as a REIT, it generally will
not be subject to federal corporate income taxes on its net income that is
distributed currently to the shareholders. That treatment substantially
eliminates the "double taxation" (i.e., taxation at both the corporate and
shareholder 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
the net long-term capital gain it receives in a taxable year, such retained
amounts will be treated as having been distributed for purposes of the 4% excise
tax. Seventh, if FelCor acquires any asset from a C corporation (i.e., a
corporation generally 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"
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assume that FelCor would make an election pursuant to IRS Notice 88-19 if it
were to make any such acquisition. 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 trustees or directors; (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 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 ("5/50 Rule"); (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 and will issue sufficient stock in
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 outstanding 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 stock ownership under the 5/50 Rule, a (i)
supplement 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, and (ii) stock held by a trust
that is a qualified trust under Code section 401(a) is treated as held by the
trust's beneficiaries 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 will be deemed to own its proportionate share
of the assets of the partnership and will be 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 will 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 FelCor LP
(and any lower tier partnership) will be treated as assets and gross income of
FelCor for purposes of applying the requirements described herein.
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.
Rents 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 of 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
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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" 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, the Company may furnish or render a de minimis amount of
"noncustomary services" to the tenants of a hotel other than through an
independent contracter as long as the amount that the Company 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 the Company's noncustomary
services will be at least equal to 150% of the Company's cost of providing the
services.
Pursuant to the Percentage Leases, the Lessee leases from FelCor LP and the
Subsidiary Partnerships (as defined below) the land, buildings, improvements,
furnishings, and equipment comprising the Current Hotels, generally for a
10-year period. The Percentage Leases provide that the Lessee is obligated to
pay to FelCor LP or the Subsidiary Partnership (i) the greater of a fixed rent
("Base Rent") or a percentage rent ("Percentage Rent") (collectively, "Rents")
and (ii) certain other amounts, including interest accrued on any late payments
or charges ("Additional Charges"). The Percentage Rent is calculated by
multiplying fixed percentages by the gross suite revenues and food and beverage
revenues or food and beverage rent revenues for each of the Hotels in excess of
certain levels. The Base Rent accrues and is required to be paid monthly.
Although Percentage Rent is due quarterly, the Lessee will not be in default for
non-payment of Percentage Rent due in any calendar year if the Lessee pays,
within 90 days of the end of the calendar year, the excess of Percentage Rent
due and unpaid over the Base Rent with respect to such year. FelCor LP and the
Subsidiary Partnerships will enter into leases with the Lessee with respect to
any additional hotels acquired by them that are substantially similar to the
Percentage Leases with respect to the Current Hotels. For purposes of this
section, the term "FelCor LP" includes the Subsidiary Partnerships when the
context requires.
In order for the Base Rent, the 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 was 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 property (e.g.,
whether the lessee bears the risk of increases in operating expenses or the risk
of damage to the property).
In addition, Code Section 7701(e) provides that a contract that purports to
be a service contract (or a partnership agreement) is 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
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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) FelCor LP and the Lessee intend for their relationship to be that of
a lessor and lessee and such relationship will be documented by lease
agreements, (ii) the Lessee has the right to exclusive possession and use and
quiet enjoyment of the Current Hotels during the term of the Percentage Leases,
(iii) the Lessee bears the cost of, and will be responsible for, day-to-day
maintenance and repair of the Current Hotels, other than the cost of maintaining
underground utilities and structural elements, and will dictate how the Current
Hotels are operated, maintained, and improved, (iv) the Lessee bears all of the
costs and expenses of operating the Current Hotels (including the cost of any
inventory and supplies used in their operation) during the term of the
Percentage Leases (other than real and personal property taxes, and the cost of
replacement or refurbishment of furniture, fixtures and equipment, to the extent
such costs do not exceed the allowance for such costs provided by FelCor LP
under each Percentage Lease), (v) the Lessee benefits from any savings in the
costs of operating the Current Hotels during the term of the Percentage Leases,
(vi) in the event of damage or destruction to a Current Hotel, the Lessee will
be at economic risk because it will be obligated either (A) to restore the
property to its prior condition, in which event it will bear all costs of such
restoration or (B) purchase the Current Hotel for an amount generally equal to
FelCor LP's investment in the Property, (vii) the Lessee will indemnify FelCor
LP against all liabilities imposed on FelCor LP during the term of the
Percentage Leases by reason of (A) injury to persons or damage to property
occurring at the Current Hotels or (B) the Lessee's use, management, maintenance
or repair of the Current Hotels, (viii) the Lessee is obligated to pay
substantial fixed rent for the period of use of the Current Hotels, and (ix) the
Lessee stands to incur substantial losses (or reap substantial gains) depending
on how successfully it operates the Current Hotels.
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. There can be no
complete assurance that the Service will not assert successfully a contrary
position. If the Percentage Leases are recharacterized as service contracts or
partnership agreements, rather than true leases, part or all of the payments
that FelCor LP receives from the Lessee 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 tests and, as a result, would lose its REIT status.
