<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1998
REGISTRATION NO. 333-49881
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MERISTAR HOTELS & RESORTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7011 51-0379982
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
MERISTAR HOTELS & RESORTS, INC.
1010 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20007
(202) 965-4455
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
PAUL W. WHETSELL
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
MERISTAR HOTELS & RESORTS, INC.
1010 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20007
(202) 965-4455
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
RICHARD S. BORISOFF, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
(212) 373-3000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, Dated July 23, 1998
PROSPECTUS
MERISTAR HOTELS & RESORTS, INC.
SHARES OF COMMON STOCK AND RIGHTS TO ACQUIRE
UP TO OF SUCH SHARES
------------
MeriStar Hotels & Resorts, Inc. ("MeriStar Hotels" or the "Company") is
distributing to holders of record of (a) the common stock, par value $0.01 per
share (the "REIT Common Stock"), of MeriStar Hospitality Corporation, a
Maryland corporation operating as a real estate investment trust (the "REIT"),
and (b) the units of limited partnership (the "REIT OP Units") of MeriStar
Hospitality Operating Partnership, L.P., a Delaware limited partnership (the
"REIT Operating Partnership"), other than REIT OP Units held by the REIT or any
of its subsidiaries, as of the effective time of the Merger defined below (the
"Record Date"), non-transferable rights (the "Rights") to subscribe for and
purchase shares of the common stock, par value $0.01 per share (the "Common
Stock"), of MeriStar Hotels, at a subscription price (the "Subscription Price")
equal to 95% of the average of the daily high and low prices of the Common
Stock on the New York Stock Exchange Inc. ("NYSE") for the period (the
"Measurement Period") of five consecutive trading days (a "Trading Day") on the
NYSE immediately following the third Trading Day after the date the Common
Stock opens for trading on the NYSE.
The Company will be spun off (the "Spin-Off") by CapStar Hotel Company, a
Delaware corporation ("CapStar"), and certain of its affiliates, as further
described below, to become the lessee, manager and operator of various hotel
assets, including those currently (i) owned, leased and managed by CapStar and
its affiliates. CapStar intends to transfer or cause to be transferred certain
assets and liabilities constituting the hotel management and leasing business
currently operated by CapStar and its subsidiaries to MeriStar Hotels, a wholly
owned subsidiary of CapStar. CapStar then intends to distribute, on a share-
for-share basis, to its stockholders of record as of the effective time of the
Merger (the "Spin-Off Record Date") all of the outstanding capital stock of
MeriStar Hotels in the Spin-Off. The Spin-Off will provide the stockholders of
CapStar as of the Spin-Off Record Date with the opportunity to participate in
the benefits of both the real estate operations of the REIT, and the leasing
and management operations of MeriStar Hotels.
Pursuant to an Agreement and Plan of Merger, dated as of March 15, 1998 (the
"Merger Agreement"), among American General Hospitality Corporation, a Maryland
corporation operating as a real estate investment trust ("AGH"), American
General Hospitality Operating Partnership, L.P., a Delaware limited partnership
("AGH Operating Partnership"), CapStar, CapStar Management Company, L.P., a
Delaware limited partnership, ("CapStar Management"), and CapStar Management
Company II, L.P., a Delaware limited partnership ("CapStar Management II"), as
amended, CapStar after spinning-off MeriStar Hotels will merge with and into
AGH (the "Merger"), with the result that (a) AGH will be the surviving
corporation operating under the name MeriStar Hospitality Corporation and (b)
each outstanding share of common stock, par value $0.01 per share, of CapStar
("CapStar Common Stock") will be converted into 1.0 share of REIT Common Stock,
and each outstanding share of common stock, par value $0.01 per share, of AGH
("AGH Common Stock") will be converted into 0.8475 shares of REIT Common Stock.
Immediately following the Spin-Off and the effective date of the Merger, the
Company will acquire 100% of the partnership interests in the third-party
lessee of most of the hotels owned by AGH and substantially all of the assets
and certain liabilities of the third-party manager of most of the hotels owned
by AGH, pursuant to an Acquisition Agreement, dated as of March 15, 1998 (the
"Lessee-Manager Acquisition Agreement"). See "The Merger and the Spin-Off--The
Lessee-Manager Acquisition Agreement."
(Continued on next page)
PRIOR TO DECIDING TO EXERCISE THE RIGHTS, RIGHTHOLDERS SHOULD CAREFULLY
CONSIDER THE MATERIAL RISKS SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 12
HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Subscription Proceeds to
Price Company(1)(2)(3)
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<S> <C> <C>
Per Share............................................... $ $
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Total................................................... $ $
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</TABLE>
(1) The Common Stock issuable pursuant to the Rights Offering is being offered
and sold directly by the Company, and no commission or other remuneration
will be paid to any person for soliciting purchases of the Common Stock.
(2) Before deducting expenses payable by the Company.
(3) Assumes the sale of all of the shares offered hereby.
------------
Dealer Manager
LEHMAN BROTHERS
The date of this Prospectus is , 1998.
<PAGE>
(cover page continued)
Each holder of record of REIT Common Stock and/or REIT OP Units on the
Record Date (a "Rightholder") will receive one-sixth of a Right for each share
of REIT Common Stock and/or each REIT OP Unit so held. Each whole Right will
entitle the Rightholder (but not a subsequent transferee of the REIT Common
Stock and/or REIT OP Units held by such Rightholder on the Record Date) to
purchase one share of Common Stock at the Subscription Price (the
"Subscription Privilege"). The Company will publicly announce the Subscription
Price promptly following determination thereof. Although fractional Rights
will be issued to Rightholders, the Company reserves the right, in its sole
discretion, to pay cash in lieu of fractional shares of Common Stock that
would otherwise be issued or issuable in respect of fractional Rights
exercised by Rightholders, based on a value per whole share of Common Stock
equal to the closing price of the Common Stock on the NYSE on the Expiration
Date. Any such cash payment will be made to the applicable Rightholder at the
same time that shares of Common Stock are issued in respect of whole rights
exercised by Rightholders. Fractional Rights can only be exercised
concurrently with the exercise of whole Rights. The Company intends to pay
cash in lieu of all such fractional shares of Common Stock. An election to
exercise Rights, once made, may not be revoked. The subscription agent (the
"Subscription Agent") for the Rights Offering will be Continental Stock
Transfer & Trust Company. All amounts received by the Subscription Agent
pursuant to the exercise of Rights will be held in a non-interest-bearing
escrow account until the completion of the Rights Offering. See "The Rights
Offering--Subscription Privilege." The Rights will be evidenced by non-
transferable subscription certificates. The issuance of shares of Common Stock
pursuant to the Rights Offering is conditioned upon consummation of the Spin-
Off, the Merger and transactions contemplated by the Lessee-Manager
Acquisition Agreement. The Company also reserves the right, at its sole
option, to cancel the Rights Offering if the Subscription Price is less than
.. The Rights will be exercisable at any time following 5:00 p.m., New York
City time, on the last day of the Measurement Period until 5:00 p.m., New York
City time, on August 31, 1998, or such later date as the Company may determine
(the "Expiration Date"), unless the Rights Offering is earlier cancelled.
Each share of Common Stock issued in the Spin-Off and each share of Common
Stock issued upon exercise of a Subscription Privilege will be accompanied by
a Preferred Right (as defined herein). See "Certain Antitakeover Provisions--
The Rights Plan."
The Rights may not be exercised by any person, and neither this Prospectus
nor any Subscription Certificate shall constitute an offer to sell or a
solicitation of an offer to purchase any shares of Common Stock, in any
jurisdiction in which such transactions would be unlawful.
If the Rights Offering is not completed, the Subscription Agent will return
the Subscription Price paid by investors as soon as practicable thereafter.
See "The Rights Offering--Conditions to Sale of Shares" and "Risk Factors--
Risk of Termination of the Rights Offering Under Certain Circumstances." The
maximum number of shares which may be issued in the Rights Offering is
8,400,000, representing approximately 14% of the shares of Common Stock that
would be outstanding after the Rights Offering.
The Common Stock has been approved for listing on the NYSE, under the symbol
"MMH", subject to official notice of issuance. No listing has been applied for
with respect to the Rights. Prior to the Spin-Off, there will be no
established trading market for the Common Stock and there can be no assurance
that after the Spin-Off any such trading market will develop.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF SO GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO WHICH IT
RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR THE SALE OF ANY SECURITIES HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF MERISTAR HOTELS SINCE THE DATE HEREOF OR THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
2
<PAGE>
AVAILABLE INFORMATION
Following the Spin-off, MeriStar Hotels will be subject to the informational
requirements of the Exchange Act, and in accordance therewith will file
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Copies of such reports, proxy
statements and other information filed with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and
at the following Regional Offices of the Commission: 7 World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates.
MeriStar Hotels will file information electronically with the Commission, and
the Commission maintains a Web Site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's Web Site
on the Internet is http://www.sec.gov. In addition, the Company expects to
apply to list the Common Stock on the NYSE. If the Common Stock is so listed,
MeriStar Hotels will file reports, proxy and information statements and other
information with the NYSE. These documents may be inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005.
MeriStar Hotels has filed with the Commission a registration statement on
Form S-1 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act, relating to the Rights and
the shares of Common Stock that will be issued to Rightholders upon exercise
thereof in connection with the Rights Offering. This Prospectus does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto filed by MeriStar Hotels with the Commission, certain
portions of which are omitted in accordance with the rules and regulations of
the Commission. Such additional information is available for inspection and
copying at the offices of the Commission. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
The distribution of this Prospectus and the offering of the Rights and the
shares of Common Stock in certain jurisdictions may be restricted by law. No
action has been taken by MeriStar Hotels that would permit an offering of the
Rights or such shares or the circulation or distribution of this Prospectus or
any offering material in relation to the Company, the Rights or such shares in
any country outside the United States where action for that purpose is
required. Persons into whose possession this Prospectus comes are required by
the Company to inform themselves about and to observe any such restrictions.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and the notes thereto appearing
elsewhere in this Prospectus. Investors should carefully consider the
information set forth under the heading "Risk Factors." Unless the context
otherwise requires, references herein to "MeriStar Hotels" or the "Company"
include MeriStar Hotels & Resorts, Inc. and its subsidiaries, including its
subsidiary operating partnership, MeriStar H & R Operating Company, L.P., and,
with respect to periods prior to the Spin-Off, the Merger and the consummation
of transactions contemplated by the Lessee-Manager Acquisition Agreement
(collectively, the "Formation Transactions"), the real estate leasing,
management and related operations of CapStar. The historical combined financial
information of the Company included herein relates to the real estate leasing,
management and related operations of CapStar prior to the Formation
Transactions and the pro forma combined financial information of the Company
included herein reflects such historical combined financial information as
adjusted for the assumption by the Company of rights and liabilities under
hotel management contracts and operating leases of AGHI and AGH Leasing upon
consummation of the Formation Transactions.
THE COMPANY.................
MeriStar Hotels & Resorts, Inc. ("MeriStar
Hotels" or the "Company") will be spun off (the
"Spin-Off") by CapStar Hotel Company, a Delaware
corporation ("CapStar"), to become the lessee,
manager and operator of various hotel assets,
including those currently owned, leased and
managed by CapStar, and certain of its
affiliates. CapStar intends to transfer or cause
to be transferred certain assets and liabilities
constituting the hotel management and leasing
business currently operated by CapStar and its
subsidiaries to MeriStar Hotels, a wholly owned
subsidiary of CapStar. The Company will initially
have a $75 million credit facility, provided by
the REIT. CapStar intends initially to capitalize
the Company with approximately $48 million of
cash, including approximately $18 million of
forgiveness of indebtedness and a $30 million
draw on the Company's credit facility. The
Company intends to draw an additional $35 million
from the credit facility in connection with the
consummation of the transactions contemplated by
the Lessee-Manager Acquisition Agreement (as
defined below). The rate on the revolving credit
facility will not exceed 350 basis points over
LIBOR. Immediately following the Spin-Off and the
effective date of the Merger, the Company will
acquire 100% of the partnership interests in the
third-party lessee of most of the hotels owned by
American General Hospitality, a Maryland
corporation operating as a real estate investment
trust ("AGH"), and substantially all of the
assets and certain liabilities of the third-party
manager of most of the hotels owned by AGH,
pursuant to an Acquisition Agreement, dated as of
March 15, 1998 (the "Lessee-Manager Acquisition
Agreement"). See "The Merger and the Spin-Off--
The Lessee-Manager Acquisition Agreement."
Pursuant to the purchase of AGHI and AGH Leasing,
MeriStar Hotels will be the manager and operator
of most of the hotels owned by AGH. Immediately
following consummation of the Formation
Transactions, the Company expects to be one of
the largest independent hotel management
companies in the United States based on rooms
under management. The Company will be the
successor-in-interest and will assume all of the
rights and liabilities with respect to hotel
4
<PAGE>
management contracts and operating leases of
CapStar, AGHI, and AGH Leasing. Pursuant to the
Formation Transactions, the Company will lease
and manage 201 hotels containing 42,476 rooms
(the "Hotels"). Of the Hotels, MeriStar Hotels
will (i) lease and manage 99 hotels owned by
MeriStar Hospitality Corporation, a Maryland
corporation operating as a real estate investment
trust (the "REIT"), containing 25,854 rooms (the
"REIT Owned Hotels"), (ii) lease 47 (of which
they manage 36) hotels that are not REIT Owned
Hotels containing 6,800 rooms, and (iii) manage
an additional 55 hotels that are not REIT Owned
Hotels containing 9,822 rooms. The Hotels are
located throughout the United States and Canada
including most major metropolitan areas and
rapidly growing secondary cities. The Hotels
include hotels operated under nationally
recognized brand names such as Hilton(R),
Sheraton(R), Westin(R), Marriott(R),
Doubletree(R) and Embassy Suites(R). The
Company's business strategy will be to renovate,
reposition and operate each hotel according to a
business plan specifically tailored to the
characteristics of the hotel and its market. See
"The Merger and the Spin-Off," "The Company,"
"Management's Discussion and Analysis of
Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Business."
THE SPIN-OFF................ CapStar intends to distribute on a share-for-
share basis to its stockholders of record as of
the effective time of the Merger (the "Spin-Off
Record Date") all of the outstanding Common
Stock, par value $0.01 per share, of MeriStar
Hotels (the "Common Stock"). The Spin-Off will
provide the stockholders of CapStar as of the
Spin-Off Record Date with the opportunity to
participate in the benefits of both ownership of
real estate through the REIT, and the leasing and
management operations (including the ownership of
certain non-real estate assets) of MeriStar
Hotels.
THE MERGER.................. Pursuant to the Agreement and Plan of Merger
dated as of March 15, 1998 (the "Merger
Agreement"), among AGH, American General
Hospitality Operating Partnership, L.P., a
Delaware limited partnership ("AGH Operating
Partnership"), CapStar, CapStar Management
Company, L.P., a Delaware limited partnership,
("CapStar Management"), and CapStar Management
Company II, L.P., a Delaware limited partnership
("CapStar Management II"), as amended, CapStar
after spinning-off MeriStar Hotels will merge
with and into AGH (the "Merger"), with the result
that (a) AGH will be the surviving corporation
operating under the name MeriStar Hospitality
Corporation (the "REIT") and (b) each outstanding
share of common stock, par value $0.01 per share
of CapStar ("CapStar Common Stock"), will be
converted into 1.0 share of common stock of the
REIT, par value $0.01 per share ("REIT Common
Stock") and each outstanding share of common
stock, par value $0.01 per share of AGH ("AGH
Common Stock"), will be converted into 0.8475
shares of REIT Common Stock. See "The Merger and
the Spin-Off."
5
<PAGE>
Pursuant to the Intercompany Agreement (the
THE INTERCOMPANY AGREEMENT.. "Intercompany Agreement") among MeriStar Hotels
and its subsidiary operating partnership,
MeriStar H & R Operating Company, L.P., a
Delaware limited partnership that will be a
manager and lessee of hotels and resorts ("Hotels
OP" and, together with MeriStar Hotels, the
"Hotel Parties"), on the one hand, and the REIT
and its subsidiary operating partnership,
MeriStar Hospitality Operating Partnership, L.P.,
a Delaware limited partnership which will own
hotels, resorts and other real property (the
"REIT Operating Partnership" and, together with
the REIT, the "REIT Parties"), on the other hand,
the Hotel Parties and the REIT Parties will
provide each other with, among other things,
reciprocal rights to participate in certain
transactions entered into by such parties. In
particular, subject to certain exceptions, the
Hotel Parties will have a right of first refusal
to become the lessee of any real property
acquired by the REIT Parties if the REIT Parties
determine that, consistent with the REIT's status
as a real estate investment trust, the REIT
Parties are required to enter into such a lease
arrangement; provided that the Hotel Parties or
an entity that the Hotel Parties control is
qualified to be the lessee. Further, pursuant to
the Intercompany Agreement, MeriStar Hotels has
agreed, subject to certain exceptions, not to
acquire or make (i) investments in real estate
(which, for purposes of the Intercompany
Agreement, include the provision of services
related to real estate and investment in hotel
properties, real estate mortgages, real estate
derivatives or entities that invest in real
estate assets) or (ii) any other investments that
may be structured in a manner that qualifies
under the federal income tax requirements
applicable to a real estate investment trust,
unless in either case it has notified the REIT of
the acquisition or investment opportunity, in
accordance with the terms of the Intercompany
Agreement, and the REIT has determined not to
pursue such acquisition or investment. In
addition, the Hotel Parties intend to pursue
additional opportunities with other hotel owners
in the future. See "The Company--The Intercompany
Agreement."
THE LESSEE-MANAGER
ACQUISITION AGREEMENT...... Following the Spin-Off and the effective date of
the Merger, the Company will acquire 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 certain
liabilities of AGHI, the third-party manager of
most of the hotels owned by AGH, for $95 million
pursuant to an Agreement, dated as of March 15,
1998 (the "Lessee-Manager Acquisition
Agreement"), by and among Hotels OP, AGHI, AGHL
GP, Inc., a Delaware corporation, the general
partner of AGH Leasing, and the limited partners
of AGH Leasing. Specifically, the Company will
acquire (i) substantially all of the assets and
certain liabilities of AGHI for a cash purchase
price of $10 million; and (ii) 100% of the
partnership interests in AGH Leasing for a
purchase price of $85 million, consisting of
approximately $73.8 million in cash and
approximately $11.2
6
<PAGE>
million in the form of partnership units of
Hotels OP convertible into Common Stock ("Hotels
OP Units"). Upon consummation of the transactions
contemplated by the Lessee-Manager Acquisition
Agreement, Hotels OP will become the lessee and
manager of most of the AGH Owned Hotels that are
currently leased and/or managed by AGH Leasing.
The Lessee-Manager Acquisition Agreement further
contemplates that the REIT and the Company will
enter into new lease agreements with respect to
all of the CapStar Owned Hotels and amend the
lease agreements with respect to most of the AGH
Owned Hotels. See "The Merger and the Spin-Off--
The Lessee-Manager Acquisition Agreement."
THE RIGHTS OFFERING......... The distribution of the Rights by the Company and
the sale of shares of Common Stock upon the
exercise of the Rights are referred to herein as
the "Rights Offering."
RIGHTS...................... Non-transferable rights (the "Rights") to
subscribe for and purchase shares at the
Subscription Price.
RECIPIENTS OF RIGHTS;
RIGHTS RECEIVED............ MeriStar Hotels is distributing the Rights to
holders of record of (a) the REIT Common Stock
and/or (b) the units of limited partnership (the
"REIT OP Units") of the REIT Operating
Partnership (other than REIT OP Units held by the
REIT or any of its subsidiaries) as of the Record
Date defined below. Each holder of record of REIT
Common Stock and/or REIT OP Units on the Record
Date (a "Rightholder") will receive one-sixth of
a Right for each share of REIT Common Stock
and/or each REIT OP Unit so held.
RECORD DATE................. The effective time of the Merger (the "Record
Date"), which will be publicly announced by the
Company.
EXPIRATION DATE............. The Rights will be exercisable at any time
following 5:00 p.m., New York City time, on the
last day of the Measurement Period until 5:00
p.m., New York City time, on the sixteenth
calendar day immediately following the last day
of the Measurement Period, or such later date as
the Company may determine (the "Expiration
Date"), unless the Rights Offering is earlier
cancelled.
SUBSCRIPTION PRICE;
MEASUREMENT PERIOD......... An amount in cash per share of Common Stock equal
to 95% of the average of the daily high and low
prices of the Common Stock on the New York Stock
Exchange Inc. ("NYSE") for the period (the
"Measurement Period") of five consecutive trading
days (a "Trading Day") on the NYSE immediately
following the third Trading Day after the date
that the Common Stock opens for trading on the
NYSE (the "Subscription Price"). The Company will
publicly announce the Subscription Price promptly
following determination thereof.
SUBSCRIPTION PRIVILEGE...... Each whole Right will entitle the Rightholder
(but not a subsequent transferee of the REIT
Common Stock and/or REIT OP Units held
7
<PAGE>
by such Rightholder on the Record Date) to
purchase one share of Common Stock at the
Subscription Price (the "Subscription
Privilege"). See "The Rights Offering--
Subscription Privilege."
COMMON STOCK OUTSTANDING
AFTER RIGHTS OFFERING...... A maximum of 34,000,000 shares. See "The Spin-Off
and the Merger," "Capitalization," "Management,"
and "Security Ownership of Certain Beneficial
Owners and Management."
TRANSFERABILITY OF RIGHTS... The Rights are non-transferable. In the event
that Rightholders transfer the REIT Common Stock
and/or REIT OP Units owned by them as of the
Record Date, they will remain the owners of
Rights issued in respect of such shares of REIT
Common Stock or such REIT OP Units.
PROCEDURE FOR EXERCISING
RIGHTS..................... The Subscription Privilege may be exercised by
properly completing the subscription certificate
evidencing the Rights (a "Subscription
Certificate") and forwarding such Subscription
Certificate (or following the Guaranteed Delivery
Procedures (as described in "The Rights
Offering--Exercise of Rights")), with payment of
the Subscription Price for each share subscribed
for pursuant to the Subscription Privilege, to
the Subscription Agent on or prior to the
Expiration Date. If the mail is used to forward
Subscription Certificates, it is recommended that
insured registered mail be used. Once a
Rightholder has exercised the Subscription
Privilege, such exercise may not be revoked. See
"The Rights Offering--Exercise of Rights."
PROCEDURE FOR EXERCISING
RIGHTS BY FOREIGN
STOCKHOLDERS............... Subscription Certificates will not be mailed to
Rightholders whose addresses are outside the
United States or who have an APO or FPO address,
but will be held by the Subscription Agent for
their account. To exercise the Rights represented
thereby, such Rightholders must notify the
Subscription Agent by completing an International
Holder Subscription Form, which will be delivered
to such Rightholders in lieu of a Subscription
Certificate, and sending it by mail or telecopy
to the Subscription Agent. Rightholders located
in the United Kingdom will not initially be
provided with an International Holder
Subscription Form and, if they are interested in
participating in the Rights Offering, should
contact Lehman Brothers Inc. facsimile number
011-44-171-260-2635, attention: Sheree Downey.
International Holder Subscription Forms must be
returned to the Subscription Agent on or prior to
11:00 a.m., New York City time, on the date that
is four Trading Days prior to the Expiration
Date. Certain restrictions applicable to the
exercise and sale of Rights by persons located
outside of the United States are set forth
elsewhere in this Prospectus. See "The Rights
Offering--Foreign and Certain Other
Stockholders."
PERSONS HOLDING SHARES OR
WISHING TO EXERCISE RIGHTS
THROUGH OTHERS............. Rightholders holding or receiving the Rights
through a broker, dealer, commercial bank, trust
company or other nominee, as well as Rightholders
who would prefer to have such institutions effect
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transactions relating to the Rights on their
behalf, should contact the appropriate
institution or nominee and request it to effect
the transactions for them. Such Rightholders
should be aware that brokers or other nominee
holders may establish deadlines for receiving
instructions from beneficial holders
significantly in advance of the Expiration Date.
See "The Rights Offering--Exercise of Rights."
ISSUANCE OF COMMON STOCK.... Certificates representing shares of Common Stock
purchased pursuant to the exercise of Rights will
be delivered to subscribers as soon as
practicable following the fourth business day
after the Expiration Date. The issuance of shares
pursuant to the exercise of Rights is conditioned
upon the consummation of the Formation
Transactions prior to the closing of the Rights
Offering. Although fractional Rights will be
issued to Rightholders, the Company reserves the
right, in its sole discretion, to pay cash in
lieu of fractional shares of Common Stock that
would otherwise be issued or issuable in respect
of fractional Rights exercised by Rightholders,
based on a value per whole share of Common Stock
equal to the closing price of the Common Stock on
the Principal Market on the Expiration Date. Any
such cash payment will be made to the applicable
Rightholder at the same time that shares of
Common stock are issued in respect of whole
rights exercised by Rightholders. Fractional
Rights can only be exercised concurrently with
the exercise of whole Rights. The Company intends
to pay cash in lieu of all such fractional shares
of Common Stock. The Company also reserves the
right, at its sole option, to cancel the Rights
Offering if the Subscription Price is less than
. . See "The Spin-Off and the Merger," "The
Rights Offering--Conditions to the Sale of
Shares."
USE OF PROCEEDS............. MeriStar Hotels will use the proceeds of the
Rights Offering to repay existing indebtedness
and for general corporate purposes. See "Use of
Proceeds."
SUBSCRIPTION AGENT.......... Continental Stock Transfer & Trust Company.
MARKET FOR COMMON STOCK;
PROPOSED TRADING SYMBOL.... The Common Stock has been approved for listing on
the NYSE, under the symbol "MMH", subject to
official notice of issuance. No listing has been
applied for with respect to the Rights.
RISK FACTORS................ The purchase of the Common Stock involves certain
risks. See "Risk Factors."
POTENTIAL ANTI-TAKEOVER
EFFECT OF CERTAIN
PROVISIONS OF DELAWARE LAW
AND OF THE MERISTAR HOTELS
CHARTER AND BY-LAWS........
Certain provisions of Delaware General
Corporation Law ("DGCL") and of the Amended and
Restated Certificate of Incorporation of MeriStar
Hotels (the "Charter") and the By-Laws of
MeriStar Hotels (the "By-laws") may have the
effect of
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discouraging a third party from making an
acquisition proposal for MeriStar Hotels and
could delay, defer or prevent a transaction or a
change in control of MeriStar Hotels under
circumstances that could otherwise give the
holders of Common Stock the opportunity to
realize a premium over the then prevailing market
prices of the Common Stock. See "Description of
Capital Stock" and "Certain Antitakeover
Provisions."
The Company expects to adopt a Preferred Share
Purchase Rights plan (the "Rights Plan") prior to
the Spin-Off. If so adopted, certificates issued
in the Spin-Off and upon exercise of Subscription
Privilege will also initially represent an
equivalent number of Preferred Rights. See
"Certain Antitakeover Provisions--The Rights
plan."
FEDERAL INCOME TAX
CONSEQUENCES............... See "The Rights Offering--Federal Income Tax
Consequences."
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OWNERSHIP STRUCTURE
The diagram set forth below illustrates the ownership structure of the
Company after the Spin-Off and the Merger.
MeriStar Hotels
& Resorts, Inc.
(the "Company")
1% General Partner 82.78% Limited Partner
MeriStar
16.22% Limited Partners H & R Operating
Company, L.P.
Base and Participating
Participating Leases and
Rent Management
Contracts
MeriStar
Hospitality
Corporation
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RISK FACTORS
Rightholders, in considering whether to exercise their Rights in the Rights
Offering, should consider, in addition to the other information set forth in
this Prospectus, the matters discussed in this section. Such matters address
the risks of the Spin-Off, the risk arising from the relationship of MeriStar
Hotels and the REIT and the risks relating to the business in which MeriStar
Hotels is engaged. This Prospectus contains forward-looking statements which
involve material risks and uncertainties. MeriStar Hotels' actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus.
IMPACT ON EXISTING SHAREHOLDERS
The Rights entitle the Rightholders to purchase shares of Common Stock from
the Company at a price below the prevailing average closing market price of
the Common Stock during the Measurement Period. If any Rightholders exercise
Rights, those Rightholders who do not exercise Rights will experience a
decrease in their proportionate interests in the Company.
TERMINATION OF THE RIGHTS OFFERING UNDER CERTAIN CIRCUMSTANCES
The issuance of shares of Common Stock pursuant to the exercise of the
Rights is conditioned upon the consummation of the Spin-Off, the Merger and
related transactions and the transactions contemplated by the Lessee--Manager
Acquisition Agreement. The Company also reserves the right, at its sole
option, to cancel the Rights offering if the Subscription Price is less than
. . See "The Rights Offering--Conditions to the Sale of Shares."
MERISTAR HOTELS' DEPENDENCE UPON THE REIT; LIMITED RESOURCES FOR GROWTH
THROUGH NEW OPPORTUNITIES
Due to MeriStar Hotels' restricted corporate purpose and the Intercompany
Agreement, MeriStar Hotels will rely on the REIT to provide MeriStar Hotels
with opportunities described in the Intercompany Agreement only if it is
necessary for the REIT, consistent with its status as a real estate investment
trust, to enter into a master lease arrangement and only if MeriStar Hotels
and the REIT negotiate a mutually satisfactory master lease arrangement. If
the REIT in the future should fail to qualify as a real estate investment
trust, such failure could have a substantial adverse effect on those aspects
of MeriStar Hotels' business operations and business opportunities that are
dependent upon the REIT. For example, the Intercompany Agreement remains
effective even if the REIT ceases to qualify as a real estate investment
trust, with MeriStar Hotels' rights relating to lessee opportunities under the
Intercompany Agreement continuing to be based on the REIT's need to create a
master lease structure due to its status as a real estate investment trust.
Accordingly, if the REIT failed to qualify as a real estate investment trust
and thereafter acquired a property, the REIT would have the right under the
Intercompany Agreement to lease the property to any person or entity pursuant
to any type of lease (including a master lease arrangement) or to operate the
property itself. MeriStar Hotels, however, would remain subject to all of the
limitations on its operations contained in the Charter and the Intercompany
Agreement. In addition, although it is anticipated that any master lease
arrangement involving MeriStar Hotels generally will provide that MeriStar
Hotels' rights will continue following a sale of the property or an assignment
of the lease (with the likelihood of a sale or assignment of lease possibly
increasing if the REIT fails to qualify as a real estate investment trust),
MeriStar Hotels could lose its rights under any such master lease arrangement
upon the expiration of the lease. If MeriStar Hotels and the REIT do not
negotiate a mutually satisfactory lease arrangement within 30 days after the
REIT provides MeriStar Hotels with written notice of the lessee opportunity
(or such longer period to which MeriStar Hotels and the REIT may agree), the
REIT may offer the opportunity to others for a period of one year before it
must again offer the opportunity to MeriStar Hotels.
LACK OF DIVIDENDS
The Company anticipates that for the foreseeable future the Company's
earnings, if any, will be retained for use in the operation of the business
and that no cash dividends will be paid on the Common Stock.
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Declaration of dividends on the Common Stock will depend upon, among other
things, future earnings, the operating and financial condition of the Company,
its capital requirements and general business conditions. See "Dividend
Policy."
INITIAL CAPITALIZATION; LIMITED FINANCIAL RESOURCES
CapStar will initially have a $75 million credit facility, provided by the
REIT. CapStar intends initially to capitalize the Company with approximately
$48 million of cash, including approximately $18 million of forgiveness of
indebtedness and a $30 million draw on the Company's credit facility. In
addition, in connection with the consummation of the transactions contemplated
by the Lessee--Manager Acquisition Agreement, the Company intends to draw an
additional $35 million from the revolving credit facility. The rate on the
revolving credit facility will not exceed 350 basis points over LIBOR. There
can be no assurance that the Company will be able to satisfy its obligations
under, or to pay amounts due under, such revolving credit facility.
RISK OF IRS RECHARACTERIZATION OF THE RIGHTS OFFERING
Although MeriStar Hotels, CapStar, AGH, the REIT and the REIT Operating
Partnership intend to take the position that the federal income tax treatment
of the issuance of Rights to CapStar stockholders, AGH stockholders and
holders of REIT OP Units is as described in "Federal Income Tax Consequences,"
it is possible that the Internal Revenue Service ("IRS") might attempt to
recharacterize the Rights Offering. For example, in the case of CapStar and
AGH stockholders, it is possible that the IRS could treat the Rights as a
distribution of property by CapStar and AGH to their stockholders subject to
the rules governing dividend distributions, rather than as boot received by
such stockholders in the Merger. It is also possible that, in the case of
holders of REIT OP Units, the IRS could view the REIT Operating Partnership,
and not MeriStar Hotels, as the distributor of the Rights.
If the distribution of the Rights to holders of AGH and CapStar Common Stock
were treated as a distribution of property by AGH and CapStar to its
stockholders, an amount equal to the fair market value of the Rights on the
date of distribution would be treated as a dividend to holders of AGH and
CapStar Common Stock to the extent of the current and accumulated earnings and
profits of AGH, in the case of AGH stockholders, or CapStar, in the case of
CapStar stockholders, on such date, including earnings and profits resulting
from the distribution of the Rights. Any amount in excess of the earnings and
profits of AGH, in the case of AGH stockholders, or CapStar, in the case of
CapStar stockholders, would be treated first as a tax-free return of capital,
reducing the stockholder's tax basis in its AGH or CapStar Common Stock, and
any amount in excess of tax basis would be taxable as gain from sale or
exchange of such stockholder's shares of AGH or CapStar Common Stock. Such
gain would be capital gain if such stockholder's shares of AGH or CapStar
Common Stock were held as a capital asset on the date of distribution.
If the distribution of the Rights to holders of REIT OP Units were treated
as a distribution by the REIT Operating Partnership, it would be treated as a
distribution by a partnership of marketable securities so that such unit-
holder would have to recognize capital gain to the extent that the fair market
value of the Rights as of the date of distribution exceeds such holder's basis
in such Units. Under such a view, holders of REIT OP Units would take a basis
in the Rights equal to the fair market value of the Rights as of the date of
distribution.
See "The Rights Offering--Federal Income Tax Consequences" for a description
of the potential recharacterization.
ADVERSE EFFECTS RESULTING FROM THE MERGER TRANSACTIONS
INTEGRATION RISKS
To operate successfully following the Spin-Off and related transactions,
MeriStar Hotels must be able to successfully integrate all of the operations
of AGHI and AGH Leasing with and into the management and
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<PAGE>
operating businesses of CapStar, and the REIT must be able to successfully
integrate operations for the hotels owned by CapStar (the "CapStar Owned
Hotels") and those owned by AGH (the "AGH Owned Hotels"). The consolidation of
functions and integration of departments, systems and procedures and the spin-
off of MeriStar Hotels to manage the hotels owned by the REIT (the "REIT Owned
Hotels") will present a significant management challenge, and the failure to
integrate all of such hotels into MeriStar Hotels' management and operating
structures could have a material adverse effect on the results of operations
and financial condition of MeriStar Hotels. There can be no assurance that
such integration will be successfully and timely implemented.
FAILURE TO TRANSFER OPERATING LICENSES
In connection with the Merger, certain operating licenses, such as food and
beverage licenses, are to be transferred to MeriStar Hotels. It may not be
possible to transfer such licenses, or to obtain new licenses in a timely
manner in the event such licenses cannot be transferred. Although hotels can
provide alcoholic beverages under interim licenses or licenses held by the
hotel's previous owner, there can be no assurance that these licenses will
remain in effect until MeriStar Hotels obtains new licenses or that new
licenses will be obtained. The failure to have alcoholic beverage licenses or
other operating licenses could adversely affect the results of operations of
MeriStar Hotels.
CONFLICT OF INTEREST IN RELATIONSHIP BETWEEN THE REIT AND MERISTAR HOTELS.
GENERAL CONFLICTS OF INTEREST
MeriStar Hotels and the REIT will have several common members of their
Boards of Directors and several common senior executives, including their two
top executives. MeriStar Hotels and the REIT will operate in a relationship
governed by the Intercompany Agreement which restricts each party from taking
advantage of certain business opportunities without first presenting those
opportunities to the other party. Also, in their relationship with MeriStar
Hotels as lessee and manager of hotels and the REIT as owner of hotels,
MeriStar Hotels and the REIT may have conflicting views on the manner in which
the hotels are operated and managed, and with respect to lease arrangements,
acquisitions and dispositions. As a result, the directors and senior
executives of MeriStar Hotels (who serve in similar capacities at the REIT)
may well be presented with several decisions which provide them the
opportunity to benefit the REIT to the detriment of MeriStar Hotels or benefit
MeriStar Hotels to the detriment of the REIT. Such inherent potential
conflicts of interest will be present in all of the numerous transactions
between MeriStar Hotels and the REIT.
See "The Company--The Intercompany Agreement" for a description of the
relationship between MeriStar Hotels and the REIT and the Intercompany
Agreement.
RESTRICTIONS ON MERISTAR HOTELS' AND THE REIT'S BUSINESS AND FUTURE
OPPORTUNITIES
The Charter provides that for so long as the Intercompany Agreement is in
effect, MeriStar Hotels is prohibited from engaging in activities or making
investments that a real estate investment trust could make unless the REIT was
first given the opportunity but elected not to pursue such activities or
investments. Under the Charter and the Intercompany Agreement, MeriStar Hotels
has agreed not to acquire or make (i) investments in real estate (which, for
purposes of the Intercompany Agreement, include the provision of services
related to real estate and investment in hotel properties, real estate
mortgages, real estate derivatives or entities that invest in real estate
assets) or (ii) any other investments that may be structured in a manner that
qualifies under the federal income tax requirements applicable to a real
estate investment trust, unless in either case it has notified the REIT of the
acquisition or investment opportunity, in accordance with the terms of the
Intercompany Agreement, and the REIT has determined not to pursue such
acquisition or investment; provided, however, that MeriStar Hotels may make
limited minority investments or contributions as part of a lease arrangement
with a party that is not an affiliate of MeriStar Hotels in a bona fide arms-
length transaction; provided further, that such investment or contribution
does not materially impact MeriStar Hotels' financial and legal qualifications
to lease and manage additional real estate investment trust properties. See
"The Company--The Intercompany Agreement." MeriStar Hotels also has agreed to
assist the REIT in structuring and consummating any such acquisition or
investment which the REIT elects to pursue, on terms determined by the REIT.
On the other hand, the Intercompany Agreement grants MeriStar Hotels the right
of first refusal to become the lessee of any real property acquired by
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<PAGE>
the REIT as to which the REIT determines that, consistent with the REIT's
status as a real estate investment trust, it is required to enter into a
master lease arrangement. This lessee opportunity will be available to
MeriStar Hotels only if the REIT determines, in its sole discretion, that
MeriStar Hotels is qualified to be the lessee. Because of the provisions of
the Intercompany Agreement and the Charter, the nature of MeriStar Hotels'
business and the opportunities it may pursue are restricted.
CONFLICTS RELATING TO SALE OF HOTELS SUBJECT TO LEASES
The REIT generally will be obligated under its master leases with MeriStar
Hotels to pay a lease termination fee to MeriStar Hotels if the REIT elects to
sell a hotel or if it elects not to restore a hotel after a casualty and does
not replace it with another hotel on terms that would create a leasehold
interest in such hotel with a fair market value equal to MeriStar Hotels'
remaining leasehold interest under the lease to be terminated. Where
applicable, the termination fee is equal to the fair market value of MeriStar
Hotels' leasehold interest in the remaining term of the lease to be
terminated. A decision to sell a hotel may, therefore, have significantly
different consequences for MeriStar Hotels and the REIT.
NO ARM'S LENGTH BARGAINING
The terms of the Intercompany Agreement, the agreement pursuant to which (i)
the REIT and the Company will provide to each other a right of first
opportunity with respect to certain investment opportunities available to each
of them, (ii) the Company will provide certain corporate and other general
services to the REIT and (iii) the REIT and the Company agree to cooperate and
coordinate with each other with regard to certain matters, was not negotiated
on an arm's length basis. Because Messrs. Whetsell, Jorns, Worms and Doctoroff
will be directors of both the REIT and the Company and Messrs. Whetsell and
Jorns will be executive officers of both the REIT and the Company, there is a
potential conflict of interest with respect to the enforcement and termination
of the Intercompany Agreement to benefit the REIT to the detriment of the
Company or benefit of the Company to the detriment of the REIT. Because of
these conflicts, Messrs. Whetsell, Jorns, Worms and Doctoroff may have
conflicts of interest with respect to their decisions relating to the
enforcement of the Intercompany Agreement.
TAX RISKS IN RELATIONSHIP BETWEEN THE REIT AND MERISTAR HOTELS
A real estate investment trust generally is not subject to federal corporate
income taxes on that portion of its income distributed currently to
stockholders. Section 269B(a)(3) of the Internal Revenue Code of 1986, as
amended (the "Code") provides that if the shares of a real estate investment
trust are stapled with the shares of any other entity, then the real estate
investment trust and such other entity shall be treated as one entity for
purposes of determining whether the real estate investment trust qualifies as
a real estate investment trust for federal income tax purposes. If Section
269B(a)(3) of the Code applied to the Company and the REIT, the REIT would not
qualify as a real estate investment trust under the Code. MeriStar Hotels and
the REIT are not stapled entities because the Common Stock will be issued
independently of the shares of the REIT and will be traded separately as well.
However, because at least initially some employees and members of management
of the Company and the REIT will be the same, it is possible that the Internal
Revenue Service could seek to assert that the Company should be treated as an
agent of the REIT or that the Company and the REIT should be treated as one
entity for federal income tax purposes. If such assertion were successful, the
REIT would not qualify as a real estate investment trust under the Code.
AGH and CapStar will receive an opinion of counsel in connection with the
Merger providing in part that the Company and the REIT will not be treated as
stapled entities under Section 269B(a)(3) of the Code and that, based upon the
intended operations of each entity and certain other factors and upon
representations made by certain persons who will be members of management of
the Company and the REIT, the separate corporate identities of MeriStar Hotels
and the REIT will be respected and the Company will not be treated as an agent
of the REIT for federal income tax purposes.
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<PAGE>
PAPER-CLIP STRUCTURE RISKS
Pursuant to the Intercompany Agreement, the Hotel Parties and the REIT
Parties will provide each other with reciprocal rights to participate in
certain transactions entered into by such parties. In particular, subject to
certain exceptions, the Hotel Parties will have a right of first refusal to
become the lessee of any real property acquired by the REIT Parties if the
REIT Parties determine that, consistent with the REIT's status as a real
estate investment trust, the REIT Parties are required to enter into such a
lease arrangement; provided that the Hotel Parties or an entity that the Hotel
Parties control is, as determined by the REIT in its sole discretion,
qualified to be the lessee. This is known as the "paper-clip" REIT structure.
However, because of the independent trading of the REIT and the Company,
stockholders in each company may develop divergent interests which could lead
to conflicts of interest. This divergence of interests could also reduce the
anticipated benefits of the "paper-clip" REIT structure.
ADVERSE EFFECTS RELATING TO THE LODGING INDUSTRY
OPERATING RISKS
Various factors could adversely affect the ability of MeriStar Hotels to
generate revenues and make lease payments to the REIT. MeriStar Hotels'
business will be subject to all of the operating risks inherent in the lodging
industry. These risks include the following: (i) changes in general and local
economic conditions; (ii) cyclical overbuilding in the lodging industry; (iii)
varying levels of demand for rooms and related services; (iv) competition from
other hotels, motels and recreational properties, some of which may have
greater marketing and financial resources than the REIT or MeriStar Hotels;
(v) dependence on business and commercial travelers and tourism, which
business may fluctuate and be seasonal; (vi) the recurring need for
renovations, refurbishment and improvements of hotel properties; (vii) changes
in governmental regulations that influence or determine wages, prices and
construction and maintenance costs; and (viii) changes in interest rates and
the availability of credit. Demographic, geographic or other changes in one or
more of MeriStar Hotels' markets could impact the convenience or desirability
of the sites of certain hotels, which would in turn affect the operations of
those hotels. In addition, due to the level of fixed costs required to operate
full-service hotels, certain significant expenditures necessary for the
operation of hotels generally cannot be reduced when circumstances cause a
reduction in revenue.
