<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-35717
PROSPECTUS
[LOGO]
OFFER TO EXCHANGE ITS 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007 WHICH
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR ANY AND ALL OF ITS
OUTSTANDING 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM, NEW YORK CITY TIME ON NOVEMBER 28,
1997,
UNLESS EXTENDED.
CapStar Hotel Company ("CapStar" or the "Company") hereby offers to exchange
up to $150,000,000 aggregate principal amount of its 8 3/4% Senior Subordinated
Notes due 2007 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for a like principal
amount of its 8 3/4% Senior Subordinated Notes due 2007 outstanding on the date
hereof (the "Existing Notes") upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the "Exchange Offer"). The terms of the New Notes are
identical in all material respects to those of the Existing Notes, except for
certain transfer restrictions and registration rights relating to the Existing
Notes. The New Notes will be issued pursuant to, and entitled to the benefits
of, the indenture, dated as of August 19, 1997 (the "Indenture"), between the
Company and IBJ Schroder Bank & Trust Company, as trustee, governing the
Existing Notes. The Existing Notes and New Notes outstanding under the Indenture
at any time are referred to collectively as the "Notes."
Interest on the Notes will be payable semi-annually on February 15 and
August 15 of each year, commencing February 15, 1998. The Notes will be
redeemable at the option of the Company, in whole or in part, at any time on or
after August 15, 2002, at the redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages (as defined herein), if any, to the
date of redemption. At any time prior to August 15, 2000, the Company may, at
its option, redeem up to 35% of the aggregate principal amount of the Notes
originally issued with the net cash proceeds of one or more Public Equity
Offerings (as defined herein) at a redemption price equal to 108.750% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption; provided that at least 65% of the
original principal amount of the Notes remains outstanding immediately after
each such redemption. In addition, prior to August 15, 2002, the Company, at its
option, may redeem the Notes, in whole or in part, at a redemption price equal
to the Make-Whole Price (as defined herein), plus accrued and unpaid interest
and Liquidated Damages, if any, to the date of redemption. See "Description of
Notes--Optional Redemption."
In the event of a Change of Control (as defined herein), each holder of the
Notes will have the right to require the Company to purchase all or any part of
such holder's Notes at a purchase price in cash equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase. See "Description of Notes--Repurchase
at the Option of Holders--Change of Control."
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Debt (as
defined herein) of the Company. The Notes are also effectively subordinated to
all obligations of the Company's Subsidiaries (as defined herein), including
without limitation trade payables in the ordinary course. On a pro forma basis,
the Company would have approximately $468.4 million of Indebtedness (as defined
herein) outstanding, including $77.8 million of Senior Debt and $68.2 million of
non-recourse indebtedness of Unrestricted Subsidiaries (as defined herein) of
the Company. See "Description of Notes--Subordination," "--Subsidiary
Guarantees" and "Description of Certain Indebtedness."
---------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS," BEGINNING ON PAGE 14.
-------------------
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 New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in two separate Registration Rights
Agreements, each dated as of August 14, 1997 (the "Registration Rights
Agreements"), among (i) the Company and Lehman Brothers Inc., as the initial
purchaser of the Existing Notes (the "Initial Purchaser") and (ii) the Company
and Oak Hill Securities Fund, L.P., as a direct purchaser of the Existing Notes
("OHSF" or the "Direct Purchaser").
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Existing Notes pursuant to the Exchange Offer may be withdrawn at any time prior
to the Expiration Date (as defined herein) for the Exchange Offer. The Company
expressly reserves the right to terminate or amend the Exchange Offer and not to
accept for exchange any Existing Notes not theretofore accepted for exchange
upon the occurrence of any of the events specified under "The Exchange
Offer--Conditions to the Exchange Offer." If any such termination or amendment
occurs, the Company will notify IBJ Schroder Bank & Trust Company (in such
capacity, the "Exchange Agent") and will either issue a press release or give
oral or written notice to the holders of the Existing Notes as promptly as
practicable. The Exchange Offer will expire at 5:00 pm, New York City time, on
November 28, 1997, unless the Company, in its sole discretion, has extended the
period of time for which the Exchange Offer is open. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Existing
Notes with respect to the Exchange Offer, the Company will promptly return such
Existing Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal (as
defined herein) states that by so acknowledging and by delivery of a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Existing Notes where such
Existing Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of 180 days after the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. The Company currently does not intend to list the New Notes on
any securities exchange or to seek approval for quotation through any automatic
quotation system and no active public market for the New Notes is currently
anticipated. There can be no assurance that an active public market for the New
Notes will develop.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange pursuant to the Exchange Offer.
---------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE NEW NOTES OR EXISTING NOTES BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH
AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR THE
EXCHANGE PROPOSED TO BE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
THIS EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
October 28, 1997
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can 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 at the Commission's Regional Offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials can also be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such materials can also be inspected on the Internet at
http://www.sec.gov. The common stock of the Company (the "Common Stock") is
listed on the New York Stock Exchange ("NYSE") and reports, proxy statements and
other information concerning the Company can be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto and reference is
hereby made to the Registration Statement and the exhibits and schedules thereto
for further information with respect to the Company and the securities offered
hereby. Statements contained herein concerning the provisions of any documents
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete.
Pursuant to the Indenture, the Company has agreed to provide the Trustee and
holders of the Notes with annual, quarterly and other reports at the times and
containing in all material respects the information specified in Sections 13 and
15(d) of the Exchange Act and to file such reports with the Commission, whether
or not the Company is subject to such filing requirements.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1996; (ii)
the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997; (iii) the Company's Current Reports on Form 8-K filed
December 31, 1996, as amended; April 4, 1997; July 30, 1997, as amended; August
13, 1997; September 2, 1997; September 8, 1997; September 9, 1997, as amended;
September 18, 1997; September 22, 1997(two); and October 15, 1997; and (iv) the
description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A (Commission File No. 1-12017) filed August 2,
1996.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering
made hereby, shall be deemed incorporated by reference in this Prospectus and to
be a part of this Prospectus from the date of the filing of such reports.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
exhibits expressly incorporated in such documents by reference). Requests should
be directed to: CapStar Hotel Company, 1010 Wisconsin Avenue, N.W., Suite 650,
Washington, D.C. 20007, (202) 965-4455, Attention: John Emery, Corporate
Secretary.
ii
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES HEREIN TO "CAPSTAR" OR THE
"COMPANY" INCLUDE CAPSTAR HOTEL COMPANY AND ITS SUBSIDIARIES (INCLUDING THE
COMPANY'S SUBSIDIARY OPERATING PARTNERSHIPS, THROUGH WHICH THE COMPANY OPERATES
ALL OF ITS BUSINESSES).
THE COMPANY
CapStar Hotel Company owns and manages hotels throughout the United States
and Canada. CapStar currently owns and/or manages 69 hotels which contain 15,449
rooms (the "Hotels"). Of the Hotels, the Company owns and manages 41 upscale,
full-service hotels which contain 10,521 rooms (the "Owned Hotels") and manages
an additional 28 hotels owned by third parties which contain 4,928 rooms (the
"Managed Hotels"). The Owned Hotels are located in markets that have recently
experienced strong economic growth, including Albuquerque, Atlanta, Charlotte,
Chicago, Cleveland, Dallas, Denver, Houston, Los Angeles, Salt Lake City,
Seattle and Washington, D.C. The Owned Hotels include hotels operated under
nationally recognized brand names such as Hilton-Registered Trademark-,
Sheraton-Registered Trademark-, Westin-Registered Trademark-,
Marriott-Registered Trademark-, Doubletree-Registered Trademark- and Embassy
Suites-Registered Trademark-. The Company's business strategy is to 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.
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, with an average of 19 years of lodging industry experience, has
successfully managed hotels in all segments of the lodging industry, with
particular emphasis on upscale, full-service hotels. Since the inception of the
Company's management business in 1987, the Company has achieved consistent
revenue and portfolio growth, even during periods of relative industry weakness.
The Company attributes its management success to its ability to analyze each
hotel as a unique property and identify those particular cash flow growth
opportunities which each hotel presents. The Company's principal operating
objectives are to generate higher revenue per available room ("RevPAR") and to
increase net operating income while providing its hotel guests with high-quality
service and value.
Key elements of the Company's management programs include the following:
COMPREHENSIVE BUDGETING AND MONITORING. Management and on-site managers set
targets for cost and revenue categories at each of the Hotels based on
historical operating performance, planned renovations, operational efficiencies
and local market conditions. 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 improve revenue 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. The Company employs computerized revenue yield
management systems to manage each Hotel's use of the various distribution
channels in the lodging industry.
STRATEGIC CAPITAL IMPROVEMENTS. The Company plans renovations primarily to
enhance each Hotel's appeal to targeted market segments, thereby attracting new
customers and generating increased revenue and cash flow. 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
1
<PAGE>
brands based on local market factors such as local presence of the franchisor,
brand recognition, target demographics and efficiencies offered by franchisors.
EMPHASIS ON FOOD AND BEVERAGE. 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.
COMMITMENT TO REINVESTMENT. The Company is committed to reinvesting
adequate capital on an ongoing basis to maintain the quality of hotels it owns.
Reinvestment is expected to include room and facilities refurbishment,
renovations and furniture and equipment replacements that are designed to
maintain attractive accommodations, updated restaurants and modern equipment.
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. By having the latest hotel
operating data 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's practice of tracking customer comments allows investment in services
and amenities where they are most effective.
DISTINCT MANAGEMENT CULTURE. The Company has a distinct management culture
that stresses creativity, loyalty and entrepeneurship and was developed to
emphasize operations from an owner's perspective. Incentive programs and awards
have been established to encourage individual property managers to seek new ways
of increasing revenues and operating cash flow. The culture is reinforced by the
fact that 33 members of management hold, directly or indirectly, an aggregate of
5.1% of the common stock of the Company (the "Common Stock"). See "Principal
Stockholders."
The Company believes that the upscale, full-service segment of the lodging
industry is the most attractive segment in which to own, manage and acquire
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. 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.
2
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RECENT DEVELOPMENTS
FINANCING ACTIVITIES
The Company completed its initial public offering (the "IPO") in August 1996
at a price of $18.00 per share, generating net proceeds of approximately $110.1
million to the Company. In March 1997, the Company completed a follow-on equity
offering (the "March 1997 Offering") at a price of $24.75 per share, generating
net proceeds of approximately $134.1 million to the Company.
In July 1997, the Company entered into a $450.0 million senior secured
credit facility (the "1997 Credit Facility") with Lehman Brothers Holdings Inc.
("Lehman Holdings"), an affiliate of Lehman Brothers Inc., BankBoston, N.A.,
Bankers Trust Company and Wells Fargo Bank, N.A., as agents (together, the
"Banks"). The 1997 Credit Facility is structured as a $350.0 million, 5-year
revolving credit facility and a $100.0 million, 7-year term loan facility. The
proceeds of the 1997 Credit Facility have been and will be used to fund new
acquisitions, repay outstanding indebtedness and for general corporate purposes.
See "Description of Certain Indebtedness" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
In August 1997, the Company completed the offering of the Existing Notes
(the "Offering") in the aggregate principal amount of $150.0 million, generating
net proceeds of approximately $145.0 million to the Company. In addition, in
August 1997, the Company entered into a $100.0 million non-recourse credit
facility (the "Non-Recourse Facility") with Lehman Holdings. The Non-Recourse
Facility has an 18-month term and bears interest at a rate of between 175 and
270 basis points over 30-day LIBOR, based upon certain debt service ratios. The
Non-Recourse Facility has been utilized to fund new hotel acquisitions in a
tax-efficient manner.
In October 1997, the Company completed the offering of 5,953,722 shares of
Common Stock (the "October 1997 Equity Offering" and, together with the IPO and
the March 1997 Offering, the "Common Stock Offerings") at a price of 34.625 per
share, generating net proceeds of approximately $195.9 million to the Company.
Simultaneously with the October 1997 Equity Offering, the Company completed the
offering of $172.5 million aggregate principal amount of its 4.75% Convertible
Subordinated Notes due 2004 (the "Convertible Notes"), generating net proceeds
of the $167.9 million to the Company (the "October 1997 Debt Offering ").
RECENT ACQUISITIONS AND INVESTMENTS
At the time of the IPO, the Company owned 12 upscale, full-service hotels,
containing 3,516 rooms. Since the IPO, the Company has significantly expanded
its portfolio by completing the purchase of 29 upscale, full-service hotels
containing 7,005 rooms for an aggregate purchase price, including planned
initial renovations (the "Acquisition Cost"), of $564.5 million. The Company has
entered into an agreement with Medallion Hotels, Inc. ("Medallion Hotels") to
acquire a portfolio of six upscale, full-service hotels containing 1,960 rooms
(the "Medallion Portfolio") for an Acquisition Cost of $167.5 million,
consisting of a purchase price of $150.0 million and proposed renovations of
$17.5 million. The Medallion Portfolio consists of six upscale, full-service
hotels with 1,960 rooms, located in cities such as Austin, Texas; Dallas, Texas;
Houston, Texas; Louisville, Kentucky: and Oklahoma City, Oklahoma. Two of the
hotels are operated under the Hilton flag, three are operated as Medallion
hotels and one is operated as an independent hotel. One of the hotels includes a
contiguous 83-room limited-service hotel. Consistent with its operating
strategy, the Company is evaluating conditions in each hotel's local market and
intends to affiliate certain of the Medallion hotels with upscale national
franchises upon consummation of the acquisition. For a description of the hotels
in the Medallion portfolio, see "--The Properties."
The Company has also entered into contracts to acquire three additional
hotels containing 556 rooms for an Acquisition Cost of $58.1 million (the
"Additional Acquisitions"), including: the 204-room Embassy
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Suites Tucson International Airport in Tucson, Arizona, for an Acquisition Cost
of $14.7 million, the 151-room Detroit Metro Airport Hilton Suites in Detroit,
Michigan for an Acquisition Cost of $15.9 million and the 201-room Governor
Morris Hotel & Conference Center in Morristown, New Jersey for an Acquisition
Cost of $27.5 million. The Company expects to improve the operating performance
of the Hotels by implementing the detailed management plans that have been
created for each property as part of its operating strategy. The Company
believes that all of its acquisitions represent attractive investment
opportunities because (i) they are located in major metropolitan or growing
secondary markets and are well-located within these markets, (ii) they were
acquired at an average cost of approximately $75,000 per room, which represents
a significant discount to replacement cost and (iii) they have attractive
current returns and potential for significant revenue and cash flow growth
through implementation of the Company's operating strategy.
In addition to the acquisition or proposed acquisition of these hotels,
since the IPO the Company has invested in two joint ventures and, including the
management contracts associated with these joint ventures, the Company has
entered into ten new long-term management agreements. The Company expects to
form additional joint ventures and strategic alliances with institutional and
private hotel owners to invest in future acquisitions and sale and leaseback
transactions, and to secure additional fee management arrangements. See "Special
Note Regarding Forward-Looking Statements."
The Company's principal executive offices are located at 1010 Wisconsin
Avenue, N.W., Suite 650, Washington, D.C. 20007, and its telephone number is
(202) 965-4455.
4
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THE PROPERTIES
The following table sets forth certain information for each of the Owned
Hotels and the Additional Acquisitions for the twelve months ended June 30,
1997:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
JUNE 30, 1997
----------------------------
<S> <C> <C> <C> <C>
GUEST AVERAGE DAILY AVERAGE
HOTEL LOCATION ROOMS RATE ("ADR") OCCUPANCY
- ---------------------------------------------------- ------------------------ ----------- ------------- -------------
OWNED HOTELS
Orange County Airport Hilton........................ Irvine, CA 290 $ 81.53 69.7%
Doubletree Resort(1)................................ Palm Springs, CA 289 76.12 52.2
Sacramento Hilton................................... Sacramento, CA 326 80.46 72.8
San Pedro Hilton.................................... San Pedro, CA 226 65.52 68.1
Santa Barbara Inn................................... Santa Barbara, CA 71 135.14 79.5
Holiday Inn-Registered Trademark-................... Colorado Springs, CO 201 62.06 73.8
Sheraton Hotel...................................... Colorado Springs, CO 502 69.71 73.6
Embassy Suites Denver............................... Englewood, CO 236 106.39 74.0
Embassy Row Hilton.................................. Washington, D.C. 195 116.74 67.4
Georgetown Inn...................................... Washington, D.C. 95 138.10 69.3
The Latham Hotel.................................... Washington, D.C. 143 114.35 73.9
Westin Atlanta Airport.............................. Atlanta, GA 496 81.58 75.5
Jekyll Inn.......................................... Jekyll Island, GA 265 60.00 47.2
Radisson Hotel & Suites............................. Chicago, IL 341 133.03 76.5
Radisson Hotel...................................... Schaumburg, IL 202 78.41 75.0
Doubletree Guest Suites............................. Indianapolis, IN 137 83.67 73.6
Radisson Plaza...................................... Lexington, KY 367 76.18 62.4
Lafayette Hilton & Towers........................... Lafayette, LA 328 72.12 74.4
Holiday Inn Sports Complex.......................... Kansas City, MO 163 66.00 75.3
Sheraton Airport Plaza.............................. Charlotte, NC 226 87.37 67.8
Four Points Hotel................................... Cherry Hill, NJ 213 72.73 61.1
Marriott Hotel...................................... Somerset, NJ 434 109.50 73.4
Holiday Inn......................................... Tinton Falls, NJ 171 75.48 69.6
Doubletree Hotel.................................... Albuquerque, NM 294 77.84 66.7
Holiday Inn......................................... Cleveland, OH 237 72.95 67.7
Great Valley Sheraton............................... Frazer, PA 154 94.88 74.2
Embassy Suites Center City.......................... Philadelphia, PA 288 123.92 76.3
Doubletree Hotel.................................... Austin, TX 350 81.67 75.0
Arlington Hilton.................................... Arlington, TX 310 83.44 72.1
Holiday Inn Select.................................. Dallas, TX 348 61.72 61.6
Radisson Hotel...................................... Dallas, TX 305 61.77 72.7
Houston Southwest Hilton............................ Houston, TX 293 72.54 60.7
Westchase Hilton & Towers........................... Houston, TX 295 92.20 79.1
Salt Lake Airport Hilton............................ Salt Lake City, UT 287 80.78 75.5
Arlington Hilton.................................... Arlington, VA 209 111.76 75.3
National Airport Hilton............................. Arlington, VA 386 104.71 56.7
Bellevue Hilton..................................... Bellevue, WA 180 100.75 80.6
Holiday Inn Calgary Airport......................... Calgary, Alberta 170 51.72 66.7
Sheraton Hotel...................................... Guildford, B.C. 280 70.83 75.2
Holiday Inn-Metrotown............................... Vancouver, B.C. 100 74.04 87.8
Ramada-Registered Trademark- Vancouver Centre....... Vancouver, B.C. 118 71.85 80.5
----------- ------------- ---
Subtotal/Weighted Average--Owned Hotels......... 10,521 $ 85.33 70.3%
MEDALLION PORTFOLIO
Seelbach Hotel...................................... Louisville, KY 321 $ 107.13 63.6%
Medallion Hotel..................................... Oklahoma City, OK 399 70.82 46.7
Austin Hilton & Towers.............................. Austin, TX 320 74.04 69.5
Medallion Hotel..................................... Dallas, TX 289 92.43 52.6
Medallion Hotel..................................... Houston, TX 382 81.45 52.7
Midland Hilton & Towers............................. Midland, TX 249 70.66 56.4
----------- ------------- ---
Subtotal/Weighted Average--Medallion
Portfolio..................................... 1,960 $ 83.05 56.5%
ADDITIONAL ACQUISITIONS
Embassy Suites Tucson International Airport......... Tucson, AZ 204 $ 73.98 81.0%
Detroit Metro Airport Hilton Suites................. Detroit, MI 151 80.83 84.9
Governor Morris Hotel & Conference Center........... Morristown, NJ 201 123.59 61.5
----------- ------------- ---
Subtotal/Weighted Average--Additional
Acquisitions.................................. 556 $ 90.79 75.0%
----------- ------------- ---
Total/Weighted Average.......................... 13,037 $ 85.31 68.4%
----------- ------------- ---
----------- ------------- ---
</TABLE>
5
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SUMMARY OF EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered.............. Up to $150,000,000 aggregate principal amount of 8 3/4%
Senior Subordinated Notes due 2007 (the "New Notes"),
which have been registered under the Securities Act. The
terms of the New Notes and those of the Existing Notes are
identical in all material respects, except for certain
transfer restrictions and registration rights relating to
the Existing Notes.
The Exchange Offer.............. The New Notes are being offered in exchange for a like
principal amount of Existing Notes. Existing Notes may be
exchanged only in integral multiples of $1,000. The
issuance of the New Notes is intended to satisfy
obligations of the Company contained in the Registration
Rights Agreements.
Expiration Date;
Withdrawal of Tender.......... The Exchange Offer will expire at 5:00 pm, New York City
time, on November 28, 1997, or such later date and time to
which it is extended by the Company. The tender of
Existing Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. Any
Existing Notes not accepted for exchange for any reason
will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Conditions to the Exchange Offer The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Exchange Offer is not conditioned upon any minimum number
of Existing Notes being tendered for exchange. The Company
currently expects that each of the conditions will be
satisfied and that no waivers will be necessary. See "The
Exchange Offer--Conditions to the Exchange Offer."
Procedures for Tendering
Existing Notes................ Unless a tender of Existing Notes is effected pursuant to
the procedures for book-entry transfers as provided
herein, each holder of Existing Notes wishing to accept
the Exchange Offer must complete, sign and date a Letter
of Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with such Existing Notes and any other
required documentation, to the Exchange Agent (as defined
herein) at the address set forth herein. Holders of
Existing Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are urged
to contact such person promptly if they wish to tender
Existing Notes pursuant to the Exchange Offer. See "The
Exchange Offer--Procedures for Tendering Existing Notes."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
Letters of Transmittal and certificates representing
Existing Notes should not be sent to the Company. Such
documents should only be sent to the Exchange Agent.
Questions regarding how to tender and requests for
information should be directed to the Exchange Agent. See
"The Exchange Offer--Exchange Agent."
Use of Proceeds................. There will be no proceeds to the Company from the exchange
of Notes pursuant to the Exchange Offer.
Certain Federal Income Tax
Considerations................ The exchange pursuant to the Exchange Offer should not be
a taxable event for federal income tax purposes. See
"Certain Federal Income Tax Considerations."
Exchange Agent.................. IBJ Schroder Bank & Trust Company is serving as the
Exchange Agent (in such capacity, the "Exchange Agent") in
connection with the Exchange Offer.
</TABLE>
7
<PAGE>
CONSEQUENCES OF EXCHANGING EXISTING NOTES
PURSUANT TO THE EXCHANGE OFFER
Based on certain no-action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases Notes from the Company to resell
pursuant to Rule 144A ("Rule 144A") under the Securities Act or any other
available exemption) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of the holder's business and such holders have
no arrangement or understanding with any person to participate in a distribution
of such New Notes and are not participating in, and do not intend to participate
in, the distribution of such New Notes. The Company has not sought, and does not
intend to seek, its own no-action letter with regard to the Exchange Offer.
Accordingly, there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer. By tendering,
each holder will represent to the Company in the Letter of Transmittal that,
among other things, the New Notes acquired pursuant to the Exchange Offer are
being acquired in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the holder, that neither the holder nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, that neither the holder nor
any such other person is participating in or intends to participate in the
distribution of such New Notes and that neither the holder nor any such other
person is an "affiliate," as defined under Rule 405 of the Securities Act, of
the Company. Each broker-dealer that receives New Notes for its own account in
exchange for Existing Notes must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and complied with. The Company has
agreed, pursuant to the Registration Rights Agreements and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Notes reasonably requests in writing. If a holder of Existing Notes does
not exchange such Existing Notes for New Notes pursuant to the Exchange Offer,
such Existing Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Existing Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. See "The Exchange Offer--Consequences of
Failure to Exchange; Resales of New Notes."
The Existing Notes are currently eligible for trading in the PORTAL market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
8
<PAGE>
THE NOTES
Except as otherwise indicated, the following description relates both to the
Existing Notes and to the New Notes to be issued in exchange for Existing Notes
in connection with the Exchange Offer. The New Notes will be obligations of the
Company evidencing the same indebtedness as the Existing Notes, and will be
entitled to the benefits of the same Indenture. The form and terms of the New
Notes are the same as the form and terms of the Existing Notes, except that the
New Notes have been registered under the Securities Act and therefore will not
bear legends restricting the transfer thereof. For a more complete description
of the Notes, see "Description of the Notes." Throughout this Prospectus,
references to the "Notes" refer to the New Notes and the Existing Notes
collectively.
<TABLE>
<S> <C>
Securities Offered.............. $150,000,000 aggregate principal amount of 8 3/4% Senior
Subordinated Notes due 2007.
Maturity Date................... August 15, 2007.
Interest Payment Dates.......... February 15 and August 15 of each year, commencing
February 15, 1998.
Mandatory Redemption............ None.
Optional Redemption............. The Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after August 15, 2002,
at the redemption prices set forth herein, plus accrued
and unpaid interest and Liquidated Damages (as defined
herein), if any, to the date of redemption. At any time
prior to August 15, 2000, the Company may, at its option,
redeem up to 35% of the aggregate principal amount of the
Notes originally issued with the net cash proceeds of one
or more Public Equity Offerings (as defined herein) at a
redemption price equal to 108.750% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption; provided that
at least 65% of the original principal amount of the Notes
remains outstanding immediately after each such
redemption. In addition, prior to August 15, 2002, the
Company, at its option, may redeem the Notes at a
redemption price equal to the Make-Whole Price (as defined
herein), plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of redemption. See
"Description of Notes--Optional Redemption."
Change of Control............... In the event of a Change of Control (as defined herein),
each holder of the Notes will have the right to require
the Company to purchase all or any part of such holder's
Notes at a purchase price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the
date of purchase. See "Description of Notes--Repurchase at
the Option of Holders--Change of Control."
Ranking......................... The Notes are general unsecured obligations of the Company
and are subordinated in right of payment to all existing
and future Senior Debt (as defined herein) of the Company.
The Notes are also effectively subordinated to all
obligations of the Company's Subsidiaries (as defined
herein), including without limitation trade payables in
the ordinary course. The Notes rank PARI PASSU with any
present and future senior subordinated Indebtedness (as
defined herein) of the Company and senior to all other
subordinated Indebtedness of the Company. None of the
Company's Subsidiaries is presently required to guarantee
the Notes, although under
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
certain future circumstances, the Company may be required
to cause one or more Restricted Subsidiaries (as defined
herein) to guarantee the Notes on a senior subordinated
basis. On a pro forma basis, the Company would have
approximately $468.4 million of Indebtedness outstanding,
including $77.8 million of Senior Debt and $68.2 million
of non-recourse indebtedness of Unrestricted Subsidiaries
(as defined herein) of the Company. See "Description of
Notes--Subordination," "--Subsidiary Guarantees" and
"Description of Certain Indebtedness."
Certain Covenants............... The Indenture contains certain covenants that, subject to
certain exceptions, limit the ability of the Company and
its Restricted Subsidiaries to incur Indebtedness and
issue Disqualified Stock (as defined herein) or, in the
case of Subsidiaries, preferred stock, and limit the
ability of the Company and its Restricted Subsidiaries to
pay dividends or other distributions, repurchase Equity
Interests (as defined herein) and subordinated
Indebtedness, or make certain other restricted payments,
consummate certain asset sales, enter into certain
transactions with affiliates, incur indebtedness that is
subordinate in right of payment to any Senior Debt and
senior in right of payment to the Notes, make investments,
create or incur Liens (as defined herein), merge or
consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company. See
"Description of Notes--Certain Covenants" and "--Asset
Sales."
For additional information regarding the Notes, see "Description of Notes."
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
COMPARISON OF NEW NOTES WITH EXISTING NOTES
Freely Transferable............. Generally, the New Notes will be freely transferable under
the Securities Act by holders thereof other than any
holder that is either an affiliate of the Company or a
broker-dealer that purchased the Notes from the Company to
resell pursuant to Rule 144A or any other available
exemption. The New Notes will otherwise be substantially
identical in all material respects (including interest
rate and maturity) to the Existing Notes. See "The
Exchange Offer."
Registration Rights............. The holders of Existing Notes currently are entitled to
certain registration rights pursuant to two separate
Registration Rights Agreements (the "Registration Rights
Agreements"), each dated as of August 14, 1997, among (i)
the Company and the Initial Purchaser and (ii) the Company
and the Direct Purchaser. However, upon consummation of
the Exchange Offer, subject to certain exceptions, holders
of Existing Notes who do not exchange their Existing Notes
for New Notes in the Exchange Offer will no longer be
entitled to registration rights and will not be able to
offer or sell their Existing Notes, unless such Existing
Notes are subsequently registered under the Securities Act
(which, subject to certain limited exceptions, the Company
will have no obligation to do), except pursuant to an
exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. See
"Risk Factors--Adverse Consequences of Failure to Adhere
to Exchange Offer Procedures."
Absence of Public Market for the
New Notes..................... The New Notes are new securities and there is currently no
established market for the New Notes. Accordingly, there
can be no assurance as to the development or liquidity of
any market for the New Notes. The Company does not intend
to apply for listing on a securities exchange of the New
Notes.
</TABLE>
RISK FACTORS
Holders of Existing Notes and prospective purchasers of New Notes should
carefully consider all of the information set forth in this Prospectus and, in
particular, should evaluate the specific factors set forth under "Risk Factors"
in connection with the Exchange Offer.