In order for the Rents to constitute "rents from real property," several
other requirements also must be satisfied. One requirement is that the Rents
attributable to personal property leased in connection with the lease of the
real property comprising a hotel must not be greater than 15% of the Rents
received under the Percentage Lease. The Rents attributable to the personal
property 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
in the hotel at the beginning and at the end of the taxable bears to the average
of the aggregate adjusted bases of both the real and personal property
comprising the hotel at the beginning and at the end of the such taxable year
("Adjusted Basis Ratio"). The initial adjusted basis of the personal property in
each Current Hotel was less than 15% of the initial adjusted bases of both the
real and personal property comprising such Current Hotel. The basis of personal
property contained in the Current Hotels acquired for cash was determined either
by appraisals performed by a professional appraiser, with respect to nine of the
Current Hotels acquired in connection with the initial and secondary public
offerings of the Common Stock, or by internal appraisals performed by FelCor
using the same methodology employed by professional appraisers, with respect to
other Current Hotels acquired for cash. The initial adjusted basis of personal
property contained in Current Hotels acquired in exchange for Units generally
was the same as the basis of the transferor of the hotel at the time of the
transfer. FelCor expects that the value of the personal property at each hotel
to be acquired for cash will be less than 15% of the expected purchase price of
such hotel and expects to perform internal appraisals of such property using the
same methodology employed by professional appraisers that are expected to
confirm such expectation. However, in the event that appraisals show that the
Adjusted Basis Ratio with respect to any hotel to be acquired for cash would
exceed 15% for the taxable year of any acquisition, a portion of the personal
property of that hotel will be purchased or leased from another entity by the
Lessee and the lease
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payments under the Percentage Leases will be adjusted appropriately. In
addition, FelCor expects that its initial adjusted basis in the personal
property contained in each hotel to be acquired in exchange for Units will be
less than 15% of its initial adjusted basis in such hotel. Further, in no event
will FelCor LP acquire additional personal property for a Hotel to the extent
that such acquisition would cause the Adjusted Basis Ratio for that hotel to
exceed 15%. There can be no assurance, however, that the Service would not
assert that the personal property originally acquired by FelCor LP had a value
in excess of the appraised value, or that a court would not uphold such
assertion. If such a challenge were successfully asserted, FelCor could fail the
15% Adjusted Basis Ratio as to one or more of the Percentage Leases, which in
turn potentially could cause it to fail to satisfy the 95% or 75% gross income
test and thus lose its REIT status.
Another requirement for qualification of the Rents as "rents from real
property" 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 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 Current 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).
A third requirement for qualification of the Rents as "rents from real
property" is that FelCor must not own, directly or constructively, 10% or more
of the 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 ownership interests in any
lessee that are owned, directly or indirectly, by or for such person. FelCor
does not currently own, directly or constructively, any ownership interest in
the Lessee. In addition, although certain Limited Partners of FelCor LP own
ownership interests in the Lessee, the Partnership Agreement provides that a
redeeming Limited Partner will not be permitted to redeem Units (unless FelCor
elects, in its sole discretion, to pay cash in lieu of Common Stock) to the
extent that the acquisition of Common Stock by such partner would result in
FelCor being treated as owning, directly or constructively, 10% or more of the
ownership interests of the Lessee or of the ownership interests in any
sublessee. Thus, FelCor should never own, directly or constructively, 10% or
more of the Lessee or any sublessee. 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 shares of Common Stock, 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 the Lessee at some future date.
A fourth requirement for qualification of the Rents as "rents from real
property" is that, other than pursuant to 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 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 FelCor LP is not performing any services other
than customary ones for the Lessee. 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. As
described above, however, if the Percentage Leases are recharacterized as
service contracts or partnership agreements, the Rents likely would be
disqualified as "rents from real property" because FelCor would be considered to
furnish or render services to the occupants of the
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hotels and to manage or operate the hotels other than through an independent
contractor who is adequately compensated and from whom FelCor derives or
receives no income.
If the Rents do not qualify as "rents from real property" because the rents
attributable to personal property exceed 15% of the total Rents for a taxable
year, the portion of the Rents that is attributable to personal property will
not be qualifying income for purposes of either the 75% or 95% gross income
test. Thus, if the Rents attributable to personal property, plus any other
nonqualifying income, during a taxable year exceeds 5% of FelCor's gross income
during the year, FelCor would lose its REIT status. If, however, the Rents do
not qualify as "rents from real property" because either (i) the Percentage Rent
is considered based on income or profits of the Lessee, (ii) FelCor owns,
directly or constructively, 10% or more of the Lessee, or (iii) FelCor furnishes
noncustomary services to the Lessee (other than through a qualified independent
contractor) or manages or operates the hotels (other than pursuant to the 1% de
minimis exception), none of the Rents 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 Rents, the Lessee is required to pay to FelCor LP the
Additional Charges. To the extent that the Additional Charges represent either
(i) reimbursements of amounts that the Lessee is 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." To the extent,
however, that the Additional Charges represent interest that is accrued on the
late payment of the Rents or the Additional Charges, the Additional Charges
should 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," as defined for purposes of the 75% gross income test,
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 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 has been and will continue to
be purchased by the Lessee or its designee as required by the terms of the
Percentage Leases. Accordingly, FelCor and FelCor LP believe that no asset owned
by FelCor or FelCor LP is or will be 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
FelCor LP. 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 the
particular property. Nevertheless, FelCor and FelCor LP 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 or FelCor LP 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 qualified income
under 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 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
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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 such 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 under 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 under 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 that 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
the 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 termination, 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 FelCor LP 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 FelCor LP enters into an
interest rate swap or cap contract, option, futures contract, forward rate
agreement, or similar financial instrument to reduce its 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. To the
extent that FelCor or FelCor LP 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 REIT.
If FelCor fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is entitled to relief under certain provisions of the Code. Those relief
provisions will be generally 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
"-- Taxation of the Company," even if those relief provisions apply, a tax would
be imposed with respect to the gross income attributable to the greater of the
amounts by which FelCor failed 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 its 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," and, 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 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 requirement, 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
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(the "25% asset test"), 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 FelCor LP and the Subsidiary Partnerships or the stock of
a subsidiary with respect to which it has held 100% of the stock at all times
during the subsidiary's existence). See "Proposed Tax Legislation."
For purposes of the asset requirements, FelCor will be deemed to own its
proportionate share of the assets of FelCor LP (and any Subsidiary Partnership),
rather than its general partnership interest in FelCor LP. FelCor has
represented that, at all relevant times, (i) at least 75% of the value of its
total assets has been and will continue to be represented by real estate assets,
cash and cash items (including receivables), and government securities and (ii)
it does not and will not own any securities that do not satisfy the 25% asset
test (except for the stock of subsidiaries with respect to which it has held
100% of the stock at all times during the subsidiary's existence). In addition,
FelCor has represented that it will not acquire or dispose, or cause FelCor LP
to acquire or dispose, of assets in the future in a way that would cause it to
violate either asset test. FelCor believes that it satisfies both asset tests
for REIT status.
