-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RgyeFu0bDRUEDf2boy9mjVwGYCMuK/kpHCVp73MpNrGmqgVDAt9TvRQ0ZWUXnO8B LE5ZCpHZLiYy/o2faJYP6A== 0000950134-96-004105.txt : 19960813 0000950134-96-004105.hdr.sgml : 19960813 ACCESSION NUMBER: 0000950134-96-004105 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FELCOR SUITE HOTELS INC CENTRAL INDEX KEY: 0000923603 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 752541756 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14236 FILM NUMBER: 96608994 BUSINESS ADDRESS: STREET 1: 545 E JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 BUSINESS PHONE: 2144444900 MAIL ADDRESS: STREET 1: 545 E JOHN CARPENTER FREEWAY STREET 2: SUITE 1300 CITY: IRVING STATE: TX ZIP: 75062 10-Q 1 FORM 10-Q QUARTER END JUNE 30, 1996 1 - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 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 0-24250 FELCOR SUITE HOTELS, INC. (Exact name of registrant as specified in its charter) MARYLAND 72-2541756 (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No. 545 E. JOHN CARPENTER FREEWAY, SUITE 1300, IRVING, TEXAS 75062 (Address of principal executive offices) (Zip Code) (214) 444-4900 (Registrant's telephone number, including area code) 5215 N. O'CONNOR BLVD., SUITE 330, IRVING, TEXAS 75039 (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all documents and 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 (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares of Common Stock, par value $.01 per share, of FelCor Suite Hotels, Inc. outstanding on August 5, 1996 was 23,180,008. - ------------------------------------------------------------------------------- 2 FELCOR SUITE HOTELS, INC. INDEX PART I. -- FINANCIAL INFORMATION
PAGE ---- Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 FELCOR SUITE HOTELS, INC. Condensed Consolidated Balance Sheets - June 30, 1996 (Unaudited) and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations -- For the Three and Six Months Ended June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows -- For the Six Months Ended June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . 7 DJONT OPERATIONS, L.L.C. Consolidated Balance Sheets - June 30, 1996 (Unaudited) and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Consolidated Statements of Operations -- For the Three and Six Months Ended June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 13 Consolidated Statements of Cash Flows -- For the Six Months Ended June 30, 1996 and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . 14 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 PART II. -- OTHER INFORMATION Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 24 Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2 3 PART I. -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FELCOR SUITE HOTELS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
JUNE 30, DECEMBER 31, 1996 1995 ----------- ------------ (UNAUDITED) Investment in hotel properties, net . . . . . . . . . . . . . . . . . . . . . . $811,100 $338,974 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,052 166,821 Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,616 35,317 Due from Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,751 2,396 Deferred expenses, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,208 1,713 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,952 3,138 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $825,679 $548,359 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Distributions payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,807 $ 4,918 Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . 1,970 3,552 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,350 8,410 Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,771 11,256 Minority interest in Partnership . . . . . . . . . . . . . . . . . . . . . . . 86,229 58,837 -------- -------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 189,127 86,973 -------- -------- Commitments and contingencies (Note 2) Shareholders' equity: Preferred stock, $.01 par value, 10,000 shares authorized, 6,050 shares issued and outstanding at June 30, 1996 . . . . . . . . . . . . . . . . . 151,250 Common stock, $.01 par value, 50,000 shares authorized, 22,921 and 21,135 shares issued and outstanding at June 30, 1996 and December 31, 1995, respectively . . . . . . . . . . . . . . . . . . . 229 211 Additional paid in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 487,920 463,524 Unearned officers' and directors' compensation . . . . . . . . . . . . . . . . (1,352) (473) Distributions in excess of earnings . . . . . . . . . . . . . . . . . . . . . . (1,495) (1,876) -------- -------- Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . 636,552 461,386 -------- -------- Total liabilities and shareholders' equity . . . . . . . . . . . . . $825,679 $548,359 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 FELCOR SUITE HOTELS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- --------------------- 1996 1995 1996 1995 -------- -------- -------- --------- Revenues: Percentage lease revenue . . . . . . . . . . . . . . . . . . . . $ 23,919 $ 5,977 $ 48,270 $ 11,348 Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . 638 209 785 217 -------- ------- -------- -------- Total revenue . . . . . . . . . . . . . . . . . . . . . 24,557 6,186 49,055 11,565 -------- ------- -------- -------- Expenses: General and administrative . . . . . . . . . . . . . . . . . . . 335 191 632 338 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 6,088 1,178 10,604 2,236 Amortization of loan costs and organization costs . . . . . . . . 128 52 243 94 Taxes, insurance and other . . . . . . . . . . . . . . . . . . . 3,126 580 6,710 1,139 Amortization of unearned officers' and directors' compensation . 108 41 177 71 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 1,984 522 4,310 839 Minority interest . . . . . . . . . . . . . . . . . . . . . . . . 1,522 814 3,142 1,668 -------- ------- -------- -------- Total expenses . . . . . . . . . . . . . . . . . . . . . 13,291 3,378 25,818 6,385 -------- ------- -------- -------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,266 2,808 23,237 5,180 Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . 1,835 1,835 -------- ------- -------- -------- Net income applicable to common shareholders . . . . . . . . . . . $ 9,431 $ 2,808 $21,402 $ 5,180 ======== ======= ======= ======== Net income per common share . . . . . . . . . . . . . . . . . . . . $ 0.41 $ 0.48 $ 0.94 $ 0.98 ======= ====== ====== ======= Weighted average number of common shares outstanding . . . . . . . 22,905 5,850 22,760 5,281 ======== ======= ======= ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 FELCOR SUITE HOTELS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, --------------------- 1996 1995 --------- --------- Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,237 $ 5,180 Adjustments to reconcile net income to net cash provided by operating activities, net of effects of acquisitions: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 11,024 2,509 Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,142 1,668 Changes in assets and liabilities: Due from Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,355) (1,952) Deferred expenses and other assets . . . . . . . . . . . . . . . . . . . (654) (237) Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . (1,890) (598) --------- -------- Net cash flow provided by operating activities . . . . . . . . . 33,504 6,570 --------- -------- Cash flows from investing activities: Acquisition of hotel properties and related accounts . . . . . . . . . . . . . (287,715) (36,766) Improvements and additions to hotel properties . . . . . . . . . . . . . . . . (30,944) (1,096) --------- -------- Net cash flow used in investing activities . . . . . . . . . . . (318,659) (37,862) --------- -------- Cash flows from financing activities: Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 76,150 27,200 Repayment of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . (119,954) (35,949) Loan costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (820) Proceeds from sale of common stock . . . . . . . . . . . . . . . . . . . . . . 40,584 81,196 Proceeds from sale of preferred stock . . . . . . . . . . . . . . . . . . . . 144,251 Distributions paid to limited partners . . . . . . . . . . . . . . . . . . . . (2,858) (1,432) Distributions paid to common shareholders . . . . . . . . . . . . . . . . . . (13,967) (3,973) --------- -------- Net cash flow provided by (used in) financing activities . . . . 123,386 67,042 --------- -------- Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . (161,769) 35,750 Cash and cash equivalents at beginning of periods . . . . . . . . . . . . . . . . . . 166,821 1,118 --------- -------- Cash and cash equivalents at end of periods . . . . . . . . . . . . . . . . . . . . . $ 5,052 $ 36,868 ========= ======== Supplemental cash flow information -- Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,966 $ 390 ========= ========
Supplemental disclosure of noncash financing activities: In the first six months of 1996 the Company provided for the grant of an aggregate of 38,000 shares of restricted common stock to officers and directors which, at date of issuance, were valued at $26.50 to $31.375 per share. In connection with certain unit and common stock transactions, $16.7 million was allocated to minority interest in Partnership from additional paid in capital. 5 6 FELCOR SUITE HOTELS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED) Supplemental disclosure of noncash financing activities: -- (continued) In the first six months of 1996 the Company purchased certain assets and assumed certain liabilities of hotel properties. These purchases were recorded under the purchase method of accounting. The fair value of the acquired assets and liabilities recorded at the date of acquisition are as follows: Assets acquired . . . . . . . . . . . . . . . . . $ 451,617 Application of prepayments to acquisition of hotel properties . . . . . . . . . . . . . (35,455) Debt assumed . . . . . . . . . . . . . . . . . . (108,744) Capital equipment leases assumed . . . . . . . . (2,823) Partnership units issued . . . . . . . . . . . . (10,880) Common stock issued . . . . . . . . . . . . . . . (6,000) --------- Net cash paid . . . . . . . . . . . . . . $ 287,715 =========
On June 24, 1996, the Company declared a dividend of $0.46 per share of common stock and $0.3033 per share of preferred stock for the second quarter of 1996 which was paid on July 30, 1996 to holders of record on July 15, 1996. The preferred stock dividend represents the pro rata portion of a quarterly dividend of $0.4875 per share for the initial dividend period from May 6 through June 30, 1996. The accompanying notes are an integral part of these condensed consolidated financial statements. 6 7 FELCOR SUITE HOTELS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND ACQUISITIONS FelCor Suite Hotels, Inc., formed as a self-administered real estate investment trust ("REIT"), was incorporated on May 16, 1994 and commenced operations on July 28, 1994. At the commencement of operations, FelCor Suite Hotels, Inc. ("FelCor") acquired an equity interest of approximately 74% in FelCor Suites Limited Partnership (the "Partnership"), which owned six Embassy Suites(R) hotels (the "Initial Hotels") with an aggregate of 1,479 suites. At June 30, 1996, FelCor owned, through its 88.1% ownership of the Partnership and its consolidated subsidiaries (collectively the "Company"), interests in 37 hotels with an aggregate of 8,588 suites (collectively the "Hotels"). Of the Hotels, 13 were Embassy Suites hotels at the time of acquisition, and at June 30, 1996, 14 hotels had been converted to either Embassy Suites hotels (12) or to Doubletree Guest Suites(R) hotels (2), 9 hotels were in the process of being upgraded or renovated in preparation for their conversion to Embassy Suites hotels and one was a Hilton Suites(R) hotel. The following table provides certain information regarding the Company's acquisition of the 31 additional hotels acquired through June 30, 1996:
NUMBER OF HOTELS NUMBER OF SUITES AGGREGATE QUARTER ACQUIRED ACQUIRED PURCHASE PRICE ------- ----------------- ----------------- -------------- (DOLLARS IN MILLIONS) 4th Quarter 1994 1 251 $ 25.8 1st Quarter 1995 2 350 27.4 2nd Quarter 1995 1 100 9.4 3rd Quarter 1995 3 542 31.3 4th Quarter 1995 7 1,657 169.0 1st Quarter 1996 14 3,501 383.5 2nd Quarter 1996 3 691 68.1 --- ------ ------- 31 7,092 $ 714.5 === ====== =======
The Company owns 100% equity interests in 29 of the acquired hotels and 97% and 50% interests in separate partnerships that own the Los Angeles International Airport and Chicago-Lombard hotels. In addition, the Company has constructed an additional 17 suites at one of the acquired hotels and has started construction on additions to two of the acquired properties which include an aggregate of 160 net additional suites, meeting rooms and other public area upgrades, at an estimated aggregate cost of $19.3 million. The Company leased all of the Hotels to DJONT Operations, L.L.C. or a wholly-owned subsidiary (collectively the "Lessee") under operating leases providing for the payment of percentage rent (the "Percentage Leases"). Hervey A. Feldman and Thomas J. Corcoran, Jr., the Chairman of the Board and Chief Executive Officer of the Company, respectively, beneficially own 50% of the Lessee. The remaining 50% of the Lessee is beneficially owned by the children of Charles N. Mathewson, a director of the Company. The Lessee has entered into management agreements pursuant to which 32 of the Hotels are managed by Promus, two of the Hotels are managed by a subsidiary of Doubletree Hotel Corporation ("Doubletree"), two of the Hotels are managed by American General Hospitality, Inc. ("AGHI") and one is managed by Coastal Hotel Group, Inc. ("Coastal"). A brief discussion of the hotel assets acquired and other significant transactions occurring in the second quarter of 1996 follows: On May 8, 1996, the Company acquired the remaining two of the 18 Crown Sterling Suites(R) hotels (collectively, in whole or part, the "CSS Hotels") in Mandalay Beach, California (249 suites) and Napa, California (205 suites) for an aggregate purchase price of approximately $45 million. The purchase of these hotels fulfilled the Company's commitment to purchase the 18 hotel Crown Sterling Suites chain, as announced in September 1995. In conjunction with the purchase of these hotels, the mortgage notes receivable that were acquired by the Company in the first quarter of 1996 relating to these hotels were canceled. 