11
<PAGE>
SUMMARY FINANCIAL AND OTHER INFORMATION
Prior to the IPO, the business of the Company was conducted through EquiStar
Hotel Investors, L.P. ("EquiStar") and CapStar Management Company, L.P.
("CapStar Management"). 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, 1997,
the Company acquired 32 hotels on various dates. Thus, the historical financial
statements reflect differing numbers of Owned Hotels throughout the periods
presented. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
June 30, 1997 and the Unaudited Pro Forma Condensed Consolidated Statements of
Operations for the six months ended June 30, 1997 and the year ended December
31, 1996 assume: (i) the Owned Hotels, the Medallion Portfolio and Additional
Acquisitions were owned and (ii) the 1997 Credit Facility, the Non-Recourse
Facility, the October 1997 Debt Offering (collectively, the "Prior Debt
Financings"), the Common Stock Offerings (together with the Prior Debt
Financings, the "Prior Financings") and the Offering were consummated as of the
balance sheet date and at the beginning of the periods presented, respectively.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------------- -------------------------------
PRO PRO
FORMA FORMA
1992 1993 1994 1995 1996 1996(A) 1996 1997 1997(A)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING RESULTS:
Revenues:
Rooms....................... $ 0 $ 0 $ 0 $ 14,456 $ 68,498 $ 269,755 $ 28,120 $ 79,254 $ 145,195
Food, beverage and other.... 0 0 0 7,471 36,949 131,597 12,989 34,676 69,811
Office rental and other..... 0 0 0 0 0 6,197 3,059 5,664 3,061
Management services and
other..................... 3,479 4,234 4,418 4,436 4,345 2,858 2,088 2,225 3,127
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total revenues.......... 3,479 4,234 4,418 26,363 109,792 410,407 46,256 121,819 221,194
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Departmental expenses:
Rooms....................... 0 0 0 4,190 17,509 67,942 7,365 18,954 36,267
Food, beverage and other.... 0 0 0 5,437 27,102 100,472 10,302 27,338 53,138
Office rental and other..... 0 0 0 0 0 2,683 1,089 3,008 1,218
Undistributed operating
expenses:
Selling, general and
administrative............ 2,836 4,065 4,508 8,078 20,448 75,844 9,457 19,839 37,782
Property operating costs.... 0 0 0 3,934 17,151 70,184 7,497 19,024 36,958
Depreciation and
amortization.............. 12 14 23 2,097 8,248 34,112 3,919 8,220 17,231
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Total operating
expenses.............. 2,848 4,079 4,531 23,736 90,458 351,237 39,629 96,383 182,594
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net operating income (loss)... 631 155 (113) 2,627 19,334 59,170 6,627 25,436 38,600
Interest expense, net......... 0 0 0 2,414 12,346 31,789 7,290 8,440 15,715
Minority interest............. 0 0 0 18 39 (1,083) 69 (620) (928)
Income tax provision(B)....... 0 0 0 0 2,674 10,519 0 6,288 8,432
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item.......... 631 155 (113) 231 4,353 15,779 (594) 10,088 13,525
Extraordinary item(C)......... 0 0 0 (888) (1,956) -- -- -- --
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)....... $ 631 $ 155 $ (113) $ (657) $ 2,397 $ 15,779 $ (594) $ 10,088 $ 13,525
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Earnings per share from
continuing operations....... -- -- -- -- $ 0.31 $ 0.64 -- $ 0.62 $ 0.54
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------------- -------------------------------
PRO PRO
FORMA FORMA
1992 1993 1994 1995 1996 1996(A) 1996 1997 1997(A)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT OPERATING DATA)
OTHER FINANCIAL DATA:
EBITDA(D)..................... $ 643 $ 169 $ (90) $ 4,741 $ 27,621 $ 92,199 $ 10,615 $ 33,036 $ 54,903
Net cash provided by (used in)
operating activities........ 87 (101) 66 4,357 13,373 49,831 3,891 2,745 15,176
Net cash used in investing
activities.................. (65) (24) (41) (116,573) (225,251) (816,864) (95,625) (164,567) (594,462)
Net cash provided by (used in)
financing activities........ (219) 244 0 119,048 226,830 793,772 89,809 151,532 565,375
Ratio of EBITDA to interest
expense..................... -- -- -- -- -- 2.9x -- -- 3.5x
Ratio of earnings to fixed
charges..................... -- -- -- 1.1x 1.5x 1.8x -- 2.7x 2.3x
Restricted Group Data(E):
EBITDA........................ -- -- -- -- -- $ 80,637 -- -- $ 48,044
Interest expense.............. -- -- -- -- 26,777 -- -- 13,442
Ratio of EBITDA to interest
expense..................... -- -- -- -- -- 3.0x -- -- 3.6x
BALANCE SHEET DATA:
Total assets.................. $ 586 $ 1,458 $ 1,232 $ 132,650 $ 379,161 -- $ 231,736 $ 608,073 $1,034,072
Total debt.................... 0 0 0 76,242 200,361 -- 168,112 234,995 468,415(I)
Stockholders' equity.......... -- -- -- -- 160,715 -- -- 315,475 504,888
OPERATING DATA:
Owned Hotels:
Number of hotels............ -- -- -- 6 19 50 11 32 50
Number of guest rooms....... -- -- -- 2,101 5,166 13,037 3,307 8,040 13,037
Total revenues (in
thousands)................ -- -- -- $ 21,927 $ 105,447 $ 401,352 $ 44,168 $ 119,594 $ 216,006
Average occupancy........... -- -- -- 72.3% 71.6% 67.9% 72.7% 74.5% 70.1%
ADR(F)...................... -- -- -- $ 71.58 $ 82.84 $ 82.48 $ 80.56 $ 86.04 $ 87.38
RevPAR...................... -- -- -- $ 51.75 $ 59.31 $ 55.97 $ 58.57 $ 64.08 $ 61.29
All Hotels(G):
Number of hotels(H)......... 34 34 39 46 47 -- -- -- --
Number of guest rooms(H).... 5,918 5,971 5,847 7,895 9,785 -- -- -- --
Total revenues (in
thousands)................ $ 109,837 $ 123,124 $ 128,151 $ 170,888 $ 193,092 -- -- -- --
</TABLE>
- ------------------------------
(A) The pro forma Operating Results, Other Financial Data and Operating Data for
the six months ended June 30, 1997 and the year ended December 31, 1996 have
been prepared as if the Prior Debt Financings, the October 1997 Equity
Offering, the Offering and the acquisition of the Owned Hotels, the
Medallion Portfolio and the Additional Acquisitions had been consummated at
the beginning of the periods presented, and the pro forma Balance Sheet Data
as of June 30, 1997 have been prepared as if the Prior Financings, the
Offering and the acquisition of the Owned Hotels, the Medallion Portfolio
and the Additional Acquisitions had been consummated on such date.
(B) No provision for federal income taxes is included in the historical data
other than for 1996 and 1997 because CapStar Management and EquiStar were
partnerships and all federal income tax liabilities were passed through to
the individual partners.
(C) During 1995 and 1996, certain loan facilities were refinanced and the
write-offs of deferred costs associated with the prior facilities were
recorded as extraordinary losses.
(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, income taxes,
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 data for 46 Owned Hotels, the Medallion Portfolio and Additional
Acquisitions and excludes data for the Unrestricted Subsidiaries.
(F) Represents total room revenues divided by total number of rooms occupied by
hotel guests on a paid basis.
(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) Includes $68,154 of debt of Unrestricted Subsidiaries.
13
<PAGE>
RISK FACTORS
SET FORTH BELOW ARE THE PRINCIPAL RISK FACTORS IN AN EXCHANGE OR INVESTMENT
IN THE NOTES. HOLDERS OF EXISTING NOTES AND PROSPECTIVE PURCHASERS OF THE NEW
NOTES SHOULD CAREFULLY CONSIDER THESE RISK FACTORS AS WELL AS THE OTHER
INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS, WHICH MAY AFFECT A DECISION
TO ACQUIRE THE NEW NOTES. FOR A DISCUSSION OF CERTAIN POTENTIAL TAX CONSEQUENCES
OF SUCH AN INVESTMENT, SEE "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS." THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS. SEE "SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS."
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
On a pro forma basis, the Company's Indebtedness (including current portion)
would have been $468.4 million. The Company expects it will incur additional
Indebtedness, which may include secured Indebtedness, in the future to finance
acquisitions and renovations. See "Description of Notes--Certain
Covenants--Incurrence of Indebtedness and Issuance of Certain Capital Stock."
The degree to which the Company is leveraged could have important
consequences, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions
or general corporate purposes may be impaired; (ii) a substantial portion of the
Company's cash flow from operations may be dedicated to the payment of principal
and interest on its Indebtedness, thereby reducing the funds available to the
Company for its operation; (iii) in addition to the Notes, certain other
agreements governing the Company's Indebtedness, including the 1997 Credit
Facility, contain financial and other restrictive covenants, including those
restricting the incurrence of additional Indebtedness, the creation of liens,
the payment of dividends and sales of assets; (iv) the Company may be hindered
in its ability to adjust rapidly to changing market conditions; and (v) the
Company's substantial degree of leverage could make it more vulnerable in the
event of a downturn in general economic conditions or in its business. The
Company's ability to satisfy its obligations, including the Notes, will be
dependent upon its future performance, which is subject to prevailing economic
conditions and financial, business and other factors, including factors beyond
the Company's control. There can be no assurance that the Company's operating
cash flow will be sufficient to meet its debt service requirements or to repay
the Notes at maturity or that the Company will be able to refinance the Notes or
other indebtedness at maturity. See "Description of Certain Indebtedness" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
SUBORDINATION OF NOTES; ASSET ENCUMBRANCE
On a pro forma basis, the Company would have approximately $468.4 million of
Indebtedness outstanding, including $77.8 million of Senior Debt and $68.2
million of non-recourse indebtedness of Unrestricted Subsidiaries of the
Company. The Notes will be subordinated in right of payment to all existing and
future Senior Debt, including the principal, premium (if any) and interest with
respect to the Senior Debt under the 1997 Credit Facility. The Notes will also
be effectively subordinated to all obligations of Subsidiaries of the Company,
including without limitation trade payables in the ordinary course.
The Company may not pay principal of, premium (if any) on, or interest on,
the Notes, or repurchase or redeem or otherwise retire any Notes, if any default
occurs and is continuing in the payment when due of any Senior Debt (except that
Holders of Notes may receive Permitted Junior Securities (as defined in the
Indenture) and payments made from the trust described under "Description of
Notes--Legal Defeasance and Covenant Defeasance"). In addition, if any other
event of default exists with respect to Designated Senior Debt (as defined in
the Indenture) and certain other conditions are satisfied, the Company may not
make any payments on the Notes for up to 179 days (except that Holders of Notes
may
14
<PAGE>
receive Permitted Junior Securities and payments made from the trust described
under "Description of Notes--Legal Defeasance and Covenant Defeasance"). Upon
any payment or distribution of the assets of the Company in connection with a
total or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company, the holders of Senior Debt will be entitled
to receive payment in full before the holders of the Notes are entitled to
receive any payment. See "Description of Notes-- Subordination."
RESTRICTIONS IMPOSED BY THE 1997 CREDIT FACILITY
The Notes are unsecured and thus, in effect, will rank junior to any secured
Indebtedness of the Company. The 1997 Credit Facility includes certain covenants
that, among other things, restrict: (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) mergers, acquisitions, divestitures or reorganizations, (viii)
the issuance of preferred stock and (ix) sales of its hotel properties. The 1997
Credit Facility also contains 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 cash flow to consolidated debt service, consolidated cash flow to
consolidated fixed charges and consolidated total indebtedness to consolidated
cash flow. The ability of the Company to comply with these and other provisions
may be affected by events beyond the Company's control. The breach of any of
these covenants could result in a default under the 1997 Credit Facility, in
which case the lenders, or their successors or assignees, could elect to declare
the entire principal amount under the 1997 Credit Facility, together with
accrued interest, to be due and payable, and the Company could be prohibited
from making payments of interest and principal on the Notes until the default is
cured or all Senior Debt is paid or satisfied in full. If the Indebtedness under
the 1997 Credit Facility were to be accelerated, there can be no assurance that
the assets of the Company would be sufficient to repay in full such Indebtedness
and the other Indebtedness of the Company, including the Notes. See "Description
of Certain Indebtedness" and "Description of Notes--Subordination."
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.
15
<PAGE>
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. All but four of the Owned Hotels are 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 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.
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 binding
contracts to acquire the Additional Acquisitions 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. Since August 1996, the Company has acquired 29 hotels. The
Company expects to continue to grow through the acquisition of additional
hotels. 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 41 hotels and has entered into contracts to
acquire the Medallion Portfolio and Additional Acquisitions. 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
16
<PAGE>
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.
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 expiring in December 1999, which
contain certain non-compete clauses. See "Management--Employment Agreements."
POTENTIAL FOR CONFLICTS OF INTEREST
Mr. Whetsell and Mr. McCaslin and entities owned by them own, directly or
indirectly, (i) a leasehold interest, expiring on December 31, 2001, in two of
the Managed Hotels and (ii) minority equity interests in four of the Managed
Hotels. Mr. Whetsell and Mr. McCaslin exercise management control over the
entities that own two 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. For the year ended December 31, 1996 and the
six months ended June 30, 1997, the Company received approximately $287,000 and
$276,000, respectively, in management fees from the four hotels in which Messrs.
Whetsell and McCaslin own an equity interest, including approximately $234,000
and $112,000, respectively, 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."
17
<PAGE>
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 28 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 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. For the year
ended December 31, 1996 and the six months ended June 30, 1997, the Company's
pro forma revenue from Management Agreements was $2.9 million and $2.1 million,
respectively, constituting 0.7% and 1.0%, respectively, of the Company's total
pro forma revenue for such periods. No single Management Agreement (or group of
Management Agreements for hotels under common ownership or control) currently
accounts for more than 0.1% of the total revenue of the Company 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 approximately the last 12 months. Phase Is
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
18
<PAGE>
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.
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.
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer and conveyance laws, if the
Company, at the time it issued the Notes, (a) incurred such indebtedness with
the actual intent to hinder, delay or defraud creditors or (b)(i) received less
than reasonably equivalent value or fair consideration therefor and (ii)(A) was
insolvent at the time of such incurrence, (B) was rendered insolvent by reason
of such incurrence (and the application of the proceeds thereof), (C) was
engaged or was about to engage in a business or transaction for which the assets
remaining with the Company constituted unreasonably small capital to carry on
its business or (D) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature, then, in each such case, a
court of competent jurisdiction could avoid, in whole or in part, the Notes or,
in the alternative, fashion other equitable relief. The measure of insolvency
for purposes of the foregoing would likely vary depending upon the law applied
in such case. Generally, however, the Company would be considered insolvent if
the sum of its debts, including contingent liabilities, was greater than all of
its assets at a fair valuation, or if the present fair-saleable value of its
assets was less than the amount that would be required to pay the probable
liabilities on its existing debts, including contingent liabilities, as such
debts become absolute and matured. The Company's management believes that, for
purposes of the United States Bankruptcy Code and state fraudulent transfer and
conveyance laws, the Notes are being issued without the intent to hinder, delay
or defraud creditors and for proper purposes and in good faith; that the Company
will receive reasonably equivalent value or fair consideration therefor and
that, after the issuance of the Notes and the application of the net proceeds
thereof, the Company will be solvent, will have sufficient capital for carrying
on its business and will be able to pay its debts as they mature. However, there
can be no assurance that a court passing on such issues would agree with the
determination of the Company's management.
19
<PAGE>
LACK OF PUBLIC MARKET FOR THE NOTES
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. Although the Initial Purchaser has acted as a market maker with
respect to the Existing Notes and has informed the Company that it currently
intends to make a market in the New Notes, it is not obligated to do so and any
such market making may be discontinued at any time without any notice. The
Existing Notes are currently eligible for trading in the PORTAL market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading. The Company currently does not intend to list the New Notes on
any securities exchange or to seek approval for quotation through any automated
quotation system and no active public market for the New Notes is currently
anticipated. Accordingly, there can be no assurance as to the development or
liquidity of any market for the New Notes (or any Existing Notes not exchanged).
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Issuance of the New Notes in exchange for Existing Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Exchange Agent of
such Existing Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of Existing
Notes desiring to tender such Existing Notes in exchange for New Notes should
allow sufficient time to ensure timely delivery. Neither the Company nor the
Exchange Agent is under any duty to give notification of defects or
irregularities with respect to the tenders of Existing Notes for exchange.
Existing Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof and therefore may not be offered,
sold or otherwise transferred except in compliance with the registration
requirements of the Securities Act and any other applicable securities laws, or
pursuant to an exemption therefrom or in a transaction not subject thereto, and
in each case in compliance with certain conditions and restrictions. Upon
consummation of the Exchange Offer certain registration rights under the
Registration Rights Agreements will terminate.
RECEIPT OF RESTRICTED SECURITIES UNDER CERTAIN CIRCUMSTANCES
Any holder of Existing Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer--Consequences of
Failure to Exchange; Resales of New Notes."
ADVERSE EFFECT ON MARKET FOR EXISTING NOTES
To the extent that Existing Notes are tendered and accepted in the Exchange
Offer, the trading market for the untendered and tendered but unaccepted
Existing Notes could be adversely affected. See "The Exchange Offer."
20
<PAGE>
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange of New Notes for
Existing Notes pursuant to the Exchange Offer. This Exchange Offer is intended
to satisfy certain of the Company's obligations under the Registration Rights
Agreements. The net proceeds from the issuance and sale of the Existing Notes,
approximately $145.0 million, were used to reduce outstanding indebtedness under
the 1997 Credit Facility; such amounts remain available for reborrowing. The
indebtedness under the 1997 Credit Facility bears interest at variable rates,
with a weighted average annual rate at June 30, 1997 of 7.69%, and matures on
June 30, 2002.
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1997 and pro forma to give effect to the Prior Financings, the
Offering and the acquisition of nine of the Owned Hotels since June 30, 1997,
the Medallion Portfolio and the Additional Acquisitions (for a pro forma total
of 50 hotels). The information below should be read in conjunction with the
Company's consolidated financial statements and notes thereto, incorporated
herein by reference, and the Unaudited Pro Forma Condensed Consolidated
Financial Statements and notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
---------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
DEBT:
Senior secured credit facility.................................................. $ 168,500 $ --
1997 Credit Facility(A)......................................................... -- 76,670
Non-recourse debt............................................................... 15,404 68,154(C)
8 3/4% Senior Subordinated Notes due 2007....................................... -- 150,000
4.75% Convertible Subordinated Notes due 2004................................... -- 172,500
Other debt...................................................................... 51,091(B) 1,091
---------- ---------
Total debt.................................................................. 234,995 468,415
Minority interest............................................................... 22,270 22,270
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, 18,905,952 shares
issued and outstanding)....................................................... 189 249
Additional paid-in capital...................................................... 303,564 499,364
Retained earnings............................................................... 12,142 5,695
Cumulative foreign currency translation adjustment.............................. (420) (420)
---------- ---------
Total stockholders' equity.................................................. 315,475 504,888
---------- ---------
Total capitalization........................................................ $ 572,740 $995,573
---------- ---------
---------- ---------
</TABLE>
- ------------------------
(A) In July 1997, the Company obtained the 1997 Credit Facility in the maximum
principal amount of $450.0 million.
(B) Includes $50.0 million of senior subordinated debt refinanced with the
proceeds of the 1997 Credit Facility.
(C) Represents debt of Unrestricted Subsidiaries.
21
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth selected historical and pro forma financial
information for the Company. The Balance Sheet Data of the Company as of June
30, 1997, December 31, 1996, 1995 and 1994, and the Operating Results and Other
Financial Data for the years ended December 31, 1996, 1995, 1994 and 1993 and
the six months ended June 30, 1997 and 1996, have been derived from the
consolidated financial statements which are incorporated by reference into this
Prospectus. The Operating Results and Other Financial Data for the year ended
December 31, 1992 and the Balance Sheet Data as of June 30, 1996, December 31,
1993 and 1992 have been derived from financial statements not required to be
included or incorporated by reference in this Prospectus. The following
information should be read in conjunction with the historical consolidated
financial statements and notes thereto for the Company, incorporated herein by
reference, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Unaudited Pro Forma Condensed Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
The pro forma Operating Results and Other Financial Data for the year ended
December 31, 1996 and the six months ended June 30, 1997 have been prepared as
if the Prior Financings and the acquisition of all of the Owned Hotels, the
Medallion Portfolio and the Additional Acquisitions had been consummated at the
beginning of the periods presented, and the pro forma Balance Sheet Data as of
June 30, 1997 have been prepared as if the Offering, the Prior Debt Financings
and the acquisition of nine of the Owned Hotels, the Medallion Portfolio and the
Additional Acquisitions 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>
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------------- --------------------
PRO
FORMA
1992 1993 1994 1995 1996 1996(A) 1996 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING RESULTS:
Revenues:
Rooms............................... $ 0 $ 0 $ 0 $ 14,456 $ 68,498 $ 269,755 $ 28,120 $ 79,254
Food, beverage and other............ 0 0 0 7,471 36,949 131,597 12,989 34,676
Office rental and other............. 0 0 0 0 0 6,197 3,059 5,664
Management services and other....... 3,479 4,234 4,418 4,436 4,345 2,858 2,088 2,225
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues.................. 3,479 4,234 4,418 26,363 109,792 410,407 46,256 121,819
--------- --------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Departmental expenses:
Rooms............................... 0 0 0 4,190 17,509 67,942 7,365 18,954
Food, beverage and other............ 0 0 0 5,437 27,102 100,472 10,302 27,338
Office rental and other............. 0 0 0 0 0 2,683 1,089 3,008
Undistributed operating expenses:
Selling, general and
administrative.................... 2,836 4,065 4,508 8,078 20,448 75,844 9,457 19,839
Property operating costs............ 0 0 0 3,934 17,151 70,184 7,497 19,024
Depreciation and amortization....... 12 14 23 2,097 8,248 34,112 3,919 8,220
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses........ 2,848 4,079 4,531 23,736 90,458 351,237 39,629 96,383
--------- --------- --------- --------- --------- --------- --------- ---------
Net operating income (loss)........... 631 155 (113) 2,627 19,334 59,170 6,627 25,436
Interest expense, net................. 0 0 0 2,414 12,346 31,789 7,290 8,440
Minority interest..................... 0 0 0 18 39 (1,083) 69 (620)
Income tax provision(B)............... 0 0 0 0 2,674 10,519 0 6,288
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item................................ 631 155 (113) 231 4,353 15,779 (594) 10,088
Extraordinary item(C)................. 0 0 0 (888) (1,956) -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)............... $ 631 $ 155 $ (113) $ (657) $ 2,397 $ 15,779 $ (594) $ 10,088
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings per share from continuing
operations.......................... -- -- -- -- $ 0.31 $ 0.63 -- $ 0.62
--------- --------- ---------
--------- --------- ---------
<CAPTION>
PRO
FORMA
1997(A)
---------
<S> <C>
OPERATING RESULTS:
Revenues:
Rooms............................... $ 146,195
Food, beverage and other............ 69,811
Office rental and other............. 3,061
Management services and other....... 2,127
---------
Total revenues.................. 221,194
---------
Operating expenses:
Departmental expenses:
Rooms............................... 36,267
Food, beverage and other............ 53,138
Office rental and other............. 1,218
Undistributed operating expenses:
Selling, general and
administrative.................... 37,782
Property operating costs............ 36,958
Depreciation and amortization....... 17,231
---------
Total operating expenses........ 182,594
---------
Net operating income (loss)........... 38,600
Interest expense, net................. 15,715
Minority interest..................... (928)
Income tax provision(B)............... 8,432
---------
Income (loss) before extraordinary
item................................ 13,525
Extraordinary item(C)................. --
---------
Net income (loss)............... $ 13,525
---------
---------
Earnings per share from continuing
operations.......................... $ 0.54
---------
---------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------------- --------------------
PRO
FORMA
1992 1993 1994 1995 1996 1996(A) 1996 1997
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT OPERATING DATA)
OTHER FINANCIAL DATA:
EBITDA(D)........................... $ 643 $ 169 $ (90) $ 4,741 $ 27,621 $ 92,199 $ 10,615 $ 33,036
Net cash provided by (used in)
operating activities.............. 87 (101) 66 4,357 13,373 49,831 3,891 2,745
Net cash used in investing
activities........................ (65) (24) (41) (116,573) (225,251) (816,864) (95,625) (164,567)
Net cash provided by (used in)
financing activities.............. (219) 244 0 119,048 226,830 793,772 89,809 151,532
Ratio of EBITDA to interest
expense........................... -- -- -- -- -- 2.9x -- --
Ratio of earnings to fixed
charges........................... -- -- -- 1.1x 1.5x 1.8x -- 2.7x
Restricted Group Data(E):
EBITDA.............................. -- -- -- -- -- $ 80,637 -- --
Interest expense.................... -- -- -- -- -- 26,777 -- --
Ratio of EBITDA to interest
expense........................... -- -- -- -- -- 3.0x -- --
BALANCE SHEET DATA:
Total assets........................ $ 586 $ 1,458 $ 1,232 $ 132,650 $ 379,161 -- $ 231,736 $ 608,073
Total debt.......................... 0 0 0 76,242 200,361 -- 168,112 234,995
Stockholders' equity................ -- -- -- -- 160,715 -- -- 315,475
OPERATING DATA:
Owned Hotels:
Number of hotels.................. -- -- -- 6 19 50 11 32
Number of guest rooms............. -- -- -- 2,101 5,166 13,037 3,307 8,040
Total revenues (in thousands)..... -- -- -- $ 21,927 $ 105,447 $ 401,352 $ 44,168 $ 119,594
Average occupancy................. -- -- -- 72.3% 71.6% 67.9% 72.7% 74.5%
ADR(F)............................ -- -- -- $ 71.58 $ 82.84 $ 82.48 $ 80.56 $ 86.04
RevPAR............................ -- -- -- $ 51.75 $ 59.31 $ 55.97 $ 58.57 $ 64.08
All Hotels(G):
Number of hotels(H)............... 34 34 39 46 47 -- -- --
Number of guest rooms(H).......... 5,918 5,971 5,847 7,895 9,785 -- -- --
Total revenues (in thousands)..... $ 109,837 $ 123,124 $ 128,151 $ 170,888 $ 193,092 -- -- --
<CAPTION>
PRO
FORMA
1997(A)
---------
<S> <C>
OTHER FINANCIAL DATA:
EBITDA(D)........................... $ 54,903
Net cash provided by (used in)
operating activities.............. 15,176
Net cash used in investing
activities........................ (594,462)
Net cash provided by (used in)
financing activities.............. 565,375
Ratio of EBITDA to interest
expense........................... 3.5x
Ratio of earnings to fixed
charges........................... 2.3x
Restricted Group Data(E):
EBITDA.............................. $ 48,044
Interest expense.................... 13,442
Ratio of EBITDA to interest
expense........................... 3.6x
BALANCE SHEET DATA:
Total assets........................ $1,034,072
Total debt.......................... 468,415(I)
Stockholders' equity................ 504,888
OPERATING DATA:
Owned Hotels:
Number of hotels.................. 50
Number of guest rooms............. 13,037
Total revenues (in thousands)..... $ 216,006
Average occupancy................. 70.1%
ADR(F)............................ $ 87.38%
RevPAR............................ $ 61.29
All Hotels(G):
Number of hotels(H)............... --
Number of guest rooms(H).......... --
Total revenues (in thousands)..... --
</TABLE>
- ------------------------------
(A) The pro forma Operating Results, Other Financial Data and Operating Data for
the six months ended June 30, 1997 and the year ended December 31, 1996 have
been prepared as if the Prior Financings, the Offering and the acquisition
of the Owned Hotels, the Medallion Portfolio and the Additional Acquisitions
had been consummated at the beginning of the periods presented, and the pro
forma Balance Sheet Data as of June 30, 1997 have been prepared as if the
Prior Debt Financings, the October 1997 Equity Offering, the Offering and
the acquisition of the Owned Hotels, the Medallion Portfolio and the
Additional Acquisitions had been consummated on such date.
(B) No provision for federal income taxes is included in the historical data
other than for 1996 and 1997 because CapStar Management and EquiStar were
partnerships and all federal income tax liabilities were passed through to
the individual partners.
(C) During 1995 and 1996, certain loan facilities were of refinanced and the
write-offs of deferred costs associated with the prior facilities were
recorded as extraordinary losses.
(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, income taxes,
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 data for 46 Owned Hotels, the Medallion Portfolio and Additional
Acquisitions and excludes data for the Unrestricted Subsidiaries.
(F) Represents total room revenues divided by total number of rooms occupied by
hotel guests on a paid basis.
(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) Includes $68,154 of debt of Unrestricted Subsidiaries.
