<PAGE>
Pursuant to Rule 424(b)(3)
File No. 333-78163
PROSPECTUS
[LOGO]
EXCHANGE OFFER FOR
$55,000,000
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
JUNE 25, 1999, UNLESS EXTENDED.
TERMS OF THE EXCHANGE OFFER:
o We will exchange all outstanding notes that are validly tendered and not
withdrawn before the expiration of the exchange offer.
o You may withdraw tendered outstanding notes at any time before the
expiration of the exchange offer.
o We believe that the exchange of outstanding notes will not be a taxable
exchange for United States federal income tax purposes, but you should
see the section entitled "Certain United States Federal Tax
Considerations" on page 73 for more information.
o The terms of the exchange notes to be issued are substantially identical
to the terms of the outstanding notes, except for specific transfer
restrictions and registration rights relating to the outstanding notes.
o There is no existing market for the exchange notes to be issued, and we
do not intend to apply for their listing on any securities exchange.
YOU SHOULD READ THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 12
FOR A DISCUSSION OF SPECIFIC FACTORS THAT SHOULD BE CONSIDERED IN EVALUATING AN
INVESTMENT IN THE EXCHANGE NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR THE
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
The date of this prospectus is May 26, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY......................................................................................... 1
RISK FACTORS............................................................................................... 12
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS................................................................ 21
SELECTED HISTORICAL FINANCIAL AND OTHER INFORMATION........................................................ 22
USE OF PROCEEDS............................................................................................ 24
CAPITALIZATION............................................................................................. 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 25
THE EXCHANGE OFFER......................................................................................... 31
DESCRIPTION OF THE EXCHANGE NOTES.......................................................................... 41
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS........................................................... 73
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER...................................................... 73
PLAN OF DISTRIBUTION....................................................................................... 76
LEGAL MATTERS.............................................................................................. 77
EXPERTS.................................................................................................... 77
WHERE YOU CAN FIND MORE INFORMATION........................................................................ 77
</TABLE>
This prospectus incorporates important business and financial information
about our company that is not included in or delivered with this document. This
information is available without charge to you upon written or oral request of
our company 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.
To obtain timely delivery of this information, you must request the
information no later than June 18, 1999.
i
<PAGE>
[This page intentionally left blank]
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus. Because
it is a summary, it does not contain all of the information that you should
consider before participating in the exchange offer. You should read the entire
prospectus carefully, including the section entitled "Risk Factors" and the
consolidated financial statements and the related notes to those statements
considered to be a part of this prospectus.
Unless the context otherwise requires, references in this prospectus to
"MeriStar," "we," "us" and "our" are to MeriStar Hospitality Corporation and its
subsidiaries (including our subsidiary operating partnership through which we
operate all of our businesses).
ABOUT MERISTAR
GENERAL
We are a real estate investment trust which owns a portfolio of primarily
upscale, full-service hotels, diversified geographically as well as by franchise
and brand affiliations, in the United States and Canada. As of December 31,
1998, we owned 117 hotels that contain 29,351 rooms. The hotels are located in
major metropolitan areas or rapidly growing secondary markets and are well
located within these markets. A majority of the hotels are operated under
nationally recognized brand names such as Hilton(Registered),
Sheraton(Registered), Westin(Registered), Marriott(Registered),
Doubletree(Registered) and Embassy Suites(Registered). All of the hotels and our
other assets are held by, and all of our operations are conducted by, MeriStar
Hospitality Operating Partnership, L.P. We are the sole general partner of the
operating partnership and control its operations.
We believe that the upscale, full-service segment of the lodging industry
is the most attractive segment in which to own hotels. The upscale, full-service
segment is attractive for several reasons. First, the real estate market has
experienced a significant slow down in the past year in the development of
upscale, full-service hotels. Second, upscale, full-service hotels appeal to a
wide variety of customers, thus reducing the risk of decreasing demand from any
particular customer group. Additionally, such hotels have particular appeal to
both business executives and upscale leisure travelers, customers who are
generally less price sensitive than travelers who use limited-service hotels.
THE MERGER
Our company was created on August 3, 1998, when American General
Hospitality Corporation, a corporation operating as a real estate investment
trust, and its associated entities merged with CapStar Hotel Company and its
associated entities under an Agreement and Plan of Merger, dated as of March 15,
1998.
Prior to the merger, CapStar transferred specific assets and liabilities to
MeriStar Hotels & Resorts, Inc., a wholly owned subsidiary of CapStar, so that
MeriStar Hotels would own the hotel management and leasing business previously
operated by CapStar and its subsidiaries. CapStar then through a spin-off
distributed to its stockholders all of the outstanding capital stock of MeriStar
Hotels. Immediately following the merger, MeriStar Hotels acquired all of the
partnership interests in AGH Leasing, L.P., the third-party lessee that leased
most of the hotels American General owned. MeriStar Hotels also acquired most of
the assets and specific liabilities of American General Hospitality, Inc., the
third-party manager that managed most of the hotels American General owned.
MeriStar Hotels is also the lessee and manager of 109 of the hotels as well as
over 100 properties owned by other hotel owners. We share two key officers and
four board members with MeriStar Hotels. An intercompany agreement aligns our
interests with the interests of MeriStar Hotels, with the objective of
benefiting both companies' shareholders.
BUSINESS
Our business strategy is to opportunistically acquire hotel properties with
the potential for cash flow growth, and to renovate and reposition each hotel
according to the characteristics of the hotel and its market. During the year
ended December 31, 1998, we spent (including expenditures by both CapStar and
American
1
<PAGE>
General before the merger) a total of $200 million on renovations at our owned
hotels. We intend to spend an additional $175 million during 1999 completing our
renovation programs.
ACQUISITION STRATEGY
We focus our attention on investments in hotels located in markets with
economic, demographic and supply dynamics favorable to hotel owners. Through our
extensive due diligence process, we select those acquisition targets where we
believe selective capital improvements and well selected third-party management
will increase the hotel's ability to attract key demand segments, enhance hotel
operations and increase long-term value. In order to evaluate the relative
merits of each investment opportunity, our senior management, together with
MeriStar Hotels, create detailed plans covering all areas of renovation and
operation. These plans serve as the basis for our acquisition decisions and
guide subsequent renovation and operating plans, which will be carried out by a
third-party hotel operator.
In order to maintain our qualification as a real estate investment trust,
we must make annual distributions to our stockholders of at least 95% of our
real estate investment trust taxable income (excluding net capital gains). As a
result, to complete acquisitions, we rely heavily on our ability to raise new
capital through debt and equity offerings; that ability is dependent on the
then-current status of the capital markets. During the last six to nine months,
the capital markets have changed and equity capital is not available at prices
that make it beneficial to acquire new assets.
Although we are not currently pursuing direct acquisition opportunities, we
continue to be aware of acquisition opportunities in the upscale, full-service
hotel market. We currently anticipate that we may make investments in hotels
through co-investments with strategic partners.
FRANCHISES
We employ a flexible strategy in selecting brand names based on a
particular hotel's market environment and the hotel's unique characteristics.
Accordingly, we use various national trade names under licensing arrangements
with national franchisors.
PARTICIPATING LEASES
Subsidiaries of MeriStar Hotels lease all but eight of the hotels. Each of
our leases with MeriStar Hotels is a participating lease designed to allow us to
achieve substantial participation in any future growth of revenues generated at
our owned hotels. Each of the participating leases has a term of twelve years
from the inception of the lease, though each can be terminated earlier if
specific events occur. Under each participating lease, MeriStar Hotels is
obligated to pay us fixed base rent plus participating rent based on a
percentage of revenues at each of our owned hotels.
2
<PAGE>
THE PROPERTIES
Our corporate headquarters is in Washington, D.C. and we own hotel
properties throughout the United States and Canada. As of December 31, 1998, we
owned 117 hotels.
The following table sets forth selected information with respect to our
owned hotels for the year ended December 31, 1998:
<TABLE>
<CAPTION>
GUEST AVERAGE DAILY AVERAGE
HOTEL LOCATION ROOMS RATE OCCUPANCY
- ---------------------------------- ---------------------------------- ------ ------------- ---------
<S> <C> <C> <C> <C>
Sheraton Hotel Mesa, AZ 273 $85.15 53.0%
Crowne Plaza Hotel Phoenix, AZ 250 84.32 52.8
Embassy Suites Tucson, AZ 204 83.72 74.8
Courtyard by Marriott Century City, CA 134 115.24 85.6
Hilton Hotel Irvine, CA 289 100.04 73.0
Marriott Hotel Los Angeles, CA 469 118.78 68.5
Courtyard by Marriott Marina Del Rey, CA 276 90.08 92.2
Hilton Hotel Monterey, CA 204 114.62 62.5
Doubletree Resort Palm Springs, CA 285 81.62 52.8
Hilton Hotel Sacramento, CA 331 100.09 71.9
Holiday Inn Select San Diego, CA 317 75.54 84.0
Sheraton Hotel San Francisco, CA 525 151.62 86.9
Crowne Plaza Hotel San Jose, CA 239 129.05 72.7
Wyndham Hotel San Jose, CA 355 133.51 65.3
Hilton Hotel San Pedro, CA 226 71.83 81.0
Santa Barbara Inn Santa Barbara, CA 71 149.60 82.3
Holiday Inn Colorado Springs, CA 200 66.38 70.7
Sheraton Hotel Colorado Springs, CO 500 76.89 69.2
Embassy Suites Denver Englewood, CO 236 109.99 76.3
Hilton Hotel Hartford, CT 388 102.60 74.3
Ramada Meriden, CT 150 78.20 72.2
The Lodge at the Seaport Mystic, CT 77 81.73 54.7
Ramada Shelton, CT 155 122.03 75.9
Doubletree Bradley Airport Windsor Locks, CT 200 81.97 69.4
Embassy Row Hilton Washington, DC 193 125.84 74.9
Georgetown Inn Washington, DC 96 133.96 83.2
The Latham Hotel Washington, DC 143 124.03 83.0
South Seas Plantation Captiva, FL 579 221.00 59.4
Hilton Hotel Clearwater, FL 426 100.57 70.6
Ramada Hotel Clearwater, FL 289 72.95 66.9
Hilton Hotel Cocoa Beach, FL 296 84.93 76.8
Holiday Inn Ft. Lauderdale, FL 240 73.69 73.1
Howard Johnson Resort Key Largo, FL 100 78.57 84.6
Westin Hotel Key Largo, FL 200 133.37 70.2
Courtyard by Marriott Lake Buena Vista, FL 314 102.48 84.9
Sheraton Safari Hotel Lake Buena Vista, FL 489 77.11 77.8
Radisson Hotel Marco Island, FL 268 126.19 69.7
Holiday Inn Madeira Beach, FL 149 76.09 65.5
Radisson Hotel Orlando, FL 742 88.05 71.2
Best Western Hotel Sanibel Island, FL 46 133.76 75.6
Sanibel Inn Sanibel Island, FL 96 148.93 74.3
Seaside Inn Sanibel Island, FL 32 148.12 71.2
Song of the Sea Sanibel Island, FL 30 170.91 86.3
Sundial Beach Resort Sanibel Island, FL 243 184.43 72.7
Doubletree Hotel Tampa, FL 496 58.97 71.4
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
GUEST AVERAGE DAILY AVERAGE
HOTEL LOCATION ROOMS RATE OCCUPANCY
- ---------------------------------- ---------------------------------- ------ ------- -----
<S> <C> <C> <C> <C>
Doubletree Guest Suites Atlanta, GA 155 $107.45 65.9
Westin Atlanta Airport Atlanta, GA 495 85.14 78.7
Jekyll Inn Jekyll Island, GA 262 65.59 52.8
Wyndham Hotel Marietta, GA 218 63.60 72.0
Radisson Hotel Arlington Heights, IL 201 87.15 70.3
Radisson Hotel & Suites Chicago, IL 350 150.26 78.0
Holiday Inn Rosemont, IL 507 110.26 80.4
Radisson Hotel Schaumburg, IL 200 89.11 70.2
Doubletree Guest Suites Indianapolis, IN 137 90.00 69.0
Radisson Plaza Lexington, KY 367 84.00 62.7
Seelbach Hilton Hotel Louisville, KY 321 107.54 65.6
Holiday Inn Select Kenner, LA 303 85.60 76.6
Lafayette Hilton & Towers Lafayette, LA 327 76.89 72.6
Maison de Ville New Orleans, LA 23 267.25 67.6
Holiday Inn Annapolis, MD 219 91.11 70.4
Radisson Hotel Baltimore, MD 148 106.25 75.5
Sheraton Hotel Columbia, MD 287 102.77 73.4
Holiday Inn Express Hanover, MD 159 75.43 82.5
Hampton Inn Ocean City, MD 168 82.67 53.7
Hilton Hotel Detroit, MI 151 93.12 85.1
Hilton Hotel Grand Rapids, MI 224 85.91 66.7
Holiday Inn Sports Complex Kansas City, MO 163 69.87 73.0
Holiday Inn St. Louis, MO 120 71.91 81.7
Sheraton Airport Plaza Charlotte, NC 222 90.87 73.4
Hilton Hotel Durham, NC 194 88.98 62.0
Courtyard by Marriott Durham, NC 146 81.01 72.0
Four Points Hotel Cherry Hill, NJ 213 78.64 62.8
Ramada Hotel Mahwah, NJ 128 91.11 73.2
Sheraton Hotel Mahwah, NJ 225 117.79 78.0
Westin Morristown Morristown, NJ 199 121.67 59.1
Four Points Hotel Mt. Arlington, NJ 124 100.86 75.7
Doral Forrestal Princeton, NJ 290 154.39 65.3
Courtyard by Marriott Secaucus, NJ 165 115.84 87.8
Marriott Hotel Somerset, NJ 440 123.13 74.9
Doubletree Hotel Albuquerque, NM 295 75.26 71.4
Wyndham Hotel Albuquerque, NM 276 65.89 80.8
Crowne Plaza Hotel Las Vegas, NV 202 86.40 82.2
St. Tropez Suites Las Vegas, NV 149 97.35 72.6
Radisson Hotel Rochester, NY 171 69.93 71.4
Radisson Hotel Middleburg Heights, OH 237 75.41 66.8
Hilton Hotel Toledo, OH 213 70.81 60.7
Westin Hotel Oklahoma City, OK 395 74.64 52.9
Crowne Plaza Hotel Lake Oswego, OR 161 109.06 64.4
Sheraton Great Valley Frazer, PA 198 110.18 75.4
Embassy Suites Center City Philadelphia, PA 288 136.31 74.7
Holiday Inn Select Trevose, PA 215 92.77 72.2
Hilton Hotel Arlington, TX 309 86.18 76.8
Doubletree Hotel Austin, TX 350 95.80 66.8
Austin Hilton & Towers Austin, TX 320 80.52 67.3
Holiday Inn Select Bedford, TX 243 66.62 80.1
Radisson Hotel Dallas, TX 304 65.08 71.8
Renaissance Hotel Dallas, TX 289 94.91 58.0
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
GUEST AVERAGE DAILY AVERAGE
HOTEL LOCATION ROOMS RATE OCCUPANCY
- ---------------------------------- ---------------------------------- ------ ------- -----
<S> <C> <C> <C> <C>
Sheraton Hotel Dallas, TX 348 $68.29 60.9
Hilton Hotel Houston, TX 291 67.56 69.2
Marriott Hotel Houston, TX 302 117.52 69.4
Hilton Hotel Houston, TX 295 105.85 78.7
Sheraton Hotel Houston, TX 382 80.55 56.3
Holiday Inn Select Irving, TX 409 77.76 79.7
Hilton Hotel Midland, TX 249 74.88 51.9
Hilton Hotel Salt Lake City, UT 287 78.35 80.8
Holiday Inn Alexandria, VA 178 107.75 75.4
Ramada Inn Alexandria, VA 253 99.52 68.0
Hilton Hotel Arlington, VA 209 117.10 82.4
Hilton Hotel Arlington, VA 386 99.25 71.2
Hampton Inn Richmond, VA 124 70.01 75.6
Holiday Inn Richmond, VA 280 55.56 60.9
Hilton Hotel Bellevue, WA 179 118.91 79.0
Crowne Plaza Hotel Madison, WI 226 94.11 71.5
Holiday Inn Calgary Airport Calgary, Alberta 170 48.36 78.7
Sheraton Hotel Guildford, B.C. 278 66.61 70.1
Holiday Inn Metrotown Vancouver, B.C. 100 72.74 83.1
Ramada Vancouver Centre Vancouver, B.C. 118 68.74 79.9
------ ------- -----
Total/Weighted Average 29,351 $95.00 71.5%
------ ------- -----
------ ------- -----
</TABLE>
5
<PAGE>
CORPORATE ORGANIZATION
[FLOW CHART]
Public
|
|
v
------------------------------------
|-------------| MeriStar Hospitality Corporation |
| | (MD Corp.) |
| .001% ------------------------------------
| ownership | \ 100%
| | \
| | 1% ---------------------
| | General | MeriStar LP, Inc. |
| | Partner | (NV Corp.) |
| | ---------------------
| | /
| | / 86.6%
| | / Limited
| | / Partner
| | /
| ------------------------------------
| | MeriStar Hospitality |
| /| Operating Partnership, L.P. |---------------
| / | (DE LP) | |
| / ------------------------------------ |
| / | ^ | |
| 99.999% ownership | | 100% 12.4%
| / | | | Other
| / | | | Limited Partners
| / | | |
- ---------------- | | -------------------------
| Subsidiaries | | | | Directly owned hotels |
- ---------------- | | -------------------------
| |
| |
Participating Leases Base and Participating Rent
| |
| |
| |
v |
------------------------------------
| MeriStar Hotels & |
| Resorts, Inc. |
| (DE Corp.) |
------------------------------------
6
<PAGE>
ABOUT THIS TRANSACTION
On March 18, 1999, we privately placed $55 million of our 8 3/4% Senior
Subordinated Notes due 2007.
Simultaneously with the private placement, we entered into a registration
rights agreement with the initial purchasers of the outstanding notes, in which
we agreed to deliver this prospectus to you and to complete this exchange offer
on or before August 27, 1999. If we do not complete this exchange before
August 27, 1999, we must pay liquidated damages until the exchange offer is
completed. You should read the discussion under the heading "The Exchange Offer"
and "Description of the Exchange Notes" for further information regarding the
notes to be issued in the exchange offer.
We issued the outstanding notes to reduce outstanding indebtedness under
our revolving credit facility and to invest in real estate ventures. The
indebtedness under the revolving credit facility was used to refinance existing
indebtedness and for the acquisition and renovation of hotel properties. Please
refer to the section in this prospectus entitled "Use of Proceeds."
ABOUT THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered.......................... $55 million in principal amount of new 8 3/4% Senior Subordinated
Notes due 2007, which have been registered under the Securities Act
of 1933. The terms of the notes offered in the exchange offer are
substantially identical to those of the outstanding notes, except
that the transfer restrictions, registration rights and liquidated
damages provisions relating to the outstanding notes do not apply to
the new registered notes.
The Exchange Offer.......................... We are offering to issue these registered notes in exchange for a
like principal amount of our outstanding notes. You may tender your
outstanding notes for exchange by following the procedures described
under the heading "The Exchange Offer."
Tenders; Expiration Date; Withdrawal........ The exchange offer will expire at 5:00 p.m., New York City time on
June 25, 1999, unless we extend it. If you decide to exchange your
outstanding notes for new notes, you must acknowledge that you are
not engaging in, and do not intend to engage in, a distribution of
the new notes. You may withdraw any notes that you tender for
exchange at any time before June 25, 1999. If we decide for any
reason not to accept any notes you have tendered for exchange, those
notes will be returned to you without cost promptly after the
expiration or termination of the exchange offer. See "The Exchange
Offer--Terms of the Exchange Offer."
United States Federal Income Tax
Considerations............................ Your exchange of outstanding notes for notes to be issued in the
exchange offer will not cause you to realize any gain or loss for
United States federal income tax purposes. See "Certain United
States Federal Tax Considerations."
Use of Proceeds............................. We will not receive any cash proceeds from the exchange offer.
Exchange Agent.............................. IBJ Whitehall Bank & Trust Company.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Consequences of Failure to Exchange Your
Outstanding Notes......................... If you do not exchange your outstanding notes in the exchange offer,
your ability to transfer them will still be restricted as described
in the legend on those notes. In general, you may offer or sell your
outstanding notes only if they are registered under, or offered or
sold under an exemption from, the Securities Act and applicable
state securities laws. We do not currently intend to register the
outstanding notes under the Securities Act.
</TABLE>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
Securities Offered.......................... $55,000,000 aggregate principal amount of 8 3/4% Senior Subordinated
Notes due 2007.
Maturity Date............................... August 15, 2007.
Interest Payment Dates...................... February 15 and August 15 of each year, commencing August 15, 1999.
Mandatory Redemption........................ None.
Optional Redemption......................... On or after August 15, 2002, we may redeem some or all of the notes
being issued in the exchange offer at the redemption prices listed
in this document under the heading "Description of the Exchange
Notes--Optional Redemption," together with accrued and unpaid
interest and liquidated damages, if any, to the applicable
redemption date.
Before August 15, 2000, we may redeem up to 35% of the aggregate
principal amount of the outstanding notes and the exchange notes
with the proceeds of public offerings of equity in our company at
the prices listed below under the heading "Description of the
Exchange Notes--Optional Redemption." In addition, before
August 15, 2002, we may redeem the notes at a price equal to the
approximate present value of the Notes at the time of redemption,
together with accrued and unpaid interest and liquidated damages, if
any, to the date of redemption. However, no optional redemption of
the outstanding notes or the exchange notes shall be made unless a
proportionate redemption of our 8 3/4% Senior Subordinated Notes
issued under a previous indenture on August 19, 1997 is made under
that indenture. Please refer to the section in this prospectus
entitled "Description of Notes--Optional Redemption."
Change of Control........................... After a change of control of our company, you will have the right to
require us to purchase all or some of your exchange notes at a
purchase price in cash equal to 101% of the aggregate principal
amount of these exchange notes, together with accrued and unpaid
interest and liquidated damages, if any, to the date of purchase.
Please refer to the section in this prospectus entitled "Description
of Notes--Repurchase at the Option of Holders--Change of Control."
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Ranking..................................... The exchange notes will be general unsecured obligations and will
rank junior in right of payment to all existing and future senior
debt. They will also effectively rank junior in right of payment to
all obligations of our subsidiaries, including trade payables in the
ordinary course of our business. The notes will rank equally in
right of payment with any present and future senior subordinated
indebtedness and will rank senior to all other subordinated
indebtedness.
None of our subsidiaries is presently required to guarantee the
notes, although under specific future circumstances, we may be
required to cause one or more of our subsidiaries to guarantee the
notes on a senior subordinated basis. On a pro forma basis, we would
have approximately $1.65 billion of indebtedness outstanding,
including $913.1 million of senior debt and $370.0 million of
non-recourse indebtedness of some of our subsidiaries. Please refer
to the section in this prospectus entitled "Description of the
Exchange Notes--Subordination" and "--Subsidiary Guarantees."
Restrictive Covenants....................... The indenture under which the exchange notes will be issued limits
the ability of our company and some of our subsidiaries to
(a) incur indebtedness or issue preferred stock, (b) pay dividends,
(c) repurchase equity interests and junior indebtedness,
(d) complete specific asset sales, (e) enter into transactions with
related entities, (f) make investments, (g) create or incur liens,
(h) merge or consolidate with any person or (i) transfer, lease, or
otherwise dispose of all or substantially all of our assets. All of
these limitations and prohibitions have a number of important
qualifications and exceptions. Please refer to the section in this
prospectus entitled "Description of the Exchange Notes--Covenants"
and "--Asset Sales."
Risk Factors................................ You should consider carefully the information provided in the
section in this prospectus entitled "Risk Factors" beginning on
page 12 and all the other information provided to you in this
prospectus in deciding whether to tender your outstanding notes in
the exchange offer.
</TABLE>
9
<PAGE>
SUMMARY HISTORICAL FINANCIAL AND OTHER INFORMATION
The following table shows summary historical financial information for our
company. We did not provide for federal income taxes for the year ended
December 31, 1995 because, before the August 1996 initial public offering, our
predecessor entities were partnerships and all federal income tax liabilities
were passed through to the individual partners. From 1995 to 1998, certain loan
facilities were refinanced and the write-offs of deferred costs associated with
the prior facilities were recorded as extraordinary losses.
On July 1, 1998, we adopted AICPA Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." The effect of this accounting change as shown
below was a pre-tax charge against income for the year ended December 31, 1998
of $1,485,000 ($921,000 net of tax effect).
The average occupancy rate given below represents the total number of paid
rooms our hotel guests occupied divided by the total number of available rooms.
The average daily rate represents total room revenues at our hotels divided by
the total number of paid rooms our hotel guests occupied. Finally, revenue per
available room represents total room revenues at our hotels divided by the total
number of available rooms.
The following information should be read together with our consolidated
financial statements and related notes, which are considered part of this
document, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" starting on page 25. The selected operating results and
balance sheet data have been extracted from the consolidated financial
statements for each of the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenue:
Hotel operations:
Participating lease revenue...................... $ 135,994 $ -- $ -- $ -- $ --
Rooms............................................ 275,610 207,736 68,498 4,456 --
Food, beverage, office rental & other............ 110,519 103,521 36,949 7,471 --
Management services & other revenues............. 3,174 5,136 4,345 4,436 4,418
---------- ---------- -------- -------- ------
Total revenues..................................... 525,297 316,393 109,792 26,363 4,418
---------- ---------- -------- -------- ------
Operating expenses:
Departmental expenses:
Rooms............................................ 65,048 51,075 17,509 4,190 --
Food, beverage and other......................... 80,327 77,373 27,102 5,437 --
Undistributed operating expenses:
Administrative and general....................... 62,350 50,332 20,448 8,078 4,508
Property and other operating costs............... 122,963 55,111 17,151 3,934 --
Depreciation and amortization.................... 60,703 20,990 8,248 2,097 23
---------- ---------- -------- -------- ------
Total operating expenses........................... 391,391 254,881 90,458 23,736 4,531
---------- ---------- -------- -------- ------
Net operating income (loss)........................ 133,906 61,512 19,334 2,627 (113)
Interest expense, net.............................. 64,378 21,024 12,346 2,414 --
Minority interest.................................. 5,121 1,425 (39) (18) --
Provision for income taxes......................... 15,699 14,911 2,674 -- --
---------- ---------- -------- -------- ------
Income (loss) before extraordinary loss............ 48,708 24,152 4,353 231 (113)
Extraordinary loss, net of tax..................... (4,080) (4,092) (1,956) (888) --
Cumulative effect of accounting change, net of
tax.............................................. (921) -- -- -- --
---------- ---------- -------- -------- ------
Net income (loss).................................. $ 43,707 $ 20,060 $ 2,397 $ (657) $ (113)
---------- ---------- -------- -------- ------
---------- ---------- -------- -------- ------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investments in hotel properties, gross........... $2,909,439 $ 950,052 $343,092 $110,883 $ 176
Total assets..................................... 2,998,460 1,124,642 379,161 132,650 1,232
Long term debt................................... 1,602,352 492,771 200,361 73,574 --
OTHER FINANCIAL AND OPERATING DATA:
Ratio of earnings to fixed charges................. 1.89x 1.62x 1.46x 1.05x --
Owned hotels:
Number of hotels................................. 117 47 19 6 --
Number of guest rooms............................ 29,351 12,019 5,166 2,101 --
Total revenues................................... $ 522,123 $ 311,257 $105,447 $ 21,927 $ --
Average occupancy................................ 71.5% 72.0% 71.6% 72.3% --
Average daily rate............................... $ 95.00 $ 86.87 $ 82.84 $ 71.58 $ --
Revenue per available room....................... $ 67.90 $ 62.55 $ 59.31 $ 51.75 $ --
</TABLE>
11
<PAGE>
RISK FACTORS
You should consider carefully the information below, as well as all the
other information included or considered to be part of this prospectus before
you decide to tender your outstanding notes in the exchange offer. Our actual
results could differ materially from those anticipated in forward-looking
statements made in this prospectus, including those described in the following
risk factors and elsewhere in this prospectus. Please refer to the section of
this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Special Note Regarding Forward-Looking
Statements."
