<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CAPSTAR HOTEL COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7011 52-1979383
(State of (Primary Standard Industrial (I.R.S. Employer
incorporation) Classification Code Number) Identification No.)
</TABLE>
------------------------------
1010 WISCONSIN AVENUE, N.W.
WASHINGTON, DC 20007
(202) 965-4455
(Address and telephone number of Registrant's principal executive offices)
------------------------------
PAUL W. WHETSELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CAPSTAR HOTEL COMPANY
1010 WISCONSIN AVENUE, N.W.
WASHINGTON, DC 20007
(202) 965-4455
(Name, address and telephone number of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
RICHARD S. BORISOFF, ESQ. J. WARREN GORRELL, JR., ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON ALAN L. DYE, ESQ.
1285 AVENUE OF THE AMERICAS HOGAN & HARTSON L.L.P.
NEW YORK, NEW YORK 10019-6064 555 THIRTEENTH STREET, N.W.
(212) 373-3000 WASHINGTON, DC 20004-1109
(202) 637-5600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share.......................... 5,750,000(2) $23 7/8 $137,281,250 $41,600
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based on the average of the high ($24 1/4) and low
($23 1/2) sales prices of the Registrant's Common Stock on the New York
Stock Exchange on February 14, 1997.
(2) Includes 750,000 shares of Common Stock to cover over-allotments, if any.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 19, 1997
PROSPECTUS
5,000,000 SHARES
[LOGO]
COMMON STOCK
------------------
CapStar Hotel Company ("CapStar" or the "Company") is a hotel management and
investment company which acquires, renovates, repositions and manages hotels
throughout the United States. CapStar owns and manages 22 upscale, full-service
hotels (the "Owned Hotels") which contain 5,981 rooms and manages an additional
29 hotels owned by third parties which contain 4,681 rooms (the "Managed
Hotels"). CapStar's portfolio of Owned Hotels and Managed Hotels includes 51
hotels which contain 10,662 rooms (the "Hotels"). The Company has entered into
contracts to acquire a portfolio of six hotels which contain 1,358 rooms (the
"Highgate Portfolio") and two additional hotels containing 367 rooms (the
"Additional Acquisitions"). The Company's business strategy is to identify and
acquire hotel properties with the potential for cash flow growth and to
renovate, reposition and operate each hotel according to a business plan
specifically tailored to the characteristics of the hotel and its market.
All of the 5,000,000 shares of common stock, par value $.01 per share (the
"Common Stock") offered hereby, are being offered by the Company. The Common
Stock is listed on the New York Stock Exchange ("NYSE"), under the symbol "CHO."
On February 18, 1997, the last reported sale price of the Common Stock was
$24 1/8.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING ON PAGE
11.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total(3)........................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
750,000 additional shares on the same terms and conditions as set forth
above solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to the Company will be $ , $ and $ .
See "Underwriting."
-------------------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, to withdrawal, cancellation or
modification of the offer without notice, to delivery to and acceptance by the
Underwriters and to certain further conditions. It is expected that delivery of
the shares will be made at the offices of Lehman Brothers Inc., in New York, New
York on or about , 1997.
-------------------
LEHMAN BROTHERS
BT SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
-------------------
, 1997.
<PAGE>
[PHOTOGRAPHS/MAPS AND CAPTIONS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
OVER-ALLOTMENT OPTION GRANTED TO THE UNDERWRITERS WILL NOT BE EXERCISED. UNLESS
THE CONTEXT OTHERWISE REQUIRES, REFERENCES HEREIN TO "CAPSTAR" OR THE "COMPANY"
INCLUDE CAPSTAR HOTEL COMPANY AND ITS SUBSIDIARIES (INCLUDING THE COMPANY'S
SUBSIDIARY OPERATING PARTNERSHIP, CAPSTAR MANAGEMENT COMPANY, L.P., THROUGH
WHICH CAPSTAR OPERATES ALL OF ITS BUSINESSES). THE OFFERING BY THE COMPANY OF
5,000,000 SHARES OF COMMON STOCK IS REFERRED TO HEREIN AS THE "OFFERING." ALL
STATISTICS IN THIS PROSPECTUS RELATING TO THE LODGING INDUSTRY GENERALLY (OTHER
THAN COMPANY STATISTICS) ARE FROM, OR HAVE BEEN DERIVED FROM, INFORMATION
PUBLISHED OR PROVIDED BY SMITH TRAVEL RESEARCH, AN INDEPENDENT INDUSTRY RESEARCH
ORGANIZATION. SMITH TRAVEL RESEARCH HAS NOT CONSENTED TO THE USE OF THE DATA
PRESENTED IN THIS PROSPECTUS AND HAS NOT PROVIDED ANY FORM OF CONSULTATION,
ADVICE OR COUNSEL REGARDING ANY ASPECT OF THE OFFERING.
THE COMPANY
CapStar is a hotel management and investment company which acquires,
renovates, repositions and manages hotels throughout the United States. CapStar
owns and manages 22 upscale, full-service hotels (the "Owned Hotels") which
contain 5,981 rooms and manages an additional 29 hotels owned by third parties
which contain 4,681 rooms (the "Managed Hotels"). CapStar's portfolio of Owned
Hotels and Managed Hotels includes 51 hotels which contain 10,662 rooms (the
"Hotels"). 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 Owned Hotels are located in markets which have
recently experienced strong economic growth, including Albuquerque, Atlanta,
Charlotte, Chicago, Cleveland, 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-TM-,
Sheraton-Registered Trademark-, Westin-TM-, Marriott-Registered Trademark-,
Doubletree-TM- and Embassy Suites-Registered Trademark-. For the year ended
December 31, 1996, on a pro forma basis, the operating performance of the Owned
Hotels (excluding the ten hotels purchased since September 30, 1996) improved
significantly, as demonstrated by the following table:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER
31,
---------------------- PERCENTAGE
1995 1996 INCREASE
---------- ---------- -------------
<S> <C> <C> <C>
Revenues (in thousands)............................... $ 109,798 $ 118,329 7.8%
Gross Operating Profit (in thousands)................. $ 30,947 $ 37,909 22.5%
Average Occupancy..................................... 72.4% 72.9% 0.7%
Average Daily Rate ("ADR")............................ $ 75.25 $ 83.82 11.4%
Revenue Per Available Room ("RevPAR")................. $ 54.44 $ 61.11 12.3%
</TABLE>
Additionally, the performance of the Owned Hotels compares favorably with that
of the industry in general. For the year ended December 31, 1996, RevPAR for the
Owned Hotels (excluding the ten hotels purchased since September 30, 1996)
increased 12.3%, while RevPAR for all upscale hotels, as reported by Smith
Travel Research, increased 9.0%. For the year ended December 31, 1996, RevPAR at
all of the Owned Hotels (including the ten hotels purchased since September 30,
1996) increased 10.1%.
The Company completed its initial public offering (the "IPO") in August
1996. Since the IPO, the Company has significantly expanded its portfolio by
completing the purchase of ten upscale, full-service hotels containing 2,465
rooms for an aggregate total acquisition cost, including estimated closing
costs, planned renovations and initial working capital ("Total Acquisition
Cost"), of $181.6 million. The Company has also entered into a contract with
Highgate Hotels, Inc. and certain affiliated entities ("Highgate Hotels") to
acquire a portfolio of six upscale, full-service hotels containing 1,358 rooms
(the "Highgate Portfolio") for a Total Acquisition Cost of approximately $104.7
million. See "Recent Developments--The
3
<PAGE>
Highgate Portfolio." The Company has also entered into contracts to acquire two
additional hotels containing 367 rooms for a Total Acquisition Cost of $26.7
million (the "Additional Acquisitions"). In addition to the acquisition of these
hotels, since the IPO the Company has invested in a joint venture which owns the
456-room Holiday Inn Riverfront in St. Louis, Missouri and has entered into
three new long-term management agreements.
During the year ended December 31, 1996, the Company spent a total of $21.6
million on renovations at the Owned Hotels and intends to spend an additional
$21.7 million completing the renovation programs (including approximately $8.4
million to renovate and reposition the Highgate Portfolio and the Additional
Acquisitions). See "Special Note Regarding Forward-Looking Statements."
As a fully integrated owner and manager, CapStar intends to capitalize on
its management experience and expertise by continuing to make opportunistic
acquisitions of full-service hotels, securing additional management contracts
and improving the operating performance of the Hotels. The Company's senior
management team has successfully managed hotels in all segments of the lodging
industry, with particular emphasis on upscale, full-service hotels. Senior
management has an average of approximately 20 years of experience in the hotel
industry. Since the inception of the Company's management business in 1987, the
Company has achieved consistent growth, even during periods of relative industry
weakness. The Company attributes its management success to its ability (i) to
analyze each hotel as a unique property and identify those particular cash flow
growth opportunities which each hotel presents, (ii) to create and implement
marketing plans that properly position each hotel within its local market, and
(iii) to develop management programs that emphasize guest service, labor
productivity, revenue yield and cost control. The Company has a distinct
management culture that stresses creativity, loyalty and entrepreneurship and
was developed to emphasize operations from an owner's perspective. This culture
is reinforced by the fact that 33 members of management will, hold directly or
indirectly, an aggregate of 5.5% of the Common Stock upon completion of the
Offering. See "Principal Stockholders."
The Company believes that the upscale, full-service segment of the lodging
industry is the most attractive segment in which to acquire, own and manage
hotels and further believes that there are currently many attractive
opportunities to acquire properties in this segment of the industry at prices
below replacement cost. The upscale, full-service segment is attractive for
several reasons. First, the Company expects that there will be no significant
increases in the supply of upscale, full-service hotels in the next several
years because the cost of new construction generally does not justify new hotel
development. Second, upscale, full-service hotels appeal to a wide variety of
customers, thus reducing the risk of decreasing demand from any particular
customer group. Additionally, such hotels have particular appeal to both
business executives and upscale leisure travelers, customers who are generally
less price sensitive than travelers who use limited-service hotels. Third,
because full-service hotels have a higher proportion of fixed costs to variable
costs than other segments of the lodging industry, full-service hotels afford
greater operating leverage than limited-service hotels, resulting in
increasingly higher profit margins as revenues increase. Finally, full-service
hotels require a greater depth of management expertise than limited-service
hotels, and the Company believes that its superior management skills provide it
with a significant competitive advantage in their operation.
4
<PAGE>
RECENT DEVELOPMENTS
In August 1996, the Company completed its IPO at a price of $18 per share,
generating net proceeds of approximately $110 million to the Company. Since
completing the IPO, the Company has continued to execute the hotel acquisition
and operating strategies that it had pursued prior to the IPO which has resulted
in significant growth in the Company's hotel portfolio. The Company's
acquisition, financing, and management activities since the IPO are discussed
below.
POST-IPO ACQUISITIONS
At the time of the IPO, the Company owned 12 upscale, full-service hotels,
containing 3,516 rooms. Since the IPO, the Company has acquired ten additional
upscale, full-service hotels containing 2,465 rooms. These newly acquired hotels
are operated under nationally recognized brand names such as Hilton, Doubletree,
Embassy Suites and Holiday Inn. 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
operation strategy. The Company believes that all of its post-IPO 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
$74,000 per room, which represents more than a 30% 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.
THE HIGHGATE PORTFOLIO
The Company has entered into a contract with Highgate Hotels to acquire the
Highgate Portfolio, a group of six upscale, full-service hotels containing 1,358
rooms for a Total Acquisition Cost of approximately $104.7 million. The
acquisition will be financed with $75.2 million in cash and $29.5 million of
units in the Company's subsidiary operating partnership ("OP Units"). See
"Recent Developments--The Highgate Portfolio." The Highgate Portfolio hotels are
operated under nationally recognized brand names including Sheraton, Doubletree,
Radisson-Registered Trademark-, Ramada-Registered Trademark- and Holiday
Inn-Registered Trademark-, and are located in Dallas, Indianapolis, Calgary and
Vancouver. The Highgate Portfolio enhances the Company's geographic diversity by
expanding its portfolio into Canada and, in connection with the acquisition of
the Highgate Portfolio, the Company has entered into agreements to manage two
additional hotels owned by principals of Highgate Hotels: the 414-room
Pontchartrain-Crowne Plaza in Detroit, Michigan and the 393-room Four Points
Hotel in suburban Atlanta. The Company believes that the acquisition of the
Highgate Portfolio and the establishment of a strategic alliance with Highgate
Hotels (one of the principals of which the Company has agreed to nominate to a
new seat on its board of directors) will provide significant benefits to its
on-going acquisition and corporate development activities. A portion of the net
proceeds from the Offering will be used by the Company to consummate the
acquisition of the Highgate Portfolio. The Company expects to complete the
acquisition of the Highgate Portfolio in April 1997. There can be no assurance,
however, that the closing will occur. See "Risk Factors--Risks Associated with
Expansion" and "Special Note Regarding Forward-Looking Statements."
THE ADDITIONAL ACQUISITIONS
The Company has also entered into contracts to acquire the Additional
Acquisitions: the 213-room Four Points Hotel in Cherry Hill, New Jersey for a
Total Acquisition Cost of $8.2 million and the 154-room Great Valley Sheraton in
Frazer, Pennsylvania for a Total Acquisition Cost of $18.5 million.
MANAGEMENT AGREEMENTS/JOINT VENTURES
In January 1997, the Company invested in a joint venture with Hallmark
Investment Corp. which owns the Holiday Inn Riverfront, located in downtown St.
Louis at the base of the Gateway Arch. In connection
5
<PAGE>
with the joint venture, the Company has signed a long-term agreement to manage
the 456-room property. Since August 1996 the Company has entered into
significant new long-term management agreements with three other hotel owners.
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."
FINANCING ACTIVITIES
In September 1996, the Company entered into a $225 million revolving credit
facility (the "Credit Facility") led by Bankers Trust Company ("Bankers Trust"),
as agent, to fund post-IPO acquisitions, to repay outstanding indebtedness and
for general corporate purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
In December 1996, the Company modified the terms of the Credit Facility to
increase the Company's permitted nonrecourse indebtedness from $25 million to
$50 million and to permit it to incur up to $100 million of subordinated
indebtedness. In December 1996, the Company borrowed $50 million of subordinated
indebtedness (the "Subordinated Debt") to provide additional funding for
acquisitions and for general corporate purposes.
6
<PAGE>
THE PROPERTIES
The following table sets forth certain information for each of the Owned
Hotels, the Highgate Portfolio and the Additional Acquisitions for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
------------------------
<S> <C> <C> <C> <C>
GUEST AVERAGE
HOTEL LOCATION ROOMS ADR OCCUPANCY
- ---------------------------------------------------------- ------------------------- ----------- --------- -------------
<CAPTION>
<S> <C> <C> <C> <C>
OWNED HOTELS
Orange County Airport Hilton.............................. Irvine, CA 290 $ 78.48 66.0%
Hilton Hotel.............................................. Sacramento, CA 326 75.89 71.7
Santa Barbara Inn......................................... Santa Barbara, CA 71 129.86 85.1
Hilton Hotel.............................................. San Pedro, CA 226 67.23 62.3
Holiday Inn............................................... Colorado Springs, CO 201 60.57 72.6
Sheraton Hotel............................................ Colorado Springs, CO 502 65.95 70.1
Embassy Suites Denver..................................... Englewood, CO 236 102.57 74.1
Embassy Row Hilton........................................ Washington, DC 195 111.24 60.8
The Latham Hotel.......................................... Washington, DC 143 108.17 72.0
Westin Atlanta Airport.................................... Atlanta, GA 496 79.44 79.3
Radisson Hotel............................................ Schaumburg, IL 202 75.54 66.1
Hilton Hotel & Towers..................................... Lafayette, LA 328 70.05 74.1
Marriott Hotel............................................ Somerset, NJ 434 104.36 72.4
Doubletree Hotel.......................................... Albuquerque, NM 294 77.12 66.6
Sheraton Airport Plaza.................................... Charlotte, NC 226 83.97 70.8
Holiday Inn............................................... Cleveland, OH 237 70.11 73.1
Hilton Hotel.............................................. Arlington, TX 310 81.03 73.3
Southwest Hilton.......................................... Houston, TX 293 72.17 53.9
Westchase Hilton.......................................... Houston, TX 295 89.87 77.9
Salt Lake Airport Hilton.................................. Salt Lake City, UT 287 79.18 75.5
Hilton Hotel.............................................. Arlington, VA 209 109.21 74.5
Hilton Hotel.............................................. Bellevue, WA 180 91.70 80.8
----- --------- ---
Subtotal/Weighted Average--Owned Hotels................. 5,981 $ 83.02 71.3%
HIGHGATE PORTFOLIO
Doubletree Guest Suites................................... Indianapolis, IN 137 $ 79.53 73.5%
Holiday Inn Select........................................ Dallas, TX 348 59.04 61.7
Radisson Hotel............................................ Dallas, TX 305 60.69 74.6
Holiday Inn Calgary Airport............................... Calgary, Alberta 170 53.09 59.3
Sheraton Hotel............................................ Guildford, B.C. 280 69.17 75.2
Ramada Vancouver Centre................................... Vancouver, B.C. 118 70.40 79.4
----- --------- ---
Subtotal/Weighted Average--Highgate Portfolio........... 1,358 $ 64.35 69.8%
ADDITIONAL ACQUISITIONS
Four Points Hotel......................................... Cherry Hill, NJ 213 $ 73.40 61.8%
Great Valley Sheraton..................................... Frazer, PA 154 88.80 72.0
----- --------- ---
Subtotal/Weighted Average--Additional Acquisitions 367 $ 80.43 66.1%
----- --------- ---
Total/Weighted Average.................................. 7,706 $ 79.64 70.8%
----- --------- ---
----- --------- ---
</TABLE>
The Company's principal executive offices are located at 1010 Wisconsin
Avenue, N.W., Suite 650, Washington, DC 20007, and its telephone number is (202)
965-4455.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the
Company........................... 5,000,000 shares
Common Stock to be Outstanding after
the Offering...................... 17,754,321 shares(1)(2)
Use of Proceeds..................... The net proceeds of the Offering will be used to fund
the acquisition of the Highgate Portfolio and the
Additional Acquisitions, to retire outstanding
balances under the Credit Facility and for general
corporate purposes.
NYSE Symbol......................... "CHO"
</TABLE>
- ------------------------
(1) Does not include up to 750,000 shares of Common Stock subject to an
over-allotment option granted to the Underwriters. See "Underwriting."
(2) Does not include 1,201,680 shares of Common Stock issuable upon the
conversion of 809,523 Common OP Units (as defined herein) and 392,157
Preferred OP Units (as defined herein). See "Recent Developments--The
Highgate Portfolio." Also does not include 1,740,000 shares of Common Stock
reserved for issuance under the Company's Equity Incentive Plan, under which
the Company has currently granted 754,254 options to purchase shares of
Common Stock. See "Management--Compensation of Directors," "--Stock Option
Grants" and "--Compensation Plans."
8
<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 December 31,
1996, the Company acquired 19 hotels on various dates. Thus, the historical
financial statements for the years ended December 31, 1996 and 1995 reflect
differing numbers of hotels owned throughout the periods. The unaudited pro
forma financial statements for the year ended December 31, 1996 assume 30 hotels
owned.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, PRO
------------------------------------------------------ FORMA
1992 1993 1994 1995 1996 1996(A)
--------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING DATA)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues:
Rooms............................................. $ 0 $ 0 $ 0 $ 14,456 $ 68,498 $ 158,293
Food, beverage and other.......................... 0 0 0 7,471 36,949 81,543
Management services and other revenues............ 3,479 4,234 4,418 4,436 4,345 3,169
--------- --------- --------- --------- ---------- ----------
Total revenues................................ 3,479 4,234 4,418 26,363 109,792 243,005
--------- --------- --------- --------- ---------- ----------
Operating expenses:
Departmental expenses:
Rooms............................................. 0 0 0 4,190 17,509 39,732
Food, beverage and other.......................... 0 0 0 5,437 27,102 60,496
Undistributed operating expenses:
Selling, general and administrative............... 2,836 4,065 4,508 8,078 20,448 43,450
Property operating costs.......................... 0 0 0 3,934 17,151 39,769
Depreciation and amortization..................... 12 14 23 2,098 8,248 18,801
--------- --------- --------- --------- ---------- ----------
Total operating expenses...................... 2,848 4,079 4,531 23,737 90,458 202,248
--------- --------- --------- --------- ---------- ----------
Operating income/(loss)............................. 631 155 (113) 2,626 19,334 40,757
Interest expense, net............................... 0 0 0 2,413 12,346 16,843
Minority interest................................... 0 0 0 17 39 (1,663)
Provision for income taxes(B)....................... 0 0 0 0 2,674 8,901
Income/(loss) before extraordinary item............. 631 155 (113) 230 4,353 13,350
Extraordinary item(C)............................... 0 0 0 (887) (1,956) --
Net income/(loss)............................... 631 155 (113) (657) 2,397 13,350
--------- --------- --------- --------- ---------- ----------
--------- --------- --------- --------- ---------- ----------
Earnings per share before extraordinary item (D).... $ -- $ -- $ -- $ -- $ 0.31 $ 0.75
Number of shares of common stock and common stock
equivalents outstanding........................... -- -- -- -- 12,754,321 18,563,844
OTHER FINANCIAL DATA:
EBITDA(E)........................................... $ 643 $ 169 $ (90) $ 4,741 $ 27,621 $ 57,895
Net cash provided by (used in) operating
activities........................................ 87 (101) 66 4,357 13,373 33,164
Net cash used in investing activities............... (65) (24) (41) (116,573) (225,251) (403,077)
Net cash provided by (used in) financing
activities........................................ (219) 244 0 119,048 226,830 389,514
BALANCE SHEET DATA:
Property and equipment, gross....................... $ 110 $ 134 $ 176 $ 110,883 $ 343,092 $ 520,657
Total assets........................................ 586 1,458 1,232 132,650 379,161 542,749
Long term obligations............................... 0 0 0 73,574 200,361 219,470
</TABLE>
9
<PAGE>
SUMMARY FINANCIAL AND OTHER INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, PRO FORMA
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1996(A)
--------- --------- --------- --------- --------- ---------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Owned Hotels:
Number of hotels.......................................... -- -- -- 6 19 30
Number of guest rooms..................................... -- -- -- 2,101 5,166 7,706
Total revenues (in thousands)............................. -- -- -- $ 21,927 $ 105,447 $ 239,836
Average occupancy......................................... -- -- -- 72.3% 71.6% 70.8%
ADR(F).................................................... -- -- -- $ 71.58 $ 82.84 $ 79.64
RevPAR(G)................................................. -- -- -- $ 51.75 $ 59.31 $ 56.39
All Hotels(H):
Number of hotels(I)....................................... 34 34 39 46 47 --
Number of guest rooms(I).................................. 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 year ended December 31, 1996 have been prepared as if the Offering and
the acquisition of the Owned Hotels, the Highgate Portfolio and the
Additional Acquisitions had been consummated at the beginning of the period
presented, and the pro forma Balance Sheet Data as of December 31, 1996 has
been prepared as if the Offering and the acquisition of the Owned Hotels,
the Highgate 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 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) Earnings per share before extraordinary item for the historical year ended
December 31, 1996 is based on earnings for the period from August 20, 1996
through December 31, 1996.
(E) 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.
(F) Represents total room revenues divided by total number of rooms occupied by
hotel guests on a paid basis.
(G) Represents total room revenues divided by total available rooms, net of
rooms out of service due to significant renovations.
(H) Represents operating data for all hotels managed by the Company during all
or a portion of the periods presented.
(I) As of December 31 for the periods presented.
10
<PAGE>
RISK FACTORS
An investment in the Common Stock involves material risks. In addition to
general investment risk and those factors set forth elsewhere in this
Prospectus, prospective investors should carefully consider, among other things,
the following risks before making an investment.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
OPERATING RISKS. The Company's business is subject to all of the operating
risks inherent in the lodging industry. These risks include the following:
changes in general and local economic conditions; cyclical overbuilding in the
lodging industry; varying levels of demand for rooms and related services;
competition from other hotels, motels and recreational properties; changes in
travel patterns; the recurring need for renovations, refurbishment and
improvements of hotel properties; changes in governmental regulations that
influence or determine wages, prices and construction and maintenance costs; and
changes in interest rates and the availability of credit. Demographic,
geographic or other changes in one or more of the Company's markets could impact
the convenience or desirability of the sites of certain hotels, which would in
turn affect the operations of those hotels. In addition, due to the level of
fixed costs required to operate full-service hotels, certain significant
expenditures necessary for the operation of hotels generally cannot be reduced
when circumstances cause a reduction in revenue.
COMPETITION IN THE LODGING INDUSTRY. The lodging industry is highly
competitive. There is no single competitor or small number of competitors of the
Company that are dominant in the industry. The Hotels operate in areas that
contain numerous competitors, many of which have substantially greater resources
than the Company. Competition in the lodging industry is based generally on
location, room rates and range and quality of services and guest amenities
offered. New or existing competitors could significantly lower rates or offer
greater conveniences, services or amenities or significantly expand, improve or
introduce new facilities in markets in which the Hotels compete, thereby
adversely affecting the Company's operations.
SEASONALITY. The lodging industry is seasonal in nature. Generally, hotel
revenues are greater in the second and third quarters than in the first and
fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the revenues of the Company. Quarterly earnings also may be
adversely affected by events beyond the Company's control, such as extreme
weather conditions, economic factors and other considerations affecting travel.
FRANCHISE AGREEMENTS. Upon completion of the Offering, all but two of the
Owned Hotels, the Highgate Portfolio hotels and the Additional Acquisitions will
be operated pursuant to existing franchise or license agreements (the "Franchise
Agreements"). The Franchise Agreements generally contain specific standards for,
and restrictions and limitations on, the operation and maintenance of a hotel in
order to maintain uniformity within the franchisor system. Those limitations may
conflict with the Company's philosophy of creating specific business plans
tailored to each 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.
11
<PAGE>
RISKS ASSOCIATED WITH EXPANSION
COMPETITION FOR EXPANSION OPPORTUNITIES. The Company competes for the
acquisition of hotels with entities that have substantially greater financial
resources than the Company. The Company believes that, as a result of the
downturn experienced by the lodging industry from the late 1980s through the
early 1990s and the significant number of foreclosures and bankruptcies created
thereby, the prices for many hotels have for several years been at historically
low levels and often well below the cost to build new hotels. The recent
economic recovery in the lodging industry and the resulting increase in funds
available for hotel acquisitions may cause additional investors to enter the
hotel acquisition market, which may in turn cause hotel acquisition costs to
increase and the number of attractive hotel acquisition opportunities to
decrease.
FAILURE TO CONSUMMATE ACQUISITIONS. The Company has entered into binding
contracts to acquire the Highgate Portfolio and 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 and could have a
material adverse effect on the company's results of operations.
INTEGRATION RISKS. To successfully implement its acquisition strategy, the
Company must be able to continue to successfully integrate new hotels into its
existing operations. The consolidation of functions and integration of
departments, systems and procedures of the new hotels with the Company's
existing operations presents a significant management challenge, and the failure
to integrate new hotels into the Company's management and operating structures
could have a material adverse effect on the results of operations and financial
condition of the Company. There can be no assurance that the Company will be
able to achieve operating results in its new hotels comparable to the historical
performance of its hotels.
RISKS ASSOCIATED WITH OWNING REAL ESTATE
The Company currently owns 22 hotels and has entered into contracts to
acquire the Highgate Portfolio and the 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
national, regional and local economic conditions, changes in local real estate
market conditions, changes in interest rates and in the availability, cost and
terms of financing, the potential for uninsured casualty and other losses, the
impact of present or future environmental legislation and adverse changes in
zoning laws and other regulations. Many of these risks are beyond the control of
the Company. In addition, real estate investments are relatively illiquid,
resulting in a limited ability of the Company to vary its portfolio of hotels in
response to changes in economic and other conditions.
HOTEL RENOVATION RISKS
The renovation of hotels involves risks associated with construction and
renovation of real property, including the possibility of construction cost
overruns and delays due to various factors (including the inability to obtain
regulatory approvals, inclement weather, labor or material shortages and the
unavailability of construction and permanent financing) and market or site
deterioration after acquisition or renovation. Any unanticipated delays or
expenses in connection with the renovation of hotels could have an adverse
effect on the results of operations and financial condition of the Company.
RISK OF DEBT FINANCING; NO LIMITS ON INDEBTEDNESS
Neither the Company's Certificate of Incorporation nor its By-laws limit the
amount of indebtedness that the Company may incur. Subject to limitations in its
debt instruments the Company expects to incur additional debt in the future to
finance acquisitions and renovations. The Company's continuing substantial
indebtedness could increase its vulnerability to general economic and lodging
industry conditions (including increases in interest rates) and could impair the
Company's ability to obtain additional financing
12
<PAGE>
in the future and to take advantage of significant business opportunities that
may arise. The Company's indebtedness is, and will likely continue to be,
secured by mortgages on all of the Owned Hotels and by the equity of certain
subsidiaries of the Company. There can be no assurances that the Company will be
able to meet its debt service obligations and, to the extent that it cannot, the
Company risks the loss of some or all of its assets, including the Owned Hotels,
the Highgate Portfolio and the Additional Acquisitions, to foreclosure. Adverse
economic conditions could cause the terms on which borrowings become available
to be unfavorable. In such circumstances, if the Company is in need of capital
to repay indebtedness in accordance with its terms or otherwise, it could be
required to liquidate one or more investments in hotels at times which may not
permit realization of the maximum return on such investments.
The Credit Facility and the Subordinated Debt contain a number of
significant covenants that, among other things, restrict the ability of the
Company and its subsidiaries to (i) acquire or dispose of assets or businesses,
(ii) incur additional indebtedness, (iii) make capital expenditures, (iv) pay
dividends, (v) create liens on assets, (vi) enter into leases, investments or
acquisitions, (vii) engage in mergers or consolidations, or (viii) engage in
certain transactions with subsidiaries and affiliates, and otherwise restrict
corporate activities of the Company (including its ability to acquire additional
hotels, hotel businesses or assets, certain changes of control and asset sale
transactions) without the consent of the lenders. In addition, the Company will
be required to maintain specified financial ratios and comply with tests,
including minimum interest coverage ratios, maximum leverage ratios, minimum net
worth and minimum equity capitalization requirements.
The Company's outstanding indebtedness under the Credit Facility and the
Subordinated Debt bears interest at a variable rate. Economic conditions could
result in higher interest rates, which could increase debt service requirements
on variable rate debt and could reduce the amount of cash available for various
corporate purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Liquidity and Capital Resources."
CONTROLLING STOCKHOLDERS
Acadia Partners, L.P., a private investment partnership, and related
entities ("Acadia Partners"), and certain members of management will
beneficially own an aggregate of 19.7% of the issued and outstanding shares of
Common Stock upon completion of the Offering. See "Principal Stockholders." So
long as Acadia Partners and such members of management beneficially own a
substantial interest in the Company, they may have the ability to elect or
remove members of the Board of Directors of the Company (the "Board"), and
thereby control the management and affairs of the Company, and may have the
power to approve or block most actions requiring approval of the stockholders of
the Company. See "Principal Stockholders" and "Description of Capital Stock."
SUBSTANTIAL RELIANCE ON KEY PERSONNEL
The Company will place substantial reliance on the lodging industry
knowledge and experience and the continued services of its senior management,
led by Paul W. Whetsell and David E. McCaslin. The Company's future success and
its ability to manage future growth depend in large part upon the efforts of
these persons and on the Company's ability to attract and retain other highly
qualified personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in attracting and retaining
such personnel. The loss of services of Messrs. Whetsell or McCaslin or the
Company's inability to attract and retain other highly qualified personnel may
adversely affect the results of operations and financial condition of the
Company. The Company currently has employment agreements with Messrs. Whetsell
and McCaslin for terms of three years each expiring in December 1999, which
contain certain non-compete clauses. See "Management--Employment Agreements."
13
<PAGE>
POTENTIAL FOR CONFLICTS OF INTEREST
Mr. Whetsell and Mr. McCaslin and corporations owned by them own, directly
or indirectly, (i) a leasehold interest, expiring on December 31, 2001, in two
of the Managed Hotels and (ii) minority equity interests in eight of the Managed
Hotels. Mr. Whetsell and Mr. McCaslin exercise management control over the
entities that own four of these Managed Hotels (the "Affiliated Owners") through
their ownership of certain entities which serve as general partners of the
Affiliated Owners. Such interests were acquired prior to the formation of
EquiStar and CapStar Management. During 1996, the Company received approximately
$824,070 in management fees from the eight hotels in which Messrs. Whetsell and
McCaslin own an equity interest, including approximately $554,896 in management
fees from the Affiliated Owners.
Conflicts may arise in the future between the Company and the Affiliated
Owners with respect to certain Management Agreements (as defined below) between
the Company and such Affiliated Owners. These conflicts may arise in connection
with the exercise of any rights or the conduct of any negotiations to extend,
renew, terminate or amend such agreements. There can be no assurance that such
conflicts will be resolved in favor of the Company. Transactions involving the
Company and the Affiliated Owners will be passed on for the Company by a
majority of the Independent Directors (as defined herein) of the Board.
Although none of the Managed Hotels owned by Affiliated Owners now competes
with the Owned Hotels, the Company may in the future acquire a hotel in a market
in which a hotel owned by an Affiliated Owner now operates. See "Certain
Relationships and Related Transactions--Ownership Interests in Certain Managed
Hotels."
Under the terms of their employment agreements, Messrs. Whetsell and
McCaslin are prohibited from hereafter acquiring any interests in hotels or
hotel management companies while they serve as officers of the Company. See
"Management--Employment Agreements."
TERMINATION OF MANAGEMENT AGREEMENTS
The Company operates the 29 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 1996, the
Company's pro forma revenue from Management Agreements was $3.2 million
constituting 1.3% of the Company's total pro forma revenue for such period. No
single Management Agreement (or group of Management Agreements for hotels under
common ownership or control) currently accounts for more than 0.5% 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
14
<PAGE>
or treatment of hazardous or toxic substances may also be liable for the costs
of removal or remediation of such substances at the disposal or treatment
facility, whether or not such facility is or ever was owned or operated by such
person. The operation and removal of certain underground storage tanks are also
regulated by federal and state laws. In connection with the ownership and
operation of the Hotels, the Company could be held liable for the costs of
remedial action with respect to such regulated substances and storage tanks and
claims related thereto. Activities have been undertaken to close or remove
storage tanks located on the property of two of the Owned Hotels.
All of the Owned Hotels have undergone Phase I environmental site
assessments ("Phase Is"), which generally provide a physical inspection and
database search but not soil or groundwater analyses, by a qualified independent
environmental engineer within the last 18 months. The purpose of the Phase Is is
to identify potential sources of contamination for which the Owned Hotels may be
responsible and to assess the status of environmental regulatory compliance. The
Phase Is have not revealed any environmental liability or compliance concerns
that the Company believes would have a material adverse effect on the Company's
results of operation or financial condition, nor is the Company aware of any
such liability or concerns.
In addition, the Owned Hotels have been inspected to determine the presence
of asbestos. Federal, state and local environmental laws, ordinances and
regulations also require abatement or removal of certain asbestos-containing
materials ("ACMs") and govern emissions of and exposure to asbestos fibers in
the air. Limited quantities of ACMs are present in various building materials
such as sprayed-on ceiling treatments, roofing materials or floor tiles at the
Owned Hotels. Operations and maintenance programs for maintaining such ACMs have
been or are in the process of being designed and implemented, or the ACMs have
been scheduled to be or have been abated, at such hotels. Based on third party
environmental assessments and due diligence investigations recently conducted by
the Company and its lenders, the Company believes that the presence of ACMs in
its Owned Hotels will not have a material adverse effect on the Company's
results of operations or financial condition. However, there can be no assurance
that this will be the case. Any liability resulting from non-compliance or other
claims relating to environmental matters could have a material adverse effect on
the Company's results of operations or financial condition.
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.
SHARES AVAILABLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock (including shares issuable upon
the exercise of stock options or the conversion of OP Units), or the perception
that such sales could occur, could adversely affect prevailing market prices for
the Common Stock. See "Management--Stock Option Grants" and
15
<PAGE>
"The Operating Partnership." Upon consummation of the Offering, the Company will
have outstanding 17,754,321 shares of Common Stock (assuming no exercise of the
over-allotment option). 3,504,321 of these shares are "restricted securities"
under Rule 144 under the Securities Act of 1933, as amended (the "Securities
Act"). The Company has granted certain registration rights to the recipients of
such restricted securities which were issued in connection with the formation
transactions that occurred immediately prior to the closing of the IPO (the
"Formation Transactions"). See "Description of Capital Stock--Registration
Rights." In connection with the Offering, the Company has agreed not to offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable for Common Stock for a period of 180
days after the date of this Prospectus without the prior written consent of
Lehman Brothers Inc. ("Lehman"). Certain entities controlled by members of
management (who beneficially own an aggregate of 980,010 shares of Common Stock)
have agreed not to offer, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable for
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of Lehman. There can be no assurance that Lehman will
not grant any such consent. See "Shares Available for Future Sale."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $ million (approximately $ million if the over-allotment
option is exercised in full) after giving effect to estimated underwriting
discounts and commissions and offering expenses payable by the Company.
The net proceeds are expected to be used as follows: (i) $70.8 million to
fund the cash portion of the acquisition of the Highgate Portfolio; (ii) $21.8
million to fund the acquisition of the Additional Acquisitions; and (iii) the
remainder will be available to retire outstanding balances under the Credit
Facility and for general corporate purposes.
PRICE RANGE OF COMMON STOCK
The Common Stock has been listed on the NYSE since August 20, 1996 under the
symbol "CHO." The following table sets forth for the periods indicated the high
and low closing sale prices for the Common Stock on the NYSE.
<TABLE>
<CAPTION>
PRICE
--------------------
HIGH LOW
--------- ---------
<S> <C> <C>
1997:
First Quarter (through February 18, 1997)................................ $ 24 3/4 $ 19 3/8
1996:
Fourth Quarter (ended December 31, 1996)................................. 19 5/8 16 7/8
Third Quarter (ended September 30, 1996)................................. 18 3/8 16 1/2
</TABLE>
The last reported sale price of the Common Stock on the NYSE on February 18,
1997 was $24 1/8. As of February 18, 1997, there were approximately 49 holders
of record of the Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock and does not
anticipate that it will do so in the foreseeable future. The Company intends to
retain earnings to provide funds for the continued growth and development of the
Company's business. The Credit Facility and Subordinated Debt restrict the
Company's ability to pay dividends on the Common Stock. Any determination to pay
cash dividends in the future will be at the discretion of the Board and will be
dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant by the Board.
17
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of December 31, 1996 and as adjusted to give effect to the acquisition of three
Owned Hotels since December 31, 1996, the Highgate Portfolio and the Additional
Acquisitions, and the Offering. The information below should be read in
conjunction with the consolidated financial statements and notes thereto and the
pro forma financial statements and notes thereto contained elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
DEBT:
Total long-term debt..................................................................... $ 200,361 $ 219,470
Minority interest........................................................................ 606 30,136
STOCKHOLDERS' EQUITY:
Preferred Stock ($.01 par value, 25,000,000 shares authorized, no shares issued or
outstanding)........................................................................... -- --
Common Stock ($.01 par value, 49,000,000 shares authorized, 12,754,321 shares issued and
outstanding)........................................................................... 128 178
Additional paid-in capital............................................................... 158,533 272,265
Retained earnings........................................................................ 2,054 2,054
---------- -----------
---------- -----------
Total stockholders' equity......................................................... 160,715 274,497
---------- -----------
Total capitalization............................................................... $ 361,682 $ 524,103
---------- -----------
---------- -----------
</TABLE>
18
<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
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, have been
derived from the audited financial statements which are included elsewhere in
this Prospectus. The other comparable data as of, and for the years ended,
December 31, 1993 and 1992 have been derived from financial statements that are
not required to be included in this Prospectus. The following information should
be read in conjunction with the historical consolidated financial statements and
notes thereto for the Company, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the unaudited pro forma
financial statements and notes thereto included elsewhere in this Prospectus.
The pro forma operating data and other data for the year ended December 31,
1996 has been prepared as if the Offering and the acquisition of the Owned
Hotels, the Highgate Portfolio and the Additional Acquisitions had been
consummated at the beginning of 1996, and the pro forma balance sheet data as of
December 31, 1996 has been prepared as if the Offering and the acquisition of
the Owned Hotels, the Highgate 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 year ended December
31, 1996, nor does it purport to represent the Company's future financial
position and results of operations.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- ---------- -----------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OPERATING
DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues:
Rooms.................................................................. $ 0 $ 0 $ 0 $ 14,456 $ 68,498
Food, beverage and other............................................... 0 0 0 7,471 36,949
Management services and other revenues................................. 3,479 4,234 4,418 4,436 4,345
--------- --------- --------- ---------- -----------
Total revenues..................................................... 3,479 4,234 4,418 26,363 109,792
--------- --------- --------- ---------- -----------
Operating expenses:
Departmental expenses:
Rooms.................................................................. 0 0 0 4,190 17,509
Food, beverage and other............................................... 0 0 0 5,437 27,102
Undistributed operating expenses:
Selling, general and administrative.................................... 2,836 4,065 4,508 8,078 20,448
Property operating costs............................................... 0 0 0 3,934 17,151
Depreciation and amortization.......................................... 12 14 23 2,098 8,248
--------- --------- --------- ---------- -----------
Total operating expenses........................................... 2,848 4,079 4,531 23,737 90,458
--------- --------- --------- ---------- -----------
Operating income/(loss).................................................. 631 155 (113) 2,626 19,334
Interest expense, net.................................................... 0 0 0 2,413 12,346
Minority interest........................................................ 0 0 0 17 39
Provision for income taxes(B)............................................ 0 0 0 0 2,674
Income/(loss) before extraordinary item.................................. 631 155 (113) 230 4,353
Extraordinary item(C).................................................... 0 0 0 (887) (1,956)
--------- --------- --------- ---------- -----------
Net income/(loss).................................................. 631 155 (113) (657) 2,397
--------- --------- --------- ---------- -----------
--------- --------- --------- ---------- -----------
Earnings per share before extraordinary item (D)......................... $ -- $ -- $ -- $ -- $ 0.31
Number of shares of common stock and common stock equivalents
outstanding............................................................ -- -- -- -- 12,754,321
OTHER FINANCIAL DATA:
EBITDA(E)................................................................ $ 643 $ 169 $ (90) $ 4,741 $ 27,621
Net cash provided by (used in) operating activities...................... 87 (101) 66 4,357 13,373
Net cash used in investing activities.................................... (65) (24) (41) (116,573) (225,251)
Net cash provided by (used in) financing activities...................... (219) 244 0 119,048 226,830
BALANCE SHEET DATA:
Property and equipment, gross............................................ $ 110 $ 134 $ 176 $ 110,883 343,092
Total assets............................................................. 586 1,458 1,232 132,650 379,161
Long term obligations.................................................... 0 0 0 73,574 200,361
<CAPTION>
PRO FORMA
<S> <C>
1996(A)
-----------
<S> <C>
OPERATING RESULTS:
Revenues:
Rooms.................................................................. $ 158,293
Food, beverage and other............................................... 81,543
Management services and other revenues................................. 3,169
-----------
Total revenues..................................................... 243,005
-----------
Operating expenses:
Departmental expenses:
Rooms.................................................................. 39,732
Food, beverage and other............................................... 60,496
Undistributed operating expenses:
Selling, general and administrative.................................... 43,450
Property operating costs............................................... 39,769
Depreciation and amortization.......................................... 18,801
-----------
Total operating expenses........................................... 202,248
-----------
Operating income/(loss).................................................. 40,757
Interest expense, net.................................................... 16,843
Minority interest........................................................ (1,663)
Provision for income taxes(B)............................................ 8,901
Income/(loss) before extraordinary item.................................. 13,350
Extraordinary item(C).................................................... --
-----------
Net income/(loss).................................................. 13,350
-----------
-----------
Earnings per share before extraordinary item (D)......................... $ 0.75
Number of shares of common stock and common stock equivalents
outstanding............................................................ 18,563,844
OTHER FINANCIAL DATA:
EBITDA(E)................................................................ $ 57,895
Net cash provided by (used in) operating activities...................... 33,164
Net cash used in investing activities.................................... (403,077)
Net cash provided by (used in) financing activities...................... 389,514
BALANCE SHEET DATA:
Property and equipment, gross............................................ 520,657
Total assets............................................................. 542,749
Long term obligations.................................................... 219,470
</TABLE>
19
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, PRO FORMA
-----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996 1996(A)
--------- --------- --------- --------- --------- -----------
OPERATING DATA:
Owned Hotels:
Number of hotels........................................ -- -- -- 6 19 30
Number of guest rooms................................... -- -- -- 2,101 5,166 7,706
Total revenues (in thousands)........................... -- -- -- $ 21,927 $ 105,447 $ 239,836
Average occupancy....................................... -- -- -- 72.3% 71.6% 70.8%
ADR(F).................................................. -- -- -- $ 71.58 $ 82.84 $ 79.64
RevPAR(G)............................................... -- -- -- $ 51.75 $ 59.31 $ 56.39
All Hotels(H):
Number of hotels(I)..................................... 34 34 39 46 47 --
Number of guest rooms(I)................................ 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 year ended December 31, 1996 have been prepared as if the Offering and
the acquisition of the Owned Hotels, the Highgate Portfolio and the
Additional Acquisitions had been consummated at the beginning of the period
presented, and the pro forma Balance Sheet Data as of December 31, 1996 has
been prepared as if the Offering and the acquisition of the Owned Hotels,
the Highgate 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 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) Earnings per share before extraordinary item for the historical year ended
December 31, 1996 is based on earnings for the period from August 20, 1996
through December 31, 1996.
(E) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. Management believes that EBITDA is a useful
measure of operating performance because it is industry practice to evaluate
hotel properties based on operating income before interest, depreciation and
amortization, which is generally equivalent to EBITDA, and EBITDA is
unaffected by the debt and equity structure of the property owner. EBITDA
does not represent cash flow from operations as defined by 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.
(F) Represents total room revenues divided by total number of rooms occupied by
hotel guests on a paid basis.
(G) Represents total room revenues divided by total available rooms, net of
rooms out of service due to significant renovations.
(H) Represents operating data for all hotels managed by the Company during all
or a portion of the periods presented.
(I) As of December 31 for the periods presented.
20
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited Pro Forma Balance Sheet of the Company as of December 31, 1996
is presented assuming: (i) the Offering and the application of the net proceeds
had been completed on December 31, 1996; and (ii) the Owned Hotels, the Highgate
Portfolio and the Additional Acquisitions were owned on December 31, 1996.
The unaudited Pro Forma Statement of Operations of the Company for the year
ended December 31, 1996 presents the results of operations of the Company
assuming: (i) all of the Owned Hotels, the Highgate Portfolio and the Additional
Acquisitions had been acquired at the beginning of 1996; and (ii) the Offering
was completed as of the beginning of 1996.
In management's opinion, all material adjustments necessary to reflect the
transactions are presented in the pro forma adjustments columns, which are
further described in the notes to the unaudited Pro Forma Financial Statements.
The unaudited Pro Forma Financial Statements are not necessarily indicative of
what the Company's financial position or results of operations actually would
have been if all the Owned Hotels, the Highgate Portfolio and the Additional
Acquisitions were, in fact, acquired on such date and if the Offering occurred
on such date. Additionally, the pro forma information does not purport to
project the Company's financial position or results of operations at any future
date or for any future period. The unaudited Pro Forma Financial Statements
should be read in conjunction with the audited historical consolidated financial
statements and related notes thereto of the Company, which are included
elsewhere in this Prospectus.
21
<PAGE>
CAPSTAR HOTEL COMPANY
PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
AFTER
OFFERING, HIGHGATE OFFERING AND
PORTFOLIO AND ACQUISITION
OWNED ADDITIONAL OF HIGHGATE
HOTELS ACQUISITIONS PRO PORTFOLIO AND
HISTORICAL PRO FORMA FORMA ADDITIONAL
(A) ADJUSTMENTS (B) ADJUSTMENTS (C) ACQUISITIONS
------------- --------------- ------------------ -------------
<S> <C> <C> <C> <C>
ASSETS
Cash.......................................... $ 21,784 $ (6,189) $ (7,223) $ 8,372
Property and equipment, net
Land........................................ 58,127 4,834 12,199 75,160
Building and improvements................... 244,367 45,088 97,596 387,051
Furniture, fixtures and equipment........... 28,066 5,649 12,199 45,914
Construction-in-progress.................... 3,891 -- -- 3,891
------------- ------- -------- -------------
Total property and equipment, net............. 334,451 55,571 121,994 512,016
Other assets.................................. 22,926 (1,515) 950 22,361
------------- ------- -------- -------------
Total assets.................................. $ 379,161 $ 47,867 $ 115,721 $ 542,749
------------- ------- -------- -------------
------------- ------- -------- -------------
LIABILITIES, MINORITY INTEREST AND EQUITY
Other liabilities............................. $ 17,479 $ 367 $ 800 $ 18,646
Long-term debt................................ 200,361 47,500 (28,391)(D) 219,470
------------- ------- -------- -------------
Total liabilities............................. 217,840 47,867 (27,591) 238,116
Minority interest............................. 606 -- 29,530(E) 30,136
Equity........................................ 160,715 -- 113,782(D) 274,497
------------- ------- -------- -------------
Total liabilities, minority interest and
equity...................................... $ 379,161 $ 47,867 $ 115,721 $ 542,749
------------- ------- -------- -------------
------------- ------- -------- -------------
</TABLE>
<TABLE>
<C> <S>
(A) Reflects the historical consolidated balance sheet of the Company as of December 31, 1996.
(B) Reflects the Company's cost basis and financing for three Owned Hotels acquired subsequent to December 31,
1996.
(C) Reflects the estimated cost basis and financing for the Highgate Portfolio and the Additional Acquisitions.
The acquisition cost of the Highgate Portfolio is $100,338 plus $4,350 for renovations. The estimated
acquisition cost of the Additional Acquisitions is $22,606 plus $4,094 in renovations and other costs.
(D) A reconciliation of gross proceeds from the Offering to net proceeds is as follows:
</TABLE>
<TABLE>
<S> <C> <C>
Gross proceeds at $24.125 per share.................................................... $ 120,625
Underwriting, advisory and other transaction expenses.................................. (6,843)
---------
Net cash proceeds from Offering........................................................ $ 113,782
---------
A schedule of sources and uses of funds related to the Offering are as follows:
SOURCES
Net cash proceeds from Offering........................................................ $ 113,782
Cash on hand........................................................................... 7,223
---------
Total sources.......................................................................... $ 121,005
---------
USES
Repayment of outstanding amounts on certain existing debt facilities................... $ (28,391)
Purchase of Highgate Portfolio and Additional Acquisitions............................. (92,614)
---------
Total uses............................................................................. $(121,005)
---------
</TABLE>
<TABLE>
<S> <S>
The Pro forma balance sheet assumes that the proceeds from the Credit Facility are drawn on December 31,
1996.
(E) Represents 809,523 Common OP Units convertible into an equal number of shares of Common Stock and 392,157
Preferred OP Units convertible into an equal number of shares of Common Stock.
</TABLE>
22
<PAGE>
CAPSTAR HOTEL COMPANY
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OFFERING, PRO FORMA
HIGHGATE AFTER OFFERING,
PORTFOLIO AND ACQUISITION OF
ADDITIONAL HIGHGATE
OWNED HOTELS ACQUISITIONS PORTFOLIO
PRO FORMA PRO FORMA AND ADDITIONAL
HISTORICAL(A) ADJUSTMENTS(B) ADJUSTMENTS(C) ACQUISITIONS
------------ --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Rooms.................................................... $ 68,498 $ 60,370 $ 29,425 $ 158,293
Food and beverage........................................ 30,968 22,889 13,207 67,064
Other revenue............................................ 5,981 3,853 4,645 14,479
Hotel management, accounting and other................... 4,345 (1,040) (136) 3,169
------------ ------- ------- -----------------
Total Revenue.......................................... 109,792 86,072 47,141 243,005
------------ ------- ------- -----------------
Hotel operating expenses by department:
Rooms.................................................... 17,509 14,954 7,269 39,732
Food and beverage........................................ 24,589 18,518 10,322 53,429
Other operating departments.............................. 2,513 2,124 2,430 7,067
Undistributed operating expenses:
Selling, general and administrative...................... 20,448 15,424 7,578 43,450
Property operating costs................................. 12,586 10,270 4,478 27,334
Property taxes, insurance and other...................... 4,565 4,055 3,815 12,435
Depreciation and amortization............................ 8,248 6,361 4,192 18,801
------------ ------- ------- -----------------
Total operating expenses............................... 90,458 71,706 40,084 202,248
------------ ------- ------- -----------------
Interest expense, net...................................... 12,346 6,594 (2,097) 16,843
------------ ------- ------- -----------------
Total expenses............................................. 102,804 78,300 37,987 219,091
------------ ------- ------- -----------------
Income before minority interest and
income taxes............................................. 6,988 7,772 9,154 23,914
Minority interest.......................................... 39 (38) (1,664) (1,663)
------------ ------- ------- -----------------
Income before income taxes................................. 7,027 7,734 7,490 22,251
Income tax provision....................................... 2,674 3,231 2,996 8,901
------------ ------- ------- -----------------
Net income............................................. $ 4,353 $ 4,503 $ 4,494 $ 13,350
------------ ------- ------- -----------------
------------ ------- ------- -----------------
Pro forma earnings per share............................... $ 0.75
Pro forma weighted average shares outstanding.............. 18,564
</TABLE>
<TABLE>
<S> <C> <C>
(A) Reflects historical consolidated statement of operations of the Company for the year ended December 31, 1996.
Reflects the pre-acquisition operations of the Owned Hotels to provide a full year of hotel operations for
(B) the unaudited Pro Forma Statement of Operations. For each Owned Hotel, the 1996 pre-acquisition operations
were obtained from the hotel's pre-acquisition financial statements. Also reflects adjustments to (i) include
the operations of the Westin Atlanta Airport during the period from January 1, 1996 through February 29,
1996, when this hotel was leased to a third-party operator, (ii) eliminate the related lease revenue earned
by the Company during this period (on February 29, 1996, the lease was terminated and the Company assumed
management of hotel operations), (iii) eliminate management fee charges for the Owned Hotels for services
that were provided by the Company, (iv) reflect federal and state income taxes (assuming a 40% combined
effective rate), (v) 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), (vi) reflect the effect of the other pro forma adjustments on the interest of
minority owners in pro forma income before minority interest and income taxes for the partnership that owns
the Westin Atlanta Airport and (vii) reflect pro forma depreciation and interest expense as if the hotels had
been acquired as of the beginning of the period presented as follows:
Elimination of depreciation on hotels for pre-acquisition period................................ $ (3,298)
Depreciation on hotels for pre-acquisition period based on the Company's cost basis............. 8,529
Amortization of deferred financing costs related to the Credit Facility......................... 1,130
-----------
Net depreciation and amortization adjustment.................................................... $ 6,361
-----------
-----------
Elimination of interest from pre-acquisition operations......................................... $ (5,003)
Interest on hotels for pre-acquisition period based on the terms of the Credit Facility......... 11,597
-----------
-----------
Net interest adjustment......................................................................... $ 6,594
-----------
-----------
</TABLE>
<TABLE>
<S> <C> <C>
(C) Reflects the historical operations of the Highgate Portfolio and the Additional Acquisitions adjusted for (i)
depreciation on the new cost basis, (ii) reduction of interest on debt to be paid with proceeds from the
Offering, (iii) minority interest and (iv) income taxes. Also reflects the elimination of management fees
earned by the Company for managing one of the Additional Acquisitions in 1996 ($136). Historical operations
of the Highgate Portfolio were obtained from the hotels' audited combined financial statements included
elsewhere in this Prospectus.
(D) Based on 18,563,844 shares of common stock and common stock equivalents outstanding for the year ended
December 31, 1996. Net income and shares outstanding have been adjusted for certain minority interests.
</TABLE>
23
<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 the Owned Hotels, and CapStar Management, which managed
the Hotels. CapStar Management has been in the hotel management business since
1987. EquiStar, however, was not formed until January 12, 1995 and the Company
did not own any hotels in any prior periods. Therefore, the Company's financial
statements prior to 1995 reflect only the management business of CapStar
Management. The economics of the management business are based on fees paid to
the Company for management services and the costs related to the performance of
these services. The fee management business is labor intensive and requires
relatively little capital.
Beginning in 1994, the Company began to invest in additional professional
staff and incurred related costs in order to position itself to acquire hotel
properties. From January 12, 1995 through December 31, 1996, the Company
acquired 19 hotels. Thus, the historical financial statements for the year 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 made in 1995 and 1996, it is difficult to compare
results of these periods either to each other or to prior years.
RESULTS OF OPERATIONS
PRO FORMA RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 COMPARED
WITH THE
HISTORICAL RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996
On a pro forma basis, after giving effect to the Offering, the acquisition
of the Owned Hotels, the Highgate Portfolio and the Additional Acquisitions, pro
forma total revenues increased to $243.0 million for 1996 from $109.8 million
for the same historical period. The increase resulted from the recognition of
revenue for the Owned Hotels, the Highgate Portfolio and the Additional
Acquisitions as if they had been acquired at the beginning of the period.
Management services and other revenues are reduced by $1.2 million to reflect
the elimination of management fee revenues from certain Owned Hotels prior to
their acquisition. The pro forma revenues for the period prior to acquiring each
Owned Hotel, the Highgate Portfolio and the Additional Acquisitions reflect the
actual revenues of the previous owners.
Pro forma expenses reflect the acquisition of the Owned Hotels, the Highgate
Portfolio and the Additional Acquisitions, and the Offering. Total pro forma
operating expenses increased to $202.2 million for 1996 from $90.5 million for
the same historical period. Departmental, selling, general, administrative and
other operating expenses of the hotels reflect the actual costs incurred by the
previous owners prior to each acquisition and the actual costs incurred by the
Company thereafter. Depreciation, amortization, interest and income taxes
reflect the expenses that would have been incurred by the Company if the
Offering, and the acquisition of the Owned Hotels, the Highgate Portfolio and
the Additional Acquisitions had taken place at the beginning of the period.
Pro forma EBITDA improved to $57.9 million for 1996 from $27.6 million for
the same historical period. Pro forma EBITDA as a percentage of revenue
decreased to 23.8% for 1996 from 25.2% for the same historical period.
Management believes that EBITDA is a useful measure of operating performance
because it is industry practice to evaluate hotel properties based on operating
income before interest,
24
<PAGE>
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 GAAP, and is not necessarily indicative of cash available to fund all cash
flow needs and should not be considered as an alternative to net income under
GAAP for purposes of evaluating the Company's operating performance.
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 five hotels
as of the end of 1995. During 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.
25
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash on hand, cash
generated from operations and borrowings under credit facilities as well as the
proceeds from the Offering. The Company's continuing operations are funded
through cash generated from hotel operations. Hotel acquisitions 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.
At December 31, 1996, the Company had $21.8 million in cash and cash
equivalents, an increase of $15.0 million from the balance of $6.8 million on
December 31, 1995. During the year ended December 31, 1996, the Company invested
$21.6 million in capital improvements in connection with renovations of the
Owned Hotels. The Company expects to spend an additional $13.3 million to
complete the renovation of the Owned Hotels. Renovations for the Highgate
Portfolio and the Additional Acquisitions will commence after consummation of
their acquisitions and are projected to total $8.4 million. 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 existing planned renovation programs are complete, the Company
expects to spend approximately 4% of revenues on an annual basis for ongoing
capital expenditures, including room and facilities refurbishments, renovations
and furniture and equipment replacements. The Company believes that these
investments will enhance the Company's competitive position.
On September 24, 1996, the Company entered into the Credit Facility which
provides for a maximum borrowing capacity of $225 million bearing interest at a
rate of LIBOR plus 2% per annum. Borrowings under this Credit Facility have been
used by the Company to repay previously existing indebtedness, to acquire and
renovate upscale, full service hotels and for general corporate purposes. The
Company's ability to borrow under the Credit Facility is subject, among other
things, to a borrowing base test calculated with reference to the cash flow from
hotel properties, the relative contribution to the borrowing base of the values
attributable to the different hotel properties, the appraised values of such
hotel properties and certain other factors. As of December 31, 1996
approximately $177 million was available for borrowing under the Credit
Facility, of which $149 million had been borrowed. Under the Credit Facility,
the Company is permitted to incur an additional $50 million as of December 31,
1996.
The term of the Credit Facility is three years, subject to two one-year
extensions upon the satisfaction of certain conditions. Under the Credit
Facility, the Company is entitled to borrow additional advances or reborrow
during the extension period. The Company was required to pay customary fees in
connection with the structuring of the Credit Facility, a commitment fee on the
unused portion of the Credit Facility and a fee on outstanding letters of credit
under the Credit Facility.
The Credit Facility is a direct obligation of CapStar Management and is
fully and unconditionally guaranteed by the Company and certain subsidiaries of
CapStar Management, including the subsidiaries which own the hotel properties.
The Credit Facility is secured by substantially all the real and personal
property of CapStar Management and its subsidiaries.
The Credit Facility contains convenants that impose certain limitations on
the Company in respect of, among other things, (i) the payment of dividends and
other distributions, (ii) acquisitions of additional hotel properties, (iii) the
creation or incurrence of liens, (iv) the incurrence of indebtedness, lease
obligations or contingent liabilities, (v) the acquisition of investments in and
securities issued by joint ventures and other entities, (vi) transactions with
affiliates, (vii) management or similar agreements
26
<PAGE>
delegating to another person substantial authority over the operation or
maintenance of its hotel properties, (viii) mergers, acquisitions, divestitures
or reorganizations, (ix) the issuance of preferred stock and (x) sale leaseback
transactions involving any of its hotel properties. The Credit Facility and the
Subordinated Debt also contain covenants that will subject the Company to
certain operating requirements and that require the maintenance of certain
financial levels, such as consolidated net worth, and certain financial ratios,
such as consolidated hotel indebtedness to market equity capitalization and
shareholders' equity, consolidated cash flow to interest and consolidated total
indebtedness to consolidated cash flow. In February 1997, in accordance with
certain of these covenants, the Company entered into interest rate protection
agreements.
On December 13, 1996, the Company modified the terms of the Credit Facility
to increase the Company's permitted nonrecourse indebtedness from $25 million to
$50 million and to permit it to incur up to $100 million of subordinated
indebtedness. In December 1996, the Company borrowed the Subordinated Debt. The
Subordinated Debt was used to finance the acquisition of the five hotels
purchased from MBL Life Assurance Corporation and for general corporate
purposes. The Subordinated Debt bears interest at a rate of LIBOR plus 4% per
annum. The term of the Subordinated Debt is three years, subject to two one year
extensions upon satisfaction of certain covenants. The Company was required to
pay customary fees in connection with the structuring of this debt. The
Subordinated Debt is a direct obligation of CapStar Management and its
subsidiaries which own the hotel properties. The Subordinated Debt contains
covenants similar to those contained in the Credit Facility.
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 at many of the Hotels is affected by recurring seasonal patterns.
Demand is lower in the winter months due to decreased travel and higher in the
spring and summer months during peak travel season. Accordingly, the Company's
operations are seasonal in nature, with lower revenue, operating profit and cash
flow in the first and fourth quarters and higher revenue, operating profit and
cash flow in the second and third quarters.
INFLATION
The rate of inflation has not had a material effect on the revenues or
operating results of the Company during the three most recent fiscal years.
27
<PAGE>
THE COMPANY
CapStar is a hotel management and investment company which acquires,
renovates, repositions and manages hotels throughout the United States. CapStar
owns and manages 22 upscale, full-service Owned Hotels which contain 5,981 rooms
and manages an additional 29 Managed Hotels owned by third parties which contain
4,681 rooms. CapStar's portfolio of Owned Hotels and Managed Hotels includes 51
hotels which contain 10,385 rooms. 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 Owned Hotels
are located in markets which have recently experienced strong economic growth,
including Albuquerque, Atlanta, Charlotte, Chicago, Cleveland, 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. For the year ended
December 31, 1996, on a pro forma basis, the operating performance of the Owned
Hotels (excluding the ten hotels purchased since September 30, 1996) improved
significantly, as demonstrated by the following table:
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER
31,
----------------------
<S> <C> <C> <C>
PERCENTAGE
1995 1996 INCREASE
---------- ---------- -------------
<CAPTION>
<S> <C> <C> <C>
Revenues (in thousands).............................. $ 109,798 $ 118,329 7.8%
Gross Operating Profit (in thousands)................ $ 30,947 $ 37,909 22.5%
Average Occupancy.................................... 72.4% 72.9% 0.7%
ADR.................................................. $ 75.25 $ 83.82 11.4%
RevPAR............................................... $ 54.44 $ 61.11 12.3%
</TABLE>
Additionally, the performance of the Owned Hotels compares favorably with that
of the industry in general. For the year ended December 31, 1996, RevPAR for the
Owned Hotels (excluding the ten hotels purchased since September 30, 1996)
increased 12.3%, while RevPAR for all upscale hotels, as reported by Smith
Travel Research, increased 9.0%. For the year ended December 31, 1996, RevPAR at
all of the Owned Hotels (including the ten hotels purchased since September 30,
1996) increased 10.1%.
The Company completed its IPO in August 1996. Since the IPO, the Company has
significantly expanded its portfolio by completing the purchase of ten upscale,
full-service hotels containing 2,465 rooms for an aggregate Total Acquisition
Cost of $181.6 million. The Company has also entered into a contract with
Highgate Hotels to acquire a portfolio of six upscale, full-service hotels
containing 1,358 rooms for a Total Acquisition Cost of approximately $104.7
million. See "Recent Developments--The Highgate Portfolio." The Company has also
entered into contracts to acquire the Additional Acquisitions containing 367
rooms for a Total Acquisition Cost of $26.7 million. In addition to the
acquisition of these hotels, the Company has entered into a joint venture to
acquire the 456-room Holiday Inn Riverfront in St. Louis, Missouri and has
entered into three new long-term management agreements.
During the year ended December 31, 1996, the Company spent a total of $21.6
million on renovations at the Owned Hotels and intends to spend an additional
$21.7 million completing its renovation programs (including $8.4 million to
renovate and reposition the Highgate Portfolio and the Additional Acquisitions).
See "Special Note Regarding Forward--Looking Statements."
As a fully integrated owner and manager, CapStar intends to capitalize on
its management experience and expertise by continuing to make opportunistic
acquisitions of full-service hotels, securing additional management contracts
and improving the operating performance of the hotels. The Company's senior
management team has successfully managed hotels in all segments of the lodging
industry, with particular emphasis on upscale, full-service hotels. Senior
management has an average of approximately 20 years of experience in the hotel
industry. Since the inception of the Company's management business in 1987, the
Company has achieved consistent growth, even during periods of relative industry
weakness. The Company
28
<PAGE>
attributes its management success to its ability (i) to analyze each hotel as a
unique property and identify those particular cash flow growth opportunities
which each hotel presents, (ii) to create and implement marketing plans that
properly position each hotel within its local market, and (iii) to develop
management programs that emphasize guest service, labor productivity, revenue
yield and cost control. The Company has a distinct management culture that
stresses creativity, loyalty and entrepreneurship and was developed to emphasize
operations from an owner's perspective. This culture is reinforced by the fact
that 33 members of management will hold, directly or indirectly, an aggregate of
5.5% of the Common Stock upon completion of the Offering. See "Principal
Stockholders."
The Company believes that the upscale, full-service segment of the lodging
industry is the most attractive segment in which to acquire, own and manage
hotels and further believes that there are currently many attractive
opportunities to acquire properties in this segment of the industry at prices
below replacement cost. The upscale, full-service segment is attractive for
several reasons. First, the Company expects that there will be no significant
increases in the supply of upscale, full-service hotels in the next several
years because the cost of new construction generally does not justify new hotel
development. Second, upscale, full-service hotels appeal to a wide variety of
customers, thus reducing the risk of decreasing demand from any particular
customer group. Additionally, such hotels have particular appeal to business
executives and upscale leisure travelers, customers who are generally less price
sensitive than travelers who use limited-service hotels. Third, because
full-service hotels have a higher proportion of fixed costs to variable costs
than other segments of the lodging industry, full-service hotels afford greater
operating leverage than limited-service hotels, resulting in increasingly higher
profit margins as revenues increase. Finally, full-service hotels require a
greater depth of management expertise than limited-service hotels, and the
Company believes that its superior management skills provide it with a
significant competitive advantage in their operation.
RECENT DEVELOPMENTS
In August 1996, the Company completed its IPO at a price of $18 per share,
generating net proceeds of approximately $110 million to the Company. Since
completing the IPO, the Company has continued to execute the hotel acquisition
and operating strategies that it had pursued prior to the IPO which has resulted
in significant growth in the Company's hotel portfolio. The Company's
acquisition, financing, and management activities since the IPO are discussed
below.
POST-IPO ACQUISITIONS
At the time of the IPO, the Company owned 12 upscale, full-service hotels,
containing 3,516 rooms. Since the IPO, the Company has acquired ten additional
upscale, full-service Owned Hotels containing 2,465 rooms. These newly acquired
hotels are operated under nationally recognized brand names such as Hilton,
Doubletree, Embassy Suites and Holiday Inn. 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 post-IPO
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
$74,000 per room, which represents a more than a 30% 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.
THE HIGHGATE PORTFOLIO
The Company has entered into a contract with Highgate Hotels to acquire the
Highgate Portfolio, a group of six upscale, full-service hotels containing 1,358
rooms for a Total Acquisition Cost of approximately $104.7 million. The
acquisition will be financed with $75.2 million in cash and $29.5 million of OP
Units. The Company will issue to the sellers (i) 809,523 common OP Units
("Common OP Units") which
29
<PAGE>
are convertible at the sellers' election into an equal number of shares of
Common Stock (or, at the Company's option, cash in an amount equal to the market
price of such shares) and (ii) 392,157 preferred OP Units ("Preferred OP
Units"), with a 6.5% cumulative annual preferred return and a liquidating
preference of $25.50 per OP Unit. The Preferred OP Units are convertible on or
after August 23, 1997 at the sellers' election into an equal number of shares of
Common Stock (or, at the Company's option, cash in an amount equal to the market
price of such shares) and redeemable after three years at the Company's election
for an amount equal to $25.50 per OP Unit (or, at the Company's option, shares
of Common Stock bearing a market price equal to such amount).
The Highgate Portfolio hotels are operated under nationally recognized brand
names including Sheraton, Doubletree, Radisson, Ramada and Holiday Inn, and are
located in Dallas, Indianapolis, Calgary and Vancouver. The Highgate Portfolio
enhances the Company's geographic diversity by expanding its portfolio into
Canada. In connection with the acquisition of the Highgate Portfolio, the
Company has entered into agreements to manage two additional hotels owned by
Highgate Hotels: the 414-room Pontchartrain-Crowne Plaza in Detroit, Michigan
and the 393-room Four Points Hotel in Suburban Atlanta. The Company believes
that the acquisition of the Highgate Portfolio and the establishment of a
strategic alliance with Highgate Hotels (one of the principals of which the
Company has agreed to nominate to a new seat on its board of directors) will
provide significant benefits to its on-going acquisition and corporate
development activities. A portion of the net proceeds from the Offering will be
used to consummate the acquisition of the Highgate Portfolio. The Company
expects to complete the acquisition of the Highgate Portfolio by April 1997.
There can be no assurance, however, that the closing will occur. See "Risk
Factors--Risks Associated with Expansion" and "Special Note Regarding Forward-
Looking Statements."
THE ADDITIONAL ACQUISITIONS
The Company has also entered into contracts to acquire the two Additional
Acquisitions: the 213-room Four Points Hotel in Cherry Hill, New Jersey for a
Total Acquisition Cost of $8.2 million and the 154-room Great Valley Sheraton in
Frazer, Pennsylvania for a Total Acquisition Cost of $18.5 million.
MANAGEMENT AGREEMENTS/JOINT VENTURES
In January 1997, the Company invested in a joint venture with Hallmark
Investment Corp. which owns the Holiday Inn Riverfront, located in downtown St.
Louis at the base of the Gateway Arch. In connection with the joint venture, the
Company has signed a long-term agreement to manage the 456-room property. Since
August 1996 the Company has entered into significant new long-term management
agreements with three other hotel owners. The Company expects to form 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."
FINANCING ACTIVITIES
In September 1996, the Company entered into the $225 million Credit Facility
led by Bankers Trust, as agent, to fund post-IPO acquisitions, to repay
outstanding indebtedness and for general corporate purposes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
In December 1996, the Company modified the terms of the Credit Facility to
increase the Company's permitted nonrecourse indebtedness from $25 million to
$50 million and to permit it to incur up to $100 million of subordinated
indebtedness. In December 1996, the Company borrowed the Subordinated Debt to
provide additional funding for acquisitions and for general corporate purposes.
See "Management's
30
<PAGE>
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
BUSINESS AND PROPERTIES
The Company seeks to increase shareholder value by (i) continuing to acquire
upscale, full-service hotels at prices below replacement cost in selected
markets throughout the United States, (ii) implementing its operating strategy
to improve hotel operations and increase cash flow and (iii) expanding its
management business.
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 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 25 states across the nation, with eight Hotels located
in California, four in Colorado, three in Pennsylvania, three in Texas, three in
Washington, D.C., three in Maryland, three in New Jersey, three in Virginia, two
in Arizona, two in Georgia, two in Louisiana, two in Missouri, two in New York
and one Hotel each in 12 additional states.
HOTEL CRITERIA
LOCATION AND MARKET APPEAL. The Company seeks to acquire upscale,
full-service hotels that are situated near both business and leisure centers
which generate a broad base of demand for hotel
31
<PAGE>
accommodations and facilities. These demand generators include (i) business
parks, (ii) airports, (iii) shopping centers and other retail areas, (iv)
convention centers, (v) sports arenas and stadiums, (vi) major highways, (vii)
tourist destinations, (viii) major universities, and (ix) cultural and
entertainment centers with nightlife and restaurants. The confluence of nearby
business and leisure centers enables the Company to attract both weekday
business travelers and weekend leisure guests. Attracting a balanced mix of
business, group and leisure guests to the Hotels helps to maintain stable
occupancy rates and high ADRs.
SIZE AND FACILITIES. The Company seeks to acquire well-constructed hotels
that are less than 20 years old, contain 200 to 500 guest rooms and include
accommodations and facilities that are, or are capable of being made, attractive
to key demand segments such as business, group and leisure travelers. These
facilities typically include large, upscale guest rooms, food and beverage
facilities, extensive meeting and banquet space, and amenities such as health
clubs, swimming pools and adequate parking.
POTENTIAL PERFORMANCE IMPROVEMENTS. The Company seeks to acquire
underperforming hotels where intensive management and selective capital
improvements can increase revenue and cash flow. Underperforming hotels
typically serve less than their "fair share" of lodging industry demand (as
measured by RevPAR), achieve lower profit margins than the Company believes it
can maintain and receive inadequate funding to make needed capital improvements.
These hotels represent opportunities where a systematic management approach and
targeted renovations should result in improvements in revenue and cash flow. The
Company's ability to improve operations is demonstrated by the fact that RevPAR
at the Owned Hotels (excluding the ten hotels purchased since September 30,
1996) increased 12.3% from the year ended December 31, 1995 to the year ended
December 31, 1996, as compared to an increase of only 9.0% for the upscale,
full-service hotel segment as reported by Smith Travel Research over the
comparable period. For the year ended December 31, 1996 RevPAR at all of the
Owned Hotels (including the ten hotels purchased since September 30, 1996
increased 10.1%
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.
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.
32
<PAGE>
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.
STRATEGIC CAPITAL IMPROVEMENTS. The Company plans renovations primarily to
enhance a Hotel's appeal to targeted market segments, thereby attracting new
customers and generating increased revenue and cash flow. During the year ended
December 31, 1996, the Company spent a total of $21.6 million on renovations at
the Owned Hotels and currently intends to spend an additional $21.7 million
completing the renovation programs (including approximately $8.4 million to
renovate and reposition the Highgate Portfolio and the Additional Acquisitions).
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.