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company
as of June 30, 1997 is presented assuming: (i) all of the Owned Hotels, the
Medallion Portfolio and the Additional Acquisitions were owned at June 30, 1997
(for a pro forma total of 50 hotels) and (ii) the Prior Debt Financings, the
October 1997 Equity Offering, the Offering and the application of the net
proceeds therefrom were completed at June 30, 1997.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations of
the Company for the six months ended June 30, 1997 and for the year ended
December 31, 1996 are presented assuming: (i) all of the Owned Hotels, the
Medallion Portfolio and the Additional Acquisitions were owned at the beginning
of the periods presented (for a pro forma total of 50 hotels); and (ii) the
Prior Financings, the Offering and the application of the net proceeds therefrom
were completed at 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 Condensed Consolidated
Financial Statements. The Unaudited Pro Forma Condensed Consolidated 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, the Medallion Portfolio and the Additional Acquisitions were, in fact,
owned on such dates presented, and if the Prior Financings and the Offering
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 Condensed
Consolidated Financial Statements should be read in conjunction with the
historical consolidated financial statements and related notes thereto of the
Company, which are incorporated herein by reference.
24
<PAGE>
CAPSTAR HOTEL COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------------
<S> <C> <C> <C> <C> <C>
MEDALLION
OWNED HOTELS PORTFOLIO AND
AND PRIOR ADDITIONAL
HISTORICAL(A) FINANCINGS(B)(C) ACQUISITIONS(C)(E) OFFERING(C) PRO FORMA
------------ ---------------- ----------------- ----------- -----------
ASSETS
Cash and cash equivalents............ $ 11,489 $ (5,547) $ -- $ -- $ 5,942
Property and equipment, net:
Land............................... 81,683 38,445 30,790 -- 150,918
Building and improvements.......... 404,798 169,298 153,951 -- 728,047
Furniture, fixtures and
equipment........................ 44,556 20,045 20,527 -- 85,128
Construction-in-progress........... 5,314 5 -- -- 5,319
------------ -------- -------- ----------- -----------
Total property and equipment, net.... 536,351 227,793 205,268 -- 969,412
Deposits and other assets............ 60,233 (6,390)(D) -- 4,875 58,718
------------ -------- -------- ----------- -----------
Total assets......................... $ 608,073 $ 215,856 $ 205,268 $ 4,875 $1,034,072
------------ -------- -------- ----------- -----------
------------ -------- -------- ----------- -----------
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
Other liabilities.................... $ 35,333 $ 3,166 $ -- $ -- $ 38,499
Long-term debt:
Senior secured credit facility..... 168,500 (168,500) -- -- --
1997 Credit Facility............... -- 16,527 205,268 (145,125) 76,670
Non-Recourse Facility.............. -- 52,750 -- -- 52,750
Convertible Notes due 2004......... -- 172,500 -- -- 172,500
Subordinated Notes due 2007........ -- -- -- 150,000 150,000
Other debt......................... 66,495 (50,000) -- -- 16,495
------------ -------- -------- ----------- -----------
Total liabilities.................... 270,328 26,443 205,268 4,875 506,914
Minority interest.................... 22,270 -- -- -- 22,270
Stockholders' equity................. 315,475 189,413(D) -- -- 504,888
------------ -------- -------- ----------- -----------
Total liabilities, minority interest
and stockholders' equity........... $ 608,073 $ 215,856 $ 205,268 $ 4,875 $1,034,072
------------ -------- -------- ----------- -----------
------------ -------- -------- ----------- -----------
</TABLE>
- ------------------------------
(A) Reflects the historical unaudited condensed consolidated balance sheet of
the Company as of June 30, 1997.
(B) Reflects the Company's cost basis and financing for the nine Owned Hotels
acquired subsequent to June 30, 1997.
(C) A schedule of sources and uses of funds related to the Company's various
financing activities is as follows:
<TABLE>
<S> <C> <C>
SOURCES
Proceeds from the Offering.............................................................. $ 150,000
Proceeds from Prior Debt Financings, the October 1997 Equity Offering and net draws on
credit facilities...................................................................... 497,781
---------
Total sources........................................................................... $ 647,781
---------
---------
USES
Repayment of credit facilities.......................................................... $(218,500)
Purchase of certain Owned Hotels, the Medallion Portfolio and the Additional
Acquisitions........................................................................... (413,843)
Advisory and other transaction expenses for the Prior Financings and the Offering....... (15,438)
---------
Total uses.............................................................................. $(647,781)
---------
---------
</TABLE>
(D) Reflects the write-off deferred financing fees of $6,447 at June 30, 1997
related to the senior secured and senior subordinated credit facilities that
were refinanced. Deposits and other assets also reflect the deferral of
financing fees of $10,563 related to the Prior Debt Financings and the use
of the purchase deposits recorded at June 30, 1997.
(E) Reflects the Company's cost basis and financing for the Medallion Portfolio
and the Additional Acquisitions. The estimated total cost is $231,010,
including the purchase prices totaling $199,800, renovation programs of
$25,742 and other costs of $5,468.
25
<PAGE>
CAPSTAR HOTEL COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------------------------------
<S> <C> <C> <C> <C> <C>
MEDALLION
OWNED HOTELS PORTFOLIO AND
AND PRIOR ADDITIONAL
HISTORICAL(A) FINANCINGS(B) ACQUISITIONS(B) OFFERING PRO FORMA
------------ --------------- --------------- ----------- ----------
Revenue from hotel operations:
Rooms............................................. $ 79,254 $ 41,440 $ 25,501 $ -- $ 146,195
Food and beverage................................. 34,676 13,502 11,111 -- 59,289
Other............................................. 5,664 3,226 1,632 -- 10,522
Office rental and other............................. -- 2,844 217 -- 3,061
Hotel management, accounting and other.............. 2,225 (98) -- -- 2,127
------------ ------- ------- ----------- ----------
Total revenue..................................... 121,819 60,914 38,461 -- 221,194
Hotel operating expenses by department:
Rooms............................................. 18,954 18,857 6,456 -- 36,267
Food and beverage................................. 27,338 10,984 8,859 -- 47,181
Other operating departments....................... 3,008 1,857 1,092 -- 5,957
Office rental and other............................. -- 1,184 34 -- 1,218
Undistributed operating expenses:
Administrative and general........................ 19,839 10,119 7,824 -- 37,782
Property operating costs.......................... 13,960 8,222 4,640 -- 26,822
Property taxes, insurance and other............... 5,064 3,760 1,312 -- 10,136
Depreciation and amortization..................... 8,220 5,050 3,717 244(D) 17,231
------------ ------- ------- ----------- ----------
Total operating expenses.......................... 96,383 52,033 33,934 244 182,594
Interest expense, net............................... 8,440 3,184(C) 2,677(C) 1,414(C) 15,715
------------ ------- ------- ----------- ----------
Total expenses...................................... 104,823 55,217 36,611 1,658 198,309
------------ ------- ------- ----------- ----------
Income (loss) before minority interest and income
taxes............................................. 16,996 5,697 1,850 (1,658) 22,885
Minority interest................................... (620) (308) -- -- (928)
------------ ------- ------- ----------- ----------
Income (loss) before income taxes................... 16,376 5,389 1,850 (1,658) 21,957
Income tax provision................................ 6,288 2,069 711 (636) 8,432
------------ ------- ------- ----------- ----------
Net income (loss)(E).............................. $ 10,088 $ 3,320 $ 1,139 $ (1,022) $ 13,525
------------ ------- ------- ----------- ----------
------------ ------- ------- ----------- ----------
Earnings per share(F): $ 0.62 $ 0.54
Weighted average shares outstanding: 16,356,343 25,501,632
</TABLE>
- ------------------------------
(A) Reflects the historical unaudited condensed consolidated statement of
operations of the Company for the six months ended June 30, 1997.
(B) Reflects the pre-acquisition operations of the Owned Hotels, the Medallion
Portfolio and Additional Acquisitions to provide six months of hotel
operations. For each hotel, the pre-acquisition operations were obtained
from the hotel's pre-acquisition financial statements. Also reflects
adjustments to (i) eliminate management fee revenues for the Owned Hotels
for services that were provided by the Company, (ii) reflect federal and
state income taxes (assuming a 38.4% combined effective rate) and (iii)
reflect pro forma depreciation and amortization expense as if the hotels had
been acquired as of the beginning of the period.
(C) Reflects the adjustments needed to record a full period of interest for the
Owned Hotels, the Medallion Portfolio and Additional Acquisitions, assuming
the Prior Financings occurred at the beginning of the period. Adjustments
are also recorded to reflect the net effect of the Offering and repayment of
existing credit facilities.
(D) Adjustment reflects amortization of costs associated with the Offering.
(E) After giving effect to the 1997 Credit Facility, the Company incurred
expenses associated with the write-off of deferred financing costs related
to the refinanced senior secured and senior subordinated credit facilities.
These extraordinary costs are charged to operations as incurred and have not
been included in the Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
(F) In computing earnings per share, net income has been adjusted for certain
minority interests.
26
<PAGE>
CAPSTAR HOTEL COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------
<S> <C> <C> <C> <C> <C>
MEDALLION
OWNED HOTELS PORTFOLIO AND
AND PRIOR ADDITIONAL
HISTORICAL(A) FINANCINGS (B) ACQUISITIONS(B) OFFERING PRO FORMA
------------ ------------------ -------------- ---------- ----------
Revenue from hotel operations:
Rooms..................................... $ 68,498 $ 155,255 $ 46,002 $ -- $ 269,755
Food and beverage......................... 30,968 56,584 21,402 -- 108,954
Other..................................... 5,981 13,341 3,321 -- 22,643
Office rental and other..................... -- 5,668 529 -- 6,197
Hotel management, accounting and other...... 4,345 (1,487) -- -- 2,858
------------ ------------------ -------------- ---------- ----------
Total revenue............................. 109,792 229,361 71,254 -- 410,407
Hotel operating expenses by department:
Rooms..................................... 17,509 37,921 12,512 -- 67,942
Food and beverage......................... 24,589 45,022 17,729 -- 87,340
Other operating departments............... 2,513 8,497 2,122 -- 13,132
Office rental and other..................... -- 2,683 -- -- 2,683
Undistributed operating expenses:
Administrative and general................ 20,448 40,239 15,157 -- 75,844
Property operating costs.................. 12,586 28,027 9,235 -- 49,848
Property taxes, insurance and other....... 4,565 13,316 2,455 -- 20,336
Depreciation and amortization............. 8,248 18,595 6,781 488(D) 34,112
------------ ------------------ -------------- ---------- ----------
Total operating expenses.................. 90,458 194,300 65,991 488 351,237
Interest expense, net....................... 12,346 10,980(C) 5,433(C) 3,030(C) 31,789
------------ ------------------ -------------- ---------- ----------
Total expenses.............................. 102,804 205,280 71,424 3,518 383,026
------------ ------------------ -------------- ---------- ----------
Income (loss) before minority interest and
income taxes.............................. 6,988 24,081 (170) (3,518) 27,381
Minority interest........................... 39 (1,122) -- -- (1,083)
------------ ------------------ -------------- ---------- ----------
Income (loss) before income taxes........... 7,027 22,959 (170) (3,518) 26,298
Income tax provision........................ 2,674 9,321 (69) (1,407) 10,519
------------ ------------------ -------------- ---------- ----------
Net income (loss)(E)...................... $ 4,353 $ 13,638 $ (101) $ (2,111) $ 15,779
------------ ------------------ -------------- ---------- ----------
------------ ------------------ -------------- ---------- ----------
Earnings per share(F): $ 0.31 $ 0.63
Weighted average shares outstanding: 12,754,321 25,267,566
</TABLE>
- ------------------------------
(A) Reflects the historical consolidated statement of operations of the Company
for the year ended December 31, 1996.
(B) Reflects the pre-acquisition operations of the Owned Hotels, the Medallion
Portfolio and Additional Acquisitions to provide a full year of hotel
operations. For each hotel, the pre-acquisition operations were obtained
from the hotel's pre-acquisition financial statements. Also reflects
adjustments to (i) eliminate management fee revenues for the Owned Hotels
for services that were provided by the Company, (ii) reflect federal and
state income taxes (assuming a 40.0% combined effective rate), (iii) reflect
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) and (iv) reflect pro forma depreciation
and amortization expense as if the hotels had been acquired as of the
beginning of the period.
(C) Reflects the adjustments needed to record a full year of interest for the
Owned Hotels, the Medallion Portfolio and the Additional Acquisitions,
assuming the Prior Financings occurred at the beginning of the period.
Adjustments are also recorded to reflect the net effect of the Offering and
repayment of existing credit facilities.
(D) Adjustment reflects amortization of costs associated with the Offering.
(E) After giving effect to the 1997 Credit Facility, the Company incurred
expenses associated with the write-off of deferred financing costs related
to the senior secured and refinanced senior subordinated credit facilities.
These extraordinary costs are charged to operations as incurred and have not
been included in the Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
(F) Historical earnings per share have been calculated using actual income for
the period from the IPO through December 31, 1996. In computing pro forma
earnings per share, net income has been adjusted for certain minority
interests.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN STATEMENTS CONTAINED HEREIN AND ELSEWHERE IN THIS PROSPECTUS WHICH
ARE NOT HISTORICAL FACTS ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES REFERENCED ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS" AND
"SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS."
GENERAL
Prior to the IPO, the business of the Company was conducted through
EquiStar, which owned 12 of the Owned Hotels, and CapStar Management, which
managed these and certain other 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, 1997, the Company acquired 32
hotels. Thus, the historical financial statements for the six months ended June
30, 1996 and 1997, and the years ended December 31, 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, it is difficult to compare results of these periods either to each
other or to prior years.
At December 31, 1995, the Company owned and operated five hotels and
acquired or assumed operations of five additional hotels during the first six
months of 1996 on the following dates: February 2, February 16, February 22,
February 29 and March 8, bringing the total of hotels owned at June 30, 1996 to
ten. At December 31, 1996, the Company owned 19 hotels and acquired 13
additional hotels during the first six months of 1997 on the following dates:
January 27, January 31 (two hotels), March 17, March 28, April 1 (six hotels)
and April 30 (two hotels), bringing the total of hotels owned at June 30, 1997
to 32. Therefore, the financial statements for the six months ended June 30,
1997 and 1996, reflect differing numbers of hotels owned throughout the periods.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Revenues increased to $121.8 million for the six months ended June 30, 1997
from $46.3 million for the six months ended June 30, 1996. Operating expenses
also increased significantly. These increases are a result of the increase in
the number of hotels owned during the respective periods.
Interest expense increased to $8.4 million for the six months ended June 30,
1997 from $7.3 million for the same period in 1996, resulting from the increase
in debt incurred relating to the acquisition of the hotels since June 30, 1996.
This increase in debt and the related interest expense was partially offset by
proceeds from two equity offerings and the lower interest rate charged on the
Credit Facility.
Net income rose to $10.1 million for the six months ended June 30, 1997
compared to a net loss of $0.6 million for the same period of 1996.
EBITDA increased to $33.0 million for the six months ended June 30, 1997
from $10.6 million for the same period of 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995
Total revenues increased to $109.8 million in 1996 from $26.4 million in
1995. The Company purchased its first hotel in March 1995 and owned and managed
five hotels as of the end of 1995. During
28
<PAGE>
1996, the Company purchased an additional 14 hotels. The growth in revenues
between 1995 and 1996 reflects this significant growth in the number of hotels
owned.
Operating costs and expenses increased to $90.5 million in 1996 from $23.7
million in 1995. Departmental expenses, property operating costs, selling,
general and administrative costs and depreciation and amortization increased in
1996 over 1995. All of these increases reflect the growth in the number of owned
hotels from five to nineteen. The costs related to management of the Managed
Hotels remained stable between the periods.
Operating income increased to $19.3 million in 1996 from $2.6 million in
1995. The increase from 1995 is due to the operating income generated by
additional hotels and to increased efficiencies in the management of the Managed
Hotels.
Net interest expense of $12.3 million for 1996 increased from $2.4 million
in 1995 due to the additional debt incurred related to the hotels acquired in
1996.
The extraordinary loss of $2.0 million in 1996 reflects the write-off of
deferred financing fees of $3.3 million, net of a deferred tax benefit of $1.3
million. The financing fees written-off were unamortized fees associated with a
credit facility which was refinanced prior to maturity. The Company also
incurred an extraordinary loss on extinguishment of debt during 1995 from the
write-off of deferred financing fees in connection with a refinancing
transaction.
Net income increased to $2.4 million for 1996 from a net loss of $0.7
million for 1995. The primary reason for the increase is due to increased
operating income generated by hotels acquired during 1996 and improvements in
operating income from hotels acquired in 1995.
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 in 1995 from a loss of $0.1
million in 1994. The increase from 1994 is due to the operating income of 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 loss was the early extinguishment of debt.
FINANCIAL CONDITION
JUNE 30, 1997 COMPARED WITH DECEMBER 31, 1996
Total assets increased by $228.9 million to $608.1 million at June 30, 1997
from $379.2 million at December 31, 1996. This growth was due to the acquisition
of 13 hotels during the first six months of 1997 and deposits related to certain
hotels acquired during July 1997.
Long-term debt increased to $235.0 million at June 30, 1997. This reflects
borrowings to finance the purchase of the hotels acquired, net of repayments
with proceeds from the March 1997 Offering.
29
<PAGE>
The increase in minority interest reflects the OP Units (as defined herein)
issued in conjunction with the acquisition of a portfolio of six hotels from
Highgate Hotels, Inc. and certain affiliated entities. The increase in equity
resulted from the net proceeds from the March 1997 Offering and the partial
conversion of the OP Units in May 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash on hand, cash
generated from operations, borrowings under credit facilities and equity
offerings, as well as the proceeds from the March 1997 Offering. The Company's
continuing operations are funded through cash generated from hotel operations.
Hotel acquisitions and joint venture investments are financed through a
combination of internally generated cash, external borrowings and the issuance
of OP Units and/or Common Stock.
The Company completed its IPO in August 1996 at a price of $18.00 per share,
generating net proceeds of approximately $110.1 million to the Company. The net
proceeds from the IPO were used to repay borrowings incurred in connection with
the acquisition and renovation of certain of the Owned Hotels. In March 1997,
CapStar completed the March 1997 Offering at a price of $24.75 per share,
generating net proceeds of approximately $134.1 million to the Company. Proceeds
of the March 1997 Offering were used to fund certain acquisitions with the
remainder used to repay indebtedness and for general corporate purposes.
In July 1997, the Company obtained the 1997 Credit Facility (as more fully
described below), with initial borrowings used to repay existing indebtedness.
In August 1997, the Company completed the Offering in the aggregate principal
amount of $150.0 million, generating net proceeds of approximately $145.0
million to the company. In addition, in August 1997, the Company entered into
the $100.0 million Non-Recourse Facility with Lehman Holdings. The Non-Recourse
Facility has an 18-month term and bears interest at a rate of between 175 and
270 basis points over 30-day LIBOR, based on certain debt service ratios. The
Non-Recourse Facility is expected to be utilized to fund new hotel acquisitions
in a tax-efficient manner.
In October 1997, the Company completed the October 1997 Equity Offering at a
price of 34.625 per share, generating net proceeds of approximately $195.9
million to the Company. Simultaneously with the October 1997 Equity Offering,
the Company completed the October 1997 Debt Offering, generating net proceeds of
$167.9 million to the Company. The Convertible Notes are general, unsecured
obligations of the Company subordinated in right of payment to all indebtedness
of the Company and subordinated by operation of law to all liabilities of the
Company's subsidiaries (including trade payables). The indenture pursuant to
which the Convertible Notes were issued does not restrict the incurrence by the
Company or its subsidiaries of additional indebtedness. The Convertible Notes
are not redeemable by the Company prior to October 15, 2000, and thereafter are
redeemable at specified premiums until maturity. Conversion of the Convertible
Notes is permitted at any time after January 14, 1998 at a rate of 23.2558
shares of Common Stock per $1,000 principal amount.
During the fiscal year ended December 31, 1996, the Company paid $226.1
million in aggregate Acquisition Cost to purchase certain of the Owned Hotels.
Initial renovation and ongoing capital expenditure programs during the same
period totaled $21.6 million. During the six months ended June 30, 1997, CapStar
invested $198.7 million in aggregate Acquisition Cost to purchase certain of the
Owned Hotels and $12.9 million on initial renovation and ongoing capital
expenditure programs. The Company expects to spend an additional $16.4 million
to complete the initial renovation of these Owned Hotels. Initial renovation
programs related to the nine Owned Hotels acquired subsequent to June 30, 1997
and the Additional Acquisitions are projected to total $25.1 million and $6.1
million, respectively. Substantially all renovation programs are expected to be
completed within the next 12 months.
Capital for renovation work has been and will be provided by a combination
of internally generated cash and external borrowings. The Company is committed
to reinvesting adequate capital on an ongoing basis to maintain the quality of
the hotels it owns. Once initial renovation programs are complete, the Company
expects to spend approximately 4% of revenues on an annual basis for ongoing
capital
30
<PAGE>
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.
At June 30, 1997, the Company had $11.5 million in cash and cash
equivalents, a decrease of $10.3 million from the balance of $21.8 million on
December 31, 1996.
The Company has obtained the 1997 Credit Facility in the maximum principal
amount of $450.0 million. Initial borrowings under the 1997 Credit Facility were
used by the Company to repay existing indebtedness. Subsequent borrowings under
the 1997 Credit Facility will be used to acquire and renovate upscale,
full-service hotels and for other general corporate purposes. The 1997 Credit
Facility is composed of a $350.0 million revolving loan facility maturing on
June 30, 2002, and a $100.0 million term loan facility maturing on June 30,
2004. The term loan facility calls for mandatory payments of principal beginning
on March 31, 1998. The revolving loan facility commitment will be reduced in
increments of $12.5 million on a quarterly basis beginning on October 1, 2000
and ending on July 1, 2001. In addition, the 1997 Credit Facility provides that
net sales and financing proceeds and 50% of excess cash flow, in each case to
the extent not reinvested and subject to certain exceptions set forth in the
1997 Credit Facility, must be used to prepay the term loan facility and reduce
the revolving credit facility. The Company will be required to pay customary
fees in connection with the structuring of the 1997 Credit Facility, a
commitment fee on the unused portion of the 1997 Credit Facility and a fee on
outstanding letters of credit under the 1997 Credit Facility. The 1997 Credit
Facility is a direct obligation of the Company and is fully and unconditionally
guaranteed by the Company and certain subsidiaries of the Company, including the
Operating Partnerships and the subsidiaries owning hotel properties. The 1997
Credit Facility is secured by substantially all the real and personal property
of the Company and its subsidiaries. The 1997 Credit Facility contains covenants
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) mergers, acquisitions,
divestitures or reorganizations, (viii) the issuance of preferred stock and (ix)
sales of its hotel properties. The 1997 Credit Facility also contains 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 cash flow to consolidated debt
service, consolidated cash flow to consolidated fixed charges and consolidated
total indebtedness to consolidated cash flow. The 1997 Credit Facility prohibits
certain changes in control of the Company, including certain dispositions of
stock owned by Paul Whetsell, and requires that Paul Whetsell remain an active
senior officer of the Company.
Management believes that the Company will have access to sufficient capital
resources to fund its operating and administrative expenses, to continue to
service its debt obligations and to acquire additional hotel properties.
SEASONALITY
Demand in the lodging industry is affected by recurring seasonal patterns.
Demand is lower in the winter months due to decreased travel and higher in the
spring and summer months during peak travel season. Accordingly, 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.
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying "Letter of Transmittal" (which
together constitute the "Exchange Offer"), to exchange up to $150.0 million
aggregate principal amount of New Notes for a like aggregate principal amount of
Existing Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Existing Notes. The total
aggregate principal amount of Existing Notes and New Notes will in no event
exceed $150.0 million.
The Existing Notes were issued on August 19, 1997. An aggregate of $100.0
million aggregate principal amount of the Existing Notes were sold to the
Initial Purchaser and then re-offered at a price of 99.866%. The remaining $50.0
million aggregate principal amount of Existing Notes were sold directly to the
Direct Purchaser at a price of 97.866%. The Direct Purchaser agreed with the
Initial Purchaser that it will not sell, transfer or otherwise dispose of or
transfer any of the Existing Notes (except for the Exchange Offer) purchased by
it for a period of 90 days from the Offering without the consent of the Initial
Purchaser. The Direct Purchaser, Oak Hill Securities Fund, L.P., is a Delaware
limited partnership that acquires and actively manages a diverse portfolio of
investments, principally in leveraged companies. Certain principals of Oak Hill
Advisors, Inc., the advisor of the Direct Purchaser, have business relationships
with Acadia Partners, L.P. See "Principal Stockholders." The Company paid a
$375,000 fee to Oak Hill Advisors, Inc. for financial advisory services rendered
in connection with the Offering.
As of the date of this Prospectus, $150.0 million aggregate principal amount
of the Existing Notes was outstanding. This Prospectus, together with the Letter
of Transmittal, is first being sent on or about October 28, 1997, to all holders
of Existing Notes known to the Company. The Company's obligation to accept
Existing Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "--Conditions to the Exchange Offer" below.
PURPOSE OF THE EXCHANGE OFFER
The Existing Notes were issued by the Company on August 19, 1997 in a
transaction exempt from the registration requirements of the Securities Act.
Accordingly, the Existing Notes may not be reoffered, resold or otherwise
transferred in the United States unless so registered or unless an applicable
exemption from the registration and prospectus delivery requirements of the
Securities Act is available.
In connection with the issuance and sale of the Existing Notes, the Company
entered into two separate Registration Rights Agreements, each dated as of
August 14, 1997, which require the Company to (i) file on or before September
18, 1997 (30 days after the date of issuance of the Existing Notes) a
registration statement relating to the Exchange Offer (the "Exchange Offer
Registration Statement"), (ii) use its best efforts to cause the Exchange Offer
Registration Statement to become effective on or before November 17, 1997 (90
days after the date of issuance of the Existing Notes), (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
commence the Exchange Offer and use its best efforts to issue on or prior to 30
business days after the date on which the Exchange Offer Registration Statement
was declared effective by the Commission, New Notes in exchange for all Existing
Notes tendered prior thereto in the Exchange Offer and (iv) if obligated to file
the Shelf Registration Statement (as defined herein), use its best efforts to
file the Shelf Registration Statement with the Commission on or prior to 30 days
after such filing obligation arises and to cause the Shelf Registration
Statement to be declared effective by the Commission on or prior to 90 days
after such obligation arises. If (A) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreements on or
before the date specified above for such filing, (B) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), (C) the
Company fails to consummate the Exchange Offer within 30
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business days of the Effectiveness Target Date with respect to the Exchange
Offer Registration Statement, or (D) the Shelf Registration Statement or the
Exchange Offer Registration Statement is declared effective but thereafter
ceases to be effective or usable in connection with resales of Transfer
Restricted Securities (as defined herein) during the periods specified in the
Registration Rights Agreement (each such event referred to in clauses (A)
through (D) above a "Registration Default"), then the Company will pay
Liquidated Damages ("Liquidated Damages") to each Holder of Notes, with respect
to the first 90-day period immediately following the occurrence of the first
Registration Default in an amount equal to $0.05 per week per $1,000 principal
amount of Notes held by such Holder. The amount of the Liquidated Damages will
increase by an additional $0.05 per week per $1,000 principal amount of Notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of Liquidated Damages of $0.50 per week
per $1,000 principal amount of Notes. All accrued Liquidated Damages will be
paid by the Company to the Global Notes Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of certificated Notes
by wire transfer to the accounts specified by them or by mailing checks to their
registered addresses if no such accounts have been specified. Following the cure
of all Registration Defaults, the accrual of Liquidated Damages will cease.
Holders of Existing Notes will be required to make certain representations
to the Company (as described in the Registration Rights Agreements) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreements in order to have their Existing Notes
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above.
Based on no-action letters issued by the staff of the Commission to third
parties in unrelated transactions, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases New Notes from the
Company to resell pursuant to Rule 144A or any other available exemption)
without compliance with the registration and prospectus delivery requirements of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holder's business and such holders have no arrangement or
understanding with any person to participate in the distribution of such New
Notes and are not participating in, and do not intend to participate in, the
distribution of such New Notes. The Company has not sought, and does not intend
to seek, its own no-action letter with regard to the Exchange Offer.
Accordingly, there can be no assurance that the staff of the Commission would
make a similar determination with respect to the Exchange Offer. Any holder of
Existing Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Notes may be deemed to have received
restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Thus, any New Notes acquired by
such holders will not be freely transferable except in compliance with the
Securities Act. See "--Consequences of Failure to Exchange; Resale of New
Notes."
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 pm, New York City time, on November
28, 1997, unless the Company, in its sole discretion, has extended the period of
time for which the Exchange Offer is open (such date, as it may be extended, is
referred to herein as the "Expiration Date"). The Expiration Date will be at
least 20 business days after the commencement of the Exchange Offer in
accordance with Rule 14e-1(a) under the Exchange Act. The Company expressly
reserves the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open, and thereby delay acceptance for
exchange of any Existing Notes, by giving oral notice (promptly confirmed in
writing) or written notice to the Exchange Agent and by giving written notice of
such extension to the holders thereof or by timely
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public announcement communicated, unless otherwise required by applicable law or
regulation, by making a release through the Dow Jones News Service, in each
case, no later than 9:00 am New York City time, on the next business day after
the previously scheduled Expiration Date. During any such extension, all
Existing Notes previously tendered will remain subject to the Exchange Offer
unless properly withdrawn.
In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any Existing Notes not
theretofore accepted for exchange upon the occurrence of any of the events
specified below under "--Conditions to the Exchange Offer." If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will either issue a press release or give oral or written notice to the holders
of the Existing Notes as promptly as practicable.
For purposes of the Exchange Offer, the term "business day" has the meaning
set forth in Rule 14d-1(c)(6) under the Exchange Act.