7 8 FELCOR SUITE HOTELS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND ACQUISITIONS -- (CONTINUED) On June 20, 1996, the Company acquired a 237-suite Embassy Suites hotel in Deerfield, Illinois for approximately $23 million in cash. On April 25, 1996, the SEC declared effective the Company's omnibus shelf registration statement ("Shelf Registration"), which provides for offerings by the Company from time to time of up to an aggregate of $500 million in securities, which may include its debt securities, preferred stock, common stock and/or common stock warrants. On May 6, 1996, the Company announced the closing of an offering pursuant to the Shelf Registration of six million shares of its $1.95 Series A Cumulative Convertible Preferred Stock ("Series A Preferred Stock") at $25 per share. An additional fifty thousand shares of Series A Preferred Stock were issued at $25 per share pursuant to the exercise of the underwriters' over-allotment option. The Series A Preferred Stock bears an annual dividend equal to the greater of $1.95 per share (yielding 7.8% based on the $25 purchase price) or the cash distributions declared or paid for the corresponding period on the number of shares of common stock into which the Series A Preferred Stock is then convertible and is cumulative from May 6, 1996. Each share of the Series A Preferred Stock is convertible at the shareholder's option to 0.7752 shares of common stock, subject to certain adjustments, and may not be redeemed by the Company before April 30, 2001. The Company used approximately $87.3 million of the proceeds from the Series A Preferred Stock to pay down debt existing at March 31, 1996. The balance of the net proceeds was used to acquire the two remaining CSS hotels in Mandalay Beach and Napa, California, the Deerfield, Illinois Embassy Suites, to fund a portion of the Company's $60 million renovation and conversion program for all acquired hotels, and to provide funds for other acquisitions and general corporate purposes. Pursuant to a subscription agreement, Promus Hotels, Inc. ("Promus") purchased an aggregate of 104,028 shares of Common Stock during the second quarter of 1996 at a subscription price of $26.50 per share. Additionally, as a result of the purchase of the Napa, California and Mandalay Beach, California hotels on May 8, 1996, the Company satisfied the requirements under such subscription agreement requiring Promus to purchase an additional 165,569 shares of common stock purchasable thereunder for approximately $4.4 million. Such purchase was completed in the third quarter of 1996 and fulfilled all stock purchase obligations under such subscription agreement. These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the financial statements and notes thereto of the Company and the Lessee included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the "10-K"). The notes to the financial statements included herein highlight significant changes to the notes included in the 10-K and present interim disclosures required by the SEC. The accompanying financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. 2. COMMITMENTS AND CONTINGENCIES Upon completion of the capital upgrade and renovation program discussed below, and the conversion of the remaining CSS Hotels, the Hotels will operate as Embassy Suites (34), Doubletree Guest Suites (2) and Hilton Suites (1). The Embassy Suites hotels and Hilton Suites hotel will operate pursuant to franchise license agreements which require the payment of fees based on a percentage of suite revenue. These fees are paid by the Lessee. There are no separate franchise license agreements with respect to the Doubletree Guest Suites hotels. The Hotels are managed by Promus (32), Doubletree (2), AGHI (2) and Coastal (1) on behalf of the Lessee. The Lessee pays the managers a base management fee based on a percentage of total revenue and an incentive management fee based on the Lessee's net income before overhead expenses. 8 9 FELCOR SUITE HOTELS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 2. COMMITMENTS AND CONTINGENCIES -- (CONTINUED) The Lessee has future lease commitments to the Company under the Percentage Leases which expire in 2004 (7 hotels), 2005 (12 hotels) and 2006 (17 hotels). The lease commitment under the Percentage Lease between the Lessee and the Promus/FelCor Lombard Venture (which owns the Chicago-Lombard hotel), of which the Company owns 50%, is not included in the following schedule of future lease commitments to the Company. Minimum future rental income (i.e., base rents) under these noncancellable operating leases (excluding the Chicago-Lombard hotel) at June 30, 1996 is as follows (in thousands):
Year ---- Remainder of 1996 . . . . . . . . . . . . . . . . . . . . . . $ 27,738 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,477 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,477 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,477 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,477 2001 and thereafter . . . . . . . . . . . . . . . . . . . . . 264,637 --------- $ 514,283 =========
The Company has a capital upgrade and renovation program for the CSS Hotels and the other hotels acquired since September 1995 and has committed approximately $60 million to be invested in 1995 and 1996 for this program. The Company has invested approximately $25.8 million on such capital improvements through the end of the second quarter of 1996 and expects to substantially complete this program by the end of 1996. Promus has guaranteed a loan to the Company of up to $25 million to be used to fund a portion of the renovations of the CSS Hotels that are being converted to Embassy Suites hotels ("Renovation Loan"). At June 30, 1996, the Company had borrowed approximately $6.8 million under this Renovation Loan facility. 3. DEBT AND CAPITAL LEASE OBLIGATIONS Debt and capital lease obligations at June 30, 1996 and December 31, 1995 consist of the following (in thousands):
1996 1995 ------- ------- Hotel mortgage debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,000 Renovation loan facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,800 Promus note related to CSS purchase . . . . . . . . . . . . . . . . . . . . . . . . $ 7,500 Other debt payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,550 910 Capital equipment lease obligations . . . . . . . . . . . . . . . . . . . . . . . . 3,934 1,213 Capital land and building lease obligations . . . . . . . . . . . . . . . . . . . . 9,837 10,043 ------- ------- $87,121 $19,666 ======= =======
The hotel mortgage debt is collateralized by interests in six hotel properties, matures on September 30, 1996, and is extendable at the Company's option to December 31, 2000. The debt bears interest, at the Company's option, at the Base Rate plus 50 basis points or LIBOR plus 150 basis points until the initial maturity. If the Company elects to extend the note past the initial maturity it bears interest at LIBOR plus 175 basis points. 9 10 FELCOR SUITE HOTELS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3. DEBT AND CAPITAL LEASE OBLIGATIONS -- (CONTINUED) Minimum future principal payments on hotel mortgage debt outstanding at June 30, 1996 are as follows (in thousands):
YEAR - ----- Remainder of 1996 . . . . . . . . . . . . . . . . . . . . $ 137 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 862 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 934 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 1,011 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . 62,056 -------- $ 65,000 ========
The Company has a $100 million line of credit secured by twelve hotel properties ("Line of Credit"). No amounts were outstanding under the Line of Credit at either June 30, 1996 or December 31, 1995. Interest on the Renovation Loan (based on LIBOR) was 6.025% at June 30, 1996. The Renovation Loan requires quarterly principal payments of $1.25 million beginning June 30, 1999 with the remaining principal balance due on June 1, 2000. 4. PRO FORMA INFORMATION The following unaudited Pro Forma Consolidated Statements of Operations for the six months ended June 30, 1996 and 1995 are presented as if the acquisition of the Company's interest in all the Hotels and the consummation of the Company's securities offerings through June 30, 1996 had occurred on January 1, 1995, and all of the 37 hotels had been leased to Lessee pursuant to the Percentage Leases since that date. Such pro forma information is based in part upon the Statements of Operations of Lessee included elsewhere in this Quarterly Report on Form 10-Q. Such information should be read in conjunction with the financial statements listed in the Index on page 2. In management's opinion, all adjustments necessary to reflect the effects of these transactions have been made. The pro forma information does not include earnings on the Company's cash and short term investments and does not purport to present what the actual results of operations of the Company would have been if the previously mentioned transactions had occurred on such dates or to project the results of operations of the Company for any future period. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA)
SIX MONTHS ENDED JUNE 30, ------------------------- 1996 1995 --------- ---------- REVENUES: Percentage lease revenue . . . . . . . . . . . . . . . . . . . . . . . . $ 52,898 $ 50,183 EXPENSES: General and administrative . . . . . . . . . . . . . . . . . . . . . . . 613 563 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 13,513 12,442 Taxes, insurance and other . . . . . . . . . . . . . . . . . . . . . . . 7,372 6,946 Amortization of unearned officers' and directors' compensation . . . . . 228 136 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,498 3,535 Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,293 3,160 --------- ---------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,381 23,401 Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 5,899 5,899 --------- ---------- Net income applicable to common shareholders . . . . . . . . . . . . . . $ 18,482 $ 17,502 ========= ========== Net income per common share . . . . . . . . . . . . . . . . . . . . . . $ 0.80 $ 0.76 ========= ========== Weighted average number of common shares outstanding . . . . . . . . . . 23,064 23,037
10 11 FELCOR SUITE HOTELS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5. SUBSEQUENT EVENTS On July 16, 1996, Promus purchased 165,569 shares of the Company's common stock for $4.4 million relating to the Company's acquisition of the Mandalay Beach and Napa hotels on May 8, 1996 pursuant to an existing subscription agreement. On July 22, 1996, the Company acquired a fifty percent interest in a 235-suite Embassy Suites hotel in San Rafael, Marin County, California, located across the bay from San Francisco. The Company paid approximately $4.0 million in cash for its fifty percent interest, subject to $10.0 million of nonrecourse debt, as its portion of partnership debt. Promus will continue to hold the remaining fifty percent interest in this hotel. On August 1, 1996, the Company acquired a fifty percent interest in a 274-suite Embassy Suites hotel in Parsippany, New Jersey for approximately $15.3 million in cash. Promus will continue to hold the remaining fifty percent interest in this hotel. 11 12 DJONT OPERATIONS, L.L.C. CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND DECEMBER 31, 1995 (IN THOUSANDS) ASSETS
JUNE 30, DECEMBER 31, 1996 1995 ----------- ------------ (UNAUDITED) Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,684 $ 5,345 Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,712 3,129 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 532 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657 288 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 474 305 -------- -------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 18,680 $ 9,599 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable, trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,586 $ 1,393 Accounts payable, other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,134 605 Due to FelCor Suite Hotels, Inc. . . . . . . . . . . . . . . . . . . . . . . . 3,751 2,396 Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . 12,186 5,978 -------- -------- Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,657 10,372 -------- -------- Shareholders' equity (deficit): Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 Distributions in excess of earnings . . . . . . . . . . . . . . . . . . . (978) (774) -------- -------- Total shareholders' equity (deficit) . . . . . . . . . . . . . . . . . . (977) (773) -------- -------- Total liabilities and shareholders' equity . . . . . . . . . . . . . . . $ 18,680 $ 9,599 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 12 13 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED, IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------- -------------------- 1996 1995 1996 1995 -------- --------- --------- -------- Revenue: Suite revenue . . . . . . . . . . . . . . . . . . . . . . $ 53,381 $ 14,371 $ 105,557 $ 27,224 Food and beverage revenue . . . . . . . . . . . . . . . . 4,281 692 8,144 1,289 Food and beverage rent . . . . . . . . . . . . . . . . . . 572 143 998 188 Other revenue . . . . . . . . . . . . . . . . . . . . . . 3,861 840 7,839 1,518 -------- --------- --------- -------- Total revenues . . . . . . . . . . . . . . . . . . . 62,095 16,046 122,538 30,219 -------- --------- --------- -------- Expenses: Property operating costs and expenses . . . . . . . . . . 15,208 3,994 28,451 7,356 General and administrative . . . . . . . . . . . . . . . . 4,656 1,161 8,741 2,143 Advertising and promotion . . . . . . . . . . . . . . . . 3,572 1,168 7,851 2,256 Repair and maintenance . . . . . . . . . . . . . . . . . . 3,267 834 5,987 1,555 Utilities . . . . . . . . . . . . . . . . . . . . . . . . 2,649 722 5,146 1,264 Management fee . . . . . . . . . . . . . . . . . . . . . . 1,494 320 3,013 626 Franchise fee . . . . . . . . . . . . . . . . . . . . . . 1,206 575 2,221 1,089 Food and beverage expenses . . . . . . . . . . . . . . . . 4,615 689 8,412 1,211 Percentage lease payments . . . . . . . . . . . . . . . . 24,429 5,977 49,156 11,348 Lessee overhead expenses . . . . . . . . . . . . . . . . . 403 165 727 388 Liability insurance . . . . . . . . . . . . . . . . . . . 423 92 800 163 Conversion costs . . . . . . . . . . . . . . . . . . . . . 719 28 1,386 32 Other . . . . . . . . . . . . . . . . . . . . . . . . . . 513 198 851 276 -------- --------- --------- -------- Total expenses . . . . . . . . . . . . . . . . . . . 63,154 15,923 122,742 29,707 -------- --------- --------- -------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . ($ 1,059) $ 123 ($ 204) $ 512 ======== ========= ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 13 14 DJONT OPERATIONS, L.L.C. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, -------------------- 1996 1995 -------- ------- Cash flows from operating activities: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (204) $ 512 Adjustments to reconcile net income (loss) to net cash used in operating activities: Changes in assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,583) (684) Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 379 (78) Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (369) (196) Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (169) (68) Due to FelCor Suite Hotels, Inc. . . . . . . . . . . . . . . . . . . . . . 1,355 1,952 Accounts payable, accrued expenses and other liabilities . . . . . . . . . 7,930 104 -------- ------- Net cash flow provided by operating activities . . . . . . . . . . . . 4,339 1,542 -------- ------- Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . 4,339 1,542 Cash and cash equivalents at beginning of periods . . . . . . . . . . . . . . . . . . 5,345 3,259 -------- ------- Cash and cash equivalents at end of periods . . . . . . . . . . . . . . . . . . . . . $ 9,684 $ 4,801 ======== =======