SEASONALITY
The lodging industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters
although this may not be true for 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 MeriStar Hotels manages can be expected to cause
quarterly fluctuations in the revenues of MeriStar Hotels. Quarterly earnings
also may be adversely affected by events beyond MeriStar Hotels' control, such
as extreme weather conditions, economic factors and other considerations
affecting travel.
FRANCHISE AGREEMENTS
Upon completion of the Merger, 93 of the REIT Owned Hotels will be operated
pursuant to existing franchise or license agreements with nationally
recognized hotel companies (the "Franchise Agreements"). The Franchise
Agreements generally contain specific standards for, and restrictions and
limitations on, the operation and maintenance of a hotel in order to maintain
uniformity within the franchisor system. Those limitations may conflict with
the REIT's and MeriStar Hotels' philosophy of creating specific business plans
tailored to each hotel and to each market. Such standards are often subject to
change over time, in some cases at the discretion of the franchisor, and may
restrict a franchisee's ability to make improvements or modifications to a
hotel without the consent of the franchisor. In addition, compliance with such
standards could require a franchisee to incur significant expenses or capital
expenditures. Action or inaction on the part of any of the REIT, MeriStar
Hotels or third-party operators could result in a breach of such standards or
other terms and conditions of the franchise agreements and could result in the
loss or cancellation of a franchise license.
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In connection with terminating or changing the franchise affiliation of a
REIT Owned Hotel or a subsequently acquired hotel, MeriStar Hotels or the REIT
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 operations 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. The
Franchise Agreements covering the hotels expire or terminate, without
specified renewal rights, at various times and have differing remaining terms.
As a condition to renewal, the Franchise Agreements frequently contemplate a
renewal application process, which may require substantial capital
improvements to be made to a hotel.
Under certain of their existing Franchise Agreements, AGH and CapStar may be
required to obtain the consent of the franchisors under such agreements to
consummate the Merger and related transactions. There can be no assurance that
such consents will be obtained.
COMPETITION IN THE LODGING INDUSTRY
The lodging industry is highly competitive. There is no single competitor or
small number of competitors of the REIT and MeriStar Hotels that will be
dominant in the industry. MeriStar Hotels will operate in areas that contain
numerous competitors, some of which may have substantially greater resources
than MeriStar Hotels and the ability to accept more risk than MeriStar Hotels
will be able to manage. Competition in the lodging industry is based generally
on location, room rates and range and quality of services and guest amenities
offered. New or existing competitors could significantly lower rates or offer
greater conveniences, services or amenities or significantly expand, improve
or introduce new facilities in markets in which MeriStar Hotels will compete,
thereby adversely affecting MeriStar Hotels' operations and the number of
suitable business opportunities.
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 on, under or in such property. Such laws often impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances. In addition, the presence of
contamination from hazardous or toxic substances, or the failure to properly
remediate such contaminated property, may adversely affect the owner's ability
to sell or rent such real property or to borrow using such real property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
such substances at the disposal or treatment facility, whether or not such
facility is or ever was owned or operated by such person. The operation and
removal of certain underground storage tanks are also regulated by federal and
state laws. In connection with the ownership and operation of the hotels, the
REIT could be held liable for the costs of remedial action with respect to
such regulated substances and storage tanks and claims related thereto.
Activities have been undertaken to close or remove storage tanks located on
the property of several of the REIT Owned Hotels.
All of the REIT Owned Hotels have undergone Phase I environmental site
assessments ("Phase Is"), which generally provide a nonintrusive physical
inspection and database search, but not soil or groundwater analyses, by a
qualified independent environmental engineer, within the last 18 months. The
purpose of a Phase I is to identify potential sources of contamination for
which the REIT Owned Hotels may be responsible and to assess the status of
environmental regulatory compliance. The Phase Is have not revealed and the
Company is not aware of any environmental liability or compliance concerns
that MeriStar Hotels believes would have a material adverse effect on MeriStar
Hotels' results of operation or financial condition.
In addition, the REIT Owned Hotels have been inspected to determine the
presence of asbestos. Federal, state and local environmental laws, ordinances
and regulations also require abatement or removal of certain asbestos-
containing materials ("ACMs") and govern emissions of and exposure to asbestos
fibers in the air. ACMs are present in various building materials such as
sprayed-on ceiling treatments, roofing materials or floor tiles at some of the
REIT Owned Hotels. Operations and maintenance programs for maintaining such
ACMs have been or are in the process of being designed and implemented, or the
ACMs have been scheduled to be or
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have been abated, at such hotels. However, there can be no assurance that this
will be the case. Any liability resulting from non-compliance or other claims
relating to environmental matters could have a material adverse effect on
MeriStar Hotels' results of operations or financial condition.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels and restaurants,
including liquor license grants, by requiring registration, disclosure
statements and compliance with specific standards of conduct. MeriStar Hotels
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 are also subject to laws governing
their relationship with hotel employees, including minimum wage requirements,
overtime, working conditions and work permit requirements. Compliance with, or
changes in, these laws could reduce the revenue and profitability of the REIT
Owned Hotels and could otherwise adversely affect MeriStar Hotels' results of
operations or financial condition.
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations are required to meet certain requirements related to access and
use by disabled persons. These requirements became effective in 1992. Although
significant amounts have been and continue to be invested in ADA required
upgrades to the REIT Owned Hotels, a determination that the REIT is not in
compliance with the ADA could result in a judicial order requiring compliance,
imposition of fines or an award of damages to private litigants. The REIT is
likely to incur additional costs of complying with the ADA.
ADVERSE EFFECTS RELATING TO THE OPERATION OF REAL ESTATE
Upon consummation of the Formation Transactions, MeriStar Hotels will
continue the hotel management businesses as previously undertaken separately
by AGHI, AGH Leasing and CapStar. MeriStar Hotels will lease the REIT Owned
Hotels pursuant to the Participating Leases. The REIT will have the right to
terminate a Participating Lease upon the sale of a hotel to a third party or
if MeriStar Hotels fails to meet certain performance criteria. The underlying
value of MeriStar Hotels' operations and income will be dependent upon the 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
make lease payments to the REIT. Many of these risks are beyond the control of
MeriStar Hotels and the effects of these risks are likely to be more
pronounced than if MeriStar Hotels had diversified operations.
DEPENDENCE ON KEY PERSONNEL
Upon consummation of the Merger, MeriStar Hotels will place substantial
reliance on the lodging industry knowledge and experience and the continued
services of both AGH and CapStar senior management, led by Messrs. Whetsell,
Jorns and McCaslin. MeriStar Hotels' future success and its ability to manage
future growth depend in large part upon the efforts of these persons and on
MeriStar Hotel's ability to attract and retain other highly qualified
personnel. Competition for such personnel is intense, and there can be no
assurance that MeriStar Hotels will be successful in attracting and retaining
such personnel. MeriStar Hotels' inability to attract and retain other highly
qualified personnel may adversely affect its results of operations and
financial condition. MeriStar Hotels will have employment agreements with
Messrs. Whetsell and Jorns for terms of five years, and with Mr. McCaslin for
a term of three years, in each case with automatic renewals on a year-to-year
bases thereafter. See "Executive Officers-Employment Agreements." While
certain of such contracts will contain non-compete clauses, such clauses may
not be enforceable in certain jurisdictions.
ADVERSE EFFECTS ON MARKET PRICE OF COMMON STOCK ARISING FROM SHARES AVAILABLE
FOR FUTURE SALE
No prediction can be made as to the effect, if any, that any future sales of
shares, or the availability of shares for future sale, will have on the market
prices for Common Stock following the Spin-Off. Sales of substantial amounts
of Common Stock (including Common Stock issued in connection with the Rights,
18
<PAGE>
outstanding stock options or the exchange or sale of units of limited partner
interest in Hotels OP) or the perception that such sales could occur could
adversely affect the then-prevailing market price for Common Stock. With the
exception of the Common Stock issued to affiliates of MeriStar Hotels in
connection with the Spin-Off and the Rights Offering, all of the Common Stock
to be issued in connection with the Spin-Off and the Rights Offering will be
freely transferable.
ABSENCE OF A PUBLIC MARKET FOR COMMON STOCK
There is currently no public market for the Common Stock. The Common Stock
has been approved for listing on the NYSE, under the symbol "MMH", subject to
official notice of issuance. There can be no assurance as to the prices at
which trading in Common Stock will occur after the Spin-Off or that an active
trading market in the Common Stock will develop or be sustained in the future.
In the event no active trading market develops for the Common Stock, holders
of shares of Common Stock may not be able to sell their shares promptly at a
reasonable price. Accordingly, Rightholders and holders of Common Stock should
consider the Common Stock a long-term investment.
The prices at which the Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others,
MeriStar Hotels' and the REIT's performance and prospects, the depth and
liquidity of the market for the Common Stock, investor perception of MeriStar
Hotels and of the hotel industry in which MeriStar Hotels operate, economic
conditions in general, MeriStar Hotels' dividend policy, and general financial
and other market conditions. Such volatility and other factors may materially
adversely affect the market price of the Common Stock.
REDISTRIBUTION OF MERISTAR HOTELS COMMON STOCK
Trading in shares of OpCo will likely be characterized by a period of
redistribution among the MeriStar shareholders who receive such shares in the
Spin-Off (especially in light of the taxable nature of the Spin-Off) which may
temporarily depress the market price of such shares during such period.
POTENTIAL ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF DELAWARE LAW AND OF THE
CHARTER AND BY-LAWS
Certain provisions of Delaware law and of the Charter and By-Laws may have
the effect of discouraging a third party from making an acquisition proposal
for MeriStar Hotels and could delay, defer or prevent a transaction or a
change in control of MeriStar Hotels under circumstances that could otherwise
give the holders of Common Stock the opportunity to realize a premium over the
then prevailing market prices of the Common Stock. Certain provisions of the
Charter and By-laws, as each will be in effect as of the Rights Offering, and
of the DGCL, have the effect of making more difficult an acquisition of
control of the Company in a transaction not approved by the Board of
Directors. These provisions include (i) a provision for a classified Board,
with only approximately one-third of the Board to be elected in any year, to
serve for three-year terms, (ii) a requirement that directors be removed only
for cause upon the affirmative vote of holders of at least 66 2/3% of the
total voting power, (iii) a requirement that actions of stockholders be taken
at a meeting of stockholders, rather than by written consent, (iv) a
prohibition on the stockholders' ability to call a special meeting, (v) an
advance notice requirement for stockholders to make nominations of candidates
for directors or to bring other business before an annual meeting of
stockholders, (vi) a requirement that certain amendments to the Charter and
By-Laws be approved by the affirmative vote of 66 2/3% of total voting power
and (vii) a provision that the chair of any meeting of stockholders shall have
the power to adjourn such meeting. See "Description of Capital Stock" and
"Certain Antitakeover Provisions." The Company expects to adopt the Rights
Plan at the time of or prior to the Rights Offering. If so adopted,
certificates issued in the Rights Offering representing Common Stock will also
initially represent an equivalent number of associated Preferred Share
Purchase Rights. The Rights Plan will make more difficult an acquisition of
control of the Company in a transaction not approved by the Company's Board.
See "Certain Antitakeover Provisions."
19
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth selected historical and pro forma financial
information for the Company. The historical balance sheet data of the Company
as of March 31, 1998 and 1997 and December 31, 1997 and 1996 and the
historical operating results and other financial data for the three months
ended March 31, 1998 and 1997 and the years ended December 31, 1997, 1996 and
1995, have been derived from the combined financial statements of the Company
which are included elsewhere in this Prospectus. The historical balance sheet
data as of December 31, 1995, 1994 and 1993 and the historical operating
results and other financial data for the years ended December 31, 1994 and
1993 have been derived from financial statements of the Company which are not
required to be included in this Prospectus. The following historical
information should be read in conjunction with the combined financial
statements and notes thereto of the Company and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.
The pro forma balance sheet data of the Company as of March 31, 1998 has
been prepared assuming that the Formation Transactions had been consummated on
such date. The pro forma operating results and other financial data have been
prepared assuming that the Formation Transactions had been consummated at the
beginning of the periods presented. The following pro forma information should
be read in conjunction with MeriStar Hotels Unaudited Pro Forma Financial
Statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
20
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------------- ----------------------------------------------------
PRO FORMA PRO FORMA
1998 1998 1997 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ------- ------- ------ ------ ------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenue:
Rooms.................. $176,474 $23,404 $ -- $674,197 $ 9,880 $ -- $ -- $ -- $ --
Food, beverage and
other................. 65,321 2,576 -- 253,906 1,871 -- -- -- --
Management services
and other revenues.... 2,085 4,150 1,139 10,510 12,088 7,050 5,354 4,418 4,234
-------- ------- ------- -------- ------- ------- ------ ------ ------
Total revenues....... 243,880 30,130 1,139 938,613 23,839 7,050 5,354 4,418 4,234
-------- ------- ------- -------- ------- ------- ------ ------ ------
Operating expenses:
Departmental expenses:
Rooms.................. 41,232 5,124 -- 165,633 2,533 -- -- -- --
Food, beverage and
other ................ 46,755 1,493 -- 185,021 1,170 -- -- -- --
Undistributed operating
expenses:
Administrative and
general............... 43,794 6,963 2,202 159,909 10,473 6,140 4,745 4,508 4,065
Participating lease
expense............... 85,592 10,655 -- 297,201 4,135 -- -- -- --
Property operating
costs................. 29,962 4,142 -- 114,699 1,917 -- -- -- --
Depreciation and
amortization.......... 1,224 421 96 4,690 636 349 84 23 14
-------- ------- ------- -------- ------- ------- ------ ------ ------
Total operating
expenses.............. 248,559 28,798 2,298 927,153 20,864 6,489 4,829 4,531 4,079
-------- ------- ------- -------- ------- ------- ------ ------ ------
Net operating income
(loss)................. (4,679) 1,332 (1,159) 11,460 2,975 561 525 (113) 155
Equity in earnings
(loss) of affiliates... -- (521) -- 46 46 -- -- -- --
Interest expense, net... 2,006 18 14 5,297 56 123 44 -- --
Minority interest....... (1,074) 35 -- 1,047 103 -- -- -- --
Income tax provision
(benefit).............. (2,244) -- -- 2,065 -- -- -- -- --
-------- ------- ------- -------- ------- ------- ------ ------ ------
Net income (loss).... $ (3,367) $ 758 $(1,173) $ 3,097 $ 2,862 $ 438 $ 481 $ (113) $ 155
======== ======= ======= ======== ======= ======= ====== ====== ======
Basic and diluted net
income (loss) per
common share........... $ (0.14) $ -- $ -- $ 0.12 $ -- $ -- $ -- $ -- $ --
BALANCE SHEET DATA:
Total assets ........... $198,879 $84,719 $25,415 $ -- $84,419 $24,366 $2,881 $1,232 $1,458
Debt.................... 65,776 776 800 -- 981 885 950 -- --
OTHER FINANCIAL DATA:
EBITDA (A).............. (3,455) 1,753 (1,063) 16,150 3,611 910 609 (90) 169
Net cash provided by
(used in) operating
activities............. (1,583) 2,760 682 9,697 4,465 1,226 208 66 (101)
Net cash used in
investing activities... (84,125) (326) (902) (90,300) (6,501) (1,826) (61) (41) (24)
Net cash provided by
(used in) financing
activities............. 64,795 (205) (85) 69,208 4,208 699 59 -- 244
</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 (i) it is industry practice to
evaluate hotel companies based on operating income before interest,
depreciation and amortization and minority interests, which is generally
equivalent to EBITDA, and (ii) EBITDA is unaffected by the debt and equity
structure of the entity. EBITDA does not represent cash flow from operations as
defined by generally accepted accounting principles ("GAAP"), is not
necessarily indicative of cash available to fund all cash flow needs, should
not be considered as an alternative to net income under GAAP for purposes of
evaluating the Company's results of operations and may not be comparable to
other similarly titled measures used by other companies.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------------------- --------------------------------------
PRO FORMA PRO FORMA
1998 1998 1997 1997
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA CALCULATION
Net operating income
(loss)................. (4,679) 1,332 (1,159) 11,460 2,975 561 525 (113) 155
Add:
Depreciation and
amortization........... 1,224 421 96 4,690 636 349 84 23 14
------ ----- ------ ------ ----- --- --- ---- ---
EBITDA.................. (3,455) 1,753 (1,063) 16,150 3,611 910 609 (90) 169
</TABLE>
21
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The Unaudited Pro Forma Balance Sheet of MeriStar Hotels as of March 31,
1998 is presented assuming the Formation Transactions had occurred on March
31, 1998.
The Unaudited Pro Forma Statements of Operations of MeriStar Hotels for the
three months ended March 31, 1998 and the year ended December 31, 1997 are
presented assuming the Formation Transactions occurred at the beginning of
1997.
In management's opinion, all material adjustments necessary to reflect the
transactions are presented in the pro forma adjustments columns, which are
further described in the notes to the MeriStar Hotels Unaudited Pro Forma
Financial Statements. The MeriStar Hotels Unaudited Pro Forma Financial
Statements are not necessarily indicative of what MeriStar Hotels' financial
position or results of operations would have been if all the hotels were owned
on such dates and if the Spin-Off and other related transactions occurred on
such dates. Additionally, the pro forma information does not purport to
project MeriStar Hotels' financial position or results of operations at any
future date or for any future period. The MeriStar Hotels Unaudited Pro Forma
Financial Statements should be read in conjunction with the financial
statements and related notes thereto of MeriStar Hotels, AGH Leasing and AGHI
which are included elsewhere in this Prospectus.
22
<PAGE>
MERISTAR HOTELS
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUIRE
AGH
SPIN- PARTICIPATING LEASING AND
HISTORICAL (A) OFF (B) LEASES (C) SUBTOTAL AGHI (D) PRO FORMA
-------------- -------- ------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash
equivalents............ $28,602 $ 30,000 $ -- $ 58,602 $(48,799) $ 9,803
Prepaid expenses,
deposits and other..... 17,498 -- 37,959 55,457 -- 55,457
Intangible and fixed
assets, net............ 38,619 -- -- 38,619 95,000 133,619
------- -------- ------- -------- -------- --------
Total assets.......... $84,719 $ 30,000 $37,959 $152,678 $ 46,201 $198,879
======= ======== ======= ======== ======== ========
LIABILITIES, MINORITY INTEREST AND
OWNERS'/STOCKHOLDERS' EQUITY
Due to affiliate........ $18,372 $(18,372) $ 871 $ 871 $ -- $ 871
Other liabilities....... 20,069 -- 37,088 57,157 -- 57,157
Credit facilities....... -- 30,000 -- 30,000 35,000 65,000
Capital leases and other
debt................... 776 -- -- 776 -- 776
------- -------- ------- -------- -------- --------
Total liabilities..... 39,217 11,628 37,959 88,804 35,000 123,804
Minority interest....... 3,835 768 -- 4,603 11,201 15,804
Common stock............ -- 249 -- 249 -- 249
Additional paid-in
capital................ -- 59,022 -- 59,022 -- 59,022
Retained earnings....... -- -- -- -- -- --
Owners' equity.......... 41,667 (41,667) -- -- -- --
------- -------- ------- -------- -------- --------
Owners'/Stockholders'
equity............... 41,667 17,604 -- 59,271 -- 59,271
------- -------- ------- -------- -------- --------
Total liabilities,
minority interest and
owners'/stockholders'
equity............... $84,719 $ 30,000 $37,959 $152,678 $ 46,201 $198,879
======= ======== ======= ======== ======== ========
</TABLE>
- --------
(A) Reflects the unaudited historical condensed combined balance sheet of the
Company as of March 31, 1998.
(B) Reflects adjustments to capitalize MeriStar Hotels upon the Spin-Off for
(i) $30,000 of cash drawn from MeriStar Hotels' credit facilities, and
(ii) contributions of $18,372 to MeriStar Hotels shareholders ($17,604)
and OP Unit holders ($768) by CapStar upon forgiveness of $18,372 due to
CapStar.
(C) Reflects the transfer of net hotel operating assets from CapStar ($37,959
of operating assets and $37,088 of operating liabilities) in conjunction
with the execution of the Participating Leases and the resulting due to
affiliates of $871 for the amount by which operating assets transferred to
MeriStar Hotels exceed operating liabilities assumed by MeriStar Hotels.
(D) Reflects the acquisitions of AGH Leasing and AGHI for $95,000. Based on
preliminary estimates, the purchase price will be allocated $26,500 to
intangible hotel leases acquired, to be amortized over 26 years
(representing the average remaining initial lease terms plus the assumed
exercise of three 5-year renewal options) and $68,500 to goodwill, to be
amortized over 35 years. The transaction is to be financed with $48,799 in
cash, an additional $35,000 drawn from MeriStar Hotels' credit facilities,
and $11,201 in OP Units.
23
<PAGE>
MERISTAR HOTELS
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUIRE AGH LEASING
AND AGHI
----------------------------------
SPIN-OFF PARTICIPATING AGH OTHER
HISTORICAL(A) PRO FORMA(B) LEASES(C) SUBTOTAL LEASING(D) AGHI(D) ADJUSTMENTS(E) PRO FORMA
------------- ------------ ------------- -------- ---------- ------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from hotel
operations:
Rooms................ $23,404 $ -- $84,254 $107,658 $68,816 $ -- $ -- $176,474
Food and beverage.... 1,357 -- 33,632 34,989 16,641 -- -- 51,630
Other hotel revenue.. 1,219 -- 7,024 8,243 5,448 -- -- 13,691
Hotel management,
accounting and
other................ 4,150 -- (3,121) 1,029 -- 2,815 (1,759) 2,085
------- ----- ------- -------- ------- ------ ------- --------
Total revenue........ 30,130 -- 121,789 151,919 90,905 2,815 (1,759) 243,880
Hotel operating
expense by
department:
Rooms................ 5,124 -- 21,130 26,254 14,978 -- -- 41,232
Food and beverage.... 995 -- 27,154 28,149 12,235 -- -- 40,384
Other operating
departments......... 498 -- 3,819 4,317 2,054 -- -- 6,371
Undistributed
operating expenses:
Administrative and
general............. 6,963 -- 20,775 27,738 14,203 2,430 (577) 43,794
Property operating
costs............... 4,142 -- 15,778 19,920 12,112 -- (2,070) 29,962
Lease expense........ 10,655 -- 41,174 51,829 33,763 -- -- 85,592
Depreciation and
amortization........ 421 -- -- 421 26 27 750 1,224
------- ----- ------- -------- ------- ------ ------- --------
28,798 -- 129,830 158,628 89,371 2,457 (1,897) 248,559
Interest expense and
other, net........... 539 694 -- 1,233 6 (42) 809 2,006
------- ----- ------- -------- ------- ------ ------- --------
Total expenses........ 29,337 694 129,830 159,861 89,377 2,415 (1,088) 250,565
------- ----- ------- -------- ------- ------ ------- --------
Income (loss) before
minority interest and
income taxes......... 793 (694) (8,041) (7,942) 1,528 400 (671) (6,685)
Minority interest..... 35 (20) (336) (321) -- -- (753) (1,074)
------- ----- ------- -------- ------- ------ ------- --------
Income (loss) before
income taxes......... 758 (674) (7,705) (7,621) 1,528 400 82 (5,611)
Income tax provision
(benefit)............ -- 34 (3,082) (3,048) -- -- (804) (2,244)
------- ----- ------- -------- ------- ------ ------- --------
Net income (loss)..... $ 758 $(708) $(4,623) $ (4,573) $ 1,528 $ 400 $ (722) $ (3,367)
======= ===== ======= ======== ======= ====== ======= ========
Basic net income per
common share......... -- $ (0.14)(F)
======= ========
Diluted net income per
common share......... -- $ (0.14)(F)
======= ========
</TABLE>
- --------
(A) Reflects the unaudited historical condensed combined statement of
operations of the Company for the three months ended March 31, 1998.
(B) Reflects adjustments to (i) record interest expense (at an annual rate of
9.25%) of $694 relating to the $30,000 drawn from MeriStar Hotels' credit
facilities, (ii) adjust minority interest for the effects of (i) and (iii)
record income taxes at 40% in conjunction with the change in tax status to
a C-corporation.
(C) Reflects the execution of the Participating Leases to (i) present a full
period of hotel operations for hotels leased from CapStar, (ii) adjust
minority interest for the effects of (i) and (iii) record income taxes at
40%. Lease expense was calculated based on contractual terms of existing
leases or expected terms of leases that will be entered into concurrently
with the Merger.
(D) Reflects adjustments for the acquisition of AGH Leasing and AGHI for (i)
pro forma AGH Leasing operations and (ii) the historical operating
activity of AGHI for the three months ended March 31, 1998. Pro forma
financial statements of AGH Leasing and the historical financial
statements of AGHI are included elsewhere in this prospectus.
(E) Other adjustments for the acquisition reflect (i) elimination of
historical management fees earned by AGHI from the AGH Owned Hotels of
$1,759, (ii) elimination of pro forma management fees incurred by AGH
Leasing for AGHI services of $2,070, (iii) elimination of management
advisory services fees of $858 that will not be incurred in the future (as
the management advisory contract terminates upon sale of AGHI and the
Company will perform these functions internally with existing management),
net of $281 of additional general and administrative costs expected to be
incurred upon the Spin-Off and acquisition, (iv) amortization of $750 on
intangible assets acquired in the purchase, (v) interest expense of $809
relating to the $35,000 draw from MeriStar Hotels' credit facilities, (vi)
minority interest of 16.2% adjusted for (i) through (v), and (vii) income
taxes at 40%.
(F) Pro forma basic and diluted net income per common share has been
calculated using 24,890,355 shares of Common Stock.
24
<PAGE>
MERISTAR HOTELS
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACQUIRE AGH LEASING
AND AGHI
----------------------------------
SPIN-OFF PARTICIPATING AGH OTHER
HISTORICAL(A) PRO FORMA(B) LEASES(C) SUBTOTAL LEASING(D) AGHI(D) ADJUSTMENTS(E) PRO FORMA
------------- ------------ ------------- -------- ---------- ------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from hotel
operations:
Rooms................. $ 9,880 $68,738 $343,066 $421,684 $252,513 $ -- $ -- $674,197
Food and beverage..... 1,397 3,316 137,358 142,071 61,655 -- -- 203,726
Other................. 474 3,237 26,265 29,976 20,204 -- -- 50,180
Hotel management,
accounting and other.. 12,088 -- (7,238) 4,850 -- 7,351 (1,691) 10,510
------- ------- -------- -------- -------- ------ -------- --------
Total revenue......... 23,839 75,291 499,451 598,581 334,372 7,351 (1,691) 938,613
Hotel operating expense
by department:
Rooms................. 2,533 14,300 89,297 106,130 59,503 -- -- 165,633
Food and beverage..... 909 2,215 109,096 112,220 48,406 -- -- 160,626
Other operating
departments.......... 261 1,648 14,227 16,136 8,259 -- -- 24,395
Undistributed operating
expenses:
Administrative and
general.............. 10,473 11,169 77,254 98,896 54,873 7,242 (1,102) 159,909
Property operating
costs................ 1,917 12,265 60,265 74,447 47,607 -- (7,355) 114,699
Participating lease
expense.............. 4,135 32,002 140,936 177,073 120,128 -- -- 297,201
Depreciation and
amortization......... 636 826 -- 1,462 104 124 3,000 4,690
------- ------- -------- -------- -------- ------ -------- --------
20,864 74,425 491,075 586,364 338,880 7,366 (5,457) 927,153
Interest expense and
other, net............ 10 2,775 -- 2,785 (373) (135) 2,974 5,251
------- ------- -------- -------- -------- ------ -------- --------
Total expenses......... 20,874 77,200 491,075 589,149 338,507 7,231 (2,483) 932,404
------- ------- -------- -------- -------- ------ -------- --------
Income (loss) before
minority interest and
income taxes.......... 2,965 (1,909) 8,376 9,432 (4,135) 120 792 6,209
Minority interest...... 103 (14) 350 439 (1,663) -- 2,271 1,047
------- ------- -------- -------- -------- ------ -------- --------
Income (loss) before
income taxes.......... 2,862 (1,895) 8,026 8,993 (2,472) 120 (1,479) 5,162
Income tax provision
(benefit)............. -- 387 3,210 3,597 -- -- (1,532) 2,065
------- ------- -------- -------- -------- ------ -------- --------
Net income (loss)...... $ 2,862 $(2,282) $ 4,816 $ 5,396 $ (2,472) $ 120 $ 53 $ 3,097
======= ======= ======== ======== ======== ====== ======== ========
Basic net income per
common share.......... -- $ 0.12(F)
======= ========
Diluted net income per
common share.......... -- $ 0.12(F)
======= ========
</TABLE>
- --------
(A) Reflects the audited historical condensed combined statement of operations
of the Company for the year ended December 31, 1997.
(B) Reflects the pre-acquisition operations of the management operations and
leases acquired during 1997 as if they were acquired at the beginning of
the year. The pre-acquisition operations were obtained from each entity's
pre-acquisition financial statements. Also reflects adjustments to (i)
record pro forma depreciation and amortization at MeriStar Hotels' cost
basis for its acquisitions, (ii) record interest expense of $2,775 at
9.25% relating to the $30,000 drawn from MeriStar Hotels' credit
facilities, (iii) adjust minority interest for the effects of the
acquisitions and (i) and (ii), and (iv) record income taxes at 40% in
conjunction with the change in tax status to a C-corporation.
(C) Reflects the execution of the Participating Leases to (i) present a full
year of hotel operations for hotels leased from CapStar, (ii) eliminate
$7,238 of management fee revenue earned from CapStar-owned hotels, (iii)
adjust minority interest for the effects of (i) and (ii), and (iv) record
income taxes at 40%. Lease expense was calculated based on contractual
terms of existing leases or expected terms of leases that will be entered
into concurrently with the Merger.
25
<PAGE>
(D) Reflects adjustments for the acquisition of AGH Leasing and AGHI for (i)
pro forma AGH Leasing operations and (ii) the historical operating
activity of AGHI for the year. Pro forma financial statements of AGH
Leasing and the historical financial statements of AGHI are included
elsewhere in this prospectus.
(E) Other adjustments for the acquisition reflect (i) elimination of
historical management fees earned by AGHI from the AGH Owned Hotels of
$1,691, (ii) elimination of pro forma management fees incurred by AGH
Leasing for AGHI services of $7,355, (iii) elimination of management
advisory services fees of $2,227 that will not be incurred in the future
(as the management advisory contract terminates upon sale of AGHI and the
Company will perform these functions internally with existing management)
net of $1,125 of additional general and administrative costs expected to
be incurred upon the Spin-Off and acquisition, (iv) amortization of $3,000
on intangible assets acquired in the purchase, (v) interest expense of
$3,238 relating to the $35,000 draw from MeriStar Hotels' credit
facilities net of historical AGH Leasing and AGHI interest expense of $264
will not be incurred upon acquisition, (vi) minority interest adjusted for
(i) through (v), and (vii) income taxes at 40%.
(F) Pro forma basic and diluted net income per common share has been
calculated using 24,867,205 shares of Common Stock.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's financial condition and results of operations both on a pro
forma basis as of March 31, 1998 and December 31, 1997 and for the periods
then ended and on a historical basis as of March 31, 1998 and 1997 and
December 31, 1997 and for the periods then ended reflect differing numbers of
managed and leased hotels throughout the periods. The historical results of
operations for the years ended December 31, 1996 and 1995 reflect the same
number of managed hotels; however, the number of rooms under management
increased significantly during 1996. The following table outlines the
Company's pro forma and historical portfolio of managed and leased hotels:
<TABLE>
<CAPTION>
THIRD-PARTY
CAPSTAR HOTELS LEASED HOTELS
MANAGED HOTELS MANAGED TOTAL
---------------- ------------- ------------ -------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------- -------- ------ ------ ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pro Forma:
March 31, 1998...... -- -- 146 32,654 55 9,822 201 42,476
December 31, 1997... -- -- 146 32,654 55 9,822 201 42,476
Historical:
March 31, 1998...... 55 14,414 45 6,410 40 6,899 140 27,723
December 31, 1997... 47 12,019 40 5,687 27 4,631 114 22,337
March 31, 1997...... 24 6,348 -- -- 28 4,482 52 10,830
December 31, 1996... 19 5,166 -- -- 28 4,619 47 9,785
December 31, 1995... 6 2,101 -- -- 41 6,089 47 8,190
</TABLE>
The increases described above affect the comparability of the Company's
financial condition and results of operations for these pro forma and
historical periods.
FINANCIAL CONDITION
PRO FORMA MARCH 31, 1998 COMPARED WITH HISTORICAL MARCH 31, 1998
Total assets increased by $114.2 million to $198.9 million at March 31, 1998
on a pro forma basis from $84.7 million at March 31, 1998 on a historical
basis. The increase is primarily due to the proposed acquisition of AGH
Leasing and AGHI for $95 million. The remaining increase reflects primarily
the net effect of the transactions to finance the acquisition of AGH Leasing
and AGHI and to execute the leases on CapStar-owned hotels.
Total liabilities increased by $84.6 million to $123.8 million at March 31,
1998 on a pro forma basis from $39.2 million on a historical basis. This
overall increase was primarily due to the Company's draws on its revolving
credit facilities of $65.0 million to partially finance both the Spin-Off and
the acquisition of AGH Leasing and AGHI. The remaining increase reflects the
net effect of this transaction to complete the Spin-Off and to execute the
leases on CapStar-owned hotels.
Minority interests increased by $12.0 million to $15.8 million on a pro
forma basis from $3.8 million at March 31, 1998 on a historical basis. This
increase was due to $11.2 million in REIT OP Units issued to third parties to
finance the acquisition of AGH Leasing and AGHI and allocations to minority
interests in the Spin-Off.
HISTORICAL MARCH 31, 1998 COMPARED WITH HISTORICAL DECEMBER 31, 1997
Total assets increased by $0.3 million to $84.7 million at March 31, 1998
from $84.4 million at December 31, 1997. Total liabilities decreased by $0.5
million to $39.2 million at March 31, 1998 from $39.7 million at December 31,
1997. There were no material changes in the Company's financial condition.
27
<PAGE>
RESULTS OF OPERATIONS
PRO FORMA FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH HISTORICAL
FOR THE THREE MONTHS ENDED MARCH 31, 1998
Total revenue increased by $213.8 million to $243.9 million for the three-
month period ended March 31, 1998 on a pro forma basis compared to $30.1
million for the three-month period ended March 31, 1998 on a historical basis.
Operating expenses increased to $248.6 million for the three-month period
ended March 31, 1998 on a pro forma basis from $28.8 million for the three-
month period ended March 31, 1998 on a historical basis. These increases
result primarily from the increase in total leased and managed hotels on a pro
forma basis, as compared to a historical basis.
Net operating income (loss) decreased to $(6.7) million for the three-month
period ended March 31, 1998 on a pro forma basis from $0.8 million for the
three-month period ended March 31, 1998 on a historical basis and EBITDA
decreased to $(3.5) million for the three-month period ended March 31, 1998 on
a pro forma basis from $1.8 million for the three-month period ended March 31,
1998 on a historical basis. These decreases relate primarily to the seasonal
nature of operations of the leased hotels (whose operations are included in
the Company's financial statements) on a pro forma basis.
Net interest expense increased by $1.5 million to $2.0 million for the
three-month period ended March 31, 1998 on a pro forma basis from $0.5 million
for the three-month period ended March 31, 1998 on a historical basis. This
increase results from the interest expense on the pro forma outstanding
balance on the credit facility.
Minority interest decreased by $1.1 million to $(1.0) million for the three-
month period ended March 31, 1998 on a pro forma basis due to the allocation
of a proportionate amount of loss to the minority interests.
The pro forma statement of operations for 1998 reflects income tax expense
at an effective rate of 40 percent, as a result of the change in tax status to
a C-Corporation.
HISTORICAL FOR THE THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH HISTORICAL
FOR THE THREE MONTHS ENDED MARCH 31, 1997
Total revenue increased by $29.0 million or 2,636% to $30.1 million in the
three-month period ended March 31, 1998 compared to $1.1 million in the three-
month period ended March 31, 1997. This increase results from revenue of $26.0
million from hotels leased subsequent to March 31, 1997 and an increase of
$3.0 million in management fees and other revenue. The Company did not lease
any hotels as of March 31, 1997. The increase in revenue from leased hotels is
primarily due to the increase in the number of leased hotels in 1998. The
increase in management fees and other revenue is primarily due to the increase
in number of managed hotels in 1998. Hotel management and other revenue earned
by the Company from hotels owned by CapStar were $3.1 million or 10% of total
revenue in the three-month period ended March 31, 1998, and $0.3 million or
27% of total revenue in the three-month period ended March 31, 1997.
Operating expenses increased to $28.8 million in the three-month period
ended March 31, 1998 compared to $2.3 million in the three-month period ended
March 31, 1997. The increase reflects the increase in the number of managed
hotels and the hotel leases acquired subsequent to March 31, 1997, which
resulted in and includes the costs of additional personnel and other
administrative costs incurred in conjunction with the Company's growth.
Net operating income increased by 215% to $1.3 million in the three-month
period ended March 31, 1998 compared to a net operating loss of $1.2 million
in the three-month period ended March 31, 1997 and earnings before interest
EBITDA grew to $1.8 million in the three-month period ended March 31, 1998
from $(1.1) million in the three-month period ended March 31, 1997. These
increases resulted primarily from the increase in the number of managed hotels
and the hotel leases acquired subsequent to March 31, 1997, offset partially
by the costs of additional personnel and other administrative costs incurred
as described above.
28
<PAGE>
Equity in loss of affiliates was $0.5 million in the three-month period
ended March 31, 1998, due to the Company's share of net loss of affiliates
accounted for using the equity method. The Company acquired all such
investments in affiliates subsequent to March 31, 1997.
PRO FORMA YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE HISTORICAL YEAR
ENDED DECEMBER 31, 1997
Total revenue increased by $914.8 million to $938.6 million in 1997 on a pro
forma basis compared to $23.8 million in 1997 on a historical basis. Operating
expenses increased to $927.2 million in 1997 on a pro forma basis from $20.9
million in 1997 on a historical basis. Net operating income increased to $6.2
million in 1997 on a pro forma basis compared to $3.0 million in 1997 on a
historical basis, and earnings before interest expense, income taxes,
depreciation and amortization ("EBITDA") increased to $16.1 million in 1997 on
a pro forma basis from $3.6 million in 1997 on a historical basis. These
increases result primarily from the increase in total leased and managed
hotels on a pro forma basis, as compared to a historical basis.
Net interest expense increased by $5.2 million in 1997 on a pro forma basis
from $0.01 million in 1997 on a historical basis. This increase results from
the interest expense on the pro forma outstanding balance on the credit
facilities.
Minority interest increased by $0.9 million in 1997 on a pro forma basis
from $0.1 million in 1997 on a historical basis as a result of the net effect
of the changes described above and the issuance of the REIT OP Units in
connection with the acquisition of AGH Leasing and AGHI.
The pro forma statement of operations for 1997 reflects income tax expense
at an effective rate of 40 percent, as a result of the change in tax status to
a C-Corporation.
HISTORICAL YEAR ENDED DECEMBER 31, 1997 COMPARED WITH THE HISTORICAL YEAR
ENDED DECEMBER 31, 1996
Total revenue increased by $16.7 million or 235% to $23.8 million in 1997
compared to $7.1 million in 1996. The increase results from revenue of $11.8
million from hotel leases acquired in 1997 and an increase of $4.9 million in
management fees and other revenue. The Company did not lease any hotels in
1996. The increase in management fees and other revenue is primarily due to
the increase in the number of managed hotels in 1997 and additional fees
resulting from improved operations of the managed hotels. Hotel management and
other revenue earned by the Company from hotels owned by CapStar were $7.2
million or 30% of total revenue in 1997, and $2.6 million or 37% of total
revenue in 1996.
Operating expenses increased to $20.9 million in 1997 from $6.5 million in
1996. This increase reflects the increase in the number of managed hotels and
the hotel leases acquired in 1997, which resulted in includes the costs of
additional personnel and other administrative costs incurred in conjunction
with the Company's growth.
Net operating income increased by 430% to $3.0 million in 1997 compared to
$0.6 million in 1996 and EBITDA grew to $3.7 million in 1997 from $0.9 million
in 1996. These increases resulted primarily from the increase in the number of
managed hotels and the hotel leases acquired in 1997, offset partially by the
costs of additional personnel and other administrative costs incurred as
described above.
Minority interests of $0.1 million in 1997 are due to the Company's
allocated portion of minority interests related to the REIT OP Units issued to
third parties in 1997.
29
<PAGE>
HISTORICAL YEAR ENDED DECEMBER 31, 1996 COMPARED WITH THE HISTORICAL YEAR
ENDED DECEMBER 31, 1995
Total revenue increased to $7.1 million in 1996 from $5.4 million in 1995.
The growth in management fees and other revenues between 1995 and 1996
reflects the increase in the number of hotel rooms managed and additional fees
resulting from improved operations of the managed hotels and new services
offered, such as tour and travel services. Hotel management and other revenue
earned by the Company from hotels owned by CapStar were $2.6 million or 37% of
total revenue in 1996, and $0.9 million or 17% of total revenue in 1995.
Operating expenses increased to $6.5 million in 1996 from $4.9 million in
1995. This increase reflects the increase in the number hotel rooms under
management, which resulted in costs of additional personnel and other
administrative costs incurred in conjunction with the Company's current and
anticipated growth.
Net operating income increased to $0.6 million in 1996 compared to $0.5
million in 1995 and EBITDA grew to $0.9 million in 1996 from $0.6 million in
1995. These increases resulted primarily from the increase in the number of
hotel rooms under management and additional fees earned as described above,
offset partially by the costs of additional personnel and other administrative
costs incurred as described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity have been cash on hand, cash
generated from operations, capital contributions from CapStar and the issuance
of OP Units by CapStar's operating partnership subsidiaries. The Company's
continuing operations have been funded through cash generated from management
and hotel leasing operations. Business acquisitions and investments in
affiliates are financed through capital contributions and the issuance of OP
Units by CapStar's operating partnership subsidiaries.
At December 31, 1997, the Company had $2.5 million in cash and cash
equivalents, an increase of $2.2 million from $0.3 million at December 31,
1996. Net cash provided by operations increased to $4.5 million compared to
$1.2 million in 1996, mainly due to the increase in managed hotels and the
hotel leases acquired in 1997. The Company used $6.5 million of cash in
investing activities in 1997, primarily for investments in notes receivable,
investments in affiliates and purchases of fixed assets. Net cash provided by
financing activities was $4.2 million in 1997. Non-cash capital contributions
of $34.6 million were made to the Company related to the acquisition of
Winston and its investments in affiliates.
CapStar has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has initiated an
implementation plan to resolve the issue. The Year 2000 problem is the result
of computer programs being written using two digits rather than four to define
the applicable year. Any of CapStar's and the Company's programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a major system failure or
miscalculations. CapStar presently believes that, with modifications to
existing software and converting to new software, the Year 2000 problem will
not pose significant operational problems for the computer systems of CapStar
or the Company as so modified and converted. Additionally, CapStar does not
expect the Year 2000 problem to have a material effect on CapStar's or the
Company's financial position or results of operations. However, if such
modifications and conversions are not completed timely, the Year 2000 problem
may have a material impact on the financial position and operations of CapStar
and the Company.
As described more fully elsewhere in this document (see "The Merger and the
Spin-Off"), the Company is expected to be spun-off from CapStar in
anticipation of CapStar's proposed Merger with AGH. To initially capitalize
itself after the Spin-Off, the Company will draw $30.0 million from its credit
facility to be provided by the REIT and certain third-party lenders and
receive a net cash contribution of $18.4 million from CapStar upon forgiveness
of certain amounts due to CapStar as of the date of the Spin-Off.
In conjunction with the Merger, the Company has entered into the Lessee-
Manager Acquisition Agreement to acquire substantially all of the assets and
liabilities of AGHI and AGH Leasing for a combined purchase price consisting
of approximately $83.8 million in cash and approximately $11.2 million in the
form of OP Units of
30
<PAGE>
Hotels OP which are convertible into Common Stock. The $83.8 million in cash
will consist of a combination of $65.0 million drawn on MeriStar Hotels'
credit facilities plus $18.8 of available cash. Specifically, the acquisitions
will comprise (i) substantially all of the assets and certain liabilities of
AGHI for a cash purchase price of $10 million; and (ii) 100% of the
partnership interests in AGH Leasing for a purchase price of $85 million,
consisting of approximately $73.8 million in cash and $11.2 million in OP
Units of Hotels OP. Upon consummation of the transactions contemplated by the
Lessee-Manager Acquisition Agreement, the Company will become the lessee and
manager of all of the AGH Hotels and certain other hotels, in addition to
currently acting as manager for the CapStar Hotels and other third party
arrangements. It is a condition to the closing of the Merger that the
transactions set forth in the Lessee-Manager Acquisition Agreement are
consummated.
