AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1996
REGISTRATION NO. 333-6583
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
CAPSTAR HOTEL COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7011 52-1979383
(State of incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
-------------------
1010 WISCONSIN AVENUE, N.W.
WASHINGTON, DC 20007
(202) 965-4455
(Address and telephone number of Registrant's principal executive offices)
-------------------
PAUL W. WHETSELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CAPSTAR HOTEL COMPANY
1010 WISCONSIN AVENUE, N.W.
WASHINGTON, DC 20007
(202) 965-4455
(Name, address and telephone number of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD S. BORISOFF, ESQ. J. WARREN GORRELL, JR., ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON ALAN L. DYE, ESQ.
1285 AVENUE OF THE AMERICAS HOGAN & HARTSON L.L.P.
NEW YORK, NEW YORK 10019-6064 555 THIRTEENTH STREET, N.W.
(212) 373-3000 WASHINGTON, DC 20004-1109
(202) 637-5600
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
-------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains a Prospectus relating to a public
offering in the United States and Canada (the "U.S. Offering") of an aggregate
of 7,400,000 shares of common stock (the "Common Stock") of CapStar Hotel
Company together with separate Prospectus pages relating to a concurrent
offering outside the United States and Canada of an aggregate of 1,850,000
shares of Common Stock (the "International Offering"). The complete Prospectus
for the U.S. Offering follows immediately. After such Prospectus are the
following alternate pages for the International Offering: a front cover page and
a back cover page. All other pages of the Prospectus for the U.S. Offering are
to be used for both the U.S. Offering and the International Offering.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 31, 1996
PROSPECTUS
9,250,000 SHARES
[CAPSTAR HOTEL COMPANY LOGO]
COMMON STOCK
-------------------
CapStar Hotel Company ("CapStar" or the "Company") is a hotel investment and
management company which acquires, owns, renovates, repositions and manages
hotels throughout the United States. CapStar owns 12 upscale, full-service
hotels (the "Owned Hotels") which contain 3,516 rooms. The Company has entered
into a contract to acquire five additional hotels (the "Additional Hotels")
which contain 1,121 rooms. Including the Owned Hotels, the Company manages 48
hotels (the "Hotels") with 8,849 rooms. The Company's business strategy is to
identify and acquire hotel properties with the potential for cash flow growth
and to renovate, reposition and operate each hotel according to a business plan
specifically tailored to the characteristics of the hotel and its market.
Of the 9,250,000 shares of common stock, par value $.01 per share (the
"Common Stock") offered hereby, 1,850,000 shares are initially being offered
outside the United States and Canada (the "International Offering") by the
Managers (as defined herein) and 7,400,000 shares are being offered in the
United States and Canada (the "U.S. Offering") by the U.S. Underwriters (as
defined herein). See "Underwriting". Of the shares of Common Stock offered,
6,750,000 are being sold by the Company and 2,500,000 are being sold by the
Selling Stockholder (as defined herein). See "Principal Stockholders and Selling
Stockholder." Prior to the Offering (as defined herein), there has been no
public market for the Common Stock. It is currently estimated that the initial
public offering price per share will be between $17 and $20. See "Underwriting"
for a discussion of the factors to be considered in determining the initial
public offering price.
The Common Stock has been approved for listing on the New York Stock
Exchange ("NYSE"), under the symbol "CHO," subject to official notice of
issuance.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING ON PAGE
11.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
[CAPTION]
<TABLE>
<S> <C> <C> <C> <C>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share....... $ - $ - $ - $ -
Total(3)........ $ - $ - $ - $ -
</TABLE>
+
(1) The Company and the Selling Stockholder have agreed to indemnify the several
U.S. Underwriters and International Managers against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ - .
(3) The Company has granted the U.S. Underwriters and the International Managers
a 30-day option to purchase up to 1,387,500 additional shares on the same
terms and conditions as set forth above solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to the Company will be
$ - , $ - and $ - , respectively. See "Underwriting."
-------------------
The shares of Common Stock offered by this Prospectus are offered by the
several U.S. Underwriters, subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
U.S. Underwriters and to certain further conditions. It is expected that
delivery of the shares will be made at the offices of Lehman Brothers Inc., in
New York, New York on or about - , 1996.
-------------------
LEHMAN BROTHERS
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SMITH BARNEY INC.
-------------------
- , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[PHOTOGRAPHS/MAPS AND CAPTIONS TO COME]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this
Prospectus assumes (i) the completion of the Formation Transactions (as defined
herein) and (ii) that the over-allotment option granted to the Underwriters will
not be exercised. Unless the context otherwise requires, references herein to
"CapStar" or the "Company" include CapStar Hotel Company and its subsidiaries,
and, for the periods prior to the Formation Transactions, CapStar Management
Company, L.P. ("CapStar Management"), EquiStar Hotel Investors, L.P.
("EquiStar") and the limited liability companies and limited partnerships that
own the Owned Hotels (as defined herein). The offering by the Company and the
Selling Stockholder of an aggregate of 9,250,000 shares of Common Stock in the
U.S. Offering and International Offering is referred to herein as the
"Offering." All statistics in this Prospectus relating to the lodging industry
generally (other than Company statistics) are from, or have been derived from,
information published or provided by Smith Travel Research, an independent
industry research organization. Smith Travel Research has not consented to the
use of the data presented in this Prospectus. Smith Travel Research has not
provided any form of consultation, advice or counsel regarding any aspect of the
Offering, and is in no way associated with the Offering.
THE COMPANY
CapStar is a hotel investment and management company which acquires, owns,
renovates, repositions and manages hotels throughout the United States. CapStar
owns 12 upscale, full-service hotels (the "Owned Hotels") which contain 3,516
rooms. Including the Owned Hotels, the Company manages 48 hotels (the "Hotels")
with 8,849 rooms. The Company's business strategy is to identify and acquire
hotel properties with the potential for cash flow growth and to renovate,
reposition and operate each hotel according to a business plan specifically
tailored to the characteristics of the hotel and its market. Each of the Owned
Hotels is located in a market which has recently experienced strong economic
growth, including Atlanta, Charlotte, Chicago, Cleveland, Dallas, Los Angeles,
Salt Lake City, Seattle and Washington, D.C. The Owned Hotels include hotels
operated under nationally recognized brand names such as Hilton(R), Sheraton(R),
Westin(R), Marriott(R), Holiday Inn(R) and Radisson(R), and one hotel operated
under an independent brand name. In the six months ended June 30, 1996, the
operating performance of the Owned Hotels improved significantly, as
demonstrated by the 7.5% increase in revenues, 14.1% increase in gross operating
profit, and 12.5% increase in revenue per available room ("RevPAR") over the
comparable year earlier period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------- PERCENTAGE
1996 1995 INCREASE
------- ------- ----------
<S> <C> <C> <C>
Revenues (in thousands)....................... $58,099 $54,036 7.5%
Gross operating profit (in thousands)......... $17,594 $15,415 14.1%
Average Occupancy............................. 73.3% 71.9% 1.9%
Average Daily Rate ("ADR").................... $ 82.47 $ 74.73 10.4%
RevPAR........................................ $ 60.45 $ 53.73 12.5%
</TABLE>
Additionally, the performance of the Owned Hotels compares favorably with
that of the industry in general. For the five months ended May 31, 1996 (the
most recent period for which industry information is currently available),
RevPAR for the Owned Hotels increased 12.6%, while RevPAR for all upscale
hotels, as reported by Smith Travel Research, increased 5.8%.
As a fully integrated owner and manager, CapStar intends to capitalize on
its management experience and expertise by continuing to make opportunistic
acquisitions of full-service hotels, securing
3
<PAGE>
additional management contracts and improving the operating performance of the
Hotels. The Company's senior management team has successfully managed hotels in
all segments of the lodging industry, with particular emphasis on upscale,
full-service hotels. Senior management has an average of approximately 19 years
of experience in the hotel industry. Since the inception of the Company's
management business in 1987, the Company has achieved consistent growth, even
during periods of relative industry weakness. The Company attributes its
management success to its ability (i) to analyze each hotel as a unique property
and identify those particular cash flow growth opportunities which each hotel
presents, (ii) to create and implement marketing plans that properly position
each hotel within its local market, and (iii) to develop management programs
that emphasize guest service, labor productivity, revenue yield and cost
control. The Company has a distinct management culture that stresses creativity,
loyalty and entrepreneurship and was developed to emphasize operations from an
owner's perspective. This culture is reinforced by the fact that 33 members of
management will own an aggregate of 7.8% of the Company's equity upon completion
of the Offering. See "Principal Stockholders and Selling Stockholder."
The Company is in the process of renovating and repositioning the Owned
Hotels based on strategic plans designed to address the opportunities presented
by each hotel and local market. Management selects renovations intended to
result in a high return on investment and to extend the Owned Hotels' appeal to
a broader range of market segments. Examples of these revenue generating
renovations include the following: enhancing meeting and banquet facilities to
attract lucrative group conferences and conventions; upgrading guest rooms to
meet the needs of business travelers and to increase ADRs; renovating
restaurants and introducing new food and beverage concepts to attract additional
guests and local patrons; and completing necessary repairs and upgrades of
interior and exterior spaces to ensure high levels of quality and guest
satisfaction. During the 18 months ended June 30, 1996, the Company spent a
total of $14.0 million on renovations at the Owned Hotels and intends to spend
an additional $15.8 million completing the renovation programs.
The Company believes that the upscale, full-service segment of the lodging
industry is the most attractive segment in which to acquire, own and manage
hotels and further believes that there are currently many attractive
opportunities to acquire properties in this segment of the industry at prices
below replacement cost. The upscale, full-service segment is attractive for
several reasons. First, the Company expects that there will be no significant
increases in the supply of upscale, full-service hotels in the next several
years because the cost of new construction generally does not justify new hotel
development. 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. Third,
because full-service hotels have a higher proportion of fixed costs to variable
costs than other segments of the lodging industry, full-service hotels afford
greater operating leverage than limited-service hotels, resulting in
increasingly higher profit margins as revenues increase. Finally, full-service
hotels require a greater depth of management expertise than limited-service
hotels, and the Company believes that its superior management skills provide it
with a significant competitive advantage in their operation.
In connection with its growth strategy, the Company has entered into a
binding contract with MBL Life Assurance Corporation ("MBL") to acquire five
upscale, full-service hotels (the "Additional Hotels") which contain 1,121
rooms, for a purchase price of $68.4 million. Four of the Additional Hotels have
been managed by the Company since 1991. Since assuming management of these four
hotels, the Company has improved the operating performance of the properties.
However, the Company believes that, with appropriate capital spending, the
Additional Hotels can achieve further improvements in revenue and cash flow. The
Company plans to spend approximately $3.7 million subsequent to the acquisition
to renovate and reposition the Additional Hotels. The acquisition is scheduled
to close, subject to customary closing conditions, in December 1996. There can
be no assurance, however, that
4
<PAGE>
the closing will occur. See "Risk Factors--Risks Associated with Expansion" and
"Business and Properties--The Properties--The Additional Hotels."
BUSINESS AND PROPERTIES
The Company seeks to increase shareholder value by (i) continuing to acquire
upscale, full-service hotels below replacement cost in selected markets
throughout the United States and (ii) implementing its operating strategy to
improve hotel operations and increase cash flow.
ACQUISITION STRATEGY
The Company intends to continue acquiring upscale, full-service hotels. In
addition to the direct acquisition of hotels, the Company anticipates that it
may make investments in hotels through joint ventures with strategic business
partners or through equity contributions or secured loans. The Company
identifies acquisition candidates located in markets with economic, demographic
and supply dynamics favorable to hotel owners and operators. Through its
extensive due diligence process, the Company chooses those acquisition targets
where it believes selective capital improvements and intensive 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, senior management and individual
operations teams create detailed plans covering all areas of renovation and
operation. These plans serve as the basis for the Company's acquisition
decisions and guide subsequent renovation and operating plans. At the Owned
Hotels, the Company has been able to implement these plans and apply its system
of management to create improvements in revenue and profitability.
The Company expects that its relationships throughout the industry and its
acquisition staff located on both coasts of the United States will continue to
provide it with a competitive advantage in identifying, evaluating and
purchasing hotels which meet its acquisition criteria. The Company has a record
of successfully renovating and repositioning hotels, both at the Owned Hotels
and at the Hotels that are managed, but not owned, by the Company (the "Managed
Hotels"), varying in levels of service, room rates and market types. As a public
company, the Company believes it will have improved access to various debt and
equity financing sources to fund acquisitions. In addition, in consummating
acquisitions the Company expects that it will benefit from its ability to
utilize units of limited partnership interest in its subsidiary Operating
Partnership (as defined herein) as an alternative to cash. The Company is
currently negotiating with Bankers Trust Company ("Bankers Trust"), The First
National Bank of Boston and Wells Fargo Bank (together the "Banks") to obtain a
new $225 million revolving credit facility (the "Credit Facility"), under which
capital will be available to pursue acquisitions and make capital investments in
subsequently acquired hotels. See "Risk Factors--Risk of Debt Financing; No
Limits on Indebtedness." The Company currently expects to retain earnings for
future acquisitions and the renovation and maintenance of the hotels it owns.
OPERATING STRATEGY
The Company's principal operating objectives are to generate higher RevPAR
and to increase net operating income while providing its hotel guests with
high-quality service and value. The Company seeks to achieve these objectives by
creating and executing management plans that are specifically tailored for each
individual Hotel rather than by implementing an operating strategy that is
designed to maintain a uniform corporate image or brand. The Company believes
that its custom-tailored business plans are the most effective means of
addressing the needs of a given hotel or market. The Company believes that
skilled management of hotel operations is the most critical element in
maximizing revenue and cash flow in full-service hotels.
5
<PAGE>
The Company's corporate headquarters carries out financing and acquisition
activities and provides services to support as well as monitor the Company's
on-site operating executives. Each of the Company's executive departments,
including Sales and Marketing, Human Resources and Training, Food and Beverage,
Technical Services, Development, and Corporate Finance, is headed by an
executive with significant experience in that area. These departments support
decentralized decision-making by the hotel operating executives by providing
accounting and budgeting services, property management software and other
resources which cannot be economically maintained at the individual Hotels.
THE PROPERTIES
The following table sets forth certain information for each of the Owned
Hotels and the Additional Hotels for the 12 months ended June 30, 1996:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, 1996
--------------------
GUEST AVERAGE
HOTEL LOCATION ROOMS ADR OCCUPANCY
- --------------------------------------------- --------------------- ----- ------- ---------
<S> <C> <C> <C> <C>
OWNED HOTELS
Orange County Airport Hilton................. Irvine, CA 290 $ 73.61 65.1%
Sheraton Hotel............................... Colorado Springs, CO 502 63.57 68.5
Georgetown Latham............................ Washington, DC 143 102.60 73.2
Westin Hotel, Atlanta Airport................ Atlanta, GA 496 71.64 84.1
Radisson Hotel............................... Schaumburg, IL 202 69.23 62.7
Marriott Hotel............................... Somerset, NJ 434 96.49 72.3
Sheraton Airport Plaza....................... Charlotte, NC 226 79.02 73.9
Holiday Inn.................................. Cleveland, OH 237 66.96 75.2
Hilton Hotel................................. Arlington, TX 310 79.01 75.1
Salt Lake Airport Hilton..................... Salt Lake City, UT 287 75.13 71.3
Hilton Hotel................................. Arlington, VA 209 105.35 76.3
Hilton Hotel................................. Bellevue, WA 180 86.31 78.1
----- ------- ---
Total/Weighted Average--Owned Hotels........ 3,516 $ 78.89 73.2%
ADDITIONAL HOTELS
Hilton Hotel................................. Sacramento, CA 326 $ 74.53 71.2%
Santa Barbara Inn............................ Santa Barbara, CA 71 125.13 84.0
Holiday Inn.................................. Colorado Springs, CO 201 56.54 72.3
Embassy Row Hotel............................ Washington, DC 195 113.88 58.0
Hilton Hotel & Towers........................ Lafayette, LA 328 67.90 72.3
----- ------- ---
Total/Weighted Average--Additional Hotels... 1,121 $ 78.72 70.3%
----- ------- ---
Total/Weighted Average 4,637 $ 78.85 72.5%
----- ------- ---
----- ------- ---
</TABLE>
The Company's principal executive offices are located at 1010 Wisconsin
Avenue, N.W., Suite 650, Washington, DC 20007, and its telephone number is (202)
965-4455.
6
<PAGE>
STRUCTURE OF THE COMPANY
Upon consummation of the Formation Transactions, the Company's structure
will be as follows:
CAPSTAR HOTEL COMPANY(1)
NON-AFFILIATED
LIMITED PARTNERS
100% General and Limited
0% L.P.(2) Partner Interest
CAPSTAR MANAGEMENT COMPANY, L.P.
("CAPSTAR MANAGEMENT" OR THE "OPERATING PARTNERSHIP")
100%
THE OWNED HOTELS(3)
- ------------
(1) For a description of the transactions relating to the organization of the
Company and its structure, see "Formation Transactions."
(2) Immediately following the Formation Transactions, no limited partnership
units will be held by non-affiliated limited partners. However, in the
future, the Company may seek to acquire additional properties and issue
limited partnership units in payment of some or all of the purchase price
therefor. Such units may be redeemed, subject to certain conditions, for
cash or shares of Common Stock.
(3) Immediately following the closing of the Offering, all of the Owned Hotels
(except the Westin Hotel, Atlanta Airport (the "Westin Atlanta Airport"))
will be wholly-owned by the Company through separate limited liability
company and partnership subsidiaries. The Westin Atlanta Airport is
majority-owned by the Company through a partnership in which the Company
holds an 85.2% limited partner interest, 1% general partner interest and a
mortgage which together provide the Company a 92% economic interest in the
hotel.
7
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered by the
Company............................. 6,750,000 shares
Common Stock Offered by the
Selling Stockholder............... 2,500,000 shares(1)
Common Stock to be Outstanding after
the Offering........................ 12,754,321 shares(2)
Use of Proceeds..................... The net proceeds of the Offering to be received by
the Company will be used to repay a portion of the
Company's currently outstanding indebtedness under a
credit facility that was provided by Lehman Brothers
Holdings, Inc. ("Lehman Holdings"), an affiliate of
Lehman Brothers Inc. ("Lehman").
NYSE Symbol......................... "CHO"
</TABLE>
- ------------
(1) The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Stockholder in the Offering.
(2) Does not include up to 1,387,500 shares of Common Stock subject to an
over-allotment option granted to the Underwriters. See "Underwriting."
8
<PAGE>
SUMMARY FINANCIAL AND OTHER INFORMATION
Prior to the Formation Transactions and the Offering, the business of the
Company was conducted through EquiStar Hotel Investors, L.P. ("EquiStar"), which
owned 11 of the Owned Hotels, and CapStar Management Company, L.P. ("CapStar
Management"), which managed the Hotels. CapStar Management has been in the hotel
management business since 1987. EquiStar, however, was not formed until January
12, 1995 and the Company did not own any hotels in any prior periods. Therefore,
the Company's financial statements prior to 1995 reflect only the management
business of CapStar Management. In 1994, the Company began to invest in
additional professional staff and incurred related costs in order to position
itself to acquire hotel properties. From January 12, 1995 through June 30, 1996,
the Company acquired 11 hotels on various dates. Thus, the historical financial
statements for the period ended December 31, 1995 and the six months ended June
30, 1996 and 1995 reflect differing numbers of Owned Hotels throughout the
periods. The unaudited pro forma financial statements for 1995 and the six
months ended June 30, 1996 reflect the operations of the Owned Hotels and the
Additional Hotels for the entire periods.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------- ----------------------------
PRO PRO
FORMA FORMA
1991 1992 1993 1994 1995 1995(A) 1995 1996 1996(A)
------ ------ ------ ------ --------- --------- ------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues:
Rooms.......................... $ 0 $ 0 $ 0 $ 0 $ 14,456 $ 91,861 $ 1,929 $ 28,121 $ 49,642
Food, beverage and other....... 0 0 0 0 7,471 51,919 754 16,049 26,768
Management services and other
revenues........................ 2,692 3,479 4,234 4,418 4,436 3,274 2,128 2,087 1,681
------ ------ ------ ------ --------- --------- ------- -------- ---------
Total revenues............. 2,692 3,479 4,234 4,418 26,363 147,054 4,811 46,257 78,091
------ ------ ------ ------ --------- --------- ------- -------- ---------
Operating costs and expenses:
Departmental expenses:
Rooms.......................... 0 0 0 0 4,190 24,214 528 7,365 12,613
Food, beverage and other....... 0 0 0 0 5,437 40,790 506 11,391 20,476
Undistributed operating costs:
Selling, general and
administrative.................. 2,239 2,836 4,065 4,508 8,078 31,808 2,463 9,457 15,600
Property operating costs....... 0 0 0 0 3,934 21,681 511 7,497 12,381
Depreciation and
amortization.................... 16 12 14 23 2,098 11,867 303 3,919 5,979
------ ------ ------ ------ --------- --------- ------- -------- ---------
Total operating costs and
expenses........................ 2,255 2,848 4,079 4,531 23,737 130,360 4,311 39,629 67,049
------ ------ ------ ------ --------- --------- ------- -------- ---------
Operating income/(loss)......... 437 631 155 (113) 2,626 16,694 500 6,628 11,042
Interest expense, net........... 28 0 0 0 2,413 10,433 334 7,290 5,166
Minority interest............... 0 0 0 0 (17) (59) 0 (68) (31)
Provision for income taxes(B)... 0 0 0 0 0 2,528 0 0 2,363
Income/(loss) before
extraordinary item.............. 409 631 155 (113) 230 3,792 166 (594) 3,544
Extraordinary item(C)........... 0 0 0 0 (887) 0 0 0 0
Net income/(loss)............... 409 631 155 (113) (657) 3,792 166 (594) 3,544
------ ------ ------ ------ --------- --------- ------- -------- ---------
------ ------ ------ ------ --------- --------- ------- -------- ---------
Net income per common share..... -- -- -- -- -- $ 0.30 -- -- $ .28
OTHER FINANCIAL DATA:
EBITDA(D)....................... $ 453 $ 643 $ 169 $ (90) $ 4,724 $ 28,561 $ 803 $ 10,547 $ 17,021
Net cash provided by (used in)
operating activities........... 182 87 (101) 66 4,357 19,721 90 3,891 11,338
Net cash used in investing
activities...................... (16) (65) (24) (41) (116,573) (282,963) (46,108) (95,625) (173,741)
Net cash provided by (used in)
financing activities........... 19 (219) 244 0 119,048 282,809 47,900 89,809 173,370
BALANCE SHEET DATA:
Property and equipment, gross... $ 98 $ 110 $ 134 $ 176 $ 110,883 -- $40,703 $195,304 $ 283,558
Total assets.................... 740 586 1,458 1,232 132,650 -- 54,113 231,736 308,420
Long term obligations........... 219 0 0 0 73,574 -- 25,680 164,892 126,957
</TABLE>
9
<PAGE>
SUMMARY FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------- ---------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(A) 1995 1996 1996(A)
------- -------- -------- -------- -------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Owned Hotels:
Number of hotels........... -- -- -- -- 6 17 3 11 17
Number of guest rooms...... -- -- -- -- 2,101 4,637 991 3,307 4,637
Total revenues (in
thousands).................. -- -- -- -- $ 21,927 $ 143,780 $ 2,683 $44,170 $76,410
Average occupancy.......... -- -- -- -- 72.3% 71.8% 76.8% 72.7% 73.0%
ADR(E)..................... -- -- -- -- $ 71.58 $ 75.59 $ 72.28 $ 80.56 $ 81.99
RevPAR(F).................. -- -- -- -- $ 51.75 $ 54.27 $ 55.51 $ 58.57 $ 59.85
All Hotels(G):
Number of hotels(H)........ 23 34 34 39 46 -- -- -- --
Number of guest rooms(H)... 3,893 5,918 5,971 5,847 7,895 -- -- -- --
Total revenues (in
thousands).................. $65,405 $109,837 $123,124 $128,151 $170,888 -- -- -- --
Certain Managed Hotels(I):
Number of hotels........... -- -- 18 18 18 -- -- -- --
Number of guest rooms...... -- -- 2,967 2,967 2,967 -- -- -- --
Total revenues (in
thousands).................. -- -- $ 40,691 $ 44,453 $ 46,905 -- -- -- --
Average occupancy.......... -- -- 69.7% 70.6% 70.7% -- -- -- --
ADR(E)..................... -- -- $ 56.99 $ 60.33 $ 63.71 -- -- -- --
RevPAR(F).................. -- -- $ 39.72 $ 42.59 $ 45.04 -- -- -- --
</TABLE>
- ------------
<TABLE>
<C> <S>
(A) The pro forma Operating Results, Other Financial Data and Operating Data for the six
months ended June 30, 1996 and for the year ended December 31, 1995 have been prepared
as if the Formation Transactions, the Offering, the acquisition of the Owned Hotels and
the Additional Hotels, and the execution of the Credit Facility had been consummated at
the beginning of the periods presented, and the pro forma Balance Sheet Data as of June
30, 1996 has been prepared as if the Formation Transactions, the Offering, the
acquisition of the Owned Hotels and the Additional Hotels, and the execution of the
Credit Facility had been consummated on such date.
(B) No provision for federal income taxes is included in the historical data because CapStar
Management and EquiStar are partnerships and all federal income tax liabilities were
passed through to the individual partners.
(C) During 1995, the Company's loan facility was refinanced, and the write-off of deferred
costs associated with the prior facility was recorded as an extraordinary loss.
(D) EBITDA represents earnings before interest expense, income taxes, depreciation and
amortization. Management believes that EBITDA is a useful measure of operating
performance because it is industry practice to evaluate hotel properties based on
operating income before interest, depreciation and amortization, which is generally
equivalent to EBITDA, and EBITDA is unaffected by the debt and equity structure of the
property owner. EBITDA does not represent cash flow from operations as defined by
generally accepted accounting principles ("GAAP"), is not necessarily indicative of cash
available to fund all cash flow needs and should not be considered as an alternative to
net income under GAAP for purposes of evaluating the Company's results of operations.
(E) Represents total room revenues divided by total number of rooms occupied by hotel guests
on a paid basis.
(F) Represents total room revenues divided by total available rooms, net of rooms out of
service due to significant renovations.
(G) Represents operating data for all hotels managed by the Company during all or a portion
of the periods presented.
(H) As of December 31 for the periods presented.
(I) Represents operating data for those hotels managed by the Company during all of the
periods presented.
</TABLE>
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RISK FACTORS
An investment in the Common Stock involves material risks. In addition to
general investment risk and those factors set forth elsewhere in this
Prospectus, prospective investors should carefully consider, among other things,
the following risks before making an investment.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
Operating Risks. The Company's business is subject to all of the operating
risks inherent in the lodging industry. These risks include the following:
changes in general and local economic conditions; cyclical overbuilding in the
lodging industry; varying levels of demand for rooms and related services;
competition from other hotels, motels and recreational properties; changes in
travel patterns; the recurring need for renovations, refurbishment and
improvements of hotel properties; changes in governmental regulations that
influence or determine wages, prices and construction and maintenance costs; and
changes in interest rates and the availability of credit. Demographic,
geographic or other changes in one or more of the Company's markets could impact
the convenience or desirability of the sites of certain hotels, which would in
turn affect the operations of those hotels. In addition, due to the level of
fixed costs required to operate full-service hotels, certain significant
expenditures necessary for the operation of hotels generally cannot be reduced
when circumstances cause a reduction in revenue.
Competition in the Lodging Industry. The lodging industry is highly
competitive. There is no single competitor or small number of competitors of the
Company that are dominant in the industry. The Hotels operate in areas that
contain numerous competitors, many of which have substantially greater resources
than the Company. Competition in the lodging industry is based generally on
location, room rates and range and quality of services and guest amenities
offered. New or existing competitors could significantly lower rates or offer
greater conveniences, services or amenities or significantly expand, improve or
introduce new facilities in markets in which the Hotels compete, thereby
adversely affecting the Company's operations.
Seasonality. The lodging industry is seasonal in nature. Generally, hotel
revenues are greater in the second and third quarters than in the first and
fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the revenues of the Company. Quarterly earnings also may be
adversely affected by events beyond the Company's control, such as extreme
weather conditions, economic factors and other considerations affecting travel.
Franchise Agreements. Upon completion of the Offering, all but one of the
Owned Hotels will be operated pursuant to existing franchise or license
agreements (the "Franchise Agreements"). The Franchise Agreements generally
contain specific standards for, and restrictions and limitations on, the
operation and maintenance of a hotel in order to maintain uniformity within the
franchisor system. Those limitations may conflict with the Company's philosophy
of creating specific business plans tailored to each Owned Hotel and to each
market. Such standards are often subject to change over time, in some cases at
the discretion of the franchisor, and may restrict a franchisee's ability to
make improvements or modifications to a hotel without the consent of the
franchisor. In addition, compliance with such standards could require a
franchisee to incur significant expenses or capital expenditures. In connection
with changing the franchise affiliation of an Owned Hotel or a subsequently
acquired hotel, the Company may be required to incur significant expenses or
capital expenditures. The Franchise Agreements covering the Owned 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.
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<PAGE>
RISKS ASSOCIATED WITH EXPANSION
Competition for Expansion Opportunities. The Company competes for the
acquisition of hotels with entities that have substantially greater financial
resources than the Company. The Company believes that, as a result of the
downturn experienced by the lodging industry from the late 1980s through the
early 1990s and the significant number of foreclosures and bankruptcies created
thereby, the prices for many hotels have for several years been at historically
low levels and often well below the cost to build new hotels. The recent
economic recovery in the lodging industry and the resulting increase in funds
available for hotel acquisitions may cause additional investors to enter the
hotel acquisition market, which may in turn cause hotel acquisition costs to
increase and the number of attractive hotel acquisition opportunities to
decrease.
Failure to Consummate Acquisitions. The Company has entered into a binding
contract to acquire the Additional Hotels and in the future may enter into
contracts to acquire other hotels as well. There can be no assurance that the
Company will be able to consummate the acquisition of any such hotels. Failure
to consummate such acquisitions could affect the Company's ability to implement
its acquisition strategy.
Integration Risks. To successfully implement its acquisition strategy, the
Company must be able to continue to successfully integrate new hotels into its
existing operations. The consolidation of functions and integration of
departments, systems and procedures of the new hotels with the Company's
existing operations presents a significant management challenge, and the failure
to integrate new hotels into the Company's management and operating structures
could have a material adverse effect on the results of operations and financial
condition of the Company. There can be no assurance that the Company will be
able to achieve operating results in its new hotels comparable to the historical
performance of its hotels.
RISKS ASSOCIATED WITH OWNING REAL ESTATE
The Company currently owns 12 hotels and has entered into a contract to
acquire the five Additional Hotels. Accordingly, the Company will be subject to
varying degrees of risk generally incident to the ownership of real estate.
These risks include, among other things, changes in national, regional and local
economic conditions, changes in local real estate market conditions, changes in
interest rates and in the availability, cost and terms of financing, the
potential for uninsured casualty and other losses, the impact of present or
future environmental legislation and adverse changes in zoning laws and other
regulations. Many of these risks are beyond the control of the Company. In
addition, real estate investments are relatively illiquid, resulting in a
limited ability of the Company to vary its portfolio of hotels in response to
changes in economic and other conditions.
HOTEL RENOVATION RISKS
The renovation of hotels involves risks associated with construction and
renovation of real property, including the possibility of construction cost
overruns and delays due to various factors (including the inability to obtain
regulatory approvals, inclement weather, labor or material shortages and the
unavailability of construction and permanent financing) and market or site
deterioration after acquisition or renovation. Any unanticipated delays or
expenses in connection with the renovation of hotels could have an adverse
effect on the results of operations and financial condition of the Company.
RISK OF DEBT FINANCING; NO LIMITS ON INDEBTEDNESS
As described under "Use of Proceeds," the Company will use substantially all
of the net proceeds of the Offering to repay a portion of its outstanding
indebtedness to Lehman Holdings. After giving effect to such repayment, the
Company's outstanding indebtedness to Lehman Holdings will be approximately
$55.7 million. Under the terms of its agreement with Lehman Holdings, such
remaining indebtedness will be due 90 days following the Closing of the
Offering, which may be extended for an
12
<PAGE>
additional 60 days by the Company if it is not in default. The Company has
entered into negotiations with the Banks to obtain the Credit Facility in the
maximum principal amount of $225 million. Borrowings under the Credit Facility
will be used by the Company to repay existing indebtedness owed to Lehman
Holdings, to fund the acquisition of hotels (including completing the
acquisition of the Additional Hotels), to fund renovations and capital
improvements to hotels and for general working capital needs. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." There can be no assurance that the
Company's negotiations with the Banks will ultimately be successfully concluded.
Failure to enter into the Credit Facility or to obtain other financing required
to repay the Company's indebtedness to Lehman Holdings could have a material
adverse effect on the Company and could result in the Company being required to
liquidate one or more of its hotel investments and/or risk loss of some or all
of its assets which secure its obligations.
Neither the Company's Certificate of Incorporation nor its By-laws limit the
amount of indebtedness that the Company may incur. Subject to limitations in its
debt instruments, including those expected to be included in the Bank Credit
Facility, the Company expects to incur additional debt in the future to finance
acquisitions and renovations. The Company's continuing substantial indebtedness
could increase its vulnerability to general economic and lodging industry
conditions (including increases in interest rates) and could impair the
Company's ability to obtain additional financing in the future and to take
advantage of significant business opportunities that may arise. The Company's
indebtedness is, and will likely continue to be, secured by mortgages on all of
the Owned Hotels and by the equity of certain subsidiaries of the Company. There
can be no assurances that the Company will be able to meet its debt service
obligations and, to the extent that it cannot, the Company risks the loss of
some or all of its assets, including the Owned Hotels and the Additional Hotels,
to foreclosure. Adverse economic conditions could cause the terms on which
borrowings become available to be unfavorable. In such circumstances, if the
Company is in need of capital to repay indebtedness in accordance with its terms
or otherwise, it could be required to liquidate one or more investments in
hotels at times which may not permit realization of the maximum return on such
investments.
It is anticipated that the Credit Facility will contain a number of
significant covenants that, among other things, restrict the ability of the
Company and its subsidiaries to (i) acquire or dispose of assets or businesses,
(ii) incur additional indebtedness, (iii) make capital expenditures, (iv) pay
dividends, (v) create liens on assets, (vi) enter into leases, investments or
acquisitions, (vii) engage in mergers or consolidations, or (viii) engage in
certain transactions with subsidiaries and affiliates, and otherwise restrict
corporate activities of the Company (including its ability to acquire additional
hotels, hotel businesses or assets, certain changes of control and asset sale
transactions) without the consent of the lenders. In addition, the Company will
be required to maintain specified financial ratios and comply with tests,
including minimum interest coverage ratios, maximum leverage ratios, minimum net
worth and minimum equity capitalization requirements.
Upon completion of the Offering, all of the Company's outstanding
indebtedness will bear interest at a variable rate. It is also anticipated that
the Company's indebtedness under the Credit Facility will bear interest at a
variable rate. Economic conditions could result in higher interest rates, which
could increase debt service requirements on variable rate debt and could reduce
the amount of cash available for various corporate purposes. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CONTROLLING STOCKHOLDERS
Upon consummation of the Offering, Acadia Partners, L.P., a private
investment partnership, and related entities ("Acadia Partners"), and certain
members of management will beneficially own an aggregate of 27.5% (24.8% if the
over-allotment option is exercised in full) of the issued and outstanding shares
of Common Stock. See "Formation Transactions--Background" and "Principal and
Selling Stockholders." So long as Acadia Partners and such members of management
beneficially own a
13
<PAGE>
substantial interest in the Company, they may have the ability to elect or
remove members of the Board of Directors of the Company (the "Board"), and
thereby control the management and affairs of the Company, and may have the
power to approve or block most actions requiring approval of the stockholders of
the Company. See "Principal Stockholders and Selling Stockholder" and
"Description of Capital Stock."
SUBSTANTIAL RELIANCE ON KEY PERSONNEL
The Company will place substantial reliance on the lodging industry
knowledge and experience and the continued services of its senior management,
led by Paul W. Whetsell and David E. McCaslin. The Company's future success and
its ability to manage future growth depend in large part upon the efforts of
these persons and on the Company's ability to attract and retain other highly
qualified personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in attracting and retaining
such personnel. The loss of services of Messrs. Whetsell or McCaslin or the
Company's inability to attract and retain other highly qualified personnel may
adversely affect the results of operations and financial condition of the
Company. The Company currently has employment agreements with Messrs. Whetsell
and McCaslin for terms of three years each, which contain certain non-compete
clauses. See "Management--Employment Agreements."
POTENTIAL FOR CONFLICTS OF INTEREST
Mr. Whetsell and Mr. McCaslin and corporations owned by them own, directly
or indirectly, (i) a leasehold interest, expiring on December 31, 2001, in one
of the Managed Hotels and (ii) minority equity interests in eight of the Managed
Hotels. Mr. Whetsell and Mr. McCaslin exercise management control over the
entities that own five of these Managed Hotels (the "Affiliated Owners") through
their ownership of certain entities which serve as general partners of the
Affiliated Owners. Such interests were acquired prior to the formation of
EquiStar and CapStar Management. During 1995, the Company received approximately
$826,000 in management fees from the nine hotels in which Messrs. Whetsell and
McCaslin own an equity interest, including approximately $630,000 in management
fees from the Affiliated Owners.
Conflicts may arise in the future between the Company and the Affiliated
Owners with respect to certain Management Agreements (as defined below) between
the Company and such Affiliated Owners. These conflicts may arise in connection
with the exercise of any rights or the conduct of any negotiations to extend,
renew, terminate or amend such agreements. There can be no assurance that such
conflicts will be resolved in favor of the Company. Transactions involving the
Company and the Affiliated Owners will be passed on for the Company by a
majority of the Independent Directors (as defined herein) of the Board.
Although none of the Managed Hotels owned by Affiliated Owners now competes
with the Owned Hotels, the Company may in the future acquire a hotel in a market
in which a hotel owned by an Affiliated Owner now operates. See "Certain
Relationships and Related Transactions--Ownership Interests in Certain Managed
Hotels."
Under the terms of their employment agreements, Messrs. Whetsell and
McCaslin are prohibited from hereafter acquiring any interests in hotels or
hotel management companies while they serve as officers of the Company. See
"Management--Employment Agreements."
TERMINATION OF MANAGEMENT AGREEMENTS
The Company operates the 36 Managed Hotels pursuant to third party
management agreements (the "Management Agreements") with the owners of such
Managed Hotels. The Management Agreements have remaining terms ranging from one
month to nine years. Substantially all of the Management Agreements permit the
owners of the Managed Hotels to terminate such agreements prior to the stated
expiration dates if the applicable hotel is sold, and several of the Management
Agreements
14
<PAGE>
permit the owners of the Managed Hotels to terminate such agreements prior to
the stated expiration date without cause or by reason of the failure of the
applicable hotel to obtain specified levels of performance. During 1995, the
Company's revenue from Management Agreements was $3.3 million constituting 2.3%
of the Company's total revenue for such period on a pro forma basis. No single
Management Agreement currently accounts for more than 5% of the total revenue
from the Management Agreements on a pro forma basis. Additionally, no group of
Management Agreements for hotels under common ownership or control currently
accounts for more than 13% of the total revenue from the Management Agreements
on a pro forma basis. The early termination of the Management Agreements or the
inability of the Company to negotiate renewals of Management Agreements upon the
expiration of their stated terms would have an adverse impact on the revenues
received by the Company from its management business.
ENVIRONMENTAL RISKS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of contamination from
hazardous or toxic substances, or the failure to properly remediate such
contaminated property, may adversely affect the owner's ability to sell or rent
such real property or to borrow using such real property as collateral. Persons
who arrange for the disposal or treatment of hazardous or toxic substances may
also be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is or ever was
owned or operated by such person. The operation and removal of certain
underground storage tanks are also regulated by federal and state laws. In
connection with the ownership and operation of the Hotels, the Company could be
held liable for the costs of remedial action with respect to such regulated
substances and storage tanks and claims related thereto. Activities have been
undertaken to close or remove storage tanks located on the property of two of
the Owned Hotels.
All of the Owned Hotels have undergone Phase I environmental site
assessments ("Phase Is"), which generally provide a physical inspection and
database search but not soil or groundwater analyses, by a qualified independent
environmental engineer within the last 18 months. The purpose of the Phase Is is
to identify potential sources of contamination for which the Owned Hotels may be
responsible and to assess the status of environmental regulatory compliance. The
Phase Is have not revealed any environmental liability or compliance concerns
that the Company believes would have a material adverse effect on the Company's
results of operation or financial condition, nor is the Company aware of any
such liability or concerns.
In addition, the Owned Hotels have been inspected to determine the presence
of asbestos. Federal, state and local environmental laws, ordinances and
regulations also require abatement or removal of certain asbestos-containing
materials ("ACMs") and govern emissions of and exposure to asbestos fibers in
the air. Limited quantities of ACMs are present in various building materials
such as sprayed-on ceiling treatments, roofing materials or floor tiles at the
Owned Hotels. Operations and maintenance programs for maintaining such ACMs have
been or are in the process of being designed and implemented, or the ACMs have
been scheduled to be or have been abated, at such hotels. Based on third party
environmental assessments and due diligence investigations recently conducted by
the Company and its lenders, the Company believes that the presence of ACMs in
its Owned Hotels will not have a material adverse effect on the Company's
results of operations or financial condition. However, there can be no assurance
that this will be the case. Any liability resulting from non-compliance or other
claims relating to environmental matters could have a material adverse effect on
the Company's results of operations or financial condition.
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<PAGE>
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels and restaurants,
including liquor license grants, by requiring registration, disclosure
statements and compliance with specific standards of conduct. The Company
believes that it is substantially in compliance with these requirements.
Managers of hotels are also subject to laws governing their relationship with
hotel employees, including minimum wage requirements, overtime, working
conditions and work permit requirements. Compliance with, or changes in, these
laws could reduce the revenue and profitability of the Owned Hotels and could
otherwise adversely affect the Company's results of operations or financial
condition.
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations are required to meet certain requirements related to access and
use by disabled persons. These requirements became effective in 1992. Although
significant amounts have been and continue to be invested in ADA required
upgrades to the Owned Hotels, a determination that the Company is not in
compliance with the ADA could result in a judicial order requiring compliance,
imposition of fines or an award of damages to private litigants. The Company is
likely to incur additional costs of complying with the ADA; however, such costs
are not expected to have a material adverse effect on the Company's results of
operations or financial condition.
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY IN STOCK PRICE
The initial public offering price has been determined by negotiations among
the Company and the representatives of the several Underwriters and may not be
indicative of the market price of the Common Stock after the Offering. Prior to
the Offering, there has been no public market for the Common Stock. Accordingly,
there can be no assurance that an active trading market for the Common Stock
will develop and continue upon consummation of the Offering or that the market
price of the Common Stock will not decline below the initial public offering
price. Following consummation of the Offering, the market price of the Common
Stock could be subject to significant fluctuations in response to variations in
results of operations, general economic and market conditions and other factors.
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of shares of Common Stock sold in the Offering will experience
immediate dilution of $6.31 per share in the net tangible book value per share
of Common Stock from the initial public offering price. See "Dilution."
SHARES AVAILABLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock (including shares issuable upon
the exercise of stock options), or the perception that such sales could occur,
could adversely affect prevailing market prices for the Common Stock. Upon
consummation of the Offering, the Company will have outstanding 12,754,321
shares of Common Stock (assuming no exercise of the over-allotment option).
Except for the 9,250,000 shares sold in the Offering, all of these shares will
be Restricted Securities (as defined below) under Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). The Company has granted certain
registration rights to the recipients of restricted securities issued in
connection with the Formation Transactions, which registration rights cover all
of the securities issued in connection with the Formation Transactions. The
Company and Acadia Partners (who beneficially owns 2,514,804 shares of Common
Stock) have agreed not to offer, sell, contract to sell or otherwise dispose of
any such shares of Common Stock or any securities convertible into or
exercisable for Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Lehman. Certain entities
controlled by members of management (who beneficially own an aggregate of
989,517 shares of Common Stock) have agreed not to offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock or any securities convertible
into or exercisable for Common Stock for a period of 360 days after the date of
this Prospectus without the prior written consent of Lehman. There can be no
assurance that Lehman will not grant any such consent. See "Shares Available for
Future Sale."
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THE FORMATION TRANSACTIONS
BACKGROUND
CapStar Hotels, Inc. ("CHI"), a hotel management and investment company, was
founded in 1987 by Paul W. Whetsell and certain other investors. Acadia Partners
was formed in 1987 by a group of institutional investors, including commercial
banks, insurance companies and money managers. Acadia Partners pursues both
leveraged acquisitions and selected securities investments. Since its inception,
Acadia Partners has sponsored or co-sponsored 25 leveraged acquisitions with a
combined value of $7 billion in a variety of industries including financial
services, insurance, food and consumer products, retailing information services
and industrial manufacturing. Acadia Partners also manages active portfolios of
public high-yield bonds, common stock and distressed securities in excess of $1
billion.
In January 1995, CHI, Acadia Partners and their respective affiliates formed
EquiStar and CapStar Management. EquiStar was formed to acquire upscale,
full-service hotels throughout the United States and completed its first
acquisition in March 1995. CapStar Management was formed to acquire and continue
the hotel management business of CHI and its affiliates. In connection with the
formation of CapStar Management, all of the Management Agreements of CHI and its
affiliates were assigned to CapStar Management. Prior to the completion of
Formation Transactions, CapStar Management was owned approximately 61% by Acadia
Partners and approximately 39% by entities owned by members of Company
management, and EquiStar was owned approximately 87% by Acadia Partners and
approximately 13% by entities owned by members of Company management.
FORMATION TRANSACTIONS
Pursuant to agreements executed prior to the initial filing of the Company's
Registration Statement with respect to the Offering, each of the following
events will occur immediately prior to the closing of the Offering (the
"Closing"):
. a limited partner of CapStar Management will contribute its partnership
interest in CapStar Management to the Company in exchange for shares of
Common Stock;
. the Company will contribute such partnership interest to CapStar LP
Corporation, a wholly-owned subsidiary of the Company ("CapStar Sub");
. the remaining partners of CapStar Management (including its general
partner but not including CapStar Sub) and the partners of EquiStar will
contribute their respective partnership interests in CapStar Management
and EquiStar to the Company in exchange for shares of Common Stock;
. the Company will contribute all the assets of EquiStar to CapStar
Management and CapStar Management will assume all of the liabilities of
EquiStar; and
. the Agreement of Limited Partnership of CapStar Management will be amended
and restated to reflect the fact that CapStar Management has succeeded to
the business of EquiStar and as otherwise necessary to permit it to
function as the Company's operating partnership (the "Operating
Partnership").
As a result of these transactions (the "Pre-Closing Transactions"), the
Company and CapStar Sub will be the sole partners of the Operating Partnership
and the Operating Partnership will own (directly or indirectly) all of the
assets currently owned by EquiStar and CapStar Management. Simultaneously with
the Closing, the Company will acquire (i) by a deed in lieu of foreclosure, the
Hotel located in Arlington, Virginia, which is currently encumbered by a
mortgage owned by the Company (the "Arlington Acquisition"), and (ii) a 100%
beneficial interest in a $17 million mortgage note secured by the Westin Atlanta
Airport (the "Atlanta Mortgage Acquisition") which mortgage ranks senior to the
equity interest of the partners of the limited partnership that owns such hotel,
including the Company's 1% general partnership interest and 85.2% limited
partnership interest. The Pre-Closing Transactions, the Arlington Acquisition
and the Atlanta Mortgage Acquisition are together referred to as the "Formation
Transactions."
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USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $114.2 million (approximately $138.0 million if the over-allotment
option is exercised in full), assuming an initial public offering price of
$18.50 per share and after giving effect to estimated underwriting discounts and
commissions and offering expenses payable by the Company. The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholder in the Offering.
The Company expects to use the net proceeds of $114.2 million from the
Offering to repay a portion of the outstanding indebtedness under a credit
facility that is provided by Lehman Holdings, an affiliate of Lehman.
The indebtedness to be repaid bears interest at fixed and variable rates,
with a weighted average annual rate at June 30, 1996 of 11.5%, and matures at
various times through March 1999, with a weighted average maturity at June 30,
1996 of two years and six months. All of the indebtedness being repaid was
incurred since March 3, 1995 to finance the acquisition and renovation of the
Owned Hotels.
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock and does not
anticipate that it will do so in the foreseeable future. The Company intends to
retain earnings to provide funds for the continued growth and development of the
Company's business. The Credit Facility is expected to restrict the Company's
ability to pay dividends on the Common Stock. Any determination to pay cash
dividends in the future will be at the discretion of the Board and will be
dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant by the Board.
18
<PAGE>
DILUTION
The net tangible book value of the Company, as adjusted to give effect to
the Pre-Closing Transactions, at June 30, 1996 was $42.4 million, or
approximately $7.07 per share of Common Stock based on 6,004,321 shares
outstanding. Net tangible book value per share represents the amount of tangible
assets of the Company, less total liabilities and minority interest, divided by
the number of shares of Common Stock outstanding prior to the Offering. After
giving effect to the Formation Transactions, including the sale by the Company
and the Selling Stockholder of the 9,250,000 shares of Common Stock offered
hereby (after deduction of underwriting discounts and commissions and other
estimated offering expenses and the application of the estimated net proceeds
therefrom), the pro forma net tangible book value of the Company at June 30,
1996 would have been $155.4 million, or $12.19 per share. This represents an
immediate increase in net tangible book value of $5.12 per share of Common Stock
to existing stockholders and an immediate dilution of approximately $6.31 per
share to new investors purchasing shares in the Offering. The sale of shares of
Common Stock by the Selling Stockholder in the Offering will have no effect on
dilution. The following table illustrates the per share dilution to new
investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............ $18.50
Net tangible book value per share after the Pre-Closing
Transactions as of June 30, 1996........................... $7.07
Increase per share attributable to new investors........... 5.12
-----
Pro forma net tangible book value per share after the
Formation Transactions and the Offering.................... 12.19
------
Dilution per share to new investors........................ $ 6.31
------
------
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the difference between the number of shares of Common Stock held by the existing
equity holders and the net book value of the assets and liabilities contributed
by the existing equity holders in the Pre-Closing Transactions, in the aggregate
and on a per share basis, and the number of shares of Common Stock purchased by
the investors in this Offering and the consideration paid, in the aggregate and
on a per share basis, by the investors purchasing shares of Common Stock in this
Offering (after deducting underwriting discounts and commissions and estimated
Offering expenses):
<TABLE>
<CAPTION>
NET BOOK VALUE OF
ASSETS
SHARES HELD OR OR CASH
ACQUIRED (IN THOUSANDS) AVERAGE
--------------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Equity Holders.................... 6,004,321 47.1% $ 47,872 29.6% $ 7.97
New Investors.............................. 6,750,000 52.9 114,172 70.4 16.91
---------- ------- -------- ------- ---------
Total................................ 12,754,321 100.0% $162,044 100.0% $ 12.71
---------- ------- -------- ------- ---------
---------- ------- -------- ------- ---------
</TABLE>
19
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1996 and the pro forma capitalization of the Company before and
after the acquisition of the Additional Hotels. The information below should be
read in conjunction with the combined financial statements and notes thereto and
the pro forma financial statements and notes thereto contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
(IN THOUSANDS)
-------------------------------------------------
<S> <C> <C> <C>
PRO FORMA AFTER
PRO FORMA BEFORE ACQUISITION OF
ACQUISITION OF THE THE ADDITIONAL
ACTUAL ADDITIONAL HOTELS HOTELS
-------- ------------------ ---------------
DEBT:
Total long-term debt............................... $168,112 $ 58,557 $ 126,957
Minority interest.................................. 576 576 576
STOCKHOLDERS' EQUITY:
Preferred Stock ($.01 par value, 25,000,000 shares
authorized, no shares issued or outstanding)....... -- -- --
Common Stock ($.01 par value, 49,000,000 shares
authorized, 12,754,321 shares issued and
outstanding)....................................... -- 127 127
Additional paid-in capital......................... 49,123 164,155 164,155
Retained earnings (deficit)........................ (1,251) (4,288) (4,288)
-------- ---------- ---------------
-------- ---------- ---------------
Total stockholders' equity................... 47,872 159,994 159,994
-------- ---------- ---------------
Total capitalization......................... $216,560 $219,127 $ 287,527
-------- ---------- ---------------
-------- ---------- ---------------
</TABLE>
20
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth selected historical and pro forma financial
information for the Company. The following information should be read in
conjunction with the historical combined financial statements and notes thereto
for the Company, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the unaudited pro forma financial statements and
notes thereto included elsewhere in this Prospectus. The selected financial data
of the Company as of June 30, 1996 and December 31, 1995 and 1994 and for the
six months ended June 30, 1996, the period from January 12, 1995 to December 31,
1995 and the years ended December 31, 1994 and 1993, have been derived from
audited financial statements which are included elsewhere in this Prospectus.
The comparable data for the balance sheets of the Company as of June 30, 1995
and December 31, 1993, 1992 and 1991 and for the statements of income and cash
flows for the six months ended June 30, 1995 and the years ended December 31,
1992 and 1991 have been derived from financial statements that are not required
to be included in this Prospectus.
The pro forma operating data and other data for the six months ended June
30, 1996 and for the year ended December 31, 1995 have been prepared as if the
Offering, the Formation Transactions, the acquisition of the Owned Hotels and
the Additional Hotels, and the execution of the Credit Facility had been
consummated at the beginning of the periods presented, and the pro forma balance
sheet data as of June 30, 1996 has been prepared as if the Offering, the
Formation Transactions, the acquisition of the Owned Hotels and the Additional
Hotels, and the execution of the Credit Facility had been consummated on such
date. The pro forma financial information is not necessarily indicative of what
the actual financial position and results of operations of the Company would
have been as of and for the periods indicated, nor does it purport to represent
the Company's future financial position and results of operations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------- ----------------------------
PRO PRO
FORMA FORMA
1991 1992 1993 1994 1995 1995(A) 1995 1996 1996(A)
------ ------ ------ ------ --------- --------- ------- -------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues:
Rooms.......................... $ 0 $ 0 $ 0 $ 0 $ 14,456 $ 91,861 $ 1,929 $ 28,121 $ 49,642
Food, beverage and other....... 0 0 0 0 7,471 51,919 754 16,049 26,768
Management services and other
revenues........................ 2,692 3,479 4,234 4,418 4,436 3,274 2,128 2,087 1,681
------ ------ ------ ------ --------- --------- ------- -------- ---------
Total revenues............. 2,692 3,479 4,234 4,418 26,363 147,054 4,811 46,257 78,091
------ ------ ------ ------ --------- --------- ------- -------- ---------
Operating costs and expenses:
Departmental expenses:
Rooms.......................... 0 0 0 0 4,190 24,214 528 7,365 12,613
Food, beverage and other....... 0 0 0 0 5,437 40,790 506 11,391 20,476
Undistributed operating costs:
Selling, general and
administrative.................. 2,239 2,836 4,065 4,508 8,078 31,808 2,463 9,457 15,600
Property operating costs....... 0 0 0 0 3,934 21,681 511 7,497 12,381
Depreciation and
amortization.................... 16 12 14 23 2,098 11,867 303 3,919 5,979
------ ------ ------ ------ --------- --------- ------- -------- ---------
Total operating costs and
expenses........................ 2,255 2,848 4,079 4,531 23,737 130,360 4,311 39,629 67,049
------ ------ ------ ------ --------- --------- ------- -------- ---------
Operating income/(loss)......... 437 631 155 (113) 2,626 16,694 500 6,628 11,042
Interest expense, net........... 28 0 0 0 2,413 10,433 334 7,290 5,166
Minority interest............... 0 0 0 0 (17) (59) 0 (68) (31)
Provision for income taxes(B)... 0 0 0 0 2,528 0 0 2,363
Income/(loss) before
extraordinary item.............. 409 631 155 (113) 230 3,792 166 (594) 3,544
Extraordinary item(C)........... 0 0 0 0 (887) 0 0 0 0
Net income/(loss)............... 409 631 155 (113) (657) 3,792 166 (594) 3,544
------ ------ ------ ------ --------- --------- ------- -------- ---------
------ ------ ------ ------ --------- --------- ------- -------- ---------
Net income per common share..... -- -- -- -- -- $ 0.30 -- -- $ .28
OTHER FINANCIAL DATA:
EBITDA(D)....................... $ 453 $ 643 $ 169 $ (90) $ 4,724 $ 28,561 $ 803 $ 10,547 $ 17,021
Net cash provided by (used in)
operating activities........... 182 87 (101) 66 4,357 19,721 90 3,891 11,338
Net cash used in investing
activities...................... (16) (65) (24) (41) (116,573) (282,963) (46,108) (95,625) (173,741)
Net cash provided by (used in)
financing activities........... 19 (219) 244 0 119,048 282,809 47,900 89,809 173,370
BALANCE SHEET DATA:
Property and equipment, gross... $ 98 $ 110 $ 134 $ 176 $ 110,883 -- $40,703 $195,304 $ 283,558
Total assets.................... 740 586 1,458 1,232 132,650 -- 54,113 231,736 308,420
Long term obligations........... 219 0 0 0 73,574 -- 25,680 164,892 126,957
</TABLE>
21
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------- ---------------------------
PRO FORMA PRO FORMA
1991 1992 1993 1994 1995 1995(A) 1995 1996 1996(A)
------- -------- -------- -------- -------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Owned Hotels:
Number of hotels........... -- -- -- -- 6 17 3 11 17
Number of guest rooms...... -- -- -- -- 2,101 4,637 991 3,307 4,637
Total revenues (in
thousands).................. -- -- -- -- $ 21,927 $ 143,780 $ 2,683 $44,170 $76,410
Average occupancy.......... -- -- -- -- 72.3% 71.8% 76.8% 72.7% 73.0%
ADR(E)..................... -- -- -- -- $ 71.58 $ 75.59 $ 72.28 $ 80.56 $ 81.99
RevPAR(F).................. -- -- -- -- $ 51.75 $ 54.27 $ 55.51 $ 58.57 $ 59.85
All Hotels(G):
Number of hotels(H)........ 23 34 34 39 46 -- -- -- --
Number of guest rooms(H)... 3,893 5,918 5,971 5,847 7,895 -- -- -- --
Total revenues (in
thousands).................. $65,405 $109,837 $123,124 $128,151 $170,888 -- -- -- --
Certain Managed Hotels(I):
Number of hotels........... -- -- 18 18 18 -- -- -- --
Number of guest rooms...... -- -- 2,967 2,967 2,967 -- -- -- --
Total revenues (in
thousands).................. -- -- $ 40,691 $ 44,453 $ 46,905 -- -- -- --
Average occupancy.......... -- -- 69.7% 70.6% 70.7% -- -- -- --
ADR(E)..................... -- -- $ 56.99 $ 60.33 $ 63.71 -- -- -- --
RevPAR(F).................. -- -- $ 39.72 $ 42.59 $ 45.04 -- -- -- --
</TABLE>
- ------------
<TABLE>
<C> <S>
(A) The pro forma Operating Results, Other Financial Data and Operating Data for the six
months ended June 30, 1996 and for the year ended December 31, 1995 have been prepared
as if the Formation Transactions, the Offering, the acquisition of the Owned Hotels and
the Additional Hotels, and the execution of the Credit Facility had been consummated at
the beginning of the periods presented, and the pro forma Balance Sheet Data as of June
30, 1996 has been prepared as if the Formation Transactions, the Offering, the
acquisition of the Owned Hotels and the Additional Hotels, and the execution of the
Credit Facility had been consummated on such date.
(B) No provision for federal income taxes is included in the historical data because CapStar
Management and EquiStar are partnerships and all federal income tax liabilities were
passed through to the individual partners.
(C) During 1995, the Company's loan facility was refinanced, and the write-off of deferred
costs associated with the prior facility was recorded as an extraordinary loss.
(D) EBITDA represents earnings before interest expense, income taxes, depreciation and
amortization. Management believes that EBITDA is a useful measure of operating
performance because it is industry practice to evaluate hotel properties based on
operating income before interest, depreciation and amortization, which is generally
equivalent to EBITDA, and EBITDA is unaffected by the debt and equity structure of the
property owner. EBITDA does not represent cash flow from operations as defined by
generally accepted accounting principles ("GAAP"), is not necessarily indicative of cash
available to fund all cash flow needs and should not be considered as an alternative to
net income under GAAP for purposes of evaluating the Company's results of operations.
(E) Represents total room revenues divided by total number of rooms occupied by hotel guests
on a paid basis.
(F) Represents total room revenues divided by total available rooms, net of rooms out of
service due to significant renovations.
(G) Represents operating data for all hotels managed by the Company during all or a portion
of the periods presented.
(H) As of December 31 for the periods presented.
(I) Represents operating data for those hotels managed by the Company during all of the
periods presented.
</TABLE>
22
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited Pro Forma Balance Sheet of the Company as of June 30, 1996 is
presented assuming: (i) the Formation Transactions, the Offering and the
application of the net proceeds, and the execution of the Credit Facility, had
been completed on June 30, 1996; and (ii) the Owned Hotels and the Additional
Hotels were owned on June 30, 1996.
The unaudited Pro Forma Statements of Operations of the Company for the six
months ended June 30, 1996 and for the year ended December 31, 1995 present the
results of operations of the Company assuming: (i) all of the Owned Hotels and
the Additional Hotels had been acquired at the beginning of the periods
presented; and (ii) the Formation Transactions, the Offering and the execution
of the Credit Facility were completed as of the beginning of the periods
presented.
In management's opinion, all material adjustments necessary to reflect the
transactions are presented in the pro forma adjustments columns, which are
further described in the notes to the unaudited Pro Forma Financial Statements.
The unaudited Pro Forma Financial Statements are not necessarily indicative
of what the Company's financial position or results of operations actually would
have been if all the Owned Hotels and Additional Hotels were, in fact, acquired
on such dates and if the Formation Transactions, the Offering, and the execution
of the Credit Facility had, in fact, occurred on such dates. Additionally, the
pro forma information does not purport to project the Company's financial
position or results of operations at any future date or for any future period.
The unaudited Pro Forma Financial Statements should be read in conjunction with
the audited historical combined financial statements and related notes thereto
of EquiStar and CapStar Management, which are included elsewhere in this
Prospectus.
23
<PAGE>
CAPSTAR HOTEL COMPANY
PRO FORMA BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
(B) PRO FORMA (H)
OWNED OFFERING AND BEFORE ADDITIONAL PRO FORMA
HOTELS PRO OTHER PRO ACQUISITION OF HOTELS AFTER
(A) FORMA FORMA ADDITIONAL PRO FORMA ACQUISITION OF
HISTORICAL ADJUSTMENTS ADJUSTMENTS HOTELS ADJUSTMENTS ADDITIONAL HOTELS
------------ ----------- ------------ -------------- ----------- -----------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash.................... $ 4,907,234 -- (857,304)(C) 4,049,930 -- 4,049,930
Escrows and restricted
funds................... 18,793,399 -- (14,943,227)(D) 3,850,172 -- 3,850,172
Property and equipment,
net:
Land................... 37,142,485 2,731,142 -- 39,873,627 19,822,514 59,696,141
Buildings and
improvements............ 125,072,821 14,826,199 -- 139,899,020 45,870,124 185,769,144
Furniture, fixtures and
equipment............... 21,786,534 1,950,816 -- 23,737,350 3,711,255 27,448,605
Construction-in-progress.... 6,321,996 -- -- 6,321,996 -- 6,321,996
------------ ----------- ------------ -------------- ----------- -----------------
Total property and
equipment, net.......... 190,323,836 19,508,157 209,831,993 69,403,893 279,235,886
Other assets............ 17,711,578 2,549,268 (932,500)(E) 19,328,346 1,956,141 21,284,487
------------ ----------- ------------ -------------- ----------- -----------------
Total assets............ $231,736,047 22,057,425 (16,733,031) 237,060,441 71,360,034 308,420,475
------------ ----------- ------------ -------------- ----------- -----------------
------------ ----------- ------------ -------------- ----------- -----------------
LIABILITIES, MINORITY
INTEREST AND EQUITY
Other liabilities....... 15,175,635 2,757,425 -- 17,933,060 2,960,034 20,893,094
Long-term debt:
Notes payable.......... 167,254,954 19,300,000 (126,991,227)(D) 58,556,727 68,400,000 126,956,727
(1,007,000)(F)
Capital lease
obligations............. 857,304 -- (857,304)(C) -- -- --
------------ ----------- ------------ -------------- ----------- -----------------
Total liabilities....... 183,287,893 22,057,425 (128,855,531) 76,489,787 71,360,034 147,849,821
Minority interest....... 576,314 -- -- 576,314 -- 576,314
------------ ----------- ------------ -------------- ----------- -----------------
Equity.................. 47,871,840 -- 112,122,500(G) 159,994,340 -- 159,994,340
------------ ----------- ------------ -------------- ----------- -----------------
Total liabilities,
minority interest and
equity.................. $231,736,047 22,057,425 (16,733,031) 237,060,441 71,360,034 308,420,475
------------ ----------- ------------ -------------- ----------- -----------------
------------ ----------- ------------ -------------- ----------- -----------------
</TABLE>
24
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO PRO FORMA BALANCE SHEET
JUNE 30, 1996
<TABLE>
<C> <S>
(A) Reflects the historical combined balance sheet of EquiStar and CapStar Management as of
June 30, 1996.
(B) Reflects the following: EquiStar's cost basis and financing for one hotel acquired
subsequent to June 30, 1996 (Hilton Hotel, Arlington, Virginia).
(C) Reflects the repayment of capital lease obligations subsequent to the Offering
($857,304).
(D) A reconciliation of gross proceeds from the Offering to net proceeds is as follows:
</TABLE>
<TABLE>
<S> <C> <C>
Gross proceeds at $18.50 per share.......................... $ 124,875,000
Underwriting, advisory and other transaction expenses....... (10,703,000)
-------------
Net cash proceeds from Offering............................. $ 114,172,000
-------------
A schedule of sources and uses of funds related to the Offering and the
Formation Transactions are as follows:
SOURCES
Net proceeds from Offering.................................. $ 114,172,000
Release of escrow funds related to existing debt
facilities.................................................. 14,943,227
Proceeds from notes receivable from management for capital
contributions............................................... 987,500
Proceeds from the Credit Facility........................... 58,556,727
-------------
Total sources............................................... $ 188,659,454
-------------
USES
Repayment of outstanding amounts on certain existing debt
facilities.................................................. $(185,547,954)
Payment of prepayment penalties on existing debt to be paid
off......................................................... (299,000)
Payment of closing costs for Credit Facility................ (2,812,500)
--------------
Total uses.................................................. $(188,659,454)
-------------
A reconciliation of existing debt facilities to be repaid to pro forma
long-term debt is as follows:
Total notes payable outstanding immediately preceding the Offering (Columns
(A) and (B) from unaudited Pro Forma Balance Sheet)........................ $ 186,554,954
Less: Existing debt to be repaid............................................ (185,547,954)
Accrued financing fees on existing debt to be forgiven.................. (1,007,000)
-------------
Existing debt to remain in place........................................ --
Add: Proceeds from Credit Facility 58,556,727
-------------
Pro forma long-term debt before purchase of Additional
Hotels...................................................... $ 58,556,727
</TABLE>
<TABLE>
<C> <S>
The Pro forma balance sheet assumes that the proceeds from the Credit Facility are
drawn on June 30, 1996. The Company expects the borrowings under the existing debt
facility with Lehman Holdings will remain in place for up to 90 days after the closing
of the Offering.
(E) Reflects write-off of deferred financing fees ($3,745,000) related to existing debt
facilities to be paid off and deferral of financing fees paid ($2,812,500) for the
Credit Facility.
(F) Reflects lender's forgiveness of accrued financing fees on existing debt facilities.
(G) The components of the adjustment are as follows:
</TABLE>
<TABLE>
<S> <C> <C>
Net cash proceeds from the Offering......................... $ 114,172,000
Add: Forgiven accrued financing fees........................ 1,007,000
Repayment of notes receivable from management for capital
contributions.............................................. 987,500
Less: Write off of deferred financing fees.................. (3,745,000)
Prepayment penalties.................................... (299,000)
-------------
Total adjustment........................................ $ 112,122,500
-------------
</TABLE>
<TABLE>
<C> <S>
(H) Reflects the estimated cost basis and financing for the Additional Hotels which
EquiStar has under contract to purchase for $68,400,000.
</TABLE>
25
<PAGE>
CAPSTAR HOTEL COMPANY
PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
(B) BEFORE (J) PRO FORMA
OWNED OFFERING AND ACQUISITION ADDITIONAL AFTER
HOTELS PRO OTHER PRO OF HOTELS PRO ACQUISITION OF
(A) FORMA FORMA ADDITIONAL FORMA ADDITIONAL
HISTORICAL ADJUSTMENTS ADJUSTMENTS HOTELS ADJUSTMENTS HOTELS
----------- ----------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from hotel
operations:
Rooms....................... $28,120,664 9,622,905 -- 37,743,569 11,898,784 49,642,353
Food and beverage........... 12,988,951 4,287,691 -- 17,276,642 5,580,911 22,857,553
Other revenue............... 3,059,994 18,568 -- 3,078,562 831,891 3,910,453
Hotel management and other
fees......................... 2,086,931 -- (39,581)(C) 2,047,350 (366,456) 1,680,894
----------- ----------- ------------ ----------- ----------- --------------
Total revenue................ 46,256,540 13,929,164 (39,581) 60,146,123 17,945,130 78,091,253
----------- ----------- ------------ ----------- ----------- --------------
Hotel operating expenses by
department:
Rooms....................... 7,364,570 2,300,265 9,664,835 2,947,864 12,612,699
Food and beverage........... 10,302,012 3,603,560 -- 13,905,572 4,654,082 18,559,654
Other operating
departments.................. 1,089,381 382,136 -- 1,471,517 444,994 1,916,511
Undistributed operating
expenses:
Administrative and
general...................... 9,457,210 2,742,002 500,000(D) 12,699,212 2,901,110 15,600,322
Management fees............. -- 439,660 (439,660)(E) -- -- --
Property operating costs.... 5,380,675 1,117,620 -- 6,498,295 2,317,051 8,815,346
Property taxes, insurance
and other.................... 2,116,498 776,400 -- 2,892,898 673,014 3,565,912
Depreciation and
amortization................. 3,919,035 968,127 146,817(F) 5,033,979 944,599 5,978,578
----------- ----------- ------------ ----------- ----------- --------------
Total operating expenses..... 39,629,381 12,329,770 207,157 52,166,308 14,882,714 67,049,022
----------- ----------- ------------ ----------- ----------- --------------
Interest expense, net........ 7,290,258 1,772,503 (6,642,966)(G) 2,419,795 2,746,260 5,166,055
----------- ----------- ------------ ----------- ----------- --------------
Total expenses............... 46,919,639 14,102,273 (6,435,809) 54,586,103 17,628,974 72,215,077
----------- ----------- ------------ ----------- ----------- --------------
Income (loss) before minority
interests and income
taxes....................... (663,099) (173,109) 6,396,228 5,560,020 316,156 5,876,176
Minority interests........... (68,771) -- 37,761(H) (31,010) -- (31,010)
----------- ----------- ------------ ----------- ----------- --------------
Income (loss) before income
taxes....................... (594,328) (173,109) 6,358,467 5,591,030 316,156 5,907,186
Income taxes................. -- -- 2,236,412(I) 2,236,412 126,661 2,363,073
----------- ----------- ------------ ----------- ----------- --------------
Net income (loss)............ $ (594,328) (173,109) 4,122,055 3,354,618 189,495 3,544,113
----------- ----------- ------------ ----------- ----------- --------------
----------- ----------- ------------ ----------- ----------- --------------
Pro forma income per share... 0.28
Pro forma weighted average
shares outstanding.......... 12,754,321
</TABLE>
26
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO PRO FORMA STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
During the twelve month period subsequent to the Formation Transactions, the
Offering and the execution of the Credit Facility, the Company expects to incur
prepayment penalties to repay existing debt ($299,000) and expenses associated
with the write-off of deferred financing costs related to existing debt to be
repaid ($3,745,000). These non-recurring costs are expected to be charged to
operations as incurred. Such costs have not been included in the unaudited Pro
Forma Statements of Operations.
<TABLE>
<C> <S>
(A) Reflects historical combined statement of operations of EquiStar and CapStar Management
for the six months ended June 30, 1996.
(B) Reflects the pre-acquisition operations of the Owned Hotels to provide a full six
months of hotel operations for the unaudited Pro Forma Statement of Operations. For
each Owned Hotel, the 1996 pre-acquisition operations were obtained from the hotel's
audited pre-acquisition financial statements included elsewhere in this Prospectus.
Also reflects adjustments to (i) include the operations of the Westin Atlanta Airport
during the period from January 1, 1996 through February 29, 1996, when this hotel was
leased to a third-party operator, and (ii) eliminate the related lease revenue earned
by EquiStar during this period. On February 29, 1996, the lease was terminated and
EquiStar assumed management of hotel operations.
(C) Reflects the elimination of management fee income for the Owned Hotels managed by
CapStar Management prior to acquisition ($39,581).
(D) Reflects the estimated incremental general and administrative expenses associated with
public ownership. These additional expenses include insurance, additional executive
salaries, directors' fees and related expenses, legal expenses, expenses associated
with preparing quarterly and annual reports, and other miscellaneous expenses.
(E) Management services for the Owned Hotels are provided by the Company and any
intercompany management fee charges will be eliminated for financial reporting
purposes.
(F) Reflects the net of the following adjustments:
</TABLE>
<TABLE>
<S> <C>
Elimination of depreciation on hotels for pre-acquisition period............ $ (968,127)
Depreciation on hotels for pre-acquisition period based on EquiStar's cost
basis...................................................................... 1,213,820
Elimination of amortization of deferred financing costs on existing debt
facilities to be repaid.................................................... (573,876)
Amortization of deferred financing costs related to the Credit Facility..... 475,000
-----------
Net adjustment.............................................................. $ 146,817
-----------
</TABLE>
<TABLE>
<C> <S>
(G) Reflects the net of the following adjustments:
</TABLE>
<TABLE>
<S> <C>
Elimination of interest on existing debt facilities to be paid off and
interest from pre-acquisition operations................................... $(9,154,018)
Interest on $58,556,727 outstanding under the Credit Facility at interest
rate of LIBOR plus 2.25% (average rate for six months was 8.03 percent)
plus Credit Facility maintenance fee of $160,000........................... 2,511,052
-----------
Net adjustment.............................................................. $(6,642,966)
-----------
</TABLE>
<TABLE>
<C> <S>
(H) Reflects the effect of the other pro forma adjustments on the interest of minority
owners in pro forma income before minority interest and income taxes for the
partnership that owns the Westin Atlanta Airport. After the adjustments, minority
interest is calculated as follows:
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
LOSS BEFORE
MINORITY PERCENTAGE
INTEREST MINORITY MINORITY
AND INCOME TAXES INTEREST INTEREST
---------------- ---------- --------
<S> <C> <C> <C>
Westin Atlanta Airport.................................. $ (224,710) 13.8% $(31,010)
</TABLE>
<TABLE>
<C> <S>
(I) Historical combined financial data does not include a provision for income taxes
because both EquiStar and CapStar Management were partnerships not subject to income
taxes. The pro forma adjustment reflects federal and state income taxes (assuming a 40%
combined effective rate) as if these entities had been taxed as a C-corporation during
the six months.
(J) Reflects the historical operations of the Additional Hotels adjusted for (i)
depreciation on the new cost basis ($944,599), (ii) interest on the debt to finance the
purchase ($2,746,260), and (iii) income taxes ($126,661). Also reflects the elimination
of management fees earned by CapStar Management for managing four of the five
Additional Hotels in 1996 ($366,456). Historical operations of the Additional Hotels
before adjustments were obtained from the hotels' audited combined financial statements
included elsewhere in this Prospectus.
</TABLE>
27
<PAGE>
CAPSTAR HOTEL COMPANY
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
(B) OFFERING BEFORE (J) PRO FORMA
OWNED AND ACQUISITION ADDITIONAL AFTER
HOTELS PRO OTHER PRO OF HOTELS PRO ACQUISITION OF
(A) FORMA FORMA ADDITIONAL FORMA ADDITIONAL
HISTORICAL ADJUSTMENTS ADJUSTMENTS HOTELS ADJUSTMENTS HOTELS
----------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue from hotel
operations:
Rooms....................... $14,456,387 55,478,217 69,934,604 21,925,991 91,860,595
Food and beverage........... 5,900,238 28,426,328 34,326,566 10,442,474 44,769,040
Other revenue............... 1,570,295 3,966,397 5,536,692 1,613,934 7,150,626
Hotel management and other
fees......................... 4,436,428 -- (235,524)(C) 4,200,904 (926,737) 3,274,167
----------- ----------- ----------- ----------- ----------- --------------
Total revenue................ 26,363,348 87,870,942 (235,524) 113,998,766 33,055,662 147,054,428
----------- ----------- ----------- ----------- ----------- --------------
Hotel operating expenses by
department:
Rooms....................... 4,190,299 14,271,915 -- 18,462,214 5,751,406 24,213,620
Food and beverage........... 4,923,790 22,926,491 -- 27,850,281 9,198,740 37,049,021
Other operating
departments.................. 512,791 2,324,689 -- 2,837,480 904,143 3,741,623
Undistributed operating
expenses:
Administrative and
general...................... 8,078,304 17,005,542 1,062,000(D) 26,145,846 5,662,170 31,808,016
Management fees............. -- 3,152,729 (3,152,729)(E) -- -- --
Property operating costs.... 2,623,626 7,002,261 -- 9,625,887 4,407,863 14,033,750
Property taxes, insurance
and other................. 1,310,517 4,946,569 -- 6,257,086 1,390,174 7,647,260
Depreciation and
amortization................. 2,097,512 7,267,137 613,267(F) 9,977,916 1,889,198 11,867,114
----------- ----------- ----------- ----------- ----------- --------------
Total operating expenses..... 23,736,839 78,897,333 (1,477,462) 101,156,710 29,203,694 130,360,404
----------- ----------- ----------- ----------- ----------- --------------
Interest expense, net........ 2,413,348 11,115,784 (8,726,610)(G) 4,802,522 5,630,540 10,433,062
----------- ----------- ----------- ----------- ----------- --------------
Total expenses............... 26,150,187 90,013,117 (10,204,072) 105,959,232 34,834,234 140,793,466
----------- ----------- ----------- ----------- ----------- --------------
Income (loss) before minority
interest and income taxes.... 213,161 (2,142,175) 9,968,548 8,039,534 (1,778,572) 6,260,962
Minority interest............ (17,415) (24,985) (16,636)(H) (59,036) -- (59,036)
----------- ----------- ----------- ----------- ----------- --------------
Income (loss) before income
taxes........................ 230,576 (2,117,190) 9,985,184 8,098,570 (1,778,572) 6,319,998
Income taxes................. -- -- 3,239,428 3,239,428 (711,429) 2,527,999
----------- ----------- ----------- ----------- ----------- --------------
Net income (loss)............ $ 230,576 (2,117,190) 6,745,756 4,859,142 (1,067,143) 3,791,999
----------- ----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- ----------- --------------
Pro forma income per share... 0.30
Pro forma weighted average
shares outstanding.......... 12,754,321
</TABLE>
28
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
During the twelve month period subsequent to the Formation Transactions, the
Offering and the execution of the Credit Facility, the Company expects to incur
prepayment penalties to repay existing debt ($299,000) and expenses associated
with the write-off of deferred financing costs related to existing debt to be
repaid ($3,745,000). These non-recurring costs are expected to be charged to
operations as incurred. Such costs have not been included in the unaudited Pro
Forma Statements of Operations.
<TABLE>
<C> <S>
(A) Reflects historical combined statement of operations of EquiStar and CapStar Management
for the year ended December 31, 1995.
(B) Reflects the pre-acquisition operations of the Owned Hotels to provide a full year of
hotel operations for the unaudited Pro Forma Statement of Operations. For each hotel,
except for the Radisson Hotel, Schaumburg, Illinois, the 1995 pre-acquisition
operations were obtained from the hotel's audited pre-acquisition financial statements
included elsewhere in this Prospectus. As the financial records of the Radisson Hotel,
Schaumburg, Illinois were not available, its pre-acquisition operations ($2,501,548 of
revenues and $2,605,619 of expenses) were estimated based on the hotel's operating
budget for the same period in 1996.
(C) Reflects the elimination of management fee income for the Owned Hotels managed by
CapStar Management prior to acquisition ($235,524).
(D) Reflects the estimated incremental general and administrative expenses associated with
public ownership. These additional expenses include insurance, additional executive
salaries, directors' fees and related expenses, legal expenses, expenses associated
with preparing quarterly and annual reports, and other miscellaneous expenses.
(E) Management services for the Owned Hotels are provided by the Company and any
intercompany management fee charges will be eliminated for financial reporting
purposes.
(F) Reflects the net of the following adjustments:
</TABLE>
<TABLE>
<S> <C>
Elimination of depreciation on hotels for pre-acquisition period........... $ (7,267,137)
Depreciation on hotels for pre-acquisition period based on EquiStar's cost
basis...................................................................... 7,013,940
Elimination of amortization of deferred financing fees on existing debt
facilities to be repaid.................................................... (83,536)
Amortization of deferred financing costs related to the Credit Facility.... 950,000
------------
Net adjustment............................................................ $ 613,267
------------
</TABLE>
<TABLE>
<C> <S>
(G) Reflects the net of the following adjustments:
</TABLE>
<TABLE>
<S> <C>
Elimination of interest on existing debt facilities to be paid off and
interest from pre- acquisition operations................................. $(13,865,828)
Interest on $58,556,727 outstanding on the Credit Facility at an interest
rate of LIBOR
plus 2.25% (average rate for 1995 was 8.23%) plus the Credit Facility
maintenance fee of
$320,000.................................................................. 5,139,218
------------
Net adjustment............................................................ $ (8,726,610)
------------
</TABLE>
<TABLE>
<C> <S>
(H) Reflects the effect of the other pro forma adjustments on the interest of minority
owners in pro forma income before minority interest and income taxes for the
partnership that owns the Westin Atlanta Airport. After the adjustments, minority
interest is calculated as follows:
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
LOSS BEFORE
MINORITY PERCENTAGE
INTEREST MINORITY MINORITY
AND INCOME TAXES INTEREST INTEREST
---------------- ---------- --------
<S> <C> <C> <C>
Westin Atlanta Airport.................................... $ (393,575) 15% $(59,036)
</TABLE>
<TABLE>
<C> <S>
(I) Historical combined financial data does not include a provision for income taxes
because both EquiStar and CapStar Management were partnerships not subject to income
taxes. The pro forma adjustment reflects federal and state income taxes (assuming a 40%
combined effective rate) as if these entities had been taxed as a C-corporation in
1995.
(J) Reflects the historical operations of the Additional Hotels adjusted for (i)
depreciation on the new cost basis ($1,889,198) (ii) interest on the debt to finance
the purchase ($5,630,540), and (iii) income taxes ($711,429 benefit). Also reflects the
elimination of management fee income earned by CapStar Management for managing four of
the five Additional Hotels in 1995 ($926,737). Historical operations of the Additional
Hotels before adjustments were obtained from the hotels' audited combined financial
statements included elsewhere in this Prospectus.
</TABLE>
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Prior to the Formation Transactions and the Offering, the business of the
Company was conducted through EquiStar, which owned the Owned Hotels, and
CapStar Management, which managed the Hotels. CapStar Management has been in the
hotel management business since 1987. EquiStar, however, was not formed until
January 12, 1995 and the Company did not own any hotels in any prior periods.
Therefore, the Company's financial statements prior to 1995 reflect only the
management business of CapStar Management. The economics of the management
business are based on fees paid to the Company for management services and the
costs related to the performance of these services. The fee management business
is labor intensive and requires relatively little capital.
Beginning in 1994, the Company began to invest in additional professional
staff and incurred related costs in order to position itself to acquire hotel
properties. From January 12, 1995 through June 30, 1996, the Company acquired 11
hotels on the following dates: March 3, 1995; June 30, 1995 (two hotels), August
4, 1995, October 3, 1995, November 15, 1995, February 2, 1996, February 16,
1996, February 22, 1996, March 8, 1996 and April 17, 1996. Thus, the historical
financial statements for the year ended December 31, 1995 and the six months
ended June 30, 1996 and 1995 reflect differing numbers of Owned Hotels
throughout the periods. The economics associated with the acquisition and
ownership of hotels is significantly different from the fee management business
in that capital is required to both acquire and maintain hotels. Due to the
timing and magnitude of the acquisitions made in 1995 and 1996, it is difficult
to compare results of these periods either to each other or to prior years.
The pro forma financial statements for 1995 and the six months ended June
30, 1996 reflect the operations of the Owned Hotels and the Additional Hotels
for the entire periods. For some or all of such periods, such hotels were owned
and/or operated by other companies. Furthermore, it is the Company's policy to
seek to acquire underperforming hotels where intensive management and selective
capital improvements can increase revenue and cash flow. Therefore, the Company
does not believe it is meaningful to compare its results of operations for 1995
and the first six months of 1996 with comparable prior periods. Except as noted
in the following period to period comparison discussions, the changes in
historical income statement items between periods are attributable to the
changes in the Company's business.
RESULTS OF OPERATIONS
PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED
WITH THE HISTORICAL RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
On a pro forma basis, after giving effect to the acquisition of the Owned
Hotels and the Additional Hotels and the Offering, pro forma total revenues
increased to $147.1 million for 1995 from $26.4 million for the same historical
period. The increase resulted from the recognition of revenue for the Owned
Hotels and Additional Hotels as if they had been acquired at the beginning of
the period. Management services and other revenues are reduced by $1.2 million
to reflect the elimination of management fee revenues from the Owned Hotels
prior to acquisition and from those Additional Hotels which were managed by the
Company during that period. The pro forma revenues for the period prior to
acquiring each Owned Hotel and the Additional Hotels (except for the Radisson
Hotel, Schaumburg, Illinois, where such revenues were estimated based on the
hotel's operating budget for 1996) reflect the actual revenues of the previous
owners.
Pro forma expenses give effect to the acquisition of the Owned Hotels and
the Additional Hotels and the Offering. Total pro forma operating expenses
increased to $130.4 million for 1995 from $23.7
30
<PAGE>
million for the same historical period. Departmental, selling, general,
administrative and other operating expenses reflect the actual costs incurred by
the previous owners prior to each acquisition and the actual costs incurred by
the Company thereafter. Depreciation, amortization, interest and income taxes
reflect the expenses that would have been incurred by the Company if the
Offering and the Formation Transactions had taken place at the beginning of the
period.
Pro forma EBITDA improved to $28.6 million for 1995 from $4.7 million for
the same historical period. Pro forma EBITDA as a percentage of revenue
increased to 19.7% for 1995 from 17.9% for the same historical period.
Management believes that EBITDA is a useful measure of operating performance
because it is industry practice to evaluate hotel properties based on operating
income before interest, depreciation and amortization, which is generally
equivalent to EBITDA, and EBITDA is unaffected by the debt and equity structure
of the property owner. EBITDA does not represent cash flow from operations as
defined by GAAP, and is not necessarily indicative of cash available to fund all
cash flow needs and should not be considered as an alternative to net income
under GAAP for purposes of evaluating the Company's operating performance.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1995
Total revenues increased to $46.3 million in the six months ended June 30,
1996 from $4.8 million in the six months ended June 30, 1995. Room revenues for
the six months ended June 30, 1996 increased to $28.1 million from $1.9 million
while food, beverage and other department revenues increased to $16.0 million
from $0.7 million predominantly due to the acquisition of 10 Owned Hotels and
the inclusion of an eleventh Owned Hotel acquired on March 3, 1995 for the
entire 1996 period.
Operating costs and expenses increased to $39.6 million in the six months
ended June 30, 1996 from $4.3 million in the six months ended June 30, 1995,
resulting from the acquisition of 10 Owned Hotels and the inclusion of an
eleventh hotel for the entire 1996 period. The costs related to management of
the Managed Hotels remained relatively constant.
Operating income increased to $6.6 million for the six months ended June 30,
1996 from $0.5 million for the six months ended June 30, 1995. Operating income
as a percentage of revenue increased to 14.3% for the six months ended June 30,
1996 from 10.4% for the six months ended June 30, 1995, resulting from increased
operating efficiencies.
Net interest expense increased to $7.3 million in the six months ended June
30, 1996 from $0.3 million in the six months ended June 30, 1995, resulting from
the debt incurred related to the acquisition of 10 Owned Hotels and the
inclusion of an eleventh hotel acquired on March 3, 1995 for the entire 1996
period.
The net loss of $0.6 million for the six months ended June 30, 1996 is a
decrease from the net income of $0.2 million for the six months ended June 30,
1995 and is due to the acquisition of 10 Owned Hotels. This loss was caused
primarily by increased interest expense incurred to acquire the properties.
EBITDA increased to $10.6 million for the six months ended June 30, 1996
from $0.8 million for the six months ended June 30, 1995. EBITDA as percentage
of revenue increased to 22.8% for the six months ended June 30, 1996 from 16.7%
for the six months ended June 30, 1995.
31
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1994
Total revenues increased to $26.4 million in 1995 from $4.4 million in 1994.
Room revenues and food, beverage and other hotel department revenues for 1995
reflect the operating revenues of five Owned Hotels acquired during the period.
There were no Owned Hotels acquired during 1994.
Operating costs and expenses increased to $23.7 million in 1995 from $4.5
million in 1994. Departmental expenses and property operating costs for 1995
reflect the operations of five Owned Hotels acquired during the period. Selling,
general and administrative costs and depreciation expense reflect increases due
to the acquisition of five Owned Hotels and the interest in the Westin Atlanta
Airport during 1995. The costs related to management of the Managed Hotels
remained relatively constant between the periods.
Operating income increased to $2.6 million for the period from 1995 from a
loss of $0.1 million in 1994. The increase from 1994 is due to the operating
income by the Owned Hotels and to increased efficiencies in the management of
the Managed Hotels.
Net interest expense of $2.4 million for 1995 results from the debt incurred
related to the acquisition of the Owned Hotels.
The Company incurred an extraordinary loss on extinguishment of debt during
1995 from the write-off of deferred financing fees in connection with a
refinancing transaction.
The net loss increased to $0.7 million for 1995 from $0.1 million for 1994.
The primary reason for the extraordinary loss was the extinguishment of debt.
YEAR ENDED DECEMBER 31, 1994 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1993
Management services and other revenues increased to $4.4 million in 1994
from $4.2 million in 1993, due to the improved performance of the Managed
Hotels. The Management Agreements provide for incentive payments based on the
favorable performance of the Managed Hotels.
Operating costs and expenses increased to $4.5 million in 1994 from $4.1
million in 1993. Selling, general and administrative costs reflect increases due
to the addition of development, accounting and administrative personnel and
leased office space as the Company began to actively seek acquisitions of hotel
properties.
The net loss for 1994 was $0.1 million compared to net income of $0.2
million in 1993. The variance in net operating results was due to the additional
operating costs incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash on hand, cash
generated from operations and borrowings under credit facilities as well as the
proceeds from the Offering. The Company's continuing operations are funded
through cash generated from hotel operations. Hotel acquisitions are financed
through a combination of internally generated cash and borrowings under credit
facilities.
At June 30, 1996, the Company had $4.9 million in cash and cash equivalents,
a decrease of $1.9 million from the balance of $6.8 million on December 31,
1995. During the 18 months ended June 30, 1996, the Company invested $14.0
million in capital improvements in connection with renovations of the Owned
Hotels. The Company plans to spend an additional $15.8 million in 1996 and $2.1
million in 1997 for the completion of the renovation of the Owned Hotels.
Renovations on the Additional Hotels will commence after consummation of their
acquisition at the end of 1996 and are projected to total
32
<PAGE>
$3.7 million. Capital for renovation work has been and will be provided by a
combination of internally generated cash and borrowings under credit facilities.
The Company is committed to reinvesting adequate capital on an ongoing basis to
maintain the quality of the hotels it owns. Once existing planned renovation
programs are complete, the Company expects to spend approximately 4% of revenues
on an annual basis for ongoing capital expenditures, including room and
facilities refurbishments, renovations and furniture and equipment replacements.
The Company believes that these investments will enhance the Company's
competitive position.
The Company has entered into negotiations with the Banks, led by Bankers
Trust, to obtain the Credit Facility in the maximum principal amount of $225
million. Borrowings under the Credit Facility will be used by the Company to
repay existing indebtedness (including $55.7 million of indebtedness owed to
Lehman Holdings that will remain outstanding following consummation of the
Offering and the application of proceeds therefrom), to acquire and renovate
upscale, full-service hotels in the United States, and for other corporate
purposes. It is anticipated that the Company's ability to borrow under the
Credit Facility will be subject, among other things, to a borrowing base test
calculated with the reference to the cash flow from hotel properties, the
relative contribution to the borrowing base of the values attributable to the
different hotel properties, the appraised values of such hotel properties and
certain other factors.
It is anticipated that the term of the Credit Facility will be three years,
subject to two one-year extensions upon the satisfaction of certain conditions.
The Company anticipates that it will not be entitled to borrow additional
advances or reborrow during the extension period. The Company will be required
to pay customary fees in connection with the structuring of the Credit Facility,
a commitment fee on the unused portion of the Credit Facility and a fee on
outstanding letters of credit.
It is anticipated that the Credit Facility will be a direct obligation of
CapStar Management and will be fully and unconditionally guaranteed by the
Company and certain subsidiaries of CapStar Management, including the
subsidiaries owning hotel properties. It is anticipated that the Credit Facility
will be secured by substantially all the real and personal property of CapStar
Management and its subsidiaries.
The Credit Facility will contain convenants that impose certain limitations
on the Company in respect of, among other things, (i) the payment of dividends
and other distributions, (ii) acquisitions of additional hotel properties, (iii)
the creation or incurrence of liens, (iv) the incurrence of indebtedness, lease
obligations or contingent liabilities, (v) the acquisition of investments in and
securities issued by joint ventures and other entities, (vi) transactions with
affiliates, (vii) management or similar agreements delegating to another person
substantial authority over the operation or maintenance of its hotel properties,
(viii) mergers, acquisitions, divestitures or reorganizations, (ix) the issuance
of preferred stock and (x) sale leaseback transactions involving any of its
hotel properties. The Credit Facility will also contain covenants that will
subject the Company to certain operating requirements and that require the
maintenance of certain financial levels, such as consolidated net worth, and
certain financial ratios, such as consolidated hotel indebtedness to market
equity capitalization and shareholders' equity, consolidated cash flow to
interest and consolidated total indebtedness to consolidated cash flow.
While the Company expects to enter into the Credit Facility following the
consummation of the Offering, and prior to the maturity of its indebtedness to
Lehman Holdings, there can be no assurance that the Company will be successful
in entering into the Credit Facility and, if so, on the terms described above or
otherwise. See "Risk Factors--Risk of Debt Financing; No Limit on Indebtedness."
33
<PAGE>
SEASONALITY
Demand at many of the Hotels 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, the Company's
operations are seasonal in nature, with lower revenue, operating profit and cash
flow in the first and fourth quarters and higher revenue, operating profit and
cash flow in the second and third quarters.
INFLATION
The rate of inflation has not had a material effect on the revenues or
operating results of the Company during the three most recent fiscal years.
34
<PAGE>
THE COMPANY
CapStar is a hotel investment and management company which acquires, owns,
renovates, repositions and manages hotels throughout the United States. CapStar
owns 12 upscale, full-service Owned Hotels which contain 3,516 rooms. Including
the Owned Hotels, the Company manages 48 Hotels with 8,849 rooms. The Company's
business strategy is to identify and acquire hotel properties with the potential
for cash flow growth and to renovate, reposition and operate each hotel
according to a business plan specifically tailored to the characteristics of the
hotel and its market. Each of the Owned Hotels is located in a market which has
recently experienced strong economic growth, including Atlanta, Charlotte,
Chicago, Cleveland, Dallas, Los Angeles, Salt Lake City, Seattle and Washington,
D.C. The Owned Hotels include hotels operated under nationally recognized brand
names such as Hilton, Sheraton, Westin, Marriott, Holiday Inn and Radisson, and
one hotel operated under an independent brand name. In the six months ended June
30, 1996, the operating performance of the Owned Hotels improved significantly,
as demonstrated by the 7.5% increase in revenues, 14.1% increase in gross
operating profit, and 12.5% increase in RevPAR over the comparable year earlier
period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
PERCENTAGE
1996 1995 INCREASE
------- --------- ----------
<S> <C> <C> <C>
Revenues (in thousands)........................ $58,099 $54,036 7.5%
Gross operating profit (in thousands).......... $17,594 $15,415 14.1%
Average Occupancy.............................. 73.3% 71.9% 1.9%
ADR............................................ $ 82.47 $ 74.33 10.4%
RevPAR......................................... $ 60.45 $ 53.73 12.5%
</TABLE>
Additionally, the performance of the Company's Owned Hotels compares
favorably with that of the industry in general. For the five months ended May
31, 1996 (the most recent period for which industry information is currently
available), RevPAR for the Owned Hotels increased 12.6%, while RevPAR for all
upscale hotels, as reported by Smith Travel Research, increased 5.8%.
As a fully integrated owner and manager, CapStar intends to capitalize on
its management experience and expertise by continuing to make opportunistic
acquisitions of full-service hotels, securing additional management contracts
and improving the operating performance of the hotels. The Company's senior
management team has successfully managed hotels in all segments of the lodging
industry, with particular emphasis on upscale, full-service hotels. Senior
management has an average of approximately 19 years of experience in the hotel
industry. Since the inception of the Company's management business in 1987, the
Company has achieved consistent growth, even during periods of relative industry
weakness. The Company attributes its management success to its ability (i) to
analyze each hotel as a unique property and identify those particular cash flow
growth opportunities which each hotel presents, (ii) to create and implement
marketing plans that properly position each hotel within its local market, and
(iii) to develop management programs that emphasize guest service, labor
productivity, revenue yield and cost control. The Company has a distinct
management culture that stresses creativity, loyalty and entrepreneurship and
was developed to emphasize operations from an owner's perspective. This culture
is reinforced by the fact that 33 members of management will hold, directly or
indirectly, an aggregate of 7.8% of the Company's equity upon completion of the
Offering. See "Principal and Selling Stockholders."
The Company is in the process of renovating and repositioning the Owned
Hotels based on strategic plans designed to address the opportunities presented
by each hotel and local market. Management selects renovations intended to
result in a high return on investment and to extend the Owned Hotels' appeal to
a broader range of market segments. Examples of these revenue generating
renovations include the following: enhancing meeting and banquet facilities to
attract lucrative group conferences and conventions; upgrading guest rooms to
meet the needs of business travelers and to
35
<PAGE>
increase ADRs; renovating restaurants and introducing new food and beverage
concepts to attract additional guests and local patrons; and completing
necessary repairs and upgrades of interior and exterior spaces to ensure high
levels of quality and guest satisfaction. During the 18 months ended June 30,
1996, the Company spent a total of $14.0 million on renovations at the Owned
Hotels and currently intends to spend an additional $15.8 million completing the
renovation programs.
The Company believes that the upscale, full-service segment of the lodging
industry is the most attractive segment in which to acquire, own and manage
hotels and further believes that there are currently many attractive
opportunities to acquire properties in this segment of the industry at prices
below replacement cost. The upscale, full-service segment is attractive for
several reasons. First, the Company expects that there will be no significant
increases in the supply of upscale, full-service hotels in the next several
years because the cost of new construction generally does not justify new hotel
development. 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 business
executives and upscale leisure travelers, customers who are generally less
price sensitive than travelers who use limited-service hotels. Third, because
full-service hotels have a higher proportion of fixed costs to variable costs
than other segments of the lodging industry, full-service hotels afford greater
operating leverage than limited-service hotels, resulting in increasingly higher
profit margins as revenues increase. Finally, full-service hotels require a
greater depth of management expertise than limited-service hotels, and the
Company believes that its superior management skills provide it with a
significant competitive advantage in their operation.
In connection with its growth strategy, the Company has entered into a
binding contract with MBL to acquire the five Additional Hotels which contain
1,121 rooms, for a purchase price of $68.4 million. Four of the Additional
Hotels have been managed by the Company since 1991. Since assuming management of
these four hotels, the Company has improved the operating performance of the
properties. The Company, however, believes that with appropriate capital
spending the Additional Hotels can achieve further improvements in revenue and
cash flow. The Company plans to spend approximately $3.7 million subsequent to
the acquisition to renovate and reposition the Additional Hotels. The
acquisition is scheduled to close in December 1996. There can be no assurance,
however, that the closing will occur. See "Risk Factors--Risks Associated with
Expansion" and "Business and Properties--The Properties--The Additional Hotels."
BUSINESS AND PROPERTIES
The Company seeks to increase shareholder value by (i) continuing to acquire
upscale, full-service hotels below replacement cost in selected markets
throughout the United States and (ii) implementing its operating strategy to
improve hotel operations and increase cash flow.
ACQUISITION STRATEGY
The Company intends to continue acquiring upscale, full-service hotels. In
addition to the direct acquisition of hotels, the Company anticipates that it
may make investments in hotels through joint ventures with strategic partners or
through equity contributions or secured loans. The Company identifies
acquisition candidates located in markets with economic, demographic and supply
dynamics favorable to hotel owners and operators. Through its extensive due
diligence process, the Company chooses those acquisition targets where it
believes selective capital improvements and intensive 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, senior management and individual operations teams create
detailed plans covering all areas of renovation and operation. These plans serve
as the basis for the Company's acquisition decisions and guide subsequent
renovation and operating plans. At the Owned Hotels, the Company has been able
to implement these plans and apply its system of management to create
improvements in revenue and profitability.
36
<PAGE>
The Company will seek to acquire and invest in hotels that meet the
following criteria:
MARKET CRITERIA
Economic Growth. The Company focuses on metropolitan areas that are
approaching, or have already entered, periods of economic growth. Such areas
generally show above average growth in the business community as measured by (i)
job formation rates, (ii) population growth rates, (iii) tourism and convention
activity, (iv) airport traffic volume, (v) local commercial real estate
occupancy, and (vi) retail sales volume. Markets that exhibit these
characteristics typically have strong demand for hotel facilities and services.
Supply Constraints. The Company seeks lodging markets with favorable supply
dynamics for hotel owners and operators, including an absence of current new
hotel development and barriers to future development such as zoning constraints,
the need to undergo lengthy local development approval processes and a limited
number of suitable sites. Other factors limiting the supply of new hotels are
the current lack of financing available for new development and the inability to
generate adequate returns on investment to justify new development.
Geographic Diversification. The Company seeks to maintain a geographically
diverse portfolio of hotels to offset the effects of regional economic cycles.
The Hotels are located in 23 states across the nation, with 11 Hotels located in
California, four in Virginia, three in Colorado, three in Maryland, three in New
Jersey, two in Arizona, two in Indiana, two in Louisiana, two in New York, two
in Washington, D.C., two in Pennsylvania and one Hotel each in 12 additional
states.
HOTEL CRITERIA
Location and Market Appeal. The Company seeks to acquire upscale,
full-service hotels that are situated near both business and leisure centers
which generate a broad base of demand for hotel accommodations and facilities.
These demand generators include (i) business parks, (ii) airports, (iii)
shopping centers and other retail areas, (iv) convention centers, (v) sports
arenas and stadiums, (vi) major highways, (vii) tourist destinations, (viii)
major universities, and (ix) cultural and entertainment centers with nightlife
and restaurants. The confluence of nearby business and leisure centers enables
the Company to attract both weekday business travelers and weekend leisure
guests. Attracting a balanced mix of business, group and leisure guests to the
Hotels helps to maintain stable occupancy rates and high ADRs.
Size and Facilities. The Company seeks to acquire well-constructed hotels
that are less than 20 years old, contain 200 to 500 guest rooms and include
accommodations and facilities that are, or are capable of being made, attractive
to key demand segments such as business, group and leisure travelers. These
facilities typically include large, upscale guest rooms, food and beverage
facilities, extensive meeting and banquet space, and amenities such as health
clubs, swimming pools and adequate parking.
Potential Performance Improvements. The Company seeks to acquire
underperforming hotels where intensive management and selective capital
improvements can increase revenue and cash flow. Underperforming hotels
typically serve less than their "fair share" of lodging industry demand (as
measured by RevPAR), achieve lower profit margins than the Company believes it
can maintain and receive inadequate funding to make needed capital improvements.
These hotels represent opportunities where a systematic management approach and
targeted renovations should result in improvements in revenue and cash flow. The
Company's ability to improve operations is demonstrated by the fact that RevPAR
at the Owned Hotels increased 12.6% from the five month period ended May 31,
1995 to the five month period ended May 31, 1996, as compared to an increase of
only 5.8% for the upscale, full-service hotel segment as reported by Smith
Travel Research over the comparable period (the most recent industry information
available).
37
<PAGE>
The Company expects that its relationships throughout the industry and its
acquisition staff located on both coasts of the United States will continue to
provide it with a competitive advantage in identifying, evaluating and
purchasing hotels which meet its acquisition criteria. The Company has a record
of successfully renovating and repositioning hotels, both at the Owned Hotels
and at the Managed Hotels (varying in levels of service, room rates and market
types). As a public company, the Company believes it will have improved access
to various debt and equity financing sources to fund acquisitions. In addition,
in consummating acquisitions the Company expects that it will benefit from its
ability to utilize units of limited partnership interest in its subsidiary
Operating Partnership as an alternative to cash. The Company is currently
negotiating with the Banks, led by Bankers Trust, to obtain the new $225 million
Credit Facility, under which capital will be available to pursue acquisitions
and make capital investments in subsequently acquired hotels. See "Risk
Factors--Risks of Debt Financing; No Limits on Indebtedness." The Company
currently expects to retain earnings for future acquisitions and the renovation
and maintenance of the hotels it owns.
OPERATING STRATEGY
The Company's principal operating objectives are to generate higher RevPAR
and to increase net operating income while providing its hotel guests with
high-quality service and value. The Company seeks to achieve these objectives by
creating and executing management plans that are specifically tailored for each
individual Hotel rather than by implementing an operating strategy that is
designed to maintain a uniform corporate image or brand. Management believes
that its custom-tailored business plans are the most effective means of
addressing the needs of a given hotel or market. The Company believes that
skilled management of hotel operations is the most critical element in
maximizing revenue and cash flow in full-service hotels.
The Company's corporate headquarters carries out financing and acquisition
activities and provides services to support as well as monitor the Company's
on-site hotel operating executives. Each of the Company's executive departments,
including Sales and Marketing, Human Resources and Training, Food and Beverage,
Technical Services, Development, and Corporate Finance, is headed by an
executive with significant experience in that area. These departments support
decentralized decision-making by the hotel operating executives by providing
accounting and budgeting services, property management software and other
resources which cannot be economically maintained at the individual Hotels.
Key elements of the Company's management programs include the following:
Comprehensive Budgeting and Monitoring. The Company's operating strategy
begins with an integrated budget planning process that is implemented by
individual on-site managers and monitored by the Company's corporate staff.
Management sets targets for cost and revenue categories at each of the Hotels
based on historical operating performance, planned renovations, operational
efficiencies and local market conditions. On-site managers coordinate with the
central office staff to ensure that such targets are realistic. Through
effective and timely use of its comprehensive financial information and
reporting systems, the Company can monitor actual performance and rapidly adjust
prices, staffing levels and sales efforts to take advantage of changes in the
market and to improve yield.
