<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-14236
FelCor Lodging Trust Incorporated
(Exact name of registrant as specified in its charter)
MARYLAND 75-2541756
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
545 E. JOHN CARPENTER FRWY., SUITE 1300, IRVING, TEXAS 75062
(Address of principal executive offices) (Zip Code)
(972) 444-4900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
<S> <C>
COMMON STOCK NEW YORK STOCK EXCHANGE, INC.
$1.95 SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK NEW YORK STOCK EXCHANGE, INC.
9% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK NEW YORK STOCK EXCHANGE, INC.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant (i) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the common equity securities of the
registrant held by non-affiliates of the registrant, as of March 10, 1999, was
approximately $1.1 billion.
As of March 10, 1999, the registrant had issued and outstanding 68,062,887
shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1999
Annual Meeting of Stockholders Part III
===============================================================================
<PAGE> 2
FELCOR LODGING TRUST INCORPORATED
INDEX
<TABLE>
<CAPTION>
FORM 10-K
REPORT
ITEM NO. PAGE
- ------- ---------
PART I
<S> <C>
1. Business ..............................................................................................1
2. Properties ...........................................................................................18
3. Legal Proceedings ....................................................................................25
4. Submission of Matters to a Vote of Security Holders ..................................................25
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters ................................25
6. Selected Financial Data ..............................................................................28
7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................31
7A. Quantitative and Qualitative Disclosures About Market Risk ...........................................44
8. Financial Statements and Supplementary Data ..........................................................44
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure .................44
PART III
10. Directors and Executive Officers of the Company ......................................................45
11. Executive Compensation ...............................................................................45
12. Security Ownership of Certain Beneficial Owners and Management .......................................45
13. Certain Relationships and Related Transactions .......................................................45
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .....................................46
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
FelCor Lodging Trust Incorporated ("FelCor") is one of the nation's
largest hotel real estate investment trusts ("REIT") which, at December 31,
1998, owned interests in 193 hotels with nearly 50,000 rooms and suites
(collectively the "Hotels") through its greater than 95% equity interest in
FelCor Lodging Limited Partnership (the "Operating Partnership"). FelCor, the
Operating Partnership, and their subsidiaries are herein referred to,
collectively, as the "Company." The Company owns 100% interests in 169 of the
Hotels, a 90% or greater interest in entities owning seven hotels, a 60%
interest in an entity owning two hotels and 50% interests in separate entities
that own 15 hotels.
FelCor strives to be the premier full-service lodging REIT partnered
with leading brands and management companies to create shareholder value. The
Company is the owner of the largest number of Embassy Suites(R), Crowne
Plaza(R), Holiday Inn(R), and independently owned Doubletree(R) branded hotels
in the world. The following table provides a schedule of the Hotels, by brand,
operated by each of the Company's lessees at December 31, 1998:
<TABLE>
<CAPTION>
BRAND DJONT BRISTOL TOTAL
----- ----- ------- -----
<S> <C> <C> <C>
Embassy Suites 57 57
Holiday Inn 49* 49
Doubletree and Doubletree Guest Suites(R) 17 17
Crowne Plaza and Crowne Plaza Suites(R) 14 14
Holiday Inn Select(R) 11 11
Sheraton(R)and Sheraton Suites(R) 9 1 10
Hampton Inn(R) 9 9
Holiday Inn Express(R) 7* 7
Fairfield Inn(R) 5 5
Harvey Hotel(R) 4 4
Independents 2 2
Courtyard by Marriott(R) 2 2
Days Inn(R) 1* 1
Hilton Suites(R) 1 1
Homewood Suites(R) 1 1
Radisson(R) 1 1
Ramada(R) 1* 1
Westin(R) 1 1
Total Hotels 86 107 193
== === ===
</TABLE>
* The Company has sold, or intends to sell in 1999, two Holiday Inns,
two Holiday Inn Expresses and the Ramada and Days Inn owned at
December 31, 1998.
At December 31, 1998, the Company leased 86 of the Hotels to DJONT
Operations, L.L.C., a Delaware limited liability company or a consolidated
subsidiary thereof (collectively "DJONT"), and 106 of the Hotels to Bristol
Hotels & Resorts or a consolidated subsidiary thereof ("Bristol" and, together
with DJONT, the "Lessees"). One hotel managed by Bristol was not leased. The
Hotels are leased to the Lessees pursuant to leases generally having initial
terms of five to 15 years that provide for rent equal to the greater of a
minimum base rent ("Base Rent") or a percentage rent ("Percentage Rent") based
on room and suite revenues, food and beverage revenues, food and beverage rents
and, in certain instances, other hotel revenues ("Percentage Leases"). See "Item
2. Properties" for information regarding the terms of the Percentage Leases.
<PAGE> 4
Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a
Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor,
beneficially own a 50% voting common equity interest in DJONT. The remaining 50%
nonvoting common equity interest is beneficially owned by the children of
Charles N. Mathewson, a director of FelCor and major initial investor in the
Company. DJONT has entered into management agreements pursuant to which 73 of
the Hotels leased by it are managed by subsidiaries of Promus Hotel Corporation
("Promus"), ten are managed by subsidiaries of Starwood Hotels & Resorts
Worldwide, Inc. ("Starwood"), and three are managed by two independent
management companies.
Bristol leases and manages 106 Hotels and manages one hotel which
operates without a lease. Bristol is one of the largest independent hotel
operating companies in North America and operates the largest number of Bass
Hotels & Resorts-branded hotels in the world.
GROWTH STRATEGIES
The Company's primary business objectives are to (i) add value to its
current hotels through aggressive asset management and the strategic investment
of capital, (ii) build and maintain solid working relationships with selected
upscale and full-service hotel brand owners/managers who are willing to commit
to the ongoing success of the Company's hotels they license and/or manage and
(iii) selectively acquire hotel assets that have been underperforming due to
lack of sufficient capital improvements, or poor management or franchise
affiliation. The Company seeks to increase operating cash flow and enhance its
value through both internal growth and acquisitions. The Company's internal
growth strategy, which has been its primary focus since the completion of its
merger with Bristol Hotel Company in July 1998, is to utilize its asset
management expertise to improve the quality of its hotels by renovating,
redeveloping and, in some instances, rebranding them, thereby improving hotel
revenue performance, and to participate, through the Percentage Leases, in any
growth in revenues at its hotels. The Company presently intends to concentrate
its acquisition growth strategy on a limited number of carefully selected
upscale and full-service hotel opportunities that meet the Company's investment
criteria.
STRATEGIC RELATIONSHIPS
The Company currently maintains strategic brand owner/manager
relationships with Promus (Embassy Suites and Doubletree), Bass Hotels &
Resorts, Inc. ("Bass") and Bristol (Crowne Plaza and Holiday Inn), and Starwood
(Sheraton and Westin).
o Promus Hotel Corporation is the largest operator of full-service,
all-suite hotels in the United States. Promus is also the owner of
the Embassy Suites, Doubletree and Doubletree Guest Suites brands
and the manager of 73 of the Company's Hotels. In addition, based
on the closing price of Felcor's Common Stock on the NYSE on
December 31, 1998, Promus owned Common Stock of FelCor and units
of partnership interest ("Units") in the Operating Partnership
with an aggregate value of more than $32 million at December 31,
1998, and was a 50% joint venture partner with the Company in the
ownership of 12 hotels and the holder of a 10% equity interest in
subsidiaries of the Company owning six hotels. The relationship
with Promus has provided the foundation for the Company's
historical growth.
o Bass Hotels & Resorts, Inc., which holds the hotel businesses of
Bass plc of the United Kingdom, operates or franchises more than
2,600 hotels and 450,000 guest rooms in more than 75 countries and
territories. Among the brands owned by Bass are Holiday Inn,
Crowne Plaza, Holiday Inn Express, Holiday Inn Select and
Inter-Continental(R). At December 31, 1998, Bass owned
approximately 14% of the outstanding Common Stock of FelCor (with
a market value of more than $200 million) and nearly 10% of the
outstanding Common Stock of Bristol.
o Starwood Hotels & Resorts Worldwide, Inc. is one of the world's
largest hotel operating companies. Directly and through
subsidiaries, Starwood owns, leases, manages or franchises
-2-
<PAGE> 5
approximately 650 hotels with more than 212,500 rooms in 70
countries. This strategic alliance, coupled with the purchase of
seven Sheraton hotels in 1997, provided the Company with its
initial entry into the upscale, full-service, non-suite hotel
market. Most recently, Starwood and the Company formed a joint
venture, owned 60% by the Company and 40% by Starwood, to own two
hotels managed by Starwood. This joint venture owns the Company's
first Westin hotel.
The strength of the Company's strategic relationships with the
foregoing brand owner/managers are evidenced by their significant equity
investments in the Company and in 20 of the Hotels. Both Promus and Starwood
have, directly or through affiliates, also (i) agreed to make subordinated loans
to DJONT (in support of its obligations under certain Percentage Leases) (ii)
subordinated certain customary fees to DJONT's obligations under applicable
Percentage Leases and (iii) granted to DJONT certain performance-based
termination rights under certain of their management agreements. Promus has also
guaranteed a $25 million loan to the Company.
HOTEL ACQUISITION AND EXPANSION
On July 28, 1998, FelCor completed the merger of Bristol Hotel
Company's real estate holdings with and into the Company (the "Merger"). The
Merger resulted in the net acquisition of 107 primarily full-service hotels in
return for approximately 31.0 million shares of newly issued Common Stock and
the assumption, net of cash received, of approximately $889 million of related
debts and other liabilities. Three of the 107 hotels acquired in the Merger were
disposed of prior to December 31, 1998 for approximately $7.8 million. In
addition to the Bristol Hotel Company assets, the Company acquired interests in
16 hotels in 1998 at an aggregate cost of approximately $412.8 million.
At December 31, 1998, the Company owned interests in 193 hotels with an
aggregate of 49,186 rooms and suites. Of the Hotels, the Company owns 100%
equity interests in 169 hotels (42,984 rooms and suites), a 90% or greater
interest in entities owning seven hotels (1,745 rooms and suites), a 60%
interest in an entity owning two hotels (824 rooms) and 50% interests in
separate entities that own 15 hotels (3,633 rooms and suites). The Hotels are
located in 34 states and Canada with an aggregate of 79 hotels located in
California (20), Florida (18) and Texas (41).
The following table provides information regarding the net acquisition
of hotels through December 31, 1998:
<TABLE>
<CAPTION>
NET NUMBER OF
HOTELS ACQUIRED
---------------
<S> <C>
1994 7
1995 13
1996 23
1997 30
1998 120
---
TOTALS 193
===
</TABLE>
-3-
<PAGE> 6
During 1998, the Company also completed the construction of an
aggregate of 224 additional suites, additional meeting rooms and other public
area upgrades at three of the Hotels leased to DJONT, at an aggregate cost of
approximately $23.4 million. These additions were made to the Company's Embassy
Suites hotels in Jacksonville, Florida (67 suites), Orlando (North), Florida (67
suites) and New Orleans, Louisiana (90 suites).
HOTEL RENOVATION, REDEVELOPMENT AND REBRANDING
The Company believes that one factor that differentiates it from other
hotel companies is its commitment to making capital expenditures where
necessary, to renovate, redevelop, and rebrand its Hotels. The Company
approaches this in four different ways: (i) an aggressive renovation and
redevelopment program as hotels are acquired to bring them up to their optimum
competitive position, (ii) rebranding hotels in certain instances to improve
the revenue generating capacity of the hotel, (iii) contributions of at least
4% of annual room and suite revenue for the DJONT hotels and 3% of total annual
hotel revenue for the Bristol hotels (on a cumulative basis) for routine
capital replacements and improvements (the "Capital Reserve"), and (iv)
insuring that the Lessees adhere to a proactive maintenance and repair program
for the Hotels amounting to approximately 4.5% of hotel revenues. In 1998, the
Company, together with Bristol Hotel Company prior to the Merger, spent a total
of approximately $40 million from the Capital Reserve on routine replacements
and improvements at the Hotels and completed approximately $180 million in
additional capital improvements to approximately 40 hotels. During 1998,
approximately 3% of total Hotel room nights were lost due to renovations. The
Company presently expects to spend an additional $160 million in capital
improvements to 56 Hotels during 1999 and expects that approximately 3% of
total Hotel room nights again will be lost due to renovations.
In 1998, the Company rebranded 16 hotels, as follows:
<TABLE>
<CAPTION>
PRIOR BRAND NEW BRAND LOCATION
----------- --------- --------
<S> <C> <C>
Hilton Crowne Plaza Secaucus, New Jersey
Holiday Inn Crowne Plaza Hartford, Connecticut
Holiday Inn Crowne Plaza San Francisco, California
Holiday Inn Crowne Plaza Houston, Texas
Holiday Inn Select Crowne Plaza Greenville, South Carolina
Holiday Inn Select Crowne Plaza Miami, Florida
Holiday Inn Select Crowne Plaza Philadelphia, Pennsylvania
Harvey Hotel Crowne Plaza Atlanta, Georgia
Harvey Hotel Crowne Plaza Dallas, Texas
Harvey Hotel Crowne Plaza Addison, Texas
Bristol Suites Crowne Plaza Suites Dallas, Texas
Doubletree Guest Suites Sheraton Suites Ft. Lauderdale, Florida
Doubletree Guest Suites Sheraton Suites Lexington, Kentucky
Sheraton Westin Dallas, Texas
Radisson Sheraton Dallas, Texas
Harvey Suites Holiday Inn & Suites Houston, Texas
</TABLE>
During 1999, the Company presently expects to rebrand four Holiday Inn
hotels and one independent hotel as Crowne Plaza hotels, four Doubletree Guest
Suites hotels as Embassy Suites hotels, and one Radisson hotel as a Doubletree
hotel.
-4-
<PAGE> 7
REPAIRS AND MAINTENANCE
During the year ended December 31, 1998, approximately $36.4 million
and $32.0 million was spent by the Lessees on routine repairs and maintenance at
the Hotels leased by DJONT and Bristol, respectively. This represents
approximately 4.7% of total hotel revenues.
FINANCING TRANSACTIONS
On May 1, 1998, FelCor issued 5.75 million depositary shares,
representing 57,500 shares of its 9% Series B Cumulative Redeemable Preferred
Stock ("Series B Preferred Stock"), at $25.00 per depositary share, providing
net proceeds of approximately $139.1 million. The Series B Preferred Stock and
the corresponding depositary shares may be called by FelCor at par on or after
May 7, 2003, have no stated maturity, sinking fund or mandatory redemption, and
are not convertible into any other securities of FelCor. The Series B Preferred
Stock has a liquidation preference of $2,500 per share (equivalent to $25.00 per
depositary share) and is entitled to quarterly dividends at an annual rate equal
to 9% of the liquidation preference (equivalent to $2.25 annually per depositary
share).
On July 1, 1998, the Company increased its unsecured credit facilities
to $1.1 billion, consisting of an $850 million revolving line of credit ("Line
of Credit") which matures in June 2001 and a $250 million non-amortizing term
loan ("Term Loan") which matures in December 1999. Interest payable on
borrowings under the credit facilities is variable, determined from a ratings-
and leverage-based pricing matrix, ranging from 87.5 basis points to 175 basis
points above the London Interbank Offered Rate ("LIBOR"). During 1998, the
Company's interest spread was 150 basis points over LIBOR and, at December 31,
1998, the 30-day LIBOR rate was 5.628750%. Additionally, the Company is required
to pay an unused commitment fee, which varies under a ratings-based pricing
matrix, ranging from 20 to 30 basis points. During 1998, the Company wrote off
approximately $2.5 million of deferred financing fees relating to the previous
unsecured credit facility of $550 million.
The Line of Credit and Term Loan contain various affirmative and
negative covenants, including limitations on total indebtedness, total secured
indebtedness, and cash distributions, as well as the obligation to maintain a
certain minimum tangible net worth and certain minimum interest and debt service
coverage ratios. The Company's other borrowings also contain affirmative and
negative covenants that are generally equal to or less restrictive than under
the Line of Credit and Term Loan. At December 31, 1998, the Company was in
compliance with all such covenants.
In addition to Line of Credit and Term Loan, at December 31, 1998, the
Company had other unsecured indebtedness consisting of a $25 million term loan
guaranteed by Promus ("Renovation Loan"), $298 million (net of discount) of
publicly-traded senior term notes, and approximately $10 million of other
indebtedness. At December 31, 1998, the Company also had approximately $276
million in secured debt, most of which is nonrecourse to the Company (with
certain exceptions) and contains provisions allowing for the substitution of
collateral upon satisfaction of certain conditions.
FelCor had approximately $114 million in borrowing capacity under its
Line of Credit at December 31, 1998 and also had the ability to issue up to $946
million of common stock, preferred stock, debt securities and/or common stock
warrants under shelf registration statements previously declared effective.
Given the current market prices of its equity securities, FelCor has no present
intention to effect a public offering of equity securities in the near future.
The Board of Directors has adopted a policy which limits the Company's
indebtedness to not more than 40% of its investment in hotel assets, at cost,
which at December 31, 1998, would have allowed the Company to borrow up to
approximately $1.7 billion under such policy. This policy may be modified by the
Board of Directors at any time.
-5-
<PAGE> 8
At December 31, 1998, the consolidated indebtedness of the Company was
approximately 38% of total assets and its interest coverage ratio was 3.8-to-1.
The Company believes that its current policy (limiting indebtedness to 40% of
its investment in hotel assets), its preference for unsecured debt and its
historical success in raising equity capital for expansion, demonstrate the
Company's commitment to the maintenance of a conservative but flexible capital
structure.
The Company is currently seeking to refinance the $250 million term
loan that matures on December 31, 1999.
HOTEL OPERATING PERFORMANCE
The Company's 102 "Comparable Hotels" (as defined on the following
page) owned at December 31, 1998, produced a RevPAR (as defined below) increase
of 6.2% over 1997, nearly double that of the industry average. The largest
portion of this increase, with respect to the DJONT Hotels, came from the 18
former Crown Sterling Suites hotels ("CSS Hotels"), which continued their trend
of improved RevPAR throughout 1998, achieving a RevPAR of $92.05 in 1998
compared to $85.04 during 1997, an increase of 8.2%. The Company attributes this
increase to the continuing effects of the renovation, redevelopment and
rebranding of these hotels in 1996 and early 1997. The largest increase, with
respect to the Bristol Hotels, came from the Omaha Acquisition hotels, which
experienced a RevPAR increase of approximately 15.3% in 1998 over 1997. The
Company attributes this increase primarily to a transition of the Omaha
Acquisition hotels to the professional management of Bristol.
The Company believes that, when analyzing the performance of the
Hotels, looking at "comparable" hotels is the most meaningful. For the DJONT
Hotels, "Comparable Hotels" means those hotels that were owned by the Company
throughout all of 1997 and 1998. This generally includes the Hotels that have
benefitted from the Company's renovation, redevelopment and rebranding programs
and generally excludes those Hotels that are currently undergoing renovation and
experiencing out-of-service rooms and suites due to their renovation. For the
Bristol Hotels, "Comparable Hotels" excludes those Hotels undergoing
redevelopment during either of the comparison years and those hotels that are
identified for sale.
The following tables set forth, by Lessee, the historical occupancy
percentage ("Occupancy"), average daily rate ("ADR") and revenue per available
room ("RevPAR") at December 31, 1998 and 1997, and the percentage changes
therein between the periods presented, for both the Comparable Hotels and the
Non-comparable Hotels owned by the Company at December 31, 1998. This
information is presented regardless of ownership of the Hotels during the
periods presented.
-6-
<PAGE> 9
Comparable Hotels
<TABLE>
<CAPTION>
1998
------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels ............................ 73.6% $113.59 $83.59
CSS Hotels ................................. 73.2 125.77 92.05
1996 Acquisitions .......................... 73.7 126.08 92.86
Total DJONT Comparable Hotels (A) .......... 73.4 122.33 89.83
Original Bristol ........................... 71.5 74.38 53.15
Holiday Acquisition ........................ 73.9 87.31 64.52
Omaha Acquisition .......................... 50.5 62.15 31.36
Total Bristol Comparable Hotels (B) ........ 67.4 77.94 52.55
Total Comparable Hotels .................... 70.0% $97.71 $68.38
</TABLE>
<TABLE>
<CAPTION>
1997
--------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels ............................ 76.1% $109.35 $83.17
CSS Hotels ................................. 73.4 115.85 85.04
1996 Acquisitions .......................... 74.0 118.61 87.76
Total DJONT Comparable Hotels .............. 74.3 114.77 85.27
Original Bristol ........................... 74.2 68.76 51.00
Holiday Acquisition ........................ 74.7 81.10 60.60
Omaha Acquisition .......................... 46.1 59.05 27.21
Total Bristol Comparable Hotels ............ 67.7 72.74 49.26
Total Comparable Hotels .................... 70.5% $91.37 $64.40
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM 1998 VS. 1997
--------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels ............................ (2.5) pts. 3.9% 0.5%
CSS Hotels ................................. (0.2) 8.6 8.2
1996 Acquisitions .......................... (0.3) 6.3 5.8
Total DJONT Comparable Hotels....... ....... (0.9) 6.6 5.4
Original Bristol ........................... (2.7) 8.2 4.2
Holiday Acquisition ........................ (0.8) 7.7 6.5
Omaha Acquisition .......................... 4.4 5.2 15.3
Total Bristol Comparable Hotels............. (0.3) 7.1 6.7
Total Comparable Hotels ................. (0.5) pts. 6.9% 6.2%
</TABLE>
(A) The Original Hotels (13 hotels), CSS Hotels (18 hotels), and 1996
Acquisitions (12 hotels) are considered DJONT Comparable Hotels, since these
hotels were owned by the Company throughout the years ended December 31, 1998
and 1997.
(B) Bristol Comparable Hotels (59 hotels) excludes 39 hotels undergoing
redevelopment during either 1997 or 1998, three individual hotel acquisitions,
and six hotels identified for sale.
-7-
<PAGE> 10
Non-comparable Hotels
<TABLE>
<CAPTION>
1998
------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions (A) .................... 71.0% $112.11 $79.56
1998 Acquisitions (A) .................... 71.4 99.77 71.22
Bristol Non-comparable Hotels (B) ........ 67.0 87.30 58.46
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions ........................ 71.8% $109.26 $78.45
1998 Acquisitions ........................ 72.6 97.80 71.01
Bristol Non-comparable Hotels ............ 72.3 79.11 57.21
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM 1998 VS. 1997
------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions .................... (0.8) pts. 2.6% 1.4%
1998 Acquisitions .................... (1.2) 2.0 0.3
Bristol Non-comparable Hotels ........ (5.3) 10.4 2.2
</TABLE>
(A) The 1997 Acquisitions (30 hotels) and 1998 Acquisitions
(13 hotels) are excluded from the DJONT Comparable Hotels
because they were not owned by the Company during all of 1998
and 1997.
(B) The Bristol Non-comparable Hotels excludes two hotels
closed during renovation and six hotels identified for sale.
In the aggregate, the six hotels identified for sale had a
7.5% decline in RevPAR during 1998.
The principal factors affecting the Company's results of operations
during 1998 were the growth in the number of hotels owned and the continuing
improvement in room and suite revenue, as measured by RevPAR. It is currently
expected that improvements in room and suite revenue will be an increasingly
important factor during 1999 as the renovation, redevelopment and rebranding of
a number of the Hotels is completed. Growth in room and suite revenues
significantly impacts the Company because its principal source of revenue is
lease payments by the Lessees under the Percentage Leases. The Percentage Leases
are computed as a percentage of room and suite revenues, food and beverage
revenues, food and beverage rents and, in certain instances, other Hotel
revenues.
SEASONALITY
The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue, particularly during the fourth quarter, to
the extent that it receives Percentage Rent. To the extent cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, the Company expects to utilize other cash on hand
or borrowings under the Line of Credit to make distributions to its equity
holders.
COMPETITION
The hotel industry is highly competitive. Each of the Company's hotels
is located in a developed area that includes other hotel properties and competes
for guests primarily with other full-service hotels in its immediate vicinity
and secondarily with other hotel properties in its geographic market. An
increase in the number of competitive hotel properties in a particular area
could have a material adverse effect on the
-8-
<PAGE> 11
Occupancy, ADR and RevPAR of the Company's hotels in that area. The Company
believes that brand recognition, location, the quality of the hotel and services
provided, and price are the principal competitive factors affecting the
Company's hotels.
The Company competes for investment opportunities with other entities,
some of which have substantially greater financial resources than the Company.
These larger entities may generally be able to accept more risk than the Company
can prudently manage. Competition may generally reduce the number of suitable
investment opportunities offered to the Company and may increase the bargaining
power of owners seeking to sell their hotels.
PROPERTY TAXES
Each Hotel is subject to real and personal property taxes, which are
borne by the Company under the Percentage Leases. During 1998, real and personal
property taxes incurred by the Company amounted to $32.9 million, or 9.7% of the
Company's total revenues. Real and personal property taxes on the Hotels may
increase as property tax rates change and as the properties are assessed or
reassessed by taxing authorities. FelCor's Vice President, Taxes, Michael L.
Hunter and his staff, work with the numerous taxing authorities, both directly
and through independent agents, to assure that the Hotels are fairly assessed
and to minimize the Company's tax liabilities.
TAX STATUS
FelCor has elected to be taxed as a REIT under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with
its initial taxable year ending December 31, 1994. As a REIT, FelCor (subject to
certain exceptions) will not be subject to federal income taxation, at the
corporate level, on its taxable income that is distributed to its shareholders.
A REIT is subject to a number of organizational and operational requirements,
including a requirement that it distribute annually at least 95% of its taxable
income. FelCor may, however, be subject to certain state and local taxes on its
income and property. In connection with FelCor's election to be taxed as a REIT,
FelCor's Charter imposes restrictions on the ownership and transfer of shares of
its Common Stock. FelCor has adopted the calendar year as its taxable year.
LESSEE OPERATIONS
The Lessees lease all but one of the Hotels under Percentage Leases,
pursuant to which the Lessee is obligated to pay the Company the greater of a
minimum Base Rent or Percentage Rent based on a percentage of revenues. See
"Item 2. Properties" for additional information regarding the terms of the
Percentage Leases. The Lessees have entered into, and are responsible for the
payment of all fees under, the franchise licenses and management agreements
relating to the Hotels, may hold the liquor licenses applicable to the Hotels,
own and maintain the inventories required for the operation of the Hotels, pay
for normal maintenance and repair expenses, enter into various operating,
maintenance and service agreements with respect to the Hotels, and are
responsible for compliance with the license, management and other agreements
affecting hotel operations. In addition, the Lessees provide asset management
services to the Hotels, including the supervision of the day-to-day operations
of the Hotels by the management companies engaged to manage such Hotels and the
establishment and implementation of capital expenditure programs.
Messrs. Feldman and Corcoran, as the beneficial owners of an aggregate
50% common equity interest in DJONT, have entered into an agreement with the
Company pursuant to which they have agreed that, through April 15, 2005, any
distributions received by them from DJONT (in excess of their tax liabilities
with respect to the income of DJONT) will be utilized to purchase Common Stock
or Units from the Company in an underwritten public offering or annually, at the
then current market prices. The agreement stipulates that Messrs. Feldman and
Corcoran are restricted from selling the stock so acquired for a period of two
years from the date of purchase. RGC Leasing, Inc., which owns the other 50%
common equity interest in the Lessee,
-9-
<PAGE> 12
may elect to purchase Common Stock or Units upon similar terms, at its option.
Pursuant to this agreement, each of Messrs. Feldman and Corcoran purchased 3,775
shares of Common Stock in December 1995. The Independent Directors (as herein
defined) may suspend or terminate such agreement at any time.
DJONT, as a related third party, has elected to provide its audited
financial statements to the Company for inclusion elsewhere in this Form 10-K,
although such statements are not generally required to be disclosed.
See "Index to Financial Statements" at page F-1.
Bristol, which succeeded to the hotel operating business conducted by
Bristol Hotel Company prior to its July 1998 merger into FelCor, is an
independent publicly owned company whose common stock is traded on the New York
Stock Exchange. Bristol is required to file with the Securities and Exchange
Commission such financial statements and other information as may be required
under the Securities Exchange Act of 1934, as amended. Reference is made to
Bristol's filings with the Securities and Exchange Commission for information
relating to Bristol.
EMPLOYEES
Mr. Corcoran entered into an employment agreement with the Company in
1994 that continues through 1999. None of FelCor's other executive officers has
an employment agreement with FelCor. In addition to Mr. Corcoran, the Company
had 40 other full-time employees at December 31, 1998. All persons employed in
the day-to-day operation of the Company's Hotels are employees of the Lessees,
or of the management companies engaged by the Lessees, to operate such Hotels
and are not employees of the Company.
PERSONNEL AND OFFICE SHARING ARRANGEMENTS
The Company shares executive offices with DJONT and FelCor, Inc., a
corporation owned by Messrs. Feldman and Corcoran. Each entity bears an
allocated share of the costs thereof, including but not limited to rent,
salaries of certain personnel (other than Mr. Corcoran, who is compensated
solely by the Company), office supplies, telephones and depreciation of office
furniture, fixtures and equipment. Such allocations of shared costs are subject
to the approval of a majority of the Independent Directors. During 1998,
approximately $2.8 million (approximately 63% of all allocable expenses) were
borne by the Company under this arrangement.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements and analyses contained in this Annual Report on Form
10-K, in FelCor's 1998 Annual Report to Stockholders, or that may in the future
be made by, or be attributable to, the Company, may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, and can be identified by the use of forward-looking terminology such as
"may," "will," "expect," "anticipate," "estimate" or "continue" or the negative
thereof or other variations thereon or comparable terminology. All of such
forward-looking statements are based upon present expectations and assumptions
that may or may not actually occur. The following factors 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 or in the Company's historical results. Each of the following
factors, among others, could adversely affect the ability of the Company to meet
its current expectations.
Inability to Integrate Bristol Hotel Company's Assets or Realize
Anticipated Benefits of Merger.
Primarily as a result of the Merger, the number of hotels owned by the
Company more than doubled during 1998. Although the Bristol Hotels are operated
by Bristol under long-term leases, the Company must fully integrate those hotels
into its hotel portfolio and may need additional people and resources to handle
the
-10-
<PAGE> 13
increased work load. If the Company is unable successfully to integrate the
Bristol Hotels into its portfolio, FelCor's business, financial condition and
results of operations could suffer. A large number of the Bristol Hotels are in
the process of, or awaiting, substantial renovation, redevelopment and
rebranding. If the implementation of these plans is significantly delayed or
curtailed, or the improvements do not yield the anticipated results, then FelCor
may have paid too much for the Bristol Hotels in the Merger.
Increases in Leverage and Floating Rate Debt; Inability to Retain Earnings
or Refinance Debt.
As a result of the Merger with Bristol Hotel Company, FelCor's leverage
increased during 1998 and may increase further. At December 31, 1998, FelCor had
approximately $1.6 billion in indebtedness, of which approximately $276 million
was secured, and a consolidated debt-to-total assets ratio of 38%. FelCor's
ratio of EBITDA to interest expense for the years ended December 31, 1998 and
1997 was 3.8-to-1 and 4.4-to-1, respectively. At December 31, 1998, FelCor had
$695.7 million in indebtedness, or 44% of all FelCor indebtedness, that provided
for the payment of interest at floating rates. Most of this floating rate debt
bears interest at a rate equal to between 0.45% and 1.75% plus the 30-day LIBOR
rate. At December 31, 1998, the 30-day LIBOR rate was 5.628750%. Changes in
economic conditions could result in higher interest rates, thereby increasing
FelCor's interest expense on its floating rate debt and reducing funds available
for its current renovation, redevelopment and rebranding plans and for
distribution to FelCor's stockholders.
In order to qualify as a REIT, FelCor must distribute to its
stockholders, annually, at least 95% of its net taxable income (excluding
capital gains) and, accordingly, cannot retain any substantial portion of its
earnings to meet its capital needs. FelCor has $16 million in debt maturing
prior to December 31, 1999 and its $250 million Term Loan matures on that date.
At December 31, 1998, FelCor had $114 million in borrowing capacity available
under its existing Line of Credit and is currently seeking to refinance all or a
substantial portion of the debt coming due during 1999. If FelCor were to
default in the payment when due of more than $10 million of its outstanding
indebtedness, cross default provisions under most of its credit facilities could
result in substantially all of FelCor's debt being declared immediately due and
payable. Should that occur, FelCor may be unable to refinance or repay such
indebtedness in full under such circumstances.
Dependence on Lessees' Hotel Operations.
FelCor's revenues currently and in the future will consist primarily of
rents received under its leases. The Lessees' payment of such rental obligations
is generally unsecured. As the lessee of 106 of the Bristol Hotels, Bristol had
a net worth of approximately $35 million at December 31, 1998, and is obligated
to maintain certain net worth and liquidity requirements. DJONT, which leases 86
of the Hotels, has limited assets, derives its revenue solely from the operation
of FelCor's hotels and, at December 31, 1998, had a stockholders' deficit of
approximately $8.2 million. However, DJONT or its subsidiaries have the right to
borrow from FelCor, Inc., Promus, Doubletree Hotel Corporation, Lee & Urbahns,
L.P. and ITT Sheraton Corporation (which have an equity interest in and/or are
managers of hotels leased by DJONT), on a subordinated basis and subject to
certain limitations, up to an aggregate of approximately $17.3 million to meet
certain of its rental obligations. The Company will be substantially dependent
upon the successful operation of its hotels to enable the lessees (particularly
DJONT) to meet their rental obligations under the leases.
The leases with DJONT and Bristol have varying terms, generally no
longer than 15 years. At the expiration of the lease terms, the Company will be
required to negotiate renewals or seek replacement leases, which could adversely
affect its results of operations.
Conflicts of Interest
Certain FelCor Directors. As of December 31, 1998, DJONT leased 86 of
the Company's hotels. All of the voting interests (and a 50% common equity
interest) in DJONT are beneficially owned by Hervey A. Feldman and Thomas J.
Corcoran, Jr. The remaining 50% of the common equity interests in DJONT are
non-
-11-
<PAGE> 14
voting and are beneficially owned by the children of Charles N. Mathewson. Mr.
Feldman is a co-founder and the Chairman Emeritus of FelCor. Mr. Corcoran is a
co-founder and the President and Chief Executive Officer of FelCor. Mr.
Mathewson and Mr. Corcoran both serve as directors of FelCor.
All of the Bristol Hotels are leased to and/or managed by Bristol. No
officer or director of Bristol is also an officer or director of FelCor.
However, Donald J. McNamara, the Chairman of the Board of FelCor, is a principal
in a firm that controls the general partner of United/Harvey Holdings, L.P.
("United Harvey"), which beneficially owns approximately 39.5% of the stock of
Bristol. Five partnerships that own substantial equity interests in United
Harvey also own in the aggregate approximately 14.1% of FelCor's outstanding
Common Stock. In addition, Michael D. Rose and Richard C. North joined FelCor's
Board during 1998. Mr. Rose is the former Chairman of the Board of Promus. Mr.
North is the Group Finance Director of the parent of Holiday Hospitality
Franchising, Inc. ("Holiday Hospitality"). Promus is, and will continue to be,
the franchisor and manager of many of FelCor's hotels. Holiday Hospitality is
the franchisor of most of the Bristol Hotels and, together with its affiliates,
owns approximately 9.9% of the stock of Bristol and approximately 14.1% of
FelCor's outstanding Common Stock.
Issues may arise under the leases, franchise agreements and management
contracts, and in the allocation of acquisition and leasing opportunities, that
present conflicts of interests due to the relationship of these directors to the
companies with which they are or have been associated. As an example, any
decreases in lease rental rates payable by DJONT may increase the profits of
DJONT, in which Messrs. Feldman and Corcoran and Mr. Mathewson's children have a
direct economic interest, at the expense of FelCor and its stockholders. In the
event FelCor enters into new or additional hotel leases or other transactions
with Bristol, the interests of Mr. McNamara and Mr. North, by virtue of their
relationships to significant investors in Bristol, may conflict with the
interests of FelCor and its stockholders. For example, any decrease in lease
rental rates payable by Bristol may decrease FelCor's profits to the benefit of
Bristol. Also, in the selection of franchises under which FelCor's hotels will
be operated, Mr. Rose and Mr. North, by virtue of their relationships with
Promus and Holiday Hospitality, respectively, which are hotel franchising
companies, may have interests which conflict with those of FelCor and its
stockholders. It is anticipated that any director who has a conflict of interest
with respect to an issue presented to the FelCor Board will abstain from voting
upon that issue although he will have no legal obligation to do so. FelCor has
no provisions in its bylaws or charter that require an interested director to
abstain from voting upon an issue, although each director will have a fiduciary
duty of loyalty to FelCor. There is a risk that, should an interested director
vote upon an issue in which he or one of his affiliates has an interest, his
vote may reflect a bias that could be contrary to the best interests of FelCor.
In addition, even if an interested director abstains in the actual vote, the
director's participation in the meeting and discussion of an issue in which he
or companies with which he is associated have an interest could influence the
votes of other directors regarding the issue.
No Arms-Length Bargaining on DJONT Percentage Leases. The terms of the
leases between FelCor and DJONT were not negotiated on an arms-length basis.
Accordingly, these Percentage Leases may not reflect fair market values or
terms. However, the management of FelCor believes that the terms of these leases
are fair to FelCor. The rental terms of these leases were set based upon
historical financial information and projected operating performance of the
applicable hotel. The other terms of the leases are typical of the provisions
found in other leases entered into in similar circumstances. The leases were
approved by a majority of the Independent Directors of FelCor at the time they
were entered into.
Adverse Tax Consequences to Certain Affiliates on a Sale of Certain
Hotels. Messrs. Corcoran and Mathewson may have additional tax liability if
FelCor sells its investments in six hotels acquired by FelCor in July 1994 from
partnerships controlled by these individuals. Consequently, the interests of
FelCor and of Messrs. Corcoran and Mathewson could be different in the event
that FelCor decided to consider a sale of any of these hotels. Decisions
regarding a sale of any of these six hotels must be made by a majority of the
Independent Directors of FelCor.
-12-
<PAGE> 15
Restrictive Debt Covenants
At December 31, 1998, FelCor's unsecured Line of Credit and Term Loan
provided for borrowings of up to an aggregate of $1.1 billion, of which FelCor
had borrowed approximately $986 million. FelCor also had issued and outstanding
$298 million (net of discount) in principal amount of publicly-traded senior
term notes. The agreements governing FelCor's Line of Credit, Term Loan and
senior notes contain various restrictive covenants, including, among others,
provisions restricting FelCor from incurring indebtedness, making investments,
engaging in transactions with stockholders and affiliates, incurring liens,
merging or consolidating with another person, disposing of all or substantially
all of its assets or permitting limitations on its subsidiaries with respect to
the payment of dividends or other amounts to FelCor. In addition, these
agreements require FelCor to maintain certain specified financial ratios. Under
the most restrictive of these provisions, FelCor's maximum additional
indebtedness that could be incurred for the acquisition of hotel properties
would have been limited to approximately $860 million at December 31, 1998.
These covenants also may restrict FelCor's ability to engage in certain
transactions. In addition, any breach of these limitations could result in the
acceleration of most of FelCor's outstanding indebtedness. FelCor may not be
able to refinance or repay this indebtedness in full under such circumstances.
Matters That May Adversely Affect the Hotel Industry
Fewer Growth Opportunities. There has been substantial consolidation
in, and capital allocated to, the U.S. lodging industry since the early 1990s.
This has generally resulted in higher prices for hotels and fewer attractive
acquisition opportunities. An important part of FelCor's growth strategy has
been the acquisition and, in many instances, the renovation and repositioning,
of hotels at less than replacement cost. Continued industry consolidation and
competition for acquisitions could adversely affect FelCor's growth prospects.
FelCor competes for hotel investment opportunities with other companies, some of
which have greater financial or other resources. Certain competitors may be able
to pay higher prices or assume greater risks than would be appropriate for
FelCor.
Potential Adverse Effects on Hotel Operations. The Hotels owned by
FelCor are subject to all of the risks common to the hotel industry. These risks
could adversely affect hotel occupancy and the rates that can be charged for
hotel rooms, and generally include:
o The existence of competition from other hotels;
o The construction of more hotel rooms in a particular area than
needed to meet demand;
o The increase in energy costs and other travel expenses that
reduce business and leisure travel;
o The adverse effects of declines in general and local economic
activity; and
o The risks generally associated with the ownership of hotels
and real estate, as discussed in the following four paragraphs
and under "-- Matters That May Adversely Affect Real Estate
Ownership."
In addition, annual adjustments (based on changes in the Consumer Price Index)
are made to the Base Rent and the thresholds used to compute Percentage Rent
under the Percentage Leases. These adjustments, unless offset by increases in
hotel revenues, would reduce the amount of rent payable to FelCor under the
Percentage Leases and, consequently, FelCor's results of operations.
Competition. Each of FelCor's Hotels competes with other hotels in its
geographic area. A number of additional hotel rooms have been or may be built in
a number of the geographic areas in which the Hotels are located, which could
adversely affect the results of operations of these hotels. According to
PricewaterhouseCoopers LLP, total hotel room supply in the United States
increased by 3.5%, or
-13-
<PAGE> 16
approximately 126,000 rooms, from 1997 to 1998, while the demand for hotel rooms
increased only 3.2% during the same period. Management believes that most of the
increase in United States hotel room supply has been in the limited service or
extended stay segments of the hotel industry, from which FelCor derives
approximately 5% of its revenues. An oversupply of hotel rooms, regardless of
market segment, could adversely affect both occupancy and rates in the markets
in which the Hotels are located. However, a significant increase in the supply
of midscale and upscale hotel rooms and suites, if demand fails to increase
proportionately, could have a more severe adverse effect on the Company's
operations.
Seasonality. The hotel industry is seasonal in nature. Generally, hotel
revenues are highest in the first three quarters of each year. Seasonality
causes quarterly fluctuations in FelCor's revenue. FelCor may be able to reduce,
but not eliminate, the effects of seasonality by continuing to diversify the
geographic location and primary customer base of its Hotels.
Investment Concentration in a Single Industry. Historically, FelCor has
only invested in hotel-related assets. In the event of a downturn in the hotel
industry, the adverse effect on FelCor may be greater than on a more diversified
company with assets outside of the hotel industry.
Requirements of Franchise Agreements. Most of FelCor's Hotels are
operated under various franchise licenses. Each license agreement requires that
the franchised hotel be maintained and operated in accordance with certain
standards. The franchisors also may require substantial improvements to FelCor's
Hotels, for which FelCor would be responsible under the Percentage Leases, as a
condition to the renewal or continuation of these franchise licenses. If a
franchise license terminates due to FelCor's failure to make required
improvements or to otherwise comply with its terms, FelCor may be liable to the
franchisor for a termination payment. These termination payments would vary
among the various franchise agreements and by hotel. The loss of a substantial
number of franchise licenses and the related termination payments could have a
material adverse effect on FelCor's results of operations.
Limitations on Acquisitions and Improvements
FelCor presently intends to continue its acquisition growth strategy,
but at a much slower pace than in prior years. Since the completion of the
Merger with Bristol Hotel Company in July 1998, the Company's growth strategy
has been focused, and it presently intends to focus during 1999, on its internal
growth strategy, which includes the renovation, redevelopment and rebranding of
its hotels to achieve improved revenue performance. FelCor generally cannot fund
its growth solely from cash provided from operating activities because it must
distribute to its stockholders at least 95% of its taxable income each year to
maintain its status as a REIT. Consequently, FelCor must rely, to a significant
extent, upon the availability of debt or equity capital to fund hotel
acquisitions and improvements. Given the current market prices of its equity
securities, FelCor has no present intention to effect a public offering of
equity securities in the near future. Consequently, FelCor will be dependent
upon its ability to attract debt financing from public or institutional lenders.
There can be no assurance that FelCor will be successful in attracting
sufficient debt financing to fund future growth at an acceptable cost. In
addition, FelCor's Board has adopted a policy of limiting indebtedness to not
more than 40% of FelCor's investment in hotel assets, at cost, which could also
limit FelCor's ability to incur additional indebtedness to fund its continued
growth. At December 31, 1998, FelCor's indebtedness represented 38% of its
investment in hotel assets, at cost.
-14-
<PAGE> 17
Potential Tax Risks
General. Failure to qualify as a REIT would subject FelCor to federal
income tax. FelCor has operated and will continue to operate in a manner that is
intended to qualify it as a REIT under federal income tax laws. The REIT
qualification requirements are extremely complicated and interpretations of the
federal income tax laws governing qualification as a REIT are limited.
Accordingly, FelCor cannot be certain that it has been or will continue to be
successful in operating so as to qualify as a REIT. At any time, new laws,
interpretations or court decisions may change the federal tax laws or the
federal income tax consequences of qualification as a REIT.
If FelCor failed to qualify as a REIT, FelCor would be required to pay
federal income tax on its taxable income. FelCor might need to borrow money or
sell hotels in order to pay any such tax. FelCor's payment of income tax would
decrease the amount of its income available to be paid out to its stockholders.
In addition, FelCor would no longer be required to pay out most of its taxable
income to its stockholders. Unless its failure to qualify as a REIT were excused
under federal income tax laws, FelCor could not re-elect REIT status until the
fifth calendar year following the year in which it failed to qualify.
Failure to Make Required Distributions Would Subject FelCor to Tax. In
order to qualify as a REIT, each year FelCor must pay out to its stockholders at
least 95% of its taxable income (other than any net capital gain). In addition,
FelCor would be subject to a 4% nondeductible tax if the actual amount it pays
out to its stockholders in a calendar year were less than the minimum amount
specified under federal tax laws. FelCor has paid out and intends to continue to
pay out its income to its stockholders in a manner intended to satisfy the 95%
test and to avoid the 4% tax. In doing so, FelCor may be required to borrow
money or sell assets to pay out enough of its taxable income to satisfy the 95%
test and to avoid the 4% tax in a particular year.
Failure to Distribute Earnings and Profits in Connection With the 1998
Merger With Bristol Hotel Company Would Cause FelCor to Fail to Qualify as a
REIT. At the end of any taxable year, a REIT may not have any accumulated
earnings and profits (described generally for federal income tax purposes as
cumulative undistributed net income) from a non-REIT corporation. Arthur
Andersen LLP prepared and provided to FelCor its computation of the accumulated
earnings and profits of Bristol Hotel Company through the date of the Merger.
Based upon such computation, in addition to its regular fourth quarter
distribution, FelCor paid a special one-time distribution of $0.345 per share on
its Common Stock, and $0.207 per share on its Series A Preferred Stock, in
respect of such accumulated earnings and profits. However, the determination of
a company's accumulated earnings and profits for federal income tax purposes is
extremely complex and the computations by Arthur Andersen LLP are not binding
upon the Internal Revenue Service. Should the Internal Revenue Service
successfully assert that the accumulated earnings and profits of Bristol Hotel
Company were greater than the amount so distributed by FelCor, it may fail to
qualify as a REIT.
Sale of Assets Acquired in the Merger Within Ten Years After the Merger
Will Result in Corporate Tax. If FelCor sells any asset acquired in the Merger,
within ten years after the Merger, and recognizes gain, FelCor will be taxed at
the highest corporate rate on an amount equal to the fair market value of the
asset minus the adjusted basis of the asset as of the Merger. The sales of
Bristol Hotels that have been made, and are currently planned to be made, are
not expected to result in any material amount of income tax liability.
Effect of Market Interest Rates on the Price of the Common Stock
One of the factors that may affect the price of the Common Stock is the
amount of distributions to stockholders in comparison to yields on other
financial instruments. An increase in market interest rates would provide higher
yields on other financial instruments, which could adversely affect the price of
the Common Stock.
-15-
<PAGE> 18
Reliance on Key Personnel and Board of Directors
FelCor's stockholders have no right to participate in FelCor's
management, except through the exercise of their voting rights. FelCor's Board
of Directors will be responsible for oversight of the management of FelCor.
FelCor's future success will be dependent in part on its ability to retain key
personnel, including Mr.
Corcoran.
Matters That May Adversely Affect Real Estate Ownership
General. FelCor's investments in hotels are subject to the numerous
risks generally associated with owning real estate. These risks include, among
others, adverse changes in general or local economic or real estate market
conditions, zoning laws, traffic patterns and neighborhood characteristics, real
estate tax assessments and rates, governmental regulations and fiscal policies,
the potential for uninsured or underinsured casualty and other losses, the
impact of environmental laws and regulations (discussed below) and other
circumstances beyond the control of FelCor. Moreover, real estate investments
are relatively illiquid, which means that FelCor's ability to vary its portfolio
in response to changes in economic and other conditions may be limited.
Possible Liability for Environmental Matters. There are numerous
federal, state and local environmental laws and regulations to which owners of
real estate are subject. Under these laws a current or prior owner of real
estate may be liable for the costs of cleaning up and removing hazardous or
toxic substances found on its property, whether or not it was responsible for
their presence. In addition, if an owner of real property arranges for the
disposal of hazardous or toxic substances at another site, it may also be liable
for the costs of cleaning up and removing such substances from the disposal
site, even if it did not own or operate the disposal site. A property owner may
also be liable to third parties for personal injuries or property damage
sustained as a result of its release of hazardous or toxic substances (including
asbestos-containing materials) into the environment. Environmental laws may
require FelCor to incur substantial expenses and limit the use of its
properties. FelCor could be liable for substantial amounts for a failure to
comply with applicable environmental laws, which may be enforced by the
government or, in certain instances, by private parties. The existence of
hazardous or toxic substances on a property can also adversely affect the value
of, and the owner's ability to use, sell or borrow against, the property.
Generally, FelCor obtains a Phase I environmental audit from an
independent environmental engineer prior to its acquisition of a hotel. With
respect to the Bristol Hotels, FelCor has relied upon the Phase I audits
obtained by Bristol Hotel Company in connection with its acquisition of these
properties. No updates or new environmental audits were obtained.
The primary purpose of a Phase I environmental audit is to identify
indications of potential environmental contamination at a property and,
secondarily, to make a limited assessment as to the potential for environmental
regulatory compliance costs. Consistent with current industry standards, the
Phase I environmental audits on which FelCor has relied did not include an
assessment of potential off-site liability or involve any testing of
groundwater, soil or air conditions. Accordingly, they would not reveal
information that could only be obtained by such tests. In addition, the
assessment of environmental compliance contained in such reports is general in
nature and was not a detailed determination of the property's complete
compliance status.
The Phase I environmental audits relied upon by FelCor disclose the
existence of certain hazardous or toxic substances at or near a limited number
of FelCor's hotels. In these instances, FelCor made such additional
investigations, if any, as they considered necessary to evaluate the risk of
liability. However, FelCor's management does not believe that the identified
conditions, or any other environmental conditions known to it, will have a
material adverse effect on FelCor's business, assets or profits. It is possible,
however, that such environmental audits and investigations do not reveal all
environmental conditions or liabilities for which FelCor could be liable and
there could be potential environmental liabilities of which FelCor is unaware.
-16-
<PAGE> 19
Costs of Complying with Americans with Disabilities Act. Under the
Americans with Disabilities Act of 1990 ("ADA"), all public accommodations
(including hotels) are required to meet certain federal requirements for access
and use by disabled persons. FelCor's management believes that its hotels are
substantially in compliance with the requirements of the ADA. However, a
determination that the hotels are not in compliance with the ADA could result in
liability for both governmental fines and damages to private parties. If FelCor
were required to make unanticipated major modifications to the hotels to comply
with the requirements of the ADA, it could adversely affect its ability to pay
its obligations and make distributions to its stockholders.
Ownership Limitation
In order for FelCor to maintain its status as a REIT, no more than 50%
in value of its outstanding stock may be owned (actually or constructively under
the applicable tax rules) by five or fewer persons during the last half of any
taxable year. In connection with this requirement, FelCor's Charter prohibits,
subject to certain exceptions, any person from owning more than 9.9% (determined
in accordance with the Internal Revenue Code and the Securities Exchange Act of
1934, as amended) of the number of outstanding shares of any class of its
capital stock. FelCor's Charter also prohibits any transfer of its capital stock
that would result in a violation of the 9.9% ownership limit, reduce the number
of stockholders below 100 or otherwise result in FelCor failing to qualify as a
REIT. Any attempted transfer in violation of the charter prohibitions will be
void and the intended transferee will not acquire any right in the shares
resulting in such violation. FelCor has the right to take any lawful action that
it believes necessary or advisable to ensure compliance with these ownership and
transfer restrictions and to preserve its status as a REIT, including refusing
to recognize any transfer of capital stock in violation of its charter.
If a person holds or attempts to acquire shares in excess of FelCor's
ownership and transfer restrictions, these shares will be immediately designated
as "shares-in-trust" and transferred automatically and by operation of law, in
trust, to a trustee designated by FelCor. The trustee will have the right to
receive all distributions on, to vote and to sell these shares. The holder of
the excess shares will have no right or interest in these shares, except the
right (under certain circumstances) to receive the lesser of: (i) the proceeds
of any sale of these shares by the trustee to a permitted owner and (ii) the
amount you paid for these shares (or the market value of these shares,
determined in accordance with the Charter, if the shares were received by gift,
bequest or otherwise without payment). Accordingly, the record owner of any
shares designated as shares-in-trust would suffer a financial loss if the price
at which these shares are sold to a permitted owner is less than what was paid
for these shares.
Impact of Year 2000 Issue
The year 2000 issue relates to computer programs that were written
using two digits rather than four to define the applicable year. In those
programs the year 2000 may be incorrectly identified as the year 1900, which
could result in a system failure or miscalculations causing a disruption of
operations, including a temporary inability to process transactions, prepare
financial statements, or engage in other normal business activities.
The Company believes that its efforts to identify and resolve the year
2000 issues will avoid a major disruption of its business. The Company has
assessed its internal computer systems and believes that they will properly
utilize dates beyond December 31, 1999.
The Hotels owned by the Company are in various stages of identifying
both computer and noninformation technology systems to determine if they are
year 2000 compliant, including embedded systems that operate elevators, phone
systems, energy maintenance systems, security systems, and other systems. The
assessments, which have not been completed at this date, are scheduled to be
completed by the end of the first quarter of 1999. Most of the upgrades to make
a hotel year 2000 compliant had been anticipated as part of the renovation,
redevelopment, and rebranding program that the Company generally undertakes upon
acquisition of a hotel.
-17-
<PAGE> 20
The Company currently anticipates that the total cost to remediate all
hotel year 2000 issues to be approximately $8 million, which is included in the
Company's 1999 capital plans.
The Company has requested and received assurances from the managers of
the Hotels, the franchisors of the Hotels and the Lessees, that they have
implemented appropriate steps to insure that they will avoid a major disruption
of business due to year 2000 issues.
Concurrent with the assessment of the year 2000 issue, the Company and
its hotel managers and Lessees are developing contingency plans intended to
mitigate the possible disruption in business operations that may result from
year 2000 issues and are developing cost estimates for such plans. Once
developed, contingency plans and related cost estimates will be continually
refined as additional information becomes available.
ITEM 2. PROPERTIES
THE HOTELS
The following table sets forth certain descriptive information
regarding the Hotels in which the Company had ownership interests at December
31, 1998:
<TABLE>
<CAPTION>
YEAR ACQUIRED BY NUMBER OF
LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES
- -------- --------------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Birmingham, AL ................................... Embassy Suites DJONT 1996 242
Montgomery, AL ................................... Holiday Inn Bristol 1998 213
Flagstaff, AZ .................................... Days Inn Bristol 1998 157
Flagstaff, AZ .................................... Embassy Suites DJONT 1995 119
Phoenix (Airport), AZ ............................ Embassy Suites DJONT 1998 229
Phoenix (Camelback), AZ .......................... Embassy Suites DJONT 1996 233
Phoenix, (Crescent), AZ .......................... Sheraton DJONT 1997 342
Scottsdale, AZ(1) ................................ Fairfield Inn Bristol 1998 218
Tempe, AZ ........................................ Embassy Suites DJONT 1998 224
Texarkana (I-30), AR(1) .......................... Holiday Inn Bristol 1998 210
Anaheim (Disney(R)Area), CA ...................... Embassy Suites DJONT 1996 222
Burlingame (S.F. Airport So.), CA(1) ............. Embassy Suites DJONT 1995 339
Covina (I-10), CA(2) ............................. Embassy Suites DJONT 1997 264
Dana Point, CA ................................... Doubletree Guest Suites DJONT 1997 198
El Segundo (LAX Airport South), CA(1) ............ Embassy Suites DJONT 1996 350
Irvine (Orange County Airport, CA ................ Holiday Inn Select Bristol 1998 335
Los Angeles (LAX Airport North), CA .............. Embassy Suites DJONT 1997 215
Milpitas, CA ..................................... Embassy Suites DJONT 1996 267
Milpitas, CA ..................................... Holiday Inn Bristol 1998 305
Napa, CA ......................................... Embassy Suites DJONT 1996 205
Oxnard (Mandalay Beach), CA ...................... Embassy Suites DJONT 1996 249
Palm Desert, CA .................................. Embassy Suites DJONT 1998 198
Pleasanton, CA ................................... Crowne Plaza Bristol 1998 244
Santa Barbara, CA(4) ............................. Holiday Inn Bristol 1998 160
San Diego (On-the-Bay), CA(1) .................... Holiday Inn Bristol 1998 600
San Francisco (Financial District), CA(1) ........ Holiday Inn Bristol 1998 566
San Francisco (Fisherman's Wharf), CA(1) ......... Holiday Inn Bristol 1998 584
San Francisco (Union Square), CA ................. Crowne Plaza Bristol 1998 400
San Rafael (Marin Co.), CA(2) .................... Embassy Suites DJONT 1996 235
South San Francisco (Airport North), CA .......... Embassy Suites DJONT 1996 312
Avon (Beaver Creek Resort), CO ................... Embassy Suites DJONT 1996 72
Colorado Springs, CO ............................. Holiday Inn Express Bristol 1998 207
Colorado Springs, CO ............................. Ramada Inn Bristol 1998 220
Denver (Southeast), CO ........................... Doubletree DJONT 1998 248
Hartford (Downtown), CT .......................... Crowne Plaza Bristol 1998 342
Stamford, CT(1) .................................. Holiday Inn Select Bristol 1998 383
Wilmington, DE ................................... Doubletree DJONT 1998 154
Boca Raton, FL ................................... Doubletree Guest Suites DJONT 1995 182
Boca Raton, FL ................................... Embassy Suites DJONT 1996 263
Cocoa, Beach (Ocean Front Resort), FL ............ Holiday Inn Bristol 1998 500
Deerfield Beach, FL .............................. Embassy Suites DJONT 1996 244
Ft. Lauderdale, FL ............................... Embassy Suites DJONT 1996 359
</TABLE>
-18-
<PAGE> 21
<TABLE>
<CAPTION>
YEAR ACQUIRED BY NUMBER OF
LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES
- -------- --------------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Ft. Lauderdale (Cypress Creek), FL ............... Sheraton Suites DJONT 1998 253
Jacksonville, FL ................................. Embassy Suites DJONT 1994 210
Kissimme (Nikki Bird Resort), FL(1) .............. Holiday Inn Bristol 1998 529
Lake Buena Vista (Walt Disney World(R)), FL(1) ... Doubletree Guest Suites DJONT 1997 229
Miami (Airport), FL(1) ........................... Crowne Plaza Bristol 1998 304
Miami (Airport), FL .............................. Embassy Suites DJONT 1996 314
Orlando (North), FL .............................. Embassy Suites DJONT 1994 210
Orlando (South), FL .............................. Embassy Suites DJONT 1994 244
Orlando (International Drive Resort), FL ......... Holiday Inn Bristol 1998 652
Orlando (Airport), FL ............................ Holiday Inn Select Bristol 1998 288
Tampa (Busch Gardens), FL ........................ Doubletree Guest Suites DJONT 1995 129
Tampa (Rocky Point), FL .......................... Doubletree Guest Suites DJONT 1997 203
Tampa (Near Busch Gardens), FL(1) ................ Holiday Inn Bristol 1998 395
Atlanta, GA ...................................... Courtyard by Marriott Bristol 1998 211
Atlanta (Airport), GA ............................ Crowne Plaza Bristol 1998 378
Atlanta (Powers Ferry), GA(4) .................... Crowne Plaza Bristol 1998 296
Atlanta (Buckhead), GA ........................... Embassy Suites DJONT 1998 317
Atlanta (Airport), GA ............................ Embassy Suites DJONT 1998 233
Atlanta (Perimeter Center), GA(2) ................ Embassy Suites DJONT 1998 241
Atlanta (Downtown), GA ........................... Fairfield Inn Bristol 1998 242
Atlanta (Marietta), GA ........................... Hampton Inn Bristol 1998 140
Atlanta (Airport North), GA(1)(4) ................ Holiday Inn Bristol 1998 493
Atlanta (Jonesboro South), GA(4) ................. Holiday Inn Bristol 1998 180
Atlanta (Decatur I-20 East), GA .................. Holiday Inn Express Bristol 1998 167
Atlanta (Perimeter Dunwoody), GA(4) .............. Holiday Inn Select Bristol 1998 250
Atlanta (Airport Gateway), GA .................... Sheraton DJONT 1997 395
Atlanta (Galleria), GA ........................... Sheraton Suites DJONT 1997 278
Brunswick, GA .................................... Embassy Suites DJONT 1995 130
Columbus (Airport I-85), GA(1) ................... Holiday Inn Bristol 1998 223
Chicago (Allerton), IL ........................... Independent Bristol 1998 378
Chicago-Lombard, IL(2) ........................... Embassy Suites DJONT 1995 262
Chicago (O'Hare), IL ............................. Sheraton Suites DJONT 1997 297
Deerfield, IL .................................... Embassy Suites DJONT 1996 237
Moline, IL ....................................... Hampton Inn Bristol 1998 138
Moline (Airport), IL(4) .......................... Holiday Inn Bristol 1998 216
Moline (Airport), IL(4) .......................... Holiday Inn Express Bristol 1998 111
Indianapolis (North), IN(2) ..................... Embassy Suites DJONT 1996 222
Davenport, IA .................................... Hampton Inn Bristol 1998 132
Davenport, IA .................................... Holiday Inn Bristol 1998 287
Colby, KS ........................................ Holiday Inn Express Bristol 1998 72
Great Bend, KS ................................... Holiday Inn Bristol 1998 175
Hays, KS(4) ...................................... Hampton Inn Bristol 1998 116
Hays, KS(4) ...................................... Holiday Inn Bristol 1998 190
Overland Park, KS(2) ............................. Embassy Suites DJONT 1997 199
Salina, KS(4) .................................... Holiday Inn Bristol 1998 192
Salina (I-70), KS ................................ Holiday Inn Express
Hotel & Suites Bristol 1998 93
Lexington, KY .................................... Hilton Suites DJONT 1996 174
Lexington, KY ................................... Sheraton Suites DJONT 1998 155
Baton Rouge, LA ................................. Embassy Suites DJONT 1996 224
New Orleans, LA ................................. Embassy Suites DJONT 1994 282
New Orleans (Chateau LeMoyne), LA(1)(2) ......... Holiday Inn Bristol 1998 171
New Orleans (French Quarter), LA(1)(4) .......... Holiday Inn Bristol 1998 276
Baltimore, MD ................................... Doubletree Guest Suites DJONT 1997 251
Boston (Marlborough), MA ........................ Embassy Suites DJONT 1995 229
Boston (Government Center), MA(1) ............... Holiday Inn Select Bristol 1998 303
Leominster, MA .................................. Four Points(R) Bristol 1998 187
Troy, MI ........................................ Doubletree Guest Suites DJONT 1997 251
Bloomington, MN ................................. Embassy Suites DJONT 1997 219
Minneapolis (Airport), MN ....................... Embassy Suites DJONT 1995 311
Minneapolis (Downtown), MN ...................... Embassy Suites DJONT 1995 218
St. Paul, MN(3) ................................. Embassy Suites DJONT 1995 210
Jackson (Downtown), MS(4) ....................... Crowne Plaza Bristol 1998 354
Jackson (North), MS ............................. Hampton Inn Bristol 1998 119
Jackson (Southwest), MS(4) ...................... Holiday Inn Bristol 1998 289
Jackson (North), MS(4) .......................... Holiday Inn & Suites Bristol 1998 224
</TABLE>
-19-
<PAGE> 22
<TABLE>
<CAPTION>
YEAR ACQUIRED BY NUMBER OF
LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES
- -------- --------------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Olive Branch (Whispering Woods Hotel
and Conference Center), MS ................. Holiday Inn Bristol 1998 179
Kansas City (Plaza), MO (1)(2) ................ Embassy Suites DJONT 1997 266
Kansas City (Northeast), MO ................... Holiday Inn Bristol 1998 167
St. Louis (Downtown), MO ...................... Embassy Suites DJONT 1998 297
St. Louis (Westport), MO(4) ................... Holiday Inn Bristol 1998 318
Omaha, NE ..................................... Doubletree Guest Suites DJONT 1998 189
Omaha (Central), NE ........................... Hampton Inn Bristol 1998 132
Omaha (Southwest), NE ......................... Hampton Inn Bristol 1998 131
Omaha (I-80), NE(4) ........................... Holiday Inn Bristol 1998 383
Omaha (Old Mill Northwest), NE ................ Holiday Inn Bristol 1998 213
Omaha (Southwest), NE ......................... Holiday Inn Express
Hotel & Suites Bristol 1998 78
Omaha (Southwest), NE ......................... Homewood Suites Bristol 1998 116
Parsippany, NJ(2) ............................. Embassy Suites DJONT 1996 274
Piscataway, NJ ................................ Embassy Suites DJONT 1996 225
Secaucus, NJ (1)(2) ........................... Embassy Suites DJONT 1997 261
Secaucus, NJ .................................. Crowne Plaza Bristol 1998 261
Albuquerque (Mountain View), NM ............... Holiday Inn Bristol 1998 360
Syracuse, NY .................................. Embassy Suites DJONT 1997 215
Charlotte, NC(2) .............................. Embassy Suites DJONT 1996 274
Raleigh/Durham, NC ............................ Doubletree Guest Suites DJONT 1997 203
Raleigh, NC(2) ................................ Embassy Suites DJONT 1997 225
Cleveland, OH ................................. Embassy Suites DJONT 1995 268
Columbus, OH .................................. Doubletree Guest Suites DJONT 1998 194
Dayton, OH(4) ................................. Doubletree Guest Suites DJONT 1997 138
Tulsa, OK ..................................... Embassy Suites DJONT 1994 240
Philadelphia (Center City), PA(4) ............. Crowne Plaza Bristol 1998 445
Philadelphia (Independence Mall), PA .......... Holiday Inn Bristol 1998 364
Philadelphia (Society Hill), PA ............... Sheraton DJONT 1997 365
Pittsburgh, PA(1)(4) .......................... Holiday Inn Select Bristol 1998 251
Charleston (Mills House), SC .................. Holiday Inn Bristol 1998 214
Columbia, SC .................................. Holiday Inn Bristol 1998 148
Myrtle Beach (Kingston Plantation), SC ........ Embassy Suites DJONT 1996 255
Roper (Greenville), SC ........................ Crowne Plaza Bristol 1998 208
Knoxville (Central), TN(1) .................... Holiday Inn Bristol 1998 242
Nashville (Airport), TN ....................... Doubletree Guest Suites DJONT 1997 138
Nashville, TN ................................. Embassy Suites DJONT 1994 296
Nashville (Opryland/Airport), TN(1) ........... Holiday Inn Select Bristol 1998 385
Amarillo (I-40), TX(1) ........................ Holiday Inn Bristol 1998 247
Austin (Downtown), TX ......................... Doubletree Guest Suites DJONT 1997 189
Austin (Airport North), TX(2) ................. Embassy Suites DJONT 1997 261
Austin (Town Lake), TX ........................ Holiday Inn Bristol 1998 320
Beaumont (Midtown I-10), TX ................... Holiday Inn Bristol 1998 190
Corpus Christi, TX ............................ Embassy Suites DJONT 1995 150
Dallas (Alpha Road), TX(1) .................... Bristol House(R) Bristol 1998 127
Dallas (Addison North), TX(4) ................. Crowne Plaza Bristol 1998 354
Dallas (Market Center), TX(4) ................. Crowne Plaza Bristol 1998 244
Dallas, TX(1)(4) .............................. Crowne Plaza Suites Bristol 1998 295
Dallas (Campbell Center), TX .................. Doubletree DJONT 1998 302
Dallas (DFW Airport South), TX ................ Embassy Suites DJONT 1998 305
Dallas (Love Field), TX ....................... Embassy Suites DJONT 1995 248
Dallas (Market Center), TX .................... Embassy Suites DJONT 1997 244
Dallas (Park Central), TX ..................... Embassy Suites DJONT 1994 279
Dallas (Regal Row), TX ........................ Fairfield Inn Bristol 1998 204
Dallas (Downtown West End), TX ................ Hampton Inn Bristol 1998 311
Dallas, TX(1)(4) .............................. Harvey Hotel Bristol 1998 313
Dallas (DFW Airport North), TX(1)(4) .......... Harvey Hotel Bristol 1998 506
Dallas (DFW Airport North), TX(4) ............. Harvey Suites Bristol 1998 164
Dallas (Park Central), TX ..................... Sheraton DJONT 1998 279
Dallas (Park Central), TX ..................... Westin DJONT 1997 545
Houston (Near the Galleria), TX ............... Courtyard by Marriott Bristol 1998 209
Houston (Medical Center), TX(4) ............... Crowne Plaza Bristol 1998 297
Houston (Near the Galleria), TX ............... Fairfield Inn Bristol 1998 107
Houston (I-10 East), TX ....................... Fairfield Inn Bristol 1998 160
Houston (I-10 East), TX ....................... Hampton Inn Bristol 1998 90
</TABLE>
-20-
<PAGE> 23
<TABLE>
<CAPTION>
YEAR ACQUIRED BY NUMBER OF
LOCATION FRANCHISE BRAND LESSEE THE COMPANY ROOMS/SUITES
- -------- --------------- ------ ----------- ------------
<S> <C> <C> <C> <C>
Houston (Medical Center), TX(1)(4) .............. Holiday Inn & Suites Bristol 1998 285
Houston (International Airport), TX(4) .......... Holiday Inn Bristol 1998 413
Houston (I-10 West), TX ......................... Holiday Inn Select Bristol 1998 345
Houston (Near Greenway Plaza), TX(4) ............ Holiday Inn Select Bristol 1998 355
Midland (Country Villa), TX ..................... Holiday Inn Bristol 1998 250
Odessa (Parkway Blvd.), TX ...................... Holiday Inn Express
Hotel & Suites Bristol 1998 186
Odessa (Center), TX ............................. Holiday Inn Hotel
& Suites Bristol 1998 245
Plano, TX(4) .................................... Harvey Hotel Bristol 1998 279
Plano, TX ....................................... Holiday Inn Bristol 1998 161
San Antonio (Airport), TX(2) .................... Embassy Suites DJONT 1997 261
San Antonio (Northwest), TX(2) .................. Embassy Suites DJONT 1997 217
San Antonio (Downtown), TX(1) ................... Holiday Inn Bristol 1998 315
San Antonio (International Airport), TX ......... Holiday Inn Select Bristol 1998 397
Waco (I-35), TX ................................. Holiday Inn Bristol 1998 171
Salt Lake City (Airport), UT(1) ................. Holiday Inn Bristol 1998 191
Burlington, VT .................................. Sheraton DJONT 1997 309
Cambridge, Canada ............................... Holiday Inn Bristol 1998 139
Kitchener (Waterloo), Canada .................... Holiday Inn Bristol 1998 182
Peterborough (Waterfront), Canada ............... Holiday Inn Bristol 1998 155
Sarnia, Canada .................................. Holiday Inn Bristol 1998 151
Toronto (Yorkdale), Canada ...................... Holiday Inn Bristol 1998 370
Toronto (Airport), Canada ....................... Holiday Inn Select Bristol 1998 444
</TABLE>
- ---------
(1) Situated on land leased under a long-term ground lease.
(2) This hotel is one of 15 hotels owned by unconsolidated entities in which
the Company owns a 50% equity interest.
(3) Owned subject to a capitalized industrial revenue bond lease which expires
in 2011 and permits the Company to purchase the fee interest at expiration
for a nominal amount.
(4) Encumbered by mortgage debt.
THE PERCENTAGE LEASES
Each of the Hotels (with one exception) is leased to a Lessee pursuant to a
Percentage Lease. The terms of each Percentage Lease with DJONT was approved by
the Company's Independent Directors at the time it was entered into.
The DJONT Percentage Leases.
The principal terms of the Percentage Leases with DJONT ("DJONT
Leases") are summarized below, although certain terms will vary from hotel to
hotel.
Term. The DJONT Leases typically have a stated term of 10 years.
Rent. The annual Base Rent is typically set at approximately 60% of the
initial year's anticipated total rent. The Percentage Rent is calculated in two
tiers, a first tier typically equal to 17% of room and suite revenues up to a
specified amount ("Room and Suite Revenue Breakpoint") and a second tier
typically equal to 65% of room and suite revenues above such Room and Suite
Revenue Breakpoint. In addition, the DJONT Lessee typically pays the Company 5%
of the food and beverage revenues from each Hotel in which the restaurant and
bar operations are conducted directly by the DJONT Lessee and 98% of the food
and beverage rent revenues from each Hotel in which the restaurant and bar
operations are subleased by the DJONT Lessee to an unrelated third party. The
Room and Suite Revenue Breakpoint is established at the time the Percentage
Lease is entered into, based upon the historical and anticipated operations of
the particular hotel, in a manner expected to provide the Company with
approximately 95% of the anticipated operating profits of the hotels in which it
invests.
-21-
<PAGE> 24
The amount of Base Rent and of the Room and Suite Revenue Breakpoint in
each DJONT Lease formula generally is subject to adjustment, annually, based
upon a formula taking into account changes in the Consumer Price Index ("CPI").
The adjustment is calculated at the beginning of each calendar year, for the
hotels acquired prior to July of the previous year. The adjustment in any year
may not exceed 7%. The CPI adjustments applicable to 1998, 1997 and 1996 were
0.50%, 1.42% and 0.73%, respectively.
Events of Default. If an Event of Default occurs and continues beyond
any curative period, the Company has the option of terminating the DJONT Lease
or any or all other DJONT Leases. Events of Default under the DJONT Leases
include typical defaults such as failure to pay rent, certain insolvency events
and, among others, the following:
o the breach by the DJONT Lessee of any term of a DJONT Lease that
is not cured within certain specified periods or an Event of
Default under any other DJONT Lease;
o if the DJONT Lessee voluntarily discontinues operations of a
leased hotel for more than 30 days, except as a result of
damage, destruction, or condemnation; or
o if the franchise agreement with respect to a leased hotel is
terminated by the franchisor as a result of any action or
failure to act by the DJONT Lessee or its agents.
Termination of Percentage Leases on Disposition of the Hotels. If the
Company enters into an agreement to sell or otherwise transfer a leased hotel,
the Company has the right to terminate the DJONT Lease with respect to such
leased hotel upon 90 days' prior written notice upon either (i) paying the DJONT
Lessee the fair market value of the DJONT Lessee's leasehold interest in the
remaining term of the DJONT Lease to be terminated or (ii) offering to lease to
the DJONT Lessee a substitute hotel on terms that would create a leasehold
interest with a fair market value equal to or exceeding the fair market value of
the DJONT Lessee's remaining leasehold interest under the DJONT Lease to be
terminated. The Company also is obligated to pay, or reimburse the DJONT Lessee
for certain fees and expenses resulting from the termination of the DJONT Lease.
Maintenance and Modifications. Under the DJONT Leases, the Company is
required to maintain the underground utilities and the structural elements of
the improvements, including exterior walls (excluding plate glass) and the roof
of each leased hotel. In addition, the DJONT Leases obligate the Company to fund
periodic improvements (in addition to maintenance of structural elements) to the
buildings and grounds comprising the leased hotels, and the periodic repair,
replacement and refurbishment of furniture, fixtures and equipment in the leased
hotels, when and as required to meet the requirements of the applicable
franchise licenses, and to establish and maintain a reserve, which is available
to the DJONT Lessee for such purposes, in an amount equal to 4% of hotel room
and suite revenues, on a cumulative basis. The Company's obligation is not
limited to the amount in such reserve. Otherwise, the DJONT Lessee is required,
at its expense, to maintain the leased hotels in good order and repair, except
for ordinary wear and tear, and to make nonstructural repairs, whether foreseen
or unforeseen, ordinary or extraordinary, which may be necessary and appropriate
to keep the leased hotels in good order and repair.
-22-
<PAGE> 25
Insurance and Property Taxes. The Company is responsible for paying
real estate and personal property taxes and property insurance premiums on the
leased hotels (except to the extent that personal property associated with the
leased hotels is owned by the DJONT Lessee). The DJONT Lessee is responsible for
the cost of all liability insurance on the leased hotels, which must include
extended coverage, comprehensive general public liability, workers' compensation
and other insurance appropriate and customary for properties similar to the
leased hotels.
Indemnification. Under each of the DJONT Leases, the DJONT Lessee will
indemnify the Company for certain losses relating to the leased hotel, including
losses related to any accident or injury to person or property at the leased
hotels, certain environmental liability, taxes and assessments (other than real
estate and personal property taxes and any income taxes of the Company on income
attributable to the leased hotels), the sale or consumption of alcoholic
beverages, or any breach of the DJONT Leases by the DJONT Lessee.
Other Lease Covenants. The DJONT Lessee has agreed that during the term
of the DJONT Leases it will maintain a ratio of total debt to consolidated net
worth of less than or equal to 50%, exclusive of capitalized leases and
indebtedness subordinated in right to repayment to the rent due under the DJONT
Leases. In addition, the DJONT Lessee has agreed that it will not pay fees to
any of its affiliates.
Breach by Company. Upon notice from the DJONT Lessee that the Company
has breached the Lease, the Company has 30 days to cure the breach or proceed to
cure the breach, which period may be extended in the event of certain specified,
unavoidable delays. If the Company fails to cure a breach on its part under a
DJONT Lease, the DJONT Lessee may purchase the leased hotel from the Company for
a purchase price equal to the leased hotel's then fair market value.
Bristol Master Hotel Agreement.
Bristol and the Company are parties to an Amended and Restated Master
Hotel Agreement ("MHA"), pursuant to which, among other things, Bristol and the
Bristol Lessees are required to use their reasonable best efforts to permit the
Company to continue to qualify as a real estate investment trust under the Code.
Bristol and the Bristol Lessees are required to maintain a minimum liquid net
worth (including not only working capital and other liquid assets, but also
income-producing or readily-marketable assets, and any letters of credit or
other credit enhancements necessary to meet such requirement) at all times at
least equal to fifteen percent (15%) of projected annual rent under all of the
Bristol leases during each calendar year. If such minimum liquid net worth is
not maintained, and Bristol fails to cure the deficiency, the leases will be in
default, and the Bristol Lessees generally will be prohibited from making cash
dividends or other distributions or any other payments to affiliates.
Under the MHA, the Bristol Hotels also are treated as a whole, and the
leases are cross-defaulted, for purposes of the Company's remedies upon default.
Upon certain material defaults under one or more leases, the Company has the
option to terminate the particular lease(s) in default, or all leases to which
the defaulting Bristol Lessee is a party, or all (but not less than all) of the
Bristol leases.
The Bristol Percentage Leases.
The principal terms of the Percentage Leases with Bristol (the "Bristol
Leases") are summarized below, although certain terms will vary from hotel to
hotel.
Term. The Bristol Leases are for initial terms of five to ten years,
with renewal options on the same terms for a total of 15 years. If a Bristol
Lease has been extended to 15 years, the Bristol Lessee may renew the lease for
an additional five years at then current market rates.
-23-
<PAGE> 26
Rent. The Bristol Lessees pay a monthly rent equal to the greater of
Base Rent or Percentage Rent. The Percentage Rent is based on specified
percentages of various revenue streams. Those percentages will vary from hotel
to hotel within the following ranges:
Room and Suite Revenues: 0% to 10% up to a revenue breakpoint
amount specified for each hotel, then
60% to 75% above such breakpoint.
Food & Beverage Revenues: 5% to 25%.
Telephone Revenues: 5% to 10%.
Other Revenues: Varying percentages depending on the
nature and source of such revenues.
The Base Rent and the thresholds for computing Percentage Rent under
the Bristol Leases will be adjusted annually to reflect changes in the CPI. The
parties to the Bristol Leases also agree to renegotiate the rent in the event of
any rebranding, substantial renovations (other than those agreed upon prior to
the execution of the Bristol Leases) or other, future hotel repositioning
strategies resulting in significant disruption of the operations of the leased
hotels.
The Bristol Lessees have the right to require the Company to
renegotiate the rent for all the hotels in a particular region if there is an
extended, material reduction in midscale hotel occupancy rates in the U.S. and
in such region. If the Company and the Bristol Lessees are unable to agree on a
reduction in rent, the Bristol Lessees may terminate all Bristol Leases in the
respective region. The Bristol Lessee also may require the Company to
renegotiate the rent for a particular hotel if, as a result of certain force
majeure events, there is an extended, material decline in the travel or hotel
business and a material reduction in the occupancy rate of such hotel and the
hotel's competitive set. If the Bristol Lessee and the Company are unable to
agree on a change in rent, the Bristol Lessee may terminate the lease for such
hotel.
Termination. A Bristol Lease also may be terminated by the Company for
typical defaults such as failure to pay rent, certain insolvency events and the
following reasons, among others:
o if Bristol fails to satisfy certain performance targets for any
one hotel and all other hotels in the aggregate during any three
consecutive years based on budgeted room revenues, unless
Bristol pays the Company the difference between the actual rent
paid and 80% (or, in certain circumstances, 90%) of the budgeted
rent;
o upon a change in control of Bristol, defined as the acquisition
of more than 50% of Bristol's stock by any person or group not
approved by Bristol's Board of Directors or the election of a
majority of directors not supported by Bristol's Board of
Directors;
o upon any breach by the Bristol Lessee of the agreements under
the lease that is not cured within certain specified periods;
o if Bristol fails to maintain a minimum liquid net worth or to
provide other credit support for the obligations of the Bristol
Lessees under the Bristol Leases;
o if a franchisor terminates a franchise license as a result of
the Bristol Lessee's default under the franchise agreement; and
o if the Company sells the hotel to an unaffiliated third party.
-24-
<PAGE> 27
If the Company terminates the lease upon sale of a hotel and Bristol does not
continue as a manager or lessee of the hotel (or a substitute hotel offered by
the Company), Bristol will be entitled to monthly termination payments during
the remainder of the lease term equal to one-twelfth of 60% of the average
monthly profit and allocable overhead contribution associated with operating the
hotel over the 12 months ending on the termination date.
Indemnification. The Bristol Lessee agrees to indemnify the Company
for certain losses relating to the hotel, including losses related to any
accident or injury to persons or property at the hotel, any breach of the lease
by the Bristol Lessee and certain environmental and tax liabilities not assumed
by the Company in connection with its acquisition of the Bristol Hotels. The
Company will indemnify the Bristol Lessee for any breach of the lease by the
Company, for liability for the environmental condition of the hotel at the time
the lease commences and for the Company's acts of gross negligence or willful
misconduct.
Maintenance and Capital Expenditures. The Bristol Lessee is responsible
for maintaining the leased hotel in good order and repair and for making all
repairs that do not constitute capital improvements. The Bristol Lessee is
generally required to budget and expend an amount equal to at least 4.5% of
gross revenues of the hotel for maintenance and repairs (other than capital
improvements) during each lease year. The Bristol Lessee must supply and
maintain the inventory that is necessary to operate the leased hotel. The
Company is responsible for all hotel capital improvements (including those
required by applicable law or, with certain exceptions, the respective franchise
license) and for maintaining the underground utilities and all hotel
improvements, furniture, fixtures and equipment owned by the Company to the
extent such maintenance constitutes capital expenditures in accordance with
generally accepted accounting principles or the capital improvements policy
agreed to by both the Company and the Bristol Lessee. The Company must make
available an amount equal to at least 3% of the hotel's gross revenues, on a
cumulative basis, for budgeted or other approved capital expenditures.
Insurance and Property Taxes. The Company will pay all real estate and
personal property taxes and property insurance premiums on the leased hotels,
other than with respect to the Bristol Lessee's personal property. The Bristol
Lessee will pay for all liability insurance on the leased hotels, including
extended coverage, comprehensive general public liability, workers' compensation
and other insurance appropriate and customary for properties similar to the
leased hotels.
ITEM 3. LEGAL PROCEEDINGS
There is no litigation pending or known to be threatened against the
Company or affecting any of its Hotels other than claims arising in the ordinary
course of business or which are not considered to be material. Furthermore, most
of such claims are substantially covered by insurance. Management does not
believe that any claims known to it (individually or in the aggregate) will have
a material adverse effect on the Company, without regard to any potential
recoveries from insurers or other third parties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's Common Stock is traded on the New York Stock Exchange
under the symbol "FCH." The following table sets forth for the indicated periods
the high and low sale prices for the Common Stock, as traded on such exchange.
-25-
<PAGE> 28
<TABLE>
<CAPTION>
HIGH LOW
---- ---
1997
----
<S> <C> <C>
First quarter .................................. $37 1/2 $33 1/2
Second quarter ................................. 37 3/4 34 1/2
Third quarter .................................. 41 1/2 36
Fourth quarter ................................. 42 7/8 34 15/16
1998
----
First quarter .................................. 38 5/16 34 15/16
Second quarter ................................. 37 5/16 31 3/16
Third quarter .................................. 32 1/4 20
Fourth quarter ................................. 24 3/16 18 3/16
</TABLE>
STOCKHOLDER INFORMATION
At March 10, 1999, the Company had approximately 460 holders of record
of its Common Stock and approximately 55 holders of record of the Series A
Preferred Stock (which is convertible into Common Stock). It is estimated that
there were approximately 24,000 beneficial owners, in the aggregate, of the
Common Stock and Series A Preferred Stock at that date.
IN ORDER TO COMPLY WITH CERTAIN REQUIREMENTS RELATED TO QUALIFICATION
OF THE COMPANY AS A REIT, THE COMPANY'S CHARTER LIMITS THE NUMBER OF SHARES OF
COMMON STOCK THAT MAY BE OWNED BY ANY SINGLE PERSON OR AFFILIATED GROUP TO 9.9%
OF THE OUTSTANDING COMMON STOCK.
DISTRIBUTION INFORMATION
The Company has adopted a policy of paying regular quarterly
distributions on its Common Stock, and cash distributions have been paid on the
Company's Common Stock with respect to each quarter since its inception. The
following table sets forth information regarding the declaration and payment of
distributions by the Company on its Common Stock during 1997 and 1998.
<TABLE>
<CAPTION>
QUARTER TO DISTRIBUTION DISTRIBUTION PER SHARE
WHICH DISTRIBUTION RECORD PAYMENT DISTRIBUTION
RELATES DATE DATE AMOUNT
------------------ ------------ ------------ ------------
1997
----
<S> <C> <C> <C>
First quarter ................................................... 4/15/97 4/30/97 $0.50
Second quarter .................................................. 7/15/97 7/30/97 $0.50
Third quarter ................................................... 10/15/97 10/31/97 $0.55
Fourth quarter .................................................. 12/30/97 1/30/98 $0.55
1998
----
First quarter ................................................... 4/15/98 4/30/98 $0.55
Second quarter .................................................. 7/15/98 7/31/98 $0.55
Third quarter ................................................... 10/15/98 10/30/98 $0.55
Fourth quarter .................................................. 12/30/98 1/29/99 $0.895(1)
</TABLE>
- -------------
(1) Includes a special one-time distribution of $0.345 per share of Common
Stock, representing accumulated earnings and profits from FelCor's
July 1998 merger with Bristol Hotel Company.
-26-
<PAGE> 29
The foregoing distributions represent an approximate 17.0% return of
capital in 1998 and an approximate 6.0% return of capital in 1997. In order to
maintain its qualification as a REIT, FelCor must make annual distributions to
its shareholders of at least 95% of its taxable income (which does not include
net capital gains). For the years ended December 31, 1998 and December 31, 1997,
FelCor had distributions totaling $2.545 and $2.10 per share, respectively, of
which only $2.01 and $1.88 per share, respectively, were required to satisfy the
95% REIT distribution test. Under certain circumstances FelCor may be required
to make distributions in excess of cash available for distribution in order to
meet such REIT distribution requirements. In such event, FelCor presently would
expect to borrow funds, or to sell assets for cash, to the extent necessary to
obtain cash sufficient to make the distributions required to retain its
qualification as a REIT for federal income tax purposes.
FelCor currently anticipates that it will maintain at least the current
dividend rate for the immediate future, unless actual results of operations,
economic conditions or other factors differ from its current expectations.
Future distributions, if any, paid by FelCor will be at the discretion of the
Board of Directors and will depend on the actual cash flow of FelCor, its
financial condition, capital requirements, the annual distribution requirements
under the REIT provisions of the internal revenue code and such other factors as
the Board of Directors deems relevant.
RECENT SALES OF UNREGISTERED SECURITIES
During 1998, FelCor issued an aggregate of 149,248 shares of its
Common Stock in redemption of a like number of outstanding Units. Neither the
Units, nor the shares of Common Stock issued in redemption thereof, were
registered under the Securities Act in reliance upon certain exemptions from the
registration requirements thereof, including the exemption provided by section
4(2) of that act.
During 1998, the Operating Partnership issued an aggregate of 189,916
Units, which may be redeemed for a like number of shares of FelCor's Common
Stock, in connection with the acquisition of two hotels. Neither the Units, nor
the shares of Common Stock issuable in redemption thereof, were registered under
the Securities Act in reliance upon certain exemptions from the registration
requirements thereof, including the exemption provided by section 4(2) of that
act.
