<PAGE>
As filed with the Securities and Exchange Commission on January 9, 2001
REGISTRATION NO. 333- -
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
AMERICAN SKIING COMPANY
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7990 04-3373730
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
------------------------------
SUNDAY RIVER ACCESS ROAD
BETHEL, MAINE 04217
(207) 824-8100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
CHRISTOPHER E. HOWARD, ESQ.
EXECUTIVE VICE PRESIDENT AND CHIEF ADMINISTRATIVE OFFICER
AMERICAN SKIING COMPANY
SUNDAY RIVER ACCESS ROAD
BETHEL, MAINE 04217
(207) 824-8100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
MARK A. ROPPEL, ESQ. CHRISTOPHER L. BENNETT, ESQ. RICHARD S. BORISOFF, ESQ.
SHEARMAN & STERLING VICE PRESIDENT, LEGAL AND PAUL, WEISS, RIFKIND,
599 LEXINGTON AVENUE SECRETARY WHARTON & GARRISON
NEW YORK, NEW YORK 10022 MERISTAR HOTELS & RESORTS, INC. 1285 AVENUE OF THE AMERICAS
(212) 848-4000 1010 WISCONSIN AVENUE, N.W. NEW YORK, NEW YORK 10019
WASHINGTON, D.C. 20007 (212) 373-3000
(202) 965-4455
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the merger under the merger agreement described in this
Registration Statement, have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT TO MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE OFFERING OFFERING REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED(2) PRICE PER SHARE PRICE(3) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share.............. 81,116,681 Not applicable $114,374,520 $28,594
</TABLE>
(1) This Registration Statement relates to the common stock, par value $0.01 per
share, of the Registrant to be issued to holders of common stock, par value
$0.01 per share, of MeriStar Hotels & Resorts, Inc. in connection with the
proposed merger of MeriStar and ASC Merger Sub, Inc.
(2) Based on the maximum number of shares of American Skiing common stock to be
delivered pursuant to the merger agreement, which includes
(i) approximately 67,873,711 shares of American Skiing common stock issuable
to the holders of the issued and outstanding common stock of MeriStar;
(ii) approximately 7,032,751 shares of American Skiing common stock that may
be issued to the holders of outstanding options to purchase common stock of
MeriStar that may be exercised prior to completion of the merger; and
(iii) approximately 6,210,219 shares of American Skiing common stock that
may be issued to holders of limited partnership units in MeriStar's
principal operating subsidiary who may convert those limited partnership
units into MeriStar common stock prior to the completion of the merger.
(3) Estimated solely for purpose of determining the registration fee in
accordance with Rule 457(f) of the Securities Act of 1933, as amended.
Pursuant to Rule 457(f)(i), the proposed maximum offering price per share of
the American Skiing common stock of the Registrant is based upon the average
of the high and low prices per share of the American Skiing common stock on
January 3, 2001 on the NYSE Composite Transaction Tape.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS JOINT PROXY STATEMENT AND PROSPECTUS IS NOT COMPLETE AND
MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL
THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS JOINT PROXY STATEMENT AND PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
AMERICAN SKIING COMPANY
SUNDAY RIVER ACCESS ROAD
BETHEL, MAINE 04217
[LOGO]
(207) 824-8100
JANUARY , 2001
Dear American Skiing Stockholder:
You are cordially invited to attend a special meeting of the stockholders of
American Skiing Company to be held at the Jordan Grand Hotel, Newry, Maine
04261, on - , 2001 at 9:00 a.m., local time, and any adjournment or
postponement of the meeting. At the special meeting you will be asked to
consider, approve and adopt resolutions relating to the acquisition of MeriStar
Hotels & Resorts, Inc. The board of directors of American Skiing Company has
approved the merger of its wholly owned subsidiary into MeriStar Hotels &
Resorts, Inc. and a recapitalization to simplify its capital structure which
will occur immediately prior to the merger. As a result of the merger, MeriStar
will become a wholly-owned subsidiary of American Skiing. Upon completion of the
merger, American Skiing will change its name to "Doral International, Inc."
In the merger, MeriStar stockholders will receive 1.88 shares of American
Skiing common stock for each share of MeriStar common stock and associated
stockholder rights that they own at the effective time of the merger. Following
the merger, assuming the merger occurs on March 31, 2001, American Skiing's
stockholders will hold approximately 63% of American Skiing's outstanding common
stock and MeriStar's current stockholders will hold approximately 37% of the
stock. Immediately prior to the merger, American Skiing will simplify its
capital structure by:
- Converting its Class A common stock, all of which is held by
Mr. Leslie B. Otten, American Skiing's Chairman and Chief Executive
Officer, into common stock;
- Converting its Series A preferred stock into a new series of 14% preferred
stock
plus common stock;
- Converting its Series B preferred stock into common stock; and
- Repaying a loan of its real estate development subsidiary in the form of
common stock.
Assuming that the merger is completed on March 31, 2001, the people and entities
receiving shares in the recapitalization will together hold approximately 55% of
American Skiing's common stock following the merger.
At the special meeting, we will submit for approval by the stockholders of
American Skiing resolutions relating to the merger and recapitalization
described above. As more fully described in the attached joint proxy statement
and prospectus, these matters include the issuance of new shares in the merger,
the adoption of new employee benefit plans, amendment of the charter and by-laws
to establish staggered terms for the board of directors and the election of a
new slate of directors. Approximately 77% of the outstanding shares of American
Skiing common stock, on an as-converted basis, have agreed to vote in favor of
the proposals described in this joint proxy statement and prospectus. As these
shareholders collectively have sufficient voting power to approve those
proposals
<PAGE>
without the vote of the other stockholders, management believes that, absent an
extraordinary event, approval of those proposals by American Skiing stockholders
is assured. Notwithstanding the certainty of the vote, your vote at the special
meeting, in person or by proxy, is important to American Skiing and I urge you
to complete, date, sign and promptly return the enclosed proxy card in the
enclosed prepaid envelope to ensure that your shares will be represented at the
special meeting.
This joint proxy statement and prospectus contains detailed information
about the proposals relating to the merger and the recapitalization, and we urge
you to read it carefully. IN PARTICULAR, YOU SHOULD READ THE "RISK FACTORS"
SECTION BEGINNING ON PAGE 21 FOR A DESCRIPTION OF VARIOUS RISKS YOU SHOULD
CONSIDER IN EVALUATING THE PROPOSED TRANSACTIONS. In addition, you may obtain
additional information about American Skiing and MeriStar from documents that
each has filed with the Securities and Exchange Commission.
THE BOARD OF DIRECTORS OF AMERICAN SKIING, OTHER THAN MEMBERS WHO
VOLUNTARILY RECUSED THEMSELVES FROM VOTING, HAS UNANIMOUSLY DETERMINED, BASED IN
PART ON THE RECOMMENDATION OF A SPECIAL COMMITTEE OF ITS BOARD OF DIRECTORS,
THAT THE TRANSACTIONS RELATING TO THE MERGER AND RECAPITALIZATION, INCLUDING THE
PROPOSALS DESCRIBED IN THIS JOINT PROXY STATEMENT AND PROSPECTUS, ARE ADVISABLE
AND FAIR TO, AND IN THE BEST INTERESTS OF, AMERICAN SKIING AND ITS STOCKHOLDERS
AND RECOMMENDS THAT THE AMERICAN SKIING STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF EACH OF THE PROPOSALS DESCRIBED IN THIS JOINT PROXY STATEMENT AND
PROSPECTUS.
Thank you for your cooperation.
Very truly yours,
Leslie B. Otten
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE PROPOSALS DESCRIBED ABOVE OR
DETERMINED THAT THIS JOINT PROXY STATEMENT AND PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement and prospectus is dated - , 2001, and is first
being mailed to stockholders on or about - , 2001.
<PAGE>
[LOGO OF MERISTAR]
MERISTAR HOTELS & RESORTS, INC.
------------------
1010 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20007
(202) 965-4455
------------------------
January - , 2001
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders of
MeriStar Hotels & Resorts, Inc. to be held at - , on - , 2001 at - ,
local time, and any adjournment or postponement of the meeting. At the special
meeting you will be asked to consider, approve and adopt a merger agreement
providing for a merger of a wholly-owned subsidiary of American Skiing Company,
a Delaware corporation, with and into MeriStar and the other transactions
contemplated by that merger agreement. Upon the completion of the merger,
MeriStar will become a wholly-owned subsidiary of American Skiing, and American
Skiing will change its name to "Doral International, Inc." The shares of Doral
common stock issuable in connection with the merger will be listed on the NYSE
under the symbol "SKI". If the merger is completed, you will receive 1.88 shares
of Doral common stock for each share of MeriStar common stock and the associated
right to purchase shares of MeriStar's Series A junior participating preferred
stock that you own. (See page 65).
Approval of the merger proposal requires the affirmative vote of:
- A majority of the outstanding shares of MeriStar common stock; and
- A majority of the votes cast at the special meeting other than those cast
by Oak Hill Capital Partners, L.P. and parties related to it.
Only stockholders of record at the close of business on - , 2001 are
entitled to notice of the special meeting and may vote at the special meeting.
UNDER DELAWARE LAW, YOU DO NOT HAVE DISSENTERS' RIGHTS OF APPRAISAL WITH
RESPECT TO THE MERGER.
THE BOARD OF DIRECTORS OF MERISTAR, OTHER THAN THE MEMBERS WHO HAVE RECUSED
THEMSELVES VOLUNTARILY FROM THE VOTING UPON AND CONSIDERATION OF THE PROPOSALS,
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
BY IT AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF MERISTAR COMMON STOCK VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED BY IT.
PLEASE REVIEW CAREFULLY THE ENTIRE JOINT PROXY STATEMENT AND PROSPECTUS. YOU
SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 21
BEFORE VOTING. IN ADDITION, YOU MAY OBTAIN ADDITIONAL INFORMATION ABOUT MERISTAR
AND AMERICAN SKIING FROM DOCUMENTS THAT EACH HAS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
If you have any questions prior to the special meeting or need further
assistance, please call our proxy solicitor, - , at - .
Thank you for your cooperation.
Very truly yours,
Paul W. Whetsell
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
OF THE BOARD
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY IT OR DETERMINED THAT THIS JOINT PROXY STATEMENT AND PROSPECTUS
IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This joint proxy statement and prospectus is dated - , 2001, and is first
being mailed to stockholders on or about - , 2001.
<PAGE>
AMERICAN SKIING COMPANY
SUNDAY RIVER ACCESS ROAD
BETHEL, MAINE 04217
(207) 824-8100
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD - , 2001
---------------------
To the Stockholders of American Skiing Company:
NOTICE IS GIVEN that a special meeting of the stockholders of American
Skiing Company will be held at the Jordan Grand Hotel, Newry, Maine 04261, on
- , 2001, at 9:00 a.m., local time. The board of directors of American Skiing
asks you to attend this meeting, in person or by proxy, for the following
purposes:
1. To consider and approve the issuance of shares of American Skiing common
stock in connection with the merger. (See page 65).
2. To consider and adopt new employee benefit plans. (See page 66).
3. To consider, approve and adopt a proposal to amend and restate the
certificate of incorporation and bylaws of American Skiing as provided in
the merger agreement which provides for, among other things, a board with
three classes of directors with staggered three-year terms, an increase
in the authorized number of shares of capital stock to 300 million, of
which 299 million will be common stock and 1 million will be preferred
stock, and the renaming of American Skiing as "Doral International, Inc."
(See page 65).
4. To elect a new board of directors. (See page 97).
5. To transact any other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
Approval of all the proposals listed above is a condition to closing of the
merger. Therefore, if you vote against any one of the proposals, this could have
the effect of a vote against the other proposals and the merger. The proposal
relating to amendment of the certificate of incorporation under clause 3 above
requires the affirmative vote of holders of a majority of the outstanding shares
of American Skiing common stock on an as-converted basis. Approval of all other
proposals requires a majority of votes cast at the special meeting.
Approximately 77% of the outstanding shares of American Skiing common stock,
on an as-converted basis, have agreed to vote in favor of the proposals
described in this joint proxy statement and prospectus. As these stockholders
collectively have sufficient voting power to approve those proposals without the
vote of the other stockholders, your management believes that, absent an
extraordinary event, approval of those proposals by American Skiing stockholders
is assured.
In addition, the recapitalization and amendments to the American Skiing
certificate of incorporation which relate to the recapitalization and are
contemplated by the merger agreement require the affirmative votes of holders of
a majority of American Skiing's Series A preferred stock, voting as a single
class, and the affirmative votes of holders of a majority of American Skiing's
Series B preferred stock, voting as a single class. All of the holders of the
Series A and Series B preferred stock have agreed to vote in favor of those
proposals.
THE BOARD OF DIRECTORS OF AMERICAN SKIING, OTHER THAN MEMBERS WHO
VOLUNTARILY RECUSED THEMSELVES FROM VOTING, HAS UNANIMOUSLY DETERMINED, BASED IN
PART ON THE RECOMMENDATION OF THE SPECIAL COMMITTEE OF ITS BOARD OF DIRECTORS,
THAT THE TRANSACTIONS RELATING TO THE MERGER AND RECAPITALIZATION, INCLUDING THE
PROPOSALS DESCRIBED IN THIS JOINT PROXY STATEMENT AND PROSPECTUS, ARE ADVISABLE
AND FAIR TO, AND IN THE BEST INTERESTS OF, AMERICAN SKIING AND ITS STOCKHOLDERS
AND RECOMMENDS THAT THE AMERICAN SKIING STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF EACH OF THE PROPOSALS DESCRIBED ABOVE.
<PAGE>
Only stockholders of record at the close of business on - , 2001, are
entitled to notice of the special meeting and to vote at the meeting. A list of
stockholders entitled to vote as of the close of business on - , 2001 will be
available at the special meeting for examination by any stockholder or the
stockholder's attorney or agent. Please note that, by delivering a proxy to vote
at the special meeting, you are also granting a proxy voting in favor of any
adjournments or postponements of the special meeting.
We cordially invite you to attend the special meeting in person because it
is important that your shares be represented at the meeting. However, to ensure
your representation at the special meeting, please sign, date and return the
enclosed proxy card in the accompanying postage-paid envelope as promptly as
possible. If you attend the meeting, you may vote in person, which will revoke a
signed proxy if you have already sent one in. You may also revoke your proxy at
any time before the meeting by filing a written revocation with the Secretary of
American Skiing at the address set forth above or by filing a duly executed
proxy bearing a later date.
By the Order of the Board of Directors
of
American Skiing Company,
Christopher E. Howard
SECRETARY
YOUR VOTE IS VERY IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
1010 WISCONSIN AVENUE, NW
WASHINGTON, DC 20007
(202) 965-4455
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD - , 2001
---------------------
NOTICE IS GIVEN that a special meeting of the stockholders of MeriStar
Hotels & Resorts, Inc. will be held at - , on - , 2001, at - , local
time. The board of directors asks you to attend this meeting, in person or by
proxy, for the following purposes:
1. To consider, approve and adopt a merger agreement providing for the
merger of a wholly-owned subsidiary of American Skiing Company with and
into MeriStar and the other transactions contemplated by that merger
agreement. Upon completion of the merger, MeriStar will become a
wholly-owned subsidiary of American Skiing, and American Skiing will
change its name to "Doral International, Inc." (See page 65).
2. To transact any other business as may properly come before the special
meeting or any adjournment or postponement of the special meeting.
Approval of the merger proposal requires the affirmative vote of a majority
of the outstanding shares of MeriStar common stock and of a majority of the
votes cast at the special meeting other than those cast by Oak Hill Capital
Partners, L.P. and parties related to it.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS, OTHER THAN THE MEMBERS
WHO HAVE RECUSED THEMSELVES VOLUNTARILY FROM THE VOTING UPON AND CONSIDERATION
OF THE PROPOSALS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED BY IT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF
MERISTAR COMMON STOCK VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED BY IT.
Only stockholders of record at the close of business on - , 2001, are
entitled to notice of the special meeting and to vote at the meeting. A list of
stockholders entitled to vote as of the close of business on - , 2001 will be
available at the special meeting for examination by any stockholder or the
stockholder's attorney or agent. Please note that, by delivering a proxy to vote
at the special meeting, you are also granting a proxy voting in favor of any
adjournments or postponements of the special meeting.
We cordially invite you to attend the special meeting in person because it
is important that your shares be represented at the meeting. However, to ensure
your representation at the special meeting, please sign, date and return the
enclosed proxy card in the accompanying postage-paid envelope as promptly as
possible. If you attend the meeting, you may vote in person, which will revoke a
signed proxy if you have already sent one in. You may also revoke your proxy at
any time before the meeting by filing a written revocation with the Secretary of
MeriStar at the address set forth above or by filing a duly executed proxy
bearing a later date.
By the Order of the Board of Directors
of
MeriStar Hotels & Resorts, Inc.,
Christopher L. Bennett
SECRETARY
YOUR VOTE IS VERY IMPORTANT.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING,
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY..................................................... 4
The Companies............................................. 4
The Combined Company...................................... 4
The Merger and Merger Agreement........................... 6
Summary of the Merger..................................... 6
Results of the Merger and Related Transactions............ 6
Recapitalization.......................................... 6
Treatment of Stock Options and Employee Benefit Plans..... 7
Voting Agreements......................................... 8
Factors Considered by American Skiing in Relation to the
Merger.................................................. 8
Recommendations to American Skiing Stockholders........... 9
Opinion of Financial Advisor to the American Skiing
Special Committee....................................... 9
Factors Considered by MeriStar in Relation to the
Merger.................................................. 10
Recommendation to MeriStar Stockholders................... 10
Opinion of MeriStar's Financial Advisor................... 11
Interests of Some Persons in the Merger May be Different
from Yours.............................................. 11
Dissenters' Rights of Appraisal........................... 12
Conditions to the Merger.................................. 12
Termination of the Merger Agreement....................... 13
Non-Solicitation of Competing Transactions................ 13
Interim Operations Covenants.............................. 14
Payment of Termination Fees and Expenses.................. 14
Income Tax Consequences of the Merger..................... 14
Stock Exchange Listing.................................... 14
Anticipated Accounting Treatment.......................... 14
Comparison of Stockholders Rights......................... 14
SUMMARY HISTORICAL FINANCIAL DATA........................... 15
Summary Historical Financial Data of American Skiing...... 15
Summary Historical Financial Data of MeriStar............. 16
Summary Unaudited Pro Forma Condensed Combined Financial
Information............................................. 17
Unaudited Comparative Per Share Information............... 19
Comparative Per Share Market Price Information............ 20
RISK FACTORS................................................ 21
Risk Factors Related to Doral............................. 21
Risk Factors Related to the Business Currently Operated by
American Skiing......................................... 26
Risk Factors Related to the Business Currently Operated by
MeriStar................................................ 28
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 33
THE AMERICAN SKIING SPECIAL MEETING......................... 34
General................................................... 34
Matters to be Considered at the Special Meeting; Required
Votes................................................... 34
Record Date; Quorum; Shares Outstanding and Entitled to
Vote.................................................... 35
Security Ownership of Management.......................... 35
Voting and Recapitalization Agreement..................... 35
Voting of Proxies......................................... 36
Revocation of Proxies..................................... 36
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Solicitation of Proxies................................... 36
Stockholder Proposals..................................... 37
Dissenters' Rights of Appraisal........................... 37
THE MERISTAR SPECIAL MEETING................................ 38
General................................................... 38
Matters to be Considered at the Special Meeting........... 38
Record Date; Quorum; Required Vote; Shares Outstanding and
Entitled to Vote........................................ 38
Security Ownership of Management.......................... 38
Voting Agreement.......................................... 39
Voting of Proxies......................................... 39
Revocation of Proxies..................................... 39
Solicitation of Proxies................................... 40
Stockholder Proposals..................................... 40
Dissenters' Rights of Appraisal........................... 40
THE MERGER.................................................. 41
Background of the Merger.................................. 41
Factors Considered by American Skiing in Relation to the
Merger; Recommendations of American Skiing's Board of
Directors and its Special Committee..................... 44
Factors Considered by MeriStar in Relation to the Merger;
Recommendation of the Board of Directors of MeriStar.... 46
Opinion of Financial Advisor to the American Skiing
Special Committee....................................... 48
Opinion of MeriStar's Financial Advisor................... 55
Federal Income Tax Consequences to the Holders of MeriStar
Common Stock............................................ 60
Accounting Treatment...................................... 60
Dividend Policy........................................... 60
Interests of Certain Persons in the Merger................ 61
Regulatory Approvals...................................... 64
Stock Exchange Listing.................................... 64
Federal Securities Laws Consequences...................... 64
THE MERGER AGREEMENT AND THE RECAPITALIZATION OF AMERICAN
SKIING.................................................... 65
General................................................... 65
Conversion of Securities.................................. 65
Recapitalization of American Skiing....................... 65
Treatment of Stock Options and Other Employee Benefit
Plans................................................... 66
Exchange of New Stock Certificates........................ 67
Representations and Warranties............................ 67
Certain Covenants......................................... 68
Conditions to the Merger.................................. 73
Termination of the Merger Agreement....................... 75
Expenses and Termination Fees............................. 76
DESCRIPTION OF RELATED AGREEMENTS........................... 77
Agreements Signed Concurrently with the Merger
Agreement............................................... 77
Registration Rights Agreement............................. 78
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES...... 79
MARKET PRICE AND DIVIDEND POLICY............................ 81
American Skiing........................................... 81
MeriStar.................................................. 82
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
DORAL UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..... 83
Doral Unaudited Pro Forma Combined Balance Sheet As of
October 29, 2000........................................ 85
Doral Unaudited Pro Forma Combined Statement of Operations
for the Three Months Ended October 29, 2000............. 91
Doral Unaudited Pro Forma Combined Statement Of Operations
for the Year Ended July 30, 2000........................ 92
Doral Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.................................... 93
MANAGEMENT OF DORAL AFTER THE MERGER........................ 97
Directors, Executive Officers and Other Key Employees..... 97
Executive Compensation.................................... 99
Director Compensation..................................... 102
Employment Agreements..................................... 102
Doral Benefit Plans....................................... 104
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS........ 111
American Skiing........................................... 111
MeriStar.................................................. 112
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF AMERICAN
SKIING.................................................... 114
Selected Financial Data................................... 114
SUPPLEMENTARY FINANCIAL INFORMATION OF AMERICAN SKIING...... 116
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AMERICAN SKIING.............. 117
Liquidity and Capital Resources........................... 117
Changes in Results from Operations........................ 123
The 13 Weeks Ended October 29, 2000 Compared to the
13 Weeks Ended October 24, 1999......................... 123
Fiscal Year Ended July 30, 2000 Compared with Fiscal Year
Ended July 25, 1999..................................... 125
Fiscal Year 1999 Compared with Fiscal Year 1998........... 127
Net Effect of the Change in Accounting Principle.......... 127
Quantitative and Qualitative Disclosures about Market
Risk.................................................... 129
BUSINESS OF AMERICAN SKIING................................. 131
Resort Operating Strategy................................. 137
Seasonality............................................... 138
Mountainside Real Estate Development...................... 138
Real Estate Development Program........................... 140
Alpine Resort Industry.................................... 140
Competition............................................... 142
Employees and Labor Relations............................. 142
Government Regulation..................................... 142
Systems and Technology.................................... 143
Legal Proceedings......................................... 143
DESCRIPTION OF ASC MERGER SUB, INC.......................... 144
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF
MERISTAR.................................................. 145
Selected Financial Data................................... 145
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MERISTAR..................... 146
General................................................... 146
Financial Condition....................................... 147
Results of Operations..................................... 148
</TABLE>
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Year Ended December 31, 1999 Compared to Year Ended
December 31, 1998....................................... 150
Year Ended December 31, 1998 Compared to Year Ended
December 31, 1997....................................... 151
Liquidity and Capital Resources........................... 152
Quantitative And Qualitative Disclosures About Market
Risk.................................................... 153
BUSINESS OF MERISTAR........................................ 154
Business Segments......................................... 154
Hotel Operations.......................................... 155
Expansion Strategy........................................ 155
Operating Strategy........................................ 156
Management Agreements..................................... 160
Corporate Housing......................................... 161
Accommodations and Services............................... 162
Sales and Marketing....................................... 163
The Operating Partnership................................. 163
Employees................................................. 164
Franchises................................................ 164
Governmental Regulation................................... 164
Competition............................................... 166
Properties................................................ 166
Legal Proceedings......................................... 167
COMPARISON OF THE RIGHTS OF HOLDERS OF AMERICAN SKIING
COMMON STOCK, MERISTAR COMMON STOCK AND DORAL COMMON
STOCK..................................................... 168
Authorized Capital Stock.................................. 168
Dividend Rights........................................... 169
Preemptive Rights......................................... 169
Liquidation Rights........................................ 169
Voting Rights of Stockholders............................. 170
Stockholder Action by Written Consent..................... 170
Special Meetings of Stockholders.......................... 170
Amendment of the Certificate of Incorporation and
Bylaws.................................................. 171
Number and Classification of the Board of Directors....... 172
Quorum for Director Meetings.............................. 174
Indemnification of Directors and Officers and Limitation
of Liability............................................ 174
Voting With Respect to Certain Business Combinations...... 175
Required Vote for Authorization of Fundamental Corporate
Transactions............................................ 175
Transfer Restrictions..................................... 176
DESCRIPTION OF THE CAPITAL STOCK OF DORAL................... 177
General................................................... 177
Common Stock.............................................. 177
Preferred Stock........................................... 177
Special Provisions of the Certificate of Incorporation.... 177
Transfer Agent and Registrar.............................. 178
Section 203 of the Delaware General Corporation Law....... 178
Indemnification Provisions................................ 178
New 14% Preferred Stock................................... 179
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF AMERICAN SKIING................. 182
Security Ownership of Directors and Officers of American
Skiing.................................................. 182
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Information as to 5% or Larger Stockholders............... 184
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF MANAGEMENT AND
PRINCIPAL STOCKHOLDERS OF MERISTAR........................ 185
Information as to Directors and Officers of MeriStar and
5% or Larger Shareholders............................... 185
Information as to 5% or Larger Stockholders............... 185
LEGAL MATTERS............................................... 187
EXPERTS..................................................... 187
WHERE YOU CAN FIND MORE INFORMATION......................... 187
APPENDIX A--THE MERGER AGREEMENT
APPENDIX B--THE AMERICAN SKIING VOTING AND RECAPITALIZATION
AGREEMENT
APPENDIX C--THE MERISTAR VOTING AGREEMENT
APPENDIX D--OPINION OF DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
APPENDIX E--OPINION OF SALOMON SMITH BARNEY INC.
APPENDIX F--FORM OF NEW DORAL INCENTIVE PLAN
APPENDIX G--FORM OF NEW DORAL NON-EMPLOYEE DIRECTORS'
INCENTIVE PLAN
APPENDIX H--FORM OF NEW DORAL STOCK PURCHASE PLAN
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT ARE THE PROPOSED TRANSACTIONS?
A: The merger is a transaction in which a wholly-owned subsidiary of American
Skiing will be merged with and into MeriStar, and MeriStar will become a
wholly-owned subsidiary of American Skiing. Immediately prior to the merger,
American Skiing will be recapitalized. American Skiing will be renamed
"Doral International, Inc." after the merger. The Chairman of Doral will be
Mr. Leslie B. Otten, the current Chairman and Chief Executive Officer of
American Skiing. The Chief Executive Officer of Doral will be Mr. Paul W.
Whetsell, the current Chairman and Chief Executive Officer of MeriStar.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: MERISTAR STOCKHOLDERS: You will be entitled to receive 1.88 shares of
American Skiing common stock for each share of MeriStar common stock and the
associated right to purchase shares of MeriStar Series A junior
participating preferred stock issued under MeriStar's stockholder rights
plan that you own.
AMERICAN SKIING COMMON STOCKHOLDERS: You will continue to hold the American
Skiing common stock you currently own.
Q: WHAT WILL OCCUR IN THE RECAPITALIZATION OF AMERICAN SKIING?
A: A recapitalization of American Skiing will occur to simplify its capital
structure immediately prior to the merger.
In the recapitalization, assuming the merger is completed on March 31, 2001:
- Mr. Leslie Otten, American Skiing's Chairman and Chief Executive Officer
and the holder of all of the issued and outstanding shares of American
Skiing Class A common stock, will convert those shares into American
Skiing common stock on a one-to-one basis;
- Holders of the American Skiing Series A preferred stock will convert those
shares into shares of a new series of American Skiing 14% preferred stock
and approximately 4.9 million shares of American Skiing common stock;
- Holders of the American Skiing Series B preferred stock will convert those
shares into approximately 74.9 million shares of American Skiing common
stock; and
- $13.0 million of loans to American Skiing's real estate development
subsidiary will be repaid in the form of approximately 6.0 million shares
of American Skiing common stock.
Q: WHAT WILL BE THE EQUITY CAPITALIZATION OF DORAL?
A: Doral's authorized capital stock will consist of 299 million shares of common
stock, par value $0.01 per share, and 1 million shares of serial preferred
stock, par value $0.01 per share, of which 60,000 shares will be shares of
the new 14% preferred stock. Assuming completion of the merger on March 31,
2001, Doral will have approximately 184 million shares of common stock
outstanding.
Q: WHAT STOCKHOLDER APPROVALS ARE NEEDED?
A: MERISTAR: The merger proposal must be approved by a majority of the
outstanding shares of MeriStar common stock and a majority of votes cast at
the special meeting other than those cast by Oak Hill Capital Partners, L.P.
and some parties related to it. Oak Hill Capital Partners, L.P. and those
parties, who, as of the record date held approximately 16% of the
outstanding shares of MeriStar common stock, have entered into an agreement
to vote their shares in favor of the merger proposal.
AMERICAN SKIING: Approval of all the proposals described in this proxy
statement and prospectus is a condition to closing of the merger. The
proposal relating to amendment of the certificate of incorporation requires
the affirmative vote of the holders of a majority of the outstanding shares
of American Skiing common stock, including the preferred stock voting with
the common stock on an as-converted basis. In addition, the approval of the
holders of a majority of the outstanding shares of Series A preferred stock,
voting as a single class, and the approval of the holders of a majority of
the outstanding shares of Series B preferred stock, voting as a single
class, is required for
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the amendment and restatement of the certificate of incorporation in
connection with the recapitalization. The holders of the Class A common
stock, the Series A preferred stock and the Series B preferred stock have
entered into a voting and recapitalization agreement under which they have
agreed to vote their shares in favor of the merger proposals, including the
proposals requiring class votes by the holders of the Series A preferred
stock and the Series B preferred stock. The stockholders of American Skiing
who are parties to the voting and recapitalization agreement held, as of the
record date, approximately 77% of the outstanding shares of American Skiing
common stock on an as-converted basis. Therefore, absent an extraordinary
event, American Skiing management believes that approval of the proposals
described in this joint proxy statement and prospectus is assured.
Q: WHAT PERCENTAGE OF DORAL'S COMMON STOCK WILL BE HELD BY FORMER MERISTAR
STOCKHOLDERS AFTER THE MERGER?
A: Assuming the merger is completed on March 31, 2001, the MeriStar stockholders
will hold approximately 37% of Doral's outstanding shares of common stock.
Q: WHAT PERCENTAGE OF DORAL'S COMMON STOCK WILL BE HELD BY AMERICAN SKIING'S
COMMON STOCKHOLDERS?
A: Assuming the merger is completed on March 31, 2001, the current American
Skiing stockholders will hold approximately 63% of Doral's outstanding
shares of common stock. Oak Hill Capital Partners, L.P., the principal
stockholder of each of American Skiing and MeriStar, together with parties
related to it, will own approximately 50% of Doral.
Q: HAS SOMEONE DETERMINED THE TRANSACTIONS ARE IN MY BEST INTERESTS?
A: MERISTAR: The MeriStar board of directors has determined that the merger and
the other transactions contemplated by the merger agreement are advisable
and in the best interests of MeriStar and its stockholders. The MeriStar
board of directors, other than the members who have recused themselves
voluntarily from the voting upon and consideration of the proposals, has
unanimously approved the merger agreement and the transactions contemplated
by it.
AMERICAN SKIING: The American Skiing board of directors, other than members
who voluntarily recused themselves from voting, has unanimously determined,
based in part on the recommendation of a special committee of the board of
directors, that the transactions relating to the merger and
recapitalization, including the proposals described in this joint proxy
statement and prospectus, are advisable and fair to, and in the best
interests of, American Skiing and its stockholders.
Q: DO I HAVE DISSENTERS' RIGHTS OF APPRAISAL WITH RESPECT TO THE TRANSACTIONS?
A: No. Under Delaware law, American Skiing and MeriStar stockholders do not have
dissenters' rights of appraisal with respect to the merger.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE TRANSACTIONS TO ME?
A: MERISTAR STOCKHOLDERS: The merger will be structured as a tax free
reorganization under section 368(a) of the Internal Revenue Code. As a
result, except for cash paid instead of fractional shares, U.S. holders of
MeriStar common stock will not realize any taxable gain for U.S. federal
income tax purposes as a result of the merger. Each MeriStar stockholder's
tax basis and holding period with respect to the shares of American Skiing
common stock it will receive in the merger will be the same as that for the
shares of MeriStar common stock that will be surrendered in exchange for the
American Skiing common stock.
AMERICAN SKIING COMMON STOCKHOLDERS: There will be no tax consequences to
you as a result of the merger.
Q: WHEN DO YOU EXPECT THE TRANSACTIONS TO BE COMPLETED?
A: American Skiing and MeriStar plan to complete the transactions as soon as
possible after the special meetings, subject to the satisfaction or waiver
of the other conditions to the transactions. Although they cannot predict
when these conditions will be satisfied, American Skiing and MeriStar hope
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to complete the transactions during the first calendar quarter of 2001.
Q: WHAT DO I NEED TO DO NOW?
A: You should carefully read and consider the information contained in this
joint proxy statement and prospectus, including its appendices. It contains
important information about Doral, American Skiing and MeriStar. It also
contains important information about what the boards of directors of
American Skiing and MeriStar considered in evaluating the transactions.
You should then complete and sign your proxy card and return it in the
enclosed return envelope as soon as possible, so that your shares will be
represented at your company's special meeting. If you sign and send in your
proxy but do not indicate how you want to vote, your proxy will be counted
as a vote in favor of the merger and the other proposals.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
applicable meeting. You can do this in one of three ways:
- First, you can send a written notice stating that you revoke your proxy to
American Skiing at the address listed below if you are an American Skiing
stockholder or to MeriStar at the address listed below if you are a
MeriStar stockholder;
- Second, you can complete and submit a new proxy card, dated a later date
than the first proxy card and send it to American Skiing or MeriStar, as
the case may be. The new proxy card will automatically replace any earlier
dated proxy card that you returned; or
- Third, you can attend the appropriate special meeting and vote in person.
Your attendance at your special meeting will not, however, by itself revoke
your proxy.
You should send any notice of revocation or your completed new proxy card to
American Skiing or MeriStar, as the case may be, to the following addresses:
AMERICAN SKIING COMPANY
Sunday River Access Road
Bethel, Maine 04217
Attention: Christopher E. Howard
MERISTAR HOTELS & RESORTS, INC.
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Attention: Christopher L. Bennett
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE FOR
ME?
A: No. Your broker can vote your shares only if you instruct your broker to vote
by following the directions provided to you by your broker. Your failure to
instruct your broker on how to vote your shares will be the equivalent of
voting against the proposed merger and related transactions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: MERISTAR STOCKHOLDERS: No. After the merger is completed, the exchange agent
will send you written instructions for exchanging your stock certificates.
AMERICAN SKIING COMMON STOCKHOLDERS: No. You will keep the certificates you
own. Although the name of the company will be changed, there is no need to
exchange your existing stock certificates.
Q: WHOM SHOULD I CALL WITH QUESTIONS ABOUT THE PROPOSALS?
A: If you are an American Skiing stockholder you should contact:
Dan Kashman
Director, Strategic Planning and
Investor Relations
Telephone: (207) 854-5106
If you are a MeriStar stockholder you should contact:
Melissa Thompson
Director, Corporate Communications
Telephone: (202) 295-2228
Q: WHERE CAN I GET MORE INFORMATION?
A: You may obtain more information from various sources, as set forth under
"Where You Can find More Information" on page 187.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS JOINT PROXY STATEMENT
AND PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO
YOU. TO UNDERSTAND THE MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE
LEGAL TERMS OF THE MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE JOINT PROXY
STATEMENT AND PROSPECTUS, INCLUDING THE APPENDICES AND THE OTHER DOCUMENTS TO
WHICH WE REFER YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 187. PAGE
REFERENCES HAVE BEEN INCLUDED PARENTHETICALLY TO DIRECT YOU TO MORE COMPLETE
DESCRIPTIONS OF THE TOPICS PRESENTED IN THIS SUMMARY. PLEASE NOTE THAT THE TERM
"DORAL" REFERS TO AMERICAN SKIING COMPANY AFTER THE MERGER IS COMPLETED AND ITS
NAME HAS CHANGED TO "DORAL INTERNATIONAL, INC."
THE COMPANIES
THE COMBINED COMPANY
The proposed merger combines American Skiing's internationally recognized
assets with MeriStar's diverse hospitality management expertise to form the
nation's first major year-round destination resort and conference center brand.
Doral International, Inc. will be an international four-season resort and
hospitality management company focused on specific segments of the leisure,
lodging and corporate housing business where we can achieve a position as a
market leader. We will operate, own and develop Doral-branded, year-round
mountain, beach and golf resorts, vacation villages and conference centers. In
addition, we will manage upscale hotels for third-party owners and operate
corporate housing under our proprietary BridgeStreet accommodations brand.
MeriStar has also, effective January 1, 2000, transferred some hotel operating
assets and liabilities to MeriStar Hospitality in response to changes to the
federal tax laws effective as of January 1, 2000. After giving effect to the
merger and that transfer, we will have:
- More than $1.3 billion of pro forma total assets as of October 29, 2000;
- Approximately $738 million of pro forma revenues, approximately
$28 million of pro forma loss from continuing operations available to
common stockholders and approximately $84 million of pro forma EBITDA for
the year ended July 30, 2000; and
- Based on the stock price of American Skiing on January 4, 2000, an equity
market capitalization of approximately $272 million and a total
capitalization, including debt and preferred stock, of approximately
$871 million.
We will have four major business units:
- DORAL LEISURE will specialize in operating year-round resorts and will
include 23 upscale destination resorts, which will consist of Doral
branded resorts and independent resorts, four conference centers and 15
golf courses. Our products and services will include resort hotels,
executive conference centers, skiing and snowboarding facilities, golf
courses, spas, restaurants and retail outlets. Doral Leisure also will
operate our well-recognized golf and skiing schools, featuring a
proprietary instructional curriculum.
- HOTEL MANAGEMENT will focus on managing upscale, full-service hotels under
a wide variety of franchise flags. We will continue to manage 106 hotels
owned by MeriStar Hospitality Corporation, the nation's third largest
hotel real estate investment trust. Doral will be the nation's largest
independent operator of hotels, with a management portfolio of 265
properties in the United States, Canada and the Caribbean.
- INTERNATIONAL CORPORATE HOUSING will operate under the BridgeStreet
Accommodations brand, with more than 3,700 units in the United States and
Europe. Currently the world's third largest provider of corporate housing,
BridgeStreet Accommodations serves a broad cross-section of
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major international corporations, including many "Fortune 500" companies,
with facilities in the United States and Europe.
- REAL ESTATE DEVELOPMENT will focus on the development and sale of vacation
ownership interests at our premium resort destinations.
Our business strategy will include:
- Leveraging our position as the nation's first major year-round destination
resort and conference center brand by offering first-class service at each
Doral destination, creating a distinct Doral brand identity;
- Establishing and maintaining service and product standards that assure a
consistent quality of experience throughout all Doral-branded resorts;
- Using extensive targeted cross-marketing under our Doral brand name among
our combined upscale traveler base that will include guests at our Doral
resorts, conference participants, guests at our corporate housing
properties, and owners in our resort villages, who share similar
demographic and economic characteristics;
- Positioning the leisure business as a first class resort experience with a
family orientation;
- Taking advantage of revenue opportunities through a wider array of product
offerings, including skiing and snowboarding, spa, food and beverage,
retail, golf, tennis and other leisure amenities;
- Focusing on our best opportunities for maximizing return, while
liquidating any assets that are not central to the core strategy;
- Taking advantage of our greater size, better distribution and economics of
scale;
- Expanding our hotel management operations by securing additional
management contracts, focusing on properties with favorable economic,
demographic and supply dynamics;
- Expanding BridgeStreet's corporate housing operations by increasing our
local market share, attracting national accounts with our growing national
and international network, and emphasizing network partner relationships;
- Creating, at our largest resorts, "resort villages" that include
quartershare hotels, whole and fractional ownership condominium hotels,
townhouses, single family homes, and retail operations, as is appropriate
for the market.
We will have a dynamic, experienced and fully-integrated management team
drawn from the current management of American Skiing and MeriStar, bringing
together experienced professionals with in-house expertise in the hospitality,
skiing and resort industries. Mr. Leslie B. Otten, the current Chairman and
Chief Executive Officer of American Skiing, will be our Chairman. Mr. Paul W.
Whetsell, the current Chairman and Chief Executive Officer of MeriStar, will be
our Chief Executive Officer and a director. Mr. John Emery, the current Chief
Investment Officer of MeriStar, will be our Chief Financial Officer. Our
directors will be highly-qualified individuals with extensive collective
experience in the real estate, lodging, leisure, investment, financial services
and accounting areas.
Doral International will be headquartered in Washington, D.C. at the current
headquarters of MeriStar.
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AMERICAN SKIING COMPANY
Sunday River Access Road
Bethel, Maine 04217
(207) 824-8100
American Skiing Company, operating through various subsidiaries, is one of
the largest operators of alpine ski and snowboard resorts in the United States.
American Skiing reinforces and capitalizes on its position by developing, owning
and operating a range of hospitality-related businesses at its resorts,
including hotels, golf courses, restaurants and retail locations. In addition,
American Skiing develops, markets and operates alpine villages consisting of
ski-in/ski-out real estate, townhouses, condominiums, quarter ownership hotels
and related commercial and retail space. American Skiing manages its operations
in two business segments, ski resort operations and mountainside real estate
development.
American Skiing moved its state of incorporation from Maine to Delaware by
merging into a wholly-owned Delaware subsidiary on October 12, 1999.
MERISTAR HOTELS & RESORTS, INC.
1010 Wisconsin Avenue N.W.
Washington, D.C. 20007
(202) 965-4455
MeriStar Hotels & Resorts, Inc. leases, manages and operates a portfolio of
hospitality properties and provides related services in the hotel, corporate
housing, golf and vacation membership markets. MeriStar is the largest
independent hotel management company in the United States, based on rooms under
management.
MeriStar was incorporated in Delaware in August 1998 when it was spun-off by
CapStar Hotel Company.
THE MERGER AND MERGER AGREEMENT
SUMMARY OF THE MERGER (SEE PAGE 65)
In the proposed merger, MeriStar will become a wholly-owned subsidiary of
American Skiing, and all of the MeriStar stockholders will become holders of
American Skiing common stock. American Skiing will then change its name to
"Doral International, Inc." The merger agreement is attached as Appendix A. You
should carefully read the merger agreement in its entirety, as it is the legal
document that governs the merger.
RESULTS OF THE MERGER AND RELATED TRANSACTIONS (SEE PAGE 65)
The holders of MeriStar common stock and the associated right to purchase
shares of Series A junior participating preferred stock will receive 1.88 shares
of American Skiing common stock for each MeriStar share that they own. No
fractional shares will be issued. MeriStar common stockholders will receive cash
instead of fractional shares.
The holders of American Skiing common stock will continue to hold their
shares of American Skiing common stock.
RECAPITALIZATION (SEE PAGE 65)
Immediately prior to the merger, American Skiing will undergo a
recapitalization. A copy of the American Skiing voting and recapitalization
agreement is attached to this joint proxy statement and prospectus as Appendix
B. You should carefully read the agreement in its entirety.
Mr. Leslie B. Otten, American Skiing's Chairman and Chief Executive Officer
and the holder of all 14,760,530 shares of American Skiing's Class A common
stock, will convert each share of Class A common stock into one share of
American Skiing common stock.
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The holders of American Skiing's Series A preferred stock, which is subject
to mandatory redemption on November 15, 2002, will convert their shares of
Series A preferred stock into:
- Shares of a new series of American Skiing 14% preferred stock, which is
subject to mandatory redemption on August 15, 2006, having a liquidation
preference equal to the liquidation preference of the existing Series A
preferred stock, plus accrued and unpaid dividends on those shares as of
the effective time of the merger; and
- A number of shares of American Skiing common stock equal to 20.7% of the
liquidation preference of the new 14% preferred stock as of the date the
merger is completed divided by $2.22.
Assuming the merger is completed on March 31, 2001, the holders of the existing
Series A preferred stock would receive approximately $52.2 million, or 52,236
shares, of new 14% preferred stock and approximately 4.9 million shares of
American Skiing common stock. Cash dividends on the new 14% preferred stock will
accrue and compound quarterly. Dividends will not be mandatorily payable in cash
until August 15, 2006. Unlike the existing Series A preferred stock, the new 14%
preferred stock will have no voting rights and will not be convertible into
shares of common stock. The other terms and provisions of the new 14% preferred
stock are substantially similar to those of the existing Series A preferred
stock.
Oak Hill Capital Partners, L.P. and some parties related to it, who are the
holders of all of the shares of American Skiing Series B preferred stock issued
and outstanding, will convert all of their shares of Series B preferred stock,
together with dividends accrued on those shares, into a total of approximately
74.9 million shares of American Skiing common stock at a conversion price of
$2.22 per share.
An aggregate principal amount of $13.0 million of loans from Oak Hill
Capital Partners, L.P. to American Skiing's real estate development subsidiary,
together with interest on those loans accrued through October 31, 2000, will be
repaid in the form of American Skiing common stock based on a value of $2.22 per
share of American Skiing common stock, resulting in the issuance of
approximately 6 million shares of American Skiing common stock.
A warrant to purchase 6 million shares of American Skiing common stock at an
exercise price of $2.50 per share will be issued to Oak Hill, as is required
under the securities purchase agreement between Oak Hill and American Skiing,
dated as of July 31, 2000, and amended on September 28, 2000, November 10, 2000
and December 21, 2000.
TREATMENT OF STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS (SEE PAGE 66)
The merger agreement provides that each outstanding option to purchase
MeriStar common stock will be converted into an option to purchase 1.88 shares
of Doral common stock. These new options will be governed by a new Doral
Incentive Plan. Except for options held by some members of MeriStar's senior
management, these options will be vested because the merger causes the options
granted under the MeriStar Incentive Plan to vest. Each option held under the
existing American Skiing 1997 Stock Option Plan will remain outstanding and will
not be affected by the merger, but no additional awards will be made under that
plan. The merger agreement also requires American Skiing to adopt an employee
stock purchase plan with terms substantially the same as MeriStar's employee
stock purchase plan.
Accordingly, American Skiing stockholders will be voting to adopt the new
Doral Incentive Plan, a new Doral Non-Employee Directors' Incentive Plan under
which stock option awards may be granted to non-employee directors of Doral as
well as a new Doral Stock Purchase Plan. As these plans will be Doral's
incentive plans following the merger, stockholders of both American Skiing and
MeriStar are encouraged to read the summaries of these plans in this joint proxy
statement and prospectus as well as
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the forms of the proposed plans attached to this joint proxy statement and
prospectus as Appendices F, G and H, respectively.
VOTING AGREEMENTS (SEE PAGES 77-78 )
The principal stockholders of American Skiing, who collectively held, as of
the record date, approximately 77% of American Skiing's outstanding voting
power, have agreed to vote their shares of common stock, Class A common stock
and Series A and Series B preferred stock in favor of each of the American
Skiing proposals described in this joint proxy statement and prospectus and in
favor of the recapitalization and the amendments to the certificate of
incorporation and bylaws, which require a majority class vote by holders of the
Series A and Series B preferred stock. Therefore, absent an extraordinary event,
management believes that approval of the proposals described in this joint proxy
statement and prospectus is assured. A copy of the American Skiing voting and
recapitalization agreement, which contains provisions regarding the voting of
those shares, is attached as Appendix B to this joint proxy statement and
prospectus. You should carefully read the American Skiing voting and
recapitalization agreement in its entirety.
Oak Hill Capital Partners, L.P. and some parties related to it, who
collectively held, as of the record date, approximately 16% of MeriStar's
outstanding common stock, have agreed to vote these shares in favor of the
approval of the merger and the other transactions contemplated by the merger
agreement. However, in addition to approval by the holders of the majority of
MeriStar's outstanding common stock, the merger and the other transactions
contemplated by the merger agreement must also be approved by a majority of
votes cast at the MeriStar special meeting other than those cast by the parties
to the voting agreement. A copy of the MeriStar voting agreement is attached as
Appendix C to this joint proxy statement and prospectus. You should carefully
read the MeriStar voting agreement in its entirety.
FACTORS CONSIDERED BY AMERICAN SKIING IN RELATION TO THE MERGER (SEE PAGE 44)
In reaching its decision to approve the merger, recapitalization and related
transactions and to recommend the proposals described in this joint proxy
statement and prospectus to American Skiing stockholders, the American Skiing
board of directors and the special committee of directors advising it considered
the following material factors, among others:
- The board of directors' knowledge of American Skiing and the businesses in
which it competes and its belief that the greater resources which are
expected to become available to American Skiing as a result of the merger
are important to the long-term future of American Skiing.
- The potential strategic and other benefits of the merger, including the
complementary nature of various American Skiing and MeriStar businesses
and the opportunity for cost savings.
- The current difficulty of obtaining additional equity financing for
American Skiing and the positive effect of the combined company's
increased size on its ability to raise financing and the cost of
financing.
- The advantages resulting from generating cash flow that is both
counter-seasonal and substantially more stable than American Skiing's
existing cash flow.
- American Skiing's continuing need for liquidity.
- The anticipated improvement in American Skiing's ability to capitalize
upon its growth and development opportunities.
- Historical and prospective financial information with respect to American
Skiing.
- The fact that the principal stockholders of American Skiing, who have
sufficient votes to approve the proposals described in this joint proxy
statement and prospectus and necessary to
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consummate the merger and the recapitalization, have signed voting
agreements binding them to approve the proposals.
- The fact that the merger provides for a fixed exchange ratio.
- The effect of the recapitalization of American Skiing, most significantly
the increase in common equity and the extension of the near term mandatory
redemption of the Series A preferred stock.
- The accounting of the merger as a purchase.
- The possibilities for use of the Doral name for marketing and brand
building purposes.
- The entirety of the terms of the merger agreement, the American Skiing
voting and recapitalization agreement and the MeriStar voting agreement
described above.
- With respect to the special committee, the analyses made by, and
discussions with, Donaldson, Lufkin & Jenrette and its oral opinion,
subsequently confirmed in writing, with respect to the fairness, from a
financial point of view, of the exchange ratio and the allocation between
the holders of American Skiing common stock (other than holders of
American Skiing Class A common stock), on the one hand, and the holders of
American Skiing's Series A preferred stock and Series B preferred stock
and Oak Hill as the holders of Tranche C loans, on the other hand, of the
equity securities in the combined company, based on and subject to the
assumptions, limitations and qualifications set forth in its written
opinion dated as of December 8, 2000.
- The interests that certain executive officers and directors of American
Skiing may have with respect to the merger in addition to their interests
as stockholders of American Skiing generally.
RECOMMENDATIONS TO AMERICAN SKIING STOCKHOLDERS (SEE PAGE 44)
The American Skiing board of directors, other than members who voluntarily
recused themselves from voting, has unanimously determined, based in part on the
recommendation of a special committee of its board of directors, that the
transactions relating to the merger and recapitalization, including the
proposals described in this joint proxy statement and prospectus, are advisable
and fair to, and in the best interests of, American Skiing and its stockholders
and recommends that the American Skiing stockholders vote FOR approval and
adoption of each of those proposals.
OPINION OF FINANCIAL ADVISOR TO THE AMERICAN SKIING SPECIAL COMMITTEE (SEE PAGE
48)
Donaldson, Lufkin & Jenrette Securities Corporation, as financial advisor to
the special committee of the American Skiing board of directors, has delivered a
written opinion to the special committee that, as of December 8, 2000:
- The exchange ratio of 1.88 shares of American Skiing common stock per
share of MeriStar common stock was fair to the holders of American Skiing
common stock, from a financial point of view; and
- The allocation between the holders of American Skiing common stock (other
than any holders of American Skiing Class A common stock), on the one
hand, and the holders of American Skiing's Series A preferred stock and
Series B preferred stock and Oak Hill as holders of Tranche C loans, on
the other hand, of the equity securities in the combined company following
consummation of the transactions contemplated by the merger agreement, to
be held by all stockholders of American Skiing who are stockholders
immediately prior to the consummation of such transactions, was fair to
the holders of American Skiing common stock (other than any holders of
Class A common stock), from a financial point of view.
The full text of the opinion of Donaldson, Lufkin & Jenrette is attached as
Appendix D to this joint proxy statement and prospectus. The opinion describes
important assumptions made, matters
9
<PAGE>
considered and limitations of the review undertaken by Donaldson, Lufkin &
Jenrette in providing its opinion and is not a recommendation as to how the
American Skiing stockholders should vote on the merger proposals.
WE URGE YOU TO READ THE OPINION OF DONALDSON, LUFKIN & JENRETTE CAREFULLY.
FACTORS CONSIDERED BY MERISTAR IN RELATION TO THE MERGER (SEE PAGE 46)
The MeriStar board of directors considered a number of factors in approving
the merger and the other transactions contemplated by the merger agreement and
recommending them to MeriStar stockholders, including those listed below:
- The merger will give the combined company the opportunity to use the
"Doral" brand name as a premier leisure brand in multiple locations for
resorts, skiing, golf and conference centers;
- American Skiing's resort and real estate assets provide MeriStar with
attractive real estate development opportunities that would otherwise be
difficult to achieve through organic growth of its existing business
platforms. These opportunities provide significant ongoing growth
potential for the foreseeable future without additional acquisitions;
- The merger creates the opportunity for greater revenue growth than
MeriStar would be likely to experience on a stand-alone basis;
- The merger creates the opportunity for MeriStar's management to use its
skills and experience in hospitality management, purchasing, marketing and
finance to manage American Skiing's assets;
- The larger size of the combined company could result in easier access to
additional financing and improved stockholder liquidity;
- Salomon Smith Barney Inc., MeriStar's financial advisor, delivered the
opinion described below;
- The overall terms of the merger agreement, including, but not limited to
the fixed exchange ratio, the non-solicitation provisions, the termination
fee provisions and the representations and warranties of the parties;
- The degree of leverage of the combined company compared to MeriStar;
- The increased sensitivity of the business of the combined company to
weather and seasonality compared to that of MeriStar's current business;
- The exposure to changing customer demographics;
- MeriStar's lack of experience in managing ski resorts;
- Potential discontinuities in analyst coverage; and
- The large stake of Oak Hill in the combined company.
RECOMMENDATION TO MERISTAR STOCKHOLDERS (SEE PAGE 46)
The MeriStar board of directors, other than members who voluntarily recused
themselves, has determined that the merger and the other transactions
contemplated by the merger agreement are advisable to and in the best interests
of MeriStar and its stockholders. The MeriStar board of directors, other than
the members who have recused themselves voluntarily from the voting upon and
consideration of the proposals, unanimously recommends that MeriStar
stockholders vote FOR the approval and adoption of the merger agreement and the
transactions contemplated by the merger agreement.
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OPINION OF MERISTAR'S FINANCIAL ADVISOR (SEE PAGE 55)
In connection with the merger, the MeriStar board of directors received a
written opinion from Salomon Smith Barney Inc., MeriStar's financial advisor, as
to the fairness, from a financial point of view, to the holders of MeriStar's
common stock, of the exchange ratio provided for in the merger agreement. The
full text of Salomon Smith Barney's written opinion dated December 8, 2000 is
attached to this joint proxy statement and prospectus as Appendix E. YOU SHOULD
READ THIS OPINION CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN. SALOMON SMITH
BARNEY'S OPINION IS ADDRESSED TO THE MERISTAR BOARD AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO ANY MATTERS RELATING TO THE
PROPOSED MERGER.
INTERESTS OF SOME PERSONS IN THE MERGER MAY BE DIFFERENT FROM YOURS (SEE PAGE
61)
Some of MeriStar's and American Skiing's officers, directors and significant
stockholders have interests in the merger that are different from, or in
addition to, those of MeriStar stockholders and American Skiing stockholders
generally resulting in potential conflicts of interest.
In connection with the merger, some of American Skiing's and MeriStar's
senior management will become the senior management of Doral. Mr. Leslie B.
Otten, Chairman and Chief Executive Officer of American Skiing, will become the
Chairman of Doral. Mr. Paul W. Whetsell, Chairman and Chief Executive Officer of
MeriStar, will become the Chief Executive Officer and a director of Doral.
Mr. John Emery, the Chief Investment Officer of MeriStar, will become the Chief
Financial Officer of Doral. Mr. David E. McCaslin, the President of MeriStar,
will be the Chief Operating Officer--Hotel Management and BridgeStreet of Doral.
Mr. James A. Calder, the Chief Financial Officer of MeriStar, and Mr. John E.
Plunket, the Executive Vice-President, Finance and Development of MeriStar, will
also be members of the senior management of Doral. Mr. Otten has entered into a
new employment agreement dated January 3, 2001, and it is expected that Messrs.
Whetsell, Emery, McCaslin, Calder and Plunket will enter into new employment
agreements prior to the closing of the merger.
Other members of American Skiing's and MeriStar's management have employment
agreements which entitle them to payments and other benefits in the event their
employment is actually or constructively terminated as a result of the merger.
Under the terms of MeriStar's Incentive Plan, the merger will cause all of the
options issued under that plan to vest, including those held by the senior
management and directors of MeriStar. However, the merger agreement requires
MeriStar to obtain waivers of that vesting from some members of its senior
management.
As of December 31, 2000, the directors and executive officers of American
Skiing together with their affiliates, beneficially owned approximately 73% of
the total outstanding shares of American Skiing voting stock. Included in this
figure are shares of common stock and exercisable options for common stock owned
by the directors and officers, shares of Class A common stock held by Mr. Otten
and shares of Series B preferred stock beneficially owned by Oak Hill. Four of
the 11 directors on the board of directors of American Skiing at the time it
approved the merger, Messrs. Bradford E. Bernstein, Steven B. Gruber,
William S. Janes and J. Taylor Crandall, were appointed by Oak Hill and have
economic interests in Oak Hill. Accordingly, the shares of voting stock
beneficially owned by Oak Hill, which represented, as of December 31, 2000,
approximately 50% of the voting stock of American Skiing, may be deemed to be
beneficially owned by those directors and have been included in the
determination of percentage ownership of officers and directors.
Oak Hill Capital Partners, L.P., together with parties related to it, is the
principal stockholder of both MeriStar and American Skiing. Assuming the merger
is completed on March 31, 2001, Oak Hill and those related parties will control
approximately 50% of the common stock of Doral. None of the directors appointed
by Oak Hill was a member of the American Skiing special committee. The directors
appointed by Oak Hill participated in the deliberations of the American Skiing
board of
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directors relating to the merger but recused themselves from voting on the
merger and the recapitalization transactions.
Mr. Whetsell, who is a member of the board of directors of American Skiing
and Chairman and Chief Executive Officer of MeriStar, has recused himself from
all deliberations of American Skiing's board of directors relating to the merger
and is not a member of American Skiing's special committee. Mr. Whetsell also
recused himself from voting on the merger as a member of the MeriStar board.
As of November 30, 2000, the executive officers and directors of MeriStar as
a group beneficially owned 19% of the common stock of MeriStar. Included in this
figure are the shares held by Daniel L. Doctoroff, representing 11% of
MeriStar's voting power, the shares held by Steven D. Jorns, representing 3% of
MeriStar's voting power, and the shares held by Paul W. Whetsell, representing
2% of MeriStar's voting power.
Mr. Doctoroff, who is a member of the board of directors of MeriStar, is a
managing director and owner of Oak Hill Capital Management, Inc., which is the
manager of Oak Hill Capital Partners, L.P. and some of its related entities.
Mr. Doctoroff recused himself from all deliberations of the MeriStar board of
directors relating to the merger.
DISSENTERS' RIGHTS OF APPRAISAL (SEE PAGE 40)
Under Delaware law, American Skiing and MeriStar stockholders do not have
dissenters' rights of appraisal with respect to the merger.
CONDITIONS TO THE MERGER (SEE PAGE 73)
The respective obligations of American Skiing and MeriStar to complete the
merger are subject to satisfaction or waiver of the following conditions:
- Obtaining approval of all the proposals described in this joint proxy
statement and prospectus by the requisite number of stockholders of both
MeriStar and American Skiing;
- Obtaining a new credit facility for Doral in an aggregate principal amount
of $285.0 million and the termination and repayment of American Skiing's
existing senior secured credit facility;
- Obtaining the required consents of the holders of American Skiing's 12%
senior subordinated notes due 2006;
- The representations and warranties of each party set forth in the merger
agreement being accurate, except as would not have a material adverse
effect on that party; and
- Other conditions precedent customary for transactions of this type,
including the receipt of Hart-Scott Rodino, other governmental and NYSE
approvals.
The obligations of American Skiing to complete the merger are also subject
to the satisfaction or waiver by American Skiing of the following conditions:
- The amendment, in accordance with federal tax legislation effective on
January 1, 2001, of agreements between MeriStar and MeriStar Hospitality
Corporation in respect of properties operated by MeriStar;
- The termination and repayment of MeriStar's existing senior secured credit
facility;
- Obtaining a commitment from MeriStar Hospitality Corporation for
$25.0 million in additional financing for Doral which will be used for
real estate development projects;
- The execution of an amendment to the limited partnership agreement of
MeriStar H&R Operating Company, L.P., MeriStar's operating subsidiary; and
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<PAGE>
- The execution by some of the senior officers of MeriStar of waivers of
early vesting of their MeriStar stock options.
In addition, the obligations of MeriStar to complete the merger are subject
to the satisfaction or waiver by MeriStar of the following conditions:
- The completion of the recapitalization of American Skiing described in
this joint proxy statement and prospectus; and
- The receipt of an opinion from Paul, Weiss, Rifkind, Wharton & Garrison as
to the tax-free nature of the merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 75)
The merger agreement may be terminated by mutual written consent of American
Skiing and MeriStar.
In addition, each of American Skiing or MeriStar may terminate the merger
agreement if:
- The proposals described in this joint proxy statement and prospectus are
not approved by the requisite vote of stockholders of MeriStar or the
requisite vote of stockholders of American Skiing;
- The merger has not occurred on or before April 30, 2001, although the
right to terminate the merger agreement will not be available to the party
whose failure to fulfill any obligation under the merger agreement is the
cause of the delay; or
- Any order, injunction or decree preventing the merger has been entered by
any court or governmental entity and is final and nonappealable.
Either American Skiing or MeriStar may terminate the merger agreement if:
- The other party's board of directors withdraws, modifies or changes its
approval or recommendation of the merger agreement in a manner adverse to
the terminating party or the merger;
- The other party's board of directors recommends to its stockholders
another acquisition proposal;
- A tender offer or exchange offer for any outstanding shares of capital
stock of the other party is commenced, and the other party's board of
directors fails to recommend against it;
- There is an uncured breach of a material representation, warranty or
covenant by the other party in the merger agreement; or
- A majority of the disinterested members of the terminating party's board
of directors, after consultation with its counsel, concludes that to fail
to terminate the merger agreement and accept a superior proposal would be
inconsistent with that board's fiduciary duties.
NON-SOLICITATION OF COMPETING TRANSACTIONS (SEE PAGE 71)
Each of MeriStar and American Skiing is subject to substantially identical
non-solicitation provisions in the merger agreement.
Each party and its subsidiaries are prohibited from soliciting, entering
into or providing nonpublic information with respect to, any competing
acquisition proposal, except that each party may do so with
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<PAGE>
any third party if a disinterested majority of its board of directors determines
in good faith after consultation with and receipt of advice from outside
counsel:
- That doing so is required by the fiduciary duties of the board of
directors; and
- That the third party making the acquisition proposal has the ability and
financial resources to make a superior proposal.
Each party must advise the other orally and in writing of any acquisition
proposal or any inquiry that could reasonably be expected to lead to an
acquisition proposal. Each party must give the other three days' advance notice
of any information provided to the third party making the proposal.
INTERIM OPERATIONS COVENANTS (SEE PAGE 68)
American Skiing and MeriStar have agreed to limitations on their operations
between the signing of the merger agreement and the effective time of the
merger.
PAYMENT OF TERMINATION FEES AND EXPENSES (SEE PAGE 76)
MeriStar will be required to pay American Skiing a termination payment of
$5.0 million, plus up to $1.0 million of out-of-pocket expenses, if MeriStar
stockholders do not approve the merger proposal or the merger agreement is
otherwise terminated under the circumstances described on page 75.
American Skiing will be required to pay MeriStar a termination payment of
$7.0 million, plus up to $1.0 million of out-of-pocket expenses, if the American
Skiing stockholders do not approve the proposals described in this joint proxy
statement and prospectus or the merger agreement is otherwise terminated under
the circumstances described on page 75.
INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 79)
The merger is intended to be tax-free to holders of MeriStar common stock
for United States federal income tax purposes, except with respect to cash
received instead of fractional shares of American Skiing common stock.
STOCK EXCHANGE LISTING (SEE PAGE 64)
The shares of American Skiing common stock issuable in the merger are
expected to be listed on the NYSE, subject to official notice of issuance, and
will trade under the ticker symbol "SKI".
Under the terms of the merger agreement, MeriStar will use its reasonable
best efforts to cause the MeriStar common stock to be delisted from the NYSE and
deregistered under the Exchange Act after the completion of the merger.
ANTICIPATED ACCOUNTING TREATMENT (SEE PAGE 60)
The merger will be accounted for as a purchase of MeriStar by American
Skiing.
COMPARISON OF STOCKHOLDERS RIGHTS (SEE PAGE 168)
The certificates of incorporation and bylaws of MeriStar, American Skiing
and Doral will differ. As a result, MeriStar stockholders and American Skiing
stockholders will have different rights as Doral stockholders. An important
change is that after the merger, Doral will have a staggered board, meaning that
approximately one-third of its directors will be elected each year and each
director will serve a three-year term.
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SUMMARY HISTORICAL FINANCIAL DATA
The following tables present summary historical consolidated financial data
from each of American Skiing's and MeriStar's historical consolidated statements
for the periods indicated.
SUMMARY HISTORICAL FINANCIAL DATA OF AMERICAN SKIING
This information is only a summary and you should read it together with
American Skiing's consolidated financial statements included elsewhere in this
joint proxy statement and prospectus and the information provided in "Selected
Historical Consolidated Financial Data of American Skiing" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE FISCAL YEAR ENDED
MONTHS ENDED ----------------------------------------------------
OCTOBER 29, JULY 30, JULY 25, JULY 26, JULY 27, JULY 28,
2000 2000 1999 1998 1997 1996
--------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:(1)
Net revenues:
Resort(2).................................. $ 20,912 $292,077 $292,558 $277,574 $163,310 $ 63,489
Real estate................................ 27,216 132,063 24,492 60,992 10,721 9,933
--------- -------- -------- -------- -------- --------
Total net revenues....................... 48,128 424,140 317,050 338,566 174,031 73,422
--------- -------- -------- -------- -------- --------
Operating income (loss)................ (20,238) (32) (3,625) 31,489 14,385 7,707
Net loss from continuing operations available
to common shareholders..................... ($ 26,685) ($51,127) ($32,322) ($ 7,213) ($ 5,926) ($ 2,237)
========= ======== ======== ======== ======== ========
Diluted net loss from continuing operations
per share available to common
shareholders............................... ($ 0.87) ($ 1.69) ($ 1.07) ($ 0.28) ($ 6.06) ($ 2.37)
========= ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets................................. $ 957,015 $926,778 $907,502 $780,899 $337,340 $298,732
Long-term debt and redeemable preferred
stock, including current maturities........ 663,017 636,700 546,297 422,684 253,151 210,720
Common shareholders' equity.................. 161,498 185,497 236,655 268,204 15,101 21,903
OTHER FINANCIAL DATA:
Resort EBITDA(3)(4).......................... ($ 19,874) $ 38,770 $ 42,893 $ 66,270 $ 30,907 $ 10,401
Real estate EBITDA(4)(5)..................... $ 3,638 $ 8,226 ($ 2,316) $ 17,438 $ 1,771 $ 4,089
</TABLE>
------------------------------
(1) The historical results of American Skiing reflect the results of operations
of the Mount Cranmore ski resort from its acquisition in June 1995 through
its divestiture in November 1996, the results of operation of S-K-I Ltd.
since its acquisition in June 1996, the results of operation of Pico
Mountain since its acquisition in November 1996, the results of operations
of The Canyons resort since its acquisition in July 1997 and the results of
operations of the Steamboat and Heavenly resorts since their acquisition in
November 1997.
(2) Resort revenues represents all revenues excluding revenues generated by the
sale of real estate interests.
(3) Resort EBITDA represents resort revenues less cost of resort operations and
marketing, general and administrative expense.
(4) Resort and Real Estate EBITDA are not measurements calculated in accordance
with generally accepted accounting principles and should not be considered
as alternatives to operating or net income as an indicator of operating
performance, cash flows as a measure of liquidity or any other GAAP
determined measurement. Some items excluded from Resort and/or Real Estate
EBITDA, such as depreciation, amortization and non-cash charges for stock
compensation awards and asset impairments are significant components in
understanding and assessing American Skiing's financial performance. Other
companies may define Resort and Real Estate EBITDA differently, and as a
result, such measures may not be comparable to American Skiing's Resort and
Real Estate EBITDA. American Skiing has included information concerning
Resort and Real Estate EBITDA because management believes they are
indicative measures of American Skiing's liquidity and financial position,
and are generally used by investors to evaluate companies in the resort
industry.
(5) Real Estate EBITDA represents revenues from real estate sales less cost of
real estate sold, including selling costs, holding costs, the allocated
capitalized cost of land, construction costs and other costs relating to
property sold.
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SUMMARY HISTORICAL FINANCIAL DATA OF MERISTAR
This information is only a summary and you should read it together with
MeriStar's consolidated financial statements included elsewhere in this joint
proxy statement and prospectus and the information provided in "Selected
Historical Consolidated Financial Data of MeriStar" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of MeriStar."
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, ------------------------------------------------------
2000 2000 1999 1998 1997 1996 1995
-------------- -------------- ---------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Rooms................................ $231,497 $ 721,045 $ 894,983 $395,633 $ 9,880 $ -- $ --
Food, beverage and other............. 89,211 293,384 387,091 152,276 1,871 -- --
Corporate housing.................... 29,369 38,761 -- -- -- -- --
Management and other fees............ 6,287 16,358 10,040 14,528 12,088 7,050 5,354
-------- ---------- ---------- -------- -------- ------- ------
Total revenues..................... 356,364 1,069,548 1,292,114 562,437 23,839 7,050 5,354
-------- ---------- ---------- -------- -------- ------- ------
Net operating income................... 1,002 29,638 17,250 7,796 2,975 561 525
Net income............................. $ (901) $ 14,029 $ 6,685 $ 3,950 $ 2,862 $ 438 $ 481
Basic (loss) earnings per share(A)..... $ (0.03) $ 0.42 $ 0.24 $ 0.02 -- -- --
Diluted (loss) earnings per share(A)... $ (0.03) $ 0.41 $ 0.24 $ 0.02 -- -- --
Number of shares of common stock issued
and outstanding(B)................... 35,894 35,894 29,625 25,437 -- -- --
OTHER FINANCIAL DATA:
EBITDA(C).............................. $ 3,780 $ 36,178 $ 23,264 $ 11,168 $ 3,611 $ 910 $ 609
BALANCE SHEET DATA:
Total assets........................... $374,799 $ 374,799 $ 258,144 $247,529 $ 84,419 $24,366 $2,881
Debt................................... 95,264 95,264 57,762 67,812 981 885 950
</TABLE>
------------------------------
(A) Basic and diluted earnings per share for the year ended December 31, 1998 is
based on earnings for the period from August 3, 1998, the date of the
spin-off of MeriStar from CapStar Hotel Company, through December 31, 1998.
(B) As of the last day for the periods presented.
(C) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. Management believes that EBITDA is a useful
measure of operating performance because it is industry practice to evaluate
hotel properties based on operating income before interest, depreciation and
amortization and minority interests which is generally equivalent to EBITDA,
and 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, is not necessarily indicative of cash
available to fund all cash flow needs, should not be considered as an
alternative to net income under GAAP for purposes of evaluating MeriStar's
results of operations and may not be comparable to other similarly titled
measures used by other companies.
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SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following summary unaudited pro forma combined financial information of
American Skiing and MeriStar has been derived from, and should be read together
with, the unaudited pro forma condensed combined financial statements and
related notes included elsewhere in this joint proxy statement and prospectus.
American Skiing and MeriStar have different fiscal years. American Skiing's 2000
fiscal year ended on July 30, while MeriStar's fiscal year ends on December 31
of each year. Deciding which fiscal-year basis to adopt for pro forma
presentation purposes depends, in part, on which entity will be treated as the
acquiror for accounting purposes. As American Skiing will be treated as the
acquiror for accounting purposes in the merger, pro forma operating results are
given on a July 30 fiscal-year basis.
In addition, the following summary unaudited pro forma combined financial
information shows adjustments to the results of operations and financial
condition of Doral that result from MeriStar's entering into management
agreements and an amended intercompany agreement with MeriStar Hospitality
Corporation in connection with changes, effective January 1, 2001, to the
federal tax laws relating to real estate investment trusts, which are commonly
known as the REIT Modernization Act, or RMA.
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The unaudited pro forma combined financial information is provided for
illustrative purposes only and does not reflect results of operations and
financial position of Doral if the merger had actually occurred and had RMA been
enacted on the dates assumed. This information also does not indicate Doral's
future operating results or consolidated financial position.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE TWELVE MONTHS ENDED
OCTOBER 29, 2000 JULY 30, 2000
--------------------------- ---------------------------
PRO FORMA PRO FORMA
BEFORE RMA RMA ADJUSTED BEFORE RMA RMA ADJUSTED
ADJUSTMENTS PROFORMA ADJUSTMENTS PROFORMA
----------- ------------- ----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Net revenues:
Resort............................................... $ 20,912 $ 20,912 $ 292,077 $ 292,077
Real estate.......................................... 27,216 27,216 132,063 132,063
Hotels............................................... 320,708 43,439 1,310,022 173,333
Corporate housing.................................... 29,369 29,369 98,964 98,964
Hotel management and other fees...................... 6,287 11,746 14,823 41,793
---------- ---------- ---------- ----------
Total net revenues................................. 404,492 132,682 1,847,949 738,230
Operating expenses:
Resort............................................... 30,343 30,343 203,902 203,902
Real estate.......................................... 23,551 23,551 123,204 123,204
Hotels............................................... 275,570 37,693 1,078,284 135,283
Corporate housing.................................... 18,744 18,744 83,216 83,216
Marketing, general and administrative................ 68,713 29,163 275,480 108,762
Depreciation and amortization........................ 7,433 7,433 58,697 58,697
---------- ---------- ---------- ----------
Total operating expenses........................... 424,354 146,927 1,822,783 713,064
---------- ---------- ---------- ----------
Income (loss) from continuing operations............... (19,862) (14,245) 25,166 25,166
Interest expense, net.................................. 13,985 13,985 43,703 43,703
Equity in losses of affiliates......................... -- -- 31 31
---------- ---------- ---------- ----------
Loss before minority interests and income taxes........ (33,847) (28,230) (18,568) (18,568)
---------- ---------- ---------- ----------
Minority interests..................................... (31) 146 1,452 1,452
Income tax (benefit) expense........................... (12,781) (10,605) 1,535 1,535
---------- ---------- ---------- ----------
Loss before preferred stock dividends.................. (21,035) (17,771) (21,555) (21,555)
---------- ---------- ---------- ----------
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock............... 1,705 1,705 6,467 6,467
---------- ---------- ---------- ----------
Loss from continuing operations available to common
shareholders......................................... $ (22,740) $ (19,476) $ (28,022) $ (28,022)
========== ========== ========== ==========
OTHER FINANCIAL DATA:
EBITDA(A).............................................. $ (12,429) $ (6,812) $ 83,863 $ 83,863
BALANCE SHEET DATA:
Total assets........................................... $1,405,175 $1,326,588
Long term debt and redeemable preferred stock,
including current maturities......................... 606,669 606,658
Common shareholders' equity............................ 479,347 479,347
</TABLE>
------------------------------
(A) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. Management believes that EBITDA is a useful
measure of operating performance because it is industry practice to evaluate
hotel properties based on operating income before interest, depreciation and
amortization and minority interests which is generally equivalent to EBITDA,
and 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, is not necessarily indicative of cash
available to fund all cash flow needs, should not be considered as an
alternative to net income under GAAP for purposes of evaluating MeriStar's
results of operations and may not be comparable to other similarly titled
measures used by other companies.
18
<PAGE>
UNAUDITED COMPARATIVE PER SHARE INFORMATION
The following table presents per common share data regarding the income,
cash dividends declared and book value of American Skiing and MeriStar on both
historical and unaudited pro forma combined basis and on a per share equivalent
unaudited pro forma basis for MeriStar. The unaudited pro forma combined per
share information has been derived from the unaudited pro forma combined
financial statements and related notes included elsewhere in this joint proxy
statement and prospectus. You should read the information below in conjunction
with the financial statements and accompanying notes of American Skiing and
MeriStar that are included in this joint proxy statement and prospectus and with
the unaudited pro forma combined information included in the section of this
joint proxy statement and prospectus entitled "Unaudited Pro Forma Combined
Financial Statements."
The unaudited pro forma combined financial information is provided for
illustrative purposes only and does not reflect results of operations and
financial position of Doral if the merger had actually occurred and had RMA been
enacted on the dates assumed. This information also does not indicate Doral's
future operating results or consolidated financial position.
<TABLE>
<CAPTION>
AS OF AND FOR THE AS OF AND FOR THE
THREE MONTHS ENDED YEAR ENDED
OCTOBER 29, 2000(1) JULY 30, 2000(2)
------------------- -----------------
<S> <C> <C>
AMERICAN SKIING HISTORICAL:
Loss from continuing operations per share:
Basic and diluted..................................... $ (0.87) $ (1.69)
Cash dividends declared per common share................ -- --
Book value per common share............................. 12.08 12.69
MERISTAR HISTORICAL:
(Loss) income from continuing operations per share:
Basic................................................. $ (0.03) $ 0.39
Diluted............................................... (0.03) 0.38
Cash dividends declared per common share................ -- --
Book value per common share............................. 2.68 2.71
DORAL--UNAUDITED PRO FORMA COMBINED(3):
Basic and diluted loss per common share................. $ (0.12) $ (0.15)
Cash dividends declared per common share................ -- --
Book value per common share............................. 2.88 N/A
DORAL--UNAUDITED PRO FORMA COMBINED AS ADJUSTED FOR RMA(4)
Basic and diluted (loss) per common share............... $ (0.11) $ (0.15)
Cash dividends declared per common share................ -- --
Book value per common share............................. 2.88 N/A
</TABLE>
------------------------
(1) The MeriStar historical information is as of and for the three months ended
September 30, 2000.
(2) The MeriStar historical information is as of and for the year ended
June 30, 2000.
(3) Reflects pro forma combined financial information before adjustments for
RMA.
(4) Reflects unaudited pro forma combined financial information after
adjustments for RMA.
19
<PAGE>
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
American Skiing common stock is traded on the NYSE under the symbol "SKI."
MeriStar common stock is traded on the NYSE under the symbol "MMH." The
following chart lists the per share closing market price as reported on the NYSE
for shares of American Skiing common stock and MeriStar common stock. The
information is listed as of December 8, 2000, the last trading day before public
announcement of the signing of the merger agreement, and as of - , 2001, the
last full trading day prior to the date of this joint proxy statement and
prospectus.
The following chart also lists the implied equivalent per share value for
shares of MeriStar common stock, which is the American Skiing common stock price
multiplied by the exchange ratio of 1.88.
You are encouraged to obtain current market quotations for MeriStar common
stock and American Skiing common stock before voting on the proposals described
in this joint proxy statement and prospectus.
<TABLE>
<CAPTION>
MERISTAR AMERICAN SKIING EQUIVALENT PRICE PER SHARE OF
DATE COMMON STOCK COMMON STOCK MERISTAR COMMON STOCK
---- ------------ --------------- -----------------------------
<S> <C> <C> <C>
December 8, 2000..... $2.25 $2.75 $5.17
January -, 2001......
</TABLE>
Neither American Skiing nor MeriStar has paid any cash dividends on its
capital stock.
20
<PAGE>
RISK FACTORS
STOCKHOLDERS OF AMERICAN SKIING AND MERISTAR VOTING IN FAVOR OF THE MERGER
AND THE PROPOSALS RELATED TO THE MERGER WILL BE CHOOSING TO COMBINE THE
BUSINESSES OF THE TWO COMPANIES AND TO INVEST IN DORAL COMMON STOCK. THIS
COMBINATION AND THIS INVESTMENT INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE INFORMATION BELOW AS WELL AS ALL OTHER INFORMATION
PROVIDED TO YOU IN THIS JOINT PROXY STATEMENT AND PROSPECTUS IN DECIDING WHETHER
TO ADOPT THE MERGER AGREEMENT AND APPROVE THE RELATED PROPOSALS, INCLUDING
INFORMATION IN THE SECTION OF THIS JOINT PROXY STATEMENT AND PROSPECTUS ENTITLED
"SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS."
RISK FACTORS RELATED TO DORAL
DORAL WILL BE SUBSTANTIALLY LEVERAGED AND IT WILL FACE A NUMBER OF FINANCIAL
RISKS.
Doral will be highly leveraged following the merger. As of October 29, 2000,
on a pro forma basis, giving effect to the merger and related transactions,
Doral would have had $557 million of consolidated indebtedness outstanding and
$479 million of stockholders' equity.
The substantial amount of debt that Doral will have and that it or its
subsidiaries may incur in the future could significantly affect Doral's future
operations. For example, it could:
- Limit Doral's ability to obtain additional financing, if needed, for
working capital, capital expenditures, acquisitions, debt service
requirements or other purposes;
- Increase Doral's vulnerability to adverse economic, industry and weather
conditions;
- Require Doral to dedicate a substantial portion of its cash flow from
operations to payments on its debt and accordingly reduce funds available
for operations, future business opportunities and other purposes;
- Limit Doral's flexibility in planning for, or reacting to changes in its
business and the industries in which it competes; and
- Place Doral at a competitive disadvantage compared to its competitors who
have less debt.
Doral's ability to make scheduled payments or refinance its debt obligations
will depend on its future financial and operating performance, which will be
affected by prevailing economic conditions, financial, business and other
factors. Some of these factors will be beyond its control. Doral's operating
results, cash flow and capital resources may not be sufficient to pay its
indebtedness. If its operating results, cash flow or capital resources prove
inadequate, Doral could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet its debt and other
obligations. If Doral is unable to service its debt, it could be forced to
reduce or delay planned expansions and capital expenditures, sell assets,
restructure or refinance its debt or seek additional equity capital. In these
circumstances Doral may not be able to effect any of these actions on terms
satisfactory to Doral, if at all.
Doral's continued growth will depend, in part, on its ability to maintain
and expand its facilities and to engage in successful real estate development.
To the extent that Doral is unable to do so with cash generated from operations,
or through borrowed funds or additional equity investments, the growth and
financial health of its business could be impaired.
RESTRICTIONS IMPOSED BY DORAL'S DEBT AGREEMENTS MAY SIGNIFICANTLY LIMIT ITS
ABILITY TO EXECUTE ITS BUSINESS STRATEGY AND INCREASE THE RISK OF DEFAULT UNDER
ITS DEBT OBLIGATIONS.
Doral's 12% senior subordinated notes due 2006, the new credit agreement
governing its senior secured credit facility and the senior secured credit
agreements of Doral's real estate development
21
<PAGE>
subsidiary do or will contain a number of covenants which may significantly
limit Doral's and its subsidiaries' ability to, among other things:
- Borrow additional money;
- Make capital expenditures and other investments;
- Pay dividends;
- Merge, consolidate or dispose of assets;
- Enter into transactions with related entities;
- Incur additional liens; and
- Refinance junior indebtedness.
It will be an event of default under Doral's 12% senior subordinated notes
and the new credit agreement for its senior secured credit facility if it
experiences change of control events, including a sale of all or substantially
all of its assets, the replacement of more than one-third of its board members
or the beneficial ownership by any person or group other than Mr. Otten, trusts
controlled by him and Oak Hill and some parties related to it of more than the
greater of 35% of the voting power of Doral's capital stock or the combined
voting power of the permitted holders.
In addition, Doral's new senior secured credit agreement and the senior
secured credit agreements of its real estate development subsidiary will contain
financial maintenance covenants. If Doral or a subsidiary fail to comply with
these covenants, it will be in default under that credit agreement. A default,
if not waived, could result in acceleration of Doral's or that subsidiary's
indebtedness, in which case the debt would become immediately due and payable.
If this occurs, Doral and its subsidiaries may not be able to repay their debts
or borrow sufficient funds to refinance them. Even if new financing is
available, it may not be on terms that are acceptable to Doral. In addition,
complying with these covenants may cause Doral and its subsidiaries to take
actions that they otherwise would not take, or not take actions that they
otherwise would take.
DORAL MAY FAIL TO REALIZE THE ANTICIPATED BENEFITS OF THE MERGER.
The success of the merger will depend, in part, on Doral's ability to
realize the anticipated growth opportunities and synergies from combining the
businesses of MeriStar and American Skiing. MeriStar and American Skiing will,
prior to the completion of the merger, continue to operate independently,
although integration efforts will be proceeding pending the stockholder
approvals requested in this joint proxy statement and prospectus. The
integration process may result in the loss of key employees, the disruption of
each company's ongoing businesses or inconsistencies in standards, controls,
procedures and policies that may adversely affect Doral's ability to maintain
relationships with customers and employees or to achieve the anticipated
benefits of the merger.
IF DORAL IS UNABLE TO IDENTIFY ADDITIONAL APPROPRIATE REAL ESTATE DEVELOPMENT
OPPORTUNITIES AND TO ARRANGE THE FINANCING NECESSARY TO COMPLETE THESE
DEVELOPMENTS, ITS CONTINUED GROWTH COULD BE IMPAIRED.
Doral will continually evaluate potential real estate development
opportunities. Any future developments will be financed through a combination of
internally generated funds, additional bank borrowings from existing and new
credit facilities and public offerings or private placements of equity or debt
securities. The nature of any future financing will depend on factors such as
the size of the particular development and Doral's capital structure at the time
of a development project. Doral may not be able to identify appropriate new
development opportunities, particularly in light of its high level of
indebtedness after the merger, and necessary financing may not be available on
suitable terms, if at all. If Doral is unable to continue real estate
development, its continued growth could be impaired.
22
<PAGE>
IF DORAL FAILS TO MANAGE ITS GROWTH, ITS BUSINESS, FINANCIAL CONDITION AND
PROSPECTS COULD BE SERIOUSLY HARMED.
The businesses operated by both American Skiing and MeriStar have
experienced rapid and substantial growth since 1994 and may continue to do so
following the merger. This growth has placed, and could continue to place, a
significant strain on Doral's management, employees and operations. This growth
has increased operating complexities and the level of responsibility for
management. Doral's ability to compete effectively and to manage recent and
future growth effectively will depend on its ability to implement and improve
financial and management information systems on a timely basis and to effect
changes in its business, such as implementing internal controls to handle the
increased size of its operations and hiring, as well as training, developing and
managing an increasing number of experienced management-level and line
employees. In order for the merger to be successful, Doral must integrate the
operations of MeriStar and American Skiing and manage geographically dispersed
operations. Among the challenges involved in this integration is demonstrating
to American Skiing's and MeriStar's customers that the merger will not result in
an adverse change in customer service standards or business focus and persuading
their personnel that the two business cultures are compatible. Unexpected
difficulties in effecting the merger or other expansions, the failure to attract
and retain qualified employees, or an inability to respond effectively to recent
growth or planned future expansion, could adversely affect Doral's business,
financial condition and results of operations.
MERGER-RELATED ACCOUNTING CHARGES MAY DELAY AND REDUCE DORAL'S PROFITABILITY.
The MeriStar acquisition by American Skiing is being accounted for by
American Skiing under the "purchase" method of accounting. Under the purchase
method, the purchase price of MeriStar will be allocated to the fair value of
the identifiable tangible and intangible assets and liabilities acquired from
MeriStar. The excess of the purchase price over MeriStar's tangible net assets
will result in intangible assets for Doral that will have to be amortized over
their useful lives. As a result, Doral will incur accounting charges from the
merger that may delay and reduce Doral's profitability.
THE VALUE OF THE MERGER CONSIDERATION AT THE TIME OF THE SPECIAL MEETINGS WILL
NOT BE KNOWN.
Upon the completion of the merger, MeriStar stockholders will receive 1.88
shares of American Skiing common stock for each share of MeriStar common stock
and associated MeriStar stockholder right that they own. The exchange ratio of
1.88 is fixed and will not be adjusted in the event of any increase or decrease
in the market price of American Skiing common stock or MeriStar common stock. As
a result, the market value of American Skiing common stock MeriStar stockholders
will receive in the merger could vary depending on fluctuations in the market
value of the American Skiing common stock before and after the time of the
merger. Conversely, because of the fixed exchange ratio, American Skiing and its
stockholders will not know the value of the common stock being issued to acquire
MeriStar.
The market value of American Skiing common stock and MeriStar common stock
may fluctuate because of changes in the business, operations or prospects of
American Skiing and MeriStar, market assessments of the likelihood that American
Skiing and MeriStar will complete the merger, the timing of the completion of
the merger, general market and economic conditions and the other factors
described in this section. For example, during the twelve month period ending
December 31, 2000, the closing price of American Skiing common stock varied from
a low of $1.19 to a high of $3.50 and ended that period at $1.44, and the
closing price of MeriStar common stock varied from a low of $2.00 to a high of
$3.63 and ended that period at $2.63. See "Trading Price of American Skiing and
MeriStar Common Stock."
23
<PAGE>
IF DORAL FAILS TO RETAIN ITS EXECUTIVE OFFICERS AND KEY PERSONNEL, ITS BUSINESS
WOULD BE HARMED.
Doral's ability to maintain its competitive position will depend to a
significant extent on the efforts and ability of its senior management,
particularly Leslie B. Otten, its Chairman, Paul W. Whetsell, its Chief
Executive Officer, and John Emery, its Chief Financial Officer. Doral's future
success and its ability to manage future growth will depend in large part upon
the efforts of Messrs. Otten, Whetsell and Emery and on Doral's ability to
attract and retain other highly qualified personnel. Competition for personnel
is intense, and Doral may not be successful in attracting and retaining its
personnel. Doral's inability to attract and retain other highly qualified
personnel may adversely affect its results of operations and financial
condition. American Skiing has entered into an amended employment agreement with
Mr. Otten which provides for his continued employment with Doral for a term of
five years. While Doral expects to enter into employment agreements with
Messrs. Whetsell, Emery and McCaslin concurrently with the merger, Doral cannot
assure you that Messrs. Whetsell, Emery and McCaslin will enter into those
employment agreements. In addition, it is not yet known whether the terms of
these agreements will be more or less favorable to Doral than those of the
existing employment agreements. For more information regarding these employment
agreements, please read the section of this joint proxy statement and prospectus
entitled "Management of Doral after the Merger--Employment Agreements."
THE PRINCIPAL STOCKHOLDERS OF DORAL MAY HAVE INTERESTS DIFFERENT FROM THOSE OF
OTHER DORAL STOCKHOLDERS.
Assuming the merger is completed on March 31, 2001, Oak Hill Capital
Partners, L.P. and some parties related to it will own approximately 50% of
Doral's common stock and will have nominated four of the 11 directors of Doral.
Oak Hill and some parties related to it may have interests different from other
Doral stockholders.
IF DORAL IS UNABLE TO RECEIVE PAYMENTS OR OTHER DISTRIBUTIONS FROM ITS
SUBSIDIARIES, ITS ABILITY TO MEET ITS OBLIGATIONS COULD BE IMPAIRED.
Doral's business will be operated through its subsidiaries, and its ability
to pay principal and interest on debt will be dependent upon the receipt of
dividends and other distributions or the payment of principal and interest on
intercompany borrowings from its subsidiaries. Doral will not have, and it will
not expect in the future to have, any material assets other than the common
stock of its direct and indirect subsidiaries. The breach of any of the
conditions or provisions under the documents governing the indebtedness of
subsidiaries could result in a default which in turn could accelerate the
maturity of some debt. If the maturity of that debt were accelerated, the
indebtedness may be required to be paid in full before the subsidiary would be
permitted to distribute any assets to the parent company. Doral's assets or
those of its subsidiaries may not, in these circumstances, be sufficient to
repay all of Doral's outstanding debt. In addition, state law may further
restrict the payment of dividends or other distributions to Doral by its
subsidiaries.
DORAL DOES NOT ANTICIPATE PAYING DIVIDENDS ON ITS COMMON STOCK FOR THE
FORESEEABLE FUTURE.
Doral anticipates that for the foreseeable future its earnings, if any, will
be retained for use in the operation of its business and that no cash dividends
will be paid on its common stock. In addition, Doral's new senior secured credit
facility, its 12% senior subordinated notes and the certificate of designation
governing its new 14% preferred stock will contain restrictive covenants, which
will limit Doral's ability to make dividend payments or other distributions on
its equity interests. Declaration of dividends on Doral common stock will depend
upon, among other things, future earnings, the operating and financial condition
of Doral, its capital requirements and general business conditions.
24
<PAGE>
SOME OF DORAL'S SHAREHOLDERS ARE LIKELY TO SELL SHARES FOLLOWING THE MERGER,
WHICH MAY DEPRESS DORAL'S STOCK PRICE.
Sales of substantial amounts of Doral common stock or the perception that
such sales could occur may adversely affect the market price for Doral common
stock. These sales include sales of Doral common stock issued in connection with
the merger or outstanding stock options. All of the Doral common stock to be
issued in connection with the merger will be freely transferable, except for the
shares of MeriStar common stock to be held by people deemed to be affiliates of
MeriStar under Rule 145 under the Securities Act. The following shares of Doral
common stock to be issued in the recapitalization of American Skiing will be
subject to a registration rights agreement providing for demand, shelf and
piggyback registration rights until the time their shares can be sold without
restriction under Securities Act Rule 144:
- The shares of Doral common stock issued to Leslie Otten upon conversion of
his shares of American Skiing Class A common stock; and
- The shares of Doral common stock issued to Oak Hill upon conversion of its
shares of American Skiing Series B preferred stock and as repayment of the
$13.0 million loans to American Skiing's real estate development
subsidiary.
Mr. Otten has informed management of his intention to cause Doral to file a
shelf registration statement on his behalf under which he may sell up to
5 million shares of Doral common stock within a year following the effective
date of that shelf registration statement.
In addition, Madeleine LLC, in connection with the recapitalization, will
receive, as partial consideration for the conversion of its existing Series A
preferred stock into the new 14% preferred stock, a number of shares of common
stock, further increasing the amount of Doral common stock available for resale.
Assuming the merger is completed on March 31, 2001, approximately 4.9 million
shares of common stock will be issued to Madeleine.
For more information regarding the registration rights agreement, please
read the section of this joint proxy statement and prospectus entitled
"Description of Related Agreements--Registration Rights Agreement."
THE ANTI-TAKEOVER DEFENSE PROVISIONS OF DORAL'S CHARTER DOCUMENTS AND THE LARGE
OWNERSHIP STAKE OF OAK HILL MAY DETER POTENTIAL ACQUIRORS AND DEPRESS DORAL'S
STOCK PRICE.
Oak Hill's large ownership stake in Doral following the merger may have the
effect of making it more difficult for a third party to acquire, or could
discourage a third party from attempting to acquire, control of Doral. In
addition, Doral's certificate of incorporation and bylaws will contain
provisions that could have the same effect. These provisions include the
following:
- Doral will be able to issue preferred shares with rights senior to its
common stock;
- Its bylaws will prohibit action by written consent of the stockholders,
and stockholders may not call special meetings;
- Its certificate of incorporation and bylaws will provide for a classified
board of directors;
- Removal of directors only for cause and upon the vote of two-thirds of the
outstanding shares of Doral common stock; and
- Its bylaws will require advance notice for nomination of directors and for
shareholder proposals.
25
<PAGE>
RISK FACTORS RELATED TO THE BUSINESS CURRENTLY OPERATED BY AMERICAN SKIING
IF DORAL'S SKIING AND RESORT BUSINESS DOES NOT PERFORM WELL DURING PEAK SEASONAL
PERIODS, ITS RESULTS OF OPERATIONS ARE LIKELY TO BE NEGATIVELY AFFECTED.
Ski resort operations are highly seasonal. Over the last five fiscal years,
American Skiing has realized an average of approximately 88% of its resort
revenues and over 100% of resort cash flows and net income during the period
from November through April. A significant portion of resort revenue and
approximately 20% of annual skier visits were generated during the Christmas and
Presidents Day vacation weeks. In addition, American Skiing's resorts typically
have experienced operating losses and negative cash flows for the period from
May to October.
A high degree of seasonality in the revenues from the skiing and resort
business will increase the impact of some events on operating results. Adverse
weather conditions, access route closures, equipment failures, and other
developments of even moderate or limited duration occurring during its peak
business periods could reduce the skiing and resort business' revenues. Adverse
weather conditions can also increase power and other operating costs associated
with snowmaking or could render snowmaking wholly or partially ineffective in
maintaining quality skiing conditions. Furthermore, unfavorable weather
conditions, regardless of actual skiing conditions, can result in decreased
skier visits.
DORAL'S SKIING AND RESORT BUSINESS WILL REQUIRE SIGNIFICANT CAPITAL
EXPENDITURES. THESE EXPENDITURES WILL NOT, HOWEVER, GUARANTEE IMPROVED RESULTS.
The development of ski resorts is capital intensive. For example, a key
element of American Skiing's strategy in the past has been attracting additional
skiers through investment in on-mountain capital improvements. A lack of
available funds for capital expenditures could have a material adverse effect on
Doral's ability to implement its operating strategy. American Skiing conducts,
and Doral intends to continue to conduct, real estate development through
special purpose subsidiaries and to finance these activities through
non-recourse or subordinated debt. Doral intends to finance capital improvements
through internally generated funds, non-recourse financing and proceeds from the
offering of debt and equity. Sufficient funds may not be available to fund these
capital improvements or real estate development. Moreover, these capital
improvements may not attract additional skiers or generate additional revenues.
IF THE REAL ESTATE DEVELOPMENT REVENUES ARE NEGATIVELY AFFECTED BY ONE OR MORE
PARTICULAR RISKS, ITS RESULTS OF OPERATIONS COULD SUFFER.
Doral's ability to generate revenues from real estate development activities
could be adversely affected by a number of factors, including:
- Its ability to successfully market its resorts;
- The national and regional economic climate;
- Local real estate conditions such as an oversupply of space or a reduction
in demand for real estate;
- Costs to satisfy environmental compliance and remediation requirements
associated with new development or renovation and ongoing operations;
- The attractiveness of the properties to prospective purchasers and
tenants;
- Competition from other available property or space;
- Its ability to obtain all necessary zoning, land use, building, occupancy
and other required governmental permits and authorizations, and
- Changes in real estate, zoning, land use, environmental or tax laws.
26
<PAGE>
Many of these factors will be beyond Doral's control. In addition, real estate
development will depend on receiving adequate financing on suitable terms. There
can be no assurance as to the availability or possible terms of any potential
future financing. Doral's real estate subsidiaries will not have the financing
available to complete all of their planned real estate development. In addition,
these efforts entail risks associated with development and construction
activities, including cost overruns, shortages of materials or skilled labor,
labor disputes, unforeseen environmental or engineering problems, work
stoppages, and natural disasters, any of which could delay construction and
result in a substantial increase in Doral's costs.
In addition, a material portion of Doral's real estate development business
will be conducted within the interval ownership industry. As a result, any
changes which already affect the interval ownership industry, such as an
oversupply of interval ownership units, a reduction in demand for interval
ownership units, changes in travel and vacation patterns, changes in
governmental regulations relating to the interval ownership industry, increases
in construction costs or taxes and tightening of financing availability, could
have a material adverse effect on Doral's real estate development business.
IF THERE ARE ANY DECLINES IN REGIONAL OR NATIONAL ECONOMIC CONDITIONS, THE
RESULTS OF OPERATIONS OF DORAL'S SKIING AND RESORT BUSINESS COULD BE ADVERSELY
AFFECTED.
The skiing and real estate development industries are cyclical in nature and
are particularly vulnerable to shifts in regional and national economic
conditions. Skiing and vacation unit ownership are discretionary recreational
activities entailing relatively high costs of participation, and any decline in
the regional or national economies where Doral's skiing and resort business
operates could adversely impact its skier visits, real estate sales and
revenues. Accordingly, Doral's financial condition, particularly in light of its
highly leveraged condition, could be adversely affected by any weakening in the
regional or national economy.
IF DORAL'S SKIING AND RESORT BUSINESS FAILS TO REMAIN COMPETITIVE IN ITS
INDUSTRY, IT MAY FACE DIFFICULTIES IN MAINTAINING ITS CUSTOMER BASE.
The skiing industry is highly competitive and capital intensive. The
competitors of Doral's skiing and resort business will include major ski resorts
throughout the United States, Canada and Europe as well as other worldwide
recreation resorts, including warm weather resorts and various alternative
leisure activities. The competitive position of Doral's skiing and resort
business will depend on a number of factors, such as its proximity to population
centers, the availability and cost of transportation to and within a resort,
natural snowfall, the quality and coverage of snowmaking operations, resort
size, the attractiveness of terrain, lift ticket prices, prevailing weather
conditions, the appeal of related services, the quality and the availability of
lodging facilities, and resort reputation. In addition, some of the competitors
have a greater competitive position and relative ability to withstand adverse
developments. The competitors of Doral's skiing and resort business may be
successful in capturing a portion of its present or potential customer base.
IF DORAL FAILS TO COMPLY WITH ENVIRONMENTAL AND LAND USE REGULATIONS, ITS RESORT
OPERATIONS AND REAL ESTATE DEVELOPMENT COULD BE ADVERSELY AFFECTED.
Doral's skiing and resort business will be subject to a wide variety of
federal, state and local laws and regulations relating to land use and
development and to environmental compliance and permitting obligations,
including those related to the use, storage, discharge, emission and disposal of
hazardous materials. Any failure to comply with these laws could result in
capital or operating expenditures or the imposition of severe penalties or
restrictions on Doral's operations that could adversely affect its present and
future resort operations and real estate development. In addition, these laws
and regulations could change in a manner that materially and adversely affects
Doral's ability to conduct its business or to implement desired expansions and
improvements to its facilities.
27
<PAGE>
IF ANY LEASE OR FOREST SERVICE PERMIT UNDER WHICH DORAL OPERATES ITS SKI RESORTS
WERE TERMINATED OR OTHERWISE ADVERSELY MODIFIED, DORAL'S RESULTS OF OPERATIONS
COULD SUFFER.
Doral's skiing and resort business will continue to lease a significant
portion of the land underlying its ski resorts or uses them pursuant to
renewable permits or licenses. If any of these arrangements were terminated or
not renewed on expiration, or renewed on terms materially less favorable to it,
Doral's ability to possess and use the land would be impaired. A substantial
portion of the skiable terrain at American Skiing's Attitash Bear Peak,
Sugarbush, Mount Snow/Haystack, Steamboat and Heavenly ski resorts is federal
land that is used under the terms of permits with the United States Forest
Service. The permits give the Forest Service the right to review and comment on
the location, design and construction of improvements in the permit area and on
other operational matters. The permits can also be terminated or modified by the
Forest Service to serve the public interest or in the event Doral fails to
perform any of its obligations under the permits. A termination or modification
of any of Doral's permits could have a material adverse effect on its results of
operations.
IF THE WATER SUPPLY FOR DORAL'S SKIING AND RESORT BUSINESS WERE DISRUPTED,
DORAL'S SNOWMAKING CAPABILITIES AND OPERATIONS WOULD BE ADVERSELY AFFECTED.
The operations and anticipated growth of Doral's skiing and resort business
will be heavily dependent upon the ability, under applicable federal, state and
local laws, regulations, permits and licenses or contractual arrangements, to
have access to adequate supplies of water with which to make snow and otherwise
conduct its operations. Applicable laws and regulations may change in a manner
that could have an adverse effect on Doral's business. Moreover, important
permits, licenses or agreements may not be renewed, or may be cancelled, or, if
renewed, may be renewed on terms less favorable to it. Any failure to have
access to adequate water supplies to support the skiing and resort business'
current operations and anticipated expansion would have a material adverse
effect on its business and operating results.
RISK FACTORS RELATED TO THE BUSINESS CURRENTLY OPERATED BY MERISTAR
DORAL'S RELATIONSHIP WITH MERISTAR HOSPITALITY CORPORATION MAY LEAD TO CONFLICTS
OF INTERESTS THAT ADVERSELY AFFECT YOUR INTERESTS.
GENERAL CONFLICTS OF INTERESTS
MeriStar has historically had a close business relationship with a real
estate investment trust, MeriStar Hospitality Corporation, and the relationship
between Doral's hotel management subsidiary and MeriStar Hospitality will
continue to be close. Doral and MeriStar Hospitality will have three common
board members and several common senior executives. Doral's hotel management
subsidiary and MeriStar Hospitality will continue to operate in a relationship
governed by an intercompany agreement which will restrict each party from taking
advantage of some business opportunities without first presenting those
opportunities to the other party.
In its relationship with the hotel management subsidiary as manager of its
hotels, MeriStar Hospitality may have conflicting views on the manner in which
the hotels are operated and managed, as well as lease arrangements, acquisitions
and dispositions. As a result, the directors and senior executives of Doral and
its hotel management subsidiary, who may serve in similar capacities at MeriStar
Hospitality, may well be presented with several decisions which provide them the
opportunity to benefit MeriStar Hospitality to the detriment of Doral or benefit
Doral to the detriment of MeriStar Hospitality. Potential conflicts of interest
will be present in all of the numerous transactions among Doral, Doral's hotel
management subsidiary and MeriStar Hospitality.
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RESTRICTIONS ON BUSINESS AND FUTURE OPPORTUNITIES
So long as the intercompany agreement with MeriStar Hospitality is in
effect, Doral will be prohibited from making real property investments that a
real estate investment trust could make unless MeriStar Hospitality is first
given the opportunity, but elects not to pursue the activities or investments.
Under the intercompany agreement, Doral has agreed not to acquire or make
investments in real estate, including investments in hotel properties, real
estate mortgages, real estate derivatives or entities that invest primarily in
real estate assets, unless it has notified MeriStar Hospitality of the
acquisition or investment opportunity, in accordance with the terms of the
intercompany agreement, and MeriStar Hospitality has determined not to pursue
the acquisition or investment.
Doral will be permitted, however, to:
- Engage in development activities on land already owned or leased by it or
subject to a lease or purchase option in favor of Doral;
- Acquire or invest in hospitality property to be operated under a trade
name owned by Doral or its affiliates under which five or more hospitality
properties are then operated; and
- Make limited minority investments or contributions as part of a lease or
management arrangement with a party that is not an affiliate of Doral in a
bona-fide arms-length transaction, if the investment or contribution does
not materially impact Doral's financial and legal qualifications to manage
properties owned by MeriStar Hospitality and its affiliates.
The intercompany agreement will generally grant Doral's hotel management
subsidiary the right of first refusal to become the manager of any real property
acquired by MeriStar Hospitality as to which MeriStar Hospitality determines
that, consistent with MeriStar Hospitality's status as a real estate investment
trust, its affiliate that is the lessee of such property is required to enter
into a management arrangement with an unaffiliated third party. This opportunity
will be available to Doral's hotel management subsidiary only if MeriStar
Hospitality determines that Doral's hotel management subsidiary is qualified to
be the manager and MeriStar Hospitality decides not to operate the property
under a trade name not owned by Doral or its affiliates. Because of the
provisions of the intercompany agreement, the nature of Doral's hotel management
subsidiary's business and the opportunities it may pursue will be restricted.
CONFLICTS RELATING TO SALE OF HOTELS SUBJECT TO MANAGEMENT AGREEMENTS
MeriStar Hospitality will generally be required to pay a termination fee to
Doral's hotel management subsidiary if it elects to sell or transfer a hotel to
a person or entity that is not an affiliate of MeriStar Hospitality or if it
elects to permanently close a hotel after a casualty and does not replace it
with another hotel with a management fee equal to that payable under the
management agreement to be terminated. Where applicable, the termination fee
will equal the present value of the management fees payable during the remainder
of the existing term of the management agreement, as determined based on fees
payable during the previous twelve months. A decision to transfer a hotel may,
therefore, have significantly different consequences for Doral and MeriStar
Hospitality.
IF DORAL IS UNABLE TO PURSUE NEW GROWTH OPPORTUNITIES THROUGH ITS RELATIONSHIP
WITH MERISTAR HOSPITALITY, DORAL'S HOTEL MANAGEMENT BUSINESS COULD BE NEGATIVELY
AFFECTED.
Because of the terms of the intercompany agreement with MeriStar
Hospitality, Doral's hotel management subsidiary will be highly dependent on
MeriStar Hospitality. If MeriStar Hospitality in the future fails to qualify as
a real estate investment trust, it could have a substantial adverse effect on
those aspects of Doral's hotel management subsidiary's business operations and
business opportunities that are dependent upon MeriStar Hospitality. For
example, if MeriStar Hospitality ceases to qualify as a real estate investment
trust, the requirements in the intercompany agreement that MeriStar Hospitality
enter into management agreements with Doral's hotel management subsidiary would
cease.
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In that case, MeriStar Hospitality would have the right to operate a newly
acquired property itself. Doral's hotel management subsidiary, however, would
remain subject to all of the limitations on its operations contained in the
existing management agreements. In addition, although it is anticipated that the
management agreements involving Doral's hotel management subsidiary generally
will be assigned to any person or entity acquiring the fee or leasehold interest
in a hotel property from MeriStar Hospitality or its affiliates, Doral's hotel
management subsidiary could lose its rights under any such management agreement
upon the expiration of the agreement. The likelihood of a sale of the hotel
properties could possibly increase if MeriStar Hospitality fails to qualify as a
real estate investment trust. In addition, if there is a change in the Internal
Revenue Code that would permit MeriStar Hospitality or one of its affiliates to
operate hotels without adversely affecting MeriStar Hospitality's status as a
real estate investment trust, MeriStar Hospitality would not be required to
enter into future renewals of its management agreements.
Also, if Doral's hotel management subsidiary and MeriStar Hospitality do not
negotiate a mutually satisfactory management arrangement within 30 days,
generally, after MeriStar Hospitality provides the hotel management subsidiary
with written notice of the management opportunity, MeriStar Hospitality may
offer the opportunity to others for a period of one year before it must again
offer the opportunity to the hotel management subsidiary.
IF THE PERFORMANCE OF DORAL'S HOTEL MANAGEMENT SUBSIDIARY WERE NEGATIVELY
AFFECTED BY ONE OR MORE OF A VARIETY OF RISKS RELATED TO THE LODGING INDUSTRY,
ITS RESULTS OF OPERATIONS COULD SUFFER.
OPERATING RISKS
Various factors could adversely affect the ability of Doral's hotel
management subsidiary to generate revenues on which its management fee will be
based. The business of Doral's hotel management subsidiary will be subject to
all of the operating risks inherent in the lodging industry. These risks include
the following:
- Changes in general and local economic conditions;
- Cyclical overbuilding in the lodging industry;
- Varying levels of demand for rooms and related services;
- Competition from other hotels, motels and recreational properties, some of
which may have greater marketing and financial resources than MeriStar
Hospitality or Doral;
- Dependence on business and commercial travelers and tourism, which may
fluctuate and be seasonal;
- The recurring need for renovations, refurbishment and improvements of
hotel properties;
- Changes in governmental regulations that influence or determine wages,
prices and construction and maintenance costs; and
- Changes in interest rates and the availability of credit.
Demographic, geographic or other changes in one or more of the markets of
Doral's hotel management subsidiary could impact the convenience or desirability
of the sites of some hotels or guest accommodation apartments, which would in
turn affect the operations of those hotels or flexible accommodations. In
addition, due to the level of fixed costs required to operate full-service
hotels, significant expenditures necessary for the operation of hotels generally
cannot be reduced when circumstances cause a reduction in revenue.
SEASONALITY
The lodging industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third calendar quarters than in the first and fourth
calendar quarters although this may not be true for
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hotels in major tourist destinations. Revenues for hotels in tourist areas
generally are substantially greater during tourist season than other times of
the year. Seasonal variations in revenue at the hotels leased or managed by
Doral's hotel management subsidiary can be expected to cause quarterly
fluctuations in the revenues of the hotel management subsidiary. Quarterly
earnings also may be adversely affected by events beyond Doral's control, such
as extreme weather conditions, economic factors and other considerations
affecting travel.
FRANCHISING
In connection with terminating or changing the franchise affiliation of a
hotel, the owner of the hotel may be required to incur significant expenses or
capital expenditures. Moreover, the loss of a franchise license could have a
material adverse effect upon the operation or the underlying value of the hotel
covered by the franchise because of the loss of associated name recognition,
marketing support and centralized reservation systems provided by the
franchisor. Franchise agreements covering the hotels managed or leased by
Doral's hotel management subsidiary expire or terminate, without specified
renewal rights, at various times and have differing remaining terms. As a
condition to renewal, these franchise agreements frequently contemplate a
renewal application process, which may require substantial capital improvements
to be made to a hotel which are the owner's responsibility. Doral's hotel
management subsidiary intends to develop its own Doral brand name in multiple
locations. It is difficult to assess the impact, if any, that this brand name
development will have on the ability of Doral's hotel management subsidiary to
maintain existing franchise licenses and obtain additional franchises.
COMPETITION IN THE LODGING INDUSTRY
The lodging industry and the flexible accommodation service market are
highly competitive. There is no single competitor or small number of competitors
of Doral's hotel management subsidiary that will be dominant in the industry.
Doral's hotel management subsidiary will operate in areas that contain numerous
competitors, some of which may have substantially greater resources than it,
including better access to apartment communities and the ability to accept more
risk than it will be able to manage. Competition in the lodging industry is
based generally on location, availability, room rates or accommodations price,
range and quality of services and guest amenities offered. New or existing
competitors could significantly lower rates or offer greater conveniences,
services or amenities or significantly expand, improve or introduce new
facilities in markets in which Doral's hotel management subsidiary will compete,
thereby adversely affecting its operations and the number of suitable business
opportunities.
LEASING ARRANGEMENTS
The BridgeStreet corporate housing division of Doral's hotel management
subsidiary, which will provide flexible accommodation services, intends to
continue to lease substantially all of its accommodations through flexible,
short term leasing arrangements with property managers in order to match its
supply of accommodations with client demand. Because its only access to
apartment communities will be through leasing arrangements, the corporate
housing division will be dependent upon its relationships with property managers
in order to conduct its operations effectively. While the corporate housing
division will strive to develop strong relationships with property managers to
ensure it has a reliable supply of high-quality, conveniently-located
accommodations, there is no assurance that, in the event these relationships
were to deteriorate or fail to develop, the corporate housing division would be
able to satisfactorily meet client demand requirements of Doral's hotel
management subsidiary. This in turn could negatively impact the results of
operations.
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COSTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances.
These laws often impose liability whether or not the owner or operator knew of,
or was responsible for, the presence of hazardous or toxic substances. In
addition, the presence of contamination from hazardous or toxic substances, or
the failure to properly remediate contaminated property, may adversely affect
the owner's ability to sell or rent the property or to borrow using the property
as collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
such substances at the disposal or treatment facility, whether or not that
facility is or ever was owned or operated by that person. The operation and
removal of underground storage tanks are also regulated by federal and state
laws. In connection with the ownership and operation of hotels, MeriStar
Hospitality, Doral's hotel management subsidiary or Doral could be held liable
for the costs of remedial action for regulated substances and storage tanks and
related claims. Activities have been undertaken to close or remove storage tanks
located on the property of several of the hotels of Doral's hotel management
subsidiary.
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. MeriStar believes
that it is substantially in compliance with these requirements or, in the case
of liquor licenses, that it has or will promptly obtain the appropriate
licenses. Managers of hotels and providers of flexible accommodation services
are also subject to employment laws, 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 hotels
and corporate housing units of Doral's hotel management subsidiary and could
otherwise adversely affect Doral's results of operations or financial condition.
Under the Americans with Disabilities Act, or ADA, all public accommodations
are required to meet federal 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
MeriStar Hospitality's hotels, a determination that the hotels of Doral's hotel
management subsidiary or the units leased by its corporate housing division are
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.
FLUCTUATIONS IN THE REAL ESTATE MARKET BEYOND THE CONTROL OF DORAL'S HOTEL
MANAGEMENT SUBSIDIARY MAY AFFECT ITS REVENUES AND MANAGEMENT FEES.
Doral's hotel management subsidiary will operate hotels for MeriStar
Hospitality and other hotel owners under management agreements and will lease
hotels from other hotel owners. MeriStar Hospitality has the right to terminate
a management agreement upon the sale of a hotel to a person or entity that is
not an affiliate of MeriStar Hospitality or if Doral's hotel management
subsidiary consistently fails to follow operational instructions. The underlying
value of the operations and income of Doral's hotel management subsidiary will
be dependent upon its ability to operate the hotels in a manner sufficient to
maintain or increase revenues and to generate sufficient revenue in excess of
operating expenses to meet or exceed operating profit projections for the
hotels. Many of these risks are beyond the control of Doral's hotel management
subsidiary and may be more significant because it will operate only within the
hospitality industry.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Any statements in this document about Doral's, American Skiing's or
MeriStar's expectations, beliefs, plans, objectives, assumptions or future
events or performance are not historical facts and are forward-looking
statements. These statements are often, but not always, made through the use of
words or phrases such as "will likely result," "expect," "will continue,"
"anticipate," "estimate," "intend," "plan," "projection," "would" and "outlook."
Accordingly, these statements involve estimates, assumptions and uncertainties
which could cause actual results to differ materially from those expressed in
them. Any forward-looking statements are qualified in their entirety by
reference to the factors discussed throughout this joint proxy statement and
prospectus. In addition to the risks related to the businesses of Doral,
American Skiing and MeriStar and the factors relating to the merger described
under "Risk Factors," factors that could cause actual results to differ
materially from those described in the forward-looking statements include:
- The ability of the companies to complete the merger and Doral's ability to
manage rapid and substantial growth that could place a significant strain
on management, employees and operations;
- Significant leverage and uncertainties associated with obtaining
additional financing for future real estate projects and to undertake
future capital improvements;
- Demand for, and costs associated with, real estate development and hotel
rooms, changes in market conditions affecting the interval ownership
industry, seasonality of resort and hotel revenues and fluctuations in
operating results;
- Changes in laws and regulations applicable to the companies, including
federal, state or local land use regulations, regulations relating to
marketing and shares of quartershare interests and laws governing the
taxation of real estate investment trusts;
- Failure to renew essential business leases and forest service permits;
- Competition from other hospitality companies, pricing pressures and
variations in lease rental rates;
- Litigation involving antitrust, consumer and other issues; and
- Loss of any executive officer or failure to hire and retain highly
qualified employees.
These factors and the risk factors referred to above could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements made in this joint proxy statement and prospectus.
You should not place undue reliance on any of these forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which it is
made and each of the companies undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which the statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible to predict which will arise. In addition, each of the companies cannot
assess the impact of each factor on its business or the extent to which any
factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements.
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THE AMERICAN SKIING SPECIAL MEETING
GENERAL
This joint proxy statement and prospectus is being furnished in connection
with the solicitation by the board of directors of American Skiing of proxies
from the holders of American Skiing capital stock for use at the American Skiing
special meeting. The special meeting will be held at the Jordan Grand Hotel,
Newry, Maine 04261, on - , 2001, at 9:00 a.m., local time. American Skiing is
first mailing this document, the attached notice of special meeting of
stockholders and the enclosed voting form to American Skiing's stockholders on
or about - , 2001.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING; REQUIRED VOTES
At the American Skiing special meeting, American Skiing stockholders will be
asked:
1. To consider and approve the issuance of shares of American Skiing common
stock in connection with the merger;
2. To consider and adopt new employee benefits plans;
3. To consider, approve and adopt a proposal to amend and restate the
certificate of incorporation and bylaws of American Skiing as provided in
the merger agreement which provides for, among other things, a staggered
board, an increase in the authorized number of shares of capital stock to
300 million, of which 299 million will be common stock and 1 million will
be preferred stock, and the renaming of American Skiing as "Doral
International, Inc.";
4. To elect a new board of directors; and
5. To transact any other business as may properly come before the special
meeting or any adjournments or postponements of the special meeting.
Approval of all the proposals listed above is a condition to closing of the
merger. Therefore, if you vote against any one of the proposals, this could have
the effect of a vote against the other proposals and the merger. The proposal
relating to amendment of the certificate of incorporation under clause 3 above
requires the affirmative vote of holders of a majority of the outstanding shares
of American Skiing common stock on an as-converted basis. Approval of all other
proposals requires a majority of votes cast at the special meeting.
In addition, the recapitalization and amendments to the American Skiing
certificate of incorporation which relate to the recapitalization and are
contemplated by the merger agreement require the affirmative votes of holders of
a majority of American Skiing's Series A preferred stock, voting as a single
class, and the affirmative votes of holders of a majority of American Skiing's
Series B preferred stock, voting as a single class. All of the holders of the
Series A and Series B preferred stock have agreed to vote in favor of those
proposals.
American Skiing knows of no matter to be brought before the American Skiing
special meeting other than the matters listed above. If any other business
should properly come before the special meeting, the persons named in the voting
form will vote in their discretion.
THE BOARD OF DIRECTORS OF AMERICAN SKIING, OTHER THAN MEMBERS WHO
VOLUNTARILY RECUSED THEMSELVES FROM VOTING, HAS UNANIMOUSLY DETERMINED, BASED IN
PART ON THE RECOMMENDATION OF THE SPECIAL COMMITTEE OF ITS BOARD OF DIRECTORS,
THAT THE TRANSACTIONS RELATING TO THE MERGER AND RECAPITALIZATION, INCLUDING THE
PROPOSALS DESCRIBED IN THIS JOINT PROXY STATEMENT AND PROSPECTUS, ARE ADVISABLE
AND FAIR TO, AND IN THE BEST INTERESTS OF, AMERICAN SKIING AND ITS STOCKHOLDERS
AND RECOMMENDS THAT THE AMERICAN SKIING STOCKHOLDERS VOTE FOR APPROVAL AND
ADOPTION OF EACH OF THE PROPOSALS DESCRIBED ABOVE.
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RECORD DATE; QUORUM; SHARES OUTSTANDING AND ENTITLED TO VOTE
The American Skiing board has fixed the close of business on - , 2001 as
the record date for the American Skiing special meeting. Accordingly, only
holders of shares of American Skiing common stock, Class A common stock,
Series A preferred stock and Series B preferred stock on the record date will be
entitled to vote at the American Skiing special meeting and any adjournment or
postponement of the meeting. At the record date, the following shares were
outstanding and entitled to vote:
- 15,708,633 shares of common stock;
- 14,760,530 shares of Class A common stock;
- 36,626 shares of Series A preferred stock; and
- 150,000 shares of Series B preferred stock.
With respect to the proposals requiring the affirmative vote of holders of a
majority of the outstanding shares of common stock on an as-converted basis, the
presence, in person or by proxy, of a majority of the outstanding shares of
common stock, on an as-converted basis, is necessary to constitute a quorum at
the American Skiing special meeting. Each share of common stock and Class A
common stock is entitled to one vote with respect to each of those proposals.
Each share of Series A preferred stock and Series B preferred stock is entitled
to vote on an as-converted basis at the conversion price in effect as of the
record date. On that basis, as of the record date, the holders of the Series A
preferred stock will be entitled to approximately 3.0 million votes on those
proposals, and the holders of the Series B preferred stock will be entitled to
approximately 32.3 million votes on those proposals.
THE FAILURE TO VOTE, ABSTENTIONS AND BROKER NON-VOTES WILL BE INCLUDED IN
THE DETERMINATION OF SHARES PRESENT AT THE AMERICAN SKIING SPECIAL MEETING FOR
PURPOSES OF DETERMINING A QUORUM, BUT WILL HAVE THE EFFECT OF A VOTE AGAINST ANY
PROPOSAL THAT REQUIRES THE VOTE OF A MAJORITY OF ALL OUTSTANDING SHARES OF THAT
CLASS, SUCH AS THE VOTE TO AMEND AMERICAN SKIING'S CERTIFICATE OF INCORPORATION.
SECURITY OWNERSHIP OF MANAGEMENT
As of the record date, American Skiing's directors, executive officers and
their affiliates, as a group, beneficially owned all of the currently
outstanding shares of Class A common stock, none of the shares of Series A
preferred stock and all of the outstanding shares of Series B preferred stock.
Accordingly, American Skiing directors, executive officers and their affiliates
hold shares representing 73% of the total number of shares, on an as-converted
basis, of the American Skiing common stock required for the approval of the
merger proposals on which holders of American Skiing common stock may vote.
VOTING AND RECAPITALIZATION AGREEMENT
Leslie Otten, both individually and as trustee of the Albert Otten Trust for
the benefit of Mildred Otten, Oak Hill Capital Partners, L.P., Oak Hill Capital
Management Partners, L.P., Oak Hill Securities Fund, L.P., Oak Hill Securities
Fund II, L.P., OHCP Ski, L.P., and Madeleine LLC, who together beneficially
held, as of the record date, approximately 77% of the outstanding common stock,
on an as-converted basis, of American Skiing, have entered into a voting and
recapitalization agreement with American Skiing and MeriStar in which they
agreed, among other things, to vote all of their shares of American Skiing
capital stock in favor of each of the matters to be considered at the American
Skiing special meeting, including those proposals requiring a class vote by the
holders of the Series A preferred stock and the Series B preferred stock. No
shares of Series A or Series B preferred stock are issued and outstanding other
than those that are subject to the voting and recapitalization agreement.
Therefore, absent an extraordinary event, American Skiing's management believes
that approval of the proposals described in this joint proxy statement and
prospectus is assured.
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VOTING OF PROXIES
PROPERLY EXECUTED PROXIES THAT HAVE NOT BEEN REVOKED WILL BE VOTED AT THE
SPECIAL MEETING IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED IN THE PROXIES. IF
NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR THE VARIOUS
PROPOSALS.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxy will vote your shares as you have directed.
Please note, however, that if an American Skiing stockholder's shares are
held of record by a broker, bank or other nominee and that stockholder wishes to
vote at the special meeting, the stockholder must bring to the meeting a letter
from the broker, bank or other nominee confirming the stockholder's beneficial
ownership of the shares.
If any other matters are properly presented at the special meeting,
including consideration of a motion to adjourn the meeting to another time or
place for the purpose of soliciting additional proxies, the persons named in the
enclosed forms of proxy will have discretion to vote on those matters in
accordance with their best judgment.
REVOCATION OF PROXIES
Any proxy may be revoked by the person giving it at any time before it is
voted.
Proxies may be revoked by:
- Filing with the secretary of American Skiing a written notice of
revocation bearing a later date than the date of the proxy or giving
notice of revocation at the special meeting;
- Submitting a later-dated proxy relating to the same shares; or
- Attending the special meeting and voting in person.
In order to vote in person at the special meeting, American Skiing
stockholders must attend the meeting and cast their votes in accordance with the
voting procedures established for the meeting. Attendance at the special meeting
without voting in accordance with the voting procedures will not in and of
itself revoke a proxy. Any written notice of revocation either must be delivered
at the special meeting or must be sent, in time to be received before the day of
the special meeting, to:
American Skiing Company
Sunday River Access Road
Bethel, Maine 04217
Attention: Christopher E. Howard
SOLICITATION OF PROXIES
American Skiing will bear the cost of the solicitation of proxies from its
stockholders. American Skiing will share equally with MeriStar the expense of
printing and mailing this joint proxy statement and prospectus and the material
used in this solicitation of proxies. Brokerage houses, fiduciaries, nominees
and others will, upon request, be reimbursed for their out-of-pocket expenses in
forwarding proxy materials to the owners of American Skiing common shares held
in their names. In addition to the solicitation of proxies by use of the mails,
proxies may be solicited from American Skiing stockholders by directors,
officers and employees of American Skiing in person or by telephone, telegraph,
facsimile or other appropriate means of communication. No additional
compensation, except for reimbursement of reasonable out-of-pocket expenses,
will be paid to these directors, officers and employees of American Skiing in
connection with the solicitation. Any questions or requests for
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assistance regarding this joint proxy statement and prospectus and related proxy
materials may be directed to:
American Skiing Company
Sunday River Access Road
Bethel, Maine 04217
Attention: Dan Kashman
Telephone: (207) 824-5106
Fax: (207) 824-5158
STOCKHOLDER PROPOSALS
Under the rules of the SEC relating to when a company must include a
stockholder's proposal in its proxy statement, stockholders may present proper
proposals for inclusion in a company's proxy statement and for consideration at
the next annual meeting of its stockholders by submitting their proposals to
American Skiing in a timely manner.
DISSENTERS' RIGHTS OF APPRAISAL
Under Delaware law, American Skiing stockholders will not be entitled to
dissenters' rights of appraisal in connection with the merger if the merger is
approved or with respect to any other proposal to be voted on at the special
meeting.
THE MATTERS TO BE CONSIDERED AT THE AMERICAN SKIING SPECIAL MEETING ARE OF
GREAT IMPORTANCE TO AMERICAN SKIING STOCKHOLDERS. THE AMERICAN SKIING BOARD OF
DIRECTORS URGES ALL AMERICAN SKIING STOCKHOLDERS TO READ AND CAREFULLY CONSIDER
THE INFORMATION PRESENTED IN THIS JOINT PROXY STATEMENT AND PROSPECTUS, AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED VOTING FORM IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
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THE MERISTAR SPECIAL MEETING
GENERAL
This joint proxy statement and prospectus is being furnished in connection
with the solicitation by the board of directors of MeriStar of proxies from the
holders of MeriStar common stock for use at the MeriStar special meeting. The
meeting will be held at - , on - , 2001, at - local time. MeriStar is
first mailing this document, the attached notice of special meeting of
stockholders and the enclosed voting form to MeriStar's stockholders on or about
on - , 2001.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, MeriStar stockholders will be asked to consider,
approve and adopt a merger agreement providing for a merger of a wholly-owned
subsidiary of American Skiing with and into MeriStar and the other transactions
contemplated by that merger agreement.
MeriStar knows of no matter to be brought before the MeriStar special
meeting other than the merger proposal. If any other business should properly
come before the special meeting, the persons named in the voting form will vote
in their discretion.
THE BOARD OF DIRECTORS OF MERISTAR, OTHER THAN THE MEMBERS WHO HAVE RECUSED
THEMSELVES VOLUNTARILY FROM THE VOTING UPON AND CONSIDERATION OF THE PROPOSALS,
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
BY IT AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF MERISTAR COMMON STOCK VOTE
FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY
IT.
RECORD DATE; QUORUM; REQUIRED VOTE; SHARES OUTSTANDING AND ENTITLED TO VOTE
The MeriStar board has fixed the close of business on - , 2001 as the
record date for the MeriStar special meeting. Accordingly, only holders of
MeriStar common stock on the record date will be entitled to vote at the
MeriStar special meeting and any adjournment or postponement of the meeting. At
the record date, - shares of MeriStar common stock were outstanding and
entitled to vote.
The presence, in person or by proxy, of a majority of these shares is
necessary to constitute a quorum at the MeriStar special meeting. Each share of
common stock is entitled to one vote with respect to each matter to be voted on
at that special meeting.
Approval of the merger proposal requires the affirmative vote of the holders
of a majority of the outstanding shares of MeriStar common stock and of the
majority of the votes cast at the special meeting other than those cast by the
parties to the MeriStar voting agreement described below.
THE FAILURE TO VOTE, ABSTENTIONS AND BROKER NON-VOTES WILL BE INCLUDED IN
THE DETERMINATION OF SHARES PRESENT AT THE MERISTAR SPECIAL MEETING FOR PURPOSES
OF DETERMINING A QUORUM, BUT WILL HAVE THE EFFECT OF A VOTE AGAINST THE MERGER
PROPOSAL.
SECURITY OWNERSHIP OF MANAGEMENT
As of the record date, the directors and executive officers of MeriStar and
their affiliates beneficially owned approximately 6.9 million of the outstanding
shares of MeriStar common stock. Accordingly, MeriStar directors, executive
officers and their affiliates hold shares representing approximately 19% of the
outstanding shares of MeriStar common stock and 11% of the shares of MeriStar
common stock that will be voting at the special meeting other than the common
stock held by the parties to the MeriStar voting agreement described below.
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VOTING AGREEMENT
Oak Hill Capital Partners, L.P., Oak Hill Management Partners, L.P., FW
Hospitality, L.P., Arbor Reit, L.P. and MHX Investors, L.P., who beneficially
held in the aggregate as of the record date approximately 16% of the outstanding
shares of MeriStar common stock, have entered into a voting agreement with
MeriStar and American Skiing in which they agreed, among other things, to vote
all of their shares of MeriStar common stock in favor of the merger and the
other transactions contemplated by the merger agreement.
VOTING OF PROXIES
PROPERLY EXECUTED PROXIES THAT HAVE NOT BEEN REVOKED WILL BE VOTED AT THE
SPECIAL MEETING IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED IN THE PROXIES. IF
NO INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED FOR THE MERGER
PROPOSAL.
Voting instructions are included on your proxy card. If you properly give
your proxy and submit it to us in time to vote, one of the individuals named as
your proxy will vote your shares as you have directed.
Please note, however, that if a MeriStar stockholder's shares are held of
record by a broker, bank or other nominee and that stockholder wishes to vote at
the special meeting, the stockholder must bring to the meeting a letter from the
broker, bank or other nominee confirming the stockholder's beneficial ownership
of the shares.
If any other matters are properly presented at the special meeting,
including consideration of a motion to adjourn the meeting to another time and
place for the purpose of soliciting additional proxies, the persons named in the
enclosed forms of proxy will have discretion to vote on those matters in
accordance with their best judgment.
REVOCATION OF PROXIES
Any proxy may be revoked by the person giving it at any time before it is
voted.
Proxies may be revoked by:
- Filing with the secretary of MeriStar a written notice of revocation
bearing a later date than the date of the proxy or giving notice of
revocation at the special meeting;
- Submitting a later-dated proxy relating to the same shares; or
- Attending the special meeting and voting in person
In order to vote in person at the special meeting, MeriStar stockholders
must attend the meeting and cast the votes in accordance with the voting
procedures established for the meeting. Attendance at the special meeting
without voting in accordance with the voting procedures will not in and of
itself revoke a proxy. Any written notice of revocation either must be delivered
at the special meeting or must be sent, in time to be received before the day of
the special meeting, to:
MeriStar Hotels & Resorts, Inc.
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Attention: Christopher L. Bennett
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SOLICITATION OF PROXIES
MeriStar will bear the cost of the solicitation of proxies from its
stockholders. MeriStar will share equally with American Skiing the expense of
printing and mailing this document and the material used in this solicitation of
proxies. Brokerage houses, fiduciaries, nominees and others will, upon request,
be reimbursed for their out-of-pocket expenses in forwarding proxy materials to
the owners of MeriStar common shares held in their names. In addition to the
solicitation of proxies by use of the mails, proxies may be solicited from
MeriStar stockholders by directors, officers and employees of MeriStar in person
or by telephone, telegraph, facsimile or other appropriate means of
communication. No additional compensation, except for reimbursement of
reasonable out-of-pocket expenses, will be paid to these directors, officers and
employees of MeriStar in connection with the solicitation. In addition, - , a
proxy solicitation firm, has been engaged by MeriStar to act as proxy solicitor
and will receive fees estimated at - , plus reimbursement of out-of-pocket
expenses. Any questions or requests for assistance regarding this joint proxy
statement and prospectus and related proxy materials may be directed to:
<TABLE>
<S> <C>
MeriStar Hotels & Resorts, Inc. [Name and address of proxy solicitor]
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Attention: Melissa Thompson
Telephone: (202) 295-2228
Fax: -
</TABLE>
STOCKHOLDER PROPOSALS
Under the rules of the SEC relating to when a company must include a
stockholder's proposal in its proxy statement, stockholders may present proper
proposals for inclusion in a company's proxy statement and for consideration at
the next annual meeting of its stockholders by submitting their proposals to
MeriStar in a timely manner.
MeriStar will hold an annual meeting in the year 2001 only if the merger has
not been completed. If the merger has not been completed and MeriStar schedules
a 2001 annual meeting to be held after - , stockholders may present a
proposal for inclusion in MeriStar's proxy statement and presentation at the
annual meeting a reasonable time before MeriStar begins to print and mail its
proxy materials.
DISSENTERS' RIGHTS OF APPRAISAL
Under Delaware law, MeriStar stockholders will not be entitled to
dissenters' rights of appraisal in connection with the merger if the merger
agreement is approved or with respect to any other proposal to be voted on at
the special meeting.
THE MATTERS TO BE CONSIDERED AT THE MERISTAR SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO MERISTAR STOCKHOLDERS. THE MERISTAR BOARD URGES ALL MERISTAR
STOCKHOLDERS TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS
JOINT PROXY STATEMENT AND PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ENCLOSED VOTING FORM IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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THE MERGER
BACKGROUND OF THE MERGER
During the spring of 2000, MeriStar had conversations with two public hotel
companies discussing transactions or strategic alliances that might be
potentially beneficial to MeriStar and its stockholders. Because the contact
from the two public companies did not progress to the point of any written
proposal, MeriStar did not consider them significant.
During the spring and summer of 2000, Paul Whetsell, Chairman of the Board
and Chief Executive Officer of MeriStar, S. Kirk Kinsell and Steven Jorns,
directors of MeriStar, some other employees of MeriStar, Richard Borisoff of
Paul, Weiss, Rifkind, Wharton & Garrison, MeriStar's outside counsel, Craig
Wagner of KPMG LLP, MeriStar's auditors, Bradford Bernstein, a partner of Oak
Hill who is also a director of American Skiing, and an outside consultant, met
three times to discuss strategic alternatives for MeriStar.
During July 2000, Paul Whetsell and Leslie Otten, Chairman of the Board and
Chief Executive Officer of American Skiing, each separately contacted
representatives of Oak Hill to determine if they would object to contact between
American Skiing and MeriStar relating to a potential business alliance between
the two companies. Mr. Whetsell is also a director of American Skiing. MeriStar
and Oak Hill preliminarily discussed the desirability of this transaction, and
Oak Hill stated they would not object to contact between the two companies.
On July 25, 2000, Mr. Whetsell met with Mr. Otten, in Boston, Massachusetts
to informally discuss a potential transaction between MeriStar and American
Skiing focusing upon the concept of a branded four-season leisure business.
During the remainder of that week, Mr. Whetsell and Mr. Otten spoke by telephone
a number of times.
From July 25, 2000 through August 1, 2000, Mr. Otten contacted American
Skiing directors and members of Oak Hill to informally discuss a potential
combination of the two companies. On August 2, 2000, Mr. Whetsell, Mr. Otten and
John Emery, Chief Investment Officer of MeriStar, met in Washington, D.C. to
further discuss a transaction between MeriStar and American Skiing and on
August 3, 2000, Mr. Whetsell, Mr. Otten and representatives of Oak Hill met in
New York to continue discussions.
On August 14, 2000, the American Skiing board of directors met by telephone
to discuss the conversations among Mr. Otten and members of MeriStar's
management. Messrs. Wachter and Hawkes were named to a special committee of the
American Skiing board of directors to analyze the proposed transaction on behalf
of American Skiing and the common stockholders of American Skiing and make a
recommendation to the Board. The special committee retained Donaldson, Lufkin &
Jenrette and Sullivan & Cromwell as special advisors to assist in the analysis
of the proposed transaction.
On August 15, 2000, at a regular meeting of the MeriStar board of directors,
Mr. Whetsell advised the board of the discussions with American Skiing.
On August 16, 2000, executives of MeriStar and American Skiing met at
MeriStar's corporate offices in Washington, D.C. to discuss potential
transaction structures, potential capital structures for the combined company
and due diligence.
From August 16, 2000 to August 22, 2000, Mr. Whetsell, Mr. Otten and some
senior executives of MeriStar and American Skiing traveled on a due diligence
trip to all of the American Skiing resorts and to Doral Palm Springs. Throughout
the remainder of August and September, executives from each company established
a due diligence program and schedule and conducted the due diligence process in
preparation for negotiation of the definitive terms of the merger and
recapitalization.
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On September 6, 2000, a telephonic meeting of the MeriStar board was held to
advise the board of the status of the discussions with American Skiing since the
August 15, 2000 board meeting. Daniel Doctoroff, a member of the MeriStar board
and a partner at Oak Hill, recused himself from the meeting.
During late August and September, the special committee of American Skiing's
board of directors met on numerous occasions with its advisors and counsel, and
American Skiing management met with counsel for American Skiing and with Oak
Hill and its counsel. These discussions focused on negotiations and due
diligence regarding the merger and the recapitalization, including in particular
the valuation of each company and resulting exchange ratio for the merger,
transaction structure, post-merger capital structure, the conversion ratio for
American Skiing's Series B preferred stock and the proposed treatment of
American Skiing's Series A preferred stock. Throughout this period each of the
American Skiing special committee, MeriStar management, Oak Hill and their
respective advisors and counsel negotiated the basic terms of the merger and the
recapitalization. These negotiations included several extensive conversations
between Mr. Wachter, a member of the American Skiing board of directors and its
special committee, and Mr. Whetsell concerning the allocation of equity in the
combined company between American Skiing stockholders and MeriStar stockholders,
as well as several extensive negotiations between Mr. Wachter and Mr. Bernstein
regarding the conversion ratio for the Series B preferred stock. The
negotiations of American Skiing's special committee with each of MeriStar and
Oak Hill were focused on maximizing the allocation of equity for the holders of
American Skiing's common stock. The American Skiing special committee met
formally on six occasions during the period.
By late September, the basic structure and financial terms of the merger and
recapitalization were established as among American Skiing, MeriStar and Oak
Hill; however, these terms could not be finalized until negotiations with the
holders of the American Skiing Series A preferred stock and the new senior
lending group were concluded and definitive merger and recapitalization
documents were negotiated and drafted.
On September 28, 2000, the board of directors of American Skiing held a
regularly scheduled meeting during which the special committee and management
reported on the status of the proposed transaction with MeriStar. The American
Skiing board took no action regarding the proposed transaction other than
instructing the special committee and management to finalize negotiations with
the holders of the Series A preferred stock and the senior lending group and
finalize negotiation and drafting of definitive documentation for the merger and
recapitalization. The American Skiing board deferred any detailed discussion of
the transactions until all terms and conditions were finalized.
On October 6, 2000, a telephonic meeting of the MeriStar board was convened.
Representatives of Paul, Weiss participated in the board meeting and advised the
board of the board's legal responsibilities in connection with the proposed
merger. At that meeting, the MeriStar board unanimously agreed that:
- Mr. Daniel Doctoroff, a member of the MeriStar board and a partner of Oak
Hill, would recuse himself from all MeriStar board meetings while the
proposed merger was progressing;
- Mr. Whetsell, because he was also a member of American Skiing's board,
would not vote as a MeriStar director on the merger; and
- The merger agreement would require that a majority of the shares voted by
stockholders other than affiliates of Oak Hill must approve the merger in
addition to other requirements as specified in Delaware law and MeriStar's
constitutive documents.
Mr. Doctoroff then left the meeting. Representatives of Salomon Smith Barney,
MeriStar's financial advisor, then reviewed the financial aspects of the
proposed transaction with the MeriStar board. Mr. Whetsell then gave a report to
the board on the status of the merger discussions.
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During the months of October and November, the special committee, American
Skiing management, MeriStar management, and certain members of Oak Hill and
their respective counsel and financial advisors negotiated the exchange of the
American Skiing Series A preferred stock, negotiated a new senior credit
facility and finalized the negotiation of the definitive merger and
recapitalization documentation.
On October 31, 2000, the special committee of American Skiing held a
telephonic meeting with representatives of Donaldson, Lufkin & Jenrette and
Gibson, Dunn & Crutcher, LLP, special counsel to Donaldson, Lufkin & Jenrette,
to discuss the status of negotiations regarding the transaction.
On November 2, 2000, Mr. Wachter of the special committee met by telephone
with representatives of Donaldson, Lufkin & Jenrette and Sullivan & Cromwell and
discussed the status of management's negotiations with the holders of American
Skiing's Series A preferred stock and its resulting impact on the allocation of
value of the combined company among the holders of American Skiing capital stock
and MeriStar capital stock.
On November 3, 2000, a telephonic meeting of the MeriStar board was held and
the board received a report from management on the status of the proposed
merger. Management explained the current status of the merger agreement as well
as the status of the discussions with the banks that had proposed to lead the
combined company's senior secured credit facility.
On December 1, 2000, the special committee unanimously determined that the
merger and recapitalization, as described in this joint proxy statement and
prospectus, was advisable, fair to and in the best interests of American Skiing
and the stockholders of American Skiing, subject to the receipt of Donaldson,
Lufkin & Jenrette's finalized opinion and to the resolution of the two issues
described in the paragraph below.
On December 1, 2000, the board of directors of American Skiing held a
special telephonic meeting to discuss the final terms and conditions of the
transaction. Messrs. Whetsell and Duquette did not participate in the meeting.
Prior to the meeting, the board was provided with a summary of the proposed
transaction, management's analysis of the proposed merger and current drafts of
the merger document and related agreements. Donaldson, Lufkin & Jenrette
reported to the board its analysis of the exchange ratio and its oral opinion to
the special committee, which opinion was confirmed by delivery of a written
opinion dated as of December 8, 2000, as described below. The special committee
delivered to the board its recommendation that the merger and recapitalization
be approved, subject to the receipt of Donaldson, Lufkin & Jenrette's finalized
opinion and to the resolution of two issues described below. Mr. Christopher
Howard, the Executive Vice President of American Skiing and a member of the
board, reported on two issues relating to the merger agreement that remained
open items at the time. The first was receipt of a written commitment from two
commercial lenders regarding their participation in Doral's new $285.0 million
senior secured lending facility. The second was removal of a provision in the
merger agreement regarding liquidated damages. Following discussion of these
issues, the board of directors of American Skiing, other than members who
voluntarily recused themselves from voting, unanimously determined, based in
part on the recommendation of the special committee of its board of directors
described above, and subject to the satisfactory resolution of the foregoing
issues, that the merger and recapitalization transactions, including the
proposals described in this joint proxy statement and prospectus, were advisable
and fair to, and in the best interests of, American Skiing and its stockholders,
and voted to recommend that the American Skiing stockholders vote for the
approval and adoption of each of the proposals described in this joint proxy
statement and prospectus. Messrs. Gruber, Bernstein, Janes and Crandall
abstained from the vote on each of these issues.
On December 1, 2000, a telephonic meeting of the MeriStar board was convened
and the board received a report from management on the status of the proposed
merger. Mr. Whetsell explained that the American Skiing board had approved the
transaction earlier in the afternoon contingent on
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commitment letters being received from all the banks that would be involved in
the combined company's senior secured credit facility. The MeriStar board
decided to postpone its final review and vote on the transaction until the
contingencies set by the American Skiing board were met.
On December 8, 2000, a meeting of the MeriStar board was held. Mr. Whetsell
stated that all contingencies set by the American Skiing board had been met
except for the final commitment letter from one bank participating in the senior
secured credit facility of the combined company. Mr. Whetsell stated that this
final commitment letter was expected on December 9, 2000. Prior to the meeting,
the members of the MeriStar board were furnished with a summary of the proposed
transaction prepared by Paul, Weiss and the then current drafts of the merger
agreement and the related agreements. A representative of Paul, Weiss led a
discussion of this material with the board and again reviewed with the board
their responsibilities in connection with the proposed merger. Salomon Smith
Barney reviewed with the MeriStar board its analysis of the exchange ratio and
delivered to the MeriStar board its oral opinion, which opinion was confirmed by
delivery of a written opinion dated December 8, 2000, to the effect that, as of
that date and based on and subject to the matters described in its opinion, the
exchange ratio was fair, from a financial point of view, to the holders of
MeriStar common stock. Mr. Whetsell then recused himself from the meeting. After
due discussion and deliberation, the MeriStar board, by a unanimous vote of all
directors other than Mr. Whetsell and Mr. Doctoroff, then voted that the merger
was fair and in the best interests of MeriStar and its shareholders, to approve
the merger and the transactions contemplated by the merger agreement and related
documents and to recommend that the stockholders of MeriStar vote for the
approval and adoption of the merger proposals.
On December 9, 2000, the final commitment letter for the new senior secured
credit facility was received.
During the evening of December 10, 2000, MeriStar and American Skiing signed
the merger agreement and the related agreements.
On the morning of December 11, 2000, MeriStar and American Skiing issued a
joint press release announcing the transactions.
FACTORS CONSIDERED BY AMERICAN SKIING IN RELATION TO THE MERGER; RECOMMENDATIONS
OF AMERICAN SKIING'S BOARD OF DIRECTORS AND ITS SPECIAL COMMITTEE
The board of directors of American Skiing, other than members who
voluntarily recused themselves from voting, has unanimously determined, based in
part on the recommendation of its special committee, that the transactions
relating to the merger and recapitalization, including the proposals described
in this joint proxy statement and prospectus, are advisable and fair to, and in
the best interests of, American Skiing and its stockholders. Accordingly, the
American Skiing board of directors, other than the members who voluntarily
recused themselves from voting, recommends that the American Skiing stockholders
vote FOR approval and adoption of the proposals.
In reaching its decision, the American Skiing board of directors and the
special committee of directors advising it, consulted with American Skiing's
management, as well as American Skiing's and the special committee's respective
legal counsel and Donaldson, Lufkin & Jenrette, and considered the following
material factors:
- The board of directors' knowledge of American Skiing and the businesses in
which it competes and its belief that the greater resources which are
expected to become available to American Skiing as a result of the merger
are important to the long-term future of American Skiing.
- The potential strategic and other benefits of the merger, including the
complementary nature of various American Skiing and MeriStar businesses
and the opportunity for cost savings.
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- The difficulty of obtaining additional equity financing for American
Skiing and the positive effect of the combined company's increased size on
its ability to raise financing and the cost of such financing.
- The advantages resulting from generating cash flow that is both
counter-seasonal to and substantially more stable than American Skiing's
existing cash flow.
- American Skiing's continuing need for liquidity, despite the issuance by
American Skiing of equity to financial investors to meet cash shortages on
separate occasions in 1999 and 2000.
- The likelihood that additional equity financing for American Skiing, if
any were available, would be on terms and conditions significantly
detrimental to the holders of American Skiing common stock.
- The anticipated improvement in American Skiing's ability to capitalize
upon its growth and development opportunities.
- Historical and prospective financial information with respect to American
Skiing, including with respect to the impact or expected impact of
American Skiing's historical and prospective financial performance on
existing covenants contained in American Skiing's debt instruments.
- The fact that the principal stockholders, who have sufficient votes to
approve the proposals described in this joint proxy statement and
prospectus and necessary to consummate the merger and recapitalization,
have signed voting agreements, binding them to approve the proposals.
- The fact that the merger provides for a fixed exchange ratio and, as a
result, the value of the American Skiing common stock to be received by
MeriStar stockholders at the effective time of the merger may be higher or
lower than the value of the stock at the time the merger agreement was
signed.
- The effect of the recapitalization of American Skiing, most significantly
the increase in common equity and the extension of the near term mandatory
redemption of the Series A preferred stock.
- The accounting of the merger as a purchase.
- The possibilities for use of the Doral name for marketing and brand
building purposes.
- The entirety of the terms of the merger agreement, including those
provisions regarding third party proposals, whereby the American Skiing
board of directors may consider superior proposals in certain
circumstances, and the potential payment of a termination fee to MeriStar,
as well as the entirety of the American Skiing voting and recapitalization
agreement and the MeriStar voting agreement.
- With respect to the special committee, the analyses made by, and
discussions with, Donaldson, Lufkin & Jenrette and its oral opinion, based
on and subject to the assumptions, limitations and qualifications set
forth in its written opinion dated as of December 8, 2000, subsequently
confirmed in writing, to the effect that, as of the date of the opinion,
the exchange ratio of 1.88 shares of American Skiing common stock per
share of MeriStar common stock was fair from a financial point of view to
the holders of American Skiing common stock (other than any holders of
American Skiing Class A common stock) and that the allocation between the
holders of American Skiing common stock (other than any holders of
American Skiing Class A common stock), on the one hand, and the holders of
American Skiing's Series A preferred stock and Series B preferred stock
and the Tranche C loans held by Oak Hill, on the other hand, of the equity
securities in the combined company following the transactions contemplated
by the merger agreement to be held by all stockholders of American Skiing
who are stockholders immediately prior to the consummation of such
transactions, was fair to the holders of American
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Skiing common stock (other than any holders of American Skiing Class A
common stock) from a financial point of view.
- The interests that certain executive officers and directors of American
Skiing may have with respect to the merger in addition to their interests
as stockholders of American Skiing generally.
In reaching the above determination, the American Skiing board and its
special committee gave significant consideration to a variety of factors,
including those described above. In view of the wide variety of factors bearing
on its decision, the American Skiing board and its special committee did not
consider it practicable to, nor did it attempt to, quantify or assign relative
specific weight to the factors it considered in reaching its decision. In
addition, individual directors may have given different weights to different
factors. The American Skiing board and its special committee received the advice
of American Skiing's senior management, as well as Donaldson, Lufkin & Jenrette
and their respective independent counsel, throughout its consideration of the
merger, the recapitalization and the related transactions and proposals
described in this joint proxy statement and prospectus. The American Skiing
board and its special committee do not intend the preceding discussion of the
information and factors to be exhaustive but believe the discussion includes the
material factors it considered.
In considering the recommendation of the American Skiing board of directors
to approve and adopt the proposals described in this joint proxy statement and
prospectus, American Skiing stockholders should be aware that certain officers
and directors of American Skiing have certain interests in the proposed merger
that are different from and in addition to the interests of American Skiing
stockholders generally. The American Skiing board of directors and its special
committee was aware of these interests and considered them in approving the
merger agreement and the merger. See "Interests of Certain Persons in the
Merger" on page 61.
FACTORS CONSIDERED BY MERISTAR IN RELATION TO THE MERGER; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF MERISTAR
The board of directors of MeriStar has determined that the merger and the
other transactions contemplated by the merger agreement are advisable and in the
best interests of MeriStar and its stockholders and has unanimously approved the
merger agreement and the transactions contemplated by it. ACCORDINGLY, THE BOARD
OF DIRECTORS OF MERISTAR, OTHER THAN THE MEMBERS WHO HAVE RECUSED THEMSELVES
VOLUNTARILY FROM THE VOTING UPON AND CONSIDERATION OF THE PROPOSALS, UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS OF MERISTAR VOTE FOR THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY IT.
In reaching the above determination, the MeriStar board gave significant
consideration to a variety of factors, including those described below. In view
of the wide variety of factors bearing on its decision, the MeriStar board did
not consider it practicable to, nor did it attempt to, quantify or assign
relative specific weight to the factors it considered in reaching its decision.