Targeted Sales and Marketing. The Company employs a systematic approach
toward identifying and targeting segments of demand for each Hotel in order to
maximize market penetration. Executives at the Company's corporate headquarters
and property-based managers divide such segments into smaller subsegments,
typically ten or more for each Hotel, and develop narrowly tailored marketing
plans to suit each such segment. The Company supports each Hotel's local sales
efforts with corporate sales executives who develop new marketing concepts and
monitor and respond to specific market needs and preferences. These executives
are active in implementing on-site marketing programs developed in the central
management office. The Company employs computerized revenue yield management
38
<PAGE>
systems to manage each Hotel's use of the various distribution channels in the
lodging industry. Management control over those channels, which include
franchisor reservation systems and "800" numbers, travel agent and airline
global distribution systems, corporate travel offices and office managers, and
convention and visitor bureaus, enables the Company to maximize revenue yields
on a day-to-day basis. Sales teams are recruited locally and receive
incentive-based compensation bonuses. All of the Company's sales managers
complete a highly developed sales training program.
Strategic Capital Improvements. The Company plans renovations primarily to
enhance a Hotel's appeal to targeted market segments, thereby attracting new
customers and generating increased revenue and cash flow. During the 18 months
ended June 30, 1996, the Company spent a total of $14.0 million on renovations
at the Owned Hotels and currently intends to spend an additional $15.8 million
completing the renovation programs. For example, at all of the Owned Hotels, the
Company has renovated banquet and meeting spaces and upgraded guest rooms with
computer ports and comfortable work spaces to better accommodate the needs of
business travelers and to increase ADRs. Capital spending decisions are based on
both strategic needs and potential rate of return on a given capital investment.
Selective Use of Multiple Brand Names. The Company believes that the
selection of an appropriate franchise brand is essential in positioning a hotel
optimally within its local market. The Company selects brands based on local
market factors such as local presence of the franchisor, brand recognition,
target demographics and efficiencies offered by franchisors. The Company
believes that its relationships with many major hotel franchisors, established
both as a manager and an owner of hotels operated under their respective
franchises, places the Company in a favorable position when dealing with those
franchisors and allows it to negotiate favorable franchise agreements with
franchisors. The Company believes that its growth through acquisition of
additional hotels will further strengthen its relationship with franchisors.
39
<PAGE>
The following chart summarizes certain information with respect to the
national franchise affiliations of the Hotels and the Additional Hotels:
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPANY'S TOTAL
PERCENTAGE OF GUEST ROOMS-- OWNED
NUMBER OF NUMBER OF COMPANY'S TOTAL HOTELS AND
FRANCHISE HOTELS(1) GUEST ROOMS(1) GUEST ROOMS(1) ADDITIONAL HOTELS(2)
- --------------------------------- --------- -------------- --------------- --------------------
<S> <C> <C> <C> <C>
Hilton........................... 7 1,930 21.9% 41.6%
Sheraton......................... 4 1,137 12.8 15.7
Holiday Inn...................... 7 1,132 12.8 9.4
Best Western(R).................. 6 728 8.2 --
Ramada(R)........................ 4 725 8.2 --
Westin........................... 1 496 5.6 10.7
Marriott......................... 1 434 4.9 9.4
Radisson......................... 2 328 3.7 4.4
Days Inn(R)...................... 2 277 3.1 --
Quality(R)....................... 2 277 3.1 --
Doubletree(R).................... 1 208 2.4 --
Clarion(R)....................... 1 194 2.2 --
Comfort Suites(R)................ 1 119 1.3 --
Residence Inn(R)................. 1 104 1.2 --
Independent...................... 8 760 8.6 8.8
--
----- ----- -----
Total............................ 48 8,849 100.0% 100.0%
--
--
----- ----- -----
----- ----- -----
</TABLE>
-------------------
(1) Excludes the one Additional Hotel that the Company does not currently
manage.
(2) Includes the one Additional Hotel that the Company does not currently
manage.
Emphasis on Food and Beverage. Management believes popular food and beverage
ideas are a critical component in the overall success of a hotel. The Company
utilizes its food and beverage operations to create local awareness of its hotel
facilities, to improve the profitability of its hotel operations and to enhance
customer satisfaction. The Company is committed to competing for patrons with
restaurants and catering establishments by offering high-quality restaurants
that garner positive reviews and strong local and/or national reputations. The
Company has engaged food and beverage experts to develop several proprietary
restaurant concepts. The Owned Hotels contain restaurants ranging from Michel
Richard's highly acclaimed CITRONELLE(R), to Morgan's, a Company-designed
concept which offers popular, moderately-priced American cuisine. The Company
has also successfully placed national food franchises such as Starbuck's
Coffee(R) and "TCBY"(R) Yogurt in casual, delicatessen-style restaurants in
several of the Owned Hotels. Popular food concepts have strengthened the
Company's ability to attract business travelers and group meetings and improved
the name recognition of the Owned Hotels.
Commitment to Reinvestment. The Company is committed to reinvesting adequate
capital on an ongoing basis to maintain the quality of the hotels it owns.
Reinvestment is expected to include room and facilities refurbishments,
renovations and furniture and equipment replacements that are designed to
maintain attractive accommodations, updated restaurants and modern equipment.
The Company believes that these investments will enhance the Company's
competitive position.
Computerized Reporting Systems. The Company employs computerized reporting
systems at each of the Hotels and at its corporate offices to monitor the
financial and operating performance of the Hotels. Management information
services have been fully integrated through the installation of Novell and Unix
networks. Management also utilizes programs like Data Plus(R) and cc:Mail(R) to
facilitate daily communication. Such programs have enabled the Company to create
and implement detailed reporting
40
<PAGE>
systems at each of the Hotels and its corporate headquarters. Corporate
executives utilize information systems that track each of the Hotel's daily
occupancy, ADR, and revenue from rooms, food and beverage. By having the latest
hotel operating information available at all times, management is better able to
respond to changes in the market of each Hotel.
Commitment to Service and Value. The Company is dedicated to providing
exceptional service and value to its customers on a consistent basis. The
Company conducts extensive employee training programs to ensure personalized
service at the highest levels. Programs such as "Be A Star" have been created
and implemented by the Company to ensure the efficacy and uniformity of its
employee training. The Company's practice of tracking customer comments, through
the recording of guest comment cards and the direct solicitation (during
check-in and check-out) of guest opinions regarding specific items, allows
investment in services and amenities where they are most effective. The
Company's focus on these areas has enabled it to attract lucrative group
business.
Distinct Management Culture. The Company has a distinct management culture
that stresses creativity, loyalty and entrepreneurship and was developed to
emphasize operations from an owner's perspective. Management believes in
realistic solutions to problems, and innovation is always encouraged. Incentive
programs and awards have been established to encourage individual property
managers to seek new ways of increasing revenues and operating cash flow. This
creative, entrepreneurial spirit is prevalent from the corporate staff and the
general managers down to the operations staff. Individual general managers work
closely with the corporate staff and they and their employees are rewarded for
achieving target operating and financial goals.
IMPLEMENTATION OF STRATEGIES
Since January 1, 1995, CapStar has implemented its acquisition and operating
strategies by acquiring and assuming management of 12 upscale, full-service
hotels containing approximately 3,500 rooms and contracting to acquire
Additional Hotels containing approximately 1,125 rooms. The Company believes
that it has improved the performance of each of the Owned Hotels since acquiring
them between March 1995 and June 1996. The following three examples illustrate
the manner in which the Company has implemented its acquisition and operating
strategies at the Owned Hotels:
Westin Atlanta Airport. Built in 1982, the 496-room hotel is located on
Interstate 85 near Interstate 285, Atlanta's central highway, and adjacent to
Hartsfield International Airport (the nation's third busiest airport). After
acquiring the hotel, the Company began the process of converting the franchise
affiliation from Renaissance to Westin. It is expected that the conversion will
be completed by July 1996. The hotel's facilities and amenities feature over
15,000 square feet of meeting and banquet space, an indoor/outdoor pool, a
health club, a voice mail telephone answering system, a gift shop, a business
center, a club lounge, two restaurants, a lounge and a nightclub. The economy of
greater Atlanta, host of the 1996 Summer Olympic Games, is among the strongest
in the nation.
Prior to the Company's acquisition, the hotel had been leased to a tenant
that was involved in prolonged disputes with the hotel's owners, which had
resulted in inadequate maintenance of the hotel's physical plant and generally
poor employee morale. The Company acquired the first mortgage loan on this hotel
from a major insurance company during 1995 and in November 1995 acquired a
majority limited partnership interest and the sole general partner interest in
the limited partnership that owns the hotel (the limited partnership was in its
fourth year of Chapter 11 reorganization at the time). The Company took over
management of the hotel in March 1996 after confirmation of the hotel's
reorganization plan and has implemented an operating strategy (outlined in the
chart below) which
41
<PAGE>
includes a $7.1 million renovation program that is expected to be substantially
completed by November 1996.
<TABLE>
<CAPTION>
BUSINESS PLAN ELEMENT BUSINESS PLAN STRATEGY STATUS
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
1. Change franchise brand . Complete property Westin franchise is expected
affiliation from improvements specified by to become effective in July
Renaissance(R) to Westin. Westin. 1996.
2. Replace property . Install new management New general manager and
management committee to team. executive staff installed.
facilitate shift in
marketing and management
direction.
3. Shift demand segment from . Renovate 250 guest rooms to Club room and telephone
heavily-discounted airline Westin Premier(R) standard system installed. Westin
crew business to premium and install Guest Office Premier rooms completed and
business and leisure features. remaining rooms in process of
travelers. . Install dedicated club room being renovated (as airline
for top tier guests. contracts expire).
. Upgrade remaining guest
rooms.
. Replace telephone system.
. Repair health club
equipment and pool area.
4. Increase group meeting . Renovate meeting and Renovations complete and
use. banquet space in marketing plan under way.
coordination with local and
national Westin sales office
system.
5. Execute accelerated . Repair and upgrade HVAC and Deferred maintenance programs
capital improvement plan to mechanical system. underway.
address defined maintenance . Refinish guest room
program. corridors.
. Repair building exterior
and grounds.
</TABLE>
Marriott Hotel, Somerset, NJ. Built in 1978, the 434-room hotel is centrally
located on Interstate 287, approximately 25 miles from Newark International
Airport, 40 minutes from midtown Manhattan and convenient to all major traffic
arteries in Northern New Jersey. The hotel's facilities and amenities feature
over 9,000 square feet of meeting and banquet space, tennis courts, volleyball
courts, an indoor/outdoor pool, a sauna/whirlpool, an exercise room, a
shuffleboard/badminton court, two restaurants and a pool-side bar. The hotel is
surrounded by a significant number of corporate headquarters, commercial office
buildings, retail centers, an affluent residential community and extensive,
well-maintained local highways and road systems. Somerset and its neighboring
communities have been experiencing moderate economic growth in recent years.
Prior to the Company's acquisition, a widely syndicated investment
partnership owned the hotel and contracted the management to Marriott
International, Inc. That owner limited the amount of capital for building
renovations available to Marriott International, Inc., which necessitated a
marketing strategy that did not allow management to penetrate the multiple
demand segments that the Company believes the hotel can successfully serve. Data
from Smith Travel Research indicated that the hotel was operating at above its
fair share of demand among the competitive set of area hotels during 1994 and
1995, but at a significantly lower premium than it had consistently maintained
during prior years, which the Company believes was a direct result of inadequate
on-going capital investment. Since acquiring the hotel in October 1995, the
Company has implemented an operating strategy (outlined in
42
<PAGE>
the chart below) which includes a $3.3 million renovation program that is
expected to be substantially completed by October 1996.
<TABLE>
<CAPTION>
BUSINESS PLAN ELEMENT BUSINESS PLAN STRATEGY STATUS
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
1. Pursue higher ADR through . Convert 180 guest rooms to Renovations and conversions
modified room rate Marquis(R) level. to be completed by August
structure in premium . Redecorate the lobby and 1996 (time table based on
commercial segment. the corporate club. vacancy patterns so that
. Reduce number of premium premium room service
guest rooms available at interruption is minimized).
discounts.
2. Increase weekend . Target leisure demand Direct sales and marketing
occupancy. segment with direct sales plans in place.
and advertising.
3. Pursue higher food and . Convert formal dining room Renovations completed.
beverage sales. to banquet space to attract
local catering demand.
. Enlarge cocktail lounge to
attract non-restaurant
demand.
4. Reduce operating expenses . Install computer network Achieved gross operating
by restructuring staff and for more efficient profit margin of 34.5% for
training programs. management oversight. the six months ended June 30,
1996.
5. Execute accelerated . Replace HVAC units in 140 Deferred maintenance programs
capital improvement plan to guest rooms. underway.
address deferred . Refinish corridors.
maintenance program. . Install fire sprinkler
system.
</TABLE>
Salt Lake Airport Hilton. Built in 1980, the 287-room hotel is centrally
located within a commercial office park, approximately five minutes from the
Salt Lake City International Airport and 15 minutes from downtown Salt Lake
City. The hotel's facilities and amenities feature 10,000 square feet of meeting
and banquet facilities, indoor and outdoor pools, a basketball court, lake and
dock facilities, a putting green, a health club, a video room and a restaurant
and lounge with 150 seats. The hotel is well-positioned to serve strong business
segment demand generated by the commercial office park, as well as leisure
segment demand from visitors to nearby attractions like the Mormon Temple, the
Great Salt Lake and seven world-class ski resorts in the Wasatch Range of the
Rocky Mountains. Salt Lake City has experienced strong economic growth in recent
years as a result of a growing high-tech business community, the renovation and
expansion of the Salt Palace Convention Center and the selection of the city as
the site of the 2002 Winter Olympic Games.
Prior to the Company's acquisition, the Salt Lake Airport Hilton was owned
and operated by its original developer, a local development company that owned
no other hotel properties. The hotel's first mortgage had passed its original
maturity date. The hotel suffered from deferred maintenance, a deteriorating
market share and low employee morale. Specific operational deficiencies included
the lack of a yield management system, a low operating margin in the rooms
department and an inefficient marketing plan that failed to attract upscale
business travelers and group business. Data from Smith Travel Research indicated
that the hotel was operating at approximately 83% of its fair share of demand
among its competitive set of area hotels during 1994. However, the Company felt
that the hotel had a fundamentally sound physical plant, facilities and
amenities to serve a full range of lodging demand segments and strong marketing
support from the Hilton reservation system. Since acquiring
43
<PAGE>
the hotel in March 1995, the Company has implemented an operating strategy
(outlined in the chart below) which includes a $1.8 million renovation program
that is substantially completed.
<TABLE>
<CAPTION>
BUSINESS PLAN ELEMENT BUSINESS PLAN STRATEGY STATUS
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
1. Recapture business . Upgrade 48 guest rooms to Renovations completed and new
travelers in premium rate create corporate floor with restaurant operating.
segment during peak business services and
business periods. dedicated club room.
. Redecorate lobby and small
meeting rooms.
. Install new restaurant.
2. Generate higher revenues . Fully renovate meeting Renovations completed and
from group demand segment facilities. local/corporate sales program
in rooms and food & . Install cocktail lounge. continuing.
beverage department. . Upgrade VIP and hospitality
suites.
3. Apply yield management . Install new computer system Completed and in effect.
practices. and upgrade software.
4. Reduce Rooms Department . Reduce payroll costs. Rooms Department profit
expense margin. . Scale back on excessive margin increased from 34.4%
guest premium program. for the six months ended June
30, 1995 to 36.9% for the six
months ended June 30, 1996.
5. Eliminate unproductive . Redirect promotional Program underway.
promotional costs. dollars to priority business
plan items.
</TABLE>
THE PROPERTIES
The Owned Hotels and the Additional Hotels feature, or after the Company's
renovation program has been completed will feature, comfortable, modern guest
rooms, extensive meeting and convention facilities and full-service restaurant
and catering facilities that attract meeting and convention functions from
groups and associations, upscale business and vacation travellers as well as
banquets and receptions from the local community.
44
<PAGE>
The following table sets forth certain information with respect to the Owned
Hotels and the Additional Hotels for the 12 months ended June 30, 1996:
<TABLE>
<CAPTION>
PLANNED OR TWELVE MONTHS ENDED
COMPLETED JUNE 30, 1996
NUMBER OF RENOVATION ----------------------------
GUEST YEAR MONTH EXPENDITURE(1) AVERAGE
HOTEL LOCATION ROOMS BUILT ACQUIRED (000'S) OCCUPANCY ADR REVPAR(2)
- --------------------------------- ----------------- --------- ----- -------- -------------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OWNED HOTELS
Orange County Airport Hilton..... Irvine, CA 290 1976 2/96 $ 2,006 65.1% $73.61 $ 47.92
Sheraton Hotel................... Colorado Springs,
CO 502 1974 6/95 3,393 68.5 63.57 43.55
Georgetown Latham................ Washington, DC 143 1981 3/96 802 73.2 102.60 75.10
Westin Atlanta Airport(3)........ Atlanta, GA 496 1982 11/95 7,100 84.1 71.64 60.25
Radisson Hotel................... Schaumburg, IL 202 1979 6/95 1,652 62.7 69.23 43.41
Marriott Hotel................... Somerset, NJ 434 1978 10/95 3,311 72.3 96.49 69.76
Sheraton Airport Plaza........... Charlotte, NC 226 1985 2/96 1,529 73.9 79.02 58.40
Holiday Inn...................... Cleveland, OH 237 1978 2/96 2,900 75.2 66.96 50.35
Hilton Hotel..................... Arlington, TX 310 1983 4/96 2,700 75.1 79.01 59.34
Salt Lake Airport Hilton......... Salt Lake City,
UT 287 1980 3/95 1,823 71.3 75.13 53.57
Hilton Hotel..................... Arlington, VA 209 1990 6/96 1,500 76.3 105.35 80.38
Hilton Hotel..................... Bellevue, WA 180 1979 8/95 1,063 78.1 86.31 67.41
--
--- ------ ------ ---------
Total/Weighted Average--Owned Hotels............. 3,516 $ 29,779 73.2% $78.89 $ 57.75
ADDITIONAL HOTELS
Hilton Hotel..................... Sacramento, CA 326 1983 12/96 $ 750 71.2% $74.53 $ 53.07
Santa Barbara Inn................ Santa Barbara, CA 71 1959 12/96 450 84.0 125.13 105.11
Holiday Inn...................... Colorado Springs,
CO 201 1974 12/96 200 72.3 56.54 40.88
Embassy Row Hotel................ Washington, DC 195 1969 12/96 2,033 58.0 113.88 66.05
Hilton Hotel & Towers............ Lafayette, LA 328 1981 12/96 249 72.3 67.90 44.09
--
--- ------ ------ ---------
Total/Weighted Average--Additional Hotels........ 1,121 $ 3,682 70.3% $78.72 $ 55.34
Total/Weighted Average........................... 4,637 $ 33,461 72.5% $78.85 $ 57.17
--
--
--- ------ ------ ---------
--- ------ ------ ---------
</TABLE>
- ------------
(1) Represents the total planned or completed capital expenditures at each
hotel. As of June 30, 1996, $14.0 million had been spent and an additional
$15.8 million was planned for the Owned Hotels and $3.7 million was planned
for the Additional Hotels.
(2) Represents total room revenue divided by total available rooms, net of rooms
out of service due to significant renovations.
(3) The Westin Atlanta Airport is majority-owned by the Company through a
partnership in which the Company holds an 85.2% limited partner interest, 1%
general partner interest and a mortgage which together provide the Company a
92% economic interest in the hotel.
THE OWNED HOTELS
The following is a brief description of each of the Owned Hotels and their
respective locations:
Orange County Airport Hilton, Irvine, CA. Built in 1976, the 290-room hotel
is centrally located across the street from the John Wayne International Airport
in an area densely developed with Class A commercial office space, upscale
retail establishments and high density residential housing. The hotel's
facilities and amenities feature over 11,000 square feet of banquet and meeting
space, an outdoor pool, two tennis courts, a health and fitness center, a
business center, valet services, a gift shop and a grill restaurant. Orange
County has experienced minimal economic growth during the 1990s and has trailed
the national average during that time due to (i) the negative impact of cutbacks
in defense spending and (ii) sharp declines in the value of certain investments
that led Orange County to seek bankruptcy protection. The Company believes that
Orange County and nearby Los Angeles are currently emerging from recession,
demonstrated by the fact that these counties are projected to lead the state in
job growth during 1996. As of June 30, 1996, the Company had spent $0.2 million
on renovations at the hotel with an additional $1.8 million planned.
45
<PAGE>
Sheraton Hotel, Colorado Springs, CO. Built in 1974, the 502-room hotel is
centrally located approximately eight miles from Colorado Springs International
Airport, three miles from downtown Colorado Springs and adjacent to Interstate
25. The hotel's facilities and amenities feature over 42,000 square feet of
meeting and banquet space (one of the largest meeting and banquet facilities in
Colorado), a health club, a putting green, three pools, two restaurants and a
lobby bar. Colorado Springs has experienced strong economic growth in recent
years which has led to a major airport expansion program which was completed in
1995. Such growth is attributable to a number of factors, including a low
regional average cost of living and a rapidly expanding, young population. As of
June 30, 1996, the Company had spent $2.8 million on renovations at the hotel
with an additional $0.6 million planned.
Georgetown Latham, Washington, D.C. Built in 1981, the 143-room hotel is
located in the center of Georgetown, an historic district in central Washington,
D.C. The hotel is approximately 15 minutes from Washington National Airport and
convenient to several of Washington's commercial office concentrations,
particularly those in the area of Georgetown, the West End and the Golden
Triangle. The hotel's facilities and amenities feature 19,000 square feet of
meeting and banquet space, valet services, secretarial services, concierge
services, a roof top pool and deck and the renowned CITRONELLE restaurant. The
hotel is also surrounded by upscale retail establishments, restaurants,
galleries, museums and historic homes, making it broadly appealing to business
travelers, as well as group meetings and leisure travelers. The economy of the
Washington, D.C. metropolitan area is currently among the strongest in the
nation and economic growth is forecast to continue into the near future. A major
new convention center downtown is expected to open within four years. As of June
30, 1996, the Company had spent $0.2 million on renovations at the hotel with an
additional $0.6 million planned.
Westin Atlanta Airport. Built in 1982, the 496-room hotel is located on
Interstate 85 near Interstate 285, Atlanta's central highway, and adjacent to
Hartsfield International Airport (the nation's third busiest airport). After
acquiring the hotel, the Company completed extensive renovations which enabled a
Westin franchise to become effective as of July 9, 1996. The hotel's facilities
and amenities feature over 15,000 square feet of meeting and banquet space, an
indoor/outdoor pool, a health club, a voice mail telephone answering system, a
gift shop, a business center, a club lounge, two restaurants, a lounge and a
nightclub. The economy of greater Atlanta, host of the 1996 Summer Olympic
Games, is among the strongest in the nation. As of June 30, 1996, the Company
had spent $4.7 million on renovations at the hotel with an additional $2.4
million planned.
Radisson Hotel, Schaumburg, IL. Built in 1979, the 202-room hotel is
centrally located on an important arterial road a quarter mile west of
interstate 290, approximately 20 minutes from O'Hare International Airport (the
nation's busiest airport) and 40 minutes from downtown Chicago. The hotel's
facilities and amenities feature over 7,400 square feet of meeting and banquet
space (with the addition of new space planned), a complimentary breakfast
buffet, complimentary airport and local transportation service, valet parking
and dry cleaning, an outdoor pool and whirlpool, a fitness center, a jogging
trail, a restaurant and a sports bar/dance club. After Chicago, Schaumburg
contains the second highest concentration of commercial, office, retail and
residential space in the Midwest. The suburban areas surrounding Schaumburg have
experienced strong economic growth in recent years, based on employment figures,
office space occupancy rates, air traffic levels and retail sales volume. As of
June 30, 1996, the Company had spent $1.4 million on renovations at the hotel
with an additional $0.3 million planned.
Marriott Hotel, Somerset, NJ. Built in 1978, the 434-room hotel is centrally
located on Interstate 287, approximately 25 miles from Newark International
Airport, 40 minutes from midtown Manhattan and convenient to all major traffic
arteries in Northern New Jersey. The hotel's facilities and amenities feature
over 9,000 square feet of meeting and banquet space, tennis courts, an
indoor/outdoor pool, a sauna/whirlpool, volleyball courts, an exercise room, a
shuffleboard/badminton court, two restaurants and a pool-side bar. The hotel is
surrounded by a significant number of corporate headquarters, commercial office
buildings, retail centers, an affluent residential community and extensive,
well-maintained local highways and road systems. Somerset and its neighboring
communities have been
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experiencing moderate economic growth in recent years. As of June 30, 1996, the
Company had spent $1.4 million on renovations at the hotel with an additional
$1.9 million planned.
Sheraton Airport Plaza, Charlotte, NC. Built in 1985, the 226-room hotel is
the only upscale, full-service hotel at Charlotte Douglas International Airport
(which is USAir's main operating hub and the nation's 14th busiest airport). The
hotel is located north of the airport, approximately five miles from the
Charlotte Coliseum and seven miles from downtown Charlotte. The hotel's
facilities and amenities feature over 12,500 square feet of meeting and banquet
space, airport shuttle service, a fitness center, a pool with sauna and
whirlpool, a restaurant and a lounge/nightclub. The Charlotte region has grown
in recent years to become the second largest financial center in the U.S. (after
New York City) and has experienced a continued influx of foreign companies
establishing U.S. operations. Economic growth has been strong over the past
fifteen years due to Charlotte's attractive climate, low cost of living, young
and well-educated workforce and accessibility by all forms of transportation. As
of June 30, 1996, the Company had spent $0.5 million on renovations at the hotel
with an additional $1.0 million planned.
Holiday Inn, Cleveland, OH. Built in 1978, the 237-room hotel is located on
Interstate 71 in Middleburg Heights, approximately three miles from Cleveland's
Hopkins International Airport and approximately 15 miles from downtown
Cleveland. The hotel's facilities and amenities feature over 14,000 square feet
of meeting and banquet space, an indoor pool, a fitness spa, 24-hour airport
shuttle service and a restaurant specializing in seafood and regional cuisine.
The Cleveland metropolitan area and the cities surrounding the airport have
experienced strong economic growth in recent years as the greater Cleveland
economy has shifted from an economic base weighted toward heavy manufacturing to
one focused on services, technology and manufacturing. As of June 30, 1996, the
Company had spent $0.1 million on renovations at the hotel with an additional
$2.8 million planned.
Hilton Hotel, Arlington, TX. Built in 1983, the 310-room hotel is located at
the intersection of Interstate 30 and Route 360, near the center of the
Dallas/Fort Worth Metroplex. The hotel is well-positioned to serve both business
and leisure segments due to its proximity to (i) a surrounding commercial
development, (ii) nearby leisure attractions, including The Ballpark at
Arlington and the original Six Flags amusement park, (iii) a regional convention
center located one mile away, and (iv) the Dallas/Fort Worth International
Airport (the nation's second busiest), approximately eight miles away. The
commercial office concentrations of downtown Dallas and Fort Worth are each
approximately 15 miles away. The Dallas-Forth Worth Metroplex is the sixth most
populous metropolitan area in the U.S. and, notwithstanding a state recession in
the 1980s caused by the collapse of oil prices and a nationwide recession during
the early 1990s, has been experiencing strong economic growth in recent years,
as measured by airport activity, office space occupancy rates, employment rates
and population figures. As of June 30, 1996, the Company had spent $0.1 million
on renovations with an additional $2.6 million planned.
Salt Lake Airport Hilton. Built in 1980, the 287-room hotel is centrally
located within a commercial office park, approximately five minutes from the
Salt Lake City International Airport and 15 minutes from downtown Salt Lake
City. The hotel's facilities and amenities feature 10,000 square feet of meeting
and banquet facilities, indoor and outdoor pools, a basketball court, lake and
dock facilities, a putting green, a health club, a video room and a restaurant
and lounge with 150 seats. The hotel is well-positioned to serve strong business
segment demand generated by the commercial office park, as well as leisure
segment demand from visitors to nearby attractions like the Mormon Temple, the
Great Salt Lake and seven world-class ski resorts in the Wasatch Range of the
Rocky Mountains. Salt Lake City has experienced strong economic growth in recent
years as a result of a growing high-tech business community, the renovation and
expansion of the Salt Palace Convention Center and the selection of the city as
the site of the 2002 Winter Olympic Games. As of June 30, 1996, the Company had
spent $1.7 million on renovations at the hotel with an additional $0.1 million
planned.
Hilton Hotel, Arlington, VA. Built in 1990, the 209-room hotel is part of
Ballston Metro Center, a mixed use development consisting of hotel, residential
condominium, office, retail and parking uses,
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which is located approximately four miles outside of downtown Washington, D.C.
in the Interstate 66 corridor. Ballston Metro Center incorporates the Ballston
station of Washington's 100 mile regional subway system. The hotel's facilities
and amenities feature more than 7,500 square feet of banquet and meeting space,
garage parking, a restaurant and lounge, a club floor with deluxe guest rooms
and special services available, an indoor pool with exercise and health
facilities, an atrium walkway leading to the integrated office building and
retail outlets, and an enclosed connection to the office building across the
street and the regional mall one block away. The Company has a commitment from
Hilton Hotel Corporation to reflag the hotel (which was operated as a
Renaissance hotel prior to the Company's acquisition) as a Hilton. In connection
with the reflagging, the Company intends to spend an additional $1.5 million on
renovations at the hotel.
Hilton Hotel, Bellevue, WA. Built in 1979, the 180-room hotel is centrally
located approximately 13 miles from Seattle-Tacoma International Airport, nine
miles from downtown Seattle and blocks from downtown Bellevue. The hotel's
facilities and amenities feature over 7,750 square feet of meeting and banquet
space, an indoor pool with a jacuzzi and sauna, a fitness club, laundry/valet
services, a business center and a restaurant and lounge. After Seattle, Bellevue
contains the highest concentration of commercial, office, retail and residential
space in Washington and has been experiencing economic growth above the national
average. Economic growth in the Bellevue market area has been strong over the
last 15 years as numerous computer, aerospace and communications companies,
including Microsoft Corporation, have located there. As of June 30, 1996, the
Company had spent $0.9 million on renovations at the hotel with an additional
$0.2 million planned.
THE ADDITIONAL HOTELS
The Company has entered into a binding contract with MBL to acquire the
Additional Hotels which contain 1,121 rooms, for a purchase price of $68.4
million. Four of the Additional Hotels have been managed by the Company since
1991. Since assuming management of these four hotels, the Company has improved
the performance of the properties. However, the Company believes that, with
appropriate capital spending, the Additional Hotels can achieve further
improvements in revenue and cash flow. The Company plans to spend approximately
$3.7 million subsequent to the acquisition to renovate and reposition the
Additional Hotels. The acquisition is scheduled to close in December 1996.
The following is a brief description of each of the Additional Hotels and
their respective locations:
Hilton Hotel, Sacramento, CA. Built in 1983, the 326-room hotel is located
in suburban Sacramento, near the interchange of Interstate 80 and Route 160 in
an area which is well developed with commercial office space, upscale retail and
residential uses. The hotel's facilities and amenities feature over 17,000
square feet of banquet and meeting space, an indoor-outdoor pool, volleyball
courts, a health and fitness center, a business center, valet services, a gift
shop and two restaurants. The greater Sacramento market has experienced strong
economic growth during the 1990s. The Company plans to spend $0.8 million on
renovations.
Santa Barbara Inn, Santa Barbara, CA. Built in 1959, the 71-room hotel is
located on the Pacific Coast Highway directly across from a wide, publicly
maintained beach. The hotel's facilities and amenities feature the renowned
CITRONELLE restaurant, two meeting rooms, an outdoor pool and deck, tennis
courts and valet services. The Santa Barbara market is a popular residential and
resort area. The Company plans to spend $0.5 million on renovations at the
hotel.
Holiday Inn, Colorado Springs, CO. Built in 1974, the 201-room hotel is
located on Interstate 25, approximately five miles north of downtown Colorado
Springs and approximately eight miles north of an Owned Hotel, the Sheraton
Hotel, Colorado Springs. The hotel's facilities and amenities feature more than
8,700 square feet of banquet and meeting space, a health club and jogging track,
an outdoor pool, tennis courts, a restaurant, a gift shop and valet services.
Colorado Springs has experienced strong economic growth in recent years which
has led to a major airport expansion program completed in 1995. Such growth is
attributable to a number of factors, including the region's low average cost of
living and
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a rapidly expanding, young population. The Company plans to spend $0.2 million
on renovations at the hotel.
The Embassy Row Hotel, Washington, D.C. Built in 1969, the 195-room hotel is
located in downtown Washington, D.C. on Massachusetts Avenue, which is known as
"Embassy Row" because of the many embassies, chanceries and offices of foreign
governments located in the area. The hotel's facilities and amenities feature
over 7,500 square feet of banquet and meeting space, a rooftop pool and deck, a
health and fitness center, a business center, valet services and a restaurant. A
major new convention center is expected to open in downtown within four years.
The Company assumed management of the hotel in July 1996 and plans to spend $2.0
million on renovations after acquiring the hotel. In conjunction with the
renovation, the Company plans to obtain a franchise for the hotel.
Hilton Hotel & Towers, Lafayette, LA. Built in 1981, the 328-room hotel is
centrally located on Pinhook Road, a major business artery linking downtown
Lafayette with the local airport. The hotel's facilities and amenities feature
over 17,000 square feet of banquet and meeting space, an outdoor pool, an
exercise room, a business center, valet services, a gift shop and a restaurant.
Lafayette serves as a major center for offshore oil drilling and production, and
has experienced strong job growth during the 1990s. The Company plans to spend
$0.2 million on renovations at the hotel.
THE MANAGED HOTELS
The Company operates 36 Managed Hotels containing 5,333 rooms. Of the
Managed Hotels, 24 are full-service properties, nine are limited-service
properties and three are extended stay properties. 29 of the Managed Hotels are
operated under nationally-recognized brand names and eight are independent
properties. The brand names of the Managed Hotels include Hilton, Sheraton,
Clarion and Holiday Inn. See "Certain Relationships and Related Transactions"
and "Risk Factors--Potential Conflicts of Interest."
The Management Agreements have remaining terms ranging from one month to
nine years. Substantially all of the Management Agreements permit the owners of
the Managed Hotels to terminate such agreements prior to the stated expiration
dates if the applicable hotel is sold and several of the Management Agreements
permit the owners of the Managed Hotels to terminate such agreements prior to
the stated expiration date without cause or by reason of the failure of the
applicable hotel to obtain specified levels of performance. During 1995, the
Company's revenue from Management Agreements was $3.3 million constituting 2.3%
of the Company's total revenue for such period on a pro forma basis. No single
Management Agreement currently accounts for more than 5% of the total revenue
from the Management Agreements on a pro forma basis. Additionally, no group of
Management Agreements for hotels under common ownership or control currently
accounts for more than 13% of the total revenue from the Management Agreements
on a pro forma basis. See "Risk Factors-- Termination of Management Agreements."
The Company intends to continue its efforts to add to its portfolio of
Managed Hotels by aggressively pursuing new management agreements. The Company
believes that, in addition to adding to the Company's revenues and profits, the
business of operating hotels for third parties benefits the Company by (i)
increasing the Company's operating experience in, and knowledge of, hotel
markets throughout the United States, (ii) broadening the Company's
relationships with hotel owners and thus enhancing the Company's opportunities
to identify, evaluate and negotiate hotel acquisitions prior to the active
marketing of a hotel for sale, and (iii) improving the Company's ability to
attract, train and retain highly-qualified operating employees by offering them
the opportunity to work in a broader variety of hotels and markets.
THE HOTEL INDUSTRY
The hotel industry is currently recovering from a period of low demand and
high supply that led to industry-wide decreases in ADRs, numerous hotel failures
and decreased levels of profit. It was the
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rapid increase in room supply during the 1980s that drove ADRs and industry
profitability down, but 1991 marked a reversal of this trend. The following
charts, based on data provided by Smith Travel Research, demonstrate the rise
that has occurred in hotel industry average occupancy and ADRs since 1991:
[GRAPH]
The hotel industry is one of the most management intensive sectors of the
real estate industry. The last 15 years have been characterized by increased
product segmentation and greater marketing and cost control sophistication. Even
as the importance of sophisticated management has increased, however, hotel
owners have continued to rely upon fee-based third parties to manage their
hotels. As an integrated owner and operator focused on maximizing long-term
asset value and increasing profit, the Company believes that it distinguishes
itself from those owners who do not possess in-house management capabilities.
The lodging industry as a whole has shown significant improvement in recent
years. Industry reports indicate that the lodging industry marked its third
consecutive year of profitability in 1995, earning pre-tax profits of $5.5
billion. The improved profitability resulted from a favorable industry
supply/demand relationship, with increases in room demand exceeding supply
growth in 1992, 1993, 1994 and 1995. This excess of demand growth over supply
growth has given the lodging industry a significant and increasing degree of
pricing power. This pricing power has resulted in significant industry-wide
growth in average room rate from 1992 through 1995. According to Coopers &
Lybrand's "Hospitality Directions", these trends are expected to continue, with
demand projected to increase at 2.4% annually from 1995 to 1998 compared to only
a 1.8% growth in supply. This favorable supply/demand position is projected to
lead to growth of 4% to 5% in average room rate annually through 1998 (a rate
that is projected to exceed the inflation rate), coupled with an increase in
average occupancy rate from 65.4% in 1995 to 70% by 1998. Average RevPAR is
expected to increase 6.8% annually from 1995 to 1998. However, demand
historically has been sensitive to shifts in economic activity which has
resulted in cyclical room and occupancy rates and there is no assurance that
industry projections will be met.
The Company believes that the lodging industry pricing power described above
is likely to be strongest and most sustained in the full-service segment in
which the Company operates. Two primary factors underlying this projected
strength are (i) the lower consumer sensitivity to increases in room rates in
the full-service segment due to customer emphasis on service and brand loyalty
and (ii) an expectation by industry experts that there will be no significant
additions to the full-service room base over the next few years. No significant
increase in the full-service sector's room base is projected because (i) the
cost of constructing hotels in the full-service segment is substantially higher
than other industry segments, (ii) financing available for full-service hotel
construction projects is generally higher in cost and more limited in nature,
(iii) construction of full-service hotels involves longer lead times, and (iv)
construction cost for new hotels, in most cases, remain substantially higher
than the costs of acquiring existing full-service hotels.
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COMPETITION
The Company competes primarily in the upscale and mid-priced sectors of the
full-service segment of the lodging industry. In each geographic market in which
the Hotels are located, there are other full-and limited-service hotels that
compete with the Hotels. In addition, the Company's food and beverage operations
compete with local free-standing restaurants and bars. Competition in the U.S.
lodging industry is based generally on convenience of location, price, range of
services and guest amenities offered and quality of customer service and overall
product.
EMPLOYEES
As of June 30, 1996, the Company employed approximately 5,325 persons, of
whom approximately 4,431 were compensated on an hourly basis. Approximately 58
employees work at the corporate headquarters.
Employees at five of the Hotels are represented by labor unions. Management
believes that labor relations with its employees are good.
TRADEMARKS
The Company employs a flexible branding strategy based on a particular
Hotel's market environment and the Hotel's unique characteristics. Accordingly,
the Company uses various national trade names pursuant to licensing arrangements
with national franchisors.
HILTON(R) AND THE STYLIZED H(R) ARE REGISTERED TRADEMARKS OF HILTON HOTELS
CORPORATION ("HILTON HOTELS"). NEITHER HILTON INNS, INC. ("HILTON INNS") NOR
HILTON HOTELS, NOR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, AGENTS OR
EMPLOYEES (COLLECTIVELY, THE "HILTON ENTITIES") SHALL IN ANY WAY BE DEEMED AN
ISSUER OR UNDERWRITER OF THE SHARES OF COMMON STOCK OFFERED HEREBY NOR HAVE ANY
OF THE HILTON ENTITIES ENDORSED OR APPROVED THE OFFERING. THE HILTON ENTITIES
HAVE NOT ASSUMED AND SHALL NOT HAVE ANY LIABILITY OR RESPONSIBILITY FOR ANY
FINANCIAL STATEMENTS OR OTHER FINANCIAL INFORMATION CONTAINED HEREIN OR ANY
PROSPECTUS OR ANY WRITTEN OR ORAL COMMUNICATIONS REGARDING THE SUBJECT MATTER
HEREBY. A GRANT OF A HILTON INNS FRANCHISE LICENSE FOR CERTAIN OF THE HOTELS IS
NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED
APPROVAL OR ENDORSEMENT BY ANY OF THE HILTON ENTITIES (OR ANY OF THEIR
AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE COMMON STOCK
OFFERED HEREBY.
HOLIDAY INN(R) IS A REGISTERED TRADEMARK OF HOLIDAY INNS FRANCHISING, INC.
("HOLIDAY INNS"). HOLIDAY INNS HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY
OF THE FINANCIAL RESULTS OF THE HOTELS SET FORTH IN THIS PROSPECTUS NOR DOES
HOLIDAY INNS HAVE ANY INTEREST IN THE COMPANY OR THE COMMON STOCK OFFERED
HEREBY, EXCEPT AS A FRANCHISOR. A GRANT OF A HOLIDAY INN FRANCHISE LICENSE FOR
CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN
EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY HOLIDAY INNS (OR ANY OF ITS
AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE COMMON STOCK
OFFERED HEREBY.
RADISSON(R) IS A REGISTERED TRADEMARK OF RADISSON HOTELS INTERNATIONAL, INC.
("RADISSON HOTELS"), WHICH HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF
THE FINANCIAL RESULTS OF THE HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A
RADISSON FRANCHISE LICENSE FOR CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND
SHOULD NOT BE INTERPRETED AS, AN
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EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY RADISSON HOTELS (OR ANY OF ITS
AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE COMMON STOCK
OFFERED HEREBY.
MARRIOTT(R) IS A REGISTERED TRADEMARK OF MARRIOTT INTERNATIONAL, INC., WHICH
HAS NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF THE
HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A MARRIOTT FRANCHISE LICENSE FOR
CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN
EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY MARRIOTT INTERNATIONAL, INC. (OR
ANY OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE COMMON
STOCK OFFERED HEREBY.
SHERATON(R) IS A REGISTERED TRADEMARK OF ITT SHERATON CORPORATION, WHICH HAS
NOT ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF THE
HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A SHERATON FRANCHISE LICENSE FOR
CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN
EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY ITT SHERATON CORPORATION (OR ANY
OF ITS AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE COMMON STOCK
OFFERED HEREBY.
WESTIN(R) IS A REGISTERED TRADEMARK OF WESTIN HOTEL COMPANY AND IS LICENSED
THROUGH WESTIN LICENSE COMPANY. NEITHER WESTIN HOTEL COMPANY NOR WESTIN LICENSE
COMPANY HAS ENDORSED OR APPROVED THE OFFERING OR ANY OF THE FINANCIAL RESULTS OF
THE HOTELS SET FORTH IN THIS PROSPECTUS. A GRANT OF A WESTIN FRANCHISE LICENSE
FOR CERTAIN OF THE HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS,
AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY WESTIN HOTEL COMPANY OR WESTIN
LICENSE COMPANY (OR ANY OF THEIR RESPECTIVE AFFILIATES, SUBSIDIARIES OR
DIVISIONS) OF THE COMPANY OR THE COMMON STOCK OFFERED HEREBY.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal course of
business. The Company believes that the ultimate outcome of these lawsuits will
not have a material adverse effect on the Company.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels and restaurants,
including liquor license grants, by requiring registration, disclosure
statements and compliance with specific standards of conduct. The Company
believes that it is substantially in compliance with these requirements.
Managers of hotels are also subject to laws governing their relationship with
hotel employees, including minimum wage requirements, overtime, working
conditions and work permit requirements. Compliance with, or changes in, these
laws could reduce the revenue and profitability of the Owned Hotels and could
otherwise adversely affect the Company's operations.
Under the ADA, all public accommodations are required to meet certain
requirements related to access and use by disabled persons. These requirements
became effective in 1992. Although significant amounts have been and continue to
be invested in ADA required upgrades to the Owned Hotels, a determination that
the Company is not in compliance with the ADA could result in a judicial order
requiring compliance, imposition of fines or an award of damages to private
litigants. The Company is likely to incur additional costs of complying with the
ADA; however, such costs are not expected to have a material adverse effect on
the Company's results of operations or financial condition. See "Risk
Factors--Governmental Regulation."
For a description of certain environmental regulations to which the Company
is subject, see "Risk Factors--Environmental Risks."
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MANAGEMENT
The following table sets forth certain information with respect to the
Company's directors and executive officers as of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Paul W. Whetsell.......................... 45 President, Chief Executive Officer and
Chairman of the Board
David E. McCaslin......................... 39 Chief Operating Officer and Director
William M. Karnes......................... 50 Senior Executive Vice President, Finance
and Chief Financial Officer
John E. Plunket........................... 40 Executive Vice President, Finance and
Development
John Emery................................ 32 Treasurer
Michael T. George......................... 37 Senior Vice President, Operations
D. Scott Livchak.......................... 41 Senior Vice President, Operations
Robert Gauthier........................... 42 Senior Vice President, Operations
Daniel L. Doctoroff....................... 37 Director
Bradford E. Bernstein..................... 29 Director
William S. Janes.......................... 43 Director
Joseph McCarthy........................... 64 Director
Edward L. Cohen........................... 50 Director
Edwin T. Burton, III...................... 54 Director
Independent Director (to be named)........ Director
</TABLE>
Paul W. Whetsell has served as President and Chief Executive Officer of the
Company since its founding in 1987. From 1981 to 1986, Mr. Whetsell served as
Vice President of Development for Lincoln Hotels in Dallas, Texas. Prior to
that, from 1973 to 1981, Mr. Whetsell worked for Quality Inns in various
capacities in its franchise division, culminating in Vice President of
Franchise.
David E. McCaslin has served as Chief Operating Officer of the Company since
1994. Mr. McCaslin joined the Company in 1987 as a General Manager and was named
Vice President of Operations in 1988. From 1985 to 1987, Mr. McCaslin served as
General Manager for Lincoln Hotels. Prior to that, from 1979 to 1985, he worked
for Westin Hotels in various capacities, including Assistant General Manager,
Rooms Division Manager and Food & Beverage Manager.
William M. Karnes has served as Senior Executive Vice President, Finance and
Chief Financial Officer of the Company since April 1996. From 1994 to April
1996, Mr. Karnes served as Senior Vice President and Chief Financial Officer of
Tucker Properties Corporation, a publicly traded real estate investment trust.
From 1991 to 1994, Mr. Karnes served as Senior Vice President Finance and
Administration for Banyan Management Corp., a company that provides management
services for five public real estate investment trusts and three master limited
partnerships. Prior to that, from 1989 to 1991, Mr. Karnes served as Chief
Operating Officer of Miglin-Beitler, Inc., a private real estate development,
management and leasing firm.
John E. Plunket has served as Executive Vice President, Finance and
Development since November 1993. From September 1991 to October 1993, Mr.
Plunket served as Vice President and Principal Broker for CIG International, an
investment and hotel asset management company. From February 1988 to August
1991, Mr. Plunket served as Managing Director of Cassidy & Pinkard Inc., a
commercial real estate services company. From 1985 to 1987, Mr. Plunket served
as Senior Vice President for Oxford Development Corporation. Prior to that, from
December 1979 to April 1985, Mr. Plunket worked for Marriott Corporation in
various capacities, culminating in Director of Project Finance.
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John Emery has served as Treasurer of the Company since March 1996. From
September 1995 to March 1996, he served as Director of Finance of the Company.
Prior to that, from January 1987 to September 1995, he worked for Deloitte &
Touche LLP in various capacities, culminating with Senior Manager for the hotel
and real estate industries.
Michael T. George has served as Senior Vice President, Operations since
1995. From 1992 to 1995, Mr. George served as Chief Operating Officer for Devon
Hotels in Montreal. From 1989 to 1992, Mr. George served as Vice President for
Radisson Hotels International, Inc. Prior to that, from 1986 to 1989, Mr. George
served as Vice President for Sheraton Hotels in Toronto.
D. Scott Livchak has served as Senior Vice President, Operations since 1990.
From 1985 to 1989 Mr. Livchak served as a General Manager for The Adam's Mark
Hotel in Washington, DC, owned by HBE Corporation. From 1983 to 1985, Mr.
Livchak worked for the Sheraton Atlanta Hotel in the capacity of Resident
Manager. From 1977 to 1983, Mr. Livchak held various management positions with
Sheraton Corporation.
Robert Gauthier has served as Senior Vice President, Operations and General
Manager of the Sheraton, Colorado Springs since 1996. From 1993 to 1996, he
served as Vice President, Operations for CapStar Management. Prior to that, from
1987 to 1993, Mr. Gauthier served as Area Manager and General Manager for Drexel
Burnham Lambert Realty, Inc.
Daniel L. Doctoroff has been Managing Director of Oak Hill Partners, Inc.
(Acadia Partners' investment advisor) and its predecessor since August 1987;
Vice President and Director of Acadia Partners MGP, Inc. since March 1992; Vice
President of Keystone, Inc. since March, 1992; and a Managing Partner of
Insurance Partners Advisors, L.P. since February 1994. All of such entities are
affiliates of Acadia Partners. Mr. Doctoroff is also a Director of Bell & Howell
Holdings Company, National Re Corporation, Transport Holdings, Inc., Kemper
Corporation and Specialty Foods Corporation.
Bradford E. Bernstein has served as a Vice President and an Associate of Oak
Hill Partners, Inc. (Acadia Partners' investment advisor) since 1992. From 1991
until 1992, Mr. Bernstein worked at Patricof & Co. Ventures. Prior to that, from
1989 to 1991, he worked at Merrill, Lynch & Co. Mr. Bernstein serves as a
director of Pinnacle Brands, Inc. and Payroll Transfers, Inc.
William S. Janes serves as a Principal and Director of RMB Realty, Inc., an
affiliate of Keystone, Inc. of Fort Worth, Texas and an affiliate of Acadia
Partners. Mr. Janes serves as a Director of Paragon Group, Inc., a
publicly-traded real estate investment trust, as well as Brazos Asset
Management, Brazos Fund, Paragon Property Services, Inc. and Carr Real Estate
Services. Prior to joining RMB Realty, Inc., Mr. Janes served as Regional
General Partner of Lincoln Property Company from 1984 to 1989. Mr. Janes
maintains professional affiliations as a member of the National Association of
Real Estate Investment Trusts, the Society of Industrial and Office Realtors and
the Urban Land Institute.
Joseph McCarthy has been retired since 1994. From 1993 to 1994 he has served
as Chairman of the Board for Motel 6. From 1985 to 1993, he served as President
and Chief Executive Officer for Motel 6. From 1980 to 1985, he served as
President and Chief Executive Officer of Lincoln Hotels. From 1976 to 1980, he
served as President and Chief Executive Officer of Quality Inns International.
Prior to that, from 1971 to 1976, he served as Senior Vice President of the
Sheraton Corporation.
Edward L. Cohen has served as an Executive Officer of Lerner Corporation, a
real estate management and leasing company located in Bethesda, Maryland, since
1985. Mr. Cohen is also a Principal of Lerner Enterprises, a real estate
development and investment company. Prior to his participation with the Lerner
organization, he was a lawyer in private practice in Washington, D.C.
Edwin T. Burton, III has served as President of Windermere Consulting
Company since April 1995 and Trustee of the Commonwealth of Virginia Retirement
System since March 1994. From 1994 to April 1995, he served as Managing Director
and a member of the Board of Interstate Johnson
54
<PAGE>
Lane, Inc. Prior to that, from 1987 to 1993, he was President of Rothschild
Financial Services, Inc. Mr. Burton is a Visiting Professor of Economics at the
University of Virginia in Charlotesville, Virginia.
EXECUTIVE COMPENSATION
The following table sets forth the annual base salaries that the Company
intends to pay in 1996 to its Chief Executive Officer and the four most highly
compensated executive officers during such year:
<TABLE>
<CAPTION>
NAME POSITION BASE SALARY(1)
- -------------------------------------- -------------------------------------- --------------
<S> <C> <C>
Paul W. Whetsell...................... President, Chief Executive Officer and
Chairman of the Board $225,000
David E. McCaslin..................... Chief Operating Officer and Director $215,000
William M. Karnes..................... Senior Executive Vice President,
Finance and Chief Financial Officer $215,000(2)
John E. Plunket....................... Executive Vice President, Finance and
Development $150,000
Michael T. George..................... Senior Vice President, Operations $132,000
</TABLE>
- ------------
(1) Pursuant to the Management Bonus Plan (as defined below), such executive
officers are also eligible to earn bonuses of up to 100% of their annual
base salary. Under the terms of the Management Bonus Plan, the total of such
bonuses may not exceed $300,000 during 1996. See "--Compensation
Plans--Management Bonus Plan."
(2) Under the terms of his employment agreement, Mr. Karnes will also be paid a
minimum bonus of $30,000 in 1996 and will be reimbursed by the Company for
certain moving expenses.
Following the Offering, Messrs. Whetsell, McCaslin, Plunket, Karnes and
George also will receive options to purchase 150,000, 87,500, 73,129, 50,000 and
18,282 shares of Common Stock, respectively. The terms of such options are
described under "--Compensation Plans--Equity Incentive Plan." All of such
options will vest over three years, except 10,000 of the options granted to Mr.
Plunket, which will vest immediately upon their grant.
COMPENSATION OF DIRECTORS
Any director who is not an employee of the Company will be paid an annual
fee of $12,000. In addition, each such director will be paid $750 for attendance
at each meeting of the Board and $500 for attendance at each meeting of a
committee of the Board of which such director is a member. Directors who are
employees of the Company will not receive any fees for their service on the
Board or a committee thereof. In addition, the Company will reimburse directors
for their out-of-pocket expenses in connection with their service on the Board.
Upon the effectiveness of the Registration Statement, each director who is not
an employee of the Company (an "Independent Director") will be granted options
to purchase 5,000 shares of Common Stock at the initial public offering price.
Thereafter, on the date of the annual meeting of the Company's shareholders
beginning with the annual meeting held in 1997, each Independent Director will
be granted options to purchase 5,000 shares of Common Stock at the then current
market price. All options granted to directors will vest over three years. Any
non-employee director who ceases to be a director will forfeit the right to
receive any options not previously vested or granted.
COMMITTEES
The Board will initially have an Audit Committee, a Compensation Committee
and an Investment Committee, the members of which will be determined at the
first meeting of the Board following completion of the Offering. The Audit
Committee will consist of three Independent Directors. The Audit Committee will
make recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the plans and
results of the audit
55
<PAGE>
engagement, approve professional services provided by the independent public
accountants, review the independence of the independent public accountants,
consider the range of audit and non-audit fees and review the adequacy of the
Company's internal accounting controls. The Compensation Committee will consist
of three Independent Directors and will determine compensation of the Company's
executive officers and administer the Company's Equity Incentive Plan (as
defined below). The Investment Committee will consist of the Chairman of the
Board and three Independent Directors, and will review and approve investments
proposed to be made by the Company.
COMPENSATION PLANS
Management Bonus Plan. The Company has established a bonus plan (the
"Management Bonus Plan") under which key management employees of the Company are
eligible to receive bonuses based upon achievement of specified targets and
goals for the Company and the individual employee. Bonus awards may not exceed
100% of the executive's annual base salary, which will be subject to certain
restrictions and forfeiture provisions. Total bonus awards for 1996 may not
exceed 10% of the aggregate base salary of the executives that are eligible in
1996 for bonuses under the Management Bonus Plan.
Stock Purchase Plan. Each full-time employee of the Company (other than an
employee who owns beneficially 5% or more of the outstanding Common Stock) is
eligible to participate in the Company's stock purchase plan (the "Stock
Purchase Plan"). Under the Stock Purchase Plan, subject to certain limitations
arising under the Internal Revenue Code of 1986 (the "Code"), participating
employees may elect to authorize the Company to withhold a minimum of $200 per
quarter and a maximum of 8% or $25,000 (whichever is less) of the participating
employee's salary, which amounts will be held in the participating employee's
account and used to purchase Common Stock from the Company on a monthly basis at
a price equal to a designated percentage from 85% to 100% of the average closing
sales price for Common Stock as reported on the Composite Transactions Tape of
the NYSE (except as described below). The designated percentage will be
established annually by the Compensation Committee which is responsible for the
administration of the Stock Purchase Plan, except that for the period ending
December 31, 1996 the price will be the greater of (i) the initial offering
price or (ii) 85% of the average market price of the Common Stock for such
period.
The Stock Purchase Plan reserves 500,000 shares of authorized but unissued
or reacquired Common Stock for purchase thereunder. The Stock Purchase Plan will
remain in effect until terminated at any time by the Board, except that such
termination will be subject to employees' rights to purchase shares in any
outstanding monthly offering period.
The Stock Purchase Plan may be amended from time to time by the Board. No
amendment will increase the aggregate number of shares of Common Stock that may
be issued and sold under the Stock Purchase Plan (except for authorizations
pursuant to the anti-dilution provisions of the Stock Purchase Plan) without
further approval by the Company's shareholders. Furthermore, no amendment that
would cause the Stock Purchase Plan to fail to meet the requirements of Section
423 of the Code will be adopted without shareholder approval.
Equity Incentive Plan. The Company's 1996 Equity Incentive Plan (the "Equity
Incentive Plan") is designed to attract and retain qualified officers and other
key employees of the Company. The Equity Incentive Plan authorizes the grant of
options to purchase shares of Common Stock ("Option Rights"), stock appreciation
rights ("Appreciation Rights"), restricted shares ("Restricted Shares"),
deferred shares ("Deferred Shares"), performance shares ("Performance Shares")
and performance units ("Performance Units"). The Compensation Committee
administers the Equity Incentive Plan and determines to whom Option Rights,
Appreciation Rights, Restricted Shares, Deferred Shares, Performance Shares and
Performance Units are to be granted and the terms and conditions thereof,
including the number of shares and the period of exerciseability.
56
<PAGE>
Subject to adjustment as provided in the Equity Incentive Plan, the number
of shares of Common Stock that may be issued or transferred and covered by
outstanding awards granted under the Equity Incentive Plan may not in the
aggregate exceed 1,740,000 shares, which may be shares of original issuance or
treasury shares or a combination thereof. Officers, including officers who are
members of the Board, and other key employees of and consultants to the Company
and its subsidiaries may be selected by the Compensation Committee to receive
benefits under the Equity Incentive Plan.
At the time of the Offering, the Company intends to grant to certain
executive officers and other members of management options to purchase up to
745,254 shares of Common Stock at the initial public offering price. Certain of
these options will vest immediately upon their grant, while the remaining
options will vest in three equal annual installments.
The Compensation Committee may grant Option Rights that entitle the optionee
to purchase shares of Common Stock at a price equal to or greater or less than
market value on the date of grant, and the Option Rights may be conditioned on
the achievement of specified performance objectives ("Management Objectives").
Subject to adjustment as provided in the Equity Incentive Plan, no participant
shall be granted Option Rights and Appreciation Rights, in the aggregate, for
more than 100,000 shares during any calendar year. The Compensation Committee
may provide that the option price is payable at the time of exercise (i) in
cash, (ii) by the transfer to the Company of nonforfeitable, nonrestricted
shares of Common Stock that are already owned by the optionee, (iii) with any
other legal consideration the Compensation Committee may deem appropriate, or
(iv) by any combination of the foregoing methods of payment. Any grant may
provide for deferred payment of the option price from the proceeds of sale
through a broker on the date of exercise of some or all of the shares of Common
Stock to which the exercise relates. Any grant may provide for automatic grant
of reload option rights upon the exercise of Option Rights, including reload
option rights, for shares of Common Stock or any other non-cash consideration
authorized under the Equity Incentive Plan, except that the term of any reload
option right shall not extend beyond the term of the Option Right originally
exercised. The Compensation Committee has the authority to specify at the time
Option Rights are granted that shares of Common Stock will not be accepted in
payment of the option price until they have been owned by the optionee for a
specified period; however, the Equity Incentive Plan does not require any such
holding period and would permit immediate sequential exchanges of shares of
Common Stock at the time of exercise of Option Rights. Option Rights granted
under the Equity Incentive Plan may be Option Rights that are intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Code, or Option Rights that are not intended to so qualify. Any grant may
provide for the payment of dividend equivalents to the optionee on a current,
deferred or contingent basis or may provide that dividend equivalents be
credited against the option price. No Option Right may be exercised more than
ten years from the date of grant. Each grant must specify the period of
continuous employment with, or continuous engagement of consulting services by,
the Company or any subsidiary that is necessary before the Option Rights will
become exercisable and may provide for the earlier exercise of the Option Rights
in the event of a change of control of the Company or other similar transaction
or event. Successive grants may be made to the same optionee regardless of
whether Option Rights previously granted to him or her remain unexercised.
Appreciation Rights granted under the Equity Incentive Plan may be either
free-standing Appreciation Rights or Appreciation Rights that are granted in
tandem with Option Rights. An Appreciation Right represents the right to receive
from the Company the difference (the "Spread"), or a percentage thereof not in
excess of 100%, between the base price per share of Common Stock in the case of
a free-standing Appreciation Right, or the option price of the related Option
Right in the case of a tandem Appreciation Right, and the market value of the
Common Stock on the date of exercise of the Appreciation Right. Tandem
Appreciation Rights may only be exercised at a time when the related Option
Right is exercisable and the Spread is positive, and the exercise of a tandem
Appreciation Right requires the surrender of the related Option Right for
cancellation. A free-standing Appreciation Right must specify a base price,
which may be equal to or greater or less than the fair market value of a share
57
<PAGE>
of Common Stock on the date of grant, must specify the period of continuous
employment, or continuous engagement on consulting services, that is necessary
before the Appreciation Right becomes exercisable (except that it may provide
for its earlier exercise in the event of a change in control of the Company or
other similar transaction or event) and may not be exercised more than ten years
from the date of grant. Any grant of Appreciation Rights may specify that the
amount payable by the Company upon exercise may be paid in cash, Common Stock or
a combination thereof and may either (i) grant to the recipient or retain in the
Compensation Committee the right to elect among those alternatives or (ii)
preclude the right of the participant to receive, and the Company to issue,
Common Stock or other equity securities in lieu of cash. In addition, any grant
may specify that the Appreciation Right may be exercised only in the event of a
change in control of the Company. Subject to adjustment as provided in the
Equity Incentive Plan, no participant shall be granted Option Rights and
Appreciation Rights, in the aggregate, for more than 100,000 shares during any
calendar year. The Compensation Committee may condition the award of
Appreciation Rights on the achievement of one or more Management Objectives and
may provide with respect to any grant of Appreciation Rights for the payment of
dividend equivalents thereon in cash or Common Stock on a current, deferred or
contingent basis.
An award of Restricted Shares involves the immediate transfer by the Company
to a participant of ownership of a specific number of shares of Common Stock in
consideration of the performance of services. The participant is entitled
immediately to voting, dividend and other ownership rights in the shares. The
transfer may be made without additional consideration or for consideration in an
amount that is less than the market value of the shares on the date of grant, as
the Compensation Committee may determine. The Compensation Committee may
condition the award on the achievement of specified Management Objectives.
Restricted Shares must be subject to a "substantial risk of forfeiture" within
the meaning of Section 83 of the Code for a period to be determined by the
Compensation Committee. An example would be a provision that the Restricted
Shares would be forfeited if the participant ceased to serve the Company as an
officer or other salaried employee during a specified period of years. In order
to enforce these forfeiture provisions, the transferability of Restricted Shares
will be prohibited or restricted in a manner and to the extent prescribed by the
Compensation Committee for the period during which the forfeiture provisions are
to continue. The Compensation Committee may provide for a shorter period during
which the forfeiture provisions are to apply in the event of a change in control
of the Company or other similar transaction or event.
An award of Deferred Shares constitutes an agreement by the Company to
deliver shares of Common Stock to the participant in the future in consideration
of the performance of service, subject to the fulfillment of such conditions
during the Deferral Period (as defined in the Equity Incentive Plan) as the
Compensation Committee may specify. During the Deferral Period, the participant
has no right to transfer any rights covered by the award and no right to vote
the shares covered by the award. On or after the date of any grant of Deferred
Shares, the Compensation Committee may authorize the payment of dividend
equivalents thereon on a current, deferred or contingent basis in either cash or
additional shares of Common Stock. Grants of Deferred Shares may be made without
additional consideration or for consideration in an amount that is less than the
market value of the shares on the date of grant. Deferred Shares must be subject
to a Deferral Period, as determined by the Compensation Committee on the date of
grant, except that the Compensation Committee may provide for a shorter Deferral
Period in the event of a change in control of the Company or other similar
transaction or event. The Compensation Committee may condition the award of
Deferred Shares on the achievement of one or more Management Objectives.
A Performance Share is the equivalent of one share of Common Stock, and a
Performance Unit is the equivalent of $1.00. A participant may be granted any
number of Performance Shares or Performance Units, which shall be specified in
any such grant. The participant will be given one or more Management Objectives
to meet within a specified period (the "Performance Period"). The specified
Performance Period may be subject to earlier termination in the event of a
change in control of the Company or other similar transaction or event. A
minimum level of acceptable achievement will also be
58
<PAGE>
established by the Compensation Committee. If by the end of the Performance
Period the participant has achieved the specified Management Objectives, the
participant will be deemed to have fully earned the Performance Shares or
Performance Units. If the participant has not achieved the Management Objectives
but has attained or exceeded the predetermined minimum level of acceptable
achievement, the participant will be deemed to have partly earned the
Performance Shares or Performance Units in accordance with a predetermined
formula. To the extent earned, the Performance Shares or Performance Units will
be paid to the participant at the time and in the manner determined by the
Compensation Committee in cash, shares of Common Stock or any combination
thereof. Management Objectives may be described in terms of either Company-wide
objectives or objectives that are related to the performance of the division,
subsidiary, department or function within the Company or a subsidiary in which
the participant is employed or with respect to which the participant provides
consulting services. The Compensation Committee may adjust any Management
Objectives and the related minimum level of acceptable achievement if, in its
judgment, transactions or events have occurred after the date of grant that are
unrelated to the participant's performance and result in distortion of the
Management Objectives or the related minimum level of acceptable achievement.
No Option Right, Appreciation Right or other "derivative security" within
the meaning of Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), is transferable by a participant except
by will or the laws of descent and distribution. Option Rights and Appreciation
Rights may not be exercised during a participant's lifetime except by the
participant or, in the event of the participant's incapacity, by the
participant's guardian or legal representative acting in a fiduciary capacity on
behalf of the participant under state law and court supervision. Notwithstanding
the foregoing, the Compensation Committee, in its sole discretion, may provide
for the transferability of the particular awards under the Equity Incentive Plan
so long as such provisions will not disqualify the exemption for other awards
under Rule 16b-3, if such rule is then applicable to awards under the plan. The
Compensation Committee may specify at the date of grant that all or any part of
the shares of Common Stock that are to be issued or transferred by the Company
upon the exercise of Option Rights or Appreciation Rights, upon the termination
of the Deferral Period applicable to Deferred Shares or upon payment under any
grant of Performance Shares or Performance Units, or are to be no longer subject
to the substantial risk of forfeiture and restrictions on transfer referred to
in the Equity Incentive Plan with respect to Restricted Shares, are subject to
further restrictions on transfer.
The maximum number of shares that may be issued or transferred under the
Equity Incentive Plan, the number of shares covered by outstanding Option Rights
or Appreciation Rights and the option prices or base prices per share applicable
thereto, and the number of shares covered by outstanding grants of Deferred
Shares and Performance Shares, are subject to adjustment in the event of stock
dividends, stock splits, combinations of shares, recapitalizations, mergers,
consolidations, spin-offs, reorganizations, liquidations, issuances of rights or
warrants, and similar transactions or events. In the event of any such
transaction or event, the Compensation Committee may in its discretion provide
in substitution for any or all outstanding awards under the Equity Incentive
Plan such alternative consideration as it may in good faith determine to be
equitable in the circumstances and may require the surrender of all awards so
replaced. The Compensation Committee may also, as it determines to be
appropriate in order to reflect any such transaction or event, make or provide
for such adjustments in the number of shares that may be issued or transferred
and covered by outstanding awards granted under the Equity Incentive Plan and
the number of shares permitted to be covered by Option Rights and Appreciation
Rights granted to any one participant during any calendar year.
The Compensation Committee must consist of not less than three directors,
each of which is not at the time he exercises discretion in administering the
Equity Incentive Plan eligible, and has not at any time within one year prior
thereto been eligible, for selection as a person to whom stock may be allocated
or to whom stock options or stock appreciation rights may be granted pursuant to
the Equity Incentive Plan entitling the participants therein to acquire stock,
stock options or stock appreciation rights of the Company or any of its
affiliates. In connection with its administration of the Equity
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<PAGE>
Incentive Plan, the Compensation Committee is authorized to interpret the Equity
Incentive Plan and related agreements and other documents. The Compensation
Committee may make grants to participants under any or a combination of all of
the various categories of awards that are authorized under the Equity Incentive
Plan and may condition the grant of awards on the surrender or deferral by the
participant of the participant's right to receive a cash bonus or other
compensation otherwise payable by the Company or a subsidiary to the
participant. The Equity Incentive Plan may be amended from time to time by the
Compensation Committee but, without further approval by the shareholders of the
Company, no such amendment may (i) increase the aggregate number of shares of
Common Stock that may be issued or transferred and covered by outstanding awards
or increase the number of shares which may be granted to any participant in any
calendar year or (ii) otherwise cause Rule 16b-3 to cease to be applicable to
the Equity Incentive Plan.
EMPLOYMENT AGREEMENTS
Each of Paul Whetsell, David McCaslin, William Karnes and John Plunket are
parties to employment agreements with the Company which will expire on December
31, 1999. Mr. Whetsell's and Mr. McCaslin's agreements provide for automatic one
year extensions thereafter unless either the executive or the Company gives
notice to the other at least 120 days prior to the end of any such period that
he or it, as the case may be, does not wish to extend the agreement for an
additional period. The employment agreements provide for annual base salaries of
$225,000, in the case of Mr. Whetsell, $215,000, in the case of Mr. McCaslin and
Mr. Karnes, and $150,000, in the case of Mr. Plunket, subject, in each such
case, to periodic increases. Each executive will be eligible to receive annual
bonuses in an amount equal to up to 100% of his then current base salary, as
awarded by the Compensation Committee, and will be entitled to participate in
all existing or future plans for the benefit of the Company's employees and
management, on the same basis as other senior executive officers of the Company.
Under the employment agreements of Messrs. Whetsell and McCaslin, each is
entitled to receive (i) a lump sum payment equal to the product of (a) his total
cash compensation for the previous fiscal year and (b) the greater of (1) the
number of full and fractional years remaining in the agreement and (2) the
number two, if his employment is terminated by the Company without Cause (as
defined below) or is terminated by the executive for Good Reason (as defined
below), or (ii) a lump sum payment equal to two times his total cash
compensation for the previous fiscal year if the Company elects not to extend
his contract for an additional year at the end of its initial term (which ends
December 31, 1999) or any subsequent term. The events constituting "Good Reason"
include the assignment to the executive of duties materially inconsistent with
his position and a material breach of the employment agreement by the Company.
As used in the employment agreements of Messrs. Whetsell and McCaslin, the term
"Cause" includes (i) the executive's willful and intentional failure or refusal
to perform or observe any of his material duties set forth in his employment
agreement, if such breach is not cured within 30 days of notice from the
Company; (ii) any willful and intentional act of the executive involving theft,
fraud, embezzlement or dishonesty affecting the Company; and (iii) the
executive's conviction of an offense which is a felony in the jurisdiction
involved. Messrs. Whetsell's and McCaslin's employment agreements also provide
that if (i) the executive elects to terminate his employment within six months
of a Change in Control (as defined below) of the Company and (ii) within one
year of any such change in control, the executive is terminated without Cause or
the executive terminates his employment for Good Reason, the executive is
entitled to receive a lump sum payment equal to the product of (a) his total
cash compensation for the previous fiscal year and (b) the greater of (1) the
number of full and fractional years remaining in the agreement and (2) the
number three. As used in the employment agreements of Messrs. Whetsell and
McCaslin, the term Change in Control means the occurrence of one of the
following events: (i) any person or entity other than Acadia Partners becoming
beneficial owner of greater than 35% of the Common Stock; (ii) the Company
adopts a plan of liquidation; (iii) the Company merges or combines with another
company and, immediately thereafter, the stockholders of the Company prior to
the merger or combination hold 50% or less of the Common Stock; (iv) the
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Company sells all or substantially all of its assets; or (v) the Company ceases
to act as general partner of CapStar Management. Amounts received by the
executive upon termination of employment will increase to compensate the
executive for any excise tax payable by him under the Code. These employment
agreements prohibit the executives from using or disclosing any confidential
information about the Company and its operations for a period of three years
after the term of employment and from engaging in any competitive hotel business
for a period of one year after the term of employment.
Under the employment agreements of Messrs. Karnes and Plunket, each is
entitled to continue to receive his annual base salary for the greater of one
year or the remaining unexpired term of employment, if his employment is
terminated by the Company without Cause (as defined below). Each of these
executives will be entitled receive his annual base salary for a period of two
years if his employment is terminated by the executive as a result of the
occurrence of a Material Adverse Change (as defined below) or likely occurrence
of a Material Adverse Change following a Change in Control (as defined below).
The events constituting "Cause" under the employment agreements of Messrs.
Karnes and Plunket include: (i) the executive's inability to perform his duties
under the agreement for more than a 120-day period, whether or not continuous,
during any 365-day period; (ii) acts of willful misfeasance or gross negligence
in connection with the executive's employment; (iii) the executive's conviction
of (or plea of no contest to) an offense which is a felony in the jurisdiction
involved; (iv) repeated failure, after written notice thereof, by the executive
to perform any of his duties under the employment agreement; and (v) a breach of
a specific provision of the employment agreement and, if such breach is curable,
failure to cure same within 30 days of written notice thereof. As used in the
employment agreements of Messrs. Karnes and Plunket, the term "Change in
Control" means: any person or entity, other than Acadia Partners, becoming
beneficial owner of greater than 35% of the Common Stock, so long as no Change
in Control will be deemed to have occurred if the executive continues to report
to Paul W. Whetsell. As used in the employment agreements of Messrs. Karnes and
Plunket, the term "Material Adverse Change" means a material reduction or
material adverse change in the executive's working conditions if, after such
reduction or change, the executive's authority or working conditions are not
commensurate with those of executives holding chief financial officer positions
at companies comparable to the Company in the lodging industry.
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PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of the Offering and as adjusted to reflect the sale
of 9,250,000 shares of Common Stock by the Company, and Acadia Partners, L.P.
(the "Selling Stockholder") in the Offering by (i) all persons known by the
Company to own beneficially more than 5% of the Company's Common Stock, (ii)
each director who is a stockholder, (iii) each of the named executive officers,
(iv) all directors and executive officers as a group, and (v) the Selling
Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
----------------------- SHARES BEING -----------------------
NAME & ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE SOLD NUMBER PERCENTAGE
- ------------------------------------- --------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Acadia Partners, L.P.(1)
201 Main Street
Suite 3100
Fort Worth, TX 76102............. 3,901,157 65.0% 2,500,000 1,401,154 11.0%
Paul W. Whetsell(2)................ 989,517 16.5% -- 989,517 7.8%
David E. McCaslin(3)............... 462,729 7.7% -- 462,729 3.6%
John E. Plunket(3)................. 462,729 7.7% -- 462,729 3.6%
William M. Karnes(4)............... 0 -- -- 0 --
John Emery(4)...................... 0 -- -- 0 --
Michael T. George(4)............... 0 -- -- 0 --
D. Scott Livchak(4)................ 0 -- -- 0 --
Robert Gauthier(4)................. 0 -- -- 0 --
Daniel L. Doctoroff(4)............. 0 -- -- 0 --
Bradford E. Bernstein(4)........... 0 -- -- 0 --
William S. Janes(4)................ 0 -- -- 0 --
Joseph McCarthy(4)................. 0 -- -- 0 --
All directors and executive
officers as a group
(15 persons)..................... 989,517 16.5% -- 989,517 7.8%
</TABLE>
- ------------
(1) Includes 3,848,083 shares owned prior to the offering by Acadia Partners,
L.P. and 53,068 shares owned by Cherwell Investors, Inc., a wholly owned
subsidiary of Acadia Partners, L.P. ("Cherwell"). The general partner of
Acadia Partners, L.P. is Acadia FW Partners, L.P., the managing general
partner of which is Acadia MGP, Inc. ("Acadia MGP"). J. Taylor Crandall is
the sole stockholder of Acadia MGP and may be deemed to beneficially own the
shares owned by Acadia Partners, L.P. and Cherwell. In addition, Mr.
Crandall is the sole stockholder of each of PTJ, Inc. ("PTJ") and Group 31,
Inc. ("Group 31"). PTJ is the managing general partner of PTJ Merchant
Banking Partners, L.P., which is the general partner of Penobscot Partners,
L.P. ("Penobscot"), which together with MC Investment Corporation ("MC
Investment"), Penobscot's wholly owned subsidiary, owns 275,299 shares.
Group 31 is the general partner of FWHY Coinvestments VIII Partners, L.P.
("FWHY"), which owns 419,177 shares. As a result of his ownership of PTJ and
Group 31, Mr. Crandall may also be deemed to beneficially own the 732,951
shares owned by Penobscot, MC Investment and FWHY, which shares are not
included in the number of shares set forth as being owned by Acadia
Partners, L.P. in the Principal Stockholders and Selling Stockholder chart,
above. Mr. Crandall's address is 201 Main Street, Suite 3100 Fort Worth, TX
76102. The number of shares set forth as being owned by Acadia Partners,
L.P. in the Principal Stockholders and Selling Stockholder chart above also
excludes 419,177 shares held by OHP EquiStar Partners, L.P. ("OHP") and OHP
EquiStar Partners II, L.P. ("OHP II"). Oak Hill Partners, Inc., which is the
investment advisor to Acadia Partners, L.P., is the general partner of each
of OHP and OHP II.
(2) Includes shares held by entities over which Mr. Whetsell has beneficial
ownership within the meaning of Rule 13d-3 of the Securities Exchange Act of
1934, as amended ("Rule 13d-3").
(3) Includes shares held by entities over which Messrs. McCaslin and Plunket
have beneficial ownership within the meaning of Rule 13d-3.
(4) Such individuals own interests in entities which own shares of Common Stock,
but these individuals do not have beneficial ownership of such shares of
Common Stock within the meaning of Rule 13d-3.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITIONS
In March 1996, the Company acquired the Georgetown Latham Hotel in
Washington, D.C. for a purchase price of $12,000,000 from LCP Hotel Ventures,
L.P. ("LCP"). At the time of the acquisition, the general partner of LCP was
Latham Hotels, Inc. ("LHI"), a corporation owned 80% by Paul W. Whetsell,
President and Chief Executive Officer of the Company, and 10% by David E.
McCaslin, Chief Operating Officer of the Company. Including their interests in
LHI, Mr. Whetsell and Mr. McCaslin owned, directly or indirectly, 9.18% and
0.52%, respectively, of the beneficial interest in LCP and received $763,000 and
$42,000, respectively, of the net proceeds of the purchase price paid to LCP.
The purchase price for the Latham Georgetown was determined through arm's-length
negotiations between the Company, on the one hand, and representatives of the
holders of the majority of the beneficial interests in LCP, on the other hand;
such representatives are not affiliated with the Company.
Since November 1995, the Company has acquired 85.2% of the limited
partnership interests in the partnership that owns the Westin Atlanta Airport
("Atlanta Partners"). In November 1995, the Company acquired, for a purchase
price of $56,000, the 1% general partnership interest in Atlanta Partners
previously held by a corporation in which E. Robert Roskind owned an equity
interest ("LHP"). At the time of such acquisition Mr. Roskind was a principal of
both CapStar Management and EquiStar. LHP was also paid a fee of $893,000 in
connection with the acquisition of the partnership interests in Atlanta
Partners, and is entitled to an additional $161,000 upon the ultimate
disposition of Atlanta Partners. The LCP Group, L.P., in which Mr. Roskind owns
an equity interest is entitled to an annual fee of $30,000 for providing certain
administrative services relating to the outside limited partners of the Atlanta
Airport Westin. All of the compensation paid or payable to affiliates of Mr.
Roskind in connection with the Atlanta Airport Westin transaction was negotiated
at arms-length between Mr. Roskind, on the one hand, and other principals of
EquiStar, on the other hand. Mr. Roskind is no longer associated with the
Company.
OWNERSHIP INTERESTS IN CERTAIN MANAGED HOTELS
Mr. Whetsell and Mr. McCaslin and corporations owned by them own, directly
or indirectly, (i) a leasehold interest, expiring on December 31, 2001, in one
of the Managed Hotels and (ii) minority equity interests in eight of the Managed
Hotels. Mr. Whetsell and Mr. McCaslin exercise management control over the
Affiliated Owners of five of these Managed Hotels through their ownership of
certain entities which serve as general partners of the Affiliated Owners. Such
interests were acquired prior to the formation of EquiStar and CapStar
Management. During 1995, the Company received approximately $826,000 in
management fees from those Managed Hotels in which Messrs. Whetsell and McCaslin
own an equity interest, including approximately $630,000 in management fees from
the Affiliated Owners. Under the terms of their employment agreements, Messrs.
Whetsell and McCaslin are prohibited from hereafter acquiring any interests in
hotels or hotel management companies while they serve as officers of the
Company. See "Management--Employment Agreements."
INDEBTEDNESS OF CERTAIN MEMBERS OF MANAGEMENT
In connection with the initial formation and capitalization of EquiStar,
CapStar Management made loans to certain directors and executive officers of the
Company, which loans were used by such individuals to make capital contributions
to EquiStar. Such loans were made from August 1995 through April 1996 and bore
interest at the prime rate through December 31, 1995 and at a rate of 1.5% above
the prime rate thereafter. The largest aggregate amounts of the loans to such
directors and executive officers outstanding at any time (where such aggregate
amount exceeded $60,000) were $300,000 to Mr. Whetsell and $147,500 to Mr.
McCaslin. All such loans will be repaid immediately prior to the Offering.
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<PAGE>
SHARES AVAILABLE FOR FUTURE SALE
Upon consummation of the Offering (assuming the over-allotment option is not
exercised), the Company will have 12,754,321 shares of Common Stock outstanding.
Of these shares, all of the shares of Common Stock sold in the Offering will be
freely transferable by persons other than "affiliates" of the Company without
restriction or limitation under the Securities Act. The remaining 3,504,321
shares are "restricted securities" within the meaning of Rule 144 under the
Securities Act (the "Restricted Shares") and may not be sold in the absence of
registration under the Securities Act unless an exemption from registration is
available, including the exemption contained in Rule 144. The Company has
granted certain registration rights to the recipients of Restricted Shares
issued in connection with the Formation Transactions, which registration rights
cover all of the securities issued in connection with the Formation
Transactions.
In general, under Rule 144, if two years have elapsed since the later of the
date of acquisition of Restricted Shares from the Company or any "affiliate" of
the Company, as that term is defined under the Securities Act, the acquiror or
subsequent holder thereof is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the Common Stock then
outstanding or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. If three years have elapsed since
the date of acquisition of Restricted Shares from the Company or from any
"affiliate" of the Company, and the acquiror or subsequent holder thereof is
deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale, such person would be entitled to sell such shares in the
public market under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements. The
Securities and Exchange Commission has proposed amendments to Rule 144 to reduce
the two and three year holding periods to one and two years, respectively.
The Company and Acadia Partners (who beneficially owns 2,514,804 shares of
Common Stock) have agreed that, for a period of 180 days from the date of this
Prospectus, they will not, without the prior written consent of Lehman, offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable for Common Stock. Certain entities
controlled by members of management (who beneficially own an aggregate of
989,517 shares of Common Stock) have agreed that, for a period of 360 days from
the date of this Prospectus, they will not, without the prior written consent of
Lehman, offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable for Common Stock.
There can be no assurance that Lehman will not grant any such consent. In
connection with the Offering, certain directors and executive officers of the
Company, who were recipients of Restricted Shares, will pledge Restricted Shares
as guarantees for loans to be made to them by Lehman. These loans will be made
in connection with the repayment of loans previously made to such individuals by
CapStar Management. The Company has agreed that Lehman will be entitled to
exercise registration rights in respect of any Restricted Shares that may be
acquired by Lehman in the event of a default on a loan to any such individual.
Prior to the Offering, there has been no public market for the Common Stock.
The Company can make no predictions as to the effect, if any, that future sales
of Restricted Shares, or the availability of such Restricted Shares for sale, or
the issuance of shares of Common Stock upon the exercise of options or
otherwise, or the perception that such sales or exercises could occur, will have
on the market price prevailing from time to time. Sales of substantial amounts
of Restricted Shares in the public market could have an adverse effect on the
market price of the Common Stock.
The Company has adopted an Equity Incentive Plan and Stock Purchase Plan for
the purpose of attracting, retaining and motivating executive officers of the
Company, other key employees and directors. The Company has reserved 1,740,000
shares of Common Stock for issuance under such plans.
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<PAGE>
The Board expects to grant options to purchase an aggregate of 745,254 shares of
Common Stock at the initial public offering price under the Equity Incentive
Plan to certain key personnel prior to the date of this Prospectus. The Company
intends to file a registration statement under the Securities Act to register
shares of Common Stock issuable upon the exercise of stock options granted under
the Equity Incentive Plan or the Stock Purchase Plan. Shares issued upon
exercise of stock options after the effective date of such registration
statement generally will be available for sale in the open market.
DESCRIPTION OF CAPITAL STOCK
The following summary information is qualified in its entirety by the
provisions of the Company's Certificate of Incorporation and By-laws, copies of
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
The authorized capital stock of the Company consists of 49,000,000 shares of
Common Stock, par value $.01 per share, and 25,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"), of which 6,004,321 shares
of Common Stock and no shares of Preferred Stock are outstanding. Upon
completion of the Offering, 12,754,321 shares of Common Stock and no shares of
Preferred Stock will be outstanding.
Prior to the Offering, there has been no public market for the Common Stock.
See "Risk Factors-- Absence of Prior Public Market."
COMMON STOCK
Voting Rights. The Company's Certificate of Incorporation provides that
holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders. The stockholders are not entitled to vote
cumulatively for the election of directors.
Dividends. Each share of Common Stock is entitled to receive dividends if,
as and when declared by the Board. Under Delaware law, a corporation may declare
and pay dividends out of surplus, or if there is no surplus, out of net profits
for the fiscal year in which the dividend is declared and/or the preceding year.
No dividends may be declared, however, if the capital of the corporation has
been diminished by depreciation in the value of its property, losses or
otherwise to an amount less than the aggregate amount of capital represented by
any issued and outstanding stock having a preference on the distribution of
assets. See "Dividend Policy."
Other Rights. Stockholders of the Company have no preemptive or other rights
to subscribe for additional shares. Subject to any rights of the holders of any
Preferred Stock that may be issued subsequent to the Offering, all holders of
Common Stock are entitled to share equally on a share-for-share basis in any
assets available for distribution to stockholders on liquidation, dissolution or
winding up of the Company. No shares of Common Stock are subject to redemption
or a sinking fund. All outstanding shares of Common Stock are, and the Common
Stock to be outstanding upon completion of the Offering will be, fully paid and
nonassessable.
PREFERRED STOCK
The Company's Board is authorized to issue, without further authorization
from stockholders, up to 25,000,000 shares of Preferred Stock in one or more
series and to determine, at the time of creating each series, the distinctive
designation of, and the number of shares in, the series, its dividend rate, the
number of votes, if any, for each share of such series, the price and terms on
which such shares may be redeemed, the terms of any applicable sinking fund, the
amount payable upon liquidation, dissolution or winding up, the conversion
rights, if any, and such other rights, preferences and priorities of such series
65
<PAGE>
as the Board may be permitted to fix under the laws of the State of Delaware as
in effect at the time such series is created. The issuance of Preferred Stock
could adversely affect the voting power of the holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no current plan to issue any shares of Preferred Stock.
SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware General Corporation Law (the "Delaware Law")
prohibits publicly held Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date of the transaction in which the person or entity became an
interested stockholder, unless (i) prior to such date, either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder is approved by the Board, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the outstanding
voting stock of the corporation (excluding for this purpose certain shares owned
by persons who are directors and also officers of the corporation and by certain
employee benefit plans) or (iii) on or after such date the business combination
is approved by the Board and by the affirmative vote (and not by written
consent) of at least 66 2/3% of the outstanding voting stock which is not owned
by the interested stockholder. For the purposes of Section 203, a "business
combination" is broadly defined to include mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within the immediately preceding three years did own) 15%
or more of the corporation's voting stock.
REGISTRATION RIGHTS
Contemporaneously with the Formation Transactions, the Company will enter
into a registration rights agreement with persons receiving shares of Common
Stock in connection with the Formation Transactions (the "Registration Rights
Agreement"), pursuant to which the Company will agree (subject to certain
limitations and under certain circumstances) to register for sale any shares of
Common Stock that are held by the parties thereto (collectively, the
"Registrable Securities"). See "Formation Transactions." All of the shares of
Common Stock issued in the Formation Transactions will be Registrable
Securities. The Registration Rights Agreement provides that any holder of
Registrable Securities may require the Company to register such Registrable
Securities for sale (a "Demand Registration"), provided that the total amount of
Registrable Securities to be included in the Demand Registration has a market
value of at least $10 million and provided that notice is not given prior to six
months after the effective date of a previous Demand Registration. If
Registrable Securities are going to be registered by the Company pursuant to a
Demand Registration, the Company must provide written notice to the other
holders of Registrable Securities and permit them to include any or all
Registrable Securities that they hold in the Demand Registration, provided that
the amount of Registrable Securities requested to be registered may be limited
by the underwriters in an underwritten offering based on such underwriters'
determination that inclusion of the total amount of Registrable Securities
requested for registration would materially and adversely affect the success of
the offering. Upon notice of a Demand Registration, the Company is required to
file a registration statement within 60 days of the date on which notice is
given, although the Company may postpone the filing for up to 90 days under
certain circumstances. Subject to the conditions stated or referred to above,
the holders of Registrable Securities may request an unlimited number of Demand
Registrations. Acadia Partners and its affiliates that will receive shares in
the Formation Transactions have agreed not to exercise any Demand Registration
rights for a period of six months from the date of execution of the Registration
Rights Agreement. Certain management-controlled entities that will receive
shares in the Formation Transactions have a one-time right to require the
Company to register the Registrable Securities that they hold in connection with
the distribution of the Registrable Securities to their members or in connection
with a resale of such shares. In order to demand any such registration the
market value of
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<PAGE>
the securities to be sold by such entities must be at least $5 million. The
management-controlled entities will not be entitled to include their Registrable
Securities in any such registration prior to one year from the Closing, although
a pledgee of such Registrable Securities may, upon a default by a management-
controlled entity under a loan secured by the pledge, exercise the
management-controlled entity's registration rights during such one-year period.
The Registration Rights Agreement also provides that, subject to certain
exceptions, in the event the Company proposes to file a registration statement
with respect to an offering of any class of equity securities, other than an LLC
Registration and certain other types of registrations, the Company will offer
the holders of Registrable Securities the opportunity to register the number of
Registrable Securities they request to include (the "Piggyback Registration"),
provided that the amount of Registrable Securities requested to be registered
may be limited by the underwriters in an underwritten offering based on such
underwriters' determination that inclusion of the total amount of Registrable
Securities requested for registration would materially and adversely affect the
success of the offering. The Company is generally required to pay all of the
expenses of Demand Registrations, an LLC Registration and Piggyback
Registrations, other than underwriting discounts and commissions.
TRANSFER AGENT AND REGISTRAR
The Company has appointed The First National Bank of Boston as the transfer
agent and registrar for the Common Stock.
UNDERWRITING
The Underwriters of the U.S. Offering of Common Stock (the "U.S.
Underwriters"), for whom Lehman, Goldman, Sachs & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Smith Barney Inc. are serving as representatives
(the "Representatives") have severally agreed, subject to the terms and
conditions of the underwriting agreement, the form of which has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part (the
"U.S. Underwriting Agreement"), to purchase from the Company and the Selling
Stockholder, and the Company and the Selling Stockholder have agreed to sell to
the U.S. Underwriters, the aggregate number of shares of Common Stock set forth
opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
- ---------------------------------------------------------------- ---------
<S> <C>
Lehman Brothers Inc.............................................
Goldman, Sachs & Co.............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................
Smith Barney Inc................................................
---------
Total........................................................... 7,400,000
---------
---------
</TABLE>
The managers of the International Offering named below (the "International
Managers") for whom Lehman Brothers International (Europe), Goldman Sachs
International, Merrill Lynch International Limited, and Smith Barney Inc. are
acting as lead managers, have severally agreed, subject to the terms and
conditions of the International Underwriting Agreement, the form of which has
been filed as an exhibit to the Registration Statement (the "International
Underwriting Agreement"), to purchase from the Company and the Selling
Stockholder, and the Company and the Selling Stockholder have
67
<PAGE>
agreed to sell to the International Managers, the aggregate number of shares of
Common Stock set forth opposite their respective names below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGERS OF SHARES
- ---------------------------------------------------------------- ---------
<S> <C>
Lehman Brothers International (Europe).......................... -
Goldman Sachs International..................................... -
Merrill Lynch International Limited............................. -
Smith Barney Inc. .............................................. -
---------
Total..................................................... 1,850,000
---------
---------
</TABLE>
The U.S. Underwriting Agreement and the International Underwriting Agreement
(collectively, the "Underwriting Agreements") provide that the obligations of
the U.S. Underwriters and the International Managers, respectively, to purchase
shares of Common Stock, are subject to the approval of certain legal matters by
counsel and to certain other conditions and that if any of the shares of Common
Stock are purchased by the U.S. Underwriters pursuant to the U.S. Underwriting
Agreement or by the International Managers pursuant to the International
Underwriting Agreement, all the shares of Common Stock agreed to be purchased by
either the U.S. Underwriters or the International Managers, as the case may be,
pursuant to their respective Underwriting Agreements, must be so purchased. The
offering price and underwriting discounts and commissions for the U.S. Offering
and the International Offering are identical. The closing of the International
Offering is a condition to the closing of the U.S. Offering and the closing of
the U.S. Offering is a condition to the closing of the International Offering.
The Company has been advised that the U.S. Underwriters and the
International Managers propose to offer shares of Common Stock directly to the
public initially at the public offering price set forth on the cover page of
this Prospectus and to certain selected dealers (who may include the U.S.
Underwriters and International Managers) at such public offering price less a
selling concession not to exceed $ - per share. The selected dealers may reallow
a concession not to exceed $ - per share. After the initial offering of the
Common Stock, the concession to selected dealers and the reallowance to other
dealers may be changed by the U.S. Underwriters and the International Managers.
The U.S. Underwriters and the International Managers have entered into an
Agreement Among U.S. Underwriters and International Managers (the "Agreement
Among") pursuant to which each U.S. Underwriter has agreed, that, as part of the
distribution of the shares of Common Stock offered in the U.S. Offering, (a) it
is not purchasing any of such shares for the account of anyone other than a U.S.
or Canadian Person (as defined below) and (b) it has not offered or sold, and
will not offer, sell, resell or deliver, directly or indirectly, any of such
shares or distribute any prospectus relating to the U.S. Offering outside the
United Sates or Canada or to anyone other than a U.S. or Canadian Person. In
addition, pursuant to the Agreement Among, each International Manager has agreed
that, as part of the distribution of the shares of Common Stock offered in the
International Offering, (a) it is not purchasing any of such shares for the
account of any U.S. or Canadian Person and (b) it has not offered or sold, and
will not offer, sell, resell or deliver, directly or indirectly, any of such
shares or distribute any prospectus relating to the International Offering
within the United States or Canada or to any U.S. or Canadian Person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Underwriting Agreements and the Agreement
Among, including: (i) certain purchases and sales between the U.S. Underwriters
and the International Managers; (ii) certain offers, sales, resales, deliveries
or distributions to or through investment advisors or other persons exercising
investment discretion; (iii) purchases, offers or sales by a U.S. Underwriter
who is also acting as an International Manager or by an International Manager
who also is acting as a U.S. Underwriter; and (iv) other transactions
specifically approved by the U.S. Underwriters and International Managers. As
used herein, "U.S. or Canadian Person" means any resident or citizen of the
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<PAGE>
United States or Canada, any corporation, pension, profit sharing or other trust
or other entity organized under or governed by the laws of the United States or
Canada or any political subdivision thereof (other than the foreign branch of
the United States or Canadian Person), any estate or trust the income of which
is subject to United States or Canadian federal income taxation regardless of
the source of its income, and any United States or Canadian branch of a person
other than a United States or Canadian Person. The term "United States" means
the United States of America (including the states thereof and the District of
Columbia) and its territories, its possessions and other areas subject to its
jurisdiction. The term "Canada" means the provinces of Canada, its territories,
its possessions and other areas subject to its jurisdiction.
Pursuant to the Agreement Among, sales may be made among the U.S.
Underwriters and the International Managers of such number of shares of Common
Stock as may be mutually agreed. The price of any shares so sold shall be the
public offering price as then in effect for Common Stock being sold by the U.S.
Underwriters and International Managers, less an amount not greater than the
selling concession unless otherwise determined by mutual agreement. To the
extent that there are sales pursuant to the Agreement Among, the number of
shares initially available for sale by the U.S. Underwriters and the
International Managers may be more or less than the amount specified on the
cover page of this Prospectus.
Each International Manager has represented and agreed that: (i) it has not
offered or sold and, prior to the date six months after the date of issuance of
the shares of Common Stock, will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to the Common Stock in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on, and
will only issue or pass on, to any person in the United Kingdom, any document
received by it in connection with the issuance of the Common Stock if that
person is of a kind described in Article 11(3) of the Financial Services Act of
1986 (Investment Advertisements) (Exemptions) Order 1995.
Purchasers of the shares offered pursuant to the Offerings may be required
to pay stamp taxes and other charges in accordance with the laws and practices
of the country of purchase in addition to the offering price set forth on the
cover page hereof.
The Company has agreed to indemnify the U.S. Underwriters and International
Managers against certain liabilities, including liabilities under the Securities
Act, or to contribute to the payments they may be required to make in respect
thereto.
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<PAGE>
The Company has granted to the U.S. Underwriters and the International
Managers options to purchase up to an additional 1,110,000 and 277,500 shares of
Common Stock, at the initial public offering price, less the aggregate
underwriting discounts and commissions, shown on the cover page of this
Prospectus, solely to cover over-allotments, if any. Such options may be
exercised at any time within 30 days after the date of the Underwriting
Agreement. To the extent the U.S. Underwriters or International Managers
exercise such options, each of the U.S. Underwriters and International Managers,
as the case may be, will be committed, subject to certain conditions, to
purchase a number of the additional shares of Common Stock proportionate to such
U.S. Underwriter's or International Manager's initial commitment as indicated in
the preceding table.
In connection with the Offering, the Company and Acadia Partners have agreed
not to offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable for Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of Lehman. In addition, certain entities controlled by members
of management have agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable for Common Stock for a period of 360 days after the date of this
Prospectus without the prior written consent of Lehman. Such restriction will
not apply to any shares purchased in the Offering or otherwise on the open
market. See "Risk Factors--Shares Available for Future Sale."
The Common Stock has been approved for listing on the NYSE subject to
official notice of issuance. To meet one of the requirements for listing on the
NYSE, the Underwriters have undertaken to sell lots of 100 or more shares to a
minimum of 2,000 beneficial owners.
The U.S. Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
Prior to the Offering, there has been no active market for the Common Stock.
The initial public offering price was determined by negotiations among the
Company and the Representatives. Among the factors considered in such
negotiations are the Company's recent results of operations, the future
prospects of the Company and its industry in general, the price-earnings ratios
and market prices of securities of companies engaged in activities similar to
those of the Company and prevailing conditions in the securities markets.
On December 21, 1995, Lehman Holdings, an affiliate of Lehman, provided to
the Company a $202,500,000 credit facility ($151,815,394 was outstanding
thereunder as of June 30, 1996), which facility is expected to be partially
repaid with the net proceeds of the Offering. See "Use of Proceeds." In
connection with the formation of EquiStar, CapStar Management made loans to
certain directors and executive officers of the Company, which loans currently
total approximately $1.0 million. Lehman has agreed to extend loans to these
directors and executive officers to repay CapStar Management all amounts
currently outstanding under the loans. The loans from Lehman will be guaranteed
by pledges of Common Stock held by such directors and executive officers. See
"Shares Available for Future Sales."
An affiliate of Lehman owns a minority equity interest in Acadia Partners.
Because an affiliate of Lehman will receive more than 10% of the net
proceeds of the Offering in repayment of currently outstanding indebtedness, the
Offering is being conducted in accordance with Rule 2710(c)(8) of the Conduct
Rules of the National Association of Securities Dealers, Inc. In accordance with
these requirements, Merrill Lynch, Pierce, Fenner & Smith Incorporated (the
"Independent Underwriter") is assuming the responsibilities of acting as
"qualified independent underwriter" and will recommend the maximum initial
public offering price for the shares of Common Stock in compliance with the
requirements of the Conduct Rules. In connection with the Offering, the
70
<PAGE>
Independent Underwriter is performing due diligence investigations and is
reviewing and participating in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part. The initial public
offering price of the Common Stock will be no higher than the price recommended
by the Independent Underwriter.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Hogan & Hartson L.L.P.,
Washington, D.C.
EXPERTS
The financial statements and schedule included herein and in the
Registration Statement, to the extent and for the periods indicated therein,
have been included in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
The combined financial statements of the Holiday Inn, Cleveland, Ohio for
the period from January 1, 1996 to February 16, 1996 and the years ended
December 31, 1995, 1994 and 1993 included herein and in the Registration
Statement have been audited by Bober, Markey & Company, independent certified
public accountants, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which is a part of the
Registration Statement, omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement and the exhibits
and schedules thereto for further information with respect to the Company and
the Common Stock offered hereby. Statements contained herein concerning the
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by such
reference. The Registration Statement, including exhibits and schedules filed
therewith, may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and will also be available for inspection and copying at
the regional offices of the Commission located at 7 World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 upon payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of such site
is "http://www.sec.gov".
Statements contained in this Prospectus as to the contents of any contract
or other document which is filed as an exhibit to the Registration Statement are
not necessarily complete, and each such statement is qualified in its entirety
by reference to the full text of such contract or document.
The Company will be required to file reports and other information with the
Commission pursuant to the Exchange Act. The Company intends to furnish to its
stockholders annual reports containing consolidated financial statements
certified by its independent accountants and quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
CAPSTAR HOTEL COMPANY
Independent Auditors' Report......................................................... F-4
Balance Sheet and Notes to Balance Sheet as of June 30, 1996......................... F-5
EQUISTAR HOTEL INVESTORS, L.P. AND CAPSTAR MANAGEMENT COMPANY, L.P.
Independent Auditors' Report......................................................... F-6
Combined Balance Sheets as of June 30, 1996 and December 31, 1995.................... F-7
Combined Statements of Operations for the six months ended June 30, 1996 and for the
period from January 12, 1995 (date of inception) to December 31, 1995................ F-8
Combined Statements of Partners' Capital for the six months ended June 30, 1996 and
for the period from January 12, 1995 (date of inception) to December 31, 1995...... F-9
Combined Statements of Cash Flows for the six months ended June 30, 1996 and for the
period from January 12, 1995 (date of inception) to December 31, 1995................ F-10
Notes to the Combined Financial Statements........................................... F-11
CAPSTAR MANAGEMENT COMPANY, L.P.
Independent Auditors' Report......................................................... F-18
Balance Sheet as of December 31, 1994................................................ F-19
Statements of Operations and Changes in Management Operations' Equity for the years
ended December 31, 1994 and 1993..................................................... F-20
Statements of Cash Flows for the years ended December 31, 1994 and 1993.............. F-21
Notes to Financial Statements........................................................ F-22
ORANGE COUNTY AIRPORT HILTON
Independent Auditors' Report......................................................... F-24
Statements of Operations for the period from January 1, 1996 to February 22, 1996
(date of acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1995, 1994 and 1993................................................... F-25
Statements of Cash Flows for the period from January 1, 1996 to February 22, 1996
(date of acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1995, 1994 and 1993................................................... F-26
Notes to Financial Statements........................................................ F-27
COLORADO SPRINGS SHERATON HOTEL
Independent Auditors' Report......................................................... F-29
Statements of Operations for the period from January 1, 1995 to June 30, 1995 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1994 and 1993...................................................................... F-30
Statements of Cash Flows for the period from January 1, 1995 to June 30, 1995 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1994 and 1993...................................................................... F-31
Notes to Financial Statements........................................................ F-32
GEORGETOWN LATHAM HOTEL
Independent Auditors' Report......................................................... F-33
Statements of Operations for the period from January 1, 1996 to March 8, 1996 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1995, 1994 and 1993................................................................ F-34
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Statements of Cash Flows for the period from January 1, 1996 to March 8, 1996 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1995, 1994 and 1993................................................................ F-35
Notes to Financial Statements........................................................ F-36
WESTIN ATLANTA AIRPORT
Independent Auditors' Report......................................................... F-38
Statements of Operations for the period from January 1, 1995 to November 15, 1995
(date of acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1994 and 1993......................................................... F-39
Statements of Cash Flows for the period from January 1, 1995 to November 15, 1995
(date of acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1994 and 1993........................................................... F-40
Notes to Financial Statements........................................................ F-41
SOMERSET MARRIOTT HOTEL
Independent Auditors' Report......................................................... F-43
Statements of Operations for the fiscal years ended September 30, 1995, 1994 and
1993................................................................................. F-44
Statements of Cash Flows for the fiscal years ended September 30, 1995, 1994 and
1993................................................................................. F-45
Notes to Financial Statements........................................................ F-46
CHARLOTTE SHERATON AIRPORT PLAZA
Independent Auditors' Report......................................................... F-48
Statements of Operations for the period from January 1, 1996 to February 2, 1996
(date of acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1995, 1994 and 1993................................................... F-49
Statements of Cash Flows for the period from January 1, 1996 to February 2, 1996
(date of acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1995, 1994 and 1993................................................... F-50
Notes to Financial Statements........................................................ F-51
CLEVELAND HOLIDAY INN AND AFFILIATE
Independent Auditors' Report......................................................... F-53
Combined Statements of Income for the period from January 1, 1996 to February 16,
1996 (date of acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1995, 1994 and 1993................................................... F-54
Combined Statements of Cash Flows for the period from January 1, 1996 to February 16,
1996 (date of acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1995, 1994 and 1993..................................................... F-55
Notes to Combined Financial Statements............................................... F-56
ARLINGTON HILTON HOTEL
Independent Auditors' Report......................................................... F-58
Statements of Operations for the period from January 1, 1996 to April 17, 1996 and
the years ended December 31, 1995, 1994 and 1993................................... F-59
Statements of Cash Flows for the period from January 1, 1996 to April 17, 1996 and
the years ended December 31, 1995, 1994 and 1993................................... F-60
Notes to Financial Statements........................................................ F-61
</TABLE>
F-2
<PAGE>
<TABLE>
<S> <C>
SALT LAKE AIRPORT HILTON
Independent Auditors' Report......................................................... F-63
Statements of Operations for the period from January 1, 1995 to March 3, 1995 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1994 and 1993...................................................................... F-64
Statements of Cash Flows for the period from January 1, 1995 to March 3, 1995 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1994 and 1993...................................................................... F-65
Notes to Financial Statements........................................................ F-66
BALLSTON HOTEL LIMITED PARTNERSHIP (HILTON HOTEL, ARLINGTON, VA)
Independent Auditors' Report......................................................... F-68
Balance Sheets as of June 30, 1996 and December 31, 1995 and 1994.................... F-69
Statements of Operations for the six months ended June 30, 1996 and the years ended
December 31, 1995, 1994 and 1993..................................................... F-70
Statements of Partners' Deficit for the six months ended June 30, 1996 and the years
ended December 31, 1995, 1994 and 1993............................................. F-71
Statements of Cash Flows for the six months ended June 30, 1996 and the years ended
December 31, 1995, 1994 and 1993..................................................... F-72
Notes to Financial Statements........................................................ F-73
BELLEVUE HILTON HOTEL
Independent Auditors' Report......................................................... F-78
Statements of Operations for the period from January 1, 1995 to August 4, 1995 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1994 and 1993...................................................................... F-79
Statements of Cash Flows for the period from January 1, 1995 to August 4, 1995 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1994 and 1993...................................................................... F-80
Notes to Financial Statements........................................................ F-81
ADDITIONAL HOTELS
Independent Auditors' Report......................................................... F-83
Combined Balance Sheets as of June 30, 1996, December 31, 1995 and 1994.............. F-84
Combined Statements of Operations for the six months ended June 30, 1996 and the
years ended December 31, 1995, 1994 and 1993....................................... F-85
Combined Statements of Owners' Capital for the six months ended June 30, 1996 and the
years ended December 31, 1995, 1994 and 1993......................................... F-86
Combined Statements of Cash Flows for the six months ended June 30, 1996 and the
years ended December 31, 1995, 1994 and 1993....................................... F-87
Notes to Combined Financial Statements............................................... F-88
</TABLE>
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CapStar Hotel Company
We have audited the accompanying balance sheet of CapStar Hotel Company (the
"Company") as of June 30, 1996. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on the balance
sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CapStar Hotel Company as of June
30, 1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
July 26, 1996
F-4
<PAGE>
CAPSTAR HOTEL COMPANY
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<S> <C>
Asset--cash........................................................................... $ 1
---
---
Stockholder's Equity:
Preferred Stock ($.01 par value, 25,000,000 shares authorized, no shares issued or
outstanding).......................................................................... --
---
Common stock ($.01 par value, 49,000,000 shares authorized, 100 shares issued and
outstanding).......................................................................... $ 1
$ 1
---
---
</TABLE>
NOTES TO BALANCE SHEET
(1) ORGANIZATION
CapStar Hotel Company (the "Company") was incorporated under Delaware
General Corporation Law on May 29, 1996. The authorized capital stock of the
Company consists of 49,000,000 shares of Common Stock having a par value of $.01
per share and 25,000,000 shares of Preferred Stock having a par value of $.01
per share. Each holder of Common Stock shall be entitled to one vote for each
share held. No Preferred Stock is issued or outstanding at June 30, 1996.