-27-
<PAGE> 30
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial data for the Company
for the years ended December 31, 1998, 1997, 1996 and 1995 and the period from
July 28, 1994 (inception of operations) to December 31, 1994 that has been
derived from the financial statements of the Company and the notes thereto,
audited by PricewaterhouseCoopers LLP, independent accountants. Such data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, PERIOD FROM JULY 28, 1994
------------------------------------------ (INCEPTION OF OPERATIONS)
1998 1997 1996 1995 THROUGH DECEMBER 31, 1994(1)
---------- --------- --------- --------- ----------------------------
<S> <C> <C> <C> <C> <C>
REVENUE:
Percentage lease revenue ................................ $ 328,923 $ 169,114 $ 97,950 $ 23,787 $ 6,043
Equity in income from unconsolidated entities ........... 7,017 6,963 2,010 513
Other revenue ........................................... 4,154 574 984 1,691 207
--------- --------- --------- --------- ---------
TOTAL REVENUE .............................................. 340,094 176,651 100,944 25,991 6,250
--------- --------- --------- --------- ---------
EXPENSES:
General and administrative .............................. 5,254 3,743 1,819 870 355
Depreciation ............................................ 90,835 50,798 26,544 5,232 1,487
Taxes, insurance and other .............................. 45,288 23,093 13,897 2,563 881
Interest expense ........................................ 73,182 28,792 9,803 2,004 109
Minority interest in Operating Partnership .............. 6,500 5,817 5,590 3,131 907
Minority interest in other partnerships ................. 1,121 573 -- -- --
--------- --------- --------- --------- ---------
TOTAL EXPENSES ............................................. 222,180 112,816 57,653 13,800 3,739
--------- --------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY CHARGE ......................... 117,914 63,835 43,291 12,191 2,511
Extraordinary charge from write off
of deferred financing fees ........................... 3,075 185 2,354 -- --
--------- --------- --------- --------- ---------
NET INCOME ................................................. 114,839 63,650 40,937 12,191 2,511
Preferred dividends ..................................... 21,423 11,797 7,734 -- --
--------- --------- --------- --------- ---------
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS ............... $ 93,416 $ 51,853 $ 33,203 $ 12,191 $ 2,511
========= ========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Income applicable to common shareholders
before extraordinary charge ........................... $ 1.92 $ 1.65 $ 1.53 $ 1.69 $ 0.54
Extraordinary charge .................................... (0.06) (0.01) (0.10)
--------- --------- --------- --------- ---------
Net income applicable to common shareholders ............ $ 1.86 $ 1.64 $ 1.43 $ 1.69 $ 0.54
========= ========= ========= ========= =========
Weighted average common shares outstanding .............. 50,314 31,610 23,218 7,199 4,690
</TABLE>
-28-
<PAGE> 31
FELCOR LODGING TRUST INCORPORATED
SELECTED FINANCIAL DATA -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, PERIOD FROM JULY 28, 1994
---------------------------------------------- (INCEPTION OF OPERATIONS)
1998 1997 1996 1995 THROUGH DECEMBER 31, 1994(1)
---------- ---------- ---------- --------- ----------------------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Cash dividends per common share (2) ................ $ 2.545 $ 2.10 $ 1.92 $ 1.84 $ 0.66
Funds From Operations (3) .......................... 217,363 129,815 77,141 20,707 4,905
EBITDA (4) ......................................... 299,550 153,496 86,583 22,203 5,014
Ratio of EBITDA to interest expense ................ 3.8x 4.4x 8.2x 11.1x 46.0x
Ratio of earnings to combined fixed charges ........ 1.9x 2.2x 3.0x 8.6x 32.4x
and preferred stock dividends (5)
Cash provided by operating activities .............. 192,583 97,478 67,494 17,003 3,959
Cash provided by financing activities .............. 375,064 600,132 251,906 407,897 97,952
Cash used in investing activities .................. (550,498) (687,860) (478,428) (259,197) (100,793)
BALANCE SHEET DATA:
Cash and cash equivalents .......................... $ 34,692 $ 17,543 $ 7,793 $ 166,821 $ 1,118
Investment in hotel properties, net ................ 3,964,484 1,489,764 899,691 325,155 104,800
Investment in unconsolidated entities .............. 136,069 132,991 59,867 13,819
Total assets ....................................... 4,175,383 1,673,364 978,788 548,359 108,305
Debt ............................................... 1,594,734 476,819 239,425 19,666 8,750
Minority interest in Operating Partnership ......... 87,353 73,451 76,112 58,837 25,685
Shareholders' equity ............................... 2,317,617 1,078,498 641,926 461,386 69,255
</TABLE>
- ----------------
(1) Prior to FelCor's initial public offering on July 28, 1994, six hotels
were owned by entities deemed to be the predecessor of the Company.
Suite revenues, total revenues, total expenses and net income of the
predecessor for the period from January 1, 1994 through July 27, 1994
were $21.9 million, $23.2 million, $21.6 million and $1.6 million,
respectively.
(2) In addition to the regular quarterly dividend of $0.55 per common
share and $0.4875 per Series A preferred share, in 1998 the Company
declared a special one-time distribution of accumulated but
undistributed earnings and profits as a result of the merger of
Bristol Hotel Company into FelCor (the "Merger"). The amount of the
one-time distribution was $0.345 per common share and $0.207 per
Series A preferred share and was paid with the regular fourth quarter
distribution.
(3) The following table details the computation of Funds From Operations
(in thousands). A more detailed description of FFO is contained in the
"Funds From Operations" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994
------------------------------------------- (INCEPTION OF OPERATIONS)
1998 1997 1996 1995 THROUGH DECEMBER 31, 1994(1)
--------- --------- --------- --------- ----------------------------
<S> <C> <C> <C> <C> <C>
Net income ............................................ $ 114,839 $ 63,650 $ 40,937 $ 12,191 $ 2,511
Series B redeemable preferred dividends ............ (8,373)
Extraordinary charge from
write off of deferred financing fees ........... 3,075 185 2,354
Depreciation ....................................... 90,835 50,798 26,544 5,232 1,487
Depreciation from unconsolidated entities .......... 10,487 9,365 1,716 153
Minority interest in Operating Partnership.......... 6,500 5,817 5,590 3,131 907
--------- --------- --------- --------- ---------
Funds From Operations (FFO) ........................... $ 217,363 $ 129,815 $ 77,141 $ 20,707 $ 4,905
========= ========= ========= ========= =========
Weighted average common shares and units
outstanding ........................................ 58,013 39,157 29,306 8,989 6,385
</TABLE>
-29-
<PAGE> 32
(4) EBITDA is computed by adding FFO, interest expense, the Company's
portion of interest expense from unconsolidated entities,
amortization expense, and operating cash distributions from
unconsolidated entities and deducting equity in income from
unconsolidated entities and the Company's portion of depreciation
from unconsolidated entities. A reconciliation of Funds From
Operations to EBITDA is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERIOD FROM JULY 28, 1994
--------------------------------------------- (INCEPTION OF OPERATIONS)
1998 1997 1996 1995 THROUGH DECEMBER 31, 1994(1)
--------- ---------- ---------- --------- ----------------------------
<S> <C> <C> <C> <C> <C>
Funds From Operations ................................. $ 217,363 $ 129,815 $ 77,141 $ 20,707 $ 4,905
Interest expense ................................. 73,182 28,792 9,803 2,004 109
Interest expense from unconsolidated
entities ..................................... 6,521 5,895 818
Amortization expense ............................. 922 1,111 593 158
Operating cash distributions from
unconsolidated entities ..................... 19,066 4,211 1,954
Equity in income from unconsolidated
entities .................................... (7,017) (6,963) (2,010) (513)
Depreciation from unconsolidated entities ........ (10,487) (9,365) (1,716) (153)
--------- --------- --------- --------- ---------
EBITDA ................................................ $ 299,550 $ 153,496 $ 86,583 $ 22,203 $ 5,014
========= ========= ========= ========= =========
Weighted average common shares
and units outstanding ............................ 58,013 39,157 29,306 8,989 6,385
</TABLE>
(5) For the purpose of computing the ratio of earnings to combined
fixed charges and preferred stock dividends, earnings consist of
income from continuing operations plus fixed charges and minority
interest in the Operating Partnership, excluding capitalized
interest, and fixed charges consist of interest, whether expensed or
capitalized, and amortization of loan costs.
-30-
<PAGE> 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
FelCor is one of the nation's largest hotel REIT's, which at December
31, 1998, owned interests in 193 hotels with nearly 50,000 rooms and suites
through its greater than 95% equity interest in the Operating Partnership.
Additional organizational information relating to the Company, and the
definitions of certain capitalized terms, are contained in the Notes to
Consolidated Financial Statements of FelCor Lodging Trust Incorporated appearing
elsewhere herein.
FelCor strives to be the premier full-service lodging REIT partnered
with leading brands and management companies to create shareholder value. The
Company is the owner of the largest number of Embassy Suites(R), Crowne
Plaza(R), Holiday Inn(R) and independently owned Doubletree(R) branded hotels in
the world. The following table provides a schedule of the Hotels, by brand,
operated by each of the Company's Lessees at December 31, 1998:
<TABLE>
<CAPTION>
BRAND DJONT BRISTOL TOTAL
----- ----- ------- -----
<S> <C> <C> <C>
Embassy Suites 57 57
Holiday Inn 49* 49
Doubletree and Doubletree Guest Suites(R) 17 17
Crowne Plaza and Crowne Plaza Suites(R) 14 14
Holiday Inn Select(R) 11 11
Sheraton(R)and Sheraton Suites(R) 9 1 10
Hampton Inn(R) 9 9
Holiday Inn Express(R) 7* 7
Fairfield Inn(R) 5 5
Harvey Hotel(R) 4 4
Independents 2 2
Courtyard by Marriott(R) 2 2
Days Inn(R) 1* 1
Hilton Suites(R) 1 1
Homewood Suites(R) 1 1
Radisson(R) 1 1
Ramada Inn(R) 1* 1
Westin(R) 1 1
-- --- ---
Total Hotels 86 107 193
== === ===
</TABLE>
* The Company has sold, or intends to sell, during 1999 two Holiday Inn, two
Holiday Inn Express, the Ramada Inn and Days Inn hotels owned at December 31,
1998.
The Hotels are located in 34 states and Canada with 79 in California
(20), Florida (18) and Texas (41).
The principal factors affecting the Company's results of operations are
acquisitions of hotels, renovations, redevelopments, and rebrandings of hotels,
and changes in room and suite revenues measured by revenue per available room
("RevPAR"). On July 28, 1998, the Company completed the acquisition of the
assets of Bristol through a merger, which resulted in the net addition of 107
hotels, valued at approximately $2 billion, to the Company's portfolio. In
addition to the Bristol assets, the Company acquired 16 hotels, valued at $412.8
million. Three of the hotels acquired in the Merger were sold prior to December
31, 1998.
The Company continued its program of renovation, redevelopment, and
rebranding of hotels, to improve under-performing assets and increase revenues.
The Company and, prior to the Merger, Bristol Hotel Company, spent nearly $220
million in 1998 on renovations, redevelopments, rebrandings, room additions to
existing hotels, and other hotel improvements. This strategy continues to be
effective in improving revenue performance.
-31-
<PAGE> 34
The Company's growth has been financed primarily with equity,
resulting in a conservative financial structure. The results of this
conservative approach are evidenced by the following, as of December 31, 1998:
o Interest coverage ratio of 3.8x
o Pro forma interest coverage ratio of 3.6x
o Total debt to pro forma EBITDA of 4.1x
o Borrowing capacity under existing credit facilities of $114 million
o Consolidated debt-to-total assets of 38%
o Fixed interest rate debt comprising 56% of total debt
o Secured debt to total assets of 7%
o Debt of $16 million maturing prior to December 31, 1999
FelCor's historical results of operations for 1998, 1997, and 1996 are
summarized as follows (in millions, except percentages and hotel counts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERCENTAGE
------------------------------- CHANGE
-------------------
1998 1997 1996 98 VS 97 97 VS 96
------- ------- ------- -------- ----
<S> <C> <C> <C> <C> <C>
Hotels owned at year end ......................... 193 73 43 164.4% 69.8%
Revenues ......................................... $ 340.1 $ 176.7 $ 100.9 92.5% 75.1%
Income before extraordinary charge ............... $ 117.9 $ 63.8 $ 43.3 84.8% 47.3%
Net income applicable to common shareholders ..... $ 93.4 $ 51.9 $ 33.2 80.0% 56.3%
Funds From Operations (FFO) ...................... $ 217.4 $ 129.8 $ 77.1 67.5% 68.4%
</TABLE>
RESULTS OF OPERATIONS
THE COMPANY -- ACTUAL
Comparison of the Years Ended December 31, 1998 and 1997.
For the years 1998 and 1997 FelCor had total revenue of $340.1 million
and $176.7 million, respectively, consisting primarily of Percentage Lease
revenue of $328.9 million and $169.1 million. The 43 hotels owned by the Company
throughout both of the years 1998 and 1997 (DJONT Comparable Hotels), which
reflect the effect of the Company's ownership and the management by its
strategic partners, experienced a growth in RevPAR during 1998 of 5.4% over
1997. The largest portion of this increase came from the 18 former Crown
Sterling Suite hotels, which continued their trend of improved RevPAR throughout
1998, achieving a RevPAR of $92.05 in 1998 compared to $85.04 for 1997, an
increase of 8.2%. These hotels have improved their RevPAR performance by 31.4%
since 1996. The Company attributes this dramatic increase to the renovation,
redevelopment, and rebranding of these hotels in 1996 and early 1997. Likewise,
the 59 Bristol Comparable Hotels (those Bristol hotels not undergoing renovation
in either 1997 or 1998) produced improved RevPAR performance of 6.7% over 1997.
The improvement in room and suite revenue significantly impacts the
Company because its principal source of revenue is rent payments from the
Lessees under the Percentage Leases. The Percentage Leases provide for rent
based on a percentage of room and suite revenue, food and beverage revenue, food
and beverage rents, and in some instances, other hotel revenues. The portion of
the Percentage Lease revenue derived from room and suite revenues was
approximately 93% in 1998 and 97% in 1997. The decrease in the portion of
Percentage Lease revenue derived from room and suite revenues is attributed
primarily to the more extensive food and beverage operations in the Bristol
hotels.
-32-
<PAGE> 35
The Company generally seeks to acquire hotels that management believes
can achieve increases in room and suite revenue and RevPAR as a result of
renovation, redevelopment, and rebranding, or a change in management. However,
during the course of such improvements hotel revenue performance is often
adversely affected by such temporary factors as out-of-service rooms and suites
and disruptions of hotel operations. (A more detailed discussion of hotel room
and suite revenue is contained in "The Hotels -- Actual" section of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations.)
Total expenses increased $109.4 million in 1998 over 1997, primarily
resulting from the net acquisition of 120 hotels during 1998 and 30 hotels in
1997. Total expenses as a percentage of total revenue increased in 1998 to 65.3%
from 63.9% in 1997.
The major component of the increase in expenses, as a percentage of
total revenue, was interest expense. Interest expense increased by $44.4 million
from $28.8 million in 1997 to $73.2 million in 1998, and increased as a
percentage of total revenue from 16.3% in 1997 to 21.5% in 1998. The relative
increase in interest expense is attributed to the assumption of debt related to
the more highly leveraged Bristol assets. Debt as a percentage of total assets
increased from 28.5% at December 31, 1997 to 38.2% at December 31, 1998.
General and administrative expenses, depreciation, and taxes,
insurance, and other expenses remained relatively constant as a percentage of
total revenue in 1998 and 1997.
Comparison of the Years Ended December 31, 1997 and 1996.
For the years 1997 and 1996 the Company had total revenue of $176.7
million and $100.9 million, respectively, consisting primarily of Percentage
Lease revenue of $169.1 million and $98.0 million. The increase in total revenue
is primarily attributed to the Company's acquisition and subsequent leasing,
pursuant to Percentage Leases, of interests in 30 hotels during 1997. This
increase represents nearly a 70% increase in the number of hotel interests owned
by the Company at the end of 1996. Percentage Lease revenue from the 20 hotels
which were owned during all of 1997 and 1996 increased 16.5% for 1997 over 1996
(an increase of $8.8 million). The increase in Percentage Lease revenue is
attributed to a 10% increase in RevPAR and to the addition of 177 new suites at
three existing hotels. Furthermore, RevPAR at the 43 hotels owned by the Company
at December 31, 1996, increased 12.9% during 1997.
Equity in income from unconsolidated entities increased approximately
$5.0 million in 1997 over 1996, resulting primarily from an increase in the
number of hotels owned through unconsolidated entities from five at December 31,
1996, to 14 at December 31, 1997.
Total expenses increased $55.2 million in 1997 over 1996, resulting
primarily from increased expenses related to the acquisition of additional
hotels during 1997 and 1996. Total expenses as a percentage of total revenues
increased in 1997 to 63.9% from 57.1% in 1996.
The major component of the increased expenses as a percentage of total
revenue was interest expense. Interest expense increased as a percentage of
total revenue from 9.7% in 1996 to 16.3% in 1997. This relative increase in
interest expense is attributed to the increased use of debt to finance
acquisitions and renovations. Debt as a percentage of total assets increased
from 24.5% at December 31, 1996, to 28.5% at December 31, 1997.
As a percentage of total revenue, depreciation increased from 26.3% in
1996 to 28.8% in 1997. The relative increase in depreciation is primarily a
result of capital improvements made during 1996 and 1997 and the resultant
depreciation, as well as the increase of short lived assets relative to total
fixed assets (short lived assets made up 9.8% of fixed assets at December 31,
1997 and 9.0% at December 31, 1996).
General and administrative expenses and taxes, insurance, and other
expenses remained relatively constant as a percentage of total revenue in 1997
and 1996.
-33-
<PAGE> 36
FUNDS FROM OPERATIONS
The Company considers Funds From Operations to be a key measure of a
REIT's performance which should be considered along with, but not as an
alternative to, net income and cash flow as a measure of the Company's operating
performance and liquidity.
The White Paper on Funds From Operations approved by the Board of
Governors of the National Association of Real Estate Investment Trusts
("NAREIT") defines Funds From Operations as net income or loss (computed in
accordance with GAAP), excluding gains or losses from debt restructuring and
sales of properties, plus real estate related depreciation and amortization and
after comparable adjustments for the Company's portion of these items related to
unconsolidated entities and joint ventures. The Company believes that Funds From
Operations is helpful to investors as a measure of the performance of an equity
REIT because, along with cash flow from operating activities, financing
activities, and investing activities, it provides investors with an indication
of the ability of the Company to incur and service debt, to make capital
expenditures, and to fund other cash needs. The Company computes Funds From
Operations in accordance with standards established by NAREIT which may not be
comparable to Funds From Operations reported by other REITs that do not define
the term in accordance with the current NAREIT definition or that interpret the
current NAREIT definition differently than the Company. Funds From Operations
does not represent cash generated from operating activities determined by GAAP
and should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) as a
measure of the Company 's liquidity, nor is it indicative of funds available to
fund the Company's cash needs, including its ability to make cash distributions.
Funds From Operations may include funds that may not be available for
management's discretionary use due to requirements to conserve funds for capital
expenditures and property acquisitions and other commitments and uncertainties.
The following table details the computation of Funds From Operations
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- --------- ----------
FUNDS FROM OPERATIONS (FFO):
<S> <C> <C> <C>
Net income ................................................................ $ 114,839 $ 63,650 $ 40,937
Series B redeemable preferred dividends ................................ (8,373)
Extraordinary charge from write off of deferred financing fees ........ 3,075 185 2,354
Depreciation ........................................................... 90,835 50,798 26,544
Depreciation for unconsolidated entities ............................... 10,487 9,365 1,716
Minority interest in Operating Partnership ............................. 6,500 5,817 5,590
--------- --------- ---------
FFO ....................................................................... $ 217,363 $ 129,815 $ 77,141
========= ========= =========
Weighted average common shares and units outstanding ...................... 58,013 39,157 29,306
</TABLE>
-34-
<PAGE> 37
Included in FFO is the Company's share of FFO from its interest in 15
unconsolidated entities at December 31, 1998, 14 unconsolidated entities at
December 31, 1997, and five unconsolidated entities at December 31, 1996. The
following table details the computation of FFO from these unconsolidated
entities (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Statements of operations information:
Percentage lease revenue ........................................ $ 52,313 $ 47,720 $ 9,974
Depreciation .................................................... $ 17,570 $ 15,611 $ 3,086
Taxes, insurance and other ...................................... $ 8,956 $ 9,555 $ 886
Interest expense ................................................ $ 13,042 $ 11,790 $ 1,636
Net income ...................................................... $ 17,438 $ 17,044 $ 4,366
50% of net income attributable to the Company ................... $ 8,719 $ 8,522 $ 2,183
Amortization of cost in excess of book value .................... (1,702) (1,559) (173)
Equity in income from unconsolidated entities ................... 7,017 6,963 2,010
Add: Depreciation .............................................. 8,785 7,806 1,543
Amortization of cost in excess of book value .......... 1,702 1,559 173
-------- -------- --------
FFO from unconsolidated entities ................................ $ 17,504 $ 16,328 $ 3,726
======== ======== ========
</TABLE>
THE HOTELS -- ACTUAL
Upscale and full service hotels like Embassy Suites, Crowne Plaza,
Holiday Inn and Holiday Inn Select, Doubletree and Doubletree Guest Suites, and
Sheraton and Sheraton Suites hotels account for 95% of the Company's Percentage
Lease revenue. As a result of the renovation and rebranding of hotels,
approximately 97% of Percentage Lease revenue is expected to be derived from
upscale and full service hotels in 1999.
The following tables set forth historical occupancy, average daily rate
("ADR"), and RevPAR at December 31, 1998 and 1997, and the percentage changes
therein between the years presented for the Hotels in which the Company had an
ownership interest at December 31, 1998. This information is presented
regardless of the date of acquisition.
-35-
<PAGE> 38
Comparable Hotels
The Company believes that, when analyzing the performance of the
hotels, looking at "comparable" hotels is the most meaningful. For the DJONT
hotels, "comparable" is defined to include those hotels that were owned
throughout all of 1997 and 1998. This generally includes the hotels that have
benefitted from the Company's renovation, redevelopment, and rebranding programs
and generally excludes those hotels that are currently undergoing renovation and
experiencing out-of-service rooms and suites due to their renovation. For the
Bristol hotels, "comparable" excludes those hotels undergoing redevelopment
during either of the comparison years and those hotels that are identified for
sale.
<TABLE>
<CAPTION>
1998
-------------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels ....................... 73.6% $113.59 $83.59
CSS Hotels ............................ 73.2 125.77 92.05
1996 Acquisitions ..................... 73.7 126.08 92.86
Total DJONT Comparable Hotels (A) ..... 73.4 122.33 89.83
Original Bristol ...................... 71.5 74.38 53.15
Holiday Acquisition ................... 73.9 87.31 64.52
Omaha Acquisition ..................... 50.5 62.15 31.36
Total Bristol Comparable Hotels (B) ... 67.4 77.94 52.55
Total Comparable Hotels ............... 70.0% $97.71 $68.38
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels .......................... 76.1% $109.35 $83.17
CSS Hotels ............................... 73.4 115.85 85.04
1996 Acquisitions ........................ 74.0 118.61 87.76
Total DJONT Comparable Hotels ............ 74.3 114.77 85.27
Original Bristol ......................... 74.2 68.76 51.00
Holiday Acquisition ...................... 74.7 81.10 60.60
Omaha Acquisition ........................ 46.1 59.05 27.21
Total Bristol Comparable Hotels .......... 67.7 72.74 49.26
Total Comparable Hotels .................. 70.5% $91.37 $64.40
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM 1998 VS. 1997
---------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
Original Hotels ........................ (2.5) pts. 3.9% 0.5%
CSS Hotels ............................. (0.2) 8.6 8.2
1996 Acquisitions ...................... (0.3) 6.3 5.8
Total DJONT Comparable Hotels........... (0.9) 6.6 5.4
Original Bristol ....................... (2.7) 8.2 4.2
Holiday Acquisition .................... (0.8) 7.7 6.5
Omaha Acquisition ...................... 4.4 5.2 15.3
Total Bristol Comparable Hotels......... (0.3) 7.1 6.7
Total Comparable Hotels ................ (0.5) pts. 6.9% 6.2%
</TABLE>
(A) The Original Hotels (13 hotels), CSS Hotels (18 hotels), and
1996 Acquisitions (12 hotels) are considered DJONT Comparable
Hotels since these hotels were owned by the Company throughout
the years ended December 31, 1998 and 1997.
(B) Bristol Comparable Hotels excludes 39 hotels undergoing
redevelopment during either 1997 or 1998, three individual hotel
acquisitions, and six hotels identified for sale.
-36-
<PAGE> 39
Non-comparable Hotels
<TABLE>
<CAPTION>
1998
-------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions (A) .................. 71.0% $ 112.11 $79.56
1998 Acquisitions (A) .................. 71.4 99.77 71.22
Bristol Non-comparable Hotels (B) ...... 67.0 87.30 58.46
</TABLE>
<TABLE>
<CAPTION>
1997
---------------------------------------------
OCCUPANCY ADR RevPAR
--------- ---- ------
<S> <C> <C> <C>
1997 Acquisitions .................................. 71.8% $ 109.26 $ 78.45
1998 Acquisitions .................................. 72.6 97.80 71.01
Bristol Non-comparable Hotels ...................... 72.3 79.11 57.21
</TABLE>
<TABLE>
<CAPTION>
CHANGE FROM 1998 VS. 1997
------------------------------------
OCCUPANCY ADR RevPAR
--------- --- ------
<S> <C> <C> <C>
1997 Acquisitions ................. (0.8)pts. 2.6% 1.4%
1998 Acquisitions ................. (1.2) 2.0 0.3
Bristol Non-comparable Hotels ..... (5.3) 10.4 2.2
</TABLE>
(A) The 1997 Acquisitions (30 hotels) and 1998 Acquisitions (13
hotels) are excluded from the DJONT Comparable Hotels because
they were not owned by the Company during all of 1998 and 1997.
(B) The Bristol Non-comparable Hotels excludes two hotels
closed during renovation and six hotels identified for sale. In
the aggregate, the six hotels identified for sale had a 7.5%
decline in RevPAR during 1998.
Comparison of the Hotels' Operating Statistics for the Years Ended
December 31, 1998 and 1997.
DJONT Comparable Hotels. The DJONT Comparable Hotels' RevPAR increased
5.4% in 1998 over 1997. This improvement was driven by an increase in ADR of
6.6%, partially offset by a decrease of approximately one point in occupancy.
Forty of the 43 DJONT Comparable Hotels are Embassy Suites hotels.
The strongest performance of the DJONT Comparable Hotels came from the
CSS Hotels which include 18 former Crown Sterling Suite hotels purchased in 1995
and 1996. These hotels benefitted from the Company's renovation, redevelopment,
and rebranding program, under which 16 of these hotels were converted to Embassy
Suites and two to Doubletree Guest Suites hotels. The renovations,
redevelopments, and rebrandings were completed in 1996 and early 1997. These
hotels posted RevPAR of $92.05 in 1998, an improvement of 8.2% over the 1997
RevPAR of $85.04 and an improvement of 31.4% over the 1996 RevPAR of $70.05.
The Original Hotels include the 13 hotels acquired by the Company from
1994 through October 1996. While this group of hotels had only a modest increase
in RevPAR of 0.5% over 1997, room and suite revenue in this group of hotels
increased $5.8 million (6.8%). This increase in room and suite revenue resulted
from the 1998 construction of 224 additional suites at three hotels.
The 1996 Acquisitions consist of 12 hotels that the Company acquired in
late 1995 and 1996. These hotels improved RevPAR performance by 5.8% over 1997.
This improvement is generally attributed to the renovation and redevelopment of
these hotels in 1996 and 1997.
-37-
<PAGE> 40
Bristol Comparable Hotels. The Bristol Comparable Hotels improved
RevPAR by 6.7% in 1998 over 1997. This improvement was driven by higher ADR
with a slight drop (0.3 pts.) in occupancy.
The following table sets forth additional information for the Bristol
Comparable Hotels:
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER 1998 CHANGE
OF HOTELS RevPAR IN RevPAR
--------- ------ ---------
<S> <C> <C> <C>
Bristol Comparable Hotels:
Holiday Inn ............................ 39 $ 53.95 7.9 %
Hampton Inn ............................ 8 $ 41.52 12.4 %
Fairfield Inn .......................... 5 $ 40.94 3.9 %
Harvey Hotel ........................... 4 $ 56.16 (2.4)%
Other .................................. 3 $ 60.84 7.4 %
--
Total Bristol Comparable Hotels ........ 59 $ 52.55 6.7 %
==
</TABLE>
The strongest performance in the Bristol Comparable Hotels came from
the Omaha Acquisition. The Omaha Acquisition hotels include 19 hotels (nine
Holiday Inn hotels, five Hampton Inn hotels, four Holiday Inn Express hotels,
and one Homewood Suites hotel) acquired by Bristol in early 1998. The increase
in RevPAR of 15.3% over 1997 is attributed to the change in management of these
hotels to Bristol Hotels & Resorts. The Holiday Acquisition hotels (19 Holiday
Inn hotels) increased RevPAR by 6.5% and the Original Bristol hotels (seven
Holiday Inn and Holiday Inn Select, five Fairfield Inn, four Harvey, three
Hampton Inn, and two Courtyard by Marriott hotels) increased RevPAR by 4.2%,
primarily attributable to the positive impact from renovations and
redevelopments in 1996.
DJONT Non-comparable Hotels. The DJONT Non-comparable Hotels produced
slight RevPAR increases which were driven by increases in ADR with a slight drop
in occupancy.
Bristol Non-comparable Hotels. The Bristol Non-comparable Hotels
include eight recently renovated and rebranded Crowne Plaza hotels. These hotels
produced RevPAR increases in the fourth quarter of 1998 of 14.3% over the fourth
quarter of 1997. More significantly, the ADR at these eight Crowne Plaza hotels
increased 20.0% in the fourth quarter of 1998 over the comparable prior year
quarter.
DJONT - ACTUAL
Comparison of the Years Ended December 31, 1998 and 1997
Total revenues increased to $749.5 million in 1998 from $534.5 million
in 1997, an increase of 40.2%. Total revenues consisted primarily of suite
revenue of $ 618.1 million and $456.6 million in 1998 and 1997, respectively.
The increase in total revenues is primarily a result of the increase in
the number of hotels leased to 86 hotels at December 31, 1998 from 73 hotels at
December 31, 1997. Suite revenues for the 43 hotels which were leased for all of
1998 and 1997 increased 8.0% or $19.3 million. The increase in revenues at these
hotels is due primarily to improved average daily room rates of $122.33, for the
year ended December 31, 1998, as compared to $114.77 for the year ended December
31, 1997.
DJONT recorded a net income of $844,000 in 1998 compared to a net loss
of $2.7 million in 1997. This improvement in operating performance is primarily
attributed to improved profitability of food and beverage operations for DJONT
and a decrease in percentage lease expenses as a percentage of total revenue.
Food and beverage profits increased to 1.6% of total revenue in 1998
from 0.3% in 1997, an increase of $10.2 million. This change is attributed to
the increased number of hotels leased by DJONT which have a greater emphasis on
food and beverage than the traditional Embassy Suites. Food and beverage
revenue, as a percentage of total revenue, increased to 10.4% in 1998 compared
to 6.5% in 1997.
-38-
<PAGE> 41
Percentage lease expenses as a percentage of total revenue decreased to
39% from 41%. A portion of this change is attributed to the increase in food and
beverage revenues, as a percentage of total revenues, which bear a lower
percentage rent than room revenues.
Comparison of the Years Ended December 31, 1997 and 1996
Total revenues increased to $534.5 million in 1997 from $269.2 million
in 1996, an increase of 98.5%. Total revenues consisted primarily of suite
revenue of $456.6 million and $234.5 million in 1997 and 1996, respectively.
The increase in total revenues is primarily a result of the increase in
the number of hotels leased to 73 hotels at December 31, 1997 from 43 hotels at
December 31, 1996. Suite revenues for the 20 hotels which were leased for all of
1997 and 1996 increased 12.2% or $14.6 million. The increase in revenues at
these hotels is due primarily to improved occupancy and average daily room rates
of 74.7% and $110.20, respectively, for the year ended December 31, 1997, as
compared to 72.9% and $102.62 for the year ended December 31, 1996.
DJONT income before Percentage Lease rent increased in 1997 to 40.1%
from 38.1% of total revenues in 1996 primarily as a result of higher revenue
earned per available room. The net loss of approximately $2.7 million during
1997 was half that incurred in 1996 and resulted primarily from the one-time
costs of converting the last of the CSS Hotels to the Embassy Suites and
Doubletree Guest Suites brands and the substantial number of suite nights lost
during the year due to renovation.
RENOVATIONS, REDEVELOPMENTS AND REBRANDINGS
The Company believes that one factor that differentiates it from other
hotel companies is its commitment to making capital expenditures where
necessary, to renovate, redevelop, and rebrand its Hotels. The Company
approaches this in five different ways: (i) an aggressive renovation and
redevelopment program as hotels are acquired to bring them up to their optimum
competitive position, (ii) rebranding hotels in certain instances to improve the
revenue generating capacity of the hotel, (iii) contributions of at least 4% of
annual room and suite revenue for the DJONT hotels and 3% of total annual hotel
revenue for the Bristol hotels (on a cumulative basis) for routine capital
replacements and improvements (the "Capital Reserve"), (iv) insuring that the
Lessees adhere to a proactive maintenance and repair program for the Hotels
amounting to approximately 4.5% of hotel revenues, and (v) after the initial
renovation and redevelopment, the construction of additional rooms and suites,
meeting rooms and public areas where market conditions dictate.
Renovation and Redevelopment Program
In 1998, the Company and, prior to the Merger, Bristol Hotel Company
completed approximately $180 million of capital improvements to approximately 40
hotels. During 1998, approximately 3% of total hotel room nights were out of
service due to renovations. The Company presently expects to spend an additional
$160 million in capital improvements to 56 hotels during 1999 and expects that
approximately 3% of total room nights again will be out of service due to
renovation.
-39-
<PAGE> 42
Rebranding
In 1998 the Company rebranded 16 hotels as follows:
<TABLE>
<CAPTION>
PRIOR BRAND NEW BRAND LOCATION
----------- --------- --------
<S> <C> <C>
Hilton Crowne Plaza Secaucus, New Jersey
Holiday Inn Crowne Plaza Hartford, Connecticut
Holiday Inn Crowne Plaza San Francisco, California
Holiday Inn Crowne Plaza Houston, Texas
Holiday Inn Select Crowne Plaza Greenville, South Carolina
Holiday Inn Select Crowne Plaza Miami, Florida
Holiday Inn Select Crowne Plaza Philadelphia, Pennsylvania
Harvey Hotel Crowne Plaza Atlanta, Georgia
Harvey Hotel Crowne Plaza Dallas, Texas
Harvey Hotel Crowne Plaza Addison, Texas
Bristol Suites Crowne Plaza Suites Dallas, Texas
Doubletree Guest Suites Sheraton Suites Ft. Lauderdale, Florida
Doubletree Guest Suites Sheraton Suites Lexington, Kentucky
Sheraton Westin Dallas, Texas
Radisson Sheraton Dallas, Texas
Harvey Suites Holiday Inn & Suites Houston, Texas
</TABLE>
In 1999, the Company expects to rebrand four Holiday Inn hotels and one
independent hotel as Crowne Plaza hotels, four Doubletree Guest Suites hotels to
Embassy Suites hotels, and one Radisson hotel to a Doubletree hotel.
Room Additions
During 1998, the Company completed construction of an aggregate of 224
suites at its Embassy Suites hotels in Jacksonville (67) and Orlando (North)
(67), Florida, and New Orleans (90), Louisiana.
CAPITAL RESERVE
It is the Company's policy to contribute a minimum of 4% of room and
suite revenue from the DJONT leased hotels and 3% of total hotel revenue from
the Bristol leased hotels to the Capital Reserve account in order to provide
funds for necessary ongoing capital replacements and improvements after the
initial renovation or upgrade. During 1998 approximately $40 million was spent
on such replacements and improvements, in addition to the $180 million spent
under the Renovation and Redevelopment Program described above.
REPAIRS AND MAINTENANCE
During the year ended December 31, 1998, approximately $36.4 million and
$32.0 million were spent by the Lessees on routine repairs and maintenance at
the Hotels leased by DJONT and Bristol, respectively. This represents
approximately 4.7% of total hotel revenues.
LIQUIDITY AND CAPITAL RESOURCES
FelCor's principal source of cash to meet its cash requirements,
including distributions to shareholders and repayments of indebtedness, is its
share of the Operating Partnership's cash flow from the Percentage Leases. For
the year ended December 31, 1998, cash flow provided by operating activities,
consisting primarily of Percentage Lease revenue, was $192.6 million and Funds
From Operations was $217.4 million.
-40-
<PAGE> 43
The Lessees' obligations under the Percentage Leases are largely
unsecured. The Lessees have limited capital resources, and, accordingly, their
ability to make lease payments under the Percentage Leases is substantially
dependent on the ability of the Lessees to generate sufficient cash flow from
the operation of the Hotels. At December 31, 1998, the Lessees had paid all
amounts then due the Company under the Percentage Leases.
During 1998 and 1997, DJONT realized net income of approximately $0.8
million and a net loss of $2.7 million. At December 31, 1998, DJONT had a
cumulative shareholders' deficit of approximately $8.2 million. The losses in
1997 resulted primarily from the one-time costs of converting the CSS Hotels to
the Embassy Suites and Doubletree Guest Suites brands and the substantial number
of suite nights lost during the year due to renovation. It is anticipated that a
substantial portion of any future profits of DJONT will be retained until a
positive shareholders' equity is restored. It is anticipated that DJONT's future
earnings will be sufficient to enable it to continue to make its lease payments
under the Percentage Leases.
Certain entities owning interests in DJONT and the managers of certain
hotels have agreed to make loans to DJONT of up to an aggregate of approximately
$17.3 million to the extent necessary to enable DJONT to pay rent and other
obligations when due under the respective Percentage Leases relating to a total
of 34 of the Hotels. No such loans were outstanding at December 31, 1998.
Bristol has entered into an absolute and unconditional guarantee of the
obligations of the Bristol Lessees under the Percentage Leases. As an additional
credit enhancement, the Bristol Lessees obtained a letter of credit (the "Letter
of Credit") issued by Bankers Trust Company for the benefit of the Company in
the original amount of $20 million. This Letter of Credit is subject to periodic
reductions upon satisfaction of certain conditions and is required to be
maintained until July 27, 1999. For the period from July 28, 1998 (inception of
operations) through December 31, 1998, Bristol earned $2.6 million of net income
and at December 31, 1998, had stockholders' equity of $35.4 million.
The Company may acquire additional hotels and may incur indebtedness to
make such acquisitions or to meet distribution requirements imposed on a REIT
under the Internal Revenue Code, to the extent that working capital and cash
flow from the Company's investments are insufficient to make such distributions.
At December 31, 1998, the Company had $34.7 million of cash and cash
equivalents and had utilized $736 million under its $850 million unsecured
revolving Line of Credit.
The following details the Company's debt outstanding at December 31,
1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
COLLATERAL INTEREST RATE MATURITY DATE 1998 1997
---------- ------------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
FLOATING RATE DEBT:
Line of credit Unsecured LIBOR + 150bp June 2001 $ 411,000 $ 61,000
Term loan Unsecured LIBOR + 150bp December 1999 250,000
Other Unsecured Up to LIBOR + 150bp Various 34,750 25,650
------------- -----------
Total floating rate debt 695,750 86,650
------------- -----------
FIXED RATE DEBT:
Line of credit Unsecured 7.27% June 2001 325,000 75,000
Publicly-traded term notes Unsecured 7.38% October 2004 174,249 174,116
Publicly-traded term notes Unsecured 7.63% October 2007 124,122 124,029
Mortgage debt 15 hotels 7.24% November 2007 145,062
Mortgage debt 3 hotels 6.97% December 2002 43,836
Other 13 hotels 6.96% - 7.23% 2000 - 2005 86,715 17,024
------------- -----------
Total fixed rate debt 898,984 390,169
------------- -----------
Total debt $ 1,594,734 $ 476,819
============= ===========
</TABLE>
-41-
<PAGE> 44
The Company is currently seeking to refinance the $250 million term loan
that matures on December 31, 1999.
The Line of Credit and the Term Loan contain various affirmative and
negative covenants including limitations on total indebtedness, total secured
indebtedness, and cash distributions, as well as the obligation to maintain a
certain minimum tangible net worth and certain minimum interest and debt service
coverage ratios. At December 31, 1998, the Company was in compliance with all
such covenants.
The Company's other borrowings contain affirmative and negative
covenants that are generally equal to or less restrictive than the Line of
Credit and Term Loan. Most of the collateralized borrowings are nonrecourse to
the Company (with certain exceptions) and contain provisions allowing for the
substitution of collateral upon satisfaction of certain conditions. Most of the
collateralized borrowings are prepayable, however approximately $43.8 million is
not subject to any prepayment penalty, yield maintenance, or defeasance
obligation. The remaining collateralized borrowings are subject to various
prepayment penalties, yield maintenance, or defeasance obligations.
To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into interest rate swap agreements with six
financial institutions. These interest rate swap agreements modify a portion of
the interest characteristics of the Company's outstanding debt under its Line of
Credit without an exchange of the underlying principal amount and effectively
convert variable rate debt to a fixed rate. The fixed rates to be paid, the
effective fixed rate, and the variable rate to be received by the Company at
December 31, 1998, are summarized in the following table:
<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/98 MATURITY
- --------------- ------------ ---------- ---------------- ---------------
<S> <C> <C> <C> <C>
$ 50 million 6.11125% 7.61125% 5.33501% October 1999
$ 25 million 5.95500% 7.45500% 5.20000% November 1999
$ 25 million 5.55800% 7.05800% 5.54656% July 2001
$ 25 million 5.54800% 7.04800% 5.54656% July 2001
$ 75 million 5.55500% 7.05500% 5.54656% July 2001
$ 100 million 5.79600% 7.29600% 5.54656% July 2003
$ 25 million 5.82600% 7.32600% 5.54656% July 2003
- -------------
$ 325 million
=============
</TABLE>
The differences to be paid or received by the Company under the terms
of the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company and have a
corresponding effect on its future cash flows. Agreements such as these contain
a credit risk in that the counterparties may be unable to fulfill the terms of
the agreement. The Company minimizes that risk by evaluating the
creditworthiness of its counterparties, who are limited to major banks and
financial institutions, and does not anticipate nonperformance by the
counterparties.
To provide for additional financing flexibility, the Company has
approximately $946 million of common stock, preferred stock, debt securities,
and/or common stock warrants available for offerings under shelf registration
statements previously declared effective.
The Company's cash flow from financing activities of approximately
$375.1 million for the year ended December 31, 1998 resulted primarily from the
sale of 5.75 million depositary shares, representing 57,500 shares of FelCor's
9% Series B Cumulative Redeemable Preferred Stock, with net proceeds of $139.1
million and net borrowings by the Company of $354.5 million, partially offset by
distributions paid to common shareholders, preferred shareholders and limited
partners of $122.4 million.
-42-
<PAGE> 45
INFLATION
Operators of hotels, in general, possess the ability to adjust room
rates daily to reflect the effects of inflation. Competitive pressures may,
however, limit the Lessees' ability to raise room rates.
SEASONALITY
The Hotels' operations historically have been seasonal in nature,
reflecting higher occupancy rates primarily during the first three quarters of
each year. This seasonality can be expected to cause fluctuations in the
Company's quarterly lease revenue, particularly during the fourth quarter, to
the extent that it receives Percentage Rent. To the extent cash flow from
operations is insufficient during any quarter, due to temporary or seasonal
fluctuations in lease revenue, the Company expects to utilize cash on hand or
borrowings under the Line of Credit to make distributions to its equity
holders.
THE YEAR 2000 ISSUE
The year 2000 issue relates to computer programs that were written
using two digits rather than four to define the applicable year. In those
programs the year 2000 may be incorrectly identified as the year 1900, which
could result in a system failure or miscalculations causing a disruption of
operations, including a temporary inability to process transactions, prepare
financial statements, or engage in other normal business activities.
The Company believes that its efforts to identify and resolve the year
2000 issues will avoid a major disruption of its business. The Company has
assessed its internal computer systems and believes that they will properly
utilize dates beyond December 31, 1999.
The Hotels owned by the Company are in various stages of identifying
both computer and noninformation technology systems to determine if they are
year 2000 compliant, including embedded systems that operate elevators, phone
systems, energy maintenance systems, security systems, and other systems. The
assessments, which have not been completed at this date, are scheduled to be
completed by the end of the first quarter of 1999. Most of the upgrades to make
a hotel year 2000 compliant had been anticipated as part of the Renovation and
Redevelopment Program that the Company generally undertakes upon acquisition of
a hotel.
The Company currently anticipates that the total cost to remediate all
hotel year 2000 issues to be approximately $8 million, which is included in the
Company's 1999 capital plans.
The Company has requested and received assurances from the managers of
the Hotels, the franchisors of the Hotels and the Lessees, that they have
implemented appropriate steps to insure that they will avoid a major disruption
of business due to year 2000 issues.
Concurrent with the assessment of the year 2000 issue, the Company and
its hotel managers and Lessees are developing contingency plans intended to
mitigate the possible disruption in business operations that may result from
year 2000 issues and are developing cost estimates for such plans. Once
developed, contingency plans and related cost estimates will be continually
refined as additional information becomes available.
-43-
<PAGE> 46
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Portions of this Annual Report on Form 10-K include forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give no
assurance that its expectations will be achieved. A number of important factors
which, among others, could adversely affect the ability of the Company to meet
its current expectations are disclosed in conjunction with the forward-looking
statements and under "Cautionary Factors That May Affect Future Results" in Item
1 of this Annual Report on Form 10-K ("Cautionary Statements"). Subsequent
written and oral forward-looking statements made by or attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the Cautionary Statements.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998 the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS No. 133"). FAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. FAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. The Company believes
that, upon implementation, FAS No. 133 will not have a material impact on the
financial statements of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information and disclosures regarding market risks applicable to FelCor
is incorporated herein by reference to the discussion under "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" contained elsewhere in this
Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included herein beginning at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-44-
<PAGE> 47
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information about the Directors and Executive Officers of FelCor is
incorporated herein by reference to the discussion under "Election of Directors"
in FelCor's Proxy Statement for the 1999 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Information about executive compensation is incorporated herein by
reference to the discussion under "Election of Directors" in FelCor's Proxy
Statement for the 1999 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information about the security ownership of certain beneficial owners
and management of FelCor is incorporated herein by reference to the discussion
under "Election of Directors" in FelCor's Proxy Statement for the 1999 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information about certain relationships and related transactions is
incorporated herein by reference to the discussion under "Election of Directors"
in FelCor's Proxy Statement for the 1999 Annual Meeting of Stockholders.
-45-
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Included herein at pages F-1 through F-36.
2. Financial Statement Schedules
The following financial statement schedule is included herein at page
F-25.
Schedule III - Real Estate and Accumulated Depreciation for
FelCor Lodging Trust Incorporated
All other schedules for which provision is made in Regulation S-X are
either not required to be included herein under the related instructions or are
inapplicable or the related information is included in the footnotes to the
applicable financial statement and, therefore, have been omitted.
3. Exhibits
The following exhibits are filed as part of this Annual Report on Form
10-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
2.1 - Agreement and Plan of Merger by and between the
Registrant and Bristol Hotel Company ("Bristol")
dated as of March 23, 1998 (filed as Exhibit 2.1 to
the Registrant's Form 8-K dated April 23, 1998, and
incorporated herein by reference).
3.1 - Articles of Amendment and Restatement dated June 22,
1995, amending and restating the Charter of the
Registrant, as amended or supplemented by Articles of
Merger dated June 23, 1995, Articles Supplementary
dated April 30, 1996, Articles of Amendment dated
August 8, 1996, Articles of Amendment dated June 16,
1997, Articles of Amendment dated October 30, 1997,
Articles Supplementary dated May 6, 1998, Articles of
Merger and Articles of Amendment dated July 27, 1998,
and Certificate of Correction dated March __, 1999.
3.2 - Bylaws of the Registrant, as amended (filed as
Exhibit 3.2 to the Registrant's Registration
Statement on Form S-11 (File No. 333-98332) and
incorporated herein by reference).
4.1 - Form of Share Certificate for Common Stock (filed
as Exhibit 4.1 to the Registrant's Form 10-Q for the
quarter ended June 30, 1996, and incorporated herein
by reference).
4.2 - Form of Share Certificate for $1.95 Series A
Cumulative Convertible Preferred Stock (filed as
Exhibit 4.4 to the Registrant's Form 8-K dated May 1,
1996, and incorporated herein by reference).
4.3 - Form of Share Certificate for 9% Series B
Cumulative Redeemable Preferred Stock (filed as
Exhibit 4.5 to the Registrant's Form 8-K dated May
29, 1998, and incorporated herein by reference).
4.4 - Deposit Agreement dated April 30, 1998, between the
Registrant and SunTrust Bank, Atlanta, as preferred
share depositary (filed as Exhibit 4.6 to the
Registrant's Form 8-K dated May 29, 1998, and
incorporated herein by reference).
4.5 - Form of Depositary Receipt evidencing the
Depositary Shares (filed as Exhibit 4.7 to the
Registrant's Form 8-K dated May 29, 1998, and
incorporated herein by reference).
</TABLE>
-46-
<PAGE> 49
<TABLE>
<S> <C>
4.6 - Indenture dated as of April 22, 1996 by and between
the Registrant and Sun Trust Bank, Atlanta, Georgia,
as Trustee (filed as Exhibit 4.2 to the Registrant's
Form 8-K dated May 1, 1996 and incorporated herein by
reference).
4.7 - Indenture dated as of October 1, 1997 by and among
FelCor Lodging Limited Partnership, formerly FelCor
Suites Limited Partnership (the "Partnership"), the
Registrant, the Subsidiary Guarantors named therein
and SunTrust Bank, Atlanta, Georgia, as Trustee
(filed as Exhibit 4.1 to the Registration Statement
on Form S-4 (file No. 333-39595) and the other
co-registrants named therein and incorporated herein
by reference).
4.7.1 - First Amendment to Indenture dated as of February
5, 1998 by and among Registrant, the Partnership, the
Subsidiary Guarantors named therein and SunTrust
Bank, Atlanta, Georgia, as Trustee (filed as Exhibit
4.2 to the Registrant's Registration Statement on
Form S-4 (File No. 333-39595) and incorporated herein
by reference).
4.7.2 - Second Amendment to Indenture and First
Supplemental Indenture dated as of December 30, 1998,
by and among Registrant, the Partnership, the
Subsidiary Guarantors named therein and SunTrust
Bank, Atlanta, Georgia, as Trustee.
10.1 - Amended and Restated Agreement of Limited
Partnership of the Partnership (filed as Exhibit 10.1
to the Registrant's Annual Report on Form 10-K/A
Amendment No. 1 for the fiscal year ended December
31, 1994 (the "1994 10-K/A") and incorporated herein
by reference).
10.1.1 - First Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
November 17, 1995 by and among the Registrant, Promus
Hotels, Inc. and all of the persons or entities who
are or shall in the future become of the limited
partners of the Partnership (filed as Exhibit 10.1.1
to the Registrant's Annual Report on Form 10-K, as
amended, for the fiscal year ended December 31, 1995
(the "1995 10-K") and incorporated herein by
reference).
10.1.2 - Second Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
January 9, 1996 between the Registrant and all of the
persons or entities who are or shall in the future
become limited partners of the Partnership (filed as
Exhibit 10.1.2 to the 1995 10-K and incorporated
herein by reference).
10.1.3 - Third Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
January 10, 1996 by and among the Registrant,
MarRay-LexGreen, Inc. and all of the persons and
entities who are or shall in the future become
limited partners of the Partnership (filed as Exhibit
10.1.3 to the 1995 10-K and incorporated herein by
reference).
10.1.4 - Fourth Amendment to the Amended and Restated
Agreement of Limited Partnership of the Partnership
dated as of January 10, 1996 by and among the
Registrant, Piscataway-Centennial Associates Limited
Partnership and all of the persons or entities who
are or shall in the future become limited partners of
the Partnership (filed as Exhibit 10.1.4 to the 1995
10-K and incorporated herein by reference).
10.1.5 - Fifth Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
May 2, 1996, between the Registrant and all of the
persons or entities who are or shall in the future
become limited partners of the Partnership, adopting
Addendum No. 2 to Amended and Restated Agreement of
Limited Partnership of the Partnership dated as of
May 2, 1996 (filed as Exhibit 10.1.5 to the Form 10-Q
for the quarter ended June 30, 1996, and incorporated
herein by reference).
</TABLE>
-47-
<PAGE> 50
<TABLE>
<S> <C>
10.1.6 - Sixth Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
September 16, 1996, by and among the Registrant, John
B. Urbahns, II and all of the persons or entities who
are or shall in the future become limited partners of
the Partnership (filed as Exhibit 10.1.6 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, and incorporated
herein by reference).
10.1.7 - Seventh Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
May 16, 1997, by and among the Registrant, PMB
Associates, Ltd. and all of the persons or entities
who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.7
to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, and
incorporated herein by reference).
10.1.8 - Eighth Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
February 6, 1998, by and among the Registrant,
Columbus/Front Ltd. and all of the persons or
entities who are or shall in the future become
limited partners of the Partnership (filed as Exhibit
10.1.8 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and
incorporated herein by reference).
10.1.9 - Ninth Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
May 1, 1998, between the Registrant and all of the
persons or entities who are or shall in the future
become limited partners of the Partnership, adopting
Addendum No. 3 to Amended and Restated Agreement of
Limited Partnership dated as of May 1, 1998 (filed as
Exhibit 10.1.9 to the Registrant's Form 8-K dated May
29, 1998, and incorporated herein by reference).
10.1.10 - Tenth Amendment to Amended and Restated Agreement of
Limited Partnership of the Partnership dated as of
June 22, 1998, by and among the Registrant, Schenley
Hotel Associates, and all of the persons or entities
who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.10
to the Registrant's Form 10-Q for the quarter ended
October 30, 1998, and incorporated herein by
reference).
10.1.11 - Eleventh Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
July 28, 1998, between the Registrant and all of the
persons or entities who are or shall in the future
become limited partners of the Partnership, changing
the name of the Partnership to "FelCor Lodging
Limited Partnership" (filed as Exhibit 10.1.11 to the
Registrant's Form 10-Q for the quarter ended October
30, 1998, and incorporated herein by reference).
10.1.12 - Twelfth Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
December 29, 1998, between the Registrant and all of
the persons or entities who are or shall in the
future become limited partners of the Partnership,
amending certain provisions of the Partnership
Agreement.
10.1.13 - Thirteenth Amendment to Amended and Restated
Agreement of Limited Partnership of the Partnership
dated as of December 31, 1998, by and between the
Registrant, FelCor Nevada Holdings, L.L.C. and all of
the persons or entities who are or shall in the
future become limited partners of the Partnership.
10.1.14 - Fourteenth Amendment to Amended and Restated
Agreement of Limited Partnership of the Partnership
dated as of March 1, 1999, by and among the
Registrant, Huie Properties, Ltd., and all of the
persons or entities who are or shall in the future
become limited partners of the Partnership.
10.2 - Form of Lease Agreement between the Partnership as
Lessor and DJONT Operations, L.L.C. or its
subsidiaries ("DJONT") as Lessee (filed as Exhibit
10.2.1 to the 1995 10-K and incorporated herein by
reference).
</TABLE>
-48-
<PAGE> 51
<TABLE>
<S> <C>
10.2.1 - Omnibus Lease Amendment Agreement dated as of June
30, 1998 among the Registrant, the Partnership and
DJONT to clarify the meaning of Article III of the
lease as represented by the actual course of dealing
between lessors and lessees under such leases (filed
as Exhibit 10.19 to the Registrant's Form 10-Q for
the quarter ended June 30, 1998, and incorporated
herein by reference).
10.3 - Form of Lease Agreement between the Partnership as
Lessor and a subsidiary of Bristol Hotels & Resorts
("BHR") as Lessee (the "Bristol Lease Agreement").
10.3.1 - Amended and Restated Master Hotel Agreement dated
as of July 27, 1998 among the Registrant, the
Partnership, BHR and the lessors and lessees named
therein (filed as Exhibit 10.17 to the Registrant's
Form 8-K dated August 10, 1998, and incorporated
herein by reference).
10.4 - Employment Agreement dated as of July 28, 1994
between the Registrant and Hervey A. Feldman (filed
as Exhibit 10.7 to the 1994 10-K/A and incorporated
herein by reference).
10.5 - Employment Agreement dated as of July 28, 1994
between the Registrant and Thomas J. Corcoran, Jr.
(filed as Exhibit 10.8 to the 1994 10-K/A and
incorporated herein by reference).
10.6 - Restricted Stock and Stock Option Plan of the
Registrant (filed as Exhibit 10.9 to the 1994 10-K/A
and incorporated herein by reference).
10.7 - Savings and Investment Plan of the Registrant
(filed as Exhibit 10.10 to the 1994 10-K/A and
incorporated herein by reference).
10.8 - 1995 Restricted Stock and Stock Option Plan of the
Registrant (filed as Exhibit 10.9.2 to the 1995 10-K
and incorporated herein by reference).
10.9 - Non-Qualified Deferred Compensation Plan (filed as
Exhibit 4 to the Registrant's Registration Statement
on Form S-8 (File No. 333-69869) and incorporated
herein by reference).
10.10 - 1998 Restricted Stock and Stock Option Plan (filed
as Exhibit 4.2 to the Registrant's Registration
Statement on Form S-8 (File No. 333-66041) and
incorporated herein by reference).
10.11 - Second Amended and Restated 1995 Equity Incentive
Plan (filed as Exhibit 99.1 to the Registrant's
Post-Effective Amendment on Form S-3 to Form S-4
Registration Statement (File No. 333-50509) and
incorporated herein by reference).
10.12 - Amended and Restated Stock Option Plan for
Non-Employee Directors (filed as Exhibit 99.2 to the
Registrant's Post-Effective Amendment on Form S-3 to
Form S-4 Registration Statement (File No. 333-50509)
and incorporated herein by reference).
10.13 - Form of Severance Agreement for executive officers
and certain key employees of the Registrant.
10.14 - Agreement dated as of April 15, 1995 among the
Registrant, the Partnership, FelCor, Inc., Thomas J.
Corcoran, Jr. and Hervey A. Feldman relating to
purchase of securities (filed as Exhibit 10.15 to the
Registration Statement on Form S-11 (File No.
33-91870) and incorporated herein by reference).
10.15 - Credit Agreement dated as of February 6, 1996 by
and among the Partnership, as borrower, Holdings and
the Registrant, as guarantors, and Canadian Imperial
Bank of Commerce, as agent (filed as Exhibit 10.30 to
the Registrant's Form 8-K dated May 1, 1996, and
incorporated herein by reference).
10.16 - Voting and Cooperation Agreement dated as of March
23, 1998 among Registrant, Bristol, Bass America
Inc., Holiday Corporation and United/Harvey Holdings,
L.P. (filed as Exhibit 99.7 to the Registrant's
Registration Statement on Form S-4 (File No.
333-50509) and incorporated herein by reference).
</TABLE>
-49
<PAGE> 52
<TABLE>
<S> <C>
10.17 - Spin-Off Agreement dated as of March 23, 1998 among
Bristol, Bristol Hotel Management Corporation and
Bristol Hotel and Resorts, Inc., as agreed to by
Registrant (filed as Exhibit 99.8 to the Registrant's
Registration Statement on Form S-4 (File No.
333-50509) and incorporated herein by reference).
10.18 - Stockholders' and Registration Rights Agreement
dated as of July 27, 1998 by and among Registrant,
Bass America, Inc., Holiday Corporation, Bass plc,
United/Harvey Investors I, L.P., United/Harvey
Investors II, L.P., United/Harvey Investors III,
L.P., United/Harvey Investors IV, L.P., and
United/Harvey Investors V, L.P. (filed as Exhibit
10.18 to the Registrant's Form 8-K dated August 10,
1998, and incorporated herein by reference).
10.19 - Fourth Amended and Restated Revolving Credit
Agreement dated as of July 1, 1998 among Registrant
and the Partnership, as Borrower, the Lenders party
thereto, The Chase Manhattan Bank, as Administrative
Agent, Chase Securities, Inc. as Arranger, and
Bankers Trust Company, NationsBank, N.A. and Wells
Fargo Bank, National Association as Co-Arrangers and
Documentation Agents (filed as Exhibit 10.14 to the
Registrant's Form 8-K dated August 10, 1998 and
incorporated herein by reference).
10.20 - Loan Agreement dated as of October 10, 1997 among
Bristol Lodging Company, Bristol Lodging Holding
Company, Nomura Asset Capital Corporation as
administrative agent and collateral agent for Lenders
and Bankers Trust Company as co-agent for Lenders
(filed as Exhibit 10.10 to the Bristol Hotel Company
Annual report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by
reference).
21.1 - List of Subsidiaries of the Registrant.
23.1 - Consent of PricewaterhouseCoopers LLP
27 - Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K.
Registrant did not file any reports on Form 8-K during the fourth
quarter of 1998.
-50-
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FELCOR LODGING TRUST INCORPORATED
By: /s/ RANDALL L. CHURCHEY
--------------------------------------------
Randall L. Churchey
Senior Vice President and Chief Financial Officer
Date: March 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
DATE SIGNATURE
---- ---------
<S> <C>
/s/ DONALD J. MC NAMARA
March 29, 1999 ------------------------------------------------------
Donald J. McNamara
Chairman of the Board and Director
/s/ THOMAS J. CORCORAN, JR.
March 29, 1999 ------------------------------------------------------
Thomas J. Corcoran, Jr.
President and Director (Chief Executive Officer)
/s/ RANDALL L. CHURCHEY
March 29, 1999 ------------------------------------------------------
Randall L. Churchey
Senior Vice President (Chief Financial Officer)
/s/ LESTER C. JOHNSON
March 29, 1999 ------------------------------------------------------
Lester C. Johnson
Vice President and Controller
(Principal Accounting Officer)
/s/ RICHARD S. ELLWOOD
March 29, 1999 ------------------------------------------------------
Richard S. Ellwood, Director
/s/ RICHARD O. JACOBSON
March 29, 1999 ------------------------------------------------------
Richard O. Jacobson, Director
/s/ CHARLES A. LEDSINGER, JR.
March 29, 1999 ------------------------------------------------------
Charles A. Ledsinger, Jr., Director
/s/ ROBERT H. LUTZ, JR.
March 29, 1999 ------------------------------------------------------
Robert H. Lutz, Jr., Director
/s/ CHARLES N. MATHEWSON
March 29, 1999 ------------------------------------------------------
Charles N. Mathewson, Director
/s/ THOMAS A. MC CHRISTY
March 29, 1999 ------------------------------------------------------
Thomas A. McChristy, Director
/s/ RICHARD C. NORTH
March 29, 1999 ------------------------------------------------------
Richard C. North, Director
/s/ MICHAEL D. ROSE
March 29, 1999 ------------------------------------------------------
Michael D. Rose, Director
</TABLE>
<PAGE> 54
FELCOR LODGING TRUST INCORPORATED
INDEX TO FINANCIAL STATEMENTS
PART I - FINANCIAL INFORMATION
FELCOR LODGING TRUST INCORPORATED
<TABLE>
<S> <C>
Report of Independent Accountants .............................................. F-2
Consolidated Balance Sheets - December 31, 1998 and 1997 ....................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 ............................................. F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996 ............................................. F-5
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996 ...................................................... F-6
Notes to Consolidated Financial Statements ..................................... F-7
Report of Independent Accountants .............................................. F-24
Schedule III - Real Estate and Accumulated Depreciation as of December
31, 1998 ..................................................................... F-25
DJONT OPERATIONS, L.L.C
Report of Independent Accountants .............................................. F-29
Consolidated Balance Sheets - December 31, 1998 and 1997 ....................... F-30
Consolidated Statements of Operations for the years ended December
31, 1998, 1997 and 1996 ...................................................... F-31
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996 .............................................. F-32
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 .......................................................... F-33
Notes to Consolidated Financial Statements ..................................... F-34
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of FelCor Lodging Trust Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of FelCor
Lodging Trust Incorporated at December 31, 1998 and 1997, and the consolidated
results of operations and cash flows for the years ended December 31, 1998,
1997 and 1996, respectively, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
February 2, 1999
F-2
<PAGE> 56
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Investment in hotels, net of accumulated depreciation of
$178,072 in 1998 and $87,400 in 1997 ............................................ $ 3,964,484 $ 1,489,764
Investment in unconsolidated entities ............................................... 136,069 132,991
Cash and cash equivalents ........................................................... 34,692 17,543
Due from Lessees .................................................................... 21,943 18,908
Deferred expenses, net of accumulated amortization of
$2,096 in 1998 and $1,987 in 1997 ................................................ 10,041 10,593
Other assets
8,154 3,565
----------- -----------
Total assets ................................................................. $ 4,175,383 $ 1,673,364
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt, net of discount of $1,628 in 1998 and $1,855 in 1997 .......................... $ 1,594,734 $ 476,819
Distributions payable ............................................................... 67,262 24,671
Accrued expenses and other liabilities .............................................. 57,312 11,331
Minority interest in Operating Partnership, 2,939 and 2,900 units issued
and outstanding at December 31, 1998 and 1997, respectively ...................... 87,353 73,451
Minority interest in other partnerships.............................................. 51,105 8,594
----------- -----------
Total liabilities ................................................................... 1,857,766 594,866
----------- -----------
Commitments and contingencies (Notes 6 and 9)
Shareholders' equity:
Preferred stock, $.01 par value, 20,000 shares authorized:
Series A Cumulative Preferred Stock, 6,050 shares issued and outstanding ......... 151,250 151,250
Series B Redeemable Preferred Stock, 58 shares issued and outstanding ............ 143,750
Common stock, $.01 par value, 200,000 shares authorized, 69,284 and
37,802 shares issued at December 31, 1998 and 1997, respectively ................. 693 378
Additional paid-in capital .......................................................... 2,142,250 1,001,747
Distributions in excess of earnings ................................................. (78,839) (33,771)
----------- -----------
2,359,104 1,119,604
Less: Common stock in treasury, at cost, 1,213 and 1,200 shares
at December 31, 1998 and 1997, respectively ...................................... (41,487) (41,106)
----------- -----------
Total shareholders' equity .................................................. 2,317,617 1,078,498
----------- -----------
Total liabilities and shareholders' equity .................................. $ 4,175,383 $ 1,673,364
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE> 57
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Percentage lease revenue ............................................. $ 328,923 $ 169,114 $ 97,950
Equity in income from unconsolidated entities ........................ 7,017 6,963 2,010
Other revenue ........................................................ 4,154 574 984
--------- --------- ---------
Total revenues .................................. 340,094 176,651 100,944
--------- --------- ---------
Expenses:
General and administrative ........................................... 5,254 3,743 1,819
Depreciation ......................................................... 90,835 50,798 26,544
Taxes, insurance, and other .......................................... 45,288 23,093 13,897
Interest expense ..................................................... 73,182 28,792 9,803
Minority interest in Operating Partnership .......................... 6,500 5,817 5,590
Minority interest in other partnerships .............................. 1,121 573
--------- --------- ---------
Total expenses ................................. 222,180 112,816 57,653
--------- --------- ---------
Income before extraordinary charge ................................... 117,914 63,835 43,291
Extraordinary charge from write off of deferred financing fees ....... 3,075 185 2,354
--------- --------- ---------
Net income ........................................................... 114,839 63,650 40,937
Preferred dividends .................................................. 21,423 11,797 7,734
--------- --------- ---------
Net income applicable to common shareholders ......................... $ 93,416 $ 51,853 $ 33,203
========= ========= =========
Per common share data:
Basic:
Income applicable to common shareholders
before extraordinary charge ................................ $ 1.93 $ 1.67 $ 1.54
Extraordinary charge ........................................... (0.06) (0.01) (0.10)
--------- --------- ---------
Net income applicable to common shareholders ................... $ 1.87 $ 1.66 $ 1.44
========= ========= =========
Weighted average common shares outstanding ..................... 49,968 31,269 23,023
Diluted:
Income applicable to common shareholders
before extraordinary charge ................................ $ 1.92 $ 1.65 $ 1.53
Extraordinary charge ........................................... (0.06) (0.01) (0.10)
--------- --------- ---------
Net income applicable to common shareholders ................... $ 1.86 $ 1.64 $ 1.43
========= ========= =========
Weighted average common shares outstanding ..................... 50,314 31,610 23,218
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 58
FELCOR LODGING TRUST INCORPORATED
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------
NUMBER ADDITIONAL DISTRIBUTIONS TOTAL
PREFERRED OF PAID-IN IN EXCESS OF TREASURY SHAREHOLDERS'
STOCK SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
--------- ------ ------ --------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 21,135 $211 $ 463,051 $ (1,876) $ 461,386
Issuance of common shares, net of
offering expenses 2,367 24 51,457 51,481
Allocation to minority interest (3,882) (3,882)
Issuance of Series A preferred
stock, net of offering expenses $151,250 (6,998) 144,252
Distributions/dividends declared:
$1.92 per common share (44,514) (44,514)
$1.2783 per preferred share (7,734) (7,734)
Net income 40,937 40,937
-------- ------ ---- ----------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 151,250 23,502 235 503,628 (13,187) 641,926
Issuance of common shares, net of
offering expenses 14,300 143 505,671 505,814
Allocation to minority interest (7,552) (7,552)
Repurchase of common shares
held in treasury $ (41,106) (41,106)
Distributions/dividends declared:
$2.10 per common share (72,437) (72,437)
$1.95 per preferred share (11,797) (11,797)
Net income 63,650 63,650
--------- ------ ---- ----------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1997 151,250 37,802 378 1,001,747 (33,771) (41,106) 1,078,498
Issuance of common shares, net of
offering expenses 31,482 315 1,151,038 1,151,353
Forfeiture of restricted common stock awards (381) (381)
Allocation to minority interest (5,848) (5,848)
Issuance of Series B preferred
stock, net of offering expenses 143,750 (4,687) 139,063
Distributions/dividends declared:
$2.545 per common share (138,484) (138,484)
$2.157 per Series A preferred share (13,050) (13,050)
$1.44 per Series B depositary preferred
share (8,373) (8,373)
Net income 114,839 114,839
--------- ------ ---- ----------- ---------- --------- ----------
BALANCE AT DECEMBER 31, 1998 $ 295,000 69,284 $693 $ 2,142,250 $ (78,839) $ (41,487) $2,317,617
========= ====== ==== =========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE> 59
FELCOR LODGING TRUST INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................................... $ 114,839 $ 63,650 $ 40,937
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of assets ...................................... (477)
Depreciation .................................................. 90,835 50,798 26,544
Amortization of deferred financing fees and organization costs 1,985 1,468 554
Amortization of unearned officers' and directors' compensation 830 1,017 506
Equity in income from unconsolidated entities ................. (7,017) (6,963) (2,010)
Extraordinary charge for write off of deferred financing fees . 3,075 185 2,354
Minority interest in Operating Partnership .................... 6,500 5,817 5,590
Minority interest in other partnerships ....................... 1,121 573
Changes in assets and liabilities, net of effects of acquisitions:
Due from Lessees .............................................. (3,035) (13,382) (3,130)
Deferred financing fees ....................................... (4,348) (8,825) (4,484)
Other assets .................................................. (602) (1,175) 353
Accrued expenses and other liabilities ........................ (11,123) 4,315 280
----------- ----------- -----------
Net cash flow provided by operating activities ...... 192,583 97,478 67,494
----------- ----------- -----------
Cash flows used in investing activities:
Acquisition of hotels ......................................... (326,276) (574,100) (365,907)
Acquisition of unconsolidated entities ........................ (65,271) (43,424)
Improvements and additions to hotels .......................... (131,103) (52,700) (71,051)
Bristol interim credit facility ............................... (120,000)
Sale of hotels ................................................ 7,815
Cash distributions from unconsolidated entities ............... 19,066 4,211 1,954
----------- ----------- -----------
Net cash flow used in investing activities .......... (550,498) (687,860) (478,428)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings ...................................... 1,013,003 679,144 303,350
Repayment of borrowings ....................................... (658,524) (445,900) (193,954)
Proceeds from sale of common stock ............................ 516,700 44,978
Proceeds from sale of preferred stock ......................... 143,750 151,250
Costs associated with public offerings ........................ (4,687) (27,600) (6,998)
Purchase of treasury stock .................................... (41,106)
Proceeds from exercise of stock options ....................... 3,884 592
Distributions paid to limited partners ........................ (6,671) (6,026) (5,353)
Distributions paid to common shareholders ..................... (98,754) (63,875) (36,583)
Dividends paid to preferred shareholders ...................... (16,937) (11,797) (4,784)
----------- ----------- -----------
Net cash flow provided by financing activities ...... 375,064 600,132 251,906
----------- ----------- -----------
Net change in cash and cash equivalents ............................... 17,149 9,750 (159,028)
----------- ----------- -----------
Cash and cash equivalents at beginning of years ....................... 17,543 7,793 166,821
Cash and cash equivalents at end of years ............................. $ 34,692 $ 17,543 $ 7,793
=========== =========== ===========
Supplemental cash flow information - interest paid .................... $ 72,215 $ 21,414 $ 9,168
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE> 60
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
FelCor Lodging Trust Incorporated ("FelCor") is one of the nation's
largest hotel real estate investment trusts ("REIT") which, at December 31,
1998, owned interests in 193 hotels with nearly 50,000 rooms and suites
(collectively the "Hotels") through its greater than 95% equity interest in
FelCor Lodging Limited Partnership (the "Operating Partnership"). FelCor, the
Operating Partnership, and their subsidiaries are herein referred to,
collectively, as the "Company". The Company owns 100% interests in 169 of the
Hotels, a 90% or greater interest in entities owning seven hotels, a 60%
interest in an entity owning two hotels and 50% interests in separate entities
that own 15 hotels.
FelCor strives to be the premier full-service lodging REIT partnered
with leading brands and management companies to create shareholder value. The
Company is the owner of the largest number of Embassy Suites(R), Crowne
Plaza(R), HoliDay Inn(R), and independently owned Doubletree(R) branded hotels
in the world. The following table provides a schedule of The Hotels, by brand,
operated by each of the Company's Lessees at December 31, 1998:
<TABLE>
<CAPTION>
BRAND DJONT BRISTOL TOTAL
----- ----- ------- -----
<S> <C> <C> <C>
Embassy Suites 57 57
Holiday Inn 49* 49
Doubletree and Doubletree Guest Suites(R) 17 17
Crowne Plaza and Crowne Plaza Suites(R) 14 14
Holiday Inn Select(R) 11 11
Sheraton(R)and Sheraton Suites(R) 9 1 10
Hampton Inn(R) 9 9
Holiday Inn Express(R) 7* 7
Fairfield Inn(R) 5 5
Harvey Hotel(R) 4 4
Independents 2 2
Courtyard by Marriott(R) 2 2
Days Inn(R) 1* 1
Hilton Suites(R) 1 1
Homewood Suites(R) 1 1
Radisson(R) 1 1
Ramada(R) 1* 1
Westin(R) 1 1
-- --- ---
Total Hotels 86 107 193
== === ===
</TABLE>
* The Company has sold, or intends to sell in 1999, two Holiday Inns, two
Holiday Inn Expresses and the Ramada and Days Inn owned at December 31, 1998.
The Hotels are located in 34 states and Canada. The following table
provides information regarding the net acquisition of hotels through December
31, 1998:
<TABLE>
<CAPTION>
NET HOTELS
ACQUIRED
----------
<S> <C>
1994 7
1995 13
1996 23
1997 30
1998 120
---
193
===
</TABLE>
F-7
<PAGE> 61
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. ORGANIZATION -- (CONTINUED)
At December 31, 1998, the Company leased 86 of the Hotels to DJONT
Operations, L.L.C., a Delaware limited liability company or a consolidated
subsidiary thereof (collectively "DJONT"), 106 of the Hotels to Bristol Hotels
& Resorts or a consolidated subsidiary thereof ("Bristol") and, together with
DJONT, the "Lessees". One hotel managed by Bristol was not leased.
Thomas J. Corcoran, Jr., the President, Chief Executive Officer, and a
Director of FelCor, and Hervey A. Feldman, Chairman Emeritus of FelCor,
beneficially own a 50% voting common equity interest in DJONT. The remaining
50% nonvoting common equity interest is beneficially owned by the children of
Charles N. Mathewson, a director of FelCor and major initial investor in the
Company. DJONT has entered into management agreements pursuant to which 73 of
the Hotels leased by it are managed by subsidiaries of Promus Hotel Corporation
("Promus"), ten are managed by subsidiaries of Starwood Hotels & Resorts
Worldwide, Inc. ("Starwood"), and three are managed by two independent
management companies.
Bristol leases and manages 106 Hotels and manages one hotel which
operates without a lease. Bristol is the largest independent hotel operating
company in North America and operates the largest number of Bass Hotels &
Resorts-branded hotels in the world.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
include the accounts of FelCor, the Operating Partnership, and their
consolidated subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Fair Value of Financial Instruments -- Statement of Financial
Accounting Standards ("SFAS") 107 requires all entities to disclose the fair
value of certain financial instruments in their financial statements. The
Company reports the carrying amount of cash and cash equivalents, amounts due
from the Lessees, accrued expenses, and other liabilities at cost, which
approximates fair value due to the short maturity of these instruments. The
carrying amount of the Company's borrowings approximates fair value due to the
Company's ability to obtain such borrowings at comparable interest rates.
Investment in Hotels -- Hotels are stated at cost and are depreciated
using the straight-line method over estimated useful lives ranging from 31 to
40 years for buildings and improvements and five to seven years for furniture,
fixtures, and equipment.
The Company periodically reviews the carrying value of each Hotel to
determine if circumstances exist indicating an impairment in the carrying value
of the investment in the hotel or that depreciation periods should be modified.
If facts or circumstances support the possibility of impairment, the Company
will prepare a projection of the undiscounted future cash flows, without
interest charges, of the specific hotel and determine if the investment in such
hotel is recoverable based on the undiscounted future cash flows. If impairment
is indicated, an adjustment will be made to the carrying value of the hotel
based on discounted future cash flows. The Company does not believe that there
are any factors or circumstances indicating impairment of any of its investment
in the Hotels.
F-8
<PAGE> 62
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Maintenance and repairs are charged to the Lessees' operations as
incurred; major renewals and betterments by the Company are capitalized. Upon
the sale or disposition of a fixed asset, the asset and related accumulated
depreciation are removed from the accounts and the related gain or loss is
included in operations.
Investment in Unconsolidated Entities --The Company owns a 50%
interest in various partnerships or limited liability companies in which the
partners jointly make all material decisions concerning the business affairs
and operations. Accordingly, the Company does not control the entities and
carries its investment in unconsolidated entities at cost, plus its equity in
net earnings, less distributions received since the date of acquisition. Equity
in net earnings is being adjusted for the straight-line amortization, over a
40-year period, of the difference between the Company's cost and its
proportionate share of the underlying net assets at the date of acquisition.
Cash and Cash Equivalents -- All highly liquid investments with a
maturity of three months or less when purchased are considered to be cash
equivalents.
Deferred Expenses -- Deferred expenses are recorded at cost.
Amortization is computed using the interest method over the maturity of the
related debt.
Revenue Recognition -- Percentage lease revenue is reported as income
over the lease term as it becomes receivable from the Lessees according to the
provisions of the Percentage Lease agreements. The Lessees are in compliance
with their rental obligations under the Percentage Leases.
Capitalized Interest -- The Company capitalizes interest and certain
other costs relating to hotels undergoing major renovations and redevelopments.
Such costs capitalized in 1998 and 1997 were approximately $5.9 million and
$1.0 million, respectively.
Net Income Per Common Share -- Basic earnings per share have been
computed by dividing net income by the weighted average number of common shares
outstanding. Diluted earnings per share have been computed by dividing net
income by the weighted average number of common shares and equivalents
outstanding. Common stock equivalents represent shares issuable upon exercise
of stock options and unvested officers' restricted stock grants.
At December 31, 1998, 1997, and 1996, the Company's Series A
Cumulative Preferred Stock, if converted to common shares, would be
antidilutive; accordingly the Series A Cumulative Preferred Stock is not
assumed to be converted in the computation of diluted earnings per share.
Distributions and Dividends -- FelCor and the Operating Partnership
pay regular quarterly distributions on their Common Stock and Units.
Additionally, the Company pays regular quarterly dividends on preferred stock
in accordance with its preferred stock dividend requirements. FelCor's ability
to make distributions is dependent on its receipt of quarterly distributions
from the Operating Partnership.
For 1998 FelCor paid regular dividends of $2.20 per common share,
$1.95 per Series A preferred share, and $1.44 per Series B depositary preferred
share. Additionally, the Company declared a one-time distribution of
accumulated but undistributed earnings and profits as a result of the Bristol
merger into FelCor. The amount of the one-time distribution was $0.345 per
common share and $0.207 per Series A preferred share and was paid with its
regular fourth quarter dividend.
F-9
<PAGE> 63
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Minority Interest in Operating Partnership -- Minority interest in the
Operating Partnership represents the limited partners' proportionate share of
the equity in the Operating Partnership. Income is allocated to minority
interest based on the weighted average percentage ownership throughout the
year.
Income Taxes -- The Company has elected to be treated as a REIT under
Sections 856 to 860 of the Internal Revenue Code. Accordingly, no provision for
federal income taxes has been reflected in the financial statements.
Earnings and profits, which will determine the taxability of
distributions to shareholders, will differ from income reported for financial
reporting purposes primarily due to the differences for federal income tax
purposes in the estimated useful lives used to compute depreciation.
Distributions made in 1998 and 1997 represent an approximately 17% and 6%
return of capital, respectively, for federal income tax purposes.
3. BRISTOL MERGER
On July 28, 1998, the Company completed the merger of Bristol Hotel
Company's real estate holdings with and into the Company (the "Merger"). The
Merger resulted in the net acquisition of 107 primarily full-service hotels in
return for approximately 31.0 million shares of newly issued Common Stock.
A summary of the fair values of the assets and liabilities acquired in
the Merger, recorded at the date of acquisition, is as follows (in thousands):
<TABLE>
<S> <C>
Investment in hotels $ 2,014,250
Investment in unconsolidated entity 16,839
Other assets 4,151
------------
2,035,240
------------
Common stock issued 1,146,081
Debt obligations 868,615
Accrued expenses and other liabilities 55,297
------------
2,069,993
------------
Total cash received in Merger $ 34,753
============
</TABLE>
The Merger has been accounted for as a purchase, and, accordingly, the
results of operations since the date of acquisition are included in the
Company's consolidated statements of operations.
4. INVESTMENT IN HOTELS
Investment in hotels at December 31, 1998 and 1997, consist of the
following (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Land ............................................. $ 329,667 $ 157,554
Building and improvements ........................ 3,480,571 1,257,247
Furniture, fixtures and equipment ................ 298,610 147,923
Construction in progress ......................... 33,708 14,440
----------- -----------
4,142,556 1,577,164
Accumulated depreciation ......................... (178,072) (87,400)
----------- -----------
$ 3,964,484 $ 1,489,764
=========== ===========
</TABLE>
F-10
<PAGE> 64
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENT IN UNCONSOLIDATED ENTITIES
At December 31, 1998, the Company owned 50% interests in separate
entities owning 15 hotels, a parcel of undeveloped land, and a condominium
management company. The Company is accounting for its investments in these
unconsolidated entities under the equity method.
Summarized unaudited combined financial information for 100% of these
unconsolidated entities is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
Balance sheet information:
Investment in hotels ........................ $257,431 $256,032
Non-recourse mortgage debt .................. 168,989 138,956
Equity ...................................... 100,670 126,324
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statements of operations information:
Percentage lease revenue .............................. $ 52,313 $ 47,720 $ 9,974
Other income .......................................... 4,693 6,280
-------- -------- --------
Total revenues ............................... 57,006 54,000 9,974
Expenses:
Depreciation ...................................... 17,570 15,611 3,086
Taxes, insurance, and other ...................... 8,956 9,555 886
Interest expense ................................. 13,042 11,790 1,636
-------- -------- --------
Total expenses .............................. 39,568 36,956 5,608
-------- -------- --------
Net income ............................................ 17,438 17,044 4,366
-------- -------- --------
50% of net income attributable to the Company ......... 8,719 8,522 2,183
Amortization of cost in excess of book value .......... (1,702) (1,559) (173)
-------- -------- --------
Equity in income from unconsolidated entities ......... $ 7,017 $ 6,963 $ 2,010
======== ======== ========
</TABLE>
6. DEBT
Debt at December 31, 1998 and 1997, consists of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
COLLATERAL INTEREST RATE MATURITY DATE 1998 1997
---------- ------------- ------------- ---- ----
FLOATING RATE DEBT:
- -------------------
<S> <C> <C> <C> <C> <C>
Line of credit Unsecured LIBOR + 150bp June 2001 $ 411,000 $61,000
Term loan Unsecured LIBOR + 150bp December 1999 250,000
Other Unsecured Up to LIBOR + 150bp Various 34,750 25,650
---------- --------
Total floating rate debt 695,750 86,650
---------- --------
FIXED RATE DEBT:
- ----------------
Line of credit Unsecured 7.27% June 2001 325,000 75,000
Publicly-traded term notes Unsecured 7.38% October 2004 174,249 174,116
Publicly-traded term notes Unsecured 7.63% October 2007 124,122 124,029
Mortgage debt 15 hotels 7.24% November 2007 145,062
Mortgage debt 3 hotels 6.97% December 2002 43,836
Other 13 hotels 6.96% - 7.23% 2000 - 2005 86,715 17,024
---------- --------
Total fixed rate debt 898,984 390,169
---------- --------
Total debt $1,594,734 $476,819
========== ========
</TABLE>
F-11
<PAGE> 65
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT -- (CONTINUED)
On July 1, 1998, the Company increased its unsecured credit facilities
to $1.1 billion, consisting of an $850 million revolving line of credit ("Line
of Credit") which matures June 2001 and a $250 million non-amortizing term loan
("Term Loan") which matures December 1999. Interest payable on borrowings under
the credit facilities is variable, determined from a ratings and leverage-based
pricing matrix, ranging from 87.5 basis points to 175 basis points above LIBOR
(30-day LIBOR at December 31, 1998, was 5.628750%). The interest spread in 1998
was 150 basis points. Additionally, the Company is required to pay an unused
commitment fee which is variable, determined from a ratings-based pricing
matrix, ranging from 20 to 30 basis points. In 1998, the Company wrote off
approximately $2.5 million of deferred financing fees relating to the previous
unsecured credit facility of $550 million. For the years ended December 31,
1998, 1997, and 1996, the Company paid interest on its unsecured credit
facilities at the weighted average interest rate of 7.1%, 7.6%, and 7.4%,
respectively. At December 31, 1998, the Company had borrowing capacity under
its Line of Credit of $114 million.
The Line of Credit and the Term Loan contain various affirmative and
negative covenants including limitations on total indebtedness, total secured
indebtedness, and cash distributions, as well as the obligation to maintain a
certain minimum tangible net worth and certain minimum interest and debt
service coverage ratios. At December 31, 1998, the Company was in compliance
with all such covenants.
The Company's other borrowings contain affirmative and negative
covenants that are generally equal to or less restrictive than the Line of
Credit and Term Loan. Most of the collateralized borrowings are nonrecourse to
the Company (with certain exceptions) and contain provisions allowing for the
substitution of collateral upon satisfaction of certain conditions. Most of the
collateralized borrowings are prepayable, however, approximately $43.8 million
is not subject to any prepayment penalty, yield maintenance, or defeasance
obligation. The remaining collateralized borrowings are subject to various
prepayment penalties, yield maintenance, or defeasance obligations.
Future scheduled principal payments on debt obligations at December
31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
1999 ............................................. $274,663
2000 ............................................. 32,823
2001 ............................................. 756,920
2002 ............................................. 11,112
2003 ............................................. 45,559
2004 and thereafter ............................. 475,285
----------
1,596,362
Discount accretion over term .................... (1,628)
----------
$1,594,734
==========
</TABLE>
F-12
<PAGE> 66
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT -- (CONTINUED)
To manage the relative mix of its debt between fixed and variable rate
instruments, the Company has entered into interest rate swap agreements with
six financial institutions. These interest rate swap agreements modify a
portion of the interest characteristics of the Company's outstanding debt under
its Line of Credit without an exchange of the underlying principal amount and
effectively convert variable rate debt to a fixed rate. The fixed rates to be
paid, the effective fixed rate, and the variable rate to be received by the
Company at December 31, 1998, are summarized in the following table:
<TABLE>
<CAPTION>
SWAP RATE
RECEIVED
SWAP RATE EFFECTIVE (VARIABLE) AT SWAP
NOTIONAL AMOUNT PAID (FIXED) FIXED RATE 12/31/98 MATURITY
- --------------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
$ 50 million 6.11125% 7.61125% 5.33501% October 1999
$ 25 million 5.95500% 7.45500% 5.20000% November 1999
$ 25 million 5.55800% 7.05800% 5.54656% July 2001
$ 25 million 5.54800% 7.04800% 5.54656% July 2001
$ 75 million 5.55500% 7.05500% 5.54656% July 2001
$ 100 million 5.79600% 7.29600% 5.54656% July 2003
$ 25 million 5.82600% 7.32600% 5.54656% July 2003
- -------------
$ 325 million
=============
</TABLE>
The differences to be paid or received by the Company under the terms
of the interest rate swap agreements are accrued as interest rates change and
recognized as an adjustment to interest expense by the Company pursuant to the
terms of its interest rate agreement and will have a corresponding effect on
its future cash flows. Agreements such as these contain a credit risk in that
the counterparties may be unable to meet the terms of the agreement. The
Company minimizes that risk by evaluating the creditworthiness of its
counterparties, who are limited to major banks and financial institutions, and
does not anticipate nonperformance by the counterparties.
7. CAPITAL STOCK
As of December 31, 1998, the Company had approximately $946 million of
common stock, preferred stock, debt securities, and/or common stock warrants
available for offerings under shelf registration statements previously declared
effective.
Preferred Stock
The Board of Directors is authorized to provide for the issuance of up
to 20,000,000 shares of Preferred Stock in one or more series, to establish the
number of shares in each series, to fix the designation, powers preferences and
rights of each such series, and the qualifications, limitations or restrictions
thereof.
In 1996 the Company issued 6.1 million shares of its $1.95 Series A
Cumulative Convertible Preferred Stock ("Series A Preferred Stock") at $25 per
share. The Series A Preferred Stock bears an annual dividend equal to the
greater of $1.95 per share or the cash distributions declared or paid for the
corresponding period on the number of shares of Common Stock into which the
Series A Preferred Stock is then convertible. Each share of the Series A
Preferred Stock is convertible at the shareholder's option to 0.7752 shares of
Common Stock, subject to certain adjustments, and may not be redeemed by the
Company before April 30, 2001.
On May 1, 1998, the Company issued 5.75 million depositary shares,
representing 57,500 shares of 9% Series B Cumulative Redeemable Preferred Stock
("Series B Preferred Stock"), at $25 per depositary share. The
F-13
<PAGE> 67
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CAPITAL STOCK -- (CONTINUED)
Series B Preferred Stock and the corresponding depositary shares may be called
by FelCor at par on or after May 7, 2003, have no stated maturity, sinking fund
or mandatory redemption and are not convertible into any other securities of
FelCor. The Series B Preferred Stock has a liquidation preference of $2,500 per
share (equivalent to $25 per depositary share) and is entitled to annual
dividends at the rate of 9% of the liquidation preference (equivalent to $2.25
annually per depositary share).
At December 31, 1998, all dividends then payable on the Series A and
Series B Preferred Stock had been paid.
Operating Partnership Units
FelCor is the sole general partner of the Operating Partnership and is
obligated to contribute the net proceeds from any issuance of its equity
securities to the Operating Partnership in exchange for units of partnership
interest ("Units") corresponding in number and terms to the equity securities
issued by it. Units of limited partner interest may also be issued by the
Operating Partnership to third parties in exchange for cash or property, and
Units so issued to third parties are redeemable at the option of the holders
thereof for a like number of shares of FelCor Common Stock or, at the option of
FelCor, for the cash equivalent thereof.
8. TAXES, INSURANCE, AND OTHER
Taxes, insurance, and other is comprised of the following for the
years ended December 31, 1998, 1997, and 1996 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Real estate and personal property taxes .......... $32,892 $18,976 $11,110
Property insurance ............................... 2,341 1,627 1,312
Land lease expense ............................... 7,759 1,610 952
State franchise taxes ............................ 1,609 718 472
Other ............................................ 687 162 51
------- ------- -------
Total taxes, insurance, and other ................ $45,288 $23,093 $13,897
======= ======= =======
</TABLE>
Future minimum lease payments under the Company's land lease
obligations at December 31, 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1999 $ 13,557
2000 13,609
2001 13,534
2002 13,397
2003 13,187
2004 and thereafter 280,893
--------
$348,177
========
</TABLE>
F-14
<PAGE> 68
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Commitments
The Company is to receive rental income from the Lessees under the
Percentage Leases which expire in 2002 (six hotels), 2003 (eight hotels), 2004
(12 hotels), 2005 (19 hotels), 2006 (26 hotels), 2007 (37 hotels), 2008 (54
hotels), and thereafter (16 hotels). The rental income under the Percentage
Leases between 14 of the unconsolidated entities, of which the Company owns
50%, is payable by the Lessee to the respective entities and is not included in
the following schedule of future lease commitments to the Company. Minimum
future rental income (i.e., base rents) to the Company under these
noncancelable operating leases at December 31, 1998 is as follows (in
thousands):
<TABLE>
<CAPTION>
LESSEES
-------
DJONT BRISTOL TOTAL
YEAR ----- ------- -------
- ----
<S> <C> <C> <C>
1999 ................................... $ 139,217 $ 157,616 $ 296,833
2000 ................................... 139,305 182,090 321,395
2001 ................................... 142,397 182,111 324,508
2002 ................................... 142,397 182,084 324,481
2003 ................................... 128,362 178,849 307,211
2004 and thereafter .................... 504,383 822,831 1,327,214
---------- ---------- ----------
$1,196,061 $1,705,581 $2,901,642
========== ========== ==========
</TABLE>
The Percentage Lease revenue is based on a percentage of room and
suite revenues, food and beverage revenues, food and beverage rents, and other
revenues of the Hotels. Both the base rent and the threshold suite revenue in
each lease computation are subject to adjustments for changes in the Consumer
Price Index ("CPI"). The adjustment is calculated at the beginning of each
calendar year for the hotels acquired prior to July of the previous year. The
adjustment in any lease year may not exceed 7%. The CPI adjustments made in
January 1999 ranged from 0.55% to 1.5% dependent upon the Lessee. The CPI
adjustments for 1998 and 1997 were 0.50% and 1.42%, respectively.
