<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number 1-12017
CAPSTAR HOTEL COMPANY
(Exact name of issuer as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1979383
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
1010 WISCONSIN AVENUE, N.W., 20007
WASHINGTON, D.C. (Zip code)
(Address of principal executive
offices)
</TABLE>
Registrant's telephone number, including area code: (202) 965-4455
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED:
- ------------------------------------------------------ ------------------------------------------------------
Common Stock, par value $.01 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
Based on the average sale price at March 6, 1998, the aggregate market value
of the voting stock held by nonaffiliates of the registrant was $870,209,000.
The number of shares of the Registrant's common stock outstanding as of
March 6, 1998 was 24,887,944.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III--Those portions of the Registrant's definitive proxy statement relating
to Registrant's 1998 Annual Meeting of Stockholders which are incorporated into
Items 10, 11, 12, and 13.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
CapStar Hotel Company ("CapStar" or the "Company") is a leading owner and
manager of upscale, full-service hotels in North America. As of December 31,
1997, CapStar owned, leased and/or managed 114 hotels that contain 22,337 rooms
(the "Hotels"). Of the Hotels, the Company owns and manages 47 upscale,
full-service hotels that contain 12,019 rooms (the "Owned Hotels"), leases 40
(and manages 30) hotels that contain 5,687 rooms (the "Leased Hotels"), and
manages an additional 27 hotels owned by third parties that contain 4,631 rooms
(the "Managed Hotels"). The Owned Hotels are located in major metropolitan areas
or rapidly growing secondary cities and are well located within these markets.
The Owned Hotels include hotels operated under nationally recognized brand names
such as Hilton-Registered Trademark-, Sheraton-Registered Trademark-,
Westin-Registered Trademark-, Marriott-Registered Trademark-,
Doubletree-Registered Trademark- and Embassy Suites-Registered Trademark-. The
Company's business strategy is to opportunistically acquire hotel properties and
related businesses 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.
CapStar is one of the fastest growing owner/operators of upscale,
full-service hotels in North America, having increased its portfolio of Owned
Hotels fourfold since its initial public offering in August 1996 (the "IPO").
During the year ended December 31, 1997, the Company expanded its portfolio by
completing the purchase of 28 upscale, full-service hotels containing 6,853
rooms for an aggregate purchase price, including planned initial renovations, of
$602.1 million. In January 1998, the Company completed the acquisition of a
portfolio of six upscale, full-service hotels containing 1,960 rooms from
certain affiliates of Medallion Hotels, Inc. for a purchase price of $150.0
million. In addition, the Company has entered into a contract to acquire the
524-room Sheraton Fisherman's Wharf hotel for a purchase price of $84.0 million.
During 1997, the Company also expanded its base of Leased Hotels and Managed
Hotels through the acquisition of substantially all of the assets of Winston
Hospitality, Inc. ("Winston"), for a purchase price of approximately $34.0
million. As a result of the Winston acquisition, the Company now leases 38
hotels owned by Winston Hotels, Inc., a real estate investment trust, and
manages 28 of those hotels.
The Company believes that its hotel acquisitions represent attractive
investment opportunities because (i) they involve hotel operations in major
metropolitan or growing secondary markets and include properties purchased at
significant discounts and (ii) they have attractive current returns and
potential for significant revenue and cash flow growth through implementation of
the Company's operating strategy.
During the year ended December 31, 1997, the Company spent a total of $32.7
million on renovations at the Owned Hotels and intends to spend an additional
$105.0 million during 1998 completing its renovation programs. 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, with an average of 20 years of lodging industry experience, has
successfully managed hotels in all segments of the lodging industry, with
particular emphasis on upscale, full-service hotels. Since the inception of the
Company's management business in 1987, the Company has achieved consistent
revenue and portfolio growth, even during periods of relative industry weakness.
The Company attributes its management success to its ability to analyze each
hotel as a unique property and identify those particular cash flow growth
opportunities which each hotel presents. The Company's principal operating
objectives are to generate higher revenue per available room ("RevPAR"), to
increase average daily rates ("ADR"), and to increase net operating income while
providing its hotel guests with high-quality service and value.
2
<PAGE>
In addition to the acquisition or proposed acquisition of hotels, since the
IPO the Company has invested in three joint ventures and, including the
management contracts associated with these joint ventures, the Company has
entered into ten new long-term management agreements. The Company expects to
form additional strategic alliances with institutional and private hotel owners,
to invest in future acquisitions and to secure additional fee management
arrangements. See "Special Note Regarding Forward-Looking Statements."
The Company believes that the upscale, full-service segment of the lodging
industry is the most attractive segment in which to own, manage and acquire
hotels and further believes that there are currently many attractive
opportunities to acquire properties in this segment of the industry at prices
below replacement cost. The upscale, full-service segment is attractive for
several reasons. First, the Company expects that there will be no significant
increases in the supply of upscale, full-service hotels in the next several
years because the cost of new construction generally does not justify new hotel
development. Second, upscale, full-service hotels appeal to a wide variety of
customers, thus reducing the risk of decreasing demand from any particular
customer group. Additionally, such hotels have particular appeal to both
business executives and upscale leisure travelers, customers who are generally
less price sensitive than travelers who use limited-service hotels. Finally,
full-service hotels require a greater depth of management expertise than
limited-service hotels, and the Company believes that its superior management
skills provide it with a significant competitive advantage in their operation.
BUSINESS
The Company seeks to increase shareholder value by (i) implementing its
operating strategy to improve hotel operations and increase cash flow, (ii)
expanding its management business and (iii) continuing to acquire upscale,
full-service hotels at prices below replacement cost in selected markets
throughout North America.
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, sales 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 selects 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. See "Special
Note Regarding Forward-Looking Statements."
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.
3
<PAGE>
SUPPLY CONSTRAINTS. The Company seeks lodging markets with favorable supply
dynamics for hotel owners and operators, including an absence of current new
hotel development and barriers to future development such as zoning constraints,
the need to undergo lengthy local development approval processes and a limited
number of suitable sites. Other factors limiting the supply of new hotels are
the current lack of financing available for new development and the inability to
generate adequate returns on investment to justify new development.
GEOGRAPHIC DIVERSIFICATION. The Company seeks to maintain a geographically
diverse portfolio of hotels to offset the effects of regional economic cycles.
The Hotels are located in 29 states across the nation, the District of Columbia,
the U.S. Virgin Islands and Canada. See "Properties" for additional information
regarding the Owned Hotels.
HOTEL CRITERIA
LOCATION AND MARKET APPEAL. The Company seeks to acquire upscale,
full-service hotels that are situated near both business and leisure centers
which generate a broad base of demand for hotel accommodations and facilities.
These demand generators include (i) airports, (ii) convention centers, (iii)
business parks, (iv) shopping centers and other retail areas, (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 Owned
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. 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 on a pro forma basis, RevPAR
at the Owned Hotels (excluding the hotels purchased since September 30, 1997)
increased 10.0% from the year ended December 31, 1996 to the year ended December
31, 1997, as compared to an increase of only 5.6% for the upscale, full-service
hotel industry segment as reported by Smith Travel Research over the comparable
period.
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 that meet its acquisition criteria. The Company has a record
of successfully renovating and repositioning hotels, in situations with varying
levels of service, room rates and market types at both the Owned Hotels and at
the Managed Hotels. In addition, the Company believes that it benefits from its
ability to utilize operating partnership units of its subsidiaries as an
alternative to cash in consummating acquisitions. 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
4
<PAGE>
each individual Hotel rather than by implementing an operating strategy that is
designed to maintain a uniform corporate image or brand. Management believes
that its custom-tailored business plans are the most effective means of
addressing the needs of a given hotel or market. The Company believes that
skilled management of hotel operations is the most critical element in
maximizing revenue and cash flow in full-service hotels.
The Company's corporate headquarters carries out financing and acquisition
activities and provides services to support as well as monitor the Company's
on-site hotel operating executives. Each of the Company's executive departments,
including Sales and Marketing, Human Resources and Training, Food and Beverage,
Technical Services, Development and Corporate Finance, is headed by an executive
with significant experience in that area. These departments support
decentralized decision-making by the hotel operating executives by providing
accounting and budgeting services, property management software and other
resources which cannot be economically maintained at the individual Hotels.
Key elements of the Company's management programs include the following:
COMPREHENSIVE BUDGETING AND MONITORING. The Company's operating strategy
begins with an integrated budget planning process that is implemented by
individual on-site managers and monitored by the Company's corporate staff.
Management sets targets for cost and revenue categories at each of the Hotels
based on historical operating performance, planned renovations, operational
efficiencies and local market conditions. On-site managers coordinate with the
central office staff to ensure that such targets are realistic. Through
effective and timely use of its comprehensive financial information and
reporting systems, the Company can monitor actual performance and rapidly adjust
prices, staffing levels and sales efforts to take advantage of changes in the
market and to improve yield.
TARGETED SALES AND MARKETING. The Company employs a systematic approach
toward identifying and targeting segments of demand for each Hotel in order to
maximize market penetration. Executives at the Company's corporate headquarters
and property-based managers divide such segments into smaller subsegments,
typically ten or more for each Hotel, and develop narrowly tailored marketing
plans to suit each such segment. The Company supports each Hotel's local sales
efforts with corporate sales executives who develop new marketing concepts and
monitor and respond to specific market needs and preferences. These executives
are active in implementing on-site marketing programs developed in the central
management office. The Company employs computerized revenue yield management
systems to manage each Hotel's use of the various distribution channels in the
lodging industry. Management control over those channels, which include
franchisor reservation systems and toll-free numbers, travel agent and airline
global distribution systems, corporate travel offices and office managers, and
convention and visitor bureaus, enables the Company to maximize revenue yields
on a day-to-day basis. Sales teams are recruited locally and receive
incentive-based compensation bonuses. All of the Company's sales managers
complete a highly developed sales training program.
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, 1997, the Company spent a total of $32.7 million on renovations at
the Owned Hotels and currently intends to spend an additional $105.0 million
during 1998 completing the renovation programs. For example, at all of the Owned
Hotels, the Company has renovated or plans to renovate banquet and meeting
spaces and upgrade 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
5
<PAGE>
demographics and efficiencies offered by franchisors. The Company believes that
its relationships with many major hotel franchisors, established both as a
manager and an owner of hotels operated under their respective franchises,
places the Company in a favorable position when dealing with those franchisors
and allows it to negotiate favorable franchise agreements with franchisors. The
Company believes that its growth through acquisition of additional hotels will
further strengthen its relationship with franchisors.
The following chart summarizes certain information with respect to the
national franchise affiliations of the Hotels:
<TABLE>
<CAPTION>
OWNED HOTELS LEASED HOTELS MANAGED HOTELS
------------------------ ----------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GUEST % OF GUEST % OF GUEST % OF
FRANCHISE ROOMS HOTELS ROOMS ROOMS HOTELS ROOMS ROOMS HOTELS ROOMS
- ---------------------------------------- ------ ------ ------- ----- ------ ------- ----- ------ -------
Hilton.................................. 3,476 13 28.9% -- -- -- -- -- --
Sheraton................................ 1,783 6 14.8% -- -- -- -- -- --
Radisson-Registered Trademark-.......... 1,452 5 12.1% -- -- -- 126 1 2.7%
Doubletree.............................. 1,133 4 9.4% 388 1 6.8% 363 2 7.8%
Marriott................................ 903 2 7.5% -- -- -- -- -- --
Holiday Inn-Registered Trademark-....... 805 5 6.7% 196 1 3.4% 548 2 11.8%
Embassy Suites.......................... 728 3 6.1% -- -- -- -- -- --
Westin.................................. 697 2 5.8% -- -- -- -- -- --
Independent............................. 574 4 4.8% -- -- -- 424 5 9.1%
Four Points-Registered Trademark-....... 213 1 1.8% -- -- -- 596 2 12.9%
Doubletree Guest
Suites-Registered Trademark-.......... 137 1 1.1% -- -- -- -- -- --
Ramada-Registered Trademark-............ 118 1 1.0% -- -- -- 309 2 6.7%
Crowne Plaza-Registered Trademark-...... -- -- -- -- -- -- 730 2 15.8%
Courtyard-Registered Trademark-......... -- -- -- 490 3 8.6% 288 1 6.2%
Comfort Suites-Registered Trademark-.... -- -- -- 277 2 4.9% 244 2 5.3%
Clarion-Registered Trademark-........... -- -- -- -- -- -- 226 1 4.9%
Quality Suites-Registered Trademark-.... -- -- -- 168 1 3.0% 177 1 3.8%
Budget Inn-Registered Trademark-........ -- -- -- -- -- -- 147 1 3.2%
Residence Inn-Registered Trademark-..... -- -- -- -- -- -- 104 1 2.2%
Quality Inn-Registered Trademark-....... -- -- -- -- -- -- 100 1 2.2%
Days Inn-Registered Trademark-.......... -- -- -- -- -- -- 96 1 2.1%
Holiday Inn
Express-Registered Trademark-......... -- -- -- 208 2 3.7% 78 1 1.7%
Best Western-Registered Trademark-...... -- -- -- -- -- -- 75 1 1.6%
Hampton Inn-Registered Trademark-....... -- -- -- 1,965 16 34.6% -- -- --
Comfort Inn-Registered Trademark-....... -- -- -- 1,293 9 22.7% -- -- --
Holiday Inn
Select-Registered Trademark-.......... -- -- -- 244 1 4.3% -- -- --
HomewoodSuites-Registered Trademark-.... -- -- -- 212 2 3.7% -- -- --
Hampton Inn &
Suites-Registered Trademark-.......... -- -- -- 136 1 2.4% -- -- --
Fairfield Inn-Registered Trademark-..... -- -- -- 110 1 1.9% -- -- --
-- -- --
------ ------- ----- ------- ----- -------
Total................................... 12,019 47 100.0% 5,687 40 100.0% 4,631 27 100%
-- -- --
-- -- --
------ ------- ----- ------- ----- -------
------ ------- ----- ------- ----- -------
</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
6
<PAGE>
highly acclaimed CITRONELLE-Registered Trademark-, to
Morgan's-Registered Trademark-, 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.
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.
COMPUTERIZED REPORTING SYSTEMS. The Company employs computerized reporting
systems at each of the Hotels and at its corporate offices to monitor the
financial and operating performance of the Hotels. Management information
services have been fully integrated through the installation of Novell and Unix
networks. Management also utilizes programs like Data Plus-Registered Trademark-
and cc:Mail-Registered Trademark- to facilitate daily communication. Such
programs have enabled the Company to create and implement detailed reporting
systems at each of the Hotels and its corporate headquarters. Corporate
executives utilize information systems that track each Hotel's daily occupancy,
ADR, and revenue from rooms, food and beverage. By having the latest hotel
operating information available at all times, management is better able to
respond to changes in the market of each Hotel.
THE LEASED HOTELS AND MANAGED HOTELS
The Company leases 40 Leased Hotels owned by third parties containing 5,687
rooms. These leases are structured as long-term operating leases with terms
ranging from 10 to 15 years (excluding renewal options), and which expire
between 2007 and 2012. Of the Leased Hotels, three are full-service properties
and 37 are limited-service properties. All of the Leased Hotels are operated
under nationally recognized brand names such as Hampton Inn, Comfort Inn,
Courtyard by Marriott and Homewood Suites.
Revenue and operating expenses of the Leased Hotels are included in the
Company's consolidated financial statements, since the Company controls the
operations of these hotels. Net operating income (net of related lease payments
to lessors) of the Leased Hotels accounted for only 0.1% of the net operating
income of the Company in 1997. The Company, however, also manages 30 of the 40
Leased Hotels, and considers such leasing arrangements to be a vehicle to
increase its portfolio of long-term management
7
<PAGE>
agreements. The Company expects to enter into additional long-term leasing
arrangements in the future by pursuing such arrangements by itself and in
conjunction with strategic business partners. See "Special Note Regarding
Forward-Looking Statements."
The Company operates 27 Managed Hotels owned by third parties containing
4,631 rooms. Of the Managed Hotels, 20 are full-service properties and seven are
limited-service properties. Of the Managed Hotels, 22 are operated under
nationally recognized brand names and five are independent properties.
The Company's management agreements (the "Management Agreements") have
remaining terms ranging from one month to nine years. Substantially all of the
Management Agreements permit the owners of the Managed Hotels to terminate such
agreements prior to the stated expiration dates if the applicable hotel is sold,
and several of the Management Agreements permit the owners of the Managed Hotels
to terminate such agreements prior to the stated expiration date without cause
or by reason of the failure of the applicable hotel to obtain specified levels
of performance. For the twelve months ended December 31, 1997, the Company's
revenue from Management Agreements was $5.1 million, constituting 1.6% of the
Company's revenue for the year. No single Management Agreement (or group of
Management Agreements for hotels under common ownership or control) currently
accounts for more than 0.1% of the total revenue of the Company.
The Company intends to continue its efforts to add to its portfolio of
Leased Hotels and Managed Hotels. The Company believes that, in addition to
adding to the Company's revenues and profits, the business of leasing hotels
from, and operating hotels for, third parties benefits the Company by (i)
increasing the Company's operating experience in, and knowledge of, hotel
markets throughout North America, (ii) broadening the Company's relationships
with hotel owners and thus enhancing the Company's opportunities to identify,
evaluate and negotiate hotel acquisitions prior to the active marketing of a
hotel for sale, and (iii) improving the Company's ability to attract, train and
retain highly-qualified operating employees by offering them the opportunity to
work in a broader variety of hotels and markets.
COMPETITION
With its Owned Hotels, 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 Owned Hotels are located, there are other
full-and limited-service hotels that compete with the Owned 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, 1997, the Company employed approximately 12,000 persons,
of whom approximately 9,600 were compensated on an hourly basis. Approximately
85 employees work at the corporate headquarters. Employees at 14 of the Hotels
are represented by labor unions. Management believes that labor relations with
its employees are generally 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.
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
8
<PAGE>
Company believes that it is substantially in compliance with these requirements.
Managers of hotels are also subject to laws governing their relationship with
hotel employees, including minimum wage requirements, overtime, working
conditions and work permit requirements. Compliance with, or changes in, these
laws could reduce the revenue and profitability of the Owned Hotels and could
otherwise adversely affect the Company's operations.
Under the 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.
THE OPERATING PARTNERSHIPS
THE FOLLOWING SUMMARY INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THE
PROVISIONS OF THE CAPSTAR MANAGEMENT COMPANY, L.P. AND CAPSTAR MANAGEMENT
COMPANY II, L.P. LIMITED PARTNERSHIP AGREEMENTS, COPIES OF WHICH HAVE BEEN FILED
AS EXHIBITS TO THIS ANNUAL REPORT ON FORM 10-K.
Substantially all of the Company's assets are held indirectly by and
operated through CapStar Management Company, L.P. ("CMC") and CapStar Management
Company II, L.P. ("CMC II"), the Company's subsidiary operating partnerships.
The Company is the sole general partner of CMC, and the Company, CapStar LP
Corporation, several wholly-owned subsidiaries of the Company, an affiliate of
Highgate Hotels Inc. ("Highgate") and affiliates of Winston are the sole limited
partners of CMC. CapStar General Corp., a wholly-owned subsidiary of the
Company, is the sole general partner of CMC II, and a wholly-owned subsidiary of
the Company and affiliates of Highgate are the sole limited partners of CMC II.
The partnership agreements of CMC and CMC II (in each case, an "Operating
Partnership") give the general partner full control over the business and
affairs of the Operating Partnerships. The general partner is also given the
right, in connection with the contribution of property to such Operating
Partnerships or otherwise, to issue additional partnership interests in such
Operating Partnerships in one or more classes or series, with such designations,
preferences and participating or other special rights and powers (including
rights and powers senior to those of the existing partners) as the general
partner may determine.
The partnership agreements of the Operating Partnerships provide two classes
of partnership interests ("OP Units"), common OP Units and preferred OP Units,
and the partners of the Operating Partnerships own the following aggregate
numbers of such OP Units: (i) the Company and its wholly-owned subsidiaries --a
number of common OP Units equal to the number of issued and outstanding shares
of the Company's common stock, par value $0.01, (the "Common Stock"); (ii)
affiliates of Highgate--409,523 common OP Units and 392,157 preferred OP Units;
and (iii) affiliates of Winston--674,236 common OP Units. The preferred OP Units
pay a 6.5% cumulative annual preferred return, compounded quarterly to the
extent not paid on a current basis, and are entitled to a liquidation preference
of $25.50 per preferred OP Unit. All net income and capital proceeds earned by
the Operating Partnerships, after payment of the annual preferred return and, if
applicable, the liquidation preference, will be shared by the holders of the
common OP Units in proportion to the number of common OP Units in the relevant
Operating Partnership owned by each such holder.
Each common OP Unit held by affiliates of Highgate and Winston is redeemable
by the holder for one share of Common Stock (or, at the Company's option, for
cash in an amount equal to the market value of a share of Common Stock). In
addition, the preferred OP Units may be redeemed by CMC at a price of $25.50 per
preferred OP Unit (or, at the Company's option, for a number of shares of Common
Stock
9
<PAGE>
having a value equal to such redemption price) at any time after April 1, 2000
or by the holders of the preferred OP Units at a price of $25.50 per preferred
OP Unit (in cash or, at the holder's option, for a number of shares of Common
Stock having a value equal to the redemption price) at any time after April 1,
2004.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Washington, D.C.,
satellite offices in California and North Carolina, and owns hotel properties
throughout the United States and Canada. As of December 31, 1997, the Company
had 47 Owned Hotels. The Company leases its offices as well as the land for four
of its Owned Hotels (Embassy Row Hilton in Washington, DC; San Pedro Hilton in
San Pedro, CA; Doubletree Resort in Palm Springs, CA; and Jekyll Inn on Jekyll
Island, GA). No one hotel property is material to the operation of the Company.
A typical CapStar hotel has meeting and banquet facilities, food and beverage
facilities and guest rooms and suites.
The Owned Hotels 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.
10
<PAGE>
The following table sets forth certain information with respect to the Owned
Hotels for the year ended December 31, 1997:
<TABLE>
<CAPTION>
GUEST AVERAGE
HOTEL LOCATION ROOMS ADR OCCUPANCY
- ----------------------------------------------------- -------------------------- --------- --------- -------------
<S> <C> <C> <C> <C>
Sheraton Hotel....................................... Mesa, AZ 273 $ 89.49 53.6%
Embassy Suites....................................... Tucson, AZ 204 74.39 78.5
Orange County Airport Hilton......................... Irvine, CA 290 85.87 73.0
Doubletree Resort.................................... Palm Springs, CA 289 97.45 66.9
Marriott Hotel....................................... Los Angeles, CA 469 118.56 60.5
Sacramento Hilton.................................... Sacramento, CA 326 86.74 74.4
San Pedro Hilton..................................... San Pedro, CA 226 61.66 76.3
Santa Barbara Inn.................................... Santa Barbara, CA 71 139.35 79.7
Holiday Inn.......................................... Colorado Springs, CO 201 67.16 70.7
Sheraton Hotel....................................... Colorado Springs, CO 502 74.15 72.1
Embassy Suites Denver................................ Englewood, CO 236 103.75 76.2
Doubletree Bradley Airport........................... Windsor Locks, CT 200 84.27 67.4
Embassy Row Hilton................................... Washington, DC 195 119.63 73.5
Georgetown Inn....................................... Washington, DC 95 137.95 72.4
The Latham Hotel..................................... Washington, DC 143 113.32 81.1
Westin Atlanta Airport............................... Atlanta, GA 496 79.18 75.5
Jekyll Inn........................................... Jekyll Island, GA 265 63.15 46.6
Radisson Hotel & Suites.............................. Chicago, IL 341 134.71 81.2
Radisson Hotel....................................... Schaumburg, IL 202 83.59 75.9
Doubletree Guest Suites.............................. Indianapolis, IN 137 87.05 71.0
Radisson Plaza....................................... Lexington, KY 367 77.76 62.1
Lafayette Hilton & Towers............................ Lafayette, LA 328 73.65 72.8
Metro Airport Hilton Suites.......................... Detroit, MI 151 81.37 85.7
Holiday Inn Sports Complex........................... Kansas City, MO 163 68.96 71.8
Sheraton Airport Plaza............................... Charlotte, NC 226 88.79 69.8
Four Points Hotel.................................... Cherry Hill, NJ 213 73.72 60.7
Westin Morristown.................................... Morristown, NJ 201 126.04 59.3
Marriott Hotel....................................... Somerset, NJ 434 111.62 75.0
Holiday Inn.......................................... Tinton Falls, NJ 171 78.89 72.2
Doubletree Hotel..................................... Albuquerque, NM 294 80.50 67.2
Radisson Hotel Southwest............................. Cleveland, OH 237 78.06 66.6
Great Valley Sheraton................................ Frazer, PA 154 100.44 76.3
Embassy Suites Center City........................... Philadelphia, PA 288 127.64 73.6
Arlington Hilton..................................... Arlington, TX 310 85.92 72.2
Doubletree Hotel..................................... Austin, TX 350 88.08 74.9
Radisson Hotel....................................... Dallas, TX 305 61.07 74.1
Sheraton Hotel....................................... Dallas, TX 348 64.61 61.4
Houston Southwest Hilton............................. Houston, TX 293 71.43 68.5
Westchase Hilton & Towers............................ Houston, TX 295 95.72 79.5
Salt Lake Airport Hilton............................. Salt Lake City, UT 287 80.05 78.6
Arlington Hilton..................................... Arlington, VA 209 110.31 78.3
National Airport Hilton.............................. Arlington, VA 386 96.78 67.3
Bellevue Hilton...................................... Bellevue, WA 180 110.38 79.3
Holiday Inn Calgary Airport.......................... Calgary, Alberta 170 51.34 72.2
Sheraton Hotel....................................... Guildford, B.C. 280 72.85 74.8
Holiday Inn-Metrotown................................ Vancouver, B.C. 100 75.03 87.8
Ramada Vancouver Centre.............................. Vancouver, B.C. 118 75.00 81.8
--------- --------- ---
Total/Weighted Average............................... 12,019 $ 88.84 71.3%
--------- --------- ---
--------- --------- ---
</TABLE>
11
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In the course of the Company's normal business activities, various lawsuits,
claims and proceedings have been or may be instituted or asserted against the
Company. Based on currently available facts, management believes that the
disposition of matters that are pending or asserted will not have a material
adverse effect on the consolidated financial position, results of operations or
liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders during the
fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the New York Stock Exchange ("NYSE") 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
----------------------
<S> <C> <C> <C> <C>
HIGH LOW
----------- ---------
1998:
First Quarter (through March 6, 1998)......................................... $36 1/2 $30 5/8
1997:
Fourth Quarter (ended December 31, 1997)...................................... 38 5/16 32 3/8
Third Quarter (ended September 30, 1997)...................................... 36 9/16 30 57/64
Second Quarter (ended June 30, 1997).......................................... 31 5/8 24 1/4
First Quarter (ended March 31, 1997).......................................... 28 1/8 19 3/8
1996:
Fourth Quarter (ended December 31, 1996)...................................... 19 5/8 16 7/8
Third Quarter (from the IPO on August 20, 1996 through September 30, 1997).... 18 3/8 16 1/2
</TABLE>
The last reported sale price of the Common Stock on the NYSE on March 6,
1998 was $36.50. As of March 6, 1998, there were approximately 69 holders of
record of the Common Stock.
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. Certain of the Company's loan agreements restrict the
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 of Directors and
will be dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant by the Board of
Directors.
On May 29, 1996, the Company issued 100 shares of Common Stock to Cherwell
Investors, Inc., a wholly-owned subsidiary of Acadia Partners, L.P. 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 Hotel Investors, L.P. ("EquiStar") and CMC. In
August 1996, in connection with the IPO, the Company issued 3,504,221
12
<PAGE>
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(CONTINUED)
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.
On April 1, 1997, the Company issued 809,523 common OP Units and 392,157
preferred OP Units to Highgate in connection with the Company's purchase of a
portfolio of six hotels from certain affiliates of Highgate. The OP Units 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 November 17, 1997, the Company issued 674,236 common OP Units to
affiliates of Winston in connection with the Company's acquisition of
substantially all of the assets of Winston. The OP Units 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.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial information for
the Company. The Balance Sheet Data of the Company as of December 31, 1997 and
1996 and the Operating Results and Other Financial Data for the years ended
December 31, 1997, 1996 and 1995, have been derived from the financial
statements which are included elsewhere in this Annual Report on Form 10-K. The
Balance Sheet Data as of December 31, 1995 and 1994 and the Operating Results
and Other Financial Data for the years ended December 31, 1994 and 1993 have
been derived from financial statements which are incorporated by reference into
this Annual Report on Form 10-K. The Balance Sheet Data as of December 31, 1993
has been derived from financial statements not required to be included or
incorporated by reference in this Annual Report on Form 10-K. The following
information should be read in conjunction with the consolidated financial
statements and notes thereto for the Company and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993
------------ ----------- ----------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenue:
Rooms............................................... $ 207,736 $ 68,498 $ 14,456 $ 0 $ 0
Food, beverage, office rental and other............. 103,521 36,949 7,471 0 0
Management services and other revenues.............. 5,136 4,345 4,436 4,418 4,234
------------ ----------- ----------- --------- ---------
Total revenue................................... 316,393 109,792 26,363 4,418 4,234
------------ ----------- ----------- --------- ---------
Operating expenses:
Departmental expenses:
Rooms............................................... 51,075 17,509 4,190 0 0
Food, beverage and other 77,373 27,102 5,437 0 0
Undistributed operating expenses:
Administrative and general.......................... 50,332 20,448 8,078 4,508 4,065
Property and other operating costs.................. 55,111 17,151 3,934 0 0
Depreciation and amortization....................... 20,990 8,248 2,097 23 14
------------ ----------- ----------- --------- ---------
Total operating expenses........................ 254,881 90,458 23,736 4,531 4,079
------------ ----------- ----------- --------- ---------
Net operating income (loss)........................... 61,512 19,334 2,627 (113) 155
Interest expense, net................................. 21,024 12,346 2,414 0 0
Minority interest..................................... (1,425) 39 18 0 0
Provision for income taxes (A)........................ 14,911 2,674 0 0 0
Income (loss) before extraordinary loss............... 24,152 4,353 231 (113) 155
Extraordinary loss (B)................................ (4,092) (1,956) (888) 0 0
------------ ----------- ----------- --------- ---------
Net income (loss)............................... $ 20,060 $ 2,397 $ (657) $ (113) $ 155
------------ ----------- ----------- --------- ---------
------------ ----------- ----------- --------- ---------
Basic earnings per share before extraordinary loss
(C)................................................. $ 1.29 $ 0.31 -- -- --
Diluted earnings per share before extraordinary loss
(C)................................................. $ 1.27 $ 0.31 -- -- --
Number of shares of common stock issued and
outstanding (D)..................................... 24,867 12,754 -- -- --
OTHER FINANCIAL DATA:
EBITDA (E)............................................ $ 82,502 $ 27,621 $ 4,741 $ (90) $ 169
Net cash provided by (used in) operating activities... 59,882 13,373 4,357 66 (101)
Net cash used in investing activities................. (586,259) (225,251) (116,573) (41) (24)
Net cash provided by financing activities............. 588,428 226,830 119,048 0 244
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property and equipment, gross......................... $ 950,052 $ 343,092 $ 110,883 $ 176 $ 134
Total assets.......................................... 1,124,642 379,161 132,650 1,232 1,458
Long term debt........................................ 492,771 200,361 73,574 0 0
OPERATING DATA:
Owned Hotels:
Number of hotels (D)................................ 47 19 6 -- --
Number of guest rooms (D)........................... 12,019 5,166 2,101 -- --
Total revenue....................................... $ 311,257 $ 105,447 $ 21,927 -- --
Average occupancy (F)............................... 72.0% 71.6% 72.3% -- --
ADR (G)............................................. $ 86.87 $ 82.84 $ 71.58 -- --
RevPAR(H)........................................... $ 62.55 $ 59.31 $ 51.75 -- --
</TABLE>
- ------------------------
(A) No provision for federal income taxes was included prior to the August 1996
IPO because the Company's predecessor entities were partnerships and all
federal income tax liabilities were passed through to the individual
partners.
(B) During 1995, 1996 and 1997, certain loan facilities were refinanced and the
write-offs of deferred costs associated with the prior facilities were
recorded as extraordinary losses.
(C) Basic and diluted earnings per share before extraordinary loss for the year
ended December 31, 1996 is based on earnings for the period from August 20,
1996 (the IPO date) through December 31, 1996.
(D) As of December 31 for the periods presented.
(E) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. Management believes that EBITDA is a useful
measure of operating performance because (i) it is industry practice to
evaluate hotel properties based on operating income before interest,
depreciation and amortization and minority interests of common and preferred
OP Unit holders, which is generally equivalent to EBITDA, and (ii) EBITDA is
unaffected by the debt and equity structure of the entity. 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 number of rooms occupied by hotel guests on a paid basis
divided by total available rooms.
(G) Represents total room revenue divided by total number of rooms occupied by
hotel guests on a paid basis.
(H) Represents total room revenue divided by total available rooms.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
As of December 31, 1997, the Company owned, leased and/or managed 114 hotels
with a total of 22,337 rooms. On various dates since March 1995, the Company
purchased its 47 Owned Hotels containing 12,019 rooms. Prior to the IPO on
August 20, 1996, the business of the Company was conducted through EquiStar,
which owned certain hotels, and CMC, which managed the owned hotels and certain
third-party hotels. CMC 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 prior to that date. The historical financial statements for
the years ended December 31, 1997, 1996 and 1995 reflect differing numbers of
owned, leased, and managed hotels throughout the periods. The following table
outlines the Company's portfolio of owned, leased and managed hotels:
<TABLE>
<CAPTION>
OWNED LEASED MANAGED
---------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
----------- --------- ----------- ----------- ----------- -----------
December 31, 1997................................. 47 12,019 40 5,687 27 4,631
December 31, 1996................................. 19 5,166 -- -- 28 4,619
December 31, 1995................................. 6 2,101 -- -- 41 6,089
<CAPTION>
TOTAL
----------------------
<S> <C> <C>
HOTELS ROOMS
----------- ---------
December 31, 1997................................. 114 22,337
December 31, 1996................................. 47 9,785
December 31, 1995................................. 47 8,190
</TABLE>
FINANCIAL CONDITION
DECEMBER 31, 1997 COMPARED WITH DECEMBER 31, 1996
Total assets increased by $745.4 million to $1.1 billion at December 31,
1997 from $379.2 million at December 31, 1996. This growth was primarily due to
the acquisitions of 28 Owned Hotels and substantially all of the assets of
Winston during 1997. Deposits, which include amounts escrowed during
negotiations of potential and pending hotel acquisitions, increased to $16.2
million primarily due to the deposit on a portfolio of six hotels acquired in
January 1998. Intangible assets increased by $45.7 million, due primarily to
goodwill and hotel lease contracts acquired from Winston in November 1997, and
financing fees paid related to new borrowings in 1997, net of write-offs of
unamortized deferred financing fees related to previous borrowing facilities.
Investments in affiliates increased mainly due to the Company entering into
three new joint ventures during 1997. Restricted cash increased due to the new
loan requirements of certain borrowing arrangements.
Total liabilities increased by $338.6 million to $556.4 million at December
31, 1997 from $217.8 million at December 31, 1996. This overall increase was
also due primarily to hotel acquisitions and the acquisition of Winston during
1997. Total long-term debt increased to $492.8 million at December 31, 1997,
reflecting borrowings to finance 1997 hotel acquisitions, including the issuance
of debt, offset by the use of proceeds from Common Stock offerings to repay
outstanding indebtedness. See "Liquidity and Capital Resources."
Minority interests increased to $48.8 million at December 31, 1997,
reflecting the value of OP Units of the Company's operating partnership
subsidiaries issued in conjunction with the acquisitions of certain hotels and
Winston. The increase in additional paid-in capital resulted primarily from the
net proceeds of Common Stock offerings and the redemption of OP Units in May
1997.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1996
Total revenue increased by 188% to $316.4 million in 1997 compared to $109.8
million in 1996. This increase resulted from acquiring 28 Owned Hotels and
leasing 40 Leased Hotels during the year, and revenue growth from hotels in the
Company's portfolio that benefited from renovation and repositioning programs.
Operating expenses increased to $254.9 million in 1997 from $90.5 million in
1996 due to the
16
<PAGE>
increase in the number of hotels owned and leased during 1997. Net operating
income as a percentage of total revenue increased to 19.4% in 1997 from 17.6% in
1996, reflecting increased operational efficiencies in the Company's hotel
portfolio.
Net interest expense increased to $21.0 million in 1997 from $12.3 million
in 1996. This increase was attributable to the borrowings made to finance the
acquisition of hotels during 1997, partially offset by the use of proceeds from
Common Stock offerings to repay outstanding indebtedness in 1997 and lower
average interest rates charged on the Company's borrowings in 1997 as compared
to 1996.
Minority interests of $1.4 million in 1997 were significantly higher than in
1996 due to the minority interest related to the OP Units issued in 1997. Income
taxes increased to $14.9 million in 1997 compared to $2.7 million in 1996, due
to substantially higher levels of pre-tax income in 1997. The Company's overall
effective tax rate decreased to 38.2% in 1997 from 40.0% in 1996 as a result of
lower state and local taxes.
Earnings before interest expense, income taxes, depreciation and
amortization ("EBITDA") grew to $82.5 million in 1997 from $27.6 million in
1996. This growth reflects both the increase in the number of hotels owned and
operated, and improved operating margins on the Company's overall hotel
portfolio.
During 1997 and 1996, the Company recognized extraordinary losses of $4.1
million and $2.0 million (net of tax benefits of $2.5 million and $1.3 million),
respectively, related to the write-off of unamortized loan costs in connection
with expanding the Company's credit facilities.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE YEAR ENDED DECEMBER 31, 1995
Total revenue increased to $109.8 million in 1996 from $26.4 million in
1995. The growth in revenue between 1995 and 1996 reflects the 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. The costs related to management of the third-party 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 third-party
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.
EBITDA for 1996 grew to $27.6 million from $4.7 million in 1995, reflecting
the increase in the number of hotels owned and operated.
The extraordinary loss of $2.0 million in 1996 reflects the write-off of
deferred financing fees of $3.3 million, net of a tax benefit of $1.3 million.
The financing fees written-off were unamortized fees associated with a credit
facility that 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are cash on hand, cash
generated from operations, and funds from external borrowings and debt and
equity offerings. The Company's continuing operations are
17
<PAGE>
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, debt and/or
Common Stock.
At December 31, 1997, the Company had $83.4 million in cash and cash
equivalents, an increase of $61.6 million from the balance of $21.8 million at
December 31, 1996. Net cash provided by operations increased to $59.9 million
compared to $13.4 million in 1996, mainly due to the increase in hotels owned
and leased, and operating improvements at owned hotels. The Company used $586.3
million of cash in investing activities in 1997, primarily for the acquisition
of hotels and capital expenditures at the Company's owned hotels. Net cash
provided by financing activities of $588.4 million resulted from the proceeds
from issuances of long-term debt, net of principal repayments and related
deferred financing fees, and proceeds from two Common Stock offerings in 1997.
In March 1997 and October 1997, the Company completed Common Stock offerings
of an aggregate of 11,703,722 shares. Net proceeds of $329.8 million were used
to fund certain hotel acquisitions and repay outstanding balances on the
Company's credit facilities.
In July 1997, the Company entered into a $450 million senior secured credit
facility (the "Credit Facility"), consisting of a $350 million, 5-year revolving
credit facility and a $100 million, 7-year term loan facility. The proceeds of
the Credit Facility have been and will be used to fund new acquisitions, repay
outstanding indebtedness and for general corporate purposes. Borrowings under
the Credit Facility bear interest at variable interest rates based on the
Company's compliance with certain financial ratios. The Company uses interest
rate hedge contracts to limit its interest rate exposure on a portion of its
variable-rate, long-term debt. These hedge contracts effectively reduce the
impact of changes in interest rates on the Company's operating results. As of
December 31, 1997, no borrowings were outstanding on the revolving credit
facility and $100 million was outstanding on the term loan facility.
In August 1997, the Company entered into a non-recourse facility (the
"Non-Recourse Facility") with a maximum principal amount of $100 million.
Borrowings under the Non-Recourse Facility have been used to fund hotel
acquisitions. At December 31, 1997, $52.8 million was outstanding on the
Non-Recourse Facility. In August 1997, the Company completed the offering of
$150 million aggregate principal amount of its 8 3/4% subordinated notes due
2007. The net proceeds to the Company of $144.6 million were used to repay
outstanding indebtedness under the Credit Facility.
In October 1997, the Company completed an offering of $172.5 million
aggregate principal amount of its 4.75% convertible subordinated notes due 2004.
These notes are convertible into shares of the Common Stock at the option of the
holders at $43 per share. Total net proceeds to the Company of $167.6 million
were used to fund certain hotel acquisitions and repay outstanding balances on
the Company's credit facilities.
At December 31, 1997, the Company had available $350.0 million under the
Credit Facility and $32.2 million under the Non-Recourse Facility. In January
1998, the Company used $69 million of cash and $81 million of additional
borrowings under the Credit Facility to purchase a portfolio of six hotels.
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has initiated an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using two digits rather than four to define the
applicable year. Any of the Company's programs that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system failure or miscalculations. The Company presently
believes that, with modifications to existing software and converting to new
software, the Year 2000 problem will not pose significant operational problems
for the Company's computer systems as so modified and converted. Additionally,
the Company does not expect the Year 2000 problem to have a material effect on
its financial position or results of operations. However,
18
<PAGE>
if such modifications and conversions are not completed timely, the Year 2000
problem may have a material impact on the financial position or operations of
the Company.
Capital for renovation work has been and is expected to be provided by a
combination of internally generated cash and external borrowings. Once initial
renovation programs for a hotel are completed, the Company expects to spend
approximately 4% annually of hotel revenues for ongoing capital expenditure
programs, including room and facilities refurbishments, renovations, and
furniture and equipment replacements. The Company believes that these initial
and continuing capital investments will, in conjunction with operating
improvements the Company implements after purchasing a hotel, substantially
enhance the competitive position and operating results of its hotels. During the
year ended December 31, 1997, the Company spent $32.7 million on initial
renovation and ongoing capital expenditure programs. The Company expects to
spend approximately $105.0 million during 1998 to complete initial renovation
programs and to fund ongoing capital expenditures for the Owned Hotels.
The Company believes cash generated by operations, together with existing
borrowing capacity, will be
sufficient to fund its existing working capital, ongoing capital expenditures,
and debt service requirements. In addition, the Company expects to continue to
make acquisitions of upscale, full-service hotels and hotel management
companies, and to secure additional management contracts. Also, the Company has
invested in three joint ventures during 1997. The Company expects to form
additional joint ventures and strategic alliances with institutional and private
hotel owners to invest in future acquisitions, and to secure additional fee
management arrangements. The Company believes that there will continue to be
additional investment and acquisition opportunities in 1998. The Company expects
to finance these future acquisitions and investments through a combination of
existing borrowing capacity and the issuance of OP Units and/or Common Stock.
The Company believes, however, that its future capital decisions will also be
made in response to specific acquisition and/or investment opportunities
depending upon conditions in the capital and other financial markets.
Accordingly, the Company may consider increasing its borrowing capacity or
issuing additional debt or equity securities, the proceeds of which could be
used to finance acquisitions or investments, or to refinance existing debt.
SEASONALITY
Demand in the lodging industry is affected by recurring seasonal patterns.
Demand is lower in the winter months due to decreased travel and higher in the
spring and summer months during peak travel season. Accordingly, the Company's
operations are seasonal in nature, with lower revenue, operating income and cash
flow in the first and fourth quarters and higher revenue, operating income 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K, including information
appearing under the captions "Business", "Legal Proceedings", and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause actual results,
performances or achievements of the Company to be materially different from any
future results, performances or achievements expressed or implied by such
forward-looking statements. Such factors include, among others 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.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Consolidated Financial Statements, Supplementary Data and
Financial Statement Schedules are filed as part of this Annual Report on Form
10-K:
CAPSTAR HOTEL COMPANY
<TABLE>
<S> <C>
Independent Auditors' Report........................................................... 21
Consolidated Balance Sheets as of December 31, 1997 and 1996........................... 22
Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and
1995................................................................................. 23
Consolidated Statements of Stockholders' Equity and Partners' Capital for the years
ended December 31, 1997, 1996 and 1995............................................... 24
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995................................................................................. 25
Notes to the Consolidated Financial Statements......................................... 26
Schedule III--Real Estate and Accumulated Depreciation................................. 40
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the Consolidated Financial Statements or the
Notes thereto.
20
<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, 1997 and
1996 and the related consolidated statements of operations, stockholders' equity
and partners' capital, and cash flows for each of the years in the three-year
period ended December 31, 1997, 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 financial position of CapStar
Hotel Company and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, 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 6, 1998
21
<PAGE>
CAPSTAR HOTEL COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................ $ 83,429 $ 21,784
Accounts receivable, net of allowance for doubtful accounts of $577 in 1997 and
$189 in 1996................................................................... 26,009 8,109
Deposits......................................................................... 16,173 3,167
Prepaid expenses, inventory and other............................................ 7,218 2,775
------------- -----------
Total current assets................................................................. 132,829 35,835
Property and equipment:
Land............................................................................. 125,140 58,127
Buildings........................................................................ 737,095 248,376
Furniture, fixtures and equipment................................................ 75,226 32,698
Construction-in-progress......................................................... 12,591 3,891
------------- -----------
950,052 343,092
Accumulated depreciation......................................................... (27,275) (8,641)
------------- -----------
Total property and equipment, net.................................................... 922,777 334,451
Investments in and advances to affiliates............................................ 11,970 650
Restricted cash...................................................................... 3,111 --
Intangible assets, net of accumulated amortization of $2,032 in 1997 and $802 in
1996............................................................................... 53,955 8,225
------------- -----------
$ 1,124,642 $ 379,161
------------- -----------
------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................................. $ 16,726 $ 4,125
Accrued expenses and other liabilities........................................... 40,246 10,737
Income taxes payable............................................................. 565 1,436
Long-term debt, current portion.................................................. 1,056 498
------------- -----------
Total current liabilities............................................................ 58,593 16,796
Deferred income taxes................................................................ 6,098 1,181
Long-term debt....................................................................... 491,715 199,863
------------- -----------
Total liabilities.................................................................... 556,406 217,840
------------- -----------
Minority interests................................................................... 48,824 606
Commitments and contingencies
Stockholders' Equity:
Common stock, par value $0.01 per share
Authorized-- 49,000 shares
Issued and outstanding-- 24,867 and 12,754 shares.............................. 249 128
Additional paid-in capital....................................................... 499,576 158,533
Retained earnings................................................................ 22,114 2,054
Cumulative foreign currency translation adjustment............................... (2,527) --
------------- -----------
Total stockholders' equity........................................................... 519,412 160,715
------------- -----------
$ 1,124,642 $ 379,161
------------- -----------
------------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
CAPSTAR HOTEL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Revenue:
Hotel operations:
Rooms..................................................................... $ 207,736 $ 68,498 $ 14,456
Food and beverage......................................................... 86,298 30,968 5,900
Other operating departments............................................... 15,049 5,981 1,571
Office rental, parking and other revenue...................................... 2,174 -- --
Hotel management and other fees............................................... 5,136 4,345 4,436
---------- --------- ---------
Total revenue................................................................... 316,393 109,792 26,363
---------- --------- ---------
Hotel operating expenses by department:
Rooms..................................................................... 51,075 17,509 4,190
Food and beverage......................................................... 68,036 24,589 4,924
Other operating departments............................................... 8,492 2,513 513
Office rental, parking and other operating expenses............................. 845 -- --
Undistributed operating expenses:
Administrative and general................................................ 50,332 20,448 8,078
Property operating costs.................................................. 38,437 12,586 2,624
Property taxes, insurance and other....................................... 12,558 4,565 1,310
Lease expense............................................................. 4,116 -- --
Depreciation and amortization............................................. 20,990 8,248 2,097
---------- --------- ---------
Total operating expenses........................................................ 254,881 90,458 23,736
---------- --------- ---------
Net operating income............................................................ 61,512 19,334 2,627
Interest expense, net........................................................... 21,024 12,346 2,414
---------- --------- ---------
Income before minority interests, income taxes, and extraordinary loss.......... 40,488 6,988 213
Minority interests.............................................................. (1,425) 39 18
---------- --------- ---------
Income before income taxes and extraordinary loss............................... 39,063 7,027 231
Income taxes.................................................................... 14,911 2,674 --
---------- --------- ---------
Income before extraordinary loss................................................ 24,152 4,353 231
Extraordinary loss on early extinguishment of debt, net of tax benefit of $2,508
in 1997, $1,304 in 1996, and $0 in 1995....................................... 4,092 1,956 888
---------- --------- ---------
Net income (loss)............................................................... $ 20,060 $ 2,397 $ (657)
---------- --------- ---------
---------- --------- ---------
Earnings per share:
Basic:
Income before extraordinary loss.......................................... $ 1.29 $ 0.31 --
Extraordinary loss........................................................ (0.22) (0.15) --
---------- --------- ---------
Net income................................................................ $ 1.07 $ 0.16 --
---------- --------- ---------
---------- --------- ---------
Diluted:
Income before extraordinary loss.......................................... $ 1.27 $ 0.31 --
Extraordinary loss........................................................ (0.21) (0.15) --
---------- --------- ---------
Net income................................................................ $ 1.06 $ 0.16 --
---------- --------- ---------
---------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CAPSTAR HOTEL COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN PARTNERS' CAPITAL
COMMON STOCK ADDITIONAL CURRENCY ---------------------
---------------------- PAID-IN RETAINED TRANSLATION GENERAL LIMITED
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT PARTNERS PARTNERS TOTAL
--------- ----------- ---------- --------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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)
--------- ----- ---------- --------- ----------- --------- ---------- ----------
Balance, 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 January 1,
1996 through August 19, 1996..... -- -- -- -- -- 45 298 343
--------- ----- ---------- --------- ----------- --------- ---------- ----------
Balance, August 19, 1996........... -- -- -- -- -- 2,475 47,321 49,796
Issuance of common stock........... 6,750 68 110,044 -- -- -- -- 110,112
Shares issued for partners' capital
on August 20, 1996............... 6,004 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 August 20,
1996 through December 31, 1996... -- -- -- 2,054 -- -- -- 2,054
--------- ----- ---------- --------- ----------- --------- ---------- ----------
Balance, December 31, 1996......... 12,754 128 158,533 2,054 -- -- -- 160,715
Issuances of common stock.......... 11,713 117 330,047 -- -- -- -- 330,164
Redemption of OP Units............. 400 4 10,996 -- -- -- -- 11,000
Net income for the year............ -- -- -- 20,060 -- -- -- 20,060
Cumulative foreign currency
translation adjustment........... -- -- -- -- (2,527) -- -- (2,527)
--------- ----- ---------- --------- ----------- --------- ---------- ----------
Balance, December 31, 1997......... 24,867 $ 249 $ 499,576 $ 22,114 $ (2,527) -- -- $ 519,412
--------- ----- ---------- --------- ----------- --------- ---------- ----------
--------- ----- ---------- --------- ----------- --------- ---------- ----------
</TABLE>
See accompanying notes to the consolidated financial statements.
24
<PAGE>
CAPSTAR HOTEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net income (loss)........................................................... $ 20,060 $ 2,397 $ (657)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................. 20,990 8,248 2,097
Extraordinary loss on early extinguishment of debt........................ 6,600 3,260 618
Minority interests........................................................ 1,425 (39) (18)
Changes in operating assets and liabilities:
Accounts receivable, net................................................ (17,900) (5,360) (2,749)
Deposits, prepaid expenses, inventory and other......................... (17,449) (4,011) (1,889)
Accounts payable........................................................ 12,601 1,797 2,329
Accrued expenses and other liabilities.................................. 29,509 5,711 4,626
Income taxes payable.................................................... (871) 1,436 --
Deferred income taxes................................................... 4,917 (66) --
---------- ---------- ----------
Net cash provided by operating activities..................................... 59,882 13,373 4,357
---------- ---------- ----------
Investing activities:
Purchases of property and equipment......................................... (558,265) (231,885) (109,223)
Purchases of intangible assets.............................................. (13,476) -- --
Investments in and advances to affiliates................................... (11,320) (650) --
Purchases of minority interests............................................. (87) (67) --
Change in restricted cash................................................... (3,111) 7,351 (7,351)
---------- ---------- ----------
Net cash used in investing activities......................................... (586,259) (225,251) (116,574)
---------- ---------- ----------
Financing activities:
Proceeds from long-term debt................................................ 844,192 372,778 98,058
Principal payments on long-term debt........................................ (568,828) (248,387) (23,133)
Release of (additions to) restricted deposits for hedge agreement........... -- 2,559 (2,023)
Deferred financing fees..................................................... (16,612) (10,943) (3,000)
Partners' capital contributions............................................. -- -- 50,250
Repayments from (loans to) management....................................... -- 987 (987)
Proceeds from issuances of common stock, net................................ 330,164 110,112 --
Distributions to limited partners........................................... -- (172) (116)
Distributions to minority investors......................................... (488) (104) --
---------- ---------- ----------
Net cash provided by financing activities..................................... 588,428 226,830 119,049
---------- ---------- ----------
Effect of exchange rate changes on cash and cash equivalents.................. (406) -- --
Net increase in cash and cash equivalents..................................... 61,645 14,952 6,832
Cash and cash equivalents, beginning of year.................................. 21,784 6,832 --
---------- ---------- ----------
Cash and cash equivalents, end of year........................................ $ 83,429 $ 21,784 $ 6,832
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION
CapStar Hotel Company and its subsidiaries (collectively, the "Company") was
formed pursuant to certain Formation Transactions (the "Formation Transactions")
prior to or on August 20, 1996. Prior to its August 20, 1996 initial public
offering (the "IPO"), the Company's business was conducted through its
predecessor entities, EquiStar Hotel Investors, L.P. and subsidiaries
(collectively, "EquiStar") and CapStar Management Company, L.P. ("CMC").
The principal activity of the Company is to acquire, renovate, reposition
and manage upscale, full-service hotels. The Company also leases and manages
certain other hotels. The Company owns, leases and manages hotels through its
two operating partnerships: CMC and CapStar Management Company II, L.P. ("CMC
II"). Separate wholly-owned limited liability companies or limited partnerships
directly own the hotels and leases. The owned, leased and managed hotels are
located in 29 states, the District of Columbia, the U.S. Virgin Islands and
Canada, and are operated under various franchise agreements. The following table
outlines the Company's portfolio of owned, leased and managed hotels:
<TABLE>
<CAPTION>
OWNED LEASED MANAGED
---------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
----------- --------- ----------- ----------- ----------- -----------
December 31, 1997....................................... 47 12,019 40 5,687 27 4,631
December 31, 1996....................................... 19 5,166 -- -- 28 4,619
December 31, 1995....................................... 6 2,101 -- -- 41 6,089
<CAPTION>
TOTAL
----------------------
<S> <C> <C>
HOTEL ROOMS
----- ---------
December 31, 1997....................................... 114 22,337
December 31, 1996....................................... 47 9,785
December 31, 1995....................................... 47 8,190
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
all majority-owned and controlled subsidiaries of the Company. All significant
intercompany transactions and balances have been eliminated in the consolidation
for 1997 and 1996 (subsequent to the IPO). The accounts of EquiStar and CMC have
been combined in the financial statements in 1996 (prior to the IPO) and 1995 as
these entities were under common ownership. All significant intercompany
transactions and balances were eliminated in the combination for 1996 and 1995.
Outside parties hold minority ownership interests in certain of the
Company's consolidated subsidiaries in the form of common and preferred
operating partnership units ("OP Units") in CMC and CMC II and partnership
interests in certain consolidated subsidiaries. For financial reporting
purposes, the assets, liabilities, results of operations, and cash flows of
these subsidiaries are included in the Company's consolidated financial
statements and the outside parties' interests are reflected as minority
interests.
Investments in unconsolidated joint ventures and affiliated companies in
which the Company holds a voting interest of 50% or less and exercises
significant influence are accounted for using the equity method. The Company
uses the cost method to account for its investment in entities in which it does
not have the ability to exercise significant influence.
CASH EQUIVALENTS AND RESTRICTED CASH--The Company considers all highly
liquid investments with an original maturity of three months or less to be cash
equivalents. Restricted cash represents amounts required to be maintained in
escrow under certain of the Company's credit facilities.
26
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPOSITS--Deposits primarily represent amounts escrowed during the
negotiation of potential and pending hotel acquisitions.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost, which
includes the allocated purchase price for hotel acquisitions, or at fair value
at the time of contribution for contributed property. Property and equipment
balances are depreciated using the straight-line method over lives ranging from
five to 40 years.
INTANGIBLE ASSETS--Intangible assets consist of the value of goodwill and
lease contracts purchased, deferred financing fees, and organization and
franchise costs. Goodwill represents the excess of cost over the fair value of
the net assets of acquired businesses. Intangibles are amortized on a
straight-line basis over the estimated useful lives of the underlying assets
ranging from five to 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG--LIVED ASSETS TO BE DISPOSED
OF--The carrying values of long-lived assets, which include property and
equipment and all intangibles, are evaluated periodically in relation to the
operating performance and future undiscounted cash flows of the underlying
assets. Adjustments are made if the sum of expected undiscounted future net cash
flows is less than book value. No impairment losses were recorded during 1997,
1996 or 1995.
INCOME TAXES--Prior to the Formation Transactions, 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 ("SFAS") 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.
FOREIGN CURRENCY TRANSLATION--Results of operations for the Canadian hotels
are maintained in Canadian dollars and translated using the average exchange
rates during the period. Assets and liabilities are translated to U.S. dollars
using the exchange rate in effect at the balance sheet date. Resulting
translation adjustments are reflected in stockholders' equity as a cumulative
foreign currency translation adjustment. Transaction gains and losses are
included in the results of operations as incurred.
REVENUE RECOGNITION--Revenue is earned through the operations and management
of the hotel properties and is recognized when earned. Office, retail and
parking rental is generally recognized on a straight-line basis over the terms
of the respective leases.
FINANCIAL INSTRUMENTS--From time to time the Company enters into swap and
collar agreements that are designated as, and are effective as, hedges against
the impact of interest rate fluctuation on certain of the Company's existing and
probable future long-term debt instruments. Because these agreements qualify for
hedge accounting treatment, any gains or losses are recognized as adjustments to
interest expense over the lives of the underlying debt instruments. For hedge
agreements that are terminated early or that are associated with anticipated
future debt instruments, gains or losses are deferred until those debt
instruments are entered into. If the Company determines it is no longer probable
that the Company will enter into an anticipated debt instrument, any related
deferred gains or losses are recognized in the current period.
27
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income,"
which requires an enterprise to display comprehensive income and its components
in a financial statement to be included in an enterprise's full set of financial
statements. Comprehensive income represents a measure of all changes in equity
of an enterprise that result from recognized transactions and other economic
events for the period other than transactions with owners in their capacity as
owners. Comprehensive income includes net income and such items as foreign
currency items and certain unrealized gains and losses. This standard is
effective for the Company's fiscal year 1998 and requires prior years'
comparative financial statements to be reclassified to reflect the provisions of
this standard.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which requires a public entity to
report selected information about operating segments in financial reports issued
to shareholders. It also establishes standards for related disclosures about
product and services, geographic areas and major customers. This standard is
also effective for the Company's 1998 fiscal year. The Company is currently in
the process of evaluating the effect this new standard will have on its
financial statement presentation and disclosures and the required information,
if any, will be reflected in the Company's 1998 financial statements.
RECLASSIFICATIONS--Certain 1996 and 1995 amounts have been reclassified to
conform to 1997 presentation.
3. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company has made investments in certain unconsolidated corporate joint
ventures and affiliated companies. The Company's investment in and advances to
these corporate joint ventures and affiliated companies are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
OWNERSHIP INTEREST 1997 1996
--------------------- ------------ ---------
<S> <C> <C> <C>
CapStar Hallmark Company L.L.C...................... 50% $ 3,441 $ --
CapStar Wyandotte Company L.L.C..................... 50% 3,023 --
HGI Holdings, L.L.C................................. 1,895 --
Boystar Ventures, L.P............................... 9% 1,175 --
Other............................................... 2,436 650
------------ ---------
$ 11,970 $ 650
------------ ---------
------------ ---------
</TABLE>
28
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. INVESTMENTS IN AND ADVANCES TO AFFILIATES (CONTINUED)
Combined summarized financial information of the Company's unconsolidated
corporate joint ventures and affiliated companies at December 31, 1997 is as
follows:
<TABLE>
<S> <C>
Balance Sheet data:
Current assets..................................................... $ 2,964
Non-current assets................................................. 41,333
Current liabilities................................................ 1,788
Non-current liabilities............................................ 168
---------
---------
Operating data:
Revenue............................................................ $ 10,140
Net income......................................................... 1,425
---------
---------
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Goodwill................................................................. $ 27,847 $ --
Lease contracts.......................................................... 6,576 --
Deferred financing fees.................................................. 16,704 7,220
Other.................................................................... 4,860 1,807
--------- ---------
55,987 9,027
Less accumulated amortization............................................ (2,032) (802)
--------- ---------
$ 53,955 $ 8,225
--------- ---------
--------- ---------
</TABLE>
On July 1, 1997, September 30, 1996, and December 21, 1995, the Company
recognized extraordinary losses of $4,092, $1,956 and $888 (net of tax benefits
of $2,508, $1,304 and $0), respectively, due to the write-off of unamortized
deferred financing fees in conjunction with refinancing certain credit
facilities.
29
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
1997 1996
---------- ----------
Credit Facility....................................................... $ 100,000 $ --
Convertible Notes..................................................... 172,500 --
Subordinated Notes.................................................... 149,805 --
Non-Recourse Facility................................................. 52,750 --
Mortgage Debt......................................................... 15,084 --
Bankers Trust Credit Facility......................................... -- 149,000
Bankers Trust Subordinated Debt....................................... -- 50,000
Other................................................................. 2,632 1,361
---------- ----------
492,771 200,361
Less current portion.................................................. (1,056) (498)
---------- ----------
$ 491,715 $ 199,863
---------- ----------
---------- ----------
</TABLE>
CREDIT FACILITY--On July 1, 1997, the Company entered into a $450,000 senior
secured credit facility (the "Credit Facility") with a syndicate of lenders led
by Lehman Brothers Holdings Inc. ("Lehman Brothers"). The Credit Facility is
structured as a $350,000, 5-year revolving credit facility and a $100,000,
7-year term loan facility and is secured by substantially all of the Company's
assets, except those assets securing the Non-Recourse Facility (defined below)
and the mortgage debt. 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 repay outstanding indebtedness under certain
existing credit facilities.
Borrowings under the Credit Facility bear interest, at the Company's option,
at a rate equal to the lender's prime rate plus a spread of between 0.5% and
1.125% or one, two, three or nine month LIBOR plus a spread of between 1.5% and
2.125%. The interest rate spread is determined based upon the Company's
compliance with certain financial ratios. At December 31, 1997, the interest
rate on the Credit Facility was 7.6%.
The Credit Facility includes a commitment fee payable quarterly and
calculated using an annual rate of 0.25% times the average unutilized balance.
During 1997, the Company incurred $339 of commitment fees for the Credit
Facility, which are included in interest expense.
The Credit Facility contains certain covenants, including maintenance of
certain financial ratios, restrictions on payments of dividends, certain
reporting requirements and other customary restrictions. Additionally, the
Company's ability to borrow under the Credit Facility is subject to certain of
these financial covenants that are calculated with reference to the Company's
cash flow from operations. As of December 31, 1997, the entire $350,000
unutilized balance of the Credit Facility was available to the Company for
borrowing.
CONVERTIBLE NOTES--On October 9, 1997, the Company completed the offering of
$172,500 aggregate principal amount of its 4.75% convertible subordinated notes
due 2004 (the "Convertible Notes"), generating net proceeds to the Company of
$167,581. The proceeds were used to repay outstanding
30
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. LONG-TERM DEBT (CONTINUED)
indebtedness under the Credit Facility and to finance certain hotel
acquisitions. The Convertible Notes are unsecured obligations of the Company and
provide for semi-annual payments of interest in April and October, commencing in
April 1998.
SUBORDINATED NOTES--On August 19, 1997, the Company completed the offering
of $150,000 aggregate principal amount (issue price of $149,799, net of
discount) of its 8.75% senior subordinated notes due 2007 (the "Subordinated
Notes"), generating net proceeds to the Company of $144,620. The proceeds were
used to repay outstanding indebtedness under the Credit Facility. The indenture
pursuant to which the Subordinated Notes were issued contains certain covenants,
including maintenance of certain financial ratios, reporting requirements, and
other customary restrictions. The Subordinated Notes are unsecured obligations
of the Company and provide for semi-annual payments of interest on February 15
and August 15, commencing on February 15, 1998.
NON-RECOURSE FACILITY--On August 12, 1997, the Company and Lehman Brothers
entered into a $100,000 non-recourse facility (the "Non-Recourse Facility"). The
Non-Recourse Facility has an 18-month initial term that can be extended an
additional 12 months, at the Company's option, subject to payment of additional
fees and compliance with certain financial ratios. The facility contains certain
covenants, including maintenance of certain financial ratios, reporting
requirements, and other customary restrictions. The Non-Recourse Facility is
secured by three hotels owned by the Company and bears interest at a rate of
between 1.75% and 2.70% over 30-day LIBOR, based upon compliance with certain
ratios. At December 31, 1997, the interest rate on the Non-Recourse Facility was
8.3%. At December 31, 1997, $32,166 of the Non-Recourse Facility was available
to the Company for borrowing.
MORTGAGE DEBT--On January 31, 1997, the Company assumed a $15,628 mortgage
with an interest rate of 9.35% in connection with a hotel acquisition. This note
matures in 2001 and requires monthly principal and interest payments.
BANKERS TRUST DEBT--On September 30, 1996, the Company entered into a
$225,000 revolving credit facility with a group of lenders led by Bankers Trust
Company ("Bankers Trust"). This senior secured revolving credit facility (the
"Bankers Trust Credit Facility") provided for acquisition loans, working and
renovation capital, and letters of credit and had an initial term of three
years. The initial proceeds were used to refinance virtually all of the
Company's existing indebtedness and to fund hotel renovations. Interest on the
Bankers Trust Credit Facility was payable at the Company's election of certain
base rates plus fixed spreads. The interest rate on the Bankers Trust Credit
Facility at December 31, 1996, was 7.6%.
On December 13, 1996, the Company entered into a $50,000 unsecured senior
subordinated credit facility with Bankers Trust as agent and arranger (the
"Bankers Trust Subordinated Debt"). The net proceeds from the Bankers Trust
Subordinated Debt borrowing were used to acquire certain hotels and for general
corporate purposes. Interest on the Bankers Trust Subordinated Debt was
calculated at a base rate plus a fixed spread. The interest rate at December 31,
1996, was 9.6%.
In conjunction with entering into the Credit Facility on July 1, 1997, the
Company terminated both the Bankers Trust Credit Facility and the Bankers Trust
Subordinated Debt (see Note 4).
HEDGE AGREEMENTS--On February 18, 1997, the Company entered into a $40,000
swap agreement and a $40,000 collar agreement with Lehman Brothers Special
Financing, Inc. and Canadian Imperial Bank of
31
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. LONG-TERM DEBT (CONTINUED)
Commerce, respectively, in order to hedge against the impact future interest
rate fluctuations may have on the Company's existing floating rate debt
instruments. The swap agreement effectively fixes one- month LIBOR at 5.9% while
the collar agreement creates a one-month LIBOR floor of 5.1% and ceiling of
7.5%. During the period ended December 31, 1997 the Company made payments
totaling $88 relating to these hedges. This amount is included in interest
expense. Both hedge agreements terminate in September 1999.
Additionally, in anticipation of the August 1997 Subordinated Notes
offering, the Company entered into separate hedge transactions during June and
July 1997. Upon completion of the Subordinated Notes offering, the Company
terminated the underlying swap agreements, resulting in the net payment to the
Company of $836. This amount was deferred and is being recognized as a reduction
to interest expense over the life of the underlying debt. As a result, the
effective interest rate on the Subordinated Notes has been reduced to 8.69%.
In August 1995, the Company entered into an agreement to hedge against the
impact future interest rate fluctuations may have on the Company's various
floating rate debt instruments. The agreement was terminated in May 1996 and the
Company received a cash payment of $536. The amount was deferred for financial
statement purposes. The deferred gain relating to this agreement is $200 and
$511 at December 31, 1997 and 1996, respectively.
FUTURE MATURITIES--Aggregate future maturities of the above obligations are
as follows:
<TABLE>
<S> <C>
1998.............................................................. $ 1,056
1999.............................................................. 54,466
2000.............................................................. 1,826
2001.............................................................. 13,118
2002.............................................................. --
Thereafter........................................................ 422,305
---------
$ 492,771
---------
---------
</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.
6. INCOME TAXES
The Company's income taxes were allocated as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Taxes on income before extraordinary loss................................ $ 14,911 $ 2,674
Tax benefit on extraordinary loss........................................ (2,508) (1,304)
--------- ---------
$ 12,403 $ 1,370
--------- ---------
--------- ---------
</TABLE>
The Company's 1996 income taxes 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. Income before income taxes and extraordinary
loss for the period August 20, 1996 through December 31, 1996 was $6,684.
32
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. INCOME TAXES (CONTINUED)
The Company's effective income tax rate differs from the federal statutory
income tax rate as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Statutory tax rate.............................................................. 35.0% 34.0%
State and local taxes........................................................... 2.6 6.0
Other........................................................................... 0.6 --
--- ---
38.2% 40.0%
--- ---
--- ---
</TABLE>
The components of income tax expense related to income before extraordinary
loss are as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current:
Federal................................................................ $ 7,542 $ 2,118
State.................................................................. 899 622
Foreign................................................................ 1,553 --
--------- ---------
9,994 2,740
Deferred:
Federal................................................................ 4,243 (51)
State.................................................................. 505 (15)
Foreign................................................................ 169 --
--------- ---------
4,917 (66)
--------- ---------
$ 14,911 $ 2,674
--------- ---------
--------- ---------
</TABLE>
The tax effects of the principal temporary differences that give rise to the
Company's net deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
<S> <C> <C>
1997 1996
--------- ---------
Accelerated depreciation....................................................................... $ 5,788 $ 1,515
Allowance for doubtful accounts................................................................ (219) (75)
Accrued vacation............................................................................... (385) (252)
Accrued expenses............................................................................... 570 --
Other.......................................................................................... 344 (7)
--------- ---------
Net deferred tax liability..................................................................... $ 6,098 $ 1,181
--------- ---------
--------- ---------
</TABLE>
There is no valuation allowance for deferred tax assets as of December 31,
1997 or 1996 as management believes it is more likely than not that these
deferred tax assets will be fully realized.
7. STOCKHOLDERS' EQUITY AND MINORITY INTERESTS
COMMON STOCK TRANSACTIONS--In connection with the Formation Transactions,
the Company issued 6,004,321 shares of common stock to the partners of EquiStar
and CMC.
33
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. STOCKHOLDERS' EQUITY AND MINORITY INTERESTS (CONTINUED)
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 all 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.
On March 12, 1997, the Company completed a follow-on offering of 5,750,000
shares of common stock at a price of $24.75 per share. After underwriting
discounts, commissions and other offering expenses, net proceeds to the Company
were $134,051, and were used to fund certain hotel acquisitions and repay a
portion of the Company's outstanding indebtedness.
On October 9, 1997, the Company completed an additional follow-on offering
of 5,953,722 shares of common stock at $34.625 per share. Concurrent with the
common stock offering, the Company also completed the Convertible Notes
offering. The notes are convertible into shares of the Company's common stock,
any time after 90 days following issuance, at the option of the holders at $43
per share. After underwriting discounts, commissions and other offering
expenses, net proceeds to the Company from the Convertible Notes offering and
the common stock offering were $167,581 and $195,766, respectively. The proceeds
were used to fund certain acquisitions and repay certain indebtedness.
In May 1997, the Company implemented a stock purchase plan that allows
eligible employees to purchase the Company's common stock at a discount to
market value. The Company has reserved 500,000 shares of common stock for
issuance under this plan. Through December 31, 1997, the Company has issued
8,927 shares in conjunction with the plan.
PREFERRED STOCK--At the discretion of the Board of Directors, the Company
may issue up to 25,000,000 shares of preferred stock having such rights,
preferences and privileges as the Board of Directors so designates. The rights
of the holders of the Company's common stock will be subject to, and may be
adversely affected by, the rights of the holders of any shares of such preferred
stock. No shares of preferred stock were issued or outstanding as of December
31, 1997 and 1996.
OP UNITS--During 1997, the Company issued 1,483,759 common OP Units and
392,157 preferred OP Units to partially finance the purchases of both certain
hotels and lease contracts on hotels. The preferred OP Units pay a fixed annual
return of 6.5% and are entitled to a liquidation preference of $25.50 per
preferred OP Unit; the total return paid on these units in 1997 was $488. All
net income and capital proceeds earned by the operating partnerships, after
payment of the annual preferred return and, if applicable, the liquidation
preference, is shared by the holders of the common OP Units in proportion to the
number of common OP Units in the relevant operating partnership owned by each
such holder. Each common OP Unit is redeemable by the holder for one share of
the Company's common stock (or, at the Company's option, for cash in an amount
equal to the market value of a share of the common stock). In addition, the
preferred OP Units may be redeemed by CMC at a price of $25.50 per preferred OP
Unit (or, at the Company's option, for a number of shares of common stock having
a value equal to such redemption price) at any time after April 1, 2000 or by
the holders of the preferred OP Units at a price of $25.50 per preferred OP Unit
(in cash or, at the holder's option, for a number of shares of common stock
having a value equal to the redemption price) at any time after April 1, 2004.
During 1997, 400,000 common OP Units, valued at $11,000, were redeemed.
34
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. EARNINGS PER SHARE
Effective December 31, 1997, the Company adopted the provisions of SFAS No.
128 "Earnings Per Share." SFAS No. 128 supersedes APB No. 15 and specifies
computation, presentation and disclosure requirements for earnings per share
("EPS") and requires restatement of prior years' comparative EPS amounts. The
following is a reconciliation of the numerators and denominators of the basic
and diluted EPS computations for income before extraordinary loss:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 PERIOD ENDED DECEMBER 31, 1996
---------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ----------- ------------- ------------- -----------
BASIC EPS................................... $ 24,152 18,784,763 $ 1.29 $ 4,010 12,754,321 $ 0.31
EFFECT OF DILUTIVE SECURITIES
Stock options............................... -- 188,900 -- --
OP Units.................................... 368 380,433 -- --
------------ ------------- ----- ------ ------------- -----
DILUTED EPS................................. $ 24,520 19,354,096 $ 1.27 $ 4,010 12,754,321 $ 0.31
------------ ------------- ----- ------ ------------- -----
------------ ------------- ----- ------ ------------- -----
</TABLE>
The effects of certain OP Units and convertible debt were not included in
the computation of diluted EPS as their effect was anti-dilutive.
EPS for 1996 has 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. EPS is not presented for periods
prior to the IPO because the Company's predecessor entities were partnerships.
9. 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 $943,
$824 and $1,104 during 1997, 1996 and 1995, respectively. At December 31, 1997,
1996 and 1995, the amount due from these properties was $798, $304 and $237,
respectively. Management believes these contracts are at prevailing market
rates.
Of the $150,000 aggregate principal amount of Subordinated Notes sold by the
Company in August 1997, $50,000 principal amount were sold at a price of 97.866%
per note to Oak Hill Securities Fund, L.P. ("OHSF"). The investment advisor to
OHSF is Oak Hill Advisors, Inc., one of the principal stockholders of which is a
director of the Company. The Subordinated Notes purchased by OHSF are identical
to those purchased by third parties, including voting rights.
OHSF was also a member of the syndicate of lenders of the Bankers Trust
Subordinated Debt. The Company borrowed an aggregate of $25,000 from OSHF at
rates that the Company believes were prevailing market rates.
In April 1997, the Company acquired two properties for an aggregate purchase
price of $10,128 from two partnerships in which certain members of management
owned beneficial interests. The purchase price for these hotels was determined
through arm's-length negotiations between the Company and representatives of the
holders of the majority of the beneficial interest in the partnerships. Those
representatives were not affiliated with the Company.
On March 8, 1996, the Company acquired a hotel for a purchase price of
$12,000 from a partnership whose general partner was wholly-owned by certain
members of the Company's management. Directly or
35
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. RELATED-PARTY TRANSACTIONS (CONTINUED)
indirectly, these members of management owned a 9.7% beneficial interest in the
partnership and received $806 of the net sale proceeds paid to the partnership.
The purchase price for this hotel was determined through arm's-length
negotiations between the Company and representatives of the holders of the
majority of the beneficial interests in the partnership. Those representatives
were not affiliated with the Company.
10. STOCK-BASED COMPENSATION
On August 20, 1996, the Company adopted an equity incentive plan (the
"Equity Incentive Plan"). Under the Equity Incentive Plan, the Company is
authorized to issue and award up to 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 options granted lapse
ten years from the date of grant. Stock option activity for 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OPTION
OF SHARES PRICE
---------- ---------
<S> <C> <C>
Balance, August 20, 1996................................................ -- --
Granted................................................................. 764,841 $ 18.00
Exercised............................................................... -- --
Forfeited............................................................... -- --
---------- ---------
Balance, December 31, 1996.............................................. 764,841 $ 18.00
Granted................................................................. 855,050 $ 33.11
Exercised............................................................... (235) $ 18.00
Forfeited............................................................... (18,250) $ 18.00
---------- ---------
Balance, December 31, 1997.............................................. 1,601,406 $ 26.28
---------- ---------
---------- ---------
Shares exercisable at December 31, 1997................................. 291,116 $ 18.00
---------- ---------
---------- ---------
</TABLE>
36
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. STOCK-BASED COMPENSATION (CONTINUED)
The Company has adopted the disclosure-only provisions of SFAS 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.
Pro forma information regarding net income and EPS is required by SFAS No.
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted average assumptions for 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Risk-free interest rate............................................ 5.81% 5.96%
Dividend yield..................................................... -- --
Volatility factor.................................................. 0.26 0.25
Weighted average expected life..................................... 3.72 years 3.11 years
</TABLE>
The Company's pro forma net income and diluted EPS as if the fair value
method had been applied were $18,273 and $0.96 and $2,111 and $0.14 for 1997 and
1996, respectively. The effects of applying SFAS No. 123 for disclosing
compensation costs may not be representative of the effects on reported net
income and EPS for future years.
11. COMMITMENTS AND CONTINGENCIES
The Company leases certain hotels under non-cancelable operating leases with
initial terms ranging from 10 to 15 years, expiring through 2012. The Company
also leases corporate office space and land at certain hotels. Future minimum
lease payments required under these operating leases as of December 31, 1997
were as follows:
<TABLE>
<S> <C>
1998.............................................................................. $ 20,993
1999.............................................................................. 21,135
2000.............................................................................. 21,061
2001.............................................................................. 21,081
2002.............................................................................. 21,108
Thereafter........................................................................ 205,474
---------
$ 310,852
---------
---------
</TABLE>
In connection with the hotel leases, the Company has guaranteed certain
lease obligations of its subsidiaries and affiliates. The Company was
contingently liable for lease guarantees on 38 of the hotel leases aggregating
up to a maximum of approximately $20 million at December 31, 1997. In addition,
two other hotel leases are secured by the Company's pledges of its interests in
the unconsolidated affiliate companies that own those leased hotels. The Company
knows of no event of default that would require it to satisfy these guarantees
or pledges of security interests.
The Company also leases office equipment under non-cancelable operating
leases. These amounts are insignificant to the financial statements.
37
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases certain office and retail space to outside parties under
non-cancelable operating leases with initial terms expiring from 1998 through
2007. Future minimum rental receipts under these operating leases as of December
31, 1997 were as follows:
<TABLE>
<S> <C>
1998............................................................... $ 3,587
1999............................................................... 3,556
2000............................................................... 2,852
2001............................................................... 2,188
2002............................................................... 1,949
Thereafter......................................................... 4,293
---------
$ 18,425
---------
---------
</TABLE>
In the course of the Company's normal business activities, various lawsuits,
claims and proceedings have been or may be instituted or asserted against the
Company. Based on currently available facts, management believes that the
disposition of matters that are pending or asserted will not have a material
adverse effect on the consolidated financial position, results of operations or
liquidity of the Company.
12. ACQUISITIONS
During 1997, the Company acquired 28 hotels, containing 6,853 rooms, for a
total purchase price of $545,700 using operating cash and borrowings on the
Company's credit facilities. In November 1997, the Company acquired
substantially all of the assets of Winston Hospitality, Inc. ("Winston") for a
purchase price of $34,000, including $24,000 of OP Units. Winston leased 38 and
managed 28 of the operating hotels of Winston Hotels, Inc., a real estate
investment trust. The acquisition of Winston has been accounted for as a
purchase and, accordingly, the operating results of Winston have been included
in the Company's consolidated financial statements since the date of
acquisition. The excess of the aggregate purchase price over the fair market
value of net identifiable assets acquired was approximately $27,847 and is being
amortized over 40 years.
The following unaudited pro forma summary presents information as if all 47
hotels owned at December 31, 1997 and Winston had been acquired at the beginning
of the periods presented. 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>
1997 1996
---------- ----------
<S> <C> <C>
Total revenue......................................................... $ 495,061 $ 452,267
Net income before extraordinary loss.................................. 25,656 15,276
Net income............................................................ 21,564 13,320
Diluted EPS........................................................... $ 0.86 $ 0.54
---------- ----------
---------- ----------
</TABLE>
38
<PAGE>
CAPSTAR HOTEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the Company's quarterly results of operations:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------- ------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue....................... $ 48,108 $ 73,711 $ 90,040 $ 104,534 $ 18,033 $ 28,223 $ 30,872 $ 32,664
Total operating expenses............ 40,574 55,809 69,822 88,676 15,887 23,742 24,018 26,811
Net operating income................ 7,534 17,902 20,218 15,858 2,146 4,481 6,854 5,853
Income (loss) before extraordinary
loss.............................. 1,940 8,148 8,077 5,987 (642) 48 2,575 2,372
Net income (loss)................... 1,940 8,148 3,985 5,987 (642) 48 619 2,372
Diluted earnings (loss) per share... 0.14 0.43 0.21 0.25 -- -- (0.03) 0.19
--------- --------- --------- ---------- --------- --------- --------- ---------
--------- --------- --------- ---------- --------- --------- --------- ---------
</TABLE>
14. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash paid for interest and income taxes:
Interest, net of capitalized interest of $1,393, $461 and $67, respectively....... $ 14,782 $ 11,644 $ 2,316
Income taxes...................................................................... 7,606 807 --
--------- --------- ---------
--------- --------- ---------
Non-cash investing and financing activities:
Additions to equipment through capital leases..................................... $ 40 $ 324 $ 721
Long-term debt assumed in purchase of property and equipment...................... 16,478 -- --
OP Units issued in purchase of property and equipment............................. 32,264 -- --
OP Units issued in purchase of intangible assets.................................. 24,000 -- --
Redemption of OP Units............................................................ 11,000 -- --
Deferred financing fees not yet paid.............................................. 528 -- 596
Issuance of common stock for partners' capital.................................... -- 49,796 --
Prepaid expenses and property contributed by limited partner...................... -- -- 148
--------- --------- ---------
--------- --------- ---------
</TABLE>
15. SUBSEQUENT EVENTS
On January 6, 1998, the Company completed the acquisition of a portfolio of
six upscale, full-service hotels from certain affiliates of Medallion Hotels,
Inc. for a purchase price of $150,000. The acquisition was funded using existing
cash and borrowings from the Credit Facility.
The Company has entered into a contract to acquire the Sheraton Fisherman's
Wharf, a 524-room hotel located in San Francisco, for a purchase price of
$84,000. The acquisition will be funded using existing cash and borrowings from
the Credit Facility.
39
<PAGE>
CAPSTAR HOTEL COMPANY
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS SUBSEQUENT GROSS AMOUNT AT END
INITIAL COST TO
COMPANY TO ACQUISITION OF YEAR
-------------------- ---------------------- --------------------
BUILDING BUILDING BUILDING
AND AND AND
ENCUM- IMPROVE- IMPROVE- IMPROVE-
DESCRIPTION BRANCES LAND MENTS LAND MENTS LAND MENTS
- ---------------------------------------- ----------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Properties:
Salt Lake Airport Hilton, UT............ (1) $ 770 $ 12,828 $ -- $ 2,436 $ 770 $ 15,264
Radisson Hotel, Schaumburg, IL.......... (1) 1,080 5,131 -- 1,570 1,080 6,701
Sheraton Hotel, Colorado Springs, CO.... (1) 1,071 14,592 1 2,723 1,072 17,315
Hilton Hotel, Bellevue, WA.............. (1) 5,211 6,766 -- 1,364 5,211 8,130
Marriott Hotel, Somerset, NJ............ (1) 1,978 23,001 -- 2,728 1,978 25,729
Westin Atlanta Airport, Atlanta, GA..... (1) 2,650 15,926 (300) 8,240 2,350 24,166
Sheraton Hotel, Charlotte, NC........... (1) 4,700 11,057 -- 3,079 4,700 14,136
Radisson Hotel Southwest, Cleveland,
OH.................................... (1) 1,330 6,353 -- 3,242 1,330 9,595
Orange County Airport Hilton, Irvine,
CA.................................... (1) 9,990 7,993 -- 2,532 9,990 10,525
The Latham Hotel, Washington, DC........ (1) 6,500 5,320 -- 1,172 6,500 6,492
Hilton Hotel, Arlington, TX............. (1) 1,836 14,689 78 2,546 1,914 17,235
Hilton Hotel, Arlington, VA............. (1) 4,000 15,069 -- 1,745 4,000 16,814
Southwest Hilton, Houston, TX........... (1) 2,300 15,665 -- 850 2,300 16,515
Embassy Suites, Englewood, CO........... (1) 2,500 20,700 -- 1,685 2,500 22,385
Holiday Inn, Colorado Springs, CO....... (1) 1,600 4,232 -- 428 1,600 4,660
Embassy Row Hilton, Washington, DC...... (1) 2,200 13,247 -- 1,588 2,200 14,835
Hilton Hotel & Towers, Lafayette, LA.... (1) 1,700 16,062 -- 687 1,700 16,749
Hilton Hotel, Sacramento, CA............ (1) 4,000 16,013 -- 1,208 4,000 17,221
Santa Barbara Inn, Santa Barbara, CA.... (1) 2,600 5,141 -- 864 2,600 6,005
San Pedro Hilton, San Pedro, CA......... (1) 640 6,047 -- 1,188 640 7,235
Doubletree Hotel, Albuquerque, NM....... (1) 2,700 15,075 -- 202 2,700 15,277
Westchase Hilton & Towers, Houston,
TX.................................... 15,084 3,000 23,991 -- 978 3,000 24,969
Four Points Hotel, Cherry Hill, NJ...... (1) 1,700 4,178 -- 1,179 1,700 5,357
Sheraton Great Valley Inn, Frazer, PA... (1) 2,150 11,653 -- 133 2,150 11,786
Holiday Inn Calgary Airport, Calgary,
Alberta Canada........................ (1) 751 5,011 -- 423 751 5,434
Sheraton Hotel Dallas, Dallas, TX....... (1) 1,300 17,268 -- 255 1,300 17,523
Radisson Hotel Dallas, Dallas, TX....... (1) 1,800 17,580 -- 268 1,800 17,848
Sheraton Hotel Guildford, Surrey, BC,
Canada................................ (1) 2,366 24,008 -- 164 2,366 24,172
Doubletree Guest Suites, Indianapolis,
IN.................................... (1) 1,000 8,242 -- 131 1,000 8,373
Ramada Vancouver Centre, Vancouver, BC,
Canada................................ (1) 4,400 7,840 -- 137 4,400 7,977
Holiday Inn Sports Complex, Kansas City,
MO.................................... (1) 420 4,742 -- 505 420 5,247
Holiday Inn Tinton Falls, Tinton Falls,
NJ.................................... (1) 1,400 3,230 -- 455 1,400 3,685
Washington National Airport Hilton,
Arlington, VA......................... (1) 5,800 29,879 -- 407 5,800 30,286
Doubletree Resort Hotel, Cathedral City,
CA.................................... (1) 1,604 16,141 -- 348 1,604 16,489
Radisson Hotel & Suites, Chicago, IL.... (1) 4,870 39,175 -- 430 4,870 39,605
<CAPTION>
ACCUM-
ULATED
DEPRECIA- YEAR OF DATE
DESCRIPTION TION CONSTRUCTION ACQUIRED
- ---------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Properties:
Salt Lake Airport Hilton, UT............ $ 985 1980 3/3/95
Radisson Hotel, Schaumburg, IL.......... 385 1979 6/30/95
Sheraton Hotel, Colorado Springs, CO.... 1,007 1974 6/30/95
Hilton Hotel, Bellevue, WA.............. 445 1979 8/4/95
Marriott Hotel, Somerset, NJ............ 1,334 1978 10/3/95
Westin Atlanta Airport, Atlanta, GA..... 1,202 1982 11/15/95
Sheraton Hotel, Charlotte, NC........... 637 1985 2/2/96
Radisson Hotel Southwest, Cleveland,
OH.................................... 390 1978 2/16/96
Orange County Airport Hilton, Irvine,
CA.................................... 417 1976 2/22/96
The Latham Hotel, Washington, DC........ 277 1981 3/8/96
Hilton Hotel, Arlington, TX............. 682 1983 4/17/96
Hilton Hotel, Arlington, VA............. 526 1990 8/23/96
Southwest Hilton, Houston, TX........... 465 1979 10/31/96
Embassy Suites, Englewood, CO........... 602 1986 12/12/96
Holiday Inn, Colorado Springs, CO....... 110 1974 12/17/96
Embassy Row Hilton, Washington, DC...... 336 1969 12/17/96
Hilton Hotel & Towers, Lafayette, LA.... 404 1981 12/17/96
Hilton Hotel, Sacramento, CA............ 415 1983 12/17/96
Santa Barbara Inn, Santa Barbara, CA.... 135 1959 12/17/96
San Pedro Hilton, San Pedro, CA......... 153 1989 1/28/97
Doubletree Hotel, Albuquerque, NM....... 346 1975 1/31/97
Westchase Hilton & Towers, Houston,
TX.................................... 564 1980 1/31/97
Four Points Hotel, Cherry Hill, NJ...... 97 1991 3/20/97
Sheraton Great Valley Inn, Frazer, PA... 220 1971 3/27/97
Holiday Inn Calgary Airport, Calgary,
Alberta Canada........................ 101 1981 4/1/97
Sheraton Hotel Dallas, Dallas, TX....... 326 1974 4/1/97
Radisson Hotel Dallas, Dallas, TX....... 334 1972 4/1/97
Sheraton Hotel Guildford, Surrey, BC,
Canada................................ 452 1992 4/1/97
Doubletree Guest Suites, Indianapolis,
IN.................................... 156 1987 4/1/97
Ramada Vancouver Centre, Vancouver, BC,
Canada................................ 148 1968 4/1/97
Holiday Inn Sports Complex, Kansas City,
MO.................................... 85 1975 4/30/97
Holiday Inn Tinton Falls, Tinton Falls,
NJ.................................... 60 1976 4/30/97
Washington National Airport Hilton,
Arlington, VA......................... 374 1974 7/1/97
Doubletree Resort Hotel, Cathedral City,
CA.................................... 203 1985 7/1/97
Radisson Hotel & Suites, Chicago, IL.... 491 1971 7/15/97
</TABLE>
40
<PAGE>
CAPSTAR HOTEL COMPANY
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS SUBSEQUENT GROSS AMOUNT AT END
INITIAL COST TO
COMPANY TO ACQUISITION OF YEAR
-------------------- ---------------------- --------------------
BUILDING BUILDING BUILDING
AND AND AND
ENCUM- IMPROVE- IMPROVE- IMPROVE-
DESCRIPTION BRANCES LAND MENTS LAND MENTS LAND MENTS
- ---------------------------------------- ----------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Georgetown Inn, Washington, DC.......... (1) 6,100 7,103 -- 89 6,100 7,192
Embassy Suites Center City,
Philadelphia, PA...................... (2) 5,500 26,763 -- 355 5,500 27,118
Doubletree Hotel Austin, Austin, TX..... (2) 2,975 25,678 -- 338 2,975 26,016
Radisson Plaza Hotel, Lexington, KY..... (2) 1,100 30,375 -- 2,542 1,100 32,917
Jekyll Inn, Jekyll Island, GA........... (1) -- 7,803 -- 878 -- 8,681
Holiday Inn Metrotown, Burnaby, BC,
Canada................................ (1) 1,115 5,303 -- 252 1,115 5,555
Embassy Suites International Airport,
Tucson, AZ............................ (1) 1,640 10,444 -- 116 1,640 10,560
Governor Morris Hotel, Morristown, NJ... (1) 2,500 19,128 -- 86 2,500 19,214
Doubletree Hotel Bradley International
Airport, Windsor Locks, CT............ (1) 1,013 10,228 1 43 1,014 10,271
Sheraton Mesa Hotel, Mesa, AZ........... (1) 1,850 16,938 -- (12) 1,850 16,926
Metro Airport Hilton & Suites, Detroit,
MI.................................... (1) 1,750 12,639 -- 1 1,750 12,640
Marriott Hotel, Los Angeles, CA......... (1) 5,900 48,250 -- 20 5,900 48,270
$ 125,360 $ 684,497 $ (220) $ 52,598 $ 125,140 $ 737,095
<CAPTION>
ACCUM-
ULATED
DEPRECIA- YEAR OF DATE
DESCRIPTION TION CONSTRUCTION ACQUIRED
- ---------------------------------------- ----------- ------------- ---------
<S> <C> <C> <C>
Georgetown Inn, Washington, DC.......... 90 1962 7/15/97
Embassy Suites Center City,
Philadelphia, PA...................... 279 1963 8/12/97
Doubletree Hotel Austin, Austin, TX..... 268 1984 8/14/97
Radisson Plaza Hotel, Lexington, KY..... 262 1982 8/14/97
Jekyll Inn, Jekyll Island, GA........... 67 1971 8/20/97
Holiday Inn Metrotown, Burnaby, BC,
Canada................................ 46 1989 8/22/97
Embassy Suites International Airport,
Tucson, AZ............................ 44 1982 10/23/97
Governor Morris Hotel, Morristown, NJ... 40 1962 11/20/97
Doubletree Hotel Bradley International
Airport, Windsor Locks, CT............ 23 1985 11/24/97
Sheraton Mesa Hotel, Mesa, AZ........... 35 1985 12/5/97
Metro Airport Hilton & Suites, Detroit,
MI.................................... -- 1989 12/16/97
Marriott Hotel, Los Angeles, CA......... -- 1983 12/18/97
$ 16,018
</TABLE>
- ------------------------
(1) These properties secure the Credit Facility which, as of December 31, 1997,
had an outstanding balance of $100,000.
(2) These properties secure the Non-Recourse Facility which, as of December 31,
1997, had an outstanding balance of $52,750.
41
<PAGE>
CAPSTAR HOTEL COMPANY
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
ACCUMULATED
COST DEPRECIATION
----------- ------------
<S> <C> <C>
Building and improvements............................................................... $ 737,095 $ 16,018
Land.................................................................................... 125,140 --
Hotel furniture and equipment........................................................... 72,771 10,840
Construction in progress................................................................ 12,591 --
----------- ------------
Total hotel property and equipment...................................................... 947,597 26,858
Office furniture and equipment.......................................................... 2,455 417
----------- ------------
Total property and equipment............................................................ $ 950,052 $ 27,275
----------- ------------
----------- ------------
</TABLE>
A reconciliation of the Company's investment in hotel property and equipment
and related accumulated depreciation is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Hotel property and equipment
Balance, beginning of period............................................... $ 342,366 $ 110,455 $ --
Acquisitions during period............................................... 550,913 204,740 104,239
Improvements and construction-in-progress................................ 54,318 27,171 6,216
---------- ---------- ----------
Balance, end of period..................................................... 947,597 342,366 110,455
---------- ---------- ----------
Accumulated depreciation
Balance, beginning of period............................................... 8,432 1,743 --
Additions-depreciation expense........................................... 18,426 6,689 1,743
---------- ---------- ----------
Balance, end of period..................................................... 26,858 8,432 1,743
---------- ---------- ----------
Net hotel property and equipment, end of period.............................. $ 920,739 $ 333,934 $ 108,712
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
42
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 405 of Regulation S-K with respect to
Directors and Executive Officers of the Company is incorporated herein by
reference to the sections entitled "Management" and "Principal Stockholders" in
the Company's definitive proxy for its 1998 Annual Meeting of Stockholders (the
"1998 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the sections entitled "Executive Compensation," "Compensation of Directors" and
"Stock Option Grants" in the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the section entitled "Principal Stockholders" in the 1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the section entitled "Certain Relationships and Related Transactions" in the
1998 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. Index to Financial Statements and Financial Statement Schedules
1. FINANCIAL STATEMENTS
The Financial Statements included in the Annual Report on Form 10-K are
listed in Item 8.
2. FINANCIAL STATEMENT SCHEDULES
The Financial Statement Schedules included in the Annual Report on Form 10-K
are listed in Item 8.
43
<PAGE>
3. EXHIBITS
All Exhibits listed below are filed with this Annual Report on Form 10-K
unless specifically stated to be incorporated by reference to other documents
previously filed with the Commission.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ------------ --------------------------------------------------------------------------------------------------
<S> <C> <C>
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***** -- Specimen Subordinated Note
4.3 -- Specimen Convertible Note (included in Exhibit 4.8)
4.4**** -- Senior Secured Credit Facility, dated as of June 30, 1997, among the Company, Lehman Brothers, as
Arranger and Syndication Agent, Bankers Trust Company, as Documentation Agent, BankBoston, N.A.,
as Administrative Agent, and Wells Fargo, N.A.
4.5.1***** -- Loan Agreement, dated as of August 12, 1997, among BA Parkway Associates II, L.P., MCV Venture,
LLC, CapStar AP Partners, L.P. and Lehman Brothers
4.5.2***** -- First Amendment to Loan Agreement, dated as of August 18, 1997, among BA Parkway Associates II,
L.P., MCV Venture, LLC, CapStar AP Partners, L.P. and Lehman Brothers
4.6***** -- Indenture, dated as of August 19, 1997, between the Company and IBJ Schroder Bank & Trust Company,
as Trustee
4.7 -- Indenture, dated as of October 16, 1997, between the Company and First Trust, National
Association, as Trustee (the "Convertible Notes Indenture")
4.8 -- Certificate, dated October 16, 1997, pursuant to Section 3.1 of the Convertible Notes Indenture
10.1* -- Form of Registration Rights Agreement
10.2** -- Registration Rights Agreement, dated as of April 1, 1997, between the Company and certain
affiliates of Highgate
10.3 -- Registration Rights Agreement, dated as of November 17, 1997, between the Company and certain
affiliates of Winston
10.4* -- Form of Employment Agreement between the Company and Paul W. Whetsell
10.5* -- Form of Employment Agreement between the Company and David E. McCaslin
10.6***** -- Form of Employment Agreement between the Company and John Emery
10.7* -- Form of Employment Agreement between the Company and John E. Plunket
10.8.1* -- Form of Amended and Restated Agreement of Limited Partnership of CMC
10.8.2*** -- Form of First Amendment to Amended and Restated Agreement of Limited Partnership of CMC
10.8.3*** -- Second Amendment to Amended and Restated Agreement of Limited Partnership of CMC, dated as of
April 15, 1997
10.9.1*** -- Amended and Restated Agreement of Limited Partnership of CMC II, dated as of April 1, 1997
10.9.2*** -- First Amendment to Amended and Restated Agreement of Limited Partnership of CMC II, dated as of
April 1, 1997
10.9.3*** -- Second Amendment to Amended and Restated Agreement of Limited Partnership of CMC II, dated as of
April 15, 1997
10.10 -- Underwriting Agreement, dated October 9, 1997, among the Company, Lehman Brothers, Inc., BT Alex.
Brown Incorporated, Goldman Sachs & Co., Merrill Lynch & Co., NationsBanc Montgomery Securities,
Inc. and Smith Barney Inc., as Representatives of the several underwriters named therein
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
- ------------ --------------------------------------------------------------------------------------------------
<S> <C> <C>
10.11 -- Underwriting Agreement, dated October 9, 1997, among the Company, Lehman Brothers, Inc., BT Alex.
Brown Incorporated, Goldman Sachs & Co., Merrill Lynch & Co., NationsBanc Montgomery Securities,
Inc. and Smith Barney Inc., as Representatives of the several underwriters named therein
10.12* -- Form of Equity Incentive Plan of the Company
10.13* -- Form of Employee Stock Purchase Plan of the Company
21 -- List of Subsidiaries of the Company
24 -- Power of Attorney (see signature pages)
27 -- Financial Data Schedule
</TABLE>
- ------------------------
<TABLE>
<S> <C>
* 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.
*** Incorporated by reference to the Company's Registration Statement on Form S-1
(File No. 333-22073), filed with the Securities and Exchange Commission on
February 20, 1996, as amended.
**** Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the
period ended June 30, 1997.
***** Incorporated by reference to the Company's Registration Statement on Form S-4
(File No. 333-35717), filed with the Securities and Exchange Commission on
September 16, 1997, as amended.
</TABLE>
- ------------------------
B. Reports on Form 8-K:
A current report on Form 8-K was filed with the Securities and Exchange
Commission on October 15, 1997, reporting events required to be reported
pursuant to Items 5 and 7 of the current report on Form 8-K.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, CapStar Hotel Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
CAPSTAR HOTEL COMPANY
BY: /S/ PAUL W. WHETSELL
-----------------------------------------
Paul W. Whetsell
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
</TABLE>
Dated: March 9, 1998
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul W. Whetsell and John Emery, 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 report filed pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, 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 done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report 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
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ PAUL W. WHETSELL Officer and Chairman of
- ------------------------------ the Board (Principal March 9, 1998
Paul W. Whetsell Executive Officer)
Chief Operating Officer and
/s/ DAVID E. MCCASLIN Director March 9, 1998
- ------------------------------
/s/ JOHN EMERY Chief Financial Officer
- ------------------------------ (Principal Financial and March 9, 1998
John Emery Accounting Officer)
/s/ DANIEL L. DOCTOROFF
- ------------------------------ Director March 9, 1998
Daniel L. Doctoroff
- ------------------------------ Director March 9, 1998
Bradford E. Bernstein
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ JOSEPH MCCARTHY
- ------------------------------ Director March 9, 1998
Joseph McCarthy
/s/ WILLIAM S. JANES
- ------------------------------ Director March 9, 1998
William S. Janes
/s/ EDWARD L. COHEN
- ------------------------------ Director March 9, 1998
Edward L. Cohen
- ------------------------------ Director March 9, 1998
Edwin T. Burton, III
- ------------------------------ Director March 9, 1998
Edward P. Dowd
- ------------------------------ Director March 9, 1998
Mahmood Khimji
</TABLE>
47
<PAGE>
EXHIBIT 4.7
CAPSTAR HOTEL COMPANY
AND
FIRST TRUST OF NEW YORK, N.A.
Indenture
Dated as of October 16, 1997
Subordinated Debt Securities
<PAGE>
TABLE OF CONTENTS
Page
RECITALS OF THE COMPANY................................................1
ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION......1
Section 1.1 Definitions..........................................1
Section 1.2 Compliance Certificates and Opinions................10
Section 1.3 Form of Documents Delivered to Trustee..............11
Section 1.4 Acts of Holders.....................................12
Section 1.5 Notices, etc., to Trustee and Company...............14
Section 1.6 Notice to Holders; Waiver...........................14
Section 1.7 Effect of Headings and Table of Contents............15
Section 1.8 Successors and Assigns..............................15
Section 1.9 Separability Clause.................................15
Section 1.10 Benefits of Indenture...............................15
Section 1.11 Governing Law.......................................16
Section 1.12 Legal Holidays......................................16
Section 1.13 Personal Immunity from Liability for Incorporators,
Stockholders, Etc...................................16
ARTICLE 2 SECURITIES FORMS............................................16
Section 2.1 Forms of Securities.................................16
Section 2.2 Form of Trustee's Certificate of Authentication.....17
Section 2.3 Securities Issuable in Global Form..................17
ARTICLE 3 THE SECURITIES..............................................18
Section 3.1 Amount Unlimited; Issuable in Series................18
Section 3.2 Denominations.......................................22
Section 3.3 Execution, Authentication, Delivery and Dating......23
Section 3.4 Temporary Securities................................25
Section 3.5 Registration, Registration of Transfer and Exchange.28
Section 3.6 Mutilated, Destroyed, Lost and Stolen Securities....31
Section 3.7 Payment of Interest; Interest Rights Preserved......33
Section 3.8 Persons Deemed Owners...............................35
of ...............................................................35
i
<PAGE>
Section 3.9 Cancellation........................................36
Section 3.10 Computation of Interest.............................36
ARTICLE 4 SATISFACTION AND DISCHARGE..................................36
Section 4.1 Satisfaction and Discharge of Indenture.............36
Section 4.2 Application of Trust Funds..........................38
ARTICLE 5 REMEDIES....................................................38
Section 5.1 Events of Default...................................38
Section 5.2 Acceleration of Maturity; Rescission and Annulment..40
Section 5.3 Collection of Indebtedness and Suits for Enforcement
by Trustee..........................................41
Section 5.4 Trustee May File Proofs of Claim....................42
Section 5.5 Trustee May Enforce Claims Without Possession of
Securities or Coupons...............................43
Section 5.6 Application of Money Collected......................43
Section 5.7 Limitation on Suits.................................43
Section 5.8 Unconditional Right of Holders to Receive Principal,
Premium, if any, Interest and Additional Amounts....44
Section 5.9 Restoration of Rights and Remedies..................44
Section 5.10 Rights and Remedies Cumulative......................44
Section 5.11 Delay or Omission Not Waiver........................45
Section 5.12 Control by Holders of Securities....................45
Section 5.13 Waiver of Past Defaults.............................45
Section 5.14 Waiver of Usury, Stay or Extension Laws.............46
Section 5.15 Undertaking for Costs...............................46
ARTICLE 6 THE TRUSTEE.................................................46
Section 6.1 Notice of Defaults..................................46
Section 6.2 Certain Rights of Trustee...........................47
Section 6.3 Not Responsible for Recitals or Issuance of
Securities .........................................48
Section 6.4 May Hold Securities.................................48
Section 6.5 Money Held in Trust.................................49
Section 6.6 Compensation and Reimbursement......................49
Section 6.7 Corporate Trustee Required; Eligibility; Conflicting
Interests...........................................49
Section 6.8 Resignation and Removal; Appointment of Successor...50
Section 6.9 Acceptance of Appointment by Successor..............51
Section 6.10 Merger, Conversion, Consolidation or Succession to
Business............................................53
Section 6.11 Appointment of Authenticating Agent.................53
ARTICLE 7 HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY...........55
Section 7.1 Disclosure of Names and Addresses of Holders.........55
Section 7.2 Reports by Trustee...................................55
Section 7.3 Reports by Company...................................55
ii
<PAGE>
Section 7.4 Company to Furnish Trustee Names and Addresses of
Holders..............................................56
ARTICLE 8 CONSOLIDATION, MERGER, SALE, LEASE OR CONVEYANCE............57
Section 8.1 Consolidations and Mergers of Company and Sales,
Leases and Conveyances Permitted Subject to
Certain Conditions...................................57
Section 8.2 Rights and Duties of Successor Corporation...........57
Section 8.3 Officers' Certificate and Opinion of Counsel.........58
ARTICLE 9 SUPPLEMENTAL INDENTURES.....................................58
Section 9.1 Supplemental Indentures without Consent of Holders...58
Section 9.2 Supplemental Indentures with Consent of Holders......60
Section 9.3 Execution of Supplemental Indentures.................61
Section 9.4 Effect of Supplemental Indentures....................61
Section 9.5 Conformity with Trust Indenture Act..................61
Section 9.6 Reference in Securities to Supplemental Indentures...61
ARTICLE 10 COVENANTS..................................................62
Section 10.1 Payment of Principal, Premium, if any, Interest and
Additional Amounts..................................62
Section 10.2 Maintenance of Office or Agency.....................62
Section 10.3 Money for Securities Payments to Be Held in Trust...64
Section 10.4 Existence...........................................65
Section 10.5 Maintenance of Properties...........................66
Section 10.6 Payment of Taxes and Other Claims...................66
Section 10.7 Statement as to Compliance..........................66
Section 10.8 Additional Amounts..................................66
Section 10.9 Waiver of Certain Covenants.........................67
ARTICLE 11 REDEMPTION OF SECURITIES...................................68
Section 11.1 Applicability of Article............................68
Section 11.2 Election to Redeem; Notice to Trustee...............68
Section 11.3 Selection by Trustee of Securities to Be Redeemed...68
Section 11.4 Notice of Redemption................................68
Section 11.5 Deposit of Redemption Price.........................70
Section 11.6 Securities Payable on Redemption Date...............70
Section 11.7 Securities Redeemed in Part.........................71
ARTICLE 12 SINKING FUNDS..............................................72
Section 12.1 Applicability of Article............................72
Section 12.2 Satisfaction of Sinking Fund Payments with
Securities .........................................72
Section 12.3 Redemption of Securities for Sinking Fund...........72
ARTICLE 13 REPAYMENT AT THE OPTION OF HOLDERS.........................73
iii
<PAGE>
Section 13.1 Applicability of Article............................73
Section 13.2 Repayment of Securities.............................73
Section 13.3 Exercise of Option..................................73
Section 13.4 When Securities Presented for Repayment Became Due
and Payable.........................................74
Section 13.5 Securities Repaid in Part...........................75
ARTICLE 14 DEFEASANCE AND COVENANT DEFEASANCE.........................75
Section 14.1 Applicability of Article; Company's Option to Effect
Defeasance or Covenant Defeasance...................75
Section 14.2 Defeasance and Discharge............................76
Section 14.3 Covenant Defeasance.................................76
Section 14.4 Conditions to Defeasance or Covenant Defeasance.....77
Section 14.5 Deposited Money and Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.......79
ARTICLE 15 SUBORDINATION..............................................81
Section 15.1 Agreement to Subordinate............................81
Section 15.2 Liquidation; Dissolution; Bankruptcy................81
Section 15.3 Default on Senior Debt..............................81
Section 15.4 Acceleration of Securities..........................82
Section 15.5 When Distribution Must Be Paid Over.................82
Section 15.6 Notice by Company...................................82
Section 15.7 Subrogation.........................................82
Section 15.8 Relative Rights.....................................82
Section 15.9 Subordination May Not Be Impaired by Trust..........83
Section 15.10 Distribution or Notice to Representative............83
Section 15.11 Rights of Trustee and Paying Agent..................83
EXHIBIT A FORMS OF CERTIFICATION......................................86
EXHIBIT A-1 FORM OF CERTIFICATE TO BE GIVEN BY PERSON ENTITLED TO
RECEIVE BEARER SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO
THE EXCHANGE DATE.............................................86
EXHIBIT A-2 FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR AND CEDEL
S.A. IN CONNECTION WITH THE EXCHANGE OF A PORTION OF A TEMPORARY
GLOBAL SECURITY OR TO OBTAIN INTEREST PAYABLE PRIOR TO THE
EXCHANGE DATE.................................................88
iv
<PAGE>
CAPSTAR HOTEL COMPANY
Reconciliation and tie between Trust Indenture Act of 1939 (the "1939
Act") and Indenture, dated as of October 16, 1997.
Trust Indenture Act Section Indenture Section
Sec. 310(a)(1).......................................................6.7
(a)(2).......................................................6.7
(b).....................................................6.7, 6.8
Sec. 312(c)..........................................................7.1
Sec. 313(a)..........................................................7.2
(c)..........................................................7.2
Sec. 314(a)..........................................................7.3
(a)(4).....................................................10.11
(c)(1).......................................................1.2
(c)(2).......................................................1.2
(e)..........................................................1.2
Sec. 315(b)..........................................................6.1
Sec. 316(a) (last sentence)..........................1.1 ("Outstanding")
(a)(1)(A)..............................................5.2, 5.12
(a)(1)(B)...................................................5.13
(b)..........................................................5.8
Sec. 317(a)(1).......................................................5.3
(a)(2).......................................................5.4
Sec. 318(a).........................................................1.11
(c).........................................................1.11
NOTE: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
Attention should also be directed to Section 318(c) of the 1939 Act,
which provides that the provisions of Sections 310 to and including 317 of the
1939 Act are a part of and govern every qualified indenture, whether or not
physically contained therein.
v
<PAGE>
INDENTURE, dated as of October 16, 1997, between CAPSTAR HOTEL
COMPANY, a Delaware corporation (hereinafter called the "Company"), having its
principal office at 1010 Wisconsin Avenue, N.W., Suite 650, Washington, DC 20007
and First Trust of New York, N.A., a corporation organized under the laws of New
York, as Trustee hereunder (hereinafter called the "Trustee"), having its
Corporate Trust Office at 100 Wall Street, New York, New York 10005.
RECITALS OF THE COMPANY
The Company deems it necessary to issue from time to time for its
lawful purposes subordinated debt securities (hereinafter called the
"Securities") evidencing its unsecured and unsubordinated indebtedness, and has
duly authorized the execution and delivery of this Indenture to provide for the
issuance from time to time of the Securities, unlimited as to principal amount,
to bear interest at the rates or formulas, to mature at such times and to have
such other provisions as shall be fixed as hereinafter provided.
This Indenture is subject to the provisions of the Trust Indenture
Act of 1939, as amended, that are deemed to be incorporated into this Indenture
and shall, to the extent applicable, be governed by such provisions.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
I.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
A. Definitions. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(2) all other terms used herein which are defined in the TIA, either
directly or by reference therein, have the meanings assigned to them
therein,
<PAGE>
2
and the terms "cash transaction" and "self-liquidating paper," as used in
TIA Section 311, shall have the meanings assigned to them in the rules of
the Commission adopted under the TIA;
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP; and
(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
"Act," when used with respect to any Holder, has the meaning
specified in Section 1.4.
"Additional Amounts" means any additional amounts which are required
by a Security or by or pursuant to a Board Resolution, under circumstances
specified therein, to be paid by the Company in respect of certain taxes imposed
on certain Holders and which are owing to such Holders.
"Affiliate" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Authenticating Agent" means any authenticating agent appointed by
the Trustee pursuant to Section 6.11.
"Authorized Newspaper" means a newspaper, printed in the English
language or in an official language of the country of publication, customarily
published on each Business Day, whether or not published on Saturdays, Sundays
or holidays, and of general circulation in each place in connection with which
the term is used or in the financial community of each such place. Whenever
successive publications are required to be made in Authorized Newspapers, the
successive publications may be made in the same or in different Authorized
Newspapers in the same city meeting the foregoing requirements and in each case
on any Business Day.
"Bankruptcy Law" has the meaning specified in Section 5.1.
"Bearer Security" means any Security established pursuant to Section
2.1 which is payable to bearer.
<PAGE>
3
"Board of Directors" means the board of directors of the Company,
the executive committee or any committee of that board duly authorized to act
hereunder.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day," when used with respect to any Place of Payment or
any other particular location referred to in this Indenture or in the
Securities, means, unless otherwise specified with respect to any Securities
pursuant to Section 3.1, any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions in that Place of
Payment or particular location are authorized or required by law, regulation or
executive order to close.
"CEDEL" means Centrale de Livraison de Valeurs Mobilieres,
S.A., or its successor.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties on such date.
"Common Stock" means, with respect to any Person, capital stock
issued by such Person other than Preferred Stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor corporation shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor corporation.
"Company Request" and "Company Order" mean, respectively, a written
request or order signed in the name of the Company by its Chairman of the Board,
the President or a Vice President, and by its Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary, of the Company, and delivered to the
Trustee.
"Conversion Event" means the cessation of use of (i) a Foreign
Currency both by the government of the country which issued such currency and
for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) the ECU both
within the European Monetary System and for the settlement of transactions by
public institutions of or within the
<PAGE>
4
European Communities or (iii) any currency unit (or composite currency) other
than the ECU for the purposes for which it was established.
"Corporate Trust Office" means the office of the Trustee at which,
at any particular time, its corporate trust business shall be principally
administered, which office at the date hereof is located at ___________.
"corporation" includes corporations, associations, companies and
business trusts.
"coupon" means any interest coupon appertaining to a Bearer
Security.
"Custodian" has the meaning specified in Section 5.1.
"Defaulted Interest" has the meaning specified in Section 3.7.
"Dollar" or "$" means a dollar or other equivalent unit in such coin
or currency of the United States of America as at the time shall be legal tender
for the payment of public and private debts.
"ECU" means the European Currency Unit as defined and revised from
time to time by the Council of the European Communities.
"Euroclear" means Morgan Guaranty Trust Company of New York,
Brussels Office, or its successor as operator of the Euroclear System.
"European Communities" means the European Economic Community, the
European Coal and Steel Community and the European Atomic Energy Community.
"European Monetary System" means the European Monetary System
established by the Resolution of December 5, 1978 of the Council of the European
Communities.
"Event of Default" has the meaning specified in Article Five.
"Foreign Currency" means any currency, currency unit or composite
currency, including, without limitation, the ECU issued by the government of one
or more countries other than the United States of America or by any recognized
confederation or association of such governments.
"GAAP" means generally accepted accounting principles, as in effect
from time to time, as used in the United States applied on a consistent basis.
<PAGE>
5
"Government Obligations" means securities which are (i) direct
obligations of the United States of America or the government which issued the
Foreign Currency in which the Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
"Holder" means, in the case of a Registered Security, the Person in
whose name a Security is registered in the Security Register and in the case of
a Bearer Security, the bearer thereof and, when used with respect to any coupon,
shall mean the bearer thereof.
"Indenture" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
and shall include the terms of particular series of Securities established as
contemplated by Section 3.1; provided, however, that, if at any time more than
one Person is acting as Trustee under this instrument, "Indenture" shall mean,
with respect to any one or more series of Securities for which such Person is
Trustee, this instrument as originally executed or as it may from time to time
be supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof and shall include the terms of
the particular series of Securities for which such Person is Trustee established
as contemplated by Section 3.1, exclusive, however, of any provisions or terms
which relate solely to other series of Securities for which such Person is
Trustee, regardless of when such terms or provisions were adopted, and exclusive
of any provisions or terms adopted by means of one or more indentures
supplemental hereto executed and delivered after such Person had become such
Trustee but to which such Person, as such Trustee, was not a party.
<PAGE>
6
"Indexed Security" means a Security the terms of which provide that
the principal amount thereof payable at Stated Maturity may be more or less than
the principal face amount thereof at original issuance.
"interest," when used with respect to an Original Issue Discount
Security which by its terms bears interest only after Maturity, shall mean
interest payable after Maturity, and, when used with respect to a Security which
provides for the payment of Additional Amounts pursuant to Section 10.8,
includes such Additional Amounts.
"Interest Payment Date," when used with respect to any Security,
means the Stated Maturity of an installment of interest on such Security.
"Maturity," when used with respect to any Security, means the date
on which the principal of such Security or an installment of principal becomes
due and payable as therein or herein provided, whether at the Stated Maturity or
by declaration of acceleration, notice of redemption, notice of option to elect
repayment or otherwise.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board of Directors, the President or a Vice President and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of
the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company or who may be an employee of or other counsel for the
Company and who shall be satisfactory to the Trustee.
"Original Issue Discount Security" means any Security which provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the Maturity thereof pursuant to Section 5.2.
"Outstanding," when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or
redemption or repayment at the option of the Holder money in the
necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its
own Paying Agent) for the Holders of such Securities and any coupons
<PAGE>
7
appertaining thereto, provided that, if such Securities are be
redeemed, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee has
been made;
(iii) Securities, except to the extent provided in Sections
14.2 and 14.3, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article
Fourteen;
(iv) Securities which have been paid pursuant to Section 3.6
or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than
any such Securities in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such
Securities are held by a bona fide purchaser in whose hands such
Securities are valid obligations of the Company; and
(v) Securities converted into Common Stock or Preferred Stock
pursuant to or in accordance with this Indenture if the terms of
such Securities provide for convertibility pursuant to Section 3.1;
provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or are present at
a meeting of Holders for quorum purposes, and for the purpose of making the
calculations required by TIA Section 3.13, (i) the principal amount of an
Original Issue Discount Security that may be counted in making such
determination or calculation and that shall be deemed to be Outstanding for such
purpose shall be equal to the amount of principal thereof that would be (or
shall have been declared to be) due and payable, at the time of such
determination, upon a declaration of acceleration of the maturity thereof
pursuant to Section 5.2, (ii) the principal amount of any Security denominated
in a Foreign Currency that may be counted in making such determination or
calculation and that shall be deemed Outstanding for such purpose shall be equal
to the Dollar equivalent, determined pursuant to Section 3.1 as of the date such
Security is originally issued by the Company, of the principal amount (or, in
the case of an Original Issue Discount Security, the Dollar equivalent as of
such date of original issuance of the amount determined as provided in clause
(i) above) of such Security, (iii) the principal amount of any Indexed Security
that may be counted in making such determination or calculation and that shall
be deemed outstanding for such purpose shall be equal to the principal face
amount of such Indexed Security at original issuance, unless otherwise provided
with respect to such Security pursuant to Section 3.1, and (iv) Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in
<PAGE>
8
making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities or coupons on
behalf of the Company.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment," when used with respect to the Securities of or
within any series, means the place or places where the principal of (and
premium, if any) and interest on such Securities are payable as specified as
contemplated by Sections 3.1 and 10.2.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.6 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security or a Security to which a
mutilated, destroyed, lost or stolen coupon appertains shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security or
the Security to which the mutilated, destroyed, lost or stolen coupon
appertains.