If FelCor should fail inadvertently 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 standards imposed by the asset 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
and retained capital gains) to its shareholders 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 dividends 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 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 long-term capital gain it
receives during a taxable year. Any such retained amounts will be treated as
having been distributed by FelCor for purposes of the 4% excise tax. FelCor has
made, and intends to 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, under the
Percentage Leases, the Lessee may defer payment of the excess of the Percentage
Rent over the Base Rent for a period of up to 90 days after the end of the
calendar year in which such payment was due. In that case, FelCor LP still would
be required to recognize as income the excess of the Percentage Rent over the
Base Rent in the calendar quarter to which it relates. Further, it is possible
that, from time to time, FelCor may be allocated a share of net capital gain
attributable to the sale of depreciated property which exceeds its allocable
share of cash attributable to that sale. Therefore, FelCor may have less cash
available for distribution than is necessary to meet its annual distribution
requirements 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
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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 requirements for a year by paying "deficiency dividends"
to its shareholders 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.
Recordkeeping Requirement
Pursuant to applicable Treasury Regulations, FelCor must maintain certain
records and request on an annual basis certain information from its shareholders
designed to disclose the actual ownership of its outstanding stock. FelCor has
complied and intends to continue to comply with such requirements.
Partnership Anti-Abuse Rule
The Treasury Department has issued a final regulation ("Anti-Abuse Rule"),
under the partnership provisions of the Code ("Partnership Provisions"), that
authorizes the Service, in certain abusive transactions involving partnerships,
to disregard the form of the transaction and recast it for federal tax purposes
as the Service deems appropriate. The Anti-Abuse Rule applies where a
partnership is formed or availed of in connection with a transaction (or series
of related transactions) a principal purpose of which is to reduce substantially
the present value of the partners' aggregate federal tax liability in a manner
inconsistent with the intent of the Partnership Provisions. The Anti-Abuse Rule
states that the Partnership Provisions are intended to permit taxpayers to
conduct joint business (including investment) activities through a flexible
economic arrangement that accurately reflects the partners' economic agreement
and clearly reflects the partners' income without incurring an entity-level tax.
The purposes for structuring a transaction involving a partnership are
determined based on all of the facts and circumstances, including a comparison
of the purported business purpose for a transaction and the claimed tax benefits
resulting from the transaction. A reduction in the present value of the
partners' aggregate federal tax liability through the use of a partnership does
not, by itself, establish inconsistency with the intent of the Partnership
Provisions.
The Anti-Abuse Rule contains an example in which a corporation that elects
to be treated as a REIT contributes substantially all of the proceeds from a
public offering to a partnership in exchange for a general partner interest. The
limited partners of the partnership contribute real property assets to the
partnership, subject to liabilities that exceed their respective aggregate bases
in such property. In addition, some of the limited partners have the right,
beginning two years after the formation of the partnership, to require the
redemption of their limited partnership interests in exchange for cash or REIT
stock (at the REIT's option) equal to the fair market value of their respective
interests in the partnership at the time of the redemption. The example
concludes that the use of the partnership is not inconsistent with the intent of
the Partnership Provisions and, thus, cannot be recast by the Service. FelCor
believes that the Anti-Abuse Rule will not have any adverse impact on its
ability to qualify as a REIT. However, because the Anti-Abuse Rule is
extraordinarily broad in scope and is applied based on an analysis of all of the
facts and circumstances, there can be no assurance that the Service will not
attempt to apply the Anti-Abuse Rule to FelCor. If the conditions of the
Anti-Abuse Rule are met, the Service is authorized to take appropriate
enforcement action, including disregarding FelCor LP for federal tax purposes or
treating one or more of its partners as nonpartners. Any such action potentially
could jeopardize FelCor's status as a REIT.
FAILURE TO QUALIFY
If FelCor fails to qualify for taxation as 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. Dividends to the shareholders 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 earnings and profits,
all dividends to shareholders 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
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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.
OTHER TAX CONSEQUENCES
FelCor and Securities holders may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they own
property, transact business or reside. The state and local tax treatment of
FelCor and Securities holders may not conform to the federal income tax
consequences discussed above. CONSEQUENTLY, PROSPECTIVE HOLDERS OF SECURITIES
SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE EFFECT OF STATE AND LOCAL
TAX LAWS ON AN INVESTMENT IN FELCOR
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
would affect FelCor if enacted in final form. 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 my not exceed 5% of the
value of 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" (i.e., first action by the House Ways and Means
Committee with respect to the provision) ("First Committee Action"). 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
corporation does not engage in a new trade or business or acquire substantial
new assets on or after the date of First Committee Action. If enacted as
presently written, that provision would severely limit the use by a REIT of
taxable subsidiaries to conduct businesses the income from which would be
nonqualifying income if received by the REIT.
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. This provision would require immediate recognition of gain
if, at any time after December 31, 1998, a "large" C corporation merges into
FelCor.
TAX ASPECTS OF THE PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable to FelCor's investment in FelCor LP and FelCor LP's
investment in certain "Subsidiary 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
FelCor LP's income (including FelCor LP's distributive share of income of a
Subsidiary Partnership) and to deduct its distributive share of FelCor LP's
losses (including FelCor LP's distributive share of losses of a Subsidiary
Partnership) only if FelCor LP (and each Subsidiary Partnership) is classified
for federal income tax purposes as a partnership rather than as a corporation or
an association taxable as a corporation. An organization 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 organization 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 FelCor LP (and the Subsidiary Partnerships), will be respected for all
periods prior to
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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 by a taxing authority on or before
May 8, 1996 that the classification of the entity was under examination. FelCor
LP and the Subsidiary Partnerships in existence on January 1, 1997 reasonably
claimed partnership classification under the Treasury Regulations relating to
entity classification in effect prior to January 1, 1997. In addition, FelCor
has represented that neither FelCor LP nor a Subsidiary 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 be treated as a corporation for federal income tax purposes unless at least
90% of such partnership's gross income for a taxable year 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
applicable to REITs (the "90% Passive-Type Income Exception"). See
"-- Requirements for Qualification -- Income Tests." 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 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 owner'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. FelCor LP and each Subsidiary Partnership qualify for
the Private Placement Exclusion. If FelCor LP or a Subsidiary Partnership is
considered a publicly traded partnership under the PTP Regulations because it is
deemed to have more than 100 partners, FelCor LP or such Subsidiary Partnership
should not be treated as a corporation because it should be eligible for the 90%
Passive-Type Income Exception.