In addition, individual directors may have given different weights to different
factors. The MeriStar board received the advice of its senior management, as
well as its legal and financial advisors throughout its consideration of the
merger agreement. The MeriStar board does not intend the following discussion of
the information and factors to be exhaustive but believes the discussion
includes the material factors it considered.
The MeriStar board considered the following potential material factors in
making its determination:
- OPPORTUNITY TO LEVERAGE THE "DORAL" BRAND NAME. The MeriStar board of
directors believes that the merger will give the combined company the
opportunity to use the "Doral" brand name as a premier leisure brand in
multiple locations for resorts, skiing, golf and conference centers. The
MeriStar board considered the combined company's branding strategy, which
will be to maintain a high level of service with the distinct and
recognizable brand--Doral. As a result, the MeriStar
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board believes that visitors to Doral branded facilities who enjoy their
experiences will be prime candidates for cross-marketing of other Doral
branded facilities. For example, a visitor to a Doral golf destination
could receive promotional materials and programs relating to Doral ski
destinations and conference centers and have confidence that his or her
experience at the other Doral destinations will be characterized by the
same high level of service. The MeriStar board views the ability to
cross-market different categories of Doral branded facilities as a crucial
and cost-effective method of expanding the reach of the combined company's
marketing initiatives and believes that cross-marketing Doral branded
facilities may further decrease the degree of seasonality of the combined
company's revenues.
- ATTRACTIVE DEVELOPMENT OPPORTUNITIES. The MeriStar board believes that
American Skiing's resort and real estate assets will provide MeriStar with
attractive real estate development opportunities that would otherwise be
difficult to achieve through organic growth of its existing business
platforms. Resort properties that are suitable for development and easily
accessible to visitors are, by their very nature, limited in supply.
Furthermore, to acquire development properties individually would likely
require large capital outlays and additional financing as well as a
significant diversion of the attention of MeriStar management to potential
acquisitions. In addition, there is no assurance that the time or
attention spent on individual acquisitions would result in a coherent set
of assets from a geographic, operational or marketing standpoint.
MeriStar's board of directors believes that American Skiing provides the
combined company with a coherent, geographically diverse package of
development properties that provide significant ongoing growth potential
for the foreseeable future without the need for additional acquisitions.
- OPPORTUNITY FOR REVENUE GROWTH. The MeriStar board of directors believes
that the merger creates the opportunity for greater revenue growth than
MeriStar is likely to experience on a stand-alone basis because of the
larger pool of assets, the potential for revenue growth stemming from
improved management of existing assets and the ability to leverage the
Doral brand name across different types of facilities through active
cross-marketing of Doral facilities.
- STRONG STRATEGIC FIT; OPPORTUNITY TO LEVERAGE MERISTAR'S CORE COMPETENCY
IN A NEW BUT COMPATIBLE AREA. As a management company, MeriStar's strength
lies in its ability to manage hospitality operations. American Skiing is a
company dependent on the recreational hospitality business whose recent
focus has been the development of resort properties. Now that many
properties have been developed by American Skiing, the MeriStar board of
directors believes that the merger creates the opportunity for MeriStar's
management to use its skills and experience in hospitality management,
purchasing, marketing and finance to manage American Skiing's assets.
- INCREASED COMPANY SIZE AND POTENTIAL LIQUIDITY. Based on American Skiing's
closing stock price as of January 4, 2001 of $1.44 and MeriStar's closing
stock price as of January 4, 2001 of $2.50, the combined company would
have a post-merger equity market capitalization of approximately
$272 million, versus approximately $90 million for MeriStar on a
stand-alone basis. The total capitalization of the combined company would
be $878 million, versus $185 million for MeriStar alone. The MeriStar
board believes that the larger size of the combined company could result
in easier access to additional financing and greater liquidity for
stockholders.
- OPINION OF MERISTAR'S FINANCIAL ADVISOR. The MeriStar board also
considered the opinion, dated December 8, 2000, of Salomon Smith Barney,
MeriStar's financial advisor, as to the fairness, from a financial point
of view and as of the date of the opinion, of the exchange ratio provided
for in the merger agreement.
- TERMS OF THE TRANSACTION AGREEMENTS. The MeriStar board considered the
entirety of the terms of the transaction agreements, including the fixed
exchange ratio, the representations and warranties of the parties, the
provisions regarding its ability to consider third party proposals and
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the termination fee provisions. Furthermore, the MeriStar board also
considered that American Skiing stockholders who have a sufficient number
of votes to approve the merger proposals have signed the American Skiing
voting and recapitalization agreement, which requires those stockholders
to vote their shares in favor of the merger proposals.
- INCREASED LEVERAGE. Despite the recapitalization, the combined company
will be leveraged to a substantially higher degree than MeriStar currently
is and will be close to the limits of the amount of indebtedness and debt
service obligations permitted under its credit agreements and existing
indebtedness.
- INCREASED EXPOSURE TO WEATHER EFFECTS AND SEASONALITY. Since the majority
of American Skiing's cash flow is generated over a two to three month
period during the winter, unseasonably warm temperatures in the eastern
United States have negatively impacted resort cash flows and have strained
American Skiing's capital structure. This sensitivity to adverse weather
conditions makes the results of operations of the combined company more
unpredictable than those of MeriStar.
- EXPOSURE TO CHANGING CUSTOMER DEMOGRAPHICS. Skiing revenues are highly
dependent on customer demographics, and marketing for ski resorts must be
highly attuned to changing demographics.
- LACK OF EXPERIENCE IN SKI RESORT OPERATIONS. Although MeriStar's
management personnel have extensive experience in real estate operations
and management, MeriStar currently does not manage any ski resorts.
- DISCONTINUITIES IN ANALYST COVERAGE. The merger could result in
discontinuities in securities analyst coverage, since MeriStar is
currently covered by hotel analysts, and American Skiing is currently
covered by leisure analysts. The combined company will likely be covered
by a combination of both.
- OWNERSHIP INTERESTS OF OAK HILL. Oak Hill Capital Partners, L.P. and some
parties related to it currently control approximately 16% of MeriStar.
Assuming the merger is completed on March 31, 2001, Oak Hill and some of
its related parties will control approximately 50% of the outstanding
capital stock of Doral.
OPINION OF FINANCIAL ADVISOR TO THE AMERICAN SKIING SPECIAL COMMITTEE
THE FULL TEXT OF DONALDSON, LUFKIN & JENRETTE'S WRITTEN OPINION DATED
DECEMBER 8, 2000, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS OF THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS JOINT PROXY STATEMENT
AND PROSPECTUS AS APPENDIX D AND SHOULD BE READ CAREFULLY IN ITS ENTIRETY.
DONALDSON, LUFKIN & JENRETTE'S OPINION IS DIRECTED TO THE SPECIAL COMMITTEE OF
THE BOARD OF DIRECTORS OF AMERICAN SKIING AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER WITH RESPECT TO ANY MATTER RELATING TO THE
PROPOSED MERGER. THE SUMMARY OF DONALDSON, LUFKIN & JENRETTE'S OPINION INCLUDED
IN THIS JOINT PROXY STATEMENT AND PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION.
The special committee of the board of directors of American Skiing asked
Donaldson, Lufkin & Jenrette Securities Corporation, in its role as financial
advisor to American Skiing, to render an opinion to the special committee of the
board of directors of American Skiing as to the fairness, from a financial point
of view, to the holders of American Skiing common stock (other than any holders
of American Skiing Class A common stock) of the exchange ratio in the merger.
The special committee of the board of directors of American Skiing also
requested Donaldson, Lufkin & Jenrette to render an opinion to the Special
Committee of the board of directors of American Skiing as to the fairness, from
a financial point of view, to the holders of American Skiing common stock (other
than any holders of American Skiing Class A common stock) of the allocation
between such common stockholders, on the one hand, and the holders of American
Skiing's Series A preferred stock, the Series B preferred stock
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and the Tranche C loans, on the other hand, of the equity securities in the
combined company following consummation of the transactions contemplated by the
merger agreement to be held by all stockholders of American Skiing who are
stockholders immediately prior to the consummation of the transactions
contemplated by the merger agreement. On September 28, 2000, Donaldson,
Lufkin & Jenrette delivered a written presentation to the special committee of
the board of directors of American Skiing. Subsequent updates were made on
various portions of this presentation at meetings of the special committee of
the American Skiing board of directors on October 31, 2000, November 2, 2000 and
November 13, 2000. On December 1, 2000, Donaldson, Lufkin & Jenrette delivered
to the special committee of the board of directors of American Skiing its oral
opinion, subsequently confirmed in writing, to the effect that, as of that date,
based on and subject to the assumptions, limitations and qualifications set
forth in its written opinion dated as of December 8, 2000, the exchange ratio in
the merger was fair to the holders of American Skiing common stock (other than
any holders of American Skiing Class A common stock) from a financial point of
view and the allocation was fair to the holders of American Skiing common stock
(other than any holders of American Skiing Class A common stock) from a
financial point of view. The full text of Donaldson, Lufkin & Jenrette's opinion
is attached as Appendix D to this joint proxy statement and prospectus.
Donaldson, Lufkin & Jenrette expressed no opinion as to the price at which
American Skiing common stock would actually trade at any time. Donaldson,
Lufkin & Jenrette's opinion did not address the relative merits of the merger
and the other business strategies considered by the American Skiing board or any
committee of the American Skiing board nor did it address the American Skiing
board's or any of its committee's decision to proceed with the merger.
Donaldson, Lufkin & Jenrette's opinion did not constitute a recommendation to
any American Skiing stockholder as to how such stockholder should vote on the
merger.
American Skiing and MeriStar determined the exchange ratio in arm's length
negotiations between American Skiing and MeriStar, in which Donaldson, Lufkin &
Jenrette advised the special committee of the board of directors of American
Skiing. The special committee of the board of directors of American Skiing and
Oak Hill Capital Partners, L.P., negotiated a conversion price for the Series B
preferred stock and the Tranche C loans of $2.22 per common share in arm's
length negotiations between the special committee of the board of directors of
American Skiing and Oak Hill Capital Partners, L.P., in which Donaldson,
Lufkin & Jenrette advised the special committee of the board of directors of
American Skiing. American Skiing and Madeleine, LLC also negotiated a conversion
price for the Series A preferred stock of $2.22 per common share in accordance
with the Voting and Recapitalization Agreement in arm's length negotiations
between American Skiing and Madeleine, LLC. The above conversion price resulted
in the allocation between the common stockholders of American Skiing other than
any holders of American Skiing Class A common stock, on the one hand, and the
holders of American Skiing's Series A preferred stock, the Series B preferred
stock and the Tranche C loans, on the other hand, of the equity securities in
the combined company following consummation of the transactions.
The special committee of the board of directors of American Skiing selected
Donaldson, Lufkin & Jenrette as its financial advisor because Donaldson,
Lufkin & Jenrette is an internationally recognized investment banking firm that
has substantial experience providing strategic advisory services. Donaldson,
Lufkin & Jenrette was not retained as an advisor or agent to the stockholders of
American Skiing or any other person. As part of its investment banking business,
Donaldson, Lufkin & Jenrette is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes.
In arriving at its opinion, Donaldson, Lufkin & Jenrette:
- reviewed the merger agreement;
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- reviewed the American Skiing voting and recapitalization agreement, the
MeriStar voting agreement and the registration rights agreement;
- reviewed financial and other information that was publicly available or
furnished to Donaldson, Lufkin & Jenrette by American Skiing and MeriStar,
including information provided during discussions with their respective
managements. Included in the information provided during discussions with
their respective managements were certain financial projections of
MeriStar for the period beginning January 1, 2000 and ending December 31,
2005 prepared by the management of MeriStar and certain financial
projections of American Skiing for the period beginning August 1, 2000 and
ending July 31, 2005 prepared by the management of American Skiing, as
well as share ownership information on American Skiing and MeriStar,
including vested and unvested options and warrants outstanding;
- compared certain financial and securities data of American Skiing and
MeriStar with various other companies whose securities are traded in
public markets; and
- conducted other financial studies, analyses and investigations as
Donaldson, Lufkin & Jenrette deemed appropriate for purposes of rendering
its opinion.
Donaldson, Lufkin & Jenrette was not requested to, nor did it solicit, the
interest of any persons concerning a transaction with American Skiing.
In rendering its opinion, Donaldson, Lufkin & Jenrette relied upon and
assumed the accuracy and completeness of all of the financial and other
information that was available to it from public sources, that was provided to
it by American Skiing, MeriStar, or their respective representatives, or that
Donaldson, Lufkin & Jenrette otherwise reviewed. With respect to the financial
projections supplied to Donaldson, Lufkin & Jenrette, Donaldson, Lufkin &
Jenrette relied on representations that the projections were reasonably prepared
on the basis reflecting the best currently available estimates and judgments of
the management of American Skiing and MeriStar as to the future operating and
financial performance of American Skiing and MeriStar, respectively. Donaldson,
Lufkin & Jenrette expressed no opinion with respect to these projections or the
assumptions upon which they were based. Donaldson, Lufkin & Jenrette did not
assume responsibility for making any independent evaluation of the assets or
liabilities, or for making any independent verification of the information
Donaldson, Lufkin & Jenrette reviewed. Donaldson, Lufkin & Jenrette relied as to
certain legal matters on advice of counsel to American Skiing.
Donaldson, Lufkin & Jenrette necessarily based its opinion on economic,
market, financial and other conditions as they existed on, and on the
information made available to Donaldson, Lufkin & Jenrette as of, the date of
its opinion. Donaldson, Lufkin & Jenrette states in its opinion that, although
subsequent developments may affect the conclusions reached in its opinion,
Donaldson, Lufkin & Jenrette does not have any obligation to update, revise or
reaffirm its opinion.
SUMMARY OF FINANCIAL ANALYSES PERFORMED BY DONALDSON, LUFKIN & JENRETTE
The following is a summary of the financial analyses Donaldson, Lufkin &
Jenrette delivered to the special committee of the American Skiing board of
directors on September 28, 2000 in connection with the preparation of Donaldson,
Lufkin & Jenrette's opinion. Because certain terms of the transaction continued
to be negotiated subsequent to September 28, 2000, Donaldson, Lufkin & Jenrette
updated portions of the financial analyses delivered to the special committee of
the American Skiing board of directors on October 31, 2000, November 2, 2000 and
November 13, 2000. No company or transaction Donaldson, Lufkin & Jenrette used
in the analyses described below is directly comparable to MeriStar, American
Skiing or the contemplated transaction. In addition, mathematical analysis such
as determining the mean or median is not in itself a meaningful method of using
selected company or transaction data. The analyses Donaldson, Lufkin & Jenrette
performed are not necessarily
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indicative of actual values or future results, which may be significantly more
or less favorable than suggested by these analyses. The information summarized
in the tables which follow should be read in conjunction with the accompanying
text.
ANALYSIS OF EXCHANGE RATIO
MULTIPLES VALUATION ANALYSIS. Donaldson, Lufkin & Jenrette analyzed the
market values and trading multiples of selected publicly traded hotel industry
companies that Donaldson, Lufkin & Jenrette believed were reasonably comparable
to MeriStar. These comparable companies consisted of:
- Marriott International, Inc.
- Crestline Capital Corporation
- Choice Hotels International, Inc.
In examining these comparable companies, Donaldson, Lufkin & Jenrette
calculated the enterprise value of each company as a multiple of its respective
one-year forward EBITDA which, in the case of the above three companies, refers
to the projected fiscal year ended December 31, 2000 EBITDA. The enterprise
value of a company is equal to the value of its fully-diluted common equity plus
debt and the liquidation value of outstanding preferred stock, if any, minus
cash and the value of certain other assets, including investments in
unconsolidated affiliates. EBITDA means earnings before interest expense, taxes,
depreciation and amortization. Forward EBITDA means the EBITDA projected for the
next fiscal year end. In the case of MeriStar, Donaldson, Lufkin & Jenrette
calculated the forward EBITDA for the twelve months ending June 30, 2001 to
better match American Skiing's fiscal year end. All projected data for the
comparable companies was obtained from Wall Street research reports and First
Call, where available. Donaldson, Lufkin & Jenrette's analysis of the comparable
companies yielded the following multiple ranges:
ENTERPRISE VALUE
<TABLE>
<CAPTION>
FORWARD
EBITDA
--------
<S> <C>
High....................................................... 9.9x
Low........................................................ 6.4x
Average.................................................... 7.7x
</TABLE>
Based on an analysis of this data and MeriStar's projected one-year forward
EBITDA and using balance sheet figures for MeriStar as of June 30, 2000,
Donaldson Lufkin & Jenrette derived a reference range of multiples for MeriStar
ranging from 6.0x to 7.5x and an implied equity value of MeriStar ranging from
$106.8 million to $157.6 million.
Donaldson, Lufkin & Jenrette also analyzed the market values and trading
multiples of selected publicly traded resort industry companies that Donaldson,
Lufkin & Jenrette believed were reasonably comparable to American Skiing. These
comparable companies consisted of:
- Intrawest Corporation
- Vail Resorts, Inc.
- Premier Parks Inc.
- Boca Resorts, Inc.
In examining these comparable companies, Donaldson, Lufkin & Jenrette
calculated the enterprise value of each company as a multiple of its respective
one-year forward EBITDA which, in the case of the above four companies, refers
to EBITDA for projected fiscal years ended in the range of
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December 31, 2000 to July 31, 2001. All projected data was obtained from Wall
Street research reports and First Call where available. Donaldson, Lufkin &
Jenrette's analysis of the comparable companies yielded the following multiple
ranges:
ENTERPRISE VALUE
<TABLE>
<CAPTION>
FORWARD
EBITDA
--------
<S> <C>
High....................................................... 9.9x
Low........................................................ 8.1x
Average.................................................... 9.0x
</TABLE>
Based on an analysis of this data, American Skiing's projected results for
comparable periods and valuing American Skiing's real estate segment using a
discounted cash flow analysis using a discount rate of 25% for the real estate
segment on a stand alone basis and using balance sheet figures for American
Skiing as of July 31, 2000, Donaldson, Lufkin & Jenrette derived a reference
range of multiples for American Skiing ranging from 7.5x to 9.0x and an implied
equity value of American Skiing ranging from $300.9 million to $390.9 million
assuming conversion of the shares of preferred stock of American Skiing at their
respective liquidation values as of October 31, 2000.
Based on the results of the multiples valuation for the two companies,
Donaldson, Lufkin & Jenrette derived implied equity ratios of American Skiing
and MeriStar in the combined company ranging from 73.8%/26.2% to 71.3%/28.7%,
respectively which were obtained by comparing the lowest estimated valuation of
American Skiing's common equity value to the lowest estimated valuation of
MeriStar's common equity value and the highest estimated valuation of American
Skiing's common equity value to the highest estimated valuation of MeriStar's
common equity value.
DISCOUNTED CASH FLOW ANALYSIS. Donaldson, Lufkin & Jenrette performed a DCF
analysis of the projected cash flows of MeriStar for the period from June 30,
2000 to December 31, 2000 and the fiscal years ending December, 2001 through
December, 2005, using projections and assumptions provided by the management of
MeriStar. DCF means discounted cash flow. The DCFs for MeriStar were estimated
using a discount rate of 12.5%, based on estimates related to the weighted
average costs of capital of MeriStar, and terminal multiples of estimated EBITDA
for MeriStar's fiscal year ending December, 2005 ranging from 6.0x to 7.5x.
Based on this analysis and using balance sheet figures for MeriStar as of
June 30, 2000, Donaldson, Lufkin & Jenrette estimated an implied common equity
value of MeriStar ranging from $192.3 million to $240.6 million.
Donaldson, Lufkin & Jenrette performed a separate DCF analysis of the
projected cash flows of American Skiing's resort segment for the fiscal years
ending July, 2001 through July, 2005 and of American Skiing's real estate
segment for the fiscal years ending July, 2001 through July, 2010, using
projections and assumptions provided by the management of American Skiing.
Donaldson, Lufkin & Jenrette performed the DCF analysis for American Skiing
using a discount rate of 20% for American Skiing's resort segment and from 20%
to 30% for American Skiing's real estate segment, based on estimates relating to
the weighted average costs of capital of American Skiing with respect to each
segment, and terminal multiples of estimated EBITDA for American Skiing's resort
segment's fiscal year ending July, 2005 ranging from 7.5x to 9.0x and terminal
cash flows for American Skiing's real estate segment provided by American
Skiing's management which were based on free cash flows of different assets and
undeveloped land. Based on this analysis and using balance sheet figures for
American Skiing as of July 31, 2000, Donaldson, Lufkin & Jenrette estimated an
implied total equity value for American Skiing ranging from $241.3 million to
$389.4 million assuming conversion of the shares of preferred stock of American
Skiing at their respective liquidation values as of October 31, 2000.
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Based on the results of the discounted cash flow analysis of the two
companies, Donaldson, Lufkin & Jenrette derived implied equity ratios of
American Skiing and MeriStar in the combined company ranging from 55.7%/44.3% to
61.8%/38.2%, respectively which were obtained by comparing the lowest estimated
valuation of American Skiing's common equity value to the lowest estimated
valuation of MeriStar's common equity value and the highest estimated valuation
of American Skiing's common equity value to the highest estimated valuation of
MeriStar's common equity value.
CONSTANT MULTIPLE ANALYSIS. Donaldson, Lufkin & Jenrette performed an
implied equity valuation of MeriStar as a multiple of its one-year forward
EBITDA using forward multiples of EBITDA ranging from 7.0x to 9.0x. Based on an
analysis of this data and using balance sheet figures for MeriStar as of
June 30, 2000, Donaldson, Lufkin & Jenrette estimated an implied equity value of
MeriStar ranging from $140.3 million to $208.1 million.
Donaldson, Lufkin & Jenrette also performed an implied equity valuation of
American Skiing as a multiple of its one-year forward EBITDA using forward
multiples of EBITDA ranging from 7.0x to 9.0x. Based on an analysis of this data
and using balance sheet figures for American Skiing as of July 31, 2000,
Donaldson, Lufkin & Jenrette estimated an implied equity value of American
Skiing ranging from $127.4 million to $271.5 million assuming conversion of the
shares of preferred stock of American Skiing at their respective liquidation
values as of October 31, 2000.
Based on the results of the constant multiples valuation for the two
companies, Donaldson, Lufkin & Jenrette derived implied equity ratios of
American Skiing and MeriStar in the combined company ranging from 47.6%/52.4% to
56.6%/43.4%, respectively which were obtained by comparing the lowest estimated
valuation of American Skiing's common equity value to the lowest estimated
valuation of MeriStar's common equity value and the highest estimated valuation
of American Skiing's common equity value to the highest estimated valuation of
MeriStar's common equity value.
CONTRIBUTION ANALYSIS. Donaldson, Lufkin & Jenrette analyzed the relative
free cash flow contributions of American Skiing and MeriStar to the pro forma
combined company for the fiscal years ending July, 2000, July, 2001 and the five
year average for the fiscal years ending July, 2001 through July, 2005 based on
selected financial data, assuming no anticipated cost savings or related
expenses and the consummation of the transactions contemplated by the American
Skiing voting and recapitalization agreement. Free cash flow, in this case,
means EBITDA less capital expenditures. Donaldson, Lufkin & Jenrette analyzed
the respective contributions of each company's free cash flows for each of
fiscal year ending July, 2000 and projected free cash flows for fiscal year
ending July, 2001 and the five year average for the fiscal years ending July,
2001 through July, 2005 based on estimates provided by the managements of
American Skiing and MeriStar. The table below denotes each respective company's
contribution to free cash flows:
<TABLE>
<CAPTION>
MERISTAR % OF FREE AMERICAN SKIING % OF FREE
CASH FLOWS CASH FLOWS
------------------ -------------------------
<S> <C> <C>
Free Cash Flows
2000.................................. 52.2% 47.8%
2001.................................. 43.2% 56.8%
Average of 2001-2005 32.0% 68.0%
</TABLE>
CURRENT EQUITY MARKET CAPITALIZATION ANALYSIS. Donaldson, Lufkin & Jenrette
examined the equity market capitalization for each of American Skiing and
MeriStar based upon the prices of the common stock of the respective companies
as of September 21, 2000. Based on this, Donaldson, Lufkin & Jenrette derived a
common equity value of $280.8 million for American Skiing assuming conversion of
the shares of preferred stock of American Skiing at their respective liquidation
values as of October 31, 2000 and $102.7 million for MeriStar. This analysis
resulted in an implied equity ratio of American Skiing and MeriStar in the
combined company of 73.2%/26.8%, respectively.
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ANALYSIS OF ALLOCATION
Donaldson, Lufkin and Jenrette evaluated the fairness, from a financial
point of view, to the holders of American Skiing common stock (other than any
holders of American Skiing Class A common stock) of the allocation between such
common stockholders, on the one hand, and the holders of American Skiing's
Series A preferred stock, the Series B preferred stock and the Tranche C loans,
on the other hand, of the equity securities in the combined company following
consummation of the transactions, after the Special Committee of the board of
directors of American Skiing and Oak Hill negotiated a conversion price for the
Series B preferred stock and the Tranche C loans of $2.22 per share and American
Skiing and Madeleine, LLC negotiated a conversion price for the Series A
preferred stock of $2.22 per share in accordance with the Voting and
Recapitalization Agreement. First, Donaldson Lufkin & Jenrette determined that
based on an implied price per share for the combined company's common stock of
$2.22 for the fiscal year ending July, 2000 and taking into account the fully
diluted number of shares of common stock of the combined company, the combined
company would have an implied net equity value of $425.4 million.
Donaldson, Lufkin & Jenrette then analyzed the new series of American Skiing
14% preferred stock assuming a discount rate of 20% and using a liquidation
preference of $49.6 million as of October 31, 2000. Based on an analysis of this
data, Donaldson, Lufkin & Jenrette estimated a present value of approximately
$38.3 million for the new series of American Skiing 14% preferred stock. Based
on this analysis, Donaldson, Lufkin & Jenrette derived at an implied total
equity value of the combined company of approximately $463.6 million.
Donaldson, Lufkin & Jenrette then analyzed the enterprise value of American
Skiing's real estate segment using a discounted cash flow analysis using a
discount rate of 20% for the real estate segment on a combined basis and
subtracted the real estate debt using balance sheet figures for American Skiing
as of July 31, 2000 to arrive at an implied equity value for American Skiing's
real estate segment of approximately $131.6 million. Based on these results,
Donaldson, Lufkin & Jenrette derived an implied aggregate equity value for the
combined company, excluding American Skiing's real estate segment, of
approximately $332.0 million.
Donaldson, Lufkin & Jenrette then added the debt associated with American
Skiing's resort segment and of MeriStar in an aggregate amount of
$402.4 million using balance sheet figures for American Skiing and MeriStar as
of July 31, 2000 and June 30, respectively to derive an implied total enterprise
value for the combined company, excluding American Skiing's real estate segment,
of approximately $734.4 million.
Based on the foregoing and assuming a combined forward EBITDA for the
combined company (excluding American Skiing's real estate segment) of
$96.0 million which includes approximately $3.0 million of cost savings as
estimated by the managements of American Skiing and MeriStar, Donaldson,
Lufkin & Jenrette mathematically concluded that a $2.22 per share conversion
price for the Series A preferred stock in accordance with the Voting and
Recapitalization Agreement, the Series B preferred stock and Tranche C loans
implied a forward multiple of EBITDA of 7.7x, which was within the range of
forward multiples of EBITDA of companies that Donaldson, Lufkin & Jenrette
believed were reasonably comparable to American Skiing and MeriStar.
The summary set forth above does not purport to be a complete description of
the analyses performed by Donaldson, Lufkin & Jenrette but describes, in summary
form, the material elements of the presentation that Donaldson, Lufkin &
Jenrette delivered to the special committee of the American Skiing board on
September 28, 2000, as certain portions of such presentation were updated on
October 31, 2000, November 2, 2000 and November 13, 2000, in connection with the
preparation of Donaldson, Lufkin & Jenrette's fairness opinion. The preparation
of a fairness opinion involves various determinations as to the most appropriate
and relevant methods of financial analysis and the application of these methods
to the particular circumstances and, therefore, such an opinion is not
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readily susceptible to summary description. Donaldson, Lufkin & Jenrette
conducted each of the analyses in order to provide a different perspective on
the transaction and to add to the total mix of information available. Donaldson,
Lufkin & Jenrette did not form a conclusion as to whether any individual
analysis, considered in isolation, supported or failed to support an opinion as
to fairness from a financial point of view. Rather, in reaching its conclusion,
Donaldson, Lufkin & Jenrette considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of all
analyses taken as a whole. Donaldson, Lufkin & Jenrette did not place any
particular reliance or weight on any individual analysis, but instead concluded
that its analyses, taken as a whole, supported its determination. Accordingly,
notwithstanding the separate factors summarized above, Donaldson, Lufkin &
Jenrette has indicated to the special committee of the board of directors of
American Skiing that it believes that its analyses must be considered as a whole
and that selecting portions of its analyses and the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its opinion. The analyses Donaldson, Lufkin &
Jenrette performed are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
these analyses.
ENGAGEMENT LETTER
Pursuant to the terms of an engagement agreement dated August 31, 2000,
American Skiing has agreed to pay a fee that is customary in transactions of
this nature a substantial portion of which is contingent upon the consummation
of the merger. In addition, American Skiing agreed to reimburse Donaldson,
Lufkin & Jenrette, upon Donaldson, Lufkin & Jenrette's request from time to
time, for all out-of-pocket expenses (including the reasonable fees and expenses
of counsel) Donaldson, Lufkin & Jenrette incurred in connection with its
engagement thereunder and to indemnify Donaldson, Lufkin & Jenrette and certain
related persons against certain liabilities in connection with its engagement,
including liabilities under U.S. federal securities laws. Donaldson, Lufkin &
Jenrette and American Skiing negotiated the terms of the fee arrangement.
OTHER RELATIONSHIPS
Donaldson, Lufkin & Jenrette has performed investment banking and other
services for American Skiing in the past and has been compensated for such
services. Such services include acting as lead manager for American Skiing's
initial public offering in November, 1997, advising American Skiing in
connection with its issuance of $150 million of the Series B preferred stock in
July, 1999 and advising the special committee of the board of directors of
American Skiing in connection with the issuance of the Tranche C notes to Oak
Hill in July, 2000. In addition, Donaldson, Lufkin & Jenrette has acted as
underwriter, initial purchaser and financial advisor to numerous companies
related to Oak Hill and has received usual and customary compensation in
connection with such services.
OPINION OF MERISTAR'S FINANCIAL ADVISOR
MeriStar retained Salomon Smith Barney as its financial advisor in
connection with the proposed merger. In connection with this engagement,
MeriStar requested that Salomon Smith Barney evaluate the fairness, from a
financial point of view, to the holders of MeriStar common stock of the exchange
ratio provided for in the merger agreement. On December 8, 2000, at a meeting of
the MeriStar board of directors held to evaluate the proposed merger, Salomon
Smith Barney delivered to the MeriStar board of directors an oral opinion, which
opinion was confirmed by delivery of a written opinion dated December 8, 2000,
to the effect that, as of that date and based on and subject to the matters
described in its opinion, the exchange ratio was fair, from a financial point of
view, to the holders of MeriStar common stock.
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In arriving at its opinion, Salomon Smith Barney:
- Reviewed the merger agreement and related documents;
- Held discussions with senior officers, directors and other representatives
and advisors of MeriStar and with senior officers and other
representatives and advisors of American Skiing concerning the businesses,
operations and prospects of MeriStar and American Skiing;
- Examined publicly available business and financial information relating to
MeriStar and American Skiing;
- Examined financial forecasts and other information and data for MeriStar
and American Skiing which were provided to or otherwise discussed with
Salomon Smith Barney by the managements of MeriStar and American Skiing;
- Reviewed the financial terms of the merger as described in the merger
agreement in relation to, among other things, current and historical
market prices and trading volumes of MeriStar common stock and American
Skiing common stock, the historical and projected earnings and other
operating data of MeriStar and American Skiing, and the financial
condition and capitalization of MeriStar and American Skiing;
- Analyzed financial, stock market and other publicly available information
relating to the businesses of other companies whose operations it
considered relevant in evaluating those of MeriStar and American Skiing;
- Evaluated the potential pro forma financial impact of the merger on
MeriStar and American Skiing; and
- Conducted other analyses and examinations and considered other financial,
economic and market criteria as it deemed appropriate in arriving at its
opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, on the accuracy and completeness of all financial and
other information and data that it reviewed or considered. With respect to
financial forecasts and other information and data, the managements of MeriStar
and American Skiing advised Salomon Smith Barney that the forecasts, including
related adjustments, and other information and data were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
managements of MeriStar and American Skiing as to the future financial
performance of MeriStar and American Skiing.
Salomon Smith Barney assumed, with MeriStar's consent, that the merger will
be treated as a tax-free reorganization for federal income tax purposes and that
the merger and related transactions would be consummated in all material
respects in accordance with the terms and conditions described in the merger
agreement and related documents, without any waiver, modification or amendment
of any material conditions or agreements. Salomon Smith Barney's opinion relates
to the relative values of MeriStar and American Skiing. Salomon Smith Barney did
not express any opinion as to what the value of the American Skiing common stock
actually will be when issued in the merger or the prices at which the American
Skiing common stock will trade after the merger. Salomon Smith Barney did not
make and was not provided with an independent evaluation or appraisal of the
assets or liabilities, contingent or otherwise, of MeriStar or American Skiing,
and Salomon Smith Barney did not make any physical inspection of the properties
or assets of MeriStar or American Skiing.
In connection with its engagement, Salomon Smith Barney was not requested
to, and did not, solicit third party indications of interest in the possible
acquisition of all or a part of MeriStar. Salomon Smith Barney expressed no view
as to, and its opinion does not address, the relative merits of the merger as
compared to any alternative business strategies that might exist for MeriStar or
the effect of any other transaction in which MeriStar might engage. Salomon
Smith Barney's opinion was necessarily based on information available, and
financial, stock market and other conditions and circumstances existing and
disclosed to Salomon Smith Barney, as of the date of its opinion. Although
Salomon Smith
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Barney evaluated the exchange ratio from a financial point of view, Salomon
Smith Barney was not asked to and did not recommend the specific consideration
payable in the merger, which was determined through negotiations between
MeriStar and American Skiing. MeriStar imposed no other instructions or
limitations on Salomon Smith Barney with respect to the investigations made or
procedures followed by Salomon Smith Barney in rendering its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION DATED DECEMBER 8,
2000, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS
ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS JOINT PROXY STATEMENT AND
PROSPECTUS AS APPENDIX E AND IS INCORPORATED INTO THIS JOINT PROXY STATEMENT AND
PROSPECTUS BY REFERENCE. SALOMON SMITH BARNEY'S OPINION IS DIRECTED TO THE
MERISTAR BOARD OF DIRECTORS AND RELATES ONLY TO THE FAIRNESS OF THE EXCHANGE
RATIO FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A RECOMMENDATION TO
ANY STOCKHOLDER WITH RESPECT TO ANY MATTER RELATING TO THE PROPOSED MERGER.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses is not a complete description of the analyses underlying
Salomon Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytical process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all analyses and factors or the
narrative description of the analyses, could create a misleading or incomplete
view of the processes underlying its analyses and opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing as of the date of its opinion, many of which are beyond the control of
MeriStar and American Skiing. No company or business used in those analyses as a
comparison is identical to MeriStar, American Skiing or the proposed merger, and
an evaluation of those analyses is not entirely mathematical. Rather, the
analyses involve complex considerations and judgments concerning financial and
operating characteristics and other factors that could affect the acquisition,
public trading or other values of the companies or business segments analyzed.
The estimates contained in Salomon Smith Barney's analyses and the valuation
ranges resulting from any particular analysis are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by its analyses. In
addition, analyses relating to the value of businesses or securities do not
necessarily purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, Salomon Smith
Barney's analyses and estimates are inherently subject to substantial
uncertainty.
Salomon Smith Barney's opinion and analyses were only one of many factors
considered by the MeriStar board of directors in its evaluation of the merger
and should not be viewed as determinative of the views of the MeriStar board of
directors or management with respect to the exchange ratio or the proposed
merger.
The following is a summary of the material financial analyses performed by
Salomon Smith Barney in connection with the rendering of its opinion dated
December 8, 2000. THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND SALOMON SMITH BARNEY'S
FINANCIAL ANALYSES, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH
SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSES. CONSIDERING THE DATA IN THE TABLES BELOW WITHOUT CONSIDERING
THE FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE
METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING
OR INCOMPLETE VIEW OF SALOMON SMITH BARNEY'S FINANCIAL ANALYSES.
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IMPLIED EXCHANGE RATIO ANALYSIS.
Using "Discounted Cash Flow Analyses" and "Selected Companies Analyses" for
MeriStar and American Skiing, Salomon Smith Barney calculated implied exchange
ratio reference ranges for MeriStar common stock and American Skiing common
stock. The results of this implied exchange ratio analysis were then compared
with the exchange ratio provided for in the merger. This analysis indicated the
following approximate implied exchange ratio reference ranges, as compared to
the exchange ratio provided for in the merger of 1.88x:
<TABLE>
<CAPTION>
IMPLIED EXCHANGE RATIO
REFERENCE RANGE
----------------------
<S> <C>
Discounted Cash Flow Analyses
Management Case............................... 1.50x to 2.11x
Revised Management Case....................... 1.68x to 2.44x
Selected Companies Analyses..................... 0.71x to 1.89x
</TABLE>
The "Discounted Cash Flow Analyses" and "Selected Companies Analyses" for
MeriStar and American Skiing performed by Salomon Smith Barney for purposes of
its "Implied Exchange Ratio Analysis" are described below:
DISCOUNTED CASH FLOW ANALYSES. Salomon Smith Barney performed separate
discounted cash flow analyses of MeriStar and American Skiing in order to
estimate the present value of the projected cash flows for each company. Salomon
Smith Barney reviewed MeriStar's annual cash flows for the 12 months ending
June 30, 2001 through 2005 and American Skiing's annual cash flows for fiscal
years ending July 31, 2001 through 2005, in each case based on internal
estimates of the managements of MeriStar and American Skiing. In performing
these analyses, Salomon Smith Barney used managements' current stand-alone
projections, referred to as the management case, and an adjusted management
case, referred to as the revised management case. In the case of MeriStar, the
revised management case reflected the potential for reduced revenues from third
party management contracts and lower year-over-year corporate housing revenue
growth. In the case of American Skiing, the revised management case reflected
the potential for a reduction in the number of skier visits, lower resort EBITDA
margins and a more moderate real estate development program.
In performing its discounted cash flow analysis of MeriStar, Salomon Smith
Barney calculated a range of terminal values by applying selected terminal
EBITDA multiples of 5.5x to 7.0x for the management case and 5.0x to 6.5x for
the revised management case to MeriStar's earnings before interest, taxes,
depreciation and amortization, commonly referred to as EBITDA, for the latest
12 months ending June 30, 2005. These cash flows and terminal values were then
discounted to present values using selected discount rates of 10.0% to 12.0%.
In performing its discounted cash flow analysis of American Skiing, Salomon
Smith Barney derived separate reference ranges for American Skiing's real estate
and American Skiing's resorts and then added the results of these separate
ranges to derive an aggregate reference range for American Skiing. In evaluating
American Skiing's real estate operations, Salomon Smith Barney applied discount
rates of 15% to 25%, depending on the type of real estate, to the estimated cash
flows from American Skiing's unsold real estate inventory, real estate proposed
and under development, retail assets, land holdings and other real estate
assets. In evaluating American Skiing's resort operations, Salomon Smith Barney
calculated a range of terminal values by applying selected terminal EBITDA
multiples of 9.0x to 10.0x for both the management case and the revised
management case to American Skiing's average annual EBITDA for the fiscal years
ending July 31, 2001 through July 31, 2005. These cash flows and terminal values
were then discounted to present values using selected discount rates of 13.0% to
15.0%.
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SELECTED COMPANIES ANALYSES. Using publicly available information, Salomon
Smith Barney analyzed the market values and trading multiples of MeriStar and
the following three publicly traded companies in the lodging industry:
- Marriott International, Inc.
- Choice Hotels International, Inc.
- Crestline Capital Corporation
Using publicly available information, Salomon Smith Barney also analyzed the
market values and trading multiples of American Skiing and the following five
publicly traded companies in the leisure industry:
- Intrawest Corporation
- Vail Resorts, Inc.
- Six Flags, Inc.
- Boca Resorts, Inc.
- Club Mediterranee
All multiples were based on closing stock prices on December 5, 2000.
Estimated financial data for the selected companies were based on publicly
available research analysts' estimates. Estimated financial data for MeriStar
were based on publicly available research analysts' estimates and internal
estimates of the management of MeriStar. Estimated financial data for American
Skiing were based on internal estimates of the management of American Skiing.
In the case of MeriStar, Salomon Smith Barney compared enterprise values of
MeriStar and the MeriStar selected companies as a multiple of latest 12 months
and estimated calendar year 2001 EBITDA. Salomon Smith Barney also compared
equity values of MeriStar and the MeriStar selected companies as a multiple of
estimated calendar year 2001 earnings per share. Salomon Smith Barney then
applied a range of selected multiples derived from the MeriStar selected
companies to corresponding financial data of MeriStar.
In the case of American Skiing, Salomon Smith Barney compared enterprise
values of American Skiing's resorts and the American Skiing selected companies
as a multiple of latest 12 months and estimated calendar years 2001 and 2002
EBITDA and five-year average EBITDA for calendar years 1996 to 2000. Salomon
Smith Barney then applied a range of selected multiples derived from the
American Skiing selected companies to corresponding financial data of American
Skiing's resorts. The results derived for American Skiing's resorts from this
analysis were then added to the results derived for American Skiing's real
estate from the discounted cash flow analysis based on the revised management
case for American Skiing described above.
OTHER FACTORS.
In rendering its opinion, Salomon Smith Barney also reviewed and considered
other factors, including:
- historical trading prices and trading volumes for MeriStar common stock
and American Skiing common stock;
- the relationship between movements in MeriStar common stock, movements in
the common stock in a lodging index and movements in the S&P composite
average and the relationship between movements in American Skiing common
stock, movements in the common stock in a resort index and movements in
the S&P composite average;
- selected analysts' reports on MeriStar and American Skiing; and
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- the capitalization and leverage of each of MeriStar and American Skiing on
a stand-alone basis and the pro forma equity ownership, capitalization,
debt structure and credit statistics of the combined company.
MISCELLANEOUS.
Under the terms of its engagement, MeriStar has agreed to pay Salomon Smith
Barney for its financial advisory services upon completion of the merger an
aggregate fee of $1.75 million. MeriStar also has agreed to reimburse Salomon
Smith Barney for reasonable travel and other out-of-pocket expenses incurred by
Salomon Smith Barney in performing its services, including the reasonable fees
and expenses of its legal counsel, and to indemnify Salomon Smith Barney and
related persons against liabilities, including liabilities under the federal
securities laws, arising out of its engagement.
In the ordinary course of business, Salomon Smith Barney and its affiliates
may actively trade or hold the securities of MeriStar and American Skiing for
their own account or for the account of customers and, accordingly, may at any
time hold a long or short position in those securities. Salomon Smith Barney and
its affiliates in the past have provided, and are currently providing, services
to MeriStar unrelated to the proposed merger, for which services Salomon Smith
Barney and its affiliates have received, and will receive, compensation. In
addition, Salomon Smith Barney and its affiliates, including Citigroup Inc. and
its affiliates, may maintain relationships with MeriStar, American Skiing and
their affiliates.
Salomon Smith Barney is an internationally recognized investment banking
firm and was selected by MeriStar based on its experience and expertise. Salomon
Smith Barney regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes.
FEDERAL INCOME TAX CONSEQUENCES TO THE HOLDERS OF MERISTAR COMMON STOCK
The merger is structured as a tax-free reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended. As a result, except for cash
paid to them instead of shares of American Skiing common stock, U.S. holders of
MeriStar common stock will not realize any taxable gain from the merger. For
more information regarding the tax treatment of the merger, please read the
section of this joint proxy statement and prospectus entitled "Certain Material
United States Federal Income Tax Considerations."
ACCOUNTING TREATMENT
The merger will be accounted for as a purchase of MeriStar by American
Skiing in accordance with generally accepted accounting principles. For the
purpose of applying purchase accounting, American Skiing will be treated as the
acquiror, since its stockholders are expected to own the largest portion of the
common stock of the combined entity immediately following the merger. Also, this
merger is a business combination where American Skiing and MeriStar are under
the common ownership of Oak Hill. However, Oak Hill's ownership percentage in
each entity is not identical. In these situations, Accounting Principles Board
Opinion No. 16 requires that Doral record the percentage of the purchase related
to Oak Hill's ownership interest in MeriStar at Oak Hill's historical cost
basis. Doral will record the remaining percentage of the net assets acquired at
their estimated fair value. Doral will record goodwill as the excess of the
purchase price over the estimated fair value of net identifiable tangible and
intangible assets acquired. Doral will subsequently amortize this goodwill
against earnings over its estimated life.
DIVIDEND POLICY
Doral anticipates that for the foreseeable future its earnings, if any, will
be retained for use in the operation of its business and that no cash dividends
will be paid on its common stock. In addition,
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Doral's new senior secured credit facility, its 12% senior subordinated notes
and the certificate of designation governing its new 14% preferred stock will
contain restrictive covenants, which will limit Doral's ability to make dividend
payments or other distributions on its equity interests other than new 14%
preferred stock. The decision of the Doral board as to whether or not pay cash
dividends in the future will depend upon a number of factors, including Doral's
future earnings, capital requirements, financial condition and the existence or
absence of any contractual limitations on the payment of dividends.
As required by the merger agreement, MeriStar and American Skiing have each
agreed not to declare, set aside or pay any dividend on their equity securities
other than non-cash dividends on the American Skiing Series A and Series B
preferred stock until the merger is completed.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
In considering the recommendations of the respective boards of directors and
managers of American Skiing and MeriStar, you should be aware that members of
the boards and management of each of American Skiing and MeriStar may have
interests in the merger that are different from, or in addition to, your
interests as a stockholder resulting in potential conflicts of interest. The
boards of each company recognized these interests and determined that these
interests neither supported nor detracted from the fairness of the merger to
you.
INTERESTS OF AMERICAN SKIING'S DIRECTORS, OFFICERS AND SIGNIFICANT STOCKHOLDERS
Some of American Skiing's officers and directors and significant
stockholders have interests in the merger that are different from, or in
addition to, your interests generally and that may create a potential conflict
of interest.
In connection with the merger, some of American Skiing's senior management
will become senior management of Doral. Mr. Leslie B. Otten, Chairman and Chief
Executive Officer of American Skiing, will become the Chairman of Doral. In
addition, Mr. William J. Fair, the Chief Operating Officer of American Skiing
and President--Resorts Operations, will lead the Doral leisure division and
Mr. Hernan Martinez, a senior vice-president of American Skiing and Chief
Operating Officer--Resort Operations, will lead the Doral real estate division.
On January 3, 2001, Mr. Otten entered into a new employment agreement with
American Skiing under which he has agreed to serve as Doral's Chairman. For more
information relating to this agreement, please read the summary of the agreement
contained in the section of this joint proxy statement and prospectus entitled
"Management of Doral--Employment Agreements."
Mr. Mark J. Miller, the current Chief Financial Officer of American Skiing,
has an employment agreement, which provides for a severance benefit equal to two
years' base salary plus bonus in the event his employment is terminated for any
reason within one year following a change in control of American Skiing. A
change in control is defined as a reduction in Mr. Otten's ownership of American
Skiing below 20%. The merger would be a change of control under his agreement.
This benefit is currently equal to $900,000.
None of the directors or officers of American Skiing holds more than 1.0% of
the outstanding common stock of American Skiing, except for Mr. Leslie B. Otten
(9.3%) and Mr. Christopher E. Howard, the Executive Vice President and Secretary
of American Skiing (1.6%). In addition, Mr. Otten owns all of the 14,760,530
outstanding shares of Class A common stock. The Class A common stock is
convertible at the option of Mr. Otten into American Skiing common stock and
votes on an as-converted basis with the common stock. If those shares were
converted on March 31, 2001, Mr. Otten would own approximately 24% of the voting
stock of American Skiing; all of Mr. Otten's Class A common stock will be
converted in connection with the merger. Four of the 11 directors on the board
of directors of American Skiing during its deliberations regarding the merger,
Messrs. Bernstein,
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Gruber, Janes and Crandall, were appointed by Oak Hill Capital Partners, L.P. As
of December 31, 2000, Oak Hill, together with parties related to it, held
approximately 50% of the voting stock of American Skiing. Because each has
ownership interests in Oak Hill, each of the four directors may be deemed to
beneficially own those shares of voting stock. As of December 31, 2000, the
directors and executive officers of American Skiing beneficially owned
approximately 73% of the total outstanding shares of voting stock.
Oak Hill, together with its related parties, assuming the merger is
completed on March 31, 2001, will control more than 50% of the common stock of
Doral.
Messrs. Steven Gruber, Bradford Bernstein, J. Taylor Crandall and William
Janes, each directors of American Skiing, who have ownership interests in Oak
Hill and/or its affiliates, recused themselves from all deliberations of
American Skiing's board relating to the merger.
Mr. Robert Branson, a director of American Skiing, has an ownership interest
in OHCP Ski, L.P., which is a holder of American Skiing's Series B preferred
stock and a party related to Oak Hill. Mr. Branson was elected to the board of
American Skiing on December 12, 2000, and was not a director at the time of any
of the deliberations of American Skiing's board relating to the merger.
Ms. Alexandra Hess, a director of American Skiing, is an Associate at Oak
Hill. Ms. Hess was elected to the board of American Skiing on December 12, 2000,
and was not a director at the time of any of the deliberations of American
Skiing's board relating to the merger.
Mr. Paul Whetsell, a member of the board of directors of American Skiing, is
also a member of the board of directors of MeriStar. However, he has recused
himself from all deliberations of American Skiing's board of directors relating
to the merger and is not a member of American Skiing's special committee.
INTERESTS OF MERISTAR'S DIRECTORS, OFFICERS AND SIGNIFICANT STOCKHOLDERS
Some of MeriStar's officers and directors and significant stockholders have
interests in the merger that are different from, or in addition to, your
interests generally and that may create a potential conflict of interest.
In connection with the merger, some of MeriStar's senior management will
become senior management of Doral. Mr. Paul W. Whetsell, the Chairman and Chief
Executive Officer of MeriStar, will become the Chief Executive Officer and a
director of Doral, Mr. John Emery, the Chief Investment Officer of MeriStar,
will become the Chief Financial Officer of Doral, and Mr. David E. McCaslin, the
President of MeriStar, will become the Chief Operating Officer-Hotel Management
and BridgeStreet. Mr. James A. Calder, the Chief Financial Officer of MeriStar,
and Mr. John E. Plunket, the Executive Vice-President, Finance and Development
of MeriStar, will also be members of the senior management of Doral.
MeriStar has entered into employment agreements with Messrs. Whetsell,
McCaslin, Calder, Plunket, Jorns and Emery, which entitle each to payments and
other benefits in the event his or her employment is terminated.
It is expected that Messrs. Whetsell, Emery, McCaslin, Calder and Plunket
will be entering into new employment agreements prior to the closing of the
merger.
Under Mr. Whetsell's April 1, 2000 employment agreement, if he is terminated
by MeriStar without cause or voluntarily terminates his employment with good
reason within 24 months following a change in control of MeriStar, he will
receive a lump sum payment equal to 3.5 times the sum of his then annual base
salary plus his bonus for the preceding year. In addition, under those
circumstances, all of his unvested stock options and restricted stock awards
will immediately vest and be exercisable for one year, and his benefits under
his employment agreement will continue for a period equal to two and a half
years. In the event that any accelerated vesting of his rights with respect to
stock options, restricted stock or any other payment, benefit or compensation
results in the imposition of an excise tax
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payable by him under Section 4999 of the Internal Revenue Code, or any successor
or other provision with respect to "excess parachute payments" within the
meaning of Section 280G(b) of the Internal Revenue Code, MeriStar will make a
cash payment to the executive in the amount of that excise tax and must also
make a cash payment to Mr. Whetsell in an amount equal to the total of federal,
state and local income and excise taxes for which he may be liable on account of
that excise tax. The merger is a change in control of MeriStar under Mr.
Whetsell's employment agreement.
Under Mr. Emery's April 1, 2000 employment agreement, if he is terminated by
MeriStar without cause or voluntarily terminates his employment with good reason
within 24 months following a change in control of MeriStar he will receive a
lump sum payment equal to three times the sum of his then annual base salary
plus his bonus for the preceding year. In addition, under those circumstances,
all of his unvested stock options and restricted stock awards will immediately
vest and be exercisable for one year, and his benefits will continue for two
years. In the event that any accelerated vesting of his rights with respect to
stock options, restricted stock or any other payment, benefit or compensation
results in the imposition of an excise tax payable by him under Section 4999 of
the Internal Revenue Code, or any successor or other provision with respect to
"excess parachute payments" within the meaning of Section 280G(b) of the
Internal Revenue Code, MeriStar will make a cash payment to the executive in the
amount of that excise tax and must also make a cash payment to Mr. Emery in an
amount equal to the total of federal, state and local income and excise taxes
for which he may be liable on account of that excise tax. The merger is a change
in control of MeriStar under Mr. Emery's employment agreement. The terms of Mr.
Jorns's June 1998 employment agreement are substantially similar to those of Mr.
Emery's agreement.
If Mr. McCaslin, Mr. Calder or Mr. Plunket is terminated by MeriStar without
cause or voluntarily terminates his employment with good reason within
18 months following a change in control of MeriStar, he will receive a lump sum
payment equal to two times the sum of his then annual base salary plus bonus for
the preceding year, all of his unvested stock options and restricted stock
awards, will immediately vest and his benefits will continue for two years or
until the date he obtains benefits from a subsequent employer. Total benefits
under those circumstances will be limited to the amount that is deductible under
Section 280G(b) of the Internal Revenue Code if that limitation on total
payments results in a larger after-tax payment to the executive. The merger is a
change in control of MeriStar under each of their agreements.
As of the record date, approximately - shares of MeriStar common stock
were subject to options granted to executive officers and directors under
MeriStar's Incentive Plan. Under the terms of MeriStar's Incentive Plan, the
merger will cause all of the options issued under that plan to vest. As a
condition precedent to the closing of the merger, MeriStar must secure waivers
of that accelerated vesting from Messrs. Bruce Wiles, James Calder, Woodard
Montgomery, John Plunket, John Emery, David McCaslin and Paul Whetsell, all of
whom are officers of MeriStar.
Mr. Paul Whetsell is also a member of the board of directors of American
Skiing. However, he has recused himself from all deliberations of American
Skiing's board of directors relating to the merger and is not a member of the
American Skiing special committee.
Mr. Daniel Doctoroff is a Managing Partner and an owner of Oak Hill Capital
Management, Inc. Oak Hill Management, Inc. is the manager of Oak Hill Capital
Partners, L.P., which is a principal stockholder of American Skiing and of
MeriStar. Assuming the merger is completed on March 31, 2001, Oak Hill Capital
Partners, L.P. will, together with parties related to it, control approximately
50% of the common stock of Doral and have four appointees to its board.
Mr. Doctoroff has recused himself from all deliberations of MeriStar's board of
directors relating to the merger.
Doral has agreed, from and after the effective time of the merger, to
indemnify the present and former directors and officers of MeriStar and has
agreed to cause the subsidiary of Doral that will operate the former MeriStar
business to maintain directors' and officers' liability insurance for these
individuals in place for six years following completion of the merger.
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None of the directors or officers of MeriStar holds more than 1.0% of the
outstanding common stock of MeriStar except for Messrs. Daniel Doctoroff (11%),
Steven Jorns (3%) and Paul Whetsell (2%). All percentages are as of
November 30, 2000.
INDEMNIFICATION
American Skiing has agreed, from and after the effective time of the merger,
to indemnify the present and former directors and officers of MeriStar and has
agreed to cause the subsidiary of Doral that will operate the former MeriStar
business to maintain directors' and officers' liability insurance for these
individuals in place for six years following completion of the merger. For
further details regarding these arrangements, see "The Merger
Agreement--Indemnification and Insurance."
REGULATORY APPROVALS
Federal antitrust laws prohibit American Skiing and MeriStar from completing
the merger until a required notification and report form is filed and a required
waiting period has expired or been terminated.
In addition, it is a condition to American Skiing's and MeriStar's
obligations to complete the merger that the United States Forest Service and the
Federal Communications Commission respectively approve the change in control of
special use permits and FCC licenses held by American Skiing and its
subsidiaries.
STOCK EXCHANGE LISTING
The American Skiing common stock to be issued to MeriStar stockholders in
the merger is expected to be listed on the NYSE under the symbol "SKI," subject
to official notice of issuance.
Under the terms of the merger agreement, MeriStar will use its reasonable
efforts to cause the MeriStar common stock to be de-listed from the NYSE and
de-registered under the Exchange Act after the completion of the merger.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of American Skiing common stock received by MeriStar stockholders
in the merger will be freely transferable under the federal securities laws,
except for shares received by persons who are deemed to be "affiliates" of
MeriStar for purposes of Rule 145 under the Securities Act prior to the
completion of the merger. These shares may be resold by them only in
transactions permitted by the resale provisions of Rule 145 under the Securities
Act or Rule 144 under the Securities Act in the case of persons who become
affiliates of American Skiing or as otherwise permitted under the Securities
Act. Persons who may be deemed to be affiliates of American Skiing or MeriStar
generally include individuals or entities that control, are controlled by, or
are under common control with, MeriStar and may include some of its officers and
directors, as well as its principal stockholders, Oak Hill Capital Partners,
L.P., and parties related to it.
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THE MERGER AGREEMENT AND THE RECAPITALIZATION OF AMERICAN SKIING
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT AND THE RECAPITALIZATION PROVISIONS OF THE AMERICAN SKIING VOTING AND
RECAPITALIZATION AGREEMENT. A COPY OF THE MERGER AGREEMENT IS ATTACHED AS
APPENDIX A. A COPY OF THE AMERICAN SKIING VOTING AND RECAPITALIZATION AGREEMENT
IS ATTACHED AS APPENDIX B. BOTH ARE INCORPORATED INTO THIS JOINT PROXY STATEMENT
AND PROSPECTUS BY REFERENCE. YOU SHOULD READ EACH CAREFULLY AND IN ITS ENTIRETY
FOR A MORE COMPLETE UNDERSTANDING OF ITS TERMS.
GENERAL
The merger agreement provides that, following the receipt of the requisite
approvals of the American Skiing stockholders and the MeriStar stockholders and
the satisfaction or waiver of the other conditions to the merger, a wholly-owned
subsidiary of American Skiing will be merged with and into MeriStar. After the
merger, MeriStar will survive as a wholly-owned subsidiary of American Skiing
and American Skiing will be renamed "Doral International, Inc."
The merger will be effective at the time a certificate of merger is filed
with the Delaware Secretary of State. This filing will occur as soon as is
practicable after the closing under the merger agreement. Unless agreed
otherwise, the closing will occur at 10:00 a.m. on the fifth business day after
the date on which the satisfaction or waiver of the conditions set forth in the
merger agreement is completed.
CONVERSION OF SECURITIES
At the effective time of the merger, each share of MeriStar common stock,
together with the associated right to purchase shares of MeriStar Series A
junior participating preferred stock, issued and outstanding immediately prior
to the effective time of the merger will be converted into the right to receive
1.88 shares of American Skiing common stock. No fractional shares will be
issued.
If there is a change in the number of shares, or securities or other
instruments convertible or exchangeable into, or exercisable for, common stock
of MeriStar or American Skiing prior to the completion of the merger, the
exchange ratio will be adjusted to eliminate the effects of that event.
RECAPITALIZATION OF AMERICAN SKIING
Immediately prior to the merger, American Skiing will undergo a
recapitalization.
Mr. Leslie B. Otten, American Skiing's Chairman and Chief Executive Officer
and the holder of all 14,760,530 shares of American Skiing's Class A common
stock, will convert each share of his Class A common stock into one share of
American Skiing common stock.
The holders of American Skiing's Series A preferred stock, which is subject
to redemption on November 15, 2002, will convert their shares of Series A
preferred stock into:
- Shares of new American Skiing 14% preferred stock, which is subject to
redemption on August 15, 2006, having a liquidation preference equal to
the liquidation preference of the existing Series A preferred stock plus
accrued and unpaid dividends on those shares as of the effective time of
the merger; and
- A number of shares of American Skiing common stock equal to 20.7% of the
liquidation preference as of the date the merger is completed of the new
14% preferred stock divided by $2.22.
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The following table sets forth information relating to the American Skiing
common stock and new 14% preferred stock that will be issued to the holders of
the Series A preferred stock based on several assumed dates of completion for
the merger:
<TABLE>
<CAPTION>
ACCRETED VALUE OF THE NUMBER OF SHARES OF LIQUIDATION PREFERENCE NUMBER OF SHARES OF
DATE THE MERGER SERIES A COMMON STOCK OF THE NEW NEW 14% PREFERRED
IS COMPLETED PREFERRED STOCK TO BE ISSUED 14% PREFERRED STOCK STOCK TO BE ISSUED
--------------- --------------------- ------------------- ---------------------- -------------------
<S> <C> <C> <C> <C>
February 28, 2001..... $51.8 million 4.8 million $51.8 million 51,775
March 31, 2001........ $52.2 million 4.9 million $52.2 million 52,236
April 30, 2001........ $52.7 million 4.9 million $52.7 million 52,693
</TABLE>
Dividends on the new 14% preferred stock will accrue and compound quarterly.
Dividends will not be required to be paid in cash until August 15, 2006, the
mandatory redemption date. Unlike the existing Series A preferred stock, the new
14% preferred stock will have no voting rights and will not be convertible into
shares of common stock. The other terms and provisions of the new 14% preferred
stock are substantially similar to those of the existing Series A preferred
stock. For more information relating to the rights and privileges of the holders
of the new 14% preferred stock, please read the section of this joint proxy
statement and prospectus entitled "Description of the Capital Stock of
Doral--New 14% Preferred Stock."
Oak Hill Capital Partners, L.P. and some parties related to it who are the
holders of all of the shares of American Skiing's Series B preferred stock
issued and outstanding will convert their shares of Series B preferred stock
into a total of approximately 74.9 million shares of American Skiing common
stock at a value of $2.22 per share, based on its accreted value as of
October 31, 2000.
An aggregate principal amount of $13.0 million of loans from Oak Hill
Capital Partners, L.P., to American Skiing's real estate development subsidiary,
together with interest on that loan accrued through October 31, 2000, will be
repaid in the form of American Skiing common stock at a rate of $2.22 per share,
resulting in the issuance of approximately 6.0 million shares of American Skiing
common stock.
A warrant to purchase 6 million shares of American Skiing common stock at an
exercise price of $2.50 per share that was to be issued to Oak Hill under the
securities purchase agreement between Oak Hill and American Skiing, dated as of
July 31, 2000, and amended on September 28, 2000, November 10, 2000 and
December 21, 2000, will be issued.
TREATMENT OF STOCK OPTIONS AND OTHER EMPLOYEE BENEFIT PLANS
The merger agreement provides that each outstanding option to purchase
MeriStar common stock will be converted into an option to purchase 1.88 shares
of Doral common stock to be issued under a new Doral Incentive Plan whose terms
will be substantially the same as those of the existing MeriStar Incentive Plan.
The exercise price per share of Doral common stock under the new options will be
the exercise price per share under the MeriStar options divided by 1.88.
The options to be issued under the new Doral Incentive Plan to current
MeriStar optionees will be vested options because the merger causes the options
issued under the current MeriStar Incentive Plan to vest. However, some of the
senior management personnel of MeriStar will waive the vesting of their MeriStar
options as a condition to American Skiing's obligation to complete the merger
and will therefore receive unvested Doral options.
Each option held under the existing American Skiing 1997 Stock Option Plan
will remain outstanding and will not be affected by the merger, but no
additional awards will be made under that plan.
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In addition, the merger agreement requires Doral to adopt an employee stock
purchase plan with terms substantially the same as the current MeriStar employee
stock purchase plan. For more information regarding Doral's employee benefit
plans, please refer to the section of this joint proxy statement and prospectus
entitled "Management of Doral After the Merger--Doral Benefit Plans."
EXCHANGE OF NEW STOCK CERTIFICATES
EXCHANGE AGENT
Following the merger, Doral will cause the exchange agent to mail to each
record holder of MeriStar common stock a letter of transmittal with instructions
on how to exchange MeriStar common stock certificates for certificate(s)
representing shares of Doral common stock. Upon surrender of its MeriStar stock
certificate to the exchange agent, each MeriStar stockholder will be entitled to
receive a certificate representing that number of whole shares of Doral common
stock and a cash payment instead of fractional shares, if any, plus dividends,
if any, which that stockholder is entitled to receive in the merger. MERISTAR
STOCK CERTIFICATES WILL THEN BE CANCELED. MERISTAR STOCKHOLDERS SHOULD NOT
ENCLOSE STOCK CERTIFICATES WITH THEIR PROXY CARDS.
FRACTIONAL SHARES
American Skiing will not issue any fractional shares of its stock in the
merger. Instead, the exchange agent will pay MeriStar stockholders for each
fraction of an American Skiing share of common stock an amount in cash equal to
the product obtained by multiplying the fractional share interest to which such
stockholder would otherwise been entitled by the closing price of a share of
American Skiing common stock as reported on the NYSE Composite Transaction Tape
on the first trading day immediately preceding the date on which the merger
becomes effective.
LOST CERTIFICATES
If MeriStar stock certificates have been lost, stolen or destroyed, MeriStar
stockholders will only be entitled to obtain shares of Doral common stock and
any cash payment in lieu of fractional shares, by providing an affidavit of loss
and posting a bond in an amount sufficient to protect Doral against claims
related to the MeriStar certificates.
REPRESENTATIONS AND WARRANTIES
American Skiing and MeriStar have made customary representations and
warranties to each other in the merger agreement, relating, among other things,
to:
- Their organization, the organization of their subsidiaries, their charter
documents and similar corporate matters;
- Their capital structure;
- Their authority to deliver and execute the merger agreement, its legal
force and effect and the absence of conflict between the agreement and
their charter documents, the material contracts they entered into, and the
laws applicable to them;
- Governmental filings and consents in relation to the merger agreement;
- The possession of all franchises, licenses, permits and other approvals
required to conduct their respective businesses and compliance with laws;
- Their filings with the SEC and their financial statements;
- The absence of some changes or events that have had material adverse
effects;
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- Employee benefit plans and labor matters;
- Tax matters;
- Material contracts and debt instruments;
- Litigation issues;
- Environmental matters;
- The possession of intellectual property rights;
- Non-competition agreements;
- Absence of brokers;
- No impact of anti-takeover statutes;
- Information required in the joint proxy statement and prospectus;
- Real estate issues;
- The requisite stockholder vote to approve the proposals described in this
joint proxy statement and prospectus;
- No payments to employees, officers or directors as a result of the merger;
- Potential conflicts of interest; and
- The absence of any requirement to be registered under the Investment
Company Act of 1940.
MeriStar has also made some representations and warranties to American
Skiing in the merger agreement relating to:
- The opinion of MeriStar's financial advisor with respect to the fairness,
from a financial point of view, of the exchange ratio; and
- Amendment of the MeriStar shareholder rights agreement.
American Skiing has also made some representations and warranties to
MeriStar in the merger agreement relating to:
- The opinion of American Skiing's financial advisor with respect to the
fairness, from a financial point of view, of the exchange ratio;
- The interim operations of the merger subsidiary; and
- Condominium associations and various timeshare arrangements.
None of the representations and warranties made in the merger agreement will
survive the closing of the merger.
CERTAIN COVENANTS
INTERIM OPERATIONS OF MERISTAR AND AMERICAN SKIING
Under the merger agreement, each of MeriStar and American Skiing has agreed
that, between the time the merger agreement was executed until the effective
time of the merger and except for transactions about which the parties have
notified each other in writing, each will:
- Conduct its operations only in the ordinary course of business consistent
with past practice and with no less diligence than it would do so in the
absence of the merger agreement;
- Use its reasonable best efforts to preserve its business organization
intact;
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- Keep available the services of its current officers and other key
employees;
- Preserve the good will of its customers, suppliers and other persons
having business relationships with it; and
- Cause its subsidiaries to do all of the above.
In addition, the interim operations covenants state explicitly that each of
MeriStar and American Skiing may not:
- Amend its certificate of incorporation or bylaws or the comparable
organizational documents of any of its subsidiaries, unless required by
applicable laws, or, in the case of MeriStar, the MeriStar shareholder
rights plan;
- Issue, sell or pledge shares of its capital stock or other equity
securities, warrants or options other than issuances in connection with
employee stock options or, in the case of MeriStar, rights under the
MeriStar shareholder rights plan;
- Declare or pay any dividend or other distribution in respect of any class
or series of its capital stock other than accretion on the American Skiing
Series A and Series B preferred stock between it and any of its
wholly-owned subsidiaries;
- Directly or indirectly split, combine, subdivide, reclassify or redeem,
purchase, propose to redeem or purchase any shares of its capital stock or
other securities;
- Increase the compensation or fringe benefits payable to, grant any
severance payment to or enter into any agreement providing for such a
payment with, its directors, officers or employees and the directors,
officers or employees of its subsidiaries, pay any benefit not required by
any existing plan, or take any action to accelerate rights under any
collective bargaining or any employee benefit plan for the benefit or
welfare of any directors, officers or current or former employees, except
in each case to the extent required by applicable law or any existing
agreement and except for increases in the ordinary course of business and
consistent with past practice;
- Acquire or dispose of any assets, including capital stock of its
subsidiaries, or enter into any material commitment or transaction outside
the ordinary course of business and consistent with past practice, other
than transactions between it and a wholly-owned subsidiary or between two
of its wholly-owned subsidiaries;
- Incur, assume, guarantee or endorse any indebtedness or prepay any
long-term indebtedness, in each case, other than in the ordinary course of
business and consistent with past practice under existing lines of credit
in accordance with past practice;
- Make any loans, advances, capital contributions or other investments in
any other entity except for investments in wholly-owned subsidiaries or
investments in the ordinary course of business and consistent with past
practice;
- Terminate, cancel, request any material change to, or agree to materially
amend any contract, permit or license that is material to it and its
subsidiaries taken as a whole, or enter into any contract material to it
and its respective subsidiaries taken as a whole, other than in the
ordinary course of business and consistent with past practice, or
authorize any capital expenditure, other than capital expenditures that
are not, in the aggregate, for any fiscal year, in excess of 10% of the
capital expenditures provided for in its overall annual budget;
- Take any action with respect to accounting policies or procedures, other
than actions in the ordinary course of business and consistent with past
practice or as required pursuant to applicable law or generally accepted
accounting principles;
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- Waive, release, assign, settle or compromise any rights, claims or
litigation other than in the ordinary course of business and consistent
with past practice in excess of $100,000 per event;
- Pay, discharge or satisfy any claim, liability or obligation other than in
the ordinary course of business and consistent with past practice in
excess of $100,000 per event;
- Enter into any agreement or arrangement that materially limits or
otherwise restricts it, any of its subsidiaries, or any successor
corporation, or that would, after the effective time, limit or restrict
Doral's hotel management subsidiary and its affiliates, from engaging or
competing in any line of business or in any geographic area, other than in
the ordinary course of business and consistent with past practice;
- Make any material tax election or settle or compromise any material
federal, state, local or foreign tax deficiency; or
- Authorize or enter into any formal or informal written or other agreement
or otherwise make any commitment to do any of above-listed actions.
In addition, prior to the time clearance under the Hart-Scott-Rodino Act is
obtained, the parties can agree in writing to permit transactions that would
otherwise be prohibited by the interim operations covenants. After that
clearance is received, any transactions that are prohibited by the interim
operations covenant require the approval of an interim transactions committee
composed of two members appointed by each of MeriStar and American Skiing.
RECAPITALIZATION AND OTHER REQUIRED PRE-MERGER TRANSACTIONS
At or prior to the effective time of the merger, American Skiing has agreed
to:
- Use its reasonable best efforts to obtain a new $285.0 million senior
credit facility to be available to Doral post-merger;
- Use its reasonable best efforts to accomplish the recapitalization of
American Skiing and perform its obligations under the American Skiing
voting and recapitalization agreement;
- Use its reasonable best efforts to obtain the required consent of the
holders of American Skiing's 12% senior subordinated notes;
- Use its reasonable best efforts to obtain all other required consents;
- Use its reasonable best efforts to cause the existing stockholders
agreement among American Skiing, Oak Hill Capital Partners, L.P., Oak Hill
Capital Management Partners, L.P., Oak Hill Securities Fund, L.P., OHCP
Ski, L.P. and Mr. Otten, dated as of August 6, 1999 and amended on
July 31, 2000 to be terminated;
- Use its reasonable best efforts to issue warrants to purchase 6 million
shares of American Skiing common stock at an exercise price of $2.50 per
share to Oak Hill Capital Partners, L.P. under the securities purchase
agreement, dated July 31, 2000 as amended on September 28, 2000,
November 10, 2000 and December 21, 2000, among American Skiing, its resort
development subsidiary and Oak Hill Capital Partners, L.P.;
- File a shelf registration statement covering resales of its common stock
that may be issued upon redemption of limited partnership units in
MeriStar's principal operating subsidiary; and
- Use its reasonable efforts to execute and deliver the registration rights
agreement.
At or prior to the effective time of the merger, MeriStar has agreed to:
- Use its reasonable best efforts to terminate and repay its current senior
secured credit facility;
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- Use its reasonable best efforts to cause its agreements with MeriStar
Hospitality in respect of properties managed by MeriStar to be amended in
accordance with changes to the Internal Revenue Code applicable to real
estate investment trusts that are effective beginning in 2001;
- Use its reasonable best efforts to obtain all required consents;
- Use its reasonable best efforts to obtain the waivers of accelerated
vesting of MeriStar stock options from some of its senior executives;
- Use its reasonable best efforts to cause the termination and repayment of
the senior secured credit facility, dated as of February 29, 2000, between
MeriStar H&R Operating Company, L.P. and Societe Generale, Southwest
Agency;
- Use its reasonable best efforts to cause the limited partnership agreement
governing its principal operating subsidiary to be amended so as to
provide that subsidiary with the option to pay, upon redemption of its
limited partnership units, Doral common stock rather than MeriStar common
stock; and
- Take all further action reasonably requested by American Skiing with
respect to MeriStar's stockholder rights plan to permit the merger.
STOCKHOLDERS MEETINGS
MeriStar has agreed to call and hold, as promptly after the effective date
of the registration statement of which this joint proxy statement and prospectus
forms a part, a special meeting of its stockholders to consider and vote upon
the proposals to be voted upon by the stockholders of MeriStar as described in
this joint proxy statement and prospectus.
American Skiing has agreed to call and hold, as promptly after the effective
date of the registration statement of which this joint proxy statement and
prospectus forms a part, a special meeting of its stockholders to consider and
vote upon the proposals to be voted upon by the stockholders of American Skiing
as described in this joint proxy statement and prospectus.
MeriStar has agreed to use its reasonable best efforts to solicit proxies in
favor of those proposals, except to the extent its board of directors has
determined in good faith that doing so would cause the board to breach its
fiduciary duties to MeriStar's stockholders under applicable law after receiving
advice to such effect from independent legal counsel.
NON-SOLICITATION OF COMPETING TRANSACTIONS
Each of MeriStar and American Skiing is subject to substantially identical
non-solicitation provisions in the merger agreement.
Each party and its subsidiaries and their respective directors, officers and
other representatives may not solicit, enter into, or provide any nonpublic
information to a third party related to, any proposal regarding:
- Mergers, consolidations, share exchanges, business combinations or other
similar transactions involving it or its subsidiaries; or
- Direct or indirect acquisitions of more than a 30% equity interest in any
voting securities of the party or more than 30% of the consolidated assets
of the party.
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Each party may furnish information to, and engage in discussions with, any
third party who delivers an unsolicited acquisition proposal if a disinterested
majority of its board of directors determines in good faith after consultation
with and receipt of advice from outside counsel:
- That furnishing the information and engaging in the discussions is
required by the duties of the board of directors; and
- That the third party making the acquisition proposal has the ability and
financial resources to make a superior proposal.
The board of directors or special committee of each party may not withdraw
or modify its recommendation of the merger to the stockholders unless that party
receives a superior proposal. In order for an acquisition proposal to be a
superior proposal for purposes of the merger agreement:
- A majority of the party's disinterested directors must determine in good
faith, after consultation with a nationally-recognized financial advisor,
and taking into account all relevant factors, that the proposal is more
favorable to that party and its stockholders; and
- The acquisition proposal must be reasonably capable of being financed.
Each party must advise the other orally and in writing of any acquisition
proposal or any inquiry that could reasonably be expected to lead to an
acquisition proposal. Each party must give the other three days' advance notice
of any information provided to the third party making the proposal.
INDEMNIFICATION AND INSURANCE
After the merger is completed, Doral has agreed to preserve all rights to
indemnification existing as of the date of the merger agreement in favor of any
directors, officers, employees or agents of MeriStar or its subsidiaries for a
period of at least six years following the effective time of the merger. The
right to indemnification with respect to a claim asserted during the six-year
period will be extended until its final disposition. Doral's hotel management
subsidiary will also indemnify directors, officers, employees or agents of
MeriStar or its subsidiaries against liabilities or claims arising before the
merger is completed and as a result of their positions at MeriStar. Finally,
Doral's hotel management subsidiary will pay those persons legal and other
expenses in connection with any proceeding arising out of any matter occurring
at or after the effective time of the merger.
Doral has agreed to cause its hotel management subsidiary to maintain for at
least six years after the effective time of the merger the liability insurance
MeriStar currently maintains for its directors and officers, or similar
insurance, provided that the hotel management subsidiary will not be required to
pay an insurance premium in excess of 300% of the last insurance premium paid by
MeriStar before the date of the merger agreement. If this insurance coverage is
unavailable, Doral's hotel management subsidiary will obtain as much comparable
insurance as possible for an annual premium equal to that maximum amount.
ADDITIONAL COVENANTS
American Skiing and MeriStar have each also agreed, among other things, to:
- Use its reasonable best efforts to take all further actions that are
necessary to complete the merger, obtain all necessary governmental
consents and make all necessary filings in connection with the completion
of the merger;
- Use its reasonable best efforts to cause the merger to qualify as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended, and not knowingly take any actions to prevent that
qualification without the prior written consent of the other party;
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- Consult with each other prior to issuing any press releases or public
statements regarding the merger or the merger agreement;
- Coordinate with the other with respect to dividends so that holders of
their common stock do not receive dividends on both American Skiing and
MeriStar common stock in respect of any calendar quarter;
- Not voluntarily take any action that would, or that could reasonably be
expected to, result in any of the conditions to the merger not being
satisfied;
- Cooperate with each other in the preparation of documents filed with the
SEC and ensure that there are not material misstatements or omissions
contained in those documents;
- Update the other with respect to changes to their respective companies
until the completion of the merger, particularly with respect to any
change that could be expected to violate the merger agreement; and
- Except as required under any confidentiality agreement or similar
agreement, provide to each other such information concerning the business,
properties, contracts, assets, liabilities, personnel and other aspects as
the other party may reasonably request and continue to comply with the
terms of the existing confidentiality agreement, dated August 11, 2000.
CONDITIONS TO THE MERGER
CONDITIONS TO AMERICAN SKIING'S AND MERISTAR'S OBLIGATIONS TO COMPLETE THE
MERGER
The respective obligations of American Skiing and MeriStar to complete the
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of the following conditions prior to the effective time
of the merger:
- All the proposals described in this joint proxy statement and prospectus
shall have been approved by the requisite stockholder votes;
- American Skiing shall have amended its existing senior credit facility or
shall have obtained a new $285.0 million senior secured credit facility to
replace its existing credit facility, and all conditions precedent to the
availability of the funds under the new or amended facility shall have
been fulfilled;
- American Skiing shall have obtained the required consents of the holders
of its 12% senior subordinated notes due 2006;
- The shares of American Skiing common stock to be issued in the merger
shall have been authorized for listing on the NYSE, subject to official
notice of issuance;
- The waiting period applicable to the merger under the Hart-Scott-Rodino
Act shall have expired or been earlier terminated;
- All consents, approvals and actions of any governmental entity required
for the completion of the merger and the other associated transactions
shall have been obtained or made, without any conditions that could result
in a material adverse effect on American Skiing or MeriStar;
- No court or governmental entity shall have enacted any law or order that
is in effect and prohibits the completion of the merger and the other
transactions contemplated by the merger agreement; and
- The registration statement of which this joint proxy statement and
prospectus is a part shall have become effective under the Securities Act.
No stop order suspending the effectiveness of the
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registration statement shall have been issued, and no proceedings for that
purpose shall have been initiated or be threatened by the SEC.
CONDITIONS TO AMERICAN SKIING'S AND ASC MERGER SUB'S OBLIGATIONS TO COMPLETE THE
MERGER
The obligations of American Skiing and ASC Merger Sub to effect the merger
and complete the transactions contemplated by the merger agreement are also
subject to the satisfaction or waiver by American Skiing of the following
conditions at or prior to the effective time:
- Agreements between MeriStar and MeriStar Hospitality Corporation in
respect of properties operated by MeriStar shall have been amended in
accordance with changes to the Internal Revenue Code applicable to real
estate investment trusts that are effective beginning in 2001;
- MeriStar's existing $100.0 million senior credit facility shall have been
terminated and repaid;
- MeriStar Hospitality Corporation shall have given American Skiing a
commitment for $25.0 million of additional financing;
- Specified members of MeriStar's senior management shall have executed
waivers of the early vesting of their stock options caused by the merger;
- American Skiing shall have received an executed copy of an affiliate
agreement from each person deemed to be an "affiliate" of MeriStar under
Rule 145 of the Securites Act;
- The limited partnership agreement governing MeriStar's principal operating
subsidiary shall have been amended so as to provide that subsidiary with
the option to pay, upon redemption of its limited partnership units, Doral
common stock rather than MeriStar common stock;
- All of MeriStar's representations and warranties shall be true and correct
except as would not have a material adverse effect on MeriStar;
- MeriStar shall have complied in all material respects with its obligations
under the merger agreement;
- MeriStar shall not have experienced a material adverse effect; and
- All non-governmental consents under MeriStar's material agreements that
are required to complete the merger shall have been obtained, except as
would not have a material adverse effect on MeriStar.
CONDITIONS TO MERISTAR'S OBLIGATIONS TO COMPLETE THE MERGER
The obligations of MeriStar to effect the merger and complete the
transactions contemplated by the merger agreement are also subject to the
satisfaction or waiver by MeriStar of the following conditions at or prior to
the effective time:
- The recapitalization described above under the heading "Recapitalization
of American Skiing" shall have been completed;
- The existing stockholders agreement among the principal stockholders of
American Skiing shall have been terminated;
- MeriStar shall have received an opinion from Paul, Weiss, Rifkind,
Wharton & Garrison as to the tax-free status of the merger;
- All of American Skiing's representations and warranties shall be true and
correct except as would not have a material adverse effect on American
Skiing;
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- American Skiing shall have complied in all material respects with its
obligations under the merger agreement;
- American Skiing shall not have experienced a material adverse effect; and
- All non-governmental consents under American Skiing's material agreements
that are required to complete the merger shall have been obtained, except
as would not have a material adverse effect on American Skiing.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated by mutual written consent of American
Skiing and MeriStar.
In addition, either American Skiing or MeriStar may terminate the merger
agreement if:
- The proposals described in this joint proxy statement and prospectus are
not approved by the requisite vote of stockholders of MeriStar or the
requisite vote of stockholders of American Skiing;
- The merger has not occurred on or before April 30, 2001, except that the
right to terminate the merger agreement will not be available to the party
whose failure to fulfill any obligation under the merger agreement is the
cause of the delay, however, the merger agreement may be extended 30 days
by written notice of either American Skiing or MeriStar to the other if a
federal antitrust authority seeks an order, injunction or decree with
respect to the legality of the merger under antitrust laws or any party to
this merger agreement shall have commenced an appeal of such an order,
injunction or decree; provided, further, that, in no event can the merger
agreement termination date be extended beyond May 31, 2001; or
- Any order, injunction or decree preventing the merger has been entered by
any court or governmental entity and is final and nonappealable.
American Skiing may terminate the merger agreement if:
- MeriStar's board of directors withdraws, modifies or changes its approval
or recommendation of the merger agreement in a manner adverse to American
Skiing or the merger;
- MeriStar's board of directors recommends to MeriStar's stockholders
another acquisition proposal or resolves to do so;
- A tender offer or exchange offer for any outstanding shares of capital
stock of MeriStar is commenced, and MeriStar's board of directors fails to
recommend against it;
- MeriStar breaches any material representation, warranty, covenant or
agreement set forth in the merger agreement, if the breach is not cured
within 30 days of notification of the breach; or
- A majority of the disinterested members of American Skiing's board of
directors concludes that, after consultation with its counsel, to fail to
terminate the merger agreement and accept a superior proposal would be
inconsistent with the board's fiduciary duties.
MeriStar may terminate the merger agreement if:
- American Skiing's board of directors withdraws, modifies or changes its
approval or recommendation of the merger agreement in a manner adverse to
MeriStar or the merger;
- American Skiing's board of directors recommends to American Skiing's
stockholders another acquisition proposal;
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<PAGE>
- A tender offer or exchange offer for any outstanding shares of capital
stock of American Skiing is commenced and American Skiing's board of
directors fails to recommend against it;
- American Skiing breaches any material representation, warranty, covenant
or agreement set forth in the merger agreement, if the breach is not cured
within 30 days of notification of the breach; or
- A majority of the disinterested members of MeriStar's board of directors
concludes, after consultation with its counsel, that to fail to terminate
the merger agreement and accept a superior proposal would be inconsistent
with the board's fiduciary duties.
EXPENSES AND TERMINATION FEES
PAYMENT OF EXPENSES OF THE MERGER GENERALLY
Except as otherwise stated in the merger agreement, all expenses incurred in
the merger will be paid by the party incurring the expenses.
PAYMENTS FROM MERISTAR TO AMERICAN SKIING UPON TERMINATION
If the requisite MeriStar stockholder approval is not obtained or if
MeriStar's board of directors:
- Changes its recommendation in a manner that is adverse to American Skiing
or the merger;
- Recommends a superior proposal; or
- Fails to recommend against a competing tender or exchange offer;
American Skiing may terminate the merger agreement, and MeriStar will be
required to pay American Skiing a $5.0 million termination fee and up to
$1.0 million in expenses upon termination of the merger agreement.
PAYMENTS FROM AMERICAN SKIING TO MERISTAR UPON TERMINATION
If the requisite American Skiing stockholder approval is not obtained or if
American Skiing's board of directors:
- Changes its recommendation in a manner that is adverse to MeriStar or the
merger;
- Recommends a superior proposal; or
- Fails to recommend against a competing tender or exchange offer;
MeriStar may terminate the merger agreement, and American Skiing will be
required to pay MeriStar a $7.0 million termination fee and up to $1.0 million
in expenses upon termination of the merger agreement.
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DESCRIPTION OF RELATED AGREEMENTS
AGREEMENTS SIGNED CONCURRENTLY WITH THE MERGER AGREEMENT
At the time the merger agreement was signed, the principal stockholders of
American Skiing entered into the American Skiing voting and recapitalization
agreement, and Oak Hill Capital Partners, L.P. and some of its related parties
entered into a voting agreement with respect to the MeriStar common stock
beneficially owned by them.
AMERICAN SKIING VOTING AND RECAPITALIZATION AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE AMERICAN SKIING
VOTING AND RECAPITALIZATION AGREEMENT. YOU SHOULD READ, CAREFULLY AND IN ITS
ENTIRETY, THE COPY OF THE AMERICAN SKIING VOTING AND RECAPITALIZATION AGREEMENT
THAT IS ATTACHED TO THIS JOINT PROXY STATEMENT AND PROSPECTUS AS APPENDIX B.
Leslie B. Otten, both individually and as trustee of the Albert Otten Trust
for the benefit of Mildred Otten, Oak Hill Capital Partners, L.P., funds related
to Oak Hill and Madeleine LLC, who together beneficially owned Class A common
stock, Series A and Series B preferred stock and common stock representing, on
an as-converted basis in the case of stock other than common stock, as of the
record date, approximately 77% of the outstanding voting power of American
Skiing common stock, entered into a voting and recapitalization agreement with
American Skiing and MeriStar. These stockholders have agreed to vote in favor of
the following:
- The merger, the merger agreement and the transactions contemplated by the
merger agreement;
- The issuance of common stock in the merger;
- The recapitalization of American Skiing, as described in the section of
this joint proxy statement and prospectus entitled "The Merger
Agreement--Recapitalization of American Skiing";
- The adoption of new employee benefit plans as described in the section of
this joint proxy statement and prospectus entitled "The Merger
Agreement--Treatment of Stock Options and Other Employee Benefit Plans";
- The election of directors as described in the section of this joint proxy
statement and prospectus entitled "Management of Doral After the Merger";
and
- The amendments to the articles of incorporation and bylaws of American
Skiing in connection with the merger.
They have also agreed to vote against any proposal or action that is
intended or could reasonably be expected to result in a breach of any covenant,
representation or warranty of American Skiing under the merger agreement or
reasonably be expected to impede, interfere with, delay or materially and
adversely affect the merger and the transactions contemplated by the merger
agreement. These stockholders have also agreed not to transfer or assign any of
the securities of American Skiing held by them prior to the effective time of
the merger agreement.
In addition, these stockholders have agreed to complete, immediately prior
to the completion of the merger, the recapitalization described in the section
of this joint proxy statement and prospectus entitled "The Merger
Agreement--Recapitalization of American Skiing."
The voting and recapitalization agreement terminates on the earlier to occur
of the termination of the merger agreement and June 30, 2001.
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MERISTAR VOTING AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE MERISTAR VOTING
AGREEMENT. YOU SHOULD READ, CAREFULLY AND IN ITS ENTIRETY, THE COPY OF THE
MERISTAR VOTING AGREEMENT THAT IS ATTACHED TO THIS JOINT PROXY STATEMENT AND
PROSPECTUS AS APPENDIX C.
In connection with the merger agreement, Oak Hill Capital Partners, L.P. and
some parties related to it, who together beneficially own shares of MeriStar
common stock representing, as of the record date, approximately 16% of the
outstanding MeriStar common stock, entered into a voting agreement with American
Skiing and MeriStar. These stockholders have agreed to vote in favor of the
merger, the merger agreement and the transactions contemplated by the merger
agreement.
These stockholders have also agreed to vote against any proposal or action
that is intended or could reasonably be expected to result in a breach of any
covenant, representation or warranty of MeriStar under the merger agreement or
reasonably be expected to impede, interfere with, delay or materially and
adversely affect the merger and the transactions contemplated by the merger
agreement or the voting agreement. These stockholders have also agreed not to
transfer or assign any of their shares of MeriStar common stock prior to the
effective time of the merger agreement.
The MeriStar voting agreement terminates upon the termination of the merger
agreement.
REGISTRATION RIGHTS AGREEMENT
At the closing of the merger, Doral will enter into a registration rights
agreement with Oak Hill and its related entities and Mr. Leslie Otten. THE
FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE REGISTRATION RIGHTS
AGREEMENT. YOU SHOULD READ, CAREFULLY AND IN ITS ENTIRETY, THE FORM OF THE
REGISTRATION RIGHTS AGREEMENT, WHICH IS ANNEX E TO THE MERGER AGREEMENT ATTACHED
AS APPENDIX A TO THIS JOINT PROXY STATEMENT AND PROSPECTUS.
Under the registration rights agreement, the Oak Hill stockholders and
Mr. Otten will be entitled to register resales of the Doral common stock they
will receive in the merger. All of them will be entitled to registration rights
until all of their common stock is sold in registered offerings or is no longer
subject to any resale restrictions under Securities Act Rule 144.
The Oak Hill stockholders will be entitled to four demand registrations, two
of which may be shelf registrations. Mr. Otten will be entitled to two demand
registrations, one of which may be a shelf registration. Doral will not be
required to effect more than one demand registration in any 12-month period.
Demand registrations must include at least 10% of the outstanding registrable
common stock as of the date of the merger on a fully-diluted basis or
$25.0 million worth of common stock, whichever is lesser. The Oak Hill
stockholders and Mr. Otten will also be entitled to piggy-back registration
rights with respect to any registration statement of Doral other than a
registration statement on Form S-8 or S-4.
In addition, the registration rights agreement will require Doral to
register the resale of 5 million shares of Mr. Otten's common stock as soon as
practicable after the completion of the merger. This registration on behalf of
Mr. Otten will not count against the limitation on the number of registrations
required to be made by Doral in any 12-month period.
All registration expenses will be paid by Doral.
The registration rights agreement will also contain customary provisions
dealing with the suspension of the registration obligations of Doral and the
effectiveness of the registration statements, registration procedures,
reductions in the size of the offering and mutual indemnification and
contribution.
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MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following describes the material U.S. federal income tax consequences of
the merger that are generally applicable to U.S. holders of MeriStar common
stock. However, this discussion does not address all aspects of taxation that
may be relevant to particular U.S. holders in light of their personal investment
or tax circumstances, nor does this discussion address all the tax consequences
for U.S. holders subject to special treatment under the U.S. federal income tax
laws, or to other types of stockholders, including insurance companies,
tax-exempt entities, financial institutions, broker-dealers and non-U.S.
holders. In addition, this discussion does not set forth any state, local or
foreign tax consequences. This discussion may not be applicable to holders who
acquired MeriStar common stock pursuant to the exercise of options or warrants
or otherwise as compensation. WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE U.S.
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF THE MERGER.
A U.S. holder of MeriStar common stock is a stockholder who or that is for
U.S. federal income tax purposes
- A citizen or resident alien individual of the United States;
- A corporation, partnership or other entity organized under the laws of the
United States, one of the States or the District of Columbia;
- An estate or trust, as defined in Section 7701(a)(30) of the Internal
Revenue Code of 1986, as amended; or
- Any person that is subject to U.S. federal income tax on its worldwide
income.
This discussion is based on the Internal Revenue Code, applicable Department
of Treasury regulations, judicial authority, and administrative rulings and
practice, all as of the date of this joint proxy statement and prospectus.
Future legislative, judicial, or administrative changes or interpretations may
adversely affect the accuracy of the statements and conclusions described in
this discussion. Any changes or interpretations could be applied retroactively
and could affect the tax consequences of the merger to you.
MATERIAL TAX CONSEQUENCES OF THE MERGER
The material U.S. federal income tax consequences of the merger will be as
follows:
(a) The merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code for U.S. federal income tax
purposes, and American Skiing, the American Skiing subsidiary
participating in the merger and MeriStar will each be a party to that
reorganization within the meaning of Section 368(b) of the Internal
Revenue Code;
(b) No gain or loss will be recognized by American Skiing, American Skiing's
subsidiary or MeriStar as a result of the merger;
(c) No gain or loss will be recognized by MeriStar stockholders upon their
receipt of American Skiing common stock in exchange for their MeriStar
common stock, except with respect to cash received instead of fractional
shares of American Skiing common stock;
(d) The aggregate tax basis of the shares of American Skiing common stock
that MeriStar stockholders receive in exchange for their MeriStar common
stock in the merger, including fractional shares for which cash is
ultimately received, will be the same as the aggregate tax basis of
their MeriStar common stock exchanged;
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(e) The holding period for tax purposes for shares of American Skiing common
stock that MeriStar stockholders receive in the merger will include the
holding period of the MeriStar common stock exchanged, but only if the
stockholder holds the MeriStar common stock as a capital asset at the
time we complete the merger; and
(f) If Meristar stockholders receive cash instead of a fractional share of
American Skiing common stock, they will recognize gain or loss equal to
the difference, if any, between their tax basis in the fractional share,
as described in (d) above, and the amount of cash received. That gain or
loss generally will constitute capital gain or loss if they hold the
MeriStar common stock as a capital asset at the time we complete the
merger.
The obligation of MeriStar to complete the merger is conditioned upon its
receipt of an opinion from Paul, Weiss, Rifkind, Wharton & Garrison that the
merger will be treated as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code. This opinion will be based in part upon
representations, made as of the effective time of the merger, by American Skiing
and MeriStar, which counsel will assume to be true, correct and complete. If the
representations are inaccurate, the opinion of counsel could be adversely
affected. No ruling has been sought from the Internal Revenue Service as to the
U.S. federal income tax consequences of the merger, and the opinion of counsel
will not be binding upon the Internal Revenue Service or any court.
BACKUP WITHHOLDING
Noncorporate holders of MeriStar common stock may be subject to backup
withholding at a rate of 31% on cash payments received instead of a fractional
share interest in American Skiing common stock. Backup withholding will not
apply, however, to a shareholder who:
- Furnishes a correct taxpayer identification number and certifies, under
penalties of perjury, that he or she is not subject to backup withholding
on a Form W-9; or
- Is a corporation or otherwise exempt from backup withholding and, when
required, demonstrates this fact.
A shareholder who fails to provide the correct taxpayer identification number on
Form W-9 may be subject to penalties imposed by the Internal Revenue Service. A
Form W-9 will be included as part of the transmittal letter. Any amount withheld
under these rules may be credited against the stockholder's federal income tax
liability.
REPORTING REQUIREMENTS
MeriStar stockholders will be required to attach a statement to their tax
returns for the taxable year in which the merger is completed that contains the
information set forth in Section 1.368-3(b) of the Department of Treasury
regulations. The statement must include your tax basis in the MeriStar common
stock surrendered and a description of the American Skiing common stock received
in the merger.
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MARKET PRICE AND DIVIDEND POLICY
AMERICAN SKIING
American Skiing's common stock is traded on the NYSE under the symbol "SKI."
American Skiing's Class A common stock is not listed on any exchange and is not
publicly traded, but is convertible into American Skiing common stock. Excluding
approximately 50 million shares of common stock issuable upon conversion of the
Series A and Series B preferred stock and the Class A common stock and shares of
common stock issuable upon exercise of outstanding warrants and options, as of
January 15, 2001, 15,708,633 shares of American Skiing common stock were issued
and outstanding, held by approximately - record holders.
The following table lists, for the fiscal quarters indicated, beginning with
American Skiing's initial public offering on November 6, 1997, the range of high
and low intra-day sale prices per share of American Skiing common stock in US
dollars, as reported on the NYSE Composite Transaction Tape.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1998
Second Quarter (from November 6, 1997).................... $17.00 $13.00
Third Quarter............................................. 16.88 12.94
Fourth Quarter............................................ 14.13 12.13
FISCAL 1999
First Quarter............................................. $12.50 $5.19
Second Quarter............................................ 10.25 4.75
Third Quarter............................................. 5.75 3.06
Fourth Quarter............................................ 5.81 2.38
FISCAL 2000
First Quarter............................................. $4.69 $3.63
Second Quarter............................................ 5.06 2.31
Third Quarter............................................. 2.88 1.75
Fourth Quarter............................................ 2.94 1.63
FISCAL 2001
First Quarter............................................. $2.44 $1.88
Second Quarter (through - , 2001)......................
</TABLE>
On December 8, 2000, the last full trading day prior to the public
announcement of the merger, the last reported sale price of American Skiing
common stock on the NYSE was $2.75 per share. On January - , 2001, the last
full trading day prior to the printing of this joint proxy statement and
prospectus, the last reported sale price of American Skiing common stock on the
NYSE was $ - per share. American Skiing has not declared or paid any cash
dividends on its capital stock. American Skiing anticipates that for the
foreseeable future Doral will retain earnings, if any, for use in the operation
of its business and that no cash dividends will be paid on its common stock. In
addition, Doral's new credit facility, its 12% senior subordinated notes and the
certificate of designation governing its new 14% preferred stock contain
restrictive covenants which will limit Doral's ability to make dividend payments
or other distributions on its equity interests other than non-cash dividends on
the new 14% preferred stock.
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MERISTAR
MeriStar's common stock is listed on the NYSE under the symbol "MMH." As of
- , 2001, - shares of MeriStar common stock were issued and outstanding,
held by approximately - record holders.
The following table lists, for the fiscal quarters indicated, beginning with
MeriStar's initial public offering on August 3, 1998, the range of high and low
intra-day sale prices per share of MeriStar common stock in U.S. dollars, as
reported on the NYSE Composite Transaction Tape.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
FISCAL 1998
Third Quarter (from August 3, 1998)....................... $3.75 $2.00
Fourth Quarter............................................ 2.69 1.94
FISCAL 1999
First Quarter............................................. $3.19 $2.38
Second Quarter............................................ 4.44 2.69
Third Quarter............................................. 3.75 2.88
Fourth Quarter............................................ 3.56 2.19
FISCAL 2000
First Quarter............................................. $3.44 $2.63
Second Quarter............................................ 3.13 2.69
Third Quarter............................................. 3.13 2.44
Fourth Quarter............................................ 2.69 2.06
FISCAL 2001
First Quarter (through -, 2001)...........................
</TABLE>
On December 8, 2000, the last full trading day prior to the public
announcement of the merger, the last reported sale price of MeriStar's common
stock on the NYSE was $2.75 per share. On
January - , 2001, the last full trading day prior to the printing of this
joint proxy statement and prospectus, the last reported sale price of MeriStar
common stock on the NYSE was $ - per share.
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DORAL INTERNATIONAL UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements assume the
merger between American Skiing and MeriStar is accounted for as a purchase of
MeriStar by American Skiing. American Skiing is presented as the acquiror, since
its stockholders are expected to own the largest portion of the common stock of
the combined entity immediately following the merger. Also, this merger is a
business combination where American Skiing and MeriStar are under the common
ownership of Oak Hill. However, Oak Hill's ownership percentage in each entity
is not identical. In these situations, Accounting Principles Board Opinion
No. 16 requires that we record the percentage of the purchase related to Oak
Hill's ownership interest in MeriStar at Oak Hill's historical cost basis. We
will record the remaining percentage of the net assets acquired at their
estimated fair value.
The unaudited pro forma combined balance sheet combines American Skiing's
October 29, 2000 balance sheet with MeriStar's September 30, 2000 balance sheet
and assumes the merger was completed on October 29, 2000. We expect the merger
to be completed in March 2001. Holders of MeriStar common stock and the
associated rights to purchase shares of Series A junior participating preferred
stock will receive 1.88 shares of American Skiing common stock for each share
and right owned. No fractional shares will be issued. MeriStar common
stockholders will receive cash instead of fractional shares. The holders of
American Skiing common stock will continue to hold their shares of American
Skiing common stock. The unaudited pro forma combined balance sheet reflects
American Skiing's acquisition of MeriStar and the associated recapitalization of
American Skiing Company. Doral will record goodwill as an intangible asset by
determining the excess of the purchase price over the estimated fair value of
net identifiable tangible and intangible assets acquired. We will subsequently
amortize this goodwill over its estimated life.
The unaudited pro forma combined statement of operations combines American
Skiing's historical results for the three months ended October 29, 2000 and for
the fiscal year ended July 30, 2000 with the historical results of MeriStar for
the three months ended September 30, 2000 and the twelve months ended June 30,
2000. The unaudited pro forma combined statements of operations assume that the
merger had occurred at the beginning of the periods presented and reflects
adjustments related to the merger and recapitalization. These adjustments relate
to:
- Financing the merger;
- Amortization of goodwill;
- Conversion of American Skiing's two classes of preferred stock to common
stock;
- Retirement of the two existing senior credit facilities for American
Skiing and MeriStar;
- Corresponding establishment of a new combined senior credit facility; and
- The change in American Skiing's effective tax rate.
The unaudited pro forma combined statement of operations for the year ended
July 30, 2000 also reflects the acquisition of BridgeStreet Accommodations, Inc.
by MeriStar as if it had been completed on July 1, 1999. This presentation is
only for the pro forma financial information.
In addition, the unaudited pro forma combined financial statements show
adjustments to the results of operations and financial position of Doral that
result from MeriStar's entering into management agreements and an amended
intercompany agreement with MeriStar Hospitality Corporation in connection with
changes, effective January 1, 2001, to the federal tax laws relating to real
estate investment trusts, which are commonly known as the REIT Modernization
Act, or RMA.
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The unaudited pro forma combined financial statements are based on and
derived from, and should be read in conjunction with:
- The historical consolidated financial statements and the related notes of
American Skiing, which are included in this joint proxy statement and
prospectus, and
- The historical consolidated financial statements and the related notes of
MeriStar, which are included in this joint proxy statement and prospectus.
For the purposes of these unaudited pro forma combined financial statements,
the American Skiing common stock is valued at $2.175 per share, the average
closing price between December 7 and December 13, 2000.
We based the purchase allocation adjustments in the unaudited pro forma
combined financial statements on the information available at this time. We may
make subsequent adjustments and refinements to the allocation based on
additional future information. The unaudited pro forma combined financial
statements are not necessarily indicative of the future financial position or
results of operations of Doral or of the combined financial position or the
results of operations that would have been realized had the merger and the
BridgeStreet acquisition been completed and the RMA had been enacted at the
beginning of the periods or as of the date presented.
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DORAL INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
OCTOBER 29, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
AMERICAN SKIING MERISTAR PRO FORMA TRANSACTION AS
HISTORICAL(A) HISTORICAL(B) COMBINED ADJUSTMENTS ADJUSTED
--------------- ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............ $ 14,044 $ 9,989 $ 24,033 $ -- (c) $ 24,033
Restricted cash...................... 7,286 -- 7,286 -- 7,286
Accounts receivable, net............. 13,962 77,243 91,205 -- 91,205
Inventory............................ 14,445 6,479 20,924 -- 20,924
Deferred income taxes................ 1,664 -- 1,664 -- 1,664
Prepaid expenses..................... 10,348 21,921 32,269 -- 32,269
Deposits and other................... -- 6,859 6,859 -- 6,859
--------- -------- ---------- --------- ----------
TOTAL CURRENT ASSETS................. 61,749 122,491 184,240 -- 184,240
Property and equipment, net.......... 570,593 23,004 593,597 -- 593,597
Real estate developed for sale....... 187,537 -- 187,537 -- 187,537
Investments in and advances to
affiliates......................... -- 38,001 38,001 -- 38,001
Goodwill, net of accumulated
amortization....................... 74,471 150,671 225,142 57,770 (d) 282,912
Intangible assets, net of accumulated
amortization....................... 21,861 38,590 60,451 17,660 (e) 78,111
Deferred financing costs............. 14,601 1,138 15,739 (2,069)(f) 13,670
Other assets......................... 26,203 -- 26,203 -- 26,203
Deferred income taxes................ -- 904 904 -- 904
--------- -------- ---------- --------- ----------
$ 957,015 $374,799 $1,331,814 $ 73,361 $1,405,175
========= ======== ========== ========= ==========
LIABILITIES
Long-term debt, current portion...... $ 94,351 $ 80 $ 94,431 $ 6,028 (h) $ 100,459
Accounts payable and other current
liabilities........................ 71,662 115,195 186,857 (344)(i) 186,513
Deposits and deferred revenue........ 40,348 9,683 50,031 -- 50,031
Due to affiliates.................... -- 20,619 20,619 -- 20,619
Income taxes payable................. -- 150 150 -- 150
--------- -------- ---------- --------- ----------
TOTAL CURRENT LIABILITIES............ 206,361 145,727 352,088 5,684 357,772
Long-term debt, excluding current
portion............................ 235,087 95,184 330,271 (956)(j) 329,315
Subordinated notes and debentures.... 126,882 -- 126,882 -- 126,882
Other long-term liabilities.......... 30,186 -- 30,186 (7,659)(l) 22,527
Deferred income taxes................ (9,696) 23,257 13,561 11,415 (m) 24,976
--------- -------- ---------- --------- ----------
TOTAL LIABILITIES.................... 588,820 264,168 852,988 8,484 861,472
Minority interests................... -- 14,343 14,343 -- 14,343
Mandatorily redeemable preferred
stock.............................. 206,697 -- 206,697 (156,684)(n) 50,013
STOCKHOLDERS' EQUITY
Common stock, Class A.............. 148 -- 148 (148)(o) --
Common stock....................... 157 359 516 1,320 (p) 1,836
Paid-in capital.................... 270,094 74,801 344,895 272,837 (q) 617,732
Retained earnings.................. (108,939) 21,265 (87,674) (52,585)(r) (140,259)
Accumulated other comprehensive
income........................... 38 (137) (99) 137 (s) 38
--------- -------- ---------- --------- ----------
$ 957,015 $374,799 $1,331,814 $ 73,361 $1,405,175
========= ======== ========== ========= ==========
<CAPTION>
RMA RMA ADJUSTED
ADJUSTMENTS(T) PRO FORMA
-------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............ $ (5,041) $ 18,992
Restricted cash...................... -- 7,286
Accounts receivable, net............. (54,610) 36,595
Inventory............................ -- 20,924
Deferred income taxes................ -- 1,664
Prepaid expenses..................... (10,452) 21,817
Deposits and other................... (6,840) 19
-------- ----------
TOTAL CURRENT ASSETS................. (76,943) 107,297
Property and equipment, net.......... (15) 593,582
Real estate developed for sale....... -- 187,537
Investments in and advances to
affiliates......................... (1,629) 36,372
Goodwill, net of accumulated
amortization....................... -- 282,912
Intangible assets, net of accumulated
amortization....................... -- 78,111
Deferred financing costs............. -- 13,670
Other assets......................... -- 26,203
Deferred income taxes................ -- 904
-------- ----------
$(78,587) $1,326,588
======== ==========
LIABILITIES
Long-term debt, current portion...... $ -- $ 100,459
Accounts payable and other current
liabilities........................ (72,190) 114,323
Deposits and deferred revenue........ -- 50,031
Due to affiliates.................... (6,386) 14,233
Income taxes payable................. -- 150
-------- ----------
TOTAL CURRENT LIABILITIES............ (78,576) 279,196
Long-term debt, excluding current
portion............................ (11) 329,304
Subordinated notes and debentures.... -- 126,882
Other long-term liabilities.......... -- 22,527
Deferred income taxes................ -- 24,976
-------- ----------
TOTAL LIABILITIES.................... (78,587) 782,885
Minority interests................... -- 14,343
Mandatorily redeemable preferred
stock.............................. -- 50,013
STOCKHOLDERS' EQUITY
Common stock, Class A.............. -- --
Common stock....................... -- 1,836
Paid-in capital.................... -- 617,732
Retained earnings.................. -- (140,259)
Accumulated other comprehensive
income........................... -- 38
-------- ----------
$(78,587) $1,326,588
======== ==========
</TABLE>
85
<PAGE>
DORAL INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(a) Reflects the historical unaudited consolidated balance sheet of American
Skiing as of October 29, 2000 as reflected in its Form 10-Q.
(b) Reflects the historical unaudited consolidated balance sheet of MeriStar
as of September 30, 2000 as reflected in its Form 10-Q.
(c) Reflects the financing of the merger and costs associated with it. In
connection with the merger, American Skiing will draw down the remaining
$7,500 available under Tranche C of the credit facility of American
Skiing Company Resort Properties, Inc., American Skiing's real estate
development subsidiary, and apply it to repay outstanding debts of that
subsidiary. We will obtain a new $285,000 senior credit facility, and we
will use the proceeds of that facility to repay and retire the existing
senior credit facilities of both American Skiing and MeriStar. We will
pay fees in connection with that new $285,000 facility, the amendment of
Tranches A and B of American Skiing Resort Properties' facility and
obtaining the consent of the holders of American Skiing's senior
subordinated notes as is required as part of the merger agreement. The
individual adjustments are as follows:
<TABLE>
<S> <C>
Transaction and other costs in connection with the merger... $(15,678)
Proceeds from the drawdown of Tranche C..................... 7,500
Application of Tranche C proceeds to outstanding
indebtedness of American Skiing Resort Properties......... (7,500)
Repayment and retirement of existing American Skiing senior
credit facility........................................... (143,237)
Repayment and retirement of existing MeriStar senior credit
facility.................................................. (95,000)
Proceeds from new Doral senior credit facility.............. 253,915
--------
Net adjustment to cash and cash equivalents................. $ --
========
</TABLE>
(d) We will record various intangible assets based on their fair values, and
goodwill, in connection with the merger. We have estimated the values of
these intangible assets and goodwill based on preliminary purchase price
allocations. We may make subsequent adjustments and refinements to the
allocation based on additional future information. The following table
summarizes the preliminary allocation of the purchase price:
<TABLE>
<S> <C>
Value of American Skiing common stock issued to MeriStar's
common stockholders....................................... $131,900
Transaction costs in connection with the merger............. 7,400
Conversion of MeriStar's stock options...................... 9,865
Fair value of MeriStar net assets acquired.................. (91,395)
--------
Net adjustments to goodwill................................. $ 57,770
========
</TABLE>
(e) In connection with the accounting for the merger, we will record $17,660
to increase the book value of MeriStar's management contracts to
estimated fair value. The management contracts are classified as
intangible assets on the unaudited pro forma combined balance sheet.
86
<PAGE>
DORAL INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(f) Reflects the following items:
<TABLE>
<S> <C>
Additional funding of Tranche C............................. $ (3,265)
Write-off of unamortized deferred financing costs related to
Tranche C................................................. (483)
Write-off of unamortized deferred financing costs related to
the existing American Skiing credit facility.............. (4,261)
Write-off of unamortized deferred financing costs related to
existing MeriStar senior credit facility.................. (1,138)
Costs paid to establish the new Doral senior credit facility
and other financing fees.................................. 7,078
-----------------------
Net adjustment to deferred financing costs.................. $ (2,069)
=======================
</TABLE>
(g) In connection with the recapitalization of American Skiing that will
occur immediately prior to the merger, Oak Hill will fund the remaining
$7,500 available under Tranche C of American Skiing Resort Properties'
credit facility. The final full funding of Tranche C eliminates $3,265 of
deferred financing costs recognized when American Skiing Resort
Properties made its first draw of $5,500 from Tranche C on July 31, 2000.
In addition, we will write off $483 of unamortized deferred financing
costs paid in regard to Tranche C.
Also in that recapitalization, American Skiing will retire the $13,000 of
loans outstanding under Tranche C, together with $248 of interest on
those loans accrued through October 29, 2000, by issuing approximately
6.0 million shares of American Skiing common stock. We have recorded the
difference between the $13,248 aggregate fair value of the common stock
issued and the $7,341 carrying value of the Tranche C loan as a $5,907
charge to retained earnings. The actual charge will be calculated using
the fair market value of American Skiing common stock at the
recapitalization date.
(h) Reflects our repayment of the $44,537 current portion of the existing
American Skiing senior credit facility and our borrowing of the $50,565
current portion of the new Doral senior credit facility. This results in
a net adjustment of $6,028 to the current portion of long-term debt.
(i) Reflects our elimination of $248 of accrued interest and $96 of accreted
debt discount on Tranche C. For more information regarding the repayment
of Tranche C, see note (g).
(j) Reflects the following items:
<TABLE>
<S> <C>
Retirement of existing American Skiing senior credit
facility.................................................. $(98,700)
Retirement of existing MeriStar senior credit facility...... (95,000)
Proceeds from new Doral senior credit facility.............. 203,350
Fair value of additional Tranche C funding.................. 4,235
Conversion of Tranche C into American Skiing common stock... (7,341)
Tranche C proceeds applied to existing real estate debt..... (7,500)
--------
Net adjustment to long term debt............................ $ (956)
========
</TABLE>
(k) Accounting Principles Board Opinion No. 14 describes the treatment of
debt issued with detachable warrants. As required by that Opinion, we
will record the funding of the $7,500 of
87
<PAGE>
DORAL INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
loans under Tranche C of American Skiing Resort Properties' senior credit
facility at its fair value of $4,235. See note (g) for more information
regarding the Tranche C transaction.
(l) On July 31, 2000, American Skiing agreed to issue to Oak Hill warrants
to purchase a total of 6.0 million shares of American Skiing common stock
at a price of $2.50 per share in connection with Oak Hill making
available Tranche C of American Skiing Resort Properties' senior credit
facility. We will issue these warrants to Oak Hill in connection with the
recapitalization of American Skiing to occur immediately prior to the
merger. The fair value of these warrants is $7,659 and American Skiing
had previously recorded it as a long term liability. This adjustment
reflects the reclassification of these warrants as additional paid-in
capital.
(m) Reflects additional deferred tax liabilities resulting from the step-up
to fair value of MeriStar's management contracts (see note (e)) and a
valuation allowance on certain of MeriStar's tax attributes.
(n) In the recapitalization of American Skiing that will occur immediately
prior to the merger, all of the American Skiing Series B preferred stock
will be converted into American Skiing common stock. For purposes of this
adjustment, the liquidation value of the Series B preferred stock is
fixed as of October 29, 2000 at approximately $166,354, which will be
converted into approximately 74.9 million shares of American Skiing
common stock. This conversion results in the elimination of the $156,684
carrying value of the Series B preferred stock. We have recorded the
$9,670 difference between the liquidation value and the carrying value of
the Series B preferred stock as a charge to retained earnings. The actual
charge will be calculated using the fair market value of American Skiing
common stock at the recapitalization date.
In addition, in the recapitalization that will occur immediately prior to
the merger, American Skiing will convert all of its Series A preferred
stock into:
- Shares of a new series of American Skiing 14% preferred stock having a
liquidation value equal to that of the Series A preferred stock as of
the date the merger is completed; and
- A number of shares of American Skiing common stock equal to 20.7% of
the liquidation value of the new 14% preferred stock divided by $2.22.
If the merger had been completed on October 29, 2000, the liquidation
value of the Series A preferred stock and the new 14% preferred stock
would have been approximately $50,013, and we would have issued
approximately 4.7 million shares of common stock worth approximately
$10,143. The conversion of the Series A preferred stock into new 14%
preferred stock results in no net adjustment to the amount of mandatorily
redeemable preferred stock.
The terms of the new 14% preferred stock are sufficiently different from
the Series A preferred stock, so that the issuance of stock in connection
with the recapitalization qualifies as an early extinguishment of the
Series A preferred stock. The difference between the $60,156 aggregate
fair value of the American Skiing common stock and new 14% preferred
stock issued in the recapitalization and the $50,013 carrying value of
the Series A preferred stock has been recorded as a charge to retained
earnings of $10,143. The actual charge will be calculated using the fair
market value of American Skiing common stock at the recapitalization
date.
88
<PAGE>
DORAL INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(o) In connection with the recapitalization of American Skiing that will
occur immediately prior to the merger, American Skiing will convert each
share of its Class A common stock into one share of American Skiing
common stock.
(p) Reflects the following items:
<TABLE>
<S> <C>
Reversal of existing MeriStar common stock.................. $ (359)
Conversion of MeriStar common stock into approximately 67.5
million shares of American Skiing common stock............ 675
Conversion of approximately 14.8 million shares of American
Skiing Class A common stock into approximately 14.8
million shares of American Skiing common stock............ 148
Conversion of Tranche C into approximately 6.0 million
shares of American Skiing common stock.................... 60
Issuance of approximately 4.7 million shares of American
Skiing common stock to holders of the American Skiing
Series A preferred stock.................................. 47
Conversion of American Skiing Series B preferred stock into
approximately 74.9 million shares of American Skiing
common stock.............................................. 749
------
Net adjustment to common stock.............................. $1,320
======
</TABLE>
(q) Reflects the following items:
<TABLE>
<S> <C>
Reversal of existing MeriStar paid-in capital............... $(74,801)
Issuance of American Skiing common stock to MeriStar common
stockholders, excluding Oak Hill.......................... 131,294
Conversion of MeriStar common stock held by Oak Hill to
American Skiing common stock at historical cost........... 9,932
Conversion of Tranche C into American Skiing common stock... 13,188
Issuance of warrants to Oak Hill in connection with
conversion of Tranche C................................... 7,659
Issuance of American Skiing common stock to holders of the
American Skiing Series A preferred stock.................. 10,096
Conversion of American Skiing Series B preferred stock into
American Skiing common stock.............................. 165,604
Fair value of MeriStar stock options converted to Doral
stock options, net of unearned compensation costs......... 9,865
--------
Net adjustment to paid-in capital........................... $272,837
========
</TABLE>
89
<PAGE>
DORAL INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(r) Reflects the following items:
<TABLE>
<S> <C>
Reversal of MeriStar retained earnings...................... $(21,265)
Write-off of unamortized deferred financing costs related to
the existing American Skiing credit facility.............. (4,261)
Write-off relating to the conversion of the American Skiing
Series A preferred stock.................................. (10,143)
Write-off relating to the conversion of the American Skiing
Series B preferred stock.................................. (9,670)
Conversion of Tranche C to American Skiing common stock..... (6,046)
Solicitation expenses paid to obtain the consent of the
holders of American Skiing's senior subordinated notes.... (1,200)
--------
Net adjustment to retained earnings......................... $(52,585)
========
</TABLE>
(s) Reflects the reversal of MeriStar's accumulated other net comprehensive
income.
(t) Reflects the assignment of all hotel leases between MeriStar and
MeriStar Hospitality Corporation to a taxable subsidiary of MeriStar
Hospitality and the execution of management contracts between the
subsidiary and MeriStar in accordance with changes to the federal tax
laws that were effective as of January 1, 2001. As a result of these
actions, all of the net operating assets of MeriStar associated with the
hotels formerly leased from MeriStar Hospitality, including cash and cash
equivalents, inventory, prepaid expenses, deposits and other, property
and equipment, were transferred to the taxable subsidiary of MeriStar
Hospitality. Concurrently, all of the operating liabilities associated
with the transferred assets, including accounts payable and other current
liabilities, liabilities due to affiliates and long-term debt, were
transferred to the taxable subsidiary of MeriStar Hospitality.
90
<PAGE>
DORAL INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 29, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA RMA
AMERICAN SKIING MERISTAR TRANSACTION AS RMA ADJUSTED
HISTORICAL(A) HISTORICAL(B) ADJUSTMENTS ADJUSTED ADJUSTMENTS(I) PRO FORMA
--------------- ------------- ----------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Resort........................ $ 20,912 $ -- $ -- $ 20,912 $ -- $ 20,912
Real estate................... 27,216 -- -- 27,216 -- 27,216
Hotels........................ -- 320,708 -- 320,708 (277,269) 43,439
Corporate housing............. -- 29,369 -- 29,369 -- 29,369
Hotel management and other
fees........................ -- 6,287 -- 6,287 5,459 11,746
-------- -------- ------- -------- --------- --------
Total net revenues.............. 48,128 356,364 -- 404,492 (271,810) 132,682
Operating expenses:
Resort........................ 30,343 -- -- 30,343 -- 30,343
Real estate................... 23,578 -- (27)(d) 23,551 -- 23,551
Hotels........................ -- 275,570 -- 275,570 (237,877) 37,693
Corporate housing............. -- 18,744 -- 18,744 -- 18,744
Marketing, general and
administrative.............. 10,443 58,270 -- 68,713 (39,550) 29,163
Depreciation and
amortization................ 4,002 2,778 653 (e) 7,433 -- 7,433
-------- -------- ------- -------- --------- --------
Total operating expenses........ 68,366 355,362 626 424,354 (277,427) 146,927
-------- -------- ------- -------- --------- --------
Income (loss) from operations... (20,238) 1,002 (626) (19,862) 5,617 (14,245)
Interest expense, net........... 12,319 1,986 (320)(f) 13,985 -- 13,985
Equity in losses of
affiliates.................... -- -- -- -- -- --
-------- -------- ------- -------- --------- --------
Income (loss) before minority
interests and income taxes.... (32,557) (984) (306) (33,847) 5,617 (28,230)
Minority interests.............. -- (31) -- (31) 177 146
Income tax (benefit) expense.... (11,558) (52) (1,171)(g) (12,781) 2,176 (10,605)
-------- -------- ------- -------- --------- --------
Income (loss) before preferred
stock dividends............... (20,999) (901) 865 (21,035) 3,264 (17,771)
Accretion of discount and
dividends accrued on
mandatorily redeemable
preferred stock............... 5,686 -- (3,981)(h) 1,705 -- 1,705
-------- -------- ------- -------- --------- --------
Income (loss) from continuing
operations available to common
shareholders.................. $(26,685) $ (901) $ 4,846 $(22,740) $ 3,264 $(19,476)
======== ======== ======= ======== ========= ========
Basic and diluted net loss per
common share:
Loss from continuing
operations.................... $ (0.87) $ (0.12) $ (0.11)
======== ======== ========
Weighted average shares......... 30,469 183,514 183,514
======== ======== ========
</TABLE>
91
<PAGE>
DORAL INTERNATIONAL, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AMERICAN BRIDGESTREET
SKIING MERISTAR PRO TRANSACTION PRO FORMA RMA
HISTORICAL(A) HISTORICAL(B) FORMA(C) ADJUSTMENTS AS ADJUSTED ADJUSTMENTS(I)
------------- ------------- ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues:
Resort.......................... $ 292,077 $ -- $ -- $ -- $ 292,077 $ --
Real estate..................... 132,063 -- -- -- 132,063 --
Hotels.......................... -- 1,310,022 -- -- 1,310,022 (1,136,689)
Corporate housing............... -- 9,392 89,572 -- 98,964 --
Hotel, management and other
fees............................ -- 14,823 -- -- 14,823 26,970
----------- ---------- -------- -------- ------------ -----------
Total net revenues................ 424,140 1,334,237 89,572 -- 1,847,949 (1,109,719)
Operating expenses:
Resort.......................... 203,902 -- -- -- 203,902 --
Real estate..................... 123,837 -- -- (633)(d) 123,204 --
Hotels.......................... -- 1,078,284 -- -- 1,078,284 (943,001)
Corporate housing............... -- 6,037 77,179 -- 83,216 --
Marketing, general and
administrative.................. 49,405 215,486 10,589 275,480 (166,718)
Depreciation and amortization... 47,028 6,740 1,597 3,332 (e) 58,697 --
----------- ---------- -------- -------- ------------ -----------
Total operating expenses.......... 424,172 1,306,547 89,365 2,699 1,822,783 (1,109,719)
----------- ---------- -------- -------- ------------ -----------
Income (loss) from operations..... (32) 27,690 207 (2,699) 25,166 --
Interest expense, net............. 35,906 4,730 2,197 870 (f) 43,703 --
Equity in losses of affiliates.... -- 31 -- -- 31 --
----------- ---------- -------- -------- ------------ -----------
Income (loss) before minority
interests and income taxes...... (35,938) 22,929 (1,990) (3,569) (18,568) --
Minority interests................ -- 1,611 (159) -- 1,452 --
Income tax (benefit) expense...... (5,805) 8,048 (58) (650)(g) 1,535 --
----------- ---------- -------- -------- ------------ -----------
Loss before preferred stock
dividends....................... (30,133) 13,270 (1,773) (2,919) (21,555) --
Accretion of discount and
dividends accrued on mandatorily
redeemable preferred stock...... 20,994 -- -- (14,527)(h) 6,467 --
----------- ---------- -------- -------- ------------ -----------
Income (loss) from continuing
operations available to common
shareholders.................... $ (51,127) $ 13,270 $ (1,773) $ 11,608 $ (28,022) $ --
=========== ========== ======== ======== ============ ===========
Basic and diluted loss per common
share:
Loss from continuing operations... $ (1.69) $ (0.15)
=========== ============
Weighted average shares........... 30,393 183,438
=========== ============
<CAPTION>
RMA ADJUSTED
PRO FORMA
-------------
<S> <C>
Net Revenues:
Resort.......................... $ 292,077
Real estate..................... 132,063
Hotels.......................... 173,333
Corporate housing............... 98,964
Hotel, management and other
fees............................ 41,793
------------
Total net revenues................ 738,230
Operating expenses:
Resort.......................... 203,902
Real estate..................... 123,204
Hotels.......................... 135,283
Corporate housing............... 83,216
Marketing, general and
administrative.................. 108,762
Depreciation and amortization... 58,697
------------
Total operating expenses.......... 713,064
------------
Income (loss) from operations..... 25,166
Interest expense, net............. 43,703
Equity in losses of affiliates.... 31
------------
Income (loss) before minority
interests and income taxes...... (18,568)
Minority interests................ 1,452
Income tax (benefit) expense...... 1,535
------------
Loss before preferred stock
dividends....................... (21,555)
Accretion of discount and
dividends accrued on mandatorily
redeemable preferred stock...... 6,467
------------
Income (loss) from continuing
operations available to common
shareholders.................... $ (28,022)
============
Basic and diluted loss per common
share:
Loss from continuing operations... $ (0.15)
============
Weighted average shares........... 183,438
============
</TABLE>
92
<PAGE>
DORAL INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 29, 2000 AND
FOR THE YEAR ENDED JULY 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(a) Reflects the unaudited consolidated statement of operations of American
Skiing for the three months ended October 29, 2000. For the unaudited pro
forma combined statement of operations for the year ended July 30, 2000,
this column reflects the audited consolidated statement of operations of
American Skiing for the year ended July 30, 2000.
(b) Reflects the unaudited consolidated statement of operations of MeriStar for
the three months ended September 30, 2000. For the unaudited pro forma
combined statement of operations for the year ended July 30, 2000, this
column reflects the unaudited consolidated statement of operations of
MeriStar for the twelve months ended June 30, 2000.
(c) This column represents the unaudited operations of BridgeStreet for the
period July 1, 1999 through May 31, 2000, the date of acquisition by
MeriStar.
(d) As previously discussed, American Skiing Company Resort Properties, Inc.
will draw down the remaining $7,500 available under the $13,000 Tranche C of
its senior credit facility. As of July 31, 2000, the outstanding aggregate
principal amounts under Tranches A and B of that senior credit facility were
$28,892 and $25,000, respectively.
Because Tranche C was entered into on July 31, 2000, the first day of
American Skiing's 2001 fiscal year, for purposes of the pro forma combined
statement of operations for the three months ended October 29, 2000, only
the $7,500 of proceeds from the drawdown to be made in connection with the
recapitalization of American Skiing have been applied to repay the
outstanding balances under Tranches A and B of the American Skiing Resort
Properties facility as of July 31, 2000 on a pro rata basis. The weighted
average interest rate on those balances were approximately 17.8% per annum
for Tranche A and 25.0% per annum for Tranche B. Total interest savings from
this application of proceeds, together with the elimination of the
historical interest incurred on the first $5,500 drawn under Tranche C,
would have been $740.
Because Tranche C was entered into on July 31, 2000, the first day of
American Skiing's 2001 fiscal year, for purposes of the pro forma combined
statement of operations for the year ended July 30, 2000, the entire $13,000
of proceeds from Tranche C have been applied to repay the outstanding
balance of indebtedness under the predecessor to American Skiing Resort
Properties' current credit facility. The weighted average interest rate on
those balances was approximately 17.9% per annum. Total interest savings
from this application of proceeds would have been $2,323.
In conjunction with the establishment of the new Doral senior credit
facility, we will receive a 3.25% reduction in the interest rate on Tranche
A of the American Skiing Resort Properties credit facility and a 5.00%
reduction in the interest rate on Tranche B of that facility. Total interest
savings for the three months ended October 29, 2000 and the year ended July
30, 2000 in connection with these rate reductions would have been $471 and
$1,661, respectively.
We have recorded a portion of the total interest savings resulting from the
application of the proceeds of Tranche C and the reduction in interest rates
as a reduction in real estate operating expenses. These reductions represent
reductions in interest that would have been capitalized into the cost of
real estate sold during the relevant periods. We have also recorded a
portion of the total interest savings as a reduction in net interest
expense. We would have capitalized the
93
<PAGE>
DORAL INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED OCTOBER 29, 2000 AND
FOR THE YEAR ENDED JULY 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
remaining portion of the total interest savings as part of the cost of
unsold real estate constructed using the proceeds from Tranches A, B, and C.
The application of those interest savings is as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED OCTOBER YEAR ENDED JULY
29, 2000 30, 2000
------------- ---------------
<S> <C> <C>
Interest savings resulting from application of Tranche C
proceeds................................................ $740 $2,323
Portion that would have been capitalized as part of unsold
real estate construction costs.......................... (96) (1,117)
Portion recorded as reduction to interest expense......... (627) (837)
---- ------
Portion recorded as reduction in cost of real estate
sold.................................................... $ 17 $ 369
---- ------
Interest savings resulting from interest rate reductions
on Tranches A and B..................................... $471 $1,661
Portion that would have been capitalized as part of unsold
real estate construction costs.......................... (62) (799)
Portion recorded as reduction to interest expense......... (399) (598)
---- ------
Portion recorded as reduction in cost of real estate
sold.................................................... $ 10 $ 264
---- ------
Total reduction in cost of real estate sold resulting from
application of Tranche C proceeds and reduction to
interest rates on Tranches A and B...................... $ 27 $ 633
==== ======
</TABLE>
(e) The adjustments to depreciation and amortization include the following
items:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED OCTOBER YEAR ENDED JULY
29, 2000 30, 2000
------------- ---------------
<S> <C> <C>
Elimination of amortization of deferred financing costs
associated with the existing American Skiing senior
credit facility......................................... $(253) $ (917)
Elimination of amortization of deferred financing costs
associated with the existing MeriStar senior credit
facility................................................ (201) (268)
Amortization of consent payment to holders of American
Skiing's senior subordinated notes...................... 50 200
Amortization of additional goodwill and intangible assets
generated by the merger................................. 589 2,357
Elimination of amortization of deferred financing costs
associated with Tranche C............................... (21) --
Amortization of deferred financing costs associated with
the new Doral senior credit facility.................... 489 1,960
----- ------
Net adjustments to depreciation and amortization.......... $ 653 $3,332
===== ======
</TABLE>
94
<PAGE>
DORAL INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED OCTOBER 29, 2000 AND
FOR THE YEAR ENDED JULY 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
We will amortize the MeriStar management contracts we acquire in the merger
over their contractual life of 25 years. Goodwill from the purchase will be
amortized over its estimated useful life of 35 years.
(f) The adjustments to net interest expense include the following items:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED OCTOBER YEAR ENDED JULY
29, 2000 30, 2000
------------- ---------------
<S> <C> <C>
Elimination of interest expense relating to the existing
American Skiing senior credit facility.................. $(3,293) $(10,261)
Elimination of interest expense relating to the existing
MeriStar senior credit facility......................... (2,377) (5,662)
Interest expense on new Doral senior credit facility...... 6,376 18,228
Reduction in net interest expense from application of the
proceeds of Tranche C................................... (627) (837)
Reduction in net interest expense from the reduction in
interest rates on Tranches A and B...................... (399) (598)
------- --------
Net adjustment to net interest expense.................... $ (320) $ 870
======= ========
</TABLE>
(g) Reflects adjustments to record the income tax effect at Doral's effective
tax rates of 37.8% and 7.7% for the three months ended October 29, 2000 and
for the year ended July 30, 2000, respectively. Our effective tax rates
differ from the statutory tax rate primarily because of the effect of
permanent differences.
(h) The conversion of the American Skiing Series A and Series B preferred stock
resulted in the following net adjustments to the accretion of discount and
dividends on mandatorily redeemable preferred stock:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED OCTOBER YEAR ENDED JULY
29, 2000 30, 2000
------------- ---------------
<S> <C> <C>
Elimination of dividends accrued on the American Skiing
Series A preferred stock................................ $(1,307) $ (4,870)
Elimination of dividends accrued on the American Skiing
Series B preferred stock................................ (4,379) (16,124)
Accrual of dividends on American Skiing new 14% preferred
stock................................................... 1,705 6,467
------- --------
Net adjustment to accretion of discount and dividends on
mandatorily redeemable preferred stock.................. $(3,981) $(14,527)
======= ========
</TABLE>
(i) Reflects the assignment of all hotel leases between MeriStar and MeriStar
Hospitality Corporation to a taxable subsidiary of MeriStar Hospitality and
the execution of management contracts between that subsidiary and MeriStar
in accordance with changes to the federal tax laws that were effective as of
January 1, 2001. As a result of these activities, all of the net operating
assets and liabilities of MeriStar associated with the hotels formerly
leased from MeriStar Hospitality were transferred to
95
<PAGE>
DORAL INTERNATIONAL, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED OCTOBER 29, 2000 AND
FOR THE YEAR ENDED JULY 30, 2000
(DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
the taxable subsidiary of MeriStar Hospitality. Also, as a result of these
actions, the net revenues from the transferred assets and the expenses
associated with those revenues were eliminated and replaced with management
fee income and expenses associated with that income. Adjustments to minority
interests and income tax expense occurred because of the change in income
(loss) before minority interests and income taxes.
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<PAGE>
MANAGEMENT OF DORAL AFTER THE MERGER
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY EMPLOYEES
Set forth below is information concerning each nominee for election to the
Doral board of directors and each individual to be appointed as an executive
officer of Doral upon completion of the merger:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH DORAL
---- -------- ------------------------------------
<S> <C> <C>
Leslie B. Otten........................... 51 Chairman and Director
Paul W. Whetsell.......................... 49 Chief Executive Officer and Director
Bradford E. Bernstein..................... 33 Director
J. Taylor Crandall........................ 46 Director
Daniel L. Doctoroff....................... 41 Director
Steven E. Gruber.......................... 43 Director
David B. Hawkes........................... 56 Director
Steven D. Jorns........................... 51 Director
[Independent Director].................... - Director
[Independent Director].................... - Director
[Independent Director].................... - Director
John Emery................................ 36 Chief Financial Officer
William J. Fair........................... 38 Chief Operating Officer--Resorts
Hernan R. Martinez........................ 48 President--Real Estate
David E. McCaslin......................... 43 Chief Operating Officer--Hotel
Management and BridgeStreet
</TABLE>
Doral's certificate of incorporation will provide for a board of directors
consisting of three classes of directors with the directors in each class
serving staggered three year terms. Each class will consist, as nearly as may be
possible, of one-third of the directors constituting the entire board. The
Class I nominees are Messrs. Bradford E. Bernstein, J. Taylor Crandall and
- , the Class II nominees are Messrs. - , Jorns, Hawkes and - , and the
Class III nominees are Messrs. Doctoroff, Whetsell, Otten and - . The terms
of the Class I, Class II and Class III directors elected at the special meeting
will expire at the Doral annual meetings of stockholders following the end of
the 2001, 2002 and 2003 fiscal years, respectively. At each annual meeting of
the stockholders, the successors to the class of directors whose term expires
will be elected for a three year term.
MR. OTTEN is a nominee to be a Class III director of Doral and will also be
the Chairman of Doral after the merger. Mr. Otten has been a director, Chairman
and Chief Executive Officer of American Skiing since the inception of the
company in July 1997. In 1971, Mr. Otten joined Sherburne Corporation, then the
parent company of Sunday River, Killington and Mount Snow. Mr. Otten became
Assistant to the General Manager of Sunday River in 1972 and became its General
Manager in 1974. In 1980, Mr. Otten purchased Sherburne's 90% interest in Sunday
River and acquired the remaining 10% interest from the minority stockholders in
1989. From 1980 until the initial public offering of American Skiing in 1997, he
was the sole director, President and Chief Executive Officer of American Skiing
or its predecessors.
MR. WHETSELL is a nominee to be a Class III director of Doral and will also
be the Chief Executive Officer of Doral after the merger. Mr. Whetsell has been
Chairman of the board of directors and Chief Executive Officer of MeriStar since
August 1998. Mr. Whetsell has also been Chairman of the board of
97
<PAGE>
directors and Chief Executive Officer of MeriStar Hospitality Corporation since
August 1998. Prior to August 1998, Mr. Whetsell had been Chairman of the board
of directors of CapStar Hotel Company since 1996 and had served as President and
Chief Executive Officer of CapStar Hotel Company since its founding in 1987.
Mr. Whetsell is also a director of American Skiing and STS HotelNet, LLC.
MR. BERNSTEIN is a nominee to be a Class I director. Mr. Bernstein has
served as a director of American Skiing since August 5, 1999. Mr. Bernstein has
been a Partner at Oak Hill Capital Management, Inc., a private investment
company, since its formation in 1999. Previously, he was a Managing Director at
Oak Hill Partners, Inc. which he joined in 1992. He has served or currently
serves on the board of directors of Caliber Collision Centers, Inc. and EpiX,
formerly Payroll Transfers, Inc. Prior to 1992, Mr. Bernstein was with
Patricof & Co. Ventures, a venture capital firm, and at Merrill Lynch & Co.
MR. CRANDALL is a nominee to be a Class I director. Mr. Crandall has been a
director of American Skiing since August 5, 1999. Mr. Crandall has served as
Vice President and Chief Financial Officer of Keystone, Inc., the principal
investment vehicle of Robert M. Bass of Fort Worth, Texas since October 1996,
and as Chief Operating Officer since August 1998. Mr. Crandall is a Managing
Partner and an owner of Oak Hill Capital Management, Inc., the manager of Oak
Hill Capital Partners, L.P. He has also served as President, Director and sole
stockholder of Acadia MGP, Inc., the managing general partner of Acadia
Investment Partners, L.P., the sole general partner of Acadia Partners, L.P., an
investment partnership, since 1992. Mr. Crandall also serves as a director of
U.S. Oncology, Broadwing Inc., Specialty Foods Corporation, Sunterra, Inc. and
Washington Mutual Inc. He also serves on the Board of Advisors of Oak Hill
Capital Partners and Oak Hill Strategic Partners, L.P., both of which he helped
found; on the Investment Committees of Insurance Partners, L.P. and Brazos Fund,
L.P., and on the Advisory Committees of Boston Ventures Limited Partnership V
and B-K Capital Partners, L.P. Prior to his affiliation with Keystone,
Mr. Crandall was a Vice President with the First National Bank of Boston, where
he managed a leveraged buy-out group and the bank's Dallas energy office.
MR. DOCTOROFF is a nominee to be a Class III director of Doral.
Mr. Doctoroff has been a director of MeriStar since August 1998. Mr. Doctoroff
is a Managing Partner and an owner of Oak Hill Capital Management, Inc., the
manager of Oak Hill. Mr. Doctoroff has been Managing Director of Oak Hill
Partners, Inc., the investment advisor to several private investment funds, and
its predecessor since August 1987; Vice President and Director of Acadia
Partners MGP, Inc. since March 1992; Vice President of Keystone, Inc. since
March 1992; and a Managing Partner of Insurance Partners Advisors, L.P. since
February 1994. Mr. Doctoroff is also a Director of MeriStar Hospitality
Corporation, Bell & Howell Company and Williams Scotsman, Inc.
MR. GRUBER is a nominee to be a Class II director. Mr. Gruber has been a
director of American Skiing since August 5, 1999. From February 1999 to the
present, Mr. Gruber has been a Managing Partner and an owner of Oak Hill Capital
Management, Inc., the manager of Oak Hill. From March 1992 to present he has
been a Managing Director of Oak Hill Partners, Inc. From May 1990 to
March 1992, he was a Managing Director of Rosecliff, Inc. Since February 1994,
Mr. Gruber has also been an officer of Insurance Partners Advisors, L.P., an
investment advisor to Insurance Partners, L.P. Since October 1992, he has been a
Vice President of Keystone, Inc., which was formerly known as Robert M. Bass
Group, Inc. From 1981 to 1990, Mr. Gruber was a Managing Director and co-head of
High Yield Securities and held various other positions at Lehman Brothers, Inc.
He is also a director of Superior National Insurance Group, Inc., Grove
Worldwide, LLC, Reliant Building Products, Inc., and several private companies
related to Keystone, Inc., Insurance Partners, L.P. and Oak Hill Partners, Inc.
MR. HAWKES is a nominee to be a Class II director of Doral. Mr. Hawkes was
elected to the board of directors of American Skiing on December 8, 1998. He is
a co-owner and consultant with
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<PAGE>
Cloudhawk Management Consultants, L.L.C., a management consulting firm based in
Portland, Maine. Before founding Cloudhawk in 1993, Mr. Hawkes served as a
partner with KPMG Peat Marwick from 1974 to 1993, part of that time in charge of
the firm's Portland, Maine tax practice. Mr. Hawkes also serves as a member of
the board of directors of several private companies.
MR. JORNS is a nominee to be a Class II director of Doral. Mr. Jorns has
been Vice Chairman of the board of directors of MeriStar since August 1998.
Mr. Jorns was also Chief Operating Officer of MeriStar from August 1998 until
January 1999. Mr. Jorns has also been Vice Chairman of the board of directors of
MeriStar Hospitality Corporation since August 1998. From April 1996 to
August 1998, Mr. Jorns was the Chairman of the board of directors, Chief
Executive Officer and President of American General Hospitality Corporation.
Mr. Jorns was also the founder of American General Hospitality, Inc. and had
served since its formation in 1981 until August 1998 as its Chairman of the
board of directors, Chief Executive Officer and President.
MR. EMERY will be the Chief Financial Officer of Doral. Mr. Emery has served
as Chief Investment Officer of MeriStar since April 2000. He currently also
serves as Chief Operating Officer of MeriStar Hospitality Corporation since
April 2000 and was elected to MeriStar Hospitality's board of directors on
May 9, 2000. From August 1998 to April 2000, Mr. Emery was Chief Financial
Officer of MeriStar Hospitality. From June 1997 until August 1998, Mr. Emery
served as Chief Financial Officer of CapStar Hotel Company. From March 1996 to
June 1997, Mr. Emery served as Treasurer and Secretary of Capstar Hotel Company.
From September 1995 to March 1996, he served as Director of Finance of CapStar
Hotel Company. Prior to that, from January 1987 to September 1995, he worked for
Deloitte & Touche LLP in various capacities, culminating with Senior Manager for
the hotel and real estate industries. Mr. Emery is a director of STS HotelNet,
LLC.
WILLIAM J. FAIR will be the Chief Operating Officer--Resorts of Doral. Mr.
Fair joined American Skiing Company in May 2000. Prior to joining the Company,
Mr. Fair was employed as president of Universal Studios' Port Aventura theme
park in Tarragona, Spain from 1998 to April 2000. Mr. Fair served as senior vice
president for business operations at Universal Creative, a division of Universal
Studios, Inc. from 1997 to 1998. Between 1992 and 1997, Mr. Fair was employed by
Walt Disney Co. in multiple capacities including director of finance and
business planning for Disney Development Company.
HERNAN R. MARTINEZ will be the President--Real Estate of Doral. Mr. Martinez
joined American Skiing Company in July 2000. From 1996 to April 2000, Mr.
Martinez served as a managing director of Tishman-Speyer Properties of New York,
an international real estate development company. Between 1994 and 1996, Mr.
Martinez was chief executive officer of another commercial real estate
development company, Del Plata Properties of Buenos Aires, Argentina.
DAVID E. MCCASLIN will be the Chief Operating Officer--Hotel Management and
BridgeStreet of Doral. Mr. McCaslin has been a director and President of
MeriStar since August 1998. Mr. McCaslin has served as Chief Operating Officer
of CapStar from 1994 until August 1998. Mr. McCaslin joined CapStar Hotel
Company in 1987 as a General Manager and was named Vice President of Operations
in 1988.
EXECUTIVE COMPENSATION
GENERAL
The following table provides information concerning compensation paid by
American Skiing or MeriStar for the last three completed fiscal years to the
persons listed below, each of whom will serve as executive officers of Doral
after the merger.
99
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL -------------
COMPENSATION OTHER RESTRICTED SECURITIES
NAME AND FISCAL ------------- ANNUAL STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
----------------------------- -------- ------------- -------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Leslie B. Otten (1).......... 2000 $ 407,692 $ 23,650(8) $ -- -- -- --
1999 392,308 -- 15,000(10) -- 175,000 --
1998 386,538 -- 10,000(10) -- 1,853,197 --
Paul W. Whetsell (2)(3)...... 2000.. $ 190,000 $ --(14) $ 23,044 -- 5,000(11) --
1999 190,000 163,500 -- -- 135,000(12) --
1998(7) 82,480 63,540 2,312 -- -- --
John Emery (2)(4)............ 2000 $ 90,000 --(14) -- -- -- --
William J. Fair (1)(5)....... 2000 $ 51,923 $ 75,000(9) $ -- -- 400,000 --
Hernan R. Martinez (1)(6).... 2000 $ 17,308 $ -- $ -- -- 400,000 --
David E. McCaslin (2)........ 2000 $ 288,077 $ --(14) $ 5,513 -- -- $ 241,000(13)
1999 300,000 219,000 2,813 -- 100,000 --
1998(7) 127,313 100,200 2,312 -- 87,500 --
</TABLE>
------------------------------
(1) Unless otherwise noted, the amounts in the table for this executive
represent compensation paid to the executive by American Skiing during its
1998, 1999 and 2000 fiscal years.
(2) Unless otherwise noted, the amounts in the table for this executive
represent compensation paid to the executive by MeriStar during its 1998,
1999 and 2000 fiscal years.
(3) Mr. Whetsell is Chairman and Chief Executive Officer of MeriStar Hospitality
Corporation. Mr. Whetsell's compensation from MeriStar Hospitality in
MeriStar's 2000 fiscal year consisted of $285,000 in base salary, $419,250
in vested restricted stock and $571,906 in other compensation, which
represents dividends on unvested restricted stock.
(4) Mr. Emery is Chief Operating Officer of MeriStar Hospitality Corporation.
Mr. Emery's compensation from MeriStar Hospitality in MeriStar's 2000 fiscal
year consisted of $308,750 in base salary, $222,800 in bonus, $6,248 of
other annual compensation, $330,616 in vested restricted stock and $294,098
in other compensation, which represents dividends on unvested restricted
stock.
(5) Mr. Fair became an employee of American Skiing in May 2000 and consequently
did not receive any compensation during American Skiing's 1998 and 1999
fiscal years.
(6) Mr. Martinez became an employee of American Skiing in July 2000 and
consequently did not receive any compensation during American Skiing's 1998
and 1999 fiscal years.
(7) These amounts represent compensation paid during the period from August 3,
1998, the date MeriStar was spun-off from CapStar Hotel Company, to
December 31, 1998.
(8) Represents bonus for fiscal 2000, paid in fiscal 2001.
(9) Represents signing bonus.
(10) Represents fees paid for attendance at meetings of the board of directors
of American Skiing.
(11) Represents 5,000 options to purchase American Skiing common stock granted
under American Skiing's 1997 Stock Option Plan in December 2000.
(12) Represents 125,000 options to purchase MeriStar common stock granted under
the MeriStar Incentive Plan during MeriStar's 1999 fiscal year and 10,000
options to purchase American Skiing common stock granted under American
Skiing's 1997 Stock Option Plan in December 1999.
(13) On February 4, 1999, MeriStar's compensation committee permitted the grant
by MeriStar Hospitality Corporation to Mr. McCaslin of options to purchase
150,000 shares of MeriStar Hospitality common stock at $19.19 per share,
which vest over three years, and 15,000 restricted shares of MeriStar
Hospitality common stock, which vest over five years, under the
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<PAGE>
MeriStar Hospitality Incentive Plan. In December 1999, the MeriStar
compensation committee permitted the grant by MeriStar Hospitality of
MeriStar Hospitality common stock and other equity compensation to
Mr. McCaslin. That award consists of MeriStar Hospitality common stock,
which is subject to a three-year vesting period that began in March 31,
2000, and a new class of partnership units in the subsidiary operating
partnership of MeriStar Hospitality Corporation, which is subject to the
satisfaction of performance criteria. The stock portion of the award is
valued based on the closing price per share of the common stock on the date
of grant.
(14) Bonuses for 2000 will be finalized and paid in February 2001.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options during the last
completed fiscal year by American Skiing and MeriStar to those persons listed in
the summary compensation table above. No stock appreciation rights were granted
during the last fiscal year.
The assumed 5% and 10% rates of stock price appreciation are provided in
accordance with the rules of the SEC and do not represent either American
Skiing's or MeriStar's estimate or projection of its common stock price. Actual
gains, if any, on stock option exercises are dependent on the future performance
of Doral's common stock, overall market conditions and the option holders'
continued employment through the vesting period. Unless the market price of
Doral common stock appreciates over the option term, no value will be realized
from the option grants made to these executive officers. All options described
in the tables below are options to purchase the common stock of American Skiing.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM ($)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------------
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% 10%
---- ----------- ------------- ----------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Leslie B. Otten............... -- -- -- -- $ -- $ --
Paul W. Whetsell.............. 5,000(1) (2) $1.75 12/12/10 5,502 13,945
John Emery.................... -- -- -- -- -- --
William J. Fair............... 400,000 15.0% $2.00 5/22/10 503,115 1,274,994
Hernan R. Martinez............ 400,000 15.0% $2.00 7/5/10 503,115 1,274,994
David E. McCaslin............. -- -- -- -- -- --
</TABLE>
--------------------------
(1) Represents 5,000 options to purchase American Skiing common stock granted in
December 2000.
(2) Represents less than 1% of options granted.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the options exercised
by those persons listed in the summary compensation table above in the last
completed fiscal year and the year-end number and value of unexercised options
with respect to each of these persons. No stock appreciation rights
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<PAGE>
were exercised by these persons in the last completed fiscal year or were
outstanding at the end of the year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END (#) FISCAL YEAR-END
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leslie B. Otten (1)............ -- $ -- --(3) -- $ -- $ --
Paul W. Whetsell (2)........... -- -- 301,666(4) 83,334 39,750(5) --
John Emery (2)................. -- -- 151,356 73,644 5,049 --
William J. Fair (1)............ -- -- 110,000 290,000 34,000 89,900
Hernan R. Martinez (1)......... -- -- -- 400,000 -- 124,000
David E. McCaslin (2).......... -- -- 229,167 95,833 23,188 --
</TABLE>
------------------------------
(1) Unless otherwise noted, the information in this table for this executive
relates to options to purchase American Skiing common stock with respect to
its fiscal year ended July 30, 2000.
(2) Unless otherwise noted, the information in this table for this executive
relates to options to purchase MeriStar common stock with respect to its
fiscal year ended December 31, 2000.
(3) Mr. Otten received 660,000 exercisable options to purchase American Skiing
common stock during the 2001 fiscal year. The weighted-average exercise
price of these options was $3.01 per share. For more information regarding
these options, please see "Information Regarding Beneficial Ownership of
Management and Principal Stockholders of American Skiing--Security Ownership
of Directors and Officers of American Skiing."
(4) Represents 291,666 options to purchase MeriStar common stock and 10,000
options to purchase American Skiing common stock.
(5) Represents the value of unexercised in-the-money options to purchase
MeriStar common stock.
DIRECTOR COMPENSATION
Independent directors of Doral will be paid an annual fee of $20,000. In
addition, each independent director will be paid for attendance at meetings of
some committees of which he or she is a member. Directors who are employees of
Doral will not receive any fees for their service on the board of directors or a
committee. Doral will reimburse all independent directors for their
out-of-pocket expenses in connection with their service on the board of
directors.
Independent directors will also receive options under the new Doral
Non-Employee Directors' Incentive Plan. For more information regarding these
options, please read the description of that plan under the heading "--Doral
Benefit Plans--Doral Non-Employee Directors' Incentive Plan."
EMPLOYMENT AGREEMENTS
LESLIE B. OTTEN
On January 3, 2001 American Skiing entered into an amended and restated
employment agreement with Leslie B. Otten which provides that he will be
employed as Chairman of Doral. The agreement is for a term commencing on the
effective date of the merger and continuing until December 31, 2005, with
automatic renewals on a year-to-year basis thereafter unless either party
provides ninety days notice of his or her desire not to extend the term.
Mr. Otten will serve as Chairman of the board of directors, Chairman of the
executive committee of the board, a member of the nominating committee of the
board and a member of the boards of directors of ASC Utah, American Skiing
Company Resort Properties, Inc. and each material subsidiary of American Skiing.