33
<PAGE>
The following chart summarizes certain information with respect to the
national franchise affiliations of the Hotels, the Highgate Portfolio and the
Additional Acquisitions:
<TABLE>
<CAPTION>
OWNED HOTELS, HIGHGATE PORTFOLIO
AND ADDITIONAL ACQUISITIONS MANAGED HOTELS
----------------------------------------- ---------------------------------------
NUMBER OF NUMBER OF
GUEST NUMBER OF % OF GUEST NUMBER OF % OF
FRANCHISE ROOMS HOTELS ROOMS ROOMS HOTELS ROOMS
- ------------------------------------------ ----------- --------------- ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Hilton.................................... 2,939 11 38.1% -- -- --
Sheraton.................................. 1,162 4 15.0% -- -- --
Holiday Inn............................... 608 3 7.9% 883 4 18.9%
Radisson.................................. 507 2 6.6% 126 1 2.7%
Westin.................................... 496 1 6.4% -- -- --
Marriott.................................. 434 1 5.6% 288 1 6.2%
Holiday Select-Registered Trademark-...... 348 1 4.5% -- -- --
Doubletree................................ 294 1 3.8% 208 1 4.4%
Embassy Suites............................ 236 1 3.1% -- -- --
Independent............................... 214 2 2.8% 830 6 17.7%
Four Points............................... 213 1 2.8% 196 1 4.2%
Doubletree Guest
Suites-Registered Trademark-............. 137 1 1.8% -- -- --
Ramada.................................... 118 1 1.5% 457 3 9.8%
Best Western-Registered Trademark-........ -- -- -- 562 3 12.0%
Days Inn-Registered Trademark-............ -- -- -- 277 2 5.9%
Comfort Suites-Registered Trademark-...... -- -- -- 244 2 5.2%
Clarion-Registered Trademark-............. -- -- -- 194 1 4.1%
Quality Suites-Registered Trademark-...... -- -- -- 177 1 3.8%
Residence Inn-Registered Trademark-....... -- -- -- 104 1 2.2%
Quality Inn-Registered Trademark-......... -- -- -- 100 1 2.1%
Holiday Inn
Express-Registered Trademark-............ -- -- -- 35 1 0.8%
-- --
----- ----------- ----- ---------
7,706 30 100.0% 4,681 29 100.0%
-- --
-- --
----- ----------- ----- ---------
----- ----------- ----- ---------
</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 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.
34
<PAGE>
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.
THE PROPERTIES
The Owned Hotels, the Highgate Portfolio 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.
35
<PAGE>
The following table sets forth certain information with respect to the Owned
Hotels, the Highgate Portfolio and the Additional Acquisitions for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
PLANNED OR
COMPLETED
NUMBER OF RENOVATION
GUEST YEAR MONTH EXPENDITURE(1)
HOTEL LOCATION ROOMS BUILT ACQUIRED (000'S)
- ----------------------------------- -------------------------- ------------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
OWNED HOTELS
Orange County Airport Hilton....... Irvine, CA 290 1976 2/96 $ 2,006
Hilton Hotel....................... Sacramento, CA 326 1983 12/96 750
Santa Barbara Inn.................. Santa Barbara, CA 71 1959 12/96 450
Hilton Hotel....................... San Pedro, CA 226 1989 1/97 1,500
Holiday Inn........................ Colorado Springs, CO 201 1974 12/96 200
Sheraton Hotel..................... Colorado Springs, CO 502 1974 6/95 3,393
Embassy Suites Denver.............. Englewood, CO 236 1986 12/96 500
Embassy Row Hilton................. Washington, DC 195 1969 12/96 2,033
The Latham Hotel................... Washington, DC 143 1981 3/96 802
Westin Atlanta Airport(3).......... Atlanta, GA 496 1982 11/95 7,100
Radisson Hotel..................... Schaumburg, IL 202 1979 6/95 1,652
Hilton Hotel & Towers.............. Lafayette, LA 328 1981 12/96 249
Marriott Hotel..................... Somerset, NJ 434 1978 10/95 3,311
Doubletree Hotel................... Albuquerque, NM 294 1974 1/97 1,500
Sheraton Airport Plaza............. Charlotte, NC 226 1985 2/96 1,529
Holiday Inn........................ Cleveland, OH 237 1978 2/96 2,900
Hilton Hotel....................... Arlington, TX 310 1983 4/96 2,700
Southwest Hilton................... Houston, TX 293 1979 10/96 1,072
Westchase Hilton................... Houston, TX 295 1980 1/97 415
Salt Lake Airport Hilton........... Salt Lake City, UT 287 1980 3/95 1,823
Hilton Hotel....................... Arlington, VA 209 1990 8/96 1,500
Hilton Hotel....................... Bellevue, WA 180 1979 8/95 1,063
----- -------
Total/Weighted Average--Owned Hotels....................... 5,981 $ 38,448
HIGHGATE PORTFOLIO
Doubletree Guest Suites............ Indianapolis, IN 137 1987 4/97 $ 1,000
Holiday Inn Select................. Dallas, TX 348 1974 4/97 300
Radisson Hotel..................... Dallas, TX 305 1972 4/97 1,500
Holiday Inn Calgary Airport........ Calgary, Alberta 170 1981 4/97 350
Sheraton Hotel..................... Guildford, B.C. 280 1992 4/97 700
Ramada Vancouver Centre............ Vancouver, B.C. 118 1968 4/97 500
----- -------
Total/Weighted Average--Highgate Portfolio................. 1,358 $ 4,350
ADDITIONAL ACQUISITIONS
Four Points Hotel.................. Cherry Hill, NJ 213 1991 3/97 $ 850
Great Valley Sheraton.............. Frazer, PA 154 1971 5/97 3,244
----- -------
Total/Weighted Average--Additional Acquisitions............ 367 $ 4,094
Total/Weighted Average..................................... 7,706 $ 46,892
----- -------
----- -------
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-------------------------------------
AVERAGE
HOTEL OCCUPANCY ADR REVPAR(2)
- ----------------------------------- ------------- --------- -----------
<S> <C> <C> <C>
OWNED HOTELS
Orange County Airport Hilton....... 66.0% $ 78.48 $ 51.80
Hilton Hotel....................... 71.7 75.89 54.41
Santa Barbara Inn.................. 85.1 129.86 110.51
Hilton Hotel....................... 62.3 67.23 41.88
Holiday Inn........................ 72.6 60.57 43.97
Sheraton Hotel..................... 70.1 65.95 46.23
Embassy Suites Denver.............. 74.1 102.57 76.00
Embassy Row Hilton................. 60.8 111.24 67.63
The Latham Hotel................... 72.0 108.17 77.88
Westin Atlanta Airport(3).......... 79.3 79.44 63.00
Radisson Hotel..................... 66.1 75.54 49.93
Hilton Hotel & Towers.............. 74.1 70.05 51.91
Marriott Hotel..................... 72.4 104.36 75.56
Doubletree Hotel................... 66.6 77.12 51.36
Sheraton Airport Plaza............. 70.8 83.97 59.45
Holiday Inn........................ 73.1 70.11 51.25
Hilton Hotel....................... 73.3 81.03 59.39
Southwest Hilton................... 53.9 72.17 38.90
Westchase Hilton................... 77.9 89.87 70.01
Salt Lake Airport Hilton........... 75.5 79.18 59.78
Hilton Hotel....................... 74.5 109.21 81.36
Hilton Hotel....................... 80.8 91.70 74.09
--- --------- -----------
Total/Weighted Average--Owned H 71.3% $ 83.02 $ 59.19
HIGHGATE PORTFOLIO
Doubletree Guest Suites............ 73.5% $ 79.53 $ 58.45
Holiday Inn Select................. 61.7 59.04 36.43
Radisson Hotel..................... 74.6 60.69 45.27
Holiday Inn Calgary Airport........ 59.3 53.09 31.48
Sheraton Hotel..................... 75.2 69.17 52.02
Ramada Vancouver Centre............ 79.4 70.40 55.90
--- --------- -----------
Total/Weighted Average--Highgat 69.8% $ 64.35 $ 44.92
ADDITIONAL ACQUISITIONS
Four Points Hotel.................. 61.8% $ 73.40 $ 45.36
Great Valley Sheraton.............. 72.0 88.80 63.94
--- --------- -----------
Total/Weighted Average--Additio 66.1% $ 80.43 $ 53.16
Total/Weighted Average......... 70.8% $ 79.64 $ 56.39
--- --------- -----------
--- --------- -----------
</TABLE>
- ------------------------------
(1) Represents the total planned or completed capital expenditures at each
hotel. For the year ended December 31, 1996, $21.6 million had been spent
and an additional $21.7 million was planned.
(2) Represents total room revenue divided by total available rooms, net of rooms
out of service due to significant renovations.
(3) The Westin Atlanta Airport is majority-owned by the Company through a
partnership in which the Company holds an 85.2% limited partner interest, 1%
general partner interest and a mortgage which together provide the Company a
92% economic interest in the hotel.
36
<PAGE>
POST-IPO ACQUISITIONS
HILTON HOTEL, SACRAMENTO, CA. Built in 1983, the 326-room hotel is located
in suburban Sacramento, near the interchange of Interstate 80 and Route 160 in
an area which is well developed with commercial office space, upscale retail and
residential uses. The hotel's facilities and amenities feature over 17,000
square feet of banquet and meeting space, an indoor-outdoor pool, volleyball
courts, a health and fitness center, a business center, valet services, a gift
shop and two restaurants. The greater Sacramento market has experienced strong
economic growth during the 1990s.
SANTA BARBARA INN, SANTA BARBARA, CA. Built in 1959, the 71-room hotel is
located on the Pacific Coast Highway directly across from the Pacific Ocean and
a wide, publicly maintained beach. The hotel's facilities and amenities feature
the renowned CITRONELLE restaurant, two meeting rooms, an outdoor pool and deck,
tennis courts and valet services. The Santa Barbara market is a popular
residential and resort area.
HILTON HOTEL, SAN PEDRO, CA. Built in 1989, the 226-room hotel is located
in Los Angeles County between Long Beach and Palos Verdes, approximately 12
miles south of Los Angeles International Airport. The hotel's facilities and
amenities feature over 14,000 square feet of banquet and meeting space, a
swimming pool, a spa, two tennis courts and a grill restaurant. San Pedro is
located within five miles of the Port of Long Beach and within two miles of the
Port of Los Angeles, which together handle nearly two-thirds of the Western
United States' cargo. Los Angeles County is currently experiencing increased
economic growth as it emerges from the recession of the early- and mid-1990s.
Upon acquisition in February 1997, the hotel was reflagged as a Hilton.
HOLIDAY INN, COLORADO SPRINGS, CO. Built in 1974 and renovated in 1990, the
201-room hotel is located on Interstate 25, approximately five miles north of
downtown Colorado Springs and approximately eight miles north of another Owned
Hotel, the Sheraton Hotel, Colorado Springs. The hotel's facilities and
amenities feature more than 8,700 square feet of banquet and meeting space, a
health club and jogging track, an outdoor pool, tennis courts, a restaurant, a
gift shop and valet services. Colorado Springs has experienced strong economic
growth in recent years which has led to a major airport expansion program
completed in 1995. Such growth is attributable to a number of factors, including
the region's low average cost of living and a rapidly expanding, young
population.
EMBASSY SUITES DENVER, DENVER, CO. Built in 1986, the 236-room hotel is
located in South Denver within a concentration of office and industrial parks
known as the Denver Tech Center. The hotel's facilities and amenities feature
over 5,000 square feet of banquet and meeting space, an indoor pool, an upgraded
fitness center, a business center, valet services, a gift shop and a restaurant.
Denver has experienced significant development and growth during the 1990s as
the economic and cultural center of the rapidly expanding Mountain region.
THE EMBASSY ROW HILTON, WASHINGTON, D.C. Built in 1969 and renovated in
1994, the 195-room hotel is located in downtown Washington, D.C. on
Massachusetts Avenue, which is known as "Embassy Row" because of the many
embassies, chanceries and offices of foreign governments located in the area.
The hotel's facilities and amenities feature over 7,500 square feet of banquet
and meeting space, a rooftop pool and deck, a health and fitness center, a
business center, valet services and a restaurant. A major new convention center
is expected to open in downtown within four years. The Company assumed
management of the hotel in July 1996. Upon acquisition in December 1996, the
hotel was reflagged as a Hilton.
HILTON HOTEL & TOWERS, LAFAYETTE, LA. Built in 1981, the 328-room hotel is
centrally located on Pinhook Road, a major business artery linking downtown
Lafayette with the local airport. The hotel's facilities and amenities feature
over 17,000 square feet of banquet and meeting space, an outdoor pool, an
exercise room, a business center, valet services, a gift shop and a restaurant.
Lafayette serves as a major center for offshore oil drilling and production, and
has experienced strong job growth during the 1990s.
37
<PAGE>
DOUBLETREE HOTEL, ALBUQUERQUE, NM. Built in 1975, the 294-room hotel is
located in downtown Albuquerque, adjacent to the Convention Center and the
subterranean Galleria Shopping Center. The hotel's facilities and amenities
feature over 10,000 square feet of meeting and banquet space, an outdoor heated
pool, an exercise room, a gift shop, an airline desk, two restaurants, two
lobbies and a garden foyer. The region has experienced consistent growth
throughout the 1990s, in part because of the increased presence of high
technology businesses in Albuquerque. The Company plans to spend $1.5 million on
renovations at the hotel.
SOUTHWEST HILTON, HOUSTON, TX. Built in 1981, the 293-room hotel is located
in the Southwest area of Houston on the Southwest Freeway, one of the city's
busiest roads. The hotel's facilities and amenities feature over 15,000 square
feet of banquet and meeting space, an outdoor pool, a fitness center, a business
center, valet services a gift shop and a restaurant. Houston is the nation's
fourth largest metro area with a population over 3.8 million and the region is a
national leader in economic growth and job growth. The Company plans to spend
$1.1 on renovations at the hotel.
WESTCHASE HILTON, HOUSTON, TX. Built in 1981, the 295-room hotel is located
within blocks of the freeway to the Houston International Airport and convenient
to the commercial and retail concentration known as the Galleria area. The
hotel's facilities and amenities feature over 13,000 square feet of banquet and
meeting space, a landscaped outdoor pool with a deck and hot tub, a fitness
center, a beauty salon, a gift shop and a restaurant. Houston is the nation's
fourth largest metro area with a population over 3.8 million and the region is a
national leader in economic growth and job growth.
THE HIGHGATE PORTFOLIO
DOUBLETREE GUEST SUITES, INDIANAPOLIS, IN. Built in 1987, the 137-room
hotel is located on busy North Meridian Street on the north side of the suburb
of Carmel. The hotel is located within a commercial concentration of insurance
companies and national companies such as Lucent Technologies, Thompson Consumer
Electronics, GTE, Eli Lilly and Hewlett Packard. The hotel's facilities and
amenities feature over 1,000 square feet of banquet and meeting space, an
indoor/outdoor pool, a fitness center, a whirlpool, a gift shop and a
restaurant.
HOLIDAY INN SELECT, DALLAS, TX. Built in 1974 and renovated in 1988 and
1995, the 348-room hotel is located at the intersection of Interstate 35 and
Mockingbird Lane, within easy access to the market areas of Las Colinas,
Stemmons Corridor/Market Center, Love Field and Central Business
District/Convention Center. The hotel's facilities and amenities feature over
13,560 square feet of banquet and meeting space, an outdoor pool and sundeck, a
health club, a business center, a gift shop and a restaurant.
RADISSON HOTEL, DALLAS, TX. Built in 1972, the 305-room hotel is located on
West Mockingbird Lane, within easy access to Interstate 35 and the market areas
of Love Field, Stemmons Corridor/Market Center, Parkland/Medical Center and the
Central Business District/Convention Center. The hotel's facilities and
amenities feature over 16,000 square feet of banquet and meeting space, and
outdoor pool, a health club, two racquetball courts, a jogging track, sand
volleyball courts, a whirlpool, a sauna, a gift shop and two restaurants.
HOLIDAY INN CALGARY AIRPORT, CALGARY, ALBERTA. Built in 1981, the 170-room
hotel is located between Calgary's International Airport and central business
district, near such tourist attractions as the Calgary Zoo and Prehistoric Park,
Devonian Garden, the Saddledome (home of the NHL Calgary Flames), Stampede Park,
Canada Olympic Park, the Olympic Hall of fame, Heritage Park, Eau Clair Market
and the IMAX theatre. The hotel's facilities and amenities feature over 2,040
square feet of banquet and meeting space, an indoor pool, two saunas, guest
privileges at a nearby health club and a restaurant.
SHERATON HOTEL, GUILDFORD, B.C. Built in 1992, the 280-room hotel is
located in the Guildford Area of the City of Surrey, the geographic center of
the Greater Vancouver region. The hotel's facilities and
38
<PAGE>
amenities feature over 18,000 square feet of banquet and meeting space, an
outdoor pool, an exercise room, a sauna, a gift shop and a restaurant. Surrey
has experienced significant expansion in recent years and is a leader in
economic growth and job growth within the Province of British Columbia.
RAMADA VANCOUVER CENTRE, VANCOUVER, B.C. Built in 1968 and renovated in
1989 and 1994, the 118-room hotel is located on West Broadway, one block from
the Vancouver Hospital & Health Science Centre and minutes from downtown
Vancouver. Nearby tourist attractions include the Queen Elizabeth Theatre and
the Ford Centre for the Performing Arts, Vancouver International Airport, Canada
Place/ Convention Centre, B.C. Place, General Motors Place, Granville Island
Market, the University of British Columbia, Chinatown and Japantown.
THE ADDITIONAL ACQUISITIONS
FOUR POINTS HOTEL, CHERRY HILL, NEW JERSEY. Built in 1971, the 213-room
hotel is located on Route 70 East, off I-295, nine miles from the Philadelphia
Convention Center and near several major corporate office parks in the Cherry
Hill/Mount Laurel area. The hotel's facilities and amenities feature 16,288
square feet of banquet and meeting space, a large outdoor courtyard with pool,
exercise room, two tennis courts, gift shop, a Morgan's restaurant and a lobby
bar.
GREAT VALLEY SHERATON, FRAZER, PENNSYLVANIA. Built in 1991, the 154-room
hotel is located at the intersection of Route 202 and Lancaster Pike in historic
Chester County, Pennsylvania. The hotel's facilities and amenities include 7,852
square feet of meeting and banquet space, an indoor pool, the White Horse Tavern
and Chesterfield's Piano Lounge. The "202 Corridor" has experienced significant
growth in recent years.
THE MANAGED HOTELS
The Company operates 29 Managed Hotels owned by third parties containing
4,681 rooms. Of the Managed Hotels, 21 are full-service properties, seven are
limited-service properties and one is an extended stay property. Of the Managed
Hotels, 23 are operated under nationally-recognized brand names and six are
independent properties. The brand names of the Managed Hotels include Sheraton,
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 1996, the
Company's pro forma revenue from Management Agreements was $3.2 million
constituting 1.3% of the Company's total pro forma revenue for such period. No
single Management Agreement (or group of Management Agreements for hotels under
common ownership or control) currently accounts for more than 0.5% 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 (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.
39
<PAGE>
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 December 31, 1996, the Company employed approximately 6,200 persons,
of whom approximately 5,200 were compensated on an hourly basis. Approximately
65 employees work at the corporate headquarters.
Employees at five of the Hotels are represented by labor unions. Management
believes that labor relations with its employees are good.
TRADEMARKS
The Company employs a flexible branding strategy based on a particular
Hotel's market environment and the Hotel's unique characteristics. Accordingly,
the Company uses various national trade names pursuant to licensing arrangements
with national franchisors.
DOUBLETREE-TM-, EMBASSY SUITES-Registered Trademark-, HILTON-TM- HOLIDAY
INN-Registered Trademark-, MARRIOTT-Registered Trademark-, RADISSON-TM-,
SHERATON-Registered Trademark- AND WESTIN-TM- ARE REGISTERED TRADEMARKS OF THIRD
PARTIES, NONE OF WHICH SHALL BE DEEMED AN ISSUER OR UNDERWRITER OF THE SHARES OF
COMMON STOCK 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 COMMON STOCK OFFERED HEREBY.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal course of
business. The Company believes that the ultimate outcome of these lawsuits will
not have a material adverse effect on the Company.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels and restaurants,
including liquor license grants, by requiring registration, disclosure
statements and compliance with specific standards of conduct. The Company
believes that it is substantially in compliance with these requirements.
Managers of hotels are also subject to laws governing their relationship with
hotel employees, including minimum wage requirements, overtime, working
conditions and work permit requirements. Compliance with, or changes in, these
laws could reduce the revenue and profitability of the Owned Hotels and could
otherwise adversely affect the Company's operations.
40
<PAGE>
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."
THE OPERATING PARTNERSHIP
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE
PROVISIONS OF CAPSTAR MANAGEMENT'S LIMITED PARTNERSHIP AGREEMENT, A COPY OF
WHICH HAS BEEN FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART.
Substantially all of the Company's assets are held indirectly by and
operated through CapStar Management, the Company's subsidiary operating
partnership. The Company is the sole general partner of CapStar Management, and
the Company and CapStar LP Corporation, a wholly-owned subsidiary of the
Company, are the sole limited partners of CapStar Management. The partnership
agreement of CapStar Management gives the general partner full control over the
business and affairs of CapStar Management. The general partner is also given
the right, in connection with the contribution of property to CapStar Management
or otherwise, to issue additional partnership interests in CapStar Management 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.
In connection with the acquisition of the Highgate Portfolio, the Company
has agreed to issue limited partnership interests in CapStar Management to
Highgate Hotels. Upon the closing of the acquisition of the Highgate Portfolio,
the partnership agreement of CapStar Management will be amended to provide for
two classes of partnership interests, Common OP Units and Preferred OP Units,
and the partners of CapStar Management will own the following numbers of such OP
Units: (i) the Company and CapStar LP Corporation--a number of Common OP Units
equal to the number of issued and outstanding shares of Common Stock (including
those issued in the Offering); and (ii) Highgate Hotels--809,523 Common OP Units
and 392,157 Preferred OP Units. The Preferred OP Units will pay a 6.5%
cumulative annual preferred return, compounded quarterly to the extent not paid
on a current basis, and will be entitled to a liquidation preference of $25.50
per Preferred OP Unit. All net income and capital proceeds earned by CapStar
Management, 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 owned by each such holder.
Each OP Unit held by Highgate Hotels will be redeemable by the holder on or
after August 23, 1997 for one share of Common Stock of the Company (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 the third anniversary of the acquisition of
the Highgate Portfolio.
41
<PAGE>
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.................................... 46 President, Chief Executive Officer and Chairman of
the Board
David E. McCaslin................................... 39 Chief Operating Officer and Director
William M. Karnes................................... 50 Senior Executive Vice President, Finance and Chief
Financial Officer
John E. Plunket..................................... 41 Executive Vice President, Finance and Development
John Emery.......................................... 32 Treasurer and Secretary
Michael T. George................................... 38 Senior Vice President, Operations
D. Scott Livchak.................................... 42 Senior Vice President, Operations
Robert Gauthier..................................... 43 Senior Vice President, Operations
Daniel L. Doctoroff................................. 38 Director
Bradford E. Bernstein............................... 30 Director
William S. Janes.................................... 43 Director
Joseph McCarthy..................................... 64 Director
Edward L. Cohen..................................... 51 Director
Edwin T. Burton, III................................ 54 Director
Edward P. Dowd...................................... 54 Director
Mahmood Khimji...................................... 36 Proposed Director
</TABLE>
PAUL W. WHETSELL has served as President and Chief Executive Officer of the
Company since its founding in 1987. From 1981 to 1986, Mr. Whetsell served as
Vice President of Development for Lincoln Hotels in Dallas, Texas. Prior to
that, from 1973 to 1981, Mr. Whetsell worked for Quality Inns in various
capacities in its franchise division, culminating in Vice President of
Franchise.
DAVID E. MCCASLIN has served as Chief Operating Officer of the Company since
1994. Mr. McCaslin joined the Company in 1987 as a General Manager and was named
Vice President of Operations in 1988. From 1985 to 1987, Mr. McCaslin served as
General Manager for Lincoln Hotels. Prior to that, from 1979 to 1985, he worked
for Westin Hotels in various capacities, including Assistant General Manager,
Rooms Division Manager and Food & Beverage Manager.
WILLIAM M. KARNES has served as Senior Executive Vice President, Finance and
Chief Financial Officer of the Company since April 1996. From 1994 to April
1996, Mr. Karnes served as Senior Vice President and Chief Financial Officer of
Tucker Properties Corporation, a publicly traded real estate investment trust.
From 1991 to 1994, Mr. Karnes served as Senior Vice President Finance and
Administration for Banyan Management Corp., a company that provides management
services for five public real estate investment trusts and three master limited
partnerships. Prior to that, from 1989 to 1991, Mr. Karnes served as Chief
Operating Officer of Miglin-Beitler, Inc., a private real estate development,
management and leasing firm.
JOHN E. PLUNKET has served as Executive Vice President, Finance and
Development since November 1993. From September 1991 to October 1993, Mr.
Plunket served as Vice President and Principal Broker for CIG International, an
investment and hotel asset management company. From February 1988 to August
1991, Mr. Plunket served as Managing Director of Cassidy & Pinkard Inc., a
commercial real estate services company. From 1985 to 1987, Mr. Plunket served
as Senior Vice President for Oxford
42
<PAGE>
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.
JOHN EMERY has served as Treasurer and Secretary of the Company since March
1996. From September 1995 to March 1996, he served as Director of Finance of the
Company. Prior to that, from January 1987 to September 1995, he worked for
Deloitte & Touche LLP in various capacities, culminating with Senior Manager for
the hotel and real estate industries.
MICHAEL T. GEORGE has served as Senior Vice President, Operations since
1995. From 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.
D. SCOTT LIVCHAK has served as Senior Vice President, Operations since 1990.
From 1985 to 1989 Mr. Livchak served as a General Manager for The Adam's Mark
Hotel in Washington, DC, owned by HBE Corporation. From 1983 to 1985, Mr.
Livchak worked for the Sheraton Atlanta Hotel in the capacity of Resident
Manager. From 1977 to 1983, Mr. Livchak held various management positions with
Sheraton Corporation.
ROBERT GAUTHIER has served as Senior Vice President, Operations and General
Manager of the Sheraton, Colorado Springs since 1996. From 1993 to 1996, he
served as Vice President, Operations for CapStar Management. Prior to that, from
1987 to 1993, Mr. Gauthier served as Area Manager and General Manager for Drexel
Burnham Lambert Realty, Inc.
DANIEL L. DOCTOROFF has been Managing Director of Oak Hill Partners, Inc.
(Acadia Partners' investment advisor) and its predecessor since August 1987;
Vice President and Director of Acadia Partners MGP, Inc. since March 1992; Vice
President of Keystone, Inc. since March, 1992; and a Managing Partner of
Insurance Partners Advisors, L.P. since February 1994. All of such entities are
affiliates of Acadia Partners. Mr. Doctoroff is also a Director of Bell & Howell
Holdings Company, Kemper Corporation and Specialty Foods Corporation.
BRADFORD E. BERNSTEIN has served as a Vice President and an Associate of Oak
Hill Partners, Inc. (Acadia Partners' investment advisor) since 1992. From 1991
until 1992, Mr. Bernstein worked at Patricof & Co. Ventures. Prior to that, from
1989 to 1991, he worked at Merrill, Lynch & Co. Mr. Bernstein serves as a
director of Pinnacle Brands, Inc., 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.
43
<PAGE>
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 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
COMPENSATION
ANNUAL 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
William M. Karnes........................ 154,549 30,000 -- 50,000 --
Senior Executive Vice President
and Chief Financial Officer
John E. Plunket.......................... 185,691 10,000 -- 73,129 --
Executive Vice President, Finance and
Development
Michael T. George........................ 132,000 33,500 -- 18,282 --
Senior Vice President, Operations
</TABLE>
44
<PAGE>
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
VALUE AT ASSUMED
ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN OR EXPIRATION --------------------------
NAME GRANTED(1) 1996 FISCAL YEAR BASE PRICE DATE 5% 10%
- ----------------------- ----------- ----------------- ------------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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 Securities and Exchange 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.
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 initial public offering price of
$18 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 three years ending in August 1999. Any non-employee director who ceases to
be a director will forfeit the right to receive any options not previously
vested or granted.
COMMITTEES
The Board 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
45
<PAGE>
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 specific goals both for the Company and
the individual officer or employee. 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 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.
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 exerciseability 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.
46
<PAGE>
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 initial public offering price of $18 per share. Certain of
these options were exercisable immediately upon their grant, while the remaining
options will 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 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
47
<PAGE>
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
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, William Karnes and John Plunket are
parties to employment agreements with the Company which will expire on December
31, 1999. Mr. Whetsell's and Mr. McCaslin's agreements provide for automatic one
year extensions thereafter unless either the executive or the Company gives
notice to the other at least 120 days prior to the end of any such period that
he or it, as the case may be, does not wish to extend the agreement for an
additional period. The employment agreements provide for annual base salaries of
$225,000, in the case of Mr. Whetsell, $215,000, in the case of Mr. McCaslin and
Mr. Karnes, and $150,000, in the case of Mr. Plunket, subject, in each such
case, to periodic increases. Each executive will be eligible to receive annual
bonuses and will be entitled to participate in all existing or future plans for
the benefit of the Company's employees and management, on the same basis as
other senior executive officers of the Company.
Under the employment agreements of Messrs. Whetsell and McCaslin, each is
entitled to receive (i) a lump sum payment equal to the product of (a) his total
cash compensation for the previous fiscal year and (b) the greater of (1) the
number of full and fractional years remaining in the agreement and (2) the
number two, if his employment is terminated by the Company without Cause (as
defined below) or is terminated by the executive for Good Reason (as defined
below), or (ii) a lump sum payment equal to two times his total cash
compensation for the previous fiscal year if the Company elects not to extend
his contract for an additional year at the end of its initial term (which ends
December 31, 1999) or any subsequent term. The events constituting "Good Reason"
include the assignment to the executive of duties materially inconsistent with
his position and a material breach of the employment agreement by the Company.
As used in the employment agreements of Messrs. Whetsell and McCaslin, the term
"Cause" includes (i) the executive's willful and intentional failure or refusal
to perform or observe any of his material duties set forth in his employment
agreement, if such breach is not cured within 30 days of notice from the
Company; (ii) any willful and intentional act of the executive involving theft,
fraud, embezzlement or dishonesty affecting the Company; and (iii) the
executive's conviction of an offense which is a felony in the jurisdiction
involved. Messrs. Whetsell's and McCaslin's employment agreements also provide
that if (i) the executive elects to terminate his employment within six months
of a Change in Control (as defined below) of the Company 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
48
<PAGE>
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 payable by him under the Code. These employment agreements prohibit
the executives from using or disclosing any confidential information about the
Company and its operations for a period of three years after the term of
employment and from engaging in any competitive hotel business for a period of
one year after the term of employment.
Under the employment agreements of Messrs. Karnes and Plunket, each is
entitled to 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
of these executives will be entitled receive his annual base salary for a period
of two years if his employment is terminated by the executive as a result of the
occurrence of a Material Adverse Change (as defined below) or likely occurrence
of a Material Adverse Change following a Change in Control (as defined below).
The events constituting "Cause" under the employment agreements of Messrs.
Karnes and Plunket include: (i) the executive's inability to perform his duties
under the agreement for more than a 120-day period, whether or not continuous,
during any 365-day period; (ii) acts of willful misfeasance or gross negligence
in connection with the executive's employment; (iii) the executive's conviction
of (or plea of no contest to) an offense which is a felony in the jurisdiction
involved; (iv) repeated failure, after written notice thereof, by the executive
to perform any of his duties under the employment agreement; and (v) a breach of
a specific provision of the employment agreement and, if such breach is curable,
failure to cure same within 30 days of written notice thereof. As used in the
employment agreements of Messrs. Karnes and Plunket, the term "Change in
Control" means: any person or entity, other than Acadia Partners, becoming
beneficial owner of greater than 35% of the Common Stock, so long as no Change
in Control will be deemed to have occurred if the executive continues to report
to Paul W. Whetsell. As used in the employment agreements of Messrs. Karnes and
Plunket, the term "Material Adverse Change" means a material reduction or
material adverse change in the executive's working conditions if, after such
reduction or change, the executive's authority or working conditions are not
commensurate with those of executives holding chief financial officer positions
at companies comparable to the Company in the lodging industry.
49
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of the Offering and as adjusted to reflect the sale
of 5,000,000 shares of Common Stock by the Company in the Offering 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 SHARES BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
-------------------------- --------------------------
NAME & ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE NUMBER PERCENTAGE
- ----------------------------------------------------------------- --------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
Acadia Partners, L.P.(1)....................................... 1,426,102 11.2% 1,426,102 8.0%
RCM Capital Management, L.L.C.(2).............................. 1,424,500 11.2% 1,424,500 8.0%
LaSalle Advisors Limited Partnership and ABKB/LaSalle
Securities Limited Partnership (3)........................... 1,154,700 9.1% 1,154,700 6.5%
Franklin Resources, Inc.(4).................................... 987,500 7.7% 987,500 5.6%
Paul W. Whetsell(5)............................................ 970,503 7.6% 970,503 5.5%
David E. McCaslin(6)........................................... 472,236 3.7% 472,236 2.7%
John E. Plunket(6)............................................. 462,729 3.6% 462,729 2.6%
William M. Karnes(7)........................................... 0 -- 0 --
John Emery(7).................................................. 0 -- 0 --
Michael T. George(7)........................................... 0 -- 0 --
D. Scott Livchak(7)............................................ 0 -- 0 --
Robert Gauthier(7)............................................. 0 -- 0 --
Daniel L. Doctoroff(7)......................................... 0 -- 0 --
Bradford E. Bernstein(7)....................................... 0 -- 0 --
William S. Janes(7)............................................ 0 -- 0 --
Joseph McCarthy(7)............................................. 0 -- 0 --
Edward L. Cohen................................................ 0 -- 0 --
Edwin T. Burton, III........................................... 0 -- 0 --
Edward P. Dowd................................................. 0 -- 0 --
All directors and executive officers as a group (15 persons)... 980,010 7.6% 980,010 5.5%
</TABLE>
- --------------------------
(1) The business address of Acadia Partners, L.P. is 201 Main Street, Suite
3100, 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. 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. ("Oak Hill Partners"), which is the investment advisor
to Acadia Partners, L.P., is the general partner of each of OHP and OHP II.
(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 Bank also may
be deemed to beneficially own the shares held by RCM Limited.
(3) The business address of La Salle 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.
50
<PAGE>
(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 subsidiares 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 Mr. Whetsell has beneficial
ownership within the meaning of Rule 13d-3.
(6) Includes shares held by entities over which Messrs. McCaslin and Plunket
have beneficial ownership within the meaning of Rule 13d-3.
(7) 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 Georgetown was determined through arm's-length negotiations between the
Company, on the one hand, and representatives of the holders of the majority of
the beneficial interests in LCP, on the other hand; such representatives are not
affiliated with the Company.
Since November 1995, the Company has acquired 85.2% of the limited
partnership interests in the partnership that owns the Westin Atlanta Airport
("Atlanta Partners"). In November 1995, the Company acquired, for a purchase
price of $56,000, the 1% general partnership interest in Atlanta Partners
previously held by a corporation in which E. Robert Roskind owned an equity
interest ("LHP"). At the time of such acquisition Mr. Roskind was a principal of
both CapStar Management and EquiStar. LHP was also paid a fee of $893,000 in
connection with the acquisition of the partnership interests in Atlanta
Partners, and is entitled to an additional $161,000 upon the ultimate
disposition of Atlanta Partners. The LCP Group, L.P., in which Mr. Roskind owns
an equity interest is entitled to an annual fee of $30,000 for providing certain
administrative services relating to the outside limited partners of the 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 corporations 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 eight of the Managed
Hotels. Mr. Whetsell and Mr. McCaslin exercise management control over the
Affiliated Owners of four of these Managed Hotels through their ownership of
certain entities which serve as general partners of the Affiliated Owners. Such
interests were acquired prior to the formation of EquiStar and CapStar
Management. During 1996, the Company received approximately $824,070 in
management fees from those Managed Hotels in which Messrs. Whetsell and McCaslin
own an equity interest, including approximately $554,896 in management fees from
the Affiliated Owners. Under the terms of their employment agreements, Messrs.
Whetsell and McCaslin are prohibited from hereafter
51
<PAGE>
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
One member of the syndicate of lenders of the $50 million Subordinated Debt
is Oak Hill Securities Fund, L.P. ("Oak Hill Securities"). The investment
advisor to Oak Hill Securities 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 of Oak Hill Partners which is the
investment advisor to Acadia Partners, a principal stockholder of the Company.
The Company has borrowed an aggregate of $25 million from Oak Hill Securities.
See "Principal Stockholders."
SHARES AVAILABLE FOR FUTURE SALE
Upon consummation of the Offering (assuming the over-allotment option is not
exercised), the Company will have 17,754,321 shares of Common Stock outstanding.
14,250,000 of these shares, will be freely transferable by persons other than
"affiliates" of the Company without restriction or limitation under the
Securities Act. The remaining 3,504,321 shares are "restricted securities"
within the meaning of Rule 144 under the Securities Act (the "Restricted
Shares") and may not be sold in the absence of registration under the Securities
Act unless an exemption from registration is available, including the exemption
contained in Rule 144. The Company has granted certain registration rights to
the recipients of Restricted Shares issued in connection with the Formation
Transactions, which registration rights cover all of the securities issued in
connection with the Formation Transactions. See "Description of Capital
Stock--Registration Rights."
In general, under Rule 144, if two years have elapsed since the later of the
date of acquisition of Restricted Shares from the Company or any "affiliate" of
the Company, as that term is defined under the Securities Act, the acquiror or
subsequent holder thereof is entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the Common Stock then
outstanding or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. If three years have elapsed since
the date of acquisition of Restricted Shares from the Company or from any
"affiliate" of the Company, and the acquiror or subsequent holder thereof is
deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale, such person would be entitled to sell such shares in the
public market under Rule 144(k) without regard to the volume limitations, manner
of sale provisions, public information requirements or notice requirements. The
Securities and Exchange Commission has proposed amendments to Rule 144 to reduce
the two and three year holding periods to one and two years, respectively.
The Company has agreed that, for a period of 180 days from the date of this
Prospectus, they will not, without the prior written consent of Lehman, offer,
sell, contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable for Common Stock. Certain entities
52
<PAGE>
controlled by members of management (who beneficially own an aggregate of
980,010 shares of Common Stock) have agreed that, for a period of 180 days from
the date of this Prospectus, they will not, without the prior written consent of
Lehman, offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable for Common Stock.
There can be no assurance that Lehman will not grant any such consent.
The Company has adopted an Equity Incentive Plan and Stock Purchase Plan for
the purpose of attracting, retaining and motivating executive officers of the
Company, other key employees and directors. The Company has reserved 1,740,000
shares of Common Stock for issuance under such plans. The Board granted options
to purchase an aggregate of 745,254 shares of Common Stock at the initial public
offering price under the Equity Incentive Plan to certain key personnel. The
Company filed a registration statement under the Securities Act to register
shares of Common Stock issuable upon the exercise of stock options granted under
the Equity Incentive Plan or the Stock Purchase Plan. Shares issued upon
exercise of stock options generally will be available for sale in the open
market. See "Management--Stock Option Grants."
In connection with the acquisition of the Highgate Portfolio, the Company
will issue to the sellers 809,523 Common OP Units and 392,157 Preferred OP
Units. Within certain limitations, such OP Units are convertible at the Sellers'
election into an equal number of shares of Common Stock (or, at the Company's
election, cash in an amount equal to the market price of such shares). See
"Recent Developments--The Highgate Portfolio."
The Company can make no predictions as to the effect, if any, that future
sales of Restricted Shares, or the availability of such Restricted Shares for
sale, or the issuance of shares of Common Stock upon the exercise of options or
the conversion of OP Units, or the perception that such sales, exercises or
conversions could occur, will have on the market price prevailing from time to
time. Sales of substantial amounts of such Common Stock in the public market
could have an adverse effect on the market price of the Common Stock. See "Risk
Factors--Shares Available for Future Sale."
DESCRIPTION OF CAPITAL STOCK
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE
PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS, COPIES OF
WHICH HAVE BEEN FILED AS EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART. SEE "ADDITIONAL INFORMATION."
The authorized capital stock of the Company consists of 49,000,000 shares of
Common Stock, par value $.01 per share, and 25,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"), of which 6,004,321 shares
of Common Stock and no shares of Preferred Stock are outstanding. Upon
completion of the Offering, 17,754,321 shares of Common Stock and no shares of
Preferred Stock will be outstanding.
Prior to the Offering, there has been no public market for the Common Stock.
See "Risk Factors-- Absence of Prior Public Market."
COMMON STOCK
VOTING RIGHTS. The Company's Certificate of Incorporation provides that
holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders. The stockholders are not entitled to vote
cumulatively for the election of directors.
DIVIDENDS. Each share of Common Stock is entitled to receive dividends if,
as and when declared by the Board. Under Delaware law, a corporation may declare
and pay dividends out of surplus, or if there is no surplus, out of net profits
for the fiscal year in which the dividend is declared and/or the preceding year.
No dividends may be declared, however, if the capital of the corporation has
been diminished by depreciation in the value of its property, losses or
otherwise to an amount less than the aggregate amount
53
<PAGE>
of capital represented by any issued and outstanding stock having a preference
on the distribution of assets. See "Dividend Policy."
OTHER RIGHTS. Stockholders of the Company have no preemptive or other
rights to subscribe for additional shares. Subject to any rights of the holders
of any Preferred Stock that may be issued subsequent to the Offering, all
holders of Common Stock are entitled to share equally on a share-for-share basis
in any assets available for distribution to stockholders on liquidation,
dissolution or winding up of the Company. No shares of Common Stock are subject
to redemption or a sinking fund. All outstanding shares of Common Stock are, and
the Common Stock to be outstanding upon completion of the Offering will be,
fully paid and nonassessable.
PREFERRED STOCK
The Company's Board is authorized to issue, without further authorization
from stockholders, up to 25,000,000 shares of Preferred Stock in one or more
series and to determine, at the time of creating each series, the distinctive
designation of, and the number of shares in, the series, its dividend rate, the
number of votes, if any, for each share of such series, the price and terms on
which such shares may be redeemed, the terms of any applicable sinking fund, the
amount payable upon liquidation, dissolution or winding up, the conversion
rights, if any, and such other rights, preferences and priorities of such series
as the Board may be permitted to fix under the laws of the State of Delaware as
in effect at the time such series is created. The issuance of Preferred Stock
could adversely affect the voting power of the holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no current plan to issue any shares of Preferred Stock.
SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware General Corporation Law (the "Delaware Law")
prohibits publicly held Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date of the transaction in which the person or entity became an
interested stockholder, unless (i) prior to such date, either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder is approved by the Board, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the outstanding
voting stock of the corporation (excluding for this purpose certain shares owned
by persons who are directors and also officers of the corporation and by certain
employee benefit plans) or (iii) on or after such date the business combination
is approved by the Board and by the affirmative vote (and not by written
consent) of at least 66 2/3% of the outstanding voting stock which is not owned
by the interested stockholder. For the purposes of Section 203, a "business
combination" is broadly defined to include mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within the immediately preceding three years did own) 15%
or more of the corporation's voting stock.
REGISTRATION RIGHTS
The Company has entered into registration rights agreements with (i) persons
receiving shares of Common Stock in connection with the Formation Transactions
and (ii) the principals of Highgate Holdings receiving OP Units which, under
certain circumstances, may be converted into Common Stock (the "Registration
Rights Agreements"), pursuant to which the Company has agreed (with certain
limitations) to register for sale any shares of Common Stock that are held by
the parties thereto (collectively, the "Registrable Securities"). The
Registration Rights Agreements provide that any holder of Registrable Securities
may require the Company to register such Registrable Securities for sale (a
"Demand Registration"), provided that the total amount of Registrable Securities
to be included in the Demand Registration has a market value of at least $10
million and provided that notice is not given prior to six months after the
54
<PAGE>
effective date of a previous Demand Registration. If Registrable Securities are
going to be registered by the Company pursuant to a Demand Registration, the
Company must provide written notice to the other holders of Registrable
Securities and permit them to include any or all Registrable Securities that
they hold in the Demand Registration, provided that the amount of Registrable
Securities requested to be registered may be limited by the underwriters in an
underwritten offering based on such underwriters' determination that inclusion
of the total amount of Registrable Securities requested for registration would
materially and adversely affect the success of the offering. Certain
management-controlled entities that received shares in the Formation
Transactions have a one-time right to require the Company to register the
Registrable Securities that they hold in connection with the distribution of the
Registrable Securities to their members or in connection with a resale of such
shares. In order to demand any such registration the market value of the
securities to be sold by such entities must be at least $2 million. The
management-controlled entities will not be entitled to include their Registrable
Securities in any such registration prior to one year from the date of the IPO,
although a pledgee of such Registrable Securities may, upon a default by a
management-controlled entity under a loan secured by the pledge, exercise the
management-controlled entity's registration rights during such one-year period.
The Registration Rights Agreements also provide that, with certain limited
exceptions, in the event the Company proposes to file a registration statement
with respect to an offering of any class of equity securities the Company will
offer the holders of Registrable Securities the opportunity to register the
number of Registrable Securities they request to include (the "Piggyback
Registration"), provided that the amount of Registrable Securities requested to
be registered may be limited by the underwriters in an underwritten offering
based on such underwriters' determination that inclusion of the total amount of
Registrable Securities requested for registration would materially and adversely
affect the success of the offering. The Company is generally required to pay all
of the expenses of Demand Registrations and Piggyback Registrations, other than
underwriting discounts and commissions.
TRANSFER AGENT AND REGISTRAR
The Company has appointed The First National Bank of Boston as the transfer
agent and registrar for the Common Stock.
55
<PAGE>
UNDERWRITING
The Underwriters of the Offering of Common Stock (the "Underwriters"), for
whom Lehman, BT Securities Corporation, Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Montgomery Securities and Smith Barney Inc.
are serving as representatives (the "Representatives") have severally agreed,
subject to the terms and conditions of the underwriting agreement, the form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part (the "Underwriting Agreement"), to purchase from the
Company, and the Company has agreed to sell to the Underwriters, the aggregate
number of shares of Common Stock set forth opposite their respective names
below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Lehman Brothers Inc..............................................................
BT Securities Corporation........................................................
Goldman, Sachs & Co..............................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................................
Montgomery Securities............................................................
Smith Barney Inc.................................................................
----------
Total............................................................................
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase shares of Common Stock are subject to the approval of certain legal
matters by counsel and to certain other conditions and that if any of the shares
of Common Stock are purchased by the Underwriters pursuant to the Underwriting
Agreement, all the shares of Common Stock agreed to be purchased by the
Underwriters pursuant to the Underwriting Agreement, must be so purchased.
The Company has been advised that the Underwriters propose to offer shares
of Common Stock directly to the public initially at the public offering price
set forth on the cover page of this Prospectus and to certain selected dealers
(who may include the Underwriters) at such public offering price less a selling
concession not to exceed $ per share. The selected dealers may reallow a
concession not to exceed $ per share. After the initial offering of the Common
Stock, the concession to selected dealers and the reallowance to other dealers
may be changed by the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
the payments they may be required to make in respect thereto.
The Company has granted to the Underwriters an option to purchase up to an
additional 750,000 shares of Common Stock, at the initial public offering price,
less the aggregate underwriting discounts and commissions, shown on the cover
page of this Prospectus, solely to cover over-allotments, if any. Such option
may be exercised at any time within 30 days after the date of the Underwriting
Agreement. To the extent the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
In connection with the Offering, the Company has agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable for Common Stock for a period of 180
days after the date of this Prospectus without the prior written consent of
Lehman. In addition, certain entities controlled by members of management have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable for Common
Stock for a period of 180 days after the date of this Prospectus without the
prior written consent of Lehman. Such restriction will not apply to any shares
purchased in the Offering or otherwise on the open market. See "Risk
Factors--Shares Available for Future Sale."
56
<PAGE>
The U.S. Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
In connection with the formation of EquiStar, CapStar Management made loans
to certain directors and executive officers of the Company, which loans
currently total approximately $1.0 million. Lehman has extended loans to these
directors and executive officers to repay CapStar Management all amounts
previously outstanding under the loans. The loans from Lehman are guaranteed by
pledges of Common Stock held by such directors and executive officers. See
"Shares Available for Future Sale."
An affiliate of Lehman owns a minority equity interest in Acadia Partners.
In September 1996, the Company entered into the $225 million Credit Facility
led by Bankers Trust, an affiliate of BT Securities Corporation, one of the
Representatives. The Credit Facility bears interest at a rate of LIBOR plus 2%
per annum. The Company expects that it may use as much as approximately $28.4
million of the proceeds of the Offering to retire a portion of the approximately
$183.8 million currently outstanding under the Credit Facility. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources." An affiliate of Bankers
Trust owns approximately 337,500 shares of Common Stock.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Hogan & Hartson L.L.P.,
Washington, D.C.
EXPERTS
The financial statements and schedule included herein and in the
Registration Statement, to the extent and for the periods indicated therein,
have been included in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements under the headings "Prospectus Summary," "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, performance 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.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form S-1 under the Securities Act with respect to the
shares of Common Stock offered hereby. This Prospectus, which is a part of the
Registration Statement, omits certain information contained in the Registration
Statement, and reference is made to the Registration Statement and the exhibits
and schedules thereto for further information with respect to the Company and
the Common Stock offered hereby. Statements contained herein concerning the
provisions of any documents are not necessarily
57
<PAGE>
complete, and in each instance reference is made to the copy of such document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in its entirety by such reference. The Registration Statement,
including exhibits and schedules filed therewith, may be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and will also be available for
inspection and copying at the regional offices of the Commission located at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the
fees prescribed by the Commission. The Commission maintains a World Wide Web
site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the Commission. The
address of such site is http://www.sec.gov.
Statements contained in this Prospectus as to the contents of any contract
or other document which is filed as an exhibit to the Registration Statement are
not necessarily complete, and each such statement is qualified in its entirety
by reference to the full text of such contract or document.
The Company will be required to file reports and other information with the
Commission pursuant to the Exchange Act. The Company intends to furnish to its
stockholders annual reports containing consolidated financial statements
certified by its independent accountants and quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CAPSTAR HOTEL COMPANY
<S> <C>
Independent Auditors' Report......................................................... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995......................... F-4
Consolidated Statements of Operations for the years ended December 31, 1996 and
1995............................................................................... F-5
Consolidated Statements of Stockholders' Equity and Partners' Capital for the years
ended December 31, 1996 and 1995................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and
1995............................................................................... F-7
Notes to the Consolidated Financial Statements....................................... F-8
CAPSTAR MANAGEMENT COMPANY
Independent Auditors' Report......................................................... F-18
Balance Sheet as of December 31, 1994................................................ F-19
Statements of Operations and Changes in Management Operations' Equity for the years
ended December 31, 1994 and 1993................................................... F-20
Statements of Cash Flows for the years ended December 31, 1994 and 1993.............. F-21
Notes to Financial Statements........................................................ F-22
HIGHGATE PORTFOLIO
Independent Auditors' Report......................................................... F-24
Combined Balance Sheet as of December 31, 1996....................................... F-25
Combined Statement of Operations for the year ended December 31, 1996................ F-26
Combined Statement of Owners' Deficit for the year ended December 31, 1996........... F-27
Combined Statement of Cash Flows for the year ended December 31, 1996................ F-28
Notes to Combined Financial Statements............................................... F-29
ORANGE COUNTY AIRPORT HILTON
Independent Auditors' Report......................................................... F-32
Statements of Operations for the period from January 1, 1996 to February 22, 1996
(date of acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1995, 1994 and 1993................................................... F-33
Statements of Cash Flows for the period from January 1, 1996 to February 22, 1996
(date of acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1995, 1994 and 1993................................................... F-34
Notes to Financial Statements........................................................ F-35
GEORGETOWN LATHAM HOTEL
Independent Auditors' Report......................................................... F-37
Statements of Operations for the period from January 1, 1996 to March 8, 1996 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1995, 1994 and 1993................................................................ F-38
Statements of Cash Flows for the period from January 1, 1996 to March 8, 1996 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1995, 1994 and 1993................................................................ F-39
Notes to Financial Statements........................................................ F-40
CHARLOTTE SHERATON AIRPORT PLAZA
Independent Auditors' Report......................................................... F-42
Statements of Operations for the period from January 1, 1996 to February 2, 1996
(date of the acquisition by EquiStar Hotel Investors, L.P.) and the years ended
December 31, 1995, 1994 and 1993................................................... F-43
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Statement of Cash Flows for the period from January 1, 1996 to February 2, 1996 (date
of acquisition by EquiStar Hotel Investors, L.P.) and the years ended December 31,
1995, 1994 and 1993................................................................ F-44
Notes to Financial Statements........................................................ F-45
ARLINGTON HILTON HOTEL
Independent Auditors' Report......................................................... F-47
Statements of Operations for the period from January 1, 1996 to April 17, 1996 and
the years ended December 31, 1995, 1994 and 1993................................... F-48
Statements of Cash Flows for the period from January 1, 1996 to April 17, 1996 and
the years ended December 31, 1995, 1994 and 1993................................... F-49
Notes to Financial Statements........................................................ F-50
BALLSTON HOTEL LIMITED PARTNERSHIP (HILTON HOTEL, ARLINGTON, VA)
Independent Auditors' Report......................................................... F-52
Balance Sheets as of June 30, 1996 and December 31, 1995 and 1994.................... F-53
Statements of Operations for the six months ended June 30, 1996 and the years ended
December 31, 1995, 1994 and 1993................................................... F-54
Statements of Partners' Deficit for the six months ended June 30, 1996 and the years
ended December 31, 1995, 1994 and 1993............................................. F-55
Statements of Cash Flows for the six months ended June 30, 1996 and the years ended
December 31, 1995, 1994 and 1993................................................... F-56
Notes to Financial Statements........................................................ F-57
MUBEN HOTELS
Independent Auditors' Report......................................................... F-62
Combined Balance Sheets as of September 30, 1996, December 31, 1995 and 1994......... F-63
Combined Statements of Operations for the nine months ended September 30, 1996 and
the years ended December 31, 1995 and 1994......................................... F-64
Combined Statements of Owners' Capital for the nine months ended September 30, 1996
and the years ended December 31, 1995 and 1994..................................... F-65
Combined Statements of Cash Flows for the nine months ended September 30, 1996 and
the years ended December 31, 1995 and 1994......................................... F-66
Notes to Combined Financial Statements............................................... F-67
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CapStar Hotel Company:
We have audited the accompanying consolidated balance sheets of CapStar
Hotel Company and subsidiaries (formerly EquiStar Hotel Investors, L.P. and
CapStar Management Company, L.P., the "Company") as of December 31, 1996 and
1995 and the related consolidated statements of operations, stockholders' equity
and partners' capital, and cash flows for the years then ended, and the
supplementary schedule. These consolidated financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement and schedule presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CapStar Hotel Company and subsidiaries as of December 31, 1996 and 1995, and the
results of their consolidated operations and their consolidated cash flows for
the years ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles, and the supplementary schedule, in our opinion,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Washington, D.C.
February 14, 1997
F-3
<PAGE>
CAPSTAR HOTEL COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................................. $ 21,784 6,832
Accounts receivable, net of allowance for doubtful accounts of $189 in 1996 and $91 in
1995.................................................................................... 8,109 2,749
Deposits, including restricted deposits of $2,023 in 1995................................. 3,167 3,515
Prepaid expenses and other................................................................ 1,454 265
Inventory................................................................................. 1,321 174
---------- ----------
Total current assets...................................................................... 35,835 13,535
Property and equipment:
Land.................................................................................... 58,127 12,768
Buildings............................................................................... 248,376 84,545
Furniture, fixtures and equipment....................................................... 32,698 11,354
Construction-in-progress................................................................ 3,891 2,216
---------- ----------
343,092 110,883
Accumulated depreciation................................................................ (8,641) (1,757)
---------- ----------
Total property and equipment, net......................................................... 334,451 109,126
Deferred costs, net of accumulated amortization of $802 in 1996 and $271 in 1995.......... 8,225 2,638
Investments in partnerships............................................................... 650 --
Restricted cash........................................................................... -- 7,351
---------- ----------
$ 379,161 $ 132,650
---------- ----------
---------- ----------
LIABILITIES, MINORITY INTEREST, STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
Accounts payable.......................................................................... $ 4,125 $ 2,329
Accrued expenses and other liabilities.................................................... 10,737 4,626
Income tax payable........................................................................ 1,436 --
Long-term debt, current portion........................................................... 498 2,668
---------- ----------
Total current liabilities................................................................. 16,796 9,623
Deferred tax liability.................................................................... 1,181 --
Long-term debt............................................................................ 199,863 73,574
---------- ----------
Total liabilities......................................................................... 217,840 83,197
Minority interest......................................................................... 606 815
Partners' capital......................................................................... -- 48,638
Common stock (49,000,000 shares authorized, at $.01 par value, 12,754,321 issued and
outstanding at December 31, 1996)....................................................... 128 --
Paid in capital........................................................................... 158,533 --
Retained earnings......................................................................... 2,054 --
---------- ----------
$ 379,161 $ 132,650
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
CAPSTAR HOTEL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Revenue from hotel operations:
Rooms.................................................................................... $ 68,498 14,456
Food and beverage........................................................................ 30,968 5,900
Other operating departments.............................................................. 5,981 1,571
Hotel management and other fees............................................................ 4,345 4,436
---------- ---------
Total revenue.............................................................................. 109,792 26,363
---------- ---------
Hotel operating expenses by department:
Rooms.................................................................................... 17,509 4,190
Food and beverage........................................................................ 24,589 4,924
Other operating departments.............................................................. 2,513 513
Undistributed operating expenses:
Administrative and general............................................................... 20,448 8,078
Property operating costs................................................................. 12,586 2,624
Property taxes, insurance and other...................................................... 4,565 1,310
Depreciation and amortization............................................................ 8,248 2,097
---------- ---------
Total operating expenses................................................................... 90,458 23,736
---------- ---------
Net operating income....................................................................... 19,334 2,627
Interest expense........................................................................... 12,784 2,673
Interest income............................................................................ (438) (259)
---------- ---------
Income before minority interest, income taxes, and extraordinary loss...................... 6,988 213
Minority interest.......................................................................... 39 18
---------- ---------
Income before income taxes and extraordinary loss.......................................... 7,027 231
Income taxes............................................................................... 2,674 --
---------- ---------
Income before extraordinary loss........................................................... 4,353 231
Extraordinary loss on early extinguishment of debt, net of tax benefit of $1,304 for
1996..................................................................................... (1,956) (888)
---------- ---------
Net income (loss).......................................................................... $ 2,397 (657)
---------- ---------
---------- ---------
Earnings per share:
Primary
Income before extraordinary loss....................................................... $ 0.31 $ --
Extraordinary loss..................................................................... (0.15) --
---------- ---------
Net income............................................................................. 0.16 --
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
CAPSTAR HOTEL COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN RETAINED GENERAL LIMITED
SHARES AMOUNT CAPITAL EARNINGS PARTNERS PARTNERS TOTAL
------------ ----------- ---------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK
$.01 PAR VALUE
Initial capital contributions
on January 12, 1995.......... -- $ -- -- -- 89 1,684 $ 1,773
Capital contributions.......... -- -- -- -- 2,431 46,194 48,625
Capital distributions.......... -- -- -- -- (1) (115) (116)
Net loss for the year ended
December 31, 1995............ -- -- -- -- (87) (570) (657)
------------ ----- ---------- ----------- --------- ---------- ----------
-- -- -- -- 2,432 47,193 49,625
Less--notes receivable from
management for capital
contributions................ -- -- -- -- -- (987) (987)
------------ ----- ---------- ----------- --------- ---------- ----------
Partners' capital at December
31, 1995..................... -- -- -- -- 2,432 46,206 $ 48,638
------------ ----- ---------- ----------- --------- ---------- ----------
Capital distributions.......... -- -- -- -- (2) (170) (172)
Repayment of notes receivable
from management.............. -- -- -- -- -- 987 987
Net income for period from
January 1, 1996 through
August 19, 1996.............. -- -- -- -- 45 298 343
------------ ----- ---------- ----------- --------- ---------- ----------
Partners' capital at August 19,
1996......................... -- -- -- -- 2,475 47,321 49,796
Shares sold on August 20,
1996......................... 6,750,000 68 110,044 -- -- -- 110,112
Shares issued for partners'
capital on August 20, 1996... 6,004,321 60 49,736 -- (2,475) (47,321) --
Deferred tax liability assumed
from partners on August 20,
1996......................... -- -- (1,247) -- -- -- (1,247)
Net income for period from
August 20, 1996 through
December 31, 1996............ -- -- -- 2,054 -- -- 2,054
------------ ----- ---------- ----------- --------- ---------- ----------
Stockholders' equity at
December 31, 1996............ 12,754,321 $ 128 158,533 2,054 -- -- $ 160,715
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
CAPSTAR HOTEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................................................... $ 2,397 $ (657)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization......................................................... 8,248 2,097
Loss on early extinguishment of debt.................................................. 3,260 618
Minority interest in consolidated subsidiary.......................................... (39) (18)
Changes in working capital:
Accounts receivable, net............................................................ (5,360) (2,749)
Deposits, prepaid expenses and other, and inventory................................. (4,011) (1,889)
Accounts payable.................................................................... 1,797 2,329
Accrued expenses and other liabilities.............................................. 5,711 4,626
Income taxes payable................................................................ 1,436 --
Deferred tax liability.............................................................. (66) --
---------- ----------
Net cash provided by operating activities................................................. 13,373 4,357
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment..................................................... (231,885) (109,223)
Purchase of investment in partnerships.................................................. (650) --
Purchase of minority interest........................................................... (67) --
Release of (additions to) restricted cash for capital improvements and other, net....... 7,351 (7,351)
---------- ----------
Net cash used by investing activities..................................................... (225,251) (116,574)
---------- ----------
Cash flows from financing activities:
Proceeds from long-term debt............................................................ 372,778 98,058
Payments on long-term debt, line of credit, and capital leases.......................... (248,387) (23,133)
Release of (additions to) restricted deposits for hedge agreement....................... 2,559 (2,023)
Deferred costs.......................................................................... (10,943) (3,000)
Capital contributions................................................................... -- 50,250
Repayments from (loans to) management................................................... 987 (987)
Net proceeds from issuance of common stock.............................................. 110,112 --
Capital distributions................................................................... (172) (116)
Distributions to minority interests..................................................... (104) --
---------- ----------
Net cash provided by financing activities................................................. 226,830 119,049
---------- ----------
Net increase in cash and cash equivalents................................................. 14,952 6,832
Cash and cash equivalents at beginning of period.......................................... 6,832 --
---------- ----------
Cash and cash equivalents at end of period................................................ $ 21,784 6,832
---------- ----------
---------- ----------
Supplemental disclosure of cash flow information:
Interest paid........................................................................... $ 12,105 2,383
Income taxes paid....................................................................... 807 --
Capitalized interest costs.............................................................. 461 67
Capital lease additions................................................................. 324 721
Deferred financing fees not yet paid.................................................... -- 596
Prepaid expenses and property contributed by limited partner............................ -- 148
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION
The corporate structure of CapStar Hotel Company and its subsidiaries
(collectively, the "Company") was formed pursuant to a Formation Agreement,
dated June 20, 1996 (the "Formation Agreement"). As a result of the transactions
discussed in Note 3, the consolidated financial statements of the Company as of
December 31, 1996 and 1995, include the historical results of the Company's
predecessor entities, EquiStar Hotel Investors, L.P. and subsidiaries
(collectively, "EquiStar") and CapStar Management Company, L.P. ("CapStar
Management").
The principal activity of the Company is to acquire, renovate, reposition
and manage upscale, full-service hotels. At December 31, 1996, the Company owned
nineteen hotels and managed 27 other hotels on the behalf of third party and
affiliate owners. At December 31, 1996, the owned hotels consisted of:
<TABLE>
<CAPTION>
ACQUISITION DATE NAME ROOMS
- --------------------------------- ------------------------------------------------- -----------
<S> <C> <C>
March 3, 1995.................... Salt Lake Airport Hilton, UT 287
June 30, 1995.................... Radisson Hotel, Schaumburg, IL 202
June 30, 1995.................... Sheraton Hotel, Colorado Springs, CO 502
August 4, 1995................... Hilton Hotel, Bellevue, WA 180
October 3, 1995.................. Marriott Hotel, Somerset, NJ 434
November 15, 1995................ Westin Atlanta Airport, GA 496
February 2, 1996................. Sheraton Airport Plaza, Charlotte, NC 226
February 16, 1996................ Holiday Inn, Cleveland, OH 237
February 22, 1996................ Orange County Airport Hilton, Irvine, CA 290
March 8, 1996.................... The Latham Hotel, Washington, DC 143
April 17, 1996................... Hilton Hotel, Arlington, TX 310
August 23, 1996.................. Hilton Hotel, Arlington, VA 209
October 31, 1996................. Southwest Hilton, Houston, TX 293
December 12, 1996................ Embassy Suites, Denver, CO 236
December 17, 1996................ Hilton Hotel, Sacramento, CA 326
December 17, 1996................ Santa Barbara Inn, CA 71
December 17, 1996................ Holiday Inn, Colorado Springs, CO 201
December 17, 1996................ Embassy Row Hilton, Washington, DC 195
December 17, 1996................ Hilton Hotel & Towers, Lafayette, LA 328
</TABLE>
Separate wholly-owned limited liability companies ("LLCs") or limited
partnerships were established to directly own the above hotels. However, for the
Westin Atlanta Airport, LLCs were established to purchase and hold the Company's
general and limited partner interest in the partnership that owns the hotel (the
"Atlanta Partnership"). At December 31, 1996 and 1995, the Company had a 1%
general partner interest and an 85.2% and 84.6% limited partner interest in the
Atlanta Partnership, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--All material intercompany transactions and
balances have been eliminated in the consolidation of the Company for 1996. The
accounts of EquiStar and CapStar Management have been combined in the 1995
financial statements as the Partnerships were under common ownership. All
material intercompany transactions and balances are eliminated in the
combination for 1995.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
DEPOSITS--Deposits primarily represent refundable amounts escrowed during
the negotiation of potential hotel acquisitions. Additionally, certain amounts
held for future hotel renovations and the amount held in escrow related to a
hedge agreement (see Note 5) were recorded as deposits at December 31, 1995.
INVENTORY--Inventories, which consist primarily of hotel food and beverage
stock, are recorded at the lower of cost or market using the first-in, first-out
("FIFO") valuation method.
PROPERTY AND EQUIPMENT--Buildings and building improvements are stated at
cost and depreciated over 40 years. Furniture, fixtures and equipment purchases
are stated at cost and depreciated over estimated useful lives of five to seven
years or, for capital leases, the related lease terms. Furniture and equipment
contributed is stated at its fair value at the time it was contributed. All
property and equipment balances are depreciated using the straight-line method.
Management plans to hold all hotel assets long-term. Management evaluates
potential permanent impairment of the net carrying value of its hotel assets on
a quarterly basis. For each hotel asset, the expected undiscounted future cash
flows for the asset are compared to its net carrying value. If the net carrying
value of the hotel exceeds the undiscounted cash flows, management estimates the
fair value of the assets based on recent appraisals, if available, or by
discounting expected future cash flows using prevailing market discount rates.
If the net carrying value of the hotel exceeds its fair value, the excess is
charged to operations. No impairment losses were recorded during 1996 or 1995.
DEFERRED COSTS--Organizational costs incurred in the formation of the
Company and its predecessor entities are amortized over five years using the
straight-line method. Costs associated with the acquisition of debt are
amortized over the lives of the related debt instruments using a method that
approximates the interest method.
INVESTMENTS IN PARTNERSHIPS--Based on ownership percentages and a lack of
significant influence, the Company records its interests in partnerships under
the cost method of accounting for investments.
RESTRICTED CASH--Prior to the September 30, 1996 debt refinancing (see Note
6), the Company was required to maintain certain levels of restricted cash to
comply with the terms of its debt agreements. Restricted cash reserved primarily
for future hotel capital improvements was $7,351 at December 31, 1995.
INCOME TAXES--Prior to the Formation Transactions (see Note 3), no provision
for income taxes was made since the Company's predecessor entities were
partnerships, and, therefore, all income, losses, and credits for tax purposes
were passed through to the individual partners. Concurrent with the Formation
Transactions the Company implemented Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Deferred income taxes reflect the tax
consequences on future years of differences between the tax basis of assets and
liabilities and their financial reporting amounts.
MINORITY INTEREST--Minority interest represents the limited partner
interests in the Atlanta Partnership which are not owned by the Company.
REVENUES--Revenue is earned primarily through the operations and management
of the hotel properties and is recognized when earned. During the period from
its acquisition until February 29, 1996, the Westin Atlanta Airport hotel was
leased to a third-party operator. Related lease revenue is recorded as other
operating departments revenue. On February 29, 1996, the Company assumed the
operations of the hotel upon termination of the lease.
USE OF ESTIMATES--Management has made a number of estimates and assumptions
related to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these
F-9
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
3. FORMATION TRANSACTIONS AND INITIAL PUBLIC OFFERING
The following transactions (the "Formation Transactions") occurred prior to
or on August 20, 1996, the date of the Company's initial public offering (the
"IPO"):
- a limited partner of CapStar Management contributed its partnership
interest in CapStar Management to the Company in exchange for shares of
Common Stock;
- the Company contributed such partnership interest to CapStar LP
Corporation, a wholly-owned subsidiary of the Company ("CapStar Sub");
- the remaining partners of CapStar Management (including its general
partner but not including CapStar Sub) and the partners of EquiStar
contributed their respective partnership interest in CapStar Management
and EquiStar to the Company in exchange for shares of Common Stock;
- the Company contributed all the assets of EquiStar to CapStar Management
and CapStar Management assumed all of the liabilities of EquiStar; and
- the Agreement of Limited Partnership of CapStar Management was amended and
restated to reflect the fact that CapStar Management has succeeded the
business of EquiStar and the Company became the general partner of CapStar
Management.
In connection with the Formation Transactions, the Company issued 6,004,321
shares of Common Stock to the partners of EquiStar and CapStar Management.
On August 20, 1996, the Company completed its IPO of 9,250,000 shares of
common stock at a price of $18 per share. The Company sold 6,750,000 of the
initial shares which, after underwriting discounts, commissions and other IPO
expenses, produced net proceeds to the Company of $110,112. The remaining
2,500,000 shares were sold by Acadia Partners, L.P. and certain related entities
("Acadia Partners"), which received 100% of the net proceeds from the sale of
their shares. The Company used the proceeds of the IPO to repay a portion of the
Company's outstanding indebtedness.
4. NOTES RECEIVABLE FROM MANAGEMENT
Pursuant to the terms of an agreement dated January 4, 1995, certain members
of management borrowed $987 from CapStar Management to fund capital
contributions to EquiStar. The notes were secured by the borrowers' interests in
EquiStar and were personally guaranteed by the individual note holders. These
notes earned interest at the prime rate throughout 1995 and at prime plus 1.5%
during 1996 until their repayment on September 13, 1996.
5. HEDGE AGREEMENT
In August 1995, the Company entered into an agreement with Salomon Brothers
Holding Company Inc. ("Salomon") to hedge against the impact that interest rate
fluctuations may have on the Company's various floating rate debt instruments.
Gains and losses resulting from this agreement were not recorded in the
financial statements until realized.
The hedge agreement was a two-year forward swap that was effective June 30,
1997 and was to mature on June 30, 2007. The agreement required the Company to
pay a fixed rate of 7.1% and receive a floating interest rate based on the
three-month London Interbank Offered Rate ("LIBOR"), on a notional amount of
$25,000. The agreement required the Company to make an initial collateral
deposit of $1,000 and
F-10
<PAGE>
5. HEDGE AGREEMENT (CONTINUED)
provided for required additions or reductions to the collateral escrow account
by the Company and Salomon in $500 increments based on changes in the market
value of this agreement.
At December 31, 1995, the Company had made required deposits totaling $1,000
to the collateral escrow account which were recorded as restricted deposits. The
unrealized loss on this agreement at December 31, 1995 was $1,546.
On May 6, 1996, the Company sold its interest in the swap agreement and
received a cash payment of $536. This gain on sale has been deferred for
financial statement purposes.
6. LONG-TERM DEBT
BANKERS TRUST DEBT--On September 30, 1996, the Company entered into a
$225,000 Senior Secured Revolving Credit Facility (the "Credit Facility") with a
group of lenders led by Bankers Trust Company ("Bankers Trust"). The Credit
Facility provides for acquisition loans, working and renovation capital, and
letters of credit. The initial proceeds from the Credit Facility were used to
refinance virtually all existing indebtedness and to fund hotel renovations. The
Credit Facility has an initial term of three years, which can be extended at the
Company's option using two additional one-year periods upon the satisfaction of
certain conditions. The Credit Facility is collateralized by substantially all
of the Company's assets. At December 31, 1996, no letters of credit were
outstanding.
Interest on the Credit Facility is payable monthly at the Company's election
of the Base Rate (lenders' prime rate) plus 1.0% or Eurodollar Option (LIBOR for
periods of one, two, three or six months) plus 2.0%. The interest rate for the
Credit Facility was 7.6% at December 31, 1996.
A commitment fee, which is calculated using an annual rate of 0.25% times
the average unutilized balance on the Credit Facility, is due quarterly. Letter
of credit fees of 2.0% per annum times the average outstanding balances on
letters of credit, if any, are also payable quarterly. The Company incurred $108
in commitment fees, which are recorded as interest expense, and no letter of
credit fees during 1996.
On December 13, 1996, the Company also entered into a $50,000 unsecured
senior subordinated credit facility (the "Subordinated Debt") with Bankers Trust
as agent and arranger. The net proceeds from the Subordinated Debt borrowing
were used to acquire certain of the hotels and for general corporate purposes.
In connection with the closing of the Subordinated Debt, the Credit Facility was
amended to, among other things, permit the Company to incur up to $100,000 of
subordinated indebtedness.
The Subordinated Debt is due on December 31, 1999, and may be extended at
the Company's option for two additional one-year periods upon the satisfaction
of certain conditions. Interest on the Subordinated Debt is payable monthly and
is calculated at the Company's election of the one, two, three, or six month
LIBOR plus 4.0%. At December 31, 1996, the interest rate for the Subordinated
Debt was 9.6%.
Both the Credit Facility and Subordinated Debt agreements contain certain
covenants, including maintenance of certain financial ratios, restrictions on
payments of dividends, certain reporting requirements and other customary
restrictions. The Company's ability to borrow under the Credit Facility is also
subject to a borrowing base test calculated with reference to the cash flow from
hotel properties, the relative contribution to the borrowing base of the values
attributable to the different hotel properties, the appraised value of such
hotel properties and certain other factors. As of December 31, 1996,
approximately $177,000 was available for borrowing under the Credit Facilities,
of which $149,000 has been borrowed. Under the Credit Facility the Company is
permitted to incur an additional $50,000 of subordinated indebtedness as of
December 31, 1996.
LEHMAN DEBT--On December 21, 1995, the Company entered into a $202,500
Master Mortgage Loan Facility Agreement (the "Master Agreement") with Lehman
Brothers Holding, Inc. ("Lehman") to facilitate the repayment of the existing
$22,690 in debt (see "Salomon Debt" below) and to fund hotel
F-11
<PAGE>
6. LONG-TERM DEBT (CONTINUED)
acquisitions. Under the Master Agreement, 50% of total acquisition capital, not
to exceed $125,000, could be funded through a senior loan facility. An
additional 27.5% of acquisition capital, not to exceed $75,000, could be
borrowed through a mezzanine loan facility. Certain fees incurred by the Company
related to these borrowings could also be financed through the Master Agreement,
up to a maximum of $2,500. Separate loans were obtained under the Master
Agreement for each hotel acquired. The loans were cross-collateralized and
cross-defaulted and were secured by first and second liens on the Company's real
and personal property.
Loans obtained under the senior loan facility bore interest at variable
rates that were based on the one-month LIBOR. For the nine months ended
September 30, 1996 (the date of refinancing) and the year ended December 31,
1995, interest rates on the loans under the senior facility were between 9.6%
and 10%, respectively. Loans obtained under the mezzanine loan facility bore
interest at a fixed rate of 16.0%, with monthly interest payments of 10% with
the remaining 6% accruing to principal.
Under the Master Agreement, the Company was required to pay financing fees
upon the repayment of each loan. These deferred financing fees payable, which
were included in long-term debt, totaled $596 at December 31, 1995.
At December 31, 1995, total borrowings under the Master Agreement were
$59,976, of which $55,841 were made from the senior loan facility and $4,135
were made from the mezzanine loan facility. On August 21, 1996, the majority of
the outstanding Lehman debt was repaid with a portion of the Company's IPO
proceeds. All remaining Lehman indebtedness was repaid with proceeds from the
Credit Facility on September 30, 1996.