FelCor believes that FelCor LP and each Subsidiary Partnership will be
treated as partnerships for federal income tax purposes and not as corporations
or associations taxable as corporations. FelCor LP has not requested, and does
not intend to request, a ruling from the Service that it or any Subsidiary
Partnership will be classified as a partnership for federal income tax purposes.
However, prior to issuing Securities, FelCor expects to obtain an opinion of
Hunton & Williams that, based on the provisions of the Partnership Agreement,
the partnership agreements of each Subsidiary Partnership, certain factual
assumptions, and certain representations, FelCor LP and each Subsidiary
Partnership will be treated for federal income tax purposes as partnerships and
not as corporations or associations taxable as corporations. No assurance can be
given that the Service will not challenge the status of FelCor LP or a
Subsidiary Partnership as a partnership for federal income tax purposes. If such
challenge were sustained by a court, FelCor LP or such Subsidiary Partnership
would be treated as a corporation for federal income tax purposes, as described
below.
Effect of Failure to Qualify as a Partnership
If for any reason FelCor LP or a Subsidiary Partnership 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 "-- Requirements for
Qualification -- Income Tests" and "-- Requirements for Qualification -- Asset
Tests." In addition, any change in FelCor LP's or a Subsidiary 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
"-- Requirements for Qualification -- Distribution Requirements." Further, items
of income and deduction of FelCor LP or the Subsidiary Partnership, as
applicable, would not pass through to its partners, and its partners would be
treated as shareholders for tax purposes. Consequently, FelCor LP or the
Subsidiary Partnership would be required to pay income tax at corporate tax
rates on its net income, and
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distributions to its partners would constitute distributions that would not be
deductible in computing FelCor LP's or the Subsidiary Partnership's taxable
income.
Income Taxation of FelCor LP, the Subsidiary Partnerships and their Partners
Partners, Not FelCor LP, Subject to Tax. A partnership is not a taxable
entity for federal income tax purposes. Rather, FelCor is required to take into
account its allocable share of FelCor LP's income, gains, losses, deductions,
and credits for any taxable year of FelCor LP ending within or with the taxable
year of FelCor, without regard to whether FelCor has received or will receive
any distribution of FelCor LP. Such items will include FelCor LP's available
share of income, gain, loss, deductions and credits of the Subsidiary
Partnerships.
Partnership Allocations. Although a partnership agreement generally will
determine the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under Section 704(b) of the Code if they do
not comply with the provisions of Section 704(b) of the Code and the Treasury
Regulations promulgated thereunder. If an allocation is not recognized for
federal income tax purposes, the item subject to the allocation will be
reallocated in accordance with the partners' interests in the partnership, which
will be determined by taking into account all of the facts and circumstances
relating to the economic arrangement of the partners with respect to such item.
FelCor LP's allocations of taxable income and loss are intended to comply with
the requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
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 is
generally 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 Treasury Department has issued
regulations requiring partnerships to use a "reasonable method" for allocating
items affected by Section 704(c) of the Code and outlining certain reasonable
allocation methods.
Under the Partnership Agreement, depreciation or amortization deductions of
FelCor LP generally will be allocated among the partners in accordance with
their respective interests in FelCor LP, except to the extent that Section
704(c) of the Code requires that FelCor receive a disproportionately large share
of such deductions. In addition, gain on sale of a hotel will be specially
allocated to the Limited Partners that 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 FelCor LP is not entirely clear, however,
and may be affected by Treasury Regulations promulgated in the future. Similar
provisions are included in the partnership agreements of the Subsidiary
Partnerships.
Basis in Partnership Interest. FelCor's adjusted tax basis in its
partnership interest in FelCor LP generally (i) equals the amount of cash and
the basis of any other property contributed to FelCor LP by FelCor, (ii) is
increased by (A) its allocable share of FelCor LP's income and (B) its allocable
share of indebtedness of FelCor LP and (iii) is reduced, but not below zero, by
FelCor's allocable share of (A) FelCor LP'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 FelCor LP. Similar rules apply to
FelCor LP's tax basis in the Subsidiary Partnerships.
If the allocation of FelCor's distributive share of FelCor LP's loss would
reduce the adjusted tax basis of FelCor's partnership interest in FelCor LP
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 FelCor LP's distributions, or any decrease in FelCor's
share of the indebtedness of FelCor LP (such decrease being considered a
constructive cash distribution to the partners), would reduce FelCor's adjusted
tax basis below zero, such distributions (including such constructive
distributions) constitute taxable income to FelCor. Such distributions and
constructive distributions normally will be characterized as capital gain, and,
if FelCor's partnership interest in FelCor LP has been held for longer than the
long-term capital gain holding
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period (currently one year), the distributions and constructive distributions
will constitute long-term capital gain.