To finance the transactions set forth in the Lessee-Manager Acquisition
Agreement, the Company expects to enter into a $75 million revolving credit
facility, provided by the REIT, at an interest rate no greater than LIBOR plus
350 basis points, with other customary terms and conditions. It is a condition
to the closing of the Merger that the Company receive a commitment from the
REIT's Operating Partnership for such a credit facility. In addition to
funding the Lessee-Manager Acquisition Agreement transactions, the available
capacity under the new credit facility are expected to be used by the Company
to pursue investments in additional joint ventures and to secure additional
third-party management arrangements, as discussed above.
Following the Merger, pursuant to the Intercompany Agreement the Company
will have a right of first refusal to become the lessee of any real property
acquired by the REIT. In addition, the Intercompany Agreement prohibits the
Company from making certain acquisitions or investments in real estate unless
such acquisitions or investments are first offered to the REIT and the REIT
elects not to pursue such acquisitions or investments. As a result of these
provisions, the Company's future operations immediately following the Spin-Off
and the Merger are expected to rely significantly on the REIT to identify
business opportunities for the Company. There is no assurance that MeriStar
will identify opportunities for the Company or that any opportunities that
either identifies will be within the Company's financial, operational or
management parameters.
Also, the Company's current operations after the Merger are predominantly
with its affiliate, the REIT; based on pro-forma operating results for 1997,
approximately 89% of the Company's revenue is expected to come from hotels
owned by and leased from the REIT. Accordingly, the Company's current
operations are highly dependent upon the performance of the REIT Owned Hotels.
Following the Spin-Off, Merger and related transactions described above, the
Company believes cash generated by operations, together with its new borrowing
capacity under its credit facility, will be sufficient to fund its existing
working capital, ongoing capital expenditures, debt service requirements, and
future acquisitions and investment opportunities. The Company believes these
sources of capital are sufficient to provide for the Company's short-term
capital needs.
Under the terms of the Participating Leases between the Company and the
REIT, the REIT will generally be required to fund significant capital
expenditures at the Hotels. Consequently, the Company's ongoing capital
expenditures are likely to be substantially reduced from the levels of such
expenditures prior to the Formation Transactions. Additionally, the Company
expects to finance future acquisitions and investments though a combination of
cash generated by operations, borrowing capacity under the credit facility,
and the issuance of OP Units and/or Common Stock. The Company believes these
sources of capital will be sufficient to provide for the Company's long-term
capital needs.
SEASONALITY
Demand in the lodging industry is affected by recurring seasonal patterns.
Demand is lower in the winter months due to decreased travel and higher in the
spring and summer months during peak travel season.
31
<PAGE>
Therefore, the Company's operations are seasonal in nature. Assuming other
factors remain constant, the Company 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.
INFLATION
The rate of inflation has not had a material effect on the revenues or
operating results of the Company during the three most recent fiscal years.
32
<PAGE>
THE COMPANY
The Company has been formed to become the lessee, manager and operator of
various hotel assets, including those currently owned, leased and managed by
CapStar and its affiliates. Immediately following the Spin-Off, the Company
will acquire 100% of the partnership interests in the third-party lessee of
most of the hotels owned by AGH and substantially all of the assets and
certain liabilities of the third-party manager of most of the hotels owned by
AGH, pursuant to the Lessee-Manager Acquisition Agreement. See "The Merger and
the Spin-Off--The Lessee-Manager Acquisition Agreement." CapStar and AGHI have
been two of the fastest growing operators of upscale, full-service hotels in
North America based on rooms under management. Following consummation of the
Formation Transactions, the Company is expected to be one of the largest
independent hotel management companies in the United States based on rooms
under management. The Company will be the successor-in-interest and will
assume all of the rights and liabilities with respect to hotel management
contracts and operating leases of CapStar, AGHI and AGH Leasing. Pursuant to
the Formation Transactions, the Company will lease and/or manage 201 Hotels
containing 42,476 rooms. Of the Hotels, MeriStar Hotels will (i) lease and
manage 99 REIT Owned Hotels, containing 25,854 rooms, (ii) lease 47 (of which
they managed 36) hotels (that are not REIT Owned Hotels) containing 6,800
rooms, (the "Leased Hotels") and (iii) manage an additional 55 hotels (that
are not REIT Owned Hotels) containing 9,822 rooms (the "Managed Hotels"). The
Hotels are located throughout the United States and Canada including most
major metropolitan areas and rapidly growing secondary cities. The Hotels
include hotels operated under nationally recognized brand names such as
Hilton, Sheraton, Westin, Marriott, Doubletree and Embassy Suites. The
Company's business strategy will be to renovate, reposition and operate each
hotel according to a business plan specifically tailored to the
characteristics of the hotel and its market.
MeriStar Hotels will capitalize on its management experience and expertise
by continuing to secure additional management contracts and improving the
operating performance of the hotels under its management. The Company's senior
management team, with an average of 20 years of lodging industry experience,
has successfully managed hotels in all segments of the lodging industry, with
particular emphasis on upscale, full-service hotels.
Management attributes its management success to its ability to analyze each
hotel as a unique property and identify those particular cash flow growth
opportunities which each hotel presents. The Company's principal operating
objectives will be to continue to analyze each hotel as a unique property, to
generate higher revenue per available room ("RevPAR"), to increase average
daily rates ("ADR") and to increase net operating income while providing its
hotel guests with high-quality service and value.
In addition to assuming the rights and obligations under all of the
operating leases and management agreements of CapStar, AGHI and AGH Leasing,
MeriStar Hotels will assume the interest of CapStar in two joint ventures. The
Company expects to form additional strategic alliances with institutional and
private hotel owners and to secure additional fee management arrangements.
From time to time, the Company may also acquire certain hotel assets that the
REIT could not, or for strategic reasons does not wish to, own.
Management believes that the upscale, full-service segment of the lodging
industry is the most attractive segment in which to lease and manage hotels
and therefore intends to focus its efforts on attaining management contracts
for such properties. The upscale, full-service segment is attractive for
several reasons. First, upscale, full-service hotels appeal to a wide variety
of customers, thus reducing the risk of decreasing demand from any particular
customer group. Secondly, such hotels have particular appeal to both business
executives and upscale leisure travelers, customers who are generally less
price sensitive than travelers who use limited-service hotels. Finally, full-
service hotels require a greater depth of management expertise than limited-
service hotels, and the Company believes that its superior management skills
provide it with a significant competitive advantage in their operation.
THE INTERCOMPANY AGREEMENT
RIGHTS OF FIRST REFUSAL
The Company believes that the Intercompany Agreement represents an
attractive opportunity because (i) the REIT Owned Hotels are upscale, full-
service hotels under nationally recognized brand names located in major
metropolitan or growing secondary markets and (ii) they have attractive
current returns and potential for significant revenue and cash flow growth
through implementation of the Company's operating strategy.
33
<PAGE>
Pursuant to the Intercompany Agreement, subject to certain exceptions, the
Hotel Parties will have a right of first refusal to become the lessee of any
real property acquired by the REIT Parties if the REIT Parties determine that,
consistent with the REIT's status as a real estate investment trust, the REIT
Parties are required to enter into such a lease arrangement; provided that the
Hotel Parties or an entity controlled by the Hotel Parties is, as determined
by the REIT in its sole discretion, qualified to be the lessee based on
experience in the industry and financial and legal qualifications.
As to opportunities for the Hotel Parties to become the lessee of any assets
under a lease arrangement, the Intercompany Agreement provides that the REIT
Parties must provide the Hotel Parties with written notice of the lessee
opportunity. During the 30 days following such notice, the Hotel Parties have
a right of first refusal with regard to the offer to become a lessee and the
right to negotiate with the REIT Parties on an exclusive basis regarding the
terms and conditions of the lease. If a mutually satisfactory agreement cannot
be reached within the 30-day period, or if the Hotel Parties indicate that
they are not interested in pursuing the lessee opportunity, the REIT Parties
may offer the opportunity to others for a period of one year thereafter, at a
price and on terms and conditions that are not more favorable to such other
parties than the price and terms and conditions proposed by the REIT Parties
to the Hotel Parties, before it must again offer the opportunity to the Hotel
Parties in accordance with the procedures specified above.
The REIT Parties and the Hotel Parties will each establish, following the
closing of the Merger, a leasing committee which will review all hotel leases
to be entered into between the REIT Parties and the Hotel Parties. The REIT
Parties' leasing committee will consist of directors of the REIT that are not
also directors of MeriStar Hotels and the Hotel Parties' leasing committee
will consist of directors of MeriStar Hotels that are not also directors of
the REIT.
The Hotel Parties will agree not to acquire or make (i) investments in real
estate which, for purposes of the Intercompany Agreement, includes the
provision of services related to real estate and investments in hotel
properties, real estate mortgages, real estate derivatives or entities that
invest in real estate assets or (ii) any other investments that may be
structured in a manner that qualifies under the federal income tax
requirements applicable to real estate investment trusts unless in either case
they have provided written notice to the REIT Parties of the material terms
and conditions of the acquisition or investment opportunity, and the REIT
Parties have determined not to pursue such acquisitions or investments either
by providing written notice to the Hotel Parties rejecting the opportunity
within 20 days from the date of receipt of notice of the opportunity or by
allowing such 20-day period to lapse. The Hotel Parties also have agreed to
assist the REIT Parties in structuring and consummating any such acquisition
or investment which the REIT Parties elect to pursue, on terms determined by
the REIT Parties.
PROVISION OF SERVICES
The Hotel Parties will provide the REIT Parties with certain services as the
REIT Parties may reasonably request from time to time, including
administrative, corporate, accounting, financial, insurance, legal, tax, data
processing, human resources and operational services. The REIT Parties will
compensate the Hotel Parties for services provided in an amount determined in
good faith by the Hotel Parties as the amount an unaffiliated third party
would charge the REIT Parties for comparable services.
EQUITY OFFERINGS
If either the REIT Parties or the Hotel Parties desire to engage in a
securities issuance (the "Issuing Party"), then such Issuing Party will give
notice to such other party (the "Non-Issuing Party") as promptly as
practicable of their desire to engage in a securities issuance. The Non-
Issuing Party will cooperate with the Issuing Party to effect any securities
issuance of the Issuing Party by assisting in the preparation of any
registration statement or other document required in connection with such
issuance and, in connection therewith, providing the Issuing Party with such
information as may be required to be included in such registration statement
or other document.
TERM
The Intercompany Agreement will terminate upon the earlier of (a) the tenth
anniversary of the date of the Intercompany Agreement, and (b) a change in
ownership or control of MeriStar Hotels.
34
<PAGE>
USE OF PROCEEDS
The Company's net proceeds from the Rights Offering will depend on the
number of Rights exercised and the Subscription Price. The number of Rights
exercised will range from a minimum of zero to a maximum of 8,400,000; the
Subscription Price will be equal to 95% of the average of the daily high and
low prices of the Common Stock for the period of five consecutive trading days
immediately following the third Trading Day after the date the Common Stock
opens for trading. The Company also reserves the right, at its sole option, to
cancel the Rights Offering if the Subscription Price is less than . . Based
on an assumed Subscription Price of $2.85 per share, the net proceeds (net of
transaction expenses of approximately $250,000) will range from a minimum of
zero to a maximum of $23.7 million. The Company currently expects to use the
net proceeds from the Rights Offering to repay existing indebtedness under the
Company's two $50 million revolving credit facilities, which are expected to
bear interest at a rate no greater than LIBOR plus 350 basis points, or for
general corporate purposes. The pro forma balance outstanding on the credit
facility prior to repayment of any amounts with the net proceeds of the Rights
Offering is expected to be $65.0 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
35
<PAGE>
CAPITALIZATION
The following table sets forth the historical and pro forma capitalization of
the Company as of March 31, 1998. The pro forma capitalization is adjusted to
reflect the Formation Transactions. The information below should be read in
conjunction with the historical combined financial statements and notes thereto
of the Company and the Unaudited Pro Forma Financial Statements and notes
thereto of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
(IN THOUSANDS,
EXCEPT SHARE DATA)
----------------------
PRO FORMA HISTORICAL
----------- ----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND MINORITY INTEREST:
Credit facilities.................................. $ 65,000 $ --
Capital leases and other debt...................... 776 776
Minority interest.................................. 15,804 3,835
-------- -------
Total liabilities and minority interest.......... 81,580 4,611
-------- -------
OWNERS'/STOCKHOLDERS' EQUITY:
Owners' Equity..................................... -- 41,667
Preferred Stock ($0.01 par value, 10,000,000 shares
authorized, no shares issued or outstanding)...... -- --
Common Stock ($0.01 par value, 100,000,000 shares
authorized 24,890,355 shares issued and outstand-
ing on a pro forma basis)......................... 249 --
Additional paid-in capital and retained earnings... 59,022 --
-------- -------
Total owners'/stockholders' equity............... 59,271 41,667
-------- -------
Total capitalization............................. $140,851 $46,278
======== =======
</TABLE>
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock and does not
anticipate that it will do so in the foreseeable future. The Company intends to
retain earnings to provide funds for the continued growth and development of
the Company's business. Loan agreements and leases to be entered into by the
Company may restrict the Company's ability to pay dividends on the Common
Stock. Any determination to pay cash dividends in the future will be at the
discretion of the Board of Directors and will be dependent upon the Company's
results of operations, financial condition, contractual restrictions and other
factors deemed relevant by the Board of Directors.
36
<PAGE>
THE MERGER AND THE SPIN-OFF
GENERAL
The Company will be spun off, as further described below, to become the
lessee, manager and operator of various hotel assets, including those
currently owned, leased and managed by CapStar and certain of its affiliates.
CapStar intends to transfer or cause to be transferred certain assets and
liabilities constituting the hotel management and leasing business currently
operated by CapStar and its subsidiaries to MeriStar Hotels, a wholly owned
subsidiary of CapStar. CapStar then intends to distribute to its stockholders
of record on the Spin-Off Record Date on a share-for-share basis all of the
outstanding capital stock of MeriStar Hotels in the Spin-Off. The Spin-Off
will provide the stockholders of CapStar as of the Spin-Off Record Date with
the opportunity to participate in the benefits of both the ownership of real
estate through the REIT, and the leasing and management operations of MeriStar
Hotels.
Pursuant to the Merger Agreement, CapStar, after the Spin-Off, will merge
with and into AGH, with the result that (a) AGH will be the surviving
corporation operating under the name MeriStar Hospitality Corporation and (b)
each outstanding share of CapStar Common Stock will be converted into 1.0
share of REIT Common Stock, and each outstanding share of AGH Common Stock
will be converted into 0.8475 shares of REIT Common Stock.
Immediately following the Spin-Off and the effective date of the Merger, the
Company will acquire 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 certain liabilities of AGHI, the third-party manager of most
of the hotels owned by AGH, pursuant to the Lessee-Manager Acquisition
Agreement.
Pursuant to the Intercompany Agreement, the Hotel Parties and the REIT
Parties will provide each other with reciprocal rights to participate in
certain transactions entered into by such parties. In particular, subject to
certain exceptions, the Hotel Parties will have a right of first refusal to
become the lessee of any real property acquired by the REIT Parties if the
REIT Parties determine that, consistent with the REIT's status as a real
estate investment trust, the REIT Parties are required to enter into such a
lease arrangement; provided that the Hotel Parties or an entity that the Hotel
Parties control is, as determined by the REIT in its sole discretion,
qualified to be the lessee. In addition, the Hotel Parties intend to pursue
additional opportunities with others in the future. See "The Company--The
Intercompany Agreement." The Intercompany Agreement is structured to provide
the REIT and the Company with mutually beneficial rights and obligations so
that investors in both companies may enjoy the economic benefit of the entire
enterprise. This is commonly known as the "paper-clip" REIT structure. AGH and
CapStar believe that the REIT will be the first publicly-traded lodging REIT
to utilize the "paper-clip" REIT structure. However, investors should be aware
that because of the independent trading of the REIT and the Company,
stockholders may develop divergent interests which could lead to conflicts of
interest. This divergence of interests could also reduce the anticipated
benefits of the "paper-clip" REIT structure. See "Risk Factors--Paper Clip
Structure Risks."
BACKGROUND OF AND REASONS FOR THE SPIN-OFF
In order for the REIT to maintain its status as a REIT for federal income
tax purposes, it may not operate hotels. The Company will be formed to own
assets that the REIT could not itself own and to succeed to CapStar's hotel
management and leasing business, by becoming the lessee, manager and operator
of the various hotel assets, and to perform the services more fully described
in the Intercompany Agreement. The Spin-Off, together with the Rights
Offering, will provide the stockholders of CapStar as of the Spin-Off Record
Date with the opportunity to participate in the benefits of both the ownership
of real estate through the REIT, and the leasing and management operations of
MeriStar Hotels.
MeriStar Hotels will function principally as a hotel leasing, management and
operating company, while the REIT will focus on investment in real estate
assets. The Spin-Off is designed to provide CapStar's existing stockholders
with the long-term benefits of ownership in an entity devoted to the conduct
of operating business
37
<PAGE>
activities in addition to their investment interest in the REIT itself. A
small number of real estate investment trusts, operating under tax provisions
that no longer are available to newly formed real estate investment trusts,
have shares that are "paired" or "stapled" with shares of a related operating
company, and therefore cannot be owned or transferred independently. The
shares of MeriStar Hotels and the REIT are not, and will not be, paired or
stapled in any manner. Because the shares of the REIT and MeriStar Hotels can
be owned and transferred separately and independently of each other, the REIT
and MeriStar Hotels will not provide a paired investment on an ongoing basis
to investors who purchase or sell shares of only one company or the other.
Although the Spin-Off will not be effected unless the Merger is approved by
the stockholders of CapStar and AGH and all other conditions precedent have
been satisfied or waived, the Spin-Off is separate from the Merger and the
shares of MeriStar Hotels to be received by holders of CapStar Common Stock in
the Spin-Off do not constitute a part of the Merger consideration. The
stockholders of CapStar are being asked to vote on the approval and adoption
of the Merger Agreement, and are not being asked to vote on the Spin-Off.
RESTRUCTURING AND SPIN-OFF
GENERAL
In order to effectuate the Spin-Off, CapStar will effect a series of
mergers, asset and stock transfers and liability assumptions among itself and
its subsidiaries (the "CapStar OP Restructuring"). The purpose and effect of
the CapStar OP Restructuring is to separate substantially all of the
management and leasing business of CapStar from the real estate investments of
CapStar.
Substantially all of CapStar's assets are currently held indirectly by and
operated through CapStar Management and CapStar Management II, CapStar's
subsidiary operating partnerships. CapStar is the sole general partner of
CapStar Management, and CapStar, certain wholly owned subsidiaries of CapStar
(the "CapStar LP Entities"), and certain third parties are the sole limited
partners of CapStar Management. CapStar General Corp., a wholly-owned
subsidiary of CapStar ("CapStar General"), is the sole general partner of
CapStar Management II, and CapStar Limited Corp., a wholly owned subsidiary of
CapStar General ("CapStar Limited"), and certain third parties are the sole
limited partners of CapStar Management II. The partnership agreements of
CapStar Management and CapStar Management II give the general partner full
control over the business and affairs of the partnerships.
THE CONTRIBUTIONS
Prior to the effectiveness of the Merger, CapStar Management and CapStar
Management II will effectuate the following transactions (the
"Contributions"):
1. Each of the CapStar LP Entities, CapStar General and CapStar Limited
will merge with and into CapStar;
2. Each of CapStar Management and CapStar Management II will convert into
a limited liability company (respectively, "CapStar Management LLC" and
"CapStar Management II LLC").
3. CapStar Management LLC will contribute all of its hotel related assets
together with certain other assets, subject to all of its liabilities
except as set forth in the Merger Agreement, to CapStar Hotel Operating
Company, L.L.C., a newly-formed Delaware limited liability company
("CapStar Hotel LLC"), in exchange for interests in CapStar Hotel LLC and
CapStar Management II LLC will contribute all of its hotel related assets
together with certain other assets, subject to all of its liabilities
except as set forth in the Merger Agreement, to CapStar Hotel Operating
Company, L.L.C., a newly-formed Delaware limited liability company
("CapStar Hotel II LLC"), in exchange for interests in CapStar Hotel II
LLC;
4. CapStar Management will contribute all its management and
substantially all its leasehold related assets, together with certain other
assets (including cash), subject to $30 million in indebtedness and certain
other liabilities, to Hotels OP in exchange for interests in Hotels OP and
CapStar Management II LLC will
38
<PAGE>
contribute all its management and substantially all its leasehold related
assets, together with certain other assets (including cash), subject to $30
million in indebtedness and certain other liabilities, to MeriStar H & R
Operating Company, L.P., a newly-formed Delaware limited liability company
("Hotels OP II"), in exchange for interests in Hotels OP II;
5. CapStar Management LLC will redeem CapStar's interests in CapStar
Management LLC in exchange for CapStar's pro rata share of its interests in
Hotels OP and CapStar Hotel LLC and CapStar Management II LLC will redeem
CapStar's interests in CapStar Management II LLC in exchange for CapStar's
pro rata share of its interests in Hotels OP II and CapStar Hotel II LLC;
6. CapStar will contribute its interest (the "Interests") in, and all of
its rights and title in and to substantially all of the assets and business
of, Hotels OP and Hotels OP II represented by such Interests (collectively,
the "Contributed Assets") to MeriStar Hotels in exchange for 100% of the
outstanding capital stock of MeriStar Hotels; and
7. MeriStar Hotels will assume all of the liabilities, obligations, debt
and commitments arising out of its ownership of the Interest, the
Contributed Assets and the operation of the business conducted by Hotels OP
and Hotels OP II (the "Assumed Liabilities"), and CapStar will retain, or
will cause one of its subsidiaries to retain, all other liabilities.
THE SPIN-OFF; RECORD DATE
Upon completion of the Contributions, the Spin-Off will be effected by the
distribution to each holder of record of CapStar Common Stock as of the close
of business on the Spin-Off Record Date of one share of Common Stock for every
share of CapStar Common Stock held by such holder. As a result of the Spin-
Off, the stockholders of record of CapStar at the closing of business on the
Spin-Off Record Date will own all of the outstanding Common Stock. Following
the Spin-Off, Hotels OP II will merge with and into Hotel OP, with Hotel OP as
the surviving entity.
Management estimates the initial value of the Common Stock will be between
$2.50 and $3.50 per share. This initial value per share estimate was derived
by applying assumed market multiples to various, pro forma financial reporting
measures for the Company, including earnings before interest expense, income
taxes, depreciation and amortization, and net income. Management developed the
assumed market multiples through discussions with financial advisors and
analysis of current market multiples for comparable companies.
LISTING ON THE NYSE
The Common Stock to be issued pursuant to the Spin-Off has been approved for
listing on the NYSE, under the symbol "MMH", subject to official notice of
issuance.
USE OF "MERISTAR" NAME
Pursuant to the terms of the Intercompany Agreement, the Company will grant
to the REIT a non-exclusive, royalty-free license to use "MeriStar Hospitality
Corporation" and other names that include "MeriStar" (the "Licensed
Property"). Upon termination of the Intercompany Agreement, all rights of the
Hotel Parties to the Licensed Property will terminate. See "The Company --The
Intercompany Agreement."
EMPLOYEES AND EMPLOYEE BENEFIT PLANS
On the effective date of the Spin-Off, CapStar will cause MeriStar Hotels to
offer employment to certain employees of CapStar, on the same terms and
conditions as were in effect immediately prior to the Spin-Off. Any such
transfer of employment from CapStar to MeriStar Hotels will not constitute a
termination or qualifying event under any severance policy.
39
<PAGE>
MeriStar Hotels will establish new employee benefit plans substantially
similar to the existing CapStar benefit plans, including but not limited to an
Equity Incentive Plan and a Stock Purchase Plan. Employees who currently hold
CapStar Stock Options will be granted new stock options in the REIT and
MeriStar Hotels.
CONDITIONS TO THE SPIN-OFF
The obligations of CapStar to consummate the Spin-Off are subject to the
satisfaction or waiver of the same conditions to the consummation of the
Merger set forth in the Merger Agreement.
THE LESSEE-MANAGER ACQUISITION AGREEMENT
Pursuant to the Lessee-Manager Acquisition Agreement, following the Spin-Off
and immediately after the effective time of the Merger, Hotels OP will
acquire: (i) substantially all of the assets and certain liabilities of AGHI
for a cash purchase price of $10 million; and (ii) 100% of the partnership
interests in AGH Leasing for a purchase price of $85 million, consisting of
approximately $73.8 million in cash and approximately $11.2 million in the
form of Hotels OP Units convertible into Common Stock. Upon consummation of
the transactions contemplated by the Lessee-Manager Acquisition Agreement,
Hotels OP will become the lessee and manager of most of the AGH Owned Hotels
that are currently leased by AGH Leasing. The REIT and MeriStar Hotels will
enter into new lease agreements (the "Participating Leases") with respect to
all of the CapStar Owned Hotels and amend the lease agreements with respect to
most the AGH Owned Hotels. See "Business--The Participating Leases."
It is a condition to the closing of the Merger that the transactions set
forth in the Lessee-Manager Acquisition Agreement are consummated.
INDEMNIFICATION OBLIGATIONS
MeriStar Hotels will indemnify, defend and hold harmless the REIT and its
affiliates and any directors, officers, employees and agents of the foregoing,
from and against any losses arising out of or resulting from the Assumed
Liabilities, the Contributed Assets or the business and operations of Hotels
OP.
The REIT will indemnify, defend and hold harmless MeriStar Hotels, its
affiliates and their respective successors and any directors, officers,
employees and agents of the foregoing, from and against any losses arising out
of any assets or liabilities retained by the REIT and its affiliates.
40
<PAGE>
BUSINESS
The Company seeks to increase shareholder value by (i) implementing its
operating strategy to improve hotel operations and increase cash flow and (ii)
expanding its management business.
EXPANSION STRATEGY
The Company anticipates that it will continue to expand its portfolio of
hotels under management and/or lease by securing additional management
contracts and/or leases. The Company will also seek to expand its management
operations into other hospitality-related businesses, such as time share
properties and conference centers. The Company will attempt to identify
promising management candidates located in markets with economic, demographic
and supply dynamics favorable to hotel lessees and operators. Through its
extensive due diligence process, the Company will select 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 will create detailed plans covering all areas of
renovation and operation. These plans will serve as the basis for the
Company's expansion decisions and guide subsequent renovation and operating
plans.
The Company will seek to lease and/or manage hotels that meet the following
criteria:
MARKET CRITERIA
Economic Growth. The Company will focus on metropolitan areas that are
approaching, or have already entered, periods of economic growth. Such areas
generally show above average growth in the business community as measured by
(i) job formation rates, (ii) population growth rates, (iii) tourism and
convention activity, (iv) airport traffic volume, (v) local commercial real
estate occupancy, and (vi) retail sales volume. Markets that exhibit these
characteristics typically have strong demand for hotel facilities and
services.
Supply Constraints. The Company will seek 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 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 Hotels. The Company will
seek to maintain a geographically diverse portfolio of managed hotels to
offset the effects of regional economic cycles.
HOTEL CRITERIA
Location and Market Appeal. The Company will seek to operate hotels that are
situated near both business and leisure centers which generate a broad base of
demand for hotel accommodations and facilities. These demand generators
include (i) airports, (ii) convention centers, (iii) business parks, (iv)
shopping centers and other retail areas, (v) sports arenas and stadiums, (vi)
major highways, (vii) tourist destinations, (viii) major universities, and
(ix) cultural and entertainment centers with nightlife and restaurants. The
confluence of nearby business and leisure centers will enable the Company to
attract both weekday business travelers and weekend leisure guests. Attracting
a balanced mix of business, group and leisure guests to the Hotels helps to
maintain stable occupancy rates and high ADRs.
Size and Facilities. The Company will seek 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
41
<PAGE>
such as business, group and leisure travelers. These facilities typically
include large, upscale guest rooms, food and beverage facilities, extensive
meeting and banquet space, and amenities such as health clubs, swimming pools
and adequate parking.
Potential Performance Improvements. The Company seeks to 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.
The Company 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. Management has a record of
successfully renovating and repositioning hotels, in situations with varying
levels of service, room rates and market types, and the Company plans to
continue such renovation programs as its acquires new leases and management
contracts.
OPERATING STRATEGY
The Company's principal operating objectives will be to generate higher
RevPAR and to increase net operating income while providing its hotel guests
with high-quality service and value. The Company will seek to achieve these
objectives by creating and executing management plans that are specifically
tailored for each individual Hotel rather than by implementing an operating
strategy that is designed to maintain a uniform corporate image or brand.
Management believes that custom-tailored business plans are the most effective
means of addressing the needs of a given hotel or market. The Company believes
that skilled management of hotel operations is the most critical element in
maximizing revenue and cash flow in hotels, especially in upscale, full-
service hotels.
The Company's corporate headquarters will carry out financing and investment
activities and provide services to support as well as monitor the Company's
on-site hotel operating executives. Each of the Company's executive
departments, including Sales and Marketing, Human Resources and Training, Food
and Beverage, Technical Services, Development and Corporate Finance, will be
headed by an executive with significant experience in that area. These
departments will support decentralized decision-making by the hotel operating
executives by providing accounting and budgeting services, property management
software and other resources which cannot be economically maintained at the
individual Hotels.
Key elements of the Company's management programs include the following:
Comprehensive Budgeting and Monitoring. The Company's operating strategy
begins with an integrated budget planning process that is implemented by
individual on-site managers and monitored by the Company's corporate staff.
Management sets targets for cost and revenue categories at each of the Hotels
based on historical operating performance, planned renovations, operational
efficiencies and local market conditions. On-site managers coordinate with the
central office staff to ensure that such targets are realistic. Through
effective and timely use of its comprehensive financial information and
reporting systems, the Company will be 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. The Company will employ a systematic approach
toward identifying and targeting segments of demand for each Hotel in order to
maximize market penetration. Executives at the Company's corporate
headquarters and property-based managers will divide such segments into
smaller subsegments, typically ten or more for each Hotel, and develop
narrowly tailored marketing plans to suit each such segment. The Company will
support each Hotel's local sales efforts with corporate sales executives who
will develop new marketing concepts and monitor and respond to specific market
needs and preferences. These executives will be active in implementing on-site
marketing programs developed in the central management office. The Company
will employ computerized revenue yield management systems to manage each
Hotel's use
42
<PAGE>
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, will enable the Company to maximize revenue yields on a day-to-day
basis. Sales teams will be recruited locally and receive incentive-based
compensation bonuses. All of the Company's sales managers will complete a
highly developed sales training program.
Strategic Capital Improvements. The Company and the REIT (through the
Intercompany Agreement) will plan renovations primarily to enhance a Hotel's
appeal to targeted market segments, thereby attracting new customers and
generating increased revenue and cash flow. For example, in many of the
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 ADRs. Capital spending decisions will be based on both
strategic needs and potential rate of return on a given capital investment.
Pursuant to the Intercompany Agreement, the REIT will be primarily 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. The Company will select 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 the Company 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.
43
<PAGE>
The following chart summarizes certain information with respect to the
national franchise affiliations of the Hotels:
<TABLE>
<CAPTION>
REIT THIRD-PARTY THIRD-PARTY
OWNED HOTELS LEASED HOTELS MANAGED HOTELS
------------------- ------------------ ------------------
GUEST % OF GUEST % OF GUEST % OF
FRANCHISE ROOMS HOTELS ROOMS ROOMS HOTELS ROOMS ROOMS HOTELS ROOMS
- --------- ------ ------ ----- ----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hilton ................. 5,499 21 21% -- -- -- 225 1 2%
Sheraton ............... 2,978 9 11% -- -- -- 167 1 2%
Radisson(R) ............ 2,712 9 10% -- -- -- 756 4 8%
Doubletree ............. 2,055 6 8% 388 1 6% 363 2 4%
Marriott ............... 1,494 4 5% -- -- -- -- -- --
Holiday Inn(R).......... 2,571 12 10% 367 2 5% 1,763 9 18%
Embassy Suites ......... 728 3 3% -- -- -- 248 1 3%
Westin ................. 1,296 4 5% -- -- -- -- -- --
Wyndham................. 1,122 3 4% 219 1 3% -- -- --
Independent ............ 674 6 3% -- -- -- 1,151 10 12%
Four Points(R).......... 213 1 1% -- -- -- 400 1 4%
Doubletree Guest
Suites(R) ............. 292 2 1% -- -- -- -- -- --
Ramada(R) .............. 665 3 3% -- -- -- 1,037 5 10%
Crowne Plaza(R) ........ 715 3 3% -- -- -- 730 2 7%
Courtyard(R) ........... 1,044 5 4% 490 3 7% 455 2 5%
Hilton Garden Inn....... -- -- -- 474 3 7% -- -- --
Hilton Suites........... -- -- -- -- -- -- 174 1 2%
Comfort Suites(R) ...... -- -- -- 277 2 4% 359 3 4%
Clarion(R) ............. -- -- -- -- -- -- 432 2 4%
Quality Suites(R) ...... -- -- -- 168 1 2% 177 1 2%
Residence Inn(R) ....... -- -- -- -- -- -- 391 3 4%
Quality Inn(R) ......... -- -- -- -- -- -- 265 2 3%
Days Inn(R) ............ -- -- -- -- -- -- 96 1 1%
Holiday Inn Express(R).. 159 1 1% 208 2 3% 78 1 1%
Best Western(R) ........ -- -- -- -- -- -- 355 2 4%
Hampton Inn(R) ......... 292 2 1% 1,965 16 29% -- -- --
Comfort Inn(R) ......... -- -- -- 1,293 9 19% -- -- --
Holiday Inn Select(R) .. 1,245 4 5% 244 1 4% -- -- --
HomewoodSuites(R) ...... -- -- -- 461 4 7% -- -- --
Howard Johnson.......... 100 1 1% -- -- -- -- -- --
Hampton Inn &
Suites(R).............. -- -- -- 136 1 2% -- -- --
Fairfield Inn(R) ....... -- -- -- 110 1 2% 200 1 2%
------ --- ----- ----- --- ----- ----- --- ---
Total.................. 25,854 99 100.0% 6,800 47 100.0% 9,822 55 100%
====== === ===== ===== === ===== ===== === ===
</TABLE>
Emphasis on Food and Beverage. Management believes popular food and beverage
ideas are a critical component in the overall success of a hotel. The Company
utilizes its food and beverage operations to create local awareness of its
hotel facilities, to improve the profitability of its hotel operations and to
enhance customer satisfaction. The Company is committed to competing for
patrons with restaurants and catering establishments by offering high-quality
restaurants that garner positive reviews and strong local and/or national
reputations. The Company has engaged food and beverage experts to develop
several proprietary restaurant concepts. The REIT Owned Hotels contain
restaurants ranging from Michel Richard's highly acclaimed CITRONELLE(R), to
Morgan's(R), a CapStar-designed concept which offers popular, moderately-
priced American cuisine. CapStar has also successfully placed national food
franchises such as Starbuck's Coffee(R) and "TCBY"(R) Yogurt in casual,
delicatessen-style restaurants in several of the REIT Owned Hotels. Popular
food concepts will strengthen the Company's ability to attract business
travelers and group meetings and improve the name recognition of the Hotels.
Commitment to Service and Value. The Company is dedicated to providing
exceptional service and value to its customers on a consistent basis. The
Company conducts extensive employee training programs to ensure personalized
service at the highest levels. Programs such as "Be A Star" have been created
and implemented by
44
<PAGE>
the Company to ensure the efficacy and uniformity of its employee training.
The Company's practice of tracking customer comments, through the recording of
guest comment cards and the direct solicitation (during check-in and check-
out) of guest opinions regarding specific items, allows investment in services
and amenities where they are most effective. The Company's focus on these
areas has enabled it to attract lucrative group business.
Distinct Management Culture. The Company will have 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. The Company will employ computerized
reporting systems at each of the Hotels and at its corporate offices to
monitor the financial and operating performance of the Hotels. Management
information services have been fully integrated through the installation of
Novell and Unix networks. Management also utilizes programs like Data Plus(R)
and cc:Mail(R) to facilitate daily communication. Such programs will enable
the Company to create and implement detailed reporting systems at each of the
Hotels and its corporate headquarters. Corporate executives will utilize
information systems that track each Hotel's daily occupancy, ADR, and revenue
from rooms, food and beverage. By having the latest hotel operating
information available at all times, management will be better able to respond
to changes in the market of each hotel.
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<PAGE>
PROPERTIES
The Company maintains its corporate headquarters in Washington, D.C.,
satellite offices in California, North Carolina and Texas and leases and/or
manages hotel properties throughout the United States and Canada. The Company
leases its offices. No one hotel property is material to the operation of the
Company. A typical Hotel has meeting and banquet facilities, food and beverage
facilities and guest rooms and suites.
The REIT Owned Hotels 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 table sets forth the 1997 operating information with respect
to the hotels owned by the REIT and leased and managed by the Company:
<TABLE>
<CAPTION>
GUEST AVERAGE DAILY AVERAGE
HOTEL LOCATION ROOMS RATE ("ADR") OCCUPANCY REV PAR
- ----- -------- ----- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
Sheraton Hotel.......... Mesa, AZ 273 $ 89.49 53.6% 47.97
Crowne Plaza Phoenix.... Phoenix, AZ 249 72.83 63.7 46.29
Embassy Suites.......... Tucson, AZ 204 74.39 78.5 58.40
Courtyard by Marriott
Century City........... Century City, CA 134 106.02 84.1 89.13
Orange County Airport
Hilton................. Irvine, CA 290 85.87 73.0 62.69
Marriott Hotel.......... Los Angeles, CA 469 118.56 60.5 71.73
Courtyard by Marriott
Marina del Rey......... Marina del Rey, CA 276 79.78 90.4 72.04
Monterey Hilton......... Monterey, CA 204 107.33 66.4 71.29
DoubleTree Resort....... Palm Springs, CA 289 97.45 66.9 65.19
Sacramento Hilton....... Sacramento, CA 326 86.74 74.4 64.53
Holiday Inn Select Mis-
sion Valley............ San Diego, CA 317 71.99 72.6 52.25
Sheraton Fisherman's
Wharf.................. San Francisco, CA 524 133.28 84.5 112.62
Crowne Plaza Park Center
....................... San Jose, CA 239 111.80 70.2 78.48
Wyndham San Jose Airport
Hotel.................. San Jose, CA 356 115.93 59.3 68.76
San Pedro Hilton........ San Pedro, CA 226 61.66 76.3 47.05
Santa Barbara Inn....... Santa Barbara, CA 71 139.35 79.7 111.06
Holiday Inn............. Colorado Springs, CO 201 67.16 70.7 47.48
Sheraton Hotel.......... Colorado Springs, CO 502 74.15 72.1 53.46
Embassy Suites Denver... Englewood, CO 236 103.75 76.2 79.06
Mystic Hotel............ Mystic, CT 77 77.63 58.0 45.06
DoubleTree Bradley Air-
port................... Windsor Locks, CT 200 84.27 67.4 56.80
Embassy Row Hilton...... Washington, DC 195 119.63 73.5 87.93
Georgetown Inn.......... Washington, DC 95 137.95 72.4 99.88
The Latham Hotel........ Washington, DC 143 113.32 81.1 91.90
DoubleTree Resort
Surfside Clearwater
Beach.................. Clearwater Beach, FL 426 101.12 70.9 71.72
Ramada Inn Gulfview
Clearwater Beach....... Clearwater Beach, FL 289 72.85 60.7 44.19
Hilton Hotel Cocoa
Beach.................. Cocoa Beach, FL 296 83.31 72.2 60.11
Holiday Inn Fort Lauder-
dale Beach............. Fort Lauderdale, FL 240 75.95 77.2 58.66
Westin Resort Key Largo. Key Largo, FL 200 126.87 76.8 97.19
Howard Johnson Resort
Key Largo.............. Key Largo, FL 100 86.06 83.4 71.77
Courtyard by Marriott
Disney Village......... Lake Buena Vista, FL 323 105.41 93.8 98.89
Holiday Inn Madeira
Beach.................. Madeira Beach, FL 149 77.36 55.8 43.16
Radisson Twin Towers Or-
lando.................. Orlando, FL 742 81.10 78.5 63.34
Wyndham Safari Resort
Lake Buena Vista....... Orlando, FL 490 73.67 66.3 48.81
DoubleTree Hotel Tampa
Airport................ Tampa, FL 496 64.05 68.3 43.73
DoubleTree Guest Suites
Atlanta................ Atlanta, GA 155 104.90 61.4 64.42
Westin Atlanta Airport.. Atlanta, GA 496 79.18 75.5 59.78
Jekyll Inn.............. Jekyll Island, GA 265 63.15 46.6 29.43
Radisson Hotel Arlington
Heights................ Arlington Heights, IL 201 81.72 74.5 60.88
Radisson Hotel & Suites. Chicago, IL 341 134.71 81.2 109.38
Holiday Inn Chicago
O'Hare International
Airport................ Rosemont, IL 507 99.15 78.6 77.89
Radisson Hotel.......... Schaumburg, IL 202 83.59 75.9 63.44
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
GUEST AVERAGE
HOTEL LOCATION ROOMS ADR OCCUPANCY REV PAR
- ----- -------- ----- ------ --------- -------
<S> <C> <C> <C> <C> <C>
DoubleTree Guest Suites...... Indianapolis, IN 137 87.05 71.0 61.81
Radisson Plaza............... Lexington, KY 367 77.76 62.1 48.29
Seelbach Hilton.............. Louisville, KY 321 109.73 62.9 69.02
Holiday Inn Select New Or-
leans International Airport. Kenner, LA 304 84.29 74.8 63.03
Lafayette Hilton & Towers.... Lafayette, LA 328 73.65 72.8 53.62
Hotel Maison de Ville........ New Orleans, LA 23 260.56 68.7 179.09
Holiday Inn Annapolis........ Annapolis, MD 220 82.51 59.4 49.00
Radisson Cross Keys.......... Baltimore, MD 146 89.63 72.6 65.07
Sheraton Columbia............ Columbia, MD 289 90.72 69.8 63.32
Holiday Inn Express BWI Air-
port........................ Hanover, MD 159 65.10 83.0 54.02
Hampton Inn Ocean City....... Ocean City, MD 168 85.21 47.3 40.32
Metro Airport Hilton Suites.. Detroit, MI 151 81.37 85.7 69.73
Hilton Airport Hotel Grand
Rapids...................... Grand Rapids, MI 226 84.38 64.7 54.61
Holiday Inn Sports Complex... Kansas City, MO 163 68.96 71.8 49.51
Holiday Inn Forest Park St.