The accompany notes are an integral part of these consolidated financial statements. 14 15 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION DJONT Operations, L.L.C. is a Delaware limited liability company (together with its wholly owned subsidiary, the "Lessee") which was formed on June 29, 1994 and began operations on July 28, 1994. All of the voting Class A membership interest in Lessee (representing a 50% equity interest) is owned by Hervey A. Feldman and Thomas J. Corcoran, Jr. who serve as directors and officers of FelCor Suite Hotels, Inc. (the "Company") and as managers and officers of the Lessee. All of the non-voting Class B membership interest in Lessee (representing the remaining 50% equity interest) is owned by RGC Leasing, Inc., a Nevada corporation owned by the children of Mr. Mathewson, a director of the Company. The Lessee leases each of the 37 hotels in which FelCor Suites Limited Partnership (the "Partnership") had an ownership interest at June 30, 1996 (the "Hotels"), pursuant to percentage leases ("Percentage Leases"). Messrs. Feldman and Corcoran, as the beneficial owners of an aggregate 50% of the Lessee, have entered into an agreement with the Company pursuant to which they have agreed that, for a period of ten years, any distributions received by them from the Lessee (in excess of their tax liabilities with respect to the income of the Lessee) will be utilized to purchase common stock from the Company annually, at a price based upon a formula approved by the independent directors relating to the then current market prices. The agreement stipulates that Messrs. Feldman and Corcoran are restricted from selling any stock so acquired for a period of two years from the date of purchase. RGC Leasing, Inc., which owns the other 50% of the Lessee, may elect to purchase common stock or units of Partnership interest upon similar terms, at its option. The independent directors of the Company may suspend or terminate such agreement at any time. Thirty-four of the Hotels are, or are in the process of being converted to, Embassy Suites(R) hotels, 32 of which are being managed for the Lessee by Promus Hotels, Inc. ("Promus"). Two of the Hotels are operated as Doubletree Guest Suites(R) hotels and managed by a subsidiary of Doubletree Hotels Corporation ("Doubletree"). One of the Hotels is operated under a Hilton Suites(R) hotel franchise and, together with one of the Company's Embassy Suites hotels, is managed for the Lessee by American General Hospitality, Inc. ("AGHI"). One of the Company's Embassy Suites hotels is managed for the Lessee by Coastal Hotel Group, Inc. ("Coastal"). 2. COMMITMENTS AND RELATED PARTY TRANSACTIONS The Lessee has future lease commitments under the Percentage Leases which expire in 2004 (7 hotels), 2005 (13 hotels) and 2006 (17 hotels). Minimum future rental payments are computed based on the base rent as defined under these noncancellable operating leases and are as follows (in thousands):
Year Amount - ---- ------- Remainder of 1996 . . . . . . . . . . . . . . . . . . . . . . . $ 28,688 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,377 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,377 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,377 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,377 2001 and thereafter . . . . . . . . . . . . . . . . . . . . . . 273,504 --------- $ 531,700 =========
Under the franchise agreements, the Lessee typically remits to Promus a franchise fee of 4% of suite revenue, a marketing and reservation contribution (for the benefit of Embassy Suites hotels system wide) of 3.5% of suite revenue, and certain additional fees for each of the Hotels operated as an Embassy Suites hotel. With regard to the Crown Sterling Suite(R) hotels (the "CSS Hotels"), in the first and second year of operations, Promus has agreed to reduced franchise fees of 1.5% and 3.5% of suite revenue, respectively. Additionally, with regard to the CSS Hotels, Promus has agreed to reductions in the marketing and reservations contribution for the first three years of operations to 2%, 2.5% and 3% of suite revenue, respectively. 15 16 DJONT OPERATIONS, L.L.C. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. COMMITMENTS AND RELATED PARTY TRANSACTIONS -- (CONTINUED) The franchise fees will revert to 4% of suite revenue beginning the third year of operations of these hotels and the marketing and reservation contribution will return to 3.5% of suite revenue beginning in the fourth year. The Lessee pays Hilton Inns, Inc. a franchise fee of 5% of suite revenue for the Lexington Hilton Suites hotel. There are no separate franchise fees for the properties operated as Doubletree Guest Suites hotels; however, the Lessee pays a marketing and reservation contribution of 3.5% of suite revenue under these management agreements. The Lessee pays a base management fee of 2% of adjusted gross revenue for each hotel managed by Promus, AGHI, Doubletree and Coastal (collectively the "Hotel Managers"). In addition, the Lessee pays the Hotel Managers an incentive management fee, which ranges from 50% to 75% of a hotel's net income (after lease payments but before Lessee overhead expenses) up to a maximum of 2% to 3% of revenues. In association with the acquisition of the CSS Hotels, Promus has made its base management fees and incentive management fees subordinate to the Percentage Lease payments for a period of two years. 3. PRO FORMA INFORMATION (UNAUDITED) The following unaudited Pro Forma Consolidated Statements of Operations for the six months ended June 30, 1996 and 1995 are presented as if Lessee had leased and operated all of the Hotels beginning on January 1, 1995. Such information should be read in conjunction with the financial statements listed in the Index on page 2. In management's opinion, all adjustments necessary to reflect the effects of these transactions have been made. The Pro Forma Consolidated Statements of Operations do not purport to present what actual results of operations would have been if such hotels had been operated by Lessee pursuant to the Percentage Leases since such date or to project the results of operations for any future periods. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED, IN THOUSANDS)
Six Months Ended June 30, -------------------------- ---- 1996 1995 --------------------------- Revenues $ 135,055 $ 130,888 Expenses: Property operating costs and expenses . . . . . . . . . . . . . . . . . . 31,499 30,961 General and administrative . . . . . . . . . . . . . . . . . . . . . . . 9,766 9,517 Advertising and promotion . . . . . . . . . . . . . . . . . . . . . . . . 8,712 7,712 Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . 6,726 6,329 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,664 5,557 Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,178 3,512 Franchise fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,255 2,977 Food and beverage expenses . . . . . . . . . . . . . . . . . . . . . . . 9,406 9,201 Percentage lease payments . . . . . . . . . . . . . . . . . . . . . . . . 53,783 50,985 Lessee overhead expenses . . . . . . . . . . . . . . . . . . . . . . . . 730 723 Liability insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 944 1,037 Conversion costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,418 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907 479 --------- ---------- Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,570 $ 130,408 --------- ---------- Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . ($ 515) $ 480 ========= ==========
16 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations GENERAL For background information relating to the Company and the definitions of certain capitalized terms used herein, reference is made to Note 1 of Notes to Condensed Consolidated Financial Statements of FelCor Suite Hotels, Inc. appearing elsewhere herein. Between the first six months of 1995 and the comparable period of 1996, the Company's revenues increased from approximately $11.6 million to approximately $49.1 million, net income applicable to common shareholders increased from approximately $5.2 million to approximately $21.4 million, net income per common share decreased from $0.98 to $0.94, and the Initial Hotels experienced increases of 8.2% in suite revenues. During the first six months of 1996, the Company acquired 17 additional hotels with 4,192 suites for an aggregate purchase price of approximately $451.6 million. Of the hotels so acquired during the first six months of 1996, three were and will remain Embassy Suites hotels, one was and will remain a Hilton Suites hotel and 13 hotels have been or are in the process of being converted to the Embassy Suites brand. Twelve of the hotels acquired by the Company during the first six months that have been or will be converted into Embassy Suites hotels had been part of the Crown Sterling Suites chain that the Company agreed to acquire in September 1995. The Company has undertaken a $60 million plan for the upgrade and renovation of the CSS Hotels and the other hotels acquired since September 1995. Though June 30, 1996, the Company had invested approximately $25.8 million under such plan and expects to substantially complete such capital improvements by the end of 1996. In addition, the Company has added 17 suites at its Flagstaff hotel and is in the process of adding a net of 160 additional suites, adding meeting rooms and other public area upgrades to two of its other hotels at an estimated aggregate cost of approximately $19.3 million. In order for the Company to qualify as a REIT, neither the Company nor the Partnership can operate hotels. Therefore, the Partnership leases the Hotels to the Lessee. The Partnership's and, therefore, the Company's principal sources of revenue are lease payments by the Lessee under the Percentage Leases. Of the aggregate pro forma Percentage Lease revenue from the Hotels under the Percentage Leases for the six months ended June 30, 1996, approximately 97.3% was derived from suite revenues and 2.7% was derived from food and beverage operations. The Lessee's ability to make payments to the Company under the Percentage Leases is dependent on the operations of the Hotels. RESULTS OF OPERATIONS The Company -- Actual Six Months Ended June 30, 1996 and 1995 For the six months ended June 30, 1996 and 1995, the Company had revenues of $49.1 million and $11.6 million, respectively, consisting of Percentage Lease revenues of $48.3 million and $11.3 million and other revenue made up primarily of interest income of $785,000 and $217,000. The increase in Percentage Lease revenue was attributable primarily to the Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of the 30 additional hotels acquired during the period from February 1995 through June 1996. As previously noted, Percentage Lease revenue is dependent on the operations of the Hotels, primarily suite revenue. The Company owned seven hotels throughout both the first six months of 1995 and 1996, but only the Initial Hotels are considered by the Company to have been "stabilized" properties during both periods. The Initial Hotels experienced suite revenue growth of 8.2% and increases of revenue per available suite ("REVPAR") of 7.6%. All of the Initial Hotels experienced increases in REVPAR, with the increases ranging from .5% to 12% over the prior year. 17 18 RESULTS OF OPERATIONS -- (CONTINUED) Management believes that the acquired hotels will generally experience increases in suite revenues (and accordingly, provide the Company with increases in Percentage Lease revenues) after the completion of renovation and upgrade programs, the conversion to the Embassy Suites or Doubletree Guest Suites franchises, where applicable, and the transition to a national management company such as Promus. However, as individual hotels undergo such transitions, their performance may be adversely affected temporarily by such factors as suites out of service during renovation and renovation disruptions on hotel operations. (A more detailed discussion of hotel suite revenue is contained in "The Hotels - Actual" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.) Total expenses increased $19.4 million in the six months ended June 30, 1996 from $6.4 million to $25.8 million compared to the same period in 1995. The primary components of this increase were: depreciation; taxes, insurance and other; and interest expense. Depreciation expense increased to $10.6 million in the six months ended June 30, 1996 from $2.2 million in the same period of 1995. The increase resulted from the acquisition of hotels in 1995 and 1996 and capital expenditures made on existing and acquired hotels. Taxes, insurance and other expenses increased $5.6 million from $1.1 million in the first six months of 1995 to $6.7 million in the first six months of 1996. This increase is primarily attributed to the additional hotel properties acquired in 1995 and 1996. Interest expense increased from $839,000 for the six months ended June 30, 1995 to $4.3 million for the six months ended June 30, 1996. The increase in interest expense is primarily associated with debt assumed or incurred in connection with the hotels purchased during the fourth quarter of 1995 and the first quarter of 1996. Minority interest in earnings increased from $1.7 million for the six months of 1995 to $3.1 million for the same period in 1996. The percentage of income attributable to minority interests was 11.9% for the six months ended June 30, 1996 and 17.2% for the same period in 1995. The decrease in the minority interest percentage was primarily the result of the Company's contribution to the Partnership of the proceeds from the common stock issued during May 1995 and December 1995 in registered public offerings partially offset by additional units of limited partnership interest in the Partnership issued to Promus and the sellers of the Piscataway and Lexington hotels. Three Months Ended June 30, 1996 and 1995 For the three months ended June 30, 1996 and 1995, the Company had revenues of $24.6 million and $6.2 million, respectively, consisting of Percentage Lease revenues of $23.9 million and $6.0 million and other revenue made up primarily of interest income of $638,000 and $209,000. The increase in Percentage Lease revenue was attributable primarily to the Company's acquisition and subsequent leasing, pursuant to Percentage Leases, of the 27 additional hotels acquired during the period from July 1995 through June 1996. As previously noted, Percentage Lease revenue is dependent on the operations of the Hotels, primarily suite revenue. The Company owned nine hotels throughout both the second quarter of 1995 and 1996, but only the Initial Hotels are considered by the Company to have been "stabilized" properties during both periods. The Initial Hotels experienced suite revenue and revenue per available suite growth of 8.0%. All of the Initial Hotels experienced increases in REVPAR, with the increases ranging from 3% to 14% over the prior year. A more detailed discussion of hotel suite revenue is contained in "The Hotels - Actual" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations. Total expenses increased $9.9 million in the three months ended June 30, 1996 from $3.4 million to $13.3 million compared to the same period in 1995. The primary components of this increase were: depreciation; taxes, insurance and other; and interest expense. As previously discussed, the primary reason for this increase is related to the 18 19 RESULTS OF OPERATIONS -- (CONTINUED) increased number of hotel properties owned by the Company, from ten properties at June 30, 1995 to 37 properties at June 30, 1996. FUNDS FROM OPERATIONS The Company considers funds from operations to be a key measure of a REIT's performance and should be considered along with, but not as an alternative to, net income and cash flows as a measure of the Company's operating performance and liquidity. The following table computes "Funds From Operations" under the newly adopted National Association of Real Estate Investment Trusts ("NAREIT") definition. Funds From Operations under the NAREIT definition consists of net income, computed in accordance with generally accepted accounting principles, excluding gains or losses from debt restructuring and sales of property, plus depreciation of real property (including furniture and equipment) and after adjustments for unconsolidated partnerships and joint ventures.