Depreciation Deductions Available to FelCor LP. FelCor LP's initial basis
in hotels acquired in exchange for Units for federal income tax purposes
generally is a carryover of the basis of the transferors of the hotels on the
date of such transaction. Although the law is not entirely clear, FelCor LP has
depreciated, and intends to continue to depreciate, such depreciable hotel
property for federal income tax purposes under the same methods used by the
transferors. FelCor LP's tax depreciation deductions are allocated among its
partners in accordance with their respective interests in FelCor LP, except to
the extent that Section 704(c) of the Code requires that FelCor receive a
disproportionately large share of such deductions. FelCor LP's initial basis for
federal income tax purposes in hotels acquired for cash generally is equal to
the purchase price. FelCor LP has depreciated, and intends to continue to
depreciate, for federal income tax purposes, such depreciable hotel property
under either the modified accelerated cost recovery system of depreciation
("MACRS") or the alternative depreciation system of depreciation ("ADS"). FelCor
LP plans to use MACRS for subsequently acquired furnishings and equipment. Under
MACRS, FelCor LP generally will depreciate such furnishings and equipment over a
seven-year recovery period using a 200% declining balance method and a half-year
convention. If, however, FelCor LP 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. FelCor LP plans to use ADS for the
depreciation of subsequently acquired buildings and improvements. Under ADS,
FelCor LP generally will depreciate such buildings and improvements over a
40-year recovery period using a straight line method and a mid-month convention.
Sale of FelCor LP's Property
Generally, any gain realized by FelCor LP or the Subsidiary Partnerships on
the sale of property held 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 by FelCor LP on the disposition of
hotels that were contributed to FelCor LP will be allocated first to the Limited
Partners that contributed such hotels under Section 704(c) of the Code to the
extent of their "built-in gain" on those hotels. The Limited Partners' "built-in
gain" on such hotels sold will equal the excess of the Limited Partners'
proportionate share of the book value of those hotels over the Limited Partners'
tax basis allocable to those hotels at the time of sale. Any remaining gain
recognized by FelCor LP on the disposition of such hotels will be allocated
among the partners in accordance with their respective percentage interests in
FelCor LP. The Board of Directors has adopted a policy that any decision to sell
the Initial Hotels will be made by a majority of the Independent Directors.
FelCor's share of any gain realized by FelCor LP or a Subsidiary
Partnership on the sale of any property held as inventory or other property held
primarily for sale to customers in the ordinary course of FelCor LP's or a
Subsidiary Partnership's trade or business, however, will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. See
"-- Requirements for Qualification -- Income Tests." Such prohibited transaction
income also may have an adverse effect upon FelCor's ability to satisfy the
income test for REIT status. See "-- Requirements for Qualification -- Income
Tests" above.
PLAN OF DISTRIBUTION
FelCor may sell Securities in or outside the United States through
underwriters or dealers, directly to one or more purchasers, through agents or
through a combination of any such methods of sale. The Prospectus Supplement
with respect to the Securities will set forth the terms of the offering of the
Securities, including the name or names of any underwriters, dealers or agents,
the initial public offering price, any underwriting discounts and other items
constituting underwriters compensation, any discounts or concessions allowed or
reallowed or paid to dealers, and any securities exchanges on which the
Securities may be listed.
Securities may be sold directly by FelCor through agents designated by
FelCor from time to time at fixed prices, which may be changed, or at varying
prices determined at the time of sale. Any agent involved in the offer or sale
of the Securities will be named, and any commissions payable by FelCor to such
agent will be set
59
<PAGE> 61
forth, in the Prospectus Supplement relating thereto. Unless otherwise indicated
in the Prospectus Supplement, any such agent will be acting on a best efforts
basis for the period of its appointment.
In connection with the sale of Securities, underwriters or agents may
receive compensation from FelCor or from purchasers of Securities, for whom they
may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities 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. Underwriters, dealers, and agents that participate in the distribution
of Securities may be deemed to be underwriters under the Securities Act, and any
discounts or commissions they receive from FelCor and any profit on the resale
of Securities they realize may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from FelCor will be described, in
the applicable Prospectus Supplement. Unless otherwise set forth in the
Prospectus Supplement relating thereto, the obligations of the underwriters or
agents to purchase the Securities will be subject to conditions precedent and
the underwriters will be obligated to purchase all the Securities if any are
purchased. The initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new issue with no established trading market,
other than the Common Stock which is traded on the NYSE under the symbol "FCH".
Any shares of Common Stock sold pursuant to a Prospectus Supplement will be
approved for trading, upon notice of issuance, on the NYSE. FelCor may elect to
list any series of Debt Securities, Preferred Stock or Depositary Shares on an
exchange, but is not obligated to do so. It is possible that one or more
underwriters may make a market in a series of Securities, but will not be
obligated to do so and may discontinue any market making at any time without
notice. Therefore, no assurance can be given as to the liquidity of, or the
trading market for, the Securities.
Under agreements into which FelCor may enter, underwriters, dealers and
agents who participate in the distribution of Securities may be entitled to
indemnification by FelCor against certain liabilities, including liabilities
under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, FelCor in the ordinary course of business.
In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and complied with.
LEGAL MATTERS
The validity of the Securities will be passed upon for FelCor by Jenkens &
Gilchrist, a Professional Corporation, Dallas, Texas. In addition, the
description of federal income tax consequences contained in the Prospectus under
the caption "Federal Income Tax Considerations" is based upon the opinion of
Hunton & Williams, Richmond, Virginia. The validity of the Securities will be
passed upon for any underwriter by King & Spalding, Atlanta, Georgia. Jenkens &
Gilchrist, King & Spalding and Hunton & Williams will rely upon the opinion of
Miles & Stockbridge P.C., Baltimore, Maryland, with respect to all matters
involving Maryland law.
EXPERTS
The Consolidated Financial Statements of FelCor Suite Hotels, Inc. as of
December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and
the period from July 28, 1994 (inception of operations) through December 31,
1994, the Financial Statements of DJONT Operations, L.L.C. as of December 31,
1996 and 1995 and for the years ended December 31, 1996, 1995 and the period
from July 28, 1994 (inception of operations) through December 31, 1994, the
combined financial statements of the DS Hotels as of and for the year ended
December 31, 1996, and the combined financial statements of the Sheraton
Acquisition Hotels as of and for the year ended December 31, 1996 have been
incorporated by reference herein 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.
60
<PAGE> 62
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the Securities.