(2) FORMATION OF THE COMPANY
EquiStar Hotel Investors, L.P. (EquiStar) and CapStar Management Company,
L.P. (CapStar Management) were formed on January 12, 1995. The entities are
under common ownership. The principal activity of EquiStar is to acquire and own
upscale full-service hotels in the United States. At June 30, 1996, EquiStar
owned 11 hotels. CapStar Management operates 48 hotels throughout the United
States on behalf of third-party and affiliate owners.
Pursuant to certain agreements, the Company expects the partners of CapStar
Management and EquiStar to contribute their partnership interests in these
entities to the Company in exchange for shares of Common Stock. The Company also
expects to (i) contribute certain limited partnership interests in CapStar
Management to CapStar L.P. Corporation, a wholly-owned subsidiary, and (ii)
contribute all of the assets of EquiStar to CapStar Management. CapStar
Management will assume all of the liabilities of EquiStar and function as the
Company's operating partnership. As a result of these transactions, the Company
and CapStar L.P. Corporation will own (directly or indirectly) all of the assets
currently owned by CapStar Management and EquiStar.
The Company and a stockholder intend to offer 6,750,000 and 2,500,000 shares
of Common Stock, respectively, in an initial public offering.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P. and CapStar Management Company, L.P.:
We have audited the accompanying combined balance sheets of EquiStar Hotel
Investors, L.P. and subsidiaries and CapStar Management Company, L.P.
(collectively, the "Partnerships") as of June 30, 1996 and December 31, 1995 and
the related combined statements of operations, partners' capital, and cash flows
for the six months ended June 30, 1996 and for the period from January 12, 1995
(date of inception) to December 31, 1995, and the supplementary schedule. These
combined financial statements and schedule are the responsibility of the
Partnerships' management. Our responsibility is to express an opinion on these
combined financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement and schedule presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of EquiStar
Hotel Investors, L.P. and subsidiaries and CapStar Management Company, L.P. as
of June 30, 1996 and December 31, 1995, and the results of their combined
operations and their combined cash flows for the six months ended June 30, 1996
and for the period from January 12, 1995 (date of inception) to December 31,
1995, in conformity with generally accepted accounting principles, and the
supplementary schedule, in our opinion, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Washington, D.C.
July 18, 1996
F-6
<PAGE>
EQUISTAR HOTEL INVESTORS, L.P. AND
CAPSTAR MANAGEMENT COMPANY, L.P.
COMBINED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents....................................... $ 4,907,234 6,831,983
Accounts receivable, net of allowance for doubtful accounts of
$131,000 in 1996 and $91,000 in 1995............................ 6,947,529 2,748,909
Deposits, including restricted deposits of $2,023,307 in 1995... 3,863,123 3,515,332
Prepaid expenses and other...................................... 837,045 265,260
Inventory....................................................... 618,573 173,514
------------ -----------
Total current assets............................................ 17,173,504 13,534,998
Property and equipment:
Land.......................................................... 37,142,485 12,767,661
Buildings and improvements.................................... 127,244,333 84,545,420
Furniture, fixtures and equipment............................. 24,594,853 11,353,507
Construction-in-progress...................................... 6,321,996 2,216,174
------------ -----------
195,303,667 110,882,762
Accumulated depreciation...................................... (4,979,831) (1,756,412)
------------ -----------
Total property and equipment, net............................... 190,323,836 109,126,350
Deferred costs, net of accumulated amortization of $967,112 in
1996 and $271,496 in 1995..................................... 5,445,308 2,637,754
Restricted cash................................................. 18,793,399 7,351,128
------------ -----------
$231,736,047 132,650,230
------------ -----------
------------ -----------
LIABILITIES, MINORITY INTEREST AND PARTNERS' CAPITAL
Accounts payable................................................ $ 4,436,619 2,329,034
Accrued expenses and other liabilities.......................... 10,409,654 4,320,320
Due to CapStar Equity Associates, G.P........................... 329,362 305,077
Long-term debt, current portion................................. 3,220,336 2,668,121
------------ -----------
Total current liabilities....................................... 18,395,971 9,622,552
Long-term debt.................................................. 164,891,922 73,574,038
------------ -----------
Total liabilities............................................... 183,287,893 83,196,590
Minority interest............................................... 576,314 815,918
Partners' capital--General Partners............................. 2,467,442 2,431,589
Partners' capital--Limited Partners............................. 45,404,398 46,206,133
------------ -----------
$231,736,047 132,650,230
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE>
EQUISTAR HOTEL INVESTORS, L.P. AND
CAPSTAR MANAGEMENT COMPANY, L.P.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 12
(DATE OF
SIX MONTHS PERIOD FROM INCEPTION)
ENDED JUNE 12 TO TO
JUNE 30, JUNE 30, DECEMBER 31,
----------- ----------- ------------
1996 1995 1995
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Revenue from hotel operations:
Rooms........................................ $28,120,664 1,928,837 14,456,387
Food and beverage............................ 12,988,951 559,632 5,900,238
Other operating departments.................. 2,422,446 193,595 1,122,361
Lease revenue................................ 637,548 -- 447,934
Hotel management and other fees................ 2,086,931 2,128,493 4,436,428
----------- ----------- ------------
Total revenue.................................. 46,256,540 4,810,557 26,363,348
----------- ----------- ------------
Hotel operating expenses by department:
Rooms........................................ 7,364,570 528,120 4,190,299
Food and beverage............................ 10,302,012 425,087 4,923,790
Other operating departments.................. 1,089,381 79,866 512,791
Undistributed operating expenses:
Administrative and general................... 9,457,210 2,463,242 8,078,304
Property operating costs..................... 5,380,675 426,417 2,623,626
Property taxes, insurance and other.......... 2,116,498 84,967 1,310,517
Depreciation and amortization................ 3,919,035 302,802 2,097,512
----------- ----------- ------------
Total operating expenses....................... 39,629,381 4,310,501 23,736,839
----------- ----------- ------------
Net operating income........................... 6,627,159 500,056 2,626,509
Interest expense............................... 7,374,163 346,523 2,673,365
Interest income................................ (83,905) (12,109) (260,017)
----------- ----------- ------------
Income (loss) before minority interest and
extraordinary item............................. (663,099) 165,642 213,161
Minority interest in subsidiary................ (68,771) -- (17,415)
----------- ----------- ------------
Income (loss) before extraordinary item........ (594,328) 165,642 230,576
Extraordinary item--loss on early
extinguishment of debt....................... -- -- (887,631)
----------- ----------- ------------
Net income (loss).............................. $ (594,328) 165,642 (657,055)
----------- ----------- ------------
----------- ----------- ------------
Net income (loss) attributable to General
Partners....................................... $ 38,098 21,533 (87,254)
----------- ----------- ------------
----------- ----------- ------------
Net income (loss) attributable to Limited
Partners....................................... $ (632,426) 144,109 (569,801)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
See accompanying notes to combined financial statements.
F-8
<PAGE>
EQUISTAR HOTEL INVESTORS, L.P. AND
CAPSTAR MANAGEMENT COMPANY, L.P.
COMBINED STATEMENTS OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
FOR THE PERIOD FROM JANUARY 12, 1995
(DATE OF INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
GENERAL LIMITED
TOTAL PARTNERS PARTNERS
----------- ---------- ----------
<S> <C> <C> <C>
Initial capital contributions on January 12, 1995..... $ 1,773,304 88,765 1,684,539
Capital contributions................................. 48,624,696 2,431,235 46,193,461
Capital distributions................................. (115,723) (1,157) (114,566)
Net loss for the period from inception to December 31,
1995.................................................. (657,055) (87,254) (569,801)
----------- ---------- ----------
49,625,222 2,431,589 47,193,633
Less--notes receivable from management for capital
contributions......................................... (987,500) -- (987,500)
----------- ---------- ----------
Partners' capital at December 31, 1995................ 48,637,722 2,431,589 46,206,133
----------- ---------- ----------
----------- ---------- ----------
Capital distributions................................. (171,554) (2,245) (169,309)
Net loss for the six months ended June 30, 1996....... (594,328) 38,098 (632,426)
----------- ---------- ----------
----------- ---------- ----------
Partners' capital at June 30, 1996.................... $47,871,840 2,467,442 45,404,398
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-9
<PAGE>
EQUISTAR HOTEL INVESTORS, L.P. AND
CAPSTAR MANAGEMENT COMPANY, L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
SIX MONTHS JANUARY 12 JANUARY 12 TO
ENDED JUNE 30, TO JUNE 30, DECEMBER 31,
-------------- -------------- -------------
1996 1995 1995
-------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................... $ (594,328) 165,642 (657,055)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 3,919,035 302,802 2,097,512
Loss on early extinguishment of debt........ -- -- 617,730
Minority interest in consolidated
subsidiary........................................ (68,771) -- (17,415)
Changes in working capital:
Accounts receivable, net.................. (4,198,620) (1,219,488) (2,748,909)
Deposits.................................. (2,371,098) (874,117) (1,492,025)
Prepaid expenses and other................ (571,785) (93,124) (223,260)
Inventory................................. (445,059) (28,176) (173,514)
Accounts payable.......................... 2,107,585 502,959 2,329,034
Accrued expenses and other liabilities.... 6,089,334 1,333,929 4,320,320
Due to CapStar Equity Associates, G.P..... 24,285 -- 305,077
-------------- -------------- -------------
Net cash provided by operating activities......... 3,890,578 90,427 4,357,495
-------------- -------------- -------------
Cash flows from investing activities:
Purchases of property and equipment............. (84,115,843) (40,023,370) (109,221,935)
Purchase of minority interest................... (66,666) -- --
Additions to restricted cash for capital
improvements and
other, net.................................... (11,442,271) (6,084,208) (7,351,128)
-------------- --------------
Net cash used by investing activities............. (95,624,780) (46,107,578) (116,573,063)
-------------- -------------- -------------
Cash flows from financing activities:
Proceeds from long-term debt.................... 91,307,685 25,875,000 98,057,709
Payments on long-term debt...................... (58,056) (23,285) (23,095,559)
Principal repayments on capital leases.......... (95,661) (15,377) (37,888)
Release of (additions to) restricted deposits
for hedge agreement........................... 2,023,307 -- (2,023,307)
Deferred costs.................................. (3,092,101) (1,567,382) (3,000,181)
Capital contributions........................... -- 23,631,539 50,250,000
Loans to management............................. -- -- (987,500)
Capital distributions........................... (171,554) -- (115,723)
Distributions to minority interest.............. (104,167) -- --
-------------- -------------- -------------
Net cash provided by financing activities......... 89,809,453 47,900,495 119,047,551
-------------- -------------- -------------
Net increase (decrease) in cash and cash
equivalents....................................... (1,924,749) 1,883,344 6,831,983
Cash and cash equivalents at beginning of
period............................................ 6,831,983 -- --
-------------- -------------- -------------
Cash and cash equivalents at end of period........ $ 4,907,234 1,883,344 6,831,983
-------------- -------------- -------------
-------------- -------------- -------------
Supplemental disclosure of cash flow information:
Interest paid................................... $ 5,694,077 261,213 2,383,299
Capitalized interest costs...................... 209,682 -- 67,000
Capital lease additions......................... 305,062 253,952 721,494
Deferred financing fees not yet paid............ 411,069 -- 596,403
Prepaid expenses contributed by limited
partner........................................... -- 42,000 42,000
Furniture and equipment contributed by limited
partner........................................... -- 106,000 106,000
-------------- -------------- -------------
-------------- -------------- -------------
</TABLE>
See accompanying notes to combined financial statements.
F-10
<PAGE>
EQUISTAR HOTEL INVESTORS, L.P.
AND CAPSTAR MANAGEMENT COMPANY, L.P.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996 AND DECEMBER 31, 1995
(1) ORGANIZATION
EquiStar Hotel Investors, L.P. ("EquiStar") was formed on January 12, 1995.
The principal activity of EquiStar is to acquire and own upscale, full-service
hotels throughout the continental United States. As of June 30, 1996, EquiStar
had acquired and owned the following hotels:
<TABLE>
<CAPTION>
ACQUISITION TOTAL
DATE NAME ROOMS COST
- --------------------------- ------------------------------------------ ----- -----------
<S> <C> <C> <C>
March 3, 1995.............. Salt Lake Airport Hilton, UT 287 $14,600,000
June 30, 1995.............. Radisson Hotel, Schaumburg, IL 202 9,000,000
June 30, 1995.............. Sheraton Hotel, Colorado Springs, CO 502 17,600,000
August 4, 1995............. Hilton Hotel, Bellevue, WA 180 12,500,000
October 3, 1995............ Marriott Hotel, Somerset, NJ 434 25,800,000
November 15, 1995.......... Westin Atlanta Airport, Atlanta, GA 496 21,200,000
February 2, 1996........... Sheraton Airport Plaza, Charlotte, NC 226 18,500,000
February 16, 1996.......... Holiday Inn, Cleveland, OH 237 9,300,000
February 22, 1996.......... Orange County Airport Hilton, Irvine, CA 290 19,400,000
March 8, 1996.............. Georgetown Latham, Washington, DC 143 12,500,000
April 17, 1996............. Hilton Hotel, Arlington, TX 289 18,350,000
</TABLE>
Separate wholly-owned limited liability companies ("LLCs") were established
to directly own the above hotels. However, for the Westin Atlanta Airport, LLCs
were established to purchase and hold EquiStar's 1% general partner interest and
the 85.2% limited partner interest in the partnership that owns the hotel. Due
to the significance of these LLCs' partnership interests, the partnership's
operations are consolidated.
CapStar Management Company, L.P. ("CapStar Management") operates 48 hotels
throughout the continental United States on behalf of third-party and affiliate
owners. The partnership was formed on January 12, 1995.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The accounts of EquiStar and CapStar Management (collectively, the
"Partnerships") have been combined in these financial statements as the
Partnerships are under common ownership. All material intercompany transactions
and balances have been eliminated in combination.
The combined financial statements for the six months ended June 30, 1995 are
unaudited; however, in the opinion of management all adjustments for the fair
presentation of the combined financial statements for this period have been
included.
Cash and Cash Equivalents
The Partnerships consider all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Deposits
Deposits represent refundable amounts escrowed during the negotiation of
potential hotel acquisitions, certain amounts held for future hotel renovations
and the amounts held in escrow related to a hedge agreement (see note 4).
F-11
<PAGE>
EQUISTAR HOTEL INVESTORS, L.P.
AND CAPSTAR MANAGEMENT COMPANY, L.P.
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Inventory
Inventories, which consist primarily of hotel food and beverage stock, are
recorded at the lower of cost or market using the first-in, first-out ("FIFO")
valuation method.
Deferred Costs
Organizational costs incurred in the formation of the Partnerships are
amortized over five years using the straight-line method. Costs associated with
the acquisition of debt are amortized over the lives of the related debt
instruments using a method that approximates the interest method.
Property and Equipment
Buildings and building improvements are depreciated over 40 years.
Furniture, fixtures and equipment purchases are stated at cost and depreciated
over estimated useful lives of five to seven years or, for capital leases, the
related lease terms. Furniture and equipment contributed is stated at its fair
value at the time it was contributed. All property and equipment balances are
depreciated using the straight-line method.
Management plans to hold all hotel assets long-term. Management evaluates
potential permanent impairment of the net carrying value of its hotel assets on
a quarterly basis. For each hotel asset, the expected undiscounted future cash
flows for the asset are compared to its net carrying value. If the net carrying
value of the hotel exceeds the undiscounted cash flows, management estimates the
fair value of the assets based on recent appraisals, if available, or by
discounting expected future cash flows using prevailing market discount rates.
If the net carrying value of the hotel exceeds its fair value, the excess is
charged to operations. No impairment losses were recorded for the six months
ended June 30, 1996 and 1995 (unaudited) or in 1995.
Restricted Cash
EquiStar is required to maintain certain levels of restricted cash in order
to comply with the terms of its debt agreements. Restricted cash reserved
primarily for future hotel capital improvements was $18,793,399 and $7,351,128
at June 30, 1996 and December 31, 1995, respectively.
Minority Interest
Minority interest represents the limited partnership interests in the
partnership which owns the Westin Atlanta Airport which are not owned by
EquiStar.
Revenues
Revenue is earned primarily through the operations and management of the
hotel properties and is recognized when earned. Until February 29, 1996, the
Westin Atlanta Airport was leased to a third-party operator and revenue related
to this hotel was recorded as lease revenue. On February 29, 1996, EquiStar
assumed the operations of the hotel upon termination of the lease.
Income Taxes
The combined financial statements contain no provision for federal income
taxes since both entities are partnerships and, therefore, all federal income
tax liabilities are passed through to the individual partners in accordance with
the Partnership Agreements and Internal Revenue Code.
F-12
<PAGE>
EQUISTAR HOTEL INVESTORS, L.P.
AND CAPSTAR MANAGEMENT COMPANY, L.P.
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Partners' Capital Contributions, Distributions and Profit and Loss Allocations
The individual partnership agreements of the Partnerships specify the
required capital contributions of the partners and the procedures for the
allocation of profit and loss and for distributions to partners. Generally,
these items are allocated in proportion to the respective ownership percentages
of the partners.
Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these combined financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
(3) NOTES RECEIVABLE FROM MANAGEMENT
Pursuant to the terms of an agreement dated January 4, 1995, certain members
of management borrowed $987,500 from CapStar Management to fund capital
contributions to EquiStar. The notes are secured by the borrowers' interest in
EquiStar and are personally guaranteed by the individual note holders. During
1995, these notes earned interest at the prime rate. For the six months ended
June 30, 1996 and thereafter, these notes will earn interest at prime (as of
January 1996) plus 1.5%. Outstanding principal balances are to be repaid within
five years of the individual loan dates but may be repaid earlier through
certain CapStar Management or EquiStar distributions as defined in the related
agreements. Interest is due semi-annually on June 30 and December 31.
(4) HEDGE AGREEMENT
In August 1995, EquiStar entered into an agreement with Salomon Brothers
Holding Company Inc. ("Salomon") to hedge against the impact that interest rate
fluctuations may have on EquiStar's various floating rate debt instruments.
Gains and losses resulting from this agreement are not recorded in the financial
statements until realized.
The hedge agreement is a two-year forward swap that is effective June 30,
1997 and that matures on June 30, 2007. The agreement requires EquiStar to pay a
fixed rate of 7.095% and receive a floating interest rate based on the
three-month London Interbank Offered Rate ("LIBOR"), on a notional amount of
$25,000,000. The agreement required EquiStar to make an initial collateral
deposit of $1,000,000 and provides for required additions or reductions to the
collateral escrow account by EquiStar and Salomon in $500,000 increments based
on changes in the market value of this agreement.
At December 31, 1995, EquiStar had made required deposits totaling
$1,000,000 to the collateral escrow account which are recorded as restricted
deposits. The unrealized loss on this agreement at December 31, 1995 was
$1,546,000.
On May 6, 1996, EquiStar sold its interest in the swap agreement. The gain
on sale of $536,000 has been deferred for financial statement purposes.
(5) LONG-TERM DEBT
Salomon Long-term Debt--Prior to December 21, 1995, EquiStar had a loan
facility with Salomon to fund the acquisition of hotels. At December 21, 1995,
$22,690,000 was outstanding on this
F-13
<PAGE>
EQUISTAR HOTEL INVESTORS, L.P.
AND CAPSTAR MANAGEMENT COMPANY, L.P.
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT--(CONTINUED)
loan facility. Interest-only payments were required under this loan facility at
a floating rate based on LIBOR. This debt was refinanced with Lehman Brothers
Holding, Inc. ("Lehman Holdings").
Lehman Long-term Debt--On December 21, 1995, EquiStar entered into a
$202,500,000 Master Mortgage Loan Facility Agreement (the "Master Agreement")
with Lehman Holdings to facilitate the repayment of the existing $22,690,000 in
debt and hotel acquisitions. Under the Master Agreement, 50% of total
acquisition capital, not to exceed $125,000,000, may be funded through a senior
loan facility. An additional 27.5% of acquisition capital, not to exceed
$75,000,000, may be borrowed through a mezzanine loan facility. Certain fees
incurred by EquiStar related to these borrowings may also be financed through
the Master Agreement, up to a maximum of $2,500,000. Separate loans are obtained
under the Master Agreement for each hotel acquired. The loans are
cross-collateralized and cross-defaulted and are secured by first and second
liens on EquiStar's real and personal property.
Loans obtained under the senior loan facility bear interest at variable
rates that are based on one-month LIBOR. For the six months ended June 30, 1996
and for the year ended December 31, 1995, interest rates on the loans under the
senior facility were between 9.625% and 10%. Loans obtained under the mezzanine
loan facility bear interest at a fixed rate of 16%. Interest payments of 10% are
required with the remaining 6% accruing to principal. All loans require
interest-only payments monthly. All of the loans mature January 1, 1999. At June
30, 1996 and December 31, 1995, total borrowings under the Master Agreement were
$151,815,394 and $59,975,900, of which $101,753,393 and $55,840,900 were made
from the senior loan facility and $50,062,001 and $4,135,000 were made from the
mezzanine loan facility, respectively.
Under the Master Agreement, EquiStar is required to pay financing fees upon
the repayment of each loan. These deferred financing fees payable, which are
included in long-term debt, totaled $1,007,472 and $596,403 at June 30, 1996 and
December 31, 1995, respectively.
Wells Fargo Long-term Debt--On March 2, 1995, EquiStar borrowed $9,960,000
from Wells Fargo Bank, National Association ("Wells Fargo") to finance the
purchase of the Salt Lake Airport Hilton (all other hotel loans are under the
Master Agreement). The loan matures on March 1, 1999 and provides for a one-year
extension at the option of the borrower. Interest, which is payable monthly, is
recorded at the one-month LIBOR plus 4.25%, as adjusted for certain provisions
in the loan agreement. The debt is secured by certain real and personal property
of the hotel. At June 30, 1996 and December 31, 1995, the outstanding balance on
this note was $9,832,088 and $9,890,144, respectively.
Wells Fargo Line of Credit--EquiStar has an unsecured $5,000,000 revolving
credit facility with Wells Fargo to support operations as needed. Amounts
outstanding on this line of credit were $2,500,000 and $4,181,809 at June 30,
1996 and December 31, 1995, respectively. Interest accrues at either LIBOR plus
2.25% or the Prime rate plus 1%, depending on the nature of the advance. Prime
rate based interest payments are due quarterly while LIBOR based interest is
payable over various periods not to exceed six months. Borrowings expected to be
repaid within one year are classified as current liabilities. The full amount
outstanding is expected to be repaid upon the termination of the credit
facility.
Notes Payable--During 1995, in order to fund the loans to management (see
note 3), CapStar Management borrowed $950,000 from Acadia Partners, L.P.
("Acadia Partners"), an affiliate of the Partnerships. In January 1996, CapStar
Management borrowed an additional $150,000 from Acadia Partners under this note
agreement to prepay a consulting fee. The note bears fixed interest at the prime
rate (as of January 1996) plus 1.5% and is secured by interests in and liens on
certain of CapStar
F-14
<PAGE>
EQUISTAR HOTEL INVESTORS, L.P.
AND CAPSTAR MANAGEMENT COMPANY, L.P.
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(5) LONG-TERM DEBT--(CONTINUED)
Management's real and personal property. Principal payments are scheduled for
August 31, 1996 and upon maturity on August 31, 1997. Interest is payable
semi-annually beginning February 29, 1996.
In March 1996, EquiStar entered into an unsecured note agreement for
$1,000,000 with LCP Hotel Ventures, L.P., an affiliate of the Partnerships and
the seller of the Georgetown Latham Hotel, to finance the purchase of that hotel
(see note 6). The note requires interest only payments quarterly, and bears
interest at a rate of 10%. All principal and accrued interest is due in full on
January 1, 1999.
Capital Leases--The Partnerships have entered into several capital leases
for hotel and office equipment that expire between 1997 and 2000. The total
capital lease obligations at June 30, 1996 and December 31, 1995, were $857,304
and $647,903, respectively, and are included in long-term debt.
Interest costs on long-term debt for the Partnerships were $7,583,845 and
$346,523 (unaudited) for the six months ended June 30, 1996 and 1995,
respectively, and $2,740,365 for 1995.
Aggregate maturities of the above obligations are as follows:
<TABLE>
<CAPTION>
PERIOD
- ------------------------------------------------------------
<S> <C>
From July 1 to December 31
1996...................................................... $ 3,045,107
Year ending December 31
1997...................................................... 1,062,222
1998...................................................... 1,297,655
1999...................................................... 162,533,716
2000 and thereafter....................................... 173,558
-------------
$ 168,112,258
-------------
-------------
</TABLE>
Management has determined that the outstanding balance of the Partnerships'
long-term debt approximates fair value by discounting the future cash flows
under the debt arrangements using rates currently available for debt with
similar terms and maturities.
(6) RELATED-PARTY TRANSACTIONS
CapStar Management manages hotels that are owned in part by affiliates or
officers of CapStar Management. Revenue associated with the management of these
hotels was $494,191 and $539,509 (unaudited) for the six months ended June 30,
1996 and 1995, respectively, and $1,104,582 in 1995. At June 30, 1996 and
December 31, 1995, the amount due from these properties was $128,820 and
$237,029, respectively. Management believes these contracts are at prevailing
market rates.
Upon formation of CapStar Management, certain receivables of CapStar Equity
Associates, G.P. ("CEA"), a limited partner, were assigned to CapStar
Management. Amounts collected under these receivables are to be paid to CEA when
CapStar Management achieves a minimum level of liquidity as defined in the
Contribution Agreement. Amounts collected under this agreement, which are
recorded as due to CapStar Equity Associates, G.P., amounted to $329,362 at June
30, 1996 and $305,077 at December 31, 1995. Management believes that the balance
will be repaid to CEA within one year.
On March 8, 1996, EquiStar acquired the Georgetown Latham Hotel for a
purchase price of $12,000,000 from LCP Hotel Ventures, L.P. ("LCP"). At the time
of the acquisition, the general partner of LCP, Latham Hotels, Inc., was
wholly-owned by certain members of the Partnerships'
F-15
<PAGE>
EQUISTAR HOTEL INVESTORS, L.P.
AND CAPSTAR MANAGEMENT COMPANY, L.P.
NOTES TO THE COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(6) RELATED-PARTY TRANSACTIONS--(CONTINUED)
management. Directly or indirectly, these members of management owned a 9.7%
beneficial interest in LCP and received $806,000 of the net proceeds of the
purchase price paid to LCP. Management believes that the purchase price was
determined through arm's-length negotiations between EquiStar and
representatives of the holders of the majority of the beneficial interests in
the LCP.
On November 15, 1995, EquiStar acquired its 1% general partner interest in
the Westin Atlanta Airport from LHP, a corporation in which an individual who,
at the time, was a principal of the Partnerships, owned an equity interest. LHP
was paid a fee of $893,000 in connection with EquiStar's acquisition of the
general and limited partner interests and is entitled to an additional $161,000
upon the ultimate disposition of the partnership that owns the Westin Atlanta
Airport. Another affiliate of the former principal, LCP Group, L.P., is entitled
to an annual fee of $30,000 to provide certain administrative services related
to the outside limited partners. Management believes that these fees were
negotiated at arm's-length between the former principal and the other principals
of EquiStar.
(7) COMMITMENTS AND CONTINGENCIES
CapStar Management has entered into two operating leases for office space
which expire in October 1998. Lease payments will be approximately $250,000
annually through expiration.
EquiStar is involved in various litigation through the normal course of
business which management believes will not have a material adverse effect on
the combined financial statements.
On June 14, 1996, EquiStar entered into a binding contract to purchase the
Renaissance Hotel, Arlington, Virginia for $19,300,000. EquiStar intends to
operate the hotel under a franchise agreement with Hilton Hotels Corporation
beginning in August 1996. The hotel is a full-service hotel with 209 rooms.
On June 20, 1996 EquiStar entered into a binding contract to purchase five
upscale, full service hotels which contain 1,121 rooms, for a purchase price of
$68,400,000.
(8) PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma summary presents information as if hotel
acquisitions made from inception of the Partnerships through June 30, 1996, had
been made at inception of the Partnerships. The pro forma information is
provided for informational purposes only. It is based on historical information
and does not necessarily reflect the actual results that would have occurred nor
is it necessarily indicative of future results of operations of the
Partnerships.
PRO FORMA INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
SIX MONTHS ENDED JANUARY 12, 1995 TO
JUNE 30, 1996 DECEMBER 31, 1995
------------------ -------------------
<S> <C> <C>
Total revenue............................ $ 55,933,151 106,558,750
------------------ -------------------
Net loss before extraordinary item....... $ (2,184,158) (4,914,034)
------------------ -------------------
Net loss................................. $ (2,184,158) (5,801,665)
------------------ -------------------
</TABLE>
F-16
<PAGE>
SCHEDULE III
EQUISTAR HOTEL INVESTORS, L.P. AND
CAPSTAR MANAGEMENT COMPANY, L.P.
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
JUNE 30, 1996
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
COSTS SUBSEQUENT TO CARRIED AT CLOSE OF
PERIOD
INITIAL COST TO COMPANY ACQUISITION -------------------------
------------------------- -------------------- (1)
BUILDING AND BUILDING AND (1) BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS
- -------------------------- ------------ ---------- ------------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hotel Assets:
Salt Lake Airport Hilton,
UT........................ $ 9,832,088 770,000 12,827,670 580 758,467 770,580 13,586,137
Radisson Hotel,
Schaumburg, IL............ 8,368,664 1,080,000 5,131,399 13,378 954,936 1,093,378 6,086,335
Sheraton Hotel, Colorado
Springs, CO.............. 16,413,685 1,071,394 14,591,596 678 841,753 1,072,072 15,433,349
Hilton Hotel, Bellevue,
WA........................ 10,865,360 5,210,695 6,766,323 4,590 459,749 5,215,285 7,226,072
Marriott Hotel, Somerset,
NJ........................ 22,559,130 1,977,509 23,001,126 854 46,160 1,978,363 23,047,286
Westin Atlanta Airport,
Atlanta, GA............... 23,677,187 2,650,000 15,926,116 -- 344,727 2,650,000 16,270,843
Sheraton Hotel,
Charlotte, NC............. 15,795,668 4,700,000 11,056,927 -- 13,406 4,700,000 11,070,333
Holiday Inn, Cleveland,
OH........................ 9,878,786 1,330,000 6,353,249 -- 58,581 1,330,000 6,411,830
Orange County Airport
Hilton, Irvine, CA....... 16,762,455 9,990,000 7,993,137 6,635 48,820 9,996,635 8,041,957
Georgetown Latham,
Washington, DC........... 11,518,688 6,500,000 5,319,708 -- 17,648 6,500,000 5,337,356
------------ ---------- ------------ ----- ------------ ---------- ------------
Hilton Hotel, Arlington,
TX........................ 16,975,771 1,836,172 14,689,379 -- 43,456 1,836,172 14,732,835
------------ ---------- ------------ ----- ------------ ---------- ------------
162,647,482 37,115,770 123,656,630 26,715 3,587,703 37,142,485 127,244,333
------------ ---------- ------------ ----- ------------ ---------- ------------
------------ ---------- ------------ ----- ------------ ---------- ------------
<CAPTION>
ACCUMULATED YEAR OF DATE
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED LIFE
- -------------------------- ----------- ------------ -------- ----
<S> <C> <C> <C> <C>
Hotel Assets:
Salt Lake Airport Hilton,
UT........................ 434,128 1980 03/03/95 40
Radisson Hotel,
Schaumburg, IL............ 131,374 1974 06/30/95 40
Sheraton Hotel, Colorado
Springs, CO.............. 369,875 1979 06/30/95 40
Hilton Hotel, Bellevue,
WA........................ 156,668 1979 08/04/95 40
Marriott Hotel, Somerset,
NJ........................ 431,983 1978 10/03/95 40
Westin Atlanta Airport,
Atlanta, GA............... 269,432 1982 11/15/95 40
Sheraton Hotel,
Charlotte, NC............. 115,875 1985 02/02/96 40
Holiday Inn, Cleveland,
OH........................ 60,081 1985 02/16/96 40
Orange County Airport
Hilton, Irvine, CA....... 70,925 1976 02/22/96 40
Georgetown Latham,
Washington, DC........... 108,459 1978 03/08/96 40
-----------
Hilton Hotel, Arlington,
TX........................ 22,712 1983 04/17/96 40
-----------
2,171,512
-----------
-----------
</TABLE>
<TABLE>
<S> <C> <C> <C>
(1) As of June 30, 1996, hotel property and equipment have a cost
of $194,718,048 for federal income tax purposes. Land 37,142,485 --
Hotel furniture and equipment....
24,009,234 2,735,224
Construction in progress......... 6,321,996 --
------------ -----------
Total hotel property and
equipment........................ $194,718,048 $4,906,736
------------ -----------
</TABLE>
A reconciliation of the Partnerships' investment in hotel property and
equipment and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Hotel property and equipment:
Balance at beginning of period...................................................... $110,454,164 --
Additions during period:
Acquisitions...................................................................... 70,561,215 104,238,519
Improvements and construction-in-progress......................................... 13,702,669 6,215,645
------------ -----------
Balance at end of period............................................................. 194,718,048 110,454,164
------------ -----------
Accumulated depreciation:
Balance at beginning of period...................................................... 1,742,573 --
Additions--depreciation expense..................................................... 3,164,163 1,742,573
------------ -----------
4,906,736 1,742,573
------------ -----------
Net hotel property and equipment at end of period.................................... $189,811,312 108,711,591
------------ -----------
------------ -----------
</TABLE>
F-17
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Partners
CapStar Management Company, L.P.:
We have audited the accompanying balance sheet of CapStar Management
Company, L.P. ("CapStar Management") as of December 31, 1994, and the related
statements of operations and changes in management operations' equity and cash
flows for the years ended December 31, 1994 and 1993. These financial statements
are the responsibility of the management of CapStar Management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CapStar Management Company,
L.P. as of December 31, 1994, and the results of its operations and its cash
flows for the years ended December 31, 1994 and 1993 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
May 7, 1996
F-18
<PAGE>
CAPSTAR MANAGEMENT
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash......................................................................... $ 157,151
Accounts receivable.......................................................... 946,717
Prepaid expenses............................................................. 22,157
----------
Total current assets........................................................... 1,126,025
Furniture and equipment, net of accumulated depreciation of $69,804............ 105,772
----------
$1,231,797
----------
----------
LIABILITIES AND MANAGEMENT OPERATIONS' EQUITY
Accounts payable and accrued expenses.......................................... $ 823,637
Due to affiliates.............................................................. 203,140
Management operations' equity.................................................. 205,020
----------
$1,231,797
----------
----------
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
CAPSTAR MANAGEMENT
STATEMENTS OF OPERATIONS AND CHANGES IN MANAGEMENT OPERATIONS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Revenue:
Management fees................................................... $3,823,166 3,918,576
Accounting fees and other income.................................. 594,756 315,566
---------- ---------
Total revenue....................................................... 4,417,922 4,234,142
---------- ---------
Expenses:
Salaries, wages and benefits...................................... 2,311,569 1,988,282
Other overhead, general and administrative........................ 2,196,251 2,076,385
Depreciation...................................................... 22,639 14,349
---------- ---------
Total expenses...................................................... 4,530,459 4,079,016
---------- ---------
Net income (loss)................................................... (112,537) 155,126
Management operations' equity (deficit), beginning of year.......... 317,557 (81,820)
Capital contributions............................................... -- 244,251
---------- ---------
Management operations' equity, end of year.......................... $ 205,020 317,557
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
CAPSTAR MANAGEMENT
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
Net income (loss)..................................................... $(112,537) 155,126
Adjustments to reconcile net income (loss) to net cash provided (used)
by operating activities:
Depreciation...................................................... 22,639 14,349
Changes in working capital:
Accounts receivable............................................. 249,284 (738,337)
Prepaid expenses................................................ 20,339 (4,463)
Accounts payable................................................ (114,628) 361,377
Accrued expenses................................................ 1,213 110,624
--------- --------
Cash provided (used) by operating activities.......................... 66,310 (101,324)
--------- --------
Cash flows from investing activities--purchases of furniture and
equipment............................................................. (41,257) (24,475)
--------- --------
Cash flows from financing activities--capital contributions........... -- 244,251
--------- --------
Net increase in cash.................................................. 25,053 118,452
Cash at beginning of year............................................. 132,098 13,646
--------- --------
Cash at end of year................................................... $ 157,151 132,098
--------- --------
--------- --------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
CAPSTAR MANAGEMENT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
(1) ORGANIZATION
For the period from January 1, 1993 through December 31, 1994, CapStar
Hotels, Inc. and subsidiaries ("CHI") provided hotel management services to
hotels throughout the continental United States on behalf of third-party and
affiliate owners. At December 31, 1994, CHI had contracts to manage 41 hotels.
On January 4, 1995, CHI assigned the hotel management contracts and certain
assets and liabilities related to its hotel management operations to CapStar
Equity Associates, G.P. ("CEA"). On January 12, 1995, CEA, in turn, assigned the
same to CapStar Management Company, L.P.
For purposes of these financial statements, the hotel management operations
accounts are presented as if they were a separate and distinct legal entity
(CapStar Management).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements have been prepared on the accrual basis of
accounting and in accordance with generally accepted accounting principles.
Revenues and Accounts Receivable
CapStar Management receives fees for the performance of management,
accounting and other services in accordance with the agreements entered into
with individual hotels. All revenues are recognized as the related services are
performed.
Generally, management fees are equal to 2% to 4% of the gross monthly
revenue of each hotel. Additional incentive management fees are earned when a
hotel's operating performance exceeds levels specified in the management
contract.
The collectibility of accounts receivable is evaluated periodically during
the year. CapStar Management uses the direct write-off method to record bad debt
expense for amounts deemed uncollectible.
Furniture and Equipment
Furniture and equipment purchases are stated at cost. These assets are
depreciated using the straight-line method over an estimated useful life of
seven years.
Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements. Actual results could differ
from those estimates.
Income Taxes
No provision has been made for income taxes in the financial statements, as
any taxable income or loss of CapStar Management is included in the income tax
returns of CHI for the years ended December 31, 1994 and 1993.
F-22
<PAGE>
CAPSTAR MANAGEMENT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) RELATED-PARTY TRANSACTIONS
Certain of the hotels managed are owned by affiliates of CHI. Revenue earned
by CapStar Management from these hotels was approximately $2,830,177 in 1994 and
$2,812,653 in 1993. Accounts receivable associated with hotels owned by
affiliates was $481,561 at December 31, 1994.
Due to affiliates primarily represents amounts collected by CapStar
Management on behalf of the hotels it manages which have not yet been disbursed
to the hotels.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Orange County Airport Hilton (the "Hotel") for the period from January 1,
1996 to February 22, 1996 (date of acquisition by EquiStar Hotel Investors,
L.P.) and the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Hotel's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Orange County Airport Hilton's
operations and its cash flows for the period from January 1, 1996 to February
22, 1996 and the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
April 20, 1996
F-24
<PAGE>
ORANGE COUNTY AIRPORT HILTON
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 22, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Rooms................................. $ 854,685 4,564,294 3,479,926 3,137,865
Food and beverage..................... 409,200 2,554,156 2,188,612 2,204,286
Other operating departments........... 48,828 314,723 239,755 183,980
---------- ----------- ----------- -----------
1,312,713 7,433,173 5,908,293 5,526,131
---------- ----------- ----------- -----------
Operating costs and expenses:
Rooms................................. 254,389 1,302,612 1,009,792 875,825
Food and beverage..................... 346,563 1,882,782 1,617,235 1,543,846
Other operating departments........... 23,005 147,896 116,224 84,197
Undistributed operating expenses:
Administrative and general............ 222,566 1,050,388 1,022,104 869,499
Sales and marketing................... 126,979 692,052 452,070 449,615
Management fees....................... 35,000 210,000 197,500 150,000
Property operating costs.............. 96,410 763,258 704,873 691,160
Property taxes, insurance and other... 57,301 342,177 386,464 467,055
Depreciation and amortization......... 112,129 832,958 798,442 854,566
Interest expense...................... 608,294 3,510,997 2,688,580 2,193,590
---------- ----------- ----------- -----------
Total expenses.......................... 1,882,636 10,735,120 8,993,284 8,179,353
---------- ----------- ----------- -----------
Net loss................................ $ (569,923) (3,301,947) (3,084,991) (2,653,222)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
ORANGE COUNTY AIRPORT HILTON
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 22, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $(569,923) (3,301,947) (3,084,991) (2,653,222)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization......... 112,129 832,958 798,442 854,566
Decrease (increase) in accounts
receivable.................................. (56,580) (198,792) (27,765) 203,192
Decrease (increase) in other assets... 67,637 (42,736) 26,502 38,421
Increase (decrease) in accounts
payable and accrued expenses........ 296,914 540,514 11,866 (12,467)
Increase in accrued interest.......... 358,294 3,010,996 2,568,580 2,167,618
--------- ---------- ---------- ----------
Total adjustments......................... 778,394 4,142,940 3,377,625 3,251,330
--------- ---------- ---------- ----------
Net cash provided by operating activities... 208,471 840,993 292,634 598,108
--------- ---------- ---------- ----------
Cash flows used by investing activities--
additions to hotel.......................... -- (76,435) (54,925) (17,811)
--------- ---------- ---------- ----------
Cash flows from financing activities:
Repayments of note payable................ -- (30,099) (55,000) --
Capital distributions..................... (43,445) (896,802) (274,594) (397,073)
Increase (decrease) in bank overdrafts.... (165,026) 162,343 91,885 (183,224)
--------- ---------- ---------- ----------
Net cash used by financing activities....... (208,471) (764,558) (237,709) (580,297)
--------- ---------- ---------- ----------
Net increase in cash........................ -- -- -- --
Cash at beginning of period................. -- -- -- --
--------- ---------- ---------- ----------
Cash at end of period....................... $ -- -- -- --
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Supplemental disclosure of cash flow
information:
Cash paid for interest.................... $ 250,000 500,000 120,000 25,972
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
ORANGE COUNTY AIRPORT HILTON
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 22, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND THE
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(1) ORGANIZATION
The Orange County Airport Hilton (the "Hotel") is located near the Orange
County Airport in Irvine, California, approximately 45 miles from Los Angeles.
The Hotel opened in 1976 and was operated under a franchise agreement with
Radisson Hotels International, Inc. during the periods under audit. Since April
1, 1996, the Hotel has been operating as a Hilton. The Hotel has 290 rooms, an
outdoor pool and jacuzzi, fitness center and same day valet service. The dining
facilities include Mimi's Grill and The Promenade Lounge. The Hotel has
approximately 30,000 square feet of meeting space.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounts of the Hotel were included in the financial records of GMY
Investment Company ("GMY"), a limited partnership which owned the Hotel until it
was sold to EquiStar on February 22, 1996 for $19,200,000. The accompanying
statements of operations and cash flows include the accounts of the Hotel only,
as if it were a separate legal entity, and have been prepared using the accrual
basis of accounting.
Depreciation
Depreciation is computed on the cost of hotel property and equipment using
the Modified Accelerated Cost Recovery method over 39 and 31.5 years for the
building and building improvements and over 5 to 7 years for furniture, fixtures
and equipment.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
Revenue
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities were passed through to the individual partners in accordance with
the partnership agreement and the Internal Revenue Code.
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
F-27
<PAGE>
ORANGE COUNTY AIRPORT HILTON
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) INTEREST EXPENSE
GMY entered into a promissory note with an original balance of $19,000,000
in June 1989. Interest accrued at 10% for the first year, and then adjusted to
the Bank of America National Trust and Savings Association prime rate as
announced from time to time. On December 1, 1991, GMY stopped making scheduled
interest and principal payments and the note was in default. From the default
date, interest was computed using the prime rate plus four percentage points on
the outstanding balance plus any accrued interest.
(4) RELATED-PARTY TRANSACTIONS
The Hotel incurred management fees of $35,000, $210,000, $197,500 and
$150,000 for the period from January 1, 1996 to February 22, 1996 and the years
ended December 31, 1995, 1994 and 1993, respectively. The management fees were
paid to an affiliate of the Hotel.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Colorado Springs Sheraton Hotel (the "Hotel") for the period from January 1,
1995 to June 30, 1995 (date of acquisition by EquiStar Hotel Investors, L.P.)
and the years ended December 31, 1994 and 1993. These financial statements are
the responsibility of the Hotel's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Colorado Springs Sheraton Hotel's
operations and its cash flows for the period from January 1, 1995 to June 30,
1995, and the years ended December 31, 1994 and 1993, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
April 26, 1996
F-29
<PAGE>
COLORADO SPRINGS SHERATON HOTEL
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1995 TO JUNE 30, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Revenue:
Rooms................................................. $3,058,060 7,381,231 6,306,143
Food and beverage..................................... 1,450,753 3,476,833 2,930,970
Other operating departments........................... 217,547 534,042 491,097
---------- ---------- ---------
4,726,360 11,392,106 9,728,210
---------- ---------- ---------
Operating costs and expenses:
Rooms................................................. 950,418 1,956,592 1,720,992
Food and beverage..................................... 1,325,154 2,751,933 2,383,324
Other operating departments........................... 140,610 305,426 260,327
Undistributed operating expenses:
Administrative and general............................ 612,704 1,606,117 1,163,407
Sales and marketing................................... 483,000 889,803 853,153
Property operating costs.............................. 560,029 1,220,401 1,150,870
Management fees....................................... 137,852 284,803 291,736
Property taxes, insurance and other................... 290,750 498,989 549,725
Depreciation and amortization......................... 545,685 1,123,249 1,076,652
---------- ---------- ---------
5,046,202 10,637,313 9,450,186
---------- ---------- ---------
Net income (loss)....................................... $ (319,842) 754,793 278,024
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
COLORADO SPRINGS SHERATON HOTEL
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO JUNE 30, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(319,842) 754,793 278,024
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization...................... 545,685 1,123,249 1,076,652
Decrease (increase) in accounts receivable......... (222,962) 216,504 (252,683)
Decrease (increase) in inventory and other
assets................................................... 132,255 (136,067) 21,999
Increase (decrease) in accounts payable and accrued
expenses................................................. (361,807) (60,970) 161,062
--------- ---------- ---------
Net cash provided (used) by operating activities......... (226,671) 1,897,509 1,285,054
--------- ---------- ---------
Cash flows used by investing activities--purchases of
furniture, fixtures and equipment........................ (18,014) (113,743) (324,601)
--------- ---------- ---------
Cash flows from financing activities:
Capital distributions.................................. -- (2,153,816) (777,181)
Capital contributions.................................. 425,146 -- --
Increase (decrease) in bank overdrafts................. (180,461) 196,509 (9,731)
--------- ---------- ---------
Net cash flows provided (used) by financing activities... 244,685 (1,957,307) (786,912)
--------- ---------- ---------
Net increase in cash..................................... -- (173,541) 173,541
Cash at beginning of year................................ -- 173,541 --
--------- ---------- ---------
Cash at end of year...................................... $ -- -- 173,541
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
See accompanying notes to financial statements.
F-31
<PAGE>
COLORADO SPRINGS SHERATON HOTEL
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1995 TO JUNE 30, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(1) ORGANIZATION
The Colorado Springs Sheraton Hotel (the "Hotel") is a 502 room full-service
hotel located in Colorado Springs, Colorado. The Hotel is near Colorado Springs
Airport and is about an hour from Denver. The Hotel has a restaurant, a snack
bar/coffee shop, a lounge/ lobby bar, an exercise facility and an indoor/outdoor
swimming pool. The Hotel is currently undergoing major renovations (budgeted at
$2.7 million).
For the period ended June 30, 1995 and for the years ended December 31, 1994
and 1993, the Hotel was owned by CIGNA.
The Hotel was sold on June 30, 1995 to EquiStar for a purchase price of
$17,250,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounts of the Hotel were included in the financial records of CIGNA.
The accompanying statements of operations and cash flows include the accounts of
the Hotel only, as if it were a separate legal entity, and have been prepared
using the accrual basis of accounting.
Depreciation
Depreciation is computed on the cost of the Hotel property and equipment
using the straight-line method over 40 years for the building, over 15 years for
building improvements and over five years for furniture, fixtures and equipment.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
Revenue
Revenue is earned primarily through the operations of the Hotel and is
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes since
the Hotel does not pay any taxes directly. All taxes are the responsibility of
the parent company, CIGNA.
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
F-32
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Georgetown Latham Hotel (the "Hotel") for the period from January 1, 1996 to
March 8, 1996 (date of acquisition by EquiStar Hotel Investors, L.P.) and the
years ended December 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the Hotel's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Georgetown Latham Hotel's
operations and its cash flows for the period from January 1, 1996 to March 8,
1996 and the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
April 12, 1996
F-33
<PAGE>
GEORGETOWN LATHAM HOTEL
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 8, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Rooms.................................... $ 612,857 3,790,580 3,764,567 3,784,884
Food and beverage........................ 628,269 3,699,257 3,448,669 3,192,731
Other operating departments.............. 81,116 360,958 419,968 374,672
---------- ---------- ---------- ----------
1,322,242 7,850,795 7,633,204 7,352,287
---------- ---------- ---------- ----------
Operating costs and expenses:
Rooms.................................... 187,244 1,081,472 1,069,864 1,177,839
Food and beverage........................ 553,396 3,268,979 3,095,593 3,032,272
Other operating departments.............. 50,228 313,870 272,476 185,028
Undistributed operating expenses:
Administrative and general............... 110,613 996,666 795,642 663,466
Sales and marketing...................... 94,903 511,975 478,520 606,068
Management fees.......................... 39,581 235,523 248,270 288,779
Property operating costs................. 105,258 649,576 672,065 585,158
Property taxes, insurance and other...... 65,278 328,299 244,123 328,451
Depreciation and amortization............ 81,782 674,537 637,614 574,751
Interest expense......................... 87,771 476,901 5,265 --
---------- ---------- ---------- ----------
1,376,054 8,537,798 7,519,432 7,441,812
---------- ---------- ---------- ----------
Net income (loss).......................... $ (53,812) (687,003) 113,772 (89,525)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
GEORGETOWN LATHAM HOTEL
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 8, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $(53,812) (687,003) 113,772 (89,525)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............ 81,782 674,537 637,614 574,751
Decrease (increase) in accounts
receivable..................................... (26,055) 43,384 83,943 (305,105)
Decrease (increase) in other assets...... (29,166) 121,568 (311,111) (184,175)
Increase (decrease) in accounts payable
and accrued expenses................... 165,028 42,727 (384,682) 450,341
Increase in interest payable............. -- 33,880 5,265 --
-------- ---------- ---------- --------
Net cash provided by operating activities...... 137,777 229,093 144,801 446,287
-------- ---------- ---------- --------
Cash flows from investing activities:
Purchase of furniture, fixtures and
equipment...................................... (18,907) (262,176) -- (276,520)
Proceeds from sale of furniture, fixtures and
equipment...................................... -- -- 91,933 --
-------- ---------- ---------- --------
Net cash provided (used) by investing
activities..................................... (18,907) (262,176) 91,933 (276,520)
-------- ---------- ---------- --------
Cash flows from financing activities:
Principal repayments on capital leases....... (3,770) (21,857) -- --
Proceeds from note payable................... -- -- 4,500,000 --
Principal payments on note payable........... (6,849) (35,573) -- --
Advances to affiliate........................ -- -- (3,825,000) --
Repayments of advances to affiliate.......... -- 3,825,000 -- --
Capital distributions........................ -- (4,206,759) (593,312) (134,115)
-------- ---------- ---------- --------
Net cash provided (used) by financing
activities..................................... (10,619) (439,189) 81,688 (134,115)
-------- ---------- ---------- --------
Net increase (decrease) in cash................ 108,251 (472,272) 318,422 35,652
Cash at beginning of year...................... 32,193 504,465 186,043 150,391
-------- ---------- ---------- --------
Cash at end of year............................ $140,444 32,193 504,465 186,043
-------- ---------- ---------- --------
-------- ---------- ---------- --------
Supplemental disclosure of cash flow
information:
Cash paid for interest....................... $118,085 443,021 -- --
Additions to capital lease obligations....... -- -- 71,004 --
-------- ---------- ---------- --------
-------- ---------- ---------- --------
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
GEORGETOWN LATHAM HOTEL
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 8, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(1) ORGANIZATION
The Georgetown Latham Hotel (the "Hotel") is located on 3000 M Street in
Washington, D.C. It is close to the Smithsonian, embassies, monuments, the
Kennedy Center and the downtown business district, and caters mainly to tourists
and business travelers. The Hotel has 143 rooms; fine dining in the CITRONELLE
restaurant; meeting and banquet facilities; an outdoor pool; business center;
limousine rental service; and valet parking.
Until 1993, the Hotel was owned by Muben/LCP Hotel Partners, L.P.
("Muben/LCP"), a limited partnership which owned 9 hotels. On October 1, 1993,
LCP Hotel Ventures, L.P., a partner in Muben/LCP ("LCP Ventures"), conveyed its
10% interest in Muben/LCP for 100% ownership of the Hotel.
The Hotel was sold on March 8, 1996 to EquiStar for a purchase price of
$12,000,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounts of the Hotel were included in the financial records of
Muben/LCP and then LCP Ventures, as described above, until the Hotel was sold to
EquiStar. The accompanying statements of operations and cash flows include the
accounts of the Hotel only, as if it were a separate legal entity, and have been
prepared using the accrual basis of accounting.
Depreciation
Depreciation is computed on the cost of the Hotel property and equipment
using the straight-line method over 31.5 years for the building and building
improvements and over five years for furniture, fixtures and equipment.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
Revenue
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities are passed through to the individual partners in accordance with the
partnership agreement and the Internal Revenue Code.
F-36
<PAGE>
GEORGETOWN LATHAM HOTEL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) INTEREST EXPENSE
On December 23, 1994, the Hotel obtained financing from CPC Advisors No. 3,
L.L.C. The original note balance was $4,500,000 and had a fixed interest rate of
10.53%. Principal and interest payments were due monthly. The note was scheduled
to mature on December 27, 1999.
(4) RELATED-PARTY TRANSACTIONS
The Hotel was managed by an affiliate of LCP Ventures. For the period from
January 1, 1993 through September 30, 1993 the Hotel incurred management fees of
4% of gross revenue, as defined in the management agreement. For the remainder
of 1993 through March 8, 1996 the Hotel incurred base management fees of 3% and
an incentive management fee equal to 5% of the amount by which the net operating
income exceeds the amount of preferred return, as defined in the management
agreement. Management fees incurred during 1996, 1995, 1994 and 1993 were
$39,581, $235,523, $248,270 and $288,779, respectively. No incentive management
fees were earned.
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Westin Atlanta Airport (the "Hotel") for the period from January 1, 1995 to
November 15, 1995 (date of acquisition by EquiStar Hotel Investors, L.P.) and
the years ended December 31, 1994 and 1993. These financial statements are the
responsibility of the Hotel's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Westin Atlanta Airport's operations
and its cash flows for the period from January 1, 1995 to November 15, 1995 and
the years ended December 31, 1994 and 1993 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
April 5, 1996
F-38
<PAGE>
WESTIN ATLANTA AIRPORT
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 15, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Rooms................................................ $9,069,888 8,640,768 7,839,244
Food and beverage.................................... 4,054,054 4,342,750 3,828,053
Other operating departments.......................... 689,834 637,278 571,756
---------- ---------- ----------
13,813,776 13,620,796 12,239,053
---------- ---------- ----------
Operating costs and expenses:
Rooms................................................ 2,199,381 2,106,483 1,899,024
Food and beverage.................................... 3,220,403 3,392,581 3,096,841
Other operating departments.......................... 363,698 377,110 398,384
Undistributed operating expenses:
Administrative and general........................... 1,175,803 1,142,701 1,178,117
Sales and marketing.................................. 1,049,508 1,064,740 1,004,350
Management fees...................................... 498,791 500,769 263,775
Property operating costs............................. 1,029,636 1,193,688 1,157,683
Property taxes, insurance and other.................. 1,286,750 1,232,672 1,100,168
Depreciation and amortization........................ 981,547 1,254,302 1,439,270
Interest expense..................................... 2,290,924 2,618,358 2,641,131
---------- ---------- ----------
14,096,441 14,883,404 14,178,743
---------- ---------- ----------
Net loss............................................... $ (282,665) (1,262,608) (1,939,690)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE>
WESTIN ATLANTA AIRPORT
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 15, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (282,665) (1,262,608) (1,939,690)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................. 981,547 1,254,302 1,439,270
Decrease (increase) in accounts receivable.... (464,896) (474,273) 216,891
Decrease (increase) in other assets........... 33,045 (50,994) 22,875
Decrease in inventory......................... 8,531 16,061 13,530
Increase in accounts payable and accrued
expenses............................................ 267,755 83,237 96,551
Decrease in interest payable.................. (108,653) (1,319) (1,193)
Increase (decrease) in other liabilities...... 173,892 (13,781) 237,001
Increase in intercompany payable.............. 458,419 897,156 1,041,316
---------- ---------- ----------
Net cash provided by operating activities........... 1,066,975 447,781 1,126,551
---------- ---------- ----------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment..... (117,392) (43,179) --
Proceeds from sale of furniture, fixtures and
equipment........................................... -- -- 16,240
---------- ---------- ----------
Net cash provided (used) by investing activities.... (117,392) (43,179) 16,240
---------- ---------- ----------
Cash flows from financing activities--decrease in
notes payable..................................... (159,594) (158,265) (143,264)
---------- ---------- ----------
Net increase in cash and cash equivalents........... 789,989 246,337 999,527
Cash and cash equivalents at beginning of period.... 1,967,782 1,721,445 721,918
---------- ---------- ----------
Cash and cash equivalents at end of period.......... $2,757,771 1,967,782 1,721,445
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest............................ $2,399,577 2,619,677 2,642,324
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-40
<PAGE>
WESTIN ATLANTA AIRPORT
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1995 TO NOVEMBER 15, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(1) ORGANIZATION
The Westin Atlanta Airport (the "Hotel") is located near Atlanta Hartsfield
International Airport. For the periods presented, the Hotel was operated as a
Renaissance hotel. The Hotel has 496 rooms and suites, a health club, whirlpool,
sundeck, indoor and outdoor swimming pool and sauna. The dining and
entertainment facilities include the Le Cafe Restaurant, Atrium Lounge and
Studebaker's. The Hotel's business is generated from its proximity to the
Atlanta Hartsfield International Airport and the Georgia International
Convention Center.
On November 15, 1995, EquiStar purchased a 1% general partnership interest
and an 84.6% limited partnership interest in Lepercq Atlanta Renaissance
Partners, L.P. ("Atlanta Partners"), the owner of the Hotel.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Through November 15, 1995, Atlanta Partners leased the Hotel operations to a
third party. The accompanying statements of operations and cash flows include
the accounts of the Hotel and the accounts of Atlanta Partners. Atlanta
Partners' operations related primarily to the Hotel. All intercompany
transactions between the Hotel and Atlanta Partners have been eliminated.
Depreciation
Depreciation is computed on the building using the straight-line method over
a useful life of 31.5 years. Building improvements are depreciated using the
straight-line method over seven to 31.5 years while furniture, fixtures and
equipment are depreciated straight-line over three to ten years. Costs for
supplies, maintenance and repairs are charged to expense as incurred.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
Revenue
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes since
Atlanta Partners is a partnership and, therefore, all federal income tax
liabilities are passed through to the individual partners in accordance with the
partnership agreement and the Internal Revenue Code.
F-41
<PAGE>
WESTIN ATLANTA AIRPORT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) MORTGAGE NOTE PAYABLE
Through November 15, 1995, the Hotel was encumbered by a nonrecourse
mortgage loan from the Travelers Insurance Company in the amount of $24,725,000.
The loan was secured by a mortgage on the Hotel and an assignment of the lease.
The mortgage loan had an interest rate of 10% per annum and required monthly
payments of principal and interest of $216,980 through July 1, 1999.
F-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Somerset Marriott Hotel (the "Hotel") for the fiscal years ended September
30, 1995, 1994 and 1993. These financial statements are the responsibility of
the Hotel's owners. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Somerset Marriott Hotel's
operations and its cash flows for the fiscal years ended September 30, 1995,
1994 and 1993, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
April 26, 1996
F-43
<PAGE>
SOMERSET MARRIOTT HOTEL
STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Rooms............................................... $10,280,997 9,104,957 9,138,730
Food and beverage................................... 5,249,474 4,816,344 5,100,830
Other operating departments......................... 802,637 682,877 668,821
----------- ---------- ----------
16,333,108 14,604,178 14,908,381
----------- ---------- ----------
Operating costs and expenses:
Rooms............................................... 2,766,075 2,552,776 2,425,536
Food and beverage................................... 4,241,806 4,041,375 4,136,987
Other operating departments......................... 239,993 292,510 332,098
Undistributed operating expenses:
Administrative and general.......................... 1,622,395 1,647,152 1,723,724
Sales and marketing................................. 1,075,845 852,599 1,034,166
Management fees..................................... 710,174 640,793 648,515
Property operating costs............................ 1,498,497 1,586,722 1,794,374
Property taxes, insurance and other................. 637,759 566,615 753,345
Depreciation and amortization....................... 1,519,441 1,531,226 1,541,746
Interest expense.................................... 1,753,095 1,828,501 1,857,388
Impairment of long lived assets..................... -- -- 2,007,000
----------- ---------- ----------
16,065,080 15,540,269 18,254,879
----------- ---------- ----------
Net income (loss)..................................... $ 268,028 (936,091) (3,346,498)
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
SOMERSET MARRIOTT HOTEL
STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 268,028 (936,091) (3,346,498)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 1,519,441 1,531,226 1,541,746
Decrease (increase) in accounts receivable....... 8,484 413,140 (510,947)
Decrease (increase) in intercompany receivable... (47,684) 3,565,876 7,118,692
Decrease (increase) in other assets.............. 36,364 252,389 (182,467)
Impairment of long lived assets.................. -- -- 2,007,000
Decrease in accounts payable..................... (62,243) (4,073,542) (4,498,773)
Increase in interest payable..................... 2,023 4,226 2,000
----------- ---------- ----------
Net cash provided by operating activities.............. 1,724,413 757,224 2,130,753
----------- ---------- ----------
Cash flows from investing activities--acquisition of
furniture, fixtures and equipment...................... (2,092,043) (1,528,971) (309,311)
----------- ---------- ----------
Cash flows from financing activities:
Proceeds from notes payable.......................... -- 242,628 --
Principal payments on notes payable.................. (170,249) -- (92,260)
Principal repayments on capital leases............... (45,693) -- --
----------- ---------- ----------
Net cash provided (used) by financing activities....... (215,942) 242,628 (92,260)
----------- ---------- ----------
Net increase (decrease) in cash........................ (583,572) (529,119) 1,729,182
Cash at beginning of period............................ 1,187,792 1,716,911 (12,271)
----------- ---------- ----------
Cash at end of period.................................. $ 604,220 1,187,792 1,716,911
----------- ---------- ----------
----------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest............................... $ 1,751,072 1,824,275 1,855,388
Additions to capital lease obligations............... -- 363,872 --
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
SOMERSET MARRIOTT HOTEL
NOTES TO FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
(1) ORGANIZATION
The Somerset Marriott Hotel (the "Hotel") is centrally located in Somerset,
New Jersey, about 25 miles from the Newark Airport. The Hotel has 434 rooms,
fine dining in Allie's restaurant, meeting and banquet facilities, an
indoor/outdoor pool, business center, exercise room and volleyball courts.
The Hotel was owned by MRI Business Properties Fund, Ltd., II ("MRI") until
it was sold on October 3, 1995 to EquiStar for a purchase price of $24,950,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounts of the Hotel were included in the financial records of MRI. The
accompanying statements of operations and cash flows include the accounts of the
Hotel only, as if it were a separate legal entity, and have been prepared using
the accrual basis of accounting.
Depreciation
Depreciation is computed on the cost of hotel property and equipment using
the straight-line method over 23 to 39 years for the building and building
improvements and over five to seven years for furniture, fixtures and equipment.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivables and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
Revenue
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities are passed through to the individual partners in accordance with the
partnership agreement and the Internal Revenue Code.
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) INTEREST EXPENSE
Private investors provided financing for the Hotel and improvements through
two separate loans made on September 26, 1985 and August 26, 1988. Both notes
had a fixed interest rate of 8.25%. Principal and interest payments were due
monthly. Marriott provided the Hotel with a renovation loan
F-46
<PAGE>
SOMERSET MARRIOTT HOTEL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) INTEREST EXPENSE--(CONTINUED)
on October 24, 1990 for $650,000 bearing interest at 8.00% with interest
payments due monthly. All notes were repaid when the Hotel was purchased by
EquiStar on October 5, 1995.
(4) PROVISIONS FOR IMPAIRMENT OF VALUE
Due to the deterioration of the economic market in Somerset, New Jersey and
projected future operational cash flows, recovery of the carrying value of the
Hotel was not likely and a provision for impairment of value of $2,007,000 was
recognized in 1993.
F-47
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Charlotte Sheraton Airport Plaza (the "Hotel") for the period from January
1, 1996 to February 2, 1996 (date of acquisition by EquiStar Hotel Investors,
L.P.) and the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Hotel's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Charlotte Sheraton Airport Plaza's
operations and its cash flows for the period from January 1, 1996 to February 2,
1996 and the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
March 29, 1996
F-48
<PAGE>
CHARLOTTE SHERATON AIRPORT PLAZA
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 2, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rooms........................................ $404,646 4,353,741 4,279,608 3,764,540
Food and beverage............................ 330,471 3,136,701 2,698,709 2,625,091
Other operating departments.................. 21,096 609,342 861,007 779,557
-------- --------- ---------- ---------
756,213 8,099,784 7,839,324 7,169,188
-------- --------- ---------- ---------
Operating costs and expenses:
Rooms........................................ 111,163 1,067,053 1,151,114 976,178
Food and beverage............................ 258,901 2,101,504 1,906,329 1,854,924
Other operating departments.................. 13,740 114,588 82,500 80,354
Undistributed operating expenses:
Administrative and general................... 73,487 375,920 263,728 254,309
Sales and marketing.......................... 90,546 922,890 927,186 863,274
Management fees.............................. 22,497 269,689 391,966 358,459
Property operating costs..................... 67,286 618,771 556,634 519,500
Property taxes, insurance and other.......... 41,126 425,563 404,523 356,690
Depreciation and amortization................ 49,600 595,522 603,543 587,150
Interest expense............................. -- 689,563 3,378,933 1,466,088
-------- --------- ---------- ---------
728,346 7,181,063 9,666,456 7,316,926
-------- --------- ---------- ---------
Net income (loss).............................. $ 27,867 918,721 (1,827,132) (147,738)
-------- --------- ---------- ---------
-------- --------- ---------- ---------
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
CHARLOTTE SHERATON AIRPORT PLAZA
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 2, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 27,867 918,721 (1,827,132) (147,738)
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities:
Depreciation and amortization........... 49,600 595,522 603,543 587,150
Decrease (increase) in accounts
receivable.................................... 70,128 (86,461) (45,518) (44,970)
Increase in intercompany receivable..... (450,000) (1,444,939) (1,937,634) (263,645)
Decrease (increase) in other assets..... 50,127 87,415 (5,447) 40,469
Increase (decrease) in accounts payable
and accrued expenses.......................... (80,687) 165,657 193,488 75,714
Increase in interest payable............ -- 689,563 3,378,346 92,000
-------- ---------- ---------- ---------
Net cash provided (used) by operating
activities.................................... (332,965) 925,478 359,646 338,980
-------- ---------- ---------- ---------
Cash flows from investing
activities--purchases of furniture, fixtures
and equipment................................. (57,124) (257,302) (346,957) (133,901)
-------- ---------- ---------- ---------
Cash flows from financing
activities--principal payments on note
payable....................................... -- -- -- (203,839)
-------- ---------- ---------- ---------
Net increase (decrease) in cash............... (390,089) 668,176 12,689 1,240
Cash at beginning of period................... 712,894 44,718 32,029 30,789
-------- ---------- ---------- ---------
Cash at end of period......................... 322,805 712,894 44,718 32,029
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
Supplemental disclosure of cash flow
information:
Cash paid for interest...................... $ -- -- 587 1,374,088
-------- ---------- ---------- ---------
-------- ---------- ---------- ---------
</TABLE>
See accompanying notes to financial statements.
F-50
<PAGE>
CHARLOTTE SHERATON AIRPORT PLAZA
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 2, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(1) ORGANIZATION
The Charlotte Sheraton Airport Plaza (the "Hotel") is a 226 room,
full-service hotel located near the Charlotte Douglas International Airport. The
Hotel was constructed in 1985.
The Hotel was owned by Krisch Realty Associates, L.P. ("Krisch Realty")
during 1993, 1994 and through March 7, 1995, when it was conveyed to the lender.
The Hotel was sold on February 2, 1996 to EquiStar for a purchase price of
$18,000,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounts of the Hotel were included in the financial records of Krisch
Realty, which owned the Hotel until it was conveyed to the lender. The
accompanying statements of operations and cash flows include the accounts of the
Hotel only, as if it were a separate legal entity, and have been prepared on the
accrual basis of accounting.
Depreciation
Depreciation is computed on the cost of hotel property and equipment using
the straight-line method over 45 years for the building, 10 years for most
building improvements, and five to eight years for furniture, fixtures and
equipment.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivables and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
Revenue
Revenue is earned primarily through the operations of the hotel and
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities are passed through to the individual partners in accordance with the
Partnership Agreement and the Internal Revenue Code.
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
F-51
<PAGE>
CHARLOTTE SHERATON AIRPORT PLAZA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) INTEREST EXPENSE
For the period from January 1, 1995 to February 2, 1995, and during 1994 and
1993, financing for the Hotel was provided through a two-tier loan. The first
tier loan, which had an original principal balance of $12,523,925, had an
interest rate of prime plus 1%. Principal and interest payments on the first
tier loan were due monthly. The second tier loan, which had an original
principal balance of $7,444,062, required interest payments based on the Hotel's
cash flow.
During January 1994, the owner ceased making payments on the loan and the
loan went into default. From that point, the first and second tiers of the loan
accrued interest at the default rate of 16% until March 7, 1995, when the Hotel
was conveyed to the lender.
(4) OTHER RELATED-PARTY TRANSACTIONS
Krisch Hotels, Inc. ("Krisch"), an affiliate of the Hotel's owner, managed
the Hotel until March 7, 1995, and charged the Hotel base management fees of 3%
of gross revenues. The Hotel management agreement also provided for incentive
management fees to be paid to Krisch of 10% of net operating income, as defined
in the agreement. After March 7, 1995, the Hotel incurred only base management
fees of 3% of gross revenues. For the period from January 1, 1996 to February 2,
1996, and for 1995, 1994 and 1993, base and incentive management fees incurred
by the Hotel totaled $22,497, $269,689, $391,966 and $358,459, respectively.
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying combined statements of income and cash
flows of the Cleveland Holiday Inn and Affiliate for the period from January 1,
1996 to February 16, 1996 (date of Acquisition by EquiStar Hotel, Investors,
L.P.) and the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Cleveland
Holiday Inn and Affiliate's operations and their cash flows for the period from
January 1, 1996 to February 16, 1996 and the years ended December 31, 1995, 1994
and 1993, in conformity with generally accepted accounting principles.
Bober, Markey & Company
Akron, Ohio
April 30, 1996
F-53
<PAGE>
CLEVELAND HOLIDAY INN AND AFFILIATE
COMBINED STATEMENTS OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 16, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue
Rooms..................................... $474,517 $4,209,885 $3,940,430 $3,588,454
Food and beverage......................... 274,472 2,559,215 2,435,422 2,280,071
Other operating departments............... 40,419 246,911 209,456 205,464
-------- ---------- ---------- ----------
789,408 7,016,011 6,585,308 6,073,989
Cost of sales
Rooms..................................... 158,211 1,122,963 1,064,500 949,018
Food and beverage......................... 237,095 2,055,813 1,964,550 1,803,837
Other operating departments............... 44,467 59,012 57,080 59,001
-------- ---------- ---------- ----------
439,773 3,237,788 3,086,130 2,811,856
-------- ---------- ---------- ----------
Operating income............................ 349,635 3,778,223 3,499,178 3,262,133
Other expenses
Selling, general and administrative
expenses.................................... 281,426 2,142,371 2,001,877 1,860,957
Interest.................................. 51,005 347,276 364,500 380,044
Depreciation and amortization............. 39,621 321,859 247,377 272,176
Management fees--related entity 47,060 421,554 382,604 353,763
-------- ---------- ---------- ----------
419,112 3,233,060 2,996,358 2,866,940
-------- ---------- ---------- ----------
Net income (loss)........................... $(69,477) $ 545,163 $ 502,820 $ 395,193
-------- ---------- ---------- ----------
-------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE>
CLEVELAND HOLIDAY INN AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 16, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)............................. $ (69,477) $ 545,163 $ 502,820 $ 395,193
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities
Depreciation and amortization............. 39,621 321,859 247,377 272,176
Gain (loss) on equipment disposal......... (235) 35,961 33,202 6,248
Decrease (increase) in accounts
receivable...................................... 30,835 (39,803) (34,335) (4,105)
Decrease (increase) in accounts
receivable-- affiliates................. -- 1,542 (1,222) (53,624)
Decrease (increase) in other assets....... 5,868 (4,087) (4,499) 4,038
Increase (decrease) in accounts payable
and accrued expenses.................... (49,238) 161,865 33,007 (130,830)
Increase (decrease) in advances from
related entities........................ -- 266,500 (9,350) (2,211)
--------- ---------- --------- ---------
Net cash provided (used) by operating
activities...................................... (42,626) 1,289,000 767,000 486,885
Cash flows from investing activities
Cash payments for the purchase of property,
plant and equipment............................. (2,836) (680,006) (273,411) (76,419)
Cash proceeds on sale of property, plant and
equipment....................................... 4,242 1,100 4,530 2,965
Payment of franchise fee...................... -- (71,100) -- --
--------- ---------- --------- ---------
Net cash provided (used) by investing
activities...................................... 1,406 (750,006) (268,881) (73,454)
Cash flows from financing activities
Principal payments on long-term debt.......... (37,788) (473,718) (217,981) (199,257)
Issuance of note payable-related party........ -- 75,000 -- --
Capital distributions......................... (24,000) (144,000) (243,000) (204,000)
(Decrease) increase in escrowed funds......... -- 8,652 (2,871) 642
--------- ---------- --------- ---------
Net cash used by financing activities........... (61,788) (534,066) (463,852) (402,615)
--------- ---------- --------- ---------
Net increase (decrease) in cash................. (103,008) 4,928 34,267 10,816
Cash at beginning of year....................... 336,806 331,878 297,611 286,795
--------- ---------- --------- ---------
Cash at end of year............................. $ 233,798 $ 336,806 $ 331,878 $ 297,611
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Supplemental disclosure of cash flow information
Interest paid................................. $ 45,610 $ 348,276 $ 361,786 $ 379,664
Income taxes paid............................. $ 239 $ 2,385 $ 1,850 $ 3,168
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE>
CLEVELAND HOLIDAY INN AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 16, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(1) ORGANIZATION
The Company is engaged in the operation of a hotel in Middleburg Heights,
Ohio, which is located in close proximity to the Cleveland Hopkins International
Airport. The hotel was opened in June, 1978. The hotel has 242 rooms, a cocktail
lounge, restaurant, sauna, pool and approximately 13,800 square feet of meeting
space.
Bagley Road Properties (a division of Rockside Properties) is a Partnership
which held the assets of the Cleveland Holiday Inn until substantially all of
the Company's assets were sold to EquiStar Hotel Investors, L.P. (EquiStar) for
a purchase price of $9,183,249 on February 16, 1996.
The hotel and restaurant operations are reflected within Bagley Road
Operating Corporation, an S-corporation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined financial statements include the accounts of
Bagley Road Operating Corporation and Bagley Road Properties (a division of
Rockside Properties), as they are under common control and collectively
represent the Cleveland Holiday Inn. For purposes of these financial statements,
the entities are collectively referred to as the "Cleveland Holiday Inn and
Affiliate" and/or the "Company".
Significant intercompany transactions and balances have been eliminated in
the combined financial statements.
Depreciation
Depreciation is computed for financial reporting purposes using the cost of
the property and equipment using the straight line method over 19 to 40 years
for the building and building improvements and over 5 to 10 years for the
furniture, fixtures and equipment.
Bad Debt Expense
Management reviews accounts receivable on a regular basis for any
potentially uncollectible accounts. The uncollectible accounts are directly
written off, as deemed necessary.
Revenue Recognition
Revenue is earned primarily through the operations of the hotel and is
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes since
the Company's property is maintained in a partnership which is not subject to
federal income taxes. Instead, its earnings and losses are passed though to the
individual partners in accordance with the partnership agreement and the
Internal Revenue Code. In addition, the Company's operations are maintained in
an S-corporation and therefore, the income is also taxed at the shareholder
level.
F-56
<PAGE>
CLEVELAND HOLIDAY INN AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) INTEREST EXPENSE
On July 22, 1976, the Company obtained financing from a real estate
investment corporation. The mortgage has a fixed interest rate of 10.25%, with
principal and interest payments due monthly. The principal balance was
$2,641,541, $2,679,329, $2,893,047, and $3,086,028 as of February 16, 1996 and
December 31, 1995, 1994 and 1993, respectively. The loan requires additional
interest payments equal to 1% of the year's gross room revenue. The note is
scheduled to mature October, 2003.
On May 18, 1995, the Company obtained financing of $75,000 from a related
party. Interest is being accrued at the applicable federal rates (5.65% at
December 31, 1995).
On various dates, the Company obtained financing from a bank. The principal,
was $50,000, $50,000, $75,000 and $85,000, as of February 16, 1996, and December
31, 1995, 1994 and 1993, respectively, is due on demand and the interest is
payable monthly at prime plus 1% (9.5% at December 31, 1995).
All of the financing notes above were paid off subsequent to the date of
sale of the hotel to EquiStar Hotel Investors, L.P.
(4) RELATED-PARTY TRANSACTIONS
The hotel and restaurant operations are managed by a related entity. The
Management Agreement provides for payment of a management fee of approximately
six percent of room rentals, restaurant and bar receipts. Management fees
totaled $47,060, $421,554, $382,604, and $353,763 for the period from January 1,
1996 to February 16, 1996 and for the years 1995, 1994 and 1993, respectively.
F-57
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Arlington Hilton Hotel (the "Hotel") for the period from January 1, 1996 to
April 17, 1996 (date of acquisition by EquiStar Hotel Investors, L.P.) and the
years ended December 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the Hotel's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Arlington Hilton Hotel's operations
and its cash flows for the period from January 1, 1996 to April 17, 1996 and the
years ended December 31, 1995, 1994 and 1993, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
July 18, 1996
F-58
<PAGE>
ARLINGTON HILTON HOTEL
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 17, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue:
Rooms....................................... $1,907,168 6,309,256 5,875,281 5,453,149
Food and beverage........................... 824,816 2,846,102 2,755,550 2,708,330
Other operating departments................. 195,137 639,420 505,739 553,640
---------- --------- --------- ---------
2,927,121 9,794,778 9,136,570 8,715,119
---------- --------- --------- ---------
Operating costs and expenses:
Rooms....................................... 420,844 1,526,054 1,361,027 1,342,080
Food and beverage........................... 654,451 2,225,510 2,072,864 2,137,821
Other operating departments................. 115,854 351,577 301,793 276,276
Undistributed operating expenses:
Administrative and general.................. 250,896 1,044,680 1,347,488 1,252,493
Sales and marketing......................... 195,671 646,496 510,261 501,991
Management fees............................. 87,814 313,579 90,998 86,165
Property operating costs.................... 296,643 1,004,445 871,365 1,006,770
Property taxes, insurance and other......... 160,884 645,504 479,755 475,144
Depreciation and amortization............... 242,528 823,414 794,256 794,600
Interest expense............................ -- 257,494 927,325 337,114
---------- --------- --------- ---------
2,425,585 8,838,753 8,757,132 8,210,454
---------- --------- --------- ---------
Net income.................................... $ 501,536 956,025 379,438 504,665
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE>
ARLINGTON HILTON HOTEL
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 17, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 501,536 956,025 379,438 504,665
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization......... 242,528 823,414 794,256 794,600
Interest added to loan payable to
General Partner............................. -- -- 18,777 13,482
Decrease (increase) in accounts
receivable.................................. (107,923) 41,059 (9,969) 47,634
Decrease (increase) in inventory and
other assets................................ (90,676) 110,942 (17,697) 6,803
Decrease (increase) in restricted
funds....................................... -- 215,868 477,431 (44,462)
Increase (decrease) in accounts
payable and accrued expenses........ 120,770 (1,027,915) 284,120 231,758
---------- ---------- --------- ----------
Total adjustments......................... 164,699 163,368 1,546,918 1,049,815
---------- ---------- --------- ----------
Net cash provided by operating activities... 666,235 1,119,393 1,926,356 1,554,480
---------- ---------- --------- ----------
Cash flows used by investing activities--
purchase of furniture and equipment......... (15,499) (660,359) (232,583) (178,368)
---------- ---------- --------- ----------
Cash flows from financing activities:
Principal payments on capital lease
obligations................................. (13,442) (41,262) (36,415) (27,314)
Repayments of note payable................ -- -- (357,390) (1,532,401)
Capital distribution...................... -- (1,232,055) -- --
---------- ---------- --------- ----------
Net cash used by financing activities....... (13,442) (1,273,317) (393,805) (1,559,715)
---------- ---------- --------- ----------
Net increase (decrease) in cash and cash
equivalents................................. 637,294 (814,283) 1,299,968 (183,603)
Cash and cash equivalents at beginning of
period...................................... 946,895 1,761,178 461,210 644,813
---------- ---------- --------- ----------
Cash and cash equivalents at end of
period...................................... $1,584,189 946,895 1,761,178 461,210
---------- ---------- --------- ----------
---------- ---------- --------- ----------
Supplemental disclosure of cash flow
information:
Cash paid for interest.................... $ 2,570 13,612 18,459 337,114
Additions to property and equipment
through capital leases...................... -- -- -- 101,765
Conversion of notes payable to equity..... -- 19,338,404 -- --
---------- ---------- --------- ----------
---------- ---------- --------- ----------
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE>
ARLINGTON HILTON HOTEL
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 17, 1996 (DATE OF ACQUISITION BY
EQUISTAR HOTEL INVESTORS, L.P.) AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993
(1) ORGANIZATION
The Arlington Hilton Hotel (the "Hotel") is located near the Dallas/Fort
Worth Airport, adjacent to Six Flags over Texas theme park. The Hotel opened in
1984. The Hotel has 310 rooms, one restaurant, one nightclub/bar, meeting
facilities for up to 400, a business center, an indoor/outdoor pool and a
fitness center.
Until March 7, 1995, the Hotel was owned by Hotel Associates of Arlington
Limited Partnership ("Hotel Associates"). On March 7, 1995, the Hotel was
conveyed through bankruptcy to the holders of the note, Arlington Hotel
Investors, LTD ("Arlington Investors").
The Hotel was sold on April 17, 1996 to EquiStar for a purchase price of
$18,200,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounts of the Hotel were included in the financial records of its
various owners until the Hotel was sold to EquiStar. The accompanying statements
of operations and cash flows include the accounts of the Hotel only, as if it
were a separate legal entity, and have been prepared using the accrual basis of
accounting.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivables and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
Revenue
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities were passed through to the individual partners in accordance with
the partnership agreement and the Internal Revenue Code.
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Depreciation
Depreciation is computed on the cost of the hotel property and equipment
using the straight-line method over 25 years for building and building
improvements, and five years for furniture and equipment.
F-61
<PAGE>
ARLINGTON HILTON HOTEL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) RELATED-PARTY TRANSACTIONS
Prior to March 7, 1995 (the date the lenders took possession of the Hotel),
the Hotel was managed by Capitol Hotel Group, Inc. ("CHG"), an affiliate of the
owners, for a 1% management fee based on gross revenues. For the period from
March 7, 1995 through April 17, 1996 (date of acquisition by EquiStar), the
Hotel was managed by DePalma Hotel Corporation, an affiliate of the lenders, for
a 3% management fee based on gross revenues.
Upon foreclosure on the property, the loan and all related accrued interest
payable to the general partner of Hotel Associates was converted to equity in
the statement of partners' capital.
F-62
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Salt Lake Airport Hilton (the "Hotel") for the period from January 1, 1995
to March 3, 1995 (date of acquisition by EquiStar Hotel Investors, L.P.) and the
years ended December 31, 1994 and 1993. These financial statements are the
responsibility of the Hotel's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Salt Lake Airport Hilton's
operations and its cash flows for the period from January 1, 1995 to March 3,
1995 and the years ended December 31, 1994 and 1993, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
April 19, 1996
F-63
<PAGE>
SALT LAKE AIRPORT HILTON
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1995 TO MARCH 3, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Revenue:
Rooms.................................................. $ 890,777 4,992,835 4,371,476
Food and beverage...................................... 299,340 1,922,403 1,652,443
Other operating departments............................ 56,364 261,667 259,080
---------- --------- ---------
1,246,481 7,176,905 6,282,999
---------- --------- ---------
Operating costs and expenses:
Rooms.................................................. 287,299 1,932,546 1,359,691
Food and beverage...................................... 274,434 1,346,960 1,366,367
Other operating departments............................ 43,230 224,564 152,836
Undistributed operating expenses:
Administrative and general............................. 153,391 991,058 801,238
Sales and marketing.................................... 76,761 350,199 330,216
Property operating costs............................... 108,327 745,650 915,665
Property taxes, insurance and other.................... 30,112 324,944 325,044
Depreciation and amortization.......................... 104,996 630,200 528,089
Interest Expense....................................... 176,766 1,597,597 1,226,162
---------- --------- ---------
1,255,316 8,143,718 7,005,308
---------- --------- ---------
Net loss................................................. $ (8,835) (966,813) (722,309)
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-64
<PAGE>
SALT LAKE AIRPORT HILTON
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO MARCH 3, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (8,835) (966,813) (722,309)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Depreciation and amortization........................ 104,996 630,200 528,089
Decrease (increase) in accounts receivable........... 57,808 (176,471) 204,118
Decrease (increase) in inventory and other assets.... 5,100 233,040 (144,857)
Increase (decrease) in accounts payable and accrued
expenses................................................... 144,597 84,908 (36,031)
Increase in interest payable......................... -- 510,270 40,010
-------- --------- ---------
Net cash provided (used) by operating activities........... 303,666 315,134 (130,980)
-------- --------- ---------
Cash flows from investing activities--purchases of
furniture, fixtures and equipment........................ (5,530) (914,264) (117,908)
-------- --------- ---------
Cash flows from financing activities:
Repayments of notes payable.............................. (4,316) (764,498) (394,450)
Proceeds from mortgage loans and notes payable........... -- 1,182,000 541,344
Capital contributions.................................... -- 225,463 --
Increase (decrease) in bank overdrafts................... (68,085) (43,835) 101,994
-------- --------- ---------
Net cash flows provided (used) by financing activities..... (72,401) 599,130 248,888
-------- --------- ---------
Net increase in cash....................................... 225,735 -- --
Cash at beginning of period................................ -- -- --
-------- --------- ---------
Cash at end of period...................................... $225,735 -- --
-------- --------- ---------
-------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $176,766 1,087,327 1,186,152
-------- --------- ---------
-------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-65
<PAGE>
SALT LAKE AIRPORT HILTON
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1995 TO MARCH 3, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(1) ORGANIZATION
The Salt Lake Airport Hilton (the "Hotel") is a full service hotel located
near the Salt Lake City International Airport. The hotel has 287 rooms,
complimentary shuttle service to and from the airport, indoor and outdoor pools,
a fitness room, outdoor putting green and an outdoor sports court. The Hotel was
constructed in two phases. The first phase was constructed in 1980 and consists
of public areas including a conference center, recreational amenities and guest
rooms on a three level portion of the structure known as the low-rise. In 1984,
99 rooms were added with the construction of the high-rise section of the Hotel.
For the period from January 1, 1995 through March 3, 1995 and for the years
ended December 31, 1994 and 1993, the Hotel was owned by Airport Hilton
Ventures, L.P., a limited partnership ("Airport Ventures"). The Hotel was sold
on March 3, 1995 to EquiStar for a purchase price of $14,350,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounts of the Hotel were included in the financial records of Airport
Ventures. The accompanying statements of operations and cash flows include the
accounts of the Hotel only, as if it were a separate legal entity, and have been
prepared using the accrual basis of accounting.
Depreciation
Depreciation is computed on the cost of the Hotel property and equipment
using the straight-line method over 40 years for the building, over 15 years for
building improvements and over five years for furniture, fixtures and equipment.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
Revenue
Revenue is earned primarily through the operations of the Hotel and is
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities were passed through to the individual partners in accordance with
the partnership agreement and the Internal Revenue Code.
F-66
<PAGE>
SALT LAKE AIRPORT HILTON
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) INTEREST EXPENSE
The Hotel had mortgage loans payable to two lenders of approximately
$5,400,000 and $4,200,000 through March 3, 1995. The loans required
interest-only payments monthly and had fixed interest rates of 9% and 10%,
respectively.
The Hotel also had notes payable outstanding with various third parties and
affiliates. Total amounts outstanding on these notes payable ranged from
approximately $2,958,000 to approximately $3,486,000 from January 1, 1993 to
March 3, 1995. During the same period, interest rates on these notes ranged from
7% to 10%. Included in notes payable from January 1, 1993 to March 3, 1995 was a
note payable to the Boyer Company, an affiliate of the Hotel. During this
period, the amount outstanding on this note ranged from approximately $470,000
to approximately $1,652,000 and the interest rate ranged from 7% to 8.25%.
F-67
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying balance sheets of Ballston Hotel Limited
Partnership (the "Partnership") as of June 30, 1996 and December 31, 1995 and
1994, and the related statements of operations, partners' deficit, and cash
flows for the six months ended June 30, 1996 and for the years ended December
31, 1995, 1994 and 1993. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ballston Hotel Limited
Partnership as of June 30, 1996 and December 31, 1995 and 1994, and the results
of its operations and its cash flows for the six months ended June 30, 1996 and
for the years ended December 31, 1995, 1994 and 1993, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in note 4 to the
financial statements, the Partnership's note payable to a financial institution
is in default and may be called at any time. This raises substantial doubt about
the Partnership's ability to continue as a going concern. Management's plans in
regard to this matter are also described in note 4. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
KPMG Peat Marwick LLP
Washington, D.C.
July 11, 1996
F-68
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 271,215 501,433 98,904
Certificate of deposit................................ -- 101,833 250,000
Hotel inventory, at cost.............................. 37,481 51,635 52,794
Accounts receivable:
Trade............................................... 293,251 174,833 369,961
Affiliates (note 6)................................. -- -- 757,624
----------- ---------- ----------
Total accounts receivable, net........................ 293,251 174,833 1,127,585
----------- ---------- ----------
Hotel property (notes 4 and 7):
Land................................................ 2,073,323 2,073,323 2,073,323
Building, net of accumulated depreciation of
$2,192,347 in 1996, $2,029,714 in 1995 and
$1,704,449 in 1994.................................... 10,818,285 10,980,918 11,306,183
Furniture, fixtures and equipment, net of
accumulated depreciation of $1,163,947 in 1996,
$1,060,156 in 1995 and $854,609 in 1994........... 1,889,117 1,983,728 1,742,714
Initial hotel supplies, net of accumulated
amortization of $197,924 in 1996, $183,187 in 1995
and $153,713 in 1994.............................. 244,189 258,926 288,400
Conversion costs, net of accumulated amortization of
$107,181 in 1996, $98,491 in 1995 and $81,111 in
1994.................................................. 153,533 162,223 179,603
----------- ---------- ----------
Total hotel property.................................. 15,178,447 15,459,118 15,590,223
Investment in partnership (note 5).................... 2,189,989 2,259,061 2,332,760
Other Assets.......................................... 77,609 131,409 144,842
----------- ---------- ----------
$18,047,992 18,679,322 19,597,108
----------- ---------- ----------
----------- ---------- ----------
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses:
Affiliates (note 6)................................. $ 2,283,784 2,163,011 1,855,114
Trade............................................... 473,641 338,665 340,846
----------- ---------- ----------
Total accounts payable and accrued expenses........... 2,757,425 2,501,676 2,195,960
Notes payable (notes 4 and 6):
Financial institution............................... 17,079,121 17,079,121 17,201,202
Affiliates.......................................... 1,468,891 2,437,377 3,340,277
----------- ---------- ----------
Total notes payable................................... 18,548,012 19,516,498 20,541,479
----------- ---------- ----------
Total liabilities..................................... 21,305,437 22,018,174 22,737,439
Partners' deficit (note 3)............................ (3,257,445) (3,338,852) (3,140,331)
----------- ---------- ----------
Commitments (notes 4 and 7)...........................
$18,047,992 18,679,322 19,597,108
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Hotel operating revenue:
Room rental................................. $3,173,738 5,820,170 5,408,935 5,116,700
Food and beverage sales..................... 950,778 2,000,110 2,045,750 1,792,965
Telephone and other......................... 128,037 303,194 260,190 269,030
---------- --------- --------- ---------
Total hotel operating revenue................. 4,252,553 8,123,474 7,714,875 7,178,695
---------- --------- --------- ---------
Hotel operating expenses:
Department expenses......................... 1,538,843 3,140,757 3,100,077 2,810,690
Energy and engineering...................... 351,538 602,512 574,578 518,924
Sales and marketing......................... 327,356 659,284 604,457 629,567
General and administrative (note 6)......... 458,119 981,849 927,024 907,215
Management fee (note 7)..................... 127,547 243,704 231,446 215,359
Other....................................... 99,892 138,551 84,534 66,640
---------- --------- --------- ---------
Total hotel operating expenses................ 2,903,295 5,766,657 5,522,116 5,148,395
---------- --------- --------- ---------
Income from hotel operations.................. 1,349,258 2,356,817 2,192,759 2,030,300
---------- --------- --------- ---------
Fixed charges:
Financial costs (note 6).................... 739,867 1,571,261 1,438,463 1,327,641
Depreciation and amortization............... 290,467 611,645 700,566 723,020
Property insurance and taxes................ 146,248 266,115 249,394 251,608
Parking costs............................... 42,733 99,093 103,057 106,833
---------- --------- --------- ---------
Total fixed charges........................... 1,219,315 2,548,114 2,491,480 2,409,102
---------- --------- --------- ---------
Other income (expense):
Interest income............................. 8,153 40,169 15,010 12,228
Equity in income of partnership (note 5).... 15,355 36,510 41,105 31,309
Other....................................... (72,044) (83,903) (6,908) (80)
---------- --------- --------- ---------
Total other income (expense), net............. (48,536) (7,224) 49,207 43,457
---------- --------- --------- ---------
Net income (loss)............................. $ 81,407 (198,521) (249,514) (335,345)
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
GENERAL LIMITED
TOTAL PARTNER PARTNERS
----------- ------- ----------
<S> <C> <C> <C>
Balance at December 31, 1992............................. $(2,555,472) (46,288) (2,509,184)
Net loss............................................... (335,345) (3,353) (331,992)
----------- ------- ----------
Balance at December 31, 1993............................. $(2,890,817) (49,641) (2,841,176)
Net loss............................................... (249,514) (2,495) (247,019)
----------- ------- ----------
Balance at December 31, 1994............................. $(3,140,331) (52,136) (3,088,195)
Net loss............................................... (198,521) (1,985) (196,536)
----------- ------- ----------
Balance at December 31, 1995............................. $(3,338,852) (54,121) (3,284,731)
Net income............................................. 81,407 8,141 73,266
----------- ------- ----------
Balance at June 30, 1996................................. $(3,257,445) (45,980) (3,211,465)
----------- ------- ----------
----------- ------- ----------
</TABLE>
See accompanying notes to financial statements.
F-71
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
--------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................ $ 81,407 (198,521) (249,514) (335,345)
Adjustments to reconcile net income (loss) to
cash provided (used) by operating
activities:
Depreciation and amortization............ 290,467 611,645 700,566 723,020
Increase (decrease) in provision for
doubtful accounts.............................. 397 (8,072) 11,323 (1,375)
Decrease in certificates of deposit...... 101,833 148,167 -- --
Equity in income of partnership.......... (15,355) (36,510) (41,105) (31,309)
Decrease (increase) in accounts
receivable..................................... (118,815) 960,824 (789,828) (87,582)
Decrease (increase) in hotel inventory... 14,154 1,159 (930) (9,997)
Decrease (increase) in other assets...... 53,800 (20,258) (58,614) 42,031
Increase in accounts payable and accrued
expenses....................................... 255,749 305,716 375,580 320,816
--------- ---------- --------- ---------
Total adjustments............................ 582,230 1,962,671 196,992 955,604
--------- ---------- --------- ---------
Net cash provided (used) by operating
activities..................................... 663,637 1,764,150 (52,522) 620,259
--------- ---------- --------- ---------
Cash flows from investing activities:
Additions to hotel property.................. (9,796) (446,849) (133,901) (195,323)
Distributions from investee partnership...... 84,427 110,209 120,694 204,761
--------- ---------- --------- ---------
Net cash provided (used) by investing
activities..................................... 74,631 (336,640) (13,207) 9,438
--------- ---------- --------- ---------
Cash flows from financing activities:
Principal payments on notes payable.......... (968,486) (1,024,981) (110,072) (818,644)
Borrowings on notes payable.................. -- -- -- 20,000
--------- ---------- --------- ---------
Net cash used by financing activities.......... (968,486) (1,024,981) (110,072) (798,644)
--------- ---------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................... (230,218) 402,529 (175,801) (168,947)
Cash and cash equivalents at beginning of
period......................................... 501,433 98,904 274,705 443,652
--------- ---------- --------- ---------
Cash and cash equivalents at end of period..... $ 271,215 501,433 98,904 274,705
--------- ---------- --------- ---------
--------- ---------- --------- ---------
Supplemental disclosure of cash flow
information:
Cash paid for interest....................... $ 619,094 1,263,364 1,135,123 1,120,853
--------- ---------- --------- ---------
--------- ---------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-72
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND DECEMBER 31, 1995 AND 1994
(1) ORGANIZATION
Ballston Hotel Limited Partnership (the "Partnership") was formed on January
1, 1988 pursuant to the Commonwealth of Virginia Uniform Limited Partnership
Act. The principal business activity of the Partnership is the development and
operation of a hotel complex as part of the mixed-use Ballston Metro Center
project (the "Project") located in Arlington, Virginia. Ballston Condo Limited
Partnership ("BCLP") and Ballston Office Limited Partnership ("BOLP"),
affiliates of the Partnership, constructed the condominium and office building
components of the Project, respectively.
The hotel opened on October 5, 1989 and operated as the Arlington
Renaissance Hotel at Ballston Metro Center (the "Hotel"). Management intends to
operate the hotel under a franchise agreement with Hilton Hotels Corporation
beginning in August 1996.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Records and Income Taxes
The Partnership maintains its accounting records on the accrual basis for
both financial statement and federal income tax reporting purposes. Federal and
state income taxes accrue to the individual partners; accordingly, no federal
and state income taxes have been provided in the accompanying financial
statements.
Building and Land
Contributed land is recorded at the fair value at the date of contribution
as agreed to by the partners. Purchased land and building costs are recorded at
cost. The building is depreciated over 40 years using the straight-line method.
Hotel Furniture, Fixtures and Equipment
Hotel furniture, fixtures and equipment are recorded at cost and are
depreciated over their estimated useful lives using the straight-line method.
Initial Hotel Supplies
Initial hotel supplies required for the Hotel's operations, such as linens,
china, silverware and other expendable supplies, are recorded at cost and are
being amortized over 15 years using the straight-line method. Additional
purchases of linens, china, silverware and other expendable supplies are
expensed when purchased.
Conversion Costs
Conversion costs were incurred to convert the Ramada Hotel into a
Renaissance Hotel. These costs are recorded at cost and are being amortized over
15 years using the straight-line method.
Investment in Partnership
Investment in partnership is accounted for under the equity method.
Accordingly, the investment is stated at cost and adjusted for the Partnership's
share of earnings or loss and distributions of the investee partnership.
F-73
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Cash Equivalents
For financial statement purposes, the Partnership considers investments with
an original maturity date of three months or less to be cash equivalents.
Use of Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosures of contingent assets and
liabilities to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from these
estimates.
(3) PARTNERS' DEFICIT AND ALLOCATION OF PROFITS AND LOSSES
All profits and losses are allocated in proportion to each partner's
respective percentage interest in the Partnership as follows:
<TABLE>
<S> <C>
General partner..................................................... 1.0%
Limited partners.................................................... 99.0
-----
100.0%
-----
-----
</TABLE>
(4) NOTES PAYABLE
Notes payable at June 30, 1996 and December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Financial institution--prime rate plus 1% or a
LIBOR/CD rate option note, secured by a first deed
of trust on land and improvements of hotel complex
and the shared improvements of the condominium
constructed by BCLP and an assignment of existing
and future revenue derived from the collateral;
interest only payable monthly, principal payable
annually, based on 30-year amortization, with
remaining principal and interest due October 5,
1995................................................ $17,079,121 17,079,121 17,201,202
Limited partner--prime rate plus 2% unsecured
note................................................ 1,468,891 2,437,377 3,340,277
----------- ----------- -----------
$18,548,012 19,516,498 20,541,479
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Ballston Hotel, Inc., the general partner, and IDI, L.C. (formerly IDI
Associates), IDI Financial Associates and Ballston Realty, Inc., affiliates of
the Partnership, jointly and severally guarantee the financial institution note
payable.
The note payable to the financial institution, which matured on October 5,
1995, is in default. The Partnership has been unable thus far to refinance the
note but continues to make the regular monthly interest payments.
Given the status of the note payable with the financial institution and the
nature of the terms of the note payable to the limited partner, management is
unable to determine the fair value of the notes payable.
F-74
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INVESTMENT IN PARTNERSHIP
Financial Statement Summary
The following is a summary of the assets, liabilities and equity of the
unconsolidated partnership, Ballston Parking Associates ("BPA") as of June 30,
1996 and December 31, 1995 and 1994, and the results of its operations for the
six months ended June 30, 1996 and the years ended December 31, 1995, 1994 and
1993. The unconsolidated partnership was formed primarily to operate the hotel
and office building parking garage of the Project. The Partnership's interest in
the unconsolidated partnership was 35.02%, 35.48% and 35.60% as of June 30, 1996
and December 31, 1995 and 1994, respectively. The percentage of the Partnership
interest in BPA will decrease in accordance with BPA's partnership agreement
based upon the number of parking space easements sold.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
ASSETS
Cash................................................... $ 1,267 4,263 3,055
Accounts receivable.................................... 29,250 31,200 27,080
Garage property, net of accumulated depreciation....... 4,125,801 4,224,801 4,359,801
Other assets........................................... 4,521 4,521 4,203
---------- --------- ---------
$4,160,839 4,264,785 4,394,139
---------- --------- ---------
---------- --------- ---------
LIABILITIES AND EQUITY
Total accounts payable and accrued liabilities......... $ -- 6,121 7,000
Equity:
The Partnership...................................... 1,443,210 1,501,136 1,552,543
Other partners....................................... 2,717,629 2,757,528 2,834,596
---------- --------- ---------
$4,160,839 4,264,785 4,394,139
---------- --------- ---------
---------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
1996 1995 1994 1993
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Parking revenue...................................... $288,562 538,898 520,479 538,047
Loss on sales of parking spaces...................... (9,080) (7,000) (3,329) (20,149)
-------- ------- ------- -------
Total income......................................... 279,482 531,898 517,150 517,898
Operating expenses................................... 187,642 353,490 333,542 333,149
-------- ------- ------- -------
Net income........................................... $ 91,840 178,408 183,608 184,749
-------- ------- ------- -------
-------- ------- ------- -------
Equity in net income:
The Partnership.................................... $ 26,501 58,802 63,397 53,601
Other partners..................................... 65,339 119,606 120,211 131,148
-------- ------- ------- -------
$ 91,840 178,408 183,608 184,749
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
Note to Condensed Financial Statements
Contributed property is recorded at fair value at the date of contribution
as agreed to by the partners.
F-75
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INVESTMENT IN PARTNERSHIP--(CONTINUED)
Reconciliation of Investment in Partnership and Equity in Income
The following is a reconciliation of the Partnership's investment in
partnership as of June 30, 1996 and December 31, 1995 and 1994 and equity in
income for the six months ended June 30, 1996 and the years ended December 31,
1995, 1994 and 1993, as indicated above, to the amounts reported in the
accompanying financial statements.
<TABLE>
<CAPTION>
INVESTMENT IN PARTNERSHIP EQUITY IN INCOME
---------------------------------- -------------------------------------
1996 1995 1994 1996 1995 1994 1993
---------- --------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance per condensed financial
statements.......................... $1,443,210 1,501,136 1,552,543 26,501 58,802 63,397 53,601
Adjustment for costs incurred in
excess of agreed-upon basis in
property............................ 746,779 757,925 780,217 (11,146) (22,292) (22,292) (22,292)
---------- --------- --------- ------- ------- ------- -------
$2,189,989 2,259,061 2,332,760 15,355 36,510 41,105 31,309
---------- --------- --------- ------- ------- ------- -------
---------- --------- --------- ------- ------- ------- -------
</TABLE>
(6) RELATED-PARTY TRANSACTIONS
Interest expense of approximately $121,000 in 1996, $308,000 in 1995,
$303,000 in 1994 and $294,000 in 1993 was incurred on note payable to BCA, L.P.,
the limited partner, and are included in financial costs in the accompanying
financial statements. Accrued interest payable of $2,283,784, $2,163,011 and
$1,855,114 as of June 30, 1996 and December 31, 1995 and 1994, respectively, is
recorded as accounts payable to affiliates in the accompanying financial
statements.
The Partnership entered into an agreement with IDI Management, Inc., an
affiliate of the Partnership, to perform administrative services for the Hotel
effective January 1, 1991. The administrative fee is based on 0.5% of the gross
revenues of the Partnership except for any distributions from BPA related to
parking. The Partnership incurred administrative fees of $21,257 in 1996,
$41,952 in 1995, $39,771 in 1994 and $37,103 in 1993. These fees are included in
general and administrative expenses in the accompanying financial statements.