WE HAVE SIGNIFICANT DEBT, WHICH MAY LIMIT OUR ABILITY TO BORROW, RESTRICT THE
USE OF OUR CASH FLOWS AND EXPOSE US TO SIGNIFICANT REFINANCING RISKS.
We currently have significant amounts of debt outstanding and, accordingly,
are exposed to the risks normally associated with debt financing, including the
risk that:
o our cash flow from operations will be insufficient to make required
payments of principal and interest, including principal and interest on
the outstanding and exchange notes;
o existing indebtedness, including secured indebtedness, may not be
refinanced; or
o 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 our indebtedness through additional debt
financing, private or public offerings of debt securities or additional equity
offerings. If, at the time of any of the 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 repayment of indebtedness. 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, the 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 senior secured credit facility that, at inception,
provided for a maximum borrowing amount of up to $1.0 billion. The credit
facility is structured as a $300 million, five-year term loan facility; a $200
million, five-and-a-half year term loan facility; and a $500 million, three-year
revolving credit facility with two one-year optional extensions. Our ability to
borrow under the credit facility is limited by financial covenants, including
leverage and interest rate coverage ratios and minimum net worth requirements.
Our credit facility limits our ability to effect mergers, asset sales and change
of control events and limits dividends to the lesser of
o 90% of funds from operation; and
o 100% of 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
o $20 million or more of indebtedness secured by our assets, or
o $5 million or more of any other indebtedness.
We also have outstanding $150 million aggregate principal amount of senior
subordinated unsecured notes due 2007 that bear interest at an annual rate of
8.75% and $173 million of outstanding convertible notes due 2004 that bear
interest at 4.75%. The indentures relating to these notes contain, as does the
indenture relating to the exchange notes, limitations on our ability to effect
mergers and change of control events. The indenture relating to the $150 million
of senior subordinated unsecured notes, and the indenture relating to the
outstanding and exchange notes contain financial covenants, including:
o limitations on incurring additional indebtedness and the issuance of
capital stock unless an interest coverage ratio is met;
o limitations on the declaration and payment of dividends;
12
<PAGE>
o limitations on the sale of our assets;
o limitations on transactions with our affiliates; and
o limitations on liens.
Our organizational documents do not limit the amount of indebtedness which
we may incur. As of the date of this prospectus, approximately 25% of our hotel
assets, based on the number of guest rooms, were encumbered by mortgage debt.
PAYMENT OF PRINCIPAL AND INTEREST ON THE EXCHANGE NOTES IS JUNIOR IN RIGHT OF
PAYMENT TO EXISTING AND FUTURE SENIOR DEBT, AND EFFECTIVELY JUNIOR IN RIGHT OF
PAYMENT TO THE OBLIGATIONS OF OUR SUBSIDIARIES.
On a pro forma basis, we would have approximately $1.63 billion of
indebtedness outstanding, including $1,091.7 million of senior debt and $370.0
million of non-recourse indebtedness of our unrestricted subsidiaries. The
exchange notes will rank junior in right of payment to all existing and future
senior debt, including the principal, premium (if any) and interest with respect
to our credit facility. The exchange notes will also effectively rank junior in
right of payment to all of the obligations of our subsidiaries, including trade
payables in the ordinary course of business.
WE MAY NOT PAY THE PRINCIPAL OR INTEREST ON THE EXCHANGE NOTES IF A DEFAULT
OCCURS AND IS CONTINUING IN THE PAYMENT DUE ON OUR SENIOR DEBT.
We may not pay principal of, premium (if any) on, or interest on, the
exchange notes, or repurchase or redeem or otherwise retire any exchange notes,
if any default occurs and is continuing in the payment when due of any senior
debt, except that you may receive debt or equity securities that are junior in
right of payment to our senior debt and payments made from a defeasance trust.
In addition, if any other event of default exists with respect to designated
senior debt and specific other conditions are satisfied, we may not make any
payments on the exchange notes for up to 179 days, except that you may receive
debt or equity securities that are junior in right of payment to our senior debt
and payments made from a defeasance trust. Upon any payment or distribution of
assets in connection with a total or partial liquidation or dissolution or
reorganization of our company or similar proceeding, the holders of senior debt
will be entitled to receive payment in full before you are entitled to receive
any payment. Please refer to the section of this prospectus entitled
"Description of Exchange Notes--Subordination."
SOME OF OUR BORROWINGS BEAR INTEREST AT VARIABLE RATES; THEREFORE, OUR CASH FLOW
AND ABILITY TO PAY PRINCIPAL AND INTEREST ON THE EXCHANGE NOTES MAY BE ADVERSELY
AFFECTED BECAUSE WE ARE EXPOSED TO THE RISK OF RISING INTEREST RATES.
Some of our borrowings bear interest at variable rates, 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 our cash flow.
PAYMENT OF PRINCIPAL AND INTEREST ON THE EXCHANGE NOTES IS DEPENDENT ON THE
ABILITY OF OUR LESSEES TO MAKE RENT PAYMENTS TO US UNDER THE HOTEL LEASES.
Our revenues and our ability to make principal and interest payments on the
exchange notes depend solely upon the ability of MeriStar Hotels and our other
hotel lessee to make rent payments under hotel leases. We receive both base rent
and a percentage of gross sales above a 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 MeriStar Hotels or
our other hotel lessee in making rent payments would adversely affect our
ability to make principal and interest payments on the exchange notes. The
failure or delay by MeriStar Hotels or our other hotel lessee may be caused by
reductions in revenue from the hotels they lease from us.
13
<PAGE>
EXTERNAL FACTORS THAT AFFECT OUR HOTEL LESSEES COULD AFFECT OUR REVENUES AND
ABILITY TO MAKE PAYMENTS OF PRINCIPAL AND INTEREST ON THE EXCHANGE NOTES.
MeriStar Hotels and our other hotel lessee will be affected by factors
beyond their control such as changes in the level of demand for rooms and
related services of our hotels, the ability of MeriStar Hotels and our other
lessee to maintain and increase gross revenues at our hotels and other factors
relating to the operations of our hotels. Although failure on the part of either
MeriStar Hotels or our other lessee 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 the lease, repossess the applicable hotel and enforce the
payment obligations under the lease, we would then be required to find another
lessee to lease the hotel because we cannot operate hotels directly due to
federal income tax restrictions. In addition, it is possible that we will be
unable to enforce the payment obligations under the leases following the
termination. We cannot assure you 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 terms favorable to us.
THERE ARE POSSIBLE CONFLICTS OF INTEREST IN OUR RELATIONSHIP WITH MERISTAR
HOTELS THAT COULD AFFECT OUR REVENUES AND ABILITY TO MAKE PAYMENTS OF PRINCIPAL
AND INTEREST ON THE EXCHANGE NOTES.
We share a number of board members and senior executives with MeriStar
Hotels, which may cause our interests to conflict.
We share four of the nine members of our board of directors, as well as two
senior executives, with MeriStar Hotels. Our relationship with MeriStar Hotels
is governed by an intercompany agreement, which restricts each party from taking
advantage of business opportunities without first presenting those opportunities
to the other party. We may have conflicting views with MeriStar Hotels 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 MeriStar Hotels, may well
be presented with several decisions which provide them the opportunity to
benefit us to the detriment of MeriStar Hotels or benefit MeriStar Hotels to our
detriment. Similar inherent potential conflicts of interest will be present in
all of the numerous transactions between us and MeriStar Hotels.
Our revenues and ability to make payments of principal and interest on the
exchange notes could be affected by restrictions that prohibit MeriStar Hotels
from making investments that a real estate investment trust could make unless we
decline the opportunity in a particular situation.
The certificate of incorporation of MeriStar Hotels provides that, for as
long as the intercompany agreement with us remains in effect, MeriStar Hotels 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 choose
not to pursue those activities or investments. Under the intercompany agreement,
MeriStar Hotels has, with limited exceptions, agreed not to acquire or make
(1) 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 (2) 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 in either case
it has notified us of the acquisition or investment opportunity and we have
determined not to pursue the acquisition or investment. MeriStar Hotels also has
agreed to assist us in structuring and completing any acquisition or investment
which we do elect to pursue, on terms determined by us.
Our revenues and ability to make payments of principal and interest on the
exchange notes could be affected by restrictions that require us to offer lessee
opportunities to MeriStar Hotels.
The intercompany agreement grants MeriStar Hotels the right of first
refusal to become the lessee of any real property that we acquire and 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 MeriStar Hotels
only if we determine that MeriStar Hotels is qualified to be the lessee. Because
of the provisions of the intercompany agreement and the MeriStar Hotels charter,
the nature of MeriStar Hotels' business and the opportunities it may pursue are
restricted.
14
<PAGE>
Our operating income could be affected if we sell a hotel because we
generally have to pay a lease termination fee to MeriStar Hotels if we do so.
We generally will be obligated under our leases with MeriStar Hotels to pay
a lease termination fee to MeriStar Hotels if we (1) elect to sell a hotel or
(2) 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 the hotel with
a fair market value equal to the fair market value of MeriStar Hotels's
remaining leasehold interest under the lease to be terminated. When applicable,
the termination fee is equal to the fair market value of MeriStar Hotels'
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 us and for MeriStar Hotels.
Our financial condition could be adversely affected because we lack control
over the management and operation of our owned hotels.
We are dependent on the ability of MeriStar Hotels and our other hotel
lessee 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 for the operation and marketing of our hotels, including
decisions with respect to the setting of room rates, food and beverage
operations and similar matters.
Our relationship with MeriStar Hotels could have a negative impact on our
acquisitions because other potential parties may not approach us.
Our relationship with MeriStar Hotels could negatively impact our ability
to acquire additional hotels 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 MeriStar Hotels to lease and/or manage the acquired
properties. These persons may instead provide those 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.
There was no arm's-length bargaining of the intercompany agreement with
MeriStar Hotels.
The terms of the intercompany agreement with MeriStar Hotels 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 MeriStar Hotels or to benefit MeriStar Hotels to
our detriment. Because of these conflicts, the executive officers and directors
may have conflicts of interest with respect to their decisions relating to
enforcement of the intercompany agreement.
OUR FRANCHISE AND LICENSE AGREEMENTS MAY CONFLICT WITH OUR BUSINESS PHILOSOPHY
AND ADVERSELY AFFECT OUR FINANCIAL CONDITION BECAUSE THE AGREEMENTS SET
STANDARDS FOR AND LIMITATIONS ON THE OPERATIONS OF THE HOTELS AT THE DISCRETION
OF THE FRANCHISOR.
Substantially all of our hotels are operated under 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 to maintain uniformity
within the franchisor system. Those limitations may conflict with our
philosophy, shared with MeriStar Hotels, of creating specific business plans
tailored to each hotel and to each market. Those standards are often changed
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 those standards
could require a franchisee to incur significant expenses or capital
expenditures. Action or inaction on our part, by MeriStar Hotels or by our other
third-party operators, could result in a breach of those standards or other
terms and conditions of the franchise agreements and could result in the loss or
cancellation of a franchise license.
Terminating a franchise or license agreement could adversely affect our
operations.
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
15
<PAGE>
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.
OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE ADVERSELY AFFECTED BY
THE 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 those property. Those laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of those
hazardous or toxic substances. In addition, the presence of contamination from
hazardous or toxic substances, or the failure to properly remediate the
contaminated property, may adversely affect the owner's ability to sell or rent
such real property or to borrow funds 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 the
substances at the disposal or treatment facility, whether or not the facility is
or ever was owned or operated by that person.
The operation and removal of 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
regulated substances and storage tanks and claims related to them. 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,
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 assessment 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 I assessments 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 environmental liability or concerns.
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 asbestos-containing materials
and govern emissions of and exposure to asbestos fibers in the air.
Asbestos-containing materials 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 asbestos-containing
materials have been or are in the process of being designed and implemented, or
the asbestos-containing materials have been scheduled to be or have been abated,
at the 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.
OUR INVESTMENTS ARE IN A SINGLE INDUSTRY, WHICH EXPOSES US TO GREATER FINANCIAL
RISKS THAN IF WE HAD DIVERSIFIED INVESTMENTS.
Our current strategy is to acquire interests only in hospitality and
lodging properties. As a result, we are exposed 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.
THERE ARE VARIOUS REAL ESTATE INVESTMENT TRUST TAX RISKS THAT COULD ADVERSELY
AFFECT OUR FINANCIAL CONDITION.
A loss of our qualification as a real estate investment trust could require
us to make significant income tax payments, and we might have to borrow funds to
do so.
16
<PAGE>
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, 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 under the Internal Revenue Code is greater in
the case of a real estate investment trust that holds its assets through a
partnership, 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 that qualification.
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 have to pay 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
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 repayment of indebtedness because of our additional tax liability for the
year or years involved.
If the Internal Revenue Service were successfully to determine that our
operating partnership, or any of the partnerships, joint ventures or limited
liability companies in which we or our operating partnership hold an interest,
is properly treated for federal income tax purposes as a corporation, rather
than as a partnership (or, in the case of some single-member limited liability
companies, disregarded as an entity separate from the member), we would cease to
qualify as a real estate investment trust. The imposition of a corporate income
tax on the particular entity, with a concomitant loss of our real estate
investment trust status, would substantially reduce the amount of cash available
for repayment of indebtedness.
If we were to fail to qualify as a real estate investment trust, we no
longer would have to meet the distribution requirements of the Internal Revenue
Code. 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 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.
The income distribution requirements applicable to real estate investment
trusts 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
those items.
To obtain the favorable tax treatment accorded to real estate investment
trusts under the Internal Revenue 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 have to pay income tax on any undistributed real
estate investment trust taxable income and net capital gain, and a 4%
nondeductible excise tax on the amount, if any, by which distributions we pay
with respect to any calendar year are less than the sum of:
o 85% of our ordinary income for the calendar year;
o 95% of our capital gain net income for that year; and
o 100% of our undistributed income from prior years.
We intend to make distributions to our stockholders to comply with the
distribution provisions of the Internal Revenue 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 our 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
17
<PAGE>
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 those circumstances, we might need to borrow funds directly to
avoid adverse tax consequences even if we believe that the then-prevailing
market conditions generally are not favorable for borrowing or that borrowing is
not advisable in the absence of those tax considerations.
Distributions by the operating partnership will be determined by us and are
dependent on a number of factors, including:
o the amount of cash available for distribution;
o the operating partnership's financial condition;
o our decision to reinvest funds rather than to distribute the funds;
o the operating partnership's capital expenditure requirements; and
o the annual distribution requirements under the real estate investment
trust provisions of the Internal Revenue Code.
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 to avoid corporate income taxation
on the earnings that we distribute, we cannot assure you that we will be able to
do so.
THERE ARE POTENTIAL CONFLICTS RELATING TO OUR "PAPER-CLIP" STRUCTURE, WHICH MAY
BE DETRIMENTAL TO OUR INTERESTS.
Under the intercompany agreement with MeriStar Hotels, each of us will
provide the other with reciprocal rights to participate in specific transactions
entered into by us. In particular, MeriStar Hotels will generally have a right
of first refusal to become the lessee of any real property we acquire if we
determine that, consistent with our status as a real estate investment trust, we
are required to enter into a specific lease arrangement. This is only the case,
though, if we determine that MeriStar Hotels or an entity that it controls is
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
stock 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.
OUR OPERATIONS COULD BE ADVERSELY AFFECTED BECAUSE WE ARE DEPENDENT 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. While we believe that, if necessary, we could find a replacement for
Mr. Whetsell, the loss of his services could have a material adverse effect on
our operations. In addition, Mr. Whetsell is currently engaged, and in the
future will continue to engage, in the management of MeriStar Hotels.
Mr. Whetsell may experience conflicts of interest in allocating management time,
services and functions between us and MeriStar Hotels.
THERE ARE RISKS RELATED TO POTENTIAL YEAR 2000 COMPLIANCE PROBLEMS THAT COULD
ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We are in the process of conducting a review of our computer systems to
identify the systems that could be affected by the "Year 2000" problem and have
initiated an implementation plan to address the problem. The Year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any of our programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. If not corrected, this could result in a major systems failure or
miscalculations.
Our leased and managed hotel properties contain various information
technology and embedded technology systems. Both types of systems contain
microprocessors and microcontrollers that must be
18
<PAGE>
assessed for Year 2000 compliance. We have developed a comprehensive
implementation plan to address the potential Year 2000 problems caused by such
systems. This plan involves six stages:
o increase awareness of issue;
o assign responsibility for coordinating response to issue;
o information collection;
o analysis;
o modification, repair or replacement; and
o testing.
We are currently in our analysis stage and expect to complete this stage in
May 1999. The following stages are expected to be completed as follows:
modification, repair or replacement--August 1999; and testing--September 1999.
As an additional part of our implementation plan to address the Year 2000
problem, we have also initiated communications with third parties with which we
have material relationships to determine the extent of potential Year 2000
problems with these parties' services provided to us.
The most critical of these services involve such items as reservations
systems for our hotels. Without such systems, we could suffer a material decline
in business at many of our properties. We expect to complete our communications
and assessment of third parties' services in May 1999.
We anticipate completing our Year 2000 implementation plan no later than
September 1999. As of December 31, 1998, historical costs incurred to address
the Year 2000 problem approximate $0.8 million. We have not yet completed a
final cost estimate related to fixing Year 2000 issues, but an initial estimate
of these remediation costs for our properties is $10-15 million. This cost
estimate is based on our preliminary assessment, and will be refined and
adjusted as we continue to complete the stages of our implementation plan to
address the potential Year 2000 problems.
Although we are in the process of modifying our existing software and
converting to new software, if such modifications and conversions are not
completed timely, the Year 2000 problem could have a material impact on our
financial position and operations. Our operations are highly dependent upon
participating lease revenue earned from the lessees of our properties. These
participating lease revenue amounts are based upon revenues generated at the
leased properties. To the extent that the Year 2000 problems materially affect
the conduct of operations at those properties, it is likely that those lessees'
revenues would be affected, and that our participating lease revenues would
ultimately be affected.
A COURT COULD DECLARE THE EXCHANGE NOTES VOID, JUNIOR IN RIGHT OF PAYMENT OR
TAKE OTHER ACTIONS DETRIMENTAL TO YOUR INTERESTS.
An unpaid creditor or representative of creditors, such as a lender under
our revolving credit facility, could file a lawsuit claiming that the issuance
of the exchange notes constitutes a fraudulent conveyance. If the court were to
make such a finding, it could:
o void our obligations under the exchange notes;
o declare the exchange notes junior in right of payment to other
indebtedness; or
o take other actions detrimental to you as a holder of the exchange notes.
To make this determination, a court would have to find that:
o we did not receive fair consideration or reasonably equivalent value for
the exchange notes; and
o at the time the exchange notes were issued, we were insolvent or rendered
insolvent by the issuance of the exchange notes; were engaged in a
business or transaction for which our remaining assets constituted
unreasonably small capital; or intended to incur, or believed that we
would incur, debts which would be beyond our ability to pay as they
matured.
19
<PAGE>
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction and upon the valuation assumptions and the methodology
applied by the court.
Moreover, regardless of solvency, a court could also void the issuance of
the exchange notes if it determined that the transaction was made with the
intent to hinder, delay or defraud creditors, or a court could subordinate the
exchange notes to the claims of all existing and future creditors on similar
grounds.
YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE
CONSEQUENCES.
The outstanding notes were not registered under the Securities Act or under
the securities laws of any state and you may not resell them, offer them for
resale or otherwise transfer them unless they are subsequently registered or
resold under an exemption from the registration requirements of the Securities
Act and applicable state securities laws. If you do not exchange your
outstanding notes for exchange notes pursuant to the exchange offer, or if you
do not properly tender your outstanding notes in the exchange offer, you will
not be able to resell, offer to resell or otherwise transfer the outstanding
notes unless they are registered under the Securities Act or unless you resell
them, offer to resell or otherwise transfer them under an exemption from the
registration requirements of, or in a transaction not subject to, the Securities
Act. In addition, you will no longer be able to obligate us to register the
outstanding notes under the Securities Act except in the limited circumstances
provided under our registration rights agreement.
YOU MAY FIND IT DIFFICULT TO SELL YOUR EXCHANGE NOTES.
The exchange notes will be registered under the Securities Act but will not
be eligible for trading on the Private Offerings, Resales and Trading through
Automated Linkages market. The exchange notes will constitute a new issue of
securities with no established trading market, and there can be no assurance as
to:
o the development of any market for the exchange notes;
o the liquidity of any market for the exchange notes that may develop;
o your ability to sell your exchange notes; or
o the price at which you would be able to sell your exchange notes.
We have been advised by the initial purchasers for the outstanding notes
that they presently intend to make a market in the exchange notes. However, they
are not obligated to do so and may discontinue any market-making activity with
respect to the exchange notes at any time without notice. If a market for the
exchange notes were to exist, the exchange notes could trade at prices that may
be higher or lower than their principal amount or purchase price, depending on
many factors, including prevailing interest rates, the market for similar
debentures and the financial performance of our company. Historically, the
market for non-investment grade debt has been subject to disruptions that have
caused substantial volatility in the prices of securities similar to the
exchange notes. We cannot assure you that the market for the exchange notes, if
any, will not be subject to similar disruptions. Any disruption may adversely
affect you as a holder of the exchange notes.
20
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
The following unaudited pro forma statement of operations gives effect to
the merger of our predecessors and the spin-off of MeriStar Hotels as if both
transactions occurred on January 1, 1998. The unaudited pro forma statement of
operations is not necessarily indicative of what our financial position or
results of operations actually would have been if the merger and the spin-off
actually occurred on January 1, 1998. Additionally, the unaudited pro forma
statement of operations does not purport to project our financial position or
results of operations at any future date or for any future period. The unaudited
pro forma statement of operations should be read in conjunction with our
historical consolidated financial statements and related notes, which are
considered part of this prospectus. Please refer to the section of this document
entitled "Where You Can Find More Information."
The average occupancy rate shown below represents the total number of paid
rooms our hotel guests occupied divided by the total number of available rooms.
The average daily rate represents total room revenues at our hotels divided by
the total number of paid rooms our hotel guests occupied. Finally, revenue per
available room represents total room revenues at our hotels divided by the total
number of available rooms.
<TABLE>
<CAPTION>
TWELVE MONTHS
ENDED
DECEMBER 31,
1998
-------------
(IN
THOUSANDS,
EXCEPT PER
SHARE AMOUNTS
AND OPERATING
STATISTICS)
<S> <C>
Revenue
Participating lease revenue..................................................................... $ 327,309
Office rental and other revenue................................................................. 5,323
---------
Total revenue..................................................................................... 332,632
---------
Expenses
Administrative and general...................................................................... 5,607
Office rental and other expense................................................................. 2,190
Property taxes, insurance and other............................................................. 41,698
Depreciation and amortization................................................................... 87,910
Interest expense, net........................................................................... 86,196
---------
Total expenses.................................................................................... 223,601
---------
Income before minority interests and income taxes................................................. 109,031
Minority interests................................................................................ 10,533
Income taxes...................................................................................... 2,266
---------
Net income........................................................................................ $ 96,232
---------
---------
Diluted funds from operations..................................................................... $ 199,426
---------
---------
Weighted average number of diluted shares of common stock outstanding............................. 55,790
---------
---------
Funds from operations per diluted share........................................................... $ 3.57
---------
---------
Earnings before interest, income taxes, depreciation and amortization............................. $ 283,137
Interest expense.................................................................................. 86,196
Ratio of EBITDA to interest expense............................................................... 3.28x
</TABLE>
The following is a reconciliation between pro forma net income and pro
forma diluted funds from operations for the twelve months ended December 31,
1998:
<TABLE>
<S> <C>
Pro forma net income.............................................................................. $ 96,232
Minority interest................................................................................. 9,883
Interest on convertible debt...................................................................... 8,194
Hotel depreciation and amortization............................................................... 85,117
---------
Pro forma diluted funds from operations........................................................... $ 199,426
---------
---------
Pro forma operating statistics:
Average occupancy............................................................................. 71.5%
Average daily rate............................................................................ $ 95.00
Revenue per available room.................................................................... $ 67.90
</TABLE>
21
<PAGE>
SELECTED HISTORICAL FINANCIAL AND OTHER INFORMATION
The following table shows selected historical financial information for our
company. We did not provide for federal income taxes for the year ended
December 31, 1995 because, before the August 1996 initial public offering, our
predecessor entities were partnerships and all federal income tax liabilities
were passed through to the individual partners. From 1995 to 1998, certain loan
facilities were refinanced and the write-offs of deferred costs associated with
the prior facilities were recorded as extraordinary losses.
On July 1, 1998, we adopted AICPA Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." The effect of this accounting change as shown
below was a pre-tax charge against income for the year ended December 31, 1998
of $1,485,000 ($921,000 net of tax effect).
The average occupancy rate given below represents the total number of paid
rooms our hotel guests occupied divided by the total number of available rooms.
The average daily rate represents total room revenues at our hotels divided by
the total number of paid rooms our hotel guests occupied. Finally, revenue per
available room represents total room revenues at our hotels divided by the total
number of available rooms.
The following information should be read together with our consolidated
financial statements and related notes, which are considered part of this
document, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" starting on page 25. The selected operating results and
balance sheet data have been extracted from the consolidated financial
statements for each of the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenue:
Hotel operations:
Participating lease revenue...................... $ 135,994 $ -- $ -- $ -- $ --
Rooms............................................ 275,610 207,736 68,498 4,456 --
Food, beverage, office rental & other............ 110,519 103,521 36,949 7,471 --
Management services & other revenues............. 3,174 5,136 4,345 4,436 4,418
---------- ---------- -------- -------- ------
Total revenues..................................... 525,297 316,393 109,792 26,363 4,418
---------- ---------- -------- -------- ------
Operating expenses:
Departmental expenses:
Rooms............................................ 65,048 51,075 17,509 4,190 --
Food, beverage and other......................... 80,327 77,373 27,102 5,437 --
Undistributed operating expenses:
Administrative and general....................... 62,350 50,332 20,448 8,078 4,508
Property and other operating costs............... 122,963 55,111 17,151 3,934 --
Depreciation and amortization.................... 60,703 20,990 8,248 2,097 23
---------- ---------- -------- -------- ------
Total operating expenses........................... 391,391 254,881 90,458 23,736 4,531
---------- ---------- -------- -------- ------
Net operating income (loss)........................ 133,906 61,512 19,334 2,627 (113)
Interest expense, net.............................. 64,378 21,024 12,346 2,414 --
Minority interest.................................. 5,121 1,425 (39) (18) --
Provision for income taxes......................... 15,699 14,911 2,674 -- --
---------- ---------- -------- -------- ------
Income (loss) before extraordinary loss............ 48,708 24,152 4,353 231 (113)
Extraordinary loss, net of tax..................... (4,080) (4,092) (1,956) (888) --
Cumulative effect of accounting change, net of
tax.............................................. (921) -- -- -- --
---------- ---------- -------- -------- ------
Net income (loss).................................. $ 43,707 $ 20,060 $ 2,397 $ (657) $ (113)
---------- ---------- -------- -------- ------
---------- ---------- -------- -------- ------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND
OPERATING DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Investments in hotel properties, gross........... $2,909,439 $ 950,052 $343,092 $110,883 $ 176
Total assets..................................... 2,998,460 1,124,642 379,161 132,650 1,232
Long term debt................................... 1,602,352 492,771 200,361 73,574 --
OTHER FINANCIAL AND OPERATING DATA:
Ratio of earnings to fixed charges................. 1.89x 1.62x 1.46x 1.05x --
Owned hotels:
Number of hotels................................. 117 47 19 6 --
Number of guest rooms............................ 29,351 12,019 5,166 2,101 --
Total revenues................................... $ 522,123 $ 311,257 $105,447 $ 21,927 $ --
Average occupancy................................ 71.5% 72.0% 71.6% 72.3% --
Average daily rate............................... $ 95.00 $ 86.87 $ 82.84 $ 71.58 $ --
Revenue per available room....................... $ 67.90 $ 62.55 $ 59.31 $ 51.75 $ --
</TABLE>
23
<PAGE>
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the exchange
notes in exchange for the outstanding notes. We are making this exchange offer
solely to satisfy our obligations under our registration rights agreement. In
consideration for issuing the exchange notes, we will receive outstanding notes
in like aggregate principal amount.
