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As filed with the Securities and Exchange Commission on October 28, 1998
Registration Statement No. 333-______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MERISTAR HOSPITALITY CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Maryland 75-2648842
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
(202) 295-1000
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
Paul W. Whetsell
Chairman of the Board and
Chief Executive Officer
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
(202) 295-1000
(Name Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------
copy to:
Steven L. Lichtenfeld, Esq. Richard S. Borisoff, Esq.
Battle Fowler LLP Paul, Weiss, Rifkind, Wharton & Garrison
75 East 55th Street 1285 Avenue of the Americas
New York, New York 10022 New York, New York 10019
(212) 856-7000 (212) 373-3000
Approximate date of commencement of proposed sale to public: From time
to time or at one time after the effective date of this registration statement
as determined by market conditions.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of each class Amount Proposed Maximum Proposed Maximum on
of securities to be to be Offering Price Aggregate Offering Amount of Registration
Registered Registered (2) Price Fee(3)
---------- ---------- ---- ----- ------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value per share 3,643,403 $17.9065 $65,240,596 $10,716
- -------------------------------------------- -------------- ------------------ ------------------- -------------------
</TABLE>
(1) Includes 1,490,859 shares of Common Stock of the Registrant previously
registered on Registration Statement on Form S-3, Registration No. 333-
36127 and 2,152,544 shares registered for the first time by this
Registration Statement.
(2) Estimated solely for the purpose of determining the Registration Fee in
accordance with Rule 457(c) of the rules and regulations under the
Securities Act of 1933, as amended. Pursuant to Rule 457, the proposed
maximum offering price per share of Common Stock of the Registrant is
based upon the average of the high and low prices of the Registrant's
Common Stock on October 22, 1998 on the New York Stock Exchange
Composite Transaction Tape.
(3) Registration Fees totaling $17,856.22 with respect to 1,490,859 of the
3,643,403 shares registered hereby were previously paid upon the
initial registration of such shares. Pursuant to Rule 429(b) of the
Securities Act of 1933, as amended, the applicable registration fee of
$10,716 with respect to the additional 2,152,544 shares is being paid
herewith.
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Pursuant to Rule 429 of the Rules and Regulations under the Securities
Act of 1933, as amended, this Registration Statement contains a combined
prospectus that also relates to a Registration Statement on Form S-3 (No.
333-36127) previously filed by the Registrant and declared effective on November
20, 1997, and collectively they are referred to herein as the "Registration
Statement."
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754350.7
<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER 28, 1998
PROSPECTUS 3,643,403 Shares
MERISTAR HOSPITALITY CORPORATION
COMMON STOCK
-----------------
We are a comprehensive real estate investment trust which owns a
portfolio of primarily upscale, full service hotels, diversified by franchise
and brand affiliation, in the United States and Canada.
This Prospectus relates to the offer and sale from time to time by the
persons listed under "Selling Stockholders" of up to 3,643,403 shares of our
Common Stock. We have or may issue these shares of our Common Stock to the
extent such Selling Stockholders exchange their 3,643,403 units of limited
partnership interest in our subsidiary, MeriStar Hospitality Operating
Partnership, L.P., held by them for an equal number of shares of our Common
Stock.
The Selling Stockholders may offer from time to time the shares of
Common Stock covered by this Prospectus on the New York Stock Exchange, Inc.,
where our Common Stock is listed for trading under the symbol "MHX," in other
markets where our Common Stock may be traded or in negotiated transactions, at
whatever prices which are current when particular sales take place or at other
prices to which they agree. The Selling Stockholders will pay any brokerage fees
or commissions relating to the sales by them. See "Plan of Distribution." The
registration of the Selling Stockholders' shares does not necessarily mean that
any of them will sell their shares.
We will not receive any of the proceeds of sales by the Selling
Stockholders. We are paying the costs of preparing and filing the Registration
Statement of which this Prospectus is a part.
See "Risk Factors" beginning on page 5 for certain factors relevant to
an investment in our Common Stock.
These securities have not been approved by the Securities and Exchange
Commission or any state securities commission; nor have these organizations
determined that this Prospectus is accurate or complete. Any representation to
the contrary is a criminal offense.
____________ __, 1998
754350.7
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file at the Securities and Exchange Commission's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the public reference rooms. Our Securities and Exchange
Commission filings are also available to the public from the Securities and
Exchange Commission's Website at "http://www.sec.gov."
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and information that we file later with the Securities and Exchange
Commission will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the Securities and Exchange Commission under Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934:
MeriStar Hospitality Corporation
1. Our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1998;
2. Our Current Report on Form 8-K dated August 3, 1998 and filed on August 14,
1998; and
3. The description of our Common Stock contained in our Registration Statement
on Form 8-A.
CapStar Hotel Company
1. Annual Report on Form 10-K and 10-K/A of CapStar Hotel Company for the year
ended December 31, 1997;
2. Quarterly Report on Form 10-Q filed by CapStar Hotel Company for the period
ended March 31, 1998; and
3. Current Reports on Form 8-K of CapStar Hotel Company: dated August 1, 1997
and filed on August 13, 1997; dated August 18, 1997 and filed on September 2,
1997; dated September 5, 1997 and filed on September 8, 1997; dated and filed on
September 9, 1997; dated and filed on September 18, 1997; dated and filed on
September 22, 1997; dated January 6, 1998 and filed on January 21, 1998 (and the
related Current Report on Form 8-K/A, filed on March 6, 1998); dated March 2,
1998 and filed on March 17, 1998 (and the related Current Report on Form 8-K/A,
filed on May 6, 1998); dated March 15, 1998 and filed on March 17, 1998; dated
and filed on April 7, 1998 (and the related Current Report on Form 8-K/A, filed
on May 6, 1998 and May 22, 1998); dated June 5, 1998 and filed on June 11, 1998;
and dated and filed on July 13, 1998.
American General Hospitality Corporation
1. Annual Report on Form 10-K and 10-K/A of American General Hospitality
Corporation for the fiscal year ended December 31, 1997;
2. Quarterly Report on Form 10-Q and 10-Q/A of American General Hospitality
Corporation for the period ended March 31, 1998; and
3. Current Reports on Form 8-K of American General Hospitality Corporation:
dated January 8, 1998 and filed on January 23, 1998; dated February 12, 1998 and
filed on February 13, 1998; dated February 13, 1998 and filed on February 27,
1998; dated February 18, 1998 and filed on February 19, 1998; dated February 24,
1998 and filed on February 25, 1998; dated March 15, 1998 and filed on March 17,
1998; dated April 6, 1998 and filed on April 7, 1998 (and the related Current
Reports on Form 8-K/A, filed on May 22, 1998, May 28, 1998, June 5, 1998 and
June 19, 1998); dated April 22, 1998 and filed on April 27, 1998; dated and
filed on June 5, 1998; dated and filed on July 10, 1998; dated and filed on July
13, 1998.
754350.7
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<PAGE>
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
John Emery, Chief Financial Officer
MeriStar Hospitality Corporation
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Telephone requests may be directed to (202) 295-1000.
This Prospectus is part of a registration statement we filed with the
Securities and Exchange Commission. You should rely only on the information or
representations provided in this Prospectus. We have authorized no one to
provide you with different information. We are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this Prospectus is accurate as of any date other than
the date on the front of the document.
FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this
Prospectus may contain forward- looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act, and as such may
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of our company to be materially
different from future results, performance or achievements expressed or implied
by such forward-looking statements. Forward-looking statements, which are based
on certain assumptions and describe our future plans, strategies and
expectations are generally identifiable by use of the words "may," "will,"
"should," "expect," "anticipate," "estimate," "believe," "intend" or "project"
or the negative thereof or other variations thereon or comparable terminology.
Factors which could have a material adverse effect on the operations and future
prospects of our Company include, but are not limited to, changes in: economic
conditions generally and the real estate market specifically,
legislative/regulatory changes (including changes to laws governing the taxation
of real estate investment trusts), availability of capital, interest rates,
competition, supply and demand for hotel rooms in our current and proposed
market areas and general accounting principles, policies and guidelines
applicable to real estate investment trusts. These risks and uncertainties
should be considered in evaluating any forward-looking statements contained or
incorporated by reference herein.
754350.7
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<PAGE>
THE COMPANY
We are a comprehensive real estate investment trust, which owns a
portfolio of primarily upscale, full service hotels, diversified by franchise
and brand affiliations, in the United States and Canada. All of our hotels and
our other assets are held by, and all of our operations are conducted by our
subsidiary, MeriStar Hospitality Operating Partnership, L.P. We are the sole
general partner of the Operating Partnership and control its operations. On
August 3, 1998, our predecessor, American General Hospitality Corporation,
completed a merger with CapStar Hotel Company pursuant to which we changed our
name to MeriStar Hospitality Corporation.
Substantially all of our hotels are leased to and operated by MeriStar
Hotels & Resorts, Inc. ("OpCo"), a separate, but closely aligned public company
that also leases and manages properties for other owners. Our Company and OpCo,
which share certain select key officers and some board members, have formed the
first paper clip real estate investment trust in the lodging industry. An
intercompany agreement aligns our interests with the interests of our primary
hotel lessee, OpCo, with the objective of benefitting both companies'
stockholders.
Our executive offices are located at 1010 Wisconsin Avenue, N.W.,
Washington, D.C. 20007 and our telephone number is (202) 295-1000.
754350.7
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RISK FACTORS
You should consider carefully the following risk factors together with
all of the other information included or incorporated by reference in this
Prospectus before you decide to purchase shares of our Common Stock. This
section includes or refers to certain forward-looking statements. You should
refer to the explanation of the qualifications and limitations on such
forward-looking statements discussed on page 3 of the Prospectus.
Failure to Manage Rapid Growth and Integrate Operations
We have recently experienced and we may continue to experience rapid
growth through the acquisition of additional hotel properties. The consolidation
of functions and integration of departments, systems and procedures following
the American General Hospitality Corporation and CapStar Hotel Company merger
and the formation of OpCo to manage most of our hotels will present a
significant management challenge, and the failure to effectively integrate all
of such hotels into OpCo's management and operating structures could have a
material adverse effect on our results of operations and financial condition.
There can be no assurance that the anticipated benefits from the merger will be
realized or that the integration will be successful and timely implemented.
Our ability to manage growth effectively requires us to select capable
lessees and managers for newly acquired hotels. There can be no assurance that
OpCo or other hotel management companies and/or operators will be able to manage
our newly acquired hotels.
Significant Indebtedness; Refinancing Risks
We currently have significant amounts of debt outstanding and,
accordingly, are subject to the risks normally associated with debt financing,
including the risk that our cash flow from operations will be insufficient to
make required payments of principal and interest, the risk that existing
indebtedness, including secured indebtedness, may not be refinanced or that the
terms of any refinancing will not be as favorable as the terms of existing
indebtedness. If we do not have sufficient funds to repay our indebtedness at
maturity, it may be necessary to refinance such indebtedness through additional
debt financing, private or public offerings of debt securities or additional
equity offerings. If, at the time of any such refinancing, prevailing interest
rates or other factors result in higher interest rates on refinancings,
increases in interest expense could adversely affect cash flow, and,
consequently, cash available for distribution to stockholders. If we are unable
to refinance our indebtedness on acceptable terms, we might be forced to dispose
of hotels or other assets on disadvantageous terms, potentially resulting in
losses and adverse effects on cash flow from operating activities. If we are
unable to make required payments of principal and interest on indebtedness
secured by our hotels, such properties could be foreclosed upon by the lender
with a consequent loss of income and asset value.
Likewise our credit facility requirements could affect our financial
condition. We have in place a three-year unsecured revolving credit and term
loan facility that, at inception, provided for a maximum borrowing amount of up
to $1.0 billion. Our ability to borrow under the credit facility is subject to
certain financial covenants, including certain leverage and interest rate
coverage ratios and minimum net worth requirements. Our credit facility limits
our ability to effect certain mergers, asset sales and change of control events
and limits dividends to the lesser of (i) 90% of funds from operation and (ii)
10% of free cash flow (funds from operations less a capital reserve equal to 4%
of gross room revenues). The credit facility also contains a cross-default
provision which would be triggered by a default or acceleration of (i) $20
million or more of indebtedness secured by certain of our assets or (ii) $5
million or more of any other indebtedness.
We also have outstanding $150 million of senior subordinated unsecured
notes due 2007 that bear interest at an annual rate of 8.75% and $175 million of
outstanding convertible notes due 2004 that bear interest at 4.75%. The
indentures relating to these notes contain limitations on our ability to effect
certain mergers and change of control events. The indenture relating to the $150
million of senior subordinated unsecured notes contains certain financial
covenants, including the limitation on additional indebtedness and the issuance
of capital stock unless a certain interest coverage ratio is met, certain
limitations on the declaration and payment of dividends, certain limitations on
the sale of our assets, certain limitations on transactions with our affiliates
and certain limitations on liens.
754350.7
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Our organizational documents do not limit the amount of indebtedness
which we may incur. As of October 1, 1998, 24.81% of our hotel assets, based on
the number of guest rooms, are encumbered by mortgage debt.
Risk of Rising Interest Rates
Certain of our borrowings bear interest at a variable rate, including
amounts outstanding under our credit facility. In addition, we may incur
indebtedness in the future that bears interest at a variable rate or we may be
required to retain our existing indebtedness at higher interest rates.
Accordingly, increases in interest rates could increase our interest expense and
adversely affect cash flow.
Dependence on Lessees and Payments Under the Hotel Leases
Our revenues and our ability to make distributions to our stockholders
depends solely upon the ability of OpCo and our other hotel lessees to make rent
payments under hotel leases. We receive both base rent and a percentage of gross
sales above a certain minimum level under our hotel leases. As a result, we will
participate in the economic operations of our hotels only through our share of
gross revenues. Any failure or delay by OpCo or our other hotel lessees in
making rent payments would adversely affect our ability to make distributions to
our stockholders. Such failure or delay by OpCo or our other hotel lessees may
be caused by reductions in revenue from the hotels they lease from us. OpCo and
our other hotel lessees will be affected by factors beyond their control such as
changes in general economic conditions, the level of demand for such rooms and
related services of our hotels, the ability of OpCo and our other lessees to
maintain and increase gross revenues at our hotels, competition in the lodging
industry and other factors relating to the operations of our hotels. Although
failure on the part of either OpCo or our other lessees to materially comply
with the terms of a hotel lease (including failure to pay rent when due) gives
us the non-exclusive right to terminate such lease, repossess the applicable
hotel and enforce the payment obligations under such lease, we would then be
required to find another lessee to lease such hotel because we cannot operate
hotels directly due to certain federal income tax restrictions. In addition, it
is possible that we will be unable to enforce the payment obligations under the
leases following any such termination. There can be no assurance that we would
be able to find another lessee or that, if another lessee were found, we would
be able to enter into a new lease on favorable terms to us.
Conflict of Interest Risks in our Relationship with OpCo
General Conflicts of Interest
We share four of the nine members of our Boards of Directors, as well
as two senior executives, with OpCo. Our relationship with OpCo is governed by
an intercompany agreement, which restricts each party from taking advantage of
certain business opportunities without first presenting those opportunities to
the other party. We may have conflicting views with OpCo on the manner in which
our hotels are operated and managed, and with respect to lease arrangements,
acquisitions and dispositions. As a result, our directors and senior executives
(who serve in similar capacities at OpCo) may well be presented with several
decisions which provide them the opportunity to benefit us to the detriment of
OpCo or benefit OpCo to our detriment. Such inherent potential conflicts of
interest will be present in all of the numerous transactions between us and
OpCo.
Restrictions on OpCo's and Our Business and Future Opportunities
The certificate of incorporation of OpCo (the "OpCo Charter") provides
that, for so long as the intercompany agreement with us remains in effect, OpCo
is prohibited from engaging in activities or making investments that a real
estate investment trust could make unless we are first given the opportunity but
elected not to pursue such activities or investments. Under the intercompany
agreement, OpCo has, subject to certain limited exceptions, agreed not to
acquire or make (i) investments in real estate (which, for purposes of the
intercompany agreement, include the provision of services related to real estate
and investment in hotel properties, real estate mortgages, real estate
derivatives or entities that invest in real estate assets) or (ii) any other
investments that may be structured in a manner that qualifies under the federal
income tax requirements applicable to real estate investment trust, unless in
either case it has notified us of the acquisition or investment opportunity, in
accordance with the terms of the intercompany
754350.7
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agreement, and we have determined not to pursue such acquisition or investment.
OpCo also has agreed to assist us in structuring and consummating any such
acquisition or investment which we elect to pursue, on terms determined by us.
On the other hand, the intercompany agreement grants OpCo the right of first
refusal to become the lessee of any real property acquired by us that we are
required, consistent with our status as a real estate investment trust, to lease
to a third party. This lessee opportunity will be available to OpCo only if we
determine, in our sole discretion, that OpCo is qualified to be the lessee.
Because of the provisions of the intercompany agreement and the OpCo Charter,
the nature of OpCo's business and the opportunities it may pursue are
restricted.
OpCo's Dependence upon Us; Limited Resources for Growth Through New
Opportunities
Due to OpCo's restricted corporate purpose and our intercompany
agreement with it, OpCo will rely on us to provide it with the lease
opportunities described in the intercompany agreement only if it is necessary
for us, consistent with our status as a real estate investment trust, to enter
into a lease and only if we negotiate a mutually satisfactory lease with it. If
in the future we should fail to qualify as a real estate investment trust, such
failure could have a substantial adverse effect on those aspects of OpCo's
business operations and business opportunities that are dependent upon us. For
example, our intercompany agreement remains effective even if we cease to
qualify as a real estate investment trust, with OpCo's rights relating to lease
opportunities under the intercompany agreement continuing to be based on our
need to enter into the leases due to our status as a real estate investment
trust. Accordingly, if we fail to qualify as a real estate investment trust and
thereafter acquired a hotel, we would have the right under our intercompany
agreement to lease the hotel to any person or entity pursuant to any type of
lease or to operate the hotel ourselves. OpCo, however, would remain subject to
all of the limitations on its operations contained in the OpCo Charter and the
intercompany agreement. In addition, although it is anticipated that any lease
involving OpCo generally will provide that OpCo's rights will continue following
a sale of the hotel or an assignment of the lease (with the likelihood of a sale
or assignment of lease possibly increasing if we fail to qualify as a real
estate investment trust), OpCo could lose its rights under any such lease upon
the expiration of the lease. If we do not negotiate a mutually satisfactory
lease with OpCo within 30 days after we provide OpCo with written notice of the
lessee opportunity (or such longer period to which we may agree with OpCo), we
may offer the opportunity to others for a period of one year before it must
again offer the opportunity to OpCo.
Conflicts Relating to Sale of Hotels Subject to Leases
We generally will be obligated under our leases with OpCo to pay a
lease termination fee to OpCo if we elect to sell a hotel or if we elect not to
restore a hotel after a casualty and do not replace it with another hotel on
terms that would create a leasehold interest in such hotel with a fair market
value equal to the fair market value of OpCo's remaining leasehold interest
under the lease to be terminated. Where applicable, the termination fee is equal
to the fair market value of OpCo's leasehold interest in the remaining term of
the lease to be terminated. A decision to sell a hotel may, therefore, have
significantly different consequences for the Company and OpCo.
Lack of Control Over Management and Operations of the Hotels
We are dependent on the ability of OpCo and other lessees of hotels to
operate and manage our hotels. In order to maintain our real estate investment
trust status, we cannot operate our hotels or any subsequently acquired hotels.
As a result, we are unable to directly implement strategic business decisions
with respect to the operation and marketing of our hotels, such as decisions
with respect to the setting of room rates, food and beverage operations and
certain similar matters.
Potential Negative Impact on Our Acquisitions
Our ability to acquire additional hotels could be negatively impacted
by our relationship with OpCo because hotel management companies, franchisees
and others who would have approached us with acquisition opportunities in hopes
of establishing lessee or management relationships may not do so knowing that we
will rely primarily on OpCo to lease and/or manage the acquired properties. Such
persons may instead provide such acquisition opportunities to hotel companies
that will allow them to manage the properties following the sale. This could
have a negative impact on our acquisition activities in the future.
754350.7
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No Arm's - Length Bargaining of Intercompany Agreement with OpCo
The terms of the intercompany agreement with OpCo were not negotiated on an
arm's-length basis. Because the two companies share some of the same executive
officers and directors, there is a potential conflict of interest with respect
to the enforcement and termination of the intercompany agreement to our benefit
to the detriment of OpCo or benefit OpCo to our detriment. Because of these
conflicts, such executive officers and directors may have conflicts of interest
with respect to their decisions relating to enforcement of the intercompany
agreement.
Operational Limitations Associated with Franchise Agreements
Substantially all of the Company's hotels are operated pursuant to existing
franchise or license agreements with nationally recognized hotel brands. The
franchise agreements generally contain specific standards for, and restrictions
and limitations on, the operation and maintenance of a hotel in order to
maintain uniformity within the franchisor system. Those limitations may conflict
with our philosophy, shared with OpCo, of creating specific business plans
tailored to each hotel and to each market. Such standards are often subject to
change over time, in some cases at the discretion of the franchisor, and may
restrict a franchisee's ability to make improvements or modifications to a hotel
without the consent of the franchisor. In addition, compliance with such
standards could require a franchisee to incur significant expenses or capital
expenditures. Action or inaction on our part, OpCo or by our other third-party
operators could result in a breach of such standards or other terms and
conditions of the franchise agreements and could result in the loss or
cancellation of a franchise license.
In connection with terminating or changing the franchise affiliation of a
hotel or a subsequently acquired hotel, we may be required to incur significant
expenses or capital expenditures. Moreover, the loss of a franchise license
could have a material adverse effect upon the operations or the underlying value
of the hotel covered by the franchise because of the loss of associated name
recognition, marketing support and centralized reservation systems provided by
the franchisor. The franchise agreements covering the hotels expire or
terminate, without specified renewal rights, at various times and have differing
remaining terms. As a condition to renewal, the franchise agreements frequently
contemplate a renewal application process, which may require substantial capital
improvements to be made to the hotel.