Some material terms of Mr. Otten's employment agreement are as follows:
Mr. Otten will receive a base salary of $380,000 per year, with increases
determined by the board of directors. Mr. Otten's base salary is also subject to
an annual increase equal to the percentage
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<PAGE>
change in the consumer price index from the previous year. Mr. Otten may earn a
bonus payment of between $190,000 and $380,000, depending on Doral's achievement
of certain earnings levels, with a minimum achievement of 90% of those targets,
as well as an additional bonus of up to $100,000, which may be granted in the
sole discretion of the board of directors. Mr. Otten will be eligible to
participate in the new Doral Incentive Plan.
Mr. Otten will be entitled to severance if his employment is terminated as a
result of any of the following circumstances:
- Mr. Otten's disability;
- Doral's termination of Mr. Otten's employment without just cause;
- Mr. Otten's termination of his own employment for good reason;
- Mr. Otten's termination of his own employment for any reason during the
one year period following a change in control of Doral.
Mr. Otten's severance under these circumstances would be equal to his base
salary for a period of 24 months at the rate in effect immediately prior to the
termination payable in accordance with Doral's regular payroll practices. In
addition, Mr. Otten would be entitled to an amount equal to the discretionary
bonus that would have been paid to him during the 24 months following his
termination. Upon a change in control, all stock options or other incentive
awards would become fully vested. The merger of MeriStar and American Skiing is
excluded from the definition of change in control under Mr. Otten's employment
agreement.
If Mr. Otten's employment is terminated due to his death, he will receive
his base salary and earned accrued bonus at the rate in effect at the time of
his death through the end of the month in which his death occurs.
If Mr. Otten terminates his own employment voluntarily, other than during
the one year period following a change in control of Doral, or it is terminated
by Doral for just cause, he will receive any accrued and unpaid base salary
through the termination date and will be entitled to no other salary or bonus
payments or any other benefits under the employment agreement.
Mr. Otten's employment agreement also provides that during the term of the
agreement and for a period of one year thereafter he will not become financially
interested in or associated with any business that derives 25% or more of its
revenue from skiing and other winter resorts, winter-associated real estate
development or related activities in any state where Doral has operations on the
date of his termination and will not solicit employees or consultants to leave
Doral. Mr. Otten also agreed not to disclose confidential information regarding
Doral.
WILLIAM J. FAIR
On May 17, 2000, American Skiing entered into an employment agreement with
William J. Fair for a term of three years. Mr. Fair is employed as the Chief
Operating Officer of American Skiing Company and the President--Resort
Operations. Upon completion of the merger, Mr. Fair will lead Doral's leisure
division. The parties may extend Mr. Fair's employment agreement by mutual
written agreement on or prior to May 17, 2002. Some material terms of
Mr. Fair's employment agreement are as follows:
Mr. Fair will receive a base salary of $300,000 per year. The compensation
committee may award Mr. Fair an annual bonus of up to 70% of his base salary in
accordance with the provisions of American Skiing's bonus plan. Mr. Fair
received a signing bonus in the amount of $75,000 on May 17, 2000. American
Skiing also granted Mr. Fair incentive stock options for 400,000 shares of
American Skiing common stock, at an exercise price of $2.00 per share, subject
to the vesting and forfeiture conditions.
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<PAGE>
Mr. Fair will be entitled to severance if his employment is terminated as a
result of any of the following circumstances:
- Mr. Fair's disability;
- Doral's termination of Mr. Fair's employment without cause; or
- Mr. Fair's termination of his own employment for specified reasons set
forth in his employment agreement.
Mr. Fair's severance under these circumstances would be an amount equal to
his base salary to the end of the term of employment, but in no event less than
one year's base salary. The severance is payable in accordance with the Doral's
ordinary payroll practices.
In the event Mr. Fair's employment is terminated by Mr. Fair for specified
reasons set forth in the employment agreement or by Doral without cause within
one year following, or in connection with, a change in control of American
Skiing, Mr. Fair is entitled to receive an amount equal to 200% percent of his
then current annual base salary in a lump sum within ten days of the termination
of his employment. The merger is not a change in control of American Skiing
under Mr. Fair's employment agreement.
Mr. Fair's employment agreement also provides that during the term of the
agreement and for a period of one year after the term, he will not have an
ownership interest in, manage or control ski resorts throughout North America
and will not solicit American Skiing employees to leave American Skiing, or
interfere with or disrupt any contractual relationships between American Skiing
and any third party. Mr. Fair also agrees not to disclose confidential
information.
HERNAN R. MARTINEZ
On April 28, 2000, American Skiing and Hernan Martinez agreed to the terms
of his employment. Mr. Martinez is employed as the Chief Operating Officer of
American Skiing Company Resort Properties, Inc. and a Senior Vice President of
American Skiing Company. Upon consummation of the merger, Mr. Martinez will lead
Doral's real estate division. Mr. Martinez is employed at will.
Mr. Martinez receives a base salary of $300,000 per year, paid weekly.
Mr. Martinez may be awarded an annual bonus of up to 70% of his base salary in
accordance with the provisions of American Skiing's bonus plan. In accordance
with the terms of his employment agreement, American Skiing granted
Mr. Martinez incentive stock options for 400,000 shares of American Skiing
common stock, subject to a four year vesting schedule.
During the first three years of employment, in the event Mr. Martinez is
involuntarily terminated by American Skiing without cause or as a result of a
change in control of American Skiing, Mr. Martinez will receive severance in an
amount equal to one year's base salary. The merger is not a change in control of
American Skiing under this agreement.
It is anticipated that Messrs. Otten, Fair and Martinez will continue to
work under their pre-existing employment agreements after the merger.
DORAL BENEFIT PLANS
The stockholders of American Skiing are being asked to vote upon and approve
the adoption of a new Incentive Plan and a new Stock Purchase Plan for the
employees of Doral. Options to purchase MeriStar common stock that have been
granted to participants under MeriStar's Incentive Plan will be converted in the
merger, at a rate of 1.88 shares of Doral common stock for each share of
MeriStar common stock, into options to purchase Doral common stock that will be
governed by the new Doral Incentive Plan. Appropriate adjustments will be made
to the exercise price to take account of the exchange ratio. All options that
will be granted in the future by Doral will be granted under the new Doral
Incentive Plan. Options to purchase American Skiing common stock will continue
to be governed
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by the American Skiing 1997 Stock Option Plan, but no additional options will be
granted under that Plan.
THE NEW DORAL INCENTIVE PLAN
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE INCENTIVE PLAN. A
COPY OF THE PROPOSED INCENTIVE PLAN IS ATTACHED TO THIS JOINT PROXY STATEMENT
AND PROSPECTUS AS APPENDIX F, AND YOU SHOULD READ THE PROPOSED INCENTIVE PLAN
CAREFULLY AND IN ITS ENTIRETY.
The purposes of the Doral Incentive Plan are to:
- Attract and retain employees, directors and other service providers with
ability and initiative;
- Provide incentives to those deemed important to the success of Doral and
related entities; and
- Align the interests of these individuals with the interests of Doral and
its stockholders through opportunities for increased stock ownership.
SHARE AUTHORIZATION. In no event may the total of the following exceed 15%
of the number of issued and outstanding shares of Doral common stock outstanding
as of the end of the preceding calendar year:
- The number of shares of Doral common stock covered by outstanding awards
under the Incentive Plan; plus
- The number of shares of Doral common stock issued under the Incentive
Plan; plus
- The number of shares of Doral common stock covered by outstanding options
granted under the American Skiing 1997 Stock Option Plan; plus
- The number of shares of Doral common stock issued upon the exercise of
stock options, whenever granted under the American Skiing 1997 Stock
Option Plan.
All awards made under the Incentive Plan will be evidenced by written
agreements between Doral and the participant. The per individual share
limitation, the terms of outstanding awards and the per individual limitations
on the number of shares subject to award, will be adjusted, as the administrator
deems appropriate, in the event of an increase or reduction in the number of
shares if common stock by reason of a merger, consolidation, reorganization,
spin-off, change in corporate structure, stock dividend, stock split,
combination, reclassification, recapitalization or other similar event.
ADMINISTRATION. The Incentive Plan will be administered by the Doral
compensation committee. The compensation committee may delegate its authority to
administer the Incentive Plan to one or more of Doral's officers. The
compensation committee may not, however, delegate its authority with respect to
grants and awards to individuals subject to Section 16 of the Exchange Act.
ELIGIBILITY. Each employee of Doral or Doral's affiliates or any other
person whose efforts contribute to Doral's performance or success is eligible to
participate in the Incentive Plan.
AWARDS. The administrator may, from time to time, grant stock options,
stock awards, incentive awards or performance shares to participants in the
Incentive Plan.
OPTIONS. Options granted under the Incentive Plan may be incentive stock
options or non-qualified stock options. An option entitles a participant to
purchase a designated number of shares of Doral common stock at the exercise
price. The exercise price and number of shares subject to the option will be
fixed by the administrator at the time the option is granted.
The exercise price per share of a non-qualified stock option cannot be less
than:
- For options granted to existing employees, 100% of the fair market value
of Doral common stock on the date of grant; and
- For options granted in connection with the hiring of new employees, 85% of
fair market value of Doral common stock on the date of grant.
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The exercise price per share of an incentive stock option cannot be less
than:
- For options granted to a 10% or more stockholder of Doral, 110% of the
fair market value of Doral common stock on the date of grant;
- For options granted to all other participants, 100% of the fair market
value of Doral common stock on the date of grant.
No more than 10% of the shares subject to options under the Incentive Plan
may be granted at less than 100% of fair market value.
The administrator will determine the time and conditions for exercisability
of each option. The maximum term of an incentive stock option is five years for
options granted to a 10% stockholder and ten years for all other incentive stock
options. The maximum term of a non-qualified stock option is ten years. The
exercise price may be paid in cash or with a cash equivalent acceptable to the
Doral compensation committee, and, if the award agreement so provides, with
Doral common stock.
Incentive stock options may only be granted to employees. In any calendar
year, the total number of shares subject to incentive stock options granted to
an employee may not exceed the number of shares of Doral common stock,
determined as of the date the option is granted, whose aggregate fair market
value was $100,000. In addition, no participant may be granted options in any
calendar year for more than 3,000,000 shares of common stock.
STOCK AWARDS. Participants may also be awarded shares of Doral common stock
under a stock award. The administrator will determine conditions, if any, for
the transferability and vesting of the stock award. These conditions may
include, for example, a requirement that the participant continue employment
with Doral for a specified period or that Doral or the participant achieve
stated, performance-related objectives. The objectives may be stated with
reference to the fair market value of the Doral common stock or Doral's, a
subsidiary's, or an operating unit's return on equity, earnings per share, total
earnings, earnings growth, return on capital, funds from operations, return on
assets or other acceptable performance criteria.
If a portion of a stock award was vested when granted, or if the vesting of
the stock award is subject to performance criteria, the shares subject to that
award will be restricted for at least one year after grant. All other stock
awards will be restricted for at least three years. The number of shares of
common stock awarded to an individual in any calendar year under a stock award
may not exceed 500,000. No more than 30% of the shares of common stock available
under the Incentive Plan may be issued in the form of stock awards.
INCENTIVE AWARDS. Incentive awards may also be granted under the Incentive
Plan. An incentive award is an opportunity to earn a bonus, payable in cash,
upon attainment of stated performance objectives. The objectives may be stated
with reference to the fair market value of Doral common stock or based on
Doral's, a subsidiary's, or an operating unit's return on equity, earnings per
share, total earnings, earnings growth, return on capital, funds from
operations, return on assets or other acceptable performance criteria. The
period in which performance will be measured must be at least one year. In any
calendar year, no participant may receive an incentive award payment that
exceeds $250,000 or 100% of the participant's base salary as of the date of
grant of the incentive award, whichever is lesser.
PERFORMANCE SHARE AWARDS. The Incentive Plan will also provide for the
award of performance shares. A performance share award entitles the participant
to receive a payment equal to the fair market value of a specified number of
shares of Doral common stock if specified standards are met. The administrator
will prescribe the requirements that must be satisfied before a performance
share award is earned. These conditions may include, for example, a requirement
that the participant continue employment with Doral for a specified period or
that Doral or the participant achieve stated performance-related objectives. The
objectives may be stated with reference to the fair market value of the Doral
common stock or based on Doral's, a subsidiary's, or an operating unit's return
on equity,
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earnings per share, total earnings, earnings growth, return on capital, funds
from operations, return on assets or other acceptable performance criteria. To
the extent that performance shares are earned, the obligation may be settled in
cash, in Doral common stock, or by a combination of the two. In any calendar
year, no participant may be granted a performance share award for more than
100,000 shares of common stock.
TRANSFERABILITY. Awards under the Incentive Plan are generally
nontransferable. Except for incentive stock options, the administrator may,
however, grant awards that are transferable to permitted family members.
TERMINATION AND AMENDMENT. No option or stock award may be granted, and no
performance shares may be awarded under the Incentive Plan more than ten years
after the earlier of the date that the Incentive Plan is adopted by the board of
directors or the date that it is approved by American Skiing's stockholders.
The board of directors may amend or terminate the Incentive Plan at any
time, but an amendment will not become effective without stockholder approval if
the amendment materially:
- Increases the number of shares of Doral's common stock that may be issued
under the Incentive Plan other than an adjustment as described above;
- Changes eligibility requirements; or
- Increases the benefits that may be provided under the Incentive Plan.
CHANGE OF CONTROL. All outstanding options and awards under the Incentive
Plan will become fully vested and exercisable as of the date of the completion
of any of the following events:
- The commencement of a public tender offer for all or any portion of the
common stock of Doral; or
- The Doral board of directors approves any transaction or event that would
constitute a change of control of Doral that would be required to be
reported under Item 6(e) of Schedule 14A under the Exchange Act.
DORAL NON-EMPLOYEE DIRECTORS' INCENTIVE PLAN
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE PROPOSED DORAL
NON-EMPLOYEE DIRECTORS' INCENTIVE PLAN. A COPY OF THE PROPOSED DIRECTORS'
INCENTIVE PLAN IS ATTACHED TO THIS JOINT PROXY STATEMENT AND PROSPECTUS AS
APPENDIX G, AND YOU SHOULD CAREFULLY READ THE PROPOSED DIRECTORS' INCENTIVE PLAN
IN ITS ENTIRETY.
SHARE AUTHORIZATION. A maximum of 800,000 shares of Doral common stock may
be issued under the Directors' Incentive Plan. Share limits and amounts in the
plan and terms of outstanding awards will be adjusted, as the administrator
deems appropriate, in the event of a stock dividend, stock split, combination,
reorganization, reclassification, spin-off, consolidation, merger, change in
corporate structure, recapitalization or other similar event.
ELIGIBILITY. The Doral Directors' Incentive Plan will provide for the grant
of options to purchase Doral common stock to each director who is not an officer
or employee of Doral or its subsidiaries. These directors are referred to as
independent directors.
OPTIONS. Under the Directors' Incentive Plan, upon initial commencement of
service, whether by appointment or election, each independent director will be
awarded an option to purchase a number of shares of Doral common stock
determined by the administrator. Afterwards, each independent director will be
granted an option to purchase a number of shares of Doral common stock
determined by the administrator on the first business day following Doral's
annual meeting of stockholders. The exercise price of option grants will be 100%
of the fair market value of the Doral common stock on the date of grant, and
options will vest in three annual installments commencing one year after the
date of grant.
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The exercise price may be paid in cash, cash equivalents acceptable to the board
of directors, Doral common stock or a combination of those. Options granted
under the Directors' Incentive Plan, once vested, are exercisable for ten years
after the date of grant. Upon termination of service as a director, options that
have not vested are forfeited, although vested options may be exercised until
they expire. All options vest upon a change in control of Doral.
ADMINISTRATOR. The administrator of the Directors' Incentive Plan will be
the compensation committee of Doral's board of directors.
TERM AND AMENDMENT. The Directors' Incentive Plan provides that the Doral
board of directors may amend or terminate the Plan at any time. An amendment
will not become effective without stockholder approval if the amendment
materially increases the number of shares that may be issued under the plan or
if that approval is required for compliance with stock exchange rules. No
options may be granted under the Directors' Incentive Plan after December 31,
2011.
CHANGE OF CONTROL. All outstanding options under the Directors' Incentive
Plan will become fully vested and exercisable as of the date of the completion
of any of the following events:
- The commencement of a public tender offer for all or any portion of the
common stock of Doral; or
- The Doral board of directors approves any transaction or event that would
constitute a change of control of Doral that would be required to be
reported under Item 6(e) of Schedule 14A under the Exchange Act.
DORAL EMPLOYEE STOCK PURCHASE PLAN
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE STOCK PURCHASE PLAN.
A COPY OF THE PROPOSED STOCK PURCHASE PLAN IS ATTACHED TO THIS JOINT PROXY
STATEMENT AND PROSPECTUS AS APPENDIX H, AND YOU SHOULD READ THE PROPOSED STOCK
PURCHASE PLAN CAREFULLY AND IN ITS ENTIRETY.
Under the Employee Stock Purchase Plan, Doral employees will be allowed to
use a portion of their base salary to purchase shares of Doral common stock.
Doral has reserved 6 million shares of its common stock for issuance under the
Stock Purchase Plan. Those shares may be authorized but unissued shares,
treasury shares or a combination of the two.
ELIGIBILITY. Each Doral employee or employee of a Doral affiliate who is
customarily employed by Doral or a Doral affiliate for a specified number of
hours per week is eligible to participate in the Stock Purchase Plan, unless he
or she owns beneficially 5% or more of the outstanding Doral common stock.
PAYROLL WITHHOLDING. Under the Stock Purchase Plan, participating employees
may elect to authorize Doral to withhold a portion of his or her base pay to
purchase Doral common stock from Doral on a monthly basis. The minimum amount
that can be withheld is $200 per calendar quarter, and the maximum is 8% of base
pay or $25,000, whichever is less.
PURCHASE PRICE. Except for shares of common stock purchased through
dividend reinvestment, as described below, the purchase price of Doral common
stock under the Stock Purchase Plan will equal a designated percentage between
85% to 100% of the closing sales price for Doral common stock as reported by the
NYSE on the first trading day of the month or on the last trading day of the
month, whichever is less. The designated percentage will be established annually
by the administrator of the Stock Purchase Plan.
ADMINISTRATOR. Doral's compensation committee will administer the Stock
Purchase Plan.
ANTI-DILUTION PROVISIONS. The Stock Purchase Plan will contain
anti-dilution provisions customary for plans of this type.
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CUSTODIAL ACCOUNTS. Doral common stock purchased under the Stock Purchase
Plan will be held in custodial accounts until sold or distributed at the
participant's request. The custodian may charge a fee for the execution of a
sale or for the delivery of share certificates. The participant may not elect to
purchase stock under the Stock Purchase Plan for three months after a withdrawal
or sale of Doral common stock under the Stock Purchase Plan. Shares purchased
under the Stock Purchase Plan may not be sold for six months after their
purchase. Any cash dividends paid on Doral common stock held in a participant's
account will be reinvested in additional Doral common stock at 100% of fair
market value. Non-cash distributions on Doral common stock held in a
participant's account will be distributed to the participant.
TERM AND AMENDMENT. The Stock Purchase Plan will remain in effect until
terminated by the Doral board of directors, or until all shares authorized for
issuance under the Stock Purchase Plan have been issued. The Stock Purchase Plan
may be amended from time to time by the Doral board. Except for increases
triggered by the anti-dilution provisions of the Stock Purchase Plan, no
amendment may increase the aggregate number of shares of Doral common stock that
may be issued and sold under the Stock Purchase Plan without further approval by
Doral's shareholders nor may there be any amendments as to the class of
employees eligible to participate in the Stock Purchase Plan without approval of
Doral's shareholders nor may there be any amendments as to the class of
employees eligible to participate in the Stock Purchase Plan without approval of
Doral's shareholders.
THE AMERICAN SKIING 1997 STOCK OPTION PLAN
After the merger, American Skiing's 1997 Stock Option Plan will continue in
effect, but no additional options will be issued under that plan. Each option to
purchase a share of American Skiing common stock will be an option to purchase a
share of Doral common stock following the merger, and the exercise price will be
unaffected. The 1997 Stock Option Plan has been administered by the American
Skiing compensation committee. After the merger, the Doral compensation
committee will be the administrator.
The 1997 Stock Option Plan was designed to attract, retain and motivate
directors and key employees. All officers of American Skiing and full-time
management employees of American Skiing or its subsidiaries who performed at
least 1,000 hours of service per year in a management capacity were eligible to
receive incentive stock options as well as non-qualified stock options, and
directors of American Skiing and other key persons designated by the
administrator were eligible to receive non-qualified stock options.
As of December 31, 2000, there were approximately 70 officers and full time
management employees eligible to participate in the 1997 Stock Option Plan.
American Skiing has granted options to purchase an aggregate of 5,316,930 shares
of American Skiing common stock with exercise prices ranging from $2.00 per
share to $18.00 per share, excluding options which have been returned following
termination of employment or have otherwise been forfeited by the optionee.
Under the 1997 Stock Option Plan 5,688,699 shares of American Skiing common
stock were reserved for issuance upon the exercise of stock options. As of
October 31, 2000, the administrator had granted options to purchase a total of
5,316,930 shares, leaving 371,769 available for future grant. As of October 31,
2000, the stock subject to the 1997 Stock Option Plan had a market value of
$19,549,572. The Doral compensation committee intends to continue to administer
the 1997 Stock Option Plan in compliance with the requirements of
Section 162(m) of the Internal Revenue Code, with the intended result that some
amounts paid which are taxable as income to holders of stock options granted
under the 1997 Stock Option Plan will be deductible by Doral for federal income
tax purposes.
Both incentive stock options and non-qualified stock options have been
granted under the 1997 Stock Option Plan with terms and exercise prices
determined by the administrator under the requirements of applicable law. The
per share exercise price of incentive stock options was not less than the fair
market value of American Skiing common stock on the date of grant. The term of
each
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option was determined by the administrator and was not permitted to be less than
five years nor more than ten. Options granted under the 1997 Stock Option Plan
are not transferable other than by will or by the laws of descent and
distribution.
The 1997 Stock Option Plan provides that all of an employee's options will
become exercisable in full immediately upon termination of employment because of
death or permanent disability and provides that the administrator in its
discretion may permit accelerated exercisability upon an employee's early
retirement at age 55 or over or after five years of employment.
In the event of a "change in control" of the issuer, all outstanding vested
options will be exercisable in full for 30 days prior to that event and will
terminate upon consummation of that event, unless assumed or replaced by other
options in connection with such event. The Doral compensation committee has the
discretion to accelerate the exercisability of outstanding, unvested options. A
"change of control" under the 1997 Stock Option Plan is defined as:
- A merger or other reorganization after which the shareholders of the
issuer prior to the transaction own less than a majority of the common
stock of the surviving entity;
- A sale of all or substantially all of the assets of the issuer; or
- A sale, transfer or other disposition of more than 50% of the common stock
of the issuer, other than in connection with a public offering of the
common stock.
The board of directors may terminate the 1997 Stock Option Plan at any time
and may amend the 1997 Stock Option Plan from time to time. However, the board
may not change the maximum number of shares for which options may be granted,
expand the categories of eligible grantees, change the minimum exercise prices
or increase the maximum term of any options under the 1997 Stock Option Plan
without stockholder approval. No amendment or termination may adversely affect
an optionee's rights under any issued option without the optionee's consent.
The 1997 Stock Option Plan provides that the number, kinds and price of the
shares covered by each option and the total number of shares that may be granted
under the 1997 Stock Option Plan will be proportionately adjusted to reflect, as
deemed equitable and appropriate by the board of directors, any merger,
consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split or share combination of the shares or recapitalization of
the issuer. It also provides that to the extent deemed equitable and appropriate
by the board of directors, in any merger, consolidation or reorganization, any
option granted under the 1997 Stock Option Plan will pertain to the securities
and other property to which a holder of the number of shares covered by the
option would have been entitled to receive in connection with the event.
As required by the Internal Revenue Code, an incentive stock option plan may
not have a term longer than ten years from the earlier of the date the plan is
adopted or the date the plan is approved by the stockholders. Accordingly, the
1997 Stock Option Plan will expire on July 31, 2007, except as to options
outstanding on that date.
American Skiing has filed a registration statement with the SEC with respect
to the offering of the shares of common stock under the 1997 Stock Option Plan.
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CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
AMERICAN SKIING
Leslie B. Otten, the Chairman and Chief Executive Officer of American
Skiing, is the obligor under a margin loan with ING (U.S.) Capital Corporation.
The loan has two different maintenance bases:
- an advance base which requires that the aggregate market value of the
collateral be at a given level in order to take additional advances under
the arrangement to make interest payments; and
- a minimum base which requires that the aggregate market value of the
collateral be at a given level in order to avoid a default under the terms
of the loan.
The loan is collateralized by Mr. Otten's 833,333 shares of common stock and
14,760,530 shares of Class A common stock. At any time that the aggregate market
value of the collateral is below the minimum base, Mr. Otten is required to
either pay down the balance of the loan or to pledge additional collateral.
American Skiing is not liable for nor do any of its assets collateralize the
loan. In connection with the loan, American Skiing entered into a registration
rights agreement with the lender containing customary provisions pursuant to
which the lender will have the right to require American Skiing to register with
the SEC, at American Skiing's expense, the shares pledged by Mr. Otten to secure
the loan.
After the consummation in 1999 of the Series B preferred stock sale to Oak
Hill, American Skiing, through one of its subsidiaries, acquired or obtained
rights to acquire the following assets from entities owned or controlled by
Mr. Otten:
- American Skiing purchased the land underlying the snowmaking ponds at the
Sunday River resort, together with all associated water rights, which were
previously leased by a subsidiary of American Skiing, for a purchase price
of $2.1 million;
- American Skiing purchased the Ski Dorm building and land underlying the
Snow Cap Inn, each located at the Sunday River resort, for an aggregate
purchase price of $679,000; and
- American Skiing acquired the option to purchase approximately 3,300 acres
of undeveloped land at the Sunday River resort, to a subsidiary of
American Skiing for an initial payment of $650,000, which payment may be
applied to the purchase price. In order to exercise the option, American
Skiing would be required to pay an additional $3,692,000, which is a 12%
discount from the appraised value of the land. The purchase price will be
further discounted by another 10% if the option is exercised on or prior
to August 6, 2001.
In each case, the independent members of the board of directors, with
Mr. Otten abstaining, determined that the asset being acquired was of
significant strategic value to American Skiing. Each of the assets was, or, in
the case of the option described above, will be upon exercise of the option
acquired at or below its appraised value, as determined by independent
appraisals commissioned by American Skiing.
In connection with the asset transaction described above, American Skiing
also repaid the outstanding principal and accrued interest of a note from a
subsidiary of American Skiing payable to Mr. Otten totaling approximately
$2.0 million. The note was originally issued to Mr. Otten to cover various tax
liabilities generated when the Company's subsidiary converted from a subchapter
S corporation to a subchapter C corporation.
Mr. Wachter, a member of the American Skiing board of directors, is the
founder and principal in Main Street Advisors. Prior to Mr. Wachter's election
to the board of directors, Main Street Advisors, through Mr. Wachter, acted as
one of the American Skiing's investment bankers in connection with the
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sale of Series B preferred stock to Oak Hill, for which it was paid a fee of
$1,585,278. In addition, Mr. Wachter received $100,000 in compensation for his
service on the American Skiing special committee formed to analyze the
transaction.
Mr. Hawkes received $100,000 in compensation for his service on the American
Skiing special committee formed to analyze the transaction.
On May 10, 2000, American Skiing, through one of its subsidiaries, purchased
two parcels of land adjacent to its Sugarbush resort from Sugarbush Land
Holdings, Inc., a corporation controlled by Mr. Otten. The two parcels, totaling
approximately 128 acres, were purchased for an aggregate price of approximately
$589,000. The terms of the purchase, including the purchase price, were reviewed
and approved by the executive committee and audit committee of American Skiing's
board of directors.
In March, 2000, American Skiing, through one of its subsidiaries, sold
residential units at its Sundial Lodge at The Canyons to Mr. Blaise Carrig,
Mr. Christopher Howard and Mr. Daniel Duquette. Mr. Carrig is President of
American Skiing's subsidiary which operates The Canyons. Mr. Howard is American
Skiing's Executive Vice President. Mr. Duquette is a member of American Skiing's
board of directors. Mr. Carrig and Mr. Howard each purchased one residential
unit in the Sundial Lodge for a purchase price of $201,000. Mr. Duquette
purchased one residential unit in the Sundial Lodge for a purchase price of
$345,000. The purchase prices at which Mr. Carrig, Mr. Howard and Mr. Duquette
purchased these units were the same as those at which the units, or units of
comparable size and finish, were offered for sale to the general public.
Jill Rundle, the spouse of G. Christopher Brink, one of American Skiing's
executive officers, is employed by American Skiing as the Director of
Advertising and Marketing. In connection with her employment, Ms. Rundle was
paid $62,988 in Fiscal 2000.
Mr. Branson, a director of American Skiing, has provided real estate
advisory services to American Skiing and Oak Hill Capital Management, Inc., for
which he was paid by American Skiing a total of $341,480 in the year ended
July 30, 2000. Of this total amount, $161,890 was paid to Branson and
Associates, an entity controlled by Mr. Branson.
On July 31, 2000, Oak Hill Capital Partners, L.P purchased one tranche of
the real estate term facility of American Skiing's resort development subsidiary
totalling $13.0 million. In connection with this $13.0 million investment,
American Skiing entered a securities purchase agreement with Oak Hill Capital
Partners, L.P. and other related entities, dated as of July 31, 2000, and
amended on September 28, 2000, November 10, 2000, and December 21, 2000, under
which American Skiing agreed to either issue warrants to Oak Hill for 6 million
shares of American Skiing common stock with an exercise price of $2.50 per
share, or issue to Oak Hill common stock in American Skiing's resort development
subsidiary, representing approximately 15% of the voting interest in that
entity. The purchase price of the warrants, or American Skiing's resort
development subsidiary common stock, as applicable was $2 million. As part of
the recapitalization of American Skiing that will occur immediately preceding
the completion of the merger, the warrant described above will be issued.
In addition, Madeleine LLC, Mr. Otten, Oak Hill Capital Partners, L.P. and
parties related to Oak Hill, will receive stock of American Skiing in the
recapitalization that will occur immediately preceding the completion of the
merger. For more information about the recapitalization, see "The Merger
Agreement--Recapitalization of American Skiing."
MERISTAR
OWNERSHIP INTERESTS IN SOME MANAGED HOTELS
As of December, 2000, Mr. Whetsell and corporations owned by him own,
directly or indirectly, minority equity interests in three hotels which MeriStar
manages. Mr. Whetsell exercises management
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control over the entities that own the above mentioned interests in these
hotels. Except as described below, these interests were acquired prior to the
formation of CapStar Hotel Company. For the year ended December 31, 2000,
MeriStar received approximately $155,000 in management fees from these hotels.
STOCK OWNERSHIP
Daniel L. Doctoroff, a director of MeriStar, is a managing director and
owner of Oak Hill Capital Management, Inc. Oak Hill Capital Management, Inc. is
the manager of Oak Hill Capital Partners, L.P. which is a related party to
Keystone, Inc., a principal stockholder of MeriStar. See "Information Regarding
Beneficial Ownership of Management and Principal Stockholders of
MeriStar--Information as to 5% and Larger Stockholders."
RELATIONSHIPS AMONG OFFICERS AND DIRECTORS
Mr. Paul Whetsell, the Chairman and Chief Executive Officer of MeriStar, is
an executive officer, director and security holder of MeriStar Hospitality, the
owner of 106 hotels currently managed by MeriStar and to be managed by Doral.
Mr. Steven Jorns, Vice Chairman and director of MeriStar, is a director and
stockholder of MeriStar Hospitality and of beverage corporations that sublease
from MeriStar the portion of 24 hotels, which are leased and managed by
MeriStar, where alcoholic beverages are sold.
OWNERSHIP OF HOLIDAY INN IN MADISON, WISCONSIN
The 202-room Holiday Inn in Madison, Wisconsin managed by MeriStar was owned
by a private partnership of which Mr. Jorns was a partner. This hotel was
purchased by MeriStar Hospitality in January 1999 in an arms length transaction.
THE BEVERAGE CORPORATIONS
In order to facilitate compliance with state and local liquor laws and
regulations, MeriStar subleases those areas of some hotels that comprise the
restaurant and other areas where alcoholic beverages are served to the beverage
corporations, 24 of which are wholly owned by Mr. Jorns. In accordance with the
terms of some sublease agreements, each beverage corporation is obligated to pay
to MeriStar rent payments equal to 30% of each such corporation's annual gross
revenues generated from the sale of food and beverages generated from such
areas.
PURCHASE OF PROMISSORY NOTES
A partnership indirectly controlled by Mr. Whetsell sold promissory notes
due from the owners of two properties managed by MeriStar to MeriStar on
March 11, 1999 in exchange for $343,650 which represented the current balance
due under the promissory notes. One of the promissory notes was paid in full to
MeriStar during January 2000.
SALE OF PARTNERSHIP UNITS
On December 31, 1999, MeriStar sold three partnership units in a partnership
which owns a hotel managed by MeriStar to a partnership indirectly controlled by
Mr. Whetsell. The three units were sold for a total amount of $145,500 which was
the fair market value of the units at the time of sale.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF AMERICAN SKIING
The following selected historical financial data has been derived from
American Skiing's financial statements as audited by Arthur Andersen LLP,
independent accountants as of and for the fiscal year ended July 25, 1999 and
July 30, 2000, and as audited by PricewaterhouseCoopers LLP, independent
accountants, as of and for the fiscal years ended July 28, 1996, July 27, 1997
and July 26, 1998. The following selected financial data for the three months
ended October 29, 2000 and October 24, 1999 is unaudited and has been derived
from unaudited financial statements which, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the unaudited interim periods.
<TABLE>
<CAPTION>
THREE
MONTHS ENDED FISCAL YEAR ENDED
------------------------- ----------------------------------------------------
OCTOBER 29, OCTOBER 24, JULY 30, JULY 25, JULY 26, JULY 27, JULY 28,
2000 1999 2000 1999 1998 1997 1996
----------- ----------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE, REAL ESTATE UNITS AND SKIER VISIT AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:(1)
Net revenues:
Resort(2)........................... $ 20,912 $ 20,806 $292,077 $292,558 $277,574 $163,310 $ 63,489
Real estate......................... 27,216 2,549 132,063 24,492 60,992 10,721 9,933
-------- -------- -------- -------- -------- -------- --------
Total net revenues................ 48,128 23,355 424,140 317,050 338,566 174,031 73,422
Operating expenses:
Resort.............................. 30,343 29,015 203,902 198,231 171,246 107,230 41,799
Real estate......................... 23,578 3,284 123,837 26,808 43,554 8,950 5,844
Marketing, general and
administrative.................... 10,443 10,753 49,405 51,434 40,058 25,173 11,289
Stock compensation charge(3)........ -- -- -- -- 14,254 -- --
Depreciation and amortization....... 4,002 3,202 47,028 44,202 37,965 18,293 6,783
-------- -------- -------- -------- -------- -------- --------
Total operating expenses.......... 68,366 46,254 424,172 320,675 307,077 159,646 65,715
-------- -------- -------- -------- -------- -------- --------
Interest expense...................... 12,319 7,966 35,906 39,382 34,575 23,730 4,699
Loss from continuing operations....... (20,999) (21,813) (30,133) (27,950) (1,867) (5,482) (2,237)
Accretion of discount and dividends
accrued on mandatorily redeemable
preferred stock..................... 5,686 4,816 20,994 4,372 5,346 444 --
-------- -------- -------- -------- -------- -------- --------
Net loss from continuing operations
available to common shareholders.... ($26,685) ($26,629) ($51,127) ($32,322) ($ 7,213) ($ 5,926) ($ 2,237)
======== ======== ======== ======== ======== ======== ========
Diluted net loss from continuing
operations per share available to
common shareholders................. ($ 0.87) ($ 0.88) ($ 1.69) ($ 1.07) ($ 0.28) ($ 6.06) ($ 2.37)
======== ======== ======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets.......................... $957,015 $963,739 $926,778 $907,502 $780,899 $337,340 $298,732
Long-term debt and redeemable
preferred stock, including current
maturities.......................... 663,017 617,955 636,700 546,297 422,684 253,151 210,720
Common shareholders' equity........... 161,498 208,827 185,497 236,655 268,204 15,101 21,903
Other Data:
RESORT:
Skier visits (000's)(4)............... N/A N/A 5,006 5,089 5,319 3,025 1,290
Season pass holders (000's)........... N/A N/A 47.3 44.2 44.1 30.9 13.2
Resort revenues per skier visit....... N/A N/A $ 58.34 $ 57.48 $ 52.19 $ 53.99 $ 49.22
Resort EBITDA(5)(6)................... ($19,874) ($18,962) $ 38,770 $ 42,893 $ 66,270 $ 30,907 $ 10,401
REAL ESTATE:
Number of units sold.................. 2,495 1,332 2,285 1,290 1,009 123 177
Number of units pre-sold(7)........... 894 1,213 932 1,151 861 605 109
Real estate EBITDA(6)(8).............. $ 3,638 ($ 735) $ 8,226 ($ 2,316) $ 17,438 $ 1,771 $ 4,089
</TABLE>
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--------------------------
(1) The historical results of American Skiing reflect the results of operations
of the Attitash Bear Peak ski resort since its acquisition in July 1994, the
results of operations of the Sugarbush ski resort since October 1994, the
results of operations of the Mount Cranmore ski resort from its acquisition
in June 1995 through its divestiture in November 1996, the results of
operation of S-K-I Ltd. since its acquisition in June 1996, the results of
operation of Pico Mountain since its acquisition in November 1996, the
results of operations of The Canyons resort since its acquisition in
July 1997 and the results of operations of the Steamboat and Heavenly
resorts since their acquisition in November 1997.
(2) Resort revenues represents all revenues excluding revenues generated by the
sale of real estate interests.
(3) In the first quarter of fiscal 1998, American Skiing granted to certain
executive officers and other employees fully vested options to purchase
511,530 shares of common stock at an exercise price of $2.00 per share.
American Skiing also agreed to pay certain tax liabilities which the
recipients of the options expect to incur upon exercise of the options.
Because the $2.00 per share exercise price was below the fair market value
of a share of common stock on the date of grant, American Skiing recognized
a one-time compensation charge of $14.3 million in fiscal 1998.
(4) For the purposes of estimating skier visits, American Skiing assumes that a
season pass holder visits American Skiing's resorts a number of times that
approximates the average cost of a season pass divided by the average daily
lift ticket price.
(5) Resort EBITDA represents resort revenues less cost of resort operations and
marketing, general and administrative expense.
(6) Resort and Real Estate EBITDA are not measurements calculated in accordance
with GAAP and should not be considered as alternatives to operating or net
income as an indicator of operating performance, cash flows as a measure of
liquidity or any other GAAP determined measurement. Some items excluded from
Resort and/or Real Estate EBITDA, such as depreciation, amortization and
non-cash charges for stock compensation awards and asset impairments are
significant components in understanding and assessing the Company's
financial performance. Other companies may define Resort and Real Estate
EBITDA differently, and as a result, such measures may not be comparable to
the Company's Resort and Real Estate EBITDA. American Skiing has included
information concerning Resort and Real Estate EBITDA because management
believes they are indicative measures of American Skiing's liquidity and
financial position, and are generally used by investors to evaluate
companies in the resort industry.
(7) Pre-sold units represent quartershare and other residential units for which
American Skiing has a binding sales contract, subject to certain closing
conditions, and has received a 5% down payment on the unit from the
purchaser. Recognition of the revenue from such pre-sales is deferred until
the period in which such sales are closed.
(8) Real Estate EBITDA represents revenues from real estate sales less cost of
real estate sold, including selling costs, holding costs, the allocated
capitalized cost of land, construction costs and other costs relating to
property sold.
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SUPPLEMENTARY FINANCIAL INFORMATION OF AMERICAN SKIING
The following table presents condensed supplementary unaudited quarterly
financial information for the nine quarters ended October 29, 2000. In the
opinion of American Skiing's management, this information has been prepared on
the same basis as the Consolidated Financial Statements appearing elsewhere in
this joint proxy statement and prospectus and includes all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
financial results set forth in them. Results of operations for any previous
quarters are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
OCT. 29, JUL. 30, APR. 30, JAN. 30, OCT. 24, JUL. 25, APR. 25, JAN. 24, OCT. 25,
2000 2000 2000 2000 1999 1999 1999 1999 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Resort..................... $ 20,912 $ 16,849 $149,942 $104,480 $ 20,806 $ 14,725 $154,317 $103,205 $ 20,311
Real estate................ 27,216 34,214 73,153 22,147 2,549 3,383 10,324 6,300 4,485
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total net revenues......... 48,128 51,063 223,095 126,627 23,355 18,108 164,641 109,505 24,796
-------- -------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Resort..................... 30,343 26,499 74,865 73,523 29,015 26,334 74,573 69,251 28,073
Real estate................ 23,578 34,617 63,450 22,486 3,284 6,349 8,554 7,865 4,040
Marketing, general and
Administrative........... 10,443 9,306 13,063 16,283 10,753 8,167 14,519 17,922 10,826
Depreciation and
Amortization............. 4,002 3,826 19,076 20,924 3,202 2,752 19,731 19,010 2,709
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses... 68,366 74,248 170,454 133,216 46,254 43,602 117,377 114,048 45,648
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
Operations............... $(20,238) $(23,185) $ 52,641 $ (6,589) $(22,899) $(25,494) $ 47,264 $ (4,543) $(20,852)
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF AMERICAN SKIING
The following is management's discussion and analysis of financial condition
and results of operations of American Skiing for the twelve months ended
July 30, 2000 and the three months ended October 29, 2000. As you read the
material below, we urge you to carefully consider American Skiing's consolidated
financial statements and related notes contained elsewhere in this joint proxy
statement and prospectus.
LIQUIDITY AND CAPITAL RESOURCES
SHORT-TERM
American Skiing's primary short-term liquidity needs involve funding
seasonal working capital requirements, continuing and completing real estate
development projects presently under construction, funding its fiscal 2001
capital improvement program and servicing its debt. American Skiing's cash
requirements for ski-related and real estate development activities are provided
from separate sources. American Skiing's primary source of liquidity for
ski-related working capital and ski-related capital improvements are cash flow
from operations of its non-real estate subsidiaries and borrowings under its
senior credit facility. Real estate development and real estate working capital
is funded primarily through construction financing facilities established for
major real estate development projects, a real estate term facility, and net
proceeds from the sale of real estate developed for sale after required
construction loan repayments. The real estate development and real estate
working capital facilities are without recourse to American Skiing and its
resort operating subsidiaries and are collateralized by significant real estate
assets of American Skiing Company Resort Properties and its subsidiaries,
including the assets and stock of Grand Summit Resort Properties, Inc., American
Skiing's primary hotel development subsidiary. As of October 29, 2000, the book
value of the total assets that collateralized the real estate development and
real estate working capital facilities and which are included in the
accompanying consolidated balance sheet was approximately $288.9 million.
RESORT LIQUIDITY
American Skiing has established a $165.0 million senior credit facility
agreement with Fleet National Bank, as agent, and various other lenders,
consisting of a $100.0 million revolving portion and a $65.0 million term
portion. The revolving portion of the senior credit facility matures on May 30,
2004, and the term portion matures on May 31, 2006.
The maximum availability under the revolving portion of the senior credit
facility reduces over its term by prescribed amounts. As of January 4, 2001,
total borrowings under the revolving facility were $62.0 million, and
$5.7 million of availability was allocated to cover outstanding letters of
credit. The term portion of the senior credit facility amortizes in five annual
installments of $650,000 payable on May 31 of each year, with the remaining
portion of the principal due in two substantially equal installments on May 31,
2005 and May 31, 2006. As of January 4, 2001, the outstanding balance of the
term portion had been reduced by $650,000 to $64.4 million. In addition, the
senior credit facility requires mandatory prepayment of the term portion and a
reduction in the availability under the revolving portion of an amount equal to
50% of the consolidated excess cash flows during any period in which excess cash
flow leverage ratio exceeds 3.50 to 1. In no event, however, will any mandatory
prepayments reduce the revolving portion of the facility below $74.8 million.
American Skiing does not presently expect to generate consolidated excess cash
flows during fiscal 2001.
The senior credit facility contains affirmative, negative and financial
covenants customary for this type of credit facility, which includes maintaining
specified financial ratios. The senior credit facility is secured by
substantially all of American Skiing's assets and subsidiaries except those of
its real estate development subsidiaries. The revolving portion of the facility
is subject to an annual 30-day
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clean-down requirement, which period must include April 30 of each year, during
which the sum of the outstanding principal balance and letter of credit exposure
shall not exceed $35.0 million.
The senior credit facility restricts American Skiing's ability to pay
dividends on its common stock. It is prohibited from paying dividends in excess
of 50% of the consolidated net income of the non-real estate development
subsidiaries after April 25, 1999, and further prohibited from paying dividends
under any circumstances when the effect of such payment would cause the debt to
EBITDA ratio of the non-real estate development subsidiaries to exceed 4.0 to 1.
Based upon these and other restrictions, American Skiing does not expect to be
able to pay cash dividends on its common stock, Series A preferred stock or
Series B preferred stock during fiscal 2001 or fiscal 2002.
Due to the adverse weather conditions in the eastern United States, Utah and
the Sierra Nevada during its second fiscal quarter of 2000, and their effect on
its second quarter revenue, EBITDA and net income, American Skiing amended the
senior credit facility on March 6, 2000 in order to:
- Suspend its second fiscal quarter of 2000 financial covenant requirements;
- Significantly modify the financial covenant requirements of the senior
credit facility on a prospective basis;
- Establish minimum quarterly EBITDA levels starting with its third quarter
of fiscal 2000 through the second quarter of fiscal 2002; and
- Establish monthly restrictions on the maximum amount outstanding under the
revolving portion of the senior credit facility for the period from May 1
through December 3, 2000.
American Skiing exceeded its required minimum EBITDA levels under the
amended senior credit facility for the third and fourth fiscal quarters of 2000
and the first fiscal quarter of 2001, and it successfully fulfilled the maximum
usage requirement for each monthly period through December 3, 2000. Based on
historical operations, American Skiing presently anticipates that it will be
able to meet the financial covenants of the amended senior credit facility.
Failure to meet one or more of these covenants could result in an event of
default under the senior credit facility. In the event that a default were not
waived by the lenders holding a majority of the debt under the senior credit
facility, this default would also constitute defaults under one or more of
American Skiing's other major credit facilities, the consequences of which would
likely be material and adverse to its business.
The amended senior credit facility also places a maximum level of non-real
estate capital expenditures of $13.0 million, of which approximately
$4.6 million had been expended as of December 3, 2000, for fiscal 2001,
exclusive of the Heavenly gondola project described below. Following fiscal
2001, annual resort capital expenditures, exclusive of real estate capital
expenditures, are limited to the lesser of $35.0 million, or the total of the
non-real estate development subsidiaries' consolidated EBITDA for the four
fiscal quarters ended in April of the previous fiscal year less the consolidated
debt service for the same period. In addition to the foregoing amounts, American
Skiing is permitted to and expects to make capital expenditures of up to
$30.0 million for the purchase and construction of a new gondola at its Heavenly
resort in Lake Tahoe, Nevada, on which construction is currently underway and
approximately $19.5 million had been expended as of December 3, 2000.
American Skiing's liquidity is significantly affected by its high leverage.
As a result of its leveraged position, American Skiing will have significant
cash requirements to service interest and principal payments on its debt.
Consequently, cash availability for working capital needs, capital expenditures
and acquisitions is limited, outside of any availability under the senior credit
facility.
Furthermore, the senior credit facility and the indenture governing American
Skiing's 12% Senior Subordinated Notes due 2006, each contain significant
restrictions on its ability to obtain additional sources of capital and may
affect its liquidity. These restrictions include restrictions on the sale of
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assets, restrictions on the incurrence of additional indebtedness and
restrictions on the issuance of preferred stock.
As of January 4, 2001, American Skiing had drawn or committed for letters of
credit approximately $67.7 million of the total $100.0 million revolving portion
of its senior credit facility.
Under the indenture for its 12% senior subordinated notes, due 2006,
American Skiing is prohibited from paying cash dividends or making other
distributions to its stockholders.
In the merger, MeriStar will become a wholly-owned subsidiary of American
Skiing, and the combined company will be renamed "Doral International, Inc." In
connection with the merger, Doral expects to replace the existing senior credit
facility with a new $285.0 million senior credit facility consisting of a
$120.0 million revolving facility and a $165.0 million term loan facility. The
new facility is expected to have a three-year term and will carry a coupon of
LIBOR + 400 basis points. The new senior credit facility will prohibit the
payment of dividends and other distributions by Doral and generally is expected
to not permit Doral to incur or assume other indebtedness. In addition, the new
senior credit facility is expected to contain restrictions on consolidation,
merger and sale of assets, and will require Doral to comply with covenants
customary for this type of facility, including financial covenants.
REAL ESTATE LIQUIDITY
Funding of working capital for American Skiing Company Resort Properties and
its fiscal 2001 real estate development program is provided by a real estate
term facility and the net proceeds from the sale of real estate developed for
sale after required construction loan repayments.
On July 31, 2000, American Skiing Company Resort Properties entered into a
second amended real estate facility agreement with Fleet National Bank. This
fully syndicated $73.0 million facility replaced a previous unsyndicated
$58.0 million real estate development term loan facility. The second amended
real estate facility is collateralized by security interests in, and mortgages
on, substantially all of American Skiing Company Resort Properties' assets,
which primarily consist of undeveloped real property and the stock of its real
estate development subsidiaries, including Grand Summit Resort Properties. As of
October 29, 2000, the book value of the total assets that collateralized the
real estate facilities, and are included in American Skiing's consolidated
balance sheet included elsewhere in this joint proxy statement and prospectus,
was approximately $288.9 million.
The second amended real estate facility has three tranches, each with
separate interest rates and maturity dates. Tranche A has a maximum principal
amount of $35.0 million, bears interest payable monthly in arrears at a variable
rate equal to the Fleet National Bank Base Rate plus 8.25%, or a current rate of
17.8%, and matures on December 31, 2002. Mandatory principal payments on Tranche
A of $5.0 million each are payable on April 30, 2002, July 31, 2002 and
October 31, 2002. Tranche B has a maximum principal amount of $25.0 million,
bears interest at a fixed rate of 25% per annum and matures on December 31,
2003. Interest calculated at 18% per annum for Tranche B is payable monthly in
arrears. The remaining 7% per annum will accrue, be added to the principal
balance of Tranche B and will bear interest at 25% per annum, compounded
annually. Tranche C has a maximum principal amount of $13.0 million, bears
interest at an effective rate of 25% per annum and matures on December 31, 2005.
Interest will accrue, be added to the principal balance of Tranche C and will
bear interest at 18% per annum, compounded semi-annually. Neither Tranche B nor
Tranche C have any scheduled amortization payments prior to maturity. As of
December 31, 2000, the principal balances outstanding, excluding accrued and
unpaid interest, under Tranches A, B and C of the second amended real estate
facility were $28.9 million, $25.0 million, and $5.5 million, respectively.
Tranche C of the second amended real estate facility was purchased by Oak
Hill Capital Partners, L.P. In connection with this $13.0 million investment,
American Skiing entered into a securities
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purchase agreement with Oak Hill, dated as of July 31, 2000, and amended on
September 28, 2000, November 10, 2000, and December 21, 2000, pursuant to which
it agreed to either issue warrants to Oak Hill for 6,000,000 shares of its
common stock with an exercise price of $2.50 per share, or issue to Oak Hill
common stock in American Skiing Company Resort Properties, representing
approximately 15% of the voting interest in that entity. The purchase price of
the warrants was $2.0 million. American Skiing expects to issue the warrants
following receipt of necessary lender consents. In connection with the merger,
American Skiing Company Resort Properties will draw the remaining amount
available under Tranche C, and American Skiing will repay the entire
$13.0 million principal amount, plus accrued and unpaid interest through
October 31, 2000, in the form of American Skiing common stock at a price per
share of $2.22, resulting in the issuance to Oak Hill of approximately
6.0 million shares of American Skiing Common Stock. The merger agreement has as
a condition precedent to MeriStar's obligation to close, that the warrant
purchased by Oak Hill shall have been issued to Oak Hill by American Skiing.
American Skiing conducts substantially all of its real estate development
through single purpose subsidiaries, each of which is a wholly-owned subsidiary
of American Skiing Company Resort Properties. Grand Summit Hotel projects are
constructed through Grand Summit Resort Properties and are primarily financed
through a $110.0 million construction loan facility among Grand Summit Resort
Properties and various lenders, including TFC Textron Financial, the syndication
agent and administrative agent, which closed on September 25, 1998.
As of December 31, 2000, the amount outstanding under the construction loan
facility was $72.4 million. This facility matures on March 31, 2002 and bears
interest at the rate of prime plus 2.5% per annum, or a current rate of 12.0%.
The principal is payable incrementally as quartershare sales are closed based on
a predetermined per unit amount, which approximates between 65% and 80% of the
net proceeds of each closing. The facility is collateralized by mortgages
against the project sites (including the completed Grand Summit Hotels at
Killington, Mt. Snow, Sunday River, Attitash Bear Peak and The Canyons, as well
as the recently completed Steamboat Grand Hotel), and is subject to covenants,
representations and warranties customary for this type of construction facility.
The facility is non-recourse to American Skiing and its resort operating
subsidiaries although it is collateralized by substantial assets of Grand Summit
Resort Properties, having a total book value of $198.5 million as of
October 29, 2000, which in turn comprise substantial assets of American Skiing's
business.
Due to construction delays and cost increases at the Steamboat Grand Summit
Hotel project, on July 25, 2000, Grand Summit Resort Properties entered into a
special financing agreement with Textron, providing for a $10.0 million
subordinated loan tranche. This facility is to be used solely for the purpose of
providing advances to fund the completion of the Steamboat Grand Summit Hotel.
The facility bears interest at a fixed rate of 20% per annum, payable monthly in
arrears, provided that only 50% of the amount of the interest will be due and
payable in cash and the other 50% of the interest will, if no events of default
exist under the subordinated loan tranche facility or the construction loan
Textron facility, automatically be deferred until the final payment date. As of
December 31, 2000, the amount outstanding under the subordinated loan facility
was $6.9 million.
On July 28, 2000, Westgate Resorts, a division of privately-held Central
Florida Investment firm, purchased land and timeshare development rights at The
Canyons near Park City, UT. The land is expected to be used for the construction
of the "Westgate at The Canyons" timeshare project in the resort's village core.
Westgate purchased the land and development rights for $7.4 million. In
addition, Westgate separately contracted with American Skiing to purchase
150,000 lift tickets at The Canyons over the next five years to support its
sales efforts. The ticket portion of the contract is expected to yield revenue
of approximately $6.0 million.
On October 17, 2000, American Skiing sold its option rights to real estate
in the South Lake Tahoe Redevelopment District to Marriott Ownership
Resorts, Inc., a wholly owned subsidiary of
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Marriott International, for $8.5 million. Pursuant to the terms of the option
sale, American Skiing Company Resort Properties received $4.09 million in cash
proceeds on October 17, applied a $0.3 million previously received deposit and
will receive an additional $4.09 million from Marriott on January 15, 2001.
Simultaneously with the closing of the sale of its option rights, American
Skiing's July 28, 1998 development agreement with Marriott was terminated.
American Skiing's management believes that the termination of this agreement
will allow American Skiing Company Resort Properties to more aggressively market
developmental real estate at its Killington and Steamboat resorts to other
potential timeshare investors. In addition, American Skiing continues to discuss
with Marriott a possible development at Killington, but has not and may not
reach an acceptable agreement regarding this parcel.
American Skiing's fiscal 2001 business plan anticipates commencing two real
estate projects, a Grand Summit Hotel at Heavenly and townhomes at The Canyons
in the spring and summer of 2001. Commencement of these projects is subject to
satisfying the requisite pre-sale hurdles, American Skiing's cash flow
requirements and arranging appropriate financing for these projects.
LONG-TERM
American Skiing's primary long-term liquidity needs are to fund
skiing-related capital improvements at some resorts, development of its
slope-side real estate and the mandatory redemption of its Series A preferred
stock on November 15, 2002. With respect to capital needs, American Skiing has
invested over $185.0 million in skiing related facilities since the beginning of
fiscal 1998. As a result, and in keeping with restrictions imposed under the
senior credit facility, American Skiing expects its resort capital programs for
the next several fiscal years will be more limited in size. American Skiing's
fiscal 2001 resort capital program is estimated at approximately $13.0 million,
of which $4.6 million had been expended as of December 3, 2000, plus an
additional estimated $18.0 million to be expended on the Heavenly Gondola
project, of which $12.2 million had been expended as of December 3, 2000.
For its 2001 and 2002 fiscal years, American Skiing anticipates its annual
maintenance capital needs to be approximately $10.0 million. There is a
considerable degree of flexibility in the timing and, to a lesser degree, scope
of American Skiing's growth capital program. Although specific capital
expenditures can be deferred for extended periods, continued growth of skier
visits, revenues and profitability will require continued capital investment in
on-mountain improvements.
American Skiing's practice is to finance on-mountain capital improvements
through resort cash flow, capital leases and its senior credit facility. The
size and scope of the capital improvement program will generally be determined
annually depending upon the strategic importance and expected financial return
of some projects, future availability of cash flow from each season's resort
operations and future borrowing availability and covenant restrictions under the
senior credit facility. The senior credit facility places a maximum level of
non-real estate capital expenditures for fiscal 2002 and beyond at the lesser of
$35.0 million, or the total of the non-real estate development subsidiaries'
consolidated EBITDA for the four fiscal quarters ended in April of the previous
fiscal year less consolidated debt service for the same period. In addition,
American Skiing is permitted to and expects to make capital expenditures of up
to $30.0 million for the purchase and construction of a new gondola at its
Heavenly resort in Lake Tahoe, Nevada. Construction on the Heavenly gondola
began in June 2000 and, as of December 3, 2000, American Skiing had expended
$19.5 million on this project. American Skiing's management believes that these
capital expenditure amounts will be sufficient to meet its non-real estate
capital improvement needs for the near future.
American Skiing's business plan anticipates the development of Grand Summit
hotels, condominium hotels or townhouses at its resort villages at The Canyons,
Heavenly, Killington, Steamboat and Sunday River. The timing and extent of these
projects are subject to local and state
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permitting requirements which may be beyond American Skiing's control, as well
as its cash flow requirements and the availability of external capital. American
Skiing's real estate development is undertaken through its real estate
development subsidiary, American Skiing Company Resort Properties. Recourse on
debt incurred to finance this real estate development is limited to American
Skiing Company Resort Properties and its subsidiaries, which include Grand
Summit Resort Properties. This debt is usually collateralized by the projects
that American Skiing finances, which, in some cases, constitute a significant
portion of American Skiing's assets. As of October 29, 2000, the total assets
collateralizing the real estate facilities, and included in American Skiing's
consolidated balance sheet included elsewhere in this joint proxy statement and
prospectus, totaled approximately $288.9 million. American Skiing Company Resort
Properties' eight existing development projects are currently being funded by
the second amended real estate facility, the construction loan facility and a
separate construction loan facility for the final phase of the Locke Mountain
Townhomes at Sunday River. The Locke Mountain project is currently 100% sold and
through December 3, 2000, American Skiing has realized $1.9 million in proceeds
from closings and has completely paid down the construction debt for this
project.
American Skiing expects to undertake future real estate development projects
through special purpose subsidiaries with financing provided principally on a
non-recourse basis to it and its resort operating subsidiaries. Although this
financing is expected to be non-recourse to American Skiing and its resort
subsidiaries, it will likely be collateralized by American Skiing's existing and
future real estate projects that may constitute significant assets to it.
Required equity contributions for these projects must be generated before they
can be undertaken, and the projects are subject to mandatory pre-sale
requirements under the second amended real estate facility. Potential sources of
equity contributions include sales proceeds from existing real estate projects
and assets (to the extent not applied to the repayment of indebtedness) and the
possible sale of equity or debt interests in American Skiing Company Resort
Properties or its real estate development subsidiaries. Financing commitments
for future real estate development do not currently exist, and American Skiing
can offer no assurance that they will be available on satisfactory terms.
American Skiing will be required to establish both equity sources and
construction facilities or other financing arrangements for its projects before
undertaking them.
American Skiing has outstanding $36.0 million of mandatorily redeemable
Series A preferred stock, with an accreted value of $51.0 million as of
December 31, 2000. The Series A preferred stock is exchangeable at the option of
the holder into American Skiing's common stock at a conversion price of $17.10
for each common share. In connection with the merger, the holders of the
Series A preferred stock will convert their shares of Series A preferred stock
into shares of a new series of 14% preferred stock having a liquidation value
equal to the accreted value of the Series A preferred stock as of the effective
date of the merger and a number of shares of common stock equal to 20.7% of the
liquidation value of the new 14% preferred stock divided by $2.22. Assuming that
the merger is completed on March 31, 2001, the liquidation preference of the new
14% preferred stock, which will be mandatorily redeemable on August 15, 2006,
will be approximately $52.2 million, and approximately 4.9 million shares of
common stock will be issued. Dividends will accrue and compound quarterly and
will not be mandatorily payable in cash until August 15, 2006.
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CHANGES IN RESULTS FROM OPERATIONS
THE 13 WEEKS ENDED OCTOBER 29, 2000 COMPARED TO THE 13 WEEKS ENDED OCTOBER 24,
1999
RESORT OPERATIONS
Resort revenues increased slightly in the first quarter of 2001 compared to
the first quarter of fiscal 2000, from $20.8 million to $20.9 million. Included
in the American Skiing fiscal 2000 resort revenues were $1.6 million in
non-recurring gains from asset sales, for which there were no comparative
amounts in fiscal 2001. Exclusive of these gains from asset sales, the American
Skiing first quarter resort revenues actually increased by $1.7 million over
last year's first quarter. The Canyons Grand Summit Hotel, which opened for
business during the second quarter of fiscal 2000, generated approximately
$2.2 million in lodging and food & beverage revenues in the first quarter of
2001, and the new Steamboat Grand Hotel, which opened towards the end of the
first quarter, contributed another $0.3 million in resort revenues. Slightly
offsetting these increased revenues from hotel operations were lower golf and
summer activity revenues due to cool, wet weather in the east and one less week
of summer activity during this quarter vs the same quarter last year. In
addition, American Skiing generated lower retail revenues due to reduced
inventory liquidation activity this year, in contrast to last year's unusually
large liquidation effort.
The American Skiing Resort segment generated a $29.9 million loss before
income taxes and preferred dividends for the current fiscal quarter, compared to
a $28.1 million loss in the first quarter of fiscal 2000. Exclusive of the
$1.6 million non-recurring gain from asset sales in fiscal 2000 referred to
above, the American Skiing first quarter Resort segment operating loss increased
by $0.2 million over the first quarter of fiscal 2000 due to the following:
i. Resort EBITDA increased by $0.7 million over fiscal 2000, exclusive of
the non-recurring gains from asset sales;
ii. Resort depreciation and amortization increased by $0.5 million over
fiscal 2000; and
iii. Resort interest expense increased by $0.4 million over fiscal 2000.
The $0.7 million increase in Resort EBITDA is net approximately
$0.8 million in pre-opening expenses incurred at the Steamboat Grand Hotel
leading up to its opening late in the first quarter of fiscal 2000. Exclusive of
these pre-opening charges, the American Skiing Resort EBITDA would have
increased by $1.5 million, mainly due to:
(i) a $0.6 million improvement in retail margins over last year due to
improved inventory management;
(ii) lower marketing, sales and administrative costs in fiscal 2001, a
$0.5 million decrease, excluding $0.2 million of Steamboat Grand Hotel
marketing expenses, mainly due to lower marketing expenses resulting
from the elimination of certain corporate level marketing activities;
and
(iii) a $0.3 million increase from sponsorship and events activity resulting
from earlier completion of some agreements than in one prior year.
REAL ESTATE OPERATIONS
Real estate revenues increased by $24.7 million in the current quarter
compared to fiscal 2000, from $2.5 million to $27.2 million. During the first
quarter of 2001, American Skiing began delivering quartershare units in the
recently opened Steamboat Grand Hotel, from which American Skiing realized
$15.6 million in revenues from closings of pre-sold units. American Skiing also
continued to realize sales at the Canyons Grand Summit Hotel, which opened in
the second quarter of fiscal 2000. During the first quarter of 2001, American
Skiing realized $5.3 million from sales of quartershare units at The Canyons
Grand Summit. Continuing sales of quartershare units of Grand Summit Hotels at
the
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Company's Eastern resorts contributed $0.8 million in real estate revenues for
the current quarter compared to $2.1 million in the third quarter of fiscal
2000, a decrease of $1.3 million. Although the pace of unit sales has slowed
over time, the overall sell-out of these projects remains strong as both the
Jordan Grand at Sunday River and the Grand Summit at Killington are now over 95%
sold-out, with the Grand Summit at Mount Snow over 75% and Attitash Bear Peak
over 58% sold-out.
Also in the first quarter of fiscal 2001, American Skiing sold our option
rights to certain real estate in the South Lake Tahoe Redevelopment District to
Marriott Ownership Resorts, Inc., a wholly owned subsidiary of Marriott
International, for $8.5 million. Pursuant to the terms of the option sale,
American Skiing received $4.09 million in cash proceeds and applied a
$0.3 million previously received deposit, for a total of $4.4 million of
realized revenue in the first quarter. American Skiing anticipates that it will
receive the remaining $4.09 million from Marriott, and subsequently realize it
as real estate revenue, during the second fiscal quarter of 2001.
The American Skiing Real Estate segment generated a loss before income taxes
of $2.6 million for the first quarter of fiscal 2001, compared to a
$2.8 million loss in the first quarter of fiscal 2001. The current year
operating loss is derived from $3.6 million in real estate EBITDA, offset by
$5.8 million in real estate interest expense and $0.4 million in real estate
depreciation and amortization. The comparative breakdown from the first quarter
of fiscal 2000 was a real estate EBITDA loss of $0.7 million, real estate
interest expense of $1.8 million and real estate depreciation and amortization
of $0.3 million. American Skiing's sale of land options rights at South Lake
Tahoe to Marriott contributed $3.3 million in real estate EBITDA in the quarter.
The delivery of quartershare units in the Grand Summit Hotels at The Canyons and
Steamboat generated $0.6 and $0.2 million in EBITDA, respectively, during the
current quarter. The $4.0 million increase in real estate interest expense was
primarily due to an increase in real estate debt outstanding in fiscal 2001 and
lower capitalized interest due to completion of the Sundial Lodge and the Grand
Summit Hotel at The Canyons in the second quarter of fiscal 2000.
Cumulative effect of accounting changes of $2.5 million, net of
$1.5 million tax provision, in fiscal 2001 resulted from recording the fair
value of non-hedging derivatives on the American Skiing balance sheet in
connection with the American Skiing initial adoption of SFAS No. 133 ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, SFAS No. 137 ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF
FASB STATEMENT NO. 133--AN AMENDMENT OF FASB STATEMENT NO. 133 and SFAS No. 138
ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES--AND AMENDMENT OF FASB STATEMENT NO. 133.
The cumulative effect of accounting changes of $0.7 million, net of
$0.4 million tax benefit, in fiscal 2000 resulted from the American Skiing
write-off of certain capitalized start-up costs relating to the American Skiing
hotel and retail operations and the opening of The Canyons resort in fiscal
1998. The accounting change was due to the American Skiing adoption of AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities". SOP
98-5 requires the expensing of all start-up costs as incurred, rather than
capitalizing and subsequently amortizing such costs.
Accretion of discount and dividends accrued on mandatorily redeemable
preferred stock increased $0.9 million, from $4.8 million for the first quarter
of fiscal 2000 to $5.7 million for the current quarter. This increase is
primarily attributable to the compounding effect of accruing dividends on
150,000 shares of the Series B Preferred Stock issued to Oak Hill in the first
quarter of fiscal 2000. American Skiing is currently accruing dividends on the
Series B Preferred Stock at an effective rate of 9.7%, compounded quarterly,
assuming that dividends will not be paid in cash until the fifth anniversary of
the issuance, which will cause the dividend rate to incrementally increase up to
10.5% by the end of the fifth year.
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FISCAL YEAR ENDED JULY 30, 2000 COMPARED WITH FISCAL YEAR ENDED JULY 25, 1999
RESORT OPERATIONS
The components of resort operations for the fiscal years ended July 30, 2000
and July 25, 1999 are as follows:
<TABLE>
<CAPTION>
INCREASE/
ACTUAL YEAR ACTUAL YEAR (DECREASE)
ENDED ENDED -------------------
JULY 30, 2000 JULY 25, 1999 DOLLAR PERCENT
------------- ------------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenue category:
Lift Tickets........................ $ 131.3 $ 134.5 $(3.2) (2.4%)
Food and beverage................... 40.0 38.3 1.7 4.4%
Retail sales........................ 38.3 41.5 (3.2) (7.7%)
Lodging and property................ 32.7 31.6 1.1 3.5%
Skier development................... 24.8 24.2 0.6 2.5%
Golf, summer activities and other... 25.0 22.5 2.5 11.1%
-------- -------- ----- -----
Total resort revenues................. $ 292.1 $ 292.6 $(0.5) 0.1%
======== ======== ===== =====
Total Skier visits.................... 5,006 5,090 (84) (1.7%)
Cost of resort operations............. $ 203.9 $ 198.2 $ 5.7 2.9%
Marketing, general and
administrative...................... 49.4 51.4 (2.0) (3.9%)
Depreciation and amortization......... 47.0 44.2 2.8 6.3%
</TABLE>
Warm weather patterns in early November, a rainy Thanksgiving weekend in the
East and a warm, dry December nationwide all contributed to weak early season
paid skier day levels. The December holiday week was also negatively impacted by
the overall softness in the travel industry due to Y2K concerns and the lack of
natural snowfall in key market areas. Substantial natural snowfall at all
resorts and in key market areas late in our second fiscal quarter revived
sluggish early season skier traffic heading into the third quarter. This
momentum continued into February, during which fresh snowfall and good weather
for the Presidents Holiday weekend produced three-day attendance records at
almost all of the American Skiing resorts. Skier traffic and operating results
continued to be strong into March, but warm weather nation-wide and sustained
rainfall in the East brought an early end to the ski season and as a result
April resort revenues and operating profits fell short of the prior year.
Revenues from lift tickets and retail sales were down a combined
$6.4 million, or 3.6%, from the prior year due mainly to the decrease in paid
skier days for the year. Food and beverage and lodging services revenues
increased in fiscal 2000, as revenues generated from the two new hotels at The
Canyons offset the effect of the decrease in skier days at American Skiing's
eastern resorts. Skier development revenues actually increased by $0.6 million,
or 2.5%, in fiscal 2000, as American Skiing continued to realize the benefits of
its new skier development programs instituted in fiscal 1999 in conjunction with
the opening of new Sprint Perfect Turn Discovery Centers at four of its Eastern
resorts. American Skiing also realized $1.6 million in net gains from the sale
of non-strategic assets during the first quarter of fiscal 2000, which
contributed most of the $2.5 million increase in golf, summer activities and
other revenues in fiscal 2000.
American Skiing's Resort segment generated a $31.4 million loss before
income taxes in fiscal 2000, compared to a $33.4 million loss before income
taxes in fiscal 1999. This $2.0 million decrease in the year-to-date loss before
income taxes is derived primarily from an $8.6 million decrease in interest
expense, offset by a $4.1 million decrease in resort earnings before interest,
taxes, depreciation and amortization, or EBITDA, and a $2.5 million increase in
depreciation expense. The reduction in interest expense in fiscal 2000 is due
primarily to the reduced level of debt outstanding under American Skiing's
senior credit facility as a result of the paydown on that facility from the
proceeds of the Series B preferred stock issuance. The decrease in resort EBITDA
is derived from the net effect of
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(a) the $0.5 million decrease in resort revenues described above, (b) a
$5.7 million increase in resort operating expenses due mainly to pre-opening and
start-up costs associated with the two new hotels at The Canyons and the
Steamboat Grand Hotel, increased snowmaking and maintenance costs, food and
beverage and lodging costs and retail costs of goods sold, and (c) a
$2.0 million reduction in marketing, general and administrative expenses. The
increase in resort depreciation expense is due to the approximately $30 million
in ski-related capital assets placed in service at American Skiing's resorts
since the end of the 1998-99 ski season.
REAL ESTATE OPERATIONS
Real estate revenues increased by $107.6 million in fiscal 2000 compared to
fiscal 1999, from $24.5 million to $132.1 million. The delivery of units in the
Sundial whole-ownership condominium hotel and the new Grand Summit Hotel at The
Canyons accounted for $41.0 million and $59.4 million, respectively, of real
estate revenues in fiscal 2000. Additional increases in real estate revenues
during fiscal 2000 resulted from sales of undeveloped land at Steamboat and The
Canyons (combined $9.3 million in fiscal 2000 versus $2.9 million in fiscal
1999) and a $2.5 million increase in quartershare unit sales at the existing
Grand Summit Hotels at American Skiing's Eastern resorts ($20.9 million in
fiscal 2000 compared to $18.4 million in fiscal 1999). An offsetting
$2.3 million decrease was due to revenues recognized in fiscal 1999 from the
sale of townhouses at Sunday River, which did not recur in fiscal 2000.
American Skiing's Real Estate segment generated a loss before income taxes
of $4.5 million in fiscal 2000, a $5.1 million improvement over the
$9.6 million real estate loss before income taxes generated in fiscal 1999. This
$5.1 million decrease in the loss before income taxes in fiscal 2000 is
primarily derived from the net effect of a $10.6 million increase in real estate
EBITDA offset by a $5.1 million increase in real estate interest expense and a
$0.3 million increase in real estate depreciation.
The sale of units at The Canyons Grand Summit Hotel contributed $12.7 in
real estate EBITDA in fiscal 2000, there were no sales for this project in
fiscal 1999. Offsetting this increase in real estate EBITDA was a decrease of
$1.9 million from the sales of quarter shares at the Eastern Grand Summit
hotels. The Sundial project contributed a negative $0.8 million EBITDA to the
fiscal 2000 results, the first year this project recorded sales. All other
activities contributed a net positive $0.6 million to real estate EBITDA
compared to the prior year's results.
The $5.1 million increase in real estate interest expense was primarily due
to an increase in real estate debt outstanding in fiscal 2000 and lower
capitalized interest due to completion of the two hotels at the Canyons.
Benefit from income taxes decreased $9.3 million, from $15.1 million in
fiscal 1999 to $5.8 million in fiscal 2000. The decrease in the benefit is due
primarily to $7.4 million in valuation allowances established in fiscal 2000
relating to deferred tax assets for prior net operating losses. As a result of
the sale of the American Skiing Series B preferred stock, the realization of the
tax benefit of some of American Skiing's net operating losses and other tax
attributes is dependent upon the occurrence of various future events. American
Skiing believes that a valuation allowance of $3.0 million against its deferred
tax assets for net operating losses and other tax attributes is appropriate
because it is more likely than not that the benefit of the losses and attributes
will not be realized. Based on facts known at this time, American Skiing expects
to substantially realize the benefit of the remainder of its net operating
losses and other tax attributes affected by the sale of its Series B preferred
stock. The remaining $4.4 million valuation allowance relates to excess net
operating losses that may not be realizable in the State of Vermont.
Extraordinary loss of $0.6 million (net of $0.4 million of tax benefits) in
fiscal 2000 resulted from the pro-rata write-off of existing deferred financing
costs related to American Skiing's senior credit facility. This write-off was
due to the restructuring of the senior credit facility in connection with the
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permanent reduction in the availability of the revolving portion and the pay
down of the term portion of the facility from the proceeds of the Series B
preferred stock issuance.
Cumulative effect of a change in accounting principle of $0.7 million (net
of $0.4 million tax benefit) in fiscal 2000 resulted from the write-off of
capitalized start-up costs relating to American Skiing's hotel and retail
operations and the opening of the Canyons resort in fiscal 1998. The accounting
change was due to American Skiing's adoption of AICPA Statement of Position
98-5, "Reporting on the Costs of Start-up Activities". SOP 98-5 requires the
expensing of all start-up costs as incurred, rather than capitalizing and
subsequently amortizing these costs. Initial adoption of this SOP should be
reported as a cumulative effective of a change in accounting principles. Current
start-up costs are being expensed as incurred and are reflected in their
appropriate expense classifications
Accretion of discount and dividends accrued on mandatorily redeemable
preferred stock increased $16.6 million from $4.4 million in fiscal 1999 to
$21.0 million in the current fiscal year. This increase is primarily
attributable to the additional accrual of dividends on 150,000 shares of
Series B preferred stock issued to Oak Hill in the first quarter of fiscal 2000.
American Skiing is currently accruing dividends on the Series B preferred stock
at an effective rate of 9.7%, with the assumption that dividends will not be
paid in cash until the fifth anniversary of the issuance.
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
The actual results of fiscal 1999 versus the actual results of fiscal 1998
discussed below are not comparable due to the acquisition of the Steamboat and
Heavenly resorts on November 12, 1997. Accordingly, the usefulness of the
comparisons presented below is limited, as the fiscal 1998 results include the
results of Steamboat and Heavenly since November 12, 1997, while the fiscal 1999
results include all twelve months of results of Steamboat and Heavenly. The
following table illustrates the pro forma effect of the results of Steamboat and
Heavenly as if the purchase had occurred at the beginning of fiscal 1998:
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA INCREASE/
ACTUAL YEAR EFFECT ON PRO FORMA ACTUAL YEAR (DECREASE)
ENDED YEAR ENDED YEAR ENDED ENDED -------------------
JULY 26, 1998 JULY 26, 1998 JULY 26, 1998 JULY 25, 1999 DOLLAR PERCENT
------------- ------------- ------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue category:
Lift tickets........................ $135.9 $0.0 $135.9 $134.5 $(1.4) (1.0%)
Food and beverage................... 34.0 0.5 34.5 38.3 3.8 10.9%
Retail sales........................ 37.4 1.6 39.0 41.5 2.5 6.4%
Lodging and property................ 27.5 0.1 27.6 31.6 4.0 14.4%
Skier development................... 22.4 0.0 22.4 24.2 1.8 8.0%
Golf, summer activities and other... 20.4 1.4 21.8 22.5 0.7 3.3%
------ ---- ------ ------ ----- ----
Total resort revenues................. $277.6 $3.6 $281.2 $292.6 $11.4 4.0%
====== ==== ====== ====== ===== ====
Cost of resort operations............. $171.2 $8.6 $179.8 $198.2 $18.4 10.2%
Marketing, general and
administrative...................... 40.1 5.0 45.1 51.4 6.3 14.0%
Depreciation and amortization......... 38.0 1.6 39.6 44.2 4.6 11.6%
------ ---- ------ ------ ----- ----
</TABLE>
Resort revenues increased $15.0 million or 5.4% from $277.6 million for
fiscal 1998 to $292.6 million for fiscal 1999. The pro forma effect of the
inclusion of the results from Steamboat and Heavenly resorts for the first
fiscal quarter of 1999 accounts for $3.6 million of the increase. The remaining
$11.4 million increase in resort revenues is broken out by revenue category in
the above table. The decrease in lift ticket revenues is derived from a 4.3%
decrease in skier visits, due to unfavorable weather conditions in New England
and Colorado, resulted in an approximately $6.1 million decrease in lift ticket
revenues, and a 3.5% increase in lift ticket yield, due mainly to price
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increases at Steamboat and Heavenly, offset this decrease by approximately
$4.7 million. Increases in food and beverage and retail sales revenues are
primarily attributable to additional food and beverage and retail outlets. The
increase in skier development revenues is mainly associated with a new skier
development program instituted in fiscal 1999, which corresponded with the
opening of new Sprint Discovery Centers at four of our eastern resorts. The
increase in lodging revenue is primarily due to the full year of operations in
fiscal 1999 of three Grand Summit Hotels which opened during fiscal 1998 (one
each at Killington, Mount Snow and Sunday River).
Real estate revenues decreased $36.5 million for fiscal 1999 as compared to
fiscal 1998. The decrease is attributable to the substantial revenues recognized
in fiscal 1998 from closings on pre-sold quartershare units at American Skiing's
Grand Summit Hotels at Killington and Mt. Snow, and the Jordan Grand Hotel at
Sunday River. These projects were completed during the second and third fiscal
quarters of fiscal 1998, and American Skiing realized $55.4 million in sales
revenue from these projects in fiscal 1998. For fiscal 1999 American Skiing
realized $18.4 million in on-going sales of quartershare units.
Cost of resort operations increased $27.0 million or 15.8% from
$171.2 million to $198.2 million. The pro forma effect of the inclusion of the
results of Steamboat and Heavenly resorts for the first fiscal quarter of 1999
accounts for $8.6 million of the increase. The majority of the remaining
increase is attributable to:
- $4.8 million in lodging costs associated with a full year of operation of
three new hotels;
- $1.2 million increase associated with a new skier development program
which included the operation of four new Sprint Discovery Centers;
- $3.6 million in food and beverage and retail costs associated with
additional outlets and higher sales volume and the liquidation of excess
inventory during the fourth quarter of fiscal 1999;
- $1.1 million increase in snowmaking due to the lack of natural snow at
American Skiing's eastern resorts;
- $1.5 million increase in property taxes due to increased tax rates in
Vermont and an increased asset base at The Canyons; and
- $1.0 million increase in event costs associated with marketing
sponsorship.
Cost of real estate sold decreased $16.7 million in fiscal 1999 compared to
fiscal 1998. The decrease is attributable to the substantial cost recognized in
the third quarter of fiscal 1998 from closings of pre-sold quartershare units at
American Skiing's Grand Summit Hotels at Killington and Mount Snow and the
Jordan Grand Hotel at Sunday River. The cost associated with the revenue
realized for fiscal 1998 totaled $32.0 million. The cost associated with the
on-going sales of these units in fiscal 1999 totaled $10.9 million. The
$21.0 million decrease related to sales of quartershare units was offset by
other increases, due mainly to:
- $3.5 million of cost recognized relating to the sale of land which was not
of strategic importance to American Skiing's real estate development plan
or resort operations;
- The write-off of $0.7 million in prepaid advertising and commission
charges incurred in generating pre-sale contracts, some of which have
subsequently expired, for a Grand Summit Hotel at American Skiing's
Sugarbush resort (the timing of development for the Sugarbush project is
expected to be re-evaluated by American Skiing during next year's skiing
season); and
- $0.8 million of expenses were incurred during the second quarter of fiscal
1999 relating to American Skiing's unsuccessful $300 million bond offering
which was undertaken to provide additional financing for its real estate
projects.
Marketing, general and administrative expenses increased $11.3 million or
28.2% from $40.1 million to $51.4 million. The inclusion of the results of
Steamboat and Heavenly resorts for the
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first fiscal quarter of 1999 accounts for $5.0 million of the increase. The
majority of the remaining increase is attributable to:
- A planned increase in marketing expense at all the resorts of
$2.9 million;
- A stock compensation charge of $0.8 million relating to the vesting of
additional management stock options;
- $0.6 million of additional expenses resulting from the expansion of
management information services;
- $2.0 million of severance payments and restructuring of management
compensation; and
- Additional costs associated with being a public company.
Depreciation and amortization increased $6.2 million for fiscal 1999
compared to fiscal 1998. The inclusion of the Steamboat and Heavenly resorts for
the first fiscal quarter of 1999 accounts for $1.6 million of the increase. The
remaining increase is primarily due to additional depreciation on capital
improvements of approximately $53 million made this year. These increases are
slightly offset by the change in the estimated useful lives of some of American
Skiing's ski-related assets, which decreased depreciation expense by
$0.7 million.
Interest expense increased from $34.6 million for fiscal 1998 to
$39.4 million for fiscal 1999. The increase is principally attributable to
increased debt levels associated with financing American Skiing's recent capital
improvements and real estate projects.
The benefit for income taxes increased from $0.8 million for fiscal 1998 to
$15.1 million for fiscal 1999 due to the increase in the loss before income
taxes. The effective income tax rate increased from 25.1% in fiscal 1998 to
35.0% in fiscal 1999 due to the non-recurring stock option compensation charge
of $14.3 million in fiscal 1998, not all of which was deductible for income tax
purposes.
Accretion of discount and dividends accrued on mandatorily redeemable
preferred stock decreased $0.9 million, or 17.0%, from $5.3 million for fiscal
1998 to $4.4 million for fiscal 1999. The decrease is primarily attributable to
$0.9 million in additional accretion recognized during fiscal 1998 relating to a
conversion feature on American Skiing's 14% exchangeable preferred stock that
allowed holders of these securities to convert to shares of American Skiing's
common stock at a 5% discount to the initial public offering price. An
additional $0.9 million of the decrease is due to amortization of issuance costs
recognized in fiscal 1998 related to American Skiing's 14% exchangeable
preferred stock upon its conversion into Series A preferred stock. These
decreases were offset by an increase resulting from the full twelve months
accretion for fiscal 1999 related to the Series A preferred stock (as compared
to only nine months in fiscal 1998), and the compounding effect of the dividend
accrual.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk sensitive instruments of American Skiing do not subject it
to material market risk exposures, except for risks related to interest rate
fluctuations. As of December 3, 2000, American Skiing had $247.8 million in
floating rate long-term debt outstanding, including current portion.
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The following sensitivity analysis expresses the potential impact on annual
interest expense resulting from a hypothetical 100 basis point increase in the
interest rate indices that American Skiing floating rate debt instruments are
based on:
<TABLE>
<CAPTION>
AVERAGE
BALANCE HYPOTHETICAL EFFECT ON
VARIABLE RATE OUTSTANDING CHANGE ANNUAL
DEBT INTEREST INDEX IN FY 2001 IN RATE INDEX INTEREST
------------------------------------------------------------ ----------- ------------- ---------
<S> <C> <C> <C>
30-day LIBOR Rate........................................... $129,350 100 bps $1,294
US Prime Rate............................................... 126,531 100 bps 1,265
-------- ------- ------
Total variable rate debt.................................... $255,881 100 bps $2,559
</TABLE>
American Skiing believes that the potential effects of a 100-basis points
increase in its floating rate debt instruments are not significant to its
earnings and cash flow.
American Skiing has also entered into a Series of (non-cancelable) interest
rate swap agreements in connection with its Senior Subordinated Notes, which are
intended to defer a portion of the cash interest payments on the Notes into
later years. The following table illustrates the key factors of each of these
agreements:
<TABLE>
<CAPTION>
FEBRUARY 9, 1998--JULY 15, 2001 JULY 16, 2001--JULY 15, 2006
------------------------------------------------ ----------------------------------------------------
NOTIONAL COMPANY COMPANY NOTIONAL COMPANY COMPANY
AMOUNT PAYS RECEIVES AMOUNT PAYS RECEIVES
------------ --------------- --------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Agreement 1.......... $120,000,000 9.01% 6-month LIBOR $127,500,000 9.01% 6-month LIBOR
Agreement 2.......... $120,000,000 6-month LIBOR 12.00% $127,500,000 6-month LIBOR 7.40%
</TABLE>
As a result of entering into this interest rate swap arrangement, American
Skiing has fixed the cash-pay rate on the notes until their maturity in
July 2006.
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BUSINESS OF AMERICAN SKIING
American Skiing Company is organized as a holding company and operates
through various subsidiaries. American Skiing believes that it is the largest
operator of alpine ski and snowboard resorts in the United States. American
Skiing reinforces and capitalizes on its position by developing, owning and
operating a range of hospitality-related businesses, including hotels, golf
courses, restaurants and retail locations. It also develops, markets and
operates alpine villages, ski-in/ski-out real estate and townhouses,
condominiums and quarter ownership hotels. American Skiing manages its
operations in two business segments, ski resort operations and mountainside real
estate development. For a complete breakdown of information by reportable
segment see note 14 --"Business Segment Information" to American Skiing's
consolidated historical financial statements included elsewhere in this joint
proxy statement and prospectus.
On August 9, 1999, American Skiing completed the sale of 150,000 shares of
its Series B convertible exchangeable preferred stock to Oak Hill Capital
Partners, L.P. American Skiing realized gross proceeds of $150.0 million on the
sale. American Skiing used $128.6 million of the proceeds to reduce amounts owed
under its senior credit facility, approximately $30.0 million of which has been
reborrowed and invested in its principal real estate development subsidiary,
American Skiing Company Resort Properties, Inc. American Skiing used the
remainder of the proceeds to pay approximately $16.0 million in fees and
expenses in connection with the transaction and acquire from its principal
stockholder some strategic assets and repay a demand note issued by one of
American Skiing's subsidiaries to its principal stockholder, in the aggregate
amount of $5.4 million.
American Skiing's revenues, earnings before interest expense, income taxes,
depreciation and amortization, or EBITDA, and net loss available to its common
stockholders were $48.1 million, $(16.2) million and $(24.2) million,
respectively, for the three months ended October 29, 2000 and $424.1 million,
$47.0 million, and ($52.5) million, respectively, for the year ended July 30,
2000 or fiscal 2000. Resort revenues and resort EBITDA for the three months
ended October 29, 2000 were $20.9 million and $(19.9) million, respectively, and
$292.1 million and $38.8 million, respectively, for fiscal 2000. Real estate
revenues and real estate EBITDA for the three months ended October 29, 2000 were
$27.2 million and $3.6 million, respectively, and $132.1 million and
$8.2 million, respectively, for fiscal 2000.
RESORT OPERATIONS
American Skiing's resort business is derived primarily from its ownership
and operation of nine ski resorts, several of which are among the largest in the
United States. American Skiing currently has at least one resort located in each
major skiing market in the United States. During the 1999-00 ski season,
American Skiing's resorts generated approximately 5.0 million skier visits,
representing approximately 9.6% of total skier visits in the United States. The
following table summarizes key statistics of American Skiing's resorts.
<TABLE>
<CAPTION>
SKIABLE VERTICAL SNOWMAKING 1999-2000
TERRAIN DROP TOTAL LIFTS COVERAGE SKIER VISITS
RESORT, LOCATION (ACRES) (FEET) TRAILS (HIGH SPEED) (% OF ACRES) SKI LODGES (000S)
---------------- -------- -------- -------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Killington, VT......................... 1,200 3,150 200 32(8) 70% 8 939
Sunday River, ME....................... 660 2,340 127 18(4) 92% 4 513
Mount Snow, VT......................... 769 1,700 130 23(3) 85% 5 513
Sugarloaf, ME.......................... 1,400 2,820 126 15(2) 92% 2 325
Sugarbush, VT.......................... 468 2,650 115 18(4) 67% 5 352
Attitash Bear Peak, NH................. 280 1,750 70 12(2) 97% 2 194
The Canyons, UT........................ 3,625 3,190 135 15(6) 10% 4 248
Steamboat, CO.......................... 2,939 3,668 142 20(4) 15% 4 1,025
Heavenly, CA........................... 4,800 3,500 84 29(8) 5.9% 7 897
------ ------ ----- --- --- ----- -----
Total.............................. 16,141 24,768 1,129 182(41) 41 5,006
====== ====== ===== === === ===== =====
</TABLE>
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RESORT PROPERTIES
American Skiing's resorts include several of the top resorts in the United
States based on skier visits, such as Steamboat, the fourth largest ski resort
in the United States with over 1.0 million skier visits in the 1999-00 ski
season, Killington, the fifth largest resort in the United States with about
940,000 skier visits in the 1999-00 ski season, Sunday River and Mount Snow,
which together with Killington comprised three of the four largest resorts in
the Northeast during the 1999-00 ski season, and Heavenly, which ranked as the
largest resort in the Pacific West region for the 1999-00 season with
approximately 900,000 skier visits.
THE CANYONS. When American Skiing acquired The Canyons, located in the
Wasatch Range of the Rocky Mountains adjacent to Park City, Utah, in July, 1997,
it was primarily an undeveloped ski resort with significant potential for future
operational and real estate development. The Canyons is one of the most
accessible destination resorts in the world, with the Salt Lake International
Airport only 32 miles away, and has direct access from a major state highway.
American Skiing believes that The Canyons has significant growth potential due
to its proximity to Salt Lake City and Park City, its undeveloped ski terrain
and its real estate development opportunities. The Utah Winter Sports Park,
which is located immediately adjacent to the resort, is scheduled to serve as
the venue for the ski jumping, bobsled and luge events in the 2002 Winter
Olympic Games.
Since acquiring The Canyons, American Skiing has invested significant
capital and created a substantial on-mountain skiing infrastructure which it
believes is capable of supporting substantial skier visit growth. During the
1997-98 season, its first under American Skiing management, the resort generated
over 167,000 skier visits. This number increased to over 220,000 in 1998-99 and
over 248,000 in 1999-00. American Skiing intends to gradually invest additional
capital to improve and expand on-mountain facilities and skiable terrain as
skier visits grow. American Skiing recently completed two significant real
estate projects at The Canyons, a Grand Summit Hotel and the Sundial Lodge, both
of which opened during the 1999-00 ski season. In November, 1999, American
Skiing obtained final approval of a master development plan for The Canyons
which includes entitlements for approximately 5 million square feet of
development. Additional real estate projects at The Canyons are expected to be
launched and begin construction during the 2001 and 2002 fiscal years. Several
third party real estate developments are also planned including a Westgate
Resorts time share project which broke ground in August 2000 and is expected to
begin delivering units in late 2001.
STEAMBOAT. The Steamboat ski area is located in the Medicine Bow/Routt
National Forest, Routt County, Colorado on the westerly slopes of Mt. Werner,
approximately 2.5 miles southeast of downtown Steamboat Springs, Colorado. The
area consists of 3,486 acres of land licensed under a Special Use Permit issued
by the Forest Service and 245 acres of private land owned by Steamboat located
at the base of the ski area. Steamboat receives a high level of natural dry
snow, averaging 330 inches annually the past 10 ski seasons. Steamboat has
recorded more than 1 million skier visits in each of the past ten seasons.
American Skiing has recently completed a 300-room Grand Summit Hotel at
Steamboat, which will bring both additional beds and enhanced amenities to the
Steamboat base area.
HEAVENLY. Located on the south shore of Lake Tahoe with three base area
complexes, one in South Lake Tahoe, California and two in Stateline, Nevada,
Heavenly consists of two peaks with a maximum elevation of approximately 10,060
feet. Heavenly ranks as the largest resort in the Pacific West Region with
approximately 900,000 skier visits for the 1999-00 ski season. Access to the
resort is primarily through the Reno Tahoe International Airport and by
automobile via Route 50 from San Francisco and Sacramento, California. Heavenly
has a well-developed bed base in the greater South Lake Tahoe/Stateline area.
American Skiing's strategy at Heavenly is to add new accommodations and a
gondola lift system in the South Lake Tahoe commercial area through its existing
development rights in the Park Avenue Redevelopment area. American Skiing has
recently completed construction on the gondola and it
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became operational in December 2000. The new gondola provides lift service to
the resort from the center of South Lake Tahoe and precedes the construction of
two large hotel projects over the next three to five years. Pre-sales have
commenced for the first of the two projects, a 194 room Grand Summit Hotel.
American Skiing sold the entitlements to the land underlying the second project
to Marriott Ownership Resorts, Inc. on October 17, 2000.
KILLINGTON. Killington, located in central Vermont, is the largest ski
resort in the northeast and the fifth largest in the United States. Killington
generated over 900,000 skier visits in 1999-00. Killington is a seven-mountain
resort consisting of approximately 1,200 acres of skiable terrain. American
Skiing believes the size and diversity of skiable terrain at Killington make it
attractive to all levels of skiers and believes it to be one of the most widely
recognized of American Skiing's resorts with regional, national and
international clientele. American Skiing has recently completed construction of
a $4.0 million snowmaking expansion project which is expected to provide the
resort with 30% more snowmaking capacity during various periods which should
lead to higher early season trail counts and enhanced market confidence in the
quality and reliability of the snow surface.
Killington is a year-round resort offering complete golf amenities including
an 18-hole championship golf course, a golf school, a driving range and a tennis
school. American Skiing's real estate strategy at Killington is to expand the
existing Grand Summit Hotel, begin the first phases of a new destination resort
village and expand the bed base surrounding the company-owned golf course in an
area approved for development. The current master plan for the proposed
Killington resort village development includes over 4,450 units in over
5.3 million square feet of total development.
SUNDAY RIVER. Sunday River, located in the western mountains of Maine and
approximately a three-hour drive from Boston, is New England's third largest ski
resort with over 500,000 skier visits during the 1999-00 season. Extending
across eight interconnected mountains, its facilities consist of approximately
660 acres of skiable terrain and an additional 7,000 acres of undeveloped
terrain. American Skiing has plans to develop a resort village at the Jordan
Bowl Area (the most westerly peak), which could include over 1,350 units, a golf
course and 1.1 million square feet of total development.
MOUNT SNOW. Mount Snow, located in West Dover, Vermont, is the fourth
largest ski resort in the northeast United States with over 500,000 skier visits
in 1999-00. Mount Snow is the southernmost of American Skiing's eastern resorts.
A large percentage of the skier base for Mount Snow derives from Massachusetts,
Connecticut and New York. Mount Snow also owns and operates an 18-hole
championship golf course and is the headquarters of American Skiing's "Original
Golf School," which consists of eight golf schools located throughout the east
coast.
SUGARLOAF. Sugarloaf is located in the Carrabassett Valley of Maine.
Sugarloaf is a single mountain with a 4,237-foot summit and a 2,820-foot
vertical drop. Sugarloaf offers one of the largest ski-in/ ski-out base villages
in the Eastern United States, containing numerous restaurants, retail shops and
an abundance of lodging. Sugarloaf is widely recognized for its challenging
terrain and snowfields which represent the only lift-serviced above-tree line
skiing in the Northeast. As a destination resort, Sugarloaf has a broad market,
including areas as distant as New York, New Jersey, Pennsylvania, Washington,
D.C. and Canada. Sugarloaf also leases and operates an 18-hole championship golf
course, designed by Robert Trent Jones Jr.
SUGARBUSH. Sugarbush, located in Vermont's Mad River Valley, features the
three highest mountain peaks of any single resort in the Eastern United States
and extends over six mountain peaks in total. The Slide Brook Express Quad
connects the Lincoln Peak and Mount Ellen base areas via a 9-minute scenic ride
through the Green Mountains. The on-mountain accommodations at Sugarbush consist
of approximately 2,200 beds. There is also an ample off-mountain bed base within
the Mad River Valley. The resort operates ski shops, full-service and
cafeteria-style restaurants. American Skiing
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also owns and operates the Sugarbush Inn, a championship golf course, a sports
center and a conference center, in addition to managing 185 condominium units in
the area.
ATTITASH BEAR PEAK. Attitash Bear Peak is one of New Hampshire's premier
family vacation resorts. Its 12 lifts (including three quad chairs) constitute
one of New Hampshire's largest lift networks. Attitash Bear Peak is located in
the heart of the Mount Washington Valley which boasts over 200 factory outlet
stores, hundreds of bars and restaurants and a large variety of lodging options,
including a 143-room slopeside Grand Summit Resort Hotel and Conference Center.
REAL ESTATE PROPERTIES. American Skiing retains ownership of the front
desk, retail space, restaurants and conference facilities, or "commercial core,"
of hotels developed by American Skiing's real estate subsidiaries. American
Skiing currently owns and operates the commercial core of seven Grand Summit
Hotels (two at Sunday River and one each at Killington, Attitash Bear Peak,
Mount Snow, The Canyons and Steamboat) and one whole-ownership condo/hotel at
The Canyons (the Sundial Lodge).
LEASED PROPERTIES
American Skiing's operations are wholly dependent upon its ownership or
control over the real estate underlying each resort. The following summarizes
non-owned real estate critical to operations at each of American Skiing's
resorts. American Skiing believes each of the following leases, permits or
agreements is in full force and effect and that it is entitled to their benefit.
The Sunday River resort leases approximately 1,500 acres, constituting a
substantial portion of its skiable terrain, under a 50-year lease terminating on
October 14, 2030. The lease renews automatically thereafter on a year-to-year
basis unless terminated by either the lessor or lessee. This lease was amended
on January 23, 1998 to allow Sunday River to purchase portions of the leased
property for real estate development at a predetermined amount per acre. In
January 1998, American Skiing acquired an undivided one-half interest in the fee
title to the leased parcel.
The Sugarbush resort uses approximately 1,655 acres pursuant to a special
use permit issued by the United States Forest Service. The permit has a 40-year
term expiring April 30, 2035. The special use permit has a renewal option which
provides that it may be renewed if the use of the property remains compatible
with the special use permit, the site is being used for the purposes previously
authorized and the ski area has been continually operated and maintained in
accordance with all the provisions of the permit.
The Mount Snow resort leases approximately 1,315 acres constituting a
substantial portion of its skiable terrain. Of this total, 893 acres are
occupied by Mount Snow pursuant to a special use permit granted by the United
States Forest Service. The permit has a 40-year term expiring December 31, 2029
and is subject to renewal at the option of Mount Snow if various conditions are
satisfied. Mount Snow also leases 252 acres of skiable terrain from the Town of
Wilmington, Vermont. The lease expires November 15, 2030 and there are no
renewal options. In addition, Mount Snow leases approximately 169 acres from
Sargent Inc. under two separate leases expiring September 30, 2018, and
March 31, 2025, respectively. Each lease can be renewed for an additional
30-year term. Mount Snow also has the option to purchase the leased property and
a right of first refusal in the event the lessor receives an offer for the
leased properties.
Attitash Bear Peak uses approximately 281 acres of its skiable terrain
pursuant to a special use permit issued by the United States Forest Service. The
permit has a 40-year term expiring July 18, 2034 and is renewable subject to
given conditions. In addition, Attitash Bear Peak leases a portion of its
parking facilities under a lease expiring December 31, 2003. Attitash Bear Peak
has the option to purchase this leased property at any time during the lease
term.
Killington leases approximately 2,500 acres from the State of Vermont. A
substantial portion of that property constitutes skiable terrain. The initial
lease was for a 10-year term which commenced in
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1960 but contains nine 10-year renewal options. Killington exercised the renewal
option in 1970, 1980, 1990 and 2000. Assuming continued exercise of the renewal
options, the lease will ultimately expire in the year 2060. The lease is subject
to a buy-out option retained by the State of Vermont, as landlord. At the
conclusion of each 10-year term, or extended term, the State has the option to
buy out the lease for an amount equal to Killington's adjusted capital outlay
plus 10% of the gross receipts from the operation for the preceding three years.
Adjusted capital outlay means total capital expenditures extending back to the
date of origin of the lease depreciated at 1% per year, except that non-operable
assets depreciate at 2% per year. This buy-out option will next become
exercisable in the year 2010. Although American Skiing has not had confirmation
from Vermont State officials, American Skiing has no reason to believe that the
State intends to exercise the buy-out option at that time.
The Sugarloaf resort leases the Sugarloaf Golf Course from the Town of
Carrabassett Valley, Maine pursuant to a lease dated November 16, 2000. The
lease term expires November 2023. Sugarloaf has an option to renew the lease for
an additional 5-year term.
The Canyons leases approximately 2,100 acres, including most of the base
area and a substantial portion of its skiable terrain, under a lease from Wolf
Mountain Resorts, LLC. The initial term of this lease is 50 years expiring
July 2047, with an option to extend for three additional terms of 50 years each.
The lease provides an option to purchase those portions of the leased property
that are intended for residential or commercial development, subject to those
reconveyance rights set forth in the lease, at a cost of 5.5% of the full
capitalized cost of the development in the case of property that American Skiing
retains, or 11% of that cost in the case of property intended for resale. The
Canyons also leases approximately 807 acres, which constitutes the area for a
planned mid-mountain village and a substantial portion of its skiable terrain,
from the State of Utah School and Institutional Trust Land Administration.
American Skiing's lease term ends in 2078 and provides an option to purchase
those portions of the mid-mountain village area that are intended for real
estate development at a cost of 25% of their fair market value on an undeveloped
basis. American Skiing's lease with Wolf Mountain Resorts also includes a
sublease of some skiable terrain owned by the Osguthorpe family. American Skiing
has established additional ski development rights under a direct agreement with
the Osguthorpe family. The ski development rights for approximately 3,000 acres
of skiable terrain that American Skiing has targeted for development are
contained in a development agreement with Iron Mountain Associates, LLC, which
agreement includes a lease of all skiable terrain for a term ending in 2002. The
Canyons recently executed an amendment to this lease which provides that these
ski development rights will be acquired in fee by The Canyons at the expiration
of the lease.
Heavenly uses approximately 1,543 acres of its skiable terrain located in
California and Nevada under a special use permit issued by the United States
Forest Service. The permit expires on August 5, 2029. Heavenly uses
approximately 2,000 acres of additional skiable terrain in Nevada pursuant to a
special use permit which expires on August 5, 2029.
Steamboat uses approximately 3,486 acres, a substantial portion of which is
skiable terrain, pursuant to a special use permit issued by the United States
Forest Service which expires on August 31, 2029. Under Steamboat's existing
master plan, an additional 958 acres of contiguous National Forest lands is
expected to be added to the permitted area.
The Forest Service can terminate most of the special use permits if it
determines that termination is required in the public interest. However, to
American Skiing's knowledge, no recreational Special Use Permit or Term Special
Use Permit for any operational major ski resort has ever been terminated by the
Forest Service over the opposition of the permit holder.
RESORT REVENUES
American Skiing's resort revenues are derived from a wide variety of sources
and include lift ticket sales, food and beverage sales, retail sales including
ski rentals and repairs, skier development, lodging and property management,
golf and other summer activities and miscellaneous other sources. Lift ticket
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sales represent the single largest source of resort revenues and produced
approximately 45% of total resort operations revenue for fiscal 2000. See
"Management's Discussion and Analysis of Results of Operations of American
Skiing" for a breakdown of the sources of American Skiing's resort revenues.
LIFT TICKET SALES. American Skiing manages its lift ticket programs and
products in order to increase its ticket yields. Lift tickets are sold to
customers in packages together with accommodations in order to maximize
occupancy. American Skiing offers a wide variety of incentive-based lift ticket
programs designed to maximize skier visits during non-peak periods and to
attract specific market segments. American Skiing manages its ticket yields
during peak periods in order to maximize total lift ticket revenues.
FOOD AND BEVERAGE. American Skiing owns and operates substantially all of
the food and beverage facilities at its resorts, with the exception of the
Sugarloaf resort, which is under a long-term concession contract with an
unrelated third party. American Skiing's food and beverage strategy involves
providing a wide variety of restaurants, bars, cafes, cafeterias and other food
and beverage outlets at its resorts. By controlling the vast majority of its
on-mountain and base area food and beverage facilities, American Skiing is able
to capture a larger proportion of guest spending as well as ensure product and
service quality. American Skiing currently owns and operates over 40 different
food and beverage outlets.
RETAIL SALES. American Skiing owns over 80 retail and ski rental shops
operating in its resorts. The large number of retail locations that American
Skiing operates allows it to improve margins through large quantity purchase
agreements and sponsorship relationships. On-mountain shops sell ski equipment
and accessories such as skis, snowboards, boots, goggles, sunglasses, hats,
gloves and larger soft goods such as jackets and snowsuits. In addition, all
sales locations offer American Skiing's own branded apparel which generally
provides higher profit margins than other retail products. In the non-winter
seasons, the shops sell mountain bikes, in-line skates, tennis equipment and
warm weather apparel. In addition, American Skiing has expanded its retail
operations through off-site retail facilities in high traffic areas, such as
stores on the Killington Access Road and in downtown South Lake Tahoe.
LODGING AND PROPERTY MANAGEMENT. American Skiing's lodging and property
management departments manage its properties as well as properties owned by
third parties. Currently, American Skiing's lodging departments manage
approximately 2,300 lodging units at its resorts. The lodging departments
perform a full complement of guest services, which include reservations,
property management, housekeeping and brokerage operations. Most of American
Skiing's resorts have a welcome center to which newly arriving guests are
directed. The center allocates accommodations and provides guests with
information on all of the resort's activities and services. American Skiing's
property management operation seeks to maximize the synergies that exist between
lodging and lift ticket promotions.
SKIER DEVELOPMENT. American Skiing has been an industry leader in
developing learn-to-ski programs. American Skiing's Guaranteed Learn to Ski
Program was one of the first skier development programs to guaranty that a
customer would learn to ski in one day. The success of this program led to the
development of "Perfect Turn," which American Skiing believes was the first
combined skier development and marketing program in the ski industry. Perfect
Turn ski professionals receive specialized instruction in coaching,
communication, skiing and are also trained to sell related products and
cross-sell other resort goods and services and real estate. American Skiing
operates a hard goods marketing program at each of its resorts designed to allow
customers to test skis and snowboards with ski professionals, purchase their
equipment from those professionals and receive ongoing product and technological
support through Perfect Turn. American Skiing has also instituted a unique skier
development program throughout its resort network that focuses on the marketing
and sales of the entire mountain resort experience, rather than simply
traditional learn-to-ski concepts.
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RESORT OPERATING STRATEGY
American Skiing believes that the following key operating strategies will
allow it to increase revenues and profitability by capitalizing on its position
as a leading mountain resort operator and real estate developer.
CAPITALIZE ON RECENT FACILITIES EXPANSION AND UPGRADES. American Skiing has
invested over $172.0 million expanding and upgrading its on-mountain facilities
over the past three fiscal years. American Skiing has substantially re-tooled
the physical plant at all of its resorts. As a result of this investment,
American Skiing believes that it now offers the most modern on-mountain
facilities available in each of its markets. Capitalizing on this investment is
a primary focus of American Skiing's fiscal 2001 strategic plan.
MULTI-RESORT NETWORK. American Skiing's network of resorts provides both
geographic diversity and significant operating benefits. American Skiing
believes its geographic diversity reduces the risks associated with unfavorable
weather conditions, insulates it from economic slowdowns in any one particular
region, increases the accessibility and visibility of its network of resorts to
the overall North American skier population, and allows it to offer a wide range
of mountain vacation alternatives.
American Skiing believes that owning multiple resorts also provides it with
the opportunity to:
- Create the industry's largest cross-marketing program;
- Achieve efficiencies and economies of scale when it purchase goods and
services;
- Strengthen its distribution network of travel agents and tour operators by
offering a range of mountain resort alternatives, consistent service
quality, convenient travel booking and incentive packages;
- Establish performance benchmarks for operations across all of its resorts;
- Utilize specialized individuals and cross-resort teams at the corporate
level as resources for its entire business; and
- Develop and implement consumer information and technology systems for
application across all of its resorts.
INCREASE REVENUES PER SKIER. American Skiing intends to increase its
revenues per skier by managing its ticket yields and expanding its revenue
sources at each resort. American Skiing intends to increase non-lift ticket
revenue sources by increasing point-of-sale locations and sales volume through
retail stores, food and beverage services, equipment rentals, skier development
and lodging and property management. In addition, American Skiing believes that
aggressive cross selling of products and programs, such as its frequent skier
and multi-resort programs, to resort guests will increase its resort revenues
and profitability. American Skiing believes that it can increase ticket yields
by managing ticket discounts, closely aligning ticket programs to specific
customer market segments, offering multi-resort ticket products and introducing
a variety of programs that offer packages of tickets with lodging and other
services available at its resorts.
INNOVATIVE MARKETING PROGRAMS. American Skiing's marketing programs are
designed to establish a nationally recognized high-quality name and image while
promoting the unique characteristics of its individual resorts, capitalize on
cross-selling opportunities, and enhance its customer loyalty. American Skiing
has established joint marketing programs with major corporations such as Sprint,
Mobil, Anheuser-Busch, ESPN, Quaker Oats, Pepsi/Mountain Dew, Rossignol,
Motorola, Vermont Pure, Kodak, BMW and Green Mountain Coffee Roasters. American
Skiing believes these joint marketing programs give it a high-quality image and
strong market presence on both a regional and national basis.
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American Skiing believes that its new mEticket program is the first
nation-wide program targeted at retaining skiers who ski three to twelve days
each season, which American Skiing's research indicates represents the majority
of the ski population. By giving guests an incentive to purchase their skiing
for the year early in the ski season with the special values offered by
mEticket, American Skiing believes that it can encourage guests to ski more
often and do the majority of their skiing at its resorts.
American Skiing utilizes a variety of marketing media, including direct
mail, radio, television and the Internet. Television and radio marketing efforts
include both strategic and tactical messaging. Strategic advertising promotes
the sports and resorts themselves, while tactical messaging provides current
information related to ski conditions as a means of promoting visits to our
resorts. In addition, each resort uses local cable television networks to
provide current information and cross-sell resort products and services.
Internet marketing activities include individual resort websites which provide
current snow conditions, special deals and online reservation booking, a real
estate sales website promoting American Skiing's Grand Summit Hotels and Resort
Villages, a dedicated site for mEticket, a site promoting summer vacation
activities, on-line retail sales and a special site promoting learning to ski or
snowboard. All sites are linked through American Skiing's (www.peaks.com) site.
Guests are increasingly researching conditions and purchasing tickets and
related resort products online. The mEticket program is specifically designed to
be accessed online, advancing American Skiing's e-commerce strategy.
EXPAND GOLF AND CONVENTION BUSINESS. American Skiing is one of the largest
owners and operators of resort golf courses in New England. It strives to
capitalize on this status to increase its off-season revenues. Sugarloaf,
Killington, Mount Snow/Haystack and Sugarbush all operate championship resort
golf courses. The Sugarloaf course, designed by Robert Trent Jones, Jr., has
been rated as one of the top 25 upscale courses in the country according to a
Golf Digest magazine survey. American Skiing also operates eight golf schools at
locations along the East Coast from Florida to Maine. American Skiing's golf
program and other recreational activities draw off-season visitors to its
resorts and support its growing off-season convention business, as well as its
real estate development operations.
SEASONALITY
The ski industry is highly seasonal in nature. Historically, the majority of
American Skiing's resort revenues are generated in its second and third fiscal
quarters, of which a significant portion is produced in two weeks during the
Christmas and the Presidents' Day vacation weeks. Adverse weather conditions
during the key periods of American Skiing's ski season could adversely affect
its operating results.
MOUNTAINSIDE REAL ESTATE DEVELOPMENT
In addition to operating alpine resorts, American Skiing develops
mountainside real estate which complements the expansion of its on-mountain
operations. American Skiing's real estate revenues are derived from the sale and
leasing of interests in real estate development projects that it has constructed
at its resorts and the sale to third parties of developmental real estate at its
resorts.
American Skiing's real estate development strategy is centered on the
creation of "resort villages" at its four largest resorts (The Canyons,
Heavenly, Killington and Sunday River) and enhancement of the existing village
at Steamboat. Development within these resort villages is focused on projects
which American Skiing believes will generate the highest returns. Each resort
village is expected to consist of quartershare hotels, whole and fractional
ownership condominium hotels, townhouses and single family homes, and retail
operations.
GRAND SUMMIT HOTELS. The Grand Summit Hotel is a unique interval ownership
product that American Skiing originated. Each hotel is a condominium consisting
of fully furnished residential and commercial units with a voluminous atrium
lobby, two or more restaurants, retail space, a grand ballroom, conference
space, a health club with an outdoor heated pool and other recreational
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amenities. Residential units in the hotel are sold in quartershare interests,
with each unit consisting of four 13-week ownership interests spread evenly
throughout the year. The balance of the hotel, including restaurants, retail
space and conference facilities, is typically retained by American Skiing and
managed by the host resort. The initial sale of quartershare units typically
generates a profit for the real estate segment, and American Skiing's resort
segment derives a continuing revenue stream from operating the hotel's retail,
restaurant and conference facilities and from renting quartershare interval
interests when not in use by their owners.
WHOLE OWNERSHIP CONDOMINIUM HOTELS. These hotels consist of fully furnished
upscale condominium units operated on a traditional hotel format. The whole
ownership structure satisfies this market segment's desire for traditional real
estate but complements the traditional concept with both hotel-type amenities
and easy access to rental income generated through the hotel rental management
program. American Skiing retains ownership of the front desk and other common
areas of the condo/ hotels with the expectation of operating these hotels over
the long term. By integrating the condo/ hotels with its central reservation
system, American Skiing is enhancing its revenue opportunities through
vertically integrated resort operations, simplifying guest reservations, and the
revenue splits associated with this type of product. The Sundial Lodge at The
Canyons, as in most of the resort village condominium products, also creates
retail space on the ground floor that supports a pedestrian village, housing
31,800 square feet of retail and commercial space. This space rests at the heart
of the resort's retail center.
TOWNHOUSES AND SINGLE FAMILY. There is a component of resort real estate
purchasers that do not prefer core village areas, choosing instead to be located
in an area which is convenient to the resort but removed from the center of
activity. There is also logical reasoning for decreasing densities of
development as one moves away from the core areas. Within each resort master
plan are areas that can accommodate stacked town houses with a site density of
about 20 to 30 units per acre, town houses ranging from 10 to 20 units per acre
and single family homes structured as both small and large lot product.
RETAIL. The master plans for each resort village core consist of
approximately 1,200 units of accommodation supported by approximately 140,000
square feet of retail space. A strong component of the retail space is outdoor
recreation-related retail. Each building within a village is expected to consist
of at least one level of underground parking, will generally include ground
floor retail and have three to five stories of residential units. In some cases,
such as the Grand Summit Hotels at The Canyons and Steamboat, the buildings will
be as high as nine stories and utilize steel and concrete construction. As
buildings move to the village periphery, residential, parking and retail density
are reduced.
Local approvals for these resort village plans are at various stages of
completion.
- THE CANYONS: American Skiing secured specially planned area approval from
the appropriate authorities for its master plan at The Canyons on
November 15, 1999. Under this master plan approval, density for the
residential units and commercial development for American Skiing's 15-year
master plan at The Canyons has been approved. As it seeks to develop
specific projects within the master plan at The Canyons, American Skiing
will need local approval for specific site plans.
- HEAVENLY: On October 28, 1999, American Skiing entered into an agreement
with the City of South Lake Tahoe, California, pursuant to which it
received all necessary local approvals for the development of its Grand
Summit Hotel at Heavenly and an adjacent $30.0 million gondola. The
agreement included approvals for an additional hotel site on a parcel of
land adjacent to the planned Grand Summit Hotel. American Skiing sold the
rights to develop this additional land to a subsidiary of Marriott
International on October 17, 2000.
- KILLINGTON: Aspects of the master plan for the Killington Resort Village
were approved by local authorities in November 1999 and state authorities
in July 2000. Killington received partial and
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conceptual approval for some of the ten criteria which are part of the
State of Vermont land use review and approval process. Final approval of
each of the criteria will be rendered upon submittal of actual
construction plans for specific projects.
- SUNDAY RIVER: The resort village master plan for Jordan Bowl is complete.
Individual permits for projects are all that is required for development.
- STEAMBOAT: The permitting process for elements of the Steamboat master
plan is currently being pursued on a case-by-case basis in consultation
with local authorities.
REAL ESTATE DEVELOPMENT PROGRAM
While American Skiing's business plan contemplates the completion of
projects at several of its resorts across the United States, there is a clear
focus on The Canyons and, to a slightly lesser extent, Heavenly. The strength of
the existing market in the Park City, Utah area, combined with the impact of the
2002 Winter Olympic Games, makes The Canyons a unique development opportunity.
The Salt Lake City area has been one of the fastest growing regions in the
United States over the last several years. The Park City area is growing even
more rapidly, at twice the State average according to Utah authorities. This
area is also hosting the 2002 Winter Olympic Games, which American Skiing
believes dramatically compounds the effect of this rapid expansion on the real
estate market. American Skiing believes that this combination provides a unique
real estate development opportunity.
American Skiing's five-year real estate business plan consists of developing
up to 17 projects at its various resorts. American Skiing's model anticipates
continuing sell-out and development of its eight existing projects. Seven
projects (Grand Summit Hotels at Attitash, Jordan Bowl at Sunday River,
Killington, Mount Snow, The Canyons and Steamboat and the Sundial Lodge at The
Canyons) are fully constructed and operational. The eighth project, the final
phase of the Locke Mountain Townhomes at Sunday River, is currently under
construction. Two additional projects are expected to commence construction
during American Skiing's current fiscal year: a Grand Summit Hotel at Heavenly
and Phase 1 of the Whisper Ridge Townhomes at The Canyons. Both of these
projects are dependent on achieving adequate pre-sales contracts, establishing
completed designs, budgets and guaranteed maximum price construction contracts.
In addition, adequate financing must be obtained for both projects before they
commence.
ALPINE RESORT INDUSTRY
There are approximately 750 ski areas in North America. In the United
States, approximately 503 ski areas generated approximately 52.2 million skier
visits during the 1999-00 ski season. Since 1985, the ski resort industry has
undergone a period of consolidation and attrition, resulting in a significant
decline in the total number of ski areas in North America. The number of ski
resorts in the United States has declined from approximately 735 in 1983 to
approximately 503 in 2000, although the number of skier visits has remained
relatively flat. Despite the recent consolidation trend overall, ownership of
the smaller regional ski resorts remains highly fragmented. American Skiing
believes that technological advances and rising infrastructure costs are the
primary reasons for the ski resort industry consolidation, and that further
consolidation is likely as smaller regional resorts are acquired by larger
resort operators with more sophisticated management capabilities and increased
availability of capital. In addition, the ski resort industry is characterized
by significant barriers to entry because the number of attractive sites is
limited, the costs of resort development are high and environmental regulations
impose significant restrictions on new development.
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The following chart shows a comparison of the industry-wide skier visits
compared to American Skiing's skier visits in the U.S. regional ski markets
during the 1999-00 ski season:
<TABLE>
<CAPTION>
1990-00 TOTAL PERCENTAGE OF SKIER VISITS AT COMPANY
SKIER VISITS* TOTAL SKIER COMPANY RESORTS REGIONAL
GEOGRAPHIC REGION (IN MILLIONS) VISITS (IN MILLIONS) MARKET SHARE COMPANY RESORTS
----------------- ------------- ------------- --------------- ------------ --------------------
<S> <C> <C> <C> <C> <C>
Northeast............ 12.0 23.0% 2.8 23.6% Killington,
Sugarbush, Mount
Snow, Sunday River,
Sugarloaf, USA,
Attitash Bear Peak
Southeast............ 5.2 10.0% -- --
Midwest.............. 6.4 12.3% --
Rocky Mountain....... 18.1 34.7% 1.3 7.0% Steamboat, The
Canyons
Pacific West......... 10.5 20.0% 0.9 8.6% Heavenly
---- ----- --- ----
U.S. Overall......... 52.2 100.0% 5.0 9.6%
==== ===== === ====
</TABLE>
------------------------
(*) Source: Kottke National End of Season Survey 1999/00 Final Report
United States ski resorts range from small operations which cater primarily
to day skiers from nearby population centers to larger resorts which attract
both day skiers and destination resort guests. American Skiing believes that day
skiers focus primarily on the quality of the skiing and travel time, while
destination travelers are attracted to the total ski and riding experience,
including the non-skiing amenities and activities available at the resort, as
well as the perceived overall quality of the vacation experience. Destination
guests generate significantly higher resort operating revenue per skier day than
day skiers because of their additional spending on lodging, food and other
retail items over a multiple-day period.
Since 1985, the total number of skier visits in the United States has been
relatively flat. However, according to the National Ski Area Association, the
number of skier visits represented by snowboarders in the United States has
increased from approximately 9.9 million in the 1996-97 ski season to
approximately 13.8 million in the 1999-00 ski season, a compounded annual growth
rate of approximately 11.8%. American Skiing believes that snowboarding will
continue to be an important source of lift ticket, skier development, retail and
rental revenue growth for it.
American Skiing believes that it is well positioned to capitalize on various
favorable trends and developments affecting the alpine resort industry in the
United States. These trends and developments include:
- The existence of 66.7 million members of the "baby boom" generation that
are now approaching the 40 to 59 year age group where discretionary
income, personal wealth and pursuit of leisure activities are maximized
(this group is estimated to grow by 16.7% over the next 23 years);
- The emergence of the "echo boom" generation (children of baby boomers) as
a significant economic force which is just beginning to enter the prime
entry age for skiing, snowboarding and other "on-snow" sports;
- Advances in ski equipment technology, such as the development of parabolic
skis which make skiing easier to learn and enjoy;
- The continued growth of snowboarding as a significant and enduring segment
of the industry which in turn increases youth participation in alpine
sports; and
- A greater focus on leisure and fitness in general.
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There can be no assurance, however, that these trends and developments will
have a favorable impact on the ski industry.
COMPETITION
The ski industry is highly competitive. American Skiing competes with
mountain resort areas in the United States, Canada and Europe. American Skiing
also competes with other recreation resorts, including warm weather resorts, for
vacationers. In order to cover the high fixed costs of our ski operations,
American Skiing needs to maintain each of its regional, national and
international skier bases. Its prices are directly impacted by the number and
variety of alternatives presented to skiers in these markets. American Skiing's
most significant competitors are resorts that are well capitalized, well managed
and have significant capital improvement and resort real estate development
programs.
American Skiing's resorts also face strong competition on a regional basis.
With approximately three million skier visits generated by its northeastern
resorts, competition in that region is an important consideration. American
Skiing's northeastern markets are located in the major population centers in the
northeast, particularly eastern Massachusetts, northern Connecticut, New York
and northern New Jersey. For example, skier origin data collected at Sunday
River indicates that approximately 43% of its weekend skiers reside in
Massachusetts. Similar data collected at Killington and Mount Snow indicate that
approximately 23% and 35%, respectively, of their weekend skiers reside in New
York, with high concentrations from Massachusetts, Connecticut, New Jersey and
Vermont. The Colorado, Utah and California/Nevada ski markets are also highly
competitive.
EMPLOYEES AND LABOR RELATIONS
American Skiing employs approximately 11,700 persons at peak season and
approximately 1,600 persons full time. Less than 1% of American Skiing employees
are unionized, all of which are seasonal ski patrol employees at The Canyons and
Steamboat resorts. American Skiing believes that it enjoys good relations with
its employees.
GOVERNMENT REGULATION
American Skiing's resorts are subject to a wide variety of federal, state,
regional and local laws and regulations relating to land use,
environmental/health and safety, water resources, air and water emissions,
sewage disposal, and the use, storage, discharge, emission and disposal of
hazardous materials and hazardous and nonhazardous wastes, and other
environmental matters. While American Skiing believes that its resorts are
currently in material compliance with all land use and environmental laws, any
failure to comply with these laws could result in costs to satisfy environmental
compliance, remediation requirements or the imposition of severe penalties or
restrictions on operations by government agencies or courts that could adversely
affect its operations. Phase I environmental assessments have been completed on
substantially all of the real estate that American Skiing owns or controls. The
reports identified areas of potential environmental concern including the need
to upgrade existing underground storage tanks at several facilities and the
potential need to remediate petroleum releases. The reports did not, however,
identify any environmental conditions or non-compliance at any of American
Skiing's properties, the remediation or correction of which American Skiing
feels would have a material adverse impact on its business, financial condition,
results of operations or cash flows.
American Skiing believes that it possesses all the permits, licenses and
approvals from governmental authorities material to its operations as they
currently exist. American Skiing has not received any notice of material
non-compliance with permits, licenses or approvals necessary for the operation
of any of its properties.
American Skiing's resort and real estate capital programs require permits
and approvals from federal, state, regional and local authorities. American
Skiing's operations are heavily dependent upon
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its continued ability, under applicable laws, regulations, policies, permits,
licenses or contractual arrangements, to have access to adequate supplies of
water with which to make snow and service the other needs of its facilities, and
otherwise to conduct its operations. There can be no assurance that new
applications of existing laws, regulations and policies, or changes in these
laws, regulations and policies will not occur in a manner that would have a
material adverse effect on American Skiing's business, or that important
permits, licenses or agreements will not be canceled, not renewed, or renewed on
terms no less favorable to it. Major expansions of any one or more resorts could
require the filing of an environmental impact statement under environmental laws
and applicable regulations if it is determined that the expansion has a
significant impact upon the environment and could require numerous other
federal, state and local approvals. Although American Skiing has consistently
been successful in implementing its capital expansion plans, no assurance can be
given that necessary permits and approvals will be obtained.
SYSTEMS AND TECHNOLOGY
INFORMATION SYSTEMS. American Skiing's information systems are designed to
improve the ski experience by developing more efficient guest service products
and programs. American Skiing is pursuing implementation of a comprehensive
system and technology plan which will include an integrated customer database
tracking guest preference information and product purchasing patterns, an
extensive data communications network linking most point-of-sale locations
through a central database, a central reservations system for use in the
resort's rental management business and a skier development reservation and
instructor scheduling system that will simplify the booking process and allow
for the best possible use of American Skiing's instructors.
SNOWMAKING SYSTEMS AND TECHNOLOGY. American Skiing believes that it
operates the largest consolidated snowmaking operation in existence, with
approximately 3,900 acres of snowmaking coverage. American Skiing's proprietary
snowmaking software program allows it to produce what it believes is the highest
quality man-made snow in the industry. American Skiing refers to this ideal
quality product as "Retail Snow," a high quality, durable skiing surface with
top to bottom consistency. All of American Skiing's snowmaking systems are
operated through computer-based control using industrial automation software and
a variety of state of the art hardware and instrumentation. American Skiing uses
efficient ground based, tower based and fully automated snowgun nozzle
technology and have developed software for determining the optimal snowmaking
nozzle setting at multiple locations on any particular mountain. This system
monitors the weather conditions and system capacities and determines the proper
operating water pressure for each nozzle, eliminating guesswork and ensuring
that ideal snow quality is provided. All of American Skiing's snowmaking systems
are networked to allow the viewing of information from multiple locations within
its resort network. Another unique feature of American Skiing's system is the
current display of trail status, lift status, weather conditions and other
various on-mountain information at locations throughout each resort. Much of
this information is available on the Internet at American Skiing's various web
sites.
LEGAL PROCEEDINGS
American Skiing currently and from time to time is involved in litigation
arising in the ordinary course of its business. American Skiing does not believe
that it is involved in any litigation that will, individually or in the
aggregate, have a material adverse effect on its financial condition or results
of operations or cash flows.
Each of American Skiing subsidiaries which operate resorts has claims
pending and is regularly subject to personal injury claims related principally
to skiing activities at such resort. Each of American Skiing operating companies
maintains liability insurance that American Skiing considers adequate in order
to insure against claims related to the usual and customary risks associated
with the operation of a ski resort. American Skiing operates a captive insurance
company authorized under the laws of the
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State of Vermont, which, until early fiscal 1999, provided liability and
workers' compensation coverage for its Vermont resorts. American Skiing does not
currently use this insurance subsidiary to provide liability and workers'
compensation insurance coverage, but it is still responsible for future claims
arising from insurable events which may have occurred while it provided this
coverage. The insurance subsidiary maintains cash reserves in amounts
recommended by an independent actuarial firm and which American Skiing believes
to be adequate to cover any such claims.
The Killington resort has been identified by the U.S. Environmental
Protection Agency as a potentially responsible party at two sites pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act.
Killington has entered into a settlement agreement with the Environmental
Protection Agency at one of the sites, the Solvents Recovery Service of New
England Superfund site in Southington, Connecticut. Killington rejected an offer
to enter into a de minimis settlement with the Environmental Protection Agency
for the other site, the PSC Resources Superfund site in Palmer, Massachusetts,
because it disputes its designation as a potentially responsible party. In
addition, the Heavenly resort was designated as a potentially responsible party
at a Superfund site in Patterson, CA. American Skiing entered into a cash-out
settlement agreement which has been accepted by the Environmental Protection
Agency and funded as part of an overall settlement of the site. American Skiing
believes that its liability for these Superfund sites, individually and in the
aggregate, will not have a material adverse effect on its business or financial
condition or results of operations or cash flows.
DESCRIPTION OF ASC MERGER SUB, INC.
ASC Merger Sub, Inc. is a wholly-owned subsidiary of American Skiing
organized under the laws of the State of Delaware. It was incorporated on
November 17, 2000 solely for use in the merger and is engaged in no other
business. It has no material assets or operations. Its executive offices are
located at Sunday River Access Road, Bethel, Maine 04217.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF MERISTAR
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, SEPTEMBER 30, --------------------------------
2000 2000 1999 1998 1997
-------------- -------------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues:
Rooms.......................................... $231,497 $ 721,045 $ 894,983 $395,633 $ 9,880
Food, beverage and other....................... 89,211 293,384 387,091 152,276 1,871
Corporate housing.............................. 29,369 38,761 -- -- --
Management and other fees...................... 6,287 16,358 10,040 14,528 12,088
-------- ---------- ---------- -------- --------
Total revenues............................... 356,364 1,069,548 1,292,114 562,437 23,839
-------- ---------- ---------- -------- --------
OPERATING EXPENSES:
Departmental expenses:
Rooms.......................................... 55,956 166,824 213,107 95,627 2,533
Food, beverage and other....................... 64,144 202,340 273,345 107,860 1,170
Corporate housing.............................. 18,744 24,781 -- -- --
Undistributed operating expenses:
Administrative and general..................... 58,270 173,894 183,279 84,881 10,473
Participating lease expense.................... 106,792 320,104 404,086 186,601 4,135
Property operating costs....................... 48,678 145,427 195,033 76,300 1,917
Depreciation and amortization.................. 2,778 6,540 6,014 3,372 636
-------- ---------- ---------- -------- --------
Total operating expenses..................... 355,362 1,039,910 1,274,864 554,641 20,864
-------- ---------- ---------- -------- --------
Net operating income............................. 1,002 29,638 17,250 7,796 2,975
Interest expense, net............................ 1,986 4,530 4,692 2,017 56
Equity in earnings of affiliates................. -- -- (31) (1,337) 46
Minority interests............................... (31) 2,108 1,916 155 103
Income taxes(A).................................. (52) 8,971 3,926 337 --
-------- ---------- ---------- -------- --------
Net income................................... $ (901) $ 14,029 $ 6,685 $ 3,950 $ 2,862
======== ========== ========== ======== ========
Basic earnings per share(B)...................... $ (0.03) $ 0.42 $ 0.24 $ 0.02 --
Diluted earnings per share(B).................... $ (0.03) $ 0.41 $ 0.24 $ 0.02 --
Number of shares of common stock issued and
outstanding(C)................................. 35,894 35,894 29,625 25,437 --
OTHER FINANCIAL DATA:
EBITDA(D)........................................ $ 3,780 $ 26,401 $ 23,264 $ 11,168 $ 3,611
Net cash (used in) provided by operating
activities..................................... (2,357) 9,822 27,528 10,125 11,167
Net cash used in investing activities............ (5,144) (29,759) (32,857) (102,105) (6,501)
Net cash provided by (used in) financing
activities..................................... 9,860 28,099 (4,100) 76,113 4,208
BALANCE SHEET DATA:
Total assets..................................... $374,799 $ 374,799 $ 258,144 $247,529 $ 84,419
Debt............................................. 95,264 95,264 57,762 67,812 981
</TABLE>
--------------------------
(A) No provision for federal income taxes was included prior to August 3, 1998
because MeriStar's predecessor entities were partnerships and all federal
income tax liabilities were passed through to the individual partners.
(B) Basic and diluted earnings per share for the year ended December 31, 1998 is
based on earnings for the period from August 3, 1998, the date of the
spin-off of MeriStar from CapStar Hotel Company, through December 31, 1998.
(C) As of December 31 for the periods presented.
(D) 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, is not necessarily indicative of cash available to
fund all cash flow needs, should not be considered as an alternative to net
income under GAAP for purposes of evaluating MeriStar's results of
operations and may not be comparable to other similarly titled measures used
by other companies.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF MERISTAR
GENERAL
MeriStar leases, manages and operates a portfolio of hospitality properties
and provides related services in the hotel, corporate housing, golf and vacation
membership markets. The MeriStar portfolio is diversified by franchise and brand
affiliations. MeriStar's subsidiary, MeriStar H&R Operating Company, L.P.,
conducts all of its operations. MeriStar is the sole general partner of MeriStar
H&R and controls its operations.
On August 3, 1998, American General Hospitality Corporation and CapStar
Hotel Company merged together to form MeriStar Hospitality Corporation, a real
estate investment trust. As part of that merger, CapStar formed MeriStar to
become the lessee, manager and operator of substantially all of the hotels owned
or leased by American General and CapStar before the merger. At the time of the
merger, CapStar distributed all of the shares of MeriStar common stock to its
stockholders and MeriStar became a separate, publicly traded company.
MeriStar manages all of the hotels CapStar leased and/or managed for
third-party owners before the merger. Immediately after the merger, MeriStar
acquired all of the partnership interests in AGH Leasing, L.P., the third-party
lessee that leased most of the hotels American General owned. MeriStar also
acquired substantially all of the assets and some liabilities of American
General Hospitality, Inc., the third-party manager that managed most of the
hotels American General owned.
As of September 30, 2000, MeriStar leased or managed 213 hotels with 46,511
rooms in 33 states, the District of Columbia, Canada, Puerto Rico and the U.S.
Virgin Islands. MeriStar also manages or is otherwise affiliated with 11 golf
courses. Golf course management operations and vacation membership operations
are not material to any period presented.
On May 31, 2000, MeriStar completed the acquisition of BridgeStreet
Accommodations, Inc. for $1.50 in cash and 0.5 shares of MeriStar common stock
for each share of BridgeStreet common stock outstanding. In addition, MeriStar
repaid $12.0 million of BridgeStreet's outstanding debt as part of the
acquisition. BridgeStreet provides corporate housing services in the United
States, Canada and the United Kingdom. The total purchase price of the
acquisition was approximately $44.9 million. As of September 30, 2000,
BridgeStreet had approximately 3,600 apartments under lease in the United
States, Canada, and the United Kingdom. MeriStar's financial statements include
the operating results of BridgeStreet since May 31, 2000.
In December 1999, amendments to the Internal Revenue Code were enacted that
permit real estate investment trusts to create a taxable subsidiary on or after
January 1, 2001, which will be subject to taxation similar to a subchapter C
corporation and which can perform some activities not permissible for the real
estate investment trust. As a result of this legislation, MeriStar agreed to
convert all 106 leases with MeriStar Hospitality to management contracts with
taxable subsidiaries of MeriStar Hospitality that became the lessees of the
properties previously leased by MeriStar effective January 1, 2001. MeriStar has
structured the management agreements to mirror the economics and terms of the
prior leases. The conversion did not result in the exchange of any cash
consideration between the parties. Under the management agreements, the annual
base management fee is 2.5 percent of total hotel revenue with increases up to
an additional 1.5 percent of total hotel revenue based in part on MeriStar's
achievement of given operating thresholds. MeriStar is also in discussions with
its other primary lessor, Winston Hotels, Inc., regarding the conversion of
MeriStar's 47 leases with Winston to management contracts. MeriStar has not yet
reached an agreement with Winston regarding conversion of these leases.
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FINANCIAL CONDITION
ASSETS
Total assets increased by $116.7 million to $374.8 million at September 30,
2000 from $258.1 million at December 31, 1999 primarily due to the following:
- Investments in and advances to affiliates increased by $8.0 million due to
our investment in MIP Lessee, L.P. and other hotel ventures;
- Accounts receivable increased $29.3 million primarily due to an increase
of $50.1 million in revenues in the third quarter of 2000 compared to the
fourth quarter of 1999 and the addition of $5.4 million of BridgeStreet's
accounts receivable;
- Cash and cash equivalents increased $8.3 million resulting from net
operating activity and additional net borrowings on MeriStar's credit
facility;
- Prepaid expenses increased $18.3 million due to:
- the addition of $6.9 million of BridgeStreet prepaid expenses, and
- the establishment of a $9.9 million prepaid lease expense under
Emerging Issues Task Force Issue No. 98-9. This prepaid balance only
exists in interim periods;
- Furniture, fixtures, and equipment increased $12.7 million during the nine
months ended September 30, 2000, primarily due to the acquisition of
BridgeStreet and the acquisition of computer equipment and software. As of
September 30, 2000 BridgeStreet had $7.2 million of furniture, fixtures,
and equipment; and
- Intangible assets increased $36.5 million primarily due to the acquisition
of BridgeStreet.
MeriStar's assets include a substantial amount of intangible assets,
primarily related to its acquisitions of hotel management companies and
BridgeStreet. MeriStar evaluates the carrying values of its long-lived
intangible assets periodically in relation to its operating performance and
expected future undiscounted cash flows of the underlying assets. Through
September 30, 2000, MeriStar's evaluations have not indicated a need to adjust
the carrying value of its intangible assets. Over the past two years, however,
the lodging industry has experienced the negative effects of the supply of new
rooms in some segments and geographic regions exceeding demand. As a result,
MeriStar will continue to regularly evaluate the recoverability of its
intangible assets.
LIABILITIES
MeriStar's total liabilities increased by $85.0 million to $264.2 million at
September 30, 2000 from $179.2 million at December 31, 1999 primarily due to the
following:
- Accounts payable, accrued expenses and other liabilities increased
$28.3 million due to:
- Higher operating expenses before participating lease expense for the
third quarter 2000 as compared to the fourth quarter 1999; and
- The addition of $10.5 million of BridgeStreet's accounts payable,
accrued expenses and other liabilities;
- Liabilities due to affiliates increased $9.1 million primarily due to the
participating rent payable balance at September 30, 2000 being higher than
at December 31, 1999; and
- Long-term debt increased $37.4 million due to borrowings under MeriStar's
credit facility to fund short term liquidity requirements and the
acquisition of BridgeStreet.
147
<PAGE>
STOCKHOLDERS' EQUITY
Stockholders' equity increased $31.1 million primarily due to:
- The issuance of 4,072,099 shares of MeriStar common stock to
BridgeStreet's stockholders;
- The sale of 1,818,182 shares of MeriStar common stock to MeriStar's joint
venture partner in MIP Lessee, L.P.; and
- Net income of $14.0 million through September 2000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES
Total revenue increased $41.6 million or 13.2% to $356.4 million in the
three months ended September 30, 2000 compared to $314.8 million in the three
months ended September 30, 1999. The increase in revenue is primarily the result
of the acquisition of BridgeStreet, an increase in third-party management fees,
and a 5.2% improvement in revenue per available room from MeriStar's leased
hotels. The improvement in revenue per available room was primarily the result
of a 6.7% increase in the average daily rate. The following table provides
MeriStar's operating statistics for MeriStar's leased hotels on a same-store
basis for the quarter:
<TABLE>
<CAPTION>
2000 1999 CHANGE
-------- -------- --------
<S> <C> <C> <C>
Revenue per available room.......................... $72.69 $69.09 5.2%
Average daily rate.................................. $99.09 $92.85 6.7%
Occupancy........................................... 73.4% 74.4% (1.3)%
</TABLE>
OPERATING EXPENSES
Operating expenses increased $44.4 million or 14.3% to $355.4 million in the
three months ended September 30, 2000 compared to $311.0 million in the three
months ended September 30, 1999. This increase reflects:
- The acquisition of BridgeStreet;
- Increased participating lease expense resulting from the increase in
revenue at MeriStar's leased hotels; and
- Increased administrative and general expenses due mainly to higher
insurance costs and labor costs.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
Earnings before interest, taxes, depreciation and amortization, or EBITDA,
decreased to $3.8 million in the three months ended September 30, 2000 compared
to $5.2 million in the three months ended September 30, 1999. The decrease in
EBITDA is primarily due to:
- A $4.9 million decrease in hotel operations' EBITDA resulting from
increased costs. These include higher lease expenses, energy costs,
insurance costs, frequent traveler program costs, and labor costs; and
- The acquisition of BridgeStreet resulted in $3.1 million of EBITDA.
Minority interest decreased by $0.3 million primarily due to lower operating
income as compared to 1999. Taxes decreased by $1.0 million due to lower
operating income as compared to 1999.
148
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
REVENUES
Total revenue increased $83.7 million or 8.5% to $1,069.5 million in the
nine months ended September 30, 2000 compared to $985.8 million in the nine
months ended September 30, 1999. The increase in revenue is primarily the result
of an increase in the number of third party managed hotels, the acquisition of
BridgeStreet, and a 4.9% improvement in revenue per available room from
MeriStar's leased hotels. The improvement in revenue per available room was
primarily the result of a 5.6% increase in the average daily rate. The following
table provides MeriStar's operating statistics for its leased hotels on a
same-store basis:
<TABLE>
<CAPTION>
2000 1999 CHANGE
-------- -------- --------
<S> <C> <C> <C>
Revenue per available room.................................. $ 75.66 $72.14 4.9%
Average daily rate.......................................... $102.99 $97.49 5.6%
Occupancy................................................... 73.5% 74.0% (0.7)%
</TABLE>
OPERATING EXPENSES
Operating expenses increased $76.0 million or 7.9% to $1,039.9 million in
the nine months ended September 30, 2000 compared to $963.9 million in the nine
months ended September 30, 1999. The increase reflects:
- The acquisition of BridgeStreet;
- The increased departmental operating costs and participating lease expense
of our leased hotels associated with the increase in revenue; and
- Increased administrative and general expenses due to higher insurance
costs and labor costs.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
EBITDA increased to $36.2 million in the nine months ended September 30,
2000 compared to $26.4 million in the nine months ended September 30, 1999. The
increase in EBITDA is primarily due to:
- a $6.2 million increase in hotel operations; and
- $3.9 million from BridgeStreet's operations.
Minority interest decreased by $0.6 million primarily due to the conversion
of operating partnership units. Taxes increased by $3.2 million due to higher
operating income as compared to 1999.
Emerging Issues Task Force Issue No. 98-9, "Accounting for Contingent Rent
in Interim Financial Periods," requires a lessee to recognize contingent rental
expense for interim periods prior to the achievement of the specified target
that triggers the contingent rental expense, if the achievement of that target
by the end of the fiscal year is considered probable. This accounting
pronouncement relates only to MeriStar's recognition of lease expense in interim
periods for financial reporting purposes; it has no effect on the timing of rent
payments under our leases or our annual lease expense calculations. MeriStar
made cash lease payments in excess of the expense it was required to recognize
under EITF No. 98-9 during the interim periods ended September 30, 2000 and
1999. As of September 30, 2000 and 1999, this resulted in prepaid expense
balances of $9,910 and $6,345, respectively, which are included on MeriStar's
condensed consolidated balance sheets included elsewhere in this document.
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<PAGE>
The effect on MeriStar's financial statements is as follows (in thousands,
except for per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------
PRIOR TO EFFECT OF EITF AFTER EFFECT OF EITF
NO. 98-9 EFFECT OF EITF NO. 98-9 NO. 98-9
----------------------- ----------------------- --------------------
<S> <C> <C> <C>
Net operating income........................ $ 1,218 $ (216) $ 1,002
Interest expense, net....................... (1,986) -- (1,986)
Minority interest........................... 57 (26) 31
Income taxes................................ 291 (239) 52
------- ------ -------
Net income.................................. $ (420) $ (481) $ (901)
======= ====== =======
Diluted earnings per share.................. $ (0.01) $ (0.03)
======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------
PRIOR TO EFFECT OF EITF AFTER EFFECT OF EITF
NO. 98-9 EFFECT OF EITF NO. 98-9 NO. 98-9
----------------------- ----------------------- --------------------
<S> <C> <C> <C>
Net operating income........................ $ 306 $ 3,445 $ 3,751
Interest expense, net....................... (1,037) -- (1,037)
Minority interest........................... 205 (455) (250)
Income taxes................................ 195 (1,106) (911)
------- ------- -------
Net income.................................. $ (331) $(1,884) $ 1,553
======= ======= =======
Diluted earnings per share.................. $ (0.01) $ 0.05
======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------
PRIOR TO EFFECT OF EITF AFTER EFFECT OF EITF
NO. 98-9 EFFECT OF EITF NO. 98-9 NO. 98-9
----------------------- ----------------------- --------------------
<S> <C> <C> <C>
Net operating income........................ $19,728 $ 9,910 $29,638
Interest expense, net....................... (4,530) -- (4,530)
Minority interest........................... (1,266) (842) (2,108)
Income taxes................................ (5,236) (3,735) (8,971)
------- ------- -------
Net income.................................. $ 8,696 $ 5,333 $14,029
======= ======= =======
Diluted earnings per share.................. $ 0.26 $ 0.41
======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
------------------------------------------------------------------------
PRIOR TO EFFECT OF EITF AFTER EFFECT OF EITF
NO. 98-9 EFFECT OF EITF NO. 98-9 NO. 98-9
----------------------- ----------------------- --------------------
<S> <C> <C> <C>
Net operating income........................ $15,602 $ 6,345 $21,947
Interest expense, net....................... (3,543) -- (3,543)
Minority interest........................... (1,864) (830) (2,694)
Income taxes................................ (3,772) (2,040) (5,812)
------- ------- -------
Net income.................................. $ 6,423 $ 3,475 $ 9,898
======= ======= =======
Diluted earnings per share.................. $ 0.23 $ 0.36
======= =======
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES
Total revenue increased $729.7 or 129.7% to $1,292.1 million in 1999
compared to $562.4 million in 1998. The increase in revenue is primarily the
result of an increase in the number of hotels leased. During the period
January 1, 1998 through August 3, 1998, revenue represents CapStar's management
and leasing operations. From August 3, 1998 through December 31, 1998 and for
all of 1999, revenue also includes the management and leasing operations of AGH
Leasing and American General Hospitality, Inc. As a result, the 1998 revenue was
derived from a smaller number of hotels being leased and managed throughout the
year. In addition, the significant increase in revenues from MeriStar's resort
properties is due to the acquisition of South Seas Resorts. MeriStar acquired
this portfolio of resort properties during the fourth quarter of 1998.
Therefore, there are only three months of revenue included in 1998 and a full
12 months of revenue included in 1999 from these properties.
150
<PAGE>
The revenues from MeriStar's three operating segments are as follows:
<TABLE>
<CAPTION>
REVENUES
------------------------------
HOTELS INNS RESORTS
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1999...................... $830,828 $172,295 $273,113
For the period August 3, 1998 through December 31,
1998............................................ $322,720 $ 72,267 $ 73,878
</TABLE>
The segment information for 1998 only includes five months of operations,
from August 3, 1998 (the date of the spin-off) through December 31, 1998. Since
there is a full year of operations for 1999, the 1998 segment information is not
comparable.
OPERATING EXPENSES
Operating expenses increased $720.3 million or 129.9% to $1,274.9 million in
1999 compared to $554.6 million in 1998. The increase reflects the increase in
the number of leased and managed hotels. This 129.9% increase is consistent with
the increase in revenues.
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
EBITDA increased 108.0% to $23.3 million in 1999 compared to $11.2 million
in 1998. The increase in EBITDA is due to the change in the number of hotels
operated and managed by MeriStar in 1999 compared to 1998.
EBITDA for MeriStar's three operating segments is as follows:
<TABLE>
<CAPTION>
EBITDA
------------------------------
HOTELS INNS RESORTS
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1999........................... $17,047 $6,164 $6,886
For the period August 3, 1998 through December 31,
1998................................................... $ 4,710 $ 172 $ (882)
</TABLE>
The segment information for EBITDA for 1999 includes a full year of
operations. The 1998 information only includes five months of operations, from
August 3, 1998, the date of MeriStar's spin-off from CapStar Hotel Company,
through December 31, 1998. Therefore, the 1998 segment information for EBITDA is
not comparable.
Minority interest and taxes increased by $1.8 million and $3.6 million,
respectively, due to higher operating income as compared to 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
Total revenue increased to $562.4 million in 1998 compared to $23.8 million
in 1997. The increase in revenues is primarily a result of the increase in the
number of hotels leased and managed as described above.
OPERATING EXPENSES
Operating expenses increased $533.7 million to $554.6 million in 1998
compared to $20.9 million in 1997. The increase reflects the increase in the
number of leased and managed hotels. This increase resulted in additional
personnel and other administrative costs in 1998.
151
<PAGE>
EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
EBITDA increased $7.6 million to $11.2 million in 1998 compared to
$3.6 million in 1997. The increase in EBITDA is due to the change in the number
of hotels leased and managed in 1998 compared to 1997.
LIQUIDITY AND CAPITAL RESOURCES
SOURCES OF CASH
MeriStar's continuing operations are funded through cash generated from
hotel management and leasing operations, and corporate housing operations.
MeriStar finances business acquisitions and investments in affiliates through a
combination of internally generated cash, external borrowings and the issuance
of partnership interests and/or common stock. MeriStar generated $9.8 million of
cash from operations during the first nine months of 2000.
MeriStar generated $28.1 million of cash from financing activities during
the first nine months of 2000 primarily from the following:
- MeriStar had net borrowings of $37.4 million on its credit facilities;
- MeriStar repaid $12.0 million of the BridgeStreet debt as part of its
acquisition of BridgeStreet; and
- MeriStar received $5.5 million from the issuances of its common stock.
Under the terms of the participating lease agreements with its lessors and
management agreements with MeriStar Hospitality, MeriStar's lessors will
generally be required to fund significant capital expenditures at the hotels it
leases.
USES OF CASH
MeriStar used $29.8 million of cash in investing activities during the first
nine months of 2000 primarily for the following:
- MeriStar purchased $7.1 million of fixed assets;
- MeriStar invested $8.0 million in hotel partnerships; and
- MeriStar paid $12.2 million in cash to BridgeStreet stockholders in
connection with the acquisition.
REVOLVING CREDIT FACILITIES
On August 3, 1998, MeriStar entered into a three-year, $75.0 million
revolving credit facility with MeriStar Hospitality. This loan contains
covenants regarding financial ratios, reporting requirements and other customary
restrictions. The interest rate on this loan is based on the 30-day London
Interbank Offered Rate plus 350 basis points.
On February 29, 2000, MeriStar entered into a $100.0 million senior secured
credit facility among a syndicate of banks. The credit facility bears interest
at the 30-day London InterBank Offered Rate plus 350 basis points and expires in
February 2002 with an optional one-year extension. MeriStar borrowed
$65 million to repay the borrowings outstanding under its revolving credit
agreement with MeriStar Hospitality. As of September 30, 2000, MeriStar had
$5.0 million of unused capacity under the senior secured revolving credit
facility.
Upon execution of this new credit facility, the facility with MeriStar
Hospitality was amended to reduce the maximum borrowing limit from $75 million
to $50 million.
152
<PAGE>
SUMMARY
MeriStar believes cash generated by its operations, together with
anticipated borrowing capacity under its credit facilities, will be sufficient
to fund its requirements for working capital, capital expenditures, and debt
service. MeriStar expects to continue to seek acquisitions of hotel, resort and
golf management businesses and management contracts. In addition, MeriStar
expects to expand its corporate housing business by entering new markets.
MeriStar also expects to expand its business into vacation ownership management.
MeriStar expects to finance future acquisitions through a combination of
additional borrowings under its credit facilities and the issuance of
partnership interests and/or its common stock. MeriStar believes these sources
of capital will be sufficient to provide for its long-term capital needs.
SEASONALITY
Demand in the lodging industry is affected by recurring seasonal patterns.
For non-resort properties, demand is lower in the winter months due to decreased
travel and higher in the spring and summer months during peak travel season. For
resort properties, demand is generally higher in winter and early spring. Since
the majority of MeriStar's hotels are non-resort properties, its operations
generally reflect non-resort seasonality patterns. Excluding the effect of
Emerging Issues Task Force Issue No. 98-9, "Accounting for Contingent Rent in
Interim Financial Periods", MeriStar has 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.
Corporate housing activity peaks in the summer months and declines during
the fourth quarter and the first part of the first quarter. MeriStar expects to
have lower revenue, operating income and cash flow from corporate housing in the
first and fourth quarters.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MeriStar is exposed to market risk from changes in interest rates on its
credit facilities that impacts the fair value of these obligations. MeriStar's
interest rate risk management objective is to limit the impact of interest rate
changes on earnings and cash flows and to lower its overall borrowing costs.