Under the Percentage Leases, the Operating Partnership is obligated to
pay the costs of real estate and personal property taxes, property insurance,
maintenance of underground utilities and structural elements of the Hotels, and
to set aside a portion of the hotels' revenues (varying from 4% of room and
suite revenue to 3% of total hotel revenue) per month, on a cumulative basis,
to fund capital expenditures for the periodic replacement or refurbishment of
furniture, fixtures and equipment required for the retention of the franchise
licenses with respect to the Hotels. Included in cash and cash equivalents at
December 31, 1998 and 1997, were cash balances held by the Hotel managers for
these capital expenditures of $14.8 million and $7.3 million, respectively.
The Company has a Renovation and Redevelopment Program for the Hotels
and presently expects approximately $160 million to be invested in 1999 under
this program, which may be funded from cash on hand or borrowings under its
Line of Credit.
Related Party Transactions
The Company shares the executive offices and certain employees with
FelCor, Inc., and DJONT, and each company bears its share of the costs thereof,
including an allocated portion of the rent, compensation of certain personnel
(other than Mr. Corcoran, whose compensation is borne solely by the Company),
office supplies,
F-15
<PAGE> 69
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
telephones, and depreciation of office furniture, fixtures, and equipment. Any
such allocation of shared expenses to the Company is be approved by a majority
of the independent directors. During 1998, 1997, and 1996, the Company paid
approximately $2.8 million (approximately 63%), $1.3 million (approximately
38%), and $807,000 (approximately 38%), respectively, of the allocable expenses
under this arrangement.
10. SUPPLEMENTAL CASH FLOW DISCLOSURE
The Company purchased certain assets and assumed certain liabilities
in connection with the acquisition of hotels. These purchases were recorded
under the purchase method of accounting. The fair values of the acquired assets
and liabilities recorded at the date of acquisition are as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Assets acquired ............................. $ 2,427,027 $ 588,053 $ 494,354
Liabilities assumed ......................... (940,906) (5,932) (111,567)
Common Stock and Units issued ............... (1,152,856) (16,880)
Minority interest contribution .............. (6,989) (8,021)
----------- ----------- -----------
Net cash paid ............................... $ 326,276 $ 574,100 $ 365,907
=========== =========== ===========
</TABLE>
Under the Merger Agreement with Bristol Hotel Company, FelCor provided
Bristol a $120 million interim credit facility (the "Interim Credit Facility").
At July 28, 1998, the Interim Credit facility was assumed and canceled by
FelCor upon completion of the Merger.
Approximately $67.2 million, $24.7 million, and $16.1 million of
aggregate preferred stock dividends and common stock distributions had been
declared as of December 31, 1998, 1997, and 1996, respectively. These amounts
were paid in January following each year.
In 1998 the Company entered into a joint venture, in which the Company
contributed a hotel with a net book value of $53.9 million for a 60% equity
interest in the venture. The Company has consolidated this venture in the
financial statements and recorded an increase in investment in hotels and
minority interest in other partnerships of $34.4 million.
11. STOCK BASED COMPENSATION PLANS
The Company sponsors three restricted stock and stock option plans
(the "FelCor Plans"). In addition, upon completion of the Merger, FelCor
assumed two stock option plans previously sponsored by Bristol Hotel Company
(the "Bristol Plans"). FelCor is obligated to issue up to 1,271,103 shares of
its Common Stock pursuant to the Bristol Plans, and no additional options may
be awarded under those plans. The FelCor Plans and the Bristol Plans are
referred to collectively as the "Plans".
The Company applies APB Opinion 25 and related interpretations in
accounting for the Plans. In 1995 the Financial Accounting Standards Board
("FASB") issued FASB Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") which, if fully adopted by the Company, would change
the methods the Company applies in recognizing the cost of the Plans. Adoption
of the cost recognition provisions of SFAS 123 is optional and the Company has
decided not to adopt the provisions of SFAS 123. However, pro forma disclosures
as if the Company adopted the cost recognition provisions of SFAS 123 are
required by SFAS 123 and are presented below.
F-16
<PAGE> 70
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK BASED COMPENSATION PLANS -- (CONTINUED)
Stock Options
FelCor is authorized to issue 2,950,000 shares of Common Stock under
the FelCor Plans pursuant to awards granted in the form of incentive stock
options, non-qualified stock options, and restricted stock. All options have
10-year contractual terms and vest over five equal annual installments (20% per
year), beginning in the year following the date of grant.
The options outstanding under the Bristol Plans generally vest either
in four equal annual installments (25% per year) beginning in the second year
following the original date of award, in five equal annual installments (20%
per year) beginning in the year following the original date of award, or on a
single date that is three to five years following the original date of the date
of award.
A summary of the status of FelCor's non-qualified stock options under
the Plans as of December 31, 1998, 1997, and 1996, and the changes during the
years are presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
# SHARES OF AVERAGE # SHARES OF AVERAGE # SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
---------- --------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year ............. 1,670,500 $ 29.96 1,047,500 $ 25.67 745,000 $ 23.58
Granted (A) (B) .................................. 2,445,813 $ 20.54 752,000 $ 35.70 327,500 $ 30.08
Exercised ........................................ (332,915) $ 11.67 (31,000) $ 19.11
Forfeited (B) .................................... (1,242,932) $ 31.51 (98,000) $ 31.56 (25,000) $ 21.00
---------- --------- ---------
Outstanding at end of year ....................... 2,540,466 $ 22.53 1,670,500 $ 29.96 1,047,500 $ 25.67
========== ========= =========
Exercisable at end of year ....................... 796,499 $ 24.64 411,500 $ 24.42 225,665 $ 22.71
</TABLE>
(A) Includes options covering 1,271,103 shares of Common Stock
issuable as a result of the assumption of the Bristol Plans.
(B) To enable FelCor to preserve its stock options as a meaningful
element of compensation, existing option holders under the FelCor
Plans currently employed by FelCor on a full-time basis were offered
the opportunity to exchange their existing options (having exercise
prices ranging from $26.44 to $38.56 per share) for a lesser number of
new options having an equal value under the Black-Scholes option
pricing model. Twenty-two employees accepted this offer, surrendering
for cancellation existing options covering an aggregate of 1,151,500
shares of Common Stock at a weighted average exercise price of $32.807
per share for new options covering an aggregate of 840,393 shares of
Common Stock at an exercise price of $22.125 per share. The new
options have the same expiration dates and vesting schedules as the
options surrendered for cancellation, however, none of the new options
may be exercised prior to January 1, 2000.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
NUMBER WGTD. AVG. NUMBER
RANGE OF OUTSTANDING REMAINING WGTD AVG. EXERCISABLE WGTD. AVG.
EXERCISE PRICES AT 12/31/98 LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
- ---------------- ----------- ---------- -------------- ----------- ---------------
<S> <C> <C> <C> <C>
$10.33 to $30.00 2,205,086 8.21 $20.82 658,404 $22.41
$30.28 to $36.63 335,380 8.63 $33.77 138,095 $22.53
- ---------------- ----------- ---- ------ ------- ------
$10.33 to $36.63 2,540,466 8.26 $22.53 796,499 $24.64
</TABLE>
The fair value of each stock option granted is estimated on the date
of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: dividend yield of 10.39%; risk free interest
rates are different for each grant and range from 5.1% to 6.2%; the expected
lives of options are 6 years; and volatility of 32.9% for 1998 grants, 22.7%
for 1997 grants, and 24.4% for grants issued in 1996. The weighted average fair
value of options granted during 1998, 1997, and 1996 was $3.35, $4.31, and
$3.76 per share, respectively.
F-17
<PAGE> 71
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. STOCK BASED COMPENSATION PLANS -- (CONTINUED)
Restricted Stock
A summary of the status of the Company's restricted stock grants as of
December 31, 1998, 1997, and 1996 and the changes during the years are
presented below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
FAIR MARKET FAIR MARKET FAIR MARKET
VALUE VALUE VALUE
# SHARES AT GRANT # SHARES AT GRANT # SHARES AT GRANT
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of the year ........ 115,500 $29.03 84,500 $26.04 51,500 $24.03
Granted: ------- ------ ------
With 5-year pro rata vesting ............. 5,000 $21.25 35,000 $35.00 24,500 $28.93
Vest 100% at grant date .................. 4,875 $35.63 6,000 $35.00 6,000 $30.46
Vest 100% within 12 months of grant ...... 2,500 $36.94 2,500 $28.75
------- ------ ------
Total granted ............................... 9,875 $28.35 43,500 $35.11 33,000 $29.19
Forfeited ................................... (12,500) $30.00
------- ------ ------
Outstanding at end of year .................. 125,375 $28.97 115,500 $29.03 84,500 $26.04
======= ======= ======
Vested at end of year ....................... 65,175 $28.26 40,400 $26.60 23,500 $24.93
</TABLE>
Pro Forma Net Income and Net Income Per Common Share
Had the compensation cost for the Company's stock-based compensation
plans been determined in accordance with SFAS 123, the Company's net income and
net income per common share for 1998, 1997, and 1996 would approximate the pro
forma amounts below (in thousands, except per share data):
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ---------------------- ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
SFAS 123 charge ................... $ 1,799 $ 1,447 $ 867
APB 25 charge ..................... $ 829 $ 1,017 $ 507
Net income applicable to
common shareholders ............ $93,416 $92,446 $51,853 $51,423 $33,203 $32,843
Diluted net income applicable
to common shareholders
per common share ............... $ 1.86 $ 1.84 $ 1.64 $ 1.63 $ 1.43 $ 1.41
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts.
12. LESSEES
All of the Company's percentage lease revenue is derived from the
Percentage Leases with the Lessees. Certain information, related to DJONT's
financial statements, is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
-------- --------
<S> <C>
Balance Sheet Information:
Cash and cash equivalents .................................... $ 28,538 $ 25,684
Total assets ................................................. $ 63,972 $ 54,702
Due to FelCor Lodging Trust Incorporated ..................... $ 16,875 $ 18,908
Shareholders' deficit ........................................ $ (8,231) $ (9,075)
</TABLE>
F-18
<PAGE> 72
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. LESSEES -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statement of Operations Information:
Room and suite revenue ................... $ 618,122 $ 456,614 $ 234,451
Percentage lease expenses ................ $ 289,891 $ 216,990 $ 107,935
Net income/(loss) ........................ $ 844 $ (2,672) $ (5,430)
</TABLE>
Certain entities owning interests in DJONT and managers for certain
hotels have agreed to make loans to DJONT of up to an aggregate of
approximately $17.3 million to the extent necessary to enable DJONT to pay rent
and other obligations due under the respective Percentage Leases relating to a
total of 34 of the Hotels. No such loans were outstanding at December 31, 1998.
Bristol is a publicly traded company whose stock is listed on the New
York Stock Exchange under the symbol BH and that files financial statements in
accordance with the Securities Exchange Act of 1934, as amended.
At December 31, 1998, the Company owned interests in 193 Hotels
operating under various brand names. The Hotels generally operate pursuant to
franchise license agreements which require the payment of fees based on a
percentage of room and suite revenue. These fees are paid by the Lessees.
DJONT engages third-party managers to operate the Hotels leased by it
and generally pays such managers a base management fee based on a percentage of
room and suite revenue and an incentive management fee based on DJONT's income
before overhead expenses for each hotel. In certain instances, the hotel
managers have subordinated fees and committed to make subordinated loans to
DJONT, if needed, to meet its rental and other obligations under the Percentage
Leases.
Bristol serves as both the lessee and manager of the 106 Hotels leased
to it by the Company at December 31, 1998, and, as such, is compensated for
both roles through the profitability of the Hotels, after meeting their
operating expenses and rental obligations under the terms of the Percentage
Leases.
Bristol has entered into an absolute and unconditional guarantee of
the obligations of the Bristol Lessees under the Percentage Leases. As an
additional credit enhancement, the Bristol Lessees obtained a letter of credit
(the "Letter of Credit") issued by Bankers Trust Company for the benefit of the
Company in the original amount of $20 million. This Letter of Credit is subject
to periodic reductions upon satisfaction of certain conditions and is required
to be maintained until July 27, 1999. According to Bristol's audited financial
statements filed with the SEC, for the period from July 28, 1998, (inception of
operations) through December 31, 1998, Bristol earned $2.6 million of net
income and at December 31, 1998, had stockholders' equity of $35.4 million.
13. SEGMENT INFORMATION
The Company has determined that its reportable segments are those that
are consistent with the Company's method of internal reporting, which segments
its business by Lessee. The Company's Lessees at December 31, 1998, were DJONT
and Bristol. Prior to 1998, the Company had only one lessee, DJONT.
Accordingly, segment information is not disclosed for prior years.
F-19
<PAGE> 73
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SEGMENT INFORMATION
The following table presents information about the reportable segments
for the year ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
CORPORATE
SEGMENT NOT ALLOCABLE CONSOLIDATED
DJONT BRISTOL TOTAL TO SEGMENTS TOTAL
----- ------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
Statement of Operations Information:
Revenues:
Percentage lease revenue .................. $ 237,904 $ 91,019 $ 328,923 $328,923
Equity in income from
unconsolidated entities ................. 6,744 273 7,017 7,017
Other revenue ............................. $ 4,154 4,154
---------- ---------- ---------- -------- -----------
Total revenues .................. 244,648 91,292 335,940 4,154 340,094
---------- ---------- ---------- -------- -----------
Expenses:
General and administrative ................ 5,254 5,254
Depreciation .............................. 71,055 19,619 90,674 161 90,835
Taxes, insurance, and other ............... 28,387 16,901 45,288 45,288
Interest expense .......................... 73,182 73,182
Minority interest in Operating
Partnership ............................ 6,500 6,500
Minority interest in other partnerships ... 1,121 1,121 1,121
---------- ---------- ---------- -------- -----------
Total expenses .................. 100,563 36,520 137,083 85,097 222,180
---------- ---------- ---------- -------- -----------
Income before extraordinary charge ........... $ 144,085 $ 54,772 $ 198,857 $(80,943) $ 117,914
========== ========== ========== ======== ===========
Funds from operations:
Income before extraordinary charge ........... $ 144,085 $ 54,772 $ 198,857 $(80,943) $ 117,914
Series B preferred dividends ................. (8,373) (8,373)
Depreciation ................................. 71,055 19,619 90,674 161 90,835
Depreciation for unconsolidated entities ..... 10,254 233 10,487 10,487
Minority interest in Operating Partnership ... 6,500 6,500
---------- ---------- ---------- -------- -----------
Funds from operations ........................ $ 225,394 $ 74,624 $ 300,018 $(82,655) $ 217,363
========== ========== ========== ======== ===========
Weighted average common shares and
units outstanding (1) ..................... 58,013
Other Information:
Total assets ..................... $1,998,165 $2,102,388 $4,100,553 $ 74,830 $ 4,175,383
Capital expenditures ............. $ 65,264 $ 65,839 $ 131,103 $ 131,103
</TABLE>
(1) Weighted average common shares and units outstanding are computed
including dilutive options and unvested stock grants, and assuming
conversion of Series A preferred stock to common stock.
F-20
<PAGE> 74
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. SEGMENT INFORMATION -- (CONTINUED)
The following table sets forth Percentage Lease revenue and investment
in hotel assets represented by the following geographical areas as of and for
the years ended December 31, (in thousands):
<TABLE>
<CAPTION>
PERCENTAGE LEASE REVENUE INVESTMENT IN HOTEL ASSETS
---------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
California ................... $ 63,733 $ 36,762 $ 642,965 $ 232,747
Texas ........................ 52,220 16,085 854,558 155,986
Florida ...................... 45,719 34,559 519,280 286,610
Georgia ...................... 23,691 10,232 349,429 123,203
Other States ................. 138,437 71,476 1,714,122 778,618
Canada ....................... 5,123 62,202
---------- ---------- ---------- ----------
Total .............. $ 328,923 $ 169,114 $4,142,556 $1,577,164
========== ========== ========== ==========
</TABLE>
14. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited Pro Forma Statements of Operations for the
years ended December 31, 1998 and 1997 are presented as if the acquisitions of
all hotels owned by the Company at December 31, 1998, the equity offerings
consummated during 1998 and 1997, and the Merger had occurred as of the
beginning of the periods presented and the Hotels had been leased pursuant to
Percentage Leases.
The following unaudited Pro Forma Consolidated Statements of
Operations for the periods presented are not necessarily indicative of what
actual results of operations of the Company would have been assuming such
transactions had been completed at the beginning of the respective periods
presented, nor does it purport to represent the results of operations for
future periods.
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Percentage lease revenue ........................................ $469,695 $441,768
Income from unconsolidated entities ........................ 8,633 8,788
Other income ............................................... 770
-------- --------
Total revenues ......................................... 479,098 450,556
-------- --------
Expenses:
General and administrative ...................................... 6,421 5,163
Depreciation .................................................... 126,931 121,817
Taxes, insurance, and other ..................................... 72,621 68,206
Interest expense ................................................ 106,298 110,838
Minority interest in Operating Partnership ...................... 7,247 6,147
Minority interest in other partnerships ......................... 1,316 1,157
-------- --------
Total expenses ......................................... 320,834 313,328
-------- --------
Net income ...................................................... 158,264 137,228
Preferred dividends ............................................. 25,988 24,735
-------- --------
Net income applicable to common shareholders .................... $132,276 $112,493
======== ========
Per common share data:
Diluted:
Net income applicable to common shareholders ............... $ 1.95 $ 1.64
======== ========
Weighted average number of common shares outstanding ....... 67,973 68,626
</TABLE>
F-21
<PAGE> 75
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"). FAS 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. FAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. The Company believes that, upon
implementation, FAS 133 will not have a material impact on the financial
statements of the Company.
16. QUARTERLY OPERATING RESULTS (UNAUDITED)
The Company's unaudited consolidated quarterly operating data for the
years ended December 31, 1998 and 1997 follows (in thousands, except per share
data). In the opinion of management, all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of quarterly results have
been reflected in the data. It is also management's opinion, however, that
quarterly operating data for hotel enterprises are not indicative of results to
be achieved in succeeding quarters or years. In order to obtain a more accurate
indication of performance, there should be a review of operating results,
changes in shareholders' equity and cash flows for a period of several years.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue ........................................ $ 56,060 $ 62,793 $105,123 $104,947
Equity in income from unconsolidated entities ................... 1,293 2,689 2,446 589
Other revenue ................................................... 175 1,920 1,030 1,029
-------- -------- -------- --------
Total revenues .............................................. 57,528 67,402 108,599 106,565
-------- -------- -------- --------
Expenses:
General and administrative ...................................... 1,199 1,375 1,452 1,228
Depreciation .................................................... 15,887 17,429 27,720 29,799
Taxes, insurance, and other ..................................... 7,270 7,568 14,651 15,799
Interest expense ................................................ 9,731 13,795 22,960 26,696
Minority interest in Operating Partnership ...................... 1,751 2,063 1,639 1,047
Minority interest in other partnerships ......................... 190 291 323 317
-------- -------- -------- --------
Total expenses ............................................. 36,028 42,521 68,745 74,886
-------- -------- -------- --------
Income before extraordinary charge ................................... 21,500 24,881 39,854 31,679
Extraordinary charge from write off of deferred financing fees ....... (556) (2,519)
-------- -------- -------- --------
Net income ........................................................... 20,944 24,881 37,335 31,679
Preferred dividends .................................................. 2,949 4,854 6,184 7,436
-------- -------- -------- --------
Net income applicable to common shareholders ......................... $ 17,995 $ 20,027 $ 31,151 $ 24,243
======== ======== ======== ========
Per common share data:
Diluted:
Income applicable to common shareholders
before extraordinary charge ................................ $ 0.51 $ 0.54 $ 0.57 $ 0.36
Extraordinary charge ........................................... (0.02) (0.04)
-------- -------- -------- --------
Net income applicable to common shareholders ................... $ 0.49 $ 0.54 $ 0.53 $ 0.36
======== ======== ======== ========
Weighted average common shares outstanding ..................... 36,905 36,851 58,834 68,185
</TABLE>
F-22
<PAGE> 76
FELCOR LODGING TRUST INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY OPERATING RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Percentage lease revenue ...................................... $ 35,370 $ 38,677 $ 48,603 $ 46,464
Equity in income from unconsolidated entities ................. 1,127 2,300 2,338 1,198
Other revenue ................................................. 95 76 112 291
-------- -------- -------- --------
Total revenues ........................................... 36,592 41,053 51,053 47,953
-------- -------- -------- --------
Expenses:
General and administrative .................................... 972 874 897 1,000
Depreciation .................................................. 10,417 11,314 14,238 14,829
Taxes, insurance, and other ................................... 5,207 5,549 6,155 6,182
Interest expense .............................................. 5,601 7,313 7,183 8,695
Minority interest in Operating Partnership .................... 1,417 1,524 1,643 1,233
Minority interest in other partnerships ....................... 21 121 195 236
-------- -------- -------- --------
Total expenses ........................................... 23,635 26,695 30,311 32,175
-------- -------- -------- --------
Income before extraordinary charge ................................. 12,957 14,358 20,742 15,778
Extraordinary charge from write off of deferred financing fees ..... 185
-------- -------- -------- --------
Net income ......................................................... 12,957 14,358 20,742 15,593
Preferred dividends ................................................ 2,949 2,949 2,949 2,950
-------- -------- -------- --------
Net income applicable to common shareholders ....................... $ 10,008 $ 11,409 $ 17,793 $ 12,643
======== ======== ======== ========
Per common share data:
Diluted:
Income applicable to common shareholders
before extraordinary charge .................................. $ 0.39 $ 0.42 $ 0.48 $ 0.35
Extraordinary charge .......................................... (0.01)
-------- -------- -------- --------
Net income applicable to common shareholders .................. $ 0.39 $ 0.42 $ 0.48 $ 0.34
======== ======== ======== ========
Weighted average shares outstanding ........................... 25,691 26,999 36,744 36,884
</TABLE>
F-23
<PAGE> 77
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of FelCor Lodging Trust Incorporated
Our audits of the consolidated financial statements referred to in our report
dated February 2, 1999 appearing on page F-2 of the Annual Report on Form 10-K
of FelCor Lodging Trust Incorporated (which report and consolidated financial
statements are included in this Annual Report on Form 10-K) also included an
audit of the financial statement schedule listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Dallas, Texas
February 2, 1999
F-24
<PAGE> 78
FELCOR LODGING TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT
INITIAL COST TO ACQUISITION
------------------------------------ -----------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
- ----------------------- ------------ ---- ------------ --------- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Birmingham, AL (1) $ 75 $2,843 $29,286 $ 160 $ 730 $3,384
Montgomery E. I-85, AL (2) 836 7,272 251 1,987 735
Texarkana I-30, AR (2) 5,245 162 7
Flagstaff, AZ (3) 276 2,397 83 1
Flagstaff, AZ (1) 900 6,825 268 1,561 1,209
Phoenix (Airport), AZ (1) 2,969 25,828 891 61 5
Phoenix (Camelback), AZ (1) 38,998 613 $4,694 823 5,181
Phoenix (Crescent), AZ (4) 3,608 29,583 2,886 623
Scottsdale, AZ (5) 12,430 384 11
Tempe, AZ (1) 3,951 34,371 1,185 565 959
Anaheim, CA (1) 2,548 14,832 607 562 3,481
Dana Point, CA (6) 1,787 15,545 536 254 2,709
Irvine Orange Co., CA (7) 4,981 43,338 1,494 200 187
LAX Airport, CA (1) 2,660 17,997 798 755 5,354
LAX Century, CA (1) 2,207 18,764 1,104 663
Mandalay Beach, CA (1) 11 2,930 22,125 879 655 5,223
Milpitas, CA (1) 65 4,021 23,677 562 943 3,888
Milpitas San Jose N., CA (2) 4,153 36,130 1,246 110
Napa, CA (1) 6 3,287 14,205 494 825 3,177
Palm Desert, CA (1) 2,368 20,598 710 885 1,452
Pleasanton, CA (8) 3,169 27,569 951 51 37
San Diego on the Bay, CA (2) 68,053 2,105 45
Santa Barbara, CA (2) 6,255 1,692 14,723 508 44
SF Burlingame, CA (1) 12 39,929 818 3,652
SF Financial District, CA (2) 21,679 670 25
SF Fisherman's Wharf, CA (2) 61,623 1,906 523 166
SF Union Square, CA (8) 8,392 67,105 9,069 3,082 615
So. San Francisco, CA (1) 6 3,418 31,737 527 769 4,207
Beaver Creek, CO (1) 1,134 9,864 340 175 1,183
Colorado Springs, CO (9) 190 1,653 57
Colorado Springs, CO (10) 285 2,479 85 2
Denver, CO (6) 2,432 21,158 730 13 710
Hartford Downtown, CT (8) 2,327 20,243 698 4,029 2,122
Stamford, CT (7) 37,356 1,155 1,349 324
Wilmington, DE (11) 1,435 12,487 431 78
Boca Raton, FL (6) 5,327 3,066 304 1,064
Boca Raton, FL (1) 82 1,868 16,253 561 6 181 3,317
Cocoa Beach, FL (2) 2,304 20,046 691 384 969
Deerfield Beach, FL (1) 4,523 29,443 918 18 1,163 4,213
Ft. Lauderdale, FL (1) 5,329 47,850 903 45 1,560 4,810
Ft. Lauderdale, FL (4) 3,009 26,177 903 61 24
Jacksonville, FL (1) 82 1,130 9,608 456 4,820 2,119
Kissimmee Nikki Bird, FL (2) 31,652 979 967 1,175
Miami Airport, FL (8) 26,146 809 803 1,078
Miami (Airport), FL (1) 4,135 24,950 1,171 742 5,315
Orlando Int'l Airport, FL (7) 2,564 22,310 769 27
Orlando Int'l Drive, FL (2) 5,141 44,735 1,543 155
Orlando (North), FL (1) 1,673 14,218 684 4,890 2,060
Orlando (South), FL (1) 1,632 13,870 799 28 1,870
Tampa Busch Gardens, FL (6) 772 12,387 226 163 834
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
----------------------------------------------------------
BUILDINGS FURNITURE
AND AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL
- ----------------------- ----- ------------ --------- -----
<S> <C> <C> <C> <C>
Birmingham, AL (1) $ 2,843 $30,016 $3,544 $36,403
Montgomery E. I-85, AL (2) 836 9,259 986 11,081
Texarkana I-30, AR (2) 5,245 169 5,414
Flagstaff, AZ (3) 276 2,397 84 2,757
Flagstaff, AZ (1) 900 8,386 1,477 10,763
Phoenix (Airport), AZ (1) 2,969 25,889 896 29,754
Phoenix (Camelback), AZ (1) 4,694 39,821 5,794 50,309
Phoenix (Crescent), AZ (4) 3,608 29,583 3,509 36,700
Scottsdale, AZ (5) 12,430 395 12,825
Tempe, AZ (1) 3,951 34,936 2,144 41,031
Anaheim, CA (1) 2,548 15,394 4,088 22,030
Dana Point, CA (6) 1,787 15,799 3,245 20,831
Irvine Orange Co., CA (7) 4,981 43,538 1,681 50,200
LAX Airport, CA (1) 2,660 18,752 6,152 27,564
LAX Century, CA (1) 2,207 18,764 1,767 22,738
Mandalay Beach, CA (1) 2,930 22,780 6,102 31,812
Milpitas, CA (1) 4,021 24,620 4,450 33,091
Milpitas San Jose N., CA (2) 4,153 36,130 1,356 41,639
Napa, CA (1) 3,287 15,030 3,671 21,988
Palm Desert, CA (1) 2,368 21,483 2,162 26,013
Pleasanton, CA (8) 3,169 27,620 988 31,777
San Diego on the Bay, CA (2) 68,053 2,150 70,203
Santa Barbara, CA (2) 1,692 14,723 552 16,967
SF Burlingame, CA (1) 39,929 4,470 44,399
SF Financial District, CA (2) 21,679 695 22,374
SF Fisherman's Wharf, CA (2) 62,146 2,072 64,218
SF Union Square, CA (8) 8,392 70,187 9,684 88,263
So. San Francisco, CA (1) 3,418 32,506 4,734 40,658
Beaver Creek, CO (1) 1,134 10,039 1,523 12,696
Colorado Springs, CO (9) 190 1,653 57 1,900
Colorado Springs, CO (10) 285 2,479 87 2,851
Denver, CO (6) 2,432 21,171 1,440 25,043
Hartford Downtown, CT (8) 2,327 24,272 2,820 29,419
Stamford, CT (7) 38,705 1,479 40,184
Wilmington, DE (11) 1,435 12,487 509 14,431
Boca Raton, FL (6) 5,327 3,066 1,368 9,761
Boca Raton, FL (1) 1,874 16,434 3,878 22,186
Cocoa Beach, FL (2) 2,304 20,430 1,660 24,394
Deerfield Beach, FL (1) 4,541 30,606 5,131 40,278
Ft. Lauderdale, FL (1) 5,374 49,410 5,713 60,497
Ft. Lauderdale, FL (4) 3,009 26,238 927 30,174
Jacksonville, FL (1) 1,130 14,428 2,575 18,133
Kissimmee Nikki Bird, FL (2) 32,619 2,154 34,773
Miami Airport, FL (8) 26,949 1,887 28,836
Miami (Airport), FL (1) 4,135 25,692 6,486 36,313
Orlando Int'l Airport, FL (7) 2,564 22,310 796 25,670
Orlando Int'l Drive, FL (2) 5,141 44,735 1,698 51,574
Orlando (North), FL (1) 1,673 19,108 2,744 23,525
Orlando (South), FL (1) 1,632 13,898 2,669 18,199
Tampa Busch Gardens, FL (6) 772 12,550 1,060 14,382
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK UPON
DEPRECIATION AND VALUE LIFE
BUILDINGS AND BUILDINGS AND WHICH
IMPROVEMENTS IMPROVEMENTS; DEPRECIATION
FURNITURE & FURNITURE & DATE OF DATE IN STATEMENT
DESCRIPTION OF PROPERTY FIXTURES FIXTURES CONSTRUCTION ACQUIRED IS COMPUTED
- ----------------------- ---------------- -------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Birmingham, AL (1) $ 3,670 $32,733 1987 01-03-96 5 40 Yrs
Montgomery E. I-85, AL (2) 77 11,004 1964 07-28-98 5 - 40 Yrs
Texarkana I-30, AR (2) 55 5,359 1970 07-28-98 5 - 40 Yrs
Flagstaff, AZ (3) 26 2,731 1964 07-28-98 5 - 40 Yrs
Flagstaff, AZ (1) 1,666 9,097 1988 02-16-95 5 - 40 Yrs
Phoenix (Airport), AZ (1) 482 29,272 1981 05-04-98 5 - 40 Yrs
Phoenix (Camelback), AZ (1) 5,455 44,854 1985 01-03-96 5 - 40 Yrs
Phoenix (Crescent), AZ (4) 2,083 34,617 1986 06-30-97 5 - 40 Yrs
Scottsdale, AZ (5) 130 12,695 1970 07-28-98 5 - 40 Yrs
Tempe, AZ (1) 677 40,354 1986 05-04-98 5 - 40 Yrs
Anaheim, CA (1) 3,214 18,816 1987 01-03-96 5 - 40 Yrs
Dana Point, CA (6) 1,341 19,490 1992 02-21-97 5 - 40 Yrs
Irvine Orange Co., CA (7) 440 49,760 1986 07-28-98 5 - 40 Yrs
LAX Airport, CA (1) 4,624 22,940 1985 03-27-96 5 - 40 Yrs
LAX Century, CA (1) 1,383 21,355 1990 02-18-97 5 - 40 Yrs
Mandalay Beach, CA (1) 3,730 28,082 1986 05-08-96 5 - 40 Yrs
Milpitas, CA (1) 3,946 29,145 1987 01-03-96 5 - 40 Yrs
Milpitas San Jose N., CA (2) 366 41,273 1987 07-28-98 5 - 40 Yrs
Napa, CA (1) 2,338 19,650 1985 05-08-96 5 - 40 Yrs
Palm Desert, CA (1) 444 25,569 1984 05-04-98 5 - 40 Yrs
Pleasanton, CA (8) 293 31,484 1986 07-28-98 5 - 40 Yrs
San Diego on the Bay, CA (2) 736 69,467 1965 07-28-98 5 - 40 Yrs
Santa Barbara, CA (2) 158 16,809 1969 07-28-98 5 - 40 Yrs
SF Burlingame, CA (1) 5,163 39,236 1986 11-06-95 5 - 40 Yrs
SF Financial District, CA (2) 226 22,148 1970 07-28-98 5 - 40 Yrs
SF Fisherman's Wharf, CA (2) 631 63,587 1970 07-28-98 5 - 40 Yrs
SF Union Square, CA (8) 811 87,452 1970 07-28-98 5 - 40 Yrs
So. San Francisco, CA (1) 4,587 36,071 1988 01-03-96 5 - 40 Yrs
Beaver Creek, CO (1) 1,367 11,329 1989 02-20-96 5 - 40 Yrs
Colorado Springs, CO (9) 18 1,882 1966 07-28-98 5 - 40 Yrs
Colorado Springs, CO (10) 26 2,825 1973 07-28-98 5 - 40 Yrs
Denver, CO (6) 475 24,568 1989 03-15-98 5 - 40 Yrs
Hartford Downtown, CT (8) 216 29,203 1973 07-28-98 5 - 40 Yrs
Stamford, CT (7) 368 39,816 1984 07-28-98 5 - 40 Yrs
Wilmington, DE (11) 300 14,131 1972 03-20-98 5 - 40 Yrs
Boca Raton, FL (6) 982 8,779 1989 11-15-95 5 - 40 Yrs
Boca Raton, FL (1) 2,841 19,345 1989 02-28-96 5 - 40 Yrs
Cocoa Beach, FL (2) 214 24,180 1960 07-28-98 5 - 40 Yrs
Deerfield Beach, FL (1) 4,418 35,860 1987 01-03-96 5 - 40 Yrs
Ft. Lauderdale, FL (1) 6,253 54,244 1986 01-03-96 5 - 40 Yrs
Ft. Lauderdale, FL (4) 489 29,685 1986 05-04-98 5 - 40 Yrs
Jacksonville, FL (1) 2,301 15,832 1986 07-28-94 5 - 40 Yrs
Kissimmee Nikki Bird, FL (2) 309 34,464 1974 07-28-98 5 - 40 Yrs
Miami Airport, FL (8) 273 28,563 1983 07-28-98 5 - 40 Yrs
Miami (Airport), FL (1) 4,636 31,677 1987 01-03-96 5 - 40 Yrs
Orlando Int'l Airport, FL (7) 237 25,433 1984 07-28-98 5 - 40 Yrs
Orlando Int'l Drive, FL (2) 459 51,115 1972 07-28-98 5 - 40 Yrs
Orlando (North), FL (1) 3,357 20,168 1985 07-28-94 5 - 40 Yrs
Orlando (South), FL (1) 3,345 14,854 1985 07-28-94 5 - 40 Yrs
Tampa Busch Gardens, FL (6) 1,326 13,056 1985 11-15-95 5 - 40 Yrs
</TABLE>
F-25
<PAGE> 79
FELCOR LODGING TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS) -- (CONTINUED)
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT
INITIAL COST TO ACQUISITION
----------------------------------- -----------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
- ----------------------- ------------ ---- ------------ --------- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Tampa Busch Gardens, FL (2) 9,534 295 12
Tampa Rocky Point, FL (6) 2,142 18,639 643 176 1,433
WDW Village, FL (6) 2,896 25,196 869 12 1,977
Atlanta Airport North, GA (2) 13,134 34,531 1,068 29
Atlanta Airport, GA (8) 40,943 1,266 41
Atlanta Airport, GA (1) 22,342 770 2,568 52
Atlanta Buckhead, GA (1) 7,303 38,996 2,437 283 1,180
Atlanta Galleria, GA (4) 5,052 28,507 2,526 295
Atlanta Gateway, GA (4) 5,113 22,857 2,105 3,216
Atlanta Perimeter, GA (7) 7,879 20,556 636 181
Atlanta Powers Ferry, GA (8) 12,726 3,411 29,672 1,023 381 35
Atlanta South (Jonesboro), GA (2) 3,194 864 7,515 259 26
Atlanta-Courtyd by Marriott, GA (12) 2,025 17,618 608 41
Atlanta, GA (5) 1,266 11,017 380 102
Brunswick, GA (1) 705 6,067 247 800
Columbus N. Airport, GA (2) 7,026 217 95
Decatur I-20 East, GA (9) 171 1,488 51
Marietta, GA (13) 952 8,285 286 294
Davenport, IA (2) 547 4,763 164 116
Davenport, IA (13) 434 3,776 130 14
Chicago Allerton, IL (14) 3,343 29,086 1,003
Chicago O'Hare, IL (4) 8,178 37,043 2,886 700
Deerfield, IL (1) 2,305 20,054 692 459 1,049
Moline Airport, IL (2) 1,105 822 7,149 247 41
Moline Airport, IL (9) 312 232 2,021 70 9
Moline, IL (13) 505 4,398 152 24
Colby, KS (9) 339 2,950 102 276 37
Great Bend, KS (2) 549 4,780 165 5
Hays, KS (2) 803 597 5,190 179 36
Hays, KS (13) 326 243 2,112 73 8
Salina, KS (2) 2,640 502 4,370 151 33
Salina, KS (9) 341 2,964 102
Lexington, KY (15) 1,955 13,604 587 1,636
Lexington, KY (4) 21,644 746 2,488 51 15
Baton Rouge, LA (1) 20 2,350 19,092 525 520 3,593
New Orleans French Quarter, LA (2) 19,456 5,264 45,793 1,579 149
New Orleans, LA (1) 2,570 22,300 895 1,079 13,484 3,980
Boston Gov't Center, MA (7) 45,452 1,406 72
Boston - Marlborough, MA (1) 948 8,143 325 647 12,707 4,761
Leominster Four Points, MA (4) 900 7,830 270 49
BWI, MD (6) 2,568 22,433 770 930
Troy, MI (6) 2,968 25,905 909 517
Bloomington Airport W, MN (6) 2,038 17,731 611 30 1,720
Minneapolis Airport, MN (1) 5,417 36,508 602 3,191
Minneapolis Downtown, MN (1) 818 16,820 505 3,334
St. Paul, MN (1) 8,957 1,156 17,315 849 3,239
Kansas City, MO (2) 973 8,461 292 83 856
St. Louis, MO (1) 3,179 27,659 954 65
St. Louis Westport, MO (2) 9,085 2,767 24,072 830 199
Jackson Briarwood, MS (13) 747 6,501 224 21
Jackson Downtown, MS (8) 8,218 2,226 19,370 668 29
Jackson North, MS (2) 6,144 1,643 14,296 493 146 88
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
---------------------------------------------------
BUILDINGS FURNITURE
AND AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL
- ----------------------- ----- ------------ --------- ------
<S> <C> <C> <C> <C>
Tampa Busch Gardens, FL (2) 9,534 307 9,841
Tampa Rocky Point, FL (6) 2,142 18,815 2,076 23,033
WDW Village, FL (6) 2,896 25,208 2,846 30,950
Atlanta Airport North, GA (2) 34,531 1,097 35,628
Atlanta Airport, GA (8) 40,943 1,307 42,250
Atlanta Airport, GA (1) 2,568 22,394 770 25,732
Atlanta Buckhead, GA (1) 7,303 39,279 3,617 50,199
Atlanta Galleria, GA (4) 5,052 28,507 2,821 36,380
Atlanta Gateway, GA (4) 5,113 22,857 5,321 33,291
Atlanta Perimeter, GA (7) 20,556 817 21,373
Atlanta Powers Ferry, GA (8) 3,411 30,053 1,058 34,522
Atlanta South (Jonesboro), GA (2) 864 7,515 285 8,664
Atlanta-Courtyd by Marriott, GA (12) 2,025 17,618 649 20,292
Atlanta, GA (5) 1,266 11,017 482 12,765
Brunswick, GA (1) 705 6,067 1,047 7,819
Columbus N. Airport, GA (2) 7,026 312 7,338
Decatur I-20 East, GA (9) 171 1,488 51 1,710
Marietta, GA (13) 952 8,285 580 9,817
Davenport, IA (2) 547 4,763 280 5,590
Davenport, IA (13) 434 3,776 144 4,354
Chicago Allerton, IL (14) 3,343 29,086 1,003 33,432
Chicago O'Hare, IL (4) 8,178 37,043 3,586 48,807
Deerfield, IL (1) 2,305 20,513 1,741 24,559
Moline Airport, IL (2) 822 7,149 288 8,259
Moline Airport, IL (9) 232 2,021 79 2,332
Moline, IL (13) 505 4,398 176 5,079
Colby, KS (9) 339 3,226 139 3,704
Great Bend, KS (2) 549 4,780 170 5,499
Hays, KS (2) 597 5,190 215 6,002
Hays, KS (13) 243 2,112 81 2,436
Salina, KS (2) 502 4,370 184 5,056
Salina, KS (9) 341 2,964 102 3,407
Lexington, KY (15) 1,955 13,604 2,223 17,782
Lexington, KY (4) 2,488 21,695 761 24,944
Baton Rouge, LA (1) 2,350 19,612 4,118 26,080
New Orleans French Quarter, LA (2) 5,264 45,793 1,728 52,785
New Orleans, LA (1) 3,649 35,784 4,875 44,308
Boston Gov't Center, MA (7) 45,452 1,478 46,930
Boston - Marlborough, MA (1) 1,595 20,850 5,086 27,531
Leominster Four Points, MA (4) 900 7,830 319 9,049
BWI, MD (6) 2,568 22,433 1,700 26,701
Troy, MI (6) 2,968 25,905 1,426 30,299
Bloomington Airport W, MN (6) 2,038 17,761 2,331 22,130
Minneapolis Airport, MN (1) 5,417 36,508 3,793 45,718
Minneapolis Downtown, MN (1) 818 16,820 3,839 21,477
St. Paul, MN (1) 1,156 17,315 4,088 22,559
Kansas City, MO (2) 973 8,544 1,148 10,665
St. Louis, MO (1) 3,179 27,724 954 31,857
St. Louis Westport, MO (2) 2,767 24,072 1,029 27,868
Jackson Briarwood, MS (13) 747 6,501 245 7,493
Jackson Downtown, MS (8) 2,226 19,370 697 22,293
Jackson North, MS (2) 1,643 14,442 581 16,666
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK UPON
DEPRECIATION AND VALUE LIFE
BUILDINGS AND BUILDINGS AND WHICH
IMPROVEMENTS IMPROVEMENTS; DEPRECIATION
FURNITURE & FURNITURE & DATE OF DATE IN STATEMENT
DESCRIPTION OF PROPERTY FIXTURES FIXTURES CONSTRUCTION ACQUIRED IS COMPUTED
- ----------------------- ---------------- -------------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Tampa Busch Gardens, FL (2) 99 9,742 1966 07-28-98 5 - 40 Yrs
Tampa Rocky Point, FL (6) 909 22,124 1986 07-28-97 5 - 40 Yrs
WDW Village, FL (6) 1,246 29,704 1987 07-28-97 5 - 40 Yrs
Atlanta Airport North, GA (2) 339 35,289 1967 07-28-98 5 - 40 Yrs
Atlanta Airport, GA (8) 406 41,844 1975 07-28-98 5 - 40 Yrs
Atlanta Airport, GA (1) 416 25,316 1989 05-04-98 5 - 40 Yrs
Atlanta Buckhead, GA (1) 3,337 46,862 1988 10-17-96 5 - 40 Yrs
Atlanta Galleria, GA (4) 1,867 34,513 1990 06-30-97 5 - 40 Yrs
Atlanta Gateway, GA (4) 1,634 31,657 1986 06-30-97 5 - 40 Yrs
Atlanta Perimeter, GA (7) 220 21,153 1985 07-28-98 5 - 40 Yrs
Atlanta Powers Ferry, GA (8) 285 34,237 1981 07-28-98 5 - 40 Yrs
Atlanta South (Jonesboro), GA (2) 81 8,583 1973 07-28-98 5 - 40 Yrs
Atlanta-Courtyd by Marriott, GA (1) 189 20,103 1963 07-28-98 5 - 40 Yrs
Atlanta, GA (5) 121 12,644 1963 07-28-98 5 - 40 Yrs
Brunswick, GA (1) 984 6,835 1988 07-19-95 5 - 40 Yrs
Columbus N. Airport, GA (2) 76 7,262 1969 07-28-98 5 - 40 Yrs
Decatur I-20 East, GA (9) 16 1,694 1973 07-28-98 5 - 40 Yrs
Marietta, GA (13) 98 9,719 1986 07-28-98 5 - 40 Yrs
Davenport, IA (2) 54 5,536 1966 07-28-98 5 - 40 Yrs
Davenport, IA (13) 41 4,313 1985 07-28-98 5 - 40 Yrs
Chicago Allerton, IL (14) 309 33,123 1923 07-28-98 5 - 40 Yrs
Chicago O'Hare, IL (4) 2,343 46,464 1994 06-30-97 5 - 40 Yrs
Deerfield, IL (1) 1,838 22,721 1987 06-20-96 5 - 40 Yrs
Moline Airport, IL (2) 77 8,182 1961 07-28-98 5 - 40 Yrs
Moline Airport, IL (9) 22 2,310 1996 07-28-98 5 - 40 Yrs
Moline, IL (13) 48 5,031 1985 07-28-98 5 - 40 Yrs
Colby, KS (9) 31 3,673 1998 07-28-98 5 - 40 Yrs
Great Bend, KS (2) 51 5,448 1964 07-28-98 5 - 40 Yrs
Hays, KS (2) 56 5,946 1966 07-28-98 5 - 40 Yrs
Hays, KS (13) 23 2,413 1985 07-28-98 5 - 40 Yrs
Salina, KS (2) 48 5,008 1986 07-28-98 5 - 40 Yrs
Salina, KS (9) 32 3,375 1997 07-28-98 5 - 40 Yrs
Lexington, KY (15) 1,787 15,995 1987 01-10-96 5 - 40 Yrs
Lexington, KY (4) 404 24,540 1989 05-04-98 5 - 40 Yrs
Baton Rouge, LA (1) 3,258 22,822 1985 01-03-96 5 - 40 Yrs
New Orleans French Quarter, LA (2) 470 52,315 1969 07-28-98 5 - 40 Yrs
New Orleans, LA (1) 4,261 40,047 1984 12-01-94 5 - 40 Yrs
Boston Gov't Center, MA (7) 454 46,476 1968 07-28-98 5 - 40 Yrs
Boston - Marlborough, MA (1) 2,789 24,742 1988 06-30-95 5 - 40 Yrs
Leominster Four Points, MA (4) 2 9,047 1989 07-28-98 5 - 40 Yrs
BWI, MD (6) 1,458 25,243 1987 03-20-97 5 - 40 Yrs
Troy, MI (6) 1,601 28,698 1987 03-20-97 5 - 40 Yrs
Bloomington Airport W, MN (6) 1,209 20,921 1980 02-01-97 5 - 40 Yrs
Minneapolis Airport, MN (1) 4,708 41,010 1986 11-06-95 5 - 40 Yrs
Minneapolis Downtown, MN (1) 3,199 18,278 1984 11-15-95 5 - 40 Yrs
St. Paul, MN (1) 3,487 19,072 1983 11-15-95 5 - 40 Yrs
Kansas City, MO (2) 90 10,575 1975 07-28-98 5 - 40 Yrs
St. Louis, MO (1) 516 31,341 1985 05-04-98 5 - 40 Yrs
St. Louis Westport, MO (2) 263 27,605 1979 07-28-98 5 - 40 Yrs
Jackson Briarwood, MS (13) 70 7,423 1985 07-28-98 5 - 40 Yrs
Jackson Downtown, MS (8) 207 22,086 1975 07-28-98 5 - 40 Yrs
Jackson North, MS (2) 153 16,513 1957 07-28-98 5 - 40 Yrs
</TABLE>
F-26
<PAGE> 80
FELCOR LODGING TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS) -- (CONTINUED)
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT
INITIAL COST TO ACQUISITION
------------------------------------ ---------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
- ----------------------- ------------ ---- ------------ --------- ---- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Jackson Southwest, MS (2) 1,170 314 2,728 94 39
Olive Branch Exec Conf Ctr, MS (2) 1,397 12,155 419 1,147 682
Raleigh/Durham, NC (6) 2,124 18,476 637 6 1,458
Omaha Central I-80, NE (2) 9,440 1,795 15,614 538 134
Omaha Central I-80, NE (13) 518 4,504 155 30
Omaha Central, NE (6) 1,877 16,328 563 130 1,698
Omaha Northwest, NE (2) 979 8,519 294 3
Omaha Northwest, NE (9) 373 3,245 112
Omaha Southwest, NE (13) 464 4,036 139 2
Omaha, NE (16) 923 8,029 277 1
Piscataway, NJ (1) 1,755 17,563 527 605 2,511
Secaucus, NJ (8) 2,356 20,497 707 145
Albuquerque Mountainview, NM (2) 1,322 11,505 397 56
Syracuse, NY (1) 1,597 14,812 1,330 147
Cleveland, OH (1) 1,755 15,329 527 1,258 878
Columbus, OH (6) 1,918 16,691 576 271 785
Dayton, OH (6) 7,166 1,140 9,924 342 1,299 83
Tulsa, OK (1) 525 7,344 3,117 139 1,874
Philadelphia Center City, PA (8) 14,225 5,733 49,875 1,720 1,823 619
Philadelphia Independence Mall, PA (2) 3,184 27,704 955 214
Pittsburgh, PA (7) 15,408 25,170 773 34
Society Hill, PA (4) 4,542 45,121 1,536 125
Charleston Mills House, SC (2) 3,270 28,446 981 471
Columbia Airport, SC (2) 238 2,067 71 20
Greenville Roper, SC (8) 1,551 13,492 465 404 367
Kingston Plantation, SC (1) 2,940 24,988 1,470 1,426 4,193
Knoxville West, TN (2) 11,586 358 1,179 693
Nashville Airport Briley, TN (7) 27,889 863 145
Nashville, TN (6) 1,073 9,331 322 350 754
Nashville Airport, TN (1) 1,118 9,506 961 28 1,534
Amarillo I-40, TX (2) 5,754 178 26
Austin Town Lake, TX (2) 21,551 667 675
Austin, TX (6) 2,508 21,908 752 321
Beaumont Midtown I-10, TX (2) 685 5,964 206 13
Corpus Christi, TX (1) 1,112 9,618 390 52 1,585
Dallas Bristol House, TX (14) 1,704 8,144
Dallas Campbell Ctr, TX (6) 3,208 27,907 962
Dallas Downtown, TX (13) 1,953 16,989 586 14
Dallas Love Field, TX (1) 1,934 16,674 757 167 1,376
Dallas Market Center, TX (8) 15,418 4,078 35,486 1,224 775
Dallas Market Center, TX (1) 2,619 24,298 2,182
Dallas Park Central, TX (1) 1,497 12,722 647 28 1,649
Dallas Park Central, TX (4) 1,720 28,550 4,130
Dallas Park Central, TX (17) 4,513 43,125 2,507 3,984 1,335
Dallas Regal Row, TX (5) 778 6,770 233 23
Dallas, TX (8) 9,942 30,513 944 124 303
Dallas, TX (18) 7,772 13,564 420 191
DFW Airport, TX (18) 18,278 56,134 1,736 752
DFW Airport (Suites), TX (18) 5,757 1,546 13,453 464 153
DFW South, TX (6) 35,156 1,212 4,041 82
Houston Galleria, TX (12) 1,855 16,143 557 89
Houston Galleria, TX (5) 465 4,047 140 39
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------------------------------------
BUILDINGS FURNITURE
AND AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL
- ----------------------- ----- ------------ --------- -----
<S> <C> <C> <C> <C>
Jackson Southwest, MS (2) 314 2,728 133 3,175
Olive Branch Exec Conf Ctr, MS (2) 1,397 13,302 1,101 15,800
Raleigh/Durham, NC (6) 2,124 18,482 2,095 22,701
Omaha Central I-80, NE (2) 1,795 15,614 672 18,081
Omaha Central I-80, NE (13) 518 4,504 185 5,207
Omaha Central, NE (6) 1,877 16,458 2,261 20,596
Omaha Northwest, NE (2) 979 8,519 297 9,795
Omaha Northwest, NE (9) 373 3,245 112 3,730
Omaha Southwest, NE (13) 464 4,036 141 4,641
Omaha, NE (16) 923 8,029 278 9,230
Piscataway, NJ (1) 1,755 18,168 3,038 22,961
Secaucus, NJ (8) 2,356 20,497 852 23,705
Albuquerque Mountainview, NM (2) 1,322 11,505 453 13,280
Syracuse, NY (1) 1,597 14,812 1,477 17,886
Cleveland, OH (1) 1,755 16,587 1,405 19,747
Columbus, OH (6) 1,918 16,962 1,361 20,241
Dayton, OH (6) 1,140 11,223 425 12,788
Tulsa, OK (1) 525 7,483 4,991 12,999
Philadelphia Center City, PA (8) 5,733 51,698 2,339 59,770
Philadelphia Independence Mall, PA (2) 3,184 27,704 1,169 32,057
Pittsburgh, PA (7) 25,170 807 25,977
Society Hill, PA (4) 4,542 45,121 1,661 51,324
Charleston Mills House, SC (2) 3,270 28,446 1,452 33,168
Columbia Airport, SC (2) 238 2,067 91 2,396
Greenville Roper, SC (8) 1,551 13,896 832 16,279
Kingston Plantation, SC (1) 2,940 26,414 5,663 35,017
Knoxville West, TN (2) 12,765 1,051 13,816
Nashville Airport Briley, TN (7) 27,889 1,008 28,897
Nashville, TN (6) 1,073 9,681 1,076 11,830
Nashville Airport, TN (1) 1,118 9,534 2,495 13,147
Amarillo I-40, TX (2) 5,754 204 5,958
Austin Town Lake, TX (2) 21,551 1,342 22,893
Austin, TX (6) 2,508 21,908 1,073 25,489
Beaumont Midtown I-10, TX (2) 685 5,964 219 6,868
Corpus Christi, TX (1) 1,164 9,618 1,975 12,757
Dallas Bristol House, TX (14) 1,704 8,144 9,848
Dallas Campbell Ctr, TX (6) 3,208 27,907 962 32,077
Dallas Downtown, TX (13) 1,953 16,989 600 19,542
Dallas Love Field, TX (1) 1,934 16,841 2,133 20,908
Dallas Market Center, TX (8) 4,078 36,261 1,224 41,563
Dallas Market Center, TX (1) 2,619 24,298 2,182 29,099
Dallas Park Central, TX (1) 1,497 12,750 2,296 16,543
Dallas Park Central, TX (4) 1,720 28,550 4,130 34,400
Dallas Park Central, TX (17) 4,513 47,109 3,842 55,464
Dallas Regal Row, TX (5) 778 6,770 256 7,804
Dallas, TX (8) 30,637 1,247 31,884
Dallas, TX (18) 13,564 611 14,175
DFW Airport, TX (18) 56,134 2,488 58,622
DFW Airport (Suites), TX (18) 1,546 13,453 617 15,616
DFW South, TX (6) 4,041 35,238 1,212 40,491
Houston Galleria, TX (12) 1,855 16,143 646 18,644
Houston Galleria, TX (5) 465 4,047 179 4,691
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK UPON
DEPRECIATION AND VALUE LIFE
BUILDINGS AND BUILDINGS AND WHICH
IMPROVEMENTS IMPROVEMENTS; DEPRECIATION
FURNITURE & FURNITURE & DATE OF DATE IN STATEMENT
DESCRIPTION OF PROPERTY FIXTURES FIXTURES CONSTRUCTION ACQUIRED IS COMPUTED
- ----------------------- ------------------ --------------- ------------ -------- ---------------
<S> <C> <C> <C> <C> <C>
Jackson Southwest, MS (2) 30 3,145 1962 07-28-98 5 - 40 Yrs
Olive Branch Exec Conf Ctr, MS (2) 130 15,670 1972 07-28-98 5 - 40 Yrs
Raleigh/Durham, NC (6) 934 21,767 1987 07-28-97 5 - 40 Yrs
Omaha Central I-80, NE (2) 170 17,911 1965 07-28-98 5 - 40 Yrs
Omaha Central I-80, NE (13) 49 5,158 1991 07-28-98 5 - 40 Yrs
Omaha Central, NE (6) 1,207 19,389 1973 02-01-97 5 - 40 Yrs
Omaha Northwest, NE (2) 91 9,704 1974 07-28-98 5 - 40 Yrs
Omaha Northwest, NE (9) 35 3,695 1996 07-28-98 5 - 40 Yrs
Omaha Southwest, NE (13) 43 4,598 1986 07-28-98 5 - 40 Yrs
Omaha, NE (16) 85 9,145 1989 07-28-98 5 - 40 Yrs
Piscataway, NJ (1) 2,358 20,603 1988 01-10-96 5 - 40 Yrs
Secaucus, NJ (8) 399 23,306 N/A 07-28-98 5 - 40 Yrs
Albuquerque Mountainview, NM (2) 123 13,157 1968 07-28-98 5 - 40 Yrs
Syracuse, NY (1) 928 16,958 1989 06-30-97 5 - 40 Yrs
Cleveland, OH (1) 2,094 17,653 1990 11-17-95 5 - 40 Yrs
Columbus, OH (6) 535 19,706 1985 02-04-98 5 - 40 Yrs
Dayton, OH (6) 350 12,438 1987 12-30-97 5 - 40 Yrs
Tulsa, OK (1) 5,716 7,283 1985 07-28-94 5 - 40 Yrs
Philadelphia Center City, PA (8) 509 59,261 1970 07-28-98 5 - 40 Yrs
Philadelphia Independence Mall, PA (2) 290 31,767 1972 07-28-98 5 - 40 Yrs
Pittsburgh, PA (7) 262 25,715 1988 07-28-98 5 - 40 Yrs
Society Hill, PA (4) 1,810 49,514 1986 10-01-97 5 - 40 Yrs
Charleston Mills House, SC (2) 287 32,881 1982 07-28-98 5 - 40 Yrs
Columbia Airport, SC (2) 22 2,374 1966 07-28-98 5 - 40 Yrs
Greenville Roper, SC (8) 144 16,135 1984 07-28-98 5 - 40 Yrs
Kingston Plantation, SC (1) 2,556 32,461 1987 12-05-96 5 - 40 Yrs
Knoxville West, TN (2) 120 13,696 1966 07-28-98 5 - 40 Yrs
Nashville Airport Briley, TN (7) 263 28,634 1981 07-28-98 5 - 40 Yrs
Nashville, TN (6) 539 11,291 1988 06-05-97 5 - 40 Yrs
Nashville Airport, TN (1) 3,520 9,627 1985 07-28-94 5 - 40 Yrs
Amarillo I-40, TX (2) 60 5,898 1970 07-28-98 5 - 40 Yrs
Austin Town Lake, TX (2) 246 22,647 1967 07-28-98 5 - 40 Yrs
Austin, TX (6) 1,324 24,165 1987 03-20-97 5 - 40 Yrs
Beaumont Midtown I-10, TX (2) 64 6,804 1967 07-28-98 5 - 40 Yrs
Corpus Christi, TX (1) 1,842 10,915 1984 07-19-95 5 - 40 Yrs
Dallas Bristol House, TX (14) 557 9,291 1997 07-28-98 5 - 40 Yrs
Dallas Campbell Ctr, TX (6) 445 31,632 1982 05-29-98 5 - 40 Yrs
Dallas Downtown, TX (13) 181 19,361 1969 07-28-98 5 - 40 Yrs
Dallas Love Field, TX (1) 2,752 18,156 1986 03-29-95 5 - 40 Yrs
Dallas Market Center, TX (8) 358 41,205 1983 07-28-98 5 - 40 Yrs
Dallas Market Center, TX (1) 1,581 27,518 1980 06-30-97 5 - 40 Yrs
Dallas Park Central, TX (1) 3,214 13,329 1985 07-28-94 5 - 40 Yrs
Dallas Park Central, TX (4) 34,400 1972 11-01-98 5 - 40 Yrs
Dallas Park Central, TX (17) 2,591 52,873 1983 06-30-97 5 - 40 Yrs
Dallas Regal Row, TX (5) 73 7,731 1969 07-28-98 5 - 40 Yrs
Dallas, TX (8) 294 31,590 1988 07-28-98 5 - 40 Yrs
Dallas, TX (18) 147 14,028 1981 07-28-98 5 - 40 Yrs
DFW Airport, TX (18) 587 58,035 1987 07-28-98 5 - 40 Yrs
DFW Airport (Suites), TX (18) 148 15,468 1989 07-28-98 5 - 40 Yrs
DFW South, TX (6) 655 39,836 1985 07-28-98 5 - 40 Yrs
Houston Galleria, TX (12) 175 18,469 1968 07-28-98 5 - 40 Yrs
Houston Galleria, TX (5) 44 4,647 1968 07-28-98 5 - 40 Yrs
</TABLE>
F-27
<PAGE> 81
FELCOR LODGING TRUST INCORPORATED
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
(IN THOUSANDS) -- (CONTINUED)
<TABLE>
<CAPTION>
COST CAPITALIZED SUBSEQUENT
INITIAL COST TO ACQUISITION
---------------------------------------- ----------------------------------
BUILDINGS FURNITURE BUILDINGS FURNITURE
AND AND AND AND
DESCRIPTION OF PROPERTY ENCUMBRANCES LAND IMPROVEMENTS FIXTURES LAND IMPROVEMENTS FIXTURES
- ----------------------- ------------ ------ ------------ --------- ---- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Houston Greenway, TX (7) 12,675 3,418 29,736 1,025 204
Houston I-10 West, TX (5) 586 5,099 176 13
Houston I-10 West, TX (7) 3,055 26,575 916 253
Houston I-10 West, TX (13) 478 4,155 143 220
Houston Int'l Airport, TX (2) 14,377 3,890 33,842 1,167 101
Houston Medical Center, TX (8) 9,329 2,493 21,687 748 233 145
Houston Medical Center, TX (2) 9,329 2,284 19,869 685 1,235 1,234
Midland Country Villa, TX (2) 404 3,517 121 12
N. Dallas Addison, TX (8) 15,616 4,938 42,965 1,482 354 344
Odessa Center, TX (2) 487 4,238 146 4
Odessa Parkway, TX (9) 370 3,218 111 7
Plano, TX (2) 885 7,696 265 65
Plano, TX (18) 9,118 1,813 15,775 544 363
San Antonio Airport, TX (7) 3,371 29,326 1,011 30
San Antonio Downtown, TX (2) 22,246 688 377 198
Waco I-35, TX (2) 574 4,994 172 114 108
Salt Lake City Airport, UT (2) 5,346 165 47
Burlington, VT (4) 3,136 27,283 941 267
Cambridge, CAN (2) 481 4,188 144
Kitchener Waterloo, CAN (2) 9,441 292 25
Peterbourough Waterfront, CAN (2) 735 6,391 220 12
Sarnia, CAN (2) 271 2,359 81 4
Toronto Airport, CAN (7) 21,168 655 217 234
Toronto Yorkdale, CAN (2) 1,578 13,725 473 118
-------- -------- ---------- -------- ------- ------- --------
Total $275,613 $314,029 $3,397,532 $145,556 $15,638 $83,039 $153,054
======== ======== ========== ======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNTS AT WHICH
CARRIED AT CLOSE OF PERIOD
--------------------------------------------
BUILDINGS FURNITURE
AND AND
DESCRIPTION OF PROPERTY LAND IMPROVEMENTS FIXTURES TOTAL
- ----------------------- ----- ------------ --------- -----
<S> <C> <C> <C> <C>
Houston Greenway, TX (7) 3,418 29,736 1,229 34,383
Houston I-10 West, TX (5) 586 5,099 189 5,874
Houston I-10 West, TX (7) 3,055 26,575 1,169 30,799
Houston I-10 West, TX (13) 478 4,155 363 4,996
Houston Int'l Airport, TX (2) 3,890 33,842 1,268 39,000
Houston Medical Center, TX (8) 2,493 21,920 893 25,306
Houston Medical Center, TX (2) 2,284 21,104 1,919 25,307
Midland Country Villa, TX (2) 404 3,517 133 4,054
N. Dallas Addison, TX (8) 4,938 43,319 1,826 50,083
Odessa Center, TX (2) 487 4,238 150 4,875
Odessa Parkway, TX (9) 370 3,218 118 3,706
Plano, TX (2) 885 7,696 330 8,911
Plano, TX (18) 1,813 15,775 907 18,495
San Antonio Airport, TX (7) 3,371 29,326 1,041 33,738
San Antonio Downtown, TX (2) 22,623 886 23,509
Waco I-35, TX (2) 574 5,108 280 5,962
Salt Lake City Airport, UT (2) 5,346 212 5,558
Burlington, VT (4) 3,136 27,283 1,208 31,627
Cambridge, CAN (2) 481 4,188 144 4,813
Kitchener Waterloo, CAN (2) 9,441 317 9,758
Peterbourough Waterfront, CAN (2) 735 6,391 232 7,358
Sarnia, CAN (2) 271 2,359 85 2,715
Toronto Airport, CAN (7) 21,385 889 22,274
Toronto Yorkdale, CAN (2) 1,578 13,725 591 15,894
Total
-------- ---------- -------- ----------
$329,667 $3,480,571 $298,610 $4,108,848
======== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED NET BOOK UPON
DEPRECIATION AND VALUE LIFE
BUILDINGS AND BUILDINGS AND WHICH
IMPROVEMENTS IMPROVEMENTS; DEPRECIATION
FURNITURE & FURNITURE & DATE OF DATE IN STATEMENT
DESCRIPTION OF PROPERTY FIXTURES FIXTURES CONSTRUCTION ACQUIRED IS COMPUTED
- ----------------------- --------------- -------------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Houston Greenway, TX (7) 292 34,091 1984 07-28-98 5 - 40 Yrs
Houston I-10 West, TX (5) 55 5,819 1969 07-28-98 5 - 40 Yrs
Houston I-10 West, TX (7) 290 30,509 1984 07-28-98 5 - 40 Yrs
Houston I-10 West, TX (13) 51 4,945 1969 07-28-98 5 - 40 Yrs
Houston Int'l Airport, TX (2) 342 38,658 1971 07-28-98 5 - 40 Yrs
Houston Medical Center, TX (8) 231 25,075 1973 07-28-98 5 - 40 Yrs
Houston Medical Center, TX (2) 211 25,096 1984 07-28-98 5 - 40 Yrs
Midland Country Villa, TX (2) 38 4,016 1979 07-28-98 5 - 40 Yrs
N. Dallas Addison, TX (8) 436 49,647 1985 07-28-98 5 - 40 Yrs
Odessa Center, TX (2) 45 4,830 1982 07-28-98 5 - 40 Yrs
Odessa Parkway, TX (9) 34 3,672 1977 07-28-98 5 - 40 Yrs
Plano, TX (2) 84 8,827 1983 07-28-98 5 - 40 Yrs
Plano, TX (18) 180 18,315 1983 07-28-98 5 - 40 Yrs
San Antonio Airport, TX (7) 281 33,457 1981 07-28-98 5 - 40 Yrs
San Antonio Downtown, TX (2) 232 23,277 1968 07-28-98 5 - 40 Yrs
Waco I-35, TX (2) 53 5,909 1970 07-28-98 5 - 40 Yrs
Salt Lake City Airport, UT (2) 57 5,501 1963 07-28-98 5 - 40 Yrs
Burlington, VT (4) 972 30,655 1967 12-04-97 5 - 40 Yrs
Cambridge, CAN (2) 45 4,768 1969 07-28-98 5 - 40 Yrs
Kitchener Waterloo, CAN (2) 99 9,659 1965 07-28-98 5 - 40 Yrs
Peterbourough Waterfront, CAN (2) 68 7,290 1965 07-28-98 5 - 40 Yrs
Sarnia, CAN (2) 25 2,690 1970 07-28-98 5 - 40 Yrs
Toronto Airport, CAN (7) 220 22,054 1970 07-28-98 5 - 40 Yrs
Toronto Yorkdale, CAN (2) 150 15,744 1970 07-28-98 5 - 40 Yrs
Total
-------- ----------
$178,072 $3,930,776
======== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C>
(a) Balance at December 31, 1996 $ 911,390 (b) Balance at December 31, 1995 $ 10,397
Additions during the period 651,334 Depreciation expense during the period 26,321
---------- --------
Balance at December 31, 1997 $1,562,724 Balance at December 31, 1996 36,718
Additions during the period 2,546,124 Depreciation expense during the period 50,682
---------- --------
Balance at December 31, 1998 $4,108,848 Balance at December 31, 1997 $ 87,400
Depreciation expense during the period 90,672
--------
Balance at December 31, 1998 $178,072
</TABLE>
1. Embassy Suites
2. Holiday Inn
3. Days Inn
4. Sheraton and Sheraton Suites
5. Fairfield Inn
6. Doubletree and Doubletree Guest Suites
7. Holiday Inn Select
8. Crowne Plaza and Crowne Plaza Suites
9. Holiday Inn Express
10. Ramada Inn
11. Radisson
12. Courtyard by Marriott
13. Hampton Inn
14. Independents
15. Hilton Suites
16. Homewood Suites
17. Westin
18. Harvey Hotel
F-28
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of FelCor Lodging Trust Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of DJONT
Operations, L.L.C. at December 31, 1998 and 1997, and the consolidated results
of operations and cash flows for the years ended December 31, 1998, 1997 and
1996, respectively, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Dallas, Texas
March 2, 1999
F-29
<PAGE> 83
DJONT OPERATIONS, L.L.C.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash and cash equivalents ........................................... $ 28,538 $ 25,684
Accounts receivable, net ............................................ 27,561 20,274
Inventories ......................................................... 4,381 3,466
Prepaid expenses .................................................... 471 1,307
Other assets ........................................................ 3,021 3,971
-------- --------
Total assets ........................................................ $ 63,972 $ 54,702
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable, trade ............................................. $ 6,514 $ 9,426
Accounts payable, other ............................................. 6,994 4,625
Due to FelCor Lodging Trust Incorporated ............................ 16,875 18,908
Accrued expenses and other liabilities .............................. 41,820 30,818
-------- --------
Total liabilities ................................................... 72,203 63,777
-------- --------
Commitments and contingencies (Note 4)
Shareholders' equity (deficit):
Capital ............................................................. 1 1
Accumulated deficit ................................................. (8,232) (9,076)
-------- --------
Total shareholders' deficit ......................................... (8,231) (9,075)
-------- --------
Total liabilities and shareholders' equity .......................... $ 63,972 $ 54,702
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-30
<PAGE> 84
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Room and suite revenue ........................... $ 618,122 $ 456,614 $ 234,451
Food and beverage revenue ........................ 77,834 34,813 15,119
Food and beverage rent ........................... 4,792 4,393 2,334
Other revenue .................................... 48,781 38,690 17,340
--------- --------- ---------
Total revenues ............................... 749,529 534,510 269,244
--------- --------- ---------
Expenses:
Property operating costs ......................... 169,955 128,077 66,236
General and administrative ....................... 56,995 39,147 20,123
Advertising and promotion ........................ 51,105 37,333 18,520
Repair and maintenance ........................... 36,374 26,236 14,453
Utilities ........................................ 28,799 21,363 12,248
Management and incentive fees .................... 23,636 11,879 6,077
Franchise fees ................................... 18,102 13,407 5,693
Food and beverage expenses ....................... 65,924 33,119 15,701
Percentage lease expenses ........................ 289,891 216,990 107,935
Lessee overhead expenses ......................... 1,990 2,332 1,776
Liability insurance .............................. 1,258 3,202 1,818
Preopening and conversion costs .................. 569 340 2,165
Other expenses ................................... 4,087 3,757 1,929
--------- --------- ---------
Total expenses ................................ 748,685 537,182 274,674
--------- --------- ---------
Net income/(loss) ................................... $ 844 $ (2,672) $ (5,430)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-31
<PAGE> 85
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1995 ........... $ (773)
Distributions declared ................. (200)
Net loss ............................... (5,430)
-------
Balance at December 31, 1996 ........... (6,403)
Net loss ............................... (2,672)
-------
Balance at December 31, 1997 ........... (9,075)
Net income ............................. 844
-------
Balance at December 31, 1998 ........... $(8,231)
=======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-32
<PAGE> 86
DJONT OPERATIONS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $ 844 $ (2,672) $ (5,430)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Changes in assets and liabilities:
Accounts receivable ........................................ (7,287) (11,574) (5,571)
Inventories ................................................ (915) (1,361) (1,573)
Prepaid expenses ........................................... 836 (1,052) 33
Other assets ............................................... 950 (1,768) (1,898)
Due to FelCor Lodging Trust Incorporated ................... (2,033) 13,382 3,130
Accounts payable, accrued expenses and other liabilities ... 10,459 25,521 11,372
-------- -------- --------
Net cash flow provided by operating activities ...... 2,854 20,476 63
-------- -------- --------
Cash flows from financing activities:
Distributions paid ............................................. (200)
-------- -------- --------
Net cash flow used in financing activities .......... (200)
-------- -------- --------
Net change in cash and cash equivalents ............................ 2,854 20,476 (137)
Cash and cash equivalents at beginning of years .................... 25,684 5,208 5,345
-------- -------- --------
Cash and cash equivalents at end of years .......................... $ 28,538 $ 25,684 $ 5,208
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-33
<PAGE> 87
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Thomas J. Corcoran, the President, Chief Executive Officer and a
Director of FelCor Lodging Trust Incorporated ("FelCor") and Hervey A. Feldman,
Chairman Emeritus of FelCor, beneficially own a 50% voting common equity
interest in DJONT Operations LLC, a Delaware limited liability company. The
remaining 50% non-voting common equity interest is beneficially owned by the
children of Charles N. Mathewson, a Director and major initial investor of
FelCor.
Each of the 86 hotels in which FelCor Lodging Limited Partnership (the
"Operating Partnership") had an ownership interest at December 31, 1998 (the
"Hotels"), is leased to DJONT Operations LLC or a consolidated subsidiary
thereof ("DJONT") pursuant to percentage leases ("Percentage Leases"). Certain
entities owning interests in DJONT and the managers of certain hotels have
agreed to make loans to DJONT of up to an aggregate of approximately $17.3
million to the extent necessary to enable DJONT to pay rent and other
obligations due under the respective Percentage Leases relating to a total of
34 of the Hotels. No loans were outstanding under such agreements at December
31, 1998.
Messrs. Feldman and Corcoran have entered into an agreement with
FelCor pursuant to which they have agreed that through April 15, 2005, any
distributions received by them from DJONT (in excess of their tax liabilities
with respect to the income of DJONT) will be utilized to purchase common stock
from FelCor or units of limited partner interest in the Operating Partnership
at then current market prices. The agreement stipulates that Messrs. Feldman
and Corcoran are restricted from selling any stock or units so acquired for a
period of two years from the date of purchase. RGC Leasing, Inc., which owns
the other 50% common equity interest in DJONT, may elect to purchase common
stock of FelCor or Operating Partnership units upon similar terms, at its
option. The independent directors of FelCor may suspend or terminate such
agreement at any time.
Fifty-seven of the Hotels are operated as Embassy Suites(R) hotels, 17
are operated as Doubletree(R) or Doubletree Guest Suites(R) hotels, nine are
operated as Sheraton(R) or Sheraton Suites(R) hotels one is operated as a
Westin(R) hotel, one is operated as a Hilton Suites(R) hotel and one is in the
process of conversion to a Doubletree hotel. Seventy-three of the Hotels are
managed by subsidiaries of Promus Hotel Corporation ("Promus"). Promus is the
largest operator of all-suite, full-service hotels in the United States. Of the
remaining Hotels, 10 are managed by subsidiaries of Starwood Hotels and Resorts
Worldwide, Inc. ("Starwood") and three are managed by independent management
companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principals requires management to
make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Fair Value of Financial Instruments -- Statement of Financial
Accounting Standards 107 requires all entities to disclose the fair value of
certain financial instruments in their financial statements. Accordingly, DJONT
reports the carrying amount of cash and cash equivalents, accounts receivable,
accounts payable, amounts due to lessor and accrued expenses at cost which
approximates fair value due to the short maturity of these instruments.
Cash Equivalents -- All highly liquid investments with a maturity of
three months or less when purchased are considered to be cash equivalents.
Inventories -- Inventories are stated at the lower of cost or market.
F-34
<PAGE> 88
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Revenue Recognition -- Revenue is recognized as earned. Ongoing credit
evaluations are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is estimated to be
uncollectible. Such losses have been within management's expectations.
Income Taxes -- DJONT is a limited liability company which is taxed
for federal income taxes purposes as a limited partnership and, accordingly,
all taxable income or loss flows through to the shareholders.
3. ACCUMULATED DEFICIT
In 1998 DJONT had net income of $844,000, however, because of losses
in recent years had an accumulated deficit of approximately $8.2 million. A
significant portion of such losses are attributable to the one-time costs of
converting the Crown Sterling Suites(R) hotels to Embassy Suites and Doubletree
Guest Suites, and operations of these hotels during periods of substantial
renovation. Such renovations were required under the terms of the related
franchise agreements. In accordance with the terms of the Percentage Leases,
DJONT is required to pay the full required lease payment. Although a portion of
the suites are not available for guests to rent, management believes, and
operating data indicates, that overall the performances of the hotels is
adversely impacted as evidenced by improved operating performances immediately
following completion of renovations. Management is exploring several options to
anticipate negative operating cash flow during renovations, including potential
changes to the terms of leases for future renovations which might mitigate
losses for DJONT during such renovation periods.
At December 31, 1998 DJONT had paid all amounts then due to FelCor
under the Percentage Leases. It is anticipated that a substantial portion of
any future profits of DJONT will be retained until a positive shareholders'
equity is restored. Management anticipates that future earnings will be
sufficient to enable DJONT to continue to make necessary payments when due.
Management deems DJONT to be a viable going concern and, as such, no
adjustments are required to the accompanying financial statements.
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS
DJONT has future lease commitments under the Percentage Leases which
expire in 2002 (6 hotels), 2004 (7 hotels), 2005 (12 hotels), 2006 (18
hotels),2007 (23 hotels), 2008 (12 hotels), and thereafter (8 hotels). Minimum
future rental payments are computed based on the base rent as defined under the
noncancellable operating leases and are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1999 ......................... $ 166,418
2000 ......................... 166,506
2001 ......................... 169,597
2002 ......................... 169,597
2003 ......................... 155,562
2004 and thereafter .......... 584,174
----------
$1,411,854
==========
</TABLE>
F-35
<PAGE> 89
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
The Percentage Lease expense is based on a percentage of room and
suite revenues, food and beverage revenues and food and beverage rents of the
Hotels. Both the base rent and the threshold room and suite revenue in each
lease computation is subject to adjustments in the Consumer Price Index
("CPI"). The adjustment is calculated at the beginning of each calendar year
for the hotels acquired prior to July of the previous year. The adjustment in
any lease year may not exceed 7%. The CPI adjustments made in January 1999,
1998, 1997 and 1996 are 0.55% 0.50%, 1.42% and 0.73%, respectively.
Other than real estate and personal property taxes, casualty
insurance, capital improvements and maintenance of underground utilities and
structural elements, which are obligations of the Operating Partnership, the
Percentage Leases require DJONT to pay rent, liability insurance premiums, all
costs, expenses, utilities and other charges incurred in the operation of the
leased hotels.
DJONT is also obligated to indemnify and hold harmless the Operating
Partnership from and against all liabilities, costs and expenses incurred by or
asserted against the Operating Partnership in the normal course of operating
the Hotels.
DJONT is not permitted to sublet all or any substantial part of the
Hotels or assign its interest under any of the Percentage Leases without the
prior written consent of the Operating Partnership.
DJONT has agreed that during the term of the Percentage Leases it will
maintain a ratio of total debt to consolidated net worth (as defined in the
Percentage Leases) of less than or equal to 50%, exclusive of capital leases.
In addition, the Lessee has agreed that it will not pay fees to any affiliate
of the Lessee.
DJONT typically pays a franchise fee ranging from 4% to 5% of suite
revenue, and marketing and reservation fees ranging from 1% to 3.5% of room and
suite revenue. In the cases where there is not a separate franchise agreement,
the right to use the brand name is included in the management agreement. Base
management fees typically range from 2% to 3% of applicable hotel revenues.
Incentive management fees are based upon the hotel's net income before overhead
and typically range from 50% to 100% subject to a maximum annual payment of
between 2% and 3% of total revenues. In many cases managers and franchisors
have agreed to subordinate all or a portion of their fees at a specific hotel
or group of hotels either for a set period of time, or until the hotel or group
of hotels provides a predetermined return to the Lessee, or both.
In the event FelCor enters into an agreement to sell or otherwise
transfer a leased hotel, FelCor has the right to terminate the Percentage Lease
with respect to such leased hotel upon 90 days' prior written notice upon
either (1) paying DJONT the fair market value of DJONT's leasehold interest in
the remaining term of the Percentage Lease to be terminated or (2) offering to
lease to DJONT a substitute hotel on terms that would create a leasehold
interest in such hotel with a fair market value equal to or exceeding the fair
market value of DJONT's remaining leasehold interest under the Percentage Lease
to be terminated. FelCor also is obligated to pay or reimburse DJONT for any
assignment fees, termination fees or other liabilities arising under any
franchise license agreement and restaurant sublease agreements.
DJONT shares the executive offices and certain employees with FelCor
and FelCor, Inc., and each company bears its share of the costs thereof,
including an allocated portion of the rent, compensation of certain personnel,
office supplies, telephones and depreciation of office furniture, fixtures and
equipment. Such allocation
F-36
<PAGE> 90
DJONT OPERATIONS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED)
of shared expenses approved by a majority of FelCor's independent directors.
During 1998, 1997 and 1996, DJONT paid approximately $1.6 million
(approximately 37%), $2.1 million (approximately 61%), and $1.3 million
(approximately 61%), respectively, of the allocable expenses under this
agreement.
F-37
<PAGE> 91
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
2.1 - Agreement and Plan of Merger by and between the
Registrant and Bristol Hotel Company ("Bristol")
dated as of March 23, 1998 (filed as Exhibit 2.1 to
the Registrant's Form 8-K dated April 23, 1998, and
incorporated herein by reference).
3.1* - Articles of Amendment and Restatement dated June 22,
1995, amending and restating the Charter of the
Registrant, as amended or supplemented by Articles of
Merger dated June 23, 1995, Articles Supplementary
dated April 30, 1996, Articles of Amendment dated
August 8, 1996, Articles of Amendment dated June 16,
1997, Articles of Amendment dated October 30, 1997,
Articles Supplementary dated May 6, 1998, Articles of
Merger and Articles of Amendment dated July 27, 1998,
and Certificate of Correction dated March __, 1999.
3.2 - Bylaws of the Registrant, as amended (filed as
Exhibit 3.2 to the Registrant's Registration
Statement on Form S-11 (File No. 333-98332) and
incorporated herein by reference).
4.1 - Form of Share Certificate for Common Stock (filed
as Exhibit 4.1 to the Registrant's Form 10-Q for the
quarter ended June 30, 1996, and incorporated herein
by reference).
4.2 - Form of Share Certificate for $1.95 Series A
Cumulative Convertible Preferred Stock (filed as
Exhibit 4.4 to the Registrant's Form 8-K dated May 1,
1996, and incorporated herein by reference).
4.3 - Form of Share Certificate for 9% Series B
Cumulative Redeemable Preferred Stock (filed as
Exhibit 4.5 to the Registrant's Form 8-K dated May
29, 1998, and incorporated herein by reference).
4.4 - Deposit Agreement dated April 30, 1998, between the
Registrant and SunTrust Bank, Atlanta, as preferred
share depositary (filed as Exhibit 4.6 to the
Registrant's Form 8-K dated May 29, 1998, and
incorporated herein by reference).
4.5 - Form of Depositary Receipt evidencing the
Depositary Shares (filed as Exhibit 4.7 to the
Registrant's Form 8-K dated May 29, 1998, and
incorporated herein by reference).
4.6 - Indenture dated as of April 22, 1996 by and between
the Registrant and Sun Trust Bank, Atlanta, Georgia,
as Trustee (filed as Exhibit 4.2 to the Registrant's
Form 8-K dated May 1, 1996 and incorporated herein by
reference).
4.7 - Indenture dated as of October 1, 1997 by and among
FelCor Lodging Limited Partnership, formerly FelCor
Suites Limited Partnership (the "Partnership"), the
Registrant, the Subsidiary Guarantors named therein
and SunTrust Bank, Atlanta, Georgia, as Trustee
(filed as Exhibit 4.1 to the Registration Statement
on Form S-4 (file No. 333-39595) and the other
co-registrants named therein and incorporated herein
by reference).
4.7.1 - First Amendment to Indenture dated as of February
5, 1998 by and among Registrant, the Partnership, the
Subsidiary Guarantors named therein and SunTrust
Bank, Atlanta, Georgia, as Trustee (filed as Exhibit
4.2 to the Registrant's Registration Statement on
Form S-4 (File No. 333-39595) and incorporated herein
by reference).
4.7.2* - Second Amendment to Indenture and First
Supplemental Indenture dated as of December 30, 1998,
by and among Registrant, the Partnership, the
Subsidiary Guarantors named therein and SunTrust
Bank, Atlanta, Georgia, as Trustee.
</TABLE>
<PAGE> 92
<TABLE>
<S> <C>
10.1 - Amended and Restated Agreement of Limited
Partnership of the Partnership (filed as Exhibit 10.1
to the Registrant's Annual Report on Form 10-K/A
Amendment No. 1 for the fiscal year ended December
31, 1994 (the "1994 10-K/A") and incorporated herein
by reference).
10.1.1 - First Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
November 17, 1995 by and among the Registrant, Promus
Hotels, Inc. and all of the persons or entities who
are or shall in the future become of the limited
partners of the Partnership (filed as Exhibit 10.1.1
to the Registrant's Annual Report on Form 10-K, as
amended, for the fiscal year ended December 31, 1995
(the "1995 10-K") and incorporated herein by
reference).
10.1.2 - Second Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
January 9, 1996 between the Registrant and all of the
persons or entities who are or shall in the future
become limited partners of the Partnership (filed as
Exhibit 10.1.2 to the 1995 10-K and incorporated
herein by reference).
10.1.3 - Third Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
January 10, 1996 by and among the Registrant,
MarRay-LexGreen, Inc. and all of the persons and
entities who are or shall in the future become
limited partners of the Partnership (filed as Exhibit
10.1.3 to the 1995 10-K and incorporated herein by
reference).
10.1.4 - Fourth Amendment to the Amended and Restated
Agreement of Limited Partnership of the Partnership
dated as of January 10, 1996 by and among the
Registrant, Piscataway-Centennial Associates Limited
Partnership and all of the persons or entities who
are or shall in the future become limited partners of
the Partnership (filed as Exhibit 10.1.4 to the 1995
10-K and incorporated herein by reference).
10.1.5 - Fifth Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
May 2, 1996, between the Registrant and all of the
persons or entities who are or shall in the future
become limited partners of the Partnership, adopting
Addendum No. 2 to Amended and Restated Agreement of
Limited Partnership of the Partnership dated as of
May 2, 1996 (filed as Exhibit 10.1.5 to the Form 10-Q
for the quarter ended June 30, 1996, and incorporated
herein by reference).
10.1.6 - Sixth Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
September 16, 1996, by and among the Registrant, John
B. Urbahns, II and all of the persons or entities who
are or shall in the future become limited partners of
the Partnership (filed as Exhibit 10.1.6 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, and incorporated
herein by reference).
10.1.7 - Seventh Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
May 16, 1997, by and among the Registrant, PMB
Associates, Ltd. and all of the persons or entities
who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.7
to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997, and
incorporated herein by reference).
10.1.8 - Eighth Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
February 6, 1998, by and among the Registrant,
Columbus/Front Ltd. and all of the persons or
entities who are or shall in the future become
limited partners of the Partnership (filed as Exhibit
10.1.8 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, and
incorporated herein by reference).
</TABLE>
<PAGE> 93
<TABLE>
<S> <C>
10.1.9 - Ninth Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
May 1, 1998, between the Registrant and all of the
persons or entities who are or shall in the future
become limited partners of the Partnership, adopting
Addendum No. 3 to Amended and Restated Agreement of
Limited Partnership dated as of May 1, 1998 (filed as
Exhibit 10.1.9 to the Registrant's Form 8-K dated May
29, 1998, and incorporated herein by reference).
10.1.10 - Tenth Amendment to Amended and Restated Agreement of
Limited Partnership of the Partnership dated as of
June 22, 1998, by and among the Registrant, Schenley
Hotel Associates, and all of the persons or entities
who are or shall in the future become limited
partners of the Partnership (filed as Exhibit 10.1.10
to the Registrant's Form 10-Q for the quarter ended
October 30, 1998, and incorporated herein by
reference).
10.1.11 - Eleventh Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
July 28, 1998, between the Registrant and all of the
persons or entities who are or shall in the future
become limited partners of the Partnership, changing
the name of the Partnership to "FelCor Lodging
Limited Partnership" (filed as Exhibit 10.1.11 to the
Registrant's Form 10-Q for the quarter ended October
30, 1998, and incorporated herein by reference).
10.1.12* - Twelfth Amendment to Amended and Restated Agreement
of Limited Partnership of the Partnership dated as of
December 29, 1998, between the Registrant and all of
the persons or entities who are or shall in the
future become limited partners of the Partnership,
amending certain provisions of the Partnership
Agreement.
10.1.13* - Thirteenth Amendment to Amended and Restated
Agreement of Limited Partnership of the Partnership
dated as of December 31, 1998, by and between the
Registrant, FelCor Nevada Holdings, L.L.C. and all of
the persons or entities who are or shall in the
future become limited partners of the Partnership.
10.1.14* - Fourteenth Amendment to Amended and Restated
Agreement of Limited Partnership of the Partnership
dated as of March 1, 1999, by and among the
Registrant, Huie Properties, Ltd., and all of the
persons or entities who are or shall in the future
become limited partners of the Partnership.
10.2 - Form of Lease Agreement between the Partnership as
Lessor and DJONT Operations, L.L.C. or its
subsidiaries ("DJONT") as Lessee (filed as Exhibit
10.2.1 to the 1995 10-K and incorporated herein by
reference).
10.2.1 - Omnibus Lease Amendment Agreement dated as of June
30, 1998 among the Registrant, the Partnership and
DJONT to clarify the meaning of Article III of the
lease as represented by the actual course of dealing
between lessors and lessees under such leases (filed
as Exhibit 10.19 to the Registrant's Form 10-Q for
the quarter ended June 30, 1998, and incorporated
herein by reference).
10.3* - Form of Lease Agreement between the Partnership as
Lessor and a subsidiary of Bristol Hotels & Resorts
("BHR") as Lessee (the "Bristol Lease Agreement").
10.3.1 - Amended and Restated Master Hotel Agreement dated
as of July 27, 1998 among the Registrant, the
Partnership, BHR and the lessors and lessees named
therein (filed as Exhibit 10.17 to the Registrant's
Form 8-K dated August 10, 1998, and incorporated
herein by reference).
10.4 - Employment Agreement dated as of July 28, 1994
between the Registrant and Hervey A. Feldman (filed
as Exhibit 10.7 to the 1994 10-K/A and incorporated
herein by reference).