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to the Company of Existing Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Existing Notes may tender the same by (i) properly completing
and signing the Letter of Transmittal or a facsimile thereof (all references in
this Prospectus to the Letter of Transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Existing Notes being tendered and any required
signature guarantees, to the Exchange Agent at its address set forth below on or
prior to the Expiration Date (or complying with the procedure for book-entry
transfer described below) or (ii) complying with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF EXISTING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO EXISTING NOTES OR LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Existing Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Existing Notes
who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
amount of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guarantees must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a clearing agency, an insured
credit union, a savings association or a commercial bank or trust company having
an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Existing Notes are registered in the name of a person other
than a signer of the Letter of Transmittal, the Existing Notes surrendered for
exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution.
Any financial institution that is a participant in The Depository Trust
Company's (the "Depositary") Book-Entry Transfer Facility (the "Book-Entry
Transfer Facility") system may make book-entry delivery of the Existing Notes by
causing the Depositary to transfer such Existing Notes into the Exchange Agent's
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account in accordance with the Depository's procedures for such transfer. In
connection with a book-entry transfer, a Letter of Transmittal need not be
transmitted to the Exchange Agent, provided that the book-entry transfer
procedures must be complied with prior to 5:00 pm, New York City time, on the
Expiration Date.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Existing Note to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the Expiration Date a letter,
telegram or facsimile transmission from an Eligible Institution setting forth
the name and address of the tendering holder, the names in which the Existing
Notes are registered and, if possible, the certificate numbers of the Existing
Notes to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the Expiration Date the
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Existing Notes being tendered by the
above-described method are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of a Notice of Guaranteed Delivery (a "Notice
of Guaranteed Delivery") which may be used by Eligible Institutions for the
purposes described in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Existing Notes (or a confirmation of book-entry transfer of
such Existing Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) is received by the Exchange Agent, or (ii) a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Existing Notes tendered pursuant to a
Notice of Guaranteed Delivery or letter, telegram or facsimile transmission to
similar effect (as provided above) by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required documents)
and the tendered Existing Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Existing Notes not properly tendered or to not accept
any particular Existing Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Existing Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Existing Notes in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Existing Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Existing Notes for exchange must be cured within such reasonable period of time
as the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Existing Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Existing Notes, such Existing Notes must be
endorsed or accompanied by appropriate powers of attorney, in either case signed
exactly as the name or names of the registered holder or holders appear on the
Existing Notes.
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If the Letter of Transmittal or any Existing Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted.
By tendering, each holder will represent to the Company in the Letter of
Transmittal that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder, that
neither the holder nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such New Notes, that
neither the holder nor any such other person is participating in or intends to
participate in the distribution of such New Notes and that neither the holder
nor any such other person is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company.
Each broker-dealer that receives New Notes for its own account in exchange
for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
WITHDRAWAL RIGHTS
Tenders of Existing Notes may be withdrawn at any time prior to the close of
business, New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent prior to the Expiration Date at its address
set forth below. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Existing Notes to be withdrawn (the "Depositor"),
(ii) identify the Existing Notes to be withdrawn (including the certificate
number or numbers and principal amount of such Existing Notes), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Existing Notes were tendered or as otherwise described
above (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Existing Notes into the name of the person
withdrawing the tender and (iv) specify the name in which any such Existing
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. Any Existing Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Existing Notes which have been tendered for
exchange and which are properly withdrawn will be returned to the holder thereof
without cost to such holder as soon as practicable after such withdrawal.
Properly withdrawn Existing Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Existing Notes" above at
any time on or prior to the Expiration Date.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Existing Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Existing Notes. See "--Conditions to the Exchange Offer" below. For purposes of
the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Existing Notes for exchange when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
For each Existing Note accepted for exchange, the holder of such Existing
Note will receive a New Note having a principal amount equal to that of the
surrendered Existing Note.
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In all cases, issuance of New Notes for Existing Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Existing Notes or a timely
Book-Entry Confirmation of such Existing Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility, a properly completed and duly executed
Letter of Transmittal and all other required documents. If any tendered Existing
Notes are not accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if Existing Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Existing Notes will be returned without expense to the tendering holder thereof
(or, in the case of Existing Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Existing
Notes will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration of the Exchange Offer.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Existing Notes and may terminate or amend the Exchange Offer if at any time
before the acceptance of such Existing Notes for exchange or the exchange of the
New Notes for such Existing Notes any of the following events shall occur:
(i) any injunction, order or decree shall have been issued by any court
or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer, or
(ii) the Exchange Offer shall violate any applicable law or any
applicable interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company, in whole or in part, at any time from
time to time, if it determines in its reasonable discretion that any of the
foregoing events or conditions has occurred or exists or has not been satisfied,
subject to applicable law. The failure by the Company at any time to exercise
any of the foregoing rights shall not be deemed a waiver of any such right and
each such right shall be deemed an ongoing right which may be asserted at any
time and from time to time.
In addition, the Company will not accept for exchange any Existing Notes
tendered, and no New Notes will be issued in exchange for any such Existing
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of 1939
(the "Trust Indenture Act"). In any such event, the Company is required to use
its best efforts to obtain the withdrawal or lifting of any stop order at the
earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Existing Notes being tendered for exchange.
EXCHANGE AGENT
IBJ Schroder Bank & Trust Company has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this
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Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
<TABLE>
<S> <C> <C>
BY REGISTERED OR CERTIFIED BY HAND: BY OVERNIGHT DELIVERY:
MAIL:
IBJ Schroder Bank & Trust IBJ Schroder Bank & Trust IBJ Schroder Bank & Trust
Company Company Company
P.O. Box 84 One State Street One State Street
Bowling Green Station 11th Floor 11th Floor
New York, NY 10274-0084 New York, NY 10004 New York, NY 10004
Attention: Reorganization Attention: Securities Attention: Securities
Operations Department Processing Window, Subcellar Processing Window, Subcellar
One (SC-1) One (SC-1)
For information, call:
Information and Facsimile
Confirmation: (212) 858-2103
Facsimile: (212) 858-2611
(Eligible Institutions Only)
</TABLE>
DELIVERY OF THE EXISTING NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The cash
expenses to be incurred by the Company in connection with the Exchange Offer
will be paid by the Company.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company.
Neither the delivery of this Prospectus nor any exchange made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the respective dates as of which
information is given herein. The Exchange Offer is not being made to (nor will
tenders be accepted from or on behalf of) holders of Existing Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Existing Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Existing Notes not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Existing Notes tendered, or if
tendered Existing Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Existing Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or
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exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the carrying value of the Existing Notes
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Company upon the exchange of New Notes for Existing Notes. Expenses incurred in
connection with the issuance of the New Notes will be amortized over the term of
the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Existing Notes who do not exchange their Existing Notes for New
Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws.
Existing Notes not exchanged pursuant to the Exchange Offer will continue to
remain outstanding in accordance with their terms. In general, the Existing
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Existing Notes under the
Securities Act. However, if (i) the Company is not required to file the
Registration Statement or permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or Commission policy or (ii)
any Holder of Transfer Restricted Securities notifies the Company prior to the
20th day following consummation of the Exchange Offer that (A) it is prohibited
by law or Commission policy from participating in the Exchange Offer or (B) that
it may not resell the New Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and this Prospectus is not appropriate or
available for such resales or (C) that it is a broker-dealer and owns Existing
Notes acquired directly from the Company or an affiliate of the Company, the
Company will file with the Commission a Shelf Registration Statement (the "Shelf
Registration Statement") to cover resales of the Existing Notes by the Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement. The Company will use its
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Existing Note until (i)
the date on which such Note has been exchanged by a person other than a
broker-dealer for a New Note in the Exchange Offer, (ii) following the exchange
by a broker-dealer in the Exchange Offer of an Existing Note for a New Note, the
date on which such New Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of this Prospectus,
(iii) the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Note is distributed to the public
pursuant to Rule 144 under the Securities Act. The Company will, in the event
that a Shelf Registration Statement is filed, provide to each holder of Existing
Notes copies of the prospectus that is a part of the Shelf Registration
Statement, notify each such holder when the Shelf Registration Statement for the
Notes has become effective and take certain other actions as are required to
permit unrestricted sales of the Notes.
Based on certain no-action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
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<PAGE>
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holder's business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes and are not
participating in, and do not intend to participate in, the distribution of such
New Notes. The Company has not sought, and does not intend to seek, its own
no-action letter with regard to the Exchange Offer. Accordingly, there can be no
assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer. If any holder has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder (i) could not rely on the applicable
interpretations of the staff of the Commission and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. A broker-dealer who holds
Existing Notes that were acquired for its own account as a result of market
making or other trading activities may be deemed to be an "underwriter" within
the meaning of the Securities Act and must, therefore, deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
New Notes. Each such broker-dealer that receives New Notes for its own account
in exchange for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge in the Letter of Transmittal that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreements and subject to certain
specified limitations therein, to register or qualify the New Notes for offer or
sale under the securities or blue sky laws of such jurisdictions as any holder
of the Existing Notes reasonably requests in writing.
Participation in the Exchange Offer is voluntary, and holders of Existing
Notes should carefully consider whether to participate. Holders of the Existing
Notes are urged to consult their financial and tax advisors in making their own
decision on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Existing Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled a covenant contained in the Registration Rights
Agreements. Holders of Existing Notes who do not tender their Existing Notes in
the Exchange Offer will continue to hold such Existing Notes and will be
entitled to all the rights, and limitations applicable thereto, under the
Indenture, except for any such rights under the Registration Rights Agreements
that by their terms terminate or cease to have further effectiveness as a result
of the making of this Exchange Offer. See "--Purpose of the Exchange Offer." All
untendered Existing Notes will continue to be subject to the restrictions on
transfer set forth in the Indenture. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
Existing Notes could be adversely affected.
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The terms of any such purchases or offers may differ from
the terms of the Exchange Offer.
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<PAGE>
THE COMPANY
CapStar Hotel Company owns and manages hotels throughout the United States
and Canada. CapStar currently owns and/or manages 69 Hotels which contain 15,449
rooms. Of the Hotels, the Company owns and manages 41 upscale, full-service
Owned Hotels which contain 10,521 rooms and manages an additional 28 Managed
Hotels owned by third parties which contain 4,928 rooms. The Owned Hotels are
located in markets that have recently experienced strong economic growth,
including Albuquerque, Atlanta, Charlotte, Chicago, Cleveland, Dallas, Denver,
Houston, 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, Doubletree and Embassy Suites. The Company's
business strategy is to 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.
The Company completed its IPO in August 1996. Since the IPO, the Company has
significantly expanded its portfolio by completing the purchase of 29 upscale,
full-service hotels containing 7,005 rooms for an aggregate Acquisition Cost of
$564.5 million. The Company has also entered into contracts to acquire the
Additional Acquisitions for an Acquisition Cost of $58.1 million. In addition to
the acquisition or proposed acquisition of these hotels, since the IPO the
Company has invested in two joint ventures and, including the management
contracts associated with these joint ventures, the Company has entered into ten
new long-term management agreements.
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, with an average of 19 years of experience, has successfully
managed hotels in all segments of the lodging industry, with particular emphasis
on upscale, full-service hotels. Since the inception of the Company's management
business in 1987, the Company has achieved consistent revenue and portfolio
growth, even during periods of relative industry weakness. The Company
attributes its management success to its ability to (i) analyze each hotel as a
unique property and identify those particular cash flow growth opportunities
which each hotel presents, (ii) create and implement marketing plans that
properly position each hotel within its local market and (iii) 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 hold, directly or indirectly, an aggregate of 5.1%
of the Common Stock. See "Principal Stockholders."
The Company believes that the upscale, full-service segment of the lodging
industry is the most attractive segment in which to own, manage and acquire
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. 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.
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RECENT DEVELOPMENTS
FINANCING ACTIVITIES
The Company completed its IPO in August 1996 at a price of $18.00 per share,
generating net proceeds of approximately $110.1 million to the Company. In March
1997, the Company completed the March 1997 Equity Offering at a price of $24.75
per share, generating net proceeds of approximately $134.1 million to the
Company.
In July 1997, the Company entered into the $450.0 million 1997 Credit
Facility with Lehman Holdings, an affiliate of Lehman Brothers Inc., and the
other Banks. The 1997 Credit Facility is structured as a $350.0 million, 5-year
revolving credit facility and a $100.0 million, 7-year term loan facility. The
proceeds of the 1997 Credit Facility have been and will be used to fund new
acquisitions, repay outstanding indebtedness and for general corporate purposes.
See "Description of Certain Indebtedness" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
In August 1997, the Company completed the Offering in the aggregate
principal amount of $150.0 million, generating net proceeds of approximately
$145.0 million to the Company. In addition, in August 1997, the Company entered
into the $100.0 million Non-Recourse Facility with Lehman Holdings. The
Non-Recourse Facility has an 18-month term and bears interest at a rate of
between 175 and 270 basis points over 30-day LIBOR, based on certain debt
service ratios. The Non-Recourse Facility has been utilized to fund new hotel
acquisitions in a tax-efficient manner.
In October 1997, the Company completed the October 1997 Equity Offering at a
price of 34.625 per share, generating net proceeds of approximately $195.9
million to the Company. Simultaneously with the October 1997 Equity Offering,
the Company completed the October 1997 Debt Offering, generating net proceeds of
$167.9 million to the Company.
RECENT ACQUISITIONS AND INVESTMENTS
At the time of the IPO, the Company owned 12 upscale, full-service hotels,
containing 3,516 rooms. The Company completed its IPO in August 1996. Since the
IPO, the Company has significantly expanded its portfolio by completing the
purchase of 29 upscale, full-service hotels containing 7,005 rooms for an
Acquisition Cost of $564.5 million. The Company has entered into an agreement
with Medallion Hotels to acquire the Medallion Portfolio for an Acquisition Cost
of $167.5 million, consisting of a purchase price of $150.0 million and proposed
renovations of $17.5 million. The Medallion Portfolio consists of six upscale,
full-service hotels with 1,960 rooms, located in cities such as Austin, Texas;
Dallas, Texas; Houston, Texas; Louisville, Kentucky; and Oklahoma City,
Oklahoma. Two of the hotels are operated under the Hilton flag, three are
operated as Medallion hotels and one is operated as an independent hotel. One of
the hotels includes a contiguous 83-room limited-service hotel. Consistent with
its operating strategy, the Company is evaluating conditions in each hotel's
local market and intends to affiliate certain of the Medallion hotels with
upscale national franchises upon consummation of the acquisition. For a
description of the hotels in the Medallion Portfolio, see "--The Properties."
The Company has also entered into contracts to acquire the Additional
Acquisitions, including: the 204-room Embassy Suites Tucson International
Airport in Tucson, Arizona, for an Acquisition Cost of $14.2 million, the
151-room Detroit Metro Airport Hilton Suites in Detroit, Michigan for an
Acquisition Cost of $15.9 million and the 201-room Governor Morris Hotel &
Conference Center in Morristown, New Jersey for an Acquisition Cost of $27.5
million. The Company expects to improve the operating performance of these newly
acquired hotels by implementing the detailed management plans that have been
created for each property as part of its operating strategy. The Company
believes that all of its acquisitions represent attractive investment
opportunities because (i) they are located in major metropolitan or growing
secondary markets and are well-located within these markets, (ii) they were
acquired at an average
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cost of approximately $75,000 per room, which represents a significant discount
to replacement cost and (iii) they have attractive current returns and potential
for significant revenue and cash flow growth through implementation of the
Company's operating strategy.
In addition to the acquisition or proposed acquisition of these hotels,
since the IPO the Company has invested in two joint ventures and, including the
management contracts associated with these joint ventures, the Company has
entered into ten new long-term management agreements. The Company expects to
form additional joint ventures and strategic alliances with institutional and
private hotel owners to invest in future acquisitions and sale and leaseback
transactions, and to secure additional fee management arrangements. See "Special
Note Regarding Forward-Looking Statements."
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BUSINESS AND PROPERTIES
The Company seeks to increase shareholder value by (i) implementing its
operating strategy to improve hotel operations and increase cash flow, (ii)
expanding its management business and (iii) continuing to acquire upscale,
full-service hotels at prices below replacement cost in selected markets
throughout the United States and Canada.
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
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 toll-free 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.
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<PAGE>
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. 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.
The following chart summarizes certain information with respect to the
national franchise affiliations of the Hotels and the Additional Acquisitions:
<TABLE>
<CAPTION>
OWNED HOTELS, MEDALLION PORTFOLIO
AND ADDITIONAL ACQUISITIONS MANAGED HOTELS
----------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
NUMBER OF NUMBER NUMBER OF NUMBER
GUEST OF % OF TOTAL GUEST OF
FRANCHISE ROOMS HOTELS ROOMS ROOMS HOTELS
- ---------------------------------------------------- ----------- --------------- ----------- ----------- -------------
Hilton.............................................. 4,045 15 31.0% -- --
Medallion........................................... 1,391 4 10.7 -- --
Radisson............................................ 1,215 4 9.3 126 1
Sheraton............................................ 1,162 4 8.9 -- --
Holiday Inn......................................... 1,042 6 8.0 744 3
Doubletree.......................................... 933 3 7.2 208 1
Independent......................................... 775 5 5.9 468 5
Embassy Suites...................................... 728 3 5.6 -- --
Westin.............................................. 496 1 3.8 -- --
Marriott............................................ 434 1 3.3 288 1
Holiday Select...................................... 348 1 2.7 -- --
Four Points......................................... 213 1 1.6 596 2
Doubletree Guest Suites............................. 137 1 1.1 -- --
Ramada.............................................. 118 1 0.9 309 2
Crowne Plaza........................................ -- -- -- 730 2
Best Western........................................ -- -- -- 287 2
Comfort Suites...................................... -- -- -- 244 2
Clarion............................................. -- -- -- 226 1
Quality Suites...................................... -- -- -- 177 1
Budget Inn.......................................... -- -- -- 147 1
Residence Inn....................................... -- -- -- 104 1
Quality Inn......................................... -- -- -- 100 1
Days Inn............................................ -- -- -- 96 1
Holiday Inn Express................................. -- -- -- 78 1
-- --
----------- ----- -----
13,037 50 100.0% 4,928 28
-- --
-- --
----------- ----- -----
----------- ----- -----
<CAPTION>
<S> <C>
% OF TOTAL
FRANCHISE ROOMS
- ---------------------------------------------------- -----------
Hilton.............................................. --%
Medallion........................................... --
Radisson............................................ 2.6
Sheraton............................................ --
Holiday Inn......................................... 15.1
Doubletree.......................................... 4.2
Independent......................................... 9.5
Embassy Suites...................................... --
Westin.............................................. --
Marriott............................................ 5.8
Holiday Select...................................... --
Four Points......................................... 12.1
Doubletree Guest Suites............................. --
Ramada.............................................. 6.3
Crowne Plaza........................................ 14.8
Best Western........................................ 5.8
Comfort Suites...................................... 5.0
Clarion............................................. 4.6
Quality Suites...................................... 3.6
Budget Inn.......................................... 3.0
Residence Inn....................................... 2.1
Quality Inn......................................... 2.0
Days Inn............................................ 1.9
Holiday Inn Express................................. 1.6
-----
100.0%
-----
-----
</TABLE>
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
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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-Registered Trademark-, 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-Registered Trademark- and "TCBY"-Registered Trademark- 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-Registered Trademark-
and cc:Mail-Registered Trademark- to facilitate daily communication. Such
programs have enabled the Company to create and implement detailed reporting
systems at each of the Hotels and its corporate headquarters. Corporate
executives utilize information systems that track each 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.
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, sale and leasebacks 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
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<PAGE>
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 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 29 states across the nation, the District of Columbia
and Canada, with ten hotels located in Texas, nine in California, five in
Washington, D.C., four in Colorado, four in New Jersey, four in Virginia, three
in British Columbia, three in Georgia, three in Maryland, three in New York,
three in Pennsylvania, two in Illinois, two in Kentucky, two in Louisiana, two
in Michigan, two in Missouri and one hotel each in 15 additional states, one
U.S. territory and one additional Canadian province.
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 hotels
where intensive management and selective capital improvements can increase
revenue and cash flow. These hotels represent opportunities where a systematic
management approach and targeted renovations should result in improvements in
revenue and cash flow.
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<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 has 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 OP Units or Common Stock as an alternative to cash. The
Company currently expects to retain earnings for future acquisitions and the
renovation and maintenance of the hotels it owns.
THE PROPERTIES
The Owned Hotels and the Additional Acquisitions feature, or after the
Company's renovation programs have 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 travelers as well as
banquets and receptions from the local community.
RECENT ACQUISITIONS
THE FOLLOWING IS A BRIEF DESCRIPTION OF THE OWNED HOTELS ACQUIRED SUBSEQUENT
TO JUNE 30, 1997:
DOUBLETREE RESORT, PALM SPRINGS, CA. Built in 1985, the 289-room resort at
Desert Princess Country Club is located in Cathedral City, five minutes from the
Palm Springs Airport and one mile from the Date Palm Drive exit off Interstate
10. The hotel offers a wide array of recreational facilities, including a nine-
hole golf course, 10 tennis courts, two swimming pools, a health club, a
racquetball court and workout room, and access to the adjacent 18-hole David
Rainville-designed golf course. The property has 15,000 square feet of meeting
space, including two large ballrooms, two restaurants, the Promenade Cafe and
Princess Restaurant and two entertainment facilities, the Oasis Nightclub and
Vista Lounge. The Company has also obtained management contracts for 45
condominiums, which are contiguous to the hotel, increasing the property's
potential room capacity to 334.
GEORGETOWN INN, WASHINGTON, D.C. Built in 1962, the six story, 95-room
hotel is located in Georgetown, an historic district in central Washington D.C..
The hotel combines a high level of quality found in luxury hotels with a more
personalized level of service not usually found at larger hotels.
JEKYLL INN, JEKYLL ISLAND, GA. Built in 1971, the Jekyll Inn is a 265-room
oceanfront resort hotel on Jekyll Island off the coast of Georgia. The hotel has
an advantageous location near a 27-hole public golf course and is in close
proximity to the recently renovated and expanded convention center. The hotel
has more guest rooms and more extensive meeting space than any other hotel on
Jekyll Island or the nearby Sea Island and St. Simons.
RADISSON HOTEL & SUITES, CHICAGO, IL. Built in 1971, the 341-room hotel is
located in downtown Chicago, a half-block off North Michigan Avenue and the
city's renowned "Magnificent Mile" shopping area. The hotel is a 40-story,
mixed-use hotel and office tower, comprising its guest quarters, 93,000 square
feet of office space and a 170-space parking facility. The hotel's rooftop pool
and its oversized guest rooms and suites offer spectacular views of the city and
Lake Michigan. The hotel's meeting and banquet facilities total in excess of
18,000 square feet, including the recently completed RadiCenter 7, a 5,500
square foot conference facility that is ideal for small to mid-size groups and
one of the most advanced conference sites in the Midwest.
RADISSON PLAZA, LEXINGTON, KY. Built in 1982, the Radisson Plaza is a major
mixed-use development located in downtown Lexington directly across from and
connected by skywalk to Rupp Arena, the Lexington Convention Center and Festival
Market Place. The development consists of the 22-story,
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367-room Radisson Hotel and the Vine Center, which consists of a 17-story office
tower containing 242,528 square feet and 38 privately owned condominium units on
floors 18 through 22.
EMBASSY SUITES CENTER CITY, PHILADELPHIA, PA. Built in 1963, the 288-unit
Embassy Suites Center City has a premier location in Center City Philadelphia at
1776 Ben Franklin Parkway in the heart of the Market Street West corridor,
adjacent to Logan Circle. The property has prominent visibility along the
Parkway and is located in the city's top Class A office corridor, adjacent to
the Bell Atlantic Tower, one of the preeminent office towers in the Philadelphia
skyline. The hotel is conveniently located within a nine block radius of several
attractions including the recently built 622,000 square foot Philadelphia
Convention Center, the Philadelphia Museum of Art, City Hall, the Franklin
Institute and the Rodin Museum and Academy of Natural Sciences.
DOUBLETREE HOTEL, AUSTIN, TX. Built in 1984, the Doubletree Hotel is a
350-room, full-service hotel located in the city's high tech growth corridor
along Interstate 35. Austin, the capital of the State of Texas and home to the
nation's third largest university, has added to its economy more than 400 high
tech manufacturing and software companies over the past ten years. The
Doubletree is the premier commercial hotel adjacent to Austin's "golden
triangle" high tech area. The property enjoys excellent visibility and access
via I-35, which connects Austin to Dallas to the north and San Antonio to the
south.
NATIONAL AIRPORT HILTON, ARLINGTON, VA. Built in 1974, the 386-room hotel
is located one-half mile from National Airport in Crystal City, one of the
largest and most successful mixed-use developments in the United States. The
hotel has excellent accessibility by car, taxi and Metro, and generates demand
from many parts of the metropolitan D.C. area.
HOLIDAY INN-METROTOWN, VANCOUVER, B.C. Built in 1989, the 100-room hotel is
located adjacent to the skytrain station and physically integrated into the
Metrotown Mall, the largest shopping mall in British Columbia. The hotel
features a jogging track, outdoor pool and tennis courts as well as 3,805 square
feet of meeting space and two restaurants.
THE MEDALLION PORTFOLIO
SEELBACH HOTEL, LOUISVILLE, KY. Originally built in 1905 and extensively
renovated in 1982 and 1995, the 321-room hotel is located in downtown
Louisville, adjacent to the Galleria shopping complex, and features guestrooms
that are furnished with 18th-century reproduction armoires and four-poster beds.
The hotel also features meeting space and ballrooms totaling 30,000 square feet,
a health club and swimming pool privileges, as well as The Oak Room restaurant,
the Seelbach Cafe and the Old Seelbach Bar.
MEDALLION HOTEL, OKLAHOMA CITY, OK. Built in 1977, the 399-room,
fifteen-story hotel is the only major hotel located in downtown Oklahoma City
and is adjacent to the Myriad Convention Center. The hotel, which underwent an
$8.0 million renovation in early 1997, includes 18,000 square feet of meeting
space, a 6,000 square foot ballroom and the 154,000 square foot Century City
Mall. Amenities include a swimming pool, a health club, and the Aria Grill and
Lounge.
AUSTIN HILTON & TOWERS, AUSTIN, TX. Built in 1974, the 237-room hotel is
located at the northwest quadrant of the intersection of Interstate 35 and US
Highway 290, one mile northwest of Mueller Municipal Airport and five miles
north of the University of Texas at Austin. The property includes a nine-story
guestroom tower containing 190 rooms and the Garden Court containing 47 rooms.
The property offers over 17,000 square feet in flexible meeting space and an
8,000 square foot ballroom. Amenities include a restaurant and lounge, fitness
center, swimming pool, gift shop and airport transportation. In addition,
contiguous to the property is an 83-room limited-service hotel.
MEDALLION HOTEL, DALLAS, TX. Built in 1979, the 289-room hotel is located
in the prestigious North Dallas Corridor at the intersection of the LBJ Freeway
and Midway Road, one mile west of the Dallas Galleria and 12 miles east of the
DFW International Airport. The hotel offers over 28,000 square feet of
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meeting space, a 7,350 square foot ballroom, the Seasons restaurant, the Palm
Terrace lounge, a fitness center, an outdoor swimming pool, a business center
and complimentary transportation to the Galleria.
MEDALLION HOTEL, HOUSTON, TX. Build in 1979, the 382-room hotel is located
at the intersection of the Loop Freeway (Interstate 610) and the Northwest
Freeway (US Highway 290), one mile north of Interstate 10 and four miles north
of the Houston Galleria. The hotel features a ten-story atrium lobby, almost
14,000 square feet of meeting space and an 8,000 square foot ballroom. Amenities
include a full service restaurant and two lounges, gift shop, fitness center and
a swimming pool.
MIDLAND HILTON & TOWERS, MIDLAND, TX. Built in 1976, the 249-room hotel is
located in the heart of downtown Midland, across the street from Midland
Convention Center and ten miles east of Midland International Airport. The
property features over 10,000 square feet in flexible meeting space, a 6,000
square foot ballroom, a fitness center and an outdoor swimming pool.
THE ADDITIONAL ACQUISITIONS
EMBASSY SUITES, TUCSON INTERNATIONAL AIRPORT, TUCSON, AZ. Built in 1982,
the hotel has 204 two-room guest suites, and is located at the entrance to the
Tucson International Airport. The property is built around a heavily landscaped
courtyard, which contains a swimming pool and outdoor seating. The hotel has a
restaurant and lounge, an amphitheater, a ballroom and several breakout meeting
rooms.
DETROIT METRO AIRPORT HILTON SUITES, DETROIT, MI. Built in 1989, the hotel
contains 151 suites and is located one-quarter mile north of Detroit Metro
Airport. The hotel has 3,281 square feet of meeting space, an indoor and outdoor
swimming pool, exercise facilities and a gameroom, business center and gift
shop.
GOVERNOR MORRIS HOTEL & CONFERENCE CENTER, MORRISTOWN, NJ. Built in 1962,
the 201-room hotel is located 25 minutes from Newark International Airport and
45 minutes from Manhattan. The hotel has 18,503 square feet of meeting and
banquet space, four food and beverage outlets, a fitness center, a business
center, an outdoor swimming pool and a paddle tennis court.