The net proceeds to us from the original issuance of the outstanding notes,
after deducting the estimated discounts, commissions and other expenses, were
approximately $51.0 million. The net proceeds were used to reduce outstanding
indebtedness under our revolving credit facility and to invest in real estate
ventures. The amounts repaid bore interest at a weighted average interest rate
of 6.8% and mature August 2001, with two one-year optional extensions. The
indebtedness under the revolving credit facility was used to refinance existing
indebtedness and for the acquisition and renovation of hotel properties.
Lehman Brothers Holdings Inc., a company associated with the initial
purchasers, held a percentage of the outstanding indebtedness repaid with the
proceeds of the original issuance.
CAPITALIZATION
The following table shows our capitalization as of December 31, 1998 and as
adjusted solely to reflect the issuance of the outstanding notes. You should
read this table in conjunction with the consolidated financial statements and
related notes considered to be a part of this prospectus, and the information in
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Debt:
Secured Facility................................................ $ 250,000 $ 250,000
Non-Recourse Facility........................................... 52,750 52,750
Mortgage Debt and Other......................................... 67,276 67,276
Credit Facility................................................. 910,000 890,000
Senior Subordinated Notes....................................... 149,826 201,732
Convertible Notes............................................... 172,500 172,500
---------- -----------
Total Debt................................................... 1,602,352 1,634,258
Stockholders' Equity:
Common stock, par value $0.01 per share
Authorized--100,000 shares
Issued and outstanding--46,718 shares........................ 467 467
Additional paid-in capital...................................... 1,133,357 1,333,357
Retained earnings............................................... 23,655 23,655
Accumulated other comprehensive income.......................... (6,487) (6,487)
---------- -----------
Total Stockholders' Equity........................................ 1,150,992 1,150,992
---------- -----------
Total Capitalization.............................................. $2,753,344 $ 2,785,250
---------- -----------
---------- -----------
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
We own a portfolio of primarily upscale, full-service hotels, diversified
by franchise and brand affiliations, in the United States and Canada.
Substantially all of our hotels are leased to and operated by MeriStar Hotels.
As of December 31, 1998, we owned 117 hotels (with 29,351 rooms), 109 of which
are leased and operated by MeriStar Hotels.
On March 15, 1998, CapStar and American General Hospitality Corporation
entered into an agreement under which the parties agreed to merge, with the
surviving entity being named "MeriStar Hospitality Corporation." The merger was
approved at a special meeting of stockholders of CapStar and the annual meeting
of stockholders of American General on July 28, 1998. The merger and related
transactions became effective August 3, 1998.
Under the merger agreement, CapStar also distributed equally to its
stockholders all of the capital stock of MeriStar Hotels, whose assets consisted
of CapStar's hotel operations (including leased hotels) and management business.
On August 3, 1998, our common stock, par value $0.01 per share, and the common
stock of MeriStar Hotels began trading on the New York Stock Exchange.
The merger was accounted for as a purchase for financial reporting
purposes. As provided in Accounting Principles Board Opinion No. 16, "Business
Combinations," CapStar was considered the acquiring enterprise for financial
reporting purposes. We established a new accounting basis for American General's
assets and liabilities based on their fair values. For financial reporting
purposes, the results of operations of American General were included in our
statement of operations from August 3, 1998. We have included expenditures
related directly to the acquisition of American General as part of the cost of
acquiring American General and those expenditures relating to the spin-off as
expenses incurred (see "--Results of Operations").
We purchased American General for approximately $1.3 billion through
(1) the issuance of 23.9 million shares of common stock and units of limited
partnership interest in our subsidiary operating partnership, valued at $795
million and (2) the assumption of debt and other liabilities of $550 million.
The acquisition has been recorded at the fair value of the net assets acquired.
Before August 3, 1998, our consolidated financial statements included the
operating results for the owned and leased hotels as well as management fees
from hotels managed for third-party owners. After August 3, 1998, we own some
hotels that are leased to hotel operators and we no longer manage hotels.
Therefore, the financial statements for each of the years in the three-year
period ended December 31, 1998 reflect differing numbers of owned, leased, and
managed hotels throughout the periods. The following table outlines our
portfolio of owned, leased and managed hotels:
<TABLE>
<CAPTION>
OWNED LEASED MANAGED TOTAL
---------------- --------------- --------------- ----------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ------ ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998................ 117 29,351 -- -- -- -- 117 29,351
December 31, 1997................ 47 12,019 40 5,687 27 4,631 114 22,337
December 31, 1996................ 19 5,166 -- -- 28 4,619 47 9,785
</TABLE>
FINANCIAL CONDITION DECEMBER 31, 1998 COMPARED WITH DECEMBER 31, 1997
Total assets increased by $1,873.9 million to $2,998.5 million at
December 31, 1998 from $1,124.6 million at December 31, 1997. This growth was
due to the acquisition of 70 hotels during 1998, including 53 hotels from the
merger.
Total liabilities increased by $1,152.5 million to $1,708.9 million at
December 31, 1998 from $556.4 million at December 31, 1997 due mainly to an
increase in long-term debt. Long-term debt increased by $1,109.6 million to
$1,602.4 million at December 31, 1998 from $492.8 million at December 31, 1997
as a result of the debt assumed in connection with the merger and borrowings
under new credit facilities to finance the acquisitions of specific hotels.
25
<PAGE>
Minority interests increased $89.7 million to $138.5 million at
December 31, 1998 from $48.8 million at December 31, 1997, reflecting the value
of units of limited partnership interest of our operating partnership
subsidiaries issued in conjunction with the merger and with the acquisitions of
specific hotels and South Seas Properties Company, Limited Partnership. The
increase in additional paid-in capital resulted primarily from the merger and
the redemption of units of limited partnership interest.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1997
After August 3, 1998, we earned participating lease revenue of $136.0
million. Substantially all of our hotels are leased to and operated by MeriStar
Hotels. Participating lease revenue represents lease payments to us from the
lessees under our participating lease agreements. Total revenue increased by
$208.9 million or 66% to $525.3 million in 1998 compared to $316.4 million in
1997. This increase was primarily attributable to the merger, the acquisition of
new hotels and revenue growth from hotels in our portfolio that benefited from
renovation and repositioning programs. On a pro forma basis for the year ended
December 31, 1998, revenue per available room increased 7.0% to $67.90 compared
to 1997. On a pro forma basis same-store average daily rate for the hotels rose
5.7% to $95.00, coupled with a 1% increase in occupancy to 71.5%.
Hotel department and other operating expenses increased slightly for the
year ended December 31, 1998 compared to the prior year. Hotel operations for
the year are only reflected through August 3, 1998. After that date, in
conjunction with the merger and the spin-off, hotel operations were leased to
MeriStar Hotels. The increase in hotel department and other operating expenses
is primarily due to an increase in the number of owned and leased hotels in 1998
before the merger and the spin-off.
Undistributed operating expenses increased significantly in 1998 from the
acquisition of new properties in 1998 and the merger. After August 3, 1998, we
are responsible for real estate taxes, property insurance and various other
undistributed expenses that are not included in hotel operations which are
leased to MeriStar Hotels.
Net interest expense increased $43.4 million to $64.4 million for the year
ended December 31, 1998, from $21.0 million in 1997. This increase was
attributable to the borrowings made to finance the acquisition of hotels during
1998 and the debt assumed in connection with the merger.
Minority interests increased $3.7 million to $5.1 million from $1.4 million
in 1997 due to the issuance of units of limited partnership interest in
conjunction with the merger and the acquisition of selected hotels. Income taxes
increased $0.8 million in 1998 to $15.7 million from $14.9 million in 1997.
After August 3, 1998, our overall effective tax rate decreased to 3% from the
elimination of federal income taxes due to our becoming a real estate investment
trust. The slight increase in income taxes compared to the prior year is a
result of the substantial increase in pre-tax income in 1998 coupled with an
overall effective tax rate of 38.2% through August 2, 1998.
On August 3, 1998, we recognized extraordinary losses of $4.1 million (net
of a tax benefit of $2.1 million), due to the write-off of unamortized deferred
financing fees in conjunction with refinancing certain credit facilities.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities," which requires that all non-governmental entities expense costs of
start-up activities, including organizational costs, as those costs are incurred
and requires the write-off of any unamortized balances upon implementation. SOP
98-5 is effective for financial statements issued for periods beginning after
December 15, 1998. We chose to adopt SOP 98-5 effective July 1, 1998. The effect
of this accounting change was a charge against income for the year ended
December 31, 1998 of $0.9 million (net of tax benefit of $0.6 million).
Earnings before interest expense, income taxes, depreciation and
amortization grew $112.1 million to $194.6 million in 1998 from $82.5 million in
1997. This growth reflects both the increases in the number of hotels owned and
improved operating margins on our overall hotel portfolio.
26
<PAGE>
The White Paper on funds from operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts in March 1995
defines funds from operations as net income (loss) computed according to
generally accepted accounting principles, excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation and
amortization and after comparable adjustments for our portion of these items
related to unconsolidated entities and joint ventures. We believe that funds
from operations is helpful to investors as a measure of the performance of an
equity real estate investment trust because, along with cash flow from operating
activities, financing activities and investing activities, it provides investors
with an indication of our ability to incur and service debt, to make capital
expenditures and to fund other cash needs. Funds from operations does not
represent cash generated from operating activities determined by GAAP and should
not be considered as an alternative to net income, determined according to GAAP,
as an indication of our financial performance or to cash flow from operating
activities as a measure of our liquidity, nor is it indicative of funds
available to fund our cash needs, including our ability to make cash
distributions. Funds from operations may include funds that may not be available
for management's discretionary use due to functional requirements to conserve
funds for capital expenditures and property acquisitions, and other commitments
and uncertainties.
Our pro forma information is presented as if the merger, the spin-off and
the acquisition of all hotels of CapStar and American General had occurred as of
the beginning of the period presented. The following is a reconciliation between
pro forma net income and pro forma funds from operations for the year ended
December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Pro forma net income.......................................... $ 96,232
Minority interest............................................. 9,883
Interest on convertible debt.................................. 8,194
Hotel depreciation and amortization........................... 85,117
--------
Pro forma funds from operations............................... $199,426
--------
--------
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1996
Total revenue increased by $206.6 million or 188% to $316.4 million in 1997
compared to $109.8 million in 1996. This increase resulted from acquiring 28
hotels and leasing 40 hotels during the year, and revenue growth from hotels in
our portfolio that benefited from renovation and repositioning programs.
Operating expenses increased $164.4 million to $254.9 million in 1997 from $90.5
million in 1996 due to the increase in the number of hotels owned and leased
during 1997. Net operating income as a percentage of total revenue increased to
19.4% in 1997 from 17.6% in 1996, reflecting increased operational efficiencies
in our hotel portfolio.
Net interest expense increased $8.7 million to $21.0 million in 1997 from
$12.3 million in 1996. This increase was attributable to the borrowings made to
finance the acquisition of hotels during 1997, partially offset by the use of
proceeds from common stock offerings to repay outstanding indebtedness in 1997
and lower average interest rates charged on our borrowings in 1997 as compared
to 1996.
Minority interests of $1.4 million in 1997 were significantly higher than
in 1996 due to the minority interest related to the units of limited partnership
interest issued in 1997. Income taxes increased $12.2 million to $14.9 million
in 1997 compared to $2.7 million in 1996, due to substantially higher levels of
pre-tax income in 1997. Our overall effective tax rate decreased to 38.2% in
1997 from 40.0% in 1996 from lower state and local taxes.
Earnings before interest expense, income taxes, depreciation and
amortization grew $54.9 million to $82.5 million in 1997 from $27.6 million in
1996. This growth reflects both the increase in the number of hotels owned and
operated, and improved operating margins on our overall hotel portfolio.
During 1997, we recognized extraordinary losses of $4.1 million (net of tax
benefits of $2.5 million) and during 1996 we recognized extraordinary losses of
$2.0 million (net of tax benefits of $1.3 million), in each case related to the
write-off of unamortized loan costs in connection with expanding our credit
facilities.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Before the merger and related transactions, CapStar's primary sources of
liquidity were cash on hand, cash generated from operations and funds from
external borrowings and debt and equity offerings. CapStar's continuing
operations were funded through cash generated from hotel operations. Hotel
acquisitions and joint venture improvements were financed through a combination
of internally generated cash, external borrowings and the issuance of units of
limited partnership interest and/or common stock. CapStar did not pay dividends
to stockholders.
Following the merger and the spin-off, our principal sources of liquidity
are cash on hand, cash generated from operations and funds from external
borrowings and debt and equity offerings. We expect to fund our continuing
operations through cash generated by the participating leases. We also expect to
finance future hotel acquisitions and joint venture investments through a
combination of internally generated cash, external borrowings and the issuance
of units of limited partnership interest and/or common stock. Additionally, to
maintain favorable tax treatment accorded to a real estate investment trust
under the Internal Revenue Code of 1986, we will be required to distribute to
our stockholders at least 95% of our real estate investment trust taxable
income. We expect to fund those distributions through cash generated from
operations or borrowings on our credit facility.
Operating activities provided $162.8 million of net cash for the year ended
December 31, 1998, mainly due to higher levels of net income and depreciation
and amortization. We used $785.5 million of cash in investing activities for the
year ended December 31, 1998, primarily for the acquisition of hotels and
capital expenditures at our hotels and a note receivable from MeriStar Hotels.
Net cash provided by financing activities of $543.3 million resulted primarily
from net borrowings under our credit facilities.
In conjunction with the merger, CapStar terminated its existing credit
facility effective August 3, 1998, and we entered into a $1.0 billion senior
secured credit facility. The new credit facility is structured as a $300
million, five-year term loan facility; a $200 million, five-and-a-half year term
loan facility; and a $500 million, three-year revolving credit facility with two
one-year optional extensions. The interest rate on the term loans and revolving
facility ranges from 100 to 200 basis points over the 30-day London Inter-Bank
Offered Rate, depending on specific financial performance covenants and
long-term senior unsecured debt ratings. The weighted average interest rate on
borrowings outstanding under the new credit facility as of December 31, 1998 was
7.4%. The initial proceeds from the new credit facility were used to refinance
CapStar's and American General's existing credit facilities. As of December 31,
1998, we had $90 million available under the new credit facility's revolving
facility.
Effective August 3, 1998, we also entered into a $250 million secured
facility, which is expected to be converted into a commercial mortgage-backed
security secured by 16 hotels. The interest rate on the secured facility is 110
basis points over the 30-day London Inter-Bank Offered Rate. The weighted
average interest rate on the secured facility as of December 31, 1998 was 6.8%.
Capital for renovation work has historically been and is expected to
continue to be provided by a combination of internally generated cash and
external borrowings. Once initial renovation programs for a hotel are completed,
we expect to spend approximately 4% annually of hotel revenues for ongoing
capital expenditure programs, including room and facilities refurbishments,
renovations and furniture and equipment replacements. For the year ended
December 31, 1998, we spent (including expenditures by both CapStar and American
General before the merger) $200 million on initial renovation and ongoing
capital expenditure programs. We expect to spend $175 million in 1999, with
$125 million used for renovations and $50 million in recurring refurbishment
projects.
We believe that cash generated by operations, together with anticipated
borrowing capacity under our senior secured credit facility, will be sufficient
to fund our existing working capital, ongoing capital expenditures and debt
service requirements. We believe, however, that our future capital decisions
will also be made in response to specific acquisition and/or investment
opportunities, depending on conditions in the capital and/or other financial
markets. Accordingly, we may consider increasing our borrowing capacity or
issuing additional debt or equity securities, the proceeds of which could be
used to finance acquisitions or investments, or to refinance existing debt.
28
<PAGE>
SEASONALITY
Demand in the lodging industry is affected by recurring seasonal patterns.
Demand is lower in the winter months due to decreased travel and higher in the
spring and summer months during peak travel season. Accordingly, our operations
are seasonal in nature, with lower participating lease payments made to us in
the first and fourth quarters and higher participating lease payments made to us
in the second and third quarters.
YEAR 2000 CONVERSION
We are in the process of conducting a review of our computer systems to
identify the systems that could be affected by the Year 2000 problem and have
initiated an implementation plan to address the problem. The Year 2000 problem
is the result of computer programs being written using two digits rather than
four to define the applicable year. Any of our programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. If not corrected, this could result in a major systems failure or
miscalculations.
Our hotel properties contain various information technology and embedded
technology systems. Both types of systems contain microprocessors and
microcontrollers that must be assessed for Year 2000 compliance. We have
developed a comprehensive implementation plan to address the potential Year 2000
problems caused by those systems. This plan involves six stages:
o increase awareness of issue;
o assign responsibility for coordinating response to issue;
o information collection;
o analysis;
o modification, repair or replacement; and
o testing.
We are currently in our analysis stage and expect to complete this stage by
May 1999. The subsequent stages are expected to be completed as follows:
modification, repair or replacement--August 1999; and testing--September 1999.
As an additional part of our implementation plan to address the Year 2000
problem, we have also initiated communications with third parties with which we
have material relationships to determine the extent of potential Year 2000
problems with these parties' services provided to us. The most critical of these
services involve such items as reservations systems for our hotels. Without
those systems, we could suffer a material decline in business at many of our
properties. We expect to complete our communications and assessment of these
outside parties' services in May 1999. Also, we expect to develop contingency
plans in 1999 to allow for manual or other alternative operation of specific
computerized systems, in case modification, repair, and replacement efforts are
not completed timely.
We anticipate completing our Year 2000 implementation plan no later than
September 30, 1999, which is before any anticipated impact on our operating
systems. Historical costs incurred to address the Year 2000 problem were
approximately $0.8 million as of December 31, 1998. We have not yet completed a
final cost estimate related to fixing Year 2000 issues, but an initial estimate
of these remediation costs for our properties is $10-15 million. This cost
estimate is based on our preliminary assessment, and will be refined and
adjusted as we continue to complete the stages of our implementation plan to
address the potential Year 2000 problems.
Based on our preliminary assessment, we believe that our risks of Year 2000
non-compliance (that is, our "most reasonably likely worst case scenario"), with
modifications to existing software and converting to new software, will not pose
significant operational problems for our computer systems as so modified and
converted. If, however, the modifications and conversions are not completed
timely, the Year 2000 problem could have a material impact on our financial
position and operations. Our operations are highly dependent upon participating
lease revenue earned from the lessees of our properties. These participating
lease revenue
29
<PAGE>
amounts are based upon revenues generated at the leased properties. To the
extent that the Year 2000 problems materially affect the conduct of operations
at those properties, it is likely that those lessees' revenues would be
affected, and that our participating lease revenues would ultimately be
affected.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates on long-term
debt obligations that impact the fair value of these obligations. Our policy is
to manage interest rates through the use of a combination of fixed and variable
rate debt. Our interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flows and to lower our overall
borrowing costs. To achieve our objectives, we borrow at a combination of fixed
and variable rates. We may enter into derivative financial instruments such as
interest rate swaps, caps and treasury locks to mitigate our interest rate risk
on a related financial instrument. We do not enter into derivative or interest
rate transactions for speculative purposes. We have no cash flow exposure due to
general interest rate changes for our fixed long-term debt obligations. All
items described are non-trading (in thousands of dollars).
The table below presents the principal amounts, weighted average interest
rates and fair values by year of expected maturity to evaluate the expected cash
flows and sensitivity to interest rate changes.
<TABLE>
<CAPTION>
LONG-TERM DEBT
--------------------------------------------------------
FIXED AVERAGE VARIABLE AVERAGE
EXPECTED MATURITY RATE INTEREST RATE RATE INTEREST RATE
- ------------------------------------------------- -------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
1999............................................. $ 5,109 7.1% $ 54,750 7.4%
2000............................................. 3,420 7.1 252,000 6.4
2001............................................. 6,513 7.1 427,000 7.3
2002............................................. 10,731 7.1 32,000 6.9
2003............................................. 2,994 7.1 257,000 6.9
Thereafter....................................... 360,835 6.7 190,000 6.9
-------- --- ---------- ---
Total............................................ $389,602 6.7% $1,212,750 7.0%
-------- --- ---------- ---
-------- --- ---------- ---
Fair Value at 12/31/98........................... $389,602 $1,212,750
-------- ----------
-------- ----------
</TABLE>
During 1998, we entered into six separate $100,000 swap agreements with
financial institutions to hedge against the impact future interest rate
fluctuations may have on our existing floating rate debt instruments. The swap
agreements effectively fix the 30-day London Inter-Bank Offered Rate at between
4.9% and 5.4%. During the period ended December 31, 1998, we made payments
totaling $211 relating to these hedges. This amount is included in interest
expense. The hedge agreements terminate at various times between November 1999
and September 2000.
On February 18, 1997, we entered into a $40,000 swap agreement and a
$40,000 collar agreement with Lehman Brothers Special Financing, Inc. and
Canadian Imperial Bank of Commerce. The swap agreement effectively fixes the
30-day London Inter-Bank Offered Rate at 5.9% while the collar agreement creates
a 30-day London Inter-Bank Offered Rate floor of 5.1% and ceiling of 7.5%.
During the years ended December 31, 1998 and 1997, we made payments totaling $56
and $88, respectively, relating to these hedges. This amount is included in
interest expense. Both hedge agreements terminate in September 1999.
Additionally, in anticipation of the August 1997 offering of $150,000
aggregate principal amount of our 8.75% senior subordinated notes due 2007, we
entered into separate hedge transactions during June and July 1997. When we
completed the subordinated notes offering, we terminated the underlying swap
agreements, resulting in a net payment to us of $836. This amount was deferred
and is being recognized as a reduction to interest expense over the life of the
underlying debt. As a result, the effective interest rate on the subordinated
notes has been reduced to 8.69%.
Although we conduct business in Canada, the Canadian operations were not
material to our consolidated financial position, results of operations or cash
flows as of December 31, 1998. Additionally, foreign currency transaction gains
and losses were not material to our results of operations for the year ended
December 31, 1998. Accordingly, we had no material foreign currency exchange
rate risk from the effects
30
<PAGE>
that exchange rate movements of foreign currencies would have on our future
costs or on future cash flows we would receive from our foreign subsidiaries. To
date, we have not entered into any significant foreign currency forward exchange
contracts or other derivative financial instruments to hedge the effects of
adverse fluctuations in foreign currency exchange rates.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any statements in this prospectus about our expectations, beliefs, plans,
objectives, assumptions or future events or performance are not historical facts
and are forward-looking statements. These statements are often, but not always,
made through the use of words or phrases such as "will likely result," "expect,"
"will continue," "anticipate," "estimate," "intend," "plan," "projection,"
"would" and "outlook." Accordingly, these statements involve estimates,
assumptions and uncertainties which could cause actual results to differ
materially from those expressed in them. Any forward-looking statements are
qualified in their entirety by reference to the factors discussed throughout
this prospectus. These factors are discussed in "Risk Factors" and elsewhere in
this document.
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
Our registration rights agreement requires us to file not later than
May 17, 1999, which is 60 days following the date of original issuance of the
outstanding notes, the registration statement of which this prospectus is a part
for a registered exchange offer with respect to an issue of new notes in
exchange for our outstanding notes. These exchange notes will be substantially
identical in all material respects to the outstanding notes except that the
exchange notes will be registered under the Securities Act, will not bear
legends restricting their transfer and will not be entitled to registration
rights under our registration rights agreement. This summary of the registration
rights agreement does not contain all the information that you should consider
and we refer you to the provisions of the registration rights agreement, which
has been filed as an exhibit to the registration statement of which this
prospectus is a part and a copy of which is available as indicated under the
heading "Where You Can Find More Information."
We are required to:
o use our best efforts to cause the registration statement to be declared
effective no later than July 16, 1999, which is 120 days after the date
of issuance of the outstanding notes;
o keep the exchange offer effective for not less than 20 business days, or
longer if required by applicable law, after the date that notice of the
exchange offer is mailed to holders of the outstanding notes; and
o use our best efforts to consummate the exchange offer no later than
August 27, 1999, which is 162 days after the date of issuance of the
outstanding notes.
The exchange offer being made here, if commenced and completed within the
time periods described in this paragraph, will satisfy those requirements under
the registration rights agreement.
This prospectus, together with the letter of transmittal, is being sent to
all record holders of outstanding notes as of May 25, 1999.
31
<PAGE>
Based on interpretations by the staff of the Securities and Exchange
Commission in no-action letters issued to third parties, we believe that the
exchange notes issued under the exchange offer may be offered for resale, resold
or otherwise transferred by each holder of exchange notes other than, (a) a
broker-dealer who acquires the outstanding notes directly from us for resale
under Rule 144A under the Securities Act or any other available exemption under
the Securities Act, and (b) any holder that directly or indirectly through one
or more intermediaries, controls or is controlled by, or is under common control
with us, without compliance with the registration and prospectus delivery
provisions of the Securities Act, so long as this holder:
o is acquiring the exchange notes in the ordinary course of its business;
o is not participating in, and does not intend to participate in, a
distribution of the exchange notes within the meaning of the Securities
Act and has no arrangement or understanding with any person to
participate in a distribution of the exchange notes within the meaning of
the Securities Act; and
o is not a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control
with us.
By tendering the outstanding notes in exchange for exchange notes, each
holder, other than a broker-dealer, will be required to make representations to
that effect. If a holder of outstanding notes is participating in or intends to
participate in, a distribution of the exchange notes, or has any arrangement or
understanding with any person to participate in a distribution of the exchange
notes to be acquired in this exchange offer, that holder may be deemed to have
received restricted securities and may not rely on the applicable
interpretations of the staff of the Securities and Exchange Commission. Any
holder so deemed will have to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transaction.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes may be deemed to be an underwriter within the
meaning of the Securities Act and must acknowledge that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of those exchange notes. The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an underwriter within the meaning of the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with offers to resell, resales and other
transfers of exchange notes received in exchange for outstanding notes which
were acquired by that broker-dealer as a result of market making or other
trading activities. We have agreed that we will make this prospectus available
to any broker-dealer for a period of time not to exceed 180 days after the
completion of the exchange offer for use in connection with any offer to resell,
resale or other transfer. Please refer to the section in this prospectus
entitled "Plan of Distribution."