In April 2000, MeriStar entered into a $40 million periodic rate collar
agreement with a financial institution in order to hedge against the impact
future interest rate fluctuations may have on MeriStar's floating rate debt. The
rate collar agreement establishes the London Interbank Offered Rate at a floor
rate of 6.05% and a ceiling rate of 8.5%. During the three and nine months ended
September 30, 2000, MeriStar made no payments related to this instrument.
MeriStar's long-term debt of $95.0 million at September 30, 2000 matures in
February 2002 with an optional one-year extension. Interest on the debt is
variable, based on the 30-day London Interbank Offered Rate plus 350 basis
points. The interest rate was 10.1% at September 30, 2000. MeriStar has
determined that the fair value of the debt approximates its carrying value.
Although MeriStar conducts business in Canada and the United Kingdom, these
foreign operations were not material to its consolidated financial position,
results of operations or cash flows as of and for the three and nine months
ended September 30, 2000. Additionally, foreign currency transaction gains and
losses were not material to MeriStar's results of operations for the three and
nine months ended September 30, 2000. Accordingly, MeriStar was not subject to
material foreign currency exchange rate risk from the effects that exchange rate
movements of foreign currencies would have on its future costs or on future cash
flows it would receive from its foreign subsidiaries. To date, MeriStar has not
entered into any significant foreign currency forward exchange contracts or
other derivative financial instruments to hedge the effects of adverse
fluctuations in foreign currency exchange rates.
153
<PAGE>
BUSINESS OF MERISTAR
MeriStar leases, manages and operates a portfolio of hospitality properties
and provides related services in the hotel, corporate housing, golf, and
vacation membership markets. MeriStar is the largest independent hotel
management company in the United States, based on rooms under management. As of
September 30, 2000, MeriStar leased or managed 213 hotels containing 46,511
rooms.
MeriStar's hotels are located throughout the United States and Canada
including most major metropolitan areas and rapidly growing secondary cities.
Many of the hotels are operated under nationally recognized brand names such as
Hilton-Registered Trademark-, Sheraton-Registered Trademark-,
Westin-Registered Trademark-, Radisson-Registered Trademark-,
Marriott-Registered Trademark-, Doubletree-Registered Trademark-, Embassy
Suites-Registered Trademark-, and Holiday Inn-Registered Trademark-. MeriStar's
business strategy is to manage the renovation, repositioning and operations of
each hotel according to a business plan specifically tailored to the
characteristics of the hotel and its market.
On May 31, 2000, MeriStar completed the acquisition of BridgeStreet
Accommodations, Inc., a provider of corporate housing services in metropolitan
markets located in the United States, Canada and the United Kingdom. As of
September 30, 2000, MeriStar's corporate housing division, which continues to be
operated under the BridgeStreet name, had approximately 3,600 apartments under
lease.
MeriStar expects to capitalize on its hospitality management experience as
it continues to expand into related sectors of the hospitality industry, such as
managing resorts, conference centers, golf courses and time-share properties.
BUSINESS SEGMENTS
MeriStar operates primarily within four significant segments of the
hospitality industry:
- Hotel operations;
- Corporate housing;
- Golf management; and
- Vacation ownership.
Each division is managed separately because of its distinctive products and
services. Hotel operations and corporate housing are reportable operating
segments. In 1999, MeriStar was organized into three different operating
segments: Upscale, full-service hotels; premium limited-service hotels and inns;
and resort properties. In 2000, MeriStar reorganized its operations into the
current operating divisions. Accordingly, MeriStar reclassified the segment
information for 1999 presented in its quarterly reports on Form 10-Q during
2000. MeriStar evaluates the performance of each division based on earnings
before interest, taxes, depreciation, and amortization. The golf management and
vacation ownership segments were not reportable segments in fiscal 1999 or 2000.
The following table summarizes the segment disclosures for hotel operations
and corporate housing for the three months ended September 30:
<TABLE>
<CAPTION>
CORPORATE
HOTEL OPERATIONS HOUSING
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue.................................. $325,766 $314,344 $29,369 --
EBITDA................................... $ 713 $ 5,656 $ 3,114 --
</TABLE>
154
<PAGE>
The following are the segment disclosures for hotel operations and corporate
housing as of and for the nine months ended September 30:
<TABLE>
<CAPTION>
CORPORATE
HOTEL OPERATIONS HOUSING
--------------------- -------------------
2000 1999 2000 1999
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue................................. $1,026,825 $982,733 $38,761 --
EBITDA.................................. $ 32,848 $ 26,685 $ 3,898 --
Total assets............................ $ 171,713 $136,558 $20,992 --
</TABLE>
HOTEL OPERATIONS
EXPANSION STRATEGY
MeriStar anticipates that it will continue to expand its portfolio by
securing additional management contracts. MeriStar attempts to identify
properties that are promising management candidates located in markets with
economic, demographic and supply dynamics favorable to hotel operators. Through
its extensive due diligence process, MeriStar selects those expansion 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 MeriStar's expansion decisions and
guide subsequent renovation and operating plans.
MeriStar seeks to manage hotels that meet the following criteria:
MARKET CRITERIA
ECONOMIC GROWTH. MeriStar 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 job
formation rates, population growth rates, tourism and convention activity,
airport traffic volume, local commercial real estate occupancy, and retail sales
volume. Markets that exhibit these characteristics typically have strong demand
for hotel facilities and services.
SUPPLY CONSTRAINTS. MeriStar 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 MeriStar hotels are located in 34 states
across the nation, the District of Columbia, the U.S. Virgin Islands and Canada.
See "--Properties" for additional information regarding the MeriStar hotels.
MeriStar seeks to maintain a geographically diverse portfolio of managed hotels
to offset the effects of regional economic cycles.
HOTEL CRITERIA
LOCATION AND MARKET APPEAL. MeriStar seeks to operate hotels that are
situated near both business and leisure centers that generate a broad base of
demand for hotel accommodations and facilities. These demand generators include
airports, convention centers, business parks, shopping centers and other retail
areas, sports arenas and stadiums, major highways, tourist destinations, major
universities and cultural and entertainment centers with nightlife and
restaurants. The confluence of nearby business and leisure centers enables
MeriStar to attract both weekday business travelers and weekend leisure guests.
Attracting a balanced mix of business, group and leisure guests to the hotels
helps to maintain stable occupancy rates and high average daily rates.
155
<PAGE>
SIZE AND FACILITIES. MeriStar seeks to operate hotels that 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. MeriStar seeks to operate
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.
MeriStar expects that its relationships throughout the industry will
continue to provide it with a competitive advantage in identifying, evaluating
and managing hotels that meet its criteria. MeriStar has a record of
successfully managing the renovation and repositioning of hotels, in situations
with varying levels of service, room rates and market types, and it plans to
continue to manage such renovation programs as its acquires new management
contracts.
OPERATING STRATEGY
MeriStar's principal operating objectives are to generate higher revenue per
available room and to increase net operating income while providing its hotel
guests with high-quality service and value. MeriStar believes that skilled
management of hotel operations is the most critical element in maximizing
revenue and cash flow in hotels, especially in upscale, full-service hotels.
MeriStar's corporate headquarters carries out financing and investment
activities and provides services to support as well as monitor MeriStar's
on-site hotel operating executives. Each of MeriStar's executive departments,
including Hotel Operations, Sales and Marketing, Human Resources, Food and
Beverage, Technical Services, Information Technology, Development, Legal, Tax
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 MeriStar hotels.
Key elements of MeriStar's management programs include the following:
COMPREHENSIVE BUDGETING AND MONITORING
MeriStar's operating strategy begins with an integrated budget planning
process that is implemented by individual on-site managers and monitored by
MeriStar's corporate staff. Management sets targets for cost and revenue
categories at each of the MeriStar hotels based on historical operating
performance, planned renovations, operational efficiencies and local market
conditions. On-site managers coordinate with the corporate staff to ensure that
such targets are realistic. Through effective and timely use of its
comprehensive financial information and reporting systems, MeriStar is able to
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
MeriStar employs a systematic approach toward identifying and targeting
segments of demand for each MeriStar hotel in order to maximize market
penetration. Executives at MeriStar's corporate headquarters and property-based
managers divide such segments into smaller subsegments, typically ten or more
for each MeriStar hotel, and develop narrowly tailored marketing plans to suit
each such segment. MeriStar supports each MeriStar hotel's local sales efforts
with corporate sales executives who develop new marketing concepts and monitor
and respond to specific market needs and preferences.
156
<PAGE>
These executives are active in implementing on-site marketing programs developed
in the central management office. MeriStar employs computerized revenue yield
management systems to manage each MeriStar 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 MeriStar to
maximize revenue yields on a day-to-day basis. Sales teams are recruited locally
and receive incentive-based compensation bonuses. All of MeriStar's sales
managers complete a highly developed sales training program.
STRATEGIC CAPITAL IMPROVEMENTS
MeriStar and the hotel owners plan renovations primarily to enhance a
MeriStar hotel's appeal to targeted market segments, thereby attracting new
customers and generating increased revenue and cash flow. For example, in many
of the MeriStar hotels, the banquet and meeting spaces have been or are intended
to be renovated and guest rooms have been upgraded with computer ports and
comfortable work spaces to better accommodate the needs of business travelers
and to increase average daily rates. Capital spending decisions will be based on
both strategic needs and potential rate of return on a given capital investment.
The owners of the MeriStar hotels are responsible for funding capital
expenditures.
SELECTIVE USE OF MULTIPLE BRAND NAMES
Management believes that the selection of an appropriate franchise brand is
essential in positioning a hotel optimally within its local market. MeriStar
selects brands based on local market factors such as local presence of the
franchisor, brand recognition, target demographics and efficiencies offered by
franchisors. Management believes that its relationships with many major hotel
franchisors places MeriStar in a favorable position when dealing with those
franchisors and allows it to negotiate favorable franchise agreements with
franchisors. Management believes that its growth in acquiring management
contracts will further strengthen its relationship with franchisors.
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The following chart summarizes information with respect to the national
franchise affiliations of the MeriStar hotels as of September 30, 2000:
<TABLE>
<CAPTION>
LEASED HOTELS
(INCLUDES HOTELS OWNED BY
MERISTAR HOSPITALITY) MANAGED HOTELS
-------------------------------- ------------------------------
GUEST GUEST % OF
FRANCHISE ROOMS HOTELS % OF ROOMS ROOMS HOTELS ROOMS
--------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Hilton(-Registered Trademark-)................... 6,309 23 18.01% 1,378 5 12.00%
Sheraton(-Registered Trademark-)................. 3,502 10 10.00% 1,213 4 10.56%
Radisson(-Registered Trademark-)................. 3,460 12 9.88% 1,021 3 8.89%
Holiday Inn(-Registered Trademark-).............. 2,754 13 7.86% 623 4 5.42%
Independent...................................... 2,048 12 5.85% 1,348 12 11.73%
Hampton Inn(-Registered Trademark-).............. 1,846 15 5.27% -- -- 0.00%
Doubletree(-Registered Trademark-)............... 1,729 5 4.94% 488 2 4.25%
Courtyard by Marriott(-Registered Trademark-).... 1,642 9 4.69% 162 1 1.41%
Comfort Inn(-Registered Trademark-).............. 1,293 9 3.69% 194 1 1.69%
Westin(-Registered Trademark-)................... 1,289 4 3.68% 226 1 1.97%
Holiday Inn Select(-Registered Trademark-)....... 1,244 4 3.55% 284 1 2.47%
Marriott(-Registered Trademark-)................. 1,211 3 3.46% 323 1 2.81%
Wyndham(-Registered Trademark-).................. 849 3 2.42% 221 1 1.92%
Homewood Suites(-Registered Trademark-).......... 795 7 2.27% 0 -- 0.00%
Embassy Suites(-Registered Trademark-)........... 728 3 2.08% 760 3 6.62%
Crowne Plaza(-Registered Trademark-)............. 715 3 2.04% 318 1 2.77%
Doral(-Registered Trademark-).................... 575 2 1.64% 280 1 2.44%
Hilton Garden Inn(-Registered Trademark-)........ 474 3 1.35% 715 3 6.22%
Ramada(-Registered Trademark-)................... 407 2 1.16% 459 3 4.00%
Doubletree Guest
Suites(-Registered Trademark-)................. 292 2 0.83% -- -- 0.00%
Renaissance(-Registered Trademark-).............. 289 1 0.83% -- -- 0.00%
Best Western(-Registered Trademark-)............. 254 2 0.73% 75 1 0.65%
Comfort Suites(-Registered Trademark-)........... 215 1 0.61% 238 2 2.07%
Four Points(-Registered Trademark-).............. 213 1 0.61% -- -- 0.00%
Holiday Inn Express(-Registered Trademark-)...... 208 2 0.59% -- -- 0.00%
Residence Inn(-Registered Trademark-)............ 168 1 0.48% 342 3 2.98%
Quality Suites(-Registered Trademark-)........... 168 1 0.48% 281 2 2.45%
Hampton Inn & Suites(-Registered Trademark-)..... 136 1 0.39% -- -- 0.00%
Fairfield Inn(-Registered Trademark-)............ 110 1 0.31% 200 1 1.74%
Howard Johnson(-Registered Trademark-)........... 100 1 0.29% -- -- 0.00%
Quality Inn(-Registered Trademark-).............. -- -- 0.00% 165 1 1.44%
Hilton Suites(-Registered Trademark-)............ -- -- 0.00% 174 1 1.51%
------ --- ------ ------ --- ------
Total.......................................... 35,023 156 100.00% 11,488 57 100.00%
====== === ====== ====== === ======
</TABLE>
EMPHASIS ON FOOD AND BEVERAGE
Management believes popular food and beverage ideas are a critical component
in the overall success of a hotel. MeriStar 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.
MeriStar 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. MeriStar has engaged food and
beverage experts to develop several proprietary restaurant concepts. MeriStar
has also successfully placed national food franchises such as Pizza
Hut-Registered Trademark- and "TCBY"-Registered Trademark- Yogurt in several of
the hotels it manages. MeriStar believes that popular food concepts will
strengthen its ability to attract business travelers and group meetings and
improve the name recognition of the MeriStar hotels.
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COMMITMENT TO SERVICE AND VALUE
MeriStar is dedicated to providing exceptional service and value to its
customers on a consistent basis. MeriStar conducts extensive employee training
programs to ensure personalized service at the highest levels. Programs have
been created and implemented to ensure the effectiveness and uniformity of its
employee training. MeriStar'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. MeriStar's
focus on these areas has enabled it to attract lucrative group business.
DISTINCT MANAGEMENT CULTURE
MeriStar has a distinct management culture that stresses creativity, loyalty
and entrepreneurship. 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
MeriStar employs computerized reporting systems at each of the MeriStar
hotels and at its corporate offices to monitor the financial and operating
performance of the hotels. Management information services have been fully
integrated through networks at many of the hotels. Management also utilizes
daily reporting and electronic mail programs to facilitate daily communication
between the MeriStar hotels and MeriStar's corporate headquarters. Such programs
enable MeriStar to create and implement detailed reporting systems at each of
the MeriStar hotels and its corporate headquarters. Corporate executives utilize
information systems that track each MeriStar hotel's daily occupancy, average
daily rates, 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.
EFFECT OF RECENT FEDERAL TAX LEGISLATION
MeriStar manages 106 hotels owned by MeriStar Hospitality Corporation, a
real estate investment trust focused on the ownership of upscale, first-class
hotel properties.
In order for MeriStar Hospitality to maintain its tax status as a real
estate investment trust, MeriStar Hospitality has not been permitted to engage
in the operations of its hotel properties. To comply with this requirement,
MeriStar Hospitality has leased most of its real property to MeriStar as a
third-party lessee/manager. In December 1999, amendments to the Internal Revenue
Code were enacted that now permit MeriStar Hospitality to create a taxable REIT
subsidiary, which will be subject to taxation similar to a subchapter C
corporation. The taxable subsidiary will be allowed to lease the real property
owned by MeriStar Hospitality.
The 1999 Internal Revenue Code amendments permit MeriStar Hospitality to
utilize a taxable REIT subsidiary beginning January 1, 2001. Also, although this
taxable subsidiary can lease real property, it will be prohibited from managing
the leased properties itself; it will need to enter into an "arms length"
management agreement with an independent third-party manager that is actively
involved in the trade or business of hotel management and manages properties on
behalf of other owners. MeriStar is a qualified independent third party manager.
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MeriStar has agreed to assign its leases of hotels owned by MeriStar
Hospitality to taxable subsidiaries of MeriStar Hospitality effective
January 1, 2001 and to enter into management contracts with respect to those
hotels with those subsidiaries. Under the management agreements, MeriStar
receives a management fee based on total hotel revenue that is subject to
increase based on the achievement of specified operating thresholds. The
management agreements have been structured to substantially mirror the current
economics and terms of the existing leases.
MANAGEMENT AGREEMENTS
The management agreements with MeriStar Hospitality on the 106 hotels
formerly leased by MeriStar will have initial terms of 10 years. Each management
agreement provides for three renewal options of five years each, provided that:
- A renewal will not go into effect if a change in the federal tax law has
occurred that would permit MeriStar Hospitality or one of its affiliates
to operate the hotel directly without adversely affecting MeriStar
Hospitality's qualification as a real estate investment trust; and
- The manager can elect not to renew a management agreement.
Under the master fee agreement with respect to the MeriStar Hospitality
hotels, MeriStar is paid a management fee equal to a specified percentage of
aggregate hotel operating revenues plus or minus 20% of the positive or negative
difference, respectively, between the actual and the projected excess of total
operating revenues over total operating expenses for the applicable period. The
master fee agreement provides that the total management fee for any fiscal year
shall not be less than 2.5% of the aggregate hotel operating revenues and shall
not be greater than 4% of aggregate hotel operating revenues.
TERMINATION
MeriStar Hospitality has the right to terminate a management agreement for a
hotel upon the sale of the hotel to a third party or upon MeriStar Hospitality's
determination not to rebuild after a casualty, upon payment to the manager of
the fair market value of the management agreement. The fair market value is
determined by discounting to present value at a discount rate of 10% per annum
the management fees for each remaining year of the then current term, which fees
will be deemed to be the fees payable to the manager under the management
agreement for the 12-month period preceding the termination date. MeriStar
Hospitality will receive as a credit against any termination payments an amount
equal to any outstanding new management credits, which generally means the
projected fees, discounted to present value on the same basis as the termination
payment, under any new management agreements or leases entered into between
MeriStar and MeriStar Hospitality after August 3, 1998, the date the existing
leases were initially executed.
PERFORMANCE STANDARDS
MeriStar Hospitality has the right to terminate the applicable management
agreement if, in each of any two consecutive fiscal years, the gross operating
profit from a hotel is less than 85% or 90%, respectively, of the projected
amount for such year as set forth in the applicable budget unless:
- MeriStar Hospitality did not materially comply with the capital
expenditures contemplated by the budget for either or both of the
applicable years; or
- The manager cures the shortfall by agreeing to credit the succeeding
year's management fee by the difference between the operating profit that
would have been realized had the property achieved 90% of the budgeted
amount in the second fiscal year and the amount realized for that year
based on actual operating profit. The manager can only utilize the cure
right once during the term of the management agreement for a hotel.
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ASSIGNMENT
MeriStar does not have the right to assign a management agreement without
the prior written consent of MeriStar Hospitality. A change in control of
MeriStar or the manager or their affiliates will be deemed an assignment and
will require MeriStar Hospitality's consent, which may be granted or withheld in
its sole discretion.
OTHER LEASES AND MANAGEMENT AGREEMENTS
In addition to the managment agreements on the 106 MeriStar Hospitality
owned hotels, MeriStar leases 50 hotels from Winston Hotels, Inc. and other
third parties, and manages an additional 108 hotels for other third parties.
CORPORATE HOUSING
EXPANSION STRATEGIES
MeriStar's corporate housing division, which continues to operate under the
BridgeStreet name, is a leading international provider of flexible accommodation
services. Key elements of BridgeStreet's business strategy include:
LOCAL MARKET SHARE
BridgeStreet has offices in many markets that offer significant opportunity
for expansion. In order to expand in these markets, MeriStar, since its
May 2000 acquisition of BridgeStreet, has trained all of its BridgeStreet sales
employees in MeriStar's sales and marketing techniques. With a better-trained
sales force and MeriStar's management experience, MeriStar believes that
BridgeStreet will be in a better position to penetrate local markets and
increase its market share.
GROWTH THROUGH NATIONAL ACCOUNTS
MeriStar believes that there is substantial growth potential for
BridgeStreet through national accounts. BridgeStreet's current customers include
a significant number of large national companies who utilize BridgeStreet's
services in a limited, but loyal, manner. MeriStar plans to maximize sales to
those existing corporate clients and to obtain new clients through a national
sales and marketing program which promotes the BridgeStreet brand and highlights
BridgeStreet's expanding national and international network, as well as
BridgeStreet's ability to serve as a central point of contact on all issues.
Many of BridgeStreet's clients are Fortune 2000 companies with significant
national and international employee lodging requirements.
GROWTH THROUGH NETWORK PARTNER RELATIONSHIPS
BridgeStreet has developed a network partner relationship with flexible
accommodation service providers in the United States and in 22 countries
worldwide. Through network partner agreements, BridgeStreet has expanded the
number of locations where it can serve its clients' needs. In some additional
markets, BridgeStreet intends to enter into network partner agreements with one
or more leading local or regional flexible accommodation service providers
having the size and quality of operations suitable for serving BridgeStreet's
client base.
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ACCOMMODATIONS AND SERVICES
ACCOMMODATIONS
MerStar's BridgeStreet brand offers high-quality, fully-furnished one-, two-
and three-bedroom accommodations that, together with the specialized amenities
offered by BridgeStreet, are intended to provide guests with a "home away from
home." MeriStar selects its BridgeStreet accommodations based on location,
general condition and basic amenities, with the goal of providing accommodations
that meet each guest's particular needs. As a flexible accommodation services
provider, BridgeStreet can satisfy client requests for accommodations in a
variety of locations and neighborhoods, including requests for proximity to an
office, school or area attraction, as well as requests for accommodations of
specific types and sizes. The substantial majority of BridgeStreet's
accommodations are located within high-quality property complexes that typically
feature in-unit washers and dryers, dedicated parking, and access to fitness
facilities, including, in many cases, pools, saunas and tennis courts. Standard
furnishings typically include, among other things, cable television, answering
machines and clock radios. BridgeStreet also is able to customize its
accommodations at a guest's request with items such as office furniture, fax
machines and computers.
MeriStar leases substantially all of its BridgeStreet accommodations through
flexible, short-term leasing arrangements in order to match its supply of
accommodations with client demand. MeriStar believes that BridgeStreet's
flexible leasing strategy allows it to react to changes in market demand for
particular geographic locations and types of accommodations. BridgeStreet
management strives to develop strong relationships with property managers to
ensure that it has a reliable supply of high quality, conveniently located
accommodations. In addition, MeriStar leases the majority of the furniture for
BridgeStreet's accommodations on a short-term basis ordinarily from major
furniture rental companies.
BridgeStreet's accommodations generally are priced competitively with
all-suite or upscale extended-stay hotel rooms even though, on average, MeriStar
believes its BridgeStreet accommodations are substantially larger. BridgeStreet
believes it generally is able to price its accommodations competitively due to:
- The high quality of its accommodations;
- Its relatively low operating cost structure; and
- Its ability to lease accommodations in accordance with demand and leave
unfavorable markets quickly.
The length of a guest's stay can range from a few nights to a few years, with
the typical stay ranging from 30 to 45 days.
CORPORATE CLIENT SERVICES
BridgeStreet's goal is to provide valuable, cost-effective services to its
corporate clients, many of which have human resource directors, relocation
managers or training directors with significant, national employee lodging
requirements. In particular, BridgeStreet aims to relieve its clients of the
administrative burden often associated with relocating employees and/or
providing them with temporary housing.
BridgeStreet believes that existing and potential clients will increasingly
turn to outside providers such as BridgeStreet to satisfy their employee lodging
requirements as their awareness of BridgeStreet and the flexible accommodation
services industry increases.
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GUEST SERVICES
BridgeStreet strives to provide the highest quality of customer service by
overseeing all aspects of a guest's lodging experience, from preparations prior
to the guest's arrival to the moving out process. BridgeStreet maintains a
representative in each city in which it operates to be responsive to guests'
needs. BridgeStreet's guest services department offers guests comprehensive
information services before and during their stays to help guests acclimate
themselves to their new surroundings.
At the expiration of his or her stay, the guest is asked to complete a guest
satisfaction survey evaluating his or her stay and is encouraged to contact
BridgeStreet whenever the guest needs accommodations in other locations where
BridgeStreet provides services. The guest's evaluation form is thoroughly
reviewed and, if applicable, a copy is sent to the corporate client.
BridgeStreet's historic guest evaluations indicate that it meets or exceeds
guest expectations 98% of the time.
SALES AND MARKETING
BridgeStreet focuses primarily on business-to-business selling. At the local
level, each of BridgeStreet's operating subsidiaries has corporate account
specialists that call on local companies, including local branches of regional
or national companies, to solicit business. Each account specialist focuses his
or her efforts on the key decision makers at each company responsible for
establishing and administering travel and accommodation policies, typically
human resource directors, relocation managers or training directors. By
aggressively pursuing relationships with potential clients and expanding
services to existing clients, BridgeStreet seeks to become each client's primary
or sole provider of flexible accommodation services nationwide. MeriStar
operates a global BridgeStreet sales office to market its nationwide
capabilities to its local corporate clients. In addition, MeriStar has expanded
BridgeStreet's Internet presence to supplement traditional marketing strategies
and to better serve its customers.
BridgeStreet tailors its marketing strategy to the needs of particular
clients. For example, BridgeStreet markets itself to a corporation with
relocating employees by focusing on its ability to situate large families in
apartments with three or more bedrooms, its access to accommodations in both
metropolitan and suburban settings, and its access to accommodations that allow
pets. In contrast, when marketing to a potential corporate client having
consultants in need of short-term housing, BridgeStreet emphasizes its flexible
lease terms and its ability to customize an accommodation with amenities such as
office equipment, including computers, additional telephone lines and other
work-related items.
BridgeStreet intends to continue an advertising program designed to enhance
the BridgeStreet name both inside and outside the flexible accommodation
services industry and broaden its client base. In addition, BridgeStreet
promotes its brand name by advertising in trade publications, Chamber of
Commerce listings, local visitor magazines and telephone directories and the
Internet, and through periodic direct mail campaigns.
EXPANSION INTO RELATED SECTORS OF THE HOSPITALITY INDUSTRY
MeriStar expects to capitalize on its hospitality management experience as
it continues to expand into related sectors of the hospitality industry, such as
managing resorts, conference centers, golf courses and timeshare properties.
MeriStar believes these parts of the hospitality industry are currently
characterized by fragmented, relatively smaller management companies without the
broad range of management, operational, and financial resources MeriStar
possesses. By bringing its expertise in other property management activities,
MeriStar believes it can realize significant economic benefit for the owners of
such properties through increased profitability of the properties' operations.
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THE OPERATING PARTNERSHIP
Substantially all of MeriStar's assets are held indirectly by MeriStar H&R
Operating Company, L.P., MeriStar's subsidiary operating partnership. MeriStar
is the sole general partner of that partnership, and MeriStar, one director of
MeriStar and approximately 85 independent third-parties are limited partners of
that partnership. The partnership agreement gives the general partner full
control over the business and affairs of the partnership. MeriStar, as general
partner, is also given the right, in connection with the contribution of
property to the partnership or otherwise, to issue additional partnership
interests in the partnership 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 it may
determine.
The partnership agreement currently has three classes of limited partnership
interests: Class A units, Class B units and Preferred units. The ownership of
the limited partnership units is as follows:
- MeriStar and its wholly-owned subsidiaries own a number of Class A units
equal to the number of then-outstanding shares of MeriStar common stock.
- A director of MeriStar owns 1,073,929 Class B units.
- Other limited partners own 561,614 Class A units, 1,275,607 Class B units
and 392,157 Preferred units.
No distributions were made during 2000, 1999 or 1998 to the holders of the
Class A units and Class B units. Preferred units receive a 6.5% cumulative
annual preferred return based on an assumed price per share of MeriStar common
stock of $3.34, compounded quarterly to the extent not paid on a current basis.
All net income and capital proceeds earned by the partnership, after payment of
the annual preferred return and, if applicable, the liquidation preference, will
be shared by the holders of the Class A units and Class B units in proportion to
the number of units owned by each holder.
Each Class A or Class B unit not held by MeriStar or a MeriStar subsidiary
is redeemable by the holders for cash equal to the value of one share of
MeriStar common stock or, at the partnership's option, one share of MeriStar
common stock. Until April 1, 2004, the partnership may redeem the Preferred
units for cash at a price of $3.34 per unit or, at the partnership's option,
MeriStar common stock having equivalent aggregate value. After April 1, 2004,
each holder of the Preferred units may require the partnership to redeem these
units for cash at a price of $3.34 per unit or, at the holder's option, MeriStar
common stock having equivalent aggregate value.
EMPLOYEES
As of November 30, 2000, MeriStar employed approximately 30,000 persons, of
whom approximately 27,000 were compensated on an hourly basis. Some of the
employees at 24 of the hotels are represented by labor unions. Management
believes that labor relations with its employees are generally good.
FRANCHISES
MeriStar employs a flexible branding strategy based on a particular hotel's
market environment and the hotel's unique characteristics. Accordingly, MeriStar
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. MeriStar believes
that it is substantially in compliance with these requirements. Managers of
hotels and
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providers of flexible accommodation services are also subject to laws governing
their relationships 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 hotel
operations division and BridgeStreet and could otherwise adversely affect
MeriStar's operations.
AMERICANS WITH DISABILITIES ACT. Under the Americans with Disabilities Act,
all public accommodations are required to meet various 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 federally
required upgrades to the hotels and units leased by BridgeStreet, a
determination that MeriStar is not in compliance with the Americans with
Disabilities Act could result in a judicial order requiring compliance,
imposition of fines or an award of damages to private litigants. MeriStar is
likely to incur additional costs of complying with the Americans with
Disabilities Act. Those costs, however, are not expected to have a material
adverse effect on MeriStar's results of operations or financial condition.
ENVIRONMENTAL LAWS. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of hazardous
or toxic substances on, under or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances. In addition, the presence of
hazardous or toxic substances, or the failure to remediate such property
properly, may adversely affect the owner's ability to use the property, sell the
property or borrow by using such real property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is or ever was
owned or operated by such person. The operation and removal of underground
storage tanks are also regulated by federal and state laws. In connection with
the operation of the MeriStar hotels, MeriStar could be liable for the costs of
remedial action with respect to such regulated substances and storage tanks and
claims related thereto. Environmental laws and common law principles could also
be used to impose liability for releases of hazardous materials, including
asbestos-containing materials, into the environment, and third parties may seek
recovery from owners or operators of real properties for personal injury
associated with exposure to released asbestos-containing materials or other
hazardous materials.
Phase I environmental site assessments have been conducted at all of the
hotels owned by MeriStar Hospitality, and Phase II environmental site
assessments have been conducted at some of these hotels by qualified independent
environmental engineers. The purpose of the environmental site assessments is to
identify potential sources of contamination for which MeriStar may be
responsible and to assess the status of environmental regulatory compliance.
These assessments have not revealed any environmental liability or compliance
concerns that MeriStar believes would have a material adverse effect on its
business, assets, results of operations or liquidity, nor is MeriStar aware of
any material environmental liability or concerns. Nevertheless, it is possible
that these environmental site assessments did not reveal all environmental
liabilities or compliance concerns or that material environmental liabilities or
compliance concerns exist of which MeriStar is currently unaware.
In reliance upon the Phase I and Phase II environmental site assessments,
MeriStar believes the hotels owned by MeriStar Hospitality are in material
compliance with all federal, state and local ordinances and regulations
regarding hazardous or toxic substances and other environmental matters.
MeriStar has not been notified by any governmental authority of any material
noncompliance, liability or claim relating to hazardous or toxic substances or
other environmental substances in any of the hotels owned by MeriStar
Hospitality.
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OTHER REGULATION. As a lessee of its accommodations, MeriStar's corporate
housing division believes that it and its employees are either outside the
purview of, exempted from or in compliance with laws in the jurisdictions in
which BridgeStreet operates requiring real estate brokers to hold licenses.
However, there can be no assurance that BridgeStreet's position in any
jurisdiction where it believes itself to be excepted or exempted would be upheld
if challenged or that any such jurisdiction will not amend its laws to require
BridgeStreet and/or one or more of its employees to be licensed brokers.
Moreover, there can be no assurance that BridgeStreet will not operate in the
future in additional jurisdictions requiring such licensing.
In some of the jurisdictions in which BridgeStreet operates, BridgeStreet
believes that it is not required to charge guests the sales and "bed" taxes that
are applicable to establishments furnishing rooms to transient guests. There can
be no assurance, however, that the tax laws in particular jurisdictions will not
change or that a tax collection agency will not successfully challenge
BridgeStreet's position regarding the applicability of tax laws. BridgeStreet
believes that it properly charges and remits such taxes in all jurisdictions
where it is required to do so.
COMPETITION
MeriStar competes primarily in the following segments of the lodging
industry: the upscale and mid-priced sectors of the full-service segment, the
limited-service segment and resorts. MeriStar also competes with other providers
of flexible accommodation services. In each geographic market in which the
MeriStar hotels are located, there are other full- and limited-service hotels
and resorts that compete with the MeriStar hotels. Competition in the U.S.
lodging industry is based generally on convenience of location, brand
affiliation, price, availability, range of services and guest amenities or
accommodations offered, and quality of customer service and overall product.
PROPERTIES
MeriStar maintains its corporate headquarters in Washington, D.C. with other
corporate offices in Florida, North Carolina and Texas. MeriStar leases its
offices. MeriStar leases and/or manages hotel properties and golf courses
throughout the United States and Canada. No one leased or managed hotel property
is material to the operation of MeriStar. A typical full-service MeriStar hotel
has meeting and banquet facilities, food and beverage facilities and guest rooms
and suites. Additionally, MeriStar's golf management operations are currently
not material to the operation of MeriStar.
The hotels owned by MeriStar Hospitality generally feature, or after
contemplated 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. The following tables set forth
the 1999 and 1998 operating information with respect to the hotels owned and
leased by MeriStar Hospitality:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1999 YEAR ENDED DECEMBER 31, 1999
-------------------- -------------------------------
NUMBER OF GUEST
TYPE HOTELS ROOMS ADR OCCUPANCY REVPAR
---- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Inns........................... 56 7,674 $ 75.94 71.2% $54.06
Hotels......................... 82 22,219 96.45 70.9% 68.39
Resorts........................ 23 5,762 119.86 73.7% 88.38
--- ------ ------- ---- ------
Total/weighted average....... 161 35,655 $ 96.24 71.4% $68.74
=== ====== ======= ==== ======
</TABLE>
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<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998 YEAR ENDED DECEMBER 31, 1998
-------------------- -------------------------------
NUMBER OF GUEST
TYPE HOTELS ROOMS ADR OCCUPANCY REVPAR
---- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Inns............................ 57 8,299 $72.93 74.2% $54.12
Hotels.......................... 83 22,365 94.28 71.3% 67.22
Resorts......................... 22 5,002 97.44 70.7% 68.89
--- ------ ------ ---- ------
Total/weighted average........ 162 35,666 $90.12 71.8% $64.71
=== ====== ====== ==== ======
</TABLE>
The following tables set forth the operating information with respect to the
hotels managed by MeriStar as of December 31:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
NUMBER GUEST NUMBER GUEST
TYPE OF HOTELS ROOMS OF HOTELS ROOMS
---- --------- -------- --------- --------
<S> <C> <C> <C> <C>
Inns........................................ 27 3,547 27 3,857
Hotels...................................... 18 4,519 11 2,620
Resorts..................................... 9 1,627 3 323
-- ----- -- -----
Total..................................... 54 9,693 41 6,800
== ===== == =====
</TABLE>
LEGAL PROCEEDINGS
In the course of MeriStar's normal business activities, various lawsuits,
claims and proceedings have been or may be instituted or asserted against
MeriStar. 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 MeriStar.
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COMPARISON OF THE RIGHTS OF HOLDERS OF
AMERICAN SKIING COMMON STOCK, MERISTAR COMMON STOCK
AND DORAL COMMON STOCK
MeriStar and American Skiing are Delaware corporations. "Doral
International, Inc." will be the name of American Skiing after the merger. The
rights of the stockholders of each corporation are or will be governed by that
corporation's certificate of incorporation, its bylaws and Delaware law,
including the Delaware General Corporation Law.
The following is a summary of the material differences among the rights of
the holders of MeriStar common stock, American Skiing common stock and Doral
common stock. Because MeriStar, American Skiing and Doral are or will be
Delaware corporations, these differences arise principally from differences in
the provisions of each's respective certificates of incorporation and bylaws.
The following summary does not purport to be a complete comparison of the
rights of MeriStar stockholders, American Skiing stockholders and Doral
stockholders. Further, the following summary does not purport to be a complete
description of the specific provisions referred to in this section. In addition,
the identification of specific differences is not meant to indicate that other
equally or more significant differences do not exist. However, the following
summary includes a description of those differences that we believe to be
material. These summaries are qualified in their entirety by reference to the
governing corporate instruments of MeriStar and American Skiing. The certificate
of incorporation and bylaws of American Skiing have been filed with the SEC as
Exhibits 3.1 and 3.2, respectively, to the annual report of American Skiing on
Form 10-K for the fiscal year ended July 25, 1999. The certificate of
incorporation and bylaws of MeriStar have been filed with the SEC as Exhibits
3.1 and 3.2, respectively, to MeriStar's registration statement on Form S-1
(File no. 333-49881). The form of Doral's certificate of incorporation and
bylaws, which are proposed to be approved and adopted at the American Skiing
special meeting of stockholders, are attached as Annexes A and B, respectively,
to the merger agreement that is attached to this joint proxy statement and
prospectus as Appendix A.
AUTHORIZED CAPITAL STOCK
MERISTAR
The authorized capital stock of MeriStar as of the date of this joint proxy
statement and prospectus consists of 110,000,000 shares divided into 100,000,000
shares of MeriStar common stock and 10,000,000 shares of MeriStar preferred
stock. The par value of all of MeriStar's stock is $0.01 per share.
AMERICAN SKIING
The authorized capital stock of American Skiing as the date of this joint
proxy statement and prospectus consists of 115,500,000 shares divided into
100,000,000 shares of American Skiing common stock, 15,000,000 shares of
American Skiing Class A common stock and 500,000 shares of American Skiing
serial preferred stock. The par value of all of American Skiing's stock is $0.01
per share.
DORAL
The total number of shares of stock that Doral will have the authority to
issue is 300,000,000, divided into of 299,000,000 shares of common stock, and
1,000,000 shares of serial preferred stock. The par value of all of Doral's
stock will be $0.01 per share.
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DIVIDEND RIGHTS
MERISTAR
Under Delaware law, subject to the rights of any holders of shares of
MeriStar preferred stock, the holders of shares of MeriStar common stock are
entitled to receive all lawful dividends that are declared by the board of
directors.
AMERICAN SKIING
The American Skiing certificate of incorporation provides that the holders
of the Class A common stock and common stock are entitled to dividends on a pro
rata basis as may be declared by the board of directors, subject to the other
provisions of the certificate of incorporation, including the rights of the
holders of the Series A and Series B preferred stock to receive dividends.
DORAL
The Doral certificate of incorporation will provide that, except as
otherwise provided by the resolution or resolutions providing for the issue of
any series of shares of serial preferred stock, the holders of shares of Doral
common stock will be entitled, on a pro rata basis, to whatever dividends may be
declared from time to time by the board of directors, subject to the other
provisions of the certificate of incorporation. To the extent that dividends on
the Doral new 14% preferred stock are due and payable, no dividends on the
common stock or stock junior to the new 14% preferred stock may be paid until
the dividends on the new 14% preferred stock are paid in full.
PREEMPTIVE RIGHTS
Neither MeriStar nor American Skiing stockholders have preemptive rights.
Doral stockholders will not have preemptive rights.
LIQUIDATION RIGHTS
MERISTAR
MeriStar's certificate of incorporation contains no specific provisions with
respect to a liquidation, dissolution or winding-up of MeriStar. Sections 281
and 151 of the Delaware General Corporation Law, however, provide that upon
liquidation, dissolution, or winding-up of MeriStar, all of the remaining assets
of MeriStar will be distributed to its stockholders in accordance with any
preferences or rights of any particular classes of MeriStar's stock.
AMERICAN SKIING
American Skiing's certificate of incorporation provides that in the event of
the liquidation, dissolution or winding-up of American Skiing, whether voluntary
or involuntary, American Skiing Class A common stockholders and American Skiing
common stockholders, without regard to which class of shares they hold, are
entitled to the net assets of American Skiing remaining after distributions to
the holders of shares of American Skiing serial preferred stock.
DORAL
Doral's certificate of incorporation will contain provisions concerning
liquidation rights that are substantially similar to those contained in American
Skiing's certificate of incorporation.
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VOTING RIGHTS OF STOCKHOLDERS
MERISTAR
MeriStar's bylaws provide that except as otherwise required by Delaware law,
MeriStar's certificate of incorporation or MeriStar's bylaws, the holders of
one-third of all outstanding shares of stock entitled to vote at any meeting of
stockholders, present in person or represented by proxy, constitutes a quorum at
any meeting of stockholders for the transaction of business. If a quorum exists,
approval of a matter or proposal requires the affirmative vote of a majority of
the outstanding shares entitled to vote who are present, in person or by proxy,
at the meeting, except as required by Delaware law, MeriStar's certificate of
incorporation or MeriStar's bylaws. MeriStar's certificate of incorporation and
bylaws do not provide for cumulative voting.
AMERICAN SKIING
American Skiing's bylaws provide that the holders of a majority of the
shares entitled to vote constitutes a quorum at a meeting of stockholders.
Except as otherwise provided by Delaware law, any corporate action must be
authorized by a majority of the votes cast at the meeting by the holders of
shares entitled to vote on the subject matter. American Skiing's certificate of
incorporation and bylaws do not provide for cumulative voting.
DORAL
Doral's bylaws will contain provisions concerning voting rights that are
substantially similar to those in MeriStar's bylaws.
STOCKHOLDER ACTION BY WRITTEN CONSENT
MERISTAR
The certificate of incorporation of MeriStar prohibits stockholder action by
written consent in lieu of a stockholder meeting.
AMERICAN SKIING
The certificate of incorporation of American Skiing does not prohibit
stockholder action by written consent in lieu of a stockholder meeting.
DORAL
The certificate of incorporation of Doral will prohibit stockholder action
by written consent in lieu of a stockholder meeting.
SPECIAL MEETINGS OF STOCKHOLDERS
MERISTAR
MeriStar's bylaws provide that a special meeting of stockholders other than
a special meeting for the election of directors, unless otherwise prescribed by
statute, may be called at any time only by the Chairman, the Vice Chairman, the
Secretary, the President or by a majority of the directors. At any special
meeting of stockholders only business that is related to the purpose or purposes
of the meeting as set forth in the notice of the meeting or in any waiver of
notice may be transacted. Any power of stockholders to call a special meeting is
specifically denied.
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AMERICAN SKIING
Special meetings of stockholders for any purpose or purposes may be called
to be held at the date and time fixed in the call by the president, the chairman
of the board of directors, a majority of the board of directors, or the holders
of not less than 50% of the shares entitled to vote at the meeting.
DORAL
Doral's bylaws will contain provisions relating to special meetings of
stockholders that are substantially the same as those contained in MeriStar's
bylaws.
AMENDMENT OF THE CERTIFICATE OF INCORPORATION AND BYLAWS
Under Delaware law, the amendment of a corporation's certificate of
incorporation requires the affirmative vote of the holders of a majority of the
corporation's stock, unless the certificate of incorporation of the corporation
otherwise provides. Under Delaware law, an amendment to a corporation's bylaws
requires the approval of the stockholders, unless the certificate of
incorporation confers the power to amend the bylaws upon the board of directors.
MERISTAR
MeriStar's certificate of incorporation provides that the affirmative vote
of two-thirds of all votes entitled to be cast by the holders of all then
outstanding shares of capital stock of MeriStar in an election of directors at
an annual or special meeting of stockholders is required for any amendment to
portions of the certificate of incorporation dealing with:
- Classes of directors;
- Directors' terms of office;
- Vacancies on the board of directors;
- Filling vacancies and newly-created directorships;
- Removal of directors;
- Directors nominated by holders of preferred stock;
- Indemnification of directors and officers; and
- The vote requirement for amendments to the certificate of incorporation
and bylaws.
MeriStar's certificate of incorporation provides that a majority of the
board of directors may amend MeriStar's bylaws. In addition, MeriStar's
certificate of incorporation provides that, with some exceptions, all of
MeriStar's bylaws may also be amended upon the affirmative vote of a majority of
all votes entitled to be cast by all then outstanding shares of stock of
MeriStar in the election of directors at an annual or special meeting of
stockholders. If enacted by stockholders, amendments to or adoption of bylaws
inconsistent with, bylaws dealing with the procedure for calling special
meetings of stockholders, advance notice for stockholder proposals and directors
of MeriStar, require the affirmative vote of two-thirds of all votes entitled to
be cast by all then outstanding shares of stock of MeriStar in the election of
directors at an annual or special meeting of stockholders.
AMERICAN SKIING
Subject to American Skiing's bylaws, the board of directors has the power to
alter, amend or repeal the bylaws and to adopt new bylaws, provided that the
notice, unless notice is waived, of any regular or special meeting at which
those actions are to be taken sets out the text of the proposed new bylaw or
amendment or bylaw to be repealed or summarizes the changes to be effected by
the
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adoption, amendment or repeal. The American Skiing stockholders may amend or
repeal a bylaw provision adopted by the American Skiing board of directors, and
in such a case, the board of directors may not, for two years after that, amend
or readopt the bylaw provision amended or repealed by the stockholders.
Amendments to American Skiing's certificate of incorporation or bylaws, whether
by merger, consolidation or otherwise, that affect adversely the rights and
privileges of the Series A preferred stock require the affirmative vote of a
majority of the holders of the Series A preferred stock, voting as a single
class. The certificate of designation of the Series B preferred stock contains a
similar provision.
The stockholders' agreement will terminate upon completion of the merger.
DORAL
Doral's certificate of incorporation will contain provisions relating to the
amendment of the certificate of incorporation and bylaws of Doral that are
substantially similar to those contained in MeriStar's certificate of
incorporation. However, the certificate of designation of the new 14% preferred
stock will provide that amendments to Doral's certificate of incorporation or
bylaws, whether by merger, consolidation or otherwise, that affect adversely the
rights and privileges of the new 14% preferred stock will require the
affirmative vote of a majority of the holders of the new 14% preferred stock,
voting as a single class.
NUMBER AND CLASSIFICATION OF THE BOARD OF DIRECTORS
MERISTAR
MeriStar's certificate of incorporation provides that MeriStar's board of
directors will consist of not less than three nor more than 15 members. The
number of directors is set by a majority of the board of directors. There are
three classes of directors with staggered terms. Directors may be elected at an
annual or special meeting of stockholders. The terms of office of the current
Class I, Class II and Class III directors will expire at the annual meeting of
MeriStar stockholders to be held following the end of MeriStar's 2001, 2002 and
2000 fiscal years, respectively. Vacancies on the board of directors are filled
by a majority of the board of directors. A director may be removed only for
cause by the affirmative vote of two-thirds of all votes entitled to be cast by
holders of all then outstanding shares of stock of MeriStar in the election of
directors at an annual or special meeting of stockholders. Holders of preferred
stock may be entitled to elect directors as provided in the certificate of
designation for that preferred stock.
AMERICAN SKIING
Under American Skiing's certificate of incorporation, subject to the rights
of holders of serial preferred stock to elect additional directors, the board of
directors will consist of not less than seven and not more than 15 members. If
there are more than ten directors, holders of the Class A common stock have the
right, voting as a single class, to elect the smallest number of directors
sufficient to constitute two-thirds of the number of directors. If there are
nine or fewer directors, holders of the Class A common stock have the right,
voting as a single class, to elect the largest number of directors that would
not exceed two-thirds of the number of directors. The holders of the common
stock have the right, voting as a separate class, to elect the remaining
directors. No decrease in the number of directors constituting the board of
directors shall shorten the term of any incumbent director. Except as otherwise
provided in the certificate of incorporation with respect to directors elected
by the holders of serial preferred stock, any vacancies in the board of
directors for any reason, and any directorships resulting from any increase in
the number of directors, may be filled by the board of directors, acting by a
majority of the directors then in office, although less than a quorum, and any
directors so chosen shall hold office until the next annual meeting of
stockholders. Directors may be elected at an annual
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or special meeting of stockholders. The bylaws require at least four meetings of
the board of directors to be held per year.
Mr. Leslie Otten, the Chairman and Chief Executive Officer of American
Skiing, holds all of the shares of Class A common stock. Oak Hill and parties
related to it are the holders of all of the American Skiing Series B preferred
stock, which is convertible into common stock. Currently, under a stockholders'
agreement, dated as of August 6, 1999 and amended on July 31, 2000, among Oak
Hill, parties related to Oak Hill and Mr. Otten, the number of directors is
fixed at 11, and Oak Hill is entitled to nominate:
- Six directors if it beneficially owns at least 80% of the common stock it
beneficially owned as of July 31, 2000;
- Five directors if it owns at least 70% of the common stock;
- Four directors if it owns at least 60% of the common stock;
- Three directors if it owns at least 40% of the common stock;
- Two directors if it owns at least 25% of the common stock; and
- One director if it owns at least 5% of the common stock.
The stockholders' agreement and bylaws of American Skiing also require that,
for so long as Oak Hill and its related parties beneficially own at least 20% of
the common equity of American Skiing, approval by the board of directors of any
of the following actions will require the affirmative vote of at least one
director nominated by Oak Hill:
- Approval of annual operating and capital budgets;
- Significant executive personnel decisions other than terminations;
- Material actions likely to affect American Skiing's operating and
strategic direction that are reasonably expected to or likely to have an
impact of 5% or more on American Skiing's consolidated revenues or
earnings;
- Any amendments to the certificate of incorporation or bylaws;
- Any voluntary liquidation, dissolution, winding-up, recapitalization or
reorganization;
- Initiation of material litigation;
- Any strategic business combination transaction;
- Material changes to or reduction in insurance coverage; or
- Material financing or capital markets activity not expressly provided in
the budget.
The above summary is not a complete summary of the terms of the
stockholders' agreement. For more information concerning the restrictions
contained in the stockholders' agreement, you should read the copy of the
stockholders' agreement attached as Exhibit 10.2 to the annual report of
American Skiing on Form 10-K for the fiscal year ended July 25, 1999 and the
amendment to that agreement attached as Exhibit 10.2 to American Skiing's
current report on Form 8-K filed on August 2, 2000.
DORAL
Doral's certificate of incorporation and bylaws will provide that the number
of directors may be fixed from time to time by the board of directors but may
not be less than seven nor more than 14. Directors may be elected at an annual
or special meeting of stockholders. The Doral board of directors will have three
classes of directors. All of the directors are being proposed for election at
the American
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Skiing special meeting. The terms of office of one class of directors will
expire at the annual meeting of stockholders following the completion of each of
the 2001, 2002 and 2003 fiscal years of Doral. Any vacancy on the board of
directors may be filled by a majority vote of the board of directors. A director
may be removed only for cause by the affirmative vote of two-thirds of all votes
entitled to be cast by all then outstanding shares of stock of MeriStar in the
election of directors at an annual or special meeting of stockholders. Holders
of preferred stock may be entitled to elect directors as provided in the
certificate of designation for that preferred stock.
QUORUM FOR DIRECTOR MEETINGS
MERISTAR
Except as otherwise expressly provided by Delaware law or by MeriStar's
certificate of incorporation, the presence in person of a majority of the entire
board of directors is necessary and sufficient to constitute a quorum for the
transaction of business at any meeting of the board, but a majority of a smaller
number may adjourn the meeting to a later date.
AMERICAN SKIING
The presence in person of a majority of the entire board of directors is
necessary and sufficient to constitute a quorum for the transaction of business
at any meeting of the board, but a majority of a smaller number may adjourn the
meeting to a later date.
DORAL
Doral's bylaws will contain provisions relating to the quorum for meetings
of its board of directors that are substantially similar to those contained in
MeriStar's bylaws.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION OF LIABILITY
MERISTAR
MeriStar's certificate of incorporation provides that no director will be
personally liable to MeriStar or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability for:
- Breaches of the director's duty of loyalty to MeriStar or its
stockholders;
- Acts or omissions not in good faith or involving intentional misconduct or
knowing violations of law;
- The payment of unlawful dividends or unlawful stock repurchases or
redemptions; or
- Transactions in which the director received an improper personal benefit.
MeriStar's certificate of incorporation and bylaws require MeriStar, to the
extent permitted by applicable law, to indemnify any person against whom a claim
is made by reason of the fact that the person is or was a director or officer of
MeriStar or is or was serving, at the request of MeriStar, in similar capacity
for any other entity against any and all judgments, fines, penalties, excise
taxes, amounts paid in settlement, costs, charges and expenses associated with
that claim. Persons not directors or officers may be similarly indemnified at
the option of MeriStar. MeriStar has the power to purchase and maintain
insurance on behalf of any director, officer, employee or agent of MeriStar. Any
director or officer of MeriStar serving in any capacity in a majority-owned
direct or indirect subsidiary or any MeriStar benefit plan is deemed to be
serving at the request of MeriStar.
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AMERICAN SKIING
American Skiing's bylaws provide that it will indemnify each director and
each of the President, the treasurer and the secretary against all actions,
suits or proceedings and related expenses which he or she is, or is threatened
to be, a party to by reason of the fact that he or she is or was an officer,
director or employee of American Skiing. In addition, the American Skiing board
of directors may, at its option, indemnify any other employee against all such
actions, suits or proceedings. A claimant is eligible for indemnification if the
claimant:
- Acted in good faith and in a manner that, in the claimant's reasonable
belief, was in or not opposed to the best interests of American Skiing; or
- In the case of any criminal proceeding, had no reasonable cause to believe
his or her conduct was unlawful.
The vote of a majority of the board of directors is necessary for a
determination of whether a claimant is eligible for indemnification.
DORAL
Doral's certificate of incorporation and bylaws will contain indemnification
provisions that are substantially similar to those in MeriStar's certificate of
incorporation and bylaws.
VOTING WITH RESPECT TO CERTAIN BUSINESS COMBINATIONS
MERISTAR/AMERICAN SKIING/DORAL
Section 203 of the Delaware General Corporation Law provides that a
corporation may not engage in any business combination, generally defined as a
merger, consolidation, sale of greater than 10% of assets, issuance of stock or
granting of other financial benefits, with any interested stockholder, generally
defined as any person owning greater than 15% of the voting stock of a
corporation, for a period of three years following the time that such
stockholder became an interested stockholder, unless:
- Prior to that time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- Upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned by persons who are
directors and also officers and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- At or subsequent to such time the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding stock which is not owned by the
interested stockholder.
MeriStar and American Skiing are subject to Section 203, and Doral will be
subject to Section 203.
REQUIRED VOTE FOR AUTHORIZATION OF FUNDAMENTAL CORPORATE TRANSACTIONS
Under the Delaware General Corporation Law, fundamental corporate
transactions (such as mergers, sales of all or substantially all of the
corporation's assets and dissolutions) require the approval of the holders of a
majority of the shares outstanding and entitled to vote. The Delaware
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General Corporation Law permits a corporation to increase the minimum percentage
vote required. The certificate of incorporation and bylaws of both MeriStar and
American Skiing do not contain provisions increasing the percentage. The
certificate of incorporation and bylaws of Doral will also not contain those
provisions.
TRANSFER RESTRICTIONS
MERISTAR
The certificate of incorporation of MeriStar contains restrictions on
transfer and ownership of the MeriStar common stock. These restrictions
generally prohibit individuals or entities who or which own, actually or under
applicable constructive ownership rules of the Internal Revenue Code, more than
9.8% of the value of the outstanding shares of stock of MeriStar Hospitality,
from owning more than 9.9% of the vote or number of outstanding shares of
MeriStar. If MeriStar has an annual meeting in 2001, it intends to propose that
these restrictions, which were applicable to it as a lessee from MeriStar
Hospitality, be replaced with restrictions substantially similar to the ones
applicable to Doral common stock described in the section of this joint proxy
statement and prospectus entitled "Description of the Capital Stock of
Doral--Special Provisions in the Certificate of Incorporation--Ownership and
Transfer Restrictions."
AMERICAN SKIING
The American Skiing certificate of incorporation and bylaws contain no
restrictions on the ownership or transfer of the common stock.
DORAL
The certificate of incorporation of Doral will contain restrictions on
transfer and ownership of the Doral common stock. For more information regarding
these restrictions, please read the section of this joint proxy statement and
prospectus entitled "Description of the Capital Stock of Doral--Special
Provisions in the Certificate of Incorporation--Ownership and Transfer
Restrictions."
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DESCRIPTION OF THE CAPITAL STOCK OF DORAL
GENERAL
Doral's authorized capital stock will consist of 300,000,000 shares, of
which 299,000,000 shares will be common stock, par value $0.01 per share, and
1,000,000 shares of which will be serial preferred stock, par value $0.01 per
share.
COMMON STOCK
The holders of Doral's common stock will be entitled to one vote for each
share held of record on all matters submitted to a vote of Doral's stockholders
and will not have cumulative voting rights. Holders of Doral common stock will
be entitled to receive proportionately all lawful dividends as may from time to
time be declared by Doral's board of directors. In the event of Doral's
liquidation, dissolution or winding-up, holders of Doral common stock will be
entitled to share proportionately in all of Doral's assets remaining available
for distribution to those holders after payment of all of Doral's liabilities
and the liquidation preference of any outstanding Doral preferred stock. Holders
of Doral common stock will have no preemptive rights and will have no conversion
rights. There will be no redemption provisions with respect to the common stock.
PREFERRED STOCK
Doral's certificate of incorporation will authorize Doral's board of
directors to issue one or more series of preferred stock. As permitted by the
Delaware General Corporation Law, the Doral board will determine the rights,
qualifications, limitations and restrictions of each series of preferred stock
and set them forth in resolutions adopted by them providing for the issue of the
series.
The authorized shares of preferred stock, as well as the authorized shares
of Doral common stock, will be available for issuance without further action by
Doral stockholders, unless that action is required by applicable law or the
rules of any stock exchange or automated quotation system on which Doral
securities may be listed or any self-regulatory organization. If the approval of
Doral stockholders is not required for the issuance of shares of preferred stock
or common stock, the board of directors does not intend to seek stockholder
approval. The board of directors will make any determination to issue the shares
based on its judgment as to Doral's best interests and the best interests of its
stockholders. The board of directors, in so acting, could issue preferred stock
having terms that could discourage an acquisition attempt or other transaction
that some or a majority of the stockholders might believe to be in their best
interests or in which stockholders might receive a premium for their shares over
the then current market price of such shares.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION
Doral's certificate of incorporation will contain the provisions described
below. Those provisions of the certificate of incorporation may have the effect,
alone or in combination with each other or with the existence of authorized but
unissued common stock and any series of preferred stock, of precluding or
rendering more difficult a hostile takeover, making it more difficult to remove
or change the composition of Doral's incumbent board of directors and its
officers, being adverse to stockholders who desire to participate in a tender
offer and depriving stockholders of possible opportunities to sell their shares
at temporarily higher prices.
CLASSIFIED BOARD AND FILLING OF VACANCIES ON THE BOARD OF DIRECTORS. The
certificate of incorporation will provide that the directors shall be divided
into three classes, each of which shall serve a staggered three-year term, and
that vacancies on Doral's board of directors that may occur between annual
meetings may be filled by Doral's board of directors. In addition, this
provision will specify that any
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director elected to fill a vacancy on Doral's board of directors will serve for
the balance of the term of the replaced director.
REMOVAL OF DIRECTORS. The certificate of incorporation will provide that
directors can be removed only for cause by the affirmative vote of the holders
of not less than two-thirds of Doral's total outstanding common stock.
VOTING REQUIREMENTS FOR SOME AMENDMENTS TO THE CERTIFICATE OF INCORPORATION
AND BYLAWS. Although the Delaware General Corporation Law provides that
amendments to the certificate of incorporation of Doral require only a majority
vote by the stockholders of Doral, Doral's certificate of incorporation will
provide that some amendments to the certificate of incorporation and bylaws will
require the affirmative vote of holders of two-thirds of Doral's total
outstanding common stock. For a more detailed description of these provisions,
please read the section of this joint proxy statement and prospectus entitled
"Comparison of the Rights of Holders of American Skiing Common Stock, MeriStar
Common Stock and Doral Common Stock--Amendment of the Certificate of
Incorporation and Bylaws."
OWNERSHIP AND TRANSFER RESTRICTIONS. In order for MeriStar Hospitality to
maintain its qualification as a real estate investment trust, the hotels leased
by its taxable subsidiary or subsidiaries effective January 1, 2001 must be
operated and managed by a person that is an independent contractor within the
meaning of the Internal Revenue Code. To assist Doral's hotel management
subsidiary in qualifying as an independent contractor for this purpose, the
Doral certificate of incorporation will provide that one or more individuals or
entities who or which own shares of stock of both Doral and MeriStar
Hospitality, either actually or under applicable constructive ownership rules of
the Internal Revenue Code, will not be permitted to own shares of stock of Doral
in excess of 35% of either the combined voting power of all outstanding voting
shares or the total outstanding shares of Doral's stock if the same individuals
or entities own, actually or constructively, shares of stock of MeriStar
Hospitality in excess of 34.9% of the total outstanding shares of MeriStar
Hospitality's stock. To the extent that any transfer of shares of Doral's stock
would cause a violation of the ownership restriction, the transfer shall be
void. The Doral certificate of incorporation will contain provisions designed to
assist Doral in ensuring that these restrictions are complied with, including
provisions pursuant to which shares of Doral that do not comply with the above
limitations shall be designated as excess shares and transferred to a trust for
the benefit of a charitable organization pending transfer of the shares to a
person whose ownership of the shares would not violate the ownership
restrictions.
TRANSFER AGENT AND REGISTRAR
Doral's transfer agent and registrar for the common stock will be EquiServe
Trust Company, N.A.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Doral will be subject to Section 203 of the Delaware General Corporation
Law. For more information regarding Section 203, please read the section of this
joint proxy statement and prospectus entitled "Comparison of the Rights of
Holders of American Skiing Common Stock, MeriStar Common Stock and Doral Common
Stock--Voting With Respect to Certain Business Combinations."
INDEMNIFICATION PROVISIONS
Section 145 of the Delaware General Corporation Law authorizes a corporation
to indemnify its directors, officers, employees and agents against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
reasonably incurred, including liabilities under the Securities Act, provided
they act in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, although in the case of
proceedings brought by or on behalf of the
178
<PAGE>
corporation, such indemnification is limited to expenses and is not permitted if
the individual is adjudged liable to the corporation (unless the court
determines otherwise).
Section 102 of the Delaware General Corporation Law authorizes a corporation
to limit or eliminate its directors' liability to the corporation or its
stockholders for monetary damages for breaches of fiduciary duties, other than
for:
- Breaches of the duty of loyalty;
- Acts or omissions not in good faith or that involve intentional misconduct
or knowing violations of law;
- Unlawful payments of dividends, stock purchases or redemptions; or
- Transactions from which a director derives an improper personal benefit.
Doral's certificate of incorporation contains provisions limiting the liability
of the directors to Doral and to its stockholders to the full extent permitted
by Delaware law.
Section 145 of the Delaware General Corporation Law authorizes a corporation
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such. Doral's certificate of incorporation
and bylaws provide that Doral may, to the full extent permitted by law, purchase
and maintain insurance on behalf of any director, officer, employee or agent of
Doral against any liability that may be asserted against him or her and Doral
currently maintains such insurance. Doral will obtain liability insurance
covering its directors and officers for claims asserted against them or incurred
by them in such capacity, including claims brought under the Securities Act.
Insofar as indemnification for liabilities arising from the Securities Act
may be permitted to directors, officers or persons controlling Doral pursuant to
the foregoing provisions, Doral has been informed that in the opinion of the
SEC, that indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
NEW 14% PREFERRED STOCK
As part of the recapitalization of American Skiing, it will issue a new
series of preferred stock to the current holders of its Series A preferred
stock.
NUMBER OF SHARES AND DESIGNATION. The new 14% preferred stock will be
designated the "Series A 14% Preferred Stock," and 60,000 shares will be
issuable.
DIVIDENDS. The holders of the new 14% preferred stock will be entitled to
receive, when, as and if declared by Doral's board of directors, dividends at a
rate per share of 14% per year on the sum of the liquidation preference of
$1,000 per share plus all then accrued and unpaid dividends. The dividends will
be fully cumulative and will accrue and compound quarterly, beginning on the
date of issuance, on January 1, April 1, July 1 and October 1 of each year. The
dividends will be mandatorily payable in cash on August 15, 2006, or, at the
option of Doral, in whole or in part on any January 1, April 1, July 1 or
October 1, to holders of record as they appear on the stock transfer books of
Doral on the record date for the dividends. The record date for dividends may be
fixed by the Doral board no more than 60 nor less than 10 days preceding the
payment date for a dividend. If the date for the payment of a dividend is not a
business day, Doral is required to pay that dividend on the next business day
after that date.
Doral may not pay any dividends on any junior securities, other than
dividends payable in the form of those junior securities, unless all accrued and
unpaid dividends required to be paid on the new 14%
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<PAGE>
preferred stock have been paid in full. Likewise, Doral may not redeem, acquire
or repurchase any junior securities, so long as any shares of new 14% preferred
stock are outstanding.
LIQUIDATION, DISSOLUTION OR WINDING-UP. In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of Doral, the holders of new
14% preferred stock then outstanding will be entitled to be paid out of the
assets of Doral available for distribution to its stockholders after payment of
any liquidation values of any securities senior in liquidation rights to the new
14% preferred stock and before any securities junior in liquidation rights to
the new 14% preferred stock. If, upon any liquidation, dissolution or winding-up
of Doral, the remaining assets of Doral available for distribution to its
stockholders are insufficient to pay in full the liquidation values of the
holders of the new 14% preferred stock and all other classes or series of stock
ranking equal to it with respect to liquidation, the holders of new 14%
preferred stock and, together with holders of the equally preferenced stock,
will share ratably, based on their relative liquidation values, in any
distribution of the remaining assets and funds of Doral. The voluntary
consolidation, merger or other business combination of Doral into another
entity, or the sale of all or substantially all of the assets of Doral is not a
liquidation or dissolution with respect to the new 14% preferred stock.
VOLUNTARY REDEMPTION. At anytime prior to August 15, 2006, Doral may redeem
all outstanding shares of the new 14% preferred stock at a redemption price
equal to the liquidation preference of $1,000 per share plus all accured and
unpaid dividends.
MANDATORY REDEMPTION. On August 15, 2006, Doral will be required to redeem
all outstanding shares of the new 14% preferred stock at a redemption price
equal to the liquidation preference of $1,000 per share plus all accrued and
unpaid dividends. If on August 15, 2006, funds are not available to Doral for
redemption of the shares of new 14% preferred stock, Doral will be required to
redeem the number of shares of new 14% preferred stock that it can fully redeem,
and from time to time afterwards, as soon as funds are available, Doral will be
required to redeem at the redemption price shares of new 14% preferred stock
until all the shares of new 14% preferred stock have been redeemed. In case of
the redemption of less than all of the then outstanding new 14% preferred stock,
Doral will select the shares of new 14% preferred stock to be redeemed in
accordance with any method permitted by the national securities exchange on
which the new 14% preferred stock is then listed. If the new 14% preferred stock
is not so listed, Doral's board of directors will determine the manner in which
the shares will be redeemed or will effect the redemption pro rata. Doral may
not redeem less than all of the new 14% preferred stock at any time outstanding
until all dividends accrued on the new 14% preferred stock have been paid.
VOTING RIGHTS. Holders of the new 14% preferred stock are not entitled to
vote on matters upon which the stockholders of the corporation may vote.
The holders of the new 14% preferred stock will be entitled to elect two
additional directors to Doral's board of directors if:
- Doral fails to pay in full when due any dividends that have become due and
payable in cash;
- A default occurs under any indebtedness of Doral, and the default has
caused at least $5.0 million of Doral's indebtedness to be accelerated; or
- Doral or any of its subsidiaries fails to pay any principal or interest
when due under any indebtedness in excess of $5.0 million.
The default voting rights of the holders of the new 14% preferred stock will
expire once none of the conditions listed above exists.
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<PAGE>
So long as shares of new 14% preferred stock are outstanding, Doral may not,
without the affirmative vote or consent of the holders of at least a majority of
all outstanding new 14% preferred stock, voting separately as a class:
- Increase the number of authorized shares of new 14% preferred stock;
- Authorize, issue or increase the authorized amount of any additional class
or series of stock (including any series of preferred stock), or any
security convertible into stock of such class or series, ranking on a
parity with or senior to the new 14% preferred stock as to dividends or as
to rights upon liquidation, dissolution or winding-up; or
- Effect any reclassification of the new 14% preferred stock.
PREEMPTIVE RIGHTS. The holders of new 14% preferred stock will not be
entitled to any preemptive or subscription rights in respect of any securities
of Doral.
181
<PAGE>
INFORMATION REGARDING BENEFICIAL OWNERSHIP
OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
OF AMERICAN SKIING
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS OF AMERICAN SKIING
Set forth in the following table is the beneficial ownership of common
stock, Class A common stock and Series B preferred stock, as of December 31,
2000, for all directors and executive officers of American Skiing and all
directors and executive officers as a group. No director or executive officer
owns more than 1% of the outstanding shares of common stock (including
exercisable options), with the exception of Mr. Otten, who owns approximately
9.31% of the total outstanding shares of common stock (including exercisable
options) and all of the outstanding shares of Class A common stock, and
Mr. Howard, who owns approximately 1.63% of the total outstanding shares of
common stock (including exercisable options). All directors and executive
officers together with their affiliates as a group own approximately 73.55% of
the total outstanding shares of voting stock (including exercisable options). No
director or executive officer, other than Mr. Otten, owns any Class A common
stock. No director or executive officer other than the directors designated by
the Oak Hill entities could be deemed to beneficially own any Series B preferred
stock.
<TABLE>
<CAPTION>
TOTAL ALL
CLASS A SERIES B VOTING
COMMON STOCK(15) COMMON STOCK PREFERRED STOCK STOCK(2)
--------------------- --------------------- ------------------- ---------
DIRECTORS AND EXECUTIVE OFFICERS(1) SHARES % SHARES % SHARES % %
----------------------------------- ---------- -------- ---------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Leslie B. Otten(3)(4).................. 1,523,333 9.31% 14,760,530 100.00% -- -- 24.57%
Christopher E. Howard(5)............... 260,450 1.63% -- -- -- -- *
Mark J. Miller(6)...................... 68,000 * -- -- -- -- *
Blaise Carrig(6)....................... 28,472 * -- -- -- -- *
Allen Wilson(6)........................ 26,872 * -- -- -- -- *
Paul Wachter(16)....................... 30,000 * -- -- -- -- *
Gordon M. Gillies(6)................... 20,000 * -- -- -- -- *
Robert J. Branson(7)................... 11,000 * -- -- 2,000 1.33% *
Bradford E. Bernstein(8)............... 65,000 * -- -- 150,000 100% 49.04%
Steven B. Gruber(9).................... 65,000 * -- -- 150,000 100% 49.04%
William Janes(10)...................... 65,000 * -- -- 150,000 100% 49.04%
J. Taylor Crandall(11)................. 65,000 * -- -- 150,000 100% 49.04%
Paul W. Whetsell(6).................... 15,000 * -- -- -- -- *
David B. Hawkes(12).................... 18,000 * -- -- -- -- *
Alexandra C. Hess(13).................. 65,000 * -- -- 150,000 100% 49.04%
Directors and executive officers as a
group(14)............................ 2,061,627 12.22% 14,760,530 100.00% 150,000 100% 73.55%
</TABLE>
--------------------------
* Less than one percent.
(1) The executive officers in this table are Messrs. Otten, Howard, Wilson,
Miller and Carrig.
(2) Including shares of Series A preferred stock not held by any of the
directors or executive officers of American Skiing.
(3) Includes 660,000 shares of common stock issuable under exercisable options
granted under American Skiing's 1997 Stock Option Plan. Also includes 30,000
shares of common stock owned by Albert Otten Trust for the benefit of
Mildred Otten, as to which Mr. Otten is trustee and co-beneficiary. Does not
include 20,510 shares of common stock issuable under exercisable options
granted under American Skiing's 1997 Stock Option Plan to Mr. Otten's
spouse, Christine Otten, as to which Mr. Otten disclaims beneficial
ownership.
(4) As of December 31, 2000, all of Mr. Otten's shares of common stock and
class A common stock were pledged to secure a margin loan from ING U.S.
Capital LLC, the proceeds of which were used by Mr. Otten to purchase
approximately 833,333 shares of common stock in American Skiing's initial
public offering on November 6, 1997.
(5) Includes 230,360 shares of common stock issuable under exercisable options
granted under American Skiing's 1997 Stock Option Plan.
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<PAGE>
(6) All shares of common stock beneficially owned by the person are issuable
under exercisable options granted under American Skiing's 1997 Stock Option
Plan.
(7) Includes 2,000 Series B preferred stock shares held by OHCP Ski, L.P.
Mr. Branson, a director of American Skiing, is a limited partner of some
other Oak Hill entities. Mr. Branson disclaims beneficial ownership of the
2,000 shares of Series B preferred stock referred to above, except to the
extent of his pecuniary interest in these shares. Also includes 6,000
shares of common stock held by The Branson Family LLC, which Mr. Branson is
the managing member of, but as to which Mr. Branson disclaims beneficial
ownership and 5,000 shares of common stock issuable under exercisable
options granted under American Skiing's 1997 Stock Option Plan.
(8) Includes 65,000 shares of common stock issuable under exercisable options
granted to Oak Hill Capital Management, Inc., under American Skiing's 1997
Stock Option Plan and 150,000 Series B preferred stock shares held by
various Oak Hill entities. Mr. Bernstein, a director of American Skiing, is
a limited partner of some other Oak Hill entities. Mr. Bernstein disclaims
beneficial ownership of the 70,000 shares of common stock and 150,000
shares of Series B preferred stock referred to above, except to the extent
of his pecuniary interest in these shares.
(9) Includes 65,000 shares of common stock issuable under exercisable options
granted to Oak Hill Capital Management, Inc., under American Skiing's 1997
Stock Option Plan and 150,000 Series B preferred stock shares held by
various Oak Hill entities. Mr. Gruber, a director of American Skiing, is a
Manager and Vice President of OHCP MGP, LLC. OHCP MGP, LLC is the general
partner of the general partner of Oak Hill Capital Partners, L.P. and Oak
Hill Capital Management Partners, L.P. and a limited partner of other Oak
Hill entities. Mr. Gruber disclaims beneficial ownership of the 65,000
shares of common stock and 150,000 shares of Series B preferred stock
referred to above, except to the extent of his pecuniary interest in these
shares.
(10) Includes 65,000 shares of common stock issuable under exercisable options
granted to Oak Hill Capital Management, Inc., under American Skiing's 1997
Stock Option Plan and 150,000 Series B preferred stock shares held by
various Oak Hill entities. Mr. Janes, a director of American Skiing, is a
limited partner of other Oak Hill entities. Mr. Janes disclaims beneficial
ownership of the 65,000 shares of common stock and 150,000 shares of
Series B preferred stock referred to above, except to the extent of his
pecuniary interest in these shares.
(11) Includes 65,000 shares of common stock issuable under exercisable options
granted to Oak Hill Capital Management, Inc., under American Skiing's 1997
Stock Option Plan and 150,000 Series B preferred stock shares held by
various Oak Hill entities. Mr. Crandall, a director of American Skiing, is
a Manager and Vice President of OHCP MGP, LLC and a limited partner of
other Oak Hill entities. Mr. Crandall disclaims beneficial ownership of the
65,000 shares of common stock and 150,000 shares of Series B preferred
stock referred to above, except to the extent of his pecuniary interest in
these shares.
(12) Includes 17,500 shares of common stock issuable under exercisable options
granted under American Skiing's 1997 Stock Option Plan.
(13) Includes 65,000 shares of common stock issuable under exercisable options
granted to Oak Hill Capital Management, Inc., under American Skiing's 1997
Stock Option Plan and 150,000 Series B preferred stock shares held by
various Oak Hill entities. Ms. Hess, a director of American Skiing, is an
associate with other Oak Hill entities. Ms. Hess disclaims beneficial
ownership of the 65,000 shares of common stock and 150,000 shares of
Series B preferred stock referred to above, except to the extent of her
pecuniary interest in these shares.
(14) Includes 1,161,704 shares of common stock issuable under exercisable
options granted under American Skiing's 1997 Stock Option Plan. Also
includes 150,000 Series B preferred stock shares held by various Oak Hill
entities as to which beneficial ownership is disclaimed by Messrs. Gruber,
Bernstein, Crandall, Janes and Branson and Ms. Hess, except to the extent
of their pecuniary interest in these shares.
(15) In computing the number of shares of common stock beneficially owned by a
person, shares of common stock subject to options and warrants held by that
person that are currently exercisable or that become exercisable within
60 days of December 31, 2000 are deemed outstanding. For purposes of
computing the percentage of outstanding shares of common stock beneficially
owned by this person, the shares of stock subject to options or warrants
that are currently exercisable or that become exercisable within 60 days of
December 31, 2000 are deemed to be outstanding for the person but are not
deemed to be outstanding for purposes of computing the ownership percentage
of any other person.
(16) Includes 17,500 shares of common stock issuable under exercisable options
granted under American Skiing's 1997 Stock Option Plan to Mr. Wachter, and
12,500 shares of common stock issuable under exercisable
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<PAGE>
options granted under American Skiing's 1997 Stock Option Plan to Main
Street Advisors, Inc., in which Mr. Wachter is a principal.
INFORMATION AS TO 5% OR LARGER STOCKHOLDERS
Set forth below is information with respect to the only persons known to
American Skiing who owned beneficially more than 5% of any class of American
Skiing's voting securities as of December 31, 2000.
<TABLE>
<CAPTION>
CLASS A SERIES B SERIES A
COMMON STOCK COMMON STOCK PREFERRED STOCK PREFERRED STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
--------------------------- --------------------- --------------------- --------------------
FIVE PERCENT % OF % OF % OF % OF
STOCKHOLDERS SHARES CLASS SHARES CLASS SHARES CLASS SHARES CLASS
------------ --------------- --------- ---------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oak Hill Capital
Partners, L.P.
201 Main Street
Fort Worth, Texas
76102................ 65,000(1) * -- -- 150,000(2) 100% -- --%
Leslie B. Otten
American Skiing
Company
P.O. Box 450
Bethel, ME 04217..... 1,523,333(3)(4) 9.31% 14,760,530 100.0 -- -- -- --
Madeleine LLC
c/o Cerberus
450 Park Avenue
New York, NY 10022... 1,352,800 8.61% -- -- -- -- 36,626(5) 100.0
State of Wisconsin
Investment
Board
P.O. Box 7842
Madison, WI 53707.... 3,018,000 19.21% -- -- -- -- -- --
<CAPTION>
% OF ALL
VOTING
STOCK
BENEFICIALLY
OWNED
------------
FIVE PERCENT
STOCKHOLDERS
------------
<S> <C>
Oak Hill Capital
Partners, L.P.
201 Main Street
Fort Worth, Texas
76102................ 49.04%
Leslie B. Otten
American Skiing
Company
P.O. Box 450
Bethel, ME 04217..... 24.57%
Madeleine LLC
c/o Cerberus
450 Park Avenue
New York, NY 10022... 6.64%
State of Wisconsin
Investment
Board
P.O. Box 7842
Madison, WI 53707.... 4.60%
</TABLE>
------------------------------
* Less than one percent.
(1) Includes 65,000 shares of common stock issuable to Oak Hill Capital
Management, Inc. under exercisable options granted under American Skiing's
1997 Stock Option Plan.
(2) Includes 2,000 shares of the Series B preferred stock owned by OHCP Ski,
L.P., 7,400 shares of the Series B preferred stock owned by Oak Hill
Securities Fund, L.P., and 7,400 shares of the Series B preferred stock
owned by Oak Hill Securities Fund II, L.P., which together may be deemed to
constitute a "group" for purposes of Section 13(d) of the Securities
Exchange Act of 1934. As a result, each entity may be deemed to beneficially
own all of the shares of Series B preferred stock owned by the other. Each
of these entities disclaims beneficial ownership of the shares owned by the
other. Together the Oak Hill entities beneficially own 100% of the Series B
preferred stock and 48.76% of the outstanding voting stock of American
Skiing.
(3) In computing the number of shares of common stock beneficially owned by
Mr. Otten, shares of common stock subject to options and warrants held by
Mr. Otten that are currently exercisable or that become exercisable within
60 days of December 31, 2000 are deemed outstanding. For purposes of
computing the percentage of outstanding shares of common stock beneficially
owned by Mr. Otten, shares of common stock subject to options or warrants
that are currently exercisable or that become exercisable within 60 days of
December 31, 2000 are deemed to be outstanding but are not deemed to be
outstanding for purposes of computing the ownership percentage of any other
person.
(4) Includes 660,000 shares of common stock issuable under exercisable options
granted under American Skiing's 1997 Stock Option Plan. Also includes 30,000
shares of common stock owned by Albert Otten Trust for the benefit of
Mildred Otten, as to which Mr. Otten is trustee and co-beneficiary. Does not
include 20,510 shares of common stock issuable under exercisable options
granted under American Skiing's 1997 Stock Option Plan to Mr. Otten's
spouse, Christine Otten, as to which Mr. Otten disclaims beneficial
ownership.
(5) Together with accrued and unpaid dividends through December 31, 2000, the
Series A preferred stock is convertible into 3,002,634 shares of common
stock.
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<PAGE>
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF
MANAGEMENT AND PRINCIPAL STOCKHOLDERS OF MERISTAR
INFORMATION AS TO DIRECTORS AND OFFICERS OF MERISTAR AND 5% OR LARGER
STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of common stock as of November 30, 2000 by (a) all persons known by
MeriStar to own beneficially more than 5% of MeriStar common stock, (b) each
director who is a stockholder, (c) each of the named executive officers of
MeriStar, and (d) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------
NAME & ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE
---------------------------------- ------------ -----------
<S> <C> <C>
Keystone, Inc.(1)........................................... 6,515,696 18.1%
Franklin Resources, Inc.(2)................................. 2,104,500 5.9
Wellington Management Company, LLP(3)....................... 2,044,200 5.7
James A. Calder(4).......................................... 62,245 *
Daniel L. Doctoroff(5)...................................... 4,104,621 11.4
John Emery(6)............................................... 172,356 *
Kent R. Hance(7)............................................ 27,117 *
Steven D. Jorns(8).......................................... 1,242,264 3.5
S. Kirk Kinsell(7).......................................... 6,667 *
David E. McCaslin(9)........................................ 267,229 *
James B. McCurry(7)......................................... 6,667 *
John E. Plunkett(10)........................................ 157,693 *
Paul W. Whetsell(11)........................................ 749,986 2.1
James R. Worms(7)........................................... 46,904 *
Executive officers and directors as a group (11 persons).... 6,843,749 19.0
</TABLE>
------------------------
* Represents less than 1% of the class.
(1) Beneficial ownership information is based on the Schedule 13D/A filed by
Keystone, Inc., Oak Hill Capital Partners, L.P., Oak Hill Capital
Management Partners, L.P., Cherwell Investors, Inc., Group 31, Inc., MHX
Investors, L.P., Arbor REIT, L.P., FW Hospitality, L.P., Capital
Partnership, J. Taylor Crandall and Robert M. Bass, all located at 201 Main
Street, Suite 3100, Fort Worth, Texas 76012, and MC Investment Corporation,
Penobscot Partners, L.P., and PTJ Merchant Banking Partners, L.P., all
located at 65 E. 55th Street, New York, New York 10022, filed on
February 2, 2000.
(2) Beneficial ownership information is based on Schedule 13A jointly filed by
Franklin Resources, Inc., Charles B. Johnson, Rupert H. Johnson, Jr. and
Franklin Advisers, Inc., all located at 777 Mariners Island Boulevard, San
Mateo, California 94404, dated February 3, 2000.
(3) Beneficial ownership information is based on the Schedule 13G filed by
Wellington Management Company, LLP, located at 75 State Street, Boston,
Massachusetts 02109, filed on February 14, 2000.
(4) Includes 55,834 shares of common stock that have vested under options
granted.
(5) Includes 3,545,454 shares held by Oak Hill Capital Partners, L.P., 90,910
shares held by Oak Hill Management Partners, L.P., 61,912 shares held by
Cherwell Investors, Inc., 87,803 shares held by Penobscot Partners, L.P.,
204,514 shares held by PTJ Merchant Banking Partners, L.P. and 14,154
shares held by Oak Hill Partners, Inc., as to which shares Mr. Doctoroff
disclaims beneficial ownership except to the extent of his pecuniary
interest in these shares. Mr. Doctoroff is a
185
<PAGE>
Managing Partner and owner of Oak Hill Capital Management, Inc., the
manager of Oak Hill Capital Partners, L.P. and Acadia Partners, L.P., which
is the sole stockholder of Cherwell. Mr. Doctoroff is also the Executive
Vice President of PTJ, Inc., which is the managing general partner of PTJ
Merchant. PTJ Merchant is sole general partner of Penobscot.
Mr. Doctoroff's beneficial holdings also include 21,667 shares of common
stock that have vested under options granted.
(6) Includes 106,356 shares of common stock that have vested under options
granted.
(7) Includes 6,667 shares of common stock that have vested under options
granted.
(8) Includes 1,073,930 operating partnership units held by Mr. Jorns and
168,334 shares of common stock that have vested under options granted.
(9) Includes 179,168 shares of common stock that have vested under options
granted.
(10) Includes 93,797 shares of common stock that have vested under options
granted.
(11) Includes 216,667 shares of common stock that have vested under options
granted and shares held by entities over which Mr. Whetsell has beneficial
ownership within the meaning of Rule 13d-3.
186
<PAGE>
LEGAL MATTERS
The legality of the shares of common stock of Doral offered to holders of
MeriStar common stock by this joint proxy statement and prospectus will be
passed upon for Doral by Shearman & Sterling, New York, New York. An opinion as
to certain federal income tax consequences of the merger will be rendered for
MeriStar by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The audited consolidated financial statements of American Skiing for the
fiscal years ended July 30, 2000 and July 25, 1999, included in this joint proxy
statement and prospectus and elsewhere in this registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of American Skiing for the year ended
July 26, 1998 included in this joint proxy statement and prospectus have been
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on their authority as experts in auditing and accounting.
The financial statements of MeriStar Hotels & Resorts, Inc. as of
December 31, 1999 and 1998, and for each of the years in the three-year period
ended December 31, 1999 have been included in this joint proxy statement and
prospectus in reliance upon the report of KPMG LLP, independent auditors,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
American Skiing and MeriStar each file annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
filed by American Skiing or MeriStar at the Securities and Exchange Commission's
public reference rooms located at 450 Fifth Street, N.W., Washington, DC 20549.
You can call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC filings are also available to the public from
commercial document retrieval services and at the Internet world wide website
maintained by the SEC at "http://www.sec.gov."
American Skiing has filed a registration statement on Form S-4 to register
with the Securities and Exchange Commission the issuance of the shares of its
common stock in connection with the merger to MeriStar stockholders. This joint
proxy statement and prospectus is a part of the registration statement and
constitutes a prospectus of American Skiing for the issuance of that common
stock. As permitted by SEC rules, this joint proxy statement and prospectus does
not contain all of the information you can find in the registration statement or
the exhibits to the registration statement.
You should rely only on the information contained in this joint proxy
statement and prospectus in making your decision about how to vote on the
approval and adoption of the merger agreement. Neither American Skiing nor
MeriStar has authorized anyone to provide you with information that is different
from what is contained in this joint proxy statement and prospectus. You should
not assume that the information in this joint proxy statement and prospectus is
accurate as of any other date than the date set forth on the cover and should
view neither the mailing of this joint proxy statement and prospectus to
stockholders nor the issuance of American Skiing common stock in the merger as
implying otherwise.
187
<PAGE>
FINANCIAL STATEMENTS
AMERICAN SKIING COMPANY
<TABLE>
<CAPTION>
PAGE(S)
-----------------
<S> <C>
Condensed Consolidated Statement of Operations--13 weeks
ended October 29, 2000 and October 24, 1999 (unaudited)... F-2
Condensed Consolidated Balance Sheets--October 29, 2000
(unaudited) and July 30, 2000............................. F-3
Condensed Consolidated Statement of Cash Flows--13 weeks
ended October 29, 2000 and 13 weeks ended October 24, 1999
(unaudited)............................................... F-4
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-5--F-7
Report of Independent Accountants........................... F-8--F-9
Consolidated Balance Sheets--July 30, 2000 and July 25,
1999...................................................... F-10
Consolidated Statements of Operations--Years ended July 30,
2000, July 25, 1999 and July 26, 1998..................... F-11
Consolidated Statements of Changes in Stockholders'
Equity--Years ended July 30, 2000, July 25, 1999 and
July 26, 1998............................................. F-12
Consolidated Statements of Cash Flows--Years ended July 30,
2000, July 25, 1999 and July 26, 1998..................... F-13
Notes to Consolidated Financial Statements.................. F-14--F-43
MERISTAR HOTELS & RESORTS, INC.
Condensed Consolidated Balance Sheets--September 30, 2000
(unaudited) and December 31, 1999......................... F-44
Condensed Consolidated Statements of Operations--Nine months
ended September 30, 2000 and 1999 (unaudited)............. F-45
Condensed Consolidated Statements of Cash Flows--Nine months
ended September 30, 2000 and 1999 (unaudited)............. F-46
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-47--F-53
Report of Independent Accountants........................... F-54
Consolidated Balance Sheets--December 31, 1999 and 1998..... F-55
Consolidated Statements of Operations--Years ended
December 31, 1999, 1998,
and 1997.................................................. F-56
Consolidated Statements of Changes in Stockholders'
Equity--Years ended December 31, 1999, 1998, and 1997..... F-57
Consolidated Statements of Cash Flows--Years ended
December 31, 1999, 1998,
and 1997.................................................. F-58
Notes to Consolidated Financial Statements.................. F-59--F-74
</TABLE>
F-1
<PAGE>
AMERICAN SKIING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
13 WEEKS ENDED 13 WEEKS ENDED
OCTOBER 29, 2000 OCTOBER 24, 1999
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
Net revenues:
Resort.................................................... $ 20,912 $ 20,806
Real estate............................................... 27,216 2,549
---------- ----------
Total net revenues...................................... 48,128 23,355
Operating expenses:
Resort.................................................... 30,343 29,015
Real estate............................................... 23,578 3,284
Marketing, general and administrative..................... 10,443 10,753
Depreciation and amortization............................. 4,002 3,202
---------- ----------
Total operating expenses................................ 68,366 46,254
---------- ----------
Loss from operations........................................ (20,238) (22,899)
Interest expense.......................................... 12,319 7,966
---------- ----------
Loss before benefit from income taxes....................... (32,557) (30,865)
Benefit from income taxes................................. (11,558) (9,052)
---------- ----------
Loss before extraordinary item and accounting change........ (20,999) (21,813)
Extraordinary loss, net of tax benefit of $396............ -- 621
Cumulative effect of accounting change, net of taxes of
$1,538 and ($449) (Note 2).............................. (2,509) 704
---------- ----------
Loss before preferred stock dividends....................... (18,490) (23,138)
Accretion of discount and dividends accrued on mandatorily
redeemable preferred stock.............................. 5,686 4,816
---------- ----------
Net loss available to common shareholders................... $ (24,176) $ (27,954)
========== ==========
Accumulated deficit, beginning of period.................... $ (84,763) $ (32,311)
Net loss available to common shareholders................... (24,176) (27,954)
---------- ----------
Accumulated deficit, end of period.......................... $ (108,939) $ (60,265)
========== ==========
BASIC AND DILUTED LOSS PER COMMON SHARE (NOTE 3)
Loss from continuing operations............................. $ (0.87) $ (0.88)
Extraordinary loss, net of taxes............................ -- (0.02)
Cumulative effect of change in accounting principle, net of
taxes..................................................... 0.08 (0.02)
---------- ----------
Net loss available to common shareholders................... $ (0.79) $ (0.92)
========== ==========
Weighted average common shares outstanding--basic and
diluted................................................... 30,469,163 30,286,773
========== ==========
</TABLE>
See accompanying notes to (unaudited) Condensed Consolidated Financial
Statements.
F-2
<PAGE>
AMERICAN SKIING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 29, JULY 30,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 14,044 $ 10,085
Restricted cash........................................... 7,286 7,424
Accounts receivable....................................... 13,962 8,176
Inventory................................................. 14,445 10,200
Prepaid expenses.......................................... 10,348 8,092
Deferred income taxes..................................... 1,664 1,566
-------- --------
Total current assets.................................... 61,749 45,543
Property and equipment, net................................. 570,593 534,078
Real estate developed for sale.............................. 187,537 222,660
Goodwill.................................................... 74,471 75,003
Intangible assets........................................... 21,861 22,055
Deferred financing costs.................................... 14,601 10,844
Other assets................................................ 26,203 16,595
-------- --------
Total assets............................................ $957,015 $926,778
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 93,826 $ 58,508
Current portion of subordinated notes and debentures...... 525 525
Accounts payable and other current liabilities............ 71,662 70,957
Deposits and deferred revenue............................. 40,348 15,930
-------- --------
Total current liabilities............................... 206,361 145,920
Long-term debt, excluding current portion (Note 5).......... 235,087 249,841
Subordinated notes and debentures, excluding current
portion................................................... 126,882 126,810
Other long-term liabilities................................. 30,186 17,494
Deferred income taxes....................................... (9,696) 200
-------- --------
Total liabilities....................................... 588,820 540,265
Mandatorily Redeemable 10 1/2% Preferred Stock, par value of
$1,000 per share; 40,000 shares authorized; 36,626 shares
issued and outstanding; including cumulative dividends
(redemption value of $50,013 and $48,706, respectively)... 50,013 48,706
Mandatorily Redeemable 8 1/2% Series B Preferred Stock, par
value of $1,000 per share; 150,000 shares authorized,
issued and outstanding; including cumulative dividends
(redemption value of $166,354 and $162,865,
respectively)............................................. 156,684 152,310
Shareholders' Equity:
Common stock, Class A, par value of $.01 per share;
15,000,000 shares authorized; 14,760,530 issued and
outstanding............................................. 148 148
Common stock, par value of $.01 per share; 100,000,000
shares authorized; 15,708,633 issued and outstanding.... 157 157
Additional paid-in capital................................ 270,094 269,955
Other comprehensive income................................ 38 --
Accumulated deficit....................................... (108,939) (84,763)
-------- --------
Total shareholders' equity.............................. 161,498 185,497
-------- --------
Total liabilities, mandatorily redeemable preferred
stock
and shareholders' equity.............................. $957,015 $926,778
======== ========
</TABLE>
See accompanying notes to (unaudited) Condensed Consolidated Financial
Statements.
F-3
<PAGE>
AMERICAN SKIING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
13 WEEKS ENDED 13 WEEKS ENDED
OCTOBER 29, 2000 OCTOBER 24, 1999
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(18,490) $(23,138)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 4,002 3,202
Amortization of discount on debt.......................... 96 88
Deferred income taxes..................................... (9,994) (9,897)
Stock compensation charge................................. 123 126
Extraordinary loss........................................ -- 1,017
Cumulative effect of change in accounting principle....... (4,047) 1,153
Gain on sale of assets.................................... (64) (1,402)
Decrease (increase) in assets:
Restricted cash......................................... 138 (2,461)
Accounts receivable..................................... (5,786) (2,099)
Inventory............................................... (4,245) (1,140)
Prepaid expenses........................................ (2,255) (1,645)
Real estate developed for sale.......................... 8,883 (53,251)
Other assets............................................ (3,051) 785
Increase in liabilities:
Accounts payable and other current liabilities.......... 705 5,011
Deposits and deferred revenue........................... 24,416 19,124
Other long-term liabilities............................. 4,558 5
Other, net.............................................. 2 (7)
-------- --------
Net cash used in operating activities....................... (5,009) (64,529)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (12,972) (6,496)
Proceeds from sale of assets.............................. 91 9,102
-------- --------
Net cash provided by (used in) investing activities......... (12,881) 2,606
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of mandatorily redeemable
securities.............................................. -- 136,732
Net repayment of Senior Credit Facility................... 25,200 (106,186)
Proceeds from long-term debt.............................. -- 180
Proceeds from non-recourse real estate debt............... 15,975 40,826
Repayment of long-term debt............................... (742) (3,334)
Repayment of non-recourse real estate debt................ (17,498) (2,032)
Deferred financing costs.................................. (1,097) (3,609)
Repayment of demand note, Principal Shareholder........... -- (1,830)
Other, net................................................ 11 --
-------- --------
Net cash provided by financing activities................... 21,849 60,747
-------- --------
Net increase (decrease) in cash and cash equivalents........ 3,959 (1,176)
Cash and cash equivalents, beginning of period.............. 10,085 9,003
-------- --------
Cash and cash equivalents, end of period.................... $ 14,044 $ 7,827
======== ========
SUPPLEMENTARY DISCLOSURE OF NON-CASH ITEM:
Non-cash transfer of real estate developed for sale to fixed
assets.................................................... $ 26,239 $ --
</TABLE>
See accompanying notes to (unaudited) Condensed Consolidated Financial
Statements.
F-4
<PAGE>
AMERICAN SKIING COMPANY AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL. American Skiing Company (the "Parent") is organized as a
holding company and operates through various subsidiaries (together with the
Parent, the "Company"). The Company's fiscal year is a fifty-two week or
fifty-three week period ending on the last Sunday of July. Fiscal 2001 is a
fifty-two week reporting period with each quarter consisting of 13 weeks. Fiscal
2000 was a fifty-three week reporting period with the second quarter consisting
of 14 weeks and all other quarters consisting of 13 weeks. The accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.
Results for interim periods are not indicative of the results expected for
the year due to the seasonal nature of the Company's business. The unaudited
condensed consolidated financial statements should be read in conjunction with
the following notes and the Company's consolidated financial statements in its
Form 10-K, filed with the Securities and Exchange Commission on October 26,
2000. Certain amounts in the prior year's unaudited condensed consolidated
financial statements and the audited financial statements as filed in the
Company's Form 10-K have been reclassified to conform to the current period
presentation.
2. ACCOUNTING CHANGE. In the first quarter of fiscal 2001, the Company
changed its method of accounting for interest rate swaps in accordance with its
adoption of Statement of Financial Accounting Standards ("SFAS") No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, SFAS No. 137,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133--AN AMENDMENT OF FASB STATEMENT
NO. 133 and SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND
CERTAIN HEDGING ACTIVITIES--AN AMENDMENT OF FASB STATEMENT NO. 133
(collectively, SFAS 133 as amended).
SFAS 133 as amended and SFAS 138 require that derivatives be recorded on the
balance sheet as an asset or liability at fair value. The Company has entered
into three interest rate swap agreements that do not qualify for hedge
accounting under SFAS 133 as amended. As of July 30, 2000, the Company had
$8.6 million recorded in Other Long Term Liabilities in the accompanying
Consolidated Balance Sheet and had been recording the net effect of the
anticipated $2.1 million in interest savings from these agreements on a
straight-line basis over the life of the agreements through the income
statement. Upon adoption of SFAS 133 as amended, the fair value of these swaps
was recorded as a $6.5 million asset and an $11.1 million liability, with a
corresponding $4.6 million entry to cumulative effect of accounting change in
earnings. The $8.6 million recorded in Other Long Term Liabilities was also
recognized through a cumulative effect of accounting change in earnings,
resulting in a net cumulative effect of accounting change of $4.0 million
(before a $1.5 million provision for income taxes). Subsequent changes in the
fair values of the swaps are being recorded through the income statement as an
adjustment to interest expense.
CASH FLOW HEDGES
The Company has also entered into two interest rate swap agreements, with a
total notional amount of $75 million, which have been designated as cash flow
hedges of variable future cash flows associated with the interest on the Senior
Credit Facility. Upon adoption of SFAS 133 as amended, the fair value of these
swaps of $0.3 million has been recorded as an asset on the balance sheet with a
corresponding credit of $0.2 million, after taxes, to other comprehensive
income. Subsequent changes in fair value of the swaps will be recorded through
other comprehensive income, except for changes
F-5
<PAGE>
AMERICAN SKIING COMPANY AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
related to ineffectiveness during the period these instruments are designated as
hedges. The Company does not currently anticipate ineffectiveness under these
hedges.
3. LOSS PER COMMON SHARE. Loss per common share for the 13 weeks ending
October 29, 2000 and October 24, 1999, respectively, were determined based on
the following data (in thousands):
<TABLE>
<CAPTION>
13 WEEKS ENDED 13 WEEKS ENDED
OCTOBER 29, 2000 OCTOBER 24, 1999
---------------- ----------------
<S> <C> <C>
LOSS
Loss before preferred stock dividends and accretion and
extraordinary items.................................. $(20,999) $(21,813)
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock............... 5,686 4,816
-------- --------
Loss before extraordinary items........................ (26,685) (26,629)
Extraordinary loss, net of taxes....................... -- 621
Cumulative effect of accounting changes, net of
taxes................................................ (2,509) 704
-------- --------
Net loss available to common shareholders.............. $(24,176) $(27,954)
======== ========
SHARES
Weighted average shares outstanding--basic and
diluted.............................................. 30,469 30,287
======== ========
</TABLE>
The Company has outstanding 186,626 shares of convertible preferred stock
(represented by two separate classes) at October 29, 2000 and October 24, 1999,
respectively. These shares are convertible into shares of the Company's common
stock. The common stock shares into which these securities are convertible have
not been included in the dilutive share calculation as the impact of their
inclusion would be anti-dilutive. The Company also has 2,128,763 and 3,041,844
exercisable options outstanding to purchase shares of its common stock under the
Company's stock option plan as of October 29, 2000 and October 24, 1999,
respectively. These shares are also excluded from the dilutive share calculation
as the impact of their inclusion would also be anti-dilutive.
4. SEGMENT INFORMATION. The Company currently operates in two business
segments, Resort and Real Estate. The Company's Resort revenues are derived from
a wide variety of sources including lift ticket sales, food and beverage, retail
sales including rental and repair, skier development, lodging and property
management, golf, other summer activities and miscellaneous revenue sources. The
Company's Real Estate revenues are derived from the sale and leasing of
interests in real estate development projects undertaken by the Company at its
resorts and the sale of other real property interests. Revenues and operating
profits for each of the two reporting segments are as follows:
<TABLE>
<CAPTION>
13 WEEKS ENDED 13 WEEKS ENDED
OCTOBER 29, 2000 OCTOBER 24, 1999
---------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Resorts...................................... $ 20,912 $ 20,806
Real Estate.................................. 27,216 2,549
-------- --------
Total.......................................... $ 48,128 $ 23,355
-------- --------
Loss before benefit from income taxes:
Resorts...................................... $(29,949) $(28,090)
Real Estate.................................. (2,608) (2,775)
-------- --------
Total.......................................... $(32,557) $(30,865)
-------- --------
</TABLE>
F-6
<PAGE>
AMERICAN SKIING COMPANY AND SUBSIDIARIES
NOTES TO (UNAUDITED) CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT. On July 31, 2000, the Company entered into a Second
Amended and Restated Credit Agreement between its principal real estate
development subsidiary, American Skiing Company Resort Properties, Inc. ("Resort
Properties"), Fleet National Bank and the lenders party thereto (the "Amended
Real Estate Term Facility"). This fully syndicated $73 million facility replaced
Resort Properties' previous un-syndicated $58 million Real Estate development
term loan facility. The Amended Real Estate Term Facility is collateralized by
security interests in, and mortgages on, substantially all of Resort Properties'
assets, which primarily consist of undeveloped real property and the stock of
its real estate development subsidiaries, including Grand Summit Resort
Properties.
The Amended Real Estate Term Facility is comprised of three tranches, each
with separate interest rates and maturity dates. Tranche A has a maximum
principal amount of $35 million, bears interest at a variable rate equal to the
Fleet National Bank's Base Rate plus 8.25% (payable monthly in arrears) and
matures on December 31, 2002. Tranche B has a maximum principal amount of
$25 million, bears interest at a fixed rate of 25% per annum and matures on
December 31, 2003. Interest calculated at 18% per annum for Tranche B is payable
monthly in arrears. The remaining 7% per annum accrues, is added to the
principal balance of Tranche B and bears interest at 25% per annum, compounded
annually. Tranche C has a maximum principal amount of $13 million, bears
interest at an effective rate of 25% per annum and matures on December 31, 2005.
Interest accrues, is added to the principal balance of Tranche C and compounds
semi-annually.
Tranche C of the Amended Real Estate Term Facility was purchased by Oak Hill
Capital Partners, L.P, which, together with certain of its affiliates, is also
the holder of the Company's Series B Preferred Stock. In connection with this
$13 million investment, the Company entered into a Securities Purchase Agreement
with Oak Hill, dated as of July 31, 2000, pursuant to which the Company has
agreed to either (i) issue warrants to Oak Hill for 6,000,000 shares of ASC
common stock with an exercise price of $2.50 per share or (ii) issue to Oak Hill
common stock in Resort Properties representing approximately 15% of the voting
interest in Resort Properties. The purchase price of the warrants (or Resort
Properties common stock, as applicable) was $2 million. The Tranche C portion of
this facility is being carried at a discount due to the relative fair values of
the warrants issued to Oak Hill and the total Tranche C borrowings. As of
October 29, 2000, $5.5 million had been drawn down under Tranche C, with a
carrying value of $3.1 million.
In addition, the Series B Agreement, dated August 9, 1999, was amended as of
July 31, 2000 to provide, among other things: (i) that Oak Hill will have the
right to elect six members of the Company's Board of Directors, provided that
Oak Hill maintains certain ownership levels; (ii) that Mr. Otten will have the
right to elect two members to the Board, provided that he maintains certain
ownership levels; and (iii) that Mr. Otten will have the right to serve on the
executive committee of the Board and on the boards of directors of material
subsidiaries of ASC. As of July 31, 2000, Oak Hill would own 54.9% of the
67,546,455 shares of common stock of the Company that would be outstanding if
all the shares of the Series B Preferred Stock were converted and if all of the
Warrants were exercised.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of American Skiing Company:
We have audited the accompanying consolidated balance sheets of American
Skiing Company and its subsidiaries as of July 30, 2000 and July 25, 1999, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The financial
statements of American Skiing Company and its subsidiaries as of July 26, 1998,
were audited by other auditors whose report dated October 14, 1998, expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Skiing Company and
subsidiaries as of July 30, 2000 and July 25, 1999 and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
//Arthur Andersen LLP//
Boston, MA
October 3, 2000
F-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of American Skiing Company:
In our opinion, the accompanying consolidated statements of operations, of
changes in shareholders' equity and of cash flows present fairly, in all
material respects, the results of operations and cash flows of American Skiing
Company for the year ended July 26, 1998 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, MA
October 14, 1998
F-9
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 30, JULY 25,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 10,085 $ 9,003
Restricted cash........................................... 7,424 6,628
Accounts receivable....................................... 8,176 6,474
Inventory................................................. 10,200 10,837
Prepaid expenses.......................................... 8,092 5,309
Deferred income taxes..................................... 1,566 4,273
-------- --------
Total current assets.................................... 45,543 42,524
Property and equipment, net............................... 534,078 529,154
Real estate developed for sale............................ 222,660 207,745
Goodwill.................................................. 75,003 76,672
Intangible assets......................................... 22,055 22,987
Deferred financing costs.................................. 10,844 9,279
Other assets.............................................. 16,595 19,141
-------- --------
Total assets............................................ $926,778 $907,502
======== ========
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 58,508 $ 60,882
Current portion of subordinated notes and debentures...... 525 673
Accounts payable and other current liabilities............ 70,957 77,951
Deposits and deferred revenue............................. 15,930 20,850
-------- --------
Total current liabilities............................... 145,920 160,356
Long-term debt, excluding current portion................. 249,841 313,844
Subordinated notes and debentures, excluding current
portion................................................. 126,810 127,062
Other long-term liabilities............................... 17,494 15,687
Deferred income taxes..................................... 200 10,062
-------- --------
Total liabilities....................................... 540,265 627,011
Mandatorily Redeemable 10 1/2% Series A Preferred Stock par
value $1,000 per share; 40,000 shares authorized; 36,626
issued and outstanding; including cumulative dividends in
arrears (redemption value of $48,706 at July 30, 2000 and
$43,836 at July 25, 1999)................................. 48,706 43,836
Mandatorily Redeemable 8 1/2% Series B Preferred Stock par
value $1,000 per share; 150,000 shares authorized, issued
and outstanding; including cumulative dividends in arrears
(redemption value of $162,865 at July 30, 2000)........... 152,310 --
Shareholders' Equity:
Common stock, Class A, par value $.01 per share;
15,000,000 shares authorized; 14,760,530 issued and
outstanding at July 30, 2000 and
July 25, 1999, respectively............................. 148 148
Common stock, par value of $.01 per share; 100,000,000
shares authorized; 15,708,633 and 15,526,243 issued and
outstanding at July 30, 2000 and July 25, 1999,
respectively............................................ 157 155
Additional paid-in capital................................ 269,955 268,663
Accumulated deficit....................................... (84,763) (32,311)
-------- --------
Total shareholders' equity.............................. 185,497 236,655
-------- --------
Total liabilities, mandatorily redeemable preferred
stock and
shareholders' equity.................................. $926,778 $907,502
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
JULY 30, 2000 JULY 25, 1999 JULY 26, 1998
------------- ------------- -------------
<S> <C> <C> <C>
NET REVENUES:
Resort.................................................... $292,077 $292,558 $277,574
Real estate............................................... 132,063 24,492 60,992
-------- -------- --------
Total net revenues...................................... 424,140 317,050 338,566
-------- -------- --------
OPERATING EXPENSES:
Resort.................................................... 203,902 198,231 171,246
Real estate............................................... 123,837 26,808 43,554
Marketing, general and administrative..................... 49,405 51,434 40,058
Stock compensation charge................................. -- -- 14,254
Depreciation and amortization............................. 47,028 44,202 37,965
-------- -------- --------
Total operating expenses................................ 424,172 320,675 307,077
-------- -------- --------
Income (loss) from operations............................... (32) (3,625) 31,489
Interest expense............................................ 35,906 39,382 34,575
-------- -------- --------
Loss before benefit from income taxes and minority interest
in loss of subsidiary..................................... (35,938) (43,007) (3,086)
Benefit from income taxes................................... (5,805) (15,057) (774)
Minority interest in loss of subsidiary..................... -- -- (445)
-------- -------- --------
Loss before extraordinary item and cumulative effect of
accounting change......................................... (30,133) (27,950) (1,867)
Extraordinary loss (net of applicable income taxes $396, $0
and $3,248, respectively) (See Notes 6 & 7)............... 621 -- 5,081
Cumulative effect of accounting change (net of applicable
taxes of $449) (See Note 2)............................... 704 -- --
-------- -------- --------
Loss before preferred stock dividends....................... (31,458) (27,950) (6,948)
Accretion of discount and dividends accrued on mandatorily
redeemable preferred stock................................ 20,994 4,372 5,346
-------- -------- --------
Net loss available to common shareholders................... $(52,452) $(32,322) $(12,294)
======== ======== ========
BASIC AND DILUTED LOSS PER SHARE:
Loss before extraordinary items and cumulative effect of
accounting change......................................... $ (1.69) $ (1.07) $ (0.28)
Extraordinary loss, net of taxes............................ (0.02) -- (0.20)
Cumulative effect of accounting change, net of taxes........ (0.02) -- --
-------- -------- --------
Net loss available to common shareholders................... $ (1.73) $ (1.07) $ (0.48)
======== ======== ========
Weighted average shares outstanding......................... 30,393 30,286 25,809
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A RETAINED
COMMON STOCK COMMON STOCK ADDITIONAL EARNINGS
--------------------- --------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) TOTAL
---------- -------- ---------- -------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 27, 1997......... -- $ -- 14,760,530 $ 10 $ 2,786 $ 12,305 $ 15,101
Shares issued pursuant to initial
public offering................ 14,750,000 148 -- -- 244,181 -- 244,329
Issuance of Common Stock
options........................ -- -- -- -- 8,538 -- 8,538
Conversion of Class A Common
Stock.......................... -- -- -- 138 (138) -- --
Purchase of minority interest in
subsidiary..................... 615,022 6 -- -- 8,648 -- 8,654
Original issue discount on Series
A 14% Exchangeable Preferred
Stock and 14% Senior
Exchangeable Notes............. -- -- -- -- 1,841 -- 1,841
Shares issued to purchase
subsidiary..................... 140,000 1 -- -- 1,994 -- 1,995
Exercise of Common Stock
options........................ 20,000 -- -- -- 40 -- 40
Accretion of discount and
issuance costs and dividends
accrued on mandatorily
redeemable preferred stock..... -- -- -- -- -- (5,346) (5,346)
Net loss......................... -- -- -- -- -- (6,948) (6,948)
---------- ---- ---------- ---- -------- -------- --------
Balance at July 26, 1998......... 15,525,022 155 14,760,530 148 267,890 11 268,204
========== ==== ========== ==== ======== ======== ========
Exercise of Common Stock
options........................ 1,221 -- -- -- -- -- --
Issuance of Common Stock
options........................ -- -- -- -- 773 -- 773
Accretion of discount and
issuance costs and dividends
accrued on mandatorily
redeemable preferred stock..... -- -- -- -- -- (4,372) (4,372)
Net loss......................... -- -- -- -- -- (27,950) (27,950)
---------- ---- ---------- ---- -------- -------- --------
Balance at July 25, 1999......... 15,526,243 155 14,760,530 148 268,663 (32,311) 236,655
========== ==== ========== ==== ======== ======== ========
Exercise of Common Stock
options........................ 182,390 2 -- -- 363 -- 365
Issuance of Common Stock
options........................ -- -- -- -- 929 -- 929
Accretion of discount and
issuance costs and dividends
accrued on mandatorily
redeemable preferred stock..... -- -- -- -- -- (20,994) (20,994)
Net loss......................... -- -- -- -- -- (31,458) (31,458)
---------- ---- ---------- ---- -------- -------- --------
Balance at July 30, 2000......... 15,708,633 $157 14,760,530 $148 $269,955 $(84,763) $185,497
========== ==== ========== ==== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
AMERICAN SKIING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------
JULY 30, JULY 25, JULY 26,
2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $ (31,458) $ (27,950) $ (6,948)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Minority interest in loss of subsidiary................... -- -- (445)
Depreciation and amortization............................. 47,028 44,202 37,966
Discount on convertible debt.............................. 368 333 3,159
Deferred income taxes..................................... (7,155) (15,517) (3,910)
Stock compensation charge................................. 929 773 14,254
Extraordinary loss........................................ 1,017 -- 8,329
Cumulative effect of accounting change.................... 1,153 -- --
(Gain) loss from sale of assets........................... (1,449) 2,426 (773)
Decrease (increase) in assets:
Restricted cash......................................... (796) (368) (3,448)
Accounts receivable..................................... (1,702) 1,090 (3,608)
Inventory............................................... 637 2,516 (2,088)
Prepaid expenses........................................ (3,098) (1,600) (1,644)
Real estate developed for sale.......................... (43,406) (125,331) (25,950)
Other assets............................................ 2,318 (5,000) (10,319)
Increase (decrease) in liabilities:
Accounts payable and other current liabilities.......... (6,994) 33,579 2,413
Deposits and deferred revenue........................... (4,920) 10,635 (866)
Other long-term liabilities............................. 3,637 2,977 2,586
--------- --------- ---------
Net cash provided by (used in) operating activities......... (43,891) (77,235) 8,708
--------- --------- ---------
Cash flows from investing activities:
Payments for purchases of businesses, net of cash
acquired.................................................. (345) -- (291,773)
Capital expenditures...................................... (27,229) (46,007) (106,917)
Long-term investments..................................... -- 1,222 1,110
Proceeds from sale of assets.............................. 10,175 7,198 7,227
Proceeds from sale of business............................ -- -- 5,702
Other, net................................................ (4) 101 348
--------- --------- ---------
Net cash used in investing activities....................... (17,403) (37,486) (384,303)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings (repayment) under Senior Credit Facility... (82,448) 7,308 194,227
Repayment of previous credit facility..................... -- -- (59,623)
Proceeds from long-term debt.............................. 139 20,145 1,568
Proceeds from real estate debt............................ 139,026 115,909 71,462
Repayment of long-term debt............................... (11,105) (10,466) (15,793)
Repayment of real estate debt............................. (113,353) (23,088) (45,551)
Deferred financing costs.................................. (4,604) (1,438) (4,355)
Net proceeds from initial public offering................. -- -- 244,329
Repayment of subordinated notes........................... -- -- (23,223)
Net proceeds from issuance of mandatorily redeemable
securities................................................ 136,186 -- 17,500
Payments on demand note, Mr. Otten........................ (1,830) (16) (87)
Proceeds from exercise of stock options................... 365 -- 40
Cash payment in connection with early retirement of
debt...................................................... -- -- (5,087)
--------- --------- ---------
Net cash provided by financing activities................... 62,376 108,354 375,407
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 1,082 (6,367) (188)
Cash and cash equivalents, beginning of period.............. 9,003 15,370 15,558
--------- --------- ---------
Cash and cash equivalents, end of period.................... $ 10,085 $ 9,003 $ 15,370
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 48,754 $ 41,295 $ 36,583
Cash paid (refunded) for income taxes....................... (60) (10) 43
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Property acquired under capital leases...................... $ -- $ 7,425 $ 9,832
Non-cash transfer of real estate developed for sale to
property and equipment.................................... 27,758 -- --
Notes payable issued for purchase of assets................. -- 1,395 14,232
Liabilities assumed associated with purchased companies..... -- -- 17,205
Deferred tax asset associated with purchased companies...... -- -- 1,650
Purchase price adjustments related to deferred taxes........ -- -- 1,226
Purchase of minority interest............................... -- -- 375
Accretion of discount and issuance costs and dividends
accrued on mandatorily redeemable preferred stock......... 20,994 4,372 5,346
Exchange of mandatorily redeemable securities for 10 1/2%
Repriced Convertible Series A Preferred Stock............. -- -- 36,626
Intangible asset assumed to purchase subsidiary............. -- -- 1,883
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
American Skiing Company ("ASC") is organized as a holding company and
operates through various subsidiaries. ASC and its subsidiaries (collectively,
the "Company") operate in two business segments, ski resorts and real estate
development. ASC owns and operates the following ski resorts: Sugarloaf/USA and
Sunday River in Maine, Attitash Bear Peak in New Hampshire, Killington, Mount
Snow/Haystack and Sugarbush in Vermont, The Canyons in Utah, Steamboat Ski &
Resort Corporation ("Steamboat") in Colorado, and Heavenly Valley Ski & Resort
Corporation ("Heavenly") in California/ Nevada. The Company performs its real
estate development through its wholly-owned subsidiary, American Skiing Company
Resort Properties, Inc. ("Resort Properties"), and Resort Properties'
subsidiaries, including Grand Summit Resort Properties, Inc. ("GSRP") and
Canyons Resort Properties, Inc. The Company owns and operates resort facilities,
real estate development companies, golf courses, ski and golf schools, retail
shops and other related companies.
ASC was formed on June 17, 1997, when Leslie B. Otten ("Mr. Otten")
exchanged his 96% ownership interest in ASC East, Inc. ("ASC East") for 100% of
the Common Stock of ASC. In conjunction with the formation of ASC, the Company
recorded the 4% minority interest in ASC East. On January 23, 1998, the Company
and the holders of the minority interest in ASC East entered into an agreement
whereby the Company issued 615,022 shares of Common Stock in exchange for all
shares of ASC East common stock held by the minority shareholders.
On October 10, 1997, the Company approved an increase in authorized shares
of Common Stock, a new issue of Class A Common Stock, the conversion of 100% of
the outstanding Common Stock to Class A Common Stock and a 14.76 for 1 stock
split of Class A Common Stock. The stock split was given retroactive effect in
the consolidated financial statements as of July 27, 1997.
The Company consummated an initial public offering (the "Offering") on
November 6, 1997. The Company sold 14.75 million shares of common stock in the
Offering at a price of $18.00 per share. Net proceeds to the Company after
expenses of the Offering totaled $244.3 million. Of the 14.75 million shares
sold in the Offering, 833,333 shares were purchased by Mr. Otten.
The Company acquired Heavenly and Steamboat on November 12, 1997 for
approximately $300.5 million, including closing costs and adjustments. The
acquisition was accounted for using the purchase method of accounting. The
accompanying consolidated financial statements reflect the results of operations
of Steamboat and Heavenly subsequent to November 12, 1997.
On August 9, 1999, the Company sold 150,000 shares of its 8.5% Series B
Convertible Participating Preferred Stock ("Series B Preferred Stock") to Oak
Hill Capital Partners, L.P. and certain related entities ("Oak Hill") for
$150 million (collectively, the "Oak Hill Transaction"). As part of the
Series B Agreement, the Company also agreed to move its state of incorporation
from Maine to Delaware by merging the Company (ASC East, ASC West and ASC Utah)
into a wholly owned Delaware subsidiary and amending its articles of
incorporation (the "Delaware Reincorporation"). Under the Delaware
Reincorporation, which took place on October 12, 1999, the Company was merged
into a newly formed Delaware subsidiary (ASC Delaware) that survived the merger
and that has a capital structure identical to the Company's prior to the merger.
F-14
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
American Skiing Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
FISCAL YEAR
The Company's fiscal year is a fifty-two week or fifty-three week period
ending on the last Sunday of July. The periods for 1998 and 1999 consisted of
fifty-two weeks. The period for 2000 consisted of fifty-three weeks.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a remaining
maturity of three months or less to be cash equivalents.
RESTRICTED CASH
Restricted cash represents deposits that relate to pre-sales of real estate
developed for sale held in escrow and guest advance deposits for lodging
reservations. The cash will be available to the Company when the real estate
units are sold or the lodging services are provided.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market,
and consist primarily of retail goods, food and beverage products and mountain
operating supplies.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, net of accumulated depreciation.
Depreciation is calculated using the straight-line method over the assets'
estimated useful lives which range from 9 to 40 years for buildings, 3 to
12 years for machinery and equipment, 10 to 50 years for leasehold improvements
and 5 to 30 years for lifts, lift lines and trails. Assets under capital leases
are amortized over the shorter of their useful lives or their respective lease
lives. Due to the seasonality of the Company's business, the Company records a
full year of depreciation relating to its operating assets over the second and
third quarters of its fiscal year.
REAL ESTATE DEVELOPED FOR SALE
The Company capitalizes as real estate developed for sale the original
acquisition cost of land, direct construction and development costs, property
taxes, interest incurred on costs related to real estate under development, and
other related costs (engineering, surveying, landscaping, etc.) until the
property reaches its intended use. The cost of sales for individual parcels of
real estate or quartershare units within a project is determined using the
relative sales value method. Selling costs are charged to expense in the period
in which the related revenue is recognized. Interest capitalized on real estate
development projects during fiscal years 1998, 1999, and 2000 totaled
$2.4 million, $6.4 million, and $15.3, respectively.
F-15
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
GOODWILL AND OTHER INTANGIBLE ASSETS
Intangible assets consist of goodwill and various other intangibles. The
Company has classified as goodwill the excess of fair value of the net assets
(including tax attributes) of companies acquired in purchase transactions and
also the purchase of a minority interest. Intangible assets are recorded net of
accumulated amortization in the accompanying consolidated balance sheet and are
amortized using the straight-line method over their estimated useful lives as
follows:
<TABLE>
<S> <C>
Goodwill up to 40 years
Tradenames 40 years
Other intangibles 16-20 years
</TABLE>
DEFERRED FINANCING COSTS
Costs incurred in connection with the issuance of debt are included in
deferred financing costs, net of accumulated amortization. Amortization is
calculated using the straight-line method over the respective original lives of
the applicable issues. Amortization calculated using the straight-line method is
not materially different from amortization that would have resulted from using
the effective interest method.
LONG-LIVED ASSETS
The Company evaluates potential impairment of long-lived assets and
long-lived assets to be disposed of in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121
establishes procedures for review of recoverability and measurement of
impairment if necessary, of long-lived assets, goodwill and certain identifiable
intangibles held and used by an entity. SFAS 121 requires that those assets be
reviewed for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 also requires that
long-lived assets and certain identifiable intangibles to be disposed of be
reported at the lower of their carrying amount or fair value less estimated
selling costs. As of July 30, 2000, management believes that there has not been
any impairment of the Company's long-lived assets, real estate developed for
sale, goodwill or other identifiable intangibles.
REVENUE RECOGNITION
Resort revenues include sales of lift tickets, tuition from ski schools,
golf course fees and other recreational activities, sales from restaurants, bars
and retail shops, and real estate rentals. Daily lift ticket revenue is
recognized on the day of purchase. Lift ticket season pass revenue is recognized
in equal amounts over the ski season, which is the Company's second and third
quarters of its fiscal year. The Company's remaining revenue is generally
recognized as the services are performed. Real estate revenues are recognized
under the full accrual method when title has been transferred. Amounts received
from pre-sales of real estate are recorded as deposits and deferred revenue in
the accompanying consolidated balance sheet until the revenue is recognized.
F-16
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
INTEREST
Interest is expensed as incurred except when it is capitalized in connection
with major capital additions and real estate developed for sale. The amounts of
interest capitalized are determined by applying current interest rates to the
funds required to finance the construction. During 1998, 1999 and 2000, the
Company incurred total interest cost of $37.5 million, $46.4 million and
$51.5 million, respectively, of which $2.9 million, $7.1 million and
$15.6 million, respectively, have been capitalized to property and equipment and
real estate developed for sale.
EMPLOYEE BENEFITS
As of July 27, 1997, the Company maintained a number of profit sharing and
savings plans pursuant to Section 401(k) of the Internal Revenue Code. In
August 1997, the Company established the ASC 401(k) Retirement Plan pursuant to
Section 401(k) of the Internal Revenue Code (the "Plan") and subsequently merged
the previously existing plans into the Plan. The Plan allows employees to defer
up to 15% of their income and provides for the matching of participant
contributions at the Company's discretion. The Company made no contributions to
the profit sharing plans for 1998, 1999 and 2000. Contributions to the savings
plans for 1998, 1999 and 2000 totaled $225,000, $395,000 and $439,000, excluding
contributions to the former Steamboat and Heavenly plans. On January 1, 1998,
the Heavenly profit sharing plan was merged into the Plan and the Steamboat
401(k) plan was merged into the Plan on October 1, 1998. Contributions to the
Steamboat and Heavenly plans for Fiscal 1998 were $220,000 and $43,000,
respectively. Contributions to the Steamboat plan for Fiscal 1999 were $7,000.
ADVERTISING COSTS
Advertising costs are expensed the first time the advertising takes place.
At July 25, 1999 and July 30, 2000, advertising costs of $244,000 and $220,000,
respectively, were recorded in prepaid expenses in the accompanying consolidated
balance sheet. Advertising expense for the years ended July 26, 1998, July 25,
1999 and July 30, 2000 was $7.6 million, $9.5 million and $7.3 million,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts and disclosures reported in the accompanying
consolidated financial statements. Actual results could differ from those
estimates.
SEASONALITY
The occurrence of adverse weather conditions during key periods of the ski
season could adversely affect the Company's operating results. In addition, the
Company's revenues are highly seasonal in nature, with the majority of its
revenues historically being generated in the second and third fiscal quarters,
of which a significant portion is produced in two key weeks--the Christmas and
Presidents' Day vacation weeks.
F-17
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128") requires presentation of "basic" earnings per share (which excludes
dilution as a result of unexercised stock options and the Mandatorily Redeemable
Preferred Stock) and "diluted" earnings per share. The Company adopted SFAS 128
in fiscal 1998 and all prior periods presented were retroactively restated. For
the years ended July 30, 2000, July 25, 1999 and July 26, 1998, basic and
diluted loss per share are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
JULY 30, 2000 JULY 25, 1999 JULY 26, 1998
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
LOSS
Loss before preferred stock dividends and accretion,
extraordinary items and cumulative effect of accounting
change................................................. $(30,133) $(27,950) $ (1,867)
Accretion of discount and dividends accrued on
mandatorily redeemable preferred stock................. 20,994 4,372 5,346
-------- -------- --------
Loss before extraordinary items and cumulative effect of
accounting change...................................... (51,127) (32,322) (7,213)
Extraordinary loss, net of taxes......................... 621 -- 5,081
Cumulative effect of accounting change, net of taxes..... 704 -- --
-------- -------- --------
Net loss available to common shareholders................ $(52,452) $(32,322) $(12,294)
======== ======== ========
SHARES
Total weighted average shares outstanding (basic and
diluted)............................................... 30,393 30,286 25,809
======== ======== ========
BASIC AND DILUTED LOSS PER COMMON SHARE
Loss before extraordinary items.......................... $ (1.69) $ (1.07) $ (0.28)
Extraordinary loss, net of taxes......................... (0.02) -- (0.20)
Cumulative effect of accounting change, net of taxes..... (0.02) -- --
-------- -------- --------
Net loss available to common shareholders................ $ (1.73) $ (1.07) $ (0.48)
======== ======== ========
</TABLE>
The Company has outstanding 186,626, 36,626 and 36,626 shares of convertible
preferred stock (represented by two separate classes) at July 30, 2000 and
July 25, 1999, and July 26, 1998, respectively. These shares are convertible
into shares of the Company's common stock. The common stock shares into which
these securities are convertible have not been included in the dilutive share
calculation as the impact of their inclusion would be anti-dilutive. The Company
also has 1,359,963, 2,746,048 and 2,567,673 exercisable options outstanding to
purchase shares of its common stock under the Company's stock option plan as of
July 30, 2000, July 25, 1999 and July 26, 1998, respectively. These shares are
also excluded from the dilutive share calculation as the impact of their
inclusion would also be anti-dilutive.
F-18
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
STOCK COMPENSATION
The Company's stock option plan is accounted for in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." The Company has adopted the disclosure requirements of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation" (See Note 12--Stock Option Plan).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts for cash and cash equivalents, restricted cash,
accounts receivable and accounts payable and other current liabilities
approximate fair value due to the short-term nature of these financial
instruments. The fair value of amounts outstanding under the Company's Senior
Credit Facility and certain other debt instruments approximates their recorded
values in all material respects, as determined by discounting future cash flows
at current market interest rates as of July 30, 2000. The fair value of the
Company's Senior Subordinated Notes has been estimated using quoted market
values. The fair value of the Company's other subordinated debentures have been
estimated using discounted cash flow analyses based on current borrowing rates
for debt with similar maturities and ratings.
The estimated fair values of the Senior Subordinated Notes and other
subordinated debentures at July 30, 2000 and July 25, 1999 are presented below
(in thousands):
<TABLE>
<CAPTION>
JULY 30, 2000 JULY 25, 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
12% Senior Subordinated Notes....... $117,512 $102,300 $117,240 $110,400
Other subordinated debentures....... $ 9,823 $ 8,616 $ 10,495 $ 9,417
</TABLE>
INCOME TAXES
The Company utilizes the asset and liability method of accounting for income
taxes, as set forth in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement and tax bases of assets
and liabilities, utilizing currently enacted tax rates. The effect of any future
change in tax rates is recognized in the period in which the change occurs.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements and related notes
have been reclassified to conform to the fiscal 2000 presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS
In fiscal 2000, the Company adopted American Institute of Certified Public
Accountants (AICPA) Statement Of Position 98-5, "Reporting on the Costs of
Start-Up Activities" ("SOP 98-5"). At adoption, SOP 98-5 required the Company to
write-off any unamortized start-up costs as a cumulative effect of change in
accounting principle and, going forward, expense all start-up activity costs as
they are incurred. The initial adoption of SOP 98-5 resulted in the write-off of
$1.2 million of start-up costs
F-19
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
that had previously been capitalized as of July 25, 1999. The net effect of the
write-off of $704,000 (which is net of income tax benefits of $449,000) has been
expensed and reflected as a cumulative effect of an accounting change in the
accompanying statement of operations for the year ended July 30, 2000.
In December 1999, the Securities Exchange Commission (SEC) staff released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides interpretive guidance on the recognition,
presentation and disclosure of revenue in the financial statements. The Company
does not believe that the adoption of SAB 101 will have a material effect on the
Company's consolidated financial results.
Effective July 31, 2000, the Company will adopt Statement of Financial
Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES--DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT
NO. 133--AN AMENDMENT OF FASB STATEMENT NO. 133 and SFAS No. 138, ACCOUNTING FOR
CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES--AN AMENDMENT OF
FASB STATEMENT NO. 133 (collectively, SFAS 133 as amended). SFAS 133 as amended
is required to be adopted no later than the beginning of the fiscal reporting
period beginning June 15, 2000, which for the Company is July 31, 2000. These
standards are to be adopted as a change in accounting principle and cannot be
applied retroactively to financial statements of prior periods.
SFAS 133 and 138 require that derivatives be recorded on the balance sheet
as an asset or liability at fair value. SFAS 133 as amended require that
derivatives that are not hedges must be recorded at fair value through earnings,
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative instrument's gains and losses to offset
related results on the hedged item in the income statement, to the extent
effective, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting.
SFAS 133 as amended, in part, allows special hedge accounting for fair value and
cash flow hedges. The statement provides that the gain or loss on a derivative
instrument designated and qualifying as a fair value hedging instrument as well
as the offsetting loss or gain on the hedged item attributable to the hedged
risk be recognized currently in earnings in the same accounting period.
SFAS 133 as amended provides that the effective portion of the gain or loss on a
derivative instrument designated and qualifying as a cash flow hedging
instrument be reported as a component of other comprehensive income and be
reclassified into earnings in the same period or periods during which the hedged
forecasted transaction affects earnings. The ineffective portion of a
derivative's change in fair value is recognized currently through earnings
regardless of whether the instrument is designated as a hedge.
The Company has five interest rate swap contracts outstanding as of
July 30, 2000. Two of these contracts have been designated as cash flow hedges.
CASH FLOW HEDGES
The Company has entered into two interest rate swap agreements, with a total
notional amount of $75 million. Under these arrangements, which may be
terminated by the floating rate payer on November 17, 2000, the Company receives
the 30-day LIBOR rate and pays a fixed rate of 5.68%. These swaps have been
treated, prior to adoption, as hedges and accounted for as such. No amounts were
recorded on the Consolidated Balance Sheet as of July 30, 2000 in connection
with these instruments, and the net effect of the hedges was to record interest
expense at the fixed rate of 5.68%
F-20
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES (CONTINUED)
plus 3.5% (based on the Company's current leverage) on the first $75 million of
debt. These swaps have been designated as cash flow hedges of variable future
cash flows associated with the interest on the Senior Credit Facility through
November 17, 2000. Upon adoption, the fair value of these swaps will be recorded
as an asset on the balance sheet with a corresponding credit to other
comprehensive income. Subsequent changes in fair value of the swaps will be
recorded through other comprehensive income, except for changes related to
ineffectiveness during the period these instruments are designated as hedges.
The Company does not currently anticipate ineffectiveness under these hedges
through November 17, 2000. The net effect of the cash flow hedges will be to
record interest expense at the fixed rate of 5.68% plus 3.5% (based on the
Company's current leverage) on the first $75 million of debt. If the swap
agreements are not terminated on November 17, 2000 all subsequent changes in the
fair value will be accounted for through earnings.
OTHER DERIVATIVES
The Company entered into three interest rate swap agreements that do not
qualify for hedge accounting under SFAS 133 as amended. The net effect of these
swaps will be interest savings to the Company of $2.1 million over the life of
the Senior Subordinated Notes. As of July 30, 2000, the Company had $8,592,185
recorded in Other Long Term Liabilities in the accompanying Consolidated Balance
Sheet and had been recording the net effect of the interest savings on a
straight-line basis over the life of the agreements through the income
statement. Upon adoption, the fair value of these swaps will be recorded as an
asset and a liability with a corresponding entry to cumulative effect of the
change in accounting principle in earnings; and the amount recorded in Other
Long Term Liabilities will be recognized through a cumulative effect of the
change in accounting principle in earnings. Subsequent changes in fair value of
the swaps will be recorded through the income statement.
NET EFFECT OF THE CHANGE IN ACCOUNTING PRINCIPLE
<TABLE>
<CAPTION>
CUMULATIVE EFFECT OF
OTHER OTHER CHANGE IN
ASSET- LIABILITY- LONG TERM COMPREHENSIVE ACCOUNTING PRINCIPLE
DEBIT/(CREDIT) SWAP SWAP LIABILITIES INCOME IN EARNINGS
-------------- ---------- ------------ ----------- ------------- --------------------
<S> <C> <C> <C> <C> <C>
Cash flow hedges.......... $ 258,862 $ -- $ -- $ (258,862) $ --
Other Derivatives......... 6,519,980 (11,065,538) 8,592,185 (4,046,627)
---------- ------------ ---------- ---------- -----------
Total Derivatives......... $6,778,842 $(11,065,538) $8,592,185 $ (258,862) $(4,046,627)
========== ============ ========== ========== ===========
</TABLE>
The Company has no embedded derivatives under SFAS 133 as amended and is not
aware of the potential impact of any other significant matter that may result
from the adoption of these standards.
3. BUSINESS ACQUISITIONS AND DIVESTMENTS
KAMORI COMBINED ENTERPRISES ACQUISITION
On November 12, 1997, the Company acquired all of the outstanding shares of
common stock of Kamori Combined Entities (the "Kamori Acquisition") which
included the Steamboat Ski & Resort Corporation in Steamboat Springs, Colorado
("Steamboat"), the Heavenly Valley Ski & Resort Corporation in Lake Tahoe,
California/Nevada ("Heavenly") and the Sabal Point Golf Course in Orlando,
Florida ("Sabal Point") for approximately $300.5 million, including closing
costs and
F-21
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. BUSINESS ACQUISITIONS AND DIVESTMENTS (CONTINUED)
adjustments. Steamboat and Heavenly are major destination ski resorts while
Sabal Point is a golf, tennis and swimming club. The acquisition was accounted
for using the purchase method of accounting and, accordingly, the results of
operations subsequent to November 12, 1997 are included in the accompanying
consolidated financial statements. The purchase price was allocated to the
assets acquired and the liabilities assumed based on their fair market values at
the date of acquisition as follows (in thousands):
<TABLE>
<CAPTION>
FAIR VALUE OF
NET ASSETS ACQUIRED
-------------------
<S> <C>
Cash........................................................ $ 8,771
Accounts receivable......................................... 129
Inventory................................................... 3,983
Prepaid expenses............................................ 486
Property and equipment, net................................. 183,922
Asset held-for-sale......................................... 5,780
Real estate developed for sale.............................. 25,624
Goodwill.................................................... 60,177
Intangible assets........................................... 22,200
Long-term investments....................................... 5,000
Other assets................................................ 177
Deferred income taxes....................................... 2,443
--------
Total assets.............................................. 318,692
--------
Accounts payable and other current liabilities.............. (10,289)
Deposits and deferred revenue............................... (6,702)
Deferred income taxes....................................... (793)
Minority interest........................................... (364)
--------
Total liabilities......................................... (18,148)
--------
Net assets acquired....................................... $300,544
========
</TABLE>
Amortization of goodwill and intangible assets charged to depreciation and
amortization was $1.3 million and $544,000, respectively, for fiscal 1998,
$1.3 million and $704,000, respectively, for fiscal 1999, and $1.5 million and
$761,000, respectively, for fiscal 2000.
The asset held for sale per above of $5.8 million represents the carrying
value of Sabal Point. Sabal Point was subsequently sold on February 2, 1998 for
total proceeds of $5.7 million. As Sabal Point was identified as held for sale
as of the Kamori Acquisition date, the operating results of Sabal Point from
that date through February 2, 1998 were excluded from the Company's consolidated
operating results and were included in the determination of the carrying value
of $5.8 million. No gain or loss was recognized from the sale of Sabal Point as
the difference between the carrying value and the proceeds was treated as an
adjustment to the original purchase price allocation.
F-22
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JULY 30, 2000 JULY 25, 1999
------------- -------------
<S> <C> <C>
Buildings and grounds................................ $195,847 $176,952
Machinery and equipment.............................. 171,037 166,475
Lifts and lift lines................................. 162,283 161,102
Trails............................................... 38,061 37,130
Land improvements.................................... 18,708 19,006
-------- --------
585,936 560,665
Less: accumulated depreciation....................... 146,973 111,288
-------- --------
438,963 449,377
Land................................................. 78,486 72,249
Construction-in-process.............................. 16,629 7,528
-------- --------
Property and equipment, net.......................... $534,078 $529,154
======== ========
</TABLE>
Property and equipment includes approximately $53.3 million and
$52.3 million of machinery and equipment and lifts held under capital leases at
July 30, 2000 and July 25, 1999, respectively. At July 30, 2000 and July 25,
1999, related accumulated amortization on property and equipment under capital
leases was approximately $13.1 million and $9.0 million, respectively.
Amortization expense for property and equipment under capital leases was
approximately $4.2 million, $4.4 million and $2.2 million for 2000, 1999 and
1998, respectively. Total depreciation and amortization expense relating to all
property and equipment was $41.9 million, $40.4 million and $34.0 million for
2000, 1999 and 1998, respectively.
F-23
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of (dollar amounts in thousands):
<TABLE>
<CAPTION>
JULY 30, JULY 25,
2000 1999
-------- --------
<S> <C> <C>
Senior Credit Facility (See Note 7--Senior Credit Facility) $118,037 $200,485
Real estate development note payable with a face value of
$105,000. The note bears interest at a variable rate of
prime plus 2.5% per annum, which is accrued monthly.
Principal and interest on the note are payable as real
estate quartershares are sold. Any remaining principal and
accrued interest is due in March 2002. The note is
collateralized by the real estate developed for sale of
GSRP. 92,083 55,796
Real estate development term loan facility with a face value
of $58,000 to finance the working capital of the Company's
real estate subsidiaries. The facility bears interest at a
variable rate equal to the lender's base rate plus 8.25%
or a current rate of 16%. Interest is payable monthly in
arrears. Any remaining principal is due June 30, 2001.
This facility is underwritten by substantially all the
Resort Properties subsidiaries. This facility was
restructured into a new $73 million facility subsequent to
fiscal 2000 year-end (See Note 16--Subsequent Events). 53,892 52,654
Note payable in an aggregate principal amount of $3,530 for
forbearance fees for the amended and restated real estate
development term loan facility described above. The note
bears interest at 12% per annum and is payable at
maturity. The Balance is due in full at February 2002.
This note was paid off subsequent to fiscal 2000 as part
of the restructuring of the real estate term loan facility
(See Note 16--Subsequent Events). 3,530 3,530
Real estate development note payable with a face value of
$10,000 to provide additional funds for the completion of
the Steamboat Grand Hotel. The note bears interest at 20%
per annum, half of which is payable monthly in arrears and
the remainder is deferred until final payment is made. The
stated maturity date is August 1, 2003. 2,588 --
Note payable with a face value of $2,250. The note bears
interest at 9% per annum, which is payable monthly
beginning January 1998 for a 15-year term. The principal
is due in full in December 2012. 2,250 2,250
Note payable with a face value of $2,000. The note bears
interest at 10% per annum which is payable upon the
maturity of the note. A principal payment of $1,000 was
made in June 1999. The remaining principal and accrued
interest was paid in full in June 2000. -- 1,000
Subordinated debentures issued with an original face value
of $2,101. The initial coupon rate is 6% per annum and is
adjusted annually in accordance with the agreement.
Interest is payable annually in May beginning in 1995. The
debentures mature in April 2002. 1,800 1,912
</TABLE>
F-24
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
JULY 30, JULY 25,
2000 1999
-------- --------
<S> <C> <C>
Note payable with a face value of $1,720. The note bears
interest at 12% per annum, which is payable quarterly, in
arrears, beginning October 1998. The principal was paid in
full in July 2000. -- 1,720
Note payable with a face value of $1,600. Interest is
payable monthly beginning January 1998 for a 30-year term.
The interest rate is 7% per annum for the first 10 years,
8.44% per annum for the second 10 years and 10.55% per
annum for the final 10 years. The principal is due in full
in December 2027. 1,600 1,600
Note payable with a face value of $1,000. The note bears
interest at 14% per annum, which is payable monthly
beginning in August 1997. The principal was paid in full
in July 2000. -- 1,000
Note payable with a face value of $2,097 and bearing
interest at the rate of 8.25% per annum. The principal and
interest were paid in full upon completion of the Sundial
Lodge at the Canyons resort in fiscal 2000. -- 2,097
Note payable with a face value of $6,600. The note bears
interest at a rate of 8.5% per annum, which is paid
quarterly, in arrears. Principal payments of $4,720 were
made in fiscal 1999. The remaining balance was paid in
full upon completion of the Grand Summit Hotel at the
Canyons resort in fiscal 2000. -- 1,880
Real estate development note payable with a face value of
$29,000. The note bears interest at a variable rate of
prime plus 1/4% and is payable monthly. The principal was
paid in full upon completion of the Sundial Lodge project
at the Company's Canyons resort in fiscal 2000. -- 6,858
Real estate development note payable with a face value of
$2,500 for the construction of employee housing at the
Company's Steamboat resort. The note bears interest at a
variable rate of prime plus 1/4%. Principal and interest
of $17 are payable monthly. The loan will be converted to
a 15-year amortization when the project is completed. 2,397 1,831
Note payable with face value of $2,294. The note bears
interest at 7.83% per annum. Interest and principal
payments of $22 are payable monthly beginning March 1998.
The principal was paid in full in fiscal 2000. -- 2,154
Obligations under capital leases 28,630 33,642
Other notes payable 1,542 4,317
-------- --------
308,349 374,726
-------- --------
Less: current portion 58,508 60,882
-------- --------
Long-term debt, excluding current portion $249,841 $313,844
======== ========
</TABLE>
F-25
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
The carrying values of the above debt instruments approximate their
respective fair values in all material respects, determined by discounting
future cash flows at current market interest rates as of July 30, 2000.
At July 30, 2000, the Company had letters of credit outstanding totaling
$5.9 million.
The non-current portion of long-term debt matures as follows (in thousands):
<TABLE>
<CAPTION>
SUBORDINATED
LONG-TERM NOTES AND TOTAL
DEBT DEBENTURES DEBT
--------- ------------ --------
<S> <C> <C> <C>
2002......................................... $ 60,764 $ 549 $61,180
2003......................................... 50,892 1,074 51,985
2004......................................... 73,745 1,466 75,231
2005......................................... 33,152 -- 33,152
2006 and thereafter.......................... 35,600 126,209 161,809
Interest related to capitalized leases....... (4,245) -- (4,389)
Debt discount................................ (67) (2,488) (2,555)
-------- -------- -------
$249,841 $126,810 376,651
======== ======== =======
</TABLE>
6. SUBORDINATED NOTES AND DEBENTURES
On June 25, 1996, in connection with the S-K-I Acquisition, ASC East issued
$120.0 million of 12% Senior Subordinated Notes (the "Notes"). Pursuant to a
registration rights agreement, ASC East filed a registration statement with
respect to an offer to exchange the Notes for a new issue of notes of ASC East
registered under the Securities Act of 1933, with identical terms. The
registration statement became effective in November 1996.
Concurrently with the Offering, the Company solicited and received the
required consents from the holders of the Notes to amend the Notes indenture to
permit the consummation of the Offering without requiring the Company to make a
Change of Control Offer (as defined). In connection with the consent
solicitation, the Company paid a customary fee to the consenting holders of the
Notes.
In order to comply with the conditions to closing the Series B Preferred
Stock sale (See Note 9--Mandatorily Redeemable Securities), certain amendments
were made to the Notes. One of the amendments permitted the consummation of a
merger of two of the Company's wholly owned subsidiaries, ASC East and ASC West,
with and into ASC. This merger was approved by the noteholders on August 1, 1999
and a payment of approximately $1.5 million was paid to the holders of the
Notes. ASC, ASC East and ASC West were merged on October 6, 1999. In connection
with the merger, ASC assumed all liabilities of ASC East and ASC West and became
the primary obligor under the Notes. In addition, the then current subsidiaries
of ASC and ASC West, as well as ASC Utah, also became additional guarantors
under the Indenture. As a result of the additional guarantee given by certain
subsidiaries of the Company, the noteholders under the Indenture will have
priority over the equity holders of the Company with respect to any claims made
on the assets of those subsidiaries until the obligations under the Indenture
have been satisfied.
The Notes are general unsecured obligations of ASC, subordinated in right of
payment to all existing and future senior debt of ASC, including all borrowings
of the Company under the Senior
F-26
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SUBORDINATED NOTES AND DEBENTURES (CONTINUED)
Credit Facility. The Notes are fully and unconditionally guaranteed by the
Company and all its subsidiaries with the exception of Ski Insurance, Killington
West, Ltd., Mountain Water Company, Uplands Water Company, Club
Sugarbush, Inc., Walton Pond Apartments, Inc. and Deerfield Operating Company.
The guarantor subsidiaries are wholly owned subsidiaries of the Company and the
guarantees are full, unconditional, and joint and several. The Notes mature
July 15, 2006, and will be redeemable at the option of ASC, in whole or in part,
at any time after July 15, 2001. The Notes were issued with an original issue
discount of $3.4 million. Interest on the Notes is payable semi-annually on
January 15 and July 15 of each year. Interest expense on the Notes amounted to
$14.6 million in each of fiscal 1998, 1999 and 2000.
ASC East incurred financing costs of $6.7 million in connection with the
issuance of the Notes and the Company incurred an additional $2.5 million in
costs related to the amendments made in connection with the Series B Preferred
Stock sale. These amounts are recorded as deferred financing costs, net of
accumulated amortization, in the accompanying consolidated balance sheets.
Amortization expense included in the accompanying consolidated statement of
operations for the years ended July 26, 1998, July 25, 1999 and July 30, 2000
amounted to $713,000, $668,600 and $1.0 million, respectively.
The Company has entered into a series of (non-cancelable) interest rate swap
agreements in connection with its Notes, which were intended to defer a portion
of the cash interest payments on the Notes into later years. The following table
illustrates the key factors of each of these agreements:
<TABLE>
<CAPTION>
FEBRUARY 9, 1998--JULY 15, 2001 JULY 16, 2001--JULY 15, 2006
------------------------------------------------ ------------------------------------------------
NOTIONAL COMPANY COMPANY NOTIONAL COMPANY COMPANY
AMOUNT PAYS RECEIVES AMOUNT PAYS RECEIVES
------------ --------------- --------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Agreement 1.......... $120,000,000 9.01% 6-month LIBOR $127,500,000 9.01% 6-month LIBOR
Agreement 2.......... $120,000,000 6-month LIBOR 12.00% $127,500,000 6-month LIBOR 7.40%
</TABLE>
As a result of entering into this interest rate swap arrangement, the
Company has fixed the cash-pay rate on the Notes until their maturity in
July 2006. The net effect of the swap agreements will result in a $2.1 million
interest saving to the Company over the life of the agreements. This amount is
currently being realized against interest expense on a straight-line basis
prospectively from the second fiscal quarter of 2000 until July 2006. The
cumulative net proceeds to the Company received from this arrangement of
$5.1 million and $8.6 million as of July 25, 1999 and July 30, 2000,
respectively, are included as other long-term liabilities in the accompanying
consolidated balance sheets.
A portion of the proceeds from the Senior Credit Facility (See
Note 7--Senior Credit Facility) were used to redeem all of the Company's
outstanding 13.75% Subordinated Discount Notes ("Subordinated Notes"). The
indenture relating to the Subordinated Notes provided for a redemption price
equal to 113.75% of the carrying value of the Subordinated Notes on the
redemption date. The Company recorded extraordinary losses before any benefit
for income taxes in Fiscal 1998 of approximately $4.3 million related to the
prepayment of the Subordinated Notes and $1.0 million related to the write-off
of deferred financing costs. These losses are included in the total
extraordinary loss in the accompanying consolidated statement of operations for
the year ended July 26, 1998.
F-27
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SUBORDINATED NOTES AND DEBENTURES (CONTINUED)
Other subordinated debentures owed by the Company at July 30, 2000 are due
as follows (in thousands):
<TABLE>
<CAPTION>
INTEREST PRINCIPAL
YEAR RATE AMOUNT
---- -------- ---------
<S> <C> <C>
2001.................................. 8% $ 525
2002.................................. 8% 549
2003.................................. 8% 1,074
2004.................................. 8% 1,466
2010.................................. 8% 1,292
2012.................................. 6% 1,155
2013.................................. 6% 1,065
2015.................................. 6% 1,500
2016.................................. 6% 1,196
------
$9,822
======
</TABLE>
7. SENIOR CREDIT FACILITY
In connection with the Offering, the Company established a senior credit
facility on November 12, 1997 and repaid the indebtedness under the Company's
then-existing credit facility. In connection with the repayment of the old
credit facility, the Company wrote off deferred financing costs of $1.2 million
and incurred prepayment penalties of $433,000. These amounts are included in the
total extraordinary loss in the accompanying consolidated statement of
operations for the year ended July 26, 1998.
On October 12, 1999, this senior credit facility was amended, restated and
consolidated from two sub-facilities totaling $215 million to a single facility
totaling $165 million (the "Senior Credit Facility"). The Senior Credit Facility
consists of a revolving credit facility in the amount of $100 million and a term
facility in the amount of $65 million. The revolving portion of the Senior
Credit Facility matures on May 31, 2004, and the term portion matures on
May 31, 2006. The Senior Credit Facility is secured by substantially all the
assets of ASC and its subsidiaries, except the real estate development
subsidiaries, which are not borrowers under the Senior Credit Facility
(collectively, the borrowing subsidiaries are referred to as the "Restricted
Subsidiaries"). In conjunction with the restructuring of the Senior Credit
Facility, the Company wrote off a pro-rata portion of its existing deferred
financing costs in the amount of $1.0 million, or $621,000 net of income taxes,
which is included in the accompanying consolidated statement of operations for
the year ended July 30, 2000 as an extraordinary loss.
At July 30, 2000, the revolving portion of the Senior Credit Facility had
outstanding borrowings of $53.7 million and the term portion of the Senior
Credit Facility had outstanding borrowings of $64.4 million, all of which were
under contracts which bear interest at the 30-day LIBOR rate plus an incremental
margin based on the Company's leverage (a margin of 3.5% for revolving advances
and 4.0% for term loan advances as of July 30, 2000, both being the maximum
possible margins under the facility). The Company has entered into two interest
rate swap agreements, with a total notional amount of $75 million, in connection
with the Senior Credit Facility which effectively swap a portion of the variable
interest rate borrowings to fixed rate borrowings. Under this arrangement, which
will terminate November 17, 2000, the Company receives the 30-day LIBOR rate and
pays a fixed rate of
F-28
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SENIOR CREDIT FACILITY (CONTINUED)
5.68%. In effect, the first $75 million of borrowings under the Senior Credit
Facility are fixed at 5.68% plus the leverage-based margin and all borrowings in
excess of $75 million will bear a variable interest rate based on either the
30-day LIBOR or the Fleet Boston base lending rate, plus applicable margins
based on the Company's leverage position. At July 30, 2000, the Company had
outstanding $43.1 million in excess of the $75 million in fixed-rate borrowings
under the revolving portion of the Senior Credit Facility which currently bears
interest at the rate of 10.27% (30-day LIBOR rate of 6.77% plus a leverage-based
margin of 3.5%).