The Partnership has advanced funds to affiliates. Advances outstanding were
$757,624 at December 31, 1994.
(7) COMMITMENTS
Hotel Management Agreement
The Partnership has entered into a 20-year agreement with Renaissance Hotel
Operating Company ("Renaissance") for the management of the Hotel. The
Partnership has committed to pay the following management fees:
(1) base management fee equal to 3% of the Hotel's gross revenue, as
defined in the agreement, payable monthly;
(2) reservation and advertising fees equal to 4.5% of the Hotel's gross
room revenue, as defined in the agreement, payable monthly; and
(3) incentive management fee equal to 10% of the Hotel's gross operating
profit, as defined in the agreement, earned and payable annually if certain
cash flow requirements are met.
F-76
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) COMMITMENTS--(CONTINUED)
Base management fees of $127,547 in 1996, $243,704 in 1995, $231,446 in 1994
and $215,359 in 1993 and reservation and advertising fees of $142,818 in 1996,
$261,908 in 1995, $243,402 in 1994 and $230,252 in 1993 were incurred by the
Partnership. No incentive management fees were incurred since none of the cash
flow requirements were met.
F-77
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Bellevue Hilton Hotel (the "Hotel") for the period from January 1, 1995 to
August 4, 1995 (date of acquisition by EquiStar Hotel Investors, L.P.) and the
years ended December 31, 1994 and 1993. These financial statements are the
responsibility of the Hotel's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Bellevue Hilton Hotel's operations
and its cash flows for the period from January 1, 1995 to August 4, 1995, and
the years ended December 31, 1994 and 1993 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
April 5, 1996
F-78
<PAGE>
BELLEVUE HILTON HOTEL
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1995 TO AUGUST 4, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Revenue:
Rooms.................................................. $2,410,592 3,669,316 3,217,466
Food and beverage...................................... 1,038,893 1,761,230 1,575,901
Other operating departments............................ 173,258 316,254 280,040
---------- --------- ---------
3,622,743 5,746,800 5,073,407
---------- --------- ---------
Operating costs and expenses:
Rooms.................................................. 647,515 1,072,831 1,016,798
Food and beverage...................................... 904,803 1,523,578 1,404,418
Other operating departments............................ 117,590 191,894 153,628
Undistributed operating expenses:
Administrative and general............................. 397,972 703,739 584,237
Sales and marketing.................................... 192,476 292,142 222,708
Management fees........................................ -- 113,948 100,989
Property operating costs............................... 280,436 493,633 458,288
Property taxes, insurance and other.................... 130,437 230,020 218,177
Depreciation and amortization.......................... 284,191 486,813 466,957
Interest expense....................................... 171,493 305,496 402,676
---------- --------- ---------
3,126,913 5,414,094 5,028,876
---------- --------- ---------
Income before extraordinary item......................... 495,830 332,706 44,531
Extraordinary item--loss on early extinguishment of
debt..................................................... -- 59,242 --
---------- --------- ---------
Net income............................................... $ 495,830 273,464 44,531
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-79
<PAGE>
BELLEVUE HILTON HOTEL
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1995 TO AUGUST 4, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 495,830 273,464 44,531
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization..................... 284,191 486,813 466,957
Increase in accounts receivable................... (90,295) (40,935) (61,931)
Decrease (increase) in other assets............... 49,326 11,792 (7,731)
Increase (decrease) in due from affiliates........ 952,205 (514,384) 8,041
Increase in accounts payable and accrued
expenses................................................ 55,205 2,604 360,821
---------- ---------- ----------
Total adjustments..................................... 1,250,632 (54,110) 766,157
---------- ---------- ----------
Net cash provided by operating activities............... 1,746,462 219,354 810,688
---------- ---------- ----------
Cash flows from investing activities:
Additions to hotel.................................... (50,165) (199,320) (2,771,413)
Purchases of furniture and fixtures................... 3,909 (129) 162
---------- ---------- ----------
Net cash used in investing activities................... (46,256) (199,449) (2,771,251)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from note payable--affiliates................ -- 3,885,000 --
Repayments of note payable............................ -- (3,901,274) (178,298)
Capital distributions................................. (1,642,623) -- --
Capital contributions................................. -- -- 2,155,312
---------- ---------- ----------
Net cash provided (used) by financing activities........ (1,642,623) (16,274) 1,977,014
---------- ---------- ----------
Net increase in cash and cash equivalents............... 57,583 3,631 16,451
Cash and cash equivalents at beginning of period........ 88,411 84,780 68,329
---------- ---------- ----------
Cash and cash equivalents at end of period.............. $ 145,994 88,411 84,780
---------- ---------- ----------
---------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest................................ $ 171,493 297,592 398,369
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-80
<PAGE>
BELLEVUE HILTON HOTEL
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM JANUARY 1, 1995 TO AUGUST 4, 1995
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1994 AND 1993
(1) ORGANIZATION
The Bellevue Hilton Hotel (the "Hotel") is located approximately ten miles
east of downtown Seattle, across Lake Washington. The Hotel opened in March
1980. The Hotel has 180 rooms and complimentary privileges at Bally's Pacific
West health club, as well as an indoor pool, jacuzzi and sauna, business center
and same day valet service. The dining facilities include Sam's Restaurant,
Sam's Lounge and Azteca Restaurant. The Hotel has over 7,746 square feet of
meeting space. The Hotel's business is generated mainly from the local corporate
market. The corporate headquarters of a number of notable high-tech companies
are located in Bellevue or nearby, including Microsoft, Nintendo, AT&T Wireless
Systems, Aldus and Microrim.
The Hotel was sold on August 4, 1995 to EquiStar for a purchase price of
$12,300,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounts of the Hotel were included in the financial records of
Chrisbell Hospitality Company, a limited partnership which owned the Hotel until
it was sold to EquiStar. The accompanying statements of operations and cash
flows include the accounts of the Hotel only, as if it were a separate legal
entity, and have been prepared using the accrual basis of accounting.
Depreciation
Depreciation is computed on the cost of hotel property and equipment using
the straight-line method over 35 years for the building, over 20 years for most
building improvements and over four to five years for furniture, fixtures and
equipment.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivables and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
Revenue
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
Income Taxes
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities were passed through to the individual partners in accordance with
the partnership agreement and the Internal Revenue Code.
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
F-81
<PAGE>
BELLEVUE HILTON HOTEL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) INTEREST EXPENSE
Prudential Realty Group ("Prudential") provided permanent financing for the
Hotel in March of 1980. The original note balance was $5,300,000 and had a fixed
interest rate of 10%. Principal and interest payments were due monthly.
On February 15, 1994 the remaining balance on the Prudential note was paid
off using $3,929,037 of the proceeds from a $66,000,000 note between Washington
Square, Inc. (an affiliate) and Connecticut General Life Insurance Co.
Interest-only payments were required monthly. The note had an interest rate of
7.60%. The Hotel paid interest to Washington Square, Inc. related to the portion
of the proceeds used to pay off the Prudential note.
The Hotel incurred a prepayment penalty on the pay-off of the Prudential
note in 1994 of $59,242, which is recorded as an extraordinary item in the
accompanying statement of operations.
(4) RELATED-PARTY TRANSACTIONS
During 1994 and 1993, the owner charged the Hotel management fees of 2% of
gross revenue. Management fees incurred during 1994 and 1993 were $110,598 and
$100,989, respectively. No management fees were charged by the owner in 1995.
(5) COMMITMENTS
For the period from January 1, 1995 through August 4, 1995 and during 1994
and 1993, certain space in the Hotel was leased to the Azteca Restaurant. Azteca
made monthly lease payments of $11,625 to the Hotel in accordance with the
lease, which has an expiration date of March 31, 2005. Azteca also paid a
portion of the Hotel real estate taxes and common area expenses.
F-82
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying combined balance sheets of the Additional
Hotels (the "Hotels") as of June 30, 1996, December 31, 1995 and 1994 and
related combined statements of operations, owners' capital and cash flows for
the six months ended June 30, 1996 and the years ended December 31, 1995, 1994
and 1993. These combined financial statements are the responsibility of the
Hotels' management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Additional Hotels as of June 30, 1996, December 31, 1995 and 1994, and the
results of their combined operations and their combined cash flows for the six
months ended June 30, 1996 and the years ended December 31, 1995, 1994 and 1993,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
July 18, 1996
F-83
<PAGE>
ADDITIONAL HOTELS
COMBINED BALANCE SHEETS
JUNE 30, 1996, DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.......................... $ 2,249,541 2,100,027 1,795,991
Accounts receivable................................ 1,182,989 1,009,479 1,347,062
Inventory and other assets......................... 773,152 1,004,098 1,100,562
------------ ----------- -----------
Total current assets............................... 4,205,682 4,113,604 4,243,615
------------ ----------- -----------
Property and equipment:
Land............................................. 14,454,496 14,454,496 14,454,496
Building......................................... 48,821,317 48,816,467 48,792,386
Furniture, fixtures and equipment................ 20,074,640 19,968,593 18,993,252
------------ ----------- -----------
83,350,453 83,239,556 82,240,134
Less--accumulated depreciation................... (34,286,904) (32,623,613) (29,307,378)
------------ ----------- -----------
Total net property and equipment................... 49,063,549 50,615,943 52,932,756
------------ ----------- -----------
Total assets....................................... $ 53,269,231 54,729,547 57,176,371
------------ ----------- -----------
------------ ----------- -----------
LIABILITIES AND OWNERS' CAPITAL
Accounts payable and accrued expenses.............. $ 2,842,132 2,778,452 3,022,008
Advance deposits................................... 117,902 41,927 45,436
------------ ----------- -----------
Total liabilities.................................. 2,960,034 2,820,379 3,067,444
Owners' capital.................................... 50,309,197 51,909,168 54,108,927
------------ ----------- -----------
Total liabilities and owners' capital.............. $ 53,269,231 54,729,547 57,176,371
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-84
<PAGE>
ADDITIONAL HOTELS
COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Rooms................................... $11,898,784 21,925,991 21,147,009 21,059,634
Food and beverage....................... 5,580,911 10,442,474 10,513,519 10,699,483
Other operating departments............. 831,891 1,613,934 1,591,255 1,689,678
----------- ---------- ---------- ----------
18,311,586 33,982,399 33,251,783 33,448,795
----------- ---------- ---------- ----------
Operating costs and expenses:
Rooms................................... 2,947,864 5,751,406 5,673,951 5,840,918
Food and beverage....................... 4,654,082 9,198,740 9,407,042 9,737,488
Other operating departments............. 444,994 904,143 933,992 985,047
Undistributed operating expenses:
Administrative and general.............. 1,686,225 3,342,110 3,314,554 3,431,329
Sales and marketing..................... 1,214,885 2,320,060 2,343,494 2,436,334
Management fees......................... 404,220 1,065,175 1,051,710 1,260,199
Property operating costs................ 2,317,051 4,407,863 4,353,126 4,067,892
Property taxes, insurance and other..... 673,014 1,390,174 1,519,555 2,574,155
Depreciation and amortization........... 1,663,291 3,316,235 4,451,660 4,656,873
----------- ---------- ---------- ----------
16,005,626 31,695,906 33,049,084 34,990,235
----------- ---------- ---------- ----------
Net income (loss)......................... $ 2,305,960 2,286,493 202,699 (1,541,440)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-85
<PAGE>
ADDITIONAL HOTELS
COMBINED STATEMENTS OF OWNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
<S> <C>
Balance at December 31, 1992.................................................. $57,345,663
Distributions............................................................... (658,109)
Net loss.................................................................... (1,541,440)
-----------
Balance at December 31, 1993.................................................. $55,146,114
Contributions............................................................... 1,485,114
Distributions............................................................... (2,725,000)
Net income.................................................................. 202,699
-----------
Balance at December 31, 1994.................................................. $54,108,927
Contributions............................................................... 215,327
Distributions............................................................... (4,701,579)
Net income.................................................................. 2,286,493
-----------
Balance at December 31, 1995.................................................. $51,909,168
Contributions............................................................... 88,650
Distributions............................................................... (3,994,581)
Net income.................................................................. 2,305,960
-----------
Balance at June 30, 1996...................................................... $50,309,197
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
F-86
<PAGE>
ADDITIONAL HOTELS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $2,305,960 2,286,493 202,699 (1,541,440)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization......... 1,663,291 3,316,235 4,451,660 4,656,873
Decrease (increase) in accounts
receivable.................................. (173,510) 337,583 (77,086) 119,328
Decrease (increase) in inventory and
other assets................................ 230,946 96,464 22,741 (18,439)
Decrease (increase) in notes
receivable.................................. -- -- 100,000 (100,000)
Increase (decrease) in accounts
payable and accrued expenses........ 63,680 (243,556) (312,119) (661,001)
Increase (decrease) in advance
deposits.................................... 75,975 (3,509) (10,866) (115,904)
---------- ---------- ---------- ----------
Total adjustments......................... 1,860,382 3,503,217 4,174,330 3,880,857
---------- ---------- ---------- ----------
Net cash provided by operating activities... 4,166,342 5,789,710 4,377,029 2,339,417
---------- ---------- ---------- ----------
Cash flows from investing activities--
purchases of furniture and equipment........ (110,897) (999,422) (2,285,579) (1,737,036)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Capital contributions..................... 88,650 215,327 1,485,114 --
Capital distributions..................... (3,994,581) (4,701,579) (2,725,000) (658,109)
---------- ---------- ---------- ----------
Net cash used by financing activities....... (3,905,931) (4,486,252) (1,239,886) (658,109)
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents................................. 149,514 304,036 851,564 (55,728)
Cash and cash equivalents at beginning of
period...................................... 2,100,027 1,795,991 944,427 1,000,155
---------- ---------- ---------- ----------
Cash and cash equivalents at end of
period...................................... $2,249,541 2,100,027 1,795,991 944,427
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to combined financial statements.
F-87
<PAGE>
ADDITIONAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1996, DECEMBER 31, 1995 AND 1994
(1) ORGANIZATION
The Additional Hotels (the "Hotels") consists of five hotels which are part
of MBL Life Assurance Corporation. Two of the hotels are in California
(Sacramento Hilton and Santa Barbara Inn); one is in Louisiana (Lafayette
Hilton), one is in Colorado (Holiday Inn) and the other is in Washington, D.C.
(Embassy Row).
EquiStar has entered into a binding contract to purchase the Hotels for
approximately $68,400,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounts of the Hotels are included in the financial records of MBL Life
Assurance Corporation. The accompanying combined financial statements include
the accounts of the Hotels only, as if they were a separate legal entity, and
have been prepared using the accrual basis of accounting.
Cash and Cash Equivalents
The Hotels consider all highly liquid instruments with an original maturity
date of three months or less to be cash equivalents.
Inventories
Inventories, consisting primarily of china, tableware, linens and food and
beverage items, are stated at cost, using the first-in, first-out ("FIFO")
method of inventory valuation.
Property and Equipment
Property and equipment are reflected in the balance sheets at their fair
value at the time of contribution. Depreciation is computed on the buildings and
building improvements using the straight-line method over their useful lives of
18 to 39 years. Furniture, fixtures and equipment are depreciated using the
straight-line method over five years.
Bad Debt Expense
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
Revenue
Revenue is earned primarily through the operations of the hotel and
recognized when earned.
Income Taxes
The combined financial statements contain no provision for federal income
taxes since the Hotels do not pay any taxes directly. All taxes are the
responsibility of the parent company MBL Life Assurance Corporation.
F-88
<PAGE>
ADDITIONAL HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Use of Estimates
Management has made a number of estimates and assumptions to prepare these
combined financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) RELATED-PARTY TRANSACTIONS
All of the hotels except for Embassy Row are managed by CapStar Management.
The Hotels managed by CapStar Management paid base management fees based on
gross revenue plus incentive management fees if the Hotels' operating results
exceeded levels specified in the management contract. The four hotels incurred
management fees of $366,456 in 1996, $926,737 in 1995, $929,013 in 1994 and
$1,008,719 in 1993.
F-89
<PAGE>
- ----------------------------------------- -------------------------------------
- ----------------------------------------- -------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY 9,250,000 SHARES
REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON [CAPSTAR HOTEL COMPANY LOGO]
AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OF ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE
SUCH AN OFFER OR SOLICITATION WOULD BE COMMON STOCK
UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................. 3
Risk Factors........................ 11
The Formation Transactions.......... 17
Use of Proceeds..................... 18
Dividend Policy..................... 18
Dilution............................ 19
Capitalization...................... 20 ----------------------
Selected Financial and Other Data... 21 PROSPECTUS
- , 1996
Unaudited Pro Forma Financial ----------------------
Statements........................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 30
The Company......................... 35
Business and Properties............. 36
Management.......................... 53
Principal Stockholders and Selling
Stockholder......................... 62
Certain Relationships and Related
Transactions........................ 63
Shares Available for Future Sale.... 64
Description of Capital Stock........ 65
Underwriting........................ 67
Legal Matters....................... 71
Experts............................. 71
Additional Information.............. 71
------------------- LEHMAN BROTHERS
UNTIL - (25 CALENDAR DAYS
AFTER THE DATE OF THIS PROSPECTUS), ALL GOLDMAN, SACHS & CO.
DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO MERRILL LYNCH & CO.
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS SMITH BARNEY INC.
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS ORSUBSCRIPTIONS.
- ----------------------------------------- -------------------------------------
- ----------------------------------------- -------------------------------------
<PAGE>
[Alternate International Prospectus Cover]
SUBJECT TO COMPLETION, DATED JULY 31, 1996
PROSPECTUS
9,250,000 SHARES
[CAPSTAR HOTEL COMPANY LOGO]
COMMON STOCK
-------------------
CapStar Hotel Company ("CapStar" or the "Company") is a hotel investment and
management company which acquires, owns, renovates, repositions and manages
hotels throughout the United States. CapStar owns 12 upscale, full-service
hotels (the "Owned Hotels") which contain 3,516 rooms. The Company has entered
into a contract to acquire five additional hotels (the "Additional Hotels")
which contain 1,121 rooms. Including the Owned Hotels, the Company manages 48
hotels (the "Hotels") with 8,849 rooms. The Company's business strategy is to
identify and acquire hotel properties with the potential for cash flow growth
and to renovate, reposition and operate each hotel according to a business plan
specifically tailored to the characteristics of the hotel and its market.
Of the 9,250,000 shares of common stock, par value $.01 per share (the
"Common Stock") offered hereby, 1,850,000 shares are initially being offered
outside the United States and Canada (the "International Offering") by the
International Managers (as defined herein) and 7,400,000 shares are being
offered in the United States and Canada (the "U.S. Offering") by the U.S.
Underwriters (as defined herein). See "Underwriting." Of the shares of Common
Stock offered, 6,750,000 are being sold by the Company and 2,500,000 are being
sold by the Selling Stockholder (as defined herein). See "Principal Stockholders
and Selling Stockholder." Prior to the Offering (as defined herein), there has
been no public market for the Common Stock. It is currently estimated that the
initial public offering price per share will be between $17 and $20. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
The Common Stock has been approved for listing on the New York Stock
Exchange ("NYSE") under the symbol "CHO," subject to official notice of
issuance.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING ON PAGE
11.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
[CAPTION]
<TABLE>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2) SELLING STOCKHOLDER
<S> <C> <C> <C> <C>
Per Share....... $ - $ - $ - $ -
Total(3)........ $ - $ - $ - $ -
</TABLE>
(1) The Company and the Selling Stockholder have agreed to indemnify the several
U.S. Underwriters and International Managers against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ - .
(3) The Company has granted the International Managers and the U.S. Underwriters
a 30-day option to purchase up to 1,387,500 additional shares on the same
terms and conditions as set forth above solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company will be
$ - , $ - and $ - , respectively. See "Underwriting."
-------------------
The shares of Common Stock offered by this Prospectus are offered by the
Managers subject to prior sale, to withdrawal, cancellation or modification of
the offer without notice, to delivery to and acceptance by the Underwriters and
to certain further conditions. It is expected that delivery of the shares will
be made at the offices of Lehman Brothers Inc., in New York, New York on or
about - , 1996.
-------------------
LEHMAN BROTHERS
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL LIMITED
SMITH BARNEY INC.
-------------------
- , 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
[Alternate Cov - International Pros.]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER
PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY 9,250,000 SHARES
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 BY THE COMPANY
OR ANY OF THE INTERNATIONAL MANAGERS. [CAPSTAR HOTEL COMPANY LOGO]
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, TO
ANY PERSON IN ANY JURISDICTION WHERE
SUCH AN OFFER OR SOLICITATION WOULD BE COMMON STOCK
UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 3
Risk Factors.......................... 11
The Formation Transactions............ 17
Use of Proceeds....................... 18
----------------------
Dividend Policy....................... 18
Dilution.............................. 19
PROSPECTUS
Capitalization........................ 20
- , 1996
Selected Financial and Other Data..... 21
Unaudited Pro Forma Financial
----------------------
Statements.......................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
The Company........................... 35
Business and Properties............... 36
Management............................ 53
Principal Stockholders and Selling
Stockholder........................... 62
Certain Relationships and Related
Transactions.......................... 63
Shares Available for Future Sale...... 64
Description of Capital Stock.......... 65
Underwriting.......................... 67
Legal Matters......................... 71
Experts............................... 71
Additional Information................ 71
-------------------
LEHMAN BROTHERS
UNTIL - (25 CALENDAR DAYS
AFTER THE DATE OF THIS PROSPECTUS), ALL GOLDMAN SACHS INTERNATIONAL
DEALERS EFFECTING TRANSACTIONS IN THE
COMMON STOCK WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO MERRILL LYNCH INTERNATIONAL LIMITED
DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS SMITH BARNEY INC.
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable in connection
with the Offering of the Common Stock being registered hereby, other than
underwriting discounts and commissions. All the amounts shown are estimates,
except the Securities and Exchange Commission registration fee and the NASD
filing fee. All of such expenses are being borne by the Company.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $77,030
NASD Filing Fee.................................................. $22,839
NYSE Listing Fee................................................. 140,000
Blue Sky Fees and Expenses....................................... 45,000
Accounting Fees and Expenses..................................... -
Legal Fees and Expenses.......................................... -
Printing and Engraving Expenses.................................. -
Registrar and Transfer Agent's Fees.............................. 15,000
Miscellaneous Fees and Expenses.................................. -
Total........................................................ -
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware Law permits a provision in the certificate
of incorporation of each corporation organized thereunder, eliminating or
limiting, with certain exceptions, the personal liability of a director to the
corporation or its stockholders for monetary damages for certain breaches of
fiduciary duty as a director. The Certificate of Incorporation of the Company
eliminates the personal liability of directors to the fullest extent permitted
by the Delaware Law.
Section 145 of the Delaware Law ("Section 145"), in summary, empowers a
Delaware corporation, within certain limitations, to indemnify its officers,
directors, employees and agents against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by them in connection with any suit or proceeding other than by or on
behalf of the corporation, if they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to a criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful.
With respect to actions by or on behalf of the corporation, Section 145
permits a corporation to indemnify its officers, directors, employees and agents
against expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit, provided such
person meets the standard of conduct described in the preceding paragraph,
except that no indemnification is permitted in respect of any claim where such
person has been found liable to the corporation, unless the Court of Chancery or
the court in which such action or suit was brought approves such indemnification
and determines that such person is fairly and reasonably entitled to be
indemnified.
Article Eight of the Certificate of Incorporation of the Company provides
for the indemnification of officers and directors and certain other parties (the
"Indemnitees") of the Company to the fullest extent permitted under the Delaware
Law; provided, that except in the case of proceedings to enforce rights to
indemnification, the Company shall indemnify such Indemnitee in connection with
a proceeding initiated by such Indemnitee only if such proceeding was authorized
by the Board.
II-1
<PAGE>
The Underwriting Agreement provides for indemnification by the Underwriters
of the Company, its directors and officers, and persons who control the Company
within the meaning of Section 15 of the Securities Act for certain liabilities,
including liabilities arising thereunder.
Each of the employment agreements described in "Management--Employment
Agreements" contains provisions entitling the executive to indemnification for
losses incurred in the course of service to the Company or its subsidiaries,
under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 29, 1996, the Company issued 100 shares of Common Stock to Cherwell
Investors, Inc., a wholly-owned subsidiary of Acadia Partners, for nominal
consideration. The shares were issued without registration under the Securities
Act pursuant to the exemption from registration afforded by Section 4(2) of the
Securities Act and the rules and regulations promulgated thereunder.
See "The Formation Transactions" for information regarding shares of Common
Stock to be issued in connection with the Formation Transactions, the purchasers
thereof and the consideration therefor. Such issuances will be made without
registration under the Securities Act pursuant to exemptions from registration
afforded by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- ----------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of U.S. Underwriting Agreement
1.2* -- Form of International Underwriting Agreement
3.1.1** -- Amended and Restated Certificate of Incorporation of the Company
3.1.2 -- Amendment to Amended and Restated Certificate of Incorporation of the
Company
3.2** -- By-laws of the Company
4 -- Specimen Common Stock certificate
5 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
10.1** -- Formation Agreement, dated as of June 20, 1996, among CapStar Hotel
Investors, Inc. and the several other parties thereto
10.2** -- Form of Registration Rights Agreement
10.3 -- Agreement of Sale and Purchase, dated as of June 20, 1996, between MBL Life
Assurance Corporation and EquiStar Hotel Investors, L.P.
10.4 -- Agreement of Sale and Purchase, dated as of June 14, 1996, between Ballston
Hotel Limited Partnership and EquiStar Hotel Investors, L.P.
10.5 -- Form of Employment Agreement between the Company and Paul W. Whetsell
10.6 -- Form of Employment Agreement between the Company and David E. McCaslin
10.7 -- Form of Employment Agreement between the Company and William M. Karnes
10.8 -- Form of Employment Agreement between the Company and John E. Plunket
10.9* -- Credit Facility
10.10 -- Form of Amended and Restated Agreement of Limited Partnership of CapStar
Management Company, L.P.
10.11* -- Form of Employee Stock Purchase Plan of CapStar Management Company, L.P.
10.12* -- Form of Equity Incentive Plan of CapStar Management Company, L.P.
21** -- List of Subsidiaries of the Company
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Bober, Markey & Company
23.3 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5)
23.4 -- Consent of Edward L. Cohen to be named as a director
23.5 -- Consent of Edwin T. Burton, III to be named as a director
24** -- Power of Attorney (see signature pages)
27** -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
** Previously Filed.
II-2
<PAGE>
(b) Financial Statement Schedules.
No schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are required under the related
instructions or are applicable or the information is contained in the financial
statements and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to its Certificate of Incorporation, By-laws, the Underwriting
Agreement or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, New York, on the 31st day of July, 1996.
CAPSTAR HOTEL COMPANY
By: /s/ PAUL W. WHETSELL
..................................
Name: Paul W. Whetsell
Title: President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- ------------------------------------------------
<S> <C>
/s/ PAUL W. WHETSELL President, Chief Executive Officer and Chairman
........................................ of the Board (Principal Executive Officer)
Paul W. Whetsell
* Chief Operating Officer and Director
........................................
David E. McCaslin
* Senior Executive Vice President, Finance and
........................................ Chief Financial Officer (Principal Financial
William M. Karnes and Accounting Officer)
* Director
........................................
Daniel L. Doctoroff
* Director
........................................
Bradford E. Bernstein
* Director
........................................
Joseph McCarthy
* Director
........................................
William S. Janes
*By: /s/ PAUL W. WHETSELL
.................................
Name: Paul W. Whetsell
Title: Attorney-in-Fact
Dated: July 31, 1996
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ----------- ----------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of U.S. Underwriting Agreement
1.2* -- Form of International Underwriting Agreement
3.1.1** -- Amended and Restated Certificate of Incorporation of the Company
3.1.2 -- Amendment to Amended and Restated Certificate of Incorporation of the
Company
3.2** -- By-laws of the Company
4 -- Specimen Common Stock certificate
5 -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
10.1** -- Formation Agreement, dated as of June 20, 1996, among CapStar Hotel
Investors, Inc. and the several other parties thereto
10.2** -- Form of Registration Rights Agreement
10.3 -- Agreement of Sale and Purchase, dated as of June 20, 1996, between MBL Life
Assurance Corporation and EquiStar Hotel Investors, L.P.
10.4 -- Agreement of Sale and Purchase, dated as of June 14, 1996, between Ballston
Hotel Limited Partnership and EquiStar Hotel Investors, L.P.
10.5 -- Form of Employment Agreement between the Company and Paul W. Whetsell
10.6 -- Form of Employment Agreement between the Company and David E. McCaslin
10.7 -- Form of Employment Agreement between the Company and William M. Karnes
10.8 -- Form of Employment Agreement between the Company and John E. Plunket
10.9* -- Credit Facility
10.10 -- Form of Amended and Restated Agreement of Limited Partnership of CapStar
Management Company, L.P.
10.11* -- Form of Employee Stock Purchase Plan of CapStar Management Company, L.P.
10.12* -- Form of Equity Incentive Plan of CapStar Management Company, L.P.
21** -- List of Subsidiaries of the Company
23.1 -- Consent of KPMG Peat Marwick LLP
23.2 -- Consent of Bober, Markey & Company
23.3 -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5)
23.4 -- Consent of Edward L. Cohen to be named as a director
23.5 -- Consent of Edwin T. Burton, III to be named as a director
24** -- Power of Attorney (see signature pages)
27** -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment.
** Previously Filed.
EXHIBIT 1.1
H&H DRAFT: 7/18/96
7,400,000 Shares
CAPSTAR HOTEL INVESTORS, INC.
Common Stock
(Par Value $.01 Per Share)
UNDERWRITING AGREEMENT
----------------------
_____ __, 1996
LEHMAN BROTHERS INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SMITH BARNEY INC.
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Dear Sirs:
CapStar Hotel Investors, Inc., a Delaware corporation (the
"Company"), together with Acadia Partners, L.P. (the "Selling Stockholder"),
propose to sell an aggregate of 7,400,000 shares (the "Firm Stock") of the
Company's Common Stock, par value $.01 per share (the "Common Stock"). Of the
7,400,000 shares of the Firm Stock, 5,400,000 are being sold by the Company and
2,000,000 by the Selling Stockholder. In addition, the Company proposes to
grant to the Underwriters named in Schedule 1 hereto (the "Underwriters") an
option to purchase up to an additional 1,110,000 shares of the Common Stock on
the terms and for the purposes set forth in Section 3 (the "Option Stock"). The
Firm Stock and the Option Stock, if purchased, are hereinafter collectively
called the "Stock." This is to confirm the agreement concerning the purchase of
the Stock from the Company and the Selling Stockholder by the Underwriters named
in Schedule 1 hereto (the "Underwriters").
It is understood by all parties that the Company and the Selling
Stockholder are concurrently entering into an agreement dated the date hereof
(the "International Underwriting Agreement") providing for the sale by the
Company and the Selling Stockholder of an aggregate of 1,850,000 shares of
Common Stock (including the over-allotment option thereunder) (the
"International Stock") through arrangements with certain underwriters outside
the United States (the "International Managers"), for whom Lehman Brothers
International, Goldman Sachs International, Merrill Lynch International Limited,
and Smith Barney, Inc.
<PAGE>
are acting as lead managers. The U.S. Underwriters and the International
Managers simultaneously are entering into an agreement among the U.S. and
international underwriting syndicates (the "Agreement Among U.S. Underwriters
and International Managers") which provides for, among other things, the
transfer of shares of Common Stock between the two syndicates. Two forms of
prospectus are to be used in connection with the offering and sale of
shares of Common Stock contemplated by the foregoing, one relating to the Stock
and the other relating to the International Stock. The latter form of
prospectus will be identical to the former except for certain substitute
pages as included in the registration statement and amendments thereto
referred to below. Except as used in Sections 3, 4, 5, 12, and 13 herein,
and except as the context may otherwise require, references herein to
the Stock shall include all the shares of the which may be sold pursuant to
either this Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
At or prior to the First Delivery Date (as defined in Section 6
hereof), the Company will complete a series of transactions described in each
Preliminary Prospectus and the Prospectus (as hereinafter defined), under the
heading "The Formation Transactions." As part of these transactions, the
Company and CapStar LP Corporation ("CapStar Sub") will become the sole partners
of CapStar Management Company, L.P., as governed by an amended and restated
Agreement of Limited Partnership (the "Operating Partnership"), and the
Operating Partnership will be restructured to own, directly or indirectly, all
of the properties and other assets currently owned, directly or indirectly, by
EquiStar Hotel Investors, L.P. and CapStar Management Company, L.P., as
constituted as of the date hereof ("CapStar Management"), and their respective
subsidiaries, consisting of twelve owned hotel properties (the "Properties") or
interests therein and management agreements with a total of 48 hotels
(collectively, the "Hotels"). As used herein the term "Formation Transactions"
shall mean the occurrence of all the events described in the Prospectus under
the heading "The Formation Transactions," the execution of acquisition
agreements for the Additional Hotels (as defined in the Prospectus) and the
other transactions related thereto, the term "Formation Documents" shall mean
all the material contracts, agreements and other documents executed in
connection with the Formation Transactions set forth in Schedule 2 hereto, and
the term "Predecessor Entities" shall mean the subsidiaries of EquiStar Hotel
Investors, L.P. together with CapStar Management and its subsidiaries for all
periods prior to the consummation of the Formation Transactions.
1. Representations, Warranties and Agreements of the Company and the
Operating Partnership. The Company and the Operating Partnership, jointly and
severally, represent, warrant and agree that:
2
<PAGE>
(a) A registration statement on Form S-1 (333-6583), and
amendments thereto, with respect to the Stock has (i) been
prepared by the Company in conformity with the requirements of
the United States Securities Act of 1933 (the "Securities Act")
and the rules and regulations (the "Rules and Regulations") of
the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission
under the Securities Act and (iii) become effective under the
Securities Act. Copies of such registration statement and the
amendments thereto have been delivered by the Company to you as
the representatives (the "Representatives") of the Underwriters.
As used in this Agreement, "Effective Time" means the date and
the time as of which such registration statement, or the most
recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of
the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or amendments
thereof, before it became effective under the Securities Act and
any prospectus filed with the Commission by the Company with the
consent of the Representatives pursuant to Rule 424(a) of the
Rules and Regulations; "Registration Statement" means such
registration statement, as amended at the Effective Time,
including all information contained in the final prospectus filed
with the Commission pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section hereof and deemed to be a
part of the registration statement as of the Effective Time
pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations; and "Prospectus" means such final prospectus, as
first filed with the Commission pursuant to paragraph (1) or (4)
of Rule 424(b) of the Rules and Regulations. Any registration
statement (including any amendment or supplement thereto or
information which is deemed part thereof) filed by the Company to
register additional shares of Common Stock of the Company under
Rule 462(b) of the Securities Act ("Rule 462(b) Registration
Statement") shall be deemed a part of the Registration Statement.
Any prospectus (including any amendment or supplement thereto or
information which is deemed to part thereof) included in a Rule
462(b) Registration Statement and any term sheet as contemplated
by Rule 434 of the Rules and Regulations (a "Term Sheet") shall
be deemed to be part of the Prospectus. The Commission has not
issued any order preventing or suspending the use of any
Preliminary Prospectus.
3
<PAGE>
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement
or the Prospectus will, when they become effective or are filed
with the Commission, as the case may be, conform in all respects
to the requirements of the Securities Act and the Rules and
Regulations and do not and will not, as of the applicable
effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to
the Prospectus and any amendment or supplement thereto) contain
an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading; provided that no
representation or warranty is made as to information contained in
or omitted from the Registration Statement or the Prospectus in
reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein.
(c) The Company and each of its subsidiaries (as defined in Section
18) and each Predecessor Entity have been duly organized and are
validly existing as corporations, general or limited partnerships
or limited liability companies, as the case may be, in good
standing under the laws of their respective jurisdictions of
organization, are duly qualified to do business and are in good
standing as foreign corporations, limited partnerships or limited
liability companies, as the case may be, in each jurisdiction in
which their respective ownership or lease of property or the
conduct of their respective businesses requires such
qualification, and have all power and authority necessary to own
or hold their respective properties and to conduct the businesses
in which they are engaged; and none of the subsidiaries of the
Company (other than CapStar LP Corporation and the Operating
Partnership (collectively, the "Significant Subsidiaries")) is a
"significant subsidiary," as such term is defined in Rule 405 of
the Rules and Regulations.
(d) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; and all of the shares of
Common Stock (other than the Stock to be offered and sold by the
Company hereunder) that are outstanding or will be issued on or
prior to the First Delivery Date were or will be offered and sold
in compliance with all applicable laws (including, without
4
<PAGE>
limitation, federal and state securities laws); and all of the
issued shares of capital stock, partnership interests or limited
liability company membership interests, as the case may be, of
each subsidiary of the Company have been duly and validly
authorized and issued and are fully paid and non-assessable and
are owned directly or indirectly by the Company, free and clear
of all liens, encumbrances, equities or claims.
(e) The unissued shares of the Stock to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly
authorized and, when issued and delivered against payment
therefor as provided herein will be duly and validly issued,
fully paid and non-assessable; and the Stock will conform to the
descriptions thereof contained in the Prospectus.
(f) The partnership interests of the Operating Partnership ("Units")
to be transferred to the Company and CapStar Sub in connection
with the Formation Transactions, have been duly authorized for
issuance by the Operating Partnership, and at the closing of the
Formation Transactions will be the only Units outstanding and
will be validly issued and fully paid.
(g) This Agreement has been duly authorized, executed and delivered
by the Company and the Operating Partnership.
(h) The execution, delivery and performance of this Agreement by the
Company and the Operating Partnership, the consummation of the
transactions contemplated hereby and the consummation of the
Formation Transactions will not conflict with or result in a
breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument to which
the Company or any of its subsidiaries or any Predecessor Entity
is a party or by which the Company or any of its subsidiaries or
any Predecessor Entity is bound or to which any of the property
or assets of the Company or any of its subsidiaries or any
Predecessor Entity is subject, nor will such actions result in
any violation of the provisions of the charter, by-laws,
partnership agreement or operating agreement of the Company, any
of its subsidiaries or any Predecessor Entity or any statute or
any order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company, any of its
subsidiaries or any Predecessor Entity or any of their properties
or assets; and except for the registration of the Stock under the
Securities Act and such consents,
5
<PAGE>
approvals, authorizations, registrations or qualifications as may
be required under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and applicable state securities laws in
connection with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental
agency or body or any other person is required for the execution,
delivery and performance of this Agreement by the Company or the
Operating Partnership, the consummation of the transactions
contemplated hereby and the consummation of the Formation
Transactions.
(i) Except as set forth in the Prospectus, there are no preemptive or
other rights to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any unissued shares of the Stock
to be issued and sold by the Company to the Underwriters
hereunder pursuant to the Company's charter or by-laws or any
agreement or other instrument;
(j) Except as set forth in the Prospectus, there are no preemptive or
other rights to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any of the partnership interests
in the Operating Partnership pursuant to the Operating
Partnership's Agreement of Limited Partnership, as restated and
amended, or any agreement or other instrument;
(k) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right (other than rights which have been
waived or satisfied) to require the Company to file a
registration statement under the Securities Act with respect to
any securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or
in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities
Act.
(l) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period
preceding the date of the Prospectus, including any sales
pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act, other than shares issued pursuant to employee
benefit plans, qualified stock options plans or other employee
6
<PAGE>
compensation plans or pursuant to outstanding options, rights or
warrants.
(m) None of the Company, any of its subsidiaries or any Predecessor
Entity has sustained, since the date of the latest audited
financial statements included in the Prospectus, any material
loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, other than as set forth or
contemplated in the Prospectus, (i) there has been no material
adverse change in the financial condition, results of operation
or business of the Company, the Operating Partnership, any
subsidiary of the Company or any Predecessor Entity, whether or
not arising in the ordinary course of business, (ii) no material
casualty loss or material condemnation or other material adverse
event with respect to any Property has occurred, (iii) there have
been no transactions or acquisition agreements entered into by
the Company, the Operating Partnership or any subsidiary of the
Company other than those in the ordinary course of business,
which are material with respect to such entity, except in
connection with the Formation Transactions, (iv) there has been
no dividend or distribution of any kind declared, paid or made by
the Company on any class of its capital stock or by the Operating
Partnership with respect to its partnership interests and (v)
there has been no change in the capital stock of the Company or
the partnership interests of the Operating Partnership, or any
increase in the indebtedness of the Company, the Operating
Partnership or any subsidiary, except in connection with the
Formation Transactions.
(n) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement
or included in the Prospectus present fairly the financial
condition and results of operations of the entities purported to
be shown thereby, at the dates and for the periods indicated, and
have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout
the periods involved, except as otherwise stated herein.
(o) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and the Predecessor Entities, whose
reports appear in the Prospectus and who have delivered the
7
<PAGE>
initial letter referred to in Section 10(g) hereof, are
independent public accountants as required by the Securities Act
and the Rules and Regulations; and Bober, Markey and Company,
whose report appears in the Prospectus and who have delivered the
initial letter referred to in Section 10(h) hereof, were
independent accountants as required by the Securities Act and the
Rules and Regulations during the periods covered by the financial
statements on which they reported contained in the Prospectus.
(p) The Company and each of its subsidiaries have or will have on the
First Delivery Date good and marketable title in fee simple to
all real property and good and marketable title to all personal
property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not materially interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and all real property and buildings held under
lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or with such exceptions as are not
material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and its
subsidiaries. There shall be issued and outstanding with respect
to each of the Owned Hotels (as defined in the Prospectus) an
ALTA form of owner's title insurance policy (or local equivalent
with respect to those Owned Hotels located in jurisdictions where
an ALTA form of owner's title insurance policy is not available)
insuring the fee simple estate of the applicable subsidiary of
the Company in the Owned Hotel owned by such subsidiary in an
amount at least equal to the acquisition price of such Owned
Hotel and each such title insurance policy will continue to be in
full force and effect following the consummation of the Formation
Transactions.
(q) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the
value of their respective properties and as is customary for
companies engaged in similar businesses in similar industries.
8
<PAGE>
(r) Each of the Company, its subsidiaries and the Predecessor
Entities possesses such certificates, authorizations or permits
issued by the appropriate state, federal or foreign regulatory
agencies or bodies necessary to conduct the business now operated
by them, except where the failure to possess such certificates,
authorizations or permits would not have a material adverse
effect on the consolidated financial position, stockholder's
equity, results of operations, business or prospects of the
Company and its subsidiaries and none of the Company, any of its
subsidiaries or any Predecessor Entity has received any notice of
proceedings relating to the revocation or modification of any
such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling, or
finding, would have a material adverse effect on the consolidated
financial position, stockholder's equity, results of operations,
business or prospects of the Company and its subsidiaries.
(s) The Company, each of its subsidiaries and each Predecessor Entity
own or possess adequate rights to use all material patents,
patent applications, trademarks, service marks, trade names,
trademark registrations, service mark registrations, franchises,
copyrights and licenses necessary for the conduct of their
respective businesses and have no reason to believe that the
conduct of their respective businesses will conflict with, and
have not received any notice of any claim of conflict with, any
such rights of others.
(t) There are no legal or governmental proceedings pending to which
the Company, any of its subsidiaries or any Predecessor Entity is
a party or of which any property or assets of the Company, any of
its subsidiaries or any Predecessor Entity is the subject which,
if determined adversely to the Company, any of its subsidiaries
or any Predecessor Entity, might have a material adverse effect
on the consolidated financial position, stockholders' equity,
results of operations, business or prospects of the Company and
its subsidiaries; and to the best of the Company's knowledge, no
such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(u) There are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules
9
<PAGE>
and Regulations which have not been described in the Prospectus
or filed as exhibits to the Registration Statement.
(v) No relationship, direct or indirect, exists between or among the
Company, the Operating Partnership, any subsidiary of the
Company, or any Predecessor Entity, on the one hand, and the
directors, officers, stockholders of the Company, or customers or
suppliers of the Company, or customers or suppliers of the
Operating Partnership, on the other hand, which is required to be
described in the Prospectus which is not so described.
(w) There is (i) no material unfair labor practice complaint pending
against the Company, its subsidiaries or any Predecessor Entity
nor, to the best knowledge of the Company, threatened against any
of them before the National Labor Relations Board or any state or
local labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against the
Company, its subsidiaries or any Predecessor Entity or, to the
best knowledge of the Company, threatened against any of them,
(ii) no material strike, labor dispute, slowdown or stoppage
pending against the Company, its subsidiaries or any Predecessor
Entity nor, to the best knowledge of the Company, threatened
against the Company, its subsidiaries or any Predecessor Entity
which might be expected to have a material adverse effect on the
consolidated financial position, stockholder's equity, results of
operations, business or prospects of the Company and its
subsidiaries.
(x) None of the Company, any subsidiary or any Predecessor Entity has
violated any safety or similar law applicable to its business,
nor any federal, state or local law relating to discrimination in
the hiring, promotion or pay of employees nor any applicable
federal or state wages and hours laws which in each case might
result in a material adverse effect on the consolidated financial
position, stockholder's equity, results of operations, business
or prospects of the Company and its subsidiaries.
(y) The Company, its subsidiaries and each Predecessor Entity are in
compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of
1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company,
10
<PAGE>
any of its subsidiaries or any Predecessor Entity would have any
liability; the Company, its subsidiaries and each Predecessor
Entity have not incurred and do not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971
of the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the
"Code"); and each "pension plan" for which the Company, any of
its subsidiaries or any Predecessor Entity would have any
liability that is intended to be qualified under Section 401(a)
of the Code is so qualified in all material respects and nothing
has occurred, whether by action or by failure to act, which would
cause the loss of such qualification.
(z) The Company, each of its subsidiaries and each Predecessor Entity
has filed all federal, state and local income and franchise tax
returns required to be filed through the date hereof and has paid
all taxes due thereon, and no tax deficiency has been determined
adversely to the Company, any of its subsidiaries or any
Predecessor Entity which has had (nor does the Company have any
knowledge of) any tax deficiency which, if determined adversely
to the Company, any of its subsidiaries or any Predecessor
Entity, might have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries; the
amounts currently set up as provisions for taxes or otherwise by
the Company and its subsidiaries on their books and records are
sufficient for the payment of all their unpaid federal, foreign,
state, county and local taxes accrued through the dates as of
which they speak, and for which the Company and its subsidiaries
may be liable in their own right or as a transferee of the assets
of, or as successor to any other corporation, association,
partnership, joint venture or other entity.
(aa) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed
in the Prospectus, the Company and its subsidiaries have not (i)
issued or granted any securities, (ii) incurred any liability or
obligation, direct or contingent, other than liabilities and
obligations which were incurred in the ordinary course of
business, (iii) entered into any transaction not in the ordinary
course of business or (iv) declared or paid any dividend on its
capital stock.
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(ab) The Company, its subsidiaries, and the Predecessor Entities (i)
make and keep accurate books and records and (ii) maintain
internal accounting controls which provide reasonable assurance
that (A) transactions are executed in accordance with
management's authorization, (B) transactions are recorded as
necessary to permit preparation of their financial statements and
to maintain accountability for their assets, (C) access to their
assets is permitted only in accordance with management's
authorization and (D) the reported accountability for their
assets is compared with existing assets at reasonable intervals.
(ac) None of the Company, any of its subsidiaries or any Predecessor
Entity is, or will be following consummation of the Formation
Transactions, (i) in violation of its charter, by-laws,
partnership agreement or operating agreement, (ii) in default in
any material respect, and no event has or will have occurred
which, with notice or lapse of time or both, would constitute
such a default, in the due performance or observance of any term,
covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which it is a party or by which it is bound or to
which any of its properties or assets is subject or (iii) in
violation of any law, ordinance, governmental rule, regulation or
court decree to which it or its property or assets may be subject
or has or will have failed to obtain any material license,
permit, certificate, franchise or other governmental
authorization or permit necessary to the ownership of its
property or to the conduct of its business.
(ad) None of the Company, any of its subsidiaries or any Predecessor
Entity, or any director, officer, agent, employee or other person
associated with or acting on behalf of the Company, any of its
subsidiaries or any Predecessor Entity, has used any corporate,
partnership or limited liability company funds for any unlawful
contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official
or employee from corporate funds; violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977; or
made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(ae) There has been no storage, disposal, generation, manufacture,
refinement, installation, transportation, handling or treatment
of toxic wastes, medical wastes, hazardous wastes, petroleum or
12
<PAGE>
petroleum products (including crude oil or any fraction thereof),
hazardous substances or any other substances which pose a hazard
to human health, safety, natural resources, industrial hygiene or
the environment or which cause or threaten to cause a nuisance by
the Company, any of its subsidiaries, or any Predecessor Entity
(or, to the knowledge of the Company, by any of their
predecessors in interest or by any other entity) at, upon or from
any of the property now or previously owned or leased by the
Company, its subsidiaries or any Predecessor Entity except to the
extent commonly used in the normal operations of such property,
in violation of any applicable law, ordinance, rule, regulation,
order, judgment, decree or permit or which would require
investigation, monitoring, removal action, corrective action,
remedial action or other response action ("response action")
under any applicable law, ordinance, rule, regulation, order,
judgment, decree or permit, except for any violation or response
action which would not have, or could not be reasonably likely to
have, singularly or in the aggregate with all such violations and
response actions, a material adverse effect on the general
affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries; there
has been no material spill, discharge, leak, emission, injection,
escape, dumping or release or threatened release of any kind onto
such property or into the environment surrounding such property
of any toxic wastes, medical wastes, solid wastes, hazardous
wastes, petroleum or petroleum products (including crude oil or
any fraction thereof), hazardous substances or any other
substances which pose a hazard to human health, safety, natural
resources, industrial hygiene or the environment or which cause
or threaten to cause a nuisance, except for any such spill,
discharge, leak, emission, injection, escape, dumping or release
or threatened release which would not have or would not be
reasonably likely to have, singularly or in the aggregate with
all such spills, discharges, leaks, emissions, injections,
escapes, dumpings, releases and threatened releases, a material
adverse effect on the general affairs, management, financial
position, stockholders' equity or results of operations of the
Company and its subsidiaries; and the terms "hazardous wastes,"
"solid wastes," "toxic wastes," "hazardous substances,"
"petroleum," "petroleum products" and "medical wastes" shall have
the meanings specified in any applicable local, state, federal
and foreign laws or regulations with respect to environmental
protection.
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(af) Neither the Company nor any subsidiary is, or will be as a result
of the offer and sale of the Stock hereunder, an "investment
company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the
Commission thereunder.
(ag) All of the representation and warranties of the Company, its
subsidiaries and the Predecessor Entities contained in the
Formation Documents set forth in Schedule 2 hereof are true and
correct in all material respects.
2. Representations, Warranties and Agreements of the Selling
Stockholder. The Selling Stockholder represents, warrants and agrees that:
(a) The Selling Stockholder has, and immediately prior to the First
Delivery Date the Selling Stockholder will have, good and valid
title to the shares of Stock to be sold by the Selling
Stockholder hereunder on such date, free and clear of all liens,
encumbrances, equities or claims; and upon delivery of such
shares and payment therefor pursuant hereto, good and valid title
to such shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several Underwriters.
(b) The Selling Stockholder has placed in custody under a custody
agreement (the "Custody Agreement") with [insert name of
custodian], as custodian (the "Custodian"), for delivery under
this Agreement, certificates in negotiable form (with signature
guaranteed by a commercial bank or trust company having an office
or correspondent in the United States or a member firm of the New
York or American Stock Exchanges) representing the shares of
Stock to be sold by the Selling Stockholder hereunder.
(d) The Selling Stockholder has full right, power and authority to
enter into this Agreement and the Custody Agreement; the
execution, delivery and performance of this Agreement and the
Custody Agreement by the Selling Stockholder and the consummation
by the Selling Stockholder of the transactions contemplated
hereby will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Selling Stockholder is
a party or by which the Selling Stockholder is bound or to which
any of the property or assets of the Selling Stockholder is
subject, nor will such actions result in any violation of the
provisions of the agreement of limited
14
<PAGE>
partnership of the Selling Stockholder or any statute or any
order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Selling Stockholder or the
property or assets of the Selling Stockholder; and, except for
the registration of the Stock under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase
and distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required
for the execution, delivery and performance of this Agreement or
the Custody Agreement by the Selling Stockholder and the
consummation by the Selling Stockholder of the transactions
contemplated hereby.
(e) The Registration Statement and the Prospectus and any further
amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the
applicable effective date (as to the Registration Statement and
any amendment thereto) and as of the applicable filing date (as
to the Prospectus and any amendment or supplement thereto)
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading; provided that no
representation or warranty is made as to information contained in
or omitted from the Registration Statement or the Prospectus in
reliance upon and in conformity with written information
furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein.
(f) The Selling Stockholder has no reason to believe that the
representations and warranties of the Company and the Operating
Partnership contained in Section 1 hereof are not true and
correct in all material respects, is familiar with the
Registration Statement and the Prospectus (as amended or
supplemented) and has no knowledge of any material fact,
condition or information not disclosed in the Registration
Statement, as of the effective date, or the Prospectus (or any
amendment or supplement thereto), as of the applicable filing
date, which has adversely affected or may adversely affect the
business of the Company and is not prompted to sell shares of
Common Stock by any information concerning the Company
15
<PAGE>
which is not set forth in the Registration Statement and the
Prospectus.
(g) The Selling Stockholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
shares of the Stock.
3. Purchase of the Stock by the Underwriters. On the basis of the
representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 5,400,000 shares of
the Firm Stock and the Selling Stockholder agrees to sell 2,000,000 shares of
the Firm Stock, severally and not jointly, to the several Underwriters and each
of the Underwriters, severally and not jointly, agrees to purchase the number of
shares of the Firm Stock set opposite that Underwriter's name in Schedule 1
hereto. Each Underwriter shall be obligated to purchase from the Company, and
from the Selling Stockholder, that number of shares of the Firm Stock which
represents the same proportion of the number of shares of the Firm Stock to be
sold by the Company, and by the Selling Stockholder, as the number of shares of
the Firm Stock set forth opposite the name of such Underwriter in Schedule 1
represents of the total number of shares of the Firm Stock to be purchased by
all of the Underwriters pursuant to this Agreement. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be rounded
among the Underwriters to avoid fractional shares, as the Representatives may
determine.
In addition, the Company grants to the Underwriters an option to
purchase up to 1,110,000 shares of Option Stock. Such option is granted solely
for the purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 6 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters in
Schedule 1 hereto. The respective purchase obligations of each Underwriter with
respect to the Option Stock shall be adjusted by the Representatives so that no
Underwriter shall be obligated to purchase Option Stock other than in 100 share
amounts. The price of both the Firm Stock and any Option Stock shall be $_____
per share.
The Company and the Selling Stockholder shall not be obligated to
deliver any of the Stock to be delivered on the First Delivery Date or the
Second Delivery Date (as hereinafter defined), as the case may be, except upon
payment for all the Stock to be purchased on such Delivery Date as provided
herein.
4. Retention of Qualified Independent Underwriters. The Company
hereby confirms its engagement of Merrill Lynch, Pierce, Fenner & Smith
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<PAGE>
Incorporated as, and Merrill Lynch, Pierce Fenner & Smith Incorporated hereby
confirms its agreement with the Company to render services as, "qualified
independent underwriter" within the meaning of Section 2720 of the Conduct Rules
of the National Association of Securities Dealers, Inc. with respect to the
offering and sale of Shares. Merrill Lynch, Pierce, Fenner & Smith
Incorporated, solely in its capacity as qualified independent underwriter and
not otherwise, is referred to herein as the "Independent Underwriter."
5. Offering of Stock by the Underwriters. Upon authorization by the
Representatives of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the Prospectus.
6. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the offices of Lehman Brothers Inc. at 10:00
A.M., New York City time, on the fourth full business day following the date of
this Agreement or at such other date or place as shall be determined by
agreement between the Representatives and the Company. This date and time are
sometimes referred to as the "First Delivery Date." On the First Delivery Date,
the Company and the Selling Stockholder shall deliver or cause to be delivered
certificates representing the Firm Stock to the Representatives for the account
of each Underwriter against payment to or upon the order of the Company and the
Selling Stockholder of the purchase price by wire transfer of federal (same-day)
funds to an account or accounts previously designated in writing to Lehman
Brothers Inc. by the Company. Time shall be of the essence, and delivery at the
time and place specified pursuant to this Agreement is a further condition of
the obligation of each Underwriter hereunder. Upon delivery, the Firm Stock
shall be registered in such names and in such denominations as the
Representatives shall request in writing not less than two full business days
prior to the First Delivery Date. For the purpose of expediting the checking
and packaging of the certificates for the Firm Stock, the Company and the
Selling Stockholder shall make the certificates representing the Firm Stock
available for inspection by the Representatives in New York, New York, not later
than 2:00 P.M., New York City time, on the business day prior to the First
Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement the option granted in Section 3 may be exercised by written notice
being given to the Company by the Representatives. Such notice shall set forth
the aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Representatives, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day
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<PAGE>
after the date on which the option shall have been exercised. The date and time
the shares of Option Stock are delivered are sometimes referred to as the
"Second Delivery Date" and the First Delivery Date and the Second Delivery Date
are sometimes each referred to as a "Delivery Date").
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 6
(or at such other place as shall be determined by agreement between the
Representatives and the Company) at 10:00 A.M., New York City time, on the
Second Delivery Date. On the Second Delivery Date, the Company shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company of the purchase price by wire transfer of federal
(same-day) funds to an account or accounts previously designated in writing to
Lehman Brothers Inc. by the Company. Time shall be of the essence, and delivery
at the time and place specified pursuant to this Agreement is a further
condition of the obligation of each Underwriter hereunder. Upon delivery, the
Option Stock shall be registered in such names and in such denominations as the
Representatives shall request in the aforesaid written notice. For the purpose
of expediting the checking and packaging of the certificates for the Option
Stock, the Company shall make the certificates representing the Option Stock
available for inspection by the Representatives in New York, New York, not later
than 2:00 P.M., New York City time, on the business day prior to the Second
Delivery Date.
7. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule
424(b) under the Securities Act not later than Commission's close
of business on the second business day following the execution
and delivery of this Agreement or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Securities
Act; to make no further amendment or any supplement to the
Registration Statement or to the Prospectus except as permitted
herein; to advise the Representatives, promptly after it receives
notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been
filed and to furnish the Representatives with copies thereof; to
advise the Representatives, promptly after it receives notice
thereof, of the issuance by the Commission of any stop order or
of any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus, of the suspension of the
qualification of the Stock for offering or sale in any
jurisdiction, of the initiation or
18
<PAGE>
threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of
the Registration Statement or the Prospectus or for additional
information; and, in the event of the issuance of any stop order
or of any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel
for the Underwriters a signed copy of the Registration Statement
as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and
exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto
(in each case excluding exhibits other than this Agreement) and
(ii) each Preliminary Prospectus, the Prospectus and any amended
or supplemented Prospectus; and, if the delivery of a prospectus
is required at any time after the Effective Time in connection
with the offering or sale of the Stock or any other securities
relating thereto and if at such time any events shall have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact
or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made when such Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary to amend or
supplement the Prospectus in order to comply with the Securities
Act, to notify the Representatives and, upon their request, to
prepare and furnish without charge to each Underwriter and to any
dealer in securities as many copies as the Representatives may
from time to time reasonably request of an amended or
supplemented Prospectus which will correct such statement or
omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested
by the Commission;
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<PAGE>
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Representatives and counsel for the
Underwriters and obtain the consent of the Representatives to the
filing;
(f) As soon as practicable after the Effective Date, but in any event
not later than 410 or, if the fourth quarter following the fiscal
quarter that includes the Effective Date is the last fiscal
quarter of the Company's fiscal year, 455 days after the end of
the Company's current fiscal quarter, to make generally available
to the Company's security holders and to deliver to the
Representatives an earning statement of the Company and its
subsidiaries (which need not be audited) complying with Section
11(a) of the Securities Act and the Rules and Regulations
(including, at the option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representatives copies of all materials furnished
by the Company to its shareholders and all public reports and all
reports and financial statements furnished by the Company to the
principal national securities exchange upon which the Common
Stock may be listed pursuant to requirements of or agreements
with such exchange or to the Commission pursuant to the Exchange
Act or any rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions
as the Representatives may request and to comply with such laws
so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete
the distribution of the Stock, provided that in connection
therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of
process in any jurisdiction;
(i) For a period of 180 days from the date of the Prospectus, not to,
directly or indirectly, offer for sale, sell or otherwise dispose
of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person
at any time in the future of) any shares of Common Stock (other
than the Stock and shares issued pursuant to employee benefit
20
<PAGE>
plans, qualified stock option plans or other employee
compensation plans existing on the date hereof or pursuant to
currently outstanding options, warrants or rights), or sell or
grant options, rights or warrants with respect to any shares of
Common Stock (other than the grant of options pursuant to option
plans existing on the date hereof), without the prior written
consent of Lehman Brothers Inc.; and to cause each of [list
management-controlled entities receiving stock in Formation
Transactions] to furnish to the Representatives, prior to the
First Delivery Date, a letter or letters, in form and substance
satisfactory to counsel for the Underwriters, pursuant to which
each such person shall agree not to, directly or indirectly,
offer for sale, sell or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected
to, result in the disposition by any person at any time in the
future of) any shares of Common Stock for a period of 360 days
from the date of the Prospectus, without the prior written
consent of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the listing of the
Stock on the New York Stock Exchange, Inc. and to use its best
efforts to complete that listing, subject only to official notice
of issuance and evidence of satisfactory distribution, prior to
the First Delivery Date;
(k) Prior to filing with the Commission any reports on Form SR
pursuant to Rule 463 of the Rules and Regulations, to furnish a
copy thereof to the counsel for the Underwriters and receive and
consider its comments thereon, and to deliver promptly to the
Representatives a signed copy of each report on Form SR filed by
it with the Commission;
(l) To apply the net proceeds from the sale of the Stock being sold
by the Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment
company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the
Commission thereunder.
8. Further Agreements of the Selling Stockholder. The Selling
Stockholder agrees:
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<PAGE>
(a) For a period of 180 days from the date of the Prospectus, not to,
directly or indirectly, offer for sale, sell or otherwise dispose
of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person
at any time in the future of) any shares of Common Stock (other
than the Stock), without the prior written consent of Lehman
Brothers Inc.
(b) That the Stock to be sold by the Selling Stockholder hereunder
which is represented by the certificates held in custody for the
Selling Stockholder, is subject to the interest of the
Underwriters, that the arrangements made by the Selling
Stockholder for such custody are to that extent irrevocable, and
that the obligations of the Selling Stockholder hereunder shall
not be terminated by any act of the Selling Stockholder, by
operation of law or the occurrence of any other event.
(c) To deliver to the Representatives prior to the First Delivery
Date a properly completed and executed United States Treasury
Department Form W-9.
9. Expenses. The Company agrees to pay (a) the costs incident to
the authorization, issuance, sale and delivery of the Stock and any taxes
payable in that connection; (b) the costs incident to the preparation, printing
and filing under the Securities Act of the Registration Statement and any
amendments and exhibits thereto; (c) the costs of distributing the Registration
Statement as originally filed and each amendment thereto and any post-effective
amendments thereof (including, in each case, exhibits), any Preliminary
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and delivery of the stock; (e) the costs of delivering and
distributing the Custody Agreement; (f) the fees (including reasonable
attorneys' fees) and expenses incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of sale of the
Stock; (g) any applicable listing or other fees; (h) the fees and expenses of
qualifying the Stock under the securities laws of the several jurisdictions as
provided in Section 7(h) and of preparing, printing and distributing a Blue Sky
Memorandum (including related fees and expenses of counsel to the Underwriters);
(j) all fees and expenses of the Independent Underwriter; and (l) all other
costs and expenses incident to the performance of the obligations of the Company
and the Selling Stockholder under this Agreement; provided that, except as
provided in this Section 9 and in Section 15 the Underwriters shall pay their
own costs and expenses, including the costs and expenses of their counsel, any
transfer taxes on the Stock which they may sell and the expenses of advertising
any offering of the Stock made by the Underwriters.
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<PAGE>
10. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company
and the Selling Stockholder contained herein, to the performance by the Company
and the Selling Stockholder of their obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 7(a); no stop order suspending the
effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and any
request of the Commission for inclusion of additional information
in the Registration Statement or the Prospectus or otherwise
shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company
on or prior to such Delivery Date that the Registration Statement
or the Prospectus or any amendment or supplement thereto contains
an untrue statement of a fact which, in the opinion of Hogan &
Hartson L.L.P., counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to
make the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Custody
Agreement, the Stock, the Registration Statement and the
Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be
reasonably satisfactory in all material respects to counsel for
the Underwriters, and the Company and the Selling Stockholder
shall have furnished to such counsel all documents and
information that they may reasonably request to enable them to
pass upon such matters.
(d) Paul, Weiss, Rifkind, Wharton and Garrison [and DeCampo, Diamond
& Ash] shall have furnished to the Representatives their written
opinion, as counsel to the Company, addressed to the Underwriters
and dated such Delivery Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that:
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<PAGE>
(i) The Company, each of its subsidiaries and each
Predecessor Entity have been duly organized and are validly
existing as corporations, limited partnerships or limited
liability companies, as the case may be, in good standing under
the laws of their respective jurisdictions of organization, are
duly qualified to do business and are in good standing as foreign
corporations, limited partnerships or limited liability
companies, as the case may be, in each jurisdiction in which
their respective ownership or lease of property or the conduct of
their respective businesses requires such qualification and have
all power and authority necessary to own or hold their respective
properties and conduct the businesses in which they are engaged;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Stock being
delivered on such Delivery Date) have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus;
and all of the shares of Common Stock (other than the Stock to be
offered and sold by the Company to the Underwriters hereunder)
that are outstanding or will be issued on or prior to the First
Delivery Date were or will be offered and sold in compliance with
all applicable laws (including, without limitation, federal and
state securities laws) and all of the issued shares of capital
stock, partnership interests or limited liability company
membership interests, as the case may be, of each subsidiary of
the Company have been duly and validly authorized and issued and
are fully paid, non-assessable and are owned directly or
indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(iii) Except as set forth in the Prospectus, there are no
preemptive or other rights to subscribe for or to purchase, nor
any restriction upon the voting or transfer of, any unissued
shares of the Stock to be issued and sold by the Company to the
Underwriters hereunder pursuant to the Company's charter or by-
laws or any agreement or other instrument known to such counsel;
(iv) Except as set forth in the Prospectus, there are no
preemptive or other rights to subscribe for or to purchase, nor
any restriction upon the voting or transfer of, any of the
partnership interests in the Operating Partnership pursuant to
the Operating Partnership's Agreement of Limited Partnership,
24
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as amended, or any agreement or other instrument known to such
counsel;
(v) The Company and each of its subsidiaries have good and
marketable title in fee simple to all real property owned by
them, in each case free and clear of all liens, encumbrances and
defects except such as are described in the Prospectus or such as
do not materially affect the value of such property and do not
materially interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries; and all real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and
enforceable leases, with such exceptions as are not material and
do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries;
(vi) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property or assets of
the Company or any of its subsidiaries is the subject which, if
determined adversely to the Company or any of its subsidiaries,
might have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries; and,
to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others;
(vii) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such
opinion, the Prospectus was filed with the Commission pursuant to
the subparagraph of Rule 424(b) of the Rules and Regulations
specified in such opinion on the date specified therein and no
stop order suspending the effectiveness of the Registration
Statement has been issued and, to the knowledge of such counsel,
no proceeding for that purpose is pending or threatened by the
Commission;
(viii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company
prior to such Delivery Date (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion) comply as to form in all
25
<PAGE>
material respects with the requirements of the Securities Act and
the Rules and Regulations;
(ix) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be described
in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations
which have not been described or filed as exhibits to the
Registration Statement;
(x) This Agreement has been duly authorized, executed and
delivered by the Company;
(xi) The issue and sale of the shares of Stock being
delivered on such Delivery Date by the Company and the compliance
by the Company and the Operating Partnership with all of the
provisions of this Agreement and the consummation of the
transactions contemplated hereby and the Formation Transactions
will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries
is subject, nor will such actions result in any violation of the
provisions of the charter, by-laws, limited partnership agreement
or operating agreement of the Company or any of its subsidiaries
or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries or any
of their properties or assets; except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state securities
laws in connection with the purchase and distribution of the
Stock by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body or any other person is required for
the execution, delivery and performance of this Agreement by the
Company and the consummation of the transactions contemplated
hereby, including the Formation Transactions; and the offer and
sale of shares of Common Stock by the Company in the Formation
Transactions is not required to be registered under the
Securities Act
26
<PAGE>
(xii) Except as set forth in the Prospectus, to the best of
such counsel's knowledge, there are no contracts, agreements or
understandings between the Company and any person granting such
person the right (other than rights which have been waived or
satisfied) to require the Company to file a registration
statement under the Securities Act with respect to any securities
of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act; and
(xiii) Neither the Company nor any of its subsidiaries is,
after giving effect to the Formation Transactions, an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended.
(xiv) The Company, its subsidiaries and the Predecessor
Entities hold and after consummation of the Formation
Transactions will continue to hold all state food, beverage and
liquor licenses necessary or required for such corporations,
partnerships and limited liability companies to conduct their
business as currently conducted in each state.
(xv) The Operating Partnership will be treated as a
partnership, and not as an "association" or "publicly traded
partnership" taxable as a corporation, for federal income tax
purposes.
(xvi) The statements under the captions "Certain Relationships
and Related Transactions" and "Description of Capital Stock" in
the Prospectus, insofar as such statements constitute a summary
of legal matters, documents or proceedings referred to therein
are correct in all material respects.
In rendering such opinion, such counsel may (i) state that their
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of and the General Corporation
Law of the State of Delaware and that such counsel is not
admitted in the State of Delaware; and (ii) in giving the opinion
referred to in Section 10(d)(v), state that no examination of
record titles for the purpose of such opinion has been made, and
that they are relying upon a general review of the titles of
27
<PAGE>
the Company and its subsidiaries, upon opinions of local counsel
and abstracts, reports and policies of title companies rendered
or issued at or subsequent to the time of acquisition of such
property by the Company or its subsidiaries, upon opinions of
counsel to the lessors of such property and, in respect of
matters of fact, upon certificates of officers of the Company or
its subsidiaries, provided that such counsel shall state that
they believe that both the Underwriters and they are justified in
relying upon such opinions, abstracts, reports, policies and
certificates. Such counsel shall also have furnished to the
Representatives a written statement, addressed to the
Underwriters and dated such Delivery Date, in form and substance
satisfactory to the Representatives, to the effect that (x) such
counsel has acted as counsel to the Company with regard to
securities laws matters on a regular basis (although the Company
is also represented by its General Counsel and, with respect to
real estate and certain other matters, by other outside counsel),
[has acted as counsel to the Company in connection with previous
financing transactions] and has acted as counsel to the Company
in connection with the preparation of the Registration Statement,
and (y) based on the foregoing, no facts have come to the
attention of such counsel which lead them to believe that the
Registration Statement, as of the Effective Date, contained any
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order
to make the statements therein not misleading, or that the
Prospectus contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
The foregoing opinion and statement may be qualified by a
statement to the effect that such counsel does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the
Prospectus except for the statements made in the Prospectus under
the caption "Description of Capital Stock," insofar as such
statements relate to the Stock and concern legal matters.
(e) The counsel for the Selling Stockholder shall have furnished to
the Representatives its written opinion, as counsel to the
Selling Stockholder, addressed to the Underwriters and dated the
First Delivery Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that:
28
<PAGE>
(i) Selling Stockholder has full right, power and authority
to enter into this Agreement and the Custody Agreement; the
execution, delivery and performance of this Agreement and the
Custody Agreement by the Selling Stockholder and the consummation
by the Selling Stockholder of the transactions contemplated
hereby will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument known to such counsel to which the
Selling Stockholder is a party or by which the Selling
Stockholder is bound or to which any of the property or assets of
the Selling Stockholder is subject, nor will such actions result
in any violation of the provisions of the agreement of limited
partnership of the Selling Stockholder or any statute or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over the Selling
Stockholder or the property or assets of the Selling Stockholder;
and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Exchange Act and applicable state securities laws in connection
with the purchase and distribution of the Stock by the
Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental
agency or body is required for the execution, delivery and
performance of this Agreement or the Custody Agreement by the
Selling Stockholder and the consummation by the Selling
Stockholder of the transactions contemplated hereby;
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Stockholder;
(iii) The Custody Agreement has been duly authorized, executed
and delivered by the Selling Stockholder and constitute valid and
binding agreements of the Selling Stockholder, enforceable in
accordance with their respective terms;
(iv) Immediately prior to the First Delivery Date, the
Selling Stockholder had good and valid title to the shares of
Stock to be sold by the Selling Stockholder under this Agreement,
free and clear of all liens, encumbrances, equities or claims,
and full right, power and authority to sell, assign, transfer and
deliver such shares to be sold by the Selling Stockholder
hereunder; and
29
<PAGE>
(v) Good and valid title to the shares of Stock to be sold
by the Selling Stockholder under this Agreement, free and clear
of all liens, encumbrances, equities or claims, has been
transferred to each of the several Underwriters.
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of
and the Revised Limited Uniform Partnership Act
----------------
of [and that such counsel is not admitted in the
------------------
State of ]; and (ii) in rendering the opinion in
------------------
Section 10(e)(iv) above, rely upon a certificate of the Selling
Stockholder in respect of matters of fact as to ownership of and
liens, encumbrances, equities or claims on the shares of Stock
sold by the Selling Stockholder, provided that such counsel shall
furnish copies thereof to the Representatives and state that it
believes that both the Underwriters and it are justified in
relying upon such certificate. Such counsel shall also have
furnished to the Representatives a written statement, addressed
to the Underwriters and dated the First Delivery Date, in form
and substance satisfactory to the Representatives, to the effect
that (x) such counsel has acted as counsel to the Selling
Stockholder on a regular basis and has acted as counsel to the
Selling Stockholder in connection with the preparation of the
Registration Statement, and (y) based on the foregoing, no facts
have come to the attention of such counsel which lead it to
believe that the Registration Statement, as of the Effective
Date, contained any untrue statement of a material fact relating
to the Selling Stockholder or omitted to state such a material
fact required to be stated therein or necessary in order to make
the statements therein not misleading, or that the Prospectus
contains any untrue statement of a material fact relating to the
Selling Stockholder or omits to state such a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. The foregoing opinion and
statement may be qualified by a statement to the effect that such
counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus.
(f) The Representatives shall have received from Hogan & Hartson
L.L.P., counsel for the Underwriters, such opinion or opinions,
dated such Delivery Date, with respect to the issuance and sale
of the Stock, the Registration Statement, the Prospectus and
30
<PAGE>
other related matters as the Representatives may reasonably
require, and the Company shall have furnished to such counsel
such documents as they reasonably request for the purpose of
enabling them to pass upon such matters.
(g) At the time of execution of this Agreement, the Representatives
shall have received from KPMG Peat Marwick a letter, in form and
substance satisfactory to the Representatives, addressed to the
Underwriters and dated the date hereof (i) confirming that they
are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as
of the date hereof (or, with respect to matters involving changes
or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date
not more than five days prior to the date hereof), the
conclusions and findings of such firm with respect to the
financial information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection with
registered public offerings.
(h) At the time of execution of this Agreement, the Representatives
shall have received from Bober, Markey & Company a letter in form
and substance satisfactory to the Representatives, addressed to
the Underwriters and dated the date hereof (i) confirming that
they are independent public accountants within the meaning of the
Securities Act and are in compliance with Rule 2-01 of Regulation
S-X of the Commission, (ii) stating, as of the date hereof (or,
with respect to matters involving changes or developments since
the respective dates as of which specified financial information
is in the Prospectus, as of a date not more than five days prior
to the date hereof), the conclusions and findings of such firm
with respect to the financial information and other matters
ordinarily covered by accountants' "comfort letters" to
underwriters in connection with registered public offerings.
(i) With respect to the letters of KPMG Peat Marwick and Bober,
Markey & Company referred to in clauses (g) and (h) hereof and
delivered to the Representatives concurrently with the execution
of this Agreement (the "initial letters"), the Company shall have
furnished to the Representatives letters (the "bring-down
letters") of such accountants, addressed to the Underwriters and
dated such Delivery Date (i) confirming that they are
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<PAGE>
independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as
of the date of the bring-down letters (or, with respect to
matters involving changes or developments since the respective
dates as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the
date of the bring-down letters), the conclusions and findings of
such firms with respect to the financial information and other
matters covered by the initial letter and (iii) confirming in all
material respects the conclusions and findings set forth in the
initial letter.
(j) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the
Board, its President or a Vice President and its chief financial
officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery
Date; the Company has complied with all its agreements contained
herein; and the conditions set forth in Sections 10(a) and 10(l)
have been fulfilled; and
(ii) They have carefully examined the Registration Statement
and the Prospectus and, in their opinion (A) as of the Effective
Date, the Registration Statement and Prospectus did not include
any untrue statement of a material fact and did not omit to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (B) since the
Effective Date no event has occurred which should have been set
forth in a supplement or amendment to the Registration Statement
or the Prospectus.
(k) The Selling Stockholder (or the Custodian) shall have furnished
to the Representatives on the First Delivery Date a certificate,
dated the First Delivery Date, signed by, or on behalf of, the
Selling Stockholder (or the Custodian) stating that the
representations, warranties and agreements of the Selling
Stockholder contained herein are true and correct as of the First
Delivery Date and that the Selling Stockholder has complied with
all agreements contained herein to be performed by the Selling
Stockholder at or prior to the First Delivery Date.
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<PAGE>
(l) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as
set forth or contemplated in the Prospectus or (ii) since such
date there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any
change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described
in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering
or the delivery of the Stock being delivered on such Delivery
Date on the terms and in the manner contemplated in the
Prospectus.
(m) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market, or
trading in any securities of the Company on any exchange or in
the over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such
market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction,
(ii) a banking moratorium shall have been declared by Federal or
state authorities, (iii) the United States shall have become
engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been
a declaration of a national emergency or war by the United States
or (iv) there shall have occurred such a material adverse change
in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in
the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters,
impracticable or inadvisable to proceed with the public offering
or delivery of the Stock being delivered on such Delivery Date on
the terms and in the manner contemplated in the Prospectus.
33
<PAGE>
(n) There shall be issued and outstanding with respect to each of the
Owned Hotels (as defined in the Prospectus) an ALTA form of
owner's title insurance policy (or local equivalent with respect
to those Owned Hotels located in jurisdictions where an ALTA form
of owner's title insurance is not available) insuring the fee
simple estate of the applicable subsidiary of the Company in the
Owned Hotel owned by such subsidiary in an amount at least equal
to the acquisition price of such Owned Hotel and each such title
insurance policy will continue to be in full force and effect
following the consummation of the Formation Transactions.
(o) The New York Stock Exchange, Inc. shall have approved the Stock
for listing, subject only to official notice of issuance and
evidence of satisfactory distribution.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably
satisfactory to counsel for the Underwriters.
11. Indemnification and Contribution.
(a) The Company and the Operating Partnership, jointly and severally,
shall indemnify and hold harmless each Underwriter, its officers
and employees and each person, if any, who controls any
Underwriter within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several,
or any action in respect thereof (including, but not limited to,
any loss, claim, damage, liability or action relating to
purchases and sales of Stock), to which that Underwriter,
officer, employee or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or
supplement thereto or (B) in any blue sky application or other
document prepared or executed by the Company (or based upon any
written information furnished by the Company) specifically for
the purpose of qualifying any or all of the Stock under the
securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a
"Blue Sky Application"), (ii) the omission or alleged omission to
state in any Preliminary Prospectus, the Registration Statement
or the
34
<PAGE>
Prospectus, or in any amendment or supplement thereto, or in any
Blue Sky Application any material fact required to be stated
therein or necessary to make the statements therein not
misleading or (iii) any act or failure to act or any alleged act
or failure to act by any Underwriter in connection with, or
relating in any manner to, the Stock or the offering contemplated
hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based
upon matters covered by clause (i) or (ii) above (provided that
the Company and the Operating Partnership shall not be liable
under this clause (iii) to the extent that it is determined in a
final judgment by a court of competent jurisdiction that such
loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be
taken by such Underwriter through its gross negligence or willful
misconduct), and shall reimburse each Underwriter and each such
officer, employee or controlling person promptly upon demand for
any legal or other expenses reasonably incurred by that
Underwriter, officer, employee or controlling person in
connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company and
the Operating Partnership shall not be liable in any such case to
the extent that any such loss, claim, damage, liability or action
arises out of, or is based upon, any untrue statement or alleged
untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any such amendment or supplement, or in any
Blue Sky Application, in reliance upon and in conformity with
written information concerning such Underwriter furnished to the
Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein. The foregoing
indemnity agreement is in addition to any liability which the
Company or the Operating Partnership may otherwise have to any
Underwriter or to any officer, employee or controlling person of
that Underwriter.
The Company and the Operating Partnership, jointly and severally,
also will indemnify and hold harmless the Independent Underwriter
and each person, if any, who controls the Independent Underwriter
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, from and against any and all
losses, claims, damages, liabilities and judgments incurred as a
result of the Independent Underwriter's participation as a
"qualified independent
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<PAGE>
underwriter" within the meaning of Section 2720 of the Conduct
Rules of the National Association of Securities Dealers, Inc. in
connection with the offering of the Stock, except for any losses,
claims, damages, liabilities and judgments resulting form the
Independent Underwriter's or such controlling person's willful
misconduct or gross negligence.
(b) The Selling Stockholder shall indemnify and hold harmless each
Underwriter, its officers and employees, and each person, if any,
who controls any Underwriter within the meaning of the Securities
Act, from and against any loss, claim, damage or liability, joint
or several, or any action in respect thereof (including, but not
limited to, any loss, claim, damage, liability or action relating
to purchases and sales of Stock), to which that Underwriter,
officer, employee or controlling person may become subject, under
the Securities Act or otherwise, insofar as such loss, claim,
damage, liability or action arises out of, or is based upon, (i)
any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement
thereto or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, Registration Statement or the Prospectus,
or in any amendment or supplement thereto, any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse each Underwriter, its
officers and employees and each such controlling person for any
legal or other expenses reasonably incurred by that Underwriter,
its officers and employees or controlling person in connection
with investigating or defending or preparing to defend against
any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Selling
Stockholder shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or action arises out
of, or is based upon, any untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in
any such amendment or supplement in reliance upon and in
conformity with written information concerning such Underwriter
furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein.
The foregoing indemnity agreement is in addition to any liability
which the Selling Stockholder may otherwise have to any
Underwriter or any officer, employee or controlling person of
that Underwriter.
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<PAGE>
(c) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers and employees, each of
its directors (including any person who, with his or her consent,
is named in the Registration Statement as about to become a
director of the Company), and each person, if any, who controls
the Company within the meaning of the Securities Act, from and
against any loss, claim, damage or liability, joint or several,
or any action in respect thereof, to which the Company or any
such director, officer or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based
upon, (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any amendment or
supplement thereto, or (B) in any Blue Sky Application or (ii)
the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in
any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or
necessary to make the statements therein not misleading, but in
each case only to the extent that the untrue statement or alleged
untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information
concerning such Underwriter furnished to the Company through the
Representatives by or on behalf of that Underwriter specifically
for inclusion therein, and shall reimburse the Company and any
such director, officer or controlling person for any legal or
other expenses reasonably incurred by the Company or any such
director, officer or controlling person in connection with
investigating or defending or preparing to defend against any
such loss, claim, damage, liability or action as such expenses
are incurred. The foregoing indemnity agreement is in addition
to any liability which any Underwriter may otherwise have to the
Company or any such director, officer, employee or controlling
person.
(d) Promptly after receipt by an indemnified party under this Section
11 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under this Section 11, notify
the indemnifying party in writing of the claim or the
commencement of that action; provided, however, that the failure
to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 11 except to the
extent it has been materially prejudiced by such failure and,
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<PAGE>
provided further, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have
to an indemnified party otherwise than under this Section 11. If
any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and,
to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party
under this Section 11 for any legal or other expenses
subsequently incurred by the indemnified party in connection with
the defense thereof other than reasonable costs of investigation;
provided, however, that the Representatives shall have the right
to employ counsel to represent jointly the Representatives and
those other Underwriters and their respective officers, employees
and controlling persons who may be subject to liability arising
out of any claim in respect of which indemnity may be sought by
the Underwriters against the Company, the Operating Partnership
or the Selling Stockholder under this Section 11 if, in the
reasonable judgment of the Representatives, it is advisable for
the Representatives and those Underwriters, officers, employees
and controlling persons to be jointly represented by separate
counsel, and in that event the fees and expenses of such separate
counsel shall be paid by the Company, the Operating Partnership
and the Selling Stockholder; provided further, that, if indemnity
is sought pursuant to the second paragraph of Section 11(a),
then, in addition to such counsel for the indemnified parties,
the indemnifying party shall be liable for the reasonable fees
and expenses of not more than one separate counsel (in addition
to any necessary local counsel) for the Independent Underwriter
in its capacity as a "qualified independent underwriter" and all
persons, if any, who control the Independent Underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, if, in the reasonable judgment of the
Independent Underwriter there may exist a conflict of interest
between the Independent Underwriter and the other indemnified
parties. In the case of any such separate counsel for the
Independent Underwriter and such control persons of the
Independent Underwriter, such counsel shall be designated in
writing by the Independent Underwriter. No indemnifying
38
<PAGE>
party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim
or action) unless such settlement, compromise or consent includes
an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding,
or (ii) be liable for any settlement of any such action effected
without its written consent (which consent shall not be
unreasonably withheld), but if settled with the consent of the
indemnifying party or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and
against any loss or liability by reason of such settlement or
judgment.
(e) If the indemnification provided for in this Section 11 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 11(a), 11(b) or 11(c) in respect
of any loss, claim, damage or liability, or any action in respect
thereof, referred to therein, then each indemnifying party shall,
in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of
such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company, the
Operating Partnership and the Selling Stockholder on the one hand
and the Underwriters on the other from the offering of the Stock
or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company, the
Operating Partnership, and the Selling Stockholder on the one
hand and the Underwriters on the other with respect to the
statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. The relative benefits
received by the Company, the Operating Partnership, and the
Selling Stockholder on the one hand and the Underwriters on the
other with respect to such offering shall be deemed to be in the
same proportion as the total net proceeds from the offering of
the Stock purchased under this Agreement (before deducting
39
<PAGE>
expenses) received by the Company, the Operating Partnership, and
the Selling Stockholder, on the one hand, and the total
underwriting discounts and commissions received by the
Underwriters with respect to the shares of the Stock purchased
under this Agreement, on the other hand, bear to the total gross
proceeds from the offering of the shares of the Stock under this
Agreement, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined
by reference to whether the untrue or alleged untrue statement of
a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company, the
Operating Partnership, the Selling Stockholders or the
Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or
prevent such statement or omission. For purposes of the
preceding two sentences, the net proceeds deemed to be received
by the Company shall be deemed to be also for the benefit of the
Operating Partnership and information supplied by the Company
shall also be deemed to have been supplied by the Operating
Partnership. The Company and the Underwriters agree that Merrill
Lynch, Pierce, Fenner & Smith Incorporated will not receive any
additional benefits hereunder for serving as the Independent
Underwriter in connection with the offering and sale of the
Stock. The Company, the Operating Partnership, the Selling
Stockholder and the Underwriters further agree that it would not
be just and equitable if contributions pursuant to this Section
were to be determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by
any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof,
referred to above in this Section shall be deemed to include,
for purposes of this Section 11(e), any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 11(e), no
Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Stock
underwritten by it and distributed to the public was offered to
the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable to pay by reason
of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the
40
<PAGE>
Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute as provided in this
Section 11(e) are several in proportion to their respective
underwriting obligations and not joint.
(f) The Underwriters severally confirm and the Company acknowledges
that the statements with respect to the public offering of the
Stock by the Underwriters set forth on the cover page of, the
legend concerning over-allotments on the inside front cover page
of and the concession and reallowance figures appearing under the
caption "Underwriting" in, the Prospectus are correct and
constitute the only information concerning such Underwriters
furnished in writing to the Company by or on behalf of the
Underwriters specifically for inclusion in the Registration
Statement and the Prospectus.
12. Defaulting Underwriters. If, on either Delivery Date, any
Underwriter defaults in the performance of its obligations under this Agreement,
the remaining non-defaulting Underwriters shall be obligated to purchase the
Stock which the defaulting Underwriter agreed but failed to purchase on such
Delivery Date in the respective proportions which the number of shares of the
Firm Stock set opposite the name of each remaining non-defaulting Underwriter in
Schedule 1 hereto bears to the total number of shares of the Firm Stock set
opposite the names of all the remaining non-defaulting Underwriters in Schedule
1 hereto; provided, however, that the remaining non-defaulting Underwriters
shall not be obligated to purchase any of the Stock on such Delivery Date if the
total number of shares of the Stock which the defaulting Underwriter or
Underwriters agreed but failed to purchase on such date exceeds 9.09% of the
total number of shares of the Stock to be purchased on such Delivery Date, and
any remaining non-defaulting Underwriter shall not be obligated to purchase more
than 110% of the number of shares of the Stock which it agreed to purchase on
such Delivery Date pursuant to the terms of Section 3. If the foregoing
maximums are exceeded, the remaining non-defaulting Underwriters, or those other
underwriters satisfactory to the Representatives who so agree, shall have the
right, but shall not be obligated, to purchase, in such proportion as may be
agreed upon among them, all the Stock to be purchased on such Delivery Date. If
the remaining Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery Date,
this Agreement (or, with respect to the Second Delivery Date, the obligation of
the Underwriters to purchase, and of the Company to sell, the Option Stock)
shall terminate without liability on the part of any non-defaulting Underwriter
or the Company or the Selling Stockholder, except that the Company will continue
to be liable for the payment of expenses to the extent set forth in Sections 9
and 14. As used in this Agreement, the term "Underwriter" includes, for
41
<PAGE>
all purposes of this Agreement unless the context requires otherwise, any party
not listed in Schedule 1 hereto who, pursuant to this Section 12, purchases Firm
Stock which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company and the Selling Stockholder for damages
caused by its default. If other underwriters are obligated or agree to purchase
the Stock of a defaulting or withdrawing Underwriter, either the Representatives
or the Company may postpone the Delivery Date for up to seven full business days
in order to effect any changes that in the opinion of counsel for the Company or
counsel for the Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
13. Termination. The obligations of the Underwriters hereunder may
be terminated by the Representatives by notice given to and received by the
Company and the Selling Stockholder prior to delivery of and payment for the
Firm Stock if, prior to that time, any of the events described in Sections 10(l)
or 10(m), shall have occurred or if the Underwriters shall decline to purchase
the Stock for any reason permitted under this Agreement.
14. Reimbursement of Underwriters' Expenses. If (a) the Company or
the Selling Stockholder shall fail to tender the Stock for delivery to the
Underwriters by reason of any failure, refusal or inability on the part of the
Company or the Selling Stockholder to perform any agreement on its part to be
performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company or the Selling Stockholder is
not fulfilled, the Company and the Selling Stockholder will reimburse the
Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Stock, and upon demand the Company
and the Selling Stockholder shall pay the full amount thereof to the
Representatives. If this Agreement is terminated pursuant to Section 12 by
reason of the default of one or more Underwriters, neither the Company nor the
Selling Stockholder shall be obligated to reimburse any defaulting Underwriter
on account of those expenses.
15. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention: Syndicate
Department (Fax: 212-526-6588), with a copy, in the case of any
notice pursuant to Section 11(d), to the Director of Litigation,
Office of the General Counsel, Lehman Brothers Inc., 3 World
Financial Center, 10th Floor, New York, NY 10285;
42
<PAGE>
(b) if to the Company or to the Operating Partnership, shall be
delivered or sent by mail, telex or facsimile transmission to the
address of the Company set forth in the Registration Statement,
Attention: Paul W. Whetsell (Fax: 202/965-4445);
(c) if to the Selling Stockholder, shall be delivered or sent by
mail, telex or facsimile transmission to Acadia Partners, L.P.,
201 Main Street, Suite 3100, Fort Worth, Texas 76102, Attention:
[ ] (Fax: );
------------- -------------
provided, however, that any notice to an Underwriter pursuant to Section 11(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and
the Selling Stockholder shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives and the Company and the
Underwriters shall be entitled to act and rely upon any request, consent, notice
or agreement given or made on behalf of the Selling Stockholder by the
Custodian.
16. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company, the
Selling Stockholder and their respective successors. This Agreement and the
terms and provisions hereof are for the sole benefit of only those persons,
except that (A) the representations, warranties, indemnities and agreements of
the Company and he Selling Stockholders contained in this Agreement shall also
be deemed to be for the benefit of the person or persons, if any, who control
any Underwriter within the meaning of Section 15 of the Securities Act and (B)
the indemnity agreement of the Underwriters contained in Section 11(c) of this
Agreement shall be deemed to be for the benefit of directors of the Company,
officers of the Company who have signed the Registration Statement and any
person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section 16, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
17. Survival. The respective indemnities, representations,
warranties and agreements of the Company, the Operating Partnership, the Selling
Stockholder and the Underwriters contained in this Agreement or made by or on
behalf on them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Stock and shall remain in full force and effect,
regardless of any investigation made by or on behalf of any of them or any
person controlling any of them.
43
<PAGE>
18. Definition of the Terms "Business Day" and "Subsidiary." For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
19. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the state of New York without regard to the
principles of conflicts of laws thereof.
20. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
21. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
If the foregoing correctly sets forth the agreement Operating
Partnership among the Company, the Operating Partnership, the Selling
44
<PAGE>
Stockholder and the Underwriters, please indicate your acceptance in the space
provided for that purpose below.
Very truly yours,
CapStar Hotel Investors, Inc., on its own behalf
and as general partner of CapStar Management
Company, L.P.,
By:
----------------------------------------
Paul W. Whetsell, President and
Chief Executive Officer
Acadia Partners L.P.
The Selling Stockholder:
By:
----------------------------------------
Acadia FW Partners, L.P., its general
partner
By:
----------------------------------------
Acadia MGP Inc., its managing general
partner
By:
----------------------------------------
Accepted:
LEHMAN BROTHERS INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SMITH BARNEY INC.
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By Lehman Brothers Inc.
By
------------------------------
Authorized Representative
45
<PAGE>
SCHEDULE 1
Number of
Underwriters Shares
------------ ----------
Lehman Brothers Inc. . . . . . . . . . . . . . .
Goldman, Sachs & Co. . . . . . . . . . . . . .
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Smith Barney Inc. . . . . . . . . . . . . . . . -----
Total . . . . . . . . . . . . . . . . . . .
=====
<PAGE>
SCHEDULE 2
Formation Documents
- -------------------
1. Formation Agreement, dated as of June 20, 1996, among CapStar Hotel
Investors, Inc. and the several other parties thereto.
2. [Registration Rights Agreement.]
3. Employment Agreements between the Company and
(a) Paul W. Whetsell;
(b) David E. McCaslin;
(c) William M. Karnes; and
(d) John E. Plunket
4. [Credit Facility Agreement]
5. Agreement of Sale and Purchase, dated as of June 20, 1996, between MBL Life
Assurance Corporation and EquiStar Hotel Investors, L.P.
6. Agreement of Sale and Purchase, dated as of June 14, 1996, between Ballston
Hotel Limited Partnership and EquiStar Hotel Investors, L.P.
EXHIBIT 3.1.2
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
CAPSTAR HOTEL INVESTORS, INC.
______________________________________
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
______________________________________
CapStar Hotel Investors, Inc., a Delaware corporation (hereinafter
called the "Corporation"), does hereby certify as follows:
FIRST: Article 1 of the Corporation's Certificate of Incorporation,
as amended on June 21, 1996 (the "Amended and Restated Certificate of
Incorporation"), is hereby further amended to read in its entirety as set
forth below:
1. Name. The name of the corporation is CapStar Hotel Company
(hereinafter the "Corporation").
SECOND: The foregoing amendment was duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Paul W. Whetsell has caused this Certificate to be
duly executed in its corporate named this 18th day of July, 1996.
CAPSTAR HOTEL INVESTORS, INC.
By: /s/ Paul W. Whetsell
-----------------------------------------
President and Chief Executive Officer
EXHIBIT 4
<TABLE><CAPTION>
CAPSTAR HOTEL COMPANY
<S> <C>
A FULL STATEMENT OF THE DESIGNATION AND ANY PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS AND TERMS AND CONDITIONS OF REDEMPTION OF THE SHARES OF CAPITAL STOCK MAY
BE OBTAINED FROM THE CORPORATION BY ANY STOCKHOLDER UPON REQUEST AND WITHOUT CHARGE.
The following abbreviations, when used in the inscription on the face of tbis certificate, shall be construed as
though they were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UN1F GIFT MIN ACT - Custodian
------------- -------------
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
JTJ TEN- as joint tenants with right
---------------------------------
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list
For value received, hereby sell, assign and transfer unto
------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
_______________________________________
-----------------------------------------------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of assignee)
------------------------------------------------------------------------------------------------------------------
shares
------------------------------------------------------------------------------------------------------------
of capital stock represented by the within Certificate and do hereby irrevocably constitute and appoint
Attorney
----------------------------------------------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with full power of substitution the premises.
Dated:
---------------------------
Signature(s)
------------------------------------------
NOTICE: The signature(s) to this assignment
must correspond with the name as written upon
the Face of the Certificate, in every
particular, without altercation or
enlargement, or any change whatever.
Signature Guaranteed By:
---------------------------------
BANKNOTE CORPORATION OF AMERICA - WALL St - PROOF #1 - CAPSTAR 1 -607048-942 - 7/30/96 JL
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEMPORARY CERTIFICATE:
COMMON STOCK Exchangeable for Definitive Engraved Certificate COMMON STOCK
When Ready for Delivery
<S> <C> <S>
T CAPSTAR HOTEL COMPANY
PAR VALUE $.01 INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP
THIS CERTIFICATE IS TRANSFERABLE IN
BOSTON, MA AND NEW YORK, NY SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
BY
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
CAPSTAR HOTEL COMPANY (hereinafter called the "Corporation"), transferable on the books of the Corporation by
the registered holder hereof in person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and registered by the Transfer Agent and
Registrar.
IN WITNESS WHEREOF, the Corporation has caused the facsimile signatures of its duly
authorized officers and its facsimile seal to be affixed hereto.
Dated:
Treasurer President and
Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
BANKNOTE CORPORATION OF AMERICA - WALL St - PROOF #1 - # 1 -607048-942 - CAPSTAR 7/30/96 JL
</TABLE>
EXHIBIT 5
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
(212) 373-3000
July 31, 1996
CapStar Hotel Company
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
CapStar Hotel Company
Registration Statement on Form S-1
Registration No. 333-6583
--------------------------------------
Ladies and Gentlemen:
In connection with the above-captioned Registration Statement dated
June 21, 1996, as amended (the "Registration Statement"), filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the "Act"), and the Rules and Regulations promulgated thereunder (the
"Rules"), we have been requested by CapStar Hotel Company, a Delaware
corporation (the "Company"), to furnish our opinion as to the legality of
2,500,000 shares (the "Stockholder Shares") offered by the selling stockholder
and 8,137,500 shares (the "Company Shares") offered by the Company (including up
to 1,387,500 shares issuable by the Company upon exercise of the
<PAGE>
CapStar Hotel Company 2
Underwriters' over-allotment option) of the Company's Common Stock, par value
$.01 per share (the "Common Stock"), registered for sale thereunder.
In connection with the furnishing of this opinion, we have reviewed
the Registration Statement (including all amendments thereto), the form of the
Underwriting Agreement included as Exhibit 1.1 to the Registration Statement
(the "Underwriting Agreement"), originals, or copies certified or otherwise
identified to our satisfaction, of the Company's Amended and Restated
Certificate of Incorporation and By-laws, each as in effect on the date hereof,
and records of certain of the Company's corporate proceedings. We have also
examined and relied upon representations as to factual matters contained in
certificates of officers of the Company, and have made such other investigations
of fact and law and have examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
records, certificates or other instruments, and upon such factual information
otherwise supplied to us, as in our judgment are necessary or appropriate to
render the opinion expressed below. In addition, we have assumed, without
independent investigation, the genuineness of all signatures, the authenticity
of all documents submitted to us as originals
<PAGE>
CapStar Hotel Company 3
and the conformity of original documents to all documents submitted to us as
certified, photostatic, reproduced or conformed copies, the authenticity of all
such latter documents and the legal capacity of all individuals who have
executed any of the documents.
Based upon the foregoing, we are of the opinion that (i) the Company
Shares, when issued, delivered and paid for as contemplated in the Registration
Statement and the Underwriting Agreement, will be duly authorized, validly
issued, fully paid and nonassessable and (ii) the Stockholder Shares have been
duly authorized and when deliverence by the Selling Stockholder as contemplated
by the Registration Statement and the Underwriting Agreement will be, validly
issued, fully paid and nonassessable.
Our opinion expressed above is limited to the General Corporation Law
of the State of Delaware. Please be advised that no member of this firm is
admitted to practice in the State of Delaware. Our opinion is rendered only
with respect to the laws, and the rules, regulations and orders thereunder,
which are currently in effect.
We hereby consent to use of this opinion as an Exhibit to the
Registration Statement or any Registration Statement filed pursuant to Rule 462
under the Act, and to the use of our name under the heading "Legal Matters"
contained in the Prospectus included in the Registration Statement. In giving
<PAGE>
CapStar Hotel Company 4
this consent, we do not thereby admit that we come within the category of
persons whose consent is required by the Act or the Rules.
Very truly yours,
/s/ Paul, Weiss, Rifkind, Wharton & Garrison
--------------------------------------------
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
Exhibit 10.3
AGREEMENT OF SALE AND PURCHASE
by and between
MBL LIFE ASSURANCE CORPORATION,
a New Jersey corporation
and
EQUISTAR HOTEL INVESTORS, L.P., a Delaware
limited partnership
Sacramento Hilton Inn - RE# 504
Lafayette Hilton - RE# 344
Santa Barbara Inn - RE# 450
Colorado Springs Holiday Inn - RE# 453
Embassy Row Hotel - RE#669
<PAGE>
INDEX
ARTICLE 1 . . . . . . . . . . . . . . . . . . . . . . . . 1
AGREEMENT OF SALE AND PURCHASE . . . . . . . . . . . . . . 1
ARTICLE 2 . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSIDERATION FOR CONVEYANCE . . . . . . . . . . . . . . . 3
2.1 Consideration . . . . . . . . . . . . . . . . . 3
2.2 Independent Contract Consideration . . . . . . . 3
2.3 Allocation of Purchase Price . . . . . . . . . . 3
ARTICLE 3 . . . . . . . . . . . . . . . . . . . . . . . . 4
DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Initial Deposit . . . . . . . . . . . . . . . . 4
3.2 Additional Deposit . . . . . . . . . . . . . . . 5
ARTICLE 4 . . . . . . . . . . . . . . . . . . . . . . . . 6
SURVEYS AND TITLE POLICIES . . . . . . . . . . . . . . . . 6
4.1 Permitted Exceptions . . . . . . . . . . . . . . 6
4.2 Surveys . . . . . . . . . . . . . . . . . . . . 7
4.3 Title Matters . . . . . . . . . . . . . . . . . 7
ARTICLE 5 . . . . . . . . . . . . . . . . . . . . . . . . 10
ADDITIONAL ITEMS TO BE FURNISHED
TO PURCHASER BY SELLER . . . . . . . . . . . . . . . . . . 10
5.1 Submission Items . . . . . . . . . . . . . . . . 10
5.2 Confidentiality . . . . . . . . . . . . . . . . 14
5.3 Information . . . . . . . . . . . . . . . . . . 15
ARTICLE 6 . . . . . . . . . . . . . . . . . . . . . . . . 16
INSPECTION AND AUDIT . . . . . . . . . . . . . . . . . . . 16
6.1 Inspection Rights . . . . . . . . . . . . . . . 16
6.2 Condition of Subject Properties . . . . . . . . 17
ARTICLE 7 . . . . . . . . . . . . . . . . . . . . . . . . 18
DAMAGE OR DESTRUCTION PRIOR TO THE CLOSING . . . . . . . . 18
7.1 Damage or Destruction . . . . . . . . . . . . . 18
7.2 Purchaser's Option Less than Amount . . . . . . 19
-i-
<PAGE>
7.3 Estimated Cost of Repair, Replacement
and Restoration . . . . . . . . . . . . . . . . 19
7.4 Condemnation . . . . . . . . . . . . . . . . . . 19
ARTICLE 8 . . . . . . . . . . . . . . . . . . . . . . . . 19
CONDITION OF PROPERTY . . . . . . . . . . . . . . . . . . 19
8.1 Condition of Property . . . . . . . . . . . . . 19
8.2 Purchaser's Additional Waivers . . . . . . . . . 21
8.3 Management of Properties . . . . . . . . . . . . 21
8.4 Embassy Row Hotel Management . . . . . . . . . . 22
8.5 Liquor License . . . . . . . . . . . . . . . . . 23
8.6 Hart-Scott-Rodino Compliance . . . . . . . . . . 23
8.7 Marketing Restrictions . . . . . . . . . . . . . 24
ARTICLE 9 . . . . . . . . . . . . . . . . . . . . . . . . . 24
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.1 Date of Closing . . . . . . . . . . . . . . . . 24
9.2 Delivery of Items At Closing By Seller . . . . . 24
9.3 Delivery of Items at Closing By Purchaser . . . 27
9.4 Credits and Prorations . . . . . . . . . . . . . 27
9.5 Purchaser's Costs . . . . . . . . . . . . . . . 32
9.6 Seller's Costs . . . . . . . . . . . . . . . . . 33
9.7 Representations and Warranties of Purchaser . . 33
9.8 Covenants of Purchaser . . . . . . . . . . . . . 33
9.9 Possession . . . . . . . . . . . . . . . . . . . 34
9.10 Safe Deposit Boxes and Luggage . . . . . . . . . 34
ARTICLE 10 . . . . . . . . . . . . . . . . . . . . . . . . 34
REAL ESTATE COMMISSION . . . . . . . . . . . . . . . . . . 34
ARTICLE 11 . . . . . . . . . . . . . . . . . . . . . . . . 35
REMEDIES OF DEFAULT . . . . . . . . . . . . . . . . . . . 35
11.1 Termination Of Contract By Purchaser . . . . . . 35
11.2 Purchaser's Default . . . . . . . . . . . . . . 35
11.3 Seller's Default . . . . . . . . . . . . . . . . 35
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ARTICLE 12 . . . . . . . . . . . . . . . . . . . . . . . . 36
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 36
12.1 Notices . . . . . . . . . . . . . . . . . . . . 36
12.2 Effective Date . . . . . . . . . . . . . . . . . 37
12.3 Assignment . . . . . . . . . . . . . . . . . . . 38
12.4 Laws . . . . . . . . . . . . . . . . . . . . . . 38
12.5 Modification . . . . . . . . . . . . . . . . . . 39
12.6 Authority . . . . . . . . . . . . . . . . . . . 39
12.7 Times And Dates . . . . . . . . . . . . . . . . 39
12.8 Descriptive Headings . . . . . . . . . . . . . . 39
12.9 Entire Contract . . . . . . . . . . . . . . . . 39
12.10 Construction . . . . . . . . . . . . . . . . . . 39
12.11 Non-recordable . . . . . . . . . . . . . . . . . 39
12.12 Third-Party Beneficiary . . . . . . . . . . . . 40
12.13 Legal Relationship . . . . . . . . . . . . . . . 40
12.14 Contemplation of Closing . . . . . . . . . . . . 40
12.15 Security for Unpaid Accounts . . . . . . . . . . 40
12.16 Completion of Documents . . . . . . . . . . . . 40
12.17 Effect of Holidays . . . . . . . . . . . . . . . 40
12.18 Press Releases and Publicity . . . . . . . . . . 41
12.19 Exhibits . . . . . . . . . . . . . . . . . . . . 41
-iii-
<PAGE>
AGREEMENT OF SALE AND PURCHASE
------------------------------
This Agreement of Sale and Purchase (this "Contract") is made to be
effective as of the Effective Date (as defined in Section 12.2 hereof) by and
between MBL LIFE ASSURANCE CORPORATION, a New Jersey corporation, and EQUISTAR
HOTEL INVESTORS, L.P., a Delaware limited partnership ("Purchaser").