Louis....................... St. Louis, MO 120 70.63 75.3 53.21
Sheraton Airport Plaza....... Charlotte, NC 226 88.79 69.8 61.98
Courtyard by Marriott Durham. Durham, NC 146 78.98 73.2 57.82
Hilton Hotel Durham.......... Durham, NC 194 89.23 70.4 62.80
Four Points Hotel............ Cherry Hill, NJ 213 73.72 60.7 44.75
Westin Morristown............ Morristown, NJ 201 126.04 59.3 74.74
Courtyard by Marriott
Meadowlands................. Secaucus, NJ 165 103.25 85.9 88.67
Marriott Hotel............... Somerset, NJ 434 111.62 75.0 83.72
Holiday Inn.................. Tinton Falls, NJ 171 78.89 72.2 56.96
DoubleTree Hotel............. Albuquerque, NM 294 80.50 67.2 54.10
Wyndham Albuquerque Airport
Hotel....................... Albuquerque, NM 276 60.67 75.3 45.70
Radisson Inn Rochester....... Rochester, NY 171 65.23 72.0 46.95
Radisson Hotel Southwest..... Cleveland, OH 237 78.06 66.6 51.99
Hilton Hotel Toledo.......... Toledo, OH 213 67.80 67.4 45.71
Westin Oklahoma.............. Oklahoma City, OK 399 80.29 47.8 38.38
Great Valley Sheraton........ Frazer, PA 154 100.44 76.3 76.64
Embassy Suites Center City... Philadelphia, PA 288 127.64 73.6 93.94
Holiday Inn Select Bucks
County...................... Trevose, PA 215 89.89 74.4 66.87
Arlington Hilton............. Arlington, TX 310 85.92 72.2 62.03
Austin Hilton & Towers....... Austin, TX 320 75.64 72.9 55.14
DoubleTree Hotel............. Austin, TX 350 88.08 74.9 65.97
Holiday Inn Dallas DFW Air-
port West................... Bedford, TX 243 62.53 81.1 50.70
Dallas Renaissance........... Dallas, TX 289 92.94 53.4 49.63
Radisson Hotel............... Dallas, TX 305 61.07 74.1 45.25
Sheraton Hotel............... Dallas, TX 348 64.61 61.4 39.67
Houston Southwest Hilton..... Houston, TX 293 71.43 68.5 48.93
Marriott Houston West Loop... Houston, TX 302 103.60 72.6 75.25
Sheraton Houston Brookhollow. Houston, TX 382 76.85 61.0 46.88
Westchase Hilton & Towers.... Houston, TX 295 95.72 79.5 76.10
Holiday Inn Select Dallas DFW
Airport South............... Irving, TX 409 77.92 73.9 57.59
Midland Hilton & Towers...... Midland, TX 249 71.14 54.2 38.56
Salt Lake Airport Hilton..... Salt Lake City, UT 287 80.05 78.6 62.92
Holiday Inn Historic District
Alexandria.................. Alexandria, VA 178 101.20 71.8 72.68
Ramada Old Town Alexandria... Alexandria, VA 258 94.47 62.8 59.36
Arlington Hilton............. Arlington, VA 209 110.31 78.3 86.37
National Airport Hilton...... Arlington, VA 386 96.78 67.3 65.13
Hampton Inn Richmond Airport. Richmond, VA 124 66.63 81.8 54.51
Holiday Inn Richmond West.... Richmond, VA 280 59.67 60.9 36.36
Bellevue Hilton.............. Bellevue, WA 180 110.38 79.3 87.53
Crowne Plaza Madison......... Madison, WI 227 91.48 74.3 67.98
Holiday Inn Calgary Airport.. Calgary, Alberta 170 51.34 72.2 37.07
Sheraton Hotel............... Guildford, B.C. 280 72.85 74.8 54.49
Holiday Inn-Metrotown........ Vancouver, B.C. 100 75.03 87.8 65.88
Ramada Vancouver Centre...... Vancouver, B.C. 118 75.00 81.8 61.35
</TABLE>
47
<PAGE>
THE PARTICIPATING LEASES
Prior to the effective date of the Merger, MeriStar Hotels, operating
through Hotels OP, will enter into a lease with the REIT or its respective
subsidiary (a "Participating Lease") for each CapStar Owned Hotel. In
addition, the Company and AGH Leasing will enter into amended and restated
Participating Leases with the REIT for each of the AGH Owned Hotels that is
currently leased by AGH Leasing, which will conform the Participating Leases
for the applicable AGH Owned Hotels with the Participating Leases for the
CapStar Owned Hotels, except that (a) the base rent and percentage rent for
each Participating Lease of an applicable AGH Owned Hotel will not be modified
(except as described below with respect to "discounted revenues") and (b) the
initial term of each Participating Lease of an applicable AGH Owned Hotel will
not be modified (though renewal options will be added).
The obligations of Lessee under each Participating Lease will be guaranteed
by MeriStar Hotels.
TERM
Each Participating Lease of an AGH Owned Hotel provides for an initial term
of 12 years commencing on the date on which the hotel was acquired. Each
Participating Lease of a CapStar Owned Hotel provides for an initial term of
12 years commencing on the effective date of the Merger. Each Participating
Lease of an AGH Owned Hotel will be modified to provide, and each
Participating Lease of a CapStar Owned Hotel will provide, Lessee with three
renewal options of five years each (except in the case of Properties with
ground leases having a remaining term of less than 40 years) provided that (a)
Lessee will not have the right to a renewal if there shall have occurred a
change in the tax law which would permit the REIT to operate the hotel
directly; (b) if Lessee shall elect not to renew a Participating Lease for any
REIT Owned Hotel, then the REIT shall have the right to reject the exercise of
a renewal right on a Participating Lease of a comparable hotel; and (c) the
rent for each renewal term shall be adjusted to reflect the then fair market
rental value of the hotel. If the REIT and MeriStar Hotels are unable to agree
upon the then fair market rental value of the hotel, the Participating Lease
will terminate upon the expiration of the then current term and MeriStar
Hotels shall thereupon have a right of first refusal to lease the hotel from
the REIT on such terms as the REIT may have agreed upon with a third-party
lessee.
BASE RENT; PARTICIPATING RENT; ADDITIONAL CHARGES
Each Participating Lease requires the lessee to pay (i) fixed monthly base
rent, (ii) on a monthly basis, the excess of participating rent over base
rent, with participating rent based on certain percentages of room revenue,
food and beverage revenue and telephone and other revenue at each hotel, and
(iii) certain other amounts, including interest accrued on any late payments
or charges ("Additional Charges"). Base rent and participating rent
departmental thresholds (departmental revenue on which the rent percentage is
based) are increased annually by a percentage equal to the percentage increase
in the consumer price index ("CPI") (CPI percentage increase plus 0.75% in the
case of the participating rent departmental revenue threshold) compared to the
price year. In addition, under certain circumstances a reduced percentage rate
will apply to the revenues attributable to certain "discounted rates" that the
Lessee may offer. Base rent is payable monthly in arrears. Participating rent
is payable in arrears based on a monthly schedule adjusted to reflect the
seasonal variations in the hotel's revenue. Participating rent payments during
each calendar quarter will be adjusted at the end of each quarter to reflect
actual results.
Other than real estate and personal property taxes and assessments, rent
payable under ground leases, casualty insurance, including loss of income
insurance, capital impositions and capital replacements and refurbishments
(determined in accordance with generally accepted accounting principles),
which are obligations of the REIT, the Participating Leases require the Lessee
to pay rent, liability insurance, all costs and expenses and all utility and
other charges incurred in the operation of the hotels. The Participating
Leases also provide for rent reductions and abatements in the event of damage
or destruction or a partial taking of any hotel.
The Participating Leases also provide for a rental adjustment under certain
circumstances in the event of (a) a major renovation of the hotel, or (b) a
change in the franchisor of the hotel.
48
<PAGE>
LESSEE CAPITALIZATION
The Participating Leases require Hotels OP (or MeriStar Hotels as guarantor
of the Participating Leases) to maintain a book net worth of not less than
$40,000,000 and MeriStar Hotel's consolidated debt cannot exceed an amount
equal to 5.5 times MeriStar Hotel's trailing 12-month EBITDA. Further,
commencing January 1, 1999, for so long as the tangible net worth of Hotels OP
(or MeriStar Hotels as guarantor of the Participating Leases) is less than
17.5% of the aggregate rents payable under the Participating Leases for the
prior calendar year, Hotels OP (or MeriStar Hotels as guarantor of the
Participating Leases) is prohibited from paying dividends or making
distributions other than dividends or distributions made for the purpose of
permitting the partners of Hotels OP to pay taxes on the taxable income of
Hotels OP attributable to its partners plus any required preferred
distributions existing to partners.
TERMINATION
The REIT will have the right to terminate the applicable Participating Lease
upon the sale of a hotel to a third-party or, upon the REIT's determination
not to rebuild after a casualty, upon payment to Lessee of the fair market
value of the leasehold estate (except for properties initially identified by
the REIT and MeriStar Hotels as properties slated to be sold). The fair market
value of the leasehold estate will be determined by discounting to present
value at a discount rate of 10% per annum the cash flow for each remaining
year of the then current lease term, which cash flow will be deemed to be the
cash flow realized by Lessee under the applicable Participating Lease for the
12-month period preceding the termination date. The REIT will receive a credit
against any such termination payments an amount equal to any outstanding "New
Lease Credits" which shall mean the projected cash flow (determined on the
same basis as the termination payment) of any new Participating Leases entered
into between the REIT and Hotels OP or Lessee after the Effective Date for the
initial term of such new Participating Lease amortized on a straight-line
basis over the initial term of the new Participating Lease.
PERFORMANCE STANDARDS
The REIT will have the right to terminate the applicable Participating Lease
if, in any calendar year, the gross revenues from a hotel are less than 95% of
the projected gross revenues for such year as set forth in the applicable
budget unless (a) Lessee can reasonably demonstrate that the gross revenue
shortfall was caused by general market conditions beyond Lessee control or (b)
Lessee "cures" the shortfall by paying to the REIT the difference between the
rent that would have been paid to the REIT had the property achieved gross
revenues of 95% of the budgeted amounts and the rent paid based on actual
gross revenues. Lessee will not have such cure right for more than two
consecutive years.
The Participating Leases also require that Lessee spend in each calendar
year at least 95% of the amounts budgeted for marketing expenses and for
repair and maintenance expenses.
ASSIGNMENT AND SUBLEASING
Lessee will not have the right to assign a Participating Lease or sublet a
hotel without the prior written consent of the REIT. For purposes of the
Participating Lease, a change in control of MeriStar Hotels or Lessee will be
deemed an assignment of the Participating Lease and will require the REIT's
consent, which may be granted or withheld in its sole discretion.
LEGAL PROCEEDINGS
In the course of the Company's normal business activities, various lawsuits,
claims and proceedings have been or may be instituted or asserted against the
Company. Based on currently available facts, management believes that the
disposition of matters that are pending or asserted will not have a material
adverse effect on the consolidated financial position, results of operations
or liquidity of the Company.
49
<PAGE>
THE RIGHTS OFFERING
MeriStar Hotels is distributing the Rights to holders of record of (a) the
REIT Common Stock and/or (b) the REIT OP Units (other than REIT OP Units held
by the REIT or any of its subsidiaries) as of the Record Date. Each
Rightholder will receive one sixth of a Right for each share of REIT Common
Stock and/or each REIT OP Unit so held. Each whole Right will be exercisable
for one share of Common Stock. Although fractional Rights will be issued to
Rightholders, the Company reserves the right, in its sole discretion, to pay
cash in lieu of fractional shares of Common Stock that would otherwise be
issued or issuable in respect of fractional Rights exercised by Rightholders,
based on a value per whole share of Common Stock equal to the closing price of
the Common Stock on the Principal Market on the Expiration Date. Any such cash
payment will be made to the applicable Rightholder at the same time that
shares of Common Stock are issued in respect of whole Rights exercised by
Rightholders. Fractional Rights can only be exercised concurrently with the
exercise of whole Rights. The Company intends to pay cash in lieu of all such
fractional shares of Common Stock.
EXPIRATION DATE
The Rights will be exercisable at any time following 5:00 p.m., New York
City time, on the last day of the Measurement Period until the Expiration
Date. After the Expiration Date, unexercised Rights will be null and void. The
Company will not be obligated to honor any purported exercise of Rights
received by the Subscription Agent after the Expiration Date, regardless of
when the documents relating to such exercise were sent, except pursuant to the
Guaranteed Delivery Procedures described below. Notice of any extension of the
Expiration Date will be made through a press release issued by the Company.
SUBSCRIPTION PRIVILEGE
Each whole Right will entitle the Rightholder (but not a subsequent
transferee of the REIT Common Stock and/or REIT OP Units held by such
Rightholder on the Record Date) to purchase one share of Common Stock at the
Subscription Price. Certificates representing shares of Common Stock purchased
pursuant to the Subscription Privilege will be delivered to subscribers as
soon as practicable after the fourth business day following the Expiration
Date.
CONDITIONS TO SALE OF SHARES
The issuance of shares of Common Stock pursuant to the exercise of the
Subscription Privilege is conditioned upon the consummation of the Spin-Off,
the Merger and the transactions contemplated by the Lessee-Manager Acquisition
Agreement prior to the closing of the Rights Offering. See "The Merger and the
Spin-Off." The Company also reserves the right, at its sole option, to cancel
the Rights Offering if the Subscription Price is less than .. All amounts
received by the Subscription Agent pursuant to the exercise of Rights will be
held in a non-interest-bearing escrow account until the completion of the
Rights Offering. If the Rights Offering is not completed, all funds received
by the Subscription Agent in payment of the Subscription Price and held in
escrow by the Subscription Agent will be returned by mail without interest or
deduction as soon as practicable following the termination or expiration of
the Rights Offering.
EXERCISE OF RIGHTS
Rights may be exercised by Rightholders by delivering to the Subscription
Agent, at or prior to the Expiration Date, the properly completed and executed
Subscription Certificate evidencing such Rights with any required signatures
guaranteed, together with payment in full of the Subscription Price for each
share subscribed for pursuant to the Subscription Privilege. Such payment in
full must be by (a) check or bank draft drawn upon a United States bank or
postal, telegraphic or express money order payable to Continental Stock
Transfer & Trust Company, as Subscription Agent, or (b) wire transfer of funds
to the account maintained by the Subscription Agent for such purpose at 2
Broadway, New York, New York 10004, The Chase Manhattan Bank Account No.
001021389; ABA No. 021000021. Any wire transfer of funds should clearly
indicate the identity of the subscriber who is paying the Subscription Price
by the wire transfer. The Subscription Price will be deemed to
50
<PAGE>
have been received by the Subscription Agent only upon (i) clearance of any
uncertified check, (ii) receipt by the Subscription Agent of any certified
check or bank draft drawn upon a United States bank or of any postal,
telegraphic or express money order or (iii) receipt of good funds in the
Subscription Agent's account designated above. IF PAYING BY UNCERTIFIED
PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY MAY TAKE UP TO FIVE
BUSINESS DAYS TO CLEAR. ACCORDINGLY, RIGHTHOLDERS WHO WISH TO PAY THE
SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE
PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH
PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER PAYMENT
BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF
FUNDS.
The address to which the Subscription Certificates and payment of the
Subscription Price should be delivered is:
Continental Stock Transfer & Trust Company
2 Broadway
New York, New York 10004
Telephone: (212) 509-4000
If a Rightholder wishes to exercise Rights, but time will not permit such
Rightholder to cause the Subscription Certificate or Subscription Certificates
evidencing such Rights to reach the Subscription Agent on or prior to the
Expiration Date, such Rights may nevertheless be exercised if all of the
following conditions (the "Guaranteed Delivery Procedures") are met:
(1) such Rightholder has caused payment in full of the Subscription Price
for each share being subscribed for pursuant to the Subscription Privilege
to be received (in the manner set forth above) by the Subscription Agent on
or prior to the Expiration Date;
(2) the Subscription Agent receives, on or prior to the Expiration Date,
a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in
the form provided with the Instructions as to Use of Subscription
Certificates and International Holder Subscription Forms (the
"Instructions") distributed with the Subscription Certificates, from a
member firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. (the "NASD"), or from a
commercial bank or trust company having an office or correspondent in the
United States (each, an "Eligible Institution"), stating the name of the
exercising Rightholder, the number of Rights represented by the
Subscription Certificate or Subscription Certificates held by such
exercising Rightholder, the number of shares being subscribed for pursuant
to the Subscription Privilege, and guaranteeing the delivery to the
Subscription Agent of any Subscription Certificate evidencing such Rights
within three Trading Days following the date of the Notice of Guaranteed
Delivery; and
(3) the properly completed Subscription Certificate evidencing the Rights
being exercised, with any required signatures guaranteed, is received by
the Subscription Agent within three Trading Days following the date of the
Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed
Delivery may be delivered to the Subscription Agent in the same manner as
Subscription Certificates at the address set forth above, or may be
transmitted to the Subscription Agent by telegram or facsimile transmission
(telecopy no. (212) 509-4000. Additional copies of the form of Notice of
Guaranteed Delivery are available upon request from the Subscription Agent,
at the address set forth above.
A Rightholder who purchases less than all of the shares of Common Stock
represented by such Rightholder's Subscription Certificate will receive from
the Subscription Agent a new Subscription Certificate representing the balance
of the unsubscribed Rights, to the extent the Subscription Agent is able to
reissue a Subscription Certificate prior to the Expiration Date.
Unless a Subscription Certificate (1) provides that the shares of Common
Stock to be issued pursuant to the exercise of Rights represented thereby are
to be delivered to the Rightholder or (2) is submitted for the account of an
Eligible Institution, signatures on such Subscription Certificate must be
guaranteed by an Eligible Institution.
51
<PAGE>
Rightholders who hold Rights for the account of others, such as brokers,
trustees or depositaries for securities, should provide a copy of this
Prospectus to the respective beneficial owners of such Rights as soon as
possible, ascertain such beneficial owners' intentions and obtain instructions
with respect to the Rights. If the beneficial owner so instructs, the record
Rightholder should complete Subscription Certificates and submit them to the
Subscription Agent with the proper payment. In addition, beneficial owners of
Rights held through such a Rightholder should contact the Rightholder and
request the Rightholder to effect transactions in accordance with the
beneficial owner's instructions. Beneficial holders should be aware that
brokers or other record Rightholders may establish deadlines for receiving
instructions from beneficial holders significantly in advance of the
Expiration Date.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail.
The Company anticipates that the exercise of the Subscription Privilege may
be effected through the facilities of The Depository Trust Company.
DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE COMPANY, AGH, CAPSTAR OR ANY OF
THEIR AFFILIATES, BUT RATHER SEND THEM TO THE SUBSCRIPTION AGENT AS REFERENCED
ABOVE.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK
OF THE RIGHTHOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO
ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT AT OR PRIOR
TO THE EXPIRATION DATE. BECAUSE UNCERTIFIED, PERSONAL CHECKS MAY TAKE UP TO
FIVE BUSINESS DAYS TO CLEAR, RIGHTHOLDERS ARE STRONGLY URGED TO PAY, OR
ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR
WIRE TRANSFER OF FUNDS.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by the Company, whose determinations
will be final and binding. The Company in its sole discretion may waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as it may determine, or reject the purported exercise of any
Right. Subscriptions will not be deemed to have been received or accepted
until all irregularities have been waived or cured within such time as the
Company determines in its sole discretion. The Company reserves the right to
reject any purchases not properly submitted or the acceptance of which would,
in the opinion of its counsel, be unlawful. Neither the Company nor the
Subscription Agent will be under any duty to give notification of any defect
or irregularity in connection with the submission of Subscription Certificates
or incur any liability for failure to give such notification.
Any questions or requests for assistance concerning the method of exercising
Rights or requests for additional copies of this Prospectus, the Instructions
or the Notice of Guaranteed Delivery should be directed to the Subscription
Agent.
NO REVOCATION
ONCE A RIGHTHOLDER HAS EXERCISED THE SUBSCRIPTION PRIVILEGE, SUCH EXERCISE
MAY NOT BE REVOKED.
RIGHTS NOT TRANSFERABLE
The Rights may be not be transferred. The Rights will entitle only a
Rightholder (but not a subsequent transferee of the REIT Common Stock and/or
REIT OP Units held by such Rightholder on the Record Date) to purchase shares
of Common Stock at the Subscription Price. In the event that Rightholders
transfer REIT Common Stock and/or REIT OP Units owned by them as of the Record
Date, they will remain the owners of Rights issued in respect of such shares
of REIT Common Stock and/or such REIT OP Units.
52
<PAGE>
None of the Company nor the Subscription Agent nor any of their affiliates
will have any liability to a purported transferee or transferor of Rights in
connection with any purported transfer. Except for the fees charged by the
Subscription Agent (which will be paid by the Company), all commissions, fees
and other expenses (including brokerage commissions and transfer taxes)
incurred in connection with the exercise of Rights will be for the account of
the Rightholder, and none of such commissions, fees or expenses will be paid
by the Company or the Subscription Agent.
FOREIGN AND CERTAIN OTHER RIGHTHOLDERS
Subscription Certificates will not be mailed to Rightholders whose addresses
are outside the United States or who have an APO or FPO address, but will be
held by the Subscription Agent for their account. To exercise or sell Rights,
such Rightholders must notify the Subscription Agent by completing an
International Holder Subscription Form, which will be delivered to such
Rightholders (except those located in the United Kingdom) in lieu of a
Subscription Certificate, and sending it by mail or telecopy to the
Subscription Agent at the address and telecopy number specified above.
Rightholders located in the United Kingdom will not initially be provided with
International Holder Subscription Forms.
The distribution of this Prospectus and the offering of the Rights and the
shares of Common Stock in certain jurisdictions may be restricted by law. No
action has been taken by MeriStar Hotels that would permit an offering of the
Rights or such shares or the circulation or distribution of this Prospectus or
any offering material in relation to the Company, the Rights or such shares in
any country outside the United States where action for that purpose is
required. Persons into whose possession this Prospectus comes are required by
the Company to inform themselves about and to observe any such restrictions.
FEDERAL INCOME TAX CONSEQUENCES
The following summary describes the material United States federal income
tax considerations affecting Rightholders in the Rights Offering. This summary
is based upon laws, regulations, rulings, and decisions currently in effect.
This summary does not discuss all aspects of federal taxation that may be
relevant to a particular investor or to certain types of investors subject to
special treatment under the federal tax laws (for example, banks, dealers in
securities, life insurance companies, tax-exempt organizations, and foreign
persons), nor does it discuss any aspect of state, local, or foreign tax laws.
In the opinion of Paul, Weiss, Rifkind, Wharton & Garrison ("Special Tax
Counsel"), the following discussion accurately reflects the material federal
income tax consequences of the Rights Offering to the Rightholders.
RIGHTHOLDERS SHOULD THEREFORE CONSULT THEIR OWN TAX ADVISORS CONCERNING
THEIR INDIVIDUAL TAX SITUATIONS AND THE TAX CONSEQUENCES OF THE RIGHTS
OFFERING UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, AND UNDER ANY
APPLICABLE STATE, LOCAL, OR FOREIGN TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF CAPSTAR COMMON STOCK
DISTRIBUTION OF RIGHTS TO HOLDERS OF CAPSTAR COMMON STOCK
Although the matter is not entirely free from doubt, in the opinion of
Special Tax Counsel because the Rights Offering is an integral part of a
series of related transactions culminating in the Merger, the distribution of
Rights to holders of CapStar Common Stock should constitute taxable boot
received in the Merger (as described in "The Merger and the Spin-Off--
Restructuring and Spin-Off"). The distribution of the Common Stock of MeriStar
Hotels should also constitute taxable boot received in the Merger.
As a result, holders of CapStar Common Stock will recognize gain in the
Merger equal to the lesser of (i) the fair market value of the Rights and the
Common Stock of MeriStar Hotels received by such stockholder and (ii) the fair
market value of the Common Stock of the REIT, the Common Stock of MeriStar
Hotels and the Rights received in the Merger minus the adjusted tax basis of
such stockholder in its CapStar Common Stock exchanged therefor. The amount of
gain recognized by holders of CapStar Common Stock that "has the effect of the
distribution of a dividend" will be treated as ordinary dividend income to the
extent of the stockholder's
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<PAGE>
ratable share of the undistributed earnings and profits of CapStar as of the
effective time of the Merger, and any excess will be treated as gain from the
exchange of property. Such gain will be capital gain if such shares of CapStar
Common Stock were held as a capital asset at the effective time of the Merger.
In general, the determination as to whether the gain recognized by a CapStar
stockholder in the Merger will be treated as capital gain or dividend income
depends upon whether and to what extent the transactions related to the Merger
will be deemed to reduce the stockholder's percentage ownership of the REIT
following the Merger. For purposes of that determination, the stockholder is
treated as if it first exchanged all of its shares of CapStar Common Stock
solely for Common Stock of the REIT and then the REIT immediately redeemed
(the "deemed redemption") a portion of such Common Stock of the REIT in
exchange for the boot the stockholder actually received. If, under section 302
of the Code, the deemed redemption is "substantially disproportionate" with
respect to a CapStar stockholder, the gain recognized will be treated as
capital gain. One requirement that must be met in order for the deemed
redemption to be "substantially disproportionate" is that the percentage of
the outstanding voting stock of the REIT following the Merger and the deemed
redemption considered owned by the stockholder is less than 80% of the
percentage of the outstanding voting stock of the REIT considered owned by the
stockholder following the Merger but immediately before the deemed redemption.
Based on calculations of the relative values of the Common Stock of the REIT,
the Common Stock of MeriStar Hotels and the Rights to be received by holders
of CapStar Common Stock, it is anticipated that the deemed redemption will not
be "substantially disproportionate" with respect to holders of CapStar Common
Stock. Accordingly, unless a CapStar shareholder qualifies for the exception
described below, the gain recognized by such shareholder will be taxed as
dividend income to the extent of the accumulated earnings and profits of
CapStar at the time of Merger.
However, section 302 of the Code also provides that if the deemed redemption
is "not essentially equivalent to a dividend" with respect to the stockholder,
then any gain recognized by the stockholder in the transaction will be capital
gain. In general, in order for the deemed redemption to be "not essentially
equivalent to a dividend", the deemed redemption must result in a "meaningful
reduction" in the stockholder's deemed percentage stock ownership of the REIT
following the Merger. That determination generally requires a comparison of
(i) the percentage of the outstanding stock of the REIT the stockholder is
considered to have owned immediately before the deemed redemption and (ii) the
percentage of the outstanding stock of the REIT the stockholder owns
immediately after the deemed redemption. The Internal Revenue Service has
indicated in a published ruling that, in the case of a small minority holder
of a publicly-held corporation who exercises no control over corporate
affairs, a reduction in the holder's proportionate interest in the corporation
from .0001118% to .0001081% would constitute a meaningful reduction.
In applying the foregoing tests, under the attribution rules of section 318
of the Code, a stockholder is deemed to own (i) stock owned and, in some
cases, constructively owned by family members, by certain estates and trusts
of which the stockholder is a beneficiary and by certain affiliated entities
and (ii) stock subject to an option actually or constructively owned by the
stockholder or such other persons. As the determination as to whether a
CapStar stockholder has recognized capital gain with respect to the receipt of
the Rights is complex, each stockholder that believes that it might qualify
for capital gain treatment under the above rules is urged to consult its tax
advisor with respect to such determination.
To the extent that the gain recognized by a holder of CapStar Common Stock
"has the effect of the distribution of a dividend", the amount that will be
treated as ordinary dividend income will depend on the earnings and profits of
CapStar at the effective time of the Merger. Earnings and profits immediately
prior to the effective time of the Merger will be increased by an amount equal
to the sum of the fair market value of the Rights and the excess of the fair
market value of the Common Stock of MeriStar Hotels over CapStar's tax basis
in such stock.
If the distribution of the Rights instead was treated as a distribution of
property under Section 301 of the Code, an amount equal to the fair market
value of the Rights on the date of distribution would be treated as a
54
<PAGE>
dividend to the extent of the current and accumulated earnings and profits of
CapStar on such date, including earnings and profits resulting from the
distribution of the Rights, as described in the preceding paragraph. Any
amount in excess of the earnings and profits of CapStar would be treated first
as a tax-free return of capital, reducing the stockholder's tax basis in its
CapStar Common Stock, and any amount in excess of tax basis would be taxable
as gain from sale or exchange of such stockholder's shares of CapStar Common
Stock. Such gain would be capital gain if such stockholder's shares of CapStar
Common Stock were held as a capital asset on the date of distribution.
The tax basis of a CapStar stockholder in the Rights received in the
distribution will be the fair market value of such Rights, and the holding
period for such Rights will begin on the date of the distribution.
Whether the Rights Offering is treated as a distribution of boot in a
reorganization or as a dividend, CapStar will recognize gain on the
distribution of the Rights in an amount equal to the fair market value of such
Rights at the time of the distribution. No gain or loss will be recognized by
MeriStar as a result of the distribution of the Rights in the Rights Offering.
EXERCISE OF RIGHTS BY HOLDERS OF CAPSTAR COMMON STOCK
Holders of CapStar Common Stock will not recognize gain or loss upon the
exercise of the Rights. Such holders who receive shares of MeriStar Hotels
Common Stock upon such exercise will take a tax basis in those shares equal to
the sum of the price paid on exercise and the Rightholder's tax basis in the
Rights.
LAPSE OF RIGHTS BY HOLDERS OF CAPSTAR COMMON STOCK
Holders of CapStar Common Stock who fail to exercise their Rights prior to
the Expiration Date will be deemed to have sold their Rights on that date for
an amount equal to zero. Assuming the Rights are held as capital assets, such
holders will recognize a short-term capital loss equal to their adjusted tax
basis in the Rights upon failure to exercise such Rights.
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF AGH COMMON STOCK
DISTRIBUTION OF RIGHTS TO HOLDERS OF AGH COMMON STOCK
Although the matter is not free from doubt, in the opinion of Special Tax
Counsel, because the Rights Offering is an integral part of a series of
related transactions culminating in the Merger, including the recapitalization
in which the AGH shareholders exchange their shares for shares of the REIT,
the distribution of Rights should constitute boot received in the AGH
recapitalization.
As a result, a holder of AGH Common Stock will recognize gain equal to the
lesser of (i) the fair market value of the Rights received by such stockholder
or (ii) the fair market value of the Common Stock of the REIT, and of the
Rights minus the adjusted tax basis of such stockholder in its AGH Common
Stock exchanged therefor. The amount of gain recognized by a holder of AGH
Common Stock that "has the effect of the distribution of a dividend" will be
treated as ordinary dividend income to the extent of the stockholder's ratable
share of the undistributed earnings and profits of AGH as of the effective
time of the Merger and any excess will be treated as gain from the exchange of
property. Such gain will be capital gain if such shares of AGH Common Stock
were held as a capital asset at the effective time of the Merger.
In general, the determination as to whether the gain so recognized by an AGH
stockholder will be treated as capital gain or dividend income depends upon
whether and to what extent the transactions related to the Merger will be
deemed to reduce the stockholder's percentage ownership of the REIT following
the Merger. For purposes of that determination, the stockholder is treated as
if it first exchanged all of its shares of AGH Common Stock solely for Common
Stock of the REIT and then the REIT immediately redeemed (the "deemed
redemption") a portion of such Common Stock of the REIT in exchange for the
boot the stockholder actually
55
<PAGE>
received. If, under section 302 of the Code, the deemed redemption is
"substantially disproportionate" with respect to a AGH stockholder, the gain
recognized will be treated as capital gain. One requirement that must be met
in order for the deemed redemption to be "substantially disproportionate" is
that the percentage of the outstanding voting stock of the REIT following the
Merger and the deemed redemption considered owned by the stockholder is less
than 80% of the percentage of the outstanding voting stock of the REIT
considered owned by the stockholder following the Merger but immediately
before the deemed redemption. Although the matter is not free from doubt, in
determining whether this test is satisfied, the reduction in percentage
interests of the AGH stockholder as a result of the issuance of additional
shares of the REIT to former CapStar stockholders in the Merger should be
taken into account. Based on calculations of the relative values of the Common
Stock of the REIT, the Rights to be received by holders of AGH Common Stock
and the amount of stock to be issued to former CapStar stockholders in the
Merger, it is anticipated that the deemed redemption will be "substantially
disproportionate" with respect to holders of AGH Common Stock. Accordingly,
the gain recognized by such shareholder will be taxed as a capital gain.
In applying the foregoing tests, under the attribution rules of section 318
of the Code, a stockholder is deemed to own (i) stock owned and, in some
cases, constructively owned by family members, by certain estates and trusts
of which the stockholder is a beneficiary and by certain affiliated entities
and (ii) stock subject to an option actually or constructively owned by the
stockholder or such other persons. As the determination as to whether an AGH
stockholder has recognized capital gain with respect to the receipt of the
Rights is complex, each stockholder that believes that it might qualify for
capital gain treatment under the above rules is urged to consult its tax
advisor with respect to such determination.
If the distribution of the Rights instead was treated as a distribution of
property under Section 301 of the Code, an amount equal to the fair market
value of the Rights on the date of distribution would be treated as a dividend
to the extent of the current and accumulated earnings and profits of AGH on
such date, including earnings and profits resulting from the distribution of
the Rights. The earnings and profits of AGH immediately prior to the effective
time of the Merger would be increased by an amount equal to the fair market
value of the Rights. Any amount in excess of the earnings and profits of AGH
would be treated first as a tax-free return of capital, reducing the
stockholder's tax basis in its AGH Common Stock, and any amount in excess of
tax basis would be taxable as gain from sale or exchange of such stockholder's
shares of AGH Common Stock. Such gain would be capital gain if such
stockholder's shares of AGH Common Stock were held as a capital asset on the
date of distribution.
The tax basis of an AGH stockholder in the Rights received in the
distribution will be the fair market value of such Rights, and the holding
period for such Rights will begin on the date of the distribution.
Whether the Rights Offering is treated as a distribution of boot in a
reorganization or as a dividend, AGH will recognize gain on the distribution
of the Rights in an amount equal to the fair market value of such Rights at
the time of the distribution.
EXERCISE OF RIGHTS BY HOLDERS OF AGH COMMON STOCK
Holders of AGH Common Stock will not recognize gain or loss upon the
exercise of the Rights. Such holders who receive shares of MeriStar Hotels
Common Stock upon such exercise will take a tax basis in those shares equal to
the sum of the price paid on exercise and the Rightholder's tax basis in the
Rights.
LAPSE OF RIGHTS BY HOLDERS OF AGH COMMON STOCK
Holders of AGH Common Stock who fail to exercise their Rights prior to the
Expiration Date will be deemed to have sold their Rights on that date for an
amount equal to zero. Assuming the Rights are held as capital assets, such
holders will recognize a short-term capital loss equal to their adjusted tax
basis in the Rights upon failure to exercise such Rights.
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<PAGE>
FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OF REIT OP UNITS
DISTRIBUTION TO HOLDERS OF REIT OP UNITS
Although the matter is not free from doubt, in the opinion of Special Tax
Counsel the distribution of the Rights by MeriStar Hotels to holders of REIT
OP Units in their capacity as such should not initially be a taxable event to
the recipient.
EXERCISE OF RIGHTS BY HOLDERS OF REIT OP UNITS
Although there is not published authority directly on point, based upon
internal IRS memoranda, holders of REIT OP Units who exercise their Rights
will recognize ordinary taxable income in an amount equal to the fair market
value of such Rights on the date of exercise. Such holders would take a tax
basis in such shares received upon exercise equal to the exercise price paid
under the Rights Offering and the amount of ordinary income recognized upon
exercise as described herein.
LAPSE OF RIGHTS BY HOLDERS OF REIT OP UNITS
Holders of REIT OP Units who fail to exercise their Rights prior to the
Expiration Date should recognize no income, gain or loss upon the lapse of
such Rights unexercised.
RISK OF RECHARACTERIZATION TO HOLDERS OF REIT OP UNITS
Although MeriStar Hotels, the REIT and the REIT Operating Partnership intend
to take the position that the issuance of the Rights will be characterized for
federal income tax purposes as described above, it is possible that the IRS
might recharacterize the Rights Offering. For example, it is possible the IRS
could view the REIT Operating Partnership as the distributor of the Rights. If
this were the case, the distribution of the Rights to holders of REIT OP Units
would be treated as a partnership distribution of marketable securities so
that such unit-holder would have to recognize capital gain to the extent that
the fair market value of the Rights as of the date of distribution exceeds
such holder's basis in such units. Under such a view, holders of REIT OP Units
would take a basis in the Rights equal to the fair market value of the Rights
as of the date of distribution.
If the offering were recharacterized in this way, holders of REIT OP Units
would not recognize further gain or loss upon the exercise of their Rights.
Assuming such Rights were held as capital assets, holders of REIT OP Units
would recognize a short-term capital loss equal to their adjusted tax basis in
the Rights upon failure to exercise such Rights.
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<PAGE>
MANAGEMENT
MeriStar Hotels was recently formed. None of the Company's executive
officers has yet received compensation from or on behalf of MeriStar Hotels
since its formation. The Company intends to enter into employment agreements
with certain executive officers and will pay a salary and/or other
compensation to such executive officers for their services in such capacities
as set forth below under "Executive Compensation." Options have been, and in
the future may be, granted to executive officers. See "Stock Option Grants."
THE BOARD OF DIRECTORS
The Board of Directors will be divided into three classes of directors. The
initial term of the first, second and third classes expires in 2001, 2002 and
2003, respectively. Directors of each class will be elected for three-year
terms upon the expiration of the initial class terms, and, beginning in 2001
and each year thereafter, each class of directors will be elected by the
stockholders. As of the Spin-off and the effective date of the Merger, the
following individuals are expected to become directors of MeriStar Hotels:
<TABLE>
<CAPTION>
WILL SERVE AS A
DIRECTOR OF
NAME, PRINCIPAL OCCUPATION MERISTAR HOTELS
AND BUSINESS EXPERIENCE BEGINNING AGE CLASS
-------------------------- --------------- --- -----
<S> <C> <C> <C>
DANIEL L. DOCTOROFF.................................. 1998 39 I
Daniel L. Doctoroff has been a Director of CapStar
since 1996, a Managing Director of Oak Hill
Partners, Inc., the investment advisor to several
private investment funds (including Acadia Partners,
L.P.), and its predecessor since August 1987; Vice
President and Director of Acadia Partners MGP, Inc.
since March 1992; Vice President of Keystone, Inc.
since March 1992; and a Managing Partner of
Insurance Partners Advisors, L.P. since February
1994. All of such entities are affiliates of Acadia
Partners. Mr. Doctoroff is also a Director of Bell &
Howell Holdings Company, Kemper Corporation and
Specialty Foods Corporation.
KENT R. HANCE........................................ 1998 55 II
Kent R. Hance has been a director of AGH since July
1996. Since 1994, Mr. Hance has been a law partner
in the firm Hance, Scarborough, Woodward & Weisbart,
L.L.P., Austin, Texas, and from 1991 to 1994, he was
a law partner in the firm of Hance and Gamble. From
1985 to 1987, he was a law partner with Boyd, Viegal
and Hance. Mr. Hance also served as a member of the
Texas Railroad Commission from 1987 until 1991 and
as its Chairman from 1989 until 1990. From 1979 to
1985, he served as a member of the United States
Congress. In addition, Mr. Hance served as a State
Senator in the State of Texas from 1975 to 1979 and
was a professor of business law at Texas Tech
University from 1969 to 1973.
STEVEN D. JORNS...................................... 1998 49 I
Steven D. Jorns has been the Chairman of the Board
of Directors, Chief Executive Officer and President
of AGH since April 1996. Mr. Jorns is the founder
of, and has served since its formation in 1981 as
Chairman of the Board of Directors, Chief Executive
Officer and President of, AGHI, a hotel management
company. Prior to forming AGHI, Mr. Jorns spent
seven years with an affiliate of General Growth
Companies overseeing that company's hotel portfolio.
Prior to that, Mr. Jorns was associated with
Hospitality Motor Inns, a division of Standard Oil
of Ohio, and held marketing positions with Holiday
Inns, Inc.
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
WILL SERVE AS A
DIRECTOR OF
NAME, PRINCIPAL OCCUPATION MERISTAR HOTELS
AND BUSINESS EXPERIENCE BEGINNING AGE CLASS
-------------------------- --------------- --- -----
<S> <C> <C> <C>
JOSEPH MCCARTHY..................................... 1998 65 I
Joseph McCarthy has been retired since 1994 and has
been a Director of CapStar since 1996. From 1993 to
1994 he served as Chairman of the Board for Motel
6. From 1985 to 1993, he served as President and
Chief Executive Officer for Motel 6. From 1980 to
1985, he served as President and Chief Executive
Officer of Lincoln Hotels. From 1976 to 1980, he
served as President and Chief Executive Officer of
Quality Inns International. Prior to that, from
1971 to 1976, he served as Senior Vice President of
the Sheraton Corporation.
DAVID E. MCCASLIN................................... 1998 41 III
David E. McCaslin has been a Director of CapStar
since 1996. He has served as Chief Operating
Officer of CapStar since 1994. Mr. McCaslin joined
CapStar in 1987 as a General Manager and was named
Vice President of Operations in 1988. From 1985 to
1987, Mr. McCaslin served as General Manager for
Lincoln Hotels. Prior to that, from 1979 to 1985,
he worked for Westin Hotels in various capacities,
including Assistant General Manager, Rooms Division
Manager and Food & Beverage Manager.
JAMES MCCURRY....................................... 1998 49 III
James McCurry became a director of AGH in July
1996. Since July 1997, Mr. McCurry has been a
Partner at Bain & Company, an international
management consulting firm specializing in
corporate strategy. Mr. McCurry served from
December 1994 through December 1996 as Chief
Executive Officer of NeoStar Retail Group, Inc.
("NeoStar"), a specialty retailer of consumer
software. NeoStar filed a voluntary petition under
Chapter 11 of the U.S. Bankruptcy Code in September
1996. From April 1983 to December 1994, Mr. McCurry
was the Chairman of Babbage's Inc., a consumer
software retailer, which merged with Software Etc.
Stores, Inc. in December of 1994 to form NeoStar.
PAUL W. WHETSELL.................................... 1998 47 II
Paul W. Whetsell has been a Director of CapStar
since 1996. He has served as President and Chief
Executive Officer of CapStar and its predecessors
since its founding in 1987. From 1981 to 1986, Mr.
Whetsell served as Vice President of Development
for Lincoln Hotels in Dallas, Texas. Prior to that,
from 1973 to 1981, Mr. Whetsell worked for Quality
Inns in various capacities in its franchise
division, culminating in Vice President of
Franchise.
JAMES R. WORMS...................................... 1998 51 II
James R. Worms has served as director of AGH since
July 1996. Mr. Worms has served since August 1995
as a Managing Director of William E. Simon & Sons
L.L.C., a private investment firm and merchant bank
and President of William E. Simon & Sons Realty,
through which the firm conducts its real estate
activities. Prior to joining William E. Simon &
Sons, Mr. Worms was employed since March 1987 by
Salomon Brothers Inc., an international investment
banking firm, most recently as a managing director.
S. KIRK KINSELL..................................... 1998 43 III
S. Kirk Kinsell has been a Director and President
and Chief Operating Officer of Apple South, Inc.
since 1997. Prior to joining Apple South, Mr.
Kinsell served as President of the Franchise
Division of ITT Sheraton and its Four Point Hotels
from 1995 to 1997. Immediately prior to ITT
Sheraton, Mr. Kinsell was with Holiday Inn
Worldwide from 1988 to 1995 and last served as the
senior vice president in its franchise division.
</TABLE>
59
<PAGE>
BOARD COMMITTEES
The Board of Directors of MeriStar Hotels will have four committees: an
Audit Committee, a Compensation Committee, an Investment Committee and a
Leasing Committee.
The Audit Committee will consist of three directors who are not employees of
the Company ("Independent Directors"). The Audit Committee will be responsible
for making recommendations concerning the engagement of independent auditors,
reviewing with the independent auditors the plans and results of the audit
engagement, approving professional services provided by the independent
auditors, reviewing the independence of the independent auditors, considering
the range of audit and non-audit fees and reviewing the adequacy of the
Company's internal accounting controls.
The Compensation Committee will consist of four Independent Directors. The
Compensation Committee will be responsible for the determination of
compensation of the Company's executive officers and the administration of the
Company's employee incentive plans.
The Investment Committee of the Company will consist of the Chairman of the
Board and directors from each of MeriStar Hotels and the REIT. The Company's
Investment Committee will be responsible for the review and approval of
investments proposed by the Company.
The Leasing Committee will consist of the Chairman of the Board and three
Independent Directors. The Leasing Committee will be responsible for the
review and approval of leases to be entered into between the Hotel Parties and
the REIT Parties.
The entire Board of Directors of the Company will act as the nominating
committee for directors of the Company and will consider nominations by
stockholders for directors. The Board of Directors would be pleased to receive
suggestions from stockholders about persons it should consider as possible
members of the Board of Directors. Any such suggestion should be mailed to the
Secretary of the Company by December 31, 1998.
DIRECTORS COMPENSATION
Independent Directors of the Company will be paid an annual fee of $20,000.
In addition, each Independent Director will be paid $1,250 for attendance at
each meeting of the Board; $1,000 for attendance at each meeting of a
committee of the Board of Directors of which such director is a member and
$500 for each telephonic meeting of the Board of Directors or a committee
thereof of which such director is a member. Directors who are employees of the
Company will not receive any fees for their service on the Board of Directors
or a committee thereof. The Company will reimburse directors for their out-of-
pocket expenses in connection with their service on the Board of Directors.