<TABLE>
<S> <C>
Securities and Exchange Commission, registration fee........ $ 307,071
NASD filing fee............................................. 60,000
The New York Stock Exchange Listing Fee..................... 160,000
Printing and mailing........................................ 250,000
Accountant's fees and expenses.............................. 100,000
Blue Sky fees and expenses.................................. 20,000
Counsel fees and expenses................................... 300,000
Miscellaneous............................................... 102,929
----------
Total............................................. $1,300,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Charter of the Registrant, generally, limits the liability of the
Registrant's directors and officers to the Registrant and the shareholders for
money damages to the fullest extent permitted from time to time by the laws of
the State of Maryland. The Charter also provides, generally, for the
indemnification of directors and officers, among others, against judgments,
settlements, penalties, fines, and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities except in connection with a
proceeding by or in the right of the Registrant in which the director was
adjudged liable to the Registrant or in connection with any other proceeding,
whether or not involving action in his official capacity, in which he was
adjudged liable on the basis that personal benefit was improperly received by
him. Insofar as indemnification for liabilities arising under the Securities Act
of 1933 ("Securities Act") may be permitted to directors and officers of the
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.
The Registrant may purchase director and officer liability insurance for
the purpose of providing a source of funds to pay any indemnification described
above.
Any Underwriting Agreement with the respect to Securities may contain
provisions pursuant to which certain officers, directors and controlling persons
may be entitled to be indemnified by the underwriters named therein.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 -- Form of Share Certificate for Common Stock (filed as
Exhibit 4.1 to the Registrant's Registration Statement on
Form S-11 (File No. 33-79214) and incorporated herein by
reference).
4.2 -- Form of Indenture(s) with respect to Debt Securities
(filed as Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3 (File No. 333-3170) and
incorporated herein by reference).
4.3 -- Form of Share Certificate for Series A Preferred Stock
(filed as Exhibit 4.4 to the Registrant's Registration
Statement on Form S-3 (File No. 333-3170) and
incorporated herein by reference).
</TABLE>
II-1
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*4.4 -- Form of Common Stock Warrant Agreement.
*4.5 -- Form of Depositary Receipt.
*4.6 -- Form of Deposit Agreement.
**5.1 -- Opinion of Jenkens & Gilchrist, a Professional
Corporation.
**5.2 -- Opinion of Miles & Stockbridge, a Professional
Corporation.
**8.1 -- Opinion of Hunton & Williams as to Tax Matters.
12.1 -- Statement Regarding Computation of Ratios.
**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 Coopers & Lybrand L.L.P.
23.5 -- Consent of Arthur Andersen, LLP.
23.6 -- Consent of Ernst & Young, LLP.
23.7 -- Consent of Deloitte & Touche LLP.
24.1 -- Power of Attorney.
25.1 -- Statement of Eligibility of SunTrust Bank -- Atlanta, as
Trustee (filed as Exhibit 25.1 to the Registrant's
Registration Statement on Form S-3 (File No. 333-3170)
and incorporated herein by reference).
</TABLE>
- ---------------
* To be incorporated by reference in connection with the offering of such
Securities.
** Filed herewith; all others previously filed.
ITEM 17. UNDERTAKINGS.
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 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 of 1933, 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.
II-2
<PAGE> 64
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 15 of this
Registration Statement, 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 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 as to whether such indemnification by it is against public policy
as expressed in the act, and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Dallas, State of Texas, on the 27th day of
February, 1998.
FELCOR SUITE HOTELS, INC.,
a Maryland corporation (Registrant)
By: /s/ LAWRENCE D. ROBINSON
----------------------------------
Lawrence D. Robinson
Senior Vice President,
General Counsel and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities indicated the 27th day of February, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chairman of the Board and Director
- -----------------------------------------------------
Hervey A. Feldman
* President and Chief Executive Officer and
- ----------------------------------------------------- Director
Thomas J. Corcoran, Jr.
* Senior Vice President, Chief Financial Officer
- ----------------------------------------------------- and Treasurer
Randall L. Churchey
* Vice President and Controller (Principal
- ----------------------------------------------------- Accounting Officer)
Lester C. Johnson
* Director
- -----------------------------------------------------
Charles N. Mathewson
* Director
- -----------------------------------------------------
Charles A. Ledsinger, Jr.
* Director
- -----------------------------------------------------
Richard S. Ellwood
* Director
- -----------------------------------------------------
Richard O. Jacobson
* Director
- -----------------------------------------------------
Thomas A. McChristy
*By: /s/ LAWRENCE D. ROBINSON
-------------------------------------------------
Lawrence D. Robinson
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
4.1 -- Form of Share Certificate for Common Stock (filed as
Exhibit 4.1 to the Registrant's Registration Statement on
Form S-11 (File No. 33-79214) and incorporated herein by
reference).
4.2 -- Form of Indenture(s) with respect to Debt Securities
(filed as Exhibit 4.2 to the Registrant's Registration
Statement on Form S-3 (File No. 333-3170) and
incorporated herein by reference).
4.3 -- Form of Share Certificate for Series A Preferred Stock
(filed as Exhibit 4.4 to the Registrant's Registration
Statement on Form S-3 (File No. 333-3170) and
incorporated herein by reference).
*4.4 -- Form of Common Stock Warrant Agreement.
*4.5 -- Form of Depositary Receipt.
*4.6 -- Form of Deposit Agreement.
**5.1 -- Opinion of Jenkens & Gilchrist, a Professional
Corporation.
**5.2 -- Opinion of Miles & Stockbridge, a Professional
Corporation.
**8.1 -- Opinion of Hunton & Williams as to Tax Matters.
12.1 -- Statement Regarding Computation of Ratios.
**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 Coopers & Lybrand L.L.P.
23.5 -- Consent of Arthur Andersen, LLP.
23.6 -- Consent of Ernst & Young, LLP.
23.7 -- Consent of Deloitte & Touche LLP.
24.1 -- Power of Attorney.
25.1 -- Statement of Eligibility of SunTrust Bank -- Atlanta, as
Trustee (filed as Exhibit 25.1 to the Registrant's
Registration Statement on Form S-3 (File No. 333-3170)
and incorporated herein by reference).