"Preferred Stock" means, with respect to any Person, capital shares
issued by such Person that are entitled to a preference or priority over any
other capital shares issued by such Person upon any distribution of such
Person's assets, whether by dividend or upon liquidation.
"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
<PAGE>
9
"Registered Security" shall mean any Security which is registered in
the Security Register.
"Regular Record Date" for the interest payable on any Interest
Payment Date on the Registered Securities of or within any series means the date
specified for that purpose as contemplated by Section 3.1, whether or not a
Business Day.
"Repayment Date" means, when used with respect to any Security to be
repaid at the option of the Holder, the date fixed for such repayment by or
pursuant to this Indenture.
"Repayment Price" means, when used with respect to any Security to
be repaid at the option of the Holder, the price at which it is to be repaid by
or pursuant to this Indenture.
"Representative" means the indenture trustee or other trustee, agent
or representative for an issue of Senior Debt.
"Responsible Officer," when used with respect to the Trustee, means
the chairman or vice-chairman of the Board of Directors, the chairman or
vice-chairman of the executive committee of the Board of Directors, the
president, any vice president (whether or not designated by a number or a word
or words added before or after the title "vice president"), the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any other officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of such officer's knowledge and familiarity with the
particular subject.
"Security" has the meaning stated in the first recital of this
Indenture and, more particularly, means any Security or Securities authenticated
and delivered under this Indenture; provided, however, that, if at any time
there is more than one Person acting as Trustee under this Indenture,
"Securities" with respect to the Indenture as to which such Person is Trustee
shall have the meaning stated in the first recital of this Indenture and shall
more particularly mean Securities authenticated and delivered under this
Indenture, exclusive, however, of Securities of any series as to which such
Person is not Trustee.
"Security Register" and Security Registrar" have the respective
meanings specified in Section 3.5.
<PAGE>
10
"Senior Debt" means any obligation of the Company to its creditors
whether now outstanding or subsequently incurred other than (i) any obligation
as to which, in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such obligation is not Senior
Debt, and (ii) obligations evidenced by the Securities.
"Significant Subsidiary" means any Subsidiary which is a
"significant subsidiary" (as defined in Article I, Rule 1-02 of Regulation S-X,
promulgated under the Securities Act of 1933) of the Company.
"Special Record Date" for the payment of any Defaulted Interest on
the Registered Securities of or within any series means a date fixed by the
Trustee pursuant to Section 3.7.
"Stated Maturity," when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security or a coupon representing such installment of interest as the
fixed date on which the principal of such Security or such installment of
principal or interest is due and payable.
"Subsidiary" means a corporation a majority of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries of the Company. For the purposes of this definition,
"voting stock" means stock having voting power for the election of directors,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of
1939, as amended and as in force at the date as of which this Indenture was
executed, except as provided in Section 9.5.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a Successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean or include each Person who is then a Trustee hereunder;
provided, however, that if at any time there is more than one such Person,
"Trustee" as used with respect to the Securities of any series shall mean only
the Trustee with respect to Securities of that series.
"United States" means, unless otherwise specified with respect to
any Securities pursuant to Section 3.1, the United States of America (including
the states and the District of Columbia), its territories, its possessions and
other areas subject to its jurisdiction.
<PAGE>
11
"United States person" means, unless otherwise specified with
respect to any Securities pursuant to Section 3.1, an individual who is a
citizen or resident of the United States, a corporation, partnership or other
entity created or organized in or under the laws of the United States or an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source.
"Yield to Maturity" means the yield to maturity, computed at the
time of issuance of a Security (or, if applicable, at the most recent
redetermination of interest on such Security) and as set forth in such Security
in accordance with generally accepted United States bond yield computation
principles.
B. Compliance Certificates and Opinions. Upon any application or
request by the Company to the Trustee to take any action under any provision of
this Indenture, the Company shall furnish to the Trustee an Officers'
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with and an Opinion
of Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (including certificates
delivered pursuant to Section 10.8) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such condition or covenant and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such condition or
covenant has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
C. Form of Documents Delivered to Trustee. In any case where several
matters are required to be certified by, or covered by an opinion of, any
specified
<PAGE>
12
Person, it is not necessary that all such matters be certified by, or covered by
the opinion of, only one such Person, or that they be so certified or covered by
only one document, but one such Person may certify or give an opinion as to some
matters and one or more other such Persons as to other matters, and any such
Person may certify or give an opinion as to such matters in one or several
documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon an Opinion of Counsel, or a
certificate or representations by counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the opinion, certificate or
representations with respect to the matters upon which his certificate or
opinion is based are erroneous. Any such Opinion of Counsel or certificate or
representations may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information as to such factual matters is in the
possession of the Company, unless such counsel knows that the certificate or
opinion or representations as to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
D. Acts of Holders. 1. Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture to
be given or taken by Holders of the Outstanding Securities of all series or one
or more series, as the case may be, may be embodied in and evidenced by one or
more instruments of substantially similar tenor signed by such Holders in person
or by agents duly appointed in writing. If Securities of a series are issuable
as Bearer Securities, any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders of Securities of such series may, alternatively, be embodied in and
evidenced by the record of Holders of Securities of such series voting in favor
thereof, either in person or by proxies duly appointed in writing, at any
meeting of Holders of Securities of such series duly called and held in
accordance with the provisions of the supplemental indenture with respect to
such series, or a combination of such instruments and any such record. Except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments or record or both are delivered to the Trustee
and, where it is hereby expressly required, to the Company. Such instrument or
instruments and any such record (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments or so voting at any such meeting. Proof of
execution of any such instrument or of a writing appointing any such agent, or
of the holding by any Person of a Security, shall be sufficient for any purpose
of this Indenture and conclusive in favor of the Trustee and
<PAGE>
13
the Company and any agent of the Trustee or the Company, if made in the manner
provided in this Section.
2. The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other reasonable manner which the Trustee deems sufficient.
3. The ownership of Registered Securities shall be proved by the
Security Register.
4. The ownership of Bearer Securities may be proved by the
production of such Bearer Securities or by a certificate executed, as
depositary, by any trust company, bank, banker or other depositary, wherever
situated, if such certificate shall be deemed by the Trustee to be satisfactory,
showing that at the date therein mentioned such Person had on deposit with such
depositary, or exhibited to it, the Bearer Securities therein described; or such
facts may be proved by the certificate or affidavit of the Person holding such
Bearer Securities, if such certificate or affidavit is deemed by the Trustee to
be satisfactory. The Trustee and the Company may assume that such ownership of
any Bearer Security continues until (1) another certificate or affidavit bearing
a later date issued in respect of the same Bearer Security is produced, or (2)
such Bearer Security is produced to the Trustee by some other Person, or (3)
such Bearer Security is surrendered in exchange for a Registered Security, or
(4) such Bearer Security is no longer Outstanding. The ownership of Bearer
Securities may also be proved in any other manner which the Trustee deems
sufficient.
5. If the Company shall solicit from the Holders of Registered
Securities any request, demand, authorization, direction, notice, consent,
waiver or other Act, the Company may, at its option, in or pursuant to a Board
Resolution, fix in advance a record date for the determination of Holders
entitled to give such request, demand, authorization, direction, notice,
consent, waiver or other Act, but the Company shall have no obligation to do so.
Notwithstanding TIA Section 316(c), such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
earlier than the date 30 days prior to the first solicitation of Holders
generally in connection therewith and not later than the date such solicitation
is completed. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such
<PAGE>
14
record date, but only the Holders of record at the close of business on such
record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion of Outstanding Securities have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for that purpose the
Outstanding Securities shall be computed as of such record date; provided that
no such authorization, agreement or consent by the Holders on such record date
shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than eleven months after the record date.
In the absence of any such record date fixed by the Company,
regardless as to whether a solicitation of the Holders is occurring on behalf of
the Company or any Holder, the Trustee may, at its option, fix in advance a
record date for the determination of such Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Trustee shall have no obligation to do so. Any such record date shall be a date
not more than 30 days prior to the first solicitation of Holders generally in
connection therewith no later than the date of such solicitation.
6. Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee, any
Security Registrar, any Paying Agent, any Authenticating Agent or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
E. Notices, etc., to Trustee and Company. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at
or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided)
if in writing and mailed, first class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture or at any other address previously
furnished in writing to the Trustee by the Company.
<PAGE>
15
F. Notice to Holders; Waiver. Where this Indenture provides for
notice of any event to Holders of Registered Securities by the Company or the
Trustee, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each such Holder affected by such event, at his address as it appears in the
Security Register, not later than the latest date, and not earlier than the
earliest date, prescribed for the giving of such notice. In any case where
notice to Holders of Registered Securities is given by mail, neither the failure
to mail such notice, nor any defect in any notice so mailed, to any particular
Holder shall affect the sufficiency of such notice with respect to other Holders
of Registered Securities or the sufficiency of any notice to Holders of Bearer
Securities given as provided herein. Any notice mailed to a Holder in the manner
herein prescribed shall be conclusively deemed to have been received by such
Holder, whether or not such Holder actually receives such notice.
If by reason of the suspension of or irregularities in regular mail
service or by reason of any other cause it shall be impracticable to give such
notice by mail, then such notification to Holders of Registered Securities as
shall be made with the approval of the Trustee shall constitute a sufficient
notification to such Holders for every purpose hereunder.
Except as otherwise expressly provided herein or otherwise specified
with respect to any Securities pursuant to Section 3.1, where this Indenture
provides for notice to Holders of Bearer Securities of any event, such notice
shall be sufficiently given if published in an Authorized Newspaper in The City
of New York and in such other city or cities as may be specified in such
Securities on a Business Day, such publication to be not later than the latest
date, and not earlier than the earliest date, prescribed for the giving of such
notice. Any such notice shall be deemed to have been given on the date of such
publication or, if published more than once, on the date of the first such
publication.
If by reason of the suspension of publication of any Authorized
Newspaper or Authorized Newspapers or by reason of any other cause it shall be
impracticable to publish any notice to Holders of Bearer Securities as provided
above, then such notification to Holders of Bearer Securities as shall be given
with the approval of the Trustee shall constitute sufficient notice to such
Holders for every purpose hereunder. Neither the failure to give notice by
publication to any particular Holder of Bearer Securities as provided above, nor
any defect in any notice so published, shall affect the sufficiency of such
notice with respect to other Holders of Bearer Securities or the sufficiency of
any notice to Holders of Registered Securities given as provided herein.
<PAGE>
16
Any request, demand, authorization, direction, notice, consent or
waiver required or permitted under this Indenture shall be in the English
language, except that any published notice may be in an official language of the
country of publication.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
G. Effect of Headings and Table of Contents. The Article and Section
headings herein and the Table of Contents are for convenience only and shall not
affect the construction hereof.
H. Successors and Assigns. All covenants and agreements in this
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
I. Separability Clause. In case any provision in this Indenture or
in any Security or coupon shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
J. Benefits of Indenture. Nothing in this Indenture or in the
Securities or coupons, express or implied, shall give to any Person, other than
the parties hereto, any Security Registrar, any Paying Agent, any Authenticating
Agent and their successors hereunder and the Holders any benefit or any legal or
equitable right, remedy or claim under this Indenture.
K. Governing Law. This Indenture and the Securities and coupons
shall be governed by and construed in accordance with the law of the State of
New York. This Indenture is subject to the provisions of the TIA that are
required to be part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
L. Legal Holidays. In any case where any Interest Payment Date,
Redemption Date, Repayment Date, sinking fund payment date, Stated Maturity or
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or any Security or
coupon other than a provision in the Securities of any series which specifically
states that such provision shall apply in lieu hereof), payment of interest or
any Additional Amounts or principal (and premium, if any) need not be made at
such Place of Payment on such date, but may be made on the next succeeding
Business Day at such Place of Payment with the same force and effect as if made
on the Interest Payment Date, Redemption Date, Repayment Date or sinking fund
payment date, or at the Stated Maturity or
<PAGE>
17
Maturity, provided that no interest shall accrue on the amount so payable for
the period from and after such Interest Payment Date, Redemption Date, Repayment
Date, sinking fund payment date, Stated Maturity or Maturity, as the case may
be.
M. Personal Immunity from Liability for Incorporators, Stockholders,
Etc. No recourse shall be had for the payment of the principal of or premium, if
any, or interest, if any, on any Security, or for any claim based thereon, or
otherwise in respect of any Security, or based on or in respect of this
Indenture or any indenture supplemental hereto, against any incorporator, or
against any past, present or future stockholder, director of officers, as such,
of the Company or of any successor corporation, whether by virtue of any
constitution, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise, all such liability being expressly waived and released as
a condition of, and as consideration for, the execution of this Indenture and
the issue of Securities.
II.
SECURITIES FORMS
A. Forms of Securities. The Registered Securities, if any, of each
series and the Bearer Securities, if any, of each series and related coupons
shall be in substantially the forms as shall be established in one or more
indentures supplemental hereto or approved from time to time by or pursuant to a
Board Resolution in accordance with Section 3.1, shall have such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture or any indenture supplemental hereto, and may have
such letters, numbers or other marks of identification or designation and such
legends or endorsements placed thereon as the Company may deem appropriate and
as are not inconsistent with the provisions of this Indenture, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Securities may be listed, or to conform to usage.
Unless otherwise specified as contemplated by Section 3.1, Bearer
Securities shall have interest coupons attached.
The definitive Securities and coupons shall be printed, lithographed
or engraved or produced by any combination of these methods on a steel engraved
border or steel engraved borders or may be produced in any other manner, all as
determined by the officers executing such Securities or coupons, as evidenced by
their execution of such Securities or coupons.
<PAGE>
18
B. Form of Trustee's Certificate of Authentication. Subject to
Section 6.11, the Trustee's certificate of authentication shall be in
substantially the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
First Trust of New York, N.A.,
as Trustee
By:____________________________,
Authorized Signatory
C. Securities Issuable in Global Form. If Securities of or within a
series are issuable in global form, as specified as contemplated by Section 3.1,
then, notwithstanding clause (8) of Section 3.1 and the provisions of Section
3.2, any such Security shall represent such of the Outstanding Securities of
such series as shall be specified therein and may provide that it shall
represent the aggregate amount of Outstanding Securities of such series from
time to time endorsed thereon and that the aggregate amount of Outstanding
Securities of such series represented thereby may from time to time be increased
or decreased to reflect exchanges. Any endorsement of a Security in global form
to reflect the amount, or any increase or decrease in the amount, of Outstanding
Securities represented thereby shall be made by the Trustee in such manner and
upon instructions given by such Person or Persons as shall be specified therein
or in the Company Order to be delivered to the Trustee pursuant to Section 3.3
or 3.4. Subject to the provisions of Section 3.3 and, if applicable, Section
3.4, the Trustee shall deliver and redeliver any Security in permanent global
form in the manner and upon instructions given by the Person or Persons
specified therein or in the applicable Company Order. If a Company Order
pursuant to Section 3.3 or 3.4 has been, or simultaneously is, delivered, any
instructions by the Company with respect to endorsement or delivery or
redelivery of a Security in global form shall be in writing but need not comply
with Section 1.2 and need not be accompanied by an Opinion of Counsel.
The provisions of the last sentence of Section 3.3 shall apply to
any Security represented by a Security in global form if such Security was never
issued and sold by the Company and the Company delivers to the Trustee the
Security in global form together with written instructions (which need not
comply with Section 1.2 and need not be accompanied by an Opinion of Counsel)
with regard to the reduction in the principal amount of Securities represented
thereby, together with the written statement contemplated by the last sentence
of Section 3.3.
<PAGE>
19
Notwithstanding the provisions of Section 3.7, unless otherwise
specified as contemplated by Section 3.1, payment of principal of and any
premium and interest on any Security in permanent global form shall be made to
the Person or Persons specified therein.
Notwithstanding the provisions of Section 3.8 and except as provided
in the preceding paragraph, the Company, the Trustee and any agent of the
Company and the Trustee shall treat as the Holder of such principal amount of
Outstanding Securities represented by a permanent global Security (i) in the
case of a permanent global Security in registered form, the Holder of such
permanent global Security in registered form, or (ii) in the case of a permanent
global Security in bearer form, Euroclear or CEDEL.
III.
THE SECURITIES
A. Amount Unlimited; Issuable in Series. The aggregate principal
amount of Securities which may be authenticated and delivered under this
Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in one or more Board Resolutions or pursuant to authority granted by
one or more Board Resolutions and, subject to Section 3.3, set forth, or
determined in the manner provided, in an Officers' Certificate, or established
in one or more indentures supplemental hereto, prior to the issuance of
Securities of any series, any or all of the following, as applicable (each of
which (except for the matters set forth in clauses (1), (2) and (15) below), if
so provided, may be determined from time to time by the Company with respect to
unissued Securities of the series when issued from time to time):
(1) the title of the Securities of the series (which shall
distinguish the Securities of such series from all other series of
Securities);
(2) any limit upon the aggregate principal amount of the Securities
of the series that may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 3.4, 3.5, 3.6, 9.6, 11.7 or 13.5);
<PAGE>
20
(3) the date or dates, or the method by which such date or dates
will be determined, on which the principal of the Securities of the series
shall be payable;
(4) the rate or rates at which the Securities of the series shall
bear interest, if any, or the method by which such rate or rates shall be
determined, the date or dates from which such interest shall accrue or the
method by which such date or dates shall be determined, the Interest
Payment Dates on which such interest will be payable and the Regular
Record Date, if any, for the interest payable on any Registered Security
on any Interest Payment Date, or the method by which such date shall be
determined, and the basis upon which interest shall be calculated if other
than that of a 360-day year of twelve 30-day months;
(5) the place or places, if any, other than or in addition to the
Borough of Manhattan, The City of New York, where the principal of (and
premium, if any), interest, if any, on, and Additional Amounts, if any,
payable in respect of, Securities of the series shall be payable, any
Registered Securities of the series may be surrendered for registration of
transfer, exchange or conversion and notices or demands to or upon the
Company in respect of the Securities of the series and this Indenture may
be served;
(6) the period or periods within which, the price or prices at
which, the currency or currencies, currency unit or units or composite
currency or currencies in which, and other terms and conditions upon which
Securities of the series may be redeemed, in whole or in part, at the
option of the Company, if the Company is to have the option;
(7) the obligation, if any, of the Company to redeem, repay or
purchase Securities of the series pursuant to any sinking fund or
analogous provision or at the option of a Holder thereof, and the period
or periods within which or the date or dates on which, the price or prices
at which, the currency or currencies, currency unit or units or composite
currency or currencies in which, and other terms and conditions upon which
Securities of the series shall be redeemed, repaid or purchased, in whole
or in part, pursuant to such obligation;
(8) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any Registered Securities of the
series shall be issuable and, if other than the denomination of $5,000,
the denomination or denominations in which any Bearer Securities of the
series shall be issuable;
(9) if other than the Trustee, the identity of each Security
Registrar and/or Paying Agent;
<PAGE>
21
(10) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series that shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section
5.2 or, if applicable, the portion of the principal amount of Securities
of the series that is convertible in accordance with the provisions of
this Indenture, or the method by which such portion shall be determined;
(11) if other than Dollars, the Foreign Currency or Currencies in
which payment of the principal of (and premium, if any) or interest or
Additional Amounts, if any, on the Securities of the series shall be
payable or in which the Securities of the series shall be denominated;
(12) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on the Securities of the series may be
determined with reference to an index, formula or other method (which
index, formula or method may be based, without limitation, on one or more
currencies, currency units, composite currencies, commodities, equity
indices or other indices), and the manner in which such amounts shall be
determined;
(13) whether the principal of (and premium, if any) or interest or
Additional Amounts, if any, on the Securities of the series are to be
payable, at the election of the Company or a Holder thereof, in a currency
or currencies, currency unit or units or composite currency or currencies
other than that in which such Securities are denominated or stated to be
payable, the period or periods within which, and the terms and conditions
upon which, such election may be made, and the time and manner of, and
identity of the exchange rate agent with responsibility for, determining
the exchange rate between the currency or currencies, currency unit or
units or composite currency or currencies in which such Securities are
denominated or stated to be payable and the currency or currencies,
currency unit or units or composite currency or currencies in which such
Securities are to be so payable;
(14) provisions, if any, granting special rights to the Holders of
Securities of the series upon the occurrence of such events as may be
specified;
(15) any deletions from, modifications of or additions to the Events
of Default or covenants of the Company with respect to Securities of the
series, whether or not such Events of Default or covenants are consistent
with the Events of Default or covenants set forth herein;
(16) whether Securities of the series are to be issuable as
Registered Securities, Bearer Securities (with or without coupons) or
both, any restrictions
<PAGE>
22
applicable to the offer, sale or delivery of Bearer Securities and the
terms upon which Bearer Securities of the series may be exchanged for
Registered Securities of the series and vice versa (if permitted by
applicable laws and regulations), whether any Securities of the series are
to be issuable initially in temporary global form and whether any
Securities of the series are to be issuable in permanent global form with
or without coupons and, if so, whether beneficial owners of interests in
any such permanent global Security may exchange such interests for
Securities of such series and of like tenor of any authorized form and
denomination and the circumstances under which any such exchanges may
occur, if other than in the manner provided in Section 3.5, and, if
Registered Securities of the series are to be issuable as a global
Security, the identity of the depositary for such series;
(17) the date as of which any Bearer Securities of the series and
any temporary global Security representing Outstanding Securities of the
series shall be dated if other than the date of original issuance of the
first Security of the series to be issued;
(18) the Person to whom any Interest on any Registered Security of
the series shall be payable, if other than the Person in whose name that
Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest, the manner
in which, or the Person to whom, any interest on any Bearer Security of
the series shall be payable, if otherwise than upon presentation and
surrender of the coupons appertaining thereto as they severally mature,
and the extent to which, or the manner in which, any interest payable on a
temporary global Security on an Interest Payment Date will be paid if
other than in the manner provided in Section 3.4;
(19) the applicability, if any, of Sections 14.2 and/or 14.3 to the
Securities of the series and any provisions in modification of, in
addition to or in lieu of any of the provisions of Article Fourteen;
(20) if the Securities of such series are to be issuable in
definitive form (whether upon original issue or upon exchange of a
temporary Security of such series) only upon receipt of certain
certificates or other documents or satisfaction of other conditions, then
the form and/or terms of such certificates, documents or conditions;
(21) if the Securities of the series are to be issued upon the
exercise of warrants, the time, manner and place for such Securities to be
authenticated and delivered;
<PAGE>
23
(22) whether and under what circumstances the Company will pay
Additional Amounts on the Securities of the series to any Holder who is
not a United States person (including any modification to the definition
of such term) in respect of any tax, assessment or governmental charge
and, if so, whether the Company will have the option to redeem such
Securities rather than pay such Additional Amounts (and the terms of any
such option);
(23) the obligation, if any, of the Company to permit the conversion
of the Securities of such series into the Company's Common Stock or
Preferred Stock, as the case may be, and the terms and conditions upon
which such conversion shall be effected (including, without limitation,
the initial conversion price or rate, the conversion period, any
adjustment of the applicable conversion price and any requirements
relative to the reservation of such shares for purposes of conversion);
and
(24) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series and the coupons appertaining to any
Bearer Securities of such series shall be substantially identical except, in the
case of Registered Securities, as to denomination and except as may otherwise be
provided in or pursuant to such Board Resolution (subject to Section 3.3) and
set forth in such Officers' Certificate or in any such indenture supplemental
hereto. All Securities of any one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
the Holders, for issuances of additional Securities of such series.
If any of the terms of the Securities of any series are established
by action taken pursuant to one or more Board Resolutions, a copy of an
appropriate record of such action(s) shall be certified by the Secretary or an
Assistant Secretary of the Company and delivered to the Trustee at or prior to
the delivery of the Officers' Certificate setting forth the terms of the
Securities of such series.
BO Denominations. The Securities of each series shall be issuable in
such denominations as shall be specified as contemplated by Section 3.1. With
respect to Securities of any series denominated in Dollars, in the absence of
any such provisions with respect to the Securities of any series, the Registered
Securities of such series, other than Registered Securities issued in global
form (which may be of any denomination), shall be issuable in denominations of
$1,000 and any integral multiple thereof and the Bearer Securities of such
series, other than Bearer Securities issued in global form (which may be of any
denomination), shall be issuable in a denomination of $5,000.
<PAGE>
24
CO Execution, Authentication, Delivery and Dating. The Securities
and any coupons appertaining thereto shall be executed on behalf of the Company
by its Chairman of the Board, its President or one of its Vice Presidents, under
its corporate seal reproduced thereon, and attested by its Secretary or one of
its Assistant Secretaries. The signature of any of these officers on the
Securities and coupons may be manual or facsimile signatures of the present or
any future such authorized officer and may be imprinted or otherwise reproduced
on the Securities.
Securities or coupons bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices at the date of such Securities or coupons.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Securities of any series, together
with any coupon appertaining thereto, executed by the Company to the Trustee for
authentication, together with a Company Order for the authentication and
delivery of such Securities, and the Trustee in accordance with the Company
Order shall authenticate and deliver such Securities; provided, however, that,
in connection with its original issuance, no Bearer Security shall be mailed or
otherwise delivered to any location in the United States; and provided further
that, unless otherwise specified with respect to any series of Securities
pursuant to Section 3.1, a Bearer Security may be delivered in connection with
its original issuance only if the Person entitled to receive such Bearer
Security shall have furnished a certificate to Euroclear or CEDEL, as the case
may be, in the form set forth in Exhibit A-1 to this Indenture or such other
certificate as may be specified with respect to any series of Securities
pursuant to Section 3.1, dated no earlier than 15 days prior to the earlier of
the date on which such Bearer Security is delivered and the date on which any
temporary Security first becomes exchangeable for such Bearer Security in
accordance with the terms of such temporary Security and this Indenture. If any
Security shall be represented by a permanent global Bearer Security, then, for
purposes of this Section and Section 3.4, the notation of a beneficial owner's
interest therein upon original issuance of such Security or upon exchange of a
portion of a temporary global Security shall be deemed to be delivery in
connection with its original issuance of such beneficial owner's interest in
such permanent global Security. Except as permitted by Section 3.6, the Trustee
shall not authenticate and deliver any Bearer Security unless all appurtenant
coupons for interest then matured have been detached and canceled.
If all the Securities of any series are not to be issued at one time
and if the Board Resolution or supplemental indenture establishing such series
shall so permit, such Company Order may set forth procedures acceptable to the
Trustee for the issuance of such Securities and determining the terms of
particular Securities of such
<PAGE>
25
series, such as interest rate or formula, maturity date, date of issuance and
date from which interest shall accrue. In authenticating such Securities, and
accepting the additional responsibilities under this Indenture in relation to
such Securities, the Trustee shall be entitled to receive, and (subject to TIA
Section 315(a) through 315(d)) shall be fully protected in relying upon,
(i) an Opinion of Counsel stating that
(a) the form or forms of such Securities and any coupons have
been established in conformity with the provisions of this
Indenture;
(b) the terms of such Securities and any coupons have been
established in conformity with the provisions of this Indenture; and
(c) such Securities, together with any coupons appertaining
thereto, when completed by appropriate insertions and executed and
delivered by the Company to the Trustee for authentication in
accordance with this Indenture, authenticated and delivered by the
Trustee in accordance with this Indenture and issued by the Company
in the manner and subject to any conditions specified in such
Opinion of Counsel, will constitute legal, valid and binding
obligations of the Company, enforceable in accordance with their
terms, subject to applicable bankruptcy, insolvency, reorganization
and other similar laws of general applicability relating to or
affecting the enforcement of creditors' rights generally and to
general equitable principles; and
(ii) an Officers' Certificate stating that all conditions precedent
provided for in this Indenture relating to the issuance of the Securities
have been complied with and that, to the best of the knowledge of the
signers of such certificate, no Event of Default with respect to any of
the Securities shall have occurred and be continuing.
If such form or terms have been so established, the Trustee shall
not be required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties,
obligations or immunities under the Securities and this Indenture or otherwise
in a manner which is not reasonably acceptable to the Trustee.
Notwithstanding the provisions of Section 3.1 and of the preceding
paragraph, if all the Securities of any series are not to be issued at one time,
it shall not be necessary to deliver an Officers' Certificate otherwise required
pursuant to Section 3.1 or a Company Order, or an Opinion of Counsel or an
Officers' Certificate otherwise required pursuant to the preceding paragraph at
the time of issuance of each
<PAGE>
26
Security of such series, but such order, opinion and certificates, with
appropriate modifications to cover such future issuances, shall be delivered at
or before the time of issuance of the first Security of such series.
Each Registered Security shall be dated the date of its
authentication and each Bearer Security shall be dated as of the date specified
as contemplated by Section 3.1.
No Security or coupon shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on such
Security or Security to which such coupon appertains a certificate of
authentication substantially in the form provided for herein duly executed by
the Trustee by manual signature of an authorized signatory, and such certificate
upon any Security shall be conclusive evidence, and the only evidence, that such
Security has been duly authenticated and delivered hereunder and is entitled to
the benefits of this Indenture. Notwithstanding the foregoing, if any Security
shall have been authenticated and delivered hereunder but never issued and sold
by the Company, and the Company shall deliver such Security to the Trustee for
cancellation as provided in Section 3.9 together with a written statement (which
need not comply with Section 1.2 and need not be accompanied by an Opinion of
Counsel) stating that such Security has never been issued and sold by the
Company, for all purposes of this Indenture such Security shall be deemed never
to have been authenticated and delivered hereunder and shall never be entitled
to the benefits of this Indenture.
DO Temporary Securities. 1. Pending the preparation of definitive
Securities of any series, the Company may execute, and upon Company Order the
Trustee shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued, in registered form, or, if authorized, in bearer form
with one or more coupons or without coupons, and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as conclusively evidenced by their
execution of such Securities. In the case of Securities of any series, such
temporary Securities may be in global form.
Except in the case of temporary Securities in global form (which
shall be exchanged in accordance with Section 3.4(b) or as otherwise provided in
or pursuant to a Board Resolution), if temporary Securities of any series are
issued, the Company will cause definitive Securities of that series to be
prepared without unreasonable delay. After the preparation of definitive
Securities of such series, the temporary Securities of such series shall be
exchangeable for definitive Securities of such series upon surrender of the
temporary Securities of such series at the office or agency of the Company in a
Place of Payment for that series, without charge to the Holder. Upon surrender
for
<PAGE>
27
cancellation of any one or more temporary Securities of any series (accompanied
by any non-matured coupons appertaining thereto), the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Securities of the same series of authorized denominations;
provided, however, that no definitive Bearer Security shall be delivered in
exchange for a temporary Registered Security; and provided further that a
definitive Bearer Security shall be delivered in exchange for a temporary Bearer
Security only in compliance with the conditions set forth in Section 3.3. Until
so exchanged, the temporary Securities of any series shall in all respects be
entitled to the same benefits under this Indenture as definitive Securities of
such series.
2 Unless otherwise provided in or pursuant to a Board Resolution,
this Section 3.4(b) shall govern the exchange of temporary Securities issued in
global form other than through the facilities of The Depository Trust Company.
If any such temporary Security is issued in global form, then such temporary
global Security shall, unless otherwise provided therein, be delivered to the
London office of a depositary or common depositary (the "Common Depositary"),
for the benefit of Euroclear and CEDEL, for credit to the respective accounts of
the beneficial owners of such Securities (or to such other accounts as they may
direct).
Without unnecessary delay but in any event not later than the date
specified in, or determined pursuant to the terms of, any such temporary global
Security (the "Exchange Date"), the Company shall deliver to the Trustee
definitive Securities, in aggregate principal amount equal to the principal
amount of such temporary global Security, executed by the Company. On or after
the Exchange Date, such temporary global Security shall be surrendered by the
Common Depositary to the Trustee, as the Company's agent for such purpose, to be
exchanged, in whole or from time to time in part, for definitive Securities
without charge, and the Trustee shall authenticate and deliver, in exchange for
each portion of such temporary global Security, an equal aggregate principal
amount of definitive Securities of the same series of authorized denominations
and of like tenor as the portion of such temporary global Security to be
exchanged. The definitive Securities to be delivered in exchange for any such
temporary global Security shall be in bearer form, registered form, permanent
global bearer form or permanent global registered form, or any combination
thereof, as specified as contemplated by Section 3.1, and, if any combination
thereof is so specified, as requested by the beneficial owner thereof; provided,
however, that, unless otherwise specified in such temporary global Security,
upon such presentation by the Common Depositary, such temporary global Security
is accompanied by a certificate dated the Exchange Date or a subsequent date and
signed by Euroclear as to the portion of such temporary global Security held for
its account then to be exchanged and a certificate dated the Exchange Date or a
subsequent date and signed by CEDEL as to the portion of such temporary global
Security held for its account then to be exchanged, each in the form set forth
in Exhibit A-2 to this Indenture or in such other
<PAGE>
28
form as may be established pursuant to Section 3.1; and provided further that
definitive Bearer Securities shall be delivered in exchange for a portion of a
temporary global Security only in compliance with the requirements of Section
3.3.
Unless otherwise specified in such temporary global Security, the
interest of a beneficial owner of Securities of a series in a temporary global
Security shall be exchanged for definitive Securities of the same series and of
like tenor following the Exchange Date when the account holder instructs
Euroclear or CEDEL, as the case may be, to request such exchange on his behalf
and delivers to Euroclear or CEDEL, as the case may be, a certificate in the
form set forth in Exhibit A-1 to this Indenture (or in such other form as may be
established pursuant to Section 3.1), dated no earlier than 15 days prior to the
Exchange Date, copies of which certificate shall be available from the offices
of Euroclear and CEDEL, the Trustee, any Authenticating Agent appointed for such
series of Securities and each Paying Agent. Unless otherwise specified in such
temporary global Security, any such exchange shall be made free of charge to the
beneficial owners of such temporary global Security, except that a Person
receiving definitive Securities must bear the cost of insurance, postage,
transportation and the like unless such Person takes delivery of such definitive
Securities in person at the offices of Euroclear or CEDEL. Definitive Securities
in bearer form to be delivered in exchange for any portion of a temporary global
Security shall be delivered only outside the United States.
Until exchanged in full as hereinabove provided, the temporary
Securities of any series shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities of the same series and of like
tenor authenticated and delivered hereunder, except that, unless otherwise
specified as contemplated by Section 3.1, interest payable on a temporary global
Security on an Interest Payment Date for Securities of such series occurring
prior to the applicable Exchange Date shall be payable to Euroclear and CEDEL on
such Interest Payment Date upon delivery by Euroclear and CEDEL to the Trustee
of a certificate or certificates in the form set forth in Exhibit A-2 to this
Indenture (or in such other forms as may be established pursuant to Section
3.1), for credit without further interest on or after such Interest Payment Date
to the respective accounts of Persons who are the beneficial owners of such
temporary global Security on such Interest Payment Date and who have each
delivered to Euroclear or CEDEL, as the case may be, a certificate dated no
earlier than 15 days prior to the Interest Payment Date occurring prior to such
Exchange Date in the form set forth as Exhibit A-1 to this Indenture (or in such
other forms as may be established pursuant to Section 3.1). Notwithstanding
anything to the contrary herein contained, the certifications made pursuant to
this paragraph shall satisfy the certification requirements of the preceding two
paragraphs of this Section 3.4(b) and of the third paragraph of Section 3.3 of
this Indenture and the interests of the Persons who are the beneficial owners of
the temporary global Security with respect to which such certification was made
will be exchanged for definitive Securities of the same series
<PAGE>
29
and of like tenor on the Exchange Date or the date of certification if such date
occurs after the Exchange Date, without further act or deed by such beneficial
owners. Except as otherwise provided in this paragraph, no payments of principal
or interest owing with respect to a beneficial interest in a temporary global
Security will be made unless and until such interest in such temporary global
Security shall have been exchanged for an interest in a definitive Security. Any
interest so received by Euroclear and CEDEL and not paid as herein provided
shall be returned to the Trustee prior to the expiration of two years after such
Interest Payment Date in order to be repaid to the Company.
EO Registration, Registration of Transfer and Exchange. The Company
shall cause to be kept at the Corporate Trust Office of the Trustee or in any
office or agency of the Company in a Place of Payment a register for each series
of Securities (the registers maintained in such office or in any such office or
agency of the Company in a Place of Payment being herein sometimes referred to
collectively as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Registered Securities and of transfers of Registered Securities. The Security
Register shall be in written form or any other form capable of being converted
into written form within a reasonable time. The Trustee, at its Corporate Trust
Office, is hereby initially appointed "Security Registrar" for the purpose of
registering Registered Securities and transfers of Registered Securities on such
Security Register as herein provided. In the event that the Trustee shall cease
to be Security Registrar, it shall have the right to examine the Security
Register at all reasonable times.
Subject to the provisions of this Section 3.5, upon surrender for
registration of transfer of any Registered Security of any series at any office
or agency of the Company in a Place of Payment for that series, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Registered Securities
of the same series, of any authorized denominations and of a like aggregate
principal amount, bearing a number not contemporaneously outstanding, and
containing identical terms and provisions.
Subject to the provisions of this Section 3.5, at the option of the
Holder, Registered Securities of any series may be exchanged for other
Registered Securities of the same series, of any authorized denomination or
denominations and of a like aggregate principal amount, containing identical
terms and provisions, upon surrender of the Registered Securities to be
exchanged at any such office or agency. Whenever any such Registered Securities
are so surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and deliver, the Registered Securities which the Holder
making the exchange is entitled to receive. Unless otherwise specified with
respect to any series of Securities as contemplated by Section 3.1, Bearer
Securities may not be issued in exchange for Registered Securities.
<PAGE>
30
If (but only if) permitted by the applicable Board Resolution and
(subject to Section 3.3) set forth in the applicable Officers' Certificate, or
in any indenture supplemental hereto, delivered as contemplated by Section 3.1,
at the option of the Holder, Bearer Securities of any series may be exchanged
for Registered Securities of the same series of any authorized denominations and
of a like aggregate principal amount and tenor, upon surrender of the Bearer
Securities to be exchanged at any such office or agency, with all unmatured
coupons and all matured coupons in default thereto appertaining. If the Holder
of a Bearer Security is unable to produce any such unmatured coupon or coupons
or matured coupon or coupons in default, any such permitted exchange may be
effected if the Bearer Securities are accompanied by payment in funds acceptable
to the Company in an amount equal to the face amount of such missing coupon or
coupons, or the surrender of such missing coupon or coupons may be waived by the
Company and the Trustee if there is furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Security shall surrender to any Paying Agent any
such missing coupon in respect of which such a payment shall have been made,
such Holder shall be entitled to receive the amount of such payment; provided,
however, that, except as otherwise provided in Section 10.2, interest
represented by coupons shall be payable only upon presentation and surrender of
those coupons at an office or agency located outside the United States.
Notwithstanding the foregoing, in case a Bearer Security of any series is
surrendered at any such office or agency in a permitted exchange for a
Registered Security of the same series and like tenor after the close of
business at such office or agency on (i) any Regular Record Date and before the
opening of business at such office or agency on the relevant Interest Payment
Date, or (ii) any Special Record Date and before the opening of business at such
office or agency on the related proposed date for payment of Defaulted Interest,
such Bearer Security shall be surrendered without the coupon relating to such
Interest Payment Date or proposed date for payment, as the case may be, and
interest or Defaulted Interest, as the case may be, will not be payable on such
Interest Payment Date or proposed date for payment, as the case may be, in
respect of the Registered Security issued in exchange for such Bearer Security,
but will be payable only to the Holder of such coupon then due in accordance
with the provisions of this Indenture. Whenever any Securities are so
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
Notwithstanding the foregoing, except as otherwise specified as
contemplated by Section 3.1, any permanent global Security shall be exchangeable
only as provided in this paragraph. If the depositary for any permanent global
Security is The Depository Trust Company ("DTC"), then, unless the terms of such
global Security expressly permit such global Security to be exchanged in whole
or in part for definitive Securities, a global Security may be transferred, in
whole but not in part,
<PAGE>
31
only to a nominee of DTC, or by a nominee of DTC to DTC, or to a successor to
DTC for such global Security selected or approved by the Company or to a nominee
of such successor to DTC. If at any time DTC notifies the Company that it is
unwilling or unable to continue as depositary for the applicable global Security
or Securities or if at any time DTC ceases to be a clearing agency registered
under the Securities Exchange Act of 1934 if so required by applicable law or
regulation, the Company shall appoint a successor depositary with respect to
such global Security or Securities. If (x) a successor depositary for such
global Security or Securities is not appointed by the Company within 90 days
after the Company receives such notice or becomes aware of such unwillingness,
inability or ineligibility, (y) an Event of Default has occurred and is
continuing and the beneficial owners representing a majority in principal amount
of the applicable series of Securities represented by such global Security or
Securities advise DTC to cease acting as depositary for such global Security or
Securities or (z) the Company, in its sole discretion, determines at any time
that all Outstanding Securities (but not less than all) of any series issued or
issuable in the form of one or more global Securities shall no longer be
represented by such global Security or Securities, then the Company shall
execute, and the Trustee shall authenticate and deliver definitive Securities of
like series, rank, tenor and terms in definitive form in an aggregate principal
amount equal to the principal amount of such global Security or Securities. If
any beneficial owner of an interest in a permanent global Security is otherwise
entitled to exchange such interest for Securities of such series and of like
tenor and principal amount of another authorized form and denomination, as
specified as contemplated by Section 3.1 and provided that any applicable notice
provided in the permanent global Security shall have been given, then without
unnecessary delay but in any event not later than the earliest date on which
such interest may be so exchanged, the Company shall execute, and the Trustee
shall authenticate and deliver definitive Securities in aggregate principal
amount equal to the principal amount of such beneficial owner's interest in such
permanent global Security. On or after the earliest date on which such interests
may be so exchanged, such permanent global Security shall be surrendered for
exchange by DTC or such other depositary as shall be specified in the Company
Order with respect thereto to the Trustee, as the Company's agent for such
purpose; provided, however, that no such exchanges may occur during a period
beginning at the opening of business 15 days before any selection of Securities
to be redeemed and ending on the relevant Redemption Date if the Security for
which exchange is requested may be among those selected for redemption; and
provided further that no Bearer Security delivered in exchange for a portion of
a permanent global Security shall be mailed or otherwise delivered to any
location in the United States. If a Registered Security is issued in exchange
for any portion of a permanent global Security after the close of business at
the office or agency where such exchange occurs on (i) any Regular Record Date
and before the opening of business at such office or agency on the relevant
Interest Payment Date, or (ii) any Special Record Date and the opening of
business at such office or agency on the related proposed date for payment of
Defaulted Interest, interest or Defaulted Interest, as the case may be, will
<PAGE>
32
not be payable on such Interest Payment Date or proposed date for payment, as
the case may be, in respect of such Registered Security, but will be payable on
such Interest Payment Date or proposed date for payment, as the case may be,
only to the Person to whom interest in respect of such portion of such permanent
global Security is payable in accordance with the provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Registered Security presented or surrendered for registration
of transfer or for exchange or redemption shall (if so required by the Company
or the Security Registrar) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 3.4, 9.6, 11.7 or 13.5 not involving any transfer.
The Company or the Trustee, as applicable, shall not be required (i)
to issue, register the transfer of or exchange any Security if such Security may
be among those selected for redemption during a period beginning at the opening
of business 15 days before selection of the Securities to be redeemed under
Section 11.3 and ending at the close of business on (A) if such Securities are
issuable only as Registered Securities, the day of the mailing of the relevant
notice of redemption and (B) if such Securities are issuable as Bearer
Securities, the day of the first publication of the relevant notice of
redemption or, if such Securities are also issuable as Registered Securities and
there is no publication, the mailing of the relevant notice of redemption, or
(ii) to register the transfer of or exchange any Registered Security so selected
for redemption in whole or in part, except, in the case of any Registered
Security to be redeemed in part, the portion thereof not to be redeemed, or
(iii) to exchange any Bearer Security so selected for redemption except that
such a Bearer Security may be exchanged for a Registered Security of that series
and like tenor, provided that such Registered Security shall be simultaneously
surrendered for redemption, or (iv) to issue, register the transfer of or
exchange any Security which has been surrendered for repayment at the option of
the Holder, except the portion, if any, of such Security not to be so repaid.
<PAGE>
33
FO Mutilated, Destroyed, Lost and Stolen Securities. If any
mutilated Security or a Security with a mutilated coupon appertaining to it is
surrendered to the Trustee or the Company, together with, in proper cases, such
security or indemnity as may be required by the Company or the Trustee to save
each of them or any agent of either of them harmless, the Company shall execute
and the Trustee shall authenticate and deliver in exchange therefor a new
Security of the same series and principal amount, containing identical terms and
provisions and bearing a number not contemporaneously outstanding, with coupons
corresponding to the coupons, if any, appertaining to the surrendered Security.
If there shall be delivered to the Company and to the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
or coupon, and (ii) such security or indemnity as may be required by them to
save each of them and any agent of either of them harmless, then, in the absence
of notice to the Company or the Trustee that such Security or coupon has been
acquired by a bona fide purchaser, the Company shall execute and upon its
request the Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security or in exchange for the Security to which a
destroyed, lost or stolen coupon appertains (with all appurtenant coupons not
destroyed, lost or stolen), a new Security of the same series and principal
amount, containing identical terms and provisions and bearing a number not
contemporaneously outstanding, with coupons corresponding to the coupons, if
any, appertaining to such destroyed, lost or stolen Security or to the Security
to which such destroyed, lost or stolen coupon appertains.
Notwithstanding the provisions of the previous two paragraphs in
case any such mutilated, destroyed, lost or stolen Security or coupon has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, with coupons corresponding to the coupons, if
any, appertaining to such destroyed, lost or stolen Security or to the Security
to which such destroyed, lost or stolen coupon appertains, pay such Security or
coupon; provided, however, that payment of principal of (and premium, if any),
any interest on and any Additional Amounts with respect to, Bearer Securities
shall, except as otherwise provided in Section 10.2, be payable only at an
office or agency located outside the United States and, unless otherwise
specified as contemplated by Section 3.1, any interest on Bearer Securities
shall be payable only upon presentation and surrender of the coupons
appertaining thereto.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
<PAGE>
34
Every new Security of any series with its coupons, if any, issued
pursuant to this Section in lieu of any destroyed, lost or stolen Security, or
in exchange for a Security to which a destroyed, lost or stolen coupon
appertains, shall constitute an original additional contractual obligation of
the Company, whether or not the destroyed, lost or stolen Security and its
coupons, if any, or the destroyed, lost or stolen coupon shall be at any time
enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Securities of that
series and their coupons, if any, duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities or coupons.
GO Payment of Interest; Interest Rights Preserved. Except as
otherwise specified with respect to a series of Securities in accordance with
the provisions of Section 3.1, interest on any Registered Security that is
payable, and is punctually paid or duly provided for, on any Interest Payment
Date shall be paid to the Person in whose name that Security (or one or more
Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest at the office or agency of the Company maintained
for such purpose pursuant to Section 10.2; provided, however, that each
installment of interest on any Registered Security may at the Company's option
be paid by (i) mailing a check for such interest, payable to or upon the written
order of the Person entitled thereto pursuant to Section 3.8, to the address of
such Person as it appears on the Security Register or (ii) transfer to an
account maintained by the payee located inside the United States.
Unless otherwise provided as contemplated by Section 3.1 with
respect to the Securities of any series, payment of interest may be made, in the
case of a Bearer Security, by transfer to an account maintained by the payee
with a bank located outside the United States.
Unless otherwise provided as contemplated by Section 3.1, every
permanent global Security will provide that interest, if any, payable on any
Interest Payment Date will be paid to DTC, Euroclear and/or CEDEL, as the case
may be, with respect to that portion of such permanent global Security held for
its account by Cede & Co. or the Common Depositary, as the case may be, for the
purpose of permitting such party to credit the interest received by it in
respect of such permanent global Security to the accounts of the beneficial
owners thereof.
In case a Bearer Security of any series is surrendered in exchange
for a Registered Security of such series after the close of business (at an
office or agency in a Place of Payment for such series) on any Regular Record
Date and before the opening of business (at such office or agency) on the next
succeeding Interest Payment Date,
<PAGE>
35
such Bearer Security shall be surrendered without the coupon relating to such
Interest Payment Date and interest will not be payable on such Interest Payment
Date in respect of the Registered Security issued in exchange for such Bearer
Security, but will be payable only to the Holder of such coupon when due in
accordance with the provisions of this Indenture.
Except as otherwise specified with respect to a series of Securities
in accordance with the provisions of Section 3.1, any interest on any Registered
Security of any series that is payable, but is not punctually paid or duly
provided for, on any Interest Payment Date (herein called "Defaulted Interest")
shall forthwith cease to be payable to the registered Holder thereof on the
relevant Regular Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in each case, as
provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Registered Securities of such series (or
their respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed
to be paid on each Registered Security of such series and the date of the
proposed payment (which shall not be less than 20 days after such notice
is received by the Trustee), and at the same time the Company shall
deposit with the Trustee an amount of money in the currency or currencies,
currency unit or units or composite currency or currencies in which the
Securities of such series are payable (except as otherwise specified
pursuant to Section 3.1 for the Securities of such series) equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit on
or prior to the date of the proposed payment, such money when deposited to
be held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more that 15 days and not less than 10 days prior to the date of
the proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder of Registered Securities of
such series at his address as it appears in the Security Register not less
than 10 days prior to such Special Record Date. The Trustee may, in its
discretion, in the name and at the expense of the Company, cause a similar
notice to be published at least once in an Authorized Newspaper in each
place of payment, but such publications shall not be a condition precedent
to the
<PAGE>
36
establishment of such Special Record Date. Notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor having
been mailed as aforesaid, such Defaulted Interest shall be paid to the
Persons in whose names the Registered Securities of such series (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following clause (2). In case a Bearer Security of any series is
surrendered at the office or agency in a Place of Payment for such series
in exchange for a Registered Security of such series after the close of
business at such office or agency on any Special Record Date and before
the opening of business at such office or agency on the related proposed
date for payment of Defaulted Interest, such Bearer Security shall be
surrendered without the coupon relating to such proposed date of payment
and Defaulted Interest will not be payable on such proposed date of
payment in respect of the Registered Security issued in exchange for such
Bearer Security, but will be payable only to the Holder of such coupon
when due in accordance with the provisions of this Indenture.
(2) The Company may make payment of any Defaulted Interest on the
Registered Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which
such Securities may be listed, and upon such notice as may be required by
such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 3.5,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
HO Persons Deemed Owners. Prior to due presentment of a Registered
Security for registration of transfer, the Company, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name such Registered
Security is registered as the owner of such Security for the purpose of
receiving payment or principal of (and premium, if any), and (subject to
Sections 3.5 and 3.7) interest on, such Registered Security and for all other
purposes whatsoever, whether or not such Registered Security be overdue, and
neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
Title to any Bearer Security and any coupons appertaining thereto
shall pass by delivery. The Company, the Trustee and any agent of the Company or
the Trustee may treat the Holder of any Bearer Security and the Holder of any
coupon as the absolute owner of such Security or coupon for the purpose of
receiving payment
<PAGE>
37
thereof or on account thereof and for all other purposes whatsoever, whether or
not such Security or coupon be overdue, and neither the Company, the Trustee nor
any agent of the Company or the Trustee shall be affected by notice to the
contrary.
None of the Company, the Trustee, any Paying Agent or the Security
Registrar will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of a Security in global form or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Notwithstanding the foregoing, with respect to any global Security,
nothing herein shall prevent the Company, the Trustee, or any agent of the
Company or the Trustee, from giving effect to any written certification, proxy
or other authorization furnished by any depositary, as a Holder, with respect to
such global Security or impair, as between such depositary and owners of
beneficial interests in such global Security, the operation of customary
practices governing the exercise of the rights of such depositary (or its
nominee) as Holder of such global Security.
IO Cancellation. All Securities and coupons surrendered for payment,
redemption, repayment at the option of the Holder, registration of transfer or
exchange or for credit against any sinking fund payment shall, if surrendered to
any Person other than the Trustee, be delivered to the Trustee, and any such
Securities and coupons and Securities and coupons surrendered directly to the
Trustee for any such purpose shall be promptly canceled by it. The Company may
at any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Securities previously
authenticated hereunder which the Company has not issued and sold, and all
Securities so delivered shall be promptly canceled by the Trustee. If the
Company shall so acquire any of the Securities however, such acquisition shall
not operate as a redemption or satisfaction of the indebtedness represented by
such Securities unless and until the same are surrendered to the Trustee for
cancellation. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. Canceled Securities and coupons held by the Trustee
shall be destroyed by the Trustee and the Trustee shall deliver a certificate of
such destruction to the Company, unless by a Company Order the Company directs
their return to it.
JO Computation of Interest. Except as otherwise specified as
contemplated by Section 3.1 with respect to Securities of any series, interest
on the Securities of each series shall be computed on the basis of a 360-day
year consisting of twelve 30-day months.
<PAGE>
38
IV
SATISFACTION AND DISCHARGE
AO Satisfaction and Discharge of Indenture. This Indenture shall
upon Company Request cease to be of further effect with respect to any series of
Securities specified in such Company Request (except as to any surviving rights
of registration of transfer or exchange of Securities of such series herein
expressly provided for and any right to receive Additional Amounts, and the
Trustee, upon receipt of a Company Order, and at the expense of the Company,
shall execute proper instruments acknowledging satisfaction and discharge of
this Indenture as to such series when
(1) either
(A) all Securities of such series theretofore authenticated
and delivered and all coupons, if any, appertaining thereto (other
than (i) coupons appertaining to Bearer Securities surrendered for
exchange for Registered Securities and maturing after such exchange,
whose surrender is not required or has been waived as provided in
Section 3.5, (ii) Securities and coupons of such series which have
been destroyed, lost or stolen and which have been replaced or paid
as provided in Section 3.6, (iii) coupons appertaining to Securities
called for redemption and maturing after the relevant Redemption
Date, whose surrender has been waived as provided in Section 11.6,
and (iv) Securities and coupons of such series for whose payment
money has theretofore been deposited in trust or segregated and held
in trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 10.3) have been
delivered to the Trustee for cancellation; or
(B) all Securities of such series and, in the case of (i) or
(ii) below, any coupons appertaining thereto not theretofore
delivered to the Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated
Maturity within one year, or
(iii) if redeemable at the option of the Company, are to
be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of
the Company,
<PAGE>
39
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for the purpose (A) an amount
of money in the currency or currencies, currency unit or units
or composite currency or currencies in which the Securities of
such series are payable, (B) Government Obligations that
through the scheduled payment of principal and interest in
respect thereof in accordance with their terms will provide,
not later than on day before the due date of any payment,
money in an amount, or (C) a combination thereof, sufficient
to pay and discharge the entire indebtedness on such
Securities and such coupons not theretofore delivered to the
Trustee for cancellation, for principal (and premium, if any)
and interest, and any Additional Amounts with respect thereto,
to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge
of this Indenture as to such series have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee and any predecessor Trustee under
Section 6.6, the obligations of the Company to any Authenticating Agent under
Section 6.11 and, if money shall have been deposited with and held by the
Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations
of the Trustee under Section 4.2 and the last paragraph of Section 10.3 shall
survive.
BO Application of Trust Funds. Subject to the provisions of the last
paragraph of Section 10.3, all money deposited with the Trustee pursuant to
Section 4.1 shall be held in trust and applied by it, in accordance with the
provisions of the Securities, the coupons and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Persons entitled thereto,
of the principal (and premium, if any), and any interest and Additional Amounts
for whose payment such money has been deposited with or received by the Trustee,
but such money need not be segregated from other funds except to the extent
required by law.
<PAGE>
40
V
REMEDIES
AO Events of Default. "Event of Default," wherever used herein with
respect to any particular series of Securities, means any one of the following
events (whatever the reason for such Event of Default and whether or not it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(1) default in the payment of any interest upon or any Additional
Amounts payable in respect of any Security of that series or of any coupon
appertaining thereto, when such interest, Additional Amounts or coupon
becomes due and payable, and continuance of such default for a period of
30 days; or
(2) default in the payment of the principal of (or premium, if any,
on) any Security of that series when it becomes due and payable at its
Maturity; or
(3) default in the deposit of any sinking fund payment, when and as
due by the terms of any Security of that series; or
(4) default in the performance, or breach, of any covenant or
warranty of the Company in this Indenture with respect to any Security of
that series (other than a covenant or warranty a default in whose
performance or whose breach is elsewhere in this Section specifically
dealt with), and continuance of such default or breach for a period of 90
days after there has been given, by registered or certified mail, to the
Company by the trustee or to the Company and the Trustee by the Holders of
at least 25% in principal amount of the Outstanding Securities of that
series a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default"
hereunder; or
(5) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in
an involuntary case,
<PAGE>
41
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors; or
(6) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case,
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for all or substantially all of either of its
property, or
(C) orders the liquidation of the Company or any Significant
Subsidiary,
and the order or decree remains unstayed and in effect for 90 days; or
(7) any other Event of Default provided with respect to Securities
of that series.
As used in this Section 5.1, the term "Bankruptcy Law" means title 11, U.S. Code
or any similar Federal or State law for the relief of debtors and the term
Custodian means any receiver, trustee, assignee, liquidator or other similar
official under any Bankruptcy Law.
BO Acceleration of Maturity; Rescission and Annulment. If an Event
of Default with respect to Securities of any series at the time Outstanding
occurs and is continuing, then and in every such case the Trustee or the Holders
of not less than 25% in principal amount of the Outstanding Securities of that
series may declare the principal (or, if any Securities are Original Issue
Discount Securities or Indexed Securities, such portion of the principal as may
be specified in the terms thereof) of all the Securities of that series to be
due and payable immediately, by a notice in writing to the Company (and to the
Trustee if given by the Holders), and upon any such declaration such principal
or specified portion thereof shall become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that
<PAGE>
42
series, by written notice to the Company and the Trustee, may rescind and annul
such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay in the currency, currency unit or composite currency in
which the Securities of such series are payable (except as otherwise
specified pursuant to Section 3.1 for the Securities of such series):
(A) all overdue installments of interest on and any Additional
Amounts payable in respect of all Outstanding Securities of that
series and any related coupons,
(B) the principal of (and premium, if any, on) any Outstanding
Securities of that series which have become due otherwise than by
such declaration of acceleration and interest thereon at the rate or
rates borne by or provided for in such Securities,
(C) to the extent that payment of such interest as lawful,
interest upon overdue installments of interest and any Additional
Amounts at the rate or rates borne by or provided for in such
Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default with respect to Securities of that series,
other than the nonpayment of the principal of (or premium, if any) or
interest on Securities of that series which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 5.13.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
C. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any installment of
interest or Additional Amounts, if any, on any Security of any
series and any related coupon when such interest or Additional
Amount becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (or
premium, if any, on) any Security of any series at its Maturity,
<PAGE>
43
then the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities of such series and coupons, the whole
amount then due and payable on such Securities and coupons for principal (and
premium, if any) and interest and Additional Amount, with interest upon any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installments of interest
or Additional Amounts, if any, at the rate or rates borne by or provided for in
such Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities of such series and
collect the moneys adjudged decreed to be payable in the manner provided by law
out of the property if the Company or any other obligor upon such Securities of
such series, wherever situated.