Both the revolving and term portions of the Senior Credit Facility accrue
interest daily and pay interest quarterly, in arrears. At July 30, 2000, accrued
interest for the revolving and term portions of the Senior Credit Facility was
$1.1 million and $1.7 million, respectively.
The Senior Credit Facility contains affirmative, negative and financial
covenants customary for this type of credit facility, including maintenance of
certain financial ratios. The revolving portion of the Senior Credit Facility is
subject to an annual 30-day clean-down requirement, which period must include
April 30 of each year, during which the sum of the outstanding principal balance
and letter of credit exposure under the revolving portion of the facility is not
permitted to exceed $25 million for fiscal 2000 and $35 million for each fiscal
year thereafter. The Company successfully complied with the clean-down
requirement for fiscal 2000.
The Senior Credit Facility contains restrictions on the payment of dividends
by the Company on its common stock. Those restrictions prohibit the payment of
dividends in excess of 50% of the Restricted Subsidiaries' consolidated net
income after April 25, 1999, and further prohibit the payment of dividends under
any circumstances when the effect of such payment would be to cause the
Restricted Subsidiaries' debt to EBITDA ratio (as defined within the credit
agreement) to exceed 4.0 to 1.0.
The maximum availability under the revolving portion of the Senior Credit
Facility reduces over its term by certain prescribed amounts. The term portion
of the Senior Credit Facility amortizes in five annual installments of $650,000
payable on May 31 of each year, commencing May 31, 2000, with the remaining
portion of the principal due in two substantially equal installments on May 31,
2005 and May 31, 2006. In addition, the Senior Credit Facility requires
mandatory prepayment of the term portion and a mandatory reduction in the
availability under the revolving portion of an amount equal to 50% of
Consolidated Excess Cash Flows (as defined in the credit agreement) during any
period in which the Excess Cash Flow Leverage Ratio (as defined in the credit
agreement) exceeds 3.50 to 1. In no event, however, will such mandatory
prepayments reduce the revolving portion of the facility below $74.8 million.
The Senior Credit Facility also places a maximum level of non-real estate
capital expenditures of $20 million for fiscal 2000 and $13 million for fiscal
2001 (exclusive of certain capital expenditures in connection with the sale of
the Series B Preferred Stock). Following fiscal 2001, annual resort capital
expenditures (exclusive of real estate capital expenditures) are capped at the
lesser of (i) $35 million or (ii) the total of the Restricted Subsidiaries'
consolidated EBITDA (as defined therein) for the four fiscal quarters ended in
April of the previous fiscal year less consolidated debt service for the same
period. In addition to the foregoing amounts, the Company is permitted to and
expects to make capital expenditures of up to $30 million for the purchase and
construction of a new gondola at its Heavenly resort in Lake Tahoe, Nevada.
F-29
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SENIOR CREDIT FACILITY (CONTINUED)
The Company entered into an amendment to the Senior Credit Facility
effective March 6, 2000 (the "Credit Facility Amendment") which significantly
modified the covenant requirements, effective as of the end of the second
quarter of fiscal 2000. The Credit Facility Amendment requires the following
minimum quarterly EBITDA levels:
<TABLE>
<CAPTION>
FISCAL QUARTER MINIMUM EBITDA
-------------- --------------
<S> <C>
2000 Quarter 4........................ $(20,000,000)
2001 Quarter 1........................ $(20,000,000)
2001 Quarter 2........................ $ 20,000,000
2001 Quarter 3........................ $ 65,000,000
2001 Quarter 4........................ $(20,000,000)
2002 Quarter 1........................ $(20,000,000)
2002 Quarter 2........................ $ 22,000,000
</TABLE>
The Credit Facility Amendment also places restrictions on the maximum amount
outstanding (excluding letters of credit) under the revolving portion of the
Senior Credit Facility for the period from May 1 through December 3, 2000, after
which time these restrictions will not recur in future periods. During this
period, revolving credit advances shall not exceed the following amounts at any
time during the indicated monthly periods:
<TABLE>
<CAPTION>
MAXIMUM
MONTHLY PERIOD ENDING REVOLVER BALANCE
--------------------- ----------------
<S> <C>
July 30, 2000.......................... $60,000,000
September 3, 2000...................... $70,000,000
October 1, 2000........................ $80,000,000
October 29, 2000....................... $85,000,000
December 3, 2000....................... $90,000,000
</TABLE>
8. INCOME TAXES
The provision (benefit) for income taxes charged to continuing operations
was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
JULY 30, 2000 JULY 25, 1999 JULY 26, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Current tax Provision:
Federal................................ $ -- $ -- $ --
State.................................. -- -- --
Deferred tax provision (benefit):
Federal................................ (7,728) (11,939) 580
State.................................. 1,923 (3,118) (1,354)
------- -------- -------
Total benefit............................ $(5,805) $(15,057) $ (774)
======= ======== =======
</TABLE>
F-30
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the tax impact of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. Under SFAS 109, the
benefit associated with future deductible temporary differences and operating
loss or credit carryforwards is recognized if it is more likely than not that a
benefit will be realized. Deferred tax expense (benefit) represents the change
in the net deferred tax asset or liability balance.
Deferred tax liabilities (assets) are comprised of the following at
July 30, 2000 and July 25, 1999 (in thousands):
<TABLE>
<CAPTION>
JULY 30, 2000 JULY 25, 1999
------------- -------------
<S> <C> <C>
Property and equipment basis differential............ $ 57,407 $ 53,814
Other................................................ 1,002 640
-------- --------
Gross deferred tax liabilities....................... 58,409 54,454
Tax loss and credit carryforwards.................... (57,272) (30,887)
Capitalized costs.................................... (3,849) (1,856)
Deferred revenue and contracts....................... (2,506) (10,536)
Stock compensation charge............................ (1,740) (3,112)
Reserves and accruals................................ (4,390) (4,239)
Other................................................ -- (661)
-------- --------
Gross deferred tax assets............................ (69,757) (51,291)
Valuation allowance.................................. 9,982 2,626
-------- --------
Net deferred tax liability (asset)................... $ (1,366) $ 5,789
======== ========
</TABLE>
The provision (benefit) for income taxes differs from the amount of income
tax determined by applying the applicable U.S. statutory income tax rate of 35%
to income (loss) before provision (benefit) for income taxes, extraordinary loss
and cumulative effect of change in accounting principle as a result of the
following differences (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
JULY 30, 2000 JULY 25, 1999 JULY 26, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Income tax benefit at the statutory U.S.
tax rates.............................. $(12,578) $(15,052) $(1,080)
Increase (decrease) in rates resulting
from:
State taxes, net....................... 1,923 (3,118) (1,354)
Change in valuation allowance.......... 3,000 -- 250
Stock option compensation.............. 761 1,623 1,019
Nondeductible items.................... 498 848 634
Other.................................. 591 642 (243)
-------- -------- -------
Income tax benefit at the effective tax
rates.................................. $ (5,805) $(15,057) $ (774)
======== ======== =======
</TABLE>
At July 30, 2000, the Company has federal net operating loss ("NOL")
carryforwards of approximately $127.3 million which expire in varying amounts
though the year 2020, a federal capital
F-31
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
loss carryover of approximately $2.9 million that expires in the years 2003 and
2004, and approximately $630,000 in general business credit carryforwards which
expire in varying amounts through 2020. Internal Revenue Code Section 382 limits
the amount of NOL carryforwards incurred before a change in ownership, as
defined, that can be used annually against income generated after the change in
ownership. The Company experienced a change in ownership both in November of
1997 as a result of the Offering and in August of 1999 as a result of the Oak
Hill Transaction. The use of approximately $84.9 million of the federal NOL
carryovers are subject to limitation under Section 382 as a result of the Oak
Hill Transaction. In addition, approximately $27.3 million of the federal NOL
carryforwards are subject to an additional limitation under Section 382 as a
result of the Offering. Because of recent acquisitions, the limitation for both
ownership changes is required to be allocated to the various subsidiaries based
on their relative fair market values. In addition, certain subsidiaries have
separate pre-change in ownership losses, which are subject to additional annual
limitations as a result of previous changes in ownership. Subsequent changes in
ownership could further affect the limitations in future years.
In addition to the limitations under Section 382, approximately
$6.8 million of the federal NOL carryovers are from separate return years, as
defined in the regulations to the Internal Revenue Code, of certain subsidiaries
(or sub-groups), and may only be used to offset each subsidiary's (or
sub-group's) contribution to consolidated taxable income in future years.
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. During fiscal
2000, the valuation allowance was increased by approximately $7.4 million, from
$2.6 million at July 25, 1999 to $10.0 million at July 30, 2000. As a result of
the Oak Hill Transaction, the realization of the tax benefit of certain of the
Company's NOL carryovers and other tax attributes is dependent upon the
occurrence of certain future events. It is the judgement of management that a
valuation allowance of $3.0 million against its deferred tax assets for NOL
carryforwards and other tax attributes is appropriate because it is more likely
than not that the benefit of such losses and attributes will not be realized.
Based on facts known at this time, the Company expects to substantially realize
the benefit of the remainder of its NOLs and other tax attributes affected by
the Oak Hill Transaction. The remaining $4.4 million increase in the valuation
allowance primarily relates to the benefit of certain state NOL carryovers.
Based on the specific state rules for the use of these NOL carryovers and the
Company's operations in those states, the Company believes that it is more
likely than not that the benefits of such state NOL carryforwards will not be
realized. Management believes that the valuation allowance of $10.0 million as
of July 30, 2000 is appropriate based on the change of ownership events and the
resulting annual limitations and the Company's business operations and plans.
9. MANDATORILY REDEEMABLE SECURITIES
SERIES A PREFERRED STOCK
Pursuant to a Securities Purchase Agreement (the "Series A Agreement") dated
July 2, 1997 (as amended July 16, 1997), the Company issued 17,500 shares of its
Series A 14% Exchangeable Preferred Stock (the "Series A Preferred Stock") in a
private offering to an institutional investor. The Company incurred
$1.1 million in expenses in connection with the issuance of the Preferred Stock.
Pursuant to the Series A Agreement, the Company issued $17.5 million
aggregate principal amount of its 14% Senior Exchangeable Notes Due 2002 (the
"Exchangeable Notes") on July 28, 1997 in a
F-32
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MANDATORILY REDEEMABLE SECURITIES (CONTINUED)
private offering to an institutional investor. The Company incurred deferred
financing costs totaling $1.1 million in connection with the issuance of the
Exchangeable Notes. The Exchangeable Notes bore interest at a rate of 14% per
annum and mature on July 28, 2002. Interest on the Exchangeable Notes was
payable in cash or additional Exchangeable Notes, at the option of the Company.
On November 15, 1997, subsequent to the completion of the Offering, each
share of Series A Preferred Stock and the Exchangeable Notes were converted into
shares of Mandatorily Redeemable 10 1/2% Preferred Stock. The total number of
Mandatorily Redeemable 10 1/2% Preferred Stock shares issued in association with
the exchange were 36,626 and have a face value of $1,000 per share. The carrying
value of the Series A Preferred Stock and Exchangeable Notes just prior to the
conversion were $18.4 million and $18.2 million, respectively. The Company
incurred an extraordinary loss before income tax benefit of $1.0 million upon
the conversion of the Preferred Stock and Exchangeable Notes as a result of the
write-off of unamortized deferred financing costs relating to the Exchangeable
Notes.
Under the Series A Agreement, the Mandatorily Redeemable 10 1/2% Preferred
Stock shares are exchangeable at the option of the holder into shares of the
Company's Common Stock at a conversion price of $17.10 for each common share. In
the event the Mandatorily Redeemable 10 1/2% Preferred Stock is held to the
maturity date of November 15, 2002, the Company will be required to pay the
holder in cash the face value of $36.6 million plus cumulative dividends in
arrears.
In the event of a default, as defined in the Series A Agreement, there shall
be a mandatory redemption of the Mandatorily Redeemable 10 1/2% Preferred Stock
by the Company unless the holder of the stock elects instead to have visitation
rights to meetings of both the Board of Directors and Management Committees
until the event of default is cured.
The Mandatorily Redeemable 10 1/2% Preferred Stock ranks senior in
liquidation preference to all Common Stock and Class A Common Stock outstanding
at July 30, 2000 as well as any Common Stock and Class A Common Stock issued in
the future.
SERIES B PREFERRED STOCK
Pursuant to a Preferred Stock Subscription Agreement (the "Series B
Agreement") dated July 9, 1999, the Company sold 150,000 shares of its 8.5%
Series B Convertible Participating Preferred Stock ("Series B Preferred Stock")
on August 9, 1999 to Oak Hill Capital Partners, L.P. and certain related
entities ("Oak Hill") for $150 million. The Company used approximately
$129 million of the proceeds to reduce indebtedness under its Senior Credit
Facility, approximately $30 million of which has been reborrowed and invested in
the Company's principal real estate development subsidiary, Resort Properties.
The remainder of the proceeds were used to (1) pay approximately $16 million in
fees and expenses in connection with the Series B Preferred Stock sale
(approximately $13 million) and related transactions (approximately
$3 million), and (2) acquire from Mr. Otten certain strategic assets and to
repay a demand note issued by a subsidiary of the Company to Mr. Otten, in the
aggregate amount of $5.4 million.
The Series B Preferred Stock is convertible into shares of the Company's
common stock at an initial conversion price of $5.25 per share of common stock.
The initial conversion price is subject to an antidilution adjustment. Assuming
all shares of the Series B Preferred Stock are converted into the Company's
common stock at the initial (and current) conversion price, Oak Hill would own
approximately 50.0% of the Company's outstanding common stock and Class A common
stock as of
F-33
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MANDATORILY REDEEMABLE SECURITIES (CONTINUED)
July 30, 2000. Oak Hill is entitled to vote its shares of Series B Preferred
Stock on matters (other than the election of Directors) as if its shares were
converted into the Company's common stock. In addition, Oak Hill as the holder
of Series B Preferred Stock has class voting rights to elect Directors to the
Company's Board of Directors. Furthermore, under the Series B Agreement, Oak
Hill and the Chairman and Chief Executive Officer of the Company, Mr. Otten,
have agreed to use best efforts and to vote their shares in order to ensure that
each of them is able to appoint up to four Directors to the Board (depending on
their shareholdings). Therefore, under the Series B Agreement and the Company's
certificate of incorporation, Oak Hill and Mr. Otten together elect eight of the
eleven members of the Company's Board.
Dividends on the Series B Preferred Stock are payable at the rate of 8.5%
per year. For the first five years, the Company may accrete and compound
dividends payable to the liquidation price instead of paying cash dividends, in
which case the dividend rate will increase to 9.5% after January 31, 2001, and
to 10.5% after January 31, 2002. The Series B Agreement requires dividends to be
paid in cash after July 31, 2004. The dividend rate will revert back to 8.5% at
the time the Company begins paying the dividend in cash. If the Company elects
to accrue dividends on the Series B Preferred Stock to the liquidation price for
the first five years, and thereafter pay all dividends in cash when due,
assuming no intervening stock issuances or repurchases by the Company, the
Series B Preferred Stock would be convertible into 60.4% of the Company's common
stock after the fifth anniversary of its issuance. The Company is currently
accruing dividends on the Series B Preferred Stock at an effective rate of 9.7%,
with the assumption that dividends will not be paid in cash until the fifth
anniversary of the issuance.
The Stockholders' Agreement, dated August 9, 1999, was amended as of
July 31, 2000 (See Note 16--Subsequent Events).
10. RELATED PARTY TRANSACTIONS
Sunday River provided lodging management services for Ski Dorm, Inc. ("Ski
Dorm"), a corporation previously owned by Mr. Otten and his mother, which owns a
ski dorm located near the Sunday River resort. During fiscal 1998 and 1999
payments by Ski Dorm to Sunday River totaled $2,000 and $65,000, respectively.
After the consummation of the Series B Preferred Stock sale to Oak Hill, the
Company, through one of its subsidiaries, acquired or obtained rights to acquire
the following assets from entities owned or controlled by Mr. Otten:
- The land underlying the snowmaking ponds at the Sunday River resort,
together with all associated water rights, which were previously leased by
a subsidiary of the Company, for a purchase price of $2.1 million.
- The Ski Dorm building and land underlying the Snow Cap Inn, each located
at the Sunday River resort, for an aggregate purchase price of $679,000.
- Approximately 3,300 acres of undeveloped land at the Sunday River resort,
which was optioned to a subsidiary of the Company for an initial payment
of $650,000, which payment may be applied to the purchase price. The
purchase price is $3,692,000, which is a 12% discount from the appraised
value of the land. The purchase price will be discounted by another 20% or
10% if the option is exercised within 12 and 24 months of the option date,
respectively. As of July 30, 2000, the Company has not exercised its
option to purchase the undeveloped land.
F-34
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
In connection with the foregoing asset sale, the Company also repaid the
outstanding principal and accrued interest of a note from a subsidiary of the
Company payable to Mr. Otten totaling approximately $2.0 million. The note was
originally issued to Mr. Otten to cover certain tax liabilities generated when
the Company's subsidiary converted from a subchapter S corporation to a
subchapter C corporation.
Mr. Paul Wachter, a member of the Company's Board of Directors, is the
founder and Chief Executive Officer of Main Street Advisors. Main Street
Advisors, through Mr. Wacter, acted as one of the Company's investment bankers
in connection with the Series B Preferred Stock sale, for which it was paid a
fee of approximately $1.5 million.
On May 10, 2000, the Company, through one of its subsidiaries, purchased two
parcels of land adjacent to the Company's Sugarbush resort from Sugarbush Land
Holdings, Inc., a corporation controlled by Mr. Otten. The two parcels, totaling
approximately 128 acres, were purchased for an aggregate price of approximately
$589,000. The terms of the purchase, including the purchase price, were reviewed
and approved by the Executive Committee and Audit Committee of the Company's
Board of Directors.
In March 2000, the Company, through one of its subsidiaries, sold
residential units at the Company's Sundial Lodge at The Canyons to Mr. Blaise
Carrig, Mr. Christopher Howard and Mr. Daniel Duquette. Mr. Carrig is President
of the Company's subsidiary which operates The Canyons. Mr. Howard is the
Company's Executive Vice President. Mr. Duquette is a member of the Company's
Board of Directors. Mr. Carrig and Mr. Howard each purchased one residential
unit in the Sundial Lodge for a purchase price of $201,000. Mr. Duquette
purchased one residential unit in the Sundial Lodge for a purchase price of
$345,000. The purchase price which Mr. Carrig, Mr. Howard and Mr. Duquette
purchased these units were the same as those at which the units (or units of
comparable size and finish) were offered for sale to the general public.
11. COMMITMENTS, LEASE CONTINGENCIES AND CONTINGENT LIABILITIES
The Company leases certain land and facilities used in the operations of its
resorts under several operating lease arrangements. These lease arrangements
expire at various times from the year 2010 through the year 2060. Lease payments
are generally based on a percentage of revenues. Total rent expense under these
operating leases as recorded in resort operating expenses in the accompanying
consolidated statement of operations for 1998, 1999 and 2000 was $2.5 million,
$2.6 million and $3.1 million, respectively.
Significant portions of the land underlying certain of the Company's ski
resorts are leased or subleased by the Company or used pursuant to renewable
permits or licenses. If any such lease, sublease, permit or license were to be
terminated or not renewed upon expiration, or renewed on terms materially less
favorable to the Company, the Company's ability to possess and use the land
subject thereto and any improvements thereon would be adversely affected,
perhaps making it impossible for the Company to operate the affected resort. A
substantial portion of the land constituting skiable terrain at Attitash Bear
Peak, Sugarbush, Mount Snow/Haystack and Steamboat is located on federal land
that is used under the terms of the permits with the United States Forest
Service (the "Forest Service"). Generally, under the terms of such permits, the
Forest Service has the right to review and comment on the location, design and
construction of improvements in the permit area and on many operational matters.
The permits can be terminated or modified by the Forest Service to serve the
F-35
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS, LEASE CONTINGENCIES AND CONTINGENT LIABILITIES (CONTINUED)
public interest. A termination or modification of any of the Company's permits
could have a material adverse effect on the results of operations of the
Company. The Company does not anticipate any limitations, modifications, or
non-renewals which would adversely affect the Company's operations.
In connection with the purchase of The Canyons, the Company entered into an
operating lease arrangement with the seller for the lease of certain land to be
used in the operation of the resort and for future real estate development. The
arrangement provides for an initial lease term of 50 years, with the option to
extend for three additional 50-year periods for a fee of $1.0 million for each
extension period. Lease payments are based on a percentage of gross skiing and
lodging revenues. The arrangement also provides for additional one-time payments
ranging from $250,000 to $3.0 million upon achievement of annual skier visit
level increases in 100,000 visit increments up to 1,000,000. Total rent expense
under this arrangement, as recorded in resort operating expenses in the
accompanying consolidated statement of operations for 1998, 1999 and 2000 was
$473,000, $311,000 and $918,000, respectively. In addition, the Company has the
option to purchase parcels of land covered under the operating lease for real
estate development. Payments for these options total approximately
$19.5 million and are payable at various times and in varying amounts, at the
Company's discretion, through December 2001. The Company is not required to make
the option payments for all parcels of land in order to develop and sell real
estate on the land covered under the lease. Through July 30, 2000, the Company
has made $12.9 million of option payments, of which $3.6 million has been
allocated to the cost of parcels that have been purchased to date. The remaining
$9.3 million in option payments are included in other assets in the accompanying
consolidated balance sheet and will eventually be allocated to the cost of
future parcels purchased by the Company.
In addition to the leases described above, the Company is committed under
several operating and capital leases for various facilities, machinery and
equipment. Rent expense under all operating leases was $6.4 million,
$6.1 million and $7.8 million for the years ended 1998, 1999 and 2000,
respectively.
Future minimum lease payments for lease obligations at July 30, 2000 are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
2001..................................................... $ 8,949 $ 7,128
2002..................................................... 8,864 6,366
2003..................................................... 6,059 5,230
2004..................................................... 10,898 4,140
2005 and thereafter...................................... 600 12,292
------- -------
Total payments......................................... 35,370 $35,156
=======
Less interest.......................................... (6,740)
-------
Present value of net minimum payments.................. 28,630
Less current portion................................... (6,454)
-------
Long-term obligations.................................. $22,176
=======
</TABLE>
The Company currently has a Grand Summit Hotel under construction at
Steamboat. Total construction costs for this project are estimated to be
$116 million and it is primarily being financed
F-36
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS, LEASE CONTINGENCIES AND CONTINGENT LIABILITIES (CONTINUED)
through a $110 million revolving construction loan facility with TFC Textron and
an additional $10 million bulge facility, also with TFC Textron. The Company
also has a $58 million term facility with Fleet Boston that can be used for this
project as well as general and operating expenditures. As of July 30, 2000, the
Company had $92.1 million outstanding on the Textron facility, $2.6 million on
the Textron Bulge facility and the entire $58 million available under the Fleet
Boston facility. The Company estimates that as of July 30, 2000, approximately
$17 million was required to complete the Steamboat Grand Hotel. The additional
funds will be generated from the net proceeds of the sale of existing Grand
Summit inventory. On July 31, 2000, the Company Amended the Fleet Boston
Facility (See Note 16--Subsequent Events).
On July 22, 1998, the Company entered into an agreement with Marriott
Ownership Resorts, Inc. ("Marriott") for the future sale of land parcels at the
Company's Killington, Sunday River, The Canyons, Steamboat and Heavenly resorts
(the "Marriott Agreement"). Under the Marriott Agreement, Marriott has the right
to develop luxury vacation ownership properties at each of the five
aforementioned properties. In accordance with the Marriott Agreement, the
Company has granted to Marriott certain development and marketing rights at the
related resorts. In return, in the event that Marriott elects to develop
properties at the resorts, the Company will receive proceeds for the sale of the
land parcels and will receive a percentage of the Marriott sales of the luxury
vacation ownership properties. The Company has received a cash deposit of
$1.6 million from Marriott relating to the future land sales, and because none
of the parcels have yet to be sold, the deposit is recorded as deposits and
deferred revenue in the accompanying consolidated balance sheet at July 25,
1999. In the Fall of 1999, Marriott informed the Company that it would not be
proceeding on a timely basis with its developments at the Company's properties
at The Canyons and Sunday River. As a result, on March 6, 2000, the Company and
Resort Properties entered into an amendment (the "Amendment") to their July 22,
1998 Purchase and Development Agreement with Marriott. The Amendment eliminates
the Marriott Agreement's restrictions upon real estate at all the Company's
resorts other than Killington, Steamboat and Heavenly. The Company and Marriott
are obligated to negotiate site specific agreements for development projects at
those three remaining resorts during the 105-day period following March 30,
2000. In the event of successful negotiation, Marriott's exclusive timeshare
development rights at those three resorts will continue. If negotiations are not
successful, then Marriott's exclusive timeshare development rights will be
terminated. Under the Amendment, Marriott's right of first refusal has been
permanently eliminated and Resort Properties has refunded to Marriott $960,000
in previously advanced purchase price. Early in fiscal 2001, the Marriott
Agreement was terminated in connection with the sale to Marriott of certain land
option rights at Heavenly (See Note 16--Subsequent Events).
The Killington resort has been identified by the U.S. Environmental
Protection Agency (the "EPA") as a potentially responsible party ("PRP") at two
sites pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA" or "Superfund"). Killington has entered into a
settlement agreement with the EPA at one of the sites, the Solvents Recovery
Service of New England Superfund site in Southington, Connecticut. Killington
rejected an offer to enter into a DE MINIMIS settlement with the EPA for the
other site, the PSC Resources Superfund site in Palmer, Massachusetts, on the
basis that Killington disputes its designation as a PRP. In addition, the
Company's Heavenly resort was designated as a PRP at a Superfund site in
Patterson, CA. The Company entered into a cash-out settlement agreement which
has been accepted by the EPA and funded as part of an overall settlement of the
site. The Company believes that its liability for these
F-37
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS, LEASE CONTINGENCIES AND CONTINGENT LIABILITIES (CONTINUED)
Superfund sites, individually and in the aggregate, will not have a material
adverse effect on the business or financial condition of the Company or results
of operations or cash flows.
Certain claims, suits and complaints associated with the ordinary course of
business are pending or may arise against the Company, including all of its
direct and indirect subsidiaries. In the opinion of management, all matters are
adequately covered by insurance or, if not covered, are without merit or are of
such kind, or involve such amounts as would not have a material effect on the
financial position, results of operations or cash flows of the Company if
disposed of unfavorably.
12. STOCK OPTION PLAN
Effective August 1, 1997, the Company established a fixed stock option plan,
the American Skiing Company Stock Option Plan (the "Plan"), to provide for the
grant of incentive and non-qualified stock options for the purchase of up to
5,688,699 shares of the Company's common stock by officers, management employees
of the Company and its subsidiaries and other key persons (eligible for
nonqualified stock options only) as designated by the Options Committee. The
Options Committee, which is appointed by the Board of Directors, is responsible
for the Plan's administration. The Options Committee determines the term of each
option, option exercise price, number of shares for which each option is granted
and the rate at which each option is exercisable. Options granted under the Plan
generally expire ten years from the date of grant and vest either immediately or
over a five-year term. Incentive stock options shall not have an exercise price
less than the fair market value of the common stock at the date of grant.
Nonqualified stock options shall be granted at an exercise price as determined
by the Options Committee. The status of the Company's stock option plan is
summarized below:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Outstanding at July 27, 1997...................... -- --
Granted........................................... 2,716,057 $14.01
Exercised......................................... (20,000) 2.00
---------- ------
Outstanding at July 26, 1998...................... 2,696,057 14.10
Granted........................................... 1,196,000 7.17
Exercised......................................... (1,221) 2.00
---------- ------
Outstanding at July 25, 1999...................... 3,890,836 11.97
Granted........................................... 2,660,000 2.70
Exercised......................................... (182,390) 2.00
Returned.......................................... (2,325,127) 15.60
---------- ------
Outstanding at July 30, 2000...................... 4,043,319 $ 4.24
========== ======
</TABLE>
During fiscal 1998, the Company granted nonqualified options under the Plan
to certain key members of management to purchase 672,010 shares of common stock
with an exercise price of $2.00 per share when the fair market value of the
stock was estimated to be $18.00 per share. The majority of these options
(511,530 shares) were granted to members of senior management and were 100%
vested on the date of grant. Accordingly, the Company recognized stock
compensation expense of $8.1 million relating to the grants based on the
intrinsic value of $16.00 per share. Under these senior
F-38
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTION PLAN (CONTINUED)
management grant agreements, the Company also agreed to pay the optionees a
fixed tax "bonus" in the aggregate of $5.8 million to provide for certain fixed
tax liabilities that the optionees will incur upon exercise. The remainder of
these options (160,480 shares) were granted under the Plan to certain members of
management and were vested 20% on the date of grant and vest ratably to 100%
over the following four years. For fiscal 2000, 1999 and 1998, the Company
recognized $1.0 million, $773,000 and $500,000, respectively, of stock
compensation expense relating to these options. The total stock compensation
charge, including the tax bonus, of $14.3 million recorded in fiscal 1998 is
reflected as stock compensation charge, while the $773,000 and $1.0 million
recorded in fiscal 1999 and 2000, respectively, is reflected as marketing,
general and administrative costs in the accompanying consolidated statement of
operations. The liability for the fixed tax bonus to be paid to the optionees
has been reduced to reflect $1.9 million in tax bonus payments made as of
July 30, 2000 in connection with options exercised. The remaining $3.9 million
tax bonus liability is reflected in accounts payable and other current
liabilities in the accompanying consolidated balance sheet at July 30, 2000.
The following table summarizes information about the stock options
outstanding under the Stock Plan at July 30, 2000:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISABLE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES @ 7/30/00 LIFE (IN YEARS) PRICE @ 7/30/00 PRICE
----------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 2--$5 3,000,869 9.0 $ 2.58 768,713 $ 2.32
6--10 851,600 8.0 7.11 400,400 7.12
11--15 22,500 7.0 14.19 22,500 14.19
16--18 168,350 8.0 18.00 168,350 18.00
--------- --- ------ --------- ------
$ 2--$18 4,043,319 8.7 $ 4.24 1,359,963 $ 5.87
========= === ====== ========= ======
</TABLE>
The Company continues to account for stock-based compensation using the
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees", under which no compensation expense for stock
options is recognized for stock option awards granted to employees at or above
fair market value. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Had stock compensation expense been determined based
on the fair value at the grant dates for awards granted under the Company's
stock option plan, consistent with the provisions of SFAS 123, the Company's net
loss and loss per share would have been changed to the pro forma amounts
indicated below (dollar amounts in thousands):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 2000 1999 1998
------------------ -------- -------- --------
<S> <C> <C> <C>
Net Loss:
As reported.................................. $(52,452) $(32,322) $(12,294)
Pro forma.................................... (39,904) (32,691) (27,562)
Basic and diluted net loss per common share:
As reported.................................. $ (1.73) $ (1.07) $ (0.48)
Pro forma.................................... (1.31) (1.08) (1.07)
</TABLE>
F-39
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCK OPTION PLAN (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 2000 1999 1998
------------------ -------- -------- --------
<S> <C> <C> <C>
Expected life.................................. 10 yrs 10 yrs 10 yrs
Risk-free interest rate........................ 6.5% 6.0% 5.6%
Volatility..................................... 93.9% 68.4% 47.1%
Dividend yield................................. -- -- --
</TABLE>
The weighted average grant date fair value for the options granted in fiscal
1998 with an exercise price of $2.00 per share was $16.92 per share. The
weighted average grant date fair value for the options granted in fiscal 1998
with an exercise price of $14.19 to $18.00 per share was $11.92 per share. The
weighted average grant date fair value for the options granted in fiscal 1999
with an exercise price of $4.00 to $8.75 per share was $5.71 per share. The
weighted average grant date fair value for the options granted in fiscal 2000
with an exercise price of $2.00 to $3.00 per share was $2.26 per share.
13. CAPITAL STOCK
The Company has two classes of Common Stock outstanding, Class A Common
Stock and Common Stock. The rights and preferences of holders of Class A Common
Sock and Common Stock are substantially identical, except that, while any
Class A Common Stock is outstanding, holders of Class A Common Stock will elect
a class of directors that constitutes two-thirds of the Board of Directors and
holders of Common Stock will elect a class of directors that constitutes
one-third of the Board of Directors. Each share of Class A Common Stock will be
convertible into one share of Common Stock (i) at the option of the holder at
any time, (ii) automatically upon transfer to any person that is not an
affiliate of Mr. Otten and (iii) automatically if, at any time, the number of
shares of Class A Common Stock outstanding represents less than 20% of
outstanding shares of Common Stock and Class A Common Stock. Mr. Otten holds
100% of the Class A Common Stock, representing approximately 51% of the combined
voting power of all outstanding shares of Common Stock and Class A Common Stock.
F-40
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BUSINESS SEGMENT INFORMATION
The Company currently operates in two business segments, Resorts and Real
Estate. The two segments are managed differently because they offer different
products and services and require different marketing strategies. Each segment
also has distinctly separate capital structures. The Resort segment operates
nine ski resorts and all of their related activities (lift ticket sales, retail,
food & beverage, skier development, lodging services, golf and other summer
activities). The Real Estate segment develops mountainside real estate
properties at the Company's ski resorts. Data by segment is as follows:
<TABLE>
<CAPTION>
JULY 30, 2000 JULY 25, 1999 JULY 26, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Net revenues:
Resorts................................ $292,077 $292,558 $277,574
Real estate............................ 132,063 24,492 60,992
-------- -------- --------
$424,140 $317,050 $338,566
======== ======== ========
Income (loss) before income taxes:
Resorts................................ $(31,409) $(33,371) $(17,286)
Real estate............................ (4,529) (9,636) 14,200
-------- -------- --------
$(35,938) $(43,007) $ (3,086)
======== ======== ========
Depreciation and amortization:
Resorts................................ $ 45,759 $ 43,226 $ 37,580
Real estate............................ 1,269 976 385
-------- -------- --------
$ 47,028 $ 44,202 $ 37,965
======== ======== ========
Capital expenditures:
Resorts................................ $ 27,229 $ 52,465 $ 92,998
Real estate............................ 166,879 153,106 93,255
-------- -------- --------
$194,108 $205,571 $186,253
======== ======== ========
Identifiable assets:
Resorts................................ $538,131 $560,219
Real estate............................ 291,754 247,338
-------- --------
$829,885 $807,557
======== ========
</TABLE>
F-41
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Following is a summary of unaudited quarterly information (amounts in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
YEAR ENDED JULY 30, 2000:
Net sales............................................ $ 23,355 $126,627 $223,095 $ 51,063
Income (loss) from operations........................ (22,899) (6,589) 52,641 (23,185)
Income (loss) before preferred stock dividends....... (21,813) (9,805) 26,783 (25,298)
Net income (loss) available to common shareholders... (27,954) (15,124) 21,464 (30,838)
BASIC INCOME (LOSS) PER SHARE:
Net income (loss) available to common shareholders... $ (0.92) $ (0.50) $ 0.71 $ (1.01)
Weighted average shares outstanding.................. 30,287 30,412 30,423 30,448
FULLY DILUTED INCOME (LOSS) PER SHARE:
Net income (loss) available to common shareholders... $ (0.92) $ (0.50) $ 0.42 $ (1.01)
Weighted average shares outstanding.................. 30,287 30,412 60,268 30,448
YEAR ENDED JULY 25, 1999:
Net sales............................................ $ 24,796 $109,505 $164,641 $ 18,108
Income (loss) from operations........................ (20,852) (4,543) 47,264 (25,494)
Income (loss) before preferred stock dividends....... (19,209) (9,700) 22,333 (21,374)
Net income (loss) available to common shareholders... (20,268) (10,779) 21,237 (22,512)
BASIC INCOME (LOSS) PER SHARE:
Net income (loss) available to common shareholders... $ (0.67) $ (0.36) $ 0.70 $ (0.74)
Weighted average shares outstanding.................. 30,286 30,287 30,287 30,287
FULLY DILUTED INCOME (LOSS) PER SHARE:
Net income (loss) available to common shareholders... $ (0.67) $ (0.36) $ 0.69 $ (0.74)
Weighted average shares outstanding.................. 30,286 30,287 30,630 30,287
</TABLE>
16. SUBSEQUENT EVENTS
REAL ESTATE DEBT AGREEMENT
On July 31, 2000, the Company entered into a Second Amended and Restated
Credit Agreement between Resort Properties, Fleet National Bank and the lenders
party thereto (the "Amended Real Estate Term Facility"). This fully syndicated
$73 million facility replaces Resort Properties' previous un-syndicated
$58 million Real Estate development term loan facility. The Amended Real Estate
Term Facility is collateralized by security interests in, and mortgages on,
substantially all of Resort Properties' assets, which primarily consist of
undeveloped real property and the stock of its real estate development
subsidiaries (including GSRP).
The Amended Real Estate Term Facility is comprised of three tranches, each
with separate interest rates and maturity dates. Tranche A has a maximum
principal amount of $35 million, bears interest at a variable rate equal to the
Fleet National Bank's Base Rate plus 8.25% (payable monthly in arrears) and
matures on December 31, 2002. Tranche B has a maximum principal amount of
$25 million, bears interest at a fixed rate of 25% per annum and matures on
December 31, 2003. Interest calculated at
F-42
<PAGE>
AMERICAN SKIING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUBSEQUENT EVENTS (CONTINUED)
18% per annum for Tranche B will be payable monthly in arrears. The remaining 7%
per annum will accrue, be added to the principal balance of Tranche B and will
bear interest at 25% per annum, compounded annually. Tranche C has a maximum
principal amount of $13 million, bears interest at an effective rate of 25% per
annum and matures on December 31, 2005. Interest will accrue, be added to the
principal balance of Tranche C and will compound semi-annually.
Tranche C of the Amended Real Estate Term Facility was purchased by Oak Hill
Capital Partners, L.P. In connection with this $13 million investment, the
Company entered into a Securities Purchase Agreement with Oak Hill, dated as of
July 31, 2000, pursuant to which the Company has agreed to either (i) issue
warrants to Oak Hill for 6,000,000 shares of ASC common stock with an exercise
price of $2.50 per share or (ii) issue to Oak Hill common stock in Resort
Properties representing approximately 15% of the voting interest in Resort
Properties. The purchase price of the warrants (or Resort Properties common
stock, as applicable) was $2 million.
In addition, the Series B Agreement, dated August 9, 1999, was amended as of
July 31, 2000 to provide, among other things: (i) that Oak Hill will have the
right to elect six members of the Company's Board of Directors, provided that
Oak Hill maintains certain ownership levels; (ii) that Mr. Otten will have the
right to elect two members to the Board, provided that he maintains certain
ownership levels; and (iii) that Mr. Otten will have the right to serve on the
executive committee of the Board and on the boards of directors of material
subsidiaries of ASC. As of July 31, 2000, Oak Hill would own 54.9% of the
67,546,455 shares of common stock of the Company that would be outstanding if
all the shares of the Series B Preferred Stock were converted and if all of the
Warrants were exercised.
SALE OF OPTION RIGHTS
On September 26, 2000, the Company entered into a purchase and sale
agreement to sell its option rights to a parcel of real estate in the South Lake
Tahoe Redevelopment District to Marriott for $8.5 million. Pursuant to the terms
of the purchase and sale agreement, Resort Properties will receive
$4.09 million in cash proceeds on October 17, apply a previously received
$320,000 deposit and will receive an additional $4.09 million from Marriott on
January 15, 2001. Also, as part of the purchase and sale agreement the existing
Marriott Agreement among the Company, Resort Properties and Marriott dated
July 22, 1998 was terminated.
F-43
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents................................. $ 9,989 $ 1,726
Accounts receivable, net of allowance for doubtful
accounts
of $3,732 and $2,090.................................... 77,243 47,976
Prepaid expenses.......................................... 21,921 3,589
Deposits and other........................................ 13,338 8,388
-------- --------
Total current assets.................................... 122,491 61,679
-------- --------
Fixed assets:
Furniture, fixtures and equipment......................... 27,503 14,832
Accumulated depreciation.................................. (4,499) (2,522)
-------- --------
Total fixed assets, net................................. 23,004 12,310
-------- --------
Investments in and advances to affiliates................... 38,001 30,018
Intangible assets, net of accumulated amortization of
$12,349
and $7,927................................................ 190,399 153,927
Deferred income taxes....................................... 904 --
Restricted cash............................................. -- 210
-------- --------
$374,799 $258,144
======== ========
Liabilities, Minority Interests and Stockholders' Equity
Current Liabilities:
Accounts payable, accrued expenses and other
liabilities............................................. $124,878 $ 96,603
Due to MeriStar Hospitality Corporation................... 20,619 11,476
Income taxes payable...................................... 150 80
Long-term debt, current portion........................... 80 10
-------- --------
Total current liabilities............................... 145,727 108,169
Deferred income taxes....................................... 23,257 13,247
Long-term debt.............................................. 95,184 57,752
-------- --------
Total liabilities........................................... 264,168 179,168
Minority interests.......................................... 14,343 13,774
Commitments and contingencies
Stockholders' equity:
Preferred Stock, par value $0.01 per share:
Authorized--10,000 shares
Common stock, par value $0.01 per share:
Authorized--100,000 shares
Issued and outstanding--35,894 and 29,625 shares........ 359 296
Additional paid-in capital.................................. 74,801 57,637
Retained earnings........................................... 21,265 7,236
Accumulated other comprehensive income:
Translation adjustment.................................... (53) 33
Unrealized loss on investments............................ (84) --
-------- --------
Total stockholders' equity.............................. 96,288 65,202
-------- --------
$374,799 $258,144
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-44
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ---------------------
2000 1999 2000 1999
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
Revenue:
Rooms............................................ $231,497 $226,310 $ 721,045 $697,221
Food and beverage................................ 67,618 64,852 222,197 214,053
Corporate housing................................ 29,369 -- 38,761 --
Other operating departments...................... 21,593 21,551 71,187 67,212
Management and other fees........................ 6,287 2,075 16,358 7,363
-------- -------- ---------- --------
Total revenue.................................. 356,364 314,788 1,069,548 985,849
-------- -------- ---------- --------
Operating expenses by department:
Rooms............................................ 55,956 55,146 166,824 163,754
Food and beverage................................ 51,451 50,316 162,094 159,068
Corporate housing................................ 18,744 -- 24,781 --
Other operating departments expenses............. 12,693 10,245 40,246 32,484
Undistributed operating expenses:
Administrative and general....................... 58,270 49,257 173,894 157,971
Property operating costs......................... 48,678 47,259 145,427 140,162
Participating lease expense...................... 106,792 97,396 320,104 306,009
Depreciation and amortization.................... 2,778 1,418 6,540 4,454
-------- -------- ---------- --------
Total operating expenses....................... 355,362 311,037 1,039,910 963,902
-------- -------- ---------- --------
Net operating income............................... 1,002 3,751 29,638 21,947
Interest expense, net.............................. 1,986 1,037 4,530 3,543
-------- -------- ---------- --------
Income (loss) before minority interests and income
taxes............................................ (984) 2,714 25,108 18,404
Minority interests................................. (31) 250 2,108 2,694
-------- -------- ---------- --------
Income (loss) before income taxes.................. (953) 2,464 23,000 15,710
Income taxes....................................... (52) 911 8,971 5,812
-------- -------- ---------- --------
Net income (loss).................................. $ (901) $ 1,553 $ 14,029 $ 9,898
======== ======== ========== ========
Other comprehensive income:
Foreign currency translation adjustment.......... (176) (1) (86) (34)
Unrealized loss on investments................... (12) -- (84) --
-------- -------- ---------- --------
Comprehensive income............................. $ (1,089) $ 1,552 $ 13,859 $ 9,864
======== ======== ========== ========
Earnings per share:
Basic............................................ $ (0.03) $ 0.05 $ 0.42 $ 0.36
======== ======== ========== ========
Diluted.......................................... $ (0.03) $ 0.05 $ 0.41 $ 0.36
======== ======== ========== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-45
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating activities:
Net income.................................................. $ 14,029 $ 9,898
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 6,540 4,454
Minority interests........................................ 2,108 2,694
Deferred income taxes..................................... 8,276 5,813
Changes in operating assets and liabilities:
Accounts receivable, net.................................. (24,919) (3,487)
Deposits and other........................................ (3,638) (2,510)
Prepaid expenses.......................................... (12,646) (7,024)
Accounts payable, accrued expenses and other
liabilities............................................... 11,029 (1,769)
Income Taxes Payable...................................... (100) (35)
Due to MeriStar Hospitality Corporation................... 9,143 11,059
--------- ---------
Net cash provided by operating activities................... 9,822 19,093
--------- ---------
Investing activities:
Purchases of fixed assets................................. (7,054) (3,641)
Investments in and advances to affiliates, net............ (7,983) (15,465)
Purchases of intangible assets............................ (2,716) (2,860)
Cash paid to BridgeStreet Accommodations shareholders..... (12,216) --
Change in restricted cash................................. 210 416
--------- ---------
Net cash used in investing activities....................... (29,759) (21,550)
--------- ---------
Financing activities:
Proceeds from issuance of long term debt.................. 154,500 121,000
Principal payments on long-term debt...................... (117,124) (131,993)
Purchase of OP units...................................... (1,149) --
BridgeStreet Accommodations debt repaid................... (12,021) --
Proceeds from issuances of common stock, net.............. 5,494 5,879
Deferred financing costs.................................. (1,601) --
--------- ---------
Net cash provided by (used in) financing activities......... 28,099 (5,114)
--------- ---------
Effect of exchange rate changes on cash..................... 101 (3)
Net increase (decrease) in cash and cash equivalents........ 8,263 (7,574)
Cash and cash equivalents, beginning of period.............. 1,726 11,155
--------- ---------
Cash and cash equivalents, end of period.................... $ 9,989 $ 3,581
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-46
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
UNAUDITED (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION
We lease, manage and operate a portfolio of hospitality properties and
provide related services in the hotel, corporate housing, golf, and vacation
membership markets. Our portfolio is diversified by franchise and brand
affiliations. Our subsidiary, MeriStar H&R Operating Company, L.P., conducts all
of our operations. We are the sole general partner of MeriStar H&R and control
its operations.
On August 3, 1998, American General Hospitality Corporation and CapStar
Hotel Company merged together to form MeriStar Hospitality Corporation, a real
estate investment trust. As part of that merger, CapStar formed our company to
become the lessee, manager and operator of substantially all of the hotels owned
or leased by American General and CapStar before the merger. At the time of the
merger, CapStar distributed all of the shares of our common stock to its
stockholders and we became a separate, publicly traded company.
We manage all of the hotels CapStar leased and/or managed for third-party
owners before the merger. Immediately after the merger, we acquired all of the
partnership interests in AGH Leasing, L.P., the third-party lessee that leased
most of the hotels American General owned. We also acquired substantially all of
the assets and some liabilities of American General Hospitality, Inc., the
third-party manager that managed most of the hotels American General owned.
We have an intercompany agreement with MeriStar Hospitality Corporation.
This provides each of us the right to participate in certain transactions
entered into by each company. In particular, we have the right of first refusal
to become the lessee of any real property acquired by MeriStar Hospitality
Corporation. We also provide MeriStar Hospitality Corporation with certain
services including administrative, renovation supervision, corporate,
accounting, finance, insurance, legal, tax, information technology, human
resources, acquisition identification and due diligence, and operational
services. We are compensated in an amount that MeriStar Hospitality Corporation
would be charged by an unaffiliated third party for comparable services.
On May 31, 2000, we completed the acquisition of BridgeStreet
Accommodations, Inc. BridgeStreet provides corporate housing services in the
United States, Canada, and the United Kingdom. We are continuing to operate our
corporate housing division under the BridgeStreet name. Our consolidated interim
financial statements for the nine months ended September 30, 2000 include the
operating results of BridgeStreet since May 31, 2000.
As of September 30, 2000, we leased or managed 213 hotels with 46,511 rooms
in 33 states, the District of Columbia, Canada, Puerto Rico and the U.S. Virgin
Islands. In addition, we had approximately 3,600 apartments under lease in the
United States, Canada, and the United Kingdom at September 30, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We have prepared these unaudited interim financial statements according to
the rules and regulations of the Securities and Exchange Commission. We have
omitted certain information and footnote disclosures that are normally included
in financial statements prepared in accordance with generally accepted
accounting principles. These interim financial statements should be read in
conjunction with the financial statements, accompanying notes and other
information included in our
F-47
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
UNAUDITED (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Annual Report on Form 10-K for the year ended December 31, 1999. Certain 1999
amounts have been reclassified to conform to the 2000 presentation.
In our opinion, the accompanying unaudited condensed consolidated interim
financial statements reflect all adjustments, which are of a normal and
recurring nature, necessary for a fair presentation of the financial condition
and results of operations and cash flows for the periods presented. The
preparation of financial statements in accordance with generally accepted
accounting principles requires us to make estimates and assumptions. Such
estimates and assumptions affect the reported amounts of assets and liabilities,
as well as the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Our actual results could differ from those estimates. The
results of operations for the interim periods are not necessarily indicative of
the results for the entire year.
Our hotel participating leases have noncancelable remaining terms ranging
from 9 to 13 years. The leases can be terminated earlier under certain
circumstances defined in the leases. The rent payable under each participating
lease is the greater of base rent or percentage rent, as defined in the lease
agreement. Percentage rent applicable to room and food and beverage hotel
revenue varies by lease and is calculated by multiplying fixed percentages by
the total amounts of such revenues over specified threshold amounts. Both the
minimum rent and the revenue thresholds used in computing percentage rents are
subject to annual adjustments based on increases in the United States Consumer
Price Index. Percentage rent applicable to other revenues is calculated by
multiplying fixed percentages by the total amounts of such revenues.
Emerging Issues Task Force Issue No. 98-9, "Accounting for Contingent Rent
in Interim Financial Periods," requires a lessee to recognize contingent rental
expense for interim periods prior to the achievement of the specified target
that triggers the contingent rental expense, if the achievement of that target
by the end of the fiscal year is considered probable. This accounting
pronouncement relates only to our recognition of lease expense in interim
periods for financial reporting purposes; it has no effect on the timing of rent
payments under our leases or our annual lease expense calculations. We made cash
lease payments in excess of the expense we were required to recognize under EITF
No. 98-9 during the interim periods ended September 30, 2000 and 1999. As of
September 30, 2000, we had a prepaid expense balance of $9,910 which is included
on our condensed consolidated balance sheet.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which requires that an entity recognize all derivatives
as either assets or liabilities in the balance sheet and measure those
instruments at fair value. In June 1999, the Financial Accounting Standard Board
issued Statement of Financial Accounting Standard No. 137 which amended
Statement of Financial Accounting Standard No. 133 to defer the effective date
to all fiscal quarters of all fiscal years beginning after June 15, 2000. In
June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 138 which provides additional guidance and
amendments to Statement of Financial Accounting Standard No. 133. We are
currently in the process of evaluating the effect this new standard will have on
our financial statements. We do not believe the standard will have a material
impact on our financial statements.
F-48
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
UNAUDITED (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Senior secured credit facility...................... $95,000 $ --
Revolving credit facility with MeriStar Hospitality
Corporation....................................... -- 57,000
Other............................................... 264 762
------- -------
95,264 57,762
Less current portion................................ (80) (10)
------- -------
$95,184 $57,752
======= =======
</TABLE>
On February 29, 2000, we entered into a $100,000 senior secured credit
facility with a syndicate of banks. The interest rate on the credit facility is
the 30-day London Inter-Bank Offered Rate plus 350 basis points. The credit
facility expires in February 2002 with a one-year extension at our option. On
March 1, 2000, we borrowed $65,000 to repay the borrowings outstanding under the
revolving credit agreement with MeriStar Hospitality Corporation. Upon execution
of the senior secured credit facility, we amended the facility with MeriStar
Hospitality Corporation to reduce the maximum borrowing limit from $75,000 to
$50,000.
The aggregate future maturities of the above obligations are as follows:
<TABLE>
<S> <C>
2000................................................... $ 80
2001................................................... 184
2002................................................... --
2003................................................... 95,000
-------
$95,264
=======
</TABLE>
F-49
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
UNAUDITED (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
4. EARNINGS PER SHARE
The following tables present the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE COMPUTATION:
Net income.............................................. $ (901) $ 1,553 $14,029 $ 9,898
Weighted average number of shares of common stock
outstanding........................................... 35,882 29,043 33,547 27,298
------- ------- ------- -------
Basic earnings per share................................ $ (0.03) $ 0.05 $ 0.42 $ 0.36
======= ======= ======= =======
DILUTED EARNINGS PER SHARE COMPUTATION:
Net income.............................................. $ (901) $ 1,553 14,029 $ 9,898
Minority interest, net of tax........................... -- (30) 1,286 --
------- ------- ------- -------
Adjusted net income..................................... $ (901) $ 1,523 $15,315 $ 9,898
======= ======= ======= =======
Weighted average number of shares of common stock
outstanding........................................... 35,882 29,043 33,547 27,298
Common stock equivalents--Operating partnership units... -- 678 3,503 392
Common stock equivalents--stock options................. -- 186 82 160
------- ------- ------- -------
Total weighted average number of diluted shares of
common stock outstanding.............................. 35,882 29,907 37,132 27,850
======= ======= ======= =======
Diluted earnings per share.............................. $ (0.03) $ 0.05 $ 0.41 $ 0.36
======= ======= ======= =======
</TABLE>
F-50
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
UNAUDITED (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Cash paid for interest and income taxes:
Interest.................................................. $ 4,337 $3,674
Income Taxes.............................................. 420 35
Non-cash investing and financing activities:
Conversion of operating partnership units to common
stock..................................................... 391 7,790
Operating partnership Units issued and/or assumption of
liabilities in purchase of intangible assets............ -- 6,736
Issuance of common stock to BridgeStreet shareholders..... 11,239 --
Fair value of assets acquired............................. 17,223 --
Fair value of liabilities acquired........................ (16,083) --
Fair value of debt assumed................................ (12,021) --
-------- ------
Fair value of net liabilities assumed..................... $(10,881) $ --
======== ======
</TABLE>
6. SEGMENTS
We are organized into four operating divisions: hotel operations, corporate
housing, golf management and vacation ownership. Each division is managed
separately because of its distinctive products and services. Hotel operations
and corporate housing are reportable operating segments. In 1999, we were
organized into three different operating segments: upscale, full-service hotels;
premium limited-service hotels and inns; and resort properties. In 2000, we
reorganized our operations into the current operating divisions. We reclassified
the segment information for 1999 accordingly. We evaluate the performance of
each division based on earnings before interest, taxes, depreciation and
amortization.
The following are the segment disclosures for hotel operations and corporate
housing for the three months ended September 30:
<TABLE>
<CAPTION>
HOTEL OPERATIONS CORPORATE HOUSING
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue............................................... $325,766 $314,344 $29,369 --
======== ======== ======= =======
Earnings before interest, taxes, depreciation and
amortization........................................ $ 713 $ 5,656 $ 3,114 --
======== ======== ======= =======
</TABLE>
F-51
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
UNAUDITED (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. SEGMENTS (CONTINUED)
The following are the segment disclosures for hotel operations and corporate
housing as of and for the nine months ended September 30:
<TABLE>
<CAPTION>
HOTEL OPERATIONS CORPORATE HOUSING
--------------------- -------------------
2000 1999 2000 1999
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue.............................................. $1,026,825 $982,733 $38,761 --
========== ======== ======= =======
Earnings before interest, taxes, depreciation and
amortization....................................... $ 32,848 $ 26,685 $ 3,898 --
========== ======== ======= =======
Total assets......................................... $ 171,713 $136,558 $20,992 --
========== ======== ======= =======
</TABLE>
The following is a reconciliation of the segment information to our
consolidated financial information for the three months ended September 30:
<TABLE>
<CAPTION>
2000 1999
----------------------------------- -----------------------------------
EARNINGS BEFORE INTEREST EARNINGS BEFORE INTEREST
TAXES, DEPRECIATION AND TAXES, DEPRECIATION AND
REVENUES AMORTIZATION REVENUES AMORTIZATION
-------- ------------------------ -------- ------------------------
<S> <C> <C> <C> <C>
Hotel Operations................. $325,766 $ 713 $314,344 $5,656
Corporate Housing................ 29,369 3,114 -- --
Other............................ 1,229 (47) 444 (487)
-------- ------ -------- ------
Per financial statements......... $356,364 $3,780 $314,788 $5,169
======== ====== ======== ======
</TABLE>
The following is a reconciliation of the segment information to our
consolidated financial information as of and for the nine months ended
September 30:
<TABLE>
<CAPTION>
2000 1999
------------------------------------------------ ----------------------------------------------
EARNINGS BEFORE INTEREST EARNINGS BEFORE INTEREST
TAXES, DEPRECIATION AND TAXES, DEPRECIATION AND
REVENUES AMORTIZATION ASSETS REVENUES AMORTIZATION ASSETS
---------- ------------------------ -------- -------- ------------------------ --------
<S> <C> <C> <C> <C> <C> <C>
Hotel Operations......... $1,026,825 $32,848 $171,713 $982,733 $26,685 $136,558
Corporate Housing........ 38,761 3,898 20,992 -- -- --
Other.................... 3,962 (568) 182,094 3,116 (284) 140,008
---------- ------- -------- -------- ------- --------
Per financial
statements............. $1,069,548 $36,178 $374,799 $985,849 $26,401 $276,566
========== ======= ======== ======== ======= ========
</TABLE>
The other items in the tables above represent operating segment activity and
assets for the non-reportable segments and non-operating segment activity and
assets. The non-operating segment activity and assets are primarily unallocated
corporate expenses and intangibles and other miscellaneous assets.
F-52
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
UNAUDITED (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. SEGMENTS (CONTINUED)
Revenues for foreign operations for the three months ended September 30 were
as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Canada...................................................... $8,717 $6,163
====== ======
United Kingdom.............................................. $7,040 $ --
====== ======
</TABLE>
Revenues for foreign operations for the nine months ended September 30 were
as follows:
<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Canada.................................................... $19,669 $16,345
======= =======
United Kingdom............................................ $ 9,220 $ --
======= =======
</TABLE>
7. ACQUISITION
On May 31, 2000, we completed the acquisition of BridgeStreet
Accommodations, Inc. for $1.50 in cash and 0.5 shares of our common stock for
each share of BridgeStreet common stock outstanding. We issued 4,072 shares of
common stock and paid $12,216 to BridgeStreet's shareholders. In addition, we
repaid $12,021 of BridgeStreet's outstanding debt as part of the acquisition.
BridgeStreet provides corporate housing services in the United States, Canada
and the United Kingdom. The total purchase price of the acquisition was
approximately $44,907, which resulted in $34,335 of goodwill. The goodwill will
be amortized on a straight-line basis over 35 years.
In accordance with generally accepted accounting principles, we accounted
for the acquisition as a purchase. Accordingly, we have included the operating
results of BridgeStreet in our condensed consolidated financial statements since
May 31, 2000, the date of acquisition.
The following unaudited pro forma consolidated results of operations are
presented as if we had acquired BridgeStreet at the beginning of the periods
presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------------
2000 1999 2000 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue.......................................... $356,364 $340,921 $1,110,500 $1,058,908
Net Income....................................... $ (901) $ 1,765 $ 12,112 $ 9,577
Earnings Per Share:
Basic.......................................... $ (0.03) $ 0.05 $ 0.33 $ 0.31
Diluted........................................ $ (0.03) $ 0.05 $ 0.33 $ 0.31
</TABLE>
The pro forma consolidated results of operations include adjustments to give
effect to amortization of goodwill, interest expense on acquisition debt and
certain other adjustments, together with related income tax effects. The
unaudited pro forma information is not necessarily indicative of the results of
operations that would have occurred had the purchase been made at the beginning
of the periods presented or the future results of the combined operations.
F-53
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MeriStar Hotels & Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of MeriStar
Hotels & Resorts, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and owners'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MeriStar
Hotels & Resorts, Inc. and subsidiaries as of December 31, 1999 and 1998, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1999, in conformity with generally
accepted accounting principles.
Washington, D.C.
January 28, 2000, except
for Note 5 which is as
of February 29, 2000
KPMG LLP
F-54
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
INCLUDING PREDECESSOR ENTITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents................................. $ 1,726 $ 11,155
Accounts receivable, net of allowance for doubtful
accounts
of $2,090 and $2,285.................................... 47,976 61,987
Prepaid expenses.......................................... 3,589 4,193
Deposits and other........................................ 8,388 8,885
-------- --------
Total current assets.................................... 61,679 86,220
Fixed assets:
Furniture, fixtures and equipment......................... 14,832 7,325
Accumulated depreciation.................................. (2,522) (1,099)
-------- --------
Total fixed assets, net................................. 12,310 6,226
Investments in and advances to affiliates................... 30,018 7,695
Intangible assets, net of accumulated amortization of $7,927
and $3,338................................................ 153,927 146,782
Restricted cash............................................. 210 606
-------- --------
$258,144 $247,529
======== ========
Liabilities, Minority Interests, Stockholders' Equity and
Owners' Equity
Current Liabilities:
Accounts payable.......................................... $ 10,835 $ 28,401
Accrued expenses and other liabilities.................... 85,768 67,889
Due to affiliates, net.................................... 11,476 9,564
Income taxes payable...................................... 80 69
Long-term debt, current portion........................... 10 27
-------- --------
Total current liabilities............................... 108,169 105,950
Deferred income taxes....................................... 13,247 9,367
Long-term debt.............................................. 57,752 67,785
-------- --------
Total liabilities....................................... 179,168 183,102
Minority interests.......................................... 13,774 19,693
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized--100,000 shares
Issued and outstanding--29,625 and 25,437 shares........ 296 254
Paid-in capital........................................... 57,637 43,894
Retained earnings......................................... 7,236 551
Accumulated other comprehensive income.................... 33 35
-------- --------
Total Stockholders' equity.............................. 65,202 44,734
-------- --------
$258,144 $247,529
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-55
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Revenue:
Rooms..................................................... $ 894,983 $395,633 $ 9,880
Food and beverage......................................... 295,551 119,295 1,397
Other operating departments............................... 91,540 32,981 474
Management and other fees................................. 10,040 14,528 12,088
---------- -------- -------
Total revenue........................................... 1,292,114 562,437 23,839
---------- -------- -------
Operating expenses by department:
Rooms..................................................... 213,107 95,627 2,533
Food and beverage......................................... 224,726 90,662 909
Other operating expenses.................................. 48,619 17,198 261
Undistributed operating expenses:
Administrative and general................................ 183,279 84,881 10,473
Participating lease expense............................... 404,086 186,601 4,135
Property operating costs.................................. 195,033 76,300 1,917
Depreciation and amortization............................. 6,014 3,372 636
---------- -------- -------
Total operating expenses................................ 1,274,864 554,641 20,864
---------- -------- -------
Net operating income........................................ 17,250 7,796 2,975
Interest expense, net....................................... 4,692 2,017 56
Equity in earnings of affiliates............................ (31) (1,337) 46
---------- -------- -------
Income before minority interests and income taxes........... 12,527 4,442 2,965
Minority interests.......................................... 1,916 155 103
Income taxes................................................ 3,926 337 --
---------- -------- -------
Net income.................................................. $ 6,685 $ 3,950 $ 2,862
========== ======== =======
Earnings per share:
Basic................................................... $ 0.24 $ 0.02 --
Diluted................................................. $ 0.24 $ 0.02 --
========== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-56
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------- PAID-IN RETAINED COMPREHENSIVE OWNERS'
SHARES AMOUNT CAPITAL EARNINGS INCOME EQUITY TOTAL
-------- -------- ---------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997.......... -- $ -- $ -- $ -- $ -- $ 3,007 $ 3,007
Capital contributions............. -- -- -- -- -- 35,040 35,040
Net income for the year........... -- -- -- -- -- 2,862 2,862
------ ---- ------- ------ ---- -------- -------
Balance, December 31, 1997........ -- -- -- -- -- 40,909 40,909
Spin-Off and issuances of common
stock........................... 24,952 249 42,914 -- -- (44,308) (1,145)
Net income for period January 1,
1998 through August 2, 1998..... -- -- -- -- -- 3,399 3,399
Net income for period August 3,
1998 through December 31,
1998............................ -- -- -- 551 -- -- 551
Foreign currency translation
adjustment...................... -- -- -- -- 35 -- 35
------ ---- ------- ------ ---- -------- -------
Comprehensive Income.............. 3,985
====== ==== ======= ====== ==== ======== =======
Issuances of common stock under
Stock Purchase Plan............. 5 -- 11 -- -- -- 11
Rights offering................... 480 5 952 -- -- -- 957
Proceeds from exercise of stock
options, net.................... -- -- 17 -- -- -- 17
------ ---- ------- ------ ---- -------- -------
Balance, December 31, 1998........ 25,437 254 43,894 551 35 -- 44,734
Net income for the year........... -- -- -- 6,685 -- -- 6,685
Foreign currency translation
adjustment...................... -- -- -- -- (2) -- (2)
------ ---- ------- ------ ---- -------- -------
Comprehensive Income.............. 6,683
====== ==== ======= ====== ==== ======== =======
Issuances of common stock......... 1,820 18 4,793 -- -- -- 4,811
Redemption of OP units............ 1,908 19 7,816 -- -- -- 7,835
Issuances of common stock under
Stock Purchase Plan............. 381 4 935 -- -- -- 939
Proceeds from exercise of stock
options, net.................... 79 1 199 -- -- -- 200
------ ---- ------- ------ ---- -------- -------
Balance, December 31, 1999........ 29,625 $296 $57,637 $7,236 $ 33 $ -- $65,202
====== ==== ======= ====== ==== ======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-57
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Operating activities:
Net income................................................ $ 6,685 $ 3,950 $ 2,862
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 6,014 3,372 636
Equity in earnings of affiliates........................ 31 1,337 (46)
Minority interests...................................... 1,916 155 103
Deferred income taxes................................... 3,880 267 --
Changes in operating assets and liabilities:
Accounts receivable, net.............................. 14,011 (54,825) (5,459)
Prepaid expenses...................................... 604 (3,096) (320)
Deposits and other.................................... 497 (8,229) (645)
Accounts payable...................................... (17,566) 26,319 1,539
Due to affiliates, net................................ 1,912 (14,850) 3,638
Accrued expenses and other liabilities................ 9,533 55,656 8,859
Income taxes payable.................................. 11 69 --
-------- --------- -------
Net cash provided by operating activities................... 27,528 10,125 11,167
-------- --------- -------
Investing activities:
Purchases of fixed assets................................. (7,527) (4,624) (2,046)
Purchases of intangible assets............................ (3,388) (99,438) (924)
Investments in and advances to affiliates................. (22,338) 2,563 (2,078)
Distribution from investments in affiliates............... -- -- 147
Additions to notes receivable............................. -- -- (1,600)
Change in escrows and restricted funds.................... 396 (606) --
-------- --------- -------
Net cash used in investing activities....................... (32,857) (102,105) (6,501)
-------- --------- -------
Financing activities:
Proceeds from long-term debt.............................. 177,000 67,000 96
Principal payments on long-term debt...................... (187,050) (169) 4,112
Proceeds from issuances of common stock, net.............. 5,950 974 --
Contributions from CapStar................................ -- 8,383 --
Distributions to minority investors....................... -- (75) --
-------- --------- -------
Net cash (used in) provided by financing activities......... (4,100) 76,113 4,208
-------- --------- -------
Net (decrease) increase in cash and cash equivalents........ (9,429) (15,867) 8,874
Cash and cash equivalents, beginning of year................ 11,155 27,022 18,148
-------- --------- -------
Cash and cash equivalents, end of year...................... $ 1,726 $ 11,155 $27,022
======== ========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-58
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION
MeriStar Hotels & Resorts, Inc. (the "Company") was spun off by CapStar
Hotel Company ("CapStar") on August 3, 1998 (the "Spin-Off") to become the
lessee, manager and operator of various hotel assets, including those which were
previously owned, leased and managed by CapStar and certain of its affiliates.
CapStar distributed to its stockholders, on a share-for-share basis, all of the
outstanding shares of the Company's common stock, par value $0.01 per share
("Common Stock"). On August 3, 1998, CapStar merged (the "Merger") with and into
American General Hospitality Corporation ("AGH"), a Maryland corporation
operating as a real estate investment trust, to form MeriStar Hospitality
Corporation (the "REIT").
Immediately following the Spin-Off and the Merger, the Company acquired 100%
of the partnership interests in AGH Leasing L.P. ("AGH Leasing"), the
third-party lessee of most of the hotels owned by AGH, and acquired
substantially all of the assets and certain liabilities of American General
Hospitality, Inc. ("AGHI"), the third-party manager of most of the hotels owned
by AGH and certain other hotels. The Company thereby became the lessee, manager
and operator of most of the hotels owned by AGH. The purchase price of $95,000
was funded with a combination of cash and units of limited partnership interest
("OP Units") in the Company's subsidiary operating partnership. In accordance
with generally accepted accounting principles ("GAAP"), the acquisitions have
been accounted for as purchases and, therefore, the operating results of AGHI
and AGH Leasing are included in the Company's consolidated financial statements
from the date of acquisition.
The Company's financial statements include the historical results of the
Company's predecessor entity, the management and leasing operations of CapStar,
for all periods and include the operating results of AGH Leasing and AGHI since
August 3, 1998. In addition, prior to August 3, 1998, the Company managed
substantially all of the hotels owned by CapStar and received management fee
revenues from such hotels. Since August 3, 1998, the Company has leased these
hotels from the REIT and therefore records no management fees from such hotels
but instead records room, food and beverage and other operating department
revenues and expenses from such leased properties. Therefore, the Company's
results of operations for each of the years in the three-year period ended
December 31, 1999 reflect significantly differing numbers of managed and leased
hotels throughout the periods. The following table outlines the Company's
historical portfolio of managed and leased hotels:
<TABLE>
<CAPTION>
REIT CAPSTAR THIRD PARTY OTHER
LEASED OWNED MANAGED LEASED TOTAL
------------------- ------------------- ------------------- ------------------- -------------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/99............. 108 28,055 -- -- 54 9,693 53 7,600 215 45,348
12/31/98............. 109 28,058 -- -- 41 6,800 53 7,608 203 42,466
12/31/97............. -- -- 47 12,019 27 4,631 40 5,687 114 22,337
</TABLE>
We also manage 5 golf courses for third-party owners. Our golf course
management operations are not material to any period presented.
F-59
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company and all of its majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
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.
FIXED ASSETS--Fixed assets are recorded at cost and are depreciated using
the straight-line method over lives ranging from five to seven years.
INTANGIBLE ASSETS--Intangible assets consist of the value of goodwill and
lease contracts purchased, franchise costs, and costs incurred to obtain
management contracts. Goodwill represents the excess of cost over the fair value
of the net assets of the acquired businesses. Intangible assets are amortized on
a straight-line basis over the estimated useful lives of the underlying assets
ranging from 5 to 40 years.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF--The
carrying values of long-lived intangible assets are evaluated periodically in
relation to the operating performance and expected future undiscounted cash
flows of the underlying assets. Adjustments are made if the sum of expected
future undiscounted net cash flows are less than book value. The impairment loss
to be recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. No impairment losses were recorded
during 1999, 1998 or 1997.
INCOME TAXES--Prior to the Spin-Off, no provision for income taxes was made
since the Company's predecessor entities were partnerships and limited liability
companies, and, therefore, all income, losses, and credits for tax purposes were
passed through to the individual partners. Concurrent with the Spin-Off, 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 Company's
Canadian leased and managed 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.
STOCK-BASED COMPENSATIONS--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 its stock-based plans and therefore no compensation cost has been
recognized for these plans.
REVENUE RECOGNITION--Revenue is earned through the operations and management
of the hotel properties and is recognized when earned.
F-60
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PARTICIPATING LEASE AGREEMENTS--The Company's participating leases have
non-cancelable initial terms ranging from 9 to 14 years, subject to earlier
termination on the occurrence of certain contingencies, as defined. The rent
payable under each participating lease is the greater of base rent or percentage
rent, as defined. Percentage rent applicable to room and food and beverage
revenue varies by lease and is calculated by multiplying fixed percentages by
the total amounts of such revenues over specified threshold amounts. Both the
minimum rent and the revenue thresholds used in computing percentage rents are
subject to annual adjustments based on increases in the United States Consumer
Price Index. Percentage rent applicable to other revenues is calculated by
multiplying fixed percentages by the total amounts of such revenues. During
interim reporting periods, the Company recognizes contingent rental expense
prior to the achievement of the specified target that triggers the contingent
rental expense if the achievement of the specified target by the end of the
fiscal year is considered probable.
COMPREHENSIVE INCOME--SFAS No. 130, "Reporting Comprehensive Income,"
requires an enterprise to display comprehensive income and its components in a
financial statement to be included in an enterprise's full set of annual
financial statements or in the notes to 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 of the Company includes net income and other comprehensive income from
foreign currency items. For the year ended December 31, 1999, net income was
$6,685, other comprehensive income, net of tax, was $(2) and comprehensive
income was $6,683. For the year ended December 31, 1998, net income was $3,950,
other comprehensive income, net of tax, was $35 and comprehensive income was
$3,985.
NEW ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires that an entity recognize all
derivatives as either assets or liabilities in statements of financial position
and measure those instruments at fair value. In June 1999, the FASB issued SFAS
No. 137 which amended SFAS No. 133 to defer the effective date to all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company is currently
in the process of evaluating the effect this new standard will have on its
financial statements.
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.
RECLASSIFICATIONS--Certain 1998 and 1997 amounts have been reclassified to
conform to 1999 presentation.
F-61
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. INVESTMENTS IN AND ADVANCES TO AFFILIATES
The Company's net investment in and advances to these corporate joint
ventures and affiliated companies are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
CapStar Hallmark Company, L.L.C............................ $11,255 $ --
MIP Lessee, L.P............................................ 5,429 --
CapStar San Diego HGI Associates........................... 3,940 --
CapStar Wyandotte I, LLC and CapStar Wyandotte II, LLC..... 2,620 1,937
Sapphire Beach Resort & Marina............................. 2,137 1,750
Ballston Parking Associates................................ 1,629 1,629
BoyStar Ventures, L.P...................................... 1,458 1,367
Other...................................................... 1,550 1,012
------- ------
$30,018 $7,695
======= ======
</TABLE>
Combined summarized financial information of the Company's unconsolidated
corporate joint ventures and affiliated companies is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets............................................ $11,460 $ 902
Non-current assets........................................ 267,345 18,332
Current liabilities....................................... 10,560 1,082
Non-current liabilities................................... 132,298 157
OPERATING DATA:
Revenue................................................... $61,284 $11,159
Net (loss)................................................ (2,394) (933)
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Goodwill................................................ $117,060 $109,213
Hotel contracts......................................... 39,993 36,208
Other................................................... 4,801 4,699
-------- --------
161,854 150,120
Less accumulated amortization........................... (7,927) (3,338)
-------- --------
$153,927 $146,782
======== ========
</TABLE>
F-62
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Credit Facility........................................... $57,000 $67,000
Other..................................................... 762 812
------- -------
57,762 67,812
Less current portion...................................... (10) (27)
------- -------
$57,752 $67,785
======= =======
</TABLE>
CREDIT FACILITY--On August 3, 1998, the Company entered into a three-year
$75,000 unsecured revolving credit facility (the "Credit Facility") with the
REIT. The Credit Facility contains certain covenants, including maintenance of
financial ratios, reporting requirements and other customary restrictions.
Interest on the facility is variable, based on the 30-day London Interbank
Offered Rate plus 350 basis points. As of December 31, 1999 and 1998, the
Company had $57,000 and $67,000 in outstanding borrowings under the Credit
Facility, at an interest rate of 9.98% and 8.56%, respectively. The Company has
determined that the fair value of this note payable approximates its carrying
value. The Company incurred interest expense of $4,907 and $1,967 on this
facility during 1999 and 1998, respectively.
On February 29, 2000, the Company entered into a $100.0 million senior
secured credit facility among a syndicate of banks ("New Credit Facility"). The
New Credit Facility bears interest at the 30-day London Interbank Offered Rate
plus 350 basis points and expires in February 2002 with an optional one-year
extension. The Company drew down $65 million at an interest rate of 9.4% to
repay the borrowings outstanding under the revolving credit agreement with the
REIT.
Upon execution of the New Credit Facility, the REIT facility was amended to
reduce the maximum borrowing limit from $75 million to $25 million.
FUTURE MATURITIES--Aggregate future maturities of the above obligations are
as follows: 2000--$10; 2001--$57,752.
F-63
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. INCOME TAXES
Prior to the Spin-Off, the Company's predecessor entity conducted its
operations in partnerships and limited liability companies; these operations,
therefore, were not subject to income taxes. The Company is taxable as a C
Corporation. Accordingly, the Company's income taxes are based on pre-tax income
since the Spin-Off. Pre-tax income for the period August 3, 1998 through
December 31, 1998 was $887.
The Company's effective income tax rate for the year ended December 31, 1999
differs from the federal statutory income tax rate as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Statutory tax rate.......................................... 35.0% 35.0%
State and local taxes....................................... 4.0 4.2
Difference in rates on foreign subsidiaries................. -- 2.3
Business meals and entertainment............................ 0.7 5.2
Compensation expense........................................ (0.5) (77.8)
Valuation allowance......................................... (5.8) 69.0
Other....................................................... 3.6 --
---- -----
37.0% 37.9%
==== =====
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current:
Federal................................................... $ -- $ --
State..................................................... 46 27
Foreign................................................... -- 42
------ ----
46 69
------ ----
Deferred:
Federal................................................... 3,276 234
State..................................................... 604 33
------ ----
3,880 267
------ ----
$3,926 $336
====== ====
</TABLE>
F-64
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. INCOME TAXES (CONTINUED)
The tax effects of the temporary differences and carryforwards that give
rise to the Company's net deferred tax liability at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts....................... $ 144 $ 236
Accrued vacation...................................... 491 545
Minority interests temporary difference............... 862 --
Net operating loss.................................... 1,159 613
-------- --------
Total gross deferred tax assets....................... 2,656 1,394
Less valuation allowance.............................. -- (613)
-------- --------
Net deferred tax assets............................... 2,656 781
-------- --------
Deferred tax liabilities:
Accrued expenses...................................... $ (876) $ (7)
OP Units.............................................. (9,100) (9,100)
Amortization expense.................................. (2,443) (580)
Prepaid expenses...................................... (306) (461)
Intangible assets basis difference.................... (3,100) --
Other................................................. (78) --
-------- --------
Total gross deferred tax asset........................ (15,903) (10,148)
-------- --------
Net deferred tax liability.............................. $(13,247) $ (9,367)
======== ========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards of
approximately $3,132 that begin to expire in 2018. The valuation allowance for
deferred tax assets as of January 1, 1999 was $613. The net change in the total
valuation allowance for the year ended December 31, 1999 was a decrease of $613.
As part of the Spin-Off, the Company received certain assets that CapStar
had acquired, in part, through the issuance of OP Units. These assets were
acquired by CapStar prior to August 3, 1998. At August 3, 1998 the tax basis of
these assets differed from the financial reporting amounts that the Company
recorded as part of the Spin-Off. The Company has recorded a deferred income tax
liability of $9,100 for the estimated future tax effect of this basis
difference. The amount of the basis difference and corresponding deferred income
tax liability have been estimated. The deferred income tax liability may be
adjusted upon the final determination of the basis difference. Any such
adjustment, however, would be recorded as an increase or decrease to the
deferred income tax liability balance, and a corresponding decrease or increase
in the capital CapStar contributed to the Company as part of the Spin-Off.
F-65
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. STOCKHOLDERS' EQUITY AND MINORITY INTERESTS
COMMON STOCK--In conjunction with the Spin-Off, CapStar distributed to its
stockholders, on a share-for-share basis, all of the 24,948,754 outstanding
shares of the Company's Common Stock.
In connection with the Spin-Off the Company distributed to holders of the
REIT's common stock and the REIT's OP Units, one right for every six shares or
units owned. Each right entitled its holder to purchase a share of Common Stock
at a subscription price of $2.84 per share, during a subscription period from
August 13, 1998 through August 31, 1998. The Rights Offering resulted in the
sale of approximately 480,000 shares of Common Stock with net proceeds to the
Company of $957.
In November 1998, 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 1,500,000 shares of Common Stock for
issuance under this plan. The Company sold 5,384 shares under this plan in 1998
and 381,066 shares under this plan in 1999.
On April 15, 1999, the Company privately issued 1,818,182 shares of the
Company's Common Stock at a price of $2.75 per share to the Company's joint
venture partner in MIP Lessee L.P.
On January 6, 1999, the Company privately issued 1,818,182 shares of the
Company's Common Stock at a price of $2.75 per share to the Company's joint
venture partner in MIP Lessee L.P.
OP UNITS--Substantially all of the Company's assets are held indirectly by
MeriStar H&R Operating Company, L.P. (the "Operating Partnership"), the
Company's subsidiary operating partnership.
The Operating Partnership's partnership agreement currently has three
classes of OP Units: Class A OP Units, Class B OP Units and Preferred OP Units.
No dividends were paid during 1998 and no dividends and 1999 to the Class A OP
Unit holders and Class B OP Unit holders. Preferred OP Unit holders receive a
6.5% cumulative annual preferred return based on an assumed price per Common
Share of $3.34, compounded quarterly to the extent not paid on a current basis,
and are entitled to a liquidation preference of $3.34 per Preferred OP Unit. All
net income and capital proceeds earned by the Operating Partnership, after
payment of the annual preferred return and, if applicable, the liquidation
preference, will be shared by the holders of the Class A OP Units and Class B OP
Units in proportion to the number OP Units owned by each such holder.
Each Class A and Class B OP Unit 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 the Operating Partnership at a price of $3.34 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 $3.34 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.
In conjunction with the Spin-Off and Merger, the Company issued to holders
of CapStar OP Units, 1,083,759 Class A and B OP Units and 392,157 Class C OP
Units.
F-66
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. STOCKHOLDERS' EQUITY AND MINORITY INTERESTS (CONTINUED)
Immediately following the Spin-Off and the Merger, the Company acquired 100%
of the partnership interests in AGH Leasing and acquired substantially all of
the assets and certain liabilities of AGHI. The purchase price of $95,000 was
funded with a combination of cash and the issuance of 3,414,872 Class A OP
Units.
In October 1998, in conjunction with the purchase of certain assets of South
Seas Properties Company, L.P., the Company issued 916,230 Class A OP Units.
8. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share ("EPS") computations for net income for the
year ended December 31, 1999 and for the period August 3, 1998 through
December 31, 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Basic EPS Computation:
Net income.............................................. $ 6,685 $ 551
Weighted average number of shares of Common Stock
outstanding........................................... 27,868 25,335
------- -------
Basic EPS............................................... $ 0.24 $ 0.02
======= =======
Diluted EPS Computation:
Net income.............................................. $ 6,685 $ 551
Minority interest, net of tax........................... -- (90)
------- -------
Adjusted net income..................................... $ 6,685 $ 461
------- -------
Weighted average number of shares of Common Stock
outstanding........................................... 27,868 25,335
Common Stock equivalents:
Stock options......................................... 146 18
OP Units.............................................. 392 1,308
------- -------
Total weighted average number of diluted shares of
Common Stock outstanding.............................. 28,406 26,661
------- -------
Diluted EPS............................................. $ 0.24 $ 0.02
======= =======
</TABLE>
Certain OP Units were not included in the computation of diluted EPS as
their effect was anti-dilutive.
EPS for 1998 has been calculated using net income amounts for the period
from the Spin-Off on August 3, 1998 through December 31, 1999. EPS is not
presented for periods prior to the Spin-Off because the Company's predecessor
entities were partnerships.
F-67
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. RELATED-PARTY TRANSACTIONS
Pursuant to an intercompany agreement, the Company and the REIT provide each
other with, among other things, reciprocal rights to participate in certain
transactions entered into by each party. In particular, the Company has a right
of first refusal to become the lessee of any real property acquired by the REIT.
The Company also provides the REIT with certain services including
administrative, corporate, accounting, finance, insurance, legal, tax, data
processing, human resources, acquisition identification and due diligence, and
operational services, for which the Company is compensated in an amount that the
REIT would be charged by an unaffiliated third party for comparable services.
During the years ended December 31, 1999 and 1998, the Company paid $1,600 and
$781 of such services to the REIT respectively.
10. STOCK-BASED COMPENSATION
On August 3, 1998, the Company adopted an equity incentive plan that
authorized the Company to issue and award up to 4,000,000 shares of common
stock. This plan was amended to increase the maximum number of shares of Common
Stock that may be issued under the Plan to fifteen percent of the number of
outstanding shares of Common Stock. Awards under the plan may be granted to
directors, officers, or other key employees.
On August 8, 1998, the Company adopted an equity incentive plan for
non-employee directors that authorized the Company to issue and award options
for up to 125,000 shares of common stock. These options will vest in three
annual installments beginning on the date of grant and on subsequent
anniversaries thereof, provided the eligible director continues to serve as a
director of the Company on each such anniversary. Options granted under the Plan
are exercisable for ten years from the grant date.
In November 1998, 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 1,500,000 shares of Common Stock for
issuance under this plan.
F-68
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. STOCK-BASED COMPENSATION (CONTINUED)
Stock option activity is as follows:
<TABLE>
<CAPTION>
EQUITY INCENTIVE PLAN DIRECTORS' PLAN
------------------------ ---------------------------
NUMBER OF AVERAGE NUMBER OF AVERAGE
SHARES OPTION PRICE SHARES OPTION PRICE
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, August 3, 1998..................... -- $ -- -- $ --
Granted..................................... 2,805,955 $3.37 45,000 $ 3.28
Exercised................................... (2,235) -- -- --
Forfeited................................... -- -- -- --
--------- ----- ------ -------
Balance, December 31, 1998.................. 2,803,720 $3.37 45,000 $ 3.28
Granted..................................... 449,425 3.22 40,000 4.19
Exercised................................... (106,579) 2.48 -- --
Forfeited................................... (151,822) 3.62 -- --
--------- ----- ------ -------
Balance, December 31, 1999.................. 2,994,744 $3.36 85,000 $ 3.71
========= ===== ====== =======
Shares exercisable at December 31, 1999..... 1,776,946 $3.40 15,000 $ 3.28
========= ===== ====== =======
Shares exercisable at December 31, 1998..... 1,415,044 $3.43 -- $ --
========= ===== ====== =======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$2.19 to $2.63........... 834,599 7.23 $2.40 672,279 $2.37
$2.69 to $3.19........... 172,650 9.02 2.93 15,734 3.11
$3.25 to $3.28........... 941,720 8.59 3.28 313,370 3.28
$3.31 to $4.76........... 1,130,775 8.20 4.19 790,563 4.33
--------- ---- ----- ---------- -----
$2.19 to $4.76........... 3,079,744 8.10 $3.36 1,791,946 $3.40
========= ==== ===== ========== =====
</TABLE>
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 weighted average fair
value of the options granted was $1.46 and $1.58 at December 31,
F-69
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. STOCK-BASED COMPENSATION (CONTINUED)
1999 and 1998, respectively. 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 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Risk-free interest rate............................... 6.70% 5.51%
Dividend rate......................................... -- --
Volatility factor..................................... 0.56 0.50
Weighted average expected life........................ 2.63 years 6.15 years
</TABLE>
The Company's pro forma net loss and basic EPS as if the fair value method
had been applied were $6,185 and $0.22 and $(2,324) and $(0.09) for 1999 and
1998, 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 participating leases
with initial terms ranging from 9 to 14 years, expiring through 2013. The total
amount payable on these participating leases was $9,503 and $11,100 at
December 31, 1999 and 1998, respectively. The Company also leases corporate
office space. Future minimum lease payments required under these operating
leases as of December 31, 1999 were as follows:
<TABLE>
<S> <C>
2000........................................................ $ 260,378
2001........................................................ 260,548
2002........................................................ 260,397
2003........................................................ 259,585
2004........................................................ 258,754
Thereafter.................................................. 1,582,985
----------
$2,882,647
==========
</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.
The Participating Leases require the Company, as guarantor of the
Participating Leases, to maintain a book net worth of not less than
$40 million. Further, commencing January 1, 1999, for so long as the tangible
net worth of the Company is less than 17.5% of the aggregate rents payable under
the Participating Leases for the prior calendar year, the Company is prohibited
from paying dividends or making distributions other than dividends or
distributions made for the purpose of permitting the partners of the Operating
Partnership to pay taxes on the taxable income of the Operating Partneship
attributable to its partners plus any required preferred distributions existing
to partners.
F-70
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. SEGMENTS
The Company is organized into three primary operating divisions. Each
division is managed separately because of its distinctive products and services
offered by the hotel properties within the operating division. These operating
divisions are the Company's three reportable operating segments: upscale,
full-service hotels ("Hotels"); premium limited-service hotels and inns
("Inns"); and resort properties ("Resorts"). The Company's management evaluates
performance of each segment based on earnings before interest taxes,
depreciation, and amortization ("EBITDA"). The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies.
Prior to the Spin-Off, the Company conducted its business primarily in only
one operating segment. Therefore, the segment disclosures presented below are
for the year ended December 31, 1999 and the period August 3, 1998 through
December 31, 1998. The Company has determined that it is not practicable to
present the segment informtaion for the year ended December 31, 1997.
<TABLE>
<CAPTION>
TOTAL
YEAR ENDED DECEMBER 31, 1999 HOTELS INNS RESORTS SEGMENTS
---------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
Revenues........................................... $830,828 $172,295 $273,113 $1,276,236
======== ======== ======== ==========
Participating Lease Expense........................ $261,671 $ 71,142 $ 71,273 $ 404,086
======== ======== ======== ==========
EBITDA............................................. $ 17,047 $ 6,164 $ 6,886 $ 30,097
======== ======== ======== ==========
Total Assets....................................... $ 71,191 $ 14,161 $ 12,791 $ 98,143
======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
PERIOD AUGUST 3, 1998 THROUGH DECEMBER 31, 1998 HOTELS INNS RESORTS SEGMENTS
----------------------------------------------- -------- -------- -------- ----------
<S> <C> <C> <C> <C>
Revenues........................................... $322,720 $ 72,267 $ 73,878 $ 468,865
======== ======== ======== ==========
Participating Lease Expense........................ $101,423 $ 29,430 $ 24,187 $ 155,040
======== ======== ======== ==========
EBITDA............................................. $ 4,710 $ 172 $ (882) $ 4,000
======== ======== ======== ==========
Total Assets....................................... $ 48,264 $ 42,091 $ 16,276 $ 106,631
======== ======== ======== ==========
</TABLE>
The following is a reconciliation of the segment information to the
Company's consolidated data for the year ended December 31, 1999:
<TABLE>
<CAPTION>
PARTICIPATING
LEASE
REVENUES EXPENSE EBITDA ASSETS
---------- ------------- -------- --------
<S> <C> <C> <C> <C>
Total Segments.................................... $1,276,236 $404,086 $30,097 $ 98,143
Other Items....................................... 15,878 -- (6,833) 160,788
---------- -------- ------- --------
Per Financial Statements.......................... $1,292,114 $404,086 $23,264 $258,931
========== ======== ======= ========
</TABLE>
F-71
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
12. SEGMENTS (CONTINUED)
The following is a reconciliation of the segment information to the
Company's consolidated data for the year ended December 31, 1998:
<TABLE>
<CAPTION>
PARTICIPATING
LEASE
REVENUES EXPENSE EBITDA ASSETS
-------- ------------- -------- --------
<S> <C> <C> <C> <C>
Total Segments...................................... $468,865 $155,040 $ 4,000 $106,631
Other Items......................................... 7,526 -- 1,164 140,898
-------- -------- ------- --------
Total August 3, 1998 through December 31, 1998...... $476,391 $155,040 $ 5,164 $247,529
======== ======== ======= ========
Total Pre-Spin-Off (January 1, 1998 through
August 2, 1998)................................... 86,046 31,561 6,004 --
-------- -------- ------- --------
Per Financial Statements............................ $562,437 $186,601 $11,168 $247,529
======== ======== ======= ========
</TABLE>
The other items in the table above represent non-operating segment activity
and assets. These are primarily unallocated corporate expenses and non-segment
activities, and intangible and other miscellaneous assets.
Revenues for Canadian operations totaled $21,477 and $8,865 for the year
ended December 31, 1999 and period August 3, 1998 through December 31, 1998,
respectively.
13. ACQUISITIONS
Pursuant to the Spin-Off and Merger, the Company acquired 100% of the
partnership interests in AGH Leasing, the third-party lessee of most of the
hotels owned by AGH, and substantially all of the assets and liabilities of
AGHI, the third-party manager of most of the AGH hotels. As a result, the
Company became the lessee and manager of most of the hotels owned by the REIT.
The purchase price of $95,000 was paid with a combination of cash and OP Units
in the Company's subsidiary operating partnerships.
The following unaudited pro forma summary presents information if AGH
Leasing and AGHI had been acquired, and the Spin-Off had occurred, 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>
1998 1997
---------- --------
<S> <C> <C>
Total revenue............................................... $1,083,348 $938,613
Net income.................................................. $ 3,295 $ 3,097
Diluted EPS................................................. $ 0.13 $ 0.12
</TABLE>
F-72
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the Company's quarterly results of operations:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------- -----------------------------------------
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.......... $325,838 $345,223 $314,788 $306,265 $30,130 $41,101 $195,498 $295,708
Total operating
expenses............. 325,547 327,318 311,037 310,962 28,798 38,462 187,890 299,491
Net operating income
(loss)............... 291 17,905 3,751 (4,697) 1,332 2,639 7,608 (3,783)
Net income (loss)...... (465) 8,810 1,553 (3,213) 758 2,223 3,605 (2,636)
Diluted earnings (loss)
per share............ $ (0.02) $ 0.31 $ 0.05 $ (0.11) $ -- $ -- $ 0.12 $ (0.10)
</TABLE>
The effect of the Emerging Issues Task Force ("EITF") No. 98-9 "Accounting
for Contingent Rent in Interim Financial Periods", on the Company's financial
statements for the three months ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31, 1999
---------------------------------------------
PRIOR TO AFTER
EFFECT OF EFFECT OF EFFECT OF
EITF NO. 98-9 EITF NO. 98-9 EITF NO. 98-9
------------- ------------- -------------
<S> <C> <C> <C>
Net operating income.................................. $ 1,648 $(6,345) $(4,697)
Interest expense, net................................. (1,149) -- (1,149)
Equity in earnings of affiliate....................... (31) -- (31)
Minority interest..................................... (52) 830 778
Income taxes.......................................... (154) 2,040 1,886
------- ------- -------
Net income............................................ $ 262 $(3,475) $(3,213)
======= ======= =======
Diluted EPS........................................... $ 0.01 $ (0.11)
======= =======
</TABLE>
F-73
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash paid for interest and income taxes:
Interest.................................................. $4,907 $ 2,017 $ 56
Income taxes.............................................. 36 -- --
Non-cash investing and financing activities:
Conversion of OP Units to common stock.................... 7,835 -- --
OP Units issued in purchase of intangible assets.......... 8,346 14,022 --
Assets contributed by CapStar............................... -- 2,605 38,844
Liabilities contributed by CapStar.......................... -- (7,549) (4,219)
Debt contributed by CapStar................................. -- (1,116) --
------ ------- -------
Net assets (liabilities) contributed by CapStar............. -- $(6,060) $34,625
====== ======= =======
</TABLE>
F-74
<PAGE>
EXECUTION COPY
APPENDIX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
MERISTAR HOTELS & RESORTS, INC.,
AMERICAN SKIING COMPANY,
AND
ASC MERGER SUB, INC.
DATED AS OF DECEMBER 8, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
'
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
RECITALS.......................................................................... 1
ARTICLE I THE MERGER............................................................. 2
Section 1.1 The Merger.................................................. 2
Section 1.2 Effective Time.............................................. 2
Section 1.3 Closing..................................................... 2
Section 1.4 Effects of the Merger....................................... 2
Section 1.5 The Certificate of Incorporation of the Surviving
Corporation................................................. 2
Section 1.6 The Certificate of Incorporation of ASC..................... 2
Section 1.7 The Bylaws of the Surviving Corporation..................... 2
Section 1.8 The Bylaws of ASC........................................... 3
Section 1.9 Directors of Surviving Corporation.......................... 3
Section 1.10 Directors of ASC............................................ 3
Section 1.11 Officers of Surviving Corporation........................... 3
Section 1.12 Management of ASC........................................... 3
ARTICLE II EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES............................................. 3
Section 2.1 Conversion of Capital Stock................................. 4
Section 2.2 Exchange of Certificates.................................... 5
Section 2.3 No Appraisal Rights......................................... 6
Section 2.4 Adjustments to Prevent Dilution............................. 6
Section 2.5 Withholding Rights.......................................... 6
Section 2.6 MeriStar Benefit Plans...................................... 6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF MERISTAR........................... 7
Section 3.1 Organization and Qualification; Subsidiaries................ 7
Section 3.2 Certificate of Incorporation and Bylaws..................... 7
Section 3.3 Capitalization.............................................. 8
Section 3.4 Authority................................................... 9
Section 3.5 No Conflicts................................................ 9
Section 3.6 Required Filings and Consents............................... 10
Section 3.7 Permits; Compliance with Law................................ 10
Section 3.8 SEC Filings; Financial Statements........................... 10
Section 3.9 Absence of Certain Changes or Events........................ 11
Section 3.10 Employee Benefit Plans; Labor Matters....................... 12
Section 3.11 Tax Matters................................................. 14
Section 3.12 Contracts; Debt Instruments................................. 14
Section 3.13 Litigation.................................................. 15
Section 3.14 Environmental Matters....................................... 15
Section 3.15 Intellectual Property....................................... 15
Section 3.16 Taxes....................................................... 17
Section 3.17 Non-Competition Agreements.................................. 18
Section 3.18 Agreements with Regulatory Agencies......................... 18
Section 3.19 Rights Agreement............................................ 19
Section 3.20 Opinion of Financial Advisor................................ 19
Section 3.21 Brokers..................................................... 19
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Section 3.22 Certain Statutes............................................ 19
Section 3.23 Information................................................. 19
Section 3.24 Vote Required............................................... 20
Section 3.25 Properties.................................................. 20
Section 3.26 No Payments to Employees, Officers or Directors............. 22
Section 3.27 Potential Conflicts of Interest............................. 22
Section 3.28 Registration Rights......................................... 23
Section 3.29 Investment Company Act of 1940.............................. 23
ARTICLE IV REPREPRESENTATIONS AND WARRANTIES
OF ASC AND MERGER SUB............................................... 23
Section 4.1 Organization and Qualification; Subsidiaries................ 23
Section 4.2 Certificate of Incorporation and Bylaws..................... 24
Section 4.3 Capitalization.............................................. 24
Section 4.4 Authority................................................... 25
Section 4.5 No Conflicts................................................ 26
Section 4.6 Required Filings and Consents............................... 26
Section 4.7 Permits; Compliance with Law................................ 27
Section 4.8 SEC Filings; Financial Statements........................... 27
Section 4.9 Absence of Certain Changes or Events........................ 28
Section 4.10 Employee Benefit Plans; Labor Matters....................... 29
Section 4.11 Tax Matters................................................. 30
Section 4.12 Contracts; Debt Instruments................................. 30
Section 4.13 Litigation.................................................. 31
Section 4.14 Environmental Matters....................................... 31
Section 4.15 Intellectual Property....................................... 32
Section 4.16 Taxes....................................................... 33
Section 4.17 Non-Competition Agreements.................................. 34
Section 4.18 Agreements with Regulatory Agencies......................... 34
Section 4.19 Opinion of Financial Advisor................................ 35
Section 4.20 Brokers..................................................... 35
Section 4.21 Certain Statutes............................................ 35
Section 4.22 Information................................................. 35
Section 4.23 Vote Required............................................... 36
Section 4.24 Interim Operations of Merger Sub............................ 36
Section 4.25 Properties.................................................. 36
Section 4.26 Condominium Associations; Time Share Arrangements........... 38
Section 4.27 No Payments to Employees, Officers or Directors............. 40
Section 4.28 Potential Conflicts of Interest............................. 40
Section 4.29 Registration Rights......................................... 40
Section 4.30 Investment Company Act of 1940.............................. 40
ARTICLE V COVENANTS............................................................. 41
Section 5.1 Conduct of Business of MeriStar............................. 41
Section 5.2 Conduct of Business of ASC.................................. 43
Section 5.3 Interim Transactions Committee.............................. 45
Section 5.4 Notification of Certain Matters............................. 45
Section 5.5 Proxy Statement............................................. 45
Section 5.6 Stockholders' Meetings...................................... 47
Section 5.7 Access to Information; Confidentiality...................... 47
Section 5.8 No Solicitation by MeriStar................................. 47
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Section 5.9 No Solicitation by ASC...................................... 49
Section 5.10 Additional Covenants........................................ 50
Section 5.11 Directors' and Officers' Indemnification and Insurance...... 52
Section 5.12 Affiliates.................................................. 53
Section 5.13 Reasonable Best Efforts..................................... 53
Section 5.14 Consents; Filings; Further Action........................... 53
Section 5.15 Plan of Reorganization...................................... 54
Section 5.16 Public Announcements........................................ 54
Section 5.17 Obligations of Merger Sub................................... 55
Section 5.18 Stock Exchange Listings and De-Listings..................... 55
Section 5.19 Takeover Statutes........................................... 55
Section 5.20 Dividends................................................... 55
ARTICLE VI CONDITIONS............................................................ 55
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... 55
Section 6.2 Conditions to Obligations of ASC and Merger Sub............. 56
Section 6.3 Conditions to Obligation of MeriStar........................ 57
ARTICLE VII TERMINATION........................................................... 58
Section 7.1 Termination................................................. 58
Section 7.2 Effect of Termination....................................... 60
Section 7.3 Expenses and Fees Following Certain Termination Events...... 60
ARTICLE VIII MISCELLANEOUS........................................................ 61
Section 8.1 Certain Definitions......................................... 61
Section 8.2 Survival.................................................... 62
Section 8.3 Counterparts................................................ 62
Section 8.4 GOVERNING LAW; WAIVER OF JURY TRIAL......................... 62
Section 8.5 Notices..................................................... 63
Section 8.6 Entire Agreement............................................ 64
Section 8.7 No Third Party Beneficiaries................................ 64
Section 8.8 Amendment................................................... 64
Section 8.9 Waiver...................................................... 64
Section 8.10 Obligations of ASC and of MeriStar.......................... 64
Section 8.11 Severability................................................ 64
Section 8.12 Interpretation.............................................. 64
Section 8.13 Assignment.................................................. 65
Section 8.14 Specific Performance........................................ 65
</TABLE>
<TABLE>
<S> <C>
ANNEXES:
Annex A Form of Amended and Restated ASC Certificate of
Incorporation
Annex B Form of Amended and Restated ASC Bylaws
Annex C List of Certain Management Personnel of ASC after the
Effective Time
Annex D Form of Rule 145 Affiliate Agreement
Annex E Form of Registration Rights Agreement
</TABLE>
A-iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
---- -----------
<S> <C>
1940 Act.................................................... 3.29
affiliate................................................... 8.1(a)
Agreement................................................... Preamble
Amended OP Agreement........................................ 5.10(k)
ASC......................................................... Preamble
ASC Acquisition Proposal.................................... 5.9(a)
ASC Benefit Plans........................................... 4.10(a)
ASC Class A Common Stock.................................... 4.3(a)
ASC Common Stock............................................ 2.1(c)
ASC Credit Agreements....................................... 4.12
ASC Disclosure Letter....................................... 4.1(b)
ASC Filed SEC Reports....................................... 4.9(a)
ASC Financial Advisor....................................... 4.19
ASC Land Option............................................. 6.3(g)(ii)
ASC Leases.................................................. 4.25(a)
ASC Notes................................................... 4.1(c)
ASC Notes Consent........................................... 5.10(d)
ASC Notes Indenture......................................... 4.1(c)
ASC Option Plan............................................. 4.3(b)
ASC Permits................................................. 4.7
ASC Proposals............................................... 4.5
ASC Regulatory Agreement.................................... 4.18
ASC SEC Reports............................................. 4.8(a)
ASC Senior Credit Facility.................................. 4.1(g)
ASC Senior Credit Facility Amendment........................ 5.10(a)
ASC Series A Preferred Stock................................ 4.3(a)
ASC Series B Preferred Stock................................ 4.3(a)
ASC Shares.................................................. 4.3(a)
ASC Stock Options........................................... 4.3(b)
ASC Stockholders Meeting.................................... 5.5(a)
ASC Subordinated Loan Facility.............................. 4.12
ASC Subsidiaries............................................ 4.1(a)
ASC Superior Proposal....................................... 5.9(b)
ASC Voting/Recapitalization Agreement....................... Recital (b)
Blue Sky Laws............................................... 3.6
business day................................................ 8.1(b)
Certificate................................................. 2.1(c)
Certificate of Merger....................................... 1.2
Claims...................................................... 3.13
Closing..................................................... 1.3
Closing Date................................................ 1.3
Code........................................................ Recital (c)
Confidentiality Agreement................................... 5.7(b)
Contracts................................................... 3.5(a)(iii)
control..................................................... 8.1(a)
controlled by............................................... 8.1(a)
controlling................................................. 8.1(a)
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -----------
<S> <C>
Development Activities...................................... 4.25(b)
Development Fees............................................ 4.25(j)
DGCL........................................................ Recital (a)
Effective Time.............................................. 1.2
Encumbrances................................................ 3.25(a)
Environmental Laws.......................................... 3.14(a)
Environmental Permits....................................... 3.14(a)
ERISA....................................................... 3.10(a)(iii)
Exchange Act................................................ 3.6
Exchange Agent.............................................. 2.2(a)
Exchange Fund............................................... 2.2(a)
Exchange Ratio.............................................. 2.1(c)
Existing Stockholders' Agreement............................ 5.10(e)
Expenses.................................................... 7.3(a)
GAAP........................................................ 3.8(b)
Governmental Entity......................................... 3.6
group....................................................... 8.1(g)
HSR Act..................................................... 3.6
Improvements................................................ 4.25(d)
including................................................... 8.1(c)
Indemnified Parties......................................... 5.11(a)
Intellectual Property....................................... 3.15(a)(ii)
Interim Transactions Committee.............................. 5.3
Intervals................................................... 4.26(a)
IP Licenses................................................. 3.15(a)(ii)
knowledge................................................... 8.1(d)
Law......................................................... 3.5(a)(ii)
Leased Real Property........................................ 4.25(a)
Liens....................................................... 3.3(c)
Managing Entity............................................. 4.26(j)
Material Adverse Effect on MeriStar......................... 8.1(e)
Material Adverse Effect on ASC.............................. 8.1(f)
Merger...................................................... Recital (a)
Merger Consideration........................................ 2.1(c)
Merger Sub.................................................. Preamble
MeriStar.................................................... Preamble
MeriStar Acquisition Proposal............................... 5.8(a)
MeriStar Benefit Plans...................................... 3.10(a)
MeriStar Common Stock....................................... 2.1(c)
MeriStar Disclosure Letter.................................. 3.1(b)
MeriStar Filed SEC Reports.................................. 3.9(a)
MeriStar Financial Advisor.................................. 3.20
MeriStar Franchise Agreements............................... 3.25(f)
MeriStar Leases............................................. 3.25(e)
MeriStar OP Amendment....................................... 5.10(k)
MeriStar Option Plans....................................... 3.3(b)
MeriStar Ordinary Course Leases............................. 3.25(d)
MeriStar Permits............................................ 3.7
MeriStar Preferred Stock.................................... 3.3(a)
MeriStar Properties......................................... 3.25(a)
</TABLE>
A-v
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -----------
<S> <C>
MeriStar Proposals.......................................... 3.4
MeriStar Regulatory Agreement............................... 3.18
MeriStar-REIT Agreement Amendments.......................... 5.10(f)
MeriStar Rights Agreement................................... 2.1(b)
MeriStar SEC Reports........................................ 3.8(a)
MeriStar Senior Management Options.......................... 2.6(b)
MeriStar Senior Secured Credit Facility..................... 5.10(b)
MeriStar Senior Management Option Vesting Waiver............ 5.10(j)
MeriStar Series A Preferred Stock........................... 2.1(b)
MeriStar Shareholder Rights................................. 2.1(b)
MeriStar Stock Options...................................... 3.3(b)
MeriStar Stockholders Meeting............................... 5.5(a)
MeriStar Space Leases....................................... 3.25(g)
MeriStar Space Tenant....................................... 3.25(g)
MeriStar Subsidiaries....................................... 3.1(a)
MeriStar Superior Proposal.................................. 5.8(b)
New ASC Series A Preferred Stock............................ Recital (b)
New ASC Senior Credit Facility.............................. 5.10(a)
NYSE........................................................ 2.2(f)
OCP......................................................... 5.10(l)(i)
OP Units.................................................... 3.3(a)
Owned Real Property......................................... 4.25(a)
person...................................................... 8.1(g)
Principal ASC Stockholders.................................. Recital (b)
Principal MeriStar Stockholders............................. Recital (b)
Project Plans............................................... 4.25(h)
Proposed Intellectual Property Agreements................... 3.15(a)(iii)
Prospective Purchasers...................................... 4.26(b)
Proxy Materials............................................. 5.5(a)
Proxy Statement............................................. 5.5(a)
Real Property............................................... 4.25(d)
Registration Rights Agreement............................... 5.10(q)
Registration Statement...................................... 5.5(a)
Registration Statement Effective Date....................... 5.5(a)
REIT........................................................ 6.2(i)
Representatives............................................. 5.7(a)
Requisite MeriStar Vote..................................... 3.4(a)
Requisite ASC Vote.......................................... 4.4(a)
Resort Properties........................................... 4.12
Resorts Credit Facility..................................... 4.12
Resorts Credit Facility Amendment........................... 5.10(c)
Resorts Credit Facility Conversion.......................... 5.10(c)
Rule 145 Affiliate Agreement................................ 5.12
Rule 145 Affiliates......................................... 5.12
SEC......................................................... 3.8(a)
Securities Act.............................................. 3.6
Software.................................................... 3.15(a)(ii)
Space Leases................................................ 4.25(e)
Space Tenant................................................ 4.25(e)
Sub Common Stock............................................ 4.3(d)
</TABLE>
A-vi
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -----------
<S> <C>
subsidiary.................................................. 8.1(h)
subsidiaries................................................ 8.1(h)
Subsidies................................................... 4.26(j)
Surviving Corporation....................................... 1.1(a)
Takeover Statute............................................ 3.22
Taxes....................................................... 3.16(a)
Tax Returns................................................. 3.16(a)
Technology.................................................. 3.15(a)(ii)
Terminating MeriStar Breach................................. 7.1(e)
Terminating ASC Breach...................................... 7.1(f)
Textron Facility............................................ 4.12
under common control with................................... 8.1(a)
Units....................................................... 4.26(a)
U.S. Forest Service Permits................................. 4.25(c)
U.S. Forest Service Properties.............................. 4.25(c)
Warrants.................................................... 5.10(l)(i)
Warrant Purchase Agreement.................................. 5.10(l)(i)
</TABLE>
A-vii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of December 8,
2000, among MERISTAR HOTELS & RESORTS, INC., a Delaware corporation
("MERISTAR"), AMERICAN SKIING COMPANY, a Delaware corporation ("ASC") and ASC
MERGER SUB, INC., a Delaware corporation and a wholly-owned subsidiary of ASC
("MERGER SUB").
RECITALS
(a) The respective Boards of Directors of Merger Sub, MeriStar and ASC have
each determined that the merger of Merger Sub with and into MeriStar on the
terms and subject to the conditions set forth on this Agreement, with MeriStar
surviving as a wholly-owned subsidiary of ASC (the "MERGER"), is advisable and
that it is in the best interest of their respective corporations and
stockholders to combine the respective businesses of ASC and MeriStar, and
consequently have approved and adopted the Merger and this Agreement, in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL"). The Board of Directors of ASC is acting upon the recommendation of its
Special Committee.
(b) Concurrently with the execution of this Agreement, as a condition to
the willingness of MeriStar to enter into this Agreement, (i) certain holders of
ASC Shares (the "PRINCIPAL ASC STOCKHOLDERS") are entering into a Voting and
Recapitalization Agreement, dated the date hereof, with ASC and MeriStar (the
"ASC VOTING/RECAPITALIZATION AGREEMENT") which provides, among other things,
that (A) each Principal ASC Stockholder will vote his or its shares of ASC
Common Stock, ASC Class A Common Stock or ASC Preferred Stock, as the case may
be, in favor of approval and adoption of this Agreement and the Merger at the
ASC Stockholders Meeting, (B) as part of a recapitalization of ASC, (x) the
shares of ASC Class A Common Stock and the shares of ASC Series B Preferred
Stock will be converted into ASC Common Stock and (y) the shares of ASC
Series A Preferred Stock will be converted into shares of ASC Common Stock and
shares of a new series of preferred stock of ASC, to be designated Series A
Preferred Stock, par value $0.01 per share, with terms substantially as set
forth in Exhibit B to the ASC Voting and Recapitalization Agreement (the "NEW
ASC SERIES A PREFERRED STOCK"); (ii) certain holders of MeriStar Common Stock
(the "PRINCIPAL MERISTAR STOCKHOLDERS") are entering into a Voting Agreement,
dated the date hereof, with ASC and MeriStar (the "MERISTAR VOTING AGREEMENT")
which provides, among other things, that each Principal MeriStar Stockholder
will vote his or its shares of MeriStar Common Stock in favor of approval and
adoption of this Agreement and the Merger at the MeriStar Stockholders Meeting;
and (iii) each Principal MeriStar Stockholder has delivered to ASC an
irrevocable proxy to vote his or her shares of MeriStar Common Stock as
described in clause (ii) of this Recital (b).
(c) For federal income tax purposes it is intended that the Merger shall
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "CODE"), and the rules and
regulations promulgated under the Code.
(d) Certain terms used in this Agreement have the meanings specified in
Section 8.1.
NOW, THEREFORE, in consideration of the mutual representations, warranties
and agreements contained herein, and for other good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties to
this Agreement, intending to be legally bound by this Agreement, agree as
follows:
A-1
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time, in accordance with the DGCL, Merger Sub shall
be merged with and into MeriStar in accordance with this Agreement, and the
separate corporate existence of Merger Sub shall cease. MeriStar shall be the
surviving corporation in the Merger (sometimes referred to as the "SURVIVING
CORPORATION") and shall continue to be governed by the laws of the State of
Delaware, and the separate corporate existence of MeriStar with all its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger.
(b) At the election of ASC, any direct wholly-owned ASC Subsidiary may be
substituted for Merger Sub as a constituent corporation in the Merger. In such
event, the parties agree to execute an appropriate amendment to this Agreement
in order to reflect such substitution.
SECTION 1.2 EFFECTIVE TIME. As soon as practicable following the Closing,
MeriStar and ASC shall cause a Certificate of Merger (the "CERTIFICATE OF
MERGER") to be signed, acknowledged and delivered for filing with the Secretary
of State of the State of Delaware as provided in Section 251 of the DGCL. The
Merger shall become effective at the time when the Certificate of Merger has
been duly filed with the Secretary of State of the State of Delaware or such
other subsequent date or time as is agreed upon by the parties and set forth in
the Certificate of Merger and in accordance with the DGCL (the "EFFECTIVE
TIME").
SECTION 1.3 CLOSING. Subject to the satisfaction or waiver of all of the
conditions to closing contained in Article VI hereof, the closing of the Merger
(the "CLOSING") shall take place (a) at the offices of Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York at 10:00 A.M. on the fifth business day
after the day on which the last to be fulfilled or waived of such conditions
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or waiver of those conditions) is
satisfied or waived in accordance with this Agreement or (b) at such other place
and time or on such other date as MeriStar and ASC may agree in writing (the
"CLOSING DATE").
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL, including Section 259 of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of MeriStar and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of MeriStar and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5 THE CERTIFICATE OF INCORPORATION OF THE SURVIVING
CORPORATION. The certificate of incorporation of MeriStar in effect immediately
prior to the Effective Time shall, from and after the Effective Time, be the
certificate of incorporation of the Surviving Corporation until duly amended as
provided therein or by applicable law; PROVIDED, HOWEVER, that, at the Effective
Time, Article I of the Certificate of Incorporation of the Surviving Corporation
shall be amended to read as follows: "The name of the Corporation is Doral
Management Co., Inc."
SECTION 1.6 THE CERTIFICATE OF INCORPORATION OF ASC. The certificate of
incorporation of ASC shall be amended and restated as of the Effective Time,
substantially in the form attached to this Agreement as ANNEX A.
SECTION 1.7 THE BYLAWS OF THE SURVIVING CORPORATION. The by-laws of Merger
Sub in effect immediately prior to the Effective Time shall, from and after the
Effective Time, be the bylaws of the Surviving Corporation until duly amended as
provided therein or by applicable law.
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SECTION 1.8 THE BYLAWS OF ASC. The by-laws of ASC shall be amended and
restated as of the Effective Time, substantially in the form attached to this
Agreement as ANNEX B.
SECTION 1.9 DIRECTORS OF SURVIVING CORPORATION. The directors of Merger
Sub at the Effective Time shall, from and after the Effective Time, be the
directors of the Surviving Corporation until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Certificate of Incorporation and bylaws of the
Surviving Corporation.
SECTION 1.10 DIRECTORS OF ASC. The directors appointed in accordance with
the ASC Voting/ Recapitalization Agreement shall, from and after the Effective
Time, be the directors of ASC until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the Certificate of Incorporation and bylaws of ASC.
SECTION 1.11 OFFICERS OF SURVIVING CORPORATION. The officers of MeriStar
at the Effective Time shall, from and after the Effective Time, be the officers
of the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until their earlier death, resignation or removal in
accordance with the certificate of incorporation and bylaws of the Surviving
Corporation.
SECTION 1.12 MANAGEMENT OF ASC. The persons specified on ANNEX C to this
Agreement shall, from and after the Effective Time, fill the positions specified
on ANNEX C until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the certificate of incorporation and bylaws of ASC.
ARTICLE II
EFFECT OF THE MERGER ON CAPITAL STOCK;
EXCHANGE OF CERTIFICATES
SECTION 2.1 CONVERSION OF CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of Merger Sub, MeriStar or the
holders of the following securities:
(a) CAPITAL STOCK OF MERGER SUB. Each share of common stock, par value
$0.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and become one validly issued, fully paid
and nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK AND ASC-OWNED STOCK. All shares of
MeriStar Common Stock that are owned by MeriStar as treasury stock or by ASC,
Merger Sub or any ASC Subsidiary or any MeriStar Subsidiary issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder of any such shares, no
longer be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist. All rights ("MERISTAR
SHAREHOLDER RIGHTS") to purchase the Series A Junior Participating Preferred
Stock, par value $0.01 per share (the "MERISTAR SERIES A PREFERRED STOCK"), of
MeriStar under the Preferred Share Purchase Rights Agreement, dated as of
July 23, 1998 and amended on December 8, 2000, between MeriStar and Continental
Stock Transfer & Trust Company (as so amended, the "MERISTAR RIGHTS AGREEMENT")
that are owned by MeriStar, ASC, Merger Sub, any ASC Subsidiary or any MeriStar
Subsidiary issued and outstanding immediately prior to the Effective Time shall,
by virtue of the Merger and without any action on the part of the holder of any
such shares, no longer be outstanding, be canceled and retired without payment
of any consideration therefor and cease to exist.
(c) EXCHANGE RATIO. Each share of the common stock, par value $0.01 per
share, of MeriStar (the "MERISTAR COMMON STOCK"), together with the associated
MeriStar Shareholder Right, shall be converted into the right to receive 1.88
shares (the "EXCHANGE RATIO") of common stock, par value $0.01 per share, of ASC
("ASC COMMON STOCK"), subject to adjustment as provided in Section 2.4 and
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subject to cash in lieu of fractional shares of ASC Common Stock, if any,
pursuant to Section 2.2(f) (collectively, the "MERGER CONSIDERATION"). At the
Effective Time, all MeriStar Common Stock and MeriStar Shareholder Rights shall
no longer be outstanding, shall be canceled and retired and shall cease to
exist, and each certificate (a "CERTIFICATE") formerly representing any MeriStar
Common Stock and MeriStar Shareholder Rights (other than shares of MeriStar
Common Stock and MeriStar Shareholder Rights owned by MeriStar or by ASC, Merger
Sub, any ASC Subsidiary or any MeriStar Subsidiary) shall thereafter represent
only the right to receive the Merger Consideration and any distribution or
dividend under Section 2.2(c) in each case without interest.
SECTION 2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. As of the Effective Time, ASC shall deposit with the
transfer agent for shares of ASC Common Stock, or with such other bank or trust
company designated by ASC prior to the Effective Time and reasonably acceptable
to MeriStar (the "EXCHANGE AGENT"), for the benefit of the holders of
Certificates, for exchange in accordance with this Article II, through the
Exchange Agent, certificates representing the number of shares of ASC Common
Stock (such shares of ASC Common Stock, together with any dividends or
distributions with respect thereto to which the holders of Certificates may be
entitled pursuant to Section 2.2(c) being hereinafter referred to as the
"EXCHANGE FUND") issuable pursuant to Section 2.1(c) in exchange for outstanding
shares of MeriStar Common Stock.
(b) EXCHANGE PROCEDURES. Promptly after the Effective Time, the Surviving
Corporation shall cause the Exchange Agent to mail to each holder of record of a
Certificate (other than MeriStar, ASC, Merger Sub, any ASC Subsidiary or any
MeriStar Subsidiary) (i) a letter of transmittal specifying that delivery shall
be effected, and that risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates (or affidavits of loss in lieu of
Certificates) to the Exchange Agent, in a form and with other customary
provisions reasonably specified by ASC, and (ii) instructions for surrendering
the Certificates in exchange for (A) certificates representing shares of ASC
Common Stock, (B) cash in lieu of fractional shares and (C) any unpaid dividends
and other distributions. Upon surrender of a Certificate for cancellation to the
Exchange Agent together with such letter of transmittal, duly executed, the
holder of that Certificate shall be entitled to receive in exchange (1) a
certificate representing that number of whole shares of ASC Common Stock that
the holder is entitled to receive under this Article II, (2) a check in the
amount (after giving effect to any required tax withholding) of (x) any cash in
lieu of fractional shares plus (y) any unpaid dividends (other than stock
dividends) and any other dividends or other distributions that such holder has
the right to receive under the provisions of this Article II, and the
Certificate so surrendered shall immediately be canceled. No interest will be
paid or accrued on any amount payable upon due surrender of the Certificates. In
the event of a transfer of ownership of MeriStar Common Stock that is not
registered in the transfer records of MeriStar, a certificate representing the
proper number of shares of ASC Common Stock, together with a check for any cash
to be paid upon the surrender of the Certificate and any other dividends or
distributions in respect of those shares, may be issued or paid to such a
transferee if the Certificate formerly representing such MeriStar Common Stock
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect the transfer and to evidence that any applicable stock
transfer taxes have been paid. If any certificate for shares of ASC Common Stock
is to be issued in a name other than that in which the surrendered Certificate
is registered, it shall be a condition of such exchange that the person
requesting such exchange shall pay any transfer or other taxes required by
reason of the issuance of certificates for shares of ASC Common Stock in a name
other than that of the registered holder of the surrendered Certificate, or
shall establish to the satisfaction of ASC or the Exchange Agent that such tax
has been paid or is not applicable.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED MERISTAR COMMON
STOCK. Whenever a dividend or other distribution is declared by ASC in respect
of ASC Common Stock and the record date for that
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dividend or other distribution is at or after the Effective Time, that
declaration shall include dividends or other distributions in respect of all
shares issuable under this Agreement. No dividends or other distributions in
respect of ASC Common Stock shall be paid to any holder of any unsurrendered
Certificate until that Certificate is surrendered for exchange in accordance
with this Article II. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be issued or paid to the holder
of the certificates representing whole shares of ASC Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
dividends or other distributions with a record date after the Effective Time and
a payment date on or prior to the date of issuance of such whole shares of ASC
Common Stock and not previously paid, and (ii) at the appropriate payment date,
the dividends or other distributions payable with respect to such whole shares
of ASC Common Stock with a record date after the Effective Time but with a
payment date subsequent to surrender. For purposes of dividends or other
distributions in respect of shares of ASC Common Stock, all shares of ASC Common
Stock to be issued pursuant to the Merger shall be deemed issued and outstanding
as of the Effective Time.
(d) NO FURTHER OWNERSHIP RIGHTS IN MERISTAR COMMON STOCK. Each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive the certificate representing shares of ASC Common Stock and cash in
lieu of any fractional shares of ASC Common Stock, as contemplated by this
Section 2.2. All shares of ASC Common Stock, together with any cash paid under
Section 2.2(c) or Section 2.2(f) issued upon the surrender for or exchange of
Certificates in accordance with the terms of this Agreement, shall be deemed to
have been issued in full satisfaction of all rights pertaining to the shares of
MeriStar Common Stock and associated MeriStar Shareholder Rights formerly
represented by such Certificates.
(e) NO FURTHER TRANSFERS. After the Effective Time, the stock transfer
books of MeriStar shall be closed and there shall be no further registration of
transfers on the records of MeriStar of the shares of MeriStar Common Stock that
were outstanding immediately prior to the Effective Time.
(f) FRACTIONAL SHARES. No certificates or scrip representing fractional
shares of ASC Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interest shall not entitle its owner to
vote, to receive dividends or to any other rights of a stockholder of ASC. Each
holder of a fractional share interest shall be paid an amount in cash equal to
the product obtained by multiplying (A) the fractional share interest to which
such holder would otherwise be entitled (after taking into account all shares of
MeriStar Common Stock held at the Effective Time by such holder) by (B) the
closing price for a share of ASC Common Stock as reported on the New York Stock
Exchange (the "NYSE") Composite Tape as reported by the Dow Jones News Services
on the first trading day immediately preceding the date on which the Effective
Time occurs. As promptly as practicable after the determination of the amount of
cash, if any, to be paid to the holders of fractional share interests, the
Exchange Agent shall so notify ASC, and ASC shall deposit such amounts with the
Exchange Agent and cause the Exchange Agent to forward payments to such holders
in accordance with Section 2.2(b) and (c).
(g) TERMINATION OF EXCHANGE FUND. Any shares of ASC Common Stock and any
portion of the Exchange Fund or of dividends or other distributions with respect
to ASC Common Stock deposited by ASC with the Exchange Agent (including the
proceeds of any investments of those funds) that remains unclaimed by the
stockholders of MeriStar 180 days after the Effective Time shall be paid to ASC.
Any former stockholders of MeriStar who have not theretofore complied with this
Article II shall thereafter look only to ASC for payment of their Merger
Consideration and any dividends and other distributions issuable or payable
pursuant to Section 2.2(c) upon due surrender of their Certificates (or
affidavits of loss in lieu of Certificates), in each case, without any interest.
Notwithstanding the foregoing, none of ASC, the Surviving Corporation, the
Exchange Agent or any other person shall be liable to any former holder of
shares of MeriStar Common Stock for any amount properly delivered to a public
official under applicable abandoned property, escheat or similar laws. If any
Certificates shall not have been
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surrendered prior to five years after the Effective Time (or immediately prior
to such earlier date on which any Merger Consideration in respect of such
Certificate would otherwise escheat to or become the property of any
Governmental Entity), any amounts payable in respect of such Certificate shall,
to the extent permitted by applicable law, become the property of ASC, free and
clear of all claims or interests of any person previously entitled to those
amounts.
(h) LOST CERTIFICATES. In the event any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and the posting by
such person of a bond in the form customarily required by ASC as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent shall issue in exchange for such lost, stolen or destroyed
Certificate the shares of ASC Common Stock, any unpaid dividends or other
distributions and any cash payment in lieu of a fractional share in respect of
that Certificate issuable or payable under this Article II upon due surrender
thereof and deliverable in respect of the shares of MeriStar Common Stock and
associated MeriStar Shareholder Rights represented by such Certificate under
this Agreement, in each case, without interest.
SECTION 2.3 NO APPRAISAL RIGHTS. In accordance with Section 262(b)(1) of
the DGCL, no appraisal rights shall be available to holders of shares of
MeriStar Common Stock in connection with the Merger.
SECTION 2.4 ADJUSTMENTS TO PREVENT DILUTION. In the event that prior to
the Effective Time there is a change in the number of shares of MeriStar Common
Stock or shares of ASC Common Stock or securities convertible or exchangeable
into or exercisable for shares of MeriStar Common Stock or shares of ASC Common
Stock issued and outstanding as a result of a distribution, reclassification,
stock split (including a reverse stock split), stock dividend or distribution or
other similar transaction (other than as contemplated by this Agreement), the
Exchange Ratio shall be equitably adjusted to eliminate the effects of that
event.
SECTION 2.5 WITHHOLDING RIGHTS. Each of the Surviving Corporation and ASC
shall be entitled to deduct and withhold from any amounts otherwise payable
pursuant to this Agreement to any holder of a Certificate such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provisions of Law. To the extent that amounts are so withheld
by the Surviving Corporation or ASC, as the case may be, such withheld amounts
shall be treated for purposes of this Agreement as having been paid to the
holder of a Certificate in respect to which such deduction and withholding was
made by the Surviving Corporation or ASC, as the case may be.
SECTION 2.6 MERISTAR BENEFIT PLANS.
(a) Each MeriStar Stock Option granted under the MeriStar Option Plans that
is outstanding (whether or not then exercisable) as of immediately prior to the
Effective Time (other than the MeriStar Senior Management Options) and that has
not been exercised or canceled prior thereto, shall, to the extent provided in
such MeriStar Option Plans, at the Effective Time, vest immediately and be
converted into a vested option to purchase 1.88 shares of ASC Common Stock for
each share of MeriStar Common Stock purchasable under such MeriStar Stock
Option, at an exercise price per share of ASC Common Stock equal to (x) the
exercise price per share of MeriStar Common Stock under such MeriStar Stock
Option divided by (y) 1.88, which option shall be issued under a new ASC stock
option plan to be adopted at the Effective Time (whose terms shall be
substantially the same as those of the MeriStar Option Plan under which such
MeriStar Stock Option was issued) and evidenced by option agreements as provided
in such new plan.
(b) Each MeriStar Stock Option described in Section 2.6(b) of the MeriStar
Disclosure Letter (the "MERISTAR SENIOR MANAGEMENT OPTIONS") shall be converted
into an option to purchase 1.88 shares of ASC Common Stock for each share of
MeriStar Common Stock purchasable under such
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MeriStar Stock Option, at an exercise price per share of ASC Common Stock equal
to (x) the exercise price per share of MeriStar Common Stock under such MeriStar
Stock Option divided by (y) 1.88, which option shall (i) be issued under a new
ASC stock option plan to be adopted at the Effective Time (whose terms shall be
substantially the same as those of the MeriStar Option Plan under which such
MeriStar Stock Option was issued), (ii) be evidenced by option agreements as
provided in such new plan and (iii) vest on the date such MeriStar Stock Option
would have vested under the relevant MeriStar Option Plan had the Merger not
occurred.
(c) Each ASC Stock Option granted under the ASC Option Plan that is
outstanding (whether or not then exercisable) as of immediately prior to the
Effective Time and that has not been exercised or canceled prior thereto, shall,
at the Effective Time, survive the Merger and continue to have, and be subject
to, the same terms and conditions as set forth in the ASC Option Plan and all
relevant option agreements (as in effect immediately prior to the Effective
Time) pursuant to which the ASC Options were granted.
(d) As of the Effective Time, ASC shall adopt an employee stock purchase
plan whose scope, eligibility requirements and other terms are substantially the
same as those of the MeriStar Employee Stock Purchase Plan.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MERISTAR
MeriStar represents and warrants to ASC and Merger Sub that:
SECTION 3.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of MeriStar and each subsidiary of MeriStar (collectively, the
"MERISTAR SUBSIDIARIES") (i) has been duly organized and is validly existing and
in good standing under the laws of the jurisdiction of its incorporation or
organization, as the case may be, (ii) has the requisite power and authority and
all necessary governmental approvals to own, lease and operate its properties
and to carry on its business as it is now being conducted and (iii) is duly
qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to have such governmental approvals or to be
so qualified or licensed and in good standing that, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Material Adverse Effect on MeriStar.
(b) Section 3.1(b) of the disclosure letter prepared by MeriStar, dated the
date hereof and delivered by MeriStar to ASC (the "MERISTAR DISCLOSURE LETTER")
sets forth a complete and correct list of all of the MeriStar Subsidiaries
(other than the MeriStar Subsidiaries formed for the purpose of holding liquor
licenses), their jurisdiction of organization and the ownership or other
interest therein of MeriStar and of each other MeriStar Subsidiary. Except for
the MeriStar Subsidiaries formed for the purpose of holding liquor licenses, and
except as set forth in Section 3.1(b) of the MeriStar Disclosure Letter, neither
MeriStar nor any MeriStar Subsidiary holds any interest in any person other than
the MeriStar Subsidiaries so listed.
SECTION 3.2 CERTIFICATE OF INCORPORATION AND BYLAWS. The copies of
MeriStar's certificate of incorporation and by-laws, each as amended through the
date of this Agreement that are filed as exhibits to MeriStar's annual report on
Form 10-K for the year ended December 31, 1999 are complete and correct copies
of those documents. Such certificate of incorporation and bylaws and all
comparable organizational documents of the MeriStar Subsidiaries are in full
force and effect. MeriStar is not in violation of any of the provisions of such
certificate of incorporation or bylaws.
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SECTION 3.3 CAPITALIZATION.
(a) The authorized capital stock of MeriStar consists of (i) 100,000,000
shares of MeriStar Common Stock and (ii) 10,000,000 shares of Preferred Stock,
par value $0.01 per share (the "MERISTAR PREFERRED STOCK"), of which 500,000
shares have been designated as MeriStar Series A Preferred Stock. As of
November 30, 2000, (i) 35,950,125 shares of MeriStar Common Stock were issued
and outstanding (except for approximately 141,333 shares to be issued under the
MeriStar Employee Stock Purchase Plan), all of which were validly issued and are
fully paid, nonassessable and not subject to preemptive rights, (ii) no shares
of MeriStar Common Stock were held in the treasury of MeriStar or by the
MeriStar Subsidiaries; (iii) 3,740,825 shares of MeriStar Common Stock were
reserved for issuance upon exercise of outstanding MeriStar Stock Options;
(iv) 3,304,480 shares of MeriStar Common Stock were reserved for issuance upon
the redemption of units ("OP UNITS") of limited partnership interest in MeriStar
H&R Operating Company, L.P.; and (v) no shares of MeriStar Preferred Stock were
issued or outstanding. Except as set forth above, as of November 30, 2000, no
shares of capital stock or other voting securities of MeriStar were issued,
reserved for issuance or outstanding and, since such date, no shares of capital
stock or other voting securities or options in respect thereof have been issued
except upon the exercise of MeriStar Stock Options or redemption of OP Units
outstanding on such date.
(b) As of November 30, 2000, an aggregate of 3,740,825 options to purchase
shares of MeriStar Common Stock ("MERISTAR STOCK OPTIONS") have been granted by
MeriStar and are outstanding under the MeriStar Incentive Plan and the MeriStar
Non-Employee Directors' Incentive Plan (collectively, the "MERISTAR OPTION
PLANS"). Except as set forth in Section 3.3(a) and except for (i) MeriStar Stock
Options to purchase an aggregate of 3,740,825 shares of MeriStar Common Stock
outstanding or available for grant under the MeriStar Option Plans, (ii) the
MeriStar Shareholder Rights and (iii) agreements or arrangements set forth in
Section 3.3(b) of the MeriStar Disclosure Letter, there are no options,
warrants, calls, conversion rights, stock appreciation rights, redemption
rights, repurchase rights or other rights, agreements, arrangements or
commitments of any character to which MeriStar or any MeriStar Subsidiary is a
party or by which MeriStar or any MeriStar Subsidiary is bound relating to the
issued or unissued capital stock of MeriStar or any MeriStar Subsidiary or
obligating MeriStar or any MeriStar Subsidiary to issue or sell any shares of
capital stock of, other equity interests in, or securities exchangeable for or
convertible into capital stock or other equity interests in, MeriStar or any
MeriStar Subsidiary. Section 3.3(b) of the MeriStar Disclosure Letter accurately
and completely sets forth, as of the date of this Agreement, (x) the persons to
whom MeriStar Stock Options have been granted, (y) the exercise price for
MeriStar Stock Options held by each such person and (z) whether such MeriStar
Stock Options are subject to vesting and, if subject to vesting, the dates on
which each of those MeriStar Stock Options vest.
(c) All shares of MeriStar Common Stock issued are and all shares of
MeriStar Common Stock subject to issuance will be, upon issuance prior to the
Effective Time on the terms and conditions specified in the instruments under
which they are issuable, duly authorized, validly issued, fully paid,
nonassessable and will not be subject to preemptive rights. Except as set forth
in Section 3.3(c) of the MeriStar Disclosure Letter, (i) there are no
outstanding contractual obligations of MeriStar or any MeriStar Subsidiary to
repurchase, redeem or otherwise acquire any shares of MeriStar Common Stock or
any capital stock of any MeriStar Subsidiary; (ii) each outstanding share of
capital stock of each MeriStar Subsidiary is duly authorized, validly issued,
fully paid, nonassessable and not subject to preemptive rights and each such
share owned by MeriStar or a MeriStar Subsidiary is free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on the relevant owner's voting rights, charges and other
encumbrances of any nature whatsoever (collectively, "LIENS"); and (iii) except
in connection with contracts set forth in Section 3.3(c) of the MeriStar
Disclosure Letter, there are no outstanding material contractual obligations of
MeriStar or any MeriStar Subsidiary to provide funds to, or make any investment
(in the form of a loan, capital
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contribution or otherwise) in, any MeriStar Subsidiary that is not wholly owned
by MeriStar or in any other person.
(d) There are no accrued and unpaid dividends in respect of the MeriStar
Common Stock.
SECTION 3.4 AUTHORITY.
(a) MeriStar has all necessary corporate power and authority to execute and
deliver this Agreement and, subject only to the adoption and approval of this
Agreement and the approval of the transactions contemplated hereby (the
"MERISTAR PROPOSALS") (i) by the affirmative vote of a majority of the
outstanding shares of MeriStar Common Stock and (ii) by the affirmative vote of
a majority of the votes cast by the holders of MeriStar Common Stock who are not
parties to the MeriStar Voting Agreement or affiliates thereof (the affirmative
votes described in clauses (i) and (ii), collectively, the "REQUISITE MERISTAR
VOTE"), to perform its obligations under this Agreement and to consummate the
Merger and the other transactions contemplated by this Agreement to be
consummated by MeriStar. The execution and delivery of this Agreement by
MeriStar and the consummation by MeriStar of such transactions have been duly
and validly authorized by all necessary corporate action and no other corporate
proceedings on the part of MeriStar or any MeriStar Subsidiary are necessary to
authorize this Agreement or to consummate such transactions, other than, the
adoption and approval of the MeriStar Proposals by the Requisite MeriStar Vote.
This Agreement has been duly authorized and validly executed and delivered by
MeriStar and constitutes a legal, valid and binding obligation of MeriStar,
enforceable against MeriStar in accordance with its terms.
(b) The Board of Directors of MeriStar (i) has unanimously adopted the plan
of merger set forth in this Agreement and approved this Agreement and the other
transactions contemplated by this Agreement and (ii) has declared that the
Merger and this Agreement and the other transactions contemplated by this
Agreement are advisable and in the best interests of MeriStar and the holders of
MeriStar Common Stock.
SECTION 3.5 NO CONFLICTS.
(a) Except as set forth in Section 3.5(a) of the MeriStar Disclosure
Letter, the execution and delivery of this Agreement by MeriStar do not, and the
performance of this Agreement by MeriStar will not:
(i) conflict with or violate any provision of MeriStar's certificate of
incorporation or bylaws or any comparable organizational documents of any
MeriStar Subsidiary;
(ii) assuming that all consents, approvals, authorizations and other
actions set forth in Section 3.6 have been obtained and all filings,
applications and obligations set forth in Section 3.6 have been made,
conflict with or violate any foreign or domestic law, statute, ordinance,
rule, regulation, order, judgment or decree ("LAW") applicable to MeriStar
or any MeriStar Subsidiary or by which any property or asset of MeriStar or
any MeriStar Subsidiary is or may be bound or affected, except for any such
conflicts or violations that, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Material
Adverse Effect on MeriStar; or
(iii) result in any breach of or constitute a default (or an event which
with or without notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration
or cancellation of, or result in the creation of a Lien on any property or
asset of MeriStar or any MeriStar Subsidiary under any note, bond, mortgage,
indenture, contract, agreement, partnership or joint venture agreement,
commitment, lease, license, permit, franchise or other instrument or
obligation (collectively, "CONTRACTS") to which MeriStar or any MeriStar
Subsidiary is a party or by which any of them or their assets or properties
is or may be bound or
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affected, except for any such breaches, defaults or other occurrences which,
individually or in the aggregate, have not resulted and could not reasonably
be expected to result in a Material Adverse Effect on MeriStar.
(b) Section 3.5(b) of the MeriStar Disclosure Letter sets forth a list,
correct and complete, of Contracts to which MeriStar or any MeriStar Subsidiary
is a party or by which any of them or their assets or properties is or may be
bound or affected under which consents or waivers are or may be required prior
to consummation of or as a result of the transactions contemplated by this
Agreement in order to avoid any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of any such Contract, or result in the creation of a Lien or other Encumbrance
on any property or asset of MeriStar or any MeriStar Subsidiary, which default
termination, amendment, acceleration, Lien or Encumbrance could reasonably be
expected to have a Material Adverse Effect on MeriStar.
SECTION 3.6 REQUIRED FILINGS AND CONSENTS. The execution and delivery of
this Agreement by MeriStar do not, and the performance of this Agreement by
MeriStar will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any domestic or foreign national, federal,
state, provincial or local governmental, regulatory or administrative authority,
agency, commission, court, tribunal or arbitral body or self-regulated entity
(each, a "GOVERNMENTAL ENTITY"), except (i) for applicable requirements of the
Securities Exchange Act of 1934 (together with the rules and regulations
promulgated thereunder, the "EXCHANGE ACT"), applicable requirements of the
Securities Act of 1933 (together with the rules and regulations promulgated
thereunder, the "SECURITIES ACT"), applicable requirements of state securities
or "blue sky" laws ("BLUE SKY LAWS"), the rules and regulations of NYSE,
applicable requirements of Takeover Statutes, applicable state environmental
statutes, the pre-merger notification requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder (the "HSR ACT"), (ii) for the filing of the Certificate
of Merger as required by the DGCL and (iii) where failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on MeriStar.
SECTION 3.7 PERMITS; COMPLIANCE WITH LAW. Except as set forth in
Section 3.7 of the MeriStar Disclosure Letter, each of MeriStar and the MeriStar
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Entity necessary for MeriStar or any
MeriStar Subsidiary to own, lease and operate its properties or to carry on its
business as it is now being conducted (collectively, the "MERISTAR PERMITS"),
except where the failure to have any of the MeriStar Permits, individually or in
the aggregate, has not resulted and could not reasonably be expected to result
in a Material Adverse Effect on MeriStar, and, as of the date of this Agreement,
no suspension or cancellation of any of MeriStar Permits is pending or, to the
knowledge of MeriStar, threatened, except where the failure to have, or the
suspension or cancellation of, any of MeriStar Permits, individually or in the
aggregate, has not resulted and could not reasonably be expected to result in a
Material Adverse Effect on MeriStar. Neither MeriStar nor any MeriStar
Subsidiary is in conflict with, or in default or violation of, (i) any Law
applicable to MeriStar or any MeriStar Subsidiary or by which any property or
asset of MeriStar or any MeriStar Subsidiary is or may be bound or affected or
(ii) any MeriStar Permits, except for any such conflicts, defaults or violations
that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on MeriStar.
SECTION 3.8 SEC FILINGS; FINANCIAL STATEMENTS.
(a) MeriStar has filed all forms, reports, schedules, statements and other
documents (including all exhibits, annexes, supplements and amendments to such
documents) required to be filed by it under
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the Exchange Act and the Securities Act since September 1, 1998 through the date
of this Agreement (collectively, as amended and supplemented to date, the
"MERISTAR SEC REPORTS") and MeriStar has made available to ASC each MeriStar SEC
Report filed with the United States Securities and Exchange Commission (the
"SEC"). The MeriStar SEC Reports, including any financial statements or
schedules included or incorporated therein by reference, at the time they were
filed, and all forms, reports, schedules, statements and other documents filed
with the SEC after the date of this Agreement and prior to the Effective Time,
at the time they will be filed, (i) complied or will comply, as the case may be,
in all material respects with the requirements of the Exchange Act or the
Securities Act or both, as the case may be, applicable to those MeriStar SEC
Reports and (ii) did not or will not, as the case may be, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated or necessary in order to make the statements made in those MeriStar SEC
Reports, in the light of the circumstances under which they were made, not
misleading. No MeriStar Subsidiary is subject to the periodic reporting
requirements of the Exchange Act or is otherwise required to file any documents
with the SEC or any national securities exchange or quotation service or
comparable Governmental Entity.
(b) Each of the consolidated balance sheets included in or incorporated by
reference into the MeriStar SEC Reports and in any form, report or document
filed after the date of this Agreement and prior to the Effective Time
(including in each case, the related notes and schedules) fairly presented or
will present, as the case may be, in all material respects, the consolidated
financial position of MeriStar as of the dates set forth in those consolidated
balance sheets in accordance with GAAP (as defined below). Each of the
consolidated statements of income and of cash flows included in or incorporated
by reference into the MeriStar SEC Reports and in any form, report or document
filed after the date of this Agreement and prior to the Effective Time
(including in each case, any related notes and schedules) fairly presented or
will present, as the case may be, in all material respects, the consolidated
results of operations and cash flows, as the case may be, of MeriStar and the
consolidated MeriStar Subsidiaries for the periods set forth in those
consolidated statements of income and of cash flows (subject, in the case of
unaudited quarterly statements, to notes and normal year-end audit adjustments
that will not be material in amount or effect), in each case in conformity with
United States generally accepted accounting principles ("GAAP") (except, in the
case of unaudited quarterly statements, as permitted by Form 10-Q of the SEC)
consistently applied throughout the periods indicated. All of such balance
sheets and statements complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto.
(c) Except as and to the extent set forth on the consolidated balance sheet
of MeriStar and the consolidated MeriStar Subsidiaries as of June 30, 2000
including the related notes, neither MeriStar nor any MeriStar Subsidiary has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on a balance
sheet or in the related notes prepared in accordance with GAAP, except for
liabilities or obligations incurred in the ordinary course of business since
June 30, 2000 that, individually or in the aggregate, have not resulted and
could not reasonably be expected to result in a Material Adverse Effect on
MeriStar.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as (i) set forth in Section 3.9(a) of the MeriStar Disclosure
Letter, (ii) disclosed in the MeriStar SEC Reports filed with the SEC since
December 31, 1999 and which have been filed and are publicly available prior to
the date of this Agreement ("MERISTAR FILED SEC REPORTS") or (iii) permitted by
Section 5.1, since December 31, 1999, (A) MeriStar and the MeriStar Subsidiaries
have conducted their businesses only in the ordinary course and in a manner
consistent with past practice, (B) there has not been any Material Adverse
Effect on MeriStar and (C) there has not been:
(i) any damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by it or any MeriStar
Subsidiaries, whether or not covered by insurance,
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which damage, destruction or loss, individually or in the aggregate, has
resulted or could reasonably be expected to result in a Material Adverse
Effect on MeriStar;
(ii) any material change by MeriStar in its or any MeriStar Subsidiary's
accounting methods, principles or practices except as a result of changes in
GAAP;
(iii) any declaration, setting aside or payment of any dividend or
distribution in respect of MeriStar Common Stock or any redemption, purchase
or other acquisition of any of MeriStar's securities;
(iv) any increase in the compensation or benefits or establishment of
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, the granting of stock options,
stock appreciation rights, performance awards or restricted stock awards),
stock purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers of
MeriStar or any MeriStar Subsidiary except in the ordinary course of
business consistent with past practice or except as required by applicable
Law;
(v) (A) any incurrence or assumption by MeriStar or any MeriStar
Subsidiary of any indebtedness for borrowed money or (B) any guarantee,
endorsement or other incurrence or assumption of material liability (whether
directly, contingently or otherwise) by MeriStar or any MeriStar Subsidiary
for the obligations of any other person (other than any wholly-owned
MeriStar Subsidiary), other than in the ordinary course of business
consistent with past practice and individually not in excess of $250,000;
(vi) any creation or assumption by MeriStar or any MeriStar Subsidiary
of any Lien on any material asset of MeriStar or any MeriStar Subsidiary,
other than in the ordinary course of business, consistent with past
practice;
(vii) any making of any loan, advance or capital contribution to or
investment in any person by MeriStar or any MeriStar Subsidiary (other than
to MeriStar or any MeriStar Subsidiary), other than in the ordinary course
of business, consistent with past practice and individually not in excess of
$250,000; or
(viii) (A) any contract or agreement entered into by MeriStar or any
MeriStar Subsidiary relating to any material acquisition or disposition of
any assets or business or (B) any modification, amendment, assignment or
termination of or relinquishment by MeriStar or any MeriStar Subsidiary of
any rights under any Contract (including any insurance policy naming it as a
beneficiary or a loss payable payee) that has resulted or could reasonably
be expected to result in, individually or in the aggregate, a Material
Adverse Effect on MeriStar other than transactions, commitments, contracts
or agreements in the ordinary course of business consistent with past
practice or those contemplated by this Agreement.
SECTION 3.10 EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Each employee benefit plan, program and arrangement, and each
employment, termination, severance or other contract or agreement, to which
MeriStar or any of the MeriStar Subsidiaries is a party with respect to which
MeriStar or any of the MeriStar Subsidiaries has any obligation or which are
maintained, contributed to or sponsored by MeriStar or any of the MeriStar
Subsidiaries for the benefit of any current or former employee, officer or
director of MeriStar or any of the MeriStar Subsidiaries under which plan,
program, arrangement, contract or agreement total payments of more than $100,000
may be required to be made by MeriStar or a MeriStar Subsidiary (collectively,
the "MERISTAR BENEFIT PLANS") are listed on Section 3.10(a) of the MeriStar
Disclosure Letter. Except for those matters listed on Section 3.10(a) of the
MeriStar Disclosure Letter and such matters as,
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individually or in the aggregate, have not and could not reasonably be expected
to result in a Material Adverse Effect on MeriStar:
(i) to the knowledge of MeriStar, each MeriStar Benefit Plan and any
related trust intended to be qualified under Sections 401(a) and 501(a) of
the Code has received a favorable determination letter from the IRS that it
is so qualified, and to the knowledge of MeriStar, nothing has occurred
since the date of such letter that could materially adversely affect the
qualified status of such MeriStar Benefit Plan or related trust;
(ii) to the knowledge of MeriStar, each MeriStar Benefit Plan has been
operated in accordance with the terms and requirements of applicable Law,
and all required returns and filings for each MeriStar Benefit Plan have
been timely made;
(iii) to the knowledge of MeriStar, neither MeriStar nor any of the
MeriStar Subsidiaries has incurred any direct or indirect liability under,
arising out of or by operation of Title I or Title IV of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or comparable
provisions of the Code in connection with any MeriStar Benefit Plan or other
retirement plan or arrangement, and to the knowledge of MeriStar, no fact or
event exists that could reasonably be expected to give rise to any such
liability;
(iv) to the knowledge of MeriStar, all contributions due and payable on
or before the date hereof in respect of each MeriStar Benefit Plan have been
made in full and in proper form;
(v) to the knowledge of MeriStar, neither MeriStar nor any of the
MeriStar Subsidiaries has ever sponsored or been obligated to contribute to
any "multiemployer plan" (as defined in Section 3(37) of ERISA), "multiple
employer plan" (as defined in Section 413 of the Code) or "defined benefit
plan" (as defined in Section 3(35) of ERISA);
(vi) except as otherwise required under ERISA, the Code and applicable
Law, to the knowledge of MeriStar, no MeriStar Benefit Plan currently or
previously maintained by MeriStar or any of the MeriStar Subsidiaries
provides any post-retirement health or life insurance benefits in the
future;
(vii) to the knowledge of MeriStar, all reporting and disclosure
obligations imposed under ERISA and the Code have been satisfied with
respect to each MeriStar Benefit Plan; and
(viii) to the knowledge of MeriStar, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated
hereby will (A) result in the payment of separation, severance, termination,
"golden parachute" or similar-type benefits to any person, (B) materially
increase any benefits otherwise payable under any MeriStar Benefit Plan or
otherwise, (C) result in any acceleration of the time of payment or vesting
of any material benefits, (D) trigger a requirement for funding or the
acceleration of funding of any material benefits or (E) commence a period
during which a subsequent termination of employment by an employee of
MeriStar or any MeriStar Subsidiary will entitle such employee to benefits
in excess of what would otherwise have been required in the absence of the
transactions contemplated hereby. No benefit or amount payable or that may
become payable by MeriStar or any of the MeriStar Subsidiaries as a result
of any transaction contemplated by this Agreement will constitute an "excess
parachute payment," within the meaning of Section 280G of the Code, which is
or may be subject to the imposition of any excise tax under Section 4999 of
the Code or which would not be deductible by reason of Section 280G of the
Code.
(b) To the knowledge of MeriStar, each MeriStar Benefit Plan is in writing,
and MeriStar has made available to ASC a complete and accurate copy of each
MeriStar Benefit Plan and a complete and accurate copy of each material document
prepared in connection with each such Plan, including without limitation, a copy
of (i) each trust or other funding arrangement, (ii) each summary plan
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description and summary of material modification, (iii) the most recently filed
IRS Form 5500, (iv) the most recently received IRS determination letter for each
such Plan, and (v) the most recently prepared actuarial report and financial
statement in connection with each such Plan.
(c) Except as set forth in Section 3.10(c) of the MeriStar Disclosure
Letter, to the knowledge of MeriStar, neither MeriStar nor any of the MeriStar
Subsidiaries is a party to, or is bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or other labor
union organization. MeriStar has made available true, correct and complete
copies of all such agreements to ASC. Except as set forth in Section 3.10(c) of
the MeriStar Disclosure Letter and except as individually or in the aggregate,
has not resulted and would not reasonably be expected to result, in a Material
Adverse Effect on MeriStar, (A) currently there are no organizational campaigns,
petitions or other unionization activities seeking recognition of a collective
bargaining unit which could affect MeriStar or any MeriStar Subsidiary;
(B) there are no controversies, strikes, slowdowns or work stoppages pending or,
to the best knowledge of MeriStar, after due inquiry, threatened between
MeriStar or any of the MeriStar Subsidiaries and any of their respective
employees, and neither MeriStar nor any of the MeriStar Subsidiaries has
experienced any such controversy, strike, slowdown or work stoppage within the
past three years; (C) neither MeriStar or any of the MeriStar Subsidiaries has
breached or otherwise failed to comply with the provisions of any collective
bargaining or union contract and there are no grievances outstanding against
MeriStar or any MeriStar Subsidiary under any such agreement or contract; and
(D) there are no unfair labor practice complaints pending against MeriStar or
any of the MeriStar Subsidiaries before the National Labor Relations Board or
any other Governmental Entity or any current union representation questions
involving employees of MeriStar or any of the MeriStar Subsidiaries.
SECTION 3.11 TAX MATTERS. Neither MeriStar nor, to the knowledge of
MeriStar, any of its affiliates has taken or agreed to take any action, nor is
MeriStar aware of any agreement, plan or other circumstance, that would prevent
the Merger from constituting a transaction qualifying as a reorganization under
Section 368(a) of the Code.