OPTIONS
Pursuant to the MeriStar Hotels & Resorts, Inc. Non-Employee Directors'
Incentive Plan (the "MeriStar Hotels Directors' Plan"), each director, who is
not an officer or employee of MeriStar or its subsidiaries (each an
"Independent Director"), will be awarded an option to purchase 7,500 shares of
Common Stock upon initial commencement of service after the Spin-Off, whether
by appointment or election. Thereafter, each Independent Director will be
granted an option to purchase 5,000 shares of Common Stock on the first
business day following the Company's annual meeting of stockholders. The
number of shares authorized for issuance under the MeriStar Hotels Directors'
Plan is 125,000. The exercise price of option grants will be 100% of the fair
market value of the Common Stock on the date of grant, and options will vest
in three annual installments. The exercise price may be paid in cash, cash
equivalents acceptable to the Compensation Committee, Common Stock or a
combination thereof. Options granted under the MeriStar Hotels Directors'
Plan, once vested, are exercisable for ten years from the date of grant. Upon
termination of service as a director, options which have not vested are
forfeited and vested options may be exercised until they expire. All options
accelerate upon a change in control of MeriStar Hotels.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES RELATING TO OPTIONS
Generally, an eligible director does not recognize any taxable income, and
the Company is not entitled to a deduction upon the grant of an option. Upon
the exercise of an option, the eligible director recognizes ordinary
60
<PAGE>
income equal to the excess of the fair market value of the shares acquired
over the option exercise price, if any. The director will then take a basis in
such shares equal to their fair market value at the time of option exercise,
and any gain or loss subsequently recognized upon a sale or exchange of such
shares will be treated as capital gain or loss to such director. Special rules
may apply as a result of Section 16 of the Exchange Act. The Company is
generally entitled to a deduction equal to the compensation taxable to the
eligible director as ordinary income. Eligible directors may be subject to
backup withholding requirements for federal income tax. Options are generally
non-transferable. However, the MeriStar Hotels Directors' Plan authorizes the
granting of options which are transferable to Permitted Family Members (as
defined therein).
The transfer of an option to a Permitted Family Member will have no
immediate tax consequences to the Company, the director or the Permitted
Family Member. Upon the subsequent exercise of the transferred option by the
Permitted Family Member, the director will realize ordinary income in an
amount measured by the difference between the option exercise price and the
fair market value of the shares on the date of exercise, and the employer will
be entitled to a deduction in the same amount. Any difference between such
fair market value and the price at which the Permitted Family Member may
subsequently sell such shares will be treated as capital gain or loss to the
Permitted Family Member, long-term or short-term depending on the length of
time the shares have been held by the Permitted Family Member.
COMMON STOCK IN LIEU OF FEES
Independent Directors may elect to receive all or a portion of their annual
retainer in shares of Common Stock rather than cash. Unless an Independent
Director elects otherwise, fees paid in stock will be paid at the same time as
fees paid in cash.
AMENDMENT AND TERMINATION
The MeriStar Hotels Directors' Plan provides that the Board of Directors may
amend or terminate the MeriStar Directors' Plan at any time. An amendment will
not become effective without stockholder approval if the amendment (i)
materially increases the number of shares that may be issued under the
MeriStar Hotels Directors' Plan or (ii) stockholder approval would be required
for compliance with stock exchange rules. No options may be granted under the
MeriStar Hotels Directors' Plan after December 31, 2008.
STOCK OPTION GRANTS
The following table sets forth information regarding the proposed grants of
options under the MeriStar Hotels Directors Plan:
<TABLE>
<CAPTION>
NUMBER OF MERISTAR
STOCK OPTIONS TO
NAME AND POSITION BE GRANTED
- ----------------- ------------------
<S> <C>
Daniel L. Doctoroff--Director................................ 7,500
Kent R. Hance--Director...................................... 7,500
Joseph McCarthy--Director.................................... 7,500
James McCurry--Director...................................... 7,500
James R. Worms--Director..................................... 7,500
S. Kirk Kinsell--Director.................................... 7,500
</TABLE>
61
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth the name, age, expected title and business
experience for each person who is expected to serve as an executive officer of
MeriStar Hotels. For information concerning the business experience of Messrs.
Whetsell, Jorns and McCaslin, who are also expected to be members of the
MeriStar Hotels Board of Directors, see "Management--The Board of Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Paul W. Whetsell................. 47 Chairman of the Board and Chief Executive Officer
Steven D. Jorns.................. 49 Vice Chairman and Chief Operating Officer
David E. McCaslin................ 41 President and Director
James A. Calder.................. 35 Chief Financial Officer
John E. Plunket.................. 42 Executive Vice President, Finance and Development
</TABLE>
James A. Calder
James A. Calder has served as Senior Vice President of Finance of CapStar
since September 1997. From May 1995 to September 1997, he served as Senior
Vice President and Corporate Controller of ICF Kaiser International, Inc.
Prior to that, from July 1984 to May 1995, he worked for Deloitte & Touche LLP
in various capacities, culminating with Audit Senior Manager for the real
estate industry. He is a Certified Public Accountant.
John E. Plunket
John E. Plunket has served as Executive Vice President, Finance and
Development of CapStar since November 1993. From September 1991 to October
1993, Mr. Plunket served as Vice President and Principal Broker for CIG
International, an investment and hotel asset management company. From February
1988 to August 1991, Mr. Plunket served as Managing Director of Cassidy &
Pinkard Inc., a commercial real estate services company. From 1985 to 1987,
Mr. Plunket served as Senior Vice President for Oxford Development
Corporation. Prior to that, from December 1979 to April 1985, Mr. Plunket
worked for Marriott Corporation in various capacities, culminating in Director
of Project Finance.
EXECUTIVE COMPENSATION
The following table sets forth the compensation that is expected to be paid
by the Company during 1998 with respect to the Chief Executive Officer and the
four most highly compensated executive officers (the "Named Executive
Officers").
<TABLE>
<CAPTION>
OPTIONS TO
ANNUAL COMPENSATION BE GRANTED
--------------------- OTHER ANNUAL LONG-TERM
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
--------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
PAUL W. WHETSELL............. 1998 $190,000 $ -- $ -- --
Chief Executive Officer and
Chairman of the Board
STEVEN D. JORNS.............. 1998 190,000 -- -- 250,000
Vice Chairman and Chief Op-
erating Officer
DAVID E. MCCASLIN............ 1998 300,000 -- -- 87,500
President and Director
JAMES A. CALDER.............. 1998 200,000 -- -- 47,500(1)
Chief Financial Officer
JOHN E. PLUNKET.............. 1998 162,000 -- -- 10,000(2)
Executive Vice President,
Finance and
Development
</TABLE>
- --------
(1) Does not include 47,500 options to purchase REIT Common Stock to be
granted by the REIT in consideration for services to be rendered by Mr.
Calder to the REIT.
(2) Does not include 12,500 options to purchase REIT Common Stock to be
granted by the REIT in consideration for services to be rendered by Mr.
Plunket to the REIT.
62
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has agreed to enter into employment agreements with Paul W.
Whetsell, Steven D. Jorns, David E. McCaslin, James A. Calder and John E.
Plunket effective upon the consummation of the Formation Transactions. With
respect to Messrs. Whetsell and Jorns, each agreement will be for an initial
term of five years with automatic renewals on a year-to-year basis thereafter
unless terminated in accordance with its terms. The other employment
agreements will be for an initial term of three years, with automatic renewals
on a year-to-year basis thereafter, unless terminated in accordance with their
respective terms. Certain material terms of these agreements are as follows:
BASE SALARY
Messrs. Whetsell and Jorns will each receive a base salary of $190,000 per
year (Messrs. Whetsell and Jorns will each receive a base salary of $285,000
per year as employees of the REIT). Mr. McCaslin will receive a base salary of
$300,000 per year, Mr. Calder will receive a base salary of $200,000 per year
and Mr. Plunket will receive a base salary of $162,000 per year. Each base
salary will be subject to review annually.
ANNUAL INCENTIVE BONUS
Each executive shall be eligible to receive an annual incentive bonus at the
following targeted amounts of base salary:
<TABLE>
<CAPTION>
THRESHOLD MAXIMUM
TARGET TARGET BONUS AMOUNT
--------- ------ ------------
<S> <C> <C> <C>
Paul W. Whetsell............................... 25% 125% 150%
Steven D. Jorns................................ 25% 125% 150%
David E. McCaslin.............................. 25% 100% 125%
James A. Calder................................ 25% 85% 100%
John E. Plunket................................ 25% 85% 100%
</TABLE>
The amount of the annual bonus will be based on the achievement of
predefined operating or performance goals and other criteria to be established
by the Compensation Committee of the Board of Directors.
LONG-TERM INCENTIVES
Each executive will be eligible to participate in the MeriStar Hotels
Incentive Plan. Awards will be made in the discretion of the Compensation
Committee.
CERTAIN SEVERANCE BENEFITS
If, at any time during the term of their respective employment agreements or
any automatic renewal period, the employment of Messrs. Whetsell, Jorns,
McCaslin, Calder or Plunket is terminated, he shall be entitled to receive the
benefits described below.
Termination by the Company Without Cause or by the Executive with Good
Reason. In the case of Messrs. Whetsell and Jorns, if such executive is
terminated without cause or voluntarily terminates with "good reason," he is
entitled to a lump sum payment equal to the product of (x) the sum of (A) his
total then annual base salary and (B) the amount of his bonus for the
preceding year, or if the term of the employment agreement is terminated in
its initial year his target bonus for such year multiplied by (y) the greater
of (A) two (2) and (B) a fraction, the numerator of which is the number of
days remaining in the Term of the employment agreements, without further
extension, and the denominator of which is 365. In addition, all of the
executive's options and restricted stock will immediately vest and become
exercisable for a period of one year thereafter and shares of restricted stock
previously granted to the executive will become free from all contractual
restrictions, effective as of the termination date. In addition, the Company
will continue in effect certain benefits under the employment agreement,
including, but not limited to, life and health insurance plans, or their
equivalent for a period equal to the greater of two years or the remaining
term of the employment agreement, without further extension. The other
executives will receive (i) a lump sum payment equal to one times their then
annual base salary, (ii) the amount of their bonus for the preceding year, and
(iii) immediate vesting and exercisability of all unvested stock options and
restricted stock awards and (iv) the continuance of certain benefits under
their employment agreements, but only until the earlier of (x) one year from
the end of the term of their respective employment agreements or (y) the date
on which the executive obtains health insurance coverage from a subsequent
employer.
63
<PAGE>
Termination Due to Death or Disability. Upon termination due to death or
disability, the executive or his estate will receive a lump sum payment equal
to the executive's base salary, plus the pro rata portion of his bonus for the
fiscal year in question, in addition to payment for one year of any other
compensation due the executive pursuant to his employment contract. Any
unvested portion of such executive's stock options and restricted stock will
vest immediately and become exercisable for one year thereafter, and shares of
restricted stock previously granted shall become free from all contractual
restrictions.
Voluntary Termination or Termination for Cause. Upon voluntary termination
or termination for "cause" by the Company, the executive will receive any
accrued and unpaid base salary through the termination date. Any unvested
options will terminate immediately, and any vested options held by the
executive will expire ninety (90) days after the termination date.
Termination Following a Change in Control. If Mr. Whetsell or Mr. Jorns is
terminated without cause or voluntarily terminates with "good reason" within
24 months following a "Change in Control," the executive will receive the
following benefits: (i) a lump sum payment equal to the product of (x) the sum
of (A) his then annual base salary and (B) the amount of his bonus for the
preceding year or if the term of the employment agreement is terminated in its
initial year his target bonus for such year multiplied by (y) the greater of
(A) three (3) and (B) a fraction the numerator of which is the number of days
remaining in the Term of the employment agreement, without further extension
and the denominator of which is 365; (ii) all unvested stock options held by
the executive will immediately vest and be exercisable for the period of one
(1) year thereafter and shares of restricted stock previously granted to the
executive will become free from all contractual restrictions; and (iii) the
continuance of certain benefit under the employment agreement, including, but
not limited to, life and health insurance plans, or their equivalent for a
period equal to the greater of two years or the remaining term of the
employment agreement, without further extension. In the case of the other
executives, they would each be entitled to the same type of benefits provided
the termination occurred within 18 months of the Change in Control, except
their lump sum payment will only be two (2) times the sum of their then annual
base salary plus bonus and the total payments would be limited to the amount
which is deductible under Section 280G of the Code; but only if, by reason of
such limitation, the net after tax benefit of executive shall exceed the net
after tax benefit if such limitation were not made.
Change in Control Payments. In the case of Messrs. Whetsell and Jorns, in
the event that any accelerated vesting of the executive's 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 the
executive under Section 4999 of the Code, or any successor or other provision
with respect to "excess parachute payments" within the meaning of Section
280G(b) of the Internal Revenue Code, the Company will make a cash payment to
the executive in the amount of such excise tax (the "Excise Tax Payment") and
shall also make a cash payment to the executive in an amount equal to the
total of federal, state and local income and excise taxes for which the
executive may be liable on account of such Excise Tax Payment.
TERMINATION WITHIN 24 MONTHS OF EFFECTIVE TIME
Notwithstanding anything to the contrary, if the employment of Messrs.
Whetsell or Jorns is terminated for any reason within 24 months after the
consummation of the Formation Transactions, any pre-Formation Transaction
stock options or other awards will immediately vest and remain exercisable in
accordance with their respective terms (with a minimum of one year from the
date of termination). If the employment of Messrs. Whetsell and Jorns is
terminated other than for cause within 24 months after the consummation of the
Formation Transactions, all post-Formation Transactions stock options or other
awards made to Messrs. Whetsell and Jorns will continue to vest and remain
exercisable following any such termination of employment as if such
executive's employment had not terminated.
THE MERISTAR HOTELS INCENTIVE PLAN
The Board of Directors adopted the MeriStar Hotels & Resorts, Inc. Incentive
Plan (the "MeriStar Hotels Incentive Plan") for the purposes of (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 related entities, and (iii) associating the
interests of these individuals with the interests of the Company and its
stockholders through opportunities for increased stock ownership.
64
<PAGE>
ADMINISTRATION
The MeriStar Hotels Incentive Plan is administered by the Compensation
Committee. The Compensation Committee may delegate its authority to administer
the MeriStar Hotels Incentive Plan. 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. As used in this
summary, the term "Administrator" means the Compensation Committee or its
delegate, as appropriate.
ELIGIBILITY
Each employee of the Company or of an affiliate of the Company or any other
person whose efforts contribute to the Company's performance, excluding an
employee who is a member of the Board of Directors, is eligible to participate
in the MeriStar Hotels Incentive Plan ("Participants"). The Administrator may,
from time to time, grant stock options, stock awards, incentive awards, or
performance shares to Participants.
OPTIONS
Options granted under the MeriStar Hotels Incentive Plan may be incentive
stock options ("ISOs") or nonqualified stock options. An option entitles a
Participant to purchase shares of Common Stock from the Company at the option
price. The option price may be paid in cash, with a cash equivalent, with
shares of Common Stock, or with a combination of cash and Common Stock. The
option price will be fixed by the Administrator at the time the option is
granted, but the price cannot be less than 100% for existing employees (85% in
connection with the hiring of new employees) of the shares' fair market value
on the date of grant; provided, however, no more than 10% of the shares under
the MeriStar Hotels Incentive Plan will be granted at less than 100% of fair
market value. The exercise price of an ISO may not be less than 100% of the
shares' fair market value on the date of grant (110% of the fair market value
in the case of an ISO granted to a 10% stockholder of the Company). Options
may be exercised at such times and subject to such conditions as may be
prescribed by the Administrator but the maximum term of an option is ten years
in the case of an ISO or five years in the case of an ISO granted to a 10%
stockholder.
ISOs may only be granted to employees; however, no employee may be granted
ISOs (under the MeriStar Hotels Incentive Plan or any other plan of the
Company) that are first exercisable in a calendar year for Common Stock having
an aggregate fair market value (determined as of the date the option is
granted) exceeding $100,000. In addition, no Participant may be granted
options in any calendar year for more than 750,000 shares of Common Stock.
STOCK AWARDS
Participants also may be awarded shares of Common Stock pursuant to a stock
award. A Participant's rights in a stock award will be nontransferable or
forfeitable or both unless certain conditions prescribed by the Administrator
are satisfied. These conditions may include, for example, a requirement that
the Participant continue employment with the Company for a specified period or
that the Company or the Participant achieve stated, performance-related
objectives. The objectives may be stated with reference to the fair market
value of the Common Stock or the Company'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 or return on assets or other
acceptable performance criteria. A stock award, no portion of which is
immediately vested and nonforfeitable, will be restricted, in whole or in
part, for a period of at least three years; provided, however, that the period
will be at least one year in the case of a stock award that is subject to
objectives based on one or more of the foregoing performance criteria. The
maximum number of stock awards that may be granted to an individual in any
calendar year cannot exceed 50,000 shares of Common Stock and no more than 30%
of the shares available under the plan may be issued in the form of Stock
Awards.
65
<PAGE>
INCENTIVE AWARDS
Incentive awards also may be granted under the MeriStar Hotels 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 the Common Stock or on the
Company'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 or return on assets or other acceptable performance criteria. The
period in which performance will be measured will be at least one year. No
Participant may receive an incentive award payment in any calendar year that
exceeds the lesser of (i) 100% of the Participant's base salary (prior to any
salary reduction or deferral election) as of the date of grant of the
incentive award or (ii) $250,000.
PERFORMANCE SHARE AWARDS
The MeriStar Hotels Incentive Plan also provides 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 Common Stock if certain 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 the Company for a specified period or
that the Company or the Participant achieve stated, performance-related
objectives. The objectives may be stated with reference to the fair market
value of the Common Stock or on the Company'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 or return on assets or other
acceptable performance criteria. To the extent that performance shares are
earned, the obligation may be settled in cash, in Common Stock, or by a
combination of the two. No Participant may be granted performance shares for
more than 12,500 shares of Common Stock in any calendar year.
TRANSFERABILITY
Awards granted under the MeriStar Hotels Incentive Plan are generally
nontransferable. The Compensation Committee may, however, grant awards other
than ISOs, which are transferable to Permitted Family Members.
SHARE AUTHORIZATION
At any given time, the maximum number of shares of Common Stock that may be
issued pursuant to awards granted under the MeriStar Hotels Incentive Plan
will be the total of (i) twelve (12%) percent of the number of shares of
Common Stock that were outstanding as of the end of the immediately preceding
calendar year (rounded downward if necessary to eliminate fractional shares),
minus (ii) the number of shares subject to awards which were granted under the
MeriStar Hotels Incentive Plan through the last day of the immediately
preceding calendar year, plus (iii) as of the last day of the immediately
preceding calendar year, the number of shares with respect to which previously
granted awards have expired. For calendar year 1998, the maximum number of
shares of Common Stock that may be issued pursuant to the MeriStar Hotels
Incentive Plan will be twelve (12%) percent of the number of shares of Common
Stock outstanding after the Spin-Off. In addition to the foregoing, in no
event may the total number of shares of Common Stock covered by outstanding
ISOs granted under the MeriStar Hotels Incentive Plan, plus the number of
shares of Common Stock issued pursuant to the exercise of ISOs, whenever
granted under the MeriStar Hotels Incentive Plan, exceed approximately 1.4
million shares. All awards made under the MeriStar Hotels Incentive Plan will
be evidenced by written agreements between the Company and the Participant.
The share limitation and the terms of outstanding awards will be adjusted, as
the Compensation Committee deems appropriate, in the event of a stock
dividend, stock split, combination, reclassification, recapitalization or
other similar event.
TERMINATION AND AMENDMENT
No option or stock award may be granted and no performance shares may be
awarded under the MeriStar Hotels Incentive Plan more than ten years after the
earlier of the date that the MeriStar Hotels Incentive Plan is adopted by the
Board of Directors or the date that it is approved by the Company's
stockholders. The Board of
66
<PAGE>
Directors may amend or terminate the MeriStar Hotels Incentive Plan at any
time, but, except as set forth in the immediately preceding paragraph, an
amendment will not become effective without stockholder approval if the
amendment materially (i) increases the number of shares of Common Stock that
may be issued under the MeriStar Hotels Incentive Plan (other than an
adjustment as described above), (ii) changes the eligibility requirements, or
(iii) increases the benefits that may be provided under the MeriStar Hotels
Incentive Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In general, a Participant will not recognize taxable income upon the grant
or exercise of an ISO. However, upon the exercise of an ISO, the excess of the
fair market value of the shares received on the date of exercise over the
exercise price of the shares will be treated as an adjustment to alternative
minimum taxable income. When a Participant disposes of shares acquired by
exercise of an ISO, the Participant's gain (the difference between the sale
proceeds and the price paid by the Participant for the shares) upon the
disposition will be taxed as capital gain provided the Participant does not
dispose of the shares within two years after the date of grant nor within one
year after the date of exercise, and exercises the option while an employee of
the Company or of a subsidiary of the Company or within three months after
termination of employment for reasons other than death or disability. If the
first condition is not met, the Participant generally will realize ordinary
income in the year of the disqualifying disposition. If the second condition
is not met, the Participant generally will recognize ordinary income upon
exercise of the ISO.
In general, a Participant who receives a nonqualified stock option will
recognize no income at the time of the grant of the option. Upon exercise of a
nonqualified stock option, a Participant will recognize ordinary income in an
amount equal to the excess of the fair market value of the shares on the date
of exercise over the exercise price of the option. Special timing rules may
apply to a Participant who is subject to Section 16(a) of the Exchange Act.
A Participant will recognize income on account of the settlement of a
performance share award or incentive award. A Participant will recognize
income equal to any cash that is paid and with respect to performance share
awards, which are settled in shares, will recognize the fair market value of
Common Stock (on the date that the shares are first transferable or not
subject to a substantial risk of forfeiture) that is received in settlement of
the award.
The employer (either the Company or its affiliate) will be entitled to claim
a federal income tax deduction on account of the exercise of a nonqualified
option, the vesting of a restricted share award, payment under an incentive
award and the settlement of a performance share award. The amount of the
deduction will be equal to the ordinary income recognized by the Participant.
The employer will not be entitled to a federal income tax deduction on account
of the grant or the exercise of an ISO. The employer may claim a federal
income tax deduction on account of certain disqualifying dispositions of
Common Stock acquired upon the exercise of an ISO.
The transfer of a nonqualified stock option to a Permitted Family Member
will have no immediate tax consequences to the Company, the Participant or the
Permitted Family Member. Upon the subsequent exercise of the transferred
option by the Permitted Family Member, the Participant will realize ordinary
income in an amount measured by the difference between the option exercise
price and the fair market value of the shares on the date of exercise, and the
employer will be entitled to a deduction in the same amount. Any difference
between such fair market value and the price at which the Permitted Family
Member may subsequently sell such shares will be treated as capital gain or
loss to the Permitted Family Member, long-term or short-term depending on the
length of time the shares have been held by the Permitted Family Member. There
has been no formal pronouncement on the tax consequences of the transfer of
other awards. Accordingly, if such transfers are permitted, Participants will
be directed to consult their own tax advisers.
Section 162(m) of the Code places a limitation of $1,000,000 on the amount
of compensation payable to each of the named executive officers that the
Company may deduct for federal income tax purposes. The limit
67
<PAGE>
does not apply to certain performance-based compensation paid under a plan
that meets the requirements of the Code and regulations promulgated
thereunder. While the MeriStar Hotels Incentive Plan generally complies with
the requirements for performance-based compensation, options granted at less
than 100% of fair market value and stock awards granted under the MeriStar
Hotels Incentive Plan will not satisfy those requirements.
STOCK OPTIONS
The following table sets forth for certain executive officers of the Company
information regarding the grant of Stock Options as parity awards. See
"Management" for information concerning the business experience of the
proposed executive officers of the Company.
<TABLE>
<CAPTION>
NUMBER OF STOCK
OPTIONS TO BE
NAME AND POSITION GRANTED(1)
- ----------------- ---------------
<S> <C>
Steven D. Jorns............................................... 250,000
Vice Chairman, Chief Operating Officer
David E. McCaslin............................................. 87,500
President
James A. Calder............................................... 47,500
Chief Financial Officer
John E. Plunket............................................... 10,000
Executive Vice President, Finance and Development
</TABLE>
- --------
(1) The awards described herein are parity awards, such that after the Spin-
Off similarly situated executives will have the same number of options to
purchase Common Stock. Similar parity awards will be made by the REIT. The
options will vest in three annual installments beginning on the first
anniversary of the consummation of the Formation Transactions.
Except as set forth above, awards granted under the MeriStar Hotels
Incentive Plan are discretionary and are therefore not determinable at this
time.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock that would be held as of the Spin-Off
Record Date by (i) each director of MeriStar Hotels, (ii) each executive
officer of MeriStar Hotels, (iii) all directors and executive officers of
MeriStar Hotels as a group, and (iv) persons who own more than 5% of the
outstanding shares of Common Stock, assuming that each such person's
beneficial interest in CapStar Common Stock as of February 15, 1998 remains
unchanged on the Spin-Off Record Date. Except as otherwise described below,
all shares are owned directly and the indicated person has sole voting and
investment power. The number of shares of Common Stock includes the number of
shares of Common Stock that such person could receive if it exchanged OP Units
for shares of Common Stock under certain circumstances.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED CLASS*
------------------------ ------------ ----------
<S> <C> <C>
Franklin Resources, Inc.(1)......................... 2,082,637 8.4%
Pilgrim Baxter & Associates, Ltd.(2)................ 1,828,020 7.3%
Morgan Stanley, Dean Witter, Discover & Co.(3)...... 1,608,275 6.5%
Massachusetts Financial Services Company(4)......... 1,431,512 5.8%
Dresdner RCM Global Investors LLC(5)................ 1,427,800 5.7%
James A. Calder..................................... 2,000 *
Daniel L. Doctoroff................................. 65,996 *
Kent R. Hance....................................... 0 *
Steven D. Jorns..................................... 0 *
S. Kirk Kinsell..................................... 0 *
Joseph McCarthy..................................... 0 *
David E. McCaslin................................... 63,203 *
James McCurry....................................... 0 *
John E. Plunket..................................... 32,719 *
Paul W. Whetsell.................................... 454,407 1.8%
James R. Worms...................................... 0 *
Executive officers and directors as a group (10
persons)........................................... 618,325 2.5%
</TABLE>
- --------
*Represents less than 1% of the class.
(1) The business address of Franklin Resources, Inc. ("FRI") is 777 Mariners
Island Blvd., San Mateo, California 94404. Such shares are owned by one or
more open or closed-ended investment companies or other managed accounts
which are advised by direct or indirect advisory subsidiaries of FRI. Such
advisory subsidiaries may be deemed to beneficially own such shares.
Charles B. Johnson and Rupert H. Johnson, Jr. each own in excess of 10% of
FRI and, as such, also may be deemed to own such shares held, directly or
indirectly, by FRI.
(2) The business address of Pilgrim Baxter & Associates, Ltd. is 825 Duportail
Road, Wayne, Pennsylvania 19087.
(3) The business address of Morgan Stanley, Dean Witter, Discover & Co. is
1585 Broadway, New York, New York 10036. Such shares are owned by accounts
managed on a discretionary basis by Morgan Stanley, Dean Witter, Discover
& Co. No such account holds more than 5% of the class.
(4) The business address of Massachusetts Financial Services Company is 500
Boylston Street, Boston, Massachusetts 02116.
(5) The business address of Dresdner RCM Global Investors LLC is Four
Embarcadero Center, San Francisco, California 94111. Dresdner RCM Global
Investors LLC ("Dresdner RCM") is an investment advisor. RCM Limited L.P.
("RCM Limited") is the Managing Agent of Dresdner RCM. RCM Limited has
beneficial ownership of such shares only to the extent that RCM Limited
may be deemed to have beneficial ownership of securities beneficially
owned by Dresdner RCM. RCM General Corporation ("RCM General") is the
General Partner of RCM Limited. RCM General has beneficial ownership of
such shares only to the extent RCM General may be deemed to have
beneficial ownership of securities beneficially owned by Dresdner RCM.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary information is qualified in its entirety by the
provisions of the Charter and By-laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. See
"Available Information."
The authorized capital stock of MeriStar Hotels consists of 100,000,000
shares of Common Stock, par value $0.01 per share, and 10,000,000 shares of
preferred stock ("Preferred Stock"), of which 100 shares of Common Stock and
no shares of Preferred Stock are outstanding. Upon completion of the Rights
Offering, a maximum of 34,000,000 shares of Common Stock and no shares of
Preferred Stock will be outstanding.
Prior to the Spin-Off, there has been no public market for the Common Stock
and there can be no assurance that any such market will develop. See "Risk
Factors--Absence of a Public Market for Common Stock."
COMMON STOCK
Voting Rights. Except as set forth below under "Certain Antitakeover
Provisions," the Charter provides that holders of Common Stock are entitled to
one vote per share on all matters submitted to a vote of stockholders.
Dividends. Each share of Common Stock is entitled to receive dividends if,
as and when declared by the Board. Under Delaware law, a corporation may
declare and pay dividends out of surplus, or if there is no surplus, out of
net profits for the fiscal year in which the dividend is declared and/or the
preceding year. No dividends may be declared out of net profits, however, if
the capital of the corporation has been diminished by depreciation in the
value of its property, losses or otherwise to an amount less than the
aggregate amount of capital represented by any issued and outstanding stock
having a preference on the distribution of assets. See "Dividend Policy."
Other Rights. Stockholders of MeriStar Hotels have no preemptive or other
rights to subscribe for additional shares. Subject to any rights of the
holders of any Preferred Stock, all holders of Common Stock are entitled to
share equally on a share-for-share basis in any assets available for
distribution to stockholders on liquidation, dissolution or winding up of
MeriStar Hotels. No shares of Common Stock are subject to redemption or a
sinking fund. All outstanding shares of Common Stock are, and the Common Stock
to be outstanding upon completion of the Rights Offering will be, fully paid
and nonassessable.
PREFERRED STOCK
The Board of Directors is authorized to issue, without further authorization
from stockholders, up to 10,000,000 shares of Preferred Stock in one or more
series and to determine, at the time of creating each series, the distinctive
designation of, and the number of shares in, the series, its dividend rate,
the number of votes, if any, for each share of such series, the price and
terms on which such shares may be redeemed, the terms of any applicable
sinking fund, the amount payable upon liquidation, dissolution or winding up,
the conversion rights, if any, and such other rights, preferences and
priorities of such series as the Board of Directors may be permitted to fix
under the laws of the State of Delaware as in effect at the time such series
is created. The issuance of Preferred Stock could adversely affect the voting
power of the holders of Common Stock and could have the effect of delaying,
deferring or preventing a change in control of MeriStar Hotels.
SERIES A JUNIOR PREFERRED STOCK
The Company expects to reserve 500,000 shares of Series A Junior Preferred
Stock for issuance upon exercise of Preferred Rights. The Series A Junior
Preferred Stock will not be redeemable and will rank, with respect to the
payment of dividends and the distribution of assets, junior to any other
series of any other classes of Preferred Stock that may exist from time to
time. Generally, each share of Series A Junior Preferred Stock will entitle
its holder to 100 votes on all matters submitted to a vote of the Company's
stockholders.
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Subject to the rights of holders of any shares of any series of Preferred
Stock ranking prior and superior to the Series A Junior Preferred Stock with
respect to dividends, holders of shares of Series A Junior Preferred Stock, in
preference to holders of Common Stock and any other junior stock, will be
entitled to receive, when, as and if declared by the Board of Directors,
quarterly cash dividends, in an amount per share equal to the greater of (i)
$1 or (ii) subject to adjustment as set forth herein, 100 times the aggregate
per share amount of all cash dividends and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions
(other than dividends payable in Common Stock or a subdivision of outstanding
shares of Common Stock) declared on the Common Stock since the immediately
preceding quarterly dividend payment date, or since the first issuance of any
share of Series A Junior Preferred Stock, in the case of the first quarterly
dividend payment date. In the event the Board of Directors declares or pays a
dividend on the Common Stock payable in shares of Common Stock or subdivides,
combines or consolidates the outstanding shares of Common Stock into a greater
or lesser number of shares of Common Stock, the amount of in-kind dividend
payable to holders of Series A Junior Preferred Stock will be adjusted for
such dividend on, or subdivision, combination or consolidation of, shares of
Common Stock. Dividends on the Series A Junior Preferred Stock generally will
be declared immediately following a dividend declaration on the Common Stock,
and will be cumulative. Accrued but unpaid dividends will not bear interest.
During such times as dividends payable on the Series A Junior Preferred
Stock are in arrears, and until such arrearages have been paid in full, the
Company will be prohibited from (i) declaring or paying dividends, or making
other distributions on any shares of stock ranking junior to the Series A
Junior Preferred Stock, (ii) declaring or paying dividends, or making other
distributions on any shares of stock ranking on a parity with the Series A
Junior Preferred Stock, except dividends paid ratably on the Series A Junior
Preferred Stock and all such parity stock, in proportion to the amounts to
which holders of all such shares are then entitled, (iii) redeeming or
otherwise acquiring for value any stock ranking junior to the Series A Junior
Preferred Stock, and (iv) redeeming or otherwise acquiring for value any
shares of Series A Junior Preferred Stock, or any shares of stock ranking on a
parity with the Series A Junior Preferred Stock, except in accordance with a
purchase offer made under certain limited circumstances. Redemptions and other
acquisitions of stock ranking junior to the Series A Junior Preferred Stock
will be permissible if such redemptions or acquisitions are made in exchange
for shares of any stock of the Company ranking junior to the Series A Junior
Preferred Stock.
In the event of any liquidation, dissolution or winding up of the Company,
no distribution will be made to the holders of shares of stock ranking junior
to the Series A Junior Preferred Stock unless and until the holders of the
Series A Junior Preferred Stock have received $100 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon. Holders of
Series A Junior Preferred Stock will be entitled to receive an aggregate
amount per share equal to 100 times the aggregate amount to be distributed per
share to holders of Common Stock. Further, no distribution will be made to the
holders of shares of stock ranking on a parity with the Series A Junior
Preferred Stock, except distributions made ratably on the Series A Junior
Preferred Stock and all such parity stock in proportion to the totals to which
the holders are entitled upon such liquidation, dissolution or winding up. In
the event the Board of Directors declares or pays a dividend payable in shares
of Common Stock or subdivides, combines or consolidates the outstanding shares
of Common Stock into a greater or lesser number of shares of Common Stock, the
amount of the liquidating distribution payable to holders of Series A Junior
Preferred Stock will be adjusted for such dividend on, or subdivision,
combination or consolidation of, shares of Common Stock.
In the event the Company enters into a consolidation, merger, combination or
other transaction pursuant to which shares of Common Stock are exchanged for
or changed into other stock or securities, cash or other property, each share
of Series A Junior Preferred Stock must be similarly exchanged or changed into
an amount per share equal to 100 times the aggregate amount of stock,
securities, cash or other property (payable in kind) into which or for which
each share of Common Stock is changed or exchanged. In the event the Board of
Directors declares or pays a dividend payable in shares of Common Stock or
subdivides, combines or consolidates the outstanding shares of Common Stock
into a greater or lesser number of shares of Common Stock, the amount payable
to holders of Series A Junior Preferred Stock in respect of a consolidation,
merger, combination or other such transaction will be adjusted for such
dividend on, or subdivision, combination or consolidation of, shares of Common
Stock.
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CERTAIN ANTITAKEOVER PROVISIONS
THE CHARTER AND BY-LAWS
The Charter and By-laws and applicable sections of the DGCL contain several
provisions that may make the acquisition of control of the Company more
difficult without the prior approval of the Board of Directors. Certain
provisions of the Charter and the By-laws, among other things: (i) classify
the Board of Directors into three classes, each of which serves for staggered
three-year terms; (ii) provide that a director of Company may be removed by
the stockholders only for cause; (iii) provide that the stockholders may amend
or repeal any of the foregoing provisions of the Charter only by a vote of 66
2/3% of the stock entitled to vote generally in the election of directors;
(iv) provide that only the Chairman of the Board, Vice Chairman, President or
the Board of Directors may call special meetings of the stockholders; (v)
provide that the stockholders may take action only at a meeting of Company
stockholders, not by written consent; (vi) provide that stockholders must
comply with certain advance notice procedures in order to nominate candidates
for election to the Board of Directors or to place stockholders' proposals on
the agenda for consideration at meetings of the stockholders and (vii) provide
that the chair of any meeting of stockholders shall have the power to adjourn
such meeting. In general, Section 203 of the DGCL prohibits publicly held
Delaware corporations from engaging in a "business combination" with an
"interested stockholder" for a period of three years following the time of the
transaction in which the person or entity became an interested stockholder,
unless (i) prior to such time, either the business combination or the
transaction which resulted in the stockholder's becoming an interested
stockholder is approved by the Board of Directors, (ii) upon consummation of
the transaction which resulted in the stockholder's becoming an interested
stockholder, the interested stockholder owned at least 85% of the outstanding
voting stock of the corporation (excluding for this purpose certain shares
owned by persons who are directors and also officers of the corporation and by
certain employee benefit plans) or (iii) on or after such date the business
combination is approved by the Board of Directors and by the affirmative vote
(and not by written consent) of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. For the purposes of
Section 203, a "business combination" is broadly defined to include mergers,
asset sales and other transactions resulting in a financial benefit to the
interested stockholder. An "interested stockholder" is a person who, together
with affiliates and associates, owns (or, in certain cases, within the
immediately preceding three years did own) 15% or more of the corporation's
voting stock. The Charter authorizes the Board of Directors to issue up to 10
million shares of Preferred Stock in series, and to establish the rights and
preferences (including the convertibility of such shares of Preferred Stock
into shares of Common Stock) of any series of Preferred Stock so issued. The
issuance of Preferred Stock could have the effect of delaying or preventing a
change in control of Company, even if such a change in control were in the
best interests of some, or a majority, of Company's stockholders. See
"Description of Capital Stock".
THE RIGHTS PLAN
The Board of Directors currently expects to adopt the Rights Plan on or
prior to the date of the Spin-Off. Pursuant to the Rights Plan, the Board of
Directors will cause to be issued one right (a "Preferred Right") for each
share of Common Stock outstanding on August 1, 1998 (the "Distribution Date").
Each Preferred Right will entitle the registered holder to purchase from
MeriStar Hotels one-hundredth of a share of Series A Junior Preferred Stock,
par value $.01 per share, of MeriStar Hotels at a price of $35 (the "Purchase
Price"), subject to adjustment. The description and terms of the Preferred
Rights will be set forth in a Rights Agreement (the "Rights Agreement"),
between MeriStar Hotels and the designated Rights Agent (the "Rights Agent").
The description set forth below is intended as a summary only and is qualified
in its entirety by reference to the form of the Rights Agreement filed as an
exhibit to the Registration Statement. See "Available Information."
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding
shares of Common Stock or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any
person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation
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of which would result in the beneficial ownership by a person or group of 20%
or more of such outstanding shares of Common Stock (the earlier of such dates
being called the "Rights Distribution Effective Date"), the Preferred Rights
will be evidenced by the certificates representing the Common Stock.
The Rights Agreement will provide that, until the Rights Distribution
Effective Date (or earlier redemption or expiration of the Preferred Rights),
the Preferred Rights will be transferred with and only with the Common Stock.
Until the Rights Distribution Effective Date (or earlier redemption or
expiration of the Preferred Rights), the MeriStar Hotels Common Stock
certificates will contain a notation incorporating the Rights Agreement by
reference. As soon as practicable following the Rights Distribution Effective
Date, separate certificates evidencing the Preferred Rights (the "Rights
Certificates") will be mailed to holders of record of the Common Stock as of
the close of business on the Rights Distribution Effective Date and such
separate Right Certificates alone will evidence the Preferred Rights.
The Preferred Rights will not be exercisable until the Rights Distribution
Effective Date. The Preferred Rights will expire on the 10th anniversary of
the Distribution Date (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Preferred Rights are earlier
redeemed or exchanged by MeriStar Hotels, in each case, as summarized below.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person and there shall have been a Rights Distribution
Effective Date, proper provision shall be made so that each holder of a
Preferred Right, other than Preferred Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the
right to receive upon exercise that number of shares of Common Stock having a
market value of two times the exercise price of the Preferred Right. In the
event that MeriStar Hotels is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group of affiliated or associated persons
becomes an Acquiring Person and there shall have been a Rights Distribution
Effective Date, proper provision will be made so that each holder of a
Preferred Right will thereafter have the right to receive, upon the exercise
thereof at the then-current exercise price of the Preferred Right, that number
of shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Preferred Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
Common Stock and there shall have been a Rights Distribution Effective Date,
and prior to the acquisition by such person or group of 50% or more of the
outstanding Common Stock, the Board of Directors may exchange the Preferred
Rights (other than Preferred Rights owned by such person or group which 51
have become void), in whole or in part, at an exchange ratio of one share of
Common Stock, or one-hundredth of a share of Series A Junior Preferred Stock
(or of a share of a class or series of the Preferred Stock having equivalent
rights, preference and privileges) per Preferred Right (subject to
adjustment).
At any time prior to the tenth day of the acquisition by a person or group
of affiliated or associated persons of beneficial ownership of 20% or more of
the outstanding Common Stock, the Board of Directors may redeem the Preferred
Rights in whole, but not in part, at a price of $.01 per Preferred Right (the
"Redemption Price"). The redemption of the Preferred Rights may be made
effective at such time on such basis and with such conditions as the Board of
Directors, in its sole discretion, may establish. Immediately upon any
redemption of the Preferred Rights, the right to exercise the Preferred Rights
will terminate and the holders of the Preferred Rights then will be eligible
to receive only the Redemption Price.
The terms of the Preferred Rights may be amended by the Board of Directors
without the consent of the holders of the Preferred Rights; provided, however,
that from and after the tenth day after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person, no such
amendment may adversely affect the interests of the holders of the Preferred
Rights.
Until a Preferred Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of MeriStar Hotels, including, without limitation,
the right to vote or to receive dividends.
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The number of outstanding Preferred Rights and the number of one-hundredths
of a share of Series A Junior Preferred Stock issuable upon exercise of each
Preferred Right also will be subject to adjustment in the event of a split of
the Common Stock, or a stock dividend on the Common Stock payable in Common
Stock or subdivisions, consolidations or combinations of the Common Stock
occurring, in any such case, prior to the Rights Distribution Effective Date.
The Purchase Price payable, and the number of shares of Series A Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Preferred Right also will be subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the shares of Series A Junior Preferred
Stock, (ii) upon the grant to holders of shares of Series A Junior Preferred
Stock of certain rights or warrants to subscribe for or purchase shares of
Series A Junior Preferred Stock at a price, or securities convertible into
shares of Series A Junior Preferred Stock or (iii) upon the distribution to
holders of shares of Series A Junior Preferred Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earning or dividends payable in shares of Series A Junior
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. No fractional shares of Series A Junior
Preferred Stock will be issued (other than fractions which are integral
multiples of one-hundredth of a share of Series A Junior Preferred Stock,
which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of shares of Series A Junior Preferred Stock on the last trading
day prior to the date of exercise.
Shares of Series A Junior Preferred Stock purchasable upon exercise of the
Preferred Rights will not be redeemable. Each share of Series A Junior
Preferred Stock will be entitled to a minimum preferential quarterly dividend
payment of $1 per share but will be entitled to an aggregate dividend of 100
times the dividend declared per share of Common Stock. In the event of
liquidation, the holders of shares of Series A Junior Preferred Stock will be
entitled to a minimum preferential liquidation payment of $100 per share but
will be entitled to an aggregate payment of 100 times the payment made per
share of Common Stock. Each share of Series A Junior Preferred Stock will have
100 votes voting together with the Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which shares of Common Stock are
exchanged, each share of Series A Junior Preferred Stock will be entitled to
receive 100 times the amount received per share of Common Stock. These rights
are protected by customary anti-dilution provisions.
Due to the nature of the shares of Series A Junior Preferred Stock's
dividend, liquidation and voting rights, the value of the one-hundredth
interest in a share of Series A Junior Preferred Stock purchasable upon
exercise of each Preferred Right should approximate the value of one share of
Common Stock.