10.5 - Employment Agreement dated as of July 28, 1994
between the Registrant and Thomas J. Corcoran, Jr.
(filed as Exhibit 10.8 to the 1994 10-K/A and
incorporated herein by reference).
10.6 - Restricted Stock and Stock Option Plan of the
Registrant (filed as Exhibit 10.9 to the 1994 10-K/A
and incorporated herein by reference).
</TABLE>
<PAGE> 94
<TABLE>
<S> <C>
10.7 - Savings and Investment Plan of the Registrant
(filed as Exhibit 10.10 to the 1994 10-K/A and
incorporated herein by reference).
10.8 - 1995 Restricted Stock and Stock Option Plan of the
Registrant (filed as Exhibit 10.9.2 to the 1995 10-K
and incorporated herein by reference).
10.9 - Non-Qualified Deferred Compensation Plan (filed as
Exhibit 4 to the Registrant's Registration Statement
on Form S-8 (File No. 333-69869) and incorporated
herein by reference).
10.10 - 1998 Restricted Stock and Stock Option Plan (filed
as Exhibit 4.2 to the Registrant's Registration
Statement on Form S-8 (File No. 333-66041) and
incorporated herein by reference).
10.11 - Second Amended and Restated 1995 Equity Incentive
Plan (filed as Exhibit 99.1 to the Registrant's
Post-Effective Amendment on Form S-3 to Form S-4
Registration Statement (File No. 333-50509) and
incorporated herein by reference).
10.12 - Amended and Restated Stock Option Plan for
Non-Employee Directors (filed as Exhibit 99.2 to the
Registrant's Post-Effective Amendment on Form S-3 to
Form S-4 Registration Statement (File No. 333-50509)
and incorporated herein by reference).
10.13* - Form of Severance Agreement for executive officers
and certain key employees of the Registrant.
10.14 - Agreement dated as of April 15, 1995 among the
Registrant, the Partnership, FelCor, Inc., Thomas J.
Corcoran, Jr. and Hervey A. Feldman relating to
purchase of securities (filed as Exhibit 10.15 to the
Registration Statement on Form S-11 (File No.
33-91870) and incorporated herein by reference).
10.15 - Credit Agreement dated as of February 6, 1996 by
and among the Partnership, as borrower, Holdings and
the Registrant, as guarantors, and Canadian Imperial
Bank of Commerce, as agent (filed as Exhibit 10.30 to
the Registrant's Form 8-K dated May 1, 1996, and
incorporated herein by reference).
10.16 - Voting and Cooperation Agreement dated as of March
23, 1998 among Registrant, Bristol, Bass America
Inc., Holiday Corporation and United/Harvey Holdings,
L.P. (filed as Exhibit 99.7 to the Registrant's
Registration Statement on Form S-4 (File No.
333-50509) and incorporated herein by reference).
10.17 - Spin-Off Agreement dated as of March 23, 1998 among
Bristol, Bristol Hotel Management Corporation and
Bristol Hotel and Resorts, Inc., as agreed to by
Registrant (filed as Exhibit 99.8 to the Registrant's
Registration Statement on Form S-4 (File No.
333-50509) and incorporated herein by reference).
10.18 - Stockholders' and Registration Rights Agreement
dated as of July 27, 1998 by and among Registrant,
Bass America, Inc., Holiday Corporation, Bass plc,
United/Harvey Investors I, L.P., United/Harvey
Investors II, L.P., United/Harvey Investors III,
L.P., United/Harvey Investors IV, L.P., and
United/Harvey Investors V, L.P. (filed as Exhibit
10.18 to the Registrant's Form 8-K dated August 10,
1998, and incorporated herein by reference).
10.19 - Fourth Amended and Restated Revolving Credit
Agreement dated as of July 1, 1998 among Registrant
and the Partnership, as Borrower, the Lenders party
thereto, The Chase Manhattan Bank, as Administrative
Agent, Chase Securities, Inc. as Arranger, and
Bankers Trust Company, NationsBank, N.A. and Wells
Fargo Bank, National Association as Co-Arrangers and
Documentation Agents (filed as Exhibit 10.14 to the
Registrant's Form 8-K dated August 10, 1998 and
incorporated herein by reference).
</TABLE>
<PAGE> 95
<TABLE>
<S> <C>
10.20 - Loan Agreement dated as of October 10, 1997 among
Bristol Lodging Company, Bristol Lodging Holding
Company, Nomura Asset Capital Corporation as
administrative agent and collateral agent for Lenders
and Bankers Trust Company as co-agent for Lenders
(filed as Exhibit 10.10 to the Bristol Hotel Company
Annual report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by
reference).
21.1* - List of Subsidiaries of the Registrant.
23.1* - Consent of PricewaterhouseCoopers LLP
27* - Financial Data Schedule.
</TABLE>
- ---------------------
* Filed herewith.
<PAGE> 1
EXHIBIT 3.1
STATE OF MARYLAND 370884
DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: JUNE 22, 1995
THIS IS TO ADVISE YOU THAT THE ARTICLES OF AMENDMENT AND RESTATEMENT FOR
FELCOR SUITE HOTELS, INC. WERE RECEIVED AND APPROVED FOR RECORD ON JUNE 22,
1995 AT 11:22 AM.
FEE PAID: 50.00
[SEAL]
HARRY J. NOONAN
CHARTER SPECIALIST
<PAGE> 2
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
FELCOR SUITE HOTELS, INC.
Felcor Suite Hotels, Inc., a Maryland corporation (the "Corporation"),
certifies as follows:
FIRST: The Corporation desires to amend and restate its Charter as
currently in effect, and, upon acceptance for record of these Articles of
Amendment and Restatement by the State Department of Assessments and Taxation
of the State of Maryland, the provisions set forth in these Articles of
Amendment and Restatement will be all of the provisions of the Charter of the
Corporation as currently in effect.
SECOND: The Charter of the Corporation is hereby amended and restated in
its entirety to read as set forth in Exhibit A attached hereto.
THIRD: The amendment and restatement of the charter of the Corporation
set forth in these Articles of Amendment and Restatement was advised by the
Board of Directors of the Corporation and was approved by the sole stockholder
of the Corporation.
FOURTH: The current address of the principal office of the Corporation
is 11 East Chase Street, Baltimore, Maryland 21202.
FIFTH: The name and address of the current resident agent of the
Corporation is CSC-Lawyers Incorporating Service Company, 11 East Chase Street,
Baltimore, Maryland 21202.
SIXTH: The current number of directors of the Corporation is one (1),
which number may be increased or decreased from time to
<PAGE> 3
time pursuant to the Charter and the Bylaws of the Corporation. The name of the
current sole director of the Corporation is Thomas J. Corcoran, Jr.
SEVENTH: The amendment set forth in these Articles of Amendment and
Restatement does not increase the authorized capital stock of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
and Restatement to be executed in its name and on its behalf as of the 22nd day
of June 1995, by its President, who acknowledges that these Articles of
Amendment and Restatement are the act of the Corporation and certifies that, to
the best of his knowledge, information and belief and under penalties for
perjury, all matters and facts contained in these Articles of Amendment and
Restatement are true in all material respects.
ATTEST: FELCOR SUITE HOTELS, INC.
/s/ NICHOLAS R. PETERSON By: /s/ THOMAS J. CORCORAN, JR. [SEAL]
------------------------ ---------------------------
Nicholas R. Peterson Thomas J. Corcoran, Jr.
Assistant Secretary President
- 2 -
<PAGE> 4
EXHIBIT A
ARTICLE I.
I, David A. Gibbons, whose post office address is 10 Light Street,
Baltimore, Maryland 21202, being at least 18 years of age, hereby form a
corporation under the Maryland General Corporation Law.
ARTICLE II.
NAME
The name of the Corporation is:
FelCor Suite Hotels, Inc.
ARTICLE III.
NATURE OF BUSINESS OR PURPOSES
The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the Maryland General Corporation Law.
In addition to the powers and privileges conferred upon the
Corporation by law and those incidental thereto, the Corporation shall possess
and may exercise all the powers and privileges which are necessary or
convenient to the conduct, promotion or attainment of the business or purposes
of the Corporation.
Without limiting the generality of the foregoing purpose, at such time
or times as the Board of Directors determines that it is in the interest of the
Corporation and its stockholders that the Corporation engage in the business
of, and conduct its business and affairs so as to qualify as, a real estate
investment trust (as that phrase is defined in the Internal Revenue Code of
1986, as amended (the "Code")), the purpose of the Corporation shall include
engaging in the business of a real estate investment trust ("REIT"). This
reference to such purpose shall not make unlawful or unauthorized any otherwise
lawful act or activity that the Corporation may take that is inconsistent with
such purpose.
ARTICLE IV.
PRINCIPAL OFFICE AND RESIDENT AGENT
The address of the Corporation's principal office in the State
of Maryland is 11 East Chase Street, Baltimore, Maryland 21202. The name and
address of its resident agent is CSC-Lawyers Incorporating Service Company, 11
East Chase Street, Baltimore, Maryland 21202.
<PAGE> 5
ARTICLE V.
CAPITAL STOCK
A. Authorized Shares. The total number of shares of capital
stock that the Corporation shall have authority to issue is Sixty Million
(60,000,000) shares, consisting of Fifty Million (50,000,000) shares of Common
Stock, of the par value of One Cent ($0.01) each, and Ten Million (10,000,000)
shares of Preferred Stock, of the par value of One Cent ($0.01) each, amounting
in aggregate par value of $600,000.
B. The following is a description of each class of the capital
stock that the Corporation shall have authority to issue, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption thereof to the extent applicable thereto:
Common Stock.
(1) Dividend Rights. Subject to the rights of any series
of Preferred Stock created pursuant to the further provisions of this Section B
of this Article and subject to the terms of Article V hereto, the holders of
shares of Common Stock shall be entitled to receive such dividends as may be
declared thereon by the Board of Directors out of funds legally available
therefor.
(2) Voting Rights. Subject to the rights of the holders
of any series of Preferred Stock created pursuant to the further provisions of
this Section B of this Article, the holders of shares of the Common Stock shall
possess all of the voting power of the capital stock of the Corporation and
shall have the exclusive right to vote upon, authorize and approve any and all
matters which may properly come before the stockholders of the Corporation.
Each holder of shares of Common Stock shall be entitled to one vote for each
share of Common Stock held by such stockholder.
(3) Rights Upon Liquidation. Subject to the rights of
any series of Preferred Stock created pursuant to the further provisions of
this Section B of this Article and subject to the terms of Article V hereto, in
the event of any voluntary or involuntary liquidation, dissolution or winding
up of, or any distribution of the assets of, the Corporation, each holder of
shares of Common Stock shall be entitled to receive, ratably with each other
holder of shares of Common Stock, that portion of the assets of the Corporation
available for distribution to the holders of its Common Stock.
Preferred Stock.
Subject to the provisions of sections D. and E. of this
Article V, the Board of Directors of the Corporation is hereby authorized and
empowered to classify or reclassify, in one or more series, any of the unissued
shares of the Preferred Stock of the Corporation by establishing the number of
shares of such series and by setting, changing or eliminating any of the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, or terms and condition of
redemption of such shares, all of which shall be set forth in articles
supplementary to this Charter executed, acknowledged, filed and
-2-
<PAGE> 6
recorded in the manner required by the Maryland General Corporation Law
("Articles Supplementary"), and as may be permitted by the Maryland General
Corporation Law.
C. Issuance of Stock. The Board of Directors is hereby
authorized and empowered to authorize the issuance by the Corporation from time
to time of shares of any class of capital stock of the Corporation, whether now
or hereafter authorized, or securities convertible into shares of capital stock
of any class or classes, whether now or hereafter authorized, for such
consideration and on such terms and conditions as may be deemed advisable by
the Board of Directors and without any action by the stockholders.
D. Restrictions on Transfer; Designation of Shares-in-Trust.
(1) Definitions. For purposes of this Section D, the
following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Equity
Stock by a Person who would be treated as an owner of such shares of Equity
Stock either directly or indirectly through the application of Section 544 of
the Code, as modified by Section 856(h)(1)(B) of the Code. The terms
"Beneficial Owner," "Beneficially Owns" and "Beneficially Owned" shall have
correlative meanings.
"Beneficiary" shall mean, with respect to any Trust,
one or more organizations described in each of Section 170(b)(1)(A) and Section
170(c) of the Code which are named by the Corporation as the beneficiary or
beneficiaries of such Trust, in accordance with the provisions of subsection
E.(1) of this Article V.
"Board of Directors" shall mean the Board of
Directors of the Corporation.
"Bylaws" shall mean the Bylaws of the Corporation, as
amended.
"Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
"Constructive Ownership" shall mean ownership of
Equity Stock by a Person who would be treated as an owner of such shares of
Equity Stock either directly or indirectly through the application of Section
318 of the Code, as modified by Section 856(d)(5) of the Code. The terms
"Constructive Owner," "Constructively Owns" and "Constructively Owned" shall
have correlative meanings.
"Equity Stock" shall mean authorized capital stock of
the Corporation that is either Preferred Stock or Common Stock and shall
include all shares of Preferred Stock or Common Stock that are held as
Shares-in-Trust in accordance with the provisions of section E. of this Article
V.
"Market Price" shall mean, on any date and with
respect to any Equity Stock, the average of the Closing Price for the five
consecutive Trading Days ending on such
-3-
<PAGE> 7
date. The "Closing Price" shall mean, on any date and with respect to any
Equity Stock, the last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular
way, of such Equity Stock, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if such Equity Stock is
not listed or admitted to trading on the New York Stock Exchange, as reported
in the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which such
Equity Stock is listed or admitted to trading or, if such Equity Stock is not
listed or admitted to trading on any national securities exchange, the last
quoted price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotations system that may then be
in use or, if such Equity Stock is not quoted by any such organization, the
average of the closing bid and asked prices of such Equity Stock as furnished
by a professional market maker, selected by the Board of Directors of the
Company, then making a market in such Equity Stock. "Trading Day" shall mean a
day on which the principal national securities exchange on which such Equity
Stock is listed or admitted to trading is open for the transaction of business
or, if such Equity Stock is not listed or admitted to trading on any national
securities exchange, shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"Merger" shall mean the merger of FelCor Suite
Hotels, Inc., a Delaware corporation, with and into the Corporation.
"Ownership Limit" shall mean, with respect to each
class of Equity Stock of the Corporation outstanding as of any particular time,
9.9% of the total number of such shares of such class of Equity Stock
outstanding as of such time.
"Non-Transfer Event" shall mean an event other than a
purported Transfer that would cause any Person to Beneficially Own or
Constructively Own shares of Equity Stock in excess of the Ownership Limit,
including, but not limited to, the granting of any option or entering into any
agreement for the sale, transfer or other disposition of Equity Stock or the
sale, transfer, assignment or other disposition of any securities or rights
convertible into or exchangeable for Equity Stock.
"Permitted Transferee" shall mean any Person
designated as a Permitted Transferee in accordance with the provisions of
subsection E.(5) of this Article V.
"Person" shall mean an individual, corporation,
partnership, limited liability company, estate, trust, association, joint stock
company, government or agency or subdivision thereof, charitable organization,
or other entity and also includes a group as that term is used for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
-4-
<PAGE> 8
"Prohibited Owner" shall mean, with respect to any
purported Transfer or Non-Transfer Event, any Person who, but for the
provisions of subsection D.(3) of this Article V, would own record title to
shares of Equity Stock.
"REIT" shall mean a Real Estate Investment Trust
under Section 856 of the Code.
"Restriction Termination Date" shall mean the first
day after the date of the Merger on which the Board of Directors and the
stockholders of the Corporation determine, in accordance with the provisions of
Article VII hereof, that it is no longer in the best interests of the
Corporation to attempt to, or continue to, qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift,
assignment, devise or other disposition of Equity Stock, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether by
operation of law or otherwise.
"Trust" shall mean any separate trust created
pursuant to subsection D.(3) of this Article V and administered in accordance
with the terms of section E. of this Article V, for the exclusive benefit of
any Beneficiary.
"Trustee" shall mean any person or entity
unaffiliated with both the Corporation and any Prohibited Owner, such Trustee
to be designated by the Corporation to act as trustee of any Trust, or any
successor trustee thereof.
(2) Restriction on Transfers.
(a) Except as provided in subsection D.(9) of
this Article V, from the date of the Merger and prior to the
Restriction Termination Date, no Person shall Beneficially Own or
Constructively Own shares of the outstanding Equity Stock in excess of
the Ownership Limit.
(b) Except as provided in subsection D.(9) of
this Article V, from the date of the Merger and prior to the
Restriction Termination date, any Transfer that, if effective, would
result in any Person Beneficially Owning or Constructively Owning
Equity Stock in excess of the Ownership Limit shall be void ab initio
as to the Transfer of that number of shares of Equity Stock which
would be otherwise Beneficially Owned or Constructively Owned by such
Person in excess of the Ownership Limit; and the intended transferee
shall acquire no rights in such excess shares of Equity Stock.
(c) Notwithstanding any other provision herein,
from the date of the Merger and prior to the Restriction Termination
Date, any Transfer that, if effective, would result in the Equity
Stock being directly or indirectly owned by fewer than 100 Persons
(determined without reference to any rules of attribution) shall be
void ab initio in its entirety; and the intended transferee shall
acquire no rights in such shares of Equity Stock.
-5-
<PAGE> 9
(d) Notwithstanding any other provision herein,
from the date of the Merger and prior to the Restriction Termination
Date, any Transfer of shares of Equity Stock that, if effective, would
result in the Corporation being "closely held" within the meaning of
Section 856(h) of the Code shall be void ab initio as to the Transfer
of that number of shares of Equity Stock which would cause the
Corporation to be "closely held" within the meaning of Section 856(h)
of the Code; and the intended transferee shall acquire no rights in
such excess shares of Equity Stock.
(e) Notwithstanding any other provision herein,
from the date of the Merger and prior to the Restriction Termination
Date, any Transfer of shares of Equity Stock that, if effective, would
result in the Corporation Constructively Owning 10% or more of the
ownership interests in any tenant or subtenant of the Corporation's
real property (including the real property held by FelCor Suites
Limited Partnership and any other partnership in which the Corporation
owns an interest subsequent to the Merger), within the meaning of
Section 856(d)(2)(B) of the Code, shall be void ab initio as to the
Transfer of that number of shares of Equity Stock in excess of the
number that could have been Transferred without such result; and the
intended transferee shall acquire no rights in such excess shares of
Equity Stock.
(f) Notwithstanding any other provision herein,
from the date of the Merger and prior to the Restriction Termination
Date, any Transfer of shares of Equity Stock that, if effective,
would cause the Corporation to fail to qualify as a REIT shall be void
ab initio as to the Transfer of that number of shares of Equity Stock
in excess of the number that could have been Transferred without such
result; and the intended transferee shall acquire no rights in such
excess shares of Equity Stock.
(3) Transfer in Trust.
(a) If, notwithstanding the other provisions
contained in this Article V, at any time after the date of the Merger
and prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event such that any Person would either
Beneficially Own or Constructively Own Equity Stock in excess of the
Ownership Limit, then, (i) except as otherwise provided in subsection
D.(9) of this Article V, the purported transferee shall acquire no
right or interest (or, in the case of a Non-Transfer Event, the person
holding record title to the Equity Stock Beneficially Owned or
Constructively Owned by such Beneficial Owner or Constructive Owner,
shall cease to own any right or interest) in such number of shares of
Equity Stock which would cause such Beneficial Owner or Constructive
Owner to Beneficially Own or Constructively Own shares of Equity Stock
in excess of the Ownership Limit; and (ii) such number of shares of
Equity Stock in excess of the Ownership Limit (rounded up to the
nearest whole share) shall be designated Shares-in-Trust and, in
accordance with the provisions of section E. of this Article V,
transferred automatically and by operation of law to and held in a
Trust. Such transfer to a Trust and the designation of the shares as
Shares-in-Trust shall be effective as of the close of business on the
business day next preceding the date of the purported Transfer or
Non-Transfer Event, as the case may be.
-6-
<PAGE> 10
(b) If, notwithstanding the other provisions
contained in this Article V, at any time after the date of the Merger
and prior to the Restriction Termination Date, there is a purported
Transfer or Non-Transfer Event that, if effective, would cause the
Corporation either to become "closely held" within the meaning of
Section 856(h) of the Code, to Constructively Own 10% or more of the
ownership interests in any tenant or subtenant of the Corporation's
real property (including the real property held by FelCor Suites
Limited Partnership and any other partnership in which the Corporation
owns an interest subsequent to the Merger) within the meaning of
Section 856(d)(2)(B) of the Code, or otherwise to fail to qualify as a
REIT (other than as a result of a violation of the requirement,
contained in Section 856 (a)(5) of the Code, that a REIT have at
least 100 shareholders), then (i) the purported transferee shall
acquire no right or interest (or, in the case of a Non-Transfer Event,
the person holding record title to the Equity Stock with respect to
which such Non-Transfer Event occurred, shall cease to own any right
or interest) in such number of shares of Equity Stock, the ownership
of which by such purported transferee or record holder would cause the
Corporation either to be "closely held" within the meaning of Section
856(h) of the Code, to violate the 10% limitation of Section
856(d)(2)(B) of the Code or otherwise to fail to qualify as a REIT
(other than as a result of a violation of the 100 shareholder
requirement of Section 865(a)(5) of the Code; and (ii) such number of
shares of Equity Stock (rounded up to the nearest whole share) shall
be designated Shares-in-Trust and, in accordance with the provisions
of section E. of this Article V, transferred automatically and by
operation of law to a Trust to be held therein in accordance with that
section E. Such transfer to a Trust and the designation of shares as
Shares-in-Trust shall be effective as of the close of business on the
business day next preceding the date of the Transfer or Non-Transfer
Event, as the case may be.
(4) Remedies For Breach. If the Corporation or its
designees at any time shall determine in good faith that a Transfer has taken
place in violation of subsection D.(2) of this Article V or that a Person
intends to acquire or has attempted to acquire Beneficial Ownership or
Constructive Ownership of any shares of Equity Stock in violation of subsection
D.(2) of this Article V, the Board of Directors shall be authorized and
empowered to take such action as it deems advisable to refuse to give effect to
or to prevent such Transfer or acquisition, including, but not limited to,
refusing to give effect to such Transfer on the books of the Corporation or
instituting proceedings to enjoin such Transfer or acquisition.
(5) Notice of Restricted Transfer. Any Person who
attempts to acquire or acquires shares of Equity Stock in violation of
subsection D.(2) of this Article V, or any Person who holds record title to any
shares of Equity Stock that were transferred to a Trust pursuant to the
provisions of subsection D.(3) of this Article V, shall immediately give
written notice to the Corporation of such event and shall provide to the
Corporation such other information as the Corporation may request in order to
determine the effect, if any, of such purported Transfer or the Non-Transfer
Event, as the case may be, on the Corporation's status as a REIT.
-7-
<PAGE> 11
(6) Owners Required To Provide Information. From the
date of the Merger and prior to the Restriction Termination Date:
(a) Each person who is a Beneficial Owner or
Constructive Owner of more than 5% (or such lower percentage as may be
required pursuant to the Code or regulations issued under the Code) of
the outstanding Equity Stock of the Corporation shall, no later than
January 30 of each year, give written notice to the Corporation
stating the name and address of such Beneficial Owner or Constructive
Owner, the number of shares of Equity Stock Beneficially Owned or
Constructively Owned, and a description of how such shares are held.
Each such Beneficial Owner or Constructive Owner shall provide to the
Corporation such additional information as the Corporation may request
in order to determine the effect, if any, of such Beneficial Ownership
on the Corporation's status as a REIT and to ensure compliance with
the Ownership Limit.
(b) Each Person who is a Beneficial Owner or
Constructive Owner of Equity Stock and each Person (including a
stockholder of record) who is holding Equity Stock for a Beneficial
Owner or Constructive Owner shall provide to the Corporation, promptly
following any request therefor, such information as the Corporation
may deem necessary in order to determine the Corporation's status as a
REIT and to ensure compliance with the Ownership Limit.
(7) Remedies Not Limited. Nothing contained in this
Article V shall limit the authority of the Board of Directors to take any and
all lawful actions, whether or not specifically set forth herein, as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders by preserving the Corporation's status as a REIT and by ensuring
compliance with the Ownership Limit.
(8) Ambiguity. In the case of an ambiguity in the
application of any of the provisions of sections D. or E., including but not
limited to any definition contained in subsection D.(1), of this Article V, the
Board of Directors shall have the power to finally resolve such ambiguity and
interpret the provisions hereof with respect to any situation, based on the
facts known to it.
(9) Exception. The ownership limitations set forth in
subsections D.(2) and/or D.(3) of this Article V shall not apply to the
acquisition of shares of Equity Stock of the Corporation by an underwriter in a
public offering of those shares or in any transaction involving the issuance of
shares of Equity Stock by the Corporation in which the Board of Directors
determines that the underwriter or other person or party initially acquiring
those shares will timely distribute those shares to or among others so that,
following such distribution, the ownership of those shares will not be in
violation of subsections D.(2) and/or D.(3) of this Article V. The Board of
Directors, in the exercise of its sole and absolute discretion, may exempt from
the operation of subsections D.(2) and/or D.(3) of this Article V certain
specified shares of Equity Stock of the Corporation proposed to be transferred
to, and/or owned by, a person who has provided the Board of Directors with
such evidence, undertakings and assurances as the Board of Directors may
require that such transfer to, and/or ownership by, such person of the
specified shares will not prevent the continued qualification of the
Corporation as a REIT under the Code and the regulations issued under the Code.
The Board
-8-
<PAGE> 12
of Directors may, but shall not be required, to condition the grant of any such
exemption upon the obtaining of an opinion of counsel, a ruling from the
Internal Revenue Service or such other assurances as the Board of Directors
shall deem to be satisfactory.
(10) Legend. Each certificate for Equity Stock, in
addition to any other legend that may be placed thereon, shall bear the
following legend:
"The shares of Equity Stock represented by this certificate
are subject to restrictions on transfer for the purpose of maintaining
the Corporation's status as a real estate investment trust under the
Internal Revenue Code of 1986, as amended (the "Code"). No Person may
at any time (1) Beneficially Own or Constructively Own shares of any
class of Equity Stock in excess of 9.9% (or such other percentage as
may be determined by the Board of Directors of the Corporation) of the
total number of shares of such class of Equity Stock outstanding as of
such time; (2) Beneficially Own Equity Stock which would result in the
Corporation being "closely held" under Section 856(h) of the Code; or
(3) Constructively Own Equity Stock which would result in the
Corporation Constructively Owning 10% or more of the ownership
interests in any tenant or subtenant of the Corporation's real
property (including the real property held by FelCor Suites Limited
Partnership and any other partnership in which the Corporation owns an
interest), within the meaning of Section 856(d)(2)(B) of the Code.
Any Person who attempts to Beneficially Own or Constructively Own
shares of Equity Stock in excess of the above limitations must
immediately notify the Corporation in writing. If the restrictions
above are violated, the shares of Equity Stock represented hereby will
be transferred automatically and by operation of law to a Trust and
shall be designated Shares-in-Trust. All capitalized terms in this
legend have the meanings assigned to them in the Corporation's
Charter, as the same may be further amended from time to time. The
shares of Equity Stock represented by this certificate are subject to
all of the provisions of the Charter and Bylaws of the Corporation,
each as amended from time to time, to all of which the holder, by
acceptance hereof, assents.
The Corporation will furnish to any stockholder, upon request
and without charge, a copy of its Charter and Bylaws, and all
amendments thereto, setting forth the restrictions on transfer and a
statement of (i) the designations and any preferences, conversion and
other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of
the stock of each class which the Corporation is authorized to issue,
(ii) the differences in the relative rights and preferences between
the shares of each series of each class of the stock which the
Corporation is authorized to issue to the extent they have been set by
the Board of Directors and (iii) the authority of the Board of
Directors to set the relative rights and preferences of subsequent
series of stock of the Corporation."
(11) Severability. If any provision of this Article V or
any application of any such provision is determined to be invalid by any
Federal or state court having jurisdiction over the issues, the validity of the
remaining provisions shall not be affected and other applications
-9-
<PAGE> 13
of such provision shall be affected only to the extent necessary to comply with
the determination of such court.
E. Shares-in-Trust.
(1) Trust. Any shares of Equity Stock transferred to a
Trust and designated Shares-in-Trust pursuant to subsection D.(3) of this
Article V shall be held by the Trustee for the exclusive benefit of the
Beneficiary. The Corporation shall name a beneficiary or beneficiaries of each
Trust within five (5) business days after receipt of written notice of the
existence thereof. Any transfer to a Trust and designation of shares of Equity
Stock as Shares-in-Trust, pursuant to subsection D.(3) of this Article V, shall
be effective as of the close of business on the business day next preceding the
date of the purported Transfer or Non-Transfer Event that results in the
transfer to such Trust. Shares-in-Trust shall remain issued and outstanding
shares of Equity Stock of the Corporation and shall be entitled to the same
rights and privileges on identical terms and conditions as are all other issued
and outstanding shares of Equity Stock of the same class and series. When
transferred to a Permitted Transferee, in accordance with the provisions of
subsection E.(5) of this Article V, such Shares-in-Trust shall be released from
the Trust and cease to be designated as Shares-in-Trust.
(2) Dividend Rights. The Trustee, as the record holder
of Shares-in-Trust, shall be entitled to receive all dividends and
distributions as may be declared by the Board of Directors of the Corporation
on such shares of Equity Stock and shall hold such dividends or distributions
in trust for the benefit of the Beneficiary. The Prohibited Owner with respect
to Shares-in-Trust shall repay to the Trustee the amount of any dividends or
distributions received by it that (i) are attributable to any shares of Equity
Stock designated Shares-in-Trust and (ii) the record date of which was on or
after the date that such shares became Shares-in-Trust. The Corporation shall
take all lawful measures that the Board of Directors determines to be
reasonably necessary to recover the amount of any such dividend or distribution
paid to a Prohibited Owner, including, if necessary, withholding any portion of
future dividends or distributions payable on shares of Equity Stock
Beneficially Owned or Constructively Owned by the Person who, but for the
provisions of subsection D.(3) of this Article V, would Constructively Own or
Beneficially Own the Shares-in-Trust; and, as soon as reasonably practicable
following the Corporation's receipt or withholding thereof, shall pay over to
the Trustee for the benefit of the Beneficiary the dividends so received or
withheld, as the case may be.
(3) Rights Upon Liquidation. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of, or any
distribution of the assets of, the Corporation, each Trustee of Shares-in-Trust
shall be entitled to receive, ratably with each other holder of Equity Stock of
the same class or series, that portion of the assets of the Corporation which
is available for distribution to the holders of such class and series of Equity
Stock. The Trustee shall distribute to the Prohibited Owner the amounts
received upon such liquidation, dissolution, or winding up, or distribution;
provided, however, that the Prohibited Owner shall not be entitled to receive
amounts pursuant to this subsection E.(3) in excess of, in the case of a
purported Transfer in which the Prohibited Owner gave value for shares of
Equity Stock and which Transfer resulted in the transfer of the shares to the
Trust, the price per share, if any, such Prohibited Owner paid for the Equity
Stock and, in the case of a Non-Transfer Event or
-10-
<PAGE> 14
Transfer in which the Prohibited Owner did not give value for such shares
(e.g., if the shares were received through a gift or devise) and which
Non-Transfer Event or Transfer, as the case may be, resulted in the transfer of
shares to the Trust, the price per share equal to the Market Price on the date
of such Non-Transfer Event or purported Transfer. Any remaining amount in such
Trust shall be distributed to the Beneficiary.
(4) Voting Rights. The Trustee shall be entitled to vote
all Shares-in-Trust. Any vote by a Prohibited Owner as a holder of shares of
Equity Stock prior to the discovery by the Corporation that the shares of
Equity Stock are Shares-in-Trust shall, subject to applicable law, be rescinded
and shall be void ab initio with respect to such Shares-in-Trust and the
Prohibited Owner shall be deemed to have given, as of the close of business on
the business day prior to the date of the purported Transfer or Non-Transfer
Event that results in the transfer to the Trust of the shares of Equity Stock
under subsection E.(3) of this Article V, an irrevocable proxy to the Trustee
to vote the Shares-in-Trust in the manner in which the Trustee, in its sole and
absolute discretion, desires.
(5) Designation of Permitted Transferee. The Trustee
shall have the exclusive and absolute right to designate a Permitted Transferee
of any and all Shares-in-Trust. As soon as reasonably practicable, but in an
orderly fashion so as not to materially adversely affect the Market Price of
the Shares-in-Trust, the Trustee shall designate one or more Persons as
Permitted Transferees, provided, however, that (i) each such Permitted
Transferee so designated shall purchase for valuable consideration (whether in
a public or private sale) the Shares-in-Trust and (ii) each such Permitted
Transferee so designated may acquire such Shares-in-Trust without such
acquisition resulting in a transfer to a Trust and the redesignation of such
shares of the Equity Stock so acquired as Shares-in-Trust pursuant to the
provisions of subsection D.(3) of this Article V. Upon the designation by the
Trustee of a Permitted Transferee in accordance with the provisions of this
subsection E.(5), the Trustee of a Trust shall (i) cause to be transferred to
the Permitted Transferee that number of Shares-in-Trust acquired by the
permitted Transferee; (ii) cause to be recorded on the books of the Corporation
that the Permitted Transferee is the holder of record of such number of shares
of Equity Stock; and (iii) distribute to the Beneficiary any and all amounts
held with respect to the Shares-in-Trust after making payment to the Prohibited
Owner of the amount determined pursuant to subsection E.(6) of this Article V.
(6) Compensation to Record Holder of Shares of Equity
Stock that Become Shares-In-Trust. Any Prohibited Owner shall be entitled
(after giving written notice to the Corporation of the existence of
Shares-in-Trust and following the designation of the Permitted Transferee in
accordance with subsection D.(5) of this Article V) to receive from the
Trustee, in respect of such Shares-in-Trust, the lesser of (i) in the case of
(a) a purported Transfer in which the Prohibited Owner gave value for shares of
Equity Stock and which Transfer resulted in the transfer of the shares to a
Trust, the price per share, if any, such Prohibited Owner paid for the Equity
Stock, or (b) a Non-Transfer Event or purported Transfer in which the
Prohibited Owner did not give value for such shares (e.g., if the shares were
received through a gift or devise) and which Non-Transfer Event or purported
Transfer, as the case may be, resulted in the transfer of shares to the Trust,
the price per share equal to the Market Price on the date of such Non-Transfer
Event or purported Transfer or (ii) the price per share received by the Trustee
of the Trust from the sale or other disposition of such Shares-in-Trust in
accordance with subsection E.(5) of this Article V. Any amounts received by
the Trustee in respect of such
-11-
<PAGE> 15
Shares-in-Trust and in excess of such amounts to be paid to the Prohibited
Owner pursuant to this subsection E.(6) shall be distributed to the Beneficiary
in accordance with the provisions of subsection E.(5) of this Article V. Each
Beneficiary and Prohibited Owner waive any and all claims that it may have
against the Trustee and the Corporation arising out of the transfer of any
Equity Stock to a Trust, the designation of any Equity Stock as Shares-in-Trust
and the disposition of any Shares-in-Trust, except for claims arising out of
the gross negligence or willful misconduct of, or any failure to make payments
in accordance with section E. of this Article V by, such Trustee or the
Corporation.
(7) Purchase Right in Shares-in-Trust. Shares-in-Trust
shall be deemed to have been offered for sale to the Corporation, or its
designee, at a price per share equal to the lesser of (i) the price per share
in the transaction that resulted in such shares being designated as
Shares-in-Trust (or, in the case of devise, gift or Non- Transfer Event, the
Market Price at the time of such devise, gift or Non-Transfer Event) and (ii)
the Market Price on the date the Corporation, or its designee, accepts such
offer. The Corporation shall have the right to accept such offer for a period
of ninety days after the later of (A) the date of the Non-Transfer Event or
purported Transfer which resulted in such Shares-in-Trust and (B) the date the
Corporation determines in good faith that a purported Transfer or Non-Transfer
Event resulting in the designation of any Equity Stock as Shares-in-Trust has
occurred, if the Corporation does not receive a written notice of such
purported Transfer or Non-Transfer Event pursuant to subsection D.(5) of this
Article V.
F. Preemptive Rights. No holder of any stock or any other
securities of the Corporation, whether now or hereafter authorized, shall have
any preemptive right to subscribe for or purchase any stock or any other
securities of the Corporation other than such, if any, as the Board of
Directors, in its sole discretion, may determine and at such price or prices
and upon such other terms as the Board of Directors, in its sole discretion,
may fix; and any stock or other securities which the Board of Directors may
determine to offer for subscription may, as the Board of Directors in its sole
discretion shall determine, be offered to the holders of any class or series of
stock or other securities at the time outstanding to the exclusion of the
holders of any or all other classes or series of stock or other securities at
the time outstanding.
G. Amendment of this Article. Notwithstanding any other
provisions of this Charter or the Bylaws of the Corporation (and
notwithstanding that some lesser percentage may be permitted by law, this
Charter or the Bylaws of the Corporation), no provision of sections D., E. or
G. of this Article V shall be amended, altered, changed or repealed unless such
amendment, alteration, change, or repeal shall have been advised and approved
by the affirmative vote of a majority of the members of the Board of Directors
and adopted by the affirmative vote of the holders of not less than 66 2/3% of
the outstanding shares of capital stock of the Corporation entitled to vote on
such matter, voting together as a single class.
ARTICLE VI.
DIRECTORS
A. Number. The business and affairs of the Corporation shall be
managed under the direction of a Board of Directors consisting of not less than
three (3) nor more than nine (9)
-12-
<PAGE> 16
directors, unless otherwise determined from time to time by resolution adopted
by the affirmative vote of at least 80% of the members of the Board of
Directors; provided, however, that in no event shall the number of directors be
less than the minimum number required by the Maryland General Corporation Law
and provided further that so long as the number of stockholders of the
Corporation shall be less than three, the number of directors may be less than
three but not less than the number of stockholders. The name of the person who
will serve as the sole director of the Corporation until the first annual
meeting of the stockholders of the Corporation and until his successor is
elected and qualifies is Thomas J. Corcoran, Jr.
B. Classification of Directors. At the first annual meeting of
the stockholders of the Corporation, the directors of the Corporation shall be
divided into three classes: Class I; Class II; and Class III; and the number of
such directors in each class shall be as nearly equal as the number of such
directors will permit. Each such director shall serve for a three-year term
ending on the date of the third annual meeting of stockholders following the
annual meeting of stockholders at which such director was elected; provided,
however, that each initial director elected to Class I at the first annual
meeting of stockholders shall serve for a term ending on the date of the annual
meeting of stockholders to be held in 1998, each initial director elected to
Class II at the first annual meeting of stockholders shall serve for a term
ending on the date of the annual meeting of stockholders to be held in 1996,
and each initial director elected to Class III at the first annual meeting of
stockholders shall serve for a term ending on the date of the annual meeting of
stockholders held in 1997.
C. Removal. Any director or the entire Board of Directors may be
removed by the holders of a majority of the shares entitled to vote at an
election of directors; provided, however, any such removal shall be for cause;
and provided, further, that if stockholders of any class of the capital stock
of the Corporation 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.
D. Vacancies. Except with respect to any directors who have been
or may be elected separately by the holders of Preferred Stock as provided for
in any Articles Supplementary, should a vacancy in the Board of Directors occur
or be created (whether as a result of the death, retirement, resignation or
removal from office of one or more directors or an increase in the number of
authorized directors), such vacancy shall be filled by the affirmative vote of
a majority of the remaining directors, even though less than a quorum of the
Board of Directors, and each director so elected shall serve for the unexpired
term of the Class to which he is elected. Any director so elected by the
remaining directors to fill a vacancy may qualify as an Independent Director
(as hereinafter defined) only if such director has received the affirmative
vote of at least a majority of the remaining Independent Directors, if any.
E. Independent Directors. Notwithstanding anything herein to the
contrary, at all times (except during a period not to exceed sixty (60) days
following the death, retirement, resignation or removal from office of a
director prior to the expiration of the director's term of office), a majority
of the Board of Directors shall be comprised of "Independent Directors," being
persons who are not officers or employees of the Corporation or "Affiliates" of
(1) any advisor to the Corporation under an advisory agreement, (2) any lessee
or contract manager of
-13-
<PAGE> 17
any property of the Corporation, any subsidiary of the Corporation or any
partnership which is an Affiliate of the Corporation.
For purposes of this subsection E., an "Affiliate" of a person
shall mean (1) any person that, directly or indirectly, controls or is
controlled by or is under common control with such person, (2) any other person
that beneficially owns, directly or indirectly, five percent (5%) or more of
the outstanding capital stock, shares or equity interests of such person, or
(3) any officer, director, employee, partner or trustee of such person or any
person controlling, controlled by or under common control with such person
(excluding trustees and persons serving in similar capacities who are not
otherwise an Affiliate of such person). For purposes of the definition of
Affiliate herein, (a) the term "person" shall mean and include individuals,
corporations, limited liability companies, general and limited partnerships,
stock companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts, or other entities
and governments and agencies and political subdivisions thereof and (b) the
term "control" (including the correlative meanings of the terms "controlled by"
and "under common control with"), as used with respect to any person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such person, through the
ownership of voting securities, partnership interests or other equity
interests.
F. Ballots not Required. Elections of directors need not be by
ballot unless the Bylaws of the Corporation shall so provide.
G. Amendment of this Article. Notwithstanding any other
provisions of this Charter or the Bylaws of the Corporation (and
notwithstanding that some lesser percentage may be permitted by law, this
Charter or the Bylaws of the Corporation), the provisions of this Article VI
shall not be amended, altered, changed or repealed unless such amendment,
alteration, change, or repeal shall have been advised and approved by the
affirmative vote of at least 80% of the members of the Board of Directors and
approved by the affirmative vote of the holders of not less than 75% of the
outstanding shares of capital stock of the Corporation entitled to vote on such
matter, voting together as a single class.
ARTICLE VII.
REIT STATUS
The Corporation shall seek to elect and maintain its status as
a REIT under the Code. It shall be the duty of the Board of Directors to take
such actions as are permitted by law and as it may deem necessary or advisable
to cause the Corporation to satisfy the requirements for qualification as a
REIT under the Code, including, but not limited to, the requirements relating
to the ownership of its outstanding capital stock, the nature of its assets,
the sources of its income, and the amount and timing of its distributions to
its stockholders. The Board of Directors shall take no affirmative action to
cause the Corporation not to qualify as a REIT or to otherwise revoke the
Corporation's election to be taxed as a REIT without the affirmative vote of
the holders of 66 2/3% of the outstanding shares of capital stock of the
Corporation entitled to vote on such matter.
-14-
<PAGE> 18
ARTICLE VIII.
REGISTERED HOLDERS OF SHARES
Except as may be otherwise provided by applicable law, the
Corporation shall be entitled to treat the registered holder of any shares of
capital stock of the Corporation as the owner of such shares and of all rights
derived from or relating to such shares for all purposes, and the Corporation
shall not be obligated to recognize any equitable or other claim to or interest
in such shares or rights on the part of any other person, including, but
without limiting the generality of the term "person", a purchaser, pledgee,
assignee or transferee of such shares or rights, unless and until such person
becomes the registered holder of such shares. The foregoing shall apply
whether or not the Corporation shall have either actual or constructive notice
of the interest of such person.
ARTICLE IX.
LIMITATION ON INDEBTEDNESS
The Corporation may not incur or suffer to exist as of the end
of any month Indebtedness (as defined below) in an amount in excess of 40% of
the Corporation's investment in hotel properties, at its cost, after giving
effect to the Corporation's use of proceeds from any Indebtedness. The
Corporation's investment in hotel properties shall include all investments by
the Corporation constituting, evidencing or secured by an interest in property,
whether tangible or intangible and whether real, personal or mixed, that is
used or intended for use in, or in any manner connected with or relating to,
the ownership or leasing of hotels. In determining its cost of such
investments, there shall be included (1) the amount of all cash paid and the
value (as determined by the Board of Directors for purposes of such investment)
of any other property transferred therefor by the Corporation, (2) the amount
of all Indebtedness and other obligations assumed or incurred by the
Corporation or to which the Corporation takes subject, and (3) the value (as
determined by the Board of Directors for the purposes of such investment) of
all equity securities of which the issuer is an entity that is, or upon such
investment will be, included within the Corporation and which are issued
(otherwise than for cash) to, or retained by, any person other than the
Corporation in connection with such investment. For purposes of the foregoing
restrictions, (A) "Indebtedness" of the Corporation shall mean the consolidated
liabilities of the Corporation for borrowed money (including all notes payable
and drafts accepted representing extensions of credit) and all obligations
evidenced by bonds, debentures, notes or other similar instruments on which
interest charges are customarily paid, including obligations under capital
leases, and (B) "Corporation" shall mean this Corporation and any subsidiary
entity consolidated therewith, under generally accepted accounting principals.
ARTICLE X.
POWERS OF DIRECTORS; BYLAWS
A. Powers Vested in the Board of Directors. All of the
powers of the Corporation, insofar as the same may be lawfully vested by this
Charter in the Board of Directors, are hereby conferred upon the Board of
Directors. In furtherance and not in
-15-
<PAGE> 19
limitation of that power, the Board of Directors shall, in addition to those
powers specifically conferred upon the Board of Directors as set forth herein,
possess the following powers:
(1) The Board of Directors shall, in connection
with the exercise of its business judgment involving a Business Combination (as
defined in Section 3-601 of Title 3 of the Corporations and Associations
Article of the Annotated Code of Maryland) or any actual or proposed
transaction which would or may involve a change in control of the Corporation
(whether by purchases of shares of stock or any other securities of the
Corporation in the open market, or otherwise, tender offer, merger,
consolidation, dissolution, liquidation, sale of all or substantially all of
the assets of the Corporation, proxy solicitation or otherwise), in determining
what is in the best interests of the Corporation and its stockholders and in
making any recommendation to its stockholders, give due consideration to all
relevant factors, including, but not limited to (A) the economic effect, both
immediate and long-term, upon the Corporation's stockholders, including
stockholders, if any, who do not participate in the transaction; (B) the social
and economic effect on the employees, customers of, and other dealing with, the
Corporation and its subsidiaries and on the communities in which the
Corporation and its subsidiaries operate or are located; (C) whether the
proposal is acceptable based on the historical and current operating results or
financial condition of the Corporation; (D) whether a more favorable price
could be obtained for the Corporation's stock or other securities in the
future; (E) the reputation and business practices of the offeror and its
management and affiliates as they would affect the employees of the Corporation
and its subsidiaries; (F) the future value of the stock or any other securities
of the Corporation; (G) any antitrust or other legal and regulatory issues that
are raised by the proposal; and (H) the business and financial condition and
earnings prospects of the acquiring person or entity, including, but not
limited to, debt service and other existing financial obligations, financial
obligations to be incurred in connection with the acquisition, and other likely
financial obligations of the acquiring person or entity. If the Board of
Directors determines that any proposed Business Combination (as defined in
Section 3-601 of Title 3 of the Corporations and Associations Article of the
Annotated Code of Maryland) or actual or proposed transaction which would or
may involve a change in control of the Corporation should be rejected, it may
take any lawful action to defeat such transaction, including, but not limited
to, any or all of the following: advising stockholders not to accept the
proposal; instituting litigation against the party making the proposal; filing
complaints with governmental and regulatory authorities; acquiring the stock or
any of the securities of the Corporation; selling or otherwise issuing
authorized but unissued stock, other securities or granting options or rights
with respect thereto; acquiring a company to create an antitrust or other
regulatory problem for the party making the proposal; and obtaining a more
favorable offer from another individual or entity.
(2) The Board of Directors shall have the sole
and exclusive power and authority to make, alter or repeal the Bylaws of the
Corporation.
The enumeration and definition of particular powers of the Board of Directors
included in the foregoing shall in no way be limited to restricted by reference
to or inference from the terms of any other clause of this or any other Article
of the Charter of the Corporation, or construed as or deemed by inference or
otherwise in any manner to exclude or limit any powers conferred
-16-
<PAGE> 20
upon the Board of Directors under the General Laws of the State of Maryland now
or hereafter in force.
ARTICLE XI.
INDEMNIFICATION; LIMITATION OF LIABILITY
A. Power to Indemnify. The Corporation may agree to the terms
and conditions upon which any director, officer, employee or agent accepts his
office or position and in its Bylaws, by contract or in any other manner may
agree to indemnify and protect any director, officer, employee or agent of the
Corporation, or any person who serves at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to the fullest extent permitted from time
to time by the Maryland General Corporation Law., as the same exists or may be
hereafter amended or reenacted.
B. Obligation to Provide Indemnification. The Corporation, to
the fullest extent permitted by the Maryland General Corporation Law as the
same exists or may hereafter be amended or reenacted, shall indemnify, and
advance expenses on behalf of, any and all persons who it shall have the power
to indemnify under such law from and against any and all of the expenses,
liabilities or other matters referred to in or covered by such law and, in
addition thereto, shall indemnify, and advance expenses on behalf of, all such
persons to the extent permitted under any Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action by any
such person in his director or officer capacity and as to action in another
capacity while holding any such office, and shall continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
C. Limitation of Liability. To the fullest extent permitted by
Maryland statutory or decisional law, as amended or interpreted, no director or
officer of the Corporation shall be personally liable to the Corporation or its
stockholders for money damages. No amendment of the Charter of the Corporation
or repeal of any of its provisions shall limit or eliminate the benefits
provided to directors and officers under this provision with respect to any act
or omission which occurred prior to such amendment or repeal. Any repeal or
modification of the foregoing sentence shall not adversely affect any right or
protection of a director of the Corporation existing hereunder with respect to
any act or omission occurring prior to such repeal or modification.
ARTICLE XII.
BUSINESS COMBINATIONS
The provisions of Section 3-602 of Title 3 of the Corporations
and Associations Article of the Annotated Code of the State of Maryland, as the
same may be amended or reenacted, or any successor statute thereto, shall not
apply to any Business Combination (as defined in Section 3-601 of Title 3 of
the Corporations and Associations Article of the Annotated
-17-
<PAGE> 21
Code of the State of Maryland) involving the Corporation and FelCor Suite
Hotels, Inc., a Delaware corporation, Mr. Hervey A. Feldman or Thomas J.
Corcoran, Jr. (or any present or future affiliates or associates of Mr. Feldman
or Mr. Corcoran or other person acting in concert or as a group with either or
both of them).
ARTICLE XIII.
CONTROL SHARES
The provisions of Title 3, Subtitle 7 of the Maryland General
Corporation Law entitled "Voting Rights of Certain Control Shares," as amended
or reenacted from time to time, or any successor statute thereto, shall not
apply to any existing or future type or class of the capital stock of the
Corporation.
ARTICLE XIV.
REDUCED PERCENTAGE OF VOTES REQUIRED TO
APPROVE CERTAIN CORPORATE ACTIONS
Except as may be otherwise provided in the Charter of the
Corporation, notwithstanding any provision of law which may be applicable to
the Corporation which purports to require for any purpose the affirmative vote
of a greater proportion than a majority of all other votes entitled to be cast
on a particular matter by the holders of capital stock of the Corporation, the
affirmative vote of a majority of the votes entitled to be cast on any matter
upon which the holders of shares of the capital stock of the Corporation shall
be entitled to vote shall be, subject to the due authorization, approval or
advice or the Board of Directors, valid, sufficient and effective to approve or
authorize any such matter.
ARTICLE XV.
AMENDMENTS
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Charter, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
-18-
<PAGE> 22
STATE OF MARYLAND 370965
DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: JUNE 23, 1995
THIS IS TO ADVISE YOU THAT THE ARTICLES OF MERGER FOR FELCOR SUITE HOTELS,
INC. (MD)-SURVIVOR AND FELCOR SUITE HOTELS, INC. (DE)-MERGING OUT WERE RECEIVED
AND APPROVED FOR RECORD ON JUNE 23, 1995 AT 12:24 PM.
FEE PAID: 50.00
[SEAL]
IRENE B WOZNY
CHARTER SPECIALIST
<PAGE> 23
ARTICLES OF MERGER
BETWEEN
FELCOR SUITE HOTELS, INC., A DELAWARE CORPORATION
AND
FELCOR SUITE HOTELS, INC., A MARYLAND CORPORATION
These ARTICLES OF MERGER are made and entered into as of the 23rd day of
June 1995, by and between FelCor Suite Hotels, Inc., a Delaware corporation
(the "Merging Corporation"), and FelCor Suite Hotels, Inc., a Maryland
corporation (the "Surviving Corporation"), each of which certify as follows:
FIRST: The Merging Corporation and the Surviving Corporation agree to
merge in accordance with the terms and conditions set forth herein and in the
Agreement and Plan of Merger dated as of May 30, 1995 by and between the
Surviving Corporation and the Merging Corporation (the "Merger").
SECOND: The Merger shall be effective upon the later of (i) the
acceptance of these Articles of Merger by the State Department of Assessments
and Taxation of the State of Maryland and (ii) the acceptance of a Certificate
of Merger by the Secretary of State of Delaware (the "Effective Date").
THIRD: The name of the Merging Corporation is "Felcor Suite Hotels,
Inc." which is incorporated under the laws of the State of Delaware. The name
of the Surviving Corporation is "Felcor Suite Hotels, Inc." which is
incorporated under the laws of the State of Maryland.
<PAGE> 24
FOURTH: The Merging Corporation was incorporated under the general laws
of the State of Delaware on May 16, 1994. The Merging Corporation is not
registered or qualified to do business in the State of Maryland.
FIFTH: The principal office in Maryland of the Surviving Corporation is
located in Baltimore City at 11 East Chase Street, Baltimore, Maryland, 21202.
The Merging Corporation does not have an office in Maryland.
SIXTH: Neither the Merging Corporation nor the Surviving Corporation
owns any interest in land in the State of Maryland, the title to which could be
affected by recording an instrument in the land records.
SEVENTH: The total number of shares of stock that the Merging Corporation
has authority to issue is 50,000,000 shares of Common Stock, par value $0.01
per share, and 10,000,000 shares of Preferred Stock, par value $0.01 per share.
The total number of shares of stock that the Surviving Corporation has
authority to issue is 50,000,000 shares of Common Stock, par value $0.01 per
share, and 10,000,000 shares of Preferred Stock, par value $0.01 per share.
EIGHTH: The Merging Corporation owns of record and beneficially all of
the issued and outstanding capital stock of the Surviving Corporation.
NINTH: The manner and basis of converting or exchanging issued stock of
the Merging Corporation and the Surviving Corporation into different stock of a
corporation or other
- 2 -
<PAGE> 25
consideration and the treatment of any issued stock not to be converted or
exchanged shall be as follows:
(a) At the Effective Date, each issued share of the Common Stock of
the Merging Corporation shall be converted into and become one share of Common
Stock, par value $0.01 per share, of the Surviving Corporation.
(b) At the Effective Date, each issued share of the Common Stock of
the Surviving Corporation shall be cancelled and cease to exist.
TENTH: The other provisions necessary to effect the Merger are as
follows:
(a) At the Effective Date, each share of the Common Stock of the
Merging Corporation issued and outstanding or held as treasury shares on the
Effective Date shall, without any action on the part of either the Merging
Corporation or the Surviving Corporation or any holder of such stock, be
changed and converted into an equal number of fully paid and nonassessable
shares of the Common Stock of the Surviving Corporation.
(b) Each stock certificate which, prior to the Effective Date,
represented issued shares of the Common Stock of the Merging Corporation shall
be and become, on the Effective Date, a certificate representing an identical
number of shares of Common Stock of the Surviving Corporation automatically by
virtue of the Merger and without any action on the part of the holder thereof.
(c) Each stock option granted by the Merging Corporation (under or
subject to the Restricted Stock and Stock Option Plan of the Merging
Corporation (the "1994 Plan")) and outstanding
- 3 -
<PAGE> 26
immediately prior to the Effective Date shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
become a stock option to purchase, upon the same terms and conditions, the
number of shares of the Surviving Corporation's Common Stock (subject to
further adjustment as may be provided in the 1994 Plan) which is equal to the
number of shares of the Merging Corporation's Common Stock which the holder
thereof would have received had such holder exercised the option in full
immediately prior to the Effective Date (whether or not such option was then
exercisable). The price per share payable upon exercise under each of said
options shall (subject to future adjustments as provided in the 1994 Plan) be
equal to the exercise price per share thereunder immediately prior to the
Effective Date. A number of shares of the Surviving Corporation's Common Stock
shall be reserved for issuance upon the exercise of options equal to the number
of shares of the Merging Corporation's Common Stock so reserved immediately
prior to the Effective Date.
(d) The 1994 Plan, and all outstanding stock options thereunder,
shall, immediately prior to the Effective Date of the Merger, be amended to the
extent necessary to permit continuance of the 1994 Plan and continuance and
convergence of said stock options into those of the Surviving Corporation
following the Merger, nothwithstanding any provisions heretofore contained in
such 1994 Plan.
(e) On the Effective Date, all of the shares of stock of the
Surviving Corporation issued and outstanding on the Effective
- 4 -
<PAGE> 27
Date of the Merger shall be cancelled and returned to the status of authorized
but unissued shares.
(f) On the Effective Date, each employee benefit plan and incentive
compensation plan to which the Merging Corporation is then a party shall be
assumed by, and continue to be the plan of, the Surviving Corporation. To the
extent any employee benefit plan or incentive compensation plan of the Merging
Corporation or any of its subsidiaries provides for the issuance or purchase
of, or otherwise relates to, the Merging Corporation's Common Stock, after the
Effective Date such plan shall be deemed to provide for the issuance or
purchase of, or otherwise relate to, the Surviving Corporation's Common Stock
upon the same terms and conditions.
(g) The officers and directors of the Surviving Corporation on the
Effective Date shall be and continue to be the officers and directors of the
Surviving Corporation thereafter, until their successors are duly appointed or
elected and qualify.
(h) The Charter and Bylaws of the Surviving Corporation, as they
exist immediately prior to the Effective Date, shall remain in effect as the
Charter and Bylaws of the Surviving Corporation thereafter, unaffected by the
Merger.
(i) On the Effective Date, the Merging Corporation shall be merged
with and into the Surviving Corporation, which shall continue its corporate
existence under the laws of the State of Maryland. The separate existence and
corporate organization of the Merging Corporation shall cease upon the
Effective Date, and the Surviving Corporation shall possess all of the rights,
privileges, immunities and franchises, as well as those of a public or of a
- 5 -
<PAGE> 28
private nature, of each of the Merging Corporation and the Surviving
Corporation; and all property, real, personal and mixed, and all debts due on
whatever account, including subscriptions to shares, and all other choses in
action, and all and every other interest, of or belonging to or due to each of
the Merging Corporation or the Surviving Corporation, shall be taken and deemed
to be transferred to and vested in the Surviving Corporation without further
act or deed; and the title to any real estate or any interest therein, vested
in either of the Merging Corporation or the Surviving Corporation shall not
revert or be in any way impaired by reason of such Merger. The Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of each of the Merging Corporation and the Surviving
Corporation, and any claims existing or action or proceeding pending by or
against the Merging Corporation or the Surviving Corporation may be prosecuted
to judgment as if such Merger had not taken place. Neither the rights of
creditors nor any liens upon the property of either the Merging Corporation or
the Surviving Corporation shall be impaired by the Merger.
ELEVENTH: The terms and conditions of the transaction set forth in these
Articles of Merger were advised, authorized and approved by the Merging
Corporation in the manner and by the vote required by its charter and by-laws
and the laws of the State of Delaware. The terms and conditions of the
transaction set forth in these Articles of Merger were advised, authorized and
approved by the Surviving Corporation in the manner and by the vote required by
its charter and by-laws and the laws of the State of Maryland. The
- 6 -
<PAGE> 29
manner of approval by the Merging Corporation and the Surviving Corporation of
the transaction set forth in these Articles of Merger was as follows:
(a) The board of directors of the Merging Corporation adopted a
resolution by unanimous vote consent on April 10, 1995, which declared that the
transaction set forth in these Articles of Merger is advisable and directed
that the transaction be submitted for consideration by the stockholders of the
Merging Corporation at the annual meeting of the stockholders of the Merging
Corporation held on May 30, 1995. Notice which stated that a purpose of the
annual meeting was to act on the Merger contemplated by these Articles of
Merger was given in the manner required by the applicable provisions of the
Delaware General Corporation Law to each stockholder entitled to such notice.
The transaction set forth in these Articles of Merger was approved by the
stockholders of the Merging Corporation at the annual meeting of the
stockholders of the Merging Corporation held on May 30, 1995 by the affirmative
vote of a majority of all the votes entitled to be cast on the matter in
accordance with the Charter of the Merging Corporation and the Delaware General
Corporation,Law.
(b) The sole director of the Surviving Corporation adopted a resolution
by written consent as of May 2, 1995, which declared that the transaction set
forth in these Articles of Merger is advisable and directed that the
transaction be submitted for consideration of the sole stockholder of the
Surviving Corporation. The transaction set forth in these Articles of Merger
was approved
- 7 -
<PAGE> 30
by the sole stockholder of the Surviving Corporation by written consent dated
as of May 2, 1995.
TWELFTH: No amendment to the charter of the Surviving Corporation, the
survivor in the Merger, will be affected by the Merger.
IN WITNESS WHEREOF, the Merging Corporation and the Surviving Corporation
have caused these Articles of Merger to be signed in their respective corporate
names and on their behalf by their respective Presidents and attested to by
their respective corporate Secretaries as of the 23rd day of June, 1995.
ATTEST: FELCOR SUITE HOTELS, INC.,
a Maryland corporation
/s/ NICHOLAS R. PETERSON By: THOMAS J. CORCORAN
---------------------------- ----------------------------
Nicholas R. Peterson Thomas J. Corcoran, Jr.
Assistant Secretary President
FELCOR SUITE HOTELS, INC.,
a Delaware corporation
/s/ NICHOLAS R. PETERSON By: THOMAS J. CORCORAN
---------------------------- ----------------------------
Nicholas R. Peterson Thomas J. Corcoran, Jr.
Assistant Secretary President
The undersigned, being the duly elected and acting President of Felcor
Suite Hotels, Inc., a Maryland corporation, hereby acknowledges that the
foregoing Articles of Merger, of which this Certificate is a part, are the act
of Felcor Suite Hotels, Inc., a Maryland corporation, and certifies that, to
the best of his knowledge, information and belief, and under penalties for
perjury, all matters and facts contained in these Articles of Merger relating
to Felcor Suite Hotels, Inc., a Maryland corporation, are true in all material
respects.
/s/ THOMAS J. CORCORAN, JR.
----------------------------
Thomas J. Corcoran, Jr.
- 8 -
<PAGE> 31
The undersigned, being the duly elected and acting President of Felcor
Suite Hotels, Inc., a Delaware corporation, hereby acknowledges that the
foregoing Articles of Merger, of which this Certificate is a part, are the act
of Felcor Suite Hotels, Inc., a Delaware corporation, and certifies that, to
the best of his knowledge, information and belief, and under penalties for
perjury, all matters and facts contained in these Articles of Merger relating
to Felcor Suits Hotels, Inc., a Delaware corporation, are true in all material
respects.
/s/ THOMAS J. CORCORAN, JR.
----------------------------
Thomas J. Corcoran, Jr.
- 9 -
<PAGE> 32
STATE OF MARYLAND
441055
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: MAY 02, 1996
THIS IS TO ADVISE YOU THAT THE ARTICLES SUPPLEMENTARY FOR
FELCOR SUITE HOTELS, INC.
WERE RECEIVED AND APPROVED FOR RECORD ON MAY 2, 1996 AT 11:40 AM.
FEE PAID: 50.00
[SEAL]
HARRY J. NOONAN
CHARTER SPECIALIST
<PAGE> 33
ARTICLES SUPPLEMENTARY
OF
FELCOR SUITE HOTELS, INC.
FELCOR SUITE HOTELS, INC., a Maryland corporation (hereinafter
referred to as the "Company"), hereby certifies as follows:
FIRST: Under the authority set forth in Article V of the Charter of
the Company, the Board of Directors of the Company on April 11, 1996,
classified 6,900,000 unissued shares of the "$1.95 Series A Cumulative
Convertible Preferred Stock."
SECOND: A description of the $1.95 Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock"), including the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption as set or
changed by the Board of Directors of the Company is as follows:
Section 1. NUMBER OF SHARES AND DESIGNATION. This series of
preferred stock shall be designated as Series A Cumulative Convertible
Preferred Stock, and 6,900,000 shall be the number of shares of preferred stock
constituting of such series.
Section 2. DEFINITIONS. For purposes of the Series A Preferred
Stock, the following terms shall have the meanings indicated:
"Act" shall have the meaning set forth in paragraph (g) of Section 5 hereof.
"Board of Directors" shall mean the Board of Directors of the Company or any
committee authorized by such Board of Directors to perform any of its
responsibilities with respect to the Series A Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which state or federally chartered banking institutions in Texas or New York
are not required to be open.
"Call Date" shall have the meaning set forth in paragraph (c) of Section 5
hereof.
"Common Stock" shall mean the common stock of the Company, par value $0.01 per
share.
"Constituent Person" shall have the meaning set forth in paragraph (e) of
Section 7 hereof.
"Conversion Price" shall mean the conversion price per share of Common Stock
for which the Series A Preferred Stock is convertible, as such Conversion Price
may be adjusted pursuant to Section 7. The initial conversion price shall be
$32.25 (equivalent to a conversion rate of 0.7752 shares of Common Stock for
each share of Series A Preferred Stock).
<PAGE> 34
"Current Market Price" of publicly traded shares of Common Stock or any other
class of capital stock or other security of the Company or any other issuer for
any day shall mean the last reported sales price, regular way on such day, or,
if not sale takes place on such day, the average of the reported closing bid
and asked prices on such day, regular way, in either case as reported on the
New York Stock Exchange ("NYSE") or, if such security is not listed or admitted
for trading or, if not listed or admitted for trading on any national
securities exchange, on the National Market System of the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or, if such
security is not quoted on such National Market System, the average of the
closing bid and asked prices on such day in the over the counter market as
reported by NASDAQ or, if bid and asked prices for such security on such day
shall not have been reported through NASDAQ, the average of the bid and asked
prices on such day as furnished by any NYSE member firm regularly making a
market in such security selected for such purpose by the Chief Executive
Officer or the Board of Directors.
"Dividend Payment Date" shall mean the last calendar day of January, April,
July and October in each year, commencing on July 31, 1996; PROVIDED, HOWEVER,
that if any Dividend Payment Date falls on any day other than a Business Day,
the dividend payment due on such Dividend Payment Date shall be paid on the
Business Day immediately following such Dividend Payment Date.
"Dividend Periods" shall mean quarterly dividend periods commencing January 1,
March 1, June 1 and September 1 of each year and ending on and including the
day preceding the first day of the next succeeding Dividend Period (other than
the initial Dividend Period, which shall commence on May 6, 1996 and end on and
include June 30, 1996).
"Fair Market Value" shall mean the average of the daily Current Market Prices
of a share of Common Stock during the five (5) consecutive Trading Days
selected by the Company commencing not more than 20 Trading Days before, and
ending not later than, the earlier of the day in question and the day before
the "ex" date with respect to the issuance or distribution requiring such
computation. The term "'ex' date," when used with respect to any issuance or
distribution, means the first day on which the Common Stock trades regular way,
without the right to receive such issuance or distribution, on the exchange or
in the market, as the case may be, used to determine that day's current Market
Price.
"Issue Date" shall mean the date on which the Company first issues a share of
Series A Preferred Stock.
"Junior Stock" shall mean the Common Stock and any other class or series of
shares of the Company over which the Series A Preferred Stock has preference or
priority in the payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Company.
"Non-Electing Share" shall have the meaning set forth in paragraph (e) of
Section 7 hereof.
"Parity Stock" shall have the meaning set forth in paragraph (b) of Section 8
hereof.
2
<PAGE> 35
"Permitted Common Stock Cash Distributions" means cash dividends and
distributions paid after December 31, 1995, not in excess of the Company'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 the Company, 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.
"Person" shall mean any individual, partnership, limited liability company,
corporation or other entity, and shall include any successor (by merger or
otherwise) of such entity.
"Press Release" shall have the meaning set forth in paragraph (b) of Section 5
hereof.
"Securities" shall have the meaning set forth in paragraph (d) (iii) of Section
7 hereof.
"Series A Preferred Stock" shall have the meaning set forth in the Recitals
hereof.
"set apart for payment" shall be deemed to include, without any action other
than the following, the recording by the Company in its accounting ledgers of
any accounting or bookkeeping entry which indicates, pursuant to a declaration
of dividends or other distribution by the Board of Directors, the allocation of
funds to be so paid on any series or class of capital stock of the Company;
PROVIDED, HOWEVER, that if any funds for a class or series of Junior Stock or
any class or series of stock ranking on a parity with the Series A Preferred
Stock as to the payment of dividends are placed in a separate account of the
Company or delivered to a disbursing, paying or other similar agent, then "set
apart for payment" with respect to the Series A Preferred Stock shall mean
placing such funds in a separate account or delivering such funds to a
disbursing, paying or other similar agent.
"Trading Day" shall mean any day on which the securities in question are traded
on the NYSE, or if such securities are not listed or admitted for trading on
the NYSE, on the principal national securities exchange on which such
securities are listed or admitted, or if not listed or admitted for trading of
any national securities exchange, on the National Market System of NASDAQ, or
if such securities are not quoted on such National Market System, in the
applicable securities market in which the securities are traded.
"Transaction" shall have the meaning set forth in paragraph (e) of Section 7
hereof.
"Transfer Agent" means SunTrust Bank, Atlanta, Georgia, or such other agent or
agents of the Company as may be designated by the Board of Directors or their
designee as the transfer agent for the Series A Preferred Stock.
"Voting Preferred Stock" shall have the meaning set forth in Section 9(a)
hereof.
3
<PAGE> 36
Section 3. DIVIDENDS.
(a) The Holders of shares of the Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for that purpose, dividends payable in cash in an
amount per share of Series A Preferred Stock equal to the greater of $1.95 per
annum or the cash distributions declared or paid for the corresponding period
(determined on each Dividend Payment Date) on the number of shares of Common
Stock, or portion thereof, into which a share of Series A Preferred Stock is
convertible (under Section 7 hereof). Such dividends shall be cumulative from
May 6, 1996, whether or not in any Dividend Period or Periods there shall be
funds of the Company legally available for the payment of such dividends, and
shall be payable quarterly, when, as and if declared by the Board of Directors,
in arrears on Dividend Payment Dates, commencing on the first Dividend Payment
Date after the Issue Date. Each such dividend shall be payable in arrears to
the holders of record of shares of the Series A Preferred Stock, as they appear
on the stock records of the Company at the close of business on such record
dates, not more than 60 days preceding such Dividend Payment Dates thereof, as
shall be fixed by the Board of Directors. Accrued and unpaid dividends for any
past Dividend Periods may be declared and paid at any time, without reference
to any regular Dividend Payment Date, to holders of record on such date, not
exceeding 45 days preceding the payment date thereof, as may be fixed by the
Board of Directors.
(b) The amount of dividends payable for each full Dividend Period
for the Series A Preferred Stock shall be computed by dividing the annual
dividend rate by four. The amount of dividends payable for any period shorter
or longer than a full Dividend Period, on the Series A Preferred Stock shall be
computed on the basis of twelve 30-day months and a 360-day year. Holders of
the Preferred Stock shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of cumulative dividends, as herein provided,
on the Series A Preferred Stock. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
the Series A Preferred Stock that may be in arrears.
(c) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends, except as described in the immediately following
sentence, shall be declared or paid or set apart for payment on any class or
series of Parity Stock for any period unless full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series A
Preferred Stock for all Dividend Periods terminating on or prior to the
Dividend Payment Date on such class or series of Parity Stock. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series A Preferred Stock
and all dividends declared upon any other class or series of Parity Stock shall
be declared ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the Series A Preferred Stock and accumulated and
unpaid on such Parity Stock.
(d) So long as any shares of the Series A Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
Junior Stock), shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Stock, nor shall Junior Stock be
redeemed, purchased or
4
<PAGE> 37
otherwise acquired (other than a redemption, purchase or other acquisition of
shares of Common Stock made for purposes of an employee incentive or benefit
plan of the Company or any subsidiary) for any consideration (or any moneys be
paid to or made available for a sinking fund for the redemption of any shares
of any such stock) by the Company, directly or indirectly (except by conversion
into or exchange for Junior Stock), unless in each case (i) the full cumulative
dividends on all outstanding shares of the Series A Preferred Stock and any
other Parity Stock of the Company shall have been paid or set apart for payment
for all past Dividend Periods with respect to the Series A Preferred Stock and
all past dividend periods with respect to such Parity Stock and (ii) sufficient
funds shall have been paid or set apart for the payment of the dividend for the
current Dividend Period with respect to the Series A Preferred Stock and the
current dividend period with respect to such Parity Stock. Notwithstanding the
foregoing limitations, the Company may at any time acquire shares of its
capital stock, without regard to rank, for the purpose of preserving its status
as a REIT.
Section 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or surplus) shall be
made to or set apart for the holders of Junior Stock, the holders of the shares
of Series A Preferred Stock shall be entitled to receive twenty-five dollars
($25.00) per share of Series A Preferred Stock plus an amount equal to all
dividends (whether or not earned or declared) accrued and unpaid thereon to the
date of final distribution to such holders, but such holders shall not be
entitled to any further payment. If, upon any liquidation, dissolution or
winding up of the Company, the assets of the Company, or proceeds thereof,
distributable among the holders of the shares of Series A Preferred Stock shall
be insufficient to pay in full the preferential amount aforesaid and
liquidating payments on any other shares of any class or series of Parity
Stock, then such assets, or the proceeds thereof, shall be distributed among
the holders of shares of Series A Preferred Stock and any such other Parity
Stock ratably in accordance with the respective amounts that would be payable
on such shares of Series A Preferred Stock and any such other Parity Stock if
all amounts payable thereon were paid in full. For the purposes of this
Section 4, (i) a consolidation or merger of the Company with one or more
corporations, (ii) a sale or transfer of all or substantially all of the
Company's assets, or (iii) a statutory share exchange shall not be deemed to be
a liquidation, dissolution or winding up, voluntary or involuntary, of the
Company.
(b) Subject to the rights of the holders of shares of any series
or class or classes of stock ranking on a parity with or prior to the Series A
Preferred Stock upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Company, after payment shall have
been made in full to the holders of the Series A Preferred Stock, as provided
in this Section 4, any other series or class or classes of Junior Stock shall,
subject to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, and
the holders of the Series A Preferred Stock shall not be entitled to share
therein.
5
<PAGE> 38
Section 5. REDEMPTION AT THE OPTION OF THE COMPANY
(a) The Series A Preferred Stock shall not be redeemable by the
Company prior to April 30, 2001. On and after April 30, 2001, the Company, at
its option, may redeem the shares of Series A Preferred Stock in whole or in
part, as set forth herein, subject to the provisions described below.
(b) The Series A Preferred Stock may be redeemed, in whole or in
part, at the option of the Company, at any time, only if for 20 Trading Days,
within any period of 30 consecutive Trading Days, including the last Trading
Day of such period, the Current Market Price of the Common Stock on each of
such 20 Trading Days equals or exceeds the Conversion Price in effect on such
Trading Day. In order to exercise its redemption option, the Company must
issue a press release announcing the redemption (the "Press Release") prior to
the opening of business on the second Trading Day after the condition in the
preceding sentence has, from time to time, been met. The Company may not issue
a Press Release prior to April 30, 2001. The Press Release shall announce the
redemption and set forth the number of shares of Series A Preferred Stock which
the Company intends to redeem. The Call Date shall be selected by the Company,
shall be specified in the notice of redemption and shall be not less than 30
days or more than 60 days after the date on which the Corporation issues the
Press Release.
(c) Upon redemption of Series A Preferred Stock by the Corporation
on the date specified in the notice to holders required under subparagraph (e)
of this Section 5 (the "Call Date"), each share of Series A Preferred Stock so
redeemed shall, at the option of the Company (i) be converted into a number of
shares of Common Stock equal to the liquidation preference (excluding any
accrued and unpaid dividends) of the shares of Series A Preferred Stock being
redeemed divided by the Conversion Price as of the opening of business on the
Call Date or (ii) be redeemed in cash at a price per share equal the aggregate
market value (determined as of the date of the notice of redemption) of the
number of shares of Common Stock into which the Series A Preferred Stock is
then convertible divided by the then current Conversion Price.
Upon any redemption of Series A Preferred Stock, the Company shall pay
any accrued and unpaid dividends in arrears for any full Dividend Period ending
on or prior to the Call Date. If the Call Date falls after a dividend payment
record date and prior to the corresponding Dividend Payment Date, then each
holder of Series A Preferred Stock at the close of business on such dividend
payment record date shall be entitled to the dividend payable on such shares on
the corresponding Dividend Payment Date. Except as provided above, the Company
shall make no payment or allowance for unpaid dividends, whether or not in
arrears, on shares of Series A Preferred Stock called for redemption or on the
shares of Common Stock issued upon such redemption.
(d) If full cumulative dividends on the Series A Preferred Stock
and any other class or series of Parity Stock of the Company have not been paid
or declared and set apart for payment, the Series A Preferred Stock may not be
redeemed in part and the Company may not purchase or acquire 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.
6
<PAGE> 39
(e) If the Company shall redeem shares of Series A Preferred Stock
pursuant to paragraph (a) of this Section 5, notice of such redemption shall be
given not more than four Business Days after the date on which the Corporation
issues the Press Release to each holder of record of the shares to be redeemed.
Such notice shall be provided by first class mail, postage prepaid, at such
holder's address as the same appears on the stock records of the Company, or by
publication in THE WALL STREET JOURNAL or THE NEW YORK TIMES, or if neither
such newspaper is then being published, any other daily newspaper of national
circulation. If the Company elects to provide such notice of publication, it
shall also promptly mail notice of such redemption to the holders of the Series
A Preferred Stock to be redeemed. Neither the failure to mail any notice
required by this paragraph (e), nor any defect therein or in the mailing
thereof, to any particular holder, shall affect the sufficiency of the notice
or the validity of the proceedings for redemption with respect to the other
holders. Any notice which was mailed in the manner herein provided shall be
conclusively presumed to have been duly given on the date mailed whether or not
the holder receives the notice. Each such mailed or published notice shall
state, as appropriate: (1) the Call Date: (2) the number of shares of Series A
Preferred Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (3) the number of shares of Common Stock to be issued, or the cash
redemption price, as the case may be, with respect to each share of Series A
Preferred Stock; (4) the place or places at which certificates for such shares
are to be surrendered for certificates representing shares of Common Stock; (5)
the then-current Conversion Price; and (6) that dividends on the shares to be
redeemed shall cease to accrue on such Call Date except as otherwise provided
herein. Notice having been published or mailed as aforesaid, from and after
the Call Date (unless the Company shall fail to make available a number of
shares of Common Stock or amount of cash necessary to effect such redemption),
(i) except as otherwise provided herein, dividends on the shares of the Series
A Preferred Stock so called for redemption shall cease to accrue, (ii) said
shares shall no longer be deemed to be outstanding, and (iii) all rights of the
holders thereof as holders of Series A Preferred Stock of the Company shall
cease (except the rights to receive the shares of Common Stock and cash payable
upon such redemption, without interest thereon, upon surrender and endorsement
of their certificates if so required to receive any dividends payable thereon).
The Company's obligation to provide shares of Common Stock and cash in
accordance with the preceding sentence shall be deemed fulfilled if, on or
before the Call Date, the Corporation shall deposit with a bank or trust
company (which may be an affiliate of the Company) that has an office in the
Borough of Manhattan, City of New York and that has, or is an affiliate of a
bank or trust company that has, a capital and surplus of at least $50,000,000,
shares of Common Stock and/or any cash necessary for such redemption, in trust,
with irrevocable instructions that such shares of Common Stock and/or cash be
applied to the redemption of the shares of Series A Preferred Stock so called
for redemption. At the close of business on the Call Date, each holder of
Series A Preferred Stock to be redeemed pursuant to Section 5(c)(i) (unless the
Company defaults in the delivery of the shares of Common Stock or cash payable
on such Call Date) shall be deemed to be the record holder of the number of
shares of Common Stock into which such Series A Preferred Stock is to be
redeemed, regardless of whether such holder has surrendered the certificates
representing the Series A Preferred Stock. No interest shall accrue for the
benefit of the holders of Series A Preferred Stock to be redeemed on any cash
so set aside by the Company. Subject to applicable escheat laws, any such cash
unclaimed at the end of two years from the Call Date shall
7
<PAGE> 40
revert to the general funds of the Company, after which reversion the holders
of such shares so called for redemption shall look only to the general funds of
the Company for the payment of such cash.
As promptly as practicable after the surrender in accordance with said
notice of the certificates for any such shares so redeemed (properly endorsed
or assigned for transfer, if the Company shall so require and if the notice
shall so state), such shares shall be exchanged for certificates of shares of
Common Stock and any cash (without interest thereon) for which such shares have
been redeemed. If fewer than all the outstanding shares of Series A Preferred
Stock are to be redeemed, shares to be redeemed shall be selected by the
Company from outstanding shares of Series A Preferred Stock not previously
called for redemption by lot or pro rata (as nearly as may be) or by any other
method determine by the Company in its sole discretion to be equitable. If
fewer than all the shares of Series A Preferred Stock represented by any
certificate are redeemed, then new certificates representing the unredeemed
shares shall be issued without cost to the holder thereof.
(f) No fractional shares or scrip representing fractions of shares
of Common Stock shall be issued upon redemption of the Series A Preferred
Stock. Instead of any fractional interest in a share of Common Stock that
would otherwise be deliverable upon the redemption of a share of Series A
Preferred Stock, the Company shall pay to the holder of such share an amount in
cash (computed to the nearest cent) based upon the Current Market Price of
Common Stock on the Trading Day immediately preceding the Call Date. If more
than one share shall be surrendered for redemption at one time by the same
holder, the number of full shares of Common Stock issuable, or cash paid, upon
redemption thereof shall be computed on the basis of the aggregate number of
shares of Series A Preferred Stock so surrendered.
(g) The Company covenants that any shares of Common Stock issued
upon redemption of the Series A Preferred Stock shall be validly issued, fully
paid and non-assessable. The Company shall endeavor to list the shares of
Common Stock required to be delivered upon redemption to the Series A Preferred
Stock, prior to such redemption, upon each national securities exchange, if
any, upon which the outstanding Common Stock is listed at the time of such
delivery.
The Company shall endeavor to take any action necessary to ensure that
any shares of Common Stock issued upon the redemption of Series A Preferred
Stock are freely transferable and not subject to any resale restrictions under
the Securities Act of 1933, as amended (the "Act"), of any applicable state
securities or blue sky laws (other than any shares of Common Stock issued upon
redemption of any Series A Preferred Stock which are held by an "affiliate" (as
defined in Rule 144 under the Act) of the Company). Notwithstanding the
foregoing limitations, the Company may at any time acquire shares of its
capital stock, without regard to rank, for the purpose of preserving its status
as a REIT.
Section 6. SHARES TO BE RETIRED.
All shares of Series A Preferred Stock which shall have been issued
and reacquired in any manner by the Company shall be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
series. The Company may also retire any unissued shares of
8
<PAGE> 41
Series A Preferred Stock, and such shares shall then be restored to the status
of authorized but unissued shares of Preferred Stock, without designation as to
series.
Section 7. CONVERSION.
Holders of shares of Series A Preferred Stock shall have the right to
convert all or a portion of such shares in to shares of Common Stock, as
follows:
(a) Subject to and upon compliance with the provisions of this
Section 7, a holder of shares of Series A Preferred Stock shall have the right,
at his or her option, at any time to convert such shares into the number of
fully paid and non-assessable shares of Common Stock obtained by dividing the
aggregate liquidation preference (excluding any accrued and unpaid dividends)
of such shares by the Conversion Price (as in effect at the time and on the
date provided for in the last paragraph or paragraph (b) of this Section 7) by
surrendering such shares to be converted, such surrender to be made in the
manner provided in Section 7, paragraph (b); PROVIDED, HOWEVER, that the right
to convert shares called for redemption pursuant to Section 5 shall terminate
at the close of business on the Call Date fixed for such redemption, unless the
Company shall default in making payment of the shares of Common Stock and any
cash payable upon such redemption under Section 5 hereof.
(b) In order to exercise the conversion right, the holder of each
share of Series A Preferred Stock to be converted shall surrender the
certificate representing such share, duly endorsed or assigned to the Company
or in blank, at the office of the Transfer Agent; accompanied by written notice
to the Company that the holder thereof elects to convert such Series A
Preferred Stock. Unless the shares issuable on conversion are to be issued in
the same name as the name in which such share of Series A Preferred Stock is
registered, each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Company, duly executed by
the holder or such holder's duly authorized attorney and an amount sufficient
to pay any transfer or similar tax (or evidence reasonably satisfactory to the
Company demonstrating that such taxes have been paid).
Holders of shares of Series A Preferred Stock at the close of business
on a dividend payment record date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof 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 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 of notice of redemption with respect to a Call Date during such
period, such shares of Series A Preferred Stock being entitled to such dividend
on the Dividend Payment Date) must be accompanied by a 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
the Company on such shares of Series A Preferred Stock on such date, and the
converting holder need not include
9
<PAGE> 42
payment of the amount of such dividend upon surrender of shares of Series A
Preferred Stock for conversion. Except as provided above, the Company shall
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.
As promptly as practicable after the surrender of certificates for
shares of Series A Preferred Stock as aforesaid, the Company shall issue and
shall deliver at such office to such holder, or on his or her written order, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such shares in accordance with provisions of
this Section 7, and any factional interest in respect of a share of Common
Stock arising upon such conversion shall be settled as provided in paragraph
(c) of this Section 7.
Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which certificates for shares of
Series A Preferred Stock shall have been surrendered and such notice (and if
applicable, payment of an amount equal to the dividend payable on such shares)
received by the Company as aforesaid, and the person or persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby at such time on such date
and such conversion shall be at the Conversion Price in effect at such time on
such date unless the stock transfer books of the Company shall be closed on
that date, in which event such person or persons shall be deemed to have become
holder or holders of record at the close of business on the next succeeding day
on which such stock transfer books are open, but such conversion shall be at
the Conversion Price in effect on the date on which such shares shall have been
surrendered and such notice received by the Company.
(c) No fractional shares of scrip representing of shares of Common
Stock shall be issued upon conversion of the Shares A Preferred Stock. Instead
of any fractional interest in a share of Common Stock that would otherwise be
deliverable upon the conversion of a share of Series A Preferred Stock, the
Company shall pay to the holder of such share an amount in cash based upon the
Current Market Price of Common Stock on the Trading Day immediately preceding
the date of conversion. If more than one share shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series A Preferred Stock so surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) If the Company shall after the Issue Date (A) pay a
dividend or make a distribution of its capital stock in shares of its Common
Stock, (B) subdivide its outstanding Common Stock into a greater number of
shares, (C) combine its outstanding Common Stock into a smaller number of
shares or (D) issue any shares of capital stock by reclassification of its
Common Stock, the Conversion Price in effect at the opening of business on the
following day following the date fixed for the determination of stockholders
entitled to receive such dividend or distribution or at the opening of business
on the day following the day on which such subdivision, combination or
reclassification becomes effective, as the case may be, shall be adjusted so
that the holder of any share
10
<PAGE> 43
of Series A Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock that such holder would
have owned or have been entitled to receive after the happening of any of the
events described above had such shares of Series A Preferred Stock been
converted immediately prior to the record date in the case of a dividend or
distribution or the effective date in the case of a subdivision, combination or
reclassification. An adjustment made pursuant to this subparagraph (i) shall
become effective immediately after the opening of business on the day next
following the record date (except as provided in paragraph (h) below) in the
case of a dividend or distribution and shall become effective immediately after
the opening of business on the day next following the effective date in the
case of a subdivision, combination or reclassification.
(ii) If the Company shall, after the Issue Date, issue
rights, options or warrants to all holders of Common Stock entitling them (for
a period expiring within 45 days after the record date mentioned below) to
subscribe for or purchase Common Stock at a price per share less than the Fair
Market Value per share of Common Stock on the record date for the determination
of stockholders entitled to receive such rights or warrants, then the
Conversion Price in effect at the opening of business on the day next following
such record date shall be adjusted to equal the price determined by multiplying
(I) the Conversion Price in effect immediately prior to the opening of business
on the day following the date fixed for such determination by (II) a fraction,
the numerator of which shall be the sums of (A) the number of shares of Common
Stock outstanding on the close of business on the date fixed for such
determination and (B) the number of shares that the aggregate proceeds to the
Company from the exercise of such rights or warrants for Common Stock would
purchase at such Fair Market Value, and the denominator of which shall be the
sums of (A) the number of Shares of Common Stock outstanding on the close of
business on the date fixed for such determination and (B) on the number of
additional shares of Common Stock offered for subscription or purchase pursuant
to such rights or warrants. Such adjustment shall become effective immediately
after the opening of business on the day next following such record date
(except as provided in paragraph (h) below). In determining whether any rights
or warrants entitle the holders of Common Stock to subscribe for or purchase
shares of Common Stock at less than such Fair Market Value, there shall be
taken into account any consideration received by the Company upon issuance and
upon exercise of such rights warrants, the value of such consideration, if
other than cash, to be determined by the Chief Executive Officer or the Board
of Directors.
(iii) If the Company shall distribute to all holders of its
Common Stock any shares of capital stock of the Company (other than Common
Stock) or evidence of its indebtedness or assets (excluding Permitted Common
Stock Cash Distributions) or rights warrants to subscribe for or purchase any
of its securities (excluding those rights and warrants issued to all holders of
Common Stock entitling them for a period expiring within 45 days after the
record date referred to in subparagraph (ii) above to subscribe for or purchase
Common Stock, which rights and warrants are referred to in and treated under
subparagraph (ii) above) (any of the foregoing being hereinafter in this
subparagraph (iii) called the "Securities"), then in each such case the
Conversion Price shall be adjusted so that it shall equal the price determined
by multiplying (I) the Conversion Price in effect immediately prior to the
close of business on the date fixed for the determination of stockholders
entitled to receive such distribution by (II) a fraction, the numerator of
which shall be the Fair Market Value per share of the Common Stock on the
record date mentioned below less the then fair market
11
<PAGE> 44
value (as determined by the Chief Executive Officer or the Board of Directors,
whose determination shall be conclusive), of the portion of the capital stock
or assets or evidences of indebtedness so distributed or of such rights or
warrants applicable to one share of Common Stock, and the denominator of which
shall be the Fair Market Value per share of the Common Stock on the record date
mentioned below. Such adjustment shall become effective immediately at the
opening of business on the Business Day next following (except as provided in
paragraph (h) below) the record date for the determination of shareholders
entitled to receive such distribution. For the purposes of this clause (iii),
the distribution of a Security, which is distributed not only to the holders of
the Common Stock on the date fixed for the determination of stockholders
entitled to such distribution of such Security, but also is distributed with
each share of Common Stock delivered to a Person converting a share of Series A
Preferred Stock after such determination date, shall not require an adjustment
of the Conversion Price pursuant to this clause (iii); PROVIDED that on the
date, if any, on which a person converting a share of Series A Preferred Stock
would no longer be entitled to receive such Security with a share of Common
Stock (other than as a result of the termination of all such Securities), a
distribution of such Securities shall be deemed to have occurred and the
Conversion Price shall be adjusted ass provided in this clause (iii) and such
day shall be deemed to be "the date fixed for the determination of the
stockholders entitled to receive such distribution" and "the record date"
within the meaning of the two preceding sentences.