If an Event of Default with respect to Securities of any series
occurs and is continuing, the Trustee may in its discretion proceed to protect
and enforce its rights and the rights of the Holders of Securities of such
series and any related coupons by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
D. Trustee May File Proofs of Claim. In case of the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to the Company or
any other obligor upon the Securities or the property of the Company or of such
other obligor or their creditors, the Trustee (irrespective of whether the
principal of the Securities of any series shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Company for the payment of overdue
principal, premium, if any, or interest) shall be entitled and empowered, by
intervention in such proceeding or otherwise:
(i) to file and prove a claim for the whole amount, or such
lesser amount as may be provided for in the Securities of such
series, of principal (and premium, if any) and interest and
Additional Amounts, if
<PAGE>
44
any, owing and unpaid in respect of the Securities and to file such
other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the
same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or
other similar official) in any such judicial proceeding is hereby authorized by
each Holder of Securities of such series and coupons to make such payments to
the Trustee, and in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any amount due to
it for the reasonable compensation, expenses, disbursements and advances of the
Trustee and any predecessor Trustee, their agents and counsel, and any other
amounts due the Trustee or any predecessor Trustee under Section 6.6.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder of a Security
or coupon any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or coupons or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder of a
Security or coupon in any such proceeding.
E. Trustee May Enforce Claims Without Possession of Securities or
Coupons. All rights of action and claims under this Indenture or any of the
Securities or coupons may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or coupons or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities and
coupons in respect of which such judgment has been recovered.
F. Application of Money Collected. Any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest and any
Additional Amounts, upon presentation of the Securities or coupons, or both, as
the case may be, and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
<PAGE>
45
FIRST: To the payment of all amounts due the Trustee and
any predecessor Trustee under Section 6.6;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities and coupons for principal (and premium, if any) and interest
and any Additional Amounts payable, in respect of which or for the benefit
of which such money has been collected, ratably, without preference or
priority of any kind, according to the aggregate amounts due and payable
on such Securities and coupons for principal (and premium, if any),
interest and Additional Amounts, respectively; and
THIRD: To the payment of the remainder, if any, to the Company.
G. Limitation on Suits. No Holder of any Security of any series or
any related coupon shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee
of a continuing Event of Default with respect to the Securities of that
series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to
the Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee indemnity
reasonably satisfactory to the Trustee against the costs, expenses and
liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a
majority in principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all such
Holders.
<PAGE>
46
H. Unconditional Right of Holders to Receive Principal, Premium, if
any, Interest and Additional Amounts. Notwithstanding any other provision in
this Indenture, the Holder of any Security or coupon shall have the right which
is absolute and unconditional to receive payment of the principal of (and
premium, if any) and (subject to Sections 3.5 and 3.7) interest on, and any
Additional Amounts in respect of, such Security or payment of such coupon on the
respective due dates expressed in such Security or coupon (or, in the case of
redemption, on the Redemption Date) and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired without the consent of
such Holder.
I. Restoration of Rights and Remedies. If the Trustee or any Holder
of a Security or coupon has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case, the Company, the Trustee and the
Holders of Securities and coupons shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and the Holders
shall continue as though no such proceeding had been instituted.
J. Rights and Remedies Cumulative. Except as otherwise provided with
respect to the replacement or payment of mutilated, destroyed, lost or stolen
Securities or coupons in the last paragraph of Section 3.6, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders of Securities
or coupons is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
K. Delay or Omission Not Waiver. No delay or omission of the Trustee
or of any Holder of any Security or coupon to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders of Securities or coupons, as the
case may be.
L. Control by Holders of Securities. The Holders of not less than a
majority in principal amount of the Outstanding Securities of any series shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy
<PAGE>
47
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to the Securities of such series, provided that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture,
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve
it in personal liability or be unduly prejudicial to the Holders of
Securities of such series not joining therein.
M. Waiver of Past Defaults. The Holders of not less than a majority
in principal amount of the Outstanding Securities of any series may on behalf of
the Holders of all the Securities of such series and any related coupons waive
any past default hereunder with respect to such series and its consequences,
except a default
(1) in the payment of the principal of (or premium, if any) or
interest on or Additional Amounts payable in respect of any Security
of such series or any related coupons, or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of
the Holder of each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
N. Waiver of Usury, Stay or Extension Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any usury, stay or extension law wherever enacted, now or at any
time hereafter in force, which may affect the covenants or the performance of
this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
O. Undertaking for Costs. All parties to this Indenture agree, and
each Holder of any Security by his acceptance thereof shall be deemed to have
agreed, that
<PAGE>
48
any court may in its discretion require, in any suit for the enforcement of any
right or remedy under this Indenture, or in any suit against the Trustee for any
action taken or omitted by it as Trustee, the filing by any party litigant in
such suit of any undertaking to pay the costs of such suit, and that such court
may in its discretion assess reasonable costs, including reasonable attorneys'
fees, against any party in such suit having due regard to the merits and good
faith of the claims or defenses made by such party litigant; but the provisions
of this Section shall not apply to any suit instituted by the Trustee, to any
suit instituted by any Holder, or group of Holders, holding in the aggregate
more than 10% in principal amount of the Outstanding Securities, or to any suit
instituted by any Holder for the enforcement of the payment of the principal of
(or premium, if any) or interest on any Security on or after the respective
Stated Maturities expressed in such Security (or, in the case of redemption, on
or after the Redemption Date).
VI.
THE TRUSTEE
A. Notice of Defaults. Within 90 days after the occurrence of any
default hereunder with respect to the Securities of any series, the Trustee
shall transmit in the manner and to the extent provided in TIA Section 313(c),
notice of such default hereunder known to the Trustee, unless such default shall
have been cured or waived; provided, however, that, except in the case of a
default in the payment of the principal of (or premium, if any) or interest on
or any Additional Amounts with respect to any Security of such series, or in the
payment of any sinking fund installment with respect to the Securities of such
series, the Trustee shall be protected in withholding such notice if and so long
as Responsible Officers of the Trustee in good faith determine that the
withholding of such notice is in the interests of the Holders of the Securities
and coupons of such series; and provided further that in the case of any default
or breach of the character specified in Section 5.1(4) with respect to the
Securities and coupons of such series, no such notice to Holders shall be given
until at least 90 days after the occurrence thereof. For the purpose of this
Section, the term "default" means any event which is, or after notice or lapse
of time or both would become, an Event of Default with respect to the Securities
of such series.
B. Certain Rights of Trustee. Subject to the provisions of TIA
Section 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon
<PAGE>
49
or other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order (other
than delivery of any Security, together with any coupons appertaining
thereto, to the Trustee for authentication and delivery pursuant to
Section 3.3 which shall be sufficiently evidenced as provided therein) and
any resolution of the Board of Directors may be sufficiently evidenced by
a Board Resolution;
(3) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee (unless
other evidence be herein specifically prescribed) may, in the absence of
bad faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or
direction of any of the Holders of Securities of any series or any related
coupons pursuant to this Indenture, unless such Holders shall have offered
to the Trustee security or indemnity reasonably satisfactory to the
Trustee against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, coupon or other paper or document, but the Trustee,
in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
<PAGE>
50
(8) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred upon it
by this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
Except during the continuance of an Event of Default, the Trustee
undertakes to perform only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be read into this
Indenture against the Trustee.
C. Not Responsible for Recitals or Issuance of Securities. The
recitals contained herein and in the Securities, except the Trustee's
certificate of authentication, and in any coupons shall be taken as the
statements of the Company, and neither the Trustee nor any Authenticating Agent
assumes any responsibility for their correctness. The Trustee make no
representations as to the validity or sufficiency of this Indenture or of the
Securities or coupons, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Securities
and perform its obligations hereunder. Neither the Trustee nor any
Authenticating Agent shall be accountable for the use or application by the
Company of Securities or the proceeds thereof.
D. May Hold Securities. The Trustee, any Paying Agent, Security
Registrar, Authenticating Agent or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee of Securities
and coupons and, subject to TIA Sections 310(b) and 311, may otherwise deal with
the Company with the same rights it would have if it were not Trustee, Paying
Agent, Security Registrar, Authenticating Agent or such other agent.
E. Money Held in Trust. Money held by the Trustee in trust hereunder
need not be segregated from other funds except to the extent required by law.
The Trustee shall be under no liability for interest on any money received by it
hereunder except as otherwise agreed with the Company.
F. Compensation and Reimbursement. The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited
<PAGE>
51
by any provision of law in regard to the compensation of a trustee of an
express trust);
(2) except as otherwise expressly provided herein, to reimburse each
of the Trustee and any predecessor Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Trustee in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its agents
and counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify each of the Trustee and any predecessor Trustee
for, and to hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on its own part, arising out of
or in connection with the acceptance or administration of the trust or
trusts hereunder, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 5.1(5) or Section 5.1(6), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
As security for the performance of the obligations of the Company
under this Section, the Trustee shall have a lien prior to the Securities upon
all property and funds held or collected by the Trustee as such, except funds
held in trust for the payment of principal of (or premium, if any) or interest
on particular Securities or any coupons.
The provisions of this Section shall survive the termination of this
Indenture.
G. Corporate Trustee Required; Eligibility; Conflicting Interests.
There shall at all times be a Trustee hereunder which shall be eligible to act
as Trustee under TIA Section 310(a)(1) and shall have a combined capital and
surplus of at least $50,000,000. If such corporation publishes reports of
condition at least annually, pursuant to law or the requirements of Federal,
State, Territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article. If the Trustee has or shall acquire a conflicting interest
within
<PAGE>
52
the meaning of the TIA, the Trustee shall either eliminate such interest or
resign to the extent and in the manner provided by and subject to the provisions
of the TIA and this Indenture.
H. Resignation and Removal; Appointment of Successor.
1. No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 6.9.
2. The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered to
the Trustee within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
3. The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal amount
of the Outstanding Securities of such series delivered to the Trustee and to the
Company.
4. If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 3.10(b) after written request therefor by the Company or by
any Holder of a Security who has been a bona fide Holder of a Security for
at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.7
and shall fail to resign after written request therefor by the Company or
by any Holder of a Security who has been a bona fide Holder of a Security
for at least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company by or pursuant to a Board Resolution may
remove the Trustee and appoint a successor Trustee with respect to all
Securities, or (ii) subject to TIA Section 315(e), any Holder of a Security who
has been a bona fide Holder of a Security for at least six months may, on behalf
of himself and all others
<PAGE>
53
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee with respect to all Securities and the appointment of a successor
Trustee or Trustees.
5. If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause with
respect to the Securities of one or more series, the Company, by or pursuant to
a Board Resolution, shall promptly appoint a successor Trustee or Trustees with
respect to the Securities of that or those series (it being understood that any
such successor Trustee may be appointed with respect to the Securities of one or
more or all of such series and that at any time there shall be only one Trustee
with respect to the Securities of any particular series). If, within one year
after such resignation, removal or incapability, or the occurrence of such
vacancy, a successor Trustee with respect to the Securities of any series shall
be appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment, become the successor Trustee with respect to the Securities
of such series and to that extent supersede the successor Trustee appointed by
the Company. If no successor Trustee with respect to the Securities of any
series shall have been so appointed by the Company or the Holders of Securities
and accepted appointment in the manner hereinafter provided, any Holder of a
Security who has been a bona fide Holder of a Security of such series for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee with respect to Securities of such series.
6. The Company shall give notice of each resignation and each
removal of the Trustee with respect to the Securities of any series and each
appointment of a successor Trustee with respect to the Securities of any series
in the manner provided for notices to the Holders of Securities in Section 1.6.
Each notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its Corporate Trust Office.
I. Acceptance of Appointment by Successor. 1. In case of the
appointment hereunder of a successor Trustee with respect to all Securities,
every such successor Trustee shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; but, on request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
<PAGE>
54
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder.
2. In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto,
pursuant to Article Nine hereof, wherein each successor Trustee shall accept
such appointment and which (1) shall contain such provisions as shall be
necessary or desirable to transfer and confirm to, and to vest in, each
successor Trustee all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates, (2) if the retiring Trustee is
not retiring with respect to all Securities, shall contain such provisions as
shall be deemed necessary or desirable to confirm that all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series as to which the retiring Trustee is not retiring shall continue
to be vested in the retiring Trustee, and (3) shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
3. Upon request of any such successor Trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor Trustee all such rights, powers and trusts referred
to in paragraph (a) or (b) of this Section, as the case may be.
4. No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
J. Merger, Conversion, Consolidation or Succession to Business. Any
corporation into which the Trustee may be merged or converted or with which it
may
<PAGE>
55
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities or coupons shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities or coupons so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities or coupons. In case any Securities or coupons shall not have been
authenticated by such predecessor Trustee, any such successor Trustee may
authenticate and deliver such Securities or coupons, in either its own name or
that of its predecessor Trustee, with the full force and effect which this
Indenture provides for the certificate of authentication of the Trustee.
K. Appointment of Authenticating Agent. At any time when any of the
Securities remain Outstanding, the Trustee may appoint an Authenticating Agent
or Agents with respect to one or more series of Securities which shall be
authorized to act on behalf of the Trustee to authenticate Securities of such
series issued upon exchange, registration of transfer or partial redemption or
repayment thereof, and Securities so authenticated shall be entitled to the
benefits of this Indenture and shall be valid and obligatory for all purposes as
if authenticated by the Trustee hereunder. Any such appointment shall be
evidenced by an instrument in writing signed by a Responsible Officer of the
Trustee, a copy of which instrument shall be promptly furnished to the Company.
Wherever reference is made in this Indenture to the authentication and delivery
of Securities by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and shall at all times
be a bank or trust company or corporation organized and doing business and in
good standing under the laws of the United States of America or of any State or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authorities. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. In case at any
time an Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
<PAGE>
56
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or further act
on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent for any series of Securities may at any time
resign by giving written notice of resignation to the Trustee for such series
and to the Company. The Trustee for any series of Securities may at any time
terminate the agency of an Authenticating Agent by giving written notice of
termination to such Authenticating Agent and to the Company. Upon receiving such
a notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee for such series may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall give
notice of such appointment to all Holders of Securities of the series with
respect to which such Authenticating Agent will serve in the manner set forth in
Section 1.6. Any successor Authenticating Agent upon acceptance of its
appointment hereunder shall become vested with all the rights, powers and duties
of its predecessor hereunder, with like effect as if originally named as an
Authenticating Agent herein. No successor Authenticating Agent shall be
appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation including reimbursement of its reasonable expenses
for its services under this Section.
If an appointment with respect to one or more series is made
pursuant to this Section, the Securities of such series may have endorsed
thereon, in addition to or in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication substantially in the
following form:
<PAGE>
57
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
First Trust of New York, N.A.,
as Trustee
By: ,
as Authenticating Agent
By: ,
Authorized Signatory
VII.
HOLDERS' LISTS AND REPORTS
BY TRUSTEE AND COMPANY
A. Disclosure of Names and Addresses of Holders. Every Holder of
Securities or coupons, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee nor any
Authenticating Agent nor any Paying Agent nor any Security Registrar shall be
held accountable by reason of the disclosure of any information as to the names
and addresses of the Holders of Securities in accordance with TIA Section 312,
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material pursuant
to a request made under TIA Section 312(b).
B. Reports by Trustee. Within 60 days after May 15 of each year
commencing with the first May 15 after the first issuance of Securities pursuant
to this Indenture, the Trustee shall transmit by mail to all Holders of
Securities as provided in TIA Section 313(c) a brief report dated as of such May
15 if required by TIA Section 3l3(a). A copy of each such report shall at the
time of such transmission to Holders be filed by the Trustee with each stock
exchange upon which any Securities are listed, with the Commission and the
Company. The Company will notify the Trustee when any securities are listed on
any stock exchange.
C. Reports by Company. The Company will:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual
reports and of the
<PAGE>
58
information, documents and other reports (or copies of such portions of
any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which the Company may be required to file with the
Commission pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934; or, if the Company is not required to file
information, documents or reports pursuant to either of such Sections,
then it will file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
of the supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Securities Exchange Act of
1934 in respect of a security listed and registered on a national
securities exchange as may be prescribed from time to time in such rules
and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance
by the Company with the conditions and covenants of this Indenture as may
be required from time to time by such rules and regulations; and
(3) transmit by mail to the Holders of Securities, within 30 days
after the filing thereof with the Trustee, in the manner and to the extent
provided in TIA Section 3l3(c), such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (1) and (2) of this Section as may be required by rules and
regulations prescribed from time to time by the Commission.
D. Company to Furnish Trustee Names and Addresses of Holders. The
Company will furnish or cause to be furnished to the Trustee:
1. semi-annually, not later than 15 days after the Regular Record
Date for interest for each series of Securities, a list, in such form as the
Trustee may reasonably require, of the names and addresses of the Holders of
Registered Securities of such series as of such Regular Record Date, or if there
is no Regular Record Date for interest for such series of Securities,
semi-annually, upon such dates as are set forth in the Board Resolution or
indenture supplemental hereto authorizing such series, and
2. at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished; provided, however, that so long as the Trustee is the Security
Registrar, no such list shall be required to be furnished.
<PAGE>
59
VIII.
CONSOLIDATION, MERGER, SALE,
LEASE OR CONVEYANCE
A. Consolidations and Mergers of Company and Sales, Leases and
Conveyances Permitted Subject to Certain Conditions. The Company may consolidate
with, or sell, lease or convey all or substantially all of its assets to, or
merge with or into any other corporation, provided that in any such case, (i)
either the Company shall be the continuing corporation, or the successor
corporation shall be a corporation organized and existing under the laws of the
United States or a State thereof and such successor corporation shall expressly
assume the due and punctual payment of the principal of (and premium, if any)
and any interest (including all Additional Amounts, if any, payable pursuant to
this Indenture) on all of the Securities, according to their tenor, and the due
and punctual performance and observance of all of the covenants and conditions
of this Indenture to be performed by the Company by supplemental indenture,
complying with Article Nine hereof, satisfactory to the Trustee, executed and
delivered to the Trustee by such corporation and (ii) immediately after giving
effect to such transaction and treating any indebtedness which becomes an
obligation of the Company or any Subsidiary as a result thereof as having been
incurred by the Company or such Subsidiary at the time of such transaction, no
Event of Default, and no event which, after notice or the lapse of time, or
both, would become an Event of Default, shall have occurred and be continuing.
B. Rights and Duties of Successor Corporation. In case of any such
consolidation, merger, sale, lease or conveyance and upon any such assumption by
the successor corporation, such successor corporation shall succeed to and be
substituted for the Company, with the same effect as if it had been named herein
as the party of the first part, and the predecessor corporation, except in the
event of a lease, shall be relieved of any further obligation under this
Indenture and the Securities. Such successor corporation thereupon may cause to
be signed, and may issue either in its own name or in the name of the Company,
any or all of the Securities issuable hereunder which theretofore shall not have
been signed by the Company and delivered to the Trustee; and, upon the order of
such successor corporation, instead of the Company, and subject to all the
terms, conditions and limitations in this Indenture prescribed, the Trustee
shall authenticate and shall deliver any Securities which previously shall have
been signed and delivered by the officers of the Company to the Trustee for
authentication, and any Securities which such successor corporation thereafter
shall cause to be signed and delivered to the Trustee for that purpose. All the
securities so issued shall in all respects have the same legal rank and benefit
under
<PAGE>
60
this Indenture as the Securities theretofore or thereafter issued in accordance
with the terms of this Indenture as though all of such securities had been
issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, lease or
conveyance, such changes in phraseology and form (but not in substance) may be
made in the Securities thereafter to be issued as may be appropriate.
C. Officers' Certificate and Opinion of Counsel. Any consolidation,
merger, sale, lease or conveyance permitted under Section 8.1 is also subject to
the condition that the Trustee receive an Officers' Certificate and an Opinion
of Counsel to the effect that any such consolidation, merger, sale, lease or
conveyance, and the assumption by any successor corporation, complies with the
provisions of this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with.
IX.
SUPPLEMENTAL INDENTURES
A. Supplemental Indentures without Consent of Holders. Without the
consent of any Holders of Securities or coupons, the Company, when authorized by
or pursuant to a Board Resolution, and the Trustee, at any time and from time to
time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
herein and in the Securities contained; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to
be for the benefit of less than all series of Securities, stating that
such covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default for the benefit of the
Holders of all or any series of Securities (and if such Events of Default
are to be for the benefit of less than all series of Securities stating
that such Events of Default are expressly being included solely for the
benefit of such series); provided, however, that in respect of any such
additional Events of Default such supplemental Indenture may provide for a
particular period of grace after default (which period may be shorter or
longer than that allowed in the case of
<PAGE>
61
other defaults) or may provide for an immediate enforcement upon such
default or may limit the remedies available to the Trustee upon such
default or may limit the right of the Holders of a majority in aggregate
principal amount of that or those series of Securities to which such
additional Events of Default apply or waive such default; or
(4) to add to or change any of the provisions of this Indenture to
provide that Bearer Securities may be registrable as to principal, to
change or eliminate any restrictions on the payment of principal or any
premium or interest on Bearer Securities, to permit Bearer Securities to
be issued in exchange for Registered Securities, to permit Bearer
Securities to be issued in exchange for Bearer Securities of other
authorized denominations or to permit or facilitate the issuance of
Securities in uncertificated form, provided that any such action shall not
adversely affect the interests of the Holders of Securities of any series
or any related coupons in any material respect; or
(5) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only
when there is no Security Outstanding of any series created prior to the
execution of such supplemental indenture which is entitled to the benefit
of such provision; or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series and
any related coupons as permitted by Sections 2.1 and 3.1, including the
provisions and procedures relating to Securities convertible into Common
Stock or Preferred Stock, as the case may be; or
(8) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee; or
(9) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent
with the provisions of this Indenture, provided such provisions shall not
adversely affect the interests of the Holders of Securities of any series
or any related coupons in any material respect; or
<PAGE>
62
(10) to supplement any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the defeasance and
discharge of any series of Securities pursuant to Sections 4.1, 14.2 and
14.3; provided that any such action shall not adversely affect the
interests of the Holders of Securities of such series and any related
coupons or any other series of Securities in any material respect.
B. Supplemental Indentures with Consent of Holders. With the consent
of the Holders of not less than a majority in principal amount of all
Outstanding Securities affected by such supplemental indenture, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by or pursuant to a Board Resolution, and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of
Securities and any related coupons under this Indenture; provided, however, that
no such supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of (or premium, if
any, on) or any installment of principal of or interest on, any Security;
or reduce the principal amount thereof or the rate or amount of interest
thereon or any Additional Amounts payable in respect thereof, or any
premium payable upon the redemption thereof, or change any obligation of
the Company to pay Additional Amounts pursuant to Section 10.8 (except as
contemplated by Section 8.1(1) and permitted by Section 9.1(1)), or reduce
the amount of the principal of an Original Issue Discount Security) that
would be due and payable upon a declaration of acceleration of the
Maturity thereof pursuant to Section 5.2 or the amount thereof provable in
bankruptcy pursuant to Section 5.4, or adversely affect any right of
repayment at the option of the Holder of any Security, or change any Place
of Payment where, or the currency or currencies, currency unit or units or
composite currency or currencies in which, any Security or any premium or
the interest thereon is payable, or impair the right to institute suit for
the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption or repayment at the option of the
Holder, on or after the Redemption Date or the Repayment Date, as the case
may be), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required
for any waiver with respect to such series (or compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences) provided for in
<PAGE>
63
this Indenture, or reduce the requirements of Section 15.4 for quorum or
voting, or
(3) modify any of the provisions of this Section, Section 5.13 or
Section 10.8, except to increase the required percentage to effect such
action or to provide that certain other provisions of this Indenture
cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this Section
to approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
C. Execution of Supplemental Indentures. In executing, or accepting
the additional trusts created by, any supplemental indenture permitted by this
Article or the modification thereby of the trusts created by this Indenture, the
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
D. Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder and of any coupon appertaining
thereto shall be bound thereby.
E. Conformity with Trust Indenture Act. Every supplemental indenture
executed pursuant to this Article shall conform to the requirements of the Trust
Indenture Act as then in effect.
F. Reference in Securities to Supplemental Indentures. Securities of
any series authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and shall, if required by the Trustee,
bear a notation in
<PAGE>
64
form approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new Securities of any series so
modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company and
authenticated and delivered by the Trustee in exchange for Outstanding
Securities of such series.
X.
COVENANTS
A. Payment of Principal, Premium, if any, Interest and Additional
Amounts. The Company covenants and agrees for the benefit of the Holders of each
series of Securities that it will duly and punctually pay the principal of (and
premium, if any) and interest on and any Additional Amounts payable in respect
of the Securities of that series in accordance with the terms of such series of
Securities, any coupons appertaining thereto and this Indenture. Unless
otherwise specified as contemplated by Section 3.1 with respect to any series of
Securities, any interest due on and any Additional Amounts payable in respect of
Bearer Securities on or before Maturity, other than Additional Amounts, if any,
payable as provided in Section 10.8 in respect of principal of (or premium, if
any, on) such a Security, shall be payable only upon presentation and surrender
of the several coupons for such interest installments as are evidenced thereby
as they severally mature. Unless otherwise specified with respect to Securities
of any series pursuant to Section 3.1, at the option of the Company, all
payments of principal may be paid by check to the registered Holder of the
Registered Security or other person entitled thereto against surrender of such
Security.
B. Maintenance of Office or Agency. If Securities of a series are
issuable only as Registered Securities, the Company shall maintain in each Place
of Payment for any series of Securities an office or agency where Securities of
that series may be presented or surrendered for payment or conversion, where
Securities of that series may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. If Securities of a
series are issuable as Bearer Securities, the Company will maintain: (A) in the
Borough of Manhattan, The City of New York, an office or agency where any
Registered Securities of that series may be presented or surrendered for payment
or conversion, where any Registered Securities of that series may be surrendered
for registration of transfer, where Securities of that series may be surrendered
for exchange, where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served and where Bearer
Securities of that series and related coupons may be presented or surrendered
for payment or conversion in the circumstances described in the following
paragraph
<PAGE>
65
(and not otherwise); (B) subject to any laws or regulations applicable thereto,
in a Place of Payment for that series which is located outside the United
States, an office or agency where Securities of that series and related coupons
may be presented and surrendered for payment (including payment of any
Additional Amounts payable on Securities of that series pursuant to Section
10.8) or conversion; provided, however, that if the Securities of that series
are listed on the Luxembourg Stock Exchange or any other stock exchange located
outside the United States and such stock exchange shall so require, the Company
will maintain a Paying Agent for the Securities of that series in Luxembourg or
any other required city located outside the United States, as the case may be,
so long as the Securities of that series are listed on such exchange; and (C)
subject to any laws or regulations applicable thereto, in a Place of Payment for
that series located outside the United States an office or agency where any
Registered Securities of that series may be surrendered for registration of
transfer, where Securities of that series may be surrendered for exchange and
where notices and demand to or upon the Company in respect of the Securities of
that series and this Indenture may be served. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of each such office or agency. If at any time the Company shall fail to maintain
any such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, surrenders, notices and demands may be made
or served at the Corporate Trust Office of the Trustee, except that Bearer
Securities of that series and the related coupons may be presented and
surrendered for payment (including payment of any Additional Amounts payable on
Bearer Securities of that series pursuant to Section 10.8) or conversion at the
offices specified in the Security, in London, England, and the Company hereby
appoints the same as its agent to receive such presentations, surrenders,
notices and demands, and the Company hereby appoints the Trustee its agent to
receive all such presentations, surrenders, notices and demands.
Unless otherwise specified with respect to any Securities pursuant
to Section 3.1, no payment of principal, premium or interest on or Additional
Amounts in respect of Bearer Securities shall be made at any office or agency of
the Company in the United States or by check mailed to any address in the United
States or by transfer to an account maintained with a bank located in the United
States; provided, however, that, if the Securities of a series are payable in
Dollars, payment of principal of and any premium and interest on any Bearer
Security (including any Additional Amounts payable on Securities of such series
pursuant to Section 10.8) shall be made at the office of the Company's Paying
Agent in the Borough of Manhattan, The City of New York, if (but only if)
payment in Dollars of the full amount of such principal, premium, interest or
Additional Amounts, as the case may be, at all offices or agencies outside the
United States maintained for the purpose by the Company in accordance with this
Indenture, is illegal or effectively precluded by exchange controls or other
similar restrictions.
<PAGE>
66
The Company may from time to time designate one or more other
offices or agencies where the Securities of one or more series may be presented
or surrendered for any or all of such purposes, and may from time to time
rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in accordance with the requirements set forth above for
Securities of any series for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency. Unless otherwise specified with
respect to any Securities pursuant to Section 3.1 with respect to a series of
Securities, the Company hereby designates as a Place of Payment for each series
of Securities the office or agency of the Company in the Borough of Manhattan,
The City of New York, and initially appoints the Trustee at its Corporate Trust
Office as Paying Agent in such city and as its agent to receive all such
presentations, surrenders, notice and demands.
Unless otherwise specified with respect to any Securities pursuant
to Section 3.1, if and so long as the Securities of any series (i) are
denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency,
or so long as it is required under any other provision of the Indenture, then
the Company will maintain with respect to each such series of Securities, or as
so required, at least one exchange rate agent.
C. Money for Securities Payments to Be Held in Trust. If the Company
shall at any time act as its own Paying Agent with respect to any series of any
Securities and any related coupons, it will, on or before each due date of the
principal of (and premium, if any), or interest on or Additional Amounts in
respect of, any of the Securities of that series, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum in the currency or
currencies, currency unit or units or composite currency or currencies in which
the Securities of such series are payable (except as otherwise specified
pursuant to Section 3.1 for the Securities of such series) sufficient to pay the
principal (and premium, if any) or interest or Additional Amounts so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided, and will promptly notify the Trustee of its action or failure
so to act.
Whenever the Company shall have one or more Paying Agents for any
series of Securities and any related coupons, it will, on or before each due
date of the principal of (and premium, if any), or interest on or Additional
Amounts in respect of, any Securities of that series, deposit with a Paying
Agent a sum (in the currency or currencies, currency unit or units or composite
currency or currencies described in the preceding paragraph) sufficient to pay
the principal (and premium, if any) or interest or Additional Amounts, so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest or Additional Amounts and
<PAGE>
67
(unless such Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will
(1) hold all sums held by it for the payment of principal of (and
premium, if any) or interest on Securities or Additional Amounts in trust
for the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any such payment of
principal (and premium, if any) or interest or Additional Amounts; and
(3) at any time during the continuance of any Event of Default upon
the written request of the Trustee, forthwith pay to the Trustee all sums
so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Except as otherwise provided in the Securities of any series, any
money deposited with the Trustee or any Paying Agent, or then held by the
Company, in trust for the payment of the principal of (and premium, if any) or
interest on, or any Additional Amounts in respect of, any Security of any series
and remaining unclaimed for two years after such principal (and premium, if
any), interest or Additional Amounts has become due and payable shall be paid to
the Company upon Company Request or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment of such
principal of (and premium, if any) or interest on, or any Additional Amounts in
respect of, any Security, without interest thereon, and all liability of the
Trustee or such Paying Agent with respect to such trust money, and all liability
of the Company as trustee thereof, shall thereupon cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in an
<PAGE>
68
Authorized Newspaper, notice that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such publication, any unclaimed balance of such money then remaining will be
repaid to the Company.
D. Existence. Subject to Article Eight, the Company will do or cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence, rights (charter and statutory) and franchises, except
to the extent the failure to do so would not have a material adverse effect on
the business, assets, financial condition or results of operations of the
Company (a "Material Adverse Effect"); provided, however, that the Company shall
not be required to preserve any right or franchise if the Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company.
E. Maintenance of Properties. The Company will cause all of it
properties used or useful in the conduct of its business or the business of any
Subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times, except to the extent the failure to do so would not have a
Material Adverse Effect on the Company; provided, however, that the Company
shall not be required to continue the operation or maintenance of any such
property or be prevented from disposing of such property if the Board of
Directors shall determine that such discontinuance or disposal is desirable in
the conduct of the business of the Company.
F. Payment of Taxes and Other Claims. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Company or any Subsidiary, and (2) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a lien upon the property of the
Company or any Subsidiary and have a Material Adverse Effect; provided, however,
that the Company shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
G. Statement as to Compliance. The Company will deliver to the
Trustee, within 120 days after the end of each fiscal year, a brief certificate
from the principal executive officer, principal financial officer or principal
accounting officer as to his or her knowledge of the Company's compliance with
all conditions and covenants under this Indenture and, in the event of any
noncompliance, specifying such
<PAGE>
69
noncompliance and the nature and status thereof. For purposes of this Section
10.7, such compliance shall be determined without regard to any period of grace
or requirement of notice under this Indenture.
H. Additional Amounts. If any Securities of a series provide for the
payment of Additional Amounts, the Company will pay to the Holder of any
Security of such series or any coupon appertaining thereto Additional Amounts as
may be specified as contemplated by Section 3.1. Whenever in this Indenture
there is mentioned, in any context except in the case of Section 5.2(1), the
payment of the principal of or any premium or interest on, or in respect of, any
Security of any series or payment of any related coupon or the net proceeds
received on the sale or exchange of any Security of any series, such mention
shall be deemed to include mention of the payment of Additional Amounts provided
by the terms of such series established pursuant to Section 3.1 to the extent
that, in such context, Additional Amounts are, were or would be payable in
respect thereof pursuant to such terms and express mention of the payment of
Additional Amounts (if applicable) in any provisions hereof shall not be
construed as excluding Additional Amounts in those provisions hereof where such
express mention is not made.
Except as otherwise specified as contemplated by Section 3.1, if the
Securities of a series provide for the payment of Additional Amounts, at least
10 days prior to the first Interest Payment Date with respect to that series of
Securities or if the Securities of that series will not bear interest prior to
Maturity, the first day on which a payment of principal and any premium is made,
and at least 10 days prior to each date of payment of principal and any premium
or interest if there has been any change with respect to the matters set forth
in the below-mentioned Officers' Certificate, the Company will furnish the
Trustee and the Company's principal Paying Agent or Paying Agents, if other than
the Trustee, with an Officers' Certificate instructing the Trustee and such
Paying Agent or Paying Agents whether such payment of principal of and any
premium or interest on the Securities of that series shall be made to Holders of
Securities of that series or any related coupons who are not United States
persons without withholding for or on account of any tax, assessment or other
governmental charge described in the Securities of the series. If any such
withholding shall be required, then such Officers' Certificate shall specify by
country the amount, if any, required to be withheld on such payments to such
Holders of Securities of that series or related coupons and the Company will pay
to the Trustee or such Paying Agent the Additional Amounts required by the terms
of such Securities. In the event that the Trustee or any Paying Agent, as the
case may be, shall not so receive the above-mentioned certificate, then the
Trustee or such Paying Agent shall be entitled (i) to assume that no such
withholding or deduction is required with respect to any payment of principal or
interest with respect to any Securities of a series or related coupons until it
shall have received a certificate advising otherwise and (ii) to make all
payments of principal and interest with respect to the Securities of a series or
related
<PAGE>
70
coupons without withholding or deductions until otherwise advised. The Company
covenants to indemnify the Trustee and any Paying Agent for, and to hold them
harmless against, any loss, liability or expense reasonably incurred without
negligence or bad faith on their part arising out of or in connection with
actions taken or omitted by any of them or in reliance on any Officers'
Certificate furnished pursuant to this Section or in reliance on the Company's
not furnishing such an Officers' Certificate.
I. Waiver of Certain Covenants. The Company may omit in any
particular instance to comply with any term, provision or condition set forth in
Sections 10.4 to 10.6, inclusive, if before or after the time for such
compliance the Holders of at least a majority in principal amount of all
outstanding Securities of such series, by Act of such Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such term, provision or condition shall remain in full force
and effect.
XI.
REDEMPTION OF SECURITIES
A. Applicability of Article. Securities of any series which are
redeemable before their Stated Maturity shall be redeemable in accordance with
their terms and (except as otherwise specified as contemplated by Section 3.1
for Securities of any series) in accordance with this Article.
B. Election to Redeem; Notice to Trustee. The election of the
Company to redeem any Securities shall be evidenced by or pursuant to a Board
Resolution. In case of any redemption at the election of the Company of less
than all of the Securities of any series, the Company shall, at least 45 days
prior to the giving of the notice of redemption in Section 11.4 (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Securities of such series to be
redeemed. In the case of any redemption of Securities prior to the expiration of
any restriction on such redemption provided in the terms of such Securities or
elsewhere in this Indenture, the Company shall furnish the Trustee with an
Officers' Certificate evidencing compliance with such restriction.
C. Selection by Trustee of Securities to Be Redeemed. If less than
all the Securities of any series issued on the same day with the same terms are
to be redeemed, the particular Securities to be redeemed shall be selected not
more than 60 days prior to time Redemption Date by the Trustee, from the
Outstanding Securities of such series issued on such date with the same terms
not previously called for
<PAGE>
71
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions (equal the
minimum authorized denomination for Securities of that series or any integral
multiple thereof) of the principal amount of Securities of such series of a
denomination larger than the minimum authorization denomination for Securities
of that series.
The Trustee shall promptly notify the Company and the Security
Registrar (if other than itself) in writing of the Securities selected for
redemption and, in the case of any Securities selected for partial redemption,
the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Security redeemed or to be redeemed only in part, to the
portion of the principal amount of such Security which has been or is to be
redeemed.
D. Notice of Redemption. Notice of redemption shall be given in the
manner provided in Section 1.6, not less than 30 days nor more than 60 days
prior to the Redemption Date, unless a shorter period is specified by the terms
of such series established pursuant to Section 3.1, to each Holder of Securities
to be redeemed, but failure to give such notice in the manner herein provided to
the Holder of any Security designated for redemption as a whole or in part, or
any defect in the notice to any such Holder, shall not affect the validity of
the proceedings for the redemption of any other such Security or portion
thereof.
Any notice that is mailed to the Holders of Registered Securities in
the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the Holder receives the notice.
All notices of redemption shall state
(1) the Redemption Date,
(2) the Redemption Price, accrued interest to the Redemption Date
payable as provided in Section 11.6, if any, and Additional Amounts, if any,
(3) if less than all Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amount) of the particular Security or Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the holder will receive, without a
charge, a new Security or
<PAGE>
72
Securities of authorized denominations for the principal amounts thereof
remaining unredeemed,
(5) that on the Redemption Date the Redemption Price and accrued
interest to the Redemption Date payable as provided in Section 11.6, if any,
will become due and payable upon each such Security, or the portion thereof, to
be redeemed and, if applicable, that interest thereon shall cease to accrue on
and after said date,
(6) the Place or Places of Payment where such Securities, together
in the case of Bearer Securities with all coupons appertaining thereto, if any,
maturing after the Redemption Date, are to be surrendered for payment of the
Redemption Price and accrued interest, if any, or for conversion,
(7) that the redemption is for a sinking fund, if such is the case,
(8) that, unless otherwise specified in such notice, Bearer
Securities of any series, if any, surrendered for redemption must be accompanied
by all coupons maturing subsequent to the date fixed for redemption or the
amount of any such missing coupon or coupons will be deducted from the
Redemption Price, unless security or indemnity satisfactory to the Company, the
Trustee for such series and any Paying Agent is furnished,
(9) if Bearer Securities of any series are to be redeemed and any
Registered Securities of such series are not to be redeemed, and if such Bearer
Securities may be exchanged for Registered Securities not subject to redemption
on this Redemption Date pursuant to Section 3.5 or otherwise, the Last date, as
determined by the Company, on which such exchanges may be made,
(10) the CUSIP number of such Security, if any, and
(11) if applicable, that a Holder of Securities who desires to
convert Securities for redemption must satisfy the requirements for conversion
contained in such Securities, the then existing conversion price or rate, and
the date and time when the option to convert shall expire.
Notice of redemption of Securities to be redeemed shall be given by
the Company or, at the Company's request, by the Trustee in the name and at the
expense of the Company.
E. Deposit of Redemption Price. At least one Business Day prior to
any Redemption Date, the Company shall deposit with the Trustee or with a Paying
Agent (or, if the Company is acting as its own Paying Agent, which it may not do
in
<PAGE>
73
the case of a sinking fund payment under Article Twelve, segregate and hold in
trust as provided in Section 10.3) an amount of money in the currency or
currencies, currency unit or units or composite currency or currencies in which
the Securities of such series are payable (except as otherwise specified
pursuant to Section 3.1 for the Securities of such series) sufficient to pay on
the Redemption Date the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) accrued interest on, all the Securities or
portions thereof which are to be redeemed on that date.
F. Securities Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified in the currency or currencies, currency unit or units or composite
currency or currencies in which the Securities of such series are payable
(except as otherwise specified pursuant to Section 3.1 for the Securities of
such series) (together with accrued interest, if any, to the Redemption Date),
and from and after such date (unless the Company shall default in the payment of
the Redemption Price and accrued interest) such Securities shall, if the same
were interest-bearing, cease to bear interest and the coupons for such interest
appertaining to any Bearer Securities so to be redeemed, except to the extent
provided below, shall be void. Upon surrender of any such Security for
redemption in accordance with said notice, together with all coupons, if any,
appertaining thereto maturing after the Redemption Date, such Security shall be
paid by the Company at the Redemption Price, together with accrued interest, if
any, to the Redemption Date; provided, however, that installments of interest on
Bearer Securities whose Stated Maturity is on or prior to the Redemption Date
shall be payable only at an office or agency located outside the United States
(except as otherwise provided in Section 10.2) and, unless otherwise specified
as contemplated by Section 3.1, only upon presentation and surrender of coupons
for such interest; and provided further that, except as otherwise provided with
respect to Securities convertible into Common Stock or Preferred Stock,
installments of interest on Registered Securities whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Securities,
or one or more Predecessor Securities, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 3.7.
If any Bearer Security surrendered for redemption shall not be
accompanied by all appurtenant coupons maturing after the Redemption Date, such
Security may be paid after deducting from the Redemption Price an amount equal
to the face amount of all such missing coupons, or the surrender of such missing
coupon or coupons may be waived by the Company and the Trustee if there be
furnish to them such security or indemnity as they may require to save each of
them and any Paying Agent harmless. If thereafter the Holder of such Security
shall surrender to the Trustee or any Paying Agent any such missing coupon in
respect of which a deduction shall have been made from the Redemption Price,
such Holder shall be entitled to receive the
<PAGE>
74
amount so deducted; provided, however, that interest represented by coupons
shall be payable only at an office or agency located outside the United States
(except as otherwise provided in Section 10.2) and unless otherwise specified as
contemplated by Section 3.1, only upon presentation and surrender of those
coupons.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Security.
G. Securities Redeemed in Part. Any Registered Security which is to
be redeemed only in part (pursuant to the provisions of this Article or of
Article Twelve) shall be surrendered at a Place of Payment therefor (with, if
the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee duty
executed by, the Holder thereof or his attorney duly authorized in writing) and
the Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge a new Security or Securities of
the same series, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Security so surrendered.
XII.
SINKING FUNDS
A. Applicability of Article. The provisions of this Article shall be
applicable to any sinking fund for the retirement of Securities of a series
except as otherwise specified as contemplated by Section 3.1 for Securities of
such series.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series is herein referred to as a "mandatory sinking
fund payment," and any payment in excess of such minimum amount provided for by
the terms of such Securities of any series is herein referred to as an "optional
sinking fund payment." If provided for by the terms of any Securities of any
series, the cash amount of any mandatory sinking fund payment may be subject to
reduction as provided in Section 12.2. Each sinking fund payment shall be
applied to the redemption of Securities of any series as provided for by the
terms of Securities of such series.
B. Satisfaction of Sinking Fund Payments with Securities. The
Company may, in satisfaction of all or any part of any mandatory sinking fund
payment with respect to the Securities of a series, (1) deliver Outstanding
Securities of such series (other than any previously called for redemption)
together in the case of any
<PAGE>
75
Bearer Securities of such series with all unmatured coupons appertaining thereto
and (2) apply as a credit Securities of such series which have been redeemed
either at the election of the Company pursuant to the terms of such Securities
or through the application of permitted optional sinking fund payments pursuant
to the terms of such Securities, as provided for by the terms of such
Securities, or which have otherwise been acquired by the Company; provided that
such Securities so delivered or applied as a credit have not been previously so
credited. Such Securities shall be received and credited for such purpose by the
Trustee at the applicable Redemption Price specified in such Securities for
redemption through operation of the sinking fund and the amount of such
mandatory sinking fund payment shall be reduced accordingly.
C. Redemption of Securities for Sinking Fund. Not less than 60 days
prior to each sinking fund payment date for Securities of any series, the
Company will deliver to the Trustee an Officers' Certificate specifying the
amount of the next ensuing mandatory sinking fund payment for that series
pursuant to the terms of that series, the portion thereof, if any, which is to
be satisfied by payment of cash in the currency or currencies, currency unit or
units or composite currency or currencies in which the Securities of such series
are payable (except as otherwise specified pursuant to Section 3.1 for the
Securities of such series) and the portion thereof, if any, which is to be
satisfied by delivering and crediting Securities of that series pursuant to
Section 12.2, and the optional amount, if any, to be added in cash to the next
ensuing mandatory sinking fund payment, and will also deliver to the Trustee any
Securities to be so delivered and credited. If such Officers' Certificate shall
specify an optional amount to be added in cash to the next ensuing mandatory
sinking fund payment, the Company shall thereupon be obligated to pay the amount
therein specified. Not less than 30 days before each such sinking fund payment
date the Trustee shall select the Securities to be redeemed upon such sinking
fund payment date in the manner specified in Section 11.3 and cause notice of
the redemption thereof to be given in the name of and at the expense of the
Company in the manner provided in Section 11.4. Such notice having been duly
given, the redemption of such Securities shall be made upon the terms and in the
manner stated in Sections 11.6 and 11.7.
XIII.
REPAYMENT AT THE OPTION OF HOLDERS
A. Applicability of Article. Repayment of Securities of any series
before their Stated Maturity at the option of Holders thereof shall be made in
accordance with the terms of such Securities, if any, and (except as otherwise
specified by the terms of such series established pursuant to Section 3.1) in
accordance with this Article.
<PAGE>
76
B. Repayment of Securities. Securities of any series subject to
repayment in whole or in part at the option of the Holders thereof will, unless
otherwise provided in the terms of such Securities, be repaid at a price equal
to the principal amount thereof, together with interest, if any, thereon accrued
to the Repayment Date specified in or pursuant to the terms of such Securities.
The Company covenants that at least one Business Day prior to the Repayment Date
it will deposit with the Trustee or with a Paying Agent (or, if the Company is
acting as its own Paying Agent, segregate and hold in trust as provided in
Section 10.3) an amount of money in the currency or currencies, currency unit or
units or composite currency or currencies in which the Securities of such series
are payable (except as otherwise specified pursuant to Section 3.1 for the
Securities of such series) sufficient to pay the principal (or, if so provided
by the terms of the Securities of any series, a percentage of the principal) of,
and (except if the Repayment Date shall be an Interest Payment Date) accrued
interest on, all the Securities or portions thereof, as the case may be, to be
repaid on such date.
C. Exercise of Option. Securities of any series subject to repayment
at the option of the Holders thereof will contain an "Option to Elect Repayment"
form on the reverse of such Securities. In order for any Security to be repaid
at the option of the Holder, the Trustee must receive at the Place of Payment
therefor specified in the terms of such Security (or at such other place or
places of which the Company shall from time to time notify the Holders of such
Securities) not earlier than 60 days nor later than 30 days prior to the
Repayment Date (1) the Security so providing for such repayment together with
the "Option to Elect Repayment" form on the reverse thereof duly completed by
the Holder (or by the Holder's attorney duly authorized in writing) or (2) a
telegram, telex, facsimile transmission or a Letter from a member of a national
securities exchange, or the National Association of Securities Dealers, Inc.
("NASD"), or a commercial bank or trust company in the United States setting
forth the name of the Holder of the Security, the principal amount of the
Security, the principal amount of the Security to be repaid, the CUSIP number,
if any, or a description of the tenor and terms of the Security, a statement
that the option to elect repayment is being exercised thereby and a guarantee
that the Security to be repaid, together with the duly completed form entitled
"Option to Elect Repayment" on the reverse of the Security, will be received by
the Trustee not later than the fifth Business Day after the date of such
telegram, telex, facsimile transmission or Letter; provided, however, that such
telegram, telex, facsimile transmission or letter shall only be effective if
such Security and form duly completed are received by the Trustee by such fifth
Business Day. If less than the entire principal amount of such Security is to be
repaid in accordance with the terms of such Security, the principal amount of
such Security to be repaid, in increments of the minimum denomination for
Securities of such series, and the denomination or denominations of the Security
or Securities to be issued to the Holder for the portion for the principal
amount of such Security surrendered that is not to be repaid, must be specified.
The principal amount of any Security providing for
<PAGE>
77
repayment at the option of the Holder thereof may not be repaid in part if,
following such repayment, the unpaid principal amount of such Security would be
less than the minimum authorized denomination of Securities of the series of
which such Security to be repaid is a part. Except as otherwise may be provided
by the terms of any Security providing for repayment at the option of the Holder
thereof, exercise of the repayment option by the Holder shall be irrevocable
unless waived by the Company.
D. When Securities Presented for Repayment Became Due and Payable.
If Securities of any series providing for repayment at the option of the Holders
thereof shall have been surrendered as provided in this Article and as provided
by or pursuant to the terms of such Securities, such Securities or the portions
thereof, as the case may be, to be repaid shall become due and payable and shall
be paid by the Company on the Repayment Date therein specified, and on and after
such Repayment Date (unless the Company shall default in the payment of such
Securities on such Repayment Date) such Securities shall, if the same were
interest-bearing, cease to bear interest and the coupons for such interest
appertaining to any Bearer Securities so to be repaid, except to the extent
provided below, shall be void. Upon surrender of any such Security for repayment
in accordance with such provisions, together with all coupons, if any,
appertaining thereto maturing after the Repayment Date, the principal amount of
such Security so to be repaid shall be paid by the Company, together with
accrued interest, if any, to the Repayment Date; provided, however, that coupons
whose Stated Maturity is on or prior to the Repayment Date shall be payable only
at an office or agency located outside the United States (except as otherwise
provided in Section 10.2) and, unless otherwise specified pursuant to Section
3.1, only upon presentation and surrender of such coupons; and provided further
that, in the case of Registered Securities, installments of interest, if any,
whose Stated Maturity is on or prior to the Repayment Date shall be payable (but
without interest thereon, unless the Company shall default in the payment
thereof) to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Record
Dates according to their terms and the provisions of Section 3.7.
If any Bearer Security surrendered for repayment shall not be
accompanied by all appurtenant coupons maturing after the Repayment Date, such
Security may be paid after deducting from the amount payable therefor as
provided in Section 13.2 an amount equal to the face amount of all such missing
coupons, or the surrender of such missing coupon or coupons may be waived by the
Company and the Trustee if there be furnished to them such security or indemnity
as they may require to save each of them and any Paying Agent harmless. If
thereafter the Holder of such Security shall surrender to the Trustee or any
Paying Agent any such missing coupon in respect of which a deduction shall have
been made as provided in the preceding sentence, such Holder shall be entitled
to receive the amount so deducted; provided, however, that interest represented
by coupons shall be payable only at an office or agency located outside the
United States (except as otherwise provided in Section 10.2)
<PAGE>
78
and, unless otherwise specified as contemplated by Section 3.1, only upon
presentation and surrender of those coupons.
If the principal amount of any Security surrendered for repayment
shall not be so repaid upon surrender thereof, such principal amount (together
with interest, if any, thereon accrued to such Repayment Date) shall, until
paid, bear interest from the Repayment Date at the rate of interest or Yield to
Maturity (in the case of Original Issue Discount Securities) set forth in such
Security.
E. Securities Repaid in Part. Upon surrender of any Registered
Security which is to be repaid in part only, the company shall execute and the
Trustee shall authenticate and deliver to the Holder of such Security, without
service charge and at the expense of the Company a new Registered Security or
Securities of the same series, of any authorized denomination specified by the
Holder, in an aggregate principal amount equal to and in exchange for the
portion of the principal of such Security so surrendered which is not to be
repaid.
XIV.
DEFEASANCE AND COVENANT DEFEASANCE
A. Applicability of Article; Company's Option to Effect Defeasance
or Covenant Defeasance. If, pursuant to Section 3.1, provision is made for
either or both of (a) defeasance of the Securities of or within a series under
Section 14.2 or (b) covenant defeasance of the Securities of or within a series
under Section 14.3, then the provisions of such Section or Sections, as the case
may be, together with the other provisions of this Article (with such
modifications thereto as may be specified pursuant to Section 3.1 with respect
to any Securities), shall be applicable to such Securities and any coupons
appertaining thereto, and the Company may at its option by Board Resolution, at
any time, with respect to such Securities and any coupons appertaining thereto,
elect to have Section 14.2 (if applicable) or Section 14.3 (if applicable) be
applied to such Outstanding Securities and any coupons appertaining thereto upon
compliance with the conditions set forth below in this Article.
B. Defeasance and Discharge. Upon the Company's exercise of the
above option applicable to this Section with respect to any Securities of or
within a series, the Company shall be deemed to have been discharged from its
obligations with respect to such Outstanding Securities and any coupons
appertaining thereto on the date the conditions set forth in Section 14.4 are
satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by such Outstanding Securities and any coupons
appertaining thereto, which shall thereafter be deemed to be
<PAGE>
79
"Outstanding" only for the purposes of Section 14.5 and the other Sections of
this Indenture referred to in clauses (A) and (B) below, and to have satisfied
all of its other obligations under such Securities and any coupons appertaining
thereto and this Indenture insofar as such Securities and any coupons
appertaining thereto are concerned (and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (A) the rights of Holders of such Outstanding Securities and any
coupons appertaining thereto to receive, solely from the trust fund described in
Section 14.4 and as more fully set forth in such Section, payments in respect of
the principal of (and premium, if any) and interest, if any, on such Securities
and any coupons appertaining thereto when such payments are due, (B) the
Company's obligations with respect to such Securities under Sections 3.5, 3.6,
10.2 and 10.3 and with respect to the payment of Additional Amounts, if any, on
such Securities as contemplated by Section 10.8, (C) the rights, powers, trusts,
duties and immunities of the Trustee hereunder and (D) this Article. Subject to
compliance with this Article Fourteen, the Company may exercise its option under
this Section notwithstanding the prior exercise of its option under Section 14.3
with respect to such Securities and any coupons appertaining thereto.
C. Covenant Defeasance. Upon the Company's exercise of the above
option applicable to this Section with respect to any Securities of or within a
series, the Company shall be released from its obligations under Sections 10.4
to 10.6, inclusive, and, if specified pursuant to Section 3.1, its obligations
under any other covenant, with respect to such Outstanding Securities and any
coupons appertaining thereto on and after the date the conditions set forth in
Section 14.4 are satisfied (hereinafter, "covenant defeasance"), and such
Securities and any coupons appertaining thereto shall thereafter be deemed to be
not "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with Sections 10.4 to 10.6, inclusive, or such other covenant, but
shall continue to be deemed "Outstanding" for all other purposes hereunder. For
this purpose, such covenant defeasance means that, with respect to such
Outstanding Securities and any coupons appertaining thereto, the Company may
omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Section or such other covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such Section or such other covenant or by reason of reference in any such
Section or such other covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a default or an Event
of Default under Section 5.1(4) or 5.1(8) or otherwise, as the case may be, but,
except as specified above, the remainder of this Indenture and such Securities
and any coupons appertaining thereto shall be unaffected thereby.
<PAGE>
80
D. Conditions to Defeasance or Covenant Defeasance. The following
shall be the conditions to application of Section 14.2 or Section 14.3 to any
Outstanding Securities of or within a series and any coupons appertaining
thereto:
1. The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 6.7 who shall agree to comply with the provisions of this
Article Fourteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of such Securities and
any coupons appertaining thereto, (1) an amount in such currency,
currencies or currency unit in which such Securities and any coupons
appertaining thereto are then specified as payable at Stated Maturity, or
(2) Government Obligations applicable to such Securities and coupons
appertaining thereto (determined on the basis of the currency, currencies
or currency unit in which such Securities and coupons appertaining thereto
are then specified as payable at Stated Maturity) which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before
the due date of any payment of principal of (and premium, if any) and
interest, if any, on such Securities and any coupons appertaining thereto,
money in an amount, or (3) a combination thereof, in any case, in an
amount, sufficient, without consideration of any reinvestment of such
principal and interest, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall be
applied by the Trustee (or other qualifying trustee) to pay and discharge,
(i) the principal of (and premium, if any) and interest, if any, on such
Outstanding Securities and any coupons appertaining thereto on the Stated
Maturity of such principal or installment of principal or interest and
(ii) any mandatory sinking fund payments or analogous payments applicable
to such Outstanding Securities and any coupons appertaining thereto on the
day on which such payments are due and payable in accordance with the
terms of this Indenture and of such Securities and any coupons
appertaining thereto.
2. Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
3. No Event of Default or event which with notice or lapse of time
or both would become an Event of Default with respect to such Securities
and any coupons appertaining thereto shall have occurred and be continuing
on the date of such deposit or, insofar as Sections 5.1(6) and 5.1(7) are
concerned, at any time during the period ending on the 91st day after the
date of such deposit (it
<PAGE>
81
being understood that this condition shall not be deemed satisfied until
the expiration of such period).
4. In the case of an election under Section 14.2, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (i) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (ii) since the date of execution of this
Indenture, there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion
shall confirm that, the Holders of such Outstanding Securities and any
coupons appertaining thereto will not recognize income, gain or loss for
Federal income tax purposes as a result of such defeasance and will be
subject to Federal Income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred.
5. In the case of an election under Section 14.3, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of such Outstanding Securities and any coupons appertaining
thereto will not recognize income, gain or loss for Federal income tax
purposes as a result of such covenant defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such covenant defeasance had not
occurred.
6. The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance under Section 14.2 or the covenant defeasance
under Section 14.3 (as the case may be) have been complied with and an
Opinion of Counsel to the effect that either (i) as a result of a deposit
pursuant to subsection (a) above and the related exercise of the Company's
option under Section 14.2 or Section 14.3 (as the case may be),
registration is not required under the Investment Company Act of 1940, as
amended, by the Company, with respect to the trust funds representing such
deposit or by the Trustee for such trust funds or (ii) all necessary
registrations under said Act have been effected.
7. Notwithstanding any other provisions of this Section, such
defeasance or covenant defeasance shall be effected in compliance with any
additional or substitute terms, conditions or limitations which may be
imposed on the Company in connection therewith pursuant to Section 3.1.
E. Deposited Money and Government Obligations to Be Held in Trust;
Other Miscellaneous Provisions. Subject to the provisions of the last paragraph
of Section 10.3, all money and Government Obligations (or other property as may
be provided pursuant to Section 3.1) (including the proceeds thereof) deposited
with the
<PAGE>
82
Trustee (or other qualifying trustee, collectively for purposes of this Section
14.5, the "Trustee") pursuant to Section 14.4 in respect of any Outstanding
Securities of any series and any coupons appertaining thereto shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Securities and any coupons appertaining thereto and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities and any coupons appertaining thereto of all sums due and to
become due thereon in respect of principal (and premium, if any) and interest
and Additional Amounts, if any, but such money need not be segregated from other
funds except to the extent required by law.
Unless otherwise specified with respect to any Security pursuant to
Section 3.1, if, after a deposit referred to in Section 14.4(a) has been made,
(a) the Holder of a Security in respect of which such deposit was made is
entitled to, and does, elect pursuant to Section 3.1 or the terms of such
Security to receive payment in a currency or currency unit other than that in
which the deposit pursuant to Section 14.4(a) has been made in respect of such
Security, or (b) a Conversion Event occurs in respect of the currency or
currency unit in which the deposit pursuant to Section 14.4(a) has been made,
the indebtedness represented by such Security and any coupons appertaining
thereto shall be deemed to have been, and will be, fully discharged and
satisfied through the payment of the principal of (and premium, if any), and
interest, if any, on such Security as the same becomes due out of the proceeds
yielded by converting (from time to time as specified below in the case of any
such election) the amount or other property deposited in respect of such
Security into the currency or currency unit in which such Security becomes
payable as a result of such election or Conversion Event based on the applicable
market exchange rate for such currency or currency unit in effect on the second
Business Day prior to each payment date, except, with respect to a Conversion
Event, for such currency or currency unit in effect (as nearly as feasible) at
the time of the Conversion Event.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the Government Obligations
deposited pursuant to Section 14.4 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of such Outstanding Securities and any coupons
appertaining thereto.
Anything in this Article to the contrary notwithstanding, subject to
Section 6.6, the Trustee shall deliver or pay to the Company from time to time
upon Company Request any money or Government Obligations (or other property and
any proceeds therefrom) held by it as provided in Section 14.4 which, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which
<PAGE>
83
would then be required to be deposited to effect a defeasance or covenant
defeasance, as applicable, in accordance with this Article.
<PAGE>
84
XV.
SUBORDINATION
A. Agreement to Subordinate. The Company agrees, and each Holder of
Securities by accepting a Security agrees, that the indebtedness evidenced by
the Securities is subordinated in right of payment, to the extent and in the
manner provided in this Article, to the prior payment in full of all Senior Debt
and that the subordination is for the benefit of the holders of Senior Debt.