Potential Costs of Compliance with Environmental Laws
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of contamination from
hazardous or toxic substances, or the failure to properly remediate such
contaminated property, may adversely affect the owner's ability to sell or rent
such real property or to borrow using such real property as collateral. Persons
who arrange for the disposal or treatment of hazardous or toxic substances may
also be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is or ever was
owned or operated by such person. The operation and removal of certain
underground storage tanks are also regulated by federal and state laws. In
connection with the ownership and operation of the hotels, we could be held
liable for the costs of remedial action with respect to such regulated
substances and storage tanks and claims related thereto. Activities have been
undertaken to close or remove storage tanks located on the property of several
of the hotels.
All of our hotels have undergone Phase I environmental site assessments
("Phase I"), which generally provide a nonintrusive physical inspection and
database search, but not soil or groundwater analyses, by a qualified
independent environmental engineer. The purpose of a Phase I is to identify
potential sources of contamination for which the hotels may be responsible and
to assess the status of environmental regulatory compliance. The Phase Is have
not revealed any environmental liability or compliance concerns that we believe
would have a material adverse effect on our results of operation or financial
condition, nor are we aware of any such liability or concerns.
754350.7
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In addition, our hotels have been inspected to determine the presence of
asbestos. Federal, state and local environmental laws, ordinances and
regulations also require abatement or removal of certain asbestos-containing
materials ("ACMs") and govern emissions of and exposure to asbestos fibers in
the air. ACMs are present in various building materials such as sprayed-on
ceiling treatments, roofing materials or floor tiles at some of the hotels.
Operations and maintenance programs for maintaining such ACMs have been or are
in the process of being designed and implemented, or the ACMs have been
scheduled to be or have been abated, at such hotels. Any liability resulting
from non-compliance or other claims relating to environmental matters could have
a material adverse effect on our results of operations or financial condition.
Investment in Single Industry
Our current strategy is to acquire interests only in hospitality and
lodging. As a result, we are subject to the risks inherent in investing in a
single industry. The effects on cash available for distribution resulting from a
downturn in the hotel industry may be more pronounced than if we had diversified
our investments.
Real Estate Investment Trust Tax Risks
Dependence on Qualification as a Real Estate Investment Trust
We have operated and intend to continue to operate in a manner designed to
permit us to qualify as a real estate investment trust for federal income tax
purposes. Qualification as a real estate investment trust involves the
application of highly technical and complex provisions of the Internal Revenue
Code of 1986, as amended (the "Code") for which there are only limited judicial
or administrative interpretations. The determination of various factual matters
and circumstances not entirely within our control may affect our ability to
continue to qualify as a real estate investment trust. The complexity of these
provisions and of the applicable income tax regulations that have been
promulgated under the Code is greater in the case of a real estate investment
trust that holds its assets through a partnership, such as we do. Moreover, no
assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not change the tax laws with respect to
qualification as a real estate investment trust or the federal income tax
consequences of such qualification. We have received an opinion of Paul, Weiss,
Rifkind, Wharton & Garrison, our special tax counsel ("Company Tax Counsel"), to
the effect that, based on various assumptions relating to our operation and
representations made by us and others as to certain factual matters, commencing
with the taxable year ending December 31, 1996, we have been organized and have
operated in conformity with the requirements for qualification as a real estate
investment trust within the meaning of the Code and we intend to continue to
operate so as to meet the requirements for qualification and taxation as a real
estate investment trust under the Code. Such legal opinion is not binding on the
Internal Revenue Service. See "Federal Income Tax Considerations."
If our company and OpCo were treated as stapled entities under section
269B(a)(3) of the Code or if the separate corporate existence of OpCo were
disregarded or OpCo were treated as our agent for federal income tax purposes,
we would not qualify as a real estate investment trust under the Code. We have
received an opinion of Company Tax Counsel to the effect that our company and
OpCo are not stapled entities under section 269(B)(a)(3) of the Code and that,
based upon the current operations of each entity and certain other factors and
upon representations made by certain members of management of both companies,
our separate corporate identities will be respected and OpCo will not be treated
as an agent of our company for federal income tax purposes.
If we fail to qualify as a real estate investment trust in any taxable
year, we will not be allowed a deduction for distributions to our stockholders
in computing our taxable income and will be subject to federal income tax
(including any applicable alternative minimum tax) on our taxable income at the
applicable corporate rate. In addition, unless we were entitled to relief under
certain statutory provisions, we would be disqualified from treatment as a real
estate investment trust for the four taxable years following the year during
which qualification is lost. This disqualification would reduce our funds
available for investment or distribution to our stockholders because of our
additional tax liability for the year or years involved.
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If we were to fail to qualify as a real estate investment trust, we no
longer would be subject to the distribution requirements of the Code and to the
extent that distributions to stockholders would have been made in anticipation
of our qualifying as a real estate investment trust, we might be required to
borrow funds or to liquidate certain of our assets to pay the applicable
corporate income tax. Although we currently operate in a manner designed to
qualify as a real estate investment trust, it is possible that future economic,
market, legal, tax or other considerations may cause us to decide to revoke the
real estate investment trust election.
Adverse Effects of Real Estate Investment Trust Minimum Distribution
Requirements.
To obtain the favorable tax treatment accorded to real estate investment
trusts under the Code, we generally will be required each year to distribute to
our stockholders at least 95% of our real estate investment trust taxable
income. We will be subject to income tax on any undistributed real estate
investment trust taxable income and net capital gain, and to a 4% nondeductible
excise tax on the amount, if any, by which certain distributions paid by us with
respect to any calendar year are less than the sum of (i) 85% of our ordinary
income for the calendar year, (ii) 95% of our capital gain net income for such
year, and (iii) 100% of our undistributed income from prior years. The
requirement to distribute a substantial portion of our net taxable income could
cause us to distribute amounts that otherwise would be spent on future
acquisitions, unanticipated capital expenditures or repayment of debt which
would require us to borrow funds or to sell assets to fund the cost of such
items.
We intend to make distributions to our stockholders to comply with the
distribution provisions of the Code and generally to avoid federal income taxes
and the nondeductible 4% excise tax. Our income will consist primarily of our
share of income of the Operating Partnership and our cash flow will consist
primarily of our share of distributions from the Operating Partnership. It is
possible, however, that differences in timing between the receipt of income and
the payment of expenses in arriving at our taxable income or the taxable income
of the Operating Partnership and the effect of nondeductible capital
expenditures, the creation of reserves or required debt amortization payments
could in the future require us to borrow funds directly or through the Operating
Partnership on a short or long-term basis to meet the distribution requirements
that are necessary to continue to qualify as a real estate investment trust and
avoid federal income taxes and the 4% nondeductible excise tax. In such
circumstances, we might need to borrow funds directly in order to avoid adverse
tax consequences even if we believe that the then prevailing market conditions
generally are not favorable for such borrowings or that such borrowings are not
advisable in the absence of such tax considerations.
Distributions by the Operating Partnership will be determined by us and are
dependent on a number of factors, including the amount of cash available for
distribution, the Operating Partnership's financial condition, our decision to
reinvest funds rather than to distribute such funds, the Operating Partnership's
capital expenditure requirements, the annual distribution requirements under the
real estate investment trust provisions of the Code and such other factors as we
deem relevant. However, the limited partnership agreement of the Operating
Partnership generally authorizes us, as the general partner of the Operating
Partnership, to take any steps necessary to cause the Operating Partnership to
distribute to its partners an amount needed to meet the real estate investment
trust minimum distribution requirements. Accordingly, although we intend to
continue to satisfy the annual distribution requirement so as to avoid corporate
income taxation on the earnings that we distribute, there can be no assurance
that we will be able to do so.
Consequences of Failure to Qualify as Partnerships
We have received an opinion of Company Tax Counsel stating that, based upon
the provisions of the partnership agreement of the Operating Partnership and on
certain factual assumptions and representations, the Operating Partnership and
its subsidiary partnerships and limited liability companies have been and will
be treated as partnerships (or, in the case of certain subsidiary limited
liability companies that are owned by a single member, will be disregarded as an
entity separate from such member), and not as corporations, for federal income
tax purposes. Such opinion is not binding on the Internal Revenue Service. If
the Internal Revenue Service were successfully to determine that any such
partnership or limited liability company is properly treated as a corporation,
we would cease to qualify as a real estate investment trust for federal income
tax purposes. The imposition of a corporate tax on the
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Operating Partnership or any of the subsidiary partnerships or limited liability
companies, with a concomitant loss of our real estate investment trust status,
would substantially reduce the amount of cash available for distribution.
Potential Conflicts Relating to Paper-Clip Structure
Pursuant to the intercompany agreement with OpCo, each of us will provide
the other with reciprocal rights to participate in certain transactions entered
into by us. In particular, subject to certain exceptions, OpCo will have a right
of first refusal to become the lessee of any real property acquired by us if we
determine that, consistent with our status as a real estate investment trust, we
are required to enter into such a lease arrangement; provided that OpCo or an
entity that OpCo controls is, as we determine in our sole discretion, qualified
to be the lessee. This is known as the "paper-clip" real estate investment trust
structure. However, because of the independent trading of the two companies,
stockholders in each company may develop divergent interests which could lead to
conflicts of interest. This divergence of interests could also reduce the
anticipated benefits of the "paper-clip" real estate investment trust structure.
Dependence on Key Personnel
We place substantial reliance on the lodging industry knowledge and
experience and the continued services of our senior management, led by Paul W.
Whetsell and Steven D. Jorns. While we believe that, if necessary, we could find
replacements for these key personnel, the loss of their services could have a
material adverse effect on our operations. In addition, Messrs. Whetsell and
Jorns are currently engaged, and in the future will continue to engage, in the
management of OpCo. Messrs. Whetsell and Jorns may experience conflicts of
interest in allocating management time, services and functions between us and
OpCo.
Adverse Effect of Increase in Market Interest Rates on Prices for Common Stock
One of the factors that may influence the prices for the Common Stock in
public trading markets will be the annual yield from our distributions on the
Common Stock as compared to yields on certain financial instruments. An increase
in market interest rates will result in higher yields on certain financial
instruments, which could adversely affect the market prices for the Common
Stock.
Potential Anti-Takeover Effect of Certain Provisions of Maryland Law and of the
Charter and the Bylaws
Certain provisions of Maryland law and of the Charter and the Bylaws may
have the effect of discouraging a third party from making an acquisition
proposal for us and could delay, defer or prevent a change in control or other
transaction under circumstances that could give the holders of Common Stock the
opportunity to realize a premium over the then-prevailing market prices of the
Common Stock. Such provisions include the following:
Ownership Limitation
In order for us to maintain our qualification as a real estate investment
trust under the Code, not more than 50% in value of our outstanding shares of
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) at any time during the last
half of our taxable year. Furthermore, if any of our stockholders own, actually
or constructively, 10% or more of OpCo, OpCo could become a related party tenant
to us, which would result in our loss of real estate investment trust status.
The Charter prohibits direct or indirect ownership (taking into account
applicable ownership provisions of the Code) of more than 9.8% of any class of
our outstanding stock by any person (the "Ownership Limitation"), subject to an
exception that permits mutual funds and certain other entities to own as much as
15% of any class of our stock in appropriate circumstances (the "Look-Through
Ownership Limitation"). Generally, the stock owned by affiliated owners will be
aggregated for purposes of the Ownership Limitation. In addition, the Charter
prohibits any of our stockholders from owning Common Stock if such ownership
would cause us to own, actually or constructively, 10% or more of the ownership
interests in a tenant of our real property or in a tenant of the Operating
Partnership's or a subsidiary partnership's real property. The Ownership
Limitation could have the effect of delaying, deferring or preventing a change
in control or other transaction in which holders of some or a majority of the
Common Stock might receive a premium for their
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Common Stock over the then-prevailing market price or which such holders might
believe to be otherwise in their best interests.
Staggered Board
The Board is divided into three classes of directors. The term of the first
class expires in 2000, the terms of the second and third classes expire in 2001,
and 1999, respectively. Directors of each class are elected for three-year
terms. A director may be removed, with or without cause, by the affirmative vote
of 75% of the votes entitled to be cast for the election of directors. The
staggered terms of directors and the super-majority vote may have the effect of
delaying, deferring or preventing a change in control or other transaction even
though a change in control might be in the best interests of our stockholders.
Maryland Business Combination Statute
Under the Maryland General Corporation Law, certain "business combinations"
(including certain issuances of equity securities) between a Maryland
corporation such as us and any person who owns 10% or more of the voting power
of the corporation's shares (an "Interested Stockholder") or an affiliate
thereof are prohibited for five years after the most recent date on which the
Interested Stockholder became an Interested Stockholder. Thereafter, any such
business combination must be approved by two super-majority votes unless, among
other conditions, the holders of shares of Common Stock receive a minimum price
(as defined in the Maryland General Corporation Law) for their stock and the
consideration is received in cash or in the same form as previously paid by the
Interested Stockholder for its shares.
Maryland Control Share Acquisition Statute
The Maryland General Corporation Law provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
eligible under the statute to be cast on the matter. "Control shares" are voting
shares of stock, which, if aggregated with all other such shares of stock
previously acquired by the acquiror or in respect of which the acquiror is able
to exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third; (ii) one-third or more but less than
a majority; or (iii) a majority of all voting power. Control shares do not
include shares that the acquiring person is then entitled to vote as a result of
having previously obtained stockholder approval. A "control share acquisition"
means the acquisition of control shares, subject to certain exceptions.
Our bylaws contain a provision exempting from the control share acquisition
statute any and all acquisitions by any persons of our shares of stock. There
can be no assurance that such provision will not be amended or eliminated at any
point in the future. If the foregoing exemption in our Bylaws is rescinded, the
control share acquisition statute could have the effect of delaying, deferring,
preventing or otherwise discouraging offers to acquire us and of increasing the
difficulty of consummating any such offer.
Risk Factor Relating to Year 2000 Issue
Many computer systems were originally designed to recognize calendar years
by their last two digits. Calculations performed using these shortened fields
may not work properly with dates from the year 2000 and beyond. We are in the
process of reviewing and evaluating our existing computerized systems as part of
a program to bring all such financial information and operational systems into
Year 2000 compliance. As part of this evaluation, we are communicating with
vendors of our third-party software to obtain Year 2000 compliance
certification. We expect, to the extent necessary, to either modify or upgrade
third-party software to ensure year 2000 compliance.
We have been informed that the lessees of our properties are in the process
of studying the Year 2000 issue, including inquiries of their vendors. Upon the
completion of the lessees' studies, which is expected to be in late 1998, we
believe we will be able
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to determine the extent to which we are vulnerable to a third parties' failure
to remediate their own Year 2000 issues and the costs associated with resolving
this issue.
Although we are addressing the issue with respect to our business
operations, there can be no assurance that the "Year 2000" issue will be
properly or timely resolved, which could have a material adverse effect on our
results of operations and, in turn, cash available for distribution.
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THE INTERCOMPANY AGREEMENT AND LEASES
The Intercompany Agreement
Rights of First Refusal
Pursuant to the intercompany agreement, OpCo has a right of first refusal
to become the lessee of any real property acquired by us if we determine that,
consistent with our status as a real estate investment trust, we are required to
enter into a lease; provided that OpCo or an entity controlled by OpCo is
qualified to be the lessee based on experience in the industry and financial and
legal qualifications.
As to opportunities for OpCo to become the lessee of any assets under a
lease, the intercompany agreement provides that we must provide OpCo with
written notice of the lessee opportunity. During the 30 days following such
notice, OpCo has a right of first refusal with regard to the offer to become a
lessee and the right to negotiate with us on an exclusive basis regarding the
terms and conditions of the lease. If a mutually satisfactory agreement cannot
be reached within the 30-day period, or if OpCo indicates that it is not
interested in pursuing the lessee opportunity, we may offer the opportunity to
others for a period of one year thereafter, at a price and on terms and
conditions that are not more favorable to such other parties than the price and
terms and conditions proposed by us to OpCo, before it must again offer the
opportunity to OpCo in accordance with the procedures specified above.
Each company has established a leasing committee which reviews all hotel
leases to be entered into between us. Our leasing committee consists of certain
of our directors that are not also directors of OpCo and OpCo's leasing
committee consists of directors of OpCo that are not also our directors.
OpCo agrees not to acquire or make (i) investments in real estate, which,
for purposes of the intercompany agreement, includes the provision of services
related to real estate and investments in hotel properties, real estate
mortgages, real estate derivatives or entities that invest in real estate assets
or (ii) any other investments that may be structured in a manner that qualifies
under the federal income tax requirements applicable to real estate investment
trusts unless they have provided written notice to us of the material terms and
conditions of the acquisition or investment opportunity, and we have determined
not to pursue such acquisitions or investments either by providing written
notice to OpCo rejecting the opportunity within 20 days from the date of receipt
of notice of the opportunity or by allowing such 20-day period to lapse. OpCo
also agrees to assist us in structuring and consummating any such acquisition or
investment which we elect to pursue, on terms determined by us.
Our intercompany agreement with OpCo is structured to provide us with a
symbiotic relationship so that investors in both companies may enjoy the
economic benefit of the entire enterprise. This is commonly known as the
"paper-clip" real estate investment trust structure.
However, investors should be aware that because of the independent trading
of our shares and the shares of OpCo, stockholders of each company may develop
divergent interests which could lead to conflicts of interest. This divergence
of interests could also reduce the anticipated benefits of the relationship
between the two companies. See "Risk Factors--Paper-Clip Structure Risks."
Provision of Services
OpCo provides us with certain services as we may reasonably request from
time to time, including administrative, corporate, accounting, financial,
insurance, legal, tax, data processing, human resources and operational
services. We compensate OpCo for services provided in an amount determined in
good faith by OpCo as the amount an unaffiliated third party would charge us for
comparable services.
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Equity Offerings
If either of the two companies desires to engage in a securities issuance,
such issuing party will give notice to such other party as promptly as
practicable of its desire to engage in a securities issuance. Any such notice
will include the proposed material terms of such issuance, to the extent
determined by the issuing party, including whether such issuance is proposed to
be pursuant to public or private offering, the amount of securities proposed to
be issued and the manner of determining the offering price and other terms
thereof. The non-issuing party will cooperate with the issuing party in every
way to effect any securities issuance of the issuing party by assisting in the
preparation of any registration statement or other document required in
connection with such issuance and, in connection therewith, providing the
issuing party with such information as may be required to be included in such
registration statement or other document.
Term
The intercompany agreement will terminate upon the earlier of (a) August 3,
2008, and (b) a change in ownership or control of OpCo.
The Leases
We have entered into a lease for each of our hotels. Substantially all of
our hotels are leased to and operated by OpCo on the following terms and
conditions.
Term
Each lease of an applicable hotel provides for an initial term of 12 years
commencing on the date on which the hotel was acquired. Each lease provides the
lessee with three renewal options of five years each (except in the case of
properties with ground leases having a remaining term of less than 40 years),
provided that (a) the lessee will not have the right to a renewal if there shall
have occurred a change in the tax law that would permit us to operate the hotel
directly; (b) if the lessee shall elect not to renew a lease for any applicable
hotel, then we shall have the right to reject the exercise of a renewal right on
a lease of a comparable hotel; and (c) the rent for each renewal term shall be
adjusted to reflect the then fair market rental value of the hotel. If we are
unable to agree upon the then fair market rental value of a hotel, the lease
shall terminate upon the expiration of the then current term and OpCo shall
thereupon have a right of first refusal to lease the hotel from us on such terms
as we may have agreed upon with a third-party lessee.
Base Rent; Participating Rent; Additional Charges
Each lease requires the lessee to pay (i) fixed monthly base rent, (ii) on
a monthly basis, the excess of participating rent over base rent, with
participating rent based on certain percentages of room revenue, food and
beverage revenue and telephone and other revenue at each hotel, and (iii)
certain other amounts, including interest accrued on any late payments or
charges ("Additional Charges"). Base rent and participating rent departmental
thresholds (departmental revenue on which the rent percentage is based) are
increased annually by a percentage equal to the percentage increase in the
consumer price index (the consumer price index percentage increase plus 0.75% in
the case of the participating rent departmental revenue threshold) compared to
the price year. In addition, under certain circumstances, a reduced percentage
rate applies to the revenues attributable to certain "discounted rates" that the
lessee may offer. Base rent is payable monthly in arrears. Participating rent is
payable in arrears based on a monthly schedule adjusted to reflect the seasonal
variations in the hotel's revenue.
Other than real estate and personal property taxes and assessments, rent
payable under ground leases, casualty insurance, including loss of income
insurance, capital impositions and capital replacements and refurbishments
(determined in accordance with generally accepted accounting principles), that
are our obligations, the leases require the lessee to pay rent, liability
insurance, all costs and expenses and all utility and other charges incurred in
the operation of the hotels. The leases also provide for rent reductions and
abatements in the event of damage or destruction or a partial taking of any
hotel.
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The leases also provide for a rental adjustment under certain circumstances
in the event of (a) a major renovation of the hotel, or (b) a change in the
franchisor of the hotel.
Lessee Capitalization
The leases require OpCo's lessee (or OpCo as guarantor of the leases) to
maintain a book net worth of not less than $40 million. Further, for so long as
the tangible net worth of OpCo's lessee (or OpCo as guarantor of the leases
during this period) is less than the greater of (a) $10,000,000 or (b) 17.5% of
the aggregate rents payable under the leases for the prior calendar year, OpCo's
lessee (or OpCo as guarantor of the leases during this period) is prohibited
from paying dividends or making distributions other than dividends or
distributions made for the purpose of permitting the partners of OpCo's lessee
to pay taxes on the taxable income of OpCo's lessee attributable to its partners
plus any required preferred distributions existing to partners.
Termination
We have the right to terminate the applicable lease upon the sale of a
hotel to a third party or, upon our determination not to rebuild after a
casualty, upon payment to the lessee of the fair market value of the leasehold
estate (except for hotels identified at the time of the lease to be sold). The
fair market value of the leasehold estate is determined by discounting to
present value at a discount rate of 10% per annum the cash flow for each
remaining year of the then current lease term, which cash flow shall be deemed
to be the cash flow realized by the lessee under the applicable lease for the
12-month period preceding the termination date. We receive as a credit against
any such termination payments an amount equal to any outstanding "New Lease
Credits," which means the projected cash flow (determined on the same basis as
the termination payment) of any new leases entered into between us and OpCo or
OpCo's lessee for the initial term of such new lease amortized on a
straight-line basis over the initial term of the new lease.