The Preferred Rights have certain antitakeover effects. The Rights will
cause substantial dilution to a person or group of persons that attempts to
acquire MeriStar Hotels on terms not approved by the Board of Directors. The
Preferred Rights would not interfere with any merger or other business
combination approved by the Board of Directors prior to the time that a person
or group has acquired beneficial ownership of 20% or more of the Common Stock
since the Rights may be redeemed by MeriStar Hotels at the Redemption Price
until the tenth day after such time.
The Rights Plan contains certain provisions to exclude the REIT and its
affiliates from the operative provisions thereof.
RESTRICTIONS ON OWNERSHIP
The Charter also provides, with certain exceptions, that certain persons may
not own, either directly or under the attribution rules set forth in Section
318(a) of the Code, as modified by Section 856(d)(5) of the Code, more than
9.9% of the shares of any class of the Company's stock (the "Ownership
Limit").
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The Charter provides that a transfer of Common Stock that would otherwise
result in ownership of Common Stock in excess of the Ownership Limit will be
void ab initio as to the Common Stock that would otherwise be owned in
violation of the Ownership Limit and the intended transferee will acquire no
rights or economic interest in such Common Stock. In addition, the Charter
provides that Common Stock that would otherwise be owned, whether as a result
of a transfer or otherwise, in violation of the Ownership Limit will
automatically be designated as Excess Shares until the intended transferee
does not own Common Stock in excess of the Ownership Limit. Such Excess Shares
shall be transferred, by operation of law, to a special trust for the benefit
of a charitable organization designated by the Board of Directors of the
Company.
The trustee of the special trust shall have the authority to exercise any
voting rights associated with Excess Shares during the period that they are
held as Excess Shares. Except as described below, any distributions on Excess
Shares shall be paid to the trustee of the special trust for the benefit of
the charitable organization designated by the Board of Directors of the
Company. Excess Shares may be transferred only to a person designated by the
Board of Directors whose ownership of the Excess Shares will not result in a
violation of the Ownership Limit, in which case such Excess Shares cease to be
held as Excess Shares. In the event of a transfer of Excess Shares, the holder
of the shares of Common Stock that were automatically exchanged for Excess
Shares shall be entitled to receive, from the proceeds of the transfer of the
Excess Shares, an amount equal to the lesser of (a) the proceeds from the
transfer of the Excess Shares and (b) the amount paid by such holder if the
automatic designation as Excess Shares resulted from a transfer for value or,
if the automatic designation did not result from a transfer for value, the
fair market value of the shares of Common Stock on the date of their
designation as Excess Shares. In the event of a liquidation, dissolution or
winding up of the Company while shares are held as Excess Shares, the holder
of the shares of Common Stock that were automatically designated as Excess
Shares will be entitled to receive, from the proceeds of such liquidation,
dissolution or winding-up, an amount equal to the lesser of (a) the proceeds
from the liquidation, dissolution or winding-up which would have been
applicable to such shares if they had remained shares of Common Stock and (b)
the amount paid by such holder if the automatic designation as Excess Shares
resulted from a transfer for value or, if the automatic designation did not
result from a transfer for value, the fair market value of the shares of
Common Stock on the date of their designation as Excess Shares. Any excess
proceeds from a transfer of the Excess Shares or on liquidation, dissolution
or winding-up shall be paid to the trustee of the special trust for the
benefit of the designated charitable organization.
The Company shall also have the right to purchase any Excess Shares at a
price equal to the lesser of (a) the fair market value of such shares on the
date that the Company or its designee exercises such right to purchase and (b)
the price per share in the transaction that resulted in designation of such
Excess Shares or, if the Excess Share designation resulted from an event other
than a transfer for value, the fair market value of the Common Stock
designated as Excess Shares at the time of such designation.
PLAN OF DISTRIBUTION
The Common Stock offered hereby is being offered by Company pursuant to the
Rights Offering.
The Company intends to distribute Rights and copies of this Prospectus to
holders of record of the REIT Common Stock and/or the REIT OP Units on the
Record Date promptly following the effective date of the Registration
Statement of which this Prospectus forms a part.
Holders of Rights who desire to subscribe for the purchase of shares of
Common Stock in the Rights Offering are urged to complete, date and sign the
Subscription Certificate and return it to the Subscription Agent on or before
the Expiration Date, together with payment in full of the Subscription Price.
See "The Rights Offering." Any questions concerning the procedure for
subscribing for the purchase of shares should be directed to the Subscription
Agent.
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THE DEALER-MANAGER
The Company has engaged Lehman Brothers Inc. ("Lehman Brothers") to act as
dealer-manager in connection with the Rights Offering. In this capacity,
Lehman Brothers has agreed to assist in soliciting the Company's shareholders
to exercise their Rights. Lehman Brothers has not agreed to any standby or
other arrangements to purchase any Rights or any Common Stock underlying the
Rights. In addition, Lehman Brothers does not intend to engage in any
stabilization activities with respect to any of the Company's securities and
Lehman Brothers will not engage in market making activities in the Company's
securities subsequent to the date hereof and prior to the Expiration Date.
The Company has agreed to pay Lehman Brothers a fee equal to the greater of
(a) 1% of the aggregate Subscription Price for all Shares sold in the Rights
Offering, or (b) $50,000, regardless of whether the Rights Offering is
commenced, or is withdrawn, terminated or rescinded for any reason whatsoever.
The Company has also agreed to reimburse Lehman Brothers for all of its
expenses and has agreed to indemnify Lehman Brothers against certain
liabilities under the Securities Act. Such fee is not dependent on the
exercise of the Rights. Lehman Brothers has provided investment banking
services for customary compensation to the Company and its affiliates from
time to time in the past and may be engaged to do so in the future.
Other than Lehman Brothers, the Company has not engaged any dealer-managers,
financial advisors, brokers or dealers in connection with the Rights Offering
or solicitation of exercises of the Rights.
EXPERTS
The balance sheet of MeriStar Hotels & Resorts, Inc. as of March 31, 1998
and the combined financial statements of the management and leasing business
of CapStar Hotel Company and subsidiaries ("OpCo") as of December 31, 1997 and
1996 and for each of the years in the three-year period ended December 31,
1997, included in this Prospectus, have been included herein in reliance on
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The financial statements of AGH Leasing, L.P. as of December 31, 1997 and
1996 and for the year ended December 31, 1997 and for the period from July 31,
1996 through December 31, 1996, the financial statements of American General
Hospitality, Inc. as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997, and the balance sheets of Winston
Hospitality, Inc. as of October 31, 1997 and December 31, 1996 and the
statements of income, shareholders' equity, and cash flows for the ten months
ended October 31, 1997 and each of the two years in the period ended December
31, 1996, included in this registration statement have been audited by
PricewaterhouseCoopers LLP, independent accounts, as set forth in their
reports thereon. Each of the above referenced financial statements have been
included by reference herein in reliance upon the authority of said firm as
expert in accounting and auditing.
LEGAL MATTERS
Paul, Weiss, Rifkind, Wharton & Garrison will pass on the validity of the
Rights and the Common Stock to be issued in connection with the Rights
Offering and certain federal income tax consequences of the Rights Offering.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
MERISTAR HOTELS & RESORTS, INC.
Independent Auditors' Report............................................. F-2
Balance Sheet as of March 31, 1998....................................... F-3
Notes to Balance Sheet................................................... F-4
OPCO
Independent Auditors' Report............................................. F-5
Combined Balance Sheets as of March 31, 1998 (unaudited) and December 31,
1997 and 1996........................................................... F-6
Combined Statements of Operations for the three months ended March 31,
1998 and 1997 (unaudited) and the years ended December 31, 1997, 1996
and 1995................................................................ F-7
Combined Statements of Owner's Equity for the three months ended March
31, 1998 (unaudited) and the years ended December 31, 1997, 1996 and
1995.................................................................... F-8
Combined Statements of Cash Flows for the three months ended March 31,
1998 and 1997 (unaudited) and the years ended December 31, 1997, 1996
and 1995................................................................ F-9
Notes to Combined Financial Statements................................... F-10
WINSTON HOSPITALITY, INC.
Report of Independent Accountants........................................ F-17
Balance Sheets as of October 31, 1997 and December 31, 1996.............. F-18
Statements of Income (for the ten months ended October 31, 1997 and 1996
and the years ended December 31, 1996 and 1995)......................... F-19
Statements of Shareholders' Equity (for the ten months ended October 31,
1997 and the years ended December 31, 1996 and 1995).................... F-20
Statements of Cash Flows (for the ten months ended October 31, 1997 and
1996 and the years ended December 31, 1996 and 1995).................... F-21
Notes to Financial Statements............................................ F-22
AMERICAN GENERAL HOSPITALITY, INC.
Report of Independent Accountants........................................ F-24
Balance Sheets as of March 31, 1998 (unaudited) and December 31, 1997 and
1996.................................................................... F-25
Statements of Operations for the three months ended March 31, 1998 and
1997 (unaudited) and the years ended December 31, 1997, 1996 and 1995... F-26
Statements of Stockholders' Equity for the three months ended March 31,
1998 (unaudited) and the years ended December 31, 1997, 1996 and 1995... F-27
Statements of Cash Flows for the three months ended March 31, 1998 and
1997 (unaudited) and the years ended December 31, 1997, 1996 and 1995... F-28
Notes to Financial Statements............................................ F-29
AGH LEASING, L.P.
Report of Independent Accountants........................................ F-32
Consolidated Balance Sheets as of March 31, 1998 (unaudited) December 31,
1997 and 1996........................................................... F-33
Consolidated Statements of Operations for the three months ended March
31, 1998 and 1997 (unaudited) and the year ended December 31, 1997 and
the period July 31, 1996 (Inception of Operations) through December 31,
1996.................................................................... F-34
Consolidated Statements of Partners' Deficit for the period from July 31,
1996 (Inception of Operations) through December 31, 1996 and for the
three months ended March 31, 1998 (unaudited) and the year ended
December 31, 1997....................................................... F-35
Consolidated Statements of Cash Flows for the three months ended March
31, 1998 and 1997 (unaudited) and the year ended December 31, 1997 and
for the period July 31, 1996 (Inception of Operations) through December
31, 1996................................................................ F-36
Notes to Consolidated Financial Statements............................... F-37
AGH LEASING, L.P.
Proforma Consolidated Statements of Operations........................... F-42
Notes to Proforma Consolidated Statements of Operations.................. F-45
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MeriStar Hotels & Resorts, Inc.
We have audited the accompanying balance sheet of MeriStar Hotels & Resorts,
Inc. as of March 31, 1998. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based upon our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of MeriStar Hotels & Resorts, Inc.
as of March 31, 1998, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Washington, DC
May 19, 1998
F-2
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
BALANCE SHEET
MARCH 31, 1998
<TABLE>
<S> <C>
ASSETS
Cash..................................................................... $100
STOCKHOLDER'S EQUITY
Common stock $.01 par value:
1,000 shares authorized; 100 issued and outstanding.................... 1
Additional paid-in-capital............................................... 99
----
Total stockholder's equity............................................. $100
====
</TABLE>
See accompanying notes to balance sheet
F-3
<PAGE>
MERISTAR HOTEL & RESORTS, INC.
NOTES TO BALANCE SHEET
MARCH 31, 1998
1. FORMATION OF THE COMPANY
CMC Operating Company was incorporated in the state of Delaware on March 13,
1998. CMC Operating Company subsequently changed its name to MeriStar Hotels &
Resorts, Inc. (the "Company"). The Company has filed a registration statement
on Form S-1 with the Securities and Exchange Commission with respect to a
proposed distribution of common stock and a proposed public offering of non-
transferable rights to acquire common stock.
The Company is currently a wholly-owned subsidiary of CapStar Hotel Company
("CapStar"). The Company will be spun off by CapStar to become the lessee,
manager and operator of various hotel assets, including those currently owned,
leased and managed by CapStar and its affiliates.
2. PLANNED TRANSACTIONS
CapStar will initially have a $75 million revolving credit facility,
provided by MeriStar Hospitality Corporation, a real estate investment trust
formed by the proposed merger of CapStar and American General Hospitality
("AGH"). CapStar intends initially to capitalize the Company with
approximately $48 million of cash, including approximately $18 million of
forgiveness of indebtedness and a $30 million draw on the proposed revolving
credit facility.
The Company intends to draw an additional $35 million from the revolving
credit facility in connection with the purchase of American General
Hospitality, Inc. and AGH Leasing, L.P. currently the manager and lessee,
respectively, of AGH's hotel properties.
Upon consummation of the planned transactions, the Company will be the
lessee/manager of substantially all of MeriStar Hospitality Corporation's
hotel properties.
F-4
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CapStar Hotel Company:
We have audited the accompanying combined balance sheets of the management
and leasing business of CapStar Hotel Company and subsidiaries ("OpCo") as of
December 31, 1997 and 1996 and the related combined statements of operations,
owners' equity and cash flows for each of the years in the three-year period
ended December 31, 1997. These combined financial statements are the
responsibility of OpCo's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of OpCo as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Washington, D.C.
March 30, 1998
F-5
<PAGE>
OPCO
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ----------------
1998 1997 1996
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $ 4,706 $ 2,477 $ 305
Cash and cash equivalents held on behalf of af-
filiates...................................... 23,896 24,545 17,843
Accounts receivable, net of allowance for
doubtful accounts of $134, $72, and $33, re-
spectively.................................... 6,669 7,162 1,703
Prepaid expenses............................... 973 1,097 777
Deposits, inventory and other.................. 709 756 111
------- ------- -------
Total current assets......................... 36,953 36,037 20,739
Fixed assets:
Furniture, fixtures and equipment.............. 3,320 2,701 726
Accumulated depreciation....................... (439) (418) (210)
------- ------- -------
Total fixed assets, net...................... 2,881 2,283 516
Investments in affiliates........................ 7,047 8,058 1,926
Notes receivable................................. 2,100 2,100 500
Intangible assets, net of accumulated
amortization of $1,041, $719 and $362,
respectively.................................... 35,738 35,941 685
------- ------- -------
$84,719 $84,419 $24,366
======= ======= =======
LIABILITIES AND OWNERS' EQUITY
Current Liabilities:
Accounts payable............................... $ 1,900 $ 2,082 $ 543
Accrued expenses and other liabilities......... 11,066 8,532 1,282
Percentage lease payable....................... 6,910 5,682 --
Due to affiliates, net......................... 18,372 22,287 18,649
Advance deposits............................... 193 146 --
Long-term debt, current portion................ 315 392 336
------- ------- -------
Total current liabilities.................... 38,756 39,121 20,810
Long-term debt................................... 461 589 549
------- ------- -------
Total liabilities............................ 39,217 39,710 21,359
Commitments and contingencies
Minority interest................................ 3,835 3,800 --
Owners' equity................................... 41,667 40,909 3,007
------- ------- -------
$84,719 $84,419 $24,366
======= ======= =======
</TABLE>
See accompanying notes to combined financial statements.
F-6
<PAGE>
OPCO
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED DECEMBER
MARCH 31, 31,
-------------------- ---------------------
1998 1997 1997 1996 1995
--------- --------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Leased hotels' operations:
Rooms......................... $2223,404 $ -- $ 9,880 $ -- $ --
Food and beverage............. 1,357 -- 1,397 -- --
Other operating departments... 1,219 -- 474 -- --
Hotel management and other
revenue........................ 4,150 1,139 12,088 7,050 5,354
--------- --------- ------- ------ ------
Total revenue............... 30,130 1,139 23,839 7,050 5,354
--------- --------- ------- ------ ------
Leased hotels' operating expenses
by department:
Rooms........................... 5,124 -- 2,533 -- --
Food and beverage............... 995 -- 909 -- --
Other operating departments..... 498 -- 261 -- --
Undistributed operating expenses:
Administrative and general...... 6,963 2,202 10,473 6,140 4,745
Lease expense................... 10,655 -- 4,135 -- --
Property operating costs........ 4,142 -- 1,917 -- --
Depreciation and amortization... 421 96 636 349 84
--------- --------- ------- ------ ------
Total operating expenses.... 28,798 2,298 20,864 6,489 4,829
--------- --------- ------- ------ ------
Net operating income.............. 1,332 (1,159) 2,975 561 525
Equity in earnings (losses) of
affiliates....................... (521) -- 46 -- --
Interest expense.................. 18 14 56 123 44
--------- --------- ------- ------ ------
Income before minority interests.. 793 (1,173) 2,965 438 481
Minority interests................ 35 -- 103 -- --
--------- --------- ------- ------ ------
Net income (loss)................. $ 758 $ (1,173) $ 2,862 $ 438 $ 481
========= ========= ======= ====== ======
</TABLE>
See accompanying notes to combined financial statements.
F-7
<PAGE>
OPCO
COMBINED STATEMENTS OF OWNERS' EQUITY
(IN THOUSANDS)
<TABLE>
<S> <C>
Capital contributions since January 12, 1995........................... $ 398
Capital distributions.................................................. (116)
Net income............................................................. 481
-------
Balance, December 31, 1995............................................. 763
Capital contributions.................................................. 1,806
Net income............................................................. 438
-------
Balance, December 31, 1996............................................. 3,007
Capital contributions.................................................. 35,040
Net income............................................................. 2,862
-------
Balance, December 31, 1997............................................. 40,909
Net income (unaudited)................................................. 758
-------
Balance, March 31, 1998 (unaudited).................................... $41,667
=======
</TABLE>
See accompanying notes to the combined financial statements.
F-8
<PAGE>
OPCO
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------- -----------------------
1998 1997 1997 1996 1995
--------- --------- ------ ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss).............. $ 758 $ (1,173) $2,862 $ 438 $ 481
Adjustments to reconcile net
income (loss) to net cash
provided by
operating activities:
Depreciation and
amortization................ 421 96 636 349 84
Equity in earnings of
affiliates.................. 521 -- (46) -- --
Minority interests........... 35 -- 103 -- --
Changes in operating assets
and liabilities:
Accounts receivable, net... 493 40 (5,459) (412) (1,290)
Prepaid expenses........... 124 (257) (320) (724) (11)
Deposits, Inventory and
other..................... 47 (211) (645) (111) --
Cash and cash equivalents
held on behalf of
affiliates................ 649 (120) (6,702) (17,843) --
Accounts payable........... (182) 367 1,539 276 267
Due to affiliates, net..... (3,915) 484 3,638 18,344 305
Accrued expenses and other
liabilities............... 2,534 1,456 7,250 909 372
Percentage lease payable... 1,228 -- 1,463 -- --
Advance deposits........... 47 -- 146 -- --
-------- --------- ------ ------- ------
Net cash provided by operating
activities...................... 2,760 682 4,465 1,226 208
-------- --------- ------ ------- ------
Investing activities:
Purchases of fixed assets...... (697) (234) (2,046) (382) (61)
Purchases of intangible assets. (119) (355) (924) (824) --
Investments in affiliates...... -- -- (2,078) (150) --
Distributions from investments
in affiliates................. 490 37 147 30 --
Additions to notes receivable.. -- (350) (1,600) (500) --
-------- --------- ------ ------- ------
Net cash used in investing
activities...................... (326) (902) (6,501) (1,826) (61)
-------- --------- ------ ------- ------
Financing activities:
(Principal payments on)
proceeds from long-term debt,
net........................... (205) (85) 96 662 (38)
Capital contributions.......... -- -- 4,112 -- 250
Capital distributions.......... -- -- -- -- (116)
Loan from (repayments to)
affiliate..................... -- -- -- (950) 950
Repayments from (loans to)
management.................... -- -- -- 987 (987)
-------- --------- ------ ------- ------
Net cash provided (used) by
financing activities............ (205) (85) 4,208 699 59
-------- --------- ------ ------- ------
Net increase (decrease) in cash
and cash equivalents............ 2,229 (305) 2,172 99 206
Cash and cash equivalents,
beginning of period............. 2,477 305 305 206 --
-------- --------- ------ ------- ------
Cash and cash equivalents, end of
period.......................... $4,706 $ -- $2,477 $ 305 $ 206
======== ========= ====== ======= ======
</TABLE>
See accompanying notes to combined financial statements.
F-9
<PAGE>
OPCO
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
CapStar Hotel Company and its subsidiaries ("CapStar") was formed pursuant
to certain formation transactions prior to or on August 20, 1996. Prior to its
August 20, 1996 initial public offering (the "IPO"), CapStar's business was
conducted through its predecessor entities, EquiStar Hotel Investors, L.P. and
subsidiaries (collectively, "EquiStar") and CapStar Management Company, L.P.
("CMC").
The principal activity of CapStar is to acquire, renovate, reposition and
manage upscale, full-service hotels. CapStar also leases and manages certain
other hotels. CapStar owns, leases and manages hotels through its two
operating partnerships: CMC and CapStar Management Company II, L.P. ("CMC
II"). Separate wholly-owned limited liability companies or limited
partnerships directly own the hotels and leases. The owned, leased and managed
hotels are located in 29 states, the District of Columbia, the U.S. Virgin
Islands and Canada, and are operated under various franchise agreements.
OpCo is comprised of the assets, liabilities, and related operations
(collectively "OpCo") associated with the hotel management and leasing
business of CapStar, and certain hotel ownership investments of CapStar which
are directly owned by certain CapStar subsidiaries, as follows:
. the hotel management business and certain investments in affiliates
owned by CMC;
. the hotel management business and 38 hotel leases owned by CapStar
Winston Company, LLC "CapStar Winston" which was purchased by CapStar
in 1997;
. the hotel lease and investment in BoyStar Ventures, L.P. owned by
CapStar BK Company, LLC "CapStar BK" which was purchased by CapStar
in 1997; and
. the investment in CapStar Wyandotte Company, LLC owned by CapStar KC
Company, LLC "CapStar KC" which was purchased by CapStar in 1997.
. the investment in Ballston Parking Associates owned by CapStar
Virginia Company, LLC "CapStar Virginia" which was purchased by
CapStar in 1996.
The following table outlines OpCo's portfolio of managed and leased hotels:
<TABLE>
<CAPTION>
CAPSTAR
HOTELS THIRD PARTY LEASED
MANAGED MANAGED HOTELS HOTELS TOTAL
------------- ----------------- ------------ -------------
HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS HOTELS ROOMS
------ ------ ------- -------- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997.... 47 12,019 27 4,631 40 5,687 114 22,337
December 31, 1996.... 19 5,166 28 4,619 -- -- 47 9,785
December 31, 1995.... 6 2,101 41 6,089 -- -- 47 8,190
</TABLE>
These financial statements present the financial position and operations of
OpCo as of December 31, 1997 and 1996, and for each of the years in the three-
year period ended December 31, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination- The combined financial statements include the
operations of CMC, CapStar Winston, CapStar BK, CapStar KC, and CapStar
Virginia, as described above. All significant intercompany transactions and
balances have been eliminated in the combination.
Investments in affiliates in which OpCo holds a voting interest of 50% or
less and exercises significant influence are accounted for using the equity
method. OpCo uses the cost method to account for its investment in an entity
in which it does not have the ability to exercise significant influence.
F-10
<PAGE>
OPCO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Cash and Cash Equivalents--OpCo considers all highly liquid investments with
an original maturity of three months or less to be cash equivalents.
OpCo invests excess cash balances on behalf of the CapStar-owned hotels it
manages. This cash is recorded as cash and cash equivalents held on behalf of
affiliates with the offsetting liability recorded in due to affiliates, net.
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, organization and 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 five to 40 years.
The carrying values of long-lived intangible assets, which include fixed
assets and all 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 is 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 1997, 1996 or 1995.
Income Taxes--No provision is made for income taxes as the operations of
OpCo are directly owned by a partnership and four limited liability companies,
and therefore, any such liability is the liability of the partners and
members.
Revenue Recognition--Revenue is earned through the operation and management
of the hotel properties and is recognized when earned.
Minority Interests--Minority interests represent OpCo's proportionate share
of the value of operating partnership units ("OP Units") of CMC and CMC II
issued to third parties in conjunction with CapStar's purchases of certain
hotels and CapStar Winston.
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.
Unaudited interim financial statements--The combined financial statements as
of March 31, 1998 and for the three months ended March 31, 1998 and 1997 are
unaudited. In the opinion of management, such financial statements reflect all
adjustments necessary for a fair presentation of the results of the respective
interim periods. All such adjustments are of a normal, recurring nature.
F-11
<PAGE>
OPCO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
3. INVESTMENTS IN AFFILIATES
OpCo has ownership interests in certain corporate joint ventures and
affiliated companies. OpCo's investments in affiliates are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
OWNERSHIP -------------
INTEREST 1997 1996
--------- ------ ------
<S> <C> <C> <C>
CapStar Wyandotte Company LLC..................... 50% $3,023 $ --
HGI Holdings, LLC................................. 1,895 --
BoyStar Ventures, L.P. ........................... 9% 1,175 --
Ballston Parking Associates....................... 36% 1,629 1,776
Other............................................. 336 150
------ ------
$8,058 $1,926
====== ======
</TABLE>
Combined summarized financial information of OpCo's investments in
affiliates accounted for using the equity method as of and for the years ended
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------ -----
<S> <C> <C>
Balance Sheet data:
Current assets............................................. $1,773 34
Non-current assets......................................... 32,766 5,469
Current liabilities........................................ 1,094 --
Non-current liabilities.................................... 7,000 --
Operating data:
Revenue.................................................... $1,742 589
Net income (loss).......................................... (110) 141
</TABLE>
4. NOTES RECEIVABLE
Notes receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER
31,
-----------
1997 1996
------ ----
<S> <C> <C>
Loans to managed hotels....................................... $2,000 $500
Other......................................................... 100 --
------ ----
$2,100 $500
====== ====
</TABLE>
In the normal course of business, OpCo makes interest bearing loans to
certain managed hotels and other affiliates. These loans generally require
monthly payments of interest. Of the outstanding notes receivable at December
31, 1997 and 1996, $900 and $0, respectively, of the balances are secured by a
second mortgage on a certain hotel; $250 and $500 of the balances,
respectively, are guaranteed by third parties; and $950 and $0, respectively,
is unsecured. The loans bear interest at market rates between 8% and 9%. The
loans to managed hotels mature between 2001 and 2007 while loans to other
affiliates are payable on 30 days notice. OpCo earned interest income on these
loans of $82 and $11 during 1997 and 1996, respectively.
F-12
<PAGE>
OPCO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------- -----
<S> <C> <C>
Goodwill................................................... $27,605 $ --
Lease contracts............................................ 6,576 --
Organization costs......................................... 897 897
Management contracts....................................... 867 150
Other...................................................... 715 --
------- -----
36,660 1,047
Less accumulated amortization.............................. (719) (362)
------- -----
$35,941 $ 685
======= =====
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ------
<S> <C> <C>
Note payable............................................ $ 855 $ 665
Capital leases.......................................... 126 220
------ ------
981 885
Less current portion.................................... (392) (336)
------ ------
$ 589 $ 549
====== ======
</TABLE>
Note Payable--In June 1996, OpCo entered into a note payable to finance
liability insurance premiums. This note was amended in December 1997 to
increase the principal balance. The principal balance was changed to $887 and
the maturity date was extended to May 2000. The note accrues interest at an
annual rate of 6.4% and requires monthly payments of principal and interest.
OpCo incurred interest expense of $33 and $19 during 1997 and 1996,
respectively.
Capital Leases--OpCo has entered into various capital leases for office
equipment which expire between 1998 and 2000. The leases require monthly
payments of principal and interest. Interest rates on the leases range from
6.4% to 13.3%. The Company incurred interest expense on the leases of $23 in
1997, $28 in 1996, and $18 in 1995.
Future Maturities--Aggregate future maturities of the above obligations are
as follows:
<TABLE>
<S> <C>
1998.............................................. $392
1999.............................................. 417
2000.............................................. 172
----
$981
====
</TABLE>
During 1996 and 1995, OpCo incurred interest expense of $76 and $26,
respectively, on the note payable to an affiliate of OpCo.
F-13
<PAGE>
OPCO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
7. RELATED-PARTY TRANSACTIONS
OpCo manages hotels owned by CapStar. Hotel management revenue associated
with these hotels was $7,238, $2,625 and $917 during 1997, 1996 and 1995,
respectively. Management believes these contracts are at prevailing market
rates. In the normal course of business, OpCo manages cash on behalf of
CapStar and its owned hotels and advances and receives amounts on behalf of
CapStar and its owned hotels. At December 31, 1997 and 1996, the net amount
due to CapStar and its owned hotels was $24,545 and $17,843, respectively.
OpCo also manages hotels that are owned in part by affiliates or officers of
CapStar. Hotel management revenue associated with these hotels was $943, $824
and $1,104 during 1997, 1996 and 1995, respectively. At December 31, 1997,
1996 and 1995, the amount due from these properties related to hotel
management fees was $798, $304 and $237, respectively. Management believes
these contracts are at prevailing market rates.
8. COMMITMENTS AND CONTINGENCIES
OpCo leases certain hotels under non-cancelable operating leases with
initial terms ranging from 5 to 15 years, expiring through 2012. OpCo also
leases corporate office space. Future minimum lease payments required under
these operating leases as of December 31, 1997 were as follows:
<TABLE>
<S> <C>
1998.................................... $ 20,533
1999.................................... 20,728
2000.................................... 20,653
2001.................................... 20,674
2002.................................... 20,701
Thereafter.............................. 189,757
---------
$ 293,046
=========
</TABLE>
In connection with the CapStar Winston hotel leases, CapStar has guaranteed
certain lease obligations of OpCo. CapStar was contingently liable for lease
guarantees on 38 of the hotel leases aggregating up to a maximum of
approximately $20 million at December 31, 1997. In addition, two other hotel
leases are secured by CapStar BK's and CapStar KC's pledges of their interests
in the affiliate companies that own those leased hotels. OpCo knows of no
event of default that would require either CapStar, CapStar Winston, CapStar
BK, or CapStar KC to satisfy these guarantees or pledges of security
interests.
OpCo operates and manages 27 hotels owned by third parties containing 4,631
rooms. OpCo's management agreements (the "Management Agreements") have
remaining terms ranging from one month to nine years. Substantially all of the
Management Agreements permit the hotel owners to terminate such agreements
prior to the stated expiration dates if the applicable hotel is sold, and
several of the Management Agreements permit the hotel owners to terminate such
agreements prior to the stated expiration date without cause or by reason of
the failure of the applicable hotel to obtain specified levels of performance.
In the course of OpCo's normal business activities, various lawsuits, claims
and proceedings have been or may be instituted or asserted against OpCo. 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 combined financial position, results of operations or liquidity of
OpCo.
F-14
<PAGE>
OPCO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
9. ACQUISITIONS
In November 1997, CapStar acquired substantially all of the assets of
Winston Hospitality, Inc. ("Winston") for a purchase price of $34,000 and
contributed the assets to OpCo. Winston leased 38 and managed 28 of the
operating hotels of Winston Hotels, Inc., a real estate investment trust. The
acquisition of Winston has been accounted for as a purchase and, accordingly,
the operating results of Winston have been included in OpCo's combined
financial statements since the date of acquisition. The excess of the
aggregate purchase price over the fair market value of net identifiable assets
acquired was approximately $27,605 and is being amortized over 40 years.
The following unaudited pro forma summary presents information as if Winston
had been acquired at the beginning of the periods presented. The pro forma
information is provided for informational purposes only. It is based on
historical information and does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of future results of
operations of OpCo.
PRO FORMA INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Total revenue............................................. $94,911 $68,895
Net income before minority interest....................... 3,991 253
Net income................................................ 3,698 235
</TABLE>
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of the OpCo's quarterly results of operations:
<TABLE>
<CAPTION>
1997
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue............................... $1,838 $2,816 $4,794 $14,391
Total operating expenses.................... 1,390 2,129 3,911 13,434
Net operating income........................ 448 687 883 957
Net income.................................. 424 650 861 927
<CAPTION>
1996
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue............................... $1,158 $1,812 $1,982 $ 2,098
Total operating expenses.................... 1,066 1,668 1,824 1,931
Net operating income........................ 92 144 158 167
Net income.................................. 72 113 123 130
</TABLE>
F-15
<PAGE>
OPCO
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
11. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------- --------------------
1998 1997 1997 1996 1995
------- ------- ------- ------ ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash paid for interest..... $ 18 $ 14 $ 56 $ 138 $ 18
Assets contributed (liabil-
ities assigned) to OpCo:
Percentage lease payable... -- -- $(4,219) $ -- $--
Investments in affiliates.. -- -- 4,155 1,806 --
Intangible assets.......... -- -- 34,689 -- --
Non-cash investing and fi-
nancing activities:
Capital contributions by
owners.................... -- -- $30,928 $1,806 $148
Minority interests......... -- -- 3,697 -- --
Additions to equipment
through capital leases.... -- -- -- -- 261
</TABLE>
12. SUBSEQUENT EVENTS
On March 15, 1998, CapStar and American General Hospitality Corporation
signed a definitive agreement to merge. As part of the merger, CapStar will
spin-off OpCo to its current shareholders as a C corporation to be called
MeriStar Hotels & Resorts, Inc. Subsequently, CapStar will merge into American
General Hospitality Corporation. The combined entity will be renamed MeriStar
Hospitality Corporation and will own 108 hotels with 27,336 rooms in 27
states, the District of Columbia and Canada.
As a condition of the proposed merger, MeriStar Hotels & Resorts is to
acquire privately-held American General Hospitality, Inc. and AGH Leasing,
L.P., which together currently operate and/or lease 44 of American General
Hospitality Corporation's 53 owned hotels and manage 15 additional properties
for third party owners. The aggregate purchase price for American General
Hospitality, Inc. and AGH Leasing, L.P. is $95 million, payable in a mixture
of cash and units of limited partnership interest. Upon completion of OpCo's
spin-off and acquisitions, MeriStar Hotels & Resorts will lease and manage 201
hotels in 34 states, the U.S. Virgin Islands, the District of Columbia and
Canada, 108 of which will be owned by MeriStar Hospitality Corporation.
F-16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders
Winston Hospitality, Inc.
We have audited the accompanying balance sheets of Winston Hospitality, Inc.
as of October 31, 1997 and December 31, 1996 and the related statements of
income, shareholders' equity and cash flows for the 10 months ended October
31, 1997 and the years ended December 31, 1996 and 1995. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Winston Hospitality, Inc.
as October 31, 1997 and December 31, 1996 and the results of its operations
and its cash flows for the 10 months ended October 31, 1997 and the years
ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Raleigh, North Carolina
February 6, 1998
F-17
<PAGE>
WINSTON HOSPITALITY, INC.
BALANCE SHEETS
AS OF OCTOBER 31, 1997 AND DECEMBER 31, 1996
($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
ASSETS ------- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 6,926 $5,463
Accounts receivable:
Trade....................................................... 2,303 1,166
Lessor...................................................... 768 1,391
Affiliates.................................................. 125 95
Shareholders................................................ -- 71
Prepaid expenses and other assets............................. 182 220
------- ------
Total current assets...................................... 10,304 8,406
------- ------
Furniture, fixtures and equipment:
Furniture and equipment....................................... 399 323
Leasehold improvements........................................ 113 113
------- ------
512 436
Less accumulated depreciation and amortization................ 245 178
------- ------
Net furniture, fixtures and equipment..................... 267 258
------- ------
$10,571 $8,664
======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade....................................... $ 1,918 $1,259
Percentage lease payable to Lessor............................ 3,882 4,661
Accounts payable--affiliates.................................. -- 146
Accrued salaries and wages.................................... 1,204 874
Accrued sales and occupancy taxes............................. 814 462
Other current liabilities..................................... 842 618
------- ------
Total current liabilities................................... 8,660 7,970
------- ------
Commitments (Note 3)
Shareholders' equity:
Common stock, $.01 par value, 100 shares authorized, issued
and outstanding.............................................. 1 1
Additional paid-in capital.................................... 49 49
Retained earnings............................................. 1,861 644
------- ------
Total shareholders' equity.................................. 1,911 694
------- ------
$10,571 $8,664
======= ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
WINSTON HOSPITALITY, INC.
STATEMENTS OF INCOME
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997 AND 1996 AND
THE YEARS ENDED DECEMBER 31, 1996 AND 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS ENDED YEARS ENDED
OCTOBER 31, DECEMBER 31,
------------------- ---------------
1997 1996 1996 1995
------- ----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Room...................................... $67,145 $49,633 $58,956 $39,677
Food and beverage......................... 2,419 1,240 1,685 138
Other operating, net...................... 1,373 1,068 1,191 877
Interest income........................... 152 82 93 85
------- ------- ------- -------
Total revenue........................... 71,089 52,023 61,925 40,777
------- ------- ------- -------
Expenses:
Property and operating.................... 24,112 17,388 21,550 14,124
Property repairs and maintenance.......... 3,193 2,614 3,181 1,909
Food and beverage......................... 1,715 924 1,281 189
General and administrative................ 2,090 1,603 2,050 1,526
Franchise costs........................... 6,167 4,327 5,361 3,565
Management fees........................... 1,015 1,109 1,126 784
Percentage lease payments................. 30,980 22,800 26,611 17,148
------- ------- ------- -------
Total expenses.......................... 69,272 50,765 61,160 39,245
------- ------- ------- -------
Net income.............................. $ 1,817 $ 1,258 $ 765 $ 1,532
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
WINSTON HOSPITALITY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997,
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES DOLLARS CAPITAL EARNINGS EQUITY
------ ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances at December 31,
1994................... 100 $ 1 $49 $ 15 $ 65
Net income.............. -- -- -- 1,532 1,532
Distributions........... -- -- -- (1,112) (1,112)
--- --- --- ------- -------
Balances at December 31,
1995................... 100 1 49 435 485
Net income.............. -- -- -- 765 765
Distributions........... -- -- -- (556) (556)
--- --- --- ------- -------
Balances at December 31,
1996................... 100 1 49 644 694
Net income.............. -- -- -- 1,817 1,817
Distributions........... -- -- -- (600) (600)
--- --- --- ------- -------
Balances at December 31,
1997................... 100 $ 1 $49 $ 1,861 $ 1,911
=== === === ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-20
<PAGE>
WINSTON HOSPITALITY, INC.
STATEMENTS OF CASH FLOWS
FOR THE TEN MONTHS ENDED OCTOBER 31, 1997 AND 1996 AND THE YEARS ENDED DECEMBER
31, 1996 AND 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
TEN MONTHS ENDED YEARS ENDED
OCTOBER 31, DECEMBER 31,
------------------ ---------------
1997 1996 1996 1995
-------- -------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 1,817 $ 1,258 $ 765 $ 1,532
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 67 65 83 63
Changes in assets and liabilities:
Accounts receivable--trade.......... (1,137) (1,525) (330) (310)
Prepaid expenses and other assets... 38 (137) (103) (65)
Accounts payable--trade............. 659 547 666 132
Percentage lease payable to Lessor.. (729) 532 2,064 1,159
Accrued expenses and other
liabilities........................ 906 1,045 914 30
-------- -------- ------ -------
Net cash provided by operating
activities....................... 1,621 1,785 4,059 2,541
-------- -------- ------ -------
Cash flows from inventing activities:
Purchases of furniture, fixtures and
equipment.............................. (76) (107) (144) (67)
Repayments from (advances to) Lessor,
affiliates and shareholders, net....... 518 (265) (145) (1,233)
-------- -------- ------ -------
Net cash provided by (used in)
investing activities............. 442 (372) (289) (1,300)
-------- -------- ------ -------
Cash flows from financing activities:
Distributions to shareholders........... (600) (485) (556) (1,112)
-------- -------- ------ -------
Net cash used in financing
activities....................... (600) (485) (556) (1,112)
-------- -------- ------ -------
Net increase in cash and cash equivalents. 1,463 928 3,214 129
Cash and cash equivalents at beginning of
the period............................... 5,463 2,249 2,249 2,120
-------- -------- ------ -------
Cash and cash equivalents at end of the
period................................... $ 6,926 $ 3,177 $5,463 $ 2,249
======== ======== ====== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-21
<PAGE>
WINSTON HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION:
Winston Hospitality, Inc. ("Hospitality") was formed to lease and operate
hotels owned by WINN Limited Partnership (the "Partnership") and Winston
Hotels, Inc. ("WHI") (collectively, the "Company"). Approximately 90.15% of
the Partnership is owned by WHI. The two shareholders of Hospitality (Robert
W. Winston, III and John B. Harris, Jr.) are also shareholders of WHI and/or
partners in the Partnership. The Company owned 21 hotels as of December 31,
1995, 31 hotels as of December 31, 1996 and 38 hotels as of October 31, 1997
(collectively, all 38 hotels are the "Current Hotels").
Each hotel was separately leased by the Company to Hospitality under a
Percentage Lease Agreement. These leases required minimum base rental payments
to be made to the Company on a monthly basis and additional quarterly payments
to be made based on a percentage of gross room revenue and certain food and
beverage revenues.
Thirty-seven of the 38 hotels are limited-service hotels and one is a full-
service hotel. All 38 hotels are operated under franchise agreements with
Promus Hotels, Inc., Choice Hotels International, Inc., Holiday Inns
Franchising, Inc. and Marriott International, Inc. The cost of obtaining the
franchise licenses was paid by the Company and the on-going franchise fees
were paid by Hospitality.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition. Revenue is recognized as earned. Ongoing credit
evaluations are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is estimated to be
uncollectible.
Cash Equivalents. All highly liquid investments with a maturity date of
three months or less when purchased are considered to be cash equivalents.
Hospitality places cash deposits with federally insured depository
institutions. At October 31, 1997, bank account balances exceeded federal
depository insurance limits by approximately $6,252.
Fair Value of Financial Instruments. Hospitality's financial instruments
consist of cash and cash equivalents whose carrying value approximates fair
value because of their short maturity. Hospitality's remaining assets and
liabilities are not considered financial instruments.
Furniture, Fixtures and Equipment. Furniture and equipment are recorded at
cost and are depreciated using the straight-line method over estimated useful
lives of the assets of five and seven years. Leasehold improvements are being
amortized using the straight-line method over the terms of the related leases.
Upon disposition, both the asset and accumulated depreciation accounts are
relieved and the related gain or loss is credited or charged to the income
statement. Repairs and maintenance of hotel properties owned by the Company
are paid by Hospitality and are charged to expense as incurred.
Income Taxes. Hospitality has made an election under Subchapter S of the
Internal Revenue Code of 1986, as amended. Any taxable income or loss is
recognized by the shareholders and, therefore, no provision for income taxes
has been provided in the accompanying financial statements.
Reclassifications. Certain reclassifications have been made to the 1996 and
1995 financial statements to conform with the 1997 presentation. These
reclassifications have no effect on net income or shareholders' equity as
previously reported.
Unaudited October 31, 1996 operating results. Operating results for the 10
months ended October 31, 1996, presented for comparison purposes, are
unaudited. The unaudited financial statements for the period ended October 31,
1996 reflect, in the opinion of management, all adjustments necessary for a
fair presentation of the financial statements. All such adjustments are normal
and recurring in nature.
F-22
<PAGE>
WINSTON HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. COMMITMENTS:
Under the terms of the Percentage Lease Agreements, Hospitality had future
lease commitments to the Company through 2006. As disclosed in Note 6 below,
all Percentage Leases were sold as of November 24, 1997.
Hospitality incurred minimum rents of $13,535, $11,154 and $7,853 as well as
percentage rents of $17,445, $15,457 and $9,295 for the ten months ended
October 31, 1997 and the years ended December 31, 1996 and 1995, respectively.
Hospitality had entered into separate contracts with unrelated parties for
the management of 10 of the hotels. The terms of these agreements provided for
management fees to be paid based on predetermined formulas for a period of ten
years through 2006. The contracts were cancelable under certain circumstances
as outlined in the agreements. As disclosed in Note 6 below, all such
contracts were sold as of November 24, 1997.
Various legal proceedings against Hospitality have arisen from time to time
in the normal course of business. Management believes liabilities arising from
these proceedings, if any, will have no material adverse effect on the
financial positions or results of operations of Hospitality.
4. DISTRIBUTIONS:
Beginning with the year ended December 31, 1996, the shareholders agreed to
limit distributions by Hospitality to amounts necessary to pay their income
taxes on the net income derived from Hospitality until such time as the
tangible net worth of Hospitality reached $4,000. Thereafter, they agreed to
invest at least 75% of their after-tax distributions of net income from
Hospitality in Common Stock of the Company. These agreements terminated
effective November 24, 1997, due to the sale of the leases to CapStar.