THE MANAGED HOTELS
The Company operates 28 Managed Hotels owned by third parties containing
4,928 rooms. Of the Managed Hotels, 21 are full-service properties, and seven
are limited-service properties. Of the Managed Hotels, 23 are operated under
nationally-recognized brand names and five are independent properties. The brand
names of the Managed Hotels include Crowne Plaza Four Points, Clarion, Holiday
Inn and Best Western. 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. For the twelve
months ended December 31, 1996 and the six months ended June 30, 1997, the
Company's pro forma revenue from Management Agreements was $2.9 million and $2.1
million, respectively, constituting 0.7% and 1.0%, respectively, of the
Company's total pro forma revenue for such periods. No single Management
Agreement (or group of Management Agreements for hotels under common ownership
or control) currently accounts for more than 0.1% of the total revenue of the
Company 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
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(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.
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, brand
affiliation, price, range of services and guest amenities offered and quality of
customer service and overall product.
EMPLOYEES
As of June 30, 1997, the Company employed approximately 7,700 persons, of
whom approximately 6,500 were compensated on an hourly basis. Approximately 70
employees work at the corporate headquarters.
Employees at ten 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.
DOUBLETREE-Registered Trademark-, EMBASSY SUITES-Registered Trademark-,
HILTON-Registered Trademark- HOLIDAY INN-Registered Trademark-,
MARRIOTT-Registered Trademark-, RADISSON-Registered Trademark-,
RAMADA-Registered Trademark-, SHERATON-Registered Trademark- AND
WESTIN-Registered Trademark- ARE REGISTERED TRADEMARKS OF THIRD PARTIES, NONE OF
WHICH SHALL BE DEEMED AN ISSUER OR UNDERWRITER OF THE NOTES OFFERED HEREBY NOR
HAVE ANY OF SUCH FRANCHISORS ENDORSED OR APPROVED THE OFFERING. SUCH FRANCHISORS
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
HEREOF. A GRANT OF ANY SUCH FRANCHISE LICENSE FOR CERTAIN OF THE COMPANY'S
HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR
IMPLIED APPROVAL OR ENDORSEMENT BY ANY OF SUCH FRANCHISORS (OR ANY OF THEIR
AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE COMPANY OR THE NOTES 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
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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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THE OPERATING PARTNERSHIPS
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE
PROVISIONS OF THE LIMITED PARTNERSHIP AGREEMENTS OF CAPSTAR MANAGEMENT AND
CAPSTAR MANAGEMENT COMPANY II, L.P. ("CAPSTAR MANAGEMENT II"), COPIES OF WHICH
MAY BE OBTAINED FROM THE COMPANY.
Substantially all of the Company's assets are currently held indirectly by
and operated through CapStar Management and CapStar Management II, the Company's
subsidiary operating partnerships. The Company is the sole general partner of
CapStar Management, and the Company, CapStar LP Corporation, a wholly owned
subsidiary of the Company ("CapStar LP"), and an affiliate of Highgate Hotels
Inc. are the sole limited partners of CapStar Management. CapStar General Corp.,
a wholly-owned subsidiary of the Company, is the general partner of CapStar
Management II, and CapStar Limited Corp., another wholly-owned subsidiary of the
Company, and affiliates of the Highgate Hotels Inc. are the sole limited
partners of CapStar Management II. The partnership agreements of CapStar
Management and CapStar Management II (in each case, an "Operating Partnership")
give the general partner full control over the business and affairs of the
Operating Partnerships. The general partner is also given the right, in
connection with the contribution of property to such Operating Partnerships or
otherwise, to issue additional partnership interests in such Operating
Partnerships in one or more classes or series, with such designations,
preferences and participating or other special rights and powers (including
rights and powers senior to those of the existing partners) as the general
partner may determine.
The partnership agreements of the Operating Partnerships provide for two
classes of partnership interests ("OP Units"), common OP Units and preferred OP
Units, and the partners of the Operating Partnerships own the following
aggregate numbers of such OP Units: (i) the Company and its wholly owned
subsidiaries--a number of common OP Units equal to the number of issued and
outstanding shares of Common Stock; and (ii) affiliates of Highgate Hotels
Inc.--350,899 common OP Units and 392,157 preferred OP Units. The preferred OP
Units pay a 6.5% cumulative annual preferred return, compounded quarterly to the
extent not paid on a current basis, and are entitled to a liquidation preference
of $25.50 per preferred OP Unit. All net income and capital proceeds earned by
the Operating Partnerships, after payment of the annual preferred return and, if
applicable, the liquidation preference, will be shared by the holders of the
common OP Units in proportion to the number of common OP Units in the relevant
operating partnership owned by each such holder.
Each OP Unit held by an affiliate of Highgate Hotels Inc. is convertible by
the holder thereof for one share of Common Stock (or, at the Company's option,
for cash in an amount equal to the market value of a share of Common Stock). In
addition, the preferred OP Units will be redeemable by CapStar Management at a
price of $25.50 per preferred OP Unit (or, at the Company's option, for a number
of shares of Common Stock having a value equal to such redemption price) at any
time after April 1, 2000 or by the holders of the OP Units at a price of $25.50
per preferred OP Unit (in cash or, at the holder's option, for a number of
shares of Common Stock having a value equal to the redemption price) at any time
after April 1, 2004.
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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..................................... 47 President, Chief Executive Officer and Chairman of
the Board
David E. McCaslin.................................... 40 Chief Operating Officer and Director
John Emery........................................... 33 Chief Financial Officer
John E. Plunket...................................... 41 Executive Vice President, Finance and Development
Michael T. George.................................... 38 Senior Vice President, Operations
D. Scott Livchak..................................... 43 Senior Vice President, Operations
Robert Gauthier...................................... 43 Senior Vice President, Operations
Daniel L. Doctoroff.................................. 39 Director
Bradford E. Bernstein................................ 30 Director
William S. Janes..................................... 43 Director
Joseph McCarthy...................................... 65 Director
Edward L. Cohen...................................... 51 Director
Edwin T. Burton, III................................. 54 Director
Edward P. Dowd....................................... 54 Director
Mahmood Khimji....................................... 37 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.
JOHN EMERY has served as Chief Financial Officer of the Company since June
1997. From March 1996 to June 1997, he served as Treasurer and Secretary of the
Company and 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.
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.
MICHAEL T. GEORGE has served as Senior Vice President, Operations since
1995. From 1990 to 1995, Mr. George served as Vice President of Operations and
ultimately as Chief Operating Officer for Devon Hotels Ltd. in Montreal. From
1989 to 1990, Mr. George served as a General Manager and Vice President for
Radisson Hotels International, Inc. Prior to that, from 1986 to 1989, Mr. George
served in various capacities with Radisson Hotels, Hilton Hotels and Sheraton
Hotels.
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D. SCOTT LIVCHAK has served as Senior Vice President, Operations since 1990.
From 1985 to 1989 Mr. Livchak served as General Manager for The Adams Mark Hotel
in Philadelphia, owned by HBE Corporation. From 1977 to 1985, Mr. Livchak served
in various capacities with Sheraton Corporation in New York, Atlanta, Ohio and
Florida.
ROBERT GAUTHIER has served as Senior Vice President, Operations since 1996.
From 1993 to 1996, he served as Vice President, Operations and General Manager
of various CapStar hotels. Prior to that, from 1987 to 1993, Mr. Gauthier served
as Area Operations Manager and General Manager for Drexel Burnham Lambert
Realty, Inc. Mr. Gauthier also serves as a Director of the ITT Sheraton
Marketing Board.
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; 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, Kemper Corporation, Specialty Foods
Corporation and since March 1992 a Vice President of Keystone, Inc.
BRADFORD E. BERNSTEIN has served as a Principal and Vice President 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., Payroll Transfers, Inc. and Caliber Collision
Centers, Inc.
WILLIAM S. JANES has served as a Principal and Director of RMB Realty, Inc.
since 1990. Prior to that, from 1984 to 1989, Mr. Janes served as Regional
General Partner of Lincoln Property Company. 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. 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 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.
EDWARD P. DOWD has served as Senior Vice President of John Hancock Real
Estate Investment Group of John Hancock Financial Services since 1992. Prior to
that, from 1970 to 1992, Mr. Dowd served in various capacities at John Hancock
Realty. Mr. Dowd serves as Director of John Hancock Realty Investors, Inc., John
Hancock Realty Services Inc. and Maritime Life Assurance Co.
MAHMOOD KHIMJI has served as Senior Vice President of Highgate Hotels, Inc.,
an owner and operator of hotel and commercial properties throughout North
America, since 1988. Prior to that, from 1986 to
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1988, Mr. Khimji was an associate at the law firm of Paul, Weiss, Rifkind,
Wharton & Garrison. Mr. Khimji serves as a Director of the Texas Hotel/Motel
Association.
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by the Company during
1996 with respect to the Chief Executive Officer and the four most highly
compensated executive officers (the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ---------------------------------------------- ---------- --------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Paul W. Whetsell.............................. $ 215,081 $ -- $ 2,312 150,000 --
President, Chief Executive Officer and
Chairman of the Board
David E. McCaslin............................. 179,748 30,000 2,312 87,500 --
Chief Operating Officer and Director
John E. Plunket............................... 185,691 10,000 -- 73,129 --
Executive Vice President, Finance and
Development
William M. Karnes............................. 154,549 30,000 -- 50,000 --
Senior Executive Vice President
Michael T. George............................. 132,000 13,000 20,500 18,282 --
Senior Vice President, Operations
</TABLE>
STOCK OPTION GRANTS
The following table sets forth certain information with respect to the
options granted to the Named Executive Officers during 1996.
OPTION GRANTS IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
POTENTIAL
<S> <C> <C> <C> <C> <C> <C>
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(2)
OPTIONS 1996 FISCAL OR EXPIRATION --------------------------
NAME GRANTED(1) YEAR BASE PRICE DATE 5% 10%
- --------------------------------- ------------ --------------- ------------- ------------------ ------------ ------------
Paul W. Whetsell................. 150,000 20.1% $ 18 August 20, 2006 $ 1,698,015 $ 4,303,105
David E. McCaslin................ 87,500 11.7 18 August 20, 2006 990,509 2,510,144
John E. Plunket.................. 73,129 9.8 18 August 20, 2006 827,828 2,097,878
William M. Karnes................ 50,000 6.7 18 August 20, 2006 566,005 1,434,368
Michael T. George................ 18,282 2.5 18 August 20, 2006 206,954 524,462
</TABLE>
- ------------------------
(1) All of these options vest in equal installments over three years except
10,000 of the options granted to Mr. Plunket which vested immediately upon
their grant.
(2) In accordance with rules of the Commission, these amounts are the
hypothetical gains or "option spreads" that would exist for the respective
options based on assumed rates of annual compound stock price appreciation
of 5% and 10% from the date the options were granted over the full option
term.
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<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company ("Independent Directors") are
paid an annual fee of $12,000. In addition, each Independent Director is 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 do not receive any fees for their
service on the Board or a committee thereof. The Company reimburses directors
for their out-of-pocket expenses in connection with their service on the Board.
In connection with the IPO, each Independent Director was granted options to
purchase 5,000 shares of Common Stock at the IPO price of $18.00 per share. 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 in equal installments over a period of
three years from the date of grant. Any Independent Director who ceases to be a
director will forfeit the right to receive any options not previously vested or
granted.
COMMITTEES
The Board currently has an Audit Committee, a Compensation Committee and an
Investment Committee. The Audit Committee consists of three Independent
Directors. The Audit Committee makes recommendations concerning the engagement
of independent public accountants, reviews with the independent public
accountants the plans and results of the audit engagement, approves professional
services provided by the independent public accountants, review the independence
of the independent public accountants, considers the range of audit and
non-audit fees and reviews the adequacy of the Company's internal accounting
controls. The Compensation Committee consists of three Independent Directors and
determines compensation of the Company's executive officers and administers the
Company's Equity Incentive Plan (as defined below). The Investment Committee
consists of the Chairman of the Board and three Independent Directors, and
reviews and approves investments proposed to be made by the Company.
COMPENSATION PLANS
MANAGEMENT BONUS PLAN. The Company has established a management bonus plan
(the "Management Bonus Plan") under which certain officers and employees of the
Company, including the Named Executive Officers, are eligible to receive cash
bonuses based upon the achievement of predetermined corporate and individual
goals. Bonuses awarded under the Management Bonus Plan may not exceed 66% of the
officer or employee's annual base salary. The Management Bonus Plan is
administered by the Compensation Committee.
STOCK PURCHASE PLAN. Each employee of the Company who has completed 90 days
employment and is customarily employed at least 20 hours or more per week by the
Company or an affiliate (as defined in the Stock Purchase Plan), 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, 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
base pay, which amounts will be used to purchase Common Stock from the Company
on a monthly basis. The purchase price of Common Stock will equal a designated
percentage from 85% to 100% of the closing sales price for Common Stock as
reported on the Composite Transactions Tape of the NYSE (except as described
below) on the first trading day of the month or on the last trading day of the
month, whichever is less. The designated percentage will be established annually
by the Compensation Committee which is responsible for the administration of the
Stock Purchase Plan.
Common Stock purchased under the Stock Purchase Plan is held in custodial
accounts until sold or distributed at the participant's request. The custodian
may charge a fee for the execution of any such sale
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<PAGE>
or for the delivery of share certificates. The participant may not elect to
purchase stock under the Stock Purchase Plan for three months after a withdrawal
or sale of Common Stock under the Stock Purchase Plan. Shares purchased under
the Stock Purchase Plan may not be sold for six months after their purchase. Any
cash dividends paid on Common Stock held in a participant's account will be
reinvested in additional Common Stock (at 100% of fair market value). Non-cash
distributions on Common Stock held in a participant's account will be
distributed to the participant.
The Company has reserved 500,000 shares of Common Stock for issuance under
the Stock Purchase Plan. Such shares may be from authorized and unissued shares,
treasury shares or a combination thereof. The Stock Purchase Plan will remain in
effect until terminated by the Board, or until all shares authorized for
issuance thereunder have been issued. 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.
EQUITY INCENTIVE PLAN. The Company's Equity Incentive Plan (the "Equity
Incentive Plan") is designed to attract and retain qualified directors, officers
and other key employees of the Company and its affiliates (as defined in the
Equity Incentive Plan). The Equity Incentive Plan authorizes the grant of
options to purchase shares of Common Stock ("Options"), stock appreciation
rights ("Appreciation Rights") and restricted shares ("Restricted Shares"). The
Compensation Committee administers the Equity Incentive Plan and determines to
whom Options, Appreciation Rights and Restricted Shares are to be granted and
the terms and conditions thereof, including the number of shares relating to
each award and the period of exercisability or restricted period, as the case
may be. Notwithstanding the foregoing, the Board may resolve to administer the
Equity Incentive Plan itself, in which case the term Compensation Committee
shall be deemed to mean the Board.
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. To the extent that an award is canceled,
terminates, expires or lapses for any reason without the payment of
consideration, any shares of Common Stock subject to the award will again be
available for the grant of awards. Common Stock subject to Appreciation Rights
that are settled in cash will thereafter be available for the grant of awards.
Common Stock issued under the Equity Incentive Plan may be from authorized and
unissued shares, treasury shares or a combination thereof. Awards may be granted
to directors, officers or other key employees of the Company or an affiliate, as
determined by the Compensation Committee.
In connection with the IPO, the Company granted certain executive officers
and other members of management options to purchase up to 745,254 shares of
Common Stock at the IPO price of $18.00 per share. Certain of these options were
exercisable immediately upon their grant, while the remaining options become
exercisable in three annual installments.
The Compensation Committee may grant Options at a per share price equal to,
greater than or less than fair market value of the Common Stock on the date of
grant. The exercisability of Options may be conditioned on continued service
and/or the achievement of specified performance objectives ("Management
Objectives"). Subject to adjustment as provided in the Equity Incentive Plan, no
participant shall be granted awards relating to more than 200,000 shares during
any calendar year. The Compensation Committee shall determine the method of
exercising options and the form of payment, which may include, without
limitation, cash, shares of Common Stock that are already owned by the optionee,
other property or "cashless exercise" arrangements. Any grant may provide for
automatic "reload option rights", except that the term of any reload options
shall not extend beyond the term of the Options originally exercised. The
Compensation Committee may specify at the time Options 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. Options
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granted under the Equity Incentive Plan may be intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Code, or Options that
are not intended to so qualify. No incentive stock option may be exercised more
than ten years from the date of grant. Each grant must specify the period, if
any, of continuous service with the Company or any affiliate that is necessary
before the Options will become exercisable and may provide for the earlier
exercise of the Options in the event of a change of control of the Company or
other event. More than one grant may be made to the same optionee.
Appreciation Rights granted under the Equity Incentive Plan may be either
free-standing Appreciation Rights or Appreciation Rights that are granted in
tandem with Options. 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, greater than or less than the fair market value of a
share of Common Stock on the date of grant, must specify the period of
continuous service 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 event) and, in the case of an
Appreciation Right awarded in tandem with an incentive stock option, 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. In addition, any grant may
specify that an Appreciation Right may be exercised only in the event of a
change in control of the Company. The Compensation Committee may condition the
award of Appreciation Rights on continued service and/or the achievement of one
or more Management Objectives.
The Compensation Committee may award Restricted Shares to participants in
such amounts and subject to such terms and conditions as may be determined by
the Compensation Committee. The participant may be entitled to voting, dividend
and other ownership rights prior to the vesting of the shares. The Compensation
Committee may condition the vesting of an award on the achievement of specified
Management Objectives.
No Options, Appreciation Rights or other awards are transferable by a
participant except by will or the laws of descent and distribution. Options 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.
In the event of certain stock dividends, stock splits, combinations of
shares, recapitalizations, mergers, consolidations, spin-offs, reorganizations,
liquidations, issuances of rights or warrants, and similar transactions or
events, the Compensation Committee, in its sole discretion, may adjust (i) the
maximum number of shares that may be issued or transferred under the Equity
Incentive Plan, (ii) the number of shares covered by outstanding awards, (iii)
the exercise price of outstanding options and (iv) base prices of outstanding
SARs. 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 Options and Appreciation Rights
granted to any one participant during any calendar year.
In connection with its administration of the Equity Incentive Plan, the
Compensation Committee is authorized to interpret the Equity Incentive Plan,
related agreements and other documents. With the approval of the Board, the
Equity Incentive Plan may be amended from time to time by the Compensation
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Committee but, without further approval by the shareholders of the Company, no
such amendment may (i) increase the total number of shares of Common Stock that
may be issued under the Equity Incentive Plan (except as otherwise provided in
the plan), (ii) modify the Equity Incentive Plan's eligibility requirements or
(iii) materially increase the benefits accruing to participants under the Equity
Incentive Plan.
EMPLOYMENT AGREEMENTS
Each of Paul Whetsell, David McCaslin, John Emery 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,
$200,000 in the case of Mr. Emery, 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 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, in addition to any other remedies available 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 or (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 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 imposed by Section 4999 of the Code 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.
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Under the employment agreements of Messrs. Emery and Plunket, each is
entitled to receive a lump some payment equal to 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
will be entitled to 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 a Change in Control occurs and the
executive reasonably believes that a Material Adverse Change will occur
following such Change in Control (as defined below). The events constituting
"Cause" under the employment agreements of Messrs. Emery 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
material 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
agreement of Messrs. Emery and Plunket, the term "Change in Control" means: any
person or entity, other than Acadia Partners, L.P. and its affiliates, 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 agreement of Messrs. Emery 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
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of June 30, 1997 by (i) all persons known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each director
who is a stockholder, (iii) each of the Named Executive Officers, and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
--------------------------
<S> <C> <C>
NAME & ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE
- ---------------------------------------------------------------------- --------- ---------------
Acadia Partners, L.P.(1).............................................. 1,426,102 7.5%
RCM Capital Management, L.L.C.(2)..................................... 1,424,500 7.4
LaSalle Advisors Limited Partnership and ABKB/LaSalle Securities
Limited Partnership(3).............................................. 1,154,700 6.1
Franklin Resources, Inc.(4)........................................... 987,500 5.1
Paul W. Whetsell(5)................................................... 970,503 5.1
David E. McCaslin(5).................................................. 472,236 2.5
John E. Plunket(5).................................................... 462,729 2.4
Mahmood Khimji(5)..................................................... 400,000 2.1
John Emery(6)......................................................... 0 --
Michael T. George(6).................................................. 0 --
D. Scott Livchak(6)................................................... 0 --
Robert Gauthier(6).................................................... 0 --
Daniel L. Doctoroff(6)................................................ 0 --
Bradford E. Bernstein(6).............................................. 0 --
William S. Janes(6)................................................... 0 --
Joseph McCarthy(6).................................................... 0 --
Edward L. Cohen....................................................... 0 --
Edwin T. Burton, III.................................................. 0 --
Edward P. Dowd........................................................ 0 --
All directors and executive officers as a group (15 persons).......... 980,010 5.1%
</TABLE>
- ------------------------
(1) The business address of Acadia Partners, L.P. is 201 Main Street, Suite
2600, Fort Worth, TX 76102. Includes 1,373,034 shares owned by Acadia
Partners, L.P. and 53,068 shares owned by Cherwell Investors, Inc.
("Cherwell"), a wholly owned subsidiary of Acadia Partners, L.P. 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 406,702 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 chart, above. The number of
shares set forth as being owned by Acadia Partners, L.P. in the Principal
Stockholders chart above also excludes 406,701 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.
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(2) The business address of RCM Capital Management, L.L.C. ("RCM Capital") is
Four Embarcadero Center, Suite 2900, San Francisco, CA 94111. The Managing
Agent of RCM Capital is RCM Limited L.P. ("RCM Limited"). The General
Partner of RCM Limited is RCM General Corporation ("RCM General"). As such,
RCM Limited and RCM General may be deemed to beneficially own such shares
within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934,
as amended ("Rule 13d-3"). In addition, RCM Capital is a wholly-owned
subsidiary of Dresdner Bank AG ("Dresdner"). As such, Dresdner also may be
deemed to beneficially own the shares held by RCM Limited.
(3) The business address of LaSalle Advisors Limited Partnership and
ABKB/LaSalle Securities Limited Partnership (collectively, the "LaSalle
Partnerships") is 11 South LaSalle Street, Chicago, IL 60603. The LaSalle
Partnerships are registered investment advisors and may be deemed to
beneficially own such shares within the meaning of Rule 13d-3. William K.
Morrill, Jr. and Keith R. Pauley are employees of the LaSalle Partnerships
and, in such capacity, also may be deemed to beneficially own such shares
within the meaning of Rule 13d-3.
(4) The business address of Franklin Resources, Inc. ("FRI") is 777 Mariners
Island Blvd., San Mateo, CA 94404. Such shares are owned by one or more open
or closed-ended investment companies or other managed accounts which are
advised by direct or indirect advisory subsidiaries of FRI. Such advisory
subsidiaries may be deemed to beneficially own such shares within the
meaning of Rule 13d-3. Charles B. Johnson and Rupert H. Johnson, Jr. each
own in excess of 10% of FRI and, as such, also may be deemed to own such
shares held, directly or indirectly, by FRI within the meaning of Rule
13d-3.
(5) Includes shares held by entities over which such person has beneficial
ownership within the meaning of Rule 13d-3.
(6) 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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ACQUISITIONS
In March 1996, the Company acquired The 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 Hotel 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.
In April 1997, the Company acquired the Holiday Inn in Tinton Falls, New
Jersey and the Holiday Inn Sports Complex in Kansas City, Missouri for an
aggregate purchase price of $10,128,000 from two partnerships in which Mr.
Whetsell owned, directly or indirectly, 12.0% and 11.0%, respectively, and Mr.
McCaslin owned, directly or indirectly, 1.5% and 1.4%, respectively, of the
beneficial interest. The purchase price for these hotels 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
the sellers, on the other hand; such representatives are not affiliated with the
Company.
In April 1997, the Company acquired a portfolio of six hotels from Highgate
Hotels, Inc. and certain affiliated entities, for consideration consisting of
$68 million cash and $32 million of OP Units. Mahmood
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Khimji, a director of the Company, is a principal of Highgate Hotels, Inc. At
the time of the acquisition, Mr. Khimji was not a director of the Company.
In August 1997, the Company acquired the Holiday Inn-Metrotown in Vancouver,
British Columbia for an aggregate purchase price of $6,951,000 from Highgate
Hotels, Inc. and certain affiliated entities. The purchase price for the hotel
was determined through arm's-length negotiations between the Company on the one
hand, and representatives of the sellers, on the other hand, and is believed to
have been at fair market value.
Since November 1995, the Company has acquired 86.4% of the limited
partnership interests in the partnership ("Atlanta Partners") that owns the
Westin Atlanta Airport. 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 Westin
Atlanta Airport. All of the compensation paid or payable to affiliates of Mr.
Roskind in connection with the Westin Atlanta Airport transaction was negotiated
between Mr. Roskind, on the one hand, and other principals of EquiStar, on the
other hand, who believed the compensation to have been at fair market value. Mr.
Roskind is no longer associated with the Company.
OWNERSHIP INTERESTS IN CERTAIN MANAGED HOTELS
Mr. Whetsell and Mr. McCaslin and entities owned by them own, directly or
indirectly, (i) a leasehold interest, expiring on December 31, 2001, in two of
the Managed Hotels and (ii) minority equity interests in four of the Managed
Hotels. Mr. Whetsell and Mr. McCaslin exercise management control over the
Affiliated Owners of two 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. For the year ended December 31, 1996 and for the six months ended
June 30, 1997, the Company received approximately $287,000 and $276,000 in
management fees, respectively, from those Managed Hotels in which Messrs.
Whetsell and McCaslin own an equity interest, including approximately $234,000
and $112,000, respectively, 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 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 were repaid in September 1996.
SUBORDINATED DEBT
In December 1996, the Company incurred $50 million of subordinated
indebtedness under a credit facility which was refinanced in July 1997 with the
proceeds of the 1997 Credit Facility. One member of the syndicate of lenders of
the $50 million subordinated indebtedness was OHSF. The investment advisor to
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OHSF is Oak Hill Advisors, Inc., one of the principal stockholders of which is
Daniel L. Doctoroff, a director of the Company. Mr. Doctoroff is also a
principal stockholder the Company. See "Principal Stockholders".
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE 1997 CREDIT FACILITY
The Company has obtained the 1997 Credit Facility in the maximum principal
amount of $450 million. Initial borrowings under the 1997 Credit Facility were
used by the Company to repay existing indebtedness. Subsequent borrowings under
the 1997 Credit Facility will be used to acquire and renovate upscale, full-
service hotels and for other general corporate purposes.
The 1997 Credit Facility is composed of a $350 million revolving loan
facility maturing on June 30, 2002, and a $100 million term loan facility
maturing on June 30, 2004. The term loan facility calls for mandatory payments
of principal beginning on March 31, 1998. The revolving loan facility commitment
will be reduced in increments of $12.5 million on a quarterly basis beginning on
October 1, 2000 and ending on July 1, 2001. In addition, the 1997 Credit
Facility provides that net sales and financing proceeds and 50% of excess cash
flow, in each case to the extent not reinvested and subject to certain
exceptions set forth in the 1997 Credit Facility, must be used to prepay the
term loan facility and reduce the revolving credit facility.
Borrowings under the 1997 Credit Facility will bear interest, at the
Company's option, at a rate equal to (a) the "Base Rate" or (b) the "Eurodollar
Rate" plus, in either case, the "Applicable Margin." The Base Rate is equal to
the highest of (i) the publicly announced prime rate of BankBoston, N.A.; (ii)
the secondary market rate for three-month certificates of deposit plus 1% and
(iii) the federal funds rate plus 1/2 of 1%. The Eurodollar Rate is the rate at
which eurodollar deposits for one, two, three or six months (as selected by the
Company) are offered in the interbank eurodollar market. The Applicable Margin
will be determined on a quarterly basis by reference to the ratio of the
Company's debt to the Company's EBITDA for the trailing twelve-month period and
will range from (A) 1.5% to 2.0% in the case of Eurodollar Rate loans under the
revolving loan facility; (B) 0.5% to 1.0% in the case of Base Rate loans under
the revolving loan facility; (C) 1.75% to 2.125% in the case of Eurodollar Rate
loans under the term loan facility; and (D) 0.75% to 1.125% in the case of Base
Rate loans under the term loan facility.
The Company will be required to pay customary fees in connection with the
structuring of the 1997 Credit Facility, a commitment fee on the unused portion
of the 1997 Credit Facility and a fee on outstanding letters of credit under the
1997 Credit Facility.
The 1997 Credit Facility is a direct obligation of the Company and is fully
and unconditionally guaranteed by the Company and certain subsidiaries of the
Company, including the Operating Partnerships and the subsidiaries owning hotel
properties. The 1997 Credit Facility is secured by substantially all the real
and personal property of the Company and its Restricted Subsidiaries. The 1997
Credit Facility contains covenants 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 and
Management Agreements, (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) mergers, acquisitions,
divestitures or reorganizations, (viii) the issuance of preferred stock and (ix)
sales of its hotel properties. The 1997 Credit Facility also contains 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 cash flow to consolidated debt
service, consolidated cash flow to consolidated fixed charges and consolidated
total indebtedness to consolidated cash flow. The 1997 Credit Facility
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prohibits certain changes in control of the Company, including certain
dispositions of stock owned by Paul Whetsell, and requires that Paul Whetsell
remain an active senior officer of the Company.
THE NON-RECOURSE FACILITY
In August 1997, the Company entered into the $100.0 million Non-Recourse
Facility with Lehman Holdings. The Non-Recourse Facility has an 18-month term
and bears interest at a rate of between 175 and 270 basis points over 30-day
LIBOR, based upon certain debt service ratios. The Non-Recourse Facility is
expected to be utilized to fund new hotel acquisitions in a tax-efficient
manner.