(iv) No adjustment in the Conversion Price shall be
required unless such adjustment would require a cumulative increase or decrease
of at least 1% in such; PROVIDED, HOWEVER, that any adjustments that by reason
of this subparagraph (iv) are not required to be made shall be carried forward
and taken into account in any subsequent adjustment until made; and PROVIDED,
FURTHER, that any adjustment shall be required and made in accordance with the
provisions of this Section 7 (other than this subparagraph (iv) not later than
such time as may be required in order to preserve the tax-free nature of a
distribution to the holders of shares of Common Stock. Notwithstanding any
other provisions of this Section 7, the Company shall not be required to make
any adjustment of the Conversion Price for the issuance of any shares of Common
Stock pursuant to any plan providing for the reinvestment of dividends or
interest payable on securities of the Company and the investment of additional
optional amounts in shares of Common Stock under such plan. All calculations
under this Section 7 shall be made to the nearest cent (with $.005 being
rounded upward) or to the nearest one-tenth of a share (with .05 of a share
being rounded upward), as the case may be. Anything in this paragraph (d) to
the contrary notwithstanding, the Company shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion Price, in addition
to those required by this paragraph (d), as it in its discretion shall
determine to be advisable in order that any stock dividends, subdivision of
shares, reclassification or combination of shares, distribution of rights or
warrants to purchase stock or securities, or a distribution or other assets
(other than cash dividends) hereafter made by the Company to its stockholders
shall not be taxable, or if that is not possible, to diminish any income taxes
that are otherwise payable because of such event.
(e) If the Company shall be a party to any transaction (including
without limitation a merger, consolidation, statutory share exchange, self
tender offer for all or substantially all shares of Common Stock, sale of all
or substantially all of the Company's assets or recapitalization of the
12
<PAGE> 45
Common Stock and excluding any transaction as to which subparagraph (d)(i) of
this Section 7 applies) (each of the foregoing being referred to herein as a
"Transaction"), in each case as a result of which shares of Common Stock shall
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 which is not converted into the right to receive stock, securities or
other property in connection with such Transaction shall thereafter be
convertible into the kind and amount of shares of stock, securities and other
property (including cash or any combination thereof) receivables upon the
consummation of such Transaction by a holder of that number of shares 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 (i)
is not a Person with which the Company consolidated or into which the Company
merged or which merged into the Company or to which such sale or transfer was
made, as the case may be ("Constituent Person"), or an affiliate of a
Constituent Person and (ii) failed to exercise his rights of election, if any,
as to the kind of amount of stock, securities and other property (including
cash) receivable upon such Transaction (provided that if the kind or amount of
stock, securities and other property (including cash) receivable upon such
Transaction is not the same for each share of Common Stock of the Company held
immediately prior to such Transaction by other than a Constituent Person or an
affiliate thereof and in respect of which such rights of election shall not
have been exercised ("Non-Electing Share"), then for the purpose of this
paragraph (e) the kind and amount of stock, securities and other property
(including cash) receivable upon such Transaction by each Non-electing Share
shall be deemed to be the kind and amount so receivable per share by a
plurality of the non-election shares). The Company shall not be a party to any
Transaction unless the terms of such Transaction are consistent with the
provisions of this paragraph (e), and it shall not consent or agree to the
occurrence of any Transaction until the Company has entered into an agreement
with the successor or purchasing entity, as the case may be, for the benefit of
the holders of the Series A Preferred Stock that will contain provisions
enabling the holders of the Series A Preferred Stock that remains outstanding
after such Transaction to convert into the consideration received by holders of
Common Stock at the Conversion Price in effect immediately prior to such
Transaction. The provisions of the paragraph (e) shall similarly apply to
successive Transactions.
(f) If:
(i) the Company shall declare a dividend (or any other
distribution) on the Common Stock (other than Permitted Common Stock Cash
Distributions); or
(ii) the Company shall authorize the granting to the
holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of any class or any other rights or warrants; or
(iii) there shall be any reclassification of the Common
Stock (other than any event to which subparagraph (d)(i) of this Section 7
applies) or any consolidation or merger to which the Company is a party and for
which approval of any stockholders of the Company is required, or a statutory
share exchange, or self tender offer by the Company for all or substantially
all of its outstanding shares of Common Stock or the sale or transfer of all
substantially all of the assets of the Company as an entity; or
13
<PAGE> 46
(iv) there shall occur the involuntary liquidation,
dissolution or winding up of the Company,
then the Company shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of shares of the Service A Preferred Stock at
their addresses as shown on the stock records of the Company, as promptly as
possible, but at least 15 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or rights or warrants, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or rights or warrants are
to be determined or (B) the date on which such reclassification, consolidation,
merger, statutory share exchange, sale, transfer, liquidation, dissolution or
winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock record shall be entitled to exchange
their shares of Common Stock for securities or other property, if any,
deliverable upon such reclassification, consolidation, merger, statutory share
exchange, sale, transfer, liquidation, dissolution or winding up. Failure to
give or receive such notice of any defect therein shall not affect the legality
or validity of the proceedings described in this Section 7.
(g) Whenever the Conversion Price is adjusted as herein provided,
the Company shall promptly file with the Transfer Agent an officer's
certificate setting forth the Conversion Price after such adjustment and
setting forth a brief statement of the facts requiring such adjustment which
certificate shall be conclusive evidence of the correctness of such adjustment
absent manifest error. Promptly after delivery of such certificate, the
Company shall prepare a notice of such adjustment of the Conversion Price
setting forth the adjusted Conversion Price and the effective date of such
adjustment becomes effective and shall mail such notice of such adjustment of
the Conversion Price to the holder of each share of Series A Preferred Stock at
such holder's last address as shown on the stock records of the Company.
(h) In any case in which paragraph (d) of this Section 7 provides
that an adjustment shall become effective on the day next following the record
date for an event, the Company may defer until the occurrence of such event (A)
issuing to the holder of any share of Series A Preferred Stock converted after
such record date and before the occurrence of such event the additional shares
of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment and (B) paying to such
holder any amount of cash in lieu of any fraction pursuant to paragraph (c) of
this Section 7.
(i) There shall be no adjustment of the Conversion Price in case
of the issuance of any stock of the Company in a reorganization, acquisition or
other similar transaction except as specifically set forth in this Section 7.
If any action or transaction would require adjustment of the Conversion Price
pursuant to more than one paragraph of this Section 7, only one adjustment
shall be made and such adjustment shall be the amount of adjustment that has
the highest absolute value.
(j) If the Company shall take any action affecting the Common
Stock, other than action described in this Section 7, that in the opinion of
the Board of Directors would materially adversely
14
<PAGE> 47
affect the conversion rights of the holders of the shares of Series A Preferred
Stock, the Conversion Price for the Series A Preferred Stock may be adjusted,
to the extent permitted by law, in such manner, if any, and at such time, as
the Board of Directors, in its sole discretion, may determine to be equitable
in the circumstances.
(k) The Company covenants that it will at all times reserve and
keep available, free form preemptive rights, out the aggregate of its
authorized but unissued shares of Common Stock for the purpose of effecting
conversion of the Series A Preferred Stock, the full number of shares of Common
Stock deliverable upon the conversion of all outstanding shares of Series A
Preferred Stock not theretofore converted. For purposes of this paragraph (k),
the number of shares of Common Stock shall be deliverable upon the conversion
of all outstanding shares of Series A Preferred Stock shall be computed as if
at the time of computation all such outstanding shares were held by a single
holder.
The Company covenants that any shares of Common Stock issued upon the
conversion of the Series A Preferred Stock shall be validly issued, fully paid
and non-assessable.
The Company shall endeavor to list the shares of Common Stock required
to be delivered upon conversion of the Series A Preferred Stock, prior to such
delivery, upon each national securities exchange, if any, upon which the
outstanding Common Stock is listed at the time of such delivery.
Prior to the delivery of any securities that the Company shall be
obligated to deliver upon conversion of the Series A Preferred Stock, the
Company shall endeavor to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with, or
any approval of or consent to the delivery thereof, by any governmental
authority.
(l) The Company will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares
of Common Stock or other securities or property on conversion of the Series A
Preferred Stock pursuant hereto; PROVIDED, HOWEVER, that the Company shall not
be required to pay any tax that may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock or other securities
or property in a name other than that of the holder of the Series A Preferred
Stock to be converted, and no such issue or delivery shall be made unless and
until the person requesting such issue or delivery has paid to the Company the
amount of any such tax or established, to the reasonable satisfaction of the
Company, that such tax has been paid.
Section 8. RANKING. Any class or series of stock of the Company
shall be deemed to rank:
(a) prior to the Series A Preferred Stock, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in preference or priority to the holders of
Series A Preferred Stock;
15
<PAGE> 48
(b) on a parity with the Series A Preferred Stock, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share thereof be different from
those of the Series A Preferred Stock, if the holders of such class of stock or
series and the Series A Preferred Stock shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accrued and unpaid dividends
per share or liquidation preferences, without preference or priority one over
the other ("Parity Stock"); the Series A Preferred Stock and the Series B
Preferred Stock shall be Parity Stock with respect to the Series A Preferred
Stock; and
(c) junior to the Series A Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Common Stock or if the holders of
Series A Preferred Stock shall be entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of shares of such stock or
series.
Section 9. VOTING.
(a) If and whenever six quarterly dividends (whether or not
consecutive) payable on the Series A Preferred Stock or any series or class of
Parity Stock shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, the number of directors then constituting
the Board of Directors shall be increased by two (if not already increased by
reason of a similar arrearage with respect to any Parity Stock) and the holders
of shares of Series A Preferred Stock, together with the holders of shares of
every other series of Parity Stock (any such other series, the "Voting
Preferred Stock"), voting as a single class regardless of series, shall be
entitled to elect the two additional directors to serve on the Board of
Directors at any annual meeting of stockholders or special meeting held in
place thereof, or at a special meeting of the holders of the Series A Preferred
Stock and the Voting Preferred Stock called as hereinafter provided. Whenever
all arrears in dividends on the Series A Preferred Stock and the Voting
Preferred Stock then outstanding shall have been paid and dividends thereon for
the current quarterly dividend period shall have been paid or declared and set
apart for payment, then the right of the holders of the Series A Preferred
Stock and the Voting Preferred Stock to elect such additional two directors
shall cease (but subject always to the same provision for the vesting of such
voting rights in the case of any similar future arrearages in six quarterly
dividends), and the terms of office of all persons elected as directors by the
holders of the Series A Preferred Stock and the Voting Preferred Stock shall
forthwith terminate and the number of the Board of Directors shall be reduced
accordingly. At any time after such voting power shall have been so vested in
the holders of shares of Series A Preferred Stock and the Voting Preferred
Stock, the secretary of the Company may, and upon the written request of any
holder of Series A Preferred Stock (addressed to the secretary at the principal
office of the corporation) shall, call a special meeting of the holders of the
Series A Preferred Stock and of the Voting Preferred Stock for the election of
the two directors to be elected by them as herein provided, such call to be
made by notice similar to that provided in the Bylaws of the Company for a
special meeting of the stockholders or as required by law. If any such special
meeting required to be called as above provided shall not be called by the
16
<PAGE> 49
secretary within 20 days after receipt of any such request, then any holder of
shares of Series A Preferred Stock may call such meeting, upon the notice above
provided, and for that purpose shall have access to the stock books of the
Company. The directors elected at any such special meeting shall hold office
until the next annual meeting of the stockholders or special meeting held in
lieu thereof if such office shall not have previously terminated as above
provided. If any vacancy shall occur among the directors elected by the
holders of the Series A Preferred Stock and the Voting Preferred Stock, a
successor shall be elected by the Board of Directors, upon the nomination of
the then- remaining director elected by the holders of the Series A Preferred
Stock and the Voting Preferred Stock or the successor of such remaining
director, to serve until the next annual meeting of the stockholders or special
meeting held in place thereof if such office shall not have previously
terminated as provided above.
(b) So long as any shares of Series A Preferred Stock are
outstanding, in addition to any other vote or consent of stockholders required
by law or by the Charter, as amended, the affirmative vote of at least 66 2/3%
of the votes entitled to be cast by the holders of the shares of Series A
Preferred Stock and the Voting Preferred Stock, at the time outstanding, acting
as a single class regardless of series, at any meeting called for the purpose,
shall be necessary for effecting or validation:
(i) Any amendment, alteration or repeal of any of the
provisions of these Articles Supplementary that materially adversely affects
the voting powers, rights or preferences of the holders of the Series A
Preferred Stock or the Voting Preferred Stock; PROVIDED, HOWEVER, that the
amendment of the provisions of the Charter so as to authorize or create, or to
increase the authorized amount, of any Junior Stock or any shares of any class
ranking on a parity with the Series A Preferred Stock or the Voting Preferred
Stock shall not be deemed to materially adversely affect the voting powers,
rights or preferences of the holders of Series A Preferred Stock, and PROVIDED,
FURTHER, that if any such amendment, alteration or repeal would materially
adversely affect any voting powers, rights of preferences of the Series A
Preferred Stock or another series of Voting Preferred Stock that are not
enjoyed by some or all of the other series which otherwise would be entitled to
vote in accordance herewith, the affirmative vote of least 66 2/3% of the votes
entitled to be cast by holders of all series similarly affected, similarly
given, shall be required in lieu of the affirmative vote of at least 66 2/3% of
the votes entitled to be cast by the holders of the shares of Series A
Preferred Stock and the Voting Preferred Stock which otherwise would be
entitled to vote in accordance herewith; or
(ii) The authorization or creation of, or the increase in
the authorized amount of, any shares of any class or any security convertible
into shares of any class ranking prior to the Series A Preferred Stock in the
distribution of assets on any liquidation, dissolution or winding up of the
Company or in the payment of dividends; PROVIDED, HOWEVER, that no such vote of
the holders of Series A Preferred Stock shall be required if, at or prior to
the time when such amendment, alteration or repeal is to take effect, or when
the issuance of any such prior shares of convertible security is to be made, as
the case may be, provision is made for the redemption of all shares of Series A
Preferred Stock at the time outstanding.
17
<PAGE> 50
For purposes of the foregoing provisions of this Section 9, each share
of Series A Preferred Stock shall have one (1) vote per share, except that when
any other series of preferred stock shall have the right to vote with the
Series A Preferred Stock as a single class on any matter, then the Series A
Preferred Stock and such other series shall have with respect to such matters
one (1) vote per $25.00 of stated liquidation preference. Except as otherwise
required by applicable law or as set forth herein, the shares of Series A
Preferred Stock shall not have any relative, participating, optional or other
special voting rights and powers other than as set forth herein, and the
consent of the holders thereof shall not be required for the taking of any
corporate action.
Section 10. RECORD HOLDERS. The Company and the Transfer Agent may
deem and treat the record holder of any shares of Series A Preferred Stock as
the true and lawful owner thereof for all purposes, and neither the Company nor
the Transfer Agent shall be affected by any notice to the contrary.
IN WITNESS WHEREOF, the Company has caused these Articles
Supplementary to be signed in its name and on its behalf on this 30th day of
April, 1996, by its President who acknowledges that these Articles
Supplementary are the act of the Company and that to the best of his knowledge,
information and belief and under penalties for perjury all matters and facts
contained in these Articles Supplementary are true in all material respects.
FELCOR SUITE HOTELS, INC.
By: /s/ THOMAS J. CORCORAN, JR.
---------------------------------
Name: Thomas J. Corcoran, Jr.
----------------------------
Title: President
---------------------------
Attest:
/s/ THOMAS L. WIESE
------------------------------------
Name: Thomas L. Wiese
----------------------------
Title: Secretary
----------------------------
(Corporate Seal)
18
<PAGE> 51
STATE OF MARYLAND
465025
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: AUGUST 09, 1996
THIS IS TO ADVISE YOU THAT THE ARTICLES OF AMENDMENT FOR
FELCOR SUITE HOTELS, INC.
WERE RECEIVED AND APPROVED FOR RECORD ON AUGUST 9, 1996 AT 10:10 AM.
FEE PAID: 50.00
[SEAL]
HARRY J. NOONAN
CHARTER SPECIALIST
<PAGE> 52
ARTICLES OF AMENDMENT
OF
FELCOR SUITE HOTELS, INC.
FelCor Suite Hotels, Inc., a Maryland corporation (the "Corporation"),
certifies as follows:
FIRST: The Corporation desires to amend its Charter as currently in
effect.
SECOND: Article V of the Charter of the Corporation is hereby amended
as set forth below:
(1) the phrase "Except as provided in subsection D.(9) of this
Article V," contained in section D.(2)(b) of Article V shall be
amended to read "Except as provided in subsections D.(9) and D.(12) of
this Article V,"; (2) the phrase "Notwithstanding any other provisions
herein," contained in each of sections D.(2)(c) through D.(2)(f) of
Article V shall be amended to read "Notwithstanding any other
provisions herein, except for subsection D.(12) of this Article V,";
(3) the phrase "Nothing contained in this Article V" contained in
section D.(7) of Article V shall be amended to read "Except for the
provisions of subsection D.(12), nothing contained in this Article V";
and (4) a new section D.(12) shall be added to Article V, providing in
its entirety as follows:
"(12) New York Stock Exchange Transactions.
Nothing in this amended and restated Charter shall prohibit
the settlement of any transaction entered into through the
facilities of the New York Stock Exchange. The immediately
preceding sentence shall not limit the authority of the Board
of Directors to take any and all actions it deems necessary or
advisable to protect the Corporation and the interests of its
stockholders in preserving the Corporation's status as a REIT,
so long as such actions do not prohibit the settlement of any
transactions entered into through the facilities of the New
York Stock Exchange."
THIRD: The amendment of the Corporation's Charter set forth in these
Articles of Amendment was advised by the Board of Directors of the Corporation
and was approved by the shareholders of the Corporation.
<PAGE> 53
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to be executed in its name and on its behalf on the 8th day of
August, 1996, by its Senior Vice President, who acknowledges that these
Articles of Amendment are the act of the Corporation and certifies that, to the
best of his knowledge, information and belief and under penalties for perjury,
all matters and facts contained in these Articles of Amendment are true in all
material respects.
ATTEST: FELCOR SUITE HOTELS, INC.
/s/ THOMAS L. WIESE By: /s/ LAWRENCE D. ROBINSON (SEAL)
- ----------------------------- -----------------------------
Thomas L. Wiese Lawrence D. Robinson
Assistant Secretary Senior Vice President
-2-
<PAGE> 54
STATE OF MARYLAND
544239
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: JUNE 24, 1997
THIS IS TO ADVISE YOU THAT THE ARTICLES OF AMENDMENT FOR
FELCOR SUITE HOTELS, INC.
WERE RECEIVED AND APPROVED FOR RECORD ON JUNE 24, 1997 AT 10:13 AM.
FEE PAID: 50.00
[SEAL]
JOSEPH V. STEWART
CHARTER SPECIALIST
<PAGE> 55
ARTICLES OF AMENDMENT
OF JUNE 24, 1997
FELCOR SUITE HOTELS INC.
FelCor Suite Hotels, Inc., a Maryland corporation (the "Corporation"),
certifies as follows:
FIRST: The Corporation desires to amend its Charter as currently in effect.
SECOND: Article IX of the Charter of the Corporation is hereby amended as
set forth below:
The following shall be deleted:
ARTICLE IX
Limitation on Indebtedness
The Corporation may not incur or suffer to exist as of the end of any
month Indebtedness (as defined below) in an amount in excess of 40% of the
Corporation's investment in hotel properties, at its cost, after giving
effect to the Corporation's use of proceeds from any Indebtedness. The
Corporation's investment in hotel properties shall include all investments
by the Corporation constituting, evidencing or secured by an interest in
property, whether tangible or intangible and whether real, personal or
mixed, that is used or intended for use in, or in any manner connected
with or relating to, the ownership or leasing of hotels. In determining
its cost of such investments, there shall be included (1) the amount of
all cash paid and the value (as determined by the Board of Directors for
purposes of such investment) of any other property transferred therefor
by the Corporation, (2) the amount of all Indebtedness and other
obligations assumed or incurred by the Corporation or to which the
Corporation takes subject, and (3) the value (as determined by the Board
of Directors for the purposes of such investment) of all equity securities
of which the issuer is an entity that is, or upon such investment will be,
included within the Corporation and which are issued (otherwise than for
cash) to, or retained by, any person other than the Corporation in
connection with such investment. For purposes of the foregoing
restriction, (A) "Indebtedness" of the Corporation shall mean the
consolidated liabilities of the Corporation for borrowed money (including
all notes payable and drafts accepted representing extensions of credit)
and all obligations evidenced by bonds, debentures, notes or similar
instruments on which interest charges are customarily paid, including
obligations under capital leases, and (B) "Corporation" shall mean this
Corporation and any subsidiary entity consolidated therewith, under
generally accepted accounting principals.
<PAGE> 56
THIRD: The amendment of the Corporation's Charter set forth in these
Articles of Amendment was advised by the Board of Directors of the Corporation
and was approved by the shareholders of the Corporation.
-2-
<PAGE> 57
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be executed in its name and on its behalf on the 16th day of June, 1997, by
its Senior Vice President, who acknowledges that these Articles of Amendment
are the act of the Corporation and certifies that, to the best of his
knowledge, information and belief and under penalties for perjury, all matters
and facts contained in these Articles of Amendment are true in all material
respects.
ATTEST: FELCOR SUITE HOTELS, INC.
/s/ THOMAS L. WIESE By: /s/ LAWRENCE D. ROBINSON (SEAL)
---------------------------- ----------------------------
Thomas L. Wiese Lawrence D. Robinson
Assistant Secretary Senior Vice President
3
<PAGE> 58
STATE OF MARYLAND
581905
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: NOVEMBER 13, 1997
THIS IS TO ADVISE YOU THAT THE ARTICLES OF AMENDMENT FOR
FELCOR SUITE HOTELS, INC.
WERE RECEIVED AND APPROVED FOR RECORD ON NOVEMBER 10, 1997 AT 7:38 AM.
FEE PAID: 140.00
[SEAL]
JOSEPH V. STEWART
CHARTER SPECIALIST
<PAGE> 59
ARTICLES OF AMENDMENT
TO
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
FELCOR SUITE HOTELS, INC.
The undersigned, on behalf of FelCor Suite Hotels, Inc., a Maryland
corporation, (the "Corporation"), hereby certifies as follows:
FIRST: The Corporation desires to amend its Charter as currently in
effect.
SECOND: Paragraph A of Article V of the Charter of the Corporation is
hereby amended to read in its entirety as follows:
"A. Authorized Shares. The total number of shares of capital stock
that the Corporation shall have authority to issue is One Hundred Ten
Million (110,000,000) shares, consisting of One Hundred Million
(100,000,000) shares of Common Stock, of the par value of One Cent ($0.01)
each, and Ten Million (10,000,000) shares of Preferred Stock, of the par
value of One Cent ($0.01) each, amounting in aggregate par value to One
Million One Hundred Thousand Dollars ($1,100,000.00)."
THIRD: The total number of shares of stock that the Corporation had
authority to issue immediately prior to this amendment is Sixty Million
(60,000,000) shares, consisting of Fifty Million (50,000,000) shares of Common
Stock, par value $.01 per share, and Ten Million Shares (10,000,000) shares of
Preferred Stock, par value $.01 per share, amounting in aggregate par value to
$600,000. The total number of shares of stock that the Corporation has
authority to issue immediately following this amendment is One Hundred and Ten
Million (110,000,000) shares, consisting of One Hundred Million (100,000,000)
shares of Common Stock, par value $.01 per share, and Ten Million Shares
(10,000,000) of Preferred Stock, par value $.01 per share, amounting in
aggregate par value to $1,100,000. The description of each class, including the
preferences,
<PAGE> 60
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption is not
changed by this amendment.
FOURTH: The amendment of the Corporation's Charter set forth in these
Articles of Amendment was advised by the Board of Directors of the Corporation
and was approved by the stockholders of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be executed in its name and on its behalf on the 30th day of October, 1997,
by Lawrence D. Robinson, its Senior Vice President, Secretary and General
Counsel, who acknowledges that these Articles of Amendment are the act of the
Corporation and certifies that, to the best of his knowledge, information and
belief and under penalties for perjury, all matters and facts contained in
these Articles of Amendment are true in all material respects.
ATTEST: FELCOR SUITE HOTELS, INC.
/s/ THOMAS L. WIESE By: /s/ LAWRENCE D. ROBINSON
- ---------------------------- -------------------------
Thomas L. Wiese Lawrence D. Robinson
Assistant Secretary Senior Vice President,
Secretary & General Counsel
-2-
<PAGE> 61
STATE DEPARTMENT OF ASSESSMENTS
AND TAXATION
APPROVED FOR RECORD
5/6/98 AT 11:36 a.m.
ARTICLES SUPPLEMENTARY
OF
FELCOR SUITE HOTELS, INC.
FELCOR SUITE HOTELS, INC., a Maryland corporation (hereinafter
referred to as the "Company"), hereby certifies as follows:
FIRST: Under the authority set forth in Article V of the Charter of
the Company, the Board of Directors of the Company on April 20, 1998, and April
30, 1998, classified 57,500 unissued shares of the Preferred Stock as "9%
Series B Cumulative Redeemable Preferred Stock."
SECOND: A description of the 9% Series B Cumulative Redeemable
Preferred Stock, including the preferences and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as set or changed by the Board of Directors of the
Company is as follows:
Section 1. NUMBER OF SHARES AND DESIGNATION. This series of
preferred stock shall be designated as 9% Series B Cumulative Redeemable
Preferred Stock (the "Series B Preferred Stock"), and 57,500 shall be the
number of shares of Preferred Stock constituting such series.
Section 2. DEFINITIONS. For purposes of the Series B Preferred
Stock, the following terms shall have the meanings indicated:
"Board of Directors" shall mean the Board of Directors of the Company or any
committee authorized by such Board of Directors to perform any of its
responsibilities with respect to the Series B Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which state or federally chartered banking institutions in Texas or New York
are not required to be open.
"Call Date" shall have the meaning set forth in paragraph (c) of Section 5
hereof.
"Common Stock" shall mean the common stock of the Company, par value $0.01 per
share.
"Dividend Payment Date" shall mean the last calendar day of January, April,
July and October in each year, commencing on July 31, 1998; PROVIDED, HOWEVER,
that if any Dividend Payment Date falls on any day other than a Business Day,
the dividend payment due on such Dividend Payment Date shall be paid on the
Business Day immediately following such Dividend Payment Date.
"Dividend Periods" shall mean quarterly dividend periods commencing February 1,
May 1, August 1, and November 1 of each year and ending on and including the
day preceding the first day of the next succeeding Dividend Period (other than
the initial Dividend Period, which shall commence on May 7, 1998 and end on and
include July 31, 1998).
"Issue Date" shall mean the date on which the Company first issues a share of
Series B Preferred Stock.
[STAMP]
<PAGE> 62
"Junior Stock" shall mean the Common Stock and any other class or series of
shares of the Company over which the Series B Preferred Stock has preference or
priority in the payment of dividends or in the distribution of assets on any
liquidation, dissolution or winding up of the Company.
"Parity Stock" shall have the meaning set forth in paragraph (b) of Section 8
hereof.
"Series A Preferred Stock" shall mean the Company's $1.95 Series A Cumulative
Convertible Preferred Stock.
"Series B Preferred Stock" shall have the meaning set forth in Section 1
hereof.
"set apart for payment" shall be deemed to include, without any action other
than the following, the recording by the Company in its accounting ledgers of
any accounting or bookkeeping entry which indicates, pursuant to a declaration
of dividends or other distribution by the Board of Directors, the allocation of
funds to be so paid on any series or class of capital stock of the Company;
PROVIDED, HOWEVER, that if any funds for a class or series of Junior Stock or
any class or series of stock ranking on a parity with the Series B Preferred
Stock as to the payment of dividends are placed in a separate account of the
Company or delivered to a disbursing, paying or other similar agent, then "set
apart for payment" with respect to the Series B Preferred Stock shall mean
placing such funds in a separate account or delivering such funds to a
disbursing, paying or other similar agent.
"Transfer Agent" means SunTrust Bank, Atlanta, Georgia, or such other agent or
agents of the Company as may be designated by the Board of Directors or their
designee as the transfer agent for the Series B Preferred Stock.
"Voting Preferred Stock" shall have the meaning set forth in Section 9(a)
hereof.
Section 3. DIVIDENDS.
(a) The Holders of shares of the Series B Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for that purpose, dividends payable in cash in an
amount per share of Series B Preferred Stock equal to $225.00 per annum. Such
dividends shall be cumulative from May 7, 1998, whether or not in any Dividend
Period or Periods there shall be funds of the Company legally available for the
payment of such dividends, and shall be payable quarterly, when, as and if
declared by the Board of Directors, in arrears on Dividend Payment Dates,
commencing on the first Dividend Payment Date after the Issue Date. Each such
dividend shall be payable in arrears to the holders of record of shares of the
Series B Preferred Stock, as they appear on the stock records of the Company at
the close of business on such record dates, not more than 60 days preceding
such Dividend Payment Dates thereof, as shall be fixed by the Board of
Directors. Accrued and unpaid dividends for any past Dividend Periods may be
declared and paid at any time, without reference to any regular Dividend
Payment Date, to holders of record on such date, not exceeding 45 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
(b) The amount of dividends payable for each full Dividend Period
for the Series B Preferred Stock shall be computed by dividing the annual
dividend rate by four. The amount of
- 2 -
<PAGE> 63
dividends payable for any period shorter or longer than a full Dividend Period,
on the Series B Preferred Stock shall be computed on the basis of a 360-day
year consisting of twelve 30-day months. Holders of the Series B Preferred
Stock shall not be entitled to any dividends, whether payable in cash, property
or stock, in excess of cumulative dividends, as herein provided, on the Series
B Preferred Stock. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series B
Preferred Stock that may be in arrears.
(c) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the immediately following
sentence, shall be declared or paid or set apart for payment on any class or
series of Parity Stock for any period unless full cumulative dividends have
been or contemporaneously are declared and paid, or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series B
Preferred Stock for all Dividend Periods terminating on or prior to the
Dividend Payment Date on such class or series of Parity Stock. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series B Preferred Stock
and all dividends declared upon any other class or series of Parity Stock shall
be declared ratably in proportion to the respective amounts of dividends
accumulated and unpaid on the Series B Preferred Stock and accumulated and
unpaid on such Parity Stock.
(d) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
Junior Stock), shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Stock, nor shall Junior Stock be
redeemed, purchased or otherwise acquired (other than a redemption, purchase or
other acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan of the Company or any subsidiary) for any
consideration (or any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by the Company, directly or
indirectly, unless in each case (i) the full cumulative dividends on all
outstanding shares of the Series B Preferred Stock and any other Parity Stock
of the Company shall have been paid or set apart for payment for all past
Dividend Periods with respect to the Series B Preferred Stock and all past
dividend periods with respect to such Parity Stock and (ii) sufficient funds
shall have been paid or set apart for the payment of the dividend for the
current Dividend Period with respect to the Series B Preferred Stock and the
current dividend period with respect to such Parity Stock. Notwithstanding the
foregoing limitations, the Company may at any time acquire shares of its
capital stock, without regard to rank, for the purpose of preserving its status
as a real estate investment trust ("REIT").
Section 4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or surplus) shall be
made to or set apart for the holders of Junior Stock, the holders of the shares
of Series B Preferred Stock shall be entitled to receive two thousand five
hundred dollars ($2,500.00) per share of Series B Preferred Stock plus an
amount equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution to such holders, but such
holders shall not be entitled to any further payment. If, upon any
liquidation, dissolution or winding up of the Company, the assets of the
Company, or proceeds thereof, distributable among the
- 3 -
<PAGE> 64
holders of the shares of Series B Preferred Stock shall be insufficient to pay
in full the preferential amount aforesaid and liquidating payments on any other
shares of any class or series of Parity Stock, then such assets, or the
proceeds thereof, shall be distributed among the holders of shares of Series B
Preferred Stock and any such other Parity Stock ratably in accordance with the
respective amounts that would be payable on such shares of Series B Preferred
Stock and any such other Parity Stock if all amounts payable thereon were paid
in full. For the purposes of this Section 4, (i) a consolidation or merger of
the Company with one or more corporations, (ii) a sale or transfer of all or
substantially all of the Company's assets, or (iii) a statutory share exchange
shall not be deemed to be a liquidation, dissolution or winding up, voluntary
or involuntary, of the Company.
(b) Subject to the rights of the holders of shares of any series
or class or classes of stock ranking on a parity with or prior to the Series B
Preferred Stock upon liquidation, dissolution or winding up, upon any
liquidation, dissolution or winding up of the Company, after payment shall have
been made in full to the holders of the Series B Preferred Stock, as provided
in this Section 4, any other series or class or classes of Junior Stock shall,
subject to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distributed, and
the holders of the Series B Preferred Stock shall not be entitled to share
therein.
Section 5. REDEMPTION AT THE OPTION OF THE COMPANY.
(a) The Series B Preferred Stock shall not be redeemable by the
Company prior to May 7, 2003. On and after May 7, 2003, the Company, at its
option, may redeem the shares of Series B Preferred Stock in whole or in part,
as set forth herein, subject to the provisions described below.
(b) The Series B Preferred Stock may be redeemed, in whole or in
part, at the option of the Company, at any time or from time to time, upon not
less than 30 nor more than 60 days' prior written notice. In order to exercise
its redemption option, the Company must issue a press release announcing the
redemption (the "Press Release"). The Company may not issue a Press Release
prior to May 7, 2003. The Press Release shall announce the redemption and set
forth the number of shares of Series B Preferred Stock which the Company
intends to redeem. The Call Date shall be selected by the Company, shall be
specified in the notice of redemption and, subject to the provisions of Section
5(e) below, shall be not less than 30 days or more than 60 days after the date
on which the Company issues the Press Release.
(c) Upon redemption of Series B Preferred Stock by the Company on
the date specified in the notice to holders required under subparagraph (e) of
this Section 5 (the "Call Date"), each share of Series B Preferred Stock to be
redeemed shall be redeemed in cash at a price per share equal to $2,500.00 per
share, plus all accrued and unpaid distributions thereon to the Call Date,
without interest, to the extent that the Company has funds legally available
therefor. The redemption price of the Series B Preferred Stock (other than any
portion thereof consisting of accrued and unpaid distributions) must be paid
solely from the sale proceeds of other capital stock of the Company and not
from any other source. For purposes of the foregoing sentence, "capital stock"
means any common stock, preferred stock, depositary shares, interests,
participations, or other ownership interests (however designated) and any
rights (other than debt securities convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing. Dividends payable on
the shares of Series B Preferred Stock for any period greater or less than a
full dividend period
- 4 -
<PAGE> 65
will be computed on the basis of a 360-day year consisting of twelve 30-day
months. Except as provided above, the Company shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on shares of Series
B Preferred Stock called for redemption or on the shares of capital stock
issued upon such redemption.
(d) If full cumulative dividends on the Series B Preferred Stock
and any other class or series of Parity Stock of the Company have not been paid
or declared and set apart for payment, the Series B Preferred Stock may not be
redeemed in part and the Company may not purchase or acquire shares of Series B
Preferred Stock, otherwise than pursuant to a purchase or exchange offer made
on the same terms to all holders of shares of Series B Preferred Stock.
(e) If the Company shall redeem shares of Series B Preferred Stock
pursuant to paragraph (a) of this Section 5, notice of such redemption shall be
given to the beneficial holders of the Series B Preferred Stock by the Company
not less than thirty Business Days before the Call Date. Such notice shall be
provided by first class mail, postage prepaid, at such holder's address as the
same appears on the stock records of the Company, or by publication in THE WALL
STREET JOURNAL or THE NEW YORK TIMES, or if neither such newspaper is then
being published, any other daily newspaper of national circulation. If the
Company elects to provide such notice by publication, it shall also promptly
mail notice of such redemption to the holders of the Series B Preferred Stock
to be redeemed. Neither the failure to mail any notice required by this
paragraph (e), nor any defect therein or in the mailing thereof, to any
particular holder, shall affect the sufficiency of the notice or the validity
of the proceedings for redemption with respect to the other holders. Any notice
which was mailed in the manner herein provided shall be conclusively presumed
to have been duly given on the date mailed whether or not the holder receives
the notice. Each such mailed or published notice shall state, as appropriate:
(1) the Call Date: (2) the number of shares of Series B Preferred Stock to be
redeemed from such holder; (3) the redemption price; (4) the place or places
where the Series B Preferred Stock is to be surrendered for payment of the
redemption price; and (5) that dividends on the shares to be redeemed shall
cease to accrue on such Call Date except as otherwise provided herein. Notice
having been published or mailed as aforesaid, from and after the Call Date
(unless the Company shall fail to make available the amount of cash necessary
to effect such redemption), (i) except as otherwise provided herein, dividends
on the shares of the Series B Preferred Stock so called for redemption shall
cease to accrue, (ii) said shares shall no longer be deemed to be outstanding,
and (iii) all rights of the holders thereof as holders of Series B Preferred
Stock of the Company shall cease (except the rights to receive the cash payable
upon such redemption, without interest thereon, upon surrender and endorsement
of their certificates). The Company's obligation to provide cash in accordance
with the preceding sentence shall be deemed fulfilled if, on or before the Call
Date, the Company shall deposit with a bank or trust company (which may be an
affiliate of the Company) that has an office in the Borough of Manhattan, City
of New York and that has, or is an affiliate of a bank or trust company that
has, a capital and surplus of at least $50,000,000, any cash necessary for such
redemption, in trust, with irrevocable instructions that such cash be applied
to the redemption of the shares of Series B Preferred Stock so called for
redemption. At the close of business on the Call Date, each share Series B
Preferred Stock to be redeemed pursuant to Section 5(c)(i) (unless the Company
defaults in the delivery of the cash payable on such Call Date) shall be deemed
to be no longer outstanding regardless of whether such holder has surrendered
the certificates representing the Series B Preferred Stock. No interest shall
accrue for the benefit of the holders of Series B Preferred Stock to be
redeemed on any cash so set aside by the Company. Subject to applicable escheat
laws,
- 5 -
<PAGE> 66
any such cash unclaimed at the end of two years from the Call Date (together
with any interest or other earnings accrued thereon) shall revert to the
general funds of the Company, after which reversion the holders of such shares
so called for redemption shall look only to the general funds of the Company
for the payment of such cash, and shall have no right to interest from and
after the Call Date.
As promptly as practicable after the surrender in accordance with said
notice of the certificates for any such shares so redeemed (properly endorsed
or assigned for transfer, if the Company shall so require and if the notice
shall so state), such shares shall be exchanged for cash (without interest
thereon) for which such shares have been redeemed. If fewer than all the
outstanding shares of Series B Preferred Stock are to be redeemed, shares to be
redeemed shall be selected by the Company from outstanding shares of Series B
Preferred Stock not previously called for redemption by lot or pro rata (as
nearly as may be) or by any other method determined by the Company in its sole
discretion to be equitable. If fewer than all the shares of Series B Preferred
Stock represented by any certificate are redeemed, then new certificates
representing the unredeemed shares shall be issued without cost to the holder
thereof.
(f) Notwithstanding the foregoing, the Company may at any time
acquire shares of its capital stock, without regard to rank, for the purpose of
preserving its status as a REIT, for purposes of an employee benefit plan of
the Company, or in accordance with the conversion or redemption provisions of
any class of Preferred Stock ranking on parity with or senior to the Series B
Preferred Stock.
(g) The procedures for redeeming any depositary receipts
evidencing fractional interests in the Series B Preferred Stock shall be the
same as the procedures for redeeming the Series B Preferred Stock contained in
this Section 5 except that the depositary agent that issued the depositary
receipts being redeemed may act on behalf of the Company.
Section 6. SHARES TO BE RETIRED.
All shares of Series B Preferred Stock which shall have been issued
and reacquired in any manner by the Company shall be restored to the status of
authorized but unissued shares of Preferred Stock, without designation as to
series. The Company may also retire any unissued shares of Series B Preferred
Stock, and such shares shall then be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to series.
Section 7. CONVERSION.
Holders of shares of Series B Preferred Stock shall have no conversion
rights.
Section 8. RANKING. Any class or series of stock of the Company
shall be deemed to rank:
(a) prior to the Series B Preferred Stock, as to the payment of
dividends and as to distribution of assets upon liquidation, dissolution or
winding up, if the holders of such class or series shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
- 6 -
<PAGE> 67
or winding up, as the case may be, in preference or priority to the holders of
Series B Preferred Stock;
(b) on a parity with the Series B Preferred Stock, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share thereof be different from
those of the Series B Preferred Stock, if the holders of such class of stock or
series and the Series B Preferred Stock shall be entitled to the receipt of
dividends and of amounts distributable upon liquidation, dissolution or winding
up in proportion to their respective amounts of accrued and unpaid dividends
per share or liquidation preferences, without preference or priority one over
the other ("Parity Stock"); the Series A Preferred Stock shall be Parity Stock
with respect to the Series B Preferred Stock; and
(c) junior to the Series B Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Common Stock or if the holders of
Series B Preferred Stock shall be entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of shares of such stock or
series.
Section 9. VOTING.
(a) If and whenever six quarterly dividends (whether or not
consecutive) payable on the Series B Preferred Stock or any series or class of
Parity Stock shall be in arrears (which shall, with respect to any such
quarterly dividend, mean that any such dividend has not been paid in full),
whether or not earned or declared, the number of directors then constituting
the Board of Directors shall be increased by two (if not already increased by
reason of a similar arrearage with respect to any Parity Stock) and the holders
of shares of Series B Preferred Stock, together with the holders of shares of
every other series of Parity Stock (any such other series, the "Voting
Preferred Stock"), voting as a single class regardless of series, shall be
entitled to elect the two additional directors to serve on the Board of
Directors at any annual meeting of stockholders or special meeting held in
place thereof, or at a special meeting of the holders of the Series B Preferred
Stock and the Voting Preferred Stock called as hereinafter provided. Whenever
all arrearages dividends on the Series B Preferred Stock and the Voting
Preferred Stock then outstanding shall have been paid and dividends thereon for
the current quarterly dividend period shall have been paid or declared and set
apart for payment, then the right of the holders of the Series B Preferred
Stock and the Voting Preferred Stock to elect such additional two directors
shall cease (but subject always to the same provision for the vesting of such
voting rights in the case of any similar future arrearages in six quarterly
dividends), and the terms of office of all persons elected as directors by the
holders of the Series B Preferred Stock and the Voting Preferred Stock shall
forthwith terminate and the number of the Board of Directors shall be
automatically reduced accordingly. At any time after such voting power shall
have been so vested in the holders of shares of Series B Preferred Stock and
the Voting Preferred Stock, the secretary of the Company may, and upon the
written request of any holder of Series B Preferred Stock or any holder of
depositary receipts evidencing a fractional interest in the Series B Preferred
Stock (addressed to the secretary at the principal office of the Company)
shall, call a special meeting of the holders of the Series B Preferred Stock
and the Voting Preferred Stock for the election of the two directors to be
elected by them as herein provided, such call to be made by notice similar to
that
- 7 -
<PAGE> 68
provided in the Bylaws of the Company for a special meeting of the stockholders
or as required by law. If any such special meeting required to be called as
above provided shall not be called by the secretary within 20 days after
receipt of any such request, then any holder of shares of Series B Preferred
Stock (or depositary receipts representing shares of Series B Preferred Stock)
may call such meeting, upon the notice above provided, and for that purpose
shall have access to the stock books of the Company. The directors elected at
any such special meeting shall hold office until the next annual meeting of the
stockholders or special meeting held in lieu thereof if such office shall not
have previously terminated as above provided. If any vacancy shall occur among
the directors elected by the holders of the Series B Preferred Stock and the
Voting Preferred Stock, a successor shall be elected by the Board of Directors,
upon the nomination of the then-remaining director elected by the holders of
the Series B Preferred Stock and the Voting Preferred Stock or the successor of
such remaining director, to serve until the next annual meeting of the
stockholders or special meeting held in place thereof if such office shall not
have previously terminated as provided above.
(b) So long as any shares of Series B Preferred Stock are
outstanding, in addition to any other vote or consent of stockholders required
by law or by the Charter, as amended, the affirmative vote of at least 66 2/3%
of the votes entitled to be cast by the holders of the shares of Series B
Preferred Stock and the Voting Preferred Stock, at the time outstanding, acting
as a single class regardless of series, at any meeting called for the purpose,
shall be necessary for effecting or validating the following:
(i) Any amendment, alteration or repeal of any of the
provisions of these Articles Supplementary that materially adversely affects
the voting powers, rights or preferences of the holders of the Series B
Preferred Stock or the Voting Preferred Stock; PROVIDED, HOWEVER, that the
amendment of the provisions of the Charter so as to authorize or create, or to
increase the authorized amount, of any Junior Stock or any shares of any class
ranking on a parity with the Series B Preferred Stock or the Voting Preferred
Stock shall not be deemed to materially adversely affect the voting powers,
rights or preferences of the holders of Series B Preferred Stock, and PROVIDED,
FURTHER, that if any such amendment, alteration or repeal would materially
adversely affect any voting powers, rights of preferences of the Series B
Preferred Stock or another series of Voting Preferred Stock that are not
enjoyed by some or all of the other series which otherwise would be entitled to
vote in accordance herewith, the affirmative vote of least 66 2/3% of the votes
entitled to be cast by holders of all series similarly affected, similarly
given, shall be required in lieu of the affirmative vote of at least 66 2/3% of
the votes entitled to be cast by the holders of the shares of Series B
Preferred Stock and the Voting Preferred Stock which otherwise would be
entitled to vote in accordance herewith;
(ii) Enter into a share exchange that affects the Series B
Preferred Stock, consolidate with or merge into another entity, or permit
another entity to consolidate with or merge into the Company, unless in each
such case, each share of Series B Preferred Stock remains outstanding without a
material and adverse change to its terms and rights or is converted into or
exchanged for a share of preferred stock of the surviving entity having
preferences, rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms and conditions of redemption identical
to those of a share of Series B Preferred Stock (except for changes that do not
materially and adversely affect the holders of the Series B Preferred Stock);
or
- 8 -
<PAGE> 69
(iii) The authorization, reclassification, or creation of,
or the increase in the authorized amount of, any shares of any class or any
security convertible into shares of any class ranking prior to the Series B
Preferred Stock in the distribution of assets on any liquidation, dissolution
or winding up of the Company or in the payment of dividends.
For purposes of the foregoing provisions of this Section 9, each share
of Series B Preferred Stock shall have one hundred (100) votes per share, each
of which 100 votes may be directed separately by the holder thereof (or by any
proxy or proxies of such holder). With respect to each share of the Series B
Preferred Stock, the holder thereof may designate up to 100 proxies, with each
proxy having the right to vote a whole number of votes (totaling 100 votes per
share of Series B Preferred Stock). Except as otherwise required by applicable
law or as set forth herein, the shares of Series B Preferred Stock shall not
have any relative, participating, optional or other special voting rights and
powers other than as set forth herein, and the consent of the holders thereof
shall not be required for the taking of any corporate action.
Section 10. RECORD HOLDERS. The Company and the Transfer Agent may
deem and treat the record holder of any shares of Series B Preferred Stock as
the true and lawful owner thereof for all purposes, and neither the Company nor
the Transfer Agent shall be affected by any notice to the contrary.
[Signatures On Following Page.]
- 9 -
<PAGE> 70
IN WITNESS WHEREOF, the Company has caused these Articles
Supplementary to be signed in its name and on its behalf on this 1st day of
May, 1998, by its Senior Vice President who acknowledges that these Articles
Supplementary are the act of the Company and that to the best of his knowledge,
information and belief and under penalties for perjury all matters and facts
contained in these Articles Supplementary are true in all material respects.
FELCOR SUITE HOTELS, INC.
By: /s/ Randall L. Churchey
----------------------------------
Randall L. Churchey,
Senior Vice President
Attest:
/s/ Lawrence D. Robinson
--------------------------------------
Lawrence D. Robinson, Secretary
(Corporate Seal)
- 10 -
<PAGE> 71
STATE OF MARYLAND
652537
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
I, RITA WINSTON OF THE STATE DEPARTMENT OF ASSESSMENTS AND TAXATION OF THE
STATE OF MARYLAND, DO HEREBY CERTIFY THAT SAID DEPARTMENT, BY THE LAWS OF SAID
STATE, IS THE CUSTODIAN OF THE RECORDS OF THIS STATE RELATING TO THE FORFEITURE
OR SUSPENSION OF CORPORATE CHARTERS, OR OF CORPORATIONS TO TRANSACT BUSINESS IN
THIS STATE; AND I AM THE PROPER OFFICER TO EXECUTE THIS CERTIFICATE.
I FURTHER CERTIFY THAT FELCOR LODGING TRUST INCORPORATED IS A CORPORATION
DULY INCORPORATED AND EXISTING UNDER AND BY VIRTUE OF THE LAWS OF MARYLAND AND
SAID CORPORATION HAS FILED ALL ANNUAL REPORTS REQUIRED, HAS NO OUTSTANDING LATE
FILING PENALTIES ON THOSE REPORTS, AND HAS A RESIDENT AGENT. THEREFORE, THE
CORPORATION IS AT THE TIME OF THIS CERTIFICATE IN GOOD STANDING WITH THIS
DEPARTMENT AND DULY AUTHORIZED TO EXERCISE ALL THE POWERS RECITED IN ITS CHARTER
OR CERTIFICATE OF INCORPORATION, AND TO TRANSACT BUSINESS IN THE STATE OF
MARYLAND.
[SEAL] IN WITNESS WHEREOF, I HAVE HEREUNTO SET
MY HAND AND AFFIXED THE SEAL OF THE STATE
DEPARTMENT OF ASSESSMENTS AND TAXATION OF
MARYLAND AT BALTIMORE THIS 27TH DAY OF
JULY, 1998.
/s/ RITA WINSTON
------------------------------
RITA WINSTON
AT5-031 CHARTER DIVISION
<PAGE> 72
STATE OF MARYLAND
657345
STATE DEPARTMENT OF
ASSESSMENTS AND TAXATION
301 West Preston Street Baltimore, Maryland 21201
DATE: JULY 27, 1998
THIS IS TO ADVISE YOU THAT THE ARTICLES OF MERGER WITH A NAME CHANGE FOR
FELCOR SUITE HOTELS, INC. (MD)-- SURVIVOR AND BRISTOL HOTEL COMPANY (DE)--
MERGING OUT CHANGING TO FELCOR LODGING TRUST INCORPORATED WERE RECEIVED AND
APPROVED FOR RECORD ON JULY 27, 1998 AT 11:22 AM.
FEE PAID: 101.00
IRENE B WOZNY
CHARTER SPECIALIST
[SEAL]
AT5-031
<PAGE> 73
STATE DEPARTMENT OF ASSESSMENTS
AND TAXATION
APPROVED FOR RECORD
7/27/98 at 11:22 a.m.
------- ----------
RECEIVED
'98 JUL 27 11:22
ARTICLES OF MERGER
BETWEEN
FELCOR SUITE HOTELS, INC.,
(a Maryland corporation)
AND
BRISTOL HOTEL COMPANY,
(a Delaware corporation)
These ARTICLES OF MERGER are made and entered into as of July 27, 1998, by
and between FelCor Suite Hotels, Inc., a Maryland corporation, and Bristol Hotel
Company, a Delaware corporation, each of which certifies as follows:
FIRST: Bristol Hotel Company (the "Merging Corporation") and FelCor Suite
Hotels, Inc. (the "Successor Corporation") agree to merge in accordance with the
terms and conditions set forth herein and in the Agreement and Plan of Merger,
dated March 23, 1998, by and between the Successor Corporation and the Merging
Corporation (the "Merger Agreement").
SECOND: The Merger will be effective at 9:00 a.m. Eastern time on July 28,
1998 (the "Effective Time", and the date on which the Effective Time occurs, the
"Effective Date").
THIRD: The name of the Merging Corporation is Bristol Hotel Company, which
is incorporated under the laws of the State of Delaware. The name of the
Successor Corporation is FelCor Suite Hotels, Inc., which is incorporated under
the laws of the State of Maryland. At the Effective Time, the name of the
Successor Corporation will be FelCor Lodging Trust Incorporated.
FOURTH: The Merging Corporation was incorporated under the General
Corporation Law of the State of Delaware on November 14, 1994. The Merging
Corporation is not registered or qualified to do business in the State of
Maryland.
FIFTH: The principal office in Maryland of the Successor Corporation is
located in Baltimore City at 11 East Chase Street, Baltimore, Maryland 21202.
The Merging Corporation does not have an office in the State of Maryland.
SIXTH: The Merging Corporation does not own any interest in land in the
State of Maryland, the title to which could be affected by recording an
instrument in the land records.
SEVENTH: (a) The total number of shares of stock of all classes that the
Merging Corporation has authority to issue is (i) 150,000,000 shares of common
stock, par value of $0.01 per share (each a "Merging Corporation Common Share"),
and (ii) 50,000,000 shares of preferred stock, par value of $0.01 per share
(each a "Merging Corporation Preferred Share"). The aggregate par value of all
shares of all classes of stock of the Merging Corporation is $2,000,000.
[STAMP]
<PAGE> 74
The total number of shares of stock of all classes that the Successor
Corporation has authority to issue is (i) 100,000,000 shares of common stock,
par value of $0.01 per share (each, a "Successor Corporation Common Share"), and
(ii) 10,000,000 shares of preferred stock, par value of $0.01 per share (each,
a "Successor Corporation Preferred Share"), 6,050,000 of which have been
designated as $1.95 Series A Cumulative Convertible Preferred Stock," par value
of $0.01 per share (each, a "Successor Corporation Series A Preferred Share")
and 57,000 of which have been designated as "9% Series B Cumulative Redeemable
Preferred Stock," par value of $0.01 per share (each, a "Successor Corporation
Series B Preferred Share"). The aggregate par value of all shares of all classes
of the Successor Corporation is $1,100,000.
(b) At the Effective Time, the charter of the Successor Corporation will be
amended such that the total number of shares of stock of all classes that the
Successor Corporation will have authority to issue will be (i) 200,000,000
Successor Corporation Common Shares, and (ii) 20,000,000 Successor Corporation
Preferred Shares, 6,050,000 of which will have been designated as Successor
Corporation Series A Preferred Shares and 57,000 of which will have been
designated as Successor Corporation Series B Preferred Shares. The aggregate par
value of all shares of all classes of the Successor Corporation will be
$2,200,000.
EIGHTH: The manner and basis of converting or exchanging outstanding stock
of the Merging Corporation into stock of the Successor Corporation or other
consideration and the treatment of any outstanding stock of the Successor
Corporation not to be converted or exchanged will be as follows:
(a) Subject to the provisions of clause (c) below, each Merging
Corporation Common Share outstanding immediately prior to the Effective
Time will be converted into the right to receive 0.685 (the "Exchange
Ratio") of a validly issued, fully paid and nonassessable Successor
Corporation Common Share, and each Merging Corporation Common Share
theretofore outstanding will cease to be outstanding and will cease to
exist, and each holder of a certificate representing such Merging
Corporation Common Shares will thereafter cease to have any rights with
respect to such shares, except the right to receive, without interest, the
number of Successor Corporation Common Shares as calculated pursuant to
this clause (a) and cash in lieu of fractional Successor Corporation Common
Shares in accordance with clause (c) below, upon the surrender of the stock
certificate for such Merging Corporation Common Shares;
(b) Each Successor Corporation Common Share, Successor Corporation
Series A Preferred Share and Successor Corporation Series B Preferred Share
outstanding immediately prior to the Effective Time will remain
outstanding;
(c) Notwithstanding any other provision hereof, no fractional
Successor Corporation Common Shares will be issued in connection with the
Merger. No such holder will be entitled to dividends, voting rights or any
other stockholder rights in respect of any fractional share. Instead, each
holder of outstanding Merging Corporation Common Shares having a fractional
interest arising upon the conversion or exchange of such shares in the
Merger will, at the time of surrender of its certificate representing
Merging Corporation Common Shares, be paid by the Successor Corporation an
amount in cash equal to the Closing Price immediately preceding the
Effective Time multiplied by the fraction of Successor Corporation Common
Shares to which such holder would
2
<PAGE> 75
otherwise be entitled. For purposes of this clause (c), "Closing Price"
means the closing price of the Successor Corporation Common Shares (as
reported in the New York Stock Exchange, Inc. Composite Tape) on the
business day immediately preceding the Effective Date; and
(d) Each Merging Corporation Common Share issued and held in the
Merging Corporation's treasury or by FelCor or any wholly owned subsidiary
of FelCor at the Effective Time, if any, will cease to be outstanding and
will be canceled and retired and will cease to exist without payment of any
consideration therefor.
NINTH: The terms and conditions of the transaction set forth in these
Articles of Merger were advised, authorized and approved by the Merging
Corporation in the manner and by the vote required by its certificate of
incorporation and bylaws and the laws of the State of Delaware. The terms and
conditions of the transaction set forth in these Articles of Merger, including
the Articles of Amendment attached hereto, were advised, authorized and approved
by the Successor Corporation in the manner and by the vote required by its
charter and bylaws and the laws of the State of Maryland. The manner of approval
by the Merging Corporation and the Successor Corporation of the transactions set
forth in these Articles of Merger was as follows:
(a) The Board of Directors of the Merging Corporation adopted a
resolution by unanimous vote on March 23, 1998, which declared that the
transaction set forth in these Articles of Merger is advisable and directed
that the Merger Agreement be submitted for adoption by the stockholders of
the Merging Corporation at an annual meeting of the stockholders of the
Merging Corporation held on July 27, 1998. Notice which stated that a
purpose of the annual meeting was to act on the Merger contemplated by
these Articles of Merger was given in the manner required by the applicable
provisions of the General Corporation Law of the State of Delaware to each
stockholder entitled to such notice. The Merger Agreement was adopted by
the stockholders of the Merging Corporation at the annual meeting of the
stockholders of the Merging Corporation held on July 27, 1998 by the
affirmative vote of a majority of all the votes entitled to be cast on the
matter in accordance with the certificate of incorporation of the Merging
Corporation and the General Corporation Law of the State of Delaware.
(b) The Board of Directors of the Successor Corporation adopted a
resolution by unanimous vote on March 23, 1998, which declared that the
transaction set forth in these Articles of Merger is advisable and directed
that the transaction be submitted for consideration by the stockholders of
the Successor Corporation at the annual meeting of the stockholders of the
Successor Corporation held on July 27, 1998. Notice which stated that a
purpose of the annual meeting was to act on the Merger contemplated by
these Articles of Merger, including the Articles of Amendment attached
hereto, was given in the manner required by the applicable provisions of
the Maryland General Corporation Law to each stockholder entitled to such
notice. The transaction set forth in these Articles of Merger, including
the Articles of Amendment attached hereto, was approved by the stockholders
of the Successor Corporation at the annual meeting of the stockholders of
the Successor Corporation held on July 27, 1998 by the affirmative vote of
a majority of all the votes entitled to be cast on the matter in accordance
with the charter of the Successor Corporation and the Maryland General
Corporation Law.
3
<PAGE> 76
TENTH: At the Effective Time, the Articles of Amendment and Restatement of
the Successor Corporation will be amended in the manner set forth in Exhibit A
hereto.
4
<PAGE> 77
IN WITNESS WHEREOF, the Merging Corporation and the Successor Corporation
have caused these Articles of Merger to be signed in their respective corporate
names and on their behalf by their respective President, Vice-President,
Chairman of the Board or Vice Chairman of the Board and attested to by their
respective Secretary or Assistant Secretary as of the 27th day of July, 1998.
ATTEST: FELCOR SUITE HOTELS, INC.,
a Maryland corporation
By: /s/ LAWRENCE D. ROBINSON By: /s/ RANDALL L. CHURCHEY
---------------------------- -----------------------------
Secretary Name: Randall L. Churchey
Title: Senior Vice President
BRISTOL HOTEL COMPANY,
a Delaware corporation
By: /s/ [ILLEGIBLE] By: /s/ JEFFREY P. MAYER
------------------------- ------------------------------
Assistant Secretary Name: Jeffrey P. Mayer
Title: Vice President
5
<PAGE> 78
The undersigned, being the duly elected and acting Senior Vice President of
FelCor Suite Hotels, Inc., a Maryland corporation, hereby acknowledges that the
foregoing Articles of Merger, of which this Certificate is a part, are the act
of FelCor Suite Hotels, Inc., a Maryland corporation, and certifies that, to the
best of his knowledge, information and belief and under penalties for perjury,
all matters and facts contained in these Articles of Merger relating to FelCor
Suite Hotels, Inc., a Maryland corporation, are true in all material respects.
/s/ RANDALL L. CHURCHEY
---------------------------------
Name: Randall L. Churchey
Senior Vice President
6
<PAGE> 79
The undersigned, being the duly elected and acting Vice President of
Bristol Hotel Company, a Delaware corporation, hereby acknowledges that the
foregoing Articles of Merger, of which this Certificate is a part, are the act
of Bristol Hotel Company, a Delaware corporation, and certifies that, to the
best of his knowledge, information and belief and under penalties for perjury,
all matters and facts contained in these Articles of Merger relating to Bristol
Hotel Company, a Delaware corporation, are true in all material respects.
/s/ JEFFREY P. MAYER
----------------------------------
Name: Jeffrey P. Mayer
Vice President
7
<PAGE> 80
EXHIBIT A
---------
ARTICLES OF AMENDMENT
TO
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
FELCOR SUITE HOTELS, INC.
The undersigned, on behalf of FelCor Suite Hotels, Inc., a Maryland
corporation (the "Corporation"), hereby certifies as follows:
FIRST: The Corporation desires to amend its Charter as currently in effect.
SECOND: Article II of the Charter of the Corporation is hereby amended to
read in its entirety as follows:
"Article II.
Name.
The name of the Corporation is: FelCor Lodging Trust Incorporated."
THIRD: Paragraph A of Article V of the Charter of the Corporation is hereby
amended to read in its entirety as follows:
"A. Authorized Shares. The total number of shares of capital stock
that the Corporation shall have authority to issue is Two Hundred Twenty
Million (220,000,000) shares, consisting of Two Hundred Million
(200,000,000) shares of Common Stock, of the par value of One Cent ($0.01)
each, and Twenty Million (20,000,000) shares of Preferred Stock, of the par
value of One Cent ($0.01) each, amounting in aggregate par value to Two
Million Two Hundred Thousand Dollars ($2,200,000.00)."
<PAGE> 81
FOURTH: The total number of shares of stock that the Corporation had
authority to issue immediately prior to this amendment is One Hundred Ten
Million (110,000,000) shares, consisting of One Hundred Million (100,000,000)
shares of Common Stock, par value $.01 per share, and Ten Million Shares
(10,000,000) shares of Preferred Stock, par value $.01 per share, amounting in
aggregate par value to $1,100,000. The total number of shares of stock that the
Corporation has authority to issue immediately following this amendment is Two
Hundred and Twenty Million (220,000,000) shares, consisting of Two Hundred
Million (200,000,000) shares of Common Stock, par value $.01 per share, and
Twenty Million Shares (20,000,000) of Preferred Stock, par value $.01 per share,
amounting in aggregate par value to $2,200,000. The description of each class,
including the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption is not changed by this amendment.
FIFTH: The amendment of the Corporation's Charter set forth in these
Articles of Amendment was advised by the Board of Directors of the Corporation
and was approved by the stockholders of the Corporation.
<PAGE> 82
State of Maryland PARRIS N. GLENDENING
[SEAL] Governor
DEPARTMENT OF RONALD W. WINEHOLT
ASSESSMENTS AND TAXATION Director
PAUL B. ANDERSON
Charter Division Administrator
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
DOCUMENT CODE 11A BUSINESS CODE COUNTY
------------- --------- ----------
# P.A. Religious Close Stock Nonstock
----------- ---- ---- ---- ---- ----
Merging Bristol Hotel Surviving Felcor Suite
--------------- --------------------------------
Company Hotels, Inc.
- --------------------------- --------------------------------------------
(DE) D4126926
- --------------------------- --------------------------------------------
- --------------------------- --------------------------------------------
CODE AMOUNT FEE REMITTED
- ---- ------ ------------
10 59 Expedited Fee (New Name) Felcor Lodging
------ ----------------------------------
61 Rec. Fee (Arts. of Inc.) Trust Incorporated
------ --------------------------------------------
20 Organ. & Capitalization
------ --------------------------------------------
62 Rec. Fee (Amendment)
------
63 20 Rec. Fee (Merger, Consol.)
------
64 Rec. Fee (Transfer)
------
66 Rec. Fee (Revival) X Change of Name
------ -----
65 Rec. Fee (Dissolution) Change of Principal Office
------ -----
Special Fee Change of Resident Agent
------ -----
Certificate of Conveyance Change of Resident Agent
------ ----- Address
------------------------------
Resignation of Resident Agent
------------------------------ -----
Designation of Resident Agent
------------------------------ ----- and Resident Agent's Address
21 Recordation Tax
------ Change of Business Code
22 State Transfer Tax -----
------ ---------------------------------
23 Local Transfer Tax Adoption of Assumed Name
------ -----
70 Change of P.O., R.A. or R.A.A. ---------------------------------
------
31 6 1 Corp. Good Standing ---------------------------------
------ -------
600 Returns ---------------------------------
- -----------------------------------------------------------
52 Foreign Qualification
------
NA Foreign Registration Other Change(s)
------ ----- ------------------
51 Foreign Name Registration
------ ---------------------------------
53 Foreign Resolution
------ ---------------------------------
54 For. Supplement Cert.
------
56 Penalty CODE 045
------ ----------------------
50 Cert. of Qual. or Reg.
- -----------------------------------------------------------
83 Cert. Limited Partnership ATTENTION: /S/ DAVID GIBBONS
------ --------------------------
84 Amendment to Limited Partnership
------ ------------------------------------
85 Termination of Limited Partnership
------ ------------------------------------
80 For. Limited Partnership
------
91 Amend/Cancellation, For. Limited Part.
------
87 Limited Part. Good Standing
- -----------------------------------------------------------
67 Cert. Limited Liability Partnership
------
68 LLP Amendment - Domestic MAIL TO ADDRESS:
------
Foreign Limited Liability Partnership --------------------
------
LLP Amendment - Foreign ------------------------------------
- -----------------------------------------------------------
99 Art. of Organization (LLC) ------------------------------------
------
98 LLC Amendment, Diss, Continuation ------------------------------------
------
97 LLC Cancellation. ------------------------------------
------
96 Registration Foreign LLC
------
94 Foreign LLC Supplemental
------
92 LLC Good Standing (short)
- -----------------------------------------------------------
13 16 1 Certified Copy 10
------ ------------- ----------------
Other
- -- ------ ---------------------------------------
TOTAL NOTE:
FEES 101 Credit Card ----
---------- ----- Effective: 7/28/98 9:00am
Eastern Time
X Check Cash
----- -----
Documents on checks
- -------------------- -------
APPROVED BY:
--------------
Room 809 - 301 West Preston Street - Baltimore, Maryland 21201
Phone: (410) 767-1350 - Fax (410) 333-7097 - TTY users call Maryland Relay 1-800-738-2258
Toll Free in MD: 1-888-246-5941 - web site: http://www.dat.state.md.us
</TABLE>
<PAGE> 83
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be executed in its name and on its behalf on the 27th day of July, 1998, by
Randall L. Churchey, its Senior Vice President and Chief Financial Officer, who
acknowledges that these Articles of Amendment are the act of the Corporation and
certifies that, to the best of his knowledge, information and belief and under
penalties for perjury, all matters and facts contained in these Articles of
Amendment are true in all material respects.
ATTEST: FELCOR SUITE HOTELS, INC.
/s/ LAWRENCE D. ROBINSON By: /s/ RANDALL L. CHURCHEY (SEAL)
- ----------------------------- -------------------------------------
Lawrence D. Robinson Randall L. Churchey
Secretary Senior Vice President and Chief
Financial Officer
<PAGE> 84
CERTIFICATE OF CORRECTION
TO
ARTICLES SUPPLEMENTARY
OF
FELCOR LODGING TRUST INCORPORATED
(FORMERLY, FELCOR SUITE HOTELS, INC.)
FELCOR LODGING TRUST INCORPORATED, a Maryland corporation (hereinafter
referred to as the "Company"), hereby certifies to the State Department of
Assessments and Taxation of the State of Maryland (the "Department") as
follows:
FIRST: The title of the document being corrected by this Certificate
of Correction is the Articles Supplementary of FelCor Lodging Trust
Incorporated (formerly, FelCor Suite Hotels, Inc.) (the "Articles
Supplementary").
SECOND: The name of the party to the Articles Supplementary is FelCor
Lodging Trust Incorporated (formerly, FelCor Suite Hotels, Inc.).
THIRD: The Articles Supplementary being corrected by this Certificate
of Correction were filed with, and received of record by, the Department on May
2, 1996 at 11:40 a.m.
FOURTH: Section 5(c) of Article SECOND of the Articles Supplementary,
which is the provision of the Articles Supplementary being corrected by this
Certificate of Correction, as previously filed read as follows:
"(c) Upon redemption of Series A Preferred Stock by the Corporation on
the date specified in the notice to holders required under subparagraph (e) of
this Section 5 (the "Call Date"), each share of Series A Preferred Stock so
redeemed shall, at the option of the Company (i) be converted into a number of
shares of Common Stock equal to the liquidation preference (excluding any
accrued and unpaid dividends) of the shares of Series A Preferred Stock being
redeemed divided by the Conversion Price as of the opening of business on the
Call Date or (ii) be redeemed in cash at a price per share equal the aggregate
market value (determined as of the date of the notice of redemption) of the
number of shares of Common Stock into which the Series A Preferred Stock is
then convertible divided by the then current Conversion Price."
FIFTH: Section 5(c) of Article SECOND of the Articles Supplementary is
hereby corrected by deleting Section 5(c) of Article SECOND of the Articles
Supplementary as previously filed and replacing it in its entirety with the
following:
"(c) Upon redemption of Series A Preferred Stock by the Corporation on
the date specified in the notice to holders required under subparagraph (e) of
this Section 5 (the "Call Date"), each share of Series A Preferred Stock so
redeemed shall, at the option of the Company (i) be converted into a number of
shares of Common Stock equal to the liquidation preference (excluding any
accrued and unpaid dividends) of the share of Series A Preferred Stock being
redeemed divided by the Conversion Price as of the opening of business on the
Call Date or (ii) be redeemed in cash at a price per share equal to the market
value (determined as of the date of the notice of redemption) of the per share
equal to the market value (determined as of the date of the notice or
redemption of the number of shares of Common Stock into which the share of
Series A Preferred Stock is then convertible."
<PAGE> 85
SIXTH: This Certificate of Correction does not (i) alter the wording
of any resolution which was adopted by the Board of Directors or the
stockholders of the Company or (ii) make any change or amendment which would
not have complied in all respects with the requirements of the Maryland General
Corporation Law.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Correction to be signed in its name and on its behalf on this 11th day of
March, 1999, by its Senior Vice President who acknowledges that this
Certificate of Correction is the act of the Company and that to the best of his
knowledge, information and belief and under penalties for perjury all matters
and facts contained in this Certificate of Correction in all respects.
FELCOR LODGING TRUST INCORPORATED
By: /s/ WILLIAM P. STADDER
-------------------------------------
Name: William P. Stadder
--------------------------------
Title: Senior Vice President
-------------------------------
Attest:
/s/ LAWRENCE D. ROBINSON
----------------------------------------
Name: Lawrence D. Robinson
--------------------------------
Title: Secretary
-------------------------------
(Corporate Seal)
-2-
<PAGE> 1
EXHIBIT 4.7.2
SECOND AMENDMENT TO INDENTURE
AND FIRST SUPPLEMENTAL INDENTURE
This Second Amendment to Indenture and First Supplemental Indenture
(this "Agreement") is entered into as of December 30, 1998, by and among (i)
FelCor Lodging Limited Partnership, formerly FelCor Suites Limited Partnership,
a Delaware limited partnership ("FelCor LP"), (ii) FelCor Lodging Trust
Incorporated, formerly FelCor Suite Hotels, Inc., a Maryland corporation
("FelCor"), (iii) FelCor/CSS Hotels, L.L.C., a Delaware limited liability
company, FelCor/LAX Hotels, L.L.C., a Delaware limited liability company,
FelCor/CSS Holdings, L.P., a Delaware limited partnership, FelCor/St. Paul
Holdings, L.P., a Delaware limited partnership, FelCor/LAX Holdings, L.P., a
Delaware limited partnership, and FelCor Eight Hotels, L.L.C., a Delaware
limited liability company, (collectively, "Subsidiary Guarantors"), (iv) FelCor
Hotel Asset Company, L.L.C., a Delaware limited liability company ("FHAC"),
FelCor Nevada Holdings, L.L.C., a Nevada limited liability company, FHAC Nevada
Holdings, L.L.C., a Nevada limited liability company, and FHAC Texas Holdings,
L.P., a Texas limited partnership, (collectively, the "New Guarantors"), and
(iv) SunTrust Bank, Atlanta, as Trustee ("Trustee").
WHEREAS, FelCor LP, as Issuer, FelCor and the Subsidiary Guarantors,
as Guarantors, and Trustee, as Trustee, entered into that certain Indenture
dated as of October 1, 1997, as previously amended by that certain First
Amendment to Indenture dated as of February 5, 1998 (collectively, the
"Indenture"); and
WHEREAS, the parties to the Indenture desire to amend certain terms in
the Indenture as provided herein in accordance with Section 9.01 of the
Indenture; and
WHEREAS, pursuant to Section 4.07 of the Indenture, the New Guarantors
are required to execute and deliver a supplemental indenture to the Indenture
providing for a Subsidiary Guaranty (as defined in the Indenture) by such New
Guarantor;
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Section 9.01(2) of the Indenture is hereby amended to read in its
entirety as follows:
(2) to comply with Section 4.07 or Article Five;
2. Each of the New Guarantors hereby executes this Agreement as a
supplemental indenture to the Indenture for the purpose of providing a
guarantee of the Notes and of certain of FelCor LP's obligations under the
Indenture as set forth therein and agrees to assume and be subject to all of
the terms, conditions, waivers and covenants applicable to a Subsidiary
Guarantor under the Indenture, including without limitation, those set forth in
Article 11 thereof. Upon its execution hereof, each of the New Guarantors
hereby acknowledges that it shall be a Subsidiary Guarantor for all purposes as
defined and as set
<PAGE> 2
forth in the Indenture, effective as of July 28, 1998 in the case of FHAC, and
effective as of the date hereof in the case of the remaining New Guarantors.
Further, each New Guarantor hereby waives and shall not in any manner
whatsoever claim or take the benefit or advantage of, any rights of
reimbursement, indemnity, or subrogation or any other rights against FelCor LP,
FelCor or any other Restricted Subsidiary as a result of any payment by such
New Guarantor under its Subsidiary Guaranty.
3. The parties hereto hereby confirm and acknowledge that the
Indenture shall continue in full force and effect according to its original
terms, except as expressly as amended and supplemented hereby.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
FELCOR LODGING LIMITED PARTNERSHIP
(formerly FelCor Suites Limited
Partnership), a Delaware limited
partnership
By: FelCor Lodging Trust Incorporated, a Maryland
corporation, its general partner
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------------
Lawrence D. Robinson,
Senior Vice President
FELCOR LODGING TRUST INCORPORATED
(formerly FelCor Suite Hotels, Inc.),
a Maryland corporation
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------------
Lawrence D. Robinson, Senior Vice President
FELCOR/CSS HOTELS, L.L.C.,
a Delaware limited liability company
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------------
Lawrence D. Robinson, Senior Vice President
-2-
<PAGE> 3
FELCOR/LAX HOTELS, L.L.C.,
a Delaware limited liability company
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------------
Lawrence D. Robinson, Senior Vice President
FELCOR/CSS HOLDINGS, L.P.,
a Delaware limited partnership
By: FelCor/CSS Hotels, L.L.C., a Delaware
limited liability company, its general
partner
By: /s/ LAWRENCE D. ROBINSON
------------------------------------
Lawrence D. Robinson,
Senior Vice President
FELCOR/ST. PAUL HOLDINGS, L.P.,
a Delaware limited partnership
By: FelCor/CSS Hotels, L.L.C.,
a Delaware limited liability company,
its general partner
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------
Lawrence D. Robinson,
Senior Vice President
FELCOR/LAX HOLDINGS, L.P.
a Delaware limited partnership
By: FelCor/LAX Hotels, L.L.C.,
a Delaware limited liability company,
its general partner
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------
Lawrence D. Robinson,
Senior Vice President
-3-
<PAGE> 4
FELCOR EIGHT HOTELS, L.L.C.,
a Delaware limited liability company
By: /s/ LAWRENCE D. ROBINSON
-----------------------------------------------
Lawrence D. Robinson, Senior Vice President
FELCOR HOTEL ASSET COMPANY, L.L.C.,
a Delaware limited liability company
By: /s/ LAWRENCE D. ROBINSON
-----------------------------------------------
Lawrence D. Robinson, Senior Vice President
FELCOR NEVADA HOLDINGS, L.L.C.,
a Nevada limited liability company
By: /s/ LAWRENCE D. ROBINSON
-----------------------------------------------
Lawrence D. Robinson, Senior Vice President
FHAC NEVADA HOLDINGS, L.L.C.,
a Nevada limited liability company
By: /s/ LAWRENCE D. ROBINSON
-----------------------------------------------
Lawrence D. Robinson, Senior Vice President
FHAC TEXAS HOLDINGS, L.P.,
a Texas limited partnership
By: FelCor Hotel Asset Company, L.L.C.,
a Delaware limited liability company,
its general partner
By: /s/ LAWRENCE D. ROBINSON
------------------------------------------
Lawrence D. Robinson, Senior Vice President
-4-
<PAGE> 5
SUNTRUST BANK, ATLANTA, as Trustee
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
-5-
<PAGE> 1
EXHIBIT 10.1.12
TWELFTH AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF FELCOR LODGING LIMITED PARTNERSHIP
This Twelfth Amendment to Amended and Restated Agreement of Limited
Partnership of FelCor Lodging Limited Partnership (the "Amendment"), is entered
into as of December ___, 1998, by and between FelCor Lodging Trust
Incorporated, a Maryland corporation, as General Partner, and all other persons
and entities who are or shall in the future become limited partners of this
limited partnership in accordance with the provisions of the Partnership
Agreement (as hereinafter defined).
R E C I T A L S:
A. The parties have previously executed and delivered that certain
Amended and Restated Agreement of Limited Partnership of FelCor Suites Limited
Partnership dated as of July 25, 1994, as previously amended (the "Partnership
Agreement"), pursuant to which they formed a Delaware limited partnership under
the name "FelCor Suites Limited Partnership," which name has been changed to
"FelCor Lodging Limited Partnership" (the "Partnership").
B. The General Partner desires to amend the Partnership Agreement as
provided herein.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto hereby agree as follows:
1. A new subsection (d) shall be added to Section 10.2 and shall read in
its entirety as follows:
"(d) Notwithstanding Subsection 10.2(a) or (b)
above, the General Partner may transfer from time to time any
or all of its Partnership Interests to one or more
wholly-owned subsidiaries of the General Partner, except that
the General Partner must retain at all times at least a 1%
Partnership Interest as a general partner and the General
Partner and one or more wholly-owned subsidiaries of the
General Partner must at all times own in the aggregate 20% of
all of the Partnership Interests."
2. The last sentence of Section 4.7 shall be revised to read in its
entirety as follows:
"In the event the General Partner effects a
redemption or otherwise acquires any outstanding shares of
its capital stock (other than common stock) for which
corresponding Partnership Interests were issued to the
General Partner (or its wholly-owned subsidiary or
subsidiaries) in accordance with Section 4.6(c) hereof, the
General Partner shall cause the Partnership to redeem from
the General Partner (or its wholly-owned subsidiary or
subsidiaries) an equivalent number of such Partnership
Interests upon the same terms and conditions as the
redemption effected by the General Partner."
<PAGE> 2
3. Subsection 7.5(e) shall be revised to read in its entirety as follows:
"(e) In the event the General Partner shall
repurchase or redeem REIT Shares, then the General Partner
shall cause the Partnership to purchase from the General
Partner or its wholly-owned subsidiary or subsidiaries the
same number of Partnership Units on the same terms that the
General Partner redeemed such REIT Shares."
4. The following sentence shall be added to the end of Subsection 4.6(c):
"In lieu of contributing the net proceeds directly to the
Partnership, the General Partner may contribute the net
proceeds to the Partnership indirectly through its
wholly-owned subsidiary or subsidiaries, and in that event,
the Partnership will issue to such subsidiary or subsidiaries
the securities of the Partnership required by clause (i)
above."
IN WITNESS WHEREOF, the General Partner has caused this Amendment to
be duly executed in its respective capacities set forth below as of the date
first set forth above.
GENERAL PARTNER:
FELCOR LODGING TRUST
INCORPORATED, a Maryland corporation
formerly known as FelCor Suite Hotels,
Inc.
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------
Lawrence D. Robinson, Senior Vice
President
LIMITED PARTNERS (for all the Limited
Partners now and hereafter admitted as
limited partners of the Partnership,
pursuant to the powers of attorney in
favor of the General Partner contained
in Section 1.4 of the Partnership
Agreement):
By: FELCOR LODGING TRUST INCORPORATED,
a Maryland Corporation, formerly known
as FelCor Suite Hotels, Inc., acting
as General Partner and as duly authorized
attorney-in-fact
By: /s/ LAWRENCE D. ROBINSON
-------------------------------------
Lawrence D. Robinson, Senior Vice
President
<PAGE> 1
EXHIBIT 10.1.13
THIRTEENTH AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF FELCOR LODGING LIMITED PARTNERSHIP
This Thirteenth Amendment to Amended and Restated Agreement of Limited
Partnership of FelCor Lodging Limited Partnership is made and entered into
effective as of the close of business on December 31, 1998, by and among FelCor
Lodging Trust Incorporated, a Maryland corporation, as the General Partner
("General Partner"), FelCor Nevada Holdings, L.L.C., a Nevada limited liability
company ("Nevada"), as a Substituted Limited Partner, and all of the persons
and entities who are or shall in the future become Limited Partners of this
limited partnership in accordance with the provisions of the Partnership
Agreement (as hereinafter defined).
R E C I T A L S:
A. The General Partner and the existing Limited Partners have
previously executed and delivered that certain Amended and Restated Agreement
of Limited Partnership of FelCor Suites Limited Partnership dated as of July
25, 1994, as previously amended (the "Partnership Agreement"), pursuant to
which they have formed a Delaware limited partnership under the name of "FelCor
Suites Limited Partnership," which name has been changed to "FelCor Lodging
Limited Partnership" (the "Partnership").
B. The General Partner has assigned to Nevada 5,989,500 Series A
Cumulative Convertible Preferred Units, 56,925 Series B Cumulative Redeemable
Preferred Units and 67,340,397 Class A Units (collectively, the "Partnership
Interests") in the Partnership as a limited partner, and the General Partner
has retained 710,000 Class A Units, 60,500 Series A Cumulative Convertible
Preferred Units and 575 Series B Cumulative Redeemable Preferred Units as a
general partner in the Partnership.
C. The parties hereto desire to amend the Partnership Agreement to
reflect the foregoing and the admission of Nevada as a Substituted Limited
Partner in the Partnership in connection therewith.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the agreements and obligations of
the parties set forth herein and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Acceptance of Partnership Agreement. Nevada does hereby accept and
agree to be bound by all of the terms and conditions of the Partnership
Agreement, including without limitation, the power of attorney set forth in
Section 1.4 thereof. Each of Nevada and its Assignees hereby constitutes and
appoints the General Partner and the other parties named in Section 1.4, with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead, to take the actions
set forth in Section 1.4 of the Partnership Agreement, with the same effect as
if Nevada had been one of the original partners to execute the Partnership
Agreement.
<PAGE> 2
2. Admission of Additional Partner. In accordance with the provisions
of Section 11.1 of the Partnership Agreement, Nevada is hereby admitted as a
Substituted Limited Partner of the Partnership entitled to all rights and
benefits of Limited Partners therein as set forth in the Partnership Agreement
with respect to the Partnership Interests acquired by Nevada.
3. Amendment of Exhibit A. Exhibit A to the Partnership Agreement is
hereby amended to read in the form attached hereto to reflect the admission of
Nevada as a Substituted Limited Partner in the Partnership and the transfer of
the Partnership Interests in the Partnership to Nevada.
4. Defined Terms: Effect Upon Partnership Agreement. All initially
capitalized terms used without definition herein shall have the meanings set
forth therefor in the Partnership Agreement. Except as expressly amended
hereby, the Partnership Agreement shall remain in full force and effect and
each of the parties hereto hereby reaffirms the terms and provisions thereof.
(Signatures on following page)
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, this Thirteenth Amendment to Agreement of Limited
Partnership is executed and entered into as of the date first above written.
GENERAL PARTNER:
FELCOR LODGING TRUST INCORPORATED,
a Maryland corporation
By: /s/ LAWRENCE D. ROBINSON
--------------------------------------------
Lawrence D. Robinson, Senior Vice President
SUBSTITUTED LIMITED PARTNER:
FELCOR NEVADA HOLDINGS, L.L.C.,
a Nevada limited liability company
By: /s/ LAWRENCE D. ROBINSON
--------------------------------------------
Lawrence D. Robinson, Senior Vice President
LIMITED PARTNERS (for all the Limited Partners
now and hereafter admitted as Limited Partners
of the Partnership, pursuant to the powers of
attorney in favor of the General Partner
contained in Section 1.4 of the Partnership
Agreement):
By: FELCOR LODGING TRUST INCORPORATED, acting as
General Partner and as duly authorized
attorney-in-fact
By: /s/ LAWRENCE D. ROBINSON
--------------------------------------------
Lawrence D. Robinson,
Senior Vice President
- 3 -
<PAGE> 4
EXHIBIT A
OWNERSHIP OF PARTNERSHIP UNITS AT 12/31/98
GENERAL PARTNER INTEREST:
<TABLE>
<CAPTION>
Owner Class of Units Number of Units
----- -------------- ---------------
<S> <C> <C>
FelCor Lodging Trust Incorporated Class A, GP Units 711,245
FelCor Lodging Trust Incorporated Series A Preferred 60,500
FelCor Lodging Trust Incorporated Series B Preferred 575
LIMITED PARTNER INTERESTS:
Owner Class of Units Number of Units
----- -------------- ---------------
FelCor Nevada Holdings, L.L.C Class A, LP Units 67,340,397
FelCor Nevada Holdings, L.L.C Series A Preferred 5,989,500
FelCor Nevada Holdings, L.L.C Series B Preferred 56,925
FelCor, Inc. Class A, LP Units 294,915
Promus Hotels, Inc. Class A, LP Units 1,000,000
RGC Management II Limited Partnership Class A, LP Units 831,681
RGC Management Limited Partnership Class A, LP Units 238,234
RGC, Inc. Class A, LP Units 46,936
RGC II, Inc. Class A, LP Units 213,723
John Urbahns, II Class A, LP Units 81,186
Columbus/Front Ltd. Class A, LP Units 134,360
Schenley Hotel Associates Class A, LP Units 55,556
Norman St. Landau Class B, Series II LP Units 1,245
William B. Pomeroy Class B, Series II LP Units 1,245
Lee M. Frankel Class B, Series II LP Units 623
Henry A. Gallin Class B, Series II LP Units 2,491
Joel W. Salon Class B, Series II LP Units 623
Adam Frankel Class B, Series II LP Units 623
Richard J. Connolly Class B, Series II LP Units 1,245
Linda Feinstein Class B, Series II LP Units 1,245
Robert S. Gray Class B, Series II LP Units 2,491
John T. Lanka Class B, Series II LP Units 1,245
Old Blue & Green Associates Class B, Series II LP Units 2,491
Kenneth R. Ratzan, MD Class B, Series II LP Units 623
Howard Sydney Class B, Series II LP Units 623
Thomas S. Velz Class B, Series II LP Units 1,245
Martin D. & Joan T. Yazmir Class B, Series II LP Units 1,245
Eliot Nisenbaum Class B, Series II LP Units 187
Trust U/W/O William L. Sydney Class B, Series II LP Units 623
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
LIMITED PARTNER INTERESTS (CONT.):
Owner Class of Units Number of Units
----- -------------- ---------------
<S> <C> <C>>
John F. Richie Class B, Series II LP Units 1,245
C. Leonard Gordon Class B, Series II LP Units 2,491
Gerald Kaminsky Class B, Series II LP Units 1,245
Robert B. Friedman Class B, Series II LP Units 996
Elizabeth Schiff Class B, Series II LP Units 2,491
Robert F. Murray Class B, Series II LP Units 1,245
Ralph F. Laughlin Class B, Series II LP Units 685
Alan E. Steiner Class B, Series II LP Units 1,245
Trustco Bank-Estate of G. Cox Class B, Series II LP Units 2,491
Richard J. Murray, Jr. Class B, Series II LP Units 1,245
James Oestreich Class B, Series II LP Units 1,245
Seymour Bag Class B, Series II LP Units 2,491
Charles J. Bertuch, Jr. Class B, Series II LP Units 2,491
Dr. Judith Ratzan Class B, Series II LP Units 623
</TABLE>
-2-
<PAGE> 1
EXHIBIT 10.1.14
FOURTEENTH AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF FELCOR LODGING LIMITED PARTNERSHIP
This Fourteenth Amendment to Amended and Restated Agreement of Limited
Partnership of FelCor Lodging Limited Partnership is made and entered into
effective as of March 1, 1999, by and among FelCor Lodging Trust Incorporated,
a Maryland corporation, as the General Partner ("General Partner"), Huie
Properties, Ltd., a Texas limited partnership ("Huie"), as an Additional
Limited Partner, and all of the persons and entities who are or shall in the
future become Limited Partners of this limited partnership in accordance with
the provisions of the Partnership Agreement (as hereinafter defined).
R E C I T A L S:
A. The General Partner and the existing Limited Partners have
previously executed and delivered that certain Amended and Restated Agreement
of Limited Partnership of FelCor Suites Limited Partnership dated as of July
25, 1994, as previously amended (the "Partnership Agreement"), pursuant to
which they have formed a Delaware limited partnership under the name, as
amended, of "FelCor Lodging Limited Partnership" (the "Partnership").
B. Huie has agreed to contribute certain hotel assets to the
Partnership and/or its affiliates in exchange for, among other things, 50,748
units of limited partner interest ("Units") of the Partnership.
C. The parties hereto desire to amend the Partnership Agreement to
reflect the foregoing issuance of Units and the admission of Huie as an
Additional Limited Partner to the Partnership in connection therewith.
A G R E E M E N T S:
NOW, THEREFORE, in consideration of the agreements and obligations of
the parties set forth herein and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Acceptance of Partnership Agreement. Huie does hereby accept and
agree to be bound by all of the terms and conditions of the Partnership
Agreement, including without limitation, the power of attorney set forth in
Section 1.4 thereof. Each of Huie and its Assignees hereby constitutes and
appoints the General Partner and the other parties named in Section 1.4, with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead, to take the actions
set forth in Section 1.4 of the Partnership Agreement, with the same effect as
if Huie had been one of the original partners to execute the Partnership
Agreement.
2. Admission of Additional Partner. In accordance with the provisions
of Section 11.4 of the Partnership Agreement, Huie is hereby admitted as an
Additional Limited Partner of the
-1-
<PAGE> 2
Partnership entitled to all rights and benefits of Limited Partners therein as
set forth in the Partnership Agreement with respect to the Units acquired by
Huie. Notwithstanding the foregoing sentence, Huie agrees that the quarterly
Partnership distribution payable to Huie with respect to the Units for the
first calendar quarter of 1999 shall be pro rated such that only that portion
payable with respect to the period from and after the effective date of this
Amendment until the end of the first calendar quarter of 1999 shall be paid to
Huie.
3. Amendment of Exhibit A. Exhibit A to the Partnership Agreement is
hereby amended to reflect the admission of Huie as an Additional Limited
Partner in the Partnership and the issuance of 50,748 Units to Huie.
4. Defined Terms: Effect Upon Partnership Agreement. All initially
capitalized terms used without definition herein shall have the meanings set
forth therefor in the Partnership Agreement. Except as expressly amended
hereby, the Partnership Agreement shall remain in full force and effect and
each of the parties hereto hereby reaffirms the terms and provisions thereof.
IN WITNESS WHEREOF, this Fourteenth Amendment to Agreement of Limited
Partnership is executed and entered into as of the date first above written.