Three Months Ended SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------------------------- 1996 1995 1996 1995 ----------- --------- -------- --------- Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,266 $ 2,808 $ 23,237 $ 5,180 Less preferred dividends . . . . . . . . . . . . . . . . . . . . 1,835 1,835 --------- -------- -------- -------- Net income applicable to common shareholders . . . . . . . . . . 9,431 2,808 21,402 5,180 Add: Minority interest . . . . . . . . . . . . . . . . . . . . . . 1,522 814 3,142 1,668 Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 6,088 1,178 10,604 2,236 --------- -------- -------- -------- Funds From Operations available for common shares and units . . . . . . . . . . . . . . . . . . . . $ 17,041 $ 4,800 $ 35,148 $ 9,084 ========= ======== ======== ======== Funds From Operations per share and unit . . . . . . . . . . . . $ 0.66 $ 0.64 $ 1.36 $ 1.30 ========= ======== ======== ======== Weighted average common shares outstanding . . . . . . . . . . . 22,905 5,850 22,760 5,281 Weighted average units outstanding . . . . . . . . . . . . . . . 3,106 1,695 3,083 1,695 --------- -------- -------- -------- Weighted average shares and units outstanding . . . . . . . . . . 26,011 7,545 25,843 6,976 ========= ======== ======== ========
The Company -- Pro Forma Six Months Ended June 30, 1996 and 1995 The following pro forma information is presented as if the acquisition of all the Hotels and the consummation of the Company's securities offerings and the Partnership's unit transactions through June 30, 1996 had occurred as of January 1, 1995. For the six months ended June 30, 1996, the Company's pro forma Percentage Lease revenue increased $2.7 million. This increase is attributable to increases in suite revenue, despite the substantial number of suites taken out of service for renovation and conversion to the Embassy Suites brand during the second quarter of 1996. The historical suite revenue increased by 4% for the 37 hotels presented in the pro forma financial statements. (The historical hotel revenue increase is more fully discussed in "The Hotels - Actual" section of this Management's Discussion and Analysis of Financial Condition and Results of Operations.) Pro forma depreciation and amortization expenses increased by $1.1 million, primarily reflecting the historical asset additions from property upgrades and renovations made by the Company during 1995 and through the first six months of 1996. Pro forma taxes, insurance and other increased $426,000. Pro forma interest expense declined by $37,000 reflecting the historical decrease in LIBOR and the amortization of principal on the capital lease obligations. Minority interest was $3.3 million and $3.2 million for pro forma 1996 and 1995 second quarters, respectively. The pro forma net income was $24.4 million and $23.4 million for the six months ended June 30, 1996 and 1995, respectively. 19 20 RESULTS OF OPERATIONS -- (CONTINUED) The Lessee -- Actual The Six Months Ended June 30, 1996 and 1995 Total revenues increased 306% from $30.2 million for the six months ended June 30, 1995 to $122.5 million for the same period of 1996. The primary reason for this increase is that in the number of hotels operated by the Lessee increased from ten hotels at June 30, 1995 to 37 hotels at June 30, 1996. The increases in Percentage Lease expense, property operating costs and other hotel expenses in the first six months of 1996 compared to the same period of 1995 relate primarily to the increased number of hotels operated by the Lessee. The Lessee had net income of $512,000 and a net loss of $204,000 for the six months ended June 30, 1995 and 1996 respectively. The principal reason for this decline in net income is related to costs of taking over operations of acquired hotels and of converting and upgrading the 24 hotels acquired in the fourth quarter of 1995 and the first six months of 1996. The Three Months Ended June 30, 1996 and 1995 Total revenues increased 288% from $16.0 million in the second quarter of 1995 to $62.1 million for the same period of 1996. The primary reason for this increase is the increase in the number of hotels operated by the Lessee from 10 hotels at June 30, 1995 to 37 hotels at June 30, 1996. The increases in Percentage Lease expense, property operating costs and other hotel expenses in the second quarter of 1996 compared to the same period of 1995 relate primarily to the increased number of hotels operated by the Lessee. The Lessee had net income of $123,000 and a net loss of $1.1 million for the three months ended June 30, 1995 and 1996 respectively. The principal reason for this decline in net income is related to costs of taking over operations on acquired hotels and of converting and upgrading the 24 hotels acquired in the fourth quarter of 1995 and the first six months of 1996. The Hotels -- Actual The following table sets forth historical suite revenue and percentage changes therein between the periods presented for the 37 hotels included in the pro forma financial information with respect to the Lessee. The following presentation groups separately the suite revenues of the Initial Hotels, the 18 CSS Hotels and the other 13 hotels acquired by the Company ("Other Acquired Hotels") through June 30, 1996.
SUITE REVENUE SUITE REVENUE (IN THOUSANDS) (IN THOUSANDS) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------- PERCENT -------------------------- PERCENT 1996 1995 CHANGE 1996 1995 CHANGE ------------ ----------- ------ ------------- ----------- ------ Initial Hotels . . . . . . . . . . . . . $ 11,141 $ 10,320 8.0% $ 22,320 $ 20,621 8.2% CSS Hotels . . . . . . . . . . . . . . . 27,825 27,438 1.4% 59,970 58,750 2.1% Other Acquired Hotels . . . . . . . . . . 17,259 15,928 8.4% 34,161 32,510 5.1% -------- -------- --------- --------- Totals . . . . . . . . . . . . . $ 56,225 $ 53,686 4.7% $ 116,451 $ 111,881 4.1% ======== ======== ========= =========
Comparison of The Hotels' Suite Revenues for the Three and Six Months Ended June 30, 1996 and 1995 Suite revenues from the 37 hotels included in the pro forma information increased 4.1% for the six months ended June 30, 1996 from the comparative period of 1995. The Initial Hotels increased 8.2% while the CSS Hotels and the Other Acquired Hotels increased 2.1% and 5.1%, respectively. Increases in suite revenues, particularly at the CSS Hotels, were limited by the number of suites out of service for renovation and conversion during the six months ended June 30, 1996. The Company had approximately 51,000 suite- nights taken out of service during the second quarter, which represents approximately 6.8% of the Company's normal suite inventory for the quarter. 20 21 RESULTS OF OPERATIONS -- (CONTINUED) The increase in suite revenue is primarily the result of increases in average daily rate ("ADR"), partially offset by decreases in occupancy. The Initial Hotels increased in both ADR and occupancy: ADR increased 6.6% to $104.37 and occupancy percentage increased from 78.7% to 79.4% (or 1%). The Company has committed to a capital program for all Hotels that ensures that at least 4% of suite revenue will be available for capital improvements in addition to normal repair and maintenance expenditures. The CSS Hotels experienced an increase in ADR of 4.4% to $104.16 and a 3.0% decrease in occupancy to 68.5%. The Other Acquired Hotels increased ADR by 5.8% to $101.45, which was partially offset by a 1.9% decrease in occupancy to 74.1%. The Company has committed to a capital renovation and conversion program for the CSS Hotels and the Other Acquired Hotels of approximately $60 million and is also reserving 4% of suite revenue for ongoing capital improvements in addition to making normal repair and maintenance expenditures. The CSS Hotels either have been or are in the process of being converted to Embassy Suites hotels (16) or Doubletree Guest Suites hotels (2). At August 1, 1996, ten of the CSS Hotels had been converted to the new franchise brands. LIQUIDITY AND CAPITAL RESOURCES The Company's principal source of cash to meet its cash requirements, including distributions to shareholders, is its share of the Partnership's cash flow from the Percentage Leases. For the six months ended June 30, 1996, cash flow provided by operating activities, consisting primarily of Percentage Lease revenue, was $33.5 million and funds from operations, which is the sum of net income, minority interest, depreciation of real property including furniture and equipment, was $35.1 million. The Lessee's obligations under the Percentage Leases are unsecured. The Lessee's ability to make lease payments under the Percentage Leases and the Company's liquidity, including its ability to make distributions to shareholders, are substantially dependent on the ability of the Lessee to generate sufficient cash flow from the operation of the Hotels. The Company intends to acquire additional hotel properties 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. The Company's Charter limits consolidated indebtedness to 40% of the Company's investment in hotel properties, at cost, on a consolidated basis, after giving effect to the Company's use of proceeds from any indebtedness. For purposes of this limitation, the Company's consolidated investment in hotel properties, at cost, is its investment, at cost, in hotel properties, as reflected in its consolidated financial statements plus (to the extent not otherwise reflected) the value (as determined by the Board of Directors at the time of issuance) of any equity securities issued, otherwise than for cash, by the Company or any of its subsidiaries in connection with the acquisition of hotel properties. Under this definition as of June 30, 1996, the Company's investment in hotel properties at cost was $868 million. Accordingly, the Company's maximum permitted indebtedness would have been approximately $349 million (of which $87 million was borrowed at June 30, 1996). Assuming all of this additional debt capacity, together with the Company's available cash and cash equivalents, were used for the acquisition of additional hotel properties, the Company's investment in hotel properties would increase to approximately $1.5 billion and the maximum permitted indebtedness would increase to $582 million. On May 6, 1996, the Company completed an offering of six million shares of $1.95 Series A Cumulative Convertible Preferred Stock ("Series A Preferred Stock") at $25 per share. An additional fifty thousand shares of Series A Preferred Stock were issued at $25 per share pursuant to the exercise of the underwriters' over-allotment option. The Series A Preferred Stock will pay an annual dividend equal to the greater of $1.95 per share (yielding 7.8% based on the $25 purchase price) or the cash distributions declared or paid for the corresponding period on the number of shares of common stock into which the Series A Preferred Stock is then convertible and will be cumulative from May 6, 1996. Each share of the Series A Preferred Stock is convertible at the shareholder's option to 0.7752 shares of common stock, subject to certain adjustments, and may not be redeemed by the Company prior to April 30, 2001. The Company used approximately $87.3 million of the proceeds from the Series A Preferred Stock to pay down debt existing at March 31, 1996. The balance of the net proceeds was used to acquire the two remaining CSS Hotels in Mandalay Beach and Napa, 21 22 LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED) California and the Deerfield, Illinois Embassy Suites hotel, to fund a portion of the Company's $60 million renovation and conversion program, to provide funds for acquisitions and for general corporate purposes. At June 30, 1996, the Company had $5.1 million of cash and cash equivalents and had not utilized any of the amount available under the Company's $100 million revolving credit facility (" Line of Credit"). The Line of Credit, as amended, has an initial term of two years (currently ending October 6, 1997) and any outstanding balance at the end of that period is convertible, at the Company's option, into a three-year term loan. Borrowings under the Line of Credit bear interest, at the Company's option, (i) at the prime rate, (ii) the 30-day or 90-day LIBOR rate plus 200 basis points or (iii) the 30-day or 90-day U.S. Treasury Note yield plus 250 or 275 basis points, respectively. Up to ten percent of the maximum commitment amount of the Line of Credit may be used for working capital purposes. At June 30, 1996, there were no borrowings for working capital purposes. If the Line of Credit is converted into a three-year term loan in October 1997, the balance will bear interest at (i) the prime rate plus 50 basis points, (ii) the 90-day LIBOR rate plus 225 basis points, or (iii) the 36-month U.S. Treasury Note yield plus 250 basis