SALOMON DEBT--During 1995, the Company entered into a loan facility with
Salomon to fund hotel acquisitions. Interest-only payments were required under
this loan facility at a floating rate based on LIBOR. On December 21, 1995, the
$22,690 outstanding balance was repaid with proceeds from the Lehman debt
facility.
WELLS FARGO DEBT--On March 2, 1995, the Company borrowed $9,960 from Wells
Fargo Bank, National Association ("Wells Fargo") to finance the purchase of the
Salt Lake Airport Hilton. Interest, which was payable monthly, was based on the
one-month LIBOR plus 4.25%, as adjusted for certain provisions in the loan
agreement. At December 31, 1995, the outstanding balance on this amortizing note
was $9,890. The note was repaid in 1996.
The Company also entered into an unsecured $5,000 revolving credit facility
with Wells Fargo that was used for general corporate purposes. Interest accrued
at either LIBOR plus 2.25% or the Prime Rate plus 1%, depending on the nature of
the advance. At December 31, 1995, there was $4,181 outstanding under this line.
The outstanding balance was repaid in 1996.
NOTES PAYABLE--In September 1996, the Company entered into a note agreement
to finance a three-year insurance policy. Principal and interest payments are
due monthly. The outstanding balance on the note, which bears interest at 6.0%,
was $665 at December 31, 1996.
During 1995, in order to fund certain loans to management (see Note 4), the
Company borrowed $950 from Acadia Partners. In January 1996, the Company
borrowed an additional $150 under this note agreement. The note, which bore
fixed interest at the Prime Rate plus 1.5%, was repaid on September 13, 1996.
To help finance the March 1996 purchase of The Latham Hotel, the Company
entered into an unsecured $1,000 note agreement with LCP Hotel Ventures, L.P.
("LCP"), the seller of the hotel and an affiliated entity of the Company (see
Note 10). The note, which bore interest at a rate of 10%, was repaid on August
23, 1996.
F-12
<PAGE>
6. LONG-TERM DEBT (CONTINUED)
CAPITAL LEASES--The Company has entered into several capital leases for
hotel and office equipment that expire between 1997 and 2001. The total capital
lease obligations at December 31, 1996 and 1995, were $696 and $648,
respectively, and are included in long-term debt.
At December 31, 1996, long-term debt outstanding under the above facilities
and agreements consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
<S> <C> <C>
1996 1995
---------- -------------
Senior Secured Revolving Credit Facility........................... $ 149,000 $ --
Senior Subordinated Credit Facility................................ 50,000 --
Mortgage Debt...................................................... -- 74,048
Notes Payable...................................................... 665 950
Capital Leases..................................................... 696 648
Other.............................................................. 0 596
---------- -------------
200,361 76,242
Less Current Portion............................................... (498) (2,668)
---------- -------------
$ 199,863 $ 73,574
---------- -------------
---------- -------------
</TABLE>
Aggregate maturities of the above obligations are as follows:
<TABLE>
<S> <C>
1997.......................................................... $ 498
1998.......................................................... 483
1999.......................................................... 199,285
2000.......................................................... 84
2001.......................................................... 11
Thereafter.................................................... --
-----------
$ 200,361
-----------
-----------
</TABLE>
Management has determined that the outstanding balance of the Company's
long-term debt approximates its fair value by discounting the future cash flows
under the debt arrangements using rates currently available for debt with
similar terms and maturities.
7. INCOME TAXES
Income taxes of the Company are based on pretax income since the Formation
Transactions and the associated change in the Company's tax status to a C
Corporation on August 20, 1996. Pretax income of the Company from August 20
through December 31, 1996 is $3,424. The Company's effective income tax rate is
40%.
Income taxes were allocated as follows for the year ended December 31, 1996:
<TABLE>
<CAPTION>
Income before income taxes and extraordinary loss................... $ 2,674
<S> <C>
Extraordinary loss.................................................. (1,304)
---------
$ 1,370
---------
---------
</TABLE>
F-13
<PAGE>
7. INCOME TAXES (CONTINUED)
Income tax expense attributable to income before income taxes and
extraordinary loss consists of the following for the year ended December 31,
1996:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ------------- ---------
<S> <C> <C> <C>
U.S. federal..................................................... $ 2,118 (51) 2,067
State and local.................................................. 622 (15) 607
--
----------- ---------
$ 2,740 (66) 2,674
--
--
----------- ---------
----------- ---------
</TABLE>
The "expected" tax expense, based on the U.S. federal statutory rate of 34%,
differs from the actual tax expense, calculated at the effective rate of 40%,
due to state and local taxes, net of federal tax benefit.
Upon formation of the Company, the Company assumed certain deferred tax
assets and liabilities from its predecessor entities. The tax effects of
temporary differences that give rise to deferred tax assets and liabilites of
August 20, 1996, and December 31, 1996, are presented below:
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 20,
1996 1996
------------ -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts, recorded for financial statement
purposes only.................................................... $ 75 $ 41
Accrued vacation, recorded for financial statement purposes only... 252 199
Other.............................................................. 7 27
------------ -----------
Total gross deferred tax assets.................................... 334 267
Deferred tax liability--Difference in accumulated depreciation and
amortization for tax purposes and financial statement purposes... (1,515) (1,514)
------------ -----------
Net deferred tax liability......................................... $ (1,181) $ (1,247)
------------ -----------
</TABLE>
There is no valuation allowance for deferred tax assets as of August 20,
1996 or as of December 31, 1996, as management believes that it is more likely
than not that these deferred tax assets will be fully realized.
8. EXTRAORDINARY LOSS
On September 30, 1996, the Company recognized an extraordinary loss from the
write-off of deferred financing fees in connection with the refinancing of the
Lehman debt. The recorded loss of $1,956 net of a tax benefit of $1,304 reflects
the write-off of the unamortized balance of deferred financing fees at the time
of the refinancing.
On December 21, 1995, an extraordinary loss was recorded to write-off the
unamortized deferred financing fees related to the Salomon debt. There is no tax
effect on the recorded loss of $888 because the Company's predecessor entities
were not subject to income tax.
9. EARNINGS PER SHARE
The earnings per share have been calculated using actual income before
extraordinary loss, extraordinary loss, and net income amounts for the period
from the IPO on August 20, 1996 through December 31, 1996. Earnings per share is
not presented for periods prior to the IPO because the Company's predecessor
entities were partnerships and were not subject to the provisions of Accounting
Principles Board Opinion No. 15. The weighted average number of common shares
and common share equivalents used in the calculations is 12,754,321.
F-14
<PAGE>
10. RELATED-PARTY TRANSACTIONS
The Company manages hotels that are owned in part by affiliates or officers
of the Company. Revenue associated with the management of these hotels was $824
and $1,104 during 1996 and 1995, respectively. At December 31, 1996 and 1995,
the amount due from these properties was $304 and $237, respectively. Management
believes these contracts are at prevailing market rates.
Upon formation of CapStar Management, certain receivables of CapStar Equity
Associates, G.P. ("CEA"), a limited partner, were assigned to CapStar
Management. Amounts collected under this agreement, which are recorded as a
current liability, amounted to $305,077 at December 31, 1995. During 1996, all
amounts collected under these receivables were repaid to CEA.
On March 8, 1996, the Company acquired The Latham Hotel for a purchase price
of $12,000 from LCP (see Note 6). At the time of the acquisition, the general
partner of LCP, Latham Hotels, Inc., was wholly-owned by certain members of the
Company's management. Directly or indirectly, these members of management owned
a 9.7% beneficial interest in LCP and received $806 of the net proceeds of the
purchase price paid to LCP. Management believes that the purchase price was
determined through arm's-length negotiations between the Company and
representatives of the holders of the majority of the beneficial interests in
LCP.
On November 15, 1995, the Company acquired its 1% general partner interest
in the Atlanta Partnership from LHP, a corporation in which an individual who,
at the time, was a principal of the Company's predecessor entities, owned an
equity interest. LHP was paid a fee of $893 in connection with the Company's
acquisition of the general and limited partner interests and is entitled to an
additional $161 upon the ultimate disposition of the Atlanta Partnership.
Another affiliate of the former principal, LCP Group, L.P., is entitled to an
annual fee of $30 to provide certain administrative services related to the
outside limited partners. Management believes that these fees were negotiated at
arm's-length between the former principal and the other principals of EquiStar.
11. STOCK OPTION PLANS
On August 20, 1996, the Company adopted an equity incentive plan (the
"Equity Incentive Plan"). Pursuant to the terms of its Equity Incentive Plan,
the Company is authorized to issue and award 1,740,000 shares of common stock as
options to purchase shares, stock appreciation rights, or restricted shares.
Awards may be granted to directors, officers or other key employees of the
Company or an affiliate.
On August 20, 1996, in connection with the IPO, the Company granted certain
executive officers and other members of management 745,254 options to purchase
shares of the Company's common stock at the initial public offering price of $18
per share. Of such options, 54,254 were exercisable immediately upon their
grant, although no options were exercised during 1996. The remaining options
will become exercisable in three annual installments. All shares granted lapse
ten years from the date of grant.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, the Company applies Accounting Principles Board
Opinion No. 25 in accounting for the Equity Incentive Plan and therefore no
compensation cost has been recognized for the Equity Incentive Plan. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model, with the following weighted average
assumptions used for the grants in 1996: risk free interest rate of 5.96%; no
expected dividend yields; expected lives of 3.11 years; expected volatility of
25%. The Company's 1996 pro forma net income and earnings per share as if the
fair value method had been applied, were $2,111 and $0.14, respectively. The
effects of applying SFAS No. 123 for disclosing compensation costs may not be
representative of the effects on reported net income and earnings per share for
future years.
F-15
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
The Company has entered into three operating leases for office space which
expire in October 1998. Lease payments will approximate $265 annually through
expiration.
The Company is involved in various litigation through the normal course of
business which management believes will not have a material adverse effect on
the consolidated financial statements.
13. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma summary presents information as if all
hotels owned at December 31, 1996 had been acquired on January 1, 1995 and does
not reflect the repayment of outstanding debt with the proceeds from the IPO.
The pro forma information is provided for informational purposes only. It is
based on historical information and does not necessarily reflect the actual
results that would have occurred nor is it necessarily indicative of future
results of operations of the Company.
PRO FORMA INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Total revenue......................................................... $ 172,653 $ 160,961
---------- ----------
---------- ----------
Net income (loss) before extraordinary loss........................... $ 1,958 $ (10,861)
---------- ----------
---------- ----------
Net income (loss)..................................................... $ 2 $ (11,749)
---------- ----------
---------- ----------
</TABLE>
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the Company's quarterly results of operations:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
FIRST SECOND THIRD FOURTH FIRST SECOND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
--------- ----------- ----------- ----------- ----------- -----------
Total revenue................................ $ 18,033 28,223 30,872 32,664 1,782 3,029
Total operating expenses..................... 15,887 23,742 24,018 26,811 1,605 2,705
Net operating income......................... 2,146 4,481 6,854 5,853 177 324
Income (loss) before extraordinary loss...... (642) 48 2,575 2,372 95 71
Net income (loss)............................ (642) 48 619 2,372 94 71
Earnings (loss) per share.................... $ -- -- (0.03) 0.19 -- --
--------- ----------- ----------- ----------- ----- -----
--------- ----------- ----------- ----------- ----- -----
<CAPTION>
<S> <C> <C>
THIRD FOURTH
QUARTER QUARTER
----------- -----------
Total revenue................................ 9,400 12,152
Total operating expenses..................... 7,799 11,627
Net operating income......................... 1,601 525
Income (loss) before extraordinary loss...... 805 (740)
Net income (loss)............................ 805 (1,627)
Earnings (loss) per share.................... -- --
----- -----------
----- -----------
</TABLE>
15. SUBSEQUENT EVENTS
On January 28, 1997, the Company acquired long-term leasehold rights to the
226-room San Pedro Hilton at Cabrillo Marina in San Pedro, California, from U.S.
Bancorp for a purchase price of $7,000. Additionally, the 295 room Westchase
Hilton in Houston, Texas, was purchased from Redstone Group on January 31, 1997
for $28,500. In a separate transaction, the Company also purchased the 294 room
Doubletree Hotel in Albuquerque, New Mexico, on January 31, 1997 from Merv
Griffin Hotels for $19,000. All of these hotel acquisitions were funded through
the Credit Facility and existing working capital.
In February 1997, the Company entered into a contract to acquire the
Highgate Portfolio, a group of six upscale, full-service hotels containing 1,358
rooms for a purchase price of $95,000.
In February 1997, the Company also entered into contracts to purchase the
213-room Four Points Hotel Sheraton in Cherry Hill, New Jersey, for $6,900 and
the 154-room Great Valley Sheraton in Frazer, Pennsylvania, for $14,355.
F-16
<PAGE>
CAPSTAR HOTEL COMPANY
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROSS
AMOUNT AT
WHICH CAR-
COSTS SUBSEQUENT TO RIED AT
CLOSE OF
INITIAL COST TO COMPANY ACQUISITION PERIOD
--------------------------- ------------------------- -----------
BUILDING AND BUILDING AND
DESCRIPTION ENCUMBRANCES(1) LAND IMPROVEMENTS LAND IMPROVEMENTS LAND(2)
- -------------------------------------- ----------------- ----------- -------------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Hotel Assets:
Salt Lake Airport Hilton, UT......... -- 770 12,828 1 797 771
Radisson Hotel, Schaumburg, IL....... -- 1,080 5,131 26 1,090 1,106
Sheraton Hotel, Colorado Springs,
CO.................................. -- 1,071 14,592 1 1,953 1,072
Hilton Hotel, Bellevue, WA........... -- 5,211 6,766 4 478 5,215
Marriott Hotel, Somerset, NJ......... -- 1,978 23,001 9 1,643 1,987
Westin Atlanta Airport, Atlanta,
GA.................................. 23,609 2,650 15,926 (300) 6,461 2,350
Sheraton Hotel, Charlotte, NC........ -- 4,700 11,057 -- 2,179 4,700
Holiday Inn, Cleveland, OH........... -- 1,330 6,353 2 1,545 1,332
Orange County Airport Hilton, Irvine,
CA.................................. -- 9,990 7,993 14 575 10,004
The Latham Hotel, Washington, DC..... 12,000 6,500 5,320 -- 480 6,500
Hilton Hotel, Arlington, TX.......... -- 1,836 14,689 354 1,218 2,190
Hilton Hotel, Arlington, VA.......... 16,210 4,000 15,069 -- 147 4,000
Southwest Hilton, Houston, TX........ -- 2,300 15,665 -- (75) 2,300
Embassy Suites, Englewood, CO........ -- 2,500 20,700 -- 27 2,500
Holiday Inn, Colorado Springs, CO.... -- 1,600 4,232 -- 6 1,600
Embassy Row Hilton, Washington DC.... -- 2,200 13,247 -- 17 2,200
Hilton Hotel, Sacramento, CA......... -- 4,000 16,013 -- 22 4,000
Santa Barbara Inn, Santa Barbara, CA -- 2,600 5,141 -- 9 2,600
Hilton Hotel & Towers, Lafayette,
LA.................................. -- 1,700 16,062 -- 19 1,700
----------------- ----------- -------------- --------- -------------- -----------
51,819 58,016 229,785 111 18,591 58,127
----------------- ----------- -------------- --------- -------------- -----------
----------------- ----------- -------------- --------- -------------- -----------
(1) Listed above are encumbrances incurred by the Company or its subsidiaries under loan facilities which
require the collateralization of certain Hotel Assets. At December 31, 1996, the Company also had other
borrowings that are secured by the general assets of the Company instead of specific Hotel Assets and that
are not included in this schedule.
(2) As of December 31, 1996, hotel property and equipment have a cost of
$342,366 for federal income tax purposes.
Land
Hotel furniture and equipment.........
Construction in progress..............
Total hotel property and equipment....
Office furniture and equipment........
Total property and equipment..........
<CAPTION>
BUILDING AND ACCUMULATED YEAR OF DATE
DESCRIPTION IMPROVEMENTS(2) DEPRECIATION CONSTRUCTION ACQUIRED LIFE
- -------------------------------------- ----------------- ------------- --------------- ----------- ---
<S> <C> <C> <C> <C> <C>
Hotel Assets:
Salt Lake Airport Hilton, UT......... 13,625 591 1980 03/03/95 40
Radisson Hotel, Schaumburg, IL....... 6,221 195 1974 06/30/95 40
Sheraton Hotel, Colorado Springs,
CO.................................. 16,545 562 1979 06/30/95 40
Hilton Hotel, Bellevue, WA........... 7,244 233 1979 08/04/95 40
Marriott Hotel, Somerset, NJ......... 24,644 701 1978 10/03/95 40
Westin Atlanta Airport, Atlanta,
GA.................................. 22,387 545 1982 11/15/95 40
Sheraton Hotel, Charlotte, NC........ 13,236 277 1985 02/02/96 40
Holiday Inn, Cleveland, OH........... 7,898 154 1975 02/16/96 40
Orange County Airport Hilton, Irvine,
CA.................................. 8,568 176 1976 02/22/96 40
The Latham Hotel, Washington, DC..... 5,800 114 1978 03/08/96 40
Hilton Hotel, Arlington, TX.......... 15,907 231 1983 04/17/96 40
Hilton Hotel, Arlington, VA.......... 15,216 141 1990 8/23/96 40
Southwest Hilton, Houston, TX........ 15,590 68 1979 10/31/96 40
Embassy Suites, Englewood, CO........ 20,727 21 1986 12/12/96 40
Holiday Inn, Colorado Springs, CO.... 4,238 -- 1974 12/17/96 40
Embassy Row Hilton, Washington DC.... 13,264 -- 1969 12/17/96 40
Hilton Hotel, Sacramento, CA......... 16,035 -- 1983 12/17/96 40
Santa Barbara Inn, Santa Barbara, CA 5,150 -- 1959 12/17/96 40
Hilton Hotel & Towers, Lafayette,
LA.................................. 16,081 -- 1981 12/17/96 40
----------------- -------------
248,376 4,009
----------------- -------------
----------------- -------------
(1) Listed above are encumbrances inc
require the collateralization of
borrowings that are secured by th
are not included in this schedule
(2) As of December 31, 1996, hotel pr
$342,366 for federal income tax pu
58,127 --
31,972 4,423
3,891 --
----------------- -------------
342,366 8,432
726 209
----------------- -------------
$ 343,092 $ 8,641
----------------- -------------
----------------- -------------
</TABLE>
A reconciliation of the Partnerships' investment in hotel property and
equipment and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
1996
--------------
<S> <C>
Hotel property and equipment:
Balance at beginning of period............................................................................... $ 110,455
Additions during period:
Acquisitions............................................................................................... 204,740
Improvements and construction-in-progress.................................................................. 27,171
--------------
Balance at end of period..................................................................................... 342,366
--------------
Accumulated depreciation:
Balance at beginning of period............................................................................... 1,743
Additons--depreciation expense............................................................................... 6,689
--------------
8,432
--------------
Net hotel property and equipment at end of period.............................................................. 333,934
--------------
--------------
<CAPTION>
1995
--------------
<S> <C>
Hotel property and equipment:
Balance at beginning of period............................................................................... --
Additions during period:
Acquisitions............................................................................................... 104,239
Improvements and construction-in-progress.................................................................. 6,216
--------------
Balance at end of period..................................................................................... 110,455
--------------
Accumulated depreciation:
Balance at beginning of period............................................................................... --
Additons--depreciation expense............................................................................... 1,743
--------------
1,743
--------------
Net hotel property and equipment at end of period.............................................................. 108,712
--------------
--------------
</TABLE>
F-17
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
CapStar Management Company, L.P.:
We have audited the accompanying balance sheet of CapStar Management
Company, L.P. ("CapStar Management") as of December 31, 1994, and the related
statements of operations and changes in management operations' equity and cash
flows for the years ended December 31, 1994 and 1993. These financial statements
are the responsibility of the management of CapStar Management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CapStar Management Company,
L.P. as of December 31, 1994, and the results of its operations and its cash
flows for the years ended December 31, 1994 and 1993 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
May 7, 1996
F-18
<PAGE>
CAPSTAR MANAGEMENT
BALANCE SHEET
DECEMBER 31, 1994
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash.......................................................................... $ 157,151
Accounts receivable........................................................... 946,717
Prepaid expenses.............................................................. 22,157
---------
Total current assets............................................................ 1,126,025
Furniture and equipment, net of accumulated depreciation of $69,804............. 105,772
---------
$1,231,797
---------
---------
LIABILITIES AND MANAGEMENT OPERATIONS' EQUITY
Accounts payable and accrued expenses........................................... $ 823,637
Due to affiliates............................................................... 203,140
Management operations' equity................................................... 205,020
---------
$1,231,797
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
CAPSTAR MANAGEMENT
STATEMENTS OF OPERATIONS AND CHANGES IN MANAGEMENT OPERATIONS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------------ ----------
<S> <C> <C>
Revenue:
Management fees...................................................................... $ 3,823,166 3,918,576
Accounting fees and other income..................................................... 594,756 315,566
------------ ----------
Total revenue.......................................................................... 4,417,922 4,234,142
------------ ----------
Expenses:
Salaries, wages and benefits......................................................... 2,311,569 1,988,282
Other overhead, general and administrative........................................... 2,196,251 2,076,385
Depreciation......................................................................... 22,639 14,349
------------ ----------
Total expenses......................................................................... 4,530,459 4,079,016
------------ ----------
Net income (loss)...................................................................... (112,537) 155,126
Management operations' equity (deficit), beginning of year............................. 317,557 (81,820)
Capital contributions.................................................................. -- 244,251
------------ ----------
Management operations' equity, end of year............................................. $ 205,020 317,557
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
CAPSTAR MANAGEMENT
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Net income (loss)........................................................................ $ (112,537) 155,126
Adjustments to reconcile net income (loss) to net cash provided (used) by operating
activities:
Depreciation......................................................................... 22,639 14,349
Changes in working capital:
Accounts receivable................................................................ 249,284 (738,337)
Prepaid expenses................................................................... 20,339 (4,463)
Accounts payable................................................................... (114,628) 361,377
Accrued expenses................................................................... 1,213 110,624
----------- ----------
Cash provided (used) by operating activities............................................. 66,310 (101,324)
----------- ----------
Cash flows from investing activities--purchases of furniture and equipment............... (41,257) (24,475)
----------- ----------
Cash flows from financing activities--capital contributions.............................. -- 244,251
----------- ----------
Net increase in cash..................................................................... 25,053 118,452
Cash at beginning of year................................................................ 132,098 13,646
----------- ----------
Cash at end of year...................................................................... $ 157,151 132,098
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
CAPSTAR MANAGEMENT
Notes to Financial Statements
December 31, 1994
(1) ORGANIZATION
For the period from January 1, 1993 through December 31, 1994, CapStar
Hotels, Inc. and subsidiaries ("CHI") provided hotel management services to
hotels throughout the continental United States on behalf of third-party and
affiliate owners. At December 31, 1994, CHI had contracts to manage 41 hotels.
On January 4, 1995, CHI assigned the hotel management contracts and certain
assets and liabilities related to its hotel management operations to CapStar
Equity Associates, G.P. ("CEA"). On January 12, 1995, CEA, in turn, assigned the
same to CapStar Management Company, L.P.
For purposes of these financial statements, the hotel management operations
accounts are presented as if they were a separate and distinct legal entity
(CapStar Management).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements have been prepared on the accrual basis of
accounting and in accordance with generally accepted accounting principles.
REVENUES AND ACCOUNTS RECEIVABLE
CapStar Management receives fees for the performance of management,
accounting and other services in accordance with the agreements entered into
with individual hotels. All revenues are recognized as the related services are
performed.
Generally, management fees are equal to 2% to 4% of the gross monthly
revenue of each hotel. Additional incentive management fees are earned when a
hotel's operating performance exceeds levels specified in the management
contract.
The collectibility of accounts receivable is evaluated periodically during
the year. CapStar Management uses the direct write-off method to record bad debt
expense for amounts deemed uncollectible.
FURNITURE AND EQUIPMENT
Furniture and equipment purchases are stated at cost. These assets are
depreciated using the straight-line method over an estimated useful life of
seven years.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements. Actual results could differ
from those estimates.
INCOME TAXES
No provision has been made for income taxes in the financial statements, as
any taxable income or loss of CapStar Management is included in the income tax
returns of CHI for the years ended December 31, 1994 and 1993.
F-22
<PAGE>
CAPSTAR MANAGEMENT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) RELATED-PARTY TRANSACTIONS
Certain of the hotels managed are owned by affiliates of CHI. Revenue earned
by CapStar Management from these hotels was approximately $2,830,177 in 1994 and
$2,812,653 in 1993. Accounts receivable associated with hotels owned by
affiliates was $481,561 at December 31, 1994.
Due to affiliates primarily represents amounts collected by CapStar
Management on behalf of the hotels it manages which have not yet been disbursed
to the hotels.
F-23
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Capstar Hotel Company:
We have audited the accompanying combined balance sheet of the Highgate
Portfolio (the "Hotels") as of December 31, 1996 and the related combined
statements of operations, owners' deficit and cash flows for the year then
ended. These combined financial statements are the responsibility of the Hotels'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Highgate Portfolio as of December 31, 1996 and the results of their combined
operations and their combined cash flows for the year ended December 31, 1996,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
February 7, 1997
F-24
<PAGE>
HIGHGATE PORTFOLIO
COMBINED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
--------------
<S> <C>
ASSETS
Cash and cash equivalents......................................................................... $ 3,093,582
Escrow accounts................................................................................... 265,695
Accounts receivable............................................................................... 1,911,939
Inventory and other assets........................................................................ 547,449
--------------
Total current assets.............................................................................. 5,818,665
--------------
Property and equipment:
Land............................................................................................ 4,852,052
Building........................................................................................ 32,550,978
Furniture, fixtures and equipment............................................................... 16,817,888
--------------
54,220,918
Less--accumulated depreciation.................................................................. (16,638,646)
--------------
Total net property and equipment.................................................................. 37,582,272
Deferred assets, net of accumulated amortization of $983,486...................................... 1,042,224
Advances to related parties....................................................................... 7,297,283
--------------
Total assets...................................................................................... $ 51,740,444
--------------
LIABILITIES AND OWNERS' DEFICIT
Accounts payable and accrued expenses............................................................. $ 5,231,355
Capital lease obligations, current portion........................................................ 202,980
Notes payable, current portion.................................................................... 1,122,000
Total current liabilities......................................................................... 6,556,335
Capital lease obligations long-term............................................................... 226,977
Advances from related parties..................................................................... 11,902,144
Notes payable, long-term.......................................................................... 45,074,801
--------------
Total liabilities................................................................................. 63,760,257
Owners' deficit................................................................................... (12,019,813)
--------------
Total liabilities and owners' deficit............................................................. $ 51,740,444
--------------
--------------
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
HIGHGATE PORTFOLIO
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
-------------
<S> <C>
Revenue:
Rooms............................................................................................ $ 22,285,306
Food and beverage................................................................................ 8,194,218
Other operating departments...................................................................... 3,940,775
-------------
34,420,299
-------------
Operating costs and expenses:
Rooms............................................................................................ 5,498,855
Food and beverage................................................................................ 6,672,434
Other operating departments...................................................................... 2,189,072
Undistributed operating expenses:
Administrative and general....................................................................... 2,678,993
Sales and marketing.............................................................................. 2,857,750
Management fees.................................................................................. 1,157,682
Property operating costs......................................................................... 2,870,437
Property taxes, insurance and other.............................................................. 1,973,571
Depreciation and amortization.................................................................... 2,719,401
Interest expense................................................................................. 5,951,317
Foreign currency exchange adjustment............................................................. 1,297
-------------
34,570,809
-------------
Net loss before income taxes..................................................................... $ (150,510)
Income tax expense............................................................................... 215,700
Net loss......................................................................................... $ (366,210)
-------------
-------------
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE>
HIGHGATE PORTFOLIO
COMBINED STATEMENT OF OWNERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Balance, December 31, 1995..................................................... $(11,660,873)
Foreign currency translation adjustment........................................ 7,270
Net loss....................................................................... (366,210)
-----------
Balance, December 31, 1996..................................................... $(12,019,813)
-----------
-----------
</TABLE>
See accompanying notes to combined financial statements.
F-27
<PAGE>
HIGHGATE PORTFOLIO
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996
-------------
<S> <C>
Cash flows from operating activities:
Net loss......................................................................................... $ (366,210)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation and amortization.................................................................. 2,719,401
Foreign currency translation adjustment........................................................ (7,270)
Increase in escrow accounts.................................................................... (78,953)
Increase in accounts receivable................................................................ (338,313)
Decrease in inventory and other assets......................................................... 79,815
Increase in accounts payable and accrued expenses.............................................. 1,444,744
-------------
Total adjustments............................................................................ 3,819,424
-------------
Net cash provided by operating activities.......................................................... 3,453,214
-------------
Cash flows from investing activities:
Purchase of deferred assets...................................................................... (50,000)
Purchases of building improvements............................................................... (998,350)
Net repayments of advances to related parties.................................................... 1,193,230
Purchases of furniture and equipment............................................................. (1,408,204)
-------------
Net cash used by investing activities.............................................................. (1,263,324)
Cash flows from financing activities:
Repayments of notes payable...................................................................... (409,360)
Advances from related parties.................................................................... 15,352
Repayments of capital lease obligations.......................................................... (137,729)
-------------
Net cash used by financing activities.............................................................. (531,737)
-------------
Net increase in cash and cash equivalents.......................................................... 1,658,153
Cash and cash equivalents at beginning of period................................................... 1,435,429
-------------
Cash and cash equivalents at end of period......................................................... $ 3,093,582
-------------
-------------
Supplemental disclosure of cash flow information:
Interest paid...................................................................................... $ 5,011,517
Additions to capital lease obligations............................................................. $ 377,081
</TABLE>
See accompanying notes to combined financial statements.
F-28
<PAGE>
HIGHGATE PORTFOLIO
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION
The Highgate Portfolio (the "Hotels") consists of six hotels which are owned
by partnerships or corporations affiliated with Highgate Hotels, Inc. ("Highgate
Hotels"). Two of the hotels are located in Dallas (Radisson and Holiday Inn
Select), one hotel is located in Indianapolis (Doubletree), one hotel is located
in Calgary (Holiday Inn), and two hotels are located in Vancouver (Ramada and
Sheraton).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounts of the Hotels are included in the financial records of the
respective partnership or corporation that owns each hotel. The accompanying
combined financial statements include the accounts of the Hotels only, as if
they were a separate legal entity, and have been prepared using the accrual
basis of accounting.
CASH AND CASH EQUIVALENTS
The Hotels consider all highly liquid instruments with an original maturity
date of three months or less to be cash equivalents.
ESCROW ACCOUNTS
Escrow Accounts represent amounts paid into a property tax escrow account.
INVENTORIES
Inventories, consisting primarily of china, tableware, linens, and food and
beverage items are stated at cost, using the first-in, first-out ("FIFO") method
of inventory valuation.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed on the
buildings and building improvements using the straight-line method over their
useful lives of 15 to 40 years. Furniture, fixtures and equipment are
depreciated using the straight-line method over five years.
BAD DEBT EXPENSE
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on debts
to establish an allowance for doubtful accounts. Write offs occur when
management deems a receivable uncollectible.
DEFERRED EXPENSES
Deferred expenses consist, primarily, of deferred financing costs which are
amortized on a basis which approximates the interest method, over the term of
the respective loan.
REVENUE
Revenue is earned primarily through the operations of the hotel and
recognized when earned.
INCOME TAXES
Four of the hotels are owned by partnerships, and therefore, any income
taxes are reported by the individual partners. The two remaining hotels are
owned by entities incorporated in Canada (the Canadian Corporations). For the
purposes of these financial statements, the Hotels have calculated the tax
provision for the Canadian Corporations using an effective tax rate of 44%. The
Canadian Corporations' deferred tax assets and liabilities are insignificant to
these financial statements and are therefore not presented.
F-29
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of three hotels, located in Canada, are translated at
the rate of exchange at the balance sheet date; income and expenses are
translated at the average rates of exchange prevailing during the year. The
related translation adjustments are reflected in the Combined Statement of
Owners' Deficit. Foreign currency translation gains and losses are included in
the statements of operations.
USE OF ESTIMATES
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) RELATED-PARTY TRANSACTIONS
Five of the hotels are managed by Hospitality Group, Inc. a related party of
Highgate Hotels. The property management agreements provide for management fees
of 3% of gross revenues, as defined in the management agreement. In addition,
the management agreements provide for an incentive fee of 2% of gross revenues,
as defined in the management agreement, provided that certain net operating
income thresholds are met. The five hotels incurred management fees of
$1,047,730 in 1996.
The Hotels have made advances to various affiliates. The total amounts
outstanding on the advances were $7,297,283 at December 31, 1996. The advances
are unsecured, bear no interest and have no terms of repayment.
The Hotels have received advances from various affiliates. The total amounts
outstanding on the advances from affiliates were $11,902,144 at December 31,
1996. The advances are unsecured, bear no interest and have no terms of
repayment. Management does not expect to be required to repay advances during
1997.
(4) NOTES PAYABLE
Notes Payable consisted of the following on December 31, 1996:
<TABLE>
<S> <C>
RADISSON--DALLAS
Note payable to the Equitable Life Assurance of the United States (Equitable),
collateralized by a deed of trust on the Hotel. Interest payable monthly at
10% with the balance due November 30, 2000................................... $7,407,205
Note payable to Equitable, with no interest due, collateralized by a deed of
trust on the Hotel. Balance due November 30, 2000............................ 1,140,020
HOLIDAY INN SELECT--DALLAS
Note payable to Allied Capital Commercial Corporation and Business Mortgage
Investors, Inc., collateralized by a deed of trust on substantially all
assets of the current owner. Principal payments of $25,000 are due monthly
with interest at prime plus 5.25% (13.5% at December 31, 1996). Balance is
due September 30, 1999....................................................... 7,500,000
Note payable to BancOne Capital Partners III Limited Partnership,
collateralized by a pledge and assignment of partnership interests and a
stock pledge in affiliates of Highgate Hotels. Interest is payable monthly at
13%, with Participation Payments, as defined, due 30 days after the end of
each calendar year. Balance is due September 30, 1999........................ 2,500,000
HOLIDAY INN--CALGARY
Note Payable to Hongkong Bank of Canada with interest payable monthly at
5.36%........................................................................ 3,064,575
</TABLE>
F-30
<PAGE>
(4) NOTES PAYABLE (CONTINUED)
<TABLE>
<S> <C>
DOUBLETREE--INDIANAPOLIS
Note payable to Lincoln National Life Insurance, collateralized by a deed of
trust on the Hotel. Principal payments of $39,935 are due monthly with
interest at 10.50%. Balance is due on January 1, 2005........................ 3,874,866
Note payable to BancOne Capital Partners III Limited Partnership,
collateralized by a pledge and assignment of partnership interests and a
stock pledge in affiliates of Highgate Hotels. Interest is payable monthly at
12%. The balance is due November 30, 2004.................................... 2,430,000
SHERATON HOTEL--VANCOUVER (SURREY)
Note payable to Lehman Brothers Holdings, Inc., collateralized by a deed of
trust on the Hotel. Interest is payable monthly at LIBOR plus 13%. The
balance is due September 1, 2000............................................. 11,500,000
RAMADA HOTEL--VANCOUVER
Note payable to Canadian Imperial Bank of Commerce (CIBC), secured by a first
fixed charge against the Hotel. Interest is payable monthly at the CIBC prime
rate plus 1.5%. Principal is due monthly, in accordance with the note, with
the balance due February 28, 2000............................................ 6,780,135
----------
Total...................................................................... $46,196,801
----------
----------
</TABLE>
Aggregate maturities of the above notes payable are as follows:
<TABLE>
<CAPTION>
For the year ended
- ---------------------------------------------------------------
<S> <C>
1997........................................................... $1,122,000
1998........................................................... 1,144,047
1999........................................................... 10,267,515
2000........................................................... 26,210,678
2001........................................................... 479,220
Thereafter..................................................... 6,973,341
----------
Total...................................................... $46,196,801
----------
----------
</TABLE>
(5) CAPITAL LEASE OBLIGATIONS
The Hotels lease certain equipment under various capital leases. The leases
require monthly payments totaling $16,915 including interest ranging between
10.5% to 15.5% per annum, with the final lease maturing in February 2000.
Furniture and equipment includes approximately $430,000 for leases that have
been capitalized.
(6) MANAGEMENT AGREEMENT
Property management for the Doubletree hotel is provided by Double Tree
Partners. The management agreement provides for payment of a management fee of
3% of Total Sales, as defined in the management agreement. In addition, the
management agreement provides for an incentive management fee equal to 15% of
the amount, if any, by which the Net Operating Income, as defined in the
management agreement, for any fiscal year exceeds $420,000. Total management
fees under this agreement were $109,952 for 1996. See note 3 for management
agreements related to the other five hotels.
F-31
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Orange County Airport Hilton (the "Hotel") for the period from January 1,
1996 to February 22, 1996 (date of acquisition by EquiStar Hotel Investors,
L.P.) and the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Hotel's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Orange County Airport Hilton's
operations and its cash flows for the period from January 1, 1996 to February
22, 1996 and the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
April 20, 1996
F-32
<PAGE>
ORANGE COUNTY AIRPORT HILTON
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 22, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Rooms............................................... $ 854,685 4,564,294 3,479,926 3,137,865
Food and beverage................................... 409,200 2,554,156 2,188,612 2,204,286
Other operating departments......................... 48,828 314,723 239,755 183,980
------------ ------------- ------------- -------------
1,312,713 7,433,173 5,908,293 5,526,131
------------ ------------- ------------- -------------
Operating costs and expenses:
Rooms............................................... 254,389 1,302,612 1,009,792 875,825
Food and beverage................................... 346,563 1,882,782 1,617,235 1,543,846
Other operating departments......................... 23,005 147,896 116,224 84,197
Undistributed operating expenses:
Administrative and general.......................... 222,566 1,050,388 1,022,104 869,499
Sales and marketing................................. 126,979 692,052 452,070 449,615
Management fees..................................... 35,000 210,000 197,500 150,000
Property operating costs............................ 96,410 763,258 704,873 691,160
Property taxes, insurance and other................. 57,301 342,177 386,464 467,055
Depreciation and amortization....................... 112,129 832,958 798,442 854,566
Interest expense.................................... 608,294 3,510,997 2,688,580 2,193,590
------------ ------------- ------------- -------------
Total expenses........................................ 1,882,636 10,735,120 8,993,284 8,179,353
------------ ------------- ------------- -------------
Net loss.............................................. $ (569,923) (3,301,947) (3,084,991) (2,653,222)
------------ ------------- ------------- -------------
------------ ------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-33
<PAGE>
ORANGE COUNTY AIRPORT HILTON
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 22, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss................................................. $ (569,923) (3,301,947) (3,084,991) (2,653,222)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization........................ 112,129 832,958 798,442 854,566
Decrease (increase) in accounts receivable........... (56,580) (198,792) (27,765) 203,192
Decrease (increase) in other assets.................. 67,637 (42,736) 26,502 38,421
Increase (decrease) in accounts payable and accrued
expenses........................................... 296,914 540,514 11,866 (12,467)
Increase in accrued interest......................... 358,294 3,010,996 2,568,580 2,167,618
----------- ----------- ----------- -----------
Total adjustments........................................ 778,394 4,142,940 3,377,625 3,251,330
----------- ----------- ----------- -----------
Net cash provided by operating activities.................. 208,471 840,993 292,634 598,108
----------- ----------- ----------- -----------
Cash flows used by investing activities--additions to
hotel.................................................... -- (76,435) (54,925) (17,811)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Repayments of note payable............................... -- (30,099) (55,000) --
Capital distributions.................................... (43,445) (896,802) (274,594) (397,073)
Increase (decrease) in bank overdrafts................... (165,026) 162,343 91,885 (183,224)
----------- ----------- ----------- -----------
Net cash used by financing activities...................... (208,471) (764,558) (237,709) (580,297)
----------- ----------- ----------- -----------
Net increase in cash....................................... -- -- -- --
Cash at beginning of period................................ -- -- -- --
----------- ----------- ----------- -----------
Cash at end of period...................................... $ -- -- -- --
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $ 250,000 500,000 120,000 25,972
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-34
<PAGE>
ORANGE COUNTY AIRPORT HILTON
Notes to Financial Statements
For the period from January 1, 1996 to February 22, 1996
(date of acquisition by EquiStar Hotel Investors, L.P.) and the
years ended December 31, 1995, 1994 and 1993
(1) ORGANIZATION
The Orange County Airport Hilton (the "Hotel") is located near the Orange
County Airport in Irvine, California, approximately 45 miles from Los Angeles.
The Hotel opened in 1976 and was operated under a franchise agreement with
Radisson Hotels International, Inc. during the periods under audit. Since April
1, 1996, the Hotel has been operating as a Hilton. The Hotel has 290 rooms, an
outdoor pool and jacuzzi, fitness center and same day valet service. The dining
facilities include Mimi's Grill and The Promenade Lounge. The Hotel has
approximately 30,000 square feet of meeting space.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounts of the Hotel were included in the financial records of GMY
Investment Company ("GMY"), a limited partnership which owned the Hotel until it
was sold to EquiStar on February 22, 1996 for $19,200,000. The accompanying
statements of operations and cash flows include the accounts of the Hotel only,
as if it were a separate legal entity, and have been prepared using the accrual
basis of accounting.
DEPRECIATION
Depreciation is computed on the cost of hotel property and equipment using
the Modified Accelerated Cost Recovery method over 39 and 31.5 years for the
building and building improvements and over 5 to 7 years for furniture, fixtures
and equipment.
BAD DEBT EXPENSE
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
REVENUE
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
INCOME TAXES
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities were passed through to the individual partners in accordance with
the partnership agreement and the Internal Revenue Code.
USE OF ESTIMATES
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
F-35
<PAGE>
ORANGE COUNTY AIRPORT HILTON
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) INTEREST EXPENSE
GMY entered into a promissory note with an original balance of $19,000,000
in June 1989. Interest accrued at 10% for the first year, and then adjusted to
the Bank of America National Trust and Savings Association prime rate as
announced from time to time. On December 1, 1991, GMY stopped making scheduled
interest and principal payments and the note was in default. From the default
date, interest was computed using the prime rate plus four percentage points on
the outstanding balance plus any accrued interest.
(4) RELATED-PARTY TRANSACTIONS
The Hotel incurred management fees of $35,000, $210,000, $197,500 and
$150,000 for the period from January 1, 1996 to February 22, 1996 and the years
ended December 31, 1995, 1994 and 1993, respectively. The management fees were
paid to an affiliate of the Hotel.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Georgetown Latham Hotel (the "Hotel") for the period from January 1, 1996 to
March 8, 1996 (date of acquisition by EquiStar Hotel Investors, L.P.) and the
years ended December 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the Hotel's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Georgetown Latham Hotel's
operations and its cash flows for the period from January 1, 1996 to March 8,
1996 and the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
April 12, 1996
F-37
<PAGE>
GEORGETOWN LATHAM HOTEL
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 8, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
Rooms.................................................. $ 612,857 3,790,580 3,764,567 3,784,884
Food and beverage...................................... 628,269 3,699,257 3,448,669 3,192,731
Other operating departments............................ 81,116 360,958 419,968 374,672
------------ ------------ ------------ ------------
1,322,242 7,850,795 7,633,204 7,352,287
------------ ------------ ------------ ------------
Operating costs and expenses:
Rooms.................................................. 187,244 1,081,472 1,069,864 1,177,839
Food and beverage...................................... 553,396 3,268,979 3,095,593 3,032,272
Other operating departments............................ 50,228 313,870 272,476 185,028
Undistributed operating expenses:
Administrative and general............................. 110,613 996,666 795,642 663,466
Sales and marketing.................................... 94,903 511,975 478,520 606,068
Management fees........................................ 39,581 235,523 248,270 288,779
Property operating costs............................... 105,258 649,576 672,065 585,158
Property taxes, insurance and other.................... 65,278 328,299 244,123 328,451
Depreciation and amortization.......................... 81,782 674,537 637,614 574,751
Interest expense....................................... 87,771 476,901 5,265 --
------------ ------------ ------------ ------------
1,376,054 8,537,798 7,519,432 7,441,812
------------ ------------ ------------ ------------
Net income (loss)........................................ $ (53,812) (687,003) 113,772 (89,525)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
GEORGETOWN LATHAM HOTEL
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO MARCH 8, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (53,812) (687,003) 113,772 (89,525)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 81,782 674,537 637,614 574,751
Decrease (increase) in accounts receivable.............. (26,055) 43,384 83,943 (305,105)
Decrease (increase) in other assets..................... (29,166) 121,568 (311,111) (184,175)
Increase (decrease) in accounts payable and accrued
expenses.............................................. 165,028 42,727 (384,682) 450,341
Increase in interest payable............................ -- 33,880 5,265 --
---------- ----------- ----------- ----------
Net cash provided by operating activities..................... 137,777 229,093 144,801 446,287
---------- ----------- ----------- ----------
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment............... (18,907) (262,176) -- (276,520)
Proceeds from sale of furniture, fixtures and equipment..... -- -- 91,933 --
---------- ----------- ----------- ----------
Net cash provided (used) by investing activities.............. (18,907) (262,176) 91,933 (276,520)
---------- ----------- ----------- ----------
Cash flows from financing activities:
Principal repayments on capital leases...................... (3,770) (21,857) -- --
Proceeds from note payable.................................. -- -- 4,500,000 --
Principal payments on note payable.......................... (6,849) (35,573) -- --
Advances to affiliate....................................... -- -- (3,825,000) --
Repayments of advances to affiliate......................... -- 3,825,000 -- --
Capital distributions....................................... -- (4,206,759) (593,312) (134,115)
---------- ----------- ----------- ----------
Net cash provided (used) by financing activities.............. (10,619) (439,189) 81,688 (134,115)
---------- ----------- ----------- ----------
Net increase (decrease) in cash............................... 108,251 (472,272) 318,422 35,652
Cash at beginning of year..................................... 32,193 504,465 186,043 150,391
---------- ----------- ----------- ----------
Cash at end of year........................................... $ 140,444 32,193 504,465 186,043
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest...................................... $ 118,085 443,021 -- --
Additions to capital lease obligations...................... -- -- 71,004 --
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-39
<PAGE>
GEORGETOWN LATHAM HOTEL
Notes to Financial Statements
For the period from January 1, 1996 to March 8, 1996
(date of acquisition by EquiStar Hotel Investors, L.P.) and
the years ended December 31, 1995, 1994 and 1993
(1) ORGANIZATION
The Georgetown Latham Hotel (the "Hotel") is located on 3000 M Street in
Washington, D.C. It is close to the Smithsonian, embassies, monuments, the
Kennedy Center and the downtown business district, and caters mainly to tourists
and business travelers. The Hotel has 143 rooms; fine dining in the CITRONELLE
restaurant; meeting and banquet facilities; an outdoor pool; business center;
limousine rental service; and valet parking.
Until 1993, the Hotel was owned by Muben/LCP Hotel Partners, L.P.
("Muben/LCP"), a limited partnership which owned 9 hotels. On October 1, 1993,
LCP Hotel Ventures, L.P., a partner in Muben/LCP ("LCP Ventures"), conveyed its
10% interest in Muben/LCP for 100% ownership of the Hotel.
The Hotel was sold on March 8, 1996 to EquiStar for a purchase price of
$12,000,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounts of the Hotel were included in the financial records of
Muben/LCP and then LCP Ventures, as described above, until the Hotel was sold to
EquiStar. The accompanying statements of operations and cash flows include the
accounts of the Hotel only, as if it were a separate legal entity, and have been
prepared using the accrual basis of accounting.
DEPRECIATION
Depreciation is computed on the cost of the Hotel property and equipment
using the straight-line method over 31.5 years for the building and building
improvements and over five years for furniture, fixtures and equipment.
BAD DEBT EXPENSE
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
REVENUE
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
INCOME TAXES
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities are passed through to the individual partners in accordance with the
partnership agreement and the Internal Revenue Code.
F-40
<PAGE>
GEORGETOWN LATHAM HOTEL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
USE OF ESTIMATES
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) INTEREST EXPENSE
On December 23, 1994, the Hotel obtained financing from CPC Advisors No. 3,
L.L.C. The original note balance was $4,500,000 and had a fixed interest rate of
10.53%. Principal and interest payments were due monthly. The note was scheduled
to mature on December 27, 1999.
(4) RELATED-PARTY TRANSACTIONS
The Hotel was managed by an affiliate of LCP Ventures. For the period from
January 1, 1993 through September 30, 1993 the Hotel incurred management fees of
4% of gross revenue, as defined in the management agreement. For the remainder
of 1993 through March 8, 1996 the Hotel incurred base management fees of 3% and
an incentive management fee equal to 5% of the amount by which the net operating
income exceeds the amount of preferred return, as defined in the management
agreement. Management fees incurred during 1996, 1995, 1994 and 1993 were
$39,581, $235,523, $248,270 and $288,779, respectively. No incentive management
fees were earned.
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Charlotte Sheraton Airport Plaza (the "Hotel") for the period from January
1, 1996 to February 2, 1996 (date of acquisition by EquiStar Hotel Investors,
L.P.) and the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Hotel's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Charlotte Sheraton Airport Plaza's
operations and its cash flows for the period from January 1, 1996 to February 2,
1996 and the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
March 29, 1996
F-42
<PAGE>
CHARLOTTE SHERATON AIRPORT PLAZA
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 2, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue:
Rooms....................................................... $ 404,646 4,353,741 4,279,608 3,764,540
Food and beverage........................................... 330,471 3,136,701 2,698,709 2,625,091
Other operating departments................................. 21,096 609,342 861,007 779,557
---------- ---------- ----------- ----------
756,213 8,099,784 7,839,324 7,169,188
---------- ---------- ----------- ----------
Operating costs and expenses:
Rooms....................................................... 111,163 1,067,053 1,151,114 976,178
Food and beverage........................................... 258,901 2,101,504 1,906,329 1,854,924
Other operating departments................................. 13,740 114,588 82,500 80,354
Undistributed operating expenses:
Administrative and general.................................. 73,487 375,920 263,728 254,309
Sales and marketing......................................... 90,546 922,890 927,186 863,274
Management fees............................................. 22,497 269,689 391,966 358,459
Property operating costs.................................... 67,286 618,771 556,634 519,500
Property taxes, insurance and other......................... 41,126 425,563 404,523 356,690
Depreciation and amortization............................... 49,600 595,522 603,543 587,150
Interest expense............................................ -- 689,563 3,378,933 1,466,088
---------- ---------- ----------- ----------
728,346 7,181,063 9,666,456 7,316,926
---------- ---------- ----------- ----------
Net income (loss)............................................. $ 27,867 918,721 (1,827,132) (147,738)
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
CHARLOTTE SHERATON AIRPORT PLAZA
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO FEBRUARY 2, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ 27,867 918,721 (1,827,132) (147,738)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization........................... 49,600 595,522 603,543 587,150
Decrease (increase) in accounts receivable.............. 70,128 (86,461) (45,518) (44,970)
Increase in intercompany receivable..................... (450,000) (1,444,939) (1,937,634) (263,645)
Decrease (increase) in other assets..................... 50,127 87,415 (5,447) 40,469
Increase (decrease) in accounts payable and accrued
expenses.............................................. (80,687) 165,657 193,488 75,714
Increase in interest payable............................ -- 689,563 3,378,346 92,000
---------- ----------- ----------- ----------
Net cash provided (used) by operating activities.............. (332,965) 925,478 359,646 338,980
---------- ----------- ----------- ----------
Cash flows from investing activities--purchases of furniture,
fixtures and equipment...................................... (57,124) (257,302) (346,957) (133,901)
---------- ----------- ----------- ----------
Cash flows from financing activities--principal payments on
note payable................................................ -- -- -- (203,839)
---------- ----------- ----------- ----------
Net increase (decrease) in cash............................... (390,089) 668,176 12,689 1,240
Cash at beginning of period................................... 712,894 44,718 32,029 30,789
---------- ----------- ----------- ----------
Cash at end of period......................................... 322,805 712,894 44,718 32,029
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest...................................... $ -- -- 587 1,374,088
---------- ----------- ----------- ----------
---------- ----------- ----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
CHARLOTTE SHERATON AIRPORT PLAZA
Notes to Financial Statements
For the period from January 1, 1996 to February 2, 1996
(date of acquisition by EquiStar Hotel Investors, L.P.)
and the years ended December 31, 1995, 1994 and 1993
(1) ORGANIZATION
The Charlotte Sheraton Airport Plaza (the "Hotel") is a 226 room,
full-service hotel located near the Charlotte Douglas International Airport. The
Hotel was constructed in 1985.
The Hotel was owned by Krisch Realty Associates, L.P. ("Krisch Realty")
during 1993, 1994 and through March 7, 1995, when it was conveyed to the lender.
The Hotel was sold on February 2, 1996 to EquiStar for a purchase price of
$18,000,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounts of the Hotel were included in the financial records of Krisch
Realty, which owned the Hotel until it was conveyed to the lender. The
accompanying statements of operations and cash flows include the accounts of the
Hotel only, as if it were a separate legal entity, and have been prepared on the
accrual basis of accounting.
DEPRECIATION
Depreciation is computed on the cost of hotel property and equipment using
the straight-line method over 45 years for the building, 10 years for most
building improvements, and five to eight years for furniture, fixtures and
equipment.
BAD DEBT EXPENSE
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivables and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
REVENUE
Revenue is earned primarily through the operations of the hotel and
recognized when earned.
INCOME TAXES
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities are passed through to the individual partners in accordance with the
Partnership Agreement and the Internal Revenue Code.
USE OF ESTIMATES
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
F-45
<PAGE>
CHARLOTTE SHERATON AIRPORT PLAZA
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) INTEREST EXPENSE
For the period from January 1, 1995 to February 2, 1995, and during 1994 and
1993, financing for the Hotel was provided through a two-tier loan. The first
tier loan, which had an original principal balance of $12,523,925, had an
interest rate of prime plus 1%. Principal and interest payments on the first
tier loan were due monthly. The second tier loan, which had an original
principal balance of $7,444,062, required interest payments based on the Hotel's
cash flow.
During January 1994, the owner ceased making payments on the loan and the
loan went into default. From that point, the first and second tiers of the loan
accrued interest at the default rate of 16% until March 7, 1995, when the Hotel
was conveyed to the lender.
(4) OTHER RELATED-PARTY TRANSACTIONS
Krisch Hotels, Inc. ("Krisch"), an affiliate of the Hotel's owner, managed
the Hotel until March 7, 1995, and charged the Hotel base management fees of 3%
of gross revenues. The Hotel management agreement also provided for incentive
management fees to be paid to Krisch of 10% of net operating income, as defined
in the agreement. After March 7, 1995, the Hotel incurred only base management
fees of 3% of gross revenues. For the period from January 1, 1996 to February 2,
1996, and for 1995, 1994 and 1993, base and incentive management fees incurred
by the Hotel totaled $22,497, $269,689, $391,966 and $358,459, respectively.
F-46
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying statements of operations and cash flows of
the Arlington Hilton Hotel (the "Hotel") for the period from January 1, 1996 to
April 17, 1996 (date of acquisition by EquiStar Hotel Investors, L.P.) and the
years ended December 31, 1995, 1994 and 1993. These financial statements are the
responsibility of the Hotel's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of the Arlington Hilton Hotel's operations
and its cash flows for the period from January 1, 1996 to April 17, 1996 and the
years ended December 31, 1995, 1994 and 1993, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Washington, D.C.
July 18, 1996
F-47
<PAGE>
ARLINGTON HILTON HOTEL
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 17, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.) AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Rooms...................................................... $ 1,907,168 6,309,256 5,875,281 5,453,149
Food and beverage.......................................... 824,816 2,846,102 2,755,550 2,708,330
Other operating departments................................ 195,137 639,420 505,739 553,640
------------ ---------- ---------- ----------
2,927,121 9,794,778 9,136,570 8,715,119
------------ ---------- ---------- ----------
Operating costs and expenses:
Rooms...................................................... 420,844 1,526,054 1,361,027 1,342,080
Food and beverage.......................................... 654,451 2,225,510 2,072,864 2,137,821
Other operating departments................................ 115,854 351,577 301,793 276,276
Undistributed operating expenses:
Administrative and general................................. 250,896 1,044,680 1,347,488 1,252,493
Sales and marketing........................................ 195,671 646,496 510,261 501,991
Management fees............................................ 87,814 313,579 90,998 86,165
Property operating costs................................... 296,643 1,004,445 871,365 1,006,770
Property taxes, insurance and other........................ 160,884 645,504 479,755 475,144
Depreciation and amortization.............................. 242,528 823,414 794,256 794,600
Interest expense........................................... -- 257,494 927,325 337,114
------------ ---------- ---------- ----------
2,425,585 8,838,753 8,757,132 8,210,454
------------ ---------- ---------- ----------
Net income................................................... $ 501,536 956,025 379,438 504,665
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-48
<PAGE>
ARLINGTON HILTON HOTEL
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1996 TO APRIL 17, 1996
(DATE OF ACQUISITION BY EQUISTAR HOTEL INVESTORS, L.P.)
AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ ------------ ---------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 501,536 956,025 379,438 504,665
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization........................ 242,528 823,414 794,256 794,600
Interest added to loan payable to General Partner.... -- -- 18,777 13,482
Decrease (increase) in accounts receivable........... (107,923) 41,059 (9,969) 47,634
Decrease (increase) in inventory and other assets.... (90,676) 110,942 (17,697) 6,803
Decrease (increase) in restricted funds.............. -- 215,868 477,431 (44,462)
Increase (decrease) in accounts payable and accrued
expenses........................................... 120,770 (1,027,915) 284,120 231,758
------------ ------------ ---------- -----------
Total adjustments........................................ 164,699 163,368 1,546,918 1,049,815
------------ ------------ ---------- -----------
Net cash provided by operating activities.................. 666,235 1,119,393 1,926,356 1,554,480
------------ ------------ ---------- -----------
Cash flows used by investing activities--purchase of
furniture and equipment.................................. (15,499) (660,359) (232,583) (178,368)
------------ ------------ ---------- -----------
Cash flows from financing activities:
Principal payments on capital lease obligations.......... (13,442) (41,262) (36,415) (27,314)
Repayments of note payable............................... -- -- (357,390) (1,532,401)
Capital distribution..................................... -- (1,232,055) -- --
------------ ------------ ---------- -----------
Net cash used by financing activities...................... (13,442) (1,273,317) (393,805) (1,559,715)
------------ ------------ ---------- -----------
Net increase (decrease) in cash and cash equivalents....... 637,294 (814,283) 1,299,968 (183,603)
Cash and cash equivalents at beginning of period........... 946,895 1,761,178 461,210 644,813
------------ ------------ ---------- -----------
Cash and cash equivalents at end of period................. $ 1,584,189 946,895 1,761,178 461,210
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
Supplemental disclosure of cash flow information:
Cash paid for interest................................... $ 2,570 13,612 18,459 337,114
Additions to property and equipment through capital
leases................................................. -- -- -- 101,765
Conversion of notes payable to equity.................... -- 19,338,404 -- --
------------ ------------ ---------- -----------
------------ ------------ ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-49
<PAGE>
ARLINGTON HILTON HOTEL
Notes to Financial Statements
For the period from January 1, 1996 to April 17, 1996 (date of acquisition by
EquiStar Hotel Investors, L.P.) and the years ended December 31, 1995, 1994 and
1993
(1) ORGANIZATION
The Arlington Hilton Hotel (the "Hotel") is located near the Dallas/Fort
Worth Airport, adjacent to Six Flags over Texas theme park. The Hotel opened in
1984. The Hotel has 310 rooms, one restaurant, one nightclub/bar, meeting
facilities for up to 400, a business center, an indoor/outdoor pool and a
fitness center.
Until March 7, 1995, the Hotel was owned by Hotel Associates of Arlington
Limited Partnership ("Hotel Associates"). On March 7, 1995, the Hotel was
conveyed through bankruptcy to the holders of the note, Arlington Hotel
Investors, LTD ("Arlington Investors").
The Hotel was sold on April 17, 1996 to EquiStar for a purchase price of
$18,200,000.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounts of the Hotel were included in the financial records of its
various owners until the Hotel was sold to EquiStar. The accompanying statements
of operations and cash flows include the accounts of the Hotel only, as if it
were a separate legal entity, and have been prepared using the accrual basis of
accounting.
BAD DEBT EXPENSE
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivables and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
REVENUE
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
INCOME TAXES
The financial statements contain no provision for federal income taxes since
the Hotel was owned by a partnership and, therefore, all federal income tax
liabilities were passed through to the individual partners in accordance with
the partnership agreement and the Internal Revenue Code.
USE OF ESTIMATES
Management has made a number of estimates and assumptions to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
DEPRECIATION
Depreciation is computed on the cost of the hotel property and equipment
using the straight-line method over 25 years for building and building
improvements, and five years for furniture and equipment.
F-50
<PAGE>
ARLINGTON HILTON HOTEL
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(3) RELATED-PARTY TRANSACTIONS
Prior to March 7, 1995 (the date the lenders took possession of the Hotel),
the Hotel was managed by Capitol Hotel Group, Inc. ("CHG"), an affiliate of the
owners, for a 1% management fee based on gross revenues. For the period from
March 7, 1995 through April 17, 1996 (date of acquisition by EquiStar), the
Hotel was managed by DePalma Hotel Corporation, an affiliate of the lenders, for
a 3% management fee based on gross revenues.
Upon foreclosure on the property, the loan and all related accrued interest
payable to the general partner of Hotel Associates was converted to equity in
the statement of partners' capital.
F-51
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
EquiStar Hotel Investors, L.P.:
We have audited the accompanying balance sheets of Ballston Hotel Limited
Partnership (the "Partnership") as of June 30, 1996 and December 31, 1995 and
1994, and the related statements of operations, partners' deficit, and cash
flows for the six months ended June 30, 1996 and for the years ended December
31, 1995, 1994 and 1993. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ballston Hotel Limited
Partnership as of June 30, 1996 and December 31, 1995 and 1994, and the results
of its operations and its cash flows for the six months ended June 30, 1996 and
for the years ended December 31, 1995, 1994 and 1993, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in note 4 to the
financial statements, the Partnership's note payable to a financial institution
is in default and may be called at any time. This raises substantial doubt about
the Partnership's ability to continue as a going concern. Management's plans in
regard to this matter are also described in note 4. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
KPMG Peat Marwick LLP
Washington, D.C.
July 11, 1996
F-52
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................................. $ 271,215 501,433 98,904
Certificate of deposit................................................ -- 101,833 250,000
Hotel inventory, at cost.............................................. 37,481 51,635 52,794
Accounts receivable:
Trade............................................................... 293,251 174,833 369,961
Affiliates (note 6)................................................. -- -- 757,624
------------- ------------ ------------
Total accounts receivable, net........................................ 293,251 174,833 1,127,585
------------- ------------ ------------
Hotel property (notes 4 and 7):
Land................................................................ 2,073,323 2,073,323 2,073,323
Building, net of accumulated depreciation of $2,192,347 in 1996,
$2,029,714 in 1995 and $1,704,449 in 1994......................... 10,818,285 10,980,918 11,306,183
Furniture, fixtures and equipment, net of accumulated depreciation
of $1,163,947 in 1996, $1,060,156 in 1995 and $854,609 in 1994.... 1,889,117 1,983,728 1,742,714
Initial hotel supplies, net of accumulated amortization of $197,924
in 1996, $183,187 in 1995 and $153,713 in 1994.................... 244,189 258,926 288,400
Conversion costs, net of accumulated amortization of $107,181 in
1996, $98,491 in 1995 and $81,111 in 1994......................... 153,533 162,223 179,603
------------- ------------ ------------
Total hotel property.................................................. 15,178,447 15,459,118 15,590,223
Investment in partnership (note 5).................................... 2,189,989 2,259,061 2,332,760
Other Assets.......................................................... 77,609 131,409 144,842
------------- ------------ ------------
$ 18,047,992 18,679,322 19,597,108
------------- ------------ ------------
------------- ------------ ------------
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses:
Affiliates (note 6)................................................. $ 2,283,784 2,163,011 1,855,114
Trade............................................................... 473,641 338,665 340,846
------------- ------------ ------------
Total accounts payable and accrued expenses........................... 2,757,425 2,501,676 2,195,960
Notes payable (notes 4 and 6):
Financial institution............................................... 17,079,121 17,079,121 17,201,202
Affiliates.......................................................... 1,468,891 2,437,377 3,340,277
------------- ------------ ------------
Total notes payable................................................... 18,548,012 19,516,498 20,541,479
------------- ------------ ------------
Total liabilities..................................................... 21,305,437 22,018,174 22,737,439
Partners' deficit (note 3)............................................ (3,257,445) (3,338,852) (3,140,331)
------------- ------------ ------------
Commitments (notes 4 and 7)...........................................
$ 18,047,992 18,679,322 19,597,108
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Hotel operating revenue:
Room rental................................................ $ 3,173,738 5,820,170 5,408,935 5,116,700
Food and beverage sales.................................... 950,778 2,000,110 2,045,750 1,792,965
Telephone and other........................................ 128,037 303,194 260,190 269,030
------------ ---------- ---------- ----------
Total hotel operating revenue................................ 4,252,553 8,123,474 7,714,875 7,178,695
------------ ---------- ---------- ----------
Hotel operating expenses:
Department expenses........................................ 1,538,843 3,140,757 3,100,077 2,810,690
Energy and engineering..................................... 351,538 602,512 574,578 518,924
Sales and marketing........................................ 327,356 659,284 604,457 629,567
General and administrative (note 6)........................ 458,119 981,849 927,024 907,215
Management fee (note 7).................................... 127,547 243,704 231,446 215,359
Other...................................................... 99,892 138,551 84,534 66,640
------------ ---------- ---------- ----------
Total hotel operating expenses............................... 2,903,295 5,766,657 5,522,116 5,148,395
------------ ---------- ---------- ----------
Income from hotel operations................................. 1,349,258 2,356,817 2,192,759 2,030,300
------------ ---------- ---------- ----------
Fixed charges:
Financial costs (note 6)................................... 739,867 1,571,261 1,438,463 1,327,641
Depreciation and amortization.............................. 290,467 611,645 700,566 723,020
Property insurance and taxes............................... 146,248 266,115 249,394 251,608
Parking costs.............................................. 42,733 99,093 103,057 106,833
------------ ---------- ---------- ----------
Total fixed charges.......................................... 1,219,315 2,548,114 2,491,480 2,409,102
------------ ---------- ---------- ----------
Other income (expense):
Interest income............................................ 8,153 40,169 15,010 12,228
Equity in income of partnership (note 5)................... 15,355 36,510 41,105 31,309
Other...................................................... (72,044) (83,903) (6,908) (80)
------------ ---------- ---------- ----------
Total other income (expense), net............................ (48,536) (7,224) 49,207 43,457
------------ ---------- ---------- ----------
Net income (loss)............................................ $ 81,407 (198,521) (249,514) (335,345)
------------ ---------- ---------- ----------
------------ ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
GENERAL LIMITED
TOTAL PARTNER PARTNERS
------------- --------- -----------
<S> <C> <C> <C>
Balance at December 31, 1992............................................... $ (2,555,472) (46,288) (2,509,184)
Net loss................................................................. (335,345) (3,353) (331,992)
------------- --------- -----------
Balance at December 31, 1993............................................... $ (2,890,817) (49,641) (2,841,176)
Net loss................................................................. (249,514) (2,495) (247,019)
------------- --------- -----------
Balance at December 31, 1994............................................... $ (3,140,331) (52,136) (3,088,195)
Net loss................................................................. (198,521) (1,985) (196,536)
------------- --------- -----------
Balance at December 31, 1995............................................... $ (3,338,852) (54,121) (3,284,731)
Net income............................................................... 81,407 8,141 73,266
------------- --------- -----------
Balance at June 30, 1996................................................... $ (3,257,445) (45,980) (3,211,465)
------------- --------- -----------
------------- --------- -----------
</TABLE>
See accompanying notes to financial statements.
F-55
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1996 1995 1994 1993
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ 81,407 (198,521) (249,514) (335,345)
Adjustments to reconcile net income (loss) to cash provided
(used) by operating activities:
Depreciation and amortization............................ 290,467 611,645 700,566 723,020
Increase (decrease) in provision for doubtful accounts... 397 (8,072) 11,323 (1,375)
Decrease in certificates of deposit...................... 101,833 148,167 -- --
Equity in income of partnership.......................... (15,355) (36,510) (41,105) (31,309)
Decrease (increase) in accounts receivable............... (118,815) 960,824 (789,828) (87,582)
Decrease (increase) in hotel inventory................... 14,154 1,159 (930) (9,997)
Decrease (increase) in other assets...................... 53,800 (20,258) (58,614) 42,031
Increase in accounts payable and accrued expenses........ 255,749 305,716 375,580 320,816
----------- ----------- ---------- ----------
Total adjustments............................................ 582,230 1,962,671 196,992 955,604
----------- ----------- ---------- ----------
Net cash provided (used) by operating activities............... 663,637 1,764,150 (52,522) 620,259
----------- ----------- ---------- ----------
Cash flows from investing activities:
Additions to hotel property.................................. (9,796) (446,849) (133,901) (195,323)
Distributions from investee partnership...................... 84,427 110,209 120,694 204,761
----------- ----------- ---------- ----------
Net cash provided (used) by investing activities............... 74,631 (336,640) (13,207) 9,438
----------- ----------- ---------- ----------
Cash flows from financing activities:
Principal payments on notes payable.......................... (968,486) (1,024,981) (110,072) (818,644)
Borrowings on notes payable.................................. -- -- -- 20,000
----------- ----------- ---------- ----------
Net cash used by financing activities.......................... (968,486) (1,024,981) (110,072) (798,644)
----------- ----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents........... (230,218) 402,529 (175,801) (168,947)
Cash and cash equivalents at beginning of period............... 501,433 98,904 274,705 443,652
----------- ----------- ---------- ----------
Cash and cash equivalents at end of period..................... $ 271,215 501,433 98,904 274,705
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Supplemental disclosure of cash flow information:
Cash paid for interest....................................... $ 619,094 1,263,364 1,135,123 1,120,853
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-56
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 1996 and December 31, 1995 and 1994
(1) ORGANIZATION
Ballston Hotel Limited Partnership (the "Partnership") was formed on January
1, 1988 pursuant to the Commonwealth of Virginia Uniform Limited Partnership
Act. The principal business activity of the Partnership is the development and
operation of a hotel complex as part of the mixed-use Ballston Metro Center
project (the "Project") located in Arlington, Virginia. Ballston Condo Limited
Partnership ("BCLP") and Ballston Office Limited Partnership ("BOLP"),
affiliates of the Partnership, constructed the condominium and office building
components of the Project, respectively.
The hotel opened on October 5, 1989 and operated as the Arlington
Renaissance Hotel at Ballston Metro Center (the "Hotel"). Management intends to
operate the hotel under a franchise agreement with Hilton Hotels Corporation to
be entered into in August 1996.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING RECORDS AND INCOME TAXES
The Partnership maintains its accounting records on the accrual basis for
both financial statement and federal income tax reporting purposes. Federal and
state income taxes accrue to the individual partners; accordingly, no federal
and state income taxes have been provided in the accompanying financial
statements.
BUILDING AND LAND
Contributed land is recorded at the fair value at the date of contribution
as agreed to by the partners. Purchased land and building costs are recorded at
cost. The building is depreciated over 40 years using the straight-line method.
HOTEL FURNITURE, FIXTURES AND EQUIPMENT
Hotel furniture, fixtures and equipment are recorded at cost and are
depreciated over their estimated useful lives using the straight-line method.
INITIAL HOTEL SUPPLIES
Initial hotel supplies required for the Hotel's operations, such as linens,
china, silverware and other expendable supplies, are recorded at cost and are
being amortized over 15 years using the straight-line method. Additional
purchases of linens, china, silverware and other expendable supplies are
expensed when purchased.
CONVERSION COSTS
Conversion costs were incurred to convert the Ramada Hotel into a
Renaissance Hotel. These costs are recorded at cost and are being amortized over
15 years using the straight-line method.
INVESTMENT IN PARTNERSHIP
Investment in partnership is accounted for under the equity method.
Accordingly, the investment is stated at cost and adjusted for the Partnership's
share of earnings or loss and distributions of the investee partnership.
F-57
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
CASH EQUIVALENTS
For financial statement purposes, the Partnership considers investments with
an original maturity date of three months or less to be cash equivalents.
USE OF ESTIMATES
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosures of contingent assets and
liabilities to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from these
estimates.
(3) PARTNERS' DEFICIT AND ALLOCATION OF PROFITS AND LOSSES
All profits and losses are allocated in proportion to each partner's
respective percentage interest in the Partnership as follows:
<TABLE>
<S> <C>
General partner...................................................... 1.0%
Limited partners..................................................... 99.0
---------
100.0%
---------
---------
</TABLE>
(4) NOTES PAYABLE
Notes payable at June 30, 1996 and December 31, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Financial institution--prime rate plus 1% or a LIBOR/CD rate option
note, secured by a first deed of trust on land and improvements of
hotel complex and the shared improvements of the condominium
constructed by BCLP and an assignment of existing and future
revenue derived from the collateral; interest only payable
monthly, principal payable annually, based on 30-year
amortization, with remaining principal and interest due October 5,
1995.............................................................. $ 17,079,121 17,079,121 17,201,202
Limited partner--prime rate plus 2% unsecured note.................. 1,468,891 2,437,377 3,340,277
------------- ------------- -------------
$ 18,548,012 19,516,498 20,541,479
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Ballston Hotel, Inc., the general partner, and IDI, L.C. (formerly IDI
Associates), IDI Financial Associates and Ballston Realty, Inc., affiliates of
the Partnership, jointly and severally guarantee the financial institution note
payable.
The note payable to the financial institution, which matured on October 5,
1995, is in default. The Partnership has been unable thus far to refinance the
note but continues to make the regular monthly interest payments.
Given the status of the note payable with the financial institution and the
nature of the terms of the note payable to the limited partner, management is
unable to determine the fair value of the notes payable.
F-58
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INVESTMENT IN PARTNERSHIP
FINANCIAL STATEMENT SUMMARY
The following is a summary of the assets, liabilities and equity of the
unconsolidated partnership, Ballston Parking Associates ("BPA") as of June 30,
1996 and December 31, 1995 and 1994, and the results of its operations for the
six months ended June 30, 1996 and the years ended December 31, 1995, 1994 and
1993. The unconsolidated partnership was formed primarily to operate the hotel
and office building parking garage of the Project. The Partnership's interest in
the unconsolidated partnership was 35.02%, 35.48% and 35.60% as of June 30, 1996
and December 31, 1995 and 1994, respectively. The percentage of the Partnership
interest in BPA will decrease in accordance with BPA's partnership agreement
based upon the number of parking space easements sold.
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
<S> <C> <C> <C>
1996 1995 1994
--------- --------- ---------
<CAPTION>
<S> <C> <C> <C>
ASSETS
Cash..................................................... $ 1,267 4,263 3,055
Accounts receivable...................................... 29,250 31,200 27,080
Garage property, net of accumulated depreciation......... 4,125,801 4,224,801 4,359,801
Other assets............................................. 4,521 4,521 4,203
--------- --------- ---------
$4,160,839 4,264,785 4,394,139
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND EQUITY
Total accounts payable and accrued liabilities........... $ -- 6,121 7,000
Equity:
The Partnership........................................ 1,443,210 1,501,136 1,552,543
Other partners......................................... 2,717,629 2,757,528 2,834,596
--------- --------- ---------
$4,160,839 4,264,785 4,394,139
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF OPERATIONS
<S> <C> <C> <C> <C>
1996 1995 1994 1993
--------- --------- --------- ---------
<CAPTION>
<S> <C> <C> <C> <C>
Parking revenue........................................ $ 288,562 538,898 520,479 538,047
Loss on sales of parking spaces........................ (9,080) (7,000) (3,329) (20,149)
--------- --------- --------- ---------
Total income........................................... 279,482 531,898 517,150 517,898
Operating expenses..................................... 187,642 353,490 333,542 333,149
--------- --------- --------- ---------
Net income............................................. $ 91,840 178,408 183,608 184,749
--------- --------- --------- ---------
--------- --------- --------- ---------
Equity in net income:
The Partnership...................................... $ 26,501 58,802 63,397 53,601
Other partners....................................... 65,339 119,606 120,211 131,148
--------- --------- --------- ---------
$ 91,840 178,408 183,608 184,749
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NOTE TO CONDENSED FINANCIAL STATEMENTS
Contributed property is recorded at fair value at the date of contribution
as agreed to by the partners.