W I T N E S S E T H:
ARTICLE I
AGREEMENT OF SALE AND PURCHASE
------------------------------
Subject to the terms and conditions hereinafter set forth, Seller agrees to
sell and convey and Purchaser agrees to purchase the following:
(a) the fee estate of Seller in and to the real property described
on Exhibits A-1, A-2, A-3 and A4 attached hereto and made a part hereof and
the leasehold estate of Seller created by the Ground Lease [as defined in
Section 5.1(b)(ii) hereof] in and to the real property described on Exhibit
A-5 attached hereto and made a part hereof; and together with all right,
title and interest of Seller in and to any and all strips or gores, roads,
easements, streets and ways bounding such real property, and rights of
ingress and egress thereto (collectively, the "Real Property");
(b) all right, title and interest of Seller in and to all
improvements situated upon the Real Property, including, but not by way of
limitation, those certain buildings, structures, fixtures and other
improvements of every kind and nature presently situated on, in, under or
hereafter erected, installed or used in or about the Real Property, and
currently known as (i) Sacramento Hilton Inn, 2200 Harvard Street,
Sacramento, California (the "Sacramento Property"), consisting of
approximately 322 guest rooms; (ii) Lafayette Hilton, Louisiana Highway 182
(Pinhook Road) and Vermilion River, Lafayette, Louisiana, consisting of
approximately 328 guest rooms (the "Lafayette Property"); (iii) Santa
Barbara Inn, Santa Barbara, California, consisting of approximately 71 guest
room (the "Santa Barbara Property"); (iv) Colorado Springs Holiday Inn, 805
Popes Bluff Trail,
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Colorado Springs, Colorado, consisting of approximately 201 guest rooms (the
"Colorado Springs Property"); and (v) Embassy Row Hotel, 2015 Massachusetts
Avenue, Washington, D.C., consisting of approximately 196 guest rooms (the
"Washington D.C. Property") (hereinafter sometimes collectively referred to as
the "Improvements" or the "Hotels");
(c) all right, title and interest of Seller in and to the tangible
personal property owned by Seller that is located upon the Real Property or
within the Improvements, including specifically, without limitation, heating,
ventilation, air conditioning and other equipment, utility distribution systems,
appliances, beds, chairs, tables, desks and other furniture, television sets,
carpeting, draperies and curtains, tools, lamps, paintings, decorations,
refrigerators, ovens, linens, napkins, silverware, glasses, supplies, food,
beverage and inventory items and other items of personal property (excluding
cash) used in connection with the operation of the Real Property and the
Improvements; excluding, however, all property leased pursuant to the Leases [as
defined in Article 1 (e) hereof] (collectively, the "Personal Property");
(d) all reservation deposits, advance payments, security deposits and
prepaid items and other amounts, deposits or credits paid to or received by
Seller or the Hotels prior to Closing (as defined in Section 2.1 hereof), and
attributable to the period from and after the Closing, including, without
limitation, all cash in house banks in the Hotels which are attributable to the
period prior to the Closing Date (as such term is defined in Section 9.1 hereof)
(collectively, the "Prepaid Accounts");
(e) all of Seller's right, title, obligations and interest in all oral or
written agreements pursuant to which any portion of the Real Property or
Improvements is used or occupied by anyone other than Seller (collectively, the
"Leases"); and
(f) all of Seller's right, title, obligations and interest in and to (i)
all assignable contracts and agreements relating to the upkeep, repair,
maintenance or operation of the Real Property, the Improvements or the Personal
Property which will extend beyond the Closing Date, including specifically,
without limitation, all assignable equipment leases, union labor contracts, and
all assignable management and operating agreements, including the Sacramento
License Agreement, the Colorado Springs License Agreement and the Lafayette
License Agreement, as such terms are defined in Section 5.1(a)(i)-(iii)
(collectively, the "Miscellaneous
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Contracts"), (ii) all assignable warranties and guaranties (express or
implied) issued to Seller in connection with the Improvements or the
Personal Property; (iii) all licenses, permits or similar documents relating
to the Real Property or Improvements, to the extent same are assignable;
(iv) telephone exchanges, trade names, marks and other identifying material
relating to the Real Property or the Improvements, to the extent same are
assignable; (v) plans, drawings, specifications, surveys, engineering
reports, and other technical descriptions relating to the Real Property or
the Improvements in Seller's possession; and (vi) all other items of
intangible personal property owned by Seller that relate in any way to the
ownership, use, leasing, maintenance, service or operation of the Real
Property or the Improvements (collectively, the "Intangibles").
The Real Property, the Improvements, the Personal Property, the Prepaid
Accounts, the Leases and the Intangibles are hereinafter sometimes referred to
collectively as the "Subject Properties."
ARTICLE 2
CONSIDERATION FOR CONVEYANCE
----------------------------
2.1 Consideration. Seller agrees to sell and Purchaser agrees to purchase
-------------
the Subject Properties for an amount equal to Sixty-Eight Million Four Hundred
Thousand and No/100 Dollars ($68,400,000) (the "Purchase Price"). The Purchase
Price shall be due and payable in cash by wire transfer of immediately available
federal funds, in accordance with Seller's written wiring instructions, at the
closing of title and delivery of the Deeds described in Section 9.2(a) hereof
(the "Closing").
2.2 Independent Contract Consideration. Upon the Effective Date, Purchaser
----------------------------------
shall deliver to Seller a check in the amount of One Hundred and No/100 Dollars
($100.00) ("Independent Contract Consideration"), which amount the parties
hereby acknowledge and agree has been bargained for and agreed to as
consideration for Seller's execution and delivery of this Contract. Receipt of
said check is hereby acknowledged by Seller. The Independent Contract
Consideration is in addition to and independent of any consideration or payment
provided in this Contract and is nonrefundable in all events.
2.3 Allocation of Purchase Price. The Purchase Price has been allocated as
----------------------------
set forth on Exhibit B attached hereto in accordance with Section 1060 of the
Internal Revenue Code. Both Seller and Purchaser shall adhere to such
allocations for federal, state and
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local income tax reporting purposes. The respective obligations of Seller and
Purchaser under the terms of this Section 2.3 shall survive the Closing.
ARTICLE 3
DEPOSIT
-------
3.1 Initial Deposit. Upon Purchaser's execution of this Contract,
---------------
Purchaser shall deliver to Seller four (4) fully executed counterparts of this
Contract, and within one (1) business day after the Effective Date, Purchaser
shall deliver to Escrow Holder (as such term is defined in Section 4.3 hereof)
by wire transfer of immediately available federal funds, or cashier' s check or
bank check drawn by a bank satisfactory to Seller, the amount of Two Million
Five Hundred Thousand and No/100 Dollars ($2,500,000) (the "Deposit"). Purchaser
shall also provide Escrow Holder with its federal tax identification number.
Escrow Holder shall, promptly upon receipt of the Deposit and Purchaser's
federal identification number, place the Deposit in an interest bearing account
approved by Seller. All interest on the Deposit shall accrue for the benefit of
Purchaser until the Closing. The interest thus derived shall become part of the
Deposit and shall be paid to the party entitled to the Deposit in accordance
with the terms hereof. If the sale contemplated by this Contract is consummated
in accordance with the terms hereof, the Deposit shall be applied to the
Purchase Price to be paid to Seller at the Closing. EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN TO THE CONTRARY, THE DEPOSIT SHALL CONSTITUTE
ADDITIONAL INDEPENDENT CONSIDERATION FOR THE EXECUTION OF THIS CONTRACT AND
SHALL BE NONREFUNDABLE TO PURCHASER UPON THE EFFECTIVE DATE. AS THIS CONTRACT
RELATES TO THE LAFAYETTE PROPERTY, THE DEPOSIT SHALL NOT CONSTITUTE EARNEST
MONEY, AS DEFINED IN LOUISIANA CIVIL CODE, ARTICLE 2463.
This Contract shall be of no force and effect until such time as (i) Purchaser
has complied with each of the terms of this Section 3.1; and (ii) Seller has
executed this Contract.
This Contract shall serve as the instructions to Escrow Holder to take all
actions necessary on its part in order to consummate the purchase and sale
contemplated hereby. Seller and Purchaser agree to execute such additional and
supplementary escrow instructions as may be appropriate to enable Escrow Holder
to comply with the terms of this Contract. If, however, there is any conflict
between the provisions of this Contract and any supplementary escrow
instructions, the terms of this Contract shall control.
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<PAGE>
In the event Escrow Holder cannot comply with the obligations pursuant to
this Article 3, Seller shall select another escrow holder. Within five (5) days
after the Effective Date, Escrow Holder will deliver to Seller an insured
closing letter in a form acceptable to Seller. Escrow Holder must sign this
Contract as evidence that Escrow Holder agrees to be bound by the obligations
contained herein.
3.2 Additional Deposit. Within one (1) business day after the expiration
------------------
date of the Inspection Period (as defined in Section 6.1 hereof), Purchaser
shall deliver to Escrow Holder an additional One Million and No/100 Dollars
($1,000,000) (sometimes hereinafter referred to as the "Additional Deposit"),
which shall be deposited into such account and become part of the Deposit. The
failure of Purchaser to deliver the Additional Deposit, in the amount and within
the time period required hereby, shall entitle Seller, at its sole and
unfettered election, to terminate this Contract, in which event the Deposit
deposited by Purchaser shall be returned by Escrow Holder to Purchaser and no
party hereto shall have any further rights or liabilities hereunder, except for
Purchaser's liability pursuant to Section 6.1 and Article 10 hereof and under
the terms of the Confidentiality Agreement (as defined in Section 5.2 hereof).
However, if Seller has not received Purchaser's Notice of Termination (as
defined in Section 6.2) prior to the expiration of the Inspection Period, Seller
may elect not to terminate this Contract and to demand immediate receipt by
Escrow Holder of the Additional Deposit. The failure of Purchaser to pay to
Escrow Holder the Additional Deposit will be a default hereunder for which
Seller may elect any of its rights under Section 11.2 hereof, including, without
limitation, the right to pursue Seller's claim against Purchaser for the full
amount of the Additional Deposit and all costs and expenses of collection,
including, without limitation, reasonable attorneys' fees, and interest on such
amounts due hereunder at a rate equal to the lesser of (i) ten percent (10%) per
annum or (ii) the maximum lawful rate under applicable law, from the date of the
expiration of the Inspection Period until such amounts shall have been paid in
full.
IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT UNLESS EXPRESSLY PROVIDED HEREIN
TO THE CONTRARY, UPON THE EXPIRATION OF THE INSPECTION PERIOD, THE. DEPOSIT
(INCLUDING THE INITIAL DEPOSIT AND THE ADDITIONAL DEPOSIT) SHALL THEREAFFER BE
NONREFUNDABLE TO PURCHASER.
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ARTICLE 4
SURVEYS AND TITLE POLICIES
--------------------------
4.1 Permitted Exceptions. The Subject Properties are to be sold and
--------------------
conveyed subject to the following:
(a) Zoning and building laws, restrictions, regulations and
ordinances of the municipality in which the Real Property is located, if
any, provided that such laws, restrictions, regulations and ordinances do
not prevent the Subject Properties from being used as hotels, it being
understood that Seller is making no representation or warranty to Purchaser
in this regard;
(b) All notes or notices of violations of law or municipal
ordinances, orders or requirements noted in, or issued by, any state or
municipal department or public authority having jurisdiction against or
affecting the Subject Properties on the Closing Date.
(c) Any and all assessments becoming liens from and after the
Closing Date and, in addition, if on the Closing Date, the Subject
Properties or any part thereof shall be or shall have been affected by any
assessment or assessments which are payable in installments or may be paid
in installments without penalty (other than interest), Purchaser shall pay
all such installments which shall become due and payable or which may be
paid without penalty (other than interest) from and after the Closing Date,
except that any installment (or portion thereof) relating to the current
fiscal year (with any interest thereon) shall be apportioned between the
parties at Closing.
(d) The License Agreements (hereinafter defined), including the
Hilton Preferential Purchase Right (hereinafter defined), if and as
applicable.
(e) All liens for real estate taxes on the Subject Properties for
the year in which the Closing occurs, which are not yet due and payable on
the Closing Date.
(f) The lien of supplemental taxes assessed pursuant to Chapter 3.5,
commencing with Section 75 of the California Revenue and Taxation Code
(applicable to the Sacramento Property and the Santa Barbara Property only).
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(g) The preprinted exclusions, conditions and stipulations contained
in the form of CLTA Standard Coverage Policy of Title Insurance-1990
(applicable to the Sacramento Property and the Santa Barbara Property only).
(h) Any matters set forth in Sections 4.2 and/or 4.3 hereof not
objected to by Purchaser prior to the expiration of the Inspection Period,
and any matters objected to by Purchaser prior to the expiration of the
Inspection Period which Escrow Holder is willing to affirrnatively insure to
Purchaser's reasonable satisfaction.
Nothing contained in this Section 4.1 is intended to modify, limit, restrict
or compromise in any way the rights of Purchaser to object to any of the above-
itemized exceptions, pursuant to the terms and procedures set forth in Section
4.3 hereof.
4.2 Surveys. Purchaser hereby acknowledges that prior to its execution
-------
hereof, Purchaser received from Seller surveys of the Sacramento Property, the
Santa Barbara Property, and the Lafayette Property. During the Inspection
Period, Seller shall deliver to Purchaser, at Purchaser's sole cost and expense,
surveys of the Colorado Springs Property and the Washington D.C. Property. The
respective surveys of the Real Property and Improvements are herein collectively
called the "Surveys". If this Contract is terminated, Purchaser will return the
Surveys and any copies thereof to Seller.
4.3 Title Matters. Purchaser hereby acknowledges that prior to its
-------------
execution hereof, Purchaser received from Seller the following:
(a) Title Report dated as of January 18, 1996 coveting the
Sacramento Property (the "Sacramento Title Report");
(b) Tire Report dated as of May 6, 1996 coveting the Santa Barbara
Property (the "Santa Barbara Tire Report");
(c) Commitment for Title Insurance dated April 26, 1996 covering the
Colorado Springs Property (the "Colorado Springs Commitment");
(d) Commitment for Title Insurance dated May 8, 1996 covering the
Lafayette Property (the "Lafayette Commitment" ); and
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<PAGE>
(e) Commitment for Title Insurance dated May 2, 1996 covering the
Washington, D.C. Property (the "Washington D.C. Commitment").
The Sacramento Title Report, the Santa Barbara Title Report, the Colorado
Springs Commitment, the Lafayette Commitment and the Washington, D.C. Commitment
are hereinafter collectively referred to as the "Commitments". Purchaser also
acknowledges receipt of copies of all documents constituting exceptions to
Seller's title, as reflected in the Commitments. The Commitments were issued by
Chicago Title Insurance Company, 1211 Avenue of the Americas, 28th Floor, New
York, New York 10036 (Attn: Chris Burdick, Esq.); Tel: (212) 789-6612; Fax:
(212) 840-9424 ("Escrow Holder") in connection with the issuance of an ALTA
Standard Coverage Policy-1990, covering each of the Sacramento Property and the
Santa Barbara Property, and an ALTA Owner's Policy Form B 1992, covering each of
the Lafayette Property, the Washington D.C. Property and the Colorado Springs
Property (collectively, the "Title Policies"). At Closing, Purchaser will obtain
the Title Policies, at Purchaser's sole cost and expense, as provided in Section
9.5 hereof, covering the properties comprising the Real Property and
Improvements.
Purchaser shall, within five (5) days after the Effective Date, review the
Surveys (except for the surveys of the Washington, D.C. Property and the
Colorado Springs Property), the Commitments (except for the Colorado Springs
Commitment and the Washington D.C. Commitment) and the documents referred to
therein and to deliver to Seller in writing such objections as Purchaser may
have to anything contained or set forth in the Commitments or the Surveys
(collectively, the "Objections"). Purchaser shall, within five (5) days after
receipt of the surveys of the Washington, D.C. Property and the Colorado Springs
Property, review such surveys of the Washington, D.C. Property and the Colorado
Springs Property, review such surveys and the Colorado Springs Commitment and
the Washington D.C. Commitment and deliver to Seller in writing such Objections
as Purchaser may have to anything contained or set forth therein. Any items to
which Purchaser does not make Objections within the time periods set forth
herein shall be deemed to be "Permitted Exceptions" (herein so called). Within
five (5) days of receipt by Seller of Purchaser's Objections, Seller shall
advise Purchaser in writing of Seller's election to cure or not cure such
Objections, as hereinafter set forth. Seller may elect, in its sole discretion,
to cure such Objections, such cure to include, but not to be limited to, Escrow
Holder's agreement to provide affirmative insurance over such Objections to the
reasonable satisfaction of Purchaser and its leader. If, within or prior to the
five (5) day election period of Seller, Seller elects not to cure the
Objections, Seller will notify Purchaser of such election and Purchaser shall
have the right, within five (5) days after Seller's notice, to either (i)
terminate this Contract as to any one or more of the properties comprising the
Real Property and Improvements to which the Objections apply (the "Uncured
Property"), but not otherwise, in which event this Contract shall be amended to
(a) remove the Uncured Property from the Real Property and Improvements to be
sold
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<PAGE>
under the terms of this Contract; and (b) reduce the Purchase Price by the
amount allocated to the Uncured Property, as set forth on Exhibit B attached
hereto; and Seller and Purchaser shall proceed to complete the transaction
contemplated by this Contract as to the remaining properties comprising the Real
Property and Improvements; or (ii) waive such Objections, without any reduction
in the Purchase Price, and proceed to the Closing, whereupon such waived
Objections shall also be deemed "Permitted Exceptions".
In the event any update to the Commitments made after the expiration of the
Inspection Period but prior to Closing, indicates or lists any additional
matters adversely affecting title to the Real Property and Improvements that are
not set forth on the Commitments or any updates to the Commitments made on or
before the expiration date of the Inspection Period, and such matters arise by,
through or under Seller (the "Additional Objections"), Purchaser shall notify
Seller in writing of the Additional Objections. Seller shall be obligated to
cure the following types of Additional Objections: (A) any mortgage liens and/or
security agreements created by Seller, or an afftliate of Seller, encumbering
the Real Property and Improvements; and (B) any other Additional Objections
which are curable by Seller within ninety (90) days after Seller's receipt of
Purchaser's notice of Additional Objections, provided that Seller's costs to
cure such Additional Objections shall not exceed, in the aggregate as to all of
the Real Property and Improvements, the sum of $200,000 (collectively, the
"Mandatory Cure Objections") .
With regard to any Objections, Additional Objections and/or Mandatory Cure
Objections which Seller is unable to cure by the Closing, Seller may extend the
Closing as to any one or more of the properties comprising the Real Property and
Improvements to which such Objections, Additional Objections and/or Mandatory
Cure Objections apply (the "To Be Cured Property"), but not otherwise, for a
period of time thereafter in order to cure same, but in no event shall the
Closing be extended as to the To Be Cured Property for more than ninety (90)
days after the originally scheduled Closing Date (as same shall be amended
pursuant to the terms of this Contract), it being understood and agreed that the
parties shall proceed to close the sale and purchase of the remaining properties
comprising the Real Property and Improvements on the Closing Date set forth in
Section 9.1 hereof. If Seller is unable to cure any of the Additional Objections
(other than the Mandatory Cure Objections) applicable to the To Be Cured
Property within such extended ninety-day period, then Seller shall notify
Purchaser accordingly and Purchaser shall have the option, to be exercised
within five (5) business days after Seller's notice, to either (x) terminate
this Contract as to the To Be Cured Property, or (y) waive the Additional
Objections applicable to the To Be Cured Property, without any reduction in the
Purchase Price allocated to the To Be Cured Property, as set forth on Exhibit B
attached hereto, and
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<PAGE>
proceed to complete the transaction contemplated by this Contract as to the To
Be Cured Property, whereupon such waived Additional Objections shall be deemed
"Permitted Exceptions".
It is expressly understood and agreed that Seller's inability to cure the
Objections or the Additional Objections (other than the Mandatory Cure
Objections) shall not constitute a Seller's Default under the terms of Section
11.3 hereof.
ARTICLE 5
ADDITIONAL ITEMS TO BE FURNISHED
--------------------------------
TO PURCHASER BY SELLER
----------------------
5.1 Submission Items. (a) Purchaser hereby acknowledges that CapStar
----------------
Management Company, L.P., a Delaware corporation ("CapStar"), an affiliate of
Purchaser, is currently the manager and operator of the Hotels, except for the
Embassy Row Hotel (collectively, the "CapStar Hotels") pursuant to the terms of
that certain Hotel Management Agreement dated as of October 1, 1993 by and
between MUBEN/LCP Hotel Partners, L.P. (an aff'fiiate of Seller), as Owner, and
CapStar Hotel Parmers Limited Parmership, as Operator (the "Hotel Management
Agreements"), the rights of the said CapStar Hotel Partners Limited Parmership
having been assigned to CapStar. As CapStar is the manager and operator under
the Hotel Management Agreement, Purchaser acknowledges that it has current
actual knowledge of and, as applicable, access to (i) all financial and
operating documents relating to the CapStar Hotels; (ii) copies of the Leases
and the Miscellaneous Contracts covering the CapStar Hotels; (iii) information
regarding the Intangibles; (iv) the physical condition of the CapStar Hotels;
and (v) copies of the License Agreements covering the respective CapStar Hotels
and notice of the terms and requirements thereof [the items described in clauses
(i) - (v) immediately preceding are hereinafter collectively referred to as the
CapStar Hotels Submission Items].
Purchaser also acknowledges that it has received copies, and has knowledge
of the terms and requirements, of the following:
(i) License Agreement dated July 10, 1991, by and between Hilton
Inns, Inc. ("Hilton"), as Licensor, and Muben/LCP Hotel
Partners, Ltd., a Delaware limited parmership, as Licensee, as
supplemented by letter agreement dated July 10, 1991, the rights
of Licensee being assumed by Seller, as evidenced by that
certain Franchisee
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<PAGE>
Assignment and Assumption (Sacramento Hilton) dated as of
January 1, 1995 executed by Muben/LCP Hotel Parmers, Ltd. and
Seller (the "Sacramento License Agreement ");
(ii) Holiday Inn Conversion License Agreement dated July 1, 1994 by
and between Holiday Inn Franchising, Inc., as Licensor, and
Seller, as Licensee (the Colorado Springs License Agreement");
and
(iii) License Agreement between Riverside Hotel, as Licensee, and
Hilton Inns, Inc., as Licensor, dated May 1, 1983, the rights of
Licensee being assumed by Muber/LCP Hotel Parmers, as evidenced
by that certain Assignment and Assumption Agreement (Lafayette)
dated November 11, 1991 (the "Lafayette License Agreement").
The Sacramento License Agreement, the Colorado Springs License Agreement and
the Lafayette License Agreement are hereinafter collectively referred to as the
License Agreements
The Sacramento License Agreement and the Lafayette License Agreement each
contain a right of first refusal in favor of Hilton to purchase the Sacramento
Property and the Lafayette Property, respectively (the "Hilton Preferential
Purchase Right"), the rights of Hilton thereunder being as follows:
(i) If Hilton elects to exercise the Hilton Preferential Purchase
Right contained in the Sacramento License Agreement and the
Lafayette License Agreement, Seller shall advise Purchaser
accordingly; this Contract shall terminate for all purposes;
Purchaser shall receive, as its sole remedy, the return of the
Deposit; and neither party hereto shall have any further rights,
obligations or liabilities under this Contract, except
Purchaser's liabilities under Section 6.1 and Article 10 hereof
and under the terms of the Confidentiality Agreement;
(ii) If Hilton elects to exercise the Hilton Preferential Purchase
Right contained in either the Sacramento License Agreement or
the Lafayette License Agreement, but not both, Seller shall
advise Purchaser accordingly; this Contract shall terminate only
as to the
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Sacramento Property or the Lafayette Property, as applicable
(the "Hilton Purchased Property"); the Purchase Price shall be
reduced by the amount allocated to the Hilton Purchased
Property, as set forth on Exhibit B attached hereto; and Seller
and Purchaser shall proceed to complete the transaction
contemplated by this Contract as to the remaining properties
comprising the Real Property and Improvements; and
(iii) If Hilton elects in writing not to exercise the Hilton
Preferential Purchase Right or if, within the required time
period, Hilton makes no election to exercise the Hilton
Preferential Purchase Right, or if Hilton terminates the
Lafayette License Agreement and/or the Sacramento License
Agreement, in accordance with the terms thereof, then the
parties shall proceed to close the transaction contemplated
hereby on the Closing Date, in accordance with the terms hereof,
with no reduction of the Purchase Price.
Within three (3) business days after the Effective Date, Seller shall deliver to
Hilton the right of first refusal notices required under the terms of the
Sacramento License Agreement and the Lafayette License Agreemere.
The Colorado Springs License Agreement requires the prior written consent
of the Licensor thereunder to the assigment to a third party of the license
created under the terms thereof. Within three (3) business days after the
Effective Date, Seller shall give such notice to the Licensor under the
Colorado Springs License Agreement. Notwithstanding such notice, the obligation
of Purchaser to close the transaction contemplated by this Contract is not
conditioned or contingent upon Seller obtaining the consent of the Licensor
under the Colorado Springs License Agreement to assign the Colorado Springs
License Agreement to Purchaser.
The Ground Lease (hereinafter defined) contains a right of first refusal in
favor of the Ground Lessor (hereinafter defined) to purchase the Washington,
D.C. Property (the "Ground Lease Preferential Purchase Right"). Within three (3)
business days after the Effective Date, Seller shall give to Ground Lessor the
right of first refusal notice required under the terms of the Ground Lease. If
Ground Lessor elects to exercise the Ground Lease Preferential Purchase Right,
Seller shall advise Purchaser accordingly; this Contract shall terminate as to
the Washington, D.C. Property only; the Purchase Price shall be reduced by the
amount allocated to the Washington, D.C. Property, as set forth on Exhibit
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B attached hereto; and the transaction contemplated hereby shall proceed to
close in accordance with the terms hereof as to the remaining properties
comprising the Real Property and Improvements. On or before Closing, Seller
agrees to provide to Purchaser (a) the Ground Lease Estoppel [as defined in
Section 9.2(m) hereof]; and (b) documentation reasonably acceptable to Purchaser
evidencing that Ground Lessor has waived its Ground Lease Preferential Purchase
Right (collectively, the "Ground Lease Closing Documents." If for any reason
Seller is unable to deliver to Purchaser at Closing the Ground Lease Closing
Documents, Seller will notify Purchaser of such fact and Purchaser shall have
the right, within five (5) days after Seller's notice, to either (1) terminate
this Contract as to the Washington, D.C. Property only, in which event this
Contract shall be amended to (a) remove the Washington, D.C. Property from the
Real Property and Improvements to be sold under the terms of this Contract; and
(b) reduce the Purchase Price by the amount allocated to the Washington D.C.
Property, as set forth on Exhibit B attached hereto; and Seller and Purchaser
shall proceed to complete the transaction contemplated by this Contract as to
the remaining properties comprising the Real Property and Improvements; or (2)
waive the Ground Lease Closing Documents, without any reduction in the Purchase
Price, and proceed to the Closing.
By its execution of this Contract, Purchaser acknowledges that it has
received or has access to the CapStar Hotels Submission Items.
(b) Purchaser acknowledges that prior to its execution of this Contract,
it received copies of the following materials in connection with Purchaser's due
diligence of the Washington D.C. Property:
(i) a list of the Miscellaneous Contracts covering the Washington
D.C. Property, together with copies of same;
(ii) Ground Lease dated March 29, 1968 by and between 2015 Mass.
Ave., Inc., as Tenant (Seller having succeeded to the rights of
the said 2015 Mass. Ave., Inc.) and Travelers Insurance
Company, as Landlord, the rights of Landlord thereunder having
been assigned to TCNY Realty Company ("Ground Lessor"),
recorded in the Land Records of the District of Columbia in
Liber 12866 at Folio 563 (the "Ground Lease"), the rights of
Tenant under the Ground Lease having been assigned to Embassy
Row Hotel Investors by Assignment and Assumption of Ground
Lease dated December 20, 1984;
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(iii) Local 99-99A, AFL-CIO Operating Engineers Collective
Bargaining Agreement dated November 1, 1995;
(iv) Local 25, AFL-CIO Hotel Restaurant Employees Labor Agreement
dated September 16, 1992; and
(v) Operating Agreement dated April 5, 1993 by and between Embassy
Row Hotel Investors, as Owner, and Capitol Alpha Hotel Corp.,
a District of Columbia corporation and an affiliate of Wesley
Hotel Group, as Operator (the "Embassy Row Operating
Agreement").
(c) Purchaser acknowledges that prior to its execution of this Contract,
it received the following:
(i) Phase I Environmental dated October 31, 1995 by Hillman
Environmental Co. for the Sacramento Hilton Hotel.
(ii) Phase I Environmental dated March 23, 1995 by Hillman
Environmental Co. for the Santa Barbara Inn.
(iii) Phase I Environmental dated April 10, 1992 by Hillman
Environmental Co. for the Embassy Row Hotel.
(iv) Environmental Evaluation dated May 18, 1989 by Environmental
Risk Consultants for the Colorado Springs Holiday Inn (formerly
a Hilton franchise).
The items described in this Section 5.1 (b) are hereinafter collectively
referred to as the "Embassy Row Submission Item." The CapStar Hotels Submission
Items and the Embassy Row Submission Items are hereinafter collectively referred
to as the Submission Items.
5.2 Confidentiality. All of the Submission Items and any other reports,
---------------
documents or information given by Seller to Purchaser in connection herewith
shall be returned to Seller or kept in confidence by Purchaser pursuant to the
terms and conditions of that certain Confidentiality and Inspection Agreement
between Owner and Recipient dated February 23, 1996 (the "Confidentiality
Agreement"), a copy of which is attached
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hereto as Exhibit I and made a part hereof for all purposes. Notwithstanding the
foregoing, Seller agrees that Purchaser shall have the right to disclose any
documents or information provided to or produced by Purchaser with respect to
the transactions set forth in this Contract to any Permitted Assignee (as
hereinafter defined), including without limitation, any public or other
disclosure required by law in connection with the merger, consolidation or
reorganization of Purchaser, including without limitation, any public disclosure
in connection with any securities offering, and to such extent Seller hereby
waives any confidentiality requirements of this Contract or the Confidentiality
Agreement. It is expressly understood and agreed that Seller shall have no
liability for, and expressly disclaims any such liability with regard to, any
documents or information disclosed by Purchaser to investors, financial
advisors, counsel or any other parties in connection with any such merger,
consolidation or reorganization of Purchaser or any securities offering. In that
regard, Purchaser agrees to indemnify and hold harmless Seller from and against
any and all claims, costs, expenses, liabilities, or judgments incurred by
Seller, as so incurred, in connection with Purchaser's disclosure of any
documents or information regarding the Subject Properties or the transactions
contemplated by this Contract. All references in this Contract to the terms of
the Confidentiality Agreement shall mean the Confidentiality Agreement, as
amended by the terms of this Section 5.2. The provisions of this Section 5.2
shall survive the Closing or termination of this Contract.
5.3 Information. As an essential inducement to Seller to sell the Subject
-----------
Properties to Purchaser on the favorable terms and conditions set forth in this
Contract, Purchaser acknowledges and agrees that: (i) all documents, materials,
reports, studies and other information delivered or disclosed to Purchaser by
Seller or its representatives, including, without limitation, Marfralis
Corporation d/b/a Lively & Associates and Wesley Hotel Group (the "Information")
are being provided to Purchaser for informational purposes only and only as an
accommodation to Purchaser; (ii) Seller has not made, is not making, and will
not make any representation, warranty or promise of any kind, express or
implied, concerning the accuracy or completeness of all or any part of the
Information; and (iii) any inaccuracy, incompleteness, or deficiency in any part
of the Information shall be solely the risk and responsibility of Purchaser,
shall not be chargeable in any respect to Seller, and shall not form the basis
of any claims by Purchaser against Seller, its employees, agents or assigns,
including, without limitation, Marfralis Corporation d/b/a Lively & Associates,
such claims being expressly waived and relinquished by Purchaser. Upon
Purchaser's request, however, Seller will consider waiving any conflicts of
interest in the event Purchaser desires to engage any such person or entity to
prepare, author, compile or create any documents, materials, reports, studies or
other information directly for Purchaser's benefit.
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ARTICLE 6
INSPECTION RIGHTS
-----------------
6.1 Inspection Rights. Purchaser shall have until July 5, 1996 [i.e.
-----------------
fifteen (15) days after the Effective Date] (the "Inspection Period") within
which to make all audits, inspections or investigations desired by Purchaser,
subject to Seller's requirements as hereinafter set forth. Purchaser and
Purchaser's accountants, attorneys or other representative(s) (which shall not
exceed four (4) persons at any one time at any one Hotel, including Purchaser
and its representative of Seller) shall have the right, during regular business
hours and with reasonable notice, to:
(a) interview the respective managers of each of the Hotels regarding
the management or operation of the Subject Properties and to inspect and
make copies of the Leases and books and records of the Subject Properties
that are in the possession of the respective managers of the Hotels;
(b) inspect and make copies of the books, records and files relating
to the condition or operation of the Subject Properties that are in the
possession or control of Seller;
(c) subject to the rights of tenants occupying space in the
Improvements, at its sole risk and expense, inspect the Real Property and
Improvements and the Personal Property and make such tests, surveys and
inspections as Purchaser deems necessary, including, without limitation,
soil tests, topographical surveys, structural and foundation surveys,
concrete tests, roof inspections, equipment inspections and environmental
inspections. It is understood and agreed that Purchaser is responsible for
obtaining any environmental assessments of the Subject Properties, at its
sole cost and expense, and Purchaser shall provide to Seller copies of any
such environmental assessments. Purchaser shall exercise (and cause its
agents and employees to exercise) due care and ordinary prudence in
performing such surveys, inspections and test and shall not exercise such
right in a manner that materially interferes with the operation of the
Subject Properties. If the transactions contemplated hereby are not
consummated. Purchaser, at its own cost and expense, promptly shall repair
any damage to the Subject Properties resulting from such surveys, tests or
inspections. Purchaser shall indemnify, defend, save and hold harmless
Seller from and against any and all claims, liens (including, without
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limitation, mechanic's and materialman's liens), actions, suits,
proceedings, costs, expenses, damages or other liabilities, including,
without limitation, attorneys' fees and court costs, all as incurred,
arising out of the actions of Purchaser, and its employees, agents,
representatives and contractors, pursuant to the terms of this Section 6.1.
Purchaser, its contractors and representatives shall keep confidential any
and all information, documents and reports obtained or prepared by them
relating to the Subject Properties in accordance with the terms and
conditions of the Confidentiality Agreement. At Seller's request, Purchaser
shall furnish to Seller copies of all studies, tests and surveys undertaken
and completed in connection with such inspections and at Seller's request
therefor, certify same to Seller; and
(d) prior to entering the Real Property and Improvements, Purchaser
shall deliver to Seller a certified copy of an insurance policy or policies
or a certificate of insurance, in form acceptable to Seller, to evidence
general comprehensive liability coverage (bodily injury and property
damage) in the amount of $2,500,000.00 combined single limit, which policy
or policies shall name Seller as an additional insured, covering the Real
Property and Improvements.
The terms of this Section 6.1 shall survive the Closing or the termination
of this Contract.
6.2 Condition of Subject Properties. In the event that Purchaser, during
-------------------------------
the Inspection Period, disapproves of the condition of the Subject Properties or
the Submission Items, in its sole, absolute and arbitrary discretion, Purchaser
may terminate this Contract by delivering, prior to the expiration of the
Inspection Period, written notice to Seller specifically and unequivocally
terminating this Contract ("Notice of Termination"). In such event, Purchaser
shall be entitled to a return of the Deposit, and no party hereto shall have any
further obligations hereunder, except Purchaser's liabilities under Section 6.1
and Article 10 hereof and under the terms of the Confidentiality Agreement. In
the event that Purchaser fails within the Inspection Period to give the Notice
of Termination, Purchaser shall be deemed to have accepted the condition of the
Subject Properties and the Submission Items, and Purchaser may not thereafter
terminate this Contract by reason of the Submission Items or the condition of
the Subject Properties as of the expiration of the Inspection Period; subject,
however, to Purchaser's obligations under Section 8.3 hereof. If Purchaser
notifies Seller within the Inspection Period that Purchaser approves the
condition of the Subject Properties and the Submission Items, then Purchaser
shall be deemed to have waived Purchaser's right to terminate under this Section
6.2, and
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Purchaser may not thereafter terminate this Contract by reason of the condition
of the Subject Properties or the Submission Items.
ARTICLE 7
DAMAGE OR DESTRUCTION PRIOR TO THE CLOSING
------------------------------------------
7.1 Damage or Destruction. Until Closing, the risk of loss or damage to
---------------------
the Subject Properties by fire or other casualty is assumed by Seller, but
without any obligation on the part of Seller to repair or replace any such loss
or damage unless Seller elects to do so as hereinafter provided. Seller shall
notify Purchaser ("Seller's Notice") of the occurrence of any such loss or
damage to any of the properties comprising the Real Property and Improvements
(the "Damaged Property") within ten (10) days after such occurrence or by the
Closing Date, whichever first occurs. If the estimated cost of repair,
replacement or restoration of such loss or damage (as defined in Section 7.3
hereof) to the Damaged Property is equal to or in excess of ten percent (10%) of
that portion of the Purchase Price allocated to the Damaged Property, as set
forth on Exhibit B, Purchaser may, upon notice to Seller, terminate this
Contract as to the Damaged Property only, in which event this Contract shall he
amended to (a) remove the Damaged Property from the Real Property and
Improvements to be sold under the terms of this Contract; and (b) reduce the
Purchase Price by the amount allocated to the Damaged Property, as set forth on
Exhibit B attached hereto. If Purchaser does not elect to terminate this
Contract as to the Damaged Property, Seller shall have the option to either (i)
make such repairs and restorations to substantially the condition as of the date
of the expiration of the Inspection Period, and Seller's Notice shall set forth
an adjourned date for Closing as to the Damaged Property only, it being
understood and agreed that Seller and Purchaser shall proceed to complete the
transaction contemplated by this Contract as to the remaining properties
comprising the Real Property and Improvements in accordance with the terms of
Section 9.1 hereof; or (ii) complete the transaction contemplated by this
Contract in accordance with the terms hereof without reduction of the Purchase
Price; provided, however, Seller shall turn over to Purchaser at the Closing the
-------- -------
net proceeds actually collected by Seller under the provisions of the hazard
insurance policies maintained by Seller, to the extent that they are
attributable to loss of or damage to the Damaged Property, less any reasonable
sums theretofore expended by Seller in collecting such proceeds or in repairing
or replacing such loss or damage, after first submitting to Purchaser for its
approval all contracts for such repair or replacement, except under emergency
circumstances, in which case such prior approval is not required, and Seller
will assign to Purchaser at Closing any contracts executed by Seller in
connection with such repair or replacement.
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7.2 Purchaser's Option Less than Amount. If the estimated cost of repair,
-----------------------------------
replacement or restoration of such loss or damage to the Damaged Property is
less than ten percent (10%) of that portion of the Purchase Price allocated to
the Damaged Property, as set forth on Exhibit B attached hereto, and Seller does
not elect to make such repairs and restorations, Purchaser shall complete the
purchase in accordance with Section 7.1 (ii) above.
7.3 Estimated Cost of Repair, Replacement and Restoration. The terms
-----------------------------------------------------
"estimated cost of repair, replacement and restoration" or "estimated value of
such portion of the Damaged Property to be taken", as such terms are used in
this Article 7, shall mean a firm bid (i.e. a maximum guaranteed price which is
assignable by Seller to Purchaser without the contractor's consent) for the
actual cost of repair and restoration obtained by Seller, within twenty (20)
days of receipt of Seller's Notice, from a reputable contractor regularly doing
business in the locality where the Damaged Property is located.
7.4 Condemation. If a part or parts of any of the properties comprising the
-----------
Real Properly and/or the Improvements (the "Condemned Property") is taken prior
to the Closing by any governmental or quasi-governmental body or agency in the
exercise of the power of eminent domain and such loss permanently and materially
impairs the current use of the Condemned Property, then either party, upon
notice to the other, may terminate this Contract as to the Condemned Property,
but not otherwise, in which event this Contract shall be amended to (i) remove
the Condemned Property from the Subject Properties to be sold under the terms of
this Contract; and (ii) reduce the Purchase Price by the amount allocated to the
Condemned Property, as set forth on Exhibit B attached hereto; and (iii) all
condemnation awards and proceeds shall be paid to Seller. If neither Seller nor
Purchaser elects to terminate this Contract as to the Condemned Property, then
the Closing shall occur in accordance with the terms of this Contract, without
reduction of the Purchase Price, and all condemnation awards and proceeds shall
be paid to Purchaser.
ARTICLE 8
CONDITION OF PROPERTY
---------------------
8.1 CONDITION OF PROPERTY. IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT
---------------------
PURCHASER SHALL ACCEPT THE CONVEYANCE OF THE SUBJECT PROPERTIES IN THEIR PRESENT
CONDITION, "AS-IS, WHERE-IS," SUBJECT TO ALL PATENT AND LATENT DEFECTS AND ALL
FAULTS, IF ANY, WITH NO REPRESENTATION OR WARRANTY BY SELLER AS TO THEIR
FITNESS, SUITABILITY, MARKETABILITY, MERCHANTABILITY, HABITABILITY, OR
USABILITY, INCLUDING, BUT
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NOT LIMITED TO, (I) THE QUALITY OR CONDITION OF THE IMPROVEMENTS AND THE REAL
PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY, (II) THE
MANNER OF OPERATING THE SUBJECT PROPERTIES AND THE EXPENSES RELATED THERETO, AND
(III) THE COMPLIANCE OF THE SUBJECT PROPERTIES WITH ANY LAWS, RULES, ORDINANCES
OR REGULATIONS OF ANY GOVERNMENTAL BODY; AND (IV) THE NATURE AND EXTENT OF ANY
SERVITUDES, RIGHTS-OF-WAY, LEASES, POSSESSION, LIENS, ENCUMBRANCES, LICENSES,
RESERVATIONS, CONDITIONS OR OTHERWISE. PURCHASER ACKNOWLEDGES THAT IT IS NOT
RELYING UPON ANY REPRESENTATION, WARRANTY, STATEMENT, OR OTHER ASSERTION WITH
RESPECT TO THE CONDITION OF THE SUBJECT PROPERTIES MADE BY SELLER AND ACCEPTS
THE SUBJECT PROPERTIES UNDER THE EXPRESS UNDERSTANDING THAT THERE ARE NO EXPRESS
OR IMPLIED WARRANTIES MADE BY SELLER WITH RESPECT TO THE CONDITION OR VALUE OF
THE SUBJECT PROPERTIES (EXCEPT FOR LIMITED WARRANTIES OF TITLE SET FORTH IN ANY
OF THE CLOSING DOCUMENTS). PURCHASER DECLARES THAT IT IS EXPERIENCED IN THE
OWNERSHIP AND OPERATION OF PROPERTIES SIMILAR TO THE SUBJECT PROPERTIES
INCLUDING SPECIFICALLY THE CAPSTAR HOTELS, AND THEREFORE ACKNOWLEDGES THAT IT
WILL RELY SOLELY ON ITS OWN INVESTIGATION AND EXAMINATION OF THE SUBJECT
PROPERTIES, WHICH IT WAS QUALIFIED TO MAKE, AND NOT ON ANY INFORMATION PROVIDED
OR TO BE PROVIDED BY SELLER. SELLER MAKES NO REPRESENTATION AS TO ANY
ENVIRONMENTAL MATTERS RELATING TO THE SUBJECT PROPERTIES INCLUDING, WITHOUT
LIMITATION, SUBSURFACE WATER AND SOIL CONDITIONS, PURCHASER HAVING BEEN GIVEN
THE OPPORTUNITY TO INSPECT THE SUBJECT PROPERTIES PRIOR TO ITS EXECUTION HEREOF
TO SATISFY ITSELF THAT THERE ARE NO HAZARDOUS MATERIALS (DEFINED IN THIS SECTION
8.1) ON OR IN THE SUBJECT PROPERTIES THAT WOULD CAUSE EITHER STATE OR FEDERAL
AGENCIES TO ORDER A CLEANUP OF THE SUBJECT PROPERTIES UNDER ANY ENVIRONMENTAL
LAW. AS USED HEREIN, THE TERM "ENVIRONMENTAL LAW" SHALL MEAN AND INCLUDE
COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT, 42 U.S.C.
6901, ET SEQ., RESOURCE CONSERVATION AND RECOVERY ACT 42 U.S.C. 6901, ET SEQ.
AND ALL OTHER SIMILAR EXISTING AND FUTURE FEDERAL, STATE AND MUNICIPAL STATUTES,
RIDES, REGULATIONS AND ORDINANCES GOVERNING THE ENVIRONMENT OR THE GENERATION,
DISPOSAL OR STORAGE OF ANY HAZARDOUS MATERIALS, ALL AS AMENDED FROM TIME TO
TIME, AND ALL RULES AND REGULATIONS PROMULGATED THEREUNDER. THE TERM "HAZARDOUS
MATERIALS" SHALL MEAN AND INCLUDE ASBESTOS, POLYCHLORINATED BIPHENYLS, PETROLEUM
PRODUCTS AND ANY OTHER HAZARDOUS OR TOXIC MATERIALS, WASTES AND SUBSTANCES THAT
ARE DEFINED AS SUCH IN ANY ENVIRONMENTAL LAW. SELLER MAKES NO REPRESENTATION AS
TO THE CONDITION OR VALUE OF THE SUBJECT PROPERTIES. PURCHASER HEREBY WAIVES AND
RELEASES SELLER OF AND FROM ANY CLAIMS, ACTIONS, CAUSES OF ACTION, DEMANDS,
RIGHTS, LIABILITIES, OBLIGATIONS, DAMAGES, COSTS, EXPENSES OR COMPENSATION
WHATSOEVER, DIRECT OR INDIRECT, KNOWN OR UNKNOWN, FORESEEN OR UNFORESEEN, THAT
PURCHASER NOW HAS OR THAT MAY ARISE IN THE FUTURE ON ACCOUNT OF OR IN ANY WAY
GROWING OUT OF OR IN CONNECTION WITH THE ECONOMIC, PHYSICAL OR ENVIRONMENTAL
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CONDITION OF THE SUBJECT PROPERTIES, OR ANY ENVIRONMENTAL LAW OR APPLICABLE
REGULATION. PURCHASER ACKNOWLEDGES THAT PURCHASER IS ASSUMING THE RISK OF SUCH
UNKNOWN AND UNANTICIPATED CLAIMS AND AGREES THAT THIS RELEASE APPLIES THEREON.
AS THIS CONTRACTS RELATES TO THE SACRAMENTO PROPERTY AND THE SANTA BARBARA
PROPERTY, PURCHASER EXPRESSLY WAIVES THE BENEFITS OF SECTION 1542 OF THE
CALIFORNIA CIVIL CODE, WHICH READS AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
THE PROVISIONS OF THIS SECTION 8.1 SHALL BE CONTAINED IN EACH OF THE DEEDS TO BE
DELIVERED TO PURCHASER AT CLOSING, SHALL SURVIVE CLOSING AND THE FUTURE TRANSFER
OF ANY OR ALL OF THE SUBJECT PROPERTIES BY PURCHASER.
8.2 PURCHASER'S ADDITIONAL WAIVERS. PURCHASER AGREES THAT SELLER SHALL NOT
-------------------------------
BE RESPONSIBLE OR LIABLE TO PURCHASER FOR ANY CONSTRUCTION DEFECTS, ERRORS,
OMISSONS OR ON ACCOUNT OF ANY OTHER CONDITIONS AFFECTING THE SUBJECT PROPERTIES,
AS PURCHASER IS PURCHASING THE SUBJECT PROPERTIES AS IS, WHERE IS AND WITH ALL
FAULTS. PURCHASER OR ANYONE CLAIMING, BY, THROUGH OR UNDER PURCHASER, HEREBY
FULLY RELEASES SELLER, ITS EMPLOYEES, OFFICERS, DIRECTORS, REPRESENTATIVES AND
AGENTS FROM ANY AND ALL CLAIMS THAT IT MAY NOW HAVE OR HEREAFTER ACQUIRE AGAINST
SELLER, ITS EMPLOYEES, OFFICERS, DIRECTORS, REPRESENTATIVES AND AGENTS FOR ANY
COST, LOSS, LIABILITY, DAMAGE, EXPENSE, DEMAND, ACTION OR CAUSE OF ACTION
ARISING FROM OR RELATED TO ANY CONSTRUCTION DEFECTS, ERRORS, OMISSIONS, OR OTHER
CONDITIONS AFFECTING THE SUBJECT PROPERTIES. PURCHASER FURTHER ACKNOWLEDGES AND
AGREES THAT THIS RELEASE SHALL BE GIVEN FULL FORCE AND EFFECT, ACCORDING TO EACH
OF ITS EXPRESSED TERMS AND PROVISIONS, INCLUDING, BUT NOT LIMITED TO, THOSE
RELATING TO UNKNOWN AND UNSUSPECTED CLAIMS, DAMAGES AND CAUSES OF ACTION.
8.3 Management of Properties. Seller agrees that it will (a) continue to
------------------------
cause the Hotels that comprise the Subject Properties to be managed and operated
to the Closing Date in the ordinary course of business in a manner consistent
with the manner currently being practiced, and (b) operate the Hotels pursuant
to the operating budgets currently in effect, subject to the terms of the
immediately following sentence; and Purchaser agrees to cause CapStar to
continue to do likewise with regard to the CapStar Hotels.
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Notwithstanding the terms of the immediately preceding sentence, it is expressly
understood and agreed that during the pendency of this Contract, Seller will not
fund any reserves for replacement, reserves for furniture, fixtures or
equipment, or capital improvements to the CapStar Hotels, which agreement shall
extend to the Washington, D.C. Property if CapStar succeeds to the management
thereof, as contemplated in Section 8.4 hereof, except that Seller agrees that
it will fund reserves for Emergency Items only. For purposes of this Section
8.3, the term "Emergency Items" shall mean and refer to any items required for
the continued operation of the Hotels in the ordinary course of business,
provided that such items are not listed on the 1996 Capital Budgets attached
hereto as Exhibit J and made a part hereof for all purposes. Seller shall have
no obligation to Purchaser, whether under emergency circumstances or otherwise,
to fund reserves for any of the items listed on the 1996 Capital Budgets
attached hereto as Exhibit J during the pendency of this Contract.
Seller makes no representations and assumes no responsibility with respect
to continued occupancy of the Real Property and the Improvements, or any part
thereof, by any tenant now in possession under the terms of any of the Leases.
Prior to the Closing, Seller shall be entitled, but not obligated, to enforce
the rights under any Lease in any court having jurisdiction over such matter.
The removal by Seller of a tenant that is in default under its lease shall not
give rise to any claim on the part of Purchaser or affect this Contract in any
manner whatsoever.
From and after the expiration date of the Inspection Period, Seller shall
not, except in the ordinary course of business, enter into any mortgage,
security agreement, easement, restrictive covenant, or lease affecting the Real
Property and Improvements, without the prior written consent of Purchaser, which
consent shall not be unreasonably withheld.
8.4 Embassy Row Hotel Management. Seller agrees that provided Purchaser
----------------------------
does not terminate this Contract pursuant to the terms of Section 6.1 hereof and
provided Purchaser has delivered the Additional Deposit to Escrow Agent, in
accordance with the terms of Section 3.2 hereof, Seller shall, at its option,
either (i) cause the Operator under the Embassy Row Operating Agreement to
assign to CapStar all of its rights and interests thereunder; subject, however,
to the notice provisions contained in said Embassy Row Operating Agreement; or
(ii) enter into a new agreement with CapStar for the management of the
Washington, D.C. Property, on substantially the same terms as the Embassy Row
Operating Agreement, which new management agreement will automatically terminate
at Closing. Purchaser, and its affiliate CapStar, have reviewed the Embassy Row
Operating Agreement and agree that upon CapStar's assumption of the Operator's
position under the
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Embassy Row Operating Agreement, CapStar will operate the Washington, D.C.
Property until the Closing Date pursuant to all of the terms thereof applicable
to the Operator thereunder; subject, however to the provisions of Section 8.3
hereof regarding the non-funding of reserves during the pendency of this
Contract. Seller and Purchaser further agree that any management fees payable to
Operator under the terms of the Embassy Row Operating Agreement which are based
on performance standards of Operator shall be prorated from the date that
CapStar takes over the management and operation of the Embassy Row Hotel. Seller
shall promptly after the Effective Date (a) deliver to the Operator the 90-day
termination notice required under the terms of the Embassy Row Operating
Agreement; and (b) undertake to effect the assignment from Operator to CapStar
contemplated in clause (i) immediately preceding prior to the expiration of the
90-day notice period. If Seller is required to pay the Operator consideration
for its waiver of the 90-day notice, CapStar agrees, as evidenced by its
joinder in the execution of this Contract, to waive its management fees for the
period of time in which Seller is required to pay the Operator, which waiver
shall extend until the later to occur of September 1, 1996 or the first day of
the month following the expiration of the 90-day notice period.
8.5 Liquor Licenses. The respective liquor licenses currently in effect at
---------------
the Hotels will not be assigned to Purchaser at Closing. Therefore, it is
Purchaser's sole obligation and responsibility to obtain a liquor license for
each of the Hotels, at Purchaser's sole cost and expense. If requested by
Purchaser, Seller will reasonably cooperate (at no cost or expense to Seller)
with Purchaser's attempts to satisfy all liquor license requirements so that no
lapse in licensing will occur on or after the Closing, including, without
limitation, entering into leases or concession agreements, as applicable, with
the present holders of the liquor licenses, provided that (a) each of such
leases or concession agreements shall be in effect for a term not to exceed
ninety (90). days after the Closing Date, and (b) shall contain an indemnity in
favor of Seller, in form acceptable to Seller. However, Purchaser's failure to
obtain a liquor license for any one or all of the Hotels is not a condition or
contingency to Purchaser's obligation to close the transaction contemplated
hereby, and Seller shall incur no liability for any reason, whether or not it is
asked to cooperate, due to Purchaser's failure to obtain liquor licenses
effective as of the Closing.
8.6 Hart-Scott-Rodino Compliance. If, and to the extent applicable, the
----------------------------
obligations of the parties under this Contract are contingent upon obtaining on
or before the Closing Date all necessary consents or the passing of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended ("HSR"). The parties agree to use all reasonable efforts and
to act in good faith to perform their
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respective obligations under HSR and shall in any event make their
respective filings no later than ten (10) business days after the
expiration of the Effective Date. All HSR filing fees (the "HSR Filing
Fees") shall be paid by Purchaser. If, on or before the Closing Date, the
parties are unable to obtain the consents required under HSR, or if the
applicable waiting period has not passed, the Closing shall be
automatically extended for such period of time, not to exceed sixty (60)
days, in order to provide for receipt of such approval or passage of such
waiting period. If after the expiration of such period, not to exceed
sixty (60) days, such approval has not been obtained or such waiting period
has not passed, then this Contract shall automatically terminate, Escrow
Holder shall deliver the Deposit to Purchaser and the parties shall
thereafter have no further rights or liabilities under this Contract other
than the payment of the HSR Filing Fees, except as set forth in Section 6.1
and Article 10 hereof and under the terms of the Confidentiality Agreement.
The terms of this Section 8.5 shall not apply if Purchaser demonstrates to
Seller's reasonable satisfaction that HSR is inapplicable to the
transaction contemplated by this Contract.
8.7 Marketing Restrictions. During the pendency of this Contract,
----------------------
Seller agrees that it shall not (i) actively market for any sale any one or
all of the properties comprising the Subject Properties to any prospective
purchasers thereof; or (ii) actively solicit offers from third parties
relating to the sale and purchase of any one or all of the properties
comprising the Subject Properties. Seller's failure to comply with the
terms of this Section 8.7 shall constitute a Seller's Default under the
terms of Section 11.3 hereof.
ARTICLE 9
CLOSING
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9.1 Date of Closing. The Closing hereunder shall take place at the
----------------
offices of Escrow Holder or, upon the agreement of the parties, the Closing
may be accomplished by mail by written instructions to Escrow Holder. The
Closing shall occur on December 17, 1996 (the "Closing Date"); provided,
however, at Purchaser's option, Purchaser may schedule an earlier Closing
Date (the "Earlier Closing Date") on the following terms and conditions:
(i) Purchaser shall provide to Seller fifteen (15) days
prior written notice of the scheduled Earlier Closing
Date;
(ii) At the Closing on the Earlier Closing Date, Purchaser
shall pay to Seller, as additional consideration, an
amount equal to Five Hundred Thirty-nine Thousand and
No/100 Dollars ($539,000) for each thirty (30) day
period, including any pro rata portion thereof, prior
to December 17, 1996 that the Earlier Closing Date is
scheduled and Closing takes place (or, if less than all
the properties comprising the Real Property and
improvements are conveyed at the Earlier Closing Date,
a reduction of such amount, as mutually agreed upon by
Seller and Purchaser shall be made); and
(iii) All other terms and conditions of this Contract shall
remain in full force and effect.
9.2 Delivery of Items At Closing By Seller. At the Closing, Seller
--------------------------------------
shall deliver into escrow with Escrow Holder each of the following items:
(a) Grant Deeds conveying fee simple title in and to the
Sacramento Property and Santa Barbara Property, respectively, and
Special Warranty Deeds conveying fee simple title in and to the
Colorado Springs Property and the Lafayette Property, respectively,
and a Special Warranty Deed conveying the leasehold estate
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of Seller created by the Ground Lease in and to the Washington, D.C.
Property (collectively, the "Deeds"). The Deeds shall be in the form
attached hereto and labeled Exhibit C; provided, however, each Deed shall
be conformed to comply with applicable statutory requirements for the
conveyance of real property. The Deeds will be duly executed and
acknowledged by Seller and in form for recording subject only to the
Permitted Exceptions;
(b) a Blanket Conveyance, Bill of Sale and Assignment in the form
attached hereto and labeled Exhibit D, duly executed and acknowledged by
Seller, conveying to Purchaser the property described therein, with special
warranty of title, subject only to the Permitted Exceptions;
(c) a Closing Memorandum and Indemnification Agreement (the "Closing
Memorandum") in the form attached hereto and labeled Exhibit E;
(d) a letter in the form attached hereto and labeled Exhibit C to be
addressed to each tenant under the Leases advising such tenant that the
Hotel in question has been sold to Purchaser and that Purchaser has assumed
the obligation to refund such tenant's security deposit, if any, in
accordance with such Lease, with the exact amount of the deposit specified
for such tenant;
(e) all keys t all locks to the Improvements on the Subject Properties
in the possession of Seller or on-site at the Hotels;
(f) as to the Sacrament Property and the Santa Barbara Property only,
a certification executed by Seller similar to that described in clause (g)
immediately following, which is required to avoid withholding under the
terms of the California Revenue and Taxation Code;
(g) a certification in the form attached hereto and labeled Exhibit G,
executed by Seller containing the following:
(i) the Seller's U.S. Taxpayer Identification Number;
(ii) the business address of Seller; and
(iii) a statement that Seller is not a foreign person within
the meaning of Sections 1445 and 7701 of the Internal
Revenue
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<PAGE>
Code ("IRC") (i.e., Seller is not a nonresident alien,
foreign corporation, foreign partnership, foreign trust
or foreign estate as those terms are defined in the IRC
and applicable Income Tax Regulations);
(h) Closing Statements prepared by Seller and/or Escrow Holder duly
executed by Seller;
(i) a Seller's Affidavit of Title in a form prepared by Seller and
approved by Escrow Holder and such other affidavits as Escrow Holder may
reasonably request; and
(j) deliver to Escrow Holder such evidence or documents as may
be reasonably required by Escrow Holder evidencing the status and
capacity of Seller and the authority and consent of the person or
persons who are executing the various documents on behalf of Seller in
connection with the sale of the Subject Properties.
(k) evidence reasonably acceptable to Purchaser that the Embassy
Row Operating Agreement is terminated;
(l) originals of any Leases, books, records, plans, drawings,
specifications, surveys, engineering reports and other technical
descriptions relating to the Real Property or Improvements in Seller's
possession or on-site at the Hotels;
(m) an estoppel certificate executed by the Ground Lessor (the
"Ground Lease Estoppel") containing the information required to be
given by Ground Lessor under the terms of the Ground Lease.
Purchaser's obligation to close the transaction contemplated hereby is
conditioned and contingent upon Seller delivering the Ground Lease
Estoppel to Purchaser at Closing; subject, however, to the terms of
Section 5.1 (a) hereof. The Ground Lease Estoppel shall be dated no
earlier than forty-five (45) days prior to Closing, and Seller shall
have no obligation to update the Ground Lease Estoppel at Closing; and
(n) any documents required to comply with applicable local law
requirements for the sale of commercial real estate in the respective
states in which the Real Property and Improvements are located.
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9.3 Delivery of Items at Closing By Purchaser. At the Closing,
-----------------------------------------
Purchaser shall:
(a) deliver to Seller the Purchase Price, subject to prorations
and similar items;
(b) deliver to Escrow Holder such evidence or documents as may
be reasonably required by Escrow Holder evidencing the status and
capacity of Purchaser and the authority of the person or persons who
are executing the various documents on behalf of Purchaser in
connection with the acquisition of the Subject Properties;
(c) deliver to Seller a separate letter in the form of Exhibit I
attached hereto and made a part hereof, duly executed by Purchaser,
confirming that Purchaser is not acquiring the Subject Properties with
the assets of an employee benefit plan, as defined in Section 3(3) of
The Employee Retirement Income Security Act of 1974 ("ERISA"), and in
the event Purchaser is unable or unwilling to make such a representation,
Purchaser shall be deemed to be in default hereunder and Seller shall
have the right to terminate this Contract and to receive the Deposit;
(d) join Seller in execution of the documents described in
Sections 9.2 (b), (c), (d) and (n); and
(e) join Seller in the execution of any Closing Statements
prepared by Seller and/or Escrow Holder.
9.4 Credits and Prorations.
-----------------------
(a) On the evening before the Closing Date, Seller shall cause
to be compiled a list of all accounts receivable from guests then
occupying or using the Hotels (the "Guest Ledger Accounts") and a list
of all accounts receivable from guests previously occupying or using
the Hotels which are not included in the Guest Ledger Accounts (the
"City Ledger Accounts"). Except as hereinafter provided, such Guest
Ledger Accounts and City Ledger Accounts shall remain the property of
Seller, and Seller shall be entitled to collect same for its own
account; and any and all amounts collected by Purchaser pursuant to
the Guest Ledger Accounts which are in payment for occupancy for the
period prior to the Closing Date shall be paid to Seller upon
Purchaser's receipt thereof. The Guest Ledger Accounts for the evening
prior to Closing shall be divided evenly between Seller and Purchaser,
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and at Closing Seller shall receive a credit for its share of such
amounts. All other accounts receivable accruing after 12:01 a.m. on
the Closing Date shall be the property of Purchaser.
(b) On the evening before the Closing Date, representatives of
Seller and Purchaser shall cause to be compiled an inventory of
unopened food and beverage items at each of the Hotels as of the time
such inventory is conducted. At Closing, Purchaser shall reimburse
Seller for the cost of the food and beverage items listed on such
inventory.
(c) At the Closing, the following items shall be adjusted and
prorated between Seller and Purchaser on a per diem basis as of
12:01 a.m. on the Closing Date:
(i) Rents and other charges payable under the Leases. For
purposes hereof, all rents and other charges payable
under the Leases for the calendar month in which the
Closing occurs shall be prorated on the basis of sums
actually collected by Seller prior to the Closing,
which rents shall first be applied to current monthly
charges, with any balance to be applied to arrears for
prior months. All rent collections prior to the Closing
shall be first applied to arrears for prior months,
with any balance to be applied to current monthly
charges. From and after Closing, all rent collections
shall be first applied to current monthly charges, with
the balance, if any, to be applied to arrears for prior
months. After the Closing, Purchaser shall have a duty
and obligation to Seller to remit such unpaid rents and
other charges to Seller when collected by Purchaser.
Purchaser shall use reasonable efforts to collect any
such unpaid rents or other charges in arrears. The
provisions of this Section 9.4(c)(i) shall survive the
Closing.
(ii) Payments under the Miscellaneous Contracts assumed by
Purchaser on the basis of the actual payments owed
thereunder. If the actual payments owed under the
Miscellaneous Contracts are not known at the Closing,
the proration of such payments shall be made on the
basis of the best evidence then available and
thereafter adjusted when the
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<PAGE>
actual amount of such payments are ascertainable.
Seller shall exercise reasonable efforts to pay the
Miscellaneous Contracts and current payables through
the Closing Date.
(iii) Real estate, ad valorem and personal property taxes,
sewer rents and charges, and other state, county and
municipal taxes, charges and assessments (special or
otherwise) which may be paid in installments shall be
prorated on the basis of the calendar year for which
the same are levied, imposed or assessed, any
apportionment of such taxes to be made with respect to
a tax year for which either the tax rate or assessed
valuation or both have not yet been fixed, to be upon
the basis of the tax rate and/or assessed valuation
last fixed; provided that the parties hereto agree that
to the extent the actual taxes for the current year
differ from the amount so apportioned at the Closing,
the parties hereto will make all necessary adjustments
by appropriate payments between themselves following
the Closing, and this provision shall survive Closing.
Seller shall pay regular installments of special
assessments that have become due prior to the Closing.
All installments of special assessments or portions due
on or after the Closing shall be assumed and paid by
Purchaser. Any fees paid or payable to Seller's tax
representative for the purpose of reducing the taxes
described in this clause (iii) for the year in which
the Closing occurs shall be prorated at Closing as
herein provided, including without limitation,
contingency fees of service providers and counsel
employed in that regard.
(iv) Charges for water, electricity, gas and other
utilities. The consumption of all water, electricity,
gas and other utilities is measured by meter, and
Seller shall furnish a current reading of each meter at
the Closing, which readings shall have been made either
as of 12:01 a.m. on the Closing Date or as close to the
Closing as reasonably possible, and in any event Seller
shall be responsible for paying charges therefor to
12:01 a.m. on the Closing Date or submitting proof that
such charges were previously paid. In the event meter
readings current as of 12:01 a.m. on the Closing Date
are not available at Closing,
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<PAGE>
then Seller shall pay at Closing the charges to the
date of the most recent reading or submit proof that
such charges were previously paid, and the parties
further agree to notify the utility companies to read
the meters as soon as possible after Closing and adjust
and prorate such utility charges when the actual
readings are available.
(v) Guest room revenues in the manner set forth in Section
9.4(a) above.
(vi) Parking revenues, restaurant revenues, rents under the
Leases and other revenues from the Subject Properties
which are not provided for in Section 9.4(a) (herein
referred to as "Other Income" ).
(vii) Any other trade accounts, accounts payable and
operating expenses (including specifically, without
limitation, room revenue assessments and hotel/motel
taxes) of the Subject Properties incurred during the
month in which Closing occurs.
(d) In making such apportionments, Seller shall be entitled to
Other Income paid with respect to the period prior to the Closing
Date, and Seller shall be responsible for taxes and other expenses
incurred with respect to the period prior to the Closing Date. All
such apportionments shall be subject to post-Closing adjustments as
necessary to reflect later relevant information not available at
Closing and to correct any errors made at Closing with respect to such
apportionments; provided, however, that such apportionments shall be
deemed final and not subject to further post-Closing adjustments if no
such adjustments have been requested after a period of ninety (90)
days from such time as all necessary information is available to make
a complete and accurate determination of such apportionments. The
provisions of this Section 9.4(d) shall survive the Closing.
(e) Anything hereinabove contained to the contrary
notwithstanding:
(i) As to any arrears of Other Income at the time of the
Closing, Seller and Purchaser agree that moneys
received by Purchaser from guests of the Hotels or
tenants of the Real Property and
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<PAGE>
Improvements owing such past due or Other Income shall
be applied in accordance with the provisions of the
Closing Memorandum. After Closing, Seller may pursue
the collection of any past due Other Income directly
against the party liable for payment of same, and
Purchaser shall cooperate with Seller in all reasonable
ways in obtaining the collection of such sums.
(ii) At Closing, Seller shall credit to the account of
Purchaser against the Purchase Price (a) any security
deposits held by Seller delivered pursuant to any
Leases executed by Seller or Seller's predecessors-in-
interest, as lessor, which will continue in effect
after Closing; and (b) any Prepaid Accounts, except
cash in house banks in the respective tills of the
Hotels, which will be credited to Seller pursuant to
clause (iii) immediately following.
(iii) Seller shall receive a credit at Closing in an amount
equal to the cash in house banks in the respective
tills of the Hotels on the Closing Date.
(iv) If and to the extent additional rent under Leases due
and payable by tenants for increases in ad Valorem
taxes and/or operating expenses for the calendar year
in which Closing occurs and any preceding calendar year
are not billed, collected and apportioned at the
Closing, Seller and Purchaser agree that the provisions
of the Closing Memorandum shall govern and control.
(v) Charges, or portions thereof, referred to in this
Section 9.4, other than Other Income, as described in
Section 9.4(c)(vi) above, which are payable solely and
directly by any tenants under Leases, shall not be
apportioned hereunder and Purchaser shall accept title
subject to any of such unpaid charges, and Purchaser
shall look solely to the tenant responsible therefor
for the payment of the same. Seller agrees to deliver
to Purchaser at Closing an itemized list of such unpaid
charges. If Seller shall have paid any of such
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charges on behalf of any tenant, and shall not have
been reimbursed therefor by the time of Closing, the
reimbursement of such charges shall be treated as
delinquent rent which shall be recovered by Seller in
accordance with the provisions of the Closing
Memorandum.
(f) Seller shall receive a credit at Closing in an amount equal
to any transferable deposits paid by Seller pursuant to the terms of
any of the Miscellaneous Contracts assigned to Purchaser at Closing
pursuant to the terms hereof. If any provider of a public utility to
the Subject Properties is holding deposits as of the Closing Date
which are not transferred to Purchaser at Closing, Seller shall retain
all right to the return of any of such deposits.
9.5 Purchaser's Costs. Purchaser shall pay for the following:
------------------
(a) the base premium charges and surcharges for any endorsements
or other modifications for the Title Policies to be issued to
Purchaser;
(b) the costs for preparation of the surveys for the Lafayette
Property, the Colorado Springs Property and the Washington D.C.
Property and any additional costs for updating or recertifying any of
the Surveys;
(c) all escrow fees and any and all other title related fees
charged by Escrow Holder;
(d ) costs of recording all documents delivered by Seller to
Purchaser or by Purchaser to Seller at the Closing;
(e) the attorneys' fees of Purchaser's counsel in connection
with or relating to the transactions contemplated by this Contract;
(f) one-half (1/2) all deed stamps, documentary stamp taxes,
intangible taxes and other transfer taxes;
(g) any mortgage, conveyance.and tax certificate fees charged by
Escrow Holder; and
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(h) any other expenses not expressly stipulated herein as
expenses to be paid by Seller.
9.6 Seller's Costs. At Closing, Seller shall pay for the following:
--------------
(a) one-half (1/2) of all deed stamps, documentary stamp taxes,
intangible taxes and other transfer taxes;
(b) any charges for obtaining the Commitments; and
(c) the attorneys' fees of Seller's counsel in connection with
or relating to the transactions contemplated by this Contract.
9.7 Representations and Warranties of Purchaser. Purchaser hereby
--------------------------------------------
represents and warrants to Seller as follows:
(a) Purchaser is not acquiring the Subject Properties with the
assets of an employee benefit plan as defined in Section 3(3) of
ERISA; and
(b) Purchaser has the full right, power and authority to
purchase the Subject Properties as provided in this Contract and to
carry out Purchaser's obligations hereunder, and all requisite action
necessary to authorize Purchaser to enter into this Contract and to
carry out its obligations hereunder have been, or by the Closing, will
have been taken.
9.8 Covenants of Purchaser. Purchaser hereby covenants with Seller as
------------------------
follows:
(a) Purchaser shall pay any and all transfer fees or termination
fees, if applicable, incurred in connection with the transfer and/or
termination of any of the Miscellaneous Contracts (collectively, the
"Transfer Fees"). Purchaser agrees to indemnify, defend, save and
hold harmless Seller, its successors and assigns, against any and all
claims, actions, suits, proceedings, costs, expenses, damages or other
liabilities, including attorneys' fees and court costs, arising as a
result of or with respect to Purchaser's failure to (i) pay the
Transfer Fees, or (ii) perform the duties and obligations of
Purchaser, as assignee of Seller, under the terms of any of the
Miscellaneous Contracts. Seller shall have the right to require that
Purchaser provide to Seller at Closing such security as Seller may
reasonably request (e.g. an escrow account maintained with Escrow
Holder, a letter of credit, etc. ) to insure
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that all Transfer Fees, if any, are paid in a timely manner and that
Purchaser, as assignee of Seller, performs the duties and obligations
of Purchaser under the terms of the Miscellaneous Contracts.
(b) Purchaser shall have fully performed each and every one of
its obligations to be performed under this Contract and each of the
representations and warranties of Purchaser shall be true and correct
as of the Closing.
9.9 Possession. Possession of the Subject Properties shall be
----------
delivered to Purchaser immediately following the Closing and the funding to
Seller of the Purchase Price, subject to the fights of tenants and others
lawfully in possession, to the extent same constitute Permitted Exceptions.
9.10 Safe Deposit Boxes and Luggage. Seller shall cause the
----------------------------------
respective managers of each of the Hotels to prepare a list of deposit
boxes in use on the Closing Date and an inventory of all luggage held in
safekeeping for guests of the Hotels as of such date. The lists shall
contain the name and room number of each such guest. The respective
managers of each of the Hotels shall thereafter keep careful records of all
activity by guests in regard to items on such lists, including additions
and deletions and accesses to safety deposit boxes since the first list is
furnished. Seller and Purchaser shall each be entitled to have a
representative on site until the completion of the Closing to verify the
preparation of such list and all additions and deletions. Seller shall be
responsible for claims occurring on the part of guests shown on said lists
prior to the Closing Date and Purchaser shall be responsible for such
claims from and after the Closing Date.
ARTICLE 10
REAL ESTATE COMMISSION
----------------------
Seller and Purchaser hereby represent and warrant one with the other
that no real estate commissions, finders' fees or brokers' fees have been
or will be incurred in connection with this Contract or the transactions
contemplated hereby. Seller and Purchaser hereby indemnify and hold each
other harmless from and against any claims, causes of action or liabilities
including, without limitation, reasonable attorneys' fees and court costs
that may be incurre with respect to any breach of the foregoing
representation and warranty. The provisions of this Article 10 shall
survive the Closing or termination of this Contract. Seller acknowledges
that it is responsible to pay all fees to its advisor, Frank Lively, Lively
& Associates and/or Marfralis Corporation related to this Contract.
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<PAGE>
ARTICLE 11
REMEDIES OF DEFAULT
-------------------
11.1 Termination of Contract By Purchaser. If this Contract is
--------------------------------------
terminated without a default hereunder by Purchaser, then the Deposit shall
be returnedto Purchaser by Escrow Holder, and no party hereto shall have
any further obligations to any other hereunder, except for Purchaser's
obligations and liabilities under Section 6.1 and Article 10 hereof and
under the terms of the Confidentiality Agreement.
11.2 Purchaser's Default. IF PURCHASER FAILS OR REFUSES TO
--------------------
CONSUMMATE THE PURCHASE OF THE SUBJECT PROPERTIES FOR ANY REASON (INCLUDING,
WITHOUT LIMITATION, PURCHASER'S FAILURE OR REFUSAL TO EXECUTE THE DOCUMENTS
REFERENCED IN SECTION 9.3 HEREOF), OTHER THAN SELLER'S FAILURE TO TENDER
PERFORMANCE OF SELLER'S OBLIGATIONS HEREUNDER, OR TERMINATION OF THE CONTRACT
WITHOUT A DEFAULT HEREUNDER BY PURCHASE, THEN THE DEPOSIT SHALL BE DELIVERED BY
ESCROW HOLDER TO SELLER AS LIQUIDATED DAMAGES. SUCH AMOUNT IS AGREED UPON BY AND
BETWEEN SELLER AND PURCHASER AS LIQUIDATED DAMAGES DUE TO THE DIFFICULTY AND
INCONVENIENCE OF ASCERTAINING AND MEASURING ACTUAL DAMAGES AND THE UNCERTAINTY
THEREOF; AND NO OTHER DAMAGES, RIGHTS OR REMEDIES (EXCEPT AS PROVIDED IN SECTION
6.1 AND ARTICLE 10 HEREOF AND UNDER THE TERMS OF THE CONFIDENTIALITY AGREEMENT)
SHALL IN ANY CASE BE COLLECTIBLE, ENFORCEABLE OR AVAILABLE TO SELLER, BUT SELLER
SHALL ACCEPT SAID CASH PAYMENTS AS SELLER'S TOTAL DAMAGES AND RELIEF.
PURCHASER'S INITIALS \ss\ BB SELLER'S INITIALS \ss\ YMC
--------- ----------
11.3 Seller's Default. IN THE EVENT OF SELLER'S DEFAULT HEREUNDER,
----------------
THIS CONTRACT SHALL BE TERMINATED, THE DEPOSIT SHALL BE RETURNED TO PURCHASER BY
ESCROW HOLDER AND, AS ITS SOLE REMEDY, PURCHASER SHALL RECEIVE FROM SELLER THE
SUM OF TWO MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($2,500,000) AS
LIQUIDATED DAMAGES. SUCH AMOUNT IS AGREED UPON BY AND BETWEEN SELLER AND
PURCHASER AS LIQUIDATED DAMAGES DUE TO THE DIFFICULTY AND INCONVENIENCE OF
ASCERTAINING AND MEASURING ACTUAL DAMAGES AND THE UNCERTAINTY THEREOF; AND NO
OTHER DAMAGES, RIGHTS OR REMEDIES SHALL IN ANY CASE BE COLLECTIBLE, ENFORCEABLE
OR AVAILABLE TO PURCHASER, BUT PURCHASER SHALL ACCEPT SAID CASH PAYMENT AS
PURCHASER'S TOTAL DAMAGES AND RELIEF. IT IS
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EXPRESSLY UNDERSTOOD AND AGREED THAT EXCEPT FOR THE REMEDY EXPRESSLY SET FORTH
IN THIS SECTION 11.3, PURCHASER SHALL HAVE NO RIGHT, AND BY ITS EXECUTION
HEREOF, HEREBY WAIVES AND NEGATES THE RIGHT, TO PURSUE ENFORCEMENT OF SPECIFIC
PERFORMANCE OF THE OBLIGATIONS OF SELLER UNDER THIS CONTRACT OR TO EXERCISE ANY
OTHER REMEDIES AT LAW OR IN EQUITY. PURCHASER'S SOLE REMEDY IN CONNECTION WITH
SELLER'S FAILURE OR INABILITY TO DELIVER GOOD TITLE TO PURCHASER PURSUANT TO THE
TERMS OF THIS CONTRACT SHALL BE AS SET FORTH IN SECTION 4.3 HEREOF, AND SUCH
FAILURE OR INABILITY SHALL NOT CONSTITUTE A SELLER'S DEFAULT UNDER THE TERMS OF
THIS SECTION 11.3, EXCEPT WITH REGARD TO THE MANDATORY CURE OBJECTIONS.
PURCHASER'S INITIALS JP SELLER'S INITIALS YMC
--------- ----------
BB
ARTICLE 12
MISCELLANEOUS
-------------
12.1 Notices. All notices, demands, consents, or other
-------
communications of any type (collectively, "Notices") given by Seller to
Purchaser or by Purchaser to Seller, whether required by this Contract or in any
way related to any of the transactions contracted for herein, shall be void and
of no effect unless given in accordance with the provisions of this Section
12.1. All notices shall be in writing and shall be delivered to the person to
whom the notice is directed, either in person or by United States Mail, as
registered or certified item, return receipt requested. Notices may also be sent
by facsimile transmission ("fax") or overnight delivery; provided, however, if
sent by fax, such notice shall be deemed
-------- -------
received when received by the recipient thereof, if followed by a copy thereof
delivered by overnight delivery. Notices delivered by mail shall be effective
three (3) days after being deposited in a post office depository; and notices
delivered by overnight delivery shall be effective on the next business day
after being deposited in a proper depository, under the care or custody of the
United States Postal Service or other carrier, as the case may be, enclosed in a
wrapper with the proper postage affixed and addressed, if to Purchaser, as
follows:
EquiStar Hotel Investors, L.P.
1010 Wisconsin Avenue, Suite 650
Washington, D.c. 20007
Attn: Paul Whetsell, President
Tel: (202) 965-4455
Fax: (202) 965-4445
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<PAGE>
with a copy to: Thomas M. Ash III, Esq.
De Campo, Diamond & Ash
805 Third Avenue
New York, New York 10022
Tel: (212) 758-3500
Fax: (212) 758-1728
and addressed, if to Seller, as follows:
MBL Life Assurance Corporation
Real Estate Investment Division
520 Broad Street
Newark, New Jersey 07102-3111
Attn: Yvonne Compitello, Senior Vice President
Tel: (201) 481-8615
Fax: (201) 268-4332
with a copy to: Hilary A. Kruce, Esq.
MBL Life Assurance Corporation
Law Department
520 Broad Street
Newark, New Jersey 07102-3111
Tel: (201) 481-8550
Fax: (201) 268-4335
with a copy to: Phyllis Pattillo Stephenson, Esq.
Meredith, Donnell & Abernethy
800 N. Shoreline, Suite 1500 - North Tower
Corpus Christi, Texas 78401
Tel: (512) 866-8158
Fax: (512) 880-5717
Any party hereto may change the address or contact for notice specified above by
giving the other party ten (10) days advance written notice of such change of
address or contact.
12.2 Effective Date. This Contract may be executed in multiple
---------------
counterparts on the respective dates set forth below, each of which shall
constitute an original, but which
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together shall constitute but one Contract. Execution by Purchaser hereof shall
constitute an offer by Purchaser to Seller to purchase the Subject Properties
for the price and on and subject to the terms and conditions herein set forth,
which offer shall automatically terminate and be of no force or effect unless
Seller shall execute and return to Purchaser one (1) fully executed counterpart
of this Contract within ten (10) business days after Seller's receipt of the
Contracts. Notwithstanding the above and Article 3 hereof, the date of execution
hereof by Seller shall be the effective date of this Contract (the 'Effective
Date'). Within one (1) business day after Seller executes this Contract, Seller
shall deliver to Purchaser by fax, with a copy to follow by overnight delivery,
a copy of the signature page of this Contract executed by Seller.
12.3 Assignment. This Contract is freely assignable by Seller. +This
----------
Contract may not be assigned by Purchaser without the prior written consent of
Seller, which consent shall not be unreasonably withheld; provided, however,
Purchaser shall have the right to sell, assign or transfer its right, title and
interest in this Contract (i) in connection with the merger, consolidation or
reorganization of Purchaser, including without limitation, any public entity in
connection with any securities offering, (ii) to any entity to which Purchaser
is selling or has sold all or substantially all of its assets, and/or (iii) to
an entity in which Purchaser holds of record and beneficially at least a
fifty-one percent (51%) interest and that is at all times under the "control" of
Purchaser. The term "control", for purposes of this Section 12.3, shall mean
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an entity, whether through the
ownership of voting securities, by contract or otherwise. Any entity to whom
Purchaser is allowed to assign this Contract in accordance with the foregoing
sentence is referred to herein as a "Permitted Assignee". Notwithstanding the
above, Purchaser's right to assign or transfer shall be contingent upon
Purchaser providing to Seller, at least ten (10) days prior to the Closing, the
name of the proposed assignee, the address to which Purchaser requests rents to
be forwarded post Closing for completion of the Notice to Tenants attached as
Exhibit F hereto, and any other information that Seller may reasonably require
in relation to such proposed assignment.
12.4 Laws. This Contract shall be construed and interpreted in
----
accordance with the laws of the State of New Jersey and the obligations of the
parties hereto are and shall be performable in the State and County wherein the
Subject Properties are located. Where required for proper interpretation, words
in the singular shall include the plural; the masculine gender shall include the
neuter and feminine, and vice versa.
-38-
<PAGE>
12.5 Modification. This Contract may not be modified or amended,
------------
except by an agreement in writing signed by Seller and Purchaser. Seller and
Purchaser may waive any of the conditions contained herein or any of the
obligations of the other hereunder, but any such waiver shall be effective only
if in writing and signed by the party waiving such conditions or obligations.
12.6 Authority. Each person executing this Contract warrants and
---------
represents that he is fully authorized to do so.
12.7 Times And Dates. Time is of the essence of this Contract and
---------------
all times and dates shall be in accordance with Newark, New Jersey Time.
12.8 Descriptive Headings. The descriptive headings of the several
--------------------
Articles, Sections and paragraphs contained in this Contract are inserted for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
12.9 Entire Contract. This Contract, including the Exhibits hereto
---------------
and the Submission Items, constitutes the entire agreement among the parties,
whether written or oral, pertaining to the subject matter hereof and supersedes
all prior and contemporaneous agreements and understandings of the parties in
connection therewith. No representation, warranty, covenant, agreement or
condition not expressed in this Contract shall be binding upon the parties
hereto or shall affect or be effective to interpret, change or restrict the
provisions of this Contract unless the parties have complied with the terms of
Section 12.5 hereof.
12.10 Contruction. This Contract shall not be construed more
-----------
strongly against any party regardless of who was more responsible for its
preparation.
12.11 Non-recordable. This Contract, a memorandum of this Contract,
--------------
an interest in ownership of the Subject Properties or any other similar document
that would constitute an exception to Seller' s title shall not be recorded and
the provisions hereof shall not constitute a lien on the Subject Properties.
Purchaser hereby appoints Seller as Purchaser's true and lawful
attorney-in-fact, coupled with an interest, for the purposes of the execution of
any documents and doing any acts as shall be necessary to effect the discharge
of the recording of this Contract or any other exception to the Commitments or
any update thereof.
-39-
<PAGE>
12.12 Third-Party Beneficiary. It is specifically understood and
------------------------
agreed that no person or other entity shall be a third-party beneficiary
hereunder, and that none of the provisions of this Contract shall be for the
benefit of or be enforceable by anyone other than the parties hereto, and their
respective successors and assigns, and that only the parties hereto shall have
any rights hereunder.
12.13 Legal Relationship. Nothing herein shall be construed as to
------------------
constitute or establish any type of joint venture, partnership, or any other
type of legal relationship between the parties other than the vendor- vendee
relationship established hereby between Seller and Purchaser.
12.14 Contemplation of Closing. If Purchaser closes the sale
--------------------------
contemplated herein, Purchaser shall be conclusively deemed to have waived any
breach or default by Seller of any covenant, representation or warranty under
this Contract (but not under any of the documents executed at Closing that shall
thereafter continue to be effective in accordance with their terms).
12.15 Security for Unpaid Accounts. Any contents of safe deposits,
-----------------------------
baggage or other property of departed guests held by Seller as security for
unpaid accounts receivable shall be removed by Seller on or before the Closing
Date; unless, however, such unpaid accounts were credited to Seller at Closing.
12.16 Completion of Documents. Purchaser understands and agrees that
-----------------------
the forms of closing documents which are attached as exhibits hereto may have to
be modified in order to conform to applicable State statutory requirements and
to be made appropriate for the transaction contemplated herein. It is
anticipated by the parties that such modifications will include, without
limitation, inserting appropriate information in the blanks contained in the
forms of closing documents attached as exhibits hereto. Purchaser agrees that
Seller may make such reasonable changes to the closing documents as are
appropriate to conform to applicable State statutory requirements and to reflect
the transaction contemplated hereby.
12.17 Effect of Holidays. In the event any date specified or
--------------------
computed under this Contract for the performance of an obligation by either
Seller or Purchaser, or for the occurrence of any event provided for herein,
shall be a Saturday, Sunday or "recognized holiday" (defined for purposes hereof
as any holiday observed by national banks in Newark, New Jersey, then the date
for such performance or occurrence shall automatically
-40-
<PAGE>
be extended to the next calendar day which is not a Saturday, Sunday or
recognized holiday.
12.18 Press Releases and Publicity. Purchaser shall not release any
----------------------------
information to the press or mass communications media, except as may be required
in connection with an offering of securities, without obtaining the express
written approval of Seller, if such release permits reasonable identification of
Seller or mentions the name of Seller or any affiliate of Seller.
12.19 Exhibits. The following exhibits attached hereto shall be
--------
deemed to be an integral part of this Contract:
(a) EXHIBITS A-1 to A-5 Legal Descriptions of the Real Property
-------------------
(b) EXHIBIT B - Allocation of Purchase Price
---------
(c) EXHIBIT C - Special Warranty Deed
---------
(d) EXHIBIT D - Blanket Conveyance, Bill of Sale and Assignment
---------
(e) EXHIBIT E - Closing Memorandum and Indemnification Agreement
---------
(f) EXHIBIT F - Letter to Tenant
---------
(g) EXHIBIT G - Certification of Nonforeign Status by Corporation
---------
(h) EXHIBIT H - ERISA Statement
---------
(i) EXHIBIT I - Confidentiality Agreement
---------
(j) EXHIBIT J - 1996 Capital Budgets
---------
[SIGNATURES OF PURCHASER AND SELLER FOLLOW
ON PAGE 42]
-41-
<PAGE>
EXECUTED on this 18th day of June 1996, by Purchaser.
EQUISTAR HOTEL INVESTORS, L.P. a
Delaware limited partnership
By: Cherwell Investors, Inc., general partner
By:\s\ Bradford Bearshon
----------------------------------
Name:Bradford Bearshon
----------------------------
Title:Vice President
---------------------------
By: CapStar Executive Investors I, L.L.C., general
partner
By:\s\ John Plunket
----------------------------------
Name:John Plunket
----------------------------
Title:Managing Member
---------------------------
- ---------------------------------------------------------------------------
EXECUTED on this 20th day of June, 1996, by Seller.
---- ----
MBL LIFE ASSURANCE CORPORATION
By:\s\ Yvonne M. Compitello
----------------------------------
Name:Yvonne M. Compitello
----------------------------
Title:Sr. Vice President
-------------------------------
- --------------------------------------------------------------------------
[SIGNATURES OF CAPSTAR AND ESCROW HOLDER
FOLLOWS ON PAGE 43]
-42-
<PAGE>
CapStar joins in the execution of this Contract for the sole purpose of
evidencing its agreement and acknowledgment (i) that the Hotel Management
Agreement will terminate on the Closing Date, at no cost to Seller; (ii) of the
terms of Section 9.4 hereof. CapStar is not a party to this Contract, and Seller
and Purchaser are entitled to amend this Contract at any time or from time to
time without the joinder of CapStar.
Executed on this 18th day of June , 1996, by CapStar.
-----
CAPSTAR HOTEL PARTNERS LIMITED
PARTNERSHIP
By:CapStar Hotels, Inc.
By:\s\ John Plunket
-----------------------------
Name:John Plunket
-------------------------
Title:EVP
------------------------
- --------------------------------------------------------------------------
Escrow Holder acknowledges receipt of a fully executed counterpart of this
Contract on this day of , 1996. By its execution of this
---- ---------
Contract below, Escrow Holder agrees to be bound by the terms hereof to the
extent that the Contract imposes duties upon Escrow Holder.
CHICAGO TITLE INSURANCE COMPANY
By:
----------------------------------
Name:
----------------------------
Title:
---------------------------
-43-
<PAGE>
EXHIBIT A-1
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
SACRAMENTO PROPERTY
-------------------
Parcel A, as said parcel is shown on that certain parcel map entitled
"Parcel 2 of 72 P.M. 26", recorded in Book 79 of Parcel Maps, at Page 8,
Official Records of Sacramento County.
Together with the following three (3) easements:
1 ) An easement for signage over the following described property:
All that portion of Parcel B, as said parcel is shown on that certain
parcel map filed in Book 79 of Parcel Maps, Page 8, Sacramento County
Records, described as follows:
A strip of land of the uniform width of ten (10.00) feet, the centerline of
which is described as follows:
Beginning at a point located in said Parcel B, from which the most
northerly corner of said Parcel B bears the following two (2) comes:
(1) North 37 DEG. 45'05' West 30.00 feet to a point on the Easterly line,
northeasterly along the arc of a curve to the left, concave northwesterly having
a radius of 490.00 feet, subtended by a chord bearing North 34 DEG. 24'41" East
300.19 feet; thence, from said point of beginning, South 17 DEG. 00'00" East
35.00 feet to the terminus of the easement described herein.
(2) An easement for subsurface utilities over the following described
property:
All that portion of Parcel B, as said parcel is shown on that certain Parcel Map
filed in Book 79 of Parcel Maps, Page 8, Sacramento County Records, described as
follows:
A strip of land the uniform width of five (5.00) feet, the centerline of
which is described as follows: _
Beginning at a point of the northeasterly line of said Parcel B, from which the
most northerly corner of said Parcel B North 17 DEG. 00'00" West 304.54 feet;
thence, from said
Page 1 of a 2 Page Exhibit A-1
Sacramento Property
<PAGE>
point of beginning, North 88 DEG. 33'54" West 236.13 feet to the terminus of the
easement described herein.
3) An easement for driveway purposes over the following described property:
All that portion of Parcel B, as said parcel is shown on that certain Parcel Map
filed in Book 79 of the Parcel Maps, Page 8, Sacramento County, Records,
described as follows:
A strip of land the uniform width of thirty (30.00) feet, the centerline of
which is described as follows:
Beginning at a point on the easterly line of Harvard Street, from which the most
northerly corner of said Parcel B bears northeasterly along the arc of a curve
to the left, concave northwesterly, having a radius of 490.00 feet, subtended by
a chord bearing North 38 DEG. 50' 13" East 371.28 feet; thence from said point
of beginning, South 24 DEG. 54'00" East 25.76 feet; thence, southeasterly along
the arc of a tangent curve to the left, concave northeasterly having a radius of
50.00 feet, subtended by a chord bearing South 58 DEG. 43'57" East 49.75 feet;
thence, South 88 DEG. 33'54" East 407.76 feet to the terminus of the easement
described herein.
Assessor's Parcel Number 277-0153-007-0000 and
Assessor's Parcel Number 277-0153-008-0000
Page 2 of a 2 Page Exhibit A-1
Sacramento Property
<PAGE>
EXHIBIT A-2
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
LAFAYETTE PROPERTY
------------------
That certain parcel of land, together with all improvements situated thereon,
situated in Section 47, Township 10 South, Range 4 East, Lafayette Parish,
Louisiana, and more fully described as follows, to-wit:
Commence at the intersection of the southwesterly right-of-way of Calco
Boulevard and the easterly right-of-way of LA State Highway Route 182 (State
Project No. 4-01-25) also known as Pinhook Road; thence S 00 DEG. 13' 59" E
along the easterly right-of-way line of State Route No. 182 a distance of 262.96
feet to the point of beginning, which point is 35.00 feet measured at a right
angle from the centerline of State Project No. 4- 01-25 and is the northwest
corner of the tract herein described; thence S 00 DEG. 13' 59" E along the
easterly right-of-way line of State Route No. 182, 84.48 DEG. feet to a point
which is 35.00 feet measured radially from centerline of State Project No.
4-01-25; thence along the easterly right-of-way line of State Route LA 182 which
is also the western boundary of tract herein described, along the arc of a curve
to the left having a radius of 2829.79 feet (the long chord of which bears S 03
13' 59" E and measures 296.20 feet) a distance of 295.34 feet to a point which
is 35 feet measured at right angles to the centerline of State Route LA 192;
thence S 06 DEG. 13' 59" E along said easterly right-of-way parallel to and 35
feet from the centerline of State Route LA 182 which is also the western
boundary of the tract herein described, a distance of 150.88 feet to a point;
thence S 27 DEG. 16' 14" E along said easterly right-of-way of State Route LA
182 which is also the western boundary of the tract herein described for a
distance of 69.64 feet to a point which is 60.00 feet measured at right angles
from the centerline of State Route LA 182; thence S 16 DEG. 52' 33" E along the
easterly right-of-way line of LA 182 a distance of 92.59 feet to the
intersection of the easterly right-of-way line of State Route LA 182 and
approximate mean low water of the Vermilion River, said point also being the
southwest corner of tract herein described; thence along the following courses
along the approximate mean low water of the Vermilion River (as surveyed in
October, 1979); N 81 DEG. 49' 20" E a distance of 98.03 feet; Thence N 77 DEG.
02' 17" E a distance of 50.36 feet; thence S 89 DEG. 16' 35" E a distance of
50.36 feet; thence N 85 DEG. 01' 36" E a distance of 100 .02 feet; thence N 88
DEG. 27' 17" E a distance of 50.16 feet; thence N 88 DEG. 50' 02" E a distance
of 150.56 feet; thence N 71 DEG. 28' 41" E a distance of 51.22 feet; thence S 81
DEG. 47' 54" E a distance of 144.60 feet to a point at the intersection of the
approximate mean low water of the Vermillion River and the
Page 1 of a 2 Page Exhibit A-2
Lafayette Property
<PAGE>
Southwesterly boundary of Petroleum Point Subdivision which point is the
southeast corner of the tract herein described; thence N 41 DEG. 13' 48" W along
the southwest boundary of Petroleum Point Subdivision which is also the
northeast boundary of the tract herein described, a distance of 122.12 feet to a
point; thence N 49 DEG. 00' 02" West along the southwesterly boundary of
Petroleum Point Subdivision, which is also the northeast boundary of tract
herein described a distance of 276.53 feet to a point; thence N 43 DEG. 24' 17"
W along the southwest boundary of Petroleum Point Subdivision which is also the
northeast boundary of the tract herein described a distance of 448.63 feet to a
point; thence N 75 DEG. 16' 04" W along the southern boundary of Petroleum Point
Subdivision which is also the northern boundary of tract herein described a
distance of 189.45 feet to the point of beginning and containing 279,458 square
feet (more or less) in area.
Said property containing 6.415 acres, more or less, and being more fully
shown on plat of survey prepared by D. Ralph Caffery & Associates, Inc.
dated November 30, 1983, revised December 1, 1983 and December 12, 1983
recorded under Entry No. 86-33296 of the records of Lafayette Parish,
Louisiana.
Page 2 of a 2 Page Exhibit A-2
Lafayette Property
<PAGE>
EXHIBIT A-3
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
SANTA BARBARA PROPERTY
----------------------
Lots 54, 55, 56, 57, 58, 59, 74 and 75 of Cabrillo Park Tract, in the City of
Santa Barbara, County of Santa Barbara, State of California, as per map recorded
in Book 15, Pages 60 and 61 of Maps, in the Office of the County Recorder of
said County
Page 1 of a 1 Page Exhibit A-3
Santa Barbaa Property
<PAGE>
EXIBIT A-4
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
COLORADO SPRINGS PROPERTY
-------------------------
Parcel 1:
- --------
Lots 4, 5 and 6, Block I, Hilton Subdivision No. 1, according to the plat
thereof, recorded in Plat Book Y-2 at Page 6, El Paso County, Colorado,
Parcel 2:
- --------
An easement for ingress and egress over and across a 25 foot strip of land from
said land to Russia Boulevard, as shown on the recorded plat of Hilton Inn
Subdivision No. 1, County of El Paso, State of Colorado.
Page 1 of a 1 Page Exhibit A-4
Colorado Springs Property
<PAGE>
EXHIBIT A-5
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
WASHINGTON D.C. PROPERTY
------------------------
Lot 31, in Square 94, as per plat recorded in the Office of the Surveyor for the
District of Columbia in Liber 153 at folio 102.
Page 1 of a 1 Page Exhibit A-5
Washington D.C. Property
<PAGE>
EXHIBIT B
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
ALLOCATION OF PURCHASE PRICE
----------------------------
Sacramento Hilton $20,400,000
Santa Barbara Inn $8,000,000
Holiday Inn (Colorado Springs) $6,000,000
Embassy Row (Washington, D.C.) $16,000,000
Lafayette Hilton $18,000,000
Page 1 of a 1 Page Exhibit B
Allocation of Purchase Price
<PAGE>
EXHIBIT C
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
SPECIAL WARRANTY DEED
---------------------
[Consisting of 5 pages and follows this page]
<PAGE>
SPECIAL WARRANTY DEED
---------------------
STATE OF NEW JERSEY Sec.
Sec. KNOW ALL PERSONS BY THESE PRESENTS:
COUNTY OF ESSEX Sec.
MBL LIFE ASSURANCE CORPORATION, a New Jersey corporation ("Grantor"),
acting through its official indicated below, for and in consideration of
the sum of Ten Dollars ($10.00) cash and other good and valuable
consideration to it in hand paid by , a
-----------------------------------
("Grantee"), the receipt and sufficiency of which
- -------------------------
is hereby acknowledged, has granted, bargained, sold and conveyed and by these
presents does grant, bargain, sell and convey, subject to the Permitted
Exceptions set forth in Exhibit B hereto and incorporated by this reference,
unto the said Grantee, as its interests may appear, that certain tract of land
situated in the City of ,
----------------- ------------------
County, , which is more particularly described in
------------------------
Exhibit A attached hereto and incorporated by this reference (hereinafter
referred to as the "Subject Property ").
EXCEPT FOR THE WARRANTY OF TITLE CONTAINED HEREIN, GRANTEE ACKNOWLEDGES AND
AGREES THAT IT ACCEPTS THE CONVEYANCE OF THE SUBJECT PROPERTY IN ITS PRESENT
CONDITION, "AS-IS, WHERE-IS," SUBJECT TO ALL PATENT AND LATENT DEFECTS, IF ANY,
WITH NO REPRESNTATION OR WARRANTY BY GRANTOR AS TO ITS FITNESS, SUITABILITY,
HABITABILITY, OR USABILITY, INCLUDING, BUT NOT LIMITED TO, THE QUALITY OR
CONDITION OF THE SUBJECT PROPERTY, THE MANNER OF OPERATING THE SUBJECT PROPERTY
AND THE EXPENSES RELATED THERTO, AND THE COMPLIANCE OF THE SUBJECT PROPERTY WITH
ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY GOVERNMENTAL BODY. GRANTOR
MAKES NO REPRESENTATION AS TO ANY ENVIRONMENTAL MATTERS RELATING TO THE SUBJECT
PROPERTY INCLUDING, WITHOUT LIMITATION, SOIL CONDITIONS, GRANTEE BEING GIVEN THE
OPPORTUNITY PRIOR TO CLOSING TO SATISFY ITSELF THAT THERE ARE NO HAZARDOUS
MATERIALS (DEFINED BELOW) ON OR IN THE SUBJECT PROPERTY THAT WOULD CAUSE EITHER
STATE OR FEDERAL AGENCIES TO ORDER A CLEANUP OF THE SUBJECT PROPERTY UNDER ANY
ENVIRONMENTAL LAW. AS USED HEREIN, THE TERM "ENVIRONMENTAL LAW" SHALL MEAN AND
INCLUDE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT, 42
U.S.C. 9601, ET SEQ., RESOURCE CONSERVATION AND RECOVERY ACT 42 U.S.C. 6901, ET
SEQ. AND ALL OTHER SIMILAR EXISTING AND FUTURE FEDERAL, STATE AND MUNICIPAL
STATUTES, RULES, REGULATIONS AND ORDINANCES GOVERNING THE ENVIRONMENT OR THE
GENERATION, DISPOSAL OR STORAGE OF ANY HAZARDOUS MATERIALS, ALL AS AMENDED FROM
TIME TO TIME AND ALL RULES AND REGULATIONS PROMULGATED THEREUNDER. THE TERM
<PAGE>
"HAZARDOUS MATERIALS" SHALL MEAN AND INCLUDE ASBESTOS, POLYCHORINATED BIPHENYLS,
PETROLEUM PRODUCTS AND ANY OTHER HAZARDOUS OR TOXIC MATERIALS, WASTES AND
SUBSTANCES THAT ARE DEFINED AS SUCH IN ANY ENVIRONMENTAL LAW. GRANTOR MAKES NO
REPRESENTATION AS TO THE CONDITION OR VALUE OF THE SUBJECT PROPERTY. GRANTEE
HEREBY WAIVES AND RELEASES GRANTOR OF AND FROM ANY CLAIMS, ACTIONS, CAUSES OF
ACTION, DEMANDS, RIGHTS, LIABILITIES, OBLIGATIONS, DAMAGES, COSTS, EXPENSES OR
COMPENSATION WHATSOEVER, DIRECT OR INDIRECT, KNOWN OR UNKNOWN, FORESEEN OR
UNFORESEEN, THAT GRANTEE NOW HAS OR THAT MAY ARISE IN THE FUTURE ON ACCOUNT OF
OR IN ANY WAY GROWING OUT OF OR IN CONNECTION WITH THE ECONOMIC, PHYSICAL OR
ENVIRONMENTAL CONDITION OF THE SUBJECT PROPERTY, OR ANY ENVIRONMENTAL LAW OR
APPLICABLE REGULATION. THESE PROVISIONS SHALL SURVIVE THE FUTURE TRANSFER OF ANY
OR ALL OF THE SUBJECT PROPERTY BY GRANTEE.
TO HAVE AND TO HOLD the above described premises, together with all and singular
the rights and appurtenances thereto in anywise belonging, subject as aforesaid,
unto the said Grantee, its successors and assigns, forever, and Grantor does
hereby warrant and forever defend, all and singular, the said land and premises
unto the said Grantee, its successors and assigns, against every person
whomsoever lawfully claiming or to claim the same or any part thereof, by,
through or under Grantor, but not otherwise except taxes for the current year,
which have been prorated as of the date hereof and are assumed by Grantee.
Executed this day of , 1996, to be effective as of ,
---- -------- ----------
1996.
Grantor:
MBL LIFE ASSURANCE CORPORATION, a
New Jersey corporation
By:
----------------------------------
Name:
----------------------------
Title: Senior Vice President
ATTEST:
- --------------------------
, Assistant Secretary
<PAGE>
STATE OF NEW JERSEY Sec.
Sec.
COUNTY OF ESSEX Sec.
BEFORE ME, the undersigned authority, personally appeared
, a Senior Vice President of MBL LIFE ASSURANCE
- ---------------------
CORPORATION, and acknowledged to me that he/she executed the foregoing as
the act and deed of the corporation.
- -------------------------------------
Notary Public, State of New Jersey
My Commission Expires:
---------------
<PAGE>
EXHIBIT A
TO
SPECIAL WARRANTY DEED
---------------------
[LEGAL DESCRIPTION OF THE SUBJECT PROPERTY TO BE ADDED]
Page 4 of a 5 Page Exhibit C-
Special Warranty Deed
<PAGE>
EXHIBIT B
TO
SPECIAL WARRANTY DEED
---------------------
[LIST OF PERMITTED EXCEPTIONS TO BE ADDED]
Page 5 of a 5 Page Exhibit C-
Special Warranty Deed
<PAGE>
EXHIBIT D
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT
-----------------------------------------------
[Consisting of 8 pages and follows this page]
<PAGE>
BLANKET CONVEYANCE. BILL OF SALE AND ASSIGNMENT
-----------------------------------------------
THE STATE OF____________]
] KNOW ALL PERSONS BY THESE PRESENTS:
COUNTY OF_______________]
Concurrently with the execution and delivery of this Blanket
Conveyance, Bill of Sale and Assignment (this "Assignment"), MBL Life
Assurance Corporation, a New Jersey corporation ("Assignor"), is conveying
to ________________________, a ________________________ ("Assignee"), by
Special Warranty Deed (the "Deed"), that certain property lying and being
situated in ______________ County, ________________ , commonly known as
_________________ (the "Hotel"), being more particularly described on
Exhibit A attached hereto and made a part hereof for all purposes, together
with the improvements located thereon (collectively, the "Property").