points, at Company's option. The Line of Credit is collateralized by first mortgages on certain of the Hotels. Promus has guaranteed the $25 million Renovation Loan facility provided to the Company to be used to fund a portion of the renovation cost of the CSS Hotels being converted to Embassy Suites hotels. At June 30, 1996, the loan bears interest at LIBOR plus 52.5 basis points, requires quarterly principal payments of $1.25 million beginning June 1999 and matures in June 2000. The Company had drawn $6.8 million under this loan facility at June 30, 1996. The Company assumed a $75 million debt collateralized by six hotels acquired in the first quarter and repaid $10 million of such debt in the second quarter. The debt bears interest at LIBOR plus 150 basis points and matures in September 1996, unless extended by the Company, in which event the debt will bear interest at LIBOR plus 175 basis points and mature in December 2000. Additionally, in the first quarter the Company assumed a $14 million debt collateralized by a hotel property and retired such debt in the second quarter. The Company has a capital upgrade and renovation program for the CSS Hotels and the other hotels acquired since September 1995 and has committed approximately $60 million to be invested in 1995 and 1996 for this program. The Company has invested approximately $25.8 million on such capital improvements through the first six months of 1996 and expects to substantially complete this program by the end of 1996. These capital improvements will be funded partially through (i) the $25 million Renovation Loan facility, (ii) the proceeds of the Series A Preferred Stock offering, and (iii) the Company's Line of Credit. As individual hotels undergo such upgrade and renovation, their performances may be adversely affected, although such effects are expected to be temporary. The Company constructed 17 additional suites at the Flagstaff hotel and has begun construction on 32 additional suites at the New Orleans hotel, a net addition of 128 suites at the Boston-Marlborough hotel, additional meeting rooms and other public area upgrades for these hotels (with completion of such projects currently scheduled for late 1996 and mid-1997, respectively) at an aggregate cost of approximately $19.3 million. The Company and Promus are parties to a subscription agreement under which Promus has subscribed for the purchase of shares of common stock in an aggregate amount of $50 million, at a price per share of $26.50, the offering price per share of the Company's common stock offering in December 1995. Such investment has been made in increments in conjunction with the Company's acquisition of the CSS Hotels and other qualifying hotels. Through June 30, 1996, the Company had issued an aggregate of 1,721,223 shares of Common Stock to Promus pursuant to this subscription agreement for an aggregate investment of approximately $45.6 million. As a result of the purchase of the Napa, California and Mandalay Beach, California hotels on May 8, 1996, the Company met the requirements under the previously noted subscription agreement and Promus purchased the final 165,569 shares of common stock for approximately $4.4 million on July 16, 1996. The Company's cash flow from financing activities of approximately $123.4 million for the six months ended June 30, 1996 resulted from the issuance of the Series A Preferred Stock of $144.3 million, the sale of common 22 23 LIQUIDITY AND CAPITAL RESOURCES -- (CONTINUED) stock to Promus under a subscription agreement of $40.6 million, net repayments of $43.8 million under the Line of Credit and other borrowing facilities, distributions of $16.8 million and additional loan costs of $820,000. INFLATION Operators of hotels, in general, possess the ability to adjust room rates periodically. Competitive pressures may, however, limit the Lessee's ability to raise room rates. SEASONALITY The Hotels' operations historically have been seasonal in nature, reflecting higher occupancy rates primarily during the first three quarters of each year. This seasonality can be expected to cause fluctuations in the Company's quarterly lease revenue to the extent that it receives Percentage Rent. To the extent the cash flow from operations are insufficient during any quarter, due to temporary or seasonal fluctuations in lease revenue, the Company expects to utilize other cash on hand or borrowings under the Line of Credit to make distributions to its shareholders. The Company's use of the Line of Credit for working capital, distributions and general corporate purposes is limited to 10% of the maximum amount available under the Line of Credit. 23 24 PART II. -- OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES. During May 1996, the Company completed a registered public offering of 6,050,000 shares of its Series A Preferred Stock, having a par value of $0.01 per share and a liquidation preference of $25.00 per share. By Articles Supplementary dated April 30, 1996, the Company established the terms, preferences and relative rights of the Series A Preferred Stock, including without limitation, certain (i) preferences over the holders of Common Stock of the Company with respect to the payment of dividends and amounts upon liquidation, dissolution or winding up of the Company, (ii) limitations on the purchase, redemption or acquisition of Common Stock by the Company, and (iii) rights, as a class, to elect two additional directors of the Company in the event specified arrearages in the payment of dividends on the Series A Preferred Stock exist, all as more fully described in said Articles Supplementary. The foregoing does not purport to be a complete statement of the terms, preferences or relative rights of the Series A Preferred Stock and is qualified in its entirety by reference to the Company's Charter, including such Articles Supplementary, a copy of which is filed herewith as Exhibit 3.1 and to which reference is hereby made for a complete statement of such terms, preferences and relative rights. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. On May 15, 1996, the annual meeting of the stockholders of the Company ("Annual Meeting") was held in Dallas, Texas. At the Annual Meeting, the two incumbent Class II directors of the Company, Thomas J. Corcoran, Jr. and Donald J. McNamara, were re-elected as Class II directors for full three-year terms expiring at the annual meeting of stockholders in 1999. Continuing as Class I directors, with terms expiring at the annual meeting of stockholders in 1998, were Hervey A. Feldman and Charles N. Mathewson and continuing as Class III directors, with terms expiring at the annual meeting of stockholders in 1997, were Richard S. Ellwood, Richard O. Jacobson and Thomas J. McChristy. At the Annual Meeting, in addition to the election of Class II directors, the following matters were submitted to a vote of the shareholders: (1) the adoption of the Company's 1995 Restricted Stock and Stock Option Plan ("1995 Plan") and (2) the adoption of an amendment to the Company's Charter ("Amendment") to provide that nothing contained therein will prohibit the settlement of any transaction entered into through the facilities of the New York Stock Exchange. Messrs. Corcoran and McNamara were duly re-elected, with 16,869,206 shares (99.9% of the shares voting on such election) being voted for the election of each such person and with authority to vote for each such person being withheld with respect to 16,440 shares. The 1995 Plan was duly adopted, with 10,750,372 shares (69.0% of the shares voting on the 1995 Plan) being voted for the adoption thereof and 4,838,766 shares being voted against its adoption. In addition, the holders of 18,344 shares abstained from voting on the 1995 Plan and there were 1,278,164 broker non-votes with respect thereto. The Amendment was duly adopted, with 16,854,755 shares (74.0% of the shares outstanding and entitled to vote) being voted for the adoption thereof and 4,660 shares being voted against its adoption. In addition, the holders of 10,580 shares abstained from voting on the Amendment and there were 15,651 broker non-votes with respect thereto. ITEM 5. OTHER INFORMATION. On May 10, 1996, a capital call of $7 million was made on the partners of Los Angeles International Airport Hotel Associates ("LAX"), a Texas limited partnership owning a 350-suite Crown Sterling Suite hotel ("LAX Hotel") near the Los Angeles International Airport. A subsidiary of FelCor then owned a 50% general partner interest and approximately 142 of the 379 units of limited partner interest in LAX ("Units") then outstanding. In conjunction with the capital call, the general partner of LAX offered to purchase the Units held by the other partners, at $750 per Unit. Under the terms of the LAX partnership agreement, if any partner failed to make the capital contribution required by the call, the general partner would make the required contribution and the interest of the defaulting partner would be automatically transferred to the general partner. As a consequence of this capital call, at June 30, 1996, the FelCor 24 25 subsidiary serving as the general partner of LAX had made additional capital contributions to LAX and payments to selling limited partners aggregating approximately $6.9 million and, as a consequence, had become the owner of approximately 97% of the outstanding equity interests in LAX. Of the aggregate $7 million provided to LAX by the capital call, approximately $2.25 million was used to repay loans made by FelCor to LAX, approximately $3.6 million was reserved for renovations and improvements to the LAX Hotel, and the balance was utilized for working capital purposes. In addition, as of May 10, 1996, FelCor purchased the existing first mortgage indebtedness secured by the LAX Hotel from Coast Federal Bank at the then unpaid balance due thereunder of approximately $19.8 million. As a result of FelCor's ownership of the first mortgage indebtedness and certain other obligations of LAX, FelCor will receive 100% of the economic benefits from LAX's ownership of the LAX Hotel for the foreseeable future. The majority of these transactions are eliminated in consolidation. For information relating to hotel acquisitions and certain other transactions by the Company through June 30, 1996, see Note 1 of Notes to Consolidated Financial Statements of FelCor Suite Hotels, Inc. contained in Item 1 of Part I of this Quarterly Report on Form 10-Q. Such information is incorporated herein by reference. On July 16, 1996, the Company issued 165,569 shares of Common Stock to Promus Hotels, Inc. for cash in the amount of approximately $4.4 million pursuant to the terms of an existing subscription agreement. This purchase completed the remaining obligations of Promus under such subscription agreement. On July 22, 1996, the Company acquired a 50% equity interest in the 235-suite Embassy Suites hotel located in San Rafael, Marin County, California, across the bay from San Francisco. The Company paid approximately $4.0 million in cash and took its interest subject to approximately $10.2 million in nonrecourse indebtedness, being its proportionate share of the partnership debt. Upon acquisition, the hotel was leased to DJONT Operations, L.L.C. ("DJONT"), which leases the Company's other hotels, under a 10-year percentage lease upon terms comparable with the Company's other hotel leases. The remaining 50% equity interest in this hotel is held by Promus, which also manages the hotel on behalf of DJONT. As of July 31, 1996, the Company also acquired a 50% equity interest in a 274-suite Embassy Suites hotel located in Parsippany, New Jersey for approximately $15.3 million in cash. Upon acquisition, this hotel was leased to DJONT under a 10-year percentage lease upon terms comparable with the Company's other hotel leases. Promus continues to own the remaining 50% interest in this hotel, which it manages on behalf of DJONT. Effective August 1, 1996, William S. McCalmont became the Senior Vice President, Treasurer and Chief Financial Officer of the Company. For approximately 12 years prior to joining the Company, Mr. McCalmont had been employed in various positions with Harrah's Entertainment, Inc., formerly The Promus Companies Incorporated, most recently having served as the Vice President and Treasurer thereof since November 1991. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits:
Exhibit Number Description ------ ----------- 3.1 -- Articles of Amendment and Restatement dated June 22, 1995, amending and restating the Charter of Registrant, as amended or supplemented by Articles of Merger dated June 23, 1995, Articles Supplementary dated April 30, 1996 and Articles of Amendment dated August 8, 1996. 4.1 -- Form of Share Certificate for Common Stock. 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.