F-59
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(5) INVESTMENT IN PARTNERSHIP--(CONTINUED)
RECONCILIATION OF INVESTMENT IN PARTNERSHIP AND EQUITY IN INCOME
The following is a reconciliation of the Partnership's investment in
partnership as of June 30, 1996 and December 31, 1995 and 1994 and equity in
income for the six months ended June 30, 1996 and the years ended December 31,
1995, 1994 and 1993, as indicated above, to the amounts reported in the
accompanying financial statements.
<TABLE>
<CAPTION>
INVESTMENT IN PARTNERSHIP EQUITY IN INCOME
------------------------------------ ------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1996 1995 1994 1993
------------ ---------- ---------- --------- --------- --------- ---------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Balance per condensed financial
statements............................. $ 1,443,210 1,501,136 1,552,543 26,501 58,802 63,397 53,601
Adjustment for costs incurred in excess
of agreed-upon basis in property....... 746,779 757,925 780,217 (11,146) (22,292) (22,292) (22,292)
------------ ---------- ---------- --------- --------- --------- ---------
$ 2,189,989 2,259,061 2,332,760 15,355 36,510 41,105 31,309
------------ ---------- ---------- --------- --------- --------- ---------
------------ ---------- ---------- --------- --------- --------- ---------
</TABLE>
(6) RELATED-PARTY TRANSACTIONS
Interest expense of approximately $121,000 in 1996, $308,000 in 1995,
$303,000 in 1994 and $294,000 in 1993 was incurred on note payable to BCA, L.P.,
the limited partner, and are included in financial costs in the accompanying
financial statements. Accrued interest payable of $2,283,784, $2,163,011 and
$1,855,114 as of June 30, 1996 and December 31, 1995 and 1994, respectively, is
recorded as accounts payable to affiliates in the accompanying financial
statements.
The Partnership entered into an agreement with IDI Management, Inc., an
affiliate of the Partnership, to perform administrative services for the Hotel
effective January 1, 1991. The administrative fee is based on 0.5% of the gross
revenues of the Partnership except for any distributions from BPA related to
parking. The Partnership incurred administrative fees of $21,257 in 1996,
$41,952 in 1995, $39,771 in 1994 and $37,103 in 1993. These fees are included in
general and administrative expenses in the accompanying financial statements.
The Partnership has advanced funds to affiliates. Advances outstanding were
$757,624 at December 31, 1994.
(7) COMMITMENTS
HOTEL MANAGEMENT AGREEMENT
The Partnership has entered into a 20-year agreement with Renaissance Hotel
Operating Company ("Renaissance") for the management of the Hotel. The
Partnership has committed to pay the following management fees:
(1) base management fee equal to 3% of the Hotel's gross revenue, as
defined in the agreement, payable monthly;
(2) reservation and advertising fees equal to 4.5% of the Hotel's gross
room revenue, as defined in the agreement, payable monthly; and
F-60
<PAGE>
BALLSTON HOTEL LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) COMMITMENTS--(CONTINUED)
(3) incentive management fee equal to 10% of the Hotel's gross operating
profit, as defined in the agreement, earned and payable annually if certain
cash flow requirements are met.
Base management fees of $127,547 in 1996, $243,704 in 1995, $231,446 in 1994
and $215,359 in 1993 and reservation and advertising fees of $142,818 in 1996,
$261,908 in 1995, $243,402 in 1994 and $230,252 in 1993 were incurred by the
Partnership. No incentive management fees were incurred since none of the cash
flow requirements were met.
F-61
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
CapStar Hotel Company:
We have audited the accompanying combined balance sheets of the Muben Hotels
(the "Hotels") as of September 30, 1996, December 31, 1995 and 1994 and related
combined statements of operations, owners' capital and cash flows for the nine
months ended September 30, 1996 and the years ended December 31, 1995 and 1994.
These combined financial statements are the responsibility of the Hotels'
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Muben
Hotels as of September 30, 1996, December 31, 1995 and 1994, and the results of
their combined operations and their combined cash flows for the nine months
ended September 30, 1996 and the years ended December 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick, LLP
Washington, D.C.
January 10, 1997
F-62
<PAGE>
MUBEN HOTELS
COMBINED BALANCE SHEETS
SEPTEMBER 30, 1996, DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................................ $ 2,540,021 2,100,027 1,795,991
Accounts receivable.............................................. 1,520,016 1,009,479 1,347,062
Inventory and other assets....................................... 1,000,652 1,004,098 1,100,562
-------------- -------------- --------------
Total current assets............................................. 5,060,689 4,113,604 4,243,615
-------------- -------------- --------------
Property and equipment:
Land........................................................... 14,454,496 14,454,496 14,454,496
Building....................................................... 49,190,163 48,816,467 48,792,386
Furniture, fixtures and equipment.............................. 19,744,427 19,968,593 18,993,252
-------------- -------------- --------------
83,389,086 83,239,556 82,240,134
Less -- accumulated depreciation................................. (35,118,050) (32,623,613) (29,307,378)
-------------- -------------- --------------
Total net property and equipment................................. 48,271,036 50,615,943 52,932,756
-------------- -------------- --------------
Total assets..................................................... $ 53,331,725 54,729,547 57,176,371
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND OWNERS' CAPITAL
Accounts payable and accrued expenses............................ $ 3,622,343 2,778,452 3,022,008
Advance deposits................................................. 114,175 41,927 45,436
Intercompany income taxes payable (note 4)....................... 2,485,345 995,677 81,080
-------------- -------------- --------------
Total liabilities................................................ 6,221,863 3,816,056 3,148,524
Owners' capital.................................................. 47,109,862 50,913,491 54,027,847
-------------- -------------- --------------
Total liabilities and owners' capital............................ $ 53,331,725 54,729,547 57,176,371
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to combined financial statements.
F-63
<PAGE>
MUBEN HOTELS
COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND THE YEARS ENDED DECEMBER 31,
1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Revenue:
Rooms...................................................... $ 18,337,641 21,925,991 21,147,009
Food and beverage.......................................... 8,117,806 10,442,474 10,513,519
Other operating departments................................ 1,265,677 1,613,934 1,591,255
------------- ------------- -------------
27,721,124 33,982,399 33,251,783
------------- ------------- -------------
Operating costs and expenses:
Rooms.................................................... 4,513,632 5,751,406 5,673,951
Food and beverage........................................ 6,874,250 9,198,740 9,407,042
Other operating departments.............................. 669,595 904,143 933,992
Undistributed operating expenses:
Administrative and general................................. 2,505,580 3,342,110 3,314,554
Sales and marketing........................................ 1,811,948 2,320,060 2,343,494
Management fees (note 3)................................... 628,182 1,065,175 1,051,710
Property operating costs................................... 3,505,572 4,407,863 4,353,126
Property taxes, insurance and other........................ 993,759 1,390,174 1,519,555
Depreciation and amortization.............................. 2,494,437 3,316,235 4,451,660
------------- ------------- -------------
23,996,955 31,695,906 33,049,084
------------- ------------- -------------
Net income before income taxes............................. 3,724,169 2,286,493 202,699
Income taxes (note 4)...................................... 1,489,668 914,597 81,080
------------- ------------- -------------
Net income................................................. $ 2,234,501 1,371,896 121,619
------------- ------------- -------------
</TABLE>
See accompanying notes to combined financial statements.
F-64
<PAGE>
MUBEN HOTELS
COMBINED STATEMENTS OF OWNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<S> <C>
Balance at December 31, 1993................................................... $55,146,114
Contributions................................................................ 1,485,114
Distributions................................................................ (2,725,000)
Net income................................................................... 121,619
----------
Balance at December 31, 1994................................................... 54,027,847
Contributions................................................................ 215,327
Distributions................................................................ (4,701,579)
Net income................................................................... 1,371,896
----------
Balance at December 31, 1995................................................... 50,913,491
Contributions................................................................ 173,601
Distributions................................................................ (6,211,731)
Net income................................................................... 2,234,501
----------
Balance at September 30, 1996.................................................. $47,109,862
----------
----------
</TABLE>
See accompanying notes to combined financial statements.
F-65
<PAGE>
MUBEN HOTELS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND
THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 2,234,501 1,371,896 121,619
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization.................................... 2,494,437 3,316,235 4,451,660
Decrease (increase) in accounts receivable....................... (510,537) 337,583 (77,086)
Decrease in inventory and other assets........................... 3,446 96,464 22,741
Decrease in notes receivable..................................... -- -- 100,000
Increase (decrease) in accounts payable and accrued expenses..... 843,891 (243,556) (312,119)
Increase (decrease) in advance deposits.......................... 72,248 (3,509) (10,866)
Increase in intercompany income taxes payable.................... 1,489,668 914,597 81,080
------------- ----------- -----------
Total Adjustments.................................................... 4,393,153 4,417,814 4,255,410
------------- ----------- -----------
Net cash provided by operating activities.............................. 6,627,654 5,789,710 4,377,029
------------- ----------- -----------
Cash flows from investing activities--purchases of furniture and
equipment............................................................ (149,530) (999,422) (2,285,579)
------------- ----------- -----------
Cash flows from financing activities:
Capital contributions................................................ 173,601 215,327 1,485,114
Capital distributions................................................ (6,211,731) (4,701,579) (2,725,000)
------------- ----------- -----------
Net cash used by financing activities.................................. (6,038,130) (4,486,252) (1,239,886)
------------- ----------- -----------
Net increase in cash and cash equivalents.............................. 439,994 304,036 851,564
Cash and cash equivalents at beginning of period....................... 2,100,027 1,795,991 944,427
------------- ----------- -----------
Cash and cash equivalents at end of period............................. $ 2,540,021 2,100,027 1,795,991
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
See accompanying notes to combined financial statements.
F-66
<PAGE>
MUBEN HOTELS
NOTES TO COMBINED FINANCIAL STATEMENTS
SEPTEMBER 30,1996, DECEMBER 31,1995 AND 1994
(1) ORGANIZATION
The combined financial statements consist of five hotels which are part of
MBL Life Assurance Corporation. This portfolio of hotels is known as the Muben
Hotels (the "Hotels"). Two of the hotels are in California (Sacramento Hilton
and Santa Barbara Inn); one is in Louisiana (Lafayette Hilton), one is in
Colorado (Holiday Inn) and the other is in Washington, D.C. (Embassy Row).
CapStar Hotel Company purchased the Hotels for approximately $68,400,000 on
December 17, 1996.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounts of the Hotels are included in the financial records of the MBL
Life Assurance Corporation. The accompanying combined financial statements
include the accounts of the Hotels only, as if they were a separate legal
entity, and have been prepared using the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
The Hotels consider all highly liquid instruments with an original maturity
date of three months or less to be cash equivalents.
INVENTORIES
Inventories, consisting primarily of china, tableware, linens and food and
beverage items, are stated at cost, using the first-in, first-out ("FIFO")
method of inventory valuation.
PROPERTY AND EQUIPMENT
Property and equipment are reflected in the balance sheets at their fair
value at the time of contribution. Depreciation is computed on the buildings and
building improvements using the straight-line method over their useful lives of
18 to 39 years. Furniture, fixtures and equipment are depreciated using the
straight-line method over five years.
BAD DEBT EXPENSE
Bad debt expense is accounted for using the allowance method. Management
reviews the aging of accounts receivable and other current information on
debtors to establish an allowance for doubtful accounts. Write-offs occur when
management deems a receivable uncollectible.
REVENUE
Revenue is earned primarily through the operations of the Hotel and
recognized when earned.
INCOME TAXES
The accounts of the Hotels are included in the financial records of the MBL
Life Assurance Corporation and therefore the Hotels were not subject to income
taxes on a separate basis. For purposes of these financial statements, the
Hotels have calculated their tax provision on the separate return basis to
approximate tax expense as if they were a separate legal entity.
F-67
<PAGE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
USE OF ESTIMATES
Management has made a number of estimates and assumptions to prepare these
combined financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(3) RELATED-PARTY TRANSACTIONS
All of the Hotels, except for Embassy Row, are managed by CapStar Hotel
Company. The hotels managed by CapStar Hotel Company paid base management fees
based on gross revenue plus incentive management fees if the hotels' operating
results exceeded levels specified in the management contract. These four hotels
incurred management fees of $563,455 in 1996; $926,737 in 1995; $929,013 in
1994; and $1,008,719 in 1993.
CapStar Hotel Company began managing Embassy Row on September 25, 1996.
(4) INCOME TAXES
The Hotels' income tax expense is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ --------- ---------
<S> <C> <C> <C>
Federal........................................................................ $ 1,151,118 706,741 62,653
State and local................................................................ 338,550 207,856 18,427
------------ --------- ---------
$ 1,489,668 914,597 81,080
------------ --------- ---------
------------ --------- ---------
</TABLE>
The "expected" tax expense, based on the U.S. federal statutory rate of 34%
for each of the periods above, differs from the actual tax expense, calculated
at an effective rate of 40%, due to state and local taxes, net of federal tax
benefit.
The Hotels' deferred tax assets and liabilities are insignificant to these
financial statements and are therefore not presented.
F-68
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or any of the
Underwriters. This Prospectus does not constitute an offer of any securities
other than those to which it relates or an offer to sell, or a solicitation of
an offer to buy, to any person in any jurisdiction where such an offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
the information contained herein is correct as of any time subsequent to its
date.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 11
Use of Proceeds................................. 17
Price Range of Common Stock..................... 17
Dividend Policy................................. 17
Capitalization.................................. 18
Selected Financial and Other Data............... 19
Unaudited Pro Forma Financial Statements........ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 24
The Company..................................... 28
Recent Developments............................. 29
Business and Properties......................... 31
The Operating Partnership....................... 41
Management...................................... 42
Principal Stockholders and Selling
Stockholder................................... 50
Certain Relationships and Related
Transactions.................................. 51
Shares Available for Future Sale................ 52
Description of Capital Stock.................... 53
Underwriting.................................... 56
Legal Matters................................... 57
Experts......................................... 57
Special Note Regarding Forward-Looking
Statements.................................... 57
Additional Information.......................... 57
</TABLE>
5,000,000 Shares
[LOGO]
Common Stock
--------------------
PROSPECTUS
, 1997
----------------------
LEHMAN BROTHERS
BT SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable in connection
with the Offering of the Common Stock being registered hereby, other than
underwriting discounts and commissions. All the amounts shown are estimates,
except the Securities and Exchange Commission registration fee and the NASD
filing fee. All of such expenses are being borne by the Company.
<TABLE>
<S> <C>
SEC Registration Fee............................................ $ 41,600
NASD Filing Fee................................................. 14,228
NYSE Listing Fee................................................
Blue Sky Fees and Expenses......................................
Accounting Fees and Expenses....................................
Legal Fees and Expenses.........................................
Printing and Engraving Expenses.................................
Registrar and Transfer Agent's Fees.............................
Miscellaneous Fees and Expenses.................................
Total....................................................... $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware Law permits a provision in the certificate
of incorporation of each corporation organized thereunder, eliminating or
limiting, with certain exceptions, the personal liability of a director to the
corporation or its stockholders for monetary damages for certain breaches of
fiduciary duty as a director. The Certificate of Incorporation of the Company
eliminates the personal liability of directors to the fullest extent permitted
by the Delaware Law.
Section 145 of the Delaware Law ("Section 145"), in summary, empowers a
Delaware corporation, within certain limitations, to indemnify its officers,
directors, employees and agents against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by them in connection with any suit or proceeding other than by or on
behalf of the corporation, if they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to a criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful.
With respect to actions by or on behalf of the corporation, Section 145
permits a corporation to indemnify its officers, directors, employees and agents
against expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit, provided such
person meets the standard of conduct described in the preceding paragraph,
except that no indemnification is permitted in respect of any claim where such
person has been found liable to the corporation, unless the Court of Chancery or
the court in which such action or suit was brought approves such indemnification
and determines that such person is fairly and reasonably entitled to be
indemnified.
Article Eight of the Certificate of Incorporation of the Company provides
for the indemnification of officers and directors and certain other parties (the
"Indemnitees") of the Company to the fullest extent permitted under the Delaware
Law; provided, that except in the case of proceedings to enforce rights to
indemnification, the Company shall indemnify such Indemnitee in connection with
a proceeding initiated by such Indemnitee only if such proceeding was authorized
by the Board.
The Underwriting Agreement provides for indemnification by the Underwriters
of the Company, its directors and officers, and persons who control the Company
within the meaning of Section 15 of the Securities Act for certain liabilities,
including liabilities arising thereunder.
II-1
<PAGE>
Each of the employment agreements described in "Management--Employment
Agreements" contains provisions entitling the executive to indemnification for
losses incurred in the course of service to the Company or its subsidiaries,
under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 29, 1996, the Company issued 100 shares of Common Stock to Cherwell
Investors, Inc., a wholly-owned subsidiary of Acadia Partners, for nominal
consideration. The shares were issued without registration under the Securities
Act pursuant to the exemption from registration afforded by Section 4(2) of the
Securities Act and the rules and regulations promulgated thereunder.
On June 20, 1996, the Company entered into a Formation Agreement pursuant to
which it became obligated to issue 3,504,221 shares of Common Stock to the
beneficial owners of EquiStar and CapStar Management. In August 1996, in
connection with the IPO, the Company issued 3,504,221 shares of Common Stock to
such beneficial owners. Such issuances were made without registration under the
Securities Act pursuant to exemptions from registration afforded by Section 4(2)
of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<S> <C> <C>
1*** -- Form of U.S. Underwriting Agreement
3.1.1* -- Amended and Restated Certificate of Incorporation of the Company
3.1.2* -- Amendment to Amended and Restated Certificate of Incorporation
3.1.3* -- Second Amendment to Amended and Restated Certificate of Incorporation
3.2* -- By-laws of the Company
4.1* -- Specimen Common Stock certificate
4.2.1** -- Senior Secured Revolving Credit Agreement, dated as of September 24, 1996,
among CapStar Management, the Company, the lenders party thereto and Bankers
Trust
4.2.2*** -- Amendment to Senior Secured Revolving Credit Agreement, dated as of December
13, 1996, among CapStar Management, the Company, the lenders party thereto
and Bankers Trust
4.3 -- Senior Subordinated Credit Agreement, dated December 13, 1996, among CapStar
Management, the Company, the lenders party thereto and Bankers Trust
5*** -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
10.1* -- Form of Registration Rights Agreement
10.2*** -- Acquisition Agreement, dated as of February 13, 1997, among the Company,
CapStar Management, Highgate Hotels and the several other parties thereto
10.3* -- Form of Employment Agreement between the Company and Paul W. Whetsell
10.4* -- Form of Employment Agreement between the Company and David E. McCaslin
10.5* -- Form of Employment Agreement between the Company and William M. Karnes
10.6* -- Form of Employment Agreement between the Company and John E. Plunket
10.7* -- Form of Amended and Restated Agreement of Limited Partnership of CapStar
Management
10.8*** -- First Amendment to Amended and Restated Agreement of Limited Partnership of
CapStar Management
10.9* -- Form of Equity Incentive Plan of the Company
10.10* -- Form of Employee Stock Purchase Plan of the Company
21 -- List of Subsidiaries of the Company
23.1 -- Consent of KPMG Peat Marwick LLP
23.2*** -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5)
23.3 -- Consent of Mahmood Khimji to be named as proposed director
24 -- Power of Attorney (see signature pages)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
27 -- Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-6583), filed with the Securities and Exchange Commission
on June 21, 1996, as amended
** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1996
*** To be filed by Amendment
(b) Financial Statement Schedules.
Schedule 28, Real Estate and Accumulated Depreciation, is set forth on page
F-17 of the Prospectus.
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to its Certificate of Incorporation, By-laws, the Underwriting
Agreement or otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Washington, District of
Columbia, on the 19th day of February, 1997.
CAPSTAR HOTEL COMPANY
By: /s/ PAUL W. WHETSELL
------------------------------------
Name: Paul W. Whetsell
Title: President and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul W. Whetsell and William M. Karnes, such
person's true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement or any Registration
Statement filed pursuant to Rule 462 under the Securities Act of 1933, and to
file the same with all exhibits thereto, and the other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and the foregoing Power of Attorney have been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- -------------------------------------- --------------------
<S> <C> <C>
/s/ PAUL W. WHETSELL President, Chief Executive Officer and February 19, 1997
- ---------------------------------------- Chairman of the Board (Principal
Paul W. Whetsell Executive Officer)
/s/ DAVID E. MCCASLIN Chief Operating Officer and Director February 19, 1997
- ----------------------------------------
David E. McCaslin
/s/ WILLIAM M. KARNES Senior Executive Vice President, February 19, 1997
- ---------------------------------------- Finance and Chief Financial Officer
William M. Karnes (Principal Financial and Accounting
Officer)
/s/ DANIEL L. DOCTOROFF Director February 19, 1997
- ----------------------------------------
Daniel L. Doctoroff
/s/ BRADFORD E. BERNSTEIN Director February 19, 1997
- ----------------------------------------
Bradford E. Bernstein
/s/ JOSEPH MCCARTHY Director February 19, 1997
- ----------------------------------------
Joseph McCarthy
/s/ WILLIAM S. JANES Director February 19, 1997
- ----------------------------------------
William S. Janes
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------------- -------------------------------------- --------------------
<S> <C> <C>
/s/ EDWARD L. COHEN Director February 19, 1997
- ----------------------------------------
Edward L. Cohen
/s/ EDWIN T. BURTON, III Director February 19, 1997
- ----------------------------------------
Edwin T. Burton, III
/s/ EDWARD P. DOWD Director February 19, 1997
- ----------------------------------------
Edward P. Dowd
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENTS
- ----------- ------------------------------------------------------------------------------------------------
<S> <C> <C>
1*** -- Form of U.S. Underwriting Agreement
3.1.1* -- Amended and Restated Certificate of Incorporation of the Company
3.1.2* -- Amendment to Amended and Restated Certificate of Incorporation
3.1.3* -- Second Amendment to Amended and Restated Certificate of Incorporation
3.2* -- By-laws of the Company
4.1* -- Specimen Common Stock certificate
4.2.1** -- Senior Secured Revolving Credit Agreement, dated as of September 24, 1996, among CapStar
Management, the Company, the lenders party thereto and Bankers Trust
4.2.2*** -- Amendment to Senior Secured Revolving Credit Agreement, dated as of December 13, 1996, among
CapStar Management, the Company, the lenders party thereto and Bankers Trust
4.3 -- Senior Subordinated Credit Agreement, dated December 13, 1996, among CapStar Management, the
Company, the lenders party thereto and Bankers Trust
5*** -- Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
10.1* -- Form of Registration Rights Agreement
10.2** -- Acquisition Agreement, dated as of February 13, 1997, among the Company, CapStar Management,
Highgate Hotels and the several other parties thereto
10.3* -- Form of Employment Agreement between the Company and Paul W. Whetsell
10.4* -- Form of Employment Agreement between the Company and David E. McCaslin
10.5* -- Form of Employment Agreement between the Company and William M. Karnes
10.6* -- Form of Employment Agreement between the Company and John E. Plunket
10.7* -- Form of Amended and Restated Agreement of Limited Partnership of CapStar Management
10.8*** -- First Amendment to Amended and Restated Agreement of Limited Partnership of CapStar Management
10.9* -- Form of Equity Incentive Plan of the Company
10.10* -- Form of Employee Stock Purchase Plan of the Company
21 -- List of Subsidiaries of the Company
23.1 -- Consent of KPMG Peat Marwick LLP
23.2*** -- Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in Exhibit 5)
23.3 -- Consent of Mahmood Khimji to be named as proposed director
24 -- Power of Attorney (see signature pages)
27 -- Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (File No. 333-6583), filed with the Securities and Exchange Commission
on June 21, 1996, as amended
** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1996
*** To be filed by Amendment
<PAGE>
================================================================================
SENIOR SUBORDINATED CREDIT AGREEMENT
DATED AS OF DECEMBER 13, 1996
AMONG
CAPSTAR MANAGEMENT COMPANY, L.P.,
AS BORROWER,
CAPSTAR HOTEL COMPANY,
AS GUARANTOR,
THE LENDERS PARTY HERETO
AND
BANKERS TRUST COMPANY,
AS ARRANGER AND AGENT
================================================================================
<PAGE>
CAPSTAR MANAGEMENT COMPANY, L.P.
CAPSTAR HOTEL COMPANY
CREDIT AGREEMENT
TABLE OF CONTENTS
Page
SECTION 1 INTERPRETATION.......................................... 1
1.1 Certain Defined Terms................................... 2
1.2 Accounting Terms; Utilization of GAAP for Purposes
of Calculations Under Agreement; Pro Forma............ 45
1.3 References to Articles, Sections, Exhibits, Schedules
and Attachments....................................... 46
1.4 Captions................................................ 46
1.5 Drafter................................................. 46
1.6 References to Persons Include Permitted Successors
and Assigns........................................... 46
1.7 References to Applicable Law and Contracts.............. 47
1.8 Herein.................................................. 47
1.9 Including Without Limitation............................ 47
1.10 Gender.................................................. 47
1.11 Singular and Plural..................................... 47
1.12 Knowledge............................................... 47
SECTION 2 AMOUNTS AND TERMS OF COMMITMENTS AND LOANS.............. 48
2.1 Commitments; Loans; Notes; the Register................. 48
A. Commitments....................................... 48
B. Notice of Borrowing............................... 48
C. Disbursement of Funds............................. 49
D. The Register...................................... 50
E. Extension of Maturity Date........................ 50
2.2 Interest on the Loans................................... 52
A. Rate of Interest.................................. 52
B. Interest Periods.................................. 53
C. Interest Payments................................. 53
D. Conversion/Continuation........................... 54
E. Default Rate Interest............................. 54
F. Computation of Interest........................... 55
2.3 Fees.................................................... 55
2.4 Repayments and Prepayments; General Provisions
Regarding Payments.................................... 55
A. Scheduled Payments of the Loans................... 55
-i-
<PAGE>
Page
B. Prepayments and Termination of Commitments........ 55
C. Application of Payments to Principal and Interest. 56
D. General Provisions Regarding Payments............. 56
2.5 Use of Proceeds......................................... 57
A. Loans............................................. 57
B. Margin Regulations................................ 57
2.6 Special Provisions Governing Eurodollar Rate Loans...... 58
A. Determination of Applicable Interest Rate......... 58
B. Inability to Determine Applicable Interest Rate... 58
C. Illegality or Impracticability of Eurodollar Rate
Loans........................................... 58
D. Compensation For Breakage or Non-Commencement
of Interest Periods............................. 59
E. Booking of Eurodollar Rate Loans.................. 60
F. Assumptions Concerning Funding of Eurodollar
Rate Loans...................................... 60
2.7 Increased Costs; Taxes; Capital Adequacy................ 60
A. Compensation for Increased Costs and Taxes........ 60
B. Withholding of Taxes.............................. 61
C. Capital Adequacy Adjustment....................... 63
2.8 Obligation of the Lenders to Mitigate................... 64
2.9 Acquisition of Properties............................... 64
A. Acquisition and Addition of Pool A Properties..... 64
B. Acquisition of Pool B Properties.................. 65
C. Atlanta Property.................................. 66
2.10 Sales of Pool A Properties.............................. 66
SECTION 3 CONDITIONS PRECEDENT.................................... 67
3.1 Conditions to Closing Date and Effectiveness
of Commitments........................................ 67
A. Corporate Documents............................... 67
B. Partnership and LLC Documents..................... 68
C. Financial Statements; Certificates................ 69
D. No Material Adverse Effect........................ 69
E. Opinions of the Borrower's Counsel................ 69
F. Solvency Certificate.............................. 69
G. Amendment to the Senior Credit Agreement.......... 69
H. No Adverse Litigation............................. 70
I. Contingent Obligations............................ 70
J. Payment of Fees and Expenses...................... 70
(ii)
<PAGE>
Page
K. Completion of Proceedings......................... 70
L. Other Documents................................... 70
3.2 Conditions to the Loans on the Funding Date............. 70
A. Notice of Borrowing............................... 71
B. Other Conditions Precedent........................ 71
SECTION 4 REPRESENTATIONS AND WARRANTIES.......................... 72
4.1 Organization, Powers, Qualification, Good Standing,
Business and Subsidiaries............................. 72
A. Organization and Powers........................... 72
B. Qualification and Good Standing................... 73
C. Conduct of Business............................... 73
D. Subsidiaries...................................... 73
E. Acquisitions...................................... 73
4.2 Authorization of Borrowing, etc......................... 74
A. Authorization of Borrowing........................ 74
B. No Conflict....................................... 74
C. Governmental Consents............................. 74
D. Binding Obligation................................ 75
E. Valid Issuance of Common Stock.................... 75
F. New York Stock Exchange Listing................... 75
4.3 Financial Condition; Contingent Obligations............. 75
A. Financial Condition............................... 75
B. Contingent Obligations............................ 76
4.4 Properties; Agreements; Licenses........................ 76
A. Title to Properties; Liens........................ 76
B. Pool A Ground Leases.............................. 76
C. Pool B Documents.................................. 77
D. Management Agreements............................. 77
E. Servicing Agreements.............................. 77
F. Franchise Agreements.............................. 77
G. Material Leases................................... 77
H. Liquor Licenses................................... 78
4.5 Litigation; Adverse Facts............................... 78
4.6 Taxes................................................... 78
A. Payment of Taxes.................................. 78
B. Classification as a Partnership................... 79
4.7 Performance of Agreements; Materially Adverse
Agreements............................................ 79
(iii)
<PAGE>
Page
4.8 Governmental Regulation; Securities Activities.......... 79
4.9 Employee Benefit Plans.................................. 80
A. ERISA............................................. 80
B. ERISA Event....................................... 80
C. Unfunded Benefit Liabilities...................... 80
D. Potential Withdrawal Liability.................... 80
4.10 Certain Fees............................................ 81
4.11 Solvency................................................ 81
4.12 Disclosure.............................................. 81
4.13 Zoning; Authorizations.................................. 82
A. Zoning............................................ 82
B. Authorizations.................................... 82
4.14 Physical Condition; Encroachment; Capital Expenditures.. 83
A. Physical Condition; Encroachment.................. 83
B. Capital Expenditures.............................. 83
4.15 Insurance............................................... 83
4.16 Leases.................................................. 83
4.17 No Condemnation or Casualty............................. 84
4.18 Utilities and Access.................................... 84
4.19 Intellectual Property................................... 84
A. Ownership......................................... 84
B. No Adverse Claims................................. 85
4.20 Wetlands................................................ 85
4.21 Labor Matters........................................... 85
4.22 Employment and Labor Agreements......................... 86
SECTION 5 AFFIRMATIVE COVENANTS................................... 86
5.1 Financial Statements and Other Reports.................. 86
5.2 Common Stock............................................ 93
5.3 Corporate Existence; Corporate Separateness etc......... 93
A. Corporate Existence............................... 93
B. Financial Matters................................. 93
C. Independent Business.............................. 93
D. Business Dealings................................. 94
5.4 Taxes and Claims; Tax Consolidation..................... 94
A. Taxes and Claims.................................. 94
B. Tax Consolidation................................. 95
5.5 Maintenance of Properties; Repair....................... 95
5.6 Inspection.............................................. 95
(iv)
<PAGE>
Page
5.7 Compliance with Laws, Authorizations, etc............... 95
5.8 Performance of Loan Documents and Acquisition Agreements 96
A. Loan Documents.................................... 96
B. Acquisition Agreements............................ 96
5.9 Insurance............................................... 96
5.10 Casualty and Condemnation; Restoration.................. 96
A. Notice of Casualty................................ 96
B. Notice of Condemnation............................ 97
C. Reduction of Borrowing Base; Payment of
Release Price................................... 97
5.11 Management of Properties................................ 97
SECTION 6 NEGATIVE COVENANTS...................................... 98
6.1 Indebtedness............................................ 98
6.2 Liens and Related Matters...............................101
A. Prohibition on Liens..............................101
B. Equitable Lien in Favor of Lenders................101
C. No Further Negative Pledges.......................101
D. No Restrictions on Subsidiary Distributions
to the Borrower or Other Subsidiaries...........102
6.3 Investments and Certain Capital Expenditures............102
6.4 Contingent Obligations..................................105
6.5 Restricted Junior Payments..............................107
6.6 Financial Covenants.....................................108
A. Maximum Consolidated Total Indebtedness...........108
B. Minimum Interest Coverage.........................108
C. Maximum Total Debt Leverage Ratio.................109
6.7 Fundamental Changes.....................................110
6.8 Zoning and Contract Changes and Compliance..............111
6.9 No Joint Assessment; Separate Lots......................112
6.10 Transactions with Affiliated Persons....................112
6.11 Sales and Lease-Backs...................................112
6.12 Sale or Discount of Receivables.........................114
6.13 Ownership of Subsidiaries...............................114
6.14 Conduct of Business; Restrictions on Operations
in Canada.............................................114
A. Conduct of Business...............................114
B. Restrictions on Operations in Canada..............115
6.15 Properties..............................................115
(v)
<PAGE>
Page
A. Acquisition of Properties.........................115
B. Transfer of Properties............................115
C. Certain Transfers of Properties...................115
D. Certain Casualties or Takings of Properties.......116
6.16 Renovation Expenditures.................................117
6.17 Management Agreements and Servicing Agreements..........117
6.18 Intellectual Property; Franchise Agreements.............118
A. Intellectual Property...............................118
B. Franchise Agreements................................118
6.19 Material Leases.........................................118
6.20 Changes in Certain Obligations and Documents;
Issuance of Equity Securities.........................118
A. Credit Agreement..................................118
B. CapStar Preferred Stock...........................119
C. Equity Securities.................................119
D. Organization Documents............................119
E. Pool A Ground Leases..............................120
F. Franchise Agreements..............................120
G. Servicing Agreements; Management Agreements.......120
H. Atlanta Documents; MBL Acquisition Documents......121
6.21 Fiscal Year.............................................121
SECTION 7 EVENTS OF DEFAULT; REMEDIES.............................121
7.1 Events of Default.......................................121
A. Failure to Make Payments When Due.................121
B. Default in Other Agreements.......................121
C. Breach of Certain Covenants.......................122
D. Breach of Warranty................................122
E. Invalidity of Loan Document; Repudiation
of Obligations..................................122
F. Pool A Ground Leases..............................122
G. Pool B Obligations................................123
H. Prohibited Transfers..............................123
I. Other Defaults Under Loan Documents...............123
J. Involuntary Bankruptcy; Appointment of
Receiver, etc...................................123
K. Voluntary Bankruptcy; Appointment of
Receiver, etc...................................124
L. Judgments and Attachments.........................124
(vi)
<PAGE>
Page
M. Dissolution.......................................124
N. Employee Benefit Plans............................124
O. Material Adverse Effect...........................125
P. Change in Control.................................125
PAGE
Q. Employment of Paul W. Whetsell....................125
R. Franchise Agreements..............................126
7.2 Certain Remedies........................................126
SECTION 8 SUBORDINATION...........................................128
8.1 Obligations Subordinated to Senior Indebtedness
of the Borrower.......................................128
8.2 Priority and Payment Over of Proceeds in Certain Events.128
A. Subordination on Dissolution, Liquidation or
Reorganization of the Borrower....................128
B. Subordination on Default of Senior Indebtedness...128
C. Rights and Obligations of the Lenders.............129
8.3 Payments May Be Paid Prior to Dissolution...............130
8.4 Rights of Holders of Senior Indebtedness of the
Borrower Not To Be Impaired...........................131
8.5 Subrogation.............................................132
8.6 Obligations of the Borrower Unconditional...............132
8.7 Lenders Authorize Agent to Effectuate Subordination.....133
8.8 Rights of Agent.........................................133
8.9 Indefeasible Payment....................................134
SECTION 9 MISCELLANEOUS...........................................134
9.1 Assignments and Participations in Loans.................134
A. General...........................................134
B. Participations....................................135
C. Assignments to Federal Reserve Banks..............135
D. Information.......................................135
9.2 Expenses................................................135
9.3 Indemnity...............................................136
A. Indemnity.........................................136
B. Procedure.........................................138
C. Contribution......................................138
D. No Limitation.....................................139
E. No Enlargement....................................139
9.4 No Joint Venture or Partnership.........................139
(vii)
<PAGE>
Page
9.5 Ratable Sharing.........................................140
9.6 Amendments and Waivers..................................140
9.7 Independence of Covenants...............................141
9.8 Notices.................................................141
9.9 Survival of Representations, Warranties and Agreements..141
9.10 Agent's or Lenders' Discretion; Successor Agents........142
9.11 Obligations Several; Independent Nature of the
Lenders' Rights.......................................142
9.12 Remedies of the Borrower................................142
9.13 Marshalling; Payments Set Aside.........................143
9.14 Severability............................................143
9.15 Headings................................................143
9.16 Applicable Law..........................................143
9.17 Successors and Assigns..................................144
9.18 Consent to Jurisdiction and Service of Process..........144
9.19 Waiver of Jury Trial....................................145
9.20 Counterparts; Effectiveness.............................145
9.21 Material Inducement.....................................146
9.22 Entire Agreement........................................146
9.23 Confidentiality.........................................146
9.24 Maximum Amount..........................................147
SECTION 10 AGENT...................................................148
10.1 Appointment.............................................148
10.2 Powers and Duties; General Immunity.....................148
A. Powers; Duties Specified..........................148
B. No Responsibility for Certain Matters.............148
C. Exculpatory Provisions............................149
D. Agent Entitled to Act as Lender...................149
10.3 Representations and Warranties; No Responsibility For
Appraisal of Creditworthiness...........................150
10.4 Right to Indemnity......................................150
10.5 Successor Agent.........................................150
10.6 Guaranties..............................................151
(viii)
<PAGE>
PAGE
EXHIBITS
I FORM OF NOTE
II FORM OF NOTICE OF BORROWING
III FORM OF NOTICE OF CONTINUATION
IV FORM OF COMPLIANCE CERTIFICATE
V FORM OF SENIOR SUBORDINATED CAPSTAR GUARANTY
VI FORM OF SENIOR SUBORDINATED AFFILIATE GUARANTY
VII FORMS OF OPINIONS OF LOAN PARTIES' COUNSEL
VIII FORM OF SOLVENCY CERTIFICATE
(ix)
<PAGE>
PAGE
SCHEDULES
1.1A MBL PROPERTIES
2.1A LENDERS' COMMITMENTS AND PRO RATA SHARES
4.1A ORGANIZATION AND CAPITALIZATION
4.1B GOOD STANDING
4.2C GOVERNMENT CONSENTS
4.3B CONTINGENT OBLIGATIONS
4.4A1 POOL A PROPERTIES
4.4A2 POOL B PROPERTIES
4.4B POOL A GROUND LEASES
4.4C POOL B DOCUMENTS
4.4D MANAGEMENT AGREEMENTS AND ESTOPPELS
4.4E SERVICING AGREEMENTS
4.4F FRANCHISE AGREEMENTS
4.4G MATERIAL LEASES
4.4H LIQUOR LICENSES
4.5 LITIGATION
4.7 CERTAIN CONTRACTUAL OBLIGATIONS
4.13A ZONING
4.14B REQUIRED CAPITAL EXPENDITURES
4.15 INSURANCE
4.19A INTELLECTUAL PROPERTY
4.20 WETLANDS
4.22 EMPLOYMENT AND LABOR AGREEMENTS
5.1 FORM OF FINANCIAL STATEMENT
6.2 PERMITTED ENCUMBRANCES
6.10 AFFILIATE TRANSACTIONS
(x)
<PAGE>
SENIOR SUBORDINATED CREDIT AGREEMENT
This SENIOR SUBORDINATED CREDIT AGREEMENT is dated as of December 13, 1996
and entered into among CAPSTAR MANAGEMENT COMPANY, L.P., a Delaware limited
partnership (the "BORROWER"), CAPSTAR HOTEL COMPANY, a Delaware corporation
("CAPSTAR"), THE LENDERS LISTED ON THE SIGNATURE PAGES HEREOF (individually
referred to herein as a "LENDER" and collectively as the "LENDERS") and BANKERS
TRUST
COMPANY ("BANKERS"), as arranger and agent for the Lenders (in such capacity,
the "AGENT").
R E C I T A L S
A. CapStar is the sole general partner of the Borrower, and CapStar LP
Corporation, a Delaware corporation and a Wholly-Owned Subsidiary of CapStar
("CAPSTAR SUB"), is the sole limited partner of the Borrower.
B. The Borrower, CapStar and their Subsidiaries desire that the Lenders
provide a senior subordinated term loan facility to the Borrower, the proceeds
of which will be used for the acquisition of upscale full service hotels in the
United States of America and, to the extent permitted herein, Canada.
C. CapStar, Capstar Sub and the Subsidiaries of the Borrower that are Loan
Parties (as hereinafter defined) desire to guaranty the obligations of the
Borrower under this Agreement on a senior subordinated basis.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, CapStar, the Borrower, the Lenders
and the Agent agree as follows:
SECTION 1
INTERPRETATION
This Agreement and the other Loan Documents shall be construed and
interpreted in accordance with this Section 1.
<PAGE>
1.1 CERTAIN DEFINED TERMS.
The following terms used in this Agreement and the other Loan Documents
shall have the following meanings when used herein with initial capital letters:
"ACADIA" means Acadia Partners, L.P., a Delaware limited partnership.
"ACQUISITION" means any acquisition by the Borrower or any of its Wholly
Owned Subsidiaries of any fee or, to the extent permitted herein, leasehold
interest in any hotel property.
"ACQUISITION AGREEMENTS" means, collectively, the agreements entered into
by the Borrower and any of its Subsidiaries in connection with an Acquisition by
(i) the Borrower or a Wholly Owned Subsidiary pursuant to subsection 2.9A or
(ii) by a Wholly Owned Subsidiary of the Borrower pursuant to subsection 2.9B.
"ADDITIONAL POOL A PROPERTY" has the meaning assigned to that term in
subsection 2.9A.
"ADDITION DATE" means the following:
(i) with respect to any Pool A Property listed on Schedule 4.4A1
annexed hereto and with respect to any Pool B Property listed on Schedule
4.4A2 annexed hereto, the Closing Date; and
(ii) with respect to any Additional Pool A Property or any Pool B
Property acquired after the Closing Date in accordance with subsection
2.9, the latest to occur of (a) the date on which the Acquisition of such
Property is consummated and (b) the date on which all the conditions to
such Acquisition set forth in subsection 2.9A or 2.9B, as the case may be,
shall have been satisfied with respect to such Property.
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination Date
with respect to a Eurodollar Rate Loan, the rate per annum obtained by DIVIDING
(i)(a) the Eurodollar offered rate for deposits with maturities comparable to
the Interest Period for which such Adjusted Eurodollar Rate will apply as of
approximately 10:00 A.M. (New York time) on such Interest Rate Determination
Date as set forth on Telerate Page 4756 (or such other page as may, in the
opinion of the Agent, replace such page for the purpose of displaying such rate)
or (b) if such rate does not appear on Telerate Page 4756 (or such other page,
as the case may be) on such Interest Rate Determination Date, the per annum rate
(rounded upward to the nearest 1/16 of 1%)
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at which deposits in Dollars are offered by the Agent to first-class banks
in the New York interbank market, in an amount closest to the amount of the
Agent's relevant Eurodollar Rate Loan and having a maturity closest to such
Interest Period, at approximately 10:00 A.M. (New York time) on such Interest
Rate Determination Date BY (ii) a percentage equal to 100% MINUS the stated
maximum rate of all reserve requirements (including any marginal, emergency,
supplemental, special or other reserves) applicable on such Interest Rate
Determination Date to any member bank of the Federal Reserve System in respect
of "Eurocurrency liabilities" as defined in Regulation D (or any successor
category of liabilities under Regulation D).
"AFFECTED LENDER" has the meaning assigned to that term in subsection
2.6C.
"AFFECTED LOANS" has the meaning assigned to that term in subsection 2.6C.
"AFFILIATE" means with respect to any Person, any other Person directly or
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise.
"AFFILIATE GUARANTY" means the Senior Subordinated Affiliate Guaranty by
each Loan Party (other than CapStar and the Borrower) and any other Subsidiary
of CapStar (other than the Borrower) that becomes a party thereto, substantially
in the form of EXHIBIT VI annexed hereto, as such Senior Subordinated Affiliate
Guaranty may be amended, restated, supplemented or otherwise modified from time
to time in accordance with the terms thereof and hereof.
"AGENT" has the meaning assigned to that term in the introduction to this
Agreement and also means and includes any successor Agent hereunder.
"AGREEMENT" means this Senior Subordinated Credit Agreement dated as of
the date first written above among CapStar, the Borrower, the Lenders and the
Agent, as it may be amended, restated, supplemented or otherwise modified from
time to time.
"APPLICABLE BASE RATE MARGIN" means, as of any date of determination, a
per annum rate equal to 3.00%.
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"APPLICABLE EURODOLLAR RATE MARGIN" means, as of any date of
determination, a per annum rate equal to 4.00%.
"APPLICABLE LAWS" means, collectively, all statutes, laws, rules,
regulations, ordinances, orders, decisions, writs, judgments, decrees and
injunctions of Governmental Authorities (including Environmental Laws) affecting
the Borrower or any other Loan Party, whether now or hereafter enacted and in
force, and all Authori zations relating thereto, and all covenants, conditions
and restrictions contained in any instruments, either of record or known to the
Borrower or any other Loan Party, at any time in force affecting any Property or
any part thereof, including any such covenants, conditions and restrictions
which may (i) require improvements, repairs or alterations in or to such
Property or any part thereof or (ii) in any way limit the use and enjoyment
thereof.
"APPRAISAL" means, with respect to any Property, a written appraisal of
such Property prepared by an Appraiser and requested by, or delivered to, the
Senior Representative pursuant to the Senior Credit Agreement.
"APPRAISER" means CB Commercial Real Estate Group, Inc. or any other
independent appraiser who is a member of the Appraisal Institute with a national
practice and who has at least 10 years experience with real estate of the same
type as the Property to be appraised.
"APPRAISED VALUE" means, as of any date of determination and with respect
to any Property, the lesser of (i) the appraised value of such Property, in each
case as most recently determined by an Appraisal on or before such date of
determination and (ii) the maximum aggregate principal amount secured by the
mortgage (if any) delivered under the Senior Credit Agreement and applicable to
such Property, as such principal amount shall be modified or supplemented from
time to time in accordance with the terms of the Senior Credit Agreement.
"ATLANTA AIRPORT PROPERTY" means the real property, together with all
Improvements thereon and all fixtures attached thereto and all personal property
used in connection therewith, located at 4736 Best Road, Atlanta, Georgia and
known, as of the date of this Agreement, as the Westin Hotel Atlanta Airport.
"ATLANTA AIRPORT SUB" means Lepercq Atlanta Renaissance Partners, L.P., a
limited partnership.
"ATLANTA GP" means EquiStar Atlanta GP Company, L.L.C., a Delaware limited
liability company.
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"ATLANTA LP" means EquiStar Atlanta LP Company, L.L.C., a Delaware limited
liability company.
"ATLANTA MORTGAGE" means that certain Amended and Restated Deed to Secure
Debt, Assignment of Leases and Rents and Security Agreement dated as of August
23, 1996 executed by the Atlanta Airport Sub in favor of the Borrower and
assigned to the agent under the Senior Credit Agreement, as amended, restated,
supplemented or otherwise modified from time to time to the extent permitted
therein.
"ATLANTA NOTE" means that certain Consolidated and Amended and Restated
Note dated as of August 23, 1996 executed by the Atlanta Airport Sub in the
original principal amount of $23,609,456, as such note may be amended, restated,
supplemented or otherwise modified from time to time to the extent permitted
therein and herein.
"ATLANTA PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement
of Limited Partnership dated as of June 11, 1987 of LePercq Atlanta Renaissance
Parties, LP, as such agreement may be further amended, restated, supplemented or
otherwise modified from time to time.
"ATTRIBUTABLE ECONOMIC INTEREST" means, with respect to any Person as of
any date of determination, the number of shares of Capital Stock of any entity
of which such Person is the record owner PLUS the total number of shares that
such Person would be entitled to receive upon the distribution to such Person by
such entity, pro rata with respect to ownership interests of such entity (and
without regard to any liabilities of such entity), of all shares of which such
Person is deemed to be the beneficial owner but of which other Persons are the
record owners.
"ATTRIBUTABLE INDEBTEDNESS" means, when used with respect to any sale and
leaseback transaction with respect to which the lease is not accounted for as a
Capital Lease, as of any date of determination, the greater of (i) the
unamortized portion (determined on a level pay basis over the term of the lease)
of an amount equal to 85% of the gross purchase price for the property subject
to such transaction; PROVIDED that in connection with any sale to a real estate
investment trust, the amount calculated pursuant to this clause (i) shall be net
of any security deposit required to be established with the proceeds of such
purchase price; and (ii) the present value (discounted at 10% per annum,
compounded on a monthly basis) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such arrangement
(including any period for which such lease has been extended), as each such
amount shall be reasonably determined by the Borrower and certified to the Agent
in an Officers' Certificate of the Borrower, together with the information
utilized by the Borrower to make such determination; PROVIDED, HOWEVER, that if
the applicable
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lease specifies the amount of a termination fee, liquidated damages or other
maximum amount that is payable by the lessee upon a termination (for whatever
reason) of the lease by the lessor or the lessee prior to the scheduled
termination of the base term or any extension thereof, the amount calculated
pursuant to this definition shall not exceed such maximum amount.
"AUTHORIZATION" means any authorization, approval, franchise, license,
variance, land use entitlement, sewer and waste water discharge permit, storm
water discharge permit, air pollution authorization to operate, certificate of
occupancy, municipal water and sewer connection permit, and any like or similar
permit now or hereafter required for the construction or Renovation of any
Improvements located on any Property or for the use, occupancy or operation of
any Property and all amendments, modifications, supplements and addenda thereto.
"BANKERS" has the meaning assigned to that term in the introduction to
this Agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"BASE RATE" means, at any time, the rate per annum that is the higher of
(i) of the Prime Rate and (ii) the sum of (a) the Federal Funds Effective Rate
PLUS (b) 1/2 of 1.00%.
"BASE RATE LOANS" means any portion of the Loans bearing interest at rates
determined by reference to the Base Rate as provided in subsection 2.2A.
"BORROWER" has the meaning assigned to that term in the introduction to
this Agreement.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day which
is a legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such state are authorized or required by law or
other governmental action to close.
"CAPITAL EXPENDITURES" means, with respect to any Property, for any period
and as of any date of determination, the sum of (i) 4.0% of Property Gross
Revenues from such Property for such period, PROVIDED that, with respect to any
Property at which a Renovation costing more than $1,000,000 (as evidenced by
written documentation reasonably satisfactory in form and substance to the
Agent) has been completed during the 12 consecutive month period ending on the
last day of the
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month immediately preceding the applicable date of determination, such
percentage shall be 3.00% for the period from the Addition Date to the first
anniversary of such Addition Date; PLUS (ii) the aggregate amount, if any, in
excess of 4.0% of Property Gross Revenues which is required to be paid,
deposited or reserved by the Borrower or any of its Subsidiaries in respect of
such Property for Capital Items pursuant to the Pool B Obligations or any
applicable Ground Lease for such period.
"CAPITAL ITEMS" means, with respect to any Property for any period and as
of any date of determination, the cost of capital repairs and replacements of
all or any portion of the Improvements or any other portion of such Property,
including (i) costs of tenant improvements and brokerage commissions payable in
connection with lease transactions at any Property, (ii) costs of environmental
audits and monitoring, environmental remediation work or any other costs and
expenses incurred with respect to compliance with Environmental Laws, (iii)
costs of any Restoration, (iv) costs of any Renovation, (v) costs of FF&E, (vi)
costs of appraisals, valuations, title insurance and inspections and (vii) any
other costs incurred in connection with the Properties that are not included in
Operating Expenses, in each case to the extent such costs would be capitalized
on a balance sheet in accordance with GAAP.
"CAPITAL LEASE" means, with respect to any Person, the lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"CAPITAL STOCK" means, with respect to any Person, any capital stock,
partner ship, limited liability company or joint venture interests of such
Person and shares, interests, participations or other ownership interests
(however designated) of any Person and any rights (other than debt securities
convertible into any of the foregoing), warrants or options to purchase any of
the foregoing.
"CAPSTAR" has the meaning assigned to that term in the recitals to this
Agreement.
"CAPSTAR GUARANTY" means the Senior Subordinated CapStar Guaranty by
CapStar, substantially in the form of EXHIBIT V annexed hereto, as such Senior
Subordinated CapStar Guaranty may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof and
hereof.
"CAPSTAR SUB" has the meaning assigned to that term in the recitals to
this Agreement.
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"CASH AVAILABLE FOR DEBT SERVICE" means, with respect to any Pool B
Subsidiary for any period and as of any date of determination, an amount equal
to Property EBITDA with respect to the Properties owned by such Pool B
Subsidiary, as the same shall be determined based upon the financial statements
for such Properties for such period and such other information with respect
thereto that may be provided by the Loan Parties and their respective
Subsidiaries, subject to such adjustments as may reasonably be required by the
Agent so that Property EBITDA with respect to such Properties shall be
calculated in the same manner as Property EBITDA with respect to Pool A
Properties owned by the Loan Parties and their respective Subsidiaries during
the entire period (it being understood that any adjustments required by the
agent under the Senior Credit Agreement (so long as same is in effect) shall be
given effect for purposes of this Agreement); PROVIDED, HOWEVER, that for
purposes of the calculation of Property EBITDA under this definition of Cash
Available for Debt Service with respect to any Property for any period,
Operating Expenses shall include (i) franchise and marketing fees of not less
than 7.5% of revenues from room rentals for such period in the event such
Property is subject to a Franchise Agreement, (ii) not less than 7.0% of
Property Gross Revenues for marketing expenses in the event such Property is not
subject to a Franchise Agreement, (iii) all Management Fees in respect of each
such Property payable to the Borrower but in no event less than 3.0% of Property
Gross Revenues in respect of such Property and (iv) and a reserve for Capital
Items in an amount not less than 4.0% of Property Gross Revenues in respect of
each such Property (except to the extent that higher reserves are required by a
franchisor under any applicable Franchise Agreement).
"CASH EQUIVALENTS" means, as of any date of determination, (i) marketable
securities (a) issued or directly and unconditionally guaranteed as to interest
and princi pal by the United States of America or (b) issued by any agency of
the United States of America the obligations of which are backed by the full
faith and credit of the United States of America, in each case maturing within
one year after such date; (ii) market able direct obligations issued by any
state of the United States of America or any politi cal subdivision of any such
state or any public instrumentality thereof, in each case maturing within one
year after such date and having, at the time of the acquisition thereof, the
highest rating obtainable from either S&P or Moody's; (iii) commercial paper
maturing no more than one year from the date of creation thereof and having, at
the time of the acquisition thereof, a rating of at least A-1 from S&P or at
least P-1 from Moody's; (iv) Eurodollar deposits due within one year of any
commercial bank whose outstanding senior long-term debt securities are rated
either A- or higher by S&P or A-3 or higher by Moody's; (v) repurchase
obligations with a term of not more than 7 days for underlying securities of the
types described in clause (i) of this paragraph with any bank meeting the
qualifications specified in clause (vi) of this paragraph; (vi) certificates of
deposit or bankers' acceptances maturing within one year
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after such date and issued or accepted by any Lender or by any commercial bank
organized under the laws of the United States of America or any state thereof or
the District of Columbia that (a) is at least "adequately capitalized" (as
defined in the regulations of its primary Federal banking regulator) and (b) has
Tier 1 capital (as defined in such regulations) of not less than $100,000,000;
and (vii) shares of any money market mutual fund that (a) has at least 95% of
its assets invested continuously in the types of investments referred to in
clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000,
and (c) has the highest rating obtainable from either S&P or Moody's.
"CASH PROCEEDS" means, with respect to any sale or other disposition or
refinancing of any Property, cash payments received from such sale or
disposition or refinancing.
"CLOSING DATE" means the first date on which each of the conditions set
forth in subsection 3.1 are satisfied.
"COMMITMENT" means the commitment of a Lender to make its Loan to the
Borrower pursuant to subsection 2.1A, and "COMMITMENTS" means such commitments
of all Lenders in the aggregate.
"COMMON STOCK" means the common stock of CapStar, par value $.01 per
share.
"COMPLIANCE CERTIFICATE" means a certificate delivered to the Agent by the
Borrower pursuant to subsection 5.1(iv) substantially in the form attached as
EXHIBIT IV hereto.
"CONDEMNATION PROCEEDS" means all compensation, awards, damages, rights of
action and proceeds awarded to any Loan Party or any of its Subsidiaries by
reason of any Taking.
"CONSOLIDATED EBITDA" means, for any period, the remainder of the
following:
(i) the sum, without duplication, of (a) Total Property EBITDA for
such period PLUS (b) all revenue of CapStar and its Subsidiaries for such
period, determined on a consolidated basis in conformity with GAAP, that
was not included in the calculation of Total Property EBITDA for such
period irrespec tive of whether such revenue relates to the Properties,
including, without limitation and without duplication, (1) Management Fees
with respect to Properties that shall have been included in the
calculation of Operating
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Expenses for such period and (2) payments received by CapStar and its
Subsidiaries in respect of Interest Rate Agreements; PROVIDED that the
calculation of the amount referred to in this clause (i) shall exclude (v)
income expressly excluded from the definition of Property Gross Revenue,
(w) income resulting from the write-up of the value of assets, (x) income
from interest earned on notes and receiv ables from affiliates except to
the extent actually received, (y) the income of a Joint Venture and income
accounted for by the equity method of accounting, in each case except to
the extent distributed to CapStar or any of its Subsidiaries, and
increases or decreases in earnings attributable to minority interests and
(z) the income of any Person acquired in a pooling of interests
transaction before the date of acquisition; MINUS
(ii) all expenses, without duplication, of CapStar and its
Subsidiaries (to the extent not deducted from the calculation of Total
Property EBITDA) for such period and determined on a consolidated basis in
accordance with GAAP, whether or not such expenses relate to the
Properties; PROVIDED that the calculation of the amount referred to in
this clause (ii) shall exclude any expense related to the charge off of
amounts referred to in clause (i) above previously recognized as revenue.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest
expense (including that portion attributable to Capital Leases in accordance
with GAAP and capitalized interest) of CapStar and its Subsidiaries, determined
on a consolidated basis in accordance with GAAP, with respect to all outstanding
Indebtedness of CapStar and its Subsidiaries, including, without limitation, all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing and net costs under Interest Rate
Agreements.
"CONSOLIDATED NET INCOME" means, with respect to any Person as of any date
of determination and for any period, the aggregate Net Income of such Person and
its Subsidiaries, on a consolidated basis, determined in accordance with GAAP,
from the first day of such period to the last day of the calendar quarter ending
not less than 30 days before such date of determination for which the Agent has
received the financial statements pursuant to subsection 5.1(ii); PROVIDED, that
(i) the Net Income of any Person that is not a Subsidiary or that is accounted
for by the equity method of account ing shall be excluded, whether or not
distributed to CapStar or one of its Subsidiaries, (ii) the Net Income of any
Person that is a Subsidiary and that is restricted from declar ing 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 any
Person or a Wholly Owned
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Subsidiary of any Person and (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.
"CONSOLIDATED TOTAL INDEBTEDNESS" means, as of any date of determination,
the sum of the following, without duplication: (i) all Indebtedness of CapStar
and its Subsidiaries, determined on a consolidated basis; PLUS (ii) all
Contingent Obligations of CapStar and its Subsidiaries to make any Investments
or Guaranties; PLUS (iii) all Guaranties of CapStar or any of its Subsidiaries;
PLUS (iv) the Letter of Credit Usage MINUS the sum of (a) the Letter of Credit
Usage with respect to letters of credit issued for the account of CapStar or any
of its Subsidiaries and supporting other Indebtedness of CapStar or any of its
Subsidiaries PLUS (b) the amount of cash deposited and held pursuant to the
terms of any collateral account agreement under the Senior Credit Agreement;
PLUS (v) Attributable Indebtedness.
"CONTINGENT OBLIGATION" means, with respect to any Person, as of any date
of determination and without duplication, any direct or indirect liability,
contingent or otherwise, of that Person which has not been (or to the extent
that it has not been) paid or otherwise discharged with respect to the
following: (i) any Guaranty; (ii) any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings; or (iii) performance, surety and similar bonds in respect of any
Restoration, Renovation or other design, construction, restoration, renovation,
expansion or repair of any Improvements, in each case with respect to any
Property or other hotel property; PROVIDED that Contingent Obligations shall not
include (x) other performance, surety and appeal bonds provided in the ordinary
course of business consistent with past practices, (y) indemnification or
contribution obligations in respect of agreements providing for indemnification,
adjustment of purchase price or similar obligations or for Guaranties or letters
of credit, surety bonds and performance bonds securing any obligations of the
Borrower or any of its Subsidiaries pursuant to such agreements, in any case
incurred in connection with the acquisition or Transfer of a business, asset or
Subsidiary (other than Guaranties of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or Subsidiary for the
purpose of financing such acquisition), and (z) indemnification obligations with
respect to environmental matters and "bad deeds" and other actions (other than
the payment of any Indebtedness, Contingent Obligation, Guaranty or other
monetary liability) in connection with Indebtedness, Management Agreements,
Servicing Agreements, service contracts, Leases, partnerships, agreements,
Franchise Agreements, leases, licensing agreements and Ground Leases, in each
case on customary terms consistent with industry practice and to the extent that
such Indebtedness or agreements are not prohibited by this Agreement and (iv)
obligations of the type set forth in clauses (i) - (iii) above and all
Indebtedness owed
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either by any partnership of which such Person is a general partner or by any
limited liability company of which such Person is a member and with respect to
which Indebtedness such Person has liability under law or by agreement. The
amount of any Contingent Obligation, as of any date of determination, shall be
equal to the least of (x) the amount of the obligation so Guaranteed or that
otherwise may be required to be paid, (y) the amount to which such Contingent
Obligation is expressly limited and (z) except with respect to a Guaranty of
Indebtedness, the maximum exposure under such Contingent Obligation as
reasonably calculated by the Borrower and approved by the Agent in its sole
discretion.
"CONTRACTUAL OBLIGATION" means, with respect to any Person, any provision
of any Security issued by that Person or of any material indenture, mortgage,
deed of trust, deed to secure debt, contract, lease, purchase order,
undertaking, agreement or other instrument to which that Person is a party or by
which it or any of its properties is bound or to which it or any of its
properties is subject, including, with respect to CapStar or any of its
Subsidiaries, any provision of the Related Documents to which CapStar or such
Subsidiary is a party or by which it or any of its properties is bound or to
which it or any of its properties is subject.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap
agreement, futures contract, option contract, synthetic cap or other similar
agreement or arrangement designed to protect CapStar or any of its Subsidiaries
against fluctua tions in currency values.
"DESIGNATED POOL A PROPERTIES" means, as of any date of determination, the
Pool A Properties other than the Removed Pool A Properties.
"DEVELOPMENT" means the erection or other construction or installation of
Improvements on real property that is then substantially unimproved or from
which all or substantially all of the existing Improvements thereon have been
removed or in connection with such erection, construction or installation will
be removed; PROVIDED that Development does not include (x) Restorations and
Renovations and (y) the erection or other construction or installation of
Improvements on real property that is contiguous with a Property and in
connection with the expansion of Improvements at such Property.
"DOLLARS" and the sign "$" mean the lawful money of the United States of
America.
"EAC" means EquiStar Acquisition Corporation, a Delaware corporation.
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"ELIGIBLE ASSIGNEE" means (i) (a) a commercial bank organized under the
laws of the United States of America or any state thereof; (b) a savings and
loan association or savings bank organized under the laws of the United States
of America or any state thereof; (c) a commercial bank organized under the laws
of any other country or a political subdivision thereof; PROVIDED, HOWEVER, that
(x) such bank is acting through a branch or agency located in the United States
of America or (y) such bank is organ ized under the laws of a country that is a
member of the Organization for Economic Cooperation and Development or a
political subdivision of such country; and (d) any other entity which is an
"accredited investor" (as defined in Regulation D under the Securities Act)
which extends credit or buys loans as one of its principal businesses including,
but not limited to, insurance companies, investment banks, mutual funds,
investment partnerships and lease financing companies, in each case (under
clauses (a) through (d) above) that is reasonably acceptable to the Agent; and
(ii) any Lender and any Affiliate of any Lender; PROVIDED FURTHER, HOWEVER, that
each Eligible Assignee under clauses (i)(a) through (i)(c) above shall have Tier
1 capital (as defined in the regulations of its primary Federal banking
regulator) of not less than $100,000,000.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in
Section 3(3) of ERISA which (i) is currently maintained or contributed to by
CapStar, any of its Subsidiaries, or any of their respective ERISA Affiliates,
or (ii) was at any time within the preceding five years maintained or
contributed to by CapStar, any of its Subsidiaries, or any of their respective
ERISA Affiliates to the extent any of them could reasonably be expected to incur
liability with respect to such employee benefit plan.
"ENVIRONMENTAL CLAIM" means any accusation, allegation, notice of
violation, claim, demand, abatement order or other order or direction
(conditional or otherwise) by any Governmental Authority or any other Person for
any damage, including personal injury (including sickness, disease or death),
tangible or intangible property damage, contribution, indemnity, indirect or
consequential damages, damage to the environment, damage to natural resources,
nuisance, pollution, contamination or other adverse effects on the environment,
or for fines, penalties or restrictions, in each case relating to, resulting
from or in connection with Hazardous Materials and relating to CapStar, any of
its Subsidiaries (including any Person who was a Subsidiary prior to the Closing
Date) or any Property.
"ENVIRONMENTAL LAWS" means all statutes, laws, ordinances, orders, rules,
regulations, written guidelines, writs, judgments, decrees or injunctions and
the like relating to (i) environmental matters, including those relating to
fines, injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries result
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ing from the Hazardous Release or threatened Hazardous Release of Hazardous
Materials, (ii) the generation, use, storage, transportation or disposal of
Hazardous Materials, or (iii) occupational safety and health, industrial
hygiene, or the protection of human, plant or animal health or welfare, in any
manner applicable to any Loan Party or any of its Subsidiaries or any of their
properties, including the Comprehensive Environmental Response, Compensation,
and Liability Act (42 U.S.C. ss.ss. 9601, ET SEQ.), the Hazardous Materials
Transportation Act (49 U.S.C. ss.ss. 1801, ET SEQ.), the Resource Conservation
and Recovery Act (42 U.S.C. ss.ss. 6901, ET SEQ.), the Federal Water Pollution
Control Act (33 U.S.C. ss.ss. 1251, ET SEQ.), the Clean Air Act (42 U.S.C.
ss.ss. 7401, ET SEQ.), the Toxic Substances Control Act (15 U.S.C. ss.ss. 2601,
ET SEQ.), the Solid Waste Disposal Act (42 U.S.C. ss.ss. 6901, ET SEQ.), as
amended by the Resource Conservation and Recovery Act (42 U.S.C. ss.ss. 6901, ET
SEQ.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. ss.ss.
136, ET SEQ.), the OccupatioNal Safety and Health Act (29 U.S.C. ss.ss. 651, ET
SEQ.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C.
ss.ss. 11001, ET SEQ.), each as amended or supplemented, and rules and
regulations, policies and guidelines promulgated pursuant thereto and any
analogous future or present local, state and federal statutes and rules and
regulations, policies and guidelines promulgated pursuant thereto, each as in
effect as of the date of determination.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor thereto.
"ERISA AFFILIATE" means, with respect to any Person, (i) any corporation
which is, or was at any time, a member of a controlled group of corporations
within the meaning of Section 414(b) of the Internal Revenue Code of which that
Person is a member; (ii) any trade or business (whether or not incorporated)
which is a member of a group of trades or businesses under common control within
the meaning of Sec tion 414(c) of the Internal Revenue Code of which that Person
is a member; and (iii) any member of an affiliated service group within the
meaning of Section 414(m) or (o) of the Internal Revenue Code of which that
Person, any corporation described in clause (i) above or any trade or business
described in clause (ii) above is a member. Any former ERISA Affiliate of any
Loan Party or any of its Subsidiaries shall continue to be considered an ERISA
Affiliate of such Loan Party or such Subsidiary, within the meaning of this
definition with respect to the period during which such entity was an ERISA
Affiliate of such Loan Party or such Subsidiary and with respect to liabilities
arising after such period for which such Loan Party or such Subsidiary could be
liable under the Internal Revenue Code or ERISA.
"ERISA EVENT" means (i) a "reportable event" within the meaning of Sec
tion 4043 of ERISA and the regulations issued thereunder with respect to any
Pension
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Plan (excluding those for which the provision for 30-day notice to the PBGC has
been waived by regulation), (ii) the failure to meet the minimum funding
standard of Sec tion 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan, in the case of any such failure, by a material amount, (iii)
the provision by the administrator of any Pension Plan pursuant to Sec tion
4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress
termination described in Section 4041(c) of ERISA, (iv) the withdrawal by any
Loan Party, any of its Subsidiaries or any of their respective ERISA Affiliates
from any Pension Plan with two or more contributing sponsors or the termination
of any such Pension Plan resulting in liability pursuant to Section 4063 or 4064
of ERISA, (v) the institution by the PBGC of proceedings to terminate any
Pension Plan, or the occur rence of any event or condition which might
constitute grounds under ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan, (vi) the imposition of liability on any
Loan Party or any of its Subsidiaries or any of their respective ERISA
Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the
application of Section 4212(c) of ERISA, (vii) the withdrawal by any Loan Party
or any of its Subsidiaries or any of their respective ERISA Affiliates in a
complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of
ERISA) from any Multiemployer Plan if there is any potential material liability
therefor, or the receipt by any Loan Party or any of its Subsidiaries or any of
their respective ERISA Affiliates of notice from any Multiemployer Plan that it
is in reorganization or insolvency pur suant to Section 4241 or 4245 of ERISA,
or that it intends to terminate or has terminated under Section 4041A or 4042 of
ERISA, (viii) the occurrence of an act or omission which could give rise to the
imposition on any Loan Party or any of its Subsidiaries or any of their
respective ERISA Affiliates of material fines, penalties, taxes or related
charges under Chapter 43 of the Internal Revenue Code or under Sec tion 409 or
Section 502(c)(2), (i) or (l), or Section 4071 of ERISA in respect of any
Employee Benefit Plan, (ix) the assertion of a material claim (other than
routine claims for benefits) against any Employee Benefit Plan other than a
Multiemployer Plan or the assets thereof, or against any Loan Party or any of
its Subsidiaries or any of their respective ERISA Affiliates in connection with
any such Employee Benefit Plan, (x) receipt from the Internal Revenue Service of
notice of the failure of any Pension Plan (or any other Employee Benefit Plan
intended to be qualified under Section 401(a) of the Internal Revenue Code) to
qualify under Section 401(a) of the Internal Revenue Code, or the failure of any
trust forming part of any Pension Plan to qualify for exemp tion from taxation
under Section 501(a) of the Internal Revenue Code or (xi) the imposition of a
Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or
pursuant to ERISA with respect to any Pension Plan.
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"EURODOLLAR RATE LOANS" means any portion of the Loans bearing interest at
rates determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.
"EVENT OF DEFAULT" means each of the events set forth in subsection 7.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor statute.
"EXTRAORDINARY RECEIPTS" means the proceeds to CapStar or any of its
Subsidiaries from such items as (i) sales, exchanges or other dispositions of
the assets of CapStar or any of its Subsidiaries other than in the ordinary
course of business thereof, (ii) damage recoveries and casualty insurance
proceeds (including Condemnation Proceeds or Insurance Proceeds but other than
the proceeds of business interruption insurance or rental loss insurance), (iii)
income derived from Securities and other property acquired for investment except
to the extent such Securities represent Cash Equivalents, (iv) condemnation
awards or sales in lieu of and under the threat of condemnation (other than
awards or other payments for any Taking for temporary use), (v) debt or equity
financing or refinancing, and (vi) all other amounts of any nature paid to
CapStar or any of its Subsidiaries not arising out of the ordinary course of
business thereof.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by the Agent.
"FF&E" means, with respect to any Property or the offices of CapStar and
its Subsidiaries, any furniture, fixtures and equipment, including any beds,
lamps, bedding, tables, chairs, sofas, curtains, carpeting, smoke detectors,
mini bars, paintings, decorations, televisions, telephones, radios, desks,
dressers, towels, bathroom equip ment, heating, cooling, lighting, laundry,
incinerating, loading, swimming pool, land scaping, garage and power equipment,
machinery, engines, vehicles, fire prevention, refrigerating, ventilating and
communications apparatus, carts, dollies, elevators, escala tors, kitchen
appliances, restaurant equipment, computers, reservation systems, soft ware,
cash registers, switchboards, hotel cleaning equipment or any other items of
furniture, fixtures and equipment typically used in hotel properties (including
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furniture, fixtures and equipment used in guest rooms, lobbies, common areas,
front desk, back office, bars, restaurants, kitchens, laundries, concierge,
bellman, recreation, amuse ment, landscaping, parking and other areas of hotels)
and any replacements of all or any portion of any of the foregoing.
"FRANCHISE AGREEMENT" means each of the franchise agreements listed on
SCHEDULE 4.4F annexed hereto, together with the most recent related property
improvement plan required by the respective franchisor, as each such agreement
may be amended, restated, supplemented or otherwise modified, replaced or
entered into from time to time in accordance with subsection 6.20F.
"FUNDING DATE" means a single date occurring on or after the Closing Date
and on or before December 31, 1996 as the date on which the funding of the Loans
occurs.
"GAAP" means, subject to the limitations on the application thereof set
forth in subsection 1.2, generally accepted accounting principles set forth in
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, in each case as the same are
applicable to the circum stances as of the date of determination.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state,
county, municipality or other political subdivision or branch thereof, and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including any agency, board, central
bank, commission, court, department or officer thereof.
"GROUND LEASES" means each of the ground leases from time to time with
respect to the Properties.
"GUARANTOR" means each Loan Party party to the Affiliate Guaranty and the
CapStar Guaranty.
"GUARANTY" means, with respect to any Person, any obligation, contingent
or otherwise, of that Person which has not been (or to the extent that it has
not been) paid or otherwise discharged with respect to any Indebtedness, Ground
Lease, other lease, dividend or other obligation of any other Person if the
primary purpose or intent thereof by the Person incurring the Guaranty is to
provide assurance to the obligee of such obli gation that such obligation of
another will be paid or discharged, or that any agreements relating thereto will
be complied with, or that the holders of such obligation will be
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protected (in whole or in part) against loss in respect thereof. Guaranties
shall include, without limitation, (i) the direct or indirect guaranty,
endorsement (otherwise than for collection or deposit in the ordinary course of
business), co-making, discounting with recourse or sale with recourse by such
Person of the obligation of another, (ii) the obli gation to make take-or-pay or
similar payments if required regardless of non-per formance by any other party
or parties to an agreement, and (iii) any liability of such Person for the
obligation of another Person through any agreement (contingent or other wise)
(a) to purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (b) to maintain the solvency or any balance sheet item, level
of income or financial con dition of another Person if, in the case of any
agreement described under subclauses (a) or (b) of this sentence, the primary
purpose or intent thereof is as described in the pre ceding sentence. The amount
of any Guaranty shall be equal to the least of (x) the amount of the obligation
so guaranteed or otherwise supported, (y) the amount to which such Guaranty is
specifically limited and (z) except with respect to a Guaranty of Indebtedness,
the maximum exposure under such Guaranty as reasonably calculated by the
Borrower and approved by the Agent in its sole discretion. Guaranties shall not
include (1) any of the foregoing obligations to the extent that the same
constitutes Indebtedness under the definition thereof or is a Guaranty with
respect thereto and (2) Guaranties of any liability or obligation of the
Borrower or any Pool A Subsidiary in respect of which the Borrower and the Pool
A Subsidiaries are permitted to become liable pursuant to this Agreement. The
term "Guarantee" used as a verb has a corre sponding meaning.
"HAZARDOUS MATERIALS" means (i) any chemical, material or substance at any
time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste",
"restricted hazardous waste", "infectious waste", "toxic substances",
"pollutant", "contaminant" or any other formulations intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP
toxicity" or "EP toxicity" or words of similar import under any applicable
Environmental Laws, (ii) any oil, petroleum, petroleum fraction or petroleum
derived substance, (iii) any drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil, natural
gas or geothermal resources, (iv) any flammable substances or explosives, (v)
any radioactive materials, (vi) asbestos in any form, (vii) radon, (viii) urea
formaldehyde foam insulation, (ix) electrical equipment which contains any oil
or dielectric fluid containing levels of polychlorinated biphenyls in excess of
fifty parts per million, (x) pesticides, and (xi) any other chemical, material
or substance, exposure to which is prohibited, limited or regulated by any
Governmental Authority or which may or
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could pose a hazard to the health and safety of the owners, occupants or any
Persons in the vicinity of the Properties; PROVIDED, HOWEVER, that Hazardous
Materials shall not include any materials in a non-hazardous form such as
asphalt contained in road-sur facing materials or hazardous materials
customarily used in the operation of hotel prop erties and properly stored and
maintained.