THE CONVERTIBLE NOTES
In October 1997, the Company issued $172.5 million aggregate principal
amount of the Convertible Notes. The Convertible Notes are general, unsecured
obligations of the Company subordinated in right of payment to all indebtedness
of the Company and subordinated by operation of law to all liabilities of the
Company's subsidiaries (including trade payables). The indenture pursuant to
which the Convertible Notes were issued does not restrict the incurrence by the
Company or its subsidiaries of additional indebtedness. The Convertible Notes
are not redeemable by the Company prior to October 15, 2000, and thereafter are
redeemable at specified premiums until maturity. Conversion of the Convertible
Notes is permitted at any time after January 14, 1998, at a rate of 23.2558
shares of Common Stock per $1,000 principal amount.
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DESCRIPTION OF NOTES
Except as otherwise indicated, the following description relates both to the
Existing Notes issued in the Offering and the New Notes to be issued in exchange
for Existing Notes and in connection with the Exchange Offer. The form and terms
of the New Notes are the same as the form and terms of the Existing Notes,
except that the New Notes have been registered under the Securities Act and
therefore will not bear legends restricting the transfer thereof.
GENERAL
The Existing Notes were, and the New Notes will be, issued pursuant to an
Indenture (the "INDENTURE") dated as of August 19, 1997, between the Company and
IBJ Schroder Bank & Trust Company, as trustee (the "TRUSTEE"). The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act. The Notes are subject to all such
terms, and Holders of the Notes are referred to the Indenture and the Trust
Indenture Act for a statement thereof. The following summary of certain
provisions of the Indenture does not purport to be complete and is qualified in
its entirety by reference to the Indenture, including the definitions therein of
certain terms used below and those terms made a part of the Indenture by
reference to the Trust Indenture Act as in effect on the date of the Indenture.
A copy of the Indenture has been filed with the Commission as an exhibit to the
Registration Statement of which this Prospectus is a part and is incorporated
herein by reference. See "--ADDITIONAL INFORMATION." The definitions of certain
terms used in the following summary are set forth below under "--CERTAIN
DEFINITIONS." For purposes of this section, references to the "COMPANY" refer
only to CapStar Hotel Company without including any of its Subsidiaries.
The Notes are unsecured obligations of the Company, ranking subordinate in
right of payment to all Senior Debt of the Company. See "--SUBORDINATION." In
addition, the Notes are effectively subordinate to all obligations of the
Company's Subsidiaries, including without limitation trade payables in the
ordinary course. On a pro forma basis, the Company would have approximately
$468.4 million of Indebtedness outstanding, including $77.8 million of Senior
Debt and $68.2 million of Non-Recourse Indebtedness of Unrestricted Subsidiaries
of the Company. The Indenture permits the incurrence of additional Senior Debt
in the future.
For purposes of the Indenture, the Company's Subsidiaries are divided into
two categories-- Restricted Subsidiaries, which generally are subject to the
restrictive covenants set forth in the Indenture, and Unrestricted Subsidiaries,
which generally are not. As of the date of this Prospectus, certain of the
Company's Subsidiaries, which hold or will hold the Company's interests in the
Radisson Plaza, Lexington, Kentucky, the Embassy Suites Center City,
Philadelphia, the Doubletree Hotel, Austin, and the Westchase Hilton & Towers,
Houston, were designated as Unrestricted Subsidiaries. None of the Company's
Restricted Subsidiaries is presently required to guarantee the Notes, although
under certain future circumstances the Company may be required to cause one or
more Restricted Subsidiaries to guarantee the Notes on a senior subordinated
basis. See "--SUBSIDIARY GUARANTEES." Subsidiaries that are properly designated
and maintained as Unrestricted Subsidiaries by the Company will not be required
to guarantee the Notes under any circumstances.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount of $200,000,000, of
which $150,000,000 aggregate principal amount was issued in the Offering.
Additional amounts may be issued in one or more series from time to time,
subject to the limitations set forth under "--INCURRENCE OF INDEBTEDNESS AND
ISSUANCE OF CERTAIN CAPITAL STOCK" and the restrictions contained in the Credit
Agreement. The Company has agreed not to offer or sell any additional amounts
under the Indenture for a period of 180 days from the date of the Indenture
without the prior written consent of the Initial Purchaser. The Notes will
mature on August 15, 2007. Interest on the Notes will accrue from the Issuance
Date and will be payable semi-annually in
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arrears in cash on February 15 and August 15 of each year, commencing on
February 15, 1998, at the rate of 8 3/4% per annum to holders of Notes (each, a
"Holder") of record on the immediately preceding February 1 and August 1.
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the Issuance Date. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months. Principal of and premium, interest and Liquidated Damages, if any, on
the Notes will be payable at the office or agency of the Company maintained for
such purpose or, at the option of the Company, payment of interest and
Liquidated Damages may be made by check mailed to the Holders of the Notes at
their respective addresses set forth in the register of Holders of Notes,
provided that all payments with respect to Notes the Holders of which have given
wire transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency will be the office of the Trustee maintained for such purpose. The Notes
will be issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
At any time on or after August 15, 2002, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not less than
30 nor more than 60 days notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the applicable redemption
date, if redeemed during the twelve-month period beginning on August 15 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------ -----------
<S> <C>
2002...................................... 104.375%
2003...................................... 102.917
2004...................................... 101.458
2005 and thereafter....................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to August 15, 2000, the Company may
redeem, on any one or more occasions, with the net cash proceeds of one or more
public offerings of its common equity (a "PUBLIC EQUITY OFFERING") (within 60
days of the consummation of any such Public Equity Offering), up to 35% of the
aggregate principal amount of the Notes at a redemption price equal to 108.750%
of the principal amount of such Notes plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the redemption date; PROVIDED, HOWEVER,
that at least 65% of the aggregate principal amount of Notes originally issued
remains outstanding immediately after each such redemption. The Credit Agreement
prohibits the purchase of the Notes with the net cash proceeds of a Public
Equity Offering, unless and until the Indebtedness under the Credit Agreement is
repaid in full.
In addition, the Company, at its option, at any time prior to August 15,
2002, may redeem the Notes, in whole or in part (if in part, by lot or by such
other method as the Trustee shall deem fair or appropriate) at the Make-Whole
Price, plus accrued and unpaid interest and Liquidated Damages thereon, if any,
to the applicable redemption date.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full in cash or
Cash Equivalents of all Obligations on Senior Debt, whether outstanding on the
Issuance Date or thereafter incurred. Upon any payment or distribution of
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assets of the Company of any kind or character, whether in cash, property or
securities, to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshalling of assets
of the Company or in a bankruptcy, reorganization, insolvency, receivership or
other similar proceeding relating to the Company or its property, whether
voluntary or involuntary, all Obligations due upon all Senior Debt shall first
be paid in full in cash or Cash Equivalents, or such payment shall be duly
provided for to the satisfaction of the holders of Senior Debt, before any
payment or distribution of any kind or character is made on account of any
Obligations on the Notes, or for the acquisition by the Company or any of its
Subsidiaries of any of the Notes for cash or property or otherwise, and, until
all Obligations with respect to Senior Debt are paid in full in cash or Cash
Equivalents, any distribution to which the Holders would be entitled shall be
made to the holders of Senior Debt (except that Holders of Notes may receive
Permitted Junior Securities and payments made from the trust described under "--
LEGAL DEFEASANCE AND COVENANT DEFEASANCE").
If any default occurs and is continuing in the payment when due, whether at
maturity, upon any redemption, by declaration or otherwise, of any principal of,
interest on, unpaid drawings for letters of credit issued in respect of, or
regularly accruing fees with respect to, any Designated Senior Debt, no payment
of any kind or character shall be made by or on behalf of the Company or any
other Person on its behalf with respect to any Obligations on the Notes or to
acquire any of the Notes for cash or property or otherwise (except that Holders
of Notes may receive Permitted Junior Securities and payments made from the
trust described under "--LEGAL DEFEASANCE AND COVENANT DEFEASANCE"). In
addition, if any other event of default occurs and is continuing with respect to
any Designated Senior Debt, as such event of default is defined in the
instrument creating or evidencing such Designated Senior Debt, permitting the
holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
trustee (a "DEFAULT NOTICE"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined below), during the 179 days after
the delivery of such Default Notice (the "BLOCKAGE PERIOD"), neither the Company
nor any of its Subsidiaries shall (x) make any payment of any kind or character
with respect to any Obligations on the Notes (except the Holders of Notes may
receive Permitted Junior Securities and payments made from the trust described
under "--LEGAL DEFEASANCE AND COVENANT DEFEASANCE") or (y) acquire any of the
Notes for cash or property or otherwise. Notwithstanding anything herein to the
contrary, in no event will a Blockage Period extend beyond 179 days from the
date the payment on the Notes was due and only one such Blockage Period may be
commenced within any 365 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Blockage Period with
respect to the Designated Senior Debt shall be, or be made, the basis for
commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 365 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 180 consecutive days (it being acknowledged that any subsequent
action, or any breach of any financial covenants for a period commencing after
the date of commencement of such Blockage Period that, in either case, would
give rise to an event of default pursuant to any provisions under which an event
of default previously existed or was continuing shall constitute a new event of
default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Notes, may recover less ratably than holders of Senior Debt.
On a pro forma basis, the Company would have had approximately $468.4 million of
Indebtedness outstanding, including $77.8 million of Senior Debt and $68.2
million of Non-Recourse Indebtedness of Unrestricted Subsidiaries of the
Company.
None of the Company's Subsidiaries is presently required to guarantee the
Notes, although under certain future circumstances the Company may be required
to cause one or more Restricted Subsidiaries to guarantee the Notes on a senior
subordinated basis. The Indebtedness represented by any such
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Guarantee (i.e., the payment of Obligations on the Notes) will be subordinated
on the same basis to Senior Debt of the Guarantor as the Notes are subordinated
to Senior Debt of the Company.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL. The Indenture provides that upon the occurrence of a
Change of Control, each Holder will have the right to require that the Company
purchase all or a portion of such Holder's Notes pursuant to the offer described
below (the "CHANGE OF CONTROL OFFER"), at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase.
Within 10 days following the date upon which the Change of Control occurs,
the Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 60 days from the date such notice
is mailed, other than as may be required by law (the "CHANGE OF CONTROL PAYMENT
DATE"). Holders electing to have a Note purchased pursuant to a Change of
Control Offer will be required to surrender the Note, with the form entitled
"OPTION OF HOLDER TO ELECT PURCHASE" on the reverse of the Note completed, to
the Trustee or Paying Agent, if any, at the address specified in the notice
prior to the close of business on the third business day prior to the Change of
Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept that Change of Control Offer. The Credit Agreement prohibits the purchase
of Notes by the Company in the event of a Change of Control, unless and until
such time as the Indebtedness under the Credit Agreement is repaid in full. Any
future credit agreements or other agreements relating to Senior Debt to which
the Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from purchasing Notes, the Company could seek the consent of its lenders to the
purchase of Notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing Notes. In such
case, the Company's failure to purchase tendered Notes would constitute an Event
of Default under the Indenture which would, in turn, constitute as default under
the Credit Agreement. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of Notes.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "ALL OR SUBSTANTIALLY ALL"
of the Company's assets. Although there is a developing body of case law
interpreting the phrase "SUBSTANTIALLY ALL," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of Notes to require the Company to repurchase such Notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of the Company to another person may be uncertain.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "CHANGE
OF CONTROL" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be
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deemed to have breached its obligations under the "CHANGE OF CONTROL" provisions
of the Indenture by virtue thereof.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
ASSET SALES The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, conduct an Asset Sale, unless (x)
the Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (evidenced by a resolution of
the Board of Directors set forth in an officer's certificate delivered to the
Trustee) and (y) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents; PROVIDED, HOWEVER, that the principal amount of the following shall
be deemed to be cash for purposes of this provision: (A) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance sheet
or in the notes thereto), of the Company or any Restricted Subsidiary (other
than liabilities that are by their terms subordinated to the Notes or any
Guarantee thereof) that are assumed by the transferee of any such assets and (B)
any notes or other obligations received by the Company or any such Restricted
Subsidiary from such transferee that are converted by the Company or such
Restricted Subsidiary into cash within 90 days of the closing of such Asset Sale
(to the extent of the cash received). Notwithstanding the foregoing, the
restriction in clause (y) above will not apply with respect to mortgages, other
notes receivable or other securities received by the Company or any Restricted
Subsidiary from a transferee of any assets to the extent such mortgages, other
notes receivable or other securities are Investments permitted to be made by the
Company or such Restricted Subsidiary under the covenant entitled "RESTRICTED
PAYMENTS."
Within 365 days of any Asset Sale, the Company or such Restricted Subsidiary
may (a) apply the Net Proceeds from such Asset Sale to prepay any Indebtedness
that ranks by its terms senior to the Notes (or any Guarantee thereof) and, in
the case of any Indebtedness under the Credit Agreement, to effect a permanent
reduction in the amount of Indebtedness that may be incurred pursuant to clause
(ii) of the second paragraph of the covenant entitled "INCURRENCE OF
INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL STOCK," or (b) invest the Net
Proceeds from such Asset Sale in property or assets used in a Hospitality-
Related Business, PROVIDED that the Company or such Restricted Subsidiary will
have complied with this clause (b) if, within 365 days of such Asset Sale, the
Company or such Restricted Subsidiary shall have commenced and not completed or
abandoned an investment in compliance with this clause (b) and shall have
segregated such Net Proceeds from the general funds of the Company and its
Subsidiaries for that purpose and such Investment is substantially completed
within 180 days after the first anniversary of such Asset Sale. Any Net Proceeds
from an Asset Sale that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "EXCESS PROCEEDS." When
the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company shall
make an offer, to all Holders of Notes and other Indebtedness that ranks by its
terms PARI PASSU in right of payment with the Notes and the terms of which
contain substantially similar requirements with respect to the application of
net proceeds from asset sales as are contained in the Indenture (an "ASSET SALE
OFFER") to purchase on a PRO RATA basis the maximum principal amount of Notes,
that is an integral multiple of $1,000, that may be purchased out of the Excess
Proceeds, at an offer price in cash in an amount equal to 100% of the principal
amount thereof plus accrued and unpaid interest and Liquidated Damages thereon,
if any, to the date of purchase, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate amount of Notes and other such
Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Holders thereof exceeds the amount of Excess
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Proceeds available for purchase thereof, the Trustee shall select the Notes to
be purchased in the manner described under the caption "--SELECTION AND NOTICE"
below. Upon completion of such offer to purchase, the amount of Excess Proceeds
shall be reset at zero. Pending the final application of any Net Proceeds from
an Asset Sale pursuant to this paragraph, the Company or any Restricted
Subsidiary may temporarily reduce Indebtedness of the Company or a Restricted
Subsidiary that ranks by its terms senior to the Notes or otherwise invest such
Net Proceeds in Cash Equivalents. The Credit Agreement generally prohibits the
purchase of Notes by the Company in the circumstances described above unless and
until such time as the indebtedness under the Credit Agreement is repaid in
full.
The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with any offer to purchase and the purchase of Notes as described above. To the
extent that the provisions of any securities laws or regulations conflict with
the "ASSET SALE" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "ASSET SALE" provisions of the Indenture by
virtue thereof.
SELECTION AND NOTICE
In the event that less than all of the Notes are to be purchased in an Asset
Sale Offer or redeemed at any time, selection of Notes for purchase or
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed, or, if the notes are not so listed, on a PRO RATA basis, by lot or by
such method as the Trustee shall deem fair and appropriate, PROVIDED that no
Notes of a principal amount of $1,000 or less shall be redeemed in part,
PROVIDED, FURTHER, that if a partial redemption is made with the proceeds of a
public offering by the Company of common equity securities, selection of the
Notes or portions thereof for redemption shall be made by the Trustee only on a
PRO RATA basis or on as nearly a PRO RATA basis as is practicable (subject to
procedures of the Depositary), unless such method is otherwise prohibited.
Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the purchase or redemption date to each Holder of
Notes to be purchased or redeemed at its registered address. If any Note is to
be purchased or redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
purchased or redeemed.
A new Note in principal amount equal to the unpurchased or unredeemed
portion of any Note purchased or redeemed in part will be issued in the name of
the Holder thereof upon cancellation of the original Note. On and after the
purchase or redemption date, interest ceases to accrue on Notes or portions
thereof called for purchase or redemption as long as the Company has deposited
with the Trustee funds in satisfaction of the applicable redemption price
pursuant to the Indenture.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
RESTRICTED PAYMENTS. The Indenture provides that the Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly:
(i) declare or pay any dividend or make any distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (other than:
(1) dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company; (2) dividends or distributions by a
Restricted Subsidiary of the Company, provided that to the extent that a portion
of such dividend or distribution is paid to a holder of Equity Interests of a
Restricted Subsidiary other than the Company or a Restricted Subsidiary, such
portion of such dividend or distribution is not greater than such holder's PRO
RATA aggregate common equity interest in such Restricted Subsidiary; and (3)
dividends or distributions payable on Existing Preferred OP Units and Preferred
OP Units issued in compliance with the covenant described under the caption
"--INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL
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STOCK"); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Restricted Subsidiary or other Affiliate
of the Company (other than (A) any Equity Interests owned by the Company or any
Restricted Subsidiary of the Company, (B) any Existing Preferred OP Units and
(C) any Preferred OP Units issued in compliance with the covenant described
under the caption "-- INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL
STOCK"); (iii) purchase, redeem or otherwise acquire or retire for value any
Indebtedness of the Company or any Restricted Subsidiary that is subordinated or
junior in right of payment, by its terms, to the Notes or any Guarantee thereof
prior to the scheduled final maturity or sinking fund payment dates for payment
of principal and interest in accordance with the original documentation for such
subordinated or junior Indebtedness; or (iv) make any Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the covenant described under the
caption "--INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL
STOCK"; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii), (iv), (v) and (vi)(X) of the next succeeding
paragraph), is less than the sum, without duplication, of (i) 50% of the
Consolidated Net Income of the Company for the period (taken as one
accounting period) from June 30, 1997 to the end of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such Consolidated
Net Income for such period is a deficit, less 100% of such deficit), PLUS
(ii) 100% of the aggregate net proceeds (including the fair market value of
non-cash proceeds as determined in good faith by the Board of Directors)
received by the Company from the issue or sale, in either case, since the
date of the Indenture of either (A) Equity Interests of the Company or of
(B) debt securities of the Company that have been converted or exchanged
into such Equity Interests (other than Equity Interests (or convertible or
exchangeable debt securities) sold to a Restricted Subsidiary of the Company
and other than Disqualified Stock or debt securities that have been
converted or exchanged into Disqualified Stock), PLUS (iii) in case any
Unrestricted Subsidiary has been redesignated a Restricted Subsidiary
pursuant to the terms of the Indenture or has been merged, consolidated or
amalgamated with or into, or transfers or conveys assets to, or is
liquidated into, the Company or a Restricted Subsidiary and PROVIDED that no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof, the lesser of (A) the book value (determined
in accordance with GAAP) at the date of such redesignation, combination or
transfer of the aggregate Investments made by the Company and its Restricted
Subsidiaries in such Unrestricted Subsidiary (or of the assets transferred
or conveyed, as applicable) and (B) the fair market value of such Investment
in such Unrestricted Subsidiary at the time of such redesignation,
combination or transfer (or of the assets transferred or conveyed, as
applicable), in each case as determined in good faith by the Board of
Directors of the Company, whose determination shall be conclusive and
evidenced by a resolution of such Board and, in each case, after deducting
any Indebtedness associated with the Unrestricted Subsidiary so designated
or combined or with the assets so transferred or conveyed, PLUS (iv) 100% of
any dividends, distributions or interest actually received in cash by the
Company or a Restricted Subsidiary after the date of the Indenture from (A)
a Restricted Subsidiary the Net Income of which has been excluded from the
computation of Consolidated Net Income, (B) an Unrestricted Subsidiary, (C)
a person that is not a Subsidiary or (D) a Person that is accounted for on
the equity method plus (v) $15.0 million.
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The foregoing provisions will not prohibit the following Restricted
Payments: (i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture; (ii) (X) the redemption,
purchase, retirement or other acquisition of any OP Unit in exchange for Equity
Interests of the Company (other than Disqualified Stock) and (Y) the redemption,
purchase, retirement or other acquisition of any Equity Interests of the Company
or a Restricted Subsidiary (other than OP Units or Preferred OP Units) in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Restricted Subsidiary of the Company) of other Equity Interests
of the Company (other than any Disqualified Stock), PROVIDED that in the case of
(X) and (Y) the amount of any proceeds that is utilized for such redemption,
repurchase, retirement or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (iii) the defeasance, redemption, repayment or
purchase of Indebtedness of the Company or any Restricted Subsidiary that is
subordinated or junior in right of payment, by its terms, to the Notes and any
Guarantee thereof in a Permitted Refinancing; (iv) the defeasance, redemption,
repayment or purchase of Indebtedness of the Company or any Restricted
Subsidiary that is subordinated or junior in right of payment, by its terms, to
the Notes and any Guarantee thereof with the proceeds of a substantially
concurrent sale (other than to a Subsidiary of the Company) of Equity Interests
(other than Disqualified Stock) of the Company, PROVIDED that the amount of any
proceeds that is utilized for such defeasance, redemption, repayment or purchase
shall be excluded from clause (c)(ii) of the preceding paragraph; (v) the
purchase, redemption or other acquisition or retirement for value of any Equity
Interests of the Company pursuant to any management equity subscription
agreement or stock option agreement; PROVIDED, HOWEVER, that the aggregate price
paid for all such purchased, redeemed, acquired or retired Equity Interests
shall not exceed $1,000,000 in any 12 month period; and (vi) (X) the making of
any Permitted Investment described in clauses (a), (b), (c), (d) or (f) of the
definition thereof and (Y) the making of any Permitted Investment described in
clause (e) thereof, PROVIDED that, in the case of clauses (ii)(Y), (iii), (iv),
(v) and (vi)(Y), no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof.
In determining whether any Restricted Payment is permitted by the foregoing
covenant, the Company may allocate or reallocate all or any portion of such
Restricted Payment among the clauses (i) through (vi) of the preceding paragraph
or among such clauses and the first paragraph of this covenant including clauses
(a), (b) and (c), PROVIDED that at the time of such allocation or reallocation,
all such Restricted Payments, or allocated portions thereof, would be permitted
under the various provisions of the foregoing covenant.
The amount of all Restricted Payments (other than cash) shall be the fair
market value (evidenced by a resolution of the Board of Directors of the Company
set forth in an officer's certificate delivered to the Trustee) on the date of
the Restricted Payment of the asset(s) proposed to be transferred by the Company
or such Restricted Subsidiary, as the case may be, pursuant to the Restricted
Payment. Not later than (i) the end of any calendar quarter in which any
Restricted Payment is made or (ii) the making of a Restricted Payment which,
when added to the sum of all previous Restricted Payments made in a calendar
quarter, would cause the aggregate of all Restricted Payments made in such
quarter to exceed $5.0 million, the Company shall deliver to the Trustee an
officer's certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this covenant
were computed, which calculations may be based upon the Company's latest
available financial statements.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default or Event
of Default. For purposes of making the determination as to whether such
designation would cause a Default or Event of Default, all outstanding
Investments by the Company and its Restricted Subsidiaries (except to the extent
repaid in cash) in the Subsidiary so designated will be deemed to be Restricted
Payments at the time of such designation and will reduce the amount available
for Restricted Payments under the first paragraph of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the greatest of (x) the net
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book value of such Investments at the time of such designation, (y) the fair
market value of such Investments at the time of such designation and (z) the
original fair market value of such Investments at the time they were made. Such
designation will only be permitted if such Restricted Payment would be permitted
at such time and if such Restricted Subsidiary otherwise meets the definition of
an Unrestricted Subsidiary.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of the Company giving effect to such designation and an
officer's certificate certifying that such designation complied with the
foregoing conditions.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL STOCK. The
Indenture provides that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable with respect
to (collectively, "INCUR" and correlatively, an "INCURRENCE" of) any
Indebtedness (including Acquired Debt), that the Company will not issue, and
will not permit any of its Restricted Subsidiaries to issue, any shares of
Disqualified Stock and that the Company will not permit any of its Restricted
Subsidiaries to issue any Preferred Stock; PROVIDED, HOWEVER, that the Company
or any Guarantor may incur Indebtedness or issue shares of Disqualified Stock
and the Restricted Subsidiaries may incur Indebtedness under the Credit
Agreement if the Fixed Charge Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock is issued would have been at least 2.0 to
1, determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The foregoing provisions will not apply to:
(i) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Indebtedness; PROVIDED, HOWEVER, that if any such indebtedness
ceases to be Non-Recourse Indebtedness of an Unrestricted Subsidiary, such
event shall be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company;
(ii) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness pursuant to the Credit Agreement in an aggregate principal
amount not to exceed $300.0 million at any one time outstanding MINUS any
Net Proceeds that have been applied to permanently reduce the outstanding
amount of such Indebtedness pursuant to clause (a) of the second paragraph
of the covenant described under the caption "--REPURCHASE AT THE OPTION OF
HOLDERS--ASSET SALES;"
(iii) the incurrence by the Company and its Restricted Subsidiaries of
Existing Indebtedness;
(iv) the incurrence by the Company or its Restricted Subsidiaries of
Indebtedness under Hedging Obligations that do not increase the Indebtedness
of the Company or the Restricted Subsidiary, as the case may be, other than
as a result of fluctuations in interest or foreign currency exchange rates
provided that such Hedging Obligations are incurred for the purpose of
providing interest rate protection with respect to Indebtedness permitted
under the Indenture or to provide currency exchange protection in connection
with revenues generated in currencies other than U.S. dollars;
(v) the incurrence or the issuance by the Company of Refinancing
Indebtedness or Refinancing Disqualified Stock or the incurrence or issuance
by a Restricted Subsidiary of Refinancing Indebtedness or Refinancing
Disqualified Stock; PROVIDED, HOWEVER, that such Refinancing Indebtedness or
Refinancing Disqualified Stock is a Permitted Refinancing;
(vi) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; PROVIDED,
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HOWEVER, that (a) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than a
Restricted Subsidiary and (b) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Restricted
Subsidiary shall be deemed, in each case, to constitute an incurrence of
such Indebtedness by the Company or such Restricted Subsidiary, as the case
may be;
(vii) the incurrence of Indebtedness represented by the Notes and any
Guarantee thereof;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries, in the ordinary course of business and consistent with past
practice, of surety, performance or appeal bonds;
(ix) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness (in addition to Indebtedness permitted by any other clause
of this paragraph) in an aggregate principal amount at any time outstanding
not to exceed $50.0 million;
(x) the incurrence by the Company or any of its Restricted Subsidiaries
of Assumed Indebtedness PROVIDED that, after giving effect to the incurrence
thereof, the Company could incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test described in the preceding
paragraph; and
(xi) the issuance of Preferred OP Units by the Company or any of its
Restricted Subsidiaries as full or partial consideration for the acquisition
of lodging facilities and related assets, PROVIDED that, after giving effect
to the issuance thereof, the Company could incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
described in the preceding paragraph.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a) (i) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (A) on its Capital Stock or (B) with respect to any other interest
or participation in, or measured by, its profits, or (ii) pay any Indebtedness
owed to the Company or any of its Restricted Subsidiaries, (b) make loans or
advances or capital contributions to the Company or any of its Restricted
Subsidiaries, or (c) sell, lease or transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except for such encumbrances
or restrictions existing under or by reasons of (i) Existing Indebtedness as in
effect on the Issuance Date, (ii) the Credit Agreement, PROVIDED that the
encumbrances or restrictions contained in such agreement as amended, modified,
supplemented, restructured, renewed, restated, refunded, replaced or refinanced
or extended from time to time on one or more occasions are no more restrictive
than those contained in the Credit Agreement as in effect on the Issuance Date,
(iii) the Indenture and the Notes, (iv) applicable law, (v) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries or of any Person that becomes a Restricted
Subsidiary as in effect at the time of such acquisition or such Person becoming
a Restricted Subsidiary (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition or such Person becoming
a Restricted Subsidiary), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person, or
the property or assets of the Person, so acquired, PROVIDED that the
Consolidated Cash Flow of such Person is not taken into account (to the extent
of such restriction) in determining whether such acquisition was permitted by
the terms of the Indenture, (vi) restrictions of the nature described in clause
(c) above by reason of customary non-assignment provisions in leases entered
into in the ordinary course of business and consistent with past practices,
(vii) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (c) above on
the property so acquired, (viii) Permitted Refinancings, PROVIDED that the
encumbrance or restrictions contained in the agreements governing such Permitted
Refinancings are no more restrictive than those contained in the agreements
governing the Indebtedness or Disqualified Stock being refinanced, or (ix)
customary restrictions in security agreements or mortgages securing Indebtedness
of a
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Restricted Subsidiary to the extent such restrictions restrict the transfer of
the property subject to such security agreements and mortgages.
PROHIBITION ON INCURRENCE OF SENIOR SUBORDINATED DEBT. The Indenture
provides that (i) the Company will not incur, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is senior in right of payment
to the Notes and subordinate or junior in right of payment to any other
Indebtedness of the Company and (ii) no Guarantor will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is senior
in right of payment to the Guarantee by such Guarantor of the Notes and
subordinate or junior in right of payment to any other Indebtedness of the
Guarantor.