25 26 10.2.2 -- Schedule of executed Lease Agreements identifying material variations from the form of Lease Agreement with respect to hotels acquired by the Registrant through July 31, 1996. 27 -- Financial Data Schedule.
(b) Reports on Form 8-K: None 26 27 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 12, 1996 FELCOR SUITE HOTELS, INC. By: /s/ Lester C. Johnson --------------------------------------- Lester C. Johnson Vice President and Controller (Principal Accounting Officer) 27 28 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE - ------ ---------------------- ---- 3.1 Articles of Amendment and Restatement dated June 22, 1995 amending and restating the Charter of Registrant, as amended or supplemented by Articles of Merger dated June 23, 1995, Articles Supplementary dated April 30, 1996 and Articles of Amendment dated August 8, 1996. 4.1 Form of Share Certificate for Common Stock. 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. 10.2.2 Schedule of executed Lease Agreements identifying material variations from the form of Lease Agreement with respect to hotels acquired by the Registrant through July 31, 1996. 27 Financial Data Schedule.
EX-3.1 2 ARTICLES OF AMENDMENT AND RESTATMENT 1 EXHIBIT 3.1 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 2 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. By: (SEAL) - --------------------------- ---------------------------- Nicholas R. Peterson Thomas J. Corcoran, Jr. Assistant Secretary President -2- 3 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. 4 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 recorded in the manner required by the Maryland General Corporation Law ("Articles Supplementary"), and as may be permitted by the Maryland General Corporation Law. -2- 5 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 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 -3- 6 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. "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 -4- 7 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. (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. -5- 8 (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. (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 -6- 9 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. (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 -7- 10 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 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. -8- 11 (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 of such provision shall be affected only to the extent necessary to comply with the determination of such court. -9- 12 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 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 -10- 13 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 Shares-in-Trust and in excess -11- 14 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 -12- 15 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) 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 -13- 16 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 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 -14- 17 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. 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. -15- 18 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 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. -16- 19 (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 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. -17- 20 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 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- 21 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. 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. 22 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 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. -2- 23 (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 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 -3- 24 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, notwithstanding 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 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 -4- 25 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 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 -5- 26 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 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 -6- 27 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 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 ____ day of June, 1995. ATTEST: FELCOR SUITE HOTELS, INC., a Maryland corporation By: - ----------------------- ------------------------ -7- 28 Nicholas R. Peterson Thomas J. Corcoran, Jr. Assistant Secretary President FELCOR SUITE HOTELS, INC., a Delaware corporation By: - ------------------------ ------------------------ 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. --------------------------- Thomas J. Corcoran, Jr. 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 Suite Hotels, Inc., a Delaware corporation, are true in all material respects. ----------------------------- Thomas J. Corcoran, Jr. -8- 29 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). 30 "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 31 "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 32 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 33 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 34 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 35 (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 36 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 37 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 38 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 39 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 40 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 41 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 42 (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 43 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 44 (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 45 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 46 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: ------------------------------------ Name: Thomas J. Corcoran, Jr. Title: President Attest: By: ------------------------------------ Name: Thomas L. Wiese Title: Secretary (Corporate Seal) 18 EX-4.1 3 FORM OF SHARE CERTFICIATE FOR COMMON STOCK 1 INCORPORATED UNDER THE LAWS COMMON STOCK OF THE STATE OF MARYLAND PAR VALUE $.01 THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 314305 10 3 ATLANTA, GEORGIA AND NEW YORK, NEW YORK SEE REVERSE FOR CERTAIN DEFINITIONS NUMBER SHARES C FELCOR SUITE HOTELS, INC. This Certifies that is the owner of FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF Felcor Suite Hotels, Inc. (the "Corporation"), a Maryland corporation. The shares represented by this Certificate are transferable only on the stock transfer books of the Corporation by the holder of record hereof in person or any duly authorized attorney or legal representative upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned and registered by the Corporation's transfer agent and registrar. In Witness Whereof, the Corporation has caused this Certificate to be executed by the facsimile seal and signatures of its duly authorized officers. DATED Countersigned and Registered: SUN TRUST BANK, ATLANTA /s/ Lawrence D. Robinson (Atlanta, Georgia) SECRETARY Transfer Agent and Registrar, By /s/ Thomas J. Corcoran, Jr. Authorized Signature PRESIDENT AND CHIEF EXECUTIVE OFFICER [FELCOR GRAPHIC] [FELCOR SEAL] "WE'RE FELCOR!" FELCOR SUITE HOTELS, INC. CORPORATE SEAL MARYLAND 2 FELCOR SUITE HOTELS, INC. 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. The following abbreviations, when used in the inscription on the face of this Certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM -- as tenants in common UNIF TRANSFER MIN ACT -- Custodian TEN ENT -- as tenants by the entireties ------------- -------------- JT TEN -- as joint tenants with right (Cust) (Minor) of survivorship and not as tenants under Uniform Transfers to Minors in common Act ------------------------ (State) Additional abbreviations may also be used though not in the above list.
For value received ______________________hereby sell, asign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE - -------------------------------------------------------------------------------- shares - ------------------------------------------------------------------------- represented by this Certificate, and do hereby irrevocably constitute and appoint Attorney -------------------------------------------------------------- to transfer the said shares on the books of the Corporation with full power of substition in the premises. Date: ------------------------------- ------------------------------------------ SIGNATURE(S) GUARANTEED: ------------------------------------------ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER. EX-10.1.5 4 5TH AMEND TO AMND'D & RST'D AGRMNT OF LTD PRTNRSHP 1 EXHIBIT 10.1.5 FIFTH AMENDMENT TO AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF FELCOR SUITES LIMITED PARTNERSHIP This Fifth Amendment to Amended and Restated Agreement of Limited Partnership of FelCor Suites Limited Partnership (the "Amendment"), is entered into as of May 2, 1996 by and between FelCor Suite Hotels, Inc., 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" (the "Partnership"). B. Pursuant to Sections 4.6 and 1.4 of the Partnership Agreement, the General Partner is authorized to cause the Partnership to issue from time to time Partnership Securities in one or more classes, and in one or more series of any such classes, and to establish the designations, preferences, rights, powers and duties of such classes and series. C. The General Partner desires to exercise such authority by amending the Partnership Agreement as provided herein to establish a new class and series of Partnership Securities. NOW, THEREFORE, in consideration of the covenants and agreements hereinafter set forth, the parties hereto hereby agree as follows: 1. Definitions. All capitalized terms used without definition herein shall have the meanings set forth therefor in the Partnership Agreement. 2. Amendment of Partnership Agreement. The Partnership Agreement is hereby amended to add an Addendum No. 2 to the Partnership Agreement to create and provide for the authorization for issuance of a class of the Partnership Securities designated as the "Series A Cumulative Convertible Preferred Units," having the preferences and relative, participating, optional 2 or other special rights, powers and duties set forth in such Addendum No. 2. Such Addendum No. 2 shall be in the form of Addendum No. 2 attached to this Amendment. The Addendum No. 2 is hereby incorporated into and made a part of the Partnership Agreement for all purposes. 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 SUITE HOTELS, INC., a Maryland corporation By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 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 Agreement): By: FELCOR SUITE HOTELS, INC., acting as General Partner and as duly authorized attorney-in-fact By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- -2- 3 FELCOR SUITES LIMITED PARTNERSHIP _____________________ ADDENDUM NO. 2 TO AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP _____________________ DESIGNATION OF SERIES A CUMULATIVE CONVERTIBLE PREFERRED UNITS The undersigned General Partner of FelCor Suites Limited Partnership, a Delaware limited partnership (the "PARTNERSHIP"), pursuant to the authority expressly granted to the General Partner by the Amended and Restated Agreement of Limited Partnership of FelCor Suites Limited Partnership dated as of July 25, 1994, as amended, pursuant to which the Partnership is formed (the "PARTNERSHIP AGREEMENT"), and in particular Sections 1.4 and 4.6 thereof, hereby executes and delivers this Addendum No. 2 to the Partnership Agreement (the "ADDENDUM"), which Addendum is hereby made a part of the Partnership Agreement for all purposes, to create and provide for the issue of a class of Partnership Units and to fix the designations, preferences and relative, participating, optional or other special rights, powers and duties thereof as follows: 1. DESIGNATION OF CLASS. A class of units of the Partnership is hereby authorized and designated as the "Series A Cumulative Convertible Preferred Units" (the "SERIES A PREFERRED UNITS"). The Series A Preferred Units shall have the preferences and relative, participating, optional or other special rights, powers and duties that are set forth in this Addendum and to the extent permitted by this Addendum, established by the General Partner and set forth in any amendments to the Partnership Agreement or any amendments or annexes to this Addendum. 2. AUTHORIZED NUMBER OF SERIES A PREFERRED UNITS. The authorized number of Series A Preferred Units shall be 6,900,000. 3. PREFERENCES, RIGHTS, POWERS AND DUTIES. 3.1 DEFINITIONS. For purposes of the Series A Preferred Units, the following terms shall have the meanings indicated: "Act" shall mean the Securities Act of 1933, as amended. 