GENERAL PARTNER:
FELCOR LODGING TRUST INCORPORATED,
a Maryland corporation
By: /s/ JOEL EASTMAN
-----------------------------------------
Joel Eastman, Vice President
ADDITIONAL LIMITED PARTNER:
HUIE PROPERTIES, LTD.,
a Texas limited partnership
By: Huie Construction Company,
a Texas corporation, its general partner
By: /s/ H. K. HUIE
--------------------------------------
H. K. Huie, President
-2-
<PAGE> 3
LIMITED PARTNERS (for all the Limited
Partners now and hereafter admitted as
Limited Partners of the Partnership,
pursuant to the powers of attorney in
favor of the General Partner contained in
Section 1.4 of the Partnership
Agreement):
By: FELCOR LODGING TRUST INCORPORATED,
acting as General Partner and as
duly authorized attorney-in- fact
By: /s/ JOEL EASTMAN
---------------------------------
Joel Eastman, Vice President
- 3 -
<PAGE> 1
EXHIBIT 10.3
LEASE AGREEMENT
DATED AS OF ____________, 1999
BETWEEN
------------------------------
AS LESSOR
AND
------------------------------
AS LESSEE
FOR
---------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
HEADING OR SECTION PAGE
-----
<S> <C> <C>
SCHEDULE OF BASIC TERMS...........................................................................................1
RECITALS .........................................................................................................1
ARTICLE 1 LEASED PROPERTY AND OTHER DEFINITIONS...........................................................1
1.1 Leased Property.................................................................................1
1.2 Other Definitions...............................................................................3
ARTICLE 2 TERM, EXTENSION AND TERMINATION................................................................18
2.1 Term...........................................................................................18
2.2 First Extension of the Term....................................................................18
2.3 Second Extension of the Term...................................................................18
2.4 Performance Failure............................................................................19
2.5 Lessor's Option to Terminate Lease upon Sale...................................................20
2.6 Transition Procedures..........................................................................21
2.7 Holding Over...................................................................................22
ARTICLE 3 RENT, RENT ADJUSTMENTS AND PERFORMANCE STANDARDS...............................................23
3.1 Rent...........................................................................................23
3.2 Confirmation of Percentage Rent................................................................26
3.3 Additional Charges.............................................................................27
3.4 Net Lease Provision............................................................................28
3.5 Material Changes in Economic Climate...........................................................29
3.6 Rent Adjustment: Basic Assumptions Incorrect...................................................30
3.7 Allocation of Rent.............................................................................31
ARTICLE 4 BUDGETS AND FINANCIAL REPORTING................................................................31
4.1 Revenue Budgets................................................................................31
4.2 Operating Budgets..............................................................................32
4.3 Capital Budget.................................................................................33
4.4 Annual Budget Approval; Budget Disputes........................................................33
4.5 Disclosure of Financial and Portfolio Information..............................................34
4.6 Confidentiality................................................................................37
ARTICLE 5 IMPOSITIONS AND OTHER HOTEL COSTS..............................................................37
5.1 Payment of Impositions.........................................................................37
5.2 Notice of Impositions..........................................................................39
5.3 Adjustment of Impositions......................................................................39
5.4 Utility Charges................................................................................39
5.5 Insurance Premiums.............................................................................39
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
5.6 Franchise Fees.................................................................................40
5.7 Ground Rent....................................................................................40
ARTICLE 6 OWNERSHIP OF LEASED PROPERTY; LESSEE'S
PERSONAL PROPERTY..............................................................................40
6.1 Ownership of the Leased Property...............................................................40
6.2 Lessee's Personal Property.....................................................................40
6.3 Lessor's Lien..................................................................................41
6.4 Lessor's Option to Purchase Lessee's Personal Property.........................................41
ARTICLE 7 CONDITION AND USE OF LEASED PROPERTY...........................................................41
7.1 Condition of the Leased Property...............................................................41
7.2 Use of the Leased Property.....................................................................42
7.3 Lessor to Grant Easements, etc.................................................................43
ARTICLE 8 LESSEE'S COMPLIANCE WITH LAW; ENVIRONMENTAL
COVENANTS......................................................................................44
8.1 Compliance with Legal and Insurance Requirements, etc..........................................44
8.2 Legal Requirement Covenants....................................................................44
8.3 Environmental Covenants........................................................................45
ARTICLE 9 MAINTENANCE, REPAIRS AND CAPITAL EXPENDITURES..................................................47
9.1 Maintenance, Repairs and Capital Expenditures..................................................47
9.2 Encroachments, Restrictions, Etc...............................................................49
ARTICLE 10 ALTERATIONS AND IMPROVEMENTS; LESSOR'S CAPITAL
RESERVE........................................................................................50
10.1 Alterations and Improvements...................................................................50
10.2 Salvage........................................................................................50
10.3 Initial Upgrades...............................................................................50
10.4 Lessor Approval of Capital Expenditures........................................................51
10.5 Lessor's Capital Reserve.......................................................................51
ARTICLE 11 FRANCHISE SYSTEM COMPLIANCE....................................................................52
11.1 Assignment or Execution of Franchise Agreement or Guaranty of
Franchise Agreement by Lessor..................................................................52
11.2 Compliance with Franchise Agreement by Lessee..................................................52
11.3 Compliance with Franchise Agreement by Lessor..................................................53
11.4 Changes in Franchise...........................................................................53
ARTICLE 12 PERMITTED LIENS AND CONTESTS...................................................................53
12.1 Liens..........................................................................................53
12.2 Permitted Contests.............................................................................54
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 13 INSURANCE REQUIREMENTS.........................................................................55
13.1 General Insurance Requirements.................................................................55
13.2 Replacement Cost...............................................................................56
13.3 Waiver of Claims and Subrogation...............................................................57
13.4 Form Satisfactory, etc.........................................................................57
13.5 Increase in Limits.............................................................................57
13.6 Blanket Policy.................................................................................57
13.7 No Separate Insurance..........................................................................58
13.8 Reports On Insurance Claims....................................................................58
ARTICLE 14 CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION....................................................58
14.1 Insurance Proceeds.............................................................................58
14.2 Reconstruction in the Event of Damage or Destruction Covered
by Insurance...................................................................................59
14.3 Reconstruction in the Event of Damage or Destruction Not Covered
by Insurance...................................................................................60
14.4 Lessee's Personal Property and Business Interruption Insurance.................................60
14.5 Abatement of Rent Upon Casualty................................................................60
14.6 Damage Near End of Term........................................................................60
14.7 Waiver.........................................................................................60
ARTICLE 15 CONDEMNATION; AWARD ALLOCATION.................................................................60
15.1 Definitions....................................................................................60
15.2 Parties' Rights and Obligations................................................................61
15.3 Total Taking...................................................................................61
15.4 Partial Taking.................................................................................61
15.5 Allocation of Award............................................................................62
15.6 Temporary Taking...............................................................................62
ARTICLE 16 DEFAULT BY LESSEE; LESSOR'S REMEDIES...........................................................63
16.1 Events of Default..............................................................................63
16.2 Surrender......................................................................................65
16.3 Damages........................................................................................65
16.4 Waiver.........................................................................................66
16.5 Application of Funds...........................................................................66
16.6 Lessor's Right to Cure Lessee's Default........................................................67
ARTICLE 17 DEFAULT BY LESSOR; LESSEE'S REMEDIES...........................................................67
17.1 Breach by Lessor...............................................................................67
ARTICLE 18 INDEMNIFICATION................................................................................68
18.1 Indemnification................................................................................68
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
18.2 Indemnification Procedure......................................................................69
ARTICLE 19 REIT REQUIREMENTS AND RESTRICTIONS.............................................................70
19.1 REIT Requirements..............................................................................70
19.2 Lessee Officer and Employee Limitation.........................................................71
19.3 Management Agreement...........................................................................71
19.4 Payments to Affiliates of Lessee...............................................................72
ARTICLE 20 SUBLETTING AND ASSIGNMENT BY LESSEE............................................................72
20.1 Subletting and Assignment......................................................................72
20.2 Subordination and Attornment...................................................................73
ARTICLE 21 LEASEHOLD MORTGAGES............................................................................73
21.1 Lessee May Grant Leasehold Mortgages...........................................................73
ARTICLE 22 ARBITRATION....................................................................................74
22.1 Arbitration....................................................................................74
22.2 Alternative Arbitration........................................................................74
22.3 Arbitration Procedures.........................................................................74
ARTICLE 23 APPRAISAL......................................................................................75
23.1 Appraisers; Appraisal Procedure................................................................75
ARTICLE 24 LESSOR MORTGAGES...............................................................................76
24.1 Lessor May Grant Liens.........................................................................76
24.2 Lessee's Right to Cure.........................................................................77
ARTICLE 25 QUIET ENJOYMENT................................................................................78
25.1 Quiet Enjoyment................................................................................78
ARTICLE 26 CERTIFICATES; INSPECTION RIGHTS................................................................78
26.1 Lessee Estoppel Certificates...................................................................78
26.2 Lessor Estoppel Certificates...................................................................78
26.3 Inspection Rights..............................................................................78
ARTICLE 27 NOTICES........................................................................................79
27.1 Notices........................................................................................79
ARTICLE 28 GROUND LEASE...................................................................................79
28.1 The Ground Lease...............................................................................79
ARTICLE 29 MISCELLANEOUS..................................................................................80
29.1 Enforceability.................................................................................80
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
29.2 Waiver of Trial by Jury........................................................................81
29.3 No Waiver......................................................................................81
29.4 Remedies Cumulative............................................................................81
29.5 Acceptance of Surrender .......................................................................81
29.6 No Merger of Title.............................................................................81
29.7 Conveyance by Lessor...........................................................................81
29.8 Waiver of Presentment, etc.....................................................................82
29.9 Standard of Discretion.........................................................................82
29.10 Action for Damages.............................................................................82
29.11 Lease Assumption in Bankruptcy Proceeding......................................................82
29.12 FelCor Intra-Family Transfers..................................................................82
29.13 Memorandum of Lease............................................................................82
ARTICLE 30 NOTIFICATION OF PROPERTY HAZARDS...............................................................83
30.1 Notification Regarding Asbestos................................................................83
30.2 Notification Regarding Radon Gas...............................................................83
</TABLE>
EXHIBIT A
LEASED PROPERTY DESCRIPTION
EXHIBIT B
EXCLUDED PROPERTY
EXHIBIT C
CAPITAL EXPENDITURES POLICY
v
<PAGE> 7
LEASE AGREEMENT
SCHEDULE OF BASIC TERMS:
HOTEL: _____________________________ , as more fully
described below.
Property #_____ (_____ Rooms)
LESSOR:
-----------------------------
c/o FelCor Lodging Trust
545 E. John Carpenter Frwy, Suite 1300
Irving, Texas 75062
Facsimile: 972/444-4949
LESSEE:
-----------------------------
c/o Bristol Hotels & Resorts
14295 Midway Road
Dallas, Texas 75244
Facsimile: 972/391-3497
COMMENCEMENT DATE: July 27, 1998
EXPIRATION DATE: _______________, 20___ Original Term: ____
years
RENEWAL OPTIONS:
First Extension: __________ years, to _______________, 20___
Second Extension: Five (5) years, to _______________, 20___
1
<PAGE> 8
<TABLE>
<CAPTION>
Lease Year: 2000 and
1998 1999 thereafter
---- ---- ----------
<S> <C> <C> <C>
BASE RENT: $ * $ $
--------- --------- ---------
ROOM REVENUE BREAKPOINT: $ * $ $
--------- --------- ---------
</TABLE>
(*For the period from July 27, 1998 through December 31, 1998)
PERCENTAGE RENT:
FIRST TIER ROOM REVENUE PERCENTAGE: %
----
SECOND TIER ROOM REVENUE PERCENTAGE: %
----
OTHER PERCENTAGES:
<TABLE>
<CAPTION> 2000 and
Lease Year: 1998 1999 thereafter
---------- ---- ---- ----------
<S> <C> <C> <C>
Food Sale Revenues: % % %
---- ---- ----
Beverage Sale Revenues: % % %
---- ---- ----
Telephone Revenues: % % %
---- ---- ----
Other Revenues: % % %
---- ---- ----
</TABLE>
CPI ADJUSTMENT YEAR: 2001
2
<PAGE> 9
THIS LEASE AGREEMENT (hereinafter called "LEASE"), made as of 3:00
p.m. Central Time on the Commencement Date set forth on the Schedule of Basic
Terms attached hereto, by and between the Lessor, as landlord, and the Lessee,
as tenant, each as designated in the Schedule of Basic Terms attached hereto,
provides as follows.
RECITALS:
A. In connection with the transactions contemplated by that certain
Agreement and Plan of Merger dated as of March 23, 1998 (the "MERGER
AGREEMENT"), Bristol Hotel Company, a Delaware corporation and the ultimate
parent of Lessor ("BRISTOL") is to be merged with and into FelCor. Prior to
such merger (i) Lessor and certain other direct or indirect subsidiaries of
Bristol (collectively, including Lessor, the "EXISTING LESSORS") that own hotel
properties have agreed to lease to Lessees (as defined in the Master Hotel
Agreement), and Lessees have agreed to lease from such Existing Lessors hereto
(including this Lease, the "EXISTING LEASES") the Existing Hotels listed on
Exhibit "A" attached to the Master Hotel Agreement, and (ii) all of the shares
of capital stock of Bristol Hotels & Resorts, Inc., a Delaware corporation that
intends to change its name to Bristol Hotels & Resorts ("BHR"), the immediate
parent of Lessee, will be distributed to the shareholders of Bristol. Following
the merger, the Existing Lessors will be direct or indirect subsidiaries of
FelCor.
B. Lessor and Lessee desire to provide for the general terms and
conditions upon which the Hotel covered by this Lease will be leased to and
operated by Lessee.
NOW, THEREFORE, intending to be legally bound, Lessor and Lessee agree
as follows:
Lessor, in consideration of the payment of rent by Lessee to Lessor,
the covenants and agreements to be performed by Lessee, and upon the other
terms and conditions hereinafter stated, does hereby rent and lease unto
Lessee, and Lessee does hereby rent and lease from Lessor, the Leased Property.
Attached hereto above as the Schedule of Basic Terms is a summary of
the basic economic and certain other fundamental terms and provisions of this
Lease, which Schedule of Basic Terms is hereby incorporated herein by reference
to the same extent as if fully set out in the text hereof. In the event of
actual conflict between the Schedule of Basic Terms and the remainder of this
Lease, the Schedule of Basic Terms shall prevail.
ARTICLE 1
LEASED PROPERTY AND OTHER DEFINITIONS
1.1 Leased Property. The "LEASED PROPERTY" is comprised of Lessor's
interest in the following (other than any Excluded Property):
-1-
<PAGE> 10
(a) the land or ground leasehold interest
described in Exhibit "A" attached hereto and by reference incorporated herein
("LAND").
(b) all buildings, structures and other
improvements of every kind including, but not limited to, alleyways and
connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site and
offsite), parking areas and roadways appurtenant to, and any leasehold interest
of Lessor as a tenant in, such buildings and structures presently situated upon
the Land (collectively, the "IMPROVEMENTS");
(c) all easements, rights and appurtenances
relating to the Land and the Improvements;
(d) all equipment, machinery, fixtures, and
other items of property required or incidental to the use of the Improvements
as a hotel, including all components thereof, now and hereafter permanently
affixed to or incorporated into the Improvements, including, without
limitation, all furnaces, boilers, heaters, electrical equipment, heating,
plumbing, lighting, ventilating, refrigerating, incineration, air and water
pollution control, waste disposal, air-cooling and air-conditioning systems and
apparatus, sprinkler systems and fire and theft protection equipment, wall
coverings all of which to the greatest extent permitted by law are hereby
deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto (collectively,
the "FIXTURES");
(e) all equipment, machinery and other
items of property incidental to the use of the Improvements as a hotel,
including all components thereof, now or hereafter located at the Improvements
or used exclusively in connection therewith, including, without limitation, all
computer and front desk equipment, such as reservations systems, accounting
systems, printers and other office equipment, all equipment and systems
required for the operation of kitchens, bars and Restaurants, if any, and
laundry and dry cleaning facilities, dining room wagons, materials, handling
equipment, cleaning and engineering equipment, and vehicles, but excluding the
Fixtures, Furniture and Inventory (collectively, the "EQUIPMENT");
(f) all furniture and furnishings and all
other items of personal property (excluding Inventory and personal property
owned by Lessee) located on, and used in connection with, the operation of the
Improvements as a hotel, together with all replacements, modifications,
alterations and additions thereto (collectively, "FURNITURE"); and
(g) the lessor's interest in, to and under
all existing leases of space within the Leased Property (including any security
deposits or collateral held by Lessor pursuant thereto), which interests shall
be conditionally assigned to Lessee if required by applicable law or the terms
and conditions of such leases.
EXCEPT AS EXPRESSLY SET FORTH HEREIN, THE LEASED PROPERTY IS DEMISED IN ITS
PRESENT CONDITION WITHOUT REPRESENTATION OR WARRANTY
-2-
<PAGE> 11
(EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF HOTEL GUESTS AND
TENANTS IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS, THE LIEN OF FINANCING INSTRUMENTS,
MORTGAGES, DEEDS OF TRUST AND SECURITY DEEDS, AND INCLUDING OTHER MATTERS WHICH
WOULD BE DISCLOSED BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE
SURVEY THEREOF.
1.2 Other Definitions. For all purposes of this Lease, except as
otherwise expressly provided or unless the context otherwise requires, (1) the
terms defined in this Article have the meanings assigned to them in this
Article and include the plural as well as the singular, (2) all accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with GAAP, (3) all references in this Lease to designated
"ARTICLES," "SECTIONS" and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Lease and (4) the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this Lease
as a whole and not to any particular Article, Section or other subdivision:
Additional Charges: As defined in Section 3.3.
Affiliate: As used in this Lease the term "Affiliate" of a Person
shall mean (1) any Person that, directly or indirectly, controls or is
controlled by or is under common control with such Person, (2) any other Person
that owns, beneficially, directly or indirectly, fifty percent (50%) or more of
the outstanding capital stock, shares or equity interests of such Person, or
(3) any officer, director, employee, partner or trustee of such Person (or any
Person controlling, controlled by or under common control with such Person),
excluding trustees and Persons serving in similar capacities who are not
otherwise an Affiliate of such Person). For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities, partnership interests or other equity interests.
Annual Budget: As defined in Subsection 4.4(a).
Average Daily Rate: Total Room Revenues divided by occupied rooms at
the Hotel.
Award: As defined in Section 15.1.
Base Rate: The rate of interest announced publicly by The Chase
Manhattan Bank in New York, New York, from time to time, as such bank's base
rate. If no such rate is announced or becomes discontinued, then such other
rate as Lessor may reasonably designate.
Base Rent: As defined in Article 3.
-3-
<PAGE> 12
Beverage Sale Revenues: Shall mean Gross Revenue from (i) the sale of
wine, beer, liquor or other alcoholic beverages, whether sold in the bar or
lounge, delivered to a guest room, sold at meetings or banquets or at any other
location at the Leased Property or (ii) non-alcoholic beverages sold in the bar
or lounge. Such revenues shall not include Sublease Rent or the following:
(1) Any gratuity or service charge added to
a customer's bill or statement in lieu of a gratuity which is paid to an
employee;
(2) Any revenues that are subsequently
credited, rebated or refunded in the ordinary course of business; and
(3) Sales taxes or taxes of any other kind
imposed on the sale of alcoholic or other beverages.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which national banks in the City of New York, New York, or
in the municipality wherein the Leased Property is located are closed.
Capital Budget: As defined in Section 4.3.
Capital Expenditures: Amounts advanced to pay the costs of Capital
Improvements.
Capital Impositions: Taxes, assessments or similar charges imposed
upon or levied against the Leased Property for the costs of public
improvements, including, without limitation, roads, sidewalks, public lighting
fixtures, utility lines, storm sewers, drainage facilities and similar
improvements.
Capital Improvements: Improvements to the Leased Property and repair,
replacement or refurbishing of the Improvements, Fixtures, Equipment and
Furniture and of equipment and systems that constitute portions of the Leased
Property in connection with its Primary Intended Use, and the cost of all
approvals, licenses, permits and other authorizations necessary to complete
such improvements, repairs, replacements and refurbishing, all as, and to the
extent, (i) designated as capital improvements by and determined in accordance
with GAAP and (ii) of the types described in the capital improvements policy
set forth on Exhibit "C" attached hereto as "capital".
Capital Reserve: As defined in Subsection 10.5(a).
CERCLA: The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
-4-
<PAGE> 13
Claim: As defined in Section 12.2.
COBRA: As defined in Subsection 8.2(b).
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: The date set forth on the Schedule of Basic Terms
attached hereto as the commencement date with respect to the Hotel.
Competitive Set: As defined in the STR Reports. Lessor and Lessee
shall work in good faith to determine any additions and deletions to the
Hotel's Competitive Set, on or before November 15th of each Lease Year, with
such changes to be applicable for the following Lease Year. In the event Lessor
and Lessee cannot agree to the Hotel's Competitive Set by November 15th of any
Lease Year, such unagreed items shall be determined by Smith Travel Research
(or, if it refuses or is unable to do so, by arbitration pursuant to Section
22.2). The costs of resetting the Hotel's Competitive Set shall be borne
equally by the parties.
Condemnation, Condemnor: As defined in Section 15.1.
Consolidated Financials: For any Fiscal Year or other accounting
period for Lessee and BHR's consolidated Subsidiaries, if any, that lease hotel
properties from Lessor or any of FelCor's Subsidiaries, statements of
operations, retained earnings and cash flow (or, in the case of a partnership,
statements of operations, partners' capital and cash flow) for such period and
for the period from the beginning of the respective Fiscal Year to the end of
such period, and the related balance sheet as at the end of such period,
together with the notes to any such yearly statements, all in such detail as
may be required by the SEC with respect to filings made by FelCor, FSLP or
Lessor, and setting forth in comparative form the corresponding figures for the
corresponding period in the preceding Fiscal Year, and prepared in accordance
with GAAP and audited annually (and quarterly if required by the SEC) by
nationally recognized independent certified public accountants.
Construction Services Agreement: As defined in Subsection 10.3(c).
Consumer Price Index: Consumer Price Index, U.S. City Average, All
Items for all Urban Consumers, published by the Bureau of Labor Statistics of
the United States Department of Labor, as reported in the Wall Street Journal.
Contemplated Renovations: As defined in Subsection 10.3(b).
Cumulative Monthly Portion: As defined in Subsection 3.1(b).
Date of Taking: As defined in Section 15.1.
-5-
<PAGE> 14
Emergency Capital Expenditures: Capital Expenditures required to take
necessary or appropriate actions to respond to Emergency Situations.
Emergency Situations: Fire, flood, earthquake or any other casualty,
or any other events, circumstances or conditions, which threaten the safety or
physical well-being of the Hotel's guests or employees or which involve the
risk of material property damage or material loss to the Hotel.
Encumbrance: As defined in Section 24.1.
Environmental Authority: Any department, agency or other body or
component of any Government that exercises any form of jurisdiction or
authority under any Environmental Law.
Environmental Authorization: Any license, permit, order, approval,
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.
Environmental Laws: All applicable federal, state, local and foreign
laws and regulations relating to pollution of the environment (including
without limitation, ambient air, surface water, ground water, land surface or
subsurface strata), including without limitation laws and regulations relating
to emissions, discharges, Releases or threatened Releases of Hazardous
Materials or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials. Environmental Laws include but are not limited to CERCLA, FIFRA,
RCRA, SARA and TSCA.
Environmental Liabilities: Any and all obligations to pay the amount
of any judgment or settlement, the cost of complying with any settlement,
judgment or order for injunctive or other equitable relief, the cost of
compliance or corrective action in response to any notice, demand or request
from an Environmental Authority, the amount of any civil penalty or criminal
fine, and any court costs and reasonable amounts for attorney's fees, fees for
witnesses and experts, and costs of investigation and preparation for defense
of any claim or any Proceeding, regardless of whether such Proceeding is
threatened, pending or completed, that may be or have been asserted against or
imposed upon Lessor, Lessee, any Predecessor, the Leased Property or any
property used therein and arising out of:
(1) Failure of Lessee, Lessor, any
Predecessor or the Leased Property to comply at any time with all Environmental
Laws;
(2) Presence of any Hazardous Materials on,
in, under, at or in any way affecting the Leased Property;
(3) A Release at any time of any Hazardous
Materials on, in, at, under or in any way affecting the Leased Property;
-6-
<PAGE> 15
(4) Identification of Lessee, Lessor or any
Predecessor as a potentially responsible party under CERCLA or under any
Environmental Law similar to CERCLA;
(5) Presence at any time of any
above-ground and/or underground storage tanks, as defined in RCRA or in any
applicable Environmental Law on, in, at or under the Leased Property or any
adjacent site or facility; or
(6) Any and all claims for injury or damage
to persons or property arising out of exposure to Hazardous Materials
originating or located at the Leased Property or any adjoining property, or
resulting from the operation thereof.
Equipment: As defined in Section 1.1.
Event of Default: As defined in Section 16.1.
Excluded Lease Year: As defined in Subsection 2.4(a).
Excess Capital Expenditures: As defined in Subsection 4.4(b).
Excluded Property: Any and all of the rights, titles, and interests
in, to and under any real property, buildings and other improvements (or the
respective portion thereof) listed or described on Exhibit B attached hereto,
together with any and all leases or other contract rights related thereto and
personalty appurtenant thereto.
Existing Leases: As defined in Recital A.
Existing Lessors: As defined in Recital A.
Expiration Date: The date set forth on the Schedule of Basic Terms
attached hereto as the expiration date of the original Term with respect to the
Hotel.
FelCor: FelCor Suite Hotels, Inc., a Maryland corporation, and its
successors and assigns. FelCor had advised Lessor and Lessee that FelCor will
change its name to "FelCor Lodging Trust Incorporated" effective on July 28,
1998.
FIFRA: The Federal Insecticide, Fungicide, and Rodenticide Act, as
amended.
First Extension: As defined in Section 2.2.
First Tier Room Revenue Percentage: As defined in Section 3.1(b).
Fiscal Year: The 12-month period from January 1 to December 31.
-7-
<PAGE> 16
Fixtures: As defined in Section 1.1.
Food Sale Revenues: Shall mean Gross Revenue from the sale, for
on-site consumption, of food and non-alcoholic beverages sold at the Leased
Property, including in respect to guest rooms, banquet rooms, ballrooms,
meeting rooms and other similar rooms, including the rentals with respect to
banquets, meetings and other functions held in such banquet rooms, ballrooms,
meeting rooms and other similar rooms. Such revenues shall not include Sublease
Rent or the following:
(1) Vending machine sales;
(2) Any gratuities or service charges added
to a customer's bill or statement in lieu of a gratuity which is paid to an
employee;
(3) Non-alcoholic beverages sold from the
bar or lounge;
(4) Sales taxes or taxes of any other kind
imposed on the sale of food or non-alcoholic beverages; and
(5) Any revenues that are subsequently
credited, refunded or rebated in the ordinary course of business.
Force Majeure: An Unavoidable Occurrence, generally affecting travel
and/or the hotel or lodging business in the market and/or submarket in which
the Hotel is located.
Franchise Agreement: Any franchise or license agreement with a
Franchisor under which the Hotel is operated as a hotel facility under a
registered service mark or other brand name or "flag" approved by Lessor (not
to be unreasonably withheld).
Franchise Event of Default: As defined in Subsection 16.1(g).
Franchisor: The franchisor or licensor under any Franchise Agreement.
FSLP: FelCor Suites Limited Partnership, a Delaware limited
partnership, of which FelCor is the general partner. FSLP had advised Lessor
and Lessee that FSLP will change its name to "FelCor Lodging Limited
Partnership" effective on July 28, 1998.
Furniture: As defined in Section 1.1.
GAAP: GAAP shall mean, as of any date of determination, accounting
principles (a) set forth as generally accepted in then currently effective
Opinions of the Accounting Principles Board of the American Institute of
Certified Public Accountants, (b) set forth as generally accepted in then
currently effective Statements of the Financial Accounting Standards Board or
-8-
<PAGE> 17
(c) that are then approved by such other entity as may be approved by a
significant segment of the accounting profession in the United States of
America. The term "consistently applied," as used in connection therewith,
means that the accounting principles applied are consistent in all material
respects to those applied at prior dates or for prior periods.
Government: The United States of America, any state, district or
territory thereof, any foreign nation, any state, district, department,
territory or other political division thereof, or any agency or political
subdivision of any of the foregoing.
Gross Operating Expenses: The term "Gross Operating Expenses" shall
include (i) all costs and expenses of operating the Hotel included within the
meaning of the term "Total Costs and Expenses" contained in the Uniform System
and, (ii) without duplication, the following: all salaries and employee
expenses and payroll taxes (including salaries, wages, bonuses and other
compensation of all employees of the Hotel, and benefits including life,
medical and disability insurance and retirement benefits), expenditures
described in Section 9.1 (other than Capital Expenditures required to be paid
for by Lessor), operating lease payments for Office Machines acquired after the
Commencement Date operational supplies, utilities, governmental fees and
assessments, common area assessments, costs of food and beverages, laundry
service expense, the cost of Inventory, license fees, advertising, marketing,
reservation systems and any and all other operating expenses as are reasonably
necessary for the proper and efficient operation of the Hotel incurred by
Lessee in accordance with the provisions hereof (excluding, however, (i)
federal, state and municipal excise, sales and use taxes collected directly
from patrons and guests or as a part of the sales price of any goods, services
or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes paid over to federal, state or municipal governments, (ii) the
cost of insurance to be provided by Lessor under Subsection 13.1(a), (iii) Real
Estate Taxes, Capital Impositions and Personal Property Taxes, (iv) payments on
any Ground Lease, Mortgage or other Encumbrance on, the Land or Improvements
approved by Lessor, and (v) depreciation and amortization; all determined in
accordance with the Uniform System).
Gross Revenues: All revenues, receipts, and income of any kind derived
directly or indirectly by Lessee from or in connection with the Hotel
(including rentals or other payments from tenants, lessees, licensees or
concessionaires but not including their gross receipts) whether on a cash basis
or credit, paid or collected, determined in accordance with the Uniform System,
excluding, however: (i) funds furnished by Lessor, (ii) federal, state and
municipal excise, sales, and use taxes collected directly from patrons and
guests or as a part of the sales price of any goods, services or displays, such
as gross receipts, admissions, cabaret or similar or equivalent taxes and paid
over to federal, state or municipal governments, (iii) the amount of all
credits, rebates or refunds to customers, guests or patrons in the ordinary
course of business, and all service charges, finance charges, interest and
discounts attributable to charge accounts and credit cards, to the extent same
are paid to Lessee by its customers, guests or patrons, or to the extent the
same are paid for by Lessee to, or charged to Lessee by, credit card companies,
(iv) gratuities paid to employees, (v) proceeds of insurance (including
business interruption insurance payable to Lessee) and condemnation, (vi)
proceeds from sales other than sales in the ordinary course of
-9-
<PAGE> 18
business, (vii) complimentary meals and rooms to Lessee's and Manager's
employees, and charitable, promotional and other complimentary meals and rooms
given by Lessee in the ordinary course of business and in accordance with its
normal policies for giving such meals and rooms, as is customary for similar
operations, (viii) receipts for returns to shippers, manufacturers or
suppliers, (ix) all loan proceeds from financing or refinancing of its
leasehold interest in the Hotel, or interests therein or components thereof,
including the Leased Property and Lessee's Personal Property, (x) judgments and
awards, except any portion thereof arising from normal business operations of
the Hotel, and (xi) items constituting "allowances" under the Uniform System.
Ground Lease: As defined in Section 28.1.
Hazardous Materials: All chemicals, pollutants, contaminants, wastes
and toxic substances, including without limitation:
(a) Solid or hazardous waste, as defined in
RCRA or in any Environmental Law;
(b) Hazardous substances, as defined in
CERCLA or in any Environmental Law;
(c) Toxic substances, as defined in TSCA or
in any Environmental Law;
(d) Insecticides, fungicides, or
rodenticide, as defined in FIFRA or in any Environmental Law; and
(e) Gasoline or any other petroleum product
or byproduct, polychlorinated biphenols, asbestos, urea formaldehyde and radon
gas.
Hotel: The hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on the Leased
Property.
Hotel Market Decline: A period of six (6) consecutive calendar months
during which there is (i) a twenty percent (20%) decline in average hotel
occupancy for the Hotel from the average hotel occupancy levels for same period
during the prior calendar year and (ii) a twenty percent (20%) decline in
average hotel occupancy for the Hotel's Competitive Set from the average hotel
occupancy levels for the same period during the prior calendar year, as
published in the applicable STR Reports.
Hotel Shortfall Cure Percentage: As defined in Subsection 2.4(c).
Impositions: Collectively, all taxes (including, without limitation,
all ad valorem, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to
-10-
<PAGE> 19
or are imposed upon Lessee or its business conducted upon the Leased Property),
assessments (including, without limitation, all Capital Impositions, whether or
not commenced or completed prior to the date hereof and whether or not to be
completed within the Term), water, sewer or other utility rents and charges,
excises, tax inspection, authorization and similar fees and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of the
Leased Property or the business conducted thereon by Lessee (including all
interest and penalties thereon caused by any failure in payment by Lessee),
which at any time prior to, during or with respect to the Term hereof may be
assessed or imposed on or with respect to or be a lien upon Lessor's interest
in the Leased Property, the Leased Property, or any part thereof or any rent
therefrom or any estate, right, title or interest therein, or any occupancy,
operation, use or possession of, or sales from, or activity conducted on or in
connection with the Leased Property, or the leasing or use of the Leased
Property or any part thereof by Lessee. Nothing contained in this definition of
Impositions shall be construed to require Lessee to pay (1) any tax based on
net income (whether denominated as a franchise or capital stock or other tax)
imposed on Lessor or any other Person, or (2) any net revenue tax of Lessor or
any other Person, or (3) any tax imposed with respect to the sale, exchange or
other disposition by Lessor of any Leased Property or the proceeds thereof, or
(4) any single business, gross receipts (other than a tax on any rent received
by Lessor from Lessee), transaction, privilege or similar taxes as the same
relate to or are imposed upon Lessor, except to the extent that any tax,
assessment, tax levy or charge that Lessee is obligated to pay pursuant to the
first sentence of this definition and that is in effect at any time during the
Term hereof is totally or partially repealed, and a tax, assessment, tax levy
or charge set forth in clause (1) or (2) is levied, assessed or imposed
expressly in lieu thereof.
Improvements: As defined in Section 1.1.
Indemnified Party: Either of a Lessee Indemnified Party or a Lessor
Indemnified Party.
Indemnifying Party: Any party obligated to indemnify an Indemnified
Party pursuant to Sections 8.3 or 18.1.
Insurance Requirements: All terms of any insurance policy required by
this Lease and all requirements of the issuer of any such policy.
Inventory: All "Inventories of Merchandise" and "Inventories of
Supplies" as defined in the Uniform System, as same may hereafter be revised,
including without limitation linens, china, silver, glassware and other
non-depreciable personal property, and including any property of the type
described in Section 1221(1) of the Code.
Land: As defined in Section 1.1 above.
Lease Year: Any 12-month period from January 1 through December 31
during the Term, or any shorter period at the beginning or end of the Term.
-11-
<PAGE> 20
Leased Property: As defined in Section 1.1.
Leasehold Mortgage: As defined in Section 21.1.
Legal Requirements: All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting either the Leased Property or the
maintenance, construction, use or alteration thereof (whether by Lessee or
otherwise), whether now in force or hereafter enacted and in force, including
all laws, rules or regulations pertaining to the environment, occupational
health and safety and public health, safety or welfare, and any laws, rules or
regulations that may (1) require repairs, modifications or alterations in or to
the Leased Property or (2) in any way adversely affect the use and enjoyment
thereof; and all permits, licenses and authorizations and regulations relating
thereto and all covenants, agreements, restrictions and encumbrances contained
in any instruments, either of record or known to Lessee (other than
encumbrances created by Lessor without the consent of Lessee), at any time in
force affecting the Leased Property.
Lessee: The Lessee designated on this Lease and its respective
permitted successors and assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee, any other
Person against whom any claim for indemnification may be asserted hereunder as
a result of a direct or indirect ownership interest (including a partner's,
limited liability company member's or stockholder's interest) in Lessee, the
officers, directors, stockholders, employees, agents and representatives of
Lessee (and any general partner of Lessee) and any stockholder, partner,
limited liability company member or manager of Lessee, and the respective
heirs, personal representatives, successors and assigns of any such officer,
director, stockholder, partner, limited liability company member or manager,
employee, agent or representative.
Lessee's Personal Property: As defined in Section 6.2.
Lessor: The Lessor designated on this Lease and its respective
successors and assigns.
Lessor Indemnified Party: Lessor, any Affiliate of Lessor, any other
Person against whom any claim for indemnification may be asserted hereunder as
a result of a direct or indirect ownership interest (including a partner's,
limited liability company member's or stockholder's interest) in Lessor, the
officers, directors, stockholders, employees, agents and representatives of
Lessor (and any general partner of Lessor), and any partner, limited liability
company member or manager of Lessor, and the respective heirs, personal
representatives, successors and assigns of any such officer, director, partner,
stockholder, partner, limited liability company member or manager, employee,
agent or representative.
Major Sublease. Any sublease of a portion of the Leased Property which
(i) is a Restaurant sublease or other retail sublease important to the
successful operation of the Hotel
-12-
<PAGE> 21
(other than leases of gift shop space or to a service provider, such as a lease
to an airline ticket agent or to an overnight courier), (ii), individually (or
in the aggregate with all other such non-Restaurant subleases) generates two
percent (2%) or more of the Gross Revenues of the Hotel, or (iii) the loss of
which could reasonably be expected to cause a material adverse change in the
Hotel or Lessee's business at the Hotel.
Management Agreement: As defined in Section 19.3.
Manager: The manager of the Hotel, from time to time, as permitted
under this Lease.
Master Hotel Agreement: The Amended and Restated Master Hotel
Agreement dated as of July 27, 1998, among BHR, FelCor and FSLP, and certain of
their respective affiliates, as the same may be hereafter amended, restated,
supplemented or modified.
Mortgage: Any deeds to secure debt, deeds of trust, mortgages, or
other interests heretofore or hereafter granted by Lessor or which otherwise
encumber or affect the Leased Property and any and all renewals, modifications,
consolidations, replacements, substitutions, and extensions thereof.
National Economic Decline: A period of six (6) consecutive calendar
months during which there occurs or continues (i) a ten percent (10%) decline
in average hotel occupancy, from average hotel occupancy levels for the same
period during the prior calendar year, for all open and operating hotels in the
United States as determined from the applicable STR Reports or, if the STR
Reports are no longer published, other reputable national economic data
regarding the hospitality industry.
New Lease: Any Lease Agreement hereafter entered into between Lessor
(or another Subsidiary of FelCor) and Lessee (or another Subsidiary of BHR)
pursuant to, and to be governed by, the Master Hotel Agreement.
Notice: A notice given pursuant to Article 27.
Notice Period: As defined in Subsection 2.4(b).
Office Machines: As defined in Section 6.2.
Officer's Certificate: A certificate of Lessee, in form reasonably
acceptable to Lessor, signed by the chief financial officer, treasurer, chief
accounting officer, or another officer authorized so to sign such certificates
by the board of directors or bylaws of Lessee, or any other Person whose power
and authority to act has been authorized by delegation in writing by any such
officer.
Operating Budget: As defined in Section 4.2.
-13-
<PAGE> 22
Other Hotels: The hotel properties covered by the Existing Leases
(other than this Lease) and the New Leases.
Other Leases: The Existing Leases (other than this Lease) and the New
Leases.
Other Lessors: The Lessors under the Other Leases.
Other Percentages: As defined in Subsection 3.1(b).
Other Revenues. All revenues, receipts, and income of any kind derived
directly or indirectly from or in connection with the Hotel and included in
Gross Revenues (other than Room Revenues, Food Sale Revenues, Beverage Sale
Revenues and Telephone Revenues), including, without limitation, all Sublease
Rent, revenues, receipts and income derived from the Hotel's and Leased
Property's telephones, TV and movie rentals check room, washroom, laundry,
valet, and vending machines and all other services not expressly specified
herein as Room Revenues, Food Sale Revenues, Beverage Sale Revenues and
Telephone Revenues.
Overdue Rate: On any date, a rate equal to the Base Rate plus two
percent (2%) per annum, but in no event greater than the maximum rate then
permitted under applicable law.
Payment Date: Any due date for the payment of any installment of Base
Rent.
Percentage Rent: As defined in Subsection 3.1(b).
Performance Failure: A Revenue Performance Shortfall that has not been
cured in accordance with Section 2.4 of this Lease.
Person: The term "Person" means and includes individuals,
corporations, general and limited partnerships, stock companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts, or other entities and governments and
agencies and political subdivisions thereof.
Personal Property Taxes. All personal property taxes imposed on the
Furniture, Fixtures and Equipment and other items of personal property owned by
Lessor, located on, and used in connection with, the operation of the
Improvements as a Hotel (other than Inventory and the other Lessee's Personal
Property), together with all replacements, modifications, alterations and
additions thereto.
PIP: As defined in Section 10.3.
Primary Intended Use: As defined in Subsection 7.2(b).
-14-
<PAGE> 23
Proceeding: Any judicial action, suit or proceeding (whether civil or
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.
Quarterly Percentage Rent Computation: As defined in Subsection
3.1(b).
RCRA: The Resource Conservation and Recovery Act, as amended.
Real Estate Taxes: All real estate taxes, including general and
special assessments, if any, which are imposed upon the Land and the
Improvements.
REIT Requirements: As defined in Section 19.1.
Regional Market Decline: A period of six (6) consecutive calendar
months during which there is a twenty percent (20%) decline in average hotel
occupancy from hotel occupancy levels for the same period during the then prior
calendar year, for all open and operating hotels in the Smith Travel Research
Region in which the Hotel is located, as determined from applicable STR Reports
or, if the STR Reports are no longer published, other reputable regional
economic data regarding the hospitality industry.
Release: A "Release" as defined in CERCLA or in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by
all applicable Environmental Authorities or is allowed by such Environmental
Law without authorizations or permits.
Rent: Collectively, the Base Rent, Percentage Rent, and Additional
Charges.
Repositioning: As defined in Section 3.6.
Restaurant: Any restaurant or cocktail lounge, together with a kitchen
for those facilities, which may be located in the Hotel at any time and from
time to time.
Revenue Budget: As defined in Section 4.1.
Revenue Performance Shortfall: As defined in Subsection 2.4(a).
RevPAR: As defined in the STR Reports.
Room Revenue Breakpoint: As defined in Subsection 3.1(b).
Room Revenues: Shall mean Gross Revenue from the rental of guest rooms
or suites, whether to individuals, groups or transients, but excluding Beverage
Sale Revenues, Food Sale Revenues and the following:
-15-
<PAGE> 24
(a) The amount of all credits, rebates or refunds to customers, guests
or patrons;
(b) All sales taxes or any other taxes imposed on the rental of such
guest rooms; and
(c) Any fees collected for amenities including, but not limited to
telephone, laundry, movies or concessions.
SARA: The Superfund Amendments and Reauthorization Act of 1986, as
amended.
Second Tier Room Revenue Percentage: As defined in Section 3.1(b).
State: The State or Commonwealth of the United States or Province of
Canada in which the Leased Property is located.
SEC: The U.S. Securities and Exchange Commission or any successor
agency.
Second Extension: As defined in Section 2.3.
STR Reports: Reports compiled by Smith Travel Research, or its
successor, which contain historical supply and demand, occupancy, and average
rate information for the Hotel and hotels with which it competes (or, in the
event that Smith Travel Research discontinues providing such information,
reports of similar nature compiled by an authority recognized nationally in the
hospitality industry).
Sublease Rent: The entire net amount of rentals (including base rent
and percentage rent, but not including pre-paid rent (until earned) security or
other deposits and expense pass-through amounts), if any, received by Lessee
under any sublease (or similar agreement), and with any unaffiliated third
party (i) to which the Leased Property is subject on the date of this Lease, or
(ii) of a Restaurant or other retail space in the Hotel which may be entered
into from time to time.
Subsidiaries: Persons in which another Person owns, directly or
indirectly, more than 50% of the voting stock and control, as applicable
(individually, a "Subsidiary").
Taking: A taking or voluntary conveyance during the Term hereof of all
or part of the Leased Property, or any interest therein or right accruing
thereto or use thereof, as the result of, or in settlement of, any Condemnation
or other eminent domain Proceeding affecting the Leased Property whether or not
such Condemnation or other eminent domain Proceeding shall have actually been
commenced.
Telephone Revenues. All revenues, receipts and income derived directly
from the Hotel's and Leased Property's telephones.
-16-
<PAGE> 25
Term: As defined in Section 2.1.
Termination Fee: An amount with respect to the termination of this
Lease, if any, determined as set forth in the Master Hotel Agreement.
TSCA: The Toxic Substances Control Act, as amended.
Unavoidable Delays: Delays due to strikes, lock-outs, labor unrest,
inability to procure materials, power or other utility failure, acts of God
(such as hurricanes, tornados, earthquakes, floods and mud slides) governmental
restrictions, war or other enemy action, civil commotion, fire, casualty,
condemnation, the Year 2000 Problem or other similar causes, in each case, if
such cause is beyond the control of the party responsible for performing an
obligation hereunder, provided that lack of funds shall not be deemed a cause
beyond the reasonable control of either party hereto unless such lack of funds
is caused by the failure of the other party hereto to perform any obligations
of such party under this Lease or any guaranty of this Lease.
Unavoidable Occurrence: shall mean the occurrence of strikes,
lockouts, labor unrest, gasoline and other energy shortages, widespread
disruption of air, auto or other travel, inability to procure materials or
services, power or other utility failure, acts of God (such as hurricanes,
tornados, earthquakes, floods and mud slides), governmental restrictions, war
or other enemy or terrorist action, civil commotion, fire, casualty,
condemnation, the Year 2000 Problem or other similar causes, in each case, if
such cause is beyond the reasonable control of Lessee; provided that (i) lack
of funds shall not be deemed a cause beyond the reasonable control of either
party hereto unless such lack of funds is caused by the failure of the other
party hereto to perform any obligations of such party under this Lease or any
guaranty of this Lease, and (ii) any such occurrence is an extraordinary, as
opposed to a routine or cyclical, material event that was not reasonably
foreseeable when the then-applicable Annual Budget was prepared.
Uneconomic for its Primary Intended Use: A state or condition of the
Hotel such that, in the good faith judgment of Lessee, reasonably exercised and
evidenced by the resolution of the board of directors or other governing body
of Lessee (or its general partner), the Hotel cannot be operated on a
commercially practicable basis for its Primary Intended Use, taking into
account, among other relevant factors, the number of usable rooms and projected
revenues, such that Lessee intends to, and shall, complete the cessation of
operations at the Hotel.
Uniform System: Shall mean the Uniform System of Accounts for Hotels
(9th Revised Edition, 1996) as published by the Hotel Association of New York
City, Inc., with such later revisions as may be agreed to by both Lessor and
Lessee.
Unsuitable for its Primary Intended Use: A state or condition of the
Hotel such that, in the good faith judgment of Lessor, reasonably exercised and
evidenced by the resolution of the board of directors or other governing body
of Lessor, due to casualty damage, loss through
-17-
<PAGE> 26
Condemnation or a Year 2000 Problem, the Hotel cannot function as an integrated
hotel facility consistent with standards applicable to a well maintained and
operated hotel of the same type as the Hotel.
WARN Act: As defined in Subsection 8.2(b).
Year 2000 Problem: Shall mean the malfunction of software, hardware or
an embedded technological system due to the failure to properly process any
date or input which includes an indication of or reference to a date, including
specifically but not limited to dates that represent or reference different
centuries or more than one century, if either (i) Lessor had previously refused
to make or approve a Capital Expenditure reasonably proposed by Lessee to avoid
such Year 2000 Problem, or (ii) such Year 2000 Problem results from a
governmental or other third party failure to be year 2000 compliant and Lessee
has not failed to take reasonable steps to seek assurances that such parties
will be year 2000 compliant.
ARTICLE 2
TERM, EXTENSION AND TERMINATION
2.1 Term. The term of this Lease (the "TERM") shall commence on the
Commencement Date and shall end on the Expiration Date, unless sooner
terminated in accordance with the provisions hereof or extended to an
anniversary of the Expiration Date pursuant to this Article 2.
2.2 First Extension of the Term. If so provided in the Schedule of
Basic Terms attached hereto, Lessee is granted the option to extend the Term of
this Lease for the period of years set forth in the Schedule of Basic Terms
attached hereto and designated as the First Extension (if applicable, the
"FIRST EXTENSION"), provided that Lessee is not in default hereunder either at
the time of deemed exercise of the option or at the end of the original Term,
which option shall be deemed exercised if Lessee fails to give written notice
to Lessor of its desire not to exercise the First Extension option at least one
hundred twenty (120) days prior to the expiration of the original Term. Lessee
shall be deemed to have exercised its First Extension option as of the date
that is one hundred twenty (120) days prior to the expiration of the original
Term in the event that no such written notice of non-exercise is received by
Lessor by such time. The First Extension shall be upon the same terms,
conditions and rentals as set forth herein for the original Term.
2.3 Second Extension of the Term. If so provided in the Schedule of
Basic Terms attached hereto, Lessee is granted an option to extend the Term for
a period of five (5) years following the end of the First Extension (if
applicable, the "SECOND EXTENSION"), provided that Lessee is not in default
hereunder either at the time of exercise of the option or at the end of the
First Extension, which option must be exercised by written notice to Lessor at
least one hundred twenty (120) days prior to the expiration of the First
Extension. If such option is
-18-
<PAGE> 27
exercised, Lessor and Lessee shall negotiate in good faith modifications to the
Rent for the Second Extension to adjust such Rent to market rates for
arms-length hotel REIT leases between unrelated parties for similar hotel
properties at that time. In the event Lessor and Lessee are unable to agree
upon Rent terms for the Second Extension at least ninety (90) days prior to the
expiration of the Term, the Rent terms for the Second Extension shall be
determined by a panel of three (3) persons who have generally recognized
expertise in evaluating hotel REIT leases and who are not Affiliates of Lessor
or Lessee. Lessee and the Lessor each shall have the right to designate one
panel member and the two (2) panel members so designated will designate the
third panel member. Rent terms approved by at least two (2) of the three (3)
panel members will be binding on Lessee and Lessor for the Second Extension,
which shall be otherwise on the terms set forth herein. In determining the
market rates for the Second Extension, the panel members shall be instructed to
consider hotel REIT lease terms with respect to similar hotel property types.
The Second Extension shall be otherwise upon the same terms and conditions as
set forth herein for the original Term.
2.4 Performance Failure.
(a) If, with respect to any three (3)
consecutive Lease Years during the Term commencing on or after January 1, 1998,
Lessee shall fail to realize from the operation of the Hotel an amount equal to
at least eighty percent (80%) of Room Revenues as set forth in the Revenue
Budget for such Lease Year, such failure shall constitute a "REVENUE
PERFORMANCE SHORTFALL" under this Lease, except to the extent such failure is
caused by an Unavoidable Occurrence. In determining whether Lease Years are
consecutive for such purpose, Excluded Lease Years will be ignored. The
existence of a Revenue Performance Shortfall for any Lease Year shall be
determined by Lessor on the basis of the first Officer's Certificate delivered
by Lessee to Lessor in the subsequent Lease Year pursuant to the requirements
of Subsection 3.1(c) and shall be subject to confirmation pursuant to Section
3.2. Notwithstanding the foregoing, no Lease Year that would otherwise be
included in the period of a Revenue Performance Shortfall shall be so included
if Lessor and the Other Lessors receive Rent payments from Lessee and the other
Lessees under this Lease and the Other Leases which, in the aggregate, amount
equal to at least ninety percent (90%) (the "OVERALL SHORTFALL CURE
PERCENTAGE") of the aggregate Rent budgeted for such Lease Year in the Revenue
Budgets for the Hotel and the Other Hotels leased under the Other Leases (each
such Lease Year, an "EXCLUDED LEASE YEAR"). Lessee may rely on the foregoing
for a total of three (3) Excluded Lease Years and, thereafter, the Overall
Shortfall Cure Percentage shall increase to one hundred percent (100%).
(b) Upon the occurrence of a Revenue
Performance Shortfall, Lessor shall have the right, subject to subsection (c)
of this Section 2.4, at Lessor's option, to terminate this Lease upon thirty
(30) days' notice (the "NOTICE PERIOD") to Lessee, in which event Lessee shall
immediately surrender the Leased Property to Lessor, and, if Lessee fails to so
surrender, Lessor shall have the right, without notice, to enter upon and take
possession of the Leased Property and to expel or remove Lessee and its effects
without being liable for prosecution or any claim for damages therefor; and
Lessee shall, and hereby agrees to, pay (or, as
-19-
<PAGE> 28
the case may be, indemnify) Lessor for the total amount of (i) in the event
that Lessee does not promptly surrender the Leased Property, the reasonable
costs of recovering the Leased Property and all other losses, liabilities and
reasonable expenses incurred by Lessor in connection with Lessee's failure to
surrender; (ii) the unpaid Rent earned as of the date of termination (and for
any period following the termination date during which Lessee retains
possession and control of the Leased Property), plus interest at the Overdue
Rate accruing after the earlier of the due date or such termination date; and
(iii) all other sums of money then owing by Lessee to Lessor. Except as
provided in the Master Hotel Agreement, termination of this Lease and recovery
of the Rent and other amounts as aforesaid shall constitute Lessor's sole
remedy for the Revenue Performance Shortfall, and Lessee shall not be liable to
Lessor for damages arising therefrom.
(c) Lessor's right to terminate this Lease
pursuant to subsection (b) above, following any Lease Year, shall be subject to
Lessee's right to cure the Revenue Performance Shortfall occurring thereunder
with respect to such Lease Year by making a cash payment to Lessor during the
Notice Period equal to the difference between the Percentage Rent actually paid
for the Lease Year and eighty percent (80%) (the "HOTEL SHORTFALL CURE
PERCENTAGE") of the Percentage Rent budgeted for the Lease Year in the Revenue
Budget for the Lease Year. Any payment made by Lessee under this subsection (c)
shall be deemed Rent paid with respect to the Lease Year. Lessor shall have no
obligation to repay any amount advanced by Lessee to cure a Revenue Performance
Shortfall. Lessee may only cure two Revenue Performance Shortfalls, occurring
under subsection (a) by paying Lessor based on a eighty percent (80%) Hotel
Shortfall Cure Percentage. Thereafter, the Hotel Shortfall Cure Percentage
shall be ninety percent (90%).
2.5 Lessor's Option to Terminate Lease upon Sale.
(a) In the event Lessor enters into a bona
fide contract to sell all or substantially all of the Leased Property to a
non-Affiliate of Lessor or Lessee, then Lessor may terminate this Lease by
giving not less than thirty (30) days prior Notice to Lessee of Lessor's
election to terminate this Lease upon the closing under such sale contract (the
"TERMINATION DATE"); provided, however, for purposes of this Section 2.5 only,
the percentage in the definition of "AFFILIATE" herein shall be deemed to be
ten percent (10%) rather than fifty percent (50%). Effective upon the
Termination Date, this Lease shall terminate and be of no further force and
effect except as to any obligations of the parties existing as of such date
that survive termination of this Lease, and all Rent including Percentage Rent
and Additional Charges shall be adjusted as of the Termination Date. For
purposes of this Article, Lessor will be deemed to have "sold" the Leased
Property if it (i) sells, or transfers by long-term ground lease, the Leased
Property for cash, a promissory note or other consideration, (ii) contributes
the Leased Property to a Person in exchange for stock, partnership interests,
membership interests or other equity interests, provided that after such
transaction the Person who will own the Leased Property is not and will not
thereby become an Affiliate of FelCor, FSLP, Lessor or any of their
Subsidiaries, or (iii) merges (except a merger involving FelCor or FSLP) or
combines with any Person, provided that after
-20-
<PAGE> 29
such transaction the Person who will own the Leased Property is not and will
not thereby become an Affiliate of FelCor, FSLP, Lessor or any of their
Subsidiaries.
(b) As compensation for the early
termination of its leasehold estate under this Section 2.5 because of a sale of
the Leased Property, Lessor shall pay to Lessee the Termination Fee, as and
when provided in the Master Hotel Agreement, unless the Lessee accepts a New
Lease or a substitute for this Lease as provided in the Master Hotel Agreement.
(c) In the event that Lessor terminates
this Lease upon less than sixty (60) days written notice pursuant to the
provisions of this Section 2.5 (or pursuant to any other provisions of this
Lease except for the provisions allowing Lessor to terminate this Lease under
Article 14 or Article 15 and except upon the occurrence of an Event of
Default), the parties agree that on and after the effective date of such
termination, Hotel personnel employed by Lessee immediately prior to the
effective date of termination will either be employed by Lessor's Manager or
designee, or Lessor or its designee will take such other action with respect to
their employment, which may include notification of the prospective termination
of their employment, so as, in any case, to attempt to prevent any liability
pursuant to the WARN Act. In that event, Lessor hereby agrees to defend,
indemnify and hold harmless Lessee from and against any and all manner of
claims, actions, liabilities, costs and expenses (including, without
limitation, reasonable attorneys' fees and disbursements) relating to or
arising from Lessor's breach of this covenant, including, without limitation,
any liability, costs and expenses arising out of asserted or actual violation
of the requirements of the WARN Act. Further, Lessor's Manager or designee
shall assume all COBRA liabilities and COBRA obligations to the Hotel's
personnel, which Lessee shall or may incur in connection with such termination
of this Lease, and Lessor hereby agrees to defend, indemnify and hold harmless
Lessee from and against any and all manner of claims, actions, liabilities,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements) relating to or resulting from Lessor's breach of the
foregoing covenant with respect to COBRA matters, including, without
limitation, any liability, costs and expenses arising out of any asserted or
actual violation of the requirements of the COBRA any legislation. Upon
Lessor's written request to Lessee, Lessee shall take all action that is
reasonable to notify, advise and cooperate with Lessor in order to assist
Lessor in complying with the WARN Act or COBRA legislation and to mitigate
Lessor's expense or liability with respect to the WARN Act and COBRA
legislation.
2.6 Transition Procedures. Upon any expiration or termination of the
Term, but without prejudice to Lessor's remedies upon the occurrence of an
Event of Default, Lessor and Lessee shall do the following and, in general,
shall cooperate in good faith to effect an orderly transition of the management
or lease of the Hotel:
(a) Transfer of Licenses. Lessee shall use
its reasonable best efforts (i) to transfer to Lessor or Lessor's designee any
Franchise Agreement, all licenses, operating permits and other governmental
authorizations and all contracts, including contracts with governmental or
quasi-governmental entities, that may be necessary for the operation of the
-21-
<PAGE> 30
Hotel (collectively, "LICENSES"), or (ii) if such transfer is prohibited by law
or Lessor otherwise elects, to cooperate with Lessor or Lessor's designee in
connection with the processing by Lessor or Lessor's designee of any
applications for all Licenses, including Lessee (or its Affiliate) continuing
to operate the liquor operations under its licenses with Lessor agreeing to
indemnify and hold Lessee (or its Affiliate) harmless as a result thereof
(except for the gross negligence or willful misconduct of Lessee); provided, in
either case, that the costs and expenses of any such transfer or the processing
of any such application shall be paid by Lessor or Lessor's designee.
(b) Leases and Concessions. Lessee shall
assign to Lessor or Lessor's designee simultaneously with the termination of
this Agreement, and the assignee shall assume, all leases, contracts,
concession agreements and agreements in effect with respect to the Hotel then
in Lessee's name which are designated by Lessor.
(c) Books and Records. To the extent that
Lessor has not already received copies thereof, all books and records
(including computer and computer-generated records) for the Hotel kept by
Lessee pursuant to Article 4 hereof or Section 7 of the Master Hotel Agreement
(or copies thereof) shall be delivered to Lessor or Lessor's designee
simultaneously with the termination of this Lease, but such books and records
shall thereafter be available at all reasonable times for inspection, audit,
examination and transcription for a period of one (1) year and Lessee may
retain (on a confidential basis) copies of computer records thereof.
(d) Receivables and Payables, etc. Lessee
shall be entitled to retain all cash, bank accounts and house banks, and to
collect all Gross Revenues and accounts receivable accrued through the
termination date. Lessee shall be responsible for the payment of Rent, all
Gross Operating Expenses and all other obligations of Lessee accrued under this
Lease as of the termination date, and Lessor shall be responsible for all Gross
Operating Expenses of the Hotel accruing after the termination date.
(e) Final Accounting. Lessee shall, within
forty five (45) days after the expiration or termination of the Term, prepare
and deliver to Lessor a final accounting statement, dated as of the date of the
expiration or termination, as more particularly described in Article 4, along
with a statement of any sums due from Lessee to Lessor pursuant hereto and
payment of such funds.
(f) Inventory. Lessee shall insure that the
Leased Property, at the date of such termination or expiration, has Inventory
of a substantially equivalent nature and amount as exists at the Leased
Property on the Commencement Date, and Lessor shall acquire such Inventory from
Lessee at Lessee's cost.
(g) Surrender. Lessee shall peacefully and
immediately vacate and surrender the Leased Property to Lessor or Lessor's
designee, shall turn over all keys to Lessor and Lessor's designee and shall
not interfere with Lessor or any new Lessee or Manager.
-22-
<PAGE> 31
The provisions of this Section 2.6 shall survive the expiration or
termination of this Lease until they have been fully performed. Nothing
contained herein shall limit Lessor's rights and remedies under this Lease if
such termination occurs as the result of an Event of Default.
2.7 Holding Over. If Lessee for any reason remains in possession of
the Leased Property after the expiration or earlier termination of the Term,
such possession shall be as a tenant at sufferance during which time Lessee
shall pay as rental each month one hundred fifty percent of the aggregate of
(a) one-twelfth (1/12) of the aggregate Base Rent and Percentage Rent payable
with respect to the last full Fiscal Year of the Term, (b) all Additional
Charges accruing during the applicable month and (c) all other sums, if any,
payable by Lessee under this Lease with respect to the Leased Property. During
such period, Lessee shall be obligated to perform and observe all of the terms,
covenants and conditions of this Lease, but shall have no rights hereunder
other than the right, to the extent given by law to tenancies at sufferance, to
continue its occupancy and use of the Leased Property. Nothing contained herein
shall constitute the consent, express or implied, of Lessor to the holding over
of Lessee after the expiration or earlier termination of this Lease.
ARTICLE 3
RENT, RENT ADJUSTMENTS AND PERFORMANCE STANDARDS
3.1 Rent. Lessee will pay to Lessor in lawful money of the United
States which shall be legal tender for the payment of public and private debts,
in immediately available funds, at Lessor's address set forth in the Schedule
of Basic Terms attached hereto or at such other place or to such other Person
as Lessor from time to time may designate in a Notice, all Base Rent,
Percentage Rent and Additional Charges, during the Term, as follows:
(a) Payment of Rent.
(i) Monthly Payments in Respect of Base
Rent: With respect to each calendar month during the Term, Lessee shall pay to
Lessor, in advance, on or before the last day of the calendar month immediately
preceding the calendar month to which such payment relates (except as otherwise
expressly provided in the Master Hotel Agreement), an amount equal to the
portion of the annual sum (except for 1998) set forth on the Schedule of Basic
Terms attached hereto as the "BASE RENT" for the Leased Property ("BASE RENT")
included in the Annual Budget for such calendar month (which amount shall be
fully earned by Lessor and shall not be subject to adjustment or reduction,
except as expressly set forth in this Article III, during any subsequent month,
quarter or Fiscal Year); provided, however, that the first and last monthly
payments in respect of Base Rent shall be pro rated as to any partial month
(subject to adjustment as provided in Sections 5.3, 14.5, 15.3, 15.5, and
15.6); and
(ii) Monthly Payments in Respect of
Budgeted Percentage Rent: With respect to each calendar month during the Term,
commencing with the
-23-
<PAGE> 32
calendar month in which the Commencement Date occurs, Lessee shall pay to
Lessor (on or before the last day of the month) an amount equal to the excess,
if any, of (i) seventy-five percent (75%) of the amount of Lessee's budgeted
Percentage Rent payable with respect to the then current calendar month (which
budgeted amount shall be equal to one-third (1/3) of the quarterly estimate of
Percentage Rent included in the Annual Budget for the calendar quarter in which
such calendar month occurs) over (ii) Base Rent for such calendar month; and
(iii) Quarterly Payments in Respect of
Percentage Rent: With respect to each calendar quarter of each Lease Year
during the Term (on or before the fifteenth (15th) day following the end of the
first three (3) calendar quarters and on or before the twentieth (20th) day
following the end of the final calendar quarter), Lessee shall pay to Lessor an
amount equal to the amount, if any, by which the aggregate of all payments in
respect of Base Rent and Percentage Rent for such calendar quarter shall be
less than the amount determined pursuant to the Quarterly Percentage Rent
Computation for such calendar quarter.
(b) Quarterly Computation of Percentage
Rent. For each calendar quarter of each Lease Year of the Term, the aggregate
amount of Percentage Rent that shall be fully earned by Lessor, which amount
shall not be subject to adjustment or reduction (except as expressly set forth
in this Article III) during any subsequent quarter or Lease Year, shall be the
amount determined by the following calculation ("QUARTERLY PERCENTAGE RENT
COMPUTATION"):
An amount equal to the sum of: (i) the
product of the First Tier Room Revenue
Percentage, set forth for the applicable
Lease Year in the Schedule of Basic Terms
attached hereto, times the aggregate Room
Revenues during such calendar quarter up to
and including that portion of the Room
Revenue Breakpoint allocated to such
calendar quarter in the Annual Budget (the
"QUARTERLY ROOM REVENUE BREAKPOINT"); plus
(ii) the product of the Second Tier Room
Revenue Percentage, set forth for the
applicable Lease Year in the Schedule of
Basic Terms attached hereto, times the
aggregate Room Revenues during such
calendar quarter in excess of the Quarterly
Room Revenue Breakpoint; plus
-24-
<PAGE> 33
(iii) the product of each of the Other
Percentages, set forth for the applicable
Lease Year in the Schedule of Basic Terms
attached hereto, times (as applicable) the
Food Sale Revenues, Beverage Sale Revenues,
Telephone Revenues and Other Revenues during
such calendar quarter.
For the purpose of defining the Quarterly Percentage Rent Computation:
(i) "FIRST TIER ROOM REVENUE PERCENTAGE,"
"SECOND TIER ROOM REVENUE PERCENTAGE" and "OTHER PERCENTAGES"
shall mean the then applicable percentages corresponding to
each of such terms as set forth in the Schedule of Basic
Terms attached hereto; and
(ii) "ROOM REVENUE BREAKPOINT" shall mean
the amount of Room Revenues for the applicable Lease Year
corresponding to such term as set forth in Schedule of Basic
Terms attached hereto (which amount shall always be equal to
the sum of the Quarterly Room Revenue Breakpoint amounts for
each calendar quarter during such Lease Year); except that
for each Lease Year from and after the CPI Adjustment Year,
the Room Revenue Breakpoint shall be adjusted by the same
percentage that the Base Rent is adjusted pursuant to
Subsection 3.1(d) of this Lease.
In no event will the amount of Rent payable for any calendar quarter or the
result of any Quarterly Percentage Rent Computation be less than zero, and
there shall be no reduction in the Base Rent regardless of the result of any
Quarterly Percentage Rent Computation.
(c) Officer's Certificates. An Officer's
Certificate shall be delivered to Lessor, together with each such quarterly
payment based upon the Quarterly Percentage Rent Computation, which Officer's
Certificate shall set forth the calculation of the Quarterly Percentage Rent
Computation and all prior payments of Rent in respect of such calendar quarter.
If the Percentage Rent earned by Lessor for such calendar quarter (as
shown in the applicable Officer's Certificate) exceeds the amount actually paid
as Percentage Rent by Lessee for such calendar quarter, Lessee also shall pay
such excess to Lessor at the time such Officer's Certificate is delivered. If
the aggregate Percentage Rent earned by Lessor for such calendar quarter (as
shown by such Officer's Certificate) is less than the amount actually paid as
Percentage Rent for the applicable calendar quarter, Lessor will reimburse such
amount to Lessee within five (5) Business Days after such Officer's Certificate
is delivered to Lessor.
-25-
<PAGE> 34
Any amount to be paid or reimbursed as provided above that is not paid
when due, whether in favor of Lessor or Lessee, shall bear interest at the
Overdue Rate, which interest shall accrue from the twentieth (20th) day after
the end of the respective calendar quarter of such Lease Year for which such
Percentage Rent is due until the amount of such difference shall be paid or
otherwise discharged. Any such interest payable to Lessor shall be deemed to be
and shall be payable as Additional Charges.
The obligation to pay Percentage Rent shall survive the expiration or
earlier termination of the Term, and a final reconciliation (taking into
account, among other relevant adjustments, any adjustments which are accrued
after such expiration or termination date but which related to Percentage Rent
accrued prior to such expiration or termination date, and adjustments required
as a result of mathematical error, mistake, the use of preliminary, rather than
final, revenue figures in performing earlier computations, or other similar
factor) shall be made not later than two (2) years after such expiration or
termination date, but Lessee shall advise Lessor within sixty (60) days after
such expiration or termination date of Lessee's best estimate at that time of
the approximate amount of such adjustments, which estimate shall not be binding
on Lessee or have any legal effect whatsoever.
(d) CPI Adjustments to Rent. If the
Schedule of Basic Terms attached hereto designates a CPI Adjustment for the
Leased Property, then, for each Lease Year of the Term beginning on or after
the CPI Adjustment Year (as defined in said Schedule of Basic Terms), the Base
Rent then in effect, and the Room Revenue Breakpoint then applicable shall be
adjusted from time to time beginning in the CPI Adjustment Year as follows:
(1) The average Consumer Price Index for
the most recently ended Lease Year shall be divided by the average Consumer
Price Index for the immediately preceding Lease Year.
(2) The new Base Rent for the then current
Lease Year shall be the adjusted amount obtained by multiplying the Base Rent
for the immediately preceding Lease Year by the quotient obtained in
subparagraph (d)(1) above.
(3) The new Room Revenue Breakpoint for the
then current Lease Year shall be the product of the Room Revenue Breakpoint in
effect in the most recently ended Lease Year and the quotient obtained in
subparagraph (d)(1) above.
(4) By way of example, if the CPI
Adjustment Year were 2001, the amount of Base Rent and the Room Revenue
Breakpoint amounts (and Food Sale Revenue and Beverage Sale Revenue amounts, if
applicable) for purposes of the computation of Rent for the Lease Year
commencing January 1, 2001 would be adjusted to reflect any change in the
Average Consumer Price Index from the Lease Year ended December 31, 1999 as
compared to the Lease Year ended December 31, 2000. Base Rent and Room Revenue
Breakpoint amounts (and Food Sale Revenue and Beverage Sale Revenue amounts, if
applicable) for purposes of the
-26-
<PAGE> 35
computation of Rent for the Lease Year commencing January 1, 2002 would be the
Base Rent and Room Revenue Breakpoint amounts (and Food Sale Revenue and
Beverage Sale Revenue amounts, if applicable) applicable for the fiscal year
ended December 31, 2001 as further adjusted to reflect any change in the
Consumer Price Index from December 31, 2000 as compared to December 31, 2001.
(5) Lessor shall calculate the annual
adjustments as soon as reasonably possible after the Consumer Price Index
becomes available and shall notify Lessee in writing of the amount of the
annual adjustment, together with a copy of the computation showing the
adjustment amount. Adjustments calculated as set forth above in the Base Rent
and Room Revenue Breakpoint amounts (and Food Sale Revenue and Beverage Sale
Revenue amounts, if applicable) shall be effective on January 1 of the Lease
Year to which such adjusted amounts apply. If rent is paid in any Lease Year
prior to the determination of the amount of any adjustment to Base Rent or Room
Revenue Breakpoint amounts applicable for such Lease Year, payment adjustments
for any shortfall in or overpayment of rent paid shall be made with the first
Base Rent payment due after the amount of the adjustments are determined.
(6) The "AVERAGE CONSUMER PRICE INDEX" for
any period shall be the average of the Consumer Price Index for each month
during the period.
(7) If (i) a significant change is made in
the number or nature (or both) of items used in determining the Consumer Price
Index, or (ii) the Consumer Price Index shall be discontinued for any reason,
the Bureau of Labor Statistics shall be requested to furnish a new index
comparable to the Consumer Price Index, together with information which will
make possible a conversion to the new index in computing the adjusted Base Rent
hereunder. If for any reason the Bureau of Labor Statistics does not furnish
such an index and such information, the parties will instead mutually select,
accept and use such other index or comparable statistics on the cost of living
that is computed and published by an agency of the United States or a
responsible financial periodical of recognized authority.
3.2 Confirmation of Percentage Rent. Lessee shall utilize, or cause to
be utilized, an accounting system for the Leased Property in accordance with
its usual and customary practices, and in accordance with GAAP and the Uniform
System, that will accurately record all data necessary to compute Percentage
Rent, and Lessee shall retain, for at least four (4) years after the expiration
of each Lease Year (and in any event until the reconciliation described in
Subsection 3.1(c) for each calendar quarter of such Lease Year has been made),
reasonably adequate records conforming to such accounting system showing all
data necessary to compute Percentage Rent for each calendar quarter of the
applicable Lease Years. Lessor, at its expense (except as provided
hereinbelow), shall have the right from time to time by its accountants or
representatives to audit the information that formed the basis for the data set
forth in any Officer's Certificate provided under Subsection 3.1(c) and, in
connection with such audits, to examine all Lessee's records (including
supporting data, Franchisor reports and sales and excise tax returns)
reasonably required to verify Percentage Rent (and for no other purpose),
subject to any
-27-
<PAGE> 36
prohibitions or limitations on disclosure of any such data under applicable
law. If any such audit discloses an overpayment of Percentage Rent, and either
Lessor agrees with the result of such audit or the matter is otherwise
determined or compromised, Lessor shall forthwith pay to Lessee the amount of
the deficiency, as finally agreed or determined. If any such audit discloses a
deficiency in the payment of Percentage Rent, and either Lessee agrees with the
result of such audit or the matter is otherwise determined or compromised,
Lessee shall forthwith pay to Lessor the amount of the deficiency, as finally
agreed or determined, together with interest at the Overdue Rate from the date
when said payment should have been made to the date of payment thereof;
provided, however, that as to any audit that is commenced more than two (2)
years after the date Percentage Rent for the final quarter of any Lease Year is
reported by Lessee to Lessor, the deficiency, if any, with respect to such
Percentage Rent shall bear interest at the Overdue Rate only from the date such
determination of deficiency is made unless such deficiency is the result of
gross negligence or willful misconduct on the part of Lessee, in which case
interest at the Overdue Rate will accrue from the date such payment should have
been made to the date of payment thereof. If any such audit discloses that the
Percentage Rent actually due from Lessee for any Lease Year exceeds that
reported and paid by Lessee by more than three percent (3%), Lessee shall pay
the cost of such audit and examination. In no event shall Lessor undertake an
audit more than four (4) years after the last day of the Lease Year for which
such audit is requested. Any proprietary information obtained by Lessor
pursuant to the provisions of this Section shall be treated as confidential,
except that such information may be used, subject to appropriate
confidentiality safeguards, in any litigation between the parties and except
further that Lessor may disclose such information to prospective lenders,
investors, and underwriters who have a need to know such information and to
other Persons to whom disclosure is required by applicable law if such persons
are advised of and agree to maintain the confidentiality of such information.
The obligations of Lessee contained in this Section shall survive the
expiration or earlier termination of this Lease. Any dispute as to the
existence or amount of any deficiency in the payment of Percentage Rent as
disclosed by such audit shall, if not otherwise settled by the parties, be
submitted to arbitration pursuant to the provisions of Section 22.2.
3.3 Additional Charges. In addition to the Base Rent and Percentage
Rent, (a) Lessee also will pay and discharge as and when due and payable all
other amounts, liabilities, obligations and Impositions that Lessee assumes or
agrees to pay under this Lease, and (b) in the event of any failure on the part
of Lessee to pay any of those items referred to in clause (a) of this Section
3.3, Lessee also will promptly pay and discharge every fine, penalty, interest
and cost that may be added for non-payment or late payment of such items (the
items referred to in clauses (a) and (b) of this Section 3.3 being additional
rent hereunder and being referred to herein collectively as the "ADDITIONAL
CHARGES"), and Lessor shall have all legal, equitable and contractual rights,
powers and remedies provided either in this Lease or by statute or otherwise in
the case of non-payment of the Additional Charges as in the case of non-payment
of the Base Rent, including, but not limited to, the right, but not the
obligation to pay such Additional Charges on behalf of Lessee and to require
reimbursement thereof by Lessee, together with interest thereon at the Overdue
Rate. If any installment of Base Rent, Percentage Rent or Additional Charges
(but only as to those Additional Charges that are payable directly to Lessor)
-28-
<PAGE> 37
shall not be paid on its due date, Lessee will pay Lessor on demand, as
Additional Charges, a late charge (to the extent permitted by law) computed at
the Overdue Rate on the amount of such installment, from the due date of such
installment to the date of payment thereof. To the extent that Lessee pays any
Additional Charges to Lessor pursuant to any requirement of this Lease, Lessee
shall be relieved of its obligation to pay such Additional Charges to the
entity to which they would otherwise be due and Lessor shall pay same from
monies received from Lessee.
3.4 Net Lease Provision.
(a) The Rent shall be paid absolutely net to Lessor, so that this
Lease shall yield to Lessor the full amount of the installments of Base Rent,
Percentage Rent and Additional Charges throughout the Term, all as more fully
set forth below, but subject to any other provisions of this Lease that
expressly provide for adjustment or abatement of Rent or other charges or
expressly provide that certain Impositions (including without limitation Real
Estate Taxes, Capital Impositions and Personal Property Taxes), Capital
Expenditures and other expenses or maintenance shall be paid or performed by
Lessor.
(b) Except as otherwise specifically provided in this Lease, and
except for loss of any Franchise Agreement solely by reason of any action or
inaction by Lessor, Lessee, to the extent permitted by law, shall remain bound
by this Lease in accordance with its terms and shall neither take any action
without the written consent of Lessor to modify, surrender or terminate the
same, nor seek nor be entitled to any abatement, deduction, deferment or
reduction of the Rent, or set off against the Rent, nor shall the obligations
of Lessee be otherwise affected by reason of (a) any damage to, or destruction
of, any Leased Property or any portion thereof from whatever cause or any
Taking of the Leased Property or any portion thereof, (b) the lawful or
unlawful prohibition of, or restriction upon, Lessee's use of the Leased
Property, or any portion thereof, or the interference with such use by any
Person or by reason of eviction other than by paramount title except as
otherwise specifically provided in this Lease and except to the extent that a
court of competent jurisdiction has issued a final, nonappealable order
determining that Lessee was constructively evicted from the Leased Property,
(c) any claim which Lessee has or might have against Lessor by reason of any
default or breach of any warranty by Lessor under this Lease or any other
agreement between Lessor and Lessee, or to which Lessor and Lessee are parties,
(d) any bankruptcy, insolvency, reorganization, composition, readjustment,
liquidation, dissolution, winding up or other proceedings affecting Lessor or
any assignee or transferee of Lessor, or (e) for any other cause whether
similar or dissimilar to any of the foregoing other than a discharge of Lessee
from any such obligations as a matter of law. Lessee hereby specifically waives
all rights, arising from any occurrence whatsoever, which may now or hereafter
be conferred upon it by law to (1) modify, surrender or terminate this Lease or
quit or surrender the Leased Property or any portion thereof, or (2) entitle
Lessee to any abatement, reduction, suspension or deferment of the Rent or
other sums payable by Lessee hereunder, except as otherwise specifically
provided in this Lease and except to the extent that a court of competent
jurisdiction has issued a final, nonappealable order determining that Lessee
was constructively evicted from the Leased Property. The obligations of Lessee
hereunder shall be separate and
-29-
<PAGE> 38
independent covenants and agreements and the Rent and all other sums payable by
Lessee hereunder shall continue to be payable in all events unless the
obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by reason
of an Event of Default.
3.5 Material Changes in Economic Climate.
(a) In the event of the occurrence of a
Force Majeure and a Hotel Market Decline, Lessor and Lessee shall, in good
faith, negotiate possible modifications to the Base Rent and Percentage Rent to
reduce such Base Rent and Percentage Rent to recent market rates for hotel REIT
leases for similar hotel properties in the Hotel's Competitive Set,
retroactively effective as of the first calendar month of the Term following
the last day of the six-month period during which such Hotel Market Decline has
occurred with the excess of Base Rent and Percentage Rent actually paid for
such period over the reduced Base Rent and Percentage Rent, plus interest
thereon at the Base Rate, to be credited to the next payments of Rent due and
owing hereunder. If Lessor and Lessee are unable to agree that a Force Majeure
or a Hotel Market Decline has occurred, within thirty (30) days after the date
of written certification from Lessee to Lessor that a Force Majeure and Hotel
Market Decline has occurred (accompanied by reasonably detailed computations
and documentation to support such assertion), the matter may be submitted by
either party to arbitration under Section 22.2 hereof for resolution (during
which period Lessee shall continue to pay Base Rent and Percentage Rent as
required under Section 3.1 of this Lease). If, within ninety (90) days (during
which period Lessee shall continue to pay Base Rent and Percentage Rent as
required under Section 3.1 of this Lease) following the date of such written
certification from Lessee (or the date of a decision of an arbitrator if
required hereunder to determine that a Force Majeure and Hotel Market Decline
has occurred), Lessor and Lessee are unable to agree upon the amount of
reduction in Base Rent and Percentage Rent contemplated hereby, Lessee shall
have the option to terminate this Lease upon not less than thirty (30) days
prior written notice to Lessor.
(b) In the event of the occurrence of a
National Economic Decline and a Regional Market Decline, Lessor and Lessee
shall, in good faith, negotiate (i) possible modifications to the Base Rent and
Percentage Rent to reduce such Base Rent and Percentage Rent to recent market
rates for hotel REIT leases for similar hotel properties in the Hotel's
Competitive Set, and (ii) possible modifications to the Base and Percentage
Rent payable under each of the Other Leases for Other Hotels in the same Region
(as defined in the STR Reports) as the Hotel to reducesuch Base Rent and
Percentage Rent to recent market rates for hotel REIT leases for similar hotel
properties in the Hotel's Competitive Set, in each case retroactively effective
as of the first calendar month of the Term following the last day of the
six-month period during which such Regional Market Decline has occurred with
the excess of Base Rent and Percentage Rent actually paid for such period over
the reduced Base Rent and Percentage Rent, plus interest thereon at the Base
Rate, to be credited to the next payments of Rent due and owing hereunder. If,
within thirty (30) days after the date of written certification from Lessee to
Lessor that a National Economic Decline and Regional Market Decline has
-30-
<PAGE> 39
occurred (accompanied by reasonably detailed computations and documentation to
support such assertion), Lessor and Lessee are unable to agree that a National
Economic Decline or Regional Market Decline has occurred, the matter may be
submitted by either party to arbitration under Section 22.2 hereof for
resolution (during which period Lessee shall continue to pay Base Rent and
Percentage Rent as required under Section 3.1 of this Lease). If, within ninety
(90) days (during which period Lessee shall continue to pay Base Rent and
Percentage Rent as required under Section 3.1 of this Lease) following the date
of such initial written certification from Lessee (or the date of a decision of
an arbitrator if required hereunder to determine that a National Economic
Decline and Regional Market Decline has occurred), Lessor and Lessee are unable
to agree upon the amount of reduction in Base Rent and Percentage Rent
contemplated hereby, Lessee shall have the option, upon not less than sixty
(60) days prior written notice to Lessor, to terminate all (but not less than
all) of the Existing Leases of hotels in the same Region as the Hotel,
including this Lease.
3.6 Rent Adjustment: Basic Assumptions Incorrect. Except to the extent
that doing so would cause Lessor to recognize income other than "rents from
real property" as defined in Section 856(d) of the Code, notwithstanding
anything herein (other than Article 19) to the contrary, if (i) the facts and
circumstances underlying the documented, basic assumptions (as set forth in the
Master Hotel Agreement or the schedules thereto) upon which both Lessor and
Lessee have relied in determining the Base Rent, Room Revenue Breakpoint and
Percentage Rent payable hereunder become materially incorrect solely as a
result of (A) a material change occurring after the Commencement Date in the
timing (whether as to the commencement, duration and/or completion date) of any
Contemplated Renovations that were planned as of the Commencement Date, (B) a
decision to re-brand the Hotel that is made after the Commencement Date, (C)
the scope or cost of substantial renovations or other capital improvements
(other than Contemplated Renovations that were planned as of the Commencement
Date) to the Hotel, or (D) the implementation of any other hotel repositioning
strategies (that were not planned as of the Commencement Date) resulting in
significant disruption of the operations of the Hotel (collectively, a
"REPOSITIONING"), and (ii) Lessor and Lessee so agree in writing (or, with
respect to Repositionings (i) during the years 1999 and 2000 or (ii) that are
approved by both Lessor and Lessee, are directed to do so by an arbitrator, as
set forth below), then Lessor and Lessee shall, in good faith, negotiate
modifications to the Base Rent, Room Revenue Breakpoint and Percentage Rent to
adjust (i.e., increase, decrease or reallocate among revenue categories) such
Base Rent, Room Revenue Breakpoint and Percentage Rent to reflect such change
in basic assumptions for the affected periods, using the same methodology and
other basic assumptions as were initially utilized in determining the Base
Rent, Room Revenue Breakpoint and Percentage Rent hereunder. If Lessor and
Lessee are unable to agree, within thirty (30) days after the date of written
certification from either Lessee or Lessor to the other party that a good faith
dispute exists as to the existence of the occurrence of a Repositioning during
1999 or 2000, or the adjustments to be made to the amounts or percentages for
the Base Rent, Room Revenue Breakpoint and Percentage Rent hereunder as a
result of any Repositioning, the dispute may be submitted by either party to
arbitration under Section 22.2 hereof for resolution (during which period
Lessee shall continue to pay Base Rent and Percentage Rent as required under
Section 3.1 of this Lease);
-31-
<PAGE> 40
provided, however, that for purposes of applying the procedures in Section 22.3
to such arbitration, the target deadline therein for concluding the arbitration
shall be shortened from ninety (90) days to thirty (30) days.
3.7 Allocation of Rent. The parties hereto acknowledge and agree that
the Base Rent paid or payable by Lessee to Lessor hereunder shall, to the
extent relevant, be allocated between the personal property and real property
constituting Leased Property hereunder in direct proportion to the then
recognizable fair market value of such personal property and real property.
Percentage Rent in excess of Base Rent shall be allocated solely to real
property.
ARTICLE 4
BUDGETS AND FINANCIAL REPORTING
4.1 Revenue Budgets. Not later than ninety (90) days prior to the
commencement of each Lease Year, Lessee shall prepare and submit to Lessor a
proposed Gross Revenue target for the following Lease Year. Not later than
sixty (60) days prior to the commencement of each Lease Year, Lessee shall
prepare and submit to Lessor for its review a proposed Gross Revenue budget for
the following Lease Year (the "REVENUE BUDGET"), prepared in accordance with
the requirements of this Section 4.1. The Revenue Budget shall be prepared in
accordance with the Uniform System to the extent applicable and show by month
and quarter and for the Lease Year to date the degree of detail specified by
the Uniform System for monthly statements, and in accordance with the detail
level of monthly financial statements, the following:
(a) Lessee's good faith reasonable estimate
of Gross Revenues, Room Revenues (including room rates), Food Sales Revenues,
Beverage Sale Revenues, Telephone Revenues and Other Revenues for the Hotel for
the forthcoming Lease Year itemized on schedules on a monthly and quarterly
basis, as approved by Lessor and Lessee, together with the assumptions, in
narrative form, forming the basis of such schedules and a cash flow projection;
(b) A narrative description of the program
for advertising and marketing the Hotel for the forthcoming Lease Year,
including a narrative description of the program for marketing and managing the
Hotel for the forthcoming Lease Year, including, among other things, details as
to significant accounts and customers, competitor performance (to the extent
available), existing, new and projected supply analysis, demand analysis,
estimated market penetration by market segment (to the extent available),
target accounts, marketing and advertising budgets, changes in personnel
policies, staffing levels, major events plans, franchise issues and other
matters affecting the performance and operation of the Hotel and containing a
detailed budget itemization of proposed expenditures by category and the
assumptions, in narrative form, forming the basis of such budget itemization;
and
(c) Lessee's good faith proposal for (i)
the apportionment of Base Rent to be included in the Annual Budget for each
calendar quarter (and for each calendar
-32-
<PAGE> 41
month during such quarter) of such Lease Year, (ii) the apportionment of the
Room Revenue Breakpoint to be included in the Annual Budget as the Quarterly
Room Revenue Breakpoint for each calendar quarter of such Lease Year, and (iii)
the resulting computation of Percentage Rent payable for each calendar quarter
of such Lease Year. (In apportioning Base Rent for each month and in setting
the Quarterly Room Revenue Breakpoint for each quarter, Lessor and Lessee will
attempt to ensure, to as great a degree as is possible during the preparation
of the Annual Budget, that the sum of the Rent projected to be paid for each
calendar quarter will equal the amount of projected Rent that would have been
paid had the amount of projected Rent been calculated on an annual basis rather
than on a quarterly basis. Without limiting the generality of the foregoing:
(1) the amount of Base Rent apportioned to each month will be the amount, based
on the agreed projections that form the basis for the Annual Budget, that is
least likely to result in the Base Rent apportioned to any month exceeding
one-third of the Quarterly Percentage Rent Computation for the quarter in which
such month falls, and (2) the Quarterly Room Revenue Breakpoint will be the
amount that is expected, based on such projections, to maximize the amount of
any Percentage Rent projected to be paid based on the First Tier Room Revenue
Percentage during any Lease Year and to minimize the amount of any Percentage
Rent projected to be paid based on the Second Tier Room Revenue Percentage in
any Lease Year. The parties anticipate that their compliance with the foregoing
objectives will typically result in Base Rent for each month and the Quarterly
Room Revenue Breakpoint for each quarter being generally based upon the
proportion of projected Room Revenues for such month or quarter, respectively,
compared to projected Room Revenues for the applicable Lease Year. This
Subsection 4.1(c) is intended to express the parties' mutual intent as to the
agreed objective with respect to the apportionment of the then applicable
amount of the annual Base Rent and the Room Revenue Breakpoint for purposes of
preparation of the Annual Budget for each Lease Year, and shall not constitute
a modification of any provision of this Lease regarding the accrual or payment
of Rent hereunder.)
4.2 Operating Budgets. Not later than the commencement of each Lease
Year, Lessee shall have prepared and submitted to Lessor an operating budget in
form reasonably acceptable to Lessor (the "OPERATING BUDGET") for that Lease
Year prepared in accordance with the Uniform System to the extent applicable
and that includes, without limitation, an amount equal to not less than four
and one-half percent (4.5%) of estimated Gross Revenues allocated for estimated
cost ("M&R EXPENSE") of maintenance and repairs (other than Capital
Improvements) to the Hotel during such Lease Year. Unless required by the terms
of any Franchise Agreement, Lessee shall not make any changes to the current
methods or categories by which Gross Revenues are budgeted or accounted for by
Lessee or its Manager in its Revenue Budget for calendar year 1998 without the
prior written consent of Lessor, which consent shall not be unreasonably
withheld. In the event that the amount actually incurred by Lessee for M&R
Expense for the Hotel for any Lease Year (the "M&R SHORTFALL YEAR") is less
than four and one-half percent (4.5%) of Gross Revenues for such Lease Year
("MINIMUM M&R"), notwithstanding the foregoing provisions of this Section 4.2,
Lessee shall be obligated (i) to prepare and submit to Lessor for its approval
the Operating Budget for the Lease Year following the Shortfall Year (the "M&R
CURE YEAR"), at the same time as, and according to the procedure herein
provided for, review and approval of the Annual Budget for such subsequent
Lease Year,
-33-
<PAGE> 42
and (ii) without limiting the generality of the foregoing, to include in such
Operating Budget Lessee's good faith reasonable estimate of Gross Operating
Expenses for the Hotel for such M&R Cure Year, itemized on schedules on a
monthly and quarterly basis, in accordance with the Uniform System and as
approved by Lessor and Lessee, including without limitation an amount,
allocated for M&R Expense equal to not less than the sum of (A) four and
one-half percent (4.5%) of estimated Gross Revenues, plus (B) the amount by
which Lessee failed to incur Hotel M&R Expense at least equal to the Minimum
M&R for the M&R Shortfall Year, together with the assumptions, in narrative
form, forming the basis of such schedules (unless Lessor agrees to a lesser
amount in the exercise of its reasonable discretion).