SHELF REGISTRATION STATEMENT
In the event that:
(a) we are not permitted to file a registration statement as part of the
exchange offer or to complete the exchange offer because it is not permitted by
law or the policies of the Securities and Exchange Commission, in either case
after having sought relief from the Commission; or
(b) selected institutional holders of outstanding notes notifies us at
least 20 days before the completion of the exchange offer that (1) the holder
was prohibited by law or policy of the Securities and Exchange Commission from
participating in the exchange offer, or (2) the holder may not resell the
exchange notes acquired by it in the exchange offer to the public without
delivering a prospectus and this prospectus is not appropriate or available for
that resale, or (3) the holder is a broker-dealer and holds notes acquired
directly from us or any of our affiliates (within the meaning of the Securities
Act), then we will instead of, or in the case of clause (b) of this sentence, in
addition to registering the exchange notes:
o use our best efforts, before the earlier of (A) 30 days after we
determine that we are not required to file a registration statement
relating to the exchange offer or (B) 30 days after we receive notice
from
32
<PAGE>
a holder as described in clause (b) above, to file with the Securities
and Exchange Commission a shelf registration statement covering resales
of the outstanding notes;
o use our best efforts to cause the shelf registration statement to be
declared effective under the Securities Act within 90 days after the date
we are required to file a shelf registration statement; and
o use our best efforts to keep the shelf registration statement
continuously effective, supplemented and amended as required by the
Securities Act, in order to permit the prospectus which is a part of the
shelf registration statement to be usable by holders until March 18,
2001.
We will, in the event that a shelf registration statement is filed, provide
to each holder of the outstanding notes being registered copies of the
prospectus that is a part of the shelf registration statement. We will also
notify each holder when the shelf registration statement has become effective
and take those other actions that are required to permit unrestricted resales of
the outstanding notes being registered. A holder that sells outstanding notes
under the shelf registration statement will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with those sales and will be bound by the
provisions of the registration rights agreement that are applicable to that
holder, including specific indemnification rights and obligations.
LIQUIDATED DAMAGES
In the event that:
(a) we do not file the registration statement or the shelf registration
statement, as the case may be, with the Securities and Exchange Commission on or
before the dates specified above for those filings,
(b) the registration statement or the shelf registration statement, as the
case may be, is not declared effective on or before the dates specified above
for that effectiveness,
(c) the exchange offer is not completed on or before August 27, 1999,
162 days after the date of issuance of the outstanding notes, or
(d) the registration statement or the shelf registration statement, as the
case may be, is filed and declared effective but after the filing and
declaration ceases to be effective or usable in connection with its intended
purpose, each event referred to in clauses (a) through (d), being called a
registration default,
then we will be obligated to pay to each holder of transfer restricted
securities liquidated damages. The outstanding notes remain restricted until:
(a) the date on which the outstanding notes have been exchanged by a person
other than a broker-dealer for exchange notes in a registered exchange offer;
(b) following the exchange by a broker-dealer in a registered exchange
offer of outstanding notes for exchange notes, the date on which the exchange
notes is sold to a purchaser who receives from the broker-dealer on or before
the date of the sale a copy of a prospectus contained in an exchange offer
registration statement;
(c) the date on which the outstanding notes have been effectively
registered under the Securities Act and disposed of in accordance with a shelf
registration statement; or
(d) the date on which the outstanding notes are distributed to the public
under Rule 144 under the Securities Act.
Liquidated damages will accrue and be payable semi-annually on the
outstanding notes and the exchange notes, in addition to the stated interest on
the outstanding notes and the exchange notes, in an amount equal to $0.05 per
week per $1,000 principal amount of outstanding notes during the first 90-day
period, which will increase by $0.05 per week per $1,000 principal amount of
outstanding notes for each subsequent 90-day period. In no event will the rate
exceed $0.50 per week per $1,000 principal amount of outstanding notes,
33
<PAGE>
regardless of the number of registration defaults. Liquidated damages will
accrue from the date a registration default occurs until the date on which:
o the registration statement is filed;
o the registration statement or shelf registration statement is declared
effective and the exchange offer is completed;
o the shelf registration statement is declared effective; or
o the shelf registration statement again becomes effective or made usable,
as the case may be.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.
Upon completion of the exchange offer, holders of outstanding notes who do
not exchange their outstanding notes for exchange notes in the exchange offer
will generally no longer be entitled to registration rights and will not be able
to offer or sell their outstanding notes, unless those outstanding notes are
subsequently registered under the Securities Act, which, with limited exception,
we will have no obligation to do, or under an exemption from, or in a
transaction not subject to, the Securities Act and applicable state securities
laws. Please refer to the section in this prospectus entitled "Terms of the
Exchange Offer-Your failure to participate in the exchange offer will have
adverse consequences."
TERMS OF THE EXCHANGE OFFER
Expiration Date; Extensions; Amendments; Termination
The exchange offer will expire at 5:00 p.m., New York City time, on
June 25, 1999, unless we extend it in our reasonable discretion. The expiration
date of the exchange offer will be at least 20 business days after the
commencement of the exchange offer as provided in Rule 14e-1(a) under the
Securities Exchange Act of 1934 and our registration rights agreement.
To extend the expiration date, we will need to notify the exchange agent of
any extension by oral, promptly confirmed in writing, or written notice. We will
also need to notify the holders of the outstanding notes by mailing an
announcement or by means of a press release or other public announcement
communicated, unless otherwise required by applicable law or regulation, before
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date.
We expressly reserve the right:
o to delay acceptance of any outstanding notes, to extend the exchange
offer or to terminate the exchange offer and not permit acceptance of
outstanding notes not previously accepted if any of the conditions
described below under "-- Conditions" have occurred and have not been
waived by us, if permitted to be waived, by giving oral or written notice
of this delay, extension or termination to the exchange agent; or
o to amend the terms of the exchange offer in any manner.
If we amend the exchange offer in a manner determined by us to constitute a
material change, we will promptly disclose this amendment in a manner reasonably
calculated to inform the holders of the outstanding notes of this amendment
including providing public announcement, or giving oral or written notice to the
holders of the outstanding notes. A material change in the terms of the exchange
offer could include, among other things, a change in the timing of the exchange
offer, a change in the exchange agent and other similar changes in the terms of
the exchange offer. If any material change is made to terms of the exchange
offer, we will disclose this change by means of a post-effective amendment to
the registration statement of which this prospectus is a part and will
distribute an amended or supplemented prospectus to each registered holder of
outstanding notes. In addition, we will also extend the exchange offer for an
additional five to ten business days as required by the Securities Exchange Act
of 1934, depending on the significance of the amendment, if the exchange offer
would otherwise expire during this period. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral, promptly confirmed in writing, or written notice of the delay to the
exchange agent.
34
<PAGE>
Procedures for Tendering
To tender your outstanding notes in the exchange offer, you must complete,
sign and date the letter of transmittal, or a facsimile of the letter, have the
signatures thereon guaranteed if required by the letter of transmittal, and mail
or otherwise deliver the letter of transmittal or the facsimile, or an agent's
message, together with the certificates representing the outstanding notes being
tendered and any other required documents, to the exchange agent on or before
5:00 p.m., New York City time, on the expiration date. Alternatively, you may
either:
o send a timely confirmation of a book-entry transfer of the outstanding
notes, if this procedure is available, into the exchange agent's account
at The Depository Trust Company by following the procedure for book-entry
transfer described below, on or before 5:00 p.m. on the expiration date;
or
o comply with the guaranteed delivery procedures described below.
The term "agent's message" means a message, transmitted by The Depository
Trust Company to, and received by, the exchange agent and forming a part of a
book-entry confirmation, which states that The Depository Trust Company has
received an express acknowledgment from its participant tendering outstanding
notes which are the subject of this book-entry confirmation that this
participant has received and agrees to be bound by the terms of the letter of
transmittal, and that we may enforce this agreement against this participant.
THE METHOD OF DELIVERY OF THE OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT YOUR ELECTION AND RISK. INSTEAD OF
DELIVERY BY MAIL, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND-DELIVERY
SERVICE. IF YOU CHOOSE THE MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ASSURE TIMELY DELIVERY. YOU SHOULD NOT SEND ANY LETTERS OF
TRANSMITTAL OR OUTSTANDING NOTES TO US. YOU MUST DELIVER ALL DOCUMENTS TO THE
EXCHANGE AGENT AT ITS ADDRESS PROVIDED BELOW. YOU MAY ALSO REQUEST YOUR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO
TENDER YOUR OUTSTANDING NOTES ON YOUR BEHALF.
Your tender of outstanding notes will constitute an agreement between you
and us as provided in the terms and under the conditions provided in this
prospectus and in the letter of transmittal.
Only a holder of outstanding notes may tender the outstanding notes in the
exchange offer. A holder, with respect to the exchange offer, is any person in
whose name outstanding notes are registered on our books or any other person who
has obtained a properly completed bond power from the registered holder.
If you are the beneficial owner of outstanding notes that are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender your outstanding notes, you should contact this
registered holder promptly and instruct this registered holder to tender on your
behalf. If you wish to tender on your own behalf, you must, before completing
and executing the letter of transmittal and delivering your outstanding notes,
either make appropriate arrangements to register ownership of the outstanding
notes in your name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an eligible guarantor institution within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934, each referred to as an
eligible institution, unless the outstanding notes are tendered:
o by a registered holder, or by a participant in The Depository Trust
Company whose name appears on a security position listing as the owner,
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the letter of transmittal if the
exchange notes are being issued directly to this registered holder, or
deposited into the participant's account at The Depository Trust Company;
or
o for the account of an eligible institution.
35
<PAGE>
If the letter of transmittal is signed by the recordholder(s) of the
outstanding notes tendered, the signature must correspond with the name(s)
written on the face of the outstanding notes without alteration, enlargement or
any change whatsoever. If the letter of transmittal is signed by a participant
in The Depository Trust Company, the signature must correspond with the name as
it appears on the security position listing as the holder of the outstanding
notes.
If the letter of transmittal is signed by a person other than the
registered holder of any outstanding notes listed, the outstanding notes must be
endorsed or accompanied by bond powers and a proxy that authorize that person to
tender the outstanding notes on behalf of the registered holder in satisfactory
form to us as determined in our sole discretion, in each case as the name of the
registered holder or holders appears on the outstanding notes.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, those persons should so indicate when signing. Unless waived by us,
evidence satisfactory to us of their authority to so act must also be submitted
with the letter of transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed letter of transmittal accompanied by the
outstanding notes tendered, or a timely confirmation received of a book-entry
transfer of outstanding notes into the exchange agent's account at The
Depository Trust Company with an agent's message, or a notice of guaranteed
delivery from an eligible institution is received by the exchange agent.
Issuances of exchange notes in exchange for outstanding notes tendered under a
notice of guaranteed delivery by an eligible institution will be made only
against delivery of the letter of transmittal, and any other required documents,
and the tendered outstanding notes, or a timely confirmation received of a
book-entry transfer of outstanding notes into the exchange agent's account at
The Depository Trust Company with an agent's message, with the exchange agent.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance and withdrawal of the tendered outstanding notes will be
determined by us in our sole discretion. Our determination will be final and
binding. We reserve the absolute right to reject any and all outstanding notes
not properly tendered or any outstanding notes which, if accepted, would, in our
opinion or our counsel's opinion, be unlawful. We also reserve the absolute
right to waive any conditions of the exchange offer or irregularities or defects
in tender as to particular outstanding notes. Our interpretation of the terms
and conditions of the exchange offer, including the instructions in the letter
of transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of outstanding notes must
be cured within the amount of time we determine. We, the exchange agent or any
other person will be under no duty to give notification of defects or
irregularities with respect to tenders of outstanding notes. Neither the
exchange agent nor our company will incur any liability for failure to give the
notification. Tenders of outstanding notes will not be deemed to have been made
until those irregularities have been cured or waived. Any outstanding notes
received by the exchange agent that are not properly tendered and as to which
the defects or irregularities have not been cured or waived will be returned
without cost by the exchange agent to the tendering holders of the outstanding
notes, unless otherwise provided in the letter of transmittal, as promptly as
practicable following the expiration date.
In addition, we reserve the right in our sole discretion, as limited by the
provisions of the indenture for the initial and exchange notes, to:
o purchase or make offers for any outstanding notes that remain outstanding
after the expiration date, or, as described under "--Expiration Date;
Extensions; Amendments; Termination," to terminate the exchange offer as
provided in the terms of our registration rights agreement; and
o to the extent permitted by applicable law, purchase outstanding notes in
the open market, in privately negotiated transactions or otherwise. The
terms of any purchases or offers could differ from the terms of the
exchange offer.
36
<PAGE>
Acceptance of Outstanding Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept all outstanding notes properly tendered, promptly after the
expiration date, and will issue the exchange notes promptly after the expiration
date and acceptance of the outstanding notes. Please refer to the section of
this prospectus entitled "--Conditions" below. For purposes of the exchange
offer, outstanding notes will be deemed to have been accepted as validly
tendered for exchange when, as and if we had given oral or written notice to the
exchange agent.
In all cases, issuance of exchange notes for outstanding notes that are
accepted for exchange under the exchange offer will be made only after timely
receipt by the exchange agent of (a) certificates for the outstanding notes or a
timely book-entry confirmation of the outstanding notes into the exchange
agent's account at the book-entry transfer facility, (b) a properly completed
and duly executed letter of transmittal or an agent's message and (c) all other
required documents, in each case, in form satisfactory to us and the exchange
agent. If any tendered outstanding notes are not accepted for any reason
described in the terms and conditions of the exchange offer or if outstanding
notes are submitted for a greater principal amount than the holder desires to
exchange, those unaccepted or non-exchanged outstanding notes will be returned
without expense to the tendering holder of the notes thereof, or, in the case of
outstanding notes tendered by book-entry transfer procedures described below,
the non-exchanged outstanding notes will be credited to an account maintained
with the book-entry transfer facility, as promptly as practicable after
withdrawal, rejection of tender, the expiration date or earlier termination of
the exchange offer.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the outstanding notes at The Depository Trust Company for purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in The Depository Trust Company's
systems may make book-entry delivery of outstanding notes by causing The
Depository Trust Company to transfer the outstanding notes into the exchange
agent's account at The Depository Trust Company as provided in The Depository
Trust Company's procedures for transfer.
However, although delivery of outstanding notes may be effected through
book-entry transfer into the exchange agent's account at The Depository Trust
Company, an agent's message or the letter of transmittal or facsimile of the
message or letter with any required signature guarantees and any other required
documents must, in any case, be transmitted to and received by the exchange
agent at the address indicated below under "--Exchange Agent" on or before the
expiration date or the guaranteed delivery procedures described below must be
complied with. DELIVERY OF DOCUMENTS TO THE DEPOSITORY TRUST COMPANY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All references in the prospectus to
deposit of outstanding notes will be deemed to include The Depository Trust
Company's book-entry delivery method.
Guaranteed Delivery Procedure
If you are a registered holder of outstanding notes and desire to tender
those outstanding notes, and (a) the outstanding notes are not immediately
available, (b) time will not permit your outstanding notes or other required
documents to reach the exchange agent before the expiration date or (c) the
procedures for book-entry transfer cannot be completed on a timely basis and an
agent's message delivered, you may still tender in the exchange offer if:
o you tender through an eligible institution;
o before the expiration date, the exchange agent receives from this
eligible institution a properly completed and duly executed letter of
transmittal, or facsimile of the letter, and notice of guaranteed
delivery, substantially in the form provided by us, by facsimile
transmission, mail or hand delivery, setting forth your name and address
as holder of the outstanding notes and the amount of outstanding notes
tendered, stating that the tender is being made thereby and guaranteeing
that within five business days after the expiration date the certificates
for all tendered outstanding notes, in proper form for transfer, or a
book-entry confirmation with an agent's message, as the case may be, and
any other documents required by the letter of transmittal will be
deposited by the eligible institution with the exchange agent; and
37
<PAGE>
o the certificates for all tendered outstanding notes, in proper form for
transfer, or a book-entry confirmation as the case may be, and all other
documents required by the letter of transmittal are received by the
exchange agent within five business days after the expiration date.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, you may withdraw tenders
of outstanding notes at any time before 5:00 p.m., New York City time, on the
expiration date.
For a withdrawal to be effective, you must send a written or facsimile
transmission notice of withdrawal to the exchange agent before 5:00 p.m., New
York City time, on the expiration date at the address provided below under
"--Exchange Agent" and before acceptance of the outstanding notes for exchange
by us. Any notice of withdrawal must:
o specify the name of the person having tendered the outstanding notes to
be withdrawn;
o identify the outstanding notes to be withdrawn, including, if applicable,
the registration number or numbers and total principal amount of these
outstanding notes;
o be signed by the person having tendered the outstanding notes to be
withdrawn in the same manner as the original signature on the letter of
transmittal by which these outstanding notes were tendered, including any
required signature guarantees, or be accompanied by documents of transfer
sufficient to permit the trustee with respect to the outstanding notes to
register the transfer of these outstanding notes into the name of the
person having made the original tender and withdrawing the tender;
o specify the name in which these outstanding notes are to be registered,
if different from that of the person having tendered the outstanding
notes to be withdrawn; and
o if applicable because the outstanding notes have been tendered under the
book-entry procedures, specify the name and number of the participant's
account at The Depository Trust Company to be credited, if different than
that of the person having tendered the outstanding notes to be withdrawn.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of the notices and our determination will be final
and binding on all parties. Any outstanding notes so withdrawn will be deemed
not to have been validly tendered for exchange for purposes of the exchange
offer. Any outstanding notes which have been tendered for exchange which are not
exchanged for any reason will be returned to the holder of the outstanding notes
without cost to the holder, or, in the case of outstanding notes tendered by
book-entry transfer into the exchange agent's account at The Depository Trust
Company under the book-entry transfer procedures described above, the
outstanding notes will be credited to an account maintained with The Depository
Trust Company for the outstanding notes, as promptly as practicable after the
withdrawal, rejection of tender, expiration date or earlier termination of the
exchange offer. Properly withdrawn outstanding notes may be retendered by
following one of the procedures described under "--Procedures for Tendering" and
"--Book-Entry Transfer" above at any time on or before the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we will not be
required to accept outstanding notes for exchange, or issue exchange notes in
exchange for any outstanding notes, and we may terminate or amend the exchange
offer as provided in this prospectus before the acceptance of the outstanding
notes, if:
o any court or governmental agency shall have issued any injunction, order
or decree that would prohibit, prevent or otherwise materially impair our
ability to proceed with the exchange offer; or
o the exchange offer shall violate any applicable law or any applicable
interpretation of the staff of the Securities and Exchange Commission.
These conditions are for our sole benefit and may be asserted by us
regardless of the circumstances giving rise to any of these conditions or may be
waived by us, in whole or in part, at any time and from time to time, if we
determine in our reasonable discretion that any of the foregoing events or
conditions has occurred or exists or has not been satisfied, except as limited
by applicable law. Our failure at any time to exercise any of the foregoing
rights will not be deemed a waiver of any of these rights and each of these
rights will be deemed an ongoing right which we may assert at any time and from
time to time.
38
<PAGE>
If we determine that we may terminate the exchange offer, as provided
above, we may:
o refuse to accept any outstanding notes and return any outstanding notes
that have been tendered to the holders of the outstanding notes;
o extend the exchange offer and retain all outstanding notes tendered
before the expiration date, without prejudice to the rights of the
holders of tendered outstanding notes to withdraw their tendered
outstanding notes; or
o waive the termination event with respect to the exchange offer and accept
all properly tendered outstanding notes that have not been withdrawn or
otherwise amend the terms of the exchange offer in any respect as
provided under the section in this prospectus entitled "--Expiration
Date; Extensions; Amendments; Termination."
The exchange offer is not conditioned upon any minimum principal amount of
outstanding notes being tendered for exchange.
We have no obligation to, and will not knowingly, accept tenders of
outstanding notes from our affiliates, within the meaning of Rule 405 under the
Securities Act, or from any other holder or holders who are not eligible to
participate in the exchange offer under applicable law or interpretations of the
Securities Act by the Securities and Exchange Commission, or if the exchange
notes to be received by the holder or holders of outstanding notes in the
exchange offer, upon receipt, will not be tradable by this holder without
restriction under the Securities Act and the Securities Exchange Act of 1934 and
without material restrictions under the blue sky or securities laws of
substantially all of the states of the United States.
Accounting Treatment
We will record the exchange notes at the same carrying value as the
outstanding notes, as reflected in our accounting records on the date of the
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. We will amortize the costs of the exchange offer and the unamortized
expenses related to the issuance of the exchange notes over the term of the
exchange notes.
Exchange Agent
We have appointed IBJ Whitehall Bank & Trust Company as exchange agent for
the exchange offer. You should direct all questions and requests for assistance
or additional copies of this prospectus or the letter of transmittal to the
exchange agent as follows:
By Mail:
IBJ Whitehall Bank & Trust Company
P.O. Box 84
Bowling Green Station
New York, NY 10274-0084
Attention: Reorganization Operations Department
By Hand/Overnight Delivery:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
Attention: Securities Processing Window, Subcellar One,
(SC-1)
Facsimile Transmission: (212) 858-2611
Confirm by Telephone: (212) 858-2103
Via Telex No.: 177754
39
<PAGE>
Fees and Expenses
We will bear the expenses of soliciting tenders under the exchange offer.
The principal solicitation for tenders under the exchange offer is being made by
mail; however, our offices and regular employees may make additional
solicitations by telegraph, telephone, telecopy or in person.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. However, we will pay the exchange
agent reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with the
exchange offer. We may also pay brokerage houses and other custodians, nominees
and fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of the prospectus, letters of transmittal and related
documents to the beneficial owners of the outstanding notes, and in handling or
forwarding tenders for exchange.
We will pay the expenses incurred in connection with the exchange offer,
including the fees and expenses of the exchange agent and trustee and
accounting, legal, printing and related fees and expenses.
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes in the exchange offer. However, tendering holders will pay the
amount of any transfer taxes, whether imposed on the registered holder or any
other persons, if:
o certificates representing exchange notes or outstanding notes for
principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the outstanding notes
tendered;
o tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
o a transfer tax is imposed for any reason other than the exchange of
outstanding notes in the exchange offer.
If satisfactory evidence of payment of the taxes or exemption therefrom is
not submitted with the letter of transmittal, the amount of the transfer taxes
will be billed directly to the tendering holder.
YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER WILL HAVE ADVERSE CONSEQUENCES
If you do not exchange your outstanding notes for exchange notes in the
exchange offer or if you do not properly tender your outstanding notes in the
exchange offer, you will not be able to resell, offer to resell or otherwise
transfer the outstanding notes unless they are registered under the Securities
Act or unless you resell them, offer to resell or otherwise transfer them under
an exemption from the registration requirements of, or in a transaction not
under, the Securities Act. In addition, you will no longer be able to obligate
us to register the outstanding notes under the Securities Act except in the
limited circumstances provided under our registration rights agreement. The
restrictions on transfer of your outstanding notes arise because we issued the
outstanding notes under exemptions from, or in transactions outside the
registration requirements of the Securities Act and applicable state securities
laws. In addition, if you want to exchange your outstanding notes in the
exchange offer for the purpose of participating in a distribution of the
exchange notes, you may be deemed to have received restricted securities, and,
if so, will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. To
the extent the outstanding notes are tendered and accepted in the exchange
offer, the trading market, if any, for the outstanding notes would be adversely
affected. Please refer to the section in this prospectus entitled "Risk
Factors."
40
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes, except that the exchange notes have been registered
under the Securities Act, will not bear legends restricting the transfer of the
notes and will not be entitled to registration rights under our registration
rights agreement. We issued the outstanding notes and will issue the exchange
notes under the indenture, dated as of March 18, 1999, between us and IBJ
Whitehall Bank & Trust Company, as trustee. The terms of the exchange notes will
include those stated in the indenture and those made part of the indenture by
reference to the Trust Indenture Act of 1939. The exchange notes follow all
those terms, and we refer you to the indenture and the Trust Indenture Act for a
statement of the terms.
Except as otherwise indicated, the following description relates both to
the outstanding notes and the exchange notes and is a summary of the material
provisions of the indenture. It does not restate the indenture in its entirety.
We urge you to read the indenture because it, and not this description, defines
your rights as holder of the exchange notes. We have filed copies of the
indenture as an exhibit to the registration statement which includes this
prospectus.
The definitions of specific terms used in the following summary are
indicated below under "--Definitions." For purposes of this summary, the term
"MeriStar" refers only to MeriStar Hospitality Corporation, and not to any of
our subsidiaries. Also, in this description "outstanding notes" and "exchange
notes" are collectively referred to as the "notes."
The notes are unsecured obligations of MeriStar, ranking junior in right of
payment to all our Senior Debt. Please refer to the caption below under the
section entitled "--Subordination." In addition, the notes are effectively
junior in right of payment to all obligations of our subsidiaries, including
without limitation trade payables in the ordinary course of business. On a pro
forma basis, MeriStar would have approximately $1.63 billion of Indebtedness
outstanding, including $1,091.7 million of Senior Debt and $370.0 million of
Non-Recourse Indebtedness of Unrestricted Subsidiaries of MeriStar. The
indenture permits the incurrence of additional Senior Debt in the future.
The notes rank equally in right of payment with our $150.0 million
aggregate principal amount of outstanding 8 3/4% Senior Subordinated Notes due
2007 which were issued in August 1997 under the Original Indenture. Although the
terms of the notes and the terms of these existing notes are substantially
identical, the notes will constitute a separate class of indebtedness of
MeriStar and there may be significantly different federal income tax
consequences for the purchasers of the notes from those consequences for the
purchasers of the existing notes. Please refer to the caption below under the
section entitled "--Certain United States Federal Tax Considerations."
For purposes of the indenture, our subsidiaries are divided into two
categories--Restricted Subsidiaries, which generally are bound by the
restrictive covenants in the indenture, and Unrestricted Subsidiaries, which
generally are not. On the date of the indenture, some of our subsidiaries were
designated as Unrestricted Subsidiaries. None of our Restricted Subsidiaries is
presently required to guarantee the notes, although under specific future
circumstances we may be required to cause one or more restricted subsidiaries to
guarantee the notes on a senior subordinated basis. Please refer to the caption
below under the section entitled "--Subsidiary Guarantees." Subsidiaries that
are properly designated and maintained as Unrestricted Subsidiaries by us will
not be required to guarantee the notes under any circumstances.
PRINCIPAL, MATURITY AND INTEREST
The notes are limited in aggregate principal amount to $55,000,000. We have
agreed not to offer or sell any additional amounts of debt securities for a
period of 180 days from the date of the indenture without the prior written
consent of the initial purchasers. The notes will mature on August 15, 2007.
Interest on the notes will accrue from March 18, 1999 and will be payable
semi-annually in arrears in cash on February 15 and August 15 of each year,
commencing August 15, 1999, at the rate of 8 3/4% per annum to holders of notes
of record on the immediately preceding February 1 and August 1.
41
<PAGE>
Interest on the notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from March 18, 1999.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Principal of and premium, interest and liquidated damages, if any, on the
notes will be payable at the office or agency maintained for that purpose or, at
our option, payment of interest and liquidated damages may be made by check
mailed to the holders of the notes at their addresses as written in the register
of holders of notes. However, all payments to noteholders who have given us wire
transfer instructions will be required to be made by wire transfer of
immediately available funds to the accounts specified by the noteholders. Until
we otherwise designate, our office or agency will be the office of the trustee
maintained for this purpose. The notes were and will be issued in denominations
of $1,000 and integral multiples of $1,000.