5. PROFIT SHARING PLAN:
On January, 1, 1996, Hospitality adopted the Winston 401(k) Plan (the
"Plan") for substantially all employees, except any highly compensated
employee, as defined in the Plan, who had attained the age of 21 and completed
one year of service. Under the Plan, employees were able to contribute from 1%
to 15% of compensation, subject to an annual maximum as determined under the
Internal Revenue Code. Hospitality made matching contributions of a specified
percentage of the employee's contribution currently 3% of the first 6% of the
employee's contribution, and may make additional discretionary contributions.
Hospitality contributed $54, $50 (unaudited) and $61 during the 10-month
periods ended October 31, 1997 and 1996, and the year ended December 31, 1996,
respectively.
6. SUBSEQUENT EVENT:
On November 24, 1997, Hospitality completed the sale of substantially all of
its assets and all 38 existing Percentage Leases to CapStar Management
Company, L.P. ("CMC") for total consideration of $34,000. The $34,000 sale
price consisted of $10,000 in cash and 674,236 CMC Partnership Units.
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of American General Hospitality, Inc.
We have audited the accompanying balance sheets of American General
Hospitality, Inc. (the "Company") as of December 31, 1997 and 1996 and the
related statements of operations, stockholders' equity and cash flows for the
three years in the period ended December 31, 1997. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 General
Hospitality, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand LLP
Dallas, Texas
April 1, 1998
F-24
<PAGE>
AMERICAN GENERAL HOSPITALITY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1996 1998
ASSETS ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $1,900,176 $ 455,058 $3,234,315
Accounts and management fees receivable. 1,756,317 1,731,204 1,768,463
Accounts receivable, affiliates......... 167,621 103,574 35,193
Prepaid expenses........................ 36,010 13,229 34,519
---------- ---------- ----------
Total current assets................ 3,860,124 2,303,065 5,072,490
Investments in property and equipment, at cost:
Furniture and equipment............... 1,155,220 522,696 1,317,040
Leasehold improvements................ 88,049 6,960 93,260
---------- ---------- ----------
1,243,269 529,656 1,410,300
Less accumulated depreciation......... 300,362 334,933 327,362
---------- ---------- ----------
Net investments in property and
equipment.......................... 942,907 194,723 1,082,938
---------- ---------- ----------
Deposits................................ 78,860 50 78,860
Goodwill, net of accumulated
amortization of $2,250, $2,000,
and $2,312 (unaudited) as of
December 31, 1997 and 1996 and
March 31, 1998, respectively........... 7,750 8,000 7,688
Other assets............................ -- 1,477
---------- ---------- ----------
Total assets........................ $4,889,641 $2,507,315 $6,241,976
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable........................ $ 77,499 $ 474,253 $2,366,542
Accounts payable, affiliates............ 1,275,000 42,770 1,275,000
Accrued liabilities..................... 2,795,477 1,268,895 1,507,866
Deferred revenue........................ 48,699 148,586
---------- ---------- ----------
Total current liabilities........... 4,196,675 1,934,504 5,149,408
---------- ---------- ----------
Commitments and contingencies (Notes 3
and 5)
Stockholders' equity:
Common stock, $.01 par value, 100,000
shares authorized, 600 shares issued
and outstanding...................... 6 6 6
Additional paid-in capital............ 584,143 584,143 584,143
Retained earnings..................... 108,817 (11,338) 508,419
---------- ---------- ----------
Total stockholders' equity.......... 692,966 572,811 1,092,568
---------- ---------- ----------
Total liabilities and stockholders'
equity............................. $4,889,641 $2,507,315 $6,241,976
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE>
AMERICAN GENERAL HOSPITALITY, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1995 1998 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Management and con-
sulting fee revenue.. $7,350,851 $9,818,069 $10,070,090 $ 2,815,323 $ 1,441,670
---------- ---------- ----------- ----------- -----------
Operating expenses:
Salaries and employee
benefits............. 3,705,366 4,253,358 4,498,855 1,333,768 1,138,630
Professional fees..... 520,067 412,994 562,152 18,997 10,991
Rent and related ex-
pense................ 378,699 292,103 320,515 138,505 72,867
Travel and entertain-
ment................. 69,328 114,110 397,740 10,542 28,783
General and adminis-
trative
expenses............. 130,863 82,429 227,081 30,175 28,222
Office expenses....... 113,513 139,013 190,190 38,339 28,633
Advertising and promo-
tion................. 29,127 36,813 50,135 1,689 4,802
---------- ---------- ----------- ----------- -----------
4,946,963 5,330,810 6,246,668 1,572,015 1,312,928
---------- ---------- ----------- ----------- -----------
Income before deprecia-
tion, amortization,
consulting fees and
other income (expense). 2,403,888 4,487,259 3,823,422 1,243,308 128,742
---------- ---------- ----------- ----------- -----------
Consulting fees....... 2,227,077 3,979,446 4,056,477 858,226 427,323
Depreciation expense.. 123,927 101,891 93,974 27,000 25,470
Amortization expense.. 250 250 250 62 62
---------- ---------- ----------- ----------- -----------
2,351,254 4,081,587 4,150,701 885,288 452,855
---------- ---------- ----------- ----------- -----------
Income (loss) from op-
erations............. 52,634 405,672 (327,279) 358,020 (324,113)
---------- ---------- ----------- ----------- -----------
Other income (expense):
Interest income....... 134,931 187,750 135,600 41,582 19,945
Other expense......... (67,410) -- (189,204) -- --
---------- ---------- ----------- ----------- -----------
67,521 187,750 (53,604) 41,582 19,945
---------- ---------- ----------- ----------- -----------
Net income (loss)..... $ 120,155 $ 593,422 $ (380,883) $ 399,602 $ (304,168)
========== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE>
AMERICAN GENERAL HOSPITALITY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------ ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994... 600 $ 6 $584,143 $(223,877) $ 360,272
Net loss..................... (380,883) (380,883)
--- --- -------- --------- ----------
Balance, December 31, 1995... 600 6 584,143 (604,760) (20,611)
Net income................... 593,422 593,422
--- --- -------- --------- ----------
Balance, December 31, 1996... 600 6 584,143 (11,338) 572,811
Net income................... 120,155 120,155
--- --- -------- --------- ----------
Balance, December 31, 1997... 600 6 584,143 108,817 692,966
Net income (unaudited)....... 399,602 399,602
--- --- -------- --------- ----------
Balance, March 31, 1998
(unaudited)................. 600 $ 6 $584,143 $ 508,419 $1,092,568
=== === ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-27
<PAGE>
AMERICAN GENERAL HOSPITALITY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1995 1998 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss).... $ 120,155 $ 593,422 $(380,883) $ 399,602 $ (304,168)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used
in) operating
activities:
Amortization........... 250 250 250 62 62
Depreciation........... 123,927 101,891 93,974 27,000 25,470
Loss from disposition
of assets............. 33,269 -- 36,425 --
Changes in assets and
liabilities:
Accounts and
management fees
receivable.......... (25,113) (980,292) (151,928) (12,146) 443,310
Accounts receivable--
affiliates.......... (64,047) (35,071) 231,687 132,428 (135,630)
Prepaid expenses..... (22,781) 4,906 11,073 1,491 5,653
Deposits............. (78,810) (20) 54,750 -- (80,257)
Accounts payable..... (396,754) 152,191 (185,613) 2,289,043 (82,176)
Accounts payable--
affiliates.......... 1,232,230 -- (245,691) -- 63,672
Accrued liabilities.. 1,526,582 272,663 449,100 (1,287,611) 922,178
Deferred revenue..... (99,887) 89,169 59,417 (48,699) (148,586)
---------- --------- --------- ---------- ----------
Net cash provided by
(used in) operating
activities.......... 2,349,021 199,109 (27,439) 1,501,170 709,528
---------- --------- --------- ---------- ----------
Cash flows from
investing
activities:
Proceeds from sale of
investment.......... 1,477 -- -- -- 1,477
Loan to affiliates..... -- -- (25,000) -- --
Proceeds from loans
to affiliates....... -- -- 282,218 -- --
Purchase of property
and equipment....... (916,746) (87,076) (167,160) (167,031) (104,677)
Proceeds from sale of
furniture and
equipment........... 11,366 -- -- -- --
---------- --------- --------- ---------- ----------
Net cash provided by
(used in) investing
activities............ (903,903) (87,076) 90,058 (167,031) (103,200)
---------- --------- --------- ---------- ----------
Net increase in cash and
equivalents............ 1,445,118 112,033 62,619 1,334,139 606,328
Cash and equivalents at
beginning of year...... 455,058 343,025 280,406 1,900,176 455,058
---------- --------- --------- ---------- ----------
Cash and equivalents at
end of year............ $1,900,176 $ 455,058 $ 343,025 $3,234,315 $1,061,386
========== ========= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of theses financial statements.
F-28
<PAGE>
AMERICAN GENERAL HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
American General Hospitality, Inc. (the "Company"), a Texas corporation, was
incorporated in November 1988 and provides hotel management and consulting
services to hotels throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Company considers all
certificates of deposit and debt instruments with original maturities of three
months or less to be cash equivalents. The Company maintains its cash in bank
deposit accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses in such accounts. The Company believes
it is not exposed to any significant credit risk on cash and cash equivalents.
INVESTMENTS IN PROPERTY AND EQUIPMENT
Property and equipment consist of furniture, equipment, computer equipment
and leasehold improvements and are stated at cost. Depreciation is provided by
using the straight-line method over estimated useful lives of five to seven
years for furniture and equipment and three years for leasehold improvements.
This is considered reasonable for financial reporting purposes and is not
materially different from estimated useful lives.
Maintenance and repairs are charged to operations as incurred; major
renewals and improvements are capitalized. Upon the sale or disposition of a
fixed asset, the asset and related accumulated depreciation accounts are
removed from the accounts and the related gain or loss is included in
operations.
GOODWILL
Goodwill in the amount of $10,000 was recorded when the S Corporation was
originally formed in 1988. The goodwill is being amortized using the straight
line method over a 40 year period.
REVENUE RECOGNITION
Revenue is recognized as earned. Ongoing credit evaluations are performed
and an allowance for potential credit losses is provided against the portion
of accounts receivable which is estimated to be uncollectible.
ADVERTISING COST
The Company participates in various advertising and marketing programs. All
advertising costs are expensed in the period incurred.
CONCENTRATIONS OF RISK
The Company places cash deposits at a major bank. At December 31, 1997, bank
account balances exceed Federal Deposit Insurance Corporation limits by
approximately $2,330,000. Management believes credit risk related to these
deposits is minimal.
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
F-29
<PAGE>
AMERICAN GENERAL HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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.
INCOME TAXES
The Company, with the consent of its shareholders, elected to be treated as
a small business corporation under Subchapter S of the Internal Revenue Code.
In this status, the Company is not a taxable entity, and elements of income
and expense flow through and are taxed to the shareholders on an individual
basis; therefore, no provision or liability for income taxes is reflected in
these financial statements. The Company's tax returns and the amount of
allocable income or loss are subject to examination by federal and state
taxing authorities. If such examinations result in changes to income or loss,
the tax liability of the shareholder could be changed accordingly.
Interim Financial Information--The unaudited interim financial statements as
of March 31, 1998 and for the three months ended March 31, 1998 and March 31,
1997 have been prepared pursuant to the rules and regulations of the SEC. The
accompanying interim financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring
nature.
3. OPERATING LEASES:
During 1997, the Company entered into a sublease agreement with Federal Home
Loan Bank of Dallas to lease 18,668 square feet of office space. The agreement
requires monthly rental payments of $28,780 and expires in September 2000.
Federal Home Loan Bank of Dallas lease from Crescent Real Estate Funding II,
L.P.
The Company also has various equipment leases on office equipment expiring
in future years.
Future minimum lease payments under these noncancelable lease agreements are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- --------
<S> <C>
1998.......................................... $360,072
1999.......................................... 360,072
2000.......................................... 260,806
--------
$980,950
========
</TABLE>
4. EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) retirement plan and provides discretionary
matching contributions of 50% of eligible employees' contributions, up to 6%
of employee compensation. During 1997, 1996 and 1995, the Company contributed
$26,033, $63,933 and $53,365 to this plan, respectively.
The Company has an employee stock ownership plan which covers all eligible
employees meeting age and length of service requirements. Under the terms of
this plan, contributions are at the discretion of the Board of Directors up to
the maximum allowable for tax purposes. During 1997, 1996 and 1995, the
Company contributed $71,625, $98,255 and $94,814 in cash to this plan,
respectively. This approximated 3% of eligible employee compensation. No
contributions of stock have been made to the plan to date.
5. CONTINGENCIES:
The Company is a defendant in various litigation arising in the ordinary
course of its business. No provision for liability related to this litigation
has been recorded in the financial statements as the Company believes that no
material uninsured loss will result.
6. CONCENTRATIONS OF CREDIT RISK:
Most of the Company's business activity is with or on behalf of the hotels
it manages across the United States, and substantially all of the Company's
trade and management fee receivables are from these hotels. The
F-30
<PAGE>
AMERICAN GENERAL HOSPITALITY, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company employs all hotel employees for the properties and is reimbursed by
the property owners. At December 31, 1997, there were approximately 7,500
employees.
7. RELATED PARTY TRANSACTIONS:
Accounts receivable-affiliates represents amounts due from affiliates for
property renovations, purchases, potential investments, shared expenses and
other advances.
Accounts payable-affiliates represents amounts due to affiliates for
advances.
During 1997, 1996 and 1995, the Company received fee revenue for management,
consulting and accounting services provided in the amount of $866,969,
$121,087 and $249,088, respectively, from entities affiliated with the Company
through common ownership.
In addition, the Company paid consulting fees of $2,227,077, $3,979,446 and
$4,056,477 during 1997, 1996 and 1995, respectively, to an affiliated entity.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statements of Financial Accounting Standards No. 107 requires all entities
to disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the Company reports the carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses and
other liabilities at cost, which approximates fair value due to the short
maturity of these instruments.
9. SUBSEQUENT EVENTS:
On March 15, 1998 American General Hospitality Corporation (the "REIT") and
an affiliate and CapStar Hotel Company ("CapStar") entered into a definitive
agreement (the "Merger Agreement") pursuant to which the parties agreed,
subject to stockholder approval and other conditions and covenants, to merge
as equals (the "Proposed Merger"). Accordingly, no assurance can be given that
the Proposed Merger will be consummated. Pursuant to the Merger Agreement,
CapStar will spin off (the "Spin-Off") in a taxable transaction, its hotel
operations and management business to its current stockholders as a new C
Corporation to be called MeriStar Hotels & Resorts, Inc. ("MeriStar Resorts").
CapStar will subsequently merge with and into the REIT, which will qualify as
a reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code"). The REIT will be renamed MeriStar Hospitality
Corporation after the Proposed Merger. In a separate transaction, which will
close immediately after the closing of the Proposed Merger, MeriStar Resorts
will acquire AGH Leasing (an affiliate) and the Company which acquisition is a
condition to closing the Proposed Merger. If the Proposed Merger is
consummated, MeriStar Resorts will become the lessee and manager of all of the
Current Hotels currently leased by AGH Leasing and will have a right of first
refusal to become the lessee of hotels acquired by the Company in the future
except for the Prime Group II Acquisition hotels.
The Merger Agreement defines the exchange ratios for both the REIT's and
CapStar's stockholders. CapStar stockholders will receive one share each of
MeriStar Hospitality Corporation and MeriStar Resorts for each CapStar share
owned. The REIT's stockholders will receive 0.8475 shares of MeriStar
Hospitality Corporation for each share of common stock owned. Both exchange
ratios are fixed, with no adjustment mechanism.
The REIT expects the Proposed Merger to close in June 1998. The Proposed
Merger will be submitted for approval at separate meetings of the stockholders
of the REIT and CapStar. Prior to such stockholder meetings, the REIT will
file a registration statement with the SEC registering under the Securities
Act of 1933, as amended, the shares of MeriStar Hospitality Corporation to be
issued in the Proposed Merger.
F-31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
AGH Leasing, L.P.
We have audited the accompanying balance sheets of AGH Leasing, L.P. (The
"Partnership") as of December 31, 1997 and 1996, and the related statements of
operations, changes in partners' deficit, and cash flows for the year ended
December 31, 1997 and for the period from July 31, 1996 (inception of
operations) through December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit of the financial statements
provides 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 AGH Leasing, L.P. as of
December 31, 1997 and 1996 and its results of operations and its cash flows
for the year ended December 31, 1997 and for the period from July 31, 1996
(inception of operations) through December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand l.l.p.
Dallas, Texas
January 30, 1998,
except for Note 6, as
to which the date is
March 16, 1998
F-32
<PAGE>
AGH LEASING, L.P.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1997 1996 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Investments in hotel properties, at cost
Furniture, fixtures and equipment..... $ 315,000 $ 315,000 $ 315,000
Less accumulated depreciation.........
(89,250) (26,250) (105,000)
----------- ----------- -----------
Net investment in hotel properties...... 225,750 288,750 210,000
Cash and cash equivalents............... 8,781,329 5,673,232 24,644,714
Accounts receivable, net of allowance
for doubtful accounts of $73,915,
$5,291 and $80,987 (unaudited) as of
December 31, 1997 and 1996 and March
31, 1998, respectively................. 6,247,083 2,822,936 12,594,508
Inventories............................. 1,007,296 448,234 1,508,406
Prepaid expenses........................ 1,067,384 553,400 1,165,999
Deferred expenses....................... 159,207 194,287 148,859
Other assets............................ 283,997 47,985 457,900
----------- ----------- -----------
Total assets........................ $17,772,046 $10,028,824 $40,730,386
=========== =========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFI-
CIT)
Accounts payable, trade................. $ 2,642,639 $ 1,054,902 $ 5,309,072
Participating Lease payable, American
General Hospitality
Operating Partnership, L.P............ 7,999,122 3,979,242 17,371,456
Note payable to American General Hospi-
tality Operating
Partnership, L.P....................... 234,321 287,684 220,136
Accrued expenses and other liabilities.. 5,327,522 4,198,035 13,227,644
Deferred income......................... 2,100,000 730,000 2,047,500
Minority interest in Twin Towers Leas-
ing, L.P............................... 1,197,442 -- 1,197,442
----------- ----------- -----------
Total liabilities................... 19,501,046 10,249,863 39,373,250
----------- ----------- -----------
Commitments and contingencies (Notes 1
and 2)
Partner's Capital (deficit)--General
Partner.............................. (17,290) (2,210) 13,571
Partner's Capital (deficit)--Limited
Partners............................. (1,711,710) (218,829) 1,343,565
----------- ----------- -----------
Total partners' (deficit)........... (1,729,000) (221,039) 1,357,136
----------- ----------- -----------
Total liabilities and partners'
(deficit).......................... $17,772,046 $10,028,824 $40,730,386
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE>
AGH LEASING, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD JULY 31, 1996 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1996 AND THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1998 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Room revenue............. $123,965,649 $26,725,200 $58,224,156 $19,465,968
Food and beverage reve-
nue..................... 28,626,625 6,659,959 14,147,363 4,173,607
Other revenue............ 10,121,833 2,205,822 4,415,258 1,612,944
Minority interest income. 1,802,558 -- -- --
------------ ----------- ----------- -----------
Total revenue.......... 164,516,665 35,590,981 76,786,777 25,252,519
------------ ----------- ----------- -----------
Expenses
Property operating costs
and expenses............ 33,894,184 7,235,297 13,956,762 5,340,286
Food and beverage costs
and expenses............ 22,768,224 5,061,921 9,983,727 3,522,766
General and administra-
tive.................... 15,871,676 3,270,481 6,315,376 2,475,288
Advertising and promo-
tion.................... 12,792,700 2,305,776 5,316,895 1,820,589
Repairs and maintenance.. 6,712,883 1,450,987 2,906,546 1,032,093
Utilities................ 7,258,674 1,628,490 2,872,937 1,147,891
Management fees.......... 1,691,639 947,632 1,759,353 82,854
Franchise costs.......... 4,754,285 950,307 2,300,237 676,148
Depreciation............. 63,000 26,250 15,750 15,750
Amortization............. 40,997 6,753 10,348 10,052
Interest expense......... 26,808 13,314 5,858 7,192
Other expense............ 158,113 27,093 91,628 20,746
Participating Lease ex-
penses.................. 59,934,337 13,387,719 28,165,224 9,508,365
------------ ----------- ----------- -----------
Total expenses......... 165,967,520 36,312,020 73,700,641 25,660,020
------------ ----------- ----------- -----------
Net income (loss)...... $ (1,450,855) $ (721,039) $ 3,086,136 $ (407,501)
============ =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE>
AGH LEASING, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
FOR THE PERIOD FROM JULY 31, 1996 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS
1% 99% TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Initial capitalization at inception........ $ 5,000 $ 495,000 $ 500,000
Net loss for the period from July 31, 1996
through December 31, 1996................. (7,210) (713,829) (721,039)
-------- ----------- -----------
Balance at December 31, 1996............... (2,210) (218,829) (221,039)
Partner distributions...................... (571) (56,535) (57,106)
Net loss for the year ended December 31,
1997...................................... (14,509) (1,436,346) (1,450,855)
-------- ----------- -----------
Balance at December 31, 1997............... $(17,290) $(1,711,710) $(1,729,000)
-------- ----------- -----------
Net income for the three months ended March
31, 1998
(unaudited)............................... 30,861 3,055,275 3,086,136
-------- ----------- -----------
Balance at March 31, 1998 (unaudited)...... $ 13,571 $ 1,343,565 $ 1,357,136
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-35
<PAGE>
AGH LEASING, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD JULY 31, 1996 (INCEPTION OF OPERATIONS)
THROUGH DECEMBER 31, 1996 AND THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1997 1996 1998 1997
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flow from operating ac-
tivities:
Net income (loss)......... $ (1,450,855) $ (721,039) $ 3,086,136 $ (407,501)
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation............ 63,000 26,250 15,750 15,750
Amortization............ 40,997 6,753 10,348 10,052
Minority interest....... (1,802,558) -- -- --
Changes in assets and
liabilities:
Accounts receivable..... (3,424,147) (2,822,936) (6,347,425) (1,367,672)
Inventories............. (559,062) (448,234) (501,110) (146,066)
Prepaid expenses........ (513,984) (553,400) (98,615) 44,250
Deferred expenses....... (5,917) (201,040) -- --
Other assets............ (236,012) (47,985) (173,903) (113,119)
Accounts payable, trade. 1,587,737 1,054,902 2,666,433 420,001
Participating Lease
payable, American
General Hospitality
Operating Partnership,
L.P.................... 4,019,880 3,979,242 9,372,334 419,460
Accrued expenses and
other liabilities...... 1,129,487 4,198,035 7,900,122 (30,138)
Deferred income......... 1,370,000 730,000 (52,500) 420,001
------------ ---------- ----------- ----------
Net cash flow provided
by operating
activities........... 218,566 5,200,548 15,877,570 (734,982)
------------ ---------- ----------- ----------
Cash flow from financing
activities:
Capital contributions, AGH
Leasing, L.P............. -- 500,000 -- --
Capital contributions,
Twin Leasing, L.P........ 3,000,000 -- -- --
Partner distributions .... (57,106) -- -- --
Principal payments on
borrowings............... (53,363) (27,316) (14,185) (12,851)
------------ ---------- ----------- ----------
Net cash provided by
financing activities... 2,889,531 472,684 (14,185) (12,851)
------------ ---------- ----------- ----------
Net change in cash and
cash equivalents....... 3,108,097 5,673,232 15,863,385 (747,833)
Cash and cash equivalents
at beginning of periods.. 5,673,232 -- 8,781,329 5,673,232
------------ ---------- ----------- ----------
Cash and cash equivalents
at end of periods........ $ 8,781,329 $5,673,232 $24,644,714 $4,925,399
============ ========== =========== ==========
Supplemental disclosures of
cash flow information:
Cash paid during the
period for interest...... $ 26,808 $ 13,314 $ 5,858 $ 7,192
============ ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
AGH LEASING, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
AGH Leasing, L.P. is a Delaware limited partnership which was formed on May
29, 1996, and commenced operations on July 31, 1996. AGH Leasing is owned in
part by certain executive officers of American General Hospitality Corporation
(the "Company") and American General Hospitality, Inc. ("AGHI"). AGH Leasing,
L.P. leases 26 of the 27 Hotels (the "December 31 Hotels") owned by American
General Hospitality Operating Partnership, L.P. (the "Operating Partnership")
at December 31, 1997, pursuant to operating leases ("Participating Leases")
which provide for rent based on the revenues of the December 31 Hotels.
During 1996, the Company acquired two of the December 31 Hotels for an
aggregate acquisition price of $49 million. During 1997, the Company acquired
twelve of the December 31 Hotels for an aggregate acquisition price of $289.7
million. The acquisitions were accounted for by the Company under the purchase
method of accounting. Thirteen of the fourteen acquired hotels were
subsequently leased to AGH Leasing, L.P. pursuant to the Participating Leases
with the remaining hotel being leased to Twin Towers Leasing, L.P. The results
of operations of the acquired hotels have been included in the reported
results from the date of acquisition.
Twin Towers Leasing, L.P. ("Twin Towers Leasing" and, together with AGH
Leasing, L.P., "AGH Leasing") leases the remaining December 31 Hotel, the
Radisson Twin Towers Orlando, pursuant to a Participating Lease which is
substantially similar in form to the other Participating Leases. Twin Towers
Leasing is a Florida limited partnership which was formed on June 1, 1997, and
commenced operations on June 25, 1997. AGH Leasing is the 51% sole general
partner of Twin Towers Leasing. The remaining 49% is owned by Regent Carolina
Corporation ("Regent"), an affiliate of the selling entity. Based on the
partnership agreement, Regent is allocated 100% of any losses generated by
Twin Towers Leasing up to their capital contribution of $3 million. The
operations of Twin Towers Leasing are consolidated with the operations of AGH
Leasing for financial statement purposes.
The consolidated financial statements of AGH Leasing include the results of
operations of the December 31 Hotels leased from the Operating Partnership due
to AGH Leasing's control over the operations of the December 31 Hotels during
the 12-year term of the Participating Leases. AGH Leasing has complete
discretion in establishing room rates and all rates for hotel goods and
services. Likewise, all operating expenses of the December 31 Hotels are under
the control of AGH Leasing. AGH Leasing has the right to manage or to enter
into management contracts with other parties to manage the December 31 Hotels.
If AGH Leasing elects to enter into management contracts with parties other
than AGHI, AGH Leasing must obtain the prior written consent of the Operating
Partnership, which consent may not be unreasonably withheld. AGH Leasing has
entered into management agreements pursuant to which 26 of the December 31
Hotels are managed by AGHI and the remaining December 31 Hotel is managed by
Wyndham Hotel Corporation.
AGH Leasing's results of operations are seasonal. The aggregate room
revenues in the second and third quarters of each fiscal year may be higher
than room revenues in the first quarter and fourth quarter of each fiscal
year. Consequently, AGH Leasing may have net income in some quarters and may
have net losses in other quarters of the same year.
Upon consummation of the Company's Initial Public Offering ("IPO"), the
partners of AGH Leasing capitalized AGH Leasing with $500,000 cash and pledged
275,000 units of limited partnership interest in the Operating Partnership
("OP Units") to the Company to collateralize the Lessee's obligations under
the Participating Leases. Twin Towers Leasing was capitalized with $3 million
by the 49% limited partner upon commencement of operations.
F-37
<PAGE>
AGH LEASING, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Hotel Properties--Hotel properties consist principally of
furniture, fixtures and equipment and are stated at the lower of cost or net
realizable value and are depreciated using the straight-line method over
estimated useful lives ranging from 3 to 7 years.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of a
fixed asset, the asset and the related accumulated depreciation are removed
from the accounts and the gain or loss is included in operations.
Cash and Cash Equivalents--All highly liquid investments with a maturity of
three months or less when purchased are considered to be cash equivalents.
Inventories--Inventories, consisting primarily of food and beverage items,
are stated at the lower of cost (generally, first-in first-out) or market.
Deferred Expenses--Deferred expenses at December 31, 1997 and 1996 include
organizational costs of $5,916 and $1,041, respectively and a $200,000 payment
made in connection with the Wyndham Safari Resort Lake Buena Vista cash flow
guarantee. Amortization is computed using the straight-line method over five
years.
Deferred Income--Deferred income of $2,100,000 and $730,000 at December 31,
1997 and 1996, respectively, represents the cash received from one of the
sellers of the Wyndham Safari Resort Lake Buena Vista for recurring
association fee agreements with the sellers as described in Note 4. The gain
will be amortized over the term of the agreements of ten years. The agreements
commence January 1, 1998.
Income Taxes--AGH Leasing is a Maryland limited partnership, which is not a
taxable entity. The results of operations are included in the tax returns of
the partners. The partnerships' tax returns and the amount of allocable income
or loss are subject to examination by federal and state taxing authorities. If
such examinations result in changes to income or loss, the tax liability of
the partners could be changed accordingly.
Revenue Recognition--Revenue is recognized as earned. Ongoing credit
evaluations are performed and an allowance for potential credit losses is
provided against the portion of accounts receivable which is estimated to be
uncollectible.
Advertising Cost--The December 31 Hotels participate in various advertising
and marketing programs. All advertising costs are expensed in the period
incurred. The Lessee recognized advertising expense of $7.4 million and $1.3
million for the years ended December 31, 1997 and 1996, 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 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.
Concentration of Credit Risk--AGH Leasing places cash deposits at a major
bank. At December 31, 1997 and 1996, bank account balances exceeded Federal
Deposit Insurance Corporation limits by approximately $5.7 million and $2.5
million, respectively. Management believes the credit risk related to these
deposits is minimal.
Reclassifications--Certain prior period amounts have been reclassified to
conform with the current period presentation.
Interim Financial Information--The unaudited interim financial statements as
of March 31, 1998 and for the three months ended March 31, 1998 and 1997 have
been prepared pursuant to the rules and regulations of the SEC. The
accompanying interim financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the interim
financial statements. All such adjustments are of a normal and recurring
nature.
F-38
<PAGE>
AGH LEASING, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statements of Financial Accounting Standards 107 requires all entities to
disclose the fair value of certain financial instruments in their financial
statements. Accordingly, the Lessee reports the carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable, participating lease
payable, note payable, accrued expenses and other liabilities at cost, which
approximates fair value due to the short maturity of these instruments.
4. COMMITMENTS AND RELATED PARTY TRANSACTIONS
Franchise costs represent the annual expense for franchise royalties and
reservation services under the terms of hotel franchise agreements, which
expire from 1998 to 2013. Franchise costs are based upon varying percentages
of gross room revenue ranging from 2.0% to 5.0%. These fees are paid by the
Lessee. No franchise costs were incurred for the Hotel Maison de Ville.
Twenty-six of the December 31 Hotels are managed by AGHI on behalf of AGH
Leasing. AGH Leasing pays AGHI a base management fee of 1.5% of total revenue
and an incentive fee of up to 2.0% of total revenue. The incentive fee, if
applicable, is equal to 0.025% of annual total revenue for each 0.1% increase
in annual total revenue over the total revenues for the preceding twelve-month
period up to the maximum incentive fee.
The remaining December 31 Hotel, the Wyndham Garden Hotel Marietta, is
managed by Wyndham Hotel Corporation ("Wyndham") on behalf of AGH Leasing. AGH
Leasing pays Wyndham a base management fee equal to 1.5% of gross revenues at
the hotel plus an incentive management fee of up to 1.5% of gross revenues.
The incentive fee, if applicable, will be earned if gross revenues exceed
certain year over year thresholds.
Each December 31 Hotel, except the Hotel Maison de Ville, is required to
remit varying percentages of gross room revenue ranging from 1.0% to 5.0% to
the various franchisors for sales and advertising expenses incurred to promote
the hotel at the national level. Additional sales and advertising costs are
incurred at the local property level. These fees are paid by AGH Leasing.
The Company entered into an agreement for a license and an association
membership from one of the sellers of the Wyndham Safari Lake Buena Vista,
which the Company immediately assigned to AGH Leasing. Commencing January
1998, in connection with the license and the association membership, the
Lessee is required to pay recurring association fees including a base monthly
fee equal to 1.0% of the prior month's gross room revenues generated at the
Hotel, and an additional fee of 0.5% to 1.0% of gross monthly revenues if the
trailing twelve month's gross room revenues at the Hotel exceed a threshold of
approximately $13 million (subject to increase based on the percentage
increase in the CPI). In addition, the Lessee is obligated to pay a recurring
royalty for the African Safari theme equal to an amount which ranges from 10%
to 25% of net operating income in excess of $6 million (subject to adjustment
if the Operating Partnership invests more than $40 million in the Hotel). AGH
Leasing is also obligated to pay a marketing assistance fee equal to .25% of
gross room revenues. The marketing and association fees are not expected to
exceed 2.25% of gross room revenues for any twelve-month period. The
association membership agreement terminates in October 2008; AGH Leasing is
obligated to pay liquidated damages if the agreement is terminated earlier.
In order to facilitate compliance with state and local liquor laws and
regulations, AGH Leasing subleases those areas of certain of the hotels that
comprise the restaurant and other areas where alcoholic beverages are served
to the Beverage Corporations, 39 of which are wholly owned by a senior
executive of the Company. In accordance with the terms of the Beverage
Subleases, each Beverage Corporation is obligated to pay to AGH Leasing rent
payments equal to 30% of each such corporation's annual gross revenues
generated from the sale of alcoholic beverages generated from such areas. Such
sublease income is reported in other revenue. Pursuant to the Participating
Leases, such subleases will not reduce the Participating Rent payments to the
Operating Partnership, which it is entitled to receive from such beverage
sales.
F-39
<PAGE>
AGH LEASING, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AGH Leasing has future lease commitments to the Company under the
Participating Leases, which have various expiration dates between July 2008 to
June 2009. The Participating Lease expenses are based on percentages of room
revenues, food and beverage revenues, telephone and other revenues. The
departmental revenue thresholds in the Participating Leases are seasonally
adjusted for interim periods and the Participating Lease formulas are adjusted
annually effective January 1, by a percentage equal to the percentage increase
in the CPI, plus .75% as compared to the prior year. Additionally, several of
the December 31 Hotels will have further adjustments to the Participating
Lease formulas due to the significant renovations expected to be completed in
those hotels in 1997. Minimum future rental expense (i.e., base rents) under
these noncancellable Participating Leases is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------------
<S> <C>
1998...................................... $ 48,960,000
1999...................................... 50,527,600
2000...................................... 52,143,028
2001...................................... 53,814,309
2002...................................... 55,428,738
2003 and thereafter....................... 342,549,603
------------
Minimum future base rents $603,423,278
============
</TABLE>
5. PRO FORMA INFORMATION (UNAUDITED)
Due to the impact of the IPO and other hotel acquisitions made by the
Company as described in Note 1 and leased to AGH Leasing, the historical
results of operations may not be indicative of future results of operations.
The following unaudited pro forma information of AGH Leasing is presented as
if the IPO and acquisition of the December 31 Hotels had occurred on January
1, 1996 and all of the Current Hotels had been leased pursuant to the
Participating Leases since that date.
In management's opinion, all adjustments necessary to reflect the effects of
the transactions previously described have been made. The pro forma
information does not purport to present what the actual results of operations
of AGH Leasing would have been if the previously mentioned transactions had
occurred on such date or to project the future financial position or results
of operations of AGH Leasing for any future period.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Room revenue.................................. $151,771,990 $136,811,842
Food and beverage revenue..................... 36,301,599 35,545,269
Other revenue................................. 12,378,349 12,126,659
Minority interest income...................... 2,874,156 1,284,177
------------ ------------
Total revenue............................... 203,326,094 185,767,947
------------ ------------
Hotel operating expenses...................... 128,752,753 120,473,305
Depreciation and amortization................. 103,997 69,753
Interest expense.............................. 264,064 31,689
Other expenses................................ 331,229 359,009
Participating Lease expense................... 74,192,463 65,776,641
------------ ------------
Net loss...................................... $ (318,412) $ (942,450)
============ ============
</TABLE>
F-40
<PAGE>
AGH LEASING, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. SUBSEQUENT EVENTS
PROPOSED MERGER
On March 15, 1998 the Company and CapStar Hotel Company ("CapStar") entered
into a definitive agreement (the "Merger Agreement") pursuant to which the
parties agreed, subject to stockholder approval and other conditions and
covenants, to merge as equals (the "Proposed Merger"). Accordingly, no
assurance can be given that the Proposed Merger will be consummated. Pursuant
to the Merger Agreement, CapStar will spin off (the "Spin-Off") in a taxable
transaction, its hotel operations and management business to its current
stockholders as a new C-Corporation to be called MeriStar Hotels & Resorts,
Inc. ("MeriStar Resorts"). CapStar will subsequently merge with and into the
Company, which will qualify as a reorganization under Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company will be
renamed MeriStar Hospitality Corporation after the Proposed Merger. In a
separate transaction, which will close immediately after the closing of the
Proposed Merger, MeriStar Resorts will acquire AGH Leasing and AGHI which is
payable through the issuance of $11.2 million of units of limited partnership
interests of a subsidiary owned by MeriStar Resorts and $83.8 million in cash.
This acquisition is a condition to closing the Proposed Merger. If the
Proposed Merger is consummated, MeriStar Resorts will become the lessee and
manager of all of the Current Hotels currently leased by AGH Leasing and will
have a right of first refusal to become the lessee of hotels acquired by the
Company in the future except for the Prime Group II Acquisition hotels.
The Merger Agreement defines the exchange ratios for both the Company's and
CapStar's stockholders. CapStar stockholders will receive one share each of
MeriStar Hospitality Corporation and MeriStar Resorts for each CapStar share
owned. The Company's stockholders will receive 0.8475 shares of MeriStar
Hospitality Corporation for each share of Common Stock owned. Both exchange
ratios are fixed, with no adjustment mechanism.
The Company expects the Proposed Merger to close in June 1998. The Proposed
Merger will be submitted for approval at separate meetings of the stockholders
of the Company and CapStar. Prior to such stockholder meetings, the Company
will file a registration statement with the SEC registering under the
Securities Act of 1933, as amended, the shares of MeriStar Hospitality
Corporation to be issued in the Proposed Merger.
F-41
<PAGE>
AGH LEASING, L.P.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
The following unaudited Pro Forma Consolidated Statement of Operations are
presented as if the Company had completed the acquisition of the 12 hotels
acquired during 1997 and 15 hotels acquired during 1996 all owned as of
December 31, 1997 (the "December 31 Hotels") and the 18 hotels acquired in the
first quarter of 1998 (the "Acquired Hotels") and the one hotel to be acquired
by the Company and leased to AGH Leasing (the "Proposed Acquisition Hotel")
(collectively the "AGH Hotels") as of January 1, 1997. The Acquired Hotels
include the Potomac Portfolio Acquisition Hotels, the FSA Portfolio
Acquisition Hotels, the Holiday Inn O'Hare International Hotel and the
Proposed Acquisition Hotel is the Madison Hotel Acquisition. The Pro Forma
Consolidated Statement of Operations does not include the effects of the
Proposed Merger with CapStar.
In management's opinion, all material adjustments necessary to reflect the
effect of these transactions have been made.
The following unaudited Pro Forma Consolidated Statement of Operation are
derived from AGH Leasing's Consolidated Statements of Operations as of
December 31, 1997 and should be read in conjunction with the financial
statements filed with American General Hospitality Corporation's Annual Report
on Form 10-K for the year ended December 31, 1997.
The following Pro Forma Consolidated Statement of Operations are not
necessarily indicative of what the actual results of operations would have
been assuming such transactions had been completed as of January 1, 1997.
F-42
<PAGE>
AGH LEASING, L.P.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL DECEMBER 31
YEAR ENDED HOTELS PROPOSED MANAGEMENT
DECEMBER 31, PRO FORMA ACQUIRED ACQUISITION FEES
1997 ADJUSTMENTS HOTELS HOTEL ADJUSTMENT COMBINED
(A) (B) (C) (C) (G) PRO FORMA
------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Room revenue (D)...... $123,965,649 $27,806,341 $ 99,361,895 $1,379,556 $ -- $252,513,441
Food and beverage
revenue (D).......... 28,626,625 7,674,974 25,145,757 207,374 -- 61,654,730
Other revenue (D)..... 10,121,833 2,256,516 8,380,871 82,507 -- 20,841,727
Minority interest 1,802,558 (139,150) -- -- -- 1,663,408
income (E)........... ------------ ----------- ------------ ---------- ----------- ------------
Total revenue....... $164,516,665 $37,598,681 $132,888,523 $1,669,437 -- $336,673,306
------------ ----------- ------------ ---------- ----------- ------------
Expenses
Property operating
costs and expenses
(F).................. 33,894,184 6,754,081 26,658,014 456,500 -- 67,762,779
Food and beverage
costs and expenses
(F).................. 22,768,224 5,297,676 20,218,787 121,170 -- 48,405,857
General and
administrative (F)... 15,871,676 2,978,176 11,792,008 241,768 -- 30,883,628
Advertising and
promotion (F)........ 12,792,700 2,489,673 8,638,295 68,533 -- 23,989,201
Repairs and
maintenance (F)...... 6,712,883 1,756,796 6,399,372 95,048 -- 14,964,099
Utilities (F)......... 7,258,674 1,532,149 6,198,780 95,716 -- 15,085,319
Management fees (G)... 1,691,639 1,158,265 2,694,902 42,106 1,767,977 7,354,889
Franchise costs (H)... 4,754,285 1,041,672 3,945,161 50,095 -- 9,791,213
Depreciation.......... 63,000 -- -- -- -- 63,000
Amortization (I)...... 40,997 -- -- -- -- 40,997
Interest expense...... 26,808 237,256 -- -- -- 264,064
Other expense......... 158,113 173,116 79,997 -- -- 411,226
Participating Lease 59,934,337 14,258,118 45,298,537 637,336 -- 120,128,328
expenses (J)......... ------------ ----------- ------------ ---------- ----------- ------------
Total expenses...... 165,967,520 37,676,978 131,923,853 1,808,272 1,767,977 339,144,600
------------ ----------- ------------ ---------- ----------- ------------
Net income (loss)... $ (1,450,855) $ (78,297) $ 964,670 $ (138,835) $(1,767,977) $ (2,471,294)
============ =========== ============ ========== =========== ============
</TABLE>
F-43
<PAGE>
AGH LEASING, L.P.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The pro forma consolidated statement of operations of AGH Leasing, L.P.
("AGH Leasing") include the results of operations of the 46 hotels leased from
the American General Hospitality Operating Partnership, L.P. (the "Operating
Partnership") due to AGH Leasing's control over the operations of the hotels
during the twelve-year term of the Participating Leases. AGH Leasing has
complete discretion in establishing room rates and all rates for hotel goods
and services. Likewise, all operating expenses of the hotels are under the
control of AGH Leasing. AGH Leasing has the right to manage or to enter into
management contracts with other parties to manage the hotels. If AGH Leasing
elects to enter into management contracts with parties other than American
General Hospitality, Inc. ("AGHI"), AGH Leasing must obtain the prior written
consent of the Company, which consent may not be unreasonably withheld.
AGH Leasing's results of operations are seasonal. Generally, hotel revenue
is greater in the second and third quarters of a calendar year, although this
may not be true for hotels in major tourist destinations. With the Company's
acquisition and subsequent leasing of the FSA Portfolio Acquisition Hotels,
which include several hotels in tourist destinations, the AGH Hotels may now
produce greater revenues in the first and second quarters.
(A) Represents the Company's historical statement of operations for the year
ended December 31, 1997.
(B) Represents the adjustments to present a statement of operations for the 12
hotels acquired by the Company and leased to AGH Leasing during 1997 prior
to their acquisition by the Company based on historical balances of the
previous owners. The combination of the historical statement of operations
presented in column (A) and the pro forma statement of operation presented
in column (B) represent the results of operations of the 27 December 31
Hotels as if all of the AGH Hotels were acquired on January 1, 1997 and
leased to AGH Leasing pursuant to a Participating Lease since that date.
(C) Acquired Hotels represent the acquisition of the interests in the hotels
acquired by the Company and leased to AGH Leasing through March 31, 1998.
The Acquired Hotels are leased pursuant to operating leases
("Participating Leases") which provide for rent based on the revenues of
the Acquired Hotels. The Acquired Hotels include the FSA Portfolio
Acquisition Hotels, the Potomac Portfolio Acquisition Hotels and the
Holiday Inn O'Hare International Airport Hotel.