Performance Standards
We have the right to terminate the applicable lease if, in any calendar
year, the gross revenues from a hotel are less than 95% of the projected gross
revenues for such year as set forth in the applicable budget unless (a) the
lessee can reasonably demonstrate that the gross revenue shortfall was caused by
general market conditions beyond the lessee's control or (b) the lessee "cures"
the shortfall by paying to us the difference between the rent that would have
been paid to us had the property achieved gross revenues of 95% of the budgeted
amounts and the rent paid based on actual gross revenues. The lessee shall not
have such cure right for more than two consecutive years.
The leases also require that the lessee spend in each calendar year at
least 95% of the amounts budgeted for marketing expenses and for repair and
maintenance expenses.
Assignment and Subleasing
The lessee does not have the right to assign a lease or sublet a hotel
without our prior written consent. For purposes of the lease, a change in
control of OpCo or the lessee shall be deemed an assignment of the lease and
shall require our consent, which may be granted or withheld in our sole
discretion.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of (i) the capital stock of MeriStar
Hospitality Corporation (the "Company") and (ii) certain provisions of Maryland
law and of the Charter and Bylaws of the Company does not purport to be complete
and is subject to and qualified in its entirety by reference to Maryland law
described herein, and to the Charter and Bylaws of the Company.
General
Under our Charter, we have the authority to issue 100,000,000 shares of
common stock, $0.01 par value per share. We do not currently have the authority
to issue preferred stock. Under Maryland law, stockholders generally are not
liable for a corporation's debts or obligations.
Common Stock
Subject to the provisions of our Charter regarding the restrictions on
transfer of stock, each outstanding share of Common Stock entitles the holder to
one vote on all matters submitted to a vote of stockholders, including the
election of directors. There is no cumulative voting in the election of
directors, which means that the holders of a majority of the outstanding shares
of Common Stock can elect all of the directors then standing for election and
the holders of the remaining shares will not be able to elect any directors.
Holders of shares of our Common Stock have no preference, conversion,
exchange, sinking fund redemption or appraisal rights and have no preemptive
rights to subscribe for any our securities. Shares of Common Stock have equal
dividend, liquidation and other rights.
Under the Maryland General Corporation Law, a Maryland corporation
generally cannot dissolve, amend its charter, merge, sell all or substantially
all of its assets, engage in a share exchange or engage in similar transactions
outside the ordinary course of business unless approved by the affirmative vote
of stockholders holding at least two-thirds of the shares entitled to vote on
the matter unless a lesser percentage (but not less than a majority of all of
the votes entitled to be cast on the matter) is set forth in the corporation's
charter. The Charter provides that, with the exception of certain amendments to
the Charter, the affirmative vote of holders of shares entitled to cast a
majority of all votes entitled to be cast on such matters will be sufficient to
approve these transactions.
Restrictions on Transfer
For us to qualify as a real estate investment trust under the Code, we must
meet certain requirements concerning the ownership of outstanding shares of
stock. Specifically, not more than 50% in value of our outstanding shares of
stock may be owned, directly or indirectly, by five or fewer individuals (as
defined in the Code to include certain entities) during the last half of a
taxable year, and the shares of our stock must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of twelve months or
during a proportionate part of a shorter taxable year. In addition, we must meet
certain requirements regarding the nature of our gross income in order to
qualify as a real estate investment trust. One such requirement is that at least
75% of the Company's gross income for each calendar year must consist of rents
from real property and income from certain other real property investments. The
rents received by the Operating Partnership and its subsidiary partnerships and
limited liability companies from our hotel lessees will not qualify as rents
from real property, which could result in our loss of real estate investment
trust status, if we own actually or constructively, 10% or more of the ownership
interests in our hotel lessees, within the meaning of section 856(d)(2)(B) of
the Code. See "Federal Income Tax Considerations--Requirements for
Qualification--Income Tests."
Because our Board of Directors believes it is essential for us to continue
to qualify as a real estate investment trust, our Charter, subject to certain
exceptions described below, provides that no person may own, or be deemed to own
by virtue of the attribution provisions of the Code, more than 9.8% of the
number of outstanding shares of any class of Common Stock (subject to the
Look-Through Ownership Limitation applicable to certain stockholders, as
described below). Certain types of entities, such as certain pension trusts,
mutual funds and corporations, will be looked
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through for purposes of the "closely held" test in section 856(h) of the Code.
Subject to certain limited exceptions, the Charter will allow such an entity
under the Look-Through Ownership Limitation to own up to 15% of the shares of
any class or series of our stock, provided that such ownership does not cause
any beneficial owner of such entity to exceed the Ownership Limitation or
otherwise result in a violation of the tests described in clauses (ii), (iii)
and (iv) of the succeeding paragraph.
Any transfer of Common Stock that would (i) result in any person owning,
directly or indirectly, Common Stock in excess of the Ownership Limitation (or
the Look-Through Ownership Limitation, if applicable), (ii) result in Common
Stock being owned by fewer than 100 persons (determined without reference to any
rules of attribution), (iii) result in the Company being "closely held" within
the meaning of Section 856(h) of the Code, or (iv) cause the Company to own,
actually or constructively, 9.9% or more of the ownership interests in a tenant
of the Company's, the Operating Partnership's or a Subsidiary Partnership's real
property, within the meaning of Section 856(d)(2)(B) of the Code, will be void
ab initio, and the intended transferee will acquire no rights in such shares of
Common Stock.
In such event the transferred shares will be designated as
"Shares-in-Trust" and will be transferred automatically to a trust (a "Trust"),
effective on the day before the purported transfer of such shares of Common
Stock. The record holder of the shares of Common Stock that are designated as
Shares-in-Trust (the "Prohibited Owner") will be required to submit such number
of shares of Common Stock to us for registration in the name of the trustee of
the Trust (the "Trustee"). The Trustee will be designated by us but will not be
affiliated with us. The beneficiary of the Trust (the "Beneficiary") will be one
or more charitable organizations named by us.
Shares-in-Trust will remain issued and outstanding shares of Common Stock
and will be entitled to the same rights and privileges as all other shares of
the same class or series. The Trustee will receive all dividends and
distributions on the Shares-in-Trust and will hold such dividends or
distributions in trust for the benefit of the Beneficiary. The Trustee will vote
all Shares-in-Trust. The Trustee will designate a permitted transferee of the
Shares-in-Trust, provided that the permitted transferee (i) purchases such
Shares-in-Trust for valuable consideration and (ii) acquires such
Shares-in-Trust without such acquisition resulting in another transfer to
another Trust.
The Prohibited Owner with respect to Shares-in-Trust will be required to
repay to the Trustee the amount of any dividends or distributions received by
the Prohibited Owner (i) that are attributable to any Shares-in-Trust and (ii)
the record date of which was on or after the date that such shares become
Shares-in-Trust. Any vote taken by a Prohibited Owner prior to our discovery
that the Shares-in-Trust were held in trust will be rescinded as void ab initio
and recast by the Trustee, in its sole and absolute discretion; provided,
however, that if we have already taken irreversible corporate action based on
such vote, then the Trustee shall not have the authority to rescind and recast
such vote. The Prohibited Owner generally will receive from the Trustee the
lesser of (i) the price per share such Prohibited Owner paid for the shares of
Common Stock that were designated as Shares-in-Trust (or, in the case of a gift
or devise, the Market Price (as defined below) per share on the date of such
transfer) or (ii) the price per share received by the Trustee from the sale of
such Shares-in-Trust. Any amounts received by the Trustee in excess of the
amounts to be paid to the Prohibited Owner will be distributed to the
Beneficiary.
The Shares-in-Trust will be deemed to have been offered for sale to the
Company, or its designee, at a price per share equal to the lesser of (i) the
price per share in the transaction that created such Shares-in-Trust (or, in the
case of a gift or devise, the Market Price per share on the date of such
transfer) or (ii) the market price per share on the date that we, or our
designee, accepts such offer. Subject to the Trustee's ability to designate a
permitted transferee, we will have the right to accept such offer for a period
of 90 days after the later of (i) the date of the purported transfer which
resulted in the creation of such Shares-in-Trust or (ii) the date we determine
in good faith that a transfer resulting in such Shares-in-Trust occurred.
All persons who own, directly or indirectly, more than 5% (or such lower
percentages as required pursuant to regulations under the Code) of the
outstanding shares of Common Stock must, within 30 days after January 1 of each
year, provide to the Company a written statement or affidavit stating (i) the
name and address of such direct or indirect owner, (ii) the number of shares of
Common Stock owned directly or indirectly, and (iii) a description of how such
shares are held. In addition, each direct or indirect stockholder shall provide
to the Company such
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additional information as the Company may request in order to determine the
effect, if any, of such ownership on the Company's status as a real estate
investment trust and to ensure compliance with the Ownership Limitation.
The Ownership Limitation or the Look-Through Ownership Limitation, as
applicable, generally will not apply to the acquisition of shares of Common
Stock by an underwriter that participates in a public offering of such shares.
In addition, the Board of Directors, upon such conditions as the Board of
Directors may direct, may exempt a person from the Ownership Limitation or the
Look-Through Ownership Limitation, as applicable, under certain circumstances.
All certificates representing shares of Common Stock will bear a legend
referring to the restrictions described above.
The Ownership Limitation could have the effect of delaying, deferring or
preventing a takeover or other transaction in which holders of some, or a
majority, of shares of Common Stock might receive a premium from their shares of
Common Stock over the then prevailing market price or which such holders might
believe to be otherwise in their best interest.
Charter and Bylaw Provisions and Certain Provisions of Maryland Law
Number of Directors; Classification of the Board of Directors
Our Charter and Bylaws provide that the number of directors will consist of
not less than three nor more than fifteen persons, as determined by the
affirmative vote of a majority of the members of the entire Board of Directors.
At all times, a majority of the directors shall be independent directors, except
that upon the death, removal, incapacity or resignation of an independent
director, such requirement shall not be applicable for 60 days. There are nine
directors, six of whom are independent directors. The holders of Common Stock
are entitled to vote on the election or removal of directors, with each share
entitled to one vote. Any vacancy will be filled, at any regular meeting or at
any special meeting called for that purpose, by a majority vote of the remaining
directors, except that a vacancy resulting from an increase in the number of
directors must be filled by a majority vote of the entire Board of Directors.
Pursuant to the Charter, the Board of Directors is divided into three
classes of directors. The term of the first class expires in 2000, the term of
the Class II directors expires in 2001 and the term of the Class III directors
expires in 1999. As the term of each class expires, directors in that class will
be elected by the stockholders of the Company for a term of three years and
until their successors are duly elected and qualify. Classification of the Board
of Directors is intended to assure the continuity and stability of the Company's
business strategies and policies as determined by the Board of Directors.
Because holders of Common Stock will have no right to cumulative voting in the
election of directors, at each annual meeting of stockholders, the holders of a
majority of the shares of Common Stock will be able to elect all of the
successors of the class of directors whose terms expire at that meeting.
The classified board provision could have the effect of making the
replacement of incumbent directors more time consuming and difficult, which
could delay, defer, discourage or prevent an attempt by a third party to obtain
control of the Company or other transaction, even though such an attempt or
other transaction might be beneficial to the Company and its stockholders. At
least two annual meetings of stockholders, instead of one, will generally be
required to effect a change in a majority of the Board of Directors. Thus, the
classified board provision could increase the likelihood that incumbent
directors will retain their positions. See "Risk Factors--Potential AntiTakeover
Effect of Certain Provisions of Maryland Law and of the Company's Charter and
Bylaws."
Removal; Filling Vacancies
The Bylaws provide that, unless the Board of Directors otherwise
determines, any vacancies (except vacancies resulting from an increase in the
number of directors) will be filled by the affirmative vote of a majority of the
remaining directors, though less than a quorum. Any directors so elected shall
hold office until the next annual meeting of stockholders. Our Charter provides
that directors may be removed, with or without cause, only by the
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affirmative vote of the holders of at least 75% of votes entitled to be cast in
the election of the directors. This provision, when coupled with the provision
of the Bylaws authorizing the Board of Directors to fill vacant directorships
precludes stockholders from removing incumbent directors, except upon a
substantial affirmative vote, and filling the vacancies created by such removal
with their own nominees.
Limitation of Liability and Indemnification
The Maryland General Corporation Law permits a Maryland corporation to
include in its charter a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money damages except for
liability resulting from (a) actual receipt of an improper benefit or profit in
money, property or services or (b) active and deliberate dishonesty established
by a final judgment as being material to the cause of active. Our Charter
contains such a provision which eliminates such liability to the maximum extent
permitted by Maryland law.
Our Charter obligates us, to the maximum extent permitted by Maryland law,
to indemnify, and to pay or to reimburse reasonable expenses in advance of final
disposition of a proceeding to, any person (or the estate of any person) who is
or was a party to, or is threatened to be made a party to, any threatened,
pending or completed action, suit or proceeding whether or not by or in our
right, and whether civil, criminal, administrative, investigative or otherwise,
by reason of the fact that such person is or was our director or officer, or is
or was serving at our request as a director, officer, trustee, partner, member,
agent or employee of another corporation, partnership, limited liability
company, association, joint venture, trust or other enterprise.
The Maryland General Corporation Law requires a Maryland corporation
(unless its charter provides otherwise, which our Charter does not) to indemnify
a director or officer who has been successful, on the merits or otherwise, in
the defense of any proceeding to which he is made a party by reason of his
service in that capacity. The Maryland General Corporation Law permits a
Maryland corporation to indemnify its present and former directors and officers,
among others, against judgments, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other capacities
unless it is established that (a) the act or omission of the director or officer
was material to the matter giving rise to the proceeding and (i) was committed
in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, a Maryland corporation may not indemnify for an adverse
judgment in a suit by or in the right of the corporation or for a judgment of
liability on the basis that a personal benefit was improperly received, unless
in either case a court orders indemnification and then only for expenses.
The Company also has purchased and maintains insurance on behalf of all of
its directors and executive officers against liability asserted against or
incurred by them in their official capacities with the Company, whether or not
the Company is required or has the power to indemnify them against the same
liability.
Business Combinations
Under the Maryland General Corporation Law, certain "business combinations"
(including a merger, consolidation, share exchange or, in certain circumstances,
an asset transfer or issuance or reclassification of equity securities) between
a Maryland corporation and any person who beneficially owns 10% or more of the
voting power of such corporation's shares, or an affiliate of such corporation
who, at any time within the two-year period prior to the date in question, was
the beneficial owner of 10% or more of the voting power of the then-outstanding
voting shares of such corporation (an "Interested Stockholder") or an affiliate
thereof, are prohibited for five years after the most recent date on which the
Interested Stockholder became an Interested Stockholder. Thereafter, any such
business combination must be recommended by the board of directors of such
corporation and approved by the affirmative vote of at least (a) 80% of the
votes entitled to be cast by holders of outstanding voting shares of such
corporation and (b) two-thirds of the votes entitled to be cast by holders of
voting shares of such corporation other than the shares held by the Interested
Stockholder with whom (or with whose affiliate) the business combination is to
be affected, unless, among other conditions, the corporation's stockholders
receive a minimum price (as defined in the Maryland General Corporation Law) for
their shares and the consideration is received in cash or in the same
754350.7
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form as previously paid by the Interested Stockholder for its shares. These
provisions of the Maryland General Corporation Law do not apply, however, to
business combination that are approved or exempted by the board of directors of
the corporation prior to the time that the Interested Stockholder becomes an
Interested Stockholder.
Control Share Acquisition Statute
The Maryland General Corporation Law provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights except to the extent approved by a vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares owned by the acquiror, by
officers or by directors who are employees of the corporation. "Control Shares"
are voting shares which, if aggregated with all other such shares previously
acquired by the acquiror, or in respect of which the acquiror is able to
exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority or more of all voting power. Control Shares do
not include shares which the acquiring person is then entitled to vote as a
result of having previously obtained stockholder approval. A "control share
acquisition" means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of directors of the corporation to call a special meeting
of stockholders to be held within 50 days of demand to consider the voting
rights of the shares. If no request for a meeting is made, the corporation may
itself present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the corporation may redeem any or
all of the control shares (except those for which voting rights have previously
been approved) for fair value determined, without regard to the absence of
voting rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of stockholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a stockholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
stockholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition,
and certain limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange, if the corporation is a party to the
transaction, or to acquisitions approved or exempted by the charter or bylaws of
the corporation.
The Bylaws of the Company contain a provision exempting from the control
share acquisition statute any and all acquisitions by any person of our Common
Stock. There can be no assurance that such provision will not be amended or
eliminated at any time in the future.
Amendment to the Charter
Our Charter may be amended by the affirmative vote of holders of shares
entitled to cast a majority of all votes entitled to be cast on such an
amendment; provided, however, (i) no term or provision of the Charter may be
added, amended or repealed in any respect that would, in the determination of
our Board of Directors, cause us not to qualify as a real estate investment
trust under the Code, (ii) certain provisions of our Charter, including
provisions relating to the classification of directors, the removal of
directors, Independent Directors, preemptive rights of holders of stock and the
indemnification and limitation of liability of officers and directors may not be
amended or repealed, and (iii) provisions imposing cumulative voting in the
election of directors, may not be added to our Charter, unless, in each such
case, such action is approved by the affirmative vote of the holders of not less
than two-thirds of all the votes entitled to be cast on the matter.
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Dissolution of the Company
The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than a majority of all of the votes entitled to be cast
on the matter.
Advance Notice of Director Nominations and New Business
The Bylaws of the Company provide that (a) with respect to an annual
meeting of stockholders, nominations of persons for election of the Board of
Directors and the proposal of business to be considered by stockholders may be
made only (i) pursuant to our notice of the meeting, (ii) by our Board of
Directors or (iii) by a stockholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws, and (b)
with respect to special meetings of stockholders, only the business specified in
the Company's notice of meeting may be brought before the meeting of
stockholders and nominations of persons for election to the Board of Directors
provided that our Board of Directors has determined that directors shall be
elected at such meeting, by a stockholder who is entitled to vote at the meeting
and has complied with the advance notice provisions set forth in the Bylaws.
Meetings of Stockholders
Our Bylaws provide that annual meetings of stockholders shall be held on a
date and at the time set by our Board of Directors during the month of May each
year (commencing in May 1997). Special meetings of the stockholders may be
called by (i) the President of the Company, (ii) the Chief Executive Officer or
(iii) the Board of Directors. As permitted by the Maryland General Corporation
Law, the Bylaws of the Company provide that special meetings must be called by
the Secretary of the Company upon the written request of the holders of shares
entitled to cast not less than a majority of all votes entitled to be cast at
the meeting.
Operations
Our Charter requires the Board of Directors generally to use commercially
reasonable efforts to cause the Company to qualify as a real estate investment
trust.
Anti-Takeover Effect of Certain Provisions of Maryland Law and of the Charter
and Bylaws
The business combination provisions and, if the applicable provision in the
Bylaws is amended or rescinded, the control share acquisition provisions of the
Maryland General Corporation Law, the provisions of the Charter on
classification of the Board of Directors and removal of directors, and the
advance notice provisions of the Bylaws, could delay, defer or prevent a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Stock or otherwise be in their best interest.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of material federal income tax matters relating
to the operations of the Company that may be relevant to prospective
stockholders of the Company. It is based upon current law and is not tax advice.
This discussion does not address all aspects of taxation that may be relevant to
particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders (including, without
limitation, insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) subject to special treatment under
the federal income tax laws, nor does it give a detailed discussion of any
state, local or foreign tax considerations. In the opinion of Paul, Weiss,
Rifkind, Wharton & Garrison, special tax counsel to the Company ("Company Tax
Counsel"), the following discussion accurately reflects the federal income tax
considerations relating to the operations of the Company that are likely to be
material to a stockholder of the Company.
EACH PROSPECTIVE STOCKHOLDER OF THE COMPANY IS ENCOURAGED TO CONSULT ITS
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE,
OWNERSHIP AND SALE OF SHARES OF COMMON STOCK OF THE COMPANY AND OF THE COMPANY'S
ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP,
SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
General
American General Hospitality Corporation, the Company's predecessor, made
an election to be taxed as a real estate investment trust for federal income tax
purposes commencing with its taxable year ended December 31, 1996. The Company
believes it is organized and operated in such a manner as to qualify for
taxation as a real estate investment trust under the Code. The Company intends
to continue to operate in such a manner. However, no assurance can be given that
the Company will operate in a manner so as to qualify or remain qualified.
The requirements relating to the federal income tax treatment of real
estate investment trusts and their stockholders are highly technical and
complex. The following discussion sets forth only the material aspects of those
requirements. This summary is qualified in its entirety by the applicable Code
provisions, rules and Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof.
Opinion of Company Tax Counsel
In the opinion of Company Tax Counsel, commencing with the taxable year
ended December 31, 1996, the Company has been organized and has operated in
conformity with the requirements for qualification as a real estate investment
trust within the meaning of the Code and the proposed method of operation of the
Company will enable the Company to continue to meet the requirements for
qualification and taxation as a real estate investment trust under the Code. It
must be emphasized that the opinion of Company Tax Counsel is based on various
assumptions and is conditioned upon certain representations made by the Company
as to factual matters. Such factual assumptions and representations are set
forth below. Moreover, for periods beginning after December 31, 1997, such
qualification and taxation as a real estate investment trust depends upon the
ability of the Company to meet, through actual annual operating results, the
distribution levels, diversity of stock ownership and the various other
qualification tests imposed under the Code that are discussed below, the results
of which have not been and will not be reviewed by Company Tax Counsel.
Accordingly, no assurance can be given that the actual results of the Company's
operations for any one taxable year will satisfy such requirements.
Taxation of the Company
A real estate investment trust generally is not subject to federal
corporate income taxes on that portion of its ordinary income or capital gain
that is distributed currently to stockholders because the real estate investment
trust provisions of the Code generally allow a real estate investment trust to
deduct dividends paid to its stockholders. This
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deduction for dividends paid to stockholders substantially eliminates the
federal "double taxation" on earnings (once at the corporate level and once
again at the stockholder level) that generally results from investment in a
corporation.