B. Liquidation; Dissolution; Bankruptcy. Upon any distribution to
creditors of the Company in a liquidation or dissolution of the Company or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or its property:
(1) holders of Senior Debt shall be entitled to receive payment in
full in cash of the principal of and interest (including interest accruing
after the commencement of any such proceeding) to the date of payment on
the Senior Debt before Holders of Securities shall be entitled to receive
any payment of principal of or interest on Securities; and
(2) until the Senior Debt is paid in full in cash, any distribution
to which Holders of Securities would be entitled but for this Article
shall be made to holders of Senior Debt as their interests may appear,
except that Holders of Securities may receive securities that are
subordinated to Senior Debt to at least the same extent as the Securities.
C. Default on Senior Debt. The Company may not pay principal of or
interest on the Securities and may not acquire any Securities for cash or
property other than capital stock of the Company if:
(1) a default on Senior Debt occurs and is continuing that permits
holders of such Senior Debt to accelerate its maturity, and
(2) the default is the subject of judicial proceedings or the
Company receives a notice of the default from a person who may give it
pursuant to Section 15.11. If the Company receives any such notice, a
similar notice received within nine months thereafter relating to the same
default on the same issue of Senior Debt shall not be effective for
purposes of this Section.
The Company may resume payments on the Securities and may acquire
them when:
<PAGE>
85
1. the default is cured or waived, or
2. 120 days pass after the notice is given if the default is not the
subject of judicial proceedings,
if this Article otherwise permits the payment or acquisition at that time.
D. Acceleration of Securities. If payment of the Securities is
accelerated because of an Event of Default, the Company shall promptly notify
holders of Senior Debt of the acceleration. The Company may pay the Securities
when 120 days pass after the acceleration occurs if this Article permits the
payment at that time.
E. When Distribution Must Be Paid Over. If a distribution is made to
Holders of Securities that because of this Article should not have been made to
them, the Holders of Securities who receive the distribution shall hold it in
trust for holders of Senior Debt and pay it over to them as their interests may
appear.
F. Notice by Company. The Company shall promptly notify the Trustee
and any Paying Agent of any facts known to the Company that would cause a
payment of principal of or interest on Securities to violate this Article.
G. Subrogation. After all Senior Debt is paid in full and until the
Securities are paid in full, Holders of Securities shall be subrogated to the
rights of holders of Senior Debt to receive distributions applicable to Senior
Debt to the extent that distributions otherwise payable to the Holders of
Securities have been applied to the payment of Senior Debt. A distribution made
under this Article to holders of Senior Debt which otherwise would have been
made to Holders of Securities is not, as between the Company and Holders of
Securities, a payment by the Company on Senior Debt.
H. Relative Rights. This Article defines the relative rights of
Holders of Securities and holders of Senior Debt. Nothing in this Indenture
shall:
(1) impair, as between the Company and Holders of Securities, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their
terms;
(2) affect the relative rights of Holders of Securities and
creditors of the Company other than holders of Senior Debt; or
(3) prevent the Trustee or any Holders of Securities from exercising
its available remedies upon an Event of Default, subject to the rights of
holders of Senior Debt to receive distributions otherwise payable to
Holders of Securities.
<PAGE>
86
If the Company fails because of this Article to pay principal of or
interest on a Security on the due date, the failure is still an Event of Default
as provided elsewhere herein.
I. Subordination May Not Be Impaired by Trust. No right of any
holder of Senior Debt to enforce the subordination of the indebtedness evidenced
by the Securities shall be impaired by any act or failure to act by the Company
or by its failure to comply with this Indenture.
J. Distribution or Notice to Representative. Whenever a distribution
is to be made or a notice given to holders of Senior Debt, the distribution may
be made and the notice given to their Representative.
K. Rights of Trustee and Paying Agent. The Trustee or any Paying
Agent may continue to make payments on the Securities until it receives notice
of facts that would cause a payment of principal of or interest on the
Securities to violate this Article. Only the Company, a Representative or a
holder of an issue of Senior Debt that has no Representative may give the
notice.
* * * * *
<PAGE>
87
This Indenture may be executed in any number of counterparts, each
of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed all as of the day and year first above written.
CAPSTAR HOTEL COMPANY
By:
Title:
Attest:
Title:
FIRST TRUST OF NEW YORK, N.A.,
as Trustee
By:
Title:
Attest:
Title:
<PAGE>
)
) ss:
)
On the _____ day of _________, 199_, before me personally came
_______, to me known, who, being by me duly sworn, did depose and say that
he/she resides at ___________, that he/she is _______________ of CAPSTAR HOTEL
COMPANY, one of the parties described in and which executed the foregoing
instrument, and that he/she signed his/her name thereto by authority of the
Board of Trustees.
Notarial Seal
Notary Public
COMMISSION EXPIRES
)
) ss:
)
On the _____ day of ___________, 199_, before me personally came
_____________, to me known, who, being by me duly sworn, did depose and say that
he/she resides at ______________________, that he/she is ________________ of
_________________________, one of the parties described in and which executed
the foregoing instrument, and that he/she signed his/her name thereto by
authority of the Board of Trustees.
Notarial Seal
Notary Public
COMMISSION EXPIRES
<PAGE>
EXHIBIT A
FORMS OF CERTIFICATION
EXHIBIT A-1
FORM OF CERTIFICATE TO BE GIVEN BY PERSON
ENTITLED TO RECEIVE BEARER SECURITY OR
TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE
CERTIFICATE
Insert title or sufficient description of Securities to be delivered
This is to certify that, as of the date hereof, and except as set
forth below, the above-captioned Securities held by you for our account (i) are
owned by person(s) that are not citizens or residents of the United States,
domestic partnerships, domestic corporations or any estate or trust the income
of which is subject to United States federal income taxation regardless of its
source ("United States person(s)"), (ii) are owned by United States person(s)
that are (a) foreign branches of United States financial institutions (financial
institutions, as defined in United States Treasury Regulations Section
2.165-12(c)(1)(v) are herein referred to as "financial institutions") purchasing
for their own account or for resale, or (b) United States person(s) who acquired
the Securities through foreign branches of United States financial institutions
and who hold the Securities through such United States financial institutions on
the date hereof (and in either case (a) or (b), each such United States
financial institution hereby agrees, on its own behalf or through its agent,
that you may advise CapStar Hotel Company or its agent that such financial
institution will comply with the requirements of Section 165(j)(3)(A), (B) or
(C) of the United States Internal Revenue Code of 1986, as amended, and the
regulations thereunder), or (iii) are owned by United States or foreign
financial institution(s) for purposes of resale during the restricted period (as
defined in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)),
and, in addition, if the owner is a United States or foreign financial
institution described in clause (iii) above (whether or not also described in
clause (i) or (ii)), this is to further certify that such financial institution
has not acquired the Securities for purposes of resale directly or indirectly to
a United States person or to a person within the United States or its
possessions.
<PAGE>
As used herein, "United States" means the United States of America
(including the States and the District of Columbia); and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
We undertake to advise you promptly by tested telex on or prior to
the date on which you intend to submit your certification relating to the
above-captioned Securities held by you for our account in accordance with your
Operating Procedures if any applicable statement herein is not correct on such
date, and in the absence of any such notification it may be assumed that this
certification applies as of such date.
This certificate excepts and does not relate to U.S.$________ of
such interest in the above-captioned Securities in respect of which we are not
able to certify and as to which we understand an exchange for an interest in a
Permanent Global Security or an exchange for and delivery of definitive
Securities (or, if relevant, collection of any interest) cannot be made until we
do certify.
We understand that this certificate may be required in connection
with certain tax legislation in the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
Dated: ___________________, 19__
To be dated no earlier than the 15th day prior
to (i) the Exchange Date or (ii) the relevant
Interest Payment Date occurring prior to the
Exchange Date, as applicable
Name of Person Making
Certification
(Authorized Signatory)
Name:
Title:
<PAGE>
EXHIBIT A-2
FORM OF CERTIFICATE TO BE GIVEN BY EUROCLEAR
AND CEDEL S.A. IN CONNECTION WITH THE EXCHANGE
OF A PORTION OF A TEMPORARY GLOBAL SECURITY OR
TO OBTAIN INTEREST PAYABLE PRIOR TO THE EXCHANGE DATE
Insert title or sufficient description of Securities to be delivered
This is to certify that, based solely on written certifications that
we have received in writing, by tested telex or by electronic transmission from
each of the persons appearing in our records as persons entitled to a portion of
the principal amount set forth below (our "Member Organizations") substantially
in the form attached hereto, as of the date hereof, U.S.$ principal amount of
the above-captioned Securities (i) is owned by person(s) that are not citizens
or residents of the United States, domestic partnerships, domestic corporations
or any estate or trust the income of which is subject to United States Federal
income taxation regardless of its source ("United States person(s)"), (ii) is
owned by United States person(s) that are (a) foreign branches of United States
financial institutions (financial institutions, as defined in U.S. Treasury
Regulations Section 1.165-12(c)(1)(v) are herein referred to as "financial
institutions") purchasing for their own account or for resale, or (b) United
States person(s) who acquired the Securities through foreign branches of United
States financial institutions and who hold the Securities through such United
States financial institutions on the date hereof (and in either case (a) or (b),
each such financial institution has agreed, on its own behalf or through its
agent, that we may advise CapStar Hotel Company or its agent that such financial
institution will comply with the requirements of Section 165(j)(3)(A), (B) or
(C) of the Internal Revenue Code of 1986, as amended, and the regulations
thereunder), or (iii) is owned by United States or foreign financial
institution(s) for purposes of resale during the restricted period (as defined
In United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and, to
the further effect, that financial institutions described in clause (iii) above
(whether or not also described in clause (i) or (ii)) have certified that they
have not acquired the Securities for purposes of resale directly or indirectly
to a United States person or to a person within the United States or its
possessions.
<PAGE>
As used herein, "United States" means the United States of America
(including the States and the District of Columbia); and its "possessions"
include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island
and the Northern Mariana Islands.
We further certify that (i) we are not making available herewith for
exchange (or, if relevant, collection of any interest) any portion of the
temporary global Security representation the above-captioned Securities excepted
in the above-referenced certificates of Member Organizations and (ii) as of the
date hereof we have not received any notification from any of our Member
Organizations to the effect that the statements made by such Member
Organizations with respect to any portion of the part submitted herewith for
exchange (or, if relevant, collection of any interest) are no longer true and
cannot be relied upon as of the date hereof.
We understand that this certification is required in connection with
certain tax legislation in the United States. If administrative or legal
proceedings are commenced or threatened in connection with which this
certificate is or would be relevant, we irrevocably authorize you to produce
this certificate or a copy thereof to any interested party in such proceedings.
Dated: _________, 19__
To be dated no earlier than the Exchange Date
or the relevant Interest Payment Date occurring
prior to the Exchange Date, as applicable
By:
Exhibit 4.2
<PAGE>
Exhibit 4.8
OFFICERS' CERTIFICATE
We, Paul W. Whetsell, President, Chief Executive Officer and Chairman of
the Board, and John Emery, Chief Financial Officer, of CapStar Hotel Company
(the "Company"), pursuant to authority granted to the undersigned by the Board
of Directors of the Company, hereby establish the terms of the Company's 4.75%
Convertible Subordinated Notes due 2004 (the "Notes"), and pursuant to
Section 3.1 of the Indenture dated as of October 16, 1997 between the Company
and First Trust of New York, National Association, as Trustee (the "Indenture"),
hereby certify as follows with respect to the Notes (unless otherwise defined
herein, capitalized terms shall have the meanings set forth in the Indenture):
1. The title of the Notes shall be "4.75% Convertible Subordinated Notes
due 2004." The Notes constitute a series of Securities as defined in
the Indenture. The Notes shall be issuable in fully registered form
only in denominations of $1,000 or any integral multiple thereof.
2. The maximum aggregate principal amount of Notes that may be
authenticated and delivered under the Indenture shall be $150,000,000
(or $172,500,000 if the over-allotment option (the "Over-Allotment
Option") set forth in the Underwriting Agreement dated October 9, 1997
by and between the Company and Lehman Brothers, Inc., BT Alex. Brown
Incorporated, Goldman, Sachs & Co., Merrill Lynch & Co., NationsBanc
Montgomery Securities, Inc., and Smith Barney Inc. (the
"Representatives") is exercised)(except for Notes authenticated and
delivered upon registration of transfer of, or in exchange for, other
Notes pursuant to Section 3.4, 3.5 or 3.6 of the Indenture).
3. The principal amount of the Notes shall be payable on October 15,
2004, subject to the provisions of the Indenture.
4. Interest on the Notes will accrue from October 16, 1997. The Notes
will bear interest at a rate of 4.75% per annum, payable semi-annually
on April 15 and October 15, commencing on April 15, 1998, to holders
of record at the close of business on the preceding April 1 and
October 1, respectively, except (i) that the interest payment upon
redemption (unless the date of redemption is an interest payment date)
will be payable to the Person to whom principal is payable and (ii) as
set forth in the next succeeding sentence. In the case of any Note
(or portion thereof) which is converted into Common Stock during the
period from (but excluding) a record date to (but excluding) the next
succeeding interest payment date either (i) if such Note (or portion
thereof) has been called for redemption on a date of redemption which
occurs during such period, or is to be redeemed in connection with a
Change in Control on a Change in Control Purchase Date (as defined in
the Form of Note) which occurs during such period, the Company shall
not be required to pay interest on such interest payment date in
respect of any such Note (or portion thereof) or (ii) if otherwise,
any Note (or portion thereof) submitted for conversion during such
period shall be accompanied by funds equal to the interest payable on
such succeeding interest payment date on the aggregate principal
amount so converted. Interest may, at the Company's option, be paid
in U.S. Dollars either (i) by check mailed to the address of the
Person entitled thereto as it appears in the Note register or (ii) by
transfer to an account maintained by such Person located in the United
States; provided, however, that payments to The Depository Trust
Company, New York, New York ("DTC") will be made by wire transfer of
immediately available funds to the
<PAGE>
account of DTC or its nominee. Interest will be computed on the basis
of a 360-day year composed of twelve 30-day months.
5. The Notes are subject to a right of conversion, as set forth herein:
Section 5.1. Right to Convert. Subject to and upon compliance with
the provisions of the Indenture, the holder of any Note shall have the
right, at his or her option, at any time after ninety (90) days
following the date of original issuance of the Notes (without taking
into account any exercise of the Over-Allotment Option), and prior to
the close of business on October 15, 2004 (except that, with respect
to any Note or portion of a Note which shall be called for redemption,
such right shall terminate, except as provided in Section 5.2, at the
close of business on the Business Day next preceding the date fixed
for redemption of such Note or portion of a Note unless the Company
shall default in payment due upon redemption thereof) to convert the
principal amount at maturity of any such Note, or any portion of such
principal amount at maturity which is $1,000 or an integral multiple
thereof, into that number of fully paid and non-assessable shares of
Common Stock (as such shares shall then be constituted) obtained by
dividing the principal amount at maturity of the Note or portion
thereof surrendered for conversion by $1,000 and multiplying the
result so obtained by the Conversion Rate in effect at such time, by
surrender of the Note so to be converted in whole or in part in the
manner provided, together with any required funds, in Section 5.2. A
holder of Notes is not entitled to any rights of a holder of Common
Stock until such holder has converted his Notes to Common Stock, and
only to the extent such Notes are deemed to have been converted to
Common Stock under this Section 5.
Section 5.2. Exercise of Conversion Privilege; Issuance of Common
Stock on Conversion; No Adjustment for Interest or Dividends. In
order to exercise the conversion privilege with respect to any Note in
certificated form, the holder of any such Note to be converted in
whole or in part shall surrender such Note, duly endorsed, at an
office or agency maintained by the Company pursuant to the Indenture,
accompanied by the funds, if any, required by the penultimate
paragraph of this Section 5.2, and shall give written notice of
conversion in the form provided on the Notes (or such other notice
which is acceptable to the Company) to the office or agency through
which the holder elects to convert such Note or the portion thereof
specified in said notice. Such notice shall also state the name or
names (with address or addresses) in which the certificate or
certificates for shares of Common Stock which shall be issuable on
such conversion shall be issued, and shall be accompanied by transfer
taxes, if required pursuant to Section 5.7. Each such Note
surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as the registration of
such Note, be duly endorsed by, or be accompanied by instruments of
transfer in form satisfactory to the Company duly executed by, the
holder or his duly authorized attorney.
In order to exercise the conversion privilege with respect to any
interest in a Note in global form, the beneficial holder must complete
the appropriate instruction form for conversion pursuant to the
Depository's book-entry conversion program, deliver by book-entry
delivery an interest in such Note in global form, furnish appropriate
endorsements and transfer documents if required by the Company or the
Trustee or conversion agent, and pay the funds, if any, required by
this Section 5.2 and any transfer taxes if required pursuant to
Section 5.7.
2
<PAGE>
As promptly as practicable after satisfaction of the requirements for
conversion set forth above, subject to compliance with any
restrictions on transfer if shares issuable on conversion are to be
issued in a name other than that of the Noteholder (as if such
transfer were a transfer of the Note or Notes (or portion thereof) so
converted), the Company shall issue and shall deliver to such holder
at the office or agency maintained by the Company for such purpose
pursuant to the Indenture, a certificate or certificates for the
number of full shares of Common Stock issuable upon such conversion of
such Note or portion thereof in accordance with the provisions of this
Section 5 and a check or cash in respect of any fractional interest in
respect of a share of Common Stock arising upon such conversion, as
provided in Section 5.3. In case any Note of a denomination greater
than $1,000 shall be surrendered for partial conversion, and subject
to Section 1, the Company shall execute and the Trustee shall
authenticate and deliver to the holder of the Note so surrendered,
without charge to him, a new Note or Notes in authorized denominations
in an aggregate principal amount equal to the unconverted portion of
the surrendered Note.
Each conversion shall be deemed to have been effected as to any such
Note (or portion thereof) on the date on which the requirements set
forth above in this Section 5.2 have been satisfied as to such Note
(or portion thereof), and the person in whose name any certificate or
certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become on said date the holder of
record of the shares represented thereby; provided, however, that any
such surrender on any date when the stock transfer books of the
Company shall be closed shall constitute the person in whose name the
certificates are to be issued as the record holder thereof for all
purposes on the next succeeding day on which such stock transfer books
are open, but such conversion shall be at the Conversion Rate in
effect on the date upon which such Note shall be surrendered.
Except as described in this Section 5.2, holders of the Notes will not
be entitled to any payment or adjustment on account of accrued and
unpaid interest upon conversion of the Notes. The Company's delivery
of the fixed number of shares of Common Stock into which the Notes are
convertible will be deemed to satisfy the Company's obligation to pay
the principal amount at maturity of the Notes and all accrued interest
that has not previously been (or is not simultaneously being) paid.
The Common Stock is treated as issued first in payment of accrued
interest and then in payment of principal.
Any Note or portion thereof surrendered for conversion during the
period from the close of business on the record date for any interest
payment date to the close of business on the Business Day next
preceding the following interest payment date shall (unless such Note
or portion thereof being converted shall have been called for
redemption during the period from the close of business on such record
date to the close of business on the Business Day next preceding the
following interest payment date) be accompanied by payment, in New
York Clearing House funds or other funds acceptable to the Company, of
an amount equal to the interest otherwise payable on such interest
payment date on the principal amount being converted; provided,
however, that no such payment need be made if there shall exist at the
time of conversion a default in the payment of interest on the Notes.
Except as provided above in this Section 5.2, no payment or other
adjustment shall be made for interest accrued on any Note converted or
for dividends on any shares issued upon the conversion of such Note as
provided in this Section 5.
3
<PAGE>
Upon the conversion of an interest in a Note in global form, the
Trustee, or the Custodian at the direction of the Trustee, shall make
a notation on such Note in global form as to the reduction in the
principal amount at maturity represented thereby.
Section 5.3. Cash Payments in lieu of Fractional Shares. No
fractional shares of Common Stock or scrip representing fractional
shares shall be issued upon conversion of Notes. If more than one
Note shall be surrendered for conversion at one time by the same
holder, the number of full shares which shall be issuable upon
conversion shall be computed on the basis of the aggregate principal
amount at maturity of the Notes (or specified portions thereof to the
extent permitted hereby) so surrendered. If any fractional share of
stock would be issuable upon the conversion of any Note or Notes, the
Company shall make an adjustment and payment therefor in cash at the
current market value thereof to the holder of Notes. The current
market value of a share of Common Stock shall be the Closing Price on
the first Business Day immediately preceding the day on which the
Notes (or specified portions thereof) are deemed to have been
converted.
Section 5.4. Conversion Rate. The conversion rate shall be as
specified in the form of Note (herein called the "Conversion Rate")
attached hereto, subject to adjustment as provided in this Section 5.
Section 5.5. Adjustment of Conversion Rate. The Conversion Rate
shall be adjusted from time to time by the Company as follows:
(a) In case the Company shall pay a dividend or make a
distribution, in shares of its Common Stock, on its Common Stock, the
Conversion Rate in effect at the opening of business on the date
following the date fixed for the determination of stockholders
entitled to receive such dividend or other distribution shall be
increased by multiplying such Conversion Rate by a fraction of which
the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and the numerator shall be the sum of such number of
shares and the total number of shares constituting such dividend or
other distribution, such increase to become effective immediately
after the opening of business on the day following the date fixed for
such determination. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the
Company. If any dividend or distribution of the type described in
this Section 5.5(a) is declared but is not so paid or made and not
required to be so paid or made, the Conversion Rate shall again be
adjusted to the Conversion Rate which would then be in effect if such
dividend or distribution had not been declared.
(b) In case the Company shall issue rights or warrants to all
holders of its Common Stock entitling them (for a period expiring
within 45 days after the date fixed for determination of stockholders
entitled to receive such rights or warrants) to subscribe for or
purchase Common Stock at a price per share less than the Current
Market Price per share of Common Stock (as defined in Section 5.5(g)
below) at the record date for the determination of stockholders
4
<PAGE>
entitled to receive such rights or warrants, the Conversion Rate in
effect immediately prior thereto shall be adjusted so that the same
shall equal the rate determined by multiplying the Conversion Rate in
effect immediately prior to the date fixed for determination of
stockholders entitled to receive such rights or warrants by a fraction
the denominator of which shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for
determination of stockholders entitled to receive such rights or
warrants plus the number of shares which the aggregate offering price
of the total number of shares so offered would purchase at such
Current Market Price and the numerator of which shall be the number of
shares of Common Stock outstanding on the date fixed for determination
of stockholders entitled to receive such rights or warrants plus the
number of additional shares of Common Stock offered for subscription
or purchase. Such adjustment shall be made successively whenever any
such rights or warrants are issued, and shall become effective
immediately after the opening of business on the day following the
record date for the determination of the stockholders entitled to
receive such rights or warrants. In determining whether any rights or
warrants entitle the holders to subscribe for or purchase shares of
Common Stock at less than such Current Market Price, and in
determining the aggregate offering price of such shares of Common
Stock, there shall be taken into account any consideration received by
the Company for such rights or warrants, the value of such
consideration, if other than cash, to be determined by the Board of
Directors. To the extent that shares of Common Stock are not
delivered or required to be delivered after the expiration of such
rights or warrants, the Conversion Rate shall be readjusted to the
Conversion Rate which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made on the basis of
delivery of only the number of shares of Common Stock actually
delivered. If such rights or warrants are not so issued and not
required to be so issued, the Conversion Rate shall again be adjusted
to be the Conversion Rate which would then be in effect if such record
date for the determination of stockholders entitled to receive such
rights or warrants had not been fixed.
(c) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Rate in effect at the opening of business on the
day following the day upon which such subdivision becomes
effective shall be proportionately increased, and conversely,
in case outstanding shares of Common Stock shall be combined
into a smaller number of shares of Common Stock, the
Conversion Rate in effect at the opening of business on the
day following the day upon which such combination becomes
effective shall be proportionately reduced, such reduction or
increase, as the case may be, to become effective immediately
after the opening of business on the day following the day
upon which such subdivision or combination becomes effective.
(d) In case the Company shall distribute to all holders of its
Common Stock shares of any class of capital stock of the Company
(other than Common Stock) or evidences of its indebtedness or assets
(excluding cash dividends or other distributions to the extent paid
from retained earnings of the Company) or rights or warrants to
subscribe for or purchase any of its securities (excluding those
referred to in Section 5.5(b) above) (any of the foregoing hereinafter
in this Section 5.5(d) called the "Distributed Securities"), then in
each such case the Conversion Rate shall be adjusted so that the same
shall equal the rate determined by multiplying the Conversion Rate in
effect on the record date with respect to such distribution by a
fraction of which the denominator shall be the Current Market Price
per share of the Common
5
<PAGE>
Stock on such record date less the fair market value on such record
date (as determined by the Board of Directors of the Company, whose
determination shall be conclusive, and described in a certificate
filed with the Trustee) of the Distributed Securities applicable to
one share of Common Stock and the numerator of which shall be the
Current Market Price per share of the Common Stock on the record date
for the determination of shareholders entitled to receive such
distribution; such adjustment shall become effective immediately prior
to the opening of business on the day following such record date.
Notwithstanding the foregoing, in the event the then fair market value
(as so determined) of the portion of the Distributed Securities
applicable to one share of Common Stock is equal to or greater than
the Current Market Price of the Common Stock on the relevant record
date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Noteholder shall have the right to receive upon
conversion the amount of Distributed Securities such holder would have
received had such holder converted each Note on such record date. In
the event that such distribution is not so paid or made, the
Conversion Rate shall again be adjusted to the Conversion Rate which
would then be in effect if such distribution had not been declared.
If the Board of Directors determines the fair market value of any
distribution for purposes of this subsection (d) by reference to the
actual or when issued trading market for any securities, it must in
doing so consider the prices in such market over the same period used
in computing the Current Market Price of the Common Stock.
Notwithstanding the foregoing provisions of this subsection (d), no
adjustment shall be made thereunder for any distribution of
Distributed Securities if the Company makes proper provision so that
each holder of a Note who converts such Note (or any portion thereof)
after the record date for such distribution shall be entitled to
receive upon such conversion, in addition to the shares of Common
Stock issuable upon such conversion, the amount and kind of
Distributed Securities that such holder would have been entitled to
receive if such holder had, immediately prior to such record date,
converted such Note into Common Stock, provided that, with respect to
any Distributed Securities that are convertible, exchangeable or
exercisable, the foregoing provision shall only apply to the extent
(and so long as) the Distributed Securities receivable upon conversion
of such Note would be convertible, exchangeable or exercisable, as
applicable, without any loss of rights or privileges for a period of
at least 60 days following conversion of such Note.
(e) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding (x) any
quarterly cash dividend on the Common Stock to the extent the
aggregate cash dividend per share of Common Stock in any fiscal
quarter does not exceed the greater of (A) the amount per share of
Common Stock of the next preceding quarterly cash dividend on the
Common Stock to the extent such preceding quarterly dividend did not
require any adjustment of the Conversion Rate pursuant to this Section
5.5(e) (as adjusted to reflect subdivisions or combinations of the
Common Stock), and (B) 10% of the average of the last reported sales
price of the Common Stock (determined as provided in Section 5.5(g))
during the ten Trading Days (as defined in Section 5.5(g)) next
preceding the date of declaration of such dividend and (y) any
dividend or distribution in connection with the liquidation,
dissolution or winding up of the Company, whether voluntary or
involuntary), then, in such case, unless the Company elects to reserve
such cash for distribution to the holders of the Notes upon the
conversion of the Notes so that any such holder converting Notes will
receive upon such conversion, in addition to the shares of Common
Stock to which such holder is entitled, the amount of cash which such
holder would have received if such holder had, immediately prior to
the record date for such distribution of cash, converted its Notes
into Common Stock, the Conversion Rate shall be adjusted so that the
same shall equal the rate determined by multiplying the Conversion
Rate in effect immediately prior to the close of business on such
record date by a fraction of which the denominator shall be
6
<PAGE>
such Current Market Price of the Common Stock on the record date less
the amount of cash so distributed (and not excluded as provided above)
applicable to one share of Common Stock and the numerator of which
shall be the Current Market Price of the Common Stock on such record
date; such adjustment to be effective immediately prior to the opening
of business on the day following the record date; provided, however,
that in the event the portion of the cash so distributed applicable to
one share of Common Stock is equal to or greater than the Current
Market Price of the Common Stock on the record date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each
Noteholder shall have the right to receive upon conversion the amount
of cash such holder would have received had such holder converted each
Note on the record date. If such dividend or distribution is not so
paid or made, the Conversion Rate shall again be adjusted to be the
Conversion Rate which would then be in effect if such dividend or
distribution had not been declared.
If any adjustment is required to be made as set forth in this
subsection (e) as a result of a distribution that is a quarterly
dividend, such adjustment shall be based upon the amount by which such
distribution exceeds the amount of the quarterly cash dividend
permitted to be excluded pursuant hereto. If an adjustment is
required to be made as set forth in this subsection (e) above as a
result of a distribution that is not a quarterly dividend, such
adjustment shall be based upon the full amount of the distribution.
(f) In case a tender or exchange offer made by the Company or
any subsidiary of the Company for all or any portion of the Common
Stock shall expire and such tender or exchange offer shall involve the
payment by the Company or such subsidiary of consideration per share
of Common Stock having a fair market value (as determined by the Board
of Directors or, to the extent permitted by applicable law, a duly
authorized committee thereof, whose determination shall be conclusive,
and described in a resolution of the Board of Directors or such duly
authorized committee thereof, as the case may be, at the last time
(the "Expiration Time") tenders or exchanges may be made pursuant to
such tender or exchange offer (as it shall have been amended), that
exceeds the Current Market Price of the Common Stock on the Trading
Day next succeeding the Expiration Time, the Conversion Rate shall be
adjusted so that the same shall equal the rate determined by
multiplying the Conversion Rate in effect immediately prior to the
Expiration Time by a fraction of which the denominator shall be the
number of shares of Common Stock outstanding (including any tendered
or exchanged shares) on the Expiration Time multiplied by the Current
Market Price of the Common Stock on the Trading Day next succeeding
the Expiration Time and the numerator of which shall be the sum of (x)
the fair market value (determined as aforesaid) of the aggregate
consideration payable to stockholders based on the acceptance (up to
any maximum specified in the terms of the tender or exchange offer) of
all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted up to any such maximum,
being referred to as the "Purchased Shares") and (y) the product of
the number of shares of Common Stock outstanding (less any Purchased
Shares) on the Expiration Time and the Current Market Price of the
Common Stock on the Trading Day next succeeding the Expiration Time;
such adjustment to become effective immediately prior to the opening
of business on the day following the Expiration Time. If the Company
is obligated to purchase shares pursuant to any such tender or
exchange offer, but the Company is permanently prevented by applicable
law from effecting any such purchases or all such purchases are
rescinded, the Conversion
7
<PAGE>
Rate shall again be adjusted to be the Conversion Rate which would
then be in effect if such tender or exchange offer had not been made.
(g) For purposes of this Section 5.5, the following terms shall
have the meaning indicated:
(i) "Current Market Price" per share of Common Stock at any
date shall be deemed to be the average of the last reported sale
prices for the ten (10) consecutive Trading Days (as defined
below) preceding the day before the record date with respect to
any distribution, issuance or other event requiring such
computation.
(ii) "Closing Price" with respect to any securities on any
day shall mean the closing sale price regular way on such day or,
in case no such sale takes place on such day, the average of the
reported closing bid and asked prices, regular way, in each case
on the Nasdaq National Market or New York Stock Exchange, or, if
such security is not listed or admitted to trading on such
quotation system or exchange, on the principal national security
exchange or quotation system on which such security is quoted or
listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or
quotation system, the average of the closing bid and asked prices
of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting service,
or if not so available, in such manner as furnished by any New
York Stock Exchange member firm selected from time to time by the
Board of Directors for that purpose, or a price determined in
good faith by the Board of Directors, whose determination shall
be conclusive and described in a Board Resolution.
(iii) "fair market value" shall mean the amount which a
willing buyer under no compulsion to buy would pay a willing
seller under no compulsion to sell in an arm's length
transaction.
(iv) "record date" shall mean, with respect to any dividend,
distribution or other transaction or event in which the holders
of Common Stock have the right to receive any cash, securities or
other property or in which the Common Stock (or other applicable
security) is exchanged for or converted into any combination of
cash, securities or other property, the date fixed for
determination of stockholders entitled to receive such cash,
securities or other property (whether such date is fixed by the
Board of Directors or by statute, contract or otherwise).
(v) "Trading Day" shall mean (x) if the applicable security
is quoted on the Nasdaq National Market, a day on which trades
may be made on thereon or (y) if the applicable security is
listed or admitted for trading on the New York Stock Exchange or
another national security exchange, a day on which the New York
Stock Exchange or another national security exchange is open for
business or (z) if the applicable security is not so listed,
admitted for trading or quoted, any day other than a Saturday or
Sunday or a day on which
8
<PAGE>
banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
(h) Rights or warrants distributed by the Company to all holders
of Common Stock entitling the holders thereof to subscribe for or
purchase shares of the Company's capital stock (either initially or
under certain circumstances), which rights or warrants, until the
occurrence of a specified event or events ("Trigger Event"):
(i) are deemed to be transferred with such shares of Common
Stock,
(ii) are not exercisable, and
(iii) are also issued in respect of future issuances of
Common Stock, shall not be deemed distributed for purposes of
this Section 5.5 until the occurrence of the earliest Trigger
Event. In addition, in the event of any distribution of rights
or warrants, or any Trigger Event with respect thereto, that
shall have resulted in an adjustment to the Conversion Rate under
this Section 5.5, (1) in the case of any such rights or warrants
which shall all have been redeemed or repurchased without
exercise by any holders thereof, the Conversion Rate shall be
readjusted upon such final redemption or repurchase to give
effect to such distribution or Trigger Event, as the case may be,
as though it were a cash distribution, equal to the per share
redemption or repurchase price received by a holder of Common
Stock with respect to such rights or warrants (assuming such
holder had retained such rights or warrants), made to all holders
of Common Stock as of the date of such redemption or repurchase,
and (2) in the case of any such rights or warrants all of which
shall have expired without exercise by any holder thereof, the
Conversion Rate shall be readjusted as if such issuance had not
occurred.
(i) No adjustment to the Conversion Rate shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such rate; provided, however, that any adjustments which
by reason of this subsection (i) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 5 shall be made by the Company and
shall be made to the nearest cent or to the nearest one hundredth of a
share, as the case may be. Anything in this Section 5.5 to the
contrary notwithstanding, the Company shall be entitled to make such
increases in the Conversion Rate, in addition to those required by
this Section 5.5, as it in its discretion shall determine to be
advisable in order that any stock dividends, subdivision of shares,
distribution of rights to purchase stock or securities, or any
distribution of securities convertible into or exchangeable for stock
hereafter made by the Company to its stockholders shall not be
taxable. To the extent permitted by applicable law, the Company from
time to time may increase the Conversion Rate by any amount for any
period of time if the period is at least 20 days, the increase is
irrevocable during the period and the Board of Directors shall have
made a determination that such increase would be in the best interests
of the Company, which determination shall be conclusive. Whenever the
Conversion Rate is so increased, the Company shall mail to Noteholders
and file with the Trustee and the conversion agent a notice of the
increase. The Company shall mail the notice at least 5 days before
the date the increased Conversion Rate takes effect. The notice shall
state the increased Conversion Rate and the period it will be in
effect.
9
<PAGE>
(j) Whenever the Conversion Rate is adjusted, as herein
provided, the Company shall promptly file with the Trustee and any
conversion agent other than the Trustee an Officers' Certificate
setting forth the Conversion Rate after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
Promptly after delivery of such certificate, the Company shall prepare
a notice of such adjustment of the Conversion Rate setting forth the
adjusted Conversion Rate and the date on which such adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Rate to each Noteholder at its last address appearing on
the Note register provided for in the Indenture, within twenty (20)
days after execution thereof. Failure to deliver such notice shall
not affect the legality or validity of any such adjustment.
(k) In any case in which this Section 5.5 provides that an
adjustment shall become effective immediately after a record date for
an event, the Company may defer until the occurrence of such event (i)
issuing to the holder of any Note converted after such record date and
before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the Common Stock issuable upon
such conversion before giving effect to such adjustment and (ii)
paying to such holder any amount in cash or additional shares in lieu
of any fractional share pursuant to Section 5.3.
(l) In case of a tender or exchange offer made by a Person other
than the Company or any subsidiary for an amount which increases the
offeror's ownership of Common Stock to more than 25% of the Common
Stock outstanding and shall involve the payment by such Person of
consideration per share of Common Stock having a fair market value (as
determined by the Board of Directors, whose determination shall be
conclusive, and described in a resolution of the Board of Directors)
at the Expiration Time that exceeds the Current Market Price of the
Common Stock on the Trading Day next succeeding the Expiration Time,
and in which, as of the Expiration Time, the Board of Directors is not
recommending rejection of the offer, the Conversion Rate shall be
increased so that the same shall equal the price determined by
multiplying the Conversion Rate in effect immediately prior to the
Expiration Time by a fraction of which the denominator shall be the
number of shares of Common Stock outstanding (including any tendered
or exchange shares) at the Expiration Time multiplied by the Current
Market Price of the Common Stock on the Trading Day next succeeding
the Expiration Time and the numerator shall be the sum of (x) the fair
market value (determined as aforesaid) of the aggregate consideration
payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender or exchange offer) of all
Purchased Shares and (y) the product of the number of shares of Common
Stock outstanding (less any Purchased Shares) on the Expiration Time
and the Current Market Price of the Common Stock on the Trading Day
next succeeding the Expiration Time, such increase to become effective
immediately prior to the opening of business on the day following the
Expiration Time. In the event that such Person is obligated to
purchase shares pursuant to any such tender or exchange offer, but
such Person is permanently prevented by applicable law from effecting
any such purchases or all such purchases are rescinded, the
Conversion Rate shall again be adjusted to be the Conversion Rate
which would then be in effect if such tender or exchange offer had not
been made. Notwithstanding the foregoing, the adjustment described in
this Section 5.5(l) shall not be made if, as of the Expiration Time,
the offering documents with
10
<PAGE>
respect to such offer disclose a plan or intention to cause the
Company to engage in any transaction described in Article 8 of the
Indenture.
Section 5.6. Effect of Reclassification, Consolidation, Merger or
Sale. If any of the following events occur, namely (i) any
reclassification or change of the outstanding shares of Common Stock
(other than a subdivision or combination to which Section 5.5(c)
applies), (ii) any consolidation, merger or combination of the Company
with another corporation as a result of which holders of Common Stock
shall be entitled to receive stock, securities or other property or
assets (including cash) with respect to or in exchange for such Common
Stock, or (iii) any sale or conveyance of the properties and assets of
the Company as, or substantially as, an entirety to any other
corporation as a result of which holders of Common Stock shall be
entitled to receive stock, securities or other property or assets
(including cash) with respect to or in exchange for such Common Stock,
then the Company or the successor or purchasing corporation, as the
case may be, shall execute with the Trustee a supplemental indenture
(which shall comply with the Trust Indenture Act as in force at the
date of execution of such supplemental indenture) providing that such
Note shall be convertible into the kind and amount of shares of stock
and other securities or property or assets (including cash) receivable
upon such reclassification, change, consolidation, merger,
combination, sale or conveyance by a holder of a number of shares of
Common Stock issuable upon conversion of such Notes (assuming, for
such purposes, a sufficient number of authorized shares of Common
Stock available to convert all such Notes) immediately prior to such
reclassification, change, consolidation, merger, combination, sale or
conveyance assuming such holder of Common Stock did not exercise his
rights of election, if any, as to the kind or amount of securities,
cash or other property receivable upon such consolidation, merger,
statutory exchange, sale or conveyance (provided, that, if the kind or
amount of securities, cash or other property receivable upon such
consolidation, merger, statutory exchange, sale or conveyance is not
the same for each share of Common Stock in respect of which such
rights of election shall not have been exercised
("nonelecting-share")), then for the purposes of this Section 5.6 the
kind and amount of securities, cash or other property receivable upon
such consolidation, merger, statutory exchange, sale or conveyance for
each non-electing share shall be deemed to be the kind and amount so
receivable per share by a plurality of the non-electing shares. Such
supplemental indenture shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided
for in this Article.
The Company shall cause notice of the execution of such supplemental
indenture to be mailed to each holder of Notes, at his address
appearing on the Note register provided for in the Indenture, within
twenty (20) days after execution thereof. Failure to deliver such
notice shall not affect the legality or validity of such supplemental
indenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers,
combinations, sales and conveyances.
If this Section 5.6 applies to any event or occurrence, Section 5.5
shall not apply.
Section 5.7. Taxes on Shares Issued. The issue of stock
certificates on conversions of Notes shall be made without charge to
the converting Notholder for any tax in respect of the issue thereof.
The Company shall not, however, be required to pay any tax which may
be payable in respect of any transfer involved in the issue and
delivery of stock in
11
<PAGE>
any name other than that of the holder of any Note converted, and the
Company shall not be required to issue or deliver any such stock
certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such
tax has been paid.
Section 5.8. Reservation of Shares; Shares to be Fully Paid;
Compliance with Governmental Requirements; Listing of Common Stock.
The Company shall provide, free from preemptive rights, out of its
authorized but unissued shares or shares held in treasury, sufficient
shares of Common Stock to provide for the conversion of the Notes from
time to time as such Notes are presented for conversion.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value, if any, of the shares of
Common Stock issuable upon conversion of the Notes, the Company will
take all corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue
shares of such Common Stock at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which may be
issued upon conversion of Notes will upon issue be fully paid and
non-assessable by the Company and free from all taxes, liens and
charges with respect to the issue thereof.
The Company covenants that if any shares of Common Stock to be
provided for the purpose of conversion of Notes hereunder require
registration with or approval of any governmental authority under any
federal or state law before such shares may be validly issued upon
conversion, the Company will in good faith and as expeditiously as
possible endeavor to secure such registration or approval, as the case
may be.
The Company further covenants that if at any time the Common Stock
shall be listed on the Nasdaq National Market, the New York Stock
Exchange or any other national securities exchange or automated
quotation system the Company will, if permitted by the rules of such
exchange or automated quotation system, list and keep listed, so long
as the Common Stock shall be so listed on such exchange or automated
quotation system, all Common Stock issuable upon conversion of the
Notes; provided, however, that if rules of such exchange or automated
quotation system permit the Company to defer the listing of such
Common Stock until the first conversion of the Notes into Common Stock
in accordance with the provisions of the Indenture, the Company
covenants to list such Common Stock issuable upon conversion of the
Notes in accordance with the requirements of such exchange or
automated quotation system at such time.
Section 5.9. Responsibility of Trustee. The Trustee and any other
conversion agent shall not at any time be under any duty or
responsibility to any holder of Notes to determine whether any facts
exist which may require any adjustment of the Conversion Price, or
with respect to the nature or extent or calculation of any such
adjustment when made, or with respect to the method employed, or
herein or in any supplemental indenture provided to be employed, in
making the same. The Trustee and any other conversion agent shall not
be accountable with respect to the validity or value (or the kind or
amount) of any shares of Common Stock, or of any securities or
property, which may at any time be issued or delivered upon the
conversion of any Note; and the Trustee and any other conversion agent
make no representations with respect thereto. Subject to
12
<PAGE>
the provisions of the Indenture, neither the Trustee nor any
conversion agent shall be responsible for any failure of the Company
to issue, transfer or deliver any shares of Common Stock or stock
certificates or other securities or property or cash upon the
surrender of any Note for the purpose of conversion or to comply with
any of the duties, responsibilities or covenants of the Company
contained in this Article. Without limiting the generality of the
foregoing, neither the Trustee nor any conversion agent shall be under
any responsibility to determine the correctness of any provisions
contained in any supplemental indenture entered into pursuant to
Section 5.6 relating either to the kind or amount of shares of stock
or securities or property (including cash) receivable by Noteholders
upon the conversion of their Notes after any event referred to in such
Section 5.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Article 6 of the Indenture, may accept as
conclusive evidence of the correctness of any such provisions, and
shall be protected in relying upon, the Officers' Certificate (which
the Company shall be obligated to file with the Trustee prior to the
execution of any such supplemental indenture) with respect thereto.
Section 5.10. Notice to Holders Prior to Certain Actions. In case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in
the Conversion Price pursuant to Section 5.5; or
(b) the Company shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase
any share of any class or any other rights or warrants; or
(c) of any reclassification or reorganization of the Common
Stock of the Company (other than a subdivision or combination of its
outstanding Common Stock, or a change in par value, or from par value
to no par value, or from no par value to par value), or of any
consolidation or merger to which the Company is a party and for which
approval of any shareholders of the Company is required, or of the
sale or transfer of all or substantially all of the assets of the
Company; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
the Company shall cause to be filed with the Trustee and to be mailed
to each holder of Notes at his address appearing on the Note register
provided for in the Indenture, as promptly as possible but in any
event at least fifteen (15) days prior to the applicable date
hereinafter specified, a notice stating (x) the date on which a record
is to be taken for the purpose of such dividend, distribution or
rights or warrants, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such
dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective
or occur, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of such dividend,
13
<PAGE>
distribution, reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up.
6. The Notes are subject to redemption, as set forth in the form of the
Note.
7. The Notes are not subject to a sinking fund or other analogous fund
requirement.
8. The Corporate Trust Office of First Trust of New York, National
Association is appointed as the principal paying agent, transfer
agent, and registrar for the Notes and for the purpose mentioned in
Section 10.2 of the Indenture. The Notes may be presented for payment
at maturity at such Corporate Trust Office, or at any other agency as
may be appointed by the Issuer from time to time in The City of New
York.
9. The Notes will be represented by one or more Global Notes as described
under the caption "Description of the Notes--Book Entry; Delivery and
Form" in the Issuer's Prospectus Supplement dated October __, 1997
with respect to the offering of the Notes. There will be no bearer
notes.
10. The Notes shall have such other terms and conditions (including
subordination) as are set forth in the form of the Note. The Notes
shall be subject to the provisions of the Indenture [, except that the
terms of Sections 14.2 and 14.3 of the Indenture shall not apply to
the Notes].
11. The attached form of the Notes is in the form hereby approved by the
undersigned pursuant to authority granted by the Board of Directors of
the Company.
This Certificate is delivered pursuant to the provisions of Sections 2.1,
3.1 and 3.3 of the Indenture. The undersigned hereby certify as follows:
(a) we have read each of the Sections of the Indenture referred to
above, and the definitions of the Indenture relating thereto;
(b) we have examined the Indenture, the form of Notes and such other
documents, records and instruments as we have deemed necessary for purposes
of giving this Certificate;
(c) in our opinion, we have made such examination and investigation
as is necessary to enable us to express an informed opinion as to whether the
conditions precedent to the issuance of the Notes have been complied with; and
(d) in our opinion, the conditions precedent to the issuance of the
Notes have been complied with.
14
<PAGE>
Dated: October 16, 1997 ----------------------------------
Paul W. Whetsell, President, Chief
Executive Officer and Chairman of
the Board
Dated: October 16, 1997 ----------------------------------
John Emery,
Chief Financial Officer
15
<PAGE>
FORM OF NOTE
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
<PAGE>
CAPSTAR HOTEL COMPANY
4.75% CONVERTIBLE SUBORDINATED NOTE DUE 2004 No. ______
CUSIP
CapStar Hotel Company, a corporation duly organized and validly existing
under the laws of the State of Delaware (herein called the "Company"), which
term includes any successor corporation under the Indenture referred to on the
reverse hereof, for value received hereby promises to pay to CEDE & CO. or
registered assigns, the principal sum of One Hundred Seventy Two Million Five
Hundred Thousand Dollars ($172,500,000) on October 15, 2004, at the office or
agency of the Company maintained for that purpose in the Borough of Manhattan,
The City of New York, or, at the option of the holder of this Note, at the
Corporate Trust Office, in such coin or currency of the United States of America
as at the time of payment shall be legal tender for the payment of public and
private debts, and to pay interest, semi-annually on April 15 and October 15 of
each year, commencing April 15 , 1998, on said principal sum at said office or
agency, in like coin or currency, at the rate per annum of 4.75% from October
16, 1997 (or from the most recent interest payment date to which interest has
been paid or provided for), until payment of said principal sum has been made or
duly provided for. Notwithstanding the foregoing, if the date hereof is after
any April 1 or October 1, as the case may be, and before the following April 15
or October 15, this Note shall bear interest from such April 1 or October 1;
provided, however, that if the Company shall default in the payment of interest
due on such April 15 or October 15, then this Note shall bear interest from the
next preceding April 1 or October 1 to which interest has been paid or duly
provided for or, if no interest has been paid or duly provided for on such Note,
from October 16, 1997. The interest payable on the Note pursuant to the
Indenture on any April 15 or October 15, will be paid to the person entitled
thereto as it appears in the Note register at the close of business on the
record date, which shall be the April 1 or October 1 (whether or not a Business
Day) next preceding such April 15 or October 15, as provided in the Indenture;
provided, that any such interest not punctually paid or duly provided for shall
be payable as provided in the Indenture. Interest may, at the option of the
Company, be paid by check mailed to the registered address of such person.
Reference is made to the further provisions of this Note set forth on the
reverse hereof, including, without limitation, provisions subordinating the
payment of principal amount at maturity, Issue Price, Redemption Price, Change
in Control Purchase Price and interest on the Notes to the prior payment in full
of all Senior Indebtedness, as defined in the Indenture, and provisions giving
the holder of this Note the right to convert this Note into Common Stock of the
Company on the terms and subject to the limitations referred to on the reverse
hereof and as more fully specified in the Indenture. Such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
This Note shall be deemed to be a contract made under the laws of New York,
and for all purposes shall be construed in accordance with and governed by the
laws of New York, without regard to principles of conflicts of laws.
This Note shall not be valid or become obligatory for any purpose until the
certificate of authentication hereon shall have been manually signed by the
Trustee or a duly authorized authenticating agent under the Indenture.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
under its corporate seal.
<PAGE>
CAPSTAR HOTEL COMPANY
By: _____________________________
Name:
Title:
Attest: ____________________________
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the
within-named Indenture.
Dated: October 16, 1997
__________________________, as Trustee
By: ______________________________
Authorized Signatory
By: ______________________________
As Authenticating Agent (if different
from Trustee)
2
<PAGE>
[FORM OF REVERSE OF NOTE]
CAPSTAR HOTEL COMPANY
4.75% CONVERTIBLE SUBORDINATED NOTE DUE 2004
This Note is one of a duly authorized issue of Notes of the Company,
designated as its 4.75% Convertible Subordinated Notes due 2004 (herein called
the "Notes"), limited to the aggregate principal amount at maturity of
$172,500,000 all issued or to be issued under and pursuant to an indenture dated
as of October 15, 1997 (herein called the "Indenture"), between the Company and
First Trust of New York, National Association, as trustee (herein called the
"Trustee"), to which Indenture and all indentures supplemental thereto reference
is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Notes.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the Issue Price, and accrued interest, if any,
through the date of declaration on all Notes may be declared, and upon such
declaration shall become, due and payable, in the manner, with the effect and
subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount at maturity of the Notes at the time outstanding,
evidenced as in the Indenture provided, to execute supplemental indentures
adding any provisions to or changing in any manner or eliminating any of the
provisions of the Indenture or of any supplemental indenture or modifying in any
manner the rights of the holders of the Notes; provided, however, that as
provided in the Indenture, no such supplemental indenture shall (i) extend the
fixed maturity of any Note, or reduce the rate or extend the time of payment of
interest thereon, or reduce the principal amount at maturity thereof, or reduce
any amount payable on redemption or repurchase thereof, or impair the right of
any Noteholder to institute suit for the payment thereof, or make the principal
amount at maturity thereof or Redemption Price, Change in Control Purchase Price
or interest thereon payable in any coin or currency other than that provided in
the Note, or modify the provisions of the Indenture with respect to the
subordination of the Notes in a manner adverse to the Noteholders in any
material respect, or change the obligation of the Company to make redemption of
any Note upon the happening of a Change in Control in a manner adverse to the
holder of the Notes, or impair the right to convert the Notes into Common Stock
subject to the terms set forth in the Indenture, as supplemented, without the
consent of the holder of each Note so affected or (ii) reduce the aforesaid
percentage of Notes, the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all Notes then
outstanding. It is also provided in the Indenture that, prior to any
declaration accelerating the maturity of the Notes, the holders of a majority in
aggregate principal amount of the Notes at the time outstanding may on behalf of
the holders of all of the Notes waive any past default or Event of Default under
the Indenture and its consequences except a default in the payment of principal
amount at maturity, Redemption Price, Change in Control Purchase Price or
interest in respect of any of the Notes or a failure by the Company to convert
any Notes into Common Stock of the Company. Any such consent or waiver by the
holder of this Note (unless revoked as provided in the Indenture) shall be
conclusive and binding upon such holder and upon all future holders and owners
of this Note and any Notes which may be issued in exchange or substitute hereof,
irrespective of whether or not any notation thereof is made upon this Note or
such other Notes.
<PAGE>
The indebtedness evidenced by the Notes is, to the extent and in the
manner provided in the Indenture, expressly subordinate and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as defined
below) of the Company, whether outstanding at the date of the Indenture or
thereafter incurred, and this Note is issued subject to the provisions of the
Indenture with respect to such subordination. Each holder of this Note, by
accepting the same, agrees to and shall be bound by such provisions and
authorizes the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination so provided and appoints the Trustee
his attorney-in-fact for such purpose.
No payment shall be made with respect to the principal of, or premium,
if any, or interest on the Notes (including the Payment of any Redemption Price
or Change in Control Purchase Price (as defined below)), if (i) a default in the
payment of principal, premium, if any, interest, rent or other obligations in
respect of Senior Indebtedness occurs and is continuing (or, in the case of
Senior Indebtedness for which there is a period of grace, in the event of such a
default that continues beyond the period of grace, if any, specified in the
instrument or lease evidencing such Senior Indebtedness); or (ii) a default,
other than a payment default, on Designated Senior Indebtedness occurs and is
continuing that then permits holders of such Designated Senior Indebtedness to
accelerate its maturity and the Trustee receives a notice of the default (a
"Payment Blockage Notice") from a Representative or the Company. The Company
may and shall resume payments on and distributions in respect of the Notes upon
the earlier of: (1) the date upon which the default is cured or waived or ceases
to exist, or (2) in the case of a default referred to in clause (ii) above, 179
days after the Payment Blockage Notice is received. No subsequent period of
payment blockage may be commenced pursuant to a Payment Blockage Notice unless
and until (A) at least 365 days shall have elapsed since the initial
effectiveness of the immediately prior Payment Blockage Notice, and (B) all
scheduled payments of principal amount at maturity, Redemption Price, Change in
Control Purchase Price and interest on the Notes that have come due have been
paid in full in cash. During any period of payment blockage, any payment that
otherwise would have been made during such period will accrue interest, to the
extent legally permissible, at the annual rate set forth herein from the date on
which such payment was required under the terms of the Indenture until the date
of payment. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice.
For purposes of the Notes, the term "Senior Indebtedness" means the
principal of, premium, if any, interest (including all interest accruing
subsequent to the commencement of any bankruptcy or similar proceeding, whether
or not a claim for post-petition interest is allowable as a claim in any such
proceeding) and rent payable on or in connection with, and all fees, costs,
expenses and other amounts accrued or due on or in connection with, Indebtedness
(as defined below) of the Company, whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed, guaranteed or in effect
guaranteed by the Company (including all deferrals, renewals, extensions or
refundings of, or amendments, modifications or supplements to, the foregoing),
unless in the case of any particular Indebtedness the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior in right of payment to the Notes or
expressly provides that such Indebtedness is "pari passu" with or "junior" to
the Notes. Notwithstanding the foregoing, the term Senior Indebtedness shall
not include any Indebtedness of the Company to any subsidiary of the Company, a
majority of the voting stock of which is owned, directly or indirectly, by the
Company. If any payment made to any holder of any Senior Indebtedness or its
Representative with respect to such Senior Indebtedness is rescinded or must
otherwise be returned by such holder or Representative upon the insolvency,
bankruptcy or reorganization of the Company or otherwise, the
2
<PAGE>
reinstated Indebtedness of the Company arising as a result of such rescission or
return shall constitute Senior Indebtedness effective as of the date of such
rescission or return.
The term "Indebtedness" means, with respect to any Person, and without
duplication, (a) all indebtedness, obligations and other liabilities (contingent
or otherwise) of such Person for borrowed money (including obligations of the
Company in respect of overdrafts, foreign exchange contracts, currency exchange
agreements, interest rate protection agreements, and any loans or advances from
banks, whether or not evidenced by notes or similar instruments) or evidenced by
bonds, debentures, notes or similar instruments (whether or not the recourse of
the lender is to the whole of the assets of such Person or to only a portion
thereof) (other than any account payable or other accrued current liability or
obligation incurred in the ordinary course of business in connection with the
obtaining of materials or services), (b) all reimbursement obligations and other
liabilities (contingent or otherwise) of such Person with respect to letters of
credit, bank guarantees or bankers' acceptances, (c) all obligations and
liabilities (contingent or otherwise) in respect of leases of such Person
required, in conformity with generally accepted accounting principles, to be
accounted for as capitalized lease obligations on the balance sheet of such
Person and all obligations and other liabilities (contingent or otherwise) under
any lease or related document (including a purchase agreement) in connection
with the lease of real property which provides that such Person is contractually
obligated to purchase or cause a third party to purchase the leased property and
thereby guarantee a minimum residual value of the leased property to the lessor
and the obligations of such Person under such lease or related document to
purchase or to cause a third party to purchase such leased property, (d) all
obligations of such Person (contingent or otherwise) with respect to an interest
rate or other swap, cap or collar agreement or other similar instrument or
agreement or foreign currency hedge, exchange, purchase or similar instrument or
agreement, (e) all direct or indirect guaranties or similar agreements by such
Person in respect of, and obligations or liabilities (contingent or otherwise)
of such Person to purchase or otherwise acquire or otherwise assure a creditor
against loss in respect of, indebtedness, obligations or liabilities of another
Person of the kind described in clauses (a) through (d), (f) any indebtedness or
other obligations described in clauses (a) through (d) secured by any mortgage,
pledge, lien or other encumbrance existing on property which is owned or held by
such Person, regardless of whether the indebtedness or other obligation secured
thereby shall have been assumed by such Person and (g) any and all deferrals,
renewals, extensions and refundings of, or amendments, modifications or
supplements to, any indebtedness, obligation or liability of the kind described
in clauses (a) through (f).
The term "Designated Senior Indebtedness" means any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such Senior Indebtedness shall be
"Designated Senior Indebtedness" for purposes of the Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness). If any payment made to any holder of any
Designated Senior Indebtedness or its Representative with respect to such
Designated Senior Indebtedness is rescinded or must otherwise be returned by
such holder or Representative upon the insolvency, bankruptcy or reorganization
of the Company or otherwise, the reinstated Indebtedness of the Company arising
as a result of such rescission or return shall constitute Designated Senior
Indebtedness effective as of the date of such rescission or return.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal amount at maturity, Issue
Price, Redemption Price, Change in Control Purchase Price and
3
<PAGE>
interest on this Note at the place, at the respective times, at the rate and in
the coin or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a year of a
360-day year or twelve 30-day months. In the case of any Note (or portion
thereof) which is converted into Common Stock of the Company during the period
from (but excluding) a recorded date to (but excluding) the next succeeding
interest payment date either (i) if such Note (or portion thereof) has been
called for redemption on a redemption date which occurs during such period, or
is to be redeemed in connection with a Change in Control Purchase Date which
occurs during such period, the Company shall not be required to pay interest on
such interest payment date in respect of any such Note (or portion thereof) or
(ii) if otherwise, any Note (or portion thereof) submitted for conversion during
such period shall be accompanied by funds equal to the interest payable on such
succeeding interest payment date on the aggregate principal amount at maturity
so converted.
The Notes are issuable in registered form without coupons in
denominations of $1,000 principal amount at maturity and any integral multiple
thereof. At the office or agency of the Company referred to on the face hereof,
and in the manner and subject to the limitations provided in the Indenture, but
without payment of any service charge (but with payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration or exchange of Notes), Notes may be exchanged for a like
aggregate principal amount at maturity of Notes of other authorized
denominations.