It is the desire of Assignor hereby to assign, transfer, and convey to
Assignee all of Assignor's right, title and interest in and to all
fixtures, fittings, appliances, apparatus, equipment, machinery, equipment
leases, warranties, guaranties, tenant leases and other items of tangible
and intangible personal property owned by Assignor and affixed or attached
to, or placed or situated upon, or used in connection with the use,
occupancy, or operation of the Property.
NOW, THEREFORE, in consideration of the receipt of Ten and No/100
Dollars ($10.00) and other good and valuable consideration in hand paid
by Assignee to Assignor, the receipt and sufficiency of which are hereby
acknowledged and confessed by Assignor, Assignor does hereby ASSIGN,
TRANSFER, SET OVER, and DELIVER to Assignee, its successors and assigns,
the following:
(a) the tangible personal property owned by Assignor that is
located upon the Property, including specifically, without limitation,
heating, ventilation, air conditioning and other equipment, utility
distribution systems, appliances, beds, chairs, tables, desks and
other furniture, television sets, carpeting, draperies and curtains,
tools, lamps, paintings, decorations, refrigerators, ovens, linens,
napkins, silverware, glasses, and supplies, and other items of
personal property (excluding cash) used in connection with the
operation of the Property; excluding, however, all property leased
pursuant to the Leases, as such term is hereinafter defined
(collectively, the "Personal Property");
(b) all reservation deposits, advance payments, security deposits
and prepaid items and other amounts, deposits or credits paid to or
received by Assignor or the Hotel prior to the effective date hereof,
and attributable to the
<PAGE>
period from and after the effective date hereof, specifically
excluding all cash which is attributable to the period prior to the
effective date hereof (collectively, the "Prepaid Accounts");
(c) all of Assignor's right, title and interest in all oral or
written agreements pursuant to which any portion of the Property is
used or occupied by anyone other than Assignor, such agreements, if
any, being described on Exhibit B attached hereto and made a part
hereof (collectively, the "Leases"); and
(d) all of Assignor's right, title and interest in and to (i) all
assignable contracts and agreements relating to the upkeep, repair,
maintenance or operation of the Property or the Personal Property
which will extend beyond the effective date hereof, including
specifically, without limitation, all assignable equipment leases,
union labor contracts, and all assignable management and operating
agreements (collectively, the "Miscellaneous Contracts"), such
Miscellaneous Contracts being described on Exhibit C attached hereto
and made a part hereof, (ii) all assignable warranties and guaranties
(express or implied) issued to Assignor in connection with the
Property or the Personal Property; (iii) all licenses, permits or
similar documents relating to the Property, to the extent same are
assignable; (iv) telephone exchanges, trade names, marks and other
identifying material relating to the Property, to the extent same are
assignable; (v) plans, drawings, specifications, surveys, engineering
reports, and other technical descriptions relating to the Property in
Assignor's possession; and (vi) all other items of intangible personal
property owned by assignor that relate in any way to the ownership,
use, leasing, maintenance, service or operation of the Property
(collectively, the "Intangibles").
The Personal Property, the Prepaid Accounts, the Leases, and the
Intangibles are hereinafter sometimes referred to collectively as the
"Assigned Properties."
TO HAVE AND TO HOLD the Personal Property, together with all and
singular the rights and appurtenances thereunto in anywise belonging, unto
Assignee, its successors or assigns, forever, and Assignor does hereby bind
itself, its successors or assigns, to WARRANT AND FOREVER DEFEND, all and
singular, the title to the Personal Property, unto Grantee, its successors
or assigns, against every person whomsoever lawfully claiming or to claim
the same or any part thereof, by, through or under assignor, but not
otherwise.
ASSIGNOR HEREBY EXPRESSLY DISCLAIMS ANY WARRANTIES AS TO
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND ANY OTHER
WARRANTIES OR REPRESENTATIONS AS TO THE PHYSICAL CONDITION OF THE PERSONAL
PROPERTY.
<PAGE>
ASSIGNEE ACKNOWLEDGES AND AGREES THAT IT HAS INSPECTED THE PERSONAL
PROPERTY AND ACCEPTS SAME IN ITS PRESENT CONDITION, "AS IS", "WHERE IS",
AND "WITH ALL FAULTS".
This Assignment is executed and delivered by Assignor, and accepted by
Assignee, subject to the terms and provisions of those certain documents
enumerated and described on Exhibit B attached to the Deed. The Assigned
Properties conveyed hereby do not include, and Assignor hereby retains all
rights in and to, any rentals under the Leases that are delinquent as of
the effective date hereof.
THE PARTIES HERETO EXPRESSLY AGREE THAT NO COVENANT OR WARRANTY ON THE
PART OF ASSIGNOR, FOR ITSELF OR ITS SUCCESSORS AND ASSIGNS, REGARDING TITLE
TO OR ENCUMBRANCES AGAINST THE PREPAID ACCOUNTS, THE LEASES AND THE
INTANGIBLES IS MADE OR IS IMPLIED TO BE MADE TO ASSIGNEE, OR ITS SUCCESSORS
AND ASSIGNS, BY THIS ASSIGNMENT.
By its acceptance and execution hereof, Assignee acknowledges and
assumes all of the covenants, agreements and obligations under (i) Sections
8.1 and 8.2 of the Agreement of Sale and Purchase (the "Agreement") dated
effective ________________ , 199_, executed by Assignor and Assignee; (ii)
the Leases (including, without limitation, any security deposits paid
pursuant to the terms thereof), and (iii) the Miscellaneous Contracts
(including, without limitation, any transfer or termination fees and all
payments due or to become due under the terms thereof), binding on Assignor
or the Property, from and after the effective date of this Assignment.
Assignor shall have no obligation or liability whatsoever to Assignee and
shall under no circumstances be required to hold harmless, indemnify or
defend Assignee from any loss, cost, expense or damage incurred by Assignee
in connection with claims made by tenants for any security deposits that
were not actually received by Assignor but rather by its predecessor in
title.
Assignee, for itself and its successors and assigns, hereby agrees to
indemnify, defend, save and hold harmless Assignor, its successors and
assigns, against any and all claims, liens (including, without limitation,
mechanic's and materialmen's liens), actions, suits, proceedings, costs,
expenses, damages or other liabilities, including attorneys' fees and court
costs, arising as a result of or with respect to any of the items
transferred under this Assignment or assumed hereunder by Assignee, from
and after the effective date hereof, or arising out of any act or failure
to act of Assignee with respect to its ownership and operation of the
Property, or arising as a result of or with respect to Assignee' s failure
to perform the duties and obligations of Assignee under the Miscellaneous
Contracts, as assignee of Assignor hereunder.
This Assignment shall be construed and enforced in accordance with the
laws of the State of _________________.
<PAGE>
All pronouns used in this Assignment shall include the other genders,
and the singular shall include the plural, and the plural shall include the
singular, whenever and as often as may be appropriate.
The captions under the paragraph numbers of this Assignment are for
convenience and reference only and in no way define, limit, or describe the
scope or intent of this Assignment and in no way affect or constitute a part
of this Assignment.
All Exhibits attached hereto are hereby incorporated herein by this
reference and made a part hereof for all purposes.
This Assignment and all of its terms and provisions shall be binding
upon and inure to the benefit of Assignor and its successors and assigns,
and Assignee and its successors and assigns.
This instrument may be executed in any number of counterparts, each to
be an original, but all of which shall constitute one instrument, and it shall
be sufficient if any party hereto signs any such counterpart, so long as
each of the parties hereto executes at least one such counterpart.
EXECUTED on the respective dates shown in the acknowledgments below, to
be effective as of the ________ day of ___________ , 199__.
ASSIGNOR:
MBL LIFE ASSURANCE CORPORATION, a New Jersey
corporation
By:
---------------------------------------
Name:
---------------------------------
Title:
--------------------------------
ASSIGNEE:
_____________________,a____________________
By:
---------------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE>
STATE OF NEW JERSEY ]
]
COUNTY OF ESSEX ]
This instrument was acknowledged before me on___________, 199__, by
____________________, _____________________ of MBL Life Assurance
Corporation, a New Jersey corporation, on behalf of said corporation.
STAMP NAME AND EXPIRATION
----------------------------------
DATE OF COMMISSION BELOW: NOTARY PUBLIC, STATE OF NEW JERSEY
STATE OF ________________]
]
COUNTY OF _______________]
This instrument was acknowledged before me on ________ , 199__, by
___________________, _________________ of _________________ , a __________, on
behalf of said _______________.
STAMP NAME AND EXPIRATION
-----------------------------------
DATE OF COMMISSION BELOW: NOTARY PUBLIC, STATE OF
------------
<PAGE>
EXHIBIT A
TO
BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT
-----------------------------------------------
[TO BE ADDED]
<PAGE>
EXHIBIT B
TO
BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT
-----------------------------------------------
[TO BE ADDED]
<PAGE>
EXHIBIT C
TO
BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT
-----------------------------------------------
[TO BE ADDED]
<PAGE>
EXHIBIT E
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
CLOSING MEMORANDUM AND INDEMNIFICATION AGREEMENT
------------------------------------------------
[Consisting of 3 pages and follows this page]
<PAGE>
CLOSING MEMORANDUM AND INDEMNIFICATION AGREEMENT
THIS CLOSING MEMORANDUM AND INDEMNIFICATION AGREEMENT (this
"Agreement") is entered into to be effective as of ____________, 1996 (the
"Closing Date"), by and between MBL Life Assurance Corporation, a New
Jersey corporation ("Seller"), and _____________________, a ____________
("Purchaser").
In connection with and in consideration of the closing ("Closing") of
the transaction contemplated under that certain Agreement of Sale and
Purchase (the "Contract") dated effective as of ____________ , 1996, by and
between Seller and Purchaser, covering that certain property (the
"Property") located in ______________ County, _______________ , commonly
known as ___________________________ , and more particularly described in
the Contract, Seller and Purchaser hereby agree as follows:
1. Defined Terms. Unless specifically defined herein, all terms used
-------------
herein shall have the same meaning ascribed to such terms in the Contract.
2. Proation Date. All prorations have been made as of 12:01 a.m.,
-------------
according to the time zone in which the Property is located, on the Closing
Date.
3. Operating Expenses. Except as otherwise herein provided, any and
------------------
all costs and expenses relating to the operation, management or ownership
of the Property for the period prior to the Closing Date, including, but
not limited to, accounts and payments under service contracts and utility
charges, are the responsibility of Seller and will be paid by Seller
promptly upon receipt of billing therefor. Any and all costs and expenses
relating to the operation, management or ownership of the Property for the
period from and after the Closing Date, including, but not limited to,
accounts and payments under the Miscellaneous Contracts (including, without
limitation, all transfer or termination fees, if any, required to be paid
under the terms thereof) and utility charges, are the responsibility of
Purchaser and will be paid by Purchaser promptly upon receipt of billing
therefor, and Purchaser hereby holds Seller harmless with respect to same
and agrees to indemnify and defend Seller from any loss, liability or
claim, including without limitation, reasonable attorneys' fees and court
costs, relating to same. To the extent not reflected in the closing
statements (the "Closing Statements") evidencing the transaction
contemplated under the Contract, Purchaser and Seller agree to adjust
between themselves outside of Closing any amounts which are the
responsibility of the other pursuant to this paragraph.
4. Real Estate Taxes: Fees to Tax Representative. The 199_ real
---------------------------------------------
property ad valorem taxes with respect to the Property shall be paid by
Purchaser prior to their becoming delinquent, with Seller being charged at
Closing an amount equal to that portion of such taxes which relate to the
period prior to the Closing Date. Such prorations shall be based upon the best
available information at the time if the 199_ taxes have not yet
<PAGE>
been assessed at the time of Closing. To the extent that the actual taxes
for the current year differ from the amount so apportioned at Closing, the
parties hereto shall make all necessary adjustments by appropriate payments
between themselves following the Closing. Further, Purchaser shall be
charged at Closing with the fees paid or payable to Seller's tax
representative for the purpose of reducing such real property ad valorem
taxes in an amount equal to that portion of such fees which relate to that
portion of calendar year 199_ from and after the Closing Date, which fees
shall be prorated at Closing, as herein provided.
5. Room Charges. As of the evening before the Closing Date, Seller
------------
has compiled a listing of all Guest Ledger Accounts indicating that such
accounts total $ ___________ and has compiled a listing of all City Ledger
Accounts indicating that such accounts total $ ________________, Seller
shall retain ownership of the Guest Ledger Accounts and the City Ledger
Accounts; provided, however, any funds collected pursuant to the Guest
Ledger Accounts which are in payment for occupancy for the evening prior to
the Closing Date shall be divided evenly between Seller and Purchaser
("Closing Date Revenues"), and Seller shall receive a credit at Closing in
an amount equal to its share of the Closing Date Revenues. As to all other
Guest Ledger Accounts, Purchaser shall remit same to Seller upon
Purchaser's receipt thereof. Purchaser shall make a good faith effort after
the Closing to collect all Guest Ledger Accounts and City Ledger Accounts
in the usual course of Purchaser's operation of the Property, but Purchaser
shall not be obligated to institute any lawsuit or other collection
procedures to collect such accounts. In the event that after Closing
Purchaser receives payment of any of the Guest Ledger Accounts or City
Ledger Accounts, Purchaser shall promptly remit such payment to Seller.
6. Other Income. The provisions of this paragraph shall control the
------------
allocation of income from the Property other than Guest Ledger Accounts and
City Ledger Accounts addressed in paragraph 5 hereof. As of the Closing Date,
Seller has collected tenant rent and other income for the month of__________ in
the amount of $ ___________. Seller shall pay to Purchaser Purchaser's pro rata
share of any delinquent or unpaid rents and other income which are paid to
Seller after Closing and which relate to the period from and after the
Closing Date, and Purchaser shall pay to Seller, Seller's pro rata share of
said delinquent or unpaid rents and other income which are paid to
Purchaser and which relate to the period prior to the Closing Date.
Purchaser will make a good faith effort after the Closing to collect all
delinquent or unpaid rents and other income in the usual course of
Purchaser's operation of the Property, but Purchaser will not be obligated
to institute any lawsuit or other collection procedures to collect
delinquent rents.
7. Periodic Accounting. On the fifth (5th) day of each calendar
-------------------
month beginning with the first (lst) full calendar month following Closing
and ending with the sixth (6th) full calendar month following Closing,
Purchaser shall send to Seller an accounting of the accounts receivable
with respect to the Property which existed as of the Closing Date,
including specifically, without limitation, the Guest Ledger Accounts and
<PAGE>
the City Ledger Accounts, showing whether Seller has received payment of
such accounts receivable, the outstanding balance thereof, and the age of
such accounts receivable.
8. Errors or Omissions. Seller and Purchaser agree to adjust between
-------------------
themselves after Closing any errors or omissions in the prorations or
adjustments set forth in the Closing Statements.
9. Survival. This Contract and the agreements and the provisions
--------
contained herein shall survive Closing and the execution and delivery of
any documents in connection therewith.
EXECUTED effective as of the day and year first above written.
SELLER:
MBL LIFE ASSURANCE CORPORATION, a New
Jersey corporation
By:
---------------------------------
Name:
----------------------------
Title:
----------------------------
PURCHASER:
-------------------------------, a
-------------------------
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE>
EXHIBIT F
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
FORM OF NOTICE TO TENANTS
--------------------------
[Consisting of 1 page and follows this page]
<PAGE>
NOTICE TO TENANT
-----------------
_____________, 1996
- ------------------------
- ------------------------
- ------------------------
- ------------------------
This notice is delivered to advise you that the property known as
__________ located on _______________ in _________, ________ , was sold and
conveyed on _________________________, 1996 by MBL Life Assurance
Corporation to ___________________________, a _____________________
("Purchaser"). In connection therewith, your lease was assigned to
Purchaser. Accordingly, you are hereby authorized and directed to make all
future rental payments, beginning _________, 199_, to Purchaser at the
following address:
________________________________________
________________________________________
________________________________________
Attn:___________________________________
Further, you are hereby advised that Purchaser is responsible for your
security deposit in the amount of $ ___________ in accordance with the
terms of your lease.
MBL LIFE ASSURANCE CORPORATION
By:
----------------------------------
Name:
---------------------------
Title: Senior Vice President
----------------------------------
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
EXHIBIT G
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
CERTIFICATION OF NONFOREIGN STATUS BY CORPORATION
-------------------------------------------------
[Consisting of 2 pages and follows this page]
<PAGE>
CERTIFICATION OF NONFOREIGN STATUS BY CORPORATION
-------------------------------------------------
TO: ________________________________________________ , a __________
("Transferee")
FROM: MBL LIFE ASSURANCE CORPORATION, a New Jersey corporation
("Transferor")
Section 1445 of the Internal Revenue Code, the Foreign Investment
Real Property Tax Act, provides that a transferee (buyer) of a
United States real property interest must withhold tax if the
transferor (seller) is a foreign person. To inform Transferee
that withholding of tax is not required upon the disposition of a
United States real property interest by Transferor, the
undersigned hereby certifies the following on behalf of
Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust, or foreign estate (as those terms are defined in
the Internal Revenue Code and Income Tax Regulations);
2. Transferor's United States Employer Identification Number is 22-
1134800;and
3. Transferor's office address is 520 Broad Street, Newark, New
Jersey 07102-3111.
Transferor understands that this Certification may be disclosed to the
Internal Revenue Service by Transferee and that any false statement
contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, I declare that I have examined this
Certification, and to the best of my knowledge and belief, it is true,
current, correct and complete, and I further declare that I have
authority to execute this Certification on behalf of Transferor.
[SIGNATURE OF TRANSFEROR FOLLOWS ON PAGES]
<PAGE>
Executed on the date set forth in the acknowledgment below, to be
effective the _________ day of______________________ , 1996.
MBL LIFE ASSURANCE CORPORATION, a New Jersey
corporation
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
STATE OF NEW JERSEY ]
]
COUNTY OF ESSEX ]
This instrument was acknowledged before me on ______________ , 1996, by
___________, ___________________ of MBL Life Assurance Corporation, a New
Jersey corporation, on behalf of said corporation.
STAMP NAME AND EXPIRATION ----------------------------------
DATE OF COMMISSION BELOW: NOTARY PUBLIC, STATE OF NEW JERSEY
<PAGE>
EXHIBIT H
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
ERISA STATEMENT
---------------
[Consisting of 2 pages and follows this page]
<PAGE>
ERISA STATEMENT
---------------
______________________ ,1996
MBL Life Assurance Corporation
520 Broad Street
Newark, New Jersey 07102-3111
Re: Sale of _________________________________________
Ladies/Gentlemen:
In connection with the sale of the captioned property (the "Property"),
more particularly described on Exhibit A attached hereto, by MBL LIFE
---------
ASSURANCE CORPORATION, a New Jersey corporation, to ____________________ ,
a __________________, the undersigned hereby represents and certifies that
it is not acquiring the Property with the assets of an employee benefit
plan, as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974.
Very truly yours,
_______________________________ , a
____________________
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE>
EXHIBIT A
TO
ERISA STATEMENT
---------------
[TO BE ADDED]
<PAGE>
EXHIBIT I
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
CONFIDENTIALITY AND INSPECTION AGREEMENT BETWEEN
OWNER AND RECIPIENT
-------------------
[Consisting of 4 pages and follows this page]
<PAGE>
CONFIDENTIALITY AND INSPECTION AGREEMENT BETWEEN OWNER AND
RECIPIENT
THIS CONFIDENTIALITY AND INSPECTION AGREEMENT BETWEEN OWNER AND
RECIPIENT ("Agreement") is entered into by and between MBL LIFE ASSURANCE
CORPORATION ("Owner") and Equistar Hotels ("Recipient").
WHEREAS, Owner is the owner of those certain properties known as The
Lafayette Hilton, The Sacramento Hilton, The Santa Barbara Inn, The
Colorado Springs Holiday Inn, and the Embassy Row Hotel ("Property");
WHEREAS, Owner is offering the Property for sale;
WHEREAS, in connection with a potential sale of the Property, Owner
may provide Recipient and other third parties that are interested in
purchasing the Property, with information concerning the Property that is
not available to the general public; and,
WHEREAS, together with providing such information to Recipient, Owner
will permit Recipient to perform inspections and investigations on the
Property.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. As used herein, "Confidential Information" means all such data,
including reports, interpretations, forecasts, projections, records
and any other documents containing or otherwise incorporating
information concerning the Property or Owner, whether provided orally
or in writing that Owner or its designee will provide or has
previously provided to Recipient at any time, together with analyses,
compilations, studies or other documents, whether prepared by
Recipient or others, that contain or otherwise incorporate or are
based upon such information; provided, however, the following will not
-------- -------
constitute "Confidential Information" for the purpose of this
Agreement:
(a) Information that is provided to Recipient by a source other
than Owner, provided that after investigation by Recipient such
source is not reasonably believed by Recipient to be subject to a
confidentiality agreement or obligation with Owner, with respect
to such information.
(b) Information that is or becomes generally available to the
public other than as a result of a disclosure by Recipient or its
directors, affiliates, officers, agents, employees or legal
counsel (collectively, the "Related Parties"), or any other
person to whom Recipient or any Related Party provides such
Confidential Information.
2. Confidential Information will be held and treated by Recipient in
confidence and will not be copied, distributed or disclosed to any
other person or entity. No Confidential Information will be used by
Recipient or its Related Parties other than in connection with the
1
<PAGE>
acquisition of the Property ("Acquisition").
3. Except as required by law as advised in writing by counsel, or
with Owner's prior written consent, Recipient and its Related Parties
shall not disclose to any person or entity the fact that Confidential
Information has been made available to Recipient, or the content or
import of such information. Recipient may disclose Confidential
Information only to its Related Parties who need to know the
Confidential Information for purposes of evaluating the Acquisition
and who will be advised by Recipient of this Agreement and will agree
to act in accordance with its terms, and Recipient will be satisfied
that the Related Parties will act in accordance herewith. In any event,
Recipient shall be responsible for any breach of this Agreement by its
Related Parties, and any other person to whom Recipient or its Related
Parties provide Confidential Information whether or not Confidential
Information was provided in breach of this Agreement.
4. The written Confidential Information, except for that portion of
the Confidential Information that may be found in analyses,
compilations, studies or other documents prepared by Recipient and its
Related Parties, will be returned to Owner promptly upon request
without retention of any copies thereof. That portion of the
Confidential Information that may be found in analyses, compilations,
studies, or other documents prepared by Recipient and its Related
Parties and any written Confidential Information not so requested and
returned will be held by Recipient and kept subject to the terms of
this Agreement or destroyed and a certificate of such destruction
signed by Recipient will be delivered to Owner within five (5) days of
such destruction. In addition, any oral Confidential Information will
be held by Recipient and kept subject to the terms of this Agreement.
5. In the event that Recipient is requested or required (by oral
questions, interrogatories, requests for information or documents,
subpoenas, civil investigative demands or other processes) to disclose
any Confidential Information, it is agreed that Recipient will provide
Owner with prompt notice of any such request or requirement prior to
disclosing such information, and will disclose such information only
in accordance with this Agreement.
6. Recipient acknowledges that neither Owner nor any of its
directors, affiliates, officers, agents, or employees makes any
express or implied representation or warranty as to the accuracy or
completeness of the Confidential Information, and each such party
expressly disclaims any and all liability that may be based on the
Confidential Information, errors therein or omissions therefrom.
7. Recipient acknowledges that money damages may be inadequate to
protect Owner against breach of this Agreement, and Recipient hereby
agrees that Owner shall be entitled to equitable relief including,
without limitation, injunctions, temporary restraining orders on an ex
parte basis, and specific performance as a remedy for any such breach.
Recipient shall reimburse Owner for all costs and expenses, including
reasonable attorneys' fees, incurred by Owner as a result of
Recipient's breach of this Agreement.
8. Recipient agrees to immediately upon demand indemnify and hold
Owner harmless from and against any claims, causes of action, losses,
damages, costs, expenses and liabilities
2
<PAGE>
of any nature, including, without limitation, reasonable attorneys'
fees and court costs directly or indirectly resulting from or arising
out of Recipient's or any of its Related Party's breach of any of the
terms of this Agreement.
9. Recipient acknowledges that it is a principal and not an agent of
or acting on behalf of any other party in connection with the
Property, and that there is no fee or other compensation due
Recipient, monetary or otherwise, in relation to the Property or any
other matters.
10. It is expressly understood and agreed that Recipient's execution
of this Agreement is a precondition to the Owner revealing the
information to Recipient and providing the necessary access thereto.
11. Recipient acknowledges that it is a principal and not an agent of
or acting on behalf of any other party in connection with the
Acquisition. The Recipient acknowledges that it has not had any
discussions regarding the property with any broker or agent except for
Frank Lively. Recipient shall indemnify and hold Owner harmless from
and against any claims, causes of action or liabilities, including,
without limitation, reasonable attorneys' fees and court costs which
may be incurred with respect to any claims for other real estate
commissions, broker's fees or finder's fees in relation to or in
connection with the Property to the extent claimed by, through or
under Recipient.
12. Unless otherwise provided pursuant to an Agreement of Sale and
Purchase executed by and between Recipient and Owner, Recipient shall
have until February 28, 1996, 5:00 P.M. Newark, New Jersey time (the
"Inspection Period") within which to make all audits, inspections or
investigations desired by Recipient, subject to Owner's requirements
as hereinafter set forth. Recipient and its Related Parties (which
shall not exceed four (4) persons at any one time, including Recipient
and any of its Related Parties), each of which persons must be
----
accompanied by an authorized employee or representative of Owner's
property manager ("Manager"), shall have the right, during regular
business hours and with reasonable notice, subject to the rights of
tenants occupying space on the Property and guests of the hotel on the
Property, to physically inspect the Property, and make such tests,
surveys and inspections as Recipient deems necessary, including,
without limitation, soil tests, topographical surveys, structural and
foundation surveys, concrete tests, roof inspections, equipment
inspections and environmental inspections. Recipient shall exercise
(and cause its Related Parties to exercise) due care and ordinary
prudence in performing such surveys, inspections and tests and shall
not exercise such right in a manner that interferes with the operation
of the Property. If the transactions contemplated hereby are not
consummated, Recipient, at its own cost and expense, promptly shall
repair any damage to the Property resulting from such surveys, tests
or inspections. Recipient shall indemnify, defend, save and hold
harmless Owner from and against any and all claims, liens (including,
without limitation, mechanic's and materialman's liens), actions,
suits, proceedings, costs expenses, damages or other liabilities,
including, without limitation, attorneys' fees and court costs, all as
incurred, arising out of the rights granted to Recipient pursuant to
the terms of this Inspection Period. At Owner's request, Recipient
shall furnish to Owner copies of all studies, tests and surveys
undertaken and completed in connection with such inspections and at
Owner's request
3
<PAGE>
therefor, certify same to Owner.
13. The terms of this Agreement shall survive the closing of a
contract of sale, if one is entered into and shall continue in full
force and effect until February 1, 2001.
----------------
14. This Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey.
15. This Agreement contains the complete statement of all the
agreements among the parties hereto with respect to the subject matter
hereof, and all prior agreements among the parties hereto respecting
the subject matter hereof, whether written or oral, are merged herein
and shall be of no further force or effect. This Agreement cannot be
changed, modified, discharged or terminated, except by an instrument
in writing signed by all of the parties hereto.
16. Recipient acknowledges that the Property may be offered for sale
by Owner to any third party, in Owner's sole discretion. This
Agreement shall not provide Recipient with any other rights with
respect to the Property, including, without limitation, a right of
first refusal to purchase the Property or an option to purchase the
Property.
IN WITNESS WHEREOF THIS 23 DAY OF February, 1996
-- -------- --
OWNER:
MBL LIFE ASSURANCE CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
RECIPIENT:
EQUISTAR HOTELS
By: /s/ William F. Driscoll
----------------------------------
Name: William F. Driscoll
-------------------------------
Title: Vice President,
------------------------------
Development & Acquisitions
4
<PAGE>
EXHIBIT J
TO
AGREEMENT OF SALE AND PURCHASE
------------------------------
1996 CAPITAL BUDGETS
--------------------
[Consisting of 5 pages and follows this page]
<PAGE>
<TABLE><CAPTION>
Sacramento Hilton
1996
Capital Budget
Item Jan. Feb. Mar. Apr. May. June July August Sept. Oct. Nov. Dec. Total
Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coffee 1,078 $1,078
Service Carts
Banquet Annex 2,694 $2,694
Storage
New Buffet 16,163 $16,163
Unit
Room Service 3,017 $3,017
Carts
Refurbish 21,650 $21,650
Lobby
Restrooms
Vacuum 2,263 $2,263
Cleaners
Room 7,112 $7,112
Attendant
Carts
New Key Lock 98,465 $98,465
System
Business 80,683 $80,683
Center Desks
Valet Racks 2,802 $2,802
Portable 6,142 $6,142
Refrigerators
Exec Floor 31,827 $31,827
Linen Upgrade
Floor Plants 5,948 $5,948
Clock Radio 3,233 $3,233
Upgrades
Concierge 9,913 $9,913
Remodeling
Mounted 3,879 $3,879
Mirrors
Bathrooms
Elevator 17,240 $17,240
Upgrade
Carpet/Vinyl 29,752 $29,752
First Floor
ADA Room 12,878 $12,878
Signage
ADA Grab Bars 2,584 $2,584
for Restrooms
New Entrance 30,170 $30,170
Sign
Pool Deck 6,465 $6,465
Reserved for 39,824 $39,824
RM
Renovations
Total $131,643 $124,600 $17,241 $62,313 $7,112 $59,922 $ 0 $ 0 $ 3,017 $ 0 $ 0 $39,824 $436,672
</TABLE>
<PAGE>
<TABLE><CAPTION>
Santa Barbara Inn
1996
Capital Budget
Item Jan. Feb. Mar. Apr. May June July August Sept. Oct. Nov. Dec. Total
Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mattresses & $ 4,653 $ 4,653
Box Springs
Update $46,879 $46,879 $93,758
Mtnside
Bathrooms
Night Tables, $ 3,681 $ 3,681
Lamps,
Pictures
Purchase $ 3,472 $ 3,472
Bicycles
Purchase $ 1,157 $ 1,157
Freezer
ADA $ 7,275 $ 7,275
Compliance
Replace $ 7,367 $ 7,367
Montecito RM
Carpet
Replace $13,571 $13,571
Restaurant
Carpet
Computer $ 5,000 $ 5,000
Upgrades
Total $46,879 $46,879 $29,272 $ 8,472 $ 8,432 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $139,934
</TABLE>
<PAGE>
<TABLE><CAPTION>
PREPARED
MAY 15, 1996
COMMENTS
ESTIMATE TOTAL OVER COMPLETION
WHS PROJECT BUDGET ADJUSTED SPENT TO TO EST. (UNDER) ON
PROJECT NAME VENDOR PO# BUDGET CHANGES BUDGET DATE COMPLETE COST BUDGET DATE
1996 CAPITAL PROJECT BUDGET
---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Garage Ramp Rehab $20,000.00 $0.00 $20,000.00 $4,102.00 $5,000.00 $8,108.00 ($10,808.00)
Exterior Rehab On Hold 5/6 FL $80,000.00 $0.00 $20,000.00 $0.00 $80,000.00 $80,000.00 $0.00
Voice Mail $27,100.00 $0.00 $27,100.00 $0.00 $27,100.00 $27,100.00 $0.00
Laundry Equipment $25,000.00 $0.00 $25,000.00 $0.00 $25,000.00 $25,000.00 $0.00
Kitchen Equipment $30,000.00 $0.00 $30,000.00 $0.00 $30,000.00 $30,000.00 $0.00
Case Goods/FF&E $128,000.00 $0.00 $125,000.00 $2,102.71 $122,897.20 $125,000.00 $0.00
Ambassador Upgrade $12,800.00 $0.00 $12,800.00 $0.00 $12,800.00 $12,800.00 $0.00
Guest Room Amenities $25,000.00 $0.00 $25,000.00 $2,323.00 $22,000.00 $25,000.00 $0.00
Signage, Exterior $5,000.00 $0.00 $5,000.00 $?????.00 $4,008.00 $4,000.00 $0.00
Hot Water Project On Hold 5/6 FL $5,000.00 $0.00 $5,000.00 $1,802.23 $3,387.77 $5,000.00 $0.00
IBM Workstations $3,500.00 $0.00 $3,000.00 $0.00 $3,800.00 $3,800.00 $0.00
Computer Equipment Replacement $6,000.00 $0.00 $5,000.00 $3,814.00 $1,180.00 $6,000.00 $0.00
Guest Room HVAC $10,800.00 $0.00 $10,800.00 $9,003.00 $1,417.00 $10,800.00 $0.00
A/C Vent Recondition $10,000.00 $0.00 $10,000.00 $0.00 $10,000.00 $10,000.00 $0.00
Auto Doors, Garage $5,000.00 $0.00 $5,000.00 $0.00 $5,000.00 $5,000.00 $0.00
Banquet Tables $7,600.00 $0.00 $7,600.00 $0.00 $7,800.00 $7,800.00 $0.00
Stairwell Renovations $7,500.00 $0.00 $7,600.00 $0.00 $7,600.00 $7,600.00 $0.00
Walk in Refrigerator Rehab $8,000.00 $0.00 $8,000.00 $0.00 $8,000.00 $8,000.00 $0.00
Rehab Dining Room Sliders $1,800.00 $0.00 $1,800.00 $0.00 $1,800.00 $1,800.00 $0.00
Office Added from carryover $18,000.00 $0.00 $13,000.00 $0.00 $13,000.00 $13,000.00 $0.00
Ice Machine Added from carryover
Delete 5/6 $18,000.00 ($18,500.00) $0.00 $0.00 $0.00 $0.00 $0.00
Security Cameras Audit Report items
pending 2/13 $8,800.00 $0.00 $8,800.00 $0.00 $8,800.00 $8,800.00 $0.00
Laundry Doors/Security of Area
Audit Report items pending 2/13 $2,000.00 $0.00 $2,000.00 $0.00 $2,000.00 $2,000.00 $0.00
White House Carryover from 1994 $5,000.00 $0.00 $5,000.00 $4,982.00 $0.00 $4,982.00 ($440.00)
Copy Machine Carryover from 1994 $10,000.00 $0.00 $10,000.00 $10,000.00 $0.00 $10,000.00 $0.00
Garage Electrical New Item $0.00 $1,800.00 $1,800.00 $1,945.00 $0.00 $1,945.00 ($254.00)
$0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
$0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
- ------------------------------------------------------------------------------------------------------------------------
TOTAL PROJECT EXPENSE $400,000.00 (12,200.00) $454,000.00 $40,000.00 $404,974.00 $445,200.00 ($11,600.00)
VARIANCE\CONTINGENCY (18,000.00) $822.00
NON PROJECT EXPENSE
-------------------
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
- -------------------------------------------------------------------------------------------------------------------------
TOTAL NON PROJECT EXPENSE $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
- -------------------------------------------------------------------------------------------------------------------------
TOTAL 1994 CAPITAL BUDGET $400,000.00 ($12,200.00) $454,000.00 $40,000.00 $404,974.00 $445,255.00 ($11,600.00)
- -------------------------------------------------------------------------------------------------------------------------
Estimated 1996 Reserve Deposits $312,105.00 (As of 1st Quarter Report)
Estimated 1996 Carry Over $134,072.04
-----------
Available 1996 Capital Projects $144,177.08
</TABLE>
<PAGE>
<TABLE><CAPTION>
Lafayette Hilton & Tower
1996
Capital Budget
Jan Feb Mar Apr May June July August Sept Oct Nov
Item Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Resurface Swimming $6,500
Pool
Replace Carpet in $15,000
Cafe Jardin
Replace Banquet $ 3,000
Equip, Chairs
Tables, Linen, etc.
Replace Towers Ice $ 6,000
Machine
Replace Carpet in 4 $ 6,000
Meeting Rooms
Rework the Cooling $10,000
Towers
Replace Ironer in $ 8,000
the Housekeeping
Dept.
Replace Bearing on $ 3,000
the No. 2 Washer
Purchase New Vacuum $ 2,000
Cleaners
Replace 18 Tubes in $ 4,000
the Air Cond.
Chiller
Replace Ballroom $30,000
Carpet
Renovate Towers $34,000 $34,000 $34,000
Rooms on the 15th
Floor
Replace Carpet, $32,000 $32,000 $32,000
Vinyl & Paint on
Remaining 5
Corridors
Repair Parking Lot $ 8,000
Retrofit Bathroom
to Meet ADA
Requirements
Accounting Software $12,000
(DataPlus)
Replace Kitchen
Griddle
Total $24,500 $22,000 $17,000 $42,000 $34,000 $34,000 $34,000 $32,000 $32,000 $32,000 $ 8,000
<CAPTION>
Dec Total
Item Budget Budget
<S> <C> <C>
Resurface Swimming $ 6,500
Pool
Replace Carpet in $15,000
Cafe Jardin
Replace Banquet $ 3,000
Equip, Chairs
Tables, Linen, etc.
Replace Towers Ice $ 6,000
Machine
Replace Carpet in 4 $ 6,000
Meeting Rooms
Rework the Cooling $10,000
Towers
Replace Ironer in $ 8,000
the Housekeeping
Dept.
Replace Bearing on $ 3,000
the No. 2 Washer
Purchase New Vacuum $ 2,000
Cleaners
Replace 18 Tubes in $ 4,000
the Air Cond.
Chiller
Replace Ballroom $30,000
Carpet
Renovate Towers $102,000
Rooms on the 15th
Floor
Replace Carpet, $96,000
Vinyl & Paint on
Remaining 5
Corridors
Repair Parking Lot $ 8,000
Retrofit Bathroom $ 9,000 $ 9,000
to Meet ADA
Requirements
Accounting Software $12,000
(DataPlus)
Replace Kitchen $ 4,000 $ 4,000
Griddle
Total $13,000 $324,500
</TABLE>
<PAGE>
<TABLE><CAPTION>
HOLIDAY INN GARDEN OF THE GODS
1996
CAPITAL BUDGET
Jan Feb Mar Apr May June July August Sept Oct Nov Dec Total
Item Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget Budget
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Kronos Time- 6,000 $6,000
Keeping System
Housekeeping/ 3,500 $3,500
Encore Interface
Elevator for 200 8,000 $8,000
& 300 wing
Upgrade Lighting 10,000 $10,000
System
Caulk & Seal 5,000 $5,000
Hotel Exterior
Mainline Sewer 3,000 $3,000
Upgrade
Computer 3,000 $3,000
Replacement
Landscape 10,000 $10,000
Enhancement
ADA - Pool 5,300 $5,300
Door/Electronic
Doors
Replace Mattress 10,000 $10,000
& Box Springs -
200
Canopy - 7,000 $7,000
Courtyard Area
Golf Cart 2,500 $2,500
Replace Kitchen 3,000 $3,000
Garbage Disposal
Install DDC - 7,000 $7,000
HVAC Rooftop
Stoves on Front 6,000 $6,000
Line - Kitchen
Kitchen 7,300 $7,300
Equipment
Replace Boilers 6,000 $6,000
Upgrade 3,000 $3,000
Microphone
System
A/V Equipment 4,500 $4,500
Banquet 25,000 $25,000
Equipment
TOTAL 6,000 11,500 10,000 11,000 25,300 25,500 13,300 32,500 $135,100
</TABLE>
Exhibit 10.4
AGREEMENT OF SALE AND PURCHASE
------------------------------
THIS AGREEMENT OF SALE AND PURCHASE (this "Agreement"), dated as of this
14th day of June, 1996, is made by and between Ballston Hotel Limited
Partnership, a Virginia limited partnership ("Seller"), and EquiStar Hotel
Investors, L.P., a Delaware limited partnership ("Purchaser").
1.
Definitions; Sale and Purchase
------------------------------
1.01. Definitions. For the purpose of this Agreement, the following terms
-----------
shall have the meanings indicated below:
(a) Affiliate shall mean any entity controlling, controlled by or
---------
under common control with the entity at issue.
(b) Bookings shall mean contracts or reservations for the use or
--------
occupancy of guest rooms and/or the banquet facilities of the Hotel.
(c) Closing Date shall mean the date specified in Section 7.01.
------------
(d) Consumables shall mean all opened and unopened food and beverages
-----------
(alcoholic and non-alcoholic).
(e) Cut-Off Time shall mean 11:59 p.m. on the date preceding the
------------
Closing Date.
(f) Effective Date shall mean the date of this Agreement.
--------------
(g) Expendables shall mean all china, glassware, linens, silverware,
-----------
kitchen and bar small goods, paper goods, guest supplies, cleaning supplies,
operating supplies, printing, stationary and uniforms, whether in use or held in
reserve storage for future use in connection with the operation of the Hotel.
(h) Furnishings shall mean all fixtures, furniture, furnishings,
-----------
fittings, equipment, machinery, apparatus, appliances, vehicles and other
articles of personal property located on or used or usable in connection with
any part of the Hotel, subject to such depletions, substitutions and
replacements as shall occur and be made in the ordinary course of business prior
to the Closing Date.
(i) Hotel shall mean the hotel located at 950 North Stafford Street,
-----
Arlington, Virginia 22203, and known as the Arlington Renaissance Hotel.
<PAGE>
(j) Hotel Contracts shall mean the existing Management Agreement with
---------------
Renaissance Hotel Operating Company, or its affiliate (the "Management
Agreement"), all service and maintenance contracts, employment agreements, union
contracts, purchase orders, equipment leases and other contracts or agreements
relating to the maintenance, operation, provisioning or equipping of the Hotel,
together with all related written warranties and guaranties.
(k) Improvements shall mean the buildings, structures (surface and
------------
sub-surface), installations and other improvements, including such fixtures and
appurtenances as shall constitute real property located on the Land.
(l) Land shall mean the land and all appurtenances thereto, having a
----
street address at 950 North Stafford Street, Arlington, Virginia 22203, and more
particularly described in Exhibit A to this Agreement upon which the Hotel is
situated together with all appurtenances to the Land.
(m) Permits shall mean all licenses, franchises, permits,
-------
certificates of occupancy, authorizations and approvals used in or relating to
the ownership, occupancy or operation of any part of the Hotel, including,
without limitation, those necessary for the sale and on-premises consumption of
liquor and other alcoholic beverages.
(n) Parking Interest shall mean that certain 35.02% interest in
----------------
Ballston Parking Associates, a Virginia general partnership, currently owned by
Seller and to be conveyed to Purchaser pursuant to the terms hereof.
(o) Property shall mean the Land and Improvements, as more fully
--------
described in Exhibit A, attached hereto.
1.02. Sale and Purchase. Seller agrees to sell and convey the Hotel and
-----------------
Parking Interest to Purchaser, and Purchaser agrees to purchase and accept the
Hotel and Parking Interest from Seller, for the price and subject to the terms,
covenants, conditions and provisions set forth in this Agreement. The sale and
purchase shall include the Property and all right, title and interest of Seller
in and to the Parking Interest, Furnishings, Consumables, Expendables, Permits,
Leases (as hereinafter defined) and Hotel Contracts.
2.
Consideration
-------------
2.01. Purchase Price. (a) The purchase price ("Purchase Price") to be
--------------
paid by Purchaser to Seller at the closing of the purchase and sale of the
Property and the other items described in Section 1.02 above (the "Closing")
shall be Two Million, Eight Hundred Thousand and No/100 Dollars ($2,800,000), in
cash or by
-2-
<PAGE>
wire transfer, of which the Deposit, as defined below, shall constitute a part,
subject to the prorations and adjustments described below.
(b) In addition to Purchaser paying Seller the amount described in
Section 2.01(a), Purchaser shall acquire title to the Property subject to that
certain obligation evidenced by a Promissory Note (the "Note") issued by Seller
to Signet Bank/Virginia in the original principal amount of $18,500,000, dated
October 5, 1988 (the "ALI Debt"), which is secured by a first lien deed of trust
encumbering the Property. Immediately prior to the Closing Date, the ALI Debt
shall be modified to reflect the release of IDI Financial Associates, IDI
Services, Inc., IDI Associates (now known as IDI, L.C.), Ballston Realty, Inc.
and Ballston Hotel, Inc., as guarantors of the ALI Debt and to reflect the terms
and conditions set forth in Exhibit B, attached hereto.
2.02. Payment of Purchase Price/Earnest Money.
----------------------------------------
(a) The Purchase Price shall be payable by Purchaser as follows:
(i) Five Hundred Thousand and No/100 ($500,000) as an earnest
money deposit (together with any interest earned thereon, the "Earnest Money")
upon execution and delivery of this Agreement by a check payable to Chicago
Title Insurance Company (in its capacity as holder of the Earnest Money, the
"Escrow Agent"). The Earnest Money shall be held by Escrow Agent in escrow in an
interest-bearing account pursuant to terms of this Agreement. If the Closing
occurs in accordance with the terms and provisions of this Agreement, the
Earnest Money shall be paid to Seller and credited against the Purchase Price.
If the Closing does not occur, the Earnest Money shall be held and delivered as
provided in this Agreement;
(ii) Two Million, Three Hundred Thousand and No/ 100 Dollars
($2,300,000), subject to the prorations and adjustments described below, on the
Closing Date, by wire transfer of good funds to an account to be designated by
Seller prior to the Closing. If there is a dispute between Seller and Purchaser
concerning Seller's or Purchaser's right to receive the Earnest Money, or the
proceeds of collection thereof, Escrow Agent shall continue to hold the Earnest
Money until the dispute is resolved by Seller and Purchaser or until otherwise
directed by a court of competent jurisdiction. Upon termination of the escrow,
all interest earned on the investments shall be paid to the party entitled to
receive the principal thereof.
-3-
<PAGE>
3.
Survey
------
3.01. Survey. Promptly after the Effective Date, Purchaser shall at its
------
expense obtain and deliver to Purchaser a current survey (the "Survey") of the
Property prepared by a licensed Virginia surveyor. The Survey, which shall be
certified to Purchaser, Purchaser's lender and Purchaser's title insurer, shall
indicate the metes and bounds of the Land, shall indicate the Improvements and
the location of any easements, utility lines, rights-of-way, water courses,
drains, sewers, driveways, roads and encroachments affecting the Property, and
shall indicate that all Improvements are located within the record and setback
lines of the Property and that no easements or other encroachments located on
the Property interfere with the use of the Property and shall otherwise be in
accordance with the Minimum Standard Detail Requirements and Classifications for
ALTA/ACSM Land Title Surveys (including items 1, 2, 3, 6, 7A, 7B, 7C, 8, 9, 10,
11 and 13 of Table A thereof) and the standards of any board or organization
promulgating standards for surveys in the Commonwealth of Virginia.
4.
Title Insurance
---------------
4.01. Title Commitment. Purchaser, at its cost, has caused Chicago Title
----------------
Insurance Company (in its capacity as title insurer, the "Title Company"),
through its Washington, D.C. office, to deliver to Purchaser a up-to-date and
complete commitment for an ALTA Owner's Policy of Title Insurance (1970, revised
10/17/84) with extended coverage (the "Title Commitment") accompanied by a
legible copy of all recorded documents relating to liens, easements, rights-of-
way, restrictions and other matters affecting title to the Property.
4.02. Title Objections. Purchaser shall have ten days from the last to be
----------------
received of the Title Commitment and the Survey to notify Seller as to any items
that are unsatisfactory to Purchaser. Unless Purchaser or its attorney so
notifies Seller within such ten-day period, Purchaser shall be deemed to have
approved the condition of title to the Property as reflected by the Title
Commitment. If within such period Purchaser notifies Seller that any of the
items are unacceptable ("Objections"), Seller shall promptly undertake to cure
such Objections to Purchaser's and the Title Company's satisfaction. If Seller
is unable to cure such Objections prior to the Closing, then Purchaser may
either (i) accept title to the Property subject to such Objections or (ii)
terminate this Agreement by written notice to Seller, whereupon the Earnest
Money shall be promptly returned to Purchaser and the parties shall have no
further rights or liabilities under this Agreement. Purchaser shall make such
-4-
<PAGE>
election by written notice to Seller or on before the Closing Date or within
five business days after Seller has advised Purchaser in writing that it is
unable to cure such Objections, whichever occurs first, and in the event
Purchaser does not make such election, Purchaser shall be conclusively deemed to
have terminated this Agreement. Those restrictions, liens, encumbrances,
easements, rights of way and other matters as are not objected to by Purchaser
in the manner provided in this Section shall be deemed "Permitted Exceptions."
Nothing herein shall be deemed to prohibit Purchaser from objecting to title
defects revealed subsequent to approval of the title reflected by the Title
Commitment and the Survey and any such objections will be treated as
"Objections" in accordance with this Section.
4.03. Title Conveyed. Seller shall, on the Closing Date, convey to
--------------
Purchaser good, marketable and insurable title subject only to the Permitted
Exceptions.
4.04. Monetary Liens. Seller shall cure at or before the Closing any
--------------
Objection which may be removed by the payment of a liquidated sum of money and
Seller may not refuse to cure the same. Seller may use all or any portion of the
Purchase Price to effect such cure at the Closing.
4.05. Searches. Promptly after the Effective Date, Purchaser shall obtain,
--------
at its expense, written reports of searches (the "Searches") of the records of
the appropriate governmental agencies confirming the absence of security
interests, judgments, tax liens and bankruptcy proceedings which affect or could
affect the Property or any interest therein to be transferred to Purchaser
pursuant to this Agreement (except the Permitted Exceptions, the ALI Debt and
equipment lease liens described in Exhibit C). If such Searches disclose the
existence of any security interests, judgments, tax liens or bankruptcy
proceedings which affect or could affect the Property or any interest therein to
be transferred to Purchaser pursuant to this Agreement (except the Permitted
Exceptions, the ALI Debt and equipment lease liens described in Exhibit C),
Seller shall have thirty (30) days from the date of delivery of such written
reports to secure the release of all such security interests, judgments, tax
liens and bankruptcy proceedings and provide evidence of such release to
Purchaser. If Seller fails to secure all such releases within such thirty (30)
day period, Purchaser may elect, upon notice to Seller on or before the Closing
Date, to (i) terminate this Agreement, in which event the Earnest Money shall
promptly be returned to Purchaser, or (ii) accept title subject only to such
then unreleased security interests, judgments and tax liens with the further
right to deduct from the Purchase Price amounts secured by any such security
interests, judgments and tax liens (other than the Permitted Exceptions, the ALI
Debt and equipment lease liens described in Exhibit C) of a definite or
ascertainable amount. If Purchaser fails to make such election, Purchaser shall
be deemed to have elected to terminate this Agreement in accordance with (i)
above. Said Searches shall be updated, at
-5-
<PAGE>
Purchaser's cost and expense, in Purchaser's discretion, prior to the Closing
Date confirming that there are no security interests, judgments, tax liens or
bankruptcy proceedings affecting the Property or any interest therein to be
transferred to Purchaser pursuant to this Agreement, except as described above.
5.
Representations, Warranties, Covenants
--------------------------------------
and Conditions Precedent
------------------------
5.01. Seller's Representations and Warranties. Seller represents and
---------------------------------------
warrants to Purchaser as of the date hereof and as of the Closing Date as
follows:
(a) it is a duly organized and validly existing limited partnership
and is in good standing under the laws of the Commonwealth of Virginia with all
requisite power and authority to enter into this Agreement and to conduct its
business;
(b) this Agreement constitutes the legal, valid and binding obligation
of Seller enforceable in accordance with its terms;
(c) no consents or approvals are required from any governmental
authority or other person or entity for the Seller to enter into this
Agreement. All action on the part of Seller necessary for the authorization,
execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby, (x) have been duly taken or (y) will, prior to
the Closing, have been taken;
(d) the execution and delivery of this Agreement by the Seller, and
the consummation of the transactions contemplated hereby, does not conflict with
or contravene the provisions of its organization documents, or any agreement or
instrument by which it or its properties are bound or any law, rule, regulation,
order or decree to which it or its properties are subject;
(e) Seller has good and marketable title in and to the Hotel, subject
only to the liens, easements, restrictions, encumbrances or conditions described
in the Title Commitment dated March 9, 1996, a copy of which is attached hereto
as Exhibit D
(f) there are no actions, suits or proceedings pending or, to the best
knowledge of Seller, threatened, against the Seller materially affecting any
portion of the Hotel, at law or in equity or before or by any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality except (A) that Seller is in default under the ALI Debt in that
the Note has matured and Seller has failed to pay the principal indebtedness
owing under the Note (the "Principal Default") (although Seller is current with
respect to all interest
-6-
<PAGE>
payments under the Note) and (B) as set forth on Exhibit F, attached hereto;
(g) there is no pending or threatened condemnation or similar
proceeding or assessment affecting the Hotel, or any part thereof, nor to the
actual knowledge of Seller, is any such proceeding or assessment contemplated by
any governmental authority;
(h) no service, material or work has been supplied in connection with
the Hotel for which payment has not been or shall not be made in full;
(i) all material contracts to which the Seller is a party or by which
the Seller is bound on the date hereof which relate to or affect the Hotel are
identified in Exhibit I. Seller and/or its Affiliates have heretofore delivered
to the Purchaser true and complete copies of each of the Hotel Contracts along
with all amendments thereto. To the best knowledge of Seller, the Seller is not
in default of any of its obligations under any of the Hotel Contracts and, to
the best of knowledge of the Seller, there is no default on the part of the
other parties thereto. As used in this Section 5.01(h), a contract shall be
deemed "material" if it involves payments or receipts by the Seller of more than
$5,000 or if it may materially adversely affect the condition, properties,
business or prospects of the Seller or the Hotel;
(j) all taxes presently due and payable with respect to the Hotel have
been paid in full;
(k) to the actual knowledge of Seller, there are no violations of any
ordinances, regulations, laws or statutes of any governmental agency, or of any
covenant, agreement or restriction of record affecting or otherwise relating to
the Hotel or any portion thereof which have not been complied with or corrected;
(l) except for those amounts and uses of cleaning materials containing
hazardous substances normally and customarily associated with the operation of a
hotel for use by the genera] public, the Hotel, to the best of Seller's
knowledge, is in compliance with all applicable environmental laws. Except as
stated in the immediately preceding sentence, Seller has not released, stored or
disposed of hazardous substances or materials containing hazardous substances,
oil or petroleum products or wastes on or under the Hotel or any of the land
adjacent to the Hotel. Seller has no actual knowledge of any material inaccuracy
in that certain Phase I Environmental Report prepared by CRC Environmental,
dated , 1996 (the "Environmental Report").
-------------------------- --
Seller's representations and warranties in this Section 5.01(l) are subject to
any specific information about the Hotel contained in said Environmental Report.
As used in this paragraph, "hazardous substances" shall mean hazardous
substances as defined in the Comprehensive Environmental Response
-7-
<PAGE>
Compensation and Liability Act as amended, and the regulations thereunder, and
"hazardous waste" shall mean "hazardous waste" as defined in the Resource
Conservation and Recovery Act as amended, and the regulations thereunder;
(m) no assessments for public improvements have been made against the
Hotel which are unpaid, including without limitation, those for construction of
sewer and water lines, streets, sidewalks and curbs. To the best knowledge of
Seller, there are no proposed special assessments affecting or which may affect
the Hotel or any portion thereof;
(n) to the best of Seller's knowledge, all, Permits, certificates,
licenses and approvals required for the use and operation of the Hotel are
identified in Exhibit G, which will be attached hereto within seven (7) days
from the Effective Date, including without limitation certificates of use or
occupancy, licenses to operate the Hotel, dining/food service facilities, retail
and all other facilities and amenities to be offered at the Hotel for which
licenses are required, underwriters certificates relating to electrical or other
systems, zoning, curb cut, pedestrian and vehicular access to streets,
buildings, safety and fire code regulations;
(o) Seller and/or its Affiliates have supplied or made available to
the Purchaser copies of all reports, studies, plans, surveys, agreements,
instruments and documents in their possession or in the possession of Seller or
its Affiliates relating to the Hotel. To the best of Seller's knowledge, all
information furnished or to be furnished to the Purchaser by Seller hereunder is
or shall be true, correct and complete in all material respect at the time of
delivery and does not and shall not fail to state a material fact. Seller shall
promptly notify the Purchaser of any fact which changes this representation;
(p) to the best knowledge of Seller, there does not exist any event,
condition or state of facts that adversely affects or threatens to adversely
affect the operation of the Hotel;
(q) the financial information submitted by the Seller to the Purchaser
regarding the Hotel, taken as a whole, fully, completely and fairly represents
the financial condition of the Hotel, does not fail to state any material fact
with respect thereto and no event or circumstance has occurred that may have a
material adverse effect on the financial condition of the Hotel;
(r) all material liabilities and obligations (contingent or otherwise)
affecting the Hotel are fully described on Exhibit H, attached hereto. For
purposes of this Section 5.01(q), "material" shall mean any liability or
obligation exceeding $10,000.
-8-
<PAGE>
(s) no Affiliate of Seller is a party to any agreements with Seller or
an Affiliate of Seller in respect of the Hotel.
(t) Seller has no employees.
As used in this Section 5.01, the term "Seller" shall include Seller and any of
its Affiliates, but expressly excluding the limited partners of Seller and any
of their Affiliates. Whenever "to the best of Seller's knowledge" is used above,
it shall not be deemed to include matters known to Renaissance Hotel Operating
Company or its Affiliates unless such matters have been disclosed to Seller.
5.02. Purchaser's Representations and Warranties. Purchaser represents and
------------------------------------------
warrants to Seller as of the date hereof and as of the Closing Date as follows:
(a) Authority. Purchaser is a duly formed corporation validly existing
---------
and in good standing under the laws of the State of Delaware. Purchaser has the
corporate power, right and authority to enter into and perform all of the
obligations required of Purchaser under this Agreement and the instruments and
documents referenced herein, and to consummate the transaction contemplated
hereby. The individuals executing this Agreement and the instruments referenced
herein on behalf of Purchaser have the corporate power, right and authority to
bind Purchaser.
(b) Consents. Purchaser has taken all requisite action and has
--------
obtained all requisite consents, releases and permissions in connection with
entering into this Agreement and the instruments and documents referenced herein
or required under any covenant, agreement, encumbrance, law or regulation with
respect to the obligations required hereunder, and no consent of any other party
is required for the performance by Purchaser of its obligations hereunder.
(c) Execution. This Agreement is, and all agreements, instruments and
---------
documents to be executed and delivered by Purchaser pursuant to this Agreement
shall be, duly authorized, executed and delivered by Purchaser. This Agreement
is, and all agreements, instruments and documents to be executed and delivered
by Purchaser pursuant to this Agreement shall be, valid and legally binding upon
Purchaser and enforceable in accordance with their respective terms.
(d) No Violations. Purchaser's entering into this Agreement and
-------------
consummating this transaction will not violate any law, governmental regulation,
order or decree to which Purchaser is subject or any agreement or other
instrument to which Purchaser is a party or by which it is bound.
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(e) No Pending Actions. There are no legal actions, suits or
------------------
administrative proceedings against Purchaser, pending or threatened, before any
court of law, tribunal or other governmental body, which if adversely
determined would materially adversely affect Purchaser's ability to perform its
obligations hereunder.
(f) No Actions for Relief from Claims. Purchaser is not the subject of
---------------------------------
any proceedings under the United States Bankruptcy Code or any similar federal
or state law or statute regarding relief from creditors' claims, whether
voluntary or involuntary, and Purchaser has not received any actual notice that
any such proceedings have been instituted or threatened by any party against
buyer.
5.03. Remedies Regarding Representations and Warranties.
-------------------------------------------------
(a) By executing and delivering the documents listed in Section 7.04, Seller
shall be deemed to have made all of the foregoing representations and warranties
of Seller in Section 5.01, as of Closing. Should any of such representations and
warranties be found to be materially incorrect prior to Closing, Seller shall
attempt to cure the same by Closing. If Seller is unable to cure same by
Closing, at Purchaser's option, Closing shall be postponed until five business
days following Purchaser's receipt of proof satisfactory to Purchaser that such
matters have been cured; provided, however, if Seller is unable to cure the same
within 30 days after the Closing Date, Purchaser shall be entitled either to
waive the same and close this transaction, exercise its rights pursuant to
Article VI of this Agreement or to terminate this Agreement. In the event
Purchaser elects to terminate this Agreement, Escrow Agent shall return the
Earnest Money to Purchaser and neither party to this Agreement shall thereafter
have any further rights or liabilities under this Agreement. The representations
and warranties of Seller shall survive Closing for a period of one year, and
Seller shall indemnify and hold Purchaser harmless from and against any loss,
damage, liability, claim, cost or expense (including, without limitation,
reasonable attorneys' fees) that may be incurred by or asserted against
Purchaser and arises from a breach of Seller's representation or warranty;
provided that Purchaser shall advise Seller of such breach within one year after
Closing.
(b) By executing and delivering the documents listed in Section 7.04,
Purchaser shall be deemed to have made all of the foregoing representations and
warranties of Purchaser in Section 5.01, as of Closing. Should any of such
representations and warranties be found to be materially incorrect prior to
Closing, Purchaser shall attempt to cure the same by Closing. If Purchaser is
unable to cure same by Closing, at Seller's option, Closing shall be postponed
until five business days following Seller's receipt of proof satisfactory to
Seller that such matters have been cured; provided, however, if Purchaser is
unable to cure the same within 30 days after the Closing Date, Seller shall be
entitled either to waive the same and close this transaction,
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<PAGE>
exercise its rights pursuant to Article VI of this Agreement or to terminate
this Agreement. In the event Seller elects to terminate this Agreement, Escrow
Agent shall deliver the Earnest Money to Seller and neither party to this
Agreement shall thereafter have any further rights or liabilities under this
Agreement. The representations and warranties of Purchaser shall survive Closing
for a period of one year and Purchaser shall indemnify and hold Seller harmless
from and against any loss, damage, liability, claim, cost or expense (including,
without limitation, reasonable attorneys' fees) that may be incurred by or
asserted against Seller and arises from a breach of Purchaser's representation
or warranty; provided that Seller shall advise Purchaser of such breach within
the one year period after Closing.
5.04. Seller's Covenants. Seller covenants and agrees with Purchaser that
------------------
prior to the Closing:
(a) Seller will assist Purchaser and Purchaser's agents, on or before
Closing, in acquiring all information necessary to enable Purchaser's agents and
Seller's agents to compute the prorations described in Section 7.02 of this
Agreement.
(b) Seller will not sell, exchange, assign, transfer, convey, lease or
otherwise dispose of all or any part of the Property or any interest therein
except for Furnishings, Consumables and Expendables which are sold or consumed
in the ordinary course of business.
(c) Seller will keep the Leases, the Hotel Contracts, and the Permits
in full force and effect, will pay all charges when due under such agreements
and will perform all of its obligations under such agreements.
(d) Seller will not enter into any contracts, licenses, easements or
other agreements relating to the Property which will obligate Purchaser or be a
charge or lien against the Property, except those necessary to continue the
operation of the Hotel in the ordinary course of business and which are
terminable without penalty on thirty days notice.
(e) Seller will cause the Property to be operated and maintained in
the manner in which it is being operated and maintained as of the date of this
Agreement which undertaking includes, but is not limited to, (i) maintaining
Expendables, Furnishing and Consumables in those quantities and at those levels
present as of the Effective Date, and (ii) entering into Bookings in the
ordinary course of business.
(f) Seller shall permit Purchaser and its representatives to enter
upon and inspect the Property and perform such investigations of the Property
and all applicable books and records as Purchaser may from time to time deem
desirable. Purchaser shall give Seller reasonable prior notice of any such
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<PAGE>
inspections and investigations and shall use best efforts to minimize any
interference with the operation of the Property.
(g) Seller will promptly notify Purchaser of any matter arising prior
to Closing which might materially and adversely affect the operation of the
Hotel including, without limitation, the commencement of any litigation or
proceeding or any notice of a violation of Laws issued by any governmental or
quasi-governmental authority.
(h) Seller will cooperate with Purchaser in all reasonable respects in
connection with the transfer of liquor licenses to Purchaser or Purchaser's
application for new liquor licenses. If the Purchaser is unable to obtain the
transfer of the liquor licenses or obtain new licenses, then, on the Closing
Date, Seller and Purchaser shall enter into an interim arrangement whereby
Seller shall operate the liquor concessions at the Hotel on behalf of Purchaser
pending the transfer or issuance of the liquor licenses to Purchaser and
Purchaser shall indemnify Seller against any liabilities incurred in such
operation.
(i) Seller will promptly provide Purchaser with notice of any actual
or proposed change in the assessed value of the Property or any portion of the
Property (including any tentative or preliminary assessment) and of the
institution or proposed institution of any proceeding (whether formal, informal,
judicial or administrative) relating to any such change or proposed change.
Seller will not take any action with respect to the contesting and/or resolution
of the taxable assessed value of the Land and Improvements without the prior
written consent of Purchaser, which consent shall not be unreasonably withheld.
5.05. Inspection Period. Purchaser and its representatives and agents shall
-----------------
have a period from the Effective Date through the close of business on the date
fourteen (14) days after the Effective Date (or, if such date is not a business
day, the next succeeding business day) (the "Inspection Period") within which to
undertake such inspections and investigations of the Property (including, but
not limited to, engineering and environmental studies, financial analysis, and
feasibility studies) as Purchaser deems desirable to evaluate the financial and
physical condition of the Property and such other matters that Purchaser may
deem relevant. If Purchaser shall, in its sole opinion and discretion, determine
that the Property or any matters related to the Property are unsatisfactory,
then Purchaser may terminate this Agreement by written notice given to Seller
prior to the end of the Inspection Period. Upon the giving of such notice, this
Agreement shall terminate, Escrow Agent shall return the Earnest Money to
Purchaser and neither party to this Agreement shall thereafter have any further
rights or liabilities under this Agreement.
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<PAGE>
5.06. Conditions Precedent to Purchaser's Obligations. Purchaser's
-----------------------------------------------
obligations under this Agreement are conditioned upon the satisfaction of the
following conditions as of the Closing Date:
(a) Neither Purchaser nor Seller shall have terminated this Agreement
pursuant to any applicable provision of this Agreement.
(b) Seller's representations and warranties set forth in this
Agreement shall continue to be materially true and accurate.
(c) Seller shall have delivered all of the documents required under
this Agreement and substantially performed all of its obligations under this
Agreement.
(d) There shall be no unpaid charges, judgments, debts, liabilities,
claims, liens or obligations which burden the Property other than the Permitted
Exceptions.
(e) The Property shall on the Closing Date be in substantially the
same condition as on the Effective Date, except as attributable to ordinary wear
and tear and depletion of Consumables and Expendables in the ordinary course of
business.
(f) There shall have been no material adverse change in the condition
or operations of the Hotel from the Effective Date, through the date of Closing
(which change may include, but shall not be limited to, the existence of
violation of any Laws or the revocation or suspension of any Permit or the right
to operate the Hotel or any of its facilities).
(g) Purchaser shall have obtained from Ballston Condo Limited
Partnership or its appropriate successor, the entity which owns the [Ballston
Office Building connecting to the Hotel], Ballston Parking Associates, Ballston
Metro Center Mutual, and each of their respective successors and assigns (other
than individual owners of condominium units in the condominium developed by
Ballston Condo Limited Partnership) an Estoppel in the form described in Section
6.3 of the Declaration for Ballston Metro Center, in substance acceptable to
Purchaser in its sole but reasonable judgments. At Closing, Seller shall place
in escrow with Chicago Title Insurance Company an amount sufficient to satisfy
any assessments or other amounts alleged to be due and payable by the issuers of
the Section 6.3 Estoppels, upon terms reasonably acceptable to Purchaser.
If any of the foregoing conditions have not been satisfied as of the
Closing Date, then Purchaser shall be entitled to terminate this Agreement by
giving Seller written notice to such effect, whereupon Escrow Agent shall return
the Earnest Money to Purchaser and the parties shall thereafter have no further
rights or liabilities under this Agreement.
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<PAGE>
5.07. Conditions Precedent to Seller's Obligations.
--------------------------------------------
Seller's obligations under this Agreement are conditioned upon the satisfaction
of the following conditions as of the Closing Date:
(a) Purchaser's representations and warranties set forth in this
Agreement shall continue to be materially true and accurate;
(b) Purchaser shall have substantially performed all of its
obligations under this Agreement; and
(c) Neither Purchaser nor Seller shall have terminated this Agreement
pursuant to any applicable provision of this Agreement.
5.08. Property "As-Is". Except for the representations, warranties and
----------------
covenants expressly set forth in this Agreement, Seller and Purchaser agree that
no representations, warranties, express or implied, promises, inducements,
covenants, agreements or other assurances which are not specifically set forth
in this Agreement have been made by or to, or have been or will hereafter be
relied upon by, either Seller or Purchaser. Except as otherwise expressly
provided in this Agreement and subject to the afore-described representations,
warranties and covenants, Purchaser will acquire the Property "as is" based on
such independent inspection, investigation and analysis as Purchaser, at its
option, shall have made with respect to all aspects of the acquisition, use,
utilization, development, improvement and disposition of the Property.
5.09. Purchaser's Covenants. In the event Purchaser does not terminate this
---------------------
Agreement at the end of the Inspection Period and proceeds with the acquisition
of the Property, Purchaser shall:
(a) cause ALI, the current holder of the ALI Debt, to continue to
forbear through the Closing Date from exercising its remedies under the ALI Debt
loan documents (the "Loan Documents"), including forbearance against asserting
claims or demands for penalties, so long as Seller continues to make regular
interest payments on the Note and is otherwise in compliance with the Note and
other Loan Documents (except for the Principal Default); and
(b) cause Renaissance Hotel Operating Company, or its affiliate
("RHOC") on or prior to the Closing to approve the assignment of the Management
Agreement to Purchaser. It is expressly understood and agreed that
notwithstanding the terms of any Confidentiality Agreement entered into between
Purchaser and Seller, Purchaser shall immediately have the right to contact RHOC
and to discuss this transaction with RHOC. Seller hereby releases Purchaser from
any and all claims Seller may have against Purchaser in connection with such
discussions and resulting breach of the Confidentiality Agreement.
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<PAGE>
6.
Remedies
6.01. Seller's Remedies. If Purchaser fails to perform its obligations
-----------------
under this Agreement for any reason except (a) the failure of any condition
precedent to Purchaser's obligations under this Agreement or (b) Purchaser's or
Seller's termination of this Agreement in accordance with its terms, Seller
shall be entitled as its sole remedy to terminate this Agreement and recover the
Earnest Money as liquidated damages and not as a penalty, in full satisfaction
of any claims against Purchaser. Seller and Purchaser agree that the Seller's
damages resulting from Purchaser's default are difficult to determine and the
amount of the Earnest Money is a fair estimate of those damages.
6.02. Purchaser's Remedies. If Seller fails to perform its obligations
--------------------
under this Agreement for any reason except the failure of any condition
precedent to Seller's obligations under this Agreement, or Purchaser's or
Seller's termination of this Agreement in accordance with its terms, then
Purchaser's sole remedies shall be: (a) to terminate this Agreement by giving
Seller written notice of such election prior to or at Closing whereupon the
Escrow Agent shall promptly return to Purchaser the Earnest Money; (b) to waive
the default and close; or (c) to enforce specific performance of this Agreement.
6.03. Attorneys' Fees. In the event either party hereto is required to
---------------
employ an attorney because of the other party's failure or refusal to close,
then the party which prevails in any litigation relating to enforcement of
remedies under Section 6.01 or 6.02, above, shall pay the other party's
reasonable attorneys' fees incurred in the enforcement of this Agreement.
7.
Closing Matters
---------------
7.01. Closing Date. The Closing shall be held at the offices of Hale and
------------
Dorr, The Willard Office Building, 1455 Pennsylvania Avenue, N.W., Washington,
D.C. on the date that is one hundred five days (105) days after the Effective
Date (or, if such date is not a business day, the next succeeding business day)
or such earlier date as Seller and Purchaser shall determine (the "Closing
Date").
7.02. Adjustment and Prorations. The matters and items set forth below
-------------------------
shall be apportioned between Seller and Purchaser or, where applicable, credited
in total to a particular party:
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<PAGE>
(a) Taxes. All real and personal property taxes and special
-----
assessments, if any, whether payable in installments or not, shall be prorated
as of the Cut-Off Time. If such taxes for the tax year in which the Closing
occurs have not been finally determined on the Closing Date, then such taxes
shall be prorated on an estimated basis using the most current information
available. When such taxes have been finally determined, the parties shall
recalculate such prorations and any amount payable by Seller or Purchaser shall
be paid to the other party within fifteen days after such taxes are finally
determined.
(b) Room Rentals. One-half (50%) of the room rentals attributable to
------------
the night prior to the Closing Date shall be the property of Seller and the
remaining one-half (50%) shall be the property of Purchaser. Room rentals
attributable to any night prior to the night prior to the Closing Date shall be
the property of Seller.
(c) Reservation Deposits. Prepaid and unearned reservation deposits
--------------------
and other items prepaid by guests of the Hotel shall be transferred to Purchaser
at the Closing.
(d) Utility Charges. Utility charges for telephone, gas, electricity,
---------------
sewer, water and other services shall not be prorated to the extent that Seller
can make arrangements for the rendering of final bills based on meter readings
as of the Cut-Off Time. Seller shall be responsible for the payment at the
Closing of all bills for utility charges up to and including the Cut-Off Time.
To the extent that utility bills cannot be rendered as of the Closing Date, such
charges for the period through the Cut-Off Time shall be prorated as of the Cut-
Off Time based upon the most recent available bills and readjusted on the basis
of the actual bills as and when received. Any utility deposits shall be
transferred to Purchaser and credited to Seller.
(e) Operating Expenses and Trade Accounts. Seller shall be responsible
-------------------------------------
for all operating expenses and trade accounts of the Property (including charges
and fees payable under the Hotel Contracts) up to and including the Cut-Off
Time. To the extent the amounts of such items are then known, Seller shall pay
such items at Closing and shall pay the balance of such amounts in the ordinary
course of business but in no event later than 45 days after the Closing Date.
Seller agrees to indemnify and hold Purchaser harmless for and against any such
amounts. Purchaser shall assume responsibility for purchase orders made by
Seller in the ordinary course of business for Expendables or Consumables not
delivered to the Hotel as of the Closing Date.
(f) Food, Beverage and Other Income. Revenues from food, beverage and
-------------------------------
banquet services, room service, public room revenues, health club revenues and
other services rendered to guests of the Hotel shall be prorated as of the Cut-
Off Time, if, as and when collected, provided that with respect to food,
beverage and banquet services, such revenues shall be prorated as
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<PAGE>
of the end of the employee shift on the night preceding the Closing.
(g) Rents. All rentals under the Leases (including feed rents and
-----
charges in respect of electricity, operating expenses and taxes) shall be
prorated as of the Cut-Off Time if, as and when collected. If there are any
arrearages under the Leases as of the Closing Date, any rents collected by
Seller or Purchaser after the Closing Date with respect to such Leases shall be
applied first to any arrearages for the calendar month in which the Closing
occurs, second to any arrearages for the following calendar month, third to any
arrearages for the months preceding the month in which the Closing occurs and
fourth to any other arrearages. Payments from tenants for electricity, operating
expenses and taxes which are billed to tenants in arrears or on an estimated
basis shall be prorated on such basis and readjusted if, as and when such
amounts are finally determined and collected.
(h) Security Deposits. Any security deposits under the Leases shall be
-----------------
transferred to Purchaser at the Closing or credited against the Purchase Price.
(i) Cash and Cash Equivalents. All cash and cash equivalents as of the
-------------------------
morning of the Closing Date shall become the property of Purchaser and the
amount thereof shall be credited to Seller. For purposes of this Agreement, cash
and cash equivalents shall mean the cash operating account, money market
account, cash credit card account, the Reserve Fund/Reserve Account, cash
payroll account and cash house fund as of the morning of the Closing Date;
provided, however, there shall be excluded from cash and cash equivalents
amounts relating to advance sales or deposits.
(j) Ledger and other Receivables. All accounts receivable attributable
----------------------------
to guests in the Hotel on the night preceding the Closing (the "Ledger") shall
be prorated as provided in this Agreement, Seller's share shall be credited to
Seller and the Ledger shall become the property of Purchaser. All other accounts
receivable, including the city ledger account, intercompany receivables, other
receivables, vendors' escrow deposits, staff parking and accrued receivable
parking income, that are the property of Seller under this Agreement shall be
set forth in a schedule on the Closing Date and shall remain the property of
Seller. Purchaser shall have no obligation to collect such accounts receivable,
but shall cooperate with Seller, at Seller's cost, in reasonable respects in
connection with any collection efforts. If any receivables which are the
property of Seller under this Agreement shall be collected by Purchaser,
Purchaser shall remit the same to Seller within 90 days after the Closing Date,
provided that Purchaser may offset against such collections any amounts unpaid
by Seller under Section 7.02(e). Any such receivables received by Purchaser from
each payor shall be applied to the oldest receivable(s) (including amounts due
Seller) first.
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(k) Prepaid Accounts. All prepaid accounts, including amounts relating
----------------
to workman's compensation, group insurance, license and permits, maintenance
contracts, hardware maintenance, software maintenance and property insurance
[issued by Mutual through the period ending September 25, 1996], shall be
prorated as of the Cut-Off Time.
Attached hereto as Exhibit E is a schedule of items to be apportioned or
credited to Purchaser or Seller pursuant to the requirements of this Agreement.
In the event of any inconsistency between the terms of this Agreement and
Exhibit E, the terms of this Agreement shall control.
7.03. Guest Property in Seller's Possession on Closing Date.
-----------------------------------------------------
Property of guests of the Hotel in the care, possession or control (excluding
that in guest rooms) of Seller or Seller's agent(s), on the Closing Date shall
be handled in the following manner:
(a) Safe Deposit Boxes. On the Closing Date, Seller shall cause notice
------------------
to be sent to all guests of the Hotel who have safe deposit boxes advising them
of the pending sale of the Property and requesting the removal and verification
of the contents of such safe deposit boxes within three days after the Closing
Date. Seller may have a representative present at the Hotel during such three-
day period for the purpose of viewing such removal and verification. Boxes of
guests not responding to the written notice shall be listed at the end of such
three day period. Such boxes shall be opened on the following day in the
presence of representatives of Seller and Purchaser to be agreed upon between
Seller and Purchaser and the contents thereof shall be recorded. Any property
contained in the safe deposit boxes and so recorded and thereafter remaining in
the hands of Purchaser shall be the responsibility of Purchaser; and Purchaser
hereby agrees to indemnify and save and hold Seller harmless from and against
any claim or obligation arising out of or with respect to such property.
(b) Baggage Inventory. All guest baggage checked and left in the
-----------------
possession, care and control of Seller or Seller's agent(s) shall be listed in
an inventory to be prepared in duplicate and signed by Seller's and Purchaser's
representatives on the Closing Date. Purchaser shall be responsible from and
after the Closing Date for all baggage listed in inventory, and Purchaser hereby
agrees to indemnify and save and hold Seller harmless from and against any claim
arising out of or with respect to the baggage listed in the inventory.
(c) Other Property. All other guest property left in the possession,
--------------
care or control of Seller or Seller's agent(s) prior to the Closing Date shall
be returned by Seller to guests prior to the Closing Date and if not so returned
prior to the Closing Date shall be the sole responsibility of Seller subsequent
to the Closing Date.
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<PAGE>
7.04. CLOSING DOCUMENTS
-----------------
(a) At Closing, Seller shall deliver or cause to be delivered to
Purchaser the following:
(i) a special warranty deed conveying the fee estate in the
Property to Purchaser subject only to the Permitted Exceptions.
(ii) an owner's policy of title insurance issued by the Title
Company in the amount of the Purchase Price meeting the requirements of the
commitment as provided in Article IV, and containing such affirmative
coverage and endorsements as Purchaser shall reasonably request.
(iii) a warranty bill of sale transferring to Purchaser all of the
Furnishings, Expendables, Consumables and other tangible personal property
(other than those items subject to equipment leases) free of all encumbrances
except for the Permitted Exceptions.
(iv) an assignment conveying and transferring to Purchaser all of
the Bookings, the Leases, the assignable Hotel Contracts which Purchaser has
agreed to assume in writing, and assignable Permits.
(v) an appropriate instrument executed by Seller and other
necessary parties pursuant to which the Management Agreement will be assigned
to Purchaser or its designee as of the Cut-off Time.
(vi) possession of the Property.
(vii) a certified copy of such corporate or partnership
authorizations, approvals and incumbencies of Seller as Purchaser or the
Title Company shall reasonably require.
(viii) a FIRPTA Affidavit in form required by the Internal Revenue
Service.
(ix) all books and records relating to the operation of the
Property and the Hotel in Seller's possession.
(x) any and all plans and specifications for the Improvements on
the Property in Seller's possession.
(xi) such notices of the sale to third parties as may be
reasonably requested by the Purchaser.
(xii) such affidavits, indemnities and related matters as the Title
Company may reasonably request including without limitation such affidavits
and indemnities as may be required to permit the Title Company to delete any
exceptions for mechanic's liens.
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<PAGE>
(xiii) the Estoppel described in Section 5.06(i), above.
(b) Purchaser shall deliver or cause to be delivered to Seller the
following:
(i) the balance of the Purchase Price.
(ii) a certified copy of such corporate or partnership
authorizations, approvals and incumbencies as Seller or the Title Company
shall reasonably require.
(iii) an assumption of the obligations of Seller from and after the
Closing under the Bookings, the Leases, assignable Hotel Contracts, and
assignable Permits.
7.05. CLOSING COSTS. Seller shall pay the Virginia grantor's tax, any
-------------
and all sales taxes arising from this transaction, one-half of any escrow
fees and its legal fees. Purchaser shall pay for its legal fees, any
recordation fees, the costs of its due diligence investigation under Section
5.05 and one-half of any escrow fees. Seller and Purchaser shall execute and
deliver such transfer and sales tax returns as may be required by law.
7.06. REAL ESTATE COMMISSIONS. Seller and Purchaser each represent and
-----------------------
warrant to the other that it has no dealt with no broker in the negotiation
of this transaction. Each party agrees to and does hereby indemnify and hold
the other harmless against the payment of any commission to any other person
or entity claiming by, through or under Seller or Purchaser, as applicable.
7.07. CALCULATION OF PRORATIONS/SURVIVAL. Prorations shall be made on
----------------------------------
the basis of the actual number of days of the month which shall have elapsed
as of the day of the Closing and based upon the actual number of days in the
month and a three hundred sixty-five (365) day year. Purchaser and Seller
shall cause their accounting staffs (the "Accountants") to make such
inventories, examinations and audits of the Hotel, and of the books and
records of the Hotel, as the Accountants may deem necessary to make the
adjustments and pro-rations required under this Section 7, or under any other
provisions of this Agreement. Based upon such audits and inventories, the
Accountants will prepare and deliver to the parties no later than two (2)
days prior to the Closing Date a closing statement (the "Closing Statement").
-----------------
The Closing Statement shall contain the Accountants' best estimate of the
amounts of the items requiring the pro-rations and adjustments in this
Agreement. The amounts set forth on the Closing Statement shall be the basis
upon which the pro-rations and adjustments provided for herein shall be made
at the Closing, unless any party hereto has reason to object.
The Closing Statement as delivered at Closing shall be binding and
conclusive on all parties hereto to the extent of the items covered by the
Closing Statement, unless within thirty (30)
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<PAGE>
days after receipt by the parties of the Closing Statement, either Purchaser
or Seller notifies the other in writing that it disputes such Closing
Statement, and specifies in reasonable detail the items and reasons that it
so disputes. The parties shall attempt to resolve such dispute. If such
dispute is not resolved within forty-five (45) days after delivery of the
original notice by Purchaser or Seller, then the parties shall submit such
dispute to the Washington office of KPMG Peat Marwick (the "Outside
Accountant"), and the determination of the Outside Accountant, which shall be
made within a period of fifteen (15) days after such submittal by the
parties, shall be conclusive. The fees and expenses of the Outside Accountant
shall be paid equally by Purchaser and Seller.
Within ninety (90) days following the date of Closing, the Accountants
shall deliver a final report setting forth the final determination of all
items to be included in the final version of the Closing Statement. In the
event that, at any time within said 90-day period, either party discovers any
items which should have been included in the Closing Statement but were
omitted therefrom, or items which were included in the Closing Statement but
in incorrect amounts, such items shall be adjusted in the same manner as if
their existence or the correct amount (as the case may be) had been known at
the time of the preparation of the Closing Statement. The foregoing
limitation shall not apply to any item which, by its nature, cannot be
finally determined within the period specified. However, no further
adjustments shall be made beyond six (6) months after the date of Closing.
The provisions of Article VII shall survive the Closing.
8.
CONDEMNATION AND RISK OF LOSS
-----------------------------
8.01. CONDEMNATION. If, prior to Closing, any governmental authority or
------------
other entity having condemnation authority shall institute an eminent domain
proceeding or take any steps preliminary thereto (including the giving of any
direct or indirect notice of intent to institute such proceedings) with
regard to the Property, and the same is not dismissed on or before ten (10)
days prior to Closing, Purchaser shall be entitled either to terminate this
Agreement upon written notice to Seller or to waive such right of termination
and receive all such condemnation proceeds or an assignment thereof at the
Closing. In the event Purchaser elects to terminate this Agreement under this
Section 8.01, Escrow Agent shall promptly return to Purchaser the Earnest
Money and neither party to this Agreement shall thereafter have any further
rights or obligations hereunder.
8.02. RISK OF LOSS. Until Closing, Seller shall bear the risk of loss
------------
should there be damage to any of the Improvements by fire or other casualty.
If prior to the Closing any of the improvements shall be damaged by fire or
other casualty, Seller
-21-
<PAGE>
shall take all action necessary to preserve and protect the Improvements from
further loss or damage, and within ten (10) business days after such loss
deliver to Purchaser the following items (collectively "Casualty Loss
Information"): (a) copies of all casualty and business interruption policies
relating to the Property; (b) the names, addresses and telephone numbers of
the adjustors assigned to adjust the loss; (c) letters addressed to each
insurance company issuing a policy covering such loss and executed by Seller
authorizing said company and its adjustors to discuss all matters relating to
such loss with purchaser, its agents and attorneys; and (d) a detailed
written description of the damages incurred and an estimate of the cost of
restoration.
If the Improvements suffer material damage by a casualty, which, for the
purpose of this Agreement, shall mean damage in excess of $50,000.00 or
damage of a lesser amount to any area of the Hotel necessary for the day to
day operation of the Hotel that cannot reasonably be expected to be repaired
within five business days, Purchaser may within five days after delivery of
the Casualty Loss Information either:
(a) terminate this Agreement by delivering written notice of same to
Seller, in which event Escrow Agent shall promptly return to Purchaser the
Earnest Money and neither party to this Agreement shall thereafter have any
further rights or obligations hereunder; or
(b) waive its right of termination, by delivering written notice of
same to Seller, and proceed to close this transaction in accordance with the
terms hereof.
At Closing, (i) all insurance proceeds received prior to Closing shall be
delivered to Purchaser at Closing, (ii) Purchaser may notify all appropriate
insurance companies of its interest in the insurance proceeds, and (iii) all
casualty insurance proceeds payable as a result of the loss and Purchaser's
pro rata share of any rental or business loss proceeds shall be assigned to
Purchaser at Closing.
9.
MISCELLANEOUS
-------------
9.01. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
----------------
the parties hereto. There are no other agreements, oral or written, and this
Agreement can be amended only by written agreement signed by Seller and
Purchaser.
9.02. BINDING EFFECT. This Agreement shall inure to the benefit of and
--------------
be binding upon the heirs, personal representatives, successors and assigns
of each of the parties to this Agreement. Purchaser may assign its rights
under this Agreement without Seller's consent to any partnership or limited
-22-
<PAGE>
liability company in which Purchaser or any entity controlling, controlled by
or under common control with Purchaser is a managing partner, general
partner, or limited liability company member.
9.03. Notices. Any notice, communication, request, reply or advice
-------
(collectively, "Notice") provided for or permitted by this Agreement to be
made or accepted by either party must be in writing. Notice may, unless
otherwise provided herein, be given or served by depositing the same in the
United States mail, postage paid, registered or certified, and addressed to
the party to be notified, with return receipt requested; or by delivery by
overnight courier; or by facsimile transmission. Notice deposited in the mail
in the manner hereinabove described shall be effective two business days
after such deposit. Notice by overnight courier shall be effective one
business day after deposit with the courier service. Notice given by
facsimile transmission shall be effective on the business date delivered. For
the purposes of Notice, the addresses of the parties shall be:
Seller: Ballston Hotel Limited Partnership
901 North Stuart Street
Suite 1110
Arlington, Virginia 11102
Fax No.: 703-558-7377
Attn: Mr. Giuseppe Cecchi
with copy to: Robins, Kaplan, Miller & Ciresi
1801 K Street, N.W.
Suite 1200
Washington, D.C. 20006
Fax No.: 202- 223-8604
Attn: Robert E. Falb, Esq.
Purchaser: EquiStar Hotel Investors, L.P.
c/o CapStar Hotels, Inc.
1010 Wisconsin Avenue
Washington, D.C. 20007
Fax No.: 202-965-4445
Attn: Mr. Paul W. Whetsell
and Mr. John E. Plunket
with copy to: Hale and Dorr
1455 Pennsylvania Avenue, N.W.
Suite 1000
Washington, D.C. 20004
Fax No.: 202-942-8484
Attn: Steven S. Snider, Esq.
-23-
<PAGE>
Escrow Agent: Chicago Title Insurance Company
1129 20th Street, N.W.
Suite 100
Washington, DC 20036
Fax No.: 202-466-5070
Attn: Mr. Craig Johnson
The parties shall have the right from time to time to change their respective
addresses for notice by at least five days' written notice to the other
party.
9.04. GOVERNING LAW. This Agreement shall be construed in accordance
-------------
with the laws of the Commonwealth of Virginia.
9.05. SECTION HEADINGS. The section headings contained in this Agreement
----------------
are for convenience only and shall in no way enlarge or limit the scope or
meaning of the various and several sections of this Agreement.
9.06. OBLIGATIONS. To the extent necessary to carry out the terms and
-----------
provisions of this Agreement, the terms, conditions, warranties,
representations, obligations, indemnities and rights set forth in this
Agreement shall not be terminated at the time of Closing, nor will they merge
into the various documents executed and delivered at the time of Closing.
9.07. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
9.08. ESCROW PROVISIONS. Escrow Agent shall hold the Earnest Money in
-----------------
accordance with the terms and provisions of this Agreement, subject to the
following:
(a) Escrow Agent undertakes to perform only such duties as are
expressly set forth in this Agreement and no implied duties or obligations
shall be read into this Agreement against Escrow Agent.
(b) Escrow Agent may act in reliance upon any writing or instrument or
signature which it, in good faith, believes of any statement or assertion
contained in such writing or instrument, and may assume that any person
purporting to give any writing, notice, advice or instrument in connection
with the provisions of this Agreement has been duly authorized to do so.
Escrow Agent shall not be liable in any manner for the sufficiency or
correctness as to form, manner and execution, or validity of any instrument
deposited in escrow, nor as to the identity, authority, or right of any
person executing the same, and Escrow Agent's duties under this Agreement
shall be limited to those provided in this Agreement.
-24-
<PAGE>
(c) Unless Escrow Agent discharges any of its duties under this
Agreement in a negligent manner or is guilty of willful misconduct with
regard to its duties under this Agreement, Seller and Purchaser shall
indemnify Escrow Agent and hold it harmless from any and all claims,
liabilities, losses, actions, suits or proceedings at law or in equity, or
other expenses, fees, or charges of any character or nature, which it may
incur or with which it may be threatened by reason of its acting as Escrow
Agent under this Agreement; and in such connection Seller and Purchaser shall
indemnify Escrow Agent against any and all expenses including reasonable
attorneys' fees and the cost of defending any action, suit or proceeding or
resisting any claim in such capacity.
(d) If the parties (including Escrow Agent) shall be in
disagreement about the interpretation of this Agreement, or about their
respective rights and obligations, or the propriety of any action
contemplated by Escrow Agent, Escrow Agent may, but shall not be required to,
file an action in interpleader to resolve the disagreement. Escrow Agent
shall be indemnified for all costs and reasonable attorneys' fees in its
capacity as Escrow Agent in connection with any such interpleader action and
shall be fully protected in suspending all or part of its activities under
this Agreement until a final judgment in the interpleader action is received.
(e) Escrow Agent may consult with counsel of its own choice and
have full and complete authorization and protection in accordance with the
opinion of such counsel. Escrow Agent shall otherwise not be liable for any
mistakes of fact or errors of judgment, or for any acts or omissions of any
kind, unless caused by its negligence or willful misconduct.
(f) The Escrow Agent may in its sole discretion resign by giving
thirty (30) days written notice thereof to the Purchaser and Seller. The
Purchaser and Seller shall furnish to the Escrow Agent written instructions
for the release of the escrow funds and escrow documents in such event. If
the Escrow Agent shall not have received such written instructions the Escrow
Agent may petition any court of competent jurisdiction for the appointment of
a successor Escrow Agent, and upon such appointment, deliver the escrow funds
and escrow documents to such successor.
-25-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed in multiple
counterparts by the parties hereto on the date and year first above written.
SELLER:
BALLSTON HOTEL LIMITED PARTNERSHIP
By: Ballston Realty, Inc.
general partner
By: /s/ Giuseppe Cecchi
---------------------------
Name: Giuseppe Cecchi
Title: President
PURCHASER:
EQUISTAR HOTEL INVESTORS, L.P.
By: Cherwell Investors, Inc.,
general partner
By:
---------------------------
Name:
Title:
By: CapStar Executive Investors I,
L.L.C., general partner
By:
---------------------------
Name:
Title: Managing Member
-26-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed in multiple
counterparts by the parties hereto on the date and year first above written.
SELLER:
BALLSTON HOTEL LIMITED PARTNERSHIP
By: Ballston Hotel, Inc.
general partner
By:
---------------------------
Name:
Title:
PURCHASER:
EQUISTAR HOTEL INVESTORS, L.P.
By: Cherwell Investors, Inc.,
general partner
By:
---------------------------
Name:
Title:
By: CapStar Executive Investors I,
L.L.C., general partner
By: /s/ John Plunket
---------------------------
Name: John Plunket
Title: Managing Member
-26-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed in multiple
counterparts by the parties hereto on the date and year first above written.
SELLER:
BALLSTON HOTEL LIMITED PARTNERSHIP
By: Ballston Hotel, Inc.
general partner
By:
---------------------------
Name:
Title:
PURCHASER:
EQUISTAR HOTEL INVESTORS, L.P.
By: Cherwell Investors, Inc.,
general partner
By: /s/ Bradford Bernstein
---------------------------
Name: Bradford Bernstein
Title: Vice President
By: CapStar Executive Investors I,
L.L.C., general partner
By: /s/ John Plunket
---------------------------
Name: John Plunket
Title: Managing Member
-26-
<PAGE>
The undersigned hereby acknowledges
receipt of the Earnest Money
described in Section 2.02(a)(i) and
agrees to hold and disburse the
Earnest Money in accordance with the
terms and conditions of this
Agreement.
Chicago Title Insurance Company
By: /s/ Craig A. Johnson
--------------------
Name: Craig A. Johnson
Title: Asst. V.P.
-27-
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A Property Description
Exhibit B ALI Debt Modification
Exhibit C Equipment Lease Liens
Exhibit D Title Insurance Commitment
Exhibit E Schedule of Items to be Apportioned
or Credited
Exhibit F Litigation
Exhibit G Permits
Exhibit H Liabilities
Exhibit I List of Hotel Contracts
-28-
<PAGE>
EXHIBIT A
Parcel B-1-B per Deed of Resubdivision dated October 4, 1988 and recorded
October 7, 1988 in Deed Book 2352 at page 161, being part of former "Parcel B-1
1.06550 Acres", Block 1, CENTER BALLSTON as per Deed of Subdivision dated
October 4, 1988 and recorded October 6, 1988 in Deed Book 2351 at page 1828,
said Parcel B-1-B being more particularly described as follows:
All the land property and space situated in Arlington County, Virginia, at and
below but not above, a horizontal plane the elevation of which is 339.04 feet
above the mean sea level as established by the National Geodetic vertical datum
of 1929, which plane constitutes the upper limit of such land, property, and
space within and bounded by planes formed by projecting vertically downwards,
and upwards to the said horizontal plane, the boundaries of the land with
dimensions on the surface of the earth being described as follows:
Beginning at the intersection point of North Stafford Street, 50' right-of-
way, with 9th Street North, 40' right-of-way;
thence running with the northerly line of 9th Street North, N 89 Deg.
17' 17" W, 155.34 feet to the most southerly corner of Parcel "A", being a
portion of the lands of Washington Metropolitan Area Transit Authority;
thence with the outline of Parcel "A" the following courses and distances:
N 06 Deg. 14' 55" W, 296.50 feet to a point; and
thence N 87 Deg. 14' 16" E. 154.27 feet to a point on the Westerly line of
the aforesaid North Stafford Street;
thence with said line of North Stafford Street S 06 Deg. 17' 19" E. 391.89
feet to the point of beginning, containing 1.06550 acre.
Together with all of Ballston Parking Associates right, title and interest in
and to all easements, liens, and other encumbrances of record in the above
described Parcel B-1-B as set forth in that certain Deed of Contribution and
Easement dated October 5, 1988 and recorded in Deed Book 2352, page 933, among
the land records of Arlington County, Virginia.
Together With and Subject To the Deed of Easement by and between Washington
Metropolitan Area Transit Authority and Ballston Center Associates Limited
Partnership, dated October 5, 1988 and recorded in Deed Book 2352, page 921,
among the land records of Arlington County, Virginia.
Less and Except property conveyed to Ballston Condo Limited Partnership pursuant
to paragraph 3 of Deed of Contribution dated
<PAGE>
October 4, 1988 and recorded October 12, 1988 in Deed Book 2352 at page 928.
Together With easement permitting encroachments more fully described in the Deed
of Contribution and Easement dated October 5, 1988 and recorded in Deed Book
2352, page 933, among the land records of Arlington County, Virginia.
Together With and Subject To easements set forth in Declaration for Ballston
Metro Center dated February 6, 1990 and recorded in Deed Book 2419 at page 1.
Together With non-exclusive easement and right of way for exterior electrical
sign granted to Ballston Hotel Limited Partnership by Easement and Agreement
dated July 19, 1990 and recorded August 14, 1990 in Deed Book 2444 at page 994.
Together With and Subject To non-exclusive easements set forth in Omnibus
Pedestrian Bridge Easement Agreement dated August 18, 1991 and recorded August
30, 1991 in Deed Book 2488 at page 47; in North Street Bridge Agreement dated
August 3, 1991 and recorded in deed Book 2488 at page 165; and in Confirmatory
Agreement dated September 4, 1991 and recorded October 25, 1991 in Deed Book
2493 at page 1566.
<PAGE>
EXHIBIT B
ALI First Mortgage Loan terms
- - Maturity - approximately three years from the date of closing.
. Discounted Loan Amount - $16.0 million.
- - Interest Rate - LIBOR plus 425 basis points on $10.5 million amount plus
16% on the remaining Loan Amount, blending to approximately 12% based on
today's LIBOR of approximately 5.75%.
. Fee - 2%, paid by EquiStar.
. Amortization - none required.
- - Additional Security and Documentation - consistent with normal hotel
lending standards.
<PAGE>
EXHIBIT C
RENAISSANCE ARLINGTON HOTEL
LIST OF ALL EQUIPMENT LEASE LIENS
THERE ARE NO EQUIPMENT LEASE LIENS
<PAGE>
EXHIBIT D
Owner's The Title Insurance Commitment is a legal contract between you
Information and the Company. It is issued to show the basis on which Sheet we
will issue a Title Insurance Policy to you. The Policy will
insure you against certain risks to the land title, subject to
the limitations shown in the Policy.
The Company will give you a sample of the Policy form, if you
ask.
The Commitment is based on the land title as of the Commitment
Date. Any changes in the land title or the transaction may affect
the Commitment and the Policy.
The Commitment is subject to its Requirements, Exceptions and
Conditions.
THIS INFORMATION IS NOT PART OF THE TITLE INSURANCE COMMITMENT.
YOU SHOULD READ THE COMMITMENT VERY CAREFULLY.
If you have any questions about the Commitment, contact the
Issuing Office.
- --------------------------------------------------------------------------------
Agreement to Issue Policy
[LOGO]
We agree to issue a policy to
you according to the terms of
CHICAGO TITLE this Commitment. When we show
INSURANCE COMPANY the policy amount and your 111
West Washington Street name as the proposed insured
Chicago, Illinois 60602 in Schedule A, this Commitment
becomes effective as of the
Commitment Date shown in Schedule
A.
If the Requirements shown in this
Commitment have not been met within
6 months after the Commitment Date,
our obligation under this
Commitment will end.
ALTA COMMITMENT Also, our obligation under
1982 (Rev. 10-19-88) this will end when the Commitment
Policy is issued and then our
obligation to you will be under the
policy.
Our obligation under this
Commitment is limited by the
following:
The provisions in Schedule A.
The Requirements in Schedule
B-I.
The Exceptions in Schedule B-
II.
The Conditions on Page 2.
This Commitment is not valid
without SCHEDULE A and
Issued by: Sections I and II of SCHEDULE B
WASHINGTON, D.C. BRANCH OFFICE
1129 20th Street, N.W.
Suite #100
Washington, D.C. 20036
(202) 466 - 6990
Commitment No. 9686-50009 CHICAGO TITLE INSURANCE COMPANY
[SEAL] By /s/ Richard L. Pollan
President
Countersigned By: /s/ Thomas J. Adams
/s/ Craig A. Johnson Secretary
- --------------------
Authorized Signatory
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
SCHEDULE A
NUMBER: 9686-50009
EFFECTIVE DATE: March 9, 1996 at 8:00 A.M.
1. Policy or Policies to be issued:
ALTA OWNER'S POLICY (1970 Rev. 10/17/70): $23,000,000.00
Proposed Insured:
ESBH LIMITED PARTNERSHIP
ALTA LOAN POLICY (1970 Rev. 10/17/70): $17,825,000.00
Proposed Insured:
LEHMAN BROTHERS HOLDINGS, INC., a Delaware corporation, its successors
and/or assigns as their interests may appear
2. Fee Simple and Easement interests in the land described in this commitment
is owned, at the Commitment date, by:
BALLSTON HOTEL LIMITED PARTNERSHIP, a Virginia limited partnership
3. The land referred to in this Commitment is described as follows:
All of that certain lot or parcel of land situated, lying and being in
Arlington County, Virginia, and being more particularly described as
follows:
SEE ATTACHED EXHIBIT "A"
This Commitment is continued on the following page. 1
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
EXHIBIT A
Parcel B-I-B per Deed of Resubdivision dated October 4, 1988 and recorded
October 7, 1988 in Deed Book 2352 at page 161, being part of former "Parcel B-1
1.06550 Acres", Block 1, CENTER BALLSTON as per Deed of Subdivision dated
October 4, 1988 and recorded October 6, 1988 in Deed Book 2351 at page 1828,
said Parcel B-1-B being more particularly described as follows:
All the land property and space situated in Arlington County, Virginia, at and
below but not above, a horizontal plane the elevation of which is 339.04 feet
above the mean sea level as established by the National Geodetic vertical datum
of 1929, which plane constitutes the upper limit of such land, property, and
space within and bounded by planes formed by projecting vertically downwards,
and upwards to the said horizontal plane, the boundaries of the land with
dimensions on the surface of the earth being described as follows:
Beginning at the intersection point of North Stafford Street, 50' right-of-
way, with 9th Street North, 40' right-of-way;
thence running with the northerly line of 9th Street North, N 89 Deg. 17'
17" W, 155.34 feet to the most southerly corner of Parcel "A", being a portion
of the lands of Washington Metropolitan Area Transit Authority;
thence with the outline of Parcel "A" the following courses and distances: N
06 14' 55" W, 296.50 feet to a point; and
thence N 87 Deg. 14' 16" E. 154.27 feet to a point on the Westerly line of
the aforesaid North Stafford Street;
thence with said line of North Stafford Street S 06 Deg. 17' 19" E. 391.89
feet to the point of beginning, containing 1.06550 acre.
Together with all of Ballston Parking Associates right, title and interest in
and to all easements, liens, and other encumbrances of record in the above
described Parcel B-1-B as set forth in that certain Deed of Contribution and
Easement dated October 5, 1988 and recorded in Deed Book 2352, page 933, among
the land records of Arlington County, Virginia.
Together With and Subject To the Deed of Easement by and between Washington
Metropolitan Area Transit Authority and Ballston Center Associates Limited
Partnership, dated October 5, 1988 and recorded in Deed Book 2352, page 921,
among the land records of Arlington County, Virginia.
Less and Except property conveyed to Ballston Condo Limited Partnership pursuant
to paragraph 3 of Deed of Contribution dated
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
October 4, 1988 and recorded October 12, 1988 in Deed Book 2352 at page 928.
Together With easement permitting encroachments more fully described in the Deed
of Contribution and Easement dated October 5, 1988 and recorded in Deed Book
2352, page 933, among the land records of Arlington County, Virginia.
Together With and Subject To easements set forth in Declaration for Ballston
Metro Center dated February 6, 1990 and recorded in Deed Book 2419 at page 1.
Together With non-exclusive easement and right of way for exterior electrical
sign granted to Ballston Hotel Limited Partnership by Easement and Agreement
dated July 19, 1990 and recorded August 14, 1990 in Deed Book 2444 at page 994.
Together With and Subject To non-exclusive easements set forth in Omnibus
Pedestrian Bridge Easement Agreement dated August 18, 1991 and recorded August
30, 1991 in Deed Book 2488 at page 47; in North Street Bridge Agreement dated
August 3, 1991 and recorded in deed Book 2488 at page 165; and in Confirmatory
Agreement dated September 4, 1991 and recorded October 25, 1991 in Deed Book
2493 at page 1566.
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
SCHEDULE B - SECTION 1
REQUIREMENTS
NUMBER: 9686-50009
The following requirements must be met:
(a) Pay the agreed amounts for the interest in the land and/or the mortgage to
be insured.
(b) Pay us the premiums, fees, and charges for the policy.
(c) Documents satisfactory to us creating the interest in the land and/or the
mortgage to be insured must be signed, delivered and recorded.
1. Deed from Ballston Hotel Limited Partnership, a Virginia limited
partnership vesting fee simple and easement interests described in
Schedule A in ESBH Limited Partnership.
3. Deed of Trust from ESBH Limited Partnership securing Lehman Brothers
Holdings, Inc. in the principal sum of $17,825,000.00.
(d) You must tell us in writing the name of anyone not referred to in this
Commitment who will get an interest in the land or who will make a loan on
the land. We may then make additional requirements or exceptions.
The following numbered requirements must also be met:
1. You must provide us with proof (affidavit or lien waivers) that there has
been no labor performed or material furnished for renovation, repair or
construction of improvements on the subject land for which a lien could be
filed.
2. Tax information:
There must be payment of all taxes, charges, and assessments which are due
and payable.
Real estate taxes are posted as being paid through the 2nd Half 1995. Tax
Map Reference 14-049-029. Parcel B-l-B, Block 1, Center Ballston. See Tax
Sheet attached.
3. You must pay and release of record the following items:
This Commitment is continued on the following page. 2
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
a. Deed of Trust; Assignment of Leases, Contracts, Rents & Profits; and
Security Agreement from Ballston Hotel Limited Partnership, a Virginia
limited partnership from Ballston Condo Limited Partnership, a
Virginia limited partnership to Joe A. Shull and Robert S. Schiro,
Trustees, dated October 5, 1988 and recorded October 19, 1988 in Deed
Book 2353 at page 1219 securing Signet Bank/Virginia in the principal
sum of $18,500,000.00.
Subject to Subordination and Release dated October 5, 1990 and
recorded August 19, 1990 in Deed Book 2444 at page 976 which
subordinates and releases certain easements for parking spaces as more
specifically set forth therein.
Subject to Subordination and Release dated November 2, 1990 and
recorded November 27, 1990 in Deed Book 2455 at page 1714 which
subordinates and releases certain easements for parking spaces as more
specifically set forth therein.