SECTION 3.12 CONTRACTS; DEBT INSTRUMENTS. Except for the Contracts set
forth in Section 3.12 of the MeriStar Disclosure Letter, true, correct and
complete copies of which have been made available to ASC, there is no Contract
that is material to the business, financial condition or results of operations
of MeriStar and the MeriStar Subsidiaries taken as a whole. Each of the
Contracts to which MeriStar or a MeriStar Subsidiary is a party or by which it
or any of its properties or assets is or may be bound or affected, constitutes a
valid and legally binding obligation of MeriStar or such MeriStar Subsidiary and
of the other parties thereto, enforceable in accordance with its terms, and is
in full force and effect, except to the extent the failure to be so valid,
binding or enforceable, individually or in the aggregate, has not and could not
reasonably be expected to result in a Material Adverse Effect on MeriStar.
Neither MeriStar nor any MeriStar Subsidiary, nor to MeriStar's knowledge, any
other person, is in violation of or in default under (nor does there exist any
condition which with the passage of time or the giving of notice would cause
such a violation of or default under) any Contract to which MeriStar or any
MeriStar Subsidiary is a party or by which it or any of its properties or assets
is or may be bound or affected, except for violations or defaults that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on MeriStar. Set forth in
Section 3.12 of the MeriStar Disclosure Letter is a description of any material
changes to the amount and terms of the indebtedness of MeriStar and the
consolidated MeriStar Subsidiaries as described in the notes to the financial
statements set forth in MeriStar's quarterly report on Form 10-Q for the quarter
ended September 30, 2000.
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SECTION 3.13 LITIGATION. Except as set forth in Section 3.13 of the
MeriStar Disclosure Letter, and except as disclosed in MeriStar Filed SEC
Reports, there is no suit, claim, action, proceeding or investigation
(collectively, "CLAIMS") that is uninsured pending or, to the knowledge of
MeriStar, threatened against MeriStar or any MeriStar Subsidiary before any
Governmental Entity that, if adversely determined, individually or in the
aggregate, has resulted or could reasonably be expected to result in a Material
Adverse Effect on MeriStar. Neither MeriStar nor any MeriStar Subsidiary is
subject to any outstanding order, writ, injunction or decree which, individually
or in the aggregate, has resulted or could reasonably be expected to result in a
Material Adverse Effect on MeriStar.
SECTION 3.14 ENVIRONMENTAL MATTERS. Except as has not resulted and could
not reasonably be expected to result in a Material Adverse Effect on MeriStar
and as set forth in Section 3.14 of the MeriStar Disclosure Letter or as
disclosed in MeriStar Filed SEC Reports:
(a) MeriStar and the MeriStar Subsidiaries (i) are in compliance with all
applicable Laws relating to pollution, protection of the environment or health
and safety (collectively, "ENVIRONMENTAL LAWS"), (ii) hold all necessary
permits, approvals, identification numbers and licenses ("ENVIRONMENTAL
PERMITS") under those Environmental Laws and (iii) are in compliance with their
respective Environmental Permits;
(b) neither MeriStar nor any MeriStar Subsidiary has received any requests
for information, or been notified that it is a potentially responsible party,
under CERCLA, or any similar Law of any state, locality or any other
jurisdiction;
(c) neither MeriStar nor any MeriStar Subsidiary has entered into or agreed
to any consent decree or order or is subject to any judgment, decree or judicial
order relating to compliance with Environmental Laws, Environmental Permits or
the investigation, sampling, monitoring, treatment, remediation, removal or
cleanup of hazardous materials and, to the knowledge of MeriStar, no
investigation, litigation or other proceeding is pending or threatened with
respect thereto, and no condition exists on any property currently or formerly
owned or operated by MeriStar that is reasonably likely to lead to such
investigation, litigation or proceeding;
(d) none of the real property currently or formerly owned or leased by
MeriStar or any MeriStar Subsidiary is listed or, to the knowledge of MeriStar,
proposed for listing on the "National Priorities List" under CERCLA, as updated
through the date of this Agreement, or any similar list of sites in the United
States or any other jurisdiction requiring investigation or cleanup; and
(e) ASC has been provided access to all material reports in MeriStar's
possession or control assessing the environmental condition of MeriStar's
current and former owned properties, which reports are listed in
Section 3.14(e) of the MeriStar Disclosure Letter.
SECTION 3.15 INTELLECTUAL PROPERTY.
(a) DISCLOSURE.
(i) Section 3.15(a)(i) of the MeriStar Disclosure Letter sets forth all
United States and foreign: (i) patents and patent applications,
(ii) trademarks, trade names, brand names and corporate names, and all
service marks, registrations and applications thereof, (iii) Internet domain
name registrations and applications and (iv) copyright registrations and
applications owned or licensed by MeriStar or the MeriStar Subsidiaries, in
each case described in clauses (i) through (iv), that are material to the
business and operations of MeriStar or the MeriStar Subsidiaries as
presently conducted, specifying as to each item, as applicable: (A) the
nature of the item, including the title; (B) the owner of the item; (C) the
jurisdictions in which the item is issued or registered or in which an
application for issuance or registration has been filed; and (D) the
issuance, registration or application numbers and dates.
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(ii) Section 3.15(a)(ii) of the MeriStar Disclosure Letter sets forth
all material licenses, sublicenses, and other agreements or permissions ("IP
LICENSES") under which any of MeriStar or the MeriStar Subsidiaries is a
licensor or licensee or otherwise is authorized to use or practice any
Intellectual Property except for hotel franchise agreements pursuant to
which MeriStar, as hotel manager or as lessee, is granted the right to use
the intellectual property of the franchisor. For purposes of this Agreement,
"INTELLECTUAL PROPERTY" means all of the following as they exist in all
jurisdictions throughout the world, in each case, to the extent owned by,
licensed to, or otherwise used by MeriStar or the MeriStar Subsidiaries or
ASC or the ASC Subsidiaries, as applicable: (A) patents, patent
applications, and other patent rights (including any divisions,
continuations, continuations-in-part, substitutions, or reissues thereof,
whether or not patents are issued on any such applications and whether or
not any such applications are modified, withdrawn, or resubmitted);
(B) trademarks, service marks, trade dress, trade names, brand names,
Internet domain names, designs, logos, or corporate names, whether
registered or unregistered, and all registrations and applications for
registration thereof; (C) copyrights, including all renewals and extensions,
copyright registrations and applications for registration, and
non-registered copyrights; (D) trade secrets, concepts, ideas, designs,
research, processes, procedures, techniques, methods, know-how, data, mask
works, discoveries, inventions, modifications, extensions, improvements, and
other proprietary rights (whether or not patentable or subject to copyright,
mask work, or trade secret protection) (collectively, "TECHNOLOGY"); and
(E) computer software programs, including all source code, object code, and
documentation related thereto (the "SOFTWARE").
(iii) Section 3.15(a)(iii) of the MeriStar Disclosure Letter sets forth
and describes the status of any material agreements involving Intellectual
Property currently in negotiation or proposed ("PROPOSED INTELLECTUAL
PROPERTY AGREEMENTS") by MeriStar or the MeriStar Subsidiaries.
(b) OWNERSHIP. Except as set forth in Section 3.15(b) of the MeriStar
Disclosure Letter, MeriStar or the MeriStar Subsidiaries own, free and clear of
all Liens, and have the unrestricted right to use, sell, or license, all
Intellectual Property, except where the failure to so own or have such right,
individually or in the aggregate, has not resulted and could not reasonably be
expected to result in a Material Adverse Effect on MeriStar.
(c) CLAIMS. Except as set forth in Section 3.15(c) of the MeriStar
Disclosure Letter, neither MeriStar nor any of the MeriStar Subsidiaries has
been, during the three years preceding the date of this Agreement, a party to
any Claim, nor, to the knowledge of MeriStar, is any Claim threatened, that
challenges the validity, enforceability, ownership, or right to use, sell, or
license any Intellectual Property, except for Claims that, individually or in
the aggregate, have not resulted and could not reasonably be expected to result
in a Material Adverse Effect on MeriStar. To the knowledge of MeriStar, no third
party is infringing upon any Intellectual Property, except for infringements
that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on MeriStar.
(d) ADMINISTRATION AND ENFORCEMENT. MeriStar and the MeriStar Subsidiaries
have taken all necessary and desirable actions to maintain and protect each item
of Intellectual Property owned by MeriStar, except for failures to take such
actions that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on MeriStar.
(e) PROTECTION OF TRADE SECRETS AND TECHNOLOGY. MeriStar and the MeriStar
Subsidiaries have taken all reasonable precautions to protect the secrecy,
confidentiality, and value of its trade secrets and the proprietary nature and
value of the Technology, except for failures to take such precautions that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on MeriStar.
(f) EFFECT OF TRANSACTION. Neither MeriStar nor any of the MeriStar
Subsidiaries is, nor, as a result of the execution and delivery of this
Agreement or its performance of its obligations hereunder,
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will be, in violation of any agreement relating to any Intellectual Property,
except for violation that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect on MeriStar. After
the completion of the transactions contemplated by this Agreement, MeriStar and
the MeriStar Subsidiaries will continue to own all right, title, and interest in
and to or have a license to use all Intellectual Property on identical terms and
conditions as MeriStar and the MeriStar Subsidiaries enjoyed immediately prior
to such transactions, except for failures to own or have available for use that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on MeriStar.
SECTION 3.16 TAXES. Except as set forth in Section 3.16 of the MeriStar
Disclosure Letter and except as has not had and would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on
MeriStar:
(a) MeriStar and each MeriStar Subsidiary has timely filed in accordance
with applicable law all returns, declarations, reports, forms, estimates,
information returns and statements ("TAX RETURNS") required to be filed in
respect of any Taxes (as defined below) or to be supplied to a taxing authority
in connection with any Taxes, and has paid or caused to be paid all Taxes
required to be paid. All Tax Returns filed by MeriStar or any MeriStar
Subsidiary with respect to Taxes were prepared in compliance with all applicable
laws and regulations and were true, complete, and correct in all respects as of
the date on which they were filed or as subsequently amended to the date hereof.
Complete copies of federal, state, local, and foreign Tax Returns of MeriStar
and each MeriStar Subsidiary for each of the years ended 1999 and 1998 have
heretofore been delivered or made available to ASC. Prior to the date hereof,
MeriStar has provided to ASC copies of all revenue agents' reports and other
written assertions of deficiencies or other liabilities for Taxes of MeriStar
and each MeriStar Subsidiary with respect to past periods for which the
applicable statute of limitations has not expired. As used in this Agreement,
"TAXES" shall mean all taxes of any kind, charges, fees, customs, duties,
imposts, levies or other assessments, including, without limitation, all net
income, gross receipts, ad valorem, value added, transfer, gains, franchise,
profits, inventory, net worth, capital stock, asset, sales, use, license,
estimated withholding, payroll, transaction, capital, employment, social
security, workers compensation, unemployment, excise, any interest and any
penalties, additions to tax or additional amounts, imposed by any taxing
authority (domestic or foreign) and shall include any transferee liability in
respect of Taxes.
(b) MeriStar and each MeriStar Subsidiary has timely paid all Taxes for
which a notice of, or assessment or demand for, payment has been received or
which are otherwise due and payable with respect to MeriStar or any MeriStar
Subsidiary, its operations and assets (in each case, whether or not shown on any
Tax Return), except for Taxes that are being contested in good faith by
appropriate proceedings (all of which are disclosed on Section 3.16(b) of the
MeriStar Disclosure Letter) and for payment of which Taxes adequate reserves
will have been set up as of the Closing Date.
(c) MeriStar and each of the MeriStar Subsidiaries has complied with all
applicable law, rules, and regulations relating to the withholding of Taxes and
has timely collected or withheld and paid over to the proper governmental
authorities all amounts required to be so collected or withheld and paid over
for all prior periods under all applicable laws.
(d) There are no outstanding agreements, waivers, or arrangements extending
the statutory period of limitations for the assessment or collection of Taxes
with respect to any Tax Return that relates to MeriStar or any MeriStar
Subsidiary, which waivers or extensions currently are in effect, and no request
for any such waiver or extension is currently pending.
(e) There are no Tax rulings, request for rulings, or closing agreements
relating to MeriStar or any MeriStar Subsidiary which could affect its liability
for Taxes for any period after the Closing Date.
(f) No action, suit, proceeding, investigation, audit, claim, or assessment
is presently pending or to the knowledge of MeriStar, proposed with regard to
any Taxes that relate to MeriStar or any
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MeriStar Subsidiary for which MeriStar or any MeriStar Subsidiary would or could
be liable. There are no requests from any taxing authority for information or
with respect to Taxes of MeriStar or the MeriStar Subsidiaries. Neither MeriStar
nor the MeriStar Subsidiaries has any knowledge or any fact or condition that,
if known to any taxing authority having jurisdiction, would likely result in the
issuance of a notice of proposed deficiency or similar notice of intention to
assess Taxes against MeriStar or the MeriStar Subsidiaries, and no issue has
arisen in any examination of MeriStar or the MeriStar Subsidiaries by any taxing
authority that if raised with respect to any other period not so examined would
result in a material deficiency for any other period not so examined, if upheld.
(g) Neither MeriStar nor any of the MeriStar Subsidiaries (i) has agreed to
or is required to make any adjustment pursuant to Section 481 of the Code (or
any predecessor or similar provision of other laws or regulations) by reason of
a change in accounting method or otherwise; (ii) has knowledge that any taxing
authority has proposed any such adjustment or change which proposal is currently
pending; or (iii) has an application pending with any taxing authority
requesting permission for any change in accounting methods that relates to its
business and operations.
(h) Neither MeriStar nor any MeriStar Subsidiary (i) is a party to, is
bound by, or has any obligation under, any Tax sharing agreement or similar
contract, (ii) has any current or potential contractual obligation to indemnify
any other person with respect to Taxes, or (iii) has any obligation to make
distributions in respect of Taxes.
(i) No Taxes are delinquent or constitute a lien against MeriStar or any
MeriStar Subsidiary, except with respect to Taxes being contested in good faith
by appropriate proceedings (all of which are disclosed on Section 3.16(i) of the
MeriStar Disclosure Letter) and for payment of which Taxes adequate reserves
have been established.
(j) There is no contract, agreement, plan, or arrangement covering any
person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by ASC or MeriStar by reason of
Section 280G of the Code.
(k) The unused "net operating losses" (as defined in Section 172 of the
Code) of MeriStar and each MeriStar Subsidiary (the years which all such net
operating losses arose and will expire being set forth on Section 3.16(k) of the
MeriStar Disclosure Letter) are not subject to any limitations under Sections
382 or 384 of the Code, except for those limitations which are set forth in
Section 3.16(k) of the MeriStar Disclosure Letter.
(l) No property of MeriStar or any MeriStar Subsidiary is "tax-exempt use
property" within the meaning of Section 168 of the Code.
SECTION 3.17 NON-COMPETITION AGREEMENTS. Except as set forth in
Section 3.17 of the MeriStar Disclosure Letter, neither MeriStar nor any
MeriStar Subsidiary is a party to any Contract which purports to restrict or
prohibit in any material respect MeriStar and the MeriStar Subsidiaries
collectively from, directly or indirectly, engaging in any business currently
engaged in by MeriStar, any MeriStar Subsidiary or any other persons affiliated
with MeriStar. None of MeriStar's officers, directors or key employees is a
party to any agreement which, by virtue of such person's relationship with
MeriStar, restricts in any material respect MeriStar or any MeriStar Subsidiary
or affiliate of either of them from, directly or indirectly, engaging in any of
the businesses described above. For purposes of this Section 3.17, the term
"material" shall mean any prohibition that is material to the business and
operations of MeriStar and the MeriStar Subsidiaries taken as a whole.
SECTION 3.18 AGREEMENTS WITH REGULATORY AGENCIES. Except as set forth in
Section 3.18 of the MeriStar Disclosure Letter, neither MeriStar nor any
MeriStar Subsidiaries is subject to any cease-and-desist or other order issued
by, or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from,
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or has adopted any board resolutions at the request of (each, whether or not
listed in Section 3.18 of the MeriStar Disclosure Letter, a "MERISTAR REGULATORY
AGREEMENT"), any Governmental Entity that restricts the conduct of its business,
except for any MeriStar Regulatory Agreements that, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Material Adverse Effect on MeriStar or could reasonably be expected, following
consummation of the Merger, to impair ASC's ability to conduct the business of
the Surviving Corporation, ASC or any ASC Subsidiary, as presently conducted.
Neither MeriStar nor any MeriStar Subsidiary has been advised by any
Governmental Entity that such Governmental Entity is considering issuing or
requesting any MeriStar Regulatory Agreement, except for any such proposed
MeriStar Regulatory Agreements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect on MeriStar.
SECTION 3.19 RIGHTS AGREEMENT. A copy of the MeriStar Rights Agreement,
including all amendments and exhibits, has been provided to ASC in writing and
is a complete and correct copy of that document. Under the MeriStar Rights
Agreement, none of the execution of this Agreement, the execution of the ASC
Voting/Recapitalization Agreement, the execution of the MeriStar Voting
Agreement, or the consummation of the Merger and the transactions contemplated
by the ASC Voting/ Recapitalization Agreement will (i) cause MeriStar
Shareholder Rights to become exercisable, (ii) cause ASC or Merger Sub to become
an "Acquiring Person" (as that term is defined in the MeriStar Rights Agreement)
or (iii) give rise to a "Rights Distribution Date" (as that term is defined in
the MeriStar Rights Agreement).
SECTION 3.20 OPINION OF FINANCIAL ADVISOR. Salomon Smith Barney Inc. (the
"MERISTAR FINANCIAL ADVISOR") has delivered to the Board of Directors of
MeriStar its oral opinion (which opinion will be confirmed in writing) to the
effect that, as of the date of this Agreement, the Exchange Ratio is fair, from
a financial point of view, to the holders of MeriStar Common Stock. MeriStar
will, promptly after receipt of such written opinion, deliver a signed copy of
that written opinion to ASC for informational purposes only.
SECTION 3.21 BROKERS. No broker, finder or investment banker other than
the MeriStar Financial Advisor is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger or the other transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
MeriStar or any of the MeriStar Subsidiaries or their affiliates. Prior to the
date of this Agreement, MeriStar has made available to ASC a complete and
correct copy of all agreements between MeriStar or any of the MeriStar
Subsidiaries or their affiliates and the MeriStar Financial Advisor under which
the MeriStar Financial Advisor would be entitled to any payment relating to the
Merger or such other transactions.
SECTION 3.22 CERTAIN STATUTES. The Board of Directors of MeriStar or any
MeriStar Subsidiary has taken or will take all appropriate and necessary actions
to ensure that the restrictions on business combinations in Section 203 of the
DGCL will not have any effect on the Merger or the other transactions
contemplated by this Agreement. No "fair price," "moratorium," "control share
acquisition" or other similar state or federal anti-takeover statute or
regulation (each a "TAKEOVER STATUTE") is, as of the date of this Agreement,
applicable to the Merger or such other transactions.
SECTION 3.23 INFORMATION. None of the information to be supplied by
MeriStar or any MeriStar Subsidiary for inclusion or incorporation by reference
in the Proxy Statement or the Registration Statement will, in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
to make the statements in the Registration Statement not misleading in light of
the circumstances under which they were made, or, in the case of the Proxy
Statement or any amendments of or supplements to the Proxy Statement, at the
time of the mailing of the Proxy Statement and any amendments of or supplements
to the Proxy
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Statement and at the time of the MeriStar Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated in the Proxy Statement or necessary in order to make the statements
in the Proxy Statement, in light of the circumstances under which they are made,
not misleading. The Proxy Statement (except for those portions of the Proxy
Statement that relate only to ASC or the ASC Subsidiaries or affiliates of ASC)
will comply as to form in all material respects with the provisions of the
Exchange Act.
SECTION 3.24 VOTE REQUIRED. The Requisite MeriStar Vote is the only vote
of the holders of any class or series of MeriStar's capital stock necessary
(under the rules and regulations of the MeriStar Charter Documents, the DGCL,
the rules and regulations of the NYSE, other applicable Law or otherwise) to
approve this Agreement, the Merger or the other transactions contemplated by
this Agreement.
SECTION 3.25 PROPERTIES.
(a) Section 3.25(a)(i) of the MeriStar Disclosure Letter sets forth a
complete and accurate list and the address or description of all material real
property owned or leased by MeriStar or any MeriStar Subsidiary, other than
leases with a duration of less than one year entered into in the ordinary course
of business by BridgeStreet Accommodations, Inc. (collectively, and including
all buildings, structures and other improvements and fixtures located on or
under such land and all easements, rights and other appurtenances to such land,
the "MERISTAR PROPERTIES"). (1) For those MeriStar Properties to which MeriStar
or a MeriStar Subsidiary owns fee simple title, such owner owns good, marketable
and insurable fee simple title to such MeriStar Property, and (2) for those
MeriStar Properties leased by MeriStar or a MeriStar Subsidiary, such lessee
holds valid leasehold title to such MeriStar Property, which title is, in each
case described in clauses (1) and (2) of this sentence, free and clear of liens,
mortgages or deeds of trust, claims against title, charges which are liens,
security interests or other encumbrances on title (collectively,
"ENCUMBRANCES"), except for such mortgages set forth on Section 3.25(a)(ii) of
the MeriStar Disclosure Letter and such Encumbrances as individually, or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
MeriStar. Following the effective time of the MeriStar-REIT Agreement
Amendments, (i) the "MeriStar Properties" shall not include those properties
that, because of the MeriStar-REIT Agreement Amendments, are no longer leased
but are instead managed by MeriStar and (ii) the "MeriStar Leases" (as defined
below) shall no longer include MeriStar's leases of such properties.
(b) Except as set forth in Section 3.25(b) of the MeriStar Disclosure
Letter, and except for matters which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on MeriStar
or to materially and adversely affect the use or occupancy (or, if applicable,
any proposed developments) of the MeriStar Properties in a manner which would
reasonably be expected to have a Material Adverse Effect on MeriStar, MeriStar
has no knowledge that any currently required certificate, permit or license
(including building permits and certificates of occupancy) from any Governmental
Entity having jurisdiction over any MeriStar Property (to the extent MeriStar
has responsibility for such certificate, permit or license under the applicable
MeriStar Lease) has not been obtained or is not in full force and effect or is
subject to any pending modification or cancellation.
(c) Section 3.25(c) of the MeriStar Disclosure Letter sets forth a complete
and accurate list of all definitive agreements made or entered into by MeriStar
or any of its Subsidiaries as of the date hereof, (x) to sell, mortgage, pledge
or hypothecate the interest of MeriStar or such MeriStar Subsidiary in any
MeriStar Property, which, individually or in the aggregate, are material, or to
otherwise enter into a material transaction in respect of the ownership or
financing of the interest of MeriStar or such MeriStar Subsidiary in any
MeriStar Property and (y) to purchase real property to which MeriStar or any
Subsidiary is a party.
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(d) Except as set forth in Section 3.25(d) of the MeriStar Disclosure
Letter, none of MeriStar's fee or leasehold interests in any of the MeriStar
Properties is subject to any outstanding purchase options, rights of first
refusal, rights of first offer or similar rights, other than such rights which
would not reasonably be expected to have a Material Adverse Effect on MeriStar,
nor has MeriStar or any of its Subsidiaries entered into any outstanding
contracts with others for the sale, mortgage, pledge, hypothecation, assignment,
sublease or lease of any material portion of the MeriStar Property or MeriStar's
interest therein or other transfer of all or any part of any MeriStar Property
or MeriStar's interest therein, except for (i) leases or subleases entered into
in the ordinary course of business for long-term stay rental units, newsstands,
gift shops, restaurants and other establishments customarily located in hotel
properties, (ii) leases and subleases of rooftops and other portions of the
MeriStar Properties for telecommunications purposes and (iii) other leases,
subleases and similar agreements the existence of which would not, individually
or in the aggregate, be expected to have a Material Adverse Effect on MeriStar
(collectively, "MERISTAR ORDINARY COURSE LEASES").
(e) The leases underlying the leased MeriStar Properties referenced in
Section 3.25(a)(i) of the MeriStar Disclosure Letter (collectively, the
"MERISTAR LEASES") are accurately set forth in Section 3.25(e) of the MeriStar
Disclosure Letter. Each of the MeriStar Leases is valid, binding and in full
force and effect as against MeriStar or its Subsidiaries and, to MeriStar's
knowledge, as against the other party thereto, except to the extent the failure
to be binding and in full force and effect would not reasonably be expected to
have a Material Adverse Effect on MeriStar. There does not exist under any of
the MeriStar Leases any default or event of default, and, to MeriStar's
knowledge, no event has occurred which, with notice or lapse of time or both,
would constitute such a default or event of default, except as would not,
individually or in the aggregate, be reasonably expected to result in a Material
Adverse Effect on MeriStar.
(f) Section 3.25(f) to the MeriStar Disclosure Letter sets forth a list of
the hotel franchise agreements (the "MERISTAR FRANCHISE AGREEMENTS") under which
MeriStar is a franchisee. Each of the MeriStar Franchise Agreements is valid,
binding and in full force and effect (except to the extent the failure to be
binding and in full force and effect would not, individually or in the
aggregate, reasonably be expected to result in a Material Adverse Effect on
MeriStar). There are no defaults under the MeriStar Franchise Agreements by
MeriStar or, to the knowledge of MeriStar, by any other party thereto, nor have
any events occurred which with the giving notice or the passage of time or both
would constitute such a default or event of default thereunder, except as would
not, individually or in the aggregate, have a Material Adverse Effect on
MeriStar.
(g) Section 3.25(g) of the MeriStar Disclosure Letter sets forth all
material leases, subleases, licenses, time-share and other agreements, other
than MeriStar Ordinary Course Leases (collectively, the "MERISTAR SPACE
LEASES"), granting to any person or entity other than MeriStar any right to the
possession, use, occupancy or enjoyment of the MeriStar Properties or any
portion thereof. Each MeriStar Space Lease is valid, binding and in full force
and effect, all rent and other sums and charges payable by the tenant or
occupant thereunder (a "MERISTAR SPACE TENANT") are current, no notice of
default or termination under any MeriStar Space Lease is outstanding, no
termination event or condition or uncured default on the part of MeriStar or, to
the knowledge of MeriStar, the MeriStar Space Tenant, exists under any MeriStar
Space Lease, and no event has occurred and no condition exists that, with the
giving of notice or the lapse of time, or both, would constitute such a default
or termination event or condition, except where such default, termination,
termination event, condition or failure to be valid, binding and in full force
and effect, individually or in the aggregate, has not had and could not
reasonably be expected to have a Material Adverse Effect on MeriStar.
(h) MeriStar or the MeriStar Subsidiaries owns or own, as the case may be,
good and valid title to all of its material tangible property and assets (other
than the MeriStar Properties) used in, held for use in or which are necessary
for the conduct of the business of MeriStar as currently conducted, except where
the failure to hold good and valid title to such property and assets,
individually or in the
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aggregate, has not had, and could not reasonably be expected to have a Material
Adverse Effect on MeriStar.
(i) MeriStar has not received notice of and, to the knowledge of MeriStar,
there is no pending, threatened or contemplated condemnation proceeding
affecting the MeriStar Property or any part thereof, nor any sale or other
disposition of the MeriStar Property or any part thereof in lieu of
condemnation. No portion of the MeriStar Property has suffered any material
damage by fire or other casualty that has not heretofore been completely
repaired and restored, except as, individually or in the aggregate, has not had
and could not reasonably be expected to have a Material Adverse Effect on
MeriStar.
(j) MeriStar has made available to ASC or its representatives copies of the
MeriStar Leases and the MeriStar Space Leases that are true, correct and
complete in all material respects.
(k) Neither MeriStar nor any of the MeriStar Subsidiaries is engaged in any
real estate development projects except as set forth in Section 3.25(k) of the
MeriStar Disclosure Letter.
(l) For purposes of the representations and warranties of MeriStar relating
to the MeriStar Properties, a "Material Adverse Effect on MeriStar" shall not
include any effect on MeriStar arising from the entering into and performance in
accordance with the terms of the MeriStar-REIT Agreement Amendments and
associated agreements, provided that the MeriStar-REIT Agreement Amendments and
associated agreements are in compliance with the requirements set forth in
Section 5.10(f) of the MeriStar Disclosure Letter; and provided further that any
effect on MeriStar resulting from the failure of the MeriStar-REIT Amendments to
be performed in accordance with the terms thereof may be considered in
determining whether there has been a Material Adverse Effect on MeriStar.
Following the effective time of the MeriStar-REIT Agreement Amendments, each
management or other similar contract resulting from the MeriStar-REIT Agreement
Amendments with respect to each of the properties subject to the MeriStar-REIT
Agreement Amendments shall be deemed to be set forth in Section 3.12 of the
MeriStar Disclosure Letter.
SECTION 3.26 NO PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
set forth in Section 3.26 of the MeriStar Disclosure Letter, there are no cash
or non-cash payments that will become payable to any employee, officer or
director of MeriStar or any MeriStar Subsidiary as a result of the Merger or the
transactions contemplated by this Agreement. Except as otherwise provided for in
this Agreement or as set forth in Section 3.26 of the MeriStar Disclosure
Letter, there is no employment or severance contract or other agreement
requiring payments, cancellation of indebtedness or other obligation to be made
upon a change of control of MeriStar or any MeriStar Subsidiary or otherwise as
a result of the consummation of any of the transactions contemplated by this
Agreement, with respect to any employee, officer or director of MeriStar or any
MeriStar Subsidiary.
SECTION 3.27 POTENTIAL CONFLICTS OF INTEREST. Except as set forth in
Section 3.27 of the MeriStar Disclosure Letter or in the MeriStar SEC Reports,
to the knowledge of the MeriStar, no officer, director or affiliate of MeriStar
or any MeriStar Subsidiary, and no relative or spouse of any such officer,
director or affiliate: (a) owns, directly or indirectly, any interest in
(excepting less than 1% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director, employee or
consultant of, any person that is, or is engaged in business as, a competitor,
lessor, lessee, supplier, distributor, sales agent or customer of, or lender to
or borrower from, MeriStar or any of the MeriStar Subsidiaries; (b) owns,
directly or indirectly, in whole or in part, any material tangible or intangible
property that MeriStar or any of the MeriStar Subsidiaries uses in the ordinary
conduct of its business; or (c) has any cause of action or other claim
whatsoever against, or owes any amount to, MeriStar or any of the MeriStar
Subsidiaries, except for claims in the ordinary course of business such as for
accrued vacation pay, accrued benefits under MeriStar Benefit Plans, and similar
matters and agreements arising in the ordinary course of business.
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SECTION 3.28 REGISTRATION RIGHTS. Except as set forth in Section 3.28 of
the MeriStar Disclosure Letter, no person has any right to require the
registration of any shares of MeriStar Common Stock or any other securities of
MeriStar or any MeriStar Subsidiary.
SECTION 3.29 INVESTMENT COMPANY ACT OF 1940. Neither MeriStar nor any of
the MeriStar Subsidiaries is, or at the Effective Time will be, required to be
registered under the Investment Company Act of 1940 (the "1940 ACT").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF ASC AND MERGER SUB
Each of ASC and Merger Sub represents and warrants to MeriStar that:
SECTION 4.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of ASC, Merger Sub, and each other subsidiary of ASC
(collectively, the "ASC SUBSIDIARIES") (i) has been duly organized and is
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, as the case may be, (ii) has the requisite power
and authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted and
(iii) is duly qualified or licensed to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to have such governmental
approvals or to be so qualified or licensed and in good standing that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on ASC.
(b) Section 4.1(b)(i) of the disclosure letter prepared by ASC, dated the
date hereof and delivered by ASC to MeriStar (the "ASC DISCLOSURE LETTER") sets
forth a complete and accurate list of each ASC Subsidiary, together with its
jurisdiction of incorporation or organization. Except as set forth in
Section 4.1(b)(ii) of the ASC Disclosure Letter, neither ASC nor any ASC
Subsidiary holds any interest in any person other than the ASC Subsidiaries.
(c) Section 4.1(c) of the ASC Disclosure Letter lists each ASC Subsidiary
that is a "Restricted Subsidiary," as such term is defined in the Indenture,
dated as of June 28, 1996 (as amended and supplemented through the date hereof,
the "ASC NOTES INDENTURE"), relating to ASC's 12% Senior Subordinated Notes due
2006 (the "ASC NOTES").
(d) Section 4.1(d) of the ASC Disclosure Letter lists each ASC Subsidiary
that is an "Unrestricted Subsidiary," as such term is defined in the ASC Notes
Indenture.
(e) Section 4.1(e) of the ASC Disclosure Letter lists each ASC Subsidiary
that is a "Real Estate Subsidiary," as such term is defined in the ASC Notes
Indenture.
(f) Section 4.1(f) of the ASC Disclosure Letter lists the items of
"Indebtedness" (as such term is defined in the ASC Notes Indenture) that have an
outstanding principal balance in excess of $100,000, of each ASC Subsidiary
listed on Section 4.1(b)(i) of the ASC Disclosure Letter that qualifies as
"Non-Recourse Real Estate Debt" (as such term is defined in Section 1.01 of the
ASC Notes Indenture).
(g) Section 4.1(g) of the ASC Disclosure Letter lists each ASC Subsidiary
that is a "Restricted Subsidiary," as such term is defined in the Amended and
Restated and Consolidated Credit Agreement, dated as of October 12, 1999 and
amended on March 6, 2000, among ASC, other borrowers named therein, Fleet
National Bank and the lenders named therein (the "ASC SENIOR CREDIT FACILITY").
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(h) Section 4.1(h) of the ASC Disclosure Letter lists each ASC Subsidiary
that is an "Unrestricted Subsidiary" (as such term is defined in the ASC Senior
Credit Facility).
(i) Section 4.1(f) of the ASC Disclosure Letter lists all material
"Indebtedness" (as such term is defined in the ASC Notes Indenture) which is
non-recourse to any "Restricted Subsidiary" (as such term is defined in the ASC
Notes Indenture).
SECTION 4.2 CERTIFICATE OF INCORPORATION AND BYLAWS. The copies of ASC's
certificate of incorporation and bylaws, each as amended through the date of
this Agreement that are exhibits to ASC's annual report on Form 10-K dated for
the year ended July 30, 2000 are complete and correct copies of those documents.
Such certificate of incorporation and bylaws and all comparable organizational
documents of the ASC Subsidiaries are in full force and effect. ASC is not in
violation of any of the provisions of such certificate of incorporation or
bylaws.
SECTION 4.3 CAPITALIZATION.
(a) As of the date hereof and immediately prior to the completion of the
transactions contemplated by Sections 6.3(f)(i), (ii) and (iii), the authorized
capital stock of ASC consists of (i) 115,500,000 shares of common stock, par
value $0.01 per share, of which (1) 15,000,000 shares have been designated
common stock, Class A, par value $0.01 per share (the "ASC CLASS A COMMON
STOCK"), and (2) 100,000,000 shares have been designated ASC Common Stock,
(ii) 500,000 shares of Serial Preferred Stock, par value $0.01 per share, of
which (1) 40,000 shares have been designated 10.5% Repriced Convertible
Exchangeable Preferred Stock, liquidation value $1,000 per share (the "ASC
SERIES A PREFERRED STOCK"), and (2) 150,000 shares have been designated 8.5%
Series B Convertible Participating Preferred Stock, liquidation value $1,000 per
share (the "ASC SERIES B PREFERRED STOCK"). As of October 31, 2000,
(i) 15,708,633 shares of ASC Common Stock were issued and outstanding, all of
which were validly issued and are fully paid, nonassessable and not subject to
preemptive rights; (iii) 100 shares of ASC Common Stock were held in the
treasury of ASC or by the ASC Subsidiaries; (iv) 5,113,319 shares of ASC Common
Stock were reserved for issuance upon exercise of outstanding ASC Stock Options;
(v) 36,626 shares of ASC Series A Preferred Stock were issued and outstanding
(which were convertible into 1,306,943 shares of ASC Common Stock), all of which
were validly issued and are fully paid, nonassessable and not subject to
preemptive rights; (vi) 150,000 shares of ASC Series B Preferred Stock were
issued and outstanding, all of which were validly issued and are fully paid,
nonassessable and not subject to preemptive rights; and (vii) 14,760,530 shares
of ASC Class A Common Stock were issued and outstanding (which were convertible
into 14,760,530 shares of ASC Common Stock), all of which were validly issued
and are fully paid, nonassessable and not subject to preemptive rights. Except
as set forth above, as of October 31, 2000, no shares of capital stock or other
voting securities of ASC were issued, reserved for issuance or outstanding and,
since such date, no shares of capital stock or other voting securities or
options in respect thereof have been issued except upon the exercise of ASC
Stock Options outstanding on such date. Together, the ASC Common Stock, the ASC
Class A Common Stock and the ASC Preferred Stock are referred to in this
Agreement as the "ASC SHARES".
(b) As of October 31, 2000, an aggregate of 5,113,319 options to purchase
shares of ASC Common Stock ("ASC STOCK OPTIONS") have been granted by ASC and
are outstanding under the 1997 Stock Option Plan (as amended to date, the "ASC
OPTION PLAN"). Except (i) for the warrants and transactions described in
Section 5.10(l), (ii) as set forth in Section 4.3(a), (iii) for ASC Stock
Options to purchase an aggregate of 5,485,088 shares of ASC Common Stock
outstanding or available for grant under the ASC Option Plan and
(iv) agreements or arrangements set forth in Section 4.3(b) of the ASC
Disclosure Letter, there are no options, warrants, calls, conversion rights,
stock appreciation rights, redemption rights, repurchase rights or other rights,
agreements, arrangements or commitments of any character to which ASC is a party
or by which ASC is bound relating to the issued or unissued capital stock of
ASC, Merger Sub or any ASC Subsidiary or obligating ASC, Merger Sub or any ASC
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Subsidiary to issue or sell any shares of capital stock of, other equity
interests in, or securities exchangeable for or convertible into the capital
stock or other equity interest in ASC, Merger Sub or any ASC Subsidiary.
Section 4.3(b) of the ASC Disclosure Letter accurately and completely sets
forth, as of the date of this Agreement, (x) the persons to whom ASC Stock
Options have been granted, (y) the exercise price for ASC Stock Options held by
each such person and (z) whether such ASC Stock Options are subject to vesting
and, if subject to vesting, the dates on which each of those ASC Stock Options
vest.
(c) All shares of ASC Common Stock issued are, and all shares of ASC Common
Stock subject to issuance will be, upon issuance prior to the Effective Time on
the terms and conditions specified in the instruments under which they are
issuable, duly authorized, validly issued, fully paid, nonassessable and will
not be subject to preemptive rights. Except as set forth in Section 4.3(c) of
the ASC Disclosure Letter, (i) there are no outstanding contractual obligations
of ASC, Merger Sub or any ASC Subsidiary to repurchase, redeem or otherwise
acquire any shares of ASC Common Stock or any capital stock of Merger Sub or any
ASC Subsidiary; (ii) each outstanding share of capital stock of each ASC
Subsidiary is duly authorized, validly issued, fully paid, nonassessable and not
subject to preemptive rights and each such share owned by ASC or an ASC
Subsidiary is free and clear of all Liens; and (iii) there are no outstanding
material contractual obligations of ASC, Merger Sub or any ASC Subsidiary to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any ASC Subsidiary that is not wholly owned by
ASC or in any other person.
(d) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $0.01 per share (the "SUB COMMON STOCK"). All of the
issued and outstanding shares of Sub Common Stock are owned directly by ASC and
are duly authorized, validly issued, fully paid and nonassessable.
SECTION 4.4 AUTHORITY.
(a) Each of ASC and Merger Sub has all necessary corporate power and
authority to execute and deliver this Agreement and, subject only to (i) the
adoption and approval of this Agreement and approval of the transactions
contemplated by this Agreement and the ASC Voting/Recapitalization Agreement
(including the issuances of ASC Common Stock and New ASC Series A Preferred
Stock in connection with such transactions) by holders of a majority of the
outstanding shares of ASC Common Stock (including those issuable upon conversion
of ASC Class A Common Stock, ASC Series A Preferred Stock or ASC Series B
Preferred Stock, voting on an as-converted basis), (ii) the adoption and
approval of the amendments to the certificate of incorporation and bylaws of ASC
as provided in Sections 1.6 and 1.8 of this Merger Agreement and Section 3.6(a)
of the ASC Voting/Recapitalization Agreement by holders of a majority of the
outstanding shares of ASC Common Stock (including those issuable upon conversion
of ASC Class A Common Stock, ASC Series A Preferred Stock or ASC Series B
Preferred Stock, voting on an as-converted basis) (iii) the adoption and
approval of the amendments to the certificate of incorporation and bylaws of ASC
as provided in Sections 1.6 and 1.8 of this Merger Agreement and Section 3.6(a)
of the ASC Voting/Recapitalization Agreement and approval of the transactions
contemplated by the ASC Voting/Recapitalization Agreement by holders of a
majority of the outstanding shares of ASC Series A Preferred Stock (voting as a
single class), (iv) the adoption and approval of the amendments to the
certificate of incorporation and bylaws of ASC as provided in Sections 1.6 and
1.8 of this Merger Agreement and Section 3.6(a) of the ASC Voting/
Recapitalization Agreement and the transactions contemplated by the ASC
Voting/Recapitalization Agreement by holders of a majority of the outstanding
shares of ASC Series B Preferred Stock (voting as a single class) and (v) the
election of ASC directors as required by the ASC Voting/ Recapitalization
Agreement (the proposals described in (i)-(v) above, the "ASC PROPOSALS", and
the affirmative votes described in (i)-(v) above, the "REQUISITE ASC VOTE"), to
perform its obligations under this Agreement and to consummate the Merger and
the other transactions contemplated by this Agreement to be
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consummated by each of ASC and Merger Sub. The execution and delivery of this
Agreement by each of ASC and Merger Sub and the consummation by each of ASC and
Merger Sub of such transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
ASC, any ASC Subsidiary or Merger Sub are necessary to authorize this Agreement
or to consummate such transactions, other than approval of the ASC Proposals by
the Requisite ASC Vote. This Agreement has been duly authorized and validly
executed and delivered by each of ASC and Merger Sub and constitutes a legal,
valid and binding obligation of each of ASC and Merger Sub, enforceable against
each of ASC and Merger Sub in accordance with its terms.
(b) The Board of Directors of ASC (i) has unanimously adopted the plan of
merger set forth in this Agreement and approved this Agreement and the other
transactions contemplated by this Agreement and (ii) has declared that the
Merger and this Agreement and the other transactions contemplated by this
Agreement are advisable and in the best interests of ASC and the holders of ASC
Common Stock.
SECTION 4.5 NO CONFLICTS.
(a) Except as set forth in Section 4.5(a) of the ASC Disclosure Letter, the
execution and delivery of this Agreement by ASC and Merger Sub do not, and the
performance of this Agreement by each of ASC and Merger Sub will not:
(i) conflict with or violate any provision of ASC's certificate of
incorporation or bylaws or any comparable organizational documents of any
ASC Subsidiary;
(ii) assuming that all consents, approvals, authorizations and other
actions set forth in Section 4.6 have been obtained and all filings,
applications and obligations set forth in Section 4.6 have been made,
conflict with or violate any Law applicable to ASC, Merger Sub or any ASC
Subsidiary or by which any property or asset of ASC, Merger Sub or any ASC
Subsidiary is or may be bound or affected, except for any such conflicts or
violations that, individually or in the aggregate, have not resulted and
could not reasonably be expected to result in a Material Adverse Effect on
ASC; or
(iii) result in any breach of or constitute a default (or an event which
with or without notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration
or cancellation of, or result in the creation of a Lien on any property or
asset of ASC, Merger Sub, or any ASC Subsidiary under, any Contract to which
ASC, Merger Sub or any ASC Subsidiary is a party or by which any of them or
their assets or properties is or may be bound or affected, except for any
such breaches, defaults or other occurrences which, individually or in the
aggregate, have not resulted and could not reasonably be expected to result
in a Material Adverse Effect on ASC.
(b) Section 4.5(b) of the ASC Disclosure Letter sets forth a correct and
complete list of Contracts to which ASC or any ASC Subsidiary is a party or by
which any of them or their assets or properties is or may be bound or affected
under which consents or waivers are or may be required prior to consummation of
or as a result of the transactions contemplated by this Agreement in order to
avoid any breach of or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any right
of termination, amendment, acceleration or cancellation of any such Contract, or
result in the creation of a Lien or other Encumbrance on any property or asset
of ASC or any ASC Subsidiary, which default, termination, amendment,
acceleration, Lien or Encumbrance could reasonably be expected to have a
Material Adverse Effect on ASC.
SECTION 4.6 REQUIRED FILINGS AND CONSENTS. Except as set forth in
Section 4.6 of the ASC Disclosure Letter, the execution and delivery of this
Agreement by ASC and Merger Sub do not, and the performance of this Agreement by
ASC and Merger Sub will not, require any consent, approval,
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authorization or permit of, or filing with or notification to, any Governmental
Entity except (i) for applicable requirements of the Exchange Act, applicable
requirements of the Securities Act, applicable requirements of Blue Sky Laws,
the rules and regulations of the NYSE, applicable requirements of Takeover
Statutes, applicable state environmental statutes, the pre-merger notification
requirements of the HSR Act, (ii) for the filing of the Certificate of Merger as
required by the DGCL and (iii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on ASC.
SECTION 4.7 PERMITS; COMPLIANCE WITH LAW. Except as set forth in
Section 4.7 of the ASC Disclosure Letter, each of ASC and the ASC Subsidiaries
is in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exceptions, consents, certificates, approvals and orders
of any Governmental Entity necessary for ASC or any ASC Subsidiary to own, lease
and operate its properties or to carry on its business as it is now being
conducted, including, without limitation, the U.S. Forest Service Permits
(collectively, the "ASC PERMITS"), except where the failure to have any of the
ASC Permits, individually or in the aggregate, has not resulted and could not
reasonably be expected to result in a Material Adverse Effect on ASC, and, as of
the date of this Agreement, no suspension or cancellation of any of ASC Permits
is pending or, to the knowledge of ASC, threatened, except where the failure to
have, or the suspension or cancellation of, any of ASC Permits, individually or
in the aggregate, has not resulted and could not reasonably be expected to
result in a Material Adverse Effect on ASC. Neither ASC nor any ASC Subsidiary
is in conflict with, or in default or violation of, (i) any Law applicable to
ASC or any ASC Subsidiary or by which any property or asset of ASC or any ASC
Subsidiary is or may be bound or affected or (ii) any ASC Permits, except for
any such conflicts, defaults or violations that, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Material Adverse Effect on ASC.
SECTION 4.8 SEC FILINGS; FINANCIAL STATEMENTS.
(a) ASC has filed all forms, reports, schedules, statements and other
documents (including all exhibits, annexes, supplements and amendments to such
documents) required to be filed by it under the Exchange Act and the Securities
Act since September 1, 1998 through the date of this Agreement (collectively, as
amended and supplemented to date, the "ASC SEC REPORTS") and ASC has made
available to MeriStar each ASC SEC Report. The ASC SEC Reports, including any
financial statements or schedules included or incorporated therein by reference,
at the time they were filed and all forms, reports, schedules, statements and
other documents filed with the SEC after the date of this Agreement and prior to
the Effective Time, at the time they will be filed, (i) complied or will comply,
as the case may be, in all material respects, with the requirements of the
Exchange Act or the Securities Act or both, as the case may be, applicable to
those ASC SEC Reports and (ii) did not or will not, as the case may be, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated or necessary in order to make the statements made in those
ASC SEC Reports, in the light of the circumstances under which they were made,
not misleading. No ASC Subsidiary is subject to the periodic reporting
requirements of the Exchange Act or is otherwise required to file any documents
with the SEC or any national securities exchange or quotation service or
comparable Governmental Entity.
(b) Each of the consolidated balance sheets included in or incorporated by
reference into the ASC SEC Reports and in any form, report or document filed
after the date of this Agreement and prior to the Effective Time (including in
each case, the related notes and schedules) fairly presented or will present, as
the case may be, in all material respects, the consolidated financial position
of ASC as of the dates set forth in those consolidated balance sheets in
accordance with GAAP. Each of the consolidated statements of income and of cash
flows included in or incorporated by reference into the ASC SEC Reports and in
any form, report or document filed after the date of this Agreement and
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prior to the Effective Time (including in each case, any related notes and
schedules) fairly presented or will present as the case may be, in all material
respects, the consolidated results of operations and cash flows, as the case may
be, of ASC and the consolidated ASC Subsidiaries for the periods set forth in
those consolidated statements of income and of cash flows (subject, in the case
of unaudited quarterly statements, to notes and normal year-end audit
adjustments that will not be material in amount or effect), in each case in
conformity with GAAP (except, in the case of unaudited quarterly statements, as
permitted by Form 10-Q of the SEC) consistently applied throughout the periods
indicated. All of such balance sheets and statements complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto.
(c) Except as and to the extent set forth on the consolidated balance sheet
of ASC and the consolidated ASC Subsidiaries as of July 30, 2000 including the
related notes, neither ASC nor any ASC Subsidiary has any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
that would be required to be reflected on a balance sheet or in the related
notes prepared in accordance with GAAP, except for liabilities or obligations
incurred in the ordinary course of business since July 30, 2000 that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on ASC.
SECTION 4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS.
(a) Except as (i) set forth in Section 4.9(a) of the ASC Disclosure Letter,
(ii) disclosed in the ASC SEC Reports filed with the SEC since July 30, 2000 and
which have been filed and are publicly available prior to the date of this
Agreement (the "ASC FILED SEC REPORTS") or (iii) permitted pursuant to
Section 5.2, since July 30, 2000, (A) ASC, Merger Sub and the ASC Subsidiaries
have conducted their businesses only in the ordinary course and in a manner
consistent with past practice, (B) there has not been any Material Adverse
Effect on ASC and (C) there has not been:
(i) any damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by it or any ASC
Subsidiaries, whether or not covered by insurance, which damage, destruction
or loss, individually or in the aggregate, has resulted or could reasonably
be expected to result in a Material Adverse Effect on ASC;
(ii) any material change by ASC in its or any ASC Subsidiary's
accounting methods, principles or practices except as a result of changes in
GAAP;
(iii) any declaration, setting aside or payment of any dividend or
distribution in respect of ASC Shares or any redemption, purchase or other
acquisition of any of ASC's securities;
(iv) any increase in the compensation or benefits or establishment of
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, the granting of stock options,
stock appreciation rights, performance awards or restricted stock awards),
stock purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers of ASC
or any ASC Subsidiary except in the ordinary course of business consistent
with past practice or except as required by applicable Law;
(v) (A) any incurrence or assumption by ASC or any ASC Subsidiary of any
indebtedness for borrowed money or (B) any guarantee, endorsement or other
incurrence or assumption of material liability (whether directly,
contingently or otherwise) by ASC or any ASC Subsidiary for the obligations
of any other person (other than any wholly-owned ASC Subsidiary), other than
in the ordinary course of business consistent with past practice and
individually not in excess of $250,000;
(vi) any creation or assumption by ASC or any ASC Subsidiary of any Lien
on any material asset of ASC or any ASC Subsidiary, other than in the
ordinary course of business, consistent with past practice;
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(vii) any making of any loan, advance or capital contribution to or
investment in any person by ASC or any ASC Subsidiary (other than to ASC or
an ASC Subsidiary), other than in the ordinary course of business,
consistent with past practice and individually not in excess of $250,000; or
(viii) (A) any contract or agreement entered into by ASC or any ASC
Subsidiary relating to any material acquisition or disposition of any assets
or business or (B) any modification, amendment, assignment or termination of
or relinquishment by ASC or any ASC Subsidiary of any rights under any
Contract (including any insurance policy naming it as a beneficiary or a
loss payable payee) that has resulted or could reasonably be expected to
result in, individually or in the aggregate, a Material Adverse Effect on
ASC other than transactions, commitments, contracts or agreements in the
ordinary course of business consistent with past practice or those
contemplated by this Agreement.
SECTION 4.10 EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Each employee benefit plan, program and arrangement, and each
employment, termination, severance or other contract or agreement, to which ASC
or any of the ASC Subsidiaries is a party, with respect to which ASC or any of
the ASC Subsidiaries has any obligation or which are maintained, contributed to
or sponsored by ASC or any of the ASC Subsidiaries for the benefit of any
current or former employee, officer or director of ASC or any of the ASC
subsidiaries under which plan, program, arrangement, contract or agreement total
payments of more than $100,000 may be required to be made by ASC or an ASC
Subsidiary (collectively, the "ASC BENEFIT PLANS") are listed on
Section 4.10(a) of the ASC Disclosure Letter. Except for those matters listed on
Section 4.10(a) of the ASC Disclosure Letter and such matters as, individually
or in the aggregate, have not and could not reasonably be expected to result in
a Material Adverse Effect on ASC:
(i) to the knowledge of ASC, each ASC Benefit Plan and any related trust
intended to be qualified under Sections 401(a) and 501(a) of the Code has
received a favorable determination letter from the IRS that it is so
qualified, and to the knowledge of ASC, nothing has occurred since the date
of such letter that could materially adversely affect the qualified status
of such ASC Benefit Plan or related trust;
(ii) to the knowledge of ASC, each ASC Benefit Plan has been operated in
accordance with the terms and requirements of applicable Law, and all
required returns and filings for each ASC Benefit Plan have been timely
made;
(iii) to the knowledge of ASC, neither ASC nor any of the ASC
Subsidiaries has incurred any direct or indirect liability under, arising
out of or by operation of ERISA in connection with any ASC Benefit Plan or
other retirement plan or arrangement, and to the knowledge of ASC, no fact
or event exists that could reasonably be expected to give rise to any such
liability;
(iv) to the knowledge of ASC, all contributions due and payable on or
before the date hereof in respect of each ASC Benefit Plan have been made in
full and in proper form;
(v) to the knowledge of ASC, neither ASC nor any of the ASC Subsidiaries
has ever sponsored or been obligated to contribute to any "multiemployer
plan" (as defined in Section 3(37) of ERISA), "multiple employer plan" (as
defined in Section 413 of the Code) or "defined benefit plan" (as defined in
Section 3(35) of ERISA);
(vi) except as otherwise required under ERISA, the Code and applicable
Law, to the knowledge of ASC, no ASC Benefit Plan currently or previously
maintained by ASC or any of the ASC Subsidiaries provides any
post-retirement health or life insurance benefits in the future;
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(vii) to the knowledge of ASC, all reporting and disclosure obligations
imposed under ERISA and the Code have been satisfied with respect to each
ASC Benefit Plan; and
(viii) to the knowledge of ASC, neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will (A) result in the payment of separation, severance, termination,
"golden parachute" or similar-type benefits to any person, (B) materially
increase any benefits otherwise payable under any ASC Benefit Plan or
otherwise, (C) result in any acceleration of the time of payment or vesting
of any material benefits, (D) trigger a requirement for funding or the
acceleration of funding of any material benefits or (E) commence a period
during which a subsequent termination of employment by an employee of ASC or
any ASC Subsidiary will entitle such employee to benefits in excess of what
would otherwise have been required in the absence of the transactions
contemplated hereby. No benefit or amount payable or that may become payable
by ASC or any of the ASC Subsidiaries as a result of any transaction
contemplated by this Agreement will constitute an "excess parachute
payment," within the meaning of Section 280G of the Code, which is or may be
subject to the imposition of any excise tax under Section 4999 of the Code
or which would not be deductible by reason of Section 280G of the Code.
(b) To the knowledge of ASC, each ASC Benefit Plan is in writing, and ASC
has made available to MeriStar a complete and accurate copy of each ASC Benefit
Plan and a complete and accurate copy of each material document prepared in
connection with each such ASC Benefit Plan, including without limitation, a copy
of (i) each trust or other funding arrangement, (ii) each summary plan
description and summary of material modification, (iii) the most recently filed
IRS Form 5500, (iv) the most recently received IRS determination letter for each
such Plan, and (v) the most recently prepared actuarial report and financial
statement in connection with each such Plan.
(c) Except as set forth in Section 4.10(c) of the ASC Disclosure Letter, to
the knowledge of ASC, neither ASC nor any of the ASC Subsidiaries is a party to,
or is bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or other labor union organization. ASC has
made available true, correct and complete copies of all such agreements to
MeriStar. Except as set forth in Section 4.10(c) of the ASC Disclosure Letter
and except as individually or in the aggregate, has not resulted and would not
reasonably be expected to result, in a Material Adverse Effect on ASC,
(A) currently there are no organizational campaigns, petitions or other
unionization activities seeking recognition of a collective bargaining unit
which could affect ASC or any ASC Subsidiary; (B) there are no controversies,
strikes, slowdowns or work stoppages pending or, to the best knowledge of ASC,
after due inquiry, threatened between ASC or any of the ASC Subsidiaries and any
of their respective employees, and neither ASC nor any of the ASC Subsidiaries
has experienced any such controversy, strike, slowdown or work stoppage within
the past three years; (C) neither ASC or any of the ASC Subsidiaries has
breached or otherwise failed to comply with the provisions of any collective
bargaining or union contract and there are no grievances outstanding against ASC
or any ASC Subsidiary under any such agreement or contract; and (D) there are no
unfair labor practice complaints pending against ASC or any of the ASC
Subsidiaries before the National Labor Relations Board or any other Governmental
Entity or any current union representation questions involving employees of ASC
or any of the ASC Subsidiaries.
SECTION 4.11 TAX MATTERS. Neither ASC nor Merger Sub, nor to the knowledge
of ASC, any of ASC's affiliates has taken or agreed to take any action, nor is
ASC aware of any agreement, plan or other circumstance, that would or would
prevent the Merger from constituting a transaction qualifying as a
reorganization under Section 368(a) of the Code.
SECTION 4.12 CONTRACTS; DEBT INSTRUMENTS. Except for the Contracts set
forth in Section 4.12 of the ASC Disclosure Letter, true, correct and complete
copies of which have been made available to MeriStar, there is no Contract that
is material to the business, financial condition or results of
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operations of ASC and the ASC Subsidiaries taken as a whole. Each of the
Contracts to which ASC or an ASC Subsidiary is a party or by which it or any of
its properties or assets is or may be bound or affected, constitutes a valid and
legally binding obligation of ASC or such ASC Subsidiary and of the other
parties thereto, enforceable in accordance with its terms, and is in full force
and effect, except to the extent the failure to be so valid, binding or
enforceable, individually or in the aggregate, has not and could not reasonably
be expected to result in a Material Adverse Effect on ASC. Except as set forth
in Section 4.12 of the ASC Disclosure Letter, neither ASC nor any ASC
Subsidiary, nor to ASC's knowledge, any other person, is in violation of or in
default under (nor does there exist any condition which with the passage of time
or the giving of notice would cause such a violation of or default under) any
Contract to which ASC or any ASC Subsidiary is a party or by which it or any of
its properties or assets is or may be bound or affected, except for violations
or defaults that, individually or in the aggregate, have not resulted and could
not reasonably be expected to result in a Material Adverse Effect on ASC. Set
forth in Section 4.12 of the ASC Disclosure Letter is a description of any
material changes to the amount and terms of the indebtedness of ASC and the
consolidated ASC Subsidiaries as described in the notes to the financial
statements set forth as incorporated by reference in ASC's annual report on
Form 10-K for the year ended July 30, 2000. Section 4.12 of the ASC Disclosure
Letter lists, as of October 31, 2000, with respect to (i) the ASC Notes
Indenture, (ii) the ASC Senior Credit Facility, (iii) the Second Amended and
Restated Credit Agreement, dated as of July 31, 2000, among ASC Resort
Properties, Inc. ("RESORT PROPERTIES"), Fleet and the lenders thereunder (the
"RESORTS CREDIT FACILITY"), (v) the Loan and Security Agreement among GSRP,
Textron Financial Corporation and the lenders thereunder, dated September 1,
1998 and amended on June 24, 1999 and April 5, 1999 (as amended, the "TEXTRON
FACILITY" and (vi) the Statement of Intention and Additional Special Financing
Agreement, dated July 25, 2000, between GSRP and Textron Financial Corporation
(the "ASC SUBORDINATED LOAN FACILITY" and, together with the ASC Senior Credit
Facility, the Resorts Credit Facility and the Textron Facility, the "ASC CREDIT
AGREEMENTS"): (x) the size and types of credit facilities available under each,
(y) the principal amounts drawn under each such credit facility and (z) the
principal amounts available to be drawn under each such credit facility.
SECTION 4.13 LITIGATION. Except as set forth in Section 4.13 of the ASC
Disclosure Letter, and except as disclosed in ASC Filed SEC Reports, there is no
uninsured Claim pending or, to the knowledge of ASC, threatened against ASC or
any ASC Subsidiary before any Governmental Entity that, if adversely determined,
individually or in the aggregate, has resulted or could reasonably be expected
to result in a Material Adverse Effect on ASC. Neither ASC nor any ASC
Subsidiary is subject to any outstanding order, writ, injunction or decree
which, individually or in the aggregate, has resulted or could reasonably be
expected to result in a Material Adverse Effect on ASC.
SECTION 4.14 ENVIRONMENTAL MATTERS. Except as has not resulted and could
not reasonably be expected to result in a Material Adverse Effect on ASC and as
set forth in Section 4.14 of the ASC Disclosure Letter or as disclosed in ASC
Filed SEC Reports:
(a) ASC and the ASC Subsidiaries (i) are in compliance with all
Environmental Laws, (ii) hold all necessary Environmental Permits under those
Environmental Laws and (iii) are in compliance with their respective
Environmental Permits;
(b) neither ASC nor any ASC Subsidiary has received any written requests
for information, or been notified in writing that it is a potentially
responsible party, under CERCLA, or any similar Law of any state, locality or
any other jurisdiction;
(c) neither ASC nor any ASC Subsidiary has entered into or agreed to any
consent decree or order or is subject to any judgment, decree or judicial order
relating to compliance with Environmental Laws, Environmental Permits or the
investigation, sampling, monitoring, treatment, remediation, removal or cleanup
of hazardous materials and, to the knowledge of ASC, no investigation,
litigation or other proceeding is pending or threatened with respect thereto,
and no condition exists on any property
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currently or formerly owned or operated by ASC that is reasonably likely to lead
to such investigation, litigation or proceeding;
(d) none of the real property currently or formerly owned or leased by ASC
or any ASC Subsidiary is listed or, to the knowledge of ASC, proposed for
listing on the "National Priorities List" under CERCLA, as updated through the
date of this Agreement, or any similar list of sites in the United States or any
other jurisdiction requiring investigation or cleanup; and
(e) MeriStar has been provided access to all material reports in ASC's
possession or control assessing the environmental condition of ASC's current and
former owned properties which reports are listed in Section 4.14(e) of the ASC
Disclosure Letter.
SECTION 4.15 INTELLECTUAL PROPERTY.
(a) DISCLOSURE.
(i) Section 4.15(a)(i) of the ASC Disclosure Letter sets forth all
United States and foreign: (i) patents and patent applications,
(ii) trademarks, trade names, brand names and corporate names, and all
service marks, registrations and applications thereof, (iii) Internet domain
name registrations and applications and (iv) copyright registrations and
applications owned or licensed by ASC or the ASC Subsidiaries, in each case
described in clauses (i) through (iv), that are material to the business and
operations of ASC or the ASC Subsidiaries as presently conducted, specifying
as to each item, as applicable: (A) the nature of the item, including the
title; (B) the owner of the item; (C) the jurisdictions in which the item is
issued or registered or in which an application for issuance or registration
has been filed; and (D) the issuance, registration or application numbers
and dates.
(ii) Section 4.15(a)(ii) of the ASC Disclosure Letter sets forth all
material IP Licenses under which any of ASC or the ASC Subsidiaries is a
licensor or licensee or otherwise is authorized to use or practice any
Intellectual Property.
(iii) Except as set forth in Section 4.15(a)(iii) of the ASC Disclosure
Letter, there are no material Proposed Intellectual Property Agreements
currently in negotiation or proposed by ASC or the ASC Subsidiaries.
(b) OWNERSHIP. Except as set forth in Section 4.15(b) of the ASC
Disclosure Letter, ASC or the ASC Subsidiaries own, free and clear of all Liens,
and have the unrestricted right to use, sell, or license, all Intellectual
Property, except where the failure to so own or have such right, individually or
in the aggregate, has not resulted and could not reasonably be expected to
result in a Material Adverse Effect on ASC.
(c) CLAIMS. Except as set forth in Section 4.15(c) of the ASC Disclosure
Letter, neither ASC nor any of the ASC Subsidiaries has been, during the three
years preceding the date of this Agreement, a party to any Claim, nor, to the
knowledge of MeriStar, is any Claim threatened, that challenges the validity,
enforceability, ownership, or right to use, sell, or license any Intellectual
Property, except for Claims that, individually or in the aggregate, have not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on ASC. To the knowledge of ASC, no third party is infringing upon any
Intellectual Property, except for infringements that, individually or in the
aggregate, have not resulted and could not reasonably be expected to result in a
Material Adverse Effect on ASC.
(d) ADMINISTRATION AND ENFORCEMENT. ASC and the ASC Subsidiaries have
taken all necessary and desirable actions to maintain and protect each item of
Intellectual Property owned by ASC, except for failures to take such actions
that, individually or in the aggregate, have not resulted and could not
reasonably be expected to result in a Material Adverse Effect on ASC.
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(e) PROTECTION OF TRADE SECRETS AND TECHNOLOGY. ASC and the ASC
Subsidiaries have taken all reasonable precautions to protect the secrecy,
confidentiality, and value of its trade secrets and the proprietary nature and
value of the Technology, except for failures to take such precautions that,
individually or in the aggregate, have not resulted and could not reasonably be
expected to result in a Material Adverse Effect on ASC.
(f) EFFECT OF TRANSACTION. Neither ASC nor any of the ASC Subsidiaries is,
nor, as a result of the execution and delivery of this Agreement or its
performance of its obligations hereunder, will be, in violation of any agreement
relating to any Intellectual Property, except for violation that, individually
or in the aggregate, could not reasonably be expected to result in a Material
Adverse Effect on ASC. After the completion of the transactions contemplated by
this Agreement, ASC and the ASC Subsidiaries will own all right, title, and
interest in and to or have a license to use all Intellectual Property on
identical terms and conditions as ASC and the ASC Subsidiaries enjoyed
immediately prior to such transactions, except for failures to own or have
available for use that, individually or in the aggregate, have not resulted and
could not reasonably be expected to result in a Material Adverse Effect on ASC.
SECTION 4.16 TAXES. Except as set forth in Section 4.16 of the ASC
Disclosure Letter and except as has not had and would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on ASC:
(a) ASC and each ASC Subsidiary has timely filed in accordance with
applicable law all Tax Returns required to be filed by or with respect to it,
its operations and assets, and has paid or caused to be paid all Taxes required
to be paid. All Tax Returns filed by ASC or any ASC Subsidiary with respect to
Taxes were prepared in compliance with all applicable laws and regulations and
were true, complete, and correct in all respects as of the date on which they
were filed or as subsequently amended to the date hereof. Complete copies of
federal, state, local, and foreign Tax Returns of ASC and each ASC Subsidiary
for each of the years ended 1999 and 1998 have heretofore been delivered or made
available to MeriStar. Prior to the date hereof, ASC has provided to MeriStar
copies of all revenue agents' reports and other written assertions of
deficiencies or other liabilities for Taxes of ASC and each ASC Subsidiary with
respect to past periods for which the applicable statute of limitations has not
expired.
(b) ASC and each ASC Subsidiary has timely paid all Taxes for which a
notice of, or assessment or demand for, payment has been received or which are
otherwise due and payable with respect to ASC or any ASC Subsidiary, its
operations and assets (in each case, whether or not shown on any Tax Return),
except for Taxes that are being contested in good faith by appropriate
proceedings (all of which are disclosed on Section 4.16(b) of the ASC Disclosure
Letter) and for payment of which Taxes adequate reserves will have been set up
as of the Closing Date.
(c) ASC and each of the ASC Subsidiaries has complied with all applicable
law, rules, and regulations relating to the withholding of Taxes and has timely
collected or withheld and paid over to the proper governmental authorities all
amounts required to be so collected or withheld and paid over for all prior
periods under all applicable laws.
(d) There are no outstanding agreements, waivers, or arrangements extending
the statutory period of limitations for the assessment or collection of Taxes
with respect to any Tax Return that relates to ASC or any ASC Subsidiary, which
waivers or extensions currently are in effect, and no request for any such
waiver or extension is currently pending.
(e) There are no Tax rulings, request for rulings, or closing agreements
relating to ASC or any ASC Subsidiary which could affect its liability for Taxes
for any period after the Closing Date.
(f) No action, suit, proceeding, investigation, audit, claim, or assessment
is presently pending or, to the knowledge of ASC, proposed with regard to any
Taxes that relate to ASC or any ASC Subsidiary
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for which ASC would or could be liable. There are no requests from any taxing
authority for information or with respect to Taxes of ASC or the ASC
Subsidiaries. Neither ASC nor the ASC Subsidiaries has any knowledge or any fact
or condition that, if known to any taxing authority having jurisdiction, would
likely result in the issuance of a notice of proposed deficiency or similar
notice of intention to assess Taxes against ASC or the ASC Subsidiaries, and no
issue has arisen in any examination of ASC or the ASC Subsidiaries by any taxing
authority that if raised with respect to any other period not so examined would
result in a material deficiency for any other period not so examined, if upheld.
(g) Neither ASC nor any of the ASC Subsidiaries (i) has agreed to or is
required to make any adjustment pursuant to Section 481 of the Code (or any
predecessor or similar provision of other laws or regulations) by reason of a
change in accounting method or otherwise; (ii) has knowledge that any taxing
authority has proposed any such adjustment or change which proposal is currently
pending; or (iii) has an application pending with any taxing authority
requesting permission for any change in accounting methods that relates to its
business and operations.
(h) Neither ASC nor any ASC Subsidiary (i) is a party to, is bound by, or
has any obligation under, any Tax sharing agreement or similar contract,
(ii) has any current or potential contractual obligation to indemnify any other
person with respect to Taxes, or (iii) has any obligation to make distributions
in respect of Taxes.
(i) No Taxes are delinquent or constitute a lien against ASC or any ASC
Subsidiary, except with respect to Taxes being contested in good faith by
appropriate proceedings (all of which are disclosed on Section 4.16(i) of the
ASC Disclosure Letter) and for payment of which Taxes adequate reserves have
been established.
(j) There is no contract, agreement, plan, or arrangement covering any
person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by ASC or MeriStar by reason of
Section 280G of the Code.
(k) The unused "net operating losses" (as defined in Section 172 of the
Code) of ASC and each ASC Subsidiary (the years which all such net operating
losses arose and will expire being set forth on Section 4.16(k) of the ASC
Disclosure Letter) are not subject to any limitations under Sections 382 or 384
of the Code, except for those limitations which are set forth in
Section 4.16(k) of the ASC Disclosure Letter.
(l) No property of ASC or any ASC Subsidiary is "tax-exempt use property"
within the meaning of Section 168 of the Code.
SECTION 4.17 NON-COMPETITION AGREEMENTS. Except as set forth in
Section 4.17 of the ASC Disclosure Letter, neither ASC nor any ASC Subsidiary is
a party to any Contract which purports to restrict or prohibit in any material
respect ASC and the ASC Subsidiaries collectively from, directly or indirectly,
engaging in any business currently engaged in by ASC, any ASC Subsidiary or any
other persons affiliated with ASC. None of ASC's officers, directors or key
employees is a party to any agreement which, by virtue of such person's
relationship with ASC, restricts in any material respect ASC or any ASC
Subsidiary or affiliate of either of them from, directly or indirectly, engaging
in any of the businesses described above. For purposes of this Section 4.17, the
term "material" shall mean any prohibition that is material to the business and
operations of ASC and the ASC Subsidiaries taken as a whole.
SECTION 4.18 AGREEMENTS WITH REGULATORY AGENCIES. Except as set forth in
Section 4.18 of the ASC Disclosure Letter, neither ASC nor any ASC Subsidiaries
is subject to any cease-and-desist or other order issued by, or is a party to
any written agreement, consent agreement or memorandum of understanding with, or
is a party to any commitment letter or similar undertaking to, or is subject to
any order or directive by, or is a recipient of any extraordinary supervisory
letter from, or has adopted
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any board resolutions at the request of (each, whether or not listed in
Section 4.18 of the ASC Disclosure Letter, a "ASC REGULATORY AGREEMENT"), any
Governmental Entity that restricts the conduct of its business (except for
restrictions in environmental or land use permits or approvals issued in the
ordinary course of the operation of the business of ASC and the ASC
Subsidiaries, that, individually or in the aggregate, have not had and could not
reasonably be expected to have a Material Adverse Effect on ASC) any ASC
Regulatory Agreements that, individually or in the aggregate, have not resulted
and could not reasonably be expected to result in a Material Adverse Effect on
ASC. Neither ASC nor any ASC Subsidiary has been advised by any Governmental
Entity that such Governmental Entity is considering issuing or requesting any
ASC Regulatory Agreement, except for any such proposed ASC Regulatory Agreements
that, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect on ASC.
SECTION 4.19 OPINION OF FINANCIAL ADVISOR. Donaldson, Lufkin & Jenrette
Securities Corporation (the "ASC FINANCIAL ADVISOR") has delivered to the Board
of Directors of ASC its oral opinion to the effect that, as of the date of this
Agreement, the Exchange Ratio is fair to ASC from a financial point of view,
which opinion was or will promptly after the date of this Agreement be confirmed
in writing and accompanied by an authorization to include a copy of such opinion
in the Proxy Materials. ASC has delivered or will, promptly after receipt of
that written opinion, deliver a signed copy of such written opinion to MeriStar.
SECTION 4.20 BROKERS. No broker, finder or investment banker other than
the ASC Financial Advisor is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the other transactions contemplated
by this Agreement based upon arrangements made by or on behalf of ASC, Merger
Sub or any of the ASC Subsidiaries or their affiliates. Prior to the date of
this Agreement, ASC has made available to MeriStar a complete and correct copy
of all agreements between ASC or any of the ASC Subsidiaries or their affiliates
and the ASC Financial Advisor under which the ASC Financial Advisor would be
entitled to any payment relating to the Merger or such other transactions.
SECTION 4.21 CERTAIN STATUTES. The Board of Directors of ASC has taken or
will take all appropriate and necessary actions to ensure that the restrictions
on business combinations in Section 203 of the DGCL will not have any effect on
the Merger or the other transactions contemplated by this Agreement. No Takeover
Statute is, as of the date of this Agreement, applicable to the Merger or such
other transactions.
SECTION 4.22 INFORMATION. None of the information to be supplied by ASC,
Merger Sub or any ASC Subsidiary for inclusion or incorporation by reference in
the Registration Statement or the Proxy Statement will, in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
to make the statements in the Registration Statement not misleading in light of
the circumstances under which they were made, or, in the case of the Proxy
Statement or any amendments of or supplements to the Proxy Statement, at the
time of the mailing of the Proxy Statement and any amendments of or supplements
to the Proxy Statement and at the time of the MeriStar Stockholders Meeting and
the ASC Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated in the Proxy Statement or
necessary in order to make the statements in the Proxy Statement, in light of
the circumstances under which they are made, not misleading. The Proxy Statement
(except for those portions of the Proxy Statement that relate only to MeriStar
or the MeriStar Subsidiaries or affiliates of MeriStar) and the Registration
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the Securities Act, respectively.
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SECTION 4.23 VOTE REQUIRED. The Requisite ASC Vote is the only vote of the
holders of any class or series of ASC's capital stock necessary (under the rules
and regulations of the NYSE, ASC Charter Documents, the DGCL, other applicable
Law or otherwise) to approve this Agreement, the issuance of ASC Common Stock in
the Merger or the other transactions contemplated by this Agreement.
SECTION 4.24 INTERIM OPERATIONS OF MERGER SUB. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement and has not engaged in any business activities or conducted any
operations other than in connection with the transactions contemplated by this
Agreement.
SECTION 4.25 PROPERTIES.
(a) Section 4.25(a) of the ASC Disclosure Letter sets forth a complete and
accurate list and the address or description of all material real property
interests owned by ASC and the ASC Subsidiaries ("OWNED REAL PROPERTY").
Section 4.25(a) of the ASC Disclosure Letter sets forth a complete and accurate
list of all leases ("ASC LEASES") relating to real property to which ASC or any
ASC Subsidiary is a party as a lessee and each amendment thereto that provide
for annual payments in excess of $50,000 ("LEASED REAL PROPERTY"). All such
leases are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default) that, individually or in the aggregate, has
had and could reasonably be expected to have a Material Adverse Effect on ASC.
(b) Except as set forth in Section 4.25(b)(i) of the ASC Disclosure Letter
each of ASC and the ASC Subsidiaries has good and marketable fee title to the
Owned Real Property, good and valid leasehold interests in the Leased Real
Property and good and valid title to all of its other material tangible
properties and assets, real, personal and mixed, used or held for use in, or
which are necessary to conduct, the respective business of ASC and each ASC
Subsidiary as currently conducted, including the Development Activities, in each
case, which title is free and clear of any Encumbrances except for
(i) Encumbrances permitted under the ASC Senior Credit Facility, the Resorts
Credit Facility, the Textron Facility or the ASC Subordinated Loan Facility and
(ii) Encumbrances that, individually or in the aggregate, have not had or could
reasonably not be expected to have a Material Adverse Effect on ASC. For
purposes of the Agreement, "DEVELOPMENT ACTIVITIES" means the real estate
development activities currently in progress or contemplated by ASC and as set
forth in Section 4.25(b)(ii) of the ASC Disclosure Letter.
(c) Section 4.25(c) of the ASC Disclosure Letter lists all properties (the
"U.S. FOREST SERVICE PROPERTIES") used by ASC pursuant to U.S. Forest Service
Permits (the "U.S. FOREST SERVICE PERMITS") to which ASC or any ASC Subsidiary
is a party.
(d) Except as set forth in Section 4.25(d) or Section 4.25(k) of the ASC
Disclosure Letter, all of the material land, buildings, structures and other
improvements used by ASC and the ASC Subsidiaries in the conduct of their
businesses, including the Development Activities (collectively, the
"IMPROVEMENTS"), are included in the Owned Real Property, the U.S. Forest
Service Properties and the Leased Real Property or property leased by ASC or the
ASC Subsidiaries under leases with annual payments of less than $50,000
(collectively, the "REAL PROPERTY").
(e) Section 4.25(e) of the ASC Disclosure Letter sets forth all material
leases, subleases, licenses, time-share and other agreements (collectively, the
"SPACE LEASES") granting to any person or entity other than ASC or any ASC
Subsidiary any right to the possession, use, occupancy or enjoyment of the Real
Property or any portion thereof other than in an Interval (as defined below).
Each Space Lease is valid, binding and in full force and effect, all rent and
other sums and charges payable by the tenant or occupant thereunder (the "SPACE
TENANT") are current, no notice of default or termination under any Space Lease
is outstanding, no termination event or condition or uncured default on the part
of ASC
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or any ASC Subsidiary or, to the knowledge of ASC, the Space Tenant, exists
under any Space Lease, and no event has occurred and no condition exists that,
with the giving of notice or the lapse of time, or both, would constitute such a
default or termination event or condition, except as, individually or in the
aggregate, has not had and could not reasonably be expected to have a Material
Adverse Effect on ASC.
(f) To the knowledge of ASC, all components of all Improvements are in good
operating condition and repair, subject to continued repair and replacement in
accordance with past practice, except as, individually or in the aggregate, has
not had and could not reasonably be expected to have a Material Adverse Effect
on ASC.
(g) Neither ASC nor any ASC Subsidiary has received notice of and, to the
knowledge of ASC, there is no pending, threatened or contemplated condemnation
proceeding affecting the Real Property or any part thereof, nor any sale or
other disposition of the Real Property or any part thereof in lieu of
condemnation. Since July 30, 2000, no portion of the Real Property has suffered
any material damage by fire or other casualty that has not heretofore been
completely repaired and restored, except as, individually or in the aggregate,
has not had and could not reasonably be expected to have a Material Adverse
Effect on ASC.
(h) Section 4.25(h) of the ASC Disclosure Letter lists as of July 30, 2000,
all current material master plans, government and public-private plans (such as
municipal utility districts or levy improvement districts) and development
agreements concerning the Development Activities ("PROJECT PLANS"). ASC (or the
applicable ASC Subsidiary) is in compliance with all obligations required to be
performed on or prior to the date hereof under the Project Plans, except for
such non-compliance as is set forth in Section 4.25(h) of the ASC Disclosure
Letter or as except as, individually or in the aggregate, has not had and could
not reasonably be expected to have a Material Adverse Effect on ASC. ASC and the
ASC Subsidiaries are in possession of all ASC Permits necessary for the
completion of the Development Activities which are currently under construction,
except where the failure to have obtained such ASC Permits, individually or in
the aggregate, has not had and could not reasonably be expected to have a
Material Adverse Effect on ASC. ASC has no reason to believe that it will not be
able to obtain any other ASC Permit necessary for the performance and completion
of the Development Activities, except where the failure to obtain such ASC
Permits, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on ASC.
(i) Except as set forth in Section 4.25(i) of the ASC Disclosure Letter,
the land for each Development Activity at each Resort (as defined below) has
been zoned for its intended use in accordance with its Project Plan and
applicable law and all requirements for that zoning have been met pursuant to
any schedule established under such Project Plan, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on ASC. Except as set forth in Section 4.25(i) of the ASC
Disclosure Letter, the land for each Development Activity has been subdivided
for its intended use in accordance with its Project Plan and each subdivided
plot constitutes its own separate tax lot, except as, individually or in the
aggregate, has not had and could not reasonably be expected to have a Material
Adverse Effect on ASC. Except as set forth in Section 4.25(i) of the ASC
Disclosure Letter, all material archeological, soil, geotechnical, traffic,
environmental and similar studies necessary in connection with the Development
Activities have been completed and to the knowledge of ASC reveal no facts or
conditions which, individually or in the aggregate, have had or could reasonably
be expected to have a material adverse effect on the Development Activities.
(j) Except as set forth in Section 4.25(j) of the ASC Disclosure Letter, no
Governmental Entity or board has requested (and continues to request) or
required (or, to the knowledge of ASC, is expected to require in order to obtain
future approvals) that additional material public or quasi-public facilities be
constructed or material monies or property be contributed as a condition to the
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Development Activities or in connection with any Resort ("DEVELOPMENT FEES").
Except as set forth in Section 4.25(j) of the ASC Disclosure Letter, there are
no payments, material performance bonds, letters of credit or completion
guarantees for the benefit of any governmental agency which are currently
outstanding or which will be required to be funded within the next five years in
relation to the Development Activities.
(k) To the knowledge of ASC, Section 4.25(k) of the ASC Disclosure Letter
lists all material regulatory processes necessary to (i) complete the
Development Activities as contemplated under the Project Plans and (ii) bring
the Development Activities to full entitlement status.
(l) To the knowledge of ASC, Section 4.25(l) of the ASC Disclosure Letter
lists all material easements, rights-of-way and licenses which must be granted
to or obtained from third parties in order to complete those Development
Activities scheduled for completion within five years from the date of this
Agreement.
(m) Section 4.25(m) of the ASC Disclosure Letter sets forth the budget for
each Development Activity as to which construction has commenced, which budget
requirements are ASC's good faith estimate of all costs to be incurred in
connection with such construction. Except as set forth in Section 4.25(m) of the
ASC Disclosure Letter, there are sufficient loan proceeds available to ASC or
the ASC Subsidiaries under the Textron Facility and the ASC Subordinated Loan
Facility to complete such construction.
(n) ASC has made available to MeriStar or its representatives copies of the
ASC Leases, the Space Leases, the U.S. Forest Service Permits and the Project
Plans that are true, correct and complete in all material respects.
SECTION 4.26 CONDOMINIUM ASSOCIATIONS; TIME SHARE ARRANGEMENTS.
(a) Except as disclosed on Section 4.26(a) of the ASC Disclosure Letter,
ASC and the ASC Subsidiaries have complied in all material respects with
(i) the Interstate Land Sales Act and the applicable state land sales disclosure
acts; (ii) all applicable state condominium and time share statutes, rules, and
regulations, including those governing the administration and operation of
owners' associations and those requiring the registration of the timeshare
interests or quarter share interests in the Resorts ("INTERVALS") or the units
in the Resorts ("UNITS") in the states in which the Resorts are located,
marketed or sold; (iii) Section 5 of the Federal Trade Commission Act;
(iv) with respect to the Development Activities, the Americans with Disabilities
Act and the applicable state laws regarding same; (v) state and federal fair
housing acts (except for accessibility requirements); (vi) all applicable real
estate sales, licensing, disclosure, reporting, and escrow laws; and (vii) all
amendments to the rules and regulations promulgated under the foregoing, in each
case except as, individually or in the aggregate, has not had and could not
reasonably be expected to have a Material Adverse Effect on ASC.
(b) ASC and the ASC Subsidiaries market and sell Intervals and Units in a
manner such that prospective purchasers (the "PROSPECTIVE PURCHASERS") (i) are
not required to participate in any rental management program operated by ASC or
any ASC Subsidiary; (ii) are induced to purchase Intervals or Units for vacation
use and not as an investment or with an expectation of profit or capital
appreciation; (iii) have received no inducement or promise regarding the ability
of the Prospective Purchasers or anyone else to rent the Intervals or Units;
(iv) are informed upon their inquiry that there are readily available rental
management sources other than ASC or any ASC Subsidiary, in each case, except
as, individually or in the aggregate, has not had and could not reasonably be
expected to have a Material Adverse Effect on ASC.
(c) Except as set forth in Section 4.26(c) of the ASC Disclosure Letter, to
the knowledge of ASC, there exist no facts giving rise to any right of consumer
rescission with regard to any contract to sell or
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closed sale of any Interval or Unit, whether because of non-compliance with one
or more state or federal statutes creating rescission rights in consumers under
specified circumstances, or because of specific facts constituting
misrepresentation or fraud with respect to any Prospective Purchaser, in each
case, except as, individually or in the aggregate, has not had and could not
reasonably be expected to have a Material Adverse Effect on ASC.
(d) Except as set forth in Section 4.26(d) of the ASC Disclosure Letter,
there exists no Encumbrance against any Unit or Interval or all or any portion
of any Resort (including recreational activities located within such Resort),
except for Encumbrances (i) that have been fully subordinated to the rights of
Prospective Purchasers, (ii) will be discharged prior to delivery of title to
Prospective Purchasers or (iii) that have been fully disclosed to Prospective
Purchasers in any jurisdiction that permits or requires only disclosure of same
or (iv) were imposed by Prospective Purchasers, in each case, except as,
individually or in the aggregate, has not had and could not reasonably be
expected to have a Material Adverse Effect on ASC.
(e) For purposes of this section, the term "Resorts" shall mean (i) the
Grand Summit Hotels at the following locations: (1) Steamboat, Colorado;
(2) The Canyons, Utah; (3) Killington, Vermont; (4) Mount Snow, Vermont;
(5) Attitash/Bear Peak, New Hampshire; (6) Jordan Bowl, Maine; and
(7) Heavenly, California; (ii) the Sundial Lodge at The Canyons and
(iii) Whisper Ridge at The Canyons.
(f) All Units, amenities and recreational facilities within the Resorts
that were promised to be available for use by Prospective Purchasers were in all
material respects complete and available for legal occupancy or use prior to the
time that closing of any contracts were completed for any Intervals or Units
except as have not had and could not reasonably be expected to have a Material
Adverse Effect on ASC. Each Purchaser has dedicated free and clear access to the
use of all amenities and recreational facilities in accordance with the Resort
Documents.
(g) To the knowledge of ASC, all owners' associations and management
companies at the Resorts are in compliance in all material respects with all
applicable federal, state and local statutes, ordinances, rules, and regulations
requiring the full and timely payment in all material respects of all common
expenses and real estate taxes attributable to the Resorts except as have not
had and would not reasonably be expected to have a Material Adverse Effect on
ASC.
(h) (i) All utilities, including sewer, water, gas, electricity, steam and
telephone, necessary for the operation of the Resorts are currently available
and in place in sufficient capacity at the Resorts to allow the immediate and
full operation in all material respects of the Resorts with the exception of the
Resorts currently under construction or where construction has not yet
commenced; (ii) to the knowledge of ASC, there are no pending or threatened
moratoria, injunctions or court orders in effect which would be reasonably
likely to interfere with the provision of utilities to the Resorts; and
(iii) all easements necessary for the furnishing of the utilities have been
obtained and duly recorded with the exception of the Resorts currently under
construction, in each case, except as, individually or in the aggregate, has not
had and could not reasonably be expected to have a Material Adverse Effect on
ASC.
(i) To the Knowledge of ASC, each homeowners' association for each Resort
which is operating has been validly formed as a non-profit corporation and is in
good standing in the state in which it is incorporated except as has not had,
and would not reasonably be expected to have, a Material Adverse Effect on ASC.
(j) The managing entity for the Resorts ("MANAGING ENTITY") has the
authority to levy annual assessments to cover the costs of maintaining and
operating each Resort. Each Managing Entity is solvent, and currently levied
assessments on Purchasers are adequate to cover the costs of maintaining and
operating the Resort and to establish and maintain a reasonable reserve for
deferred maintenance
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and capital improvements. There are no events which currently exist or could
reasonably be foreseen by ASC which could give rise to a material increase in
such costs. ASC has paid all developer subsidies in connection with the Resorts
owing as of the Effective Date, including annual maintenance fees relating to
the Units, any operating expenses relating to the Resort's clubhouse and
amenities, and any amounts which ASC should, or is obligated to, contribute to
the reserves of the Resort's condominium association (collectively "SUBSIDIES").
SECTION 4.27 NO PAYMENTS TO EMPLOYEES, OFFICERS OR DIRECTORS. Except as
set forth in Section 4.27 of the ASC Disclosure Letter, there are no cash or
non-cash payments that will become payable to any employee, officer or director
of ASC or any ASC Subsidiary as a result of the Merger or the transactions
contemplated by this Agreement. Except as otherwise provided for in this
Agreement or as set forth in Section 4.27 of the ASC Disclosure Letter, there is
no employment or severance contract or other agreement requiring payments,
cancellation of indebtedness or other obligation to be made as a result of the
consummation of any of the transactions contemplated by this Agreement, with
respect to any employee, officer or director of ASC or any ASC Subsidiary.
SECTION 4.28 POTENTIAL CONFLICTS OF INTEREST. Except as set forth in
Section 4.28 of the ASC Disclosure Letter or in the ASC SEC Reports, to the
knowledge of ASC, no officer, director or affiliate of ASC or any ASC
Subsidiary, and no relative or spouse of any such officer, director or
affiliate: (a) owns, directly or indirectly, any interest in (excepting less
than 1% stock holdings for investment purposes in securities of publicly held
and traded companies), or is an officer, director, employee or consultant of,
any person that is, or is engaged in business as, a competitor, lessor, lessee,
supplier, distributor, sales agent or customer of, or lender to or borrower
from, ASC or any of the ASC Subsidiaries; (b) owns, directly or indirectly, in
whole or in part, any material tangible or intangible property that ASC or any
of the ASC Subsidiaries uses in the ordinary conduct of its business; or
(c) has any cause of action or other claim whatsoever against, or owes any
amount to, ASC or any of the ASC Subsidiaries, except for claims in the ordinary
course of business such as for accrued vacation pay, accrued benefits under the
ASC Benefit Plans, and similar matters and agreements arising in the ordinary
course of business.
SECTION 4.29 REGISTRATION RIGHTS. Except as set forth in Section 4.29 of
the ASC Disclosure Letter, no person has any right to require the registration
of any shares of ASC Common Stock or any other securities of ASC or any ASC
Subsidiary.
SECTION 4.30 INVESTMENT COMPANY ACT OF 1940. Neither ASC nor any of the
ASC Subsidiaries is, or at the Effective Time will be, required to be registered
under the 1940 Act.
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ARTICLE V
COVENANTS
SECTION 5.1 CONDUCT OF BUSINESS OF MERISTAR. During the period from the
date of this Agreement to the Effective Time, except as set forth in
Section 5.1 of the MeriStar Disclosure Letter, unless otherwise consented to in
writing by either ASC or the Interim Transactions Committee: (a) MeriStar shall,
and shall cause each of the MeriStar Subsidiaries to, conduct its operations
only in the ordinary course of business consistent with past practice and, to
the extent consistent therewith, with no less diligence and effort than would be
applied in the absence of this Agreement; and (b) MeriStar shall use, and shall
cause each MeriStar Subsidiary to use, its reasonable best efforts to preserve
intact the business organization of MeriStar and each of the MeriStar
Subsidiaries, to keep available the services of the present officers and other
key employees of MeriStar and the MeriStar Subsidiaries, and to preserve the
good will of customers, suppliers and all other persons having business
relationships with MeriStar and the MeriStar Subsidiaries. Without limiting the
generality of the foregoing, during such period, except as set forth in
Section 5.1 of the MeriStar Disclosure Letter, MeriStar shall not, and shall not
permit any MeriStar Subsidiary to, without the prior written consent of either
ASC or the Interim Transactions Committee:
(a) except as required by applicable Law or to effect the transactions
contemplated hereby, adopt any amendment to the certificate of incorporation
or bylaws of MeriStar or the comparable organizational documents of any
MeriStar Subsidiary or the MeriStar Rights Agreement;
(b) except for issuances of capital stock of the MeriStar Subsidiaries
to MeriStar or a wholly-owned MeriStar Subsidiary or in any circumstance of
the type described in clause (e) below, issue, reissue, sell or pledge, or
authorize the issuance, reissuance, sale or pledge of (i) additional shares
of capital stock or other equity securities of any class, or securities
convertible into capital stock or other equity securities or any rights,
warrants or options to acquire any such convertible securities or capital
stock or other equity securities, other than the issue of MeriStar Common
Stock (and the related MeriStar Shareholder Rights), in accordance with the
terms of the instruments governing such issuance on the date hereof,
pursuant to the exercise of MeriStar Stock Options or the MeriStar Employee
Stock Purchase Plan outstanding on the date hereof, or (ii) any other
securities in respect of, in lieu of, or in substitution for, MeriStar
Common Stock outstanding on the date hereof;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in
respect of any class or series of its capital stock other than between
MeriStar and any wholly-owned MeriStar Subsidiary;
(d) directly or indirectly, split, combine, subdivide, reclassify or
redeem, retire, purchase or otherwise acquire, or propose to redeem, retire
or purchase or otherwise acquire, any shares of its capital stock, or any of
its other securities;
(e) except for increases in salary, wages and benefits of officers or
employees of MeriStar or the MeriStar Subsidiaries in accordance with past
practice or increases in salary, wages and benefits granted to officers and
employees of MeriStar or the MeriStar Subsidiaries in conjunction with new
hires, promotions or other changes in job status or increases in salary,
wages and benefits to employees of MeriStar or the MeriStar Subsidiaries
pursuant to collective bargaining agreements entered into in the ordinary
course of business, (i) increase the compensation or fringe benefits payable
or to become payable to its directors, officers or employees (whether from
MeriStar or any MeriStar Subsidiaries), (ii) pay any benefit not required by
any existing plan or arrangement (including the granting of stock options,
stock appreciation rights, shares of restricted stock or performance units)
or grant any severance or termination pay to (except pursuant to existing
agreements, plans or policies), or enter into any employment or severance
agreement with, any director, officer or other employee of MeriStar or any
MeriStar Subsidiaries or (iii) establish,
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adopt, enter into, amend or take any action to accelerate rights under any
collective bargaining, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, savings, welfare, deferred
compensation, employment, termination, severance or other employee benefit
plan, agreement, trust, fund, policy or arrangement for the benefit or
welfare of any directors, officers or current or former employees, except in
each case to the extent required by applicable Law; PROVIDED, HOWEVER, that
nothing in this Agreement will be deemed to prohibit the payment of benefits
as they become payable;
(f) acquire, sell, lease, license, transfer, pledge, encumber, grant or
dispose of (whether by merger, consolidation, purchase, sale or otherwise)
any assets, including capital stock of the MeriStar Subsidiaries (other than
the acquisition and sale of inventory or the disposition of used or excess
equipment and the purchase of raw materials, supplies and equipment, in
either case in the ordinary course of business consistent with past
practice), that are material to MeriStar and the MeriStar Subsidiaries,
taken as a whole, or enter into any material commitment or transaction
outside the ordinary course of business, other than transactions between a
wholly-owned MeriStar Subsidiary and MeriStar or another wholly-owned
MeriStar Subsidiary;
(g) (i) incur, assume or prepay any long-term indebtedness or incur or
assume any short-term indebtedness (including, in either case, by issuance
of debt securities), except that MeriStar and the MeriStar Subsidiaries may
incur, assume or prepay indebtedness in the ordinary course of business
consistent with past practice under existing lines of credit, (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person
except in the ordinary course of business consistent with past practice, or
(iii) make any loans, advances or capital contributions to, or investments
in, any other person except in the ordinary course of business consistent
with past practice and except for loans, advances, capital contributions or
investments between any wholly-owned MeriStar Subsidiary and MeriStar or
another wholly-owned MeriStar Subsidiary;
(h) terminate, cancel or request any material change in, or agree to
any material change in any Contract, permit or license which is material to
MeriStar and the MeriStar Subsidiaries taken as a whole, or enter into any
Contract which would be material to MeriStar and the MeriStar Subsidiaries
taken as a whole, in either case other than in the ordinary course of
business consistent with past practice; or make or authorize any capital
expenditure, other than capital expenditures that are not, in the aggregate,
for any fiscal year, in excess of 10% of the capital expenditures provided
for in MeriStar's budget for MeriStar and the MeriStar Subsidiaries taken as
a whole for such fiscal year (a copy of which budget has been provided to
ASC);
(i) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practice or as required pursuant to applicable Law or GAAP;
(j) waive, release, assign, settle or compromise any rights, claims or
litigation other than in the ordinary course of business consistent with
past practice in excess of $100,000 per event;
(k) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) other
than in the ordinary course of business consistent with past practice in
excess of $100,000 per event;
(l) enter into any agreement or arrangement that materially limits or
otherwise restricts MeriStar or any MeriStar Subsidiary or any successor
thereto, or that would, after the Effective Time, limit or restrict the
Surviving Corporation and its affiliates (including ASC) or any successor
thereto, from engaging or competing in any line of business or in any
geographic area, other than in the ordinary course of business consistent
with past practice;
(m) make any material Tax election or settle or compromise any material
federal, state, local or foreign Tax deficiency; or
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(n) authorize or enter into any formal or informal written or other
agreement or otherwise make any commitment to do any of the foregoing.
SECTION 5.2 CONDUCT OF BUSINESS OF ASC. During the period from the date of
this Agreement to the Effective Time, except as set forth in Section 5.2 of the
ASC Disclosure Letter, unless otherwise consented to in writing by either
MeriStar or the Interim Transactions Committee: (a) ASC shall, and shall cause
each of the ASC Subsidiaries to, conduct its operations only in the ordinary
course of business consistent with past practice and, to the extent consistent
therewith, with no less diligence and effort then would be applied in the
absence of this Agreement; and (b) ASC shall use, and shall cause each ASC
Subsidiary to use, its reasonable best efforts to preserve intact the business
organization of ASC and each of the ASC Subsidiaries, to keep available the
services of the present officers and key employees of ASC and the ASC
Subsidiaries, and to preserve the good will of customers, suppliers and all
other persons having business relationships with ASC and the ASC Subsidiaries.
Without limiting the generality of the foregoing, during such period and except
as set forth in Section 5.2 of the ASC Disclosure Letter, ASC shall not, and
shall not permit any ASC Subsidiary to, without the prior written consent of
MeriStar or the Interim Transactions Committee:
(a) except as required by applicable Law, this Agreement and by the ASC
Voting/ Recapitalization Agreement, adopt any amendment to the certificate
of incorporation or bylaws of ASC or the comparable organizational documents
of any ASC Subsidiary;
(b) except for the transactions contemplated hereby and by the ASC
Voting/Recapitalization Agreement and except for issuances of capital stock
of the ASC Subsidiaries to ASC or a wholly-owned ASC Subsidiary, or in any
circumstance of the type described in clause (e) below, issue, reissue, sell
or pledge, or authorize the issuance, reissuance, sale or pledge of
(i) additional shares of capital stock or other equity securities of any
class, or securities convertible into capital stock or other equity
securities or any rights, warrants or options to acquire any such
convertible securities or capital stock or other equity securities, other
than the issue of ASC Common Stock, in accordance with the terms of the
instruments governing such issuance on the date hereof, pursuant to the
exercise of ASC Stock Options outstanding on the date hereof, or (ii) any
other securities in respect of, in lieu of, or in substitution for, ASC
Common Stock outstanding on the date hereof;
(c) declare, set aside, make or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in
respect of any class or series of its capital stock other than between ASC
and any wholly-owned ASC Subsidiary;
(d) directly or indirectly, split, combine, subdivide, reclassify or
redeem, retire, purchase or otherwise acquire, or propose to redeem, retire
or purchase or otherwise acquire, any shares of its capital stock, or any of
its other securities;
(e) except for increases in salary, wages and benefits of officers or
employees of ASC or the ASC Subsidiaries in accordance with past practice or
increases in salary, wages and benefits granted to officers and employees of
ASC or the ASC Subsidiaries in conjunction with new hires, promotions or
other changes in job status or increases in salary, wages and benefits to
employees of ASC or the ASC Subsidiaries pursuant to collective bargaining
agreements entered into in the ordinary course of business, (i) increase the
compensation or fringe benefits payable or to become payable to its
directors, officers or employees (whether from ASC or any ASC Subsidiaries),
(ii) pay any benefit not required by any existing plan or arrangement
(including the granting of stock options, stock appreciation rights, shares
of restricted stock or performance units) or grant any severance or
termination pay to (except pursuant to existing agreements, plans or
policies), or enter into any employment or severance agreement with, any
director, officer or other employee of ASC or any ASC Subsidiaries or
(iii) establish, adopt, enter into, amend or take any action to accelerate
rights under any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, savings,
welfare, deferred compensation, employment, termination, severance or other
employee benefit plan, agreement, trust, fund, policy or
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arrangement for the benefit or welfare of any directors, officers or current
or former employees, except in each case to the extent required by
applicable Law; PROVIDED, HOWEVER, that nothing in this Agreement will be
deemed to prohibit the payment of benefits as they become payable;
(f) acquire, sell, lease, license, transfer, pledge, encumber, grant or
dispose of (whether by merger, consolidation, purchase, sale or otherwise)
any assets, including capital stock of the ASC Subsidiaries (other than the
acquisition and sale of inventory or the disposition of used or excess
equipment and the purchase of raw materials, supplies and equipment, in
either case in the ordinary course of business consistent with past
practice), that are material to ASC and the ASC Subsidiaries, taken as a
whole, or enter into any material commitment or transaction outside the
ordinary course of business, other than transactions between a wholly-owned
ASC Subsidiary and ASC or another wholly-owned ASC Subsidiary;
(g) (i) incur, assume or prepay any long-term indebtedness or incur or
assume any short-term indebtedness (including, in either case, by issuance
of debt securities), except that ASC and the ASC Subsidiaries may incur,
assume or prepay indebtedness in the ordinary course of business consistent
with past practice under existing lines of credit, (ii) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person except in
the ordinary course of business consistent with past practice, or
(iii) make any loans, advances or capital contributions to, or investments
in, any other person except in the ordinary course of business consistent
with past practice and except for loans, advances, capital contributions or
investments between any wholly-owned ASC Subsidiary and ASC or another
wholly-owned ASC Subsidiary;
(h) terminate, cancel or request any material change in, or agree to
any material change in any Contract, permit or license which is material to
ASC and the ASC Subsidiaries taken as a whole, or enter into any Contract
which would be material to ASC and the ASC Subsidiaries taken as a whole, in
either case other than in the ordinary course of business consistent with
past practice; or make or authorize any capital expenditure, other than
capital expenditures that are not, in the aggregate, for any fiscal year, in
excess of 10% of the capital expenditures provided for in ASC's budget for
ASC and the ASC Subsidiaries taken as a whole for such fiscal year (a copy
of which budget has been provided to ASC);
(i) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business and consistent with
past practice or as required pursuant to applicable Law or GAAP;
(j) waive, release, assign, settle or compromise any rights, claims or
litigation other than in the ordinary course of business consistent with
past practice in excess of $100,000 per event;
(k) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) other
than in the ordinary course of business consistent with past practice in
excess of $100,000 per event;
(l) enter into any agreement or arrangement that materially limits or
otherwise restricts ASC or any ASC Subsidiary or any successor thereto, or
that would, after the Effective Time, limit or restrict the Surviving
Corporation and its affiliates (including ASC) or any successor thereto,
from engaging or competing in any line of business or in any geographic
area, other than in the ordinary course of business consistent with past
practice;
(m) make any material Tax election or settle or compromise any material
federal, state, local or foreign Tax deficiency; or
(n) authorize or enter into any formal or informal written or other
agreement or otherwise make any commitment to do any of the foregoing.
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SECTION 5.3 INTERIM TRANSACTIONS COMMITTEE. Immediately following
satisfaction of the condition listed in Section 6.1(c), MeriStar and ASC shall
constitute and establish a committee, which will evaluate and consider any
proposed action or transaction of the type referred to in Sections 5.1 or 5.2 of
this Agreement or the settlement of any stockholder derivative or class action
claims arising out of or in connection with any of the transactions contemplated
by this Agreement between the date hereof and the Effective Time (the "INTERIM
TRANSACTIONS COMMITTEE"). The Interim Transactions Committee will consist of two
individuals selected by ASC, who are reasonably acceptable to MeriStar, and two
individuals selected by MeriStar, who are reasonably acceptable to ASC. The
Interim Transactions Committee shall act only by the affirmative vote of at
least three of the four members thereof. The Interim Transactions Committee
shall be abolished at the Effective Time.
SECTION 5.4 NOTIFICATION OF CERTAIN MATTERS. ASC and MeriStar shall
promptly notify each other of (a) the occurrence or non-occurrence of any fact
or event which could reasonably be expected (i) to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date of this Agreement to the Effective Time,
(ii) to cause any material covenant, condition or agreement hereunder not to be
complied with or satisfied in all material respects or (iii) to result in, in
the case of ASC, a Material Adverse Effect on ASC or, in the case of MeriStar, a
Material Adverse Effect on MeriStar, (b) any failure of MeriStar or ASC, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder in any material respect; PROVIDED,
HOWEVER, that no such notification shall affect the representations or
warranties of any party or the conditions to the obligations of any party
hereunder, (c) any notice or other material communications from any Governmental
Entity in connection with the transactions contemplated by this Agreement and
(d) the commencement of any suit, action or proceeding that seeks to prevent,
seeks damages in respect of, or otherwise relates to the consummation of the
transactions contemplated by this Agreement.
SECTION 5.5 PROXY STATEMENT.
(a) As promptly as practicable after the execution of this Agreement, ASC
and MeriStar shall jointly prepare and file with the SEC a single document that
will constitute (i) the proxy statement of MeriStar relating to the special
meeting of MeriStar's stockholders (the "MERISTAR STOCKHOLDERS MEETING") to be
held to consider approval and adoption of the MeriStar Proposals, (ii) the proxy
statement of ASC relating to the special meeting of ASC's stockholders (the "ASC
STOCKHOLDERS MEETING") to be held to consider approval of the ASC Proposals and
(iii) the registration statement on Form S-4 of ASC (together with all
amendments thereto, the "REGISTRATION STATEMENT"), in connection with the
registration under the Securities Act of ASC Common Stock to be issued to the
stockholders of MeriStar in connection with the Merger and the prospectus
included in the Registration Statement (such single document, together with any
amendments thereof or supplements thereto, the "PROXY STATEMENT"). Substantially
contemporaneously with the filing of the Proxy Statement with the SEC, copies of
the Proxy Statement shall be provided to the NYSE. ASC and MeriStar each shall
use its reasonable best efforts to cause the Registration Statement to become
effective as promptly as practicable, and, prior to the effective date of the
Registration Statement (the "REGISTRATION STATEMENT EFFECTIVE DATE"), ASC shall
take all or any reasonable action required under any applicable Law in
connection with the issuance of ASC Common Stock pursuant to the Merger. ASC or
MeriStar, as the case may be, shall furnish all information concerning ASC or
MeriStar as the other party may reasonably request in connection with such
actions and the preparation of the Proxy Statement. As promptly as practicable
after the Registration Statement Effective Date, the Proxy Statement and all
associated materials (collectively, the "PROXY MATERIALS") will be mailed to the
stockholders of ASC and MeriStar. ASC and MeriStar shall cause the Proxy
Statement to comply as to form and substance in all material respects with the
applicable requirements of (i) the Exchange Act, including Sections 14(a) and
14(d) thereof, (ii) the Securities Act, (iii) the rules and regulations of the
NYSE and (iv) the DGCL.
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(b) (i) The Proxy Statement shall include the unanimous and unconditional
recommendation of the Board of Directors of MeriStar to the stockholders of
MeriStar that they vote in favor of the adoption of this Agreement and the
Merger; PROVIDED, HOWEVER, that the Board of Directors of MeriStar may, at any
time prior to the Effective Time, withdraw, modify or change any such
recommendation if the Board of Directors of MeriStar determines in good faith
that failure to so withdraw, modify or change its recommendation would cause the
Board of Directors of MeriStar to breach its fiduciary duties to MeriStar's
stockholders under applicable Laws after receipt of advice from its outside
advisors (which may be MeriStar's regularly-engaged independent legal counsel).
In addition, the Proxy Statement and the Proxy Materials will include a copy of
the written opinion of the MeriStar Financial Advisor referred to in
Section 3.20.
(ii) The Proxy Statement shall include the unanimous and unconditional
recommendation of the Board of Directors of ASC to the stockholders of ASC that
they vote in favor of the issuance of ASC Common Stock to be issued in the
Merger; PROVIDED, HOWEVER, that the Board of Directors of ASC may, at any time
prior to the Effective Time, withdraw, modify or change any such recommendation
if the Board of Directors of ASC determines in good faith that failure to so
withdraw, modify or change its recommendation would cause the Board of Directors
of ASC to breach its fiduciary duties to ASC's stockholders under applicable
Laws after receipt of advice from its outside advisors (which may be ASC's
independent legal counsel). In addition, the Proxy Statement and the Proxy
Materials will include a copy of the written opinion of the ASC Financial
Advisor referred to in Section 4.19.
(c) No amendment or supplement to the Proxy Statement shall be made without
the approval of each of ASC and MeriStar, which approval shall not be
unreasonably withheld or delayed. Each of ASC and MeriStar shall advise the
other, promptly after it receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed, of the issuance of any stop order, of the suspension of the
qualification of ASC Common Stock issuable in connection with the Merger for
offering or sale in any jurisdiction, or of any request by the SEC or the NYSE
for amendment of the Proxy Statement or comments thereon and responses thereto
or requests by the SEC for additional information.
(d) The information supplied by MeriStar for inclusion in the Proxy
Statement shall not, at (i) the time the Registration Statement is declared
effective, (ii) the time the Proxy Materials (or any amendment of or supplement
to the Proxy Materials) is first mailed to the stockholders of each of ASC and
MeriStar, (iii) the time of MeriStar Stockholders Meeting, and (iv) the time of
ASC Stockholders Meeting, contain any untrue statement of a material fact or
fail to state any material fact required to be stated in the Proxy Statement or
necessary in order to make the statements in the Proxy Statement not misleading.
If at any time prior to the Effective Time any event or circumstance relating to
MeriStar or any MeriStar Subsidiary, or their respective officers or directors,
should be discovered by MeriStar that should be set forth in an amendment or a
supplement to the Proxy Statement, MeriStar shall promptly inform ASC. All
documents that MeriStar is responsible for filing with the SEC in connection
with the transactions contemplated by this Agreement shall comply as to form and
substance in all material respects with the applicable requirements of the DGCL,
the Securities Act and the Exchange Act.
(e) The information supplied by ASC for inclusion in the Proxy Statement
shall not, at (i) the time the Registration Statement is declared effective,
(ii) the time the Proxy Materials (or any amendment of or supplement to the
Proxy Materials) are first mailed to the stockholders of each of ASC and
MeriStar, (iii) the time of the MeriStar Stockholders Meeting, and (iv) the time
of the ASC Stockholders Meeting, contain any untrue statement of a material fact
or fail to state any material fact required to be stated in the Proxy Statement
or necessary in order to make the statements in the Proxy Statement not
misleading. If, at any time prior to the Effective Time, any event or
circumstance relating to ASC or any ASC Subsidiary, or their respective officers
or directors, should be discovered by ASC that should be set forth in an
amendment or a supplement to the Proxy Statement, ASC shall promptly inform
MeriStar. All documents that ASC is responsible for filing in connection with
the transactions contemplated by this Agreement shall comply as to form and
substance in all material aspects with the applicable requirements of the DGCL,
the Securities Act and the Exchange Act.
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SECTION 5.6 STOCKHOLDERS' MEETINGS.
(a) MeriStar shall call and hold the MeriStar Stockholders Meeting as
promptly as practicable after the Registration Statement Effective Date for the
purpose of voting upon the adoption of this Agreement, and ASC and MeriStar
shall cooperate with each other to cause the MeriStar Stockholders Meeting to be
held as soon as practicable following the mailing of the Proxy Materials to the
stockholders of MeriStar. MeriStar shall use its reasonable best efforts
(through its agents or otherwise) to solicit from its stockholders proxies in
favor of the MeriStar Proposals and shall take all other action necessary or
advisable to secure the Requisite MeriStar Vote, except to the extent that the
Board of Directors of MeriStar determines in good faith that doing so would
cause the Board of Directors of MeriStar to breach its fiduciary duties to
MeriStar's stockholders under applicable Law, after receipt of advice to such
effect from independent legal counsel (which may be MeriStar's regularly engaged
independent legal counsel).
(b) ASC shall call and hold the ASC Stockholders Meeting as promptly as
practicable after the Registration Statement Effective Date for the purpose of
voting upon the approval of the issuance of ASC Common Stock to be issued in the
Merger, and ASC and MeriStar shall cooperate with each other to cause the ASC
Stockholders Meeting to be held as soon as practicable following the mailing of
the Proxy Materials to the stockholders of ASC. ASC shall use its reasonable
best efforts (through its agents or otherwise) to solicit from its stockholders
proxies in favor of the ASC Proposals and shall take all other action necessary
or advisable to secure the Requisite ASC Vote, except to the extent that the
Board of Directors of ASC determines in good faith that doing so would cause the
Board of Directors of ASC to breach its fiduciary duties to ASC's stockholders
under applicable Law, after receipt of advice to such effect from independent
legal counsel (which may be ASC's regularly engaged independent legal counsel).
SECTION 5.7 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Except as required under any confidentiality agreement or similar
agreement or arrangement to which ASC or MeriStar or any of their respective
subsidiaries is a party or under applicable Law or the regulations or
requirements of any securities exchange or quotation service or other self
regulatory organization with whose rules the parties are required to comply,
from the date of this Agreement to the Effective Time, ASC and MeriStar shall
(and shall cause their respective subsidiaries to): (i) provide to the other
(and its officers, directors, employees, accountants, consultants, legal
counsel, financial advisors, investment bankers, agents and other
representatives (collectively, "REPRESENTATIVES")) access at reasonable times
upon prior notice to the officers, employees, agents, properties, offices and
other facilities of the other and its subsidiaries and to the books and records
thereof; and (ii) furnish promptly such information concerning the business,
properties, Contracts, assets, liabilities, personnel and other aspects of the
other party and its subsidiaries as the other party or its Representatives may
reasonably request. No investigation conducted under this Section 5.7 shall
affect or be deemed to modify any representation or warranty made in this
Agreement.
(b) The parties shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement, dated August 11, 2000 (the "CONFIDENTIALITY
AGREEMENT"), between ASC and MeriStar with respect to the information disclosed
under this Section 5.7, and this Section 5.7(b) shall survive the termination of
this Agreement.
SECTION 5.8 NO SOLICITATION BY MERISTAR.
(a) MeriStar shall not, nor shall it permit any of the MeriStar
Subsidiaries to, nor shall it authorize or permit any Representative of MeriStar
or any of the MeriStar Subsidiaries to, (i) solicit, initiate, or encourage the
submission of, any MeriStar Acquisition Proposal (as defined below),
(ii) except to the extent permitted by paragraph (b), enter into any agreement
with respect to any
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MeriStar Acquisition Proposal or, (iii) participate in any discussions or
negotiations regarding, or furnish to any person any non-public information with
respect to MeriStar or the MeriStar Subsidiaries, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any MeriStar Acquisition Proposal; PROVIDED,
HOWEVER, that prior to the MeriStar Stockholders Meeting, to the extent required
by the duties of the Board of Directors of MeriStar under applicable Law, as
determined in good faith by a majority of the disinterested members thereof
after consultation with and receipt of advice from outside counsel (which may be
MeriStar's regularly engaged independent legal counsel), MeriStar may, in
response to unsolicited requests therefor, participate in discussions or
negotiations with, or furnish information pursuant to an appropriate
confidentiality agreement to, any person or entity that makes or expresses a
bona fide intention to make an unsolicited MeriStar Acquisition Proposal,
provided that the Board of Directors of MeriStar first determines in good faith,
based on the vote of a majority of the disinterested members thereof, that such
Person or entity has the ability and financial wherewithal to consummate a
MeriStar Superior Proposal (as determined below). Without limiting the
foregoing, it is understood that any violation of the restrictions set forth in
the preceding sentence by a Representative of MeriStar or of any of the MeriStar
Subsidiaries, whether or not such person is purporting to act on behalf of
MeriStar, a MeriStar Subsidiary or otherwise, shall be deemed to be a breach of
this paragraph by MeriStar. For all purposes of this Agreement, "MERISTAR
ACQUISITION PROPOSAL" means any proposal other than a proposal by ASC or an ASC
Subsidiary, for a merger, consolidation, share exchange, business combination or
other similar transaction involving MeriStar or any of its significant
subsidiaries or any proposal or offer (including, without limitation, any
proposal or offer to stockholders of MeriStar), other than a proposal or offer
by ASC or an ASC Subsidiary, to acquire in any manner, directly or indirectly,
more than a 30% equity interest in any voting securities of, or 30% or more of
the consolidated assets of MeriStar. MeriStar immediately shall cease and cause
to be terminated all existing discussions or negotiations with any persons
conducted heretofore with respect to, or that could reasonably be expected to
lead to, any MeriStar Acquisition Proposal.
(b) Except as permitted by Section 5.5(b)(i), neither the Board of
Directors or MeriStar nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to ASC, the approval
or recommendation of the Board of Directors of MeriStar, or any committee
thereof, of this Agreement or the Merger or (ii) approve or recommend, or
propose to approve or recommend, any MeriStar Acquisition Proposal.
Notwithstanding the foregoing, the Board of Directors of MeriStar, to the extent
required by the duties of the Board of Directors of MeriStar under applicable
Law, as determined in good faith by a majority of the disinterested members
thereof after consultation with and receipt of advice from outside counsel
(which may be MeriStar's regularly engaged independent legal counsel), may
approve or recommend (and, in connection therewith, withdraw or modify its
approval or recommendation of this Agreement or the Merger) a MeriStar Superior
Proposal (as defined below). For purposes of this Agreement, a "MERISTAR
SUPERIOR PROPOSAL" means a bona fide written proposal made by a third party to
acquire MeriStar pursuant to a tender or exchange offer, a merger, a share
exchange, a sale of all or substantially all of its assets or otherwise, in any
such case, on terms which a majority of the disinterested members of the Board
of Directors of MeriStar determines in their good faith judgment (after
consultation with nationally-recognized independent financial advisors) and
after taking into account all legal, financial, regulatory and other material
aspects of such proposal, the person making the proposal, the strategic benefits
to be derived from the Merger and the long-term prospects of ASC and the ASC
Subsidiaries to be more favorable to MeriStar and its stockholders than the
Merger and for which financing, to the extent required, is then fully committed
or which, in the good faith judgment of a majority of such disinterested members
(after consultation with independent financial advisors), is reasonably capable
of being financed by such third party.
(c) MeriStar shall promptly advise ASC orally and in writing of any
MeriStar Acquisition Proposal or any inquiry with respect to or which could
reasonably be expected to lead to any MeriStar
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Acquisition Proposal, the material terms and conditions of such MeriStar
Acquisition Proposal or inquiry and the identity of the person making any such
MeriStar Acquisition Proposal or inquiry. MeriStar shall keep ASC fully informed
of the status and details of any such MeriStar Acquisition Proposal or inquiry.
MeriStar shall give ASC at least three days' advance notice of any information
to be supplied to, and at least five days' advance notice of any agreement to be
entered into with, any person making a MeriStar Acquisition Proposal.
(d) Nothing contained in this Section 5.8 will prohibit MeriStar from
taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act or from making any disclosure
to MeriStar's stockholders if the Board of Directors of MeriStar determines that
such disclosure is necessary in order to comply with the Board of Directors of
MeriStar's duties under applicable Law.
SECTION 5.9 NO SOLICITATION BY ASC.
(a) ASC shall not, nor shall it permit any of the ASC Subsidiaries to, nor
shall it authorize or permit any Representative of ASC or any of the ASC
Subsidiaries to, (i) solicit, initiate, or encourage the submission of, any ASC
Acquisition Proposal (as defined below), (ii) except to the extent permitted by
paragraph (b), enter into any agreement with respect to any ASC Acquisition
Proposal, or, (iii) participate in any discussions or negotiations regarding, or
furnish to any person any non-public information with respect to ASC or the ASC
Subsidiaries, or take any other action to facilitate any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to, any
ASC Acquisition Proposal; PROVIDED, HOWEVER, that prior to the ASC Stockholders
Meeting, to the extent required by the duties of the Board of Directors of ASC
under applicable Law, as determined in good faith by a majority of the
disinterested members thereof after consultation with and receipt of advice from
outside counsel (which may be ASC's regularly engaged independent legal
counsel), ASC may, in response to unsolicited requests therefor, participate in
discussions or negotiations with, or furnish information pursuant to an
appropriate confidentiality agreement to, any person or entity that makes or
expresses a bona fide intention to make an unsolicited ASC Acquisition Proposal,
provided that the Board of Directors of ASC first determines in good faith,
based on the vote of a majority of the disinterested members thereof, that such
Person or entity has the ability and financial wherewithal to consummate an ASC
Superior Proposal (as determined below). Without limiting the foregoing, it is
understood that any violation of the restrictions set forth in the preceding
sentence by a Representative of ASC or of any of the ASC Subsidiaries, whether
or not such person is purporting to act on behalf of ASC, an ASC Subsidiary or
otherwise, shall be deemed to be a breach of this paragraph by ASC. For all
purposes of this Agreement, "ASC ACQUISITION PROPOSAL" means any proposal other
than a proposal by MeriStar or a MeriStar Subsidiary, for a merger,
consolidation, share exchange, business combination or other similar transaction
involving ASC or any of its significant subsidiaries or any proposal or offer
(including, without limitation, any proposal or offer to stockholders of ASC),
other than a proposal or offer by MeriStar or a MeriStar Subsidiary, to acquire
in any manner, directly or indirectly, more than a 30% equity interest in any
voting securities of, or 30% or more of the consolidated assets of ASC. ASC
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any persons conducted heretofore with respect to, or that
could reasonably be expected to lead to, any ASC Acquisition Proposal.
(b) Except as permitted by Section 5.5(b)(ii), neither the Board of
Directors of ASC nor any subcommittee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to MeriStar, the
approval or recommendation by the Board of Directors of ASC, or any committee
thereof, of this Agreement or the Merger or (ii) approve or recommend, or
propose to approve or recommend, any ASC Acquisition Proposal. Notwithstanding
the foregoing, the Board of Directors of ASC, to the extent required by the
duties of the Board of Directors of ASC under applicable Law, as determined in
good faith by a majority of the disinterested members thereof after
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consultation with and receipt of advice from outside counsel (which may be ASC's
regularly engaged independent legal counsel), may approve or recommend (and, in
connection therewith, withdraw or modify its approval or recommendation of this
Agreement or the Merger) an ASC Superior Proposal (as defined below). For
purposes of this Agreement, a "ASC SUPERIOR PROPOSAL" means a bona fide written
proposal made by a third party to acquire ASC pursuant to a tender or exchange
offer, a merger, a share exchange, a sale of all or substantially all of its
assets or otherwise, in any such case, on terms which a majority of the
disinterested members of the Board of Directors of ASC determines in their good
faith judgment (after consultation with nationally-recognized independent
financial advisors) and after taking into account all legal, financial,
regulatory and other material aspects of such proposal, the person making the
proposal, the strategic benefits to be derived from the Merger and the long-term
prospects of MeriStar and the MeriStar Subsidiaries to be more favorable to ASC
and its stockholders than the Merger and for which financing, to the extent
required, is then fully committed or which, in good faith judgment of a majority
of such disinterested members (after consultation with independent financial
advisors), is reasonably capable of being financed by such third party.
(c) ASC shall promptly advise MeriStar orally and in writing of any ASC
Acquisition Proposal or any inquiry with respect to or which could reasonably be
expected to lead to any ASC Acquisition Proposal, the material terms and
conditions of such ASC Acquisition Proposal or inquiry and the identity of the
person making any such ASC Acquisition Proposal or inquiry. ASC shall keep
MeriStar fully informed of the status and details of any such ASC Acquisition
Proposal or inquiry. ASC shall give MeriStar at least three days' advance notice
of any information to be supplied to, and at least five days' advance notice of
any agreement to be entered into with, any person making an ASC Acquisition
Proposal.
(d) Nothing contained in this Section 5.9 will prohibit ASC from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to ASC's
stockholders if the Board of Directors of ASC determines that such disclosure is
necessary in order to comply with the Board of Directors of ASC's duties under
applicable Law.
SECTION 5.10 ADDITIONAL COVENANTS. At or prior to the Effective Time:
(a) ASC shall use its reasonable best efforts either (i) to obtain the
required consent (the "ASC SENIOR CREDIT FACILITY AMENDMENT") of the lenders
under the ASC Senior Credit Facility to amend the ASC Senior Credit Facility
to increase the aggregate principal amount available for borrowing
thereunder to $285.0 million or (ii) to terminate and prepay the ASC Senior
Credit Facility and enter into a new senior credit facility (the "NEW ASC
SENIOR CREDIT FACILITY") whose aggregate principal amount is
$285.0 million, in each case, on terms substantially as set forth in
Section 5.10(a) of the ASC Disclosure Letter;
(b) MeriStar shall use its reasonable best efforts to cause the
termination and repayment of the Senior Secured Credit Facility, dated as of
February 29, 2000, between MeriStar H&R Operating Company, L.P. and Societe
Generale, Southwest Agency (the "MERISTAR SENIOR SECURED CREDIT FACILITY");
(c) ASC shall use its reasonable best efforts to cause the entire
$13.0 million available under Tranche C of the Resorts Credit Facility to be
drawn and shall use its reasonable best efforts to cause the Resorts Credit
Facility to be amended (the "RESORTS CREDIT FACILITY AMENDMENT") and shall
use its reasonable best efforts to cause Tranche C under the Resorts Credit
Facility to be repaid in the form of an issuance of a number of shares of
ASC Common Stock calculated by dividing (x) the outstanding aggregate
principal amount of such Tranche C as of the Effective Time plus all accrued
and unpaid interest on the outstanding aggregate principal amount of such
Tranche C through October 31, 2000 by (y) $2.22 (the "RESORTS CREDIT
FACILITY CONVERSION");
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(d) ASC shall use its reasonable best efforts to obtain the required
consent (the "ASC NOTES CONSENT") under the ASC Notes Indenture of the
holders of the ASC Subordinated Notes to complete the Merger, the ASC Senior
Credit Facility Amendment, the Resorts Credit Facility Amendment and the
other transactions contemplated by this Agreement on the terms and
conditions specified in Section 5.10(d) of the ASC Disclosure Letter;
(e) ASC shall use its reasonable best efforts to cause the existing
Stockholders' Agreement (the "EXISTING STOCKHOLDERS' AGREEMENT") among ASC,
OCP, Oak Hill Capital Management Partners, L.P., Oak Hill Securities Fund,
L.P., OHCP Ski, L.P. and Leslie Otten, dated as of August 6, 1999 and
amended on July 31, 2000, to be terminated;
(f) MeriStar shall use its reasonable best efforts to cause the
transactions set forth in Section 5.10(f) of the MeriStar Disclosure Letter
(the "MERISTAR-REIT AGREEMENT AMENDMENTS") to be accomplished;
(g) MeriStar shall use its reasonable best efforts to obtain or cause
to be obtained all consents or waivers listed in Section 3.5(b) of the
MeriStar Disclosure Letter;
(h) ASC shall use its reasonable best efforts to obtain or cause to be
obtained all consents and waivers that are listed in Section 4.5(b) of the
ASC Disclosure Letter;
(i) ASC shall use its reasonable best efforts to cause the transactions
contemplated by the ASC Voting/Recapitalization Agreement to occur;
(j) MeriStar shall use its reasonable best efforts to cause each of the
holders of the MeriStar Senior Management Options to execute a waiver (each,
a "MERISTAR SENIOR MANAGEMENT OPTION VESTING WAIVER") of the vesting of each
of such holder's MeriStar Senior Management Options caused by the completion
of the Merger, such that such MeriStar Senior Management Option vests on the
date it would have vested under the relevant MeriStar Option Plan had the
Merger not occurred;
(k) MeriStar shall use its reasonable best efforts to cause the
Amendment to the Amended and Restated Agreement of Limited Partnership of
MeriStar H&R Operating Company, L.P., dated August 3, 1998 (as amended, the
"AMENDED OP AGREEMENT"), substantially in the form set forth in
Section 5.10(k) of the MeriStar Disclosure Letter (the "MERISTAR OP
AMENDMENT"), to be executed;
(l) ASC shall:
(i) Use its reasonable best efforts to issue the warrants (the
"WARRANTS") to purchase 6,000,000 shares of ASC Common Stock at an
exercise price of $2.50 per share to be issued to Oak Hill Capital
Partners, L.P. ("OCP") under the Securities Purchase Agreement, dated
July 31, 2000 as amended on September 28, 2000 and November 10, 2000 (as
amended, the "WARRANT PURCHASE AGREEMENT"), among ASC, Resort Properties
and OCP;
(ii) If shares of the capital stock of Resort Properties have been
issued to OCP under the Warrant Purchase Agreement, ASC shall use its
reasonable best efforts to cause those shares of the capital stock of
Resort Properties to be transferred to ASC in exchange for the Warrants;
and
(iii) Use its reasonable best efforts to cause all consents necessary
for the transactions described in clauses (i) and (ii) of this
Section 5.10(l) to be obtained;
(m) MeriStar shall provide to ASC copies of any reports or written
assertions of the type described in Section 3.16 received after the date
hereof within ten days after their first being received by it;
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(n) ASC will provide to MeriStar copies of any reports or written
assertions of the type described in Section 4.16 received after the date
hereof within ten days of their first being received by it;
(o) Notwithstanding anything to the contrary in this Agreement, if the
consent or other fees (exclusive of legal and other expenses) incurred in
connection with ASC's obligations set forth in clauses (a) and (d) of this
Section 5.10 are, in the aggregate, in excess of the amount set forth in
Section 5.10(o) of the ASC Disclosure Letter, the term "reasonable best
efforts," as used in Sections 5.10(a) and (d), shall not include the
incurrence of such excess fees. ASC shall not incur such excess fees without
the prior written consent of MeriStar, which consent shall not be
unreasonably withheld;
(p) ASC shall use its reasonable best efforts to file with the SEC a
registration statement covering resales of ASC Common Stock issuable under
the Amended OP Agreement and to have such registration statement declared
effective as promptly as practicable after the Merger;
(q) ASC shall use its reasonable best efforts to execute and deliver a
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"),
substantially in the form attached to this Agreement as ANNEX E; and
(r) MeriStar shall take all further action (in addition to that
referred to in Section 3.19 reasonably requested in writing by ASC
(including redeeming the MeriStar Shareholder Rights immediately prior to
the Effective Time or amending the MeriStar Rights Agreement)) in order to
render the MeriStar Shareholder Rights inapplicable to the Merger and the
other transactions contemplated by this Agreement and the Voting and
Recapitalization Agreement. Except as provided in this Section 5.10(s), with
respect to the Merger and the other transactions contemplated by this
Agreement and the Voting and Recapitalization Agreement, MeriStar shall not
(a) amend the MeriStar Rights Agreement or (b) take any action with respect
to, or make any determination under, the MeriStar Shareholder Rights
Agreement, including a redemption of the MeriStar Shareholder Rights or any
action to facilitate a MeriStar Acquisition Proposal.
SECTION 5.11 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) ASC agrees that all rights to indemnification now existing in favor of
any employee, agent, director or officer of MeriStar and the MeriStar
Subsidiaries (the "INDEMNIFIED PARTIES") as provided in their respective
charters or by-laws, in an agreement between an Indemnified Party and MeriStar
or one of the MeriStar Subsidiaries, or otherwise in effect on the date of this
Agreement shall survive the Merger and shall continue in full force and effect
for a period of not less than six years after the Effective Time; PROVIDED that
in the event any claim or claims are asserted or made within such six-year
period, all rights to indemnification in respect of any such claim or claims
shall continue until final disposition of any and all such claims. The Surviving
Corporation shall indemnify all Indemnified Parties to the fullest extent
permitted by applicable law with respect to all acts and omissions arising out
of such individuals' services as officers, directors, employees or agents of
MeriStar or any of the MeriStar Subsidiaries or as trustees or fiduciaries of
any plan for the benefit of employees, or otherwise on behalf of, MeriStar or
any of the MeriStar Subsidiaries, occurring prior to the Effective Time,
including the transactions contemplated by this Agreement. Without limiting the
generality of the foregoing, in the event any such Indemnified Party is or
becomes involved in any capacity in any action, proceeding or investigation in
connection with any matter, including the transactions contemplated by this
Agreement, occurring at or after, the Effective Time, the Surviving Corporation
shall pay as incurred such Indemnified Party's legal and other expenses
(including the cost of any investigation and preparation) incurred in connection
therewith.
(b) ASC agrees that, from and after the Effective Time, it shall cause the
Surviving Corporation to maintain in effect for not less than six years from the
Effective Time the current policies of the
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directors' and officers' liability insurance maintained by MeriStar; PROVIDED
that the Surviving Corporation may substitute therefor policies of at least the
same coverage containing terms and conditions which are no less advantageous,
taken as a whole, and provided that such substitution shall not result in any
gaps or lapses in coverage with respect to matters occurring prior to the
Effective Time; and PROVIDED, FURTHER, that the Surviving Corporation shall not
be required to pay an annual premium in excess of 300% of the last annual
premium paid by MeriStar prior to the date of this Agreement, and if the
Surviving Corporation is unable to obtain the insurance required by this
Section 5.11(b) it shall obtain as much comparable insurance as possible for an
annual premium equal to such maximum amount.
(c) The provisions of this Section 5.11 are intended to be for the benefit
of each Indemnified Party and his or her heirs and representatives.
SECTION 5.12 AFFILIATES. Prior to the later of (x) the 30th day after the
date of this Agreement and (y) the 15th day after the record date for the
MeriStar Stockholders Meeting, (i) MeriStar shall deliver to ASC a letter
identifying all persons who may be deemed to be affiliates of MeriStar under
Rule 145 of the Securities Act as of the record date for the MeriStar
Stockholders Meeting, including, without limitation, all of its directors and
executive officers; and (ii) MeriStar shall advise the persons identified in
such letter ("RULE 145 AFFILIATES") of the resale restrictions imposed by
applicable securities laws and shall use its reasonable best efforts to obtain
from each person identified in such letter a written agreement, substantially in
the form of ANNEX D to this Agreement (a "RULE 145 AFFILIATE AGREEMENT").
Notwithstanding anything to the contrary contained in this Agreement, ASC shall
be entitled to withhold, or to instruct the exchange agent to withhold,
certificates representing ASC Common Shares to be received by any such
stockholder, until such time as ASC has received a duly executed and delivered
Rule 145 Affiliate Agreement from such Stockholder.
SECTION 5.13 REASONABLE BEST EFFORTS. Subject to the terms and conditions
provided in this Agreement and to applicable legal requirements, each of the
parties to this Agreement agrees to use its reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done consistent with
the fiduciary duties of the Board of Directors of such party, and to assist and
cooperate with the other parties to this Agreement in doing, as promptly as
practicable, all things necessary, proper or advisable under applicable laws and
regulations to ensure that the conditions set forth in Article VI are satisfied
and to consummate and make effective the transactions contemplated by this
Agreement. If at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, including
the execution of additional instruments, the proper officers and directors of
each party to this Agreement shall take all such necessary action. Nothing
contained in this Agreement shall give ASC or MeriStar, directly or indirectly,
rights to control or direct the other party's operations prior to the Effective
Time.
SECTION 5.14 CONSENTS; FILINGS; FURTHER ACTION.
(a) Upon the terms and subject to the conditions of this Agreement, each of
the parties to this Agreement shall use its reasonable best efforts to
(i) take, or cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable under applicable Law or
otherwise to consummate and make effective the Merger and the other transactions
contemplated by this Agreement, (ii) obtain from Governmental Entities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by ASC or MeriStar or any of their subsidiaries
in connection with the authorization, execution and delivery of this Agreement
and the consummation of the Merger and the other transactions contemplated by
this Agreement, (iii) make all necessary filings, and thereafter make any other
submissions either required or deemed appropriate by each of the parties, with
respect to this Agreement and the Merger and the other transactions contemplated
by this Agreement required under (A) the Securities Act, the Exchange Act and
any other applicable federal or Blue Sky Laws, (B) the HSR Act, (C) the DGCL,
(D) any other
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applicable Law and (E) the rules and regulations of the NYSE. The parties to
this Agreement shall cooperate and consult with each other in connection with
the making of all such filings, including by providing copies of all such
documents to the nonfiling party and its advisors prior to filing, and none of
the parties will file any such document if any of the other parties shall have
reasonably objected to the filing of such document. No party to this Agreement
shall consent to any voluntary extension of any statutory deadline or waiting
period or to any voluntary delay of the consummation of the Merger and the other
transactions contemplated by this Agreement at the behest of any Governmental
Entity without the consent and agreement of the other parties to this Agreement,
which consent shall not be unreasonably withheld or delayed.
(b) Without limiting the generality of Section 5.14(a), each party to this
Agreement shall promptly inform the others of any material communication from
the Federal Trade Commission, the Department of Justice or any other domestic or
foreign government or governmental or multinational authority regarding any of
the transactions contemplated by this Agreement. If any party or any affiliate
thereof receives a request for additional information or documentary material
from any such government or authority with respect to the transactions
contemplated by this Agreement, then such party shall endeavor in good faith to
make, or cause to be made, as soon as reasonably practicable and after
consultation with the other party, an appropriate response in compliance with
such request. ASC shall advise MeriStar promptly in respect of any
understandings, undertakings or agreements (oral or written) which ASC proposes
to make or enter into with the Federal Trade Commission, the Department of
Justice or any other domestic or foreign government or governmental or
multinational authority in connection with the transactions contemplated by this
Agreement. In furtherance and not in limitation of the foregoing, ASC shall use
its reasonable best efforts to resolve such objections, if any, as may be
asserted with respect to the transactions contemplated by this Agreement under
any antitrust, competition or trade regulatory laws, rules or regulations of any
domestic or foreign government or governmental authority or any multinational
authority. Notwithstanding the foregoing, nothing in this Section 5.14 shall
require, or be construed to require, ASC or MeriStar, in connection with the
receipt of any regulatory approval, to proffer to, or agree to (A) sell or hold
separate and agree to sell, divest or to discontinue or limit, before or after
the Effective Time, any assets, businesses, or interest in any assets or
businesses of ASC, MeriStar or any of their respective affiliates (or to consent
to any sale, or agreement to sell, or discontinuance or limitation by ASC or
MeriStar, as the case may be, of any of its assets or businesses) or (B) agree
to any conditions relating to, or changes or restriction in, the operations of
any such asset or businesses which, in either case, could reasonably be expected
to result in a Material Adverse Effect on ASC or a Material Adverse Effect on
MeriStar or to materially and adversely impact the economic or business benefits
to such party of the transactions contemplated by this Agreement.
SECTION 5.15 PLAN OF REORGANIZATION. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party to this
Agreement shall use its reasonable best efforts to cause the Merger to qualify,
and shall not, without the prior written consent of the parties to this
Agreement, knowingly take any actions or cause any actions to be taken which
could prevent the Merger from qualifying, as a reorganization under the
provisions of Section 368(a) of the Code. Following the Effective Time, and
consistent with any such consent, none of the Surviving Corporation, ASC or any
of their affiliates shall knowingly take any action or knowingly cause any
action to be taken which would cause the Merger to fail to so qualify as a
reorganization under Section 368(a) of the Code.
SECTION 5.16 PUBLIC ANNOUNCEMENTS. ASC and MeriStar shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to this Agreement or any of the transactions
contemplated by this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation, except to the extent
required by applicable
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Law or the requirements of the NYSE, in which case the issuing party shall use
its reasonable best efforts to consult with the other parties before issuing any
such release or making any such public statement.
SECTION 5.17 OBLIGATIONS OF MERGER SUB. ASC shall take all actions
necessary to cause Merger Sub to perform its obligations under this Agreement
and to consummate the Merger on the terms and subject to the conditions set
forth in this Agreement.
SECTION 5.18 STOCK EXCHANGE LISTINGS AND DE-LISTINGS. ASC shall use its
reasonable best efforts to cause the shares of ASC Common Stock to be issued in
the Merger to be approved for listing on the NYSE subject to official notice of
issuance, prior to the Effective Time. The parties shall use their reasonable
best efforts to cause the Surviving Corporation to cause MeriStar Common Stock
to be de-listed from the NYSE and de-registered under the Exchange Act as soon
as practicable following the Effective Time.
SECTION 5.19 TAKEOVER STATUTES. If any Takeover Statute is or may become
applicable to the Merger or the other transactions contemplated by this
Agreement, each of ASC and MeriStar and its respective board of directors shall
grant such approvals and take such actions as are necessary so that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize the
effects of such statute or regulation on such transactions.
SECTION 5.20 DIVIDENDS. MeriStar and ASC shall coordinate with each other
with respect to the declaration, setting of record dates and payment dates of
dividends on MeriStar Common Stock and ASC Shares so that holders of MeriStar
and ASC Common Stock do not receive dividends on both MeriStar Common Stock and
ASC Common Stock received in the Merger in respect of any calendar quarter or
fail to receive a dividend on either MeriStar Common Stock or ASC Common Stock
received in the Merger in respect of any calendar quarter.
ARTICLE VI
CONDITIONS
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger and
consummate the other transactions contemplated by this Agreement to be
consummated on the Closing Date is subject to the satisfaction or waiver at or
prior to the Effective Time of each of the following conditions; PROVIDED,
HOWEVER, that a party may not assert that it is not obligated to effect the
Merger and consummate the other transactions contemplated by this Agreement
based on a failure to fulfill the conditions listed in this Section 6.1 if such
failure is caused primarily by the actions or omissions of such party or its
affiliates:
(a) STOCKHOLDER APPROVAL. (i) The MeriStar Proposals shall have been
duly approved by the Requisite MeriStar Vote; (ii) the ASC Proposals shall
have been duly approved by the Requisite ASC Vote; and (iii) this Agreement
and the transactions contemplated hereby shall have been duly approved by
ASC as the sole stockholder of Merger Sub.
(b) LISTING. The shares of ASC Common Stock issuable to MeriStar's
stockholders pursuant to this Agreement shall have been authorized for
listing on the NYSE, subject to official notice of issuance.
(c) HSR. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been earlier terminated.
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(d) CONSENTS. All consents, approvals and action of any Governmental
Entity required to permit the consummation of the Merger and the other
transactions contemplated by this Agreement shall have been obtained or
made, free of any condition that could reasonably be expected to result in a
Material Adverse Effect on ASC or a Material Adverse Effect on MeriStar.
(e) INJUNCTIONS. No court or Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any Law, orders, injunction or decree (whether temporary, preliminary or
permanent) that is in effect and restrains, enjoins or otherwise prohibits
consummation of the Merger or the other transactions contemplated by this
Agreement or that, individually or in the aggregate with all other such
Laws, orders, injunctions or decrees, could reasonably be expected to result
in a Material Adverse Effect on ASC, a Material Adverse Effect on MeriStar,
or a material adverse effect on MeriStar and ASC and their subsidiaries,
taken as a whole after giving effect to the Merger.
(f) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act. No stop order suspending the
effectiveness of the Registration Statement shall have been issued, and no
proceedings for that purpose shall have been initiated or be threatened by
the SEC.
(g) OTHER CONDITIONS.
(i) The ASC Senior Credit Facility Amendment shall have been executed
or the New ASC Senior Credit Facility shall have been obtained and, in
either case, the conditions precedent to the availability of the funds
thereunder shall have been satisfied or waived by the parties thereto;
and
(ii) The ASC Notes Consent shall have been obtained.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF ASC AND MERGER SUB. The
obligations of ASC and Merger Sub to effect the Merger and consummate the other
transactions contemplated by this Agreement to be consummated on the Closing
Date are also subject to the satisfaction or waiver by ASC at or prior to the
Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of MeriStar set forth in this Agreement that are qualified as to materiality
or Material Adverse Effect shall be true and correct, and the
representations and warranties of MeriStar set forth in this Agreement that
are not so qualified shall be true and correct in all material respects, in
each case as of the date of this Agreement and as of the Closing Date, as
though made on and as of the Closing Date, except to the extent the
representation or warranty is expressly limited by its terms to another
date, and ASC shall have received a certificate (which certificate may be
qualified by knowledge to the same extent as the representations and
warranties of MeriStar contained in this Agreement are so qualified) signed
on behalf of MeriStar by an executive officer of MeriStar to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF MERISTAR. MeriStar shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and ASC shall
have received a certificate signed on behalf of MeriStar by an executive
officer of MeriStar to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on MeriStar, and ASC shall have
received a certificate of an executive officer of MeriStar to such effect.
(d) CONSENTS UNDER AGREEMENTS. MeriStar shall have obtained the
consent, approval or waiver of each person that is not a Governmental Entity
and is a party to an agreement to which MeriStar is a party whose consent,
approval or waiver shall be required in order to consummate the transactions
contemplated by this Agreement, except those for which the failure to obtain
such
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consent, approval or waiver, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect on MeriStar.
(e) AFFILIATE LETTERS. ASC shall have received an executed copy of a
Rule 145 Affiliate Agreement from each Rule 145 Affiliate of MeriStar.
(f) MERISTAR-REIT AGREEMENT AMENDMENTS. The MeriStar-REIT Agreement
Amendments shall have been executed.
(g) TERMINATION OF MERISTAR SENIOR SECURED CREDIT FACILITY. The
MeriStar Senior Secured Credit Facility shall have been terminated and
repaid.
(h) MERISTAR SENIOR MANAGEMENT OPTION VESTING WAIVERS. All of the
MeriStar Senior Management Option Vesting Waivers shall have been obtained.
(i) MERISTAR HOSPITALITY CORPORATION FINANCING. The commitments for
the financing from MeriStar Hospitality Corporation (the "REIT"),
substantially in the terms set forth in Section 6.2(i) of the MeriStar
Disclosure Letter, shall have been obtained.
(j) MERISTAR OP AMENDMENT. The MeriStar OP Amendment shall have been
executed.
SECTION 6.3 CONDITIONS TO OBLIGATION OF MERISTAR. The obligation of
MeriStar to effect the Merger and consummate the other transactions contemplated
by this Agreement to be consummated on the Closing Date is also subject to the
satisfaction or waiver by MeriStar at or prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of each of ASC and Merger Sub set forth in this Agreement that are qualified
as to materiality or Material Adverse Effect shall be true and correct, and
the representations and warranties of ASC and Merger Sub set forth in this
Agreement that are not so qualified shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of
the Closing Date, as though made on and as of the Closing Date, except to
the extent the representation or warranty is expressly limited by its terms
to another date, and MeriStar shall have received a certificate (which
certificate may be qualified by knowledge to the same extent as the
representations and warranties of each of ASC and Merger Sub contained in
this Agreement are so qualified) signed on behalf of each of ASC and Merger
Sub by an executive officer of ASC to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF ASC AND MERGER SUB. Each of ASC and
Merger Sub shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Closing Date, and MeriStar shall have received a certificate signed on
behalf of ASC and Merger Sub by an executive officer of ASC to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall have been no Material Adverse Effect on ASC, and MeriStar shall have
received a certificate of an executive officer of ASC to such effect.
(d) CONSENTS UNDER AGREEMENTS. ASC shall have obtained the consent,
approval or waiver of each person that is not a Governmental Entity and is a
party to an agreement to which ASC is a party whose consent, approval or
waiver shall be required in order to consummate the transactions
contemplated by this Agreement, except those for which failure to obtain
such consents, approval or waiver, individually or in the aggregate, could
not reasonably be expected to result in Material Adverse Effect on ASC.
(e) TAX OPINION. MeriStar shall have received the opinion of Paul,
Weiss, Rifkind, Wharton & Garrison, counsel to MeriStar, dated on or about
the date that is two business days prior to the date the Proxy Statement is
first mailed to MeriStar Shareholders, in form and substance reasonably
satisfactory to MeriStar, to the effect that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code,
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and that each of ASC, Merger Sub and MeriStar will be a party to that
reorganization within the meaning of Section 368(b) of the Code which
opinion shall not have been withdrawn or modified in any material respect.
(f) RECAPITALIZATION.
(i) All of the issued and outstanding shares of ASC Series A
Preferred Stock shall have been converted in accordance with the ASC
Voting/Recapitalization Agreement.
(ii) All of the issued and outstanding shares of ASC Series B
Preferred Stock shall have been converted in accordance with the ASC
Voting/Recapitalization Agreement.
(iii) Each share of ASC Class A Common Stock shall have been
converted into one share of ASC Common Stock in accordance with the ASC
Voting/Recapitalization Agreement.
(iv) Each of the parties to the ASC Voting/ Recapitalization
Agreement shall have performed all of its respective obligations
thereunder in all material respects.
(v) The Resorts Credit Facility Amendment and the Resorts Credit
Facility Conversion shall have occurred.
(vi) The transactions described in Section 5.10(l) shall have been
completed, and all consents described in Section 5.10(l)(iii) shall have
been obtained.
(g) TERMINATION OF THE EXISTING STOCKHOLDERS' AGREEMENT. The Existing
Stockholders' Agreement shall have been terminated.
ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite approval and adoption of this Agreement, as follows:
(a) by mutual written consent of ASC (duly authorized by its Board of
Directors) and MeriStar (duly authorized by its Board of Directors);
(b) by either ASC or MeriStar, if the Effective Time shall not have
occurred on or before April 30, 2001; PROVIDED, HOWEVER, that (i) the right
to terminate this Agreement under this Section 7.1(b) shall not be available
to the party whose failure to fulfill any obligation under this Agreement
shall have been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date; (ii) if the applicable federal
antitrust authority seeks an order, injunction or decree with respect to the
legality of the Merger under applicable antitrust Laws, this Agreement may
be extended prior to the termination of this Agreement by written notice of
either ASC or MeriStar to the other to the date that is 30 days following
the date on which a ruling with respect to such an order, injunction or
decree is entered by a trial court or administrative body; and (iii) if such
order, injunction or decree has been entered, which had the effect of
enjoining the consummation of the Merger and any party to this Agreement
shall have commenced an appeal thereof, this Agreement may be extended prior
to the termination of this Agreement by written notice of either ASC or
MeriStar to the other to the date which is 30 days following the issuance of
a decision by the applicable appeals court with respect to such an appeal;
PROVIDED, FURTHER, that, notwithstanding anything to the contrary in this
Section 7.1(b), in no event shall this Agreement be extended beyond May 31,
2001;
(c) by either ASC or MeriStar, if any order, injunction or decree
preventing the consummation of the Merger shall have been entered by any
court of competent jurisdiction or Governmental Entity and shall have become
final and nonappealable;
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(d) by either ASC or MeriStar, if (i) the MeriStar Proposals fail to
receive the Requisite MeriStar Vote at the MeriStar Stockholders Meeting or
any adjournment or postponement thereof or (ii) the ASC Proposals fail to
receive the Requisite ASC Vote at the ASC Stockholders Meeting or any
adjournment or postponement thereof;
(e) by ASC, upon a breach of any material representation, warranty,
covenant or agreement on the part of MeriStar set forth in this Agreement,
or if any representation or warranty of MeriStar has become untrue, in
either case such that the conditions set forth in either of Section 6.2(a)
or 6.2(c) would not be satisfied (a "TERMINATING MERISTAR BREACH");
PROVIDED, HOWEVER, that, if such Terminating MeriStar Breach is curable by
MeriStar through the exercise of its reasonable best efforts and for so long
as MeriStar continues to exercise such reasonable best efforts, ASC may not
terminate this Agreement under this Section 7.1(e) for a period of 30 days
after discovery and notification thereof;
(f) by MeriStar, upon breach of any material representation, warranty,
covenant or agreement on the part of ASC set forth in this Agreement, or if
any representation or warranty of ASC has become untrue, in either case such
that the conditions set forth in either of Section 6.3(a) or 6.3(c) would
not be satisfied (a "TERMINATING ASC BREACH"); PROVIDED, HOWEVER, that, if
such Terminating ASC Breach is curable by ASC through its reasonable best
efforts and for so long as ASC continues to exercise such reasonable best
efforts, MeriStar may not terminate this Agreement under this
Section 7.1(f) for a period of 30 days after discovery and notification
thereof;
(g) by ASC, if (i) the Board of Directors of MeriStar withdraws,
modifies or changes its approval or recommendation of this Agreement in a
manner adverse to ASC or has resolved to do so, (ii) the Board of Directors
of MeriStar has recommended to the stockholders of MeriStar a MeriStar
Acquisition Proposal or shall have resolved to do so or (iii) a tender offer
or exchange offer for any outstanding shares of capital stock of MeriStar is
commenced and the Board of Directors of MeriStar fails to recommend against
acceptance of such tender offer or exchange offer by its stockholders
(including by taking no position with respect to the acceptance of such
tender offer or exchange offer by its stockholders);
(h) by MeriStar, if (i) the Board of Directors of ASC withdraws,
modifies or changes its approval or recommendation of this Agreement in a
manner adverse to MeriStar or shall have resolved to do so, (ii) the Board
of Directors of ASC shall have recommended to the stockholders of ASC an ASC
Acquisition Proposal or shall have resolved to do so, or (iii) a tender
offer or exchange offer for any outstanding shares of capital stock of ASC
is commenced and the Board of Directors of ASC fails to recommend against
acceptance of such tender offer or exchange offer by its stockholders
(including by taking no position with respect to the acceptance of such
tender offer or exchange offer by its stockholders);
(i) by ASC, if, prior to the ASC Stockholders Meeting, the Board of
Directors of ASC shall have withdrawn or modified in accordance with
Section 5.9 in any manner adverse to MeriStar its approval or recommendation
of the Merger or this Agreement in connection with, or approved or
recommended, any ASC Superior Proposal; PROVIDED, HOWEVER, that ASC may not
terminate this Agreement pursuant to this Section 7.1(i) until three
business days have elapsed following delivery to MeriStar of written notice
of such determination of ASC (which written notice will inform MeriStar of
the material terms and conditions of the ASC Superior Proposal); PROVIDED,
FURTHER, HOWEVER, that such termination under this Section 7.1(i) shall not
be effective until ASC has made payment to MeriStar of the amounts required
to be paid pursuant to Section 7.3(c); or
(j) by MeriStar, if, prior to the MeriStar Stockholders Meeting, the
Board of Directors of MeriStar shall have withdrawn or modified in
accordance with Section 5.8 in any manner adverse to ASC its approval or
recommendation of the Merger or this Agreement in connection with, or
approved or recommended, any MeriStar Superior Proposal; PROVIDED, HOWEVER,
that MeriStar may
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not terminate this Agreement pursuant to this Section 7.1(j) until three
business days have elapsed following delivery to ASC of written notice of
such determination of MeriStar (which written notice will inform ASC of the
material terms and conditions of the MeriStar Superior Proposal); PROVIDED,
FURTHER, HOWEVER, that such termination under this Section 7.1(j) shall not
be effective until MeriStar has made payment to ASC of the amounts required
to be paid pursuant to Section 7.3(b).