The Notes will not be redeemable at the option of the Company prior to
October 15, 2000. At any time on or after October 15, 2000, and prior to
maturity, the Notes may be redeemed at the option of the Company as a whole, or
from time to time in part, upon mailing a notice of such redemption not less
than 30 days and not more than 60 days before the date fixed for redemption to
the holders of Notes at their last registered addresses, all as provided in the
Indenture, at the following Redemption Prices per $1,000 principal amount at
maturity, together in each case with accrued interest to the date fixed for
redemption.
Redemption Date Redemption Price
- --------------- ----------------
October 15, 2000 102.71%
October 15, 2001 102.04%
October 15, 2002 101.36%
October 15, 2003 100.68%
October 15, 2004 100.00%
Notwithstanding the foregoing, if the date fixed for redemption is an April 15
or October 15, then the interest payable on such date shall be paid to the
holder of record on the next preceding April 1 or October 1.
The Notes are not subject to redemption through the operation of any
sinking fund.
4
<PAGE>
In the event of a Change in Control, each holder will have the option,
subject to the terms and conditions of the Indenture (including, without
limitation, the redemption provisions thereof), to require the Company to
repurchase all or any part (provided that the principal amount must be $1,000 or
an integral multiple thereof) of the holder's Notes as of the date that is 30
Business Days after the date of the Company's notice of the occurrence of such
Change in Control (the "Change in Control Purchase Date") for a purchase price
equal to 100% of the principal amount thereof, plus accrued and unpaid interest
up to but not including the Change in Control Purchase Date (the "Change in
Control Purchase Price"); provided that any semi-annual payment of interest
becoming due on the Change in Control Purchase Date shall be payable to the
holders of record on the relevant record date of the Notes being repurchased.
The payment of the Change in Control Purchase Price shall be made on the fifth
full business day following the Change in Control Purchase Date.
Within ten Business Days after the occurrence of a Change in Control, the
company is required to mail to each holder and to the Trustee a written notice
of the occurrence of such Change in Control, setting forth, among other things,
the terms and conditions of, and the procedures required for exercise of, the
Holder's right to require the repurchase of such holder's Notes.
To exercise the repurchase right upon a Change in Control, a holder must
deliver written notice of such exercise to the Trustee at any time prior to the
close of business on the Change in Control Purchase Date, specifying the Notes
with respect to which the repurchase right is being exercised. Such notice of
exercise may be withdrawn by the holder by a written notice of withdrawal
delivered to the Trustee at any time prior to the close of business on the
Change in Control Purchase Date. A Change in Control shall be deemed to have
occurred if any of the following occurs after the original issuance of the
Notes:
(i) the acquisition by any Person (including any syndicate or group deemed
to be a "person" under Section 13(d)(3) or 14(d)(2) of the Exchange Act or a
successor provision) of beneficial ownership, directly or indirectly, through a
purchase, merger, or other acquisition transaction or series of transactions, of
shares of capital stock of the Company entitling such Person to exercise more
than 50% of the total voting power of all shares of capital stock of the Company
entitling the holders thereof to vote generally in elections of directors; or
(ii) any consolidation of the Company with, or merger of the Company into,
any other Person, any merger of another Person into the Company, or any sale,
lease, or exchange in one transaction or a series of related transactions, of
all or substantially all of the property and assets of the Company to another
Person (other than (a) any such transaction pursuant to which the holders of 50%
or more of the total voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors immediately prior to such
transaction have, directly or indirectly, at least 50% or more of the total
voting power of all shares of capital stock of the continuing or surviving
corporation entitled to vote generally in elections of directors of the
continuing or surviving corporation immediately after such transaction, and (b)
a merger which (1) does not result in any reclassification, conversion,
exchange, or cancellation of outstanding shares of capital stock of the Company
or (2) is effected primarily to change the jurisdiction of incorporation of the
Company and results in reclassification, conversion, or exchange of outstanding
shares of Common Stock solely into shares of Common Stock of the surviving
entity); provided, however, that a Change in Control shall not be deemed to have
occurred if the closing price per share of the Common Stock for any 10 trading
days within the period of 20 consecutive trading days ending immediately before
the occurrence of the event that would otherwise constitute a Change in Control
shall equal or exceed 105% of the Conversion Price of the Notes in effect on
each such trading day.
5
<PAGE>
A "beneficial owner" shall be determined in accordance with Rule 13d-3
promulgated by the Commission under the Exchange Act, as in effect on the date
of execution of the Indenture.
Subject to the provisions of the Indenture, the holder hereof has the
right, at its option, at any time after 90 days following the date of original
issuance of the Notes and prior to the close of business on October 15, 2004,
or, as to all or any portion hereof called for redemption, prior to the close of
business on the Business Day immediately preceding the date fixed for redemption
(unless the Company shall default in payment due upon redemption thereof), to
convert the principal hereof or any portion of such principal which is $1,000
principal amount at maturity or an integral multiple thereof, into that number
of fully paid and nonassessable shares of Company's Common Stock, as said shares
shall be constituted at the date of conversion, obtained by dividing the
principal amount at maturity of this Note or portion thereof to be converted by
$1,000 and multiplying the result so obtained by 23.2558 (the "Conversion Rate")
or such Conversion Rate as adjusted from time to time as provided in the
Indenture, upon surrender of this Note, together with a conversion notice as
provided in the Indenture, to the Company at the office or agency of the Company
maintained for that purpose in the Borough of Manhattan, The City of New York,
or at the option of such holder, the Corporate Trust Office, and, unless the
shares issuable on conversion are to be issued in the same name as this Note,
duly endorsed by, or accompanied by instruments of transfer in form satisfactory
to the Company duly executed by, the holder or by his duly authorized attorney.
No adjustment in respect of accrued interest or dividends will be made upon any
conversion; provided, however, that if this Note shall be surrendered for
conversion during the period from the close of business on any record date for
the payment of interest to the close of business on the Business Day preceding
the interest payment date, this Note (unless it or the portion being converted
shall have been called for redemption during the period from the close of
business on any record date for the payment of interest to the close of business
on the Business Day preceding the interest payment date) must be accompanied by
an amount, in New York Clearing House funds or other funds acceptable to the
Company, equal to the interest payable on such interest payment date on the
principal amount at maturity being converted. No fractional shares will be
issued upon any conversion, but an adjustment in cash will be made, as provided
in the Indenture, in respect of any fraction of a share which would otherwise be
issuable upon the surrender of any Note or Notes for conversion.
Any Notes called for redemption, unless surrendered for conversion on or
before the close of business on the date fixed for redemption, may be deemed to
be purchased from the holder of such Notes at an amount equal to the applicable
Redemption Price, together with accrued interest to the date fixed for
redemption, by one or more investment bankers or other purchasers who may agree
with the Company to purchase such Notes from the holders thereof and convert
them into Common Stock of the Company and to make payment for such Notes as
aforesaid to the Trustee in trust for such holders.
Upon due presentment for registration of transfer of this Note at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, or at the option of the holder of this Note, at the Corporate Trust
Office, a new Note or Notes of authorized denominations for an equal aggregate
principal amount at maturity will be issued to the transferee in exchange
thereof, subject to the limitations provided in the Indenture, without charge
except for any tax or other governmental charge imposed in connection therewith.
The Company, the Trustee, any authenticating agent, any paying agent, any
conversion agent and any Note registrar may deem and treat the registered holder
hereof as the absolute owner of this Note (whether or not this Note shall be
overdue and notwithstanding any notation of ownership or other writing hereon
made by anyone other than the Company or any Note registrar), for the purpose of
receiving payment hereof, or on account hereof, for the conversion hereof and
for all other purposes, and neither the Company nor the Trustee nor any other
authenticating agent nor any paying agent nor any
6
<PAGE>
other conversion agent nor any Note registrar shall be affected by any notice to
the contrary. All payments made to or upon the order of such registered holder
shall, to the extent of the sum or sums paid, satisfy and discharge liability
for monies payable on this Note.
No recourse for the payment of the principal amount at maturity, Issue
Price, Redemption Price, Change in Control Purchase Price or any interest on
this Note, or for any claim based hereon or otherwise in respect hereof, and no
recourse under or upon any obligation, covenant or agreement of the Company in
the Indenture or any indenture supplemental thereto or in any Note, or because
of the creation of any indebtedness represented thereby, shall be had against
any incorporator, stockholder, employee, agent, officer or director or
subsidiary, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law or by
the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
This Note shall be deemed to be a contract made under the laws of New York,
and for all purposes shall be construed in accordance with the laws of New York,
without regard to principles of conflicts of laws.
Terms used in this Note and defined in the Indenture are used herein as
therein defined.
7
<PAGE>
ABBREVIATIONS
The following abbreviations, when used in the inscription of the face
of this Note, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in UNIF GIFT MIN ACT --
common
TEN ENT -- as tenants by the _________________ Custodian
entireties (Cust)
JT TEN -- as joint tenants _____________________ under
with right of survivorship and (Minor)
not as tenants in common
Uniform Gifts to Minors Act
____________________(State)
Additional abbreviations may also be used
though not in the above list.
8
<PAGE>
CONVERSION NOTICE
To: CAPSTAR HOTEL COMPANY
The undersigned registered owner of this Note hereby irrevocably
exercises the option to convert this Note, or the portion hereof (which is
$1,000 principal amount at maturity or an integral multiple thereof) below
designated, into shares of Common Stock of CapStar Hotel Company in accordance
with the terms of the Indenture referred to in this Note, and directs that the
shares issuable and deliverable upon such conversion, together with any check in
payment for fractional shares and any Notes representing any unconverted
principal amount hereof, be issued and delivered to the registered holder hereof
unless a different name has been indicated below. If shares or any portion of
this Note not converted are to be issued in the name of a person other than the
undersigned, the undersigned will check the appropriate box below and pay all
transfer taxes payable with respect thereto. Any amount required to be paid to
the undersigned on account of interest accompanies this Note.
Dated: * Sign exactly as name appears on the other
side of the Note:
---------------------------------------
Signature(s)
---------------------------------------
Signature Guarantee
Fill in for registration of shares of
Common Stock if to be issued, and
Notes if to be delivered, other than
to and in the name of the registered holder:
- ---------------------------------------
(Name)
- ---------------------------------------
(Street Address)
- ---------------------------------------
(City, State and Zip Code)
Please print name and address
Principal amount at maturity to be converted
(if less than all): $___________
-------------------------------------------
Social Security or Other Taxpayer
Identification Number
<PAGE>
ASSIGNMENT
For value received _____________________ hereby sell(s), assign(s) and
transfer(s) unto ______________________ (Please insert social security or other
Taxpayer Identification Number of assignee) the within Note, and hereby
irrevocably constitutes and appoints ____________________ attorney to transfer
the said Note on the books of the Company, with full power of substitution in
the premises.
<PAGE>
OPTION TO ELECT REPAYMENT
UPON A CHANGE IN CONTROL
TO: CAPSTAR HOTEL COMPANY
The undersigned registered owner of this Note hereby acknowledges
receipt of a notice from CapStar Hotel Company (the "Company") as to the
occurrence of a Change in Control with respect to the Company and requests and
instructs the Company to repay the entire principal amount at maturity of this
Note, or the portion thereof (which is $1,000 principal amount at maturity or an
integral multiple thereof) below designated, in accordance with the terms of the
Indenture referred to in this Note at the redemption price, together with
accrued interest to, but excluding, such date, to the registered holder hereof.
Dated:
--------------------------------------
--------------------------------------
Signature(s)
NOTICE: The above signatures of the holder(s)
hereof must correspond with the name as written
upon the face of the Note in every particular
without alteration or enlargement or any change
whatever.
Principal amount at maturity to be repaid (if less
than all):
$_______________
_________________________________
Social Security or Other Taxpayer
Identification Number
<PAGE>
Exhibit 10.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made and
entered into as of November 17, 1997, by and among CapStar Hotel Company, a
Delaware corporation (the "Company"), and the other parties signatory hereto
(each a "Holder" and, collectively, the "Holders").
RECITALS
WHEREAS, the Holders have entered into, or are equity owners in
entities that have entered into, agreements which contemplate, among other
things, the execution and delivery of this Agreement by the Company and the
Holders.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
1. Definitions: For purposes of this Agreement, the following terms
have the following meanings when used herein with initial capital letters:
"Advice" shall have the meaning set forth in Section 3 hereof.
"Black-Out Period" shall have the meaning set forth in Section 2(c)
hereof.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean the Common Stock, par value $0.01 per
share, of the Company.
"Holder" or "Holders" shall have the meaning set forth in the
Preamble and their respective transferees in accordance with Section 8(f)
hereof.
"Losses" shall have the meaning set forth in Section 5 hereof.
"Operating Partnership" shall mean CapStar Management Company, L.P.,
a Delaware limited partnership.
"Prospectus" shall mean the prospectus included in the Shelf
Registration Statement (including without limitation a prospectus that discloses
<PAGE>
2
information previously omitted from a prospectus filed as part of the effective
Shelf Registration Statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Shelf Registration Statement and all other amendments
and supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" shall mean each of the Shares, until, in
the case of any such Share, (i) it is effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement covering it, (ii) it is saleable by the holder thereof pursuant to
Rule 144(k), or (iii) it is distributed to the public by the holder thereof
pursuant to Rule 144.
"Registration Expenses" shall have the meaning set forth in Section
4 hereof.
"Resale Notice" shall have the meaning set forth in Section 2(c)
hereof.
"Rule 144" shall mean Rule 144 promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the SEC.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean all shares of Common Stock issued or to be
issued to any Holder upon the redemption of the Units which were issued to the
Holders pursuant to the Acquisition Agreement, dated October 29, 1997, among the
Company and the other parties identified on the signature pages thereof.
"Shelf Registration Statement" shall have the meaning set forth in
Section 2(a) hereof, and shall include the related Prospectus, all amendments
and supplements to such thereto (including post-effective amendments), all
exhibits and all material incorporated by reference or deemed to be incorporated
by reference therein.
"Special Counsel" shall have the meaning set forth in Section 4(b)
hereof.
"Underwritten registration or underwritten offering" shall mean a
sale of securities of the Company to an underwriter for reoffering to the public
pursuant to the Shelf Registration Statement filed by the Company with the
Commission under the Securities Act.
<PAGE>
3
"Units" shall mean units representing limited partnership ownership
interests in the Operating Partnership, which interests may be redeemed, under
certain circumstances for Shares.
2. Shelf Registration.
(a) Shelf Registration Statement. The Company hereby agrees
to: (i) cause to be filed a shelf registration statement pursuant to Rule 415
under the Securities Act (the "Shelf Registration Statement"), which Shelf
Registration Statement shall provide for resales of all of the Registrable
Securities held by those Holders which shall have provided the information
required pursuant to Section 2(b) hereof; and (ii) cause such Shelf Registration
Statement to be declared effective by the Commission on or before October 17,
1998. The Company shall use its best efforts to keep such Shelf Registration
Statement continuously effective, supplemented and amended until the earlier of
(i) the date when all of the Registrable Securities covered thereby are issued
or resold or (ii) the date on which Holders may sell Registrable Securities
without registration under the Securities Act, pursuant to Rule 144(k)
thereunder or any similar rule that may be adopted by the Commission.
(b) Provision by Holders of Certain Information in Connection
with the Shelf Registration Statement. No Holder of Registrable Securities may
include any of its Registrable Securities in any Shelf Registration Statement
pursuant to this Agreement unless and until such Holder furnishes to the Company
in writing, within 20 business days after receipt of a request therefor, such
information as the Company may reasonably request for use in connection with the
Shelf Registration Statement or Prospectus or preliminary Prospectus included
therein. Each Holder as to which the Shelf Registration Statement is being
effected agrees to furnish promptly to the Company all information required to
be disclosed in order to make the information previously furnished to the
Company by such Holder not materially misleading.
(c) Notice and Postponement of Resales Under Shelf
Registration Statement. At any time when one or more Holders proposes to engage
in a transaction or series of related transactions to effect the resale of
Registrable Securities pursuant to the Shelf Registration Statement, in an
aggregate amount that exceeds 50,000 Registrable Securities, such Holder or
Holders shall provide written notice to the Company of such proposed sale (the
"Resale Notice"). With respect to each such transaction or series of related
transactions, the Resale Notice shall set forth (i) the name of each Holder that
proposes to offer Registrable Securities for resale, (ii) the number of
Registrable Securities each such Holder intends to offer, and (iii) the manner
in which each such Holder intends to offer the Registrable Securities for
resale. Within one (1) business day of the receipt of a Resale Notice, the
Company shall be entitled to require the Holders by written notice to postpone
any such offering of Registrable Securities (as contemplated by the applicable
Resale Notice) for a reasonable period of time not in excess of 30 calendar days
(a "Black-Out Period"), if
<PAGE>
4
the Company determines, in the good faith exercise of the business judgment of
its Board of Directors, that such offering could materially interfere with a
bona fide financing, acquisition, corporate reorganization or any other
corporate development involving the Company or would require disclosure of
information, the premature disclosure of which could materially and adversely
affect the Company; provided, however, that (i) no Black-Out Period may be
required by the Company within 30 days of any prior Black-Out Period, and (ii)
the Company may only require three (3) Black-Out Periods within any given
twelve-month period. If the events or circumstances permitting the Black-Out
Period end prior to the expiration of such Black-Out Period, the Company will
promptly notify the Holders in writing that such events or circumstances have
ended; the Holders will thereafter be permitted to effect the proposed resale of
the Registrable Securities as contemplated by the Resale Notice.
3. Registration Procedures. In connection with the Company's
registration obligations pursuant to Section 2 hereof, the Company will effect
such registration to permit the sale of such Registrable Securities in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company will as expeditiously as possible, in each case, to
the extent applicable:
(a) Prepare and file with the Commission at least sixty (60)
days prior to October 17, 1998, the Shelf Registration Statement on any
appropriate form under the Securities Act available for the sale of the
Registrable Securities by the Holders in accordance with the intended method or
methods of distribution thereof, and cause such Shelf Registration Statement to
become effective and remain effective as provided herein; provided, however,
that before filing the Shelf Registration Statement or Prospectus or any
amendments or supplements thereto (including documents that would be
incorporated or deemed to be incorporated therein by reference) the Company will
furnish to the Holders whose Registrable Securities are covered by such Shelf
Registration Statement, the Special Counsel and the managing underwriters, if
any, copies of all such documents proposed to be filed, which documents will be
subject to review of such Holders, the Special Counsel and such underwriters,
and the Company will not file the Shelf Registration Statement or amendment
thereto or any Prospectus or any supplement thereto (including such documents
which, upon filing, would or would be incorporated or deemed to be incorporated
by reference therein) to which the Holders of a majority of the Registrable
Securities covered by the Shelf Registration Statement, the Special Counsel or
the managing underwriter, if any, shall reasonably object on a timely basis.
(b) Prepare and file with the Commission such amendments and
post-effective amendments to the Shelf Registration Statement as may be
necessary to keep such Shelf Registration Statement continuously effective for
the applicable period specified in Section 2(a); cause the related Prospectus to
be supplemented by any required Prospectus supplement, and as so supplemented to
be filed pursuant to
<PAGE>
5
Rule 424 (or any similar provision then in force) under the Securities Act; and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by the Shelf Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
sellers thereof set forth in the Shelf Registration Statement as so amended or
to such Prospectus as so supplemented.
(c) Notify the selling Holders, the Special Counsel and the
managing underwriters, if any, promptly, and (if requested by any such person)
confirm such notice in writing, (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to the
Shelf Registration Statement or any post-effective amendment, when the same has
become effective, (ii) of any request by the Commission or any other federal or
state governmental authority for amendments or supplements to the Shelf
Registration Statement or related Prospectus or for additional information,
(iii) of the issuance by the Commission or any other federal or state
governmental authority of any stop order suspending the effectiveness of the
Shelf Registration Statement or the initiation of any proceedings for that
purpose, (iv) if at any time the representations and warranties of the Company
contained in any agreement contemplated by Section 3(m) hereof (including any
underwriting agreement) cease to be true and correct, (v) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose, (vi) of the occurrence of any event which makes any statement made in
the Shelf Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or which requires the making of any changes in the Shelf
Registration Statement, Prospectus or documents so that, in the case of the
Shelf Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and, in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated or is necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and (vii) of the Company's reasonable determination that a
post-effective amendment to the Shelf Registration Statement would be
appropriate.
(d) Use every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Shelf Registration Statement, or
the lifting of any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest possible moment.
(e) If requested by the managing underwriters, if any, or the
Holders of a majority of the Registrable Securities being registered, (i)
promptly incorporate in a Prospectus supplement or post-effective amendment such
information
<PAGE>
6
as the managing underwriters, if any, and such Holder agree should be included
therein as may be required by applicable law and (ii) make all required filings
of such Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company will not be required to take any actions
under this Section 3(e) that are not, in the opinion of counsel for the Company,
in compliance with applicable law.
(f) Furnish to each selling Holder, the Special Counsel and
each managing underwriter, if any, without charge, at least one conformed copy
of the Shelf Registration Statement and any post-effective amendment thereto,
including financial statements (but excluding schedules, all documents
incorporated or deemed incorporated therein by reference and all exhibits,
unless requested in writing by such selling Holder, counsel or underwriter).
(g) Deliver to each selling Holder, the Special Counsel and
the underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses relating to such Registrable Securities (including each preliminary
prospectus) and any amendment or supplement thereto as such persons may request;
and the Company hereby consents to the use of such Prospectus or each amendment
or supplement thereto by each of the selling Holders and the underwriters, if
any, in connection with the offering and sale of the Registrable Securities
covered by such Prospectus or any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, to
register or qualify or cooperate with the selling Holders, the underwriters, if
any, and their respective counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or blue sky laws
of such jurisdictions within the United States as any seller or underwriter
reasonably requests in writing; use all reasonable efforts to keep each such
registration or qualification (or exemption therefrom) effective during the
period the Shelf Registration Statement is required to be kept effective and do
any and all other acts or things necessary or advisable to enable the
disposition in such jurisdiction of the Registrable Securities covered by the
Shelf Registration Statement; provided, however, that the Company will not be
required to (i) qualify generally to do business in any jurisdiction in which it
is not then so qualified or (ii) take any action that would subject it to
general service of process in any such jurisdiction in which it is not then so
subject.
(i) Cooperate with the selling Holders and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and enable such
Registrable Securities to be in such denominations and registered in such names
as the managing underwriters,
<PAGE>
7
if any, shall request at least two business days prior to any sale of
Registrable Securities to the underwriters.
(j) Use all reasonable efforts to cause the Registrable
Securities covered by the Shelf Registration Statement to be registered with or
approved by such other governmental agencies or authorities within the United
States except as may be required solely as a consequence of the nature of such
selling Holder's business, in which case the Company will cooperate in all
reasonable respects with the filing of the Shelf Registration Statement and the
granting of such approvals as may be necessary to enable the seller or sellers
thereof or the underwriters, if any, to consummate the disposition of such
Registrable Securities.
(k) Upon the occurrence of any event contemplated by Section
3(c)(vi) or 3(c)(vii) hereof, prepare a supplement or post-effective amendment
to the Shelf Registration Statement or a supplement to the related Prospectus or
any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
Securities being sold thereunder, such Prospectus will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(l) Use all reasonable efforts to cause all Registrable
Securities covered by the Shelf Registration Statement to be listed on each
securities exchange, if any, on which similar securities issued by the Company
are then listed.
(m) Enter into such agreements (including, in the event of an
underwritten offering, an underwriting agreement in form, scope and substance as
is customary in underwritten offerings) and take all such other actions in
connection therewith (including those requested by the selling Holders, in the
event of an underwritten offering, those requested by the managing underwriters)
in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration, (i) make such representations and warranties to the Holders and
the underwriters, if any, with respect to the business of the Company and its
subsidiaries, the Shelf Registration Statement, Prospectus and documents
incorporated by reference or deemed incorporated by reference, if any, in each
case, in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the Holders of a majority
of the Registrable Securities being sold) addressed to such selling Holders and
each of the underwriters, if
<PAGE>
8
any, covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such selling Holders and underwriters, including without limitation the matters
referred to in Section 3(m)(i) hereof; (iii) use its best efforts to obtain
"comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Shelf Registration Statement), addressed to each selling
Holder and each of the underwriters, if any, such letters to be in customary
form and covering matters of the type customarily covered in "comfort" letters
in connection with underwritten offerings; and (iv) deliver such documents and
certificates as may be requested by the Holders of a majority of the Registrable
Securities being sold, the Special Counsel and the managing underwriters, if
any, to evidence the continued validity of the representations and warranties of
the Company and its subsidiaries made pursuant to clause (i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or similar agreement entered into by the Company. The foregoing
actions will be taken in connection with each closing under such underwriting or
similar agreement as and to the extent required thereunder.
(n) Make available for inspection by a representative of the
selling Holders, any underwriter participating in any disposition of Registrable
Securities, and any attorney or accountant retained by such selling Holders or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and cause the officers,
directors and employees of the Company and its subsidiaries to supply all
information reasonably requested by any such representative, underwriter,
attorney or accountant in connection with the Shelf Registration Statement;
provided, however, that any records, information or documents that are
designated by the Company in writing as confidential at the time of delivery of
such records, information or documents will be kept confidential by such persons
unless (i) such records, information or documents are or come to be in the
public domain or otherwise publicly available, (ii) disclosure of such records,
information or documents is required by court or administrative order or is
necessary to respond to inquiries of regulatory authorities, or (iii) disclosure
of such records, information or documents, in the opinion of counsel to such
person, is otherwise required by law (including, without limitation, pursuant to
the requirements of the Securities Act).
(o) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 calendar days after the end of any 12-month period (or 90
calendar days after the end of any 12-
<PAGE>
9
month period if such period is a fiscal year) (i) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in a
firm commitment or best efforts underwritten offering, and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company, after the effective date of the Shelf
Registration Statement, which statements shall cover said 12-month period.
(p) In connection with any underwritten offering, cause
appropriate members of its management to cooperate and participate on a
reasonable basis in the underwriters' "road show" conferences related to such
offering.
The Company may require each selling Holder as to which any
registration is being effected to furnish to the Company such information
regarding the distribution of such Registrable Securities as the Company may,
from time to time, reasonably request in writing and the Company may exclude
from such registration the Registrable Securities of any selling Holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
Each Holder will be deemed to have agreed by virtue of its
acquisition of such Registrable Securities that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in Section
3(c)(ii), 3(c)(iii), 3(c)(v), 3(c)(vi) or 3(c)(vii) hereof, such Holder will
forthwith discontinue disposition of such Registrable Securities covered by the
Shelf Registration Statement or Prospectus until such Holder's receipt of the
copies of the supplemented or amended Prospectus contemplated by Section 3(k)
hereof, or until it is advised in writing (the "Advice") by the Company that the
use of the applicable Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus. The Company shall be obligated to
use its reasonable best efforts to allow use of the applicable Prospectus as
quickly as practicable. In the event the Company shall give any such notice, the
time period prescribed in Section 2(a) hereof will be extended by the number of
days during the time period from and including the date of the giving of such
notice to and including the date when each seller of Registrable Securities
covered by the Shelf Registration Statement shall have received (x) the copies
of the supplemented or amended Prospectus contemplated by Section 3(k) hereof or
(y) the Advice.
4. Registration Expenses.
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company will be borne by the Company
whether or not the Shelf Registration Statement becomes effective. Such fees and
expenses will include, without limitation, (i) all registration and filing fees
(including without limitation fees and expenses (x) with respect to filings
required to be made with the National Association of Securities Dealers, Inc.
and (y) of compliance with
<PAGE>
10
securities or "blue sky" laws (including without limitation fees and
disbursements of counsel for the underwriters or Holders in connection with
"blue sky" qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, or Holders of a majority of
the Registrable Securities being sold may designate)), (ii) printing expenses
(including without limitation expenses of printing certificates for Registrable
Securities in a form eligible for deposit with The Depository Trust Company and
of printing prospectuses if the printing of prospectuses is requested by the
Holders of a majority of the Registrable Securities included in the Shelf
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and the Special Counsel for
the selling Holders, (v) fees and disbursements of all independent certified
public accountants referred to in Section 5(m)(iii) hereof (including the
expenses of any special audit and "comfort" letters required by or incident to
such performance), (vi) any fees and expenses of any "qualified independent
underwriter" or other independent appraiser participating in an offering
pursuant to Section 3 of Schedule E to the By-laws of the National Association
of Securities Dealers, Inc., (vii) Securities Act liability insurance if the
Company so desires such insurance, and (viii) fees and expenses of all other
persons retained by the Company. In addition, the Company will pay its internal
expenses (including without limitation all salaries and expenses of its officers
and employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
securities to be registered on any securities exchange on which similar
securities issued by the Company are then listed and the fees and expenses of
any person, including special experts, retained by the Company. In no event,
however, will the Company be responsible for any underwriting discount or
selling commission with respect to any sale of Registrable Securities pursuant
to this Agreement.
(b) In connection with any registration of Registrable
Securities hereunder, the Company will reimburse the Holders of the Registrable
Securities being registered in such registration for the reasonable fees and
disbursements of not more than one counsel (the "Special Counsel"), together
with appropriate local counsel, chosen by the Holders of a majority of the
Registrable Securities being registered.
5. Indemnification.
<PAGE>
11
(a) Indemnification by the Company. The Company will, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, each Holder of Registrable Securities registered pursuant to
this Agreement, the officers, directors, partners, managers, agents and
employees of each of them, each person who controls such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, partners, managers, agents and employees of any
such controlling person, from and against all losses, claims, damages,
liabilities, costs (including without limitation the costs of investigation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or based upon any untrue or alleged untrue statement of a material fact
contained in the Shelf Registration Statement, Prospectus or form of Prospectus
(including any document incorporated by reference into any such Shelf
Registration Statement, Prospectus or form of Prospectus) or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based solely upon information furnished in
writing to the Company by such Holder expressly for use therein; provided,
however, that the Company will not be liable to any Holder to the extent that
any such Losses arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any preliminary
prospectus if either (A) (i) such Holder failed to send or deliver a copy of the
Prospectus with or prior to the delivery of written confirmation of the sale by
such Holder to the person asserting the claim from which such Losses arise and
(ii) the Prospectus would have completely corrected such untrue statement or
alleged untrue statement or such omission or alleged omission; or (B) such
untrue statement or alleged untrue statement, omission or alleged omission is
completely corrected in an amendment or supplement to the Prospectus previously
furnished by or on behalf of the Company with copies of the Prospectus as so
amended or supplemented, and such Holder thereafter fails to deliver such
Prospectus as so amended or supplemented prior to or concurrently with the sale
of a Registrable Security to the person asserting the claim from which such
Losses arise.
(b) Indemnification by the Holders. In connection with the
Shelf Registration Statement in which a Holder is participating, such Holder
will furnish to the Company in writing such information as the Company
reasonably requests for use in connection with the Shelf Registration Statement
or Prospectus and will indemnify, to the fullest extent permitted by law, the
Company, its directors and officers, agents and employees, each person who
controls the Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling persons, from and against all Losses arising out
of or based upon any untrue statement of a material fact contained in the Shelf
Registration Statement, Prospectus or preliminary prospectus or arising out of
or based upon any omission of a material fact required to be stated
<PAGE>
12
therein or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished in writing by such Holder to the
Company expressly for use in the Shelf Registration Statement or Prospectus and
was relied upon by the Company in the preparation of the Shelf Registration
Statement, Prospectus or preliminary prospectus. In no event will the liability
of any selling Holder hereunder be greater in amount than the dollar amount of
the proceeds (net of payment of all expenses) received by such Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. If any person
shall become entitled to indemnity hereunder (an "indemnified party"), such
indemnified party shall give prompt notice to the party from which such
indemnity is sought (the "indemnifying party") of any claim or of the
commencement of any action or proceeding with respect to which such indemnified
party seeks indemnification or contribution pursuant hereto; provided, however,
that the failure to so notify the indemnifying party will not relieve the
indemnifying party from any obligation or liability except to the extent that
the indemnifying party has been prejudiced materially by such failure. All fees
and expenses (including any fees and expenses incurred in connection with
investigating or preparing to defend such action or proceeding) will be paid to
the indemnified party, as incurred, within five calendar days of written notice
thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder). The indemnifying party will not consent to entry of any judgment or
enter into any settlement or otherwise seek to terminate any action or
proceeding in which any indemnified party is or could be a party and as to which
indemnification or contribution could be sought by such indemnified party under
this Section 5, unless such judgment, settlement or other termination includes
as an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release, in form and substance satisfactory to the
indemnified party, from all liability in respect of such claim or litigation for
which such indemnified party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this
Section 5 is unavailable to an indemnified party under Section 5(a) or 5(b)
hereof in respect of any Losses or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, will, jointly and severally, contribute to the amount
paid or payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or indemnifying parties, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statement or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party or indemnifying parties, on the
one hand, and such indemnified party, on the other hand, will be
<PAGE>
13
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or related to
the information supplied by, such indemnifying party or indemnified party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses will be deemed to include any legal
or other fees or expenses incurred by such party in connection with any action
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 5(d), an indemnifying party that
is a selling Holder will not be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities sold by
such indemnifying party and distributed to the public were offered to the public
exceed the amount of any damages which such indemnifying party has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
The indemnity, contribution and expense reimbursement obligations of
the Company hereunder will be in addition to any liability the Company may
otherwise have hereunder or otherwise. The provisions of this Section 5 will
survive so long as Registrable Securities remain outstanding, notwithstanding
any transfer of the Registrable Securities by any Holder thereof or any
termination of this Agreement.
6. Rule 144. The Company will file the reports required to be filed
by it under the Securities Act and the Exchange Act, and will cooperate with any
Holder (including without limitation by making such representations as any such
Holder may reasonably request), all to the extent required from time to time to
enable such Holder to sell Registrable Securities without registration under the
Securities Act within the limitations of the exemptions provided by Rule 144.
Upon the request of any Holder, the Company will deliver to such Holder a
written statement as to whether it has complied with such filing requirements.
Notwithstanding the foregoing, nothing in this Section 6 will be deemed to
require the Company to register any of its securities under any section of the
Exchange Act.
7. Underwritten Registrations. If any of the Registrable Securities
covered by the Shelf Registration Statement are to be sold in an underwritten
offering, the managing underwriter that will administer the offering will be
selected by the
<PAGE>
14
Holders of a majority of the Registrable Securities included in such resale so
long as such managing underwriter shall be reasonably satisfactory to the
Company; provided, however, that the Company shall have the right to select any
co-managing underwriters so long as such co-managing underwriters shall be
reasonably satisfactory to the such Holders.
8. Miscellaneous.
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, each Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of any of the provisions of this Agreement
and hereby further agrees that, in the event of any action for specified
performance in respect of such breach, it will waive the defense that a remedy
at law would be adequate.
(b) No Inconsistent Agreements. The Company has not, as of the
date hereof, and will not, on or after the date hereof, enter into any agreement
with respect to its securities which is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of the
Holders of 90% of the then-outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of the Holders whose
securities are being sold pursuant to the Shelf Registration Statement and that
does not directly or indirectly affect the rights of other Holders may be given
by Holders of at least 75% of the Registrable Securities being sold by such
Holders; provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing and will be deemed given (i)
when made, if made by hand delivery, (ii) upon confirmation, if made by
telecopier, or (iii) one business day after being deposited with a reputable
next-day courier, to the parties as follows:
(x) if to the Company, initially at 1010 Wisconsin
Avenue, N.W., Washington, D.C. 20007, Telecopier (202) 965-4455, Attention:
<PAGE>
15
Corporate Secretary, and thereafter at such other address, notice of which is
given to the Holders in accordance with the provisions of this Section 8(d); and
(y) if to any Holder, at the most current address given
by such Holder to the Company in accordance with the provisions of this Section
8(d).
(e) Owner of Registrable Securities. The Company will
maintain, or will cause its registrar and transfer agent to maintain, a stock
book with respect to the Common Stock, in which all transfers of Registrable
Securities of which the Company has received notice will be recorded. The
Company may deem and treat the person in whose name Registrable Securities are
registered in the stock book of the Company as the owner thereof for all
purposes, including without limitation the giving of notices under this
Agreement.
(f) Successors and Assigns. This Agreement will inure to the
benefit of and be binding upon the successors and assigns of each of the parties
(including any pledgee of Units or Registrable Securities acquiring such Units
or Registrable Securities as collateral from the Holder) and will inure to the
benefit of each Holder. Notwithstanding the foregoing, no transferee will have
any of the rights granted under this Agreement (i) until such transferee shall
have acknowledged its rights and obligations hereunder by a signed written
statement of such transferee's acceptance of such rights and obligations, (ii)
if the transferor notifies the Company in writing on or prior to such transfer
that the transferee shall not have such rights, or (iii) with respect to
specific Registrable Securities, if such transferee was not a party to this
Agreement on the date hereof (or an affiliate of a party hereto) and acquired
such Registrable Securities in open-market purchases or pursuant to an
underwritten public offering.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed will be deemed to be an original and all of which taken
together will constitute one and the same instrument.
(h) Headings. The headings in this Agreement are for
convenience of reference only and will not limit or otherwise affect the meaning
hereof.
(i) Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
<PAGE>
16
(j) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein will remain in full force and effect
and will in no way be affected, impaired or invalidated, and the parties hereto
will use their best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(k) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and is intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the registration rights granted by the Company with
respect to the Registrable Securities. This Agreement supersedes all prior
agreements and understandings among the parties with respect to such
registration rights.
(l) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the court,
will be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
(m) Termination. This Agreement shall terminate, and thereby
become null and void, on the tenth anniversary of the date hereof; provided,
however, that the provisions of Section 5 and Sections 8(i) and (l) shall
survive the termination of this Agreement.
IN WITNESS HEREOF, the parties have executed a counterpart signature
page of this Agreement as of the date first above written.
CAPSTAR HOTEL COMPANY
By:__________________________________________
Name:
Title:
WINSTON HOSPITALITY, INC.
By:__________________________________________
<PAGE>
17
Name:
Title:
<PAGE>
Exhibit 10.10
CAPSTAR HOTEL COMPANY
UNDERWRITING AGREEMENT
October 9, 1997
Lehman Brothers Inc.
BT Alex. Brown Incorporated
Goldman Sachs & Co.
Merrill Lynch & Co.
NationsBanc Montgomery Securities, Inc.
Smith Barney Inc.
As Representatives of the several
Underwriters named in Schedule 1,
c/o Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Dear Sirs:
CapStar Hotel Company, a Delaware corporation (the "Company"), together
with certain stockholders of the Company named in Schedule 2 hereto (the
"Selling Stockholders"), propose to sell an aggregate of 6,250,000 shares (the
"Firm Stock") of the Company's Common Stock, par value $.01 per share (the
"Common Stock") Of the 6,250,000 shares of the Firm Stock, 5,016,222 are being
sold by the Company and 1,233,778 by the Selling Stockholders. In addition, the
Company proposes to grant to the Underwriters named in Schedule 1 hereto (the
"Underwriters") an option to purchase up to an additional 937,500 shares of the
Common Stock on the terms and for the purposes set forth in Section 3 (the
"Option Stock"). The Firm Stock and the Option Stock, if purchased, are
hereinafter collectively called the "Offered Securities." This is to confirm the
agreement concerning the purchase of the Offered Securities from the Company and
the Selling Stockholder by the Underwriters named in Schedule 1 hereto (the
"Underwriters").
At or prior to August 23, 1996, the Company completed a series of
transactions described under the heading "The Formation Transactions" in that
certain prospectus dated August 20, 1996, relating to the initial public
offering of 9,250,000 shares of Common Stock of the Company (the "IPO
Prospectus"). As part of these transactions, the Company and CapStar LP
Corporation ("CapStar Sub") became the sole partners of CapStar Management
Company, L.P., as governed by an amended and restated Agreement of Limited
Partnership, as amended ("CapStar Management"), and CapStar Management was
restructured to own, directly or indirectly, all of the properties and other
assets previously owned, directly or indirectly, by EquiStar Hotel Investors,
L.P. and CapStar Management Company, L.P. (as constituted as of
<PAGE>
August 20, 1996, "Predecessor CapStar Management"), and their respective
subsidiaries, including owned hotel properties or interests therein and
management agreements with hotels. As used herein the term "Formation
Transactions" shall mean the occurrence of all the events described in the IPO
Prospectus under the heading "The Formation Transactions," the execution of
acquisition agreements for the Additional Hotels (as defined in the IPO
Prospectus) and the other transactions related thereto, and the term
"Predecessor Entities" shall mean the subsidiaries of EquiStar Hotel Investors,
L.P. together with Predecessor CapStar Management and its subsidiaries for all
periods prior to the consummation of the Formation Transactions. Subsequent to
consummation of the Formation Transactions, CapStar Management was restructured
such that all of the Company's assets are currently held indirectly by and
operated through CapStar Management and CapStar Management II, L.P. ("CapStar
Management II" and, together with CapStar Management, the "Operating
Partnerships"), the Company's subsidiary operating partnerships.
1. Representations, Warranties and Agreements of the Company and the
Operating Partnerships. The Company and the Operating Partnerships, jointly and
severally, represent, warrant and agree that:
(a) A registration statement on Form S-3 (333-34253), and amendments
thereto, with respect to the Offered Securities has (i) been
prepared by the Company in conformity with the requirements of
the United States Securities Act of 1933 (the "Securities Act")
and the rules and regulations (the "Rules and Regulations") of
the United States Securities and Exchange Commission (the
"Commission") thereunder, (ii) been filed with the Commission
under the Securities Act and (iii) become effective under the
Securities Act. Copies of such registration statement and the
amendments thereto have been delivered by the Company to you as
the representatives (the "Representatives") of the Underwriters.
As used in this Agreement, "Effective Time" means the date and
the time as of which such registration statement, or the most
recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of
the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or amendments
thereof, before it became effective under the Securities Act and
any prospectus filed with the Commission by the Company with the
consent of the Representatives pursuant to Rule 424(a) of the
Rules and Regulations; "Registration Statement" means such
registration statement, as amended at the Effective Time,
including any documents incorporated by reference therein at such
time and all information contained in the final prospectus filed
with the Commission pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section 6 hereof and deemed to be
a part of the registration statement as of the Effective Time
pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations; "Base Prospectus" means the prospectus included in
the Registration Statement; "Prospectus Supplement" means the
prospectus
2
<PAGE>
supplement filed with, transmitted for filing to, or promptly
hereafter filed with or transmitted for filing to, the
Commission, specifically relating to the Offered Securities; and
"Prospectus" means such final prospectus, consisting of the Base
Prospectus and together with the Prospectus Supplement, as first
filed with the Commission pursuant to paragraph (1) or (4) of
Rule 424(b) of the Rules and Regulations. Reference made herein
to any Preliminary Prospectus or to the Prospectus shall be
deemed to refer to and include any documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the
Securities Act, as of the date of such Preliminary Prospectus or
the Prospectus, as the case may be, and any reference to any
amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any document
filed under the United States Securities Exchange Act of 1934
(the "Exchange Act") after the date of such Preliminary
Prospectus or the Prospectus, as the case may be, and
incorporated by reference in such Preliminary Prospectus or the
Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to
include any annual report of the Company filed with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
after the Effective Time that is incorporated by reference in the
Registration Statement. Any registration statement (including
any amendment or supplement thereto or information which is
deemed part thereof) filed by the Company to register additional
shares of Common Stock of the Company under Rule 462(b) of the
Securities Act ("Rule 462(b) Registration Statement") shall be
deemed a part of the Registration Statement. Any prospectus
(including any amendment or supplement thereto or information
which is deemed to part thereof) included in a Rule 462(b)
Registration Statement and any term sheet as contemplated by Rule
434 of the Rules and Regulations (a "Term Sheet") shall be deemed
to be part of the Prospectus. The Commission has not issued any
order preventing or suspending the use of any Preliminary
Prospectus.
(b) The Registration Statement conforms, and the Prospectus and
any further amendments or supplements to the Registration
Statement or the Prospectus will, when they become effective or
are filed with the Commission, as the case may be, conform in all
material respects to the requirements of the Securities Act and
the Rules and Regulations and do not and will not, as of the
applicable effective date (as to the Registration Statement and
any amendment thereto) and as of the applicable filing date (as
to the Prospectus and any amendment or supplement thereto)
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading; provided that no
representation or warranty is made as to information contained in
or omitted from the Registration Statement or the Prospectus in
reliance upon and in conformity with written information
3
<PAGE>
furnished to the Company through the Representatives by or on
behalf of any Underwriter specifically for inclusion therein.
(c) The documents incorporated by reference in the Prospectus, when
they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the
requirements the Securities Act or the Exchange Act, as
applicable, and the rules and regulations of the Commission
thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and any further documents so filed and
incorporated by reference in the Prospectus, when such documents
become effective or are filed with Commission, as the case may
be, will conform in all material respects to the requirements of
the Securities Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading.
(d) The Company and each of its subsidiaries (as defined in
Section 17) have been duly organized and are validly existing as
corporations, general or limited partnerships or limited
liability companies, as the case may be, in good standing under
the laws of their respective jurisdictions of organization, are
duly qualified to do business and are in good standing as foreign
corporations, limited partnerships or limited liability
companies, as the case may be, in each jurisdiction in which
their respective ownership or lease of property or the conduct of
their respective businesses requires such qualification, and have
all power and authority necessary to own or hold their respective
properties and to conduct the businesses in which they are
engaged;
(e) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are
fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; and any shares of Common
Stock and any Debt Securities (other than the Offered Securities
to be offered and sold by the Company hereunder) that are
outstanding or will be issued on or prior to the First Delivery
Date were or will be offered and sold in compliance with all
applicable laws (including, without limitation, federal and state
securities laws); and all of the issued shares of capital stock,
partnership interests or limited liability company membership
interests, as the case may be, of each subsidiary of the Company
have been duly and validly authorized and issued and (except for
partnership interests of general partners and except to the
extent the limited liability company agreements governing
4
<PAGE>
the respective limited liability companies provide otherwise) are
fully paid and non-assessable and are owned directly or
indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims except for liens in favor of the
lenders under the Company's senior secured credit facility (the
"1997 Credit Facility") with Lehman Brothers Holdings Inc.,
BankBoston N.A., Bankers Trust Company and Wells Fargo Bank,
N.A., as agents (together, the "Banks") to secure indebtedness.
(f) The unissued shares of the Offered Securities to be issued and
sold by the Company to the Underwriters hereunder have been duly
and validly authorized and, when issued and delivered against
payment therefor as provided herein will be duly and validly
issued, fully paid and non-assessable; and the Offered Securities
will conform to the descriptions thereof contained in the
Prospectus.
(g) The partnership interests of the Operating Partnerships ("Units")
have been duly authorized for issuance by the respective
Operating Partnerships, are validly issued and fully paid, and,
except as otherwise described in the Prospectus (or the materials
incorporated by reference therein), are the only Units
outstanding.
(h) This Agreement has been duly authorized, executed and delivered
by the Company and the Operating Partnerships.
(i) The execution, delivery and performance of this Agreement by the
Company and the Operating Partnerships and the consummation of
the transactions contemplated hereby will not conflict with or
result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed
of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such actions result in any
violation of the provisions of the charter, by-laws, partnership
agreement or operating agreement of the Company, any of its
subsidiaries or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties
or assets; and except for the registration of the Offered
Securities under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be
required under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and applicable state securities laws in
connection with the purchase and distribution of the Offered
Securities by the Underwriters, no consent, approval,
authorization or order of, or filing or registration with, any
such court or governmental agency or body or any other person is
required for
5
<PAGE>
the execution, delivery and performance of this Agreement by the
Company or the Operating Partnerships, the consummation of the
transactions contemplated hereby.
(j) Except as set forth in the Prospectus, there are no preemptive or
other rights to subscribe for or to purchase, nor any restriction
upon the voting or transfer of, any unissued shares of the
Offered Securities to be issued and sold by the Company to the
Underwriters hereunder pursuant to the Company's charter or
by-laws or any agreement or other instrument.
(k) Except as set forth in the Prospectus, there will be no
preemptive or other rights to subscribe for or to purchase, nor
any restriction upon the voting of, any of the partnership
interests in the Operating Partnerships pursuant to the Operating
Partnerships' respective Agreements of Limited Partnership, as
restated and amended (as applicable), or any agreement or other
instrument to which the Company is a party.
(l) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right (other than rights which have been
waived or satisfied) to require the Company to file a
registration statement under the Securities Act with respect to
any securities of the Company owned or to be owned by such person
or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or
in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities
Act.
(m) Except as described in the Prospectus, the Company has not sold
or issued any shares of Common Stock during the six-month period
preceding the date of the Prospectus, including any sales
pursuant to Rule 144A under, or Regulations D or S of, the
Securities Act, other than shares issued pursuant to employee
benefit plans, qualified stock options plans or other employee
compensation plans or pursuant to outstanding options, rights or
warrants.
(n) None of the Company or any of its subsidiaries has sustained,
since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as
set forth or contemplated in the Prospectus; and, since such
date, other than as set forth or contemplated in the Prospectus,
(i) there has been no material adverse change in the financial
condition, results of operation or business of the Company, the
Operating Partnerships or any subsidiary of the Company, whether
or not arising in the ordinary course of business,
6
<PAGE>
(ii) no material casualty loss or material condemnation or other
material adverse event with respect to any Property has occurred,
(iii) there have been no transactions or acquisition agreements
entered into by the Company, the Operating Partnerships or any
subsidiary of the Company other than those in the ordinary course
of business, which are material with respect to such entity, (iv)
there has been no dividend or distribution of any kind declared,
paid or made by the Company on any class of its capital stock or
by the Operating Partnerships with respect to its partnership
interests and (v) there has been no change in the capital stock
of the Company or the partnership interests of the Operating
Partnerships, or any increase in the indebtedness of the Company,
the Operating Partnerships or any subsidiary.
(o) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement
or included or incorporated by reference in the Prospectus
present fairly the financial condition and results of operations
of the entities purported to be shown thereby, at the dates and
for the periods indicated, and have been prepared in conformity
with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as
otherwise stated herein.
(p) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and the Predecessor Entities, whose
reports appear in the Prospectus or is incorporated by reference
therein and who have delivered the initial letter referred to in
Section 9(h) hereof, are independent public accountants as
required by the Securities Act and the Rules and Regulations; and
Wertheim & Company, King Griffin & Adamson P.C., Coopers &
Lybrand L.L.P., Mann Frankfort Stein & Lipp, P.C., Pinksen,
Goldberg & Company and Pannell Kerr Forster PC, each of whose
report appears in the Prospectus or is incorporated by reference
therein, were independent accountants as required by the
Securities Act and the Rules and Regulations during the periods
covered by the financial statements on which they reported
contained or incorporated in the Prospectus.
(q) With respect to Owned Hotels (as defined in the Prospectus),
other than the Owned Hotels in which the Company has acquired
less than all of the ownership interest (the "Joint Venture
Properties"), the Company and its subsidiaries have or will have
on the First Delivery Date good and marketable title in fee
simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described
in the Prospectus or such as do not materially affect the value
of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and
its subsidiaries; with respect to the
7
<PAGE>
Joint Venture Properties, the Company and its subsidiaries that
currently own interests in the Joint Venture Properties have or
will have on the First Delivery Date good and marketable title to
such ownership interests and the respective entities owning the
Joint Venture Properties have good and marketable title in fee
simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described
in the Prospectus or such as do not materially affect the value
of such property and do not materially interfere with the use
made and proposed to be made of such property by the Company and
its subsidiaries; and all real property and buildings held under
lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or with such exceptions as are not
material and do not interfere with the use made and proposed to
be made of such property and buildings by the Company and its
subsidiaries. There shall be issued and outstanding with respect
to each of the Owned Hotels an ALTA form of owner's title
insurance policy (or local equivalent with respect to those Owned
Hotels located in jurisdictions where an ALTA form of owner's
title insurance policy is not available) insuring the fee simple
estate of the applicable subsidiary of the Company in the Owned
Hotel owned by such subsidiary in an amount at least equal to the
acquisition price of such Owned Hotel and each such title
insurance policy will continue to be in full force and effect
immediately following the consummation of the Offering.
(r) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is
adequate for the conduct of their respective businesses and the
value of their respective properties and as is customary for
companies engaged in similar businesses in similar industries.
(s) Each of the Company and its subsidiaries possesses such
certificates, authorizations or permits issued by the appropriate
state, federal or foreign regulatory agencies or bodies necessary
to conduct the business now operated by them, except where the
failure to possess such certificates, authorizations or permits
would not have a material adverse effect on the consolidated
financial position, stockholders' equity, results of operations,
business or prospects of the Company and its subsidiaries (a
"Material Adverse Effect"), and none of the Company or any of its
subsidiaries has received any notice of proceedings relating to
the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling, or finding, would
have a Material Adverse Effect.
8
<PAGE>
(t) The Company and/or each of its subsidiaries own or possess
adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations,
service mark registrations, franchises, copyrights and licenses
necessary for the conduct of their respective businesses and have
no reason to believe that the conduct of their respective
businesses will conflict with, and have not received any notice
of any claim of conflict with, any such rights of others.
(u) There are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any
property or assets of the Company, any of its subsidiaries or any
Predecessor Entity is the subject which could reasonably be
expected to have a Material Adverse Effect; and to the best of
the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others.
(v) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(w) There are no contracts or other documents which are required to
be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described in the Prospectus or
filed as exhibits to the Registration Statement.
(x) No relationship, direct or indirect, exists between or among the
Company, the Operating Partnerships, any subsidiary of the
Company, on the one hand, and the directors, officers,
stockholders of the Company, or customers or suppliers of the
Company, or customers or suppliers of the Operating Partnerships,
on the other hand, which is required to be described in the
Prospectus which is not so described.
(y) There is (i) no material unfair labor practice complaint pending
against the Company, its subsidiaries or any Predecessor Entity
nor, to the best knowledge of the Company, threatened against any
of them before the National Labor Relations Board or any state or
local labor relations board, and no significant grievance or
significant arbitration proceeding arising out of or under any
collective bargaining agreement is so pending against the Company
or its subsidiaries or, to the best knowledge of the Company,
threatened against any of them, (ii) no material strike, labor
dispute, slowdown or stoppage pending against the Company or its
subsidiaries nor, to the best knowledge of the Company,
threatened against the Company or its subsidiaries which might be
expected to have a Material Adverse Effect.
9
<PAGE>
(z) None of the Company or any subsidiary has violated any safety or
similar law applicable to its business nor any federal, state or
local law relating to discrimination in the hiring, promotion or
pay of employees nor any applicable federal or state wages and
hours laws which in each case might result in a Material Adverse
Effect.
(aa) The Company and each of its subsidiaries are in compliance in all
material respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended,
including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA)
has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company or any of its subsidiaries would
have any liability; the Company and its subsidiaries have not
incurred and do not expect to incur liability under (i) Title IV
of ERISA with respect to termination of, or withdrawal from, any
"pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company or any of its subsidiaries
would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification.
(ab) The Company and each of its subsidiaries has filed all federal,
state and local income and franchise tax returns required to be
filed through the date hereof and has paid all taxes due thereon,
and no tax deficiency has been determined adversely to the
Company, any of its subsidiaries or any Predecessor Entity which
has had (nor does the Company have any knowledge of) any tax
deficiency which, if determined adversely to the Company, any of
its subsidiaries or any Predecessor Entity, might have a Material
Adverse Effect; the amounts currently set up as provisions for
taxes or otherwise by the Company and its subsidiaries on their
books and records are sufficient for the payment of all their
unpaid federal, foreign, state, county and local taxes accrued
through the dates as of which they speak, and for which the
Company and its subsidiaries may be liable in their own right or
as a transferee of the assets of, or as successor to any other
corporation, association, partnership, joint venture or other
entity.
(ac) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed
in the Prospectus, the Company and its subsidiaries have not (i)
issued or granted any securities, (ii) incurred any liability or
obligation, direct or contingent, other than liabilities and
obligations which were incurred in the ordinary course of
business, (iii) entered into any transaction not in the ordinary
10
<PAGE>
course of business or (iv) declared or paid any dividend on its
capital stock.
(ad) The Company and its subsidiaries (i) make and keep accurate books
and records and (ii) maintain internal accounting controls which
provide reasonable assurance that (A) transactions are executed
in accordance with management's authorization, (B) transactions
are recorded as necessary to permit preparation of their
financial statements and to maintain accountability for their
assets, (C) access to their books, records and accounts is
permitted only in accordance with management's authorization and
(D) the reported accountability for their assets is compared with
existing assets at reasonable intervals.
(ae) None of the Company or any of its subsidiaries is, or will be,
(i) in violation of its charter, by-laws, partnership agreement
or operating agreement, (ii) in default in any material respect,
and no event has or will have occurred which, with notice or
lapse of time or both, would constitute such a default, in the
due performance or observance of any term, covenant or condition
contained in any material indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which it is a
party or by which it is bound or to which any of its properties
or assets is subject or (iii) in violation of any law, ordinance,
governmental rule, regulation or court decree to which it or its
property or assets may be subject or has or will have failed to
obtain any material license, permit, certificate, franchise or
other governmental authorization or permit necessary to the
ownership of its property or to the conduct of its business,
which violation or failure could reasonably be expected to have a
Material Adverse Effect.
(af) None of the Company or any of its subsidiaries, or any director,
officer, agent, employee or other person associated with or
acting on behalf of the Company or any of its subsidiaries, has
used any corporate, partnership or limited liability company
funds for any unlawful contribution, gift, entertainment or other
unlawful expense relating to political activity; made any direct
or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or
is in violation of any provision of the Foreign Corrupt Practices
Act of 1977; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment.
(ag) There has been no storage, disposal, generation, manufacture,
refinement, installation, transportation, handling or treatment
of toxic wastes, medical wastes, hazardous wastes, petroleum or
petroleum products (including crude oil or any fraction thereof),
hazardous substances or any other substances which pose a hazard
to human health, safety, natural resources,
11
<PAGE>
industrial hygiene or the environment or which cause or threaten
to cause a nuisance by the Company or any of its subsidiaries
(or, to the knowledge of the Company, by any of their
predecessors in interest or by any other entity) at, upon or from
any of the property now or previously owned or leased by the
Company or its subsidiaries except to the extent commonly used in
the normal operations of such property, in violation of any
applicable law, ordinance, rule, regulation, order, judgment,
decree or permit or which would require investigation,
monitoring, removal action, corrective action, remedial action or
other response action ("response action") under any applicable
law, ordinance, rule, regulation, order, judgment, decree or
permit, except for any violation or response action which would
not have, or could not be reasonably likely to have, singularly
or in the aggregate with all such violations and response
actions, a Material Adverse Effect; there has been no material
spill, discharge, leak, emission, injection, escape, dumping or
release or threatened release of any kind onto such property or
into the environment surrounding such property of any toxic
wastes, medical wastes, solid wastes, hazardous wastes, petroleum
or petroleum products (including crude oil or any fraction
thereof), hazardous substances or any other substances which pose
a hazard to human health, safety, natural resources, industrial
hygiene or the environment or which cause or threaten to cause a
nuisance, except for any such spill, discharge, leak, emission,
injection, escape, dumping or release or threatened release which
would not have or would not be reasonably likely to have,
singularly or in the aggregate with all such spills, discharges,
leaks, emissions, injections, escapes, dumpings, releases and
threatened releases, a Material Adverse Effect; and the terms
"hazardous wastes," "solid wastes," "toxic wastes," "hazardous
substances," "petroleum," "petroleum products" and "medical
wastes" shall have the meanings specified in any applicable
local, state, federal and foreign laws or regulations with
respect to environmental protection.
(ah) Neither the Company nor any subsidiary is, or will be as a result
of the offer and sale of the Offered Securities hereunder, an
"investment company" within the meaning of such term under the
Investment Company Act of 1940 and the rules and regulations of
the Commission thereunder.
2. Representations, Warranties and Agreements of the Selling
Stockholders. Each of the Selling Stockholders severally represents, warrants
and agrees that:
(a) The Selling Stockholder has, and immediately prior to the First
Delivery Date the Selling Stockholder will have, good and valid
title to the Offered Securities to be sold by the Selling
Stockholder hereunder on such date, free and clear of all liens,
encumbrances, equities or claims; and upon delivery of such
shares and payment therefor pursuant hereto, good and
12
<PAGE>
valid title to such shares, free and clear of all liens,
encumbrances, equities or claims, will pass to the several
Underwriters.
(b) The Selling Stockholder has full right, power and authority
to enter into this Agreement, the Power of Attorney and the
Custody Agreement; the execution, delivery and performance of
this Agreement, the Power of Attorney and the Custody Agreement
by the Selling Stockholder and the consummation by the Selling
Stockholder of the transactions contemplated hereby and thereby
will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
indenture, mortgage deed of trust, loan agreement or other
agreement or instrument to which the Selling Stockholder is a
party or by which the Selling Stockholder is bound or to which
any of the property or assets of the Selling Stockholder is
subject, nor will such actions result in any violation of any
statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Selling
Stockholder or the property or assets of the Selling Stockholder;
and, except for the registration of the Offered Securities under
the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Exchange Act and applicable state securities laws in connection
with the purchase and distribution of the Offered Securities by
the Underwriters, no consent, approval, authorization or order
of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Selling
Stockholder and the consummation by the Selling Stockholder of
the transactions contemplated hereby.