However, real estate investment trusts may be subject to federal income tax
in the following circumstances. First, a real estate investment trust will be
taxed at regular corporate rates on any undistributed real estate investment
trust taxable income and undistributed net capital gains. Second, under certain
circumstances, a real estate investment trust may be subject to the "alternative
minimum tax" on its items of tax preference, if any. Third, if the real estate
investment trust has (i) net income from the sale or other disposition of
"foreclosure property" (generally, property acquired by reason of a default on a
lease or an indebtedness held by a real estate investment trust) that is held
primarily for sale to customers in the ordinary course of business or (ii) other
non-qualifying net income from foreclosure property, it will be subject to tax
at the highest corporate rate on such income. Fourth, if the real estate
investment trust has net income from a "prohibited transaction" (generally, a
sale or other disposition of property held primarily for sale to customers in
the ordinary course of business, other than foreclosure property), such income
will be subject to a 100% tax. Fifth, if the real estate investment trust should
fail to satisfy the 75% gross income test or the 95% gross income test (as
discussed below), and has nonetheless maintained its qualification as a real
estate investment trust because certain other requirements have been met, it
will be subject to a 100% tax on the net income attributable to the greater of
the amount by which the real estate investment trust fails the 75% or 95% test,
multiplied by a fraction intended to reflect the real estate investment trust's
profitability. Sixth, if the real estate investment trust should fail to
distribute with respect to each calendar year at least the sum of (i) 85% of its
real estate investment trust ordinary income for such year, (ii) 95% of its real
estate investment trust capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the real estate investment
trust will be subject to a 4% excise tax on the excess of such required
distribution over the amounts actually distributed. Seventh, if a real estate
investment trust acquires any asset from a C corporation (i.e., a corporation
generally subject to a full corporate-level tax) in a transaction in which the
basis of the asset in the real estate investment trust's hands is determined by
reference to the basis of the asset (or any other property) in the hands of the
C corporation (a "carryover basis transaction"), and the real estate investment
trust recognizes gain on the disposition of such asset during the ten-year
period beginning on the date on which such asset was acquired by the real estate
investment trust (the "Restriction Period"), then pursuant to guidelines issued
by the Internal Revenue Service in Internal Revenue Service Notice 88-19 (the
"Built-in Gain Rules"), the excess of the fair market value of such property at
the beginning of the applicable Restriction Period over the real estate
investment trust's adjusted basis in such asset as of the beginning of such
Restriction Period (the "Built-in Gain") will be subject to a tax at the highest
regular corporate rate. The results described above with respect to the
recognition of Built-in Gain assume that the Company will make elections
pursuant to the Built-in Gain Rules or applicable future administrative rules or
Treasury Regulations. Certain prior legislative proposals, if enacted in the
form previously proposed, might change the Built-in Gain Rules. See "--Possible
Federal Tax Developments."
Requirements for Qualification
To qualify as a real estate investment trust, a corporation must elect to
be so treated and must meet the requirements, discussed below, relating to its
organization, sources of income, nature of assets, and distributions of income
to stockholders.
Organizational Requirements
The Code defines a real estate investment trust as a corporation, trust or
association: (i) that is managed by one or more trustees or directors; (ii) the
beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial interest; (iii) that would be taxable as
a domestic corporation but for the real estate investment trust provisions of
the Code; (iv) that is neither a financial institution nor an insurance company
subject to certain provisions of the Code; (v) the beneficial ownership of which
is held by 100 or more persons; and (vi) during the last half of each taxable
year not more than 50% in value of the outstanding capital stock of which is
owned, directly or indirectly through the application of certain attribution
rules, by five or fewer individuals (as defined in the Code to include certain
entities). In addition, certain other tests, described below, regarding the
nature of a real estate investment trust's income and assets, also must be
satisfied. The Code provides that conditions (i) through (iv), inclusive, must
be met during the entire taxable year and that condition (v) must be met during
at least
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335 days of a taxable year of 12 months, or during a proportionate part of a
taxable year of less than 12 months. Conditions (v) and (vi) will not apply
until after the first taxable year for which an election is made to be taxed as
a real estate investment trust.
For taxable years beginning after 1997, if a real estate investment trust
complies with Treasury Regulations that provide procedures for ascertaining the
actual ownership of shares of its stock for such taxable year and the real
estate investment trust did not know (and with the exercise of reasonable
diligence could not have known) that it failed to meet the requirement of
condition (vi) above for such taxable year, the real estate investment trust
will be treated as having met the requirement of condition (vi) for such year.
The Company has satisfied the requirements set forth in (i) through (iv)
above and believes that it has sufficient diversity of share ownership to allow
it to satisfy conditions (v) and (vi) above. The Charter includes certain
restrictions regarding transfers of shares of Common Stock that are intended to
assist the Company in satisfying the share ownership requirements described in
(v) and (vi) above. See "Description of Capital Stock--Restrictions on
Transfer."
In addition, a corporation may not elect to become a real estate investment
trust unless its taxable year is the calendar year. The Company's taxable year
is the calendar year.
The Company has a number of "qualified REIT subsidiaries." Section 856(i)
of the Code provides that a corporation that is a "qualified REIT subsidiary"
will not be treated as a separate corporation, and all assets, liabilities and
items of income, deduction, and credit of a "qualified REIT subsidiary" will be
treated as assets, liabilities, and such items (as the case may be) of the real
estate investment trust. In applying the requirements described herein, the
Company's "qualified REIT subsidiaries" will be ignored, and all assets and
liabilities, and items of income, deduction, and credit of such subsidiaries
will be treated as assets, liabilities and items of the Company.
In the case of a real estate investment trust that is a partner in a
partnership, the real estate investment trust will be deemed to own its
proportionate share of the assets of the partnership and will be deemed to be
entitled to the income of the partnership attributable to such share. In
addition, the character of the assets and gross income of the partnership will
retain the same character in the hands of the real estate investment trust for
purposes of the real estate investment trust requirements, including satisfying
the income and asset tests described herein. Thus, the Company's proportionate
share of the assets, liabilities and items of income of the Operating
Partnership, and of the partnerships, limited liability companies, joint
ventures and business trusts in which the Company or the Operating Partnership
have and will have an interest (the "Subsidiary Partnerships") are and will be
treated as assets, liabilities and items of income of the Company for purposes
of applying the requirements described herein, provided that the Operating
Partnership and the Subsidiary Partnerships are treated as partnerships for
federal income tax purposes. See "--Income Taxation of the Operating
Partnership, the Subsidiary Partnerships and Their Partners."
Treatment of the Company and OpCo as Separate Entities
Section 269B(a)(3) of the Code provides that if the shares of a real estate
investment trust are stapled with the shares of any other entity, then the real
estate investment trust and the non-real estate investment trust shall be
treated as one entity for purposes of determining whether the real estate
investment trust qualifies as a real estate investment trust. If section
269B(a)(3) of the Code applied to the Company and OpCo, the Company would not be
able to satisfy the gross income tests described below and thus would not be
eligible to be taxed as a real estate investment trust. Section 269B of the Code
treats entities as stapled if more than 50 percent of the beneficial ownership
interests in each of the entities consists of stapled interests, which are
interests that, by reason of the form of ownership, restrictions on transfer, or
other terms or conditions, are transferred or required to be transferred in
connection with the transfer of the other such interests. The shares of OpCo
were issued independently of the shares of the Company and are traded separately
as well. In the opinion of Company Tax Counsel, the Company and OpCo are not
stapled entities under section 269B(a)(3) of the Code.
Even though section 269B(a)(3) of the Code does not apply to the Company
and OpCo, because some employees, members of management and directors of the
Company and OpCo are the same, it is possible that the Internal
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Revenue Service could seek to assert that OpCo should be treated as an agent of
the Company or that the Company and OpCo should be treated as one entity for
federal income tax purposes. However, currently a majority of the directors of
the Company are not directors of OpCo and certain of the executive officers of
the Company are not executive officers of OpCo. OpCo enters into contracts,
hires employees and holds itself out to the public as a separate corporate
entity. In addition, OpCo manages properties for other owners and leases a
substantial number of properties from persons unrelated to the Company on terms
similar to the leases entered into between OpCo and the Company. The
stockholders of the Company and OpCo are not identical and the shares of OpCo
are traded separately from those of the Company. In addition, the Company and
OpCo do not hold themselves out to the public as principal and agent and the
leases, the Intercompany Agreement and other material transactions among the
Company, OpCo, the Operating Partnership, and any entities in which each of them
own an interest have been and will be negotiated and structured with the
intention of achieving an arm's-length result. Based on the foregoing, Company
Tax Counsel is of the opinion that the separate corporate identities of the
Company and OpCo will be respected and that OpCo is not an agent of the Company
for federal income tax purposes.
Income Tests
For the Company to maintain qualification as a real estate investment
trust, there are two gross income requirements that it must satisfy annually.
First, at least 75% of its gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property," dividends from qualified real estate investment
trusts and, in certain circumstances, interest) or from "qualified temporary
investment income" (generally, income attributable to the temporary investment
of new capital received by the real estate investment trust). Second, at least
95% of its gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived from such real property investments and
from dividends, interest, and gain from the sale or disposition of stock or
securities or from any combination of the foregoing. In addition, for taxable
years prior to 1998, short-term gain from the sale or other disposition of stock
or securities, gain from prohibited transactions and gain on the sale or other
disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must have represented
less than 30% of the gross income of the Company's predecessor (including gross
income from prohibited transactions) for each taxable year.
Rents received by the Company, the Operating Partnership and the Subsidiary
Partnerships will qualify as "rents from real property" only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person. However, an amount received or
accrued generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales. Second, rents received from a tenant will not qualify as "rents from
real property" if the real estate investment trust, or an owner of 10% or more
of the real estate investment trust, directly or constructively (through the
application of certain stock attribution rules modified, for taxable years
beginning after 1997, to attribute stock owned by partners to a partnership only
in the case of partners who own 25% or more of the capital or profits interest
in such partnership) owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the real estate investment trust generally must not
operate or manage the property or furnish or render services to the tenants of
such property, other than through an "independent contractor" who is adequately
compensated and from whom the real estate investment trust does not derive any
income; provided, however, that the real estate investment trust may directly
perform certain customary services (e.g., furnishing water, heat, light and air
conditioning and cleaning windows, public entrances and lobbies) other than
services which are considered rendered to the occupant of the property (e.g.,
renting parking spaces on a reserved basis to tenants).
Substantially all of the hotels are leased to OpCo. In order for the rents
payable under the leases to constitute "rents from real property," the leases
must be respected as true leases for federal income tax purposes and not treated
as service contracts, joint ventures or some other type of arrangement. The
determination of whether the leases are true leases depends on an analysis of
all the surrounding facts and circumstances. In making such a determination,
courts have considered a variety of factors, including the intent of the
parties, the form of the agreement, the degree
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of control over the property that is retained by the property owner (e.g.,
whether the lessee has substantial control over the operation of the property or
whether the lessee is required simply to use its best efforts to perform its
obligations under the agreement) and the extent to which the property owner
retains the risk of loss with respect to the property (e.g., whether the lessee
bears the risk of increases in operating expenses or the risk of damage to the
property) or the potential for economic gain (e.g., appreciation) with respect
to the property.
In addition, Code section 7701(e) provides that a contract that purports to
be a service contract (or a partnership agreement) is treated instead as a lease
of property if the contract is properly treated as such, taking into account all
relevant factors, including whether or not: (i) the service recipient is in
physical possession of the property, (ii) the service recipient controls the
property, (iii) the service recipient has a significant economic or possessory
interest in the property (e.g., the property's use is likely to be dedicated to
the service recipient for a substantial portion of the useful life of the
property, the service recipient shares the risk that the property will decline
in value, the service recipient shares in any appreciation in the value of the
property, the service recipient shares in increases in the property's operating
costs or the service recipient bears the risk of damage to or loss of the
property), (iv) the service provider does not bear any risk of substantially
diminished receipts or substantially increased expenditures if there is
nonperformance under the contract, (v) the service provider does not use the
property concurrently to provide significant services to entities unrelated to
the service recipient, and (vi) the total contract price does not substantially
exceed the rental value of the property for the contract period. As the
determination of whether a service contract should be treated as a lease is
inherently factual, the presence or absence of any single factor may not be
dispositive in every case.
Company Tax Counsel is of the opinion that the hotel leases are true leases
for federal income tax purposes. Such opinion is based, in part, on the
following facts: (i) the Operating Partnership or a Subsidiary Partnership, as
applicable, and OpCo or other applicable lessee intend for their relationship to
be that of a lessor and lessee and such relationship is documented by lease
agreements, (ii) the lessee will have the right to exclusive possession and use
and quiet enjoyment of the hotels during the term of the lease, (iii) the lessee
will bear the cost of, and be responsible for, day-to-day maintenance and repair
of the hotels and generally will control how the hotels are operated and
maintained, (iv) the lessee generally will bear all of the costs and expenses of
operating the hotels during the term of the leases, (v) the lessee will benefit
from any savings in the costs of operating the hotels during the term of the
lease, (vi) the lessee will indemnify the Company against liabilities imposed
upon or asserted against the Company during the term of the lease, (vii) the
lessee will be obligated to pay substantial fixed rent for the period of use of
the hotels and (viii) the lessee stands to incur substantial losses (or reap
substantial gains) depending on how successfully it operates the hotels.
Stockholders should be aware that there are no controlling Treasury
Regulations, published rulings or judicial decisions involving leases with terms
substantially the same as the leases that discuss whether such leases constitute
true leases for federal income tax purposes. Therefore, the opinion of Company
Tax Counsel with respect to the relationship between the Operating Partnership
or a Subsidiary Partnership, as applicable, and the lessee is based upon all of
the facts and circumstances and upon rulings and judicial decisions involving
situations that are considered to be analogous. Company Tax Counsel's opinion is
not binding upon the Internal Revenue Service or the courts. If the Internal
Revenue Service were to successfully recharacterize the leases as service
contracts or partnership agreements, rather than true leases, part or all of the
payments that the Operating Partnership and the Subsidiary Partnerships receive
from the lessee would not qualify as "rents from real property." In such event,
the Company likely would not be able to satisfy either the 75% or 95% gross
income tests, and, as a result, would lose its real estate investment trust
status.
As noted above, in order to be treated as "rents from real property," the
rents under the hotel leases must not be based in whole or in part on the income
or profits of any person. The rents will qualify as "rents from real property"
if they are based on percentages of receipts or sales and the percentages (i)
are fixed at the time the leases are entered into, (ii) are not renegotiated
during the term of the leases in a manner that has the effect of basing rent on
income or profits, and (iii) conform with normal business practice. The Company
believes that rentals under the hotel leases comply with these requirements.
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As noted above, rent received from a Related Party Tenant does not qualify
as "rents from real property." The Charter prohibits a stockholder of the
Company from owning Common Stock if such ownership would cause the Company to
own, actually or constructively, 10% or more of the ownership interests in a
tenant of the Company's, the Operating Partnership's or a Subsidiary
Partnership's real property. As a result, the lessee should not be a Related
Party Tenant of the Company.
The hotel leases provide that the rents attributable to leased personal
property are not greater than 15% of the total rents under the hotel lease. The
lessee may be required to purchase any excess personal property at fair market
value.
The fourth requirement noted above for qualification of rents under the
hotel leases as "rents from real property" is that the Company cannot furnish or
render non-customary services to the tenants of the hotels or operate or manage
the hotels, other than through an independent contractor who is adequately
compensated and from whom the Company does not derive any income. Provided that
the hotel leases are treated as true leases, the Company should not be
considered to manage or operate the hotels, because OpCo manages the hotels for
its own account in its capacity as lessee. None of the Company, the Operating
Partnership or any Subsidiary Partnership furnishes or provides any services to
a tenant and none of such entities contracts with any other person to provide
such services.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a real estate
investment trust for such year if it is entitled to relief under certain
provisions of the Code. These relief provisions generally will be available if
(i) the failure to meet such tests was due to reasonable cause and not due to
willful neglect, (ii) a schedule of the sources of qualifying income is attached
to the federal income tax return of the Company for such taxable year, and (iii)
any incorrect information on the schedule was not due to fraud with intent to
evade tax. It is not possible, however, to state whether in all circumstances
the Company would be entitled to the benefit of these relief provisions. As
discussed above in "--Taxation of the Company," even if these relief provisions
apply, a tax would be imposed with respect to the excess net income. No similar
relief provision would apply if the 30% income test had been failed for a
taxable year prior to 1998 and, in such case, the Company would cease to qualify
as a real estate investment trust. See--"Failure to Qualify."
Asset Tests
In order for the Company to qualify as a real estate investment trust, at
the close of each quarter of its taxable year it must also satisfy three tests
relating to the nature of its assets. First, at least 75% of the value of its
total assets must be represented by real estate assets (which for this purpose
include (i) its allocable share of real estate assets held by partnerships in
which the Company or a "qualified REIT subsidiary" owns an interest, (ii) stock
or debt instruments purchased with the proceeds of a stock offering or a
long-term (at least five years) debt offering and held for not more than one
year from the date the Company receives such proceeds, and (iii) shares in
qualified real estate investment trusts) and cash, cash items and government
securities. Second, not more than 25% of the total assets of the Company may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities may not exceed 5% of the value of the total assets of the Company,
and the Company may not own more than 10% of any one issuer's outstanding voting
securities (excluding securities of a qualified REIT subsidiary or another real
estate investment trust).
The Company anticipates that it will be able to comply with these asset
tests. The Company is currently deemed to and will continue to be deemed to hold
directly its proportionate share of all real estate and other assets of the
Operating Partnership and the Subsidiary Partnerships, and it should be
considered to hold its proportionate share of all assets deemed owned by those
partnerships through the partnerships' ownership of partnership interests in
other partnerships. As a result, the Company plans to hold more than 75% of its
assets as real estate assets. In addition, the Company does not plan to hold any
securities representing more than 10% of any one issuer's voting securities,
other than any qualified REIT subsidiary, nor securities of any one issuer
exceeding 5% of the value of the Company's gross assets (determined in
accordance with generally accepted accounting principles).
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a real estate investment trust for failure
to satisfy the asset tests at the end of a later quarter solely by reason of
changes in asset values. If the failure to satisfy the asset tests results from
an acquisition of securities or other property during
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a quarter, the failure can be cured by disposition of sufficient nonqualifying
assets within 30 days after the close of that quarter. It is intended that the
Company will maintain adequate records of the value of its assets to ensure
compliance with the asset tests, and will take such other action within 30 days
after the close of any quarter as may be required to cure any noncompliance.
However, there can be no assurance that such other action always will be
successful.
Annual Distribution Requirements
In order to be taxed as a real estate investment trust, the Company will be
required to meet certain annual distribution requirements. The Company will have
to distribute dividends (other than capital gain dividends) to its stockholders
in an amount at least equal to (1) the sum of (a) 95% of its "real estate
investment trust taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (b) 95% of the net income, if
any, from foreclosure property in excess of the special tax on income from
foreclosure property, minus (2) the sum of certain items of noncash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration.
To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95% (but less than 100%) of its real estate
investment trust taxable income, as adjusted, it will be subject to tax on the
undistributed portion, at regular ordinary and capital gains corporate tax
rates. Furthermore, if the Company fails to distribute for each calendar year at
least the sum of (a) 85% of its real estate investment trust ordinary income for
such year, (b) 95% of its real estate investment trust capital gain net income
for such year, and (c) any undistributed ordinary income and capital gain net
income from prior periods, it will be subject to a 4% excise tax on the excess
of such required distribution over the amounts actually distributed. The Company
intends to make timely distributions sufficient to satisfy this annual
distribution requirement.
It is expected that the Company's taxable income ordinarily will be less
than its cash flow, due to the allowance of depreciation and other noncash
charges in computing its taxable income. Accordingly, the Company anticipates
that it generally will have sufficient cash or liquid assets to enable it to
satisfy the 95% distribution requirement.
It is possible that from time to time the Company may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement due to
timing differences between the actual receipt of income and actual payment of
deductible expenses and the inclusion of such income and deduction of such
expenses in arriving at taxable income of the Company or if the amount of
nondeductible expenses such as principal amortization or capital expenditures
exceeds the amount of noncash deductions. In the event that such situation
occurs, in order to meet the 95% distribution requirement, the Company may find
it necessary to arrange for short-term, or possibly long-term, borrowings or to
pay dividends in the form of taxable share dividends. If the amount of
nondeductible expenses exceeds noncash deductions, the Company may refinance its
indebtedness to reduce principal payments and borrow funds for capital
expenditures.
Under certain circumstances in which an adjustment is made that affects the
amount that should have been distributed for a prior taxable year, the Company
may be able to rectify the failure to meet such distribution requirement by
paying "deficiency dividends" to stockholders in the later year, which may be
included in the Company's deduction for dividends paid for the earlier year.
Thus, the Company may be able to avoid being taxed on amounts distributed as
deficiency dividends; however, it will be required to pay interest based upon
the amount of any deduction taken for deficiency dividends.
Failure to Qualify
If the Company fails to qualify for taxation as a real estate investment
trust in any taxable year, and the relief provisions do not apply, the Company
would be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. Distributions to stockholders in
any year in which the Company fails to qualify will not be deductible by the
corporation nor will they be required to be made. In such event, to the extent
of current or accumulated earnings and profits, all distributions to
stockholders will be taxable as ordinary income,
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and subject to certain limitations of the Code, corporate distributees may be
eligible for the dividends-received deduction. Unless entitled to relief under
specific statutory provisions, the Company also will be disqualified from
taxation as a real estate investment trust for the four taxable years following
the year during which qualification was lost. It is not possible to state
whether in all circumstances the Company would be entitled to such statutory
relief.
Taxation of U.S. Stockholders of the Company
As used herein, the term "U.S. Stockholder" means a holder of shares of
stock of the Company that (for United States federal income tax purposes) (i) is
a citizen or resident of the United States, (ii) is a corporation, partnership,
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) is an estate the income of which
is subject to United States federal income taxation regardless of its source or
(iv) is a trust if a United States court is able to exercise primary supervision
over the administration of the trust and one or more United States persons have
the authority to control all substantial decisions of the trust. For any taxable
year for which the Company qualifies for taxation as a real estate investment
trust, amounts distributed to taxable U.S. Stockholders will be taxed as
follows:
Distributions Generally
Distributions to U.S. Stockholders, other than capital gain dividends
discussed below, will be taxable as ordinary income to such holders up to the
amount of the Company's current or accumulated earnings and profits. Such
distributions are not eligible for the dividends-received deduction for
corporations. To the extent that the Company makes distributions in excess of
its current or accumulated earnings and profits, such distributions will first
be treated as a tax-free return of capital, reducing the tax basis in the U.S.