SECTION 7.2 EFFECT OF TERMINATION. Except as provided in Section 7.3 and
Section 5.7(b), in the event of termination of this Agreement pursuant to
Section 7.1, this Agreement shall forthwith become void, there shall be no
liability under this Agreement on the part of ASC and any ASC Subsidiaries,
Merger Sub or MeriStar and any MeriStar Subsidiaries or any of their respective
Representatives, and all rights and obligations of each party to this Agreement
shall cease; PROVIDED, HOWEVER, that nothing in this Agreement shall relieve any
party from liability for the wilful breach of any of its representations and
warranties or the breach of any of its covenants or agreements set forth in this
Agreement.
SECTION 7.3 EXPENSES AND FEES FOLLOWING CERTAIN TERMINATION EVENTS.
(a) EXPENSES. Except as otherwise provided in Section 7.3 or as set forth
in the ASC Voting/ Recapitalization Agreement, whether or not the Merger is
consummated, all Expenses incurred in connection with this Agreement, the Merger
and the other transactions contemplated by this Agreement shall be paid by the
party incurring such Expense, except that Expenses incurred in connection with
the filing fees for the Proxy Statement and Registration Statement, the printing
and mailing of the Proxy Materials and the filing fee under the HSR Act shall be
shared equally by ASC and MeriStar. For purposes of this Agreement, "EXPENSES"
consist of all reasonable out-of- pocket expenses (including, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants to
a party to this Agreement and its affiliates) incurred by a party or on its
behalf in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement, the preparation,
printing, filing and mailing of the Proxy Statement or the Proxy Materials, the
solicitation of stockholder approvals and all other matters related to the
closing of the transactions contemplated by this Agreement.
(b) FEES AND EXPENSES PAYABLE BY MERISTAR.
(i) If this Agreement is terminated pursuant to Section 7.1(d)(i),
(g) or (j), then MeriStar shall, upon such termination, pay as directed by
ASC (1) a fee equal to $5,000,000, plus (2) the reimbursement of all of
ASC's documented Expenses up to a maximum reimbursable amount of $1,000,000.
(ii) Payment of any amounts under this Section 7.3(b) shall be made by
wire transfer of immediately available funds to a bank account designated in
writing by ASC.
(c) FEES AND EXPENSES PAYABLE BY ASC.
(i) If this Agreement is terminated pursuant to Section 7.1(d)(ii),
(h) or (i), then ASC shall, upon such termination, pay as directed by
MeriStar (1) a fee equal to $7,000,000, plus (2) the reimbursement of all of
MeriStar's documented Expenses up to a maximum reimbursable amount of
$1,000,000.
(ii) Payment of any amounts under this Section 7.3(c) shall be made by
wire transfer of immediately available funds to a bank account designated in
writing by MeriStar.
(d) MeriStar acknowledges that the agreements contained in this
Section 7.3 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, ASC and the Merger Sub would not
enter into this Agreement; accordingly, if MeriStar fails to pay promptly the
amounts due pursuant to Section 7.3(b), and, in order to obtain such payment,
ASC commences a suit which results in a judgment against MeriStar for all or a
portion of such amounts, MeriStar shall pay to ASC the Expenses of ASC in
connection with such suit, together with interest on the amounts payable
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to ASC at the prime rate of Citibank, N.A., in effect on the date such payment
was required to be made.
(e) ASC acknowledges that the agreements contained in this Section 7.3 are
an integral part of the transactions contemplated by this Agreement, and that,
without these agreements, MeriStar would not enter into this Agreement;
accordingly, if ASC fails to pay promptly the amounts due pursuant to
Section 7.3(c), and, in order to obtain such payment, MeriStar commences a suit
which results in a judgment against MeriStar for all or a portion of such
amounts, ASC shall pay to MeriStar the Expenses of MeriStar in connection with
such suit, together with interest on the amounts payable to MeriStar at the
prime rate of Citibank, N.A., in effect on the date such payment was required to
be made.
(f) This Section 7.3 shall survive the termination of this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) The term "AFFILIATE," as applied to any person, means any other
person directly or indirectly controlling, controlled by, or under common
control with, that person. For the purposes of this definition, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLING,"
"CONTROLLED BY" and "UNDER COMMON CONTROL WITH"), as applied to any
person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of that
person, whether through the ownership of voting securities, by contract
or otherwise. For the avoidance of doubt, for purposes of this Agreement,
the REIT, ASC, Merger Sub and the ASC Subsidiaries shall not be deemed to
be affiliates of MeriStar or the MeriStar Subsidiaries, and MeriStar and
the MeriStar Subsidiaries will not be deemed to be affiliates of ASC or
the ASC Subsidiaries.
(b) The term "BUSINESS DAY" means any day, other than Saturday,
Sunday or a federal holiday, and shall consist of the time period from
12:01 a.m. through 12:00 midnight Eastern time. In computing any time
period under this Agreement, the date of the event which begins the
running of such time period shall be included EXCEPT that if such event
occurs on other than a business day such period shall begin to run on and
shall include the first business day thereafter.
(c) The term "INCLUDING" means, unless the context clearly requires
otherwise, including but not limited to the things or matters named or
listed after that term.
(d) The term "KNOWLEDGE," (i) as applied to MeriStar means the
actual knowledge of the persons listed in Section 8.1(d) of the MeriStar
Disclosure Letter and (ii) as applied to ASC means the actual knowledge
of the persons listed in Section 8.1(d) of the ASC Disclosure Letter.
(e) The term "MATERIAL ADVERSE EFFECT ON MERISTAR" means any change
in or effect on the business, assets, properties, results of operations
or financial condition of MeriStar or any MeriStar Subsidiary that is
materially adverse to MeriStar and the MeriStar Subsidiaries, taken as a
whole, or that could reasonably be expected to materially impair the
ability of MeriStar to perform its obligations under this Agreement or to
consummate the Merger and the other transactions contemplated by this
Agreement.
(f) The term "MATERIAL ADVERSE EFFECT ON ASC" means any change in or
effect on the business, assets, properties, results of operations or
financial condition of ASC or any ASC Subsidiary that is materially
adverse to ASC and the ASC Subsidiaries, taken as a whole, or that could
reasonably be expected to materially impair the ability of ASC or Merger
Sub to
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perform its obligations under this Agreement or to consummate the Merger
and the other transactions contemplated by this Agreement.
(g) The term "PERSON" shall include individuals, corporations,
limited and general partnerships, trusts, limited liability companies,
associations, joint ventures, Governmental Entities and other entities
and groups (which term shall include a "GROUP" as such term is defined in
Section 13(d)(3) of the Exchange Act).
(h) The term "SUBSIDIARY" or "SUBSIDIARIES" means, with respect to
ASC, MeriStar or any other person, any entity of which ASC, MeriStar or
such other person, as the case may be (either alone or through or
together with any other subsidiary), owns, directly or indirectly, stock
or other equity interests the holders of which are generally entitled to
more than 50% of the vote for the election of the board of directors or
other governing body of such corporation or other legal entity.
SECTION 8.2 SURVIVAL. The representations and warranties in this Agreement
and in any certificate delivered under this Agreement shall not survive the
Effective Time. Each party agrees that, except for the representations and
warranties contained in this Agreement, the MeriStar Disclosure Letter and the
ASC Disclosure Letter, no party to this Agreement has made any other
representations and warranties, and each party disclaims any other
representations and warranties, made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
Representatives with respect to the execution and delivery of this Agreement or
the transactions contemplated by this Agreement, notwithstanding the delivery or
disclosure to any other party or any party's representatives of any
documentation or other information with respect to any one or more of the
foregoing.
SECTION 8.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
SECTION 8.4 GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL
BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES, EXCEPT THAT
MATTERS GOVERNED OR AFFECTED BY THE GENERAL CORPORATION LAW OF THE STATE OF
DELAWARE SHALL BE GOVERNED BY THAT LAW.
(b) Each party acknowledges and agrees that any controversy which may arise
under this Agreement is likely to involve complicated and difficult issues, and
therefore each such party hereby irrevocably and unconditionally waives any
right such party may have to a trial by jury in respect of any litigation
directly or indirectly arising out of or relating to this Agreement, or the
transactions contemplated by this agreement. Each party certifies and
acknowledges that (i) no representative, agent or attorney of any other party
has represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce the foregoing waiver, (ii) each such party
understands and has considered the implications of this waiver, (iii) each such
party makes this waiver voluntarily, and (iv) each such party has been induced
to enter into this agreement by, among other things, the mutual waivers and
certifications in this Section 8.4(b).
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SECTION 8.5 NOTICES. Any notice, request, instruction or other document to
be given hereunder by any party to the others shall be in writing and delivered
personally or sent by registered or certified mail, postage prepaid, or by
facsimile:
If to ASC or Merger Sub:
American Skiing Company
One Monument Way
Portland, Maine 04101
Attention: Christopher E. Howard
Foster A. Stewart, Jr.
Fax: (207) 791-2607
with copies to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022-6069
Attention: Mark Roppel, Esq.
Fax: (212) 848-7179
and
Oak Hill Capital Partners, L.P.
201 Main Street
Forth Worth, Texas 76102
Attention: Ray Pinson
Fax: (817) 280-0576
and
Oak Hill Capital Management Partners, L.P.
Park Avenue Tower
65 East 55th Street
New York, New York 10022
Attention: Steven B. Gruber
Bradford E. Bernstein
Fax: (212) 838-8411
If to MeriStar:
MeriStar Hotels & Resorts, Inc.
1010 Wisconsin Avenue, NW
Washington, DC 20007
Attention: Christopher L. Bennett, Esq.
Telecopy: (202) 295-1026
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Richard S. Borisoff, Esq.
Fax: (212) 757-3990
or to such other persons or addresses as may be designated in writing by the
party to receive such notice as provided above.
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SECTION 8.6 ENTIRE AGREEMENT. This Agreement (including any annexes to
this Agreement), the MeriStar Disclosure Letter and the ASC Disclosure Letter,
the ASC Voting/Recapitalization Agreement and the MeriStar Voting Agreement
constitute the entire agreement and supersede all other prior agreements,
understandings, representations and warranties, both written and oral, among the
parties, with respect to the subject matter of this Agreement.
SECTION 8.7 NO THIRD PARTY BENEFICIARIES. Except as provided in Sec tion
5.10 this Agreement is not intended to confer upon any person other than the
parties to this Agreement any rights or remedies under this Agreement.
SECTION 8.8 AMENDMENT. This Agreement may be amended by the parties to
this Agreement by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; PROVIDED that, after the
approval of this Agreement by the stockholders of MeriStar or ASC, no amendment
may be made that would reduce the amount or change the type of consideration
into which each share of MeriStar Common Stock or ASC Class A Common Stock or
ASC Series A Preferred Stock or ASC Series B Preferred Stock, as the case may
be, shall be converted upon consummation of the Merger. This Agreement may not
be amended except by an instrument in writing signed by the parties to this
Agreement.
SECTION 8.9 WAIVER. At any time prior to the Effective Time, any party to
this Agreement may (a) extend the time for the performance of any obligation or
other act of any other party to this Agreement, (b) waive any inaccuracy in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement and (c) waive compliance with any agreement
or condition contained in this Agreement. Any waiver of a condition set forth in
Section 6.1, or any determination that such a condition has been satisfied, will
be effective only if made in writing by each of MeriStar and ASC and, unless
otherwise specified in such writing, shall thereafter operate as a waiver (or
satisfaction) of such conditions for any and all purposes of this Agreement. Any
such extension or waiver shall be valid if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 8.10 OBLIGATIONS OF ASC AND OF MERISTAR. Whenever this Agreement
requires an ASC Subsidiary to take any action, that requirement shall be deemed
to include an undertaking on the part of ASC to cause that ASC Subsidiary to
take that action. Whenever this Agreement requires a MeriStar Subsidiary to take
any action, that requirement shall be deemed to include an undertaking on the
part of MeriStar to cause that MeriStar Subsidiary to take that action and,
after the Effective Time, on the part of the Surviving Corporation to cause that
MeriStar Subsidiary to take that action.
SECTION 8.11 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability or the other provisions of this
Agreement. If any provision of this Agreement, or the application of that
provision to any person or any circumstance, is invalid or unenforceable, (a) a
suitable and equitable provision shall be substituted for that provision in
order to carry out, so far as may be valid and enforceable, the intent and
purpose of the invalid or unenforceable provision and (b) the remainder of this
Agreement and the application of the provision to other persons or circumstances
shall not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of the
provision, or the application of that provision, in any other jurisdiction.
SECTION 8.12 INTERPRETATION. The table of contents and headings in this
Agreement are for convenience of reference only, do not constitute part of this
Agreement and shall not be deemed to limit or otherwise affect any of the
provisions of this Agreement. Where a reference in this Agreement is made to a
Section, exhibit or annex, that reference shall be to a Section of or exhibit or
annex to this Agreement unless otherwise indicated.
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SECTION 8.13 ASSIGNMENT. This Agreement shall not be assignable by
operation of law or otherwise, except that pursuant to Section 1.1(b) ASC may
designate, by written notice to MeriStar, an ASC Subsidiary that is wholly owned
directly or indirectly by ASC to be merged with and into MeriStar in lieu of
Merger Sub, in which event all references in this Agreement to Merger Sub shall
be deemed references to such ASC Subsidiary, and in that case, all
representations and warranties made in this Agreement with respect to Merger Sub
as of the date of this Agreement shall be deemed representations and warranties
made with respect to such ASC Subsidiary as of the date of such designation.
SECTION 8.14 SPECIFIC PERFORMANCE. The parties to this Agreement agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise reached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties to this Agreement as of the date
first written above.
<TABLE>
<S> <C> <C>
MERISTAR HOTELS & RESORTS, INC.
By: /s/ PAUL W. WHETSELL
-----------------------------------------
Name: Paul W. Whetsell
Title: CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
AMERICAN SKIING COMPANY
By: /s/ LESLIE B. OTTEN
-----------------------------------------
Name: Leslie B. Otten
Title: PRESIDENT
ASC MERGER SUB, INC.
BY: /S/ LESLIE B. OTTEN
-----------------------------------------
Name: Leslie B. Otten
Title: PRESIDENT
</TABLE>
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ANNEX A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DORAL INTERNATIONAL, INC.
The undersigned, Foster A. Stewart, Jr., certifies that he is the
of American Skiing Company, a corporation organized and existing
under the laws of the State of Delaware (the "CORPORATION"), and does hereby
further certify as follows:
(1) The name of the corporation is American Skiing Company, and the original
Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on .
(2) This Amended and Restated Certificate of Incorporation was duly adopted
in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
(3) The text of the Restated Certificate of Incorporation of the corporation
as amended hereby is restated to read in its entirety, as follows:
FIRST: The name of the corporation is Doral International, Inc.
SECOND: The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle,
19801. The name of its registered agent at such address is The Corporation Trust
Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation shall have
authority to issue is 300,000,000, divided into 299,000,000 shares of common
stock, par value of $0.01 per share ("COMMON STOCK"), and 1,000,000 shares of
serial preferred stock, par value of $0.01 per share ("SERIAL PREFERRED STOCK").
(1) VOTING RIGHTS.
Subject to the provisions of any applicable law or of the Bylaws of the
corporation, as from time to time amended, with respect to the closing of the
transfer books or the fixing or a record date for the determination of
stockholders entitled to vote:
(a) Each holder of Common Stock shall be entitled to one vote for each share
held, except as otherwise provided by law or by the resolution or
resolutions providing for the issue of any series of shares of Serial
Preferred Stock.
(b) The holders of Serial Preferred Stock shall have such voting rights as
are set forth elsewhere in this Certificate of Incorporation or as are
fixed and determined by the Board of Directors for the particular series.
(c) There shall be no cumulative voting rights, and no holders of stock of
the corporation shall have pre-emptive rights to subscribe for any shares
of any class of stock of the corporation whether now or hereafter
authorized.
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(2) DIVIDENDS.
Except as otherwise provided by the resolution or resolutions providing for
the issue of any series of shares of Serial Preferred Stock, the holders of
Common Stock shall be entitled to such dividends on a pro rata basis as may be
declared from time to time by the Board of Directors, subject to the other
provisions of this Certificate of Incorporation.
(3) LIQUIDATION.
In the event of the liquidation, dissolution or winding up of the
corporation, whether voluntary or involuntary, the holders of Common Stock shall
be entitled to participate on a pro rata basis in the net assets of the
corporation remaining after distributions to the holders of the Serial Preferred
Stock.
(4) SERIAL PREFERRED STOCK.
The Board of Directors is authorized, subject to limitations prescribed by
law and the other provisions herein, to provide for the issuance of the shares
of Serial Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, provided that the aggregate
number of shares issued and not canceled of any and all such series shall not
exceed the total number of shares of Serial Preferred Stock hereinabove
authorized, and to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof all as shall hereafter be stated and expressed in the resolution or
resolutions providing for the issue of such shares of Serial Preferred Stock
from time to time adopted by the Board of Directors.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of that series, whether dividends shall
be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(iii) Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
(iv) Whether that series shall have conversion or exchangeability
privileges, and, if so, the terms and conditions of such conversion or
exchange, including provision for adjustment of the conversion or
exchange rate in such events as the Board of Directors shall determine;
(v) Whether or not the shares of that series shall be redeemable and, if so,
the terms and conditions of such redemption, including the date or date
upon or after which they shall be redeemable, and the amount per share
payable in the case of redemption, which amount may vary under different
conditions and at different redemption dates;
(vi) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of
such sinking fund;
(vii) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the corporation,
and the relative rights of priority, if any, of payment of shares of
that series;
(viii) Any conditions or restrictions upon the creation of indebtedness of the
corporation or any subsidiary, upon the issue of any additional shares
(including additional shares of such series or of any other series) and
upon the payment of dividends or the making of other
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distributions on, and the purchase, redemption or other acquisition by
the corporation or any subsidiary of, any outstanding shares of the
corporation; and
(ix) Any other relative rights, preferences and limitations of that series.
SERIES A 14% PREFERRED STOCK. The powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions, of the shares of Serial Preferred Stock designated
the "Series A 14% Preferred Stock" are as set forth in this Article Fourth and
in EXHIBIT B to this Certificate of Incorporation.
(5) ISSUANCE FOR CONSIDERATION.
Subject to the provisions of this Certificate of Incorporation and except as
otherwise provided by law, the stock of the corporation, regardless of class,
may be issued for such consideration and for such corporate purposes as the
Board of Directors may from time to time determine.
FIFTH: The incorporator of the corporation is Foster A. Stewart, Jr., whose
mailing address is c/o American Skiing Company, Sunday River Road, Bethel, Maine
04217.
SIXTH: Unless and except to the extent that the Bylaws of the corporation
shall so require, the election of directors of the corporation need not be by
written ballot.
SEVENTH: In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors of the corporation is
expressly authorized to make, alter and repeal the Bylaws of the corporation,
subject to the power of the stockholders of the corporation to alter or repeal
any Bylaw whether adopted by them or otherwise.
EIGHTH: Except as otherwise provided in this Certificate of Incorporation,
the corporation reserves the right at any time, and from time to time, to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the rights reserved in this
article.
NINTH: The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors. The number of directors of the
corporation shall be as from time to time fixed by, or in the manner provided
in, the Bylaws of the corporation. The directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist,
as nearly as may be possible, of one-third the total number of directors
constituting the entire Board of Directors. The term of the initial Class I
directors shall terminate on the date of the 2001 annual meeting of
stockholders; the term of the initial Class II directors shall terminate on the
date of the 2002 annual meeting of stockholders and the term of the initial
Class III directors shall terminate on the date of the 2003 annual meeting of
stockholders. At each annual meeting of stockholders beginning in 2001,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional directors of any class elected to fill a vacancy resulting from
an increase in such class shall hold office for a term that shall coincide with
the remaining term of that class, but in no case will a decrease in the number
of directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office. Any
vacancy on the Board of Directors, however resulting, may be filled by a
majority of the directors then in office, even if less than a quorum, or by a
sole remaining director. Any
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director elected to fill a vacancy shall hold office for a term that shall
coincide with the term of the class to which such director shall have been
elected.
Subject to the rights of the holders of any series of Serial Preferred Stock
to elect additional directors under specified circumstances, any director may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 66 percent of all votes entitled to be cast by
all of the then outstanding shares of capital stock of the corporation in an
election of directors at an annual meeting or at a special meeting of
stockholders called for the purpose of removing such director.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to Article Fourth applicable thereto.
TENTH: Meetings of stockholders of the corporation may be held at such
place, either within or outside the State of Delaware as may be designated by or
in the manner provided in the Bylaws. Any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken only upon
the vote of the stockholders at an annual or special meeting duly noticed and
called, as provided in the Bylaws of the corporation, and may not be taken by a
written consent of the stockholders pursuant to the Delaware General Corporation
Law. Special meetings of stockholders of the corporation may be called at any
time only by the Chairman of the Board of Directors, the Vice Chairman of the
Board of Directors, the Secretary of the Board, by the Chief Executive Officer
or by a majority of the directors, and any power of stockholders to call a
special meeting is specifically denied. Business transacted at any special
meeting of stockholders shall be limited to matters relating to the purpose or
purposes stated in the notice of meeting.
ELEVENTH: Personal Liability of Directors or Officers.
(1) LIMITATION. No director of the corporation shall be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision shall not eliminate
or limit the liability of a director (a) for any breach of the director's duty
of loyalty to the corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the Delaware General Corporation Law or (d) for
any transaction from which the director derived an improper personal benefit.
(2) INDEMNIFICATION AND ADVANCE OF EXPENSES. To the extent not prohibited
by law, the corporation shall indemnify any person who is or was made, or
threatened to be made, a party to any threatened, pending or completed action,
suit or proceeding (a "PROCEEDING"), whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right of
the corporation to procure a judgment in its favor, by reason of the fact that
such person, or a person of whom such person is the legal representative, is or
was as a director or officer of the corporation, or, at the request of the
corporation, is or was serving as a director or officer of any other corporation
or in a capacity with comparable authority or responsibilities for any
partnership, joint venture, trust, employee benefit plan or other enterprise (an
"OTHER ENTITY"), against judgments, fines, penalties, excise taxes, amounts paid
in settlement and costs, charges and expenses (including attorneys' fees,
disbursements and other charges). Persons who are not directors or officers of
the corporation (or otherwise entitled to indemnification pursuant to the
preceding sentence) may be similarly indemnified in respect of service to the
corporation or to an Other Entity at the request of the corporation to the
extent the corporation determines to provide such indemnification.
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The corporation shall reimburse or advance to any director or officer or
other person entitled to indemnification hereunder the funds necessary for
payment of expenses, including attorneys' fees and disbursements, incurred in
connection with any Proceeding, in advance of the final disposition of such
Proceeding; provided, however, that, if required by the Delaware General
Corporation Law, such expenses incurred by or on behalf of any director or
officer or other person may be paid in advance of the final disposition of a
Proceeding only upon receipt by the corporation of an undertaking, by or on
behalf of such director or officer (or other person indemnified hereunder), to
repay any such amount so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right of appeal that such
director, officer or other person is not entitled to be indemnified for such
expenses.
(3) RIGHTS NOT EXCLUSIVE. The rights to indemnification and reimbursement
or advancement of expenses provided by, or granted pursuant to, this Article
Eleventh shall not be deemed exclusive of any other rights to which a person
seeking indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, the Certificate of Incorporation, these
Bylaws, any agreement, any vote of stockholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
(4) INSURANCE. The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of an Other Entity, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify such person against such liability
under the provisions of this Article Eleventh, the Certificate of Incorporation
or under Section 145 of the General Corporation Law or any other provision of
law.
(5) BINDING EFFECT. The rights to indemnification and to the advancement
of expenses conferred in this Article Eleventh shall be contract rights and such
rights shall continue as to an indemnitee who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the indemnitee's
heirs, executors, and administrators. No repeal or modification of this Article
Eleventh shall affect any rights or obligations with respect to any state of
facts then or theretofore existing or thereafter arising or any proceeding
theretofore or thereafter brought or threatened based in whole or in part upon
any such state of facts.
(6) PROCEDURAL RIGHTS. The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Article
Eleventh shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the corporation. Neither the failure
of the corporation (including its directors, its independent legal counsel and
its stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the corporation
(including its directors, its independent legal counsel and its stockholders)
that such person is not entitled to such indemnification or reimbursement or
advancement of expenses shall constitute a defense to the action or create a
presumption that such person is not so entitled. Such a person shall also be
indemnified for any expenses incurred in connection with successfully
establishing his or her right to such indemnification or reimbursement or
advancement of expenses, in whole or in part, in any such proceeding.
(7) SERVICE DEEMED AT CORPORATION'S REQUEST. Any director or officer of
the Corporation serving in any capacity (a) another corporation of which a
majority of the shares entitled to vote in the election of its directors is
held, directly or indirectly, by the corporation or (b) any employee benefit
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plan of the corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the corporation.
TWELFTH: Amendments.
(1) CERTIFICATE OF INCORPORATION. The affirmative vote of the holders of
not less than 66 percent of all votes entitled to be cast by all of the then
outstanding shares of capital stock of the corporation in an election of
directors shall be required to amend, repeal, or adopt any amendment to Article
Ninth, Article Eleventh, Article Thirteenth or this Article Twelfth of this
Certificate of Incorporation.
(2) BYLAWS. The Bylaws may be altered or repealed and new Bylaws may be
adopted (i) at any annual or special meeting of stockholders, by the affirmative
vote of not less than a majority of all votes entitled to be cast by all of the
then outstanding shares of capital stock of the corporation in the election of
directors, provided, however, that any proposed alteration or repeal of, or the
adoption of ay bylaw inconsistent with, Sections 2.3, 2.13 or 2.14 of Article 2
of the Bylaws, or any provision of Article 3 of the Bylaws, by stockholders
shall require the affirmative vote of not less than 66 percent of all votes
entitled to be cast by all of the then outstanding shares of capital stock of
the corporation in an election of directors, or (ii) by the affirmative vote of
a majority of the Board of Directors.
THIRTEENTH: Ownership and Transfer Restrictions
(1) DEFINITIONS.
For the purposes of this Article Thirteenth, the following terms shall have
the following meanings:
"BENEFICIAL OWNERSHIP" shall mean ownership of Shares or MeriStar REIT
Equity Stock, as applicable, by a Person either directly or under the
constructive ownership rules of section 318(a) of the Code, as modified by
section 856(d)(5) of the Code. The terms "Beneficial Owner," "Beneficially
Owns," "Beneficially Own" and "Beneficially Owned" shall have the correlative
meanings.
"CHARITABLE BENEFICIARY" shall mean an organization or organizations
described in sections 170(b)(1)(A) and 170(c) of the Code and identified by the
Board of Directors as the beneficiary or beneficiaries of the Excess Share
Trust.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"CORPORATION" shall mean Doral International, Inc.
"COVERED PERSON" shall mean (i) a Person, who or which (ii) Beneficially
Owns both outstanding shares of MeriStar REIT Equity Stock and Shares; provided
that (A) during such time as the MeriStar REIT Common Stock is regularly traded,
within the meaning of section 856(d)(3) of the Code, on the Exchange,
clause (ii) of this definition shall be applied in the case of MeriStar REIT
Common Stock by including only Persons who Beneficially Own outstanding shares
of MeriStar REIT Common Stock in excess of 5% of the total outstanding shares of
MeriStar REIT Common Stock and (B) during such time as the Common Stock of the
Corporation is regularly traded, within the meaning of section 856(d)(3) of the
Code, on the Exchange, clause (ii) of this definition shall be applied in the
case of Common Stock of the Corporation by including only Persons who
Beneficially Own outstanding shares of such Common Stock in excess of 5% of the
total outstanding shares of Common Stock of the Corporation.
"EXCESS SHARES" shall mean Shares resulting from an event described in
Section 3 of this Article Thirteenth.
"EXCESS SHARE TRUST" shall mean the trust created pursuant to Section 3 and
Section 11 of this Article Thirteenth.
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"EXCESS SHARE TRUSTEE" shall mean a person, who shall be unaffiliated with
the Corporation, any Purported Beneficial Transferee and any Purported Record
Transferee, identified by the Board of Directors as the trustee of the Excess
Share Trust.
"EXCHANGE" shall mean the New York Stock Exchange.
"FAIR MARKET VALUE" shall mean the last reported sales price on the Exchange
for Shares of the relevant class or series on the trading day immediately
preceding the relevant date, or if not then traded on the Exchange, the last
reported sales price for such Shares on the trading day immediately preceding
the relevant date as reported on any exchange or quotation system over or
through which such Shares may be traded, or if not then traded over or through
any exchange or quotation system, then the market price of such Shares on the
relevant date as determined in good faith by the Board of Directors.
"MERISTAR REIT COMMON STOCK" shall mean all outstanding shares of common
stock, par value $.01 per share, of MeriStar Hospitality Corporation, including
such shares that are held as Shares-in-Trust in accordance with Article V of the
charter of MeriStar Hospitality Corporation (or any successor provision of such
charter).
"MERISTAR REIT EQUITY STOCK" shall mean all outstanding shares of stock of
MeriStar Hospitality Corporation, including, without limitation, MeriStar REIT
Common Stock, and shall include shares of stock of MeriStar Hospitality
Corporation that are held as Shares-in-Trust in accordance with Article V of the
charter of MeriStar Hospitality Corporation (or any successor provision of such
charter).
"OWNERSHIP LIMIT" shall mean 35%, of either (i) the total combined voting
power of all outstanding Shares entitled to vote or (ii) the total outstanding
Shares. The number and voting power of the outstanding Shares of any class or
series shall be determined by the Board of Directors in good faith, which
determination shall be conclusive for all purposes hereof.
"PERSON" shall mean an individual, corporation, partnership, estate, trust
(including a trust qualified under section 401(a) or 501(c)(17) of the Code),
portion of a trust permanently set aside for or to be used exclusively for the
purposes described in section 642(c) of the Code, joint stock company or other
entity and also includes a group as that term is used for purposes of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended.
"PURPORTED BENEFICIAL TRANSFEREE" shall mean, with respect to any Excess
Shares, the Person who would have been the beneficial holder of the Shares, if
the Shares had not been transferred to the Excess Share Trust.
"PURPORTED RECORD TRANSFEREE" shall mean, with respect to any purported
Transfer which results in Excess Shares, the Person who would have been the
record holder of the Shares, if the Shares had not been transferred to the
Excess Share Trust.
"REIT" shall mean a real estate investment trust under section 856 of the
Code.
"REIT PROVISIONS OF THE CODE" shall mean sections 856 through 860 of the
Code and any successor or other provisions of the Code relating to real estate
investment trusts (including provisions as to the attribution of ownership of
beneficial interests therein) and the regulations promulgated thereunder.
"RESTRICTION TERMINATION DATE" shall mean such date as may be determined by
the Board of Directors as the date on which the ownership and transfer
restrictions set forth in this Article Thirteenth should cease to apply;
provided that such date may not be prior to the date on which MeriStar
Hospitality Corporation makes a public announcement that neither MeriStar
Hospitality Corporation nor any affiliate of MeriStar Hospitality Corporation
that, directly or indirectly, has in effect any management agreement or other
similar service contract pursuant to which the Corporation
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or any affiliate of the Corporation manages or operates any lodging or related
facility of MeriStar Hospitality Corporation or any of its affiliates, intends
to qualify as a REIT.
"SHARES" shall mean the outstanding shares of the Corporation as may be
authorized and issued from time to time pursuant to Article Fourth.
"TRANSFER" shall mean any sale, transfer, gift, assignment, devise or other
disposition of Shares (including (a) the granting of any option or entering into
any agreement for the sale, transfer or other disposition of Shares, (b) the
sale, transfer, assignment or other disposition of any securities or rights
convertible into or exchangeable for Shares and (c) any transfer or other
disposition of any interest in Shares as a result of a change in the marital
status of the holder thereof), whether voluntary or involuntary, whether of
record, constructively or beneficially and whether by operation of law or
otherwise. The terms "Transfers" and "Transferred" shall have the correlative
meanings.
(2) OWNERSHIP LIMITATION.
(a) Subject to clause (c) of this Section 2, on any date prior to the
Restriction Termination Date, one or more Covered Persons who or which
Beneficially Own outstanding shares of MeriStar REIT Equity Stock in excess of
34.9% of the total outstanding shares of MeriStar REIT Equity Stock may not
Beneficially Own Shares in excess of the Ownership Limit;
(b) Subject to clause (c) of this Section 2, until the Restriction
Termination Date, any Transfer that, if effective, would result in one or more
Covered Persons, who or which Beneficially Own outstanding shares of MeriStar
REIT Equity Stock in excess of 34.9% of the total outstanding shares of MeriStar
REIT Equity Stock, Beneficially Owning Shares in excess of the Ownership Limit
shall be void ab initio as to the Transfer of such Shares that would otherwise
be Beneficially Owned by any Covered Person or Persons as a result of such
Transfer and would result in one or more Covered Persons Beneficially Owning
Shares in excess of the Ownership Limit and the intended transferee or
transferees shall acquire no rights in such Shares; and
(c) Nothing contained in this Article Thirteenth shall preclude the
settlement of any transaction entered into through the facilities of the
Exchange. The fact that the settlement of any transaction occurs shall not
negate the effect of any other provision of this Article Thirteenth and any
transferee in such a transaction shall be subject to all of the provisions and
limitations set forth in this Article Thirteenth.
(3) EXCESS SHARES.
(a) If, notwithstanding the other provisions contained in this Article
Thirteenth, at any time prior to the Restriction Termination Date, there is a
purported Transfer such that one or more Covered Persons, who or which
Beneficially Own outstanding shares of MeriStar REIT Equity Stock in excess of
34.9% of the total outstanding shares of MeriStar REIT Equity Stock, would
Beneficially Own Shares in excess of the Ownership Limit (a "PROHIBITED
TRANSFER"), then Shares Beneficially Owned by the Covered Person or Persons who
or which would otherwise be the Beneficial Owner of Shares as a result of the
Prohibited Transfer shall be automatically designated as Excess Shares (without
reclassification) until no one or more Covered Persons, who or which
Beneficially Own outstanding shares of MeriStar REIT Equity Stock in excess of
34.9% of the total outstanding shares of MeriStar REIT Equity Stock,
Beneficially Own Shares in excess of the Ownership Limit. The designation of
such Shares as Excess Shares shall be effective as of the close of business on
the business day prior to the date of the purported Transfer. If, after
designation of such Shares owned directly by a Covered Person as Excess Shares,
one or more Covered Persons still Beneficially Own Shares in excess of the
Ownership Limit, Shares Beneficially Owned constructively by such Covered Person
as a result of the Prohibited Transfer shall be designated as Excess Shares
until no one or more Covered Person or Persons, who or which Beneficially Own
outstanding shares of MeriStar REIT Equity Stock in excess of
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34.9% of the total outstanding shares of MeriStar REIT Equity Stock,
Beneficially Own Shares in excess of the Ownership Limit. Where a Covered Person
Beneficially Owns Shares constructively through one or more Persons and the
Shares held by such other Persons must be designated as Excess Shares, the
designation of Shares held by such other Persons as Excess Shares shall be pro
rata.
(b) If, at any time prior to the Restriction Termination Date, an event
other than a purported Transfer (an "EVENT") occurs as a result of which one or
more Covered Persons, who or which Beneficially Own outstanding shares of
MeriStar REIT Equity Stock in excess of 34.9% of the total outstanding shares of
MeriStar REIT Equity Stock, would Beneficially Own Shares in excess of the
Ownership Limit (a "PROHIBITED EVENT"), then Shares Beneficially Owned by each
such Covered Person who or which would be otherwise the Beneficial Owner of
Shares as a result of the Prohibited Event shall be automatically designated as
Excess Shares to the extent necessary to eliminate such excess ownership. The
designation of Shares as Excess Shares shall be effective as of the close of
business on the business day prior to the date of the Event. In determining
which Shares are designated as Excess Shares, Shares Beneficially Owned by any
Covered Person who caused the Event to occur shall be designated as Excess
Shares before any Shares not so held are designated. Where several similarly
situated Covered Persons exist, the designation of Shares as Excess Shares shall
be pro rata. If Shares held by any Covered Person are required to be designated
as Excess Shares pursuant to this clause (b) of this Section 3 of this Article
Thirteenth, Shares beneficially held by such Covered Person shall first be
designated before Shares Beneficially Owned constructively are designated. Where
such Covered Person Beneficially Owns Shares constructively through one or more
Persons and the Shares held by such other Persons must be designated as Excess
Shares, the designation of Shares held by such other Persons as Excess Shares
shall be pro rata.
(4) PREVENTION OF TRANSFER.
If the Board of Directors or its designee shall at any time determine in
good faith that a Transfer has taken place in violation of Section 2 of this
Article Thirteenth or that a Person intends to acquire or has attempted to
acquire Beneficial Ownership (determined without reference to any rules of
attribution) of any Shares in violation of Section 2 of this Article Thirteenth,
the Board of Directors or its designee shall take such action as it deems
advisable to refuse to give effect to or to prevent such Transfer, including,
but not limited to, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer; provided,
however, that any Transfers or attempted Transfers in violation of Section 2 of
this Article Thirteenth shall automatically result in the designation and
treatment described in Section 3 of this Article Thirteenth, irrespective of any
action (or non-action) by the Board of Directors.
(5) NOTICE TO CORPORATION.
Any Person who acquires or attempts to acquire Shares in violation of
Section 2 of this Article Thirteenth, or any Covered Person who is a transferee
such that Excess Shares result under Section 3 of this Article, shall
immediately give written notice or, in the event of a proposed or attempted
Transfer, give at least 15 days prior written notice, to the Corporation of such
event. Such Person shall also provide to the Corporation such other information
as the Corporation may request in order to determine the effect, if any, of such
Transfer or attempted Transfer on the status of MeriStar Hospitality Corporation
or any affiliate of MeriStar Hospitality Corporation as a REIT and shall execute
and deliver such instruments and provide such further cooperation and assistance
as the Board of Directors deems advisable to preserve the status of MeriStar
Hospitality Corporation or any affiliate of MeriStar Hospitality Corporation as
a REIT.
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(6) INFORMATION FOR CORPORATION.
Until the Restriction Termination Date, each Covered Person who is a
Beneficial Owner of Shares and each Covered Person (including the stockholder of
record) who is holding Shares for a Beneficial Owner shall provide to the
Corporation in writing such information with respect to direct, indirect and
constructive ownership of Shares as the Board of Directors deems reasonably
necessary to comply with the provisions of the Code applicable to the status of
MeriStar Hospitality Corporation or any of its affiliates as a REIT, to
determine the status of MeriStar Hospitality Corporation or any of its
affiliates as a REIT, or to comply with the requirements of any taxing authority
or governmental agency or to determine any such compliance.
(7) OTHER ACTION BY BOARD OF DIRECTORS.
Subject to Section 2 of this Article Thirteenth, nothing contained in this
Article Thirteenth shall limit the authority of the Board of Directors to take
such other action as it deems necessary or advisable to protect the status of
MeriStar Hospitality Corporation or any affiliate of MeriStar Hospitality
Corporation as a REIT.
(8) AMBIGUITIES.
In the case of an ambiguity in the application of any of the provisions of
this Article Thirteenth, including any definition contained in Section 1, the
Board of Directors shall have the power to determine the application of the
provisions of this Article Thirteenth with respect to any situation based on the
facts known to it. In the event this Article Thirteenth requires or permits an
action by the Board of Directors and the Certificate of Incorporation fails to
provide specific guidance with respect to such action, the Board of Directors
shall have the power to determine the action to be taken so long as such action
is not contrary to the provisions of this Article Thirteenth.
(9) LEGEND.
Each certificate for Shares shall bear substantially the following legend:
The securities represented by this certificate are subject to restrictions
on ownership and transfer. This description is a summary only, and is qualified
in its entirety by reference to the full transfer restrictions in the
Certificate of Incorporation of Doral International, Inc. (the "CORPORATION"), a
copy of which will be supplied free of charge at any stockholder's request.
Except as otherwise provided pursuant to the Certificate of Incorporation of the
Corporation, one or more Covered Persons, who or which Beneficially Own
outstanding shares of MeriStar REIT Equity Stock in excess of 34.9% of the total
outstanding shares of MeriStar REIT Equity Stock, may not Beneficially Own
outstanding shares of the Corporation in excess of 35% of either (i) the total
combined voting power of all outstanding shares entitled to vote or (ii) the
total outstanding shares of the Corporation. Any Person who attempts or proposes
to, alone or in combination with other Persons, Beneficially Own shares of the
Corporation that would result in a violation of the above limitations must
notify the Corporation in writing at least 15 days prior to such proposed or
attempted Transfer. All capitalized terms not defined in this legend have the
meanings defined in the Certificate of Incorporation of the Corporation, a copy
of which, including the restrictions on transfer, will be furnished to each
stockholder on request and without charge. If the restrictions on transfer are
violated, the securities represented hereby which are in excess of the above
limitations will be designated and treated as Excess Shares which will be held
in trust by the Excess Share Trustee for the benefit of the Charitable
Beneficiary.
Instead of the foregoing legend, the certificate may state that the
Corporation will furnish a full statement about certain restrictions on
transferability to a stockholder on request and without charge.
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(10) SEVERABILITY.
If any provision of this Article Thirteenth or any application of any such
provision is determined to be void, invalid or unenforceable by any court having
jurisdiction over the issue, the validity and enforceability of the remaining
provisions shall be affected only to the extent necessary to comply with the
determination of such court.
(11) TRANSFER OF EXCESS SHARES.
Upon any purported Transfer that results in Excess Shares pursuant to
Section 3 of this Article Thirteenth, such Excess Shares shall be automatically
transferred to the Excess Share Trustee, as trustee of a special trust for the
exclusive benefit of the Charitable Beneficiary. The Corporation shall name a
Charitable Beneficiary, if one does not already exist, within five days of the
discovery of any designation of any Excess Shares; however, the failure to so
name a Charitable Beneficiary shall not affect the designation of Shares as
Excess Shares or the transfer thereof to the Excess Share Trustee. Excess Shares
so held in trust shall be issued and outstanding Shares of the Corporation. The
Purported Record Transferee shall have no rights in such Excess Shares except as
expressly provided in this Article Thirteenth.
(12) DISTRIBUTIONS ON EXCESS SHARES.
Any dividends (whether taxable as a dividend, return of capital or
otherwise) on Excess Shares shall be paid to the Excess Share Trust for the
benefit of the Charitable Beneficiary. Upon liquidation, dissolution or winding
up, the Purported Record Transferee shall receive, for each Excess Share, the
lesser of (1) the amount per share of any distribution made upon liquidation,
dissolution or winding up and (2) the price paid by the Purported Record
Transferee for the Excess Shares, or if the Purported Record Transferee did not
give value for the Excess Shares, the Fair Market Value of the Excess Shares on
the day of the event causing the Excess Shares to be held in trust. Any such
dividend or distribution paid to the Purported Record Transferee in excess of
the amount provided in the preceding sentence prior to the discovery by the
Corporation that the Shares with respect to which the dividend or distribution
was made had been designated as Excess Shares shall be repaid, upon demand, to
the Excess Share Trust for the benefit of the Charitable Beneficiary.
(13) VOTING OF EXCESS SHARES.
The Excess Share Trustee shall be entitled to vote the Excess Shares on
behalf of the Charitable Beneficiary on any matter. Subject to Delaware law, any
vote cast by a Purported Record Transferee with respect to the Excess Shares
prior to the discovery by the Corporation that the Excess Shares were held in
trust will be rescinded ab initio; provided, however, that if the Corporation
has already taken irreversible action with respect to a merger, reorganization,
sale of all or substantially all the assets, dissolution of the Corporation or
other action by the Corporation, then the vote cast by the Purported Record
Transferee shall not be rescinded. The owner of the Excess Shares will be deemed
to have given an irrevocable proxy to the Excess Share Trustee to vote the
Excess Shares for the benefit of the Charitable Beneficiary.
Notwithstanding the provisions of this Article Thirteenth, until the
Corporation has received notification that Excess Shares have been transferred
into an Excess Share Trust, the Corporation shall be entitled to rely on its
share transfer and other stockholder records for purposes of preparing lists of
stockholders entitled to vote at meetings, determining the validity and
authority of proxies and otherwise conducting votes of stockholders.
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(14) NON-TRANSFERABILITY OF EXCESS SHARES.
Excess Shares shall be transferable only as provided in this Section 14. At
the direction of the Board of Directors, the Excess Share Trustee shall transfer
the Shares held in the Excess Share Trust to a Person or Persons whose ownership
of such Shares will not violate the Ownership Limit. If such a transfer is made
to such a Person or Persons, the interest of the Charitable Beneficiary shall
terminate and the designation of such Shares as Excess Shares shall thereupon
cease. The Purported Record Transferee shall receive the lesser of (1) the price
paid by the Purported Record Transferee for the Excess Shares or, if the
Purported Record Transferee did not give value for the Excess Shares, the Fair
Market Value of the Excess Shares on the day of the event causing the Excess
Shares to be held in trust, and (2) the price received by the Excess Share Trust
from the sale or other disposition of the Excess Shares. Any proceeds in excess
of the amount payable to the Purported Record Transferee will be paid to the
Charitable Beneficiary. The Excess Share Trustee shall be under no obligation to
obtain the highest possible price for the Excess Shares. Prior to any transfer
of any Excess Shares by the Excess Share Trustee, the Corporation must have
waived in writing its purchase rights under Section 15. It is expressly
understood that the Purported Record Transferee may enforce the provisions of
this Section 14 against the Charitable Beneficiary.
If any of the foregoing restrictions on transfer of Excess Shares is
determined to be void, invalid or unenforceable by any court of competent
jurisdiction, then the Purported Record Transferee may be deemed, at the option
of the Corporation, to have acted as an agent of the Corporation in acquiring
such Excess Shares in trust and to hold such Excess Shares on behalf of the
Corporation.
(15) CALL BY CORPORATION ON EXCESS SHARES.
Excess Shares shall be deemed to have been offered for sale to the
Corporation, or its designee, at a price equal to the lesser of (a) the price
paid by the Purported Record Transferee for the Excess Shares or, if the
Purported Record Transferee did not give value for the Excess Shares, the Fair
Market Value of the Excess Shares on the day of the event causing the Excess
Shares to be held in trust and (b) the Fair Market Value of the Excess Shares on
the date the Corporation, or its designee, accepts such offer (the "REDEMPTION
PRICE"). The Corporation shall have the right to accept such offer for a period
of ninety days after the later of (x) the date of the purported Transfer which
resulted in such Excess Shares and (y) the date the Board of Directors
determines in good faith that a purported Transfer resulting in Excess Shares
has occurred, if the Corporation does not receive a notice of such purported
Transfer pursuant to Section 5 of this Article but in no event later than a
permitted Transfer pursuant to and in compliance with the terms of Section 14 of
this Article. Unless the Board of Directors determines that it is in the
interest of the Corporation to make earlier payments of all of the amount
determined as the Redemption Price in accordance with the preceding sentence,
the Redemption Price may be payable at the option of the Board of Directors at
any time up to but not later than the date five years after the date the
Corporation accepts the offer to purchase the Excess Shares. The Corporation
shall pay interest at the applicable federal rate under section 1274(d) of the
Code, or any successor provision, to the Purported Record Transferee.
(16) UNDERWRITTEN OFFERINGS.
The Ownership Limit shall not apply to the acquisition of Shares or rights,
options or warrants for, or securities convertible into, Shares by an
underwriter in a public offering, provided that (i) the underwriter makes a
timely distribution of such Shares or rights, options or warrants for, or
securities convertible into, Shares and (ii) the underwriter, alone or in
combination with one or more other Covered Persons, does not Beneficially Own
outstanding shares of MeriStar REIT Equity Stock in excess of 34.9% of the total
outstanding shares of MeriStar REIT Equity Stock.
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(17) ENFORCEMENT.
The Corporation is authorized specifically to seek equitable relief,
including injunctive relief, to enforce the provisions of this Article
Thirteenth.
(18) NON-WAIVER.
No delay or failure on the part of the Corporation or the Board of Directors
in exercising any right hereunder shall operate as a waiver of any right of the
Corporation or the Board of Directors, as the case may be, except to the extent
specifically waived in writing.
(19) AMENDMENT.
Notwithstanding any other provision of this certificate or the Bylaws of the
Corporation, the provisions of this Article Thirteenth shall not be amended,
altered, changed or repealed without the affirmative vote of all of the
directors of the Corporation who are not officers or employees of the
Corporation or any affiliate of the Corporation.
IN WITNESS WHEREOF, American Skiing Company has caused this certificate to
be signed on this day of , 2000.
Foster A. Stewart, Jr.
[Title]
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ANNEX B
BYLAWS
OF
DORAL INTERNATIONAL, INC.
(A DELAWARE CORPORATION)
------------------------
ARTICLE 1
DEFINITIONS
As used in these Bylaws, unless the context otherwise requires, the term:
1.1 "ASSISTANT SECRETARY" means an Assistant Secretary of the Corporation.
1.2 "ASSISTANT TREASURER" means an Assistant Treasurer of the Corporation.
1.3 "BOARD" means the Board of Directors of the Corporation.
1.4 "BYLAWS" means the bylaws of the Corporation, as amended from time to
time.
1.5 "CERTIFICATE OF INCORPORATION" means the certificate of incorporation of
the Corporation, as amended, supplemented or restated from time to time.
1.6 "CHAIRMAN" means the Chairman of the Board of Directors of the
Corporation.
1.7 "CHIEF EXECUTIVE OFFICER" means the Chief Executive Officer of the
Corporation.
1.8 "CORPORATION" means Doral International, Inc.
1.9 "DIRECTORS" means directors of the Corporation.
1.10 "ENTIRE BOARD" means all directors of the Corporation in office,
whether or not present at a meeting of the Board, but disregarding vacancies.
1.11 "GENERAL CORPORATION LAW" means the General Corporation Law of the
State of Delaware, as amended from time to time.
1.12 "OFFICE OF THE CORPORATION" means the executive office of the
Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.13 "SECRETARY" means the Secretary of the Corporation.
1.14 "STOCKHOLDERS" means stockholders of the Corporation.
1.15 "TREASURER" means the Treasurer of the Corporation.
1.16 "VICE PRESIDENT" means a Vice President of the Corporation.
ARTICLE 2
STOCKHOLDERS
2.1 PLACE OF MEETINGS. Every meeting of stockholders shall be held at the
office of the Corporation or at such other place within or without the State of
Delaware as shall be specified or fixed in the notice of such meeting or in the
waiver of notice thereof.
2.2 ANNUAL MEETING. A meeting of stockholders shall be held annually for
the election of Directors and the transaction of other business at such hour and
on such business day or as may be determined by the Board and designated in the
notice of meeting.
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2.3 OTHER SPECIAL MEETINGS. A special meeting of stockholders (other than
a special meeting for the election of Directors), unless otherwise prescribed by
statute, may be called at any time only by the Chairman of the Board, the Vice
Chairman of the Board, the Secretary of the Board, by the Chief Executive
Officer or by a majority of the Directors. At any special meeting of
stockholders only such business may be transacted as is related to the purpose
or purposes of such meeting set forth in the notice thereof given pursuant to
Section 2.5 hereof or in any waiver of notice thereof given pursuant to
Section 2.6 hereof. Any power of stockholders to call a special meeting is
specifically denied.
2.4 FIXING RECORD DATE. For the purpose of (a) determining the
stockholders entitled (i) to notice of or to vote at any meeting of stockholders
or any adjournment thereof, (ii) to receive payment of any dividend or other
distribution or allotment of any rights, or entitled (iii) to exercise any
rights in respect of any change, conversion or exchange of stock; or (b) any
other lawful action, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date was
adopted by the Board and which record date shall not be (x) in the case of
clause (a)(i) above, more than sixty nor less than ten days before the date of
such meeting or (y) in the case of clause (a)(iii) or (b) above, more than sixty
days prior to such action. If no such record date is fixed:
2.4.1 The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held;
2.4.2 The record date for determining stockholders for any purpose other
than that specified in Section 2.4.1 shall be at the close of business on
the day on which the Board adopts the resolution relating thereto;
2.4.3 When a determination of stockholders entitled to notice of or to
vote at any meeting of stockholders has been made as provided in this
Section 2.4, such determination shall apply to any adjournment thereof
unless the Board fixes a new record date for the adjourned meeting.
2.5 NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise provided in
Sections 2.4 and 2.6 hereof, whenever under the provisions of any statute, the
Certificate of Incorporation or these Bylaws, stockholders are required or
permitted to take any action at a meeting, written notice shall be given stating
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called. Unless otherwise
provided by any statute, the Certificate of Incorporation or these Bylaws, a
copy of the notice of any meeting shall be given, personally or by mail, not
less than ten nor more than sixty days before the date of the meeting, to each
stockholder entitled to notice of or to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
with postage prepaid, directed to the stockholder at his or her address as it
appears on the records of the Corporation. An affidavit of the Secretary or an
Assistant Secretary that the notice required by this Section 2.5 has been given
shall be prima facie evidence of the facts stated therein. When a meeting is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted at the meeting as originally called.
If, however, the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
2.6 WAIVER OF NOTICE. Whenever the giving of any notice is required by
statute, the Certificate of Incorporation or these Bylaws, a waiver thereof, in
writing, signed by the stockholder or stockholders entitled to said notice,
whether before or after the event as to which such notice is required, shall be
deemed equivalent to notice. Attendance by a stockholder at a meeting shall
constitute a waiver of
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notice of such meeting except when the stockholder attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the stockholders need be specified in any
written waiver of notice unless so required by statute, the Certificate of
Incorporation or these Bylaws.
2.7 LIST OF STOCKHOLDERS. The Secretary shall prepare and make, or cause
to be prepared and made, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, the stockholder's agent, or attorney, at the
stockholder's expense, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present. The Corporation shall maintain the
stockholder list in written form or in another form capable of conversion into
written form within a reasonable time. Upon the willful neglect or refusal of
the Directors to produce such a list at any meeting for the election of
Directors, they shall be ineligible for election to any office at such meeting.
The stock ledger shall be the only evidence as to who are the stockholders
entitled to examine the stock ledger, the list of stockholders or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
2.8 QUORUM OF STOCKHOLDERS; ADJOURNMENT; ORDER OF BUSINESS. Except as
otherwise provided by any statute, the Certificate of Incorporation or these
Bylaws, the holders of one-third of all outstanding shares of stock entitled to
vote at any meeting of stockholders, present in person or represented by proxy,
shall constitute a quorum for the transaction of any business at such meeting.
When a quorum is once present to organize a meeting of stockholders, it is not
broken by the subsequent withdrawal of any stockholders. The chair of any
meeting of stockholders shall determine the order of business and the procedure
at the meeting, including such regulation of the manner of voting and the
conduct of discussion as seem to him or her in order. The chair shall have the
power to adjourn the meeting to another place, date and time. The date and time
of the opening and closing of the polls for each matter upon which the
stockholders will vote at the meeting shall be announced at the meeting. Shares
of its own stock belonging to the Corporation or to another corporation, if a
majority of the shares entitled to vote in the election of Directors of such
other corporation is held, directly or indirectly, by the Corporation, shall
neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of the Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
2.9 VOTING; PROXIES. Unless otherwise provided in the Certificate of
Incorporation, every stockholder of record shall be entitled at every meeting of
stockholders to one vote for each share of capital stock standing in his or her
name on the record of stockholders determined in accordance with Section 2.4
hereof. If the Certificate of Incorporation provides for more or less than one
vote for any share on any matter, each reference in the Bylaws or the General
Corporation Law to a majority or other proportion of stock shall refer to such
majority or other proportion of the votes of such stock. The provisions of
Sections 212 and 217 of the General Corporation Law shall apply in determining
whether any shares of capital stock may be voted and the persons, if any,
entitled to vote such shares; but the Corporation shall be protected in assuming
that the persons in whose names shares of capital stock stand on the stock
ledger of the Corporation are entitled to vote such shares. Holders of
redeemable shares of stock are not entitled to vote after the notice of
redemption is mailed to such holders and a sum sufficient to redeem the stocks
has been deposited with a bank, trust company, or other financial institution
under an irrevocable obligation to pay the holders the redemption price on
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surrender of the shares of stock. At any meeting of stockholders (at which a
quorum was present to organize the meeting), all matters, except as otherwise
provided by statute or by the Certificate of Incorporation or by these Bylaws,
shall be decided by a majority of the votes cast affirmatively or negatively on
any such matter at such meeting by the holders of shares present in person or
represented by proxy and entitled to vote thereon, whether or not a quorum is
present when the vote is taken. All elections of Directors shall be by written
ballot unless otherwise provided in the Certificate of Incorporation. In voting
on any other question on which a vote by ballot is required by law or is
demanded by any stockholder entitled to vote, the voting shall be by ballot.
Each ballot shall be signed by the stockholder voting or the stockholder's proxy
and shall state the number of shares voted. Each stockholder entitled to vote at
a meeting of stockholders may authorize another person or persons to act for
such stockholder by proxy. The validity and enforceability of any proxy shall be
determined in accordance with Section 212 of the General Corporation Law. A
stockholder may revoke any proxy that is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by delivering a proxy in accordance with applicable law bearing a later
date to the Secretary.
2.10 VOTING PROCEDURES AND INSPECTORS OF ELECTION AT MEETINGS OF
STOCKHOLDERS. The Board, in advance of any meeting of stockholders, may appoint
one or more inspectors to act at the meeting and make a written report thereof.
The Board may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate has been appointed
or is able to act at a meeting, the person presiding at the meeting may appoint,
and on the request of any stockholder entitled to vote thereat shall appoint,
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall (a) ascertain the number of
shares outstanding and the voting power of each, (b) determine the shares
represented at the meeting and the validity of proxies and ballots, (c) count
all votes and ballots, (d) determine and retain for a reasonable period a record
of the disposition of any challenges made to any determination by the
inspectors, and (e) certify their determination of the number of shares
represented at the meeting and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of their duties. Unless otherwise provided by the
Board, the date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be determined by
the person presiding at the meeting and shall be announced at the meeting. No
ballot, proxies or votes, or any revocation thereof or change thereto, shall be
accepted by the inspectors after the closing of the polls unless the Court of
Chancery of the State of Delaware upon application by a stockholder shall
determine otherwise.
2.11 ORGANIZATION. At each meeting of stockholders, the Chief Executive
Officer, or in the absence of the Chief Executive Officer, the Chairman, or if
there is no Chairman or if there be one and the Chairman is absent, a Vice
President, and in case more than one Vice President shall be present, that Vice
President designated by the Board (or in the absence of any such designation,
the most senior Vice President, based on age, present), shall act as chairman of
the meeting. The Secretary, or in his or her absence, one of the Assistant
Secretaries, shall act as secretary of the meeting. In case none of the officers
above designated to act as chairman or secretary of the meeting, respectively,
shall be present, a chairman or a secretary of the meeting, as the case may be,
shall be chosen by a majority of the votes cast at such meeting by the holders
of shares of capital stock present in person or represented by proxy and
entitled to vote at the meeting.
2.12 WRITTEN CONSENT OF STOCKHOLDERS. Not Permitted. Any action required
or permitted to be taken by the stockholders of the Corporation must be taken at
a duly called annual or special meeting of such holders and may not be taken by
any consent in writing by such stockholders.
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2.13 ADVANCE NOTICE OF STOCKHOLDER PROPOSALS. At any annual or special
meeting of stockholders, proposals by stockholders and persons nominated for
election as Directors by stockholders shall be considered only if advance notice
thereof has been timely given as provided herein and such proposals or
nominations are otherwise proper for consideration under applicable law and the
Certificate of Incorporation and these Bylaws. Notice of any proposal to be
presented by any stockholder or of the name of any person to be nominated by any
stockholder for election as a Director of the Corporation at any meeting of
stockholders shall be delivered to the Secretary of the Corporation at its
principal executive office not less than 60 nor more than 90 days prior to the
date of the meeting; provided, however, that if the date of the meeting is first
publicly announced or disclosed (in a public filing or otherwise) less than
70 days prior to the date of the meeting, such advance notice shall be given not
more than ten days after such date is first so announced or disclosed. Public
notice shall be deemed to have been given more than 70 days in advance of the
annual meeting if the Corporation shall have previously disclosed, in these
Bylaws or otherwise, that the annual meeting in each year is to be held on a
determinable date, unless and until the Board determines to hold the meeting on
a different date. Any stockholder who gives notice of any such proposal shall
deliver therewith the text of the proposal to be presented and a brief written
statement of the reasons why such stockholder favors the proposal and setting
forth such stockholder's name and address, the number and class of all shares of
each class of stock of the Corporation beneficially owned by such stockholder
and any material interest of such stockholder in the proposal (other than as a
stockholder). Any stockholder desiring to nominate any person for election as a
Director of the Corporation shall deliver with such notice a statement in
writing setting forth the name of the person to be nominated, the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such person, the information regarding such person required by paragraphs
(a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and
Exchange Commission (or the corresponding provisions of any regulation
subsequently adopted by the Securities and Exchange Commission applicable to the
Corporation), such person's signed consent to serve as a Director of the
Corporation if elected, such stockholder's name and address and the number and
class of all shares of each class of stock of the Corporation beneficially owned
by such stockholder. As used herein, shares "beneficially owned" shall mean all
shares as to which such person, together with such person's affiliates and
associates (as defined in Rule 12b-2 under the Securities Exchange Act of 1934),
may be deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the
Securities Exchange Act of 1934, as well as all shares as to which such person,
together with such person's affiliates and associates, has the right to become
the beneficially owner pursuant to any agreement or understanding, or upon the
exercise of warrants, options or rights to convert or exchange (whether such
rights are exercisable immediately or only after the passage of time or the
occurrence of conditions). The person presiding at the meeting, in addition to
making any other determinations that may be appropriate to the conduct of the
meeting, shall determine whether such notice has been duly given and shall
direct that proposals and nominees not be considered if such notice has not been
given.
ARTICLE 3
DIRECTORS
3.1 GENERAL POWERS. Except as otherwise provided in the Certificate of
Incorporation, the business and affairs of the Corporation shall be managed by
or under the direction of the Board. The Board may adopt such rules and
regulations, not inconsistent with the Certificate of Incorporation or these
Bylaws or applicable laws, as it may deem proper for the conduct of its meetings
and the management of the Corporation. In addition to the powers expressly
conferred by these Bylaws, the Board may exercise all powers and perform all
acts that are not required, by these Bylaws or the Certificate of Incorporation
or by statute, to be exercised and performed by the stockholders.
3.2 NUMBER AND ELECTION. Subject to the rights, if any, of holders of
preferred stock of the Corporation, the Board of Directors shall consist of not
less than seven nor more than fourteen
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members, the exact number of which shall be fixed from time to time by the Board
of Directors. Except as provided elsewhere in the Certificate of Incorporation,
Directors shall be elected by a majority of the votes cast at annual meetings of
stockholders, and each Director so elected shall hold office as provided in the
Certificate of Incorporation. Directors need not be stockholders.
3.3 VACANCIES AND REMOVAL. Except as otherwise provided in the Certificate
of Incorporation, any vacancy in the Board of Directors, including newly created
directorships created by an increase in the number of Directors, may be filled
by a majority of the remaining Directors or by the sole remaining Director. The
Directors of the Corporation shall be divided into three Classes, designated
"Class I", "Class II" and "Class III" respectively. The initial term of office
of Class I shall expire on the date of the 2001 annual meeting of stockholders
of the Corporation. The initial term of office of Class II shall expire on the
date of the 2002 annual meeting of stockholders of the Corporation, and the
initial term of office of Class III shall expire on the date of the 2003 annual
meeting of stockholders of the Corporation. Commencing with the annual meeting
of stockholders of the Corporation at which the initial term of office of the
Class III Directors expires, each Director elected to succeed those Directors
whose terms have thereupon expired shall serve for a term ending on the date of
the third annual meeting of stockholders following the annual meeting at which
such Director was elected.
In the event of any increase or decrease in the authorized number of Directors,
(a) each Director then serving as such shall nonetheless continue as a Director
of the class of which he is a member until the expiration of his current term,
or his earlier death, retirement, resignation, or removal, and (b) the newly
created or eliminated directorships resulting from such increase or decrease
shall be apportioned by the Board among the three classes of Directors so as to
maintain such classes as nearly equal in number as reasonably possible. If such
equality is not possible, the increase or decrease shall be apportioned among
the classes in such a way that the difference in the number of Directors in any
two classes shall not exceed one.
3.4 RESIGNATION. Any Director may resign at any time by written notice to
the Corporation. Such resignation shall take effect at the time therein
specified, and, unless otherwise specified in such resignation, the acceptance
of such resignation shall not be necessary to make it effective.
3.5 COMPENSATION. Each Director, in consideration of his or her service as
such, shall be entitled to receive from the Corporation such amount per annum or
such fees for attendance at Directors' meetings, or both, as the Board may from
time to time determine, together with reimbursement for the reasonable
out-of-pocket expenses, if any, incurred by such Director in connection with the
performance of his or her duties. Each Director who shall serve as a member of
any committee of Directors in consideration of serving as such shall be entitled
to such additional amount per annum or such fees for attendance at committee
meetings, or both, as the Board may from time to time determine, together with
reimbursement for the reasonable out-of-pocket expenses, if any, incurred by
such Director in the performance of his or her duties. Nothing contained in this
Section 3.5 shall preclude any Director from serving the Corporation or its
subsidiaries in any other capacity and receiving proper compensation therefor.
3.6 TIMES AND PLACES OF MEETINGS. The Board may hold meetings, both
regular and special, either within or without the State of Delaware. The times
and places for holding meetings of the Board may be fixed from time to time by
resolution of the Board or (unless contrary to a resolution of the Board) in the
notice of the meeting.
3.7 ANNUAL MEETINGS. On the day when and at the place where the annual
meeting of stockholders for the election of Directors is held, and as soon as
practicable thereafter, the Board may hold its annual meeting, without notice of
such meeting, for the purposes of organization, the election of officers and the
transaction of other business. The annual meeting of the Board may be held at
any
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other time and place specified in a notice given as provided in Section 3.10
hereof for special meetings of the Board or in a waiver of notice thereof.
3.8 REGULAR MEETINGS. Regular meetings of the Board may be held without
notice at such times and at such places as shall from time to time be determined
by the Board.
3.9 SPECIAL MEETINGS. Special meetings of the Board may be called by the
Chairman, the Chief Executive Officer or the Secretary or majority of the Entire
Board then serving on at least one day's notice to each Director given by one of
the means specified in Section 3.12 hereof other than by mail, or on at least
three days' notice if given by mail. Special meetings shall be called by the
Chairman, Chief Executive Officer or Secretary in like manner and on like notice
on the written request of any two or more of the Directors then serving.
3.10 TELEPHONE MEETINGS. Directors or members of any committee designated
by the Board may participate in a meeting of the Board or of such committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 3.10 shall constitute
presence in person at such meeting.
3.11 ADJOURNED MEETINGS. A majority of the Directors present at any
meeting of the Board, including an adjourned meeting, whether or not a quorum is
present, may adjourn such meeting to another time and place. At least one day's
notice of any adjourned meeting of the Board shall be given to each Director
whether or not present at the time of the adjournment, if such notice shall be
given by one of the means specified in Section 3.12 hereof other than by mail,
or at least three days' notice if by mail. Any business may be transacted at an
adjourned meeting that might have been transacted at the meeting as originally
called.
3.12 NOTICE PROCEDURE. Subject to Sections 3.9 and 3.15 hereof, whenever,
under the provisions of any statute, the Certificate of Incorporation or these
Bylaws, notice is required to be given to any Director, such notice shall be
deemed given effectively if given in person or by telephone, by mail addressed
to such Director at such Director's address as it appears on the records of the
Corporation, with postage thereon prepaid, or by telegram, telex, telecopy or
similar means addressed as aforesaid.
3.13 WAIVER OF NOTICE. Whenever the giving of any notice is required by
statute, the Certificate of Incorporation or these Bylaws, a waiver thereof, in
writing, signed by the person or persons entitled to said notice, whether before
or after the event as to which such notice is required, shall be deemed
equivalent to notice. Attendance by a person at a meeting shall constitute a
waiver of notice of such meeting except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Directors or a committee of Directors
need be specified in any written waiver of notice unless so required by statute,
the Certificate of Incorporation or these Bylaws.
3.14 ORGANIZATION. At each meeting of the Board, the Chairman, or in the
absence of the Chairman, the Chief Executive Officer, or in the absence of the
Chief Executive Officer, a chairman chosen by a majority of the Directors
present, shall preside. The Secretary shall act as secretary at each meeting of
the Board. In case the Secretary shall be absent from any meeting of the Board,
an Assistant Secretary shall perform the duties of secretary at such meeting;
and in the absence from any such meeting of the Secretary and all Assistant
Secretaries, the person presiding at the meeting may appoint any person to act
as secretary of the meeting.
3.15 QUORUM OF DIRECTORS. Except as otherwise expressly provided by
statute or the Certificate of Incorporation, the presence in person of a
majority of the entire Board shall be necessary and sufficient to constitute a
quorum for the transaction of business at any meeting of the Board, but a
majority of a smaller number may adjourn any such meeting to a later date.
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3.16 ACTION BY MAJORITY VOTE. Except as otherwise expressly required by
statute, the Certificate of Incorporation or these Bylaws, the act of a majority
of the Directors present at a meeting at which a quorum is present shall be the
act of the Board.
3.17 ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all Directors or members of such committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE 4
COMMITTEES OF THE BOARD
4.1 ESTABLISHMENT; AUTHORITY. The Board of Directors, by a resolution
adopted by a majority of the Directors then in office, may designate from among
its members an executive committee and other committees, each consisting of two
or more Directors, and may delegate to such committee or committees any part or
all of the authority of the Board of Directors, except as otherwise provided by
Section 141(c)(2) of the Delaware General Corporation Law, and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to the following
matter: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the General Corporation Law to be
submitted to stockholders for approval or (ii) adopting, amending or repealing
any bylaw of the Corporation.
4.2 PROCEDURES. Vacancies in the membership of a committee shall be filled
by resolution adopted by a majority of the Directors then in office. Committees
shall keep minutes of their proceedings and report the same to the Board of
Directors. Members of a committee may be removed from office, with or without
cause, by resolution adopted by a majority of the Directors then in office. Any
person or persons authorized to call a meeting of the Board of Directors, as
well as the chairman of a committee or the committee itself, may call a meeting
of a committee. Except as hereinbefore otherwise provided, so far as applicable,
the provisions of these Bylaws relating to the calling, noticing and conduct of
meetings of the Board of Directors shall govern the calling, noticing and
conduct of meetings of committees.
ARTICLE 5
OFFICERS
5.1 POSITIONS. The officers of the Corporation shall be a Chief Executive
Officer, a Secretary, a Treasurer and such other officers as the Board may
appoint, including a Chairman, one or more Vice Presidents and one or more
Assistant Secretaries and Assistant Treasurers, who shall exercise such powers
and perform such duties as shall be determined from time to time by the Board.
The Board may designate one or more Vice Presidents as Executive Vice Presidents
and may use descriptive words or phrases to designate the standing, seniority or
areas of special competence of the Vice Presidents elected or appointed by it.
Any number of offices may be held by the same person unless the Certificate of
Incorporation or these Bylaws otherwise provide.
5.2 APPOINTMENT. The officers of the Corporation shall be chosen by the
Board at its annual meeting or at such other time or times as the Board shall
determine.
5.3 COMPENSATION. The compensation of all officers of the Corporation
shall be fixed by, or in the manner prescribed by, the Board. No officer shall
be prevented from receiving a salary or other compensation by reason of the fact
that the officer is also a Director.
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5.4 TERM OF OFFICE. Each officer of the Corporation shall hold office for
the term for which he or she is elected and until such officer's successor is
chosen and qualifies or until such officer's earlier death, resignation or
removal. Any officer may resign at any time upon written notice to the
Corporation. Such resignation shall take effect at the date of receipt of such
notice or at such later time as is therein specified, and, unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective. The resignation of an officer shall be without prejudice to the
contract rights of the Corporation, if any. The Chief Executive Officer (and any
other officer which may at any time be deemed to be the Chief Executive Officer,
if the Chief Executive Officer is not so identified) may be removed prior to the
2003 annual meeting of the stockholders of the Corporation only by the
affirmative vote of a majority of the Directors, including at least one director
not nominated by Oak Hill Capital Partners, L.P. or its affiliates.
The Chief Executive Officer shall have sole authority to remove the Chief
Operating Officer, Resorts, the Chief Operating Officer, Hotel Management and
Bridgestreet, the Chief Financial Officer, the President, Real Estate, the
General Counsel of the Corporation, the Chief Operating Officer (or equivalent
position) of Doral Management Co., Inc, and any other executive officer of the
Corporation.
5.5 FIDELITY BONDS. The Corporation may secure the fidelity of any or all
of its officers or agents by bond or otherwise.
5.6 CHAIRMAN. The Chairman, if one shall have been appointed, shall
preside at all meetings of the Board and shall exercise such powers and perform
such other duties as shall be determined from time to time by the Board.
5.7 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have
responsibility for the management and direction of the business and affairs of
the Corporation and shall exercise such duties as customarily pertain to the
office of the Chief Executive Officer and such other duties as may be prescribed
from time to time by the Board and shall have general supervision over the
business of the Corporation, subject, however, to the control of the Board and
of any duly authorized committee of Directors. The Chief Executive Officer shall
preside at all meetings of the stockholders and at all meetings of the Board at
which the Chairman (if there be one) is not present. The Chief Executive Officer
may sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts and other instruments except in cases in which the signing and
execution thereof shall be expressly delegated by the Board or by these Bylaws
to some other officer or agent of the Corporation or shall be required by
statute otherwise to be signed or executed and, in general, the Chief Executive
Officer shall perform all duties incident to the office of Chief Executive
Officer of a corporation and such other duties as may from time to time be
assigned to the Chief Executive Officer by the Board.
5.8 VICE PRESIDENTS. At the request of the Chief Executive Officer, or, in
the Chief Executive Officer's absence, at the request of the Board, the Vice
Presidents shall (in such order as may be designated by the Board, or, in the
absence of any such designation, in order of seniority based on age) perform all
of the duties of the Chief Executive Officer and, in so performing, shall have
all the powers of, and be subject to all restrictions upon, the Chief Executive
Officer. Any Vice President may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts or other instruments, except in cases in
which the signing and execution thereof shall be expressly delegated by the
Board or by these Bylaws to some other officer or agent of the Corporation, or
shall be required by statute otherwise to be signed or executed, and each Vice
President shall perform such other duties as from time to time may be assigned
to such Vice President by the Board or by the Chief Executive Officer.
5.9 SECRETARY. The Secretary shall attend all meetings of the Board and of
the stockholders and shall record all the proceedings of the meetings of the
Board and of the stockholders in a book to be kept for that purpose, and shall
perform like duties for committees of the Board, when required. The Secretary or
an Assistant Secretary may certify all votes, resolutions and actions of the
stockholders and the Board of Directors and its committees. The Secretary shall
give, or cause to be given, notice of all
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special meetings of the Board and of the stockholders and shall perform such
other duties as may be prescribed by the Board or by the Chief Executive
Officer, under whose supervision the Secretary shall be. The Secretary shall
have custody of the corporate seal of the Corporation, and the Secretary, or an
Assistant Secretary, shall have authority to impress the same on any instrument
requiring it, and when so impressed the seal may be attested by the signature of
the Secretary or by the signature of such Assistant Secretary. The Board may
give general authority to any other officer to impress the seal of the
Corporation and to attest the same by such officer's signature. The Secretary or
an Assistant Secretary may also attest all instruments signed by the Chief
Executive Officer or any Vice President. The Secretary shall have charge of all
the books, records and papers of the Corporation relating to its organization
and management, shall see that the reports, statements and other documents
required by statute are properly kept and filed and, in general, shall perform
all duties incident to the office of Secretary of a corporation and such other
duties as may from time to time be assigned to the Secretary by the Board or by
the Chief Executive Officer.
5.10 ASSISTANT SECRETARIES. The Assistant Secretary, or if there be more
than one, the Assistant Secretaries, in the order determined by the Board of
Directors, shall, in case of the absence or disability of the Secretary, have
the authority and perform the duties of the Secretary.
5.11 TREASURER. The Treasurer shall have charge and custody of, and be
responsible for, all funds, securities and notes of the Corporation; receive and
give receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys and valuable effects in the name and to the
credit of the Corporation in such depositaries as may be designated by the
Board; against proper vouchers, cause such funds to be disbursed by checks or
drafts on the authorized depositaries of the Corporation signed in such manner
as shall be determined by the Board and be responsible for the accuracy of the
amounts of all moneys so disbursed; regularly enter or cause to be entered in
books or other records maintained for the purpose full and adequate account of
all moneys received or paid for the account of the Corporation; have the right
to require from time to time reports or statements giving such information as
the Treasurer may desire with respect to any and all financial transactions of
the Corporation from the officers or agents transacting the same; render to the
Chief Executive Officer or the Board, whenever the Chief Executive Officer or
the Board shall require the Treasurer so to do, an account of the financial
condition of the Corporation and of all financial transactions of the
Corporation; exhibit at all reasonable times the records and books of account to
any of the Directors upon application at the office of the Corporation where
such records and books are kept; disburse the funds of the Corporation as
ordered by the Board; and, in general, perform all duties incident to the office
of Treasurer of a corporation and such other duties as may from time to time be
assigned to the Treasurer by the Board or the Chief Executive Officer.
5.12 ASSISTANT TREASURERS. Except as otherwise provided herein, the
Assistant Treasurer, or, if there shall be more than one, the Assistant
Treasurers, in the order determined by the Board of Directors, shall, in case of
the absence or disability of the Treasurer, have the authority and perform the
duties of the Treasurer.
ARTICLE 6
VOTING SHARES OF OTHER CORPORATIONS
6.1 VOTING SHARES OF OTHER CORPORATIONS. The Chief Executive Officer, any
Vice President, the Secretary, and the Treasurer of this Corporation, in that
order, shall have authority to vote shares of other corporations standing in the
name of this Corporation, and the Chief Executive Officer or the Secretary is
authorized to execute and deliver in the name and on behalf of this Corporation
proxies appointing any one or more of the foregoing officers as the proxy agents
of this Corporation.
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ARTICLE 7
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
7.1 EXECUTION OF CONTRACTS. The Board, except as otherwise provided in
these Bylaws, may prospectively or retroactively authorize any officer or
officers, employee or employees or agent or agents, in the name and on behalf of
the Corporation, to enter into any contract or execute and deliver any
instrument, and any such authority may be general or confined to specific
instances, or otherwise limited.
7.2 LOANS. The Board may prospectively or retroactively authorize the
Chief Executive Officer or any other officer, employee or agent of the
Corporation to effect loans and advances at any time for the Corporation from
any bank, trust company or other institution, or from any firm, corporation or
individual, and for such loans and advances the person so authorized may make,
execute and deliver promissory notes, bonds or other certificates or evidences
of indebtedness of the Corporation, and, when authorized by the Board so to do,
may pledge and hypothecate or transfer any securities or other property of the
Corporation as security for any such loans or advances. Such authority conferred
by the Board may be general or confined to specific instances, or otherwise
limited.
7.3 CHECKS, DRAFTS, ETC. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation and all evidences of
indebtedness of the Corporation shall be signed on behalf of the Corporation in
such manner as shall from time to time be determined by resolution of the Board.
7.4 DEPOSITS. The funds of the Corporation not otherwise employed shall be
deposited from time to time to the order of the Corporation with such banks,
trust companies, investment banking firms, financial institutions or other
depositaries as the Board may select or as may be selected by an officer,
employee or agent of the Corporation to whom such power to select may from time
to time be delegated by the Board.
ARTICLE 8
STOCK AND DIVIDENDS
8.1 CERTIFICATES REPRESENTING SHARES. Certificates representing the shares
of capital stock of the Corporation shall be in such form (consistent with the
provisions of Section 158 of the General Corporation Law) as shall be approved
by the Board. Such certificates shall be signed by the Chairman, the Chief
Executive Officer or a Vice President and by the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer, and may be impressed with
the seal of the Corporation or a facsimile thereof. If the Corporation is
authorized to issue direct classes of shares or different series within a class,
the designations, relative rights, preferences, and limitations applicable to
each class and the variations in rights, preferences, and limitations determined
for each series (and the authority of the Board to determine variations for
future series) shall be summarized on the front or back of each certificate of
shares of such class or series. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
stockholder this information on request in writing and without charge. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. Any signatures on the stock
certificates may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon any certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, such certificate may, unless otherwise ordered by the
Board, be issued by the Corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
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8.2 TRANSFER OF SHARES. Transfers of shares of capital stock of the
Corporation shall be made only on the books of the Corporation by the holder
thereof or by the holder's duly authorized attorney appointed by a power of
attorney duly executed and filed with the Secretary or a transfer agent of the
Corporation, and on surrender of the certificate or certificates representing
such shares of capital stock properly endorsed for transfer and upon payment of
all necessary transfer taxes. Every certificate exchanged, returned or
surrendered to the Corporation shall be marked "Canceled," with the date of
cancellation, by the Secretary or an Assistant Secretary or the transfer agent
of the Corporation.
8.3 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the person or persons shown on its original stock transfer books as
the owner of shares as the exclusive and only owner thereof for all purposes,
including without limitation the right to (i) receive dividends and other
distribution; (ii) vote (except as otherwise provided in the General Corporation
Law); and (iii) examine lists, books, minutes or other materials relating to the
Corporation. The Corporation shall not be bound to recognize any equitable or
other claim to or interest in such shares on the part of any other person noted
in its original stock transfer books, whether or not it shall have express or
other notice thereof.
8.4 TRANSFER AND REGISTRY AGENTS. The Corporation may from time to time
maintain one or more transfer offices or agents and registry offices or agents
at such place or places as may be determined from time to time by the Board.
8.5 LOST, DESTROYED, STOLEN AND MUTILATED CERTIFICATES. The holder of any
shares of capital stock of the Corporation shall immediately notify the
Corporation of any loss, destruction, theft or mutilation of the certificate
representing such shares, and the Corporation may issue a new certificate to
replace the certificate alleged to have been lost, destroyed, stolen or
mutilated. The Board may, in its discretion, as a condition to the issue of any
such new certificate, require the owner of the lost, destroyed, stolen or
mutilated certificate, or his or her legal representatives, to make proof
satisfactory to the Board of such loss, destruction, theft or mutilation and to
advertise such fact in such manner as the Board may require, and to give the
Corporation and its transfer agents and registrars, or such of them as the Board
may require, a bond in such form, in such sums and with such surety or sureties
as the Board may direct, to indemnify the Corporation and its transfer agents
and registrars against any claim that may be made against any of them on account
of the continued existence of any such certificate so alleged to have been lost,
destroyed, stolen or mutilated and against any expense in connection with such
claim.
8.6 RULES AND REGULATIONS. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws or with the
Certificate of Incorporation, concerning the issue, transfer and registration of
certificates representing shares of its capital stock.
ARTICLE 9
INDEMNIFICATION
9.1 INDEMNITY UNDERTAKING. To the extent not prohibited by law, the
Corporation shall indemnify any person who is or was made, or threatened to be
made, a party to any threatened, pending or completed action, suit or proceeding
(a "Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a Director or
officer of the Corporation, or, at the request of the Corporation, is or was
serving as a Director or officer of any other corporation or in a capacity with
comparable authority or responsibilities for any partnership, joint venture,
trust, employee benefit plan or other enterprise (an "Other Entity"), against
judgments, fines, penalties, excise taxes, amounts paid in settlement and costs,
charges and expenses (including attorneys' fees, disbursements and other
charges). Persons who are not Directors or officers of the Corporation (or
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otherwise entitled to indemnification pursuant to the preceding sentence) may be
similarly indemnified in respect of service to the Corporation or to an Other
Entity at the request of the Corporation to the extent the Board at any time
specifies that such persons are entitled to the benefits of this Article 9.
9.2 ADVANCEMENT OF EXPENSES. The Corporation shall reimburse or advance to
any Director or officer or other person entitled to indemnification hereunder
the funds necessary for payment of expenses, including attorneys' fees and
disbursements, incurred in connection with any Proceeding, in advance of the
final disposition of such Proceeding; provided, however, that, if required by
the General Corporation Law, such expenses incurred by or on behalf of any
Director or officer or other person may be paid in advance of the final
disposition of a Proceeding only upon receipt by the Corporation of an
undertaking, by or on behalf of such Director or officer (or other person
indemnified hereunder), to repay any such amount so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right of appeal that such Director, officer or other person is not
entitled to be indemnified for such expenses.
9.3 RIGHTS NOT EXCLUSIVE. The rights to indemnification and reimbursement
or advancement of expenses provided by, or granted pursuant to, this Article 9
shall not be deemed exclusive of any other rights to which a person seeking
indemnification or reimbursement or advancement of expenses may have or
hereafter be entitled under any statute, the Certificate of Incorporation, these
Bylaws, any agreement, any vote of stockholders or disinterested Directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such office.
9.4 CONTINUATION OF BENEFITS. The rights to indemnification and
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 9 shall continue as to a person who has ceased to be a Director or
officer (or other person indemnified hereunder) and shall inure to the benefit
of the executors, administrators, legatees and distributees of such person.
9.5 INSURANCE. The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a Director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a Director, officer, employee or agent of an Other Entity, against any
liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Corporation would have the power to indemnify such person against such liability
under the provisions of this Article 9, the Certificate of Incorporation or
under Section 145 of the General Corporation Law or any other provision of law.
9.6 BINDING EFFECT. The rights to indemnification and to the advancement
of expenses conferred in this Article shall be contract rights and such rights
shall continue as to an indemnitee who has ceased to be a Director, officer,
employee, or agent and shall inure to the benefit of the indemnitee's heirs,
executors, and administrators. No repeal or modification of this Article 9 shall
affect any rights or obligations with respect to any state of facts then or
theretofore existing or thereafter arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
9.7 PROCEDURAL RIGHTS. The rights to indemnification and reimbursement or
advancement of expenses provided by, or granted pursuant to, this Article 9
shall be enforceable by any person entitled to such indemnification or
reimbursement or advancement of expenses in any court of competent jurisdiction.
The burden of proving that such indemnification or reimbursement or advancement
of expenses is not appropriate shall be on the Corporation. Neither the failure
of the Corporation (including its Directors, its independent legal counsel and
its stockholders) to have made a determination prior to the commencement of such
action that such indemnification or reimbursement or advancement of expenses is
proper in the circumstances nor an actual determination by the Corporation
(including its Directors, its independent legal counsel and its stockholders)
that such person is not entitled to such indemnification or reimbursement or
advancement of expenses shall constitute a defense to the action or create a
presumption that such person is not so entitled. Such a
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person shall also be indemnified for any expenses incurred in connection with
successfully establishing his or her right to such indemnification or
reimbursement or advancement of expenses, in whole or in part, in any such
proceeding.
9.8 SERVICE DEEMED AT CORPORATION'S REQUEST. Any Director or officer of
the Corporation serving in any capacity (a) another corporation of which a
majority of the shares entitled to vote in the election of its Directors is
held, directly or indirectly, by the Corporation or (b) any employee benefit
plan of the Corporation or any corporation referred to in clause (a) shall be
deemed to be doing so at the request of the Corporation.
ARTICLE 10
BOOKS AND RECORDS
10.1 BOOKS AND RECORDS. There shall be kept at the principal office of the
Corporation correct and complete records and books of account recording the
financial transactions of the Corporation and minutes of the proceedings of the
stockholders, the Board and any committee of the Board. The Corporation shall
keep at its principal office, or at the office of the transfer agent or
registrar of the Corporation, a record containing the names and addresses of all
stockholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof.
10.2 FORM OF RECORDS. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible written
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
10.3 INSPECTION OF BOOKS AND RECORDS. Except as otherwise provided by law,
the Board shall determine from time to time whether, and, if allowed, when and
under what conditions and regulations, the accounts, books, minutes and other
records of the Corporation, or any of them, shall be open to the stockholders
for inspection.
ARTICLE 11
SEAL
The corporate seal, if the Board elects to adopt one, shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or otherwise reproduced.
ARTICLE 12
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and may be changed, by
resolution of the Board.
ARTICLE 13
PROXIES AND CONSENTS
Unless otherwise directed by the Board, the Chairman, the Chief Executive
Officer, any Vice President, the Secretary or the Treasurer, or any one of them,
may execute and deliver on behalf of the Corporation proxies respecting any and
all shares or other ownership interests of any Other Entity owned by the
Corporation appointing such person or persons as the officer executing the same
shall deem proper to represent and vote the shares or other ownership interests
so owned at any and all meetings of holders of shares or other ownership
interests, whether general or special, and/or to
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execute and deliver consents respecting such shares or other ownership
interests; or any of the aforesaid officers may attend any meeting of the
holders of shares or other ownership interests of such Other Entity and thereat
vote or exercise any or all other powers of the Corporation as the holder of
such shares or other ownership interests.
ARTICLE 14
OFFICES
14.1 REGISTERED OFFICE. The registered office of the Corporation shall be
at Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of
Newcastle, State of Delaware; and its registered agent at such address is
Corporation Trust Company.
14.2 OTHER OFFICES. The Corporation may also have offices, including its
principal office, at such other places both within and without the State of
Delaware as the Board may from time to time determine or the business of the
Corporation may require.
ARTICLE 15
EMERGENCY BYLAWS
Unless the Certificate of Incorporation provides otherwise, the following
provisions of this Article 15 shall be effective during an emergency, which is
defined as when a quorum of the Corporation's Directors cannot be readily
assembled because of some catastrophic event. During such emergency:
15.1 NOTICE TO BOARD MEMBERS. Any one member of the Board or any one of
the following officers: Chairman, Chief Executive Officer, any Vice President,
Secretary, or Treasurer, may call a meeting of the Board. Notice of such meeting
need be given only to those Directors whom it is practicable to reach, and may
be given in any practical manner, including by publication and radio. Such
notice shall be given at least six hours prior to commencement of the meeting.
15.2 TEMPORARY DIRECTORS AND QUORUM. One or more officers of the
Corporation present at the emergency Board meeting, as is necessary to achieve a
quorum, shall be considered to be Directors for the meeting, and shall so serve
in order of rank, and within the same rank, in order of seniority. In the event
that less than a quorum of the Directors are present (including any officers who
are to serve as Directors for the meeting), those Directors present (including
the officers serving as Directors) shall constitute a quorum.
15.3 ACTIONS PERMITTED TO BE TAKEN. The Board as constituted in
Section 15.2, and after notice as set forth in Section 15.1 may:
15.3.1 prescribe emergency powers to any officer of the Corporation;
15.3.2 delegate to any officer or Director, any of the powers of the
Board;
15.3.3 designate lines of succession of officers and agents, in the
event that any of them are unable to discharge their duties;
15.3.4 relocate the principal place of business, or designate successive
or simultaneous principal places of business; and
15.3.5 take any other convenient, helpful or necessary action to carry
on the business of the Corporation.
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ARTICLE 16
AMENDMENTS
These Bylaws of the Corporation may be altered or repealed and new Bylaws
may be adopted (i) at any annual or special meeting of stockholders, by the
affirmative vote of not less than a majority of all votes entitled to be cast by
all of the then outstanding shares of capital stock of the Corporation in the
election of Directors, provided, however, that any proposed alteration or repeal
of, or the adoption of any by-law inconsistent with, Sections 2.4, 2.14 and 2.15
of Article 2 of these Bylaws, 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 of Article 3 of
these Bylaws, by stockholders shall require the affirmative vote of not less
than two-thirds of all votes entitled to be cast by all of the then outstanding
shares of capital stock of the Corporation in the election of Directors, or
(ii) by the affirmative vote of a majority of the Board.
The undersigned, in his capacity as Secretary of the Corporation, hereby
certifies that the foregoing is the Bylaws of Corporation adopted by the Board
of the Corporation on this day of December, 2000.
-------------------------------------------
Secretary,
Doral International, Inc.
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<PAGE>
ANNEX C
List of Certain Management Personnel of ASC
after the Effective Time
<TABLE>
<S> <C>
Leslie Otten Chairman
Paul Whetsell Chief Executive Officer
John Emery Chief Financial Officer
B.J. Fair COO, Resorts
David McCaslin COO, Hotel Management and
BridgeStreet
Hernan Martinez President, Real Estate
</TABLE>
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ANNEX D
[Form of Rule 145 Affiliate Agreement]
[Date]
<TABLE>
<S> <C>
American Skiing Company MeriStar Hotels & Resorts, Inc.
One Monument Way 1010 Wisconsin Avenue, NW
Portland, Maine 04101 Washington, DC 20007
Attention: Christopher E. Howard Attention: Christopher L. Bennett, Esq.
Foster A. Stewart, Jr.
</TABLE>
To whom it may concern:
I have been advised that as of the date hereof I may be deemed to be an
"affiliate" of MeriStar Hotels & Resorts, Inc., a Delaware corporation
("MERISTAR"), as that term is defined for purposes of paragraphs (c) and (d) of
Rule 145 of the rules and regulations (the "RULES AND REGULATIONS") of the
Securities and Exchange Commission (the "COMMISSION") under the Securities Act
of 1933 (the "ACT"). Neither my entering into this agreement, nor anything
contained herein, shall be deemed an admission on my part that I am such an
"affiliate."
Pursuant to the terms of the Agreement and Plan of Merger dated as of
December 8, 2000 (the "MERGER AGREEMENT"), among American Skiing Company, a
Delaware corporation ("ASC"), ASC Merger Sub, Inc., a Delaware corporation
("MERGER SUB"), and MeriStar providing for the merger (the "MERGER") of Merger
Sub with and into MeriStar, and as a result of the Merger, I may receive shares
of common stock, par value $0.01 per share, of ASC (the "ASC COMMON STOCK") in
exchange for the shares of common stock, par value $0.01 per share, of MeriStar
owned by me at the Effective Time (as defined in the Merger Agreement) of the
Merger.
I represent and warrant to ASC and Merger Sub that in such event:
A. I shall not make any sale, transfer or other disposition of ASC
Common Stock in violation of the Act or the Rules and Regulations.
B. I have carefully read this letter and the Merger Agreement and
discussed its requirements and other applicable limitations upon my ability
to sell, transfer or otherwise dispose of ASC Common Stock, to the extent I
felt necessary, with my counsel or counsel for MeriStar.
C. I have been advised that the issuance of ASC Common Stock to me
pursuant to the Merger has been registered with the Commission under the Act
on a Registration Statement on Form S-4. However, I have also been advised
that, since at the time the Merger was submitted for a vote of the
stockholders of MeriStar I may have been deemed to have been an affiliate of
MeriStar and a distribution by me of ASC Common Stock has not been
registered under the Act, ASC Common Stock must be held by me indefinitely
unless (i) a distribution of ASC Common Stock by me has been registered
under the Act, (ii) a sale of ASC Common Stock by me is made in conformity
with the volume and other limitations of Rule 145 promulgated by the
Commission under the Act or (iii) in the opinion of counsel reasonably
acceptable to ASC, some other exemption from registration is available with
respect to a proposed sale, transfer or other disposition of ASC Common
Stock.
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D. I understand that neither ASC nor Merger Sub is under any obligation
to register the sale, transfer or other disposition of ASC Common Stock by
me or on my behalf or to take any other action necessary in order to make
compliance with an exemption from registration available.
E. I also understand that unless the transfer by me of my ASC Common
Stock has been registered under the Act or is a sale made in conformity with
the provisions of Rule 145, ASC reserves the right to put the following
legend on the certificates issued to my transferee:
The offer and sale of the shares represented by this certificate have
not been registered under the Securities Act of 1933, and these shares
were acquired from a person who received such shares in a transaction to
which Rule 145 promulgated under the Securities Act applies. The shares
have been acquired by the holder not with a view to, or for resale in
connection with, any distribution thereof within the meaning of the
Securities Act and may not be sold, pledged or otherwise transferred
except in a transaction registered under the Securities Act in accordance
with an exemption from the registration requirements of the Securities
Act.
It is understood and agreed that the legends set forth in paragraph E and F
above shall be removed by delivery of substitute certificates without such
legend if the undersigned shall have delivered to ASC a copy of a letter from
the staff of the Commission, or an opinion of counsel reasonably acceptable to
ASC to the effect that such legend is not required for purposes of the Act.
Very truly yours,
--------------------------------------
Name:
Accepted this day of
, by:
<TABLE>
<S> <C> <C>
AMERICAN SKIING COMPANY
By:
-------------------------------------------
Name:
Title:
</TABLE>
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<PAGE>
ANNEX E
REGISTRATION RIGHTS AGREEMENT
Among
DORAL INTERNATIONAL, INC.
OAK HILL CAPITAL PARTNERS, L.P.
AND OTHER ENTITIES NAMED IN SCHEDULE A HERETO
and
LESLIE B. OTTEN
Dated as of , 2001
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I DEFINITIONS
SECTION 1.1 Certain Definitions......................................... 1
ARTICLE II REPRESENTATIONS AND WARRANTIES
SECTION 2.1 Representations and Warranties of the Company............... 4
ARTICLE III REGISTRATION RIGHTS
SECTION 3.1 Restrictive Legend.......................................... 5
SECTION 3.2 Notice of Proposed Transfer................................. 5
SECTION 3.3 Request for Registration.................................... 6
SECTION 3.4 Incidental Registration..................................... 9
SECTION 3.5 Shelf Registration.......................................... 10
SECTION 3.6 Registration Procedures..................................... 11
SECTION 3.7 Furnish Information......................................... 13
SECTION 3.8 Expenses of Registration.................................... 13
SECTION 3.9 Underwriting Requirements................................... 13
SECTION 3.10 Indemnification............................................. 14
SECTION 3.11 Lockup...................................................... 16
SECTION 3.12 Transfer of Registration Rights............................. 17
SECTION 3.13 Rule 144 Information........................................ 17
ARTICLE IV GENERAL PROVISIONS
SECTION 4.1 Term and Termination........................................ 18
SECTION 4.2 Waivers or Amendments....................................... 18
SECTION 4.3 Expenses; Attorneys' Fees................................... 18
SECTION 4.4 Notices..................................................... 18
SECTION 4.5 Headings.................................................... 19
SECTION 4.6 Severability................................................ 19
SECTION 4.7 Entire Agreement............................................ 19
SECTION 4.8 Assignment.................................................. 19
SECTION 4.9 No Third Party Beneficiaries................................ 19
SECTION 4.10 Governing Law; Forum........................................ 19
SECTION 4.11 Specific Performance........................................ 20
SECTION 4.12 Counterparts................................................ 20
SCHEDULE A Oak Hill Stockholders.......................................
</TABLE>
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated as of , 2001 (this
"AGREEMENT"), is made and entered into among Doral International, Inc. (f/k/a
American Skiing Company), a Delaware corporation (the "COMPANY"), the
stockholders listed on SCHEDULE A hereto, Oak Hill Capital Partners, L.P., a
Delaware limited partnership ("OAK HILL", and together with the stockholders
listed on Schedule A hereto, the "OAK HILL STOCKHOLDERS"), and Mr. Leslie B.
Otten ("OTTEN").
RECITALS:
A. The Company, ASC Merger Sub, Inc., a Delaware corporation ("MERGER SUB"),
and MeriStar Hotels & Resorts, Inc., a Delaware corporation ("MERISTAR"), have
entered into an Agreement and Plan of Merger, dated as of December 8, 2000 (the
"MERGER AGREEMENT"), pursuant to which, simultaneously with the execution of
this Agreement, Merger Sub is merging with and into MeriStar (the "MERGER") on
the terms and subject to the conditions set forth in the Merger Agreement, with
MeriStar surviving as a wholly-owned subsidiary of the Company.
B. In connection with the Merger, the parties hereto wish to enter into
this Agreement to set forth their agreement as to the matters set forth herein
with respect to the right of the Oak Hill Stockholders and Otten to have the
resale of certain of the Company's securities held by them to be registered
under the Securities Act of 1933 (the "SECURITIES ACT").
NOW, THEREFORE, in consideration of the premises and the mutual agreements
and covenants hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN DEFINITIONS.
(a) Unless otherwise defined in this Agreement, capitalized terms used
herein without definition have the respective meanings ascribed to them in the
Merger Agreement.
(b) As used in this Agreement, the following terms shall have the following
meanings:
"AFFILIATE" has the meaning set forth in Rule 12b-2, as in effect on the
date hereof, under the Exchange Act.
"ASSOCIATE" has the meaning set forth in Rule 12b-2, as in effect on the
date hereof, under the Exchange Act.
"BENEFICIALLY OWN" has the meaning set forth below:
A Person shall be deemed to "Beneficially Own" any securities:
(i) of which such Person or any of such Person's Affiliates or
Associates is considered to be a "beneficial owner" under Rule 13d-3 of
the Exchange Act, as in effect on the date of this Agreement;
(ii) which are Beneficially Owned, directly or indirectly, by any
other Person (or any Affiliate or Associate of such other Person) with
which such Person (or any of such Person's Affiliates or Associates) has
any agreement, arrangement or understanding (whether or not in writing),
for the purpose of acquiring, holding, voting or disposing of such
securities; or
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(iii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether
such right is exercisable immediately or only after the passage of time
or upon the satisfaction of conditions) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants or
options, or otherwise.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or other day on
which banks are required or authorized by law to be closed in The City of New
York.
"COMMON STOCK" means the Company's common stock, par value $0.01 per share.
"DIRECTOR" means a member of the Board of Directors of the Company
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"FAIR MARKET VALUE" means, for any applicable measurement date, the closing
price of the Common Stock (as of the close of the immediately preceding trading
day) on the principal national securities exchange or automated quotation system
on which the Common Stock is listed.
"FULLY DILUTED BASIS" means, in respect of the Common Stock, the method of
calculating the number of shares of Common Stock outstanding on an applicable
measurement date, pursuant to which the following shares shall be deemed to be
outstanding: (i) all shares of Common Stock outstanding on the measurement date
and (ii) all shares of Common Stock issuable pursuant to any securities or stock
options of the Company outstanding at any time which are convertible into or
exercisable for shares of Common Stock at a conversion or exercise price at or
below the then current Fair Market Value.
"GROUP" has the meaning set forth in Rule 13d-5, as in effect on the date
hereof, under the Exchange Act.
"HOLDERS" means the Oak Hill Stockholders, Otten or any Permitted Transferee
to whom the rights under this Agreement are assigned in accordance with the
provisions of Section 3.12 hereof.
"ING" means ING (U.S.) Capital LLC, a Delaware limited liability company
(f/k/a ING (U.S.) Capital Corporation).
"ING REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated as of November 10, 1997 between the Company and ING, as amended to date.
"PERMITTED TRANSFEREE" means, with respect to a Person, an Affiliate of that
Person who expressly assumes all of such Person's obligations under this
Agreement.
"PERSON" means any individual, firm, corporation, partnership, limited
partnership, limited liability company, association, trust, unincorporated
organization or other entity, as well as any syndicate or group that would be
deemed to be a person under Section 13(d)(3), as in effect on the date hereof,
of the Exchange Act.
"REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a registration
effected by preparing and filing a registration statement or similar document
with the SEC in compliance with the Securities Act and the declaration or
ordering of effectiveness by the SEC of such registration statement or document.
"REGISTRABLE STOCK" shall mean any shares of Common Stock Beneficially Owned
by Otten, the Oak Hill Stockholders or their Permitted Transferees. For purposes
of this Agreement, any Registrable Stock shall cease to be Registrable Stock
when with respect to such Registrable Stock (i) a registration statement
covering such Registrable Stock has been declared effective under the Securities
Act by the SEC and such Registrable Stock has been disposed of pursuant to such
effective registration statement, (ii) such Registrable Stock is sold in a
transaction in which the rights under the provisions of Article V are not
assigned in accordance with Section 3.12, (iii) such Registrable Stock may be
sold pursuant to Rule 144(k) (or any similar provision then in force except for
Rule 144A) without registration under
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the Securities Act or (iv) the Person who Beneficially Owns such Registrable
Stock, no longer Beneficially Owns at least 2% of the outstanding shares of
Common Stock (on a Fully Diluted Basis).
"SEC" means the Securities and Exchange Commission or any other federal
agency at the time administering the Securities Act.
(A) The following terms have the meanings set forth in the Sections set
forth below:
<TABLE>
<CAPTION>
TERM LOCATION
---- ---------
<S> <C>
Company..................................................... Preamble
Merger...................................................... Recitals
Merger Agreement............................................ Recitals
Merger Sub.................................................. Recitals
MeriStar.................................................... Preamble
Oak Hill.................................................... Preamble
Oak Hill Stockholders....................................... Preamble
Otten....................................................... Preamble
</TABLE>
(B) References in this Agreement to annexes, articles, sections,
paragraphs, clauses, schedules and exhibits are to annexes, articles,
sections, paragraphs, clauses, schedules and exhibits in or to this
Agreement unless otherwise indicated. Whenever the context may require, any
pronoun includes the corresponding masculine, feminine and neuter forms. Any
term defined by reference to any agreement, instrument or document has the
meaning assigned to it whether or not such agreement, instrument or document
is in effect. The words "include", "includes" and "including" are deemed to
be followed by the phrase "without limitation". Unless the context otherwise
requires, any agreement, instrument or other document defined or referred to
herein refers to such agreement, instrument or other document as from time
to time amended, supplemented or otherwise modified from time to time.
Unless the context otherwise requires, references herein to any Person or
entity include its successors and assigns. The words "shall" and "will" have
the same meaning and effect.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each other party to this Agreement that:
(a) The Company has all requisite power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby, and the
execution and delivery of this Agreement and the consummation by the Company
of the transactions contemplated hereby have been duly authorized by all
necessary action, if any, on the part of the Company;
(b) This Agreement has been duly executed and delivered by the Company
and, assuming that this Agreement constitutes the valid and binding
obligation of each of the other parties to this Agreement, this Agreement
constitutes a valid and binding obligation of the Company, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar
laws affecting creditors' rights and remedies generally and to general
principles of equity; and
(c) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, result in a breach or violation
of or default (with or without notice or lapse of time or both) under, or
give rise to a material obligation, a right of termination, cancellation, or
acceleration of
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any obligation or a loss of a material benefit under, or require notice to
or the consent of any person under any organizational documents of the
Company or any contract, agreement, instrument, undertaking, law, judgment,
order, injunction, decree, determination or award binding on the Company,
other than any such conflicts, breaches, violations, defaults, obligations,
rights or losses that, individually or in the aggregate, would not
(i) impair the ability of the Company to perform such party's obligations
under this Agreement or (ii) prevent or delay the consummation of any of the
transactions contemplated hereby.
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.1 RESTRICTIVE LEGEND. Each certificate representing the shares
of Registrable Stock shall, except as otherwise provided in this Article III, be
stamped or otherwise imprinted with legends substantially in the following form:
THE OFFER AND SALE OF THIS SECURITY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT"), AND THIS SECURITY MAY NOT
BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE OFFER AND SALE
HAS BEEN REGISTERED UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE FOR SUCH OFFER AND SALE.
A certificate shall not bear the Securities Act legend or the legend regarding
this Agreement, as the case may be, if in the opinion of counsel satisfactory to
the Company (it being agreed that Paul, Weiss, Rifkind, Wharton & Garrison shall
be satisfactory) the securities being sold thereby may be publicly sold without
registration under the Securities Act or may be sold without being subject to
the restrictions on sale specified in Article III.
SECTION 3.2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer of
any shares of Registrable Stock (other than under the circumstances described in
Section 3.3, 3.4 or 3.5), permitted under Article III, the holder thereof shall
give written notice to the Company of its intention to effect such transfer.
Each such notice shall describe the manner of the proposed transfer and, if
known, the identity of the proposed transferee and, if requested by the Company,
shall be accompanied by an opinion of counsel satisfactory to the Company to the
effect that the proposed transfer may be effected without registration under the
Securities Act, whereupon the holder of such stock shall be entitled to transfer
such stock in accordance with the terms of its notice, subject in any event to
the restrictions in Article III; provided, however, that no such opinion of
counsel shall be required for a transfer to one or more Permitted Transferees
subject in any event to the restrictions in Article III. Each certificate
representing Registrable Stock transferred as above provided shall bear the
legends set forth in Section 3.1, except that such certificate shall not bear
such legends if (i) such transfer is in accordance with the provisions of
Rule 144(k) under the Securities Act or (ii) the opinion of counsel referred to
above is to the further effect that the transferee and any subsequent transferee
(other than an Affiliate of the Company) would be entitled to transfer such
securities in a public sale without registration under the Securities Act. The
restrictions provided for in this Section 3.2 shall not apply to securities that
are not required by Section 3.1 to bear the legends prescribed by Section 3.1.
SECTION 3.3 REQUEST FOR REGISTRATION.
(a) At any time after the date hereof, one or more Holders of Registrable
Stock (the "INITIATING HOLDERS") may request in a written notice (which notice
shall state the number of shares of Registrable Stock to be so registered and
the intended method of distribution) that the Company file a registration
statement under the Securities Act (or a similar document pursuant to any other
statute then in effect
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corresponding to the Securities Act) covering the registration of any or all
Registrable Stock held by such Initiating Holders in the manner specified in
such notice; PROVIDED, HOWEVER, that there must be included in such registration
no less than the lesser of (1) 10% of the Registrable Stock outstanding as of
the date hereof on an as-converted basis (subject to appropriate adjustments to
reflect stock splits, stock dividends, corporate recapitalizations or similar
transactions) and (2) Registrable Stock whose anticipated aggregate offering
price would exceed $25.0 million. Following receipt of any notice under this
Section 3.3, the Company shall (x) within 30 days notify all other Holders of
such request in writing and (y) use its best efforts to cause to be registered
under the Securities Act all Registrable Stock that the Initiating Holders and
such other Holders have, within ten days after the Company has given such
notice, requested be registered in accordance with the manner of disposition
specified in such notice by the Initiating Holders.
(b) If the Initiating Holders intend to have the Registrable Stock
distributed by means of an underwritten offering, the Company shall include such
information in the written notice referred to in clause (x) of Section 3.3(a).
In such event, the right of any Holder to include its Registrable Stock in such
registration shall be conditioned upon such Holder's participation in such
underwritten offering and the inclusion of such Holder's Registrable Stock in
the underwritten offering (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders and such Holder) to the extent provided
below. All Holders proposing to distribute Registrable Stock through such
underwritten offering shall enter into an underwriting agreement in customary
form with the underwriter or underwriters. Such underwriter or underwriters
shall be selected by a majority in interest of the Initiating Holders and shall
be approved by the Company, which approval shall not be unreasonably withheld.
(c) Notwithstanding any provision of this Agreement to the contrary, other
than Section 3.3(f),
(i) The Company shall not be required to effect a registration pursuant
to this Section 3.3 during the period starting with the date which is
30 days prior to the date of the initial public filing by the Company of,
and ending on a date that is 120 days following the effective date of, a
registration statement pertaining to a public offering of securities for the
account of the Company or on behalf of the selling stockholders under any
other registration that the Holders are entitled to join pursuant to
Section 3.4; PROVIDED, HOWEVER, that the Company shall actively employ in
good faith all reasonable efforts to cause such registration statement to
become effective as promptly as practicable;
(ii) If (A)(i) the Company is in possession of material nonpublic
information relating to the Company or any of its Subsidiaries and (ii) the
Company determines in good faith that public disclosure of such material
nonpublic information would not be in the best interests of the Company and
its stockholders, (B)(i) the Company has made a public announcement relating
to an acquisition or business combination transaction that includes the
Company and/or one or more of its Subsidiaries that is material to the
Company and its Subsidiaries taken as a whole and (ii) the Company
determines in good faith that (x) offers and sales of Registrable Stock
pursuant to any registration statement prior to the consummation of such
transaction (or such earlier date as the Company shall determine) is not in
the best interests of the Company and its stockholders or (y) it would be
impracticable at the time to obtain any financial statements relating to
such acquisition or business combination transaction that would be required
to be set forth in a registration statement or (C) the Company has furnished
to such Holders a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith opinion of the Board such
registration would interfere with any material transaction or financing,
confidential negotiations, including negotiations relating to an acquisition
or business combination transaction, or business activities then being
pursued by the Company or any of its Subsidiaries, then, in any such case,
the Company's obligation to use all reasonable efforts to file a
registration statement
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shall be deferred, or the effectiveness of any registration statement may be
suspended, in each case for a period not to exceed 120 days in any
consecutive twelve-month period;
(iii) The Company shall not be required to effect a registration pursuant
to this Section 3.3 if the Registrable Stock requested by all Holders to be
registered pursuant to such registration are included in, and eligible for
sale under, a Shelf Registration (as defined below); and
(iv) The Company shall not be required to effect a registration pursuant
to this Section 3.3 more than one time in any consecutive twelve-month
period, other than the registration required by Section 3.3(f), which may
occur within the same consecutive twelve-month period as another
registration.
(d) With respect to any registration pursuant to this Section 3.3, the
Company may include in such registration any of its primary securities sold on
its own behalf or securities being offered by ING pursuant to the ING
Registration Rights Agreement. If, in the opinion of the managing underwriter
(or, in the case of a non-underwritten offering, in the opinion of the Company),
the total amount of all securities to be registered, including Registrable
Stock, will exceed the maximum amount of the Company's securities that can be
marketed (i) at a price reasonably related to the then current market value of
such securities, and (ii) without otherwise materially and adversely affecting
the entire offering, then subject to the registration rights of ING, the Company
securities and Registrable Stock to be included in such registration shall be
included in the order as set forth in clauses (1) and (2) below:
(1) In any registration pursuant to this Section 3.3 where the Oak Hill
Stockholders are the Initiating Holders:
(A) FIRST, any Registrable Stock of the Initiating Holders;
(B) SECOND, any securities offered by the Company; and
(C) THIRD, any Registrable Stock of other Holders requesting
registration of their Registrable Stock in proportion (as nearly as
practicable) to the amount of Registrable Stock requested to be included
by such Holder at the time of filing the registration statement.
(2) In any registration pursuant to this Section 3.3 where Otten is the
Initiating Holder:
(A) First, any securities of the Company; and
(B) Second, any Registrable Stock of Holders requesting registration
of Registrable Stock, in proportion (as nearly as practicable) to the
amount of Registrable Stock requested to be included by such Holder at
the time of filing the registration.
Notwithstanding clause (2) above, but subject to the registration rights of ING,
Otten, his estate or his Permitted Transferees, as the case may be, shall have
priority over the Company and each other Holder in selling any and all of their
shares of Registrable Stock with respect to one registration within two years
following Otten's (1) termination or resignation from his position as Chairman
of the Company or (2) death.
(e) The Company shall not be obligated to effect and pay for more than
(i) four registrations of the Oak Hill Stockholders (two of which may be Shelf
Registrations requested pursuant to Section 3.5) and (ii) two registrations of
Otten (one of which may be a Shelf Registration requested pursuant to
Section 3.5) pursuant to this Section 3.3; PROVIDED, HOWEVER, that a
registration requested by any Holder pursuant to this Section 3.3 shall not be
deemed to have been effected for purposes of this Section 3.3(e) unless (i) it
has been declared effective by the SEC, (ii) it has remained effective for the
period set forth in Section 3.6(a), (iii) the offering of Registrable Stock
pursuant to such registration is not subject to any stop order, injunction or
other order or requirement of the SEC (other than any such stop order,
injunction, or other requirement of the SEC prompted by any act or omission of
Holders of Registrable Stock) and (iv) such Holder was permitted to include in
such registration at
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least one-half of the Registrable Stock requested by it or him, as the case may
be, to be included in such registration.
(f) In addition to the registrations that may be requested pursuant to
Section 3.3(a), the Company shall file, as soon as practicable after the date
hereof, a shelf registration statement registering the resale of up to 5,000,000
shares of Common Stock held by Otten, and such Shelf Registration shall not be
subject to Sections 3.3(a), (c)(i), (d) and (e).
SECTION 3.4 INCIDENTAL REGISTRATION.
(a) Subject to Section 3.9 and to the registration rights of ING, if at any
time the Company determines that it will file a registration statement under the
Securities Act for the registration of Common Stock (other than a registration
statement on a Form S-4 or S-8 or an offering of securities solely to the
Company's existing stockholders) on any form that would also permit the
registration of the Registrable Stock and such filing is to be on its behalf or
on behalf of selling holders of its securities for the general registration of
Common Stock to be sold for cash, the Company shall each such time promptly give
the Holders written notice of such determination setting forth the date on which
the Company proposes to file such registration statement, which date shall be no
earlier than 15 days after the date of such notice, and advising the Holders of
their right to have Registrable Stock included in such registration. In the case
of a registration statement to be filed on behalf of selling holders of its
securities, the Company shall also indicate in such notice whether it will be
registering securities on its own behalf as part of such registration statement.
Upon the written request of any Holder received by the Company not later than
15 days after the date of the Company's notice (which request shall state the
number of shares of Registrable Stock to be so registered and the intended
method of distribution), the Company shall, subject to Section 3.4(b) below, use
all reasonable efforts to cause to be registered under the Securities Act all of
the Registrable Stock that each such Holder has so requested to be registered;
provided, however, that the Company shall have the right to postpone or withdraw
any registration effected pursuant to this Section 3.4 without obligation or
liability to such Holder.
(b) If, in the opinion of the managing underwriter (or, in the case of a
non-underwritten offering, in the opinion of the Company), the total amount of
such securities to be so registered, including such Registrable Stock, will
exceed the maximum amount of the Company's securities that can be marketed
(i) at a price reasonably related to the then current market value of such
securities and (ii) without otherwise materially and adversely affecting the
entire offering, then subject to the registration rights of ING, the Company
securities and Registrable Stock to be included in such registration shall be
included in the following order:
(A) FIRST, any securities of the Company;
(B) SECOND, any Registrable Stock of the Oak Hill Stockholders or their
Permitted Transferees; and
(C) THIRD, any Registrable Stock of Otten or his Permitted Transferees
or any other stockholder hereafter granted incidental registration rights in
proportion (as nearly as practicable) to the amount of Registrable Stock
requested to be included by Otten, his Transferees or such stockholders at
the time of the filing of the registration statement.
SECTION 3.5 SHELF REGISTRATION.
(a) An Initiating Holder may use registration rights granted pursuant to
Section 3.3 or to request that the Company file a "shelf" registration statement
pursuant to Rule 415 under the Securities Act or any successor rule (each,
including the registration required under Section 3.3(f), a "SHELF
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REGISTRATION") with respect to the Registrable Stock. The Company shall (i) use
all reasonable efforts to have the Shelf Registration filed within 30 days after
such request (except in the case of a Shelf Registration pursuant to
Section 3.3(f), which shall be filed as required in Section 3.3(f)) and declared
effective as soon as reasonably practicable following such request and (ii) use
all reasonable efforts to keep the Shelf Registration continuously effective
from the date that such Shelf Registration is declared effective until at least
the earlier of such time as (A) all such Registrable Stock has been sold
thereunder or (B) the second anniversary of such effective date in order to
permit the prospectus forming a part thereof to be usable by Holders during such
period.
(b) The Company shall supplement or amend each Shelf Registration, (i) as
required by the registration form utilized by the Company or by the instructions
applicable to such registration form or by the Securities Act, (ii) to include
in such Shelf Registration any additional securities that become Registrable
Stock by operation of the definition thereof and (iii) following the written
request of an Initiating Holder pursuant to Section 3.5(c), to cover offers and
sales of all or a part of the Registrable Stock by means of an underwriting. The
Company shall furnish to the Holders of the Registrable Stock to which such
Shelf Registration relates drafts of any such supplement or amendment
sufficiently in advance (but in no event less than three Business Days in
advance) of its use or filing with the SEC to allow the Holders a meaningful
opportunity to comment thereon.
(c) The Holders may, at their election and upon written notice by an
Initiating Holder to the Company, effect offers and sales under a Shelf
Registration by means of one or more underwritten offerings, in which case the
provisions of Section 3.3(b) shall apply to any such underwritten distribution
of securities under the Shelf Registration and such underwriting shall, if sales
of Registrable Stock pursuant thereto shall have closed, be regarded as the
exercise of one of the registration rights contemplated by Section 3.3.
SECTION 3.6 REGISTRATION PROCEDURES. In connection with each registration
that occurs under Sections 3.3 or 3.5, the Company shall:
(a) Prepare and file with the SEC a registration statement with respect to
such Registrable Stock (which shall be filed in no event later than 90 days
after written notice requesting a registration statement under Section 3.3 or
3.5 has been received) and use all reasonable efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby determined as provided hereafter; PROVIDED, HOWEVER, that
the Company shall not be required to keep any registration statement (other than
a Shelf Registration) effective for more than 120 days;
(b) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Stock covered by such registration statement;
(c) Furnish to the Holders such reasonable numbers of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus and any amendments or supplements thereto) in conformity
with the requirements of the Securities Act, any exhibits filed therewith and
such other documents and information as they may reasonably request;
(d) Use all reasonable efforts to register or qualify the Registrable Stock
covered by such registration statement under such other securities or "blue sky"
laws of such jurisdictions (if any) within the United States and Puerto Rico as
are reasonably necessary for the distribution of the Registrable Stock covered
by the registration statement and of such other jurisdictions as the Holders may
request (at such Holders' expense); PROVIDED, HOWEVER, that the Company shall
not be required in connection therewith or as a condition thereto to
(A) qualify to do business in any such jurisdiction where it is not then so
qualified, (B) file a general consent to service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to taxation
in excess of a nominal dollar amount in any such
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jurisdiction where it is not then so subject; and PROVIDED FURTHER that the
Company shall not be required to qualify such Registrable Stock in any
jurisdiction in which the securities regulatory authority requires that any
Holder submit any shares of its Registrable Stock to the terms, provisions and
restrictions of any escrow, lockup or similar agreement(s) for consent to sell
Registrable Stock in such jurisdiction unless such Holder agrees to do so;
(e) Promptly notify each Holder whose Registrable Stock is covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, in light of the circumstances under which
they were made, and at the request of any such Holder promptly prepare and
furnish to such Holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such securities, such prospectus does 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,
in light of the circumstances under which they were made. In the event the
Company gives such notice, the Company shall extend the period during which the
effectiveness such Registration Statement is required to be maintained as
provided in Section 3.6(a) (or, in the case of the Shelf Registration,
Section 3.5(a)) by the number of days during the period from and including the
date of the giving of such notice to the date when the Company makes available
to the Holders such supplemented or amended prospectus;
(f) Furnish, at the request of any Holder requesting registration of
Registrable Stock pursuant to Section 3.3 or 3.5, if the method of distribution
is by means of an underwriting, on the date that the Shares of Registrable Stock
are delivered to the underwriters for sale pursuant to such registration or, if
such Registrable Stock is not being sold through underwriters, on the date that
the registration statement with respect to such shares of Registrable Stock
becomes effective, (1) a signed opinion, dated on or about such date, of
independent legal counsel representing the Company for the purpose of such
registration, addressed to the underwriters, if any, and if such Registrable
Stock is not being sold through underwriters, then to the Holders making such
request, as to such matters as such underwriters or the Holders holding a
majority of the Registrable Stock included in such registration, as the case may
be, may reasonably request and as would be customary in such a transaction, and
(2) letters dated on or about such date and the date the offering is priced from
the independent certified public accountants of the Company, addressed to the
underwriters, if any, and if such Registrable Stock is not being sold through
underwriters, then to the Holders making such request and, if such accountants
refuse to deliver such letters to such Holders, then to the Company (i) stating
that they are independent certified public accountants within the meaning of the
Securities Act and that, in the opinion of such accountants, the financial
statements and other financial data of the Company included in the registration
statement or the prospectus, or any amendment or supplement thereto, comply as
to form in all material respects with the applicable accounting requirements of
the Securities Act and (ii) covering such other financial matters (including
information as to the period ending not more than five Business Days prior to
the date of such letters) with respect to the registration in respect of which
such letter is being given as such underwriters or the Holders holding a
majority of the Registrable Stock included in such registration, as the case may
be, may reasonably request and as would be customary in such a transaction;
(g) enter into customary agreements (including if the method of distribution
is by means of an underwriting, an underwriting agreement in customary form) and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of the Registrable Stock to be so included in the
registration statement;
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(h) Otherwise use all reasonable efforts to comply with all applicable rules
and regulations of the SEC, and make available to its securityholders, as soon
as reasonably practicable, but not later than 18 months after the effective date
of the registration statement, an earnings statement covering the period of at
least 12 months beginning with the first full month after the effective date of
such registration statement, which earnings statements shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; and
(i) Use all reasonable efforts to list the Registrable Stock covered by such
registration statement on any U.S. nationally recognized securities exchange or
automated quotation system on which the Common Stock is then listed.
For purposes of Sections 3.6(a) and 3.6(b), the period of distribution of
Registrable Stock in a firm commitment underwritten public offering shall be
deemed to extend until each underwriter has completed the distribution of all
securities purchased by it, and the period of distribution of Registrable Stock
in any other registration shall be deemed to extend until the earlier of the
sale of all Registrable Stock covered thereby and six months after the effective
date thereof.
SECTION 3.7 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Article III of this
Agreement that the Holders shall furnish to the Company such information
regarding themselves, the Registrable Stock held by them, and the intended
method of disposition of such securities as the Company shall reasonably request
and as shall be required in connection with the action to be taken by the
Company.
SECTION 3.8 EXPENSES OF REGISTRATION. All expenses incurred in connection
with each registration pursuant to Sections 3.3, 3.4 and 3.5 of this Agreement
excluding underwriters' discounts and commissions, but including all
registration, filing and qualification fees, word processing, duplicating,
printers' and accounting fees (including the expenses of any special audits or
"cold comfort" letters required by or incidental to such performance and
compliance), fees of the National Association of Securities Dealers, Inc. or
listing fees, messenger and delivery expenses, all fees and expenses of
complying with state securities or "blue sky" laws, and fees and disbursements
of counsel for the Company, and the reasonable fees and disbursements of one
counsel for the selling Holders (which counsel, subject to the registration
rights of ING, shall be selected by the Holders holding a majority in interest
of the Registrable Stock being registered), shall be paid by the Company;
PROVIDED, HOWEVER, that if a registration request pursuant to Section 3.3 or 3.5
is subsequently withdrawn by the Holders, the Company shall not be required to
pay any expenses of such registration, and such Holders shall bear such
expenses. The Holders shall bear and pay the underwriting commissions and
discounts applicable to securities offered for their account and the fees and
disbursements of any additional counsel in connection with any registrations,
filings and qualifications made pursuant to this Agreement.
SECTION 3.9 UNDERWRITING REQUIREMENTS. In connection with any underwritten
offering, the Company shall not be required under Section 3.4 to include shares
of Registrable Stock in such underwritten offering unless the Holders of such
shares of Registrable Stock accept the terms of the underwriting of such
offering that have been reasonably agreed upon between or among the Company and
the underwriter(s) selected by the Holders.
SECTION 3.10 INDEMNIFICATION. In the event any Registrable Stock is
included in a registration statement under this Agreement:
(a) The Company shall indemnify and hold harmless each Holder, such Holder's
directors and officers, agents of such Holder, each person who participates in
the offering of such Registrable Stock, including underwriters (as defined in
the Securities Act), and each Person, if any, who controls such Holder or
participating person within the meaning of the Securities Act (each, a "HOLDER
INDEMNIFIED PARTY"), against any losses, claims, damages or liabilities, joint
or several, to which such Holder
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Indemnified Party may become subject under the Securities Act, the Exchange Act,
state securities or "blue sky" laws or otherwise, insofar as such losses,
claims, damages or liabilities (or proceedings in respect thereof) arise out of
or are based on any untrue or alleged untrue statement of any material fact
contained in the final prospectus used in connection with offers and sales under
such registration statement (including any prospectus filed under Rule 424 under
the Securities Act or any amendments or supplements thereto) or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse each such Holder Indemnified Party for any legal
or other expenses reasonably incurred by it (but not in excess of expenses
incurred in respect of one counsel for all of them unless there is an actual
conflict of interest among any Holder Indemnified Parties, which Holder
Indemnified Parties may be represented by separate counsel) in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 3.10(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company; PROVIDED FURTHER that the Company shall not be liable to
any Holder Indemnified Party in any such case for any such loss, claim, damage,
liability or action (i) to the extent that it arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder
Indemnified Party or (ii) if a prospectus other than the final prospectus was
used, and such loss, claim, damage, liability or action arises from the fact
that a Holder Indemnified Party sold Registrable Stock to a person to whom there
was not sent or given a copy of the final prospectus at or prior to the time
written confirmation of such sale was sent if the Company had previously
furnished copies of such final prospectus to such Holder Indemnified Party in
accordance herewith and such final prospectus would have corrected any such
untrue statement or omission. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of any such Holder
Indemnified Party and shall survive the transfer of such securities by such
Holder Indemnified Party where the registration rights of such Holder
Indemnified Party are also transferred as provided in Section 3.12. In the event
that the Company reimburses a Holder Indemnified Party hereunder for any
expenses incurred in connection with a loss, claim, damage or liability for
which indemnification is sought, the Holders hereby agree to refund such
reimbursement of expenses to the extent that the Holder Indemnified Party is not
entitled to indemnification pursuant to this Agreement, as determined by a
final, non-appealable judicial determination.
(b) Each Holder requesting or joining in a registration severally and not
jointly shall indemnify and hold harmless the Company, each of its directors and
officers, each Person, if any, who controls the Company within the meaning of
the Securities Act, and each agent and any underwriter for the Company, within
the meaning of the Securities Act (each, a "COMPANY INDEMNIFIED PARTY"), against
any losses, claims, damages or liabilities, joint or several, to which such
Company Indemnified Party may become subject, under the Securities Act, the
Exchange Act, state securities or "blue sky" laws or otherwise, insofar as such
losses, claims, damages or liabilities (or proceedings in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in the final prospectus used in connection with offers
and sales under such registration statement (including any prospectus filed
under Rule 424 under the Securities Act or any amendments or supplements
thereto) or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in such final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written information
furnished by or on behalf of such Holder expressly for use in connection with
such registration; and each such Holder shall reimburse any legal or other
expenses reasonably incurred by such Company Indemnified Party (but not in
excess of expenses incurred in respect of one counsel for all of them unless
there is an
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actual conflict of interest between any indemnified parties which indemnified
parties may be represented by separate counsel) in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the indemnity agreement contained in this Section 3.10(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of such
Holder; and PROVIDED FURTHER that the liability of each Holder hereunder shall
be limited to the proportion of any such loss, claim, damage, liability or
expense which is equal to the proportion that the net proceeds from the sale of
the Registrable Stock sold by such Holder under such registration statement
bears to the total net proceeds from the sale of all securities sold thereunder,
but not in any event to exceed the net proceeds received by such Holder from the
sale of Registrable Stock covered by such registration statement. In the event
that a Holder reimburses a Company Indemnified Party hereunder for any expenses
incurred in connection with a loss, claim, damage or liability for which
indemnification is sought, the Company hereby agrees to refund such
reimbursement of expenses to the extent that the Company Indemnified Party is
not entitled to indemnification pursuant to this Agreement, as determined by a
final, non-appealable judicial determination.
(c) Promptly after receipt by an indemnified party under this Section 3.10
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 3.10, notify the indemnifying party in writing of the commencement
thereof and the indemnifying party shall have the right to participate in and
assume the defense thereof with counsel selected by the indemnifying party and
reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER, that an
indemnified party shall have the right to retain its own counsel, with all fees
and expenses thereof to be paid by such indemnified party, and to be apprised of
all progress in any proceeding the defense of which has been assumed by the
indemnifying party. The failure to notify an indemnifying party promptly of the
commencement of any such action shall not relieve the indemnifying party from
any liability in respect of such action which it may have to such indemnified
party on account of the indemnity contained in this Section 3.10, unless (and
only to the extent) the indemnifying party was prejudiced by such failure, and
in no event shall such failure relieve the indemnifying party from any other
liability which it may have to such indemnified party. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any claim or pending or threatened proceeding in respect of which
the indemnified party is or could have been a party and indemnity could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability arising
out of such claim or proceeding.
(d) To the extent any indemnification by an indemnifying party is prohibited
or limited by applicable law, the indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified party in connection with the actions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether or not any action in question, including any untrue or alleged
untrue statement of material fact or omission or alleged omission to state a
material fact, has been made by, or relates to 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. The amount paid or payable by a party as a result of the losses, claims,
damages or liabilities referred to above shall be deemed to include any legal or
other fees or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 3.10(d) were determined by pro rata
allocation or by any other method of allocation which
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does not take into account the equitable considerations referred to in the
immediately preceding paragraph. 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.
SECTION 3.11 LOCKUP. Each Holder shall, in connection with any
registration of the Company's securities, upon the request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
agree in writing not to effect any sale, disposition or distribution of any
Registrable Stock (other than the Registrable Stock included in such
registration), without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time from 60 days prior to
the effective date of such registration to such time as the Company or the
underwriters may specify; PROVIDED, HOWEVER, that (x) all executive officers and
Directors of the Company shall also have agreed not to effect any sale,
disposition or distribution of any Registrable Stock under the circumstances and
pursuant to the terms set forth in this Section 3.11 and (y) in no event shall
the Holders be required to not effect any sale, disposition or distribution for
longer than 180 days after the Registration Statement becomes effective pursuant
to this Section 3.11.
SECTION 3.12 TRANSFER OF REGISTRATION RIGHTS. The registration rights of
the Oak Hill Stockholders and Otten under this Agreement (other than the rights
granted under Section 3.3(f)) with respect to any Registrable Stock may be
transferred to any Permitted Transferee receiving such Registrable Stock;
PROVIDED, HOWEVER, that (i) the Oak Hill Stockholders and Otten shall give the
Company written notice at or prior to the time of such transfer stating the name
and address of the Permitted Transferee and identifying the securities with
respect to which the rights under this Agreement are being transferred; and
(ii) such Permitted Transferee shall agree in writing, in form and substance
reasonable satisfactory to the Company, to be bound as a Holder by the
provisions of this Agreement. Except as set forth in this Section 3.12, no
transfer of Registrable Stock shall cause such Registrable Stock to lose such
status.
SECTION 3.13 RULE 144 INFORMATION. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Registrable Stock to the public without registration, at
all times after 90 days after any Shelf Registration Statement covering a public
offering of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) Use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(c) Furnish to each Holder of Registrable Stock forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the Company,
and such other reports and documents so filed by the Company as such Holder
may reasonably request in availing itself of any rule or regulation of the
SEC allowing such Holder to sell any Registrable Stock without registration.
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.1 TERM AND TERMINATION. The term of this Agreement shall
commence on the date hereof and shall end on the date that there is no
Registrable Stock outstanding.
SECTION 4.2 WAIVERS OR AMENDMENTS. The parties hereto may agree to
(a) extend the time for the performance of any of the obligations or other acts
of other parties, (b) waive any inaccuracies in
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the representations and warranties of other parties contained herein or in any
document delivered by other parties pursuant hereto, (c) waive compliance with
any of the agreements or conditions of other parties contained herein or
(d) amend this Agreement. Notwithstanding anything to the contrary, the Company
may make such extension, waiver or amendment only with the affirmative vote of
at least two Directors not nominated by Otten or an Oak Hill Stockholder. Any
such extension, waiver or amendment shall be valid only if set forth in an
instrument in writing signed by the parties to be bound thereby. Any waiver of
any term or condition shall not be construed as a waiver of any subsequent
breach or a subsequent waiver of the same term or condition, or a waiver of any
other term or condition, of this Agreement. The failure of any party to assert
any of its rights hereunder shall not constitute a waiver of any of such rights.
SECTION 4.3 EXPENSES; ATTORNEYS' FEES. All costs and expenses, including
fees and disbursements of counsel, financial advisors and accountants, incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the Company, unless otherwise provided hereunder.
SECTION 4.4 NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by telecopy, by e-mail or by registered or certified
mail (postage prepaid, return receipt requested) to the respective parties at
the following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 4.4):
If to the Oak Hill Stockholders:
To the address specified on Annex A
If to Otten:
[ ]
With a copy to:
Tompkins, Clough, Hirshon & Langer,P.A.
Three Canal Plaza
P.O. Box 15060
Portland, Maine 04112
Attention: Lawrence R. Clough
Telecopy: (207) 874-6705
If to the Company:
Doral International, Inc.
1010 Wisconsin Avenue, NW
Washington, DC 20007
Attention: Christopher L. Bennett, Esq.
Telecopy: (202) 295-1026
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Richard S. Borisoff, Esq.
Telecopy: (212) 757-3990
SECTION 4.5 HEADINGS. The descriptive headings contained in this Agreement
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement. No party to this Agreement shall be
deemed to be the draftsman of this Agreement.
SECTION 4.6 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any Law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance
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of the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 4.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, between
the parties with respect to the subject matter hereof.
SECTION 4.8 ASSIGNMENT. This Agreement shall inure to the benefit of and
be binding upon the successors and assigns of each of the parties, including,
with respect to the Company, any successor corporation; PROVIDED, HOWEVER, that
no such assignment shall release the Holders from any of their obligations
hereunder.
SECTION 4.9 NO THIRD PARTY BENEFICIARIES. This Agreement shall be binding
upon and inure solely to the benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other Person any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
SECTION 4.10 GOVERNING LAW; FORUM. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, in each
case, as applicable to contracts executed in and to be performed entirely in
that state and without regard to any applicable conflicts of law principles. All
actions and proceedings arising out of or relating to this Agreement shall be
heard and determined in any State or federal court or in Delaware. Each of the
parties to this Agreement (a) consents to submit itself to the personal
jurisdiction of any Delaware state or federal court in the event that any
dispute arises out of this Agreement or any of the transactions contemplated by
this Agreement, (b) agrees that it will not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court
and (c) agrees that it will not bring any action in relation to this Agreement
or any of the other transactions contemplated by this Agreement in any court
other than any Delaware state or federal court.
SECTION 4.11 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 4.12 COUNTERPARTS. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
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SCHEDULE A
OAK HILL STOCKHOLDERS
<TABLE>
<S> <C> <C>
NAME AND ADDRESS TYPE OF ENTITY AND NUMBER AND TYPE OF VOTING
JURISDICTION OF ORGANIZATION SECURITIES HELD
</TABLE>
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APPENDIX B
EXECUTION COPY
VOTING AND RECAPITALIZATION AGREEMENT
This VOTING AND RECAPITALIZATION AGREEMENT, dated as of December 8, 2000
(this "Agreement"), is made and entered into among MeriStar Hotels &
Resorts, Inc., a Delaware corporation ("MeriStar"), American Skiing Company, a
Delaware corporation ("ASC"), Oak Hill Capital Partners, L.P., a Delaware
limited partnership ("OCP"), Oak Hill Capital Management Partners, L.P., a
Delaware limited partnership ("OCMP"), Oak Hill Securities Fund, L.P., a
Delaware limited partnership ("OSF"), Oak Hill Securities Fund II, L.P., a
Delaware limited partnership ("OSF2"), OHCP Ski, L.P., a Delaware limited
partnership ("OSLP"), Madeleine LLC, a New York limited liability company
("Madeleine"), Leslie B. Otten ("Otten") and the Albert Otten Trust f/b/o
Mildred Otten, a trust organized under the laws of New Jersey (the "Trust").
OCP, OCMP, OSF, OSF2, OSLP, Madeleine, the Otten and the Trust are referred to
collectively as the "Stockholders" and each as a "Stockholder".
RECITALS:
A. ASC, ASC Merger Sub, Inc., a Delaware corporation ("Merger Sub"), and
MeriStar are, simultaneously with the execution hereof, entering into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), pursuant to which Merger Sub will merge with and into MeriStar (the
"Merger") on the terms and subject to the conditions set forth in the Merger
Agreement and, as a result, MeriStar will become a wholly-owned subsidiary of
ASC. Except as otherwise defined herein, capitalized terms used herein without
definition have the respective meanings ascribed to them in the Merger
Agreement.
B. Under the Merger Agreement, it is a condition precedent to the
obligation of MeriStar to complete the Merger that ASC complete the
recapitalization (the "Recapitalization") in which (i) the Class A common stock,
par value $0.01 per share (the "Class A Common Stock"), of ASC and the 8.5%
Series B Convertible Participating Preferred Stock, liquidation value $1,000 per
share (the "Series B Preferred Stock"), of ASC shall have been converted into
common stock, par value $0.01 per share (the "Common Stock", of ASC, at or prior
to the Effective Time; (ii) the 10.5% Repriced Convertible Exchangeable
Preferred Stock, liquidation value $1,000 per share (the "Series A Preferred
Stock"), of ASC shall have been converted into shares of Series A Preferred
Stock, par value $0.01 per share (the "New Series A Preferred Stock"), of ASC,
having terms substantially as set forth in EXHIBIT B hereto and shares of Common
Stock, immediately prior to the Effective Time, as herein provided; (iii) the
warrants (the "Warrants") to purchase 6,000,000 shares of Common Stock at an
exercise price of $2.50 per share shall have been issued to OCP in accordance
with the Securities Purchase Agreement (as amended to date, the "Warrant
Purchase Agreement"), dated July 31, 2000, among ASC, ASC Resort
Properties, Inc. ("Resort Properties") and OCP and OCP shall not own any shares
of the capital stock of Resort Properties; and (iv) the Resorts Credit Facility
Amendment and the Resorts Credit Facility Conversion shall have occurred.
Collectively, the Class A Common Stock, the Series A Preferred Stock, the
Series B Preferred Stock and the Common Stock, together with all other equity
securities issued by ASC, are referred to herein as the "Securities".
C. As a condition and inducement to MeriStar's willingness to enter into
the Merger Agreement, MeriStar has requested that each Stockholder agree, and
each Stockholder has agreed, to enter into this Agreement.
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NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and covenants contained in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SUBJECT SHARES
Section 1.1 Agreement to Vote Subject Shares. At any meeting (a
"Stockholders Meeting") (including any and all postponements and adjournments
thereof) of the stockholders of ASC called to consider and vote upon (i) the
approval of the Merger, the Merger Agreement and the transactions contemplated
thereby, (ii) the issuance of Common Stock to the stockholders of MeriStar
pursuant to the Merger Agreement, (iii) the recapitalization and Common Stock
issuances contemplated by Sections 3.3, 3.4 and 3.5 of this Agreement, (iv) the
transactions contemplated by Section 2.6 of the Merger Agreement, (v) the
election of directors for ASC as provided in Schedule 1.1 to this Agreement and
(vi) the adoption of amendments to the articles of incorporation and bylaws of
ASC in connection with the Merger (the actions referred to in clauses
(i) through (vi) being referred to collectively as the "Proposals"), and in
connection with any action to be taken in respect of the Proposals by written
consent of the stockholders of ASC, each Stockholder shall vote or cause to be
voted (including by written consent, if applicable) all of such Stockholder's
Subject Shares in favor of the approval and adoption of the Proposals and in
favor of any other matter necessary for the consummation of the transactions
contemplated by the Merger Agreement and this Agreement and considered and voted
upon at any such meeting or made the subject of any such written consent, as
applicable. At any meeting (and at any and all postponements and adjournments
thereof) of the stockholders of ASC (an "Adverse Meeting") called to consider
and vote upon any Adverse Proposal (as defined below), and in connection with
any action to be taken in respect of any Adverse Proposal by written consent of
stockholders of ASC, each Stockholder shall vote or cause to be voted (including
by written consent, if applicable) all of such Stockholder's Subject Shares
against such Adverse Proposal. For purposes of this Agreement, the term "Adverse
Proposal" means any (a) proposal or action that would reasonably be expected to
result in a breach of any covenant, representation or warranty of ASC set forth
in the Merger Agreement or (b) proposal or action that is intended or would
reasonably be expected to impede, interfere with, delay or materially and
adversely affect the Merger or any of the other transactions contemplated by the
Merger Agreement or this Agreement.
Section 1.2 Other Proxies Revoked. Any proxies heretofore given in respect
of such Stockholder's Subject Shares are not irrevocable and all such proxies
are hereby revoked (other than the proxies specified in Item 2 of
Schedule 2.1), it being understood that, with respect to the revocation made
concerning the Subject Shares beneficially owned by Otten, ING (U.S.) Capital
LLC ("ING") expressly acknowledges and agrees to such revocation; PROVIDED,
THAT, subject to Article III, such acknowledgment and agreement shall in no way
alter any existing or future rights of ING with respect to the pledge of any
Class A Common Stock or Common Stock pledged to it by Otten.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Stockholders. Each
Stockholder, severally and not jointly, represents and warrants, as of the date
hereof, the time of each ASC Stockholders Meeting, each Adverse Meeting and as
of the Effective Time, to MeriStar and ASC as follows:
(a) Except as specified on Schedule 2.1 hereto and except for Subject
Shares transferred in accordance with Section 3.1 hereof after the date
hereof, such Stockholder is the sole record and beneficial owner of the
number and type of Securities set forth opposite such Stockholder's name
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on Annex A hereto (such Securities, together with any other Securities or
other equity or voting interests in ASC the beneficial ownership of which is
hereafter acquired by such Stockholder and any Securities into which such
Securities or other equity or voting interests are converted, being
collectively referred to herein as such Stockholder's "Subject Shares") and
has full, unrestricted and sole power to dispose of and to vote such Subject
Shares. Such Subject Shares are now, and at all times prior to the Effective
Time will be, held by such Stockholder, or by a nominee or custodian for the
benefit of such Stockholder, free and clear of all liens, voting trusts or
agreements, powers of attorney, proxies or any other arrangement or
agreement with any person or entity limiting or affecting such Stockholder's
legal power or authority to vote or sell the Subject Shares, except for
those restrictions arising hereunder or set forth under applicable
securities laws and except as specified on Schedule 2.1 hereto. Except as
otherwise specified on Schedule 2.1 hereto, such Stockholder does not
beneficially own or hold any rights to acquire any additional securities of
ASC other than such Subject Shares.
(b) In the case of a Stockholder who is an individual, such Stockholder
is an adult, is a citizen of the United States of America and is competent
to execute and deliver this Agreement, to carry out his or her obligations
hereunder and to consummate the transactions contemplated hereby. In the
case of a Stockholder that is a corporation, trust or other business
organization, such Stockholder has all requisite power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by such Stockholder and
the consummation by such Stockholder of the transactions contemplated hereby
have been duly authorized by all necessary action, if any, on the part of
such Stockholder. This Agreement has been duly executed and delivered by
such Stockholder and, assuming that this Agreement constitutes the valid and
binding obligation of MeriStar, this Agreement constitutes a valid and
binding obligation of such Stockholder, enforceable against such Stockholder
in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity.
(c) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, result in a breach or violation
of or default (with or without notice or lapse of time or both) under, give
rise to a material obligation, a right of termination, cancellation, or
acceleration of any obligation or a loss of a material benefit under, or
require notice to or the consent of any person under (i) in the case of a
Stockholder that is a corporation or other business organization, any
organizational documents of such Stockholder, (ii) in the case of any
Stockholder that is a trust, violate or conflict with any term or provision
of the indenture, or other governing or testamentary instrument relating to
such trust or (iii) in the case of any Stockholder, any Contract, agreement,
instrument, undertaking, Law, order, injunction, determination or award
binding on such Stockholder, other than any such conflicts, breaches,
violations, defaults, obligations, rights or losses that, individually or in
the aggregate, would not (i) impair the ability of such Stockholder to
perform such Stockholder's obligations under this Agreement or (ii) prevent
or delay the consummation of any of the transactions contemplated hereby.
(d) Each Stockholder understands and acknowledges that the issuance of
the Common Stock and the New Series A Preferred Stock in accordance with
Sections 3.3, 3.4, 3.5 and 3.6 of this Agreement is pursuant to one or more
of the exemptions from registration provided for in Section 3(a) or 4(2) of
the Securities Act, including Regulation D promulgated thereunder, and any
applicable state laws, and the offer and sale of the Common Stock and the
New Series A Preferred Stock are thus not registered under the Securities
Act. Each Stockholder further understands and acknowledges that this
transaction has not been reviewed and approved by the SEC or by any state
regulatory authority and represents and warrants that it is an "ACCREDITED
INVESTOR," as defined in Rule 501(a) of Regulation D under the Securities
Act.
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Section 2.2 Representations and Warranties of ASC.
(a) ASC represents and warrants, as of the date hereof and as of the
Effective Time, to MeriStar and each of the Stockholders that:
(i) ASC has all requisite power and authority to enter into this
Agreement, and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by ASC and the consummation by
ASC of the transactions contemplated hereby have been duly authorized by
all necessary action on the part of ASC. This Agreement has been duly
executed and delivered by ASC and, assuming that this Agreement
constitutes the valid and binding obligation of the other parties to this
Agreement, this Agreement constitutes a valid and binding obligation of
ASC, enforceable against ASC in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally and to general principles of equity;
(ii) The execution and delivery of this Agreement by ASC does not,
and the consummation of the transactions contemplated hereby and
compliance with the provisions hereof will not, conflict with, result in
a breach or violation of or default (with or without notice or lapse of
time or both) under, give rise to a material obligation, a right of
termination, cancellation, or acceleration of any obligation or a loss of
a material benefit under, or require notice to or the consent of any
person under (i) any organizational documents of ASC or (ii) any
Contract, agreement, instrument, undertaking, Law, judgment, order,
injunction, decree, determination or award binding on ASC, other than any
such conflicts, breaches, violations, defaults, obligations, rights or
losses that, individually or in the aggregate, would not (i) impair the
ability of ASC to perform its obligations under this Agreement or
(ii) prevent or delay the consummation of any of the transactions
contemplated hereby; and
(iii) Assuming that the representations and warranties made by the
Stockholders in Section 2.2(d) are true and correct, the issuance of the
Common Stock and New Series A Preferred Stock in accordance with Sections
3.3, 3.4, 3.5 and 3.6 hereof will not require registration under the
Securities Act or violate applicable state securities laws.
(b) ASC represents and warrants, as of the date hereof and as of the
Effective Time:
(i) To Otten, that all shares of Common Stock to be issued pursuant
to Section 3.3 of this Agreement will be, upon issuance on the terms and
conditions specified in this Agreement, duly authorized, validly issued,
fully paid, nonassessable and will not be subject to preemptive rights;
(ii) To Madeleine, that all shares of New Series A Preferred Stock
and Common Stock to be issued upon conversion of the Series A Preferred
Stock pursuant to Section 3.4(a) of this Agreement will be, upon such
issuance on the terms and conditions specified in this Agreement, duly
authorized, validly issued, fully paid, nonassessable and will not be
subject to preemptive rights;
(iii) To OCP, OCMP, OSF, OSF2 and OSLP, that all shares of Common
Stock to be issued pursuant to Section 3.4(b) of this Agreement will be,
upon issuance on the terms and conditions specified in this Agreement,
duly authorized, validly issued, fully paid, nonassessable and will not
be subject to preemptive rights; and
(iv) To OCP, that all shares of Common Stock to be issued pursuant to
Section 3.5 of this Agreement will be, upon issuance on the terms and
conditions specified in this Agreement, duly authorized, validly issued,
fully paid, nonassessable and will not be subject to preemptive rights.
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ARTICLE III
CERTAIN COVENANTS
Section 3.1 Restriction on Transfer of Subject Shares; Proxies and
Noninterference. No Stockholder shall, prior to the Effective Time, directly or
indirectly: (A) except pursuant to the terms of this Agreement, offer for sale,
sell, transfer, pledge, tender, encumber, assign or otherwise dispose of, or
enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender,
encumbrance, assignment or other disposition of, any or all of such
Stockholder's Subject Shares, unless it receives (i) an irrevocable proxy, in
form and substance substantially similar to Exhibit A hereto, to vote the
transferred Subject Shares as provided therein and (ii) a deed of adherence to
this Agreement (including representations and warranties of the type set forth
in Section 2.1 hereof) reasonably satisfactory to the other parties hereto
executed by the transferee of such Subject Shares; (B) except pursuant to the
terms of this Agreement, grant any proxies or powers of attorney, deposit any of
such Stockholder's Subject Shares into a voting trust or enter into a voting
agreement with respect to any of such Stockholder's Subject Shares; or (C) take
any action that would reasonably be expected to make any representation or
warranty contained herein untrue or incorrect or have the effect of impairing
the ability or preventing or delaying the consummation of any of the
transactions contemplated hereby of such Stockholder to perform such
Stockholder's obligations under this Agreement.
Section 3.2 Reliance by MeriStar; Cooperation. Each Stockholder
understands and acknowledges that MeriStar is entering into the Merger Agreement
in reliance upon the Stockholders' execution and delivery of this Agreement.
Each Stockholder shall cooperate fully with ASC and MeriStar in connection with
the respective reasonable best efforts of ASC and MeriStar to fulfill the
conditions to the Merger set forth in Article VI of the Merger Agreement.
Section 3.3 Conversion of Class A Common Stock. Prior to or at the
Effective Time, Otten and ASC shall cause each share of Class A Common Stock to
be converted into one share of Common Stock.
Section 3.4 Recapitalization. Subject to the receipt of the Requisite ASC
Vote in favor of the transactions described in this Section 3.4:
(a) Immediately prior to the Effective Time, Madeleine and ASC shall
cause a recapitalization of ASC in which all of the issued and outstanding
shares of Series A Preferred Stock are converted into (i) such number of
shares of New Series A Preferred Stock equal to the aggregate liquidation
preference for all the shares of Series A Preferred Stock plus accrued and
unpaid dividends on such stock, determined as of the Closing Date (the
"Preferred Value"), divided by $1,000 and (ii) a number of shares of Common
Stock calculated by dividing (x) 20.7% of the Preferred Value by (y) $2.22;
(b) Immediately prior to the Effective Time, OCP, OCMP, OSF, OSF2, OSLP
and ASC shall cause all of the issued and outstanding shares of Series B
Preferred Stock to be converted into a number of shares of Common Stock
calculated by dividing the aggregate Liquidation Price (as defined in the
Certificate of Designation of the Series B Preferred Stock) of such shares
as of October 31, 2000 by $2.22;
(c) Prior to the Effective Time, if no shares of the capital stock of
Resort Properties have been issued to OCP under the Warrant Purchase
Agreement, ASC shall issue the Warrants to OCP in accordance with the terms
of the Warrant Purchase Agreement; and
(d) Prior to the Effective Time, if shares of the capital stock of
Resort Properties have been issued to OCP under the Warrant Purchase
Agreement, OCP shall transfer those shares of the
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capital stock of Resort Properties to ASC, and ASC shall issue the Warrants
to OCP in accordance with the terms of the Warrant Purchase Agreement.
Section 3.5 Issuance of Common Stock to Tranche C Lenders. Prior to the
Effective Time:
(a) ASC and OCP shall cause the entire $13.0 million available under
Tranche C of the Resorts Credit Facility to be drawn; and
(b) ASC and OCP shall cause the Resorts Credit Facility Amendment to
occur and shall cause Tranche C under the Resorts Credit Facility to be
repaid in the form of an issuance of a number of shares of Common Stock
calculated by dividing (x) the outstanding aggregate principal amount of
such Tranche C as of the Effective Time plus all accrued and unpaid interest
on the aggregate outstanding principal amount of such Tranche C through
October 31, 2000 by (y) $2.22.