4 "Addendum" shall have the meaning set forth in the preamble hereof. "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 Section 3.4(b). "Common Unit" shall mean the units of partnership interest of the Partnership not designated as Preferred Units. "Common Stock" shall mean the common stock, $0.01 par value per share, of the General Partner. "Conversion Date" shall have the meaning set forth in Section 3.5(a). "Conversion Price" shall mean the conversion price per Common Unit for which the Series A Preferred Units are convertible, as such Conversion Price may be adjusted pursuant to Section 3.5. The initial Conversion Price shall be $32.25 (equivalent to a conversion rate of 0.7752 Common Units for each Series A Preferred Unit). "Current Market Price" of Common Units shall mean the equivalent of the current market price of the Common Stock. The current market price of the Common Stock or any other class of capital stock or other security of the General Partner or any other issuer for any day shall mean the last reported sales price, regular way on such day, or, if no 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 General Partner. "Distribution 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 Distribution Payment Date falls on any day other than a Business Day, the distribution -2- 5 payment due on such Distribution Payment Date shall be paid on the Business Day immediately following such Distribution Payment Date. "Distribution Period" shall mean quarterly distribution 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 Distribution Period (other than the initial Distribution 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 Common Unit during the five (5) consecutive Trading Days selected by the Partnership commencing not more than twenty (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 shares of Common Stock trade 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. "General Partner" shall mean FelCor Suite Hotels, Inc., a Maryland corporation, which is the sole general partner of the Partnership. "Issue Date" shall mean the date on which the Partnership first issues a Series A Preferred Unit. "Junior Units" shall have the meaning set forth in Section 3.6(c). "Parity Units" shall have the meaning set forth in Section 3.6(b). "Partnership" shall have the meaning set forth in the preamble hereof. "Partnership Agreement" shall have the meaning set forth in the preamble hereof. "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. "Preferred Units" shall mean units of partnership interest of the Partnership designated as having certain preferences to the Common Units with respect to distributions or upon liquidation of the Partnership. -3- 6 "Series A Preferred Stock" shall mean the $1.95 Series A Cumulative Convertible Preferred Stock, $0.01 par value and $25.00 liquidation preference per share, of the General Partner. "Series A Preferred Units" shall have the meaning set forth in Section 1. "set apart for payment" shall be deemed to include, without any action other than the following, the recording by the Partnership in its accounting ledgers of any accounting or bookkeeping entry which indicates, pursuant to a declaration of dividends or other distribution by the Partnership, the allocation of funds to be so paid on any series or class of capital units of the Partnership; PROVIDED, HOWEVER, that if any funds for a class or series of Junior Units or any class or series of Parity Units are placed in a separate account of the Partnership or delivered to a disbursing, paying or other similar agent, then "set apart for payment" with respect to the Series A Preferred Units 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 Common Stock is 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. Initially capitalized terms used without definition herein shall have the meanings set forth therefor in the Partnership Agreement. Other terms defined herein have the meanings so given them. Whenever the context requires, the gender of all words used in this Addendum shall include the masculine, feminine and neuter form of such words, and the singular form shall include the plural and vice versa. 3.2 DISTRIBUTIONS. (a) The holders of the Series A Preferred Units shall be entitled to receive, when, as and if declared by the General Partner out of funds legally available for that purpose, distributions payable in cash in an amount per Series A Preferred Unit equal to the greater of $1.95 per annum or the cash distributions declared or paid for the corresponding period (determined on each Distribution Payment Date) on the number of Common Units, or portion thereof, into which each Series A Preferred Unit is convertible (under Section 3.5). Such distributions shall be cumulative from May 6, 1996, whether or not in any Distribution Period or Periods there shall be funds of the Partnership legally available for the payment of such distributions, and shall be payable quarterly, when, as and if declared by the General Partner, -4- 7 in arrears on Distribution Payment Dates, commencing on the first Distribution Payment Date after the Issue Date. Each such distribution shall be payable in arrears to the holders of record of the Series A Preferred Units, as they appear on the records of the Partnership at the close of business on such record dates, not more than sixty (60) days preceding such Distribution Payment Dates thereof, as shall be fixed by the General Partner. Accrued and unpaid distributions for any past Distribution Periods may be declared and paid at any time, without reference to any regular Distribution Payment Date, to holders of record on such date, not exceeding forty-five (45) days preceding the payment date thereof, as may be fixed by the General Partner. (b) The amount of distributions payable for each full Distribution Period for the Series A Preferred Units shall be computed by dividing the annual distribution rate by four (4). The amount of distributions payable for any period shorter or longer than a full Distribution Period, on the Series A Preferred Units shall be computed on the basis of twelve (12), thirty (30) day months and a 360-day year. Holders of the Series A Preferred Units shall not be entitled to any distributions, whether payable in cash, property or units, in excess of cumulative distributions, as herein provided, on the Series A Preferred Units. No interest, or sum of money in lieu of interest, shall be payable in respect of any distribution payment or payments on the Series A Preferred Units that may be in arrears. (c) So long as any of the Series A Preferred Units are outstanding, no distributions, 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 Units for any period unless full cumulative distributions 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 Units for all Distribution Periods terminating on or prior to the Distribution Payment Date on such class or series of Parity Units. When distributions are not paid in full or a sum sufficient for such payment is not set apart, as aforesaid, all distributions declared upon the Series A Preferred Units and all distributions declared upon any other class or series of Parity Units shall be declared ratably in proportion to the respective amounts of distributions accumulated and unpaid on the Series A Preferred Units and accumulated and unpaid on such Parity Units. (d) So long as any of the Series A Preferred Units are outstanding, no distributions (other than dividends or distributions paid in units of, or options, warrants or rights to subscribe for or purchase units of, Junior Units), shall be declared or paid or set apart for payment or other distribution declared or made upon Junior Units, nor shall Junior Units be redeemed, purchased or otherwise acquired (other than a redemption, purchase or other acquisition of Common Units made for purposes of an employee incentive or benefit plan of the Partnership for any consideration (or any moneys be paid to or made available for a -5- 8 sinking fund for the redemption of any such units) by the Partnership, directly or indirectly (except by conversion into or exchange for Junior Units)), unless in each case (i) the full cumulative distributions on all outstanding Series A Preferred Units and any other Parity Units shall have been paid or set apart for payment for all past Distribution Periods with respect to the Series A Preferred Units and all past distribution periods with respect to such Parity Units and (ii) sufficient funds shall have been paid or set apart for the payment of the distribution for the current Distribution Period with respect to the Series A Preferred Units and the current Distribution Period with respect to such Parity Units. 3.3 LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the Partnership, whether voluntary or involuntary, before any payment or distribution of the assets of the Partnership (whether capital or surplus) shall be made to or set apart for the holders of Junior Units, the holders of the Series A Preferred Units shall be entitled to receive twenty-five Dollars ($25.00) per Series A Preferred Unit plus an amount equal to all distributions (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 Partnership, the assets of the Partnership, or proceeds thereof, distributable among the holders of the Series A Preferred Units shall be insufficient to pay in full the preferential amount aforesaid and liquidating payments on any other class or series of Parity Units, then such assets, or the proceeds thereof, shall be distributed among the holders of the Series A Preferred Units and any such other Parity Units ratably in accordance with the respective amounts that would be payable on such Series A Preferred Units and any such other Parity Units if all amounts payable thereon were paid in full. For the purposes of this Section 3.3, (i) a consolidation or merger of the Partnership with one or more Persons, (ii) a sale or transfer of all or substantially all of the assets of the Partnership, or (iii) a statutory exchange of units shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, of the Partnership. (b) Subject to the rights of the holders of any series or class or classes of Parity Units, after payment shall have been made in full to the holders of the Series A Preferred Units, as provided in this Section 3.3, any other series or class or classes of Junior Units 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 Units shall not be entitled to share therein. -6- 9 3.4 REDEMPTION. (a) The Series A Preferred Units shall be redeemable by the Partnership solely when, as, and if any share of the Series A Preferred Stock is redeemed by the General Partner and in the same proportion as shares of the Series A Preferred Stock are redeemed by the General Partner so that the number of Series A Preferred Units remaining unredeemed shall be the same as, and at all times equal to, the number of shares of Series A Preferred Stock remaining unredeemed. The Series A Preferred Stock is not redeemable by the General Partner prior to April 30, 2001, and, therefore, the Series A Preferred Units shall not be redeemable by the Partnership prior to such date. (b) Upon redemption of the Series A Preferred Units by the Partnership on the date specified in the notice to holders required under subparagraph (d) of this Section 3.4 (the "CALL DATE"), each Series A Preferred Unit called for redemption shall (i) be converted into a number of Common Units equal to the liquidation preference (excluding any accrued and unpaid distributions) of the Series A Preferred Units 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 unit equal to the aggregate Current Market Price (determined as of the date of the notice of redemption) of the number of Common Units into which the Series A Preferred Units are then convertible divided by the then current Conversion Price, in either case to the same extent and in the same amounts as the shares of Series A Preferred Stock are redeemed by the General Partner. Upon any redemption of the Series A Preferred Units, the Partnership shall pay any accrued and unpaid distributions in arrears for any full Distribution Period ending on or prior to the Call Date. If the Call Date falls after a distribution payment record date and prior to the corresponding Distribution Payment Date, then each holder of Series A Preferred Units at the close of business on such distribution payment record date shall be entitled to the distribution payable on such units on the corresponding Distribution Payment Date. Except as provided above, the Partnership shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series A Preferred Units called for redemption or on the Common Units issued upon such redemption. (c) If full cumulative distributions on the Series A Preferred Units and any other class or series of Parity Units have not been paid or declared and set apart for payment, the Series A Preferred Units may not be redeemed in part and the Partnership may not purchase or acquire Series A Preferred Units, otherwise than pursuant to a purchase or exchange offer made on the same terms to all holders of Series A Preferred Units. -7- 10 (d) If the Partnership shall redeem Series A Preferred Units pursuant to this Section 3.4, notice of such redemption shall be given to the holders of the Series A Preferred Units called for redemption as soon as practicable after notice of redemption of the Series A Preferred Stock is given by the General Partner. From and after the Call Date (unless the Partnership shall fail to make available a number of the Common Units or amount of cash necessary to effect such redemption), (i) except as otherwise provided herein, distributions on the Series A Preferred Units so called for redemption shall cease to accrue, (ii) such units shall no longer be deemed to be outstanding, and (iii) all rights of the holders thereof as holders of Series A Preferred Units shall cease (except the rights to receive the Common Units and cash payable upon such redemption, without interest thereon, upon surrender and endorsement of their certificates if so required to receive any distributions payable thereon). As promptly as practicable after the surrender in accordance with such notice of the certificates for any such units so redeemed (properly endorsed or assigned for transfer, if the Partnership shall so require and if the notice shall so state), such units shall be exchanged for certificates of Common Units and any cash (without interest thereon) for which such units have been redeemed. If fewer than all the outstanding Series A Preferred Units are to be redeemed, units to be redeemed shall be selected by the Partnership from outstanding Series A Preferred Units not previously called for redemption by lot or pro rata (as nearly as may be) or by any other method determined by the Partnership in its sole discretion to be equitable. If fewer than all the Series A Preferred Units represented by any certificate are redeemed, then new certificates representing the unredeemed units shall be issued without cost to the holder thereof. (e) No fractional units or scrip representing fractions of Common Units shall be issued upon redemption of the Series A Preferred Units. Instead of any fractional interest in a Common Unit that would otherwise be deliverable upon the redemption of a Series A Preferred Unit, the Partnership shall pay to the holder of such unit an amount in cash (computed to the nearest cent) based upon the Current Market Price of Common Units on the Trading Day immediately preceding the Call Date. If more than one (1) unit shall be surrendered for redemption at one time by the same holder, the number of full Common Units issuable, or cash paid, upon redemption thereof shall be computed on the basis of the aggregate number of Series A Preferred Units so surrendered. 