Subject to Subordination and Release dated August 10, 1991 and
recorded May 21, 1991 in Deed Book 2474 at page 730 and rerecorded
June 24, 1992 in Deed Book 2531 at page 25, which subordinates and
releases certain easements for parking spaces as more specifically set
forth therein.
As modified by Substitution of Trustee and Modification Agreement to
deed of Trust; Assignment of Leases, Contracts, Rents & Profits; and
Security Agreement dated August 8, 1991 and recorded August 13, 1991
in Deed Book 2485 at page 1437, which among other matters increases
the indebtedness to $21,000,000.00.
As modified by Second Modification Agreement to Deed of Trust;
Assignment of Leases, Contracts, Rents & Profits; and Security
Agreement dated June 24, 1992 and recorded July 9, 1992 in Deed Book
2534 at page 335.
As modified by Appointment of Substitute Trustees dated December 31,
1992 and recorded January 5, 1993 in Deed Book 2568 at page 414.
Subject to Partial Deed Of Release dated December 31, 1992 and
recorded January 5, 1993 in Deed Book 2568 at page 416 releasing
certain interests of Ballston Parking Associates as more specifically
set forth therein.
This Commitment is continued on the following page. 3
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
As assigned to ALI Inc., a Delaware corporation by Assignment of Deed
of Trust and other Recorded Loan Instruments dated September 13, 1994
and recorded October 18, 1994 in Deed Book 2699 at page 1596.
As modified by Deed of Appointment of Substitute Trustee dated January
19, 1996 and recorded January 29, 1996 in Deed Book 2758 at page 1537
appointing William H. Casterline, Jr., as Substitute Trustee.
b. Financing Statement from Ballston Hotel Limited Partnership, Debtor,
to Signet Bank/Virginia, Secured Party, filed September 16, 1994 in
File No. 54392 replacing lapsed financing statement filed October 19,
1988 in File No. 43653 among the financing statement records of
Arlington County, Virginia.
Said financing statement was assigned to ALI, Inc. by Assignment filed
September 16, 1994 in File No. 54392.
c. Financing Statement from Ballston Hotel Limited Partnership, Debtor,
to Signet Bank/Virginia, Secured Party, filed January 7, 1993 in File
No. 51895 among the financing statement records of Arlington County,
Virginia.
Said financing statement was assigned to ALI, Inc. by Assignment filed
October 18, 1994 in File No. 51895.
d. Financing Statement from Richard Grizzard DBA Ballston Hotel LTD
Partnership, Debtor, to Linc Anthem Corp, Secured Party filed February
6, 1995 in File No. 55463.
4. Furnish copies of all instruments to this transaction for review by Chicago
Title Insurance Company prior to closing. This Commitment is subject to
such additional requirements and/or exceptions, including so-called
"creditors' rights", as may be deemed necessary by the Company upon review
of said documents and upon full disclosure of all facts of this
transaction.
Documents and information which, in particular, must be provided for review
of "creditors' rights" include but are not limited to the following:
a. Loan Agreement and Commitment
b. Current Appraisal
This Commitment is continued on the following page. 4
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
c. Current Audited financial statements for the borrowing entity,
principals and guarantors.
d. Historical and projected cash flow for the property.
e. Use of proceeds of the proposed loan.
The following "creditors' rights" exclusion from coverage will appear in
the final policy unless the Company has agreed in writing prior to closing
to delete or amend said exclusion:
Any claim, which arises out of the transaction creating the interest
of the mortgagee insured by this policy, by reason of the operation of
federal bankruptcy, state insolvency, or similar creditors' rights
laws, that is based on:
(i) the transaction creating the interest of the insured
mortgagee being deemed a fraudulent conveyance or fraudulent
transfer; or
(ii) the subordination of the interest of the insured mortgagee
as a result of the application of the doctrine of equitable
subordination; or
(iii) the transaction creating the interest of the insured
mortgagee being deemed a preferential transfer except where
the preferential transfer results from the failure:
(a) to timely record the instrument of transfer; or
(b) of such recordation to impart notice to a purchaser for
value or a judgment or lien creditor.
6. The Company must be provided with the following in regard to Ballston Hotel
Limited Partnership: (a) Copy of limited partnership agreement and any
amendments thereto; (b) Certificate of Limited Partnership and of Good
Standing for the Commonwealth of Virginia; (c) Copy of partnership
resolution authorizing the transaction contemplated by this commitment.
The Company must be provided with the following in regard to any limited
partnership comprising the general partners of Ballston Hotel Limited
Partnership: (a) Copy of limited partnership agreement and any amendments
thereto; (b) Certificate of Limited Partnership and of Good Standing for
state of origin; (c) Certificate of Authority as a foreign limited
partnership (if applicable) and of Good Standing from
This Commitment is continued on the following page. 5
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
the Commonwealth of Virginia (d) Copy of partnership resolution authorizing
the transaction contemplated by this commitment.
The Company must be furnished the following with regard to any corporate
entities comprising the general partners of Ballston Hotel Limited
Partnership: (a) Certificate of Good Standing from the state of origin;
(b) Certificate of Authority as a foreign corporation (if applicable) and
of Good Standing from the Commonwealth of Virginia (c) Corporate
Resolution authorizing the transaction contemplated in this commitment; (d)
Certificate of Incumbency.
7. Requirement No. 6 above is also applicable as to ESBH Limited Partnership.
8. Should the Company be requested to delete or modify General Exceptions 1, 4
and 5 of Schedule B, Section 2, Requirement Number 1 of Schedule B, Section
1 must be complied with and the attached affidavit must be completed,
executed and returned to the Company. In the event the Company is requested
to delete or modify General Exceptions 2 and 3 of Schedule B, Section 2,
the Company must be furnished a current survey prepared in accordance with
the Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys.
9. The endorsement(s) listed below, in form as attached hereto, will be
included as part of the proposed policies. Except as noted said
endorsements will be attached to lender's and owner's policies. As a
prerequisite to issuance of said endorsement(s), the Company must be
provided with the documentation shown below in parentheses for its review
and acceptance.
a. Comprehensive Endorsement - Lender's ALTA Form 9 (Survey, Surveyor's
Certification and Owner's Affidavit)
b. Owner's Comprehensive Endorsement (Survey, Surveyor's Certification
and Owner's Affidavit)
c. First Loss Endorsement - Loan Policy (Loan Documents)
d. Survey Endorsement (Survey and Surveyor's Certification)
e. Usury Endorsement - Loan Policy (Loan Documents)
f. Subdivision Endorsement
g. ALTA 3.1 Endorsement - (Attorney's Zoning Opinion)
h. Access Endorsement - (Survey and Surveyor's Certification)
i. Address Endorsement - (Survey and Surveyor's Certification)
j. Creditors' Rights Endorsement - Loan Policy (Loan Documents,
Requirement No. 5)
This Commitment is continued on the following page. 6
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
k. Tax Parcel Endorsement
l. Source Deed Endorsement
m. Virginia Credit Line Endorsement - Loan Policy (Loan Documents)
n. Doing Business Endorsement - Loan Policy
o. Variable Rate Endorsement - Loan Policy (Loan Documents)
p. Tie-In Endorsement - Loan Policy (Transaction Documents)
This Commitment is continued on the following page. 7
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
SCHEDULE B - SECTION 2
EXCEPTIONS
NUMBER: 9686-50009
Any policy we issue will have the following exceptions unless they are
taken care of to our satisfaction.
General Exceptions:
1. Rights or claims of parties in possession not shown by the public records.
2. Encroachments, overlaps, boundary line disputes, and any other matters
which would be disclosed by an accurate survey and inspection of the
premises.
3. Easements or claims of easements not shown by the public records.
4. Any lien, or right to a lien, for services, labor, or material heretofore
or hereafter furnished, imposed by law, and not shown by the public
records.
5. Taxes or special assessments which are not shown as existing liens by the
public records.
Special Exceptions:
1. Taxes subsequent to December 31, 1995, a lien, not yet due and payable.
2. Easement and right-of-way granted to Virginia Electric and Power Company by
Agreement dated January 16, 1963 and recorded in deed Book 1502 at page
382.
3. Public purposes easement for pedestrian access and utilities, and perpetual
easement for public street and utility purposes granted to The County Board
of Arlington County, Virginia by Deed of Easement dated October 5, 1988 and
recorded October 5, 1988 in Deed Book 2351 at page 810.
4. Terms, conditions and easements set forth in Deed of Easement by and
between Washington Metropolitan Area Transit Authority and Ballston Center
Associates Limited Partnership recorded in Deed Book 2352 at page 921,
including future effective date and termination provisions.
This Commitment is continued on the following page. 8
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
5. Subject to approved site plan as referenced in Note on plat?? attached to
Deed of Resubdivision recorded in Deed Book 2351 at page 1828.
6. Deed of Subdivision creating Parcels B-1-B and B-1-A recorded in Deed Book
2352 at page 161.
7. Easements for access, egress and support granted Ballston Condo Limited
Partnership by Deed of Contribution dated October 4, 1988 and recorded
October 12, 1988 in Deed Book 2352 at page 928.
8. Terms, conditions and easements set forth in Deed of Contribution and
Easement dated October 5, 1988 and recorded in Deed Book 2352 at page 933.
9. 1.70' encroachment along North Stafford Street by slab at street level as
shown on plat of Dewberry & Davis, CLS, dated July 18, 1988.
10. Terms, conditions and easements set forth in Declaration for Ballston Metro
Center dated February 6, 1990 and recorded in deed Book 2419 at page 1.
11. Terms, conditions and agreement to convey g-4 Exclusive Easement and Garage
Non-Exclusive Easement as set forth in Corrected Inter-Entity Agreement
dated October 5, 1988 and recorded August 13, 1991 in deed Book 2485 at
page 1364.
12. Terms, conditions and easements set forth in Omnibus Pedestrian Bridge
Easement Agreement dated August 18, 1991 and recorded August 30, 1991 in
Deed Book 2488 at page 47; in North Street Bridge Agreement dated August 3,
1991 and recorded in deed Book 2488 at page 165; and in Confirmatory
Agreement dated September 4, 1991 and recorded October 25, 1991 in Deed
Book 2493 at page 1566.
13. Terms and conditions of Memorandum of Lease by and between Washington
Metropolitan Area Transit Authority and Ballston Office Center Associates
Limited Partnership, dated September 8, 1986 and recorded in Deed Book 2233
at page 1537, as amended by Corrective Memorandum of Lease dated October 5,
1988 and recorded in Deed Book 2352 at page 916, and the Lease described
therein.
14. Subject to title search and examination of servient properties in regard to
easements benefitting subject property as described in the last two
paragraphs of attached Exhibit A.
This Commitment is continued on the following page. 9
<PAGE>
ALTA PLAIN ENGLISH TITLE INSURANCE COMMITMENT
CHICAGO TITLE INSURANCE COMPANY
CHICAGO TITLE INSURANCE COMPANY
/s/ Craig A. Johnson
- -----------------------------------------
Craig Johnson, Assistant Vice President
This is the final page of this Commitment. 10
<PAGE>
EXHIBIT E
SCHEDULE OF ITEMS TO BE APPORTIONED OR CREDITED
ARLINGTON RENAISSANCE HOTEL
ARLINGTON RENAISSANCE HOTEL
CASH ACCOUNTS:
CASH OPERATING ACCOUNT
CASH MONEY MARKET ACCOUNT $
CASH CREDIT CARD ACCOUNT
CASH PAYROLL ACCOUNT
CASH HOUSE FUND
CASH RESERVE FUND/RESERVE ACCOUNT
---------------
TOTAL CASH ACCOUNTS $ 0.00
---------------
ACCOUNTS RECEIVABLE:
GUEST LEDGER ACCOUNT $
CITY LEDGER ACCOUNT
INTERCOMPANY RECEIVABLES
OTHER RECEIVABLES
VENDOR'S ESCROW DEPOSIT
OTHER MISCELLANEOUS RECEIVABLES
STAFF PARKING
ACCRUED RECEIVABLE PARKING INCOME
---------------
TOTAL ACCOUNTS RECEIVABLES $ 0.00
---------------
PREPAID ACCOUNTS:
WORKMAN'S COMPENSATION $
GROUP INSURANCE
LICENSES AND PERMITS
MAINTENANCE CONTRACTS
HARDWARE MAINTENANCE
SOFTWARE MAINTENANCE
INSURANCE
REAL ESTATE TAXES
---------------
TOTAL PREPAID EXPENSES $ 0.00
---------------
TOTAL ASSETS $ 0.00
---------------
<PAGE>
EXHIBIT E
SCHEDULE OF ITEMS TO BE APPORTIONED OR CREDITED
ARLINGTON RENAISSANCE HOTEL
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $
UNCLAIMED WAGES
AUDIO VISUAL
MOVIE-PAY PER VIEW
DUE TO RENAISSANCE INTERNATIONAL
LAUNDRY VALET SERVICE
OCCUPANCY TAX
FOOD AND BEVERAGE SALES TAX
FITNESS CENTER
EQUIPMENT PURCHASES PAYABLE
---------------
TOTAL CURRENT LIABILITIES $ 0.00
---------------
ACCRUED LIABILITIES:
MANAGEMENT BONUS PLAN $
MANAGEMENT FEES
SALARIES AND WAGES
ACCRUED UTILITIES
VACATION
ACCRUED MUTUAL EXPENSES
ACCRUED TRAVEL AGENCY FEES AND CLUB EXPENSES
ACCRUED PARKING AND CABLE COSTS
PROPERTY TAXES PAYABLE
---------------
TOTAL ACCRUED LIABILITIES $ 0.00
---------------
ADVANCE DEPOSITS ROOM/BANQUET $
---------------
TOTAL LIABILITIES $ 0.00
---------------
NET AMOUNT DUE BHLP $ 0.00
===============
NOTE: THIS INFORMATION WILL BE UPDATED TO THE CLOSING
DATE OF THE AGREEMENT OF SALE AND PURCHASE
<PAGE>
Hotel: Renaissance Arlington Hotel
Summary of Active EEOC Cases
<TABLE><CAPTION>
<S> <C> <C> <C>
Particulars Case 1 Case 2 Case 3
Name of Charging Party Tom Dennis Mohammed Bouideh Jose Arce
Gov't Agency Arlington Co. Human Rights Arlington Co. Human Rights ARCO
and EEOC and EEOC
Male/Female Male Male Male
Job Title Director of Security Engineer II Banquet Houseperson
When filed 07/12/94 2/21/95 10/95
Base for filing Wrongful Discharge Non Moroccans have been given Claims he was terminated
better schedules and been because of a disability
caught sleeping and not
terminated
Type of Discrimination Age Discrimination National Origin Disability ADA
Anticipated Result ARCO determined no reasonable No grounds ARCO determined no
grounds reasonable grounds
Anticipated Cost None None None
Rights to Sue Data
Brief Description Claimant was discharged due to Claimant found sleeping for Claimant terminated for
restructuring and re- extended period of time. punching time card of
engineering. Position Substantiated by two Loss fellow employee. Both
statement and supporting Prevention Officers. Claimant claimant and individual
documents sent to ARCO. 08/94 terminated due to seriousness who was punched in were
of his responsibilities terminated.
involved in possible emergency
situation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT G
RENAISSANCE ARLINGTON HOTEL
LIST OF PERMITS, CERTIFICATES, LICENSES AND APPROVALS
- ------------ ------------------------------------------ -----------------------------------------
DOCUMENT EXTENDED BY: FOR
- ------------ ------------------------------------------ -----------------------------------------
<S> <C> <C>
CERTIFICATE COMMONWEALTH OF VIRGINIA COLLECTION OF VIRGINIA SALES TAX
CERTIFICATE STATE OF VIRGINIA FICTITIOUS NAME CERTIFICATE- "METRO'S
LIBATION STATION"
CERTIFICATE STATE OF VIRGINIA FICTITIOUS NAME CERTIFICATE- "A CUT ABOVE
RESTAURANT AND LOUNGE"
LICENSE FEDERAL COMMUNICATIONS COMMISSION RADIO STATION LICENSE
APPROVAL DEPT. OF THE TREASURY - A.T.F. BUREAU OCCUPATIONAL TAX
CERTIFICATE ARLINGTON COUNTY / VIRGINIA CERTIFICATE OF OCCUPANCY
LICENSE ARLINGTON COUNTY / VIRGINIA RESTAURANT LICENSE
LICENSE COMMONWEALTH OF VIRGINIA ABC STATE LICENSE / WINE AND BEER
LICENSE COMMONWEALTH OF VIRGINIA ABC STATE LICENSE / MIXED BEVERAGE
CERTIFICATE ARLINGTON COUNTY / VIRGINIA BOILER AND HEATING ROOM INSPECTION
CERTIFICATE ARLINGTON COUNTY / VIRGINIA ELEVATOR NO. 8 INSPECTION
CERTIFICATE ARLINGTON COUNTY / VIRGINIA ELEVATOR NO. 9 INSPECTION
CERTIFICATE ARLINGTON COUNTY / VIRGINIA ELEVATOR NO. 14 INSPECTION
CERTIFICATE ARLINGTON COUNTY / VIRGINIA ELEVATOR NO. 10 INSPECTION
LICENSE ARLINGTON COUNTY ALCOHOL BEVERAGE WINE/BEER RETAIL
LICENSE ARLINGTON COUNTY SPECIALIZED BUSINESS OPERATION MANAGEMENT
LICENSE ARLINGTON COUNTY RESTAURANTS
LICENSE ARLINGTON COUNTY MIXED BEVERAGE / OVER 150 SEATS
LICENSE ARLINGTON COUNTY LODGING HOTELS
LICENSE ARLINGTON COUNTY SPECIALIZED COMMISSION
LICENSE ARLINGTON COUNTY GENERAL PERSONAL SERVICES
LICENSE ARLINGTON COUNTY COMMERCIAL RENT COMMISSION
</TABLE>
<PAGE>
EXHIBIT H
RENAISSANCE ARLINGTON HOTEL
LIST OF MATERIAL LIABILITIES AND OBLIGATIONS (MORE THAN $10,000)
AS OF JUNE 14, 1996
<TABLE>
<CAPTION>
- --------------------------------------------- ------------------------------------ ------------- -----------------------
VENDOR FOR AMOUNT PERIOD
- --------------------------------------------- ------------------------------------ ------------- -----------------------
<S> <C> <C> <C>
PRUDENTIAL / RENAISSANCE HOTELS GROUP HEALTH INSURANCE 30,000.00 MAY AND JUNE 1996
TREASURER, ARLINGTON COUNTY OCCUPANCY TAX 38,000.00 JUNE 1996
ARLINGTON COUNTY / STATE OF VIRGINIA SALES AND USE TAX 8,300.00 JUNE 1996
HOTEL MANAGEMENT EMPLOYEES MANAGEMENT BONUS (ESTIMA 44,000.00 07/01/95-06/30/96
RENAISSANCE HOTELS RINA FEES 17,174.20 05/25/96-06/13/96
RENAISSANCE HOTELS MANAGEMENT FEES 14,927.00 05/25/96-06/13/96
WASHINGTON GAS GAS CONSUMPTION (IN DISPUT 60,000.00 10/20/89-06/13/96
HOTEL HOURLY EMPLOYEES VACATION PAY (HOURLY EMPL 27,214.00 VARIOUS TO 05/24/96
LA SALLE ADVISORS MUTUAL EXPENSES (ESTIMATE 45,000.00 12/20/95 - 06/14/96
ATLANTIC GARAGE GUEST PARKING (ESTIMATED) 21,000.00 MAY AND JUNE 1996
KPMG PEAT MARWICK AUDIT FEES 16,300.00 1995 TAXES AND FINANCIALS
BRINK INTERNATIONAL PROFESSIONAL CONSULTING 24,000.00 $2,000.MONTH WITH 30
DAY NOTICE TO CANCEL
ALI, INC. ALI LOAN 17,079,120.60 DUE OCTOBER 5, 1995
</TABLE>
<PAGE>
EXHIBIT I
<TABLE>
<CAPTION>
RENAISSANCE ARLINGTON HOTEL
LIST OF MATERIAL CONTRACTS (MORE THAN $5,000)
- --------------------------- ------------------------------ ------------------------ --------- --------- ----------
NAME FOR PERIOD TOTAL PAYMENT PAYMENTS
CONTRACT AMOUNT TO BE MADE
- --------------------------- ------------------------------ ------------------------ --------- --------- ----------
<S> <C> <C> <C> <C> <C>
SIMPLEX FIRE ALARM 12/01/95-1130/96 20,088.03 5,022.00 QUARTERLY
WASTE MANAGEMENT RECYCLING 02/01/94-02/01/97 22,824.00 634.00 MONTHLY
SCHINDLER ELEVATORS 03/01/94-03/01/99 100,500.00 1,745.00 MONTHLY
XEROX COPIER 06/15/96-06/15/99 42,660.00 1,185.00 MONTH LY
XEROX COPIER 01/26/95-01/26/97 9,061.20 251.70 MONTHLY
CLS SOFTWARE FRONT OFFICE MAINTENANCE
SYSTEM SOFTWARE 03/15/96-03/15/97 7,512.00 1,678.00 QUARTERLY
A T AND T GLOBAL FRONT OFFICE MAINTENANCE
SYSTEM HARDWARE 07/01/95-06/30/96 4,950.00 4,950.00 ANNUALLY
</TABLE>
EXHIBIT 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, made as of ______, 1996 by and between
CAPSTAR HOTEL COMPANY, a Delaware corporation (the "Company") and CAPSTAR
MANAGEMENT CO., L.P., a Delaware limited partnership of which the Company is the
general partner (the "Subsidiary"), and PAUL W. WHETSELL (the "Executive"), an
individual residing at 5715 Cromwell Drive, Bethesda, MD 20816.
The Company and the Subsidiary desire to employ the Executive in the
capacities of President and Chief Executive Officer, and the Executive desires
to be so employed, on the terms and subject to the conditions set forth in this
agreement (the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth
herein and other good and valuable consideration the parties hereto hereby agree
as follows:
1. Employment; Term. The Company and the Subsidiary each hereby
----------------
employ the Executive, and the Executive agrees to be employed by the Company and
the Subsidiary, upon the terms and subject to the conditions set forth herein,
for a term commencing on the date of this Agreement (the "Commencement Date")
and terminating on December 31, 1999 unless terminated earlier in accordance
with Section 5 of this Agreement; provided, that such term shall automatically
be extended from time to time for additional periods of one calendar year from
the date on which it would otherwise expire unless the Executive, on one hand,
or the Company and the Subsidiary, on the other, gives notice to the other party
or parties not less than 120 days prior to such date that it elects to permit
the term of this Agreement to expire without extension on such date. (The
initial term of this Agreement as the same may be extended in accordance with
the terms of this Agreement is hereinafter referred to as the "Term").
2. Positions; Conduct.
------------------
(a) During the Term, the Executive will hold the titles and offices
of, and serve in the positions of, President and Chief Executive Officer of the
Company and the Subsidiary. The Executive shall report to the Board of
Directors of the Company and the Subsidiary and shall perform such specific
duties and services of a chief executive nature (including service as an
officer, director or equivalent position of any direct or indirect subsidiary
without additional compensation) as they shall reasonably request consistent
with the Executive's positions.
(b) During the Term, the Executive agrees to devote his full business
time and attention to the business and affairs of the Company and the Subsidiary
and to faithfully and diligently
<PAGE>
perform, to the best of his ability, all of his duties and responsibilities
hereunder. Nothing in this Agreement shall preclude the Executive from devoting
reasonable time and attention to (i) serving, with the approval of the Board of
Directors of the Company, as a director, trustee or member of any committee of
any organization, (ii) engaging in charitable and community activities and (iii)
managing his personal investments and affairs; provided that such activities do
not involve any material conflict of interest with the interests of the Company
or the Subsidiary or, individually or collectively, interfere materially with
the performance by the Executive of his duties and responsibilities under this
Agreement; and provided, further, that nothing in this Agreement shall prohibit
the Executive from engaging in those activities described on Schedule A annexed
hereto (the "Exempted Activities").
(c) The Executive's office and place of rendering his services under
this Agreement shall be in the principal executive offices of the Company which
shall be in the Washington, D.C. metropolitan area. Under no circumstances
shall the Executive be required to relocate from the Washington, D.C.
metropolitan area or provide services under this Agreement in any other
location other than in connection with reasonable and customary business travel.
During the Term, the Company shall provide the Executive with executive office
space, and administrative and secretarial assistance and other support services
consistent with his positions as Chief Executive Officer and President and with
his duties and responsibilities hereunder.
3. Board of Directors; Committees. While it is understood that the
------------------------------
right to elect directors of the Company is by law vested in the stockholders and
directors of the Company, it is nevertheless mutually contemplated that, subject
to such rights, during the Term the Executive will serve as a member and as
Chairman of the Company's Board of Directors and as a member and act as Chairman
of its Investment Committee.
4. Salary; Additional Compensation; Perquisites and Benefits.
---------------------------------------------------------
(a) During the Term, the Company and the Subsidiary will pay the
Executive a base salary at an annual rate of not less than $225,000 per annum,
subject to annual review by the Compensation Committee of the Board of Directors
of the Company (the "Compensation Committee") and in the discretion of such
Committee, increased from time to time. Once increased, such base salary may
not be decreased. Such salary shall be paid in periodic installments in
accordance with the Company's standard practice, but not less frequently than
semi-monthly.
(b) For each fiscal year during the Term, the Executive will be
eligible to receive a bonus under Company's Management
2
<PAGE>
Bonus Plan or such other plan adopted from time to time. The award and amount
of such bonus shall be based upon the Compensation Committee's determination of
actual performance as measured against goals which goals shall give the
Executive the opportunity to earn a bonus of up to 100% of his base salary. The
Executive shall receive a bonus of not less than $___,___ for the year ending
December 31, 1996.
(c) During the Term, the Executive will participate in all plans now
existing or hereafter adopted by the Company or the Subsidiary for the
management employees or the general benefit of the their employees, such as
bonuses, stock option or other incentive compensation plans, life and health
insurance plans, or other insurance plans and benefits on the same basis and
subject to the same qualifications as other senior executive officers. To the
extent permitted by law, the Executive shall be given credit for his years of
service to any predecessor entity of the Company in determining all waiting
periods and vesting periods under such plans.
(d) The Executive shall be eligible for stock option grants from time
to time pursuant to the Company's 1996 Equity Incentive Plan in accordance with
the terms thereof. The Committee designated in accordance with such plan has
granted to the Executive, effective on the Commencement Date, options to
purchase [___,___] shares of the common stock of the Company at an exercise
price equal to the initial public offering price of such stock. Subject to the
terms of Section 6(f) of this Agreement as to the acceleration of vesting of
stock options, such options shall vest as follows:
First anniversary of the Commencement Date.. 33-1/3% vested
Second anniversary of the Commencement Date. 66-2/3% vested
Third Anniversary of the Commencement Date.. 100% vested
Such options shall be exercisable, subject to vesting, for ten years from the
date of grant and in all other respects shall be subject to the terms and
conditions of the 1996 Equity Incentive Plan.
(e) The Company, at its sole cost, shall provide the Executive with a
life insurance policy with a death benefit of at least $2,000,000 payable to a
beneficiary designated by the Executive and a disability policy which, upon a
determination of the Executive's Disability (as hereinafter defined) pays at
least $2,000,000 to the Executive.
(f) The Company and the Subsidiary will reimburse the Executive, in
accordance with their standard policies from time to time in effect, for all
out-of-pocket business expenses as may be incurred by the Executive in the
performance of his duties under this Agreement.
3
<PAGE>
(g) The Executive shall be entitled to vacation time to be credited
and taken in accordance with the Company's policy from time to time in effect
for senior executives, which in any event shall not be less than a total of four
weeks per calendar year.
(h) The Executive shall be granted a car allowance of up to $___ per
month for the lease of an automobile to be leased by the Company for the use of
the Executive.
(i) In the event that any accelerated vesting of the Executive's
rights with respect to stock options, restricted stock or any other benefit or
compensation results in the imposition of an excise tax payable by the Executive
under Section 4999 of the Internal Revenue Code, or any successor or other
provision with respect to "excess parachute payments" within the meaning of
Section 280G(b) of the Internal Revenue Code, The Company shall make a cash
payment to the Executive in the amount of such taxes and shall also make a cash
payment to the Executive in an amount equal to the total of federal, state and
local income and excise taxes for which the Executive may be liable on account
of the cash payments made under this section.
(k) The Company and the Subsidiary shall indemnify the Executive to
the fullest extent permitted under the laws of their respective jurisdictions of
formation and shall each enter into separate agreements with respect thereto
with the Executive simultaneously with the execution of this Agreement.
5. Termination.
-----------
(a) The Term will terminate upon the Executive's death or, upon
notice by the Company or the Executive to the other, in the case of a
determination of the Executive's Disability. As used herein the term
"Disability" means the Executive's inability to perform his duties and
responsibilities under this Agreement for a period of more than 120 consecutive
days, or for more than 180 days, whether or not continuous, during any 365-day
period, due to physical or mental incapacity or impairment. A determination of
Disability will be made by a physician satisfactory to both the Executive and
the Company; provided that if they cannot agree as to a physician, then each
shall select a physician and these two together shall select a third physician
whose determination of Disability shall be binding on the Executive and the
Company. Should the Executive become incapacitated, his employment shall
continue and all base and other compensation due the Executive hereunder shall
continue to be paid through the date upon which the Executive's employment is
terminated for Disability in accordance with this section.
(b) The Term may be terminated by the Company upon notice to the
Executive upon the occurrence of any event constituting "Cause" as defined
herein.
4
<PAGE>
(c) The Term may be terminated by the Executive upon notice to the
Company (i) within six months of the occurrence of any event constituting "Good
Reason" as defined herein or (ii) within six months of a "Change of Control" as
defined herein.
6. Severance.
---------
(a) If the Term is terminated by the Company for Cause, or if the
Executive terminates his employment other than pursuant to Sections 5(a) or
5(c), the Company and the Subsidiary will pay to the Executive an aggregate
amount equal to the Executive's accrued and unpaid base salary through the date
of such termination, additional salary payments in lieu of the Executive's
accrued and unused vacation time, unreimbursed business expenses, unreimbursed
medical, dental and other employee benefit expenses in accordance with the
applicable plans, and any and all other benefits provided under the terms of
applicable employee plans to terminated employees (the "Standard Termination
Payments").
(b) If the Term is terminated upon the Executive's death or
Disability, the Company and the Subsidiary will pay to the Executive's estate or
the Executive, as the case may be, the Standard Termination Payments and all
death or disability payments or other employee benefits under their employee
benefit plans.
(c) Subject to Section 6(d), if the Company terminates the
Executive's employment under this Agreement without Cause or other than by
reason of his death or Disability, in addition to any other remedies available,
or if the Executive terminates his employment hereunder for Good Reason, the
Company shall (i) pay the Executive the Standard Termination Payments, (ii) pay
the Executive a lump sum payment equal to the product of (Y) an amount equal to
the Executive's total cash compensation for the previous fiscal year (but in no
event less than $225,000) and (Z) the greater of the number of full and
fractional years then remaining in the Term or the number two and (iii) continue
in effect the Executive's benefits under Sections 4(c), 4(d), 4(e) and 4(h) or
their equivalent for a period equal to the greater of two years or the then
remaining Term.
(d) If, following a Change in Control, the Executive terminates his
employment hereunder pursuant to Section 5(c) or, within one year following such
Change in Control, (A) the Company terminates the Executive's employment under
this Agreement without Cause or other than by reason of his death or Disability,
in addition to any other rights which the Executive may have under law or
otherwise, or (B) the Executive terminates his employment hereunder for Good
Reason, the Company shall (i) pay the Executive the Standard Termination
Payments, (ii) pay the Executive a lump sum payment equal to the product of (Y)
an amount equal to the Executive's total cash compensation for the previous
fiscal year (but in no event less than $225,000) and (Z) the greater of the
5
<PAGE>
number of full and fractional years then remaining in the Term or the number
three and (iii) continue in effect the Executive's benefits under Section 4(c)
with respect to life, health and insurance plans or their equivalent for a
period equal to the greater of two years or the then remaining Term.
(e) If at any time the Term is not extended pursuant to the proviso
to Section 1 as a result of the Company or Subsidiary giving notice thereunder
that it elects to permit the term of this Agreement to expire without extension,
the Company shall (i) pay the Executive the Standard Termination Payments, (ii)
pay the Executive a lump sum payment equal to the product of (Y) an amount equal
to the Executive's total cash compensation for the previous fiscal year (but in
no event less than $225,000) and (Z) the number two and (iii) continue in effect
the Executive's benefits under Section 4(c) with respect to life, health and
insurance plans or their equivalent for two years; provided, however, that the
Executive shall not be entitled to any payments or benefits under clauses (ii)
or (iii) of this Section 6(e) if the Executive has given notice of his election
to let this Agreement expire pursuant to the aforementioned proviso.
(f) Upon the termination of the employment of the Executive hereunder
for any reason, other than (i) termination by the Company for Cause or (ii)
termination by the Executive other than pursuant to Section 5(a) or 5(c), (Y)
all options granted to the Executive shall immediately vest and be exercisable
and (Z) all Company imposed restrictions on restricted stock issued to the
Executive shall be terminated.
(g) As used herein, the term "Cause" means:
(i) the Executive's willful and intentional failure or refusal to perform
or observe any of his material duties, responsibilities or obligations set
forth in this Agreement, if such breach is not cured within 30 days after
notice thereof to the Executive by the Company, which notice shall state
that such conduct shall, without cure, constitute Cause and makes specific
reference to this Section 6(g);
(ii) any willful and intentional act of the Executive involving fraud,
theft, embezzlement or dishonesty affecting the Company or the Subsidiary;
or
(iii) the Executive's conviction of (or a plea of nolo contendere to) an
---- ----------
offense which is a felony in the jurisdiction involved.
(h) As used herein, the term "Good Reason" means:
(i) assignment of the Executive of duties materially inconsistent with the
Executive's positions as described in
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Section 2(a);
(ii) the Executive's being removed from either such position;
(iii) the change in the location of the Company's principal executive
offices to a location outside the Washington, D.C. metropolitan area
without the Executive's consent which may be withheld at his sole
discretion;
(iv) any material breach of this Agreement by the Company or the
Subsidiary which is continuing; or
(v) the failure of the Executive to be elected as a member and Chairman of
the Board of Directors of the Company or a member of its Investment
Committee or the removal of the Executive from either such position.
(i) As used herein, the term "Change in Control" means the
occurrence of any one of the following events:
(i) any "person", as such term is used in Sections 3(a)(9) and 13(d) of
the Securities Exchange Act of 1934, other than Acadia Partners L.P. and
its Affiliates becomes a "beneficial owner", as such term is used in Rule
13d-3 promulgated under such Act, of 35% or more of the Voting Stock of the
Company or the majority of the Board of Directors of the Company or the
Subsidiary consists of individuals other than Incumbent Members, which
shall mean the members of such Boards on the Commencement Date; provided
that any person becoming a director subsequent to the Commencement Date
whose election or nomination for election was supported by a majority of
the directors who then comprised the Incumbent Directors shall be
considered an Incumbent Director;
(ii) the Company adopts a plan of liquidation providing for the
distribution of all or substantially all of the assets of the Company on a
consolidated basis;
(iii) The Company or the Subsidiary merges or combines with another
company and, immediately thereafter, the stockholders of the Company
immediately prior to such merger or combination hold, directly or
indirectly, 50% or less of the Voting Stock and other ownership interests
of the surviving entity or entities;
(iv) the Company or the Subsidiary sells all or substantially all of its
assets on a consolidated basis in a single transaction or series of
transactions; or
(v) the Company ceases to act as the general partner of the Subsidiary.
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As used herein, an Affiliate of a person or other entity means a person or other
entity that directly or indirectly controls, is controlled by or is under common
control with the person or other entity specified (including without limitation
any investment entity managed by the person or other entity specified or a
person or entity that directly or indirectly controls, is controlled by or under
common control with the person or other entity specified). As used herein,
"Voting Stock" means capital stock of any class or classes having general voting
power under ordinary circumstances, in the absence of contingencies, to elect
the directors or their equivalent.
(j) The amounts required to be paid and the benefits required to be
made available to the Executive under this Section 6 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any other way
limit or reduce the obligations of the Company and the Subsidiary under this
Section 6.
7. Confidential Information.
------------------------
(a) The Executive acknowledges that the Company and its subsidiaries
or affiliated ventures ("Company Affiliates") own and have developed and
compile, and will in the future own, develop and compile certain Confidential
Information and that during the course of his rendering services hereunder
Confidential Information will be disclosed to the Executive by the Company
Affiliates. The Executive hereby agrees that, during the Term and for a period
of three years thereafter, he will not use or disclose, furnish or make
accessible to anyone, directly or indirectly, any Confidential Information of
the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any
trade secrets, confidential or proprietary information, or other knowledge,
know-how, information, documents or materials, owned, developed or possessed by
a Company Affiliate pertaining to its businesses the confidentiality of which
such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques, know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research, developments, test results, reports,
specifications, data, formats, marketing data and business plans and strategies,
agreements and other forms of documents, expansion plans, budgets, projections,
and salary, staffing and employment information. Notwithstanding the foregoing,
Confidential Information shall not in any event include information which (i)
was generally known or generally available to the public prior to its disclosure
to the Executive, (ii) becomes generally known or generally available to the
public
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<PAGE>
subsequent to its disclosure to the Executive through no wrongful act of the
Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates which sources are not known to the Executive to be
under any duty of confidentiality with respect thereto or (iv) the Executive is
required to disclose by applicable law or regulation or by order of any court or
federal, state or local regulatory or administrative body (provided that the
Executive provides the Company with prior notice of the contemplated disclosure
and reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
8. Restrictive Covenants.
---------------------
(a) The Executive agrees that during his employment hereunder and for
a period of twelve months thereafter the Executive will not, directly or
indirectly, engage or participate or make any financial investments in (other
than ownership of up to 5% of the aggregate of any class of securities of any
corporation if such securities are listed on a national stock exchange or under
section 12(g) of the Securities Exchange Act of 1934) or become employed by, or
act as an agent or principal of, or render advisory or other management services
to or for, any Competing Business in the Territory. As used herein the term
"Competing Business" means the ownership or operation of any hotel property and
the term "Territory" means world-wide. Notwithstanding the foregoing, nothing
in this Agreement shall limit or prohibit the Executive from engaging in the
Exempted Activities.
(b) The Executive agrees that during his employment hereunder and for
a period of twenty-four months thereafter he will not solicit, raid, entice or
induce any person that then is or at any time during the twelve-month period
prior to the end of the Term was an employee of a Company Affiliate (other than
a person whose employment with such Company Affiliate has been terminated by
such Company Affiliate), to become employed by any person, firm or corporation.
9. Specific Performance.
--------------------
(a) The Executive acknowledges that the services to be rendered by
him hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 7 or 8 hereof. Therefore, in addition to
any other remedies available, the Company shall be entitled to specific
enforcement and/or an injunction from any court of competent jurisdiction
restraining the Executive from committing or continuing any such violation of
this Agreement without proving actual damages or posting a bond or other
security. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or threatened
9
<PAGE>
breach, including the recovery of damages.
(b) If any of the restrictions on activities of the Executive
contained in Sections 7 or 8 shall for any reason be held by a court of
competent jurisdiction to be excessively broad as to duration, geographical
scope or activity of subject, such restrictions shall be construed so as
thereafter to be limited or reduced to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear; it being understood
that by the execution of this Agreement the parties hereto regard such
restrictions as reasonable and compatible with their respective rights.
(c) Notwithstanding anything in this Agreement to the contrary, in
the event that the Company or the Subsidiary fails to make any payment of any
amounts or provide any of the benefits to the Executive when due as called for
under Section 6 of this Agreement and such failure shall continue for twenty
(20) days after notice thereof from the Executive, all restrictions on the
activities of the Executive under Sections 7 and 8 shall be immediately and
permanently terminated.
10. Withholding. The parties agree that all payments to be made to
-----------
the Executive by the Company and the Subsidiary pursuant to the Agreement shall
be subject to all applicable withholding obligations of such company.
11. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed given and received when delivered personally, four
days after being mailed if sent by registered or certified mail, postage pre-
paid, or by one day after delivery if sent by air courier (for next-day
delivery) with evidence of receipt thereof or by facsimile with receipt
confirmed by the addressee. Such notices shall be addressed respectively:
If to the Executive, to:
Mr. Paul W. Whetsell
5715 Cromwell Drive
Bethesda, MD 20816
If to the Company or any Company Affiliate, to:
CapStar Hotels Investors, Inc.
1010 Wisconsin Avenue,N.W.
Washington, D.C. 20007
Attention: Chief Operating Officer
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
12. Miscellaneous.
-------------
10
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(a) This Agreement is a personal contract calling for the provision
of unique services by the Executive, and the Executive's rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company and the Subsidiary
hereunder will be binding upon and run in favor of their respective successors
and assigns.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of [Delaware].
(c) Any controversy arising out of or relating to this Agreement or
any breach hereof shall be settled by arbitration in Washington, D.C. by a
single neutral arbitrator who shall be a retired federal or state court judge in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon any award rendered may be entered in any court
having jurisdiction thereof, except in the event of a controversy relating to
any alleged violation by the Executive of Section 7 or 8 hereof, the Company and
the Subsidiary shall be entitled to seek injunctive relief from a court of
competent jurisdiction without the requirement to seek arbitration.
(d) The headings of the various sections of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
` (e) The provisions of this Agreement which by their terms call for
performance subsequent to the expiration or termination of the Term shall
survive such expiration or termination.
(f) The Company and the Subsidiary shall reimburse the Executive for
all costs incurred by the Executive in any proceeding for the successful
enforcement of th terms of this Agreement, including without limitation all
costs of investigation and reasonable attorneys fees and expenses.
(g) This Agreement supersedes any existing employment agreements
between the Employee and the Company and any of its Affiliates all of which
shall be terminated upon the effective date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EXECUTIVE:
_________________________
Paul W. Whetsell
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COMPANY:
CAPSTAR HOTEL COMPANY
By:______________________
SUBSIDIARY:
CAPSTAR MANAGEMENT CO., L.P.
By: CapStar Hotels Investors, Inc.,
as general partner
By:______________________
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SCHEDULE A
The Exempted Activities shall mean acting as a director, officer and
shareholder of CapStar Hotels, Inc. and Latham Hotels, Inc. and their respective
subsidiaries in connection with their general affairs and in connection with the
ownership, management, financing and sale of their interests (and the interests
of entities in which they are general partners or principals) in the following
hotels.
1. Inn at Morro Bay, Morro Bay, California
2. Residence Inn, Orange California
3. Sheraton Inn Denver Airport, Denver, Colorado
4. Ramada Inn, Slidell, Louisiana
5. Cranwell Resort, Lenox, Massachusetts
6. Holiday Inn Sports Complex, Kansas City, Missouri
7. Radisson Inn North Country, West Lebanon, New Hampshire
8. Holiday Inn, Tinton Falls, New Jersey
9. Ramada Hotel LaGuardia Airport, Queens, New York
10. Latham Hotel, Philadelphia, Pennsylvania
11. Best Western Johnny Appleseed, Fredricksburg, Virginia
12. Quality Inn Shenandoah Valley, New Market, Virginia
13
EXHIBIT 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, made as of ______, 1996 by and between
CAPSTAR HOTEL COMPANY, a Delaware corporation (the "Company") and CAPSTAR
MANAGEMENT CO., L.P., a Delaware limited partnership of which the Company is the
general partner (the "Subsidiary"), and DAVID E. McCASLIN (the "Executive"), an
individual residing at 5925 Cheshire Drive, Bethesda, MD 20814.
The Company and the Subsidiary desire to employ the Executive in the
capacity of Chief Operating Officer, and the Executive desires to be so
employed, on the terms and subject to the conditions set forth in this agreement
(the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth
herein and other good and valuable consideration the parties hereto hereby agree
as follows:
1. Employment; Term. The Company and the Subsidiary each hereby
----------------
employ the Executive, and the Executive agrees to be employed by the Company and
the Subsidiary, upon the terms and subject to the conditions set forth herein,
for a term commencing on the date of this Agreement (the "Commencement Date")
and terminating on December 31, 1999 unless terminated earlier in accordance
with Section 5 of this Agreement; provided, that such term shall automatically
be extended from time to time for additional periods of one calendar year from
the date on which it would otherwise expire unless the Executive, on one hand,
or the Company and the Subsidiary, on the other, gives notice to the other party
or parties not less than 120 days prior to such date that it elects to permit
the term of this Agreement to expire without extension on such date. (The
initial term of this Agreement as the same may be extended in accordance with
the terms of this Agreement is hereinafter referred to as the "Term").
2. Positions; Conduct.
------------------
(a) During the Term, the Executive will hold the title and office of,
and serve in the position of, Chief Operating Officer of the Company and the
Subsidiary. The Executive shall report to the Chief Executive Officer of the
Company and the Subsidiary and shall perform such specific duties and services
of an executive nature (including service as an officer, director or equivalent
position of any direct or indirect subsidiary without additional compensation)
as he shall reasonably request consistent with the Executive's position.
(b) During the Term, the Executive agrees to devote his full business
time and attention to the business and affairs of the Company and the Subsidiary
and to faithfully and diligently perform, to the best of his ability, all of his
duties and
<PAGE>
responsibilities hereunder. Nothing in this Agreement shall preclude the
Executive from devoting reasonable time and attention to (i) serving, with the
approval of the Board of Directors of the Company, as a director, trustee or
member of any committee of any organization, (ii) engaging in charitable and
community activities and (iii) managing his personal investments and affairs;
provided that such activities do not involve any material conflict of interest
with the interests of the Company or the Subsidiary or, individually or
collectively, interfere materially with the performance by the Executive of his
duties and responsibilities under this Agreement; and provided, further, that
nothing in this Agreement shall prohibit the Executive from engaging in those
activities described on Schedule A annexed hereto (the "Exempted Activities").
(c) The Executive's office and place of rendering his services under
this Agreement shall be in the principal executive offices of the Company which
shall be in the Washington, D.C. metropolitan area. Under no circumstances
shall the Executive be required to relocate from the Washington, D.C.
metropolitan area or provide services under this Agreement in any other
location other than in connection with reasonable and customary business travel.
During the Term, the Company shall provide the Executive with executive office
space, and administrative and secretarial assistance and other support services
consistent with his position as Chief Operating Officer and with his duties and
responsibilities hereunder.
3. Board of Directors. While it is understood that the right to
------------------
elect directors of the Company is by law vested in the stockholders and
directors of the Company, it is nevertheless mutually contemplated that, subject
to such rights, during the Term the Executive will serve as a member of the
Company's Board of Directors.
4. Salary; Additional Compensation; Perquisites and Benefits.
---------------------------------------------------------
(a) During the Term, the Company and the Subsidiary will pay the
Executive a base salary at an annual rate of not less than $215,000 per annum,
subject to annual review by the Compensation Committee of the Board of Directors
of the Company (the "Compensation Committee") and in the discretion of such
Committee, increased from time to time. Once increased, such base salary may
not be decreased. Such salary shall be paid in periodic installments in
accordance with the Company's standard practice, but not less frequently than
semi-monthly.
(b) For each fiscal year during the Term, the Executive will be
eligible to receive a bonus under Company's Management Bonus Plan or such other
plan adopted from time to time. The award and amount of such bonus shall be
based upon the Compensation Committee's determination of actual performance as
measured against
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<PAGE>
goals which goals shall give the Executive the opportunity to earn a bonus of up
to 100% of his base salary. The Executive shall receive a bonus of not less
than $___,___ for the year ending December 31, 1996.
(c) During the Term, the Executive will participate in all plans now
existing or hereafter adopted by the Company or the Subsidiary for the
management employees or the general benefit of the their employees, such as
bonuses, stock option or other incentive compensation plans, life and health
insurance plans, or other insurance plans and benefits on the same basis and
subject to the same qualifications as other senior executive officers. To the
extent permitted by law, the Executive shall be given credit for his years of
service to any predecessor entity of the Company in determining all waiting
periods and vesting periods under such plans.
(d) The Executive shall be eligible for stock option grants from time
to time pursuant to the Company's 1996 Equity Incentive Plan in accordance with
the terms thereof. The Committee designated in accordance with such plan has
granted to the Executive, effective on the Commencement Date, options to
purchase [___,___] shares of the common stock of the Company at an exercise
price equal to the initial public offering price of such stock. Subject to the
terms of Section 6(f) of this Agreement as to the acceleration of vesting of
stock options, such options shall vest as follows:
First anniversary of the Commencement Date.. 33-1/3% vested
Second anniversary of the Commencement Date. 66-2/3% vested
Third Anniversary of the Commencement Date.. 100% vested
Such options shall be exercisable, subject to vesting, for ten years from the
date of grant and in all other respects shall be subject to the terms and
conditions of the 1996 Equity Incentive Plan.
(e) The Company and the Subsidiary will reimburse the Executive, in
accordance with their standard policies from time to time in effect, for all
out-of-pocket business expenses as may be incurred by the Executive in the
performance of his duties under this Agreement.
(f) The Executive shall be entitled to vacation time to be credited
and taken in accordance with the Company's policy from time to time in effect
for senior executives, which in any event shall not be less than a total of four
weeks per calendar year.
(g) The Executive shall be granted a car allowance of up to $___ per
month for the lease of an automobile to be leased by the Company for the use of
the Executive.
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(h) In the event that any accelerated vesting of the Executive's
rights with respect to stock options, restricted stock or any other benefit or
compensation results in the imposition of an excise tax payable by the Executive
under Section 4999 of the Internal Revenue Code, or any successor or other
provision with respect to "excess parachute payments" within the meaning of
Section 280G(b) of the Internal Revenue Code, The Company shall make a cash
payment to the Executive in the amount of such taxes and shall also make a cash
payment to the Executive in an amount equal to the total of federal, state and
local income and excise taxes for which the Executive may be liable on account
of the cash payments made under this section.
(i) The Company and the Subsidiary shall indemnify the Executive to
the fullest extent permitted under the laws of their respective jurisdictions of
formation and shall each enter into separate agreements with respect thereto
with the Executive simultaneously with the execution of this Agreement.
5. Termination.
-----------
(a) The Term will terminate upon the Executive's death or, upon
notice by the Company or the Executive to the other, in the case of a
determination of the Executive's Disability. As used herein the term
"Disability" means the Executive's inability to perform his duties and
responsibilities under this Agreement for a period of more than 120 consecutive
days, or for more than 180 days, whether or not continuous, during any 365-day
period, due to physical or mental incapacity or impairment. A determination of
Disability will be made by a physician satisfactory to both the Executive and
the Company; provided that if they cannot agree as to a physician, then each
shall select a physician and these two together shall select a third physician
whose determination of Disability shall be binding on the Executive and the
Company. Should the Executive become incapacitated, his employment shall
continue and all base and other compensation due the Executive hereunder shall
continue to be paid through the date upon which the Executive's employment is
terminated for Disability in accordance with this section.
(b) The Term may be terminated by the Company upon notice to the
Executive upon the occurrence of any event constituting "Cause" as defined
herein.
(c) The Term may be terminated by the Executive upon notice to the
Company (i) within six months of the occurrence of any event constituting "Good
Reason" as defined herein or (ii) within six months of a "Change of Control" as
defined herein.
6. Severance.
---------
(a) If the Term is terminated by the Company for Cause,
4
<PAGE>
or if the Executive terminates his employment other than pursuant to Sections
5(a) or 5(c), the Company and the Subsidiary will pay to the Executive an
aggregate amount equal to the Executive's accrued and unpaid base salary through
the date of such termination, additional salary payments in lieu of the
Executive's accrued and unused vacation time, unreimbursed business expenses,
unreimbursed medical, dental and other employee benefit expenses in accordance
with the applicable plans, and any and all other benefits provided under the
terms of applicable employee plans to terminated employees (the "Standard
Termination Payments").
(b) If the Term is terminated upon the Executive's death or
Disability, the Company and the Subsidiary will pay to the Executive's estate or
the Executive, as the case may be, the Standard Termination Payments and all
death or disability payments or other employee benefits under their employee
benefit plans.
(c) Subject to Section 6(d), if the Company terminates the
Executive's employment under this Agreement without Cause or other than by
reason of his death or Disability, in addition to any other remedies available,
or if the Executive terminates his employment hereunder for Good Reason, the
Company shall (i) pay the Executive the Standard Termination Payments, (ii) pay
the Executive a lump sum payment equal to the product of (Y) an amount equal to
the Executive's total cash compensation for the previous fiscal year (but in no
event less than $215,000) and (Z) the greater of the number of full and
fractional years then remaining in the Term or the number two and (iii) continue
in effect the Executive's benefits under Sections 4(c), 4(d) and 4(g) or their
equivalent for a period equal to the greater of two years or the then remaining
Term.
(d) If, following a Change in Control, the Executive terminates his
employment hereunder pursuant to Section 5(c) or, within one year following such
Change in Control, (A) the Company terminates the Executive's employment under
this Agreement without Cause or other than by reason of his death or Disability,
in addition to any other rights which the Executive may have under law or
otherwise, or (B) the Executive terminates his employment hereunder for Good
Reason, the Company shall (i) pay the Executive the Standard Termination
Payments, (ii) pay the Executive a lump sum payment equal to the product of (Y)
an amount equal to the Executive's total cash compensation for the previous
fiscal year (but in no event less than $215,000) and (Z) the greater of the
number of full and fractional years then remaining in the Term or the number
three and (iii) continue in effect the Executive's benefits under Section 4(c)
with respect to life, health and insurance plans or their equivalent for a
period equal to the greater of two years or the then remaining Term.
(e) If at any time the Term is not extended pursuant to the proviso
to Section 1 as a result of the Company or Subsidiary
5
<PAGE>
giving notice thereunder that it elects to permit the term of this Agreement to
expire without extension, the Company shall (i) pay the Executive the Standard
Termination Payments, (ii) pay the Executive a lump sum payment equal to the
product of (Y) an amount equal to the Executive's total cash compensation for
the previous fiscal year (but in no event less than $215,000) and (Z) the number
two and (iii) continue in effect the Executive's benefits under Section 4(c)
with respect to life, health and insurance plans or their equivalent for two
years; provided, however, that the Executive shall not be entitled to any
payments or benefits under clauses (ii) or (iii) of this Section 6(e) if the
Executive has given notice of his election to let this Agreement expire pursuant
to the aforementioned proviso.
(f) Upon the termination of the employment of the Executive hereunder
for any reason, other than (i) termination by the Company for Cause or (ii)
termination by the Executive other than pursuant to Section 5(a) or 5(c), (Y)
all options granted to the Executive shall immediately vest and be exercisable
and (Z) all Company imposed restrictions on restricted stock issued to the
Executive shall be terminated.
(g) As used herein, the term "Cause" means:
(i) the Executive's willful and intentional failure or refusal to perform
or observe any of his material duties, responsibilities or obligations set
forth in this Agreement, if such breach is not cured within 30 days after
notice thereof to the Executive by the Company, which notice shall state
that such conduct shall, without cure, constitute Cause and makes specific
reference to this Section 6(g);
(ii) any willful and intentional act of the Executive involving fraud,
theft, embezzlement or dishonesty affecting the Company or the Subsidiary;
or
(iii) the Executive's conviction of (or a plea of nolo contendere to) an
---- ----------
offense which is a felony in the jurisdiction involved.
(h) As used herein, the term "Good Reason" means:
(i) assignment of the Executive of duties materially inconsistent with the
Executive's position as described in Section 2(a);
(ii) the Executive's being removed from such position;
(iii) the change in the location of the Company's principal executive
offices to a location outside the Washington, D.C. metropolitan area
without the Executive's consent which may be withheld at his sole
discretion; or
6
<PAGE>
(iv) any material breach of this Agreement by the Company or the
Subsidiary which is continuing.
(i) As used herein, the term "Change in Control" means the
occurrence of any one of the following events:
(i) any "person", as such term is used in Sections 3(a)(9) and 13(d) of
the Securities Exchange Act of 1934, other than Acadia Partners L.P. and
its Affiliates becomes a "beneficial owner", as such term is used in Rule
13d-3 promulgated under such Act, of 35% or more of the Voting Stock of the
Company or the majority of the Board of Directors of the Company or the
Subsidiary consists of individuals other than Incumbent Members, which
shall mean the members of such Boards on the Commencement Date; provided
that any person becoming a director subsequent to the Commencement Date
whose election or nomination for election was supported by a majority of
the directors who then comprised the Incumbent Directors shall be
considered an Incumbent Director;
(ii) the Company adopts a plan of liquidation providing for the
distribution of all or substantially all of the assets of the Company on a
consolidated basis;
(iii) The Company or the Subsidiary merges or combines with another
company and, immediately thereafter, the stockholders of the Company
immediately prior to such merger or combination hold, directly or
indirectly, 50% or less of the Voting Stock and other ownership interests
of the surviving entity or entities;
(iv) the Company or the Subsidiary sells all or substantially all of its
assets on a consolidated basis in a single transaction or series of
transactions; or
(v) the Company ceases to act as the general partner of the Subsidiary.
As used herein, an Affiliate of a person or other entity means a person or other
entity that directly or indirectly controls, is controlled by or is under common
control with the person or other entity specified (including without limitation
any investment entity managed by the person or other entity specified or a
person or entity that directly or indirectly controls, is controlled by or under
common control with the person or other entity specified). As used herein,
"Voting Stock" means capital stock of any class or classes having general voting
power under ordinary circumstances, in the absence of contingencies, to elect
the directors or their equivalent.
(j) The amounts required to be paid and the benefits required to be
made available to the Executive under this Section
7
<PAGE>
6 are absolute. Under no circumstances shall the Executive, upon the
termination of his employment hereunder, be required to seek alternative
employment and, in the event that the Executive does secure other employment, no
compensation or other benefits received in respect of such employment shall be
set-off or in any other way limit or reduce the obligations of the Company and
the Subsidiary under this Section 6.
7. Confidential Information.
------------------------
(a) The Executive acknowledges that the Company and its subsidiaries
or affiliated ventures ("Company Affiliates") own and have developed and
compile, and will in the future own, develop and compile certain Confidential
Information and that during the course of his rendering services hereunder
Confidential Information will be disclosed to the Executive by the Company
Affiliates. The Executive hereby agrees that, during the Term and for a period
of three years thereafter, he will not use or disclose, furnish or make
accessible to anyone, directly or indirectly, any Confidential Information of
the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any
trade secrets, confidential or proprietary information, or other knowledge,
know-how, information, documents or materials, owned, developed or possessed by
a Company Affiliate pertaining to its businesses the confidentiality of which
such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques, know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research, developments, test results, reports,
specifications, data, formats, marketing data and business plans and strategies,
agreements and other forms of documents, expansion plans, budgets, projections,
and salary, staffing and employment information. Notwithstanding the foregoing,
Confidential Information shall not in any event include information which (i)
was generally known or generally available to the public prior to its disclosure
to the Executive, (ii) becomes generally known or generally available to the
public subsequent to its disclosure to the Executive through no wrongful act of
the Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates which sources are not known to the Executive to be
under any duty of confidentiality with respect thereto or (iv) the Executive is
required to disclose by applicable law or regulation or by order of any court or
federal, state or local regulatory or administrative body (provided that the
Executive provides the Company with prior notice of the contemplated disclosure
and reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
8. Restrictive Covenants.
---------------------
8
<PAGE>
(a) The Executive agrees that during his employment hereunder and for
a period of twelve months thereafter the Executive will not, directly or
indirectly, engage or participate or make any financial investments in (other
than ownership of up to 5% of the aggregate of any class of securities of any
corporation if such securities are listed on a national stock exchange or under
section 12(g) of the Securities Exchange Act of 1934) or become employed by, or
act as an agent or principal of, or render advisory or other management services
to or for, any Competing Business in the Territory. As used herein the term
"Competing Business" means the ownership or operation of any hotel property and
the term "Territory" means world-wide. Notwithstanding the foregoing, nothing
in this Agreement shall limit or prohibit the Executive from engaging in the
Exempted Activities.
(b) The Executive agrees that during his employment hereunder and for
a period of twenty-four months thereafter he will not solicit, raid, entice or
induce any person that then is or at any time during the twelve-month period
prior to the end of the Term was an employee of a Company Affiliate (other than
a person whose employment with such Company Affiliate has been terminated by
such Company Affiliate), to become employed by any person, firm or corporation.
9. Specific Performance.
--------------------
(a) The Executive acknowledges that the services to be rendered by
him hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 7 or 8 hereof. Therefore, in addition to
any other remedies available, the Company shall be entitled to specific
enforcement and/or an injunction from any court of competent jurisdiction
restraining the Executive from committing or continuing any such violation of
this Agreement without proving actual damages or posting a bond or other
security. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages.
(b) If any of the restrictions on activities of the Executive
contained in Sections 7 or 8 shall for any reason be held by a court of
competent jurisdiction to be excessively broad as to duration, geographical
scope or activity of subject, such restrictions shall be construed so as
thereafter to be limited or reduced to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear; it being understood
that by the execution of this Agreement the parties hereto regard such
restrictions as reasonable and compatible with their respective rights.
(c) Notwithstanding anything in this Agreement to the
9
<PAGE>
contrary, in the event that the Company or the Subsidiary fails to make any
payment of any amounts or provide any of the benefits to the Executive when due
as called for under Section 6 of this Agreement and such failure shall continue
for twenty (20) days after notice thereof from the Executive, all restrictions
on the activities of the Executive under Sections 7 and 8 shall be immediately
and permanently terminated.
10. Withholding. The parties agree that all payments to be made to
-----------
the Executive by the Company and the Subsidiary pursuant to the Agreement shall
be subject to all applicable withholding obligations of such company.
11. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed given and received when delivered personally, four
days after being mailed if sent by registered or certified mail, postage pre-
paid, or by one day after delivery if sent by air courier (for next-day
delivery) with evidence of receipt thereof or by facsimile with receipt
confirmed by the addressee. Such notices shall be addressed respectively:
If to the Executive, to:
Mr. David E. McCaslin
5925 Cheshire Drive
Bethesda, MD 20814
If to the Company or any Company Affiliate, to:
CapStar Hotels Investors, Inc.
1010 Wisconsin Avenue,N.W.
Washington, D.C. 20007
Attention: Chief Executive Officer
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
12. Miscellaneous.
-------------
(a) This Agreement is a personal contract calling for the provision
of unique services by the Executive, and the Executive's rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company and the Subsidiary
hereunder will be binding upon and run in favor of their respective successors
and assigns.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of [Delaware].
(c) Any controversy arising out of or relating to this
10
<PAGE>
Agreement or any breach hereof shall be settled by arbitration in Washington,
D.C. by a single neutral arbitrator who shall be a retired federal or state
court judge in accordance with the Commercial Arbitration Rules of the American
Arbitration Association and judgment upon any award rendered may be entered in
any court having jurisdiction thereof, except in the event of a controversy
relating to any alleged violation by the Executive of Section 7 or 8 hereof, the
Company and the Subsidiary shall be entitled to seek injunctive relief from a
court of competent jurisdiction without the requirement to seek
arbitration.
(d) The headings of the various sections of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
` (e) The provisions of this Agreement which by their terms call for
performance subsequent to the expiration or termination of the Term shall
survive such expiration or termination.
(f) The Company and the Subsidiary shall reimburse the Executive for
all costs incurred by the Executive in any proceeding for the successful
enforcement of th terms of this Agreement, including without limitation all
costs of investigation and reasonable attorneys fees and expenses.
(g) This Agreement supersedes any existing employment agreements
between the Employee and the Company and any of its Affiliates all of which
shall be terminated upon the effective date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EXECUTIVE:
_________________________
David E. McCaslin
COMPANY:
CAPSTAR HOTEL COMPANY
By:______________________
SUBSIDIARY:
CAPSTAR MANAGEMENT CO., L.P.
By: CapStar Hotels Investors, Inc.,
as general partner
By:______________________
11
<PAGE>
SCHEDULE A
The Exempted Activities shall mean acting as a director, officer and
shareholder of CapStar Hotels, Inc. and Latham Hotels, Inc. and their respective
subsidiaries in connection with their general affairs and in connection with the
ownership, management, financing and sale of their interests (and the interests
of entities in which they are general partners or principals) in the following
hotels.
1. Inn at Morro Bay, Morro Bay, California
2. Residence Inn, Orange California
3. Sheraton Inn Denver Airport, Denver, Colorado
4. Ramada Inn, Slidell, Louisiana
5. Cranwell Resort, Lenox, Massachusetts
6. Holiday Inn Sports Complex, Kansas City, Missouri
7. Radisson Inn North Country, West Lebanon, New Hampshire
8. Holiday Inn, Tinton Falls, New Jersey
9. Ramada Hotel LaGuardia Airport, Queens, New York
10. Latham Hotel, Philadelphia, Pennsylvania
11. Best Western Johnny Appleseed, Fredricksburg, Virginia
12. Quality Inn Shenandoah Valley, New Market, Virginia
12
EXHIBIT 10.7
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, made as of ______, 1996 by and between
CAPSTAR HOTEL COMPANY, a Delaware corporation (the "Company") and WILLIAM M.
KARNES (the "Executive"), an individual residing at ________________________.
The Company desires to employ the Executive in the capacity of Chief
Operating Officer, and the Executive desires to be so employed, on the terms and
subject to the conditions set forth in this agreement (the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth
herein and other good and valuable consideration the parties hereto hereby agree
as follows:
1. Employment; Term. The Company hereby employs the Executive, and
----------------
the Executive agrees to be employed by the Company, upon the terms and subject
to the conditions set forth herein, for a term commencing on the date of this
Agreement (the "Commencement Date") and terminating on December 31, 1999 unless
terminated earlier in accordance with Section 4 of this Agreement (the "Term").
2. Position; Conduct.
-----------------
(a) During the Term, the Executive will hold the title and office of,
and serve in the position of, Senior Executive Vice-President Finance. The
Executive shall report to the executive officers of the Company and shall
perform such specific duties and services (including service as an officer,
director or equivalent position of any direct or indirect subsidiary without
additional compensation) as they shall reasonably request consistent with the
Executive's position.
(b) During the Term, the Executive agrees to devote his full business
time and attention to the business and affairs of the Company and its
subsidiaries and to faithfully and diligently perform, to the best of his
ability, all of his duties and responsibilities hereunder. Nothing in this
Agreement shall preclude the Executive from devoting reasonable time and
attention to (i) serving, with the approval of the Board of Directors of the
Company, as a director, trustee or member of any committee of any organization,
(ii) engaging in charitable and community activities and (iii) managing his
personal investments and affairs; provided that such activities do not involve
any material conflict of interest with the interests of the Company or the
Subsidiary or, individually or collectively, interfere materially with the
performance by the Executive of his duties and responsibilities under this
Agreement; and provided, further, that nothing in this Agreement shall prohibit
the Executive from engaging in those
<PAGE>
activities described on Schedule A annexed hereto (the "Exempted Activities").
(c) The Executive's office and place of rendering his services under
this Agreement shall be in the principal executive offices of the Company which
shall be in the Washington, D.C. metropolitan area. Under no circumstances
shall the Executive be required to relocate from the Washington, D.C.
metropolitan area or provide services under this Agreement in any other
location other than in connection with reasonable and customary business travel.
During the Term, the Company shall provide the Executive with executive office
space, and administrative and secretarial assistance and other support services
consistent with his position and with his duties and responsibilities hereunder.
3. Salary; Additional Compensation; Perquisites and Benefits.
---------------------------------------------------------
(a) During the Term, the Company will pay the Executive a base salary
at an annual rate of not less than $215,000 per annum, subject to annual review
by the Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") and in the discretion of such Committee, increased
from time to time. Once increased, such base salary may not be decreased. Such
salary shall be paid in periodic installments in accordance with the Company's
standard practice, but not less frequently than semi-monthly. The Executive
shall receive an increase in his base salary, effective January 1, 1997, of at
least five (5%) percent.
(b) For each fiscal year during the Term, the Executive will be
eligible to receive a bonus under Company's Management Bonus Plan or such other
plan adopted from time to time. The award and amount of such bonus shall be
based upon the Compensation Committee's determination of actual performance as
measured against goals which goals shall give the Executive the opportunity to
earn a bonus of up to 100% of his base salary. The Executive shall receive a
bonus of not less than $30,000 for the year ending December 31, 1996.
(c) During the Term, the Executive will participate in all plans now
existing or hereafter adopted by the Company or the Subsidiary for the
management employees or the general benefit of the their employees, such as
bonuses, stock option or other incentive compensation plans, life and health
insurance plans, or other insurance plans and benefits on the same basis and
subject to the same qualifications as other senior executive officers. To the
extent permitted by law, the Executive shall be given credit for his years of
service to any predecessor entity of the Company in determining all waiting
periods and vesting periods under such plans.
2
<PAGE>
(d) The Executive shall be eligible for stock option grants from time
to time pursuant to the Company's 1996 Equity Incentive Plan in accordance with
the terms thereof. The Committee designated in accordance with such plan has
granted to the Executive, effective on the Commencement Date, options to
purchase [___,___] shares of the common stock of the Company at an exercise
price equal to the initial public offering price of such stock. Such options
shall vest as follows:
First anniversary of the Commencement Date.. 33-1/3% vested
Second anniversary of the Commencement Date. 66-2/3% vested
Third Anniversary of the Commencement Date.. 100% vested
Such options shall be exercisable, subject to vesting, for ten years from the
date of grant and in all other respects shall be subject to the terms and
conditions of the 1996 Equity Incentive Plan.
(e) The Company will reimburse the Executive, in accordance with its
standard policies from time to time in effect, for all out-of-pocket business
expenses as may be incurred by the Executive in the performance of his duties
under this Agreement.
(f) The Executive shall be entitled to two weeks vacation time to be
credited and taken in accordance with the Company's policy from time to time in
effect for senior executives.
(g) The Executive became an employee of the Company and its
predecessor entities effective April 9, 1996. To the extent not settled and
determined before the date of this Agreement, (i) the Company will reimburse the
Executive, in accordance with its relocation policy, for packing, storage and
shipping of the Executive's household goods as well as the travel expense of
moving the cars of the Executive and (ii) will provide the Executive with a cash
payment of $15,000 to cover other relocation expenses. Until the Executive
relocates his family to the Washington, D.C. area, the Company will provide the
Executive with temporary living quarters in the Washington, D.C. area and
reimburse the Executive for weekly trips home to the Chicago area.
4. Termination.
-----------
(a) The Term will terminate upon the Executive's death.
(b) Upon written notice, the Company may terminate this Agreement for
Cause. As used herein, the term "Cause" means:
(i) the Executive's inability to perform his duties and responsibilities
under this Agreement for a period of more than 120 days, whether or not
continuous, during any 365-day period, due to physical or mental incapacity
or impairment;
3
<PAGE>
(ii) if the Executive commits acts of willful malfeasance or gross
negligence in connection with his employment hereunder;
(iii) the Executive's conviction of (or a plea of nolo contendere to) an
---- ----------
offense which is a felony in the jurisdiction involved;
(iv) if, after written notice thereof, the Executive repeatedly fails or
neglects to perform any material duties of his employment hereunder; or
(v) if the Executive breaches any other specific provision of this
Agreement and, if such breach is curable, he fails to cure same within
thirty (30) days of written notice thereof.
(c) If the Executive's employment is terminated for Cause, or if he
dies, the Company will pay to the Executive an aggregate amount equal to the
Executive's accrued and unpaid base salary through the date of such termination,
additional salary payments in lieu of the Executive's accrued and unused
vacation time, unreimbursed business expenses, unreimbursed medical, dental and
other employee benefit expenses in accordance with the applicable plans, and any
and all other benefits provided under the terms of applicable employee plans to
terminated employees (the "Standard Termination Payments").
(d) Notwithstanding anything to the contrary contained herein, upon
written notice to the Executive, the Company may terminate his employment
without Cause at any time. In the event of such termination, the Company will
have no further obligation to the Executive or any other person in respect of
his employment other than a lump sum payment of (i) the Standard Termination
Payments through the date of such termination and (ii) an amount equal to the
greater of the Executive's base salary for the remainder of the Term or for one
year, less any amounts owed by the Executive to the Company of its Affiliates
(provided, that loans made to the Executive by the Company or its Affiliates or
predecessor entities relating to the purchase by the Executive of an equity
interest in such entities shall remain due in accordance with their terms). In
addition, immediately upon the effectiveness of such termination, (Y) all
options granted to the Executive shall immediately vest and be exercisable and
(Z) all restrictions on restricted stock issued to the Executive shall be
terminated.
(e) If the Executive so notifies the Company within thirty (30) days
after the occurrence of any of the following events, the Executive may terminate
his employment by the Company hereunder:
(i) a material reduction in the authority of the Executive or a material
adverse change in the Executive's working
4
<PAGE>
conditions if, after such reduction or change, the Executive's authority or
working conditions are not commensurate with those of executives holding
chief financial officer positions at companies comparable to the Company in
the lodging industry (a "Material Adverse Change");
(ii) the Executive is required to relocate from the Washington, D.C.
metropolitan area without his consent; or
(iii) a Change of Control occurs and the Executive reasonably believes
that a Material Adverse Change will occur as a result of such Change of
Control.
As used herein (X) the term "Change in Control" means the occurrence of any
events such that any "person", as such term is used in Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934, other than Acadia Partners L.P.
and its Affiliates and the Company's management becomes a "beneficial owner", as
such term is used in Rule 13d-3 promulgated under such Act, of 35% or more of
the Voting Stock of the Company; provided that no Change of Control shall be
deemed to have occurred so long as the Executive continues to report to Paul W.
Whetsell; (Y) an Affiliate of a person or other entity means a person or other
entity that directly or indirectly controls, is controlled by or is under common
control with the person or other entity specified (including without limitation
any investment entity managed by the person or other entity specified or a
person or entity that directly or indirectly controls, is controlled by or under
common control with the person or other entity specified) and (Z) the term
"Voting Stock" means capital stock of any class or classes having general voting
power under ordinary circumstances, in the absence of contingencies, to elect
the directors or their equivalent.
If the Executive's employment is terminated pursuant to this Section
4(e), the Company will have no further obligation to the Executive or any other
person in respect of his employment other than payment of (i) the Standard
Termination Payments through the date of such termination and (ii) the
Executive's base salary for two years following the effective date of such
termination; provided, that such payments under clause (ii) above shall be
reduced by any amounts earned by the Executive from the rendering of personal
services in any capacity during such two year period. In addition, immediately
upon the effectiveness of such termination, (Y) all options granted to the
Executive shall immediately vest and be exercisable and (Z) all Company imposed
restrictions on restricted stock issued to the Executive shall be terminated.
5. Confidential Information.
------------------------
(a) The Executive acknowledges that the Company and its
5
<PAGE>
subsidiaries or affiliated ventures ("Company Affiliates") own and have
developed and compile, and will in the future own, develop and compile certain
Confidential Information and that during the course of his rendering services
hereunder Confidential Information will be disclosed to the Executive by the
Company Affiliates. The Executive hereby agrees that, during the Term and
thereafter, he will not use or disclose, furnish or make accessible to anyone,
directly or indirectly, any Confidential Information of the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any
trade secrets, confidential or proprietary information, or other knowledge,
know-how, information, documents or materials, owned, developed or possessed by
a Company Affiliate pertaining to its businesses the confidentiality of which
such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques, know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research, developments, test results, reports,
specifications, data, formats, marketing data and business plans and strategies,
agreements and other forms of documents, expansion plans, budgets, projections,
and salary, staffing and employment information. Notwithstanding the foregoing,
Confidential Information shall not in any event include information which (i)
was generally known or generally available to the public prior to its disclosure
to the Executive, (ii) becomes generally known or generally available to the
public subsequent its disclosure to the Executive through no wrongful act of the
Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates which sources are not known to the Executive to be
under any duty of confidentiality with respect thereto or (iv) the Executive is
required to disclose by applicable law or regulation or by order of any court or
federal, state or local regulatory or administrative body (provided that the
Executive provides the Company with prior notice of the contemplated disclosure
and reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
6. Restrictive Covenants. (a) The Executive agrees that for a
----------------------
period of twelve months after the termination of his employment with the Company
the Executive will not, directly or indirectly, as a principal, agent or
otherwise, engage or participate in, or as an employee, consultant or advisor
render services or advise with respect to any transaction in which the Company
was actively engaged or with respect to which the Company had given active
consideration during the twelve month period immediately prior to the
termination of the Employee's employment with the Company.
(b) The Executive agrees that during his employment hereunder and for
a period of twenty-four months thereafter he will
6
<PAGE>
not solicit, raid, entice or induce any person that then is or at any time
during the twelve-month period prior to the end of the Term was an employee of a
Company Affiliate (other than a person whose employment with such Company
Affiliate has been terminated by such Company Affiliate), to become employed by
any person, firm or corporation.
7. Specific Performance.
--------------------
(a) The Executive acknowledges that the services to be rendered by
him hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 5 or 6 hereof. Therefore, in addition to
any other remedies available, the Company shall be entitled to specific
enforcement and/or an injunction from any court of competent jurisdiction
restraining the Executive from committing or continuing any such violation of
this Agreement without proving actual damages or posting a bond or other
security. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages.
(b) If any of the restrictions on activities of the Executive
contained in Sections 5 or 6 shall for any reason be held by a court of
competent jurisdiction to be excessively broad as to duration, geographical
scope or activity of subject, such restrictions shall be construed so as
thereafter to be limited or reduced to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear; it being understood
that by the execution of this Agreement the parties hereto regard such
restrictions as reasonable and compatible with their respective rights.
8. Withholding. The parties agree that all payments to be made to
-----------
the Executive by the Company pursuant to the Agreement shall be subject to all
applicable withholding obligations of the Company.
9. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed given and received when delivered personally, four
days after being mailed if sent by registered or certified mail, postage pre-
paid, or by one day after delivery if sent by air courier (for next-day
delivery) with evidence of receipt thereof or by facsimile with receipt
confirmed by the addressee. Such notices shall be addressed respectively:
If to the Executive, to:
Mr. William M. Karnes
[insert address]
7
<PAGE>
If to the Company or any Company Affiliate, to:
CapStar Hotels Investors, Inc.
1010 Wisconsin Avenue,N.W.
Washington, D.C. 20007
Attention: Chief Executive Officer
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
10. Miscellaneous.
-------------
(a) This Agreement is a personal contract calling for the provision
of unique services by the Executive, and the Executive's rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company hereunder will be binding
upon and run in favor of their respective successors and assigns.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of [Delaware].
(c) Any controversy arising out of or relating to this Agreement or
any breach hereof shall be settled by arbitration in Washington, D.C. by a
single neutral arbitrator who shall be a retired federal or state court judge in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon any award rendered may be entered in any court
having jurisdiction thereof, except in the event of a controversy relating to
any alleged violation by the Executive of Section 5 or 6 hereof, the Company
shall be entitled to seek injunctive relief from a court of competent
jurisdiction without the requirement to seek arbitration.
(d) The headings of the various sections of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
` (e) The provisions of this Agreement which by their terms call for
performance subsequent to the expiration or termination of the Term shall
survive such expiration or termination.
(f) The Company shall reimburse the Executive for all costs incurred
by the Executive in any proceeding for the successful enforcement of th terms of
this Agreement, including without limitation all costs of investigation and
reasonable attorneys fees and expenses.
(g) The parties hereto hereby agree that this Agreement supersedes,
in all respects, the terms of that certain Agreement, dated as of April 9, 1996,
by and between the Executive and CapStar
8
<PAGE>
Management Company, L.P., a predecessor entity of the Company and its
Affiliates, and that such agreement is terminated, in all respects, effective as
of the date of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EXECUTIVE:
_________________________
William M. Karnes
COMPANY:
CAPSTAR HOTEL COMPANY
By:______________________
9
<PAGE>
SCHEDULE A
The Exempted Activities shall mean acting as an officer of CapStar Hotels,
Inc. and Latham Hotels, Inc. and their respective subsidiaries in connection
with their general affairs and in connection with the ownership, management,
financing and sale of their interests (and the interests of entities in which
they are general partners or principals) in the following hotels.
1. Inn at Morro Bay, Morro Bay, California
2. Residence Inn, Orange California
3. Sheraton Inn Denver Airport, Denver, Colorado
4. Ramada Inn, Slidell, Louisiana
5. Cranwell Resort, Lenox, Massachusetts
6. Holiday Inn Sports Complex, Kansas City, Missouri
7. Radisson Inn North Country, West Lebanon, New Hampshire
8. Holiday Inn, Tinton Falls, New Jersey
9. Ramada Hotel LaGuardia Airport, Queens, New York
10. Latham Hotel, Philadelphia, Pennsylvania
11. Best Western Johnny Appleseed, Fredricksburg, Virginia
12. Quality Inn Shenandoah Valley, New Market, Virginia
10
EXHIBIT 10.8
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, made as of ______, 1996 by and between
CAPSTAR HOTEL COMPANY, a Delaware corporation (the "Company") and JOHN E.
PLUNKET (the "Executive"), an individual residing at 5066 McArthur Boulevard,
Washington, D.C. 20016.
The Company desires to employ the Executive in the capacity of Chief
Operating Officer, and the Executive desires to be so employed, on the terms and
subject to the conditions set forth in this agreement (the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth
herein and other good and valuable consideration the parties hereto hereby agree
as follows:
1. Employment; Term. The Company hereby employs the Executive, and
----------------
the Executive agrees to be employed by the Company, upon the terms and subject
to the conditions set forth herein, for a term commencing on the date of this
Agreement (the "Commencement Date") and terminating on December 31, 1999 unless
terminated earlier in accordance with Section 4 of this Agreement (the "Term").
2. Position; Conduct.
-----------------
(a) During the Term, the Executive will hold the title and office of,
and serve in the position of, Executive Vice-President Finance and Development.
The Executive shall report to the executive officers of the Company and shall
perform such specific duties and services (including service as an officer,
director or equivalent position of any direct or indirect subsidiary without
additional compensation) as they shall reasonably request consistent with the
Executive's position.
(b) During the Term, the Executive agrees to devote his full business
time and attention to the business and affairs of the Company and its
subsidiaries and to faithfully and diligently perform, to the best of his
ability, all of his duties and responsibilities hereunder. Nothing in this
Agreement shall preclude the Executive from devoting reasonable time and
attention to (i) serving, with the approval of the Board of Directors of the
Company, as a director, trustee or member of any committee of any organization,
(ii) engaging in charitable and community activities and (iii) managing his
personal investments and affairs; provided that such activities do not involve
any material conflict of interest with the interests of the Company or the
Subsidiary or, individually or collectively, interfere materially with the
performance by the Executive of his duties and responsibilities under this
Agreement; and provided, further, that nothing in this Agreement shall prohibit
the Executive from engaging in those
<PAGE>
activities described on Schedule A annexed hereto (the "Exempted Activities")
(c) During the Term, the Company shall provide the Executive with
executive office space, and administrative and secretarial assistance and other
support services consistent with his position and with his duties and
responsibilities hereunder.
3. Salary; Additional Compensation; Perquisites and Benefits.
---------------------------------------------------------
(a) During the Term, the Company will pay the Executive a base salary
at an annual rate of not less than $150,000 per annum, subject to annual review
by the Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") and in the discretion of such Committee, increased
from time to time. Once increased, such base salary may not be decreased. Such
salary shall be paid in periodic installments in accordance with the Company's
standard practice, but not less frequently than semi-monthly.
(b) For each fiscal year during the Term, the Executive will be
eligible to receive a bonus under Company's Management Bonus Plan or such other
plan adopted from time to time. The award and amount of such bonus shall be
based upon the Compensation Committee's determination of actual performance as
measured against goals which goals shall give the Executive the opportunity to
earn a bonus of up to 100% of his base salary. The Executive shall receive a
bonus of not less than [$_______] for the year ending December 31, 1996.
(c) During the Term, the Executive will participate in all plans now
existing or hereafter adopted by the Company or the Subsidiary for the
management employees or the general benefit of the their employees, such as
bonuses, stock option or other incentive compensation plans, life and health
insurance plans, or other insurance plans and benefits on the same basis and
subject to the same qualifications as other senior executive officers. To the
extent permitted by law, the Executive shall be given credit for his years of
service to any predecessor entity of the Company in determining all waiting
periods and vesting periods under such plans.
(d) The Executive shall be eligible for stock option grants from time
to time pursuant to the Company's 1996 Equity Incentive Plan in accordance with
the terms thereof. The Committee designated in accordance with such plan has
granted to the Executive, effective on the Commencement Date, options to
purchase [___,___] shares of the common stock of the Company at an exercise
price equal to the initial public offering price of such stock. Such options as
they relate to [ ] shares shall vest immediately upon the grant. Subject
to the terms of Section 6(f)
2
<PAGE>
of this Agreement as to the acceleration of vesting of stock options, the
remaining of such options shall vest as follows: Such options shall vest as
follows:
First anniversary of the Commencement Date.. 33-1/3% vested
Second anniversary of the Commencement Date. 66-2/3% vested
Third Anniversary of the Commencement Date.. 100% vested
Such options shall be exercisable, subject to vesting, for ten years from the
date of grant and in all other respects shall be subject to the terms and
conditions of the 1996 Equity Incentive Plan.
(e) The Company will reimburse the Executive, in accordance with its
standard policies from time to time in effect, for all out-of-pocket business
expenses as may be incurred by the Executive in the performance of his duties
under this Agreement.
(f) The Executive shall be entitled to vacation time to be credited
and taken in accordance with the Company's policy from time to time in effect
for senior executives.
4. Termination.
-----------
(a) The Term will terminate upon the Executive's death.
(b) Upon written notice, the Company may terminate this Agreement for
Cause. As used herein, the term "Cause" means:
(i) the Executive's inability to perform his duties and responsibilities
under this Agreement for a period of more than 120 days, whether or not
continuous, during any 365-day period, due to physical or mental incapacity
or impairment;
(ii) if the Executive commits acts of willful malfeasance or gross
negligence in connection with his employment hereunder;
(iii) the Executive's conviction of (or a plea of nolo contendere to) an
---- ----------
offense which is a felony in the jurisdiction involved;
(iv) if, after written notice thereof, the Executive repeatedly fails or
neglects to perform any material duties of his employment hereunder; or
(v) if the Executive breaches any other specific provision of this
Agreement and, if such breach is curable, he fails to cure same within
thirty (30) days of written notice thereof.
(c) If the Executive's employment is terminated for Cause, or if he
dies, the Company will pay to the Executive an
3
<PAGE>
aggregate amount equal to the Executive's accrued and unpaid base salary through
the date of such termination, additional salary payments in lieu of the
Executive's accrued and unused vacation time, unreimbursed business expenses,
unreimbursed medical, dental and other employee benefit expenses in accordance
with the applicable plans, and any and all other benefits provided under the
terms of applicable employee plans to terminated employees (the "Standard
Termination Payments").
(d) Notwithstanding anything to the contrary contained herein, upon
written notice to the Executive, the Company may terminate his employment
without Cause at any time. In the event of such termination, the Company will
have no further obligation to the Executive or any other person in respect of
his employment other than the lump sum payment of (i) the Standard Termination
Payments through the date of such termination and (ii) an amount equal to the
greater of the Executive's base salary for the remainder of the Term or for one
year,, less any amounts owed by the Executive to the Company of its Affiliates
(provided, that loans made to the Executive by the Company or its Affiliates or
predecessor entities relating to the purchase by the Executive of an equity
interest in such entities shall remain due in accordance with their terms). In
addition, immediately upon the effectiveness of such termination, (Y) all
options granted to the Executive shall immediately vest and be exercisable and
(Z) all restrictions on restricted stock issued to the Executive shall be
terminated.
(e) If the Executive so notifies the Company within thirty (30) days
after the occurrence of any of the following events, the Executive may terminate
his employment by the Company hereunder:
(i) a material reduction in the authority of the Executive or a material
adverse change in the Executive's working conditions if, after such
reduction or change, the Executive's authority or working conditions are
not commensurate with those of executives holding chief financial officer
positions at companies comparable to the Company in the lodging industry (a
"Material Adverse Change");
(ii) the Executive is required to relocate from the Washington, D.C.
metropolitan area without his consent; or
(iii) a Change of Control occurs and the Executive reasonably believes
that a Material Adverse Change will occur as a result of such Change of
Control.
As used herein (X) the term "Change in Control" means the occurrence of any
events such that any "person", as such term is used in Sections 3(a)(9) and
13(d) of the Securities Exchange Act of 1934, other than Acadia Partners L.P.
and its Affiliates and the Company's management becomes a "beneficial owner", as
such term is
4
<PAGE>
used in Rule 13d-3 promulgated under such Act, of 35% or more of the Voting
Stock of the Company; provided that no Change of Control shall be deemed to have
occurred so long as the Executive continues to report to Paul W. Whetsell; (Y)
an Affiliate of a person or other entity means a person or other entity that
directly or indirectly controls, is controlled by or is under common control
with the person or other entity specified (including without limitation any
investment entity managed by the person or other entity specified or a person or
entity that directly or indirectly controls, is controlled by or under common
control with the person or other entity specified) and (Z) the term "Voting
Stock" means capital stock of any class or classes having general voting power
under ordinary circumstances, in the absence of contingencies, to elect the
directors or their equivalent.
If the Executive's employment is terminated pursuant to this Section
4(e), the Company will have no further obligation to the Executive or any other
person in respect of his employment other than payment of (i) the Standard
Termination Payments through the date of such termination and (ii) the
Executive's base salary for two years following the effective date of such
termination; provided, that such payments under clause (ii) above shall be
reduced by any amounts earned by the Executive from the rendering of personal
services in any capacity during such two year period. In addition, immediately
upon the effectiveness of such termination, (Y) all options granted to the
Executive shall immediately vest and be exercisable and (Z) all Company imposed
restrictions on restricted stock issued to the Executive shall be terminated.
5. Confidential Information.
------------------------
(a) The Executive acknowledges that the Company and its subsidiaries
or affiliated ventures ("Company Affiliates") own and have developed and
compile, and will in the future own, develop and compile certain Confidential
Information and that during the course of his rendering services hereunder
Confidential Information will be disclosed to the Executive by the Company
Affiliates. The Executive hereby agrees that, during the Term and thereafter,
he will not use or disclose, furnish or make accessible to anyone, directly or
indirectly, any Confidential Information of the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any
trade secrets, confidential or proprietary information, or other knowledge,
know-how, information, documents or materials, owned, developed or possessed by
a Company Affiliate pertaining to its businesses the confidentiality of which
such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques, know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research,
5
<PAGE>
developments, test results, reports, specifications, data, formats, marketing
data and business plans and strategies, agreements and other forms of documents,
expansion plans, budgets, projections, and salary, staffing and employment
information. Notwithstanding the foregoing, Confidential Information shall not
in any event include information which (i) was generally known or generally
available to the public prior to its disclosure to the Executive, (ii) becomes
generally known or generally available to the public subsequent its disclosure
to the Executive through no wrongful act of the Executive, (iii) is or becomes
available to the Executive from sources other than the Company Affiliates which
sources are not known to the Executive to be under any duty of confidentiality
with respect thereto or (iv) the Executive is required to disclose by applicable
law or regulation or by order of any court or federal, state or local regulatory
or administrative body (provided that the Executive provides the Company with
prior notice of the contemplated disclosure and reasonably cooperates with the
Company, at the Company's sole expense, in seeking a protective order or other
appropriate protection of such information).
6. Restrictive Covenants. (a) The Executive agrees that for a
---------------------
period of twelve months after the termination of his employment with the Company
the Executive will not, directly or indirectly, as a principal, agent or
otherwise, engage or participate in, or as an employee, consultant or advisor
render services or advise with respect to any transaction in which the Company
was actively engaged or with respect to which the Company had given active
consideration during the twelve month period immediately prior to the
termination of the Employee's employment with the Company.
(b) The Executive agrees that during his employment hereunder and for
a period of twenty-four months thereafter he will not solicit, raid, entice or
induce any person that then is or at any time during the twelve-month period
prior to the end of the Term was an employee of a Company Affiliate (other than
a person whose employment with such Company Affiliate has been terminated by
such Company Affiliate), to become employed by any person, firm or corporation.
7. Specific Performance.
--------------------
(a) The Executive acknowledges that the services to be rendered by
him hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 5 or 6 hereof. Therefore, in addition to
any other remedies available, the Company shall be entitled to specific
enforcement and/or an injunction from any court of competent jurisdiction
restraining the Executive from committing or continuing any such violation of
this Agreement without proving actual damages or posting a bond or other
security. Nothing herein
6
<PAGE>
shall be construed as prohibiting the Company from pursuing any other remedies
available to it for such breach or threatened breach, including the recovery of
damages.
(b) If any of the restrictions on activities of the Executive
contained in Sections 5 or 6 shall for any reason be held by a court of
competent jurisdiction to be excessively broad as to duration, geographical
scope or activity of subject, such restrictions shall be construed so as
thereafter to be limited or reduced to be enforceable to the maximum extent
compatible with the applicable law as it shall then appear; it being understood
that by the execution of this Agreement the parties hereto regard such
restrictions as reasonable and compatible with their respective rights.
8. Withholding. The parties agree that all payments to be made to
-----------
the Executive by the Company pursuant to the Agreement shall be subject to all
applicable withholding obligations of the Company.
9. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed given and received when delivered personally, four
days after being mailed if sent by registered or certified mail, postage pre-
paid, or by one day after delivery if sent by air courier (for next-day
delivery) with evidence of receipt thereof or by facsimile with receipt
confirmed by the addressee. Such notices shall be addressed respectively:
If to the Executive, to:
Mr. John E. Plunket
5066 McArthur Boulevard
Washington, D.C. 20016
If to the Company or any Company Affiliate, to:
CapStar Hotels Investors, Inc.
1010 Wisconsin Avenue,N.W.
Washington, D.C. 20007
Attention: Chief Executive Officer
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
10. Miscellaneous.
-------------
(a) This Agreement is a personal contract calling for the provision
of unique services by the Executive, and the Executive's rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company hereunder will be binding
upon and run in favor of their respective successors and assigns.
7
<PAGE>
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of [Delaware].
(c) Any controversy arising out of or relating to this Agreement or
any breach hereof shall be settled by arbitration in Washington, D.C. by a
single neutral arbitrator who shall be a retired federal or state court judge in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon any award rendered may be entered in any court
having jurisdiction thereof, except in the event of a controversy relating to
any alleged violation by the Executive of Section 5 or 6 hereof, the Company
shall be entitled to seek injunctive relief from a court of competent
jurisdiction without the requirement to seek arbitration.
(d) The headings of the various sections of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
` (e) The provisions of this Agreement which by their terms call for
performance subsequent to the expiration or termination of the Term shall
survive such expiration or termination.
(f) The Company shall reimburse the Executive for all costs incurred
by the Executive in any proceeding for the successful enforcement of th terms of
this Agreement, including without limitation all costs of investigation and
reasonable attorneys fees and expenses.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EXECUTIVE:
_________________________
John E. Plunket
COMPANY:
CAPSTAR HOTEL COMPANY
By:______________________
8
<PAGE>
SCHEDULE A
The Exempted Activities shall mean acting as an officer of CapStar Hotels,
Inc. and Latham Hotels, Inc. and their respective subsidiaries in connection
with their general affairs and in connection with the ownership, management,
financing and sale of their interests (and the interests of entities in which
they are general partners or principals) in the following hotels.
1. Inn at Morro Bay, Morro Bay, California
2. Residence Inn, Orange California
3. Sheraton Inn Denver Airport, Denver, Colorado
4. Ramada Inn, Slidell, Louisiana
5. Cranwell Resort, Lenox, Massachusetts
6. Holiday Inn Sports Complex, Kansas City, Missouri
7. Radisson Inn North Country, West Lebanon, New Hampshire
8. Holiday Inn, Tinton Falls, New Jersey
9. Ramada Hotel LaGuardia Airport, Queens, New York
10. Latham Hotel, Philadelphia, Pennsylvania
11. Best Western Johnny Appleseed, Fredricksburg, Virginia
12. Quality Inn Shenandoah Valley, New Market, Virginia
9
Exhibit 10.10
CAPSTAR MANAGEMENT COMPANY, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP, dated
as of August __, 1996, is entered into by and among CapStar LP Corporation
("CapStar LP"), a Delaware corporation, as the Limited Partner, and CapStar
Hotel Investors Inc. ("CapStar"), as the General Partner, together with any
other Persons who become Partners in the Partnership as provided herein.
WHEREAS, CapStar Management Company, L.P. was previously formed
pursuant to an Agreement of Limited Partnership dated January 12, 1995 (the
"Initial Agreement"); and
WHEREAS, the parties hereto desire to amend and restate the
Initial Agreement in its entirety to reflect the admission of CapStar as
the General Partner in the place and stead of CapStar G.P. Corp., to
reflect the exchange of the general partner interest of CapStar G.P. Corp.
in the Partnership for an equity interest in CapStar and to reflect the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby
agree to amend and restate the Initial Agreement in its entirety as
follows:
ARTICLE 1
DEFINED TERMS
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in
this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act,
---
as it may be amended from time to time, and any successor to such statute.
"Additional Limited Partner" means a Person admitted to the
--------------------------
Partnership as a Limited Partner pursuant to Section 4.1 hereof and who is
shown as such on the books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained
------------------------
for each Partner as of the end of each Partnership Year (i) increased by
any amounts which such Partner is obligated to restore pursuant to any
provision of this
<PAGE>
2
Agreement, or is treated as being obligated to restore pursuant to
Regulations Section 1.704-1(b)(2)(ii)(c), or is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1), 1.704-1(i)(5), and (ii) decreased by the items
described in Regulations Sections 1.704-1(b)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6). The foregoing definition
of Adjusted Capital Account is intended to comply with the provisions of
Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any
--------------------------------
Partner, the deficit balance, if any, in such Partner's Adjusted Capital
Account as of the end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of
-----------------
which has been adjusted pursuant to Exhibit A hereof. Once an Adjusted
---------
Property is deemed distributed by, and recontributed to, the Partnership
for federal income tax purposes upon a termination thereof pursuant to
Section 708 of the Code, such property shall thereafter constitute a
Contributed Property until the Carrying Value of such property is further
adjusted pursuant to Section 1.D of Exhibit A hereof.
---------
"Affiliate" means, with respect to any Person, (i) any Person
---------
directly or indirectly controlling, controlled by or under common control
with such Person, (ii) any Person owning or controlling ten percent (10%)
or more of the outstanding voting interests of such Person, (iii) any
Person of which such Person owns or controls ten percent (10%) or more of
the voting interests, or (iv) any officer, director, general partner or
trustee of such Person or of any Person referred to in clauses (i), (ii),
and (iii) above. For the purposes of this definition, "control" when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Agreed Value" means (i) in the case of any Contributed Property
------------
set forth in Exhibit C and as of the time of its contribution to the
---------
Partnership, the Agreed Value of such property as set forth in Exhibit C;
---------
(ii) in the case of any Contributed Property not set forth in Exhibit C and
---------
as of the time of its contribution to the Partnership, the 704(c) Value of
such property, reduced by any liabilities either assumed by the Partnership
upon such contribution or to which such property is subject when
contributed, and (iii) in the case of any property distributed to a Partner
by the Partnership, the Partnership's Carrying Value of such property at
the time such property is distributed, reduced by any indebtedness either
assumed by such Partner upon such distribution or to which such property is
subject at the time of distribution as determined under Section 752 of the
Code and the Regulations thereunder.
"Agreement" means this Amended and Restated Agreement of Limited
---------
Partnership, as it may be amended, supplemented or restated from time to
time.
<PAGE>
3
"Assignee" means a Person to whom one or more Partnership Units
--------
have been transferred in a manner permitted under this Agreement, but who
has not become a Substituted Limited Partner, and who has the rights set
forth in Section 11.5.
"Book-Tax Disparities" means, with respect to any item of
--------------------
Contributed Property or Adjusted Property, as of the date of any
determination, the difference between the Carrying Value of such
Contributed Property or Adjusted Property and the adjusted basis thereof
for federal income tax purposes as of such date. A Partner's share of the
Partnership's Book-Tax Disparities in all of its Contributed Property and
Adjusted Property will be reflected by the difference between such
Partner's Capital Account balance as maintained pursuant to Exhibit A and
---------
the hypothetical balance of such Partner's Capital Account computed as if
it had been maintained strictly in accordance with federal income tax
accounting principles.
"Business Day" means any day except a Saturday, Sunday or other
------------
day on which commercial banks in New York, New York are authorized or
required by law to close.
"Capital Account" means the Capital Account maintained for a
---------------
Partner pursuant to Exhibit A hereof.
---------
"Capital Contribution" means, with respect to any partner, any
--------------------
cash, cash equivalents or the Agreed Value of Contributed Property which
such Partner contributes or is deemed to contribute to the Partnership
pursuant to Section 4.1 or 4.2 hereof. The principal amount of a
promissory note which is not readily traded on an established securities
market and which is contributed by a Partner as the maker of the note shall
not be considered a capital contribution until the Partnership makes a
taxable disposition of the note or until (and to the extent) principal
payments are made on the note, all in accordance with Treasury Regulation
Section 1.704-1(b)(2)(iv)(d)(2).
"CapStar" means CapStar Hotel Investors, Inc., a Delaware
-------
Corporation.
"CapStar Amount" means a whole number of CapStar Shares equal to
--------------
the product of the number of Partnership Units offered for redemption by a
Redeeming Partner, multiplied by the Conversion Factor (rounded down to the
nearest whole number in the event such product is not a whole number);
provided that in the event the General Partner at any time issues to all
- -------------
holders of CapStar Shares rights, options, warrants or convertible or
exchangeable securities entitling the shareholders to subscribe for or
purchase CapStar Shares, or any other securities or property (collectively,
the "rights"), which rights have not expired pursuant to their terms, then
the CapStar Shares Amount thereafter shall also include such rights that a
holder of that number of CapStar Shares would be entitled to receive.
<PAGE>
4
"CapStar Share" means a share of common stock, par value $.01 per
-------------
share, of the General Partner.
"Carrying Value" means (i) with respect to a Contributed Property
--------------
or Adjusted Property, the 704(c) Value of such property, reduced (but not
below zero) by all Depreciation with respect to such Property charged to
the Partners' Capital Accounts following the contribution of or adjustment
with respect to such Property, and (ii) with respect to any other
Partnership property, the adjusted basis of such property for federal
income tax purposes, all as of the time of determination. The Carrying
Value of any property shall be adjusted from time to time in accordance
with Exhibit A hereof, and to reflect changes, additions or other
---------
adjustments to the Carrying Value for dispositions and acquisitions of
Partnership properties, as deemed appropriate by the General Partner.
"Cash Amount" means an amount of cash per Partnership Unit equal
-----------
to the Value on the Valuation Date of the CapStar Shares Amount.
"Certificate" means the Certificate of Limited Partnership
-----------
relating to the Partnership filed in the office of the Delaware Secretary
of State, as amended from time to time in accordance with the terms hereof
and the Act.
"Certificate of Incorporation" means the Amended and Restated
----------------------------
Certificate of Incorporation of the General Partner filed in the State of
Delaware on June 21, 1996, as amended or restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended and in
----
effect from time to time, as interpreted by the applicable regulations
thereunder. Any reference herein to a specific section or sections of the
Code shall be deemed to include a reference to any corresponding provision
of future law.
"Consent" means the consent or approval of a proposed action by a
-------
Partner given in accordance with Section 14.2 hereof.
"Contributed Property" means each property or other asset
--------------------
contributed to the Partnership, in such form as may be permitted by the
Act, but excluding cash contributed or deemed contributed to the
Partnership. Once the Carrying Value of a Contributed Property is adjusted
pursuant to Section 1.D of Exhibit A hereof, such property shall no longer
---------
constitute a Contributed Property for purposes of Exhibit A hereof, but
---------
shall be deemed an Adjusted Property for such purposes.
"Conversion Factor" means 1.0, provided that in the event that
----------------- -------------
the General Partner (i) declares or pays a dividend on its outstanding
CapStar Shares in CapStar Shares or makes a distribution to all holders of
its outstanding CapStar Shares in CapStar Shares; (ii) subdivides its
outstanding CapStar Shares; or (iii) combines its outstanding CapStar
Shares into a smaller number of CapStar Shares, the
<PAGE>
5
Conversion Factor shall be adjusted by multiplying the Conversion Factor by
a fraction, the numerator of which shall be the number of CapStar Shares
issued and outstanding on the record date for such dividend, distribution,
subdivision or combination (assuming for such purposes that such dividend,
distribution, subdivision or combination has occurred as of such time), and
the denominator of which shall be the actual number of CapStar Shares
(determined without the above assumption) issued and outstanding on the
record date for such dividend, distribution, subdivision or combination.
Any adjustment to the Conversion Factor shall become effective immediately
after the effective date of such event retroactive to the record date, if
any, for such event.
"Debt" means, as to any Person, as of any date of determination,
----
(i) all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services; (ii) all amounts owed by such
Person to banks or other Persons in respect of reimbursement obligations
under letters of credit, surety bonds and other similar instruments
guaranteeing payment or other performance of obligations by such Person;
(iii) all indebtedness for borrowed money or for the deferred purchase
price of property or services secured by any lien on any property owned by
such Person, to the extent attributable to such Person's interest in such
property, even though such Person has not assumed or become liable for the
payment thereof; and (iv) lease obligations of such Person which, in
accordance with generally accepted accounting principles, should be
capitalized.
"Depreciation" means, for each Partnership year, an amount equal
------------
to the federal income tax depreciation, amortization, or other cost
recovery deduction allowable with respect to an asset for such year, except
that if the Carrying Value of an asset differs from its adjusted basis for
federal income tax purposes at the beginning of such year or other period,
Depreciation shall be an amount which bears the same ratio to such
beginning Carrying Value as the federal income tax depreciation,
amortization, or other cost recovery deduction for such year bears to such
beginning adjusted tax basis; provided, however, that if the federal income
-------- -------
tax depreciation, amortization, or other cost recovery deduction for such
year is zero, Depreciation shall be determined with reference to such
beginning Carrying Value using any reasonable method selected by the
General Partner.
"Distribution Amount" means, with respect to any period for which
-------------------
there is a Distribution Event, an amount equal to the aggregate amount that
the Partnership would have paid in income taxes had it been a C corporation
during the period to which the Distribution Event relates.
"Distribution Event" means any quarter in which the General
------------------
Partner incurs an income tax liability as a result of its status as the
General Partner of the partnership.
<PAGE>
6
"Effective Date" means the date of closing of the initial public
--------------
offering of shares of the General Partner pursuant to that certain
underwriting agreement among CapStar and Lehman Brothers, Inc., Goldman,
Sachs & Co., Merrill, Lynch, Pierce, Fenner & Smith, and Smith Barney Inc.
as representatives of the several underwriters named therein.
"General Partner" means CapStar Hotel Investors, Inc., a Delaware
---------------
corporation, or its successors as general partner of the Partnership.
"General Partner Distribution Amount" means an amount necessary
-----------------------------------
to satisfy any income tax obligations of the General Partner incurred due
to its status as the General Partner of the Partnership.
"General Partner Interest" means a Partnership Interest held by
------------------------
the General Partner that is a general partnership interest. A General
Partner Interest may be expressed as a number of Partnership Units.
"IRS' means the Internal Revenue Service, which administers the
---
internal revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person,
----------------
such natural Person's spouse and such natural Person's natural or adoptive
parents, descendants, nephews, nieces, brothers, and sisters.