OPTIONAL REDEMPTION
Except as described in the last paragraph under this caption "--Optional
Redemption," at any time on or after August 15, 2002, the notes will be
redeemable at our option, in whole or in part, upon not less than 30 nor more
than 60 days notice, at the redemption prices (expressed as percentages of
principal amount) described below, plus accrued and unpaid interest and
liquidated damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on August 15 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------ ----------
<S> <C>
2002.................................................................... 104.375%
2003.................................................................... 102.917
2004.................................................................... 101.458
2005 and thereafter..................................................... 100.000
</TABLE>
Notwithstanding the foregoing, except as described in the last paragraph
under this caption "--Optional Redemption," before August 15, 2000, we may
redeem, on any one or more occasions, with the net cash proceeds of one or more
public offerings of our common equity (within 60 days of the completion of any
public equity offering), up to 35% of the aggregate principal amount of the
notes at a redemption price equal to 108.750% of the principal amount of the
notes plus accrued and unpaid interest and liquidated damages thereon, if any,
to the redemption date. However, in order to redeem the notes with the net cash
proceeds of an offering, at least 65% of the aggregate principal amount of notes
originally issued must remain outstanding immediately after each redemption. Our
June 1997 senior credit facility prohibits the purchase of the notes with the
net cash proceeds of a public equity offering, unless and until the indebtedness
under the credit facility is repaid in full.
In addition, except as described in the last paragraph under this caption
"--Optional Redemption," at any time before August 15, 2002, we may, at our
option, redeem the notes, in whole or in part (if in part, by lot or by any
other method as the trustee shall deem fair or appropriate) at the Make-Whole
Price, plus accrued and unpaid interest and liquidated damages thereon, if any,
to the applicable redemption date.
No optional redemption of the notes shall be made unless we make a
proportional redemption of the existing notes issued under the Original
Indenture.
MANDATORY REDEMPTION
We are not required to make mandatory redemption or sinking fund payments
with respect to the notes.
SUBORDINATION
The payment of all obligations on the notes is junior in right of payment,
as set forth in the indenture, to the prior payment in full in cash or Cash
Equivalents of all obligations on Senior Debt, whether outstanding on March 18,
1999 or incurred after that date. Upon any payment or distribution of our assets
of any kind or character, whether in cash, property or securities, to creditors
upon any liquidation, dissolution, winding up, reorganization, assignment for
the benefit of creditors or marshaling of our assets or in a bankruptcy,
42
<PAGE>
reorganization, insolvency, receivership or other similar proceeding relating to
us or our property, whether voluntary or involuntary, all obligations due upon
all Senior Debt shall first be paid in full in cash or Cash Equivalents, or the
payment shall be duly provided for to the satisfaction of the holders of Senior
Debt, before any payment or distribution of any kind or character is made on
account of any obligations on the notes, or for the acquisition by us or any of
our subsidiaries of any of the notes for cash or property or otherwise. In
addition, until all obligations with respect to senior debt are paid in full in
cash or Cash Equivalents, any distribution to which the holders would be
entitled shall be made to the holders of senior debt, except that holders of
notes may receive debt or equity securities that rank junior in right of payment
to Senior Debt and payments made from the trust described under "--Legal
Defeasance and Covenant Defeasance."
If any default occurs and is continuing in the payment when due, whether at
maturity, upon any redemption, by declaration or otherwise, of any principal of,
interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any Designated Senior Debt, no payment
of any kind or character shall be made by or on our behalf or any other person
on its behalf with respect to any obligations on the notes or to acquire any of
the notes for cash or property or otherwise. However, holders of notes may
receive debt and equity securities that rank junior in right of payment to
Senior Debt and payments made from the trust described under "--Legal Defeasance
and Covenant Defeasance."
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as that event of default is defined in
the instrument creating or evidencing that Designated Senior Debt, permitting
the holders of that Designated Senior Debt then outstanding to accelerate the
maturity of the debt and if the representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
trustee, then, unless and until all events of default have been cured or waived
or have ceased to exist or the trustee receives notice from the representative
for the respective issue of Designated Senior Debt terminating the blockage
period, during the 179 days after the delivery of that default notice, neither
we nor any of our subsidiaries shall:
(a) make any payment of any kind or character with respect to any
obligations on the notes, except the holders of notes may receive
debt and equity securities that rank junior in right of payment to
Senior Debt and payments made from the trust described under
"--Legal Defeasance and Covenant Defeasance"; or
(b) acquire any of the notes for cash or property or otherwise.
Notwithstanding anything to the contrary contained in this document, in no
event will a blockage period extend beyond 179 days from the date the payment on
the notes was due and only one blockage period may be commenced within any 365
consecutive days. No event of default which existed or was continuing on the
date of the commencement of any blockage period with respect to the Designated
Senior Debt shall be, or be made, the basis for commencement of a second
blockage period by the representative of the Designated Senior Debt whether or
not within a period of 365 consecutive days, unless the event of default shall
have been cured or waived for a period of not less than 180 consecutive days.
Any subsequent action, or any breach of any financial covenants for a period
commencing after the date of commencement of the blockage period that, in either
case, would give rise to an event of default under any provisions under which an
event of default previously existed or was continuing shall constitute a new
event of default for this purpose.
By reason of the above subordination, in the event of our insolvency, our
creditors who are not holders of Senior Debt, including the holders of the
notes, may recover less ratably than holders of Senior Debt. On a pro forma
basis, we would have approximately $1.63 billion of Indebtedness outstanding,
including $1,091.7 million of Senior Debt and $370.0 million of Non-Recourse
Indebtedness of our Unrestricted Subsidiaries.
None of our subsidiaries is presently required to guarantee the notes,
although under specific future circumstances we may be required to cause one or
more Restricted Subsidiaries to guarantee the notes on a senior subordinated
basis. The Indebtedness represented by any guarantee by a Restricted Subsidiary
(i.e., the payment of obligations on the notes) will be ranked junior in right
of payment on the same basis as the notes that are ranked junior in right of
payment to our Senior Debt.
43
<PAGE>
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control. The indenture provides that upon the occurrence of a
Change of Control, each holder will have the right to require that we purchase
all or a portion of the holder's notes under the offer described below, at a
purchase price equal to 101% of the principal amount of the notes plus accrued
and unpaid interest and liquidated damages, if any, to the date of purchase.
Within 10 days following the date upon which the Change of Control occurs,
we must send, by first class mail, a notice to each holder, with a copy to the
trustee, which notice shall govern the terms of the Change of Control offer. The
notice shall state, among other things, the purchase date, which must be no
earlier than 30 days nor later than 60 days from the date the notice is mailed,
other than as may be required by law. Holders electing to have a note purchased
under a Change of Control offer will be required to surrender their note, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
note completed, to the trustee or paying agent, if any, at the address specified
in the notice before the close of business on the third business day before the
Change of Control payment date.
If a Change of Control offer is made, we cannot assure you that we will
have available funds sufficient to pay the Change of Control purchase price for
all the notes that might be delivered by holders seeking to accept that Change
of Control offer plus the existing notes that might be delivered by holders of
the notes seeking to accept a Change of Control offer made under the Original
Indenture. Our senior credit facility prohibits the purchase of notes by us in
the event of a Change of Control, unless and until the time the Indebtedness
under the credit facility is repaid in full. Any future credit agreements or
other agreements relating to Senior Debt to which we become a party may contain
similar restrictions and provisions.
In the event a Change of Control occurs at a time when we are prohibited
from purchasing notes, we could seek the consent of our lenders to purchase
notes or could attempt to refinance the borrowings that contain that
prohibition. If we do not obtain that consent or repay those borrowings, we will
remain prohibited from purchasing notes. In that case, our failure to purchase
tendered notes would constitute an event of default under the indenture which
would, in turn, constitute a default under our senior credit facility In those
circumstances, the subordination provisions in the indenture would likely
restrict payments to the holders of notes.
The Change of Control provisions described above are applicable whether or
not any other provisions of the indenture are applicable. Except as described
above with respect to a Change of Control, the indenture does not contain
provisions that permit the holders of the notes to require that we repurchase or
redeem the notes in the event of a takeover, recapitalization or similar
transaction.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of our assets. Although there is a developing body of case law interpreting the
phrase "substantially all," there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a holder of notes to
require us to repurchase the notes because of a sale, lease, transfer,
conveyance or other disposition of less than all of our assets to another person
may be uncertain.
We will comply with the requirements of Rule 14e-1 under the Securities
Exchange Act of 1934 and any other securities laws and regulations under the
Securities Exchange Act to the extent those laws and regulations are applicable
in connection with the repurchase of notes under a Change of Control offer. To
the extent that the provisions of any securities laws or regulations conflict
with the "Change of Control" provisions of the indenture, we shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the "Change of Control" provisions of the
indenture by virtue of that compliance.
We will not be required to make a Change of Control offer upon a Change of
Control if a third party makes the Change of Control offer in the manner, at the
times and otherwise in compliance with the requirements described in the
indenture applicable to a Change of Control offer made by us and purchases all
notes validly tendered and not withdrawn under the Change of Control offer.
44
<PAGE>
Asset Sales. The indenture provides that we will not, and will not permit
any of our Restricted Subsidiaries to, conduct an Asset Sale, unless:
(a) we or our Restricted Subsidiary, as the case may be, receives
consideration at the time of the Asset Sale at least equal to the
fair market value of the assets sold or otherwise disposed of, to
be evidenced by a resolution of the board of directors described
in an officer's certificate delivered to the trustee; and
(b) at least 75% of the consideration therefor received by us or our
Restricted Subsidiary is in the form of cash or Cash Equivalents.
However, the principal amount of the following shall be deemed to
be cash for purposes of this provision:
(1) any of our liabilities or those of our Restricted Subsidiaries,
as shown on our or our Restricted Subsidiary's most recent
balance sheet or in the related notes (other than liabilities
that by their terms rank junior in right of payment to the
notes or any guarantee of the notes) that are assumed by the
transferee of those assets; and
(2) any notes or other obligations received by us or any Restricted
Subsidiary from a transferee that are converted by us or the
Restricted Subsidiary into cash within 90 days of the closing
of the Asset Sale (to the extent of the cash received).
Notwithstanding the foregoing, the restriction in clause (b) above will not
apply with respect to mortgages, other notes receivable or other securities
received by us or any Restricted Subsidiary from a transferee of any assets to
the extent those mortgages, other notes receivable or other securities are
Investments permitted to be made by us or the Restricted Subsidiary under the
covenant described below entitled "Restricted Payments."
Within 365 days of any Asset Sale, we or our Restricted Subsidiary may:
(a) apply the Net Proceeds from the Asset Sale to prepay any
Indebtedness that ranks by its terms senior to the notes (or any
guarantee of the notes) and, in the case of any Indebtedness under
our senior credit facility, to effect a permanent reduction in the
amount of Indebtedness that may be incurred under clause (b) of
the second paragraph of the covenant entitled "Incurrence of
Indebtedness and Issuance of Certain Capital Stock"; or
(b) invest the Net Proceeds from the Asset Sale in property or assets
used in a Hospitality-Related Business, provided that we or our
Restricted Subsidiary will have complied with this clause (b) if,
within 365 days of the Asset Sale, we or our Restricted Subsidiary
shall have commenced and not completed or abandoned an Investment
in compliance with this clause (b) and shall have segregated the
Net Proceeds from our general funds and our subsidiaries for that
purpose and the Investment is substantially completed within
180 days after the first anniversary of the Asset Sale.
Any Net Proceeds from an Asset Sale that are not applied or invested as
provided above will be deemed to constitute "excess proceeds." When the
aggregate amount of excess proceeds exceeds $10.0 million, we shall make an
offer, to all holders of notes and other Indebtedness (including the existing
notes) that ranks by its terms equally in right of payment with the notes and
the terms of which contain substantially similar requirements with respect to
the application of Net Proceeds from Asset Sales as are contained in the
indenture to purchase on a proportional basis the maximum principal amount of
notes, that is an integral multiple of $1,000, that may be purchased out of the
excess proceeds, at an offer price in cash in an amount equal to 100% of the
principal amount of the notes plus accrued and unpaid interest and liquidated
damages thereon, if any, to the date of purchase, as provided in the procedures
described in the indenture. To the extent that the aggregate amount of notes and
other such Indebtedness tendered under an Asset Sale offer is less than the
excess proceeds, we may use any remaining excess proceeds for general corporate
purposes. If the aggregate principal amount of notes surrendered by holders of
the notes exceeds the amount of excess proceeds available for purchase of those
notes, the trustee shall select the notes to be purchased in the manner
described under the caption "--Selection And Notice" below. When the offer to
purchase is completed, the amount of excess proceeds shall be reset at zero.
Pending the final application of any Net
45
<PAGE>
Proceeds from an Asset Sale under this paragraph, we or any Restricted
Subsidiary may temporarily reduce our Indebtedness or that of a Restricted
Subsidiary that ranks by its terms senior to the notes or otherwise invest the
Net Proceeds in Cash Equivalents. Our senior credit facility generally prohibits
the purchase of notes by us in the circumstances described above unless and
until the time as the Indebtedness under the credit facility is repaid in full.
We will comply, to the extent applicable, with the requirements of Rule
14e-1 under the Securities Exchange Act and other securities laws and
regulations under the Securities Exchange Act to the extent those laws and
regulations are applicable in connection with any offer to purchase and the
purchase of notes as described above. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale" provisions of the
indenture, we shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached our obligations under the "Asset Sale"
provisions of the indenture by virtue of compliance.
SELECTION AND NOTICE
If less than all of the notes are to be purchased in an Asset Sale offer or
redeemed at any time, selection of notes for purchase or redemption will be made
by the trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the notes are listed, or, if the notes are
not so listed, on a proportional basis, by lot or by any method as the trustee
shall deem fair and appropriate. However, no notes of a principal amount of
$1,000 or less shall be redeemed in part, and, if a partial redemption is made
with the proceeds of a public offering of our common equity securities,
selection of the notes or portions of the notes for redemption shall be made by
the trustee only on a proportional basis or on as nearly a proportional basis as
is practicable (except as required by the procedures of The Depository Trust
Company), unless that method is otherwise prohibited.
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the purchase or redemption date to each holder of
notes to be purchased or redeemed at its registered address. If any note is to
be purchased or redeemed in part only, the notice of redemption that relates to
that note shall state the portion of the principal amount of that note to be
purchased or redeemed.
A new note in principal amount equal to the unpurchased or unredeemed
portion of any note purchased or redeemed in part will be issued in the name of
the holder of the note upon cancellation of the original note. On and after the
purchase or redemption date, interest ceases to accrue on notes or portions of
the note called for purchase or redemption as long as we have deposited with the
trustee funds in satisfaction of the applicable redemption price under the
indenture.
COVENANTS
The indenture contains, among others, the following covenants:
Restricted Payments. The indenture provides that we will not, and will not
permit any of our Restricted Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any distribution on account of our
or any of our Restricted Subsidiaries' Equity Interests, other than:
(1) dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of our company; (2) dividends or distributions by a
Restricted Subsidiary of ours, except that to the extent that a portion
of that dividend or distribution is paid to a holder of Equity
Interests of a Restricted Subsidiary other than MeriStar or a
Restricted Subsidiary, the portion of that dividend or distribution is
not greater than that holder's proportional aggregate common equity
interest in that Restricted Subsidiary; and (3) dividends or
distributions payable on Existing Preferred OP Units and Preferred OP
Units issued in compliance with the covenant described below under the
caption "--Incurrence of Indebtedness and Issuance of Certain Capital
Stock");
(b) purchase, redeem or otherwise acquire or retire for value any Equity
Interests of our company or any Restricted Subsidiary or other
Affiliate of ours, other than (1) any Equity Interests owned by us or
any Restricted Subsidiary of ours; (2) any Existing Preferred OP Units;
and (3) any Preferred OP
46
<PAGE>
Units issued in compliance with the covenant described below under the
caption "--Incurrence of Indebtedness and Issuance of Certain Capital
Stock";
(c) purchase, redeem or otherwise acquire or retire for value any of
our Indebtedness or of any Restricted Subsidiary that ranks junior
in right of payment, by its terms, to the notes or any guarantee
of the notes before the scheduled final maturity or sinking fund
payment dates for payment of principal and interest as provided in
the original documentation for the subordinated or junior
Indebtedness; or
(d) make any Investment (all the payments and other actions described
in clauses (1) through (4) above being collectively referred to as
"Restricted Payments"), unless, at the time of the Restricted
Payment:
(1) no default or event of default shall have occurred and be
continuing or would occur as a consequence of the Restricted
Payment;
(2) we would, at the time of the Restricted Payment and after
giving pro forma effect thereto as if the Restricted Payment
had been made at the beginning of the applicable four-quarter
period, have been permitted to incur at least $1.00 of
additional Indebtedness under the Fixed Charge Coverage Ratio
test described in the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Certain Capital
Stock"; and
(3) the Restricted Payment, together with the aggregate of all
other Restricted Payments made by us and our Restricted
Subsidiaries after the date of the Original Indenture,
excluding Restricted Payments permitted by clauses (b), (c),
(d), (e) and (f)(1) of the next succeeding paragraph, is less
than the sum, without duplication, of
(A) 50% of our Consolidated Net Income for the period (taken as
one accounting period) from June 30, 1997 to the end of our
most recently ended fiscal quarter for which internal
financial statements are available at the time of the
Restricted Payment (or, if the Consolidated Net Income for
the period is a deficit, less 100% of the deficit), plus
(B) 100% of the aggregate net proceeds (including the fair
market value of non-cash proceeds as determined in good
faith by the board of directors) received by us from the
issue or sale, in either case, since the date of the
Original Indenture of either (a) our Equity Interests or of
(b) our debt securities that have been converted or
exchanged into those Equity Interests (other than Equity
Interests (or convertible or exchangeable debt securities)
sold to one of our Restricted Subsidiaries and other than
Disqualified Stock or debt securities that have been
converted or exchanged into Disqualified Stock), plus
(C) in case, after the date of the Original Indenture, any
Unrestricted Subsidiary has been redesignated a Restricted
Subsidiary under the terms of the indenture or has been
merged, consolidated or amalgamated with or into, or
transfers or conveys assets to, or is liquidated into us or
a Restricted Subsidiary and, only if no default or event of
default shall have occurred and be continuing or would occur
as a consequence of the Restricted Payment, the lesser of
(a) the book value at the date of the redesignation,
combination or transfer of the aggregate Investments made by
us and our Restricted Subsidiaries in the Unrestricted
Subsidiary (or of the assets transferred or conveyed, as
applicable) and (b) the fair market value of the Investment
in the Unrestricted Subsidiary at the time of the
redesignation, combination or transfer (or of the assets
transferred or conveyed, as applicable), in each case as
determined in good faith by our board of directors, whose
determination shall be conclusive and evidenced by a
resolution of the board and, in each case, after deducting
any Indebtedness associated with the Unrestricted Subsidiary
so designated or combined or with the assets so transferred
or conveyed, plus
47
<PAGE>
(D) 100% of any dividends, distributions or interest actually
received in cash by us or a Restricted Subsidiary after the
date of the Original Indenture from (a) a Restricted
Subsidiary the Net Income of which has been excluded from
the computation of Consolidated Net Income, (b) an
Unrestricted Subsidiary, (c) a person that is not a
subsidiary or (d) a person that is accounted for on the
equity method plus
(E) $15.0 million.
The foregoing provisions do not prohibit the following Restricted Payments:
(a) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the
payment would have complied with the provisions of the indenture;
(b) (1) the redemption, purchase, retirement or other acquisition of
any OP Unit in exchange for Equity Interests of our company (other
than Disqualified Stock) and (2) the redemption, purchase,
retirement or other acquisition of any Equity Interests of our
company or a Restricted Subsidiary (other than OP Units or
Preferred OP Units) in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Restricted
Subsidiary of ours) of other Equity Interests of our company
(other than any Disqualified Stock). However, in the case of
(1) and (2) the amount of any proceeds that is utilized for the
redemption, repurchase, retirement or other acquisition shall be
excluded from clause (3)(B) of the preceding paragraph;
(c) the defeasance, redemption, repayment or purchase of our
Indebtedness or any Restricted Subsidiary that ranks junior in
right of payment, by its terms, to the notes and any guarantee of
the notes in a Permitted Refinancing;
(d) the defeasance, redemption, repayment or purchase of our
Indebtedness or any Restricted Subsidiary that is junior in right
of payment, by its terms, to the notes and any guarantee of the
notes with the proceeds of a substantially concurrent sale (other
than to one of our subsidiaries) of Equity Interests (other than
Disqualified Stock) of our company. However, the amount of any
proceeds that is utilized for the defeasance, redemption,
repayment or purchase shall be excluded from clause (3)(B) of the
preceding paragraph;
(e) the purchase, redemption or other acquisition or retirement for
value of any Equity Interests of our company under any management
equity subscription agreement or stock option agreement. However,
the aggregate price paid for all the purchased, redeemed, acquired
or retired Equity Interests shall not exceed $1,000,000 in any 12
month period; and
(f) (1) the making of any Permitted Investment described in
clauses (a), (b), (c), (d) or (f) of the definition of Permitted
Investments and (2) the making of any Permitted Investment
described in clause (e) of the definition of Permitted
Investments. However, in the case of clauses (b)(2), (c), (d), (e)
and (f)(2), no default or event of default shall have occurred and
be continuing or would occur as a consequence of the Permitted
Investments.
In determining whether any Restricted Payment is permitted by the foregoing
covenant, we may allocate or reallocate all or any portion of the Restricted
Payment among the clauses (a) through (f) of the preceding paragraph or among
the clauses and the first paragraph of this covenant including clauses (1), (2)
and (3). However, at the time of the allocation or reallocation, all the
Restricted Payments, or allocated portions of the Restricted Payments, must be
permitted under the various provisions of the foregoing covenant.
The amount of all Restricted Payments (other than cash) shall be the fair
market value, evidenced by a resolution of our board of directors described in
an officer's certificate delivered to the trustee, on the date of the Restricted
Payment of the asset(s) proposed to be transferred by us or the Restricted
Subsidiary, as the case may be, under the Restricted Payment. Not later than
(a) the end of any calendar quarter in which any Restricted Payment is made or
(b) the making of a Restricted Payment which, when added to the sum of all
previous Restricted Payments made in a calendar quarter, would cause the
aggregate of all Restricted Payments made in the quarter to exceed
$5.0 million, we shall deliver to the trustee an officer's certificate stating
that the Restricted Payment is permitted and setting forth the basis upon which
the calculations
48
<PAGE>
required by this covenant were computed, which calculations may be based upon
our latest available financial statements.
Our board of directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if the designation would not cause a default or event of
default. For purposes of making the determination as to whether the designation
would cause a default or event of default, all outstanding Investments by us and
our Restricted Subsidiaries (except to the extent repaid in cash) in the
subsidiary so designated will be deemed to be Restricted Payments at the time of
the designation and will reduce the amount available for Restricted Payments
under the first paragraph of this covenant. All the outstanding Investments will
be deemed to constitute Investments in an amount equal to the greatest of (a)
the net book value of the Investments at the time of the designation, (b) the
fair market value of the Investments at the time of the designation and (c) the
original fair market value of the Investments at the time they were made. The
designation will only be permitted if the Restricted Payment would be permitted
at the time and if the Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
Any designation of a Restricted Subsidiary to be our Unrestricted
Subsidiary by our board of directors shall be evidenced to the trustee by filing
with the trustee a certified copy of the resolution of our board of directors
giving effect to the designation and an officer's certificate certifying that
the designation complied with the foregoing conditions.
Incurrence of Indebtedness and Issuance of Certain Capital Stock. The
indenture provides that (1) we will not, and will not permit any of our
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to any Indebtedness (including Acquired Debt), (2) we will not issue, and will
not permit any of our Restricted Subsidiaries to issue, any shares of
Disqualified Stock and (3) we will not permit any of our Restricted Subsidiaries
to issue any Preferred Stock. However, we or any Guarantor may incur
Indebtedness or issue shares of Disqualified Stock and the Restricted
Subsidiaries may incur Indebtedness under our senior credit facility if the
Fixed Charge Coverage Ratio for our most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which the additional Indebtedness is incurred or the
Disqualified Stock is issued would have been at least 2.0 to 1, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of that
four-quarter period.
The foregoing provisions do not apply to:
(a) the incurrence by our Unrestricted Subsidiaries of Non-Recourse
Indebtedness. However, if any of the Indebtedness ceases to be
Non-Recourse Indebtedness of an Unrestricted Subsidiary, that
event shall be deemed to constitute an incurrence of Indebtedness
by one of our Restricted Subsidiaries;
(b) the incurrence by us or our Restricted Subsidiaries of
Indebtedness under our senior credit facility in an aggregate
principal amount not to exceed $300.0 million at any one time
outstanding minus any Net Proceeds that have been applied to
permanently reduce the outstanding amount of the Indebtedness
under clause (a) of the third paragraph of the covenant described
under the caption "--Repurchase at the Option of Holders--Asset
Sales";
(c) the incurrence by us and our Restricted Subsidiaries of Existing
Indebtedness;
(d) the incurrence by us or our Restricted Subsidiaries of
Indebtedness under Hedging Obligations that do not increase our
Indebtedness or that of the Restricted Subsidiary, as the case may
be, other than from fluctuations in interest or foreign currency
exchange rates. However, the Hedging Obligations must be incurred
for the purpose of providing interest rate protection with respect
to Indebtedness permitted under the indenture or to provide
currency exchange protection in connection with revenues generated
in currencies other than U.S. dollars;
(e) the incurrence or the issuance by us of Refinancing Indebtedness
or Refinancing Disqualified Stock or the incurrence or issuance by
a Restricted Subsidiary of Refinancing Indebtedness or
49
<PAGE>
Refinancing Disqualified Stock. However, the Refinancing
Indebtedness or Refinancing Disqualified Stock must be a Permitted
Refinancing;
(f) the incurrence by us or any of our Restricted Subsidiaries of
intercompany Indebtedness between or among us and any of our
Restricted Subsidiaries. However, (1) any subsequent issuance or
transfer of Equity Interests that results in any of the
Indebtedness being held by a person other than a Restricted
Subsidiary and (2) any sale or other transfer of any of the
Indebtedness to a person that is not either us or a Restricted
Subsidiary will be deemed, in each case, to constitute an
incurrence of the Indebtedness by us or a Restricted Subsidiary,
as the case may be;
(g) the incurrence of Indebtedness represented by the notes and any
guarantee of the notes;
(h) the incurrence by us or any of our Restricted Subsidiaries, in the
ordinary course of business and consistent with past practice, of
surety, performance or appeal bonds;
(i) the incurrence by us or any of our Restricted Subsidiaries of
Indebtedness (in addition to Indebtedness permitted by any other
clause of this paragraph) in an aggregate principal amount at any
time outstanding not to exceed $50.0 million;
(j) the incurrence by us or any of our Restricted Subsidiaries of
Assumed Indebtedness, except that, after giving effect to the
incurrence of Assumed Indebtedness, we must be able to incur at
least $1.00 of additional Indebtedness under the Fixed Charge
Coverage Ratio test described in the preceding paragraph; and
(k) the issuance of Preferred OP Units by us or any of our Restricted
Subsidiaries as full or partial consideration for the acquisition
of lodging facilities and related assets, except that, after
giving effect to the issuance of the Preferred OP Units, we must
be able to incur at least $1.00 of additional Indebtedness under
the Fixed Charge Coverage Ratio test described in the preceding
paragraph.