3.5 MANDATORY CONVERSION. Series A Preferred Units shall be automatically convertible into Common Units, as follows: -8- 11 (a) When, as and if any share of the Series A Preferred Stock is converted into Common Stock, then (and solely in such event) a Series A Preferred Unit shall automatically be converted into Common Units in the same proportion as shares of the Series A Preferred Stock are converted into shares of Common Stock so that the number of shares of Series A Preferred Stock remaining unconverted (if any) shall be the same as, and at all times equal to, the number of Series A Preferred Units remaining unconverted (if any). The Partnership or the General Partner shall cause a notice of such mandatory conversion to be mailed, postage prepaid, to the holders of the Series A Preferred Units at their respective addresses appearing on the unit transfer records of the Partnership. The notice shall set forth (i) the effective date of the conversion (which shall be the same date upon which the corresponding shares of Series A Preferred Stock are converted into Common Stock) (the "CONVERSION DATE"), (ii) with respect to each holder, the number of Series A Preferred Units to be converted together with the number of Common Units to be issued upon conversion, and (iii) the address of the office of the General Partner where such the Series A Preferred Units called for conversion shall be surrendered. Any notice which is mailed in the manner provided herein shall be conclusively deemed to have been duly given, whether or not the holder of the Series A Preferred Units receives such notice, and failure to duly give such notice by mail, or any defect in such notice, to any holder of the Series A Preferred Units shall not affect the validity of the conversion thereof into Common Units. (b) On or after the Conversion Date, the holder of each Series A Preferred Unit to be converted shall surrender the certificate representing such unit, duly endorsed or assigned to the Partnership or in blank, at the office of the General Partner. Unless the units issuable on conversion are to be issued in the same name as the name in which such Series A Preferred Unit is registered, each unit surrendered for conversion shall be accompanied by instruments of transfer, in form satisfactory to the Partnership, 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 Partnership demonstrating that such taxes have been paid). Holders of Series A Preferred Units at the close of business on a distribution payment record date shall be entitled to receive the distribution payable on such units on the corresponding Distribution Payment Date notwithstanding the conversion thereof following such distribution payment record date and prior to such Distribution Payment Date. However, Series A Preferred Units called for conversion during the period between the close of business on any distribution payment record date and the opening of business on the corresponding Distribution Payment Date (except units converted after the issuance of notice of redemption with respect to a Call Date during such period, such Series A Preferred Units being entitled to such distribution on the Distribution Payment Date) shall be accompanied -9- 12 by a payment of an amount equal to the distribution payable on such units on such Distribution Payment Date. Each holder of Series A Preferred Units called for conversion on a distribution payment record date shall on such Distribution Payment Date receive the distribution payable by the Partnership on such Series A Preferred Units on such date, and the holder of such units need not include payment of the amount of such distribution upon conversion of the Series A Preferred Units. Except as provided above, the Partnership shall make no payment or allowance for unpaid distributions, whether or not in arrears, on Series A Preferred Units called for conversion or for distributions on the Common Units issued upon such conversion. As promptly as practicable after the surrender of certificates for Series A Preferred Units as aforesaid, the Partnership shall issue and shall deliver at the office of the General Partner to such holder, or on his or her written order, a certificate or certificates for the number of full Common Units issuable upon the conversion of such units in accordance with provisions of this Section 3.5, and any factional interest in respect of a Common Unit arising upon such conversion shall be settled as provided in paragraph (c) of this Section 3.5. If fewer than all the outstanding Series A Preferred Units are to be converted, units to be converted shall be selected by the Partnership from outstanding Series A Preferred Units not previously called for conversion by lot or pro rata (as nearly as may be) or by any other method determined by the Partnership in its sole discretion to be equitable. If fewer than all the Series A Preferred Units represented by any certificate are converted, then new certificates representing the unconverted units shall be issued without cost to the holder thereof. Each conversion shall be deemed to have been effected immediately prior to the close of business on the Conversion Date and the Person or Persons in whose name or names any certificate or certificates for Common Units shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the units represented thereby at such time on the Conversion Date and such conversion shall be at the Conversion Price in effect at such time on the Conversion Date unless the unit transfer books of the Partnership 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 unit transfer books are open, but such conversion shall be at the Conversion Price in effect on the Conversion Date. On or after the Conversion Date, (i)(a) all distributions upon the Series A Preferred Units called for conversion shall cease and (b) all rights of the holders of the Series A Preferred Units called for conversion shall cease, except for the right to receive Common Units, and (ii) the Series A Preferred Units called for conversion shall no longer be deemed to be outstanding. -10- 13 (c) No fractional units or scrip representing Common Units shall be issued upon conversion of the Series A Preferred Units. Instead of any fractional interest in a Common Unit that would otherwise be deliverable upon the conversion of a Series A Preferred Unit, the Partnership shall pay to the holder of such unit an amount in cash (computed to the nearest cent) based upon the Current Market Price of Common Units on the Trading Day immediately preceding the Conversion Date. If more than one (1) unit of the same holder shall be called for conversion at one time, the number of full Common Units issuable, or cash paid, upon conversion thereof shall be computed on the basis of the aggregate number of Series A Preferred Units so converted. (d) The Conversion Price shall be adjusted from time to time in the same manner and to the same extent as the conversion price with respect to the Series A Preferred Stock is adjusted from time to time so that the Conversion Price shall be the same as and at all times equal to the conversion price of the Series A Preferred Stock. (e) Prior to the delivery of any securities that the Partnership shall be obligated to deliver upon conversion of the Series A Preferred Units, the Partnership shall endeavor to comply with all federal and state laws and the regulations promulgated thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof, by any governmental authority. (f) The Partnership will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Common Units or other securities or property on conversion of the Series A Preferred Units pursuant hereto; PROVIDED, HOWEVER, that the Partnership shall not be required to pay any tax that may be payable in respect of any transfer involved in the issue or delivery of Common Units or other securities or property in a name other than that of the holder of the Series A Preferred Units 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 Partnership the amount of any such tax or established, to the reasonable satisfaction of the Partnership, that such tax has been paid. 3.6 RANKING. Any class or series of units of the Partnership shall be deemed to rank: (a) prior to the Series A Preferred Units, as to the payment of distributions 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 distributions 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 Units; -11- 14 (b) on a parity with the Series A Preferred Units, as to the payment of distributions and as to distribution of assets upon liquidation, dissolution or winding up, whether or not the distribution rates, distribution payment dates or redemption or liquidation prices per unit thereof be different from those of the Series A Preferred Units, if the holders of such class of units or series and the Series A Preferred Units shall be entitled to the receipt of distributions and of amounts distributable upon liquidation, dissolution or winding up in proportion to their respective amounts of accrued and unpaid distributions per unit or liquidation preferences, without preference or priority one over the other ("PARITY UNITS"); and (c) junior to the Series A Preferred Units, as to the payment of distributions or as to the distribution of assets upon liquidation, dissolution or winding up, if such units or series shall be Common Units or if the holders of the Series A Preferred Units shall be entitled to receipt of distributions or of amounts distributable upon liquidation, dissolution or winding up, as the case may be, in preference or priority to the holders of such units or series ("JUNIOR UNITS"). 3.7 RECORD HOLDERS. The Partnership may deem and treat the record holder of any Series A Preferred Units as the true and lawful owner thereof for all purposes, and the Partnership shall not be affected by any notice to the contrary. IN WITNESS WHEREOF, the Partnership has caused this Addendum to be executed by its General Partner, acting through its duly authorized officer, as of this 2nd day of May, 1996. FELCOR SUITES LIMITED PARTNERSHIP By: FELCOR SUITE HOTELS, INC., a Maryland corporation, as its General Partner By: --------------------------------- Name: ------------------------------- Title: ------------------------------ -12- EX-10.2.2 5 SCHEDULE OF EXECUTED LEASE AGREEMENT 1 EXHIBIT 10.2.2 SCHEDULE OF EXECUTED LEASE AGREEMENTS SHOWING MATERIAL VARIATIONS FROM FORM OF LEASE AGREEMENT (AS OF JULY 31, 1996) (Dollar Amounts in Thousands)
Annual Percentage Rent --------------- Suite Hotel Location/Franchise/ Commencement Annual First Second Revenue Manager (1) Lessor (2) Date Base Rent (3) Tier (4) Tier (5) Breakpoint (3) ----------- ---------- ------------ ------------- -------- -------- -------------- Dallas (Park Central), TX - 7/28/94 $1,477 17% 65% $3,590 Jacksonville, FL - 7/28/94 882 17% 65% 3,490 Nashville, TN - 7/28/94 1,667 17% 65% 4,290 Orlando (North), FL - 7/28/94 1,571 19% 65% 2,650 Orlando (South), FL - 7/28/94 1,413 17% 65% 4,580 Tulsa, OK - 7/28/94 1,268 19% 65% 2,770 New Orleans, LA - 12/1/94 1,960 19% 65% 4,290 Flagstaff, AZ - 2/15/95 570 17% 65% 1,160 Dallas (Love Field), TX (6) - 3/29/95 1,836 17% 65% 3,060 Boston-Marlborough, MA - 6/30/95 720 19% 65% 940 Corpus Christi, TX - 7/19/95 1,000 17% 65% 1,495 Brunswick, GA - 7/19/95 370 17% 65% 1,350 Chicago-Lombard, IL (7) 8/1/95 1,900 17% 65% 3,270 Burlingame (SF Airport), CA (8) 11/6/95 3,147 17% 65% 3,174 Minneapolis (Airport) MN (8) 11/6/95 2,778 17% 65% 2,138 Minneapolis (Downtown), MN (8) 11/15/95 1,387 17% 65% 2,091 St. Paul, MN (9) 11/15/95 1,085 17% 65% 3,115 Boca Raton, FL (10) (8) 11/15/95 654 17% 65% 1,421 Tampa (Busch Gardens), FL (10) (8) 11/15/95 786 17% 65% 1,287 Cleveland, OH (8) 11/17/95 1,258 17% 65% 4,929 Anaheim, CA (8) 1/3/96 1,272 17% 65% 2,062 Baton Rouge, LA (8) 1/3/96 1,204 17% 65% 2,281 Birmingham, AL (8) 1/3/96 1,898 17% 65% 1,273 Deerfield Beach, FL (8) 1/3/96 2,163 17% 65% 2,568
2
Annual Percentage Rent --------------- Suite Hotel Location/Franchise/ Commencement Annual First Second Revenue Manager (1) Lessor (2) Date Base Rent (3) Tier (4) Tier (5) Breakpoint (3) ----------- ---------- ------------ ------------- -------- -------- -------------- Ft. Lauderdale, FL (8) 1/3/96 3,228 17% 65% 1,969 Miami (Airport), FL (8) 1/3/96 2,222 17% 65% 2,882 Milpitas, CA (8) 1/3/96 2,143 17% 65% 1,402 Phoenix (Camelback), AZ (8) 1/3/96 2,812 17% 65% 1,428 South San Francisco (SF Airport), CA (8) 1/3/96 1,876 17% 65% 3,103 Piscataway, NJ - 1/10/96 1,355 17% 65% 3,574 Lexington, KY (11) - 1/10/96 1,149 17% 65% 2,135 Beaver Creek, CO - 2/20/96 375 17% 65% 2,284 Boca Raton, FL - 2/28/96 1,368 17% 65% 3,670 Los Angeles (LAX), CA (12) 3/27/96 1,600 17% 65% 4,130 Mandalay Beach, CA (8) 5/8/96 1,927 17% 65% 2,909 Napa, CA (8) 5/8/96 1,215 17% 65% 3,145 Deerfield, IL (13) - 6/20/96 1,743 17% 65% 2,505 San Rafael, CA (14) 7/18/96 2,107 17% 65% 2,917 Parsippany, NJ (15) 7/31/96 2,440 17% 65% 3,930
- ------------------- (1) Unless otherwise noted, the hotels under each Lease Agreement are operated as Embassy Suites(R) Hotels under a commitment or license agreement with Promus Hotels, Inc.; the Manager as defined in each Lease Agreement is Promus Hotels, Inc. or an affiliate thereof unless otherwise noted. (2) Lessor as defined in each Lease Agreement is FelCor Suites Limited Partnership ("Partnership") unless otherwise noted. (3) Represents the amount set forth in each Lease Agreement as the annual Base Rent and the threshold suite revenue amount. Both of these amounts are subject to adjustment for changes in the consumer price index and may not represent the actual amount currently required under each such Lease Agreement. (4) Represents percentage of suite revenue payable as Percentage Rent up to suite revenue breakpoint. (5) Represents percentage of suite revenue payable as Percentage Rent in excess of suite revenue breakpoint. (6) The Manager as defined in this Lease Agreement is American General Hospitality, Inc. (7) The Lessor as defined in this Lease Agreement is Embassy/GACL Lombard Venture, a joint venture between the Partnership and Promus Hotels, Inc. (8) The Lessor as defined in these Lease Agreements is FelCor/CSS Holdings, L.P., of which the Partnership is a 99% limited partner. -2- 3 (9) The Lessor as defined in this Lease Agreement is FelCor/St. Paul Holdings, L.P., of which the Partnership is a 99% limited partner and another subsidiary of the Company is a 1% general partner. (10) The hotels under these Lease Agreements are operated as Doubletree Guest Suites(R) Hotels; the Manager as defined in these Lease Agreements is DT Management, Inc. (11) The hotel under this Lease Agreement is operated as a Hilton Suites(R) Hotel under a franchise or license agreement with Hilton Inns, Inc.; the Manager as defined in this Lease Agreement is American General Hospitality, Inc. (12) The Lessor as defined in this Lease Agreement is Los Angeles International Airport Hotel Associates, a limited partnership of which the Partnership is the sole general partner and of which the Partnership has an aggregate approximately 97 % partnership interest. (13) The Manager as defined in this Lease Agreement is Coastal Hotel Group, Inc. (14) The Lessor as defined in this Lease Agreement is MHV Joint Venture, a joint venture between the Partnership and Promus Hotels, Inc. (15) The Lessor as defined in this Lease Agreement is Embassy/Shaw Parsippany Venture, a joint venture between the Partnership and Promus Hotels, Inc. -3- EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 5,052 0 3,751 0 0 10,419 832,371 21,271 825,679 15,777 87,121 229 0 151,250 485,073 825,679 0 49,055 0 0 0 0 4,310 23,237 0 23,237 0 0 0 23,237 0.94 0.94
-----END PRIVACY-ENHANCED MESSAGE-----