Stockholders' shares of stock, and distributions in excess of the U.S.
Stockholders' tax basis in their respective shares of stock will be taxable as
an amount realized from the sale of such shares. Dividends declared by the
Company in October, November, or December of any year payable to a stockholder
of record on a specified date in any such month will be treated as both paid by
the Company and received by the stockholder on December 31 of such year,
provided that the dividend is actually paid by the Company during January of the
following calendar year. Stockholders may not include on their own income tax
returns any tax losses of the Company.
The Company will be treated as having sufficient earnings and profits to
treat as a dividend any distribution by the Company up to the greater of its
current or accumulated earnings and profits. As a result, stockholders may be
required to treat certain distributions that would otherwise result in a
tax-free return of capital as taxable dividends. Moreover, any "deficiency
dividend" will be treated as a "dividend" (an ordinary dividend or a capital
gain dividend, as the case may be), regardless of the Company's earnings and
profits.
Capital Gain Dividends
Dividends to U.S. Stockholders that are properly designated by the Company
as capital gain dividends will be treated as long-term capital gain (to the
extent they do not exceed the Company's actual net capital gain) for the taxable
year without regard to the period for which the stockholder has held his stock.
Corporate stockholders, however, may be required to treat up to 20% of certain
capital gain dividends as ordinary income. Capital gain dividends are not
eligible for the dividends-received deduction for corporations.
Individual U.S. Stockholders and U.S. Stockholders that are estates and
trusts currently are subject to federal income tax on net capital gains at
different tax rates depending upon the nature of the gain and the holding period
of the asset disposed of. Current guidance applicable until the issuance of
Treasury Regulations provides, subject to certain limitations, that a real
estate investment trust may designate the tax rate on a capital gain dividend.
In the absence of a designation, such dividend presumably will be treated as a
20%-rate distribution.
Although a real estate investment trust is taxed on its undistributed net
capital gains, for taxable years beginning after 1997, a real estate investment
trust may elect to include all or a portion of such undistributed net capital
gains in the income of its stockholders. In such event, the stockholder will
receive a credit or refund for the amount of tax paid by the real estate
investment trust on such undistributed net capital gains.
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Passive Activity and Loss; Investment Interest Limitations
Distributions from the Company and gain from the disposition of shares of
Common Stock ordinarily will not be treated as passive activity income, and
therefore, U.S. Stockholders generally will not be able to apply any "passive
losses" against such income. Dividends from the Company (to the extent they do
not constitute a return of capital) generally will be treated as investment
income for purposes of the investment interest limitation. Net capital gain from
the disposition of shares of Common Stock and capital gain dividends generally
will be excluded from investment income unless the taxpayer elects to have the
gain taxed at ordinary rates.
Dispositions of Shares of Common Stock
A U.S. Stockholder will recognize gain or loss on the sale or exchange of
shares of Common Stock to the extent of the difference between the amount
realized on such sale or exchange and the holder's tax basis in such shares.
Such gain or loss generally will constitute long-term capital gain or loss if
the holder has held such shares for more than one year and, in the case of an
individual, will be taxed at a lower rate. Losses incurred on the sale or
exchange of shares of Common Stock held for six months or less (after applying
certain holding period rules), however, generally will be deemed long-term
capital loss to the extent of any long-term capital gain dividends received by
the U.S. Stockholder with respect to such shares.
Treatment of Tax-Exempt U.S. Stockholders
The Internal Revenue Service has ruled that amounts distributed by a real
estate investment trust out of its earnings and profits to a tax-exempt pension
trust did not constitute unrelated business taxable income ("UBTI"). Although
rulings are merely interpretations of law by the Internal Revenue Service and
may be revoked or modified, based on this analysis, indebtedness incurred by the
Company in connection with the acquisition of an investment should not cause any
income derived from the investment to be treated as UBTI upon the distribution
of such income as dividends to a tax-exempt entity. A tax-exempt entity that
incurs indebtedness to finance its purchase of shares, however, will be subject
to UBTI by virtue of the debt-financed income rules.
In addition, tax-exempt pension and certain other tax-exempt trusts that
hold more than 10% (by value) of the interests in a real estate investment trust
are required to treat a percentage of real estate investment trust dividends as
UBTI. The requirement applies only if (i) the qualification of the real estate
investment trust depends upon the application of a "look-through" exception to
the restriction on real estate investment trust stockholdings by five or fewer
individuals, including such trusts and (ii) the real estate investment trust is
"predominantly held" by such tax-exempt trusts. It is not anticipated that
qualification of the Company as a real estate investment trust will depend upon
application of the "look-through" exception or that the Company will be
"predominantly held" by such trusts.
Special Tax Considerations for Foreign Stockholders
The rules governing United States federal income taxation of non-resident
alien individuals, foreign corporations, foreign partnerships, and foreign
trusts and estates (collectively, "Non-U.S. Stockholders") are complex, and the
following discussion is intended only as a summary of such rules. Prospective
Non-U.S. Stockholders should consult with their own tax advisors to determine
the impact of federal, state, and local income tax laws on an investment in the
Company, including any reporting requirements, as well as the tax treatment of
such an investment under their home country laws.
In general, Non-U.S. Stockholders will be subject to United States federal
income tax with respect to their investment in the Company if such investment is
"effectively connected" with the Non-U.S. Stockholder's conduct of a trade or
business in the United States. A corporate Non-U.S. Stockholder who receives
income that is (or is treated as) effectively connected with a United States
trade or business also may be subject to the branch profits tax under section
884 of the Code, which is payable in addition to United States corporate income
tax. The following discussion applies to Non-U.S. Stockholders whose investment
in the Company is not so effectively connected. The Company expects to withhold
United States income tax, as described below, on the gross amount of any
distributions paid to a Non-U.S. Stockholder unless (i) a lower treaty rate
applies and the required form evidencing eligibility for
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that reduced rate is filed with the Company, or (ii) the Non-U.S. Stockholder
files an Internal Revenue Service Form 4224 or applicable successor form with
the Company, claiming that the distribution is "effectively connected" income.
A distribution by the Company that is not attributable to gain from the
sale or exchange by the Company of a United States real property interest and
that is not designated by the Company as a capital gain dividend will be treated
as an ordinary income dividend to the extent made out of current or accumulated
earnings and profits. Generally, an ordinary income dividend will be subject to
a United States withholding tax equal to 30% of the gross amount of the
distribution unless such tax is reduced or eliminated by an applicable tax
treaty. A distribution of cash in excess of the Company's earnings and profits
will be treated first as a return of capital that will reduce a Non-U.S.
Stockholder's basis in its shares of the Company's Common Stock (but not below
zero) and then as gain from the disposition of such shares, the tax treatment of
which is described under the rules discussed below with respect to dispositions
of shares.
Distributions by the Company that are attributable to gain from the sale or
exchange of a United States real property interest will be taxed to a Non-U.S.
Stockholder under the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, such distributions are taxed to a Non-U.S. Stockholder
as if such distributions were gains "effectively connected" with a United States
trade or business. Accordingly, a Non-U.S. Stockholder will be taxed at the
normal capital gain rates applicable to a U.S. Stockholder (subject to any
applicable alternative minimum tax and a special alternative minimum tax in the
case of non-resident alien individuals). Distributions subject to FIRPTA also
may be subject to a 30% branch profits tax in the hands of a foreign corporate
stockholder that is not entitled to treaty exemption.
The Company will be required to withhold from distributions to Non-U.S.
Stockholders, and remit to the Internal Revenue Service, (i) 35% of designated
capital gain dividends (or, if greater, 35% of the amount of any distributions
that could be designated as capital gain dividends) and (ii) 30% of ordinary
dividends paid out of earnings and profits. In addition, if the Company
designates prior distributions as capital gain dividends, subsequent
distributions, up to the amount of such prior distributions not withheld
against, will be treated as capital gain dividends for purposes of withholding.
A distribution in excess of the Company's earnings and profits may be subject to
30% dividend withholding if at the time of the distribution it cannot be
determined whether the distribution will be in an amount in excess of the
Company's current or accumulated earnings and profits. Tax treaties may reduce
the Company's withholding obligations. If the amount withheld by the Company
with respect to a distribution to a Non-U.S. Stockholder exceeds the
stockholder's United States tax liability with respect to such distribution (as
determined under the rules described in the two preceding paragraphs), the
Non-U.S. Stockholder may file for a refund of such excess from the Internal
Revenue Service. It should be noted that the 35% withholding tax rate on capital
gain dividends currently corresponds to the maximum income tax rate applicable
to corporations, but is higher than the 20% maximum rate on capital gains of
individuals.
Unless the shares of Common Stock constitute a "United States real property
interest" within the meaning of FIRPTA or are effectively connected with a U.S.
trade or business, a sale of such shares by a Non-U.S. Stockholder generally
will not be subject to United States taxation. The shares of Common Stock will
not constitute a United States real property interest if the Company is a
"domestically-controlled real estate investment trust." A
domestically-controlled real estate investment trust is a real estate investment
trust in which at all times during a specified testing period less than 50% in
value of its shares is held directly or indirectly by Non-U.S. Stockholders. It
is currently believed that the Company is a domestically-controlled real estate
investment trust, and therefore that the sale of shares in the Company will not
be subject to taxation under FIRPTA. However, because the shares of Common Stock
are publicly traded, no assurance can be given that the Company will continue to
be a domestically- controlled real estate investment trust. Notwithstanding the
foregoing, capital gain not subject to FIRPTA will be taxable to a Non-U.S.
Stockholder if the Non-U.S. Stockholder is a nonresident alien individual who is
present in the United States for 183 days or more during the taxable year and
certain other conditions apply, in which case the nonresident alien individual
will be subject to a 30% tax on such individual's capital gains. If the Company
did not constitute a domestically-controlled real estate investment trust,
whether a Non-U.S. Stockholder's sale of shares of Common Stock would be subject
to tax under FIRPTA as a sale of a United States real property interest would
depend on whether the shares were "regularly traded" (as defined by applicable
Treasury Regulations) on an established
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securities market (e.g., the NYSE) and on the size of the selling stockholder's
interest in the Company. If the gain on the sale of the Company's shares were
subject to taxation under FIRPTA, the Non-U.S. Stockholder would be subject to
the same treatment as a U.S. Stockholder with respect to such gain (subject to
applicable alternative minimum tax and a special alternative minimum tax in the
case of nonresident alien individuals). In any event, a purchaser of shares of
Common Stock from a Non-U.S. Stockholder will not be required under FIRPTA to
withhold on the purchase price if the purchased shares of Common Stock are
"regularly traded" on an established securities market or if the Company is a
domestically-controlled real estate investment trust. Otherwise, under FIRPTA
the purchaser of shares of Common Stock may be required to withhold 10% of the
purchase price and remit such amount to the Internal Revenue Service.
Income Taxation of the Operating Partnership, the Subsidiary Partnerships and
Their Partners
The following discussion summarizes certain federal income tax
considerations applicable to the Company's investment in the Operating
Partnership and the indirect interest of the Company in the Subsidiary
Partnerships.
Classification of the Operating Partnership and the Subsidiary Partnerships
The Company will be entitled to include in its income its distributive
share of the income and to deduct its distributive share of the losses of the
Operating Partnership (including the Operating Partnership's share of the income
or losses of the Subsidiary Partnerships) only if such organizations are
classified for federal income tax purposes as partnerships or, in the case of
certain Subsidiary Partnerships that are single-member limited liability
companies, are disregarded as an entity separate from such member, rather than
as associations taxable as corporations. With certain exceptions, an
unincorporated domestic organization formed on or after January 1, 1997 that has
two or more members will be treated as a partnership for federal income tax
purposes absent an election by such organization to be treated as an association
taxable as a corporation. Such an organization formed prior to January 1, 1997
was treated as a partnership for federal income tax purposes rather than as a
corporation for periods prior to January 1, 1997 only if it had no more than two
of the four corporate characteristics that the Treasury Regulations applicable
to such organizations used to distinguish a partnership from a corporation for
tax purposes. These four characteristics were continuity of life, centralization
of management, limited liability, and free transferability of interests. Unless
such organization elects otherwise, the classification claimed by the
organization prior to January 1, 1997 will continue for periods on or after
January 1, 1997, and such classification will be respected for all prior periods
if the organization had a reasonable basis for such classification, the
organization and all members of the organization recognized the federal tax
consequences of any change in the organization's classification within the 60
months prior to January 1, 1997, and neither the organization nor any member was
notified in writing on or before May 8, 1996 that the classification of the
organization was under examination.
The Company expects that the Operating Partnership and all Subsidiary
Partnerships formed on and after January 1, 1997 either will have two or more
members at all times or, in the case of certain Subsidiary Partnerships, will
have a single member, and that none of those organizations will elect to be
treated as an association for federal income tax purposes. In addition, American
General Hospitality Operating Partnership, L.P. and the Subsidiary Partnerships
in existence prior to January 1, 1997 and owned, directly or indirectly, by the
Company and its predecessor claimed to be partnerships for all periods prior to
January 1, 1997 and were not notified in writing on or before May 8, 1996 that
such classification was under examination. In the opinion of Company Tax
Counsel, which is based on the provisions of the partnership agreement of the
Operating Partnership and on certain factual assumptions and representations,
the Operating Partnership and the Subsidiary Partnerships have been and continue
to be, and the Operating Partnership and the Subsidiary Partnerships will be,
treated as partnerships for federal income tax purposes or, in the case of those
Subsidiary Partnerships that are single-member limited liability companies, will
be disregarded as an entity separate from such member. However, neither the
Operating Partnership nor any of the Subsidiary Partnerships have requested, nor
do they intend to request, a ruling from the Internal Revenue Service that they
will be treated as partnerships or disregarded, as applicable, for federal
income tax purposes. Company Tax Counsel's opinion is not binding on the
Internal Revenue Service or the courts.
A publicly-traded partnership is a partnership whose interests are traded
on an established securities market or are readily tradeable on a secondary
market (or the substantial equivalent thereof). A publicly traded partnership
will
754350.7
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<PAGE>
be treated as a corporation for federal income tax purposes unless at least 90%
of such partnership's gross income for each taxable year consists of "qualifying
income," which generally includes any income that is qualifying income for
purposes of the 95% gross income test applicable to real estate investment
trusts (the "Qualifying Income Exception"). See "--Requirements for
Qualification--Income Tests." For this purpose, the Related Party Tenant test is
applied by treating the partnership as owning an interest in any corporation
that is owned directly or indirectly by any 5% partner. The partnership
agreement of the Operating Partnership contains restrictions regarding transfers
of units in the Operating Partnership that are intended to assist the Operating
Partnership in satisfying the Related Party Tenant test applicable for purposes
of the Qualifying Income Exception.
It is unclear whether the right of unit holders in the Operating
Partnership to exchange their units for shares of the Company would be treated
as the "substantial equivalent" of the units being readily tradeable. However,
because it is anticipated that the Operating Partnership will meet the
Qualifying Income Exception, it should not be treated as a corporation under the
publicly-traded partnership rules. In addition, Treasury Regulations provide
certain safe harbors that, if applicable, will cause partnership interests to be
treated as interests that are not readily tradeable on a secondary market or the
substantial equivalent thereof. One such safe harbor requires that (i) all
interests in the partnership were issued in transactions that were not required
to be registered under the Securities Act of 1933 and (ii) the partnership does
not have more than 100 partners at any time during the partnership's taxable
year. Because interests in the Operating Partnership and its predecessors were
issued in transactions that were not required to be registered under the
Securities Act and the Operating Partnership has not had and does not currently
have more than 100 partners, the safe harbor should apply to the Operating
Partnership for prior taxable years and for any taxable year during which the
Operating Partnership does not have more than 100 partners.
If for any reason the Operating Partnership or one of the Subsidiary
Partnerships were taxable as a corporation for federal income tax purposes, the
Company would not be able to satisfy the requirements for real estate investment
trust status. See "--Requirements for Qualification--Income Tests" and
"--Requirements for Qualification--Asset Tests." In addition, any change in any
such organization's status for tax purposes might be treated as a taxable event,
in which case the Company might incur a tax liability without any related cash
distribution. See "--Requirements for Qualification--Annual Distribution
Requirements." Further, items of income and deduction of any such organization
would not pass through to its partners or members, and its partners or members
would be treated as stockholders for tax purposes. Any such organization would
be required to pay income tax at corporate tax rates on its net income, and
distributions to its partners or members would constitute dividends that would
not be deductible in computing such organization's taxable income.
Partners, Not Partnerships, Subject to Tax
A partnership is not a taxable entity for federal income tax purposes.
Rather, a partner is required to take into account its allocable share of a
partnership's income, gains, losses, deductions, and credits for any taxable
year of the partnership ending within or with the taxable year of the partner,
without regard to whether the partner has received or will receive any
distributions from the partnership.
Partnership Allocations
Although a partnership agreement will generally determine the allocation of
income and losses among partners, such allocations will be disregarded for tax
purposes under section 704(b) of the Code if they do not comply with the
provisions of section 704(b) of the Code and the Treasury Regulations
promulgated thereunder as to substantial economic effect.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss of the Operating Partnership and the Subsidiary Partnerships are intended
to comply with the requirements of section 704(b) of the Code and the Treasury
Regulations promulgated thereunder.
754350.7
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<PAGE>
Sale of Partnership Property
Generally, any gain realized by a partnership on the sale of property held
by the partnership for more than one year and allocated to a corporate partner
will be long-term capital gain, except for any portion of such gain that is
treated as depreciation or cost recovery recapture. However, under the real
estate investment trust requirements imposed by the Code, the Company's share,
as a partner, of any gain realized by the Operating Partnership or the
Subsidiary Partnerships on the sale of any property held as inventory or other
property held primarily for sale to customers in the ordinary course of a trade
or business will be treated as income from a prohibited transaction that is
subject to a 100% penalty tax. See "--Taxation of the Company."
Information Reporting Requirements and Backup Withholding Tax
The Company will report to its U.S. Stockholders and the Internal Revenue
Service the amount of distributions paid during each calendar year and the
amount of tax withheld, if any. Under certain circumstances, U.S. Stockholders
may be subject to backup withholding at a rate of 31% with respect to
distributions paid. Backup withholding will apply only if the stockholder (i)
fails to furnish its taxpayer identification number ("TIN") (which, for an
individual, would be such individual's Social Security number), (ii) furnishes
an incorrect TIN, (iii) is notified by the Internal Revenue Service that it has
failed properly to report payments of interest and dividends, or (iv) under
certain circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct TIN and has not been notified by the Internal Revenue
Service that it is subject to backup withholding for failure to report interest
and dividend payments. Backup withholding will not apply with respect to
payments made to certain exempt recipients, such as corporations and tax-exempt
organizations. U.S. Stockholders should consult their own tax advisors regarding
their qualification for exemption from backup withholding and the procedure for
obtaining such an exemption. Backup withholding is not an additional tax.
Rather, the amount of any backup withholding with respect to a payment to a U.S.
Stockholder will be allowed as a credit against such U.S. Stockholder's United
States federal income tax liability and may entitle such U.S. Stockholder to a
refund, provided that the required information is furnished to the Internal
Revenue Service.
Additional issues may arise pertaining to information reporting and backup
withholding with respect to Non-U.S. Stockholders. Non-U.S. Stockholders should
consult their tax advisors with respect to any such information reporting and
backup withholding requirements.
State and Local Tax Considerations
The Company is, and its stockholders may be, subject to state or local
taxation in various state or local jurisdictions, including those in which the
Company, its stockholders, the Operating Partnership or the Subsidiary
Partnerships transact business or reside. The state and local tax treatment of
the Company, the Operating Partnership, the Subsidiary Partnerships and the
Company's stockholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on their
investment in the Company.
Possible Federal Tax Developments
The rules dealing with federal income taxation are constantly under review
by the Internal Revenue Service, the Treasury Department, Congress and the
courts. New federal tax legislation or other provisions may be enacted into law
or new interpretations, rulings or Treasury Regulations could be adopted or
judicial decisions rendered, all of which could affect the taxation of the
Company or of its stockholders. No prediction can be made as to the likelihood
of passage of any new tax legislation or other provisions either directly or
indirectly affecting the Company or its stockholders. Consequently, the tax
treatment described herein may be modified prospectively or retroactively by
such legislative, judicial or administrative action.
Provisions contained in recently-enacted legislation limit the ability of
existing "stapled real estate investment trusts" to continue to obtain certain
federal income tax benefits for which such real estate investment trusts were
"grandfathered" under previous legislation but which are not currently available
to other real estate investment trusts.
754350.7
36
<PAGE>
In a stapled real estate investment trust structure, the stock of a real estate
investment trust and a C corporation trade as a single unit. Under statutory
provisions enacted in 1984, for purposes of determining whether an entity
qualifies as a real estate investment trust, the income, assets and operations
of any other entity to which it is stapled must be taken into account. These
rules did not apply to certain stapled real estate investment trusts in
existence at the time such rules were enacted. For purposes of determining
whether such a grandfathered stapled entity is a real estate investment trust,
the new rules treat the real estate investment trust and the C corporation as
one entity with respect to newly-acquired properties and the activities or
services relating to such properties undertaken by either entity. Because the
Company is not a grandfathered stapled real estate investment trust and because
the stock of OpCo and the Company trade separately, these new rules do not apply
to either corporation. As a result, the activities of OpCo will not be
considered in determining whether the Company qualifies as a real estate
investment trust. See "--Treatment of the Company and OpCo as Separate
Entities."
Certain prior legislative proposals, if enacted in the form previously
proposed, might result in future revisions to Notice 88-19 (see "--Taxation of
the Company") so that the Built-in Gain Rules no longer would be applicable to
the transfer of assets to a real estate investment trust by a C corporation in a
carryover basis transaction. Such proposals would have required the C
corporation to recognize the net built-in gain in such assets as of the date
preceding the date of the transfer. The most recent of such proposals would have
been effective for acquisitions after December 31, 1998 and, as a result, would
not have applied to the merger of CapStar Hotel Company into American General
Hospitality Corporation.