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The indenture provides that the we will not, and will not permit
any of our Restricted Subsidiaries to, directly or indirectly, create any
encumbrance or restriction on the ability of any Restricted Subsidiary to:
(a) (1) pay dividends or make any other distributions to us or any of
our Restricted Subsidiaries (A) on its Capital Stock or (B) with
respect to any other interest or participation in, or measured by,
its profits, or (2) pay any Indebtedness owed to us or any of our
Restricted Subsidiaries;
(b) make loans or advances or capital contributions to us or any of
our Restricted Subsidiaries; or
(c) sell, lease or transfer any of its properties or assets to us or
any of our Restricted Subsidiaries, except for those encumbrances
or restrictions existing under or by reasons of:
(1) Existing Indebtedness as in effect on the date of the Original
Indenture;
(2) our senior credit facility, except that the encumbrances or
restrictions contained in the facility, as amended or modified
in any manner, must be no more restrictive than those contained
in our senior credit facility as in effect on the date of the
Original Indenture;
(3) the Original Indenture and the existing notes under that
indenture and the indenture governing the outstanding notes and
the exchange notes;
(4) applicable law;
(5) any instrument governing Indebtedness or Capital Stock of a
person we or any of our Restricted Subsidiaries acquire or of
any person that becomes a Restricted Subsidiary as in effect at
the time of the acquisition or the person becoming a Restricted
Subsidiary (except to the extent the Indebtedness was incurred
in connection with or in contemplation of the acquisition or
that person becoming a Restricted Subsidiary), which
encumbrance or
50
<PAGE>
restriction is not applicable to any person, or the properties
or assets of any person, other than the person, or the property
or assets of the person, so acquired; however, the Consolidated
Cash Flow of that person is not taken into account (to the
extent of the restriction) in determining whether the
acquisition was permitted by the terms of the indenture;
(6) restrictions described in clause (c) above by reason of
customary non-assignment provisions in leases entered into in
the ordinary course of business;
(7) purchase money obligations for property acquired in the
ordinary course of business that impose restrictions of the
nature described in clause (c) above on the property so
acquired;
(8) Permitted Refinancings, except that the encumbrance or
restrictions contained in the agreements governing the
Permitted Refinancings must be no more restrictive than those
contained in the agreements governing the Indebtedness or
Disqualified Stock being refinanced; or
(9) customary restrictions in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent
the restrictions restrict the transfer of the property, except
as required by the security agreements and mortgages.
Prohibition on Incurrence of Senior Subordinated Debt. The indenture
provides that:
(a) we will not incur, guarantee or otherwise become liable for any
Indebtedness that is senior in right of payment to the notes and
subordinate or junior in right of payment to any other of our
Indebtedness; and
(b) no Guarantor will incur, guarantee or otherwise become liable for
any Indebtedness that is senior in right of payment to the
guarantee of the notes by that Guarantor and subordinate or junior
in right of payment to any other Indebtedness of the Guarantor.
Liens. The indenture provides that we will not, and will not permit any of
our Restricted Subsidiaries to, directly or indirectly create or incur any Lien
that secures obligations under any Indebtedness which is equal to or ranks
junior to the notes, unless the notes are equally and ratably secured with the
obligations so secured or until the time when those obligations are no longer
secured by a Lien.
Merger, Consolidation or Sale of Assets. The indenture provides that we
may not consolidate or merge with or into, or sell, transfer or otherwise
dispose of all or substantially all of our properties or assets in one or more
related transactions, to another corporation, person or entity unless:
(a) we are the surviving corporation or the person formed by or
surviving any the consolidation or merger (if other than us) or to
which the sale, transfer or other disposition shall have been made
is a corporation organized or existing under the laws of the
United States, any state of the United States or the District of
Columbia;
(b) the person formed by or surviving any the consolidation or merger
(if other than us) or the person to which the sale, transfer or
other disposition shall have been made assumes all of our
obligations under a supplemental indenture under the notes and the
indenture;
(c) immediately after the transaction no default or event of default
exists; and
(d) we or any person formed by or surviving any the consolidation or
merger, or to which the sale, transfer or other disposition shall
have been made (1) will have Consolidated Net Worth (immediately
after the transaction) equal to or greater than our Consolidated
Net Worth immediately preceding the transaction and (2) will, at
the time of the transaction and after giving pro forma effect
thereto as if the transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness under the Fixed Charge Coverage
Ratio test as provided in the covenant described under the caption
"--Incurrence of Indebtedness and Issuance of Certain Capital
Stock."
51
<PAGE>
Upon any the consolidation, merger or transfer as provided above, the
successor person formed by the consolidation or into which we are merged or to
which the transfer is made shall succeed to, and be substituted for us, and may
exercise all of our rights and powers under the indenture with the same effect
as if the successor had been named as us therein and thereafter (except in the
case of a lease) the predecessor corporation will be relieved of all further
obligations and covenants under the indenture and the notes.
Transactions with Affiliates. The indenture provides that we will not, and
will not permit any of our Restricted Subsidiaries to, sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into any agreement or understanding with, or
for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless:
(a) the Affiliate Transaction is on terms that are no less favorable
to us or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by us or the
Restricted Subsidiary on an arm's-length basis with an unrelated
person;
(b) we deliver to the trustee:
(1) with respect to any Affiliate Transaction involving aggregate
payments in excess of $5.0 million, an officer's certificate
certifying that the Affiliate Transaction complies with clause
(a) above and the Affiliate Transaction is approved by a
majority of the disinterested members of our board of
directors; and
(2) with respect to any Affiliate Transaction involving aggregate
payments in excess of $10.0 million, other than an Affiliate
Transaction involving the acquisition or disposition of a
lodging facility by us or any of our Restricted Subsidiaries,
an opinion as to the fairness to us or the Restricted
Subsidiary from a financial point of view issued, at our
option, by an investment banking firm of national standing or a
qualified appraiser; and
(c) we deliver to the trustee in the case of an Affiliate Transaction
involving the acquisition or disposition of a lodging facility by
us or our Restricted Subsidiaries, and
(1) involving aggregate payments of more than $5.0 million and less
than $25.0 million, an appraisal by a qualified appraiser
stating that the transaction is being undertaking at fair
market value, or
(2) involving aggregate payments of $25.0 million or more, an
opinion as to the fairness of the transaction to us or the
Restricted Subsidiary from a financial point of view issued by
an investment banking firm of national standing. However, the
following shall not be deemed Affiliate Transactions:
(A) any employment, deferred compensation, stock option,
noncompetition, consulting or similar agreement we or any of
our Restricted Subsidiaries enter into in the ordinary
course of business and consistent with our past practice or
that of the Restricted Subsidiary;
(B) transactions between or among us and/or our Restricted
Subsidiaries;
(C) the incurrence of fees in connection with the provision of
hotel management services, except that the fees must be paid
in the ordinary course of business and are consistent with
past practice; and
(D) Restricted Payments permitted by the provisions of the
indenture described above under the covenant described under
the caption "--Restricted Payments."
Line of Business. The indenture provides that for so long as any notes are
outstanding, we will not, and will not permit any of our Restricted Subsidiaries
to, engage in any business or activity other than a Hospitality-Related
Business.
Payments for Consent. The indenture provides that neither we nor any of
our subsidiaries will, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any holder of
any notes for or as an inducement to any consent, waiver or amendment of any of
the terms or
52
<PAGE>
provisions of the indenture or the notes unless the consideration is offered to
be paid or agreed to be paid to all holders of the notes that consent, waive or
agree to amend in the time frame described in the solicitation documents
relating to the consent, waiver or agreement.
Purchase/Redemptions of Notes under Original Indenture. The indenture
provides that so long as any note is outstanding, neither we nor any of our
subsidiaries or Affiliates shall redeem or offer to purchase any of the existing
notes unless we are redeeming or offering to purchase the outstanding notes on a
proportional basis and at the same purchase or redemption price.
SUBSIDIARY GUARANTEES
As of March 18, 1999, none of our subsidiaries will be required to act as a
Guarantor in respect of the notes. However, the indenture provides that, before
guaranteeing any of our other Indebtedness, other than our senior credit
facility, a Restricted Subsidiary that is also a Significant Subsidiary must
execute and deliver to the trustee a supplemental indenture under which the
Restricted Subsidiary shall guarantee, on an unsecured senior subordinated
basis, all of our Obligations with respect to the notes together with an opinion
of counsel stating that the supplemental indenture has been duly executed and
delivered by the Restricted Subsidiary and is in compliance in all material
respects with the terms of the indenture. The Indebtedness represented by the
guarantee (i.e., the payment of Obligations on the notes) will be junior in
right of payment on the same basis to Senior Debt of the Guarantor as the notes
are junior in right of payment to our Senior Debt. Our senior credit facility
generally prohibits the incurrence of these guarantees unless and until a time
when the indebtedness under the credit facility is repaid in full.
The indenture provides that no Guarantor may consolidate with or merge with
or into another corporation, person or entity, other than us or another
Guarantor, unless:
(a) except as limited by the provisions of the following paragraph,
the person formed by or surviving the consolidation or merger (if
other than the Guarantor) assumes all the obligations of the
Guarantor under a supplemental indenture in form and substance
reasonably satisfactory to the trustee under the indenture;
(b) immediately after giving effect to the transaction, no default or
event of default exists; and
(c) the Guarantor, or any person formed by or surviving the
consolidation or merger,
(1) would have Consolidated Net Worth (immediately after giving
effect to the transaction), equal to or greater than the
Consolidated Net Worth of the Guarantor immediately preceding
the transaction; and
(2) would be permitted by virtue of our Fixed Charge Coverage Ratio
to incur, immediately after giving effect to the transaction,
at last $1.00 of additional Indebtedness under the Fixed
Charged Coverage Ratio described in the covenant described
above under the caption "--Covenants--Incurrence of
Indebtedness and Issuance of Certain Capital Stock."
The indenture provides that in the event of (1) a sale or other disposition
of all or substantially all of the assets of any Guarantor, which sale or other
disposition is otherwise in compliance with the terms of the indenture, by way
of merger, consolidation or otherwise, or (2) a sale or other disposition of all
of the capital stock of any Guarantor, then the Guarantor (in the event of a
sale or other disposition, by way of a merger, consolidation or otherwise, of
all of the capital stock of the Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all or substantially
all of the assets of the Guarantor) will be automatically and unconditionally
released and relieved of any obligations under its subsidiary guarantee.
For purposes of a guarantee with respect to the notes, each Guarantor's
liability will be that amount from time to time equal to the aggregate liability
of the Guarantor under the guarantee, but shall be limited to the lesser of (a)
the aggregate amount of our obligations under the notes and the indenture or (b)
the amount, if any, which would not have (1) rendered the Guarantor "insolvent"
(as the term is defined in the Federal Bankruptcy Code and in the Debtor and
Creditor Law of the State of New York) or (2) left it with
53
<PAGE>
unreasonably small capital at the time its guarantee with respect to the notes
was entered into, after giving effect to the incurrence of existing Indebtedness
immediately before the time. However, it shall be a presumption in any
proceeding in which a Guarantor is a party that the amount guaranteed under the
guarantee with respect to the notes is the amount described in clause (a) above
unless any creditor, or representative of creditors of the Guarantor, or debtor
in possession or trustee in bankruptcy of the Guarantor, otherwise proves in a
lawsuit that the aggregate liability of the Guarantor is limited to the amount
described in clause (b). The indenture provides that, in making any
determination as to the solvency or sufficiency of capital of a Guarantor as
described in the previous sentence, the right of the Guarantor to contribution
from other Guarantors and any other rights the Guarantor may have, contractual
or otherwise, shall be taken into account.
REPORTS
Whether required by the rules and regulations of the Securities and
Exchange Commission, as long as any notes are outstanding, we will furnish to
the holders of notes all quarterly and annual financial information that would
be required to be contained in a filing with the Securities and Exchange
Commission on Forms 10-Q and 10-K if we were required to file the forms,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and, with respect to the annual information only, a
report thereon by our certified independent accountants. In addition, whether
required by the rules and regulations of the Securities and Exchange Commission,
we will submit a copy of all the information with the Securities and Exchange
Commission for public availability and file the information with the trustee and
make the information available to investors and securities analysts who request
it in writing. In addition, for as long as the notes are outstanding, we will
continue to provide to holders and to prospective purchasers of notes the
information required by Rule 144A(d)(4).
EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an event of
default:
(a) default for 30 days in the payment when due of interest or
liquidated damages, if any, on the notes;
(b) default in payment when due of the principal of or premium, if
any, on the notes at maturity, upon redemption or otherwise,
including the failure to make a payment to purchase notes tendered
under a Change of Control offer or an Asset Sale offer);
(c) failure by us or any Restricted Subsidiary to comply with the
covenant described under the caption "--Covenants--Merger,
Consolidation or Sales of Assets";
(d) failure by us or any Restricted Subsidiary for 30 days in the
performance of any other covenant, warranty or agreement in the
indenture or the notes after written notice shall have been given
to us by the trustee or to us and the trustee from holders of at
least 25% in principal amount of the notes then outstanding;
(e) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions to the grace periods)
the principal amount of Non-Recourse Indebtedness of our company
or any of our Restricted Subsidiaries with an aggregate principal
amount in excess of the lesser of (1) 10% of the total assets of
our company and those of our Restricted Subsidiaries measured as
of the end of our most recent fiscal quarter for which internal
financial statements are available immediately before the date on
which the default occurred, determined on a pro forma basis, and
(2) $50 million, and the failure continues for a period of
10 days or more, or the acceleration of the final stated maturity
of any Non-Recourse Indebtedness (which acceleration is not
rescinded, annulled or otherwise cured within 10 days of receipt
by us or the Restricted Subsidiary of notice of the acceleration);
(f) the failure to pay at final stated maturity (giving effect to any
applicable grace periods and any extensions to the grace periods)
the principal amount of any Indebtedness (other than Non-Recourse
Indebtedness) of our company or any Restricted Subsidiary, or the
acceleration of the
54
<PAGE>
final stated maturity of any Indebtedness if the aggregate
principal amount of the Indebtedness, together with the principal
amount of any other Indebtedness in default for failure to pay
principal at final maturity or which has been accelerated, in each
case with respect to which the 10-day period described above has
passed, aggregates $10.0 million or more at any time;
(g) failure by our company or any Restricted Subsidiary to pay final
judgments rendered against them (other than judgment liens without
recourse to any assets or property of our company or any
Restricted Subsidiary other than assets or property securing
Non-Recourse Indebtedness) aggregating in excess of
$10.0 million, which judgments are not paid, discharged or stayed
for a period of 60 days, except for judgments as to which a
reputable insurance company has accepted full liability;
(h) except as permitted by the indenture, any guarantee with respect
to the notes shall be held in a judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in
full force and effect or any Guarantor, or any person acting on
behalf of the Guarantor, shall deny or disaffirm its obligations
or shall fail to comply with any obligations under its guarantee;
and
(i) specific events of bankruptcy or insolvency with respect to us,
any Guarantor or any of our subsidiaries that would constitute a
Significant Subsidiary or any group of our subsidiaries that,
taken together, would constitute a Significant Subsidiary.
If any event of default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an event of default arising from specific events of
bankruptcy or insolvency, with respect to (1) us, (2) any of our subsidiaries
that would constitute a Significant Subsidiary, (3) any group of our
subsidiaries that, taken together, would constitute a Significant Subsidiary or
(4) any Guarantor, all outstanding notes will become due and payable without
further action or notice. Under specific circumstances, the holders of a
majority in principal amount of the outstanding notes may rescind any
acceleration with respect to the notes and its consequences. Holders of the
notes may not enforce the indenture or the notes except as provided in the
indenture. With some limitations, holders of a majority in principal amount of
the then-outstanding notes may direct the trustee in its exercise of any trust
or power. The trustee may withhold from holders of the notes notice of any
continuing default or event of default, except a default or event of default
relating to the payment of principal or interest, if it determines that
withholding notice is in their interest.
The indenture provides that no holder of a note may pursue a remedy under
the indenture unless:
(a) the holder of a note gives to the trustee written notice of a
continuing event of default or the trustee receives the notice
from us;
(b) the holders of at least 25% in principal amount of the
then-outstanding notes make a written request to the trustee to
pursue a remedy;
(c) the holder of a note or holders of notes offer and, if requested,
provide to the trustee indemnity satisfactory to the trustee
against any loss, liability or expense;
(d) the trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the
provision of indemnity; and
(e) during the 60-day period the holders of a majority in principal
amount of the then-outstanding notes do not give the trustee a
direction inconsistent with the request.
However, this provision does not affect the right of a holder of a note to sue
for enforcement of any overdue payment on the notes.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture, including with respect to any Restricted Payments
made during that year and the basis upon which the calculations required by the
covenants described under the caption "--Covenants--Restricted Payments" were
computed. We are also required upon becoming aware of any default or event of
default, to deliver to the trustee a statement specifying the default or event
of default.
55
<PAGE>
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
None of our directors, officers, employees, incorporators or stockholders,
past, present or future, any successor person or any Guarantor, shall have any
liability for any of our obligations under the notes, any guarantee of the note
or the indenture or for any claim based on the obligations or their creation.
Each holder of notes by accepting a note waives and releases all those
liabilities. The waiver and release are part of the consideration for issuance
of the notes. The waiver and release may not be effective to waive or release
liabilities under the federal securities laws and it is the view of the
Securities and Exchange Commission that a waiver or release is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have all of our obligations
and the obligations of any Guarantor discharged with respect to the outstanding
notes ("legal defeasance"), except for:
(a) the rights of holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on the
notes when the payments are due;
(b) our obligations and those of the Guarantors with respect to the
notes concerning issuing temporary notes, registration of notes,
mutilated, destroyed, lost or stolen notes and the maintenance of
an office or agency for payment and money for security payments
held in trust;
(c) the rights, powers, trusts, duties and immunities of the trustee,
and our obligations and those of the Guarantors in connection with
the trustee; and
(d) the legal defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our
obligations and those of any Guarantor released with respect to specific
covenants that are described in the indenture ("covenant defeasance"). After
this release, any omission to comply with the obligations would not constitute a
default or event of default with respect to the notes. In the event covenant
defeasance occurs, some events, but not non-payment, bankruptcy, receivership,
rehabilitation and insolvency events, described above under "--Events of Default
and Remedies" would no longer constitute an Event of Default with respect to the
notes.
In order to exercise either legal defeasance or covenant defeasance,
(a) we must irrevocably deposit with the trustee, for the benefit of
the holders of the notes, cash in U.S. dollars, non-callable
government securities, or a combination of the above, in amounts
that will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of,
premium, if any, and interest on the outstanding notes on the
stated maturity or on the applicable redemption date, as the case
may be;
(b) in the case of legal defeasance, we shall have delivered to the
trustee an opinion of counsel confirming that (1) we has received
from, or there has been published by, the Internal Revenue Service
a ruling or (2) since March 18, 1999, there has been a change in
the applicable federal income tax law, in either case that, and
based thereon the opinion of counsel shall confirm that, the
holders of the outstanding notes will not recognize income, gain
or loss for federal income tax purposes as a result of such legal
defeasance and will have to pay federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if the legal defeasance had not occurred;
(c) in the case of covenant defeasance, we shall have delivered to the
trustee an opinion of counsel confirming that the holders of the
outstanding notes will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant
defeasance and will have to pay federal income tax on the same
amounts, in the same manner and at the same times as would have
been the case if the covenant defeasance had not occurred;
(d) no default or event of default shall have occurred and be
continuing on the date of the deposit, other than a default or
event of default resulting from the borrowing of funds applied to
the
56
<PAGE>
deposit, or insofar as events of default from bankruptcy or
insolvency events are concerned, at anytime in the period ending
on the 123rd day after the date of deposit;
(e) such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any
material agreement or instrument, other than the indenture, to
which we or any of our subsidiaries is a party or by which we or
any of our subsidiaries is bound;
(f) we shall have delivered to the trustee an opinion of counsel that,
as of the date of the opinion, (1) the only rights of holders of
Indebtedness in the trust funds will be the notes and
(2) assuming no intervening bankruptcy by us between the date of
deposit and the 123rd day following the deposit and assuming no
holder of notes is one of our insiders, after the 123rd day
following the deposit, the trust funds will not fall under the
effects of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors rights generally under any
applicable United States or state law;
(g) we shall have delivered to the trustee an officer's certificate
stating that the deposit was not made by us with the intent of
preferring the holders of notes over our other creditors with the
intent of defeating, hindering, delaying or defrauding our
creditors or others; and
(h) we shall have delivered to the trustee an officer's certificate
and an opinion of counsel, each stating that all conditions
precedent provided for relating to such legal defeasance or such
covenant defeasance have been complied with.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect,
except as to surviving rights of registration of transfer or exchange of notes,
as to all outstanding notes when either:
(a) all the notes previously authenticated and delivered, except lost,
stolen or destroyed notes that have been replaced or paid and
notes for whose payment money has previously been deposited in
trust or segregated and held in trust by us and later repaid to us
or discharged from the trust, have been delivered to the trustee
for cancellation; or
(b) (1) all the notes not theretofore delivered to the trustee for
cancellation have become due and payable by their terms or shall
have been called for redemption and we have irrevocably deposited
with the trustee as trust funds in trust for such purpose an
amount of money sufficient to pay and discharge the entire
indebtedness on the notes not previously delivered to the trustee
for cancellation or redemption, for the principal amount, premium
and liquidated damages, if any, and accrued interest to the date
of the deposit; (2) we have paid all other sums payable by us
under the indenture; and (3) we have delivered irrevocable
instructions to the trustee to apply the deposited money toward
the payment of the notes at maturity or on the redemption date, as
the case may be.
In addition, we must deliver an officer's certificate and an opinion of counsel
stating that all conditions precedent to satisfaction and discharge have been
complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes as provided in the indenture. The
registrar (who will initially be the trustee) and the trustee may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents. We may also require a holder to pay any taxes and fees required by
law or permitted by the indenture. We are not required to transfer or exchange
any note selected for redemption. Also, we are not required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
57
<PAGE>
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs of this
subsection, the indenture or the notes may be amended or supplemented with the
consent of the holders of at least a majority in principal amount of the notes
then outstanding, including consents obtained in connection with a tender offer
or exchange offer for notes. In addition, any existing default or compliance
with any provision of the indenture or the notes may be waived with the consent
of the holders of a majority in principal amount of the then-outstanding notes,
including consent obtained in connection with a tender offer or exchange offer
for notes.
Without the consent of each holder affected, an amendment or waiver may
not, with respect to any notes held by a non-consenting holder of notes:
(a) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any notes or
alter the provisions with respect to the redemption of the notes;
(c) reduce the rate of or change the time for payment of interest on any
note;
(d) waive a default or event of default in the payment of principal of or
premium, if any, or interest on the notes, except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment
default that resulted from the acceleration;
(e) make any note payable in money other than that stated in the notes;
(f) make any change in the provisions of the indenture relating to waivers
of past defaults or the rights of holders of notes to receive payments
of principal of or premium, if any, or interest on the notes;
(g) waive a redemption payment with respect to any note;
(h) make any change in the above amendment and waiver provisions;
(i) modify or change any provision of the indenture or the related
definitions affecting the or ranking of the notes or any guarantee of
the notes in a manner which adversely affects the holders in any
material respect; or
(j) make any change to the covenants described above under the caption
"--Repurchase at the Option of Holders."
Notwithstanding the foregoing, without the consent of any holder of notes,
we and the trustee may amend or supplement the indenture or the notes (a) to
cure any ambiguity, defect or inconsistency, (b) to provide for uncertificated
notes in addition to or in place of certificated notes, (c) to provide for the
assumption of the our obligations to holders of the notes in the case of a
merger, consolidation or sale of assets, (d) to release a Guarantor as provided
in the indenture, (e) to make any change that would provide any additional
rights or benefits to the holders of the notes, including providing for
guarantees with respect to the notes under the covenant described under the
caption "--Subsidiary Guarantees," or that does not adversely affect the legal
rights under the indenture of any holder, or (f) to comply with requirements of
the Securities and Exchange Commission to effect or maintain the qualification
of the indenture under the Trust Indenture Act of 1939.
CONCERNING THE TRUSTEE
The indenture contains limitations on the rights of the trustee, should it
become one of our creditors, to obtain payment of claims in specific cases or to
realize on specific property received in respect of any claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate the conflict
within 90 days, apply to the Securities and Exchange Commission for permission
to continue or resign. The holders of a majority in principal amount of the
then-outstanding notes will have the right to direct the time, method and place
of conducting any proceeding for exercising any remedy available to the trustee,
with some exceptions. The indenture provides that if an event of default occurs,
and is not cured, the trustee will be required, in the exercise of its powers,
to use the
58
<PAGE>
degree of care of a prudent man in the conduct of his own affairs. As limited by
these provisions, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any holder of notes,
unless the holder shall have offered to the trustee security and indemnity
satisfactory to it against any loss, liability or expense.
DEFINITIONS
We have provided below selected defined terms as used in the indenture.
Please refer to the indenture for a full description of all those terms, as well
as any other capitalized terms used in this description of the notes for which
no definition is provided.
"Acquired Debt" means, with respect to any specified person: (a)
Indebtedness of any other person existing at the time the other person merged
with or into or became a subsidiary of the specified person and
(b) Indebtedness encumbering any asset acquired by the specified person,
including Indebtedness incurred in connection with, or in contemplation of, the
other person merging with or into or becoming a subsidiary of the specified
person.
"Affiliate" of any specified person means any other person directly or
indirectly controlling, controlled by or under direct or indirect common control
with the specified person. For purposes of this definition, "control,"
including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with," as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the person, whether through the
ownership of voting securities, by agreement or otherwise. However, the
beneficial ownership of 10% or more of the voting securities of a person shall
be deemed to be control.
"Asset Sale" means:
(a) the sale, lease, other than operating leases in respect of facilities
which are ancillary to the operation of our Company's or a Restricted
Subsidiary's Hospitality-Related Business properties or assets,
conveyance or other disposition of any of our property or assets or
that of any Restricted Subsidiary, including by way of a sale and
leaseback transaction;
(b) the issuance or sale of Equity Interests of any of our Restricted
Subsidiaries; or
(c) any Event of Loss, other than, with respect to clauses (a), (b) and
(c) above, the following:
(1) the sale or disposition of personal property held for sale in the
ordinary course of business;
(2) the sale or disposal of damaged, worn out or other obsolete
property in the ordinary course of business as long as the
property is no longer necessary for the proper conduct of our
business or the business of a Restricted Subsidiary, as
applicable;
(3) the transfer of assets by us to one of our Restricted Subsidiaries
or by one of our Restricted Subsidiaries to us or to another one
of our Restricted Subsidiaries;
(4) (A) the exchange of one or more lodging facilities and related
assets held by us or one of our Restricted Subsidiaries for one or
more lodging facilities and related assets of any person or
entity; however, if any other assets are received by us or the
Restricted Subsidiary in that exchange, the other consideration
must be in cash or Cash Equivalents and the cash or Cash
Equivalent consideration will be deemed to be cash proceeds of an
Asset Sale for the purposes of calculating "Net Proceeds" and
applying Net Proceeds, if any, as described in the covenant "Asset
Sales," or (B) the issuance of OP Units or Preferred OP Units as
full or partial consideration for the acquisition of lodging
facilities and related assets; however, our board of directors
must have determined that the terms of any exchange or acquisition
are fair and reasonable and that the fair market value of the
assets received by us, as described in an opinion of a qualified
appraiser, are equal to or greater than the fair market value of
the assets exchanged, sold or issued by us or one of our
Restricted Subsidiaries;
(5) any Restricted Payment, permitted under the covenant described
under the caption "--Covenants--Restricted Payments" above;
59
<PAGE>
(6) the sale, lease, conveyance or other disposition of all or
substantially all of our assets in compliance with the provisions
of the indenture described above under the captions "--Repurchase
at the Option of Holders--Change of Control" and
"--Covenants--Merger, Consolidation or Sale of Assets";
(7) the conversion of or foreclosure on any mortgage or note, but only
if we or one of our Restricted Subsidiaries receives the real
property underlying the mortgage or note; or
(8) any transaction or series of related transactions that would
otherwise be an Asset Sale where the fair market value of the
assets, sold, leased, conveyed or otherwise disposed of was less
than $5.0 million or an Event of Loss or related series of Events
of Loss under which the aggregate value of property or assets
involved in such Event of Loss or Events of Loss is less than
$5.0 million.