4.3 Capital Budget. Not later than sixty (60) days prior to the
commencement of each Lease Year, Lessee shall prepare and submit to Lessor a
capital budget (the "CAPITAL BUDGET") prepared in accordance with this Section
4.3. The Capital Budget shall be prepared in accordance with the Uniform System
to the extent applicable and shall set forth proposed Capital Expenditures for
the ensuing Lease Year, including without limitation an emergency fund in the
amount of approximately fifteen percent (15%) of the Capital Reserve for such
Lease Year, together with an estimate of the amounts to be spent for the
repair, replacement, or refurbishment of Furniture, Fixtures and Equipment and
an estimate of the amounts to be spent on Capital Improvements during the
current and the next three (3) Lease Years, including a project-by-project
schedule of estimated start and completion dates. The Capital Budget will
include, without limitation, all Capital Expenditures that Lessor is required
to make hereunder, including expenditures for compliance with any PIP or
Contemplated Renovations.
4.4 Annual Budget Approval; Budget Disputes.
(a) Lessor shall have thirty (30) days
after the date on which it receives the Revenue Budget and the Capital Budget
(collectively, the "ANNUAL BUDGET") to review, approve, disapprove or change
the entries and information appearing in the Annual Budget. If the parties are
not able to reach agreement on the Annual Budget for any Lease Year during
Lessor's thirty (30) day review period, the parties shall attempt during the
subsequent fifteen (15) day period to resolve any disputes, which attempt shall
include, if requested by either party, at least one (1) meeting of
executive-level officers of Lessor and Lessee. Lessor and Lessee shall act
promptly, reasonably and in good faith in seeking to resolve such disputes and
in arriving at a mutually acceptable Annual Budget on or before December 15th
prior to the respective Lease Year. In the event the parties are still not able
to reach agreement on the Annual Budget for any particular Lease Year after
complying with the foregoing requirements of this Section 4.4, the parties
shall adopt such portions of the Revenue Budget and the Capital Budget as they
may have agreed upon, and any matters not agreed upon shall be referred to
arbitration as provided for in Section 22.2 hereof. Pending the results of such
arbitration or the earlier agreement of the parties, (i) if the Revenue Budget
has not been agreed upon, for the first ninety (90) days of the new Lease Year
the Leased Property will be operated in a manner reflecting the prior Fiscal
Year's actual Gross Revenues, and thereafter the Leased Property will be
operated for the full Lease Year (including the first 90 days thereof) in a
manner consistent with the prior
-34-
<PAGE> 43
Lease Year's Operating Budget, in each case adjusted pursuant to Subsection
3.1(d) hereof until a new Revenue Budget is adopted, and (ii) if the Capital
Budget has not been agreed upon, no Capital Expenditures shall be made unless
the same are set forth in a previously approved Capital Budget or are
specifically required by Lessor or are otherwise required to comply with this
Lease, ground or building leases, Mortgages or Legal Requirements or are
Emergency Capital Expenditures.
(b) The Capital Budget, once approved and
as approved, shall form the basis on which Capital Expenditures for the Leased
Property shall be made. Unless such Capital Expenditures are otherwise
permitted in writing by Lessor or are otherwise required to comply with Legal
Requirements or are Emergency Capital Expenditures, Lessee agrees to use
reasonable best efforts not to cause or permit any Capital Expenditures for a
Lease Year in excess of those set forth in the Capital Budget ("EXCESS CAPITAL
EXPENDITURES"). If, notwithstanding Lessee's reasonable best efforts, Excess
Capital Expenditures are contemplated, Lessee shall provide Lessor a written
explanation of such expenditures, which shall include (a) estimates of the
Excess Capital Expenditures, (b) the basis upon which such estimates were made,
(c) the reasons for such variances from the budgeted Capital Expenditures for
such items and (d) the Lessee's plan, if any, to reduce such Capital
Expenditures in the future or avoid Capital Expenditures on such items which
are in excess of the amounts budgeted for such items in the future. Lessee
shall provide Lessor any additional information regarding Excess Capital
Expenditures, and from time to time provide Lessor with status reports on the
Excess Capital Expenditures and the implementation of any plan to reduce or
avoid such Excess Capital Expenditures, each as reasonably requested by Lessor
or its representatives. Notwithstanding the foregoing, expenditures in excess
of 105% of the amount budgeted for an item in a Capital Budget may be made by
Lessee (i) for Real Estate Taxes, Personal Property Taxes, Capital Impositions
and insurance and utility expenses resulting from unanticipated rate changes,
and (ii) if such expenditures are Emergency Capital Expenditures. Lessee shall
promptly report to Lessor in writing any actual or anticipated deviation from
the Capital Budget resulting from the application of the preceding sentence. In
the event that Lessee fails to provide the Notices, information or reports
required under this Section 4.4, then Lessor, in addition to its other rights
and remedies under this Lease and under applicable law, shall have the right to
submit the matter to arbitration under Section 22.2 hereof.
(c) Lessee will, upon request from time to
time, provide information regarding the Hotel's status with respect to the
Operating Budget, the Revenue Budget and the Capital Budget and will make
available its financial officers for personal or telephone meetings to discuss
such matters.
4.5 Disclosure of Financial and Portfolio Information.
(a) At any time and from time to time upon
not less than ten (10) days Notice by Lessor, Lessee will furnish to Lessor or
any Person designated by Lessor an Officer's Certificate certifying that this
Lease is unmodified and in full force and effect (or that this
-35-
<PAGE> 44
Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, whether to the
knowledge of Lessee there is any existing default or Event of Default hereunder
by Lessor or Lessee, and such other information as may be reasonably requested
by Lessor. Any such certificate furnished pursuant to this Section may be
relied upon by Lessor, any underwriter, lender, investor and prospective
purchaser of the Leased Property.
(b) At any time and from time to time upon
not less than ten (10) days notice by Lessee, Lessor will furnish to Lessee or
to any Person designated by Lessee an estoppel certificate certifying that this
Lease is unmodified and in full force and effect (or that this Lease is in full
force and effect as modified and setting forth the modifications), the date to
which Rent has been paid, whether to the knowledge of Lessor there is any
existing default or Event of Default on Lessee's part hereunder, and such other
information as may be reasonably requested by Lessee. Any such certificate
furnished pursuant to this Section may be relied upon by Lessee, any
underwriter, lender, investor and prospective purchaser of the assets of
Lessee.
(c) Throughout the Term, Lessee will
furnish to Lessor all financial statements and financial information, and
access to Lessee's books and records as, when and to the extent required
pursuant to Section 7 of the Master Agreement. Lessee agrees to notify Lessor,
from time to time at the request of Lessor, of the location of any hotel or
motel property Lessee or any Subsidiary thereof owns, leases, operates, manages
or has an interest in.
(d) Lessee will furnish, at Lessee's cost
and expense, the following statements and operating information to Lessor, each
in a form reasonably satisfactory to Lessor:
(i) to the extent available
electronically to Lessee, each Monday, a statement showing Gross Revenues by
category, occupancy and revenue per available room for (a) the Hotel and (b)
the Hotel and any Other Hotels, for both (i) each day in the seven (7) day
period ended the immediately preceding Friday, (ii) such seven (7) day period
in the aggregate, and (iii) Lease Year to date;
(ii) on or before the 30th day of each
calendar month, average daily rate, occupancy and RevPAR for the Hotel for such
preceding month (including a comparison to the Operating Budget);
(iii) on or before the 30th day of each
calendar quarter, detailed profit and loss and cash flow statements showing the
results of operation of the Hotel for such preceding quarter and the Lease Year
to date (including a comparison to the Operating Budget);
(iv) upon reasonable request, a written
critique by the general manager of the Hotel's revenue performance by category,
setting forth in narrative form any variations during the preceding month from
the current Annual Budget amount for such
-36-
<PAGE> 45
month (and the prior year's Annual Budget amount for the same month) and
including a preview of the Hotel's financial operations during the current
month;
(v) on or before the 15th day of each
April, July and October during the Term, an updated estimate for each calendar
quarter remaining in the Lease Year of the information required by Sections
4.1(a) and 4.3 hereof;
(vi) monthly STR Reports within five
(5) days of Lessee's receipt thereof;
(vii) within fifteen (15) days of
Lessee's receipt thereof, any inspection reports received from the Franchisor
under any Franchise Agreement;
(viii) with reasonable promptness, such
financial and other information (subject to a confidentiality agreement if
required because of the confidential or proprietary nature of the information)
respecting the financial condition and affairs of BHR and Lessee (A) as Lessor,
FelCor or FSLP may reasonably require or deem desirable in its discretion to
file with or provide to the SEC or any other governmental agency or any other
Person, all in the form, and either audited or unaudited, as Lessor may request
in Lessor's reasonable discretion, and (B) as may be reasonably necessary to
confirm compliance by Lessee and its Affiliates with the requirements of this
Lease; and
(ix) such other information related to
this Lease or the Hotel as Lessor may reasonably request and that Lessee can
provide without unreasonable expense.
(e) If FelCor, FSLP or Lessor proposes to
include in any submission or filing with its lender, stock exchange or the SEC,
Consolidated Financials of Lessee delivered or required to be delivered
hereunder and the consent of Lessee's auditor is required for such inclusion,
Lessee shall use commercially reasonable efforts to cause its auditor to
deliver promptly to Lessor the auditor's consent, in the form required, to the
inclusion in the submission or filing of the Consolidated Financials (including
the report of the auditor, if the Consolidated Financials to be included are
audited). Lessee shall reasonably cooperate with Lessor regarding Lessee's
auditor's compliance with such requests with the purpose of minimizing costs
and delays. Lessee shall reasonably cooperate with all requests made by its
auditor, Lessor, FelCor, FSLP or the SEC to promptly provide to the auditor,
Lessor, FelCor, FSLP or the SEC such information or documents, including
consents and representation letters, as may be reasonably necessary or
desirable in connection with the preparation, delivery, audit or inclusion in
SEC filings, submissions or other public documents, of information, including
financial information, related to the Leased Property, the operation and
financial results of the Leased Property, and the financial results and
condition of the Lessee. Without limiting the foregoing, the information shall
be sufficient to permit the preparation of a Management's Discussion and
Analysis of Results of Operations and Financial Condition with respect to the
Lessee as may be required to be included
-37-
<PAGE> 46
in reports and documents filed by FelCor or FSLP with the SEC. Lessee shall not
be obligated to incur material, additional, unreimbursed expense to prepare any
reports or information not specifically provided for herein that Lessor, FelCor
or FSLP may be required or elect to file with the SEC, and such material
additional third-party costs shall be paid or reimbursed by Lessor.
(f) If BHR or Lessee proposes to include in
any submission or filing with its lender, stock exchange or the SEC,
Consolidated Financials of Lessor delivered or required to be delivered
hereunder and the consent of Lessor's auditor is required for such inclusion,
Lessor shall use commercially reasonable efforts to cause its auditor to
deliver promptly to Lessee the auditor's consent, in the form required, to the
inclusion in the submission or filing of the Consolidated Financials (including
the report of the auditor, if the Consolidated Financials to be included are
audited). Lessor shall reasonably cooperate with Lessee regarding Lessor's
auditor's compliance with such requests with the purpose of minimizing costs
and delays. Lessor shall reasonably cooperate with all requests made by its
auditor, Lessee, BHR or the SEC to promptly provide to the auditor, BHR or the
SEC such information or documents, including consents and representation
letters, as may be reasonably necessary or desirable in connection with the
preparation, delivery, audit or inclusion in SEC filings, submissions or other
public documents, of information, including financial information, related to
the Leased Property, the operation and financial results of the Leased
Property, and the financial results and condition of the Lessor. Without
limiting the foregoing, the information shall be sufficient to permit the
preparation of a Management's Discussion and Analysis of Results of Operations
and Financial Condition with respect to the Lessor as may be required to be
included in reports and documents filed by BHR with the SEC. Lessor shall not
be obligated to incur material, additional, unreimbursed expense to prepare any
reports or information not specifically provided for herein that Lessee or BHR
may be required or elect to file with the SEC, and such material additional
third-party costs shall be paid or reimbursed by Lessee.
4.6 Confidentiality. Lessor and Lessee agree to, and agree to use
reasonable efforts to cause their Affiliates to, keep any non-public or
proprietary information delivered or made available to any other party or their
Affiliates pursuant to this Article 4 or otherwise in connection with the Lease
or the Hotel confidential from any Person other than (1) Persons employed by or
retained by Lessor, Lessee or their Affiliates, (2) , subject to an appropriate
confidentiality agreement, current or prospective underwriters, lenders,
investors and, prospective investors or purchasers of the Hotel (provided,
however, that any such non-public or proprietary information delivered or made
available to any such prospective investor or purchaser of the Hotel may only
consist of operational and performance information about the Hotel and the
Lease unless BHR and Lessee otherwise consent, not to be unreasonably withheld)
and (3) other Persons who are expressly authorized in this Lease to receive
such information (in each case, each of whom shall be advised of, and shall
agree to maintain, the confidentiality of such information); provided, however,
nothing herein shall prevent any such Person from disclosing such information
after prior notice to Lessee or Lessor, as the case may be, as and to the
extent required or requested by applicable law, any Government or pursuant to
legal process or in connection with the exercise of any remedy under this
Lease.
-38-
<PAGE> 47
ARTICLE 5
IMPOSITIONS AND OTHER HOTEL COSTS
5.1 Payment of Impositions.
(a) Subject to the right of Lessor to
contest same and Subsection 5.1 (f) below, Lessor shall pay all Real Estate
Taxes, Personal Property Taxes and Capital Impositions before the fine,
penalty, interest or cost may be added for non-payment, to the extent the
failure to do so could materially and adversely affect the rights of the Lessee
under this Lease, such payments to be made directly to the taxing or other
authorities where feasible.
(b) Subject to Article 12 relating to
permitted contests and Subsection 5.1 (f) below, Lessee will pay, or cause to
be paid, all Impositions (other than Real Estate Taxes, Personal Property Taxes
and Capital Impositions, which shall be paid by Lessor) before any fine,
penalty, interest or cost may be added for non-payment, such payments to be
made directly to the taxing or other authorities where feasible, and will
promptly furnish to Lessor copies of official receipts or other satisfactory
proof evidencing such payments. Lessee's obligation to pay such Impositions
shall be deemed absolutely fixed upon the date such Impositions become a lien
upon the Leased Property or any part thereof. If any such Imposition may, at
the option of the taxpayer, lawfully be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Lessee may
exercise the option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments and in such event, shall pay such
installments occurring during the Term hereof (subject to Lessee's right of
contest pursuant to the provisions of Article 12 as the same respectively
become due and before any fine, penalty, premium, further interest or cost may
be added thereto.
(c) Lessor, at its expense, shall, to the
extent required or permitted by applicable law, prepare and file all tax
returns in respect of Lessor's net income, gross receipts, sales and use,
single business, transaction privilege, rent, ad valorem, franchise taxes, Real
Estate Taxes, Personal Property Taxes, Capital Impositions and taxes on its
capital stock, and Lessee, at its expense, shall, to the extent required or
permitted by applicable laws and regulations, prepare and file all other tax
returns and reports in respect of any other, Imposition as may be required by
governmental authorities. If any refund shall be due from any taxing authority
in respect of any Imposition paid by Lessee, the same shall be paid over to or
retained by Lessee if no Event of Default shall have occurred hereunder and be
continuing. If an Event of Default shall have occurred and be continuing, any
such refund shall be paid over to or retained by Lessor. Any such funds
retained by Lessor due to an Event of Default shall be applied as provided in
Article 16. Lessor and Lessee shall, upon request of the other, provide such
data as is maintained by the party to whom the request is made with respect to
the Leased Property as may be necessary to prepare any required returns and
reports. Lessee shall file all personal property tax returns with respect to
Lessee's Personal Property in such jurisdictions where it is legally required
to so file. Lessor, to the extent it possesses the same, and Lessee, to the
extent it possesses the
-39-
<PAGE> 48
same, will provide the other party, upon request, with cost and depreciation
records necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, Lessor shall provide Lessee with copies of assessment notices in
sufficient time for Lessee to file a protest.
(d) Lessor may, upon notice to Lessee, at
Lessor's option and at Lessor's sole expense, protest, appeal, or institute
such other proceedings (in its or Lessee's name) as Lessor may deem appropriate
to effect a reduction of Real Estate Taxes or Personal Property Taxes or
Capital Impositions to be paid by Lessor, and Lessee (at Lessor's expense as
aforesaid) shall fully cooperate with Lessor in such protest, appeal, or other
action. Lessor hereby agrees to indemnify, defend, and hold harmless Lessee
from and against any claims, obligations, and liabilities against or incurred
by Lessee in connection with such cooperation. Lessee may, upon notice to
Lessor, at Lessee's option and at Lessee's sole expense, protest, appeal, or
institute such other proceedings (in its or Lessor's name) as Lessee may deem
appropriate to effect a reduction of those Impositions to be paid by Lessee,
and Lessor (at Lessee's expense as aforesaid) shall fully cooperate with Lessee
in such protest, appeal, or other action. Lessee hereby agrees to indemnify,
defend, and hold harmless Lessor from and against any claims, obligations, and
liabilities against or incurred by Lessor in connection with such cooperation.
(e) Billings for any reimbursement of
Personal Property Taxes by Lessee to Lessor shall be accompanied by copies of a
bill therefor and payments thereof which identify the personal property with
respect to which such payments are made. Lessor, however, reserves the right to
effect any such protest, appeal or other action and, upon notice to Lessee,
shall control any such activity, which shall then go forward at Lessor's sole
expense. Upon such notice, Lessee, at Lessor's expense, shall cooperate fully
with such activities.
(f) Subject to the rights of Lessor and
Lessee to contest same as provided herein, Lessee shall pay thirteen percent
(13%) and Lessor shall pay eighty-seven (87%) of any sales or use taxes imposed
by the State of Florida on any of the payments of Rent by Lessee under this
Lease. Lessee shall be solely responsible for all sales or use taxes in imposed
by any other State or taxing jurisdiction upon the payments of Rent by Lessee
under this Lease.
5.2 Notice of Impositions. To the extent Lessor is notified of any
Impositions, Lessor shall give prompt Notice to Lessee of such Impositions
payable by Lessee hereunder, provided that Lessor's failure to give any such
Notice shall in no way diminish Lessee's obligations hereunder to pay any such
Impositions that are Lessee's responsibility hereunder, but such failure shall
obviate any default hereunder for a reasonable time after Lessee receives
Notice of any Imposition which it is obligated to pay during the first taxing
period applicable thereto. To the extent received by it, Lessee shall give
prompt notice to Lessor and furnish Lessor with copies of all assessment
notices for Real Estate Taxes, Personal Property Taxes and Capital Impositions
in sufficient time for Lessor to file a protest and pay such taxes without
penalty. Lessor shall furnish Lessee with evidence of payment of Real Estate
Taxes, Personal Property Taxes and Capital Impositions upon request.
-40-
<PAGE> 49
5.3 Adjustment of Impositions. Impositions payable by Lessee that are
imposed in respect of the tax-fiscal period during which the Term terminates
shall be adjusted and prorated between Lessor and Lessee, whether or not such
Imposition is imposed before or after such termination, and Lessee's obligation
to pay its prorated share thereof after termination shall survive such
termination.
5.4 Utility Charges. Lessee will be solely responsible for obtaining
and maintaining utility services to the Leased Property and will pay or cause
to be paid all charges for electricity, gas, oil, water, sewer and other
utilities used in the Leased Property during the Term.
5.5 Insurance Premiums. Each of Lessor and Lessee will pay or cause to
be paid all premiums for the insurance coverages required to be maintained by
it under Article 13.
5.6 Franchise Fees. Lessee will maintain in full force and effect, and
pay or cause to be paid all fees and other charges payable pursuant to, any
Franchise Agreement with respect to the Hotel (unless same constitute Capital
Expenditures or are otherwise Lessor's responsibility hereunder).
5.7 Ground Rent. In the event that Lessor's interest in the Land is
pursuant to a Ground Lease or sublease, Lessor shall be solely responsible for
the payment of any ground rent, building rent or subrent, as the case may be,
due with respect to the Leased Property.
ARTICLE 6
OWNERSHIP OF LEASED PROPERTY; LESSEE'S PERSONAL PROPERTY
6.1 Ownership of the Leased Property. Lessee acknowledges that the
Leased Property is the property of Lessor and that Lessee has only the right to
the possession and use of the Leased Property upon the terms and conditions of
this Lease.
6.2 Lessee's Personal Property. Lessee will acquire and maintain
throughout the Term such Inventory and replacement photocopy, fax machines and
postage machines (collectively, "OFFICE MACHINES") as is required to operate
the Leased Property in the manner contemplated by this Lease. The Inventory,
including any additions thereto and/or replacements thereof, will be supplied
by, and remain the property of, Lessee. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any
parcels of the Land or in any of the Improvements, any items of personal
property (including Inventory and Office Machines) owned by Lessee. Lessee, at
the commencement of the Term, and from time to time thereafter, shall provide
Lessor with an accurate list of all such items of Lessee's personal property
(collectively, including the Inventory and Office Machines, the "LESSEE'S
PERSONAL PROPERTY"). Lessee may, subject to the first sentence of this Section
6.2 and the conditions set forth below, remove any of Lessee's Personal
Property at any time during the Term or upon
-41-
<PAGE> 50
the expiration or any prior termination of the Term. All of Lessee's Personal
Property, other than Inventory, not removed by Lessee within thirty (30) days
following the expiration or earlier termination of the Term shall be considered
abandoned by Lessee and may be appropriated, sold, destroyed or otherwise
disposed of by Lessor without first giving Notice thereof to Lessee, without
any payment to Lessee and without any obligation to account therefor. Lessee
will, at its expense, repair and restore the Leased Property to the condition
required by Subsection 9.1(d), including repair of all damage to the Leased
Property caused by the removal of Lessee's Personal Property, whether effected
by Lessee or if permitted hereunder by Lessor. Upon the expiration or earlier
termination of the Term, Lessor, or its designee, shall have the option to
purchase all Inventory on hand at the Leased Property at the time of such
expiration or termination for a sale price equal to Lessee's actual cost of
such Inventory, as evidenced by invoices, receipts, or other reasonable
documentation or as reasonably estimated by Lessor in the absence of such
documentation. Lessee may make such financing arrangements, title retention
agreements, leases or other agreements with respect to Lessee's Personal
Property as it sees fit provided that Lessee first advises Lessor of any such
arrangement and such arrangement expressly provides that in the event of
Lessee's default thereunder, Lessor (or its designee) may assume Lessee's
obligations and rights under such arrangement.
6.3 Lessor's Lien. To the fullest extent permitted by applicable law,
Lessor is granted a lien and security interest on all Lessee's Personal
Property now or hereinafter placed in or upon the Leased Property, and such
lien and security interest shall remain attached to such Lessee's Personal
Property until payment in full of all Rent and other amounts due to Lessor
hereunder; provided, however, Lessor's lien and security interest shall be
subordinate to that of any non-Affiliate of Lessee which finances such Lessee's
Personal Property or any non-Affiliate conditional seller of such Lessee's
Personal Property. Upon request, Lessor will execute a subordination agreement
containing terms and conditions satisfactory to Lessor in the exercise of
reasonable discretion. Lessee shall, upon the request of Lessor and to the
extent such action does not breach any of Lessee's financing, execute such
financing statements or other documents or instruments reasonably requested by
Lessor to perfect the lien and security interests herein granted.
6.4 Lessor's Option to Purchase Lessee's Personal Property. Effective
on not less than thirty (30) days prior Notice given at any time within ninety
(90) days before the scheduled expiration of the Term, or upon at least ten
(10) days Notice if this Lease is terminated prior to the expiration date of
the final extension Term (or of the initial Term, if there are no extension
Terms), Lessor or its designee shall have the option to purchase all (but not
less than all) of Lessee's Personal Property relating to the Leased Property
(other than its interest under this Lease), at the expiration or termination of
this Lease for an amount (payable in cash on the expiration date of this Lease)
equal to (i) the Lessee's cost of the Inventory and (ii) the lesser of Lessee's
cost, or the fair market value, of all other of Lessee's Personal Property.
Notwithstanding any such purchase, Lessor shall obtain no rights to any service
mark, trade name, logo or other intellectual property used in connection with
the operation of the Hotel or the franchise system under the Franchise
Agreement unless separate agreement as to such use is
-42-
<PAGE> 51
reached with the Lessee and/or applicable Franchisor or other owner of such
franchise system as applicable.
ARTICLE 7
CONDITION AND USE OF LEASED PROPERTY
7.1 Condition of the Leased Property. Lessee acknowledges receipt and
delivery of possession of the Leased Property. Lessee has examined and
otherwise has knowledge of the condition of the Leased Property and has found
the same to be satisfactory for its purposes hereunder. Lessee is leasing the
Leased Property "as is" in its present condition. Except as otherwise expressly
provided herein, Lessee waives any claim or action against Lessor in respect of
the condition of the Leased Property. LESSOR MAKES NO WARRANTY OR
REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY, OR ANY
PART THEREOF, EITHER AS TO ITS MERCHANTABILITY OR FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT
LESSEE TAKES THE LEASED PROPERTY SUBJECT TO ALL SUCH RISKS. LESSEE ACKNOWLEDGES
THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO
IT. Provided, however, to the extent permitted by law, Lessor hereby assigns to
Lessee all of Lessor's rights to proceed against any predecessor in title other
than Lessee (or an Affiliate of Lessee which conveyed the Property to, or was
the predecessor-by-merger to, Lessor or an Affiliate thereof) for breaches of
warranties or representations or for latent defects in the Leased Property.
Lessor shall fully cooperate with Lessee in the prosecution of any such claim,
in Lessor's or Lessee's name, all at Lessee's sole cost and expense. Lessee
hereby agrees to indemnify, defend and hold harmless Lessor from and against
any claims, obligations and liabilities against or incurred by Lessor in
connection with such cooperation.
7.2 Use of the Leased Property.
(a) Lessee covenants that it will proceed
with all due diligence and will exercise its reasonable best efforts to obtain
and to maintain all approvals needed to use and operate the Leased Property and
the Hotel under applicable local, state and federal law. Lessor covenants that
it will cooperate in good faith in all respects, at Lessee's expense, in
connection with Lessee's efforts to obtain and maintain such approvals.
(b) Lessee shall use or cause to be used
the Leased Property only as a hotel facility of the class and quality at least
equal to that of the Hotel as of the Commencement Date, and for such other uses
as may be necessary or incidental to such hotel facility use or such other or
additional use as otherwise approved in writing by Lessor (the "PRIMARY
INTENDED USE"). Lessee shall not use the Leased Property or any portion thereof
for
-43-
<PAGE> 52
any other use without the prior written consent of Lessor, which consent may be
granted, denied or conditioned in Lessor's sole discretion. No use shall be
made or permitted to be made of the Leased Property, other than the Primary
Intended Use, which will cause the cancellation or increase the premium of any
insurance policy covering the Leased Property or any part thereof (unless
another adequate policy satisfactory to Lessor is available and Lessee pays any
premium increase), nor shall Lessee sell or permit to be kept, used or sold in
or about the Leased Property any article which may be prohibited by Legal
Requirements or fire underwriter's regulations. Lessee shall, at its sole cost,
comply with all of the requirements pertaining to the Leased Property of any
insurance board, association, organization or company necessary for the
maintenance of insurance, as herein provided, covering the Leased Property and
Lessee's Personal Property, unless such compliance requires the performance of
a Capital Improvement or the payment of a Capital Imposition, in which case
Lessor shall pay the cost of such Capital Improvement or Capital Imposition in
order for Lessee so to comply.
(c) Subject to any provisions of this Lease
to the contrary, Lessee covenants and agrees that during the Term it will (i)
continuously operate the Leased Property for the Primary Intended Use (subject
to closures of all or part of the Hotel during Unavoidable Occurrences and by
prior agreement with Lessor during the construction of PIP improvements and
Contemplated Renovations), (ii) keep in full force and effect and comply with
all the provisions of any Franchise Agreement (other than requirements with
respect to Capital Improvements and other obligations of Lessor hereunder),
(iii) not terminate or amend any Franchise Agreement without the consent of
Lessor (which consent shall not be unreasonably withheld), (iv) maintain
appropriate certifications and licenses for such use, (v) seek to maximize the
Gross Revenues generated therefrom consistent with sound business practices and
Lessee's concurrent goal of maximizing its net operating income therefrom and
(vi) upon request, keep Lessor advised of the status of any material or
uninsured litigation affecting the Leased Property.
(d) Lessor covenants and agrees that during
the Term it will (1) not take or allow any Affiliate to take or fail to take
any action that would interfere with, restrict or prohibit Lessee's operation
of the Leased Property as the Primary Intended Use, including, without
limitation, modifying, amending or terminating any Franchise Agreement or any
licenses, Franchises, permits, easements, leases, undertakings or agreements
held by Lessor or such Affiliate and pertaining to the Leased Property, and (2)
comply with all the provisions of any Franchise Agreement relating to Capital
Improvements, the payment of Real Estate Taxes, Personal Property Taxes,
Capital Impositions and other requirements thereof that are not the
responsibility of Lessee hereunder.
(e) Lessee shall not commit or suffer to be
committed any waste on the Leased Property, or in the Hotel, nor shall Lessee
cause or permit any nuisance thereon. Lessee shall neither suffer nor permit
the Leased Property or any portion thereof, or Lessee's Personal Property, to
be used in such a manner as (1) might reasonably tend to impair Lessor's (or
Lessee's, as the case may be) title thereto or to any portion thereof, or (2)
may reasonably make possible a claim or claims of adverse usage or adverse
possession by the public,
-44-
<PAGE> 53
as such, or of implied dedication of the Leased Property or any portion
thereof, except as necessary in the ordinary and prudent operation of the Hotel
(or other Primary Intended Use) on the Leased Property.
7.3 Lessor to Grant Easements, etc. Lessor will, from time to time, so
long as no Event of Default has occurred and is continuing, at the request of
Lessee and at Lessee's cost and expense (but subject to the approval of Lessor,
which approval shall not be unreasonably withheld), (a) grant easements and
other rights in the nature of easements with respect to the Leased Property to
third parties, (b) release existing easements or other rights in the nature of
easements which are for the benefit of the Leased Property, (c) dedicate or
transfer unimproved portions of the Leased Property for road, highway or other
public purposes, (d) execute petitions to have the Leased Property annexed to
any municipal corporation or utility district, (e) execute amendments to any
covenants and restrictions affecting the Leased Property and (f) execute and
deliver to any Person any instrument appropriate to confirm or effect such
grants, releases, dedications, transfers, petitions and amendments (to the
extent of its interests in the Leased Property), but only upon delivery to
Lessor of an Officer's Certificate stating that such grant, release,
dedication, transfer, petition or amendment is not detrimental to the proper
conduct of the business of Lessee on the Leased Property and (unless Lessor is
otherwise receiving fair value for any reduction in value of the Leased
Property) does not materially reduce the value of the Leased Property.
ARTICLE 8
LESSEE'S COMPLIANCE WITH LAW; ENVIRONMENTAL COVENANTS
8.1 Compliance with Legal and Insurance Requirements, etc. Subject to
Subsections 8.2(b) and 8.3(b) below and Article 12 relating to permitted
contests, and subject further to the obligations of Lessor with respect to
Capital Improvements as set forth in Subsection 9.1(b), Lessee, at its expense,
will promptly (a) comply with all applicable Legal Requirements and Insurance
Requirements in respect of the use, operation, maintenance, repair and, to the
extent of its obligations hereunder, restoration of the Leased Property, and
(b) procure, maintain and comply with all appropriate permits, licenses and
other authorizations required for any use of the Leased Property and Lessee's
Personal Property then being made, and for the proper operation, maintenance
and repair of the Leased Property or any part thereof.
8.2 Legal Requirement Covenants.
(a) Subject to Subsection 8.3(b) below,
Lessee covenants and agrees that the Leased Property and Lessee's Personal
Property shall not be used for any unlawful purpose, and that Lessee shall not
permit or suffer to exist any unlawful use of the Leased Property by others.
Lessee shall acquire and maintain all appropriate licenses, certifications,
permits and other authorizations and approvals needed to operate the Leased
Property in its customary manner for the Primary Intended Use. Lessee further
covenants and agrees that
-45-
<PAGE> 54
Lessee's use of the Leased Property and maintenance, alteration, and operation
of the same, and all parts thereof, shall at all times conform to all Legal
Requirements, unless the same are finally determined by a court of competent
jurisdiction to be unlawful (and Lessee shall use its reasonable best efforts
to cause all such sub-tenants, invitees or others to so comply with all Legal
Requirements). Lessee may, however, upon prior Notice to Lessor, contest the
legality or applicability of any such Legal Requirement or any licensure or
certification decision if Lessee maintains such action in good faith, with due
diligence, without prejudice to Lessor's rights hereunder, and at Lessee's sole
expense. If by the terms of any such Legal Requirement compliance therewith
pending the prosecution of any such proceeding may legally be delayed without
the incurrence of any lien, charge or liability of any kind against the Hotel
or Lessee's leasehold interest therein and without subjecting Lessee or Lessor
to any liability, civil or criminal, for failure so to comply therewith, Lessee
may delay compliance therewith until the final determination of such
proceeding. If any lien, charge or civil or criminal liability would be
incurred by reason of any such delay, Lessee, with the prior written consent of
Lessor, which consent shall not be unreasonably withheld, may nonetheless
contest as aforesaid and delay as aforesaid provided that such delay would not
subject Lessor to criminal liability and Lessee both (a) furnishes to Lessor
security reasonably satisfactory to Lessor against any loss or injury by reason
of such contest or delay and (b) prosecutes the contest with due diligence and
in good faith.
(b) As between Lessor and Lessee, Lessee is
solely responsible for all liabilities or obligations of any kind with respect
to employees at the Leased Property during the Term, except to the extent such
compliance requires, and Lessor fails to pay the cost of, the performance of a
Capital Improvement, or remediation or other action with respect to an
Environmental Liability for which Lessee is indemnified under Subsection 8.3(b)
or the payment of a Capital Imposition. Without limiting the generality of the
foregoing sentence, and except as otherwise provided in Section 2.5(c) hereof,
Lessee is solely responsible for any required compliance with the Worker
Adjustment, Retraining and Notification Act of 1988 (the "WARN ACT") or any
similar state law applicable to the Leased Property; any required compliance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"); and all alleged and actual obligations and claims arising from or
relating to any employment agreement, collective bargaining agreement or
employee benefit plans, any grievances, arbitrations, or unfair labor practice
charges, and relating to compliance with any applicable state or federal labor
employment law, including but not limited to all laws pertaining to
discrimination, workers' compensation, unemployment compensation, occupational
safety and health, unfair labor practices, family and medical leave, and wages,
hours or employee benefits. Lessee agrees to indemnify and defend and hold
harmless Lessor from and against any claims relating to any of the foregoing
matters. Lessee further agrees to reimburse Lessor for any and all losses,
damages, costs, expenses, liabilities and obligations of any kind, including
without limitation reasonable attorneys' fees and other legal costs and
expenses, incurred by Lessor in connection with any of the foregoing matters.
-46-
<PAGE> 55
Notwithstanding the Lessee's obligations
under Section 8.1 to obtain and maintain all permits and licenses required for
the use of the Leased Property, and without limiting any obligations of Lessee
hereunder, if (i) applicable law requires that the owner (rather than a lessee)
of a hotel be the licensee under the required liquor license for the Hotel or
(ii) the former owner of the Hotel is holding the liquor license and continuing
to exercise management and supervision of the liquor services at the Hotel
pending transfer of the license to Lessor or Lessee, the Lessee shall indemnify
and hold Lessor harmless from any liability, damages or claims (a) arising in
connection with liquor operations at the Hotel during such period of time
following the Commencement Date, except to the extent caused by Lessor's gross
negligence or willful misconduct or (b) made by or through the former owner
with respect to liquor operations at the Hotel following the Commencement Date.
8.3 Environmental Covenants. Lessor and Lessee (in addition to, and
not in diminution of, Lessor's and Lessee's covenants and undertakings in
Sections 8.1 and 8.2 hereof) covenant and agree as follows:
(a) At all times hereafter until such time
as all liabilities, duties or obligations of Lessee to Lessor under this Lease
have been satisfied in full, Lessee shall fully comply with all Environmental
Laws applicable to the Leased Property and the operations thereon, except to
the extent that compliance would require Lessee to incur an obligation for a
Capital Improvement or for remediation of Environmental Liabilities for which
Lessee is indemnified under this Section 8.3. Lessee agrees to give Lessor
Notice of the following, promptly after Lessee receives knowledge thereof: (1)
all Environmental Liabilities; (2) all pending, threatened or anticipated
Proceedings, and all notices, demands, requests or investigations, relating to
any Environmental Liability or relating to the issuance, revocation or change
in any Environmental Authorization required for operation of the Leased
Property; (3) all Releases at, on, in, under or in any way affecting the Leased
Property, or any Release at, on, in or under any property adjacent to the
Leased Property; and (4) all facts, events or conditions that could reasonably
lead to the occurrence of any of the above-referenced matters.
(b) Lessor hereby agrees to defend,
indemnify and save harmless any and all Lessee Indemnified Parties from and
against any and all Environmental Liabilities (including, without limitation,
Environmental Liabilities to the extent resulting from conditions existing at
the Leased Property at the Commencement Date or from Releases or other
violations of Environmental Laws (without fault on the part of Lessee)
originating on other property but affecting the Leased Property) other than
Environmental Liabilities to the extent caused by the grossly negligent acts or
failures to act or wilful misconduct of Lessee, Manager or subtenants of Lessee
or Manager, and their respective employees, agents or independent contractors.
(c) Lessee hereby agrees to defend,
indemnify and save harmless any and all Lessor Indemnified Parties from and
against any and all Environmental Liabilities to the extent caused by the
grossly negligent acts or failures to act or wilful misconduct of Lessee,
-47-
<PAGE> 56
Manager or subtenants of Lessee or Manager, and their respective employees,
agents or independent contractors.
(d) At any time any Indemnified Party has
reason to believe circumstances exist which could reasonably result in an
Environmental Liability (or in the event Lessor or its lender requires such
access in connection with a sale or financing of the Leased Property), upon
reasonable prior written notice to Lessee stating such Indemnified Party's
basis for such belief, an Indemnified Party shall be given immediate access to
the Leased Property (including, but not limited to, the right to enter upon,
investigate, drill wells, take soil borings, excavate, monitor, test, cap and
use available land for the testing of remedial technologies), Lessee's
employees, and to all relevant documents and records regarding the matter as to
which a responsibility, liability or obligation is asserted or which is the
subject of any Proceeding; provided that such access may be conditioned or
restricted as may be reasonably necessary to ensure compliance with law and the
safety of personnel and facilities or to protect confidential or privileged
information. All Indemnified Parties requesting such immediate access and
cooperation shall endeavor to coordinate such efforts to result in as minimal
interruption of the operation of the Leased Property as practicable. Lessor
agrees to indemnify and hold harmless Lessee from and against any and all
liabilities, costs, damages, charges, fees or expenses arising in connection
with, and to the extent caused by a Lessor Indemnified Party, the access to or
use of the Leased Property by a Lessor Indemnified Party pursuant to this
subsection (d).
(e) The indemnification rights and
obligations provided for in this Article 8 (1) shall be in addition to any
indemnification rights and obligations provided for elsewhere in this Lease,
and (2) shall survive the termination of this Lease.
(f) For purposes of this Section 8.3, all
amounts for which any Indemnified Party seeks indemnification shall be computed
net of any actual income tax benefit resulting therefrom to such Indemnified
Party, any insurance proceeds received (net of tax effects) with respect
thereto, and any amounts recovered (net of tax effects) from any third parties
based on claims the Indemnified Party has against such third parties which
reduce the damages that would otherwise be sustained; provided, that in all
cases, the timing of the receipt or realization of insurance proceeds or income
tax benefits or recoveries from third parties shall be taken into account in
determining the amount of reduction of damages. Each Indemnified Party agrees
to use its reasonable efforts to pursue, or assign to Lessee or Lessor, as the
case may be, any claims or rights it may have against any third party which
would materially reduce the amount of damages otherwise incurred by such
Indemnified Party.
(g) Notwithstanding anything to the
contrary contained in this Lease, if Lessor shall become entitled to the
possession of the Leased Property by virtue of the termination of this Lease or
repossession of the Leased Property, then Lessor may assign its indemnification
rights under Section 8.3 of this Lease to any Person to whom Lessor
subsequently transfers the Leased Property, subject to the following conditions
and limitations, each of
-48-
<PAGE> 57
which shall be deemed to be incorporated into the terms of such assignment,
whether or not specifically referred to therein:
(1) The indemnification rights
referred to in this section may be assigned
only if a known Environmental Liability
then exists or if a Proceeding is then
pending or, to the knowledge of Lessee or
Lessor, then threatened with respect to the
Leased Property;
(2) Such indemnification rights
shall be limited to Environmental
Liabilities relating to or specifically
affecting the Leased Property; and
(3) Any assignment of such
indemnification rights shall be limited to
the immediate transferee of Lessor, and
shall not extend to any such transferee's
successors or assigns.
ARTICLE 9
MAINTENANCE, REPAIRS AND CAPITAL EXPENDITURES
9.1 Maintenance, Repairs and Capital Expenditures.
(a) Except as otherwise expressly provided
in this Lease, and except for conditions caused by Lessor's gross negligence or
willful misconduct (or that of its employees, agents or independent
contractors), Lessee, at its sole expense, will keep the Leased Property, and
all private roadways, sidewalks and curbs appurtenant thereto that are under
Lessee's control, including windows and plate glass, mechanical, electrical and
plumbing systems and equipment (including conduit and ductware), and non-load
bearing interior walls, and parking lot surfaces, in good order and repair
(whether or not the need for such repairs occurred as a result of Lessee's use,
any prior use, the elements or the age of the Leased Property, or any portion
thereof), and, with reasonable promptness, make all necessary and appropriate
repairs, replacements, and improvements thereto of every kind and nature,
whether interior or exterior, ordinary or extraordinary, foreseen or unforeseen
or arising by reason of a condition existing prior to the commencement of the
Term of this Lease (concealed or otherwise), or required by any governmental
agency having jurisdiction over the Leased Property. Lessee, however, shall be
permitted to prosecute claims against Lessor's predecessors in title (other
than Lessor or an Affiliate of Lessor which conveyed the Property to, or was
the predecessor-by-merger to, Lessor or an Affiliate thereof) for breach of any
representation or warranty or for any latent defects in the Leased Property to
be maintained by Lessee unless Lessor is already diligently pursuing such a
claim. All repairs shall, to the extent reasonably achievable, be at least
equivalent in quality to the original work. Lessee will not take or omit to
take any action, the taking or omission of which might materially impair the
value or the usefulness of the Leased Property or any part thereof for its
Primary Intended Use.
-49-
<PAGE> 58
(b) Notwithstanding Lessee's obligations
under Subsection 9.1(a) above or elsewhere in this Lease, unless caused by the
gross negligence or willful misconduct of Lessee, Manager or subtenants of
Lessee or Manager, and their respective employees, agents or independent
contractors, Lessee shall not be responsible for any Capital Improvements,
including (without limitation) Capital Improvements required by the Franchisor
under the Franchise Agreement. Lessor shall be responsible for all such Capital
Improvements, including, without limitation, Capital Improvements required to
comply with all Legal Requirements (including, without limitation, all
Environmental Laws, the Americans with Disabilities Act and any state or local
handicap access laws and regulations and all zoning and land use laws and
regulations) and Capital Improvements required to comply with any Franchise
Agreement; subject to Lessor's right to approve the Capital Budget pursuant to
Article 4; provided, however, that notwithstanding the foregoing or any other
obligation of Lessor hereunder for the cost of Capital Improvements required by
a Franchise Agreement, Lessor shall have the right, its sole (unreviewable)
discretion, to refuse to make any Capital Expenditure required by any
Franchisor; provided, further, that if such refusal directly results in a
default under or termination of such Franchise Agreement, Lessor shall be
responsible for all of Lessee's damages caused thereby, termination payments
payable by Lessee under the terms of such Franchise Agreement, application fees
for a new franchise license reasonably approved by Lessor, increased royalty
fees and other costs arising out of such refusal or out of the resulting need
to apply for and enter into a substitute franchise license agreement. Except as
set forth in the preceding sentence or elsewhere in this Lease, Lessor shall
not under any circumstances be required to build or rebuild any improvement on
the Leased Property, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to the Leased Property,
whether ordinary or extraordinary, foreseen or unforeseen, or to make any
expenditure whatsoever with respect thereto, in connection with this Lease, or
to maintain the Leased Property in any way. Lessee hereby waives, to the extent
permitted by law, the right to make repairs at the expense of Lessor pursuant
to any law in effect at the time of the execution of this Lease or hereafter
enacted. Lessor shall have the right to give, record and post, as appropriate,
notices of non- responsibility under any mechanic's lien laws now or hereafter
existing.
(c) If Lessor fails to make any Capital
Expenditure required to comply with Legal Requirements, after the expiration of
all the applicable notice and cure periods set forth in Section 24.3, or if
Lessor fails to make any Emergency Capital Expenditures promptly following
notice from Lessee of an Emergency Situation, or if an Emergency Capital
Expenditure must be made immediately (without allowing the time necessary to
notify Lessor thereof) then Lessee will have the right, but not the obligation,
to make such Capital Expenditures on behalf of and for the account of Lessor,
whereupon Lessor shall reimburse Lessee for the reasonable cost thereof, with
interest thereon at the Base Rate, within ten (10) days after receipt of
documentation (with reasonable detail as to the breakdown of costs incurred)
evidencing such Capital Expenditure.
(d) Nothing contained in this Lease and no
action or inaction by Lessor shall be construed as (1) constituting the request
of Lessor, expressed or implied, to any
-50-
<PAGE> 59
contractor, subcontractor, laborer, materialman or vendor to or for the
performance of any labor or services or the furnishing of any materials or
other property for the construction, alteration, addition, repair or demolition
of or to the Leased Property or any part thereof, or (2) except as otherwise
expressly provided herein, giving Lessee any right, power or permission to
contract for or permit the performance of any labor or services or the
furnishing of any materials or other property in such fashion as would permit
the making of any claim against Lessor in respect thereof or to make any
agreement that may create, or in any way be the basis for any right, title,
interest, lien, claim or other encumbrance upon the estate of Lessor in the
Leased Property, or any portion thereof.
(e) Lessee will, upon the expiration or
prior termination of the Term, vacate and surrender the Leased Property to
Lessor in the condition in which the Leased Property was originally received
from Lessor, except as repaired, rebuilt, restored, altered or added to as
permitted or required by the provisions of this Lease and except for ordinary
wear and tear (subject to the obligation of Lessee to maintain the Leased
Property in good order and repair, as would a prudent owner, during the entire
Term of the Lease, to the extent required in Section 9.1(a)), or damage by
casualty or Condemnation (subject to any obligations of Lessee to restore or
repair as set forth in this Lease).
9.2 Encroachments, Restrictions, Etc. If any of the Improvements, at
any time, materially encroach upon any property, street or right-of-way
adjacent to the Leased Property, or violate the agreements or conditions
contained in any lawful restrictive covenant or other agreement affecting the
Leased Property, or any part thereof, or impair the rights of others under any
easement or right-of-way to which the Leased Property is subject, then promptly
upon the request of Lessor or at the behest of any Person affected by any such
encroachment, violation or impairment (in which case Lessee will immediately
notify Lessor thereof), Lessee shall, at Lessor's expense (except to the extent
that the encroachment or violation was the result of the gross negligence or
willful misconduct of Lessee, Manager or subtenants of Lessee or Manager, and
their respective employees, agents or independent contractors, in which case
Lessee shall bear such expense), subject to its right to contest the existence
of any encroachment, violation or impairment and in such case, in the event of
an adverse final determination, either (a) obtain valid and effective waivers
or settlements of all claims, liabilities and damages resulting from each such
encroachment, violation or impairment, whether the same shall affect Lessor or
Lessee or (b) make such changes in the Improvements, and take such other
actions, as Lessor in the good faith exercise of its judgment deems reasonably
practicable to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any of the Improvements,
and in any event take all such actions as may be necessary in order to be able
to continue the operation of the Improvements for the Primary Intended Use
substantially in the manner and to the extent the Improvements were operated
prior to the assertion of such violation, impairment or encroachment. Any such
alteration shall be made in conformity with the applicable requirements of
Article 10. Lessee's obligations under this Section 9.2 shall be in addition to
and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance held by Lessor or Lessee.
-51-
<PAGE> 60
ARTICLE 10
ALTERATIONS AND IMPROVEMENTS; LESSOR'S CAPITAL RESERVE
10.1 Alterations and Improvements. Without Lessor's prior written
consent, which consent shall not be unreasonably withheld, Lessee shall not
have the right to make any additions, modifications or improvements to the
Leased Property; provided, however, that Lessor may not withhold its consent if
such additions, modifications or improvements will not significantly alter the
character or purposes or detract from the value or operating efficiency of, and
will not impair the revenue-producing capability of, the Hotel and the Leased
Property, or adversely affect the ability of Lessee to comply with the
provisions of this Lease. The cost of any such
permitted additions, modifications or improvements to the Leased Property shall
be paid by Lessee unless otherwise provided herein or agreed by Lessor in
writing, and all such additions, modifications and improvements shall, without
payment by Lessor at any time, be included under the terms of this Lease and
upon expiration or earlier termination of this Lease shall pass to and become
the property of Lessor.
10.2 Salvage. All materials which are scrapped or removed in
connection with the making of repairs required by Articles 9 or 10 shall be or
become the property of Lessor or Lessee depending on which party is paying for
or providing the financing for such work.
10.3 Initial Upgrades.
(a) Upgrades Required by Franchisor. Lessor
agrees to pay the cost to install, construct and complete the improvements,
alterations, upgrades and refurbishments in and to the Improvements and
acquisitions of Furniture, Fixtures and Equipment required under any product
improvement plan or other upgrade program or requirement (collectively, a
"PIP") necessary to qualify the Hotel to initially operate or continue to
operate under any Franchise Agreement, but only to the extent so agreed under
the Master Hotel Agreement or hereafter approved by Lessor.
(b) Contemplated Renovations. Schedule 1 to
the Master Hotel Agreement sets forth a preliminary budget for certain
improvements, alterations, upgrades and/or refurbishments of and to various
hotels (including acquisitions of Furniture, Fixtures and Equipment) that are
contemplated by BHR and FelCor (the "CONTEMPLATED RENOVATIONS"). In the event
any Contemplated Renovations apply to the Hotel, Lessor and Lessee agree to
work diligently and in good faith to refine and finalize the plans and
specifications, budgets and time schedules for the Contemplated Renovations and
Lessor agrees to pay the budgeted cost of the Contemplated Renovations or such
higher amount as may be approved by Lessor, such approval not to be
unreasonably withheld. The Contemplated Renovations may include some or all of
the items required by the PIP.
-52-
<PAGE> 61
(c) Construction Services Agreement. In the
event of a PIP, a Contemplated Renovation or other previously unbudgeted
Capital Improvement (including a reconstruction of the Improvements following a
casualty or Condemnation), Lessor and Lessee may, in their sole discretion,
enter into an agreement (a "CONSTRUCTION SERVICES AGREEMENT") whereby Lessee,
Manager or another Subsidiary of BHR will perform construction advisory and
supervisory services described therein for the fees and other compensation
described therein. Lessee has no obligation to provide such services under this
Lease other than pursuant to a Construction Services Agreement.
10.4 Lessor Approval of Capital Expenditures. All Capital Expenditures
(individually or in the aggregate) whether pursuant to the Capital Budget or
otherwise, shall be subject to the approval of Lessor. Such approval may be
conditioned upon review and approval by Lessor of the plans and specifications
(including matters of design and decor) and the contracting and purchasing of
all labor, services and materials. Lessor or its representatives shall have the
right to require competitive bidding of contracts for Capital Improvements,
review all bids and monitor costs, time, quality and performance. The foregoing
restrictions shall not apply to Emergency Capital Expenditures made by Lessee
in amounts not to exceed $25,000 and with prior notice to Lessor (if possible
under the circumstances).
10.5 Lessor's Capital Reserve.
(a) Lessor shall be obligated to make
available to Lessee (which may be through an escrow required by a Holder) an
amount equal to three percent (3%) of Gross Revenues from the Hotel during each
Lease Year ("CAPITAL RESERVE") for Capital Improvements, the allocation for
expenditure of which shall be governed by the Capital Budget for such Lease
Year. Upon written request by Lessee to Lessor (stating the specific use to be
made and subject to the approval thereof by Lessor, which approval shall not be
unreasonably withheld and may be evidenced by Lessor's approval of the Capital
Budget (if such Capital Budget specifically describes such Capital
Improvement), such funds shall be made available by Lessor for Capital
Expenditures set forth in the Capital Budget; provided, however, that no
Capital Expenditures shall be made to purchase property (other than "real
property" within the meaning of Treasury Regulations Section 1.856-3(d)), to
the extent that doing so would cause Lessor to recognize income other than
"rents from real property" as defined in Section 856(d) of the Code. Lessor's
obligation shall be cumulative, but not compounded, and any amounts that have
accrued hereunder shall be payable in future periods for such uses and in
accordance with the procedure set forth herein. Lessee shall have no interest
in any accrued obligation of Lessor hereunder after the termination of this
Lease. All Capital Improvements shall be owned by Lessor subject to the
provisions of this Lease.
(b) Lessor's obligation with respect to
Capital Expenditures shall not be limited to amounts from time to time
available in the Capital Reserve, but Lessor may require that such Capital
Reserve amounts be expended prior to Lessor incurring any obligation to pay for
Capital Improvements with other funds.
-53-
<PAGE> 62
ARTICLE 11
FRANCHISE SYSTEM COMPLIANCE
11.1 Assignment or Execution of Franchise Agreement or Guaranty of
Franchise Agreement by Lessor. At Lessor's sole expense (limited, in the case
of all Holiday Inn Franchising, Inc. licenses, to the administrative cost of
processing such franchise assignments or agreements), on or about the
Commencement Date, the Franchise Agreement will be assigned to Lessee or, if
required by the Franchisor, Lessee will execute a new Franchise Agreement for
the Hotel. If the Franchisor requires as a condition to granting or allowing
the transfer, assignment or renewal of any Franchise Agreement approved by
Lessor that Lessor, as the owner of the Leased Property, become contingently
liable (as guarantor or indemnitor) with respect to the Franchise Agreement,
Lessor will take such actions and execute such documents as Lessee shall
reasonably request in order to become such a guarantor or indemnitor in order
to secure such transfer, assignment or renewal.
11.2 Compliance with Franchise Agreement by Lessee. To the extent any
of the provisions of the Franchise Agreement impose a greater obligation on
Lessee than the corresponding provisions of this Lease, then Lessee shall be
obligated to comply with the provisions of the Franchise Agreement (other than
requirements with respect to Capital Improvements for which Lessor is
responsible under this Lease and other obligations of Lessor hereunder). It is
the intent of the parties hereto that Lessee shall comply in every respect with
such provisions of the Franchise Agreement so as to avoid any default
thereunder during the term of this Lease. Lessee shall not terminate, extend or
enter into any material modification of the Franchise Agreement without in each
instance first obtaining Lessor's prior written consent, which shall not be
unreasonably withheld. Lessor and Lessee agree to cooperate with each other in
the event it becomes necessary to obtain a franchise extension or modification
or a new franchise for the Leased Property, and in any transfer of the
Franchise Agreement to Lessor or, any designee of Lessor or any successor to
Lessee upon the termination of this Lease. In the event of expiration or
termination of a Franchise Agreement, for whatever reason, Lessor will have the
right, in the exercise of its reasonable discretion, to approve any new
Franchise Agreement for the Hotel. If, upon any expiration or earlier
termination of this Lease (other than upon an Event of Default by Lessee), a
Franchise Agreement remains in effect, or would but for such expiration or
termination remain in effect, Lessor shall indemnify, defend and hold Lessee
and its Affiliates harmless with respect to the obligations and liabilities
arising thereunder after the date of expiration or termination of this Lease.
11.3 Compliance with Franchise Agreement by Lessor. To the extent any
of the provisions of the Franchise Agreement impose a greater obligation on
Lessor than the corresponding provisions of this Lease, then Lessor shall be
obligated to comply with the provisions of the Franchise Agreement (other than
requirements with respect to operational matters and other obligations of
Lessee hereunder). It is the intent of the parties hereto that Lessor, to the
extent of its obligations hereunder, shall comply in every respect with the
-54-
<PAGE> 63
provisions of the Franchise Agreement so as to avoid any default thereunder
during the term of this Lease. To the extent Lessor is a party thereto, Lessor
shall not terminate, extend or enter into any material modification of the
Franchise Agreement without in each instance first obtaining Lessee's prior
written consent, not to be unreasonably withheld.
11.4 Changes in Franchise. Lessor and Lessee agree to cooperate with
each other in the event it becomes necessary to obtain a franchise extension or
modification or a new franchise for the Leased Property, and in any transfer of
any Franchise Agreement to any designee of Lessor or, with Lessor's prior
written consent, any successor to Lessee upon the termination of this Lease. In
the event of expiration or termination of a Franchise Agreement, for whatever
reason, Lessor will have the right, in its reasonable discretion, to approve
any new Franchise Agreement for the Hotel. If, upon any expiration or earlier
termination of this Lease (other than upon an Event of Default by Lessee), a
Franchise Agreement remains in effect in favor of Lessor's designee or
Affiliate, Lessor shall indemnify, defend and hold Lessee harmless with respect
to the obligations and liabilities arising thereunder after the date of
expiration or termination of this Lease.
ARTICLE 12
PERMITTED LIENS AND CONTESTS
12.1 Liens. Subject to the provision of Section 12.2, relating to
permitted contests, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon the Leased Property or any
attachment, levy, claim or encumbrance in respect of the Rent first arising or
accrued from and after the Commencement Date, not including, however, (a) this
Lease, (b) the matters, if any, included as exceptions in the title policy
insuring Lessor's interest in the Leased Property, (c) restrictions, liens and
other encumbrances which are either created or incurred by Lessor or its
employees, agents or independent contractors or consented to in writing by
Lessor or any easements granted pursuant to the provisions of Section 7.3 of
this Lease, (d) liens for those taxes upon Lessor which Lessee is not required
to pay hereunder, (e) subleases permitted by Article 20 hereof, (f) liens for
Impositions or for sums resulting from noncompliance with Legal Requirements so
long as (1) the same are not yet payable or are payable without the addition of
any fine or penalty or (2) such liens are in the process of being contested as
permitted by Article 12; or (3) the same are Lessor's responsibility hereunder,
(g) liens of mechanics, laborers, materialmen, suppliers or vendors for sums
either disputed or not yet due provided that (1) the payment of such sums shall
not be postponed under any related contract for more than sixty (60) days after
the completion of the action giving rise to such lien and such reserve or other
appropriate provisions as shall be required by law or GAAP shall have been made
therefor or (2) any such liens are in the process of being contested as
permitted by Article 12 hereof, and (h) any liens which are the responsibility
of Lessor pursuant to the provisions of Article 24 of this Lease.
-55-
<PAGE> 64
12.2 Permitted Contests. Lessee shall have the right to contest the
amount or validity of any Imposition to be paid by Lessee or any Legal
Requirement or Insurance Requirement or any lien, attachment, levy,
encumbrance, charge or claim ("CLAIMS") not otherwise permitted by Article 11,
by appropriate legal proceedings in good faith and with due diligence (but this
shall not be deemed or construed in any way to relieve, modify or extend
Lessee's covenants to pay or its covenants to cause to be paid any such charges
at the time and in the manner as in this Article provided), on condition,
however, that such legal proceedings shall not operate to relieve Lessee from
its obligations hereunder and shall not cause the sale or risk the imminent
loss of the Leased Property, or any part thereof, or cause Lessor or Lessee to
be in default under any mortgage, deed of trust, security deed or other
agreement encumbering the Leased Property or any interest therein. Upon the
request of Lessor, Lessee shall either (a) provide a bond or other assurance
reasonably satisfactory to Lessor that all Claims which may be assessed against
the Leased Property together with interest and penalties, if any, thereon will
be paid, or (b) deposit within the time otherwise required for payment with a
bank or trust company as trustee upon terms reasonably satisfactory to Lessor,
as security for the payment of such Claims, money in an amount sufficient to
pay the same, together with interest and penalties in connection therewith, as
to all Claims which may be assessed against or become a Claim on the Leased
Property, or any part thereof, in said legal proceedings. Lessee shall furnish
Lessor and any lender of Lessor with reasonable evidence of such deposit within
five (5) days of the same. Lessor agrees to join in any such proceedings if the
same be required legally to prosecute such contest of the validity of such
Claims; provided, however, that Lessor shall not thereby be subjected to any
liability for the payment of any costs or expenses in connection with any
proceedings brought by Lessee; and Lessee covenants to indemnify and save
harmless Lessor from any such costs or expenses. Lessee shall be entitled to
any refund of any Claims and such charges and penalties or interest thereon
which have been paid by Lessee or paid by Lessor and for which Lessor has been
fully reimbursed. In the event that Lessee fails to pay any Claims when due or
to provide the security therefor as provided in this Article and to diligently
prosecute any contest of the same, Lessor may, upon ten (10) days advance
Notice to Lessee, and Lessee's failure to correct the same within such 10-day
period, pay such charges together with any interest and penalties and the same
shall be repayable by Lessee to Lessor as Additional Charges at the next Rent
payment date provided for in this Lease. Provided, however, that should Lessor
reasonably determine that the giving of such Notice would risk loss to the
Leased Property or cause damage to Lessor, then Lessor shall give such Notice
as is practical under the circumstances. Lessor reserves the right to contest
any of the Claims at its expense not pursued by Lessee. Lessor and Lessee agree
to cooperate in coordinating the contest of any Claims.
-56-
<PAGE> 65
ARTICLE 13
INSURANCE REQUIREMENTS
13.1 General Insurance Requirements. During the Term of this Lease,
the Leased Property shall at all times be insured with the kinds and amounts of
insurance described below. This insurance shall be written by companies
authorized to issue insurance in the State. The policies (except crime, workers
compensation, and safe deposit box legal liability) must name Lessor as an
additional insured, and the Manager, if any, shall also be named as an
additional insured, under the coverages described in Subsection 13.1(b). Losses
shall be payable to Lessor or Lessee as provided in this Lease. Any loss
adjustment for coverages insuring both parties shall require the written
consent of Lessor and Lessee, each acting reasonably and in good faith.
Evidence of insurance shall be deposited with Lessor. The policies on the
Leased Property, including the Improvements, Furniture, Fixtures and Equipment
and Lessee's Personal Property, shall satisfy the requirements of the Franchise
Agreement and of any ground lease, mortgage, security agreement or other
financing lien affecting the Leased Property and at a minimum shall include the
following:
(a) Lessor shall obtain and maintain, at
its own expense:
(i) Building insurance on the "SPECIAL
FORM" (formerly "ALL RISK" form) (including earthquake and flood in reasonable
amounts (not to exceed $100,000,000 per occurrence and in the aggregate for the
Existing Hotels) if and as determined by Lessor, in the exercise of its
reasonable discretion, or Lessor's underwriters or lenders) in an amount not
less than 100% of the then full replacement cost thereof (as defined in Section
13.2) or such other amount which is acceptable to Lessor, and personal property
insurance on the "SPECIAL FORM" in the full amount of the replacement cost
thereof;
(ii) Insurance for loss or damage
(direct and indirect) from steam boilers, pressure vessels or similar
apparatus, air conditioning systems, piping and machinery, and sprinklers, if
any, now or hereafter installed in the Hotel, in the minimum amount of
$5,000,000 or in such greater amounts as are then customary or as may be
reasonably requested by Lessor from time to time; and
(iii) Loss of income insurance on the
"SPECIAL FORM", in the amount of twelve (12) months of the sum of Base Rent
plus Percentage Rent (based on the last Lease Year of operation or, to the
extent the Leased Property has not been operated for an entire 12-month Lease
Year, based on prorated Percentage Rent) for the benefit of Lessor.
-57-
<PAGE> 66
(b) Lessee shall obtain and maintain, at
its own expense:
(i) Commercial general liability
insurance, with amounts not less than $10,000,000 combined single limit for
each occurrence and in the aggregate, as well as excess liability (umbrella)
insurance with limits of at least $50,000,000 per occurrence and in the
aggregate, covering each of the following: bodily injury, death, or property
damage liability per occurrence, personal and advertising injury, general
aggregate, products and completed operations, with respect to Lessor, and "all
risk legal liability" (including liquor law or "dram shop" liability, if liquor
or alcoholic beverages are served on the Leased Property) with respect to
Lessee;
(ii) Fidelity bonds or blanket crime
policies with limits and deductibles as may be reasonably determined by Lessor,
covering Lessee's and/or Manager's employees in job classifications normally
bonded under prudent hotel management practices in the United States or
otherwise required by law;
(iii) Workers' compensation insurance
(or its substantial equivalent as a non-subscribing employer in the State of
Texas) to the extent necessary to protect Lessee against Lessee's and/or
Manager's workers' compensation claims to the extent required by applicable
state laws;
(iv) Comprehensive form vehicle
liability insurance for owned, non-owned, and hired vehicles, in the amount of
$5,000,000;
(v) Garage keeper's legal liability
insurance covering both comprehensive and collision-type losses with a limit of
liability of $1,000,000 for any one occurrence;
(vi) Innkeeper's legal liability
insurance covering property of guests while on the Leased Property for which
Lessor is legally responsible with a limit of not less than $2,000 per guest
and $50,000 in any one occurrence or $100,000 annual aggregate;
(vii) Safe deposit box legal liability
insurance covering property of guests while in a safe deposit box on the Leased
Property for which Lessor is legally responsible with a limit of not less than
$5,000 in any one occurrence;
(viii) Insurance covering such other
hazards (such as plate glass or other common risks) and in such amounts as may
be customary for comparable properties in the area of the Leased Property and
is available from insurance companies, insurance pools or other appropriate
companies authorized to do business in the State at rates which are
economically practicable in relation to the risks covered as may be reasonably
determined by Lessor; and
-58-
<PAGE> 67
(ix) Business interruption insurance on
the "SPECIAL FORM" in the amount of twelve (12) months of gross profit, for the
benefit of Lessee.
13.2 Replacement Cost. The term "full replacement cost" as used herein
shall mean the actual replacement cost of the Leased Property requiring
replacement from time to time including an increased cost of construction
endorsement, if available, and the cost of debris removal. In the event either
party believes that full replacement cost (the then-replacement cost less such
exclusions) has increased or decreased at any time during the Term, it shall
have the right to have such full replacement cost re-determined.
13.3 Waiver of Claims and Subrogation. Each of Lessor and Lessee do
hereby remise, release and discharge the other party and any officer, agent,
employee, representative or contractor of such party, of and from any liability
whatsoever hereafter arising from loss, damage or injury caused by fire or
other casualty for which insurance (permitting waiver of liability and
containing a waiver of subrogation) shall be carried as required by this Lease
by the injured party at the time of such loss, damage or injury to the extent
of any recovery by the injured party under such insurance. All insurance
policies carried by Lessor or Lessee (except fidelity bonds, blanket crime
insurance or workers compensation where contrary to public policy or law),
shall expressly waive any right of subrogation on the part of the insurer
against the other party. The parties hereto agree that their policies will
include such waiver clause or endorsement so long as the same are obtainable
without extra cost, and in the event of such an extra charge the other party,
at its election, may pay the same, but shall not be obligated to do so.
13.4 Form Satisfactory, etc. All of the policies of insurance referred
to in this Article 13 shall be written in a form, with deductibles and
exclusions from coverage and by insurance companies reasonably satisfactory to
Lessor. Subject to the right to reimbursement or credit for coverages specified
in Subsection 13.1(a) and any other "casualty coverages" required by Lessor,
Lessee shall pay all of the premiums therefor, and deliver such policies or
certificates thereof to Lessor prior to their effective date (and, with respect
to any renewal policy, thirty (30) days prior to the expiration of the existing
policy), and in the event of the failure of Lessee either to effect such
insurance as herein called for or to pay the premiums therefor, or to deliver
such policies or certificates thereof to Lessor at the times required, Lessor
shall be entitled, but shall have no obligation, to effect such insurance and
pay the premiums therefor, and Lessee shall reimburse Lessor for any premium or
premiums paid by Lessor for the coverages required under Subsection 13.1(b)
upon written demand therefor, and Lessee's failure to repay the same within
thirty (30) days after Notice of such failure from Lessor shall constitute an
Event of Default within the meaning of Subsection 16.1(c). Each insurer
mentioned in this Article 13 shall agree, by endorsement to the policy or
policies issued by it, or by independent instrument furnished to Lessor, that
it will give to Lessor thirty (30) days' written notice before the policy or
policies in question shall be materially altered, allowed to expire or
canceled.
13.5 Increase in Limits. If either Lessor or Lessee at any time deems
the limits of the personal injury or property damage under the comprehensive
public liability insurance
-59-
<PAGE> 68
then carried to be either excessive or insufficient, Lessor or Lessee shall
endeavor in good faith to agree on the proper and reasonable limits for such
insurance to be carried and such insurance shall thereafter be carried with the
limits thus agreed on until further change pursuant to the provisions of this
Section.
13.6 Blanket Policy. Notwithstanding anything to the contrary
contained in this Article 13, Lessor (or Lessee at Lessor's request) may bring
the insurance provided for herein within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Lessor or Lessee, as
the case may be; provided, however, that the coverage afforded to Lessor and
Lessee will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all other requirements of
this Lease by reason of the use of such blanket policy of insurance, and
provided further that the requirements of this Article 13 are otherwise
satisfied.
13.7 No Separate Insurance. Lessee shall not on Lessee's own
initiative or pursuant to the request or requirement of any third party, take
out separate insurance concurrent in form or contributing in the event of loss
with that required in this Article to be furnished, or increase the amount of
any then existing insurance by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor, are included therein as
additional insured, and the loss is payable under such additional separate
insurance in the same manner as losses are payable under this Lease. Lessee
shall immediately notify Lessor of any such separate insurance that Lessee has
obtained or of the increase of any of the amounts of the then existing
insurance.
13.8 Reports On Insurance Claims. Lessee shall promptly investigate
and make a complete and timely written report to the appropriate insurance
company as to all accidents, claims for damage relating to the ownership,
operation, and maintenance of the Hotel, any damage or destruction to the Hotel
and the estimated cost of repair thereof and shall prepare any and all reports
required by any insurance company in connection therewith. All such reports
shall be timely filed with the insurance company as required under the terms of
the insurance policy involved, and a final copy of such report shall be
furnished to Lessor. Lessee shall be authorized to adjust, settle, or
compromise any insurance loss, or to execute proofs of such loss, in the
aggregate amount of $25,000 or less, with respect to any single casualty or
other event.
ARTICLE 14
CASUALTY INSURANCE PROCEEDS; RECONSTRUCTION
14.1 Insurance Proceeds. Subject to the provisions of Section 14.6 and
the terms of any Mortgage or Ground Lease, all proceeds payable by reason of
any loss or damage to the Leased Property, or any portion thereof, and insured
under any policy of insurance required by Article 13 of this Lease shall be
paid to Lessor and held by Lessor in an interest-bearing account, shall be made
available, if applicable, for reconstruction or repair, as the case may be, of
any damage to or destruction of the Leased Property, or any portion thereof,
and, if applicable,
-60-
<PAGE> 69
shall be paid out by Lessor from time to time for the reasonable costs of such
reconstruction or repair upon satisfaction of reasonable terms and conditions
specified by Lessor. Any excess proceeds of insurance remaining after the
completion of the restoration or reconstruction of the Leased Property shall be
paid to Lessor. If neither Lessor nor Lessee is required or elects to repair
and restore as set forth herein, all insurance proceeds shall be retained by
Lessor. All salvage of any Leased Property resulting from any risk covered by
insurance shall belong to Lessor and all salvage of any of Lessee's Personal
Property resulting from any risk covered by insurance shall belong to Lessee.
14.2 Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) Except as provided in Section 14.6, if
during the Term the Leased Property is totally or partially destroyed by a risk
covered by the insurance described in Article 13, whether or not such damage or
destruction renders the Hotel Unsuitable for its Primary Intended Use, Lessee
shall be obligated, but only to the extent of any insurance proceeds made
available to Lessee and any other sums advanced by Lessor pursuant to the next
sentence, to restore the Hotel to substantially the same condition as existed
immediately before the damage or destruction and otherwise in accordance with
the terms of the Lease and a Construction Services Agreement to be entered into
in connection herewith. If the insurance proceeds are not adequate to restore
the Hotel to that condition, each of Lessor (if Lessor has fulfilled its
obligations under Subsection 13.1(a)) and Lessee shall have the right to
terminate this Lease, without in any way affecting any of the Other Leases in
effect, by giving Notice to the other and all insurance proceeds shall be
retained by Lessor; provided, however that, if such termination is by Lessee,
Lessor shall have the right, in its sole discretion, to nullify the termination
and keep this Lease in full force by providing, within thirty (30) days after
Lessee's Notice of termination, a Notice to Lessee of Lessor's unconditional,
legally binding obligation to be responsible for all restoration costs in
excess of the insurance proceeds.
If this Lease is terminated by either party as aforesaid (and such
termination is not nullified by Lessor) and if the inadequacy of insurance
proceeds was the result of Lessor's failure to maintain the proper insurance
coverages as required pursuant to Article 13, Lessor shall, at its option,
within one hundred eighty (180) days after such termination, either (i) commit
in writing to pay (and thereafter pay) to Lessee the Termination Fee in
accordance with the terms of the Master Hotel Agreement or (ii) offer to lease
to Lessee one or more hotel facilities reasonably acceptable to Lessee pursuant
to one or more Other Leases that would create for Lessee leasehold estates
having an aggregate fair market value no less than the fair market value of the
leasehold estate hereunder, as of the date of termination. If this Lease is not
terminated and Lessee restores the Hotel, the insurance proceeds, and any other
sums made available by Lessor as aforesaid, shall be paid out by Lessor from
time to time for the reasonable costs of such restoration upon satisfaction of
reasonable terms and conditions, and any excess proceeds remaining after such
restoration shall be retained by Lessor.
-61-
<PAGE> 70
(b) Notwithstanding the provisions of
Subsection 14.2(a) above, if Lessee reasonably estimates that it cannot within
a reasonable time obtain all necessary government approvals, including building
permits, licenses and conditional use permits, after diligent efforts to do so,
to perform all required repair and restoration work (and complete such work not
later than the earlier of (i) two years prior to the end of the final extension
Term or of the initial Term, if there are no extension Terms, and (ii) one year
after the casualty) and to operate the Hotel for its Primary Intended Use in
substantially the same manner as that existing immediately prior to such damage
or destruction and otherwise in accordance with the terms of the Lease, either
Lessor or Lessee may terminate this Lease by providing Notice to the other
party, without in any way affecting any of the Other Leases then in effect
between Lessor and Lessee.
14.3 Reconstruction in the Event of Damage or Destruction Not Covered
by Insurance. Except as provided in Section 14.6, if during the Term the Hotel
is totally or materially destroyed by a risk not covered by the insurance
described in Article 13, whether or not such damage or destruction renders the
Hotel Unsuitable for its Primary Intended Use, the provisions of Section 14.2
applicable to casualties for which insurance proceeds are inadequate shall
govern.
14.4 Lessee's Personal Property and Business Interruption Insurance.
All insurance proceeds payable by reason of any loss of or damage to any of
Lessee's Personal Property and the business interruption insurance maintained
for the benefit of Lessee shall be paid to Lessee; provided, however, no such
payments shall diminish or reduce the insurance payments otherwise payable to
or for the benefit of Lessor hereunder.
14.5 Abatement of Rent Upon Casualty. Any damage or destruction due to
casualty notwithstanding, this Lease shall remain in full force and effect, but
Lessee's obligation to make rental payments and to pay all other charges
required by this Lease shall be equitably abated during any period required for
the applicable repair and restoration to the extent the Hotel or any part
thereof is Unsuitable for its Primary Intended Use. If Lessor and Lessee are
unable to agree upon the amount of such abatement within thirty (30) days after
such damage or destruction, the matter may be submitted by either party to
arbitration under Section 22.2 hereof for resolution.
14.6 Damage Near End of Term. Notwithstanding any provisions of
Section 14.2 or 14.3 appearing to the contrary, if damage to or destruction of
the Hotel rendering it Unsuitable for its Primary Intended Use occurs (i)
during the last twenty-four (24) months of the initial Term or any extension
Term, then Lessee shall have the right to terminate this Lease by giving Notice
to Lessor, within thirty (30) days after the date of damage or destruction, and
(ii) during the last twenty-four (24) months of the final extension Term (or of
the initial Term, if there are no extension Terms), then Lessor shall have the
right to terminate this Lease by giving Notice to Lessee, within thirty (30)
days after the date of damage or destruction. In the event of a
-62-
<PAGE> 71
termination under this Section 14.6, all accrued unabated Rent shall be paid
immediately, and this Lease shall automatically terminate five (5) days after
the date of such Notice.
14.7 Waiver. Unless Lessor is in material default hereunder, Lessee
hereby waives any statutory rights of termination that may arise by reason of
any damage or destruction of the Hotel that Lessor is obligated to restore or
may restore under any of the provisions of this Lease.
ARTICLE 15
CONDEMNATION; AWARD ALLOCATION
15.1 Definitions.
(a) "AWARD(S)" means all compensation, sums
or anything of value awarded, paid or received on a total or partial
Condemnation.
(b) "CONDEMNOR" means any public or
quasi-public authority, or private corporation or individual, having the power
of Condemnation.
(c) "CONDEMNATION" means a Taking resulting
from (1) the exercise of any governmental power, whether by legal proceedings
or otherwise, by a Condemnor, and (2) a voluntary sale or transfer by Lessor to
any Condemnor, either under threat of condemnation or while legal proceedings
for condemnation are pending.
(d) "DATE OF TAKING" means the date the
Condemnor has the right to possession of the property being condemned.
15.2 Parties' Rights and Obligations. If during the Term there is any
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article 15 subject to the terms of any Mortgage or Ground Lease.
15.3 Total Taking. If title to the fee (or leasehold under a Ground
Lease) of the whole of the Leased Property is condemned by any Condemnor, this
Lease shall cease and terminate as of the Date of Taking by the Condemnor,
without in any way affecting any of the Other Leases then in effect between
Lessor and Lessee. If title to the fee (or leasehold under a Ground Lease) of
less than the whole of the Leased Property is so taken or condemned, which
nevertheless renders the Leased Property Unsuitable or Uneconomic for its
Primary Intended Use, Lessee and Lessor shall each have the option, by notice
to the other, at any time prior to the Date of Taking, to terminate this Lease
as of the Date of Taking. Upon such date, if such Notice has been given, this
Lease shall thereupon cease and terminate. All Base Rent, Percentage Rent and
Additional Charges paid or payable by Lessee hereunder shall be apportioned as
of the Date of Taking, and Lessee shall promptly pay Lessor such amounts.
-63-
<PAGE> 72
15.4 Partial Taking. If title to less than the whole of the Leased
Property is condemned, and the Leased Property is not Unsuitable for its
Primary Intended Use, and not Uneconomic for its Primary Intended Use, or if
Lessee or Lessor is entitled but neither elects to terminate this Lease as
provided in Section 15.3, Lessee at its cost and in accordance with the terms
of this Lease and any Construction Services Agreement entered into in
connection herewith, shall with all reasonable dispatch, but only to the extent
of any Award funds made available to Lessee and any other sums advanced by
Lessor pursuant to this Section, restore the untaken portion of any
Improvements so that such Improvements constitute a complete architectural unit
of the same general character and condition (as nearly as may be possible under
the circumstances) as the Improvements existing immediately prior to the
Condemnation. Lessor shall in good faith seek a fair and equitable allocation
of any Award among restoration, taken Improvements and other elements. Lessor
will contribute to the cost of restoration that part of its Award specifically
allocated to such restoration, together with severance and other damages
awarded for the Improvements; provided, however, the amount of such
contribution will not exceed such cost. If the Awards are not adequate to
restore the Hotel to that condition, each of Lessor and Lessee shall have the
right to terminate this Lease, without in any way affecting any of the Other
Leases in effect, by giving Notice to the other; provided, however that, if
such termination is by Lessee, Lessor shall have the right, in its sole
discretion, to nullify the termination and keep this Lease in full force by
providing, within thirty (30) days after Lessee's Notice of termination, a
Notice to Lessee of Lessor's unconditional, legally binding obligation to be
responsible for all restoration costs in excess of the Awards. If this Lease is
not terminated and Lessee restores the Hotel, the Award funds, and any other
sums made available by Lessor as aforesaid, shall (subject to the requirements
of any ground or building lease or Mortgage) be held by Lessor and paid out by
Lessor from time to time for the reasonable costs of such restoration upon
satisfaction of reasonable terms and conditions, and any excess Award funds
remaining after such restoration, and reimbursement of Lessor for any sums
advanced by Lessor hereunder, shall be retained by Lessor. In the event of a
partial Taking that does not result in a termination of this Lease, the Base
Rent shall be abated in the manner and to the extent that is fair, just and
equitable to both Lessee and Lessor, taking into consideration, among other
relevant factors, the number of usable rooms, the amount of square footage, the
revenues affected by such partial Taking and changes in the Hotel's projected
net operating income following such partial Taking. If Lessor and Lessee are
unable to agree upon the amount of such abatement within thirty (30) days after
such partial Taking, the matter may be submitted by either party to arbitration
under Section 22.2 hereof for resolution.
15.5 Allocation of Award. The total Award made in connection with a
Total Taking, or a partial Taking that results in a termination of this Lease
with respect to the Leased Property, or for loss of Rent, or for Lessor's loss
of business beyond the Term, shall be solely the property of and payable to
Lessor. Any Award made for loss of Lessee's business during the remaining Term,
if any, or for the taking of Lessee's Personal Property or for removal and
relocation expenses of Lessee in any such proceedings shall be the sole
property of and payable to Lessee. Any other Award not separately allocated to
Lessor or Lessee shall be
-64-
<PAGE> 73
equitably apportioned between Lessor and Lessee in proportion to the then fair
market value of the leasehold estate of Lessee hereunder and the then fair
market value of the Leased Property.
15.6 Temporary Taking. If the whole or any part of the Leased Property
(other than the fee or leasehold under a Ground Lease) or of Lessee's interest
under this Lease is condemned by any Condemnor for its temporary use or
occupancy (which shall mean a period not to exceed the lesser of twelve (12)
months or the remainder of the Term), this Lease shall not terminate by reason
thereof, and Lessee shall continue to pay, in the manner and at the terms
herein specified, the full amounts of Base Rent and Additional Charges. In
addition, the entire amount of any Award made for such Condemnation allocable
to the Term of this Lease, whether paid by way of damages, rent or otherwise,
shall be paid to Lessee and, except for any portion thereof utilized for
restoration, shall be deemed to be Room Revenues for the purpose of calculating
the Percentage Rent payable hereunder during such temporary taking. Except only
to the extent that Lessee may be prevented from so doing pursuant to the terms
of the order of the Condemnor, Lessee shall continue to perform and observe all
of the other terms, covenants, conditions and obligations hereof on the part of
Lessee to be performed and observed, as though such Condemnation had not
occurred. Lessee covenants that upon the termination of any such period of
temporary use or occupancy it will, at its sole cost and expense (subject to
Lessor's contribution as set forth below), restore the Leased Property as
nearly as may be reasonably possible to the condition in which the same was
immediately prior to such Condemnation, unless (a) such period of temporary use
or occupancy extends beyond the expiration of the Term, in which case Lessee
shall not be required to make such restoration, or (b) the condemnation award
is inadequate to cover the costs of such restoration, in which case the
provisions of Section 15.4 applicable to inadequate awards shall govern. If
restoration is required in connection with such temporary taking and the
condemnation award (together with any other sums Lessor elects, in its sole
discretion, to advance) is adequate to pay the costs thereof, the provisions of
Section 15.4 shall govern the disbursement of the awards (and other sums, if
applicable) and the disposition of any awards in excess of restoration costs.
If restoration is required hereunder, Lessor shall contribute to the cost of
such restoration that portion of its entire Award that is specifically
allocated to such restoration in the judgment or order of the court, if any,
and Lessee shall fund the balance of such costs in advance of restoration in a
manner reasonably satisfactory to Lessor.
ARTICLE 16
DEFAULT BY LESSEE; LESSOR'S REMEDIES
16.1 Events of Default. If any one or more of the following events
(individually, an "EVENT OF DEFAULT") occurs:
(a) if Lessee fails to make any payment of
Base Rent, estimated monthly Percentage Rent or quarterly Percentage Rent, or
any Additional Charges, when the same becomes due and payable and, if not more
than two failures to make such payment have occurred under all the Percentage
Leases within the prior twelve (12) month period, such
-65-
<PAGE> 74
condition continues for a period of two (2) Business Days after receipt by
Lessee of Notice from Lessor thereof; or
(b) if Lessee fails to observe or perform
any term, covenant or condition of this Lease, other than the payment of Rent,
and such failure is not cured by Lessee within a period of 30 days after
receipt by Lessee of Notice thereof from Lessor, unless such failure cannot
with due diligence be cured within a period of thirty (30) days, in which case
it shall not be deemed an Event of Default if Lessee proceeds promptly and with
due diligence to cure the failure and diligently completes the curing thereof
provided, however, in no event shall such cure period extend beyond one hundred
fifty (150) days after such Notice; or
(c) if Lessee shall file a petition in
bankruptcy or reorganization for an arrangement pursuant to any federal or
state bankruptcy law or any similar federal or state law, or shall be
adjudicated a bankrupt or shall make an assignment for the benefit of creditors
or shall admit in writing its inability to pay its debts generally as they
become due, or if a petition or answer proposing the adjudication of Lessee as
a bankrupt or its reorganization pursuant to any federal or state bankruptcy
law or any similar federal or state law shall be filed in any court and Lessee
shall be adjudicated a bankrupt and such adjudication shall not be vacated or
set aside or stayed within sixty (60) days after the entry of an order in
respect thereof, or if a receiver of Lessee or of the whole or substantially
all of the assets of Lessee shall be appointed in any proceeding brought by
Lessee or if any such receiver, trustee or liquidator shall be appointed in any
proceeding brought against Lessee and shall not be vacated or set aside or
stayed within sixty (60) days after such appointment; or
(d) if Lessee is liquidated or dissolved,
or begins proceedings toward such liquidation or dissolution, or, in any
manner, permits the sale or divestiture of substantially all of its assets,
except as permitted under the Master Hotel Agreement; or
(e) except as permitted under the Master
Hotel Agreement, if the estate or interest of Lessee in the Leased Property or
any part thereof is (contrary to the terms of this Lease) voluntarily or
involuntarily transferred, assigned, conveyed, levied upon or attached in any
proceeding (unless Lessee is contesting such lien or attachment in good faith
in accordance with Article 12 hereof); or
(f) if, except (A) as a result of
Unavoidable Occurrence, damage, destruction or a partial or complete
Condemnation or otherwise as contemplated by this Lease, or (B) as authorized
by Lessor in connection with a PIP, Contemplated Renovations or other
Repositioning approved in writing by Lessor, Lessee voluntarily ceases
operations on the Leased Property for a period in excess of thirty (30) days;
or
(g) the Hotel is operated under a Franchise
Agreement and if: (A) an event of default has been declared by the Franchisor
under the Franchise Agreement with respect to the Hotel on the Leased Premises
as a result of any action or failure to act by Lessee or
-66-
<PAGE> 75
any Person with whom Lessee contracts for management services at the Hotel,
other than as a result of Lessor's default hereunder or hereunder (including,
without limitation, a failure to complete a Capital Improvement required by the
Franchisor resulting from Lessor's failure to fund the Capital Expenditure
therefor pursuant to Subsection 9.1(b), or a failure to pay Real Estate Taxes,
Personal Property Taxes or Capital Impositions) or Lessor's gross negligence or
wilful misconduct, and (B) Lessee has failed, within thirty (30) days
thereafter (or any earlier deadline for termination set forth in the Franchise
Agreement), to cure such default by either (1) curing the underlying default
under the Franchise Agreement and paying all costs and expenses associated
therewith, or (2) obtaining at Lessee's sole cost and expense a substitute
franchise or license agreement reasonably acceptable to Lessor with a
substitute Franchisor reasonably acceptable to Lessor, on terms and conditions
reasonably acceptable to Lessor; provided, however, that if Lessee is in good
faith disputing an assertion of default by the Franchisor or is proceeding
diligently to cure such default, the 30-day period shall be extended for such
period of time as Lessee continues to dispute such default in good faith or
diligently proceeds to cure such default, so long as there is no period during
which the Hotel is not operated pursuant to a Franchise Agreement approved by
Lessor (a "FRANCHISE EVENT OF DEFAULT"); or
(h) if there occurs a Default by Lessee, as
that term is defined in the Master Agreement;
then, and in any such event, Lessor may
exercise one or more remedies available to it herein or at law or in equity,
including but not limited to its right to terminate this Lease by giving Lessee
not less than ten (10) days' Notice of such termination.
If a Proceeding is commenced with respect
to any alleged default under this Lease, the prevailing party in such
Proceeding shall receive, in addition to its damages incurred, such sum as the
court or arbitrator shall determine as its reasonable attorneys' fees, and all
costs and expenses incurred in connection therewith.
No Event of Default (other than a failure
to make a payment of Rent) shall be deemed to exist under clause (d) during any
time the curing thereof is prevented by an Unavoidable Delay, provided that
upon the cessation of such Unavoidable Delay, Lessee remedies such default or
Event of Default without further delay. No Event of Default shall be deemed to
exist under clause (a) during any period of time that the payment of Rent is
delayed or rendered impossible solely by the Year 2000 Problem, provided that
Lessee diligently seeks alternative methods of payment and pays such Rent as
soon as reasonably possible.
16.2 Surrender. If an Event of Default occurs (and the event giving
rise to such Event of Default has not been cured within the curative period
relating thereto as set forth in Section 16.1) and is continuing, whether or
not this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested by Lessor so to do, immediately surrender to Lessor the Leased
Property including, without limitation, any and all books, records, files,
licenses, permits and keys relating thereto, and quit the same and Lessor may
enter upon and repossess the Leased
-67-
<PAGE> 76
Property by self-help repossession, summary proceedings, ejectment or
otherwise, and may remove Lessee and all other persons and any and all personal
property from the Leased Property, subject to rights of any hotel guests and to
any requirement of law. Lessee hereby waives any and all requirements of
applicable laws for service of notice to re-enter the Leased Property. Except
as otherwise required by applicable law, Lessor shall be under no obligation
to, but may if it so chooses, relet the Leased Property or otherwise mitigate
Lessor's damages.