USE OF PROCEEDS
The Selling Stockholders will receive all of the proceeds from the sale of
the shares offered hereby. We will not receive any proceeds from the sale of the
shares offered hereby.
754350.7
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<PAGE>
SELLING STOCKHOLDERS
As described elsewhere herein, the Selling Stockholders are persons who
either have received or may receive shares of our Common Stock in exchange for
units of limited partnership interests in the Operating Partnership ("OP
Units"). The following table sets forth, as of September 15, 1998, the name of
each Selling Stockholder, the number of shares of our Common Stock beneficially
owned by each Stockholder, the number of shares of our Common Stock owned by
each Selling Stockholder to which this Prospectus relates and the number and
percentage of shares of our Common Stock beneficially owned by each Selling
Stockholder following the Offering to which this Prospectus relates. Since
Selling Stockholders may sell all, some or none of their shares of Common Stock
that are to be offered by this Prospectus, no estimate can be made of the
aggregate number of shares of Common Stock offered by this Prospectus, or the
aggregate number of shares of Common Stock that will be owned by each Selling
Stockholder upon completion of the Offering to which this Prospectus relates.
Except as otherwise noted below, none of the Selling Stockholders has, within
the past three years, had any position, office or other material relationship
with the Company.
The shares of Common Stock offered by this Prospectus may be offered from
time to time directly by the Selling Stockholders named below or by pledgees,
donees, transferees or other successors in interest thereto:
<TABLE>
<CAPTION>
Number of Percentage to
Maximum Shares to Be Be Beneficially
Number of Beneficially Owned After
Shares Beneficially Shares Which Owned After the Offering(2)
Owned Prior to May Be Sold this
Name this Offering(1) Hereunder Offering(2)
- --------------------------------------------------------------- ------------------ ------------------- --------------------
<S> <C> <C> <C> <C>
3005 Hotel Associates, Ltd. 26,636 26,636 0 *
Jackson-Shaw Partners No. 51, Ltd. 24,520 24,520 0 *
3100 Hotel Associates, L.P. 20,612 20,612 0 *
Virtual Hospitality, Inc. (3) 5,279 5,279 0 *
Lewis W. Shaw, II (4) 60,850 60,850 0 *
Kenneth W. Shaw (5) 107,872 59,907 0 *
Monica Jorns (6) 16,190 16,190 0 *
Steven D. Jorns (7) 331,005 (8) 44,659 286,346 *
Bruce G. Wiles (9) 180,598 (10) 18,039 162,559 *
Kenneth E. Barr (11) 249,865 (12) 8,475 241,390 *
3860 Investors Joint Venture 18,268 18,268 0 *
John D. Gourley 5,704 5,704 0 *
Louis E. Capt 25,227 24,357 870 *
Richard O. Jacobson Trust 36,537 36,537 0 *
Thomas J. Corcoran, Jr. (13) 40,774 36,537 4,237 *
Hervey A. Feldman (14) 18,268 18,268 0 *
Jerry R. Jacob 9,118 8,525 593 *
Pin Nien Hwang 6,089 6,089 0 *
Thomas L. Wiese 3,045 3,045 0 *
Steven L. Cobb 3,045 3,045 0 *
Barbara Hess 6,955 6,955 0 *
</TABLE>
754350.7
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<PAGE>
<TABLE>
<CAPTION>
Number of Percentage to
Maximum Shares to Be Be Beneficially
Number of Beneficially Owned After
Shares Beneficially Shares Which Owned-After the Offering(2)
Owned Prior to May Be Sold this
Name this Offering(1) Hereunder Offering(2)
- --------------------------------------- ------------------------ ------------------ ------------------- --------------------
<S> <C> <C> <C> <C>
DFW South Acquisition 98,041 98,041 0 *
Corporation
Corporate Property Associates 4, a 361,889 361,889 0 *
California Limited Partnership
Corporate Property Associates 8, 418,380 418,380 0 *
L.P.
Devlo, Inc. 20,608 20,608 0 *
James E. Sowell (15) 95,224 95,224 0 *
Jim Sowell Construction Co., Inc. 44,220 44,220 0 *
The Cocoa Beach Company, Inc. 2,278 2,278 0 *
Charles R. Faust 42,340 22,340 20,000 *
C. Wayne Thompson 44,682 44,682 0 *
S. Ronald Thompson 44,682 44,682 0 *
John D. Monson 55,852 55,852 0 *
Clyde E. Williams Jr. 18,601 18,601 0 *
CW Associates Co. 37,250 37,250 0 *
Prime Hospitality Corp. 439,375 439,375 0 *
CapStar Management Company, 1,475,916 1,475,916 0 *
LLC
1815 Hotel Associates Limited 11,567 11,568 0 *
Partnership(16)
</TABLE>
- --------------------
(*) Less than 1%
(1) Beneficial ownership as of September 15, 1998, based upon
information provided by the respective Selling
Stockholders. Unless otherwise noted in the following
footnotes, the shares of Common Stock set forth in this
column with respect to a particular Selling Stockholder
have not also been attributed to the shareholders, limited
partners or general partners of such Selling Stockholders.
(2) Assumes sale of all shares of Common Stock registered
hereunder, even though Selling Stockholders are under no
obligation known to the Company to sell any shares of
Common Stock at this time. Assumes that all OP Units held
by or attributable to the person are exchanged for shares
of Common Stock. The total number of shares of Common
Stock outstanding used in calculating this percentage
assumes that none of the OP Units held by other persons
are exchanged for shares of Common Stock. (3) Virtual
Hospitality, Inc. is a limited partner in 3005 Hotel
Associates, L.P. and in 3100 Hotel Associates, Ltd. and a
general partner in 1815 Hotel Associates Limited
Partnership. (4) Lewis W. Shaw, II is a limited partner in
3005 Hotel Associates, Ltd., 3100 Hotel Associates, L.P.
and 1815 Hotel Associates Limited Partnership, a general
partner in 3860 Investors Joint Venture and a shareholder
in Virtual Hospitality, Inc. (5) Kenneth W. Shaw is a
limited partner in 3005 Hotel Associates, Ltd., 3100 Hotel
Associates, L.P. and 1815 Hotel Associates Limited
Partnership and a shareholder in
754350.7
39
<PAGE>
Virtual Hospitality, Inc. Includes 24,618 shares of Common
Stock owned by his wife, Carole C. Shaw, of which shares
Mr. Shaw disclaims beneficial ownership of, and 847 shares
of Common Stock in a trust for the benefit of his children
for which he is trustee, of which shares Mr. Shaw
disclaims beneficial ownership of.
(6) Monica Jorns is the wife of Steven D. Jorns. Steven D.
Jorns disclaims beneficial ownership of the shares Common
Stock that may be issued to Mrs. Jorns in exchange for the
OP Units held by her.
(7) Steven D. Jorns, who is our Vice-Chairman of the Board and
Chief Operating Officer, is also a limited partner in 3100
Hotel Associates, L.P., an indirect holder of limited
partnership interests in 3005 Hotel Associates, Ltd., a
general partner in 3860 Investors Joint Venture, a
shareholder in Virtual Hospitality, Inc. and a participant
in American General Hospitality Inc.'s Retirement Savings
Plan (the "Retirement Plan"). (8) Includes (a) 213,568
shares of Common Stock that have vested or will vest
within the next 60 days under options granted pursuant to
the MeriStar Hospitality Corporation Incentive Plan (the
"Incentive Plan"), (b) 25,425 shares of restricted Common
Stock that constitute stock awards, (c) 63,054 units in
the Operating Partnership, (d) 16,190 OP Units issued to
Mr. Jorns' wife with respect to which Mr. Jorns disclaims
beneficial ownership, (e) 1,836 shares of Common Stock
held by the Retirement Plan and attributable to Mr. Jorns,
and (f) 10,932 shares of Common Stock purchased by Mr.
Jorns through open market transactions. (9) Bruce G.
Wiles, who is our President and Chief Investment Officer
and is also one of our directors, is also a limited
partner in 3100 Hotel Associates, L.P., 3005 Hotel
Associates, Ltd. and 1815 Hotel Associates Limited
Partnership, a general partner in 3860 Investors Joint
Venture, and a shareholder in Virtual Hospitality, Inc.
and a participant in the Retirement Plan. (10) Includes
(a) 114,837 shares of Common Stock that have vested or
will vest within the next 60 days under options granted
pursuant to the Incentive Plan, (b) 8,475 shares of
restricted Common Stock that constitute stock awards, (c)
1,993 shares of Common Stock held by the Retirement Plan
and attributable to Mr. Wiles, (d) 18,039 OP Units and (e)
37,254 shares of Common Stock purchased by Mr. Wiles
through open market purchases. (11) Kenneth E. Barr, who
was our Executive Vice President, Chief Financial Officer,
Secretary and Treasurer prior to our merger with CapStar
Hotel Company, is a participant in the Retirement Plan.
(12) Includes (a) 235,432 shares of Common Stock that have
vested under options granted pursuant to the Incentive
Plan, (b) 5,085 shares of restricted Common Stock that
constitute stock awards, (c) 66 shares of Common Stock
held by the Retirement Plan and attributable to Mr. Barr,
(d) 8,475 OP Units and (e) 807 shares of Common Stock
purchased by Mr. Barr through open market transactions, 84
of which were purchased as a custodian on behalf of a
family member, with respect to which Mr. Barr disclaims
beneficial ownership. (13) Thomas J. Corcoran controls 50%
of the voting stock of DFW South Acquisition Corporation.
(14) Hervey A. Feldman controls 50% of the voting stock of
DFW South Acquisition Corporation. (15) James E. Sowell
controls all of the voting stock of Jim Sowell
Construction Co., Inc. and controls the general partner of
Jackson-Shaw Partners No. 51, Ltd. James E. Sowell is a
shareholder in Virtual Hospitality, Inc., a general
partner in 3860 Investors Joint Venture and a limited
partner in 3100 Hotel Associates, L.P. (16) The OP Units
held by 1815 Hotel Associates Limited Partnership are
subject to a lock-up agreement which is scheduled to
expire on November 30, 1998.
754350.7
40
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus relates to the possible offer and sale from time to time by
the Selling Stockholders (or by pledgees, donees, transferees or other
successors in interest of such Selling Stockholders) of their shares of Common
Stock to which this Prospectus relates. We have registered their shares for
resale to provide them with freely tradeable securities. However, registration
of their shares does not necessarily mean that they will offer or sell any of
their shares. We will not receive any proceeds from the offering or sale of
their shares.
Selling Stockholders (or pledgees, donees, transferees or other successors
in interest) may sell the shares of Common Stock to which this Prospectus
relates from time to time on the New York Stock Exchange, where our Common Stock
is listed for trading, in other markets where our Common Stock is traded, in
negotiated transactions, through underwriters or dealers, directly to one or
more purchasers, through agents or in a combination of such methods of sale.
They will sell the Common Stock at prices which are current when the sales take
place or at other prices to which they agree. All costs, expenses and fees in
connection with the registration of the shares of Common Stock offered hereby
will be borne by us. Brokerage commissions and similar selling expenses, if any,
attributable to the sale of shares of Common Stock offered hereby will be borne
by the Selling Stockholders.
The Selling Stockholders may effect such transactions by selling shares of
Common Stock offered hereby directly to purchasers or through broker-dealers,
which may act as agents or principals. Such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
Selling Stockholders and/or the purchasers of shares of Common Stock offered
hereby for whom such broker-dealers may act as agents or to whom they sell as
principal, or both (which compensation as to a particular broker-dealer might be
in excess of customary commissions).
In connection with an underwritten offering, underwriters or agents may
receive compensation in the form of discounts, concessions or commissions from a
Selling Stockholder or from purchasers of the shares which are the subject of
this Prospectus for whom they may act as agents, and underwriters may sell the
shares which are the subject of this Prospectus to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. We have agreed to indemnify each Selling
Stockholder against certain liabilities, including liabilities arising under the
Securities Act. The Selling Stockholders may agree to indemnify any agent,
dealer or broker-dealer that participates in transactions involving sales of the
shares of Common Stock offered hereby against certain liabilities, including
liabilities arising under the Securities Act.
The shares which are the subject of this Prospectus may be sold directly or
through broker-dealers acting as principal or agent, or pursuant to a
distribution by one or more underwriters on a firm commitment or best-efforts
basis. The methods by which the shares which are the subject of this Prospectus
may be sold include: (a) a block trade in which the broker-dealer so engaged
will attempt to sell such shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker-dealer as principal and resale by such broker-dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; (d) an exchange
distribution in accordance with the rules of the New York Stock Exchange; (e)
privately negotiated transactions; and (f) underwritten transactions. The
Selling Stockholders and any underwriters, dealers or agents participating in
the distribution of the shares which are the subject of this Prospectus may be
deemed to be "underwriters" within the meaning of the Securities Act, and any
profit on the sale of such shares by the Selling Stockholders and any
commissions received by any such broker-dealers may be deemed to be underwriting
commissions under the Securities Act. There is no present plan of distribution.
When a Selling Stockholder elects to make a particular offer of the shares
which are the subject of this Prospectus, a prospectus supplement, if required,
will be distributed which will identify any underwriters, dealers or agents and
any discounts, commissions and other terms constituting compensation from such
Selling Stockholder and any other required information.
754350.7
41
<PAGE>
EXPERTS
The (a) Consolidated Financial Statements and financial statement schedule
of American General Hospitality Corporation ("AGH") as of December 31, 1997 and
1996, and for the year ended December 31, 1997 and for the period from July 31,
1996 through December 31, 1996, and (b) the Financial Statements of AGH Leasing
as of December 31, 1997 and 1996 and for the year ended December 31, 1997 and
for the period from July 31, 1996 through December 31, 1996, included in the AGH
Form 10-K and 10-K/A); (a) the Financial Statements and financial statement
schedule of the Chicago O'Hare Hotel as of and for the year ended December 31,
1996, (b) the Combined Financial Statements and financial statement schedule of
Potomac Acquisition Hotels as of and for the year ended December 31, 1996, (c)
the Combined Financial Statements and financial statement schedule of the Prime
Acquisition Hotels (as described therein) as of December 1995, and 1996 and for
each of the three years in the period ended December 31, 1996, and (d) the
Combined Financial Statements and financial statement schedule of the FSA
Acquisition Hotels (as defined therein) as of December 31, 1996 and September
30, 1997 and for the years ended December 31, 1995 and 1996 and for the nine
month period ended September 30, 1997, included in the AGH Report on Form 8-K
dated January 8, 1998; and the Combined and Combining Financial Statements and
financial statement schedule of the Prime Acquisition Hotels as of December 31,
1996, and 1997 and for each of the three years in the period ended December 31,
1997, included on the AGH Report on Form 8-K, dated April 6, 1998 and filed on
April 7, 1998 (and the 8-K/A filed on May 22, 1998, June 5, 1998 and June 19,
1998), and the financial statements of (a) AGH Leasing, L.P. as of December 31,
1997 and 1996 and for the year ended December 31, 1997 and for the period from
July 31, 1996 through December 31, 1996, and (b) American General Hospitality,
Inc. as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997, included on the CapStar report on Form 8-K,
dated and filed on April 7, 1998 (and the 8-K/A filed on May 22, 1998 and June
5, 1998), incorporated by reference in the Registration Statement, of which the
Prospectus forms a part, have been audited by PricewaterhouseCoopers LLP,
independent accountants, as set forth in their reports thereon. Each of the
above referenced financial statements have been incorporated by reference herein
in reliance upon the authority of said firm as expert in accounting and
auditing.
The consolidated financial statements and supplementary schedule of CapStar
Hotel Company and subsidiaries (collectively "CapStar") as of December 31, 1997
and 1996 and for each of the years in the three-year period ended December 31,
1997, included in CapStar's Annual Report on Form 10-K (and the Form 10-K/A
filed on May 22, 1998) and incorporated by reference herein, and the combined
financial statements of the management and leasing business of CapStar and its
subsidiaries (OpCo) as of December 31, 1997 and 1996 and for each of the years
in the three-year period ended December 31, 1997 included in CapStar's Current
Report on Form 8-K dated April 7, 1998 (and the related Form 8-K/A, dated May
22, 1998) and incorporated by reference herein, and certain financial statements
included in CapStar's Current Reports on Form 8-K, dated August 1, 1997,
September 5, 1997, September 9, 1997 and March 2, 1998 (and the related Form
8-K/A filed on May 6, 1998), have been incorporated by reference in reliance on
the reports of KPMG Peat Marwick LLP, independent accountants, and on the
authority of said firm as experts in accounting and auditing. The financial
statements of certain hotel entities incorporated by reference herein and filed
in CapStar's Current Reports on Forms 8-K dated August 18, 1998, September 5,
1997, September 18, 1997, September 22, 1997 and January 6, 1998, have been
incorporated by reference on reports of Pannell Kerr Forster PC, Pinsker,
Goldberg, Ivanicki & Apuzzo, Wertheim & Company, King Griffin & Adamson P.C.,
Mann Frankfort Stein & Lipp, P.C. and PricewaterhouseCoopers LLP, independent
accountants, and on the authority of said firms as experts in accounting and
auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for us by Battle Fowler LLP, New
York, New York. The validity of the shares of Common Stock offered hereby will
be passed upon for us by Ballard Spahr Andrews & Ingersoll, LLP, Baltimore,
Maryland. In addition, the description of federal income tax matters contained
in the section of this Prospectus entitled "Federal Income Tax Considerations"
is based on the opinion of Paul, Weiss, Rifkind, Wharton & Garrison, New York,
New York.
754350.7
42
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Selling Stockholders. This Prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof.
-----------------
TABLE OF CONTENTS
-----------------
Prospectus
Page
Where You Can Find More Information.......................................... 2
Forward-Looking Information.................................................. 3
The Company.................................................................. 4
Risk Factors................................................................. 5
Intercompany Agreement and Leases............................................ 13
Descriptions of Capital Stock................................................ 16
Federal Income Tax Considerations............................................ 22
Use of Proceeds.............................................................. 35
Selling Stockholders......................................................... 36
Plan of Distribution......................................................... 39
Experts...................................................................... 41
Legal Matters................................................................ 41
- --------------------------------------------------------------------------------
3,643,403 Shares
MERISTAR HOSPITALITY
CORPORATION
Common Stock
----------
PROSPECTUS
----------
__________ __, 1998
- --------------------------------------------------------------------------------
754350.7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution1
Set forth below is an estimate of the approximate amount of the fees
and expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock.
Securities and Exchange Commission, registration fee..................$ 10,716
---------
Printing and mailing expenses.......................................... 25,000
---------
Accounting fees and expenses........................................... 25,000
---------
Legal fees and expenses................................................ 50,000
---------
Miscellaneous expenses................................................. 15,000
---------
Total...................................................$ 125,716
=========
Item 15. Indemnification of Directors and Officers
The Maryland General Corporation Law ("MGCL") permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money damages
except for liability resulting from (a) actual receipt of an improper benefit or
profit in money, property or services or (b) active and deliberate dishonesty
established by a final judgment as being material to the cause of action. Our
Charter contains such a provision which eliminates such liability to the maximum
extent permitted by Maryland law.
Our Charter obligates us, to the maximum extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to any person (or the estate of any person)
who is or was a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding whether or not by or
in the right of our Company, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a
director or officer of our Company, or is or was serving at the request of our
Company as a director, officer, trustee, partner, member, agent or employee of
another corporation, partnership, limited liability company, association, joint
venture, trust or other enterprise. Our Charter also permits us to indemnify and
advance expenses to any person who served a predecessor of our Company in any of
the capacities described above and to any employee or agent of our Company or a
predecessor of our Company.
The Maryland General Corporation Law requires a Maryland corporation
(unless its charter provides otherwise, which our Charter does not) to indemnify
a director or officer who has been successful, on the merits or otherwise, in
the defense of any Maryland proceeding to which he is made a party by reason of
his service in that capacity. The Maryland General Corporation Law permits a
corporation to indemnify its present and former directors and officers, among
others, against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by them in connection with any proceeding to which they may be
made
- ----------------------------------
1 Company to complete.
754350.7
II-1
<PAGE>
a party by reason of their service in those or other capacities unless it is
established that (a) the act or omission of the director or officer was material
to the matter giving rise to the proceeding and (i) was committed in bad faith
or (ii) was the result of active and deliberate dishonesty, (b) the director or
officer actually received an improper personal benefit in money, property or
services or (c) in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was unlawful. However,
a Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In addition, the Maryland General Corporation
Law requires us, as a condition to advancing expenses, to obtain (a) a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by us as authorized by the
Bylaws and (b) a written statement by or on his behalf to repay the amount paid
or reimbursed by us if it shall ultimately be determined that the standard of
conduct was not met.
We have purchased director and officer liability insurance for the
purpose of providing a source of funds to pay any indemnification described
above.
Item 16. Exhibits
3.1 -- Amended and Restated Articles of Incorporation of the Registrant
(Articles of Merger between American General Hospitality
Corporation and CapStar Hotel Company).
3.2 -- Amended and Restated By-laws of the Registrant.
4.1 -- Form of Share Certificate (filed as Exhibit 4.1 to our
Registration Statement on Form S-11 (File No. 333-4568) and
incorporated herein by reference).
5.1 -- Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
8.1 -- Form of draft opinion of Paul, Weiss, Rifkind, Wharton &
Garrison as to federal income tax matters.
23.1 -- Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
Exhibit 5.1).
23.2 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in
Exhibit 8.1)
23.3 -- Consent of PricewaterhouseCoopers LLP (Dallas, Texas).
23.4 -- Consent of PricewaterhouseCoopers LLP (Philadelphia,
Pennsylvania).
23.5 -- Consent of KPMG Peat Marwick LLP.
23.6 -- Consent of Pannell Kerr Forster PC.
23.7 -- Consent of Pinsker, Goldberg, Ivanicki & Apuzzo.
23.8 -- Consent of Wertheim & Company.
23.9 -- Consent of King Griffin & Adamson P.C.
23.10 -- Consent of Mann Frankfort Stein & Lipp, P.C.
754350.7
II-2
<PAGE>
24.1 -- Power of Attorney (included on signature page hereto).
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in the form of
a prospectus pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offering therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
754350.7
II-3
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referred to in Item 15 of
this Registration Statement, or otherwise, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question as to whether such indemnification by it is against public policy
as expressed in the act, and will be governed by the final adjudication of such
issue.