LIENS. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly create,
incur, assume or suffer to exist any Lien that secures obligations under any
Indebtedness which is PARI PASSU with or subordinated to the Notes, unless the
Notes are equally and ratably secured with the obligations so secured or until
such time as such obligations are no longer secured by a Lien.
MERGER, CONSOLIDATION OR SALE OF ASSETS. The Indenture provides that the
Company may not consolidate or merge with or into (whether or not the Company is
the surviving corporation), or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of its properties or assets in one
or more related transactions, to another corporation, Person or entity unless
(i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have ben made assumes all the obligations
of the Company pursuant to a supplemental indenture under the Notes and the
Indenture; (iii) immediately after such transaction no Default or Event of
Default exists; and (iv) the Company or any Person formed by or surviving any
such consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made (A) will have
Consolidated Net Worth (immediately after the transaction) equal to or greater
than the Consolidated Net Worth of the Company immediately preceding the
transaction and (B) will, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set
forth in the covenant described under the caption "--INCURRENCE OF INDEBTEDNESS
AND ISSUANCE OF CERTAIN CAPITAL STOCK."
Upon any such consolidation, merger, lease, conveyance or transfer in
accordance with the foregoing, the successor Person formed by such consolidation
or into which the Company is merged or to which such lease, conveyance or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture with the same effect
as if such successor had been named as the Company therein and thereafter
(except in the case of a lease) the predecessor corporation will be relieved of
all further obligations and covenants under the Indenture and the Notes.
TRANSACTIONS WITH AFFILIATES. The Indenture provides that the Company will
not, and will not permit any of its Restricted Subsidiaries to, sell, lease,
transfer or otherwise dispose of any of its properties or assets to, or purchase
any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or Guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), unless (a) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary on an arm's
length basis with an unrelated Person, (b) the Company delivers to the Trustee
(i) with respect to any Affiliate Transaction involving aggregate payments in
excess of $5.0 million, an officer's certificate certifying that such Affiliate
Transaction complies with clause (a) above and such Affiliate Transaction is
approved by a majority of the
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disinterested members of the Board of Directors and (ii) with respect to any
Affiliate Transaction involving aggregate payments in excess of $10.0 million
(other than an Affiliate Transaction involving the acquisition or disposition of
a lodging facility by the Company or a Restricted Subsidiary of the Company), an
opinion as to the fairness to the Company or such Restricted Subsidiary from a
financial point of view issued, at the option of the Company, by an investment
banking firm of national standing or a Qualified Appraiser and (c) the Company
delivers to the Trustee in the case of an Affiliate Transaction involving the
acquisition or disposition of a lodging facility by the Company or a Restricted
Subsidiary of the Company and (x) involving aggregate payments of more than $5.0
million and less than $25.0 million, an appraisal by a Qualified Appraiser to
the effect that the transaction is being undertaking at fair market value or (y)
involving aggregate payments of $25.0 million or more, an opinion as to the
fairness of the transaction to the Company or such Restricted Subsidiary from a
financial point of view issued by an investment banking firm of national
standing; PROVIDED, HOWEVER, that the following shall not be deemed Affiliate
Transactions: (A) any employment, deferred compensation, stock option,
noncompetition, consulting or similar agreement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business and
consistent with the past practice of the Company or such Restricted Subsidiary,
(B) transactions between or among the Company and/or its Restricted
Subsidiaries, (C) the incurrence of fees in connection with the provision of
hotel management services, provided that such fees are paid in the ordinary
course of business and are consistent with past practice and (D) Restricted
Payments permitted by the provisions of the Indenture described above under the
covenant described under the caption "--RESTRICTED PAYMENTS."
LINE OF BUSINESS. The Indenture provides that for so long as any Notes are
outstanding, the Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in any business or activity other than a
Hospitality-Related Business.
PAYMENTS FOR CONSENT. The Indenture provides that neither the Company nor
any of its Subsidiaries will, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
of any Notes for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or agreed to be paid to all Holders of the
Notes that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
SUBSIDIARY GUARANTEES
As of the Issuance Date, no Subsidiary of the Company is required to act as
a Guarantor in respect of the Notes. However, the Indenture provides that, prior
to guaranteeing any other Indebtedness of the Company (other than the Credit
Agreement), a Restricted Subsidiary that is also a Significant Subsidiary must
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Restricted Subsidiary shall Guarantee, on an unsecured senior subordinated
basis, all of the Obligations of the Company with respect to the Notes together
with an opinion of counsel (which counsel may be an employee of the Company) to
the effect that the supplemental indenture has been duly executed and delivered
by such Restricted Subsidiary and is in compliance in all material respects with
the terms of the Indenture. The Indebtedness represented by any such Guarantee
(i.e., the payment of Obligations on the Notes) will be subordinated on the same
basis to Senior Debt of the Guarantor as the Notes are subordinated to Senior
Debt of the Company. The Credit Agreement generally prohibits the incurrence of
any such Guarantee unless and until such time as the indebtedness under the
Credit Agreement is repaid in full.
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity, whether or not affiliated with such Guarantor
(other than the Company or another Guarantor), unless (i) subject to the
provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental
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indenture in form and substance reasonably satisfactory to the Trustee under the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default exists and (iii) such Guarantor, or any Person formed by or
surviving any such consolidation or merger, (A) would have Consolidated Net
Worth (immediately after giving effect to such transaction), equal to or greater
than the Consolidated Net Worth of such Guarantor immediately preceding the
transaction and (B) would be permitted by virtue of the Company's Fixed Charge
Coverage Ratio to incur, immediately after giving effect to such transaction, at
last $1.00 of additional Indebtedness pursuant to the Fixed Charged Coverage
Ratio set forth in the covenant described above under the caption "--CERTAIN
COVENANTS --INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL STOCK."
The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Guarantor, which sale or other
disposition is otherwise in compliance with the terms of the Indenture, by way
of merger, consolidation or otherwise, or a sale or other disposition of all of
the capital stock of any Guarantor, then such Guarantor (in the event of a sale
or other disposition, by way of such a merger, consolidation or otherwise, of
all of the capital stock of such Guarantor) or the corporation acquiring the
property (in the event of a sale or other disposition of all or substantially
all of the assets of such Guarantor) will be automatically and unconditionally
released and relieved of any obligations under its Subsidiary Guarantee.
For purposes of a Guarantee with respect to the Notes, each Guarantor's
liability will be that amount from time to time equal to the aggregate liability
of such Guarantor thereunder, but shall be limited to the lesser of (i) the
aggregate amount of the obligations of the Company under the Notes and the
Indenture or (ii) the amount, if any, which would not have (A) rendered such
Guarantor "INSOLVENT" (as such term is defined in the Federal Bankruptcy Code
and in the Debtor and Creditor Law of the State of New York) or (B) left it with
unreasonably small capital at the time its Guarantee with respect to the Notes
was entered into, after giving effect to the incurrence of existing Indebtedness
immediately prior to such time, PROVIDED that, it shall be a presumption in any
lawsuit or other proceeding in which a Guarantor is a party that the amount
guaranteed pursuant to the Guarantee with respect to the Notes is the amount set
forth in clause (i) above unless any creditor, or representative of creditors of
such Guarantor, or debtor in possession or trustee in bankruptcy of the
Guarantor, otherwise proves in such a lawsuit that the aggregate liability of
the Guarantor is limited to the amount set forth in clause (ii). The Indenture
provides that, in making any determination as to the solvency or sufficiency of
capital of a Guarantor in accordance with the previous sentence, the right of
such Guarantor to contribution from other Guarantors and any other rights such
Guarantor may have, contractual or otherwise, shall be taken into account.
REPORTS
Whether or not required by the rules and regulations of the Commission, so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes all quarterly and annual financial information that would be required to
be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereon by the Company's certified
independent accountants. In addition, whether or not required by the rules and
regulations of the Commission, the Company will submit a copy of all such
information with the Commission for public availability (unless the Commission
will not accept such a submission) and file such information with the Trustee
and make such information available to investors and securities analysts who
request it in writing. In addition, for so long as the Notes are outstanding,
the Company will continue to provide to Holders and to prospective purchasers of
Notes the information required by Rule 144A(d)(4).
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EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest or
Liquidated Damages, if any, on the Notes (whether or not such payment shall be
prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due of the principal of or premium, if any, on the Notes at
maturity, upon redemption or otherwise (including the failure to make a payment
to purchase Notes tendered pursuant to a Change of Control Offer or an Asset
Sale Offer) (whether or not such payment shall be prohibited by the
subordination provisions of the Indenture); (iii) failure by the Company or any
Restricted Subsidiary to comply with the covenant described under the caption
"--CERTAIN COVENANTS--MERGER, CONSOLIDATION OR SALES OF ASSETS"; (iv) failure by
the Company or any Restricted Subsidiary for 30 days in the performance of any
other covenant, warranty or agreement in the Indenture or the Notes after
written notice shall have been given to the Company by the Trustee or to the
Company and the Trustee from Holders of at least 25% in principal amount of the
Notes then outstanding, (v) the failure to pay at final stated maturity (giving
effect to any applicable grace periods and any extensions thereof) the principal
amount of Non-Recourse Indebtedness of the Company or any of its Restricted
Subsidiaries with an aggregate principal amount in excess of the lesser of (A)
10% of the total assets of the Company and its Restricted Subsidiaries measured
as of the end of the Company's most recent fiscal quarter for which internal
financial statements are available immediately prior to the date on which such
default occurred, determined on a PRO FORMA basis, and (B) $50 million, and such
failure continues for a period of 10 days or more, or the acceleration of the
final stated maturity of any such Non-Recourse Indebtedness (which acceleration
is not rescinded, annulled or otherwise cured within 10 days of receipt by the
Company or such Restricted Subsidiary of notice of any such acceleration); (vi)
the failure to pay at final stated maturity (giving effect to any applicable
grace periods and any extensions thereof) the principal amount of any
Indebtedness (other than Non-Recourse Indebtedness) of the Company or any
Restricted Subsidiary of the Company, or the acceleration of the final stated
maturity of any such Indebtedness if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
in default for failure to pay principal at final maturity or which has been
accelerated, in each case with respect to which the 10-day period described
above has passed, aggregates $10.0 million or more at any time; (vii) failure by
the Company or any of its Restricted Subsidiaries to pay final judgments
rendered against them (other than judgment liens without recourse to any assets
or property of the Company or any of its Restricted Subsidiaries other than
assets or property securing Non-Recourse Indebtedness) aggregating in excess of
$10.0 million, which judgments are not paid, discharged or stayed for a period
of 60 days (other than any judgments as to which a reputable insurance company
has accepted full liability); (viii) except as permitted by the Indenture, any
Guarantee with respect to the Notes shall be held in a judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor (or its successors or assigns), or any Person acting on
behalf of such Guarantor (or its successors or assigns), shall deny or disaffirm
its obligations or shall fail to comply with any obligations under its
Guarantee; and (ix) certain events of bankruptcy or insolvency with respect to
the Company, any Guarantor or any of the Company's Subsidiaries that would
constitute a Significant Subsidiary or any group of the Company's Subsidiaries
that, taken together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company, any of its Subsidiaries that would
constitute a Significant Subsidiary or any group of its Subsidiaries that, taken
together, would constitute a Significant Subsidiary or any Guarantor, all
outstanding Notes will become due and payable without further action or notice.
Under certain circumstances, the Holders of a majority in principal amount of
the outstanding Notes may rescind any acceleration with respect to the Notes and
its consequences. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee
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in its exercise of any trust or power. The Trustee may withhold from Holders of
the Notes notice of any continuing Default or Event of Default (except a Default
or Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
The Indenture provides that no Holder of a Note may pursue a remedy under
the Indenture unless (i) the Holder of a Note gives to the Trustee written
notice of a continuing Event of Default or the Trustee receives such notice from
the Company; (ii) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue a remedy;
(iii) such Holder of a Note or Holders of Notes offer and, if requested, provide
to the Trustee indemnity satisfactory to the Trustee against any loss, liability
or expense; (iv) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision of
indemnity; and (v) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Notes do not give the Trustee a
direction inconsistent with the request; PROVIDED, HOWEVER, that such provision
does not affect the right of a Holder of a Note to sue for enforcement of any
overdue payment thereon.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, including with respect to any
Restricted Payments made during such year, the basis upon which the calculations
required by the covenants described under the caption "--CERTAIN
COVENANTS--RESTRICTED PAYMENTS" were computed (which calculations may be based
on the Company's latest available financial statements) and the Company is
required upon becoming aware of any Default or Event of Default, to deliver to
the Trustee a statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder, past, present
or future of the Company, any successor Person or any Guarantor, as such, shall
have any liability for any obligations of the Company under the Notes, any
Guarantee thereof or the Indenture or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver and release
may not be effective to waive or release liabilities under the federal
securities laws and it is the view of the Commission that such a waiver or
release is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of any Guarantor discharged with respect to the
outstanding Notes ("LEGAL DEFEASANCE") except for (i) the rights of Holders of
outstanding Notes to receive payments in respect of the principal of, premium,
if any, and interest on such Notes when such payments are due, (ii) the
Company's and the Guarantors obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payment and money
for security payments held in trust, (iii) the rights, powers, trusts, duties
and immunities of the Trustee, and the Company's and the Guarantors obligations
in connection therewith and (iv) the Legal Defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect to
have the obligations of the Company and any Guarantor released with respect to
certain covenants that are described in the Indenture ("COVENANT DEFEASANCE")
and thereafter any omission to comply with such obligations shall not constitute
a Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "EVENTS OF
DEFAULT" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be
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sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes on the stated maturity or on the applicable redemption date,
as the case may be, of such principal or installment of principal of, premium,
if any, or interest on the outstanding Notes; (ii) in the case of Legal
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel (which counsel may be an employee of the Company or any Subsidiary of
the Company) reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the Issuance Date, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel (which counsel may be an employee of the Company or any
Subsidiary of the Company) reasonably acceptable to the Trustee confirming that
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds applied to such deposit) or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 123rd day after the date of deposit (or greater
period of time in which any such deposit of trust funds may remain subject to
bankruptcy or insolvency laws insofar as those apply to the deposit by the
Company); (v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any material agreement or
instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company shall have delivered to the Trustee an opinion of
counsel to the effect that, as of the date of such opinion, (A) the trust funds
will not be subject to any rights of holders of Indebtedness other than the
Notes and (B) assuming no intervening bankruptcy of the Company between the date
of deposit and the 123rd day following the deposit and assuming no Holder of
Notes is an insider of the Company, after the 123rd day following the deposit,
the trust funds will not be subject to the effects of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors rights generally
under any applicable United States or state law; (vii) the Company shall have
delivered to the Trustee an officer's certificate stating that the deposit was
not made by the Company with the intent of preferring the Holders of Notes over
the other creditors of the Company with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company shall have delivered to the Trustee an officer's certificate and an
opinion of counsel (which counsel may be an employee of the Company), each
stating, that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of Notes)
as to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes that have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust) have been delivered to the
Trustee for cancellation or (b)(i) all such Notes not theretofore delivered to
the Trustee for cancellation have become due and payable by their terms or shall
have been called for redemption and the Company has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust for such purpose
an amount of money sufficient to pay and discharge the entire Indebtedness on
the Notes
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not theretofore delivered to the Trustee for cancellation or redemption, for the
principal amount, premium and Liquidated Damages, if any, and accrued interest
to the date of such deposit; (ii) the Company has paid all other sums payable by
it under the Indenture; and (iii) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
the Notes at maturity or on the redemption date, as the case may be. In
addition, the Company must deliver an officer's certificate and an opinion of
counsel stating that all conditions precedent to satisfaction and discharge have
been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar (who will initially be the Trustee) and the Trustee may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and the Company may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture. The Company is not required to
transfer or exchange any Note selected for redemption. Also, the Company is not
required to transfer or exchange any Note for a period of 15 days before a
selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs of this
subsection, the Indenture or the Notes may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the Notes
then outstanding (including consents obtained in connection with a tender offer
or exchange offer for Notes), and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including consent obtained in connection with a tender offer or exchange offer
for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder of Notes): (i) reduce
the principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed maturity
of any Notes or alter the provisions with respect to the redemption of the
Notes; (iii) reduce the rate of or change the time for payment of interest on
any Note; (iv) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the Notes and a waiver of the payment default that resulted
from such acceleration); (v) make any Note payable in money other than that
stated in the Notes; (vi) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of Holders of Notes to
receive payments of principal of or premium, if any, or interest on the Notes;
(vii) waive a redemption payment with respect to any Note; (viii) make any
change in the foregoing amendment and waiver provisions; (ix) modify or change
any provision of the Indenture or the related definitions affecting the
subordination or ranking of the Notes or any Guarantee thereof in a manner which
adversely affects the Holders in any material respect; or (x) make any change to
the covenants described under the caption "REPURCHASE AT THE OPTION OF HOLDERS."
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of the Notes in the case of a
merger, consolidation or sale of assets, to release a Guarantor in accordance
with the Indenture, to make any change that would provide any additional rights
or benefits to the Holders of the Notes (including providing for Guarantees with
respect to the Notes pursuant to the covenant described under the caption
"--SUBSIDIARY GUARANTEES") or that does not adversely affect the legal rights
under the Indenture of any such Holder, or to comply with
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requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company to obtain payment of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its powers, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
ADDITIONAL INFORMATION
Anyone who received this Prospectus may obtain a copy of the Indenture and
the Registration Rights Agreements without charge by writing to CapStar Hotel
Company, 1010 Wisconsin Avenue, N.W., Suite 650, Washington, D.C. 20007.
Attention: John Emery, Corporate Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full description of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person and (ii)
Indebtedness encumbering any asset acquired by such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Subsidiary of such specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLING," "CONTROLLED BY"
and "UNDER COMMON CONTROL WITH"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; PROVIDED, HOWEVER,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"ASSET SALE" means (i) the sale, lease (other than operating leases in
respect of facilities which are ancillary to the operation of the Company's or a
Restricted Subsidiary's Hospitality Related Business properties or assets),
conveyance or other disposition of any property or assets of the Company or any
Restricted Subsidiary (including by way of a sale and leaseback transaction),
(ii) the issuance or sale of Equity Interests of any of the Company's Restricted
Subsidiaries or (iii) any Event of Loss, other than, with respect to clauses
(i), (ii) and (iii) above, the following: (1) the sale or disposition of
personal property held for sale in the ordinary course of business, (2) the sale
or disposal of damaged, worn out or other obsolete property in the ordinary
course of business as long as such property is no longer necessary for the
proper
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conduct of the business of the Company or such Restricted Subsidiary, as
applicable, (3) the transfer of assets by the Company to a Restricted Subsidiary
of the Company or by a Restricted Subsidiary of the Company to the Company or to
another Restricted Subsidiary of the Company, (4) (A) the exchange of one or
more lodging facilities and related assets held by the Company or a Restricted
Subsidiary of the Company for one or more lodging facilities and related assets
of any person or entity, PROVIDED, that if any other assets are received by the
Company or such Restricted Subsidiary in such exchange, such other consideration
is in cash or Cash Equivalents; PROVIDED, FURTHER, that such cash or Cash
Equivalent consideration shall be deemed to be cash proceeds of an Asset Sale
for the purposes of calculating "Net Proceeds" and applying Net Proceeds, if
any, as described in the covenant "Asset Sales," or (B) the issuance of OP Units
or Preferred OP Units as full or partial consideration for the acquisition of
lodging facilities and related assets, PROVIDED, that the Board of Directors of
the Company has determined that the terms of any exchange or acquisition are
fair and reasonable and that the fair market value of the assets received by the
Company, as set forth in an opinion of a Qualified Appraiser, are equal to or
greater than the fair market value of the assets exchanged, sold or issued by
the Company or a Restricted Subsidiary of the Company, (5) any Restricted
Payment, permitted under the covenant described under the caption "-- CERTAIN
COVENANTS--RESTRICTED PAYMENTS," (6) the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company in
compliance with the provisions of the Indenture described above under the
captions "--REPURCHASE AT THE OPTION OF HOLDERS--CHANGE OF CONTROL" and
"--CERTAIN COVENANTS--MERGER, CONSOLIDATION OR SALE OF ASSETS," (7) the
conversion of or foreclosure or any mortgage or note, provided that the Company
or a Restricted Subsidiary receives the real property underlying any such
mortgage or note or (8) any transaction or series of related transactions that
would otherwise be an Asset Sale where the fair market value of the assets,
sold, leased, conveyed or otherwise disposed of was less than $5.0 million or an
Event of Loss or related series of Events of Loss pursuant to which the
aggregate value of property or assets involved in such Event of Loss or Events
of Loss is less than $5.0 million.
"ASSUMED INDEBTEDNESS" means, with respect to any specified Person: (i)
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person and (ii)
Indebtedness encumbering any asset acquired by such specified Person, in each
case excluding Indebtedness incurred in connection with, or in contemplation of
such other Person merging with or into or becoming a Subsidiary of such
specified Person.
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"CAPITAL STOCK" means any and all shares, interests, participations, rights
or other equivalents (however designated) of corporate stock, including, without
limitation, with respect to partnerships, partnership interests (whether general
or limited) and any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, such partnership.
"CASH EQUIVALENTS" means (i) securities issued or directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof having maturities of not more than six months from the
date of acquisition, (ii) certificates of deposit and eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers
acceptances with maturities not exceeding six months from the date of
acquisition and overnight bank deposits, in each case with any domestic
commercial bank having capital and surplus in excess of $500 million, (iii)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (i) and (ii) entered into with any
financial institution meeting the qualifications specified in clause (ii) above,
(iv) commercial paper or commercial paper master notes having a rating of at
least P-2 or the equivalent thereof by Moody's Investors Service, Inc. or at
least A-2 or the equivalent thereof by Standard & Poor's Corporation and in each
case maturing within six months after the date of acquisition, (v) money market
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mutual funds that provide daily purchase and redemption features, and (vi)
corporate debt with maturities of not greater than six months and with a rating
of at least A or the equivalent thereof by Standard & Poor's Corporation and a
rating of at least A2 or the equivalent thereof by Moody's Investors Service,
Inc.
"CHANGE OF CONTROL" means the occurrence of any of the following: (i) the
sale, lease or transfer, in one or a series of related transactions, of all or
substantially all of the Company's assets to any person or group (as such term
is used in Section 13(d)(3) of the Exchange Act), (ii) the adoption of a plan
relating to the liquidation or dissolution of the Company, (iii) the acquisition
by any person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) of a direct or indirect interest in more than 50% of the ownership of the
Company or the voting power of the voting stock of the Company by way of
purchase, merger or consolidation or otherwise (other than a creation of a
holding company that does not involve a change in the beneficial ownership of
the Company as a result of such transaction), (iv) the merger or consolidation
of the Company with or into another corporation or the merger of another
corporation into the Company with the effect that immediately after such
transaction the stockholders of the Company immediately prior to such
transaction hold less than 50% of the total voting power of all securities
generally entitled to vote in the election of directors, managers, or trustees
of the Person surviving such merger or consolidation or (v) the first day on
which a majority of the members of the Board of Directors of the Company are not
Continuing Directors.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus: (a) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale, to the extent such losses were deducted in computing Consolidated
Net Income, plus (b) provisions for taxes based on income or profits of such
Person for such period, to the extent such provision for taxes was included in
computing Consolidated Net Income, plus (c) Consolidated Interest Expense of
such Person for such period to the extent such expense was deducted in computing
Consolidated Net Income, plus (d) Consolidated Depreciation and Amortization
Expense of such Person for such period, to the extent deducted in computing
Consolidated Net Income less (e) noncash items increasing such Consolidated Net
Income for such period in each case, on a consolidated basis for such Person and
its Restricted Subsidiaries and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, the depreciation and amortization of and the interest expense of, a
Restricted Subsidiary of the referent Person shall be added to Consolidated Net
Income to compute Consolidated Cash Flow only to the extent (and in the same
proportion) that the Net Income of such Restricted Subsidiary was included in
calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to such Person by such Restricted Subsidiary without prior
governmental approval (that has not been obtained), and without direct or
indirect restriction pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Restricted Subsidiary or its stockholders. Any
calculation of the Consolidated Cash Flow of an individual hotel property shall
be calculated in a manner consistent with the foregoing.
"CONSOLIDATED CURRENT LIABILITIES" as of the date of determination means the
aggregate amount of liabilities of the Company and its consolidated Subsidiaries
which may properly be classified as current liabilities (including taxes payable
as accrued), on a consolidated basis, after eliminating (i) all intercompany
items between the Company and any Subsidiary and (ii) all current maturities of
long-term Indebtedness, all as determined in accordance with GAAP consistently
applied.
"CONSOLIDATED DEPRECIATION AND AMORTIZATION EXPENSE" means, with respect to
any Person for any period, the total amount of depreciation and amortization
expense (including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and the
total amount of non-cash charges (other than non-cash charges that represent an
accrual or reserve for cash charges in future periods or which involved a cash
expenditure in a prior period) of such Person and its Restricted Subsidiaries
for such period on a consolidated basis as determined in accordance with GAAP.
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"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, without duplication, the sum of (a) interest expense, whether paid or
accrued, to the extent such expense was deducted in computing Consolidated Net
Income (including amortization of original issue discount, non-cash interest
payments, the interest component of Capital Lease Obligations, and net payments
(if any) pursuant to Hedging Obligations, but excluding amortization of deferred
financing fees), (b) commissions, discounts and other fees and charges paid or
accrued with respect to letters of credit and bankers acceptance financing and
(c) interest for which such Person or its Restricted Subsidiaries is liable,
whether or not actually paid, pursuant to Indebtedness or under a Guarantee of
Indebtedness of any other Person, in each case, calculated for such Person and
its Restricted Subsidiaries for such period on a consolidated basis as
determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP,
PROVIDED, that the following shall be excluded: (i) the Net Income of any Person
that is not a Restricted Subsidiary or that is accounted for by the equity
method of accounting shall be excluded, whether or not distributed to the
Company or one of its Restricted Subsidiaries, (ii) the Net Income of any Person
that is a Restricted Subsidiary and that is restricted from declaring or paying
dividends or other distributions, directly or indirectly, by operation of the
terms of its charter, any applicable agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation or otherwise shall be included
only to the extent of the amount of dividends or distributions paid to the
referent Person or a Restricted Subsidiary, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded and (iv) the cumulative effect of changes
in accounting principles shall be excluded.
"CONSOLIDATED NET TANGIBLE ASSETS" as of any date of determination, means
the total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other similar
items properly deducted in determining net assets) which would appear on a
consolidated balance sheet of the Company and its consolidated Subsidiaries,
determined on a consolidated basis in accordance with GAAP, and after giving
effect to purchase accounting and after deducting therefrom Consolidated Current
Liabilities and, to the extent otherwise included, the amounts of: (i) minority
interests in consolidated Subsidiaries held by Persons other than the Company or
a Subsidiary; (ii) excess of cost over fair value of assets of businesses
acquired, as determined in good faith by the Board of Directors; (iii) any
revaluation or other write-up in book value of assets subsequent to the Issuance
Date as a result of a change in the method of valuation in accordance with GAAP
consistently applied; (iv) unamortized debt discount and expenses and other
unamortized deferred charges, goodwill, patents, trademarks, service marks,
trade names, copyrights, licenses, organization or developmental expenses and
other intangible items; (v) treasury stock; and (vi) cash set apart and held in
a sinking or other analogous fund established for the purpose of redemption or
other retirement of Capital Stock to the extent such obligation is not reflected
in Consolidated Current Liabilities.
"CONSOLIDATED NET WORTH" means, with respect to any Person, as of any date
of determination, the sum of (i) the consolidated equity of the common
stockholders of such Person and its consolidated Subsidiaries as of such date
plus (ii) the respective amount reported on such Person's balance sheet as of
such date with respect to any series of Preferred Stock (other than Disqualified
Stock) that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such Preferred Stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within 12 months
after the acquisition of such business) subsequent to the Issuance Date in the
book value of any asset owned by such Person or a consolidated Subsidiary of
such Person, (y) all Investments as of such date in unconsolidated Subsidiaries
and in Persons that are not Subsidiaries (except, in each case, Permitted
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Investments) and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the Issuance Date or (ii) was nominated for election or elected to
such Board of Directors with the affirmative vote of at least a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"CREDIT AGREEMENT" means the senior credit facility dated June 30, 1997,
entered into between and among the Company and the lenders party thereto,
providing for borrowings and letters of credit, including any related notes,
security documentation, guarantees, collateral documents, instruments and
agreements executed in connection therewith, in each case as amended, modified,
supplemented, restructured, renewed, restated, refunded, replaced or refinanced
or extended, in each case on a senior basis, from time to time on one or more
occasions.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event if Default.
"DESIGNATED SENIOR DEBT" means (i) Indebtedness under or in respect of the
Credit Agreement and (ii) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate principal amount of at least
$25.0 million and is specifically designated in the instrument evidencing such
Senior Debt as "DESIGNATED SENIOR DEBT" by the Company.
"DISQUALIFIED STOCK" means any Capital Stock (other than OP Units and
Preferred OP Units) which, by its terms (or by the terms of any security into
which it is convertible or for which it is exchangeable), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, on or prior to the first anniversary of the date on which the
Notes mature.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for Capital Stock).