"HAZARDOUS RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including the abandonment or disposal of any barrels, containers or
other receptacles containing any Hazardous Materials), or into or out of any
Property, including the movement of any Hazardous Material through the air,
soil, surface water, groundwater or property.
"IMPOSITIONS" means all real property taxes and assessments, of any kind
or nature whatsoever, including, without limitation, vault, water and sewer
rents, rates, charges and assessments, levies, permits, inspection and license
fees and other governmental, quasi-governmental or nongovernmental levies or
assessments such as maintenance charges, owner association dues or charges or
fees resulting from covenants, conditions and restrictions affecting the
Properties, assessments resulting from inclusion of any Property in any taxing
district or municipal or other special district, any of which are assessed or
imposed upon the Property, or become due and payable, and which create or may
create a Lien upon the Property, or any part thereof. In the event that any
penalty, interest or cost for nonpayment of any Imposition becomes due and
payable, such penalty, interest or cost shall be included within the term
"Impositions".
"IMPROVEMENTS" means all buildings, structures, fixtures, tenant
improvements and other improvements of every kind and description now or
hereafter located in or on or attached to any Land, including all building
materials, water, sanitary and storm sewers, drainage, electricity, steam, gas,
telephone and other utility facilities, parking areas, roads, driveways, walks
and other site improvements; and all additions and betterments thereto and all
renewals, substitutions and replacements thereof.
"INDEBTEDNESS" means, with respect to any Person and without duplication,
to the extent required to be shown on a balance sheet prepared in conformity
with GAAP, (i) all indebtedness for money borrowed by that Person, (ii) that
portion of obligations with respect to Capital Leases that is classified as a
liability on a balance sheet in conformity with GAAP, (iii) notes payable and
drafts accepted representing extensions of credit whether or not representing
obligations for borrowed money, (iv) all obliga tions owed for all or any part
of the deferred purchase price of assets or services purchased by that Person
(a) due more than six months from the date of incurrence of
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the obligation in respect thereof, (b) evidenced by a note or similar written
instrument or (c) owed in respect of real property purchased by such Person or
any of its Subsidi aries, (v) all indebtedness secured by any Lien on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person, (vi) obligations under Currency
Agreements and Interest Rate Agreements, (vii) that portion of any other
obligation of that Person (other than reservation and similar deposits from
custo mers and working capital deposits from owners received and held in the
ordinary course of business) that is classified as a liability on a balance
sheet in conformity with GAAP, which obligation is (a) due more than six months
from the date of incurrence thereof or (b) evidenced by a note or similar
written instrument, (viii) trade payables of such Person and its Subsidiaries
that by their terms are more than 90 days delinquent and (ix) all Guaranties by
that Person.
"INDEMNIFIED PERSON" has the meaning assigned to that term in subsection
9.3.
"INSURANCE PROCEEDS" means all insurance proceeds, damages, claims and
rights of action and the right thereto under any insurance policies relating to
any portion of any Property.
"INSURANCE REQUIREMENTS" means all terms of any insurance policy required
hereunder covering or applicable to any Property or any part thereof, all
requirements of the issuer of any such policy, and all orders, rules,
regulations and other require ments of the National Board of Fire Underwriters
(or any other body exercising similar functions) applicable to or affecting any
Property or any part thereof or any use of any Property or any portion thereof.
"INTELLECTUAL PROPERTY" means, as of any date of determination, all
patents, trademarks, tradenames, copyrights, technology, know-how and processes
used in or necessary for the conduct of the business of the Loan Parties and
their respective Subsidiaries as conducted on such date of determination that
are material to the busi ness, operations, condition (financial or otherwise) or
prospects of the Loan Parties and their Subsidiaries, taken as a whole,
including any of the foregoing licensed to the Loan Parties or any of their
respective Subsidiaries by other Persons.
"INTEREST PERIOD" has the meaning assigned to that term in subsection
2.2B.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement designed to protect CapStar or any of its Subsidiaries against
fluctuations in interest rates.
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"INTEREST RATE DETERMINATION DATE" means each date for calculating the
Adjusted Eurodollar Rate for purposes of determining the interest rate in
respect of an Interest Period. The Interest Rate Determination Date shall be the
second Business Day prior to the first day of the related Interest Period for
any Loan.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"INVESTMENT" means, with respect to any Person or any of its Subsidiaries,
as of any date of determination and without duplication:
(i) any direct or indirect purchase or other acquisition (whether or
not for consideration) by such investing Person or Subsidiary of, or of a
beneficial interest in, any Securities of any other Person;
(ii) any direct or indirect redemption, retirement, purchase or other
acquisition for value by such investing Person or Subsidiary from any
other Person (other than (a) a Person with respect to which such investing
Person or Subsidiary is a Wholly Owned Subsidiary or (b) any other Wholly
Owned Subsidiary of the Person referred to in the preceding clause (a);
PROVIDED that, in the case of CapStar and its Subsidiaries, such other
Wholly Owned Subsidiary is a Loan Party and has Guaranteed the
Obligations), of any equity Securities of such investing Person or
Subsidiary;
(iii) any direct or indirect loan, advance (other than (a) advances to
officers, employees, consultants, accountants, attorneys and other
advisors and members of the Board of Directors of any Person for moving,
entertainment and travel expenses, drawing accounts and similar
expenditures in each case incurred in the ordinary course of business and
(b) advances to officers of any Person for other purposes in an amount not
greater than $100,000 individually or $330,000 in the aggregate, in each
case at any time outstanding) or capital contribution to any other Person,
including all indebtedness and accounts receivable from that other Person
that are not current assets or did not arise from sales to that other
Person in the ordinary course of business;
(iv) any payment to any other Person for the purpose of or otherwise
in connection with securing, extending, renewing or modifying any
Management Agreement;
(v) any commitment or obligation to make any investment described
in clauses (i) through (iv) above; and
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(vi) any liability that is recourse to such investing Person or
Subsidiary or secured by any asset of such investing Person or Subsidiary
and that arises, by law, contract, ownership of Securities or otherwise,
directly or indirectly, as the result of or otherwise in connection with
the origination, continuation or termination of any investment described
in clauses (i) through (iv) above.
The amount of any Investment, as of any date of determination, shall be equal to
(y) with respect to an Investment referred to in clause (i) or (ii) of the
preceding sentence, the remainder of (1) the sum of original cost of such
Investment PLUS the cost of all additions thereto as of such date of
determination, MINUS (2) the aggregate amount paid to such Person or Subsidiary
as a return of such Investment; PROVIDED, that (A) the calculation of the amount
referred to in this clause (2) shall exclude all fees and other amounts (or the
portion thereof) that shall constitute interest, dividends or other amounts in
respect of the return on such Investment, as determined in accordance with GAAP,
and (B) the calculation of the amount referred to in this clause (i) shall
exclude, all adjustments for increases or decreases in value, and write-ups,
write-downs or write-offs with respect to such Investment, and (z) with respect
to an Investment referred to in clause (iv) or (v) of the preceding sentence,
the maximum aggregate liability for which such investing Person or Subsidiary
may become liable, by law, contract, ownership of Securities or otherwise, with
respect to such Investment as of such date of determination.
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership, limited liability company or
other legal form, which joint venture, partnership or other similar arrangement
may be a Subsidiary of any Person, including, without limitation, a Subsidiary
(other than a Wholly Owned Subsidiary) of the Borrower.
"LAND" means, with respect to each Pool A Property and Pool B Property,
the land located in the municipalities, towns, counties and states listed on
SCHEDULE 4.4A1 annexed hereto (and more particularly described in the applicable
security documents delivered under the Senior Credit Agreement) and SCHEDULE
4.4A2 annexed hereto, respectively, together with all strips and gores within or
adjoining such property, all estate, right, title, interest, claim or demand
whatsoever of any Loan Party or any of its Subsidiaries in the streets, roads,
sidewalks, alleys, and ways adjacent thereto (whether or not vacated and whether
public or private and whether open or proposed), all vaults or chutes adjoining
such land, all of the tenements, hereditaments, easements, reciprocal easement
agreements, rights pursuant to any trackage agreement, rights to the use of
common drive entries, rights-of-way and other rights, privileges and
appurtenances thereunto belonging or in any way pertaining thereto, all
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reversions, remainders, dower and right of dower, curtesy and right of curtesy,
all of the air space and right to use said air space above such property, all
transferable development rights arising therefrom or transferred thereto, all
water and water rights (whether riparian, appropriative or otherwise, and
whether or not appurtenant) and shares of stock evidencing the same, all
mineral, mining, gravel, geothermal, oil, gas, hydrocarbon substances and other
rights to produce or share in the production of anything related to such
property, all drainage, crop, timber, agricultural, and horticultural rights
with respect to such property, and all other appurtenances appurtenant to such
property, including without limitation, any now or hereafter belonging or in any
way appertaining thereto, and all claims or demands of such Loan Party or such
Subsidiary, either at law or in equity, in possession or expectancy, now or
hereafter acquired, of, in or to the same.
"LEASE" means each of the leases (other than the Ground Leases), licenses,
concession agreements, franchise agreements (other than the Franchise
Agreements) and other occupancy agreements and other agreements demising,
leasing or granting rights of possession or use or, to the extent of the
interest therein of any Loan Party or any of its Subsidiaries, any sublease,
subsublease, underletting or sublicense, which now or hereafter may affect any
Property or any part thereof or interest therein, including any agreement
relating to a loan or other advance of funds made in connection with any such
lease, license, concession agreement, franchise or other occupancy agreement and
such sublease, subsublease, underletting or sublicense, and every amendment,
restate ment, supplement, consolidation or other modification of or other
agreement relating to or entered into in connection with such lease, license,
concession agreement, fran chise or other occupancy agreement and such sublease,
subsublease, underletting or sublicense, and every Guaranty of the performance
and observance of the covenants, conditions and agreements to be performed and
observed by the other party thereto, and any Guaranties of leasing commissions.
"LENDER" and "LENDERS" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their successors
and permitted assigns pursuant to subsection 9.1.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the sum
of (i) the maximum aggregate amount which is or at any time thereafter may
become available for drawing under all letters of credit issued for the account
of CapStar or any of its Subsidiaries under the Senior Credit Agreement and then
outstanding plus (ii) the aggregate amount of all drawings under such letters of
credit and not theretofore reimbursed by CapStar or such Subsidiary.
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"LIEN" means any lien (including any lien or security title granted
pursuant to any mortgage, deed of trust or deed to secure debt), pledge,
hypothecation, assignment, security interest, charge, levy, attachment,
restraint or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof, and any agreement to
give any security interest) and any option, trust or other preferential
arrangement having the practical effect of any of the foregoing.
"LIQUOR LEASE" means each Lease entered into between the Borrower or any
of its Wholly Owned Subsidiaries, in each case as lessor, and the holder of a
Liquor License in respect of a Property, in each case in connection with the
sale of alcoholic beverages at such Property, in a form customarily used by the
Borrower or in such form as may be reasonably acceptable to the Agent (it being
understood and agreed that any such form as may be approved by the agent under
the Senior Credit Agreement (so long as same is in effect) shall be acceptable
for purposes of this Agreement) as any such Lease may be amended, restated,
supplemented or otherwise modified from time to time in accordance with the
terms hereof and thereof.
"LIQUOR LICENSES" means each license issued by the Department of Alcoholic
Beverage Control or similar state or local agency to any Loan Party or any of
its Subsidiaries or in respect of any Property, in each case in connection with
the sale of alcoholic beverages at such Property.
"LIQUOR OPERATIONS SERVICING AGREEMENTS" means, collectively, the
sub-management agreements entered into between the Borrower and each Loan Party
(or Subsidiary of a Loan Party) that is a holder of a Liquor License, as any
such sub-management agreement may be amended, restated, supplemented or
otherwise modified from time to time in accordance with the terms thereof.
"LLC LOAN PARTIES" means, collectively, each Person that is a limited
liability company and is, or becomes, a Loan Party.
"LOAN DOCUMENTS" means, collectively, this Agreement, the CapStar
Guaranty, the Affiliate Guaranty and the Notes.
"LOAN EXPOSURE" means, with respect to any Lender, as of any date of deter
mination (i) prior to the termination of the Commitments, that Lender's
Commitment and (ii) after the termination of the Commitments, the aggregate
outstanding principal amount of the Loans of that Lender.
"LOAN PARTIES" means, collectively, CapStar, CapStar Sub, the Borrower and
any other Subsidiary of CapStar which is or becomes a party to a Loan Document.
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"LOANS" means, collectively, the Loans made by the Lenders to the Borrower
pursuant to subsection 2.1A.
"MAJOR RENOVATION/RESTORATION" means, as of any date of determination, any
Renovation or Restoration of a Property with respect to which more than 50% of
the rooms "available for sale" at the applicable Property have been, are
scheduled to be, or could reasonably be expected to be, "rooms out-of-order", as
determined in accor dance with the Uniform System, during any period of 30
consecutive days; PROVIDED that a Restoration related to a casualty or Taking
and conducted pursuant to and, as of such date of determination, satisfying the
conditions of subsection 6.11F of the Senior Credit Agreement (as in effect on
the Closing Date) is not a Major Renovation/ Restoration.
"MAJOR RENOVATION/RESTORATION REMOVAL PERIOD" means with respect to any
Property, the period commencing on the day that a Major Renovation/Restoration
shall commence with respect to such Property and terminating on the day that
such Major Renovation/Restoration shall terminate with respect to such Property,
in each case as such dates of commencement and termination shall be reasonably
determined by the Agent based on documentation received from the Borrower and on
such other informa tion as the Agent shall determine to be relevant (it being
understood and agreed that any such dates as are acceptable to the agent under
the Senior Credit Agreement (so long as the same is in effect) shall be
acceptable for purposes of this Agreement).
"MANAGED PROPERTIES" means, collectively, the real properties, together
with all Improvements thereon and all fixtures attached thereto and all personal
property used in connection therewith, that are managed by the Borrower or any
of its Wholly Owned Subsidiaries pursuant to the Management Agreements. Managed
Properties do not include Properties.
"MANAGEMENT AGREEMENT EFFECTIVENESS DATE" means the date that is 30 days
after the last day of a calendar quarter that is also the last day of 12
consecutive calendar months during which the aggregate amount of Management Fees
paid to the Borrower and its Subsidiaries pursuant to Management Agreements is
equal to or greater than 10% of the consolidated gross revenues of CapStar and
its Subsidiaries; PROVIDED that the calculation of gross revenues shall exclude
the income excluded from clause (i) of the definition of "Consolidated EBITDA".
"MANAGEMENT AGREEMENTS" means, collectively, all hotel management
agreements under which CapStar or any of its Subsidiaries is named or acts as
manager, as any such hotel management agreement may be amended, restated,
supplemented or
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otherwise modified from time to time in accordance with the terms thereof and
hereof. Management Agreements do not include the Servicing Agreements or other
hotel management agreements among the Borrower and any of its Subsidiaries with
respect to the Properties.
"MANAGEMENT FEES" means, collectively, all hotel management fees (however
characterized, including base fees, trade name fees, incentive fees, special
incentive fees, termination fees and all fees in respect of liquor license
operations) and all other fees or charges payable to the manager for the
management and operation of a hotel property, the related land and the
improvements thereof.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U of
the Board of Governors of the Federal Reserve System as in effect from time to
time.
"MARKET EQUITY CAPITALIZATION" means, with respect to any issuer and as of
any date of determination, the product of (i) the number of shares of common
stock of such issuer outstanding as of such date MULTIPLIED BY (ii) the average
of the closing bid prices of such common stock on the principal national
securities exchange on which such common stock is listed or, if such common
stock is not so listed, on NASDAQ/NMS, as the case may be, for each of the 30
consecutive trading days next preceding such date of determination (or such
shorter period during which such common stock shall have been publicly traded
until such time as it has been so traded for 30 consecutive trading days).
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon the
business, operations, condition (financial or otherwise) or prospects of the
Loan Parties, taken as a whole, and (ii) the material impairment of the ability
of any of the Loan Parties to perform, or of the Agent or the Lenders to
enforce, any Obligation of any Loan Party.
"MATERIAL LEASE" means each Lease either (i) demising in excess of 7,500
square feet of the Improvements with respect to any Property or (ii) generating
in excess of 5.0% of the Property Gross Revenues with respect to any Property or
otherwise identified as a Material Lease on SCHEDULE 4.4G annexed hereto;
PROVIDED that no Liquor Lease shall be a Material Lease.
"MATERIAL MANAGEMENT AGREEMENT" means any Management Agreement pursuant to
which the Borrower or any of its Subsidiaries has received or reasonably expects
that it is, or will become, entitled to receive more than $250,000 per year in
gross revenues.
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"MATURITY DATE" means the earliest of (i) December 31, 1999, as such date
may be extended pursuant to subsection 2.1E to a date not later than December
31, 2001, (ii) the date as of which the Obligations shall have become
immediately due and payable pursuant to subsection 7.1 and (iii) the date which
is 91 days after the date as of which the obligations under the Senior Credit
Agreement shall have become immediately due and payable pursuant to subsection
2.4B(v) of the Senior Credit Agreement (or any replacement subsection thereof).
"MBL PROPERTIES" means each of the hotel properties listed on SCHEDULE
1.1A annexed hereto.
"MOODY'S" means Moody's Investors Service, Inc. or any successor to the
business thereof.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan that is a
"multiemployer plan", as defined in Section 3(37) of ERISA.
"NASDAQ/NMS" means the National Association of Securities Dealers
Automated Quotation System/National Market Securities.
"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 the sale or other disposition of any asset
(including the disposition of a Property pursuant to subsection 6.11 but
excluding any gain from the sale of inventory in the ordinary course of
business), and excluding any extraordinary gain (but not loss), together with
any related provision for taxes on such extraordinary gain (but not loss).
"NET INSURANCE/CONDEMNATION PROCEEDS" means all Insurance Proceeds on
account of damage or destruction to any Property or all Condemnation Proceeds in
respect of any Property, MINUS the reasonable cost, if any, of such recovery and
of pay ing out such proceeds, including reasonable attorneys' fees and costs
allocable to inspecting the Work and the plans and specifications therefor.
"NET SALES PRICE" means, with respect to any sale or other permanent
disposi tion by a Loan Party or any of its Subsidiaries of a Property, or other
asset, the gross purchase price therefor less the sum of (i) except with respect
to the sale or other permanent disposition of a Pool A Property, the amounts
applied to the payment of Indebtedness or other obligations secured by a Lien on
such Property or other asset,
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(ii) the reasonable out-of-pocket costs and expenses incurred by such Loan Party
or Subsidiary directly in connection with such sale or other permanent
disposition, includ ing income taxes paid or estimated to be actually payable as
a result thereof, after taking into account any available tax credits or
deductions and any tax sharing arrange ments and (iii) closing adjustments
contemplated and reserved.
"NET WORTH" means, as of any date of determination, the sum of the capital
stock and additional paid-in capital PLUS retained earnings (or MINUS
ACCUMULATED DEFICITS) of CapStar and its Subsidiaries determined in conformity
with GAAP.
"NOTES" means, collectively, (i) the promissory notes of the Borrower
issued pursuant to subsection 2.1D(iv) and (ii) any promissory notes issued by
the Borrower pursuant to the last sentence of subsection 9.1A in connection with
assignments of the Commitment (if not theretofore terminated) or Loan of any
Lender, in each case sub stantially in the form of EXHIBIT I annexed hereto, as
they may be amended, restated, supplemented or otherwise modified from time to
time in accordance with the terms thereof and hereof.
"NOTICE OF BORROWING" means the notice substantially in the form of
EXHIBIT II annexed hereto delivered by the Borrower to the Agent pursuant to
subsection 2.1B with respect to the proposed borrowing of the Loans hereunder.
"NOTICE OF CONTINUATION" means a notice substantially in the form of
EXHIBIT III annexed hereto delivered by the Borrower to the Agent pursuant to
subsec tion 2.2D with respect to a proposed conversion or continuation of the
applicable basis for determining the interest rate with respect to the portion
of the Loans specified therein.
"OBLIGATIONS" means, collectively, all obligations of every nature of
CapStar or any of its Subsidiaries from time to time owed to the Agent or the
Lenders or any of them under or in respect of the Loans and the Loan Documents,
whether for princi pal, interest, fees, commissions, expenses, indemnification
or otherwise.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a
certificate exe cuted on behalf of such corporation by a person specified in
this Agreement for such purpose or, in the absence of such specification, by its
chairman of the board (if an officer) or its president or one of its vice
presidents and by its chief financial officer or its treasurer; PROVIDED,
HOWEVER, that the Officers' Certificate with respect to the compliance with the
conditions precedent to the making of the Loans hereunder shall include (i) a
statement that each officer making or giving such Officers' Certificate has read
such condition and any definitions or other provisions contained in this
Agreement
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relating thereto, (ii) a statement that, in the opinion of each signer, he has
made or has caused to be made such examination or investigation as is reasonably
necessary to enable him to express an informed opinion as to whether or not such
condition has been complied with, and (iii) a statement as to whether, in the
opinion of each signer, such condition has been complied with.
"OPERATING EXPENSES" means, for any period and as calculated on the
accrual basis of accounting, all expenses incurred by Cap Star or any of its
Subsidiaries during such period in connection with the ownership, management,
operation, cleaning, main tenance, ordinary repair or leasing of any Property,
including, without duplication:
(i) costs and expenses in connection with the cleaning, ordinary
repair, maintenance, decoration and painting of such Property;
(ii) wages, benefits, payroll taxes, uniforms, insurance costs and
all other related expenses for employees of CapStar and its Subsidiaries
engaged in the management, operation, cleaning, maintenance, ordinary
repair and leasing of such Property and service to guests, customers,
Tenants, concessionaires and licensees of such Property;
(iii) the cost of all services and utilities with respect to such
Property, including all electricity, oil, gas, water, steam, heating,
ventilation, air conditioning, elevator, escalator, landscaping, model
furniture, answering services, telephone maintenance, credit check, snow
removal, trash removal and pest extermination costs and expenses and any
other energy, utility or similar item and overtime services with respect
to such Property;
(iv) the cost of building and cleaning supplies with respect to
such Property;
(v) insurance premiums required in order to maintain the insurance
policies required under this Agreement or any other Loan Documents or Pool
B Obligations, in each case with respect to such Property (which, in the
case of any policies covering multiple Properties, shall be allocated
among the Properties pro rata in proportion to the insured value of the
Properties covered by such policies);
(vi) legal, accounting, engineering and other fees, costs and
expenses incurred by or on behalf of CapStar or such Subsidiary in
connection with the ownership, management, operation, maintenance,
ordinary repair and leasing of such Property, including collection costs
and expenses;
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(vii) operating costs and expenses of security and security systems
provided to and/or installed and maintained with respect to such Property;
(viii) operating costs and expenses of reservation systems, internal
telephone exchanges and key card systems with respect to such Property;
(ix) costs and expenses of parking and valet services, parking lot
maintenance and ordinary parking lot repairs in respect of such Property;
(x) costs and expenses of food and beverages with respect to such
Property;
(xi) real property taxes and assessments with respect to such
Property and the costs incurred in seeking to reduce such taxes or the
assessed value of such Property;
(xii) advertising, marketing and promotional costs and expenses with
respect to such Property;
(xiii) costs and expenses incurred in connection with lock changes,
storage, moving, market surveys, permits (and the application or
registration therefor) and licenses (and the application or registration
therefor) with respect to such Property;
(xiv) maintenance and cleaning costs related to guest and customer
amenities with respect to such Property;
(xv) costs and expenses of maintaining and repairing FF&E (including
the breakage or loss of any such FF&E) with respect to such Property;
(xvi) franchise fees due and payable with respect to such Property;
(xvii) payments due and payable under the Ground Lease with respect
to such Property, if applicable;
(xviii) actual reserves required under the Ground Lease with respect
to such Property, if applicable;
(xix) Management Fees with respect to such Property for such period;
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(xx) tenant improvements and leasing commissions with respect to
such Property accrued during such period;
(xxi) contributions by CapStar or any of its Subsidiaries to any
merchants' association, whether as dues or advertising costs or otherwise
with respect to such Property;
(xxii) costs incurred pursuant to any reciprocal easement agreement
affecting such Property;
(xxiii) refunds CapStar or any of its Subsidiaries must pay to guests,
customers, Tenants, concessionaires and licensees and other occupants of
such Property;
(xxiv) reserves (other than reserves required to be deposited in any
capital reserve account under the Senior Credit Agreement) for such
purposes and in such amounts as the Borrower may reasonably determine in
good faith;
(xxv) costs and expenses of maintaining operating, repairing and
servicing vehicles, including fuel and insurance premiums;
(xxvi) costs of environmental audits and monitoring, environmental
remediation work or any other costs and expenses incurred with respect to
compliance with Environmental Laws; and
(xxvii) all other ongoing expenses which in accordance with the accrual
basis of accounting should be included in CapStar's or any of its
Subsidiaries' annual financial statements as operating expenses of such
Property.
Notwithstanding the foregoing, Operating Expenses shall not include, without
duplica tion, (a) non-cash equity participation expenses, (b) Consolidated
Interest Expense, including such items included within the definition thereof as
shall apply to any Property or Properties with respect to which such Operating
Expenses are being deter mined, (c) income taxes, (d) depreciation, (e)
amortization, (f) principal or Release Prices, if any, due under the loans or
the notes under the Senior Credit Agreement or otherwise in connection with the
obligations under the Senior Credit Agreement, (g) principal, if any, due in
respect of the Pool B Obligations, or (h) expenses referred to in the preceding
sentence that are capitalized on the financial statements of CapStar or any of
its Subsidiaries in conformity with GAAP.
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"OPERATING LEASE" means, with respect to any Person, a lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is not accounted for as a capital lease on the balance
sheet of that Person.
"PARTNERSHIP LOAN PARTIES" means, collectively, each Person that is a
partnership and is, or becomes, a Loan Party.
"PAYMENT DATE" means the 15th day of each calendar month, beginning
January 15, 1997, or, if such day is not a Business Day, the next succeeding
Business Day.
"PBGC" means the Pension Benefit Guaranty Corporation (or any successor
thereto).
"PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer
Plan, which is subject to Section 412 of the Internal Revenue Code or Section
302 of ERISA.
"PERMITTED ENCUMBRANCES" means the Liens shown on SCHEDULE 6.2 annexed
hereto for such Property and, with respect to any Property (including any Pool B
Property), the following types of Liens (other than any such Lien imposed
pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by
ERISA):
(i) Liens for real property Taxes, assessments, vault charges, water
and sewer rents, and other Impositions the payment of which is not, at the
time, required by subsection 5.4;
(ii) the Leases in existence on the Closing Date and any Leases
entered into thereafter in accordance with the requirements of the Loan
Documents;
(iii) covenants, easements, rights-of-way, restrictions, minor
encroachments or other similar encumbrances incurred in the ordinary
course of business of CapStar and its Subsidiaries that do not make such
Property unmarketable or interfere in any material respect, and which
could not reasonably be expected to interfere in any material respect,
with the use of the Property for hotel purposes or with the ordinary
conduct of the business of CapStar and its Subsidiaries;
(iv) Liens, if any, securing the Obligations and Liens securing the
obligations under the Senior Credit Agreement;
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(v) Liens that are bonded and thereby released of record in a
manner reasonably satisfactory to the Agent;
(vi) rights of guests to occupy rooms and of Tenants under Leases;
(vii) all exceptions contained in any title policy delivered to the
lenders under the Senior Credit Agreement; PROVIDED that in no event shall
any Servicing Agreement, Management Agreement or other hotel management
agreement be a Permitted Encumbrance; and
(viii) the Atlanta Mortgage.
"PERMITTED SENIOR CREDIT AGREEMENT AMOUNT" means, at any time,
$225,000,000 (less the amount of any mandatory permanent commitment reductions
effected under the Senior Credit Agreement after the Closing Date) (such amount,
as so reduced, the "Initial Permitted Senior Credit Agreement Amount"), provided
that the Initial Permitted Senior Credit Agreement Amount may be increased by an
additional $50,000,000 in the aggregate so long as at the time that the Borrower
desires to incur any extensions of credit under the Senior Credit Agreement in
excess of the Initial Permitted Senior Credit Agreement Amount at such time (the
"Excess Permitted Senior Credit Agreement Amount") (A) no Event of Default or
Potential Event of Default shall have occurred and be continuing or would result
therefrom, (B) no event of default or potential event of default shall have
occurred and be continuing under the Senior Credit Agreement or would result
therefrom and (C) the Borrower shall have delivered to the Agent an Officers'
Certificate certifying as to the matters set froth in clauses (A) and (B) above
and demonstrating in reasonable detail that, as of the last day of the most
recently ended full fiscal month for which full financial statements are
available, CapStar and the Borrower would have achieved the financial ratios
required to be satisfied for the financial covenants contained in subsection 6.6
as of the last day of the fiscal quarter ending immediately after such full
fiscal month and assuming that the full amount of the Excess Permitted Senior
Credit Agreement Amount had been incurred (and the proceeds therefrom had been
applied) on the first day of the twelve-month period ended on the last day of
such full fiscal month and that such amount had remained outstanding throughout
such period and that the Borrower or a Subsidiary thereof had owned any asset
purchased with such proceeds throughout such period, it being understood and
agreed, however, that prior to the Borrower actually incurring more than
$25,000,000 of additional extensions of credit under the Senior Credit Agreement
which utilizes the Excess Permitted Senior Credit Agreement Amount, the Borrower
shall first satisfy the requirements of preceding clauses (A), (B), and (C) and
shall also obtain the prior written consent of the Requisite Lenders (which
consent shall
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not be unreasonably withheld). Concurrently with the delivery of the Officers'
Certificate pursuant to clause (C) above, the Borrower also shall deliver to the
Agent the financial statements on which the respective calculations were based.
"PERSON" means, collectively, natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint stock
companies, Joint Ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and Governmental Authorities.
"POOL A GROUND LEASE" means each of the ground leases with respect to the
Pool A Properties from time to time, together with all right, title and interest
of any Loan Party, as the case may be, in and to the leasehold estate created
pursuant to each such ground lease as each such ground lease may be amended,
restated, supplemented or otherwise modified from time to time in accordance
with the terms thereof and hereof.
"POOL A PROPERTIES" means, collectively, the hotel properties, the Land on
which they are located, the related Pool A Ground Leases and all Improvements
thereon and all fixtures attached thereto and all personal property used in
connection therewith, in each case with respect to those properties listed on
SCHEDULE 4.4A1 annexed hereto and with respect to the Additional Pool A
Properties (in each case so long as such properties are owned or leased by the
Borrower or any Pool A Subsidiary).
"POOL A SUBSIDIARIES" means, collectively, each Wholly Owned Subsidiary of
the Borrower in existence on the date of this Agreement which owns or leases a
Pool A Property or created pursuant to subsection 6.7 to own or lease any Pool A
Property, provided that in no event shall a Pool A Subsidiary also own a Pool B
Property.
"POOL B DOCUMENTS" means, collectively, each Pool B Ground Lease, agree
ment, Guaranty, instrument, promissory note or other document entered into by
any Loan Party or any of its Subsidiaries in connection with any Pool B
Obligation, as each such Pool B Ground Lease, agreement, Guaranty, instrument or
other document may be amended, restated, supplemented or otherwise modified from
time to time).
"POOL B GROUND LEASE" means each of the ground leases with respect to the
Pool B Properties from time to time.
"POOL B INDEBTEDNESS" has the meaning assigned to that term in subsection
6.1(v).
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"POOL B OBLIGATIONS" means, collectively, the obligations of any of the
Loan Parties, any of their respective Subsidiaries and any of the Pool B
Subsidiaries, respec tively, of any nature, from time to time owed in respect of
any Pool B Indebtedness, whether for principal, interest, fees, commissions,
expenses, indemnification or other wise.
"POOL B PROPERTIES" means, collectively, the hotel properties, the Land on
which they are located and all Improvements thereon and all fixtures attached
thereto and all personal property used solely in connection therewith, in each
case with respect to those properties listed on SCHEDULE 4.4A2 annexed hereto
and with respect to any properties acquired pursuant to subsection 2.9B (in each
case so long as such properties are owned or leased by any Pool B Subsidiary).
"POOL B SUBSIDIARIES" means, collectively, each Wholly Owned Subsidiary of
the Borrower in existence on the date of this Agreement which owns or leases a
Pool B Property or created pursuant to subsection 6.7 to own one or more Pool B
Properties, provided that in no event shall a Pool B Subsidiary also own a Pool
A Property.
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after notice
or lapse of time or both, would constitute an Event of Default if that condition
or event were not cured or removed within the applicable grace period.
"PREFERRED LIMITED PARTNER INTERESTS" has the meaning assigned to that
term in subsection 6.20C(ii).
"PRIME RATE" means the rate that Bankers announces from time to time as
its prime lending rate, as in effect from time to time or, if Bankers shall
cease to announce such rate, the rate that is published as the "Prime Rate" in
THE WALL STREET JOURNAL (Eastern edition) or other rate published in THE WALL
STREET JOURNAL (Eastern edition) or any other newspaper of general circulation
that shall have been approved by the Borrower and the Agent. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Bankers or any other Lender may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.
"PROJECTED INTEREST EXPENSE" means, with respect to any Pool B Subsidiary
as of any date of determination and for any period, total interest expense
(including that portion attributable to Capital Leases in accordance with GAAP
and capitalized interest) reasonably projected by the Borrower to be incurred on
all outstanding and proposed
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Pool B Indebtedness of such Pool B Subsidiary, including, without limitation,
all commissions, discounts and other fees and charges and net costs under
Interest Rate Agreements.
"PROPERTIES" means, collectively, from and after the respective dates of
Acquisition, each of the Pool A Properties and the Pool B Properties. Properties
do not include Managed Properties.
"PROPERTY AMOUNT" means, as of any date of determination with respect to
any Designated Pool A Property, the following:
(i) except with respect to a Designated Pool A Property described
in clause (ii) or (iii) below, the lesser of (a) the product of the
applicable factor set forth in column (I) below MULTIPLIED BY the Property
EBITDA for such Designated Pool A Property and (b) the product of the
applicable factor set forth in column (II) below MULTIPLIED BY the
Property EBITDA-CapEx for such Designated Pool A Property, in each case
for the 12 most recently completed calendar months ending not less than 30
days before such date of determination for which the Agent has received
the financial statements with respect to such Properties required to be
delivered pursuant to subsection 5.1(i):
============================== ==================== =======================
(I) (II)
PERIOD EBITDA FACTOR EBITDA-CAP EX
FACTOR
- ------------------------------ -------------------- -----------------------
from and including the Closing
Date to September 29, 1997 4.25 5.00
- ------------------------------ -------------------- -----------------------
from and including September
30, 1997 to September 29, 1998 4.00 4.75
- ------------------------------ -------------------- -----------------------
from and including September 3.75 4.50
30, 1998 to the Maturity Date
============================== ==================== =======================
; PROVIDED that such Property Amount shall not be greater than an amount
equal to 55% of the Appraised Value thereof; or
(ii) with respect to each of not more than three Designated Pool A
Properties (other than the Atlanta Airport Property), as designated from
time to time by the Borrower in a writing delivered to the Agent, with
respect to which a Renovation shall have commenced and before the end of
12 complete calendar months after completion
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of the Renovation, an amount equal to 60% of the most recently Appraised
Value, on an "as completed" basis, on or before the applicable date of
determination; or
(iii) with respect to the Atlanta Airport Property, the least of (a)
the applicable amount calculated pursuant to clause (i) above, (b) an
amount equal to 55% of the Appraised Value of such Property and (c) the
aggregate outstanding principal amount of the Atlanta Note as of the
applicable date of determination.
"PROPERTY EBITDA" means, with respect to any Property, for any period and
as of any date of determination and calculated on the accrual basis of
accounting, whether a positive or negative number, the amount equal to the
remainder of the following:
(i) all Property Gross Revenues for such period in respect of such
Property; PROVIDED that Property Gross Revenues for such period in respect
of any Property shall be included in the calculation of Property EBITDA
for such period only to the extent that the Agent and Lenders shall have
received the financial statements for such period required to be delivered
on or before such date of determination pursuant to subsection 2.9 or
5.1(i), as the case may be; MINUS
(ii) all Operating Expenses for such period with respect to such
Property, without duplication of items excluded from the definition of
Property Gross Revenues; PROVIDED that (x) Management Fees included in the
calculation of Property EBITDA for such period with respect to such
Property shall not be less than 3.0% of Property Gross Revenues for such
period with respect to such Property and (y) the sum of the aggregate
amount of fees payable pursuant to Franchise Agreements PLUS marketing
fees and expenses included in the calculation of Property EBITDA for such
period with respect to such Property shall not be less than 8.5% of
Property Gross Revenues with respect to such Property;
PROVIDED that:
(v) Property EBITDA with respect to any Property shall be zero for
such period if (1) the Addition Date with respect to such Property shall
not have occurred on or before such date of determination or (2) such
Property shall have been sold or otherwise permanently disposed of on or
before such date of determination;
(w) if the Addition Date with respect to such Property shall have
occurred after the Closing Date and after the commencement of such period
but before the termination of such period, Property EBITDA with respect to
such Property for such period shall be the sum of (A) Property EBITDA for
the portion of such period commencing on the first
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day of such period and ending on the day before such Addition Date, as the
same shall be determined based upon the financial statements for such
period required by subsection 2.9A or 2.9B, as the case may be, to be
delivered with respect to such Property and such other information with
respect thereto that may be provided by the Loan Parties and their
respective Subsidiaries, subject to such adjustments as may be reasonably
required by the Agent so that Property EBITDA with respect to such
Property shall be calculated in the same manner as Property EBITDA with
respect to Properties owned by the Loan Parties and their respective
Subsidiaries during the entire period, PLUS (B) Property EBITDA with
respect to such Property for the portion of such period commencing on such
Addition Date and ending on the last day of such period, based upon the
financial statements for such period required to be delivered on or before
such date of determination pursuant to subsection 5.1(i);
(x) if such date of determination shall occur during a Major
Renovation/ Restoration Removal Period with respect to such Property and
the Property EBITDA with respect to such Property for such period is a
positive number, then (1) for purposes of calculating the Property Amount
with respect to such Property (if such Property is a Pool A Property) as
of such date of determination, Property EBITDA with respect to such
Property for such period shall be zero and (2) for purposes of calculating
any amount pursuant to subsections 6.6B or 6.6C as of such date of
determination, Property EBITDA with respect to such Property for such
period shall be equal to the product of (1) the applicable factor set
forth below as of such date of determination, as determined by reference
to the percentage amount of the rooms "available for sale" at such
Property that have been, are scheduled to be, or could reasonably be
expected to be, "rooms out-of-order", as determined in accordance with the
Uniform System, during such Major Renovation/Restoration Removal Period,
multiplied by (2) the amount of Property EBITDA with respect to such
Property for such period as of such date of determination if effect were
not given to this clause (x):
PERCENTAGE FACTOR
---------- ------
50.00% - 74.99% 0.33
75.00% - 100.00% 0.00
"PROPERTY EBITDA-CAPEX" means, with respect to any Property, for any
period and as of any date of determination, the Property EBITDA with respect to
such Property MINUS Capital Expenditures with respect to such Property.
"PROPERTY GROSS REVENUE" means, for any period, all Receipts resulting
from the operation of such Property, including, without limitation, Rents or
other payments from guests and customers, Tenants, licensees and concessionaires
and business interruption and rental loss insurance payments; PROVIDED that
Property Gross Revenue shall be determined net of allowances in accordance with
the Uniform System and shall exclude (i) excise, sales, use, occupancy and
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similar taxes and charges collected from guests or customers and remitted to
Governmental Authorities, (ii) gratuities collected for employees of such
Property, (iii) security deposits and other advance deposits, until and unless
same are forfeited to any Loan Party or Subsidiary thereof or applied for
the purpose for which collected, (iv) federal, state or municipal excise, sales,
use or similar taxes collected directly from patrons or guests or included as
part of the sales price of any goods or services, (v) interest income on amounts
deposited in such Property's bank accounts in excess of amounts so deposited in
the ordinary course of business and in accor dance with past practices, (vi)
rebates, refunds or discounts (including, without limitation, free or discounted
accommodations) and (vii) Extraordinary Receipts.
"PROPERTY INFORMATION" means, with respect to any Acquisition of any
Additional Pool A Property pursuant to subsection 2.9A or any Pool B Property
pursuant to subsection 2.9B, the following information:
(i) financial statements in respect of such Property for the most
recently completed three calendar years and for the completed calendar
months after the most recently completed calendar year, in each case, to
the extent such financial statements exist and can be readily obtained by
any Loan Party or any of its Subsidiaries;
(ii) copies of all other consolidated balance sheets and related
statements of operations and statements of cash flows of such Property
that are to be delivered to any Loan Party or any of its Subsidiaries in
connection with such Acquisition;
(iii) to the extent any Renovation is then proposed for such Property,
a preliminary project plan and a project budget for such Property ; and
(iv) such other information and/or reports (including Appraisals and
environmental reports) as may be delivered to the lenders under the Senior
Credit Agreement with respect to such Acquisition and as may be reasonably
requested by the Agent.
"PROPERTY SERVICING AGREEMENTS" means, collectively, the hotel management
agreements entered into between the Borrower, on the one part, and a Subsidiary
of the Borrower that owns a fee or leasehold interest in a Property, on the
other part, substantially in a form customarily used by the Borrower or in such
other form as may be reasonably acceptable to the Agent, as any such Servicing
Agreement may be amended, restated, supplemented or otherwise modified from time
to time in accordance with the terms thereof and hereof.
"PRO RATA SHARE" means, with respect to each Lender, the percentage
obtained by dividing (i) the Loan Exposure of that Lender by (ii) the sum of the
aggregate Loan Exposure
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of all Lenders, as such percentage may be adjusted by assignments permitted
pursuant to subsection 9.1. The initial Pro Rata Share of each Lender is set
forth opposite the name of that Lender in SCHEDULE 2.1A annexed hereto.
"QUALIFIED CAPITAL STOCK" means, with respect to any Person, any series or
class of Capital Stock of that Person which may not be required to be redeemed
or repurchased, in whole or in part, by that Person or any of its Subsidiaries,
in whole or in part, at the option of the holder thereof, on or prior to the
Maturity Date, or not be convertible or exchangeable into or exercisable for
Capital Stock of CapStar that is not Qualified Capital Stock on or prior to the
date that is one year and one day after the Maturity Date; PROVIDED that Capital
Stock will be deemed to be Qualified Capital Stock if it may only be so redeemed
or put solely in consideration of Qualified Capital Stock.
"RECEIPTS" means, collectively, all cash, Cash Equivalents, checks, notes,
drafts and any items of payment or collection received, by or on behalf of
CapStar or any of its Subsidi aries, or by any officers, employees or agents of
CapStar or any of its Subsidiaries or other Persons acting for or in concert
with CapStar or such Subsidiary to make collections on CapStar's or such
Subsidiary's behalf in connection with or in any way relating to CapStar or such
Subsidiary or the operation of CapStar's or such Subsidiary's business,
including, without limitation, any proceeds received from or pursuant to (i) any
sales of, or loans against, accounts of CapStar or any of its Subsidiaries
(other than the Loans pursuant to this Agreement and loans under the Senior
Credit Agreement), (ii) any disposition of assets (including, without
limitation, any disposition of assets permitted hereunder or consented to by the
Agent, but excluding amounts applied to the repayment of indebtedness or other
obligations secured by a Lien on the assets subject to such disposition) or
issuance or sale of equity Securities by CapStar or any of its Subsidiaries,
(iii) the incurrence of Indebtedness by CapStar or any of its Subsidiaries and
the issuance and sale by CapStar or any of its Subsidiaries of equity or debt
Securities, in each case other than the Obligations and other Indebtedness
permitted by this Agreement, (iv) insurance policies (other than liability
insurance payable directly or indirectly to a third party) maintained by CapStar
or any of its Subsidiaries, (v) the successful prosecution (including any
settlement) of any claims, actions or other litigation or proceeding by or on
behalf of or against CapStar or any of its Subsidiaries, (vi) Investments in, or
equity and debt Securities issued by, Joint Ventures or other Persons and (vii)
the Management Agreements (other than amounts received by CapStar or any of its
Subsidiaries in respect of the Managed Properties on behalf of, or as agent for,
the parties to the Management Agreements other than CapStar and its
Subsidiaries); it being understood and agreed that nothing contained in this
definition shall in any respect be deemed to permit any transactions by CapStar
or any of its Subsidiaries otherwise restricted or prohibited by this Agreement.
"REGISTER" has the meaning assigned to that term in subsection 2.1D.
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"REGULATION D" means Regulation D of the Board of Governors of the Federal
Reserve System, as in effect from time to time.
"RELEASE DATE" means the date of a sale or other disposition of any
Property pursuant to subsection 2.10.
"RELEASE PRICE" means, as calculated as of any Release Date (or the date
of any casualty or Taking) with respect to any Pool A Property, the amount that
is the greatest of the following:
(a) the amount equal to 125% of the Property Amount with
respect to such Pool A Property; provided that, with respect to
the Specified Release Properties, such amount shall be 100% of
the Property Amount with respect to such Specified Release
Property;
(b) in the event of a sale or other permanent disposition of
such Pool A Property, the amount equal to 75% of the Net Sales
Price for such Pool A Property; provided that, with respect to
the Specified Release Properties, such amount shall be zero;
(c) the amount necessary to ensure that the requirements of
clause (i)(c) of the definition of "Release Price" as defined in
the Senior Credit Agreement (as in effect on the Closing Date)
are satisfied; and
(d) in the event of a casualty or Taking with respect to such
Pool A Property, the Insurance Proceeds or Condemnation Proceeds,
as the case may be, resulting therefrom.
"REMOVED POOL A PROPERTIES" means, as of any date of determination, all
Pool A Properties that have been removed (and which remain removed) pursuant to
subsection 2.9D of the Senior Credit Agreement (as in effect on the Closing
Date).
"RENOVATION" means the expansion, rebuilding, repair, restoration,
refurbishment, fixturing and equipping of the Improvements at a Property or a
Managed Property. The term "Renovate" used as a verb has a corresponding
meaning.
"RENTS" means, collectively, all rents, issues, profits, royalties,
receipts, revenues, accounts receivable, security deposits and other deposits
(subject to the prior right of Tenants making such deposits) and income,
including room receipts, rack charges, vending machine receipts, food and
beverage receipts, concession fees and charges, public assembly room receipts,
fixed, additional and percentage rents, occupancy charges, operating expense
reim-
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bursements, reimbursements for increases in taxes, sums paid by Tenants to any
Loan Party or any of its Subsidiaries to reimburse such Loan Party or such
Subsidiary for amounts originally paid or to be paid by such Loan Party or such
Subsidiary or such Loan Party's or such Subsidiary's agents or Affiliates for
which such Tenants were liable, as, for example, tenant improvements costs in
excess of any work letter, lease takeover costs, moving expenses and tax and
operating expense pass-throughs for which a Tenant is solely liable, parking,
valet, main tenance, common area, tax, insurance, utility and service charges
and contributions, proceeds of sale of electricity, gas, heating,
air-conditioning and other utilities and services, deficiency rents and
liquidated damages, and other benefits.
"REQUISITE LENDERS" means (i) except for the purpose described in clause
(ii) of this definition, Lenders having or holding at least 66-2/3% of the sum
of the aggregate Loan Exposure of all Lenders or (ii) for purposes of declaring
the Obligations due and payable pursuant to subsection 7, Lenders having or
holding at least 33-1/3% of the sum of the aggregate Loan Exposure of all
Lenders. For purposes of determining the Requisite Lenders at any time of
determination thereof, any Loans made or held by any Affiliate of any Loan Party
shall be considered as though such Loans are not outstanding. Each Lender, upon
the request of the Agent, shall inform the Agent as to whether or not such
Lender is an Affiliate of any Loan Party.
"RESTORATION" means the repair, restoration (including demolition),
replacement and rebuilding of all or any portion of a Property (or the
Improvements thereof) following the destruction, damage, loss or Taking thereof.
The term "Restore" used as a verb has a corre sponding meaning.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution,
direct or indirect, on account of any shares of any class of stock or other
equity Security of any Loan Party or any Subsidiary of a Loan Party now or
hereafter outstanding, except a dividend or dis tribution payable to the
Borrower or any of its Wholly Owned Subsidiaries that are Loan Parties or
payable solely in shares of that class of stock to the holders of that class,
(ii) any redemption, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares of any equity
Securities, now or hereafter outstanding, of CapStar or any of its Subsidiaries
that are not Wholly Owned Subsidiaries, (iii) any payment made to retire, or to
obtain the surrender of, any outstanding warrants, options or other rights to
acquire shares of any now or hereafter outstanding, of CapStar or any of its
Subsidiaries that are not Wholly Owned Subsidiaries and (iv) any payment or
prepayment of principal of, premium, if any, or interest on, or redemption,
purchase, retirement, defeasance (including in substance or legal defeasance),
sinking fund or similar payment with respect to, any Indebtedness of CapStar or
any of its Subsidiaries (other than Senior Indebtedness and the Obligations).
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"SECURITIES" means any stock, shares, partnership interests, interests in
limited liability companies, voting trust certificates, certificates of interest
or participation in any profit-sharing agreement or arrangement, options,
warrants, bonds, debentures, notes or other evidences of indebtedness, secured
or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or partici pations in temporary or interim certificates for the purchase
or acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to
time, and any successor statute.
"SENIOR CREDIT AGREEMENT" means (collectively) the Senior Secured
Revolving Credit Agreement dated as of September 24, 1996, among CapStar, the
Borrower, the lenders from time to time party thereto in their capacities as
lenders thereunder and Bankers Trust Company, as agent, together with the
related documents thereto (including, without limitation, any guarantee
agreements, security documents and the other loan documents related thereto), in
each case as such agreements may be amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including all agreements extending the maturity of, refinancing or replacing all
of the Indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other agent, lender or group of
lenders.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, interest
(including any post default interest and 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 Borrower under the Senior Credit Agreement,
including, without limitation, obligations to pay principal and interest,
reimbursement obligations under letters of credit, fees, expenses and
indemnities, and (y) all obligations of the Borrower under Interest Rate
Agreements entered into with a lender under the Senior Credit Agreement (or an
Affiliate thereof) relating to Indebtedness outstanding under the Senior Credit
Agreement, in each case whether outstanding on the Closing Date or thereafter
incurred. Notwithstanding the foregoing, Senior Indebtedness shall not include
that portion of any such Indebtedness incurred in violation of the provisions
set forth in this Agreement.
"SENIOR REPRESENTATIVE" means the indenture trustee or other trustee,
agent or represen tative in respect of the Senior Credit Agreement; PROVIDED
that if, and for so long as, the Senior Credit Agreement lacks such a
representative, then the Senior Representative for the Senior Credit Agreement
shall at all times constitute the holders of a majority in outstanding principal
amount of loans outstanding under the Senior Credit Agreement.
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"SERVICING AGREEMENTS" means, collectively, the Property Servicing
Agreements, the Liquor Operations Servicing Agreements and the Liquor Leases, as
any such agreement may be amended, restated, supplemented or otherwise modified
from time to time in accordance with the terms thereof and hereof.
"SIGNIFICANT SUBSIDIARY" means the Borrower, CapStar Sub and any other
Subsidiary of CapStar that would be a "Significant Subsidiary" of CapStar within
the meaning of Rule 1-02 under Regulation S-X promulgated by the Securities and
Exchange Commission.
"SPECIFIED RELEASE PROPERTIES" means three Properties designated by the
Borrower at the time such Properties are Released; PROVIDED that each Property
so designated shall either (i) have been a Property on the date of this
Agreement or (ii) be an MBL Property.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which either (i) the Person is a general partner or member of
a limited liability company or other entity having the right to direct or manage
the business and affairs of such entity or (ii) more than 50% of the total
voting power of shares of stock or other ownership interests entitled (without
regard to the occurrence of any contingency) to vote in the election of the
Person or Persons (whether directors, managers, trustees or other Persons
performing similar functions) having the power to direct or cause the direction
of the management and policies thereof is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other Subsidiaries
of that Person or a combination thereof.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., or any successor to the business thereof.
"TAKING" means the taking or appropriation (including by deed in lieu of
condemnation or by voluntary sale or transfer under threat of condemnation or
while legal proceedings for condemnation are pending) of any Property, or any
part thereof or interest therein, for public or quasi-public use under the power
of eminent domain, by reason of any public improvement or condemnation
proceeding, or in any other manner or any damage or injury or diminution in
value through condemnation, inverse condemnation or other exercise of the power
of eminent domain. The term "Taken" used as a verb has a correlative meaning.
"TAX" or "TAXES" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, on
whomsoever and wherever imposed, levied, collected, withheld or assessed by a
Governmental Authority; PROVIDED, HOWEVER, that "TAX ON THE OVERALL NET INCOME"
of a Person shall be construed as a reference to a tax imposed by the
jurisdiction in which that Person's principal office (and/or, in the case
of any Lender, its lending office) is located or in which that Person is deemed
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to be doing business on all or part of the net income, profits or gains of that
Person (whether worldwide, or only insofar as such income, profits or gains are
considered to arise in or to relate to a particular jurisdiction, or otherwise).
"TENANT" means any Person liable by contract or otherwise to pay rent or a
percentage of income, revenue or profits pursuant to a Lease, and includes a
tenant, subtenant, lessee and sublessee.
"TOTAL PROPERTY EBITDA" means, for any period and as of any date of
determination, the aggregate Property EBITDA for such period with respect to all
Properties.
"TRANSFER" means any conveyance, assignment, sale, mortgaging,
encumbrance, pledging, hypothecation, granting of a security interest in,
granting of options with respect to or other disposition of (directly or
indirectly, voluntarily or involuntarily, by operation of law or otherwise, and
whether or not for consideration or of record) all or any portion of any legal
or beneficial interest (i) in all or any portion of any Property or (ii) in any
other assets of any Loan Party or any of its Subsidiaries.
"UNIFORM SYSTEM" means the Uniform System of Accounts for Hotels, 8th
Revised Edition, 1986, as published by the Hotel Association of New York City,
as the same may be further revised from time to time.
"UNITED STATES OF AMERICA" means the 50 states of the United States of
America and Washington, D.C., but excluding any territories or possessions
thereof other than the Commonwealth of Puerto Rico.
"VIRGINIA PARKING SUB" means Ballston Parking Associates, a Virginia
general partnership.
"VIRGINIA SUB" means EquiStar Virginia Company, L.L.C., a Delaware limited
liability company.
"WHOLLY OWNED" means, with respect to any Subsidiary of any Person, a
Subsidiary all of the outstanding equity Securities of which are owned directly
or indirectly by such Person.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER
AGREEMENT; PRO FORMA.
Except as otherwise expressly provided in this Agreement, all accounting
terms not other wise defined herein shall have the meanings assigned to them in
conformity with GAAP. Financial statements and other information required to be
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delivered by the Borrower to the Agent for distribution to the Lenders pursuant
to subsection 5.1 shall be prepared in accordance with GAAP as in effect at the
time of such preparation. Except as otherwise expressly provided herein,
calculations in connection with the definitions, covenants and other provisions
of this Agreement shall utilize accounting principles and policies in conformity
with those used to pre pare the financial statements referred to in subsection
4.3A. For purposes of calculating any amount pursuant to subsection 6.6, as of
any date of determination and for any period, pro forma effect shall be given to
the consummation of the Formation (as defined in the Senior Credit Agreement as
in effect on the Closing Date) and the Equity Offering (as defined in the Senior
Credit Agreement as in effect on the Closing Date) and the application of all
proceeds therefrom, as if such transactions shall have been consummated on the
first day of such period.
1.3 REFERENCES TO ARTICLES, SECTIONS, EXHIBITS, SCHEDULES AND ATTACHMENTS.
All references appearing in a Loan Document to Articles, Sections,
subsections, clauses, Recitals, Exhibits, Schedules or Attachments are
references to the Articles, Sections, subsec tions, clauses and Recitals thereof
and to the Exhibits, Schedules or Attachments annexed to such Loan Document
unless expressly otherwise designated in such Loan Document. All references
appearing in a Loan Document to Exhibits, Schedules and Attachments are
references to such documents as initially annexed to such Loan Document or as
supplemented or revised in accordance with the terms of this Agreement or such
other Loan Document.
1.4 CAPTIONS.
All captions to any Article, Section, subsection, clause, Recital,
Exhibit, Schedule or Attachment in a Loan Document are used for convenience and
reference only and in no way define, limit or describe the scope or intent of,
or in any way affect, such Loan Document.
1.5 DRAFTER.
No inference against or in favor of any party to any Loan Document shall
be drawn from the fact that such party or its counsel has drafted any portion of
any Loan Document.
1.6 REFERENCES TO PERSONS INCLUDE PERMITTED SUCCESSORS AND ASSIGNS.
Except as otherwise specified in a Loan Document, all references in such
Loan Document to any Person, other than the Borrower or any of its Affiliates,
shall be deemed to include the successors and assigns of such Person.
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1.7 REFERENCES TO APPLICABLE LAW AND CONTRACTS.
Except as otherwise specified in a Loan Document, all references in such
Loan Document to any Applicable Law or contracts specifically defined or
referred to therein, shall be deemed references to such Applicable Law or
contracts as may be amended, restated, supplemented, con solidated or otherwise
modified from time to time, or, in the case of any such contract, as the terms
thereof may be waived or modified, but only in the case of each such amendment,
waiver or modification of a contract, to the extent permitted by, and effected
in accordance with, the terms thereof and hereof and only to the extent such
amendment, waiver or modification of a contract is not prohibited by any of the
Loan Documents.
1.8 HEREIN.
The words "herein", "hereinabove", "hereinbelow", "hereof", "hereunder"
and words of similar import, when used in a Loan Document, shall refer to such
Loan Document as a whole.
1.9 INCLUDING WITHOUT LIMITATION.
The words "includes", "including" and similar terms used in any Loan
Document shall be construed as if followed by the words "without limitation".
1.10 GENDER.
Whenever the context so requires, the neuter gender includes the masculine
or feminine and the singular number includes the plural, and vice versa.
1.11 SINGULAR AND PLURAL.
Any of the terms defined in a Loan Document may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference.
1.12 KNOWLEDGE.
As used in this Agreement or in any other Loan Document, the phrases "TO
THE BORROWER'S ACTUAL KNOWLEDGE", "TO THE KNOWLEDGE OF THE BORROWER" and any
variations thereof shall mean, as of any date of determination and after inquiry
that would be made by a prudent owner and manager of upscale full service hotels
owning or managing such hotels for its own account, the actual knowledge or
awareness, as of such date, of the persons who occupy the offices of Chairman of
the Board, Chief Executive Officer, President, Chief Operating
Officer, Chief Financial Officer, Senior Executive Vice President-Finance,
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Executive Vice President-Finance and Development, Senior Vice
President-Operations and such other officers as shall from time to time perform
the functions that are performed by the foregoing officers as of the date of
this Agreement. The Borrower represents and warrants that the foregoing Persons
have executive and administrative responsibility for the Borrower and its assets
and, in the performance of their duties in the ordinary course of business, and
that one or more of such Persons would customarily have knowledge of the matters
referred to herein.
SECTION 2
AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 COMMITMENTS; LOANS; NOTES; THE REGISTER.
A. COMMITMENTS. Subject to the terms and conditions of this Agreement and
in reliance upon the representations and warranties of CapStar and the Borrower
herein set forth, each Lender hereby severally agrees to lend to the Borrower,
on the Funding Date, an amount equal to such Lender's Pro Rata Share of the
aggregate amount of the Commitments, to be used for the purposes identified in
subsection 2.5A. The amount of each Lender's Commitment and such Lender's Pro
Rata Share is set forth opposite its name on SCHEDULE 2.1A annexed hereto and
the aggregate amount of the Commitments is $50,000,000; PROVIDED, HOWEVER, that
prior to the Funding Date the Commitments of the Lenders shall be adjusted to
give effect to any assignments of the Commitments pursuant to subsection 9.1.
Each Lender's Commitment shall expire immediately and without further
action on the earlier of (i) the Funding Date (after giving effect to the making
of the Loans on such date) and (ii) 5:00 P.M. (New York time) on December 31,
1996. The Borrower may make only one borrowing under the Commitments; PROVIDED,
HOWEVER, that the Commitments may be terminated by the Borrower pursuant to
subsection 2.4B(ii). Any amounts borrowed under this subsection 2.1A and
subsequently repaid or prepaid may not be reborrowed.
B. NOTICE OF BORROWING. When the Borrower desires to borrow the Loans
under subsection 2.1A, the Borrower shall deliver to the Agent the Notice of
Borrowing no later than 10:00 A.M. (New York time), at least three Business Days
in advance of the Funding Date. The Notice of Borrowing shall contain the
information specified in the form attached hereto as EXHIBIT II. The Borrower
shall notify the Agent prior to the funding of the Loans in the event that any
of the matters to which the Borrower is required to certify in the Notice of
Borrowing is no longer true and correct as of the Funding Date, and the
acceptance by the Borrower of the proceeds of the Loans shall constitute a
re-certification by the Borrower, as of the Funding Date, as to the matters to
which the Borrower is required to certify in the Notice of Borrowing.
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Except as otherwise provided in subsections 2.6B and 2.6C, the Notice of
Borrowing for a Eurodollar Rate Loan shall be irrevocable on and after the
related Interest Rate Determination Date, and the Borrower shall be bound to
make the proposed borrowing in accordance therewith.
C. DISBURSEMENT OF FUNDS. The Loans under this Agreement shall be made by
the Lenders simultaneously and proportionately to their respective Pro Rata
Shares, it being understood that no Lender shall be responsible for any default
by any other Lender in that other Lender's obligation to make its Loan requested
hereunder nor shall the Commitment of any Lender be increased or decreased as a
result of a default by any other Lender in that other Lender's obligation to
make its Loan requested hereunder. After receipt by the Agent of the Notice of
Borrowing pursuant to subsection 2.1B (or telephonic notice in lieu thereof),
the Agent shall promptly notify (and, if the Notice of Borrowing is received by
the Agent by 10:00 A.M. (New York time) on any day, in any event by the end of
such day) each Lender of the proposed borrowing. Each Lender shall make the
amount of its Loan available to the Agent, in same day funds, at the office of
the Agent located at One Bankers Trust Plaza, New York, New York, not later than
12:00 Noon (New York time) on the Funding Date in same day funds in Dollars.
Upon satisfaction or waiver of the conditions precedent specified in subsections
3.1 and 3.2, the Agent shall make the proceeds of such Loans available to the
Borrower on the Funding Date by causing an amount of same day funds equal to the
proceeds of all such Loans received by the Agent from the Lenders to be
transferred to an account designated in writing by the Borrower to the Agent.
Unless the Agent shall have been notified by any Lender prior to the
Funding Date that such Lender does not intend to make available to the Agent the
amount of such Lender's Loan requested on the Funding Date, the Agent may assume
that such Lender has made such amount available to the Agent on the Funding Date
and the Agent may, in its sole discretion, but shall not be obligated to, make
available to the Borrower a corresponding amount on the Funding Date. If such
corresponding amount is not in fact made available to the Agent by such Lender,
the Agent shall be entitled to recover such corresponding amount on demand from
such Lender together with interest thereon, for each day from the Funding Date
until the date such amount is paid to the Agent, at the Federal Funds Effective
Rate for three Business Days and thereafter at the Base Rate. If such Lender
does not pay such corresponding amount forthwith upon the Agent's demand
therefor, the Agent shall promptly notify the Borrower and the Borrower shall
immediately pay such corresponding amount to the Agent together with interest
thereon, for each day from the Funding Date until the date such amount is paid
to the Agent, at the rate payable under this Agreement for Base Rate Loans.
Nothing in this subsection 2.1C shall be deemed to relieve any Lender from its
obligation to fulfill its Commitment hereunder or to prejudice any rights that
the Borrower may have against any Lender as a result of any default by such
Lender hereunder.
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D. THE REGISTER.
(i) The Agent shall maintain, at its address referred to in
subsection 9.8, a register for the recordation of the names and addresses
of the Lenders and the Commitment or outstanding Loan, as the case may be,
of each Lender from time to time (the "REGISTER"). The Borrower, the Agent
and the Lenders may treat each Person whose name is recorded in the
Register as a Lender hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower or any Lender
at any reasonable time and from time to time upon reasonable prior notice.
(ii) The Agent shall record in the Register the Commitment or the
outstanding Loan, as the case may be, of each Lender, and each repayment
or prepayment in respect of the principal amount of the Loan of each
Lender. Any such recordation shall be conclusive and binding on the
Borrower and each Lender, absent manifest error; PROVIDED, HOWEVER, that
failure to make any such recordation, or any error in such recordation,
shall not affect the Borrower's Obligations in respect of the applicable
Loans.
(iii) Each Lender shall record on its internal records (including
any promissory note described in subsection 2.1D(iv)) the amount of the
Loan made by it and each payment in respect thereof. Any such recordation
shall be conclusive and binding on the Borrower, absent manifest error;
PROVIDED, HOWEVER, that failure to make any such recordation, or any error
in such recordation, shall not affect the Borrower's Obligations in
respect of the applicable Loans; PROVIDED FURTHER, HOWEVER, that in the
event of any inconsistency between the Register and any Lender's records,
the recordations in the Register shall govern.
(iv) Any Lender may, by notice to the Agent and the Borrower,
request that all or part of the principal amount of the Borrower's Loan
from such Lender here under be evidenced by a Note. Within three Business
Days of the Borrower's receipt of such notice, the Borrower shall execute
and deliver to the Agent for delivery to the appropriate Lender a Note in
the principal amount(s) of such Loan, in the form of EXHIBIT I attached
hereto, payable to the notifying Lender or, if so specified in such
notice, any Person who is an assignee of such Lender pursuant to
subsection 9.1.
E. EXTENSION OF MATURITY DATE.
(i) At any time prior to the date that is 180 days before
December 31, 1999, the Borrower may deliver a written notice to the Agent
requesting that the
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Maturity Date be extended from December 31, 1999 to December 31, 2000 and,
if such notice is delivered, the Maturity Date shall be so extended
provided that the following conditions are satisfied:
(a) as of December 31, 1999, no Event of Default or
Potential Event of Default shall have occurred and be continuing
and no event of default or potential event of default under the
Senior Credit Agreement shall have occurred and be continuing and
the Borrower shall have delivered to the Agent an Officers'
Certificate certifying thereto;
(b) on or prior to December 31, 1999, the Borrower shall
have paid to the Agent in immediately available funds, for
distribution to the Lenders in accordance with their Pro Rata
Shares, a fee equal to .25% of the aggregate principal of the
Loans outstanding on December 31, 1999; and
(c) after giving effect to the proposed extension, no
Indebtedness permitted pursuant to subsection 6.1(iv) or (v)
shall mature prior to the date that is 91 days after the Maturity
Date, as so extended, except to the extent expressly permitted by
the second proviso contained in subsection 6.1(iv).
(ii) If the Maturity Date has been extended pursuant to clause
(i) above, at any time prior to the date that is 180 days before December
31, 2000, the Borrower may deliver a written notice to the Agent
requesting that the Maturity Date be extended from December 31, 2000 to
December 31, 2001 and, if such notice is delivered, the Maturity Date
shall be so extended provided that the following conditions are satisfied:
(a) as of December 31, 2000, no Event of Default or
Potential Event of Default shall have occurred and be continuing
and no event of default or potential event of default under the
Senior Credit Agreement shall have occurred and be continuing and
the Borrower shall have delivered to the Agent an Officers'
Certificate certifying thereto;
(b) on or prior to December 31, 2000, the Borrower shall
have paid to the Agent in immediately available funds, for
distribution to the Lenders in accordance with their Pro Rata
Shares, a fee equal to .25% of the aggregate principal of the
Loans outstanding on December 31, 2000; and
(c) after giving effect to the proposed extension, no
Indebtedness permitted pursuant to subsection 6.1(iv) or (v)
shall mature prior
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to the date that is 91 days after the Maturity Date, as so
extended, except to the extent expressly permitted by the second
proviso contained in subsection 6.1(iv).
(iii) If the maturity date of the Senior Credit Agreement is
extended from September 30, 1999 to September 30, 2000 for any reason
while any Loan remains outstanding, then the Maturity Date shall, subject
to the provisions of the immediately following sentence, be automatically
extended from December 31, 1999 to December 31, 2000 and if the maturity
date of the Senior Credit Agreement is extended from September 30, 2000 to
September 30, 2001 for any reason while any Loan is outstanding, then the
Maturity Date shall, subject to the provisions of the immediately
following sentence, be automatically extended from December 31, 2000 to
December 31, 2001. Notwithstanding anything to the contrary contained in
this subsection 2.1E(iii), the Maturity Date shall only be extended
pursuant to the provisions of the immediately preceding sentence if at the
time of any such extension, (i) the Borrower shall have paid the
applicable extension fee referred to in subsection 2.1E(i)(b) or
2.1E(ii)(b), as the case may be, and (ii) no Event of Default or Potential
Event of Default shall have occurred and be continuing and no event of
default or potential event of default under the Senior Credit Agreement
shall have occurred and be continuing.
2.2 INTEREST ON THE LOANS.
A. RATE OF INTEREST. Subject to the provisions of subsections 2.2E, 2.6
and 2.7, the Loans shall bear interest on the unpaid principal amount thereof
from the date made through the Maturity Date at a rate determined by reference
to the Adjusted Eurodollar Rate; PROVIDED HOWEVER, that at all times during
which this Agreement otherwise provides that a Loan shall be a Base Rate Loan,
such Loan shall bear interest at a rate determined by reference to the Base
Rate.
Subject to the provisions of subsections 2.2E and 2.7, the Loans shall
bear interest through the Maturity Date as follows:
(i) if a Base Rate Loan, then at a rate equal to the sum of the
Base Rate PLUS the Applicable Base Rate Margin; and
(ii) if a Eurodollar Rate Loan, then at the sum of the Adjusted
Eurodollar Rate PLUS the Applicable Eurodollar Rate Margin.
From time to time upon the request of the Borrower with respect to any
Loan, the Agent shall advise the Borrower of the interest rate applicable to
such Loan. The Agent shall advise the Borrower of the amount of each interest
payment in advance of each Payment Date in
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accordance with the customary procedures of the Agent with respect thereto, but
the failure of the Agent to provide such advice accurately or timely shall not
vary the obligation of the Borrower to pay the same in accordance with the terms
of this Agreement.
B. INTEREST PERIODS. In connection with each Eurodollar Rate Loan, the
Borrower shall, pursuant to the Notice of Borrowing or the applicable Notice of
Continuation, as the case may be, select an interest period (each an "INTEREST
PERIOD") to be applicable to such Loan, which Interest Period shall be at the
Borrower's option either a one, two, three or, if available, six month period;
PROVIDED, HOWEVER, that:
(i) the initial Interest Period for any Eurodollar Rate Loan shall
commence on the Funding Date;
(ii) each successive Interest Period shall commence on the day on
which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; PROVIDED, HOWEVER, that, if any Interest Period
would otherwise expire on a day that is not a Business Day but is a day of
the month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (v) of this subsection 2.2B, end on the
last Business Day of a calendar month;
(v) no Interest Period with respect to any Eurodollar Rate Loan
shall extend beyond the Maturity Date;
(vi) there shall be no more than one Interest Period outstanding at
any time; and
(vii) in the event the Borrower either shall fail to specify an
Interest Period for a Eurodollar Rate Loan in the Notice of Borrowing or
in the applicable Notice of Continuation or shall fail to timely deliver a
Notice of Continuation, the Borrower shall be deemed to have selected an
Interest Period of one month.
C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E,
interest on the Loans shall be payable monthly in arrears on and to each Payment
Date, upon any prepayment of the Loans (to the extent accrued on the amount
being prepaid) and at the Maturity Date.
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D. CONVERSION/CONTINUATION. Subject to the provisions of subsections 2.2E
and 2.6, if any Eurodollar Rate Loan is to be made or continued on any date on
which any Base Rate Loans are outstanding, each outstanding Base Rate Loan shall
be automatically converted into a Eurodollar Rate Loan on such date and shall
have the same Interest Period as the Eurodollar Rate Loan to be made or
continued on such date.
Upon the expiration of any Interest Period applicable to a Eurodollar Rate
Loan, the Borrower shall continue such Loan as a Eurodollar Rate Loan. The
Borrower shall deliver a Notice of Continuation to the Agent no later than 10:00
A.M. (New York time) at least three Business Days in advance of the proposed
continuation date for the applicable Eurodollar Rate Loan. A Notice of
Continuation shall specify (i) the proposed continuation date (which shall be a
Business Day), (ii) the amount of the Eurodollar Rate Loan to be continued,
(iii) the requested Interest Period, and (iv) that no Potential Event of Default
or Event of Default has occurred and is continuing. In lieu of delivering the
above-described Notice of Continuation, the Borrower may give the Agent
telephonic notice by the required time of any proposed continuation under this
subsection 2.2D; PROVIDED, HOWEVER, that such notice shall be promptly confirmed
in writing by delivery of a Notice of Continuation to the Agent on or before the
proposed continuation date. Upon receipt of written or telephonic notice of any
proposed continuation under this subsection 2.2D, the Agent shall promptly
transmit such notice by telefacsimile or telephone to each Lender.
Neither the Agent nor any Lender shall incur any liability to the
Borrower or any of its Affiliates in acting upon any telephonic notice referred
to above that Agent believes in good faith to have been given by a duly
authorized officer or other person authorized to act on behalf of the Borrower
or for otherwise acting in good faith under this subsection 2.2D, and upon
continuation of the applicable basis for determining the interest rate with
respect to any Loans in accordance with this Agreement pursuant to any such
telephonic notice the Borrower shall have effected a continuation, as the case
may be, hereunder.
Except as otherwise provided in subsections 2.2E, 2.6B and 2.6C,
a Notice of Continuation for continuation of a Eurodollar Rate Loan (or
telephonic notice in lieu thereof) shall be irrevocable on and after the related
Interest Rate Determination Date, and Borrower shall be bound to effect a
continuation in accordance therewith.
E. DEFAULT RATE INTEREST. During the continuation of any Event of
Default, the outstanding principal amount of all Loans and, to the extent
permitted by applicable law, any interest payments thereon not paid when due
(other than any excess interest payable solely pursuant to this subsection 2.2E)
and any fees and other amounts then due and payable hereunder, shall thereafter
bear interest (including post-petition interest in any proceeding under the
Bankruptcy Code or other applicable bankruptcy or insolvency laws) payable upon
demand at a rate that is 3.0% per annum in excess of the interest rate otherwise
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payable under this Agreement with respect to the applicable Loans (or, in the
case of any such fees and other amounts, at a rate which is 3.0% per annum in
excess of the interest rate otherwise payable under this Agreement for Base Rate
Loans); PROVIDED, HOWEVER, that, in the case of Eurodollar Rate Loans, if such
Event of Default is continuing, upon the expiration of the Interest Period in
effect at the time any such increase in interest rate is effective, such
Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall
thereafter bear interest payable upon demand at a rate which is 3.0% per annum
in excess of the interest rate otherwise payable under this Agreement for Base
Rate Loans. Payment or acceptance of the increased rates of interest provided
for in this subsection 2.2E is not a permitted alternative to timely payment and
shall not constitute a waiver of any Event of Default or otherwise prejudice or
limit any rights or remedies of the Agent or any Lender.
F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed (i) in
the case of Base Rate Loans, on the basis of a 365-day or 366-day year, as the
case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a
360-day year, in each case for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of the
making of such Loan or the first day of an Interest Period applicable to such
Loan shall be included, and the date of payment of such Loan or the expiration
date of an Interest Period applicable to such Loan shall be excluded; PROVIDED,
HOWEVER, that if a Loan is repaid on the same day on which it is made, one day's
interest shall be paid on that Loan.
2.3 FEES.
The Borrower agrees to pay to the Agent and the Lenders such fees in the
amounts and at the times separately agreed upon in writing between the Borrower
and the Agent and/or such Lenders.
2.4 REPAYMENTS AND PREPAYMENTS; GENERAL PROVISIONS REGARDING PAYMENTS.
A. SCHEDULED PAYMENTS OF THE LOANS. On the Maturity Date, the Loans
and all other Obligations shall be paid in full by the Borrower.