"Assumed Indebtedness" means, with respect to any specified person:
(a) Indebtedness of any other person existing at the time the other person
merged with or into or became a subsidiary of the specified person; and
(b) Indebtedness encumbering any asset acquired by the specified person, in
each case excluding Indebtedness incurred in connection with, or in
contemplation of that other person merging with or into or becoming a
subsidiary of, the specified person.
"Capital Lease Obligation" means, at the time any determination of the
obligation is to be made, the amount of the liability in respect of a capital
lease that would at the time be so required to be capitalized on the balance
sheet as provided by GAAP.
"Capital Stock" means any and all shares, interests, participations, rights
or other equivalents of corporate stock, including with respect to partnerships,
partnership interests, whether general or limited, and any other interest or
participation that confers on a person the right to receive a share of the
profits and losses of, or distributions of assets of, such partnership.
"Cash Equivalents" means:
(a) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the U.S.
government having maturities of not more than six months from the date
of acquisition;
(b) (1) certificates of deposit and eurodollar time deposits with
maturities of six months or less from the date of acquisition,
(2) bankers acceptances with maturities not exceeding six months from
the date of acquisition and (3) overnight bank deposits, in each case
with any domestic commercial bank having capital and surplus in excess
of $500 million;
(c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (a) and
(b) entered into with any financial institution meeting the
qualifications specified in clause (b) above;
(d) commercial paper or commercial paper master notes having a rating of at
least P-2 or the equivalent of that rating by Moody's Investors
Service, Inc. or at least A-2 or the equivalent of that rating by
Standard & Poor's Corporation and in each case maturing within six
months after the date of acquisition;
(e) money market mutual funds that provide daily purchase and redemption
features; and
(f) corporate debt with maturities of not greater than six months and with
a rating of at least A or the equivalent of that rating by Standard &
Poor's Corporation and a rating of at least A2 or the equivalent of
that rating by Moody's Investors Service, Inc.
"Change of Control" means the occurrence of any of the following:
(a) the sale, lease or transfer, in one or a series of related
transactions, of all or substantially all of our assets to any person
or group, as the term is used in Section 13(d)(3) of the Securities
Exchange Act;
60
<PAGE>
(b) the adoption of a plan relating to our liquidation or dissolution;
(c) the acquisition by any person or group, as the term is used in
Section 13(d)(3) of the Securities Exchange Act, of a direct or
indirect interest in more than 50% of the ownership or the voting power
of our voting stock by way of purchase, merger or consolidation or
otherwise, other than a creation of a holding company that does not
involve a change in our beneficial ownership due to the transaction;
(d) our merger or consolidation with or into another corporation or merger
of another corporation into us with the effect that immediately after
that transaction our existing stockholders immediately before the
transaction hold less than 50% of the total voting power of all
securities generally entitled to vote in the election of directors,
managers or trustees of the person surviving the merger or
consolidation; or
(e) the first day on which a majority of the members of our board of
directors are not Continuing Directors.
"Consolidated Cash Flow" means, with respect to any person for any period,
the Consolidated Net Income of the person for the period together with:
(a) an amount equal to any extraordinary loss plus any net loss realized in
connection with an Asset Sale, to the extent the losses were deducted
in computing Consolidated Net Income; plus
(b) provisions for taxes based on the income or profits of the person for
the period, to the extent the provision for taxes was included in
computing Consolidated Net Income; plus
(c) Consolidated Interest Expense of the person for the period to the
extent the expense was deducted in computing Consolidated Net Income;
plus
(d) Consolidated Depreciation and Amortization Expense of the person for
the period, to the extent deducted in computing Consolidated Net
Income; less
(e) noncash items increasing the Consolidated Net Income for the period in
each case, on a consolidated basis for the person and its Restricted
Subsidiaries, and determined as provided by GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or
profits of, the depreciation and amortization of and the interest expense of, a
Restricted Subsidiary of the referent person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow (a) only to the extent, and in the same
proportion, that the Net Income of the Restricted Subsidiary was included in
calculating the Consolidated Net Income of that person, (b) only if a
corresponding amount would be permitted at the date of determination to be
dividended to that person by the Restricted Subsidiary without prior
governmental approval, and (c) without direct or indirect restriction under the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Restricted Subsidiary or its stockholders. Any calculation of the Consolidated
Cash Flow of an individual hotel property shall be calculated in a manner
consistent with the foregoing.
"Consolidated Current Liabilities" as of the date of determination means
the aggregate amount of our liabilities and those of our consolidated
subsidiaries which may properly be classified as current liabilities, including
taxes payable as accrued, on a consolidated basis, after eliminating:
(i) all intercompany items between us and any subsidiary; and
(ii) all current maturities of long-term Indebtedness.
"Consolidated Depreciation and Amortization Expense" means, with respect to
any person for any period, the total amount of depreciation and amortization
expense, including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period, and the
total amount of non-cash charges, other than non-cash charges that represent an
accrual or reserve for cash charges in future periods or which involved a cash
expenditure in a prior period, of such person and its Restricted Subsidiaries
for the period on a consolidated basis as determined as provided by GAAP.
61
<PAGE>
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (a) interest expense, whether paid or
accrued, to the extent the expense was deducted in computing Consolidated Net
Income, including amortization of original issue discount, non-cash interest
payments, the interest component of Capital Lease Obligations, and net payments
(if any) under Hedging Obligations, but excluding amortization of deferred
financing fees, (b) commissions, discounts and other fees and charges paid or
accrued with respect to letters of credit and bankers acceptance financing and
(c) interest for which such person or its Restricted Subsidiary is liable,
whether or not actually paid, under Indebtedness or under a guarantee of
Indebtedness of any other person, in each case, calculated for such Person and
its Restricted Subsidiaries for the period on a consolidated basis as determined
as provided by GAAP.
"Consolidated Net Income" means, with respect to any person for any period,
the aggregate of the Net Income of such person and its Restricted Subsidiaries
for the period, on a consolidated basis, determined as provided by GAAP, except
that the following shall be excluded:
(a) the Net Income of any person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting shall be
excluded, whether or not distributed to us or one of our Restricted
Subsidiaries;
(b) the Net Income of any person that is a Restricted Subsidiary and that
is restricted from declaring or paying dividends or other
distributions, directly or indirectly, by operation of the terms of its
charter, any applicable agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation or otherwise shall be included
only to the extent of the amount of dividends or distributions paid to
the referent person or a Restricted Subsidiary;
(c) the Net Income of any person acquired in a pooling-of-interests
transaction for any period before the date of the acquisition shall be
excluded; and
(d) the cumulative effect of changes in accounting principles shall be
excluded.
"Consolidated Net Tangible Assets" as of any date of determination, means
the total amount of assets, less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other similar
items properly deducted in determining net assets, which would appear on a
consolidated balance sheet of our company and our consolidated subsidiaries,
determined on a consolidated basis as provided by GAAP, and after giving effect
to purchase accounting and after deducting therefrom Consolidated Current
Liabilities and, to the extent otherwise included, the amounts of:
(a) minority interests in consolidated subsidiaries held by persons other
than us or a subsidiary;
(b) excess of cost over fair value of assets of businesses acquired, as
determined in good faith by our board of directors;
(c) any revaluation or other write-up in book value of assets after the
date of the Original Indenture from a change in the method of valuation
as provided by GAAP consistently applied;
(d) unamortized debt discount and expenses and other unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names,
copyrights, licenses, organization or developmental expenses and other
intangible items;
(e) treasury stock; and
(f) cash set apart and held in a sinking or other analogous fund
established for the purpose of redemption or other retirement of
Capital Stock to the extent the obligation is not reflected in
Consolidated Current Liabilities.
"Consolidated Net Worth" means, with respect to any person, as of any date
of determination, the sum of:
(a) the consolidated equity of the common stockholders of such person and
its consolidated subsidiaries as of the date; plus
(b) the respective amount reported on that person's balance sheet as of the
date with respect to any series of Preferred Stock, other than
Disqualified Stock, that by its terms is not entitled to the
62
<PAGE>
payment of dividends unless those dividends may be declared and paid
only out of net earnings in respect of the year of the declaration and
payment, but only to the extent of any cash received by such Person
upon issuance of the Preferred Stock; less
(1) all write-ups, other than write-ups resulting from foreign
currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of
the business, after the date of the Original Indenture in the book
value of any asset owned by such person or a consolidated
subsidiary of that person,
(2) all Investments as of the date in unconsolidated subsidiaries and
in persons that are not subsidiaries, except, in each case,
Permitted Investments; and
(3) all unamortized debt discount and expense and unamortized deferred
charges as of that date, all of the foregoing determined as
provided by GAAP.
"Continuing Directors" means, as of any date of determination, any member
of our board of directors who:
(a) was a member of our board of directors on the date of the Original
Indenture; or
(b) was nominated for election or elected to the board of directors with
the affirmative vote of at least a majority of the Continuing Directors
who were members of our board at the time of the nomination or
election.
"Designated Senior Debt" means:
(a) Indebtedness under or in respect of our senior credit facility; and
(b) any other Indebtedness constituting Senior Debt which, at the time of
determination, has an aggregate principal amount of at least
$25.0 million and is specifically designated in the instrument
evidencing the Senior Debt as our "Designated Senior Debt."
"Disqualified Stock" means any capital stock, other than OP Units and
Preferred OP Units, which by its terms, or by the terms of any security into
which it is convertible or for which it is exchangeable, or upon the happening
of any event, matures or is mandatorily redeemable, under a sinking fund
obligation or otherwise, or redeemable at the option of the holder of the stock,
in whole or in part, on or before the first anniversary of the date on which the
outstanding notes and exchange notes mature.
"Equity Interests" means capital stock and all warrants, options or other
rights to acquire Capital Stock, but excluding any debt security that is
convertible into, or exchangeable for Capital Stock.
"Event Of Loss" means, with respect to any property or asset, any of the
following: (a) any loss, destruction or damage of the property or asset or
(b) any actual condemnation, seizure or taking by the power of eminent domain or
otherwise of the property or asset, or confiscation of the property or asset or
the requisition of the use of the property or asset.
"Existing Indebtedness" means our Indebtedness and that of our Restricted
Subsidiaries in existence on the date of the Original Indenture after giving
effect to the use of proceeds of the offering of the outstanding notes and
excluding, for this purpose, amounts outstanding under our senior credit
facility as in effect on the date of the Original Indenture.
"Existing Preferred OP Units" means Preferred OP Units issued and
outstanding on the date of the Original Indenture.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Consolidated Cash Flow of that person for the period to
the Fixed Charges of such person for the period. If we or any of our Restricted
Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness, other than
revolving credit borrowings that provide working capital in the ordinary course
of business, or issues or redeems Preferred Stock after the commencement of the
period for which the Fixed Charge Coverage Ratio is being calculated but before
the date on which the event for which the calculation of the Fixed Charge
Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage
Ratio shall be calculated as adjusted for the incurrence, assumption, guarantee
or redemption of Indebtedness, or the issuance or
63
<PAGE>
redemption of Preferred Stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. For purposes of making the
computation referred to above, acquisitions, dispositions and discontinued
operations, as determined as provided by GAAP, that have been made by us or any
of our Restricted Subsidiaries, including all mergers, consolidations and
dispositions, during the four-quarter reference period or after the reference
period and on or before the Calculation Date, shall be calculated on a pro forma
basis assuming that all the acquisitions, dispositions, discontinued operations,
mergers, consolidations, and the reduction of any associated fixed charge
obligations resulting therefrom, had occurred on the first day of the
four-quarter reference period.
"Fixed Charges" means, with respect to any person for any period, the sum
of:
(a) Consolidated Interest Expense of that person and its Restricted
Subsidiaries for the period, whether paid or accrued, to the extent the
expense was deducted in computing Consolidated Net Income; and
(b) the product of:
(1) all cash dividend or distribution payments on any series of
Preferred Stock of that person or its Restricted Subsidiaries,
other than Preferred Stock owned by that person or its Restricted
Subsidiaries; multiplied by
(2) a fraction, the numerator of which is one and the denominator of
which is one minus the then-current combined federal, state and
local statutory tax rate of that person, expressed as a decimal,
in each case, on a consolidated basis and as provided by GAAP;
however, if the cash dividend or distribution on the Preferred
Stock is deductible for federal tax purposes, then the fraction
shall be equal to one.
"GAAP" means generally accepted accounting principles described in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in other statements by another
entity as have been approved by a significant segment of the accounting
profession, which were in effect on the date of the Original Indenture.
"Guarantor" means a Restricted Subsidiary that becomes a guarantor of the
notes under the terms of the indenture, and its successor, if any.
"Hedging Obligations" means, with respect to any person, the obligations of
that person under (a) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (b) other agreements or
arrangements designed to protect that person against fluctuations in interest
rates or currency exchange rates.
"Hospitality-Related Business" means the lodging business and other
businesses necessary for, incident to, in support of, connected with,
complementary to or arising out of the lodging business, including:
(a) developing, managing, operating, improving or acquiring lodging
facilities, restaurants and other food-service facilities and
convention or meeting facilities, and marketing services related to
these facilities;
(b) acquiring, developing, operating, managing or improving any real estate
taken in foreclosure, or similar settlement, by us or any of our
Restricted Subsidiaries, or any real estate ancillary or connected to
any lodging owned, managed or operated by us or any of our Restricted
Subsidiaries; or
(c) owning and managing mortgages in, or other Indebtedness secured by
Liens on, lodging and real estate related or ancillary to lodging or
"Indebtedness" means, with respect to any person, any indebtedness of that
person, whether or not contingent, (a) in respect of borrowed money, (b)
evidenced by bonds, notes, debentures or similar instruments or letters of
credit, or reimbursement agreements in respect of the above, (c) representing
Capital Lease Obligations or the balance deferred and unpaid of the purchase
price of any property or (d) representing any Hedging Obligations, except any
balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing indebtedness, other than letters of credit and
Hedging
64
<PAGE>
Obligations, would appear as a liability upon a balance sheet of that person
prepared as provided by GAAP. Indebtedness also includes, to the extent not
otherwise included, the guarantee of any Indebtedness of such person or any
other person.
"Investments" means, with respect to any person, all investments by that
person in other persons, including Affiliates, in the forms of loans (including
guarantees), advances or capital contributions, excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business, purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared as provided by GAAP. If we
or any of our Restricted Subsidiaries sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of ours with the
result that, after giving effect to any sale or disposition, we no longer own,
directly or indirectly, greater than 50% of the outstanding common stock of the
Restricted Subsidiary, we shall be deemed to have made an Investment on the date
of any sale or disposition equal to the fair market value of the common stock of
the Restricted Subsidiary not sold or disposed of.
"Lien" means, with respect to any asset, or income or profits therefrom,
any mortgage, lien, pledge, charge, security interest or encumbrance of any kind
in respect of the asset, whether or not filed, recorded or otherwise perfected
under applicable law, including any conditional sale or other title retention
agreement, any lease in the nature of a conditional sale or title retention
agreement, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"Make-Whole Amount" with respect to a note means an amount equal to the
excess, if any, of:
(a) the present value of the remaining interest, premium and principal
payments due on that note as if that note were redeemed on August 15,
2002, computed using a discount rate equal to the Treasury Rate plus
62.5 basis points; over
(b) the outstanding principal amount of that note.
"Make-Whole Price" with respect to a note means the greater of:
(a) the sum of the outstanding principal amount and the Make-Whole Amount
of that note; and
(b) the redemption price of that note on August 15, 2002, determined under
the indenture (104.375% of the principal amount).
"Net Income" means, with respect to any person, the net income (loss) of
that person, determined as provided by GAAP and before any reduction in respect
of Preferred Stock dividends, but excluding, any gain (but not loss), together
with any related provision for taxes on the gain (but not loss) realized in
connection with any Asset Sale, and also excluding any extraordinary gain (but
not loss), together with any related provision for taxes on the extraordinary
gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by us or any of
our Restricted Subsidiaries in respect of any Asset Sale, net of the direct
costs relating to the Asset Sale, including legal, accounting and investment
banking fees and sales commissions; and any relocation expenses incurred as a
result of the sale, taxes paid or payable as a result of the sale, after taking
into account any available tax credits or deductions and any tax sharing
arrangements; amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets the subject of the Asset Sale and any
reserve for adjustment in respect of the sale price of the asset or assets.
"Non-Recourse Indebtedness" means Indebtedness (a) as to which neither we
nor any of our Restricted Subsidiaries (1) provides credit support, other than
in the form of a Lien on an asset serving as security for Non-Recourse
Indebtedness under any undertaking, agreement or instrument that would
constitute Indebtedness, (2) is directly or indirectly liable, other than in the
form of a Lien on an asset serving as security for Non-Recourse Indebtedness, or
(3) constitutes the lender and (b) no default with respect to which, including
any rights that the holders thereof may have to take enforcement action against
an Unrestricted Subsidiary, would permit any holder of any of our other
Indebtedness or that of any of our Restricted Subsidiaries to declare a default
on the other Indebtedness or cause the payment of the Indebtedness to be
accelerated or payable before its stated maturity.
65
<PAGE>
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OP Units" means limited partnership interests in MeriStar Hospitality
Operating Partnership, L.P. or any successor operating partnership that require
the issuer of the interests to pay dividends or distributions which are tied to
dividends paid on our common stock and which by their terms may be converted
into, or exercised or redeemed for, cash or our common stock.
"Original Indenture" means the Indenture dated as of August 19, 1997, as
amended by the First Supplemental Indenture, between CapStar Hotel Company, as
our predecessor, and IBJ Whitehall Bank & Trust Company, as trustee.
"Permitted Investments" means any (a) Investments in us, (b) Investments in
any Restricted Subsidiary, (c) such Investments in Cash Equivalents,
(d) Investments by us or any of our Restricted Subsidiaries in a person, if as a
result of such Investment (1) the person becomes one of our Restricted
Subsidiaries, or (2) the person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, us or one of our Restricted Subsidiaries, (e) Investments in
Unrestricted Subsidiaries or Permitted Joint Ventures, but only if the
Investments are in entities solely or principally engaged in Hospitality-Related
Businesses and the aggregate of the Investments does not exceed the greater of
(1) $25.0 million or (2) 5% of Consolidated Net Tangible Assets and
(f) Investments in Unrestricted Subsidiaries formed to acquire the Radisson
Plaza, Lexington, Kentucky, the Embassy Suites Center City, Philadelphia and the
Doubletree Hotel, Austin, in an aggregate amount not to exceed $50.0 million.
"Permitted Joint Venture" means any corporation, partnership, limited
liability company or partnership or other similar entity formed to hold lodging
properties for which we hold a related management contract in which we own less
than a 50.1% interest.
"Permitted Refinancing" means Refinancing Indebtedness or Refinancing
Disqualified Stock, as the case may be, to the extent:
(a) the principal amount of Refinancing Indebtedness or the liquidation
preference amount of Refinancing Disqualified Stock, as the case may
be, does not exceed the principal amount of Indebtedness or the
liquidation preference amount of Disqualified Stock, as the case may
be, so extended, refinanced, renewed, replaced, defeased or refunded,
plus the amount of premiums and reasonable expenses incurred in
connection with the Refinancing;
(b) the Refinancing Indebtedness or Refinancing Disqualified Stock, as the
case may be, is scheduled to mature or is redeemable at the option of
the holder, as the case may be, no earlier than the Indebtedness or
Disqualified Stock, as the case may be, being refinanced;
(c) in the case of Refinancing Indebtedness, the Refinancing Indebtedness
has a Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(d) in the case of Refinancing Disqualified Stock, the Disqualified Stock
has a Weighted Average Life to Mandatory Redemption equal to or greater
than the Weighted Average Life to Mandatory Redemption of the
Disqualified Stock being extended, refinanced, renewed, replaced,
defeased or refunded;
(e) if the Indebtedness or the Disqualified Stock, as the case may be,
being extended, refinanced, renewed, replaced, defeased or refunded is
subordinated or junior in right of payment to the notes, the
Refinancing Indebtedness or Refinancing Disqualified Stock, as the case
may be, is subordinated or junior in right of payment to the notes on
terms at least as favorable to the holders of notes as those contained
in the documentation governing the Indebtedness or the Disqualified
Stock, as the case may be, being extended, refinanced, renewed,
replaced, defeased or refunded; and
(f) the Refinancing Indebtedness or Refinancing Disqualified Stock is
incurred or issued either by us or by a Restricted Subsidiary who is
the obligor on the Indebtedness or Disqualified Stock being extended,
refinanced, renewed, replaced, defeased or refunded.
66
<PAGE>
"Preferred OP Units" means limited partnership interests in MeriStar
Hospitality Operating Partnership, L.P. or any successor operating partnership
that require the issuer of the units to pay regularly scheduled fixed
distributions on the units, which are not related to dividends on our common
stock, and which by their terms may be converted into, or exercised or redeemed
for, cash or our common stock.
"Preferred Stock" means (a) any Equity Interest with preferential right in
the payment of dividends or distributions or upon liquidation, and (b) any
Disqualified Stock.
"Refinancing Disqualified Stock" means Disqualified Stock issued in
exchange for, or the proceeds of which are used, to extend, refinance, renew,
replace, defease or refund, Disqualified Stock or Indebtedness permitted to be
issued under the Fixed Charge Coverage Ratio test described in the first
paragraph of the covenant described under the caption "--Covenants--Incurrence
of Indebtedness and Issuance of Certain Capital Stock" or Indebtedness referred
to in clauses (c), (e), (g), (i) and (j) of the second paragraph of the
covenant.
"Refinancing Indebtedness" means Indebtedness issued in exchange for, or
the proceeds of which are used to extend, refinance renew, replace, defease or
refund, Indebtedness permitted to be incurred under the Fixed Charge Coverage
Ratio test described in the covenant described under the caption "--Covenants--
Incurrence of Indebtedness and Issuance of Certain Capital Stock" or
Indebtedness referred to in clauses (c), (e), (g), (i) and (j) of the second
paragraph of the covenant described under the caption "--Covenants--Incurrence
of Indebtedness and Issuance of Certain Capital Stock."
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of Designated Senior Debt; however, if, and for so
long as, any Designated Senior Debt lacks a representative, then the
Representative for that Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of that Designated Senior
Debt in respect of any Designated Senior Debt.
"Restricted Investments" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a person means any Subsidiary of the referent
person that is not an Unrestricted Subsidiary.
"Senior Debt" means, in the case of us or any Guarantor, the principal of,
premium, if any, and interest, including any interest accruing after the filing
of a petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not the interest is an allowed claim under
applicable law, on any of our Indebtedness, whether outstanding on March 18,
1999 or later created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or under
which the same is outstanding expressly provides that the Indebtedness shall not
be senior in right of payment to the notes. "Senior Debt" shall also include the
principal of, premium, if any, interest, including any interest accruing after
the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not the interest is an allowed
claim under applicable law, on, and all other amounts owing in respect of:
(a) all Obligations of every nature of ours under our senior credit
facility, including obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, whether outstanding on March 18, 1999 or later incurred;
and
(b) all Hedging Obligations, including Guarantees of the Hedging
Obligations, whether outstanding on March 18, 1999 or later incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of ours or any Guarantor to a subsidiary of ours
or any Affiliate of ours or any of that Affiliate's subsidiaries;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of ours or any subsidiary of ours or
any Guarantor, including amounts owed for compensation;
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) any liability for federal, state, local or other taxes owed or
owing by us or any Guarantor,
67
<PAGE>
(5) that portion of Indebtedness incurred in violation of the
indenture provisions described under "--Covenants--Incurrence of
Indebtedness and Issuance of Certain Capital Stock"; however, in
the case of this clause (5):
(A) any Indebtedness issued to any person who had no actual
knowledge that the incurrence of the Indebtedness was not
permitted under the indenture and who received on the date of
issuance thereof a certificate from our Chief Financial Officer
that the issuance of the Indebtedness would not violate the
Indenture shall constitute Senior Debt; and
(B) any Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument
inadvertently, except in the case of daylight overdrafts, drawn
against insufficient funds in the ordinary course of business
shall constitute Senior Debt if the Indebtedness is
extinguished within three business days of occurrence;
(6) any Indebtedness which is, by its express terms, junior in right
of payment to any other Indebtedness or that of any Guarantor; and
(7) the Existing Notes issued under the Original Indenture.
For purposes of this definition, with respect to any person referred to in
clause (5) (A) that is a lender to us under our senior credit facility, "actual
knowledge" shall mean only receipt by a lending officer of the Syndication
Agent, defined in our senior credit facility, with significant responsibility
for the Syndication Agent's loans under the credit agreement of written notice
from any of our Responsible Officers (defined in the credit agreement, stating
or indicating through mathematical calculation that the incurrence of additional
Indebtedness under the credit agreement is not permitted under the indenture,
which notice has not subsequently been withdrawn.
"Significant Subsidiary" means any subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
under the Securities Act of 1933, as such Regulation is in effect on the date of
the Original Indenture.
"Treasury Rate" is defined as the yield to maturity at the time of the
computation of United States Treasury securities with a constant maturity, as
compiled by and published in the most recent Federal Reserve Statistical Release
H.15(519), which has become publicly available at least two business days before
the date the redemption notice or, if the Statistical Release is no longer
published, any publicly available source of similar market date, most nearly
equal to the then remaining maturity of the notes assuming redemption of the
notes on August 15, 2002; however, if the Make-Whole Average Life of that note
is not equal to the constant maturity of a United States Treasury security for
which the yields are given, the Treasury Rate shall be obtained by linear
interpolation calculated to the nearest one-twelfth of a year from the weekly
average yields of United States Treasury securities for which the yields are
given, except that if the Make-Whole Average Life of that notes is less than one
year, the weekly average yield on actually traded United State Treasury
securities adjusted to a constant maturity of one year shall be used.
"Make-Whole Average Life" means the number of years, calculated to the nearest
one-twelfth, between the date of redemption and August 15, 2002.
"Unrestricted Subsidiary" means (a) any subsidiary that is, or has been
under the Original Indenture, designated by the board of directors as an
Unrestricted Subsidiary under a board resolution, but only to the extent that
the Subsidiary:
(1) has no Indebtedness other than Non-Recourse Indebtedness;
(2) is not party to any agreement or understanding with us or any of
our Restricted Subsidiaries unless the terms of the agreement or
understanding are no less favorable to us or the Restricted
Subsidiary than those that might be obtained at the same time from
persons who are not our affiliates;
(3) is a person with respect to which neither we nor any of our
Restricted Subsidiaries has any direct or indirect obligation
(A) to subscribe for additional Equity Interests or (B) to
maintain or preserve that person's financial condition or to cause
that person to achieve any specified levels of operating results,
other than under agreements relating to the management of hotels
entered
68
<PAGE>
into between Restricted Subsidiaries and Unrestricted Subsidiaries
in the ordinary course of the subsidiaries' business, consistent
with past practice; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any of our Indebtedness or that of any of our
Restricted Subsidiaries.