Section 3.6 Closing Procedures.
(a) Immediately prior to the Effective Time, upon the filing of an amended
and restated certificate of incorporation of ASC in accordance with Section 1.6
of the Merger Agreement and a certificate of designations relating to the New
Series A Preferred Stock, substantially in the form attached to this Agreement
as Exhibit B, the Series A Preferred Stock shall automatically be converted into
shares of New Series A Preferred Stock and shares of Common Stock pursuant to
Section 3.4(a) and certificates formerly representing such shares of Series A
Preferred Stock shall, from and after such time, represent the right to receive
that number of shares of New Series A Preferred Stock and shares of Common Stock
provided in Section 3.4(a). Each holder shall surrender the certificate or
certificates formerly representing the Series A Preferred Stock, duly endorsed,
at the offices of Paul, Weiss, Rifkind, Wharton & Garrison at or prior to the
Effective Time (or such other place as ASC shall reasonably request) and shall
give written notice to ASC of the name or names in which the certificate or
certificates for shares of New Series A Preferred Stock and Common Stock are to
be issued. ASC shall, at the Effective Time, issue and deliver at the offices of
Paul, Weiss, Rifkind, Wharton & Garrison to such holder of Series A Preferred
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of New Series A Preferred Stock and Common
Stock to which such holder is entitled under Section 3.4(a). Such conversion
shall be deemed to have been made as of the Effective Time, and the person or
persons entitled to receive the shares of New Series A Preferred Stock and
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of New Series A Preferred Stock and
Common Stock as of the Effective Time. When issued, the certificates evidencing
such shares of New Series A Preferred Stock and Common Stock shall not bear
legends or other notations relating to restrictions on transfer, other than as
required pursuant to Article Thirteenth of the Certificate of Incorporation of
ASC (as amended as of the Effective Time).
(b) Except as specifically provided in this Agreement, the conversion of the
Series B Preferred Stock into Common Stock shall occur as provided in
Section 9(b) of the Certificate of Designation relating to the Series B
Preferred Stock.
(c) Upon completion of the transactions required by Section 3.5, ASC and OCP
shall execute an instrument (in form reasonably satisfactory to ASC and OCP)
evidencing the repayment in full of Tranche C under the Resorts Credit Facility
and the issuance of the shares of Common Stock in repayment thereof.
(d) In connection with any of the transactions required by Sections 3.4 or
3.5, ASC shall not be required to issue fractions of shares of Common Stock or
New Series A Preferred Stock or to distribute certificates which evidence
fractions of such shares. In lieu of fractional shares, ASC shall pay, at the
effective time of any conversion as herein provided, an amount in cash equal to
such fraction multiplied by (i) $2.22, in the case of Common Stock, or
(ii) $1,000, in the case of New Series A Preferred Stock.
B-6
<PAGE>
Section 3.7 No Further Issuances of Stock. Prior to the Effective Time,
ASC shall not issue any additional shares of Class A Common Stock, Series A
Preferred Stock or Series B Preferred Stock.
Section 3.8 ING. In the event that ING elects to foreclose on any
Securities pledged to it by Otten or to exercise voting rights with respect to
such Securities, ING shall provide MeriStar, ASC and OCP with reasonable prior
notice of such intent.
Section 3.9 Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement and until the Effective Time, each party to this
Agreement shall use its reasonable best efforts to cause the Recapitalization to
qualify, and shall not, without the prior written consent of the parties to this
Agreement, knowingly take any actions or cause any actions to be taken which
could prevent such recapitalization from qualifying, as a reorganization under
the provisions of Section 368(a) of the Code. Following the Effective Time, and
consistent with any such consent, none of MeriStar, ASC or any of their
affiliates shall knowingly take any action or knowingly cause any action to be
taken which would cause the Recapitalization to fail to so qualify as a
reorganization under Section 368(a) of the Code.
Section 3.10 Restriction on Certain Amendments to the Merger
Agreement. ASC and MeriStar shall not permit an amendment to Section 2.1 or 2.4
of the Merger Agreement without the prior written consent of Madeleine if such
amendment would cause material dilution of Madeleine's holdings in ASC.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Fees and Expenses. Each party hereto shall pay its own
expenses incident to preparing for, entering into and carrying out this
Agreement and the consummation of the transactions contemplated hereby, except
that all reasonable expenses, including attorneys' fees, (i) incurred by Oak
Hill (excluding expenses incurred by holders of the Snow Subordinated Notes in
connection with the Snow Notes Consent) in connection with this Agreement, not
to exceed $100,000, and (ii) incurred by Madeleine, not to exceed $35,000, in
connection with this Agreement shall be paid by ASC.
Section 4.2 Amendment; Termination. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. This Agreement shall terminate immediately upon the earlier to occur of
(i) the termination of the Merger Agreement in accordance with its terms and
(ii) June 30, 2001. In addition, this Agreement may be terminated by mutual
written consent of MeriStar, ASC and the Stockholders. In the event of
termination of this Agreement pursuant to this Section 4.2, this Agreement shall
become null and void and of no effect with no liability on the part of any party
hereto and all Proxies shall automatically terminate; PROVIDED, HOWEVER, that no
such termination shall relieve any party hereto from any liability for any
breach of this Agreement occurring prior to such termination; and PROVIDED,
FURTHER, that Article II shall survive the termination of this Agreement.
All covenants and agreements that contemplate performance after the
Effective Time shall survive the Effective Time.
Section 4.3 Extension, Waiver. Any agreement on the part of a party to
waive any provision of this Agreement, or to extend the time for any performance
hereunder, shall be valid only if set forth in an instrument in writing signed
on behalf of such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not constitute a
waiver of such rights.
B-7
<PAGE>
Section 4.4 Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and is not intended to confer upon any person
other than the parties any rights or remedies.
SECTION 4.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
ANY PRINCIPLES OF CONFLICTS OF LAWS THEREOF THAT MIGHT INDICATE THE
APPLICABILITY OF THE LAWS OF ANY OTHER JURISDICTION, EXCEPT WHERE THE LAWS OF
THE STATE OF DELAWARE ARE MANDATORILY APPLICABLE.
Section 4.6 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, by hand delivery or telecopy (with a confirmation
copy sent for next day delivery via courier service, such as Federal Express),
or sent by overnight courier, such as Federal Express (providing proof of
delivery). All communications hereunder shall be delivered to the respective
parties at the following addresses:
If to the Stockholders:
to the addresses set forth on Annex A hereto.
If to ASC:
American Skiing Company
One Monument Way
Portland, Maine 04101
Attention: Christopher E. Howard, Esq.
Foster A. Stewart, Jr., Esq.
Telecopy: (207) 791-2607
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10036-6522
Attention: Mark Roppel, Esq.
Telecopy: (212) 848-7179
If to MeriStar:
MeriStar Hotels & Resorts, Inc.
1010 Wisconsin Avenue, NW
Washington, DC 20007
Attention: Christopher L. Bennett, Esq.
Telecopy: (202) 295-1026
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Richard S. Borisoff, Esq.
Telecopy: (212) 757-3990
B-8
<PAGE>
Section 4.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise, by any Stockholder without
the prior written consent of MeriStar, or by MeriStar without the prior written
consent of the Stockholders and any such assignment or delegation that is not
consented to shall be null and void. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns (including, without
limitation, any person to whom any Subject Shares are sold, transferred or
assigned).
Section 4.8 Further Assurances. Each Stockholder shall execute and deliver
such other documents and instruments and take such further actions as may be
necessary or appropriate or as may be reasonably requested by MeriStar in order
to ensure that MeriStar receives the full benefit of this Agreement.
Section 4.9 Enforcement. Irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. Accordingly, the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in the federal courts of the United States located in the State of New York,
this being in addition to any other remedy to which they are entitled at law or
in equity. Each of the parties hereto (i) shall submit itself to the
jurisdiction of the federal courts of the United States of America located in
the State of New York in the event any dispute arises out of this Agreement or
any of the transactions contemplated hereby, (ii) shall not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from any
such court, and (iii) shall not bring any action relating to this Agreement or
any of the transactions contemplated hereby in any court other than the federal
courts of the United States of America located in the State of New York.
Section 4.10 Waiver of Trial by Jury. Each party acknowledges and agrees
that any controversy that may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each such party hereby
irrevocably and unconditionally waives any right such party may have to a trial
by jury in respect of any litigation directly or indirectly arising out of or
relating to this Agreement or the transactions contemplated by this Agreement.
Each party certifies and acknowledges that (i) no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver, (ii) each such party understands and has considered the implications of
this waiver, (iii) each such party makes this waiver voluntarily, and (iv) each
such party has been induced to enter into this agreement by, among other things,
the mutual waivers and certifications in this Section 4.10.
Section 4.11 Severability. Whenever possible, each provision or portion of
any provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 4.12 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other parties.
B-9
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed as of the day and year first written above.
<TABLE>
<S> <C> <C>
MERISTAR HOTELS & RESORTS, INC.
By: /s/ PAUL W. WHETSELL
-----------------------------------------
Name: Paul W. Whetsell
Title: CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
AMERICAN SKIING COMPANY
By: /s/ LESLIE B. OTTEN
-----------------------------------------
Name: Leslie B. Otten
Title: President
/s/ LESLIE B. OTTEN
-----------------------------------------
Leslie B. Otten
ALBERT OTTEN TRUST
F/B/O MILDRED OTTEN
By: /s/ LESLIE B. OTTEN
-----------------------------------------
Name: Leslie B. Otten
Title: Trustee
OAK HILL CAPITAL PARTNERS, L.P.
By: OHCP GenPar, L.P., its general partner
By: OHCP MGP, LLC, its general partner
By: /s/ KEVIN G. LEVY
-----------------------------------------
Name: Kevin G. Levy
Title: Vice President
OAK HILL CAPITAL MANAGEMENT PARTNERS, L.P.
By: OHCP GenPar, L.P., its general partner
By: OHCP MGP, LLC, its general partner
By: /s/ KEVIN G. LEVY
-----------------------------------------
Name: Kevin G. Levy
Title: Vice President
</TABLE>
B-10
<PAGE>
<TABLE>
<S> <C> <C>
OAK HILL SECURITIES FUND, L.P.
By: Oak Hill Securities GenPar, L.P., its
general partner
By: Oak Hill Securities MGP, Inc., its general
partner
By: /s/ GLENN R. AUGUST
-----------------------------------------
Name: Glenn R. August
Title: Vice President
OAK HILL SECURITIES FUND II, L.P.
By: Oak Hill Securities GenPar II, L.P., its
general partner
By: Oak Hill Securities MGP II, Inc., its
general partner
By: /s/ GLENN R. AUGUST
-----------------------------------------
Name: Glenn R. August
Title: President
OHCP SKI, L.P.
By: Oak Hill Capital Partners, L.P., its
general partner
By: OHCP GenPar, L.P., its general partner
By: OHCP MGP, LLC, its general partner
By: /s/ KEVIN G. LEVY
-----------------------------------------
Name: Kevin G. Levy
Title: Vice President
MADELEINE LLC
By: /s/ BOB DAVENPORT
-----------------------------------------
Name: Bob Davenport
Title: Attorney in fact
</TABLE>
<TABLE>
<S> <C> <C> <C>
Accepted and agreed as to
Sections 1.2 and 3.7 hereof:
ING (U.S.) CAPITAL LLC, AS PLEDGEE
OF SHARES OF CLASS A COMMON STOCK AND COMMON STOCK
BENEFICIALLY OWNED BY LESLIE B. OTTEN
By: /s/ WILLIAM B. REDMOND
---------------------------------------
Name: William B. Redmond
Title: Vice President
</TABLE>
B-11
<PAGE>
ANNEX A
<TABLE>
<CAPTION>
STOCKHOLDER ADDRESS TYPE OF ASC SECURITY NUMBER
----------- ------- -------------------- ------
<S> <C> <C> <C>
Madeleine LLC 450 Park Avenue 28th Floor Series A Preferred 36,626
New York, NY 10022 Stock
Attention: Robert Davenport
With a copy to:
Robert Loper, Esq.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Oak Hill Capital Partners, L.P. * Series B Preferred 129,870
Stock
Oak Hill Capital Management Partners, * Series B Preferred 3,330
L.P. Stock
Oak Hill Securities Fund, L.P. * Series B Preferred 7,400
Stock
Oak Hill Securities Fund II, L.P. * Series B Preferred 7,400
Stock
OHCP Ski, L.P. * Series B Preferred 2,000
Stock
Leslie B. Otten c/o American Skiing Company Common Stock 833,333
Sunday River Access Road,
Bethel, ME 04217
Class A Common Stock 14,760,530
Albert Otten Trust f/b/o Mildred c/o American Skiing Company Common Stock 30,000
Otten Sunday River Access Road,
Bethel, ME 04217
</TABLE>
------------------------
* The address of OCP, OCMP, OSF, OSF2 and OSLP is:
201 Main Street, Suite 2600
Fort Worth, Texas 76102
Attention: Kevin G. Levy
B-12
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned shareholder of AMERICAN SKIING COMAPANY, a Delaware
corporation ("ASC") hereby appoints MERISTAR HOTELS & RESORTS, INC., a Delaware
corporation ("MeriStar"), as proxy for the undersigned, with full power of
substitution, to attend any annual or special meeting of the shareholders of ASC
(including any and all adjournments and postponements thereof), and in respect
of any written consent in lieu of such meeting, held or made for the purpose of
considering or voting upon the matters described in Section 1.1 of the Voting
and Recapitalization Agreement, dated the date hereof, among MeriStar and
certain shareholders of ASC (the "Agreement"), in accordance with such
Section 1.1, and to cast all votes that the undersigned is entitled to cast at
such a meeting (or in connection with such written consent) with respect to all
of the undersigned's Subject Shares (as defined in the Agreement) with respect
to the matters described in Section 1.1 of the Agreement. The undersigned hereby
revokes any proxy heretofore given with respect to such a meeting (or written
consent in lieu thereof) or with respect to such a vote cast. The undersigned
affirms that this proxy is a power coupled with an interest and shall be
irrevocable. The undersigned shall take such further action or execute such
other instruments as may be necessary to effectuate the intent of this
irrevocable proxy. This proxy shall be automatically revoked upon the
termination of the Agreement.
[Name of Stockholder]
<TABLE>
<S> <C> <C>
Please sign exactly as name appears on the records of ASC By ----------------------------------
and date. When signing as attorney, executor, Name:
administrator, trustee, guardian, officer of a corporation Title:
or other entity or in another representative capacity,
please give the full title under signature(s).
Dated: December ,
</TABLE>
B-13
<PAGE>
EXHIBIT B
SECTION 1. DESIGNATION AND AMOUNT. There is hereby created and authorized
a series of Serial Preferred Stock, the designation of which shall be the
Series A 14% Preferred Stock (herein the "SERIES A PREFERRED STOCK"). The number
of issuable shares of Series A Preferred Stock shall be 60,000.
SECTION 2. RANK. All shares of Series A Preferred Stock, both as to
payment of dividends and to distribution of assets upon liquidation, dissolution
or winding up of the corporation, whether voluntary or involuntary, shall rank
prior to all of the corporation's now or hereafter issued preferred stock, and
senior to all of the corporation's now or hereafter issued Common Stock or any
other common stock of any class of the corporation. The term "Common Stock"
shall mean the Common Stock, par value $.01 per share, of the corporation as the
same exists at the date hereof or as such stock may be constituted from time to
time.
SECTION 3. DIVIDENDS AND CERTAIN RESTRICTIONS. The holders of the
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors of the corporation out of funds of the corporation
legally available therefor, dividends at a rate per share of 14% per annum, and
no more on the sum of (x) the Liquidation Preference plus (y) all then accrued
and unpaid dividends. Such dividends shall be fully cumulative, shall accrue and
compound quarterly, beginning on the date of issuance, on January 1, April 1,
July 1 and October 1 of each year (whether or not declared or paid), and shall
be payable in cash on August 15, 2006, or, at the option of the corporation, in
whole or in part on any January 1, April 1, July 1 or October 1 (except that if
such date is a Saturday, Sunday or legal holiday, then such dividend will be
payable on the next day that is not a Saturday, Sunday or legal holiday) to
holders of record as they appear on the stock transfer books of the corporation
on such record date, not more than 60 nor less than 10 days preceding the
payment date for such dividend, as is fixed by the Board of Directors. For
purposes hereof, the term "legal holiday" shall mean any day on which banking
institutions are obligated or authorized to close in New York, New York or in
Boston, Massachusetts.
On such dividend payment date all dividends which shall have accrued on each
share of Series A Preferred Stock outstanding on such dividend payment date
shall accumulate and be deemed to become "due". If such dividends are not fully
paid on such dividend payment date, such accrued dividends shall be added
(solely for the purpose of calculating dividends payable on the Series A
Preferred Stock) to the Liquidation Preference of the Series A Preferred Stock
effective at the beginning of the quarterly dividend compounding period next
succeeding the dividend payment date as to which such dividends were not paid
and shall thereafter accrue additional dividends in respect thereof until such
unpaid dividends have been paid in full. Dividends paid on shares of Series A
Preferred Stock in an amount less than the total amount of such dividends at the
time accumulated and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. Dividends
payable on the Series A Preferred Stock in respect of any period of less than a
calendar quarter shall be computed on the basis of a 90-day quarter. Upon the
request of a holder of Series A Preferred Stock, the corporation will promptly
deliver to such holder a written statement describing the amount of accrued and
unpaid dividends, calculated as of the date of such request, in respect of the
Series A Preferred Stock held by such holder.
Unless all accrued and unpaid dividends on the Series A Preferred Stock that
are due and payable in cash have been paid in cash, or declared and sums set
aside for the payment thereof, dividends (other than in Common Stock or any
other stock of the corporation ranking junior to the Series A Preferred Stock as
to dividends and as to liquidation rights) may not be paid, or declared and set
aside for payment, and other distributions may not be made upon the Common Stock
or on any other stock of the corporation ranking junior to the Series A
Preferred Stock as to dividends. So long as any shares
B-14
<PAGE>
of Series A Preferred Stock are outstanding, the Common Stock (or any rights,
options or warrants to purchase Common Stock), any other stock or other equity
interests (or rights, options or warrants to purchase such other stock or other
equity interests) of the corporation ranking junior to the Series A Preferred
Stock as to dividends or upon liquidation may not be redeemed, purchased or
otherwise acquired for any consideration by the corporation.
Cash dividends on the Series A Preferred Stock may not be declared, paid or
set apart for payment if (a) the corporation is not solvent or would be rendered
insolvent thereby or (b) the terms and provisions of any law, or any agreement
of the corporation relating to the corporation's indebtedness for borrowed
money, specifically prohibit such declaration, payment or setting apart for
payment or provide that such declaration, payment or setting apart for payment
would constitute a violation or breach thereof or a default thereunder.
The corporation shall not permit any subsidiary of the corporation to
purchase or otherwise acquire for consideration any shares of stock (or rights,
options or warrants to purchase shares of stock or other equity interests) of
the corporation unless the corporation could, under this Section 3, purchase or
otherwise acquire such shares (or rights, options or warrants to purchase shares
of stock) or units at such time and in such manner.
Any reference to "distribution" contained in this Section 3 shall not be
deemed to include any distribution made in connection with any liquidation,
dissolution or winding up of the corporation, whether voluntary or involuntary.
SECTION 4. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution or winding up of the corporation, whether voluntary or involuntary,
the holders of Series A Preferred Stock shall be entitled to receive out of the
assets of the corporation, whether such assets are stated capital or surplus of
any nature, an amount equal to $1,000 per share (the "LIQUIDATION PREFERENCE")
plus the dividends accrued and unpaid thereon to the date of final distribution
to such holders, whether or not declared, without interest, before any payment
shall be made or any assets distributed to the holders of Common Stock or any
other class or series of the corporation's capital stock ranking junior as to
liquidation rights to the Series A Preferred Stock; provided, however, that such
rights shall accrue to the holders of Series A Preferred Stock only in the event
that the corporation's payments with respect to the liquidation preferences
(plus any accrued and unpaid dividends thereon) of the holders of capital stock
of the corporation ranking senior as to liquidation rights to the Series A
Preferred Stock (the "SENIOR LIQUIDATION STOCK") are fully met. If the assets of
the corporation available for distribution after the liquidation preferences
(plus any accrued and unpaid dividends thereon) of the Senior Liquidation Stock
are fully met are not sufficient to pay an amount equal to the Liquidation
Preference (plus any accrued and unpaid dividends thereon) to the holders of
outstanding shares of Series A Preferred Stock and the liquidation preference
(plus any accrued and unpaid dividends thereon) to the holders of any other
series of the corporation's capital stock which may hereafter be created in
accordance with Section 6(c) hereof having liquidation rights on a parity with
the shares of Series A Preferred Stock (the "PARITY LIQUIDATION STOCK"), then
the assets of the corporation shall be distributed ratably among the holders of
the Series A Preferred Stock and the Parity Liquidation Stock in proportion to
the respective preferential amounts to which each is entitled (but only to the
extent of such preferential amounts). After payment in full of the amounts in
respect of the Liquidation Preference (and any accrued and unpaid dividends
thereon) to which they are entitled, the holders of the Series A Preferred Stock
shall not be entitled to any further participation in any distribution of assets
of the corporation. Neither a consolidation, merger or other business
combination of the corporation with or into another corporation or other entity
nor a sale or transfer of all or part of the corporation's assets for cash,
securities or other property shall be considered a liquidation, dissolution or
winding up of the corporation for purposes of this Section 4 (unless in
connection therewith the liquidation of the corporation is specifically
approved).
B-15
<PAGE>
The holder of any shares of Series A Preferred Stock shall not be entitled
to receive any payment owed for such shares under this Section 4 until the
corporation has received (i) the certificate(s) representing such shares of
Series A Preferred Stock and (ii) transfer instrument(s) satisfactory to the
corporation and sufficient to transfer such shares of Series A Preferred Stock
to the corporation free of any adverse interest. No interest shall accrue on any
payment made in respect of the Liquidation Preference (and any accrued and
unpaid dividends thereon) after the due date thereof.
SECTION 5. REDEMPTION. On August 15, 2006 (the "MANDATORY REDEMPTION
DATE"), the corporation shall redeem, out of funds legally available therefor,
all shares of the Series A Preferred Stock then outstanding at a redemption
price (the "REDEMPTION PRICE") equal to the Liquidation Preference per share,
together with accrued and unpaid dividends to the redemption date. If, on the
Mandatory Redemption Date, funds are not legally available to the corporation
for redemption of the shares of Series A Preferred Stock, the corporation shall
redeem on such date, at the Redemption Price, that number of shares of Series A
Preferred Stock which it can lawfully redeem, and from time to time thereafter,
as soon as funds are legally available, the corporation shall redeem at the
Redemption Price shares of Series A Preferred Stock until the corporation has
redeemed the shares of Series A Preferred Stock in full.
The corporation, at its option, may at any time, redeem, out of funds
legally available therefor, in whole or from time to time in part, the Series A
Preferred Stock on any date set by the Board of Directors, for cash at the
Redemption Price, together with accrued and unpaid dividends to the redemption
date (subject to the right of the holder of record of shares of Series A
Preferred Stock on a record date for the payment of a dividend on the Series A
Preferred Stock to receive the dividend due on such shares of Series A Preferred
Stock on the corresponding dividend payment date, if such dividend payment date
is prior to the date set for redemption).
In case of the redemption of less than all of the then outstanding Series A
Preferred Stock, the corporation shall select the shares of Series A Preferred
Stock to be redeemed in accordance with any method permitted by the national
securities exchange on which the Series A Preferred Stock is then listed, or if
not so listed, the corporation shall designate by lot, or in such other manner
as the Board of Directors may determine, the shares to be redeemed, or shall
effect such redemption pro rata. Notwithstanding the foregoing, the corporation
shall not redeem less than all of the Series A Preferred Stock at any time
outstanding until all dividends accrued to such payment date upon all Series A
Preferred Stock then outstanding shall have been paid.
Not more than 120 nor less than 90 days prior to the date of any redemption
under this Section 5, notice by first class mail, postage prepaid, shall be
given to each holder of record of the Series A Preferred Stock to be redeemed,
at such holder's address as it shall appear upon the stock transfer books of the
corporation. Each such notice of redemption shall specify the date fixed for
redemption, the Redemption Price, the place or places of payment and that
payment will be made upon presentation and surrender of the certificates
evidencing the shares of Series A Preferred Stock to be redeemed.
Any notice that is mailed as herein provided shall be conclusively presumed
to have been duly given, whether or not the holder of the Series A Preferred
Stock receives such notice; and failure to give such notice by mail, or any
defect in such notice, to the holders of any shares designated for redemption
shall not affect the validity of the proceedings for the redemption of any other
shares of Series A Preferred Stock. On or after the date fixed for redemption as
stated in such notice, each holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price. If less than all the shares represented by any such
surrendered certificate are redeemed, a new certificate shall be issued without
cost to the holder thereof representing the unredeemed shares. If such notice of
redemption has been so mailed and if, on or prior to the
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<PAGE>
redemption date specified in such notice all funds necessary for such redemption
have been set aside by the corporation, separate and apart from its other funds,
in trust for the account of the holders of the shares so to be redeemed (as to
be and continue to be available therefor), then on and after the redemption
date, notwithstanding that any certificate for shares of the Series A Preferred
Stock so called for redemption has not been surrendered for cancellation, all
shares of the Series A Preferred Stock with respect to which such notice shall
have been mailed and such funds shall have been set aside shall be deemed to be
no longer outstanding and all rights with respect to such shares of the
Series A Preferred Stock so called for redemption shall forthwith cease and
terminate, except the right of the holders thereof to receive out of the funds
so set aside in trust the amount payable on redemption thereof (including an
amount equal to accrued and unpaid dividends to the redemption date) without
interest thereon.
The holder of any shares of Series A Preferred Stock redeemed upon any
exercise of the corporation's redemption right shall not be entitled to receive
payment of the Redemption Price for such shares until such holder has caused to
be delivered to the place specified in the notice given with respect to such
redemption (i) the certificate(s) representing such shares of Series A Preferred
Stock redeemed and (ii) transfer instrument(s) satisfactory to the corporation
and sufficient to transfer such shares of Series A Preferred Stock to the
corporation free of any adverse interest. No interest shall accrue on the
Redemption Price of any share of Preferred Interests after its redemption date.
SECTION 6. VOTING RIGHTS.
(a) GENERAL. Other than as provided in Section 6(b) below, the holders of
Series A Preferred Stock shall have no voting rights with respect to any matters
upon which the stockholders of the corporation may vote. In addition, the
holders of Series A Preferred Stock will have all voting rights required by law,
and shall also have all special voting rights provided below. Any shares of
Series A Preferred Stock held by the corporation or any entity controlled by the
corporation shall not have voting rights hereunder and shall not be counted in
determining the presence of a quorum.
(b) DEFAULT VOTING RIGHTS.
(i) RIGHT TO ELECT DIRECTORS. Whenever dividends that have become due
and payable in cash under Section 3 on the Series A Preferred Stock are in
arrears, or the Redemption Price (whether mandatory or optional) has not
been paid in full when due, or an Event of Default (as hereinafter defined),
has occurred (A) the number of members of the Board of Directors of the
corporation shall be increased by two, effective as of the time of election
of such directors as hereinafter provided, and (B) the holders of the
Series A Preferred Stock (voting separately as a class) shall have the
exclusive right (the "DEFAULT RIGHT") to vote for and elect such two
additional directors of the corporation at any meeting of stockholders of
the corporation at which directors are to be elected held during the period
such dividends remain in arrears or such redemption price has not been paid
in full. The holders of the Series A Preferred Stock shall have this Default
Right until (x) payment in full of all accrued and unpaid dividends on the
Series A Preferred Stock has been made, (y) payment in full of any
Redemption Price which has become due has been made or (z) the date on which
such Event of Default has ceased to be continuing. An "EVENT OF DEFAULT"
shall be deemed to occur if: (i) a default occurs under any bond, debenture,
note or other evidence of indebtedness, whether or not contingent, for
borrowed money ("INDEBTEDNESS") by the corporation or any Restricted
Subsidiary (as defined in the Indenture dated as of June 28, 1996, as
amended, relating to the corporation's 12% Senior Subordinated Notes due
2006, the "INDENTURE"), which default has resulted in such at least
$5.0 million aggregate principal amount of Indebtedness becoming or being
declared payable prior to the date on which it would otherwise have been due
and payable, without such Indebtedness having been discharged, such
acceleration having been rescinded or annulled or there having been
deposited in trust a sum of money sufficient to discharge in full such
Indebtedness; or (ii) the corporation or any of its Subsidiaries
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<PAGE>
(as defined in the Indenture) fails to pay any principal or interest when
due with respect to any Indebtedness for money borrowed (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise)
and such failure continues after the applicable grace period, if any,
specified in the agreement or instrument evidencing or governing such
Indebtedness, has expired, and the amount of such Indebtedness, together
with any interest or premium thereon, exceeds $5.0 million).
(ii) SPECIAL MEETING. The Default Right may be exercised initially by
the vote of the holders of a majority of the shares of the Series A
Preferred Stock present and voting, in person or by proxy, at a special
meeting of holders of the Series A Preferred Stock or at the next annual
meeting of stockholders, or by written consent of the holders of record of a
majority of the outstanding shares of the Series A Preferred Stock without a
meeting. Unless such action shall have been taken by written consent as
aforesaid, a special meeting of the holders of the Series A Preferred Stock
for the exercise of the Default Right shall be called by the Secretary of
the corporation as promptly as possible in compliance with applicable laws
and regulations, and in any event within 10 days after receipt of a written
request signed by the holders of record of at least 25% of the outstanding
shares of the Series A Preferred Stock, subject to any applicable notice
requirements imposed by law or by any national securities exchange on which
any Series A Preferred Stock is listed. Such meeting shall be held at the
earliest practicable date thereafter.
(iii) TERM OF OFFICE OF DIRECTORS. Any director who has been elected by
holders of the Series A Preferred Stock shall hold office for a term
expiring (subject to the earlier payment of all dividends and redemption
payments, whether mandatory or optional, in arrears on the Series A
Preferred Stock) at the next annual meeting of stockholders and during such
term may be removed at any time, either for or without cause, by and only
by, the affirmative vote of the holders of record of a majority of the
shares of the Series A Preferred Stock, voting as a single class, present
and voting, in person or by proxy, at a special meeting of such stockholders
called for such purpose, or by written consent without a meeting of the
holders of record of a majority of the outstanding shares of the Series A
Preferred Stock, voting as a single class, and any vacancy created by such
removal may also be filled at such meeting or by such written consent. A
special meeting of the holders of the shares of the Series A Preferred Stock
for the removal of a director elected by the holders of the Series A
Preferred Stock and the filling of the vacancy created thereby shall be
called by the Secretary of the corporation as promptly as possible and in
any event within 10 days after receipt of a written request therefor signed
by the holders of not less than 25% of the outstanding shares of the
Series A Preferred Stock taken as a single class, subject to any applicable
notice requirements imposed by law or any national securities exchange on
which any Series A Preferred Stock is listed. Such meeting shall be held at
the earliest practicable date thereafter.
(iv) VACANCIES. Any vacancy caused by the death or resignation of a
director who has been elected in accordance with this Section 6 (b) may be
filled by a person nominated by the remaining director so elected or, if not
so filled, by a vote of holders of a majority of the shares of the Series A
Preferred Stock present and voting as a single class, in person or by proxy,
where at least one third of such holders are present, in person or proxy, at
a meeting of such holders of Series A Preferred Stock called for such
purpose, or by written consent without a meeting of the holders of record of
a majority of the outstanding shares of the Series A Preferred Stock as a
single class. Unless such vacancy has been filled by the remaining director
or by written consent as aforesaid, such meeting shall be called by the
Secretary of the corporation at the earliest practicable date after such
death or resignation, and in any event within 10 days after receipt of a
written request signed by the holders of record of at least 25% of the
outstanding shares of the Series A Preferred Stock taken as a single class.
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<PAGE>
(v) STOCKHOLDERS' RIGHT TO CALL MEETING. If any meeting of the holders
of the Series A Preferred Stock required by this subparagraph (b) to be
called has not been called within 10 days after personal service of a
written request therefor upon the Secretary of the corporation or within
15 days after mailing the same within the United States of America by
registered mail addressed to the Secretary of the corporation at its
principal office, subject to any applicable notice requirements imposed by
law or any national securities exchange on which any Series A Preferred
Stock is listed, then the holders of record of at least 25% of the
outstanding shares of the Series A Preferred Stock may designate in writing
a holder of a share of the Series A Preferred Stock to call such meeting at
the expense of the corporation, and such meeting may be called by such
Person so designated upon the notice required for annual meetings of
stockholders or such shorter notice (but in no event shorter than permitted
by law or any national securities exchange on which the Series A Preferred
Stock is listed) as may be acceptable to the holders of a majority of the
total number of shares of the Series A Preferred Stock. Any holder of a
share of the Series A Preferred Stock so designated shall have access to the
stock books of the corporation relating solely to the Series A Preferred
Stock for the purpose of causing such meeting to be called pursuant to these
provisions.
(vi) QUORUM. At any meeting of the holders of the Series A Preferred
Stock called in accordance with the provisions of this subparagraph (b) for
the election or removal of directors, the presence in person or by proxy of
the holders of one-third of the total number of shares of the Series A
Preferred Stock as a single class shall be required to constitute a quorum;
in the absence of a quorum, a majority of the holders present in person or
by proxy shall have power to adjourn the meeting from time to time without
notice, other than announcement at the meeting, until a quorum shall be
present.
(c) CLASS VOTING RIGHTS. So long as shares of the Series A Preferred Stock
are outstanding, the corporation shall not, directly or indirectly or through
merger or consolidation with any other person, without the affirmative vote or
consent of the holders of at least a majority of all outstanding Series A
Preferred Stock, voting separately as a class, (i) increase the authorized
number of shares of the Series A Preferred Stock, (ii) authorize or issue or
increase the authorized amount of any additional class or series of stock
(including any series of preferred stock), or any security convertible into
stock of such class or series, ranking on a parity with or senior to the
Series A Preferred Stock as to dividends or as to rights upon liquidation,
dissolution or winding up or (iii) effect any reclassification of the Series A
Preferred Stock. In connection with any right to vote pursuant to this
Section 6(c), each holder of Series A Preferred Stock shall have one vote for
each share held. Without limiting the generality of the foregoing, a class vote
by the holders of the Series A Preferred Stock shall not be required (except as
otherwise required by law or resolution of the corporation's Board of Directors)
in connection with the authorization, issuance or increase in the authorized
amount of any shares of any other class or series of stock that ranks junior to
the Series A Preferred Stock upon liquidation, dissolution or winding up of the
corporation if (A) dividends on such junior class or series of stock are payable
solely in additional shares of such junior class or series of stock if cash
dividends have not been paid when due on the Series A Preferred Stock on the
immediately preceding dividend payment date and (B) such junior class or series
of stock is not subject to any mandatory redemption or entitled to any mandatory
offer to purchase, in each case, prior to the Mandatory Redemption Date.
SECTION 7. OUTSTANDING SHARES. For purposes of this Exhibit A, all shares
of Series A Preferred Stock shall be deemed outstanding except (i) from the date
fixed for redemption pursuant to Section 5, all shares of Series A Preferred
Stock that have been so called for redemption under Section 5 if funds necessary
for payment of the redemption price have been irrevocably deposited in trust,
for the account of the holders of the shares so to be redeemed (so as to be and
continue to be available therefor), with a corporation organized and doing
business under the laws of the United States or any State or territory thereof
or of the District of Columbia (or a corporation or other person permitted to
act as a
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<PAGE>
trustee by the Securities and Exchange Commission) authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus of at
least $100,000,000 and subject to supervision or examination by Federal, State
or District of Columbia or territorial authority; and (ii) from the date of
registration of transfer, all shares of Series A Preferred Stock held of record
by the corporation or any subsidiary of the corporation.
SECTION 8. STATUS OF ACQUIRED SHARES. Shares of Series A Preferred Stock
redeemed by the corporation or otherwise acquired by the corporation, shall be
restored to the status of authorized and unissued shares of Serial Preferred
Stock, without designation as to series, and may thereafter be issued, but not
as shares of Series A Preferred Stock.
SECTION 9. PREEMPTIVE RIGHTS. The holders of Series A Preferred Stock are
not entitled to any preemptive or subscription rights in respect of any
securities of the corporation.
SECTION 10. REPORTS. So long as the Series A Preferred Stock remains
outstanding, the corporation shall cause its annual reports to stockholders and
any quarterly or other financial reports and information furnished by it to
stockholders pursuant to the requirements of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), to be mailed to the holders of the
Series A Preferred Stock (contemporaneously with the mailing of such materials
to the corporation's stockholders) at their addresses appearing on the books of
the corporation. If the corporation is not required to furnish annual or
quarterly reports to its stockholders pursuant to the Exchange Act, it shall
cause its financial statements, including any notes thereto (and with respect to
annual reports, an auditors' report by a nationally recognized firm of
independent certified public accountants), a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and such other
information which the corporation would otherwise be required to include in
annual and quarterly reports filed under the Exchange Act, to be mailed to the
holders of the Series A Preferred Stock, within 120 days after the end of each
of the corporation's fiscal years and within 60 days after the end of each of
its first three fiscal quarters.
SECTION 11. SEVERABILITY OF PROVISIONS. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
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<PAGE>
SCHEDULE 1.1
INITIAL DIRECTORS
<TABLE>
<CAPTION>
NAME CLASS NOMINATED BY
---- -------- ------------
<S> <C> <C>
**................................ I Oak Hill
**................................ I Oak Hill
*................................. I Independent
**................................ II Oak Hill
Mr. Steven Jorns.................. II MeriStar
Mr. David Hawkes.................. II Otten
*................................. II Independent Director
Mr. Daniel Doctoroff.............. III Oak Hill
Mr. Paul W. Whetsell.............. III MeriStar
Mr. Leslie B. Otten............... III Otten
*................................. III Independent
</TABLE>
------------------------
* To be determined reasonably by ASC, MeriStar, Otten, OCP, OCMP, OSF, OSF2
and OSLP.
** To be determined by OCP, OCMP, OSF, OSF2 and OSLP.
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<PAGE>
SCHEDULE 2.1
BENEFICIAL OWNERSHIP OF CAPITAL STOCK OF ASC
1. Madeleine holds its Subject Shares on behalf of various funds and accounts
managed by Cerberus Capital Management, L.P. and its affiliates.
2. The Subject Shares of Madeleine, Otten, OCP, OCMP, OSF, OSF2 and OSLP are
subject to a proxy in favor of ASC to vote those Subject Shares at ASC's
annual meeting of stockholders on December 12, 2000 (and all adjournments
and postponements thereof).
3. Otten holds his Subject Shares subject to the pledge granted under the
Pledge Agreement, dated November 10, 1997, between Otten and ING.
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<PAGE>
APPENDIX C
EXECUTION COPY
VOTING AGREEMENT
This VOTING AGREEMENT, dated as of December 8, 2000 (this "Agreement"), is
made and entered into among MeriStar Hotels & Resorts, Inc., a Delaware
corporation (the "MeriStar"), American Skiing Company, a Delaware corporation
("ASC"), Oak Hill Capital Partners, L.P., a Delaware limited partnership
("OCP"), Oak Hill Capital Management Partners, L.P., a Delaware limited
partnership ("OMP"), F.W. Hospitality, L.P., a Delaware limited partnership
("F.W. Hospitality"), Arbor REIT, L.P., a Delaware limited partnership ("Arbor
REIT"), and MHX Investors, L.P., a Delaware limited partnership ("MHX
Investors"). OCP, OMP, F.W. Hospitality, Arbor REIT and MHX Investors are
referred to collectively as the "Stockholders" and each as a "Stockholder".
RECITALS:
A. ASC, ASC Merger Sub, Inc. a Delaware corporation ("Merger Sub"), and
MeriStar are, simultaneously with the execution hereof, entering into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), pursuant to which Merger Sub will merge with and into MeriStar (the
"Merger") on the terms and subject to the conditions set forth in the Merger
Agreement and, as a result, MeriStar will become a wholly-owned subsidiary of
ASC. Except as otherwise defined herein, capitalized terms used herein without
definition have the respective meanings ascribed to them in the Merger
Agreement.
B. As a condition and inducement to ASC's willingness to enter into the
Merger Agreement, ASC has requested that each Stockholder agree, and each
Stockholder has agreed, to enter into this Agreement and to grant to ASC an
irrevocable proxy with respect to the shares of common stock, par value $0.01
per share, of MeriStar (the "MeriStar Common Stock") in the form attached hereto
as Exhibit A (each a "Proxy") with respect to such Stockholder's Subject Shares
(as defined in Section 2.1(a)).
C. Simultaneously with the execution and delivery of this Agreement, each
Stockholder has irrevocably granted ASC a Proxy to vote its shares in a manner
consistent with the covenants set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and covenants contained in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
VOTING OF SUBJECT SHARES
Section 1.1 Agreement to Vote Subject Shares. At any meeting (including
any and all postponements and adjournments thereof) of the stockholders of
MeriStar (a "MeriStar Stockholders Meeting") called to consider and vote upon
the approval of the Merger, the Merger Agreement and the transactions
contemplated thereby (the "Proposals"), and in connection with any action to be
taken in respect of the Proposals by written consent of the stockholders of
MeriStar, each Stockholder shall vote or cause to be voted (including by written
consent, if applicable) all of such Stockholder's Subject Shares in favor of the
Proposals and any other matter necessary for the consummation of the
transactions contemplated by the Merger Agreement and considered and voted upon
at any such meeting. At any meeting (and at any and all postponements and
adjournments thereof) of the stockholders of MeriStar (an "Adverse Meeting")
called to consider and vote upon any Adverse
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<PAGE>
Proposal (as defined below), and in connection with any action to be taken in
respect of any Adverse Proposal by written consent of stockholders of MeriStar,
each Stockholder shall vote or cause to be voted (including by written consent,
if applicable) all of such Stockholder's Subject Shares against such Adverse
Proposal. For purposes of this Agreement, the term "Adverse Proposal" means any
(a) proposal or action that would reasonably be expected to result in a breach
of any covenant, representation or warranty of MeriStar set forth in the Merger
Agreement or (b) proposal or action that is intended or would reasonably be
expected to impede, interfere with, delay or materially and adversely affect the
Merger or any of the other transactions contemplated by the Merger Agreement or
this Agreement.
Section 1.2 Other Proxies Revoked. Any proxies (other than the Proxy)
heretofore given in respect of such Stockholder's Subject Shares are not
irrevocable and all such proxies are hereby revoked.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Stockholders. Each
Stockholder, severally and not jointly, represents and warrants, as of the date
hereof, the time of each MeriStar Stockholders Meeting and each Adverse Meeting
and as of the Effective Time, to ASC as follows:
(a) Except for Subject Shares transferred in accordance with
Section 3.1 hereof after the date hereof, such Stockholder is the sole
record and beneficial owner of the number of shares of MeriStar Common Stock
set forth opposite such Stockholder's name on Annex A hereto (such MeriStar
Common Stock, together with any other equity or voting interests in MeriStar
the beneficial ownership of which is hereafter acquired by such Stockholder
and any MeriStar Common Stock into which such other equity or voting
interests are converted, being collectively referred to herein as such
Stockholder's "Subject Shares") and has full, unrestricted and sole power to
dispose of and to vote such Subject Shares. Such Subject Shares are now, and
at all times prior to the Effective Time will be, held by such Stockholder,
or by a nominee or custodian for the benefit of such Stockholder, free and
clear of all liens, voting trusts or agreements, powers of attorney, proxies
or any other arrangement or agreement with any person or entity limiting or
affecting such Stockholder's legal power or authority to vote or sell the
Subject Shares, except for those restrictions arising hereunder or under the
Proxy delivered by such Stockholder or set forth under applicable securities
laws and except as specified on Schedule 2.1 hereto. Such Stockholder does
not beneficially own or hold any rights to acquire any additional securities
of MeriStar other than such Subject Shares.
(b) Such Stockholder has all requisite power and authority to enter into
this Agreement, to grant the Proxy and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
Proxy by such Stockholder and the consummation by such Stockholder of the
transactions contemplated hereby have been duly authorized by all necessary
action, if any, on the part of such Stockholder. This Agreement and the
Proxy have been duly executed and delivered by such Stockholder and,
assuming that this Agreement constitutes the valid and binding obligation of
ASC, each of this Agreement and the Proxy constitutes a valid and binding
obligation of such Stockholder, enforceable against such Stockholder in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity. The Proxy is an irrevocable proxy, coupled with an interest, and ASC
shall, by operation of the Proxy, have the power to vote such Stockholder's
Subject Shares in accordance with, and as contemplated by, Section 1.1 and
by the terms of the Proxy.
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<PAGE>
(c) The execution and delivery of this Agreement or of the Proxy does
not, and the consummation of the transactions contemplated hereby and
thereby and compliance with the provisions hereof and thereof will not,
conflict with, result in a breach or violation of or default (with or
without notice or lapse of time or both) under, give rise to a material
obligation, a right of termination, cancellation, or acceleration of any
obligation or a loss of a material benefit under, or require notice to or
the consent of any person under (i) in the case of a Stockholder that is a
corporation or other business organization, any organizational documents of
such Stockholder, (ii) in the case of any Stockholder that is a trust,
violate or conflict with any term or provision of the indenture, or other
governing or testamentary instrument relating to such trust or (iii) in the
case of any Stockholder, any Contract, Law, order, injunction, determination
or award binding on such Stockholder, other than any such conflicts,
breaches, violations, defaults, obligations, rights or losses that,
individually or in the aggregate, would not (i) impair the ability of such
Stockholder to perform such Stockholder's obligations under this Agreement
or (ii) prevent or delay the consummation of any of the transactions
contemplated hereby.
(d) Except for the other Stockholders, there are no parties who are
affiliates of such Stockholder who are also affiliates of MeriStar.
ARTICLE III
CERTAIN COVENANTS
Section 3.1 Restriction on Transfer of Subject Shares; Proxies and
Noninterference. No Stockholder shall, prior to the Effective Time, directly or
indirectly: (A) except pursuant to the terms of this Agreement, offer for sale,
sell, transfer, pledge, tender, encumber, assign or otherwise dispose of, or
enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender,
encumbrance, assignment or other disposition of, any or all of such
Stockholder's Subject Shares, unless it receives (i) an irrevocable proxy, in
form and substance substantially similar to Exhibit A hereto, to vote the
transferred Subject Shares as provided therein and (ii) a deed of adherence to
this Agreement (including representations and warranties of the type set forth
in Section 2.1) reasonably satisfactory to the other parties hereto executed by
the transferee of such Subject Shares; (B) except pursuant to the terms of this
Agreement and except for the execution and delivery of the Proxy, grant any
proxies or powers of attorney, deposit any of such Stockholder's Subject Shares
into a voting trust or enter into a voting agreement with respect to any of such
Stockholder's Subject Shares; or (C) take any action that would reasonably be
expected to make any representation or warranty contained herein untrue or
incorrect or have the effect of impairing the ability of such Stockholder to
perform such Stockholder's obligations under this Agreement or preventing or
delaying the consummation of any of the transactions contemplated hereby or
revoke or invalidate the Proxy.
Section 3.2 Reliance by ASC; Cooperation. Each Stockholder understands and
acknowledges that ASC is entering into the Merger Agreement in reliance upon the
Stockholders' execution and delivery of this Agreement and the Proxy. Each
Stockholder shall cooperate fully with ASC and MeriStar in connection with the
respective reasonable best efforts of ASC and MeriStar to fulfill the conditions
to the Merger set forth in Article VI of the Merger Agreement.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Fees and Expenses. Except as set forth in the ASC
Voting/Recapitalization Agreement, each party hereto shall pay its own expenses
incident to preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
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<PAGE>
Section 4.2 Amendment; Termination. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto. This Agreement shall terminate immediately upon the termination of the
Merger Agreement in accordance with its terms. In addition, this Agreement may
be terminated by mutual written consent of MeriStar, ASC and the Stockholders.
In the event of termination of this Agreement pursuant to this Section 4.2, this
Agreement shall become null and void and of no effect with no liability on the
part of any party hereto and all Proxies shall automatically terminate;
provided, however, that no such termination shall relieve any party hereto from
any liability for any breach of this Agreement occurring prior to such
termination; and provided, further, that Article II shall survive the
termination of this Agreement.
Section 4.3 Extension, Waiver. Any agreement on the part of a party to
waive any provision of this Agreement, or to extend the time for any performance
hereunder, shall be valid only if set forth in an instrument in writing signed
on behalf of such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise shall not constitute a
waiver of such rights.
Section 4.4 Entire Agreement; No Third-Party Beneficiaries. This Agreement
constitutes the entire agreement, and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter of this Agreement and is not intended to confer upon any person
other than the parties any rights or remedies.
SECTION 4.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, REGARDLESS OF
ANY PRINCIPLES OF CONFLICTS OF LAWS THEREOF THAT MIGHT INDICATE THE
APPLICABILITY OF LAWS OF ANY OTHER JURISDICTION, EXCEPT WHERE THE LAWS OF THE
STATE OF DELAWARE ARE MANDATORILY APPLICABLE.
Section 4.6 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, by hand delivery or telecopy (with a confirmation
copy sent for next day delivery via courier service, such as Federal Express),
or sent by overnight courier, such as Federal Express (providing proof of
delivery). All communications hereunder shall be delivered to the respective
parties at the following addresses:
If to the Stockholders:
Park Avenue Tower
65 E. 55th Street
New York, New York 10022
Attention: Steven B. Gruber
Bradford E. Bernstein
Telecopy: (212) 593-7187
If to ASC:
American Skiing Company
One Monument Way
Portland, Maine
Attention: Christopher E. Howard, Esq.
Foster A. Stewart, Jr., Esq.
Telecopy: (207) 791-2607
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<PAGE>
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10036-6522
Attention: Mark Roppel, Esq.
Telecopy: (212) 848-7179
If to MeriStar:
MeriStar Hotels & Resorts, Inc.
1010 Wisconsin Avenue, NW
Washington, DC 20007
Attention: Christopher L. Bennett, Esq.
Telecopy: (202) 295-1026
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Richard S. Borisoff, Esq.
Telecopy: (212) 757-3990
Section 4.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned or delegated, in
whole or in part, by operation of law or otherwise, by any Stockholder without
the prior written consent of ASC, or by ASC without the prior written consent of
the Stockholders and any such assignment or delegation that is not consented to
shall be null and void. Subject to the preceding sentence, this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns (including, without limitation, any
person to whom any Subject Shares are sold, transferred or assigned).
Section 4.8 Further Assurances. Each Stockholder shall execute and deliver
such other documents and instruments and take such further actions as may be
necessary or appropriate or as may be reasonably requested by ASC in order to
ensure that ASC receives the full benefit of this Agreement.
Section 4.9 Enforcement. Irreparable damage would occur in the event that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. Accordingly, the parties shall
be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions of this Agreement
in the federal court of the United States located in the State of New York, this
being in addition to any other remedy to which they are entitled at law or in
equity. Each of the parties hereto (i) shall submit itself to the jurisdiction
of the federal courts of the United States of America located in the State of
New York in the event any dispute arises out of this Agreement or any of the
transactions contemplated hereby, (ii) shall not attempt to deny or defeat such
personal jurisdiction by motion or other request for leave from any such court,
and (iii) shall not bring any action relating to this
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Agreement or any of the transactions contemplated hereby in any court other than
the federal courts of the United States of America located in the State of New
York.
Section 4.10 Waiver of Trial by Jury. Each party acknowledges and agrees
that any controversy that may arise under this Agreement is likely to involve
complicated and difficult issues, and therefore each such party hereby
irrevocably and uncondi-tionally waives any right such party may have to a trial
by jury in respect of any litigation directly or indirectly aris-ing out of or
relating to this Agreement or the transac-tions contemplated by this Agreement.
Each party certifies and acknowledges that (i) no representative, agent or
attorney of any other party has represented, expressly or otherwise, that such
other party would not, in the event of litigation, seek to enforce the foregoing
waiver, (ii) each such party understands and has considered the implications of
this waiver, (iii) each such party makes this waiver voluntarily, and (iv) each
such party has been induced to enter into this agreement by, among other things,
the mutual waivers and certifications in this Section 4.10.
Section 4.11 Severability. Whenever possible, each provision or portion of
any provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 4.12 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more counterparts have been signed by each
party and delivered to the other parties.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed as of the day and year first written above.
<TABLE>
<S> <C> <C>
MERISTAR HOTELS & RESORTS, INC.
By: /s/ PAUL W. WHETSELL
-----------------------------------------
Name: Paul W. Whetsell
Title: Chief Executive and Chairman
AMERICAN SKIING COMPANY
By: /s/ LESLIE B. OTTEN
-----------------------------------------
Name: Leslie B. Otten
Title: Chairman and Chief Executive
Officer
OAK HILL CAPITAL PARTNERS, L.P.
By: OHCP GenPar, L.P., its general partner
By: OHCP MGP, LLC, its general partner
By: /s/ KEVIN G. LEVY
-----------------------------------------
Name: Kevin G. Levy
Title: Vice President
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
OAK HILL CAPITAL MANAGEMENT
PARTNERS, L.P.
By: OHCP GenPar, L.P., its general partner
By: OHCP MGP, LLC, its general partner
By: /s/ KEVIN G. LEVY
-----------------------------------------
Name: Kevin G. Levy
Title: Vice President
FW HOSPITALITY, L.P.
By: Group III 31, L.L.C., General Partner
By: /s/ KEVIN G. LEVY
-----------------------------------------
Name: Kevin G. Levy
Title: Vice President
ARBOR REIT, L.P.
By: Group Investors, L.L.C., General Partner
By: /s/ KEVIN G. LEVY
-----------------------------------------
Name: Kevin G. Levy
Title: Vice President
MHX INVESTORS, L.P.
By: FW Group GenPar, Inc., General Partner
By: /s/ KEVIN G. LEVY
-----------------------------------------
Name: Kevin G. Levy
Title: Vice President
</TABLE>
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<PAGE>
ANNEX A
<TABLE>
<CAPTION>
NUMBER OF SHARES OF MERISTAR
STOCKHOLDER COMMON STOCK
----------- ----------------------------
<S> <C>
Oak Hill Capital Partners, L.P. ............................ 3,545,455
Oak Hill Capital Management Partners, L.P. ................. 90,909
F.W. Hospitality, L.P. ..................................... 764,067
Arbor REIT, L.P. ........................................... 764,067
MHX Investors, L.P. ........................................ 764,066
</TABLE>
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<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned shareholder of MERISTAR HOTELS & RESORTS, INC., a Delaware
corporation ("MeriStar") hereby appoints AMERICAN SKIING COMPANY, a Delaware
corporation ("ASC"), as proxy for the undersigned, with full power of
substitution, to attend any annual or special meeting of the shareholders of
MeriStar (including any and all adjournments and postponements thereof), and in
respect of any written consent in lieu of such meeting, held or made for the
purpose of considering or voting upon the matters described in Section 1.1 of
the Voting Agreement, dated the date hereof, among ASC, the undersigned and
certain other shareholders of MeriStar (the "Agreement"), in accordance with
such Section 1.1, and to cast all votes that the undersigned is entitled to cast
at such a meeting (or in connection with such written consent) with respect to
all of the undersigned's Subject Shares (as defined in the Agreement) with
respect to the matters described in Section 1.1 of the Agreement. The
undersigned hereby revokes any proxy heretofore given with respect to such a
meeting (or written consent in lieu thereof) or with respect to such a vote
cast. The undersigned affirms that this proxy is a power coupled with an
interest and shall be irrevocable. The undersigned shall take such further
action or execute such other instruments as may be necessary to effectuate the
intent of this irrevocable proxy.
[Name of Stockholder]
<TABLE>
<S> <C> <C>
Please sign exactly as name appears on the By
records of MeriStar and date. When signing -----------------------------------------
as attorney, executor, administrator, Name:
trustee, guardian, officer of a Title:
corporation or other entity or in another
representative capacity, please give the
full title under signature(s).
Dated: ,
</TABLE>
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<PAGE>
APPENDIX D
[LETTERHEAD OF DONALDSON, LUFKIN & JENRETTE]
December 8, 2000
Special Committee of
The Board of Directors
American Skiing Company
Sunday River Access Road
Bethel, ME 04217
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the holders of common stock, par value $0.01 per share (the "Company
Common Stock") of American Skiing Company (the "Company") (other than any
holders of the Company's Class A Common Stock (as defined below)) (the "Common
Stockholders") of the Exchange Ratio (as defined below) pursuant to the terms of
the Agreement and Plan of Merger, dated as of December 8, 2000 (the
"Agreement"), by and among the Company, MeriStar Hotels & Resorts, Inc.
("MeriStar"), and ASC Merger Sub, Inc., a wholly owned subsidiary of the
Company, pursuant to which ASC Merger Sub, Inc. will be merged (the "Merger")
with and into MeriStar. Additionally, you have also requested our opinion as to
the fairness from a financial point of view to the Common Stockholders of the
allocation between the Common Stockholders, on the one hand, and the holders of
the Company's 10.5% Repriced Convertible Exchangeable Preferred Stock, par value
$0.01 per share ("Preferred A Stock"), 8.50% Series B Convertible Participating
Preferred Stock, par value $0.01 per share ("Preferred B Stock") and Tranche C
Notes (as defined below), on the other hand, of the equity securities in the
Company, following consummation of the transactions contemplated by the
Agreement, to be held by all stockholders of the Company who are stockholders
immediately prior to the consummation of such transactions (the "Allocation").
Pursuant to the Agreement, each share of common stock, par value $0.01 per
share ("MeriStar Common Stock"), of MeriStar will be converted into the right to
receive 1.88 shares (the "Exchange Ratio") of Company Common Stock.
Prior to or at the effective time of the Merger: (i) each share of the
Preferred A Stock will be converted into (a) such number of shares of Series A
Preferred Stock, par value $0.01 per share ("New Series A Preferred Stock"), of
the Company determined by dividing the liquidation preference for such share of
Preferred A Stock plus accrued and unpaid dividends determined as of such date
(the "Preferred Value") by $1,000 and (b) such number of shares of Company
Common Stock determined by dividing 20.7% of the Preferred Value by $2.22;
(ii) each share of the Preferred B Stock will be converted into the number of
shares of Company Common Stock determined by dividing the Liquidation Price (as
defined in the Certificate of Designation of the Preferred B Stock) of such
share of Preferred B Stock as of October 31, 2000 by $2.22;
(iii) $13.0 million of the Tranche C Notes (the "Tranche C Notes") pursuant to
the Second Amended and Restated Credit Agreement (the "Credit Agreement"), dated
July 31, 2000, by and among ASC Resort Properties, Inc. ("ASCRP"), Fleet
National Bank and the lenders thereunder will be converted into such number of
shares of Company Common Stock determined by dividing the $13.0 million
outstanding principal amount of such Tranche C Notes as of such effective time
plus all accrued and unpaid interest on the outstanding principal amount of such
Tranche C Notes through October 31, 2000 by $2.22; and (iv) each share of the
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Company's Class A common stock, par value $0.01 per share (the "Class A Common
Stock"), will be converted into one share of Company Common Stock.
In arriving at our opinion, we have reviewed the Agreement, the Voting and
Recapitalization Agreement, dated as of December 8, 2000, by and among the
Company, MeriStar and certain holders of the Company's securities, the Voting
Agreement, dated as of December 8, 2000, by and among MeriStar, the Company and
certain stockholders of MeriStar and the Registration Rights Agreement to be
entered into among the Company, certain stockholders of the Company, Oak Hill
Capital Partners L.P. ("Oak Hill") and Leslie B. Otten. We also have reviewed
certain financial and other information that was publicly available or furnished
to us by the Company and MeriStar including information provided during
discussions with the respective managements. Included in the information
provided during discussions with the respective managements were certain
financial projections of MeriStar for the period beginning January 1, 2000 and
ending December 31, 2005 prepared by the management of MeriStar and certain
financial projections of the Company for the period beginning August 1, 2000 and
ending July 31, 2005 prepared by the management of the Company, as well as share
ownership information on the Company and MeriStar including vested and unvested
options and warrants outstanding. In addition, we have compared certain
financial and securities data of the Company and MeriStar with various other
companies whose securities are traded in public markets, and conducted such
other financial studies, analyses and investigations as we deemed appropriate
for purposes of this opinion. We were not requested to, nor did we solicit, the
interest of any persons concerning a transaction with the Company.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and MeriStar or
their respective representatives, or that was otherwise reviewed by us. With
respect to the financial projections supplied to us, we have relied on
representations that they have been reasonably prepared on the basis reflecting
the best currently available estimates and judgments of the managements of the
Company and MeriStar as to the future operating and financial performance of the
Company and MeriStar. We have not assumed any responsibility for making an
independent evaluation of any assets or liabilities or for making any
independent verification of any of the information reviewed by us. We have
relied as to certain legal matters on advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion herein as to the
prices at which the Company Common Stock will actually trade at any time. Our
opinion does not address the relative merits of the Merger and the other
business strategies being considered by the Company's Board of Directors or any
committee thereof, nor does it address the Board's or any such committee's
decision to proceed with the Merger. Our opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services. Such services include acting as lead manager for the
Company's initial public offering in November 1997, advising the Company in
connection with its issuance of $150.0 million of the Preferred B Stock in
July 1999 and advising the Special Committee of the Board of Directors of the
Company in connection with the issuance of the Tranche C Notes in July 2000. In
addition, DLJ has acted as underwriter, initial
D-2
<PAGE>
purchaser and financial advisor to numerous companies affiliated with Oak Hill
and has received usual and customary compensation in connection therewith.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that, as of the date hereof: (i) the Exchange Ratio is fair to
the Common Stockholders from a financial point of view and (ii) the Allocation
is fair to the Common Stockholders from a financial point of view.
<TABLE>
<S> <C> <C>
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ THOMAS G. MCGONAGLE
-----------------------------------------
Thomas G. McGonagle
Managing Director
</TABLE>
D-3
<PAGE>
APPENDIX E
[LETTERHEAD OF SALOMON SMITH BARNEY INC.]
December 8, 2000
The Board of Directors
MeriStar Hotels & Resorts, Inc.
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of MeriStar Hotels & Resorts, Inc.
("MeriStar") of the Exchange Ratio (defined below) provided for in the Agreement
and Plan of Merger, dated as of December 8, 2000 (the "Merger Agreement"), among
MeriStar, American Skiing Company ("American Skiing") and ASC Merger Sub, Inc.,
a wholly owned subsidiary of American Skiing ("Merger Sub"). The Merger
Agreement provides for, among other things, the merger of Merger Sub with and
into MeriStar (the "Merger") pursuant to which each outstanding share of the
common stock, par value $0.01 per share, of MeriStar ("MeriStar Common Stock")
will be converted into the right to receive 1.88 shares (the "Exchange Ratio")
of the common stock, par value $0.01 per share, of American Skiing ("American
Skiing Common Stock").
In arriving at our opinion, we reviewed the Merger Agreement and certain
related documents and held discussions with certain senior officers, directors
and other representatives and advisors of MeriStar and certain senior officers
and other representatives and advisors of American Skiing concerning the
businesses, operations and prospects of MeriStar and American Skiing. We
examined certain publicly available business and financial information relating
to MeriStar and American Skiing as well as certain financial forecasts and other
information and data for MeriStar and American Skiing which were provided to or
otherwise discussed with us by the managements of MeriStar and American Skiing.
We reviewed the financial terms of the Merger as set forth in the Merger
Agreement in relation to, among other things: current and historical market
prices and trading volumes of the MeriStar Common Stock and American Skiing
Common Stock; the historical and projected earnings and other operating data of
MeriStar and American Skiing; and the financial condition and capitalization of
MeriStar and American Skiing. We analyzed certain financial, stock market and
other publicly available information relating to the businesses of other
companies whose operations we considered relevant in evaluating those of
MeriStar and American Skiing. We also evaluated the potential pro forma
financial impact of the Merger on MeriStar and American Skiing. In addition to
the foregoing, we conducted such other analyses and examinations and considered
such other financial, economic and market criteria as we deemed appropriate in
arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the managements of MeriStar and American Skiing that such forecasts
(including adjustments thereto) and other information and data were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the managements of MeriStar and American Skiing
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<PAGE>
The Board of Directors
MeriStar Hotels & Resorts, Inc.
December 8, 2000
Page 2
as to the future financial performance of MeriStar and American Skiing. We have
assumed, with your consent, that the Merger will be treated as a tax-free
reorganization for federal income tax purposes. We also have assumed, with your
consent, that the Merger and related transactions will be consummated in all
material respects in accordance with the terms and conditions described in the
Merger Agreement and related documents, without any waiver, modification or
amendment of any material conditions thereof or agreements relating thereto. Our
opinion, as set forth herein, relates to the relative values of MeriStar and
American Skiing. We are not expressing any opinion as to what the value of the
American Skiing Common Stock actually will be when issued in the Merger or the
price at which the American Skiing Common Stock will trade subsequent to the
Merger. We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of MeriStar or
American Skiing nor have we made any physical inspection of the properties or
assets of MeriStar or American Skiing. In connection with our engagement, we
were not requested to, and we did not, solicit third party indications of
interest in the possible acquisition of all or a part of MeriStar. We express no
view as to, and our opinion does not address, the relative merits of the Merger
as compared to any alternative business strategies that might exist for MeriStar
or the effect of any other transaction in which MeriStar might engage. Our
opinion is necessarily based upon information available to us, and financial,
stock market and other conditions and circumstances existing and disclosed to
us, as of the date hereof.
Salomon Smith Barney Inc. has acted as exclusive financial advisor to
MeriStar in connection with the proposed Merger and will receive a fee for such
services, a significant portion of which is contingent upon the consummation of
the Merger. We also will receive a fee upon delivery of this opinion. We and our
affiliates in the past have provided, and are currently providing, services to
MeriStar, unrelated to the proposed Merger, for which services we have received
and will receive compensation. In the ordinary course of our business, we and
our affiliates may actively trade or hold the securities of MeriStar and
American Skiing for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
In addition, we and our affiliates (including Citigroup Inc. and its affiliates)
may maintain relationships with MeriStar, American Skiing and their respective
affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of MeriStar in its evaluation of the
proposed Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger or as to any other matters relating to the Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to the holders of MeriStar Common Stock.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
SALOMON SMITH BARNEY INC.
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<PAGE>
APPENDIX F
DORAL INTERNATIONAL, INC.
INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I DEFINITIONS................................................. 1
1.1 Affiliate................................................... 1
1.2 Agreement................................................... 1
1.3 Award....................................................... 1
1.4 Board....................................................... 1
1.5 Code........................................................ 1
1.6 Committee................................................... 1
1.7 Common Stock................................................ 1
1.8 Company..................................................... 1
1.9 Exchange Act................................................ 1
1.10 Fair Market Value........................................... 1
1.11 Incentive Award............................................. 2
1.12 Doral....................................................... 2
1.13 Option...................................................... 2
1.14 Participant................................................. 2
1.15 Performance Shares.......................................... 2
1.16 Permitted Family Members.................................... 2
1.17 Plan........................................................ 2
1.18 Spin-Off.................................................... 2
1.19 Stock Award................................................. 2
1.20 Ten Percent Shareholder..................................... 2
ARTICLE II PURPOSES.................................................... 3
ARTICLE III ADMINISTRATION.............................................. 3
ARTICLE IV ELIGIBILITY................................................. 4
ARTICLE V STOCK SUBJECT TO PLAN....................................... 4
5.1 Shares Issued............................................... 4
5.2 Aggregate Limit............................................. 4
5.3 Reallocation of Shares...................................... 5
ARTICLE VI OPTIONS..................................................... 5
6.1 Award....................................................... 5
6.2 Option Price................................................ 5
6.3 Maximum Option Period....................................... 5
6.4 Nontransferability.......................................... 6
6.5 Transferable Options........................................ 6
6.6 Employee Status............................................. 6
6.7 Exercise.................................................... 6
6.8 Payment..................................................... 7
6.9 Shareholder Rights.......................................... 7
6.10 Disposition of Stock........................................ 7
ARTICLE VII STOCK AWARDS................................................ 7
7.1 Award....................................................... 7
7.2 Vesting..................................................... 8
7.3 Performance Objectives...................................... 8
7.4 Employee Status............................................. 8
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
7.5 Shareholder Rights.......................................... 8
ARTICLE VIII PERFORMANCE SHARE AWARDS.................................... 9
8.1 Award....................................................... 9
8.2 Earning the Award........................................... 9
8.3 Payment..................................................... 9
8.4 Shareholder Rights.......................................... 9
8.5 Nontransferability.......................................... 9
8.6 Transferable Performance Shares............................. 10
8.7 Employee Status............................................. 10
ARTICLE IX INCENTIVE AWARDS............................................ 10
9.1 Award....................................................... 10
9.2 Terms and Conditions........................................ 10
9.3 Nontransferability.......................................... 11
9.4 Transferable Incentive Awards............................... 11
9.5 Employee Status............................................. 11
9.6 Shareholder Rights.......................................... 11
ARTICLE X ACCELERATION UPON CERTAIN EVENTS............................ 11
ARTICLE XI ADJUSTMENT UPON CHANGE IN COMMON STOCK...................... 12
ARTICLE XII COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES;
GOVERNING LAW............................................... 12
ARTICLE XIII GENERAL PROVISIONS.......................................... 13
13.1 Effect on Employment and Service............................ 13
13.2 Unfunded Plan............................................... 13
13.3 Rules of Construction....................................... 13
ARTICLE XIV AMENDMENT................................................... 14
ARTICLE XV DURATION OF PLAN............................................ 14
ARTICLE XVI EFFECTIVE DATE OF PLAN...................................... 14
</TABLE>
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<PAGE>
ARTICLE I
DEFINITIONS
1.1 "Affiliate" means any "subsidiary" or "parent" corporation (within the
meaning of Section 424 of the Code) of the Company and Doral
International, Inc.
1.2 "Agreement" means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Stock Award, an award of Performance Shares or an Option or
Incentive Award granted to such Participant.
1.3 "Award" means any of an Incentive Award, an Option, an award of
Performance Shares, or a Stock Award.
1.4 "Board" means the Board of Directors of the Company.
1.5 "Code" means the Internal Revenue Code of 1986, and any amendments
thereto.
1.6 "Committee" means the Compensation Committee of the Board or a
subcommittee thereof comprised of at least two (2) directors each of whom is a
non-employee director within the meaning of Securities and Exchange Commission
Rule 16b-3.
1.7 "Common Stock" means the common stock, $0.01 par value, of the Company.
1.8 "Company" means Doral International, Inc., a Delaware corporation.
1.9 "Exchange Act" means the Securities Exchange Act of 1934, as amended
and as in effect on the effective date of this Plan.
1.10 "Fair Market Value" means, on any given date, the current fair market
value of the shares of Common Stock as determined below:
If the Common Stock is not listed on an established stock exchange, the Fair
Market Value shall be the average of the final bid and asked quotations on the
over-the-counter market in which the Common Stock is traded or, if applicable,
the reported "closing" price of a share of Common Stock in the New York
over-the-counter market as reported by the National Association of Securities
Dealers, Inc. If the Common Stock is listed on one or more established stock
exchanges, Fair Market Value shall be deemed to be the highest closing price of
a share of Common Stock reported on any such exchange. In any case, if no sale
of Common Stock is made on any stock exchange or over-the-counter market on that
date, then Fair Market Value shall be determined as of the next preceding day on
which there was a sale. If the Common Stock is not traded, Fair Market Value
shall be determined by the Board using any reasonable method in good faith.
1.11 "Incentive Award" means an award which, subject to such terms and
conditions as may be prescribed by the Administrator, entitles the Participant
to receive a cash payment from the Company or an Affiliate.
1.12 "Option" means a stock option that entitles the holder to purchase
from the Company a stated number of shares of Common Stock at the price set
forth in an Agreement.
1.13 "Participant" means an employee of the Company or an Affiliate,
including an employee who is a member of the Board, or an individual whose
efforts contribute to the performance or success of the Company or an Affiliate,
who satisfies the requirements of Article IV and is selected by the Committee to
receive a Stock Award, an Option, an Incentive Award, an award of Performance
Shares or a combination thereof.
1.14 "Performance Shares" means an award, in the amount determined by the
Committee and specified in an Agreement, stated with reference to a specified
number of shares of Common Stock,
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that entitles the holder to receive a payment for each specified share equal to
the Fair Market Value of Common Stock on the date of payment.
1.15 "Permitted Family Members" shall have the meaning set forth in
Section 6.5 hereof.
1.16 "Plan" means the Doral International, Inc. Incentive Plan.
1.17 "Stock Award" means Common Stock awarded to a Participant under
Article VIII.
1.18 "Ten Percent Shareholder" means any individual owning more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of an Affiliate. An individual shall be considered to own any voting
stock owned (directly or indirectly) by or for his brothers, sisters, spouse,
ancestors or lineal descendants and shall be considered to own proportionately
any voting stock owned (directly or indirectly) by or for a corporation,
partnership, estate or trust of which such individual is a shareholder, partner
or beneficiary.
ARTICLE II
PURPOSES
The Plan is intended to assist the Company and its Affiliates in
(i) attracting and retaining employees, directors and other service providers
with ability and initiative, (ii) providing incentives to those deemed important
to the success of the Company, and (iii) aligning the interests of those
individuals with the interests of the Company and its stockholders through
opportunities for increased stock ownership. The Plan is intended to permit the
grant of both Options qualifying under Section 422 of the Code ("incentive stock
options") and Options not so qualifying, and the grant of Stock Awards,
Performance Shares and Incentive Awards. No Option that is intended to be an
incentive stock option shall be invalid for failure to qualify as an incentive
stock option. The proceeds received by the Company from the sale of Common Stock
pursuant to this Plan shall be used for general corporate purposes.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have
authority to grant Stock Awards, Performance Shares, Incentive Awards and
Options upon such terms (not inconsistent with the provisions of this Plan) as
the Committee may consider appropriate. Such terms may include conditions (in
addition to those contained in this Plan) on the exercisability of all or any
part of an Option or on the transferability or forfeitability of a Stock Award,
Incentive Award or Performance Shares. Notwithstanding any such conditions, the
Committee may, in its discretion, accelerate the time at which any Option may be
exercised, or the time at which a Stock Award may become transferable or
nonforfeitable or the time at which an Incentive Award or Performance Shares may
be settled. In addition, the Committee shall have complete authority to
interpret all provisions of this Plan; to prescribe the form of Agreements; to
adopt, amend, and rescind rules and regulations pertaining to the administration
of the Plan; and to make all other determinations necessary or advisable for the
administration of this Plan. The express grant in the Plan of any specific power
to the Committee shall not be construed as limiting any power or authority of
the Committee. Any decision made, or action taken, by the Committee or in
connection with the administration of this Plan shall be final and conclusive.
Neither the Committee nor any member of the Committee shall be liable for any
act done in good faith with respect to this Plan or any Agreement, Option, Stock
Award, Incentive Award or award of Performance Shares. All expenses of
administering this Plan shall be borne by the Company.
The Committee, in its discretion, may delegate to one or more officers of
the Company all or part of the Committee's authority and duties with respect to
grants and awards to individuals who are not
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subject to the reporting and other provisions of Section 16 of the Exchange Act;
PROVIDED, HOWEVER, the Committee shall not delegate its authority (i) to appoint
delegates or its authority to amend or revoke any delegation, (ii) under
Articles XI and XII hereof and (iii) to accelerate the exercisability of
Options, the transferability of Stock Awards or the time at which Incentive
Awards or awards of Performance Shares may be settled. The Committee may revoke
or amend the terms of a delegation at any time but such action shall not
invalidate any prior actions of the Committee's delegate or delegates that were
consistent with the terms of the Plan.
ARTICLE IV
ELIGIBILITY
Any employee of the Company or an Affiliate (including a corporation that
becomes an Affiliate after the adoption of this Plan) or a person whose efforts
contribute to the performance or success of the Company or an Affiliate
(including a corporation that becomes an Affiliate after the adoption of this
Plan) (other than a Board member who is not also an employee of the Company or
an Affiliate) is eligible to participate in this Plan if the Committee, in its
sole discretion, determines that such person has contributed significantly or
can be expected to contribute significantly to the profits or growth of the
Company or an Affiliate. Directors of the Company who are employees of the
Company or an Affiliate may be selected to participate in this Plan.
ARTICLE V
STOCK SUBJECT TO PLAN
5.1 SHARES ISSUED. Upon the award of shares of Common Stock pursuant to a
Stock Award or the settlement of a Performance Share award, the Company may
issue shares of Common Stock from its authorized but unissued Common Stock. Upon
the exercise of an Option, the Company may deliver to the Participant (or the
Participant's broker if the Participant so directs), shares of Common Stock from
its authorized but unissued Common Stock.
5.2 AGGREGATE LIMIT. In no event and at no time may the total of (i) the
number of shares of Common Stock covered by outstanding Awards under the Plan;
(ii) the number of shares of Common Stock issued pursuant to Awards under the
Plan; (iii) the number of shares of Common Stock covered by outstanding
unexercised options granted under the American Skiing Company 1997 Stock Option
Plan; and (iv) the number of shares of Common Stock issued upon the exercise of
stock options under the American Skiing Company 1997 Stock Option Plan exceed
15% of the aggregate number of shares of Common Stock issued and outstanding as
of the end of the preceding fiscal year. The maximum aggregate number of shares
that may be issued under this Plan shall be subject to adjustment as provided in
Article XI.
5.3 REALLOCATION OF SHARES. If an Award is terminated (for any reason
other than its exercise), forfeited or expires unexercised, the number of shares
of Common Stock allocated to the Award or portion thereof which was terminated,
forfeited or expired unexercised may be reallocated to other Awards to be
granted under this Plan.
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ARTICLE VI
OPTIONS
6.1 AWARD. In accordance with the provisions of Article IV, the Committee
will designate each individual to whom an Option is to be granted and will
specify the number of shares of Common Stock covered by such awards; PROVIDED,
HOWEVER, that no individual may be granted Options in any calendar year covering
more than 3,000,000 shares of Common Stock.
6.2 OPTION PRICE. The price per share for Common Stock purchased on the
exercise of an Option shall be determined by the Committee on the date of grant;
PROVIDED, HOWEVER, that the price per share for Common Stock purchased on the
exercise of any Option shall not be less than the Fair Market Value on the date
of grant or, with respect to Options granted in connection with the initial
employment of an individual, eighty-five (85%) percent of the Fair Market Value
on the date the Option is granted; PROVIDED, HOWEVER, that no more than ten
percent (10%) of the shares of Common Stock issued under the Plan may be granted
at less than one hundred percent (100%) of Fair Market Value. Notwithstanding
the preceding sentence, the price per share for Common Stock purchased on the
exercise of any Option that is an incentive stock option shall not be less than
the Fair Market Value on the date the Option is granted or, in the case of an
incentive stock option granted to an individual who is a Ten Percent Shareholder
on the date such option is granted, shall not be less than one hundred ten
percent (110%) of the Fair Market Value on the date the Option is granted.
6.3 MAXIMUM OPTION PERIOD. The maximum period in which an Option may be
exercised shall be determined by the Committee on the date of grant, except that
no Option that is an incentive stock option shall be exercisable after the
expiration of ten years from the date such Option was granted. In the case of an
incentive stock option that is granted to a Participant who is a Ten Percent
Shareholder on the date of grant, such Option shall not be exercisable after the
expiration of five years from the date of grant. The terms of any Option that is
an incentive stock option may provide that it is exercisable for a period less
than such maximum period.
6.4 NONTRANSFERABILITY. Except as provided in Section 6.5 hereof, each
Option granted under this Plan shall be nontransferable except by will or by the
laws of descent and distribution. During the lifetime of the Participant to whom
the option is granted, the Option may be exercised only by the Participant. No
right or interest of a Participant in any Option shall be liable for, or subject
to, any lien, obligation, or liability of such Participant.
6.5 TRANSFERABLE OPTIONS. Section 6.4 hereof to the contrary
notwithstanding, if the Agreement provides, an Option that is not an incentive
stock option may be transferred by a Participant to the Participant's children,
grandchildren, spouse, one or more trusts for the benefit of such family members
or a partnership in which such family members are the only partners
(collectively, "Permitted Family Members"); PROVIDED, HOWEVER, that the
Participant may not receive any consideration for the transfer. The holder of an
Option transferred pursuant to this section shall be bound by the same terms and
conditions that governed the Option during the period that it was held by the
Participant.
6.6 EMPLOYEE STATUS. For purposes of determining the applicability of
Section 422 of the Code (relating to incentive stock options), or in the event
that the terms of any Option provide that it may be exercised only during
employment or within a specified period of time after termination of employment,
the Committee may decide to what extent leaves of absence for governmental or
military service, illness, temporary disability, or other reasons, shall not be
deemed interruptions of continuous employment.
6.7 EXERCISE. Subject to the provisions of this Plan and the applicable
Agreement, an Option shall become exercisable in such installments (which need
not be equal) and at such times as may be designated by the Committee and set
forth in the Agreement, PROVIDED, HOWEVER, that an employee may
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not be granted incentive stock options if, after giving effect to such grant,
the aggregate Fair Market Value (determined as of the date such option is
granted) of securities issuable pursuant to all incentive stock options (whether
granted under the Plan or any other plan of the Company or its Affiliates) held
by that employee that first become exercisable during any calendar year exceeds
$100,000. To the extent not exercised, installments shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable, but
not later than the date the Option expires in accordance with Section 6.3
hereof. An Option granted under this Plan may be exercised with respect to any
number of whole shares less than the full number for which the Option could be
exercised. A partial exercise of an Option shall not affect the right to
exercise the Option from time to time in accordance with this Plan and the
applicable Agreement with respect to the remaining shares subject to the Option.
6.8 PAYMENT. Unless otherwise provided by the Agreement, payment of the
Option price shall be made in cash or a cash equivalent acceptable to the
Committee. If the Agreement provides, payment of all or part of the Option price
may be made by surrendering shares of Common Stock to the Company. If Common
stock is used to pay all or part of the Option price, the sum of the cash and
cash equivalent and the Fair Market Value (determined as of the day preceding
the date of exercise) of the shares surrendered must not be less than the Option
price of the shares for which the Option is being exercised. In addition, a
Participant may provide instructions to the Company that upon receipt of the
Option price in cash from a broker or dealer acting at the direction of the
Participant in payment for any shares of Common Stock pursuant to the exercise
of an Option, the Company shall issue such shares of Common Stock directly to
the designated broker or dealer.
6.9 SHAREHOLDER RIGHTS. No Participant shall have any rights as a
shareholder with respect to shares subject to his Option until the date of
exercise of such Option.
6.10 DISPOSITION OF STOCK. A Participant shall notify the Company of any
sale or other disposition of Common Stock acquired pursuant to an Option that
was an incentive stock option if such sale or disposition occurs:
(i) within two years of the grant of an Option or
(ii) within one year of the issuance of the Common Stock to the
Participant.
Such notice shall be in writing and directed to the Secretary of the Company.
ARTICLE VII
STOCK AWARDS
7.1 AWARD. In accordance with the provisions of Article IV, the Committee
will designate each individual to whom a Stock Award is to be made and will
specify the number of shares of Common Stock covered by such awards; PROVIDED,
HOWEVER, that no individual may receive Stock Awards with respect to more than
500,000 shares of Common Stock in any calendar year and no more than thirty
(30%) percent of the shares of Common Stock available under the Plan may be
issued in the form of Stock Awards.
7.2 VESTING. The Committee, on the date of the award, may prescribe that a
Participant's rights in the Stock Award shall be forfeitable or otherwise
restricted for a period of time or subject to such conditions as may be set
forth in the Agreement. Stock Awards shall be restricted for at least three
years, except that (i) if a portion of a Stock Award is vested upon grant, the
restricted portion shall be restricted for at least one year; and (ii) a Stock
Award that will become transferable and nonforfeitable on account of the
satisfaction of performance objectives prescribed by the Committee shall be
restricted for at least one year.
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7.3 PERFORMANCE OBJECTIVES. In accordance with Section 7.2 hereof, the
Committee may prescribe that Stock Awards will be vested immediately upon grant
or will become vested or transferable or both based on objectives stated with
respect to the Company's, an Affiliate's or an operating unit's return on
equity, earnings per share, total earnings, earnings growth, return on capital,
return on assets, funds from operations or Fair Market Value. If the Committee,
on the date of award, prescribes that a Stock Award shall become nonforfeitable
and transferable only upon the attainment of performance objectives stated with
respect to one or more of the foregoing criteria, the shares subject to such
Stock Award shall become nonforfeitable and transferable only to the extent that
the Committee certifies that such objectives have been achieved.
7.4 EMPLOYEE STATUS. In the event that the terms of any Stock Award
provide that shares may become transferable and nonforfeitable thereunder only
after completion of a specified period of employment, the Committee may decide
in each case to what extent leaves of absence for governmental or military
service, illness, temporary disability, or other reasons shall not be deemed
interruptions of continuous employment.
7.5 SHAREHOLDER RIGHTS. Prior to their forfeiture (in accordance with the
applicable Agreement and while the shares of Common Stock granted pursuant to
the Stock Award may be forfeited or are nontransferable), a Participant will
have all rights of a shareholder with respect to a Stock Award, including the
right to receive dividends and vote the shares; PROVIDED, HOWEVER, that during
such period (i) a Participant may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of shares of Common Stock granted pursuant to
a Stock Award, (ii) the Company shall retain custody of the certificates
evidencing shares of Common Stock granted pursuant to a Stock Award, and
(iii) the Participant will deliver to the Company a stock power, endorsed in
blank, with respect to each Stock Award. The limitations set forth in the
preceding sentence shall not apply after the shares of Common Stock granted
under the Stock Award are transferable and are no longer forfeitable.
ARTICLE VIII
PERFORMANCE SHARE AWARDS
8.1 AWARD. In accordance with the provisions of Article IV, the Committee
will designate each individual to whom an award of Performance Shares is to be
made and will specify the number of shares of Common Stock covered by such
awards; PROVIDED, HOWEVER, that no Participant may receive an award of
Performance Shares in any calendar year for more than 100,000 shares of Common
Stock.
8.2 EARNING THE AWARD. The Committee, on the date of the grant of an
award, may prescribe that the Performance Shares, or portion thereof, will be
earned, and the Participant will be entitled to receive payment pursuant to the
award of Performance Shares only upon the satisfaction of certain requirements
or the attainment of certain objectives. By way of example and not of
limitation, the restrictions may provide that Performance Shares will be
forfeited without payment if the Participant separates from the service of the
Company and its Affiliates before the expiration of a stated term or unless the
Company, an Affiliate or an operating unit achieves objectives stated with
reference to the Company's, an Affiliate's or an operating unit's return on
equity, earnings per share, total earnings, earnings growth, return on capital,
return on assets, funds from operations or Fair Market Value. If the Committee,
on the date of award, prescribes that no payments will be made with respect to
Performance Shares unless performance objectives stated with respect to the
foregoing criteria are attained, no such payment will be made unless, and then
only to the extent that, the Committee certifies that such objectives have been
achieved.
8.3 PAYMENT. In the discretion of the Committee, the amount payable when
an award of Performance Shares is earned may be settled in cash, by the issuance
of Common Stock or a combination of cash and Common Stock. A fractional share
shall not be deliverable when an award of Performance Shares is earned, but a
cash payment will be made in lieu thereof.
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8.4 SHAREHOLDER RIGHTS. No Participant shall, as a result of receiving an
award of Performance Shares, have any rights as a shareholder until and to the
extent that the award of Performance Shares is earned and settled by the
issuance of Common Stock. After an award of Performance Shares is earned, if
settled completely or partially in Common Stock, a Participant will have all the
rights of a shareholder with respect to such Common Stock.
8.5 NONTRANSFERABILITY. Except as provided in Section 8.6 hereof,
Performance Shares granted under this Plan shall be nontransferable except by
will or by the laws of descent and distribution. No right or interest of a
Participant in any Performance Shares shall be liable for, or subject to, any
lien, obligation, or liability of such Participant.
8.6 TRANSFERABLE PERFORMANCE SHARES. Section 8.5 hereof to the contrary
notwithstanding, the Committee may grant Performance Shares which are
transferable to Permitted Family Members to the extent that, and on such terms
and conditions as may be permitted by, Securities Exchange Commission
Rule 16b-3 as in effect from time to time. The holder of Performance Shares
transferred pursuant to this section shall be bound by the same terms and
conditions that governed the Performance Shares during the period that they were
held by the Participant.
8.7 EMPLOYEE STATUS. In the event that the terms of any Performance Share
award provide that no payment will be made unless the Participant completes a
stated period of employment, the Committee may decide to what extent leaves of
absence for government or military service, illness, temporary disability, or
other reasons shall not be deemed interruptions of continuous employment.
ARTICLE IX
INCENTIVE AWARDS
9.1 AWARD. In accordance with the provisions of Article IV, the Committee
shall designate Participants to whom Incentive Awards are made. All Incentive
Awards shall be finally determined exclusively by the Committee under the
procedures established by the Committee; PROVIDED, HOWEVER, that no Participant
may receive an Incentive Award payment in any calendar year that exceeds the
lesser of (i) one hundred (100%) percent of the Participant's base salary (prior
to any salary reduction or deferral elections) as of the date of grant of the
Incentive Award or (ii) [$250,000].
9.2 TERMS AND CONDITIONS. The Committee, at the time an Incentive Award is
made, shall specify the terms and conditions which govern the award. Such terms
and conditions shall prescribe that the Incentive Award shall be earned only to
the extent that the Company, an Affiliate or an operating unit, during a
performance period of at least one year, achieves objectives stated with respect
to the Company's, an Affiliate's or an operating unit's return on equity,
earnings per share, total earnings, earnings growth, return on capital, return
on assets, funds from operations or Fair Market Value. Such terms and conditions
also may include other limitations on the payment of Incentive Awards including,
by way of example and not of limitation, requirements that the Participant
complete a specified period of employment with the Company or an Affiliate or
that the Company, an Affiliate, or the Participant attain stated objectives or
goals (in addition to those prescribed in accordance with the preceding
sentence) as a prerequisite to payment under an Incentive Award. The Committee,
at the time an Incentive Award is made, shall also specify when amounts shall be
payable under the Incentive Award and whether amounts shall be payable in the
event of the Participant's death, disability, or retirement. No payment shall be
made under an Incentive Award except to the extent that the Committee certifies
that the objectives governing such award have been achieved.
9.3 NONTRANSFERABILITY. Except as provided in Section 9.4 hereof,
Incentive Awards granted under this Plan shall be nontransferable except by will
or by the laws of descent and distribution. No right or interest of a
Participant in an Incentive Award shall be liable for, or subject to, any lien,
obligation, or liability of such Participant.
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9.4 TRANSFERABLE INCENTIVE AWARDS. Section 9.3 hereof to the contrary
notwithstanding, the Committee may grant Incentive Awards which are transferable
to Permitted Family Members to the extent that, and on such terms and conditions
as may be permitted by, Securities Exchange Commission Rule 16b-3 as in effect
from time to time. The holder of an Incentive Award transferred pursuant to this
section shall be bound by the same terms and conditions that governed the
Incentive Award during the period that it was held by the Participant.
9.5 EMPLOYEE STATUS. If the terms of an Incentive Award provide that a
payment will be made thereunder only if the Participant completes a stated
period of employment, the Committee may decide to what extent leaves of absence
for governmental or military service, illness, temporary disability or other
reasons shall not be deemed interruptions of continuous employment.
9.6 SHAREHOLDER RIGHTS. No Participant shall, as a result of receiving an
Incentive Award, have any rights as a shareholder of the Company or any
Affiliate on account of such award.
ARTICLE X
ACCELERATION UPON CERTAIN EVENTS
In the event (i) of the commencement of a public tender offer for all or any
portion of the Common Stock or (ii) the Board approves any transaction or event
that would constitute a change of control of the Company of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of the
Securities Exchange Act of 1934, as amended, all outstanding Options and Awards
shall become fully vested and exercisable in each case as of the date of the
consummation of such tender offer or other transaction or event.
ARTICLE XI
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The maximum number of shares as to which Options, Stock Awards and
Performance Shares may be granted under this Plan, the terms of outstanding
Stock Awards, Options, Performance Share awards and Incentive Awards, and the
per individual limitations on the number of shares for which Options, Stock
Awards and Performance Shares may be granted, shall be adjusted as the Committee
shall determine to be equitably required in the event that there is an increase
or reduction in the number of shares of Common Stock, or any change (including,
but not limited to, a change in value) in the shares of Common Stock or exchange
of shares of Common Stock for a different number or kind of shares or other
securities of the Company by reason of a reclassification, recapitalization,
merger, consolidation, reorganization, spin-off, split up, subdivision or
consolidation of shares, extraordinary dividend, change in corporate structure
or otherwise. Any determination made under this Article XI by the Committee
shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations of
the Company convertible into such shares or other securities, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the maximum
number of shares as to which Options, Stock Awards and Performance Shares may be
granted, the per individual limitations on the number of shares for which
Options, Stock Awards and Performance Shares may be granted or the terms of
outstanding Stock Awards, Options, Incentive Awards or Performance Shares.
The Committee may make Stock Awards and may grant Options, Incentive Awards
and Performance Shares in substitution for performance shares, phantom shares,
stock awards, stock options, stock appreciation rights, or similar awards held
by an individual who becomes an employee of the Company or an Affiliate in
connection with a transaction described in the first paragraph of this
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Article XI. Notwithstanding any provision of the Plan (other than the limitation
of Section 5.2 hereof), the terms of such substituted Stock Awards, Option,
Incentive Awards or Performance Share grants shall be as the Committee, in its
discretion, determines is appropriate.
ARTICLE XII
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES; GOVERNING LAW
No Option shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with all applicable federal and
state laws and regulations (including, without limitation, withholding tax
requirements), any listing agreement to which the Company is a party, and the
rules of all domestic stock exchanges on which the Company's shares may be
listed. The Company shall have the right to rely on an opinion of its counsel as
to such compliance. Any share certificate issued to evidence Common Stock when a
Stock Award is granted or for which an option is exercised or a Performance
Share settled may bear such legends and statements as the Committee may deem
advisable to assure compliance with federal and state laws and regulations. No
Option shall be exercisable, no Stock Award shall be granted, no Common Stock
shall be issued, no certificate for shares shall be delivered, and no payment
shall be made under this Plan until the Company has obtained such consent or
approval as the Committee may deem advisable from regulatory bodies having
jurisdiction over such matters. Except as to matters of federal law, this Plan
and the rights of all persons claiming hereunder shall be construed and
determined in accordance with the laws of the State of Delaware without giving
effect to conflicts of law principles.
ARTICLE XIII
GENERAL PROVISIONS
13.1 EFFECT ON EMPLOYMENT AND SERVICE. Neither the adoption of this Plan,
its operation, nor any documents describing or referring to this Plan (or any
part thereof) shall confer upon any individual any right to continue in the
employ or service of the Company or an Affiliate or in any way affect any right
and power of the Company or an Affiliate to terminate the employment or service
of any individual at any time with or without assigning a reason therefor.
13.2 UNFUNDED PLAN. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
13.3 RULES OF CONSTRUCTION. Headings are given to the articles and
sections of this Plan solely as a convenience to facilitate reference. The
reference to any statute, regulation, or other provision of law shall be
construed to refer to any amendment to or successor of such provision of law.
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ARTICLE XIV
AMENDMENT
The Board may amend or terminate this Plan from time to time; PROVIDED,
HOWEVER, that no amendment may become effective until shareholder approval is
obtained if the amendment materially (i) increases the aggregate number of
shares of Common Stock that may be issued under the Plan, (ii) changes the class
of individuals eligible to become Participants or (iii) increases the benefits
that may be provided under the Plan. No amendment shall, without a Participant's
consent, adversely affect any rights of such Participant under any outstanding
Stock Award, Option, Incentive Award or Performance Share award outstanding at
the time such amendment is made.
ARTICLE XV
DURATION OF PLAN
No Stock Award, Option, Incentive Award or Performance Share award may be
granted under this Plan more than ten years after the earlier of the date this
Plan was adopted by the Board or the date this Plan was originally approved by
stockholders, as reflected in Article XVI. Stock Awards, Options, Incentive
Awards and Performance Share awards granted before that date shall remain valid
in accordance with their terms.
ARTICLE XVI
EFFECTIVE DATE OF PLAN
The Plan was originally adopted by the Board on , 2001, and
approved by shareholders on , 2001.
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APPENDIX G
DORAL INTERNATIONAL, INC.
NON-EMPLOYEE DIRECTORS' INCENTIVE PLAN
<PAGE>
ARTICLE I
DEFINITIONS
1.1 "Award Date" means the first business day following the Company's annual
meeting of stockholders, beginning with the annual meeting of stockholders in
2001.
1.2 "Board" means the Board of Directors of the Company.
1.3 "Committee" means the Board or the committee appointed by the Board to
administer the Plan.
1.4 "Common Stock" means the common stock of the Company.
1.5 "Company" means Doral International, Inc., a Delaware corporation.
1.6 "Fair Market Value" means, on any given date: if the Common Stock is not
listed on an established stock exchange, Fair Market Value shall be the average
of the final bid and asked quotations on the over-the-counter market in which
the Common Stock is traded or, if applicable, the reported "closing" price of a
share of Common Stock in the New York over-the-counter market as reported by the
National Association of Securities Dealers, Inc. If the Common Stock is listed
on one or more established stock exchanges, Fair Market Value shall be deemed to
be the highest closing price of a share of Common Stock reported on any of such
exchanges. In any case, if no sale of Common Stock is made on any stock exchange
or over-the-counter market on that date, then Fair Market Value shall be
determined as of the next preceding day on which there was a sale.
1.7 "First Award Date" means the date following the initial commencement of
service as a member of the Board after the Merger, whether by election or
appointment.
1.8 "Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
1.9 "Merger" means the merger of MeriStar Hotels & Resorts, Inc., a Delaware
corporation, with American Skiing Company, a Delaware corporation.
1.10 "Option" means a stock option that entitles the holder to purchase
shares of Common Stock from the Company on the terms set forth in Article IV of
this Plan.
1.11 "Participant" means a member of the Board who, on the First Award Date
or applicable Award Date, is not an employee or officer of the Company or any
"subsidiary" or "parent" corporation of the Company within the meaning of
Section 424 of the Internal Revenue Code.
1.12 "Plan" means the Doral International, Inc. Non-Employee Directors'
Incentive Plan.
ARTICLE II
PURPOSES
The Plan is intended to (i) assist the Company in recruiting and retaining
non-employee directors and (ii) promote a greater identity of interest between
Participants and stockholders by enabling Participants to participate in the
Company's future success.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall have
complete authority to interpret all provisions of the Plan; to adopt, amend, and
rescind rules and regulations pertaining to the administration of the Plan and
to make all other determinations necessary or advisable for the administration
of the Plan. The express grant in the Plan of any specific power to the
Committee shall
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not be construed as limiting any power or authority of the Committee. Any
decision made, or action taken, by the Committee in connection with the
administration of the Plan shall be final and conclusive. No member of the
Committee shall be liable for any act done in good faith with respect to the
Plan. All expenses of administering the Plan shall be borne by the Company.
ARTICLE IV
OPTIONS
4.1 GRANT OF OPTIONS. On the applicable First Award Date, each Participant
shall receive an Option to purchase a number of shares of Common Stock to be
determined by the Committee. Thereafter, each Participant shall receive an
annual grant of an Option to purchase a number of shares of Common Stock to be
determined by the Committee. All Options shall be evidenced by Agreements that
shall be subject to the applicable provisions of this Plan and to such other
provisions as the Committee may adopt which are not inconsistent with the
provisions of this Plan.
4.2 OPTION PRICE. The price per share of Common Stock purchased on the
exercise of an Option shall be the Fair Market Value on the date that the Option
is granted.
4.3 MAXIMUM OPTION PERIOD. The maximum period during which an Option may
be exercised shall be ten years from the date of grant.
4.4 EXERCISE OF OPTIONS. All Options granted under the Plan shall vest in
three annual installments beginning on the date of grant and on subsequent
anniversaries thereof (each, a "Vesting Date"), provided the Participant
continues to serve as a director of the Company on such Vesting Date.
4.5 EFFECT OF TERMINATION OF SERVICES OR DEATH. If a Participant ceases to
serve as a director of the Company for any reason, the Options that have been
previously granted to that Participant and that are not vested as of that date
shall be forfeited. Options that have vested as of the date of such cessation of
services may be exercised by the Participant, in accordance with and subject to
the terms of the Plan, after the date such Participant ceases to be a director
of the Company. If a Participant dies, the Options that have been previously
granted to that Participant and that are vested as of the date of death may be
exercised by the administrator of the Participant's estate, or by the person to
whom such Options are transferred by will or the laws of descent and
distribution. In no event, however, may any Option be exercised after the
expiration date of such Option. Any Option or portion thereof that is not
exercised during the applicable time period specified above shall be deemed
terminated at the end of the applicable time period for purposes of Article VI
hereof.
4.6 EFFECT OF A CHANGE IN CONTROL. All Options granted pursuant to this
Plan shall immediately vest and become exercisable upon a Change in Control of
the Company. For purposes of the Plan, a "Change in Control" shall mean (i) the
commencement of a public tender offer for all or any portion of the Common
Stock, or (ii) the Board approves any transaction or event that would constitute
a change of control of the Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of the Securities Exchange Act
of 1934, as amended.
4.7 PAYMENT OF OPTION PRICE. Payment of the Option price shall be made in
cash, cash equivalent acceptable to the Committee, Company Common Stock, or a
combination thereof. In addition, a Participant may provide instructions to the
Company that upon receipt of the Option price in cash from a broker or dealer
acting at the direction of the Participant in payment for any shares of Common
Stock pursuant to the exercise of an Option, the Company shall issue such shares
of Common Stock directly to the designated broker or dealer. If shares of Common
Stock are surrendered in payment of the Option price, the shares surrendered
must have an aggregate Fair Market Value (determined as of the day preceding the
exercise date) that, together with any cash or cash equivalent paid, is not less
than the Option price for the number of shares of Common Stock for which this
Option is being exercised.
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4.8 NONTRANSFERABILITY. Each Option granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution.
During the lifetime of the Participant to whom an Option is granted, the Option
may be exercised only by the Participant. No right or interest of a Participant
in any Option shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.
4.9 TRANSFERABLE OPTIONS. Section 4.8 hereof to the contrary
notwithstanding, an Option may be transferred by a Participant to the
Participant's children, grandchildren, spouse, one or more trusts for the
benefit of such family members or a partnership in which such family members are
the only partners; PROVIDED, HOWEVER, that the Participant may not receive any
consideration for the transfer. The holder of an Option transferred pursuant to
this section shall be bound by the same terms and conditions that governed the
Option during the period that it was held by the Participant.
4.10 STOCKHOLDER RIGHTS. No Participant shall have any rights as a
stockholder with respect to shares of Common Stock subject to his or her Option
until the date of exercise of such option.
ARTICLE V
SHARES IN LIEU OF FEES
5.1 Each Participant shall have the right to elect to receive payment of
any or all director fees in shares of Common Stock rather than cash. Unless a
Participant elects otherwise, fees paid in shares of Common Stock will be paid
at the same time as are fees paid in cash.
ARTICLE VI
STOCK SUBJECT TO PLAN
6.1 SHARES ISSUED. Upon the exercise of an Option, the Company may deliver
to the Participant (or the Participant's broker if the Participant so directs),
shares of Common Stock from its authorized but unissued Common Stock.
6.2 AGGREGATE LIMIT. The maximum aggregate number of shares of Common
Stock that may be issued under this Plan is 800,000 shares. The maximum
aggregate number of shares that may be issued under this Plan shall be subject
to adjustment as provided in Article VII.
6.3 REALLOCATION OF SHARES. If an Option is terminated, in whole or in
part, for any reason other than its exercise, the number of shares of Common
Stock allocated to the Option or portion thereof may be reallocated to other
Options to be granted under this Plan.
ARTICLE VII
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The provisions of this Plan and the terms of outstanding Options shall be
adjusted as the Committee shall determine to be equitably required in the event
that there is an increase or reduction in the number of shares of Common Stock,
or any change (including, but not limited to, a change in value) in the shares
of Common Stock or exchange of shares of Common Stock for a different number or
kind of shares or other securities of the Company by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
spin-off, split-up, subdivision or consolidation of shares, extraordinary
dividend, change in corporate structure or otherwise. Any determination made
under this Article VII by the Committee shall be final and conclusive.
The issuance by the Company of shares of any class, or securities
convertible into shares of any class, for cash or property, or for labor or
services, either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares of obligations of the Company
convertible into such shares or other securities, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the provisions of
this Plan or the terms of outstanding Options.
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ARTICLE VIII
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES; GOVERNING LAW
No Common Stock shall be issued and no certificates for shares of Common
Stock shall be delivered under the Plan except in compliance with all applicable
federal and state laws and regulations, any listing agreement to which the
Company is a party, and the rules of all domestic stock exchanges on which the
Company's Common Stock may be listed. The Company shall have the right to rely
on an opinion of its counsel as to such compliance. Any certificate issued to
evidence Common Stock issued upon the exercise of an Option granted under the
Plan may bear such legends and statements as the Committee may deem advisable to
assure compliance with federal and state laws and regulations. No Common Stock
shall be issued and no certificate for shares of Common Stock shall be delivered
upon the exercise of an Option granted under the Plan until the Company has
obtained such consent or approval as the Committee may deem advisable from
regulatory bodies having jurisdiction over such matters. Except as to matters of
federal law, this Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Delaware
without giving effect to conflicts of law principles.
ARTICLE IX
GENERAL PROVISIONS
9.1 UNFUNDED PLAN. The Plan, insofar as it provides for awards, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by awards under the Plan. Any liability of the
Company to any person with respect to any award to be made under the Plan shall
be based solely upon any contractual obligations that may be created pursuant to
the Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
9.2 RULES OF CONSTRUCTION. Headings are given to the articles and sections
of the Plan solely as a convenience to facilitate reference. The reference to
any statute, regulation, or other provision of law shall be construed to refer
to any amendment to or successor of such provision of law.
ARTICLE X
AMENDMENT
The Board may amend from time to time or terminate the Plan at any time;
PROVIDED, HOWEVER, that no amendment may become effective until stockholder
approval is obtained if the amendment (i) materially increases the aggregate
number of shares of Common Stock that may be issued under this Plan or
(ii) stockholder approval would be required for compliance with stock exchange
rules. No amendment shall, without a Participant's consent, adversely affect any
rights of such Participant under any outstanding Option.
ARTICLE XI
DURATION OF PLAN
No Option may be made under this Plan after December 31, 2011. Options made
before that date shall remain valid in accordance with their terms.
ARTICLE XII
EFFECTIVE DATE OF PLAN
The Plan was originally adopted by the Board on , 2001 and
approved by shareholders on , 2001.
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APPENDIX H
DORAL INTERNATIONAL, INC.
EMPLOYEE STOCK PURCHASE PLAN
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ARTICLE I
PURPOSE
The Doral International, Inc. Stock Purchase Plan (the "Plan") is intended
to provide a method whereby eligible employees of Doral International, Inc.
(hereinafter referred to, unless the context otherwise requires, as the
"Company") and any Affiliated Entity will have an opportunity to acquire a
proprietary interest in the Company through the purchase of shares of Common
Stock of the Company.
ARTICLE II
DEFINITIONS
2.1 AFFILIATED ENTITY.
"Affiliated Entity" means any corporation or partnership of which a majority
of the outstanding voting stock or voting power is beneficially owned directly
or indirectly by the Company, or any partnership in which the Company is the
general partner.
2.2 BASE PAY.
"Base Pay" means base salary paid in each Offer Period. Eligible
compensation does not include overtime, bonuses, severance pay, incentive pay,
shift premium differentials, pay in lieu of vacation, imputed income for income
tax purposes, patent and award fees, awards and prizes, back pay awards,
reimbursement of expenses and living allowances, educational allowances, expense
allowances, disability benefits under any insurance program, fringe benefits,
deferred compensation, compensation under the Company's stock plans, amounts
paid for services as an independent contractor, or any other compensation
excluded by the Board of Directors in its discretion. Compensation shall be
determined before giving effect to any salary reduction agreement pursuant to a
qualified cash or deferred arrangement within the meaning of Section 401(k) of
the Code or to any similar reduction agreement pursuant to any cafeteria plan
(within the meaning of Section 125 of the Code).
2.3 COMMITTEE.
"Committee" means the individuals described in Article XI.
2.4 COMMON STOCK.
"Common Stock" means common stock, par value $.01 per share, of the Company.
2.5 COMMON STOCK ACCOUNT.
"Common Stock Account" means the account established with, and maintained
by, the Custodian, for the purpose of holding Common Stock purchased pursuant to
this Plan.
2.6 CUSTODIAN.
"Custodian" means the agent selected by the Committee to hold Common Stock
purchased under the Plan.
2.7 EMPLOYEE.
"Employee" means, subject to Section 3.2, any person employed by the Company
whose customary employment is for [twenty (20)] or more hours per week for the
Company or any Affiliated Entity.
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2.8 OFFER DATE.
"Offer Date" means the date described in Section 4.2.
2.9 OFFER PERIOD.
"Offer Period" means the period described in Section 4.2.
2.10 OFFERING TERMINATION DATE.
"Offering Termination Date" means the date described in Section 4.2.
2.11 OPTION PERCENTAGE.
"Option Percentage" means the amount determined annually by the Committee
pursuant to Section 6.1.
2.12 OPTION VALUE.
"Option Value" means the amount determined under Section 6.1.
2.13 PARTICIPANT.
"Participant" means any Employee who completes an authorization for payroll
deductions on a form provided by the Company and files it with the Chief
Financial Officer of the Company or his designee.
2.14 PAYROLL DEDUCTION ACCOUNT.
"Payroll Deduction Account" means the bookkeeping entry established by the
Company for each Participant pursuant to Section 5.2.
2.15 PLAN ADMINISTRATOR.
"Plan Administrator" means the Company or any third party administrator
designated by the Company.
2.16 TRADING DAY.
"Trading Day" means a day on which shares of Common Stock are traded on the
New York Stock Exchange (or such other exchange on which the Common Stock shall
be principally traded).
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 INITIAL ELIGIBILITY.
Any Employee who shall have completed ninety (90) days' employment and shall
be employed by the Company on the date his participation in the Plan is to
become effective shall be eligible to participate in Offerings (as hereinafter
defined) under the Plan which commence on or after such ninety day period has
concluded.
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3.2 LEAVE OF ABSENCE.
For purposes of participation in the Plan, a person on leave of absence
shall be deemed to be an Employee for the first ninety (90) days of such leave
of absence and such employee's employment shall be deemed to have terminated at
the close of business on the 90th day of such leave of absence unless such
employee shall have returned to regular full-time or part-time employment (as
the case may be) prior to the close of business on such 90th day. Termination by
the Company of any employee's leave of absence, other than termination of such
leave of absence on return to full time or part time employment, shall terminate
an employee's employment for all purposes of the Plan and shall terminate such
employee's participation in the Plan and right to exercise any option.
3.3 RESTRICTIONS ON PARTICIPATION.
Notwithstanding any provisions of the Plan to the contrary, no Employee
shall be granted an option under the Plan:
(a) if, immediately after the grant, such Employee would own stock,
and/or hold outstanding options to purchase stock, possessing five percent
(5%) or more of the total combined voting power or value of all classes of
stock of the Company or any of its parent or any Affiliated Entity; or
(b) which permits his rights to purchase stock under all employee stock
purchase plans of the Company to accrue at a rate which exceeds $25,000 in
fair market value of the Common Stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding.
3.4 COMMENCEMENT OF PARTICIPATION.
Subject to Section 8.2, an eligible Employee may become a Participant by
completing an authorization for payroll deductions on the form provided by the
Company and filing it with the office of the Chief Financial Officer of the
Company (or his designee) on or before the first day of the month in which
participation is to commence. Payroll deductions for a Participant shall become
effective as of the first payroll period ending in the month in which
participation commences and shall remain in effect until modified or revoked by
the Participant pursuant to Section 5.3 or Article VIII.
3.5 CUSTODIAL ACCOUNT.
As a condition to participation in this Plan, each Eligible Employee shall
be required to hold shares of Common Stock purchased hereunder in a Common Stock
Account and such Employee's decision to participate in the Plan shall constitute
the appointment of the Custodian as custodial agent for the purpose of holding
such shares of Common Stock. Such Common Stock Account will be governed by, and
subject to, the terms and conditions of a written agreement with the Custodian.
ARTICLE IV
OFFERINGS
4.1 NUMBER OF SHARES TO BE OFFERED.
The maximum number of shares of Common Stock of the Company that may be
purchased under the Plan is 6,000,000. Such shares may be treasury shares or
authorized and unissued shares, as the Committee may determine in its
discretion. The Company, by action of its Board of Directors upon the advice of
the Committee and subject to stockholder approval, may increase the number of
shares reserved under the Plan.
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4.2 OFFER DATE.
The Offer Date shall be the first Trading Day of every month and the Offer
Period will last for the duration of that calendar month, ending on the last
Trading Day of that month (the "Offering Termination Date"). Upon the Offer
Date, the Company will issue to each Participant, an option to purchase, based
upon the amount of the Employee's Base Pay to be reduced during the Offer
Period, a number of shares of Common Stock (the "Offering") as determined and
limited by Section 6.1.
ARTICLE V
PAYROLL DEDUCTIONS
5.1 AMOUNT OF PAYROLL DEDUCTION.
At the time a Participant files his authorization for payroll deductions, he
shall elect to have deductions made from his Base Pay on each payday during the
time he is a Participant at the rate of 1, 2, 3, 4, 5, 6, 7 or 8% of his Base
Pay paid during an Offer Period, except that there shall be a minimum
authorization of $200 per calendar quarter.
5.2 PARTICIPANT'S ACCOUNT.
All payroll deductions made for a Participant shall be credited to his
Payroll Deduction Account pending the purchase of Common Stock in accordance
with the Plan. The Participant's Payroll Deduction Account will consist of a
bookkeeping entry in the Company's financial records. A Participant may not make
any separate cash payment into such Payroll Deduction Account except when on
leave of absence and then only as provided in Section 5.4.
5.3 CHANGES IN PAYROLL DEDUCTIONS.
A Participant may discontinue his participation in the Plan as described in
Article VIII, but no other change can be made with regard to an Offer Period
and, specifically, a Participant may not alter the amount of his payroll
deductions for that Offer Period. Except as provided in Article VIII, a
Participant may modify or revoke an authorization for payroll deductions only
with respect to future Offer Periods.
5.4 LEAVE OF ABSENCE.
If a Participant goes on an approved leave of absence, during the 90-day
period described in Section 3.2, such Participant shall have the right to elect:
(a) to withdraw the balance in his or her Payroll Deduction Account
pursuant to Section 8.1;
(b) to discontinue contributions to the Plan but remain a Participant in
the Plan; or
(c) to remain a Participant in the Plan during such leave of absence,
authorizing deductions to be made from payments by the Company to the
Participant during such leave of absence and undertaking to make cash
payments to the Company at the end of each payroll period to the extent that
amounts payable by the Company to such Participant are insufficient to meet
such Participant's authorized payroll deductions. Any payment made to the
Company under this section will be reflected as a credit to the
Participant's Payroll Deduction Account in accordance with Section 5.2.
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ARTICLE VI
GRANTING OF OPTION
6.1 NUMBER OF OPTION SHARES.
On each Offer Date, participating Employees shall be deemed to have been
granted options to purchase a number of shares of Common Stock of the Company
equal to the number of shares determined by dividing the amount of the
employee's payroll deductions authorized to be made through the end of the Offer
Period plus any carryovers, by the Option Value of the Common Stock of the
Company. The Option Value for the Offer Period shall be the Option Percentage,
multiplied by the lesser of the closing price of a share of Common Stock on the
New York Stock Exchange (or such other exchange on which the Company's Common
Stock shall be principally traded) on the first Trading Day of the Offer Period,
or the closing price of a share of Common Stock on the New York Stock Exchange
(or such other exchange on which the Company's Common Stock shall be principally
traded) on the Offering Termination Date.
The Option Percentage shall be eighty-five percent (85%) upon the Effective
Date of the Plan. The Committee, in its discretion, may amend the Option
Percentage to any percentage between 85% and 100% from time to time as is deemed
appropriate.
6.2 OPTION PRICE.
The option price of Common Stock purchased with respect to an Offering shall
be the lesser of:
(a) the Option Percentage multiplied by the closing price of the Common
Stock on the Offer Date; or
(b) the Option Percentage multiplied by the closing price of the Common
Stock on the Offering Termination Date.
6.3 COMMON STOCK VALUATION.
If the Common Stock of the Company is not traded on a public market on any
of the aforesaid dates for which closing prices of the Common Stock are to be
determined, such closing price shall be deemed to be the fair market value of
the Common Stock on that date, as determined by the Committee.
6.4 MAXIMUM NUMBER OF SHARES PER OFFER PERIOD.
In no event may more than 5,000 shares of Common Stock be purchased by any
one Participant in any one Offer Period.
ARTICLE VII
EXERCISE OF OPTION
7.1 AUTOMATIC EXERCISE.
Unless a Participant gives written notice to the Plan Administrator as
hereinafter provided, his option to purchase Common Stock with payroll
deductions credited to his Payroll Deduction Account will be deemed to have been
exercised automatically on the Offering Termination Date (as defined in
Section 4.2) applicable to such offering, for the purchase of the number of
whole and fractional shares of Common Stock which the accumulated payroll
deductions and any carryovers in his Payroll Deduction Account at that time will
purchase at the applicable option price (but not in excess of the
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number of shares for which options have been granted to the Employee pursuant to
Article VI). Any amount credited to a Participant's Payroll Deduction Account
which is not applied to purchase shares of Common Stock in an Offering pursuant
to this Section shall, subject to the terms of the Plan, be used to purchase
shares of Common Stock in the next succeeding Offering.
7.2 FRACTIONAL SHARES.
Fractional shares (computed to 4 decimal places) may be credited to a
Participant's Common Stock Account under the Plan but will not be distributed to
the Participant. If a Participant receives a withdrawal of, or sells from his
Common Stock Account, all whole shares credited to his Common Stock Account, he
shall also receive a cash distribution representing the value (determined as of
the withdrawal (or sale) date) of any fractional share credited to his Common
Stock Account and such fractional share shall cease to be credited to such
account.
7.3 TRANSFER OF OPTION.
During a Participant's lifetime, options held by such Participant shall be
exercisable only by that Participant.
7.4 STOCK HELD BY CUSTODIAN.
As promptly as practicable after the Offering Termination Date of each
Offering, the Company will deliver to the Custodian certificates for the shares
of Common Stock purchased on account of such Offering.
7.5 RESTRICTION ON SALE.
Shares of Common Stock purchased pursuant on an Offering Termination Date
shall not be transferable by a Participant for a period of six months
immediately following such Offering Termination Date.
ARTICLE VIII
WITHDRAWAL
8.1 IN GENERAL.
(a) WITHDRAWAL OF PAYROLL DEDUCTIONS. By written notice to the Plan
Administrator at any time prior to two days prior to the Offering
Termination Date applicable to any Offering, a Participant may elect to
withdraw all (but not less than all) of the amount then credited to his
Payroll Deduction Account. Payment of the amount credited to his Payroll
Deduction Account will be made to him in cash promptly after receipt of his
notice of withdrawal, and no further payroll deductions will be made from
his pay unless such Participant again elects to participate, in the Plan
(subject to Section 8.2) in accordance with Section 3.4. The Committee may,
at its option, treat any attempt to borrow by an Employee on the security of
his accumulated payroll deductions as an election to withdraw such payroll
deductions.
(b) WITHDRAWAL OF COMMON STOCK. Subject to Section 7.5, by written
notice to the Custodian, a Participant may elect to receive a distribution
of some or all of the shares of Common Stock credited to his Common Stock
Account. Certificates representing such whole shares of Common Stock (and
cash representing any fractional share) shall be delivered to the
Participant as soon as reasonably practicable following such Participant's
election. The Custodian may charge Participants a reasonable fee (as agreed
to by the Committee) for the delivery of share certificates in accordance
with this Section 8.1.
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(c) SALE OF COMMON STOCK. By written notice to the Custodian, a
Participant may direct the Custodian to sell some or all of the whole shares
of Common Stock credited to his Common Stock Account. The proceeds of any
such sale shall be delivered to the Participant as soon as reasonably
practicable following such sale. The Custodian may charge Participants a
reasonable fee (but not more than the standard brokerage fee charged to
individuals by the Custodian in the ordinary course) for executing any such
sale.
8.2 EFFECT OF WITHDRAWALS AND SALES ON SUBSEQUENT PARTICIPATION.
If a Participant withdraws shares of Common Stock from his Common Stock
Account or directs the Custodian to sell any shares of Common Stock credited to
his Common Stock Account, he will be deemed to have elected a withdrawal of all
amounts credited to his Payroll Deduction Account, he will not be eligible to
purchase any shares on the Offering Termination Date coincident or next
following such election to withdraw or sell, and he will not be eligible to
elect to participate in any Offering beginning within three months after the
date of such election to withdraw or sell. If a Participant withdraws any amount
credited to his Payroll Deduction Account, he will not be eligible to purchase
any shares on the Offering Termination Date coincident or next following such
election to withdraw or to elect to participate in any Offering beginning within
three months after the date of his election to withdraw. It shall be the express
responsibility of the Plan Administrator, and not the Custodian, to ensure
compliance with the provisions of this Section 8.2 of the Plan.
8.3 TERMINATION OF EMPLOYMENT.
(a) PAYROLL DEDUCTION ACCOUNT. Except as provided in Section 8.4, upon
termination of the Participant's employment with the Company and all
Affiliated Entities for any reason, including retirement, the amount
credited to his Payroll Deduction Account will be deducted from his Payroll
Deduction Account and paid to him, or, in the case of his death, to the
person or persons entitled thereto under Section 12.1 and the option granted
to him for such Offer Period shall automatically terminate.
(b) COMMON STOCK ACCOUNT. Upon termination of the Participant's
employment with the Company and all Affiliated Entities for any reason,
including retirement, the number of whole shares credited to his Common
Stock shall continue to be credited to his Common Stock Account until the
Participant directs the Custodian to sell or distribute such shares.
8.4 TERMINATION OF EMPLOYMENT DUE TO DEATH.
Upon termination of the Participant's employment on account of his death,
his beneficiary (as defined in Section 12.1) shall have the right to elect, by
written notice given to the Plan Administrator prior to two days before the
Offering Termination Date, either:
(a) to withdraw all of the payroll deductions credited to the
Participant's Payroll Deduction Account under the Plan, in which case the
Participant's option shall automatically expire; or
(b) to exercise the Participant's option for the purchase of stock on
the Offering Termination Date next following the date of the Participant's
death for the purchase of the number of shares of stock which may be
purchased with the amount credited to the Participant's Payroll Deduction
Account at the date of the Participant's death (but not in excess of the
number of shares for which options have been granted to the Employee
pursuant to Article VI), and any excess credited to such Payroll Deduction
Account will be paid to said beneficiary, without interest.
In the event that no such written notice of election shall be timely
received by the Plan Administrator, the beneficiary shall automatically be
deemed to have elected, pursuant to paragraph (b), to exercise the Participant's
option.
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ARTICLE IX
INTEREST; DIVIDENDS
9.1 PAYMENT OF INTEREST.
No interest will be paid on any amounts deducted from a Participant's pay or
credited to his Payroll Deduction Account.
9.2 DIVIDENDS.
All cash dividends paid with respect to shares of Common Stock held in a
participant's Common Stock Account shall be invested automatically in shares of
Common Stock purchased at one-hundred percent (100%) of fair market value
promptly following the receipt by the Custodian of such dividends. All non-cash
distributions paid on Common Stock held in a Participant's Common Stock Account
shall be paid to the Participant as soon as practicable following receipt
thereof by the Custodian.
ARTICLE X
STOCK
10.1 MAXIMUM SHARES.
If the total number of shares of Common Stock for which options are
exercised on any Offering Termination Date in accordance with Article VI exceeds
the maximum number of authorized shares remaining for purchase under
Section 4.1, the Committee shall make a pro rata allocation (based on the
amounts deducted from pay) of the shares of Common Stock available for delivery
and distribution in as nearly a uniform manner as shall be practicable and as it
shall determine to be equitable, and the balance credited to the Payroll
Deduction Account of each Participant under the Plan shall be paid to him as
promptly as possible.
10.2 PARTICIPANT'S INTEREST IN OPTION STOCK.
The Participant will have no interest in any shares of stock covered by his
option until such option has been exercised and shares of Common Stock have been
credited to the Participant's Common Stock Account.
10.3 REGISTRATION OF STOCK.
Common Stock purchased under the Plan shall be held by the Custodian, as
such, until distributed from Participants' Common Stock Accounts. Shares of
Common Stock to be delivered to a Participant under the Plan will be registered
in the name of the Participant, or, if the Participant so directs by written
notice to the Custodian, in the names of the Participant and one such other
person as may be designated by the Participant, as joint tenants with rights of
survivorship, to the extent permitted by applicable law.
10.4 RESTRICTIONS ON EXERCISE.
The Board of Directors may, in its discretion, require as conditions to the
exercise of any option that the shares of Common Stock reserved for issuance
upon the exercise of the option shall have been duly listed, upon official
notice of issuance, upon a stock exchange, and that either:
(a) a Registration Statement under the Securities Act of 1933, as
amended, with respect to said shares shall be effective; or
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(b) the Participant shall have represented at the time of purchase, in
form and substance satisfactory to the Company, that it is his intention to
purchase the shares for investment and not for resale or distribution.
ARTICLE XI
ADMINISTRATION
11.1 APPOINTMENT OF COMMITTEE.
The Board of Directors shall appoint a committee of two or more directors
(the "Committee") to administer the Plan. No member of the Committee shall be an
Employee eligible to purchase Common Stock under the Plan.
11.2 AUTHORITY OF COMMITTEE.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority in its discretion to appoint, remove and replace the
Custodian, to interpret and construe any and all provisions of the Plan, to
adopt rules and regulations for administering the Plan, and to make all other
determinations deemed necessary or advisable for administering the Plan. The
Committee's determination on the foregoing matters shall be conclusive.
11.3 RULES GOVERNING THE ADMINISTRATION OF THE COMMITTEE.
The Board of Directors may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed and
may fill vacancies, however caused, in the Committee. The Committee may select
one of its members as its Chairman and shall hold its meetings at such times and
places as it shall deem advisable and may hold telephonic meetings. A majority
of its members shall constitute a quorum. All determinations of the Committee
shall be made by a majority of its members. The Committee may correct any defect
or omission or reconcile any inconsistency in the Plan, in the manner and to the
extent it shall deem desirable and in accordance with applicable law. Any
decision or determination reduced to writing and signed by all of the members of
the Committee shall be as fully effective as if it had been made by a majority
vote at a meeting duly called and held. The Committee may appoint a secretary
and shall make such rules and regulations for the conduct of its business as it
shall deem advisable.
ARTICLE XII
MISCELLANEOUS
12.1 DESIGNATION OF BENEFICIARY.
A Participant may file a written designation of one or more beneficiaries
who is to receive any shares of Common Stock issuable and/or cash payable after
the Participant's death. Such designation of beneficiary may be changed by the
Participant at any time by written notice delivered prior to the Participant's
death to the Plan Administrator (or his delegee). Upon the death of a
Participant, if the Custodian has received a valid designation of beneficiary
and receives sufficient proof of such beneficiary's identity, the Custodian
shall deliver such shares of Common Stock and/or cash as are credited to the
Participants' Common Stock Account and/or Payroll Deduction Account to such
beneficiary. In the event of the death of a Participant and in the absence of a
living, validly designated beneficiary, the Custodian shall deliver such shares
of Common Stock and/or cash to the executor or administrator of the estate of
the Participant, or if no such executor or administrator has been appointed (to
the knowledge of the Custodian), the Committee, in its discretion, may cause the
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Custodian to deliver such shares of Common Stock and/or cash to the spouse or to
any one or more dependents of the Participant as the Committee may designate. No
beneficiary shall, prior to the death of the Participant by whom he has been
designated, acquire any interest in any shares of Common Stock or cash credited
to the Participant's Common Stock Account or Payroll Deduction Account under the
Plan.
12.2 TRANSFERABILITY.
Neither payroll deductions credited to a Participant's Payroll Deduction
Account nor Common Stock credited to a Participant's Common Stock Account, nor
any rights with regard to the exercise of an option or to receive shares of
Common Stock under the Plan may be assigned, transferred, pledged, or otherwise
disposed of in any way by the Participant other than by will or the laws of
descent and distribution. Any such attempted assignment, transfer, pledge or
other disposition shall be without effect, except that the Plan Administrator
may treat such act as an election to withdraw such cash or shares of Common
Stock in accordance with Section 8.1.
12.3 USE OF FUNDS.
All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purpose and the Company shall not be
obligated to segregate such payroll deductions.
12.4 ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) If, while any options are outstanding, the outstanding shares of
Common Stock of the Company have increased, decreased, changed into, or been
exchanged for a different number or kind of shares or securities of the
Company without the receipt of consideration through reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split or
similar transaction, appropriate and proportionate adjustments may be made
by the Committee in the number and/or kind of shares which are subject to
purchase under outstanding options and on the option exercise price
applicable to such outstanding options. In addition, in any such event, the
number and/or kind of shares which may be offered in the Offerings described
in Article IV hereof shall also be proportionately adjusted. No adjustments
shall be made for stock dividends. For the purposes of this Paragraph, any
distribution of shares to shareholders in an amount aggregating 20% or more
of the outstanding shares shall be deemed a stock split and any
distributions of shares aggregating less than 20% of the outstanding shares
shall be deemed a stock dividend.
(b) Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving
corporation, or upon a sale of substantially all of the property or stock of
the Company to another corporation, the holder of each option then
outstanding under the Plan will thereafter be entitled to receive at the
next Offering Termination Date upon the exercise of such option for each
share as to which such option shall be exercised, as nearly as reasonably
may be determined, the cash, securities and/or property which a holder of
one share of the Common Stock was entitled to receive upon and at the time
of such transaction. The Board of Directors shall take such steps in
connection with such transactions as the Board shall deem necessary to
assure that the provisions of this Section 12.4 shall thereafter be
applicable, as nearly as reasonably may be determined, in relation to the
said cash, securities and/or property as to which such holder of such option
might thereafter be entitled to receive.
H-11
<PAGE>
12.5 AMENDMENT AND TERMINATION.
The Board of Directors shall have complete power and authority to terminate
or amend the Plan; provided, however, that the Board of Directors shall not,
without the approval of the stockholders of the Corporation (i) increase the
maximum number of shares which may be issued under any Offering; or (ii) amend
the requirements as to the class of employees eligible to purchase stock under
the Plan. No termination, modification, or amendment of the Plan may, without
the consent of an Employee then having an option, adversely affect any rights of
such Employee.
12.6 EFFECTIVE DATE.
The Plan shall become effective as of the first day after its adoption and
approval by the Company through its Board of Directors and shareholders (the
"Effective Date").
12.7 NO EMPLOYMENT RIGHTS.
The Plan does not, directly or indirectly, create in any employee or class
of employees any right with respect to continuation of employment by the
Company, and it shall not be deemed to interfere in any way with the Company's
right to terminate, or otherwise modify, an employee's employment at any time.
12.8 EFFECT OF PLAN.
The provisions of the Plan shall, in accordance with its terms, be binding
upon, and inure to the benefit of all Employees and all beneficiaries of
Employees participating in the Plan, including, without limitation, each such
Employee's estate and the executors, administrators or trustees thereof, heirs
and legatees.
12.9 GOVERNING LAW.
The law of the State of Delaware will govern all matters relating to this
Plan except to the extent it is superseded by the laws of the United States.
H-12
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a corporation
to indemnify its directors, officers, employees and agents against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
reasonably incurred, including liabilities under the Securities Act, provided
they act in good faith and in a manner reasonably believed to be in or not
opposed to the best interests of the corporation, although in the case of
proceedings brought by or on behalf of the corporation, such indemnification is
limited to expenses and is not permitted if the individual is adjudged liable to
the corporation (unless the court determines otherwise). Section 102 of the
Delaware General Corporation Law authorizes a corporation to limit or eliminate
its directors' liability to the corporation or its stockholders for monetary
damages for breaches of fiduciary duties, other than for (i) breaches of the
duty of loyalty, (ii) acts or omissions not in good faith or that involve
intentional misconduct or knowing violations of law, (iii) unlawful payments of
dividends, stock purchases or redemptions, or (iv) transactions from which a
director derives an improper personal benefit.
The registrant's bylaws provide that it will indemnify each director and
each of the President, the Treasurer and the Secretary against all claims and
expenses resulting from the fact that he or she was an officer, director or
employee of the registrant. In addition, the registrant's board of directors
may, at its option, indemnify any other employee. A claimant is eligible for
indemnification if the claimant (i) acted in good faith and in a manner that, in
the claimant's reasonable belief, was in or not opposed to the best interests of
the registrant, or (ii) in the case of a criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The vote of a majority of the
board of directors is necessary for a determination of whether a claimant is
eligible for indemnification.
Section 145 of the Delaware General Corporation Law authorizes a corporation
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation against any liability
asserted against him or her and incurred by him or her in any such capacity, or
arising out of his or her status as such. The registrant's certificate of
incorporation and bylaws contain no specific provisions regarding such
insurance. The registrant has obtained liability insurance covering its
directors and officers for claims asserted against them or incurred by them in
such capacity, including claims brought under the Securities Act.
No person has been authorized to give any information or to make any
representations other than those contained in this prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or the solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the registrant since the date hereof or that the information
contained herein is correct as of any time subsequent to its date.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibit index is hereby incorporated by reference.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to respond to requests for
information that are incorporated by reference into the prospectus pursuant to
Item 4 of this Form, within one business day
II-1
<PAGE>
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on January 8, 2001.
<TABLE>
<S> <C> <C>
AMERICAN SKIING COMPANY
BY: /S/ FOSTER A. STEWART, JR.
-----------------------------------------
Name: Foster A. Stewart, Jr.
Title: Vice President and General Counsel
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Christopher E. Howard and Foster A. Stewart, Jr.
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 (until revoked in writing), to sign any and
all amendments (including post-effective amendments) to this registration
statement filed pursuant to Rule 462 under the Securities Act of 1933, and to
file the same with all exhibits thereto, and the other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done, as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement and the foregoing power of attorney have been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director, President and
/s/ LESLIE B. OTTEN Chief Executive Officer
------------------------------------------- (Principal Executive January 8, 2001
Leslie B. Otten Officer)
Senior Vice President and
/s/ MARK J. MILLER Chief Financial Officer
------------------------------------------- (Principal Financial January 8, 2001
Mark J. Miller Officer and Principal
Accounting Officer)
/s/ BRADFORD E. BERNSTEIN
------------------------------------------- Director January 8, 2001
Bradford E. Bernstein
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
------------------------------------------- Director
Robert J. Branson
/s/ J. TAYLOR CRANDALL
------------------------------------------- Director January 8, 2001
J. Taylor Crandall
/s/ GORDON M. GILLIES
------------------------------------------- Director January 8, 2001
Gordon M. Gillies
/s/ STEVEN B. GRUBER
------------------------------------------- Director January 8, 2001
Steven B. Gruber
/s/ DAVID B. HAWKES
------------------------------------------- Director January 8, 2001
David B. Hawkes
------------------------------------------- Director
Alexandra C. Hess
/s/ WILLIAM S. JANES
------------------------------------------- Director January 8, 2001
William S. Janes
------------------------------------------- Director
Paul Wachter
/s/ PAUL W. WHETSELL
------------------------------------------- Director January 8, 2001
Paul W. Whetsell
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of December 8, 2000,
among MeriStar Hotels & Resorts, Inc., American Skiing
Company and ASC Merger Sub, Inc. (attached as Appendix A to
the joint proxy statement and prospectus and incorporated
herein by reference).
2.2 Voting and Recapitalization Agreement, dated December 8,
2000, among American Skiing Company, MeriStar Hotels &
Resorts, Inc. and the other parties identified therein
(attached as Appendix B to the joint proxy statement and
prospectus and incorporated herein by reference).
3.1 Certificate of Incorporation of American Skiing Company
(incorporated by reference to Exhibit 3.1 to American Skiing
Company's Annual Report on Form 10-K for the year ended
July 25, 1999).
3.2 Bylaws of American Skiing Company (incorporated by reference
to Exhibit 3.2 to American Skiing Company's Annual Report on
Form 10-K for the year ended July 30, 2000).
3.3 Form of Amended and Restated Certificate of Incorporation of
American Skiing Company (attached as Annex A to Appendix A
to the joint proxy statement and prospectus and incorporated
herein by reference).
3.4 Form of Amended and Restated Bylaws of American Skiing
Company (attached as Annex B to Appendix A to the joint
proxy statement and prospectus and incorporated herein by
reference).
3.5 Articles of Merger of ASC East, Inc. and ASC West, Inc. into
American Skiing Company, dated October 5, 1999, with Plan of
Merger (incorporated by reference to Exhibit 2.1 to American
Skiing Company's Current Report on Form 8-K for the report
date of October 6, 1999).
3.6 Articles of Merger of American Skiing Company into ASC
Delaware, Inc., dated October 12, 1999, with Agreement and
Plan of Merger (incorporated by reference to Exhibit 2.2 to
American Skiing Company's Current Report on Form 8-K for the
report date of October 6, 1999).
4.1 Specimen Certificate for shares of common stock, par value
$0.01, of American Skiing Company (incorporated by reference
to Exhibit 4.1 to American Skiing Company's Annual Report on
Form 10-K for the year ended July 25, 1999).
4.2 Form of Specimen Certificate for shares of common stock, par
value $0.01, of Doral International, Inc.
5.1 Opinion of Shearman & Sterling
8.1 Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
9.1 Voting Agreement, dated December 8, 2000, between American
Skiing Company, MeriStar Hotels & Resorts, Inc. and the
other parties identified therein (attached as Appendix C to
the joint proxy statement and prospectus and incorporated
herein by reference).
10.1 Preferred Stock Subscription Agreement, dated July 9, 1999,
among American Skiing Company and the Purchasers listed on
Annex A thereto (incorporated by reference to Exhibit 2.1 to
American Skiing Company's Current Report on Form 8-K for the
report date of July 9, 1999).
10.2 Stockholders' Agreement, dated as of August 6, 1999, among
Oak Hill Capital Partners, L.P., Leslie B. Otten, American
Skiing Company and the other entities identified in Annex A
attached thereto (incorporated by reference to Exhibit 10.2
to American Skiing Company's Annual Report on Form 10-K for
the year ended July 25, 1999).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
10.3 Stock Purchase Agreement, dated as of August 1, 1997, among
Kamori International Corporation, ASC West, Inc. and
American Skiing Company (incorporated by reference to
Exhibit 2.1 to American Skiing Company's Registration
Statement on Form S-1, Registration No. 333-33483).
10.4 Purchase Agreement, dated as of April 13, 1994, among Mt.
Attitash Lift Corporation, certain of its shareholders and
L.B.O. Holding, Inc. (incorporated by reference to
Exhibit 10.35 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.5 Stock Purchase Agreement, dated August 17, 1994, between
Sugarloaf Mountain Corporation and SKI Ltd. (incorporated by
reference to Exhibit 10.36 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.6 Acquisition Agreement, dated May 16, 1995, among Sugarbush
Resort Holdings, Inc., Sugarbush Resort Corporation,
Snowridge, Inc., Sugar Ridge, Inc., Sugarbush Inn
Corporation and Bev Ridge, Inc., (incorporated by reference
to Exhibit 10.38 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.7 Purchase and Sale Agreement, dated as of August 30, 1996,
among Waterville Valley Ski Area, Ltd., Cranmore, Inc., ASC
East, Inc. and Booth Creek Ski Acquisition Corp.
(incorporated by reference to Exhibit 10.61 to ASC East's
Registration Statement on Form S-4, Registration
No. 333-9763).
10.8 Purchase and Sale Agreement, dated as of October 16, 1996,
among Sherburne Pass Mountain Properties, LLC, Pico Mountain
Sports Center, LLC, Pico Mountain Operating Company, LLC,
Harold L. and Edith Herbert and Pico Ski Area Management
Company (incorporated by reference to Exhibit 10.62 to ASC
East's Registration Statement on Form S-4, Registration
No. 333-9763).
10.9 Purchase and Sale Agreement, dated July 3, 1997, between
Wolf Mountain Resorts, L.C. and ASC Utah (incorporated by
reference to Exhibit 10.74 to American Skiing Company's
Registration Statement on Form S-1, Registration
No. 33483).
10.10 Letter of Agreement, dated August 27, 1996, among SKI Ltd.
and certain shareholders of Sugarloaf Mountain Corporation
(incorporated by reference to Exhibit 10.63 to ASC East's
Registration Statement on Form S-4, Registration
No. 333-9763).
10.11 Amended, Restated and Consolidated Credit Agreement, dated
as October 12, 1999, among American Skiing, its subsidiaries
party thereto, the lenders party thereto, and Fleet National
Bank, as Agent for the lenders (incorporated by reference to
Exhibit 10.11 to American Skiing Company's Annual Report on
Form 10-K for the year ended July 25, 1999).
10.12 Indenture, dated as of June 28, 1996, among ASC East, Inc.,
its subsidiaries party thereto and United States Trust
Company of New York, as Trustee, relating to Series A and
Series B 12% Senior Subordinated Notes due 2006
(incorporated by reference to Exhibit 4.1 to ASC East's
Registration Statement on Form S-4, Registration
No. 333-9763).
10.13 First Supplemental Indenture, dated as of November 12, 1997,
among ASC East, Inc., its subsidiaries party thereto and
United States Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 10.3 to American
Skiing Company's Quarterly Report on Form 10-Q for the
quarter ended October 25, 1998).
10.14 Second Supplemental Indenture, dated as of September 4,
1998, among ASC East, Inc., its subsidiaries party thereto
and United States Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 4.3 to American Skiing
Company's Current Report on Form 8-K for the report date of
October 6, 1999).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
10.15 Third Supplemental Indenture, dated as of August 6, 1999,
among ASC East, Inc., its subsidiaries party thereto and
United States Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 4.5 to American Skiing
Company's Current Report on Form 8-K for the report date of
October 6, 1999).
10.16 Fourth Supplemental Indenture, dated as of October 6, 1999,
among ASC East, Inc., its subsidiaries party thereto and
United States Trust Company of New York, as Trustee
(incorporated by reference to Exhibit 4.6 to American Skiing
Company's Current Report on Form 8-K for the report date of
October 6, 1999).
10.17 Loan and Security Agreement, dated as of September 1, 1998,
among Grand Summit Resort Properties, Inc., Textron
Financial Corporation and certain lenders (incorporated by
reference to Exhibit 10.1 to American Skiing Company's
Quarterly Report on Form 10-Q for the quarter ended
October 25, 1998).
10.18 First Amendment Agreement Re: Loan and Security Agreement,
dated as of April 5, 1999, among Grand Summit Resort
Properties, Inc., as borrower, and Textron Financial
Corporation, as Administrative Agent (incorporated by
reference to Exhibit 10.1 to American Skiing Company's
Quarterly Report on Form 10-Q for the quarter ended
April 25, 1999).
10.19 Accession, Loan Sale and Second Amendment Agreement Re: Loan
and Security Agreement, dated June 24, 1999, among Grand
Summit Resort Properties, Inc., Textron Financial Corp. and
the lenders listed therein (incorporated by reference to
Exhibit 10.19 to American Skiing Company's Annual Report on
Form 10-K for the year ended July 30, 2000).
10.20 ISDA Master Agreement, dated as of May 12, 1998, between
BankBoston, N.A. and American Skiing Company (incorporated
by reference to Exhibit 10.38 to American Skiing Company's
Annual Report on Form 10-K for the year ended July 26,
1998).
10.21 Credit Support Annex to ISDA Master Agreement, dated as of
May 12, 1998, between BankBoston, N.A. and American Skiing
Company (incorporated by reference to Exhibit 10.39 to
American Skiing Company's Annual Report on Form 10-K for the
year ended July 26, 1998).
10.22 Form of Master Lease Agreement among BancBoston Leasing,
Inc., as lessor, Heavenly Valley Limited Partnership,
Killington, Ltd., Mount Snow, Ltd., ASC Leasing, Inc.,
Steamboat Ski & Resort Corporation and Sunday River Skiway
Corp. as lessees (incorporated by reference to Exhibit 10.41
to American Skiing Company's Annual Report on Form 10-K for
the year ended July 26, 1998).
10.23 Unlimited Guaranty by American Skiing Company in favor of
BancBoston Leasing, Inc., dated as of July 20, 1998
(incorporated by reference to Exhibit 10.40 to American
Skiing Company's Annual Report on Form 10-K for the year
ended July 26, 1998).
10.24 $2,750,000 Subordinated Promissory Note, dated November,
1996, by Booth Creek Ski Acquisition Corp., Waterville
Valley Ski Resort, Inc. and Mount Cranmore Ski Resort, Inc.,
to ASC East, Inc. (incorporated by reference to Exhibit
10.72 to American Skiing Company's Registration Statement on
Form S-1, Registration No. 333-33483).
10.25 Assignment, dated May 30, 1997, between Wolf Mountain
Resorts, L.C. and ASC Utah, Inc. (incorporated by reference
to Exhibit 10.7 to American Skiing Company's Registration
Statement on Form S-1, Registration No. 333-33483).
10.26 Indenture, dated October 24, 1990, between Killington Ltd.
and The Howard Bank, as trustee (representative of
indentures with respect to similar indebtedness aggregating
approximately $2,995,000 in original principal amount and
maturing at various times from 2015 to 2016) (incorporated
by reference to Exhibit 10.19 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
10.27 Form of Subordinated Debenture due 2002 from L.B.O. Holding,
Inc. to former shareholders of Mt. Attitash Lift
(incorporated by reference to Exhibit 10.34 to ASC East's
Registration Statement on Form S-4, Registration
No. 333-9763).
10.28 Lease, dated October 15, 1980, among H. Donald Penley,
Joseph Penley, Albert Penley and Sunday River Skiway
Corporation (incorporated by reference to Exhibit 10.40 to
ASC East's Registration Statement on Form S-4, Registration
No. 333-9763).
10.29 Lease/Option, dated July 19, 1984, between John Blake and
L.B.O. Holding, Inc. (incorporated by reference to Exhibit
10.41 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.30 Lease Agreement, dated as of July 1, 1993, between
Snowridge, Inc. and Mountain Water Company (incorporated by
reference to Exhibit 10.42 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.31 Lease Agreement, dated as of March 1, 1988, between
Snowridge, Inc. and Mountain Wastewater Treatment, Inc.
(incorporated by reference to Exhibit 10.43 to ASC East's
Registration Statement on Form S-4, Registration
No. 333-9763).
10.32 Lease, dated November 10, 1960, between the State of Vermont
and Sherburne Corporation (incorporated by reference to
Exhibit 10.44 to ASC East's Registration Statement on
Form S-4, Registration No. 333-9763).
10.33 Lease Agreement, dated as of June 21, 1994, between the Town
of Wilmington, Vermont and Mount Snow, Ltd. (incorporated by
reference to Exhibit 10.46 to ASC East's Registration
Statement on Form S-4, Registration No. 333-9763).
10.34 Lease Agreement, dated April 24, 1995, between Sargent, Inc.
and Mount Snow, Ltd. (incorporated by reference to Exhibit
10.47 to ASC East's Registration Statement on Form S-4,
Registration No. 333-9763).
10.35 Amended and Restated Lease Agreement, dated November 17,
2000, between Sugarloaf Mountain Corporation and the
Inhabitants of the Town of Carrabassett Valley, Maine,
concerning the Sugarloaf Golf Course.
10.36 Ground Lease Agreement, dated July 3, 1997, between ASC Utah
and Wolf Mountain Resorts, L.C. (incorporated by reference
to Exhibit 10.64 to American Skiing Company's Registration
Statement on Form S-1, Registration No. 333-33483).
10.37 Ground Lease Guaranty, dated July 3, 1997, by American
Skiing Company in favor of Wolf Mountain Resorts, L.C.
(incorporated by reference to Exhibit 10.65 to American
Skiing Company's Registration Statement on Form S-1,
Registration No. 333-33483).
10.38 Stock Option Plan (incorporated by reference to Exhibit
10.89 to American Skiing Company's Registration Statement on
Form S-1, Registration No. 333-33483).
10.39 Form of Non-Qualified Stock Option Agreement (Five-Year
Vesting Schedule) (incorporated by reference to Exhibit
10.90 to American Skiing Company's Registration Statement on
Form S-1, Registration No. 333-33483).
10.40 Form of Non-Qualified Stock Option Agreement, (Fully-Vested)
(incorporated by reference to Exhibit 10.91 to American
Skiing Company's Registration Statement on Form S-1,
Registration No. 333-33483).
10.41 Form of Incentive Stock Option (incorporated by reference to
Exhibit 10.92 to American Skiing Company's Registration
Statement on Form S-1, Registration No. 333-33483).
10.42 Registration Rights Agreement, dated November 10, 1997,
between American Skiing Company and ING (U.S.) Capital
(incorporated by reference to Exhibit 3 to American Skiing
Company's Quarterly Report on Form 10-Q for the quarter
ended October 26, 1997).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
10.43 Employment Agreement, dated January 3, 2001, between
American Skiing Company and Leslie B. Otten.
10.44 Terms of Employment, dated October, 2000, between American
Skiing Company and Christopher E. Howard (incorporated by
reference to Exhibit 10.44 to American Skiing Company's
Annual Report on Form 10-K for the year ended July 30,
2000).
10.45 Terms of Employment, dated October 7, 1999, between American
Skiing Company and Mark J. Miller (incorporated by reference
to Exhibit 10.45 to American Skiing Company's Annual Report
on Form 10-K for the year ended July 30, 2000).
10.46 Employment Agreement, dated May 7, 2000, between American
Skiing Company and William J. Fair (incorporated by
reference to Exhibit 10.46 to American Skiing Company's
Annual Report on Form 10-K for the year ended July 30,
2000).
10.47 Terms of Employment, dated April 28, 2000, between American
Skiing Company and Hernan Martinez (incorporated by
reference to Exhibit 10.47 to American Skiing Company's
Annual Report on Form 10-K for the year ended July 30,
2000).
10.48 Master Disposition and Development Agreement, dated as of
October 29, 1999, among South Tahoe Redevelopment Agency,
The City of South Lake Tahoe, American Skiing Company Resort
Properties, Inc., Heavenly Resort Properties, LLC, Heavenly
Valley Limited Partnership, Trans-Sierra Investments, Inc.
and Cecil's Market, Inc. (incorporated by reference from
American Skiing Company's Quarterly Report on Form 10-Q for
the quarter ended October 24, 1999).
10.49 The Canyons Resort Village Management Agreement, dated as of
November 15, 1999 (incorporated by reference from American
Skiing Company's Quarterly Report on Form 10-Q for the
quarter ended October 24, 1999).
10.50 Amended and Restated Development Agreement, dated as of
November 15, 1999, for The Canyons Specially Planned Area
Snyderville Basin, Summit County, Utah (incorporated by
reference from American Skiing Company's Quarterly Report on
Form 10-Q for the quarter ended October 24, 1999).
10.51 Securities Purchase Agreement, dated August 1, 2000, among
American Skiing Company, American Skiing Company Resort
Properties, Inc. and Oak Hill Capital Partners, L.P.
(incorporated by reference from American Skiing Company's
Current Report on Form 8-K for the report date of July 31,
1999).
10.52 Second Amended and Restated Credit Agreement, dated July 31,
2000, among American Skiing Company Resort Properties, Inc.,
Fleet National Bank, as Agent, and the other lenders party
thereto (incorporated by reference from American Skiing
Company's Current Report on Form 8-K for the report date of
July 31, 1999).
10.53 Amendment to Stockholders' Agreement, dated August 1, 2000,
among American Skiing Company, Oak Hill Capital Partners,
L.P. and Leslie B. Otten (incorporated by reference from
American Skiing Company's Current Report on Form 8-K for the
report date of July 31, 1999).
10.54 First Amendment to Amended, Restated and Consolidated Credit
Agreement, dated March 6, 2000, among American Skiing
Company, Fleet National Bank, as Agent, and certain other
lenders party thereto (incorporated by reference from
American Skiing Company's Quarterly Report on Form 10-Q for
the report date March 14, 2000).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--------------------- -----------
<C> <S>
10.55 First Amendment to the Master Disposition and Development
Agreement dated April 18, 2000 among the South Tahoe
Redevelopment Agency, the City of South Lake Tahoe and the
ASCRP, Inc., Heavenly Resort Properties, LLC, Heavenly
Valley L.P., Trans-Sierra Investments, and Cecil's Market,
Inc. (incorporated by reference to Exhibit 10.55 to American
Skiing Company's Annual Report on Form 10-K for the year
ended July 30, 2000).
10.56 Second Amendment to the Master Disposition and Development
Agreement, dated September 3, 2000, by and among the South
Tahoe Redevelopment Agency, the City of South Lake Tahoe,
American Skiing Company Resort Properties, Inc., Heavenly
Valley Resort Properties LLC, Heavenly Valley, Limited
Partnership, Trans-Sierra Investments and Cecil's Market,
Inc. (incorporated by reference to Exhibit 10.56 to American
Skiing Company's Annual Report on Form 10-K for the year
ended July 30, 2000).
10.57 Statement of Intention and Special Additional Financing
Agreement dated July 25, 2000 between Grand Summit Resort
Properties, Inc. and Textron Financial (incorporated by
reference to Exhibit 10.57 to American Skiing Company's
Annual Report on Form 10-K for the year ended July 30,
2000).
10.59 Form of Registration Rights Agreement, among Doral
International, Inc. (f/k/a American Skiing Company), Oak
Hill Capital Partners, L.P., Leslie B. Otten and the
stockholders listed on Schedule A thereto (attached as
Annex E to Appendix A to the joint proxy statement and
prospectus and incorporated herein by reference).
10.60 Form of Certificate of Designation for shares of Series A
14% preferred stock, par value $0.01, of American Skiing
Company (attached as Exhibit B to Appendix B to the joint
proxy statement and prospectus and incorporated herein by
reference).
10.61 Form of Incentive Plan of Doral International, Inc.
(attached as Appendix F to the joint proxy statement and
prospectus and incorporated herein by reference).
10.62 Form of Stock Purchase Plan of Doral International, Inc.
(attached as Appendix H to the joint proxy statement and
prospectus and incorporated herein by reference).
10.63 Form of Non-Employee Directors' Incentive Plan of Doral
International, Inc. (attached as Appendix G to the joint
proxy statement and prospectus and incorporated herein by
reference).
21.1 Subsidiaries of American Skiing Company (incorporated by
reference to Exhibit 22.1 to American Skiing Company's
Annual Report on Form 10-K for the year ended July 30,
1999).
23.1 Consent of PricewaterhouseCoopers, LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of KPMG LLP.
23.4 Consent of Paul, Weiss, Rifkind, Wharton & Garrison
(contained in Exhibit 8.1).
23.5 Consent of Shearman & Sterling (contained in Exhibit 5.1).
24.1 Power of Attorney (contained on signature page).
99.1 Consent of Salomon Smith Barney Inc.
99.2 Consent of Donaldson, Lufkin & Jenrette Securities
Corporation.
99.5 Consent of Daniel L. Doctoroff.
99.6 Consent of Steven D. Jorns.
99.7 Form of MeriStar Hotels & Resorts, Inc. Proxy Card.
99.8 Form of American Skiing Company Proxy Card.
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