B. PREPAYMENTS AND TERMINATION OF COMMITMENTS.
(i) VOLUNTARY PREPAYMENTS. The Borrower may, without prepayment
charge or penalty (except as provided in subsection 2.6D), upon not less
than one Business Day's prior written or telephonic notice, in the case of
Base Rate Loans, and upon not less than three Business Days' prior written
or telephonic notice in the case of Eurodollar Rate Loans, in each case
confirmed in writing to the Agent (which notice the Agent will promptly
transmit by telefacsimile or telephone to each Lender), at any time prepay
the
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Loans on any Business Day in whole (but not in part); PROVIDED, HOWEVER,
that in the event a Eurodollar Rate Loan is prepaid on a day other than
the last day of the Interest Period applicable thereto, such prepayment
shall be accompanied by the payment of any amounts payable under
subsection 2.6D. Notice of prepayment having been given as aforesaid, all
of the Loans shall become due and payable on the prepayment date specified
therein.
(ii) VOLUNTARY TERMINATION OF COMMITMENTS. At any time prior to the
Funding Date, the Borrower may, upon not less than three Business Days'
prior written or telephonic notice confirmed in writing to the Agent
(which notice the Agent will promptly transmit by telegram, telex or
telephone to each Lender), at any time terminate the Commitments in whole
(but not in part), without premium or penalty. The Borrower's notice to
the Agent shall designate the date (which shall be a Business Day) of such
termination and such termination of the Commitments shall be effective on
the date specified in the Borrower's notice and shall terminate the
Commitment of each Lender.
(iii) MANDATORY REPAYMENTS OF LOANS FROM SALES OR OTHER DISPOSITIONS
OF PROPERTIES AND FROM ANY CASUALTY OR TAKING OF PROPERTIES. In the event
that subsection 6.15C or 6.15D is applicable, the Borrower shall be
required to repay outstanding Loans as and to the extent required by such
subsection 6.15C or 6.15D in connection with the sale or other permanent
disposition of a Property or in connection with any casualty or Taking of
a Property, as the case may be.
C. APPLICATION OF PAYMENTS TO PRINCIPAL AND INTEREST. All payments in
respect of the principal amount of the Loans shall include payment of accrued
interest on the principal amount being repaid or prepaid, and all such payments
shall be applied to the payment of unpaid interest before application to
principal.
D. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) MANNER AND TIME OF PAYMENT. All payments by the Borrower of
principal, interest, fees and other Obligations hereunder and under the
Notes and the other Loan Documents owed to Agent or any Lender shall be
made in same day funds and without defense, setoff or counterclaim, free
of any restriction or condition, and delivered to the Agent not later than
2:00 P.M. (New York time) on the date due at its office located at One
Bankers Trust Plaza, New York, New York, for the account of the Lenders;
funds received by the Agent after that time on such due date shall be
deemed to have been paid by the Borrower on the next succeeding Business
Day.
(ii) APPORTIONMENT OF PAYMENTS. Aggregate principal and interest
payments shall be apportioned among all outstanding Loans to which such
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payments relate, in each case proportionately to the Lenders' respective
Pro Rata Shares. The Agent shall promptly distribute to each Lender, at
its primary address set forth below its name on the appropriate signature
page hereof or at such other address as such Lender may request, its Pro
Rata Share of all such payments received by the Agent and the commit ment
fee of such Lender when received by the Agent pursuant to subsection 2.3.
Not withstanding the foregoing provisions of this subsection 2.4D(ii), if,
pursuant to the provisions of subsection 2.6C, any Affected Lender makes
Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate
Loans, the Agent shall give effect thereto in apportioning payments
received thereafter.
(iii) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made here
under shall be stated to be due on a day that is not a Business Day, such
payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder.
(iv) NOTATION OF PAYMENT. Each Lender agrees that before disposing of
the Note held by it, or any part thereof (other than by granting
participations therein), that Lender will make a notation thereon of all
Loans evidenced by that Note and all principal payments previously made
thereon and of the date to which interest thereon has been paid; PROVIDED,
HOWEVER, that the failure to make (or any error in the making of) a nota
tion of any Loan made under such Note shall not limit or otherwise affect
the obligations of the Borrower hereunder or under such Note with respect
to any Loan or any payments of principal or interest on such Note.
(v) DISTRIBUTION TO LENDERS. Any payment received by the Agent for
distribu tion to the Lenders that is received by 2:00 P.M. (New York time)
on any day shall be paid to the Lenders by the end of such day and, if
such amounts are not paid to the Lenders on such date, shall bear
interest, payable on demand, until paid to the Lenders at the Federal
Funds Effective Rate for three Business Days and thereafter at the Base
Rate.
2.5 USE OF PROCEEDS.
A. LOANS. Subject to the other provisions of this Agreement, the
proceeds of the Loans shall be applied by the Borrower for the acquisition of
upscale full service hotels in the United States of America and, to the extent
permitted by subsection 6.14B, Canada.
B. MARGIN REGULATIONS. No portion of the proceeds of the Loans shall
be used by any Loan Party or any of its Subsidiaries in any manner that might
cause such borrowing to violate Regulation G, Regulation U, Regulation T or
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Regulation X of the Board of Governors of the Federal Reserve System or any
other regulation of such Board or to violate the Exchange Act, in each case as
in effect on the Funding Date.
2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.
Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to the Eurodollar Rate Loans as
to the matters covered:
A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable after
10:00 A.M. (New York time) on each Interest Rate Determination Date, the Agent
shall determine (which determination shall, absent manifest error, be final,
conclusive and binding upon all parties) the interest rate that shall apply to
the Eurodollar Rate Loans for which an interest rate is then being determined
for the applicable Interest Period and shall promptly give notice thereof (in
writing or by telephone confirmed in writing) to the Borrower and each Lender.
B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE; EXISTENCE OF DEFAULT.
In the event that the Agent shall have determined in good faith (which
determination shall absent mani fest error be final and conclusive and binding
upon all parties hereto), on any Interest Rate Determination Date with respect
to any Eurodollar Rate Loans, that by reason of circumstances affecting the
interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the interest rate applicable to such Loans on the basis provided
for in the definition of Adjusted Eurodollar Rate, the Agent shall on such date
give notice (by telefacsimile or by telephone confirmed in writing) to the
Borrower and each Lender of such determination, whereupon (i) no Loans may be
made as, or converted to Eurodollar Rate Loans until such time as the Agent noti
fies the Borrower and the Lenders that the circumstances giving rise to such
notice no longer exist and (ii) the Notice of Borrowing or any Notice of
Continuation given by the Borrower with respect to the Loans in respect of which
such determination was made shall be deemed to contain a request that such Loans
be made as or converted to Base Rate Loans. Notwithstanding any thing to the
contrary contained in this Agreement, no Loan may be made as, or converted into,
a Eurodollar Rate Loan if an Event of Default or a Potential Event of Default
has occurred and is continuing.
C. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the event
that on any date any Lender shall have determined in good faith (which
determination shall be final and conclusive and binding upon all parties hereto
but shall be made only after consultation with the Agent) that the making,
maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful
as a result of compliance by such Lender in good faith with any law, treaty,
govern mental rule, regulation, guideline or order (or would conflict with any
such treaty, governmental rule, regulation, guideline or order not having the
force of law even though the failure to comply therewith would not be unlawful)
or (ii) has become impracticable, or would cause such Lender
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material hardship, as a result of contingencies occurring after the date of this
Agreement which materially and adversely affect the interbank Eurodollar market,
or the position of such Lender in that market, then, and in any such event, such
Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by
telefacsimile or by telephone confirmed in writing) to the Borrower and the
Agent of such determination (which notice the Agent shall promptly transmit to
each other Lender). Thereafter (a) the obligation of the Affected Lender to make
Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until
such notice shall be with drawn by the Affected Lender (which withdrawal shall
be promptly accomplished by such Affected Lender by notice to the Agent and the
Borrower as soon as the circumstances causing such Affected Lender to be so
classified no longer exist), (b) to the extent such determination by the
Affected Lender relates to a Eurodollar Rate Loan then being requested by the
Borrower to be made or continued hereunder, the Affected Lender shall make such
Loan as, or convert such Loan to, as applicable, a Base Rate Loan, (c) the
Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans
(the "AFFECTED LOANS") shall be terminated at the earlier to occur of the
expiration of the Interest Period then in effect with respect to the Affected
Loans or when required by law and (d) the Affected Loans shall automatically
convert into Base Rate Loans on the date of such termination. Except as provided
in the immediately preceding sentence, nothing in this subsection 2.6C shall
affect the obligation of any Lender other than an Affected Lender to make or
maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance
with the terms of this Agreement.
D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS. The
Borrower shall compensate each Lender, upon written request by that Lender
(which request shall set forth the basis for requesting such amounts), for all
reasonable losses, expenses and liabilities (including any interest paid by that
Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate
Loans and any loss, expense or liability sustained by that Lender in connection
with the liquidation or re-employment of such funds) which that Lender may sus
tain: (i) if for any reason (other than a default by that Lender or events
described in subsection 2.6C above with respect to such Lender) a borrowing or
continuation of any Eurodollar Rate Loan does not occur on a date specified
therefor in the Notice of Borrowing or a Notice of Continuance, as applicable,
or a telephonic request for borrowing, or a conversion to or contin uation of
any Eurodollar Rate Loan does not occur on the date specified therefor, (ii) if
any prepayment or conversion of any of its Eurodollar Rate Loans occurs on a
date that is not the last day of an Interest Period applicable to that Loan,
(iii) if any prepayment (including any prepayment pursuant to subsection 2.4B(i)
or subsection 2.4B(iii)) or other principal payment of any of its Eurodollar
Rate Loans is not made by the Borrower on any date specified in a notice of
prepayment given by the Borrower or (iv) as a consequence of any other default
by the Borrower in the repayment of its Eurodollar Rate Loans when required by
the terms of this Agreement.
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E. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.
F. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS. Calculation of
all amounts payable to a Lender under this subsection 2.6 and under subsection
2.7A shall be made as though that Lender had actually funded each of its
relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit
bearing interest at the rate obtained pursuant to clause (i) of the definition
of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar
Rate Loan and having a maturity comparable to the relevant Interest Period and
through the transfer of such Eurodollar deposit from an offshore office of that
Lender to a domestic office of that Lender located in the United States of
America; PROVIDED, HOWEVER, that each Lender may fund each of its Eurodollar
Rate Loans in any manner it sees fit and the fore going assumptions shall be
utilized only for the purposes of calculating amounts payable under this
subsection 2.6 and under subsection 2.7A.
2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions
of sub section 2.7B (which shall be controlling with respect to the matters
covered thereby), in the event that any Lender shall in good faith determine
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto but shall be made only after consultation with
the Agent) that any law, treaty or governmental rule, regulation or order, or
any change therein or in the interpretation, administration or application
thereof (including the introduction of any new law, treaty or governmental rule,
regulation or order), or any deter mination of a Governmental Authority, in each
case that becomes effective after the date hereof, or compliance by such Lender
with any guideline, request or directive issued or made after the date hereof by
any central bank or other Governmental Authority or quasi-governmental authority
(whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office) to any
additional Tax (other than any Tax on the overall net income of such
Lender), with respect to this Agreement or any of its obligations
hereunder or any payments to such Lender (or its applicable lending
office) of principal, interest, fees or any other amount payable
hereunder;
(ii) imposes, modifies or holds applicable any reserve (including any
marginal, emergency, supplemental, special or other reserve), special
deposit, compulsory loan, FDIC insurance or similar requirement against
assets held by, or deposits or other liabilities in or for the account of,
or advances or loans by, or other credit extended by,
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or any other acquisition of funds by, any office of such Lender (other
than any such reserve or other requirements with respect to Eurodollar
Rate Loans that are reflected in the definition of Adjusted Eurodollar
Rate); or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Lender (or its applicable lending office) or
its obligations hereunder or the interbank Eurodollar market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, the Borrower shall promptly pay to such
Lender, upon receipt of the statement referred to in the next sentence, such
additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to the Borrower (with a copy to the Agent)
a written statement setting forth in reasonable detail the basis for calculating
the additional amounts owed to such Lender under this subsection 2.7A, which
statement shall be conclusive and binding upon all parties hereto absent
manifest error.
B. WITHHOLDING OF TAXES.
(i) PAYMENTS TO BE FREE AND CLEAR. All sums payable by the Borrower
under this Agreement and the other Loan Documents shall be paid free and
clear of and (except to the extent required by law) without any deduction
or withholding on account of any Tax (excluding in the case of each Lender
and the Agent, Taxes imposed on its income by a jurisdiction under the
laws of which it is organized or in which its principal executive office
is located or in which its applicable lending office for funding or
booking its Loans hereunder is located) imposed, levied, collected,
withheld or assessed by or within the United States of America or any
political subdivision in or of the United States of America or any other
jurisdiction from or to which a payment is made by or on behalf of the
Borrower or by any federation or organization of which the United States
of America or any such jurisdiction is a member at the time of payment.
(ii) GROSSING-UP OF PAYMENTS. If the Borrower or any other Person is
required by law to make any deduction or withholding on account of any
such Tax from any sum paid or payable by the Borrower to the Agent or any
Lender under any of the Loan Documents:
(a) the Borrower shall notify the Agent of any such
requirement or any change in any such requirement as soon as the
Borrower becomes aware of it;
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(b) the Borrower shall pay any such Tax before the date on
which penalties attach thereto, such payment to be made (if the
liability to pay is imposed on the Borrower) for its own account or
(if that liability is imposed on the Agent or such Lender, as the
case may be) on behalf of and in the name of the Agent or such
Lender;
(c) the sum payable by the Borrower in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making
of that deduction, withholding or payment, the Agent or such Lender,
as the case may be, receives on the due date a net sum equal to what
it would have received had no such deduction, withholding or payment
been required or made; and
(d) within 30 days after paying any sum from which it is
required by law to make any deduction or withholding, and within 30
days after the due date of payment of any Tax which it is required
by clause (b) above to pay, the Borrower shall deliver to the Agent
evidence satisfactory to the other affected parties of such
deduction, withholding or payment and of the remittance thereof to
the relevant taxing or other authority;
PROVIDED, HOWEVER, that no such additional amount shall be required to be
paid to any Lender under clause (c) above except to the extent that any
change after the date hereof (in the case of each Lender listed on the
signature pages hereof) or after the date such Lender became a Lender
pursuant to subsection 9.1 (in the case of each other Lender) in any such
requirement for a deduction, withholding or payment as is mentioned
therein shall result in an increase in the rate of such deduction,
withholding or payment from that in effect at the date of this Agreement
(in the case of each Lender listed on the signature pages hereof) or at
the date such Lender became a Lender pursuant to subsection 9.1 (in the
case of each other Lender) as the case may be, in respect of payments to
such Lender.
(iii) U.S. TAX CERTIFICATES. Each Lender that is organized under
the laws of any jurisdiction other than the United States of America or
any state or other political subdivision thereof shall deliver to the
Agent for transmission to the Borrower, on or prior to the Closing Date
(in the case of each Lender listed on the signature pages hereof) or on
the date it becomes a Lender pursuant to subsection 9.1 (in the case of
each other Lender), and at such other times as may be necessary in the
determination of the Borrower or the Agent (each in the reasonable
exercise of its discretion), such certifi cates, documents or other
evidence, properly completed and duly executed by such Lender (including
Internal Revenue Service Form 1001 or Form 4224 or any other certi
ficate or statement of exemption required by Treasury Regulations Section
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1.1441-4(a) or Section 1.1441-6(c) or any successor thereto) to establish
that such Lender is not subject to deduction or withholding of United
States federal income tax under Sec tion 1441 or 1442 of the Internal
Revenue Code or otherwise (or under any comparable provisions of any
successor statute) with respect to any payments to such Lender of
principal, interest, fees or other amounts payable under any of the Loan
Documents. The Borrower shall not be required to pay any additional amount
to any Lender under clause (c) or perform with respect thereto under
clause (d) of subsection 2.7B(ii) at any time during which such Lender
shall have failed to satisfy the requirements of the immediately preceding
sentence; PROVIDED, HOWEVER, that if such Lender shall have satisfied such
requirements on the Closing Date (in the case of each Lender listed on the
signature pages hereof) or on the date it becomes a Lender (in the case of
each other Lender), nothing in this subsection 2.7B(iii) shall relieve the
Borrower of its obligation to pay any additional amounts pursuant to
clause (c) or perform with respect thereto under clause (d) of subsection
2.7B(ii) in the event that, as a result of any change in any applicable
law, treaty or governmental rule, regulation or order, or any change in
the interpretation, administration or application thereof, such Lender is
no longer properly entitled to deliver forms, certificates or other
evidence at a subsequent date establishing the fact that such Lender is
not subject to withholding as described in the immediately preceding
sentence.
C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have reasonably
determined that the adoption, effectiveness, phase-in or applicability (after
the date of this Agreement) of any law, rule or regulation (or any provision
thereof) regarding capital adequacy, or any change therein or in the
interpretation or administration thereof by any Governmental Authority,
including any central bank or comparable agency charged with the interpretation
or administra tion thereof, or compliance by any Lender (or its applicable
lending office) with any guideline, request or directive regarding capital
adequacy (whether or not having the force of law (after the date of this
Agreement)) of any such Governmental Authority, has or would have the effect of
reducing the rate of return on the capital of such Lender or any corporation
controlling such Lender as a consequence of, or with reference to, such Lender's
Loans or Commitment or other obligations hereunder with respect to the Loans to
a level below that which such Lender or such controlling corporation could have
achieved but for such adoption, effectiveness, phase-in, appli cability, change
or compliance (taking into consideration the policies of such Lender or such
controlling corporation with regard to capital adequacy), then from time to
time, within five Business Days after receipt by the Borrower from such Lender
of the statement referred to in the next sentence, the Borrower shall pay to
such Lender such additional amount or amounts as will compensate such Lender or
such controlling corporation on an after-tax basis for such reduction. Such
Lender shall deliver to the Borrower (with a copy to the Agent) a written state
ment, setting forth in reasonable detail the basis of the calculation of such
additional amounts, which statement shall be conclusive and binding upon all
parties hereto absent manifest error.
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2.8 OBLIGATION OF THE LENDERS TO MITIGATE.
Each Lender agrees that, as promptly as practicable after the officer of
such Lender responsible for administering the Loans becomes aware of the
occurrence of an event or the existence of a condition that would cause such
Lender to become an Affected Lender or that would entitle such Lender to receive
payments under subsection 2.7, it will, to the extent not inconsistent with the
internal policies of such Lender and any applicable legal or regulatory
restrictions, use reasonable efforts (i) to make, fund or maintain the
Commitment of such Lender or the affected Loans of such Lender through another
lending office of such Lender, or (ii) take such other measures as such Lender
may deem reasonable, if as a result thereof the circum stances which would cause
such Lender to be an Affected Lender would cease to exist or the additional
amounts which would otherwise be required to be paid to such Lender pursuant to
subsection 2.7 would be materially reduced and if, as determined by such Lender
in its reason able judgment, the making, funding or maintaining of such
Commitment or Loans through such other lending office or in accordance with such
other measures, as the case may be, would not otherwise materially adversely
affect such Commitment or Loans or the interests of such Lender; PROVIDED,
HOWEVER, that such Lender will not be obligated to utilize such other lending
office pursuant to this subsection 2.8 unless the Borrower agrees to pay all
incremental expenses incurred by such Lender as a result of utilizing such other
lending office as described in clause (i) above. A certificate as to the amount
of any such expenses payable by the Borrower pursuant to this subsection 2.8
(setting forth in reasonable detail the basis for requesting such amount)
submitted by such Lender to the Borrower (with a copy to the Agent) shall be
conclusive absent manifest error.
2.9 ACQUISITION OF PROPERTIES.
A. ACQUISITION AND ADDITION OF POOL A PROPERTIES. The Borrower and its
Wholly Owned Subsidiaries may make Acquisitions of one or more hotel properties
(each, an "ADDITIONAL POOL A PROPERTY") as Pool A Properties; PROVIDED that, in
any event:
(i) such Additional Pool A Property shall be owned either by the
Borrower or a Pool A Subsidiary; PROVIDED that such Subsidiary shall have
executed a counterpart of the Affiliate Guaranty;
(ii) each Additional Pool A Property shall include the entire fee
interest or leasehold interest pursuant to a Ground Lease in an upscale
full service hotel located in the United States of America and, to the
extent provided in subsection 6.14B, Canada, and otherwise be of a type,
quality and character consistent with the Borrower's business plan and
strategy or, if not consistent, as approved by the Requisite Lenders,
which approval may be granted, withheld, conditioned or delayed in the
Requisite Lenders' sole
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discretion (provided that, so long as the Senior Credit Agreement is in
effect, no such approval shall be required to the extent that such
approval is granted under the Senior Credit Agreement and such Additional
Pool A Property is otherwise an upscale full service hotel located in the
United States of America and, to the extent provided in subsection 6.14B,
in Canada);
(iii) prior to the proposed Addition Date, the Borrower, at its
expense, shall deliver to the Lenders the Property Information with
respect to such Additional Pool A Property; and
(iv) on or before the proposed Addition Date with respect to such
Additional Pool A Property, the Borrower at its expense, shall deliver to
the Lenders a statement of Property Gross Revenues and Operating Expenses
and any other expenses with respect to such Additional Pool A Property for
the 12 most recently completed calendar months ending not less than 30
days before such Addition Date, in reasonable detail satisfactory to the
Agent and certified by the Authorized Officer of the Borrower to the
effect provided in subsection 5.1(i), MUTATIS MUTANDIS, PROVIDED that such
certificate may be based upon his or her knowledge, after reasonable
inquiry.
B. ACQUISITION OF POOL B PROPERTIES. So long as no Event of Default or
Potential Event of Default has occurred and is continuing or would be caused
thereby, any of the Pool B Subsidiaries may make Acquisitions of Pool B
Properties; PROVIDED that:
(i) each Pool B Property subject to such Acquisition shall include
the entire fee or leasehold interest pursuant to a Ground Lease in an
upscale full service hotel located in the United States of America and, to
the extent permitted in subsection 6.14B, Canada and otherwise be of a
type, quality and character consistent with the Borrower's business plan
and strategy or, if not consistent, as approved by the Requisite Lenders,
which approval may be granted, withheld, conditioned or delayed in the
Requisite Lenders' sole discretion (provided that, so long as the Senior
Credit Agreement is in effect, no such approval shall be required to the
extent that such approval is granted under the Senior Credit Agreement and
such Pool B Property is otherwise an upscale full service hotel located in
the United States of America and, to the extent provided in subsection
6.14B, in Canada);
(ii) at least 15 days before the proposed closing date of each such
Acquisition, the Borrower, at its expense, shall deliver to the Lenders
(1) the Property Information with respect to such Pool B Property that has
not previously been delivered and (2) a statement of Property Gross
Revenues and Operating Expenses and any other expenses with respect to
such Pool B Property for the 12 most recently completed calendar months
ending not less than 30 days before such closing date, in reasonable
detail and certified
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by the Chief Executive Officer or the Chief Financial Officer of the
Borrower to the effect provided in subsection 5.1(i), MUTATIS MUTANDIS,
PROVIDED that such certificate may be based upon his or her knowledge,
after reasonable inquiry;
(iii) on or before such closing date, the Borrower or any of its
Wholly Owned Subsidiaries (other than Pool B Subsidiaries) shall have
entered into a Property Servicing Agreement with such Pool B Subsidiary
and, in the event a Liquor License exists with respect to such Pool B
Property or is acquired thereafter, and the Borrower shall reasonably
determine that the same is necessary or advisable or same is required
under the Senior Credit Agreement, the appropriate parties shall have
entered into a Liquor Operation Servicing Agreement or a Liquor Lease;
(iv) on or before such closing date, the Borrower, at its expense,
shall deliver to the Agent, unless previously delivered to the Agent
pursuant to subsection 6.7(ii), original counterparts to the Affiliate
Guaranty executed by such Pool B Subsidiary; PROVIDED that such Pool B
Subsidiary shall not be required to execute an Affiliate Guaranty if and
so long as doing so would violate the provisions of any Pool B
Indebtedness then owed by such Pool B Subsidiary; and
(v) at no time shall a Pool B Subsidiary acquire and own more than
one Pool B Property unless such Pool B Properties are acquired in a single
transaction or series of related transactions.
C. ATLANTA PROPERTY. Notwithstanding anything herein to the contrary, the
Atlanta Property shall cease to be a Pool A Property and shall become a Pool B
Property, in each case for all purposes under this Agreement at the time the
Atlanta Property becomes a Pool B Property under the Senior Credit Agreement.
2.10 SALES OF POOL A PROPERTIES.
At any time and from time to time after the Closing Date and prior to the
date on which subsection 6.15C is applicable, the Borrower may effect the sale
or other permanent disposition of a Pool A Property (or the Capital Stock of any
Subsidiary owning a Pool A Property) only if the following terms and conditions
are satisfied on the applicable Release Date:
(i) the Borrower shall have delivered written notice to the Agent
prior to the actual Release Date specifying such actual Release Date and
such Pool A Property;
(ii) no Event of Default shall have occurred and be continuing as of
the date of the delivery of the notice pursuant to clause (i) above (other
than an Event of Default or Potential Event of Default that pertains
solely to the Pool A Property or portion
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thereof which is the subject of such Release or which is cured by such
Release) and no Event of Default shall be continuing as of the Release
Date after giving effect to such Release;
(iii) concurrently with such Release, the borrowing base under the
Senior Credit Agreement shall be reduced by an amount equal to the then
applicable Property Amount with respect to such Pool A Property in effect
immediately prior to giving effect to such Release;
(iv) the Borrower shall concurrently prepay any outstanding loans
under the Senior Credit Agreement in an amount equal to the Release Price
in respect of such Pool A Property; and
(v) the Borrower shall have delivered to the Agent for distribution
to the Lenders an Officers' Certificate dated the Release Date, certifying
as to the matters referred to in clauses (ii) through (iv) above or, to
the extent applicable, to the matters set forth in the immediately
following sentence.
SECTION 3
CONDITIONS PRECEDENT
3.1 CONDITIONS TO CLOSING DATE AND EFFECTIVENESS OF COMMITMENTS.
The occurrence of the Closing Date and the effectiveness of the
Commitments of the Lenders is conditioned upon the prior or concurrent
satisfaction, at the expense of the Borrower, of the conditions specified in
this subsection 3.1, in each case as determined by the Agent:
A. CORPORATE DOCUMENTS. Each Loan Party (other than any Partnership Loan
Party or LLC Loan Party) and each corporate general partner of a Partnership
Loan Party shall deliver or cause to be delivered to the Agent (with sufficient
originally executed copies for each Lender and the Agent's counsel) the
following, each unless otherwise noted dated the Closing Date:
(i) to the extent such Loan Party is a party thereto, executed
originals of this Agreement, the Affiliate Guaranty, the CapStar Guaranty
and each other Loan Document to which it is a party;
(ii) a certificate of the secretary or any assistant secretary of
such Loan Party certifying that there have been no changes to its
Certificate of Incorporation or ByLaws since September 30, 1996;
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(iii) resolutions of its Board of Directors approving and
authorizing (a) the execution, delivery and performance of each Loan
Document to which it is a party and (b) the consummation of the
transactions contemplated hereby and thereby, in each case certified as of
the Closing Date by its corporate secretary or an assistant secretary as
being in full force and effect without modification or amendment;
(iv) signature and incumbency certificates of its officers
executing this Agreement and the other Loan Documents to which it is a
party; and
(v) a good standing certificate for CapStar and the Borrower from
the Secretary of State of the State of Delaware dated not more than 7 days
prior to the Closing Date.
B. PARTNERSHIP AND LLC DOCUMENTS. Each Partnership Loan Party and each LLC
Loan Party, as applicable, shall deliver to the Agent (with sufficient
originally executed copies for each Lender and the Agent's counsel) the
following, each unless otherwise noted dated the Closing Date:
(i) to the extent such Loan Party is a party thereto, executed
originals of this Agreement, the Affiliate Guaranty, a Note in favor of
each Lender and each other Loan Document to which it is a party;
(ii) with respect to each Partnership Loan Party, a certificate of
each general partner of such partnership certifying that there have been
no amendments or modifications to its partnership agreement or certificate
of limited partnership since September 30, 1996 and that such partnership
agreement and certificate of limited partnership are in full force and
effect;
(iii) with respect to each LLC Loan Party, a certificate of the
manager of such LLC Loan Party certifying that there have been no
amendments or modifications to its limited liability company agreement and
its other organizational documents (including its Articles of Organization
or Certificate of Formation) since September 30, 1996 and that such
agreement and other organizational documents are in full force and effect;
(iv) all documents of such Partnership Loan Party and its partners
(to the extent required by the applicable organizational documents) or
such LLC Loan Party and its members, as applicable, approving or
authorizing (a) the execution, delivery and performance of the Affiliate
Guaranty and any other Loan Documents to which it is a
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party, and (b) the consummation of the transactions contemplated hereby
and thereby, each certified as of the Closing Date by the general partner
of such Partnership Loan Party or other Loan Party; and
(v) unless otherwise required to be delivered pursuant to
subsection 3.1A(iv), signature and incumbency certificates of the
Person(s) executing, on behalf of such partnership or limited liability
company, as applicable, any Loan Documents to which such Partnership Loan
Party or LLC Loan Party is a party.
C. FINANCIAL STATEMENTS; CERTIFICATES. The Borrower shall have
delivered to the Agent an Officers' Certificate of the Chief Executive Officer
or the Chief Financial Officer of the Borrower certifying as to the following:
(i) the delivery to the Agent of the financial statements
referred to in subsection 4.3 on or before the Closing Date;
(ii) as of the Closing Date, CapStar has a Market Equity
Capitalization of not less than $200,000,000; and
(iii) since September 30, 1996, no Material Adverse Effect has
occurred.
D. NO MATERIAL ADVERSE EFFECT. Since September 30, 1996, in the sole
opinion of the Agent, no condition or event has occurred that has had or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
E. OPINIONS OF THE BORROWER'S COUNSEL. On the Closing Date, the Borrower
shall have delivered to the Agent, its counsel and the Lenders (i) executed
copies of each of the favorable written opinions of DeCampo, Diamond & Ash and
Paul, Weiss, Rifkin, Wharton & Garrison, respectively, each counsel for the
Borrower, which shall be substantially in the forms of EXHIBIT VII annexed
hereto, with such changes as the Agent may approve and dated the Closing Date
and (ii) evidence satisfactory to the Agent that the Borrower has requested such
counsel to deliver such opinions to the Agent and its counsel and the Lenders.
F. SOLVENCY CERTIFICATE. On the Closing Date, the Borrower shall have
delivered to the Agent a solvency certificate in the form of EXHIBIT VIII
annexed hereto and dated the Closing Date, which solvency certificate shall be
executed by the Chief Financial Officer of CapStar.
G. AMENDMENT TO THE SENIOR CREDIT AGREEMENT. On or prior to the Closing
Date, the Borrower and the lenders under the Senior Credit Agreement shall have
entered into an amendment to the Senior Credit Agreement with respect to, INTER
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ALIA, the entering into by CapStar, the Borrower and the other Loan Parties of
this Agreement and the other Loan Documents, and such amendment shall be in form
and substance satisfactory to the Agent and the Lenders and shall be in full
force and effect.
H. NO ADVERSE LITIGATION. There shall not be pending or, to the knowledge
of the Borrower, threatened, any action, suit, proceeding, governmental
investigation or arbitration against or affecting CapStar or any of its
Subsidiaries or any property of CapStar or any of its Subsidiaries that has not
been disclosed by the Borrower in writing pursuant to subsection 4.5 prior to
the execution of this Agreement and that is reasonably likely to have a Material
Adverse Effect, and there shall have occurred no development not so disclosed in
any such action, suit, proceeding, governmental investigation or arbitration so
disclosed, that, in either event, in the opinion of the Agent, is reasonably
likely to have a Material Adverse Effect; and no injunction or other restraining
order shall have been issued and no hearing to cause an injunction or other
restraining order to be issued shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of, the
transactions contemplated by this Agreement or the making of the Loans
hereunder.
I. CONTINGENT OBLIGATIONS. The Agent and the Lenders shall have received
and approved a list of all Contingent Obligations substantially in the form of
SCHEDULE 4.3B annexed hereto.
J. PAYMENT OF FEES AND EXPENSES. The Borrower shall have paid to the
Agent, for distribution (as appropriate) to the Lenders and the Agent, the fees
payable pursuant to subsection 2.3 and the expenses payable pursuant to
subsection 9.2.
K. COMPLETION OF PROCEEDINGS. All corporate and other proceedings taken or
to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto not previously found acceptable by the Agent and
its counsel shall be reasonably satisfactory in form and substance to the Agent
and such counsel, and the Agent and such counsel shall have received all such
counterpart originals or certified copies of such documents as the Agent may
reasonably request.
L. OTHER DOCUMENTS. Each Loan Party shall have delivered to the Agent
such other information and documents as the Agent may reasonably request.
3.2 CONDITIONS TO THE LOANS ON THE FUNDING DATE.
The obligations of the Lenders to make the Loans on the Funding Date are
subject to the following further conditions precedent:
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A. NOTICE OF BORROWING. The Agent shall have received before the Funding
Date, in accordance with the provisions of subsection 2.1B, an originally
executed Notice of Borrowing, in each case signed by the Chief Executive
Officer, the Chief Financial Officer or the Treasurer of the Borrower or by any
executive officer of the Borrower designated by any of the above-described
officers on behalf of the Borrower in a writing delivered to the Agent.
B. OTHER CONDITIONS PRECEDENT. As of the Funding Date:
(i) the representations and warranties of the Loan Parties as
contained herein and in the other Loan Documents shall be true and correct
in all material respects on and as of the Funding Date to the same extent
as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case such representations and warranties shall have been true and
correct in all material respects on and as of such earlier date;
(ii) no event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by the Notice of
Borrowing that would constitute an Event of Default or a Potential Event
of Default;
(iii) no event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by the Notice of
Borrowing that would constitute an event of default or a potential event
of default under the Senior Credit Agreement;
(iv) each Loan Party shall have performed in all material respects
all agreements and satisfied all conditions which this Agreement and the
other Loan Documents provide shall be performed or satisfied by it on or
before the Funding Date;
(v) no order, judgment or decree of any arbitrator or Governmental
Authority shall purport to enjoin or restrain any Lender from making the
Loans to be made by it on the Funding Date and the making of the Loans
requested on the Funding Date shall not violate any law including, without
limitation, Regulation G, Regulation T, Regulation U or Regulation X of
the Board of Governors of the Federal Reserve System;
(vi) there shall not be pending or, to the knowledge of the Borrower,
threat ened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting the Borrower of its Subsidiaries that has
not been disclosed by the Borrower in writing pursuant to subsection 4.5
or 5.1(xi) prior to the making of the Loans and that would be reasonably
likely to have a Material Adverse Effect, and there shall have occurred no
development not so disclosed in any such action, suit, proceeding, govern
mental investigation or arbitration so disclosed, that, in either event,
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in the opinion of the Agent, would be reasonably likely to have a Material
Adverse Effect; and no injunc tion or other restraining order shall have
been issued and no hearing to cause an injunc tion or other restraining
order to be issued shall be pending or noticed with respect to any action,
suit or proceeding seeking to enjoin or otherwise prevent the consummation
of, or to recover any damages or obtain relief as a result of, the
transactions contem plated by this Agreement or the making of the Loans
hereunder;
(vii) since September 30, 1996, no condition or event shall have
occurred that has had or could reasonably be expected, either individually
or in the aggregate, to have a Material Adverse Effect; and
(viii) on, or within three Business Days prior to, the Funding Date,
the Borrower shall have delivered to the Agent an Officers' Certificate
certifying (and showing the respective calculations in reasonable detail
to establish) that the ratio of Consolidated Total Indebtedness on the
Funding Date (and after giving effect to the incurrence of the Loans on
such date and the acquisition of the respective Pool A Properties on such
date) to Consolidated EBITDA for the immediately preceding 12 consecutive
full fiscal months is not greater than 5.50 to 1.00.
SECTION 4
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and the Lenders to enter into this Agreement
and to make the Loans, each of CapStar and the Borrower represents and warrants
to the Agent and the Lenders that, as of the Closing Date and the Funding Date
the following statements in this Section 4 are true, correct and complete on the
Closing Date and on the Funding Date, as the case may be.
4.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
SUBSIDIARIES.
A. ORGANIZATION AND POWERS. Each Loan Party and each of its Subsidiaries
(other than any Partnership Loan Party or any LLC Loan Party) is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation (which jurisdiction is set forth on SCHEDULE 4.1A
annexed hereto). Each such Loan Party and each such Subsidiary has the requisite
corporate power and authority to own and operate its properties (including the
Properties identified as being owned or leased by such Loan Party or such
Subsidiary on SCHEDULE 4.4A1 and SCHEDULE 4.4A2 annexed hereto), to carry on its
business as now conducted and as proposed to be conducted, to enter into the
Loan Documents and each Acquisition Agreement to which it is a party, and to
carry out the transactions contemplated
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hereby and thereby. Each Partnership Loan Party is a limited partnership duly
formed and validly existing under the laws of its jurisdiction of organization
(which jurisdiction is set forth on SCHEDULE 4.1A) and each Partnership Loan
Party has all requisite partnership power and authority to own and operate its
properties (including the Properties identified on SCHEDULE 4.4A1 and SCHEDULE
4.4A2 as being owned or leased by such Partnership Loan Party), to carry on its
business as now conducted and proposed to be conducted, to enter into each Loan
Document and each Acquisition Agreement to which it is a party and to carry out
the transactions contemplated hereby and thereby and, in the case of the
Borrower, to issue and pay the Notes. Each LLC Loan Party is a limited liability
company duly formed and validly existing under the laws of its jurisdiction of
organization (which jurisdiction is set forth on SCHEDULE 4.1A) and each LLC
Loan Party has all requisite power and authority to own and operate its
properties (including the Properties identified on SCHEDULE 4.4A1 and SCHEDULE
4.4A2 as being owned or leased by such LLC Loan Party), to carry on its business
as now conducted and proposed to be conducted, to enter into each Loan Document
and each Acquisition Agreement to which it is a party and to carry out the
transactions contemplated thereby. The books and records of each Loan Party and
each of its Subsidiaries reflect the properties and assets purported to be owned
by such Loan Party or Subsidiary, as applicable.
B. QUALIFICATION AND GOOD STANDING. Each Loan Party and each of its
Subsidiaries is qualified to do business and in good standing in every
jurisdiction necessary to carry out its business and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had and could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. The jurisdictions in which each Loan Party
and each of its Subsidiaries owns property or otherwise conducts business as of
the Closing Date are set forth on SCHEDULE 4.1B annexed hereto.
C. CONDUCT OF BUSINESS. CapStar, the Borrower and each of their
respective Subsidiaries are engaged only in the businesses permitted to be
engaged in by them pursuant to subsection 6.14.
D. SUBSIDIARIES. The Capital Stock of each of the Subsidiaries is duly and
validly authorized and issued and (with the exception of partnership interests
of general partners and except to the extent that the limited liability company
agreements governing the respective limited liability companies provide
otherwise) fully paid and nonassessable. All of the Subsidiaries of each Loan
Party as of the Closing Date are identified on SCHEDULE 4.1A annexed hereto. The
capital stock of each Person identified on SCHEDULE 4.1A is not Margin Stock.
SCHEDULE 4.1A correctly sets forth the ownership interests in each Loan Party
(other than the Borrower) and each of its Subsidiaries as of the Closing Date.
Except as set forth on SCHEDULE 4.1A, each Subsidiary of the Borrower is a
Wholly Owned Subsidiary.
E. ACQUISITIONS. Each Loan Party shall have the corporate, partnership or
other applicable power to consummate each Acquisition to be consummated by it
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upon the consummation thereof, on the terms set forth in any applicable
Acquisition Agreement or other operative agreement related to such Acquisition.
Upon the consummation of any Acquisition, such Acquisition shall have been duly
authorized by all necessary action of such Loan Party or Subsidiary, as the case
may be.
4.2 AUTHORIZATION OF BORROWING, ETC.
A. AUTHORIZATION OF BORROWING. The execution, delivery and performance of
this Agreement and the other Loan Documents and each Acquisition Agreement to
which each Loan Party is a party and the issuance, delivery and payment of the
Notes have been duly authorized by all necessary corporate, partnership or other
action on the part of each Loan Party, as the case may be.
B. NO CONFLICT. The execution, delivery and performance by each Loan Party
of each Loan Document and each Acquisition Agreement to which it is a party and
the consummation of the transactions contemplated hereby and thereby, do not and
will not (i) violate any provision of law applicable to any Loan Party or any of
its Subsidiaries, the Certificate of Incorporation or Bylaws, partnership
agreement or other organizational document of any Loan Party or any of its
Subsidiaries or any order, judgment or decree of any court or other agency of
government binding on any Loan Party or any of its Subsidiaries, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any Contractual Obligation of any Loan Party, which
default, individually or in the aggregate, could have a Material Adverse Effect,
(iii) result in or require the creation or imposition of any Lien upon any of
the properties or assets of any Loan Party or any of its Subsidiaries (other
than Liens securing the obligations under the Senior Credit Agreement), or (iv)
require any approval of stockholders or any approval or consent of any Person
under any Contractual Obligation of any Loan Party the absence of which could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect, other than approvals or consents which will be or have been
obtained on or before the Closing Date (or, in the case of an Acquisition, on or
before the date such Acquisition is consummated) and disclosed in writing to the
Agent and the Lenders.
C. GOVERNMENTAL CONSENTS. Except as set forth on SCHEDULE 4.2C annexed
hereto, the execution, delivery and performance by each Loan Party of each Loan
Document and each Acquisition Agreement to which it is a party and the
consummation of the transactions contemplated hereby and thereby do not and will
not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any Governmental Authority, except for (i) such of
the foregoing which will have been made or obtained on or before the Closing
Date (or, in the case of any Acquisition Agreement relating to an Acquisition,
on or before the date of the closing of such Acquisition) and (ii) the
recordings and filings required to perfect the Liens granted pursuant to the
Senior Credit Agreement. As of the Closing Date, all consents or approvals from
or notices to or filings with any federal, state, or other (domestic or foreign)
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regulatory authorities required to be obtained on or before such date in
connection with the documents or transactions described or referred to in the
preceding sentence will have been accomplished in all material respects in
compliance in all material respects with all Applicable Laws. None of the
transactions constituting the consummation of the transactions contemplated by
this Agreement, the other Loan Documents and the Acquisition Agreements violates
any Applicable Law or regulation in any respect, which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
D. BINDING OBLIGATION. This Agreement is, and the other Loan Documents
when executed and delivered hereunder will be, the legally valid and binding
obligations of the applicable Loan Parties, enforceable against the applicable
Loan Parties in accordance with their respective terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally, and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or law) and subject to other qualifications, exceptions and assumptions
such as are set forth in the various legal opinions delivered to the Agent in
connection with such documents or other documents.
E. VALID ISSUANCE OF COMMON STOCK. All the issued and outstanding
Common Stock is duly and validly issued, fully paid and nonassessable.
F. NEW YORK STOCK EXCHANGE LISTING. All outstanding shares of each class
of Capital Stock of CapStar shall at all times be duly listed on the New York
Stock Exchange, Inc. CapStar shall timely file all reports required to be filed
by it with the New York Stock Exchange, Inc. and the Securities and Exchange
Commission.
4.3 FINANCIAL CONDITION; CONTINGENT OBLIGATIONS.
A. FINANCIAL CONDITION. The Borrower has heretofore delivered to the
Agent, at the Agent's request, the unaudited consolidated balance sheet of
CapStar and its Subsidiaries as at September 30, 1996 and the related
consolidated statements of income, stockholders' equity and cash flows of
CapStar and its Subsidiaries for the 12 months then ended. The statements
referred to in the preceding sentence were prepared in conformity with GAAP and
fairly present, in all material respects, the consolidated financial position of
CapStar and its Subsidiaries as at the date thereof and the consolidated results
of operations of CapStar and its Subsidiaries for the period then ended, subject
to changes resulting from audit and normal year end adjustments and there are no
material differences between such consolidated financial position and
consolidated results of operations of CapStar and its Subsidiaries as presented
in such consolidated financial statements and the consolidated financial
position and consolidated results of operations of the Borrower and its
Subsidiaries as at the date of such consolidated financial statements and for
the
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period then ended. CapStar and its Subsidiaries do not (and will not following
the extension of credit hereunder) have any Contingent Obligation, contingent
liability or liability for taxes, long-term lease or unusual forward or
long-term commitment that is not reflected in the foregoing financial
statements, the notes thereto or SCHEDULE 4.3B annexed hereto and which in any
such case is material in relation to the business, operations, properties,
assets, condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries.
B. CONTINGENT OBLIGATIONS. On the Closing Date, the Loan Parties and their
respective Subsidiaries will not be directly or indirectly liable with respect
to any Contingent Obligations other than as set forth on SCHEDULE 4.3B annexed
hereto. SCHEDULE 4.3B sets forth all Investments made by the Loan Parties and
their respective Subsidiaries and all Guaranties with respect to which the Loan
Parties and their respective Subsidiaries are liable as of the Closing Date,
including all such Investments and Guaranties that would be subject to
subsections 6.3 and 6.4 if the same were made or incurred on or after the
Closing Date.
4.4 PROPERTIES; AGREEMENTS; LICENSES.
A. TITLE TO PROPERTIES; LIENS. Each of SCHEDULE 4.4A1 and SCHEDULE 4.4A2
correctly sets forth the interest of each Loan Party and each of its
Subsidiaries in each of the Pool A Properties and Pool B Properties,
respectively, as of the Closing Date. As of the Closing Date, there are no
outstanding options, rights of first refusal, rights of first offer or similar
rights to purchase or otherwise acquire such fee interest or leasehold interest,
as the case may be, in any such Property, other than options and rights owned by
Loan Party or Subsidiary thereof, as applicable. Such Loan Party or Subsidiary
thereof, as applicable, has good and marketable fee simple title to, or a valid
leasehold interest in, the Properties and good title to the remainder of its
property purported to be owned by it, free and clear of all Liens, in each case
except Permitted Encumbrances and Liens permitted pursuant to subsection 6.2A.
All material fixtures, furnishings, attachments and equipment necessary for the
operation, use and occupancy of each such Property have been installed or
incorporated into such Property and each Loan Party or Subsidiary thereof, as
applicable, is the sole owner of all of the same, free and clear of all chattel
mortgages, conditional vendor's liens and other liens, and security interests
other than Permitted Encumbrances and Liens permitted pursuant to subsection
6.2A. Except as heretofore disclosed in writing by the Borrower to the Agent, no
tax liens have been filed against the Borrower or any of its Subsidiaries and/or
any of their respective properties, including any Property, other than Liens for
non-delinquent real property taxes.
B. POOL A GROUND LEASES. Each of the Pool A Ground Leases and all
amendments thereto that have been or will be entered into on or before the
Closing Date are listed on SCHEDULE 4.4B annexed hereto. Such Pool A Ground
Leases, as so amended, are in full force and effect; and no Person will have
failed in any material respect to perform any material obligation or covenant or
satisfy any condition required by such Pool A Ground Leases to be performed or
complied with.
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C. POOL B DOCUMENTS. Each of the Pool B Documents and all amendments
thereto that have been or will be entered into on or before the Closing Date are
listed on SCHEDULE 4.4C annexed hereto. Such documents, as so amended, are in
full force and effect; and no Person will have failed in any respect to perform
any obligation or covenant or satisfy any condition required thereunder to be
performed or complied with, except where failure to so comply will not then have
had and could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect.
D. MANAGEMENT AGREEMENTS. Each of the Management Agreements and all
amendments thereto that have been or will be entered into on or before the
Closing Date are listed on SCHEDULE 4.4D annexed hereto. Each Material
Management Agreement that has been or will be entered into on or before the
Closing Date is in full force and effect; and no Person will have failed in any
respect to perform any obligation or covenant or satisfy any condition required
by the Management Agreements to be performed or complied with, except where
failure to so comply will not then have had and could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
E. SERVICING AGREEMENTS. The Property Servicing Agreement with respect to
each Property and, if a Liquor License exists with respect to such Property, the
Liquor Operation Service Agreement with respect to such Property, in each case
with all amendments thereto that have been or will be entered into on or before
the Closing Date, are listed on SCHEDULE 4.4E annexed hereto. Such Servicing
Agreements, as so amended, are in full force and effect; and no Person will have
failed in any respect to perform any obligation or covenant or satisfy any
condition required by such Servicing Agreements to be performed or complied
with, except where failure to so comply will not then have had and could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
F. FRANCHISE AGREEMENTS. Each of the Franchise Agreements and all
amendments thereto that have been or will be entered into on or before the
Closing Date are listed on SCHEDULE 4.4F annexed hereto. Such Franchise
Agreements, as so amended, are in full force and effect; and no Person will have
failed in any respect to perform any obligation or covenant or satisfy any
condition required by the Franchise Agreements to be performed or complied with,
except where failure to so comply will not then have had and could not
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
G. MATERIAL LEASES. Each Material Lease with respect to each Property and
all amendments thereto that have been or shall be entered into on or before the
Closing Date are listed on SCHEDULE 4.4G annexed hereto. Such Material Leases,
as so amended, shall be in full force and effect; and no Person will have failed
in any respect to perform any obligation or covenant or satisfy any condition
required by such Material Leases to be performed or complied with, except where
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failure to so comply will not then have had and could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
H. LIQUOR LICENSES. Each Liquor License issued in connection with each
Property on or prior to the Closing Date is set forth on SCHEDULE 4.4H annexed
hereto, each such Liquor License is validly issued and in full force and effect.
The holder of each such Liquor License has the legal right to utilize each such
Liquor License in connection with the operation of any restaurant, bar or other
alcoholic beverage service located at the applicable Property.
4.5 LITIGATION; ADVERSE FACTS.
Except as set forth in SCHEDULE 4.5 annexed hereto, as amended or
supplemented from time to time, there is no action, suit, proceeding,
arbitration or governmental investigation (whether or not purportedly on behalf
of CapStar or any of its Subsidiaries) at law or in equity or before or by any
Governmental Authority, or to the knowledge of CapStar and the Borrower, changes
to Applicable Law, pending or, to the knowledge of CapStar and the Borrower,
threatened against or affecting any Loan Party or any of its Subsidiaries, any
Property or any other property of CapStar or any of its Subsidiaries that has
had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. No Loan Party nor any of its Subsidiaries
is (i) in violation in any material respect of any Applicable Law or (ii)
subject to or in default with respect to any Applicable Law in either case that
has had, or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. To the knowledge of CapStar and the
Borrower, there are no pending or threatened actions, suits or proceedings to
revoke, attack, invalidate, rescind or modify the zoning affecting any Property
or any Authorizations heretofore issued with respect to any Property or
asserting that such Authorizations or the zoning affecting any Property or any
other property of any Loan Party or any of its Subsidiaries do not permit the
continued use of such Property or property as contemplated by the Loan
Documents. Except as set forth on SCHEDULE 4.5 annexed hereto, to the knowledge
of CapStar and the Borrower, no Person has asserted any claimed violation of
Applicable Laws arising from the operation, use or occupancy of the Properties
which has not been cured which has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect.
4.6 TAXES.
A. PAYMENT OF TAXES. Except to the extent permitted by subsection 5.4 and
as set forth on the financial statements delivered pursuant to subsections 3.1C
and 4.3, all federal, state and material local Tax returns and reports relating
to any Loan Party or any of its Subsidiaries or the Properties required to be
filed have been timely filed, and all material Taxes, Impositions, assessments,
fees and other governmental charges upon any Loan Party or any of its
Subsidiaries
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or upon the Properties which are due and payable have been paid prior to
delinquency. Neither CapStar nor the Borrower knows of any proposed Tax
assessment against any Loan Party or any of its Subsidiaries or the Properties
that could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. Neither any Loan Party nor any of its
Subsidiaries (i) has executed or filed with the Internal Revenue Service or any
other Governmental Authority any agreement or other document extending, or
having the effect of extending, the period for assessment or collection of any
Taxes, assessments, fees or other governmental charges or (ii) has any
obligation under any written Tax sharing agreement or agreement regarding
payments in lieu of Taxes (other than obligations pursuant to partnership
agreements to make distributions of cash for the payment of taxes).
B. CLASSIFICATION AS A PARTNERSHIP. Each of the Loan Parties that is a
Partnership Loan Party or LLC Loan Party is properly classified as a partnership
for federal income tax purposes.
4.7 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS.
No Loan Party nor any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the material obligations,
covenants or conditions contained in any Contractual Obligation, and no
condition exists that, with the giving of notice or the lapse of time or both,
would constitute such a default, except where the consequences, direct or
indirect, of such default or defaults, if any, could not reasonably be expected
to have, either individually or in the aggregate, a Material Adverse Effect.
Except as disclosed on SCHEDULE 4.7 annexed hereto and as provided in the Senior
Credit Agreement, no Loan Party nor any of its Subsidiaries is a party to or
otherwise subject to any agreement or instrument (other than the Loan
Documents), any charge or other internal restriction or any Contractual
Obligation which by its terms or effect (i) prohibits or restricts such Loan
Party or Subsidiary from acquiring, loaning or disposing of any Property or
other asset, or any interest therein, or acquiring or entering into, or
providing any services under any Management Agreement or other management
agreement or (ii) otherwise restricts the conduct by such Loan Party or any of
its Subsidiaries of any business, except in each case where the consequences,
direct or indirect, of any violation thereof could not reasonably be expected to
have, either individually or in the aggregate, a Material Adverse Effect. Except
as disclosed on SCHEDULE 4.7 annexed hereto, no Loan Party nor any of its
Subsidiaries is a party to or is otherwise subject to any agreement or
instrument, any charter or other internal restriction or any Contractual
Obligation which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
4.8 GOVERNMENTAL REGULATION; SECURITIES ACTIVITIES.
No Loan Party nor any of its Subsidiaries is subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
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Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which could limit its ability to incur
Indebtedness or which could otherwise render all or any portion of the
Obligations unenforceable. No Loan Party nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock.
4.9 EMPLOYEE BENEFIT PLANS.
A. ERISA. Each Loan Party, each of its Subsidiaries and each of their
respective ERISA Affiliates are in compliance in all material respects with all
applicable provisions and requirements of ERISA and the regulations and
published interpretations thereunder with respect to each Employee Benefit Plan,
and have performed in all material respects their respective obligations under
each Employee Benefit Plan. The sponsor of each Employee Benefit Plan (other
than a Multiemployer Plan) which is intended to qualify under Section 401(a) of
the Internal Revenue Code has received a determination letter from the Internal
Revenue Service concluding that such Employee Benefit Plan is so qualified, or
has timely filed (or will timely file) an application for a determination letter
with the IRS for such employee benefit plan and has not received an unfavorable
determination, and to the knowledge of each Loan Party, each of its Subsidiaries
and each of their respective ERISA Affiliates, no event has occurred, amendment
been adopted or action been taken that would cause such Employee Benefit Plan to
lose its qualified status.
B. ERISA EVENT. With respect to each Employee Benefit Plan, other than a
Multiemployer Plan, no ERISA Event has occurred or is reasonably expected to
occur. With respect to each Multiemployer Plan, to the knowledge of each Loan
Party, no ERISA Event has occurred or is reasonably expected to occur.
C. UNFUNDED BENEFIT LIABILITIES. As of the most recent valuation date for
any Pension Plan, the accumulated benefit obligation (calculated using
reasonable actuarial assumptions employed by the Borrower's actuary for funding
purposes) individually for any Pension Plan, or in the aggregate for all Pension
Plans, does not exceed the assets of all such Pension Plans by more than
$5,000,000 (excluding for purposes of such computation any Pension Plans with
respect to which assets exceed benefit obligations).
D. POTENTIAL WITHDRAWAL LIABILITY. As of the most recent valuation date
for each Multiemployer Plan for which the actuarial report is available, the
potential current liability of the Loan Parties, their Subsidiaries and their
respective ERISA Affiliates for a complete withdrawal from such Multiemployer
Plan (within the meaning of Section 4203 of ERISA), when aggregated with such
potential current liability for a complete withdrawal from all Multiemployer
Plans, based on information available pursuant to Section 4221(e) of ERISA, does
not exceed $5,000,000.
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4.10 CERTAIN FEES.
No broker's or finder's fee or commission will be payable by any Loan
Party or any of its Subsidiaries with respect to this Agreement or any of the
transactions contemplated hereby (other than the fees payable pursuant to this
Agreement), and the Borrower hereby indemnifies the Agent and the Lenders
against, and agrees that it will hold the Agent and the Lenders harmless from,
any claim, demand or liability for any such broker's or finder's fees or
commissions payable by the Borrower alleged to have been incurred in connection
herewith or therewith and any expenses (including reasonable fees, expenses and
disbursements of counsel) arising in connection with any such claim, demand or
liability.
4.11 SOLVENCY.
As of the Closing Date and as of the Funding Date, and after giving effect
to the consummation of the other transactions contemplated by this Agreement and
the other Loan Documents, as of the Closing Date and as of the Funding Date,
with respect to each Loan Party and each of its Subsidiaries, (i) (a) the then
fair saleable value of the property of such Person (including, without
limitation, any rights to contribution from the other Loan Parties under the
Loan Documents) is (y) greater than the total amount of liabilities (including
contingent liabilities) of such Person and (z) not less than the amount that
will be required to pay the probable liabilities on such Person's then existing
debts as they become absolute and matured considering all financing alternatives
and potential asset sales reasonably available to such person; (b) such Person's
capital is (or will be, as the case may be), not unreasonably small in relation
to its business or any contemplated or undertaken transaction; and (c) such
Person does not intend to incur, or believe (nor should it reasonably believe)
that it will incur, debts beyond its ability to pay such debts as they become
due; and (ii) such Person is (or will be, as the case may be), "solvent" within
the meaning given that term and similar terms under Applicable Laws relating to
fraudulent transfers and conveyances. For purposes of clause (i) of the
preceding sentence, the amount of any contingent liability at any time shall be
computed as the amount that, in light of all of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
4.12 DISCLOSURE.
No representation or warranty of any Loan Party contained in this
Agreement and the other Loan Documents to which it is a party or in any other
document, certificate or written statement furnished to the Agent or the Lenders
by or on behalf of any Loan Party for use in connection with the transactions
contemplated by the Loan Documents contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact (known to such
Loan Party, in the case of any document not furnished by it) necessary in order
to make the statements contained herein or therein not misleading in light of
the circumstances in which the same were made or will be made, as the case may
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be. The projections and pro forma financial information contained in such
materials are based or will be based upon good faith estimates and assumptions
believed to be reasonable at the time made, it being recognized by the Agent and
the Lenders that such projections as to future events are not to be viewed as
facts and that actual results during the period or periods covered by any such
projections may differ materially from the projected results. There is no fact
known to CapStar or the Borrower (other than matters of a general economic
nature) that has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect and that has not
been disclosed in any of the Loan Documents and any of the Acquisition
Agreements to which any Loan Party is a party as of the date hereof or in such
other documents, certificates and statements furnished to the Lenders for use in
connection with the transactions contemplated hereby.
4.13 ZONING; AUTHORIZATIONS.
A. ZONING. Except as set forth on SCHEDULE 4.13A annexed hereto, the use
and operation by each Loan Party or any of its Subsidiaries, as applicable, of
each Property as a commercial hotel with related uses, separate and apart from
any other properties, constitutes a legal use under applicable zoning
regulations (as the same may be modified by special use permits or the granting
of variances) and complies in all material respects with all Applicable Laws and
all applicable Insurance Requirements, and does not violate any Authorizations
or other material approvals, material restrictions of record or any material
agreement affecting any Property (or any portion thereof) to which such Loan
Party or such Subsidiary is a party or by which such Loan Party, such Subsidiary
or such Property (or portion thereof) is bound, except for violations and
failures to comply which could not reasonably be expected to result, either
individually or in the aggregate, in a Material Adverse Effect. Except as set
forth on SCHEDULE 4.13A annexed hereto, neither the zoning nor any right of
access to or use of any Property is to any extent dependent upon or related to
any real property other than such Property.
B. AUTHORIZATIONS. There have been issued in respect of each Property all
Authorizations necessary to own, operate, use and occupy such Property in the
manner operated by the Loan Parties and their respective Subsidiaries, and their
respective predecessors in interest, as of the Closing Date and contemplated by
the Loan Parties and their respective Subsidiaries to be operated on and after
the Closing Date (including any required permits relating to Hazardous
Materials). CapStar and the Borrower have no knowledge that any Authorization
necessary or required to own, operate, use and occupy any Property in the manner
currently operated by the Tenants under any Material Lease and contemplated to
be operated by the Tenants on and after the Closing Date (including any required
permits relating to Hazardous Materials) has not been issued and is not in full
force and effect, other than any such Authorizations which, if not obtained,
could not reasonably be expected to have, either
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individually or in the aggregate, a Material Adverse Effect. No Loan Party nor
any of its Subsidiaries nor, to the knowledge of CapStar and the Borrower, any
prior owner thereof, has received any notice of violation or revocation thereof
except for those which could not reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect.
4.14 PHYSICAL CONDITION; ENCROACHMENT; CAPITAL EXPENDITURES.
A. PHYSICAL CONDITION; ENCROACHMENT. Except as disclosed in any
engineering reports or property improvement plans heretofore delivered pursuant
to the Senior Credit Agreement, each Property is free of material structural
defects and is in good repair (normal wear and tear excepted) and all building
systems contained therein are in good working order in all material respects
subject to ordinary wear and tear, except as disclosed in such engineering
reports, and is free and clear of any damage that would affect materially and
adversely the value of such Property or the use of such Property for its
intended purposes. To the knowledge of CapStar and the Borrower, other than as
described in any title policy and in any survey heretofore delivered pursuant to
the Senior Credit Agreement, no Improvement at any Property encroaches upon any
building line, setback line, side yard line or any recorded or visible easement.
B. CAPITAL EXPENDITURES. SCHEDULE 4.14B annexed hereto sets forth, as of
the Closing Date, a complete and accurate list of the capital expenditure or
similar reserves required in respect of any Property pursuant to a Ground Lease,
any agreement pursuant to which any of the Loan Parties and their respective
Subsidiaries shall have incurred or may incur any Indebtedness or any other
agreement, instrument or other document, other than the Loan Documents and the
Senior Credit Agreement.
4.15 INSURANCE.
All insurance required to be maintained by the Loan Parties and their
respective Subsidiaries pursuant to this Agreement or any other Loan Document is
in full force and effect in accordance with the terms thereof. As to each
Property located in an area identified by the Federal Emergency Management
Agency as having special flood hazards, if flood insurance is available, a flood
insurance policy is in effect. All premiums have been paid with respect to each
insurance policy required to be maintained by CapStar and its Subsidiaries
pursuant to this Agreement or any other Loan Document. SCHEDULE 4.15 annexed
hereto contains a complete and accurate description of all policies of insurance
that will be in effect as of the Closing Date.
4.16 LEASES.
There is no default or event which with notice or lapse of time or both
would constitute a default under any of the provisions of any Material Lease
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affecting any Property that has had, or could reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. No
litigation is currently pending or has been threatened by any Tenant in
connection with any Material Lease affecting any Property that has had, or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect. All Material Leases and other Leases material to the
operation of the Properties as hotels are in full force and effect, except to
the extent such failure could not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect.
4.17 NO CONDEMNATION OR CASUALTY.
No condemnation or other like proceedings (including relocation of any
roadways abutting any Property or change in grade of such roadways or denial of
access to any Property) that has had, or could reasonably be expected to result
in, a Material Adverse Effect, are pending and served nor, to the knowledge of
CapStar and the Borrower, threatened against any Property in any manner
whatsoever. No casualty has occurred to any Property that has had or could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect.
4.18 UTILITIES AND ACCESS.
To the extent necessary for the full utilization of each Pool A Property
in accordance with its current use, telephone services, gas, steam, electric
power, storm sewers, sanitary sewers and water facilities and all other utility
services are available to each Pool A Property, are adequate to serve each such
Property, exist at the boundaries of the Land and are not subject to any
conditions, other than normal charges to the utility supplier, which would limit
the use of such utilities. All streets and easements necessary for the occupancy
and operation of each Pool A Property are available to the boundaries of the
Land. All necessary rights-of-way for all roads, which are sufficient to permit
each Pool A Property to be utilized fully for its current use, have been
completed and are serviceable, and, to the knowledge of CapStar and the
Borrower, all public rights-of-way through or adjacent to the Pool A Properties
have been acquired and dedicated and accepted for maintenance and public use by
the applicable Governmental Authorities.
4.19 INTELLECTUAL PROPERTY.
A. OWNERSHIP. The Loan Parties and their respective Subsidiaries own, or
are licensed to use or otherwise have the lawful right to use, the Intellectual
Property. Except as set forth on SCHEDULE 4.19A annexed hereto, all such
Intellectual Property (other than rights under Franchise Agreements) is fully
protected and duly and properly registered, filed or issued in the appropriate
office and jurisdictions for such registrations, filing or issuances, except
where
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the lack of the lawful right to use such Intellectual Property could not
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect, and all registered Intellectual Property and all
pending applications and the jurisdictions in which such Intellectual Property
is registered or will be registered on or before the Closing Date, and in each
case the Loan Party holding rights therein, are identified in SCHEDULE 4.19A
annexed hereto. Each of the license agreements, other than the Franchise
Agreements, pursuant to which any Loan Party or any of its Subsidiaries has
rights or will have rights on or before the Closing Date to use any material
Intellectual Property as of the Closing Date is identified in SCHEDULE 4.19A
annexed hereto. Each Loan Party and each of its Subsidiaries is in compliance
with the material terms of each such license agreement to which it is a party
and each such license agreement is in full force and effect, except where the
failure to be in compliance or the failure to be in full force and effect (i)
has not had and could not reasonably be expected to have, either individually or
in the aggregate, a Material Adverse Effect or (ii) result in an Event of
Default or Potential Event of Default hereunder.
B. NO ADVERSE CLAIMS. (i) No claim has been asserted with respect to the
use of any such Intellectual Property by the Loan Parties and their respective
Subsidiaries or, to the knowledge of CapStar or the Borrower, by any other
Person challenging or questioning the validity or effectiveness of any such
Intellectual Property, and neither CapStar nor the Borrower knows of any valid
basis for any such claim which, in either case, has had or could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect; and (ii) the use of such Intellectual Property by each Loan Party and
each of its Subsidiaries does not infringe on the rights of any Person, subject
to such claims and infringements as do not, in the aggregate, give rise to any
liability on the part of any Loan Party or any of its Subsidiaries that has had
or could reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. The consummation of the transactions
contemplated by this Agreement will not in any manner or to any extent impair
the ownership of (or the license to use, as the case may be) any of such
Intellectual Property by any Loan Party or any of its Subsidiaries.
4.20 WETLANDS.
Except as disclosed on SCHEDULE 4.20 annexed hereto, as of the Closing
Date, none of the Improvements on any Property are constructed on land
designated by any Governmental Authority having land use jurisdiction as
wetlands.
4.21 LABOR MATTERS.
There are no strikes or other labor disputes against any Loan Party or any
of its Subsidiaries, pending or, to the knowledge of CapStar and the Borrower,
threatened that have had or could reasonably be expected to have, either
individually or in the aggregate, a Material
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Adverse Effect. Hours worked by and payments made by any Loan Party or any of
its Subsidiaries to their respective employees are not in violation in any
material respect of the Fair Labor Standards Act or any other applicable law
dealing with such matters.
4.22 EMPLOYMENT AND LABOR AGREEMENTS.
Except as disclosed on SCHEDULE 4.22 annexed hereto, as of the Closing
Date, there are no employment agreements covering management employees of any
Loan Party or any of its Subsidiaries and there are no collective labor
agreements covering any employees of any Loan Party or any of its Subsidiaries.
Each Loan Party and each of its Subsidiaries is in compliance in all material
respects with the terms and conditions of all such collective bargaining
agreements.
SECTION 5
AFFIRMATIVE COVENANTS
Each of CapStar and the Borrower covenants and agrees that, from and after
the Closing Date and so long thereafter as the Commitments hereunder shall
remain in effect and until payment in full of the Loans and the other
Obligations (other than indemnification obligations with respect to claims that
have not been asserted at the time that the Loans and all other Obligations have
been paid in full), each of CapStar and the Borrower shall perform and shall
cause each of their respective Subsidiaries to perform all covenants in this
Section 5.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
CapStar shall maintain and cause each of its Subsidiaries to maintain a
system of accounting established and administered in accordance with sound
business practices to permit preparation of consolidated and consolidating
financial statements in conformity with GAAP. The Borrower shall deliver to the
Agent (for distribution to each Lender):
(i) MONTHLY PROPERTY OPERATING STATEMENTS: as soon as available
and in any event within 30 days after the end of each calendar month,
commencing with respect to the calendar month ending December 31, 1996, a
statement of Property Gross Revenues and Operating Expenses and any other
expenses with respect to each Property separately, in each case for the 12
month period ending on the last day of such calendar month, in reasonable
detail satisfactory to the Agent and certified by the Chief Executive
Officer or the Chief Financial Officer of CapStar and the Borrower stating
that, subject to normal adjustments following the preparation of the
financial statements referred to below in clauses (ii) and (iii),
respectively, (x) such statements of Property Gross Revenues and Operating
Expenses and other expenses fairly present, in all material
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respects, the results of operations of the Properties indicated for the
periods indicated and (y) all Operating Expenses and any other expenses
with respect to each Property which have become due and payable as of the
last day of the calendar month next preceding the delivery of such income
statement have been fully paid or recognized by CapStar or any of its
Subsidiaries;
(ii) QUARTERLY FINANCIAL STATEMENTS OF CAPSTAR AND ITS
SUBSIDIARIES: as soon as available and in any event within 50 days after
the end of each calendar quarter of each calendar year, commencing with
respect to the calendar quarter ending December 31, 1996, (a) the
consolidated balance sheet of CapStar and its Subsidiaries as at the end
of such calendar quarter and the related consolidated statements of
income, stockholders' equity and cash flows of CapStar and its
Subsidiaries for such calendar quarter and for the period from the
beginning of the then current calendar year to the end of such calendar
quarter, setting forth in each case in comparative form the corresponding
figures for the corresponding periods of the previous year and the
corresponding figures from the plan and financial forecast for the current
year delivered pursuant to this subsection, and (b) the consolidating
financial statements of CapStar and its Subsidiaries (including balance
sheets and income statements segmenting any Subsidiaries of CapStar or
groups of Subsidiaries of CapStar, as requested by the Agent in its
reasonable discretion) together with any adjustments and/or eliminations
needed to reconcile such Subsidiary financial statements to the
consolidated financial statements of CapStar, all in reasonable detail (it
being understood and agreed that, to the extent CapStar's quarterly report
filed on Form 10-Q with the Securities and Exchange Commission for such
period contains the foregoing information, such quarterly report shall be
deemed to comply with the foregoing requirements) and certified by the
Chief Executive Officer or the Chief Financial Officer of CapStar and the
Borrower stating that (x) such consolidated and consolidating financial
statements fairly present, in all material respects, the financial
condition of CapStar and its Subsidiaries as at the dates indicated and
the results of their operations and their cash flows for the periods
indicated, subject to changes resulting from audit and normal year-end
adjustments and (y) except as noted, there are no material differences
between such consolidated financial statements of CapStar and its
Subsidiaries and the consolidated financial statements of the Borrower and
its Subsidiaries with respect to such quarter;
(iii) YEAR-END FINANCIAL STATEMENTS: as soon as available and in
any event within 100 days after the end of each calendar year, commencing
with respect to the calendar year ending December 31, 1996, (a) the
consolidated balance sheet of CapStar and its Subsidiaries as at the end
of such calendar year and the related consolidated statements of income,
stockholders' equity and cash flows of CapStar and its Subsidiaries for
such calendar year, setting forth in each case in comparative form the
corresponding figures for the previous calendar year and the corresponding
figures from
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the plan and financial forecast delivered pursuant to this subsection for
the calendar year covered by such consolidated financial statements, (b)
the balance sheets and related income statements of each Property, (c) the
consolidating financial statements of CapStar and its Subsidiaries
(including balance sheets and income statements segmenting any
Subsidiaries of CapStar or groups of Subsidiaries of CapStar, as requested
by the Agent in its reasonable discretion) together with any adjustments
and/or eliminations needed to reconcile such Subsidiary financial
statements to the consolidated financial statements of CapStar, all of the
foregoing in reasonable detail and certified by the Chief Executive
Officer or the Chief Financial Officer of CapStar and the Borrower stating
that they present fairly, in all material respects, the financial
condition of CapStar and its Subsidiaries as at the dates indicated and
the results of their operations and their cash flows for the periods
indicated, and (d) in the case of the consolidated financial statements
referred to in clause (a), a report thereon of KPMG Peat Marwick LLP or
other independent accountants of recognized national standing selected by
CapStar and reasonably satisfactory to the Agent (it being understood and
agreed that any such other independent accountants of recognized national
standing satisfactory to the agent under the Senior Credit Agreement (so
long as same is in effect) shall be acceptable for purposes of this
Agreement), which report shall be unqualified, shall express no doubts
about the ability of CapStar and its Subsidiaries to continue as a going
concern and shall state that such consolidated financial statements fairly
present, in all material respects, the financial position of CapStar and
its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years (except as
otherwise disclosed in such financial statements) and that the examination
by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards;
(iv) OFFICERS' AND COMPLIANCE CERTIFICATES: together with each
delivery of financial statements of CapStar and its Subsidiaries pursuant
to subdivisions (i), (ii) and (iii) above, (a) an Officers' Certificate of
CapStar and the Borrower stating that (1) the signer has reviewed the
terms of this Agreement and has made, or caused to be made under his or
her supervision, a review in reasonable detail of the transactions and
condition of CapStar and its Subsidiaries during the accounting period
covered by such financial statements, (2) such review has not disclosed
the existence of any Event of Default or Potential Event of Default during
or at the end of such accounting period, (3) the signer does not have
knowledge of the existence as at the date of such Officers' Certificate,
of any condition or event that constitutes an Event of Default or
Potential Event of Default, or, if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what
action CapStar and the Borrower have taken, are taking and propose to take
with respect thereto and (4) except for the minority interest reflected on
the balance sheet of the Borrower, such financial statements do not
differ in any material respect from the corresponding consolidated
financial statements of the Borrower and its Subsidiaries; and (b) a
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Compliance Certificate demonstrating in reasonable detail compliance
during and at the end of the applicable accounting periods with the
covenants set forth in subsection 6.6;
(v) ACCOUNTANTS' CERTIFICATION: together with each delivery of
financial statements of CapStar pursuant to subdivision (iii) above, a
written statement by KPMG Peat Marwick LLP or other independent
accountants of recognized national standing selected by CapStar and
reasonably satisfactory to the Agent giving the report thereon (a) stating
in substance that their audit examination has included a review of the
terms of this Agreement and the other Loan Documents as they relate to
accounting matters, and (b) stating whether, in connection with their
audit examination, any condition or event that constitutes an Event of
Default or Potential Event of Default has come to their attention and, if
such a condition or event has come to their attention, specifying the
nature and period of existence thereof; PROVIDED, HOWEVER, that such
accountants shall not be liable by reason of any failure to obtain
knowledge of any such Event of Default or Potential Event of Default that
would not be disclosed in the course of their audit examination;
(vi) ACCOUNTANTS' REPORTS: promptly upon receipt thereof (unless
restricted by applicable professional standards), copies of all reports
submitted to CapStar or any of its Subsidiaries by KPMG Peat Marwick LLP
or any other independent accountants in connection with each annual,
interim or special audit of the consolidated financial statements of
CapStar and its Subsidiaries made by such accountants, including any
comment letter submitted by such accountants to management in connection
with their annual audit;
(vii) RECONCILIATION STATEMENTS: if, as a result of any change in
accounting principles and policies from those used in the preparation of
the financial statements referred to in subsection 4.3, the consolidated
financial statements of the CapStar and its Subsidiaries delivered
pursuant to subdivisions (i), (ii) or (iii) of this subsection 5.1 differ
in any material respect from the consolidated financial statements that
would have been delivered pursuant to such subdivisions had no such change
in accounting principles and policies been made, then (a) together with
the first delivery of financial statements pursuant to subdivision (i),
(ii) or (iii) of this subsection 5.1 following such change, consolidated
financial statements of CapStar and its Subsidiaries for (1) the current
calendar year to the effective date of such change and (2) the two full
calendar years immediately preceding the calendar year in which such
change is made, in each case prepared on a pro forma basis as if such
change had been in effect during such periods, and (b) together with each
delivery of financial statements pursuant to subdivision (i), (ii) or
(iii) of this subsection 5.1 following such change, a written
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statement of the Chief Financial Officer or the Chief Executive Officer of
CapStar and the Borrower setting forth the differences which would have
resulted in the calculation of the covenants set forth in Section 6 if
such financial statements had been prepared without giving effect to such
change;
(viii) EVIDENCE OF INSURANCE: together with the delivery of the
statements pursuant to subsection 5.1(i), evidence reasonably satisfactory
to the Agent that the monthly premiums with respect to the insurance
required to be maintained pursuant to subsection 5.9 have been paid for
the current month; PROVIDED that evidence previously delivered pursuant to
this clause (viii) with respect to the prior payment of premiums for the
current month need not be redelivered;
(ix) SEC FILINGS AND PRESS RELEASES: promptly upon their becoming
available, copies of (a) all financial statements, reports, notices and
proxy statements sent or made available generally by CapStar to its
security holders, (b) all regular and periodic reports and all
registration statements (other than on Form S-8 or a similar form) and
prospectuses, if any, filed by CapStar or the Borrower with the New York
Stock Exchange, Inc., any other securities exchange or with the Securities
and Exchange Commission or any Governmental Authority or private
regulatory authority, and (c) all press releases and other statements made
available generally by CapStar or any of its Subsidiaries to the public or
to the securityholders of CapStar;
(x) EVENTS OF DEFAULT, ETC.: promptly upon CapStar or the
Borrower obtaining knowledge (a) of any condition or event that
constitutes an Event of Default or Potential Event of Default, or becoming
aware that the Agent or any Lender has given any notice or taken any other
action with respect to a claimed Event of Default or Potential Event of
Default, (b) that any Person has given any notice to CapStar or any of its
Subsidiaries or taken any other action with respect to a claimed default
or event or condition of the type referred to in subsection 7.1B, 7.1C,
7.1D, 7.1E, 7.1F, 7.1H or 7.1I, (c) of any condition or event that
constitutes or may (upon the giving or receiving of notice or the lapse of
time, later, or otherwise) constitute a default, a potential event of
default or an event of default (in each case, as defined in the agreement
or instrument creating, evidencing or governing any such Indebtedness)
under or with respect to any Indebtedness (other than the Indebtedness
hereunder) or any Pool B Obligation, or becoming aware that any agent,
trustee, lender or security holder with respect thereto has given any
notice or taken any other action with respect to such condition or event,
(d) of any condition or event that would be required to be disclosed in a
current report filed by CapStar with the Securities and Exchange
Commission on Form 8-K (Items 1, 2, 4, and 6 of such Form as in effect on
the date hereof) if CapStar were required to file such reports under the
Exchange Act or (e) of the occurrence of any event or change that has had,
or could reasonably be expected to have, either individually or in the
aggregate, a
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Material Adverse Effect, an Officers' Certificate specifying the nature
and period of existence of such condition, event or change, or specifying
the notice given or action taken by any such Person and the nature of such
claimed Event of Default, Potential Event of Default, default, event or
condition, and what action CapStar and the Borrower have taken, are taking
and propose to take with respect thereto;
(xi) LITIGATION OR OTHER PROCEEDINGS: (a) promptly upon CapStar or
the Borrower obtaining knowledge of (x) the institution of any action,
suit, proceeding (whether administrative, judicial or otherwise),
governmental investigation or arbitration against or affecting CapStar or
any of its Subsidiaries, or any property of CapStar or such Subsidiary
(collectively, "PROCEEDINGS") not previously disclosed in writing by
CapStar or the Borrower to the Lenders or (y) any material development in
any Proceeding that, in any case:
(1) if adversely determined, could reasonably be
expected to have, either individually or in the aggregate, a
Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a
result of, the transactions contemplated hereby;
written notice thereof together with such other information as may be
reasonably available to CapStar or the Borrower to enable the Agent and
its counsel to evaluate such matters; and (b) within 20 days after the end
of each calendar quarter of CapStar, a schedule of all Proceedings
involving an alleged liability of, or claims against or affecting, CapStar
and its Subsidiaries which, if adversely determined, could reasonably be
expected to result in a money judgment in excess of $1,000,000
individually or $10,000,000 in the aggregate (in either case not
adequately covered by insurance as to which a solvent and unaffiliated
insurance company has accepted coverage), and promptly after request by
the Agent, such other information as may be reasonably requested by the
Agent to enable the Agent and its counsel to evaluate any of such
Proceedings;
(xii) ERISA EVENTS AND NOTICES: (a) promptly upon becoming aware of
the occurrence of or forthcoming occurrence of any ERISA Event, a written
notice specifying the nature thereof, what action CapStar or any of its
Subsidiaries or any of their respective ERISA Affiliates has taken, is
taking or proposes to take with respect thereto and, when known, any
action taken or threatened by the Internal Revenue Service, the Department
of Labor or the PBGC with respect thereto; (b) with reasonable promptness,
copies of all notices received by CapStar or any of its ERISA Affiliates
from a Multiemployer Plan sponsor concerning an ERISA Event; and (c) with
reasonable promptness following the Agent's reasonable request, (x) copies
of any SCHEDULE B
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(Actuarial Information) filed by CapStar or any of its ERISA Affiliates
with the Internal Revenue Service with respect to any Pension Plan and (y)
copies of such other documents or governmental reports or filings relating
to any Employee Benefit Plan as the Agent shall reasonably request;
(xiii) FINANCIAL PLANS: as soon as practicable and in any event no
later than November 30 of each year, projected financial statements for
each Property for the three next succeeding calendar years setting forth
in detail each line item appearing in the form of financial statement set
forth in SCHEDULE 5.1 annexed hereto, together with an explanation of the
assumptions on which such forecasts are based, and such other information
and projections as the Agent may reasonably request for any Property, all
the Properties or CapStar or any of its Subsidiaries;
(xiv) INSURANCE: as soon as practicable and in any event by the
last day of each calendar year, a report in form and substance reasonably
satisfactory to the Agent outlining all material insurance coverage
maintained as of the date of such report by CapStar and its Subsidiaries
or, in lieu thereof, copies of such policies, and a report as to all
material insurance coverage planned to be maintained by CapStar and its
Subsidiaries in the next succeeding calendar year to the extent varying
from the description of that delivered or described;
(xv) ENVIRONMENTAL AUDITS AND REPORTS: as soon as practicable
following receipt thereof, copies of all environmental audits and reports,
whether prepared by personnel of CapStar or any of its Subsidiaries or by
independent consultants, with respect to material environmental matters at
any Property or which relate to an Environmental Claim which could
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect;
(xvi) BOARD OF DIRECTORS: with reasonable promptness, written
notice of any change in the Board of Directors of CapStar;
(xvii) REDUCTION OF PROPERTY AMOUNT OR PROPERTY EBITDA: promptly
after the Borrower's acquiring actual knowledge of the same, an Officers'
Certificate with respect to the occurrence or effectiveness of any event
or condition (other than an event or condition that is affecting the
hospitality business generally) that could reasonably be expected to cause
the Property Amount or Property EBITDA with respect to any Property, as of
any date of determination thereafter, to be reduced by more than the
greater of (a) 10% as of such later date of determination or for any
period and (b) $100,000; and
(xviii) OTHER INFORMATION: with reasonable promptness, (a)
information and other data revised to correct any erroneous information
and other data
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previously delivered by CapStar or the Borrower to the Agent pursuant to
this subsection 5.1 or included in any statement, report or certificate
previously delivered by CapStar or the Borrower to the Agent pursuant to
this subsection 5.1, together with such statement, report or certificate
that shall have been revised to reflect such revised information and data,
and (b) such other information and data with respect to the Loan Parties
and their respective Subsidiaries, the Properties (separately and for all
Properties), the Managed Properties, the Ground Leases and Leases, the
Management Agreements and the assets and liabilities of the Loan Parties
and their respective Subsidiaries, all in form reasonably satisfactory to
the Agent, as from time to time may be reasonably requested by the Agent.