754350.7
II-4
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Washington, District of Columbia, on the 28th day of
October, 1998.
MERISTAR HOSPITALITY CORPORATION
a Maryland corporation (Registrant)
By: /s/ Paul W. Whetsell
-----------------------------------------
Paul W. Whetsell
Chairman of the Board and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Paul W. Whetsell and Steven D. Jorns and each or either of them, his
true and lawful attorney-in-fact with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement (or any registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933) and to cause the same to be filed, with all exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby granting to said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and every act and
thing whatsoever requisite or desirable to be done in and about the premises, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all acts and things that said
attorneys-in-fact and agents, or either of them, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
SIGNATURE TITLE DATE
- -------- ---- ----
/s/ Paul W. Whetsell Chairman of the Board, Chief October 28, 1998
- ---------------------- Executive Officer and Director
Paul W. Whetsell
Vice Chairman, Chief Operating
- ---------------------- Officer and Director
Steven D. Jorns
754350.7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Bruce G. Wiles President, Chief Investment Officer October 28, 1998
- ---------------------------- and Director
Bruce G. Wiles
/s/ John Emery Chief Financial Officer October 28, 1998
- ----------------------------
John Emery (Principal Financial and Accounting
Officer)
- ---------------------------- Director
Daniel L. Doctoroff
- ---------------------------- Director
William S. Janes
/s/ James F. Dannhauser Director October 28, 1998
- ----------------------------
James F. Dannhauser
/s/ Mahmood Khimji Director October 28, 1998
- ----------------------------
Mahmood Khimji
/s/ James R. Worms Director October 28, 1998
- ----------------------------
James R. Worms
/s/ H. Cabot Lodge III Director October 28, 1998
- ----------------------------
H. Cabot Lodge III
</TABLE>
754350.7
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
3.1 -- Amended and Restated Articles of Incorporation of the
Registrant (Articles of Merger between American General
Hospitality Corporation and CapStar Hotel Company).
3.2 -- Amended and Restated By-laws of the Registrant.
4.1 -- Form of Share Certificate (filed as Exhibit 4.1 to our
Registration Statement on Form S-11 (File No. 333-4568) and
incorporated herein by reference).
5.1 -- Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
8.1 -- Form of draft opinion of Paul, Weiss, Rifkind, Wharton & Garrison
as to federal income tax matters.
23.1 -- Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
Exhibit 5.1).
23.2 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in
Exhibit 8.1)
23.3 -- Consent of PricewaterhouseCoopers LLP (Dallas, Texas).
23.4 -- Consent of PricewaterhouseCoopers LLP (Philadelphia,
Pennsylvania).
23.5 -- Consent of KPMG Peat Marwick LLP.
23.6 -- Consent of Pannell Kerr Forster PC.
23.7 -- Consent of Pinsker, Goldberg, Ivanicki & Apuzzo.
23.8 -- Consent of Wertheim & Company.
23.9 -- Consent of King Griffin & Adamson P.C.
23.1 0 -- Consent of Mann Frankfort Stein & Lipp, P.C.
24.1 -- Power of Attorney (included on signature page hereto).
754350.7
Exhibit 3.1
771418.1
<PAGE>
ARTICLES OF MERGER
BETWEEN
AMERICAN GENERAL HOSPITALITY CORPORATION
AND
CAPSTAR HOTEL COMPANY
THIS IS TO CERTIFY THAT:
FIRST: American General Hospitality Corporation ("AGH" or the
"Surviving Corporation" as the context may require) and CapStar Hotel Company
("CapStar" or the "Merging Corporation" as the context may require) agree to
merge in the manner hereinafter set forth.
SECOND: AGH is the corporation to survive the merger.
THIRD: AGH is incorporated under the laws of the State of
Maryland. CapStar was incorporated under the General Corporation Law of the
State of Delaware on May 29, 1996. The Merging Corporation was qualified to do
business in the State of Maryland on September 30, 1996. The Merging Corporation
has no principal office in the State of Maryland.
FOURTH: The principal office of the Surviving Corporation in
the State of Maryland is located in Baltimore City.
FIFTH: The Merging Corporation owns interests in land located
in the following counties of the State of Maryland:
Baltimore City
Howard County
SIXTH: Pursuant to the merger described herein, the charter of
AGH will be amended by deleting Article II in its entirety and substituting in
lieu thereof the following new article:
771418.1
<PAGE>
"ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
MeriStar Hospitality Corporation"
SEVENTH: The total number of shares of all classes of stock
which each corporation party to these Articles has the authority to issue and
the number of shares of each class are as follows:
a) Surviving Corporation
The total number of shares of all classes of stock
which the Surviving Corporation has authority to issue is 100,000,000 shares of
common stock, par value $0.01 per share (the "Surviving Corporation Common
Stock").
The aggregate par value of all shares of all classes of stock having a par value
is $1,000,000.
b) Merging Corporation
The total number of shares of all classes of stock
which the Merging Corporation has authority to issue is 74,000,000 shares,
consisting of 25,000,000 shares of preferred stock, par value $0.01 per share,
and 49,000,000 shares of common stock, par value $0.01 per share (the "Merging
Corporation Common Stock"). The aggregate par value of all shares of all classes
having a par value is $740,000.
EIGHTH: At the Effective Time (as defined in Article Eleventh
below), the Merging Corporation shall be merged into the Surviving Corporation
(such merger referred to herein as the "Merger"); and, thereupon, the Surviving
Corporation shall possess any and all purposes and powers of the Merging
Corporation; and all leases, licenses, property, rights, privileges, and powers
of whatever nature and description of the Merging Corporation shall be
transferred to, vested in and devolved upon the Surviving Corporation, without
further act or deed, subject to all of the debts and obligations of the Merging
Corporation.
As of the Effective Time, by virtue of the Merger and without
any action on the part of the holders of any capital stock of the Merging
Corporation, (i) each issued and outstanding share of Merging Corporation Common
Stock, shall be converted into and become 1.0 fully paid and nonassessable share
of Surviving Corporation Common Stock, (ii) each issued and outstanding share of
Merging Corporation Stock owned by the Merging Corporation as treasury stock or
owned by AGH shall be canceled, and (iii) each issued and outstanding share of
AGH shall be converted into and become .8475 fully paid and nonassessable shares
of Surviving Corporation Common Stock.
771418.1
<PAGE>
NINTH: The terms and conditions of the transaction described
in these Articles were duly advised, authorized and approved by the Merging
Corporation in the manner and by the vote required by the laws of the State of
Delaware and the charter of the Merging Corporation, as follows:
(a) The Board of Directors of the Merging Corporation, at a
meeting duly called and held, adopted a resolution declaring that the terms and
conditions of the merger described herein were advised, authorized and approved.
(b) At a meeting duly called and held, a proposal to approve
the Merger setting forth the terms and conditions of the Merger was approved by
the affirmative vote of the holders of not less than a majority of the
outstanding shares of the Merging Corporation Common Stock.
TENTH: The terms and conditions of the transaction described
in these Articles were duly advised, authorized and approved by AGH in the
manner and by the vote required by the laws of the State of Maryland and the
charter of AGH, as follows:
(a) The Board of Directors of AGH, at a meeting duly called
and held, adopted a resolution declaring that the terms and conditions of the
merger described herein were advised, authorized and approved.
(b) At a meeting duly called and held, a proposal to approve
the Merger setting forth the terms and conditions of the Merger was approved by
the affirmative vote of the holders of not less than a majority of the
outstanding shares of AGH Common Stock.
ELEVENTH: These Articles of Merger shall become effective at
9:00 a.m., New York time, on August 3, 1998 (the "Effective Time").
TWELFTH: Each undersigned officer of AGH and CapStar
acknowledges these Articles of Merger to be the corporate act of the respective
corporate party on whose behalf he has signed, and further, as to all matters or
facts required to be verified under oath, each respective officer of AGH and
CapStar acknowledges that to the best of his knowledge, information and belief,
these matters and facts relating to the corporation on whose behalf he has
signed are true in all material respects and that this statement is made under
the penalties for perjury.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
771418.1
<PAGE>
IN WITNESS WHEREOF, these Articles of Merger have been duly
executed by the parties hereto this 31st day of July 1998.
ATTEST: ICAN GENERAL HOSPITALITY
ORATION
/s/ Bruce G. Wiles By: /s/ Steven D. Jorns
- ----------------------------------- ------------------------------(SEAL)
Name: Bruce G. Wiles Name: Steven D. Jorns
Title: Executive Vice President Title: Chairman of the Board,
and Assistant Secretary Chief Executive Officer
and President
ATTEST: CAPSTAR HOTEL COMPANY
/s/ Christopher L. Bennett By: /s/ Paul W. Whetsell
- --------------------------------------- ------------------------------(SEAL)
Name: Christopher L. Bennett Name: Paul W. Whetsell
Title: Vice President, Legal Title: Chairman of the Board,
and Assistant Secretary Chief Executive Officer
and President
771418.1
Exhibit 3.2
771418.1
<PAGE>
MERISTAR HOSPITALITY CORPORATION
--------------------------------
SECOND RESTATED BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located at such place or places as the Board of Directors may
designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional
offices at such places as the Board of Directors may from time to time determine
or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal office of the Corporation or at such other place within the United
States as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting of the stockholders for
the election of directors and the transaction of any business within the powers
of the Corporation shall be held on a date and at the time set by the Board of
Directors during the month of May in each year; provided, however, that the
first annual meeting of stockholders to be held in 1996 shall be held during the
month of July; provided further, that the annual meeting of stockholders to be
held in 1998 shall be held during the month of July.
Section 3. SPECIAL MEETINGS. The president, chief executive officer or
Board of Directors may call special meetings of the stockholders. Special
meetings of stockholders shall also be called by the secretary of the
Corporation upon the written request of the holders of shares entitled to cast
not less than a majority of all the votes entitled to be cast at such meeting.
Such request shall state the purpose of such meeting and the matters proposed to
be acted on at such meeting. The secretary shall inform such stockholders of the
reasonably estimated cost of preparing and mailing notice of the meeting and,
upon payment to the Corporation by such stockholders of such costs, the
secretary shall give notice to each stockholder entitled to notice of the
meeting.
771418.1
<PAGE>
Section 4. NOTICE. Not less than ten nor more than 90 days before each
meeting of stockholders, the secretary shall give to each stockholder entitled
to vote at such meeting and to each stockholder not entitled to vote who is
entitled to notice of the meeting written or printed notice stating the time and
place of the meeting and, in the case of a special meeting or as otherwise may
be required by any statute, the purpose for which the meeting is called, either
by mail or by presenting it to such stockholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be deemed
to be given when deposited in the United States mail addressed to the
stockholder at his post office address as it appears on the records of the
Corporation, with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. Any business of the Corporation may be
transacted at an annual meeting of stockholders without being specifically
designated in the notice, except as otherwise set forth in Section 12(a) and
except for such business as is required by any statute to be stated in such
notice. No business shall be transacted at a special meeting of stockholders
except as specifically designated in the notice.
Section 6. ORGANIZATION. At every meeting of stockholders, the chairman
of the board, if there be one, shall conduct the meeting or, in the case of
vacancy in office or absence of the chairman of the board, one of the following
officers present shall conduct the meeting in the order stated: the vice
chairman of the board, if there be one, the president, the vice presidents in
their order of rank and seniority, or a chairman chosen by the stockholders
entitled to cast a majority of the votes which all stockholders present in
person or by proxy are entitled to cast, shall act as chairman, and the
secretary, or, in his absence, an assistant secretary, or in the absence of both
the secretary and assistant secretaries, a person appointed by the chairman
shall act as secretary.
Section 7. QUORUM. At any meeting of stockholders, the presence in
person or by proxy of stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If, however,
such quorum shall not be present at any meeting of the stockholders, the
stockholders entitled to vote at such meeting, present in person or by proxy,
shall have the power to adjourn the meeting from time to time to a date not more
than 120 days after the original record date without notice other than
announcement at the meeting. At such adjourned meeting at which a quorum shall
be present, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 8. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of stockholders duly called and
at which a quorum is present shall be sufficient to approve any other matter
which may properly come before the meeting, unless more than a majority of the
771418.1
<PAGE>
votes cast is required by statute or by the charter of the Corporation. Unless
otherwise provided in the charter, each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders.
Section 9. PROXIES. A stockholder may vote the stock owned of record by
him, either in person or by proxy executed in writing by the stockholder or by
his duly authorized agent. Such proxy shall be filed with the secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 10. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
Corporation registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by an office thereof, a general
partner or trustee thereof, as the case may be, or a proxy appointed by any of
the foregoing individuals, unless some other person who has been appointed to
vote such stock pursuant to a bylaw or a resolution of the governing body of
such corporation or other entity or agreement of the partners of a partnership
presents a certified copy of such bylaw, resolution or agreement, in which case
such person may vote such stock. Any director or other fiduciary may vote stock
registered in his name as such fiduciary, either in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.
The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Exemption From Control Share Acquisition Statute. Notwithstanding any
other provision of the charter of the Corporation or these Bylaws, Title 3,
Subtitle 7 of the Corporations and Associations Article of the Annotated Code of
Maryland (or any successor statute) shall not apply to any acquisition by any
person of shares of stock of the Corporation.
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This section may be repealed, in whole or in part, at any time, whether before
or after an acquisition of control shares and, upon such repeal, may, to the
extent provided by any successor bylaw, apply to any prior or subsequent control
share acquisition.
Section 11. INSPECTORS. At any meeting of stockholders, the chairman of
the meeting may appoint one or more persons as inspectors for such meeting. Such
inspectors shall ascertain and report the number of shares represented at the
meeting based upon their determination of the validity and effect of proxies,
count all votes, report the results and perform such other acts as are proper to
conduct the election and voting with impartiality and fairness to all the
stockholders.
Each report of an inspector shall be in writing and signed by him or by
a majority of them if there is more than one inspector acting at such meeting.
If there is more than one inspector, the report of a majority shall be the
report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
Section 12. NOMINATIONS AND STOCKHOLDER BUSINESS
(a) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors and the proposal of business to be considered
by the stockholders may be made at an annual meeting of stockholders (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the direction of
the Board of Directors or (iii) by any stockholder of the Corporation who was a
stockholder of record both at the time of giving of notice provided for in this
Section 12(a) and at the time of the annual meeting of stockholders, who is
entitled to vote at the meeting and who complied with the notice procedures set
forth in this Section 12(a).
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (iii) of paragraph
(a)(1) of this Section 12, the stockholder must have given timely notice thereof
in writing to the secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the tenth day following
the day on which public announcement of the date of such meeting is first made.
Such stockholder's notice shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") (including such person's written consent to
being named in
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the proxy statement as a nominee and to serving as a director if elected); (ii)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and of the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, (x) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner and (y) the number of shares of each class of stock of the Corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Section 12 to the contrary, in the event that the
number of directors to be elected to the Board of Directors is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the Corporation
at least 70 days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 12(a) shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of stockholders at which directors are to be elected (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) provided that the Board of Directors has determined that
directors shall be elected at such special meeting, by any stockholder of the
Corporation who is a stockholder of record both at the time of giving of notice
provided for in this Section 12(b) and at the time of the special meeting, who
is entitled to vote at the meeting and who complied with the notice procedures
set forth in this Section 12(b). In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or more directors to the
Board of Directors, any such stockholder may nominate a person or persons (as
the case may be) for election to such position as specified in the Corporation's
notice of meeting, if the stockholder's notice containing the information
required by paragraph (a)(2) of this Section 12 shall be delivered to the
secretary at the principal executive offices of the Corporation not earlier than
the 90th day prior to such special meeting and not later than the close of
business on the later of the 60th day prior to such special meeting or the tenth
day following the day on which public announcement is first made of the date of
the special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Section 12 shall be eligible to serve as
directors and only such
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business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Section 12. The presiding officer of the meeting shall have the power and duty
to determine whether a nomination or any business proposed to be brought before
the meeting was made in accordance with the procedures set forth in this Section
12 and, if any proposed nomination or business is not in compliance with this
Section 12, to declare that such defective nomination or proposal be
disregarded.
(2) For purposes of this Section 12, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable news service or in a document publicly filed by
the Corporation with the Securities and Exchange Commission pursuant to Section
13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this Section
12, a stockholder shall also comply with all applicable requirements of state
law and of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth in this Section 12. Nothing in this Section 12
shall be deemed to affect any rights of stockholders to request inclusion of
proposals in, nor any right of the Corporation to omit a proposal from, the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 13. VOTING BY BALLOT. Voting on any question or in any election
may be viva voce unless the presiding officer shall order or any stockholder
shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting or
at any special meeting called for that purpose, a majority of the entire Board
of Directors may establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by the Maryland General Corporation Law, nor more than 15, and further
provided that the tenure of office of a director shall not be affected by any
decrease in the number of directors.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board
of Directors shall be held immediately after and at the same place as the annual
meeting of stockholders, no notice other than this Bylaw being necessary. The
Board of Directors may provide, by resolution, the time and place, either within
or without the State of Maryland, for
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the holding of regular meetings of the Board of Directors without other notice
than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the chairman of the board, president or by
a majority of the directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within
or without the State of Maryland, as the place for holding any special meeting
of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting of the Board of
Directors shall be delivered personally or by telephone, facsimile transmission,
United States mail or courier to each director at his business or residence
address. Notice by personal delivery, by telephone or a facsimile transmission
shall be given at least two days prior to the meeting. Notice by mail shall be
given at least five days prior to the meeting and shall be deemed to be given
when deposited in the United States mail properly addressed, with postage
thereon prepaid. Telephone notice shall be deemed to be given when the director
is personally given such notice in a telephone call to which he is a party.
Facsimile transmission notice shall be deemed to be given upon completion of the
transmission of the message to the number given to the Corporation by the
director and receipt of a completed answer-back indicating receipt. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a
quorum for transaction of business at any meeting of the Board of Directors,
provided that, if less than a majority of such directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice, and provided further that if, pursuant to the
charter of the Corporation or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group.
The directors present at a meeting which has been duly called
and convened may continue to transact business until adjournment,
notwithstanding the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. (a) The action of the majority of the directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by applicable statute.
(b) Any action pertaining to any transaction in which the
Corporation is purchasing, selling, leasing or mortgaging any real estate asset,
making a joint venture investment or engaging in any other transaction in which
an advisor, director or officer of the Corporation, any affiliated lessee or
affiliated contract manager of any property of the
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Corporation or any affiliate of the foregoing, has any direct or indirect
interest other than as a result of their status as a director, officer or
stockholder of the Corporation, shall be approved by the affirmative vote of a
majority of the Independent Directors (as defined in the Corporation's charter),
even if the Independent Directors constitute less than a quorum.
Section 8. TELEPHONE MEETINGS. Directors may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
Section 10. VACANCIES. If for any reason any or all the directors cease
to be directors, such event shall not terminate the Corporation or affect these
Bylaws or the powers of the remaining directors hereunder (even if fewer than
three directors remain). Any vacancy on the Board of Directors for any cause
other than an increase in the number of directors shall be filled by a majority
of the remaining directors, although such majority is less than a quorum. Any
vacancy in the number of directors created by an increase in the number of
directors may be filled by a majority vote of the entire Board of Directors. The
newly-created or eliminated directorships resulting from any increase or
decrease shall be apportioned by the Board of Directors among the three classes
of directorships as provided in the Corporation's charter so as to keep the
number of directors in each class as nearly equal as possible. Any individual so
elected as director shall hold office until the next annual meeting of
stockholders and until his successor is elected and qualifies.
Section 11. COMPENSATION. Directors shall not receive any stated salary
for their services as directors but, by resolution of the Board of Directors,
may receive fixed sums per year and/or per meeting and/or per visit to real
property or other facilities owned or leased by the Corporation and for any
service or activity they performed or engaged in as directors. Directors may be
reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and any other
service or activity they performed or engaged in as directors; but nothing
herein contained shall be construed to preclude any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 12. LOSS OF DEPOSITS. No director shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or stock have been
deposited.
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Section 13. SURETY BONDS. Unless required by law, no director shall be
obligated to give any bond or surety or other security for the performance of
any of his duties.
Section 14. RELIANCE. Each director, officer, employee and agent of the
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a director.
Section 15. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. The directors shall have no responsibility to devote their full time to
the affairs of the Corporation. Any director or officer, employee or agent of
the Corporation, in his personal capacity or in a capacity as an affiliate,
employee, or agent of any other person, or otherwise, may have business
interests and engage in business activities similar to or in addition to or in
competition with those of or relating to the Corporation.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of Directors
may appoint from among its members an Executive Committee, an Audit Committee, a
Compensation Committee, a Leasing Committee, a Nominating Committee and other
committees, composed of one or more directors, to serve at the pleasure of the
Board of Directors. The members of the Audit Committee and Compensation
Committee shall at all times consist solely of Independent Directors.
Section 2. POWERS. The Board of Directors may delegate to committees
appointed under Section 1 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given in the
same manner as notice for special meetings of the Board of Directors. A majority
of the members of the committee shall constitute a quorum for the transaction of
business at any meeting of the committee. The act of a majority of the committee
members present at a meeting shall be the act of such committee. The Board of
Directors may designate a chairman of any committee, and such chairman or any
two members of any committee may fix the time and place of its meeting unless
the Board shall otherwise provide. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a
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quorum, may appoint another director to act in the place of such absent member.
Each committee shall keep minutes of its proceedings.
Section 4. TELEPHONE MEETINGS. Members of a committee of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation shall
include a chief executive officer, a president, a secretary and a treasurer and
may include a chairman of the board, a vice chairman of the board, one or more
vice presidents, a chief operating officer, a chief financial officer, one or
more assistant secretaries and one or more assistant treasurers. In addition,
the Board of Directors may from time to time appoint such other officers with
such powers and duties as they shall deem necessary or desirable. The officers
of the Corporation shall be elected annually by the Board of Directors at the
first meeting of the Board of Directors held after each annual meeting of
stockholders, except that the chief executive officer may appoint one or more
vice presidents, assistant secretaries and assistant treasurers. If the election
of officers shall not be held at such meeting, such election shall be held as
soon thereafter as may be convenient. Each officer shall hold office until his
successor is elected and qualifies or until his death, resignation or removal in
the manner hereinafter provided. Any two or more offices except president and
vice president may be held by the same person. In its discretion, the Board of
Directors may leave unfilled any office except that of president, treasurer and
secretary. Election of an officer or agent shall not of itself create contract
rights between the Corporation and such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
Corporation may be removed by the Board of Directors if in its judgment the best
interests of the Corporation would be served thereby, but such removal shall be
without prejudice to the
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contract rights, if any, of the person so removed. Any officer of the
Corporation may resign at any time by giving written notice of his resignation
to the Board of Directors, the chairman of the board, the president or the
secretary. Any resignation shall take effect at any time subsequent to the time
specified therein or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
resignation. Such resignation shall be without prejudice to the contract rights,
if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by the
Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate a chief executive officer. In the absence of such designation, the
chairman of the board shall be the chief executive officer of the Corporation.