"EVENT OF LOSS" means, with respect to any property or asset (tangible or
intangible, real or personal), any of the following: (A) any loss, destruction
or damage of such property or asset or (B) any actual condemnation, seizure or
taking by the power of eminent domain or otherwise of such property or asset, or
confiscation of such property or asset or the requisition of the use of such
property or asset.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its Restricted
Subsidiaries in existence on the Issuance Date (after giving effect to the use
of proceeds of the Offering), excluding, for this purpose, amounts outstanding
under the Credit Agreement as in effect on the Issuance Date.
"EXISTING PREFERRED OP UNITS" means Preferred OP Units issued and
outstanding on the date of the Indenture.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings that provide
working capital in the ordinary course of business) or issues or redeems
Preferred Stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"CALCULATION DATE"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or redemption
of Indebtedness, or such issuance or redemption of Preferred Stock, as if the
same had occurred at the beginning of the applicable four-quarter reference
period. For purposes of making the computation referred to above, acquisitions,
dispositions and discontinued operations (as determined in accordance with GAAP)
that have been made by the Company or any of its Restricted
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Subsidiaries, including all mergers, consolidations and dispositions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be calculated on a pro forma basis assuming
that all such acquisitions, dispositions, discontinued operations, mergers,
consolidations (and the reduction of any associated fixed charge obligations
resulting therefrom) had occurred on the first day of the four-quarter reference
period.
"FIXED CHARGES" means, with respect to any Person for any period, the sum of
(a) Consolidated Interest Expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued, to the extent such expense was
deducted in computing Consolidated Net Income and (b) the product of (i) all
cash dividend or distribution payments on any series of Preferred Stock of such
Person or its Restricted Subsidiaries (other than Preferred Stock owned by such
Person or its Restricted Subsidiaries), times (ii) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP;
PROVIDED, HOWEVER, that if the cash dividend or distribution on such Preferred
Stock is deductible for federal tax purposes, then the fraction shall be equal
to one.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issuance Date.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States of America is
pledged.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business) or otherwise
incurring, assuming or becoming liable for the payment of any principal, premium
or interest, direct or indirect, in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of any Indebtedness or other obligation (including agreements to
keep-well and to purchase assets, goods, securities or services).
"GUARANTOR" means a Restricted Subsidiary that becomes a guarantor of the
Notes pursuant to the terms of the Indenture, and its successor, if any.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency exchange rates.
"HOSPITALITY-RELATED BUSINESS" means the lodging business and other
businesses necessary for, incident to, in support of, connected with,
complementary to or arising out of the lodging business, including, without
limitation, (i) developing, managing, operating, improving or acquiring lodging
facilities, restaurants and other food-service facilities and convention or
meeting facilities, and marketing services related thereto, (ii) acquiring,
developing, operating, managing or improving any real estate taken in
foreclosure (or similar settlement) by the Company or any of its Restricted
Subsidiaries, or any real estate ancillary or connected to any lodging owned,
managed or operated by the Company or any of its Restricted Subsidiaries, (iii)
owning and managing mortgages in, or other Indebtedness secured by Liens on
lodging and real estate related or ancillary to lodging or (iv) other related
activities thereto.
"INDEBTEDNESS" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or representing Capital Lease
Obligations or the balance deferred and unpaid of the purchase price of any
property or representing any
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Hedging Obligations, except any such balance that constitutes an accrued expense
or trade payable, if and to the extent any of the foregoing indebtedness (other
than letters of credit and Hedging Obligations) would appear as a liability upon
a balance sheet of such Person prepared in accordance with GAAP, and also
includes, to the extent not otherwise included, the Guarantee of any
Indebtedness of such Person or any other Person.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
the Company no longer owns, directly or indirectly, greater than 50% of the
outstanding Common Stock of such Restricted Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"ISSUANCE DATE" means the date of the Indenture.
"LIEN" means, with respect to any asset, or income or profits therefrom, any
mortgage, lien, pledge, charge, security interest or encumbrance of any kind in
respect of such asset, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"MAKE-WHOLE AMOUNT" with respect to a Note means an amount equal to the
excess, if any, of (i) the present value of the remaining interest, premium and
principal payments due on such Note as if such Note were redeemed on August 15,
2002, computed using a discount rate equal to the Treasury Rate plus 62.5 basis
points, over (ii) the outstanding principal amount of such Note. "TREASURY RATE"
is defined as the yield to maturity at the time of the computation of United
States Treasury securities with a constant maturity (as compiled by and
published in the most recent Federal Reserve Statistical Release H.15(519),
which has become publicly available at least two business days prior to the date
of the redemption notice or, if such Statistical Release is no longer published,
any publicly available source of similar market date) most nearly equal to the
then remaining maturity of the Notes assuming redemption of the Notes on August
15, 2002; PROVIDED, HOWEVER, that if the Make-Whole Average Life of such Note is
not equal to the constant maturity of a United States Treasury security for
which such yields are given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that if the Make-Whole Average Life of such Notes is less than one
year, the weekly average yield on actually traded United State Treasury
securities adjusted to a constant maturity of one year shall be used.
"MAKE-WHOLE AVERAGE LIFE" means the number of years (calculated to the nearest
one-twelfth) between the date of redemption and August 15, 2002.
"MAKE-WHOLE PRICE" with respect to a Note means the greater of (1) the sum
of the outstanding principal amount and the Make-Whole Amount of such Note, and
(ii) the redemption price of such Note on August 15, 2002, determined pursuant
to the Indenture (104.375% of the principal amount).
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of Preferred Stock dividends, excluding, however, any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with any Asset Sale, and excluding any
extraordinary gain (but not loss), together with any related provision for taxes
on such extraordinary gain (but not loss).
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"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions), and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets.
"NON-RECOURSE INDEBTEDNESS" means Indebtedness (a) as to which neither the
Company nor any of its Restricted Subsidiaries (i) provides credit support
(other than in the form of a Lien on an asset serving as security for
Non-Recourse Indebtedness) pursuant to any undertaking, agreement or instrument
that would constitute Indebtedness, (ii) is directly or indirectly liable (other
than in the form of a Lien on an asset serving as security for Non-Recourse
Indebtedness) or (iii) constitutes the lender and (b) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"OP UNITS" means limited partnership interests in CapStar Management
Company, L.P., CapStar Management Company II, L.P. or any successor operating
partnership that require the issuer thereof to pay dividends or distributions
which are tied to dividends paid on the Company's common stock and which by
their terms may be converted into, or exercised or redeemed for, cash or the
Company's common stock.
"PERMITTED INVESTMENTS" means any (a) Investments in the Company, (b)
Investments in any Restricted Subsidiary, (c) Investments in Cash Equivalents,
(d) Investments by the Company or any Restricted Subsidiary of the Company in a
Person, if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Restricted Subsidiary of the
Company, (e) Investments in Unrestricted Subsidiaries or Permitted Joint
Ventures, provided that such Investments are in entities solely or principally
engaged in Hospitality-- Related Businesses and that the aggregate of such
Investments does not exceed the greater of (i) $25.0 million or (ii) 5% of
Consolidated Net Tangible Assets and (f) Investments in Unrestricted
Subsidiaries formed to acquire the Radisson Plaza, Lexington, Kentucky, the
Embassy Suites Center City, Philadelphia and the Doubletree Hotel, Austin, in an
aggregate amount not to exceed $50.0 million.
"PERMITTED JOINT VENTURE" means any corporation, partnership, limited
liability company or partnership or other similar entity formed to hold lodging
properties for which the Company holds a management contract related thereto in
which the Company owns less than a 50.1% interest.
"PERMITTED JUNIOR SECURITIES" means Equity Interest in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior Debt pursuant to the
Indenture.
"PERMITTED REFINANCING" means Refinancing Indebtedness or Refinancing
Disqualified Stock, as the case may be, to the extent (a) the principal amount
of Refinancing Indebtedness or the liquidation preference amount of Refinancing
Disqualified Stock, as the case may be, does not exceed the principal amount of
Indebtedness or the liquidation preference amount of Disqualified Stock, as the
case may be, so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of premiums and reasonable expenses incurred in connection
therewith); (b) such Refinancing Indebtedness or Refinancing Disqualified Stock,
as the case may be, is scheduled to mature or is redeemable at the option of the
holder,
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as the case may be, no earlier than the Indebtedness or Disqualified Stock, as
the case may be, being refinanced; (c) in the case of Refinancing Indebtedness,
the Refinancing Indebtedness has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (d) in the case
of Refinancing Disqualified Stock, the Disqualified Stock has a Weighted Average
Life to Mandatory Redemption equal to or greater than the Weighted Average Life
to Mandatory Redemption of the Disqualified Stock being extended, refinanced,
renewed, replaced, defeased or refunded; (e) if the Indebtedness or the
Disqualified Stock, as the case may be, being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated or junior in right of payment to
the Notes, the Refinancing Indebtedness or Refinancing Disqualified Stock, as
the case may be, is subordinated or junior in right of payment to the Notes on
terms at least as favorable to the holders of Notes as those contained in the
documentation governing the Indebtedness or the Disqualified Stock, as the case
may be, being extended, refinanced, renewed, replaced, defeased or refunded and
(f) such Refinancing Indebtedness or Refinancing Disqualified Stock is incurred
or issued either by the Company or by a Restricted Subsidiary who is the obligor
on the Indebtedness or Disqualified Stock being extended, refinanced, renewed,
replaced, defeased or refunded.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"PREFERRED OP UNITS" means limited partnership interests in CapStar
Management Company, L.P., CapStar Management Company II, L.P. or any successor
operating partnership that require the issuer thereof to pay regularly scheduled
fixed distributions thereon, which are not related to dividends on the Company's
common stock, and which by their terms may be converted into, or exercised or
redeemed for, cash or the Company's common stock.
"PREFERRED STOCK" means (i) any Equity Interest with preferential right in
the payment of dividends or distributions or upon liquidation, and (ii) any
Disqualified Stock.
"REFINANCING DISQUALIFIED STOCK" means Disqualified Stock issued in exchange
for, or the proceeds of which are used, to extend, refinance, renew, replace,
defease or refund Disqualified Stock or Indebtedness permitted to be issued
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described under the caption "--CERTAIN
COVENANTS--INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL STOCK" or
Indebtedness referred to in clauses (iii), (v), (vii), (ix) and (x) of the
second paragraph of such covenant.
"REFINANCING INDEBTEDNESS" means Indebtedness issued in exchange for, or the
proceeds of which are used to extend, refinance renew, replace, defease or
refund Indebtedness permitted to be incurred pursuant to the Fixed Charge
Coverage Ratio test set forth in the covenant described under the caption
"--CERTAIN COVENANTS--INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL
STOCK" or Indebtedness referred to in clauses (iii), (v), (vii), (ix) and (x) of
the second paragraph of the covenant described under the caption "--CERTAIN
COVENANTS--INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL STOCK."
"REPRESENTATIVE" means the indenture trustee or other trustee, agent or
representative in respect of Designated Senior Debt, PROVIDED, that if, and for
so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"RESTRICTED INVESTMENTS" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
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"SENIOR DEBT" means, in the case of the Company or any Guarantor, the
principal of, premium, if any, and interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for in
the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on any Indebtedness of the Company, whether
outstanding on the Issuance Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Notes. Without limiting the generality of the foregoing, "SENIOR DEBT" shall
also include the principal of, premium, if any, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided for in the documentation with respect thereto, whether or not such
interest is an allowed claim under applicable law) on, and all other amounts
owing in respect of, (x) all Obligations of every nature of the Company under
the Credit Agreement, including, without limitation, obligations to pay
principal and interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities, whether outstanding on the Issuance Date or thereafter
incurred, and (y) all Hedging Obligations (including Guarantees thereof),
whether outstanding on the Issuance Date or thereafter incurred. Notwithstanding
the foregoing, "SENIOR DEBT" shall not include (i) any Indebtedness of the
Company or any Guarantor to a Subsidiary of the Company or any Affiliate of the
Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or
guaranteed on behalf of, any shareholder, director, officer or employee of the
Company or any Subsidiary of the Company or any Subsidiary of the Company or any
Guarantor (including, without limitation, amounts owed for compensation), (iii)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, (iv) any liability for federal, state,
local or other taxes owed or owing by the Company or any Guarantor, (v) that
portion of Indebtedness incurred in violation of the Indenture provisions set
forth under "--CERTAIN COVENANTS--INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
CERTAIN CAPITAL STOCK"; PROVIDED, HOWEVER, that in the case of this clause (v),
(A) any Indebtedness issued to any person who had no actual knowledge that the
incurrence of such Indebtedness was not permitted under the Indenture and who
received on the date of issuance thereof a certificate from the Chief Financial
Officer of the Company to the effect that the issuance of such Indebtedness
would not violate the Indenture shall constitute Senior Debt and (B) any
Indebtedness arising from the honoring by a bank or other financial institution
of a check, draft or similar instrument inadvertantly (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary course of
business shall constitute Senior Debt provided that such Indebtedness is
extinguished within three business days of occurrence, and (vi) any Indebtedness
which is, by its express terms, subordinated in right of payment to any other
Indebtedness of the Company or any Guarantor.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"SUBSIDIARY" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other Subsidiaries of that Person or a combination thereof.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a board resolution,
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Indebtedness; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the same time from Persons who are not
affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity
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Interests or (y) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results (other
than pursuant to agreements relating to the management of hotels entered into
between Restricted Subsidiaries and Unrestricted Subsidiaries in the ordinary
course of such Subsidiaries' business, consistent with past practice); and (d)
has not guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the board resolution giving effect
to such designation and an officer's certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "--CERTAIN COVENANTS--RESTRICTED
PAYMENTS." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "--CERTAIN COVENANTS--INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF CERTAIN
CAPITAL STOCK," the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary, PROVIDED that such designation shall be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary, and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "-- CERTAIN COVENANTS--INCURRENCE OF
INDEBTEDNESS AND ISSUANCE OF CERTAIN CAPITAL STOCK," and (ii) no Default or
Event of Default would be in existence following such designation.
"WEIGHTED AVERAGE LIFE TO MANDATORY REDEMPTION" means, when applied to any
Disqualified Stock at any date, the number of years obtained by dividing (a) the
sum of the products obtained by multiplying (x) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (y)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
liquidation preference amount of such Disqualified Stock.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will be represented by one or more
global notes in registered, global form without interest coupons (each, a
"Global Note"). Each Global Note initially will be deposited upon issuance with
the Trustee as custodian for the Depositary, in New York, New York, and
registered in the name of the Depositary or its nominee, in each case for credit
to an account of a direct or indirect participant as described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of the Depositary or to a successor of the
Depositary or its nominee. Beneficial interests in the Global Notes may not be
exchanged for New Notes in certificated form except in the limited circumstances
described below. See "--Exchange of Book-Entry Notes for Certificated Notes." In
addition, transfer of beneficial interests in the Global Notes will be subject
to the applicable rules and procedures of the Depositary and its direct or
indirect participants, which may change from time to time.
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DEPOSITARY PROCEDURES
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of Participants. The Participants
include securities brokers and dealers (including the Initial Purchaser), banks,
trust companies, clearing corporations and certain other organizations. Access
to the Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
"Indirect Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of the Depositary only through the Participants
or Indirect Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of the
Depositary are recorded on the records of the Participants and Indirect
Participants.
The Depositary has also advised the Company that pursuant to procedures
established by it, (i) upon deposit of the Global Notes, the Depositary will
credit the accounts of Participants designated by the Initial Purchaser with
portions of the principal amount of Global Notes and (ii) ownership of the New
Notes will be shown on, and the transfer of ownership thereof will be effected
only through, records maintained by the Depositary (with respect to
Participants) or by Participants and the Indirect Participants (with respect to
other owners of beneficial interests in the Global Notes). The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interest in a New Note to such persons may be limited to that extent. Because
the Depositary can act only on behalf of Participants, which in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in a New Note to pledge such interest to persons or
entities that do not participate in the Depositary system, or otherwise take
actions in respect of such interests, may be affected by the lack of physical
certificate evidencing such interests. For certain other restrictions on the
transferability of the Notes see, "--Exchange of Book-Entry Notes for
Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium and Liquidated Damages, if
any, and interest on any New Note represented by a Global Note registered in the
name of the Depositary or its nominee will be payable by the Trustee to the
Depositary or its nominee in its capacity as the registered Holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee will
treat the persons in whose names the New Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, neither the Company,
the Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for (i) any aspect of the Depositary's records or
any Participant's or Indirect Participant's records relating to or payments made
on account of beneficial ownership interests in the New Notes, or for
maintaining, supervising or reviewing any of the Depositary's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the New Notes or (ii) any other matter relating to the
actions and practices of the Depositary or any of its Participants or Indirect
Participants.
The Depositary has advised the Company that its current practices, upon
receipt of any payment in respect of securities such as the Notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the relevant
security such as the Global Notes as shown on the records of the Depositary.
Payments by Participants and the Indirect Participants to the
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beneficial owners of Notes will be governed by standing instructions and
customary practices and will not be the responsibility of the Depositary, the
Trustee or the Company. Neither the Company nor the Trustee will be liable for
any delay by the Depositary or its Participants in identifying the beneficial
owners of the Notes, and the Company and the Trustee may conclusively rely on
and will be protected in relying on instructions from the Depositary or its
nominee as the registered owner of the Notes for all purposes.
Interests in the Global Notes will trade in the Depositary's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of the Depositary and its participants. In addition,
transfers between Participants in the Depositary will be effected in accordance
with the Depositary's procedures, and will be settled in same-day funds.
Each Person owning a beneficial interest in a Global Note must rely on the
procedures of the Depositary and, if such Person is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
Person owns its interest, to exercise any rights of a Holder under the Indenture
or such Global Note. The Company understands that under existing industry
practice, in the event the Company requests any action of Holders or a Person
that is an owner of a beneficial interest in a Global Note desires to take any
action that the Depositary, as the Holder of such Global Note (in such capacity,
the "Global Notes Holder"), is entitled to take, the Depositary would authorize
the Participants to take such action and the Participant would authorize Persons
owning through such Participants to take such action or would otherwise act upon
the instruction of such Persons.
The information in this section concerning the Depositary and its book-entry
systems has been obtained from sources that the Company believes to be reliable,
but the Company takes no responsibility for the accuracy thereof.
Although the Depositary has agreed to the foregoing procedures to facilitate
transfers of interests in the Global Notes among participants in the Depositary,
it is under no obligation to perform or to continue to perform such procedures,
and such procedures may be discontinued at any time. None of the Company, the
Initial Purchaser or the Trustee will have any responsibility for the
performance by the Depositary or its respective participants or indirect
participants of its respective obligations under the rules and procedures
governing its operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive New Notes in registered
certificated form if (i) the Depositary (A) notifies the Company that it is
unwilling or unable to continue as depositary for the Global Note and the
Company thereupon fails to appoint a successor depositary or (B) has ceased to
be a clearing agency registered under the Exchange Act or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause issuance of
the New Notes in certificated form. In addition, beneficial interests in a
Global Note may be exchanged for certificated Notes upon request but only upon
at least 20 days prior written notice given to the Trustee by or on behalf of
the Depositary in accordance with customary procedures. In all cases,
certificated New Notes delivered in exchange for any Global Note or beneficial
interest therein will be registered in names, and issued in any approved
denominations, requested by or on behalf of the Depositary (in accordance with
its customary procedures).
CERTIFICATED NOTES
Subject to certain conditions, any person having a beneficial interest in
any Global Note may, upon request to the Trustee, exchange such beneficial
interest for New Notes in the form of certificated Notes. Upon any such
issuance, the Trustee is required to register such certificated Notes in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). In addition, if (i) the Company notifies the Trustee in
writing that the Depositary is no longer willing or able to act as a depositary
and the Company is unable to locate a qualified successor within 90 days or (ii)
the Company, at
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its option, notifies the Trustee in writing that it elects to cause the issuance
of New Notes in the form of certificated Notes under the Indenture, then, upon
surrender by the Global Notes Holder of its Global Note, New Notes in such form
will be issued to each person that the Global Notes Holder and the Depositary
identify as being the beneficial owner of the related New Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Notes Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Notes Holder or the
Depositary for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the New Notes represented
by the Global Note (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Notes Holder. With respect to
certificated New Notes, the Company will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. The Company expects that secondary trading in the
certificated New Notes will also be settled in immediately available funds.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain of the anticipated federal income tax
consequences of an exchange of Existing Notes for New Notes and of the purchase,
ownership and disposition of the New Notes is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the final, temporary and
proposed regulations promulgated thereunder, and administrative rulings and
judicial decisions now in effect, all of which are subject to change (possibly
with retroactive effect) or different interpretations. This summary does not
purport to deal with all aspects of federal income taxation that may be relevant
to a particular investor, nor any tax consequences arising under the laws of any
state, locality, or foreign jurisdiction, and it is not intended to be
applicable to all categories of investors, some of which, such as dealers in
securities, banks, insurance companies, tax-exempt organizations, foreign
persons, persons that hold New Notes as part of a straddle or conversion
transaction or holders subject to the alternative minimum tax, may be subject to
special rules. In addition, the summary is limited to persons that will hold the
New Notes as "capital assets" (generally, property held for investment) within
the meaning of Section 1221 of the Code. ALL INVESTORS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE EXCHANGE AND THE OWNERSHIP AND DISPOSITION OF NEW NOTES.
TAXATION OF HOLDERS ON EXCHANGE
Although the matter is not free from doubt, an exchange of Existing Notes
for New Notes should not be a taxable event to Holders of Existing Notes and
Holders should not recognize any taxable gain or loss as a result of such an
exchange. Accordingly, a Holder would have the same adjusted basis and holding
period in the New Notes as it had in the Existing Notes immediately before the
exchange. Further, the tax consequences of ownership and disposition of any New
Notes should be the same as the tax consequences of ownership and disposition of
Existing Notes.
MARKET DISCOUNT
If a Holder purchases a Note for an amount that is less than its principal
amount, the amount of the difference will be treated as "market discount" for
federal income tax purposes, unless such difference is less than a specified de
minimis amount. Under the market discount rules, a Holder will be required to
treat any principal payment on, or any gain on the sale, exchange, retirement or
other disposition of, a Note as ordinary income to the extent of the market
discount which has not previously been included in income and is treated as
having accrued on such a Note at the time of such payment or disposition. In
addition, the Holder may be required to defer, until the maturity of the Note or
its earlier disposition in a taxable transaction, the deduction of all or a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the Holder
elects to accrue on a constant interest method. A Holder of a Note may elect to
include market discount in income currently as it accrues (on either a ratable
or constant interest method), in which case the rule described above regarding
deferral of interest deductions will not apply. This election to include market
discount in income currently, once made, applies to all market discount
obligations acquired on or after the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service (the "IRS").
AMORTIZABLE BOND PREMIUM
A Holder that purchases a Note for an amount in excess of the sum of its
principal amount will be considered to have purchased the Note at a "premium." A
Holder generally may elect to amortize the premium over the remaining term of
the Note on a constant yield method. The amount amortized in any year will be
treated as a reduction of the Holder's interest income from the Note. Bond
premium on a
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Note held by a Holder that does not make such an election will decrease the gain
or increase the loss otherwise recognized on disposition of the Note. The
election to amortize premium on a constant yield method once made applies to all
debt obligations held or subsequently acquired by the electing Holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A Holder's tax basis in a Note will, in general, be the Holder's cost
therefor, increased by market discount previously included in income by the
Holder and reduced by any amortized premium. Upon the sale, exchange or
retirement of a Note, a Holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or retirement
(less any accrued interest, which will be taxable as such) and the adjusted tax
basis of the Note. Except as described above with respect to market discount,
such gain or loss will be capital gain or loss and will be long-term capital
gain or loss if at the time of sale, exchange or retirement the Note has been
held for more than one year. Under current law, long-term capital gains of
individuals are, under certain circumstances, taxed at lower rates than items of
ordinary income. The deductibility of capital losses is subject to limitations.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Notes and to the proceeds of
sale of a Note made to Holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments if the
Holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such Holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
THE FOREGOING SUMMARY OF THE PRINCIPAL FEDERAL INCOME TAX CONSEQUENCES TO
HOLDERS DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO A PARTICULAR HOLDER OF NOTES IN LIGHT OF HIS PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF NOTES SHOULD CONSULT SUCH
HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, OR SUBSEQUENT VERSIONS THEREOF.
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ERISA CONSIDERATIONS
Sections 406 and 407 of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and Section 4975 of the Code prohibit certain employee
benefit plans, individual retirement accounts, individual retirement annuities
and employee annuity plans ("Plans") from engaging in certain transactions with
persons who, with respect to such Plan, are "parties in interest" under ERISA or
"disqualified persons" under the Code. A violation of these "prohibited
transaction" rules may generate excise taxes under the Code and other
liabilities under ERISA for such persons. Possible violations of the prohibited
transaction rules could occur if the Notes are purchased with the assets of any
Plan if the Company or any of its affiliates is a party in interest or
disqualified person with respect to such Plan, unless such acquisition is
subject to a statutory or administrative exemption.
The foregoing discussion is general in nature and is not intended to be
all-inclusive. Any fiduciary of a Plan considering the purchase of the Notes
should consult its legal advisors regarding the consequences of such purchases
under ERISA and the Code. If the Plan is not subject to ERISA, the fiduciary
should consult its legal advisors regarding the consequences of any state law or
Code considerations.
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PLAN OF DISTRIBUTION
Based on certain no-action letters issued by the staff of the Commission to
third parties in unrelated transactions, the Company believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or (ii) any broker-dealer that purchases Notes from the Company to resell
pursuant to Rule 144A or any other available exemption) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of the holder's
business and such holders have no arrangement or understanding with any person
to participate in a distribution of such New Notes and are not participating in,
and do not intend to participate in, the distribution of such New Notes. The
Company has not sought, and does not intend to seek, its own no-action letter
with regard to the Exchange Offer. Accordingly, there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the Exchange Offer. By tendering, each holder will represent to the Company in
the Letter of Transmittal that, among other things, the New Notes acquired
pursuant to the Exchange Offer are being acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the holder, that neither the holder nor any such other person has an arrangement
or understanding with any person to participate in the distribution of such New
Notes, that neither the holder nor any such other person is participating in or
intends to participate in the distribution of such New Notes and that neither
the holder nor any such other person is an "affiliate," as defined under Rule
405 of the Securities Act, of the Company. In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and complied with. The Company has agreed, pursuant to the
Registration Rights Agreements and subject to certain specified limitations
therein, to register to qualify the New Notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the Notes
reasonably request in writing.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of 180
days after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the close of the Exchange Offer the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Existing Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the New Notes will be passed upon for the Company by Paul,
Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The Company's financial statements as of December 31, 1996 and 1995, and for
the years then ended, and the supplemental schedule and the financial statements
of CapStar Management as of December 31, 1994, and for the years ended December
31, 1994 and 1993, incorporated by reference herein and in the Registration
Statement, have been incorporated by reference in reliance on the reports of
KPMG Peat Marwick LLP, independent accountants, incorporated by reference herein
and in the Registration Statement, given on the authority of said firm as
experts in accounting and auditing. The financial statements of certain other
entities, incorporated by reference herein and in the Registration Statement,
have been incorporated by reference in reliance on the reports of KPMG Peat
Marwick LLP, Wertheim & Company, King Griffin & Adamson P.C., Coopers & Lybrand
L.L.P., Mann Frankfort Stein & Lipp, P.C., Pinsker, Goldberg & Company and
Pannell Kerr Forster PC, as the case may be, independent accountants,
incorporated by reference herein and in the Registration Statement, given on the
authority of said firms as experts in accounting and auditing.
Any financial statments and schedules hereafter incorporated by reference in
the Registration Statement of which this Prospectus is a part that have been
audited and are the subject of a report by independent accountants will be so
incorporated by reference in reliance upon such reports and upon the authority
of such firms as experts in accounting and auditing to the extent covered by
consents filed with the Commission.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the headings "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "The Company," "Recent Developments," "Business and Properties" and
elsewhere in this Prospectus constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performances or achievements of the
Company to be materially different from any future results, performances or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the following: the ability of the Company
to successfully implement its acquisition strategy and operating strategy; the
Company's ability to manage rapid expansion; changes in economic cycles;
competition from other hospitality companies; and changes in the laws and
government regulations applicable to the Company.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... ii
Incorporation of Certain Documents by
Reference..................................... ii
Prospectus Summary.............................. 1
Risk Factors.................................... 14
Use of Proceeds................................. 21
Capitalization.................................. 21
Selected Financial and Other Data............... 22
Unaudited Pro Forma Condensed Consolidated
Financial Statements.......................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 28
The Exchange Offer.............................. 32
The Company..................................... 41
Recent Developments............................. 42
Business and Properties......................... 44
The Operating Partnerships...................... 53
Management...................................... 54
Principal Stockholders.......................... 62
Certain Relationships and Related
Transactions.................................. 63
Description of Certain Indebtedness............. 65
Description of Notes............................ 67
Certain Federal Income Tax Considerations....... 98
ERISA Considerations............................ 100
Plan of Distribution............................ 101
Legal Matters................................... 102
Experts......................................... 102
Special Note Regarding Forward-Looking
Statements.................................... 102
</TABLE>
PROSPECTUS
$150,000,000
[LOGO]
OFFER TO EXCHANGE $150,000,000 OF ITS 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT FOR $150,000,000 OF ITS
OUTSTANDING 8 3/4% SENIOR SUBORDINATED NOTES DUE 2007
OCTOBER 28, 1997
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