5.2 COMMON STOCK.
CapStar shall (i) cause the Common Stock, and each class of preferred
stock of the Borrower permitted by subsection 6.20B, to be and to remain at all
times duly listed on the New York Stock Exchange, Inc. and (ii) file timely all
reports required to be filed by CapStar with the New York Stock Exchange, Inc.
and the Securities and Exchange Commission.
5.3 CORPORATE EXISTENCE; CORPORATE SEPARATENESS ETC.
A. CORPORATE EXISTENCE. Except as permitted pursuant to subsection 6.7,
each Loan Party shall, and shall cause each of its Subsidiaries to, at all times
preserve and keep in full force and effect its corporate, partnership or limited
liability company existence and all Authorizations, rights and franchises
material to its business.
B. FINANCIAL MATTERS. The Borrower shall, and shall cause each of the Pool
A Subsidiaries to, (i) maintain financial statements, payroll records,
accounting records and other corporate records and other documents separate from
each other and any other Person (other than the Borrower and the Pool A
Subsidiaries, but including CapStar and the Pool B Subsidiaries); (ii) maintain
its own bank accounts in its own name, separate from each other and any other
Person (other than the Borrower and the Pool A Subsidiaries, but including
CapStar and the Pool B Subsidiaries); (iii) pay its own expenses and other
liabilities from its own assets and incur (or endeavor to incur) obligations to
other Persons (other than the Borrower and the Pool A Subsidiaries, but
including CapStar and the Pool B Subsidiaries) based solely upon its own assets
and creditworthiness and not upon the creditworthiness of each other or any
other Person (other than the Borrower and the Pool A Subsidiaries, but including
CapStar and the Pool B Subsidiaries); and (iv) file its own tax returns or, if
part of a consolidated group, join in the consolidated tax return of such group
as a separate member thereof.
C. INDEPENDENT BUSINESS. The Borrower shall manage the business of the
Borrower and each Pool A Subsidiary independently from the business of CapStar
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and any other Person (other than the Borrower and the Pool A Subsidiaries) and
in accordance with the best interest of the Borrower or such Pool A Subsidiary.
The Borrower shall conduct the administrative activities of the Borrower and the
Pool A Subsidiaries separately from the administrative activities of any other
Person (other than the Borrower and the Pool A Subsidiaries, but including
CapStar and the Pool B Subsidiaries). Any moneys earned by the Borrower or the
Pool A Subsidiaries on their assets or proceeds of the sale of any of their
assets shall be deposited in bank accounts separate from any of the assets of
any other Person (other than the Borrower and the Pool A Subsidiaries, but
including CapStar and the Pool B Subsidiaries), and no assets of the Borrower
and the Pool A Subsidiaries shall become commingled with assets of such other
Persons.
D. BUSINESS DEALINGS. Each of CapStar and the Borrower shall hold itself
out, and shall continue to hold itself out, to the public and to its creditors
as a legal entity, separate and distinct from all other entities (other than,
with respect to the Borrower, the Pool A Subsidiaries), and shall continue to
take all steps reasonably necessary to avoid (i) misleading any other Person as
to the identity of the entity with which such Person is transacting business or
(ii) implying that the Borrower is, directly or indirectly, absolutely or
contingently, responsible (if such is not the case) for the Indebtedness or
other obligations of any other Person. CapStar and the Borrower shall not permit
any Pool B Subsidiary to imply that any other Loan Party or any of its
Subsidiaries (other than such Pool B Subsidiary) is directly or indirectly,
absolutely or contingently, responsible for the Indebtedness or other
obligations of such Pool B Subsidiary.
5.4 TAXES AND CLAIMS; TAX CONSOLIDATION.
A. TAXES AND CLAIMS. Each Loan Party shall, and shall cause each of its
Subsidiaries to, pay or discharge or cause to be paid or discharged all Taxes
and Impositions imposed upon any Loan Party or any of its Subsidiaries, or
payable by any Loan Party or any of its Subsidiaries with respect to any
Property or other assets or in respect of any of the franchises, business,
income or other property of any Loan Party or any of its Subsidiaries before the
same shall become delinquent and before any penalty accrues thereon, and will
pay, discharge or otherwise satisfy or cause to be paid, discharged or otherwise
satisfied at or before maturity or before they become delinquent, all
Indebtedness, obligations and other claims (including claims for labor,
supplies, materials and services that, if unpaid, might become a Lien on the
property of any Loan Party or any of its Subsidiaries) of any Loan Party and its
Subsidiaries; PROVIDED, HOWEVER, that no such charge or claim needs to be paid
if (i) such charge or claim is being diligently contested in good faith by
appropriate proceedings, (ii) reserves consistent with GAAP or otherwise
consented to by the Agent shall have been made therefor by such Loan Party or
such Subsidiary, (iii) none of any Loan Party, or any of its Subsidiaries, the
Agent or any Lender could become subject to any civil fine or penalty not
adequately reserved
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against (in the case of any Loan Party or Subsidiary thereof) or criminal fine
or penalty, in each case as a result of non-payment of such charge or claim and
(iv) such contest has not had and could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. Each Loan
Party shall, and shall cause each of its Subsidiaries to, deliver to the Agent
all receipts evidencing the payment of all such Taxes and Impositions with
respect to any Property and, upon written request by the Agent, all other Taxes,
Impositions, assessments, levies, permits, fees, rents and other public charges
imposed upon or in respect of or assessed against any Loan Party, any of its
Subsidiaries or any of their respective properties or assets except for those
being paid or contested as described in the provisos above.
B. TAX CONSOLIDATION. Each Loan Party will not, and will not permit any of
its Subsidiaries to, file or consent to the filing of any consolidated income
tax return with any Person other than CapStar and its Subsidiaries.
5.5 MAINTENANCE OF PROPERTIES; REPAIR.
Each Loan Party shall, and shall cause each of its Subsidiaries to,
maintain or cause to be maintained each Property and all other material property
in a manner consistent for upscale full service hotel properties and related
property, and such other property, in each case of the same quality and
character, and shall keep or cause to be kept every part thereof in good
condition and repair, reasonable wear and tear excepted, and make all reasonably
necessary repairs, renewals or replacements thereto as may be reasonably
necessary to conduct the business of such Loan Party and its Subsidiaries.
5.6 INSPECTION.
As often as may be reasonably requested, each Loan Party shall, and shall
cause each of its Subsidiaries to, permit (i) any authorized representatives
designated by the Agent or any Lender to visit and inspect any Property, and
(ii) any authorized representatives designated by the Agent to inspect the
financial and accounting records, tenant leasing files and other manage ment
books and records of such Loan Party or Subsidiary, and to make copies and take
extracts therefrom, and to discuss its and their affairs, operations, finances
and accounts with its and their officers, property managers and independent
accountants; PROVIDED that each such visit, inspection and discussion shall be
made upon reasonable notice and at such reasonable times dur ing normal business
hours, with as little disruption of such party's business and operations as is
reasonably practical.
5.7 COMPLIANCE WITH LAWS, AUTHORIZATIONS, ETC.
Each Loan Party shall, and shall cause each of its Subsidiaries and all
other Persons occupying any Properties to, comply in all material respects with
the requirements of all
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Applicable Laws. Each Loan Party shall, and shall cause each of its Subsidiaries
to, keep all Authorizations which are from time to time required for the use and
operation of each Pool A Property in full force and effect.
5.8 PERFORMANCE OF LOAN DOCUMENTS AND ACQUISITION AGREEMENTS.
A. LOAN DOCUMENTS. Each Loan Party shall, and shall cause each of its
Subsidiaries to, observe and perform, or cause to be observed and performed, all
its covenants, agreements, conditions and requirements contained in each of the
Loan Documents to which it is or will be a party in accordance with the terms
thereof and will maintain the validity and effectiveness of such Loan Documents.
B. ACQUISITION AGREEMENTS. Each Loan Party shall, and shall cause each of
its Subsidiaries to, observe and perform, or cause to be observed and performed,
all its material covenants, agreements, conditions and requirements contained in
each of the Acquisition Agreements to which it is a party in accordance with the
terms thereof and will maintain the validity and effectiveness of such
Acquisition Agreements, the violation or invalidity of which could reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect.
5.9 INSURANCE.
Each Loan Party shall provide or cause to be provided, for itself and each
of its Subsidi aries, insurance (including appropriate self-insurance) against
loss or damage of the kinds that, in the good faith judgment of the senior
management of such Loan Party, are adequate and appropriate for the conduct of
the business of the Loan Parties and such Subsidiaries in a prudent manner, with
reputable and solvent insurers or with the government of the United States of
America or an agency or instrumentality thereof, in such amounts, with such
deductibles, and by such methods as shall be customary, in the good faith
judgment of the senior management of such Loan Party, for companies similarly
situated in the industry. Each Loan Party shall pay, and shall cause each of its
Subsidiaries to pay, in a timely manner all premiums due in connec tion
therewith. All insurance policies shall be issued by insurers doing business as
admitted licensed carriers in the state where such Property is located, and
shall be authorized and licensed to issue insurance in such state unless
otherwise approved by the Agent in its sole discretion.
5.10 CASUALTY AND CONDEMNATION; RESTORATION.
A. NOTICE OF CASUALTY. Upon the occurrence of any damage to or loss or
destruction of all or any portion of any Pool A Property, whether or not covered
by insurance, which will cost (or may reasonably be expected to cost) more than
$500,000 to Restore, as reasonably determined by the Borrower and so certified
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in an Officers' Certificate delivered to the Agent, the Borrower shall promptly
deliver to the Agent written notice of the same which shall, among other things,
describe such casualty.
B. NOTICE OF CONDEMNATION. The Loan Parties shall, and shall cause their
respective Subsidiaries to, promptly deliver written notice to the Agent upon
obtaining knowledge of the institution, or the proposed institution, of any bona
fide action or proceeding for the Taking of all or any portion of any Pool A
Property.
C. REDUCTION OF BORROWING BASE; PAYMENT OF RELEASE PRICE. Except to the
extent that subsection 6.15C is applicable, in the event of any casualty or
Taking with respect to a Pool A Property, which will cost (or may reasonably be
expected to cost) more than $500,000 to Restore, as reasonably determined by the
Borrower and so certified in an Officers' Certificate delivered to the Agent,
the Borrower shall elect by written notice delivered to the Agent as soon as
practicable thereafter, but in any event before the earlier of (x) 10 days after
the occurrence of such casualty or Taking and (y) the commencement of the
Restoration of such Pool A Property, either:
(i) to remove the Pool A Property from the calculation of the
borrowing base under the Senior Credit Agreement as required pursuant to
the terms thereof, prepay any outstanding loans under the Senior Credit
Agreement in an amount equal to the Release Price with respect to such
Pool A Property and not Restore such Pool A Property;
(ii) to Restore such Pool A Property in a reasonably prudent
and timely manner to the extent permitted (or not otherwise restricted) by
the Senior Credit Agreement; or
(iii) to prepay any outstanding loans under the Senior Credit
Agreement in an amount equal to the Release Price with respect to such
Pool A Property and Restore such Pool A Property in a reasonably prudent
and timely manner.
5.11 MANAGEMENT OF PROPERTIES.
The Borrower shall, or shall cause any of its Subsidiaries to, manage and
operate the Atlanta Property and the Pool B Properties pursuant to Servicing
Agreements in a commercially reasonable and prudent manner. No Person other than
the Borrower or any Wholly Owned Subsidiary shall have substantial authority
over the management and operation of any Property.
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SECTION 6
NEGATIVE COVENANTS
Each of CapStar and the Borrower covenants and agrees that, so long as the
Commitments hereunder shall remain in effect and until payment in full of the
Loans and the other Obligations (other than indemnification obligations with
respect to claims that have not been asserted at the time that the Loans and all
other Obligations have been paid in full), CapStar and the Borrower shall
perform and shall cause each of their respective Subsidiaries to perform all
covenants in this Section 6.
6.1 INDEBTEDNESS.
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, directly or indirectly, create, incur, assume, Guarantee,
refinance, exchange, refund or otherwise become or remain directly or indirectly
liable with respect to, any Indebtedness, except:
(i) the Loan Parties and their respective Subsidiaries may
become and remain liable with respect to the Obligations;
(ii) the Loan Parties and their respective Subsidiaries may become
and remain liable with respect to Interest Rate Agreements required
pursuant to the terms of the Senior Credit Agreement (as in effect on the
Closing Date);
(iii) the Loan Parties and their respective Subsidiaries may become
and remain liable with respect to intercompany Indebtedness owed to the
Borrower or any of its Wholly Owned Subsidiaries that are Loan Parties;
(iv) so long as at the time of incurrence, refinancing, exchange,
amendment or refunding thereof (a) no Event of Default or Potential Event
of Default has occurred and is continuing or would be caused thereby and
(b) such incurrence, refinancing, exchange, amendment or refunding is
permitted under the terms and provisions of all other Indebtedness and
each agreement pursuant to which such other Indebtedness was incurred, the
Borrower and its Subsidiaries may incur, refinance, exchange, amend or
refund Indebtedness or become liable with respect to Guaranties in an
aggregate principal amount not to exceed $10,000,000 at any time; PROVIDED
that (x) no such Indebtedness (and, if applicable, any security into which
such Indebtedness is convertible or for which it is exchangeable), whether
upon the happening of any event (excluding the occurrence of an event of
default, if such event of default has not then occurred) or otherwise,
shall mature, become payable or require the payment of any principal
amount thereof (or any other amount in lieu thereof) or be mandatorily
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redeemable, pursuant to a sinking fund or otherwise or redeemable at the
option of the holder thereof, or be redeemed, purchased, retired or
defeased (including in substance or legal defeasance) or paid voluntarily
by or on behalf of any obligor thereunder, in any case in whole or in
part, before the date that is 91 days after the Maturity Date and (y) no
obligation that is guaranteed by any such Guaranty, whether upon the
happening of any event (excluding the occurrence of an event of default,
if such event of default has not then occurred) or otherwise, shall
mature, become payable or require the payment of any amount thereof (or
any other amount in lieu thereof) or be mandatorily redeemable, pursuant
to a sinking fund or otherwise or redeemable at the option of the holder
thereof, in any case in whole or in part, before the date that is 91 days
after the Maturity Date; PROVIDED, HOWEVER, that the preceding proviso
shall not be given effect with respect to any equipment lease (or series
of related equipment leases) covering equipment having a value of less
than $500,000 in the aggregate at the commencement of such lease (or
series of leases);
(v) so long as at the time of incurrence, refinancing, exchange
or refunding thereof (a) no Event of Default or Potential Event of Default
has occurred and is continuing or would be caused thereby and (b) such
incurrence, refinancing, exchange, amendment or refunding is permitted
under the terms and provisions of all other Indebtedness and each
agreement pursuant to which such other Indebtedness was incurred, the Pool
B Subsidiaries (other than a Pool B Subsidiary that has acquired or shall
acquire any leasehold interests in Pool B Properties pursuant to the sale
and leaseback transactions permitted by subsection 6.11), may incur,
refinance, exchange, amend or refund Indebtedness in connection with the
Acquisition or ownership of one or more Pool B Properties acquired in a
single transaction or series of related transactions (as so incurred,
refinanced, exchanged, amended or refunded, "POOL B INDEBTEDNESS"), in an
aggregate principal amount not to exceed the lesser of (i) $50,000,000 for
all Pool B Subsidiaries at any time and (ii) that amount which, when added
to the sum of (1) the aggregate amount of all loans and letters of credit
(including amounts drawn (and not reimbursed) under any letters of credit)
outstanding under the Senior Credit Agreement at such time and (2) the
aggregate maximum potential liability of the Borrower pursuant to
guaranties of lease obligations permitted by subsection 6.4(vii) at such
time, equals the Permitted Senior Credit Agreement Amount at such time;
PROVIDED, HOWEVER, that (s) the aggregate outstanding principal amount of
any such Pool B Indebtedness shall not at any time exceed 55% of the sum
of the aggregate cash purchase price of such Pool B Properties PLUS the
aggregate amount of expenditures actually made by such Pool B Subsidiary
in connection with the Renovation of such Pool B Properties, (t) the ratio
of Cash Available for Debt Service (determined with reference to the 12
most recently completed calendar months ending not less than 30 days
before the date of such incurrence, refinancing, exchange, amendment or
refunding) to Projected Interest Expense (determined with reference to the
12 complete calendar months commencing on
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the first day of the month following the date of such incurrence,
refinancing, exchange or refunding) shall not be less than 1.60 to 1.00,
(u) such Pool B Indebtedness of any Pool B Subsidiary (and, if applicable,
any security into which such Indebtedness is convertible or for which it
is exchangeable) shall not mature or require the scheduled payment of
principal (or any other amount in lieu thereof) or be mandatorily
redeemable, pursuant to a sinking fund or otherwise, or redeemable at the
option of the holder thereof, or be redeemed, purchased, retired or
defeased (including in substance or legal defeasance) or paid voluntarily
by or on behalf of any obligor thereunder, in any case in whole or in
part, before the date that is 91 days after the Maturity Date, except that
such Indebtedness may require principal amortization calculated on a level
pay basis over a term of not less than 15 years, (v) such Pool B
Indebtedness shall be non-recourse to any Loan Party, any of its
Subsidiaries and any Joint Venture in which it has an Investment (other
than for any Guaranties provided with respect to customary carve-outs for
environmental and "bad deed" indemnities), (w) such Pool B Indebtedness
shall not be secured by (1) the assets of any Loan Party or any of its
Subsidiaries (other than the Properties owned by such Pool B Subsidiary)
or (2) the Transfer of or Lien on any Intellectual Property, (x) so long
as (1) such Pool B Indebtedness has not been accelerated, (2) a receiver
has not been appointed with respect to a related Pool B Property or (3) no
other remedy is being exercised with respect to any collateral securing,
or other property subject to, such Pool B Indebtedness, such financing
does not preclude or limit the distribution of cash flow (after reserves
for Capital Items, Taxes, insurance and other customary reserves) to the
Borrower and its other Subsidiaries for the purposes set forth herein, (y)
after giving affect to such transaction, the Borrower is in compliance
with all of the provisions set forth herein and the other Loan Documents
and (z) the Borrower shall have delivered to the Agent any Officers'
Certificate demonstrating compliance with the provisions of this
subsection 6.1(v) by the applicable Pool B Subsidiary in connection with
such transaction; and
(vi) the Loan Parties may become and remain liable with respect to
their obligations under the Senior Credit Agreement, provided that the
aggregate principal amount of loans and letters of credit (including
amounts drawn (and not reimbursed) under any letter of credit) permitted
to be outstanding at any time under the Senior Credit Agreement, when
added to the sum of (1) the aggregate outstanding principal amount of all
Pool B Indebtedness at such time and (2) the aggregate maximum potential
liability of the Borrower pursuant to guaranties of lease obligations
permitted by subsection 6.4(vii) at such time, shall not exceed the
Permitted Senior Credit Agreement Amount at such time;
PROVIDED that the prohibition in clauses (iv) and (v) above against actually
defeasing or voluntarily prepaying Indebtedness, in whole or in part, is not
intended to prohibit, and shall not
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prohibit, the Borrower or any of its Subsidiaries from incurring, refinancing,
exchanging, amending or refunding Indebtedness that by its terms entitles any
Person to defease or voluntarily prepay such Indebtedness, in whole or in part.
6.2 LIENS AND RELATED MATTERS.
A. PROHIBITION ON LIENS. The Loan Parties shall not, and shall not permit
any of their respective Subsidiaries to, directly or indirectly, create, incur,
assume or permit to exist any Lien on or with respect to any property or asset
of any kind (including any document or instrument in respect of goods,
furniture, fixtures, equipment or accounts receivable) of CapStar or any of its
Subsidiaries, whether now owned or hereafter acquired, or any income or profits
therefrom, or file or permit the filing of, or permit to remain in effect, any
financing statement or other similar notice of any Lien with respect to any such
property, asset, income or profits under the Uniform Commercial Code of any
State or under any similar recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) Liens on a Pool B Property and related assets granted or
assumed by a Pool B Subsidiary to secure the Pool B Obligations owed by
the Pool B Subsidiary; PROVIDED, that such Liens encumber only the assets
purchased, financed or refinanced with, or leased or otherwise used
pursuant to the terms of, such Pool B Obligations; and
(iii) Liens on FF&E granted to secure Indebtedness incurred
pursuant to subsection 6.1(iv); PROVIDED that such Liens encumber only
FF&E purchased, financed or refinanced with such Indebtedness.
B. EQUITABLE LIEN IN FAVOR OF LENDERS. If any Loan Party or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted by
the provisions of subsection 6.2A, the Borrower shall make or cause to be made
effective provision whereby the Obligations will be secured by such Lien equally
and ratably with any and all other Indebtedness secured thereby as long as any
such Indebtedness shall be so secured; PROVIDED, HOWEVER, that, notwithstanding
the foregoing, this covenant shall not be construed as a consent by the Agent or
any Lender to the creation or assumption of any such Lien not permitted by the
provisions of subsection 6.2A.
C. NO FURTHER NEGATIVE PLEDGES. Except with respect to (i) specific
property encumbered to secure payment of particular Indebtedness or to be sold
pursuant to an executed agreement with respect to a sale or other disposition of
assets permitted hereunder, (ii) specific property subject to a Ground Lease,
(iii) Management Agreements (to the extent that the terms thereof prohibit the
assignment of rights thereunder, but not any other rights or interests and
otherwise consistent with industry practices) as security for the obligations of
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the Loan Parties under the Senior Credit Agreement or otherwise, (iv) any other
agreement entered into in the ordinary course of business which by its terms
restricts the assignment of rights thereunder (but not any other rights or
interests and otherwise consistent with industry practices) as security for the
obligations of the Loan Parties under the Senior Credit Agreement or otherwise
and (v) the Senior Credit Agreement, the Loan Parties shall not and shall not
permit any of their respective Subsidiaries to, directly or indirectly, enter
into any agreement prohibiting the creation or assumption of any Lien upon any
of its properties or assets (including, without limitation, any interest in, or
right to receive payments under, any of the Management Agreements), whether now
owned or hereafter acquired except to the extent that Liens to secure the
Obligations are excluded therefrom.
D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO THE BORROWER OR OTHER
SUBSIDIARIES. Except as provided in this Agreement, in the Senior Credit
Agreement and the Pool B Documents (with respect to the related Pool B
Subsidiaries and Pool B Properties), the Loan Parties shall not, and shall not
permit any of their respective Subsidiaries to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any such Subsidiary to
(i) pay dividends or make any other distributions on any of such Subsidiary's
capital stock or other equity interest owned by the Borrower or any other
Subsidiary of the Borrower, (ii) repay or prepay any Indebtedness owed by such
Subsidiary to the Borrower or any other Subsidiary of the Borrower, (iii) make
loans or advances to the Borrower or any other Subsidiary of the Borrower, or
(iv) transfer any of its property or assets to the Borrower or any other
Subsidiary of the Borrower, except for specific property encumbered to secure
the payment of particular Indebtedness permitted hereunder.
6.3 INVESTMENTS AND CERTAIN CAPITAL EXPENDITURES.
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, directly or indirectly, make any Investment in any Person,
including any Affiliate or Joint Venture, any expenditure to acquire any hotel
or other real property or any expenditure to acquire, secure, extend, renew or
modify any Management Agreement, except:
(i) CapStar and its Subsidiaries may make Investments in cash or
Cash Equivalents;
(ii) the Borrower, Atlanta GP and Atlanta LP may (a) permit to exist
the Investment in the Atlanta Airport Sub, (b) subject to subsection 6.5,
purchase outstanding limited partner interests from other partners in the
Atlanta Airport Sub and (c) subject to clause (viii) below, purchase
outstanding limited partner interests from other limited partners in the
Atlanta Airport Sub and make other Investments in the Atlanta Airport Sub;
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(iii) the Borrower, EAC and the Virginia Sub may (a) permit to exist
the Investment in the Virginia Parking Sub, (b) subject to subsection 6.5,
purchase outstanding general partner interests from other partners in the
Virginia Parking Sub and (c) subject to clause (viii) below, purchase
outstanding general partner interests from other general partners in the
Virginia Parking Sub and make other Investments in the Virginia Parking
Sub;
(iv) CapStar may make equity Investments in the Borrower, and the
Borrower and its Wholly Owned Subsidiaries may make equity and debt
Investments in their respective Wholly Owned Subsidiaries for the
acquisition, ownership, renovation, restoration, management, operation and
disposition of Properties;
(v) the Borrower and its Subsidiaries may make Acquisitions
permitted pursuant to subsection 2.9;
(vi) so long as no Event of Default has occurred and is continuing
and no Event of Default or Potential Event of Default would be caused
thereby, the Borrower and its Subsidiaries may acquire real property that
is contiguous with any Property for use in the expansion of such Property,
PROVIDED that the aggregate purchase price for such real properties,
measured on a cumulative basis from the Closing Date, shall not exceed
$10,000,000;
(vii) so long as no Event of Default or Potential Event of Default
has occurred and is continuing or would be caused thereby, the Borrower
and its Subsidiaries may acquire and own not more than two debt Securities
(other than the Atlanta Note) at any time, which debt Securities shall be
secured exclusively by first priority mortgages encumbering 100% of the
fee interest on hotel properties; PROVIDED that the aggregate purchase
price for such debt Securities shall not exceed $30,000,000; and
(viii)so long as no Event of Default or Potential Event of Default
has occurred and is continuing or would be caused thereby, the Borrower
and the Pool A Subsidiaries may make and own equity or debt Investments
in, or acquire and own equity or debt Securities issued by, the Atlanta
Airport Sub, the Virginia Parking Sub and not more than ten other Joint
Ventures or other Persons (other than a Wholly Owned Subsidiary of the
Borrower); PROVIDED that (a) either (1) the sole purpose of such Joint
Venture or other Person (other than the Virginia Parking Sub) is to
acquire, own, Renovate, restore, manage, operate and dispose of upscale,
full-service hotels in the United States of America and, to the extent
permitted by subsection 6.14B, Canada or (2) such equity or debt
Securities are registered under the Exchange Act; (b) the aggregate amount
of such Investments in, or the aggregate purchase price of such Securities
issued by, each such
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Joint Venture or other Person (other than the Atlanta Airport Sub and the
Virginia Parking Sub) shall not exceed $2,000,000 at any time and the
aggregate amount of such Investments in, or the aggregate purchase price
of such Securities issued by, all such Joint Ventures or other Persons
(other than the Atlanta Airport Sub and the Virginia Parking Sub) shall
not exceed $20,000,000 at any time; (c) the sum of (1) the aggregate
principal amount of the Indebtedness of such Joint Venture or other Person
and, in either case, the Subsidiaries thereof PLUS (2) the purchase price
of any equity Investment made in, or Securities issued by, such Joint
Venture or other Person (other than the aggregate amount of such
Investments, or the aggregate purchase price of such Securities issued by
the Atlanta Airport Sub or the Virginia Parking Sub as of the date of this
Agreement) and, in either case, its Subsidiaries that are preferred in
right or priority of payment (including any mandatory redemption or
redemption at the option of the holder) to any such investment or
Securities (other than a priority right to receive a return on Investment
of up to 25% per annum) shall at no time exceed 60% of the greater of (x)
the undepreciated book value of all properties owned or leased by such
Joint Venture or other Person and, in either case, the Subsidiaries
thereof and (y) the fair market value of all such properties and asset, as
reasonably determined by the Borrower as of the respective dates of
acquisition thereof; (d) the Joint Venture or other Person in which such
Investment is made or by which such Securities are issued shall not be an
Affiliate of more than four other Joint Ventures or other Persons in which
Investments are made or owned or whose Securities are acquired or owned
pursuant to this subsection 6.3(viii), and the Investment made in or
Securities issued by each such Joint Venture or other Person shall neither
be secured by the assets of more than four other Joint Ventures or other
Persons in which Investments are made or owned or whose Securities are
acquired or owned pursuant to this subsection 6.3(viii) nor
cross-defaulted to Investments in or Securities issued by more than four
other Joint Ventures or other Persons in which Investments are made or
whose Securities are acquired pursuant to this subsection 6.3(viii);
PROVIDED, HOWEVER, that (I) without the approval of the Agent, but subject
to all the other limitations set forth in this subsection 6.3(viii) (other
than the requirement in clause (a) above that the hotels be upscale,
full-service hotels), the Borrower and its Wholly Owned Subsidiaries
(other than the Pool B Subsidiaries) may make and own Investments in, or
acquire and own equity or debt Securities issued by, Joint Ventures and
other Persons if the aggregate amount of such Investments in, or the
aggregate purchase price of such Securities issued by, each such Joint
Venture or other Person shall not at any time exceed $500,000 and the
aggregate amount of such Investments in, or the aggregate purchase price
of such securities issued by, all such Joint Ventures or other Persons
shall not at any time exceed $2,500,000, (II) without the approval of the
Agent, the Borrower and its Wholly Owned Subsidiaries (other than the Pool
B Subsidiaries) may make Investments described in clause (iv) of the
definition of "Investments" and the provisions of clauses (a) and (c)
above shall not be given effect with respect to such Investments, PROVIDED
that, with the approval of the Agent, in its sole discretion (provided
that, so long as the Senior Credit Agreement is in effect, no such
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approval shall be required to the extent that such approval is granted
under the Senior Credit Agreement), the Borrower and its Wholly Owned
Subsidiaries (other than Pool B Subsidiaries) may make such Investments
and the provisions of clauses (a), (c) and (d) above shall not be given
effect, and (III) with respect to Investments in, or the acquisition of
Securities issued by, a Joint Venture or other Person that shall be
identified in writing to and approved in writing by the Lenders before the
Closing Date, the provisions of clause (b) above shall not be given effect
and the percentage amount in clause (c) above shall be increased from 60%
to 75%;
PROVIDED that (A) the aggregate amount of the consideration or Investment, as
the case may be, paid by the Borrower and the Pool A Subsidiaries to acquire the
real property, acquire the Securities and make the Investments and expenditures
referred to in clauses (vi), (vii) and (viii) above shall not exceed $60,000,000
at any time, (B) except as provided to the contrary in sub clauses (I) and (II)
to the proviso to clause (vii) above, each such expenditure and acquisition or
Investment referred to in clauses (vi), (vii) and (viii) above shall be approved
by the Agent, in its sole discretion; and (C) each such Acquisition referred to
in clause (iii) above from a person that is an Affiliate or 5% stockholder of
any of the Loan Parties (other than other Loan Parties) or any entity in which
such Person has an equity or debt Investment shall be approved by a majority of
the independent directors of the board of directors of CapStar and by the Agent,
which approval shall not be unreasonably withheld, conditioned or delayed
(provided that, so long as the Senior Credit Agreement is in effect, no such
approval by the Agent shall be required to the extent that such approval is
granted under the Senior Credit Agreement).
For the purpose of this subsection 6.3 and without limiting any other
method of making an Investment, the Borrower and its Subsidiaries shall be
deemed to make an Investment in each Investment owned by a Person at the time
such Person becomes a Subsidiary of the Borrower or any of its Subsidiaries.
6.4 CONTINGENT OBLIGATIONS.
The Loan Parties shall not and shall not permit any of their respective
Subsidiaries to, directly or indirectly, create or become liable with respect to
any Contingent Obligation, except that:
(i) the Borrower and its Subsidiaries may become liable with
respect to Contingent Obligations in respect of the Obligations and the
Indebtedness, Investments and Contingent Obligations in respect of which
the Borrower and the Pool A Subsidiaries are permitted by subsections 6.1,
6.3 and 6.4 (other than pursuant to this clause (i)) to become liable;
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(ii) CapStar and its Subsidiaries may become liable with respect
to Contingent Obligations in respect of Senior Indebtedness subject to the
limitations set forth in subsections 6.1(ii) and (vi);
(iii) the Borrower and its Subsidiaries may become liable with
respect to indemnification agreements and Guaranties (whether now existing
or hereafter entered into) with respect to performance, surety and similar
bonds or guaranties of completion provided in the ordinary course of
business consistent with past practices in respect of the Restoration or
Renovation of any Property, but excluding any such bonds with respect to
any hotel property that is not then a Property, in an aggregate maximum
amount not at any time exceeding $25,000,000 MINUS the sum, without
duplication, of (1) the Letter of Credit Usages that shall have been used,
issued or made for or in connection with the Restoration of the Properties
or the Renovation of Properties subject to subsection 7.16, in each case
that shall have been commenced but not completed, PLUS (2) the aggregate
amount of expenditures for the Restoration of Properties or the Renovation
of Properties subject to subsection 6.16, in each case that shall have
been commenced but not completed;
(iv) the Borrower and the Pool A Subsidiaries may become liable to
make Investments permitted by, and in accordance with the terms of,
subsection 6.3;
(v) such of the Borrower and its Subsidiaries as are specified on
SCHEDULE 4.3B annexed hereto may be liable (a) with respect to the
Contingent Obligations set forth on such Schedule, in each case in the
aggregate amount not greater than the maximum estimated amount specified
thereon with respect to such Continent Obligation and (b) with respect to
modifications to any such Contingent Obligation either (1) that do not
increase either the maximum possible amount, or the maximum estimated
amount thereof, or both, in each case as specified on each list, add any
obligors with respect thereto or increase, decrease or otherwise vary the
liabilities of the existing obligors with respect thereto or (2) that
increase either the maximum possible amount or the maximum estimated
amount thereof, or both, in each case as specified on such list, add any
obligors with respect thereto or increaser, decrease or otherwise vary the
liabilities of the existing obligors;
(vi) the Borrower and its Subsidiaries may become liable with
respect to other Contingent Obligations in an aggregate amount (not less
than zero) at any time not greater than the amount by which $10,000,000 is
greater than the amount referred to in clause (iii) of this subsection 6.4
at such time; and
(vii) the Borrower may guaranty obligations of its Pool B
Subsidiaries under leases related to sale and lease-back transactions
permitted
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pursuant to subsection 6.11; PROVIDED that (a) the maximum aggregate
potential liability of the Borrower pursuant to such guaranties (whether
for regularly scheduled lease payments, any amount due in connection with
the termination or expiration of any lease or any other amount payable in
connection with such leases) shall not exceed the lesser of (i) $5,000,000
at any time and (ii) that amount which, when added to the sum of (1) the
aggregate amount of all loans and letters of credit (including amounts
drawn (and not reimbursed) under any letter of credit) outstanding under
the Senior Credit Agreement at such time, equals the Permitted Senior
Credit Agreement Amount at such time; and PROVIDED FURTHER, that the
Borrower shall have obtained the Agent's prior written approval of (x) the
terms of the applicable lease (and each supplement thereto and amendment
or modification thereof), (y) the identity of lessor and (z) the property
subject to such sale and lease-back transaction (provided that, so long as
the Senior Credit Agreement is in effect, no such approval shall be
required to the extent that such approval is granted under the Senior
Credit Agreement).
6.5 RESTRICTED JUNIOR PAYMENTS.
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, directly or indirectly, declare, order, pay, make, give or
publish notice or fix a date in respect of or set apart any sum for any
Restricted Junior Payment, enter into an agreement or make any commitment to
effect any of the foregoing or take any other similar action in furtherance of
or otherwise in connection with the foregoing; PROVIDED, HOWEVER, that, so long
as no Event of Default or Potential Event of Default has occurred or is
continuing, the Loan Parties may make any of the following payments:
(i) commencing on January 1, 2000, the Loan Parties may make
Restricted Junior Payments in respect of equity Securities, including
payments in respect of limited partner interests in the Borrower that
shall not be beneficially owned by CapStar or CapStar Sub); PROVIDED that
(a) the aggregate amount of Restricted Junior Payments pursuant to this
clause (i) during any calendar year shall not exceed an amount equal to
25% of Consolidated Net Income for the immediately preceding calendar year
and (b) no payments of principal, or any redemption, purchase or
defeasance, of any Indebtedness of CapStar and its Subsidiaries shall be
permitted pursuant to this clause (i);
(ii) the Atlanta Airport Sub may make distributions to its
partners in accordance with the Atlanta Partnership Agreement; PROVIDED
that such distributions are made (x) pursuant to Section 5.1, 5.2 or 13.2
of the Atlanta Partnership Agreement in accordance with the provisions
thereof in effect on the date of this Agreement and (y) with respect to
Cash Flow from Operations and Capital Proceeds (in each case as defined in
the Atlanta Partnership Agreement on the date of this Agreement); and
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(iii) the Loan Parties may make Restricted Junior Payments in an
aggregate amount (measured on a cumulative basis from the Closing Date)
not to exceed $25,000,000 pursuant to the conversion, exercise or
redemption of the Preferred Limited Partner Interests.
6.6 FINANCIAL COVENANTS.
A. MAXIMUM CONSOLIDATED TOTAL INDEBTEDNESS. CapStar and the Borrower shall
not permit at any time Consolidated Total Indebtedness to exceed the lesser of
(i) 60% (or, if CapStar has an offering of its equity Securities after the
Closing Date, 55%) of the sum of (a) Consolidated Total Indebtedness at such
time PLUS (b) the Market Equity Capitalization of CapStar at such time and (ii)
65% (or, if CapStar has an offering of its equity Securities after the Closing
Date, 60%) of the sum of (y) Consolidated Total Indebtedness at such time PLUS
(z) Net Worth of CapStar at such time.
B. MINIMUM INTEREST COVERAGE. As of the last day of any calendar quarter
ending during any of the periods set forth below, CapStar and the Borrower shall
not permit the ratio of Consolidated EBITDA to Consolidated Interest Expense to
be less than the correlative ratio indicated for the periods set forth below
(such amounts to be determined with reference to the preceding 12-month period
ending on such last day and to be adjusted to the extent required by the
respective provisos to the definition of Property EBITDA):
=========================== ===========================
MINIMUM
INTEREST
PERIOD COVERAGE RATIO
--------------------------- ---------------------------
Closing Date through 2.00 to 1.00
December 31, 1997
--------------------------- ---------------------------
January 1, 1998 through 2.40 to 1.00
December 31, 1998
--------------------------- ---------------------------
January 1, 1999 through 2.70 to 1.00
December 31, 1999
--------------------------- ---------------------------
January 1, 2000 through 2.90 to 1.00
December 31, 2000
--------------------------- ---------------------------
January 1, 2001 through the 3.15 to 1.00
Maturity Date
=========================== ===========================
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C. MAXIMUM TOTAL DEBT LEVERAGE RATIO. As of the last day of any calendar
quarter ending during any of the periods set forth below, CapStar and the
Borrower shall not permit the ratio of Consolidated Total Indebtedness to
Consolidated EBITDA to exceed the correlative ratio indicated for the periods
set forth below (Consolidated Total Indebtedness to be determined as of such
last day, and Consolidated EBITDA to be determined with reference to the
preceding 12-month period ending on such day):
=========================== ===========================
MAXIMUM
LEVERAGE
PERIOD RATIO
--------------------------- ---------------------------
Closing Date through 5.50 to 1.00
June 30, 1997
--------------------------- ---------------------------
July 1, 1997 through 5.25 to 1.00
September 30, 1997
--------------------------- ---------------------------
October 1, 1997 through 5.00 to 1.00
March 31, 1998
--------------------------- ---------------------------
April 1, 1998 through 4.75 to 1.00
June 30, 1998
--------------------------- ---------------------------
July 1, 1998 through 4.50 to 1.00
September 30, 1998
--------------------------- ---------------------------
October 1, 1998 through 4.25 to 1.00
December 31, 1999
--------------------------- ---------------------------
January 1, 2000 through 4.00 to 1.00
December 31, 2000
--------------------------- ---------------------------
January 1, 2001 through the 3.75 to 1.00
Maturity Date
=========================== ===========================
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6.7 FUNDAMENTAL CHANGES.
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, alter the legal structure of any Loan Party or any of its
Subsidiaries, to incorporate or otherwise organize any Subsidiaries, or enter
into any transaction of merger or consolidation, or liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution), or make or permit
any Transfer or acquire by purchase or otherwise, directly or indirectly, all or
substantially all the business, property or fixed assets of, or stock or other
evidence of beneficial ownership of, any Person, make any Acquisition, acquire
or enter into any management agreement with respect to any hotel property or
Transfer any Property, except that, from time to time after the Closing Date:
(i) the Loan Parties and their Subsidiaries may lease space in
Improvements and in accordance with subsection 6.5(vi) of the Senior
Credit Agreement (as in effect on the Closing Date) remove, sell or
otherwise dispose of items of collateral under the Senior Credit Agreement
and other property;
(ii) the Borrower and any Wholly Owned Subsidiary (other than a Pool
A Subsidiary or a Pool B Subsidiary) may incorporate or otherwise organize
one or more Subsidiaries; PROVIDED that (a) before the Subsidiary shall
conduct any business or acquire any asset, the Borrower shall deliver to
the Agent (1) information reflecting the incorporation or other
organization of such Subsidiary, and (2) an originally executed
counterpart to the Affiliate Guaranty (except as may be provided to the
contrary in subsection 2.9B), (b) the legal and tax structure of each such
Subsidiary shall be approved by the Agent, which approval shall not be
unreasonably withheld, conditioned or delayed (provided that, so long as
the Senior Credit Agreement is in effect, no such approval shall be
required to the extent that such approval is granted under the Senior
Credit Agreement); PROVIDED FURTHER that, with respect to the restrictions
on the tax and legal structure of a Pool B Subsidiary, such structure may
include features intended by the Borrower to make such Pool B Subsidiary
"bankruptcy-remote" and (c) no Pool B Subsidiary shall at any time (1)
incur, assume or otherwise become liable for any Indebtedness or
Contingent Obligation except as permitted by subsections 6.1 and 6.4, or
(2) incur, assume or otherwise become liable for any other liability or
indebtedness except in the ordinary course of business (PROVIDED that, in
any event, each such liability or obligation shall be non-recourse to each
Loan Party, its Subsidiaries and the Joint Ventures in which it has an
Investment, in each case other than such Pool B Subsidiary) or as shall
have been approved by the Requisite Lenders in their sole discretion;
(iii) the Loan Parties and their respective Subsidiaries may make
Acquisitions to the extent permitted by, and in accordance with,
subsections 2.9A and 2.9B;
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(iv) the Loan Parties and their respective Subsidiaries may Transfer
Properties to the extent permitted by, and in accordance with, subsection
6.15B or 6.15C, as applicable;
(v) the Loan Parties and their respective Subsidiaries may acquire
or enter into Management Agreements and Servicing Agreements with respect
to hotel properties to the extent permitted by, and in accordance with,
subsection 5.11 or 6.17;
(vi) the Loan Parties may make Investments and acquisitions of real
property to the extent permitted by, and in accordance with, subsection
6.3;
(vii) the Loan Parties and their respective Subsidiaries may
dissolve one or more Inactive Subsidiaries and one or more other
Subsidiaries upon the Transfer of all or substantially all their
respective assets in a single transaction or series of transactions not
prohibited by subsection 6.15B or 6.15C, as applicable.
Notwithstanding anything to the contrary contained in this Agreement, if
any Subsidiary of CapStar after the date hereof guaranties the obligations of
the Borrower under the Senior Credit Agreement then such Subsidiary shall
contemporaneously execute a counterpart to the Affiliate Guaranty.
6.8 ZONING AND CONTRACT CHANGES AND COMPLIANCE.
Without the prior written approval of the Agent, which approval shall not
be unreasonably withheld, conditioned or delayed (provided that, so long as the
Senior Credit Agreement is in effect, no such approval shall be required to the
extent that such approval is granted under the Senior Credit Agreement), the
Loan Parties shall not and shall not permit any of their respective Subsidiaries
to initiate or consent to any zoning reclassification of any property or seek
any material variance under any existing zoning ordinance or use or permit the
use of any Property in any manner that could result in such use becoming a
non-conforming use (other than a non-conforming use permissible under automatic
grandfathering provisions) under any zoning ordinance or any other applicable
land use law, rule or regulation. The Loan Parties shall not and shall not
permit any of their respective Subsidiaries to initiate or consent to any change
in any laws, requirements of Governmental Authorities or obligations created by
private contracts and Material Leases which now or hereafter could reasonably be
likely to materially and adversely affect the ownership, occupancy, use or
operation of any Property without the prior written consent of the Agent
(provided that, so long as the Senior Credit Agreement is in effect, no such
approval shall be required to the extent that such approval is granted under the
Senior Credit Agreement).
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6.9 NO JOINT ASSESSMENT; SEPARATE LOTS.
Without the prior written approval of the Agent, which approval may be
granted, withheld, conditioned or delayed in its sole discretion (provided that,
so long as the Senior Credit Agreement is in effect, no such approval shall be
required to the extent that such approval is granted under the Senior Credit
Agreement), the Loan Parties shall not suffer, permit or initiate, and shall not
permit any of their respective Subsidiaries to suffer, permit or initiate, the
joint assessment of any Property (i) with any other real property constituting a
separate tax lot (other than another Property) and (ii) with any portion of any
Property which may be deemed to constitute personal property, or any other
procedure whereby the lien of any Taxes which may be levied against any such
personal property shall be assessed or levied or charged to any Property as a
single lien. Each Property is comprised of one or more parcels, each of which,
to the knowledge of the Borrower, constitutes a separate tax lot (except with
respect to any lot constituting another Property) and none of which constitutes
a portion of any other tax lot.
6.10 TRANSACTIONS WITH AFFILIATED PERSONS.
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property, the rendering of any service or the making of any
Investment or Guaranty, or the amendment, restatement, supplement or other
change of, or waiver or failure to enforce any obligations under, any agreement)
with any holder of 5% or more of any class of equity Securities of the Borrower
or CapStar or any Affiliate of the Borrower or CapStar unless the terms thereof
are not less favorable to such Loan Party or Subsidiary, as the case may be,
than those that might be obtained in a comparable transaction at the time on an
arms-length basis from Persons who are not such a holder or Affiliate; PROVIDED,
HOWEVER, that this subsection 6.10 shall not apply to (x) any transaction
between the Borrower and any of its Wholly Owned Subsidiaries that are Loan
Parties or between any of its Wholly Owned Subsidiaries that are Loan Parties,
(y) any transaction listed on SCHEDULE 6.10 annexed hereto (but not any
amendment, restatement, supplement or other change of, or waiver or failure to
enforce any obligations under, any agreement related thereto) and (z) the terms
and conditions of the compensation paid to any such holder or Affiliate in his
or her capacity as a director or employee of such Loan Party or Subsidiary that
shall be approved by a majority of the independent directors of CapStar or by a
majority of independent directors on a committee of the Board of Directors of
CapStar having at the time two or more independent directors.
6.11 SALES AND LEASE-BACKS.
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, directly or indirectly, enter into any arrangement with any
Person providing for the leasing by
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any Loan Party or any of its Subsidiaries of any real or tangible personal
property, which property has been or is to be sold or transferred by any Loan
Party or any of its Subsidiaries to such Person in contemplation of such
leasing, unless, with respect to a Pool B Property (including any Pool A
Property Released in connection with a sale and lease-back transaction permitted
pursuant to this subsection 6.11):
(i) the Loan Parties and their respective Subsidiaries shall comply
with the conditions set forth in subsection 2.9B with respect thereto;
(ii) after giving effect to the proposed transaction, the aggregate
number of Properties subject to such sale and lease-back transactions
shall not exceed three;
(iii) the leasehold interests in each subject Property shall be held
by a separate Pool B Subsidiary of the Borrower unless such leasehold
interests were acquired in the same transaction or series of related
transactions;
(iv) the obligations of each such Pool B Subsidiary (including
obligations under the related leases) may be secured by the assets of such
Pool B Subsidiary but shall not be secured by the assets of, or otherwise
recourse to, the Borrower or any of the Borrower's other Subsidiaries;
provided, that the Borrower may guaranty such obligations to the extent
permitted by subsection 6.4(vii);
(v) no such Pool B Subsidiary may incur any Pool B Indebtedness or
become liable with respect to any Guaranty or other Contingent Obligation
with respect to the same;
(vi) the Borrower would not be in default, as of the date of such
leasing, of subsection 6.6C if Consolidated Total Indebtedness were to
increase by an amount equal to the Attributable Indebtedness with respect
to such sale and lease-back arrangement; and
(vii) the aggregate amount of Attributable Indebtedness with respect
to all sale and lease-back transactions permitted by this subsection 6.11
does not exceed $60,000,000 at any time.
A sale and lease-back transaction with respect to a Property permitted by
this subsection 6.11 shall be deemed to be a sale or other permanent disposition
of such Property for all purposes of this Agreement.
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6.12 SALE OR DISCOUNT OF RECEIVABLES.
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, directly or indirectly, sell with recourse or, except in the
ordinary course of business and consistent with past practices, discount or
otherwise sell for less than the face value thereof, any of its notes or
accounts receivable.
6.13 OWNERSHIP OF SUBSIDIARIES.
Except as expressly permitted pursuant to subsections 6.7(ii) and 6.15B or
6.15C, as applicable, (i) the Loan Parties shall not permit any of their
respective Wholly Owned Subsidiaries to cease to be Wholly Owned Subsidiaries,
except to qualify directors if required by Applicable Laws or permit Investments
by foreign nationals mandated by Applicable Law; PROVIDED that, notwithstanding
anything to the contrary contained in this Agreement, Atlanta GP shall not cease
to be the sole general partner of the Atlanta Airport Sub and Atlanta LP shall
not own a lesser percentage of outstanding limited partner interests in the
Atlanta Airport Sub than it owns as of the date hereof and (ii) the Borrower
shall not cease to be a Subsidiary of CapStar and the financial statements of
the Borrower shall not cease to be consolidated with the financial statements of
CapStar in accordance with GAAP.
6.14 CONDUCT OF BUSINESS; RESTRICTIONS ON OPERATIONS IN CANADA.
A. CONDUCT OF BUSINESS. The Loan Parties shall not, and shall not permit
any of their respective Subsidiaries to, directly or indirectly, do the
following:
(i) engage in any business other than (a) the acquisition,
ownership, Renovation, Restoration, management, operation and disposition
of Properties that are upscale full service hotels located in the United
States of America and, to the extent permitted by subsection 6.14(B),
Canada, excluding, without limitation, the Development of real property,
(b) the management of Managed Properties that are hotels located in the
United States of America and Canada and (c) any business that is
ancillary, in purpose and extent, to any business referred to in the
preceding clauses (a) and (b) (including, for the purpose of this clause
(c), the ownership of a parking facility by the Virginia Parking Sub);
PROVIDED that (x) CapStar shall not engage in any business other than
being the sole general partner of the Borrower and the sole stockholder of
CapStar Sub and (y) CapStar Sub shall not engage in any business other
than being a limited partner of the Borrower; or
(ii) enter into any Material Lease or other agreement, or take any
other action, if such Material Lease or such other action would materially
change the business
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conducted at any Property, including any such Material Lease, agreement or
other action, that would convert or reposition any Property into any hotel
other than an upscale full service hotel.
B. RESTRICTIONS ON OPERATIONS IN CANADA. Neither CapStar nor any of its
Subsidiaries shall make an Acquisition of any Property located in Canada or make
an Investment pursuant to subsection 6.3(viii) of a Security issued by a Person
that owns, manages or operates a hotel in Canada if, after giving effect to such
proposed Acquisition or Investment, the aggregate amount expended by CapStar and
its Subsidiaries (as of any applicable date of determination) with respect to
Properties located in Canada or such Investments is greater than an amount equal
to 15% of the aggregate amount of the commitments under the Senior Credit
Agreement at any time (or if such commitments have been terminated or the Senior
Credit Agreement has been terminated, the aggregate amount of such commitments
as in effect immediately prior to any such termination.
6.15 PROPERTIES.
A. ACQUISITION OF PROPERTIES. The Loan Parties shall not, and shall not
permit any of their respective Subsidiaries to, make an Acquisition of a fee or
leasehold interest in any hotel property after the Closing Date except in
accordance with the provisions of subsection 2.9.
B. TRANSFER OF PROPERTIES. The Loan Parties shall not, and shall not
permit any of their respective Subsidiaries to, Transfer any Property; PROVIDED
that (i) the Loan Parties and their respective Subsidiaries may create, incur,
assume or permit to exist Liens in accordance with subsection 6.2, and (ii) each
Loan Party and each of its Subsidiaries may sell or otherwise permanently
dispose of any Property (whether directly or by the sale or other permanent
disposition of all, but not less than all, the capital stock or other equity
Securities of the Subsidiary that owns such Property) prior to the termination
of the Senior Credit Agreement if (a) each such sale or other permanent
disposition of such Property is made on an arms-length basis, (b) the
consideration received by such Loan Party or Subsidiary in any such transaction
(net of any Pool B Obligations forgiven or paid in connection therewith), in an
amount not less than the Release Price required to be paid pursuant to
subsection 2.10 in connection with the Release of such Property, shall be cash
and shall be received on the date of such sale or other permanent disposition,
and (c) with respect to any Pool A Property, the Borrower complies with the
provisions set forth in subsection 2.10 with respect to such Property, including
the payment of any Release Price required thereby.
C. CERTAIN TRANSFERS OF PROPERTIES. After the termination of the Senior
Credit Agreement and the repayment of all amounts owing thereunder, the Loan
Parties shall not, and shall not permit any of their respective Subsidiaries to,
sell or otherwise permanently dispose of any Property (whether directly or by
the sale or other permanent disposition of all, but not less than all, the
capital stock or other equity Securities of the Subsidiary that owns such
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Property) unless (i) such Loan Party or the applicable Subsidiary, as the case
may be, receives consideration at the time of such sale or other permanent
disposition at least equal to the fair market value of the Property sold or
otherwise permanently disposed of (as determined in good faith by the Board of
Directors of such Loan Party or Subsidiary, as the case may be), (ii) 100% of
the consideration received by such Loan Party or Subsidiary, as the case may be,
from such sale or other permanent disposition shall either be cash or a new
Property or Properties that would otherwise satisfy the requirements of
subsection 2.9 (or a combination of cash and such Property or Properties) and
(in either case) is received at the time of such sale or other permanent
disposition; and (iii) upon the consummation of such sale or other permanent
disposition, such Loan Party shall apply, or cause such Subsidiary to apply, any
cash proceeds representing the Net Sales Price from such sale or other permanent
disposition within 180 days of receipt thereof either (A) to prepay the Loans
pursuant to subsection 2.4B(iii), (B) to reinvest in upscale full service hotels
pursuant to subsection 2.9 or (C) to effect a combination of prepayment and
investment permitted by the foregoing clauses (A) and (B). On the 181st day
after any sale or other permanent disposition of a Property or such earlier
date, if any, as the Board of Directors or the senior management of such Loan
Party or Subsidiary, as the case may be, determines not to apply such cash
proceeds relating to such sale or other disposition as set forth in clause (B)
of the immediately preceding sentence, such aggregate amount of such cash
proceeds which have not been applied on or before such date as permitted in
clauses (A) and (B) of the immediately preceding sentence shall be applied by
such Loan Party or Subsidiary, as the case may be, to prepay the Loans pursuant
to subsection 2.4B(iii).
D. CERTAIN CASUALTIES OR TAKINGS OF PROPERTIES. If there shall occur a
casualty or Taking with respect to any Property (or any portion thereof) after
the termination of the Senior Credit Agreement and the repayment of all amounts
owing thereunder, then the Loan Parties shall, or shall cause their respective
Subsidiaries to, apply the Net Insurance/Condemnation Proceeds received
therefrom within 180 days of receipt thereof either (A) to prepay the Loans
pursuant to subsection 2.4B(iii) or (B) to Restore the Property (or portion
thereof) subject to such casualty or Taking in a reasonably prudent manner or,
in the case of a total Taking of any Property, then the Borrower or the
applicable Subsidiary, as the case may be, shall have the right to reinvest such
Net Insurance/Condemnation Proceeds in additional Properties pursuant to
subsection 2.9 within 180 days of receipt thereof. On the 181st day after the
receipt of the Net Insurance/Condemnation Proceeds from the respective casualty
or Taking, or such earlier date, if any, as the Board of Directors or the senior
management of such Loan Party or Subsidiary, as the case may be, determines not
to apply the Net Insurance/Condemnation Proceeds to Restore the applicable
Property (or portion thereof), or, in the case of a total Taking, to reinvest
such proceeds as provided above, the aggregate amount of Net
Insurance/Condemnation Proceeds which have not been applied on or before such
date as permitted in clause (B) of the immediately preceding sentence shall be
applied by such Loan Party or Subsidiary, as the case may be, to prepay the
Loans pursuant to subsection 2.4B(iii).
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Notwithstanding anything to the contrary contained in the immediately preceding
sentence, in the event that the Borrower or the applicable Subsidiary has
determined to Restore the Property (or portion thereof) subject to such casualty
or Taking and the Borrower or such Subsidiary has not completed such Restoration
within 180 days after the receipt of such Net Insurance/Condemnation Proceeds,
the Borrower or such Subsidiary shall not be required to repay the Loans
pursuant to subsection 2.4B(iii) on such 181st day so long as binding
commitments have theretofore been entered into for such Restoration and such
Restoration proceeds in a timely and reasonably prudent manner.
6.16 RENOVATION EXPENDITURES.
So long as no Event of Default has occurred and is continuing and no Event
of Default or Potential Event of Default would be caused thereby, the Borrower
and its Subsidiaries may make expenditures for the Renovation of Properties
(including expanding Improvements to increase the number of available rooms);
PROVIDED that neither the Borrower nor any of its Subsidiaries shall make any
such expenditure if, after giving effect to such expenditure, the aggregate
amount of expenditures as of any date of determination for such Renovations that
shall have been commenced but not completed as of such date of determination
shall at any time exceed the amount by which $25,000,000 is greater than the
outstanding amount of Contingent Obligations then permitted pursuant to
subsection 6.4(iii).
6.17 MANAGEMENT AGREEMENTS AND SERVICING AGREEMENTS.
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, enter into or otherwise become obligated with respect to, any
management agreement with respect to any hotel property (other than a Property)
after the Closing Date, except that, from time to time:
(i) so long as no Event of Default has occurred and is continuing
and no Event of Default or Potential Event of Default would be caused
thereby, without the approval of the Agent (except as provided to the
contrary in this subsection 6.17(i)) (provided that, so long as the Senior
Credit Agreement is in effect, no such approval shall be required to the
extent that such approval is granted under the Senior Credit Agreement),
the Borrower or any of its Wholly Owned Subsidiaries may enter into
Management Agreements with respect to the management and operation of
hotel properties, the related land and the improvements thereof and,
subject to subsection 6.20H, amend, restate, supplement or otherwise
change such Management Agreements; PROVIDED, however, that (a) each
Managed Property subject to such Management Agreement shall be a hotel
located in the United States of America or Canada; and (b) such Management
Agreement shall not constitute, have the form of or contain provisions
creating a leasehold interest in any hotel Property or other real or
personal property; and
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(ii) the Borrower and any of its Wholly Owned Subsidiaries shall
enter into Servicing Agreements with respect to the management and
operation of Pool B Properties as contemplated by subsection 2.9B.
6.18 INTELLECTUAL PROPERTY; FRANCHISE AGREEMENTS.
A. INTELLECTUAL PROPERTY. The Loan Parties shall not, and shall not permit
any of their respective Subsidiaries, to Transfer any Intellectual Property
unless the Borrower shall have reasonably determined that the Intellectual
Property so Transferred is no longer material to the business, operations,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries.
B. FRANCHISE AGREEMENTS. The Loan Parties shall not, and shall not permit
any of their respective Subsidiaries to, enter into or otherwise become
obligated with respect to, any franchise agreement (as franchisor), license
agreement (as licensor) or similar agreement (in a similar capacity) with
respect to any Intellectual Property of CapStar or any of its Subsidiaries.
6.19 MATERIAL LEASES.
The Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, (i) enter into any Lease other than Leases incidental to the
operation of the Properties as hotels or (ii) enter into any Material Lease or
any advanced booking of more than 51% of the rooms at any Property for a period
in excess of 30 days without the prior written approval of the Agent, which
approval shall not be unreasonably withheld, conditioned or delayed (provided
that, so long as the Senior Credit Agreement is in effect, no such approval
shall be required to the extent that such approval is granted under the Senior
Credit Agreement). In the event any Lease necessary to the operation of any
Property as a hotel is terminated, the applicable Loan Party or Subsidiary
thereof shall either replace such Lease with a suitable comparable Lease within
a reasonable period of time following such termination or shall itself provide
the services intended to be obtained under such Lease.
6.20 CHANGES IN CERTAIN OBLIGATIONS AND DOCUMENTS; ISSUANCE OF EQUITY
SECURITIES.
A. CREDIT AGREEMENT. Without the prior written approval of the Agent,
which approval may be granted, withheld, conditioned or delayed in its sole
discretion, the Loan Parties shall not, and shall not permit any of their
respective Subsidiaries to, enter into any agreement (other than this Agreement
and the Senior Credit Agreement) prohibiting or restricting the ability of any
of the Loan Parties and any of their respective Subsidiaries to amend or
otherwise modify this Agreement or any other Loan Document.
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B. CAPSTAR PREFERRED STOCK. Without the prior written approval of the
Agent, which approval may be granted, withheld, conditioned or delayed in its
sole discretion, CapStar shall not amend, restate, supplement or otherwise
change its articles of incorporation if the effect of such amendment,
restatement, supplement or change is to provide for the issuance of any
preferred stock of CapStar or the filing of any certificate of designation with
respect thereto, except that CapStar may amend, restate, supplement or change
its certificate of incorporation to provide for the issuance of non-cumulative
preferred stock; PROVIDED, HOWEVER, that (i) the certificate of incorporation of
CapStar, as so amended, restated, supplemented or changed, and any prospectus,
certificate of designation or other document delivered in connection with such
issuance shall be in form and substance satisfactory to the Agent, (ii) such
preferred stock shall be Qualified Capital Stock and (iii) such preferred stock
shall be subordinate in right and time of payment to the Obligations.
C. EQUITY SECURITIES. The Loan Parties shall not, and shall not permit any
of their respective Subsidiaries to, issue any Capital Stock or other Security
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 or
otherwise, or redeemable in cash at the option of the holder thereof, in whole
or in part, before the date that is 91 days after the Maturity Date; PROVIDED
that, so long as no Event of Default or Potential Event of Default has occurred
and is continuing:
(i) the Borrower may issue limited partner interests that may be
converted into shares of Common Stock of CapStar; and
(ii) the Borrower may issue limited partner interests ("PREFERRED
LIMITED PARTNER INTERESTS") that by their terms may be converted into or
exercised or redeemed for cash if (a) the aggregate amount of cash payable
upon such conversion, exercise or redemption shall not exceed $25,000,000
measured on a cumulative basis from the Closing Date and (b) the terms of
such Preferred Limited Partner Interests shall have been approved by the
Agent, which approval shall not be unreasonably withheld, conditioned or
delayed.
D. ORGANIZATION DOCUMENTS. Without the prior written approval of the
Agent, which approval may be granted, withheld, conditioned or delayed in its
sole discretion, except as expressly permitted hereunder, the Loan Parties shall
not, and shall not permit any of their respective Subsidiaries to, amend or
otherwise modify their respective charters or partnership agreements in any
material respect except in connection with an activity permitted by subsection
6.7(vii); PROVIDED that, without the prior written approval of the Agent (but
only after giving written notice with respect thereto to the Agent at least 5
Business Days before the effective date of such modification or amendment), the
Loan Parties and their respective Subsidiaries may
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modify or amend the partnership agreement of the Virginia Parking Sub in effect
on the date of this Agreement if such modification or amendment is required by
the terms thereof and does not adversely affect the interests or rights of the
Lenders in or to, or the value of, the partnership interest in the Virginia
Parking Sub owned by the Virginia Parking Sub.
E. POOL A GROUND LEASES. Without the prior written approval of the
Requisite Lenders (provided that, so long as the Senior Credit Agreement is in
effect, no such approval shall be required to the extent that such approval is
granted under the Senior Credit Agreement), which approval may be granted,
withheld, conditioned or delayed in their sole discretion, the Loan Parties
shall not, and shall not permit any of their respective Subsidiaries to, take
any action or fail to take any action, in either case as may be required or
permitted by the terms of any Pool A Ground Lease, with respect to the
termination (by such Loan Party or such Subsidiary, by the lessor or by any
other Person, and for any reason), renewal or extension thereof or to amend,
restate, supplement or otherwise change, or waive or fail to enforce any
provision of, any Pool A Ground Lease in any material respect.
F. FRANCHISE AGREEMENTS. Without the prior written approval of the
Requisite Lenders, which approval shall not be unreasonably withheld,
conditioned or delayed (provided that, so long as the Senior Credit Agreement is
in effect, no such approval shall be required to the extent that such approval
is granted under the Senior Credit Agreement), the Loan Parties shall not, and
shall not permit any of their respective Subsidiaries to, (i) take any action or
fail to take any action, in either case as may be required or permitted by the
terms of any Franchise Agreement with respect to a Pool A Property, with respect
to the termination (by such Loan Party or such Subsidiary, the franchisor or any
other Person, and for any reason), renewal or extension thereof, PROVIDED that,
without the approval of the Requisite Lenders, each such Franchise Agreement may
be renewed or extended on substantially the same terms as then in effect, (ii)
amend, restate, supplement or otherwise change, or waive or fail to enforce any
provision of, any Franchise Agreement with respect to a Pool A Property in any
material respect, or (iii) enter into any new or replacement Franchise Agreement
with respect to a Pool A Property (with the same franchisor or a different
franchisor); PROVIDED that with respect to a replacement Franchise Agreement
referred to in the preceding clause (iii), the Requisite Lenders' approval may
be granted, withheld, conditioned or delayed in the sole discretion of the
Requisite Lenders if, in their opinion, the franchisor under such replacement
Franchise Agreement shall have a national standing and reputation less favorable
than the general standing and reputation of the franchisors under Franchise
Agreements then covering the Pool A Properties (provided that, so long as the
Senior Credit Agreement is in effect, no such approval shall be required to the
extent that such approval is granted under the Senior Credit Agreement).
G. SERVICING AGREEMENTS; MANAGEMENT AGREEMENTS. Without the prior written
approval of the Requisite Lenders, which approval shall not be unreasonably
withheld, conditioned or delayed (provided that, so long as the Senior Credit
Agreement is in effect, no such approval shall be required to the extent that
such approval is granted under the Senior Credit Agreement), the Loan Parties
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shall not, and shall not permit any of their respective Subsidiaries to,
terminate, renew, extend, amend, restate, supplement or otherwise change, or
waive or fail to enforce any provision of, any Servicing Agreement in any
material respect or, after the Management Agreement Effectiveness Date, any
Material Management Agreement in any material respect.
H. ATLANTA DOCUMENTS; MBL ACQUISITION DOCUMENTS. Without the prior written
approval of the Requisite Lenders, which approval may be granted, withheld,
conditioned or delayed in its sole discretion (provided that, so long as the
Senior Credit Agreement is in effect, no such approval shall be required to the
extent that such approval is granted under the Senior Credit Agreement), the
Loan Parties shall not, and shall not permit any of their respective
Subsidiaries to, amend, restate, supplement or otherwise modify any provision of
the Atlanta Documents or the MBL Acquisition Documents.
6.21 FISCAL YEAR.
Without the prior written approval of the Requisite Lenders, which
approval may be granted, withheld, conditioned or delayed in their sole
discretion, neither CapStar nor any of its Subsidiaries shall change its fiscal
year-end from December 31.