</TABLE>
- ---------------
* To be incorporated by reference in connection with the offering of such
Securities.
** Filed herewith; all others previously filed.
<PAGE> 1
Exhibit 5.1
[JENKENS & GILCHRIST LETTERHEAD]
February 27, 1998
FelCor Suite Hotels, Inc.
545 E. John Carpenter Freeway
Suite 1300
Irving, Texas 75062
Re: Registration Statement on Form S-3 (File No. 333-46357)
Ladies and Gentlemen:
We refer to the Registration Statement on Form S-3 of FelCor Suite Hotels,
Inc., a Maryland corporation (the "Company"), filed with the Securities and
Exchange Commission under file number 333-46357, and the prospectus contained
therein (the "Prospectus"), for the purpose of registering under the Securities
Act of 1933, as amended (the "Act"), (i) the Company's unsecured senior or
subordinated debt securities ("Debt Securities"), to be issued pursuant to that
certain Indenture between the Company and SunTrust Bank Atlanta, as Trustee,
the form of which has been filed as Exhibit 4.2 to the Registration Statement
("Indenture"), (ii) whole or fractional shares of its preferred stock, $0.01
par value per share ("Preferred Stock"), (iii) shares of Preferred Stock
represented by Depositary Shares ("Depositary Shares"), (iv) shares of its
common stock, $0.01 par value per share ("Common Stock"), or (v) warrants to
purchase Common Stock ("Common Stock Warrants"). The foregoing securities are
being offered with an aggregate public offering price of up to $1,000,000,000
(or its equivalent based on the exchange rate at the time of sale), in amounts,
at prices and on terms to be determined at the time of offering.
We have examined copies, certified or otherwise identified to our satisfaction,
of the Articles of Amendment and Restatement, as further amended and
supplemented, and Bylaws of the Company, as amended to date, the form of
Indenture and minutes of applicable meetings, or written consents in lieu of
meetings, of the stockholders and the Board of Directors of the Company,
together with such other corporate records, certificates of public officials
and of officers of the Company as we have deemed relevant for the purposes of
this opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
<PAGE> 2
FelCor Suite Hotels, Inc.
February 27, 1998
Page 2
We are opining herein as to the effect on the subject transaction only of the
internal laws of the States of Texas, Maryland and New York, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of
the laws of any other jurisdiction or as to any matters of municipal law or the
laws of any other local agencies within any state. With respect to matters of
Maryland law, we have relied exclusively upon the opinion of Miles &
Stockbridge P.C., a copy of which has been delivered to you.
Based upon the foregoing, and having regard to the legal considerations which
we deem relevant, it is our opinion that:
1. The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State
of Maryland;
2. The Debt Securities, when duly authorized by the Company,
established in accordance with the terms of the Indenture,
executed and delivered on behalf of the Company, authenticated
by the Trustee under the Indenture and sold by the Company for
the consideration stated in the authorizing resolutions and
the Prospectus and the applicable Prospectus Supplement, will
be validly issued, will constitute valid and binding
obligations of the Company enforceable against the Company in
accordance with their terms (subject, as to enforcement of
remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting creditors'
rights generally from time to time in effect and, as to rights
of acceleration and the enforcement of remedies, to general
principles of equity) and will be entitled to the benefits of
the Indenture in accordance with their terms and the terms of
the Indenture subject as aforesaid;
3. The shares of Common Stock or Preferred Stock, and the
Depositary Shares, if and when the issuance thereof is duly
authorized by the Company and when duly issued, sold and
delivered in accordance with, as contemplated by and for the
consideration stated in the authorizing resolutions and the
Prospectus and the applicable Prospectus Supplement, will be
legally issued, fully paid and nonassessable; and
4. The Common Stock Warrants, when duly authorized for issuance,
when the Common Stock underlying the Warrants so approved for
issuance have been duly authorized for issuance and reserved
in an amount not exceeding the authorized but unissued capital
stock of the Company, and when duly executed and delivered by
the Company, in accordance with the authorizing resolution and
the terms of any Warrant Agreement and authenticated by the
Warrant Agent, and when sold for the consideration stated in
the authorizing resolutions and the Prospectus and the
applicable Prospectus Supplement, will be legally issued.
<PAGE> 3
FelCor Suite Hotels, Inc.
February 27, 1998
Page 3
We hereby consent to the inclusion in the Registration Statement of this
opinion as Exhibit 5.1 thereto and to the reference to us under the caption
"Legal Matters" in the 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
February 26, 1998
FelCor Suite Hotels, Inc.
545 East John Carpenter Freeway
Suite 1300
Irving, Texas 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 filing
of a registration statement on Form S-3 (Reg. No. 333-46357) under the
Securities Act of 1933, as amended (the "Act"), initially filed by the
Corporation with the Securities and Exchange Commission on February 13, 1998
(as amended, the "Registration Statement"). The Registration Statement relates
to Debt Securities, Preferred Stock, Depositary Shares representing Preferred
Stock, Common Stock and Common Stock Warrants of the Corporation (collectively,
the "Securities"), with an aggregate initial offering price of up to
$1,000,000,000 to be issued from time to time pursuant to Rule 415 under the
Act. Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Registration Statement.
In our capacity as special Maryland counsel, we have reviewed the
Charter and Bylaws of the Corporation, the Registration Statement, a good
standing certificate for the Corporation, dated February 23, 1998, issued by
the Department of Assessments and Taxation of the State of Maryland and such
certificates and other documents as we deem necessary or advisable for the
purposes of this opinion.
In connection with our review of the above listed documents, we have
assumed that: (i) all documents submitted to us as originals are authentic,
(ii) all documents submitted to us as certified or photostatic copies conformed
to the original documents, (iii) all signatures on all documents submitted to
us for examination are genuine, (iv) all natural persons who executed any of
the documents that were reviewed or relied upon by us had full legal capacity
at the time of such execution and (v) all public records reviewed by us or on
our behalf are accurate and complete.
<PAGE> 2
FelCor Suite Hotels, Inc.