The chief executive officer shall have general responsibility for implementation
of the policies of the Corporation, as determined by the Board of Directors, and
for the management of the business and affairs of the Corporation.
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may
designate a chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may
designate a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall
designate a chairman of the board. The chairman of the board shall preside over
the meetings of the Board of Directors and of the stockholders at which he shall
be present. The chairman of the board shall perform such other duties as may be
assigned to him or them by the Board of Directors.
Section 8. PRESIDENT. The president or chief executive officer, as the
case may be, shall in general supervise and control all of the business and
affairs of the Corporation. In the absence of a designation of a chief operating
officer by the Board of Directors, the president shall be the chief operating
officer. He may execute any deed, mortgage, bond, contract or other instrument,
except in cases where the execution thereof shall be expressly delegated by the
Board of Directors or by these Bylaws to some other officer or agent of the
Corporation or shall be required by law to be otherwise executed; and in general
shall perform all duties incident to the office of president and such other
duties as may be prescribed by the Board of Directors from time to time.
Section 9. VICE PRESIDENTS. In the absence of the president or in the
event of a vacancy in such office, the vice president (or in the event there be
more than one vice
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president, the vice presidents in the order designated at the time of their
election or, in the absence of any designation, then in the order of their
election) shall perform the duties of the president and when so acting shall
have all the powers of and be subject to all the restrictions upon the
president; and shall perform such other duties as from time to time may be
assigned to him by the president or by the Board of Directors. The Board of
Directors may designate one or more vice presidents as executive vice president
or as vice president for particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of the
proceedings of the stockholders, the Board of Directors and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these Bylaws or
as required by law; (c) be custodian of the corporate records and of the seal of
the Corporation; (d) keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder; (e)
have general charge of the share transfer books of the Corporation; and (f) in
general perform such other duties as from time to time may be assigned to him by
the chief executive officer, the president or by the Board of Directors.
Section 11. TREASURER. The treasurer shall have the custody of the
funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. In the absence of a designation of a chief financial officer by
the Board of Directors, the treasurer shall be the chief financial officer of
the Corporation.
The treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his transactions as treasurer and of the financial condition of
the Corporation.
If required by the Board of Directors, the treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance of
the duties of his office and for the restoration to the Corporation, in case of
his death, resignation, retirement or removal from office, of all books, papers,
vouchers, moneys and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Board of Directors. The assistant treasurers shall,
if required by the Board of Directors, give bonds for
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the faithful performance of their duties in such sums and with such surety or
sureties as shall be satisfactory to the Board of Directors.
Section 13. SALARIES. The salaries and other compensation of the
officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a director.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer
or agent to enter into any contract or to execute and deliver any instrument in
the name of and on behalf of the Corporation and such authority may be general
or confined to specific instances. Any agreement, deed, mortgage, lease or other
document executed by one or more of the directors or by an authorized person
shall be valid and binding upon the Board of Directors and upon the Corporation
when authorized or ratified by action of the Board of Directors.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or agent of the
Corporation in such manner as shall from time to time be determined by the Board
of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES. Each stockholder shall be entitled to a
certificate or certificates which shall represent and certify the number of
shares of each class of stock held by him in the Corporation. Each certificate
shall be signed by the chief executive officer, the president or a vice
president and countersigned by the secretary or an assistant secretary or the
treasurer or an assistant treasurer and may be sealed with the seal, if any, of
the Corporation. The signatures may be either manual or facsimile. Certificates
shall be consecutively numbered; and if the Corporation shall, from time to
time, issue several classes of stock, each class may have its own number series.
A certificate is valid and may be issued whether or not an officer who signed it
is still an officer when it is issued. Each certificate representing shares
which are restricted as to their transferability or voting powers, which are
preferred or limited as to their dividends or as to their allocable portion of
the assets upon liquidation or which are redeemable at the option of the
Corporation, shall have a statement of such
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restriction, limitation, preference or redemption provision, or a summary
thereof, plainly stated on the certificate. If the Corporation has authority to
issue stock of more than one class, the certificate shall contain on the face or
back a full statement or summary of the designations and any preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends and other distributions, qualifications and terms and conditions of
redemption of each class of stock and, if the Corporation is authorized to issue
any preferred or special class in series, the differences in the relative rights
and preferences between the shares of each series to the extent they have been
set and the authority of the Board of Directors to set the relative rights and
preferences of subsequent series. In lieu of such statement or summary, the
certificate may state that the Corporation will furnish a full statement of such
information to any stockholder upon request and without charge. If any class of
stock is restricted by the Corporation as to transferability, the certificate
shall contain a full statement of the restriction or state that the Corporation
will furnish information about the restrictions to the stockholder on request
and without charge.
Section 2. TRANSFERS. Upon surrender to the Corporation or the transfer
agent of the Corporation of a stock certificate duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation shall issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
The Corporation shall be entitled to treat the holder of
record of any share of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of the
State of Maryland.
Notwithstanding the foregoing, transfers of shares of any
class of stock will be subject in all respects to the charter of the Corporation
and all of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. Any officer designated by the Board
of Directors may direct a new certificate to be issued in place of any
certificate previously issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen or destroyed. When authorizing the
issuance of a new certificate, an officer designated by the Board of Directors
may, in his discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate or the owner's
legal representative to advertise the same in such manner as he shall require
and/or to give bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The
Board of Directors may set, in advance, a record date for the purpose of
determining
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stockholders entitled to notice of or to vote at any meeting of stockholders or
determining stockholders entitled to receive payment of any dividend or the
allotment of any other rights, or in order to make a determination of
stockholders for any other proper purpose. Such date, in any case, shall not be
prior to the close of business on the day the record date is fixed and shall be
not more than 90 days and, in the case of a meeting of stockholders, not less
than ten days, before the date on which the meeting or particular action
requiring such determination of stockholders of record is to be held or taken.
In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not longer than 20 days. If the stock transfer books are closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
If no record date is fixed and the stock transfer books are
not closed for the determination of stockholders, (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
date to the meeting; and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except when (i) the
determination has been made through the closing of the transfer books and the
stated period of closing has expired or (ii) the meeting is adjourned to a date
more than 120 days after the record date fixed for the original meeting, in
either of which case a new record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors
may issue fractional stock or provide for the issuance of scrip, all on such
terms and under such conditions as they may determine. Notwithstanding any other
provision of the charter or these Bylaws, the Board of Directors may issue units
consisting of different securities of the Corporation. Any security issued in a
unit shall have the same characteristics as any identical securities issued by
the Corporation, except that the Board of Directors may provide that for a
specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
771418.1
<PAGE>
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to fix
the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon the
stock of the Corporation may be authorized and declared by the Board of
Directors, subject to the provisions of law and the charter of the Corporation.
Dividends and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
Section 2. CONTINGENCIES. Before payment of any dividends or other
distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the Board
of Directors may from time to time adopt, amend, revise or terminate any policy
or policies with respect to investments by the Corporation as it shall deem
appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the adoption of a
seal by the Corporation. The seal shall contain the name of the Corporation and
the year of its incorporation and the words "Incorporated Maryland." The Board
of Directors may authorize one or more duplicate seals and provide for the
custody thereof.
771418.1
<PAGE>
Section 2. AFFIXING SEAL. Whenever the Corporation is permitted or
required to affix its seal to a document, it shall be sufficient to meet the
requirements of any law, rule or regulation relating to a seal to place the word
"(SEAL)" adjacent to the signature of the person authorized to execute the
document on behalf of the Corporation.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the charter of
the Corporation or these Bylaws or pursuant to applicable law, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at nor the purpose
of any meeting need be set forth in the waiver of notice, unless specifically
required by statute. The attendance of any person at any meeting shall
constitute a waiver of notice of such meeting, except where such person attends
a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
ARTICLE XIII
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt, alter
or repeal any provision of these Bylaws and to make new Bylaws.
771418.1
Exhibit 5.1
771418.1
<PAGE>
[BSAI LETTERHEAD]
FILE NUMBER
869400
October 28, 1998
MeriStar Hospitality Corporation
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Re: MeriStar Hospitality Corporation:
Registration Statement on Form S-3:
3,643,403 Shares of Common Stock
----------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to MeriStar Hospitality Corporation,
a Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the registration of up to 3,643,403 shares (the
"Shares") of Common Stock, $.01 par value per share (the "Common Stock"), by the
Company, pursuant to the above-referenced Registration Statement and all
amendments thereto (the "Registration Statement"), under the Securities Act of
1933, as amended (the "1933 Act"). Up to 3,643,403 of the Shares (the "OP
Exchange Shares") may be issued by the Company to holders of units of limited
partnership interest ("OP Units") in MeriStar Hospitality Operating Partnership,
L.P., a Delaware limited partnership (the "Operating Partnership"), in exchange
for OP Units. Capitalized terms used but not defined herein shall have the
meanings given to them in the Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The charter of the Company (the "Charter"), certified as
of a recent date by the State Department of Assessments and
Taxation of Maryland (the "SDAT");
771418.1
<PAGE>
2. The Bylaws of the Company, certified as of a recent date
by its Secretary;
3. Resolutions adopted by the Board of Directors of the Company
relating to the registration, sale and issuance of the Shares (the
"Resolutions"), certified as of a recent date by the Secretary of the Company;
4. The Registration Statement, in the form in which it was filed with
the Securities and Exchange Commission (the "Commission") pursuant to the 1933
Act on October 28, 1998.
5. A certificate as of a recent date of the SDAT as to the good
standing of the Company;
6. The form of certificate representing a share of the
Common Stock, certified as of a recent date by the Secretary of the
Company;
7. A certificate executed by John Emery, Secretary of the Company,
dated as of a recent date; and
8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth herein, subject to the assumptions,
limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent with, the following:
1. Each individual executing any of the Documents, whether
on behalf of such individual or another person, is legally
competent to do so;
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so;
3. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding and are enforceable in accordance with all stated
terms; and
4. All Documents submitted to us as originals are authentic. All
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all Documents are genuine. All public
records reviewed or relied upon by us or on our behalf are true and complete.
All statements and information contained in the Documents are true and complete.
There are no modifications of or amendments to the Documents, and there has been
no waiver of any of the provisions of the Documents, by action or omission of
the parties or otherwise.
771418.1
<PAGE>
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under
and by virtue of the laws of the State of Maryland and is in good standing with
the SDAT.
2. The OP Exchange Shares have been duly authorized and, upon issuance
in accordance with the terms of the Resolutions, such shares will be (assuming
that upon any such issuance the total number of Shares of Common Stock issued
and outstanding will not exceed the total number of Shares of Common Stock that
the Company is then authorized to issue under the Charter) validly issued, fully
paid and non-assessable.
The foregoing opinion is limited to the substantive laws of the State
of Maryland and we do not express any opinion herein concerning any other law.
We express no opinion as to compliance with any securities laws.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the Commission
as an exhibit to the Registration Statement and, except as provided above, it
may not be relied upon by, quoted in any manner to, or delivered to any other
person or entity (other than the Company) without, in each instance, our prior
written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll, LLP
771418.1
<PAGE>
Exhibit 8.1
771418.1
EXHIBIT 8.1
Form of Opinion Of Paul, Weiss, Rifkind, Wharton & Garrison
(212) 373-3000 November __, 1998
MeriStar Hospitality Corporation
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Ladies and Gentlemen:
In connection with the offer and sale of shares of common
stock of MeriStar Hospitality Corporation (the "Company"), as described in the
Form S-3 to be filed with the Securities and Exchange Commission on November __,
1998 (the "Registration Statement"), you have requested our opinion concerning
the federal income tax matters set forth below. All capitalized terms used
herein have their respective meanings set forth in the Registration Statement
unless otherwise stated.
In rendering the opinion expressed herein, we have examined:
(i) the Agreement of Limited Partnership and the Amended and Restated Agreement
of Limited Partnership of American General Hospitality Operating Partnership,
L.P., dated as of April 9, 1996 and July 31, 1996 respectively; (ii) the Second
Amended and Restated Agreement of Limited Partnership of the Operating
Partnership, dated as of August 3, 1998; (iii) the partnership and limited
liability company agreements of those partnerships and limited liability
companies in which the Company or the Operating Partnership has had an interest
on or prior to the date hereof (the "Subsidiary Partnerships"), including all
amendments to such agreements; (iv) the Articles of Incorporation of American
General Hospitality Corporation and all amendments and restatements thereto,
including the Charter; and (v) the Registration Statement and all amendments to
date. We also have made such other investigations of fact and law and have
examined such other documents, records and instruments as we have deemed
necessary in order to enable us to render the opinion expressed herein.
<PAGE>
MeriStar Hospitality Corporation 2
In our examination of documents, we have assumed, without
independent investigation, that (i) all documents submitted to us are authentic
originals, or if submitted as photocopies, that they faithfully reproduce the
originals thereof; (ii) all such documents have been or will be duly executed to
the extent required; (iii) all representations and statements set forth in such
documents are true and correct; (iv) any representation or statement made as a
belief or made "to the knowledge of," or similarly qualified is correct and
accurate without such qualification; (v) all obligations imposed by any such
documents on the parties thereto have been or will be performed or satisfied in
accordance with their terms; and (vi) the Company, the Operating Partnership and
the Subsidiary Partnerships at all times will be organized and operated in
accordance with the terms of such documents. We have further assumed that the
statements and descriptions of the Company's, the Operating Partnership's, the
Subsidiary Partnerships' and OpCo's businesses, properties and activities as
described in the Registration Statement are accurate.
For purposes of rendering the opinion expressed herein, we
have, with your permission, assumed the accuracy of the representations
contained in the letter (i) from the Company and American General Hospitality
Corporation addressed to Battle Fowler LLP, dated August 3, 1998, and (ii) from
the Company addressed to us, dated November __, 1998, in each case relating to
the classification and operation of the Company (and in the case of the letter
addressed to Battle Fowler LLP, relating to the classification and operation of
American General Hospitality Corporation) as a real estate investment trust (a
"REIT") and the organization and operation of American General Hospitality
Operating Partnership, L.P., the Operating Partnership and the Subsidiary
Partnerships.
Based upon the foregoing, and subject to the assumptions,
exceptions and qualifications set forth herein, we are of the opinion that:
1. American General Hospitality Corporation has qualified as a
REIT within the meaning of the Code for each of its taxable
years ended December 31, 1996 and December 31, 1997;
2. Commencing with its taxable year ending December 31, 1998,
the Company is organized and has operated in conformity with
the requirements for qualification as a REIT within the
meaning of the Code and its proposed method of operation will
enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code;
<PAGE>
MeriStar Hospitality Corporation 3
3. The Company and OpCo are not stapled entities under section
269B(a)(3) of the Code, and OpCo is not an agent of the
Company for federal income tax purposes;
4. Commencing with the taxable year of American General
Hospitality Corporation ended December 31, 1996, American
General Hospitality Operating Partnership, L.P. has been, the
Operating Partnership and the Subsidiary Partnerships have
been and continue to be, and the Operating Partnership and the
Subsidiary Partnerships will be, treated as partnerships for
federal income tax purposes or, in the case of those
Subsidiary Partnerships that are single-member limited
liability companies, such Subsidiary Partnerships have been
and will be disregarded as an entity separate from such member
for federal income tax purposes; and
5. The discussion contained in the Registration Statement
under the caption "Federal Income Tax Considerations"
accurately reflects the federal income tax considerations
relating to the operation of the Company that are likely to be
material to a holder of Common Stock.
This opinion is given as of the date hereof and is based on
various Code provisions, Treasury Regulations promulgated under the Code and
interpretations thereof by the Internal Revenue Service and the courts having
jurisdiction over such matters, all of which are subject to change either
prospectively or retroactively. Further, any variation or difference in the
facts from those set forth in the Registration Statement may affect the
conclusions stated herein. Moreover, the Company's qualification and taxation as
a REIT depends upon the Company's ability to meet, through actual annual
operating results, requirements under the Code regarding its organization,
income, assets, distribution levels and diversity of stock ownership. Because
the Company's satisfaction of these requirements for periods beginning after
December 31, 1997 will depend upon future events, no assurance can be given that
the actual results of the Company's operations for any one taxable year will
satisfy the tests necessary to qualify as or be taxed as a REIT under the Code.
This opinion is furnished to you solely for use in connection
with the Registration Statement. We hereby consent to the filing of this opinion
as Exhibit 8.1 to the Registration Statement and to the use of our name under
the caption "Federal Income Tax Considerations" in the Registration Statement
and the prospectus included therein. In giving this consent we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of
<PAGE>
MeriStar Hospitality Corporation 4
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
We express no opinion as to any federal income tax issue or
other matter except those set forth or confirmed above.
Very truly yours,
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement of MeriStar Hospitality Corporation on Form S-3 (File No. 333- ) being
filed under Securities Act of 1933 of our reports (i) dated January 26, 1998,
except for Note 11, as to which the date is March 16, 1998, on our audits of the
consolidated financial statements and financial statement schedules of American
General Hospitality Corporation, predecessor to MeriStar Hospitality
Corporation, as of December 31, 1997 and 1996, and for the year ended December
31, 1997 and the period from July 31, 1966 (inception of operations) through
December 31, 1996, and our report dated January 30, 1998, except for Note 6, as
to which the date is March 16, 1998, on our audits of the consolidated financial
statements of AGH Leasing, L.P. as of December 31, 1997 and 1996, and for the
year ended December 31, 1997 and the period from July 31, 1996 (inception of
operations) through December 31, 199, which reports are included in the Annual
Report on Form 10-K and Annual Report on Form 10-K/A; (ii) dated December 19,
1997, of our audit of the combined financial statements of Prime Portfolio
Acquisitions Hotels except for Note 7 as to which the date is January 9, 1998;
dated October 22, 1997, of our audit of the combined financial statements of FSA
Portfolio Acquisition Hotels; and dated November 3, 1997 of our audit of the
combined financial statements of Potomac Acquisition Hotels included in the
Report on Form 8-K dated January 23, 1998; (iii) dated April 2, 1998 of our
audit of the combined and combining financial statements of Prime Portfolio
Acquisition Hotels included in the Report on Form 8-K dated April 6, 1998 and
Form 8-K/A dated May 22, 1998, and (iv) dated April 1, 1998, on our audits of
the financial statements of American General Hospitality, Inc. included in the
report on Form 8-K, dated and filed on April 7, 1998 and the Form 8-K/As filed
on May 22, 1998 and June 5, 1998. We also consent to the references to our firm
under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
Dallas, Texas
October 27, 1998
771092.1
Exhibit 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement of MeriStar Hospitality Corporation on Form S-3 (File No. 333- ) of
our report, dated January 31, 1997, except as to Note 8 for which the date is
July 16, 1997, on our audit of the combined financial statements of Chi-Town
Partners, L.P. and St. Elmo's Partners, L.P. for the year ended December 31,
1996. We also consent to the reference to our firm under the caption "Experts."
Philadelphia, Pennsylvania /s/ PricewaterhouseCoopers LLP
October 27, 1998
771092.1
Exhibit 23.5
ACCOUNTANTS' CONSENT
The Board of Directors of
MeriStar Hospitality Corporation:
We consent to the use of your reports incorporated herein by reference
and the reference to our firm under the heading "Experts" in the Prospectus.
Washington, D.C. /s/ KPMG Peat Marwick LLP
October 28, 1998
771092.1
Exhibit 23.6
ACCOUNTANTS' CONSENT
We consent to the incorporation by reference of our report dated April
30, 1997 on the consolidated financial statements of Atgen-Holdings, Inc. and
Subsidiaries into the Registration Statement on Form S-3 of MeriStar Hospitality
Corporation and to the reference to our firm under the heading "Experts" in the
Registration Statement.
New York, New York /s/ Pannell Kerr Forster PC
October 27, 1998
771092.1
Exhibit 23.7
ACCOUNTANTS' CONSENT
We consent to the use of our report incorporated by reference into the
Registration Statement on Form S-3 of MeriStar Hospitality Corporation and to
the reference to our firm under the heading "Experts" in the Registration
Statement.
Little Silver, New Jersey /s/ Pinsker, Goldberg, Ivanicki & Apuzzo
October 27, 1998
771092.1
Exhibit 23.8
ACCOUNTANTS' CONSENT
We consent to the use of our report incorporated herein by reference
into the Registration Statement on Form S-3 filed pursuant to the Securities Act
of 1933, as amended, of MeriStar Hospitality Corporation and to the reference to
our firm under the heading "Experts" in the Registration Statement.
New York, New York /s/ Wertheim & Company
October 27, 1998
771092.1
Exhibit 23.9
ACCOUNTANTS' CONSENT
The Board of Directors of MeriStar Hospitality Corporation:
We consent to the use of our report dated February 7, 1997 related to
the balance sheets of MCV Venture, LLC as of December 31, 1996 and 1995 and the
related statements of operations, members' equity (deficit), and cash flows for
the years then ended incorporated herein by reference into the Registration
Statement on Form S-3 of MeriStar Hospitality Corporation and to the reference
to our firm under the heading "Experts" in the Registration Statement.
Dallas, Texas /s/ King Griffin & Adamson P.C.
October __, 1998
771092.1
Exhibit 23.10
ACCOUNTANTS' CONSENT
The Board of Directors of MeriStar Hospitality Corporation:
We consent to the use of our report incorporated herein by reference
into the Registration Statement on Form S-3 of MeriStar Hospitality Corporation
and to the reference to our firm under the heading "Experts" in the Registration
Statement.
Houston, Texas /s/ Mann Frankfort Stein & Lipp, P.C.
October 27, 1998
771092.1