16.3 Damages. Except as otherwise required by applicable law, neither
(a) the termination of this Lease, (b) the repossession of the Leased Property,
(c) the failure of Lessor to relet the Leased Property, nor (d) the reletting
of all or any portion thereof, shall relieve Lessee of its liability and
obligations hereunder, all of which shall survive any such termination,
repossession or reletting. In the event of any such termination, Lessee shall
forthwith pay to Lessor all Rent due and payable with respect to the Leased
Property to and including the date of such termination. In addition, upon the
occurrence of an Event of Default, Lessee shall forthwith pay to Lessor, at
Lessor's option, as and for agreed current damages for Lessee's default,
either:
(1) Without termination of Lessee's right
to possession of the Leased Property, each installment of Rent and other sums
payable by Lessee to Lessor under this Lease as the same becomes due and
payable, which Rent and other sums shall bear interest at the Overdue Rate, and
Lessor may enforce, by action or otherwise, any other term or covenant of this
Lease; or
(2) the sum of:
(A) the unpaid Rent which
had been earned at the time of
termination, repossession or
reletting, and
(B) the worth at the time
of termination, repossession or
reletting of the amount by which
the unpaid Rent for the balance of
the Term after the time of
termination, repossession or
reletting, exceeds the amount of
rentals that Lessee proves Lessor
reasonably can be expected to
receive after the time of
termination, repossession and
reletting, and
(C) any other amount
necessary to compensate Lessor for
all the detriment proximately
caused by Lessee's failure to
perform its obligations under this
Lease or which in the ordinary
course of things, would be likely
to result therefrom, including
without limitation, if such
termination results in a default
under or termination of the
Franchise Agreement, Lessee shall
be solely responsible for all
damages and termination payments
under the terms of the
-68-
<PAGE> 77
Franchise Agreement, application
fees for a new franchise license,
increased royalty fees and other
costs arising out of such
termination or out of the resulting
need to apply for and enter into a
substitute franchise license
agreement for the Leased Property.
The worth at the time of termination, repossession or reletting of the amount
referred to in subparagraph (B) is computed by discounting such amount to then
present value at a rate equal to the Base Rate. Rent for the purposes of this
Section 16.3 shall be a sum equal to (i) the average of the annual amounts of
the Percentage Rent for the three (3) Fiscal Years immediately preceding the
Fiscal Year in which the termination, re-entry or repossession takes place, or
(ii) if three (3) Fiscal Years shall not have elapsed, the average of the
Percentage Rent during the preceding Fiscal Year(s) during which this Lease was
in effect, or (iii) if one Fiscal Year has not elapsed, the amount derived by
annualizing the Percentage Rent from the Commencement Date.
16.4 Waiver. If this Lease is terminated pursuant to Section 16.1,
Lessee waives, to the extent permitted by applicable law, (a) any right to a
trial by jury in the event of summary proceedings to enforce the remedies set
forth in this Article 16, and (b) the benefit of any laws now or hereafter in
force exempting property from liability for rent or for debt and Lessor waives
any right to "pierce the corporate veil" of Lessee or otherwise bring any claim
against any Affiliate of Lessee not obligated hereunder or on a guaranty
hereof, other than to the extent funds shall have been inappropriately paid to
any Affiliate of Lessee following a default resulting in an Event of Default.
16.5 Application of Funds. Any payments received by Lessor under any
of the provisions of this Lease during the existence or continuance of any
Event of Default shall be applied to Lessee's obligations in the order that
Lessor may determine or as may be prescribed by the laws of the State.
16.6 Lessor's Right to Cure Lessee's Default. If Lessee fails to make
any payment or to perform any act required to be made or performed under this
Lease including, without limitation, Lessee's failure to comply with the terms
of any Franchise Agreement, and fails to cure the same within the relevant time
periods provided in Section 16.1, Lessor, without waiving or releasing any
obligation of Lessee, and without waiving or releasing any obligation or
default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Lessee,
and may, to the extent permitted by law, enter upon the Leased Property for
such purpose and, subject to Section 16.4, take all such action thereon as, in
Lessor's opinion, may be necessary or appropriate therefor. No such entry shall
be deemed an eviction of Lessee. All sums so paid by Lessor and all costs and
expenses (including, without limitation, reasonable attorneys' fees and
expenses, in each case to the extent permitted by law) so incurred, together
with a late charge thereon (to the extent permitted by law) at the Overdue Rate
from the date on which such sums or expenses are paid or incurred by Lessor,
shall be paid by Lessee to Lessor on demand. The obligations of Lessee and
-69-
<PAGE> 78
rights of Lessor contained in this Article shall survive the expiration or
earlier termination of this Lease.
ARTICLE 17
DEFAULT BY LESSOR; LESSEE'S REMEDIES
17.1 Breach by Lessor.
(a) It shall be a breach of this Lease if
Lessor fails to observe or perform any term, covenant or condition of this
Lease on its part to be performed and such failure continues for a period of
thirty (30) days after Notice thereof from Lessee, unless such failure cannot
with due diligence be cured within a period of thirty (30) days, in which case
such failure shall not be deemed a breach if Lessor proceeds within such 30-day
period, with due diligence, to cure the failure and thereafter diligently
completes the curing thereof within one hundred eighty (180) days after such
Notice, or such longer period as is required to complete any Capital
Improvements necessary to effect such cure. The time within which Lessor shall
be obligated to cure any such failure also shall be subject to extension of
time due to the occurrence of any Unavoidable Delay. If Lessor does not cure
any such failure within the applicable time period as aforesaid, Lessee may
declare the existence of a "LESSOR DEFAULT" by a second Notice to Lessor.
Thereafter, Lessee may forthwith cure the same in accordance with the
provisions of Section 24.2, subject to the provisions of the following
paragraph and exercise any other rights and remedies that Lessee may have as a
result of such breach; provided, however, Lessee shall have no right to
terminate this Lease for any Lessor Default and no right, for any such Lessor
Default, to offset or counterclaim against any Rent or other charges due
hereunder except as expressly provided herein.
(b) If Lessor shall in good faith dispute
the occurrence of any Lessor Default and Lessor, before the expiration of the
applicable cure period, shall give Notice thereof to Lessee, setting forth, in
reasonable detail, the basis therefor, no Lessor Default shall be deemed to
have occurred and Lessor shall have no obligation with respect thereto until
final adverse determination thereof, whether through arbitration or otherwise;
provided, however, that in the event of any such adverse determination, Lessor
shall pay to Lessee interest on any disputed funds at the Base Rate, from the
date demand for such funds was made by Lessee until the date of final adverse
determination and, thereafter, at the Overdue Rate until paid. If Lessee and
Lessor shall fail, in good faith, to resolve any such dispute within ten (10)
days after Lessor's Notice of dispute, either may submit the matter for
determination by arbitration, but only if such matter is required to be
submitted to arbitration pursuant to Article 22, or otherwise by a court of
competent jurisdiction.
-70-
<PAGE> 79
ARTICLE 18
INDEMNIFICATION
18.1 Indemnification.
(a) Notwithstanding the existence of any
insurance, and without regard to the policy limits of any such insurance or
self-insurance, but subject to Article 8 and Section 13.3, Lessee will protect,
indemnify, hold harmless and defend Lessor Indemnified Parties from and against
all liabilities, losses, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses), to the extent (but excluding those for which
Lessor agrees to indemnify Lessee under Subsection 22.1(b) below) resulting
from, imposed upon or incurred by or asserted against Lessor Indemnified
Parties by reason of: (a) any accident, injury to or death of persons or loss
of or damage to property occurring on or about the Hotel, the Leased Property
or adjoining roadways, curbs or sidewalks during the Term, including without
limitation any claims under liquor liability, "dram shop" or similar laws, (b)
any use, misuse, non-use, condition, management, maintenance or repair during
the Term by Lessee or any of its agents, employees or invitees of the Hotel,
the Leased Property or Lessee's Personal Property or any Proceeding or claim by
governmental entities or other third parties to which a Lessor Indemnified
Party is made a party or participant related to such use, misuse, non-use,
condition, management, maintenance, or repair thereof by Lessee or any of its
agents, employees, independent contractors or invitees (including without
limitation matters arising out of any negligent acts or failures to act or
wilful misconduct of Lessee, Manager or subtenants of Lessee or Manager, and
their respective employees, agents or independent contractors), including any
failure of Lessee or any of its agents, employees, independent contractors or
invitees to perform any obligations under this Lease or imposed by applicable
law (other than requirements with respect to Capital Improvements for which
Lessor is responsible under this Lease and other obligations of Lessor
hereunder), (c) any Impositions that are the obligations of Lessee pursuant to
the applicable provisions of this Lease, (d) any failure on the part of Lessee
to perform or comply with any of the terms of this Lease, and (e) the
non-performance during the Term of any of the terms and provisions of any and
all existing and future subleases of the Leased Property to be performed by the
landlord thereunder.
(b) Notwithstanding the existence of any
insurance, and without regard to the policy limits of any such insurance or
self-insurance, but subject to Article 8 and Section 13.3, Lessor shall
indemnify, save harmless and defend Lessee Indemnified Parties from and against
all liabilities, obligations, claims, damages, penalties, causes of action,
costs and expenses (including, without limitation, reasonable attorneys' fees
and expenses), to the extent (but excluding those for which Lessee agrees to
indemnify Lessor under Subsection 22.1(a) above) resulting from, imposed upon
or incurred by or asserted against Lessee Indemnified Parties as a result of
(a) the gross negligence or willful misconduct of Lessor arising in connection
with this Lease, (b) any failure on the part of Lessor to perform or comply
with any of the terms of this Lease, (c) any condition existing at the Leased
Property on the Commencement Date (unless such condition was not remedied or
was aggravated by the gross negligence or wilful misconduct of
-71-
<PAGE> 80
Lessee, Manager or subtenants of Lessee or Manager, and their respective
employees, agents or independent contractors, or (d) the operation of the Hotel
(other than by Lessee or its Manager) subsequent to the expiration or earlier
termination of this Lease (unless otherwise provided in Article 16).
(c) Any amounts that become payable by an
Indemnifying Party under this Section shall be paid within ten (10) days after
liability therefor on the part of the Indemnifying Party is determined by
litigation or otherwise, and if not timely paid, shall bear a late charge (to
the extent permitted by law) at the Overdue Rate from the date of such
determination to the date of payment. Nothing herein shall be construed as
indemnifying a Lessor Indemnified Party or Lessee Indemnified Party against its
own grossly negligent acts or omissions or willful misconduct.
Lessee's or Lessor's liability for a breach of the provisions of this
Article shall survive any termination of this Lease.
18.2 Indemnification Procedure. If any Proceeding is brought against
any Indemnified Party in respect of any claim or liability with respect to
which such Indemnified Party may claim indemnification under this Lease, the
Indemnifying Party, upon request, shall at its sole expense resist and defend
such Proceeding, or cause the same to be resisted and defended by counsel
designated by the Indemnified Party and approved by the Indemnifying Party,
which approval shall not be unreasonably withheld; provided, however, that such
approval shall not be required in the case of defense by counsel designated by
any insurance company undertaking such defense pursuant to any applicable
policy of insurance. Each Indemnified Party shall have the right to employ
separate counsel in any such Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel will be at the sole expense
of such Indemnified Party unless such counsel has been approved by the
Indemnifying Party, which approval shall not be unreasonably withheld. The
Indemnifying Party shall not be liable for any settlement of any such
Proceeding made without its consent, which shall not be unreasonably withheld,
but if settled with the consent of the Indemnifying Party, or if settled
without its consent (if its consent shall be unreasonably withheld), or if
there be a final, nonappealable judgment for an adversary party in any such
Proceeding, the Indemnifying Party shall indemnify and hold harmless the
Indemnified Parties from and against any liabilities incurred by such
Indemnified Parties by reason of such settlement or judgement.
-72-
<PAGE> 81
ARTICLE 19
REIT REQUIREMENTS AND RESTRICTIONS
19.1 REIT Requirements.
(a) Lessor has informed Lessee, and Lessee
understands, that, in order for FelCor to qualify as a REIT, the following
requirements (the "REIT REQUIREMENTS") must be satisfied:
(i) The average of the adjusted tax
bases of Lessor's personal property that is leased to Lessee under this Lease
at the beginning and end of a calendar year cannot exceed fifteen percent (15%)
of the average of the aggregate adjusted tax bases of all of Lessor's property
that is leased to Lessee under this Lease at the beginning and end of such
calendar year (the "PERSONAL PROPERTY LIMITATION").
(ii) Lessee cannot sublet the property
that is leased to it by Lessor, or enter into any similar arrangement, on any
basis such that the rental or other amounts paid by the sublessee thereunder
would be based, in whole or in part, on either (i) the net income or profits
derived by the business activities of the sublessee or (ii) any other formula
such that any portion of the rent paid by Lessee to Lessor would fail to
qualify as "rents from real property" within the meaning of Section 856(d) of
the Code.
(iii) Lessee cannot sublease the
property leased to it by Lessor to, or enter into any similar arrangement with,
any Person in which FelCor owns, directly or indirectly, a ten percent (10%) or
greater interest, within the meaning of Section 856(d)(2)(B) of the Code.
(iv) FelCor (or any Person that owns a
ten percent (10%) or greater interest in FelCor) cannot own, directly or
indirectly, a ten percent (10%) or greater interest in Lessee, within the
meaning of Section 856(d)(2)(B) of the Code.
(v) No Person can own, directly or
directly, capital stock of FelCor that exceeds the limitations set forth in
FelCor's Charter, as amended and restated.
(b) Lessee agrees, and agrees to use
reasonable efforts to cause its Affiliates, to use their reasonable best
efforts to permit the REIT Requirements to be satisfied. Lessee agrees, and
agrees to use reasonable efforts to cause its Affiliates, to cooperate in good
faith with FelCor and Lessor to ensure that the REIT Requirements are
satisfied, including but not limited to, providing FelCor with information
about the ownership of Lessee, and its Affiliates to the extent that such
information is reasonably available. Lessee agrees, and agrees to use
reasonable efforts to cause its Affiliates, upon request by FelCor and, where
appropriate, at FelCor's expense, to takereasonable action necessary to ensure
compliance with the REIT
-73-
<PAGE> 82
Requirements. Immediately after becoming aware that the REIT Requirements are
not, or will not be, satisfied, Lessee shall notify, or use reasonable efforts
to cause its Affiliates to notify, FelCor of such noncompliance.
(c) If Lessor reasonably anticipates that
the Personal Property Limitation will be exceeded with respect to the Leased
Property for any Lease Year, Lessor shall notify Lessee, and Lessee shall
purchase, either from Lessor or a third party, items of personal property
anticipated by Lessor to be in excess of the Personal Property Limitation
("EXCESS PERSONAL PROPERTY ITEMS") on such terms as may be negotiated in good
faith between Lessor and Lessee. If the Excess Personal Property Items are
purchased from Lessor, the purchase prices of such Excess Personal Property
Items shall be equal to the adjusted tax bases of such Excess Personal Property
Items in the hands of Lessor as of the closing of the purchase.
19.2 Lessee Officer and Employee Limitation. Anything contained in
this Lease to the contrary notwithstanding, none of the officers or employees
of Lessee (or any Person who furnishes or renders services to the tenants of
the Leased Property, or manages or operates the Leased Property) shall be
officers or employees of FelCor or Lessor (or any Person who serves as an
advisor of FelCor). In addition, if a Person serves as both (a) a director of
Lessee (or any Person who furnishes or renders services to the tenants of the
Leased Property, or manages or operates the Leased Property) and (b) a director
and officer (or employee) of FelCor (or any Person who serves as an advisor of
FelCor) that Person shall not receive any compensation for serving as a
director of Lessee (or any Person who furnishes or renders services to the
tenants of the Leased Property, or manages or operates the Leased Property).
Finally, if a Person serves as both (a) a director and officer of Lessee (or
any Person who furnishes or renders services to the tenants of the Leased
Property, or manages or operates the Leased Property), and (b) a director of
FelCor (or any Person who serves as an advisor to FelCor), that Person shall
not receive any compensation for serving as a director of FelCor (or any Person
who serves as an advisor to FelCor).
19.3 Management Agreement.
(a) Lessee agrees to obtain Lessor's prior
consent (which shall not be unreasonably withheld) to the terms of any
management or agency agreement relating to the management or operation of the
Hotel (a "MANAGEMENT AGREEMENT"), or any material amendment or modification
thereto, under which the payment of management fees is not expressly
subordinate to the payment of Rent hereunder on terms reasonably acceptable to
Lessor (provided, however, management fees and other amounts may be paid to the
Manager so long as no Event of Default has occurred hereunder). Lessee shall,
upon request, provide Lessor with a copy of any proposed Management Agreement.
Lessee also shall provide Lessor with copies of any and all amendments or
modifications of a Management Agreement which are entered into from time to
time. Without limiting the generality of the foregoing, any Management
Agreement shall provide that (i) upon termination of this Lease or termination
of Lessee's right to possession of the Leased Property for any reason other
than a termination by Lessor pursuant to Section 2.5,
-74-
<PAGE> 83
the Management Agreement may be terminated by Lessor without liability for any
payment due or to become due to the Hotel Manager, and (ii) except as provided
in the Master Hotel Agreement, any management fees payable to any Affiliate of
Lessee shall be expressly subordinated to the payments of Rent to Lessor
hereunder (provided, however, management fees and other amounts may be paid to
the Manager so long as no Event of Default has occurred hereunder), and no fees
or other amounts payable by Lessee to the Manager shall excuse Lessee from its
obligations to pay Rent and other amounts payable by Lessee to Lessor
hereunder. Lessor shall have the right to approve in advance any Manager who is
not an Affiliate of Lessee.
(b) In the event that Lessor in good faith
has concerns regarding the character, conduct or performance of the General
Manager of the Hotel, Lessee and Manager will consult with Lessor to discuss
Lessor's concerns and attempt to address any deficiencies in character, conduct
or performance.
19.4 Payments to Affiliates of Lessee. Notwithstanding anything to the
contrary contained in this Lease, Lessee shall make no payments to Affiliates
as Gross Operating Expenses unless expressly set forth in the Operating Budget
or an approved Capital Budget, allowed by the Master Hotel Agreement or
otherwise expressly agreed to in writing by Lessor, in either case, after full
written disclosure (including information regarding competitive pricing) by
Lessee to Lessor of the affiliation and any other related information
reasonably requested by Lessor.
ARTICLE 20
SUBLETTING AND ASSIGNMENT BY LESSEE
20.1 Subletting and Assignment. Except as otherwise expressly provided
herein, or in the Master Hotel Agreement, Lessee shall not sell, assign,
sublet, transfer, convey or hypothecate, whether by operation of law or
otherwise, its leasehold interest in the Leased Property, or any interest
therein, to any other Person without the prior written consent of Lessor not to
be unreasonably withheld. Subject to the provisions of Article 19 and Section
20.2 and any other express conditions or limitations set forth herein, Lessee
may (a) on the terms and conditions set forth below, assign this Lease or
sublet all or any part of the Leased Property to a Subsidiary of BHR, or (b)
unless a Major Sublease is involved, sublet any retail or Restaurant portion of
the Improvements in the normal course of the Primary Intended Use; provided
that any subletting shall not individually as to any one such subletting, or in
the aggregate be executed by Lessee for the sole or primary purpose of
diminishing in any material respect the actual or potential Percentage Rent
payable under this Lease. Lessor shall have the right to approve in advance any
Major Sublease. In the case of a subletting, the sublessee shall comply with
the provisions of Section 20.2, and in the case of an assignment, the assignee
shall assume in writing and agree to keep and perform all of the terms of this
Lease on the part of Lessee to be kept and performed and shall be, and become,
jointly and severally liable with Lessee for the performance thereof.
-75-
<PAGE> 84
Notwithstanding the above, Lessee may assign this Lease to an
Affiliate without the consent of Lessor; provided that any such assignee
assumes in writing and agrees to keep and perform all of the terms of this
Lease on the part of Lessee to be kept and performed and shall be and become
jointly and severally liable with Lessee for the performance thereof. In case
of either an assignment or subletting made during the Term, Lessee shall remain
primarily liable, as principal rather than as surety, for the prompt payment of
the Rent and for the performance and observance of all of the covenants and
conditions to be performed by Lessee hereunder unless, in the case of an
assignment, Lessor otherwise consents in writing (which consent will not be
unreasonably withheld but may be conditioned upon the assignee's or
transferee's satisfaction of criteria similar to those for a Qualified Assignee
as described in Section 21.1 hereof). An original counterpart of each such
sublease or assignment and assumption, duly executed by Lessee and such
sublessee or assignee, as the case may be, in form and substance satisfactory
to Lessor, shall be delivered promptly to Lessor.
20.2 Subordination and Attornment. Lessee shall insert in each
sublease executed during the Term that is permitted under Section 20.1
provisions to the effect that (a) such sublease is subject and subordinate to
all of the terms and provisions of this Lease and to the rights of Lessor
hereunder if Lessor executes a non-disturbance agreement with respect to such
sublease (otherwise, Lessee only need use reasonable efforts to obtain such
subordination agreement), (b) if this Lease terminates before the expiration of
such sublease, the sublessee thereunder will, at Lessor's option, attorn to
Lessor and waive any right the sublessee may have to terminate the sublease or
to surrender possession thereunder as a result of the termination of this
Lease, and (c) if the sublessee receives a Notice from Lessor or Lessor's
assignees, if any, stating that an uncured Event of Default exists under this
Lease, the sublessee shall thereafter be obligated to pay all rentals accruing
under said sublease directly to the party giving such Notice, or as such party
may direct. All rentals received from the sublessee by Lessor or Lessor's
assignees, if any, as the case may be, shall be credited against the amounts
owing by Lessee under this Lease.
ARTICLE 21
LEASEHOLD MORTGAGES
21.1 Lessee May Grant Leasehold Mortgages. Notwithstanding anything to
the contrary set forth in this Lease, Lessee shall have the right at any time
and from time to time during the term of this Lease, without Lessor's prior
consent but with the prior written consent of (i) any Holder under any existing
Mortgage or any ground lessor under any existing Ground Lease (if such consent
is required thereunder), or (ii) if Lessor has given Lessee written Notice of a
future Mortgage or Ground Lease, and consent is required thereunder (in which
case Lessor agrees to use reasonable efforts to obtain such consent), of any
Holder under any such future Mortgage or ground lessor under such future Ground
Lease, to encumber Lessee's leasehold interest hereunder and Lessee's Personal
Property with a mortgage, deed of trust, assignment or similar security
instrument (a "LEASEHOLD MORTGAGE") (that may include an
-76-
<PAGE> 85
assignment of revenues from the Leased Property, including an assignment of
rents from subleases of Lessee) to an institutional lender or other reputable
national mortgage lender as leasehold mortgagee ("LEASEHOLD MORTGAGEE"). No
Leasehold Mortgage shall create a lien upon the Lessor's fee title to, or other
interest in, the Leased Property.
ARTICLE 22
ARBITRATION AND DISPUTE RESOLUTION PROCEDURES
22.1 Arbitration. Except as set forth in Section 22.2, in each case
specified in this Lease in which it shall become necessary to resort to
arbitration, such arbitration shall be determined as provided in this Section
22.1. The party desiring such arbitration shall give Notice to that effect to
the other party, and an arbitrator shall be selected by mutual agreement of the
parties, or if they cannot agree within thirty (30) days of such notice, by
appointment made by the American Arbitration Association ("AAA") from among the
members of its panels who are qualified and who have experience in resolving
matters of a nature similar to the matter to be resolved by arbitration.
22.2 Alternative Arbitration. In each case specified in this Lease for
a matter to be submitted to arbitration pursuant to the provisions of this
Section 22.2, Lessor and Lessee will agree upon a nationally recognized
accounting firm with a hospitality division of which neither party nor their
Affiliates of Lessor is a significant client to serve as arbitrator of such
dispute within fifteen (15) days after written demand for arbitration is
received or sent by either party. In the event the parties fail to make such
designation within such fifteen (15) day period, Lessor shall be entitled to
designate any nationally recognized accounting firm with a hospitality division
of which Lessor or an Affiliate of Lessor is not a significant client to serve
as arbitrator of such dispute within fifteen (15) days after the parties fail
to timely make such designation. In the event Lessor fails to make such
designation within such fifteen (15) day period, Lessee shall be entitled to
designate any nationally recognized accounting firm with a hospitality division
of which Lessee or an Affiliate of Lessee is not a significant client to serve
as arbitrator of such dispute within fifteen (15) days after the parties fail
to timely make such designation. In the event no nationally recognized
accounting firm satisfying such qualifications is available and willing to
serve as arbitrator, the arbitration shall instead be administered as set forth
in Section 22.1.
22.3 Arbitration Procedures. In any arbitration commenced pursuant to
Sections 22.1 or 22.2, a single arbitrator shall be designated and shall
resolve the dispute. The arbitrator's decision shall be binding on all parties,
shall not be subject to further review or appeal except as otherwise allowed by
applicable law and may be filed in and enforced by a court of competent
jurisdiction.. Upon the failure of either party (the "non-complying party") to
comply with his decision, the arbitrator shall be empowered, at the request of
the other party, to order such compliance by the non-complying party and to
supervise or arrange for the supervision of the non-complying party's
obligation to comply with the arbitrator's decision, all at the expense of
-77-
<PAGE> 86
the non-complying party. To the maximum extent practicable, the arbitrator and
the parties, and the AAA if applicable, shall take any action necessary to
insure that the arbitration shall be concluded within ninety (90) days of the
filing of such dispute. The fees and expenses of the arbitrator shall be shared
equally by Lessor and Lessee except as otherwise specified above in this
Section 22.3. Unless otherwise agreed in writing by the parties or required by
the arbitrator or AAA, if applicable, arbitration proceedings hereunder shall
be conducted in the State. Notwithstanding formal rules of evidence, each party
may submit such evidence as each party deems appropriate to support its
position and the arbitrator shall have access to and right to examine all books
and records of Lessee and Lessor regarding the Hotel during the arbitration.
ARTICLE 23
APPRAISAL
23.1 Appraisers; Appraisal Procedure. If it becomes necessary to
determine the fair market value of the leasehold estate hereunder (or the fair
market value of any other property) for any purpose of this Lease, the party
required or permitted to give Notice of such required determination shall
include in the Notice the name of a person selected to act as appraiser on its
behalf. Within ten (10) days after Notice, Lessor (or Lessee, as the case may
be) shall by Notice to Lessee (or Lessor, as the case may be) appoint a second
person as appraiser on its behalf. The appraisers thus appointed, each of whom
must be a member of the American Institute of Real Estate Appraisers (or any
successor organization thereto) with at least five (5) years experience in the
State appraising property similar to the Leased Property, shall, within
forty-five (45) days after the date of the Notice appointing the first
appraiser, proceed to determine the fair market value of the leasehold estate
hereunder (or the fair market value of any other property, as the case may be)
as of the relevant date (giving effect to the impact, if any, of inflation from
the date of their decision to the relevant date); provided, however, that if
only one appraiser shall have been so appointed, then the determination of such
appraiser shall be final and binding upon the parties. If two (2) appraisers
are appointed and if the difference between the amounts so determined does not
exceed five percent (5%) of the lesser of such amounts, then the fair market
value of the leasehold estate hereunder (or fair market value of any other
property, as the case may be) shall be an amount equal to fifty percent (50%)
of the sum of the amounts so determined. If the difference between the amounts
so determined exceeds five percent (5%) of the lesser of such amounts, then
such two (2) appraisers shall have twenty (20) days to appoint a third
appraiser. If no such third appraiser shall have been appointed within such
twenty (20) days or within ninety (90) days of the original request for a
determination of fair market value, whichever is earlier, either Lessor or
Lessee may apply to any court having jurisdiction to have such appointment made
by such court. Any appraiser appointed by the original appraisers or by such
court shall be instructed to determine the fair market value of the leasehold
estate hereunder (or the fair market value of any other property) within
forty-five (45) days after appointment of such appraiser. The determination of
the appraiser which differs most in the terms of dollar amount from the
determinations of the other two (2) appraisers shall be excluded, and fifty
percent (50%) of the sum of the remaining two (2) determinations shall be final
and binding upon
-78-
<PAGE> 87
Lessor and Lessee as the fair market value of the leasehold estate hereunder
(or fair market value of any other property, as the case may be). This
provision for determining by appraisal shall be specifically enforceable to the
extent such remedy is available under applicable law, and any determination
hereunder shall be final and binding upon the parties except as otherwise
provided by applicable law. Lessor and Lessee shall each pay the fees and
expenses of the appraiser appointed by it and each shall pay one-half (1/2) of
the fees and expenses of the third appraiser and one-half (1/2) of all other
costs and expenses incurred in connection with each appraisal.
ARTICLE 24
LESSOR MORTGAGES
24.1 Lessor May Grant Liens.
(a) Without the consent of Lessee, Lessor
may, subject to the terms and conditions set forth below in this Section 24.1,
from time to time, directly or indirectly, create or otherwise cause to exist
any Mortgage or any lien, encumbrance or title retention agreement
("ENCUMBRANCE") upon the Leased Property, or any portion thereof or interest
therein, whether to secure any borrowing or other means of financing or
refinancing. Upon the request of Lessor or the holder of the Encumbrance (the
"HOLDER") , Lessee shall subordinate this Lease to the lien of a new Mortgage
on the Leased Property, on the condition that Lessor has obtained from the
proposed mortgagee a subordination, non-disturbance and attornment agreement in
form and substance reasonably satisfactory to Lessee and Holder (provided,
however, if the loan to value ratio of the fairly allocated indebtedness
secured by the Mortgage is 60% or less, then Lessor need only use reasonable
good faith efforts to obtain such agreement). Any such subordination,
non-disturbance and attornment agreement shall provide, among other things,
that, provided no default has occurred and is then continuing under this Lease,
Lessee (i) shall be entitled to receive all the Gross Revenues of the Hotel
subject to the terms of this Lease, and (ii) shall not be disturbed in its
possession of the Leased Property following a transfer by foreclosure or deed
in lieu of foreclosure under such Mortgage if Lessee attorns to the transferee
by foreclosure or deed in lieu of foreclosure.
(b) Lessee shall, upon the request of
Lessor or any existing or future Holder, (i) provide Holder with copies of all
licenses, permits, occupancy agreements, operating agreements, leases,
contracts and similar agreements reasonably requested in connection with any
existing or proposed financing of the Leased Property, and (ii) execute, or
cause the Manager or any relevant Affiliate to execute, such estoppel
agreements with respect to the Hotel's liquor license and any of the other
aforementioned agreements as Holder may reasonably request in connection with
any such financing, provided that no such estoppel agreement shall in any way
affect the Term or affect adversely in any material respect any rights of
Lessee under this Lease.
(c) No act or failure to act on the part of
Lessor which would entitle Lessee under the terms of this Lease, or by law, to
be relieved of any of Lessee's
-79-
<PAGE> 88
obligations hereunder (including, without limitation, its obligation to pay
Rent) or to terminate this Lease, shall result in a release or termination of
such obligations of Lessee or a termination of this Lease unless: (i) Lessee
shall have first given written notice of Lessor's act or failure to act to the
Holder, specifying the act or failure to act on the part of Lessor which would
give basis to Lessee's rights; and (ii) the Holder, after receipt of such
notice, shall have failed or refused to correct or cure the condition
complained of within a reasonable time thereafter (in no event less than thirty
(30) days nor more than sixty (60) days), which shall include a reasonable time
for such Holder to obtain possession of the Leased Property, if possession is
reasonably necessary for the Holder to correct or cure the condition, or to
foreclose such Mortgage, and if the Holder notifies the Lessee of its intention
to take possession of the Leased Property or to foreclose such Mortgage,
commences foreclosure actions within said sixty (60) days, unconditionally
commits to correct or cure such condition and diligently pursues such cure to
completion. If such Holder is prohibited by any process or injunction issued by
any court or by reason of any action by any court having jurisdiction or any
bankruptcy, debtor rehabilitation or insolvency proceedings involving Lessor
from commencing or prosecuting foreclosure or other appropriate proceedings in
the nature thereof, the times for commencing or prosecuting such foreclosure or
other proceedings shall be extended for the period of such prohibition,
provided, however, that the Lease shall continue to be in full force and effect
if Lessee is not constructively evicted from the Leased Property and is not
otherwise prevented from operating the Hotel as a result thereof.
(d) Lessee shall deliver to any Holder who
gives Lessee written notice of its status as a Holder, at such Holder's address
stated in the Holder's written notice or at such other address as the Holder
may designate by later written notice to Lessee, a duplicate copy of any and
all Notices regarding any default which Lessee may from time to time give or
serve upon Lessor pursuant to the provisions of this Lease. Copies of such
Notices given by Lessee to Lessor shall be delivered to such Holder
simultaneously with delivery to Lessor. No such Notice by Lessee to Lessor
hereunder shall be deemed to have been given unless and until a copy thereof
has been mailed to such Holder.
(e) Lessee shall cooperate in all
reasonable respects, and as generally described in Section 2.6 of this Lease,
with any transfer of the Leased Property to a Holder that succeeds to the
interest of Lessor in the Leased Property (including, without limitation, in
connection with the transfer of any franchise, license, lease, permit,
contract, agreement, or similar item to such Holder or such Holder's designee
necessary or appropriate to operate the Leased Property). Lessor and Lessee
shall cooperate in (i) including in this Lease by suitable amendment from time
to time any provision which may be requested by any proposed Holder, or may
otherwise be reasonably necessary, to implement the provisions of this Article
and (ii) entering into any further agreement with or at the request of any
Holder which may be reasonably requested or required by such Holder in
furtherance or confirmation of the provisions of this Article; provided,
however, that any such amendment or agreement shall not in any way affect the
Term nor affect adversely in any material respect any rights of Lessor or
Lessee under this Lease.
-80-
<PAGE> 89
24.2 Lessee's Right to Cure. Subject to the provisions of Section
17.1, if Lessor breaches any covenant to be performed by it under this Lease or
any Mortgage, Lessee, after Notice to and demand upon Lessor, without waiving
or releasing any obligation hereunder, and in addition to all other remedies
available to Lessee, may (but shall be under no obligation at any time
thereafter to) make such payment or perform such act for the account and at the
expense of Lessor. All sums so paid by Lessee and all costs and expenses
(including, without limitation, reasonable attorneys' fees) so incurred,
together with interest thereon at the Overdue Rate from the date on which such
sums or expenses are paid or incurred by Lessee, shall be paid by Lessor to
Lessee on demand or, following entry of a final, nonappealable judgment against
Lessor for such sums, may be offset by Lessee against the Base Rent payments
next accruing or coming due. The rights of Lessee hereunder to cure and to
secure payment from Lessor in accordance with this Section 24.2 shall survive
the termination of this Lease with respect to the Leased Property.
ARTICLE 25
QUIET ENJOYMENT
25.1 Quiet Enjoyment. So long as Lessee pays all Rent as the same
becomes due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace periods, if
any, Lessee shall peaceably and quietly have, hold and enjoy the Leased
Property for the Term hereof, free of any claim or other action by Lessor or
anyone claiming by, through or under Lessor, but subject to all liens and
encumbrances subject to which the Leased Property was conveyed to Lessor or
hereafter consented to by Lessee or provided for herein prior to the
foreclosure thereof. Notwithstanding the foregoing, Lessee shall have the right
by separate and independent action to pursue any claim it may have against
Lessor as a result of a breach by Lessor of the covenant of quiet enjoyment
contained in this Article.
ARTICLE 26
CERTIFICATES; INSPECTION RIGHTS
26.1 Lessee Estoppel Certificates. At any time and from time to time
upon not less than ten (10) days Notice by Lessor, Lessee will furnish to
Lessor or any Person designated by Lessor an Officer's Certificate certifying
that this Lease is unmodified and in full force and effect (or that this Lease
is in full force and effect as modified and setting forth the modifications),
the date to which the Rent has been paid, whether to the knowledge of Lessee
there is any existing default or Event of Default hereunder by Lessor or
Lessee, and such other information as may be reasonably requested by Lessor.
Any such certificate furnished pursuant to this Section may be relied upon by
Lessor, any underwriter, lender, investor and prospective purchaser of the
Leased Property.
-81-
<PAGE> 90
26.2 Lessor Estoppel Certificates. At any time and from time to time
upon not less than ten (10) days notice by Lessee, Lessor will furnish to
Lessee or to any Person designated by Lessee an estoppel certificate certifying
that this Lease is unmodified and in full force and effect (or that this Lease
is in full force and effect as modified and setting forth the modifications),
the date to which Rent has been paid, whether to the knowledge of Lessor there
is any existing default or Event of Default on Lessee's part hereunder, and
such other information as may be reasonably requested by Lessee. Any such
certificate furnished pursuant to this Section may be relied upon by Lessee,
any underwriter, lender, investor and prospective purchaser of the assets of
Lessee.
26.3 Inspection Rights. Lessee shall permit Lessor and its authorized
agents and representatives as frequently as reasonably requested by Lessor to
inspect the Leased Property and Lessee's accounts and records pertaining
thereto and make copies thereof, during usual business hours upon reasonable
advance notice, subject only to the terms of this Agreement.
ARTICLE 27
NOTICES
27.1 Notices. All notices, demands, requests, consents, approvals and
other communications ("NOTICE" or "NOTICES") hereunder shall be in writing and
personally served, mailed (by registered or certified mail, return receipt
requested and postage prepaid), sent by FedEx or other nationally recognized
overnight courier, or sent by facsimile, addressed to Lessor at its address set
forth in the Schedule of Basic Terms attached hereto, Attention: President
(with a copy to Attention: General Counsel), and addressed to Lessee at its
address set forth in the Schedule of Basic Terms attached hereto, Attention:
President (with a copy to Attention: General Counsel), or to such other address
or addresses as either party may hereafter designate. Personally delivered
Notice (including any confirmed facsimile transmission or delivery by
nationally recognized overnight courier) shall be effective upon receipt at the
specified address. Notice given by mail shall be complete at the time of
deposit in the U.S. Mail system, but any prescribed period of Notice and any
right or duty to do any act or make any response within any prescribed period
or on a date certain after the service of such Notice given by mail shall be
extended five (5) days.
ARTICLE 28
GROUND LEASE
28.1 The Ground Lease. The provisions of this Article 28 shall apply
and be controlling notwithstanding anything to the contrary contained herein if
Lessor owns its interest in the Land or Improvements through a ground or
building lease. All of the terms of the lease or leases (if any) described in
Exhibit "A" attached hereto (collectively referred to herein as the "GROUND
LEASE") are hereby incorporated into and made a part of this Lease as if stated
at
-82-
<PAGE> 91
length herein. The parties hereto agree that wherever the word "LAND" appears
in this Lease, the same shall be deemed to mean the premises demised by the
Ground Lease.
Lessee shall have the benefit of each and every covenant and agreement
made by the lessor under the Ground Lease ("GROUND LESSOR"), to Lessor under
the Ground Lease and Lessee accepts this Lease subject to, all of the terms,
covenants, conditions and agreements contained in the Ground Lease. In the
event that the consent of the Ground Lessor is required in connection with the
transactions contemplated by the Master Hotel Agreement and/or this Lease, and
such consent has not been obtained effective as of the Commencement Date, then
Lessor shall have the option to terminate this Lease, without payment of a
Termination Fee or other premium or penalty, immediately (and effective as of
the earliest date required to avoid any default under the Ground Lease by
Lessor) upon (i) notice to Lessee that the Ground Lessor has declared Lessor to
be in default under the Ground Lease and (ii) execution of a management
agreement with Lessee (or its Manager, at Lessee's request) upon such terms as
are required to provide Lessee (or Manager, as the case may be) with the same
Net Economic Benefit (as defined in the Master Hotel Agreement) as would have
this Lease in accordance with its terms, other than this sentence.
Lessor shall pay directly to Ground Lessor all rent due from Lessor to
Ground Lessor under the terms of the Ground Lease when due.
In the event of conflicts between the terms of this Lease and the
terms of the Ground Lease, the terms of the Ground Lease shall control. To the
extent any of the provisions of the Ground Lease impose a greater obligation on
Lessor than the corresponding provisions of this Lease, then Lessor shall be
obligated to comply with the provisions of the Ground Lease (other than
obligations for which Lessee is specifically responsible hereunder). To the
extent any of the provisions of the Ground Lease impose a greater obligation on
Lessee than the corresponding provisions of this Lease, then Lessee shall be
obligated to comply with the provisions of the Ground Lease (other than
obligations for which Lessor is specifically responsible hereunder). Any
obligations set forth in the Ground Lease not specifically allocated by this
Lease shall be apportioned according to the relative responsibilities of Lessor
and Lessee hereunder. Notwithstanding the generality of the foregoing, Lessor
and Lessee agree that nothing in this Lease shall be deemed to affect or modify
any requirements of the Ground Lease with regard to (i) necessary consents and
approvals of the Ground Lessor or (ii) requirements of records retention as set
forth in the Ground Lease.
Lessee and Lessor covenant and agree with each other that neither
shall do anything which shall have the effect of creating a breach on the part
of Lessor, its successors and assigns, of any of the terms, covenants and
conditions of the Ground Lease. Notwithstanding the foregoing, in the event
that Ground Lessor shall fail or refuse to comply with any of the respective
provisions of the Ground Lease despite Lessor's good faith reasonable efforts
to obtain such compliance and Lessor is not in default under the Ground Lease,
Lessor shall have no liability on account of any such failure or refusal,
provided that Lessee shall have the option to request that Lessor assign to
Lessee, and Lessee shall have, the right to exercise in its own name (and not
that of Lessor) all of
-83-
<PAGE> 92
the rights to enforce compliance on the part of Ground Lessor as are available
to Lessor. Lessor hereby agrees to cooperate with and execute and deliver, all
at Lessee's expense, all instruments and information reasonably required by
Lessee in order to enforce such compliance.
ARTICLE 29
MISCELLANEOUS
29.1 Enforceability. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable
law, the parties agree that such charges shall be fixed at the maximum
permissible rate. Neither this Lease nor any provision hereof may be changed,
waived, discharged or terminated except by a written instrument in recordable
form signed by Lessor and Lessee. All the terms and provisions of this Lease
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. The headings in this Lease are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Lease shall be governed by and construed in accordance
with the laws of the State, but not including its conflicts of laws rules.
29.2 Waiver of Trial by Jury. LESSOR AND LESSEE EACH WAIVE, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT TO A TRIAL BY JURY IN THE
EVENT OF A PROCEEDING WITH RESPECT TO THIS LEASE, INCLUDING, WITHOUT
LIMITATION, SUMMARY PROCEEDINGS TO ENFORCE THE REMEDIES SET FORTH IN ARTICLE
16.
29.3 No Waiver. No failure by Lessor or Lessee to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
29.4 Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.
-84-
<PAGE> 93
29.5 Acceptance of Surrender No surrender to Lessor of this Lease or
of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Lessor and no
act by Lessor or any representative or agent of Lessor, other than such a
written acceptance by Lessor, shall constitute an acceptance of any such
surrender.
29.6 No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby by reason of the fact that the same Person
may acquire, own or hold, directly or indirectly: (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
29.7 Conveyance by Lessor. If Lessor or any successor owner of the
Leased Property conveys the Leased Property to a Person other than an Affiliate
of Lessor in accordance with the terms hereof other than as security for a
debt, and the grantee or transferee of the Leased Property expressly assumes
all obligations of Lessor hereunder arising or accruing from and after the date
of such conveyance or transfer, Lessor or such successor owner, as the case may
be, shall thereupon be released from all future liabilities and obligations of
Lessor under this Lease arising or accruing from and after the date of such
conveyance or other transfer as to the Leased Property and all such future
liabilities and obligations shall thereupon be binding upon the new owner.
29.8 Waiver of Presentment, etc. Lessee waives all presentments,
demands for payment and for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance and waives
all notices of the existence, creation, or incurring of new or additional
obligations, except as expressly granted herein.
29.9 Standard of Discretion. In any provision of this Lease requiring
or permitting the exercise by Lessor or Lessee of such party's approval,
election, decision, consent, judgment, determination or words of similar import
(collectively, an "APPROVAL"), such Approval may, unless otherwise expressly
specified in such provision, be given or withheld in such party's sole,
absolute and unreviewable discretion. Any Approval which by the terms of this
Lease may not be unreasonably withheld shall also not be unreasonably
conditioned or delayed.
29.10 Action for Damages. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED
HEREIN, IN ANY SUIT OR OTHER CLAIM BROUGHT BY EITHER PARTY SEEKING DAMAGES
AGAINST THE OTHER PARTY FOR BREACH OF ITS OBLIGATIONS UNDER THIS LEASE, THE
PARTY AGAINST WHOM SUCH CLAIM IS MADE SHALL BE LIABLE TO THE OTHER PARTY ONLY
FOR ACTUAL DAMAGES AND NOT FOR CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES.
29.11 Lease Assumption in Bankruptcy Proceeding. If an Event of
Default occurs and Lessee has filed or has had filed against it a petition in
bankruptcy or for reorganization or other relief pursuant to the federal
bankruptcy code, Lessee shall promptly
-85-
<PAGE> 94
move the court presiding over the proceeding to assume this Lease pursuant to
11 U.S.C. ss.365, without seeking an extension of the time to file said motion.
29.12 FelCor Intra-Family Transfers. Lessee acknowledges that Lessor
may transfer legal title to the Leased Property one or more times to
Subsidiaries of FelCor (each, an "AFFILIATED LESSOR"). Lessee hereby consents
to such transfers provided that, in each case, this Lease is assumed by the
Affiliated Lessor in its entirety and without modification, except to the
extent that Lessor, or the Affiliated Lessor that then owns the Leased
Property, specifically retains any obligations accrued through the date of
transfer hereunder. Lessee covenants that in connection with such transfers,
Lessee will execute and deliver to Lessor, the Affiliated Lessor and/or their
representatives appropriate estoppels and other documentation reasonably
requested by them, including an amendment to this Lease, for the purposes of
reflecting and acknowledging the Affiliated Lessor's interests as lessor
hereunder.
29.13 Memorandum of Lease. Lessor and Lessee shall promptly upon the
request of either enter into a short form memorandum of this Lease, in form
suitable for recording under the laws of the State, in which reference to this
Lease, and all options contained herein, shall be made. Lessee shall pay all
costs and expenses of recording such memorandum of this Lease.
ARTICLE 30
NOTIFICATION OF PROPERTY HAZARDS
30.1 NOTIFICATION REGARDING ASBESTOS. LESSEE ACKNOWLEDGES THAT LESSOR
HAS ADVISED LESSEE OF THE LIKELIHOOD OF THE EXISTENCE OF ASBESTOS CONTAINING
MATERIALS USED DURING THE INITIAL CONSTRUCTION OF THE HOTEL AND OTHER LEASED
PROPERTY. IF AND TO THE EXTENT REQUIRED BY LAW, AN OPERATION AND MAINTENANCE
PLAN HAS BEEN ESTABLISHED TO MONITOR SUCH MATERIALS AND HAS BEEN MADE AVAILABLE
TO LESSEE.
30.2 NOTIFICATION REGARDING RADON GAS. RADON IS A NATURALLY OCCURRING
RADIOACTIVE GAS THAT, WHEN IT HAS ACCUMULATED IN A BUILDING IN SUFFICIENT
QUANTITIES, MAY PRESENT A HEALTH RISK TO PERSONS WHO ARE EXPOSED TO IT OVER
TIME. LEVELS OF RADON THAT EXCEED FEDERAL AND STATE GUIDELINES HAVE BEEN FOUND
IN BUILDINGS IN FLORIDA. ADDITIONAL INFORMATION REGARDING RADON AND RADON
TESTING MAY BE OBTAINED FROM THE APPROPRIATE COUNTY PUBLIC HEALTH UNIT.
[SIGNATURES ON FOLLOWING PAGE]
-86-
<PAGE> 95
IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.
"LESSOR"
- ------------------------------------
By: --------------------------------
Title: ------------------------------
LESSEE"
- ------------------------------------
By: --------------------------------
Title: ------------------------------
-87-
<PAGE> 96
EXHIBIT A
LEASED PROPERTY DESCRIPTION
-88-
<PAGE> 97
EXHIBIT B
EXCLUDED PROPERTY
-89-
<PAGE> 98
EXHIBIT C
CAPITAL EXPENDITURES POLICY
CAPITAL EXPENDITURES
A capital expenditure is defined as an investment in a readily identifiable
facility which (l) is held for use or income rather than for sale or conversion
into goods or cash and (2) has a useful service life in excess of one year.
Nonrecurring expenses directly associated with the investment should be
included as part of the total expenditure for evaluation purposes. Capital
expenditures may include, without limitation, expenditures for computer
hardware and software to solve the "Year 2000 Problem."
Capitalization Policy
If the cost of the capital expenditure is $1,500 or greater and the items
acquired have an expected service life of more than one year, the expenditure
is capitalized. See "MAINTENANCE AND REPAIRS" for those expenditures which are
expensed without regard to the $1,500 guideline. If the item(s) acquired meet
the more than one-year life criterion, but the total invoice cost is less than
$1,500, the expenditure is considered an expense item.
Replacement - Component Parts
If the estimated job or total invoice cost (including parts and labor) of any
particular item or series of items acquired with respect to one particular job
for replacement of the following major building components is under $1,500, the
expenditure is to be expensed to maintenance and repairs:
Heating Equipment - Pumps, boilers, heat exchangers, thermostats,
pressure gauges, alarm devices, piping.
Plumbing Equipment - Pumps, meters, sprinkler and fire alarm system,
piping.
Air Conditioning Equipment - Compressors, condensers, motors, cooling
towers, evaporative coolers, piping.
Fire Prevention Equipment - Major fire system sprinklers, smoke
detectors.
Power - Transformer, conduits and boxes, panel boards, switches and
outlets.
Elevators - Motors, hydraulics, cables.
-1-
<PAGE> 99
Betterments and Redevelopments
If the estimated job or total invoice cost is $1,500 or above, and the
expenditure(s) will extend the useful life of an asset previously capitalized,
then the expenditure should be capitalized. All invoices, regardless of amount,
that are included in a hotel redevelopment budget will be capitalized.
Maintenance and Repairs
The following replacement expenditures are considered maintenance and repairs
and are not subject to the total invoice cost guideline of $1,500 unless they
are included in a hotel redevelopment budget:
Repainting of Buildings, Pools, Park Areas (1) (6)
Refinishing of Furniture (2)
Glass Replacement
Maintenance Service Contracts, such- Yard, Television, Elevator,
Swimming Pool
Wall Paper Vinyl (2)
Reupholstery of Furniture (2)
Replastering (2)
Replacement of Chain Locks, Key Blanks, Keys, Locks, Locksets. Locks
and locksets installed in new doors or offering substantial security
improvements should be capitalized if the invoice is over $1,500.
Patching Parking Lot (3)
Roof Repairs (4)
Waterproofing of Lamp Globes & Lightbulbs
Section Replacement for Neon Signs
Caulking and Sealing (1)
Chrome Fittings such as Faucets, Towel Bars, etc. (2)
Toilet and Toilet Seats (7)
Stolen or Damaged Television (7)
Small Parts for Equipment
Landscaping/Plants (5)
Clocks, Clock-Radios or Similar Small Items (7)
1. If the complete exterior of the building is repainted, including
caulking and sealing of the building, those costs will be capitalized.
2. Expenditures for interior painting, wall paper, refinishing of
furniture, replastering, or reupholstering may be capitalized if:
-2-
<PAGE> 100
A) these expenditures are part of a hotel
addition or major refurbishment project
(including newly instituted franchise
requirements), or
B) the cost of these expenditures exceed
$5,000 with respect to any particular item
or series of items related to one
particular job and extend the useful life
of the asset.
3. Repairing of parking lots, including resealing and resurfacing, will
be capitalized if the expenditure exceeds $5,000.
Replacements/Major overhauls
4. Replacement of the complete roof or complete section of the roof
(including laying a roof over an existing roof) will be capitalized if
the total expenditure exceeds $5,000.
5. If the landscaping is new or replacement of existing interior or
exterior landscaping and exceeds $5,000, the cost of the landscaping
can be capitalized.
6. Major overhauls to the pool which exceed $5,000 in cost and extend the
useful life of the asset will be capitalized.
7. When an entire floor or a significant portion of a hotel replaces a
series of mattresses, bed spreads, window treatments, televisions,
irons and boards, in-room coffee makers or similar type items, these
items will be capitalized.
-3-
<PAGE> 1
EXHIBIT 10.13
FELCOR LODGING TRUST INCORPORATED
October 20, 1998
Mr. ___________________________
FelCor Lodging Trust Incorporated
545 E. John Carpenter Frwy.
Suite 1300
Irving, Texas 75062
Re: Change in Control and Severance Agreement
Dear Mr. ________:
FelCor Lodging Trust Incorporated, a Maryland corporation ("FelCor"),
together with FelCor Lodging Limited Partnership, a Delaware limited partnership
("FelCor LP"), and their respective subsidiaries (collectively, the "Company")
consider it essential and in the best interests of FelCor's shareholders and the
partners of FelCor LP to foster the continued employment of key management
personnel. In this connection, the Board of Directors of the FelCor ("Board")
recognizes that, as is the case with many publicly held corporations, the
possibility of a change of control may exist and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its shareholders and/or partners.
The Board has determined that it is appropriate and in the best
interests of the shareholders of FelCor and the partners in FelCor LP that steps
be taken to encourage the continued attention and dedication of members of the
Company's senior management, including yourself, to their assigned duties
without distraction in the face of potentially disturbing circumstances arising
from the possibility of a change in control of the Company, although no such
change is currently anticipated or contemplated.
In order to induce you to remain in the employ of the Company and in
consideration of your agreements set forth in Section 3 hereof, the Company
agrees that you shall receive the benefits specified in this letter agreement
("Agreement") upon a "Change in Control of the Company" (as defined in Section 2
hereof) and in the event of the termination of your employment with the Company,
under certain circumstances, subsequent to such a Change in Control of the
Company.
1. Term of Agreement. This Agreement shall become effective as of
January 1, 1998 ("Commencement Date") and shall continue in effect through
December 31, 1999; provided, however, that commencing on January 1, 2000 and on
each January 1 thereafter, the term of this Agreement shall be automatically
extended for one additional year unless, not later than September 30 of the
preceding year, the Company shall have given you written notice that it will not
<PAGE> 2
extend this Agreement beyond the end of the calendar year during which such
notice is given; further provided, however, that if a Change in Control of the
Company shall occur during the original or any extended term of this Agreement,
this Agreement shall automatically be extended (regardless of any notice to the
contrary from the Company) for a period of twenty-four (24) months beyond the
month in which such Change in Control of the Company shall occur.
2. Definitions. You shall not be entitled to any benefit under or by
virtue of this Agreement (except as expressly provided in Section 8 hereof)
unless a Change in Control of the Company (as defined below) shall occur during
the original or any extended term of this Agreement.
(a) Change in Control of the Company. For all purposes of this
Agreement, a "Change in Control of the Company" shall be deemed to have
occurred upon the occurrence of any of the events described in
subparagraphs (i), (ii), (iii) or (iv) below:
(i) Any "person" or "group" (as such terms are used
in Section 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act")), other than an employee
benefit plan of the Company or a trustee holding securities
under an employee benefit plan of the Company, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 35% or more of the
Company's outstanding securities then having the right to vote
in elections of persons to the Board, regardless of the
comparative voting power of any such securities and regardless
of whether or not the Board shall have approved the
acquisition or ownership of any such securities by such
person; or
(ii) A majority of the Board shall be comprised of
persons (A) designated by any person(s) who shall have entered
into an agreement with the Company to effect a transaction of
the type described in subparagraphs (i) or (iii) hereof or (B)
other than those persons constituting the Board on the
Commencement Date and those other persons whose election by
the Board, or nomination for election by the shareholders of
the Company to the Board, was approved by a vote of at least
two-thirds of the directors constituting the Board on the
Commencement Date or whose election by or nomination for
election to the Board was previously so approved; or
(iii) The holders of securities of the Company
entitled to vote thereon shall approve either:
(A) A merger or consolidation of the Company
with any other corporation, regardless of which
entity is the surviving or resulting entity, other
than a merger or consolidation which:
-2-
<PAGE> 3
(I) would result in those securities
of the Company outstanding immediately prior
to such merger or consolidation and then
having the right to vote in elections of
persons to the Board continuing immediately
after such merger or consolidation to
represent (either by remaining outstanding
or by being changed or converted into
securities of the surviving or resulting
entity) at least 65% of the surviving or
resulting entity's outstanding securities
then having the right to vote in elections
of persons to the Board; or
(II) in purpose and effect is the
functional equivalent of an asset
acquisition by the Company and in which the
senior executive officers of the Company
(specifically including, without limitation,
the President and each Senior Vice President
and each person designated as the Chief
Executive Officer, Chief Operating Officer
or Chief Financial Officer) immediately
prior to such merger or consolidation will
continue, upon the effectiveness thereof, to
serve in the same capacities with the
surviving or resulting entity, without
change in their respective positions,
responsibilities, powers, compensation and
benefits; or
(B) A plan or agreement under which all or
substantially all of the Company's assets would be
liquidated, distributed, sold or otherwise disposed
of (otherwise than by leases entered into in the
ordinary and normal course of business); or
(iv) The Compensation Committee of the Board shall
adopt a resolution to the effect that, in the judgment of such
committee, as a consequence of any one or more transactions or
events or series of transactions or events, that a change in
control of the Company has effectively occurred. The
Compensation Committee of the Board shall be entitled to
exercise its sole and absolute discretion in exercising its
judgment and in the adoption of such resolution, whether or
not any such transaction(s) or event(s) might be deemed,
individually or collectively, to satisfy any of the criteria
set forth in subparagraphs (i) through (iii) above.
(b) Potential Change in Control of the Company. For all
purposes of this Agreement, a "Potential Change in Control of the
Company" shall be deemed to have occurred upon the occurrence of any of
the events described in subparagraphs (i), (ii), (iii) or (iv) below:
(i) The Company enters into an agreement or letter of
intent with respect to any transaction which, if consummated,
would result in the occurrence of a Change in Control of the
Company; or
-3-
<PAGE> 4
(ii) Any person (including the Company) publicly
announces that it intends to take, or is considering taking,
any action which, if consummated, would result in the
occurrence of a Change in Control of the Company; or
(iii) Any person or group, other than an employee
benefit plan of the Company or a trustee holding securities
under an employee benefit plan of the Company, that is or
becomes the beneficial owner, directly or indirectly, of 9.9%
or more of the Company's outstanding securities then having
the right to vote in elections of persons to the Board
increases its beneficial ownership of such securities by 5% or
more over the percentage so owned by such person or group on
the Commencement Date; or
(iv) The Compensation Committee of the Board shall
adopt a resolution to the effect that, for purposes of this
Agreement, a potential change in control of the Company has
effectively occurred. The Compensation Committee of the Board
shall be entitled to exercise its sole and absolute discretion
in the adoption of such resolution, whether or not any
transaction(s) or event(s) have occurred that might be deemed,
individually or collectively, to satisfy any of the criteria
set forth in subparagraphs (i) through (iii) above.
(c) Good Reason. For purposes of this Agreement, "Good Reason"
shall mean the occurrence, following a Change in Control of the
Company, of any of the following circumstances, unless (A) you have
expressly consented thereto in writing or (B) in the case of
subparagraphs (i), (v), (vi) or (vii) below, all such circumstances
shall have been fully corrected prior to the "Date of Termination"
specified in the "Notice of Termination" (as defined in Subsections
5(e) and 5(d), respectively) given in connection with such
circumstances:
(i) The assignment to you of any duties inconsistent
with your status as a senior executive officer of the Company
or any substantial reduction in or restriction upon the
nature, status or extent of your responsibilities or
authority, as compared to the nature, status and extent of
your responsibilities and authority in effect immediately
prior to such Change in Control of the Company;
(ii) A reduction by the Company in your annual base
salary, as in effect immediately prior to such Change in
Control of the Company, except for across-the-board salary
reductions similarly affecting all executives of the Company
and all executives of any person(s) then in control of the
Company;
(iii) The relocation of the Company's principal
executive offices, or the office where you are required to
perform your duties, to a location more than 25 miles from the
location of such offices immediately prior to such Change in
Control of the Company, or the imposition upon you of other
travel requirements inconsistent with your normal business
travel practices immediately prior to such Change in Control
of the Company;
-4-
<PAGE> 5
(iv) The failure of the Company, without your prior
written consent, to pay to you any portion of your then
current compensation, or any portion or installment of
deferred compensation under any deferred compensation program
of the Company, in each case within five days of the date such
payment is due;
(v) The failure of the Company to continue in effect
any compensation or benefit plan (including but not limited to
any stock option, stock grant, bonus, income deferral,
insurance, paid vacation plan or policy or other fringe
benefit or benefit plan) in which you were a participant
immediately prior to the Change in Control of the Company,
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to
such plan, or the failure of the Company to continue your
participation in any such plan (or in any such substitute or
alternative plan) on a basis no less favorable to you, both in
terms of the actual amount of benefits provided to you and in
your level of participation therein relative to other
participants, than in effect immediately prior to such Change
in Control of the Company;
(vi) The failure of the Company to obtain a
satisfactory agreement from any successor entity to assume and
agree to pay and perform all of the obligations of the Company
under this Agreement, as contemplated by Section 8 hereof; or
(vii) Any purported termination of your employment by
the Company which is not for "Cause" (as defined in Subsection
5(b) hereof) or which is not effected pursuant to a Notice of
Termination satisfying the requirements of Subsection 5(d)
hereof; for purposes of this Agreement, no such purported
termination shall be effective.
Your right to terminate your employment pursuant to this Agreement for
Good Reason shall not be affected by your incapacity due to physical or mental
illness. Your continued employment shall not be deemed or construed to
constitute your consent to, or waiver of rights with respect to, any
circumstance constituting Good Reason hereunder.
3. Agreement to Continue Employment. You agree that, in the absence of
Good Reason and subject to the terms and conditions of this Agreement, in the
event of a Potential Change in Control of the Company, you agree to remain in
the employ of the Company (or of the subsidiary thereof by which you are
employed at the date such Potential Change in Control of the Company occurs) at
least until the earliest to occur of (a) the first anniversary of the Potential
Change in Control of the Company, (b) the date which is six months following a
Change in Control of the Company and (c) the termination by you of your
employment for reasons of "Disability" or "Retirement" (at your normal
retirement age), each as defined in Section 5 hereof.
-5-
<PAGE> 6
4. Acceleration of Vesting Upon a Change in Control. Upon the
occurrence of a Change in Control of the Company:
(a) All outstanding shares of common stock of the Company
("Company Shares") theretofore issued to you, under any one or more of
the restricted stock and/or stock option plans at any time maintained
by the Company ("Option Plans"), as restricted stock (or otherwise
subject to forfeiture upon certain conditions) shall become fully and
irrevocably vested, and all possibility of forfeiture thereof shall
terminate, and the certificates evidencing all of such Company Shares
shall be delivered to you on the day next following a Change in Control
of the Company;
(b) All outstanding options or other rights to purchase
Company Shares theretofore issued to you under any one or more of the
Option Plans, whether or not then currently vested or exercisable,
shall become fully and irrevocably vested and exercisable, and may
thereafter be exercised in accordance with the Option Plans under which
they were issued and any and all agreements with you in connection
therewith;
(c) All other compensation and benefits to which you are then
entitled, subject to the satisfaction of certain vesting or similar
requirements, under any other employee benefit, deferred compensation
or other similar plan shall become fully and irrevocably vested under
the terms of such plans and all possibility of forfeiture thereof shall
terminate.
5. Termination Following Change in Control. If any Change in Control of
the Company shall have occurred, you shall thereafter be entitled to the
Benefits provided in Subsection 6(c) hereof upon the termination of your
employment by the Company during the term of this Agreement, provided that such
termination is (i) effected by the Company otherwise than for Cause or by reason
of Retirement or Disability, or (ii) effected by you for Good Reason.
(a) Disability; Retirement. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent from the
full-time performance of your duties with the Company for six
consecutive months, your employment may be terminated for "Disability."
Termination of your employment, whether by the Company or you, shall be
deemed to be "Retirement" if the same occurs after you have reached the
age of sixty-five and have completed at least five years of service
with the Company, or is otherwise in accordance with any other written
agreement between the Company and you regarding your retirement.
(b) Cause. The Company shall be entitled to terminate your
employment for "Cause" if you engage in willful and continued
misconduct or in the willful and continued failure to substantially
perform your duties with the Company (other than due to physical or
mental illness); provided, however, that prior to any such termination
you shall have been given written notice by the Company setting forth
in reasonable detail the nature of such misconduct or failure and you
shall have continued to engage in such misconduct or failure
-6-
<PAGE> 7
for at least thirty days following the giving of such notice by the
Company. For purposes of this Subsection, no act, omission, or failure
to act, on your part shall be deemed "willful" unless done, omitted, or
refused to be done, by you not in good faith and without reasonable
belief that your action, omission or refusal to act, was in the best
interest of the Company.
(c) Voluntary Resignation. After a Change in Control of the
Company, upon the occurrence of any circumstance constituting Good
Reason, you shall be entitled to terminate your employment by voluntary
resignation given at any time during the two years immediately
following the occurrence of such Change in Control of the Company
hereunder, in which event you shall be entitled to all of the Benefits
provided in Subsection 6(c) hereof from and after the Date of
Termination. No such resignation shall be deemed or construed to
constitute a breach of any contract or agreement of employment between
you and the Company.
(d) Notice of Termination. Any purported termination of your
employment by the Company or by you shall be communicated by a written
Notice of Termination from the party seeking termination to the other
party hereto given in accordance with Section 9 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate (i) the specific termination provision(s) of this
Agreement being relied upon in respect of such termination, (ii) shall
set forth, in reasonable detail, the facts and circumstances claimed to
provide a basis for termination of your employment under the
termination provision(s) so indicated and (iii) shall set forth the
Date of Termination in accordance with Subsection (e) below.
(e) Date of Termination, Etc. "Date of Termination" shall
mean:
(i) If your employment is terminated for Disability,
thirty days after Notice of Termination is given (provided
that you shall not have returned to the substantially
full-time performance of your duties during such thirty day
period), and
(ii) If your employment is terminated pursuant to
Subsection (b) or (c) above, or for any reason other than
Disability, the date specified in the Notice of Termination
(which, in the case of a termination pursuant to Subsection
(b) above, shall not be less than thirty days following the
date such Notice of Termination is given and, in the case of a
termination pursuant to Subsection (c) above, shall not be
less than fifteen nor more than sixty days following the date
such Notice of Termination is given);
provided, however, that if within fifteen days after any Notice of
Termination is given, or (if later) prior to the Date of Termination
set forth in such Notice of Termination, the party receiving such
Notice of Termination notifies the other party that a dispute exists
concerning the termination, the Date of Termination shall be the date
on which the dispute is finally resolved, either by mutual written
agreement of the parties, by a binding arbitration award,
-7-
<PAGE> 8
or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time
for appeal therefrom has expired and no appeal has been perfected);
further provided, however, that the Date of Termination shall be
extended by a notice of dispute hereunder only if such notice is given
in good faith and the party giving such notice pursues the resolution
of such dispute in good faith and with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will
continue to pay you your full compensation in effect when the Notice of
Termination giving rise to such dispute was given (including, but not
limited to, your base salary) and will continue you as a participant in
all other compensation, bonus, benefit and insurance plans in which you
were participating when the Notice of Termination was given, until the
dispute is finally resolved in accordance with this Subsection. Amounts
paid under this Subsection are in addition to all other amounts due
under this Agreement and shall not be offset against, or reduce, any
other amount or benefit due under this Agreement.
6. Compensation Upon Termination or During Disability Following a
Change in Control of the Company. Following a Change in Control of the Company,
as defined in Subsection 2(a) hereof, upon termination of your employment or
during a period of Disability, you shall be entitled to the following benefits:
(a) During any period that you fail to perform your full-time
duties with the Company as a result of incapacity due to physical or
mental illness, you shall continue to receive your base salary at the
rate in effect at the commencement of any such period, together with
all compensation payable to you under all bonus plans, restricted stock
and/or stock option plans, and other incentive and/or deferred
compensation plans during such period, until this Agreement is
terminated pursuant to Subsection 5(a) hereof. Thereafter, or in the
event your employment shall be terminated by reason of your Retirement
or death, your benefits shall be determined under the Company's
retirement, insurance and other compensation programs then in effect in
accordance with the terms of such programs, subject to Subsection 6(f)
hereof.
(b) If your employment shall be rightfully terminated by the
Company for Cause, the Company shall pay you your full base salary
through the Date of Termination, at the rate in effect at the time
Notice of Termination is given, plus all other amounts in which you are
then irrevocably vested and to which you are then entitled under any
compensation plan of the Company, at the time such payments are due,
and the Company shall have no other or further obligations to you under
this Agreement.
(c) If your employment by the Company shall be terminated (y)
by the Company other than for Cause, Retirement or Disability or (z) by
you for Good Reason, then you shall be entitled to all of the benefits
provided below:
(i) The Company shall pay you your full base salary
through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all
-8-
<PAGE> 9
other amounts to which you are then irrevocably vested and to
which you are then entitled under any compensation plan of the
Company, at the time such payments are due;
(ii) In lieu of any other or further salary payments
to you for periods subsequent to the Date of Termination, the
Company shall pay to you, as severance pay, a lump sum
severance payment (the "Severance Payment") equal to ____
times the average of the Annual Compensation (as defined
below) which was payable to you by the Company or any
corporation affiliated with the Company within the meaning of
Section 1504 of the Internal Revenue Code of 1986, as amended
(the "Code"), for the three calendar years immediately
preceding the calendar year in which the Change in Control of
the Company occurred. Such average shall be determined in
accordance with proposed, temporary or final regulations
promulgated under Section 280G(d) of the Code, or, in the
absence of such regulations, if you were not employed by the
Company or its affiliates during the entire three calendar
years preceding the calendar year in which the Change in
Control of the Company occurred, then such average shall be an
average of your Annual Compensation for the complete calendar
years (if any) and partial calendar year (if any) during which
you were so employed by the Company or any of its affiliates;
provided, however, that the amount for any such partial
calendar year shall be an annualized amount based on the
amount of Annual Compensation paid or payable to you during
such partial calendar year. If you were not employed by the
Company or any of its affiliates during such period, then such
average shall be an annualized amount based on the amount of
Annual Compensation paid or payable to you during the calendar
year in which the Change in Control of the Company occurred.
"Annual Compensation" shall mean and refer to your base salary
and any bonus that was paid or payable to you by the Company
or any of its affiliates during a calendar year determined
without any reduction for any deferrals of such salary or such
bonus under any deferred compensation plan (whether qualified
or unqualified) and without any reduction for any salary
reductions used to make contributions to any 401(k) plan or
other group plan maintained by the Company or any of its
affiliates;
(iii) The Company shall also pay to you all amounts
of compensation or other awards payable or due to you in
respect of any period preceding the Date of Termination under
any incentive compensation plan of the Company (including,
without limitation, any and all Option Plans) at any time
maintained by the Company and under any and all agreements
with you in connection therewith, and shall make any other
payments and take any other actions provided for in such plans
and agreements;
(iv) The Company shall also pay to you all legal fees
and expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided under this
Agreement or in connection
-9-
<PAGE> 10
with any tax audit or proceeding to the extent attributable to
the application of Section 4999 of the Code to any payment or
benefit provided hereunder); and
(v) The payments provided for in paragraphs (ii),
(iii) and (iv) above shall be made not later than the fifth
business day following the Date of Termination, provided,
however, that if the amounts of such payments cannot be
finally determined on or before such date, the Company shall
pay to you on such date the estimated amount, determined in
good faith by the Company, of such payments and shall pay the
remainder of such payments, without interest, as soon as the
amount thereof can be determined, but in no event later than
the thirtieth day after the Date of Termination. In the event
that the amount of the estimated payments exceeds the amount
subsequently determined to have been due, such excess shall
repaid by you to the Company, without interest, on the fifth
business day after the actual amount of such payments is
determined by the Company;
(d) If your employment shall be terminated (y) by the Company
other than for Cause or (z) by you for Good Reason, then the Company
shall, for a period of twenty-four months following the Date of
Termination, continue to provide life, disability, accident and health
insurance benefits substantially identical to those you (and your
dependents) were receiving immediately prior to the giving of the
Notice of Termination. Benefits otherwise receivable by you pursuant to
this Subsection 6(d) shall be reduced to the extent of comparable
benefits actually received by you from another employer, and you shall
promptly report any such comparable benefits so received by you from
another employer;
(e) You shall not be required to mitigate the amount of any
payment or benefit provided for in this Section 6 by seeking or
accepting other employment, or otherwise, nor shall the amount of any
payment or benefit provided for in this Section 6 be reduced by any
compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed
to be owed by you to the Company, or otherwise (except as expressly
otherwise provided in this Section 6); and
(f) In addition to all other amounts payable to you under this
Section 6, you shall be entitled to receive (concurrently with such
other amounts payable hereunder) all amounts theretofore credited to
your account (whether or not then fully vested or payable under the
terms of such plan or agreement) under any deferred compensation or
similar plan or agreement with the Company (other than the Company's
401(k) Plan);
(g) In addition to all other amounts payable to you under this
Section 6, you shall be entitled to receive all benefits payable to you
or credited to your account (whether or not then fully vested) under
and in accordance with the terms of any other benefit plan or
compensation plan of the Company in which you are or have been a
participant, to the extent such benefits are not paid or expressly
provided for under this Agreement.
-10-
<PAGE> 11
If a Potential Change in Control of the Company shall have occurred,
within five business days following your written request that the Company do so,
the Company shall deposit with an escrow agent acceptable to you, pursuant to an
escrow agreement between the Company and such escrow agent in form and substance
acceptable to you, a sum of money or other property permitted by such escrow
agreement sufficient, in the reasonable good faith estimate of the Company, to
fund the payment to you of the amounts specified in Subsection 6(c) and Section
7 of this Agreement. It is intended that any amounts so deposited in escrow
pursuant to the preceding sentence be subject to the claims of the Company's
creditors, as set forth in the form of such escrow agreement.
7. Excise Tax; Gross-Up Payments In the event that you become entitled
to any of the payments or benefits (collectively, the "Benefits") provided for
under Sections 4 and 6 above, and if any of the Benefits will be subject to the
tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall
pay to you, an additional amount (the "Gross-Up Payment") such that the net
amount retained by you, after deduction of any Excise Tax upon such Benefits,
shall be equal to the amount of the Benefits before the deduction or payment of
any Excise Tax attributable thereto. Such Gross-Up Payment shall be payable
concurrently with the Benefits to which it relates (or, if the amount of such
Gross-Up Payment cannot be finally determined on or before such date, the
Company shall pay to you on such date the estimated amount, determined in good
faith by the Company, of such Gross-Up Payment and shall pay the remainder
thereof, without interest, as soon as the amount thereof can be determined, but
in no event later than the thirtieth day after the date upon which the payment
of such Benefits are due). For purposes of determining whether any of the
Benefits will be subject to the Excise Tax, and the amount of such Excise Tax,
the following shall apply:
(a) Any other payments or benefits received or to be received
by you in connection with a Change in Control of the Company or the
termination of your employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Company,
any person whose actions result in a Change in Control of the Company
or any person affiliated with the Company or any such person) shall be
treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless in the written opinion of tax counsel
selected by the Company's independent auditors and acceptable to you
such other payments or benefits (in whole or in part) do not constitute
"parachute payments," or such "excess parachute payments" (in whole or
in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess
of the base amount within the meaning of Section 280G(b)(3) of the
Code, or are otherwise not subject to the Excise Tax;
(b) The amount of the Benefits which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (y) the total
amount of the Benefits and (z) the amount of "excess parachute
payments" within the meaning of Section 280G(b)(1) of the Code (after
applying clause (a) above); and
-11-
<PAGE> 12
(c) The value of any non-cash benefits or any deferred payment
or benefit shall be determined by the Company's independent auditors in
accordance with proposed, temporary or final regulations under Sections
280G(d)(3) and (4) of the Code or, in the absence of any such
regulations, in accordance with the principles of Section 280G(d)(3)
and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, you shall be deemed to pay Federal income taxes at
the highest marginal rate of taxation applicable to individuals in the
calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the
state and locality of your residence on the Date of Termination, net of
the maximum reduction in Federal income taxes which would be obtained
from deduction of such state and local taxes. In the event that the
amount of Excise Tax attributable to Benefits is subsequently
determined to be less than the amount taken into account hereunder at
the time of termination of your employment, you shall repay to the
Company, without interest, within thirty days following the date that
the amount of such reduction in Excise Tax is finally determined, that
portion of the Gross-Up Payment attributable to such reduction
(including appropriate adjustments to reflect the net effect on
Federal, state and local income taxes applicable to the repayment of
such portion of the Gross-Up Payment). In the event that the Excise Tax
attributable to Benefits is determined to exceed the amount taken into
account hereunder at the time of the termination of your employment
(including by reason of any payment the existence or amount of which
was not be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess
(plus any interest or penalty payable by you in respect thereof) at the
time that the amount of such excess is finally determined;
8. Successors; Binding Agreement.
(a) The Company will require that any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company
to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall constitute a breach of this
Agreement, which breach shall entitle you to receive compensation from
the Company in the same amount and on the same terms as you would be
entitled to hereunder if you terminated your employment for Good Reason
following a Change in Control of the Company, except that for purposes
of implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As used in
this Agreement "Company" shall mean the Company as hereinabove defined
and any successor to all or substantially all of its business and/or
assets which assumes and agrees to perform this Agreement in writing,
by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by you, your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
If you should die while any amount would still be payable to you
-12-
<PAGE> 13
hereunder if you had continued to live, all such amounts, unless
otherwise expressly provided herein, shall be paid in accordance with
the terms of this Agreement to your devisees, legatees or other
designees or, if there is no such devisee, legatee or designee, to your
estate.
9. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the signature page of this
Agreement, provided that all notices to the Company shall be directed to the
Secretary of the Company, or to such other address as either party shall have
designated to the other in writing in accordance herewith, except that any such
notice of change of address shall be effective only upon receipt.
10. Miscellaneous. No provision of this Agreement may be amended,
modified, waived or discharged unless such amendment, modification, waiver or
discharge is agreed to in writing and signed by you and a duly authorized
officer of the Company, other than yourself. No waiver by either party hereto at
any time of any breach of, or noncompliance with, any particular provision of
this Agreement by the other party hereto, or the existence of any particular
condition or the occurrence of any particular event hereunder, shall be deemed
or construed as a waiver of any other or further breach, noncompliance,
condition or occurrence, whether similar or dissimilar and whether occurring or
existing at the same or any prior or subsequent time. No agreement or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the substantive laws of the
State of Texas, without regard for any provision of such law which might require
the application of the laws of any other jurisdiction. All references herein to
sections of the Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Except as otherwise expressly provided
herein, any payments provided for hereunder shall be paid net of applicable
withholding taxes required under Federal, state or local law. The accrued
obligations of the Company under Section 4 hereof, if any, shall survive your
subsequent death, Disability or Retirement and shall survive the expiration of
the term of this Agreement.
11. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, all of which shall remain in full force and effect.
12. Execution in Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.
13. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Dallas, Texas in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court of competent jurisdiction; provided, however, that you shall be
entitled to seek
-13-
<PAGE> 14
specific performance, in any court of competent jurisdiction, of your right to
be paid your full base salary hereunder for all periods prior to the Date of
Termination, and during the pendency of any dispute or controversy arising under
or in connection with this Agreement.
14. Similar Provisions in Other Agreements. The Benefits provided for
under this Agreement shall supercede and replace any other benefits to which you
may be entitled under any previous agreement between you and the Company or its
affiliates.
If this letter sets forth fully and accurately our agreement with
respect to the subject matter hereof, please sign and date the enclosed copy of
this letter and return the same to the Secretary of the Company, whereupon this
letter shall constitute our mutually binding agreement with respect to the
subject matter hereof.
[Signatures on following page.]
-14-
<PAGE> 15
Very truly yours,
Company Address:
545 E. John Carpenter Frwy. FELCOR LODGING TRUST INCORPORATED,
Suite 1300 acting individually and as the sole
Irving, Texas 75062 general partner of FelCor Lodging
Attention: Corporate Secretary Limited Partnership
By:
--------------------------------
Name: Thomas J. Corcoran, Jr.
-----------------------------
Title: President
-----------------------------
Accepted and Agreed to this __ day of
_______________, 1998:
- -------------------------------
Address:
-15-
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES AND UNCONSOLIDATED ENTITIES
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST
<S> <C> <C>
FelCor Nevada Holdings, L.L.C. Nevada; Limited Liability 100% owned by FelCor
("FelCor Nevada") Company
Special Remote I, Inc. Delaware; Corporation 100% owned by FelCor
FelCor Lodging Limited Delaware; Limited Partnership 1% GP interest owned by FelCor;
Partnership 94.8% LP interest owned by FelCor
("FelCor LP") Nevada
FelCor/CSS Hotels, L.L.C. Delaware; Limited Liability 100% owned by FelCor LP
("FelCor/CSS Hotels") Company
FelCor/CSS Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by
FelCor/CSS Hotels; 99% LP
interest owned by FelCor LP
FelCor/St. Paul Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by
FelCor/CSS Hotels; 99% LP
interest owned by FelCor LP
FelCor/Charlotte Hotel, L.L.C. Delaware; Limited Liability 50% owned by FelCor/CSS Hotels
("FelCor/Charlotte") Company
FelCor/Indianapolis Hotel, L.L.C. Delaware; Limited Liability 50% owned by FelCor/CSS Hotels
("FelCor/Indianapolis") Company
E.S. Charlotte Limited Partnership Minnesota; Limited Partnership 2% GP interest owned by
FelCor/Charlotte; 49% LP interest
owned by FelCor LP
E.S. North, an Indiana Limited Indiana; Limited Partnership 2% GP interest owned by
Partnership FelCor/Indianapolis; 49% LP
interest owned by FelCor LP
FCH/PSH, L.P. Pennsylvania; Limited Partnership 1% GP interest owned by
FelCor/CSS Hotels; 99% LP
interest owned by FelCor LP
FelCor Lodging Holding Company, Delaware; Limited Liability 100% owned by FelCor LP; special
L.L.C. Company 0% interest owned by Special
Remote I, Inc.
FelCor Lodging Company, L.L.C. Delaware; Limited Liability 100% owned by FelCor Lodging
Company Holding Company, L.L.C.
</TABLE>
-1-
<PAGE> 2
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST
<S> <C> <C>
FelCor Hotel Operating Company, Delaware; Limited Liability 100% owned by FelCor LP
L.L.C. ("FHOC") Company
FelCor Pennsylvania Company, Delaware; Limited Liability 100% owned by FHOC
L.L.C. Company
FelCor Hospitality Holding Delaware; Limited Liability 100% owned by FHOC
Company, L.L.C. Company
FelCor Hospitality Company, Delaware; Limited Liability 100% owned by FelCor Hospitality
L.L.C. Company Holding Company, L.L.C.
FelCor Hotel Asset Company, Delaware; Limited Liability 100% owned by FelCor LP
L.L.C. ("FHAC") Company
FHAC Nevada Holdings, L.L.C. Nevada; Limited Liability 100% owned by FHAC
Company
FHAC Texas Holdings, L.P. Texas; Limited Partnership 1% GP interest owned by FHAC
and 99% LP interest owned by
FHAC Nevada Holdings, L.L.C.
FelCor HHCL Company, L.L.C. Delaware; Limited Liability 100% owned by FHAC
("FelCor HHCL") Company
FelCor Hotels GenPar, L.L.C. Delaware; Limited Liability 100% owned by FelCor HHCL
("FelCor GenPar") Company
FelCor Hotels LimPar, L.L.C. Delaware; Limited Liability 100% owned by FelCor HHCL
("FelCor LimPar") Company
HHHC GenPar, L.P. Delaware; Limited Partnership 1% GP interest owned by FelCor
GenPar, and 99% LP interest
owned by FelCor LimPar
FelCor Hotel Company, Ltd. Texas; Limited Partnership 87% GP interest owned by HHHC
("FelCor Hotel Company") GenPar, L.P. and 13% LP interest
owned by FelCor LimPar
FelCor Hotels GenPar II, L.L.C. Delaware; Limited Liability 100% owned by FelCor Hotel
Company Company
FelCor Hotel Company II, Ltd. Texas; Limited Partnership 1% GP interest owned by FelCor
Hotels GenPar II, L.L.C. and 99%
LP interest owned by FelCor Hotel
Company
FelCor Chat-Lem, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
HI Chat-Lem/Iowa - New Orleans Louisiana; General Partnership 50% owned by FelCor Chatlem,
Venture L.L.C.
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST
<S> <C> <C>
FelCor Philadelphia Center, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
FelCor Marshall Motels, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
Center City Hotel Associates Pennsylvania; Limited Partnership 1% GP interest owned by FelCor
Philadelphia Center, L.L.C. and
99% LP interest owned by FelCor
Marshall Motels, L.L.C.
FelCor Hotels Financing II, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
FelCor Hotels Financing I, L.L.C. Delaware; Limited Liability 100% owned by FelCor Hotels
("FelCor Financing I") Company Financing II, L.L.C.
FelCor Hotels Investments I, Ltd. Texas; Limited Partnership 1% GP interest owned by FelCor
Financing I and 99% LP interest
owned by FelCor Hotel Company
FelCor Hotels Investments II, Ltd. Texas; Limited Partnership 1% GP interest owned by FelCor
Financing I and 99% LP interest
owned by FelCor Hotel Company
FelCor Salt Lake, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
FelCor St. Louis Company, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
FelCor Canada Holding GP, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
FelCor Canada Holding, L.P. Delaware; Limited Partnership 1% GP interest owned by FelCor
Canada Holding GP, L.L.C. and
99% LP interest owned by FHAC
FelCor Canada Co. Nova Scotia; Unlimited Liability 100% owned by FelCor Canada
Company Holding, L.P.
FelCor Omaha Hotel Company, Delaware; Limited Liability 100% owned by FelCor LP
L.L.C. ("FelCor Omaha") Company
FelCor Country Villa Hotel, L.L.C. Delaware; Limited Liability 100% owned by FelCor Omaha
Company
FelCor Moline Hotel, L.L.C. Delaware; Limited Liability 100% owned by FelCor Omaha
Company
FelCor Eight Hotels, L.L.C. Delaware; Limited Liability 100% owned by FelCor LP
("FelCor Eight Hotels") Company
</TABLE>
-3-
<PAGE> 4
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST
<S> <C> <C>
EPT Meadowlands Limited Delaware; Limited Partnership 1% GP interest owned by FelCor
Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
EPT Kansas City Limited Delaware; Limited Partnership 1% GP interest owned by FelCor
Partnership Eight Hotels; 49% LP interest
owned by FelCor LP
EPT San Antonio Limited Delaware; Limited Partnership 1% GP interest owned by
FelCor Partnership ("EPT San Antonio") Eight Hotels; 49% LP interest
owned by FelCor LP
EPT Austin Limited Partnership Delaware; Limited Partnership 1% GP interest owned by FelCor
("EPT Austin") Eight Hotels; 49% LP interest
owned by FelCor LP
EPT Overland Park Limited Delaware; Limited Partnership 1% GP interest owned by FelCor
Partnership Eight Hotels; 49% LP interest
("EPT Overland Park") owned by FelCor LP
EPT Atlanta - Perimeter Center Delaware; Limited Partnership 1% GP interest owned by FelCor
Limited Partnership Eight Hotels; 49% LP interest
("EPT Atlanta") owned by FelCor LP
EPT Raleigh Limited Partnership Delaware; Limited Partnership 1% GP interest owned by FelCor
("EPT Raleigh") Eight Hotels; 49% LP interest
owned by FelCor LP
EPT Covina Limited Partnership Delaware; Limited Partnership 1% GP interest owned by FelCor
("EPT Covina") Eight Hotels; 49% LP interest
owned by FelCor LP
Promus/FCH Condominium Delaware; Limited Liability 50% owned by FelCor LP
Company, L.L.C. Company
Promus/FCH Development Delaware; Limited Liability 50% owned by FelCor LP
Company, L.L.C. Company
Promus/FelCor San Antonio Texas; General Partnership 50% GP interest owned by FelCor
Venture LP
Promus/FelCor Parsippany Venture New Jersey; General Partnership 50% GP interest owned by FelCor
("Parsippany JV") LP
MHV Joint Venture Texas; General Partnership 50% GP interest owned by FelCor
("MHV JV") LP
Promus/FelCor Lombard Venture Illinois; General Partnership 50% GP interest owned by FelCor
("Lombard JV") LP
</TABLE>
-4-
<PAGE> 5
<TABLE>
<CAPTION>
STATE AND FORM OF
NAME ORGANIZATION OWNERSHIP INTEREST
<S> <C> <C>
Promus/FelCor Hotels, L.L.C. Delaware; Limited Liability 1% owned by Promus/FelCor Manager, Inc.;
Company 99% owned by EPT Atlanta, EPT Austin,
EPT Covina, EPT Overland Park, EPT
Raleigh, EPT San Antonio, Lombard JV,
MHV JV and Parsippany JV
Kingston Plantation Development Delaware; Corporation 97% non-voting Class B
Corporation ("KPDC") interest owned by FelCor LP
Promus/FelCor Manager, Inc. Delaware; Corporation 50% owned by KPDC
FelCor/New Orleans Annex, L.L.C. Delaware; Limited Liability 100% owned by KPDC
Company
Brighton at Kingston Plantation, Delaware; Limited Liability 50% owned by KPDC
L.L.C. Company
FCH/DT Hotels, L.L.C. Delaware; Limited Liability 90% owned by FelCor LP
("FCH/DT Hotels") Company
FCH/DT Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by FCH/DT
Hotels; 89.1% LP interest owned
by FelCor LP
FCH/DT BWI Holdings, L.P. Delaware; Limited Partnership 1% GP interest owned by FCH/DT
Hotels; 99% LP interest owned by
FCH/DT Holdings, LP
FelCor/LAX Hotels, L.L.C. Delaware; Limited Liability 100% owned by FelCor LP
("FelCor/LAX Hotels") Company
FelCor/LAX Holdings, L.P. Delaware; Limited Partnership 1% GP Interest owned by
FelCor/LAX Hotels; 99% LP
interest owned by FelCor LP
Los Angeles International Airport Texas; Limited Partnership 50% GP interest owned by
Hotel Associates, a Texas limited FelCor/LAX Holdings, L.P. and
partnership 47% LP interest owned by
FelCor/LAX Hotels
Park Central Joint Venture Texas; General Partnership 60% owned by FelCor LP
FelCor Airport Utilities, L.L.C. Delaware; Limited Liability 100% owned by FHAC
Company
</TABLE>
-5-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of FelCor Lodging Trust Incorporated on Form S-3 (File Nos.
333-04947, 333-25717, 333-46357, 333-50509, and 333-62599) and Form S-8 (File
Nos. 333-32579, 333-66041, and 333-66041) of our reports dated (i) February 2,
1999 on our audits of the consolidated financial statements of FelCor Lodging
Trust Incorporated, (ii) February 2, 1999 on our audit of the financial
statement schedule of FelCor Lodging Trust Incorporated, and (iii) March 2, 1999
on our audit of the consolidated financial statements of DJONT Operations,
L.L.C., which reports are included in this Annual Report on Form 10-K. We also
consent to the reference to our firm under the caption "Selected Financial
Data."
PricewaterhouseCoopers LLP
Dallas, Texas
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FELCOR
LODGING TRUST INCORPORATED 1998 FORM 10K CONSOLIDATED FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 1998 FORM 10K FELCOR LODGING
TRUST INCORPORATED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 34,692
<SECURITIES> 0
<RECEIVABLES> 21,943
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,635
<PP&E> 4,142,556
<DEPRECIATION> (178,072)
<TOTAL-ASSETS> 4,175,383
<CURRENT-LIABILITIES> 124,574
<BONDS> 1,594,734
0
295,000
<COMMON> 693
<OTHER-SE> 2,021,924
<TOTAL-LIABILITY-AND-EQUITY> 4,175,383
<SALES> 0
<TOTAL-REVENUES> 340,094
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,182
<INCOME-PRETAX> 117,914
<INCOME-TAX> 0
<INCOME-CONTINUING> 117,914
<DISCONTINUED> 0
<EXTRAORDINARY> 3,075
<CHANGES> 0
<NET-INCOME> 114,839
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.86
</TABLE>