(c) The Registration Statement and the Prospectus and any further
amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the
applicable effective date (as to the Registration Statement and
any amendment thereto) and as of the applicable filing date (as
to the Prospectus and any amendment or supplement thereto)
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading; provided that the
representations and warranties in this subsection shall only
apply to statements in or omissions from the Registration
Statement or Prospectus made in reliance upon and in conformity
with information relating to the Selling Stockholder furnished in
writing to the Company or the Underwriters by the Selling
Stockholder expressly for use in the Registration Statement or
Prospectus.
13
<PAGE>
(d) The Selling Stockholder has not taken and will not take, directly
or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or
result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
shares of the Offered Securities.
3. Purchase of the Offered Securities by the Underwriters. On the basis
of the representations and warranties contained in, and subject to the terms and
conditions of, this Agreement, the Company agrees to sell 4,000,000 shares of
the Firm Stock and each Selling Stockholder agrees to sell the number of shares
of the Firm Stock set opposite its or his name in Schedule 2 hereto, severally
and not jointly, to the several Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase the number of shares of the Firm
Stock set opposite that Underwriter's name in Schedule 1 hereto. Each
Underwriter shall be obligated to purchase from the Company, and from the
Selling Stockholders, that number of shares of the Firm Stock which represents
the same proportion of the number of shares of the Firm Stock to be sold by the
Company, and by the Selling Stockholders, as the number of shares of the Firm
Stock set forth opposite the name of such Underwriter in Schedule 1 represents
of the total number of shares of the Firm Stock to be purchased by all of the
Underwriters pursuant to this Agreement. The respective purchase obligations of
the Underwriters with respect to the Firm Stock shall be rounded among the
Underwriters to avoid fractional shares, as the Representatives may determine.
In addition, the Company grants to the Underwriters an option to purchase
up to 791,027 shares of Option Stock. Such option is granted solely for the
purpose of covering over-allotments in the sale of Firm Stock and is exercisable
as provided in Section 4 hereof. Shares of Option Stock shall be purchased
severally for the account of the Underwriters in proportion to the number of
shares of Firm Stock set opposite the name of such Underwriters in Schedule 1
hereto. The respective purchase obligations of each Underwriter with respect to
the Option Stock shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Stock other than in 100 share amounts.
The price of both the Firm Stock and any Option Stock shall be $34.625 per
share.
The Company and the Selling Stockholder shall not be obligated to deliver
any of the Offered Securities to be delivered on the First Delivery Date or the
Second Delivery Date (as hereinafter defined), as the case may be, except upon
payment for all the Offered Securities to be purchased on such Delivery Date as
provided herein.
4. Delivery of and Payment for the Offered Securities. Delivery of and
payment for the Firm Stock shall be made at the offices of Hogan & Hartson
L.L.P., Washington, D.C., at 10:00 A.M., New York City time, on the fourth full
business day following the date of this Agreement or at such other date or place
as shall be determined by agreement between the Representatives and the Company.
This date and time are sometimes referred to as the "First Delivery Date." On
the First Delivery Date, the Company and the Selling Stockholder shall deliver
or cause to be delivered certificates representing the Firm Stock to the
Representatives for the account of each Underwriter against payment to or upon
the order of the Company and the
14
<PAGE>
Selling Stockholder of the purchase price by wire transfer of federal (same-day)
funds to an account or accounts previously designated in writing to Lehman
Brothers Inc. by the Company and the Selling Stockholders. Time shall be of the
essence, and delivery at the time and place specified pursuant to this Agreement
is a further condition of the obligation of each Underwriter hereunder. Upon
delivery, the Firm Stock shall be registered in such names and in such
denominations as the Representatives shall request in writing not less than two
full business days prior to the First Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the Firm Stock,
the Company and the Selling Stockholders shall make the certificates
representing the Firm Stock available for inspection by the Representatives in
New York, New York, not later than 2:00 P.M., New York City time, on the
business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this Agreement
the option granted in Section 3 may be exercised by written notice being given
to the Company by the Representatives. Such notice shall set forth the
aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Representatives, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
The date and time the shares of Option Stock are delivered are sometimes
referred to as the "Second Delivery Date" and the First Delivery Date and the
Second Delivery Date are sometimes each referred to as a "Delivery Date".
Delivery of and payment for the Option Stock shall be made at the place
specified in the first sentence of the first paragraph of this Section 4 (or at
such other place as shall be determined by agreement between the Representatives
and the Company) at 10:00 A.M., New York City time, on the Second Delivery Date.
On the Second Delivery Date, the Company shall deliver or cause to be delivered
the certificates representing the Option Stock to the Representatives for the
account of each Underwriter against payment to or upon the order of the Company
of the purchase price by wire transfer of federal (same-day) funds to an account
or accounts previously designated in writing to Lehman Brothers Inc. by the
Company Time shall be of the essence, and delivery at the time and place
specified pursuant to this Agreement is a further condition of the obligation of
each Underwriter hereunder. Upon delivery, the Option Stock shall be registered
in such names and in such denominations as the Representatives shall request in
the aforesaid written notice. For the purpose of expediting the checking and
packaging of the certificates for the Option Stock, the Company shall make the
certificates representing the Option Stock available for inspection by the
Representatives in New York, New York, not later than 2:00 P.M., New York City
time, on the business day prior to the Second Delivery Date.
5. Offering of Offered Securities by the Underwriters. Upon
authorization by the Representatives of the release of the Firm Stock, the
several Underwriters propose to offer the Firm Stock for sale upon the terms and
conditions set forth in the Prospectus.
15
<PAGE>
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representatives and to file such Prospectus pursuant to Rule
424(b) under the Securities Act not later than Commission's close
of business on the second business day following the execution
and delivery of this Agreement or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Securities
Act; to make no further amendment or any supplement to the
Registration Statement or to the Prospectus prior to the last
Delivery Date except as permitted herein; to advise the
Representatives, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has
been filed or becomes effective or any supplement to the
Prospectus or any amended Prospectus has been filed and to
furnish the Representatives with copies thereof; to file promptly
all reports and any definitive proxy or information statements
required to be filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the
offering or sale of the Offered Securities; to advise the
Representatives, promptly after it receives notice thereof, of
the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or
the Prospectus, of the suspension of the qualification of the
Offered Securities for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or
for additional information; and, in the event of the issuance of
any stop order or of any order preventing or suspending the use
of any Preliminary Prospectus or the Prospectus or suspending any
such qualification, to use promptly its best efforts to obtain
its withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel
for the Underwriters a signed copy of the Registration Statement
as originally filed with the Commission, and each amendment
thereto filed with the Commission, including all consents and
exhibits filed therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably
request: (i) conformed copies of the Registration Statement as
originally filed with the Commission and each amendment thereto
(in each case excluding exhibits other than this Agreement and
the computation of per share earnings), (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented
Prospectus and (iii) any document incorporated by reference in
the Prospectus (excluding exhibits thereto); and, if the delivery
of a prospectus is required at any time after the Effective Time
in connection
16
<PAGE>
with the offering or sale of the Offered Securities or any other
securities relating thereto and if at such time any events shall
have occurred as a result of which the Prospectus as then amended
or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances
under which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary to
amend or supplement the Prospectus or to file under the Exchange
Act any document incorporated by reference in the Prospectus in
order to comply with the Securities Act or the Exchange Act, to
notify the Representatives and, upon their request, to file such
document and to prepare and furnish without charge to each
Underwriter and to any dealer in securities as many copies as the
Representatives may from time to time reasonably request of an
amended or supplemented Prospectus which will correct such
statement or omission or effect such compliance.
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representatives, be required by the Securities Act or requested
by the Commission;
(e) To the extent practicable, prior to filing with the Commission
any amendment to the Registration Statement or supplement to the
Prospectus, any document incorporated by reference in the
Prospectus or any Prospectus pursuant to Rule 424 of the Rules
and Regulations, and to the extent not practicable, immediately
thereafter, to furnish a copy thereof to the Representatives and
counsel for the Underwriters and to consult with the
Representatives prior to the filing;
(f) As soon as practicable after the Effective Date, but in any event
not later than 410 or, if the fourth quarter following the fiscal
quarter that includes the Effective Date is the last fiscal
quarter of the Company's fiscal year, 455 days after the end of
the Company's current fiscal quarter, to make generally available
to the Company's security holders and to deliver to the
Representatives an earning statement of the Company and its
subsidiaries (which need not be audited) complying with Section
11(a) of the Securities Act and the Rules and Regulations
(including, at the option of the Company, Rule 158);
(g) Until the earlier of the expiration of the period of five years
following the Effective Date and the date on which the Company
ceases to be subject to the reporting requirements of the
Exchange Act, to furnish to the Representatives copies of all
materials furnished by the Company to its shareholders and all
public reports and all reports and financial statements furnished
by the Company to the principal national securities exchange
17
<PAGE>
upon which the Common Stock may be listed pursuant to
requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation
of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representatives may reasonably request to qualify the Offered
Securities for offering and sale under the securities laws of
such jurisdictions as the Representatives may request and to
comply with such laws so as to permit the continuance of sales
and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Offered Securities,
provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(i) Except as described in the Prospectus, for a period of 180 days
from the date of the Prospectus, not to, directly or indirectly,
offer for sale, sell or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected
to, result in the disposition by any person at any time in the
future of) any shares of Common Stock (other than the Offered
Securities and shares issued pursuant to employee benefit plans,
qualified stock option plans or other employee compensation plans
existing on the date hereof or pursuant to currently outstanding
options, warrants or rights), or sell or grant options, rights or
warrants with respect to any shares of Common Stock (other than
the grant of options pursuant to option plans existing on the
date hereof), without the prior written consent of Lehman
Brothers Inc.; and to cause each of CapStar GP Corp., CapStar
Hotels, Inc., Latham Hotels, Inc., Paul W. Whetsell, David E.
McCaslin, John Emery, John E. Plunket, and Woody Montgomery to
furnish to the Representatives, prior to the First Delivery Date,
a letter or letters, in form and substance satisfactory to
counsel for the Underwriters, pursuant to which each such person
shall agree not to, directly or indirectly, offer for sale, sell
or otherwise dispose of (or enter into any transaction or device
which is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any
shares of Common Stock for a period of 180 days from the date of
the Prospectus, without the prior written consent of Lehman
Brothers Inc.;
(j) Prior to the Effective Date, to apply for the listing of the
Offered Securities on the New York Stock Exchange, Inc. and to
use its best efforts to complete that listing, subject only to
official notice of issuance and evidence of satisfactory
distribution, prior to the First Delivery Date;
(k) To apply the net proceeds from the sale of the Offered Securities
being sold by the Company as set forth in the Prospectus; and
18
<PAGE>
(l) To take such steps as shall be necessary to ensure that neither
the Company nor any subsidiary shall become an "investment
company" within the meaning of such term under the Investment
Company Act of 1940 and the rules and regulations of the
Commission thereunder.
7. Further Agreements of the Selling Stockholders. Each of the Selling
Stockholders severally agrees:
(a) For a period of 90 days from the date of the Prospectus, not to,
directly or indirectly, offer for sale, sell or otherwise dispose
of (or enter into any transaction or device which is designed to,
or could be expected to, result in the disposition by any person
at any time in the future of) any shares of Common Stock (other
than the Offered Securities), without the prior written consent
of Lehman Brothers Inc. (which consent shall not be unreasonably
withheld); and to cause each of Daniel L. Doctoroff, Bradford E.
Bernstein, Steven B. Gruber, John R. Monsky and Glenn R. August
to furnish to the Representatives prior to the First Delivery
Date, a letter or letters, in form and substance satisfactory to
counsel for the Underwriters, pursuant to which each such person
shall agree not to, directly or indirectly, offer for sale, sell
or otherwise dispose of (or enter into any transaction or device
which is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any
shares of Common Stock for a period of 90 days from the Date of
the Prospectus, without the prior written consent of Lehman
Brothers, Inc. (which consent shall not be unreasonably
withheld);
(b) That the Offered Securities to be sold by the Selling
Stockholders hereunder are subject to the interest of the
Underwriters, that the custody arrangements made, or to be made,
by, or on behalf of, the Selling Stockholders in respect of such
Offered Securities are to that extent irrevocable, and that the
obligations of the Selling Stockholders hereunder shall not be
terminated by any act of the Selling Stockholders, by operation
of law or the occurrence of any other event; and
(c) To deliver to the Representatives prior to the First Delivery
Date a properly completed and executed United States Treasury
Department Form W-9.
8. Expenses. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Offered Securities and any
taxes payable in that connection; (b) the costs incident to the preparation,
printing and filing under the Securities Act of the Registration Statement and
any amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), any
Preliminary
19
<PAGE>
Prospectus, the Prospectus and any amendment or supplement to the Prospectus,
all as provided in this Agreement; (d) the costs of producing and distributing
this Agreement and any other related documents in connection with the offering,
purchase, sale and delivery of the stock; (e) the fees (including reasonable
attorneys' fees) and expenses incident to securing any required review by the
National Association of Securities Dealers, Inc. of the terms of sale of the
Offered Securities; (f) any applicable listing or other fees; (g) the fees and
expenses of qualifying the Offered Securities under the securities laws of the
several jurisdictions as provided in Section 6(h) and of preparing, printing and
distributing a Blue Sky Memorandum (including related fees and expenses of
counsel to the Underwriters); (h) any fees charged by rating agencies for the
rating of the Offered Securities; and (i) all other costs and expenses incident
to the performance of the obligations of the Company and the Selling Stockholder
under this Agreement; provided that, except as provided in this Section 8 and in
Section 13 the Underwriters shall pay their own costs and expenses, including
the costs and expenses of their counsel, any transfer taxes on the Offered
Securities which they may sell and the expenses of advertising any offering of
the Offered Securities made by the Underwriters.
9. Conditions of Underwriters' Obligations. The respective obligations
of the Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company and the
Selling Stockholder contained herein, to the performance by the Company and the
Selling Stockholder of their obligations hereunder, and to each of the following
additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission
in accordance with Section 6(a); no stop order suspending the
effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and any
request of the Commission for inclusion of additional information
in the Registration Statement or the Prospectus or otherwise
shall have been complied with.
(b) No Underwriter shall have discovered and disclosed to the Company
on or prior to such Delivery Date that the Registration Statement
or the Prospectus or any amendment or supplement thereto contains
an untrue statement of a fact which, in the opinion of Hogan &
Hartson L.L.P., counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is
material and is required to be stated therein or is necessary to
make the statements therein not misleading.
(c) Subsequent to the execution and delivery of the Underwriting
Agreement and prior to the First Delivery Date, there shall not
have occurred any downgrading, nor shall any notice have been
given of any intended or potential downgrading, in the rating
accorded any of the Company's securities by any "nationally
recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) of the Securities Act.
20
<PAGE>
(d) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Offered
Securities, the Registration Statement and the Prospectus, and
all other legal matters relating to this Agreement and the
transactions contemplated hereby shall be reasonably satisfactory
in all material respects to counsel for the Underwriters, and the
Company and the Selling Stockholder shall have furnished to such
counsel all documents and information that they may reasonably
request to enable them to pass upon such matters.
(e) Paul, Weiss, Rifkind, Wharton and Garrison shall have furnished
to the Representatives their written opinion, as counsel to the
Company, addressed to the Underwriters and dated such Delivery
Date, in form and substance reasonably satisfactory to the
Representatives, to the effect that:
(i) The Company and each of its significant subsidiaries
have been duly formed and are validly existing as corporations,
limited partnerships or limited liability companies, as the case
may be, in good standing under the laws of their respective
jurisdictions of organization, are duly qualified to do business
and are in good standing as foreign corporations, limited
partnerships or limited liability companies, as the case may be,
in each jurisdiction in which their respective ownership or lease
of property or the conduct of their respective businesses (as set
forth in certificates of officers of the Company upon which such
counsel is relying without independent investigation) requires
such qualification and have all corporate, partnership or limited
liability company, as the case may be, power and authority
necessary to own or hold their respective properties and conduct
the businesses in which they are engaged as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Offered Securities
being delivered on such Delivery Date) have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus;
and any shares of Common Stock and any Debt Securities (other
than the Offered Securities to be offered and sold by the Company
to the Underwriters hereunder) that are outstanding were offered
and sold in transactions exempt from the registration
requirements of the Securities Act and in compliance with all
applicable provisions of the General Corporation Law of the State
of Delaware (the "Delaware Corporation Law") and all of the
issued shares of capital stock, partnership interests or limited
liability company membership interests, as the case may be, of
each subsidiary of the Company (other than Leperq Atlanta
Renaissance Partners, L.P. (the "Atlanta Partnership")) have been
duly and validly authorized and issued and (except for
partnership interests
21
<PAGE>
of general partners and except to the extent the limited
liability company agreements governing the respective limited
liability companies provide otherwise) are fully paid,
non-assessable and are owned directly or indirectly by the
Company, to such counsel's knowledge free and clear of all liens,
encumbrances, or claims except for liens in favor of the lenders
under the 1997 Credit Facility to secure indebtedness; with
respect to the general and limited partnership interests of the
Atlanta Partnership held by the Company, such interests are owned
directly or indirectly by the Company, to such counsel's
knowledge free and clear of all liens, encumbrances, or claims
except for liens in favor of _____________ to secure
indebtedness;
(iii) Except as set forth in the Prospectus, there are
no preemptive or other rights to subscribe for or to purchase,
nor any restriction upon the voting or transfer of, any unissued
shares of the Offered Securities to be issued and sold by the
Company to the Underwriters hereunder pursuant to the Company's
charter or by-laws or any agreement or other instrument known to
such counsel;
(iv) Except as set forth in the Prospectus, there are no
preemptive or other rights to subscribe for or to purchase, nor
any restriction upon the voting or transfer of, any of the
partnership interests in the Operating Partnerships pursuant to
the Operating Partnerships' respective Agreements of Limited
Partnership, as amended and restated (as applicable), or, to such
counsel's knowledge, any agreement or other instrument to which
the Company is a party;
(v) To the best of such counsel's knowledge, based solely
on a review of such counsel's internal litigation docket, and
other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of
its subsidiaries is a party or of which any property or assets of
the Company or any of its subsidiaries is the subject which could
be expected to have a Material Adverse Effect; and, to the best
of such counsel's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by
others;
(vi) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such
opinion, the Prospectus was filed with the Commission pursuant to
the subparagraph of Rule 424(b) of the Rules and Regulations
specified in such opinion on the date specified therein and, to
the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and
no proceeding for that purpose is pending or threatened by the
Commission;
22
<PAGE>
(vii) The Registration Statement and the Prospectus and
any further amendments or supplements thereto made by the Company
prior to such Delivery Date (other than the financial statements
and related schedules and statistical data therein, as to which
such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and
the Rules and Regulations;
(viii) To the best of such counsel's knowledge, there are
no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and
Regulations which have not been described or filed as exhibits to
the Registration Statement;
(ix) This Agreement has been duly authorized, executed and
delivered by the Company;
(x) The Agreement of Limited Partnership, as amended and
restated, of each of the Operating Partnerships has been duly
authorized, executed and delivered by the Company and the other
parties thereto and constitutes the valid and binding agreement
of each such party, enforceable against each such party in
accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance or
transfer, reorganization, liquidation, moratorium or other
similar laws affecting the rights and remedies of creditors
generally and except as may be subject to general principles of
equity (regardless of whether such agreement is considered in a
proceeding in equity or at law), and except as rights to
indemnity and contribution thereunder may be limited by
applicable law and public policy;
(xi) The issue and sale of the shares of Offered Securities
being delivered on such Delivery Date by the Company and the
compliance by the Company and the Operating Partnerships with all
of the provisions of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with or result
in a material breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets
of the Company or any of its subsidiaries is subject which breach
is reasonably likely to have a Material Adverse Effect, nor will
such actions result in any violation of the provisions of the
charter, by-laws, limited partnership agreement or operating
agreement of the Company or any of its subsidiaries or any
statute or any order, rule or regulation known to such counsel of
any court or governmental agency or body of the United States,
the State of New
23
<PAGE>
York or established pursuant to the Delaware Corporation Law
having jurisdiction over the Company or any of its subsidiaries
or any of their properties or assets; except for the registration
of the Offered Securities under the Securities Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase
and distribution of the Offered Securities by the Underwriters,
no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body
is required for the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions
contemplated hereby;
(xii) Except as set forth in the Prospectus, to the best
of such counsel's knowledge, there are no contracts, agreements
or understandings between the Company and any person granting
such person the right (other than rights which have been waived
or satisfied) to require the Company to file a registration
statement under the Securities Act with respect to any securities
of the Company owned or to be owned by such person or to require
the Company to include such securities in the securities
registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration
statement filed by the Company under the Securities Act;
(xiii) Neither the Company nor any of its subsidiaries is
an "investment company" as such term is defined in the Investment
Company Act of 1940, as amended;
(xiv) The Operating Partnerships each will be treated as
a partnership, and not as an "association" or "publicly traded
partnership" taxable as a corporation, for federal income tax
purposes; and
(xv) The statements under the captions "Description of
Capital Stock" and "Description of Debt Securities" in the
Prospectus, and "Certain Relationships and Related Transactions"
incorporated into the Prospectus, insofar as such statements
constitute a summary of legal matters, documents or proceedings
referred to therein are correct in all material respects.
In rendering such opinion, such counsel may (i) state that their
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of New York and
the Delaware Corporation Law and that such counsel is not
admitted in the State of Delaware; and (ii) in giving the
opinions referred to in Section 9(e)(i) (solely with regard to
organization and qualification of the Company's significant
subsidiaries), Section 9(e)(ii) (solely with regard to capital
stock,
24
<PAGE>
partnership interests or limited liability company membership
interests, as the case may be, of subsidiaries of the Company
being duly and validly authorized and issued and fully paid and
non-assessable), state that they are relying on an opinion or
opinions of other counsel as to such matters, provided that the
Underwriters shall have received such opinion or opinions, in
form and substance satisfactory to Underwriter's counsel, of
other counsel reasonably acceptable to Underwriters' counsel.
Such counsel shall also have furnished to the Representatives a
written statement, addressed to the Underwriters and dated such
Delivery Date, in form and substance satisfactory to the
Representatives, to the effect that (x) in connection with the
preparation of the Registration Statement and the Prospectus,
such counsel have participated in conferences with certain
officers and other representatives of the Company, at which the
contents of the Registration Statement and the Prospectus and
related matters were discussed, and (y) based on such
participation, no facts have come to the attention of such
counsel which lead them to believe that the Registration
Statement (except for financial statements and schedules and
other statistical data included therein or omitted therefrom, as
to which such counsel need make no statement), as of the
Effective Date, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein not
misleading, or that the Prospectus (except for financial
statements and schedules and other statistical data included
therein or omitted therefrom, as to which such counsel need make
no statement) contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
The foregoing statement may be qualified by a statement to the
effect that such counsel does not assume any responsibility for
the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus except
for the statements made in the Prospectus under the caption
"Description of Capital Stock," insofar as such statements relate
to the Offered Securities and concern legal matters.
(f) The counsel for the Selling Stockholders shall have furnished to
the Representatives its written opinion, as counsel to the
Selling Stockholder, addressed to the Underwriters and dated the
First Delivery Date, in form and substance reasonably
satisfactory to the Representatives, to the effect that:
(i) Each of the Selling Stockholders has full right, power
and authority to enter into this Agreement, the Power of Attorney
and the Custody Agreement; the execution, delivery and
performance of this Agreement, the Power of Attorney and the
Custody Agreement by each of
25
<PAGE>
the Selling Stockholders and the consummation by each the Selling
Stockholders of the transactions contemplated hereby and thereby
will not (i) conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which any Selling Stockholder is a
party or by which any Selling Stockholder is bound or to which
any of the property or assets of any Selling Stockholder is
subject or (ii) constitute a violation of any statute, or any
order, rule or regulation of any court or governmental agency or
body having jurisdiction over any Selling Stockholder or the
property or assets of any Selling Stockholder. Except for the
registration of the Offered Securities under the Securities Act
and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act and
applicable state securities laws in connection with the purchase
and distribution of the Offered Securities by the Underwriters,
no consent, approval, authorization, or order of, or filing or
registration with, any such court or governmental agency or body
is required for the execution, delivery and performance of this
Agreement by any Selling Stockholder and the consummation by the
Selling Stockholders of the transactions contemplated hereby;
(ii) This Agreement has been duly authorized, executed and
delivered by, or on behalf of, the Selling Stockholders and
constitutes valid and binding agreements of the Selling
Stockholders, enforceable in accordance with their respective
terms, except as rights to indemnification and contribution may
be limited by applicable securities laws (such counsel may except
from the opinion in this clause the application of bankruptcy,
insolvency, moratorium or similar laws affecting creditors'
rights generally and may limit such opinion with respect to the
availability of equitable remedies and the enforceability of
provisions providing for indemnification and contribution for
violations of securities laws);
(iii) Good and valid title to the Offered Securities to
be sold by the Selling Stockholders under this Agreement, free
and clear of all liens, encumbrances, equities or claims, has
been transferred to each of the several Underwriters.
In rendering such opinion, such counsel may (i) state that its
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of New York and
the Revised Limited Uniform Partnership Act of Delaware and that
such counsel is not admitted in the State of Delaware and (ii) in
rendering the opinions in Section 9(f)(i) (with regard to breach
or violation of, or default under, any agreement) and 9(f)(iii)
above (in respect of matters of fact as to ownership of and
liens, encumbrances, equities or claims on the shares of
26
<PAGE>
Offered Securities sold by the Selling Stockholder), state that
they are relying upon a certificate of the Selling Stockholder as
to such matters, provided that such counsel shall furnish copies
thereof to the Representatives and state that it believes that
both the Underwriters and it are justified in relying upon such
certificate.
(g) The Representatives shall have received from Hogan & Hartson
L.L.P., counsel for the Underwriters, such opinion or opinions,
dated such Delivery Date, with respect to the issuance and sale
of the Offered Securities, the Registration Statement, the
Prospectus and other related matters as the Representatives may
reasonably require, and the Company shall have furnished to such
counsel such documents as they reasonably request for the purpose
of enabling them to pass upon such matters.
(h) At the time of execution of this Agreement, the Representatives
shall have received from KPMG Peat Marwick a letter, in form and
substance satisfactory to the Representatives, addressed to the
Underwriters and dated the date hereof (i) confirming that they
are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable
requirements relating to the qualification of accountants under
Rule 2-01 of Regulation S-X of the Commission, (ii) stating, as
of the date hereof (or, with respect to matters involving changes
or developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date
not more than five days prior to the date hereof), the
conclusions and findings of such firm with respect to the
financial information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection with
registered public offerings.
(i) With respect to the letters of KPMG Peat Marwick referred to in
clause (h) hereof and delivered to the Representatives
concurrently with the execution of this Agreement (the "initial
letters"), the Company shall have furnished to the
Representatives letters (the "bring-down letters") of such
accountants, addressed to the Underwriters and dated such
Delivery Date (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of
the Commission, (ii) stating, as of the date of the bring-down
letters (or, with respect to matters involving changes or
developments since the respective dates as of which specified
financial information is given in the Prospectus, as of a date
not more than five days prior to the date of the bring-down
letters), the conclusions and findings of such firms with respect
to the financial information and other matters covered by the
initial letter and (iii) confirming in all material respects the
conclusions and findings set forth in the initial letter.
27
<PAGE>
(j) The Company shall have furnished to the Representatives a
certificate, dated such Delivery Date, of its Chairman of the
Board, its President or a Vice President and its chief financial
officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery
Date; the Company has complied with all its agreements contained
herein; and the conditions set forth in Sections 9(a) and 9(l)
have been fulfilled; and
(ii) They have carefully examined the Registration Statement
and the Prospectus and, in their opinion (A) as of the Effective
Date, the Registration Statement and Prospectus did not include
any untrue statement of a material fact and did not omit to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading, and (B) since the
Effective Date no event has occurred which should have been set
forth in a supplement or amendment to the Registration Statement
or the Prospectus.
(k) The Selling Stockholders (or the Custodian) shall have furnished
to the Representatives on the First Delivery Date certificates,
dated the First Delivery Date, signed by, or on behalf of, each
of the Selling Stockholders (or the Custodian) stating that the
representations, warranties and agreements of the Selling
Stockholder contained herein are true and correct as of the First
Delivery Date and that the Selling Stockholders have complied
with all agreements contained herein to be performed by the
Selling Stockholders at or prior to the First Delivery Date.
(l) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as
set forth or contemplated in the Prospectus or (ii) since such
date there shall not have been any change in the capital stock or
long-term debt of the Company or any of its subsidiaries or any
change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and
its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described
in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering
or the delivery of the Offered Securities being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
28
<PAGE>
(m) Subsequent to the execution and delivery of this Agreement there
shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market, or
trading in any securities of the Company on any exchange or in
the over-the-counter market, shall have been suspended or minimum
prices shall have been established on any such exchange or such
market by the Commission, by such exchange or by any other
regulatory body or governmental authority having jurisdiction,
(ii) a banking moratorium shall have been declared by Federal or
state authorities, (iii) the United States shall have become
engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been
a declaration of a national emergency or war by the United States
or (iv) there shall have occurred such a material adverse change
in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in
the United States shall be such) as to make it, in the judgment
of a majority in interest of the several Underwriters,
impracticable or inadvisable to proceed with the public offering
or delivery of the Offered Securities being delivered on such
Delivery Date on the terms and in the manner contemplated in the
Prospectus.
(n) There shall be issued and outstanding with respect to each of the
Owned Hotels (as defined in the Prospectus) an ALTA form of
owner's title insurance policy (or local equivalent with respect
to those Owned Hotels located in jurisdictions where an ALTA form
of owner's title insurance is not available) insuring the fee
simple estate of the applicable subsidiary of the Company in the
Owned Hotel owned by such subsidiary in an amount at least equal
to the acquisition price of such Owned Hotel and each such title
insurance policy will continue to be in full force and effect
immediately following the consummation of the Offering.
(o) The New York Stock Exchange, Inc. shall have approved the Offered
Securities for listing, subject only to official notice of
issuance and evidence of satisfactory distribution.
(p) The Representatives shall have received the written opinion or
opinions or other certification in form and substance acceptable
to Underwriter's counsel, of other counsel reasonably acceptable
to Underwriter's counsel to the effect that with regard to the
Owned Hotels (as defined in the Prospectus), the Company and/or
its subsidiaries hold all state food, beverage and liquor
licenses necessary or required for such corporations,
partnerships and limited liability companies to conduct their
business as currently conducted in each state.
29
<PAGE>
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
10. Indemnification and Contribution.
(a) The Company and the Operating Partnerships, jointly and
severally, shall indemnify and hold harmless each Underwriter,
its officers and employees and each person, if any, who controls
any Underwriter within the meaning of the Securities Act, from
and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not
limited to, any loss, claim, damage, liability or action relating
to purchases and sales of Offered Securities), to which that
Underwriter, officer, employee or controlling person may become
subject, under the Securities Act or otherwise, insofar as such
loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement
of a material fact contained (A) in any Preliminary Prospectus,
the Registration Statement or the Prospectus or in any amendment
or supplement thereto or (B) in any blue sky application or other
document prepared or executed by the Company (or based upon any
written information furnished by the Company) specifically for
the purpose of qualifying any or all of the Offered Securities
under the securities laws of any state or other jurisdiction (any
such application, document or information being hereinafter
called a "Blue Sky Application"), (ii) the omission or alleged
omission to state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact
required to be stated therein or necessary to make the statements
therein not misleading or (iii) any act or failure to act or any
alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Offered Securities or the
offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action
arising out of or based upon matters covered by clause (i) or
(ii) above (provided that the Company and the Operating
Partnerships shall
30
<PAGE>
not be liable under this clause (iii) to the extent that it is
determined in a final judgment by a court of competent
jurisdiction that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its
gross negligence or willful misconduct), and shall reimburse each
Underwriter and each such officer, employee or controlling person
promptly upon demand for any legal or other expenses reasonably
incurred by that Underwriter, officer, employee or controlling
person in connection with investigating or defending or preparing
to defend against any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the
Company and the Operating Partnerships shall not be liable in any
such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement or omission or alleged
omission made in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any such amendment or
supplement, or in any Blue Sky Application, in reliance upon and
in conformity with written information concerning such
Underwriter furnished to the Company through the Representatives
by or on behalf of any Underwriter specifically for inclusion
therein. The foregoing indemnity agreement is in addition to any
liability which the Company or the Operating Partnerships may
otherwise have to any Underwriter or to any officer, employee or
controlling person of that Underwriter.
(b) The Selling Stockholders, severally and not jointly, shall
indemnify and hold harmless each Underwriter, its officers and
employees, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act, from and against any
loss, claim, damage or liability, joint or several, or any action
in respect thereof (including, but not limited to, any loss,
claim, damage, liability or action relating to purchases and
sales of Offered Securities), to which that Underwriter, officer,
employee or controlling person may become subject, under the
Securities Act or otherwise, but only with respect to untrue
statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment
thereto) or any Preliminary Prospectus or the Prospectus (or any
amendment or supplement thereto) in reliance upon and in
conformity with written information relating to the Selling
Stockholders furnished to the Company or the Underwriters
expressly for use in the Registration Statement (or any amendment
thereto), or any Preliminary Prospectus or the Prospectus (or any
amendment or supplement thereto); provided, however, that each
Selling Stockholder's aggregate liability under this Section 10
shall be limited to an amount equal to the net proceeds (after
deducting the Underwriters' discount) received by such Selling
Stockholder from the sale of the Offered Securities pursuant to
this Agreement. The foregoing indemnity agreement is in addition
to any liability which the Selling Stockholders may otherwise
have to any Underwriter or any officer, employee or controlling
person of that Underwriter.
(c) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers and employees, each of
its directors (including any person who, with his or her consent,
is named in the Registration Statement as about to become a
director of the Company), the Selling Stockholders and each
person, if any, who controls the Company within the meaning of
the Securities Act, from and against any loss, claim, damage or
liability, joint or several, or any action in respect thereof, to
31
<PAGE>
which the Company or any such director, officer or controlling
person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any
Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or (B) in
any Blue Sky Application or (ii) the omission or alleged omission
to state in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or in any amendment or supplement
thereto, or in any Blue Sky Application any material fact
required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that
the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with
written information concerning such Underwriter furnished to the
Company through the Representatives by or on behalf of that
Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or
controlling person for any legal or other expenses reasonably
incurred by the Company or any such director, officer or
controlling person in connection with investigating or defending
or preparing to defend against any such loss, claim, damage,
liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company, the Selling
Stockholders or any such director, officer, employee or
controlling person.
(d) Promptly after receipt by an indemnified party under this Section
10 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in respect thereof is to be
made against the indemnifying party under this Section 10, notify
the indemnifying party in writing of the claim or the
commencement of that action; provided, however, that the failure
to notify the indemnifying party shall not relieve it from any
liability which it may have under this Section 10 except to the
extent it has been materially prejudiced by such failure and,
provided further, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have
to an indemnified party otherwise than under this Section 10. If
any such claim or action shall be brought against an indemnified
party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein and,
to the extent that it wishes, jointly with any other similarly
notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party
under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with
the
32
<PAGE>
defense thereof other than reasonable costs of investigation;
provided, however, that the Representatives shall have the right
to employ counsel to represent jointly the Representatives and
those other Underwriters and their respective officers, employees
and controlling persons who may be subject to liability arising
out of any claim in respect of which indemnity may be sought by
the Underwriters against the Company, the Operating Partnerships
or the Selling Stockholders under this Section 10 if, in the
reasonable judgment of the Representatives, it is advisable for
the Representatives and those Underwriters, officers, employees
and controlling persons to be jointly represented by separate
counsel, and in that event the fees and expenses of one such
separate counsel shall be paid by the Company, the Operating
Partnerships and the Selling Stockholders. No indemnifying party
shall (i) without the prior written consent of the indemnified
parties (which consent shall not be unreasonably withheld),
settle or compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties
are actual or potential parties to such claim or action) unless
such settlement, compromise or consent includes an unconditional
release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding, or (ii) be liable for
any settlement of any such action effected without its written
consent (which consent shall not be unreasonably withheld), but
if settled with the consent of the indemnifying party or if there
be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by
reason of such settlement or judgment.
(e) If the indemnification provided for in this Section 10 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 10(a), 10(b) or 10(c) in respect
of any loss, claim, damage or liability, or any action in respect
thereof, referred to therein, then each indemnifying party shall,
in lieu of indemnifying such indemnified party, contribute to the
amount paid or payable by such indemnified party as a result of
such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to
reflect the relative benefits received by the Company, the
Operating Partnerships and the Selling Stockholder on the one
hand and the Underwriters on the other from the offering of the
Offered Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion
as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of
the Company, the Operating Partnerships, and the Selling
Stockholder on the one hand and the Underwriters on the other
with respect to the statements or omissions which resulted in
such loss, claim, damage or liability, or action in respect
33
<PAGE>
thereof, as well as any other relevant equitable considerations.
The relative benefits received by the Company, the Operating
Partnerships, and the Selling Stockholders on the one hand and
the Underwriters on the other with respect to such offering shall
be deemed to be in the same proportion as the total net proceeds
from the offering of the Offered Securities purchased under this
Agreement (before deducting expenses) received by the Company,
the Operating Partnerships, and the Selling Stockholders, on the
one hand, and the total underwriting discounts and commissions
received by the Underwriters with respect to the shares of the
Offered Securities purchased under this Agreement, on the other
hand, bear to the total gross proceeds from the offering of the
shares of the Offered Securities under this Agreement, in each
case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference
to whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact
relates to information supplied by the Company, the Operating
Partnerships, the Selling Stockholders or the Underwriters, the
intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement
or omission. For purposes of the preceding two sentences, the
net proceeds deemed to be received by the Company shall be deemed
to be also for the benefit of the Operating Partnerships and
information supplied by the Company shall also be deemed to have
been supplied by the Operating Partnerships. The Company, the
Operating Partnerships, the Selling Stockholders and the
Underwriters further agree that it would not be just and
equitable if contributions pursuant to this Section were to be
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in
this Section shall be deemed to include, for purposes of this
Section 10(e), any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the
provisions of this Section 10(e), no Underwriter shall be
required to contribute any amount in excess of the amount by
which the total price at which the Offered Securities
underwritten by it and distributed to the public was offered to
the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable to pay by reason
of any untrue or alleged untrue statement or omission or alleged
omission. Notwithstanding the provisions of this Section 10(e),
no Selling Stockholder shall be required to contribute any amount
in excess of the amount by which the net proceeds (after
deducting the Underwriters' discount) received by such Selling
Stockholder from the sale of the Offered Securities pursuant to
this Agreement exceeds the sum of (a) all
34
<PAGE>
damages which such Selling Stockholder has otherwise paid or
become liable to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission and (b) any
indemnification paid by such Selling Stockholder pursuant to
Section 10(b). No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations
to contribute as provided in this Section 10(e) are several in
proportion to their respective underwriting obligations and not
joint. The Selling Stockholders' obligations to contribute as
provided in this Section 10(e) are several in proportion to their
respective net proceeds from the sale of the Offered Securities
pursuant to this Agreement and not joint.
(f) The Underwriters severally confirm and the Company acknowledges
that the statements with respect to the public offering of the
Offered Securities by the Underwriters set forth on the cover
page of, the legend concerning over-allotments on the inside
front cover page of and the concession and reallowance figures
appearing under the caption "Underwriting" in, the Prospectus are
correct and constitute the only information concerning such
Underwriters furnished in writing to the Company by or on behalf
of the Underwriters specifically for inclusion in the
Registration Statement and the Prospectus.
11. Defaulting Underwriters. If, on either Delivery Date, any Underwriter
defaults in the performance of its obligations under this Agreement, the
remaining non-defaulting Underwriters shall be obligated to purchase the Offered
Securities which the defaulting Underwriter agreed but failed to purchase on
such Delivery Date in the respective proportions which the number of shares of
the Firm Stock set opposite the name of each remaining non-defaulting
Underwriter in Schedule 1 hereto bears to the total number of shares of the Firm
Stock set opposite the names of all the remaining non-defaulting Underwriters in
Schedule 1 hereto; provided, however, that the remaining non-defaulting
Underwriters shall not be obligated to purchase any of the Offered Securities on
such Delivery Date if the total number of shares of the Offered Securities which
the defaulting Underwriter or Underwriters agreed but failed to purchase on such
date exceeds 9.09% of the total number of shares of the Offered Securities to be
purchased on such Delivery Date, and any remaining non-defaulting Underwriter
shall not be obligated to purchase more than 110% of the number of shares of the
Offered Securities which it agreed to purchase on such Delivery Date pursuant to
the terms of Section 3. If the foregoing maximums are exceeded, the remaining
non-defaulting Underwriters, or those other underwriters satisfactory to the
Representatives who so agree, shall have the right, but shall not be obligated,
to purchase, in such proportion as may be agreed upon among them, all the
Offered Securities to be purchased on such Delivery Date. If the remaining
Underwriters or other underwriters satisfactory to the Representatives do not
elect to purchase the shares which the defaulting Underwriter or Underwriters
agreed but failed to purchase on such Delivery Date, this Agreement (or, with
respect to the Second Delivery Date, the obligation of the Underwriters to
purchase, and of the Company to sell, the Option Stock) shall terminate without
liability on the
35
<PAGE>
part of any non-defaulting Underwriter or the Company or the Selling
Stockholders, except that the Company will continue to be liable for the payment
of expenses to the extent set forth in Sections 8 and 13. As used in this
Agreement, the term "Underwriter" includes, for all purposes of this Agreement
unless the context requires otherwise, any party not listed in Schedule 1 hereto
who, pursuant to this Section 11, purchases Firm Stock which a defaulting
Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company and the Selling Stockholders for damages
caused by its default. If other underwriters are obligated or agree to purchase
the Offered Securities of a defaulting or withdrawing Underwriter, either the
Representatives or the Company may postpone the Delivery Date for up to seven
full business days in order to effect any changes that in the opinion of counsel
for the Company or counsel for the Underwriters may be necessary in the
Registration Statement, the Prospectus or in any other document or arrangement.
12. Termination. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the Company
and the Selling Stockholders prior to delivery of and payment for the Firm Stock
if, prior to that time, any of the events described in Sections 9(l) or 9(m),
shall have occurred or if the Underwriters shall decline to purchase the Offered
Securities for any reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If (a) the Company or the
Selling Stockholders shall fail to tender the Offered Securities for delivery to
the Underwriters by reason of any failure, refusal or inability on the part of
the Company or the Selling Stockholders to perform any agreement on its part to
be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled by the Company or the Selling Stockholders is
not fulfilled, the Company and the Selling Stockholders will reimburse the
Underwriters for all reasonable out-of-pocket expenses (including fees and
disbursements of counsel) incurred by the Underwriters in connection with this
Agreement and the proposed purchase of the Offered Securities, and upon demand
the Company and the Selling Stockholders shall pay the full amount thereof to
the Representatives. If this Agreement is terminated pursuant to Section 11 by
reason of the default of one or more Underwriters, neither the Company nor the
Selling Stockholders shall be obligated to reimburse any defaulting Underwriter
on account of those expenses.
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex
or facsimile transmission to Lehman Brothers Inc., Three World
Financial Center, New York, New York 10285, Attention:
Syndicate Department (Fax: 212-526-6588), with a copy, in the
case of any notice pursuant to Section 10(d), to the Director of
Litigation, Office of the General Counsel, Lehman Brothers Inc.,
Three World Financial Center, 10th Floor, New York, New York
10285;
36
<PAGE>
(b) if to the Company or to the Operating Partnerships, shall be
delivered or sent by mail, telex or facsimile transmission to the
address of the Company set forth in the Registration Statement,
Attention: Paul W. Whetsell (Fax: 202-965-4445);
(c) if to the Selling Stockholders, shall be delivered or sent by
mail, telex or facsimile transmission to Acadia Partners, L.P.,
201 Main Street, Suite 3100, Fort Worth, Texas 76102, with a
copy to ______________ ,________________________ ,
_____________________ , ______________ (Fax: ______________ );
provided, however, that any notice to an Underwriter pursuant to Section 10(d)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company and
the Selling Stockholders shall be entitled to act and rely upon any request,
consent, notice or agreement given or made on behalf of the Underwriters by
Lehman Brothers Inc. on behalf of the Representatives and the Company and the
Underwriters shall be entitled to act and rely upon any request, consent, notice
or agreement given or made on behalf of such Selling Stockholders by the
Custodian.
15. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of and be binding upon the Underwriters, the Company, the Selling
Stockholders and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
(A) the representations, warranties, indemnities and agreements of the Company
and the Selling Stockholders contained in this Agreement shall also be deemed to
be for the benefit of the person or persons, if any, who control any Underwriter
within the meaning of Section 15 of the Securities Act and (B) the indemnity
agreement of the Underwriters contained in Section 10(c) of this Agreement shall
be deemed to be for the benefit of directors of the Company, officers of the
Company who have signed the Registration Statement and any person controlling
the Company within the meaning of Section 15 of the Securities Act. Nothing in
this Agreement is intended or shall be construed to give any person, other than
the persons referred to in this Section 15, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision contained
herein.
16. Survival. The respective indemnities, representations, warranties and
agreements of the Company, the Operating Partnerships, the Selling Stockholders
and the Underwriters contained in this Agreement or made by or on behalf on
them, respectively, pursuant to this Agreement, shall survive the delivery of
and payment for the Offered Securities and shall remain in full force and
effect, regardless of any investigation made by or on behalf of any of them or
any person controlling any of them.
17. Definition of the Terms "Business Day," "Significant Subsidiary" and
"Subsidiary." For purposes of this Agreement, (a) "business day" means any day
on
37
<PAGE>
which New York Stock Exchange, Inc. is open for trading, (b) "significant
subsidiary" has the meaning set forth in Regulation S-X of the Commission and
(c) "subsidiary" has the meaning set forth in Rule 405 of the Rules and
Regulations.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York without regard to the
principles of conflicts of laws thereof.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
38
<PAGE>
If the foregoing correctly sets forth the agreement Operating Partnerships
among the Company, the Operating Partnerships, the Selling Stockholders and the
Underwriters, please indicate your acceptance in the space provided for that
purpose below.
Very truly yours,
CapStar Hotel Company
By:
----------------------------
Paul W. Whetsell, President
and Chief Executive Officer
CapStar Management Company, L.P.
By:
----------------------------
CapStar Hotel Company,
its general partner
By:
----------------------------
Paul W. Whetsell, President
CapStar Management Company II, L.P.
By:
----------------------------
CapStar Limited Corp.,
its general partner
By:
----------------------------
Paul W. Whetsell, President
The Selling Stockholders
By:
----------------------------
, Attorney-in-Fact
By:
----------------------------
Accepted:
For themselves and as Representatives
of the several Underwriters named
in Schedule 1 hereto
By ______________
By:
-----------------------------
Authorized Representative
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 1
Number of
Underwriters Shares
------------ ---------
<S> <C>
Lehman Brothers Inc. 1,041,700
BT Alex. Brown Incorporated 1,041,660
Goldman, Sachs & Co. 1,041,660
Merrill Lynch, Pierce, Fenner & Smith Incorporated 1,041,660
NationsBanc Montgomery Securities, Inc. 1,041,660
Smith Barney Inc. 1,041,660
---------
Total 6,250,000
---------
---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
Name of Selling Stockholder Number of Shares
- --------------------------- ----------------
<S> <C>
The Equitable Life Assurance Society of the United States 467,339
Overseas Assets Holdings, Inc. 172,654
Umpawaug Corporation 113,931
Xerox Credit Corporation 98,575
Mitsui Nevitt Capital Corporation 92,201
Wells Fargo & Co. 59,144
The Bank of New York Company, Inc. 56,595
David G. Offensend 40,000
Paribas North American, Inc. 39,430
Neuville Company, Inc. 35,177
John Hancock Mutual Life Insurance Company 25,387
Forth Worth Zoological Association 18,134
R. David Andrews 8,752
Oak Hill Investment Partners, L.P. 3,685
Nicholas Orum 1,404
OHP EquiStar, L.P. 800
OHP EquiStar II, L.P. 570
---------
Total 1,233,778
---------
---------
</TABLE>
<PAGE>
Exhibit 10.11
CAPSTAR HOTEL COMPANY
UNDERWRITING AGREEMENT
STANDARD PROVISIONS
(Debt Securities)
September 22, 1997
From time to time, CapStar Hotel Company, a Delaware corporation (the
"Company"), may enter into one or more underwriting agreements that provide for
the sale of designated securities to the several underwriters named therein.
The standard provisions set forth herein may be incorporated by reference in any
such underwriting agreement (an "Underwriting Agreement"). The Underwriting
Agreement, including the provisions incorporated therein by reference, is herein
sometimes referred to as this Agreement. Unless otherwise defined herein, terms
defined in the Underwriting Agreement are used herein as therein defined.
At or prior to August 23, 1996, the Company completed a series of
transactions described under the heading "The Formation Transactions" in that
certain prospectus dated August 20, 1996, relating to the initial public
offering of 9,250,000 shares of Common Stock of the Company (the "IPO
Prospectus"). As part of these transactions, the Company and CapStar LP
Corporation ("CapStar Sub") became the sole partners of CapStar Management
Company, L.P., as governed by an amended and restated Agreement of Limited
Partnership, as amended ("CapStar Management"), and CapStar Management was
restructured to own, directly or indirectly, all of the properties and other
assets previously owned, directly or indirectly, by EquiStar Hotel Investors,
L.P. and CapStar Management Company, L.P. (as constituted as of August 20, 1996,
"Predecessor CapStar Management"), and their respective subsidiaries, including
owned hotel properties or interests therein and management agreements with
hotels. As used herein the term "Formation Transactions" shall mean the
occurrence of all the events described in the IPO Prospectus under the heading
"The Formation Transactions," the execution of acquisition agreements for the
Additional Hotels (as defined in the IPO Prospectus) and the other transactions
related thereto, and the term "Predecessor Entities" shall mean the subsidiaries
of EquiStar Hotel Investors, L.P. together with CapStar Management and its
subsidiaries for all periods prior to the consummation of the Formation
Transactions. Subsequent to consummation of the Formation Transactions, CapStar
Management was restructured such that all of the Company's assets are currently
held indirectly by and operated through CapStar Management and CapStar
Management II, L.P. (CapStar Management II" and, together with CapStar
Management, the "Operating Partnerships"), the Company's subsidiary operating
partnerships.
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
OPERATING PARTNERSHIPS. The Company and the Operating Partnerships, jointly and
severally, represent, warrant and agree that:
(a) A registration statement on Form S-3 (333-34253), and amendments
thereto, with respect to the Offered Securities has (i) been prepared
by the
<PAGE>
Company in conformity with the requirements of the United States
Securities Act of 1933 (the "Securities Act") and the rules and
regulations (the "Rules and Regulations") of the United States
Securities and Exchange Commission (the "Commission") thereunder, (ii)
been filed with the Commission under the Securities Act and (iii)
become effective under the Securities Act. Copies of such
registration statement and the amendments thereto have been delivered
by the Company to you as the representatives (the "Representatives")
of the Underwriters. As used in this Agreement, "Effective Time"
means the date and the time as of which such registration statement,
or the most recent post-effective amendment thereto, if any, was
declared effective by the Commission; "Effective Date" means the date
of the Effective Time; "Preliminary Prospectus" means each prospectus
included in such registration statement, or amendments thereof, before
it became effective under the Securities Act and any prospectus filed
with the Commission by the Company with the consent of the
Representatives pursuant to Rule 424(a) of the Rules and Regulations;
"Registration Statement" means such registration statement, as amended
at the Effective Time, including any documents incorporated by
reference therein at such time and all information contained in the
final prospectus filed with the Commission pursuant to Rule 424(b) of
the Rules and Regulations in accordance with Section 6 hereof and
deemed to be a part of the registration statement as of the Effective
Time pursuant to paragraph (b) of Rule 430A of the Rules and
Regulations; "Base Prospectus" means the prospectus included in the
Registration Statement; "Prospectus Supplement" means the prospectus
supplement filed with, transmitted for filing to, or promptly
hereafter filed with or transmitted for filing to, the Commission,
specifically relating to the Offered Securities; and "Prospectus"
means such final prospectus, consisting of the Base Prospectus and
together with the Prospectus Supplement, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the
Rules and Regulations. Reference made herein to any Preliminary
Prospectus or to the Prospectus shall be deemed to refer to and
include any documents incorporated by reference therein pursuant to
Item 12 of Form S-3 under the Securities Act, as of the date of such
Preliminary Prospectus or the Prospectus, as the case may be, and any
reference to any amendment or supplement to any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include any document
filed under the United States Securities Exchange Act of 1934 (the
"Exchange Act") after the date of such Preliminary Prospectus or the
Prospectus, as the case may be, and incorporated by reference in such
Preliminary Prospectus or the Prospectus, as the case may be; and any
reference to any amendment to the Registration Statement shall be
deemed to include any annual report of the Company filed with the
Commission pursuant to Section 13(a) or 15(d) of the Exchange Act
after the Effective Time that is incorporated by reference in the
Registration Statement. Any
2
<PAGE>
registration statement (including any amendment or supplement thereto
or information which is deemed part thereof) filed by the Company to
register additional shares of Common Stock of the Company under Rule
462(b) of the Securities Act ("Rule 462(b) Registration Statement")
shall be deemed a part of the Registration Statement. Any prospectus
(including any amendment or supplement thereto or information which is
deemed to part thereof) included in a Rule 462(b) Registration
Statement and any term sheet as contemplated by Rule 434 of the Rules
and Regulations (a "Term Sheet") shall be deemed to be part of the
Prospectus. The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus.
(b) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all material respects to
the requirements of the Securities Act and the Rules and Regulations
and do not and will not, as of the applicable effective date (as to
the Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that
no representation or warranty is made as to (i) information contained
in or omitted from the Registration Statement or the Prospectus in
reliance upon and in conformity with written information furnished to
the Company through the Representatives by or on behalf of any
Underwriter specifically for inclusion therein or (ii) to that part of
the Registration Statement that constitutes the Statement of
Eligibility (Form T-1) under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), of the Trustee.
(c) The documents incorporated by reference in the Prospectus, when they
became effective or were filed with the Commission, as the case may
be, conformed in all material respects to the requirements the
Securities Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and any further documents so filed
and incorporated by reference in the Prospectus, when such documents
become effective or are filed with Commission, as the case may be,
will conform in all material respects to the requirements of the
Securities Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder and will not contain an
untrue statement of a material fact or omit to state
3
<PAGE>
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
(d) The Company and each of its subsidiaries (as defined in Section 15)
have been duly organized and are validly existing as corporations,
general or limited partnerships or limited liability companies, as the
case may be, in good standing under the laws of their respective
jurisdictions of organization, are duly qualified to do business and
are in good standing as foreign corporations, limited partnerships or
limited liability companies, as the case may be, in each jurisdiction
in which their respective ownership or lease of property or the
conduct of their respective businesses requires such qualification,
and have all power and authority necessary to own or hold their
respective properties and to conduct the businesses in which they are
engaged.
(e) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description thereof
contained in the Prospectus; and any shares of Common Stock and any
Debt Securities (other than the Offered Securities to be offered and
sold by the Company hereunder) that are outstanding or will be issued
on or prior to the First Delivery Date were or will be offered and
sold in compliance with all applicable laws (including, without
limitation, federal and state securities laws); and all of the issued
shares of capital stock, partnership interests or limited liability
company membership interests, as the case may be, of each subsidiary
of the Company have been duly and validly authorized and issued and
(except for partnership interests of general partners and except to
the extent the limited liability company agreements governing the
respective limited liability companies provide otherwise) are fully
paid and non-assessable and are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims
except for liens in favor of the lenders under the Company's senior
secured credit facility (the "1997 Credit Facility") with Lehman
Brothers Holdings, Inc., BankBoston, N.A., Bankers Trust Company and
Wells Fargo Bank, N.A., as agents (the "Banks") to secure
indebtedness.
(f) All of the shares of the Company's Common Stock, par value $.01 per
share (the "Common Stock"), issuable upon conversion of the Offered
Securities have been duly and validly authorized and reserved for
issuance upon such conversion and, when issued and delivered in
accordance with the terms of the Indenture, will be duly and validly
issued fully paid and non-assessable; and the Offered Securities and
the Common Stock issued upon conversion of the Offered Securities will
conform to the description thereof contained in the Prospectus.
4
<PAGE>
(g) The partnership interests of the Operating Partnerships ("Units") have
been duly authorized for issuance by the respective Operating
Partnerships, are validly issued and fully paid, and, except as
otherwise described in the Prospectus (or the materials incorporated
by reference therein), are the only Units outstanding.
(h) This Agreement has been duly authorized, executed and delivered by the
Company and the Operating Partnerships.
(i) The Indenture pursuant to which the Offered Securities are to be
issued has been duly qualified under the Trust Indenture Act and has
been duly authorized, executed and delivered by the Company and is a
valid and binding agreement of the Company, enforceable in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally or the effect of general principles of equity, including the
possible unavailability of specific performance or injunctive relief,
whether considered in a proceeding in equity or at law.
(j) The Offered Securities have been duly authorized and, when executed
and authenticated in accordance with the provisions of the Indenture
and delivered to and paid for by the Underwriters in accordance with
the terms of this Agreement, will be entitled to the benefits of the
Indenture and will be valid and binding obligations of the Company
enforceable in accordance with their terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws relating to or affecting creditors' rights generally or
the effect of general principals of equity, including the possible
unavailability of specific performance or injunctive relief, whether
considered in a proceeding in equity or at law.
(k) The execution, delivery and performance of this Agreement, the
Indenture and the Offered Securities by the Company and the Operating
Partnerships and the consummation of the transactions contemplated
hereby, and thereby, will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such actions
result in any violation of the provisions of the charter, by-laws,
partnership agreement or operating agreement of the Company, any of
its subsidiaries or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties or
assets; and except for the registration of the Offered Securities
under the Securities
5
<PAGE>
Act and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and applicable state securities
laws in connection with the purchase and distribution of the Offered
Securities by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body or any other person is required for the
execution, delivery and performance of this Agreement, the Indenture
or the Offered Securities by the Company or the Operating
Partnerships, the consummation of the transactions contemplated hereby
and thereby.
(l) Except as set forth in the Prospectus, there are no preemptive or
other rights to subscribe for or to purchase, nor any restriction upon
the voting or transfer of, any unissued shares of the Offered
Securities to be issued and sold by the Company to the Underwriters
hereunder pursuant to the Company's charter or by-laws or any
agreement or other instrument.
(m) Except as set forth in the Prospectus, there will be no preemptive or
other rights to subscribe for or to purchase, nor any restriction upon
the voting of, any of the partnership interests in the Operating
Partnerships pursuant to the Operating Partnerships' respective
Agreements of Limited Partnership, as restated and amended (as
applicable), or any agreement or other instrument to which the Company
is a party.
(n) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right (other than rights which have been
waived or satisfied) to require the Company to file a registration
statement under the Securities Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Securities Act.
(o) Except as described in the Prospectus, the Company has not sold or
issued any shares of Common Stock during the six-month period
preceding the date of the Prospectus, including any sales pursuant to
Rule 144A under, or Regulations D or S of, the Securities Act, other
than shares issued pursuant to employee benefit plans, qualified stock
options plans or other employee compensation plans or pursuant to
outstanding options, rights or warrants.
(p) None of the Company or any of its subsidiaries has sustained, since
the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from
fire, explosion,
6
<PAGE>
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and,
since such date, other than as set forth or contemplated in the
Prospectus, (i) there has been no material adverse change in the
financial condition, results of operation or business of the Company,
the Operating Partnerships or any subsidiary of the Company, whether
or not arising in the ordinary course of business, (ii) no material
casualty loss or material condemnation or other material adverse event
with respect to any Property has occurred, (iii) there have been no
transactions or acquisition agreements entered into by the Company,
the Operating Partnerships or any subsidiary of the Company other than
those in the ordinary course of business, which are material with
respect to such entity, (iv) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock or by the Operating Partnerships with
respect to its partnership interests and (v) there has been no change
in the capital stock of the Company or the partnership interests of
the Operating Partnerships, or any increase in the indebtedness of the
Company, the Operating Partnerships or any subsidiary.