SECTION 7
EVENTS OF DEFAULT; REMEDIES
7.1 EVENTS OF DEFAULT.
If any of the following conditions or events ("EVENTS OF DEFAULT") shall
occur:
A. FAILURE TO MAKE PAYMENTS WHEN DUE. Failure to pay any installment of
principal of any Loan when due, whether at stated maturity, by acceleration in
accordance with the provisions of the applicable Loan Document, by notice of
voluntary prepayment, by mandatory prepayment (including pursuant to subsection
2.4B(iii), 6.15C or 6.15D) or otherwise; or failure to pay interest or any other
amount due under this Agreement within 30 days after the date due; or
B. DEFAULT IN OTHER AGREEMENTS. Failure of any Loan Party or any of its
Subsidiaries to pay at final stated maturity (giving effect to any extension
thereof) the principal amount of Indebtedness (other than Indebtedness referred
to in subsection 7.1A, but including, without limitation, any Indebtedness
included in the Pool B Obligations), or the acceleration of the maturity of any
Indebtedness of any Loan Party or any or its Subsidiaries, 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 stated
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maturity or which has been accelerated, aggregates $10,000,000 or more at any
time; or
C. BREACH OF CERTAIN COVENANTS. Failure of CapStar or the Borrower to
perform or comply with any term or condition contained in any of subsections
2.5, 5.3, 6.1, 6.2 (with respect to Liens voluntarily created, incurred, assumed
or permitted to exist), 6.3, 6.4, 6.5, 6.6, 6.7, 6.11, 6.12, 6.13, 6.14, 6.15
(other than clauses C or D thereof) and 6.20 and such default shall not have
been remedied or waived within 30 days after the receipt by such Loan Party or
such Subsidiary of notice from the Agent of such default; or
D. BREACH OF WARRANTY. Any representation, warranty, certification or
other statement of any Loan Party or any of its Subsidiaries made in this
Agreement or in any other Loan Document or in any statement or certificate at
any time given in writing pursuant hereto or thereto or in connection herewith
or therewith shall be false in any material respect on the date as of which made
and such default shall not have been remedied or waived within 30 days after the
receipt by such Loan Party or such Subsidiary of notice from the Agent of such
default; PROVIDED, HOWEVER, that if such default cannot be cured solely by the
payment of money and the cure of such default requires a period in excess of 30
days, and if such Loan Party or such Subsidiary, as applicable, is diligently
and continuously prosecuting such cure, then such default shall not be an Event
of Default unless such Loan Party or such Subsidiary fails to cure such default
within 90 days, after such Loan Party or such Subsidiary obtain knowledge or
notice thereof, as the case may be; or
E. INVALIDITY OF LOAN DOCUMENT; REPUDIATION OF OBLIGATIONS. At any time
after the execution and delivery thereof, (i) any Loan Document or any material
provision thereof shall cease to be in full force and effect (other than in
accordance with its terms) or shall be declared null and void; or (ii) any Loan
Party shall contest in writing the validity or enforceability of any Loan
Document in writing or deny in writing that it has any further liability under
any Loan Document to which it is a party; or
F. POOL A GROUND LEASES. (i) Failure by any Loan Party or any of its
Subsidiaries to pay when due any monetary obligation contained in any Pool A
Ground Lease, in each case beyond the end of any grace period provided therefor
(without extension); (ii) occurrence of any other event or condition which, with
the giving of notice or lapse of time or both, would cause, or would permit the
landlord under any Pool A Ground Lease to cause, a cancellation or termination,
as against any Loan Party or any of its Subsidiaries party thereto, of such Pool
A Ground Lease, in each case beyond the end of any cure period therefor (without
any extension); or (iii) election by any Loan Party or any of its Subsidiaries
party to a Pool A Ground Lease to terminate such Pool A Ground Lease in
accordance with the terms thereof or to reject such Pool A Ground Lease in any
bankruptcy proceeding; or
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G. POOL B OBLIGATIONS. (i) Failure by any Loan Party or any of its
Subsidiaries to pay when due any monetary obligation contained in any Pool B
Document (other than the principal of or interest on any Indebtedness included
in the Pool B Obligations, as the case may be), in each case beyond the end of
any grace period provided therefor, in each case beyond the end of any cure
period therefor (without any extension); or (ii) the occurrence of any event or
condition which, with the giving of notice or lapse of time or both, would
cause, or would permit the holder or holders of the related Pool B Obligation,
as the case may be (including, without limitation, a landlord under any related
Pool B Ground Lease), to cause, such Pool B Obligation to become or be declared
due and payable (upon the giving or receiving of notice, lapse of time, both, or
otherwise) prior to its stated maturity or the stated maturity of any underlying
obligation, as the case may be; or
H. PROHIBITED TRANSFERS. Any Loan Party attempts to assign its rights
under this Agreement or any other Loan Document or any interest herein or
therein; or
I. OTHER DEFAULTS UNDER LOAN DOCUMENTS. Any Loan Party or any of its
Subsidiaries shall default in the performance of or compliance with any term
contained in this Agreement or any other Loan Document other than any such term
in this Agreement or other Loan Document that is referred to in any other clause
of this subsection 7.1 and such default shall not have been remedied or waived
within 30 days after the earlier of (i) such Loan Party's or such Subsidiary's
obtaining knowledge of such default or (ii) receipt by such Loan Party or such
Subsidiary of notice from the Agent of such default; PROVIDED, HOWEVER, that if
such default cannot be cured solely by the payment of money and the cure of such
default requires a period in excess of 30 days, and such default may reasonably
be expected to be cured on or before the 90th day after such Loan Party or such
Subsidiary obtains knowledge or notice thereof, and if and so long as such Loan
Party or such Subsidiary is diligently and continuously prosecuting such cure,
then such default shall not be an Event of Default unless such Loan Party or
such Subsidiary fails to cure such default before the 90th day after any Loan
Party or any of its Subsidiaries obtains knowledge or notice thereof, as the
case may be; or
J. INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) A court
having jurisdiction in the premises shall enter a decree or order for relief in
respect of CapStar or any of its Significant Subsidiaries in an involuntary case
under the Bankruptcy Code or under any other applicable bankruptcy, insolvency
or similar law now or hereafter in effect, which decree or order is not stayed;
or any other similar relief shall be granted under any applicable federal or
state law; or (ii) an involuntary case shall be commenced against CapStar or any
of its Significant Subsidiaries under the Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect; or
a decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over CapStar or any of its Significant
Subsidiaries, or over all or a substantial part of its property, shall have been
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entered; or there shall have occurred the involuntary appointment of an interim
receiver, trustee or other custodian of CapStar or any of its Significant
Subsidiaries for all or a substantial part of its property; or a warrant of
attachment, execution or similar process shall have been issued against any
substantial part of the property of CapStar or any of its Significant
Subsidiaries, and any such event described in this clause (ii) shall continue
for 60 days unless dismissed, bonded or discharged; or
K. VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) CapStar or any
of its Significant Subsidiaries shall have an order for relief entered with
respect to it or commence a voluntary case under the Bankruptcy Code or under
any other applicable bankruptcy, insolvency or similar law now or hereafter in
effect, or shall consent to the entry of an order for relief in an involuntary
case, or to the conversion of an involuntary case to a voluntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or CapStar or any of its Significant Subsidiaries shall make any
assignment for the benefit of creditors; or (ii) CapStar or any of its
Significant Subsidiaries shall be unable, or shall fail generally, or shall
admit in writing its inability, to pay its debts as such debts become due; or
the Board of Directors of CapStar or any of its Significant Subsidiaries (or any
committee thereof) shall adopt any resolution or otherwise authorize any action
to approve any of the actions referred to in clause (i) above or this clause
(ii); or
L. JUDGMENTS AND ATTACHMENTS. Any money judgment, writ or warrant of
attachment or similar process involving individually or in the aggregate at any
time an amount of $10,000,000 or more (in either case not adequately covered by
insurance as to which a solvent and unaffiliated insurance company has
acknowledged coverage) shall be entered or filed against CapStar or any of its
Significant Subsidiaries or any of their respective assets and shall remain
undischarged, unvacated, unbonded or unstayed for a period of 60 days (or in any
event later than five days prior to the date of any proposed sale thereunder);
or
M. DISSOLUTION. Any order, judgment or decree shall be entered against
CapStar or any of its Significant Subsidiaries decreeing the dissolution or
split up of CapStar or that Subsidiary and such order shall remain undischarged
or unstayed for a period in excess of 30 days; or
N. EMPLOYEE BENEFIT PLANS. There shall occur one or more ERISA Events
which individually or in the aggregate results in or could reasonably be
expected to result in liability of the Borrower, any of its Subsidiaries or any
of their respective ERISA Affiliates in excess of $10,000,000 during the term of
this Agreement; or (x) the accumulated benefit obligation (calculated using
reasonable actuarial assumptions employed by the Borrower's actuary for funding
purposes) individually for any Pension Plan, or in the aggregate for all Pension
Plans,
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exceeds the assets of such Pension Plan or Pension Plans by more than
$10,000,000 (excluding for purposes of such computation any Pension Plans with
respect to which assets exceed benefit obligations) (collectively, a "MATERIAL
PLAN") and (y) any event occurs which could reasonably be expected to result in
the termination of a Material Plan (other than a voluntary standard termination
under Section 4041(b) of ERISA); or
O. MATERIAL ADVERSE EFFECT. Any event or change (including, without
limitation, any event or condition expressly described in another paragraph or
provision of this subsection 7.1) shall occur that has caused or evidences,
either in any case or in the aggregate, a Material Adverse Effect; or
P. CHANGE IN CONTROL. (i) Paul W. Whetsell, any immediate family member of
Mr. Whetsell and any trusts established by Mr. Whetsell for the benefit of Mr.
Whetsell's immediate family members (PROVIDED that Mr. Whetsell or an immediate
family member is the trustee of such trust and able to exercise voting rights in
respect of the property of the trust) shall cease for any reason, other than his
death, to maintain beneficial ownership (as defined under Section 13(d) of the
Exchange Act) of, and an Attributable Economic Interest in, 200,000 shares of
Common Stock in the aggregate at any time, of which not less than 100,000 shares
shall be free of any Lien created or granted by Persons that are the record
owners of such shares, PROVIDED that, without the prior approval of the
Requisite Lenders, which approval may be granted, withheld, conditioned or
delayed in their sole discretion, Mr. Whetsell shall not grant any Lien on any
option to acquire common stock granted by any of the Loan Parties or shares of
Common Stock of CapStar that may be issued upon the exercise thereof; (ii) any
Person other than any of Acadia, its successors, its partners (individually or
jointly) and other Affiliates, Mr. Whetsell, his immediate family members and
the trusts referred to in the preceding clause (i), or any group (as defined
under Section 13(d)(3) of the Exchange Act) consisting of members other than
Acadia, its successors, its partners (individually or jointly) and other
Affiliates, Mr. Whetsell, his immediate family members and the trusts referred
to in the preceding clause (i), becomes the beneficial owner of more than 30% of
the total voting power in the aggregate of all classes of Capital stock of
CapStar normally entitled to vote in the election of directors; (iii) a majority
of the board of directors of CapStar shall not consist of Persons who were
members of such board of directors on the Closing Date or who were nominated for
election or elected to such board of directors with the affirmative vote of at
least a majority of the members of such board of directors who were members on
the Closing Date or who were so nominated or elected; and (iv) the sale, lease
or transfer, in one transaction or a series of related transactions, of all or
substantially all of the Borrower's and its Subsidiaries' assets to any person
or group (as defined under Section 13(d)(3) of the Exchange Act) other than to
the Borrower or a Wholly Owned Subsidiary of the Borrower that is a Loan Party;
or
Q. EMPLOYMENT OF PAUL W. WHETSELL. The Borrower shall cease to employ Paul
W. Whetsell in a senior position except in the event of death or disability of
Mr. Whetsell or the termination of his employment for cause; or
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R. FRANCHISE AGREEMENTS. (i) Any Franchise Agreement with respect to a
Pool A Property or any consent delivered by any franchisor under any such
Franchise Agreement shall cease to be in full force and effect other than with
the express consent of the Agent or (ii) any party thereto shall deny or
disaffirm its obligations thereunder or shall deny or disaffirm its obligations
thereunder or shall default in the due performance or observance of any material
term, covenant or agreement on its party to be performed or observed pursuant
thereto and any applicable cure period shall have expired, and in any such event
the Borrower shall have failed to replace such Franchise Agreement within 60
days of such default (after the expiration of any such cure period) or
disaffirmation with a franchise acceptable to the Agent, in its sole discretion;
THEN (i) upon the occurrence of any Event of Default described in subsection
7.1J or 7.1K, each of (a) the unpaid principal amount of and accrued interest on
the Loans and (b) all other Obligations shall automatically become immediately
due and payable, without notice, presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the
Borrower and the obligations of each Lender to make any Loan hereunder prior to
the Funding Date shall thereupon terminate, and (ii) during the continuance of
any other Event of Default, the Agent, upon the written request of the Requisite
Lenders, shall, by written notice to the Borrower, terminate the Commitments (to
the extent not theretofore terminated) and declare all or any portion of the
amounts described in clauses (a) and (b) above to be, and the same shall
forthwith become, immediately due and payable.
The occurrence of any condition or event may constitute an Event of
Default (or a Potential Event of Default) under more than one provision of this
subsection 7.1.
7.2 CERTAIN REMEDIES.
A. During the continuance of an Event of Default, all or any one or more
of the rights, powers, privileges and other remedies available to the Agent or
the Lenders against the Borrower and the other Loan Parties under this
Agreement, the Notes or any of the other Loan Documents, or at law or in equity,
may be exercised by the Agent, acting in its own sole discretion at any time and
from time to time, whether or not all or any portion of the Obligations shall be
declared due and payable, and whether or not the Agent shall have commenced any
action for the enforcement of its rights and remedies under any of the Loan
Documents. Any such actions taken by the Agent shall be cumulative and
concurrent and may be pursued independently, singly, successively, together or
otherwise, at such time and in such order as the Agent in its sole discretion
may determine, to the fullest extent permitted by law, without impairing or
otherwise affecting the other rights and remedies of the Agent or the Lenders
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents.
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B. In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of any such rights, upon the occurrence and during
the continuance of any Event of Default the Agent is hereby authorized by the
Borrower at any time or from time to time, without notice to the Borrower or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all deposits (general or special, including
Indebtedness evidenced by certificates of deposit, whether matured or unmatured,
but not including trust accounts) and any other Indebtedness at any time held or
owing by the Agent to or for the credit or the account of the Borrower against
and on account of the obligations and liabilities of the Borrower to the Agent
under this Agreement and the Notes, including all claims of any nature or
description arising out of or connected with this Agreement or any other Loan
Document, irrespective of whether or not (i) the Agent shall have made any
demand hereunder or (ii) the principal of or the interest on the Loan or any
other amounts due hereunder shall have become due and payable pursuant to
subsection 7.1 and although said obligations and liabilities, or any of them,
may be contingent or unmatured.
C. During the occurrence of an Event of Default and upon the occurrence
and during the continuance of a default in the payment of any principal or
interest of any Indebtedness owed or alleged to be owed by CapStar, the Borrower
or any of their respective Subsidiaries, and following the initiation of any
proceeding or the taking of any other action to collect the payment thereof by
the Person entitled to such payment, the Agent may, in its sole discretion,
advance either to such Person or to the Borrower, for payment to such Person,
all or any portion of the amount of such payment, whether or not the existence
of such obligation or amount thereof shall be disputed by the Borrower or such
Subsidiary. Each such advance, to the extent not paid out of from funds of
CapStar, the Borrower or any of their respective Subsidiaries, shall be deemed a
Loan hereunder and shall be subject to the provisions of this Agreement.
D. The rights, powers and remedies of the Agent and the Lenders under this
Agreement shall be cumulative and not exclusive of any other right, power or
remedy which the Agent or the Lenders may have against any Loan Party pursuant
to this Agreement or the other Loan Documents executed by or with respect to
such Loan Party, or existing at law or in equity or otherwise. The rights,
powers and remedies of the Agent and the Lenders may be pursued singly,
concurrently or otherwise, at such time and in such order as the Agent, acting
in its own sole discretion, may determine. No delay or omission to exercise any
remedy, right or power accruing upon an Event of Default shall impair any such
remedy, right or power or shall be construed as a waiver thereof, but any such
remedy, right or power may be exercised from time to time and as often as may be
deemed expedient. A waiver of any Event of Default or Potential Event of Default
with respect to any Loan Party shall not be construed to be a waiver of any
subsequent Event of Default or Potential Event of Default by such Loan Party or
to impair any remedy, right or power consequent thereon.
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SECTION 8
SUBORDINATION
8.1 OBLIGATIONS SUBORDINATED TO SENIOR INDEBTEDNESS OF THE BORROWER.
The Borrower and the Lenders covenant and agree that the payment of the
Obligations by the Borrower shall be subordinated in accordance with the
provisions of this Section 8 to the prior payment in full, in cash or Cash
Equivalents, of all amounts payable in respect of Senior Indebtedness of the
Borrower, whether now outstanding or hereafter created (including any interest
accruing subsequent to an event specified in subsection 7.1J or 7.1K whether or
not such interest is an allowed claim against the Borrower), that the
subordination is for the benefit of the holders of Senior Indebtedness of the
Borrower, and that each holder of Senior Indebtedness of the Borrower whether
now outstanding or hereafter created, incurred, assumed or guaranteed shall be
deemed to have acquired Senior Indebtedness of the Borrower (and shall have
entered into the First Amendment dated as of December 13, 1996 to the Senior
Credit Agreement) in reliance upon the covenants and provisions contained in
this Agreement.
8.2 PRIORITY AND PAYMENT OVER OF PROCEEDS IN CERTAIN EVENTS.
A. SUBORDINATION ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF THE
BORROWER. Upon any payment or distribution of assets or securities of the
Borrower of any kind or character, whether in cash, property or securities, upon
any dissolution or winding up or any total or partial liquidation or
reorganization of the Borrower, whether voluntary or involuntary or in
bankruptcy, insolvency, receivership or other proceedings, all Senior
Indebtedness of the Borrower (including any interest accruing subsequent to an
event specified in subsection 7.1J or 7.1K whether or not such interest is an
allowed claim enforceable against the Borrower) shall first be paid in full in
cash or Cash Equivalents, before the Agent or the Lenders shall be entitled to
receive any payment by the Borrower of any Obligations and upon any such
dissolution or winding up or liquidation or reorganization, any payment or
distribution of assets or securities of the Borrower of any kind or character,
whether in cash, property or securities, to which the Lenders would be entitled
except for the provisions of this Section 8 shall be made by the Borrower or by
any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person
making such payment or distribution, directly to the holders of the Senior
Indebtedness of the Borrower or their representatives to the extent necessary to
pay all of the Senior Indebtedness of the Borrower to the holders of such Senior
Indebtedness of the Borrower.
B. SUBORDINATION ON DEFAULT OF SENIOR INDEBTEDNESS. Upon the maturity of
any Senior Indebtedness by lapse of time, acceleration or otherwise, all Senior
Indebtedness of the Borrower then due and payable shall first be paid in full in
cash or Cash Equivalents, before any payment (by conversion, exchange, set-off
or otherwise) is made by the Borrower or any Person acting on behalf of the
Borrower with respect to the Obligations or to otherwise retire, redeem,
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repurchase or defease the Obligations. No direct or indirect payment (by
conversion, exchange, set-off or otherwise) by the Borrower or any Person acting
on behalf of the Borrower with respect to Obligations or to otherwise retire,
redeem, repurchase or defease the Obligations whether pursuant to the terms of
this Agreement or upon acceleration of the Loans or otherwise shall be made, if
at the time of such payment, there exists a default in the payment of any
principal, amounts drawn under letters of credit, interest or regularly accruing
fees on any Senior Indebtedness and such default shall not have been cured or
waived or the benefits of this sentence waived by or on behalf of the holders of
such Senior Indebtedness. In addition, during the continuation of any other
event of default with respect to the Senior Credit Agreement pursuant to which
the maturity of any Senior Indebtedness may be accelerated, upon the (i) receipt
by the Agent of written notice from the Senior Representative under the Senior
Credit Agreement or (ii) if such event of default results from the acceleration
of the Loans, the date of the acceleration of the Loans, no such payment (by
conversion, exchange, set-off or otherwise) may be made by the Borrower upon or
in respect of the Obligations, for a period (a "Payment Blockage Period")
commencing on the date of receipt of such notice or the date of such
acceleration and ending on the earlier to occur of 180 days after receipt of
such notice (unless such Payment Blockage Period shall be terminated by written
notice to the Agent from such Senior Representative) or the date of such
acceleration. Notwithstanding anything herein to the contrary, (x) in no event
will a Payment Blockage Period or successive Payment Blockage Periods with
respect to the same payment on the Loans extend beyond 180 days from the date
the payment on the Loans was due and (y) there must be 180 consecutive days in
any 365-day period during which no Payment Blockage Period is in effect. For all
purposes of this subsection 8.2(b), no event of default which existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Senior Credit Agreement initiating such Payment Blockage Period
shall be, or be made, the basis for the commencement of a second Payment
Blockage Period by the Senior Representative of the Senior Credit Agreement
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 90
consecutive days.
C. RIGHTS AND OBLIGATIONS OF THE LENDERS. In the event that,
notwithstanding the foregoing provisions prohibiting such payment or
distribution, the Agent or any Lender shall have received any payment on account
of any Obligation (other than as permitted by subsections 8.2(a) and (b)),
whether in cash, property or securities at a time when such payment is
prohibited by this subsection 8.2, then and in such event such payment or
distribution shall be received and held in trust for the holders of the Senior
Indebtedness of the Borrower and shall be paid over or delivered to the holders
of the Senior Indebtedness of the Borrower remaining unpaid to the extent
necessary to pay in full in cash or Cash Equivalents all Senior Indebtedness of
the Borrower in accordance with their terms after giving effect to any
concurrent payment or distribution to the holders of such Senior Indebtedness of
the Borrower.
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Nothing contained in this Section 8 will limit the right of the Agent or
the Lenders to take any action to accelerate the maturity of the Loans pursuant
to subsection 7.1 or to pursue any rights or remedies hereunder or otherwise;
provided that all Senior Indebtedness of the Borrower thereafter due or declared
to be due shall first be paid in full in cash or Cash Equivalents before the
Agent or any Lender is entitled to receive any payment of any kind or character
with respect to the Obligations. If payment of the Obligations is accelerated
because of an Event of Default, the Borrower shall promptly notify the Senior
Representatives for Senior Indebtedness of the Borrower of the acceleration.
Upon any payment or distribution of assets or securities referred to in
this Section 8, the Agent and the Lenders (notwithstanding any other provision
of this Agreement) shall be entitled to rely upon any order or decree of a court
of competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, and upon a certificate of the receiver,
trustee in bankruptcy, liquidating trustee, agent or other Person making any
such payment or distribution, delivered to the Agent or the Lenders for the
purpose of ascertaining the Persons entitled to participate in such
distribution, the holders of Senior Indebtedness of the Borrower, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Section 8.
The Borrower shall give written notice to the Agent of any default or
event of default under any Senior Indebtedness of the Borrower or under any
agreement pursuant to which Senior Indebtedness of the Borrower may have been
issued, and, in the event of any such event of default, shall provide to the
Agent the names and address of the Senior Representative of the holders of such
Senior Indebtedness of the Borrower.
With respect to the holders and owners of Senior Indebtedness of the
Borrower, the Agent and each Lender undertakes to perform only such obligations
on the part of the Agent and such Lender as are specifically set forth in this
Section 8, and no implied covenants or obligations with respect to the holders
or owners of Senior Indebtedness of the Borrower shall be read into this
Agreement against the Agent or the Lenders. Neither the Agent nor the Lenders
shall be deemed to owe any fiduciary duty to the holders or owners of Senior
Indebtedness of the Borrower or to the agent under the Senior Credit Agreement
or any other representative of the holders of the Senior Indebtedness of the
Borrower.
8.3 PAYMENTS MAY BE PAID PRIOR TO DISSOLUTION.
Nothing contained in this Section 8 or elsewhere in this Agreement shall
prevent or delay (i) the Borrower, except under the conditions described in
subsection 8.2, from making payments at any time for the purpose of paying
Obligations, or from depositing with the Agent any moneys for such payments, or
(ii) subject to subsection 8.2, the application by the Agent of any moneys
deposited with it for the purpose of paying the Obligations.
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8.4 RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS OF THE BORROWER NOT TO BE IMPAIRED.
No right of any present or future holder of any Senior Indebtedness of the
Borrower or their respective representatives to enforce subordination as
provided in this Section 8 shall at any time in any way be prejudiced or
impaired by any act or failure to act by any such holder, or by any
noncompliance by the Borrower, the Agent or any Lender with the terms and
provisions and covenants herein, regardless of any knowledge thereof any such
holder may have or otherwise be charged with. Without in any way limiting the
generality of the foregoing sentence, such holders of Senior Indebtedness of the
Borrower or their respective representatives may, at any time and from time to
time without impairing or releasing the subordination provided in this Section 8
or the obligations of the Borrower, the Agent and the Lenders hereunder to the
holders of Senior Indebtedness of the Borrower, do any one or more of the
following: (i) change the manner, place, terms or time of payment of, or renew
or alter, Senior Indebtedness of the Borrower or otherwise amend or supplement
in any manner Senior Indebted ness of the Borrower or any instrument evidencing
the same or any agreement under which any Senior Indebtedness of the Borrower is
outstanding; (ii) sell, exchange, release, or otherwise deal with any property
pledged, mortgaged, or otherwise securing Senior Indebtedness of the Borrower or
fail to perfect or delay in the perfection of the security interest in such
property; (iii) release any Person liable in any manner for the collection of
Senior Indebtedness of the Borrower; (iv) exercise or refrain from exercising
any rights against the Borrower and any other Person; and (v) take any other
action, or refrain from taking any other action, that, in the absence of
authority granted under preceding clauses (i) through (iv), could have the
effect of impairing, invalidating or rendering unenforceable, in whole or in
part, or otherwise affecting, any of the provisions of this Section 8. Each
Lender by entering into this Agreement waives any and all notice of the
creation, modification, renewal, extension or accrual of any Senior Indebtedness
of the Borrower and notice of or proof of reliance by any holder or owner of
Senior Indebtedness of the Borrower upon this Section 8 and the Senior
Indebtedness of the Bor rower shall conclusively be deemed to have been created,
contracted or incurred in reliance upon this Section 8, and all dealings between
the Borrower and the holders and owners of the Senior Indebtedness of the
Borrower shall be deemed to have been consummated in reliance upon this Section
8.
The provisions of this Section 8 are intended to be for the benefit of,
and shall be enforceable directly by, the holders and owners of the Senior
Indebtedness of the Borrower and their respective representatives (and such
holders and owners are third party beneficiaries of the provisions of this
Section 8). No amendment, modification, termination or waiver of any provision
of this Section 8 (or of the definition of any term used herein) shall be
effective against any holder of any Senior Indebtedness of the Borrower without
the consent of such holder.
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8.5 SUBROGATION.
Upon the payment in full in cash or Cash Equivalents in accordance with
the terms of subsection 8.2 of all amounts payable under or in respect of the
Senior Indebtedness of the Borrower, the Agent and the Lenders shall be
subrogated to the rights of the holders of such Senior Indebtedness of the
Borrower to receive payments or distributions of assets of the Borrower made on
such Senior Indebtedness of the Borrower until the Obligations shall be paid in
full in cash or Cash Equivalents; and for purposes of such subrogation no
payments or distributions to holders of such Senior Indebtedness of the Borrower
of any cash, property or securities to which the Agent or the Lenders would be
entitled except for the provisions of this Section 8, and no payment pursuant to
the provisions of this Section 8 to holders of such Senior Indebtedness of the
Borrower by the Agent or the Lenders, shall, as between the Borrower, its
creditors other than holders of such Senior Indebtedness of the Borrower and the
Agent and the Lenders, be deemed to be a payment by the Borrower to or on
account of such Senior Indebtedness of the Borrower, it being understood that
the provisions of this Section 8 are solely for the purpose of defining the
relative rights of the holders of such Senior Indebtedness of the Borrower, on
the one hand, and the Agent and the Lenders, on the other hand. A release of any
claim by any holder of Senior Indebtedness of the Borrower shall not limit the
Agent's or the Lenders' rights of subrogation under this subsection 8.5.
If any payment or distribution to which the Agent and the Lenders would
otherwise have been entitled but for the provisions of this Section 8 shall have
been applied, pursuant to the provisions of this Section 8, to the payment of
all amounts payable under the Senior Indebt edness of the Borrower, then and in
such case, the Agent and the Lenders shall be entitled to receive from the
holders of such Senior Indebtedness of the Borrower at the time outstanding the
full amount of any payments or distributions received by such holders of Senior
Indebtedness of the Borrower in excess of the amount sufficient to pay all
Senior Indebtedness of the Borrower payable under or in respect of the Senior
Indebtedness of the Borrower in full in cash or Cash Equivalents in accordance
with the terms of subsection 8.2.
8.6 OBLIGATIONS OF THE BORROWER UNCONDITIONAL.
Nothing contained in this Section 8 or elsewhere in this Agreement is
intended to or shall impair as between the Borrower and the Agent and the
Lenders the obligations of the Borrower, which are absolute and unconditional,
to pay to the Agent and the Lenders the Obligations as and when the same shall
become due and payable in accordance with their terms, or is intended to or
shall affect the relative rights of the Agent and the Lenders and creditors of
the Borrower other than the holders of the Senior Indebtedness of the Borrower,
nor shall anything herein or therein prevent the Agent and the Lenders from
exercising all remedies otherwise permitted by
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applicable law upon default under this Agreement, subject to the rights, if any,
under this Section 8 of the holders of such Senior Indebtedness of the Borrower
in respect of cash, property or securities of the Borrower received upon the
exercise of any such remedy.
The failure to make a payment on account of Obligations by reason of any
provision of this Section 8 shall not prevent the occurrence of an Event of
Default under subsection 7.1.
8.7 LENDERS AUTHORIZE AGENT TO EFFECTUATE SUBORDINATION.
Each Lender hereby authorizes and expressly directs the Agent on its
behalf to take such action as may be necessary or appropriate to effectuate the
subordination provided in this Section 8 and appoints the Agent its attorney in
fact for such purpose, including, without limitation, in the event of any
dissolution, winding up, liquidation or reorganization of the Borrower (whether
in bankruptcy, insolvency, receivership, reorganization or similar proceedings
or upon an assignment for the benefit of creditors or any other similar remedy
or otherwise) tending towards liquidation of the business and assets of the
Borrower, the immediate filing of a claim for the unpaid balance of the
Obligations in the form required in said proceedings and causing said claim to
be approved. If the Agent does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of the Senior Indebtedness
or their respective representatives are hereby authorized to have the right to
file and are hereby authorized to file an appropriate claim for and on behalf of
the Lenders. In the event of any such proceeding, until the Senior Indebtedness
of the Borrower is paid in full in cash or Cash Equivalents without the consent
of the holders of a majority in principal amount outstanding of such Senior
Indebtedness, no Lender shall waive, settle or compromise any such claim or
claims relating to the Obligations that such Lender now or hereafter may have
against the Borrower.
8.8 RIGHTS OF AGENT.
Notwithstanding subsection 8.2(b) but subject to the provisions of
subsection 8.2(c), the Agent may continue to make payments on the Obligations
with funds received by or on behalf of the Borrower and shall not be charged
with knowledge of the existence of facts that would prohibit the making of any
such payments unless, not less than two Business Days prior to the date of such
payment, the Agent receives notice that payments may not be made under this
Section 8.
The Agent and each Lender shall be entitled to all of the rights set forth
in this Section 8 in respect of any Senior Indebtedness of the Borrower at any
time held by it to the same extent that any other holder or owner of any Senior
Indebtedness of the Borrower, and nothing in this Agreement shall be construed
to deprive the Agent or any Lender of any of its rights as such a holder.
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8.9 INDEFEASIBLE PAYMENT.
To the extent any payment of the Senior Indebtedness of the Borrower
(whether by or on behalf of the Borrower, as proceeds of security or enforcement
of any right of setoff or otherwise) is declared to be fraudulent or
preferential and is for this or any other reason set aside or required to be
paid to any receiver, trustee in bankruptcy, liquidating trustee, agent or other
similar Person under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then, solely for the purpose of this Section 8, if
such payment is recovered by, or paid over to, such receiver, trustee in
bankruptcy, liquidating trustee, agent or other similar Person, the Senior
Indebtedness of the Borrower or part thereof originally intended to be satisfied
shall be deemed to be reinstated and outstanding as if such payment had not
occurred.
SECTION 9
MISCELLANEOUS
9.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS.
A. GENERAL. Each Lender shall have the right at any time to (i) sell,
assign, transfer or negotiate to any Eligible Assignee (PROVIDED that such
Eligible Assignee complies with the requirements of subsection 2.7B(iii) as of
the date it becomes a Lender hereunder, to the extent applicable), or (ii) sell
participations to any Person in, all or any part of its Commitment (to the
extent not theretofore terminated) or the Loans made by it or any other interest
herein or in any other Obligations owed to it; PROVIDED, HOWEVER, that (x) no
such sale, assignment, transfer or participation shall, without the consent of
the Borrower, require the Borrower to file a registration statement with the
Securities and Exchange Commission or apply to qualify such sale, assignment,
transfer or participation under the securities laws of any state and (y) no such
sale, assignment or transfer of an interest in any Lender's Loans shall be made
in an amount less than $5,000,000 (or, if less, the aggregate amount of the
Loans of such Lender). In the case of any assignment authorized under this
subsection 9.1, (i) the Agent shall notify the Borrower of the effective date of
such assignment, (ii) as of such effective date, the assignee shall be a party
hereto and, to the extent that rights and obligations hereunder have been
assigned to it or assumed by it, as the case may be, shall have the rights and
obligations of a Lender hereunder, (iii) the assigning Lender shall, to the
extent that its rights and obligations hereunder have been assigned by it,
relinquish its rights and be released from its obligations under this Agreement
after the date of such assignment and (iv) if any such assignment occurs after
the issuance of a Note with respect to the Loans so assigned, the assigning
Lender shall surrender its applicable Note and, upon such surrender, new Notes
shall be issued to the assignee and, if applicable, the assigning Lender
substantially in the form of EXHIBIT I annexed hereto, with appropriate
insertions. In the event of an assignment hereunder prior to the Funding Date,
the Obligations
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shall be modified to reflect the Commitments of such assignee. Notwithstanding
anything to the contrary contained in this Agreement, without the prior written
consent of all Lenders, no single Lender, together with such Lender's
Affiliates, may hold (either directly or by participation) more than 50% of the
aggregate Commitments (if not theretofore terminated) or outstanding Loans
unless prior to such time such Lender and its Affiliates have made an offer to
each other Lender to purchase such other Lender's outstanding Commitment or
Loans, as the case may be, and such Lender and its Affiliates have consummated
each such purchase from those Lenders that have agreed to such offer. Except
with respect to the portion of the Loans and Commitments assigned pursuant to
this subsection 9.1, no Lender shall, as between the Borrower and such Lender,
be relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or any granting of participations in,
all or any part of its Commitment or the Loans or other Obligations owed to such
Lender.
B. PARTICIPATIONS. The Borrower and each Lender hereby acknowledge and
agree that, solely for purposes of subsections 2.6, 2.7, and 9.5, (i) any
participation will give rise to a direct obligation of the Borrower to the
participant and (ii) the participant shall be considered to be a "Lender".
Notwithstanding the foregoing, no Lender shall grant any participation under
which the participant shall have rights to approve any amendment to or waiver of
this Agreement or any other Loan Document except to the extent such amendment or
waiver would (i) extend the final scheduled maturity of any Loan or Note in
which such participant is participating, or reduce the rate or extend the time
of payment of interest or Fees thereon (except in connection with a waiver of
applicability of any post-default increase in interest rates) or reduce the
principal amount thereof, or increase the amount of the participant's
participation over the amount thereof then in effect or (ii) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement.
C. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments
and participations permitted under the foregoing provisions of this subsection
9.1, any Lender may assign and pledge all or any portion of its Loans and the
other Obligations owed to such Lender to any Federal Reserve Bank as collateral
security pursuant to Regulation A of the Board of Governors of the Federal
Reserve System and any operating circular issued by such Federal Reserve Bank.
No Lender shall, as between the Borrower and such Lender, be relieved of any of
its obligations hereunder as a result of any such assignment and pledge.
D. INFORMATION. Each Lender may furnish any information concerning the
Borrower and its Subsidiaries in the possession of that Lender from time to time
to prospective assignees and participants who agree to be bound by the
provisions of subsection 9.23.
9.2 EXPENSES.
Whether or not the transactions contemplated hereby shall be consummated,
the Borrower agrees to pay promptly (i) all the costs of furnishing all opinions
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of counsel for the Borrower and the other Loan Parties (including any opinions
reasonably requested by the Agent) as to any legal matters arising hereunder and
of each Loan Party's performance of and compliance with all agreements and
conditions on its part to be performed or complied with under this Agreement and
the other Loan Documents including with respect to confirming compliance with
environmental, insurance and solvency requirements; (ii) all reasonable
out-of-pocket fees, expenses and disbursements of counsel for the Agent and its
Affiliates (including allocated costs of internal counsel) in connection with
the negotiation, preparation, execution and syndication of the Loan Documents
and any consents, amendments, waivers or other modifications thereto and any
other documents or matters requested by any Loan Party; (iii) all reasonable
out-of-pocket costs and expenses incurred by the Agent in connection with (a)
the negotiation, preparation and execution of the Loan Documents, the
syndication of the Commitments and Loans and due diligence, (b) any consents,
amendments or waivers of or other modifications to any of the Loan Documents and
(c) the preparation, delivery or review of other documents or matters requested
by any Loan Party, and each and every other document, certificate, agreement and
instrument required to be furnished pursuant to the terms of the Loan Documents;
and (iv) after the occurrence of an Event of Default, all costs and expenses,
including reasonable attorneys' fees (including allocated costs of internal
counsel) and costs of settlement, incurred by the Agent and the Lenders in
enforcing any Obligations of or in collecting any payments due from the Borrower
hereunder or under the other Loan Documents by reason of such Event of Default
or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or
pursuant to any insolvency or bankruptcy proceedings. Except as expressly
provided to the contrary in this Agreement or any other Loan Document, costs or
expenses that are payable by the Borrower after the Closing Date shall be
payable by the Borrower within five Business Days after the Borrower's receipt
of written demand from the Agent to pay same, accompanied by documentation in
reasonable detail sufficient to verify the nature and amount.
9.3 INDEMNITY.
A. INDEMNITY. In addition to the payment of expenses as required by
subsection 9.2, whether or not the transactions contemplated hereby shall be
consummated, the Borrower agrees to defend, indemnify and hold harmless the
Agent, the Lenders and Bankers and their respective Affiliates and Persons
deemed to be "controlling persons" thereof within the meaning of the Securities
Act or the Exchange Act and the respective directors, officers, employees,
agents, attorneys and representatives of the foregoing (collectively,
"INDEMNIFIED PERSONS" and individually, an "INDEMNIFIED PERSON"), to the full
extent lawful, from and against any and all losses, claims, damages,
liabilities, costs and expenses or other obligations of any kind or nature
whatsoever incurred by each such Indemnified Person (including fees, charges and
disbursements of counsel and the allocated costs and expenses of internal
counsel for such Indemnified Person) which are related to, arise out of or
result from (a) any untrue statements or alleged untrue statements or omissions
or alleged omissions to state therein a material fact necessary to make the
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statements therein, in light of the circumstances in which they were made, not
misleading, in each case made or, to the extent contemplated by the Loan
Documents, to be made, by or on behalf of any Loan Party or any of its
Affiliates, (x) in the representations and warranties of the Loan Parties
contained in the Loan Documents, (y) in or pursuant to any Acquisition Agreement
or (z) otherwise in connection with the Loan Documents or any Acquisition
Agreement, (b) information provided by or on behalf of any Loan Party or any of
their Affiliates for use in connection with any syndication, assignment or
participation of any portion of the Commitments, the Loans, the Notes, the other
Loan Documents or the Obligations, or in connection with any Loan Document or
any Acquisition Agreement or any transactions contemplated hereby or thereby,
(c) the transactions contemplated by the Loan Documents (including the Lenders'
agreements to make the Loans or the use or intended use of the proceeds thereof)
or any enforcement of any of the Loan Documents (including the enforcement of
the Affiliate Guaranty), (d) any actions taken or omitted to be taken by an
Indemnified Person with the consent of the Borrower or in conformity with the
instructions of the Borrower, or (e) any other transactions contemplated by the
Loan Documents or any Acquisition Agreement, and the Borrower will reimburse
each Indemnified Person for all reasonable costs and expenses, including fees
and disbursements of both outside and internal counsel for such Indemnified
Person, as they are incurred, in connection with investigating, preparing for,
or defending any formal or informal claim, action, suit, investigation, inquiry
or other proceeding, whether or not in connection with pending or threatening
litigation, caused by or arising out of or in connection with the foregoing,
whether or not such Indemnified Person is named as a party thereto and whether
or not any liability results therefrom. The Borrower shall not, however, be
responsible for any losses, claims, damages, liabilities, costs or expenses
pursuant to clauses (c), (d) or (e) of the preceding sentence which have
resulted from the bad faith or recklessness of such Indemnified Person as
determined by a final judgment of a court of competent jurisdiction. Neither the
Agent nor any other Indemnified Person shall have any liability (whether direct
or indirect, in contract or tort or otherwise) to any of the Loan Parties and
their respective Affiliates or any director, officer, employee, agent or
representative of any of the foregoing, or any other person, for or in
connection with the foregoing, or otherwise arising out of or in any way
relating to the matters contemplated by the Loan Documents, any Acquisition
Agreement or any commitment to lend except for such liability for losses,
claims, damages, liabilities, costs or expenses of any Indemnified Person
pursuant to clauses (c), (d) or (e) of the preceding sentence to the extent they
are determined to have resulted from the bad faith or recklessness of such
Indemnified Person as determined by a final judgment of a court of competent
jurisdiction and in no event shall the Agent or any other Indemnified Person be
responsible for or liable to any of the Loan Parties or any of their respective
Affiliates or any other Person for consequential, punitive or exemplary damages.
The Borrower further agrees that the Loan Parties shall not, nor shall they
permit their respective Subsidiaries to, without the prior written consent of
the Agent and Bankers, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit, investigation,
inquiry or other proceeding in respect of which indemnification is actually
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sought hereunder unless such settlement, compromise or consent includes an
unconditional release of the Agent and each other Indemnified Person hereunder
from all liability arising out of such claim, action, suit, investigation,
inquiry or other proceeding.
B. PROCEDURE. If any action, suit, investigation, inquiry or other
proceeding is commenced, as to which an Indemnified Person proposes to demand
indemnification hereunder, such Indemnified Person shall notify the Borrower
with reasonable promptness; PROVIDED, HOWEVER, that any failure by such
Indemnified Person to notify the Borrower shall not relieve the Borrower or any
of its Affiliates from its obligations hereunder (except to the extent that the
Borrower or such Affiliate is prejudiced by such failure to so promptly notify).
The Borrower shall be entitled to assume the defense of any such action, suit,
investigation, inquiry or other proceeding, including the employment of counsel
reasonably satisfactory to the Indemnified Person and the payment of all
reasonable fees and expenses incurred in connection therewith. The Indemnified
Person shall have the right to employ separate counsel in any such action, suit,
investigation, inquiry or other proceeding, or to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Indemnified Person unless (i) the Borrower has agreed to pay such fees and
expenses, (ii) the Borrower shall have failed promptly upon written demand
therefor to assume the defense of such action, suit, investigation, inquiry or
other proceeding, and employ counsel reasonably satisfactory to the Indemnified
Person in connection therewith or (iii) such Indemnified Person shall have been
advised by counsel that there exists actual or potential conflicting interests
between the Borrower and such Indemnified Person, including situations in which
one or more legal defenses may be available to such Indemnified Person that are
different from or additional to those available to the Borrower, in which case,
if such Indemnified Person notifies the Borrower in writing that it elects to
employ separate counsel at the expense of the Borrower, the Borrower shall not
have the right to assume the defense of such action or proceeding on behalf of
such Indemnified Person; PROVIDED, however, that the Borrower shall not, in
connection with any one such action, suit, investigation, inquiry or other
proceeding or separate but substantially similar or related actions, suits,
investigations, inquiries or other proceedings in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys at any time for all such
Indemnified Persons (in addition to local counsel), which firm shall be
designated in writing by the Agent.
C. CONTRIBUTION. In order to provide for just and equitable contribution
with respect to matters subject to subsection 9.3A, if a claim for
indemnification is made pursuant to these provisions but is found in a final
judgment by a court of competent jurisdiction (not subject to further appeal)
that such indemnification is not available for any reason (except, with respect
to indemnification sought solely pursuant to subsection 9.3A, for the reasons
specified in the second sentence of subsection 9.3A), even though the express
provisions hereof provide for indemnification in such case, or is insufficient
to hold an Indemnified Party harmless, then the Borrower, on the one hand, and
the Agent, the Lenders or Bankers, on the other hand, shall contribute to such
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loss, claim, damage, liability, cost or expense for which such indemnification
or reimbursement is held unavailable or is insufficient in such proportion as is
appropriate to reflect the relative benefits to the Loan Parties and their
respective Affiliates, on the one hand, and the Agent, Lenders or Bankers, on
the other hand, in connection with the transactions described in the Loan
Documents, as well as any other equitable considerations. The parties agree that
for the purpose of this subsection 9.3C, the relative benefits to the Loan
Parties and their respective Affiliates, on the one hand, and the Agent, Lenders
and Bankers, on the other hand, shall be deemed to be in the same proportion as
the proceeds received or to be received by the Loan Parties from the Loan
Documents bears to the fees paid or to be paid to the Agent, Lenders and Bankers
under the Loan Documents. Notwithstanding the foregoing, the Agent, Lenders and
Bankers shall not be required to contribute under this subsection 9.3C any
amount in excess of the amount of fees actually received by the Agent, Lenders
and Bankers, respectively, in respect of the Loan Documents. The Borrower,
Agent, Bankers and the Lenders agree that it would not be just and equitable if
contribution pursuant to this subsection 9.3C were determined by pro rata
allocation or by any other method which does not take into account the equitable
considerations referred to in this subsection 9.3C.
D. NO LIMITATION. The foregoing rights to indemnity and contribution shall
be in addition to any rights that any Indemnified Person and Loan Parties may
have at common law or otherwise and shall remain in full force and effect
following the completion or any termination of the transactions contemplated by
the Loan Documents. In no event shall the Agent, the Lenders, or Bankers be
responsible or liable to any person for consequential damages which may be
alleged as a result of the Loan Documents and the Acquisition Agreements or any
transaction contemplated thereby.
E. NO ENLARGEMENT. The provisions of this subsection 9.3 shall not enlarge
or vary the obligations of the Borrower under subsections 2.6D and 2.7.
9.4 NO JOINT VENTURE OR PARTNERSHIP.
The Lenders, CapStar and the Borrower acknowledge and agree that the
relationship created hereunder or under the other Loan Documents is that of
creditor/debtor. Each of CapStar and the Borrower acknowledges and agrees that
(a) the Borrower, through its partners and employees, is a knowledgeable and
sophisticated business practitioner with particular expertise and broad
experience in the area of hotel acquisition, finance and management; (b) the
Agent and the Lenders individually and collectively, do not owe, and have
expressly disclaimed, any fiduciary or special obligation to the Borrower and/or
any of the Borrower's partners, agents, or representatives; and (c) nothing
contained in this Agreement or any other Loan Document shall affect the
relationship between the Lenders and the Borrower as that of creditor/
debtor hereunder and under the other Loan Documents. Nothing herein or therein
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is intended to create a joint venture, partnership, tenancy-in-common, or joint
tenancy relationship between the Borrower, any other Loan Party or Subsidiary
thereof and the Agent and Lenders.
9.5 RATABLE SHARING.
The Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance with this Agreement), by realization upon security,
through the exercise of any right of set-off or banker's lien, by counterclaim
or cross action or by the enforcement of any right under the Loan Documents or
otherwise, or as adequate protection of a deposit treated as cash collateral
under the Bankruptcy Code, receive payment or reduction of a proportion of the
aggregate amount of principal, interest, fees and other amounts then due and
owing to that Lender hereunder or under the other Loan Documents (collectively,
the "AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the proportion
received by any other Lender in respect of the Aggregate Amounts Due to such
other Lender, then the Lender receiving such proportionately greater payment
shall (i) notify the Agent and each other Lender of the receipt of such payment
and (ii) apply a portion of such payment to purchase participations (which it
shall be deemed to have purchased from each seller of a participation
simultaneously upon the receipt by such seller of its portion of such payment)
in the Aggregate Amounts Due to the other Lenders so that all such recoveries of
Aggregate Amounts Due shall be shared by all Lenders in proportion to the
Aggregate Amounts Due to them; PROVIDED, HOWEVER, that if all or part of such
proportionately greater payment received by such purchasing Lender is thereafter
recovered from such Lender upon the bankruptcy or reorganization of the Borrower
or otherwise, those purchases shall be rescinded and the purchase prices paid
for such participations shall be returned to such purchasing Lender ratably to
the extent of such recovery, but without interest. The Borrower expressly
consents to the foregoing arrangement and agrees that any holder of a
participation so purchased may exercise any and all rights of banker's lien,
set-off or counterclaim with respect to any and all monies owing by the Borrower
to that holder with respect thereto as fully as if that holder were owed the
amount of the participation held by that holder.
9.6 AMENDMENTS AND WAIVERS.
No amendment, modification, termination or waiver of any provision of this
Agreement or of the other Loan Documents, and no consent to any departure by
CapStar, the Borrower or the other Loan Parties therefrom, shall in any event be
effective without the written concurrence of the respective Loan Parties party
thereto and the Requisite Lenders; PROVIDED that any such amendment,
modification, termination, waiver or consent which: increases the amount of any
of the Commitments or reduces the principal amount of any of the Loans; changes
in any manner the definition of "Requisite Lenders"; changes in any manner any
provision of this
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Agreement which, by its terms, expressly requires the approval or concurrence of
all Lenders; postpones the Maturity Date; postpones the date on which any
interest or any fees are payable; decreases the interest rate borne by any of
the Loans (other than any waiver of any increase in the interest rate applicable
to any of the Loans pursuant to subsection 2.2E) or the amount of any fees
payable hereunder, in each case other than in accordance with the terms of the
Loan Documents; or changes in any manner the provisions contained in this
subsection 9.6 shall be effective only if evidenced by a writing signed by or on
behalf of each Lender affected thereby. In addition, (i) no amendment,
modification, termination or waiver of any provision of any Note shall be
effective without the written concurrence of the Lender which is the holder of
that Note and (ii) no amendment, modification, termination or waiver of any
provision of Section 10 or of any other provision of this Agreement which, by
its terms, expressly requires the approval or concurrence of the Agent shall be
effective without the written concurrence of the Agent. Any waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which it was given. No notice to or demand on Borrower in any case shall
entitle such Loan Party to any other or further notice or demand in similar or
other circumstances.
9.7 INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
9.8 NOTICES.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served or sent by telefacsimile or courier service and shall
be deemed to have been given when delivered in person or by courier service or
upon receipt of the telefacsimile, as the case may be. For the purposes hereof,
the address of each party hereto shall be as set forth under such party's name
on the signature pages hereof or (i) as to the Borrower and the Agent, such
other address as shall be designated by such Person in a written notice
delivered to the other parties hereto and (ii) as to each other party, such
other address as shall be designated by such party in a written notice delivered
to the Agent.
9.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
A. Except as provided in subsection 9.9B below, all representations,
warranties and agreements made herein shall survive the execution and delivery
of this Agreement and the making of the Loans and shall terminate upon
indefeasible payment in full of the Obligations and the expiration or
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termination of all Commitments, notwithstanding anything in this Agreement or
implied by law to the contrary.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of the Borrower set forth in subsections 2.6, 2.7, 9.2,
9.3 and 9.5 shall survive the payment in full of the Obligations, and the
termination of this Agreement.
9.10 AGENT'S OR LENDERS' DISCRETION; SUCCESSOR AGENTS.
Whenever pursuant to this Agreement or any other Loan Document the Agent,
the Requisite Lenders or all of the Lenders exercises any right given to it or
them to approve or disapprove, or any arrangement or term is to be satisfactory
to the Agent, the Requisite Lenders or all of the Lenders, the decision of the
Agent, the Requisite Lenders or all of the Lenders, to approve or disapprove or
to decide whether arrangements or terms are satisfactory or not satisfactory
shall (except as is otherwise specifically herein provided) be in the sole
discretion of the Agent, the Requisite Lenders or all of the Lenders, as the
case may be.
9.11 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF THE LENDERS' RIGHTS.
The obligations of the Lenders hereunder are several and no Lender shall
be responsible for the obligations or Commitment of any other Lender hereunder.
Nothing contained herein or in any other Loan Document, and no action taken by
the Lenders pursuant hereto or thereto, shall be deemed to constitute the
Lenders as a partnership, an association, a Joint Venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and each Lender shall be entitled to protect and
enforce its rights arising out of this Agreement and it shall not be necessary
for any other Lender to be joined as an additional party in any proceeding for
such purpose.
9.12 REMEDIES OF THE BORROWER.
In the event that a claim or adjudication is made that the Agent or any
Lender or their respective agents has acted unreasonably or unreasonably delayed
acting in any case where by law or under this Agreement, the Notes or the other
Loan Documents, the Agent, such Lender or such agent, as the case may be, has an
obligation to act reasonably or promptly, the Borrower agrees that none of the
Agent, such Lender or such agents, shall be liable for any monetary damages, and
the Borrower's sole remedies shall be limited to commencing an action seeking
injunctive relief or declaratory judgement. The parties hereto agree that any
action or proceeding to determine whether the Agent or any Lender has acted
reasonably shall be determined by an action seeking declaratory judgment.
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9.13 MARSHALLING; PAYMENTS SET ASIDE.
Neither the Agent nor any Lenders shall be under any obligation to marshal
any assets in favor of the Borrower, any other Loan Party or any other party or
against or in payment of any or all of the Obligations. To the extent that the
Borrower or any other Loan Party makes a payment or payments to the Lenders or
the Agent (or to the Agent for the benefit of the Lenders), or the Agent or the
Lenders enforce any security interests or the Agent or any Lender exercises its
rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, any other state
or federal law, common law or any equitable cause of action, then, to the extent
of such recovery, the obligation or part thereof originally intended to be
satisfied, and all rights and remedies therefor or related thereto, shall be
revived and continued in full force and effect as if such payment or payments
had not been made or such enforcement or setoff had not occurred.
9.14 SEVERABILITY.
In case any provision in or obligation under this Agreement or any Note or
any other Loan Document shall be invalid, illegal or unenforceable in any
jurisdiction or under any set of circumstances, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction or under any other set of circumstances,
shall not in any way be affected or impaired thereby.
9.15 HEADINGS.
Section and subsection headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
9.16 APPLICABLE LAW.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
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9.17 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of the Agent and the Lenders (it being
understood that the Lenders' rights of assignment are subject to subsection
9.1). Neither CapStar's and the Borrower's rights or obligations hereunder nor
any interest therein may be assigned or delegated by CapStar or the Borrower, as
the case may be.
9.18 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE BORROWER OR CAPSTAR
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING
AND DELIVERING THIS AGREEMENT, EACH OF THE BORROWER AND CAPSTAR, FOR ITSELF AND
IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE
NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH
PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO BORROWER AT ITS
ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 9.8;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III)
ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE
BORROWER AND CAPSTAR IN ANY SUCH PROCEEDING IN ANY SUCH
COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT;
(V) AGREES THAT THE AGENT RETAINS THE RIGHT TO
SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
BRING PROCEEDINGS AGAINST THE BORROWER OR CAPSTAR IN THE
COURTS OF ANY OTHER JURISDICTION; AND
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(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 9.19 RELATING
TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402
OR OTHERWISE.
9.19 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY DEALINGS BETWEEN
THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/
BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED HEREBY AND
THEREBY. The scope of this waiver is intended to be all-encompassing of any and
all disputes that may be filed in any court and that relate to the subject
matter of this transaction, including contract claims, tort claims, breach of
duty claims and all other common law and statutory claims. Each party hereto
acknowledges that this waiver is a material inducement to enter into a business
relationship, that each has already relied on this waiver in entering into this
Agreement and the other Loan Documents, and that each will continue to rely on
this waiver in their related future dealings. Each party hereto further warrants
and represents that it has reviewed this waiver with its legal counsel and that
it knowingly and voluntarily waives its jury trial rights following consultation
with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE
MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER
SPECIFICALLY REFERRING TO THIS SUBSECTION 9.19 AND EXECUTED BY EACH OF THE
PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS
MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a
written consent to a trial by the court.
9.20 COUNTERPARTS; EFFECTIVENESS.
This Agreement and any amendments, waivers, consents or supplements hereto
or in connection herewith may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and receipt by the Borrower and
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the Agent of written or telephonic notification of such execution and
authorization of delivery thereof.
9.21 MATERIAL INDUCEMENT.
Each of the Borrower and CapStar acknowledges that its representations,
warranties, covenants and agreements contained in this Agreement and the other
Loan Documents, are material inducements to the Lenders to enter into this
Agreement and to make the Loans, that the Lenders have already relied on such
representations, warranties, covenants and agreements in entering into this
Agreement and agreeing to make the Loans (notwithstanding any investigation
heretofore or hereafter made by or on behalf of the Lenders), and that the
Lenders will continue to rely on such representations, warranties, covenants and
agreements in their future dealings with the Borrower. The Borrower agrees that
its representations, warranties, covenants and agreements contained in this
Agreement and the other Loan Documents, are reasonable in purpose and scope. The
Borrower represents and warrants that it has reviewed this Agreement and the
other Loan Documents with its legal counsel and that it knowingly and
voluntarily is entering into this Agreement and the other Loan Documents
following consultation with legal counsel.
9.22 ENTIRE AGREEMENT.
This Agreement is evidence of the indebtedness incurred pursuant hereto
and, taken together with all of the other Loan Documents and all certificates
and other documents delivered to the Agent and the Lenders hereunder and
thereunder, embodies the entire agreement and supersedes all prior agreements,
written and oral, relating to the subject matter hereof. This Agreement and the
other Loan Documents constitute the final expression of the agreement between
the parties hereto and this Agreement and such other Loan Document may not be
contradicted by evidence of any alleged oral agreement.
9.23 CONFIDENTIALITY.
Each Lender and the Agent, severally and not jointly, agrees to exercise
commercially reasonable efforts (i) to keep any non-public information delivered
or made available to such Lender or the Agent pursuant to the Loan Documents,
which any Loan Party or its authorized representative has identified as
confidential information, confidential from any Person other than Persons
employed by or retained by such Lender or the Agent or their respective
Affiliates who are or are expected to become engaged in evaluating, approving,
structuring or administering the Loans, or other Obligations hereunder and (ii)
to advise its employees who receive such information that engaging in securities
transactions involving the Common Stock while in the possession of such
non-public information may violate applicable securities laws; PROVIDED that
nothing herein shall prevent any Lender or the Agent from disclosing such
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information to any bona fide Eligible Assignee, transferee or Eligible
Participant that has agreed to be bound by the provisions of this subsection
9.23 in connection with the contemplated assignment or transfer of any
Commitments, Loans or other Obligations hereunder or participation therein or as
required or requested by any Governmental Authority or representative thereof or
pursuant to legal process or in connection with the exercise of any remedy under
the Loan Documents.
9.24 MAXIMUM AMOUNT.
A. It is the intention of the Borrower and the Lenders to conform strictly
to the usury and similar laws relating to interest from time to time in force,
and all agreements between the Loan Parties and their respective Subsidiaries
and the Lenders, whether now existing or hereafter arising and whether oral or
written, are hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration of maturity hereof or otherwise, shall the
amount paid or agreed to be paid in the aggregate to the Lenders as interest
(whether or not designated as interest, and including any amount otherwise
designated but deemed to constitute interest by a court of competent
jurisdiction) hereunder or under the other Loan Documents or in any other
agreement given to secure the indebtedness of the Borrower to the Lenders, or in
any other document evidencing, securing or pertaining to the indebtedness
evidenced hereby, exceed the maximum amount permissible under applicable usury
or such other laws (the "MAXIMUM AMOUNT"). If under any circumstances whatsoever
fulfillment of any provision hereof, or any of the other Loan Documents, at the
time performance of such provision shall be due, shall involve exceeding the
Maximum Amount, then, ipso facto, the obligation to be fulfilled shall be
reduced to the Maximum Amount. For the purposes of calculating the actual amount
of interest paid and/or payable hereunder in respect of laws pertaining to usury
or such other laws, all sums paid or agreed to be paid to the holder hereof for
the use, forbearance or detention of the indebtedness of the Borrower evidenced
hereby, outstanding from time to time shall, to the extent permitted by
Applicable Law, be amortized, pro-rated, allocated and spread from the date of
disbursement of the proceeds of the Loans until payment in full of all of such
indebtedness, so that the actual rate of interest on account of such
indebtedness is uniform through the therm hereof. The terms and provisions of
this subsection shall control and supersede every other provision of all
agreements between the Borrower or any endorser of the Notes and the Lenders.
B. If under circumstances any Lender shall ever receive an amount which
would exceed the Maximum Amount , such amount shall be deemed a payment in
reduction of the principal amount of the Loans and, notwithstanding anything to
the contrary contained in subsection 2.4B(i), shall be treated as a voluntary
prepayment under such subsection 2.4B(i) and shall be so applied in accordance
with subsection 2.4 or if such excessive interest exceeds the unpaid balance of
the Loans and any other indebtedness of the Borrower in favor of such Lender,
the excess shall be deemed to have been a payment made by mistake and shall be
refunded to the Borrower.
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SECTION 10
AGENT
10.1 APPOINTMENT.
Bankers is hereby appointed Agent and Arranger hereunder, and each Lender
hereby authorizes the Agent to act as its agent in accordance with the terms of
this Agreement and the other Loan Documents. The Agent hereby agrees to act upon
the express conditions contained in this Agreement and in the other Loan
Documents, as applicable. The provisions of this Section 10 are solely for the
benefit of the Agent and Lenders and no Loan Party shall have any rights as a
third party beneficiary of any of the provisions thereof. In performing its
functions and duties under this Agreement, the Agent shall act solely as an
agent of Lenders and does not assume and shall not be deemed to have assumed any
obligation towards or relationship of agency or trust with or for any Loan Party
or any of its Subsidiaries.
10.2 POWERS AND DUTIES; GENERAL IMMUNITY.
A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes the Agent
to take such action on such Lender's behalf and to exercise such powers, rights
and remedies hereunder and under the other Loan Documents as are specifically
delegated or granted to the Agent by the terms hereof and thereof, together with
such powers, rights and remedies as are reasonably incidental thereto. The Agent
shall have only those duties and responsibilities that are expressly specified
in this Agreement and in the other Loan Documents. The Agent may exercise such
powers, rights and remedies and perform such duties by or through its agents or
employees. The Agent shall not have, by reason of this Agreement or in any of
the other Loan Documents, a fiduciary relationship in respect of any Lender; and
nothing in this Agreement or any of the other Loan Documents, expressed or
implied, is intended to or shall be so construed as to impose upon the Agent any
obligations in respect of this Agreement or any of the other Loan Documents
except as expressly set forth herein or therein.
B. NO RESPONSIBILITY FOR CERTAIN MATTERS. The Agent shall not be
responsible to any Lender for the execution, effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of this Agreement or any
other Loan Document or for any representations, warranties, recitals or
statements made herein or therein or made in any written or oral statements or
in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by any of the Agent to the Lenders or by
or on behalf of any Loan Party or any of its Subsidiaries to the Agent or any
Lender in connection with the Loan Documents and the transactions contemplated
thereby or for the financial condition or business affairs of any Loan Party or
any of its Subsidiaries or any other Person liable for the payment of any
Obligations, nor shall the Agent be required to ascertain or inquire as to the
performance
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or observance of any of the terms, conditions, provisions, covenants or
agreements contained in any of the Loan Documents or as to the use of the
proceeds of the Loans or as to the exis tence or possible existence of any Event
of Default or Potential Event of Default.
C. EXCULPATORY PROVISIONS. Neither the Agent nor any of its officers,
partners, directors, employees or agents shall be liable to the Lenders for any
action taken or omitted by the Agent under or in connection with any of the Loan
Documents except to the extent caused by the Agent's gross negligence or willful
misconduct. The Agent shall be entitled to refrain from any act or the taking of
any action (including the failure to take an action) in connection with this
Agreement or any of the other Loan Documents or from the exercise of any power,
discretion or authority vested in it hereunder or thereunder unless and until
the Agent shall have received instructions in respect thereof from the Requisite
Lenders (or such other Lenders as may be required to give such instructions
under subsection 9.6) and, upon receipt of such instructions from the Requisite
Lenders (or such other Lenders, as the case may be), the Agent shall be entitled
to act or (where so instructed) refrain from acting, or to exercise such power,
discretion or authority, in accordance with such instructions. Without prejudice
to the generality of the foregoing, (i) the Agent shall be entitled to rely, and
shall be fully protected in relying, upon any communication, instrument or
document believed by it to be genuine and correct and to have been signed or
sent by the proper person or persons, and shall be entitled to rely and shall be
protected in relying on opinions and judgments of attorneys (who may be
attorneys for Capstar and its Subsidiaries), accountants, experts and other
professional advisors selected by it; and (ii) no Lender shall have any right of
action whatsoever against the Agent as a result of the Agent acting or (where so
instructed) refraining from acting under this Agreement or any of the other Loan
Documents in accordance with the instructions of the Requisite Lenders (or such
other Lenders as may be required to give such instructions under subsection
9.6).
D. AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in no
way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, the Agent in its individual capacity as a Lender hereunder.
With respect to its participation in the Loans, the Agent shall have the same
rights and powers hereunder as any other Lender and may exercise the same as
though it were not performing the duties and functions delegated to it
hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless
the context clearly otherwise indicates, include the Agent in its individual
capacity. The Agent and its Affiliates may accept deposits from, lend money to
and generally engage in any kind of banking, trust, financial advisory or other
business with Capstar or any of its Subsidiaries or Affiliates as if it were not
performing the duties specified herein (including by acting as agent or lender
under the Senior Credit Agreement), and may accept fees and other consideration
from Capstar and its Subsidiaries for services in connection with this Agreement
and otherwise without having to account for the same to the Lenders.
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10.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF
CREDITWORTHINESS.
Each Lender represents and warrants that it has made its own independent
investigation of the financial condition and affairs of Capstar and its
Subsidiaries in connection with the making of the Loans hereunder and that it
has made and shall continue to make its own appraisal of the creditworthiness of
Capstar and its Subsidiaries. The Agent shall not have any duty or
responsibility, either initially or on a continuing basis, to make any such
investigation or any such appraisal on behalf of the Lenders or to provide any
Lender with any credit or other information with respect thereto, whether coming
into its possession before the making of the Loans or at any time or times
thereafter, and the Agent shall not have any responsibility with respect to the
accuracy of or the completeness of any information provided to the Lenders.
10.4 RIGHT TO INDEMNITY.
Each Lender, in proportion to its Pro Rata Share, severally agrees to
indemnify the Agent, to the extent that the Agent shall not have been reimbursed
by the Borrower, for and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including
counsel fees and disbursements) or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
exercising its powers, rights and remedies or performing its duties hereunder or
under the other Loan Documents or otherwise in its capacity as the Agent in any
way relating to or arising out of this Agreement or the other Loan Documents;
PROVIDED that no Lender shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements to the extent that same resulted from the Agent's
gross negligence or willful misconduct.
10.5 SUCCESSOR AGENT.
A. The Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Loan Documents at any time by giving 15
Business Days' prior written notice to the Borrower and the Lenders. Such
resignation shall take effect upon the appointment of a successor Agent pursuant
to clauses (b) and (c) below or as otherwise provided below.
B. Upon any such notice of resignation the Requisite Lenders shall appoint
a successor Agent hereunder who shall be a commercial bank or trust company
reasonably acceptable to the Borrower.
C. If a successor Agent shall not have been so appointed within such 15
Business Day period, the Agent, with the consent of the Borrower (which shall
not be unreasonably withheld
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or delayed), shall then appoint a commercial bank or trust company with capital
and surplus of not less than $500,000,000 as successor Agent, who shall serve as
Agent hereunder until such time, if any, as the Requisite Lenders appoint a
successor Agent as provided above.
D. If no successor Agent has been appointed pursuant to clause (b) or (c)
above by the 25th Business Day after the date such notice of resignation was
given by the Agent, the Agent's resignation shall become effective and the
Requisite Lenders shall thereafter perform all the duties of the Agent hereunder
and/or under any other Loan Documents until such time, if any, as the Requisite
Lenders appoint a successor Agent as provided above.
E. Upon resignation of the Agent pursuant to this subsection 10.5, the
Agent shall remain indemnified to the extent provided in this Agreement and the
other Loan Documents and the provisions of this subsection 10.5 shall continue
in effect for the benefit of the Agent for all of its actions and inactions
while serving as the Agent.
10.6 GUARANTIES.
Each Lender hereby further authorizes the Agent, on behalf of and for the
benefit of the Lenders, to be the agent for and representative of the Lenders
under the CapStar Guaranty and the Affiliate Guaranty, and each Lender agrees to
be bound by the terms of each such Loan Document (including, but not limited to,
the subordination provisions contained therein). Anything contained in any of
the Loan Documents to the contrary notwithstanding, the Agent and each Lender
hereby agree that the no Lender shall have any right individually to enforce the
Capstar Guaranty or the Affiliate Guaranty, it being understood and agreed that
all powers, rights and remedies under such Loan Documents may be exercised
solely by Agent for the benefit of Lenders in accordance with the instructions
of the Requisite Lenders and the terms thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
BORROWER:
CAPSTAR MANAGEMENT COMPANY, L.P.
By: CAPSTAR HOTEL COMPANY,
its general partner
By: /s/ William M. Karnes
-------------------------------------------
Name: William M. Karnes
Title: Senior Executive Vice President and
Chief Financial Officer
Notice Address:
CapStar Management Company, L.P.
1010 Wisconsin Avenue, N.W. - Suite 650
Washington, D.C. 20007
Attention: Paul W. Whetsell
GUARANTOR:
CAPSTAR HOTEL COMPANY
By: /s/ William M. Karnes
-------------------------------------------------
Name: William M. Karnes
Title: Senior Executive Vice President and
Chief Financial Officer
Notice Address:
CapStar Hotel Company
1010 Wisconsin Avenue, N.W. - Suite 650
Washington, D.C. 20007
Attention: Paul W. Whetsell
S-1
<PAGE>
AGENT:
BANKERS TRUST COMPANY,
as Agent
By: /s/ Alex Johnson
----------------------------------------------
Name: Alex Johnson
Title: Managing Director
Notice Address:
Bankers Trust Company
280 Park Avenue, 23W
New York, New York 10017
Attention: Alexander Johnson
LENDERS:
BANKERS TRUST COMPANY,
as a Lender
By: /s/ Alex Johnson
----------------------------------------------
Name: Alex Johnson
Title: Managing Director
Notice Address:
Bankers Trust Company
280 Park Avenue, 23W
New York, New York 10017
Attention: Alexander Johnson
S-2
<PAGE>
OAK HILL SECURITIES FUND, L.P.,
as a Lender
By: OAK HILL SECURITIES GENPAR, L.P.,
as General Partner
By: OAK HILL SECURITIES MGP, INC.,
as Managing General Partner of
the General Partner
By: /s/ William H. Bohnsack, Jr.
----------------------------------------------
Name: William H. Bohnsack, Jr.
Title: Vice President
Notice Address:
Oak Hill Securities Fund, L.P.
Park Avenue Tower
65 East 55th Street, 32nd Floor
New York, New York 10022
Attention: Scott Krase
S-3
<PAGE>
WELLS FARGO BANK, N.A.,
as a Lender
By: /s/ Mark Myers
---------------------------------------------
Name: Mark Myers
Title: Senior Vice President
Notice Address:
Wells Fargo Bank, N.A.
555 Montgomery Street, 17th Fl.
San Francisco, California 94111
Attention: Mark L. Myers
S-4
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON,
as a Lender
By: /s/ Lori Y. Litow
---------------------------------------------
Name: Lori Y. Litow
Title: Vice President
Notice Address:
The First National Bank of Boston
100 Federal Street
Boston, Massachusetts 02110
Attention: Real Estate Department
The First National Bank of Boston
115 Perimeter Center Place NE
Suite 500
Atlanta, Georgia 30346
Attention: Lori Y. Litow
S-5
<PAGE>
FIRST BANK NATIONAL ASSOCIATION,
as a Lender
By: /s/ Jonathan P. Banyard
---------------------------------------------
Name: Jonathan P. Banyard
Title: Assistant Vice President
Notice Address:
First Bank National Association
First Bank Place
601 Second Avenue South: MPFP 0802
Minneapolis, Minnesota 55402-4302
Attention: Jonathan P. Banyard
S-6
<PAGE>
SCHEDULE 2.1A
LENDERS' COMMITMENTS AND PRO RATA SHARES
===================================== ======================== =================
LENDER COMMITMENT PRO RATA SHARE
- ------------------------------------- ------------------------ -----------------
Bankers Trust Company $ 6,535,000 13.07%
- ------------------------------------- ------------------------ -----------------
Oak Hills Securities Fund, L.P. $25,000,000 50%
- ------------------------------------- ------------------------ -----------------
Wells Fargo Bank, N.A. $ 6,525,000 13.05%
- ------------------------------------- ------------------------ -----------------
The First National Bank of Boston $ 6,525,000 13.05%
- ------------------------------------- ------------------------ -----------------
First Bank National Association $ 5,415,000 10.83%
===================================== ======================== =================
<PAGE>
EXHIBIT 21
1
SUBSIDIARIES OF
CAPSTAR HOTEL COMPANY
JURISDICTION OF
INCORPORATION OR
NAME ORGANIZATION DOING BUSINESS AS
---- ------------ -----------------
1. CapStar Management Delaware --
Company, L.P.
2. CapStar LP Corporation Delaware --
3. CMC Airport, Inc. New York --
4. EquiStar Acquisition Delaware --
Corporation
5. EquiStar Arlington Delaware Arlington Hilton Hotel
Partners, L.P.
6. EquiStar Atlanta Delaware --
Company, L.L.C.
7. EquiStar Atlanta GP Delaware --
Company, L.L.C.
8. EquiStar Atlanta LP Delaware --
Company, L.L.C.
9. EquiStar Ballston Delaware Arlington Hilton Hotel
Company, L.L.C.
EquiStar Bellevue Delaware Bellevue Hilton Hotel
10. Company, L.L.C.
EquiStar Charlotte Delaware Charlotte Sheraton Airport
11. Company, L.L.C. Plaza
12. EquiStar Cleveland Delaware Cleveland Holiday Inn
Company, L.L.C.
13. EquiStar Colorado Delaware Colorado Springs Sheraton
Company, L.L.C. Hotel
14. EquiStar Irvine Company, Delaware Irvine Hilton Hotel
L.L.C.
15. EquiStar Latham Delaware Georgetown Latham Hotel
Company, L.L.C.
<PAGE>
2
JURISDICTION OF
INCORPORATION OR
NAME ORGANIZATION DOING BUSINESS AS
---- ------------ -----------------
16. EquiStar Salt Lake Delaware Salt Lake Airport Hilton
Company, L.L.C.
17. EquiStar Schaumberg Delaware Schaumberg Radisson Hotel
Company, L.L.C.
18. EquiStar Somerset Delaware Somerset Marriott Hotel
Company, L.L.C.
19. Leperq Atlanta Delaware Atlanta Airport Westin
Renaissance Partners, L.P.
20. CapStar Houston SW Delaware Houston Southwest Hilton
Partners, L.P.
21. CapStar Englewood Delaware Embassy Suites South
Company, L.L.C. Denver
22. CapStar C.S. Company, Delaware Holiday Inn Garden of the
L.L.C. Gods
23. CapStar Lafayette Delaware Lafayette Hilton
Company, L.L.C.
24. CapStar Washington Delaware Embassy Row Hilton
Company, L.L.C.
25. CapStar Santa Barbara Delaware Santa Barbara Inn
Company, L.L.C.
26. CapStar Sacramento Delaware Sacramento Hilton
Company, L.L.C.
27. CapStar San Pedro Delaware San Pedro Hilton
Company, L.L.C.
28. CapStar Westchase Delaware Westchase Hilton
Partners, L.P.
29. CapStar Albuquerque Delaware Doubletree Albuquerque
Company, L.L.C.
30. CapStar St. Louis Delaware Holiday Inn Riverfront
Company, L.L.C.
<PAGE>
3
JURISDICTION OF
INCORPORATION OR
NAME ORGANIZATION DOING BUSINESS AS
---- ------------ -----------------
31. CapStar Cherry Hill Delaware Four Points Hotel Cherry Hill
Company, L.L.C.
<PAGE>
Exhibit 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
CapStar Hotel Company
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Washington, D.C.
February 19, 1997
<PAGE>
Exhibit 23.3
CONSENT
I hereby consent to the use of my name as a proposed director in the
CapStar Hotel Company's Registration Statement on Form S-1 to be filed on
February 20, 1997.
/s/ Mahmood Khimji
-------------------
Mahmood Khimji
Dated: February 18, 1997.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF CAPSTAR HOTEL COMPANY AND SUBSIDIARIES AS OF
DECEMBER 31, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 21,784
<SECURITIES> 0
<RECEIVABLES> 8,298
<ALLOWANCES> 189
<INVENTORY> 1,321
<CURRENT-ASSETS> 35,835
<PP&E> 343,092
<DEPRECIATION> 8,641
<TOTAL-ASSETS> 379,161
<CURRENT-LIABILITIES> 16,796
<BONDS> 200,361
0
0
<COMMON> 128
<OTHER-SE> 160,587
<TOTAL-LIABILITY-AND-EQUITY> 379,161
<SALES> 0
<TOTAL-REVENUES> 109,792
<CGS> 0
<TOTAL-COSTS> 44,611
<OTHER-EXPENSES> 45,847
<LOSS-PROVISION> 98
<INTEREST-EXPENSE> 12,346
<INCOME-PRETAX> 7,027
<INCOME-TAX> 2,674
<INCOME-CONTINUING> 4,353
<DISCONTINUED> 0
<EXTRAORDINARY> (1,956)
<CHANGES> 0
<NET-INCOME> 2,397
<EPS-PRIMARY> .16
<EPS-DILUTED> 0
</TABLE>