"Incapacity" or "Incapacitated" means, (i) as to any individual
---------- -------------
Partner, death, total physical disability or entry by a court of competent
jurisdiction adjudicating him incompetent to manage his Person or his
estate; (ii) as to any corporation which is a Partner, the filing of a
certificate of dissolution, or its equivalent, for the corporation or the
revocation of its charter; (iii) as to any partnership which is a Partner,
the dissolution and commencement of winding up of the partnership; (iv) as
to any estate which is a Partner, the distribution by the fiduciary of the
estate's entire interest in the partnership; (v) as to any trustee of a
trust which is a Partner, the termination of the trust (but not the
substitution of a new trustee); or (vi) as to any Partner, the bankruptcy
of such Partner. For purposes of this definition, bankruptcy of a Partner
shall be deemed to have occurred when (a) the Partner commences a voluntary
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect, (b)
the Partner is adjudged as bankrupt or insolvent, or a final and
nonappealable order for relief under any bankruptcy, insolvency or similar
law now or hereafter in effect has been entered against the Partner, (c)
the Partner executes and delivers a general assignment for the benefit of
the Partner's creditors, (d) the Partner files an answer or other pleading
admitting or failing to contest the material allegations of a petition
filed against the Partner in any proceeding of the nature described in
clause (b) above, (e) the Partner seeks, consents to or acquiesces in the
appointment of a trustee, receive or liquidator for the Partner or for all
or any
<PAGE>
7
substantial part of the Partner's properties, (f) any proceeding seeking
liquidation, reorganization or other relief of or against such Partner
under any bankruptcy, insolvency or other similar law now or hereafter in
effect has not been dismissed within one hundred twenty (120) days after
the commencement thereof, (g) the appointment without the Partner's consent
or acquiescence of a trustee, receiver or liquidator has not been vacated
or stayed within ninety (90) days of such appointment, or (h) an
appointment referred to in clause (g) which has been stayed is not vacated
within ninety (90) days after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding by
----------
reason of his status as (A) the General Partner or (B) a director or
officer of the Partnership or the General Partner, of (C) his or its
liability, pursuant to a loan guarantee or otherwise, for any indebtedness
of the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken assets subject to), and (ii) such other
Persons (including Affiliates of the General Partner or the Partnership) as
the General Partner may designate from time to time (whether before or
after the event giving rise to potential liability), in its sole and
absolute discretion.
"Limited Partner" means CapStar LP Corporation, a Delaware
---------------
corporation, or any Substituted Limited Partner or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partner Distribution Amount" means the Distribution
-----------------------------------
Amount less the General Partner Distribution Amount.
"Limited Partner Interest" means a Partnership Interest of a
------------------------
Limited Partner in the Partnership representing a fractional part of the
Partnership Interests of all Partners and includes any and all benefits to
which the holder of such a Partnership Interest may be entitled as provided
in this Agreement, together with all obligations of such Person to comply
with the terms and provisions of this Agreement. A Limited Partner
Interest may be expressed as a number of Partnership Units.
"Liquidator" has the meaning set forth in Section 13.2.
----------
"Net Income" means, for any taxable period, the excess, if any,
----------
of the Partnership's items of income and gain for such taxable period over
the Partnership's items of loss and deduction for such taxable period. The
items included in the calculation of Net Income shall be determined in
accordance with federal income tax accounting principles, subject to the
specific adjustments provided for in Exhibit A. Once an item of income,
---------
gain, loss or deduction that has been included in the initial computation
of Net Income is subjected to the special allocation rules in Exhibit B,
---------
Net Income or the resulting Net Loss, whichever the case may be, shall be
recomputed without regard to such item.
<PAGE>
8
"Net Loss" means, for any taxable period, the excess, if any, of
--------
the Partnership's items of loss and deduction for such taxable period over
the Partnership's items of income and gain for such taxable period. The
items included in the calculation of Net Loss shall be determined in
accordance with federal income tax accounting principles, subject to the
specific adjustments provided for in Exhibit A. Once an item of income,
---------
gain, loss or deduction that has been included in the initial computation
of Net Loss is subjected to the special allocation rules in Exhibit B. Net
---------
Loss or the resulting Net Income, whichever the case may be, shall be
recomputed without regard to such item.
"Nonrecourse Built-in Gain" means, with respect to any
-------------------------
Contributed Properties or Adjusted Properties that are subject to a
mortgage or negative pledge securing a Nonrecourse Liability, the amount of
any taxable gain that would be allocated to the Partners pursuant to
Section 2.B of Exhibit B if such properties were disposed of in a taxable
---------
transaction in full satisfaction of such liabilities and for not other
consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations
----------------------
Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for a
Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations
---------------------
Section 1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption
--------------------
substantially in the form of Exhibit D to this Agreement.
---------
"Original Limited Partner" means a Limited Partner who is or
------------------------
becomes a Partner on the Effective Date and who owns one or more Original
Limited Partnership Units on the date action is called for under Section
13.1.
"Original Limited Partnership Unit" means a Partnership Unit held
---------------------------------
by an Original Limited Partner on the Effective Date and held by such
Original Limited Partner on the date action is called for under Section
13.1.
"Partner" means a General Partner or a Limited Partner, and
-------
"Partners" means the General Partner and the Limited Partners.
--------
"Partner Minimum Gain" means an amount, with respect to each
--------------------
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Regulations Section 1.704-2(i)(3).
<PAGE>
9
"Partner Nonrecourse Debt" has the meaning set forth in
------------------------
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in
------------------------------
Regulations Section 1.704-2(i)(2), and the amount of Partner Nonrecourse
Deductions with respect to a Partner Nonrecourse Debt for a Partnership
Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act
-----------
and pursuant to the Initial Agreement and any successor thereto.
"Partnership Interest" means an ownership interest in the
--------------------
Partnership and includes any and all benefits to which the holder of such a
Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Partnership Interest may be expressed as a
number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in
------------------------
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum
Gain, as well as any net increase or decrease in Partnership Minimum Gain,
for a Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(d).
"Partnership Record Date" means the record date established by
-----------------------
the General Partner for any distribution pursuant to Section 5.1 hereof.
"Partnership Unit" means a fractional, undivided share of the
----------------
Partnership Interests of all Partners issued pursuant to Section 4.1 or
4.2. As of the Effective Date, there shall be considered to be -
Partnership Units outstanding, with each Partnership Unit representing a -%
Percentage Interest in the Partnership. The ownership of Partnership Units
may be evidenced by such form of certificate for units as the General
Partner adopts from time to time.
"Partnership Year" means the fiscal year of the Partnership,
----------------
which shall end on the Friday nearest December 31.
"Percentage Interest" means, as to a Partner, its interest in the
-------------------
Partnership as determined by dividing the Partnership Units owned by such
Partner by the total number of Partnership Units then outstanding.
"Person" means an individual or a corporation, partnership,
------
trust, unincorporated organization, association or other entity.
"Recapture Income" means any gain recognized by the Partnership
----------------
upon the disposition of any property or asset of the Partnership, which
gain is
<PAGE>
10
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Redeeming Partner" has the meaning set forth in Section 8.6
-----------------
hereof.
"Redemption Right" shall have the meaning set forth in Section
----------------
8.6 hereof.
"Regulations" means the Income Tax Regulations promulgated under
-----------
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Residual Gain" or "Residual Loss" means any item of gain or
------------- -------------
loss, as the case may be, of the Partnership recognized for federal income
tax purposes resulting from a sale, exchange or other disposition of
Contributed Property or Adjusted Property, to the extent such item of gain
or loss is not allocated pursuant to Section 2.B.1(a) or 2.B.2(a) of
Exhibit B to eliminate Book-Tax Disparities.
- ---------
"704(c) Value" of any Contributed Property means the value of
------------
such property as set forth in Exhibit C or if no value is set forth in
---------
Exhibit C, the fair market value of such property or other consideration at
- ---------
the time of contribution as determined by the General Partner using such
reasonable method of valuation as it may adopt; provided, however, that the
--------
704(c) Value of any property deemed contributed to the Partnership for
federal income tax purposes upon termination and reconstitution thereof
pursuant to Section 708 of the Code shall be determined in accordance with
Exhibit A hereof. Subject to Exhibit A hereof, the General Partner shall,
- --------- ---------
in its sole and absolute discretion, use such method as it deems reasonable
and appropriate to allocate the aggregate of the 704(c) Values of
contributed Properties in a single or integrated transactions among the
separate properties on a basis proportional to their respective fair market
values.
"Specified Redemption Date" means the tenth (10th) Business Day
-------------------------
after receipt by the General Partner of a Notice of Redemption; provided
--------
that no Specified Redemption Date shall occur before [one (1)] year from
- ----
the date of this Agreement; provided further that if the General Partner
combines its outstanding CapStar Shares, no Specified Redemption Date shall
occur after the record date and prior to the effective date of such
combination.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, or other entity of which a majority of (i) the voting power of
the voting equity securities or (ii) the outstanding equity interests is
owned, directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a
---------------------------
Limited Partner to the Partnership pursuant to Section 11.4.
<PAGE>
11
"Terminating Capital Transaction" means any sale or other
-------------------------------
disposition of all or substantially all of the assets of the Partnership or
a related series of transactions that, taken together, result in the sale
or other disposition of all or substantially all of the assets of the
Partnership.
"Unrealized Gain" attributable to any item of Partnership
---------------
Property means, as of any date of determination, the excess, if any, of (i)
the fair market value of such property (as determined under Exhibit A
---------
hereof) as of such date, over (ii) the Carrying Value of such property
(prior to any adjustment to be made pursuant to Exhibit A hereof) as of
---------
such date.
"Unrealized Loss" attributable to any item of Partnership
---------------
property means, as of any date of determination, the excess, if any, of (i)
the Carrying Value of such property (prior to any adjustment to be made
pursuant to Exhibit A hereof) as of such date, over (ii) the fair market
---------
value of such property (as determined under Exhibit A hereof) as of such
---------
date.
"Valuation Date" means the date of receipt by the General Partner
--------------
of a Notice of Redemption or, if such date is not a Business Day, the first
Business Day thereafter.
"Value" means, with respect to a CapStar Share, the average of
-----
the daily market price for the ten (10) consecutive trading days
immediately preceding the Valuation Date. The market price for each such
trading day shall be: (i) if the CapStar Shares are listed or admitted to
trading on any securities exchange or the NASDAQ-National Market System,
the closing price, regular way, on such day, or if no such sale takes place
on such day, the average of the closing bid and asked prices on such day;
(ii) if the CapStar Shares are not listed or admitted to trading on any
securities exchange or the NASDAQ-National Market System, the last reported
sale price on such day or, if no sale takes place on such day, the average
of the closing bid and asked prices on such day, as reported by a reliable
quotation source designated by the General Partner; or (iii) if the CapStar
Shares are not listed or admitted to trading on any securities exchange or
the NASDAQ National Market System and no such last reported sale price or
closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable
quotation source designated by the General Partner, or if there shall be no
bid and asked prices on such day, the average of the high bid and low asked
prices, as so reported, on the most recent day (not more than ten (10) days
prior to the date in question) for which prices have been so reported;
provided that if there are no bid and asked prices reported during the ten
- -------------
(10) days prior to the date in question, the Value of the CapStar Shares
shall be determined by the General Partner acting in good faith on the
basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate. In the event the CapStar Shares Amount
includes rights that a holder of CapStar Shares would be entitled to
receive, and the General Partner acting in good faith determines that the
value of such rights is
<PAGE>
12
not reflected in the Value of the CapStar Shares determined as aforesaid,
then the Value of such rights shall be determined by the General Partner
acting in good faith on the basis of such quotations and other information
as it considers, in its reasonable judgment, appropriate.
ARTICLE 2
ORGANIZATIONAL MATTERS
Section 2.1 Organization
------------
The Partnership is a limited partnership organized pursuant to
the provisions of the Act and upon the terms and conditions set forth
herein. Except as expressly provided herein to the contrary, the rights
and obligations of the Partners and the administration and termination of
the Partnership shall be governed by the Act. The Partnership Interest of
each Partner shall be personal property for all purposes.
Section 2.2 Name
----
The name of the Partnership shall be CapStar Management Company,
L.P. The Partnership's business may be conducted under any other name or
names deemed advisable by the General Partner, including the name of the
General Partner or any Affiliate thereof. The words "Limited Partnership,"
"L.P.," "Ltd." or similar words or letters shall be included in the
Partnership's name where necessary for the purposes of complying with the
laws of any jurisdiction that so requires. The General Partner in its sole
and absolute discretion may change the name of the Partnership at any time
and from time to time and shall notify the Limited Partners of such change
in the next regular communication to the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
---------------------------------------------
The address of the registered office of the Partnership in the
State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, and
the registered agent for service of process on the Partnership in the State
of Delaware at such registered office shall be The Corporation Trust
Company. The principal office of the Partnership shall be 1010 Wisconsin
Avenue, N.W., Suite 650, Washington, DC 20007, or such other place as the
General Partner may from time to time designate by notice to the Limited
Partners. The Partnership may maintain offices at such other place or
places within or outside the State of Delaware as the General Partner deems
advisable.
Section 2.4 Power of Attorney
-----------------
<PAGE>
13
A. Each Limited Partner and each Assignee who accepts
Partnership Units (or any rights, benefits or privileges associated
therewith) is deemed to irrevocably constitute and appoint the General
Partner, any Liquidator, and authorized officers and attorneys-in-fact of
each, and each of those acting singly, in each case with full power of
substitution, as its true and lawful agent and attorney-in-fact, with full
power and authority in its name, place and stead to:
(1) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices (a) all certificates,
documents and other instruments (including, without limitation, this
Agreement and the Certificate and all amendments or restatements
thereof) that the General Partner or the Liquidator deems appropriate
or necessary to form, qualify or continue the existence or
qualification of the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) in
the State of Delaware and in all jurisdictions in which the
Partnership may or plans to conduct business or own property; (b) all
instruments that the General Partner or the Liquidator deems
appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement in accordance with its
terms; (c) all conveyances and other instruments or documents that the
General Partner deems appropriate or necessary to reflect the
dissolution and liquidation of the Partnership pursuant to the terms
of this Agreement, including, without limitation, a certificate of
cancellation; (d) all instruments relating to the admission,
withdrawal, removal or substitution of any Partner pursuant to, or
other events described in, Article 11, 12 or 13 hereof or the Capital
Contribution of any Partner; and (e) all certificates, documents and
other instruments relating to the determination of the rights,
preferences and privileges of Partnership Interests; and
(2) execute, swear to, seal, acknowledge and file all
ballots, consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and absolute
discretion of the General Partner or any Liquidator, to make,
evidence, give, confirm or ratify any vote, consent, approval,
agreement or other action which is made or given by the Partners
hereunder or is consistent with the terms of this Agreement or
appropriate or necessary, in the sole discretion of the General
Partner or any Liquidator, to effectuate the terms or intent of this
Agreement.
Nothing contained herein shall be construed as authorizing the General
Partner or any Liquidator to amend this Agreement except in accordance with
Article 14 hereof or as may be otherwise expressly provided for in this
Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the
fact that each of the Partners will be relying upon the power of the
General Partner and any Liquidator to act as contemplated by this Agreement
in any filing or other action by it
<PAGE>
14
on behalf of the Partnership, and it shall survive and not be affected by
the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by
the General Partner or any Liquidator, acting in good faith pursuant to
such power of attorney, and each such Limited Partner or Assignee hereby
waives any and all defenses which may be available to contest, negate or
disaffirm the action of the General Partner or any Liquidator, taken in
good faith under such power of attorney. Each Limited Partner or Assignee
shall execute and deliver to the General Partner or the Liquidator, within
fifteen (15) days after receipt of the General Partner's or Liquidator's
request therefor, such further designation, powers of attorney and other
instruments as the General Partner or the Liquidator, as the case may be,
deems necessary to effectuate this Agreement and the purposes of the
Partnership.
Section 2.5 Term
----
The term of the Partnership commenced on January 12, 1995, the
date the Certificate was filed in the office of the Secretary of State of
Delaware in accordance with the Act and shall continue until [December 31,
2095], unless the Partnership is dissolved [sooner] pursuant to the
provisions of Article 13 or as otherwise provided by law.
ARTICLE 3
PURPOSE
Section 3.1 Purpose and Business
--------------------
The purpose and nature of the business to be conducted by the
Partnership, directly and indirectly through Subsidiaries (including,
without limitation, partnerships for which the Partnership is a general
partner) is to invest in, acquire, purchase, lease, own and operate hotels
and similar properties and businesses (including interests therein), to
engage in all phases of the hotel business, and to pursue such other
purposes as may be incidental or related thereto, including disposing of
its interests in any or all of its hotels or properties and reinvesting the
proceeds thereof in furtherance of its business, and all other activities
which may be permitted by the Act.
Section 3.2 Powers
------
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for
the furtherance and accomplishment of the purposes and business described
herein and for
<PAGE>
15
the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership
interest in other entities, to enter into, perform and carry out contracts
of any kind, borrow money and issue evidences of indebtedness, whether or
not secured by mortgage, deed of trust, pledge or other lien, acquire and
develop real property, and lease, sell, transfer and dispose of real
property.
ARTICLE 4
CAPITAL CONTRIBUTIONS
Section 4.1 Issuances of Additional Interests
---------------------------------
A. The General Partner is hereby authorized to cause the
Partnership from time to time to issue to the Partners (including the
General Partner) or other persons (including, without limitation, in
connection with the contribution of property to the Partnership) additional
Partnership Units or other Partnership Interests in one or more classes, or
one or more series of any of such classes, with such designations,
preferences and relative, participating, optional or other special rights,
powers and duties, including rights, powers and duties senior to Limited
Partnership Interests, all as shall be determined by the General Partner in
its sole and absolute discretion subject to Delaware law, including,
without limitation, (i) the allocations of items of Partnership income,
gain, loss, deduction and credit to each such class or series of
Partnership Interests; (ii) the right of each such class or series of
Partnership Interests to share in Partnership distributions; and (iii) the
rights of each such class or series of Partnership Interests upon
dissolution and liquidation of the Partnership; provided that no such
-------------
additional Partnership Units or other Partnership Interests shall be issued
to the General Partner unless either (a)(1) the additional Partnership
Interests are issued in connection with the grant, award, or issuance of
shares of the General Partner, which shares have designations, preferences
and other rights (except for voting rights) such that the economic
interests attributable to such shares are substantially similar to the
designations, preferences and other rights of the additional Partnership
Interests issued to the General Partner in accordance with this
Section 4.1.A, and (2) the General Partner shall make a Capital
Contribution to the Partnership in an amount equal to the proceeds, if any,
raised in connection with the issuance of such shares of the General
Partner, or (b) the additional Partnership Interests are issued to all
Partners in proportion to their respective Percentage Interests.
B. After the Effective Date, the General Partner shall not
grant, award, or issue any additional CapStar Shares (other than CapStar
Shares issued pursuant to Section 8.6), or rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe
for or purchase CapStar Shares (collectively "New Securities"), other than
--------------
to all holders of CapStar Shares unless (i) the General Partner shall cause
the Partnership to issue to the General Partner Partnership
<PAGE>
16
Interests or rights, options, warrants or convertible or exchangeable
securities of the Partnership having designations, preferences and other
rights, all such that the economic interests are substantially the same as
those of the New Securities, and (ii) the General Partner contributes the
net proceeds from the grant, award or issuance of such New Securities and
from the exercise of rights contained in such New Securities to the
Partnership. Without limiting the foregoing, the General Partner is
expressly authorized to issue New Securities for less than fair market
value, and to cause the Partnership to issue to the General Partner
corresponding Partnership Interests, so long as (x) the General Partner
concludes in good faith that such issuance is in the interests of the
General Partner and the Partnership (for example, and not by way of
limitation, the issuance of CapStar Shares and corresponding Units pursuant
to an employee stock purchase plan providing for employee purchases of
CapStar Shares at a discount from fair market value or employee stock
options that have an exercise price that is less than the fair market value
of the CapStar Shares, either at the time of issuance or at the time of
exercise), and (y) the General Partner contributes all proceeds from such
issuance and exercise to the Partnership.
Section 4.2 Contribution of Proceeds of Issuance of CapStar
-----------------------------------------------
Shares
- ------
In connection with the initial public offering of CapStar Shares
by the General Partner, and any other grant, award, or issuance of CapStar
Shares or rights, options, warrants, or convertible or exchangeable
securities pursuant to Section 4.1, the General Partner shall make a
Capital Contribution to the Partnership of the proceeds raised in
connection with such grant, award, or issuance; provided that if the
-------------
proceeds actually received by the General Partner are less than the gross
proceeds of such grant, award, or issuance as a result of any underwriter's
discount, commission, or fee or other expenses paid or incurred in
connection with such grant, award, or issuance, then the General Partner
shall be deemed to have made a Capital Contribution to the Partnership in
the amount of the gross proceeds of such issuance and the Partnership shall
be deemed simultaneously to have reimbursed the General Partner pursuant to
Section 7.4.C for the amount of such underwriter's discount or other
expenses.
Section 4.3 No Preemptive Rights
--------------------
No existing Limited Partner shall have any preemptive,
preferential or other similar right with respect to (i) additional Capital
Contributions or loans to the Partnership; or (ii) issuance or sale of any
Partnership Units or other Partnership Interests.
Section 4.4 No Interest on Capital
----------------------
No Partner shall be entitled to interest on its Capital
Contribution or its Capital Account.
<PAGE>
17
ARTICLE 5
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
-------------------------------------------------
The General Partner shall make distributions to the Partners when
the General Partner so determines in its sole and absolute discretion, in
accordance with the Partners' respective Percentage Interests on such
Partnership Record Date; provided, however, that if there is a Distribution
-------- -------
Event, then the General Partner shall distribute (i) an amount equal to the
General Partner Distribution Amount to the General Partner and (ii) an
amount equal to the Limited Partner Distribution Amount to the Limited
Partners in accordance with the Limited Partners' respective Percentage
Interests on such Partnership Record Date.
Section 5.2 Amounts Withheld
----------------
All amounts withheld pursuant to the Code or any provisions of
any state or local tax law and Section 10.5 hereof with respect to any
allocation, payment or distribution to the General Partner, the Limited
Partners or Assignees shall be treated as amounts distributed to the
General Partner, Limited Partners, or Assignees pursuant to Section 5.1 for
all purposes under this Agreement.
Section 5.3 Distributions Upon Liquidation
------------------------------
Proceeds from a Terminating Capital Transaction and any other
cash received or reductions in reserves made after commencement of the
liquidation of the Partnership, shall be distributed to the Partners in
accordance with Section 13.2.
ARTICLE 6
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
----------------------------------------
For purposes of maintaining the Capital Accounts and in
determining the rights of the Partners among themselves, the Partnership's
items of income, gain, loss and deduction (computed in accordance with
Exhibit A hereof) shall be allocated among the Partners in each taxable
- ---------
year (or portion thereof) as provided herein below.
A. Net Income. After giving effect to the special allocations
----------
set forth in Section 1 of Exhibit B, Net Income shall be allocated
---------
(i) first, to the General Partner to the extent that Net Losses previously
allocated to the General Partner pursuant to the last sentence of
Section 6.1.B exceed Net Income previously allocated to the General Partner
pursuant to this clause (i) of Section 6.l.A, and (ii) thereafter,
<PAGE>
18
Net Income shall be allocated to the Partners in accordance with their
respective Percentage Interests.
B. Net Losses. After giving effect to the special allocations
----------
set forth in Section 1 of Exhibit B, Net Losses shall be allocated to the
---------
Partners in accordance with their respective Percentage Interests; provided
--------
that Net Losses shall not be allocated to any Limited Partner pursuant to
- ----
this Section 6.1.B to the extent that such allocation would cause such
Limited Partner to have an Adjusted Capital Account Deficit at the end of
such taxable year (or increase any existing Adjusted Capital Account
Deficit). All Net Losses in excess of the limitations set forth in this
Section 6.l.B shall be allocated to the General Partner.
C. Allocation of Nonrecourse Debt. For purposes of Regulations
------------------------------
Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum
Gain and (ii) the total amount of Nonrecourse Built-in Gain shall be
allocated among the Partners in accordance with their respective Percentage
Interests.
D. Recapture Income. Any gain allocated to the Partners upon
----------------
the sale or other taxable disposition of any Partnership asset shall to the
extent possible, after taking into account other required allocations of
gain pursuant to Exhibit B, be characterized as Recapture Income in the
---------
same proportions and to the same extent as such Partners have been
allocated any deductions directly or indirectly giving rise to the
treatment of such gains as Recapture Income (including deductions taken by
any Partner with respect to Contributed Property prior to the time such
Property was contributed to the Partnership).
E. Allocations to Reflect Issuance of Additional Partnership
---------------------------------------------------------
Interests. In the event that the Partnership issues additional Partnership
- ---------
Interests to the General Partner or any Additional Limited Partner under
Section 4.1 hereof, the General Partner shall make such revisions to
Sections 6.1.A and B above as it determines are necessary to reflect the
issuance of such additional Partnership Interests.
ARTICLE 7
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1 Management
----------
A. Except as otherwise expressly provided in this Agreement,
all management powers over the business and affairs of the Partnership are
and shall be exclusively vested in the General Partner, and no Limited
Partner shall have any right to participate in or exercise control or
management power over the business and affairs of the Partnership. The
General Partner may not be removed by the Limited
<PAGE>
19
Partners with or without cause. In addition to the powers now or hereafter
granted a general partner of a limited partnership under applicable law or
which are granted to the General Partner under any other provision of this
Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by
it to conduct the business of the Partnership, to exercise all powers set
forth in Section 3.2 hereof and to effectuate the purposes set forth in
Section 3.1 hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of
money (including, without limitation, making prepayments on
loans), the assumption or guarantee of, or other contracting
for, indebtedness and other liabilities, the issuance of
evidences of indebtedness (including the securing of same by
deed to secure debt, mortgage, deed of trust or other lien
or encumbrance on the Partnership's assets) and the
incurring of any obligations it deems necessary for the
conduct of the activities of the Partnership;
(2) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to governmental or
other agencies having jurisdiction over the business or
assets of the Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership
(including the exercise or grant of any conversion, option,
privilege, or subscription right or other right available in
connection with any assets at any time held by the
Partnership) or the merger or other combination of the
Partnership with or into another entity;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with
the terms of this Agreement and on any terms it sees fit,
including, without limitation, the financing of the conduct
of the operations of the General Partner, the Partnership or
any of the Partnership's Subsidiaries, the lending of funds
to other Persons (including, without limitation, the
Partnership's Subsidiaries) and the repayment of obligations
of the Partnership and its Subsidiaries and any other Person
in which it has an equity investment and the making of
capital contributions to its Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property
or
<PAGE>
20
improvements owned by the General Partner, the Partnership
or any of the Partnership's Subsidiaries;
(6) the negotiation, execution, and performance of any
contracts, conveyances or other instruments that the General
Partner considers useful or necessary to the conduct of the
Partnership's operations or the implementation of the
General Partner's powers under this Agreement, including
contracting with contractors, developers, consultants,
accountants, legal counsel, other professional advisors and
other agents and the payment of their expenses and
compensation out of the Partnership's assets;
(7) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the
Partnership, the selection and dismissal of employees of the
Partnership, any division of the Partnership, or the General
Partner (including, without limitation, employees having
titles such as "president," "vice president," "secretary"
and "treasurer" of the Partnership, any division of the
Partnership, or the General Partner), and agents, outside
attorneys, accountants, consultants and contractors of the
General Partner, the Partnership or any division of the
Partnership, and the determination of their compensation and
other terms of employment or hiring;
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
(12) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it
deems desirable (including, without limitation, the
acquisition of interests in, and the contributions of
property to, its Subsidiaries and any other Person in which
it has an equity investment from time to time);
<PAGE>
21
(13) the control of any matters affecting the rights and
obligations of the Partnership, including the settlement,
compromise, submission to arbitration or any other form of
dispute resolution, or abandonment of any claim, cause of
action, liability, debt or damages due or owing to or from
the Partnership, the commencement or defense of suits, legal
proceedings, administrative proceedings, arbitrations or
other forms of dispute resolution, and the representation of
the Partnership in all suits or legal proceedings,
administrative proceedings, arbitrations or other forms of
dispute resolution, the incurring of legal expense, and the
indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its
Subsidiaries or any other Person (including, without
limitation, the contribution or loan of funds by the
Partnership to such Persons);
(15) the determination of the fair market value of any
Partnership property distributed in kind using such
reasonable method of valuation as it may adopt;
(16) the exercise, directly or indirectly through any attorney-
in-fact acting under a general or limited power of attorney,
of any right, including the right to vote, appurtenant to
any asset or investment held by the Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection
with any Subsidiary of the Partnership or any other Person
in which the Partnership has a direct or indirect interest,
or jointly with any such Subsidiary or other Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in
which the Partnership does not have an interest pursuant to
contractual or other arrangements with such Person;
(19) the making, execution and delivery of any and all deeds,
leases, notes, deeds to secure debt, mortgages, deeds of
trust, security agreements, conveyances, contracts,
guarantees, warranties, indemnities, waivers, releases or
legal instruments or agreements in writing necessary or
appropriate in the judgment
<PAGE>
22
of the General Partner for the accomplishment of any of the
powers of the General Partner; and
(20) the distribution of cash to acquire Partnership Units held
by a Limited Partner in connection with a Limited Partner's
exercise of its Redemption Right under Section 8.6.
B. Each of the Limited Partners agrees that the General Partner
is authorized to execute, deliver and perform the above-mentioned
agreements and transactions on behalf of the Partnership without any
further act, approval or vote of the Partners, notwithstanding any other
provision of this Agreement, the Act or any applicable law, rule or
regulation, to the fullest extent permitted under the Act or other
applicable law. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under
this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited
Partners or any other Persons under this Agreement or of any duty stated or
implied by law or equity.
C. At all times from and after the date hereof, the General
Partner at the expense of the Partnership, may or may not, cause the
Partnership to obtain and maintain (i) casualty, liability and other
insurance on the properties of the Partnership and (ii) liability insurance
for the Indemnitees hereunder.
D. At all times from and after the date hereof, the General
Partner may cause the Partnership to establish and maintain at any and all
times working capital accounts and other cash or similar balances in such
amounts as the General Partner, in its sole and absolute discretion, deems
appropriate and reasonable from time to time.
E. The General Partner shall have the full power and authority
in the name and on behalf of the Partnership in its capacity as the General
Partner, to take all such actions and to execute, deliver, and file all
such agreements, instruments, reports and documents as may be necessary or
advisable in connection with the formation of the General Partner, the
issuance of Units in connection with a proposed transaction or any
transactions described in or contemplated by the General Partner's
Registration Statement on Form S-1 as filed with the Securities and
Exchange Commission on June 21, 1996, as amended and supplemented through
the date hereof.
F. Notwithstanding anything to the contrary contained in this
Agreement, any agreement of merger or consolidation of the Partnership
entered into in accordance with the provisions of this Agreement may, as
provided in Section 17-211(g) of the Delaware Revised Uniform Limited
partnership Act, (1) effect any amendment to this Agreement of (2) effect
the adoption of a new partnership agreement for the Partnership if it is
the surviving or resulting limited partnership in
<PAGE>
23
the merger or consolidation (provided that no such amendment shall be so
effected if it would, under Section 7.3 hereof, require the consent of the
Limited Partners (unless the requisite consent or consents shall be
obtained), and no provision shall be included in any such new partnership
agreement if such provision would, under Section 7.3 hereof, require the
consent of the Limited Partners if it were being incorporated in this
Agreement by amendment (unless the requisite consent shall be obtained)).
Section 7.2 Certificate of Limited Partnership
----------------------------------
The Partnership has previously filed the Certificate with the
Secretary of State of Delaware as required by the Act. The General Partner
shall use all reasonable efforts to cause to be filed such other
certificates or documents as may be reasonable and necessary or appropriate
for the formation, continuation, qualification and operation of a limited
partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and any other state, or the District of
Columbia, in which the Partnership may elect to do business or own
property. To the extent that such action is determined by the General
Partner to be reasonable and necessary or appropriate, the General Partner
shall file amendments to and restatements of the Certificate and do all the
things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the
laws of the State of Delaware and each other state or the District of
Columbia, in which the Partnership may elect to do business or own
property. Subject to the terms of Section 8.5.A(4) hereof, the General
Partner shall not be required, before or after filing, to deliver or mail a
copy of the Certificate or any amendment thereto to any Limited Partner.
Section 7.3 Restrictions on General Partner's Authority
-------------------------------------------
The General Partner may not take any action in contravention of
an express prohibition or limitation of this Agreement without the written
Consent of a majority of the Limited Partners (including Limited
Partnership Interests held by the General Partner) (or such lower
percentage of the Limited Partners as may be specifically provided for
under a provision of this Agreement or the Act).
Section 7.4 Reimbursement of the General Partner
------------------------------------
A. Except as provided in this Section 7.4 and elsewhere in this
Agreement (including the provisions of Articles 5 and 6 regarding
distributions, payments, and allocations to which it may be entitled), the
General Partner shall not be compensated for its services as general
partner of the Partnership.
B. The General Partner shall be reimbursed on a monthly basis,
or such other basis as the General Partner may determine in its sole and
absolute discretion, for all expenses it incurs relating to the ownership
and operation of, or for the benefit of, the Partnership; provided that the
-------------
amount of any such reimbursement
<PAGE>
24
shall be reduced by any interest earned by the General Partner with respect
to bank accounts or other instruments or accounts held by it on behalf of
the Partnership as permitted in Section 7.5.A. The Limited Partners
acknowledge that, for purposes of this Section 7.4.B, all of the General
Partner's expenses (including without limitation, costs and expenses
associated with compliance with the periodic reporting requirements and all
other rules and regulations of the Securities and Exchange Commission or
any other federal, state or local regulatory body, salaries payable to
officers and employees of the General Partner, fees and expenses payable to
directors of the General Partner, and all other operating of administrative
costs of the General Partner) are deemed incurred for the benefit of the
Partnership and shall be paid by or reimbursed by the Partnership as
provided in this Section 7.4.B. Such reimbursements shall be in addition
to any reimbursement to the General Partner as a result of indemnification
pursuant to Section 7.7 hereof. All payments and reimbursements hereunder
will be characterized for federal income tax purposes as expenses of the
Partnership incurred on its behalf, and not expenses of the General
Partner.
C. The General Partner shall also be reimbursed for all
expenses it incurs relating to the organization and/or reorganization of
the Partnership and the General Partner, the initial public offering of
CapStar Shares by the General Partner, and any other issuance of additional
Partnership Interests, CapStar Shares or rights, options, warrants, or
convertible or exchangeable securities pursuant to Section 4.1 hereof
(including, without limitation, all costs, expenses, damages, and other
payments resulting from or arising in connection with litigation related to
any of the foregoing).
D. In the event that the General Partner shall elect to
purchase from its shareholders CapStar Shares for the purpose of delivering
such shares to satisfy an obligation under any dividend reinvestment
program adopted by the General Partner, any employee stock purchase plan
adopted by the General Partner, or any similar obligation or arrangement
undertaken by the General Partner in the future, the purchase price paid by
the General Partner for such CapStar Shares and any other expenses incurred
by the General Partner in connection with such purchase shall be considered
expenses of the Partnership and shall be reimbursed to the General Partner,
subject to the condition that: (i) if such CapStar Shares subsequently are
to be sold by the General Partner, the General Partner shall pay to the
Partnership any proceeds received by the General Partner for such CapStar
Shares (provided that a transfer of CapStar Shares for Units pursuant to
Section 8.6 would not be considered a sale for such purposes); and (ii) if
such CapStar Shares are not retransferred by the General Partner within 30
days after the purchase thereof, the General Partner shall cause the
Partnership to cancel a number of Partnership Units (rounded to the nearest
whole Unit) held by the General Partner equal to the product obtained by
multiplying the number of such CapStar Shares by a fraction, the numerator
of which is one and the denominator of which is the Conversion Factor.
<PAGE>
25
Section 7.5 Outside Activities of the General Partner
-----------------------------------------
A. The General Partner shall not directly or indirectly enter
into or conduct any business, other than in connection with the ownership,
acquisition and disposition of Partnership Interests as a General Partner,
the ownership and disposition of the stock of the CapStar LP and the
management of the businesses of the Partnership and the CapStar LP, and
such activities as are incidental thereto. The General Partner shall not
incur any debts other than (i) debt of the Partnership for which it may be
liable in its capacity as General Partner of the Partnership, and
(ii) indebtedness for borrowed money the proceeds from which borrowing are
loaned to the Partnership on the same terms and conditions as the borrowing
by the General Partner. The General Partner shall not hold any assets
other than Partnership Interests as a General Partner and stock of CapStar
(and indirectly there through, Partnership Interests as a Limited Partner),
other than such bank accounts or similar instruments or accounts as it
deems necessary to carry out its responsibilities contemplated under this
Agreement and the Articles of Incorporation. The General Partner and any
Affiliates of the General Partner may acquire Limited Partner Interests and
shall be entitled to exercise all rights of a Limited Partner relating to
such Limited Partner Interests.
B. Subject to the next sentence, the General Partner may, from
time to time, purchase and/or redeem CapStar Shares (including, without
limitation, in connection with a stock repurchase or similar program), if
the General Partner determines that it is in the interest of the
Partnership for the General Partner to purchase and/or redeem CapStar
Shares. In the event that the General Partner purchases and/or redeems
CapStar Shares, then the General Partner shall cause the Partnership to
purchase from the General Partner, concurrently with the CapStar Share
purchase, a number of Partnership Units as determined based on the
application of the Conversion Factor for the same consideration (including
any fees, commissions, and expenses payable by the General Partner in
connection therewith) and on the same terms as the General Partner
purchases such CapStar Shares.
7.6 Contracts with Affiliates
-------------------------
A. The Partnership may lend or contribute funds or other assets
to its Subsidiaries or other Persons in which it has an equity investment,
and such Persons may borrow funds from the Partnership, on terms and
conditions established in the sole and absolute discretion of the General
Partner. The foregoing authority shall not create any right or benefit in
favor of any Subsidiary or any other Person.
B. Except as provided in Section 7.5.A, the Partnership may
transfer assets to joint ventures, other partnerships, corporations or
other business entities in which it is or thereby becomes a participant
upon such terms and subject to such conditions consistent with this
Agreement and applicable law as the General Partner, in its sole and
absolute discretion, believes are advisable.
<PAGE>
26
C. Except as expressly permitted by this Agreement, neither the
General Partner nor any of its Affiliates shall sell, transfer or convey
any property to, or purchase any property from, the Partnership, directly
or indirectly, except pursuant to transactions that are determined by the
General Partner in good faith to be fair and reasonable and no less
favorable to the Partnership than would be obtained from an unaffiliated
third party.
D. The General Partner, in its sole and absolute discretion and
without the approval of the Limited Partners, may propose and adopt on
behalf of the Partnership employee benefit plans, stock option plans, and
similar plans funded by the Partnership for the benefit of employees of the
General Partner, the Partnership, Subsidiaries of the Partnership or any
Affiliate of any of them in respect of services performed, directly or
indirectly, for the benefit of the Partnership, the General Partner, or any
of the Partnership's Subsidiaries.
[E. The General Partner is expressly authorized to enter into,
in the name and on behalf of the Partnership, a right of first opportunity
arrangement and other conflict avoidance agreements with various Affiliates
of the Partnership and the General Partner, on such terms as the General
Partner, in its sole and absolute discretion, believes are advisable.]
Section 7.7 Indemnification
---------------
A. The Partnership shall indemnify each Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including, without limitation, attorneys fees and other legal
fees and expenses), judgments, fines, settlements, and other amounts
arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative, that relate to the
Partnership in which such Indemnitee may be involved, or is threatened to
be involved, as a party or otherwise, unless it is established that:
(i) the act or omission of the Indemnitee was material to the matter giving
rise to the proceeding and either was committed in bad faith or was the
result of active and deliberate dishonesty; (ii) the Indemnitee actually
received an improper personal benefit in money, property or services; or
(iii) in the case of any criminal proceeding, the Indemnitee had reasonable
cause to believe that the act or omission was unlawful. Without
limitation, the foregoing indemnity shall extend to any liability of any
Indemnitee, pursuant to a loan guaranty or otherwise, for any indebtedness
of the Partnership or any Subsidiary of the Partnership (including, without
limitation, any indebtedness which the Partnership or any Subsidiary of the
Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter
into one or more indemnity agreements consistent with the provisions of
this Section 7.7 in favor of any Indemnitee having or potentially having
liability for any such indebtedness. The termination of any proceeding, by
judgment, order or settlement does not create a presumption that the
Indemnitee did not meet the requisite standard of conduct set forth in this
<PAGE>
27
Section 7.7.A. The termination of any proceeding by conviction of an
Indemnitee or upon a plea of nolo contendere or its equivalent by an
Indemnitee, or an entry of an order of probation against an Indemnitee
prior to judgment, creates a rebuttable presumption that such Indemnitee
acted in a manner contrary to that specified in this Section 7.7.A with
respect to the subject matter of such proceeding. Any indemnification
pursuant to this Section 7.7 shall be made only out of the assets of the
Partnership, and neither the General Partner nor any Limited Partner shall
have any obligation to contribute to the capital of the Partnership or
otherwise provide funds to enable the Partnership to fund its obligations
under this Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a party
to a proceeding may be paid or reimbursed by the Partnership in advance of
the final disposition of the proceeding upon receipt by the Partnership of
(i) a written affirmation by the Indemnitee of the Indemnitee's good faith
belief that the standard of conduct necessary for indemnification by the
Partnership as authorized in this Section 7.7.A has been met, and (ii) a
written undertaking by or on behalf of the Indemnitee to repay the amount
if it shall ultimately be determined that the standard of conduct has not
been met.
C. The indemnification provided by this Section 7.7 shall be in
addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, pursuant to any vote of the Partners, as a
matter of law or otherwise, and shall continue as to an Indemnitee who has
ceased to serve in such capacity unless otherwise provided in a written
agreement pursuant to which such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase
and maintain insurance, on behalf of the Indemnitees and such other Persons
as the General Partner shall determine, against any liability that may be
asserted against or expenses that may be incurred by such Person in
connection with the Partnership's activities, regardless of whether the
Partnership would have the power to indemnify such Person against such
liability under the provisions of this Agreement.
E. For purposes of this Section 7.7, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the
Partnership also imposes duties on, or otherwise involves services by, it
to the plan or participants or beneficiaries of the plan; excise taxes
assessed on an Indemnitee with respect to an employee benefit plan pursuant
to applicable law shall constitute fines within the meaning of Section 7.7;
and actions taken or omitted by the Indemnitee with respect to an employee
benefit plan in the performance of its duties for a purpose reasonably
believed by it to be in the interest of the participants and beneficiaries
of the plan shall be deemed to be for a purpose which is not opposed to the
best interests of the Partnership.
<PAGE>
28
F. In no event may an Indemnitee subject any of the Partners to
personal liability by reason of the indemnification provisions set forth in
this Agreement.
G. An Indemnitee shall not be denied indemnification in whole
or in part under this Section 7.7 because the Indemnitee had an interest in
the transaction with respect to which the indemnification applies if the
transaction was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of
the Indemnitees, their heirs, successors, assigns and administrators and
shall not be deemed to create any rights for the benefit of any other
Persons. Any amendment, modification or repeal of this Section 7.7 or any
provision hereof shall be prospective only and shall not in any way affect
the limitations on the Partnership's liability to any Indemnitee under this
Section 7.7 as in effect immediately prior to such amendment, modification
or repeal with respect to claims arising from or relating to matters
occurring, in whole or in part, prior to such amendment, modification or
repeal, regardless of when such claims may arise or be asserted.
Section 7.8 Liability of the General Partner
--------------------------------
A. Notwithstanding anything to the contrary set forth in this
Agreement, the General Partner shall not be liable for monetary damages to
the Partnership, any Partners or any Assignees for losses sustained or
liabilities incurred as a result of errors in judgment or of any act or
omission if the General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General
Partner is acting on behalf of the Partnership and the General Partner's
shareholders collectively, that the General Partner is under no obligation
to consider the separate interests of the Limited Partners (including,
without limitation, the tax consequences to Limited Partners or Assignees)
in deciding whether to cause the Partnership to take (or decline to take)
any actions, and that the General Partner shall not be liable to the
Partnership or to any Partner for monetary damages for losses sustained,
liabilities incurred, or benefits not derived by Limited Partners in
connection with such decisions, provided that the General Partner has acted
in good faith.
C. Subject to its obligations and duties as General Partner set
forth in Section 7.1.A hereof, the General Partner may exercise any of the
powers granted to it by this Agreement and perform any of the duties
imposed upon it hereunder either directly or by or through its agents. The
General Partner shall not be responsible for any misconduct or negligence
on the part of any such agent appointed by it in good faith.
<PAGE>
29
D. Any amendment, modification or repeal of this Section 7.8 or
any provision hereof shall be prospective only and shall not in any way
affect the limitations on the General Partner's liability to the
Partnership and the Limited Partners under this Section 7.8 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part,
prior to such amendment, modification or repeal, regardless of when such
claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
--------------------------------------------
A. The General Partner may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent, order,
bond, debenture, or other paper or document believed by it in good faith to
be genuine and to have been signed or presented by the proper party or
parties.
B. The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers,
architects, engineers, environmental consultants and other consultants and
advisers selected by it, and any act taken or omitted to be taken in
reliance upon the opinion of such Persons as to matters which such General
Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or
omitted in good faith and in accordance with such opinion.
C. The General Partner shall have the right, in respect of any
of its powers or obligations hereunder, to act through any of its duly
authorized officers and a duly appointed attorney or attorneys-in-fact.
Each such attorney shall, to the extent provided by the General Partner in
the power of attorney, have full power and authority to do and perform all
and every act and duty which is permitted or required to be done by the
General Partner hereunder.
Section 7.10 Title to Partnership Assets
---------------------------
Title to Partnership assets, whether real, personal or mixed and
whether tangible or intangible, shall be deemed to be owned by the
Partnership as an entity, and no Partner, individually or collectively,
shall have any ownership interest in such Partnership assets or any portion
thereof. Title to any or all of the Partnership assets may be held in the
name of the Partnership, the General Partner or one or more nominees, as
the General Partner may determine, including Affiliates of the General
Partner. The General Partner hereby declares and warrants that any
Partnership assets for which legal title is held in the name of the General
Partner or any nominee or Affiliate of the General Partner shall be held by
the General Partner for the use and benefit of the Partnership in
accordance with the provisions of this Agreement; provided, however, that
-------- -------
the General Partner shall use its best efforts to cause beneficial and
record title to such assets to be vested in the Partnership as soon
<PAGE>
30
as reasonably practicable. All Partnership assets shall be recorded as the
property of the Partnership in its books and records, irrespective of the
name in which legal title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties
-------------------------
Notwithstanding anything to the contrary in this Agreement, any
Person dealing with the Partnership shall be entitled to assume that the
General Partner has full power and authority, without consent or approval
of any other Partner or Person, to encumber, sell or otherwise use in any
manner any and all assets of the Partnership and to enter into any
contracts on behalf of the Partnership, and take any and all actions on
behalf of the Partnership and such Person shall be entitled to deal with
the General Partner as if the General Partner were the Partnership's sole
party in interest, both legally and beneficially. Each Limited Partner
hereby waives any and all defenses or other remedies which may be available
against such Person to contest, negate or disaffirm any action of the
General Partner in connection with any such dealing. In no event shall any
Person dealing with the General Partner or its representatives be obligated
to ascertain that the terms of this Agreement have been complied with or to
inquire into the necessity or expedience of any act or action of the
General Partner or its representatives. Each and every certificate,
document or other instrument executed on behalf of the Partnership by the
General Partner or its representatives shall be conclusive evidence in
favor of any and every Person relying thereon or claiming thereunder that
(i) at the time of the execution and delivery of such certificate, document
or instrument, this Agreement was in full force and effect, (ii) the Person
executing and delivering such certificate, document or instrument was duly
authorized and empowered to do so for and on behalf of the Partnership and
(iii) such certificate, document or instrument was duly executed and
delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.
ARTICLE 8
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
-----------------------
The Limited Partners shall have no liability under this Agreement
except as expressly provided in this Agreement, including Section 10.5
hereof, or under the Act.
Section 8.2 Management of Business
----------------------
No Limited Partner or Assignee (other than the General Partner,
any of its Affiliates or any officer, director, employee, partner, agent or
trustee of the General Partner, the Partnership or any of their Affiliates,
in their capacity as such)
<PAGE>
31
shall take part in the operation, management or control (within the meaning
of the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise
bind the Partnership. The transaction of any such business by the General
Partner, any of its Affiliates or any officer, director, employee, partner,
agent or trustee of the General Partner, the Partnership or any of their
Affiliates, in their capacity as such, shall not affect, impair or
eliminate the limitations on the liability of the Limited Partners or
Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
--------------------------------------
Subject to Section 7.5 hereof and any other agreements entered
into by a Limited Partner or its Affiliates with the Partnership or a
Subsidiary, any Limited Partner and any officer, director, employee, agent,
trustee, Affiliate or shareholder of any Limited Partner shall be entitled
to and may have business interests and engage in business activities in
addition to those relating to the Partnership, including business interests
and activities that are in direct competition with the Partnership or that
are enhanced by the activities of the Partnership. Neither the Partnership
nor any Partners shall have any rights by virtue of this Agreement in any
business ventures of any Limited Partner or Assignee. None of the Limited
Partners nor any other Person shall have any rights by virtue of this
Agreement or the Partnership relationship established hereby in any
business ventures of any other Person (other than the General Partner to
the extent expressly provided herein) and such Person shall have no
obligation pursuant to this Agreement to offer any interest in any such
business ventures to the Partnership, any Limited Partner or any such other
Person, even if such opportunity is of a character which, if presented to
the Partnership, any Limited Partner or such other Person, could be taken
by such Person.
Section 8.4 Return of Capital
-----------------
Except pursuant to the right of redemption set forth in
Section 8.6, no Limited Partner shall be entitled to the withdrawal or
return of its Capital Contribution, except to the extent of distributions
made pursuant to this Agreement or upon termination of the Partnership as
provided herein. Nothing in this Section 8.4 shall be interpreted as
limiting the Partnership's right to redeem all or a portion of the
Partnership Units held by a Limited Partner, with the consent of such
Limited Partner, on such terms and for such consideration as determined by
the General Partner to be in the interests of the Partnership. Except to
the extent provided by Exhibit B hereof or as permitted by Section 4.1
---------
(relating to preferred interests issued subsequent to the date hereof), or
otherwise expressly provided in this Agreement, no Limited Partner or
Assignee shall have priority over any other Limited Partner or Assignee
either as to the return of Capital Contributions or as to profits, losses
or distributions.
<PAGE>
32
Section 8.5 Rights of Limited Partners Relating to the
------------------------------------------
Partnership
- -----------
A. In addition to other rights provided by this Agreement or by
the Act, and except as limited by Section 8.5.C hereof, each Limited
Partner shall have the right, for a purpose reasonably related to such
Limited Partner's interest as a limited partner in the Partnership, upon
written demand with a statement of the purpose of such demand and at such
Limited Partner's own expense (including such copying and administrative
charges as the General Partner may establish from time to time):
(1) to obtain a copy of the most recent annual and quarterly
reports filed with the Securities and Exchange Commission by
the General Partner pursuant to the Securities Exchange Act
of 1934;
(2) to obtain a copy of the Partnership's federal, state and
local income tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known
business, residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and
all amendments thereto, together with executed copies of all
powers of attorney pursuant to which this Agreement, the
Certificate and all amendments thereto have been executed;
and
(5) to obtain true and full information regarding the amount of
cash and a description and statement of any other property
or services contributed by each Partner and which each
Partner has agreed to contribute in the future, and the date
on which each became a Partner.
B. The Partnership shall notify each Limited Partner, upon
request, of the then current Conversion Factor and any change therein.
C. Notwithstanding any other provision of this Section 8.5, the
General Partner may keep confidential from the Limited Partners, for such
period of time as the General Partner determines in its sole and absolute
discretion to be reasonable, any information that (i) the General Partner
reasonably believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith
believes is not in the best interests of the Partnership or could damage
the Partnership or its business or (ii) the Partnership is required by law
or by agreements with an unaffiliated third party to keep confidential.
<PAGE>
33
D. Any Cash Amount to be paid to a Redeeming Partner pursuant
to this Section 8.06 shall be paid within 60 days after the initial date of
receipt by the Company of the Notice of Redemption relating to the
Partnership Units to be redeemed; provided, however, that such 60-day
-------- -------
period may be extended for up to an additional 180-day period to the extent
required for the Company to cause additional CapStar Shares to be issued to
provide financing to be used to make such payment of the Cash Amount.
Notwithstanding the foregoing, the Company and the General Partner agree to
use their best efforts to cause the closing of the acquisition of redeemed
Partnership Units hereunder to occur as quickly as reasonably possible.
Section 8.6 Redemption Right
----------------
A. Subject to Section 8.6.B, each Limited Partner, other than
CapStar LP, shall have the right (the "Redemption Right"), on or after the
first anniversary of the date on which such Limited Partner acquires its
Partnership Units (or such later or earlier date as shall be determined in
the sole and absolute discretion of the General Partner at the time of
issuance of the Partnership Units), to require the Partnership to redeem on
a Specified Redemption Date all or a portion of the Partnership Units held
by such Limited Partner at a redemption price equal to and in the form of
the Cash Amount to be paid by the Partnership. The Redemption Right shall
be exercised pursuant to a Notice of Redemption delivered to the
Partnership (with a copy to the General Partner) by the Limited Partner who
is exercising the redemption right (the "Redeeming Partner"). A Limited
Partner may not exercise the Redemption Right for less than one thousand
(1,000) Partnership Units or, if such Limited Partner holds less than one
thousand (1,000) Partnership Units, all of the Partnership Units held by
such Partner. Neither the Redeeming Partner nor any Assignee of any
Limited Partner shall have any right with respect to any Partnership Units
so redeemed to receive any distributions paid after the Specified
Redemption Date. The Assignee of any Limited Partner may exercise the
rights of such Limited Partner pursuant to this Section 8.6, and such
Limited Partner shall be deemed to have assigned such rights to such
Assignee and shall be bound by the exercise of such rights by such Limited
Partner's Assignee. In connection with any exercise of such rights by such
Assignee on behalf of such Limited Partner, the Cash Amount shall be paid
by the Partnership directly to such Assignee and not to such Limited
Partner. Neither the Redeeming Partner nor any Assignee of any Limited
Partner shall have any right, with respect to any Partnership Units so
redeemed, to receive any distributions paid after the Specified Redemption
Date.
B. Notwithstanding the provisions of Section 8.6.A, in the
event a Limited Partner elects to exercise the Redemption Right, the
General Partner may, in its sole and absolute discretion, elect to assume
directly and satisfy a Redemption Right by paying to the Redeeming Partner
either the Cash Amount or the CapStar Shares Amount, as elected by the
General Partner (in its sole and absolute discretion) on the Specified
Redemption Date, whereupon the General Partner shall acquire the
Partnership Units offered for redemption by the Redeeming Partner and shall
be
<PAGE>
34
treated for all purposes of this Agreement as the owner of such Partnership
Units. Unless the General Partner (in its sole and absolute discretion)
shall exercise its right to assume directly and satisfy the Redemption
Right, the General Partner itself shall have no obligation to the Redeeming
Partner or to the Partnership with respect to the Redeeming Partner's
exercise of the Redemption Right. In the event the General Partner shall
exercise its right to satisfy the Redemption Right in the manner described
in the first sentence of this Section 8.6.B, the Partnership shall have no
obligation to pay any amount to the Redeeming Partner with respect to such
Redeeming Partner's exercise of the Redemption Right, and each of the
Redeeming Partner, the Partnership, and the General Partner shall treat the
transaction between the General Partner and the Redeeming Partner for
federal income tax purposes as a sale of the Redeeming Partner's
Partnership Units to the General Partner. Each Redeeming Partner agrees to
execute such documents as the General Partner may reasonably require in
connection with the issuance of CapStar Shares upon exercise of the
Redemption Right. If the Redemption Right is satisfied by the delivery of
CapStar Shares, the Redeeming Partner shall be deemed to become a holder of
CapStar Shares as of the close of business in Specified Redemption Date.
C. Each Limited Partner covenants and agrees with General
Partner that all Partnership Units delivered for redemption shall be
delivered to the Partnership or the General Partner, as the case may be,
free and clear of all liens and, notwithstanding anything herein contained
to the contrary, neither the General Partner nor the Partnership shall be
under any obligation to acquire Partnership Units which are or may be
subject to any liens. Each Limited Partner further agrees that, in the
event any state or local property transfer tax is payable as a result of
the transfer of its Partnership Units to the Partnership or the General
Partner, such Limited Partner shall assume and pay such transfer tax.
ARTICLE 9
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
----------------------
The General Partner shall keep or cause to be kept at the
principal office of the Partnership those records and documents required to
be maintained by the Act and other books and records deemed by the General
Partner to be appropriate with respect to the Partnership's business,
including, without limitation, all books and records necessary to provide
to the Limited Partners any information, lists and copies of documents
required to be provided pursuant to Section 9.3 hereof. Any records
maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micro graphics or any other information storage device,
provided that the records so maintained are convertible into clearly
- -------------
legible written form within a reasonable period
<PAGE>
35
of time. The books of the Partnership shall be maintained, for financial
and tax reporting purposes, on an accrual basis in accordance with
generally accepted accounting principles, or other such basis as the
General Partner determines to be necessary or appropriate.
Section 9.2 Fiscal Year
-----------
The fiscal year of the Partnership shall end on [the Friday
nearest] December 31 of each calendar year.
Section 9.3 Reports
-------
A. As soon as practicable, but in no event later than [one
hundred five (105)] days after the close of each Partnership Year, the
General Partner shall cause to be mailed to each Limited Partner as of the
close of the Partnership Year, an annual report containing financial
statements of the Partnership, or of the General Partner if such statements
are prepared solely on a consolidated basis with the General Partner, for
such Partnership Year, presented in accordance with generally accepted
accounting principles, such statements to be audited by a nationally
recognized firm of independent public accountants selected by the General
Partner.
B. As soon as practicable, but in no event later than [one
hundred five (105)] days after the close of each calendar quarter (except
the last calendar quarter of each year), the General Partner shall cause to
be mailed to each Limited Partner as of the last day of the calendar
quarter, a report containing unaudited financial statements of the
Partnership, or of the General Partner, if such statements are prepared
solely on a consolidated basis with the General Partner, and such other
information as may be required by applicable law or regulation, or as the
General Partner determines to be appropriate.
ARTICLE 10
TAX MATTERS
Section 10.1 Preparation of Tax Returns
--------------------------
The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and
other items required of the Partnership for federal and state income tax
purposes and shall use all reasonable efforts to furnish, within ninety
(90) days of the close of each taxable year, the tax information reasonably
required by Limited Partners for federal and state income tax reporting
purposes.
<PAGE>
36
Section 10.2 Tax Elections
-------------
Except as otherwise provided herein, the General Partner shall,
in its sole and absolute discretion, determine whether to make any
available election pursuant to the Code; provided, however, that the
--------
General Partner shall make the election under Section 754 of the Code in
accordance with applicable regulations thereunder effective for the first
calendar year following the Effective Date. The General Partner shall have
the right to seek to revoke any such election (including, without
limitation, the election under Section 754 of the Code) upon the General
Partner's determination in its sole and absolute discretion that such
revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner
-------------------
A. The General Partner shall be the "tax matters partner" of
the Partnership for federal income tax purposes. Pursuant to
Section 6230(e) of the Code, upon receipt of notice from the IRS of the
beginning of an administrative proceeding with respect to the Partnership,
the tax matters partner shall furnish the IRS with the name, address,
taxpayer identification number, and profit interest of each of the Limited
Partners and the Assignees; provided, however, that such information is
--------
provided to the Partnership by the Limited Partners and the Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to
any administrative or judicial proceedings for the
adjustment of Partnership items required to be taken into
account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax
audit" and such judicial proceedings being referred to as
"judicial review"), and in the settlement agreement the tax
matters partner may expressly state that such agreement
shall bind all Partners, except that such settlement
agreement shall not bind any Partner (i) who (within the
time prescribed pursuant to the Code and Regulations) files
a statement with the IRS providing that the tax matters
partner shall not have the authority to enter into a
settlement agreement on behalf of such Partner or (ii) who
is a "notice partner" (as defined in Section 6231(a)(8) of
the Code) or a member of a "notice group" (as defined in
Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to
be taken into account by a Partner for tax purposes (a
"final adjustment") is mailed to the tax matters partner, to
seek judicial review of such final adjustment, including the
filing of a petition for
<PAGE>
37
readjustment with the Tax Court or the filing of a complaint
for refund with the United States Claims Court or the
District Court of the United States for the district in
which the Partnership's principal place of business is
located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the
IRS and, if any part of such request is not allowed by the
IRS, to file an appropriate pleading (petition or complaint)
for judicial review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period
for assessing any tax which is attributable to any item
required to be taken into account by a Partner for tax
purposes, or an item affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial
review proceeding to the extent permitted by applicable law
or regulations.
The taking of any action and the incurring of any expense by the
tax matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of
the tax matters partner and the provisions relating to indemnification of
the General Partner set forth in Section 7.7 of this Agreement shall be
fully applicable to the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for
its services. All third party costs and expenses incurred by the tax
matters partner in performing its duties as such (including legal and
accounting fees and expenses) shall be borne by the Partnership. Nothing
herein shall be construed to restrict the Partnership from engaging an
accounting or legal firm to assist the tax matters partner in discharging
its duties hereunder, so long as the compensation paid by the Partnership
for such services is reasonable.
Section 10.4 Organizational Expenses
-----------------------
The Partnership shall elect to deduct expenses, if any, incurred
by it in organizing the Partnership ratably over a sixty (60) month period
as provided in Section 709 of the Code.
<PAGE>
38
Section 10.5 Withholding
-----------
Each Limited Partner hereby authorizes the Partnership to
withhold from or pay on behalf of or with respect to such Limited Partner
any amount of federal, state, local, or foreign taxes that the General
Partner determines that the Partnership is required to withhold or pay with
respect to any amount distributable or allocable to such Limited Partner
pursuant to this Agreement, including, without limitation, any taxes
required to be withheld or paid by the Partnership pursuant to
Sections 1441, 1442, 1445, or 1446 of the Code. Any amount paid on behalf
of or with respect to a Limited Partner shall constitute a loan by the
Partnership to such Limited Partner, which loan shall be repaid by such
Limited Partner within fifteen (15) days after notice from the General
Partner that such payment must be made unless (i) the Partnership withholds
such payment from a distribution which would otherwise be made to the
Limited Partner or (ii) the General Partner determines, in its sole and
absolute discretion, that such payment may be satisfied out of the
available funds of the Partnership which would, but for such payment, be
distributed to the Limited Partner. Any amounts withheld pursuant to the
foregoing clauses (i) or (ii) shall be treated as having been distributed
to such Limited Partner. Each Limited Partner hereby unconditionally and
irrevocably grants to the Partnership a security interest in such Limited
Partner's Partnership Interest to secure such Limited Partner's obligation
to pay to the Partnership any amounts required to be paid pursuant to this
Section 10.5. In the event that a Limited Partner fails to pay any amounts
owed to the Partnership pursuant to this Section 10.5 when due, the General
Partner may, in its sole and absolute discretion, elect to make the payment
to the Partnership on behalf of such defaulting Limited Partner, and in
such event shall be deemed to have loaned such amount to such defaulting
Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner. Without
limitation, in such event the General Partner shall have the right to
receive distributions that would otherwise be distributable to such
defaulting Limited Partner until such time as such loan, together with all
interest thereon, has been paid in full, and any such distributions so
received by the General Partner shall be treated as having been distributed
to the defaulting Limited Partner and immediately paid by the defaulting
Limited Partner to the General Partner in repayment of such loan. Any
amounts payable by a Limited Partner hereunder shall bear interest at the
lesser of (A) the base rate on corporate loans at large United States money
center commercial banks, as published from time to time in the Wall Street
-----------
Journal, plus four (4) percentage points, or (B) the maximum lawful rate of
- -------
interest on such obligation, such interest to accrue from the date such
amount is due (i.e., fifteen (15) days after demand) until such amount is
paid in full. Each Limited Partner shall take such actions as the
Partnership or the General Partner shall request in order to perfect or
enforce the security interest created hereunder.
<PAGE>
39
ARTICLE 11
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
--------
A. The term "transfer," when used in this Article 11 with
respect to a Partnership Interest or Partnership Unit, shall be deemed to
refer to a transaction by which the General Partner purports to assign all
or any part of its General Partner Interest to another Person or by which a
Limited Partner purports to assign all or any part of its Limited Partner
Interest to another Person, and includes a sale, assignment, gift, pledge,
encumbrance, hypothecation, mortgage, exchange or any other disposition by
law or otherwise. The term "transfer" when used in this Article 11 does
not include any redemption of Partnership Units by a Limited Partner or
acquisition of Partnership Units from a Limited Partner by the General
Partner pursuant to Section 8.6.
B. No Partnership Interest shall be transferred, in whole or in
part, except in accordance with the terms and conditions set forth in this
Article 11. Any transfer or purported transfer of a Partnership Interest
not made in accordance with this Article 11 shall be null and void.
Section 11.2 Transfer of General Partner's Partnership Interest
--------------------------------------------------
A. The General Partner may not transfer any of its General
Partner Interest or withdraw as General Partner except in connection with a
transaction described in Section 11.2.B or 11.2.C.
B. Except as otherwise provided in Section 11.2.C, the General
Partner shall not engage in any merger, consolidation or other combination
with or into another Person or sale of all or substantially all of its
assets, or any reclassification, or recapitalization or change of
outstanding CapStar Shares (other than a change in par value, or from par
value to no par value, or as a result of a subdivision or combination as
described in the definition of "Conversion Factor") ("Transaction"), unless
the Transaction also includes a merger of the Partnership or sale of
substantially all of the assets of the Partnership which has been approved
by the requisite Consent of the Partners pursuant to Section 7.3 and as a
result of which all Limited Partners will receive for each Partnership Unit
an amount of cash, securities, or other property equal to the product of
the Conversion Factor and the greatest amount of cash, securities or other
property paid to a holder of one CapStar Share in consideration of one
CapStar Share at any time during the period from and after the date on
which the Transaction is consummated.
C. Notwithstanding Section 11.2.B, the General Partner may
merge with another entity if immediately after such merger substantially
all of the assets of the surviving entity, other than Partnership Units
held by the General Partner
<PAGE>
40
(whether such Partnership Units constitute the General Partnership Interest
or a Limited Partnership Interest), are contributed to the Partnership as a
Capital Contribution in exchange for Partnership Units with a fair market
value, as reasonably determined by the General Partner, equal to the 704(c)
Value of the assets so contributed.
Section 11.3 Limited Partners' Rights to Transfer
------------------------------------
A. Subject to the provisions of Section 11.3.F, no Limited
Partner shall have the right to transfer all or any portion of his
Partnership Interest, or any of such Limited Partner's rights as a Limited
Partner, without the prior written consent of the General Partner, which
consent may be given or withheld by the General Partner in its sole and
absolute discretion. Any purported transfer of a Partnership Interest by a
Limited Partner in violation of this Section 11.3.A shall be void ab initio
-- ------
and shall not be given effect for any purpose by the Partnership.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of
such Limited Partner's estate shall have all the rights of a Limited
Partner, but not more rights than those enjoyed by other Limited Partners,
for the purpose of settling or managing the estate and such power as the
Incapacitated Limited Partner possessed to transfer all or any part of his
or its interest in the Partnership. The Incapacity of a Limited Partner,
in and of itself, shall not dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited
Partner of his Partnership Units otherwise permitted under Section 11.3.F
if, in the opinion of legal counsel to the Partnership, such transfer would
require filing of a registration statement under the Securities Act of 1933
or would otherwise violate any federal, state or foreign securities laws or
regulations applicable to the Partnership or the Partnership Unit.
D. No transfer by a Limited Partner of his Partnership Units
may be made to any Person if (i) in the opinion of legal counsel for the
Partnership, it would result in the Partnership being treated as an
association taxable as a corporation for federal income tax purposes, or
would result in a termination of the Partnership for federal income tax
purposes or (ii) such transfer is effectuated through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of Section 7704 of the Code.
E. No transfer of any Partnership Units may be made to a lender
to the Partnership or any Person who is related (within the meaning of
Section 1.752-4(b) of the Regulations) to any lender to the Partnership
whose loan constitutes a Nonrecourse Liability, without the consent of the
General Partner, which consent may be given or withheld by the General
Partner in its sole and absolute discretion, provided that as a condition
-------- ----
to such consent being granted the lender will be required
<PAGE>
41
to enter into an arrangement with the Partnership and the General Partner
to exchange or redeem for the CapStar Shares Amount any Partnership Units
in which a security interest is held simultaneously with the time at which
such lender would be deemed to be a partner in the Partnership for purposes
of allocating liabilities to such lender under Section 752 of the Code.
Section 11.4 Substituted Limited Partners
----------------------------
A. No Limited Partner shall have the right to substitute a
transferee as a Limited Partner in his place. The General Partner shall,
however, have the right to consent to the admission of a transferee of the
interest of a Limited Partner pursuant to this Section 11.4 as a
Substituted Limited Partner, which consent may be given or withheld by the
General Partner in its sole and absolute discretion. The General Partner's
failure or refusal to permit a transferee of any such interests to become a
Substituted Limited Partner shall not give rise to any cause of action
against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and
powers and be subject to all the restrictions and liabilities of a Limited
Partner under this Agreement. The admission of any transferee as a
Substituted Limited Partner shall be subject to the transferee executing
and delivering to the Partnership an acceptance of all of the terms and
conditions of this Agreement (including, without limitation, the provisions
of Section 2.4) and such other documents or instruments as may be required
to effect the admission.
Section 11.5 Assignees
---------
If the General Partner, in its sole and absolute discretion, does
not consent to the admission of any permitted transferee under Section 11.3
as a Substituted Limited Partner, as described in Section 11.4, such
transferee shall be considered an Assignee for purposes of this Agreement.
An Assignee shall be deemed to have had assigned to it, and shall be
entitled to receive distributions from the Partnership and the share of Net
Income, Net Losses, Recapture Income, and any other items of gain, loss,
deduction and credit of the Partnership attributable to the Partnership
Units assigned to such transferee, but shall not be deemed to be a holder
of Partnership Units for any other purpose under this Agreement, and shall
not be entitled to vote such Partnership Units in any matter presented to
the Limited Partners for a vote (such Partnership Units being deemed to
have been voted on such matter in the same proportion as all other
Partnership Units held by Limited Partners are voted). In the event any
such transferee desires to make a further assignment of any such
Partnership Units, such transferee shall be subject to all the provisions
of this Article 11 to the same extent and in the same manner as any Limited
Partner desiring to make an assignment of Partnership Units.
<PAGE>
42
Section 11.6 General Provisions
------------------
A. No Limited Partner may withdraw from the Partnership other
than as a result of a permitted transfer of all of such Limited Partner's
Partnership Units in accordance with this Article 11 or pursuant to
redemption of all of its Partnership Units under Section 8.6.
B. Any Limited Partner who shall transfer all of his
Partnership Units in a transfer permitted pursuant to this Article 11 shall
cease to be a Limited Partner upon the admission of all Assignees of such
Partnership Units as Substitute Limited Partners. Similarly, any Limited
Partner who shall transfer all of his Partnership Units pursuant to a
redemption of all of his Partnership Units under Section 8.6 shall cease to
be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made on
the first day of a fiscal quarter of the Partnership, unless the General
Partner otherwise agrees.
D. If any Partnership Interest is transferred or assigned in
compliance with the provisions of this Article 11 or redeemed or
transferred pursuant to Section 8.6, on any day other than the first day of
a Partnership Year, then Net Income, Net Losses, each item thereof and all
other items attributable to such interest for such Partnership Year shall
be divided and allocated between the transferor Partner and the transferee
Partner by taking into account their varying interests during the fiscal
year in accordance with Section 706(d) of the Code, using the interim
closing of the books method (unless the General Partner, in its sole and
absolute discretion, elects to adopt a daily, weekly or monthly proration
method, in which event Net Income, Net Losses and each item thereof for
such Partnership Year shall be prorated based upon the applicable period
selected by the General Partner). Solely for purposes of making such
allocations, each of such items for the calendar month in which the
transfer or assignment occurs shall be allocated to the transferee Partner,
and none of such items for the calendar month in which a redemption occurs
shall be allocated to the Redeeming Partner. All distributions of the
Partner Distribution Amount attributable to such Partnership Unit with
respect to which the Partnership Record Date is before the date of such
transfer, assignment or redemption shall be made to the transferor Partner
or the Redeeming Partner, as the case may be, and, in the case of a
transfer or assignment other than a redemption, all distributions of the
Partner Distribution Amount thereafter attributable to such Partnership
Unit shall be made to the transferee Partner.
<PAGE>
43
ARTICLE 12
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
--------------------------------------
A successor to all of the General Partner Interest pursuant to
Section 11.2.C hereof who is proposed to be admitted as a successor General
Partner shall be admitted to the Partnership as the General Partner,
effective upon such transfer. Any such transferee shall carry on the
business of the Partnership without dissolution. In each case, the
admission shall be subject to the successor General Partner executing and
delivering to the Partnership an acceptance of all of the terms and
conditions of this Agreement and such other documents or instruments as may
be required to effect the admission. In the case of such admission on any
day other than the first day of a Partnership Year, all items attributable
to the General Partner Interest for such Partnership Year shall be
allocated between the transferring General Partner and such successor as
provided in Section 11.6.D hereof.
Section 12.2 Admission of Additional Limited Partners
----------------------------------------
A. A Person who makes a Capital Contribution to the Partnership
in accordance with this Agreement [or who exercises an option to receive
Partnership Units] shall be admitted to the Partnership as an Additional
Limited Partner only upon furnishing to the General Partner (i) evidence of
acceptance in form satisfactory to the General Partner of all of the terms
and conditions of this Agreement, including, without limitation, the power
of attorney granted in Section 2.4 hereof and (ii) such other documents or
instruments as may be required in the discretion of the General Partner in
order to effect such Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this
Section 12.2, no Person shall be admitted as an Additional Limited Partner
without the consent of the General Partner, which consent may be given or
withheld in the General Partner's sole and absolute discretion. The
admission of any Person as an Additional Limited Partner shall become
effective on the date upon which the name of such Person is recorded on the
books and records of the Partnership, following the consent of the General
Partner to such admission.
C. If any Additional Limited Partner is admitted to the
Partnership on any day other than the first day of a Partnership Year, then
Net Income, Net Losses, each item thereof and all other items allocable
among Partners and Assignees for such Partnership Year shall be allocated
among such Additional Limited Partner and all other Partners and Assignees
by taking into account their varying interests during the Partnership Year
in accordance with Section 706(d) of the Code, using the interim closing of
the books method. Solely for purposes of making such allocations, each of
such items for the calendar month in which an admission of any Additional
Limited Partner occurs shall be allocated among all the Partners and
Assignees
<PAGE>
44
including such Additional Limited Partner. All distributions of the Partner
Distribution Amount with respect to which the Partnership Record Date is
before the date of such admission shall be made solely to Partners and
Assignees other than the Additional Limited Partner, and all distributions
of the Partner Distribution Amount thereafter shall be made to all the
Partners and Assignees including such Additional Limited Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited
-------------------------------------------------
Partnership
- -----------
For the admission to the Partnership of any Partner, the General
Partner shall take all steps necessary and appropriate under the Act to
amend the records of the Partnership and, if necessary, to prepare as soon
as practical an amendment of this Agreement and, if required by law, shall
prepare and file an amendment to the Certificate and may for this purpose
exercise the power of attorney granted pursuant to Section 2.4 hereof.
ARTICLE 13
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution
-----------
Except as set forth in this Article 13, no Partner shall have the
right to dissolve the Partnership. The Partnership shall not be dissolved
by the admission of Substituted Limited Partners or Additional Limited
Partners or by the admission of a successor General Partner in accordance
with the terms of this Agreement. Upon the withdrawal of the General
Partner, any successor General Partner shall continue the business of the
Partnership. The Partnership shall dissolve, and its affairs shall be
wound up, upon the first to occur of any of the following ("Liquidating
Events"):
[A. the expiration of its term as provided in Section 2.5
hereof;]
B. (i) a final and non-appealable judgment is entered by a
court of competent jurisdiction ruling that the General Partner is bankrupt
or insolvent, or a final and non-appealable order for relief is entered by
a court with appropriate jurisdiction against the General Partner, in each
case under any federal or state bankruptcy or insolvency laws as now or
hereafter in effect, unless prior to the entry of such order or judgment
all of the remaining Partners agree in writing to continue the business of
the Partnership and to the appointment, effective as of a date prior to the
date of such order or judgment, of a substitute General Partner, or
(ii) any other event of withdrawal of the General Partner, as defined in
the Act (other than an event of bankruptcy), unless, within ninety (90)
days after such event of withdrawal all the remaining Partners agree in
writing to continue the business of the Partnership and to
<PAGE>
45
the appointment, effective as of the date of withdrawal, of a successor
General Partner;
C. on or after [December 31, 2015] an election to dissolve the
Partnership made by the General Partner, in its sole and absolute
discretion;
D. entry of a decree of judicial dissolution of the Partnership
pursuant to the provisions of the Act; or
E. the sale of all or substantially all of the assets and
properties of the Partnership.
Section 13.2 Winding Up
----------
A. Upon the occurrence of a Liquidating Event, the Partnership
shall continue solely for the purposes of winding up its affairs in an
orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is
inconsistent with, or not necessary to or appropriate for, the winding up
of the Partnership's business and affairs. The General Partner, or, in the
event there is no remaining General Partner, any Person elected by a
majority in interest of the Limited Partners (the General Partner or such
other Person being referred to herein as the "Liquidator") shall be
responsible for overseeing the winding up and dissolution of the
Partnership and shall take full account of the Partnership's liabilities
and property and the Partnership property shall be liquidated as promptly
as is consistent with obtaining the fair value thereof, and the proceeds
therefrom (which may, to the extent determined by the General Partner,
include shares of stock in the General Partner) shall be applied and
distributed in the following order:
(1) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than
the Partners;
(2) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General Partner;
(3) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the other Partners;
and
(4) The balance, if any, to the General Partner and Limited
Partners in accordance with their Capital Accounts, after
giving effect to all contributions, distributions, and
allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
<PAGE>
46
B. Notwithstanding the provisions of Section 13.2.A hereof
which require liquidation of the assets of the Partnership, but subject to
the order of priorities set forth therein, if prior to or upon dissolution
of the Partnership the Liquidator determines that an immediate sale of part
or all of the Partnership's assets would be impractical or would cause
undue loss to the Partners, the Liquidator may, in its sole and absolute
discretion, defer for a reasonable time the liquidation of any assets
except those necessary to satisfy liabilities of the Partnership (including
to those Partners as creditors) and/or distribute to the Partners, in lieu
of cash, as tenants in common and in accordance with the provisions of
Section 13.2.A hereof, undivided interests in such Partnership assets as
the Liquidator deems not suitable for liquidation. Any such distributions
in kind shall be made only if, in the good faith judgment of the
Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the
disposition and management of such properties as the Liquidator deems
reasonable and equitable and to any agreements governing the operation of
such properties at such time. The Liquidator shall determine the fair
market value of any property distributed in kind using such reasonable
method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro rata portion of
the distributions that would otherwise be made to the General Partner and
Limited Partners pursuant to this Article 13 may be:
1. distributed to a trust established for the benefit of
the General Partner and Limited Partners for the purposes of
liquidating Partnership assets, collecting amounts owed to the
Partnership, and paying any contingent or unforeseen liabilities
or obligations of the Partnership or of the General Partner
arising out of or in connection with the Partnership. The assets
of any such trust shall be distributed to the General Partner and
Limited Partners from time to time, in the reasonable discretion
of Liquidator, in the same proportions as the amount distributed
to such trust by the Partnership would otherwise have been
distributed to the General Partner and Limited Partners pursuant
to this Agreement; or
2. withheld or escrowed to provide a reasonable reserve
for Partnership liabilities (contingent or otherwise) and to
reflect the unrealized portion of any installment obligations
owed to the Partnership, provided that such withheld or escrowed
amounts shall be distributed to the General Partner and Limited
Partners in the manner and order of priority set forth in
Section 13.2.A as soon as practicable.
Section 13.3 Compliance with Timing Requirements of Regulations
--------------------------------------------------
In the event the Partnership is "liquidated" within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this
<PAGE>
47
Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-
1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in his Capital
Account (after giving effect to all contributions, distributions and
allocations for all taxable years, including the year during which such
liquidation occurs), such Partner shall have no obligation to make any
contribution to the capital of the Partnership with respect to such
deficit, and such deficit shall not be considered a debt owed to the
Partnership or to any other Person for any purpose whatsoever.
Section 13.4 Deemed Distribution and Recontribution
--------------------------------------
Notwithstanding any other provision of this Article 13, in the
event the Partnership is considered liquidated within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g) but no Liquidating Event has
occurred, the Partnership's property shall not be liquidated, the
Partnership's liabilities shall not be paid or discharged, and the
Partnership's affairs shall not be wound up. Instead, for federal income
tax purposes and purposes of maintaining Capital Accounts pursuant to
Exhibit A hereto, the Partnership shall be deemed to have distributed the
- ---------
property in kind to the General Partner and Limited Partners, who shall be
deemed to have assumed and taken such property subject to all Partnership
liabilities, all in accordance with their respective Capital Accounts.
Immediately thereafter, the General Partner and Limited Partners shall be
deemed to have recontributed the Partnership property in kind to the
Partnership, which shall be deemed to have assumed and taken such property
subject to all such liabilities.
Section 13.5 Rights of Limited Partners
--------------------------
Except as otherwise provided in this Agreement, each Limited
Partner shall look solely to the assets of the Partnership for the return
of its Capital Contributions and shall have no right or power to demand or
receive property other than cash from the Partnership. Except as otherwise
provided in this Agreement, no Limited Partner shall have priority over any
other Partner as to the return of its Capital Contributions, distributions,
or allocations.
Section 13.6 Notice of Dissolution
---------------------
In the event a Liquidating Event occurs or an event occurs that
would, but provisions of an election or objection by one or more Partners
pursuant to Section 13.1, result in a dissolution of the Partnership, the
General Partner shall, within thirty (30) days thereafter, provide written
notice thereof to each of the Partners.
<PAGE>
48
Section 13.7 Termination of Partnership and Cancellation of
Certificate of Limited Partnership
--------------------------------------------------
Upon the completion of the liquidation of the Partnership cash
and property as provided in Section 13.2 hereof, the Partnership shall be
terminated, a certificate of cancellation shall be filed, and all
qualifications of the Partnership as a foreign limited partnership in
jurisdictions other than the State of Delaware shall be canceled and such
other actions as may be necessary to terminate the Partnership shall be
taken.
Section 13.8 Reasonable Time for Winding-Up
------------------------------
A reasonable time shall be allowed for the orderly winding-up of
the business and affairs of the Partnership and the liquidation of its
assets pursuant to Section 13.2 hereof, in order to minimize any losses
otherwise attendant upon such winding-up, and the provisions of this
Agreement shall remain in effect between the Partners during the period of
liquidation.
Section 13.9 Waiver of Partition
-------------------
Each Partner hereby waives any right to partition of the
Partnership property.
Section 13.10 Liability of the Liquidator
---------------------------
The Liquidator shall be indemnified and held harmless by the
Partnership from and against any and all claims, demands, liabilities,
costs, damages and cause of action of any nature whatsoever arising out of
or incidental to the Liquidator's taking of any action authorized under or
within the scope of this Agreement; provided, however, that the Liquidator
-------- -------
shall not be entitled to indemnification, and shall not be held harmless,
where the claim, demand, liability, cost, damage or cause of action at
issue arises out of:
(i) a matter entirely unrelated to the Liquidator's action or
conduct pursuant to the provisions of this Agreement; or
(ii) the proven willful misconduct or gross negligence of the
Liquidator.
<PAGE>
49
ARTICLE 14
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
----------
A. Amendments to this Agreement may be proposed by the General
Partner or by any Limited Partners holding twenty-five percent (25%) or
more of the Partnership Interests. Following such proposal, the General
Partner shall submit any proposed amendment to the Limited Partners.
Subject to Section 14.2.B, the General Partner shall seek the written vote
of the Partners on the proposed amendment or shall call a meeting to vote
thereon and to transact any other business that it may deem appropriate.
For purposes of obtaining a written vote, the General Partner may require a
response within a reasonable specified time, but not less than fifteen (15)
days, and failure to respond in such time period shall constitute a vote
which is consistent with the General Partner's recommendation with respect
to the proposal. Except as provided in Section 14.1.B, 14.1.C or 14.1.D, a
proposed amendment shall be adopted and be effective as an amendment hereto
if it is approved by the General Partner and it receives the Consent of
Partners holding a majority of the Percentage Interests of the Limited
Partners (including Limited Partner Interests held by the General Partner).
B. Notwithstanding Section 14.1.A, the General Partner shall
have the power, without the consent of the Limited Partners, to amend this
Agreement as may be required to facilitate or implement any of the
following purposes:
(1) to add to the obligations of the General Partner or
surrender any right or power granted to the General Partner
or any Affiliate of the General Partner for the benefit of
the Limited Partners;
(2) to reflect the admission, substitution, termination, or
withdrawal of Partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and
preferences of the holders of any additional Partnership
Interests issued pursuant to Section 4.1.A hereof;
(4) to reflect a change that does not adversely affect any of
the Limited Partners in any material respect, or to cure any
ambiguity, correct or supplement any provision in this
Agreement not inconsistent with law or with other
provisions, or make other changes with respect to matters
arising under this Agreement that will not be inconsistent
with law or with the provisions of this Agreement; and
<PAGE>
50
(5) to satisfy any requirements, conditions, or guidelines
contained in any order, directive, opinion, ruling or
regulation of a federal or state agency or contained in
federal or state law.
The General Partner shall provide notice to the Limited Partners when any
action under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this
Agreement shall not be amended without the Consent of each Partner
adversely affected if such amendment would (i) convert a Limited Partner's
interest in the Partnership into a general partner interest, (ii) modify
the limited liability of a Limited Partner in a manner adverse to such
Limited Partner, (iii) alter rights of the Partner to receive distributions
pursuant to Article 5, or the allocations specified in Article 6 (except as
permitted pursuant to Section 4.1 and Section 14.1.B(3) hereof) in a manner
adverse to such Partner, (iv) alter or modify the Redemption Right and
CapStar Shares Amount as set forth in Sections 8.6, and related definitions
hereof, (v) cause the termination of the Partnership prior to the time set
forth in Sections [2.5 or] 13.1, or (vi) amend this Section 14.1.C.
Further, no amendment may alter the restrictions on the General Partner's
authority set forth in Section 7.3 without the Consent specified in that
section.
D. Notwithstanding Section 14.l.A or Section 14.l.B hereof, the
General Partner shall not amend Sections 4.1.A, 7.5, 7.6, 11.2 or 14.2
without the Consent of a majority of the Percentage Interests of the
Limited Partners excluding Limited Partnership Interests held directly or
indirectly by the General Partner.
Section 14.2 Meetings of the Partners
------------------------
A. Meetings of the Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a
request by Limited Partners holding twenty-five percent (25%) or more of
the Partnership Interests. The call shall state the nature of the business
to be transacted. Notice of any such meeting shall be given to all
Partners not less than seven (7) days nor more than thirty (30) days prior
to the date of such meeting. Partners may vote in person or by proxy at
such meeting. Whenever the vote or Consent of the Partners is permitted or
required under this Agreement, such vote or Consent may be given at a
meeting of the Partners or may be given in accordance with the procedure
prescribed in Section 14.1.A hereof. Except as otherwise expressly
provided in this Agreement, the Consent of holders of a majority of the
Percentage Interests held by Limited Partners (including Limited
Partnership Interests held by the General Partner) shall control.
B. Any action required or permitted to be taken at a meeting of
the Partners may be taken without a meeting if a written consent setting
forth the action so taken is signed by a majority of the Percentage
Interests of the Partners (or such
<PAGE>
51
other percentage as is expressly required by this Agreement such consent
may be in one instrument or in several instruments, and shall have the same
force and effect as a vote of a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An
action so taken shall be deemed to have been taken at a meeting held on the
effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Limited Partner is entitled
to participate, including waiving notice of any meeting, or voting or
participating at a meeting. Every proxy must be signed by the Limited
Partner or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven (11) months from the date thereof unless otherwise
provided in the proxy. Every proxy shall be revocable at the pleasure of
the Limited Partner executing it, such revocation to be effective upon the
Partnership's receipt of written notice of such revocation from the Limited
Partner executing such proxy.
D. Each meeting of Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to
such rules for the conduct of the meeting as the General Partner or such
other Person deems appropriate in its sole discretion. Without limitation,
meetings of Partners may be conducted in the same manner as meetings of the
shareholders of the General Partner and may be held at the same time as,
and as part of, meetings of the shareholders of the General Partner.
ARTICLE 15
GENERAL PROVISIONS
Section 15.1 Addresses and Notice
--------------------
Any notice, demand, request or report required or permitted to be
given or made to a Partner or Assignee under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when
sent by first class United States mail or by other means of written
communication to the Partner or Assignee. Such communications shall be
deemed sufficiently given, served, sent or received for all purposes at
such time as delivered to the addressee (with the return receipt or
delivery receipt being deemed conclusive evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
<PAGE>
52
Section 15.2 Titles and Captions
-------------------
All article or section titles or captions in this Agreement are
for convenience only. They shall not be deemed part of this Agreement and
in no way define, limit, extend or describe the scope or intent of any
provisions hereof. Except as specifically provided otherwise, references
to "Articles" and "Sections" are to Articles and Sections of this
Agreement.
Section 15.3 Pronouns and Plurals
--------------------
Whenever the context may require, any pronoun used in this Agree-
ment shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural
and vice versa.
Section 15.4 Further Action
--------------
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
--------------
This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their heirs, executors, administrators, successors,
legal representatives and permitted assigns.
Section 15.6 Creditors
---------
Other than as expressly set forth herein with respect to the
Indemnitees, none of the provisions of this Agreement shall be for the
benefit of, or shall be enforceable by, any creditor of the Partnership.
Section 15.7 Waiver
------
No failure by any party to insist upon the strict performance of
any covenant, duty, agreement or condition of this Agreement or to exercise
any right or remedy consequent upon a breach thereof shall constitute
waiver of any such breach or any other covenant, duty, agreement or
condition.
Section 15.8 Counterparts
------------
This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on an the parties hereto,
notwithstanding that
<PAGE>
53
all such parties are not signatories to the original or the same
counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9 Applicable Law
--------------
This Agreement shall be construed and enforced in accordance with
and governed by the laws of the State of Delaware, without regard to the
principles of conflicts of law.
Section 15.10 Invalidity of Provisions
------------------------
If any provision of this Agreement is or becomes invalid, illegal
or unenforceable in any respect, the validity, legality and enforceability
of the remaining provisions contained herein shall not be affected thereby.
Section 15.11 Entire Agreement
----------------
This Agreement contains the entire understanding and agreement
among the Partners with respect to the subject matter hereof and supersedes
any other prior written or oral understandings or agreements among them
with respect thereto.
Section 15.12 No Rights as Shareholders
-------------------------
Nothing contained in this Agreement shall be construed as
conferring upon the holders of the Partnership Units any rights whatsoever
as shareholders of the General Partner, including without limitation any
right to receive dividends or other distributions made to shareholders of
the General Partner or to vote or to consent or to receive notice as
shareholders in respect of any meeting of shareholders for the election of
directors of the General Partner or any other matter.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement under seal as of the date first written above.
AS NEW GENERAL PARTNER:
CAPSTAR HOTEL INVESTORS, INC.
___________________________________
By:
Title:
AS WITHDRAWING GENERAL PARTNER
CAPSTAR G.P. CORP.
___________________________________
By:
Title:
AS LIMITED PARTNER:
CAPSTAR LP CORPORATION
___________________________________
By:
Title:
<PAGE>
EXHIBIT A
CAPITAL ACCOUNT MAINTENANCE
1. Capital Accounts of the Partners.
--------------------------------
A. The Partnership shall maintain for each Partner a separate
Capital Account in accordance with the rules of Regulations Section 1.704-
1(b)(2)(iv). Such Capital Account shall be increased by (i) the amount of
all Capital Contributions and any other deemed contributions made by such
Partner to the Partnership pursuant to this Agreement and (ii) all items of
Partnership income and gain (including income and gain exempt from tax)
computed in accordance with Section 1.B hereof and allocated to such
Partner pursuant to Section 6.1.A of the Agreement and Exhibit B hereof,
---------
and decreased by (x) the amount of cash or Agreed Value of all actual and
deemed distributions of cash or property made to such Partner pursuant to
this Agreement and (y) all items of Partnership deduction and loss computed
in accordance with Section 1.B hereof and allocated to such Partner
pursuant to Section 6.1.B of the Agreement and Exhibit B hereof.
---------
B. For purposes of computing the amount of any item of income,
gain, deduction or loss to be reflected in the Partners' Capital Accounts,
unless otherwise specified in this Agreement, the determination,
recognition and classification of any such item shall be the same as its
determination, recognition and classification for federal income tax
purposes determined in accordance with Section 703(a) of the Code (for this
purpose all items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Code shall be included in
taxable income or loss), with the following adjustments:
(1) Except as otherwise provided in Regulations Section 1.704-
1(b)(2)(iv)(m), the computation of all items of income,
gain, loss and deduction shall be made without regard to any
election under Section 754 of the Code which may be made by
the Partnership, provided that the amounts of any
adjustments to the adjusted bases of the assets of the
Partnership made pursuant to Section 734 of the Code as a
result of the distribution of property by the Partnership to
a Partner (to the extent that such adjustments have not
previously been reflected in the Partners' Capital Accounts)
shall be reflected in the Capital Accounts of the Partners
in the manner and subject to the limitations prescribed in
Regulations Section 1.704-1(b)(2)(iv)(m)(4).
(2) The computation of all items of income, gain, and deduction
shall be made without regard to the fact that items
described in Sections 705(a)(1)(B) or 705(a)(2)(B) of the
Code are not
<PAGE>
includable gross income or are neither currently deductible
nor capitalized for federal income tax purposes.
(3) Any income, gain or loss attributable to the taxable
disposition of any Partnership property shall be determined
as if the adjusted basis of such property as of such date of
disposition were equal in amount to the Partnership's
Carrying Value with respect to such property as of such
date.
(4) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account
Depreciation for such fiscal year.
(5) In the event the Carrying Value of any Partnership Asset is
adjusted pursuant to Section 1.D hereof, the amount of any
such adjustment shall be taken into account as gain or loss
from the disposition of such asset.
(6) Any items specifically allocated under Section 2 of Exhibit
-------
B hereof shall not be taken into account.
-
C. Generally, a transferee (including an Assignee) of a
Partnership Unit shall succeed to a pro rata portion of the Capital Account
of the transferor; provided, however, that, if the transfer causes a
-------- -------
termination of the Partnership under Section 708(b)(1)(B) of t he Code, the
Partnership's properties shall be deemed solely for federal income tax
purposes, to have been distributed in liquidation of the Partnership to the
holders of Partnership Units (including such transferee) and recontributed
by such Persons in reconstitution of the Partnership. In such event, the
Carrying Values of the Partnership properties shall be adjusted immediately
prior to such deemed distribution pursuant to Section 1.D(2) hereof. The
Capital Account of such reconstituted Partnership shall be maintained in
accordance with principles of this Exhibit A.
---------
D. (1) Consistent with the provisions of Regulations Section
1.704-1(b)(2)(iv)(f), and as provided in Section 1.D(2), the
Carrying Values of all Partnership assets shall be adjusted
upward or downward to reflect any Unrealized Gain or
Unrealized Loss attributable to such Partnership property,
as of the times of the adjustments provided in Section
1.D(2) hereof, as if such Unrealized Gain or Unrealized Loss
had been recognized on an actual sale of each such property
and allocated pursuant to Section 6.1 of the Agreement.
<PAGE>
(2) Such adjustments shall be made as of the following times:
(a) immediately prior to the acquisition of an additional
interest in the Partnership by any new or existing Partner
in exchange for more than a de minimis Capital Contribution;
(b) immediately prior to the distribution by the Partnership
to a Partner of more than a de minimis amount of property as
consideration for an interest in the Partnership; and (c)
immediately prior to the liquidation of the Partnership
within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g), provided, however, that adjustments pursuant
-------- -------
to clauses (a) and (b) above shall be made only if the
General Partner determines that such adjustments are
necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership.
(3) In accordance with Regulations Section 1.704-1(b)(2)(iv)(e),
the Carrying Value of Partnership assets distributed in kind
shall be adjusted upward or downward to reflect any
Unrealized Gain or Unrealized Loss attributable to such
Partnership property, as of the time any such asset is
distributed.
(4) In determining Unrealized Gain or Unrealized Loss for
purposes of this Exhibit A, the aggregate cash amount and
---------
fair market value of all Partnership assets (including cash
or cash equivalents) shall be determined by the General
Partner using such reasonable method of valuation as it may
adopt, or in the case of a liquidating distribution pursuant
to Article 13 of the Agreement, shall be determined and
allocated by the Liquidator using such reasonable methods of
valuation as it may adopt. The General Partner, or the
Liquidator, as the case may be, shall allocate such
aggregate value among the assets of the Partnership (in such
manner as it determines in its sole and absolute discretion
to arrive at a fair market value for individual properties).
E. The provisions of this Agreement (including this Exhibit A
---------
and the other Exhibits to this Agreement) relating to the maintenance of
Capital Accounts are intended to comply with Regulations Section 1.704-
1(b), and shall be interpreted and applied in a manner consistent with such
Regulations. In the event the General Partner shall determine that it is
prudent to modify the manner in which the Capital Accounts, or any debits
or credits thereto (including, without limitation, debits or credits
relating to liabilities which are secured by contributed or distributed
property or which are assumed by the Partnership, the General Partner, or
the Limited Partners) are computed in order to comply with such
Regulations, the General Partner may make such modification without regard
to Article 14 of the Agreement, provided that it is not likely to have a
material effect on the amounts distributable to any
<PAGE>
Person pursuant to Article 13 of the Agreement upon the dissolution of the
Partnership. The General Partner also shall (i) make any adjustments that
are necessary or appropriate to maintain equality between the Capital
Accounts of the Partners and the amount of Partnership capital reflected on
the Partnership's balance sheet, as computed for book purposes, in
accordance with Regulation's balance sheet, as computed for book purposes,
in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make
any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
2. No Interest.
-----------
No interest shall be paid by the Partnership on Capital
Contributions or on balance in Partners' Capital Accounts.
3. No Withdrawal
-------------
No Partner shall be entitled to withdraw any part of his Capital
Contribution or his Capital Account or to receive any distribution from the
Partnership, except as provided in Articles 4, 5, 7 and 13 of the
Agreement.
<PAGE>
EXHIBIT B
SPECIAL ALLOCATION RULES
1. Special Allocation Rules.
------------------------
Notwithstanding any other provision of the Agreement or this
Exhibit B, the following special allocations shall be made in the following
- ---------
order:
A. Minimum Gain Chargeback. Notwithstanding the provisions of
-----------------------
Section 6.1 of the Agreement or any other provisions of this Exhibit B, if
---------
there is a net decrease in Partnership Minimum Gain during any Partnership
Year, each Partner shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, subsequent years) in an amount
equal to such Partner's share of the net decrease in Partnership Minimum
Gain, as determined under Regulations Section 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(f)(6). This Section 1.A is intended to
comply with the minimum gain chargeback requirements in Regulations
Section 1.704-2(f) and for purposes of this Section 1.A only, each
Partner's Adjusted Capital Account Deficit shall be determined prior to any
other allocations pursuant to Section 6.1 of this Agreement with respect to
such Partnership Year and without regard to any decrease in Partner Minimum
Gain during such Partnership Year.
B. Partnership Minimum Gain Chargeback. Notwithstanding any
-----------------------------------
other provision of Section 6.1 of this Agreement or any other provisions of
this Exhibit B (except Section 1.A hereof), if there is a net decrease in
---------
Partner Minimum Gain attributable to a Partner Nonrecourse Debt during any
Partnership Year, each Partner who has a share of the Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance
with Regulations Section 1.704-2(i)(5), shall be specifically allocated
items of Partnership income and gain for such year (and, if necessary,
subsequent years) in an amount equal to such Partner's share of the net
decrease in Partner Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Regulations Section 1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion
to the respective amounts required to be allocated to each General Partner
and Limited Partner pursuant thereto. The items to be so allocated shall
be determined in accordance with Regulations Section 1.704-2(i)(4). This
Section 1.B is intended to comply with the minimum gain chargeback
requirement in such Section of the Regulations and shall be interpreted
consistently therewith. Solely for purposes of this Section 1.B, each
Partner's Adjusted Capital Account Deficit shall be determined prior to any
other allocations pursuant to Section 6.1 of the Agreement or this Exhibit
with respect to such Partnership Year, other than allocations pursuant to
Section 1.A hereof.
<PAGE>
C. Qualified Income Offset. In the event any Partner
-----------------------
unexpectedly receives any adjustments, allocations or distributions
described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), and after giving effect to
the allocations required under Section 1.A and 1.B hereof, such Partner has
an Adjusted Capital Account Deficit, items of Partnership income and gain
(consisting of a pro rata portion of each item of Partnership income,
including gross income and gain for the Partnership Year) and shall be
specifically allocated to such Partner in an amount and manner sufficient
to eliminate, to the extent required by the Regulations, its Adjusted
Capital Account Deficit created by such adjustments, allocations or
distributions as quickly as possible. This Section 1.C is intended to
constitute a "qualified income offset" under Regulations Section 1.704-
1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
D. Nonrecourse Deductions. Nonrecourse Deductions for any
----------------------
Partnership Year shall be allocated to the Partners in accordance with
their respective Percentage Interests. If the General Partner determines
in its good faith discretion that the Partnership's Nonrecourse Deductions
must be allocated in a different ratio to satisfy the safe harbor
requirements of the Regulations promulgated under Section 704(b) of the
Code, the General Partner is authorized, upon notice to the Limited
Partners, to revise the prescribed ratio for such Partnership Year to the
numerically closest ratio which would satisfy such requirements.
E. Partner Nonrecourse Deductions. Any Partner Nonrecourse
------------------------------
Deductions for any Partnership Year shall be specially allocated to the
Partner who bears the economic risk of loss with respect to the Partner
Nonrecourse Debt to which such Partner Nonrecourse Deductions are
attributable in accordance with Regulations Sections 1.704-2(b)(4) and
1.704-2(i).
F. Code Section 754 Adjustments. To the extent an adjustment
----------------------------
to the adjusted tax basis of any Partnership asset pursuant to
Section 734(b) or 743(b) of the Code is required, pursuant to Regulations
Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of such adjustment to the Capital Accounts
shall be treated as an item of gain (if the adjustment increases the basis
of the asset) or loss (if the adjustment decreases such basis), and such
item of gain or loss shall be specially allocated to the Partners in a
manner consistent with the manner in which their Capital Accounts are
required to be adjusted pursuant to such Section of the Regulations.
2. Allocations for Tax Purposes
----------------------------
A. Except as otherwise provided in this Section 2, for federal
income tax purposes, each item of income, gain, loss and deduction shall be
allocated among the Partners in the same manner as its correlative item of
"book" income, gain, loss or deduction is allocated pursuant to Section 6.1
of the Agreement and Section 1 of this Exhibit B.
---------
<PAGE>
B. In an attempt to eliminate Book-Tax Disparities attributable
to a Contributed Property or Adjusted Property, items of income, gain,
loss, and deduction shall be allocated for federal income tax purposes
among the Partners as follows:
(i) (a) In the case of a Contributed Property, such items
attributable thereto shall be allocated among the
Partners consistent with the principles of
Section 704(c) of the Code to take into account the
variation between the 704(c) Value of such property and
its adjusted basis at the time of contribution (taking
into account Section 2.C of this Exhibit B); and
---------
(b) any item of Residual Gain or Residual Loss attributable
to a Contributed Property shall be allocated among the
Partners in the same manner as its correlative item of
"Book" gain or loss is allocated pursuant to
Section 6.1 of the Agreement and Section 1 of this
Exhibit B.
---------
(ii) (a) In the case of and Adjusted Property, such items shall
(1) first, be allocated among the Partners in a manner
consistent with the principles of Section 704(c) of the
Code to take into account the Unrealized Gain or
Unrealized Loss attributable to such property and the
allocations thereof pursuant to Exhibit A. and
---------
(2) second, in the event such property was originally
a Contributed Property, be allocated among the Partners
in a manner consistent with Section 2.B(1) of this
Exhibit B; and
---------
(b) any item of Residual Gain or Residual Loss attributable
to an Adjusted Property shall be allocated among the
Partners in the same manner its correlative item of
"book" gain or loss is allocated pursuant to
Section 6.1 of the Agreement and Section 1 of the
Exhibit B.
---------
(iii) all other items of income, gain, loss and deduction shall be
allocated among the Partner the same manner as their
correlative item of "book" gain or loss is allocated
pursuant to Section 6.1 of the Agreement and Section 1 of
the Exhibit B.
---------
C. To the extent Treasury Regulations promulgated pursuant to
Section 704(c) of the Code permit a Partnership to utilize alternative
methods to eliminate the disparities between the Carrying Value of property
and its adjusted basis, the General
<PAGE>
Partner shall, subject to the following, have the authority to elect the
method to be used by the partnership and such election shall be binding on
all Partners. With respect to the Contributed Property transferred to the
Partnership on or about the Effective Date, the Partnership shall elect to
use the "traditional method" set forth in Treasury Regulations Sec. 1.704-
3(b).
<PAGE>
EXHIBIT C
VALUE OF CONTRIBUTED PROPERTY
Underlying 704(c) Value Agreed Value
---------- ------------ ------------
Property
--------
Total
<PAGE>
EXHIBIT D
FORM OF NOTICE OF REDEMPTION
The undersigned hereby irrevocably (i) redeems _______
Partnership Units in CapStar Management Company, L.P. in accordance with
the terms of the Limited Partnership Agreement of CapStar Management
Company, L.P. and the Redemption Right referred to therein, (ii) surrenders
such Limited Partnership Units and all right, title and interest therein,
and (iii) directs that the Cash Amount or CapStar Shares Amount (as
determined by the General Partner) deliverable upon exercise of the
Redemption Right be delivered to the addresses specified below, and if
CapStar Shares are to be delivered, such CapStar Shares be registered or
placed in the name(s) and at the address(es) specified below. The
undersigned hereby represents, warrants, and certifies, that the
undersigned (a) has marketable and unencumbered title to such Partnership
Units, free and clear of the rights of or interests of any other person or
entity, (b) has the full right, power and authority to redeem and surrender
such Partnership Units as provided herein, and (c) has obtained the consent
or approval of all persons or entities, if any, having the right to consult
or approve such redemption and surrender.
Dated:
Name of Limited Partner:
__________________________________
(Signature of Limited Partner)
__________________________________
(Street Address)
__________________________________
(City, State, Zip Code)
Signature Guaranteed by:
__________________________________
If CapStar Shares are to be issued, issue to:
Name:
Please insert social security or identifying number:
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Partners
EquiStar Hotel Investors, L.P. and CapStar Management Company, L.P.:
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Washington, D.C.
July 31, 1996
EXHIBIT 23.2
[BOBER, MARKEY & COMPANY LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
As independent auditors, we hereby consent to the use of our report dated April
30, 1996 with respect to the Cleveland Holiday Inn and Affiliate in this
Amendment No. 1 to Registration Statement on Form S-1 filed by CapStar Hotel
Investors, Inc. We also consent to the reference to us under the heading
"Experts" in the Prospectus, which is part of such Registration Statement.
/s/ BOBER, MARKEY & COMPANY
BOBER, MARKEY & COMPANY
Akron, Ohio
July 31, 1996
EXHIBIT 23.4
July 30, 1996
To Whom it May Concern:
I hereby consent to the use of my name as a person to be named to the Board of
Directors of CapStar Hotel Company (the "Company"), on the Company's Form S-1,
and any amendments thereto, in connection with the Company's registration
statement related to the initial public offering of common stock by the
Company.
- ------------------------------------------------------------------------------
Printed Name Signature
/s/ Edward L. Cohen
EXHIBIT 23.5
July 30, 1996
To Whom It May Concern:
I hereby consent to the use of my name as a person to be named to the Board of
Directors of CapStar Hotel Company (the "Company"), on the Company's Form S-1,
and any amendments thereto, in connection with the Company's registration
statement related to the initial public offering of common stock by the
Company.
- ----------------------------------------------------------------------------
Printed Name Signature
/s/ EDWIN T. BURTON, III