Any designation by our board of directors made after March 18, 1999 shall
be evidenced to the trustee by filing with the trustee a certified copy of the
board resolution giving effect to that designation and an officer's certificate
certifying that the designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption
"Covenants--Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
indenture and any Indebtedness of that subsidiary shall be deemed to be incurred
by one of our Restricted Subsidiaries as of that date, and, if the Indebtedness
is not permitted to be incurred as of that date under the covenant described
under the caption "--Covenants--Incurrence of Indebtedness and Issuance of
Certain Capital Stock," we shall be in default of the covenant.
Our board of directors may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary, but the designation will be deemed to
be an incurrence of Indebtedness by one of our Restricted Subsidiaries of any
outstanding Indebtedness of the Unrestricted Subsidiary, and the designation
shall only be permitted if (a) the Indebtedness is permitted under the covenant
described under the caption "--Covenants--Incurrence of Indebtedness and
Issuance of Certain Capital Stock," and (b) no default or event of default would
be in existence following the designation.
"Weighted Average Life to Mandatory Redemption" means, when applied to any
Disqualified Stock at any date, the number of years obtained by dividing (a) the
sum of the products obtained by multiplying (1) the amount of each
then-remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect of the
amount by (2) the number of years, calculated to the nearest one-twelfth, that
will elapse between that date and the making of the payment, by (b) the then-
outstanding liquidation preference amount of the Disqualified Stock.
"Weighted Average Life To Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (1) the amount of each then-remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect of the amount, by (2)
the number of years, calculated to the nearest one twelfth, that will elapse
between that date and the making of the payment, by (b) the then-outstanding
principal amount of the Indebtedness.
BOOK-ENTRY, DELIVERY AND FORM
Except as described below, we will initially issue the exchange notes in
the form of one or more registered exchange notes in global form without
coupons. We will deposit each global note on the date of the closing of the
exchange offer with, or on behalf of, The Depository Trust Company in New York,
New York, and register the exchange notes in the name of The Depository Trust
Company or its nominee, or will leave such notes in the custody of the trustee.
Depository Procedures
We are providing you with the following description of the operations and
procedures of The Depository Trust Company, Euroclear and Cedel solely as a
matter of convenience. These operations and procedures are solely within the
control of the respective settlement systems and are subject to change by them
from time to time. We take no responsibility for these operations and procedures
and urge you to contact the system or their participants directly to discuss
these matters.
The Depository Trust Company has advised us that it is a limited-purpose
trust company created to hold securities for its participating organizations,
and to facilitate the clearance and settlement of transactions in those
securities between direct participants through electronic book-entry changes in
accounts of participants. The direct participants include securities brokers and
dealers, including the initial purchasers, banks, trust
69
<PAGE>
companies, clearing corporations and certain other organizations, including
Euroclear and Cedel. Access to The Depository Trust Company's system is also
available to other entities that clear through or maintain a direct or indirect,
custodial relationship with a direct participant. The Depository Trust Company
may hold securities beneficially owned by other persons only through the direct
participants or indirect participants and such other persons' ownership interest
and transfer of ownership interest will be recorded only on the records of the
direct participant and/or indirect participant, and not on the records
maintained by The Depository Trust Company.
The Depository Trust Company has also advised us that, pursuant to its
procedures, (a) upon deposit of the global notes, The Depository Trust Company
will credit the accounts of the direct participants with an interest in the
global notes, and (b) The Depository Trust Company will maintain records of the
ownership interests of these direct participants in the global notes and the
transfer of ownership interests by and between direct participants. The
Depository Trust Company will not maintain records of the ownership interests
of, or the transfer of ownership interests by and between, indirect participants
or other owners of beneficial interests in the global notes. Direct and indirect
participants must maintain their own records of ownership interests of, and the
transfer of ownership interests by and between, indirect participants and other
owners of beneficial interests in the global notes.
Investors in the global notes may hold their interests in these notes
directly through The Depository Trust Company if they are direct participants in
The Depository Trust Company or indirectly through organizations, including
Euroclear and Cedel, that are direct participants in The Depository Trust
Company. Euroclear and Cedel will hold interests in the global notes on behalf
of their participants through customers' securities accounts in their respective
names on the books of their respective depositories, which are Morgan Guaranty
Trust Company of New York, Brussels office, as operator of Euroclear, and
Citibank, N.A., as operator of Cedel. All interests in a global note, including
those held through Euroclear or Cedel, may be subject to the procedures and
requirements of The Depository Trust Company. Interests held through Euroclear
or Cedel may also be subject to the procedures and requirements of these
systems.
The laws of some states require that certain persons may take physical
delivery in definitive, certificated form, of securities that they own. This may
limit or curtail the ability to transfer beneficial interests in a global note
to these persons. Because The Depository Trust Company can act only on behalf of
direct participants, which in turn act on behalf of indirect participants and
others, the ability of a person having a beneficial interest in a global note to
pledge this interest to persons or entities that are not direct participants in
The Depository Trust Company, or to otherwise take actions in respect of these
interests, may be affected by the lack of physical certificates evidencing these
interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS OF THE NOTES UNDER THE INDENTURE FOR ANY PURPOSE.
Payments with respect to the principal of, premium, if any, and interest
on, any exchange notes represented by a global note registered in the name of
The Depository Trust Company or its nominee on the applicable record date will
be payable by the trustee to or at the direction of The Depository Trust Company
or its nominee in its capacity as the registered holder of the global note
representing the exchange notes under the indenture. Under the terms of the
indenture, we and the trustee will treat the persons in whose names the notes
are registered, including notes represented by global notes, as the owners
thereof for the purpose of receiving payments and for any and all other purposes
whatsoever. Payments in respect of the principal, premium, liquidated damages,
if any, and interest on global notes registered in the name of The Depository
Trust Company or its nominee will be payable by the trustee to The Depository
Trust Company or its nominee as the registered holder under the indenture.
Consequently, none of us, the trustee or any of our agents, or the trustee's
agents has or will have any responsibility or liability for (a) any aspect of
The Depository Trust Company's records or any direct participant's or indirect
participant's records relating to or payments made on account of beneficial
ownership interests in the global notes or for maintaining, supervising or
reviewing any of The Depository Trust Company's records or any direct or
indirect participant's records relating to the beneficial ownership interests in
any global note or (b) any other matter
70
<PAGE>
relating to the actions and practices of The Depository Trust Company or any of
its direct or indirect participants.
The Depository Trust Company has advised us that its current practice, upon
receipt of any payment in respect of securities such as the notes, including
principal and interest, is to credit the accounts of the relevant participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in the principal amount of beneficial interest in the
relevant security as shown on the records of The Depository Trust Company,
unless The Depository Trust Company has reason to believe it will not receive
payment on the payment date. Payments by the direct and indirect participants to
the beneficial owners of interests in the global note will be governed by
standing instructions and customary practice and will be the responsibility of
the direct or indirect participants, as the case may be, and will not be the
responsibility of The Depository Trust Company, the trustee or us.
None of us or the trustee will be liable for any delay by The Depository
Trust Company or any direct or indirect participant in identifying the
beneficial owners of the related exchange notes and we and the trustee may
conclusively rely on, and will be protected in relying on, instructions from The
Depository Trust Company for all purposes, including with respect to the
registration and delivery, and the respective principal amounts, of the exchange
notes.
Cross-market transfers between the participants in The Depository Trust
Company, on the one hand, and Euroclear or Cedel participants, on the other
hand, will be effected through The Depository Trust Company in accordance with
The Depository Trust Company's rules on behalf of Euroclear or Cedel, as the
case may be, by its respective depositary. However, these cross market
transactions will require delivery of instructions to Euroclear or Cedel, as the
case may be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines, Brussels time, of such system.
Euroclear or Cedel, as the case may be, will, if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant global note in The Depository Trust Company and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to The Depository Trust Company. Euroclear participants
and Cedel participants may not deliver instructions directly to the depositories
for Euroclear or Cedel.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of notes only at the direction of one or more
participants to whose account The Depository Trust Company has credited the
interests in the global notes and only in respect of such portion of the
aggregate principal amount of the notes as to which such participant or
participants has or have given such direction. However, if there is an Event of
Default with respect to the notes, The Depository Trust Company reserves the
right to exchange the global notes for legended notes in certificated form, and
to distribute such notes to its participants.
Although The Depository Trust Company, Euroclear and Cedel have agreed to
the foregoing procedures to facilitate transfers of interests in the Regulation
S global notes and in the global notes among participants in The Depository
Trust Company, Euroclear and Cedel, they are under no obligation to perform or
to continue to perform these procedures, and these procedures may be
discontinued at any time. None of us, the trustee or any of our or the trustee's
respective agents will have any responsibility for the performance by The
Depository Trust Company, Euroclear or Cedel or their respective participants of
their respective obligations under the rules and procedures governing their
operations.
Exchange of Book-Entry Notes for Certificated Notes
A global note is exchangeable for definitive notes in registered
certificated form if:
o The Depository Trust Company notifies us that it is unwilling or unable
to continue as depository for the global notes and we fail to appoint a
successor depository within 90 days; or
o The Depository Trust Company ceases to be a clearing agency registered
under the Securities Exchange Act of 1934; or
o we elect to cause the issuance of the certificated notes upon a notice to
the trustee; or
71
<PAGE>
o a default or event of default under the notes has occurred and is
continuing; or
o such a request is made but only upon prior written notice given to the
trustee by or on behalf of The Depository Trust Company in accordance
with the indenture.
In all cases, certificated notes delivered in exchange for any global note
or beneficial interests in a global note will be registered in the names, and
issued in any approved denominations, requested by or on behalf of the
depositary, in accordance with its customary procedures.
Exchange of Certificated Notes for Book-Entry Notes
Notes issued in certificated form may not be exchanged for beneficial
interests in any global note unless the transferor first delivers to the trustee
a written certificate, in the form provided in the indenture, to the effect that
the transfer will comply with the appropriate transfer restrictions applicable
to the notes.
Same Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the global notes, including principal, premium, if any, and interest, be made by
wire transfer of immediately available funds to the accounts specified by the
holder of the global notes. With respect to notes in certificated form, we will
make all payments of principal, premium, if any, and interest on the notes at
our office or agency maintained for such purpose within the city and state of
New York, initially the office of the paying agent maintained for such purpose,
or, at our option, by check mailed to the holders thereof at their respective
addresses set forth in the register of holders of notes. However, we are
required to make all payments of principal, premium, if any, and interest on
notes in certificated form the holders of which have given us wire transfer
instructions, by wire transfer of immediately available funds to the accounts
specified by the holders thereof.
The notes represented by the global notes are expected to be eligible to
trade in The Depository Trust Company's Same-Day Funds Settlement System, and
any permitted secondary market trading activity in such notes will, therefore,
be required by The Depository Trust Company to be settled in immediately
available funds. We expect that secondary trading in any certificated notes will
also be settled in immediately available funds. Transfers between participants
in The Depository Trust Company will be effected in accordance with The
Depository Trust Company's procedures, and will be settled in same day funds,
and transfers between participants in Euroclear and Cedel will be effected in
the ordinary way in accordance with their respective rules and operating
procedures.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a global note from a direct or
indirect participant in The Depository Trust Company will be credited, and any
such crediting will be reported to the relevant Euroclear or Cedel participant,
during the securities settlement processing day, which must be a business day
for Euroclear and Cedel, immediately following the settlement date of The
Depository Trust Company. The Depository Trust Company has advised us that cash
received in Euroclear or Cedel as a result of sales of interests in a global
note by or through a Euroclear or Cedel participant to a participant in The
Depository Trust Company will be received with value on the settlement date of
The Depository Trust Company but will be available in the relevant Euroclear or
Cedel cash account only as of the business day for Euroclear or Cedel following
The Depository Trust Company's settlement date.
72
<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following discussion summarizes certain United States federal income
and estate tax considerations that may be relevant to the exchange of
outstanding notes for exchange notes pursuant to the exchange offer and to the
purchase, ownership and disposition of the exchange notes by U.S. and non-U.S.
holders, each as defined below. The following discussion does not purport to be
a full description of all United States federal income and estate tax
considerations that may be relevant to the purchase, holding and disposition of
the exchange notes and does not address any other taxes that might be applicable
to a holder of the exchange notes, such as tax consequences arising under the
tax laws of any state, locality or foreign jurisdiction. In the opinion of Paul,
Weiss, Rifkind, Wharton & Garrison, special United States tax counsel to our
company, the discussion accurately reflects the material United States federal
income tax consequences to U.S. and non-U.S. holders of the consummation of the
exchange offer and the ownership and disposition of the exchange notes. We
cannot assure you that the United States Internal Revenue Service will take a
similar view of these consequences. Further, this discussion does not address
all aspects of federal income and estate taxation that may be relevant to
particular holders of outstanding notes or exchange notes in light of their
personal circumstances and does not deal with persons that are subject to
special tax rules, such as dealers in securities, financial institutions,
insurance companies, tax-exempt entities, persons holding the outstanding notes
or exchange notes as part of a hedging or conversion transaction, a straddle or
a constructive sale and persons whose functional currency is not the United
States dollar. The discussion below assumes that the Notes are held as capital
assets within the meaning of section 1221 of the Internal Revenue Code.
The discussion of the United States federal income and estate tax
considerations below is based on currently existing provisions of the Internal
Revenue Code, the applicable Treasury regulations promulgated and proposed under
the Internal Revenue Code, judicial decisions and administrative
interpretations, all of which are subject to change, possibly on a retroactive
basis. Because individual circumstances may differ, you are strongly urged to
consult your tax advisor with respect to your particular tax situation and the
particular tax effects of any state, local, non-United States or other tax laws
and possible changes in the tax laws.
As used herein, a U.S. holder means a beneficial owner of an exchange note
who is, for United States federal income tax purposes:
o a citizen or resident of the United States;
o a corporation or partnership created or organized in or under the laws of
the United States or of any political subdivision thereof;
o an estate the income of which is subject to United States federal income
taxation regardless of its source; or
o a trust if either (a) a court within the United States 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 or (b) the trust has a valid election
in effect under applicable Treasury regulations to be treated as a United
States person.
As used herein, a non-U.S. holder means a beneficial owner of an exchange note
who is not a U.S. holder.
FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of the outstanding notes for exchange notes pursuant to the
exchange offer will not be treated as a taxable event to holders. Consequently,
no gain or loss will be realized by a holder upon receipt of an exchange note,
the holding period of the exchange note will include the holding period of the
outstanding note exchanged for the exchange note and the adjusted tax basis of
the exchange note will be the same as the adjusted tax basis, immediately before
the exchange, of the outstanding note exchanged for such exchange note.
73
<PAGE>
TAX CONSIDERATIONS FOR U.S. HOLDERS
Stated Interest and Original Issue Discount
Each outstanding note was issued with original issue discount in an amount
equal to the excess of the stated redemption price at maturity of the
outstanding note over the issue price of the outstanding note. The stated
redemption price at maturity of an outstanding note generally is equal to its
stated principal amount. The issue price of an outstanding note is the first
price at which a substantial amount of the outstanding notes were sold. For
purposes of determining the issue price of an outstanding note, sales to a bond
house, broker or similar person or organization acting in the capacity of an
underwriter, placement agent or wholesaler to the public were ignored. Original
issue discount on an outstanding note will continue to be included in income by
a U.S. holder of the exchange note issued in exchange for the outstanding note
under the rules summarized in the following paragraph.
A U.S. holder generally will be required to include in gross income the
stated interest on an exchange note at the time that such interest accrues or is
received, in accordance with the U.S. holder's regular method of accounting for
federal income tax purposes. A U.S. holder of an exchange note also will be
required to include original issue discount on an outstanding note in gross
income as it accrues, prior to the receipt of payments attributable to such
income and regardless of the U.S. holder's regular method of accounting for
federal income tax purposes. The amount of original issue discount accruing
during each interest payment period is determined using the constant yield
method of accrual. Under this method, U.S. holders of exchange notes will be
required to include in income increasing amounts of original issue discount in
successive accrual periods.
Sale, Exchange or Retirement of the Exchange Notes
A U.S. holder's tax basis in an exchange note generally will be its cost,
increased by the amount of original issue discount previously taken into income
by the U.S. holder and decreased by any payments that are not payments of stated
interest. A U.S. holder generally will recognize gain or loss on the sale,
exchange or retirement of an exchange note in an amount equal to the difference
between the amount of cash plus the fair market value of any property received,
other than any such amount received in respect of accrued interest (which will
be taxable as such if not previously included in income), and the U.S. holder's
tax basis in the exchange note. Gain or loss recognized on the sale, exchange or
retirement of an exchange note generally will be capital gain or loss. In the
case of a noncorporate U.S. holder, the federal tax rate applicable to capital
gains will depend upon the holder's holding period for the exchange notes, with
a preferential rate available for exchange notes held for more than one year,
and upon the holder's marginal tax rate for ordinary income. The deductibility
or capital losses is subject to limitations.
TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
Generally, payments of principal or interest, which for purposes of this
discussion includes original issue discount, on the exchange notes by us or our
paying agent to a non-U.S. holder will not be subject to U.S. federal income or
income withholding tax, if, in the case of interest:
o such non-U.S. holder does not actually own, and is not deemed to own
under applicable Internal Revenue Code rules, 10% or more of the combined
voting power of all classes of our stock entitled to vote;
o such non-U.S. holder is not, for United States federal income tax
purposes, a controlled foreign corporation related to us either through
actual stock ownership or deemed to be related to us through stock
ownership under applicable Internal Revenue Code rules;
o such non-U.S. holder is not a bank whose receipt of interest is described
in section 881(c)(3)(A) of the Internal Revenue Code; and
o either (a) the non-U.S. holder provides us or our agent with an Internal
Revenue Service form W-8, or a suitable substitute form, signed under
penalties of perjury that includes its name and address and certifies as
to its non-United States status in compliance with applicable law and
Treasury regulations
74
<PAGE>
or (b) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of
its trade or business holds the exchange note and provides a statement to
us or our agent signed under penalties of perjury in which such
organization, bank or financial institution certifies that such a Form
W-8 or suitable substitute has been received by it from the non-U.S.
holder or from another financial institution acting on behalf of the
non-U.S. holder and furnishes us or our agent with a copy thereof.
If these requirements cannot be met, a non-U.S. holder usually will be
subject to United States federal income withholding tax at a rate of 30%, or
such lower rate provided by an applicable treaty, with respect to payments of
interest, including original issue discount, on the exchange notes.
New Treasury regulations generally effective for payments made after
December 31, 1999 provide alternative methods for satisfying the certification
requirements described above. The Internal Revenue Service recently issued a
notice announcing the intent of the Treasury Department and the Internal Revenue
Service to amend these regulations so that they normally will not apply to
payments made before January 1, 2001. These regulations also will require, in
the case of exchange notes held by a foreign partnership, that the certification
be provided by the partners rather than by the foreign partnership and that the
partnership provide specified information, including a U.S. taxpayer
identification number.
A non-U.S. holder generally will not be subject to United States federal
income or income withholding tax on gain realized on the sale, exchange,
redemption, retirement or other disposition of an exchange note, unless the
non-U.S. holder is an individual who is present in the United States for 183
days or more in the taxable year of the disposition, and other applicable
conditions are met, or the gain is effectively connected with the conduct by the
non-U.S. holder of a trade or business in the United States.
Notwithstanding the above, if a non-U.S. holder is engaged in a trade or
business in the United States and if interest, including original issue
discount, on the exchange note or gain realized on the disposition of the
exchange note, is effectively connected with the conduct of the trade or
business, the non-U.S. holder usually will be subject to regular United States
federal income tax on such interest or gain in the same manner as if it were a
U.S. holder, unless an applicable treaty provides otherwise. In addition, if the
non-U.S. holder is a foreign corporation, it may be subject to a branch profits
tax equal to 30%, or a lower rate provided by an applicable treaty, of its
effectively connnected earnings and profits for the taxable year, with specified
adjustments. Even though the effectively connected income is subject to income
tax, and may be subject to the branch profits tax, it generally is not subject
to income withholding if the non-U.S. holder delivers a properly executed
Internal Revenue Service Form 4224, or other form applicable under the new
regulations described above, to the payor.
An exchange note held by an individual non-U.S. holder who at the time of
death is not a United States citizen or resident, as defined for United States
federal estate tax purposes, will not be subject to United States federal estate
taxation as a result of the individual's death unless the individual actually
owns, or is deemed to own under applicable Internal Revenue Code rules, 10% or
more of the combined voting power of all classes of our stock entitled to vote
or the interest on the exchange note is effectively connected with the conduct
by the individual of a trade or business in the United States.
TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS AND NON-U.S. HOLDERS
Information Reporting and Backup Wtihholding
Certain noncorporate U.S. holders generally will be subject to information
reporting and might be subject to a 31% backup withholding tax with respect to
certain payments on, and the proceeds of disposition of, an exchange note.
Backup withholding will apply only if the U.S. holder:
o fails to furnish its taxpayer identification number which, for an
individual, would be his Social Security number;
o furnishes an incorrect taxpayer identification number;
75
<PAGE>
o is notified by the Internal Revenue Service that it has failed to
properly report payments of interest or dividends; or
o in some circumstances, fails to certify, under penalties of perjury, that
it has furnished a correct taxpayer identification number 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 and information reporting generally will not apply to
payments made by us or our paying agent on an exchange note to a non-U.S. holder
if the certification described under "Tax Considerations for Non-U.S. Holders"
is provided or the non-U.S. holder otherwise establishes an exemption and the
payor does not have actual knowledge that the holder is a U.S. holder or that
the conditions of any other exemption are not, in fact, satisfied. The payments
of proceeds from the disposition of an exchange note to or through a non-United
States office of a broker, as defined in applicable Treasury regulations, that
is a United States person, a controlled foreign corporation for United States
federal income tax purposes, a foreign person 50% or more of whose gross income
from all sources for certain periods is from activities effectively connected
with the conduct of a United States trade or business or, under the new
regulations described above, a foreign partnership if either (a) more than 50%
of the income or capital interests are owned by U.S. holders or (b) such
partnership has certain connections to the United States, will be subject to
information reporting requirements unless such broker has documentary evidence
in its files of the holder's non-U.S. holder status and has no actual knowledge
to the contrary or the non-U.S. holder otherwise establishes an exemption. Under
current Treasury regulations, backup withholding will not apply to any payment
of the proceeds from the sale of an exchange note made to or through a foreign
office of a broker. However, under the new regulations described above, backup
withholding might apply if the broker has actual knowledge that the payee is a
U.S. holder. Payments of the proceeds from the sale of an exchange note to or
through the United States office of a broker are subject to information
reporting and possible backup withholding unless the holder certifies, under
penalties of perjury, that it is not a U.S. holder and that certain other
conditions are met or otherwise establishes an exemption, provided that the
broker does not have actual knowledge that the holder is a U.S. holder or that
the conditions of any other exemption are not, in fact, satisfied.
Holders of exchange notes should consult their tax advisors regarding the
application of backup withholding in their particular situation, the
availability of an exemption from backup withholding and the procedure for
obtaining such an exemption, if available.
The amount of any backup withholding will be allowed as a credit against
the holder's United States federal income tax liability and may entitle the
holder to a refund if the required information is furnished to the Internal
Revenue Service.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX
ADVICE. ACCORDINGLY, YOU SHOULD CONSULT YOUR TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO YOU OF THE EXCHANGE OFFER AND OF PURCHASING, HOLDING AND
DISPOSING OF THE OUTSTANDING NOTES OR THE EXCHANGE NOTES INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR NON-UNITED STATES TAX LAWS AND
ANY RECENT OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account under
the exchange offer in exchange for outstanding notes acquired by it through
market making or other trading activities may be deemed to be an underwriter
within the meaning of the Securities Act and, therefore, must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales, offers to resell or other transfers of the exchange notes received by
it in the exchange offer. Accordingly, each broker-dealer must acknowledge that
it will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of these exchange notes. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act. This propectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in
76
<PAGE>
exchange for outstanding notes where these outstanding notes were acquired
through market-making activities or other trading activities. We have agreed
that, starting on the completion of the exchange offer, and ending on the close
of business 180 days after the completion of the exchange offer, we will be make
this prospectus, as amended or supplemented, available to any broker-dealer for
use in connection with any resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
under the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of these methods
of resale, at market prices prevailing at the time of resale, at prices related
to these prevailing market prices or negotiated prices. Any resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any broker-dealer
and/or the purchasers of any exchange notes. Any broker-dealer that resells
exchange notes that were received by it for its own account under the exchange
offer and any broker or dealer that participates in a distribution of these
exchange notes may be deemed to be an underwriter within the meaning of the
Securities Act and any profit of any resale of exchange notes and any
commissions or consessions received by any persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
underwriter within the meaning of the Securities Act.
For a period of 180 days after the completion of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests these documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer, other than commissions or concessions of any brokers or dealers,
and will indemnify the holders of the notes, including any broker-dealers,
against specific liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York will issue an
opinion about the validity of the exchange notes and an opinion about certain
federal tax matters with respect to the exchange notes.
EXPERTS
The consolidated financial statements and supplementary schedule of our
company and our subsidiaries as of December 31, 1998 and 1997, and for each of
the years in the three-year period ended December 31, 1998, have been
incorporated by reference in this document and the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
incorporated by reference in this document, and upon the authority of said firm
as experts in accounting and auditing.
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 that we file at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. Please call
1-800-SEC-0330 for further information on the operation of the Public Reference
Room. Reports, proxy statements and other information regarding issuers that
file electronically with the Securities and Exchange Commission, including our
filings, are also available to the public from the Securities and Exchange
Commission's Web site at "http://www.sec.gov."
Our common stock is listed on the New York Stock Exchange and these
reports, proxy statements and other information can also be inspected at the
office of the New York Stock Exchange, 20 Broad Street, New York, New York
10005.
77
<PAGE>
We have filed with the Securities and Exchange Commission a registration
statement on Form S-4 covering the exchange notes. This prospectus is a part of
our registration statement of our company. As allowed by the Securities and
Exchange Commission rules, this prospectus does not contain all the information
you can find in the registration statement or the exhibits to the registration
statement.
THE SECURITIES AND EXCHANGE COMMISSION ALLOWS US TO "INCORPORATE BY
REFERENCE" THE INFORMATION WE FILE WITH THEM, WHICH MEANS THAT WE CAN DISCLOSE
IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT US TO YOU THAT IS NOT
INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS 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 filing 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 following the date of this
prospectus and prior to the termination of the exchange offer:
1. Our Annual Report on Form 10-K filed by us for the fiscal year ended
December 31, 1998; and
2. Our Definitive Proxy Statement on Schedule 14A filed by us on April 2,
1999.
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.
Pursuant to the indenture, we have agreed to provide the trustee and
holders of the outstanding notes and exchange notes with annual, quarterly and
other reports at the times and containing in all material respects the
information specified in Sections 13 and 15(d) of the Securities Exchange Act
and to file such reports with the Securities and Exchange Commission, whether or
not we are subject to such filing requirements.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT OUR COMPANY THAT DIFFERS FROM OR ADDS TO THE INFORMATION IN
THIS PROSPECTUS OR IN OUR DOCUMENTS OR THE DOCUMENTS THAT WE PUBLICLY FILE WITH
THE SECURITIES AND EXCHANGE COMMISSION. THEREFORE, IF ANYONE DOES GIVE YOU
DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
THE INFORMATION CONTAINED IN THIS PROSPECTUS SPEAKS ONLY AS OF ITS DATE
UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE APPLIES.
78
<PAGE>
[LOGO]
EXCHANGE OFFER FOR $55,000,000
OF ITS 8 3/4% SENIOR SUBORDINATED NOTES
DUE 2007
------------------------------
PROSPECTUS
MAY 26, 1999
------------------------------
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of MeriStar Hospitality Corporation since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