February 26, 1998
Page 2
For the purposes of the opinions expressed herein, we also have
assumed that (i) the issuance of Preferred Stock, any Preferred Stock issued in
connection with the sale of Depositary Shares, Common Stock and any Common
Stock issued upon exercise of Common Stock Warrants or upon conversion of any
Preferred 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 Corporation's qualification as a real estate
investment trust, and (ii) upon issuance of Preferred Stock, any Preferred
Stock issued in connection with the sale of Depositary Shares, Common Stock or
Common Stock issued upon exercise of Common Stock Warrants or conversion of any
Preferred Stock, such Preferred Stock or Common Stock will not exceed, at the
time of such issuance, the number of shares of Preferred Stock or Common Stock
authorized to be issued under the Charter.
Members of our Firm are admitted to the Bar in the State of Maryland.
We express no opinion as to the laws of any state or jurisdiction other than,
and our opinions expressed herein are limited to, the laws of the State of
Maryland.
Based on the foregoing, we are of the opinion that:
1. The Debt Securities, when duly authorized in accordance with
the terms of resolutions to be adopted by the Board of
Directors of the Corporation prior to issuance in accordance
with Maryland law, signed and sealed by the Corporation and
authenticated by the Trustee in accordance with the terms of
the Indenture under which the Debt Securities are issued and
issued and delivered against payment therefore, will be
legally issued and will constitute valid obligations of the
Corporation entitled to the benefits of the Indenture.
2. The Preferred Stock, when classified or reclassified by the
Board of Directors in accordance with the terms of the Charter
and resolutions to be adopted by the Board of Directors of the
Corporation in accordance with the requirements of Section
2-203 and 2-208 of the Maryland General Corporation Law and
upon filing of Articles Supplementary with the State
Department of Assessments and Taxation of the State of
Maryland in accordance with the Maryland General Corporation
Law, will be duly and validly authorized and when issued and
sold in
<PAGE> 3
FelCor Suite Hotels, Inc.
February 26, 1998
Page 3
accordance with the terms of the Registration Statement and
the resolutions authorizing their sale, will be legally
issued, fully paid and nonassessable.
3. The Depositary Shares, when duly authorized and established in
accordance with the terms of resolutions to be adopted by the
Board of Directors of the Corporation prior to issuance in
accordance with Maryland law and assuming the action
contemplated in paragraph 2 above has been taken with respect
to the underlying Preferred Stock, and when the Depositary
Receipts, in the form contemplated and authorized by the
Deposit Agreement, have been duly executed and delivered by
the Depositary and paid for by the purchasers thereof in the
manner contemplated by the resolutions of the Board of
Directors and the Registration Statement, will be validly
issued and will entitle the holders thereof to the rights
specified in the Depositary Receipts and such Deposit
Agreement.
4. The Common Stock, when duly authorized by the Board of
Directors and when issued and sold in accordance with the
terms of the Registration Statement and resolutions of the
Board of Directors to be adopted prior to issuance in
accordance with Section 2-203 of the Maryland General
Corporation Law, and upon issuance and delivery of
certificates for shares of Common Stock against payment
therefor pursuant to the exercise of Common Stock Warrants or
the conversion of Preferred Stock convertible into Common
Stock, will be duly authorized, legally issued, fully paid and
nonassessable.
5. The Common Stock Warrants, when duly authorized and
established by the Board of Directors of the Corporation prior
to issuance in accordance with the Charter, Bylaws and
Maryland law, and assuming the action contemplated by
paragraph 4 above has been taken with respect to the
underlying Common Stock, and upon execution and delivery of
the Warrant Agreement and issuance and delivery against
payment therefor in accordance with the terms of the
resolutions, the Warrant Agreement and the Registration
Statement, will be duly authorized and will constitute valid
and legally binding obligations of the Corporation.
<PAGE> 4
FelCor Suite Hotels, Inc.
February 26, 1998
Page 4
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 A. GIBBONS
---------------------------
Principal
<PAGE> 1
EXHIBIT 8.1
[HUNTON & WILLIAMS LETTERHEAD]
February 26, 1998
FelCor Suite Hotels, Inc.
545 E. John Carpenter Freeway, Suite 1300
Irving, Texas 75062
RE: Registration Statement on Form S-3 No. 333-46357
Ladies and Gentlemen:
We have acted as special tax counsel to FelCor Suite Hotels,
Inc. (the "Company") in connection with the preparation of a Form S-3
Registration Statement initially filed with the Securities and Exchange
Commission ("SEC") on February 13, 1998, as amended through the date hereof (the
"Registration Statement"), under the Securities Act of 1933, as amended (the
"Act"), with respect to the offering and sale of up to $1 billion aggregate
offering price of equity and debt securities of the Company (the "Securities").
We have reviewed the originals or copies of (i) the Articles
of Amendment and Restatement, Bylaws, and other organizational documents of the
Company and its affiliates; (ii) the Registration Statement and the prospectus
included therein (the "Prospectus"); and (iii) such other documents as we have
deemed necessary or appropriate as a basis for the opinion set forth below.
Based on the foregoing, we are of the opinion that the
descriptions of the law contained in the Prospectus under the caption "Federal
Income Tax Considerations" are correct in all material respects, and the
discussion thereunder does not omit any material provision with respect to the
matters covered. You should be aware that this opinion represents our
conclusions as to existing law. There can be no assurance that contrary
positions will not be taken by the Internal Revenue Service or that the law will
not change.
<PAGE> 2
HUNTON & WILLIAMS
FelCor Suite Hotels, Inc.
February 26, 1998
Page 2
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement. We also consent to the references to Hunton &
Williams under the captions "Federal Income Tax Considerations" and "Legal
Matters" in the Prospectus. 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 Act or
the rules and regulations promulgated thereunder by the SEC.
The foregoing opinion is 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 opinion expressed herein after the date of this letter. This opinion
letter is solely for the information and use of the addressee and the purchasers
of Securities pursuant to the Prospectus, 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