(q) The financial statements (including the related notes and supporting
schedules) filed as part of the Registration Statement or included or
incorporated by reference in the Prospectus present fairly the
financial condition and results of operations of the entities
purported to be shown thereby, at the dates and for the periods
indicated, and have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis
throughout the periods involved, except as otherwise stated herein.
(r) KPMG Peat Marwick LLP, who have certified certain financial statements
of the Company and the Predecessor Entities, whose reports appear in
the Prospectus or is incorporated by reference therein and who have
delivered the initial letter referred to in Section 7(g) hereof, are
independent public accountants as required by the Securities Act and
the Rules and Regulations; and Wertheim & Company, King Griffin &
Adamson P.C., Coopers & Lybrand L.L.P., Mann Frankfort Stein & Lipp,
P.C., Pinksen, Goldberg & Company and Pannell Kerr Forster PC, each of
whose report appears in the Prospectus or is incorporated by reference
therein, were independent accountants as required by the Securities
Act and the Rules and Regulations during the periods covered by the
financial statements on which they reported contained or incorporated
in the Prospectus.
(s) With respect to Owned Hotels (as defined in the Prospectus), other
than the Owned Hotels in which the Company has acquired less than all
of the ownership interest (the "Joint Venture Properties"), the
Company and its
7
<PAGE>
subsidiaries have or will have on the First Delivery Date good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect
the value of such property and do not materially interfere with the
use made and proposed to be made of such property by the Company and
its subsidiaries; with respect to the Joint Venture Properties, the
Company and its subsidiaries that currently own interests in the Joint
Venture Properties have or will have on the First Delivery Date good
and marketable title to such ownership interests and the respective
entities owning the Joint Venture Properties have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in
the Prospectus or such as do not materially affect the value of such
property and do not materially interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and all real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries. There shall be
issued and outstanding with respect to each of the Owned Hotels an
ALTA form of owner's title insurance policy (or local equivalent with
respect to those Owned Hotels located in jurisdictions where an ALTA
form of owner's title insurance policy is not available) insuring the
fee simple estate of the applicable subsidiary of the Company in the
Owned Hotel owned by such subsidiary in an amount at least equal to
the acquisition price of such Owned Hotel and each such title
insurance policy will continue to be in full force and effect
immediately following the consummation of the Offering.
(t) The Company and each of its subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for
the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in
similar businesses in similar industries.
(u) Each of the Company and its subsidiaries possesses such certificates,
authorizations or permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct the
business now operated by them, except where the failure to possess
such certificates, authorizations or permits would not have a material
adverse effect on the consolidated financial position, stockholders'
equity, results of operations,
8
<PAGE>
business or prospects of the Company and its subsidiaries (a "Material
Adverse Effect"), and none of the Company or any of its subsidiaries
has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling, or finding, would have a Material Adverse Effect.
(v) The Company and/or each of its subsidiaries own or possess adequate
rights to use all material patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark
registrations, franchises, copyrights and licenses necessary for the
conduct of their respective businesses and have no reason to believe
that the conduct of their respective businesses will conflict with,
and have not received any notice of any claim of conflict with, any
such rights of others.
(w) There are no legal or governmental proceedings pending to which the
Company or any of its subsidiaries is a party or of which any property
or assets of the Company, any of its subsidiaries or any Predecessor
Entity is the subject which could reasonably be expected to have a
Material Adverse Effect; and to the best of the Company's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(x) The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(y) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which
have not been described in the Prospectus or filed as exhibits to the
Registration Statement.
(z) No relationship, direct or indirect, exists between or among the
Company, the Operating Partnerships, any subsidiary of the Company, on
the one hand, and the directors, officers, stockholders of the
Company, or customers or suppliers of the Company, or customers or
suppliers of the Operating Partnerships, on the other hand, which is
required to be described in the Prospectus which is not so described.
(aa) There is (i) no material unfair labor practice complaint pending
against the Company, its subsidiaries or any Predecessor Entity nor,
to the best knowledge of the Company, threatened against any of them
before the National Labor Relations Board or any state or local labor
relations board, and no significant grievance or significant
arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or its
subsidiaries or, to the best knowledge of the Company,
9
<PAGE>
threatened against any of them, (ii) no material strike, labor
dispute, slowdown or stoppage pending against the Company or its
subsidiaries nor, to the best knowledge of the Company, threatened
against the Company or its subsidiaries which might be expected to
have a Material Adverse Effect.
(ab) None of the Company or any subsidiary has violated any safety or
similar law applicable to its business nor any federal, state or local
law relating to discrimination in the hiring, promotion or pay of
employees nor any applicable federal or state wages and hours laws
which in each case might result in a Material Adverse Effect.
(ac) The Company and each of its subsidiaries are in compliance in all
material respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, including
the regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which the Company or any
of its subsidiaries would have any liability; the Company and its
subsidiaries have not incurred and do not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company or any of its subsidiaries
would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects
and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(ad) The Company and each of its subsidiaries has filed all federal, state
and local income and franchise tax returns required to be filed
through the date hereof and has paid all taxes due thereon, and no tax
deficiency has been determined adversely to the Company, any of its
subsidiaries or any Predecessor Entity which has had (nor does the
Company have any knowledge of) any tax deficiency which, if determined
adversely to the Company, any of its subsidiaries or any Predecessor
Entity, might have a Material Adverse Effect; the amounts currently
set up as provisions for taxes or otherwise by the Company and its
subsidiaries on their books and records are sufficient for the payment
of all their unpaid federal, foreign, state, county and local taxes
accrued through the dates as of which they speak, and for which the
Company and its subsidiaries may be liable in their own right or as a
transferee of the assets of, or as successor to any other corporation,
association, partnership, joint venture or other entity.
10
<PAGE>
(ae) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in
the Prospectus, the Company and its subsidiaries have not (i) issued
or granted any securities, (ii) incurred any liability or obligation,
direct or contingent, other than liabilities and obligations which
were incurred in the ordinary course of business, (iii) entered into
any transaction not in the ordinary course of business or (iv)
declared or paid any dividend on its capital stock.
(af) The Company and its subsidiaries (i) make and keep accurate books and
records and (ii) maintain internal accounting controls which provide
reasonable assurance that (A) transactions are executed in accordance
with management's authorization, (B) transactions are recorded as
necessary to permit preparation of their financial statements and to
maintain accountability for their assets, (C) access to their books,
records and accounts is permitted only in accordance with management's
authorization and (D) the reported accountability for their assets is
compared with existing assets at reasonable intervals.
(ag) None of the Company or any of its subsidiaries is, or will be, (i) in
violation of its charter, by-laws, partnership agreement or operating
agreement, (ii) in default in any material respect, and no event has
or will have occurred which, with notice or lapse of time or both,
would constitute such a default, in the due performance or observance
of any term, covenant or condition contained in any material
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which it is a party or by which it is bound or to
which any of its properties or assets is subject or (iii) in violation
of any law, ordinance, governmental rule, regulation or court decree
to which it or its property or assets may be subject or has or will
have failed to obtain any material license, permit, certificate,
franchise or other governmental authorization or permit necessary to
the ownership of its property or to the conduct of its business, which
violation or failure could reasonably be expected to have a Material
Adverse Effect.
(ah) None of the Company or any of its subsidiaries, or any director,
officer, agent, employee or other person associated with or acting on
behalf of the Company or any of its subsidiaries, has used any
corporate, partnership or limited liability company funds for any
unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect unlawful
payment to any foreign or domestic government official or employee
from corporate funds; violated or is in violation of any provision of
the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate,
payoff, influence payment, kickback or other unlawful payment.
11
<PAGE>
(ai) There has been no storage, disposal, generation, manufacture,
refinement, installation, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes, petroleum or petroleum
products (including crude oil or any fraction thereof), hazardous
substances or any other substances which pose a hazard to human
health, safety, natural resources, industrial hygiene or the
environment or which cause or threaten to cause a nuisance by the
Company or any of its subsidiaries (or, to the knowledge of the
Company, by any of their predecessors in interest or by any other
entity) at, upon or from any of the property now or previously owned
or leased by the Company or its subsidiaries except to the extent
commonly used in the normal operations of such property, in violation
of any applicable law, ordinance, rule, regulation, order, judgment,
decree or permit or which would require investigation, monitoring,
removal action, corrective action, remedial action or other response
action ("response action") under any applicable law, ordinance, rule,
regulation, order, judgment, decree or permit, except for any
violation or response action which would not have, or could not be
reasonably likely to have, singularly or in the aggregate with all
such violations and response actions, a Material Adverse Effect; there
has been no material spill, discharge, leak, emission, injection,
escape, dumping or release or threatened release of any kind onto such
property or into the environment surrounding such property of any
toxic wastes, medical wastes, solid wastes, hazardous wastes,
petroleum or petroleum products (including crude oil or any fraction
thereof), hazardous substances or any other substances which pose a
hazard to human health, safety, natural resources, industrial hygiene
or the environment or which cause or threaten to cause a nuisance,
except for any such spill, discharge, leak, emission, injection,
escape, dumping or release or threatened release which would not have
or would not be reasonably likely to have, singularly or in the
aggregate with all such spills, discharges, leaks, emissions,
injections, escapes, dumpings, releases and threatened releases, a
Material Adverse Effect; and the terms "hazardous wastes," "solid
wastes," "toxic wastes," "hazardous substances," "petroleum,"
"petroleum products" and "medical wastes" shall have the meanings
specified in any applicable local, state, federal and foreign laws or
regulations with respect to environmental protection.
(aj) Neither the Company nor any subsidiary is, or will be as a result of
the offer and sale of the Offered Securities hereunder, an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission
thereunder.
2. PUBLIC OFFERING. The Company is advised by the Representatives that
the Underwriters propose to make a public offering of their respective portions
of the Offered Securities as soon after this Agreement has been entered into as
in the Representatives' judgment
12
<PAGE>
is advisable. The terms of the public offering of the Offered Securities are
set forth in the Prospectus.
3. PURCHASE AND DELIVERY. Payment for the Offered Securities shall be
made by certified or official bank check or checks payable to the order of the
Company in New York Clearing House funds (same day funds) at the time and place
set forth in the Underwriting Agreement, upon delivery to the Representatives
for the respective accounts of the several Underwriters of the Offered
Securities, registered in such names and in such denominations as the
Representatives shall request in writing not less than two full business days
prior to the date of delivery, with any transfer taxes payable in connection
with the transfer of the Offered Securities to the Underwriter duly paid.
4. OFFERING OF OFFERED SECURITIES BY THE UNDERWRITERS. Upon
authorization by the Representatives of the release of the Offered Securities,
the several Underwriters propose to offer the Offered Securities for sale upon
the terms and conditions set forth in the Prospectus.
5. FURTHER AGREEMENTS OF THE COMPANY. The Company agrees:
(a) To prepare the Prospectus in a form approved by the Representatives
and to file such Prospectus pursuant to Rule 424(b) under the
Securities Act not later than Commission's close of business on the
second business day following the execution and delivery of this
Agreement or, if applicable, such earlier time as may be required by
Rule 430A(a)(3) under the Securities Act; to make no further amendment
or any supplement to the Registration Statement or to the Prospectus
prior to the last Delivery Date except as permitted herein; to advise
the Representatives, promptly after it receives notice thereof, of the
time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish the Representatives
with copies thereof; to file promptly all reports and any definitive
proxy or information statements required to be filed by the Company
with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of the Prospectus and for so
long as the delivery of a prospectus is required in connection with
the offering or sale of the Offered Securities; to advise the
Representatives, promptly after it receives notice thereof, of the
issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Offered
Securities for offering or sale in any jurisdiction, of the initiation
or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the
Registration Statement or the Prospectus or for additional
information; and, in the event of the issuance of any stop order or of
any order preventing or suspending the use of any
13
<PAGE>
Preliminary Prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to each of the Representatives and to counsel for
the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed
with the Commission, including all consents and exhibits filed
therewith;
(c) To deliver promptly to the Representatives such number of the
following documents as the Representatives shall reasonably request:
(i) conformed copies of the Registration Statement as originally filed
with the Commission and each amendment thereto (in each case excluding
exhibits other than this Agreement, the Indenture, the computation of
the ratio of earnings to fixed charges and the computation of per
share earnings), (ii) each Preliminary Prospectus, the Prospectus and
any amended or supplemented Prospectus and (iii) any document
incorporated by reference in the Prospectus (excluding exhibits
thereto); and, if the delivery of a prospectus is required at any time
after the Effective Time in connection with the offering or sale of
the Offered Securities or any other securities relating thereto and if
at such time any events shall have occurred as a result of which the
Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made when such Prospectus is
delivered, not misleading, or, if for any other reason it shall be
necessary to amend or supplement the Prospectus or to file under the
Exchange Act any document incorporated by reference in the Prospectus
in order to comply with the Securities Act or the Exchange Act, to
notify the Representatives and, upon their request, to file such
document and to prepare and furnish without charge to each Underwriter
and to any dealer in securities as many copies as the Representatives
may from time to time reasonably request of an amended or supplemented
Prospectus which will correct such statement or omission or effect
such compliance.
(d) To file promptly with the Commission any amendment to the Registration
Statement or the Prospectus or any supplement to the Prospectus that
may, in the judgment of the Company or the Representatives, be
required by the Securities Act or requested by the Commission;
(e) To the extent practicable, prior to filing with the Commission any
amendment to the Registration Statement or supplement to the
Prospectus, any document incorporated by reference in the Prospectus
or any Prospectus pursuant to Rule 424 of the Rules and Regulations,
and to the extent not practicable, immediately thereafter, to furnish
a copy thereof to
14
<PAGE>
the Representatives and counsel for the Underwriters and to consult
with the Representatives prior to the filing;
(f) As soon as practicable after the Effective Date, but in any event not
later than 410 or, if the fourth quarter following the fiscal quarter
that includes the Effective Date is the last fiscal quarter of the
Company's fiscal year, 455 days after the end of the Company's current
fiscal quarter, to make generally available to the Company's security
holders and to deliver to the Representatives an earning statement of
the Company and its subsidiaries (which need not be audited) complying
with Section 11(a) of the Securities Act and the Rules and Regulations
(including, at the option of the Company, Rule 158);
(g) Until the earlier of the expiration of the period of five years
following the Effective Date and the date on which the Company ceases
to be subject to the reporting requirements of the Exchange Act, to
furnish to the Representatives copies of all materials furnished by
the Company to its shareholders and all public reports and all reports
and financial statements furnished by the Company to the principal
national securities exchange upon which the Common Stock may be listed
pursuant to requirements of or agreements with such exchange or to the
Commission pursuant to the Exchange Act or any rule or regulation of
the Commission thereunder;
(h) Promptly from time to time to take such action as the Representatives
may reasonably request to qualify the Offered Securities and the
Common Stock issuable upon conversion of the Offered Securities for
offering and sale under the securities laws of such jurisdictions as
the Representatives may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Offered Securities, provided that in connection
therewith the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction;
(i) Except as described in the Prospectus, for a period of 180 days from
the date of the Prospectus, not to, directly or indirectly, offer for
sale, sell or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any shares of
Common Stock (other than the shares of Common Stock issuable upon
conversion of the Offered Securities and shares of Common Stock issued
pursuant to employee benefit plans, qualified stock option plans or
other employee compensation plans existing on the date hereof or
pursuant to currently outstanding options, warrants or rights), or
sell or grant options, rights or warrants with respect to any shares
of Common Stock (other than the grant
15
<PAGE>
of options pursuant to option plans existing on the date hereof),
without the prior written consent of Lehman Brothers Inc.; and to
cause each of CapStar GP Corp., CapStar Hotels, Inc., Latham Hotels,
Inc., Paul W. Whetsell, David E. McCaslin, John Emery, John E.
Plunket, and Woody Montgomery to furnish to the Representatives, prior
to the First Delivery Date, a letter or letters, in form and substance
satisfactory to counsel for the Underwriters, pursuant to which each
such person shall agree not to, directly or indirectly, offer for
sale, sell or otherwise dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any shares of
Common Stock for a period of 180 days from the date of the Prospectus,
without the prior written consent of Lehman Brothers Inc.;
(j) Prior to the Effective Date, to apply for the listing of the Offered
Securities on the New York Stock Exchange, Inc. and to use its best
efforts to complete that listing, subject only to official notice of
issuance and evidence of satisfactory distribution, prior to the First
Delivery Date;
(k) To use its best efforts to complete the listing of the Common Stock
issuable upon conversion of the Offered Securities on the New York
Stock Exchange, Inc. prior to the initial issuance of such Common
Stock;
(l) To apply the net proceeds from the sale of the Offered Securities
being sold by the Company as set forth in the Prospectus; and
(m) To take such steps as shall be necessary to ensure that neither the
Company nor any subsidiary shall become an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and
the rules and regulations of the Commission thereunder.
6. EXPENSES. The Company agrees to pay (a) the costs incident to the
authorization, issuance, sale and delivery of the Offered Securities and any
taxes payable in that connection; (b) the costs incident to the preparation,
printing and filing under the Securities Act of the Registration Statement and
any amendments and exhibits thereto; (c) the costs of distributing the
Registration Statement as originally filed and each amendment thereto and any
post-effective amendments thereof (including, in each case, exhibits), any
Preliminary Prospectus, the Prospectus and any amendment or supplement to the
Prospectus, all as provided in this Agreement; (d) the costs of producing and
distributing this Agreement and any other related documents in connection with
the offering, purchase, sale and delivery of the stock; (e) the fees (including
reasonable attorneys' fees) and expenses incident to securing any required
review by the National Association of Securities Dealers, Inc. of the terms of
sale of the Offered Securities; (f) any applicable listing or other fees; (g)
the fees and expenses of qualifying the Offered Securities under the securities
laws of the several jurisdictions as provided in Section 6(h) and of preparing,
printing and distributing a Blue Sky Memorandum (including related fees and
expenses of counsel to the Underwriters); (h) any fees charged by rating
agencies for the
16
<PAGE>
rating of the Offered Securities; and (i) all other costs and expenses incident
to the performance of the obligations of the Company and the Selling Stockholder
under this Agreement; provided that, except as provided in this Section 8 and in
Section 13 the Underwriters shall pay their own costs and expenses, including
the costs and expenses of their counsel, any transfer taxes on the Offered
Securities which they may sell and the expenses of advertising any offering of
the Offered Securities made by the Underwriters.
7. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations
of the Underwriters hereunder are subject to the accuracy, when made and on each
Delivery Date, of the representations and warranties of the Company and the
Selling Stockholder contained herein, to the performance by the Company and the
Selling Stockholder of their obligations hereunder, and to each of the following
additional terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 5(a); no stop order suspending the
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied
with.
(b) No Underwriter shall have discovered and disclosed to the Company on
or prior to such Delivery Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue
statement of a fact which, in the opinion of Hogan & Hartson L.L.P.,
counsel for the Underwriters, is material or omits to state a fact
which, in the opinion of such counsel, is material and is required to
be stated therein or is necessary to make the statements therein not
misleading.
(c) Subsequent to the execution and delivery of the Underwriting Agreement
and prior to the First Delivery Date, there shall not have occurred
any downgrading, nor shall any notice have been given of any intended
or potential downgrading, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
of the Securities Act.
(d) All corporate proceedings and other legal matters incident to the
authorization, form and validity of this Agreement, the Offered
Securities, the Registration Statement and the Prospectus, and all
other legal matters relating to this Agreement and the transactions
contemplated hereby shall be reasonably satisfactory in all material
respects to counsel for the Underwriters, and the Company and the
Selling Stockholder shall have furnished to such counsel all documents
and information that they may reasonably request to enable them to
pass upon such matters.
17
<PAGE>
(e) Paul, Weiss, Rifkind, Wharton and Garrison shall have furnished to the
Representatives their written opinion, as counsel to the Company,
addressed to the Underwriters and dated such Delivery Date, in form
and substance reasonably satisfactory to the Representatives, to the
effect that:
(i) The Company and each of its significant subsidiaries have
been duly formed and are validly existing as corporations, limited
partnerships or limited liability companies, as the case may be, in
good standing under the laws of their respective jurisdictions of
organization, are duly qualified to do business and are in good
standing as foreign corporations, limited partnerships or limited
liability companies, as the case may be, in each jurisdiction in which
their respective ownership or lease of property or the conduct of
their respective businesses (as set forth in certificates of officers
of the Company upon which such counsel is relying without independent
investigation) requires such qualification and have all corporate,
partnership or limited liability company, as the case may be, power
and authority necessary to own or hold their respective properties and
conduct the businesses in which they are engaged as described in the
Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the shares of Offered Securities being delivered on
such Delivery Date) have been duly and validly authorized and issued,
are fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; and any shares of Common Stock
and any Debt Securities (other than the Offered Securities to be
offered and sold by the Company to the Underwriters hereunder) that
are outstanding were offered and sold in transactions exempt from the
registration requirements of the Securities Act and in compliance with
all applicable provisions of the General Corporation Law of the State
of Delaware (the "Delaware Corporation Law") and all of the issued
shares of capital stock, partnership interests or limited liability
company membership interests, as the case may be, of each subsidiary
of the Company (other than Leperq Atlanta Renaissance Partners, L.P.
(the "Atlanta Partnership")) have been duly and validly authorized and
issued and (except for partnership interests of general partners and
except to the extent the limited liability company agreements
governing the respective limited liability companies provide
otherwise) are fully paid, non-assessable and are owned directly or
indirectly by the Company, to such counsel's knowledge free and clear
of all liens, encumbrances, or claims except for liens in favor of the
lenders under the 1997 Credit Facility to secure indebtedness; with
respect to the general and limited partnership interests of the
Atlanta Partnership held by the Company, such interests are owned
directly or indirectly by the Company, to such counsel's knowledge
free and clear of all liens,
18
<PAGE>
encumbrances, or claims except for liens in favor of _______________
to secure indebtedness;
(iii) Except as set forth in the Prospectus, there are no
preemptive or other rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of, any unissued shares of the
Offered Securities to be issued and sold by the Company to the
Underwriters hereunder pursuant to the Company's charter or by-laws or
any agreement or other instrument known to such counsel;
(iv) Except as set forth in the Prospectus, there are no
preemptive or other rights to subscribe for or to purchase, nor any
restriction upon the voting or transfer of, any of the partnership
interests in the Operating Partnerships pursuant to the Operating
Partnerships' respective Agreements of Limited Partnership, as amended
and restated (as applicable), or, to such counsel's knowledge, any
agreement or other instrument to which the Company is a party;
(v) To the best of such counsel's knowledge, based solely on a
review of such counsel's internal litigation docket, and other than as
set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property or assets of the Company or any of
its subsidiaries is the subject which could be expected to have a
Material Adverse Effect; and, to the best of such counsel's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(vi) The Registration Statement was declared effective under the
Securities Act as of the date and time specified in such opinion, the
Prospectus was filed with the Commission pursuant to the subparagraph
of Rule 424(b) of the Rules and Regulations specified in such opinion
on the date specified therein and, to the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose is
pending or threatened by the Commission;
(vii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company prior to
such Delivery Date (other than the financial statements and related
schedules and statistical data therein, as to which such counsel need
express no opinion) comply as to form in all material respects with
the requirements of the Securities Act and the Rules and Regulations;
(viii) To the best of such counsel's knowledge, there are no
contracts or other documents which are required to be described in the
19
<PAGE>
Prospectus or filed as exhibits to the Registration Statement by the
Securities Act or by the Rules and Regulations which have not been
described or filed as exhibits to the Registration Statement;
(ix) The execution and delivery of the Offered Securities has
been duly authorized by all necessary corporate action of the Company,
and the Offered Securities, when executed and authenticated in
accordance with the provisions of the Indenture and paid for in
accordance with this Agreement, will constitute valid, binding and
enforceable obligations of the Company, entitled to the benefits of
the Indenture, except as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance or transfer,
reorganization, liquidation, moratorium or other similar laws
affecting the rights and remedies of creditors generally and except as
may be subject to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law);
(x) The Indenture has been duly authorized, executed and
delivered by the Company and, assuming due authorization, execution
and delivery thereof by the Trustee, constitutes a valid and legally
binding agreement of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance or transfer,
reorganization, liquidation, moratorium or other similar laws
affecting the rights and remedies of creditors generally and except as
may be subject to general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law);
(xi) This Agreement has been duly authorized, executed and
delivered by the Company;
(xii) The issue and sale of the Offered Securities being
delivered on such Delivery Date by the Company and the compliance by
the Company and the Operating Partnerships with all of the provisions
of this Agreement, the Indenture and the Offered Securities, and the
consummation of the transactions contemplated hereby, and thereby,
will not conflict with or result in a material breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject which breach is
reasonably likely to have a Material Adverse Effect, nor will such
actions result in any violation of the provisions of the charter,
by-laws, limited partnership agreement or operating agreement of the
Company or any of its subsidiaries or any
20
<PAGE>
statute or any order, rule or regulation known to such counsel of any
court or governmental agency or body of the United States, the State
of New York or established pursuant to the Delaware Corporation Law
having jurisdiction over the Company or any of its subsidiaries or any
of their properties or assets; except for the registration of the
Offered Securities under the Securities Act and such consents,
approvals, authorizations, registrations or qualifications as may be
required under the Exchange Act and applicable state securities laws
in connection with the purchase and distribution of the Offered
Securities by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement, the Indenture and the Offered
Securities by the Company and the consummation of the transactions
contemplated hereby, and thereby;
(xiii) Except as set forth in the Prospectus, to the best of
such counsel's knowledge, there are no contracts, agreements or
understandings between the Company and any person granting such person
the right (other than rights which have been waived or satisfied) to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Securities Act;
(xiv) Neither the Company nor any of its subsidiaries is an
"investment company" as such term is defined in the Investment Company
Act of 1940, as amended;
(xv) The Operating Partnerships each will be treated as a
partnership, and not as an "association" or "publicly traded
partnership" taxable as a corporation, for federal income tax
purposes; and
(xvi) The statements under the captions "Description of
Capital Stock" and "Description of Debt Securities" in the Prospectus,
and "Certain Relationships and Related Transactions" incorporated into
the Prospectus, insofar as such statements constitute a summary of
legal matters, documents or proceedings referred to therein are
correct in all material respects.
In rendering such opinion, such counsel may (i) state that their
opinion is limited to matters governed by the Federal laws of the
United States of America, the laws of the State of New York and the
Delaware Corporation Law and that such counsel is not admitted in the
State of Delaware; and
21
<PAGE>
(ii) in giving the opinions referred to in Section 7(e)(i) (solely
with regard to organization and qualification of the Company's
significant subsidiaries), Section 7(e)(ii) (solely with regard to
capital stock, partnership interests or limited liability company
membership interests, as the case may be, of subsidiaries of the
Company being duly and validly authorized and issued and fully paid
and non-assessable), state that they are relying on an opinion or
opinions of other counsel as to such matters, provided that the
Underwriters shall have received such opinion or opinions, in form and
substance satisfactory to Underwriter's counsel, of other counsel
reasonably acceptable to Underwriters' counsel. Such counsel shall
also have furnished to the Representatives a written statement,
addressed to the Underwriters and dated such Delivery Date, in form
and substance satisfactory to the Representatives, to the effect that
(x) in connection with the preparation of the Registration Statement
and the Prospectus, such counsel have participated in conferences with
certain officers and other representatives of the Company, at which
the contents of the Registration Statement and the Prospectus and
related matters were discussed, and (y) based on such participation,
no facts have come to the attention of such counsel which lead them to
believe that the Registration Statement (except for financial
statements and schedules and other statistical data included therein
or omitted therefrom, as to which such counsel need make no
statement), as of the Effective Date, contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein
not misleading, or that the Prospectus (except for financial
statements and schedules and other statistical data included therein
or omitted therefrom, as to which such counsel need make no statement)
contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The foregoing statement may be
qualified by a statement to the effect that such counsel does not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus except for the statements made in the Prospectus under the
caption "Description of Capital Stock," insofar as such statements
relate to the Offered Securities and concern legal matters.
(f) The Representatives shall have received from Hogan & Hartson L.L.P.,
counsel for the Underwriters, such opinion or opinions, dated such
Delivery Date, with respect to the issuance and sale of the Offered
Securities, the Registration Statement, the Prospectus and other
related matters as the Representatives may reasonably require, and the
Company shall have furnished to such counsel such documents as they
reasonably request for the purpose of enabling them to pass upon such
matters.
22
<PAGE>
(g) At the time of execution of this Agreement, the Representatives shall
have received from KPMG Peat Marwick a letter, in form and substance
satisfactory to the Representatives, addressed to the Underwriters and
dated the date hereof (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date hereof (or, with respect to
matters involving changes or developments since the respective dates
as of which specified financial information is given in the
Prospectus, as of a date not more than five days prior to the date
hereof), the conclusions and findings of such firm with respect to the
financial information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters in connection with
registered public offerings.
(h) With respect to the letters of KPMG Peat Marwick referred to in clause
(g) hereof and delivered to the Representatives concurrently with the
execution of this Agreement (the "initial letters"), the Company shall
have furnished to the Representatives letters (the "bring-down
letters") of such accountants, addressed to the Underwriters and dated
such Delivery Date (i) confirming that they are independent public
accountants within the meaning of the Securities Act and are in
compliance with the applicable requirements relating to the
qualification of accountants under Rule 2-01 of Regulation S-X of the
Commission, (ii) stating, as of the date of the bring-down letters
(or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is
given in the Prospectus, as of a date not more than five days prior to
the date of the bring-down letters), the conclusions and findings of
such firms with respect to the financial information and other matters
covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(i) The Company shall have furnished to the Representatives a certificate,
dated such Delivery Date, of its Chairman of the Board, its President
or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery Date;
the Company has complied with all its agreements contained herein; and
the conditions set forth in Sections 7(a) and 7(j) have been
fulfilled; and
(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion (A) as of the Effective Date, the
Registration Statement and Prospectus did not include any untrue
statement of a material fact and did not omit to state a material fact
23
<PAGE>
required to be stated therein or necessary to make the statements
therein not misleading, and (B) since the Effective Date no event has
occurred which should have been set forth in a supplement or amendment
to the Registration Statement or the Prospectus.
(j) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or contemplated
in the Prospectus or (ii) since such date there shall not have been
any change in the capital stock or long-term debt of the Company or
any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, otherwise than as set forth or
contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is, in the judgment of the
Representatives, so material and adverse as to make it impracticable
or inadvisable to proceed with the public offering or the delivery of
the Offered Securities being delivered on such Delivery Date on the
terms and in the manner contemplated in the Prospectus.
(k) Subsequent to the execution and delivery of this Agreement there shall
not have occurred any of the following: (i) trading in securities
generally on the New York Stock Exchange or the American Stock
Exchange or in the over-the-counter market, or trading in any
securities of the Company on any exchange or in the over-the-counter
market, shall have been suspended or minimum prices shall have been
established on any such exchange or such market by the Commission, by
such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have
been declared by Federal or state authorities, (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation in hostilities involving the United States or there shall
have been a declaration of a national emergency or war by the United
States or (iv) there shall have occurred such a material adverse
change in general economic, political or financial conditions (or the
effect of international conditions on the financial markets in the
United States shall be such) as to make it, in the judgment of a
majority in interest of the several Underwriters, impracticable or
inadvisable to proceed with the public offering or delivery of the
Offered Securities being delivered on such Delivery Date on the terms
and in the manner contemplated in the Prospectus.
24
<PAGE>
(l) There shall be issued and outstanding with respect to each of the
Owned Hotels (as defined in the Prospectus) an ALTA form of owner's
title insurance policy (or local equivalent with respect to those
Owned Hotels located in jurisdictions where an ALTA form of owner's
title insurance is not available) insuring the fee simple estate of
the applicable subsidiary of the Company in the Owned Hotel owned by
such subsidiary in an amount at least equal to the acquisition price
of such Owned Hotel and each such title insurance policy will continue
to be in full force and effect immediately following the consummation
of the Offering.
(m) The New York Stock Exchange, Inc. shall have approved the Offered
Securities for listing, subject only to official notice of issuance
and evidence of satisfactory distribution.
(n) The Representatives shall have received the written opinion or
opinions or other certification in form and substance acceptable to
Underwriter's counsel, of other counsel reasonably acceptable to
Underwriter's counsel to the effect that with regard to the Owned
Hotels (as defined in the Prospectus), the Company and/or its
subsidiaries hold all state food, beverage and liquor licenses
necessary or required for such corporations, partnerships and limited
liability companies to conduct their business as currently conducted
in each state.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Operating Partnerships, jointly and severally,
shall indemnify and hold harmless each Underwriter, its officers and
employees and each person, if any, who controls any Underwriter within
the meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect
thereof (including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of Offered
Securities), to which that Underwriter, officer, employee or
controlling person may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained (A) in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any
amendment or supplement thereto or (B) in any blue sky application or
other document prepared or executed by the Company (or based upon any
written information furnished by the Company) specifically for the
purpose of qualifying any or all of the Offered Securities under the
securities laws of
25
<PAGE>
any state or other jurisdiction (any such application, document or
information being hereinafter called a "Blue Sky Application"), (ii)
the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any
material fact required to be stated therein or necessary to make the
statements therein not misleading or (iii) any act or failure to act
or any alleged act or failure to act by any Underwriter in connection
with, or relating in any manner to, the Offered Securities or the
offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising
out of or based upon matters covered by clause (i) or (ii) above
(provided that the Company and the Operating Partnerships shall not be
liable under this clause (iii) to the extent that it is determined in
a final judgment by a court of competent jurisdiction that such loss,
claim, damage, liability or action resulted directly from any such
acts or failures to act undertaken or omitted to be taken by such
Underwriter through its gross negligence or willful misconduct), and
shall reimburse each Underwriter and each such officer, employee or
controlling person promptly upon demand for any legal or other
expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating or defending or
preparing to defend against any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the
Company and the Operating Partnerships shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or
action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in any
Preliminary Prospectus, the Registration Statement or the Prospectus,
or in any such amendment or supplement, or in any Blue Sky
Application, in reliance upon and in conformity with written
information concerning such Underwriter furnished to the Company
through the Representatives by or on behalf of any Underwriter
specifically for inclusion therein, or the Statement of Eligibility
and Qualification (Form T-1) under the Trust Indenture Act of the
Trustee. The foregoing indemnity agreement is in addition to any
liability which the Company or the Operating Partnerships may
otherwise have to any Underwriter or to any officer, employee or
controlling person of that Underwriter.
(b) Each Underwriter, severally and not jointly, shall indemnify and hold
harmless the Company, its officers and employees, each of its
directors (including any person who, with his or her consent, is named
in the Registration Statement as about to become a director of the
Company), and each person, if any, who controls the Company within the
meaning of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect
thereof, to which the Company or any such director, officer or
controlling person may become subject, under
26
<PAGE>
the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained (A)
in any Preliminary Prospectus, the Registration Statement or the
Prospectus or in any amendment or supplement thereto, or (B) in any
Blue Sky Application or (ii) the omission or alleged omission to state
in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or in any amendment or supplement thereto, or in any Blue
Sky Application any material fact required to be stated therein or
necessary to make the statements therein not misleading, but in each
case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon
and in conformity with written information concerning such Underwriter
furnished to the Company through the Representatives by or on behalf
of that Underwriter specifically for inclusion therein, and shall
reimburse the Company and any such director, officer or controlling
person for any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in
connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is in
addition to any liability which any Underwriter may otherwise have to
the Company, the Selling Stockholders or any such director, officer,
employee or controlling person.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 8, notify the indemnifying party
in writing of the claim or the commencement of that action; provided,
however, that the failure to notify the indemnifying party shall not
relieve it from any liability which it may have under this Section 8
except to the extent it has been materially prejudiced by such failure
and, provided further, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have to an
indemnified party otherwise than under this Section 8. If any such
claim or action shall be brought against an indemnified party, and it
shall notify the indemnifying party thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
wishes, jointly with any other similarly notified indemnifying party,
to assume the defense thereof with counsel reasonably satisfactory to
the indemnified party. After notice from the indemnifying party to
the indemnified party of its election to assume the defense of such
claim or action, the indemnifying party shall not be liable to the
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation;
provided,
27
<PAGE>
however, that the Representatives shall have the right to employ
counsel to represent jointly the Representatives and those other
Underwriters and their respective officers, employees and controlling
persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Underwriters against
the Company or the Operating Partnerships under this Section 8 if, in
the reasonable judgment of the Representatives, it is advisable for
the Representatives and those Underwriters, officers, employees and
controlling persons to be jointly represented by separate counsel, and
in that event the fees and expenses of one such separate counsel shall
be paid by the Company and the Operating Partnerships. No
indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably
withheld), settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit
or proceeding in respect of which indemnification or contribution may
be sought hereunder (whether or not the indemnified parties are actual
or potential parties to such claim or action) unless such settlement,
compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim,
action, suit or proceeding, or (ii) be liable for any settlement of
any such action effected without its written consent (which consent
shall not be unreasonably withheld), but if settled with the consent
of the indemnifying party or if there be a final judgment of the
plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 shall for any
reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or (b) in respect of any loss,
claim, damage or liability, or any action in respect thereof, referred
to therein, then each indemnifying party shall, in lieu of
indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim,
damage or liability, or action in respect thereof, (i) in such
proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Operating Partnerships on the one hand
and the Underwriters on the other from the offering of the Offered
Securities or (ii) if the allocation provided by clause (i) above is
not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Operating
Partnerships on the one hand and the Underwriters on the other with
respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as
any other relevant equitable considerations. The relative benefits
received by the Company and the Operating Partnerships on the one hand
and the Underwriters on the other with respect to such offering shall
be deemed to be in the same proportion as the total net proceeds from
the offering of the Offered Securities purchased under this Agreement
(before deducting expenses) received by the Company and the Operating
Partnerships,
28
<PAGE>
on the one hand, and the total underwriting discounts and commissions
received by the Underwriters with respect to the shares of the Offered
Securities purchased under this Agreement, on the other hand, bear to
the total gross proceeds from the offering of the shares of the
Offered Securities under this Agreement, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company,
the Operating Partnerships or the Underwriters, the intent of the
parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. For
purposes of the preceding two sentences, the net proceeds deemed to be
received by the Company shall be deemed to be also for the benefit of
the Operating Partnerships and information supplied by the Company
shall also be deemed to have been supplied by the Operating
Partnerships. The Company, the Operating Partnerships and the
Underwriters further agree that it would not be just and equitable if
contributions pursuant to this Section were to be determined by pro
rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not
take into account the equitable considerations referred to herein.
The amount paid or payable by an indemnified party as a result of the
loss, claim, damage or liability, or action in respect thereof,
referred to above in this Section shall be deemed to include, for
purposes of this Section 8(d), any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 8(d), no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the
Offered Securities underwritten by it and distributed to the public
was offered to the public exceeds the amount of any damages which such
Underwriter has otherwise paid or become liable to pay by reason of
any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 8(d) are several in proportion to their
respective underwriting obligations and not joint.
(e) The Underwriters severally confirm and the Company acknowledges that
the statements with respect to the public offering of the Offered
29
<PAGE>
Securities by the Underwriters set forth on the cover page of, the
legend concerning over-allotments on the inside front cover page of
and the concession and reallowance figures appearing under the caption
"Underwriting" in, the Prospectus are correct and constitute the only
information concerning such Underwriters furnished in writing to the
Company by or on behalf of the Underwriters specifically for inclusion
in the Registration Statement and the Prospectus.
9. DEFAULTING UNDERWRITERS. If, on either Delivery Date, any Underwriter
defaults in the performance of its obligations under this Agreement, the
remaining non-defaulting Underwriters shall be obligated to purchase the Offered
Securities which the defaulting Underwriter agreed but failed to purchase on
such Delivery Date in the respective proportions which the principal amount of
Offered Securities set opposite the name of each remaining non-defaulting
Underwriter in the Underwriting Agreement bears to the total number of shares of
the Firm Stock set opposite the names of all the remaining non-defaulting
Underwriters in principal amount of Offered Securities; provided, however, that
the remaining non-defaulting Underwriters shall not be obligated to purchase any
of the Offered Securities on such Delivery Date if the total number of shares of
the Offered Securities which the defaulting Underwriter or Underwriters agreed
but failed to purchase on such date exceeds 9.09% of the total principal amount
of Offered Securities to be purchased on such Delivery Date, and any remaining
non-defaulting Underwriter shall not be obligated to purchase more than 110% of
the principal amount of Offered Securities which it agreed to purchase on such
Delivery Date pursuant to the terms of Section 2. If the foregoing maximums are
exceeded, the remaining non-defaulting Underwriters, or those other underwriters
satisfactory to the Representatives who so agree, shall have the right, but
shall not be obligated, to purchase, in such proportion as may be agreed upon
among them, all the Offered Securities to be purchased on such Delivery Date.
If the remaining Underwriters or other underwriters satisfactory to the
Representatives do not elect to purchase the shares which the defaulting
Underwriter or Underwriters agreed but failed to purchase on such Delivery Date,
this Agreement (or, with respect to the Second Delivery Date, the obligation of
the Underwriters to purchase, and of the Company to sell, the Option Offered
Securities) shall terminate without liability on the part of any non-defaulting
Underwriter or the Company, except that the Company will continue to be liable
for the payment of expenses to the extent set forth in Sections 6 and 11. As
used in this Agreement, the term "Underwriter" includes, for all purposes of
this Agreement unless the context requires otherwise, any party not listed in
the Underwriting Agreement who, pursuant to this Section 9, purchases Firm Stock
which a defaulting Underwriter agreed but failed to purchase.
Nothing contained herein shall relieve a defaulting Underwriter of any
liability it may have to the Company for damages caused by its default. If
other underwriters are obligated or agree to purchase the Offered Securities of
a defaulting or withdrawing Underwriter, either the Representatives or the
Company may postpone the Delivery Date for up to seven full business days in
order to effect any changes that in the opinion of counsel for the Company or
counsel for the Underwriters may be necessary in the Registration Statement, the
Prospectus or in any other document or arrangement.
30
<PAGE>
10. TERMINATION. The obligations of the Underwriters hereunder may be
terminated by the Representatives by notice given to and received by the Company
prior to delivery of and payment for the Firm Stock if, prior to that time, any
of the events described in Sections 7(j) or 7(k), shall have occurred or if the
Underwriters shall decline to purchase the Offered Securities for any reason
permitted under this Agreement.
11. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If (a) the Company shall
fail to tender the Offered Securities for delivery to the Underwriters by reason
of any failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company is
not fulfilled, the Company will reimburse the Underwriters for all reasonable
out-of-pocket expenses (including fees and disbursements of counsel) incurred by
the Underwriters in connection with this Agreement and the proposed purchase of
the Offered Securities, and upon demand the Company shall pay the full amount
thereof to the Representatives. If this Agreement is terminated pursuant to
Section 9 by reason of the default of one or more Underwriters, the Company
shall not be obligated to reimburse any defaulting Underwriter on account of
those expenses.
12. NOTICES, ETC. All statements, requests, notices and agreements
hereunder shall be in writing, and:
(a) if to the Underwriters, shall be delivered or sent by mail, telex or
facsimile transmission to Lehman Brothers Inc., Three World Financial
Center, New York, New York 10285, Attention: Syndicate Department
(Fax: 212-526-6588), with a copy, in the case of any notice pursuant
to Section 8(c), to the Director of Litigation, Office of the General
Counsel, Lehman Brothers Inc., Three World Financial Center, 10th
Floor, New York, New York 10285;
(b) if to the Company or to the Operating Partnerships, shall be delivered
or sent by mail, telex or facsimile transmission to the address of the
Company set forth in the Registration Statement, Attention: Paul W.
Whetsell (Fax: 202-965-4445);
provided, however, that any notice to an Underwriter pursuant to Section 8(c)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representatives, which address will be supplied to any other party hereto by the
Representatives upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company shall
be entitled to act and rely upon any request, consent, notice or agreement given
or made on behalf of the Underwriters by Lehman Brothers Inc. on behalf of the
Representatives.
13. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of and be binding upon the Underwriters, the Company, and their
respective
31
<PAGE>
successors. This Agreement and the terms and provisions hereof are for the sole
benefit of only those persons, except that (A) the representations, warranties,
indemnities and agreements of the Company contained in this Agreement shall also
be deemed to be for the benefit of the person or persons, if any, who control
any Underwriter within the meaning of Section 15 of the Securities Act and (B)
the indemnity agreement of the Underwriters contained in Section 8(b) of this
Agreement shall be deemed to be for the benefit of directors of the Company,
officers of the Company who have signed the Registration Statement and any
person controlling the Company within the meaning of Section 15 of the
Securities Act. Nothing in this Agreement is intended or shall be construed to
give any person, other than the persons referred to in this Section 15, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any provision contained herein.
14. SURVIVAL. The respective indemnities, representations, warranties and
agreements of the Company, the Operating Partnerships and the Underwriters
contained in this Agreement or made by or on behalf on them, respectively,
pursuant to this Agreement, shall survive the delivery of and payment for the
Offered Securities and shall remain in full force and effect, regardless of any
investigation made by or on behalf of any of them or any person controlling any
of them.
15. DEFINITION OF THE TERMS "BUSINESS DAY," "SIGNIFICANT SUBSIDIARY" AND
"SUBSIDIARY." For purposes of this Agreement, (a) "business day" means any day
on which York Stock Exchange, Inc. is open for trading, (b) "significant
subsidiary" has the meaning set forth in Regulation S-X of the Commission and
(c) "subsidiary" has the meaning set forth in Rule 405 of the Rules and
Regulations.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York without regard to the
principles of conflicts of laws thereof.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
18. HEADINGS. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
32
<PAGE>
UNDERWRITING AGREEMENT
October 9, 1997
CapStar Hotel Company
1010 Wisconsin Avenue, N.W.
Suite 650
Washington, DC 20007
Dear Sirs:
We (the "Representatives") are acting on behalf of the underwriter or
underwriters (including ourselves) named below (such underwriter or underwriters
being herein called the "Underwriters"), and we understand that CapStar Hotel
Company, a Delaware corporation (the "Company"), proposes to issue and sell
$150,000,000 aggregate initial offering price of 4.75% Convertible Subordinated
Notes due 2004 (the "Debt Securities"). The Debt Securities, together with the
Option Debt Securities (defined below), are also referred to herein as the
"Offered Securities." The Offered Securities will be issued pursuant to the
provisions of an Indenture dated as of October 15, 1997 (the "Indenture")
between the Company and First Trust of New York, National Association, as
Trustee (the "Trustee").
In addition, we understand that the Company has granted to the Underwriters
an option to purchase up to $22,500,000 principal amount of Debt Securities (the
"Option Debt Securities"). Such option has been granted solely for the purpose
of covering over-allotments in the sale of Debt Securities and is exercisable as
provided below. Option Debt Securities shall be purchased severally for the
account of the Underwriters in proportion to the principal amount of Debt
Securities set opposite the name of such Underwriters in the table below. The
respective purchase obligations of each Underwriter with respect to the Option
Debt Securities shall be adjusted by the Representatives so that no Underwriter
shall be obligated to purchase Option Debt Securities other than in principal
amounts that are integral multiples of $1,000.
Subject to the terms and conditions set forth or incorporated by reference
herein, the Company hereby agrees to sell and the Underwriters agree to
purchase, severally and not jointly, the respective principal amounts of Debt
Securities, plus accrued interest, if any, from October 16, 1997 to the date of
payment and delivery:
<PAGE>
<TABLE>
<CAPTION>
Principal
Name Amount
---- ------------
<S> <C>
Lehman Brothers Inc. 25,000,000
BT Alex Brown Incorporated 25,000,000
Goldman, Sachs & Co. 25,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated 25,000,000
NationsBanc Montgomery Securities, Inc. 25,000,000
Smith Barney Inc. 25,000,000
------------
Total $150,000,000
------------
------------
</TABLE>
The Underwriters will pay for the Debt Securities upon delivery at the
offices of Hogan & Hartson L.L.P., Washington, D.C. at 10:00 a.m., New York time
on October 16, 1997, or at such time, not later than 5:00 p.m., (New York time)
on October 17, 1997, and place, as shall be designated by the Representatives.
The time and date of such payment and delivery are hereinafter referred to as
the First Delivery Date.
At any time on or before the thirtieth day after the date of this Agreement
the option to purchase Option Debt Securities granted above may be exercised by
written notice being given to the Company by the Representatives. Such notice
shall set forth the aggregate principal amount of Option Debt Securities as to
which the option is being exercised, the names in which the Option Debt
Securities are to be registered, the denominations in which the Option Debt
Securities Stock are to be issued and the date and time, as determined by the
Representatives, when the Option Debt Securities are to be delivered; provided,
however, that this date and time shall not be earlier than the First Delivery
Date nor earlier than the second business day after the date on which the option
shall have been exercised nor later than the fifth business day after the date
on which the option shall have been exercised. The date and time the Option
Debt Securities are delivered are sometimes referred to as the "Second Delivery
Date" and the First Delivery Date and the Second Delivery Date are sometimes
each referred to as a "Delivery Date". Delivery of and payment for the Option
Debt Securities shall be made at the place specified above for the delivery of
the Debt Securities (or at such other place as shall be determined by agreement
between the Representatives and the Company) at 10:00 A.M., New York City time,
on the Second Delivery Date.
The Offered Securities shall have the terms set forth in the Prospectus
dated September 10, 1997, and the Prospectus Supplement dated October 9, 1997,
including the following:
2
<PAGE>
TERMS OF OFFERED SECURITIES
Maturity Date: October 15, 2004
Interest Rate: 4.75% per annum payable in arrears
Interest Payment Dates: April 15 and October 15 commencing April 15, 1998
(Interest accrues from October 16, 1997)
Form and Denomination: The Offered Securities will be issued in fully
registered form, without coupons, in denominations of $1,000 principal
amount and multiples thereof.
Conversion: Each Offered Securities will be convertible, at the option of
the holder, at any time after 90 days following the latest date of original
issuance thereof through maturity, unless previously redeemed or otherwise
purchased by the Company, into Common Stock at the conversion rate of
23.2558 shares per $1,000 principal amount of the Offered Securities (the
"Conversion Rate"). The Conversion Rate will be subject to adjustment upon
the occurrence of certain events affecting the Common Stock.
Subordination: The Offered Securities will be subordinated to all existing
and future Senior Indebtedness (as defined in the Indenture) and pari passu
with the Company's Indebtedness (as defined in the Indenture) that is not
Senior Indebtedness.
Redemption by Company: The Offered Securities are not redeemable by the
Company prior to October 15, 2000. Subject to the foregoing, the Offered
Securities will be redeemable on at least 30 days, notice at the option of
the Company, in whole or in part, at any time, at a Redemption Price as set
forth in the Indenture together with accrued and unpaid interest to the
date of the redemption.
Change of Control: Upon the occurrence of any Change of Control (as
defined in the Indenture) in the Company occurring prior to the maturity of
the Offered Securities, each holder shall have the right, at such holder's
option, to require the Company to purchase all or any part (provided that
the principal amount is $1,000 or an integral multiple thereof) of such
holder's Offered Securities at a Redemption Price equal to 100% of the
principal amount thereof, together with accrued and unpaid interest up to
the Change in Control Purchase Date (as defined in the Indenture), subject
to adjustment in certain circumstances.
All provisions contained in the document entitled CapStar Hotel Company
Underwriting Agreement Standard Provisions (Debt Securities) dated September 22,
1997, a copy of which is attached hereto, are herein incorporated by reference
in their entirety and shall be deemed to be a part of this Agreement to the same
as if such provisions had been set forth in full herein, except that if (i) any
terms defined in such document is otherwise defined herein, the definition set
forth herein shall control, (ii) all references in such document to a type of
security that is not an Offered Security shall not be deemed to be a part of
this Agreement, and (iii) all
3
<PAGE>
references in such document to a type of agreement that has not been entered
into in connection with the transactions contemplated hereby shall not be deemed
to be a part of this Agreement.
4
<PAGE>
Please confirm your agreement by having an authorized officer sign a copy
of this Agreement in the space set forth below.
Very truly yours,
Acting severally on behalf of themselves
and the several Underwriters named herein
By: Lehman Brothers Inc.
BT Alex, Brown Incorporated
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
NationsBanc Montgomery Securities, Inc.
Smith Barney Inc.
By: Lehman Brothers Inc.
By:
-----------------------------
Name:
Title:
Accepted, October 9, 1997
CapStar Hotel Company
By:
-----------------------------
Paul Whetsell
President and Chief Executive Officer
<PAGE>
EXHIBIT 21
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION OR DOING
NAME ORGANIZATION BUSINESS AS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. BA Parkway Associates II, L.P. Delaware Embassy Suites Philadelphia
2. Ballston Parking Associates Virginia --
3. Boykin Kansas City, L.L.C. Ohio Doubletree Hotel
4. BoyStar Ventures, L.P. Ohio Holiday Inn Minneapolis West
5. CapStar Albuquerque Company, L.L.C. Delaware Albuquerque Doubletree
6. CapStar AP Partners, L.P. Delaware Austin Doubletree
7. CapStar Austin, Inc. Delaware --
8. CapStar BK Company, L.L.C. Delaware --
9. CapStar Cathedral City Company, L.L.C. Delaware Doubletree Resort at Desert
Princess Country Club
10. CapStar Cherry Hill Company, L.L.C. Delaware Four Points Hotel Cherry Hill
11. CapStar Chicago Company, L.L.C. Delaware Chicago Radisson
12. CapStar C.S. Company, L.L.C. Delaware Holiday Inn Garden of the Gods
13. CapStar Dallas Beverage Corporation Texas --
14. CapStar Dallas Partners, L.P. Delaware Holiday Inn Select Dallas
15. CapStar Detroit Airport Company, L.L.C. Delaware Detroit Airport Hilton Suites
16. CapStar Englewood Company, L.L.C. Delaware Embassy Suites Denver Tech
17. CapStar Frazer Company, L.L.C. Delaware Great Valley Sheraton
18. CapStar General Corp. Delaware --
19. CapStar Georgetown Company, L.L.C. Delaware Georgetown Inn
20. CapStar Hallmark Company, L.L.C. Missouri Holiday Inn Riverfront
21. CapStar Hotel (Calgary Airport) Inc. British Columbia, Canada Holiday Inn Calgary Airport
22. CapStar Hotel (Burnaby) Inc. British Columbia, Canada Holiday Inn Metrotown
23. CapStar Hotel (Surrey) Inc. British Columbia, Canada Sheraton Inn Guildford
24. CapStar Hotel (Vancouver) Inc. British Columbia, Canada Ramada Inn Vancouver Centre
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION OR DOING
NAME ORGANIZATION BUSINESS AS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
25. CapStar Houston SW Partners, L.P. Delaware Houston SW Hilton
26. CapStar Indianapolis Company, L.L.C. Delaware Doubletree Guest Suites
27. CapStar Jekyll Company, L.L.C. Delaware Jekyll Island Inn
28. CapStar KC Company, L.L.C. Delaware Holiday Inn Sports Complex
29. CapStar Lafayette Company, L.L.C. Delaware Lafayette Hilton & Towers
30. CapStar LAJV Company, L.L.C. Delaware Los Angeles Marriott Hotel
31. CapStar Lexington Company, L.L.C. Delaware --
32. CapStar Lexington, Inc. Delaware --
33. CapStar Limited Corp. Delaware --
34. CapStar Louisville Company, L.L.C. Delaware Seelbach Hilton
35. CapStar LP Corporation Delaware --
36. CapStar Management Company, L.P. Delaware --
37. CapStar Management Company II, L.P. Delaware --
38. CapStar Medallion Austin Partners, L.P. Delaware Austin North Hilton & Towers
39. CapStar Medallion Dallas Partners, L.P. Delaware Renaissance Dallas North
40. CapStar Medallion Houston Partners, L.P. Delaware Sheraton Houston Brookhollow
41. CapStar Mesa Company, L.L.C. Delaware Sheraton Mesa Hotel
42. CapStar Midland Partners, L.P. Delaware Midland Hilton & Towers
43. CapStar Mockingbird Partners, L.P. Delaware Dallas Radisson
44. CapStar Morristown Company, L.L.C. Delaware Westin Governor Morris Hotel &
Conference Center
45. CapStar National Airport Company, L.L.C. Delaware National Airport Hilton
46. CapStar New Mexico Beverage Corporation New Mexico --
47. CapStar Oklahoma City Company, L.L.C. Delaware Westin Oklahoma City
48. CapStar PA, Inc. Delaware --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION OR DOING
NAME ORGANIZATION BUSINESS AS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
49. CapStar Sacramento Company, L.L.C. Delaware Sacramento Hilton
50. CapStar St. Louis Company, L.L.C. Delaware --
51. CapStar San Francisco Company, L.L.C. Delaware Sheraton Fisherman's Wharf
52. CapStar San Pedro Company, L.L.C. Delaware San Pedro Hilton at Cabrillo
Marina
53. CapStar Santa Barbara Company, L.L.C. Delaware Santa Barbara Inn
54. CapStar TF Company, L.L.C. Delaware Holiday Inn Tinton Falls
55. CapStar Tucson Company, L.L.C. Delaware Embassy Suites Tucson
56. CapStar Washington Company, L.L.C. Delaware Embassy Row Hilton
57. CapStar Westchase Acquisition Corp. Delaware --
58. CapStar Westchase Partners, L.P. Delaware Westchase Hilton & Towers
59. CapStar Windsor Locks Company, L.L.C Delaware Doubletree Windsor Locks
60. CapStar Wyandotte Company, L.L.C. Missouri --
61. CapStar York Company, L.L.C. Delaware York Budget Inn
62. Centennial Hotel Ltd. British Columbia, Canada --
63. CMC Airport, Inc. New York --
64. EquiStar Acquisition Corporation Delaware --
65. EquiStar Arlington Partners, L.P. Delaware --
66. EquiStar Atlanta Company, L.L.C. Delaware --
67. EquiStar Atlanta GP Company, L.L.C. Delaware --
68. EquiStar Atlanta LP Company, L.L.C. Delaware --
69. EquiStar Ballston Company, L.L.C. Delaware --
70. EquiStar Bellevue Company, L.L.C. Delaware Bellevue Hilton Hotel
71. EquiStar Charlotte Company, L.L.C. Delaware Charlotte Sheraton Airport Plaza
Hotel
72. EquiStar Cleveland Company, L.L.C. Delaware Holiday Inn Cleveland Airport
South
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JURISDICTION OF
INCORPORATION OR DOING
NAME ORGANIZATION BUSINESS AS
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
73. EquiStar Colorado Company, L.L.C. Delaware Sheraton Hotel Colorado Springs
74. EquiStar Irvine Company, L.L.C. Delaware Orange County Airport Hilton
Hotel
75. EquiStar Latham Company, L.L.C. Delaware Latham Hotel Georgetown
76. EquiStar Salt Lake Company, L.L.C. Delaware Salt Lake Airport Hilton
77. EquiStar Schaumburg Company, L.L.C. Delaware Radisson Hotel Schaumburg
78. EquiStar Somerset Company, L.L.C. Delaware Marriott Somerset Hotel
79. EquiStar Texas Beverage Corporation Texas --
80. EquiStar Virginia Company, L.L.C. Delaware Arlington Hilton Hotel
81. Leperq Atlanta Renaissance Partners, L.P. Delaware Westin Hotel Atlanta Airport
82. MCV Venture, L.L.C. Kentucky Lexington Radisson
83. Metrotown Overseas Holdings, Inc. British Columbia, Canada --
84. 339742 B.C. Ltd. British Columbia, Canada --
85. 339743 B.C. Ltd. British Columbia, Canada --
</TABLE>
<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, 1997 AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEAR THEN ENDED AND IS QUALIFED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 83,429
<SECURITIES> 0
<RECEIVABLES> 26,586
<ALLOWANCES> 577
<INVENTORY> 4,654
<CURRENT-ASSETS> 132,829
<PP&E> 950,052
<DEPRECIATION> 27,275
<TOTAL-ASSETS> 1,124,642
<CURRENT-LIABILITIES> 58,593
<BONDS> 492,771
0
0
<COMMON> 249
<OTHER-SE> 519,163
<TOTAL-LIABILITY-AND-EQUITY> 1,124,642
<SALES> 0
<TOTAL-REVENUES> 316,393
<CGS> 0
<TOTAL-COSTS> 128,448
<OTHER-EXPENSES> 126,433
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,024
<INCOME-PRETAX> 39,063
<INCOME-TAX> 14,911
<INCOME-CONTINUING> 24,152
<DISCONTINUED> 0
<EXTRAORDINARY> (4,092)
<CHANGES> 0
<NET-INCOME> 20,060
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.06
</TABLE>