Proposed Acquisition Hotel represents the acquisition of one hotel, the
Madison Hotel, to be acquired by the Company and leased to AGH Leasing
pursuant to a Participating Lease.
The following table reflects summarized information regarding the Acquired
Hotels:
<TABLE>
<CAPTION>
POTOMAC PORTFOLIO
ACQUISITION HOTELS
AND THE HOLIDAY INN
FSA PORTFOLIO O'HARE INTERNATIONAL
ACQUISITION HOTELS AIRPORT HOTEL TOTAL
------------------ -------------------- ------------
<S> <C> <C> <C>
Total Hotel revenues..... $88,539,197 $49,256,403 $137,795,600
Total expenses........... 70,978,387 44,146,771 115,125,158
----------- ----------- ------------
Net income............... 17,560,810 5,109,632 22,670,442
Elimination of historical
expenses
Net income of Select Inn
Bloomington............ (392,417) -- (392,417)
Management fees......... 570,568 (11,292) 559,276
Depreciation............ 7,951,340 2,703,858 10,655,198
Amortization............ -- 121,242 121,242
Real estate and personal
property taxes and
property insurance..... 3,521,192 1,968,253 5,489,445
Interest expense........ -- 4,138,093 4,138,093
Other expense........... 2,678,741 343,187 3,021,928
----------- ----------- ------------
Adjusted net income be-
fore Participating
Lease payment.......... 31,890,234 14,372,973 46,263,207
Participating Lease pay-
ment................... 30,576,487 14,722,050 45,298,537
----------- ----------- ------------
Acquired Hotels adjusted
net income.............. $ 1,313,757 $ (349,077) $ 964,670
=========== =========== ============
</TABLE>
F-44
<PAGE>
AGH LEASING, L.P.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS--(CONTINUED)
(D) Represents historical room, food and beverage and other revenues of the
AGH Hotels.
(E) Represents the amount of AGH Leasing's minority interest investment in
Twin Towers Leasing, L.P. (the "Twin Towers Lessee", together with AGH
Leasing, L.P., "AGH Leasing") which leases the Radisson Orlando Twin
Towers hotel from the Operating Partnership. The Twin Towers Lessee is
owned 51% by AGH Leasing, which is the sole general partner, and 49% by
Regent Carolina Corporation, which is the sole limited partner. Regent
Carolina Corporation is not affiliated with the Company, the Operating
Partnership or AGH Leasing.
(F) Represents the historical expenses of the AGH Hotels.
(G) Represents management fees to be incurred under the Management Agreements.
The management fees payable to AGHI consist of a base fee of 1.5% of total
revenue and an incentive fee of up to 2.0% of total revenue. The incentive
fee, if applicable, is equal to 0.025% of annual total revenue for each
0.01% increase in annual total revenues over the total revenues for the
preceding twelve month period up to the maximum incentive fee. The payment
of the management fees to AGHI by AGH Leasing is subordinate to AGH
Leasing's obligations to the Company under the Participating Leases. The
full management fee payable during 1997 will be earned only to the extent
that AGH Leasing has taxable income equal to or greater than $50,000. If
AGH Leasing's taxable net operating income is below $50,000 in 1997,
management fees are forfeited by AGHI to increase AGH Leasing's taxable
net operating income to $50,000.
<TABLE>
<CAPTION>
BASE INCENTIVE TOTAL
MANAGEMENT FEE MANAGEMENT FEE MANAGEMENT FEE
-------------- -------------- --------------
<S> <C> <C> <C>
December 31 Hotels............. $2,849,904 $ -- $2,849,904
Acquired Hotels
Potomac Portfolio Acquisition
Hotels and the Holiday Inn
O'Hare International Airport
Hotel........................ 738,846 614,955 1,353,801
FSA Portfolio Acquisition Ho-
tels........................ 1,341,101 -- 1,341,101
Proposed Acquisition Hotel
Madison Hotel................ 25,263 16,843 42,106
Management fee adjustment...... -- 1,767,977 1,767,977
---------- ---------- ----------
Total management fees.......... $4,955,114 $2,399,775 $7,354,889
========== ========== ==========
</TABLE>
(H) Represents the historical franchise fees of the AGH Hotels. Franchise fees
associated with the hotel conversions are not included in the pro forma
statements of operations since other impacts including possible revenue
enhancements and operating expense reductions are also not included.
(I) Historical deferred loan costs and the related amortization has been
eliminated since AGH Leasing is not expected to incur similar costs.
Amortization expense relates to the amortization of organization costs
which are being amortized over a 60 month period.
(J) Represents lease payments to the Operating Partnership from AGH Leasing
pursuant to the Participating Leases calculated on a pro forma basis by
applying the rent provisions of the Participating Leases to the revenues
of the AGH Hotels. The departmental thresholds in the Participating Leases
are seasonally adjusted for interim periods. The Participating Lease
payments for the Acquired Hotels and the Proposed Acquisition Hotel are
calculated by applying the rent provisions applicable in the first year of
the respective leases executed to the historical operating revenues of the
hotels prior to the acquisition by the Company.
F-45
<PAGE>
AGH LEASING, L.P.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS--(CONTINUED)
<TABLE>
<CAPTION>
EXCESS OF
PARTICIPATING TOTAL
RENT OVER BASE PARTICIPATING
BASE RENT RENT RENT
----------- -------------- -------------
<S> <C> <C> <C>
December 31 Hotels.................... $46,110,810 $28,081,645 $ 74,192,455
Base and Participating Lease payments
for the Acquired Hotels
Potomac Portfolio Acquisition Hotels
and the Holiday Inn O'Hare
International Airport Hotel......... 9,737,500 4,984,550 14,722,050
FSA Portfolio Acquisition Hotels 9
hotels owned by the Company......... 17,752,496 7,637,735 25,390,231
FSA Portfolio Acquisition Hotels 4
hotels owned by PSS I, Inc.......... 3,924,955 1,261,301 5,186,266
----------- ----------- ------------
Total Base and Participating Lease
payments for the Acquired Hotels.... 31,414,951 13,883,586 45,298,537
----------- ----------- ------------
Base and Participating Lease payments
for the Proposed Acquisition Hotel
Madison Hotel........................ 637,336 0 637,336
----------- ----------- ------------
Total Base and Participating Lease
payments for the Proposed
Acquisition Hotel................... $78,163,097 $41,965,231 $120,128,328
=========== =========== ============
</TABLE>
F-46
<PAGE>
AGH LEASING, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1998
The following unaudited Pro Forma Consolidated Statement of Operations is
presented as if the 45 hotels which the Company and its affiliates lease to
AGH Leasing (the "AGH Leasing March 31 Hotels") and one of the additional
hotels to be acquired by the Company and leased to AGH Leasing (the "Proposed
Acquisition Hotel", together with AGH Leasing March 31 Hotels, the "AGH
Leasing Hotels") were leased pursuant to Participating Leases as of January 1,
1997. The Proposed Acquisition Hotel is the Madison Hotel Acquisition. The Pro
Forma Consolidated Statement of Operations does not include the effects of the
Proposed Merger with CapStar.
In management's opinion, all material adjustments necessary to reflect the
effect of these transactions have been made.
The following unaudited Pro Forma Consolidated Statement of Operation are
derived from AGH Leasing's Consolidated Statements of Operations as of March
31, 1998 and should be read in conjunction with the financial statements filed
with American General Hospitality Corporation's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
The following Pro Forma Consolidated Statement of Operations are not
necessarily indicative of what the actual results of operations would have
been assuming such transactions had been completed as of January 1, 1997.
F-47
<PAGE>
AGH LEASING, L.P.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
AGH LEASING
HISTORICAL MARCH 31 HOTELS PROPOSED
THREE MONTHS ENDED PRO FORMA ACQUISITION
MARCH 31, 1998 ADJUSTMENTS HOTEL COMBINED
(A) (B) (C) PRO FORMA
------------------ --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Room revenue (D)...... $58,224,156 $10,591,753 $ -- $68,815,909
Food and beverage rev-
enue (D)............. 14,147,363 2,493,306 -- 16,640,669
Other revenue (D)..... 4,415,258 1,028,980 3,373 5,447,611
----------- ----------- --------- -----------
Total revenue..... 76,786,777 14,114,039 3,373 90,904,189
----------- ----------- --------- -----------
Expenses
Property operating
cost and expenses
(E).................. 13,956,762 3,068,333 7,492 17,032,587
Food and beverage
costs and expenses
(E).................. 9,983,727 2,251,201 (411) 12,234,517
General and adminis-
trative (E).......... 6,315,376 1,486,918 46,447 7,848,741
Advertising and promo-
tion (E)............. 5,316,895 1,030,001 7,289 6,354,185
Repairs and mainte-
nance (E)............ 2,906,546 735,838 1,135 3,643,519
Utilities (E)......... 2,872,937 694,370 9,151 3,576,458
Management fees (F)... 1,759,353 311,020 -- 2,070,373
Franchise costs (G)... 2,300,237 409,716 -- 2,709,953
Depreciation.......... 15,750 -- -- 15,750
Amortization (H)...... 10,348 -- -- 10,348
Interest expense...... 5,858 -- -- 5,858
Other expense......... 91,628 19,500 -- 111,128
Participating Lease
expense (I).......... 28,165,224 5,358,517 238,997 33,762,738
----------- ----------- --------- -----------
Total expenses.... 73,700,641 15,365,414 310,100 89,376,155
----------- ----------- --------- -----------
Net income (loss). $ 3,086,136 $(1,251,375) $(306,727) $ 1,528,034
=========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
F-48
<PAGE>
AGH LEASING, L.P.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The Pro Forma Consolidated Statement of Operations of AGH Leasing, L.P.
("AGH Leasing") include the results of operations of the 45 hotels leased from
the American General Hospitality Operating Partnership, L.P. (the "Operating
Partnership") due to AGH Leasing's control over the operations of the hotels
during the twelve-year term of the Participating Leases. AGH Leasing has
complete discretion in establishing room rates and all rates for hotel goods
and services. Likewise, all operating expenses of the hotels are under the
control of AGH Leasing. AGH Leasing has the right to manage or to enter into
management contracts with other parties to manage the hotels. If AGH Leasing
elects to enter into management contracts with parties other than American
General Hospitality, Inc. ("AGHI"), AGH Leasing must obtain the prior written
consent of the Company, which consent may not be unreasonably withheld.
AGH Leasing's results of operations are seasonal. Generally, hotel revenue
is greater in the second and third quarters of a calendar year, although this
may not be true for hotels in major tourist destinations. With the Company's
acquisition and subsequent leasing of the FSA Portfolio Acquisition Hotels,
which include several hotels in tourist destinations, the AGH Hotels may now
produce greater revenues in the first and second quarters.
(A) Represents the Company's historical statement of operations for the year
ended March 31, 1998.
(B) Represents the adjustments to present a statement of operations for the 18
hotels acquired by the Company and leased to AGH Leasing during the first
quarter of 1998 prior to their acquisition by the Company based on
historical balances of the previous owners. The combination of the
historical statement of operations presented in column (A) and the pro
forma statement of operation presented in column (B) represent the results
of operations of the 45 AGH Leasing March 31 Hotels as if all of the AGH
Hotels were acquired on January 1, 1997 and leased to AGH Leasing pursuant
to a Participating Lease since that date.
(C) Proposed Acquisition Hotel represents the acquisition of one hotel, the
Madison Hotel, to be acquired by the Company and leased to AGH Leasing
pursuant to a Participating Lease. The Madison Hotel was closed for a
complete renovation in September 1997 and is expected to reopen in July
1998.
(D) Represents historical room, food and beverage and other revenues of AGH
Hotels.
(E) Represents the historical expenses of the AGH Hotels.
(F) Represents management fees to be incurred under the Management Agreements.
The management fees payable to AGHI consist of a base fee of 1.5% of total
revenue and an incentive fee of up to 2.0% of total revenue. The incentive
fee, if applicable, is equal to 0.025% of annual total revenue for each
0.01% increase in annual total revenues over the total revenues for the
preceding twelve month period up to the maximum incentive fee. The payment
of the management fees to AGHI by AGH Leasing is subordinate to AGH
Leasing's obligations to the Company under the Participating Leases.
<TABLE>
<CAPTION>
BASE INCENTIVE TOTAL
MANAGEMENT FEE MANAGEMENT FEE MANAGEMENT FEE
-------------- -------------- --------------
<S> <C> <C> <C>
AGH Leasing March 31 Hotels....... $1,403,965 $666,408 $2,070,373
Proposed Acquisition Hotel Madison
Hotel............................ 0 0 0
---------- -------- ----------
Total management fees............. $1,403,965 $666,408 $2,070,373
========== ======== ==========
</TABLE>
(G) Represents the historical franchise fees of the AGH Hotels. Franchise fees
associated with the hotel conversions are not included in the pro forma
statements of operations since other impacts including possible revenue
enhancements and operating expense reductions are also not included.
(H) Historical deferred loan costs and the related amortization has been
eliminated since AGH Leasing is not expected to incur similar costs.
Amortization expense relates to the amortization of organization costs
which are being amortized over a 60 month period.
F-49
<PAGE>
AGH LEASING, L.P.
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS--(CONTINUED)
(I) Represents lease payments to the Operating Partnership from AGH Leasing
pursuant to the Participating Leases calculated on a pro forma basis by
applying the rent provisions of the Participating Leases to the revenues
of the AGH Hotels. The departmental thresholds in the Participating Leases
are seasonally adjusted for interim periods. The Participating Lease
payments for the Acquired Hotels and the Proposed Acquisition Hotel are
calculated by applying the rent provisions applicable in the first year of
the respective leases to the historical operating revenues of the hotels
prior to the acquisition by the Company.
<TABLE>
<CAPTION>
EXCESS OF
PARTICIPATING
RENT OVER BASE TOTAL PARTICIPATING
BASE RENT RENT RENT
----------- -------------- -------------------
<S> <C> <C> <C>
AGH Leasing March 31 Hotels...... $20,195,193 $13,328,548 $33,523,741
Base and Participating Lease
payments for the Proposed
Acquisition Hotel Madison Hotel. 238,997 0 238,997
----------- ----------- -----------
Total........................... $20,434,190 $13,328,548 $33,762,738
=========== =========== ===========
</TABLE>
F-50
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK DISTRIBUTED PURSUANT HERETO,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary................................................................... 4
Risk Factors.............................................................. 12
Selected Historical and Pro Forma Financial Information................... 20
Unaudited Pro Forma Financial Statements.................................. 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 27
The Company............................................................... 33
Use of Proceeds........................................................... 35
Capitalization............................................................ 36
Dividend Policy........................................................... 36
The Merger and the Spin-Off............................................... 37
Business.................................................................. 41
The Rights Offering....................................................... 50
Management................................................................ 58
Security Ownership of Certain Beneficial Owners and Management............ 69
Description of Capital Stock.............................................. 70
Certain Antitakeover Provisions........................................... 72
Plan of Distribution...................................................... 75
Experts................................................................... 76
Legal Matters............................................................. 76
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
MERISTAR HOTELS & RESORTS, INC.
SHARES OF COMMON STOCK AND RIGHTS TO ACQUIRE
UP TO OF SUCH SHARES
LEHMAN BROTHERS
The date of this Prospectus is , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses payable in connection
with the Rights Offering. All the amounts shown are estimates, except the
Securities and Exchange Commission registration fee. All of such expenses are
being borne by the Company.
<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 6,394
NYSE Listing Fee................................................. 10,000
Accounting Fees and Expenses..................................... 70,000
Legal Fees and Expenses.......................................... 100,000
Printing and Engraving Expenses.................................. 50,000
Registrar and Transfer Agent's Fees.............................. 5,000
Subscription Agent's Fees........................................ 5,000
Miscellaneous Fees and Expenses.................................. 3,606
Total........................................................ $250,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware Law permits a provision in the certificate
of incorporation of each corporation organized thereunder, eliminating or
limiting, with certain exceptions, the personal liability of a director to the
corporation or its stockholders for monetary damages for certain breaches of
fiduciary duty as a director. The Charter eliminates the personal liability of
directors to the fullest extent permitted by the Delaware Law.
Section 145 of the Delaware Law ("Section 145"), in summary, empowers a
Delaware corporation, within certain limitations, to indemnify its officers,
directors, employees and agents against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by them in connection with any suit or proceeding other than by or on
behalf of the corporation, if they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to a criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful.
With respect to actions by or on behalf of the corporation, Section 145
permits a corporation to indemnify its officers, directors, employees and
agents against expenses (including attorneys' fees) actually and reasonably
incurred in connection with the defense or settlement of such action or suit,
provided such person meets the standard of conduct described in the preceding
paragraph, except that no indemnification is permitted in respect of any claim
where such person has been found liable to the corporation, unless the Court
of Chancery or the court in which such action or suit was brought approves
such indemnification and determines that such person is fairly and reasonably
entitled to be indemnified.
Article Six of the Charter provides for the indemnification of officers and
directors and certain other parties (the "Indemnitees") of the Company to the
fullest extent permitted under the Delaware Law; provided, that except in the
case of proceedings to enforce rights to indemnification, the Company shall
indemnify such Indemnitee in connection with a proceeding initiated by such
Indemnitee only if such proceeding was authorized by the Board of Directors.
The Charter also provides that the Company may reimburse or advance an
Indemnitee funds necessary for payment of expenses, including reasonable
attorneys' fees and disbursements incurred in connection with any proceeding,
in advance of the final disposition of such proceeding.
Each of the employment agreements described in "Management--Employment
Agreements" contains provisions entitling the executive to indemnification for
losses incurred in the course of service to the Company or its subsidiaries,
under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the formation of the Company on March 13, 1998, CapStar
became the Company's sole stockholder, acquiring 100 shares of Common Stock
for nominal consideration. In addition, CapStar expects initially to
capitalize the Company with approximately $48 million of cash, including
approximately $18 million of forgiveness of indebtedness and a $30 million
draw on the Company's $75 million revolving credit facility.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF DOCUMENT
----------- -----------------------
<C> <C> <S>
2.1*** -- Acquisition Agreement, dated as of March 15, 1998, among
MeriStar H&R Operating Company, L.P., American General
Hospitality Corporation, American General Hospitality, Inc.,
AGHL GP, Inc., the general partner of AGH Leasing, L.P., and
the limited partners of AGH Leasing, Inc.
2.2 -- Form of Contribution, Assumption and Indemnity Agreement
between CapStar Hotel Company and MeriStar H&R Operating
Company, L.P. (Incorporated by reference to Exhibit 99.4 to
CapStar Hotel Company's Report on Form 8-K dated March 17,
1998, No. 1-11903)
2.3 -- Agreement and Plan of Merger, dated as of March 15, 1998,
among American General Hospitality Corporation, American
General Hospitality Operating Partnership, L.P., CapStar Hotel
Company, CapStar Management Company, L.P. and CapStar
Management Company II, L.P. (Incorporated by reference to
Exhibit 99.4 to CapStar Hotel Company's Report on Form 8-K
dated March 17, 1998, No. 1-11903)
2.4 -- Amendment No. 1 to the Agreement and Plan of Merger, dated as
of June 5, 1998, by and among American General Hospitality
Corporation, American General Hospitality Operating
Partnership, L.P., CapStar Hotel Company, CapStar Management
Company, L.P. and CapStar Management Company II, L.P.
(Incorporated by reference to Exhibit 2.2 to American General
Hospitality Corporation's Amendment No. 2 to Form S-4 dated
June 8, 1998)
2.5* -- Form of Dealer-Manager Agreement
Amended and Restated Certificate of Incorporation of the
3.1* -- Company
3.2* -- By-laws of the Company
4.1* -- Specimen Common Stock certificate
4.2*** -- Specimen Subscription Certificate
4.3* -- Specimen Rights Certificates
4.4* -- Form of Rights Agreement
5.1*** -- Opinion as to Validity of Common Stock and Rights
8.1*** -- Opinion as to Certain Tax Matters
Form of Employment Agreement between the Company and Paul W.
10.1***+ -- Whetsell
Form of Employment Agreement between the Company and Steven D.
10.2***+ -- Jorns
Form of Employment Agreement between the Company and David E.
10.3*+ -- McCaslin
Form of Employment Agreement between the Company and James A.
10.4*+ -- Calder
Form of Employment Agreement between the Company and John E.
10.5*+ -- Plunket
10.6***+ -- Form of Equity Incentive Plan of the Company
10.7***+ -- Form of Non-Employee Directors' Incentive Plan of the Company
10.8 -- Form of Intercompany Agreement among MeriStar Hotels &
Resorts, Inc., MeriStar H&R Operating Company, L.P., MeriStar
Hospitality Corporation and MeriStar Hospitality Operating
Partnership, L.P. (Incorporated by reference to Exhibit 99.4
to CapStar Hotel Company's Report on Form 8-K dated March 17,
1998, No. 1-11903)
23.1* -- Consent of KPMG Peat Marwick LLP
23.2.1* -- Consent of PricewaterhouseCoopers LLP (Dallas Office)
23.2.2* -- Consent of PricewaterhouseCoopers LLP (Raleigh Office)
23.3*** -- Consent of Daniel L. Doctoroff
23.4*** -- Consent of Kent Hance
23.5*** -- Consent of Steven D. Jorns
23.6*** -- Consent of Joseph McCarthy
23.7*** -- Consent of James McCurry
23.8*** -- Consent of James Worms
Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included
23.11*** -- in Exhibit 5)
27*** -- Financial Data Schedule
99.1*** -- Form of Subscription Agency Agreement
Instructions as to use of Subscription Certificates and
99.2*** -- International Holder Subscription Form
99.3*** -- International Holder Subscription Form
</TABLE>
- --------
* Filed herewith.
** To be filed by amendment.
*** Previously filed.
+ Management contract or compensatory plan or arrangement.
(B) FINANCIAL STATEMENT SCHEDULES
Not applicable.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to its Certificate of Incorporation, By-laws, or otherwise,
the Company has been advised that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act of 1933 shall be deemed to be a part of
this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of the securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (1)(i) and (1)(ii) of this section
do not apply if the registration statement is on Form S-3, Form S-8 or
Form F-3, and the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the Commission by the registrant
pursuant to section 13 or section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 5 TO REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
WASHINGTON, DISTRICT OF COLUMBIA, ON THE 23RD DAY OF JULY, 1998.
MeriStar Hotels & Resorts, Inc.
/s/ Paul W. Whetsell
By:__________________________________
NAME: PAUL W. WHETSELL
TITLE: CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE
/s/ Paul W. Whetsell Chief Executive Officer and Chairman
- ------------------------------------- of the Board (Principal Executive
PAUL W. WHETSELL Officer)
/s/ James A. Calder Chief Financial Officer (Principal
- ------------------------------------- Financial and Accounting Officer)
JAMES A. CALDER
President and Director
/s/ David E. McCaslin
- -------------------------------------
DAVID E. MCCASLIN
DATED: JULY 23, 1998
II-4
<PAGE>
EXHIBIT 2.5
MERISTAR HOTELS & RESORTS, INC.
UP TO 8,400,000 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF
SUBSCRIPTION RIGHTS FOR SUCH SHARES
DEALER MANAGER AGREEMENT
__________ __, 1998
LEHMAN BROTHERS INC.
Three World Financial Center
200 Vesey Street
New York, NY 10285
Attention :[____________________]
Dear Sirs:
MeriStar Hotels & Resorts, Inc., a Delaware corporation (the "Company"),
-------
and MeriStar H & R Operating Company, L.P., a Delaware limited partnership
("Hotels OP"), confirm their agreement with and appointment of Lehman Brothers
- -----------
Inc. (the "Dealer Manager") to act as dealer manager in connection with the
--------------
offer by the Company to holders of record of (a) the common stock, par value
$0.01 per share (the "REIT Common Stock"), of MeriStar Hospitality Corporation,
-----------------
a Maryland corporation operating as a real estate investment trust (the "REIT"),
----
and (b) the units of limited partnership (the "REIT OP Units") of MeriStar
-------------
Hospitality Operating Partnership, L.P., a Delaware limited partnership (the
"REIT Operating Partnership"), other than REIT OP Units held by the REIT or any
- ---------------------------
of its subsidiaries, as of the effective time of the Merger (as defined below)
(the "Record Date"), of non-transferable rights (the "Rights") to subscribe for
----------- ------
and purchase an aggregate of up to 8,400,000 shares (the "Shares") of the common
------
stock, par value $0.01 per share (the "Common Stock"), of the Company, at a
------------
subscription price (the "Subscription Price") equal to 95% of the average of the
------------------
daily high and low prices of the Common Stock on the New York Stock Exchange
Inc. ("NYSE") for the period (the "Measurement Period") of five consecutive
---- ------------------
trading days (a "Trading Day") on the NYSE immediately following the third
-----------
Trading Day after the date the Common Stock opens for trading on the NYSE. The
distribution of the
<PAGE>
Rights by the Company and the sale of shares of Common Stock upon the exercise
of the Rights are referred to herein as the "Rights Offering".
---------------
The Company will be spun off (the "Spin-Off") by CapStar Hotel Company, a
--------
Delaware corporation ("CapStar"), and certain of its affiliates to become the
-------
lessee, manager and operator of various hotel assets, including those currently
owned, leased and managed by CapStar and its affiliates. CapStar intends to
transfer or cause to be transferred certain assets and liabilities constituting
the hotel management and leasing business currently operated by CapStar and its
subsidiaries to the Company, a wholly owned subsidiary of CapStar. CapStar then
intends to distribute, on a share-for-share basis, to its stockholders of record
as of the effective time of the Merger (the "Spin-Off Record Date") all of the
--------------------
outstanding capital stock of the Company.
Pursuant to an Agreement and Plan of Merger, dated as of March 15, 1998
(the "Merger Agreement"), among American General Hospitality Corporation, a
----------------
Maryland corporation operating as a real estate investment trust ("AGH"),
---
American General Hospitality Operating Partnership, L.P., a Delaware limited
partnership, CapStar, CapStar Management Company, L.P., a Delaware limited
partnership, and CapStar Management Company II, L.P., a Delaware limited
partnership, as amended, CapStar after spinning off the Company will merge with
and into AGH (the "Merger"), with the result that (a) AGH will be the surviving
------
corporation operating under the name MeriStar Hospitality Corporation and (b)
each outstanding share of common stock, par value $0.01 per share, of CapStar
will be converted into 1.0 share of REIT Common Stock, and each outstanding
share of common stock, par value $0.01 per share, of AGH will be converted into
0.8475 shares of REIT Common Stock. The effective time of the Merger will be
publicly announced by the Company.
Immediately following the Spin-Off and the effective date of the Merger,
the Company will acquire 100% of the partnership interests in the third-party
lessee of most of the hotels owned by AGH and substantially all of the assets
and certain liabilities of the third-party manager of most of the hotels owned
by AGH, pursuant to an Acquisition Agreement, dated as of March 15, 1998 (the
"Lessee-Manager Acquisition Agreement").
- -------------------------------------
The Spin-Off, the Merger and the consummation of the transactions
contemplated by the Lessee-Manager Acquisition Agreement are collectively
referred to herein as the "Formation Transactions".
----------------------
Pursuant to the Intercompany Agreement (the "Intercompany Agreement")
----------------------
between the Company and Hotels OP (together with the Company, the "Hotel
-----
Parties"), on the one hand, and the REIT and the REIT Operating Partnership (the
REIT Operating Partnership, together with the REIT, the "REIT Parties"), on the
------------
other hand, the Hotel Parties and the REIT Parties will provide
-2-
<PAGE>
each other with, among other things, reciprocal rights to participate in certain
transactions entered into by such parties.
Each holder of record of REIT Common Stock and/or REIT OP Units on the
Record Date (a "Rightholder") will receive one-sixth of a Right for each share
-----------
of REIT Common Stock and/or each REIT OP Unit so held. Each whole Right will
entitle the Rightholder (but not a subsequent transferee of the REIT Common
Stock and/or REIT OP Units held by such Rightholder on the Record Date) to
purchase one share of Common Stock at the Subscription Price (the "Subscription
------------
Privilege"). The Company will publicly announce the Subscription
- ---------
Price promptly following determination thereof. The subscription agent (the
"Subscription Agent") for the Rights Offering will be Continental Stock Transfer
- -------------------
& Trust Company. All amounts received by the Subscription Agent pursuant to the
exercise of Rights will be held in a non-interest-bearing escrow account until
the completion of the Rights Offering. If the Rights Offering is not completed,
the Subscription Agent will return the Subscription Price paid by investors as
soon as practicable thereafter. The maximum number of shares of Common Stock
that may be issued in the Rights Offering is 8,400,000, representing
approximately 14% of the shares of Common Stock that would be outstanding after
the Rights Offering. The issuance of shares of Common Stock pursuant to the
Rights Offering is conditioned upon consummation of the Spin- Off, the Merger
and the transactions contemplated by the Lessee-Manager Acquisition Agreement.
The Company also has reserved the right, at its sole option, to cancel the
Rights Offering if the Subscription Price is less than [_____]. The Rights will
be exercisable at any time following 5:00 p.m., New York City time, on the last
day of the Measurement Period until 5:00 p.m., New York City time, on August 31,
1998, or such later date as the Company may determine (the "Expiration Date"),
---------------
unless the Rights Offering is earlier canceled.
Each share of Common Stock issued in the Spin-Off and each share of Common
Stock issued upon exercise of a Subscription Privilege will be accompanied by a
right (a "Preferred Right") to purchase from the Company one-hundredth of a
---------------
share of Series A Junior Preferred Stock, par value $.01 per share, of the
Company at a price of [$____], subject to adjustment.
Certificates representing shares of Common Stock purchased pursuant to the
exercise of Rights will be delivered to subscribers as soon as practicable
following the fourth business day after the Expiration Date (the "Issue Date").
----------
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-49881)
- -----------
including a prospectus relating to the Company for the registration of the
Shares under the Securities Act of 1933, as amended (the "Securities Act"), and
--------------
the rules and regulations of the Commission under the Securities Act (the "Rules
-----
and Regulations"), and has filed such amendments to such registration statement
- ---------------
on Form S-1 and such amended prospectuses as may have been required to the date
-3-
<PAGE>
hereof. The term "Registration Statement" means the registration statement
----------------------
declared effective by the Commission on [__________ __, 1998] (the "Effective
---------
Date"), including financial statements and all exhibits and all documents, if
- ----
any, incorporated therein by reference and including any post-effective
amendments that become effective prior to the Expiration Date. The term
"Prospectus" means the prospectus of the Company in the form filed with the
- -----------
Commission pursuant to Rule 424 of the Rules and Regulations as from time to
time amended or supplemented. The Prospectus, letters to Rightholders,
subscription certificates, brochures, wrappers and other materials preceded or
accompanied by the Prospectus, forms used to exercise Rights, any letters and
other informational material sent to securities dealers, commercial banks and
other nominees and any newspaper announcements, press releases and other
offering materials and information that the Company may use specifically in
connection with the solicitation contemplated by this Agreement, approve,
prepare or authorize for use in connection with the Rights Offering, are
collectively referred to hereinafter as the "Offering Materials."
------------------
1. Representations and Warranties.
------------------------------
Each of the Company and Hotels OP represents and warrants to, and agrees
with, the Dealer Manager as of the date hereof and on the Issue Date that:
(a) The Company meets the requirements for use of Form S-1 under the
Securities Act and the Rules and Regulations. The Registration Statement
conforms, and the Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus will, when they become effective or are
filed with the Commission, as the case may be, conform in all material respects
to the requirements of the Securities Act and the Rules and Regulations and do
not and will not, as of the applicable effective date (as to the Registration
Statement and any amendment thereto) and as of the applicable filing date (as to
the Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
provided that no representation or warranty is made as to information contained
- --------
in or omitted from the Registration Statement or the Prospectus in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of the Dealer Manager specifically for inclusion therein.
(b) The Company and each of its subsidiaries (as defined in Rule 405 of the
Rules and Regulations) and each entity set forth on Schedule 1 hereto (each, a
----------
"Predecessor Entity") have been duly organized and are validly existing as
- -------------------
corporations, general or limited partnerships or limited liability companies, as
the case may be, in good standing under the laws of their respective
jurisdictions of organization, are duly qualified to do business and are in good
standing as foreign corporations, general or limited partnerships or limited
liability
-4-
<PAGE>
companies, as the case may be, in each jurisdiction in which their respective
ownership or lease of property or the conduct of their respective businesses
requires such qualification, and have all power and authority necessary to own
or hold their respective properties and to conduct the businesses in which they
are engaged.
(c) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; and all of
the shares of Common Stock that are outstanding or will be issued on or prior to
the Issue Date were or will be offered and sold in compliance with all
applicable laws (including, without limitation, federal and state securities
laws); and all of the issued shares of capital stock, partnership interests or
limited liability company membership interests, as the case may be, of each
subsidiary of the Company have been duly and validly authorized and issued and
(except for partnership interests of general partners and except to the extent
the limited liability company agreements governing the respective limited
liability companies provide otherwise) are fully paid and non-assessable and are
owned directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims. Except for the interests in the subsidiaries
of the Company and as disclosed in the Registration Statement, the Company does
not own, directly or indirectly, any shares of stock or any other equity or
long-term debt securities of any corporation or have any equity interest in any
firm, partnership, joint venture, association or other entity. Complete and
correct copies of the charter, by-laws, partnership agreements and other
organizational documents of the Company and its subsidiaries and all amendments
thereto have been filed as Exhibits to the Registration Statement or delivered
to the Dealer Manager, and no changes therein will be made subsequent to the
date hereof, except such as the Dealer Manager shall approve.
(d) The Rights have been duly authorized by all requisite action on the
part of the Company for delivery to the Rightholders pursuant to the Rights
Offering; the Shares have been duly authorized by all requisite action on the
part of the Company and reserved for issuance and sale pursuant to the terms of
the Rights Offering and, when issued and delivered by the Company pursuant to
the terms of the Rights Offering against payment of the consideration set forth
in the Prospectus, will be validly issued, fully paid and non-assessable; the
Shares and the Rights conform in all material respects to all statements
relating thereto contained in the Registration Statement and the Prospectus; and
the issuance of the Shares is not subject to any preemptive rights. Except as
set forth in the Prospectus, there are no options to purchase, or any rights or
warrants to subscribe for, or any securities or obligations convertible into, or
any contracts, commitments, plans or arrangements to issue or sell, or any
restrictions upon the voting of, any shares of capital stock of the Company, any
shares of capital stock or any other interests of any subsidiary or any such
warrants, convertible securities or obligations. The description of the
Company's Incentive Plan, stock option and
-5-
<PAGE>
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(e) Each of the Company, its subsidiaries and the Predecessor Entities
possesses such certificates, authorizations or permits issued by the appropriate
state, federal or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them, except where the failure to possess such
certificates, authorizations or permits would not have a material adverse effect
on the consolidated financial position, stockholders' equity, results of
operations, business or prospects of the Company and its subsidiaries (a
"Material Adverse Effect"), and none of the Company, any of its subsidiaries or
- ------------------------
any Predecessor Entity has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling, or finding, would have a Material Adverse Effect.
(f) The financial statements (including the related notes and supporting
schedules) filed as part of the Registration Statement or included in the
Prospectus present fairly the financial condition and results of operations of
the entities purported to be shown thereby, at the dates and for the periods
indicated, and have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved, except as otherwise stated herein and are in accordance with the books
and records of the Company and its subsidiaries and such other entities. The
summary and selected financial data included in the Prospectus present fairly
the information shown therein as at the respective dates and for the respective
periods specified, and the summary and selected financial data have been
presented on a basis consistent with the financial statements and other
financial information set forth in the Prospectus. Pro forma financial
information included in the Prospectus has been prepared in accordance with the
applicable requirements of the Securities Act and the Rules and Regulations with
respect to pro forma financial information and includes all adjustments
necessary to present fairly the pro forma financial position of the Company at
the respective dates indicated and the results of operations for the respective
periods specified.
(g) KPMG Peat Marwick LLP and Coopers & Lybrand L.L.P., who have certified
certain financial statements of the Company and the Predecessor Entities, whose
reports appear in the Prospectus and who have delivered the initial letters
referred to in Section 6(i) hereof, are independent public accountants as
------------
required by the Securities Act and the Rules and Regulations. The selected
financial data set forth in the Prospectus under the captions "Capitalization"
and "Selected Historical and Pro Forma Financial Information" fairly present the
information set forth therein on the basis stated in the Registration Statement.
-6-
<PAGE>
(h) The Company, its subsidiaries, and the Predecessor Entities (i) make
and keep accurate books and records and (ii) maintain internal accounting
controls which provide reasonable assurance that (A) transactions are executed
in accordance with management's authorization, (B) transactions are recorded as
necessary to permit preparation of their financial statements and to maintain
accountability for their assets, (C) access to their books, records and accounts
is permitted only in accordance with management's authorization and (D) the
reported accountability for their assets is compared with existing assets at
reasonable intervals.
(i) Since the date as of which information is given in the Prospectus
through the date hereof, and except as may otherwise be disclosed in the
Prospectus, the Company and its subsidiaries have not (i) issued or granted any
securities, (ii) incurred any liability or obligation, direct or contingent,
other than liabilities and obligations which were incurred in the ordinary
course of business, (iii) entered into any transaction not in the ordinary
course of business or (iv) declared or paid any dividend on its capital stock.
(j) Neither the Company nor any subsidiary is, or will be as a result of
the Rights Offering or the purchase of the Shares by the holders of the Rights,
pursuant to the terms of the Rights Offering, an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
(k) There are no legal or governmental proceedings pending to which the
Company, any of its subsidiaries or any Predecessor Entity is a party or of
which any property or assets of the Company, any of its subsidiaries or any
Predecessor Entity is the subject which could reasonably be expected to have a
Material Adverse Effect; and to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others.
(l) None of the Company, any of its subsidiaries or any Predecessor Entity
is, or will be, as a result of the Rights Offering, the Formation Transactions
or any transactions contemplated thereby (i) in violation of its charter, by-
laws, partnership agreement or operating agreement, (ii) in default in any
material respect, and no event has or will have occurred which, with notice or
lapse of time or both, would constitute such a default, in the due
performance or observance of any term, covenant or condition contained in any
material indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which it is a party or by which it is bound or to which any of
its properties or assets is subject or (iii) in violation of any law, ordinance,
governmental rule, regulation or court decree to which it or its property or
assets may be subject or has or will have failed to obtain any material license,
permit, certificate, franchise or other
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<PAGE>
governmental authorization or permit necessary to the ownership of its property
or to the conduct of its business, which violation or failure could reasonably
be expected to have a Material Adverse Effect.
(m) The Company, each subsidiary and each Predecessor Entity, as
applicable, has full power and authority to enter into this Agreement, the
Intercompany Agreement, the Lessee Manager Acquisition Agreement, the agreements
contemplated by the Formation Transactions and each of the other agreements
contemplated hereby and thereby. Each of this Agreement and such other
agreements has been duly authorized, executed and delivered by the Company, such
subsidiary and/or such Predecessor Entity, as applicable, and constitutes a
valid and binding agreement of the Company, such subsidiary and/or such
Predecessor Entity, as applicable, and is enforceable against the Company, such
subsidiary and/or such Predecessor Entity, as applicable, in accordance with its
terms, except as the enforceability hereof and thereof may be limited by
applicable bankruptcy, insolvency, reorganization and similar laws affecting
creditors' rights generally and moratorium laws in effect from time to time and
by equitable principles restricting the availability of equitable remedies. The
execution and delivery by the Company, such subsidiary and/or such Predecessor
Entity, as applicable, and the performance by the Company, such subsidiary
and/or such Predecessor Entity, as applicable, of its obligations hereunder and
thereunder, the consummation of the transactions contemplated hereby and thereby
and the application of the net proceeds from the offering and sale of the Shares
to be sold by the Company in the manner set forth in the Prospectus under the
caption "Use of Proceeds" will not result in the creation or imposition of any
lien, charge or encumbrance upon any of the assets of the Company, any
subsidiary or any Predecessor Entity pursuant to the terms or provisions of, or
result in a breach or violation of any of the terms or provisions of, or
constitute a default under, or give any other party a right to terminate any of
its obligations under, or result in the acceleration of any obligation under,
the charter, by-laws, partnership agreement or other organizational documents of
the Company or any of its Subsidiaries, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any of
its subsidiaries or any Predecessor Entity is a party or by which the Company or
any of its subsidiaries or any Predecessor Entity or any of their respective
properties is bound or affected, or violate or conflict with any judgment,
ruling, decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to the business or properties of the
Company or any of its subsidiaries or any Predecessor Entity. No consent,
approval, authorization or order of, or any filing or declaration with, any
court or governmental agency or body or any other person is required in
connection with the authorization, issuance, transfer, sale or delivery of the
Shares by the Company, in connection with the execution, delivery and
performance of this Agreement or such other agreements by the Company, any such
subsidiary or any Predecessor Entity or in connection with the taking by the
Company, any such subsidiary or any Predecessor Entity of any other action
contemplated hereby or
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<PAGE>
thereby, except such as have been obtained under the Securities Act or the Rules
and Regulations and such as may be required under state securities or Blue Sky
laws or the by-laws and rules of the National Association of Securities Dealers,
Inc. (the "NASD").
----
(n) In connection with the Formation Transactions, the Company and it
subsidiaries have acquired, or will acquire, the direct and indirect interests
of each of the Predecessor Entities as described in the Registration Statement
and the Prospectus, in each case free and clear of any liens, encumbrances or
defects (i) set forth in the charter, limited liability company agreement or
limited partnership agreement, as the case may be, governing such Predecessor
Entities, or (ii) reflected on the books or registry of any Predecessor Entity.
None of the interests held by any person in any Predecessor Entity and being
acquired by the Company and its subsidiaries are evidenced by certificate and no
such interests constitute "certificated" securities under the Uniform Commercial
Code.
(o) The Company and each of its subsidiaries have or will have on the Issue
Date good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case free and
clear of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and all real property and
buildings held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or with such exceptions as would not have a Material Adverse Effect
and do not interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
(p) There are no contracts or other documents which are required to be
described in the Prospectus or filed as exhibits to the Registration Statement
by the Securities Act or by the Rules and Regulations which have not been
described in the Prospectus or filed as exhibits to the Registration Statement.
(q) All of the representations and warranties of the Company, its
subsidiaries and the Predecessor Entities contained in the material contracts,
agreements other documents executed in connection with the Formation
Transactions are true and correct in all material respects.
(r) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting such
person the right (other than rights which have been waived or satisfied) to
require the Company to file a registration statement under the
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<PAGE>
Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Securities Act.
(s) The Shares have been approved for listing by the NYSE, subject to
official notice of issuance.
(t) There is (i) no material unfair labor practice complaint pending
against the Company, its subsidiaries or any Predecessor Entity nor, to the best
knowledge of the Company, threatened against any of them before the National
Labor Relations Board or any state or local labor relations board, and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against the Company, its
subsidiaries or any Predecessor Entity or, to the best knowledge of the Company,
threatened against any of them, (ii) no material strike, labor dispute, slowdown
or stoppage pending against the Company, its subsidiaries or any Predecessor
Entity nor, to the best knowledge of the Company, threatened against the
Company, its subsidiaries or any Predecessor Entity which might be expected to
have a Material Adverse Effect.
(u) The Company, each of its subsidiaries and each Predecessor Entity own
or possess adequate rights to use all material patents, patent applications,
trademarks, service marks, trade names, trademark registrations, service mark
registrations, franchises, copyrights and licenses necessary for the conduct of
their respective businesses and have no reason to believe that the conduct of
their respective businesses will conflict with, and have not received any notice
of any claim of conflict with, any such rights of others.
(v) None of the Company, any of its subsidiaries or any Predecessor Entity,
or any director, officer, agent, employee or other person associated with or
acting on behalf of the Company, any of its subsidiaries or any Predecessor
Entity, has used any corporate, partnership or limited liability company funds
for any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the Foreign Corrupt Practices
Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(w) The Company and each of its subsidiaries carry, or are covered by,
insurance in such amounts and covering such risks as is adequate for the conduct
of their respective businesses and the value of their respective
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<PAGE>
properties and as is customary for companies engaged in similar businesses in
similar industries.
(x) The Company has complied with all of the provisions of (including,
without limitation, filing all forms required by) Section 517.075 of the Florida
Securities and Investor Protection Act and Regulation 3E900.001 issued
thereunder with respect to the offering and sale of the Shares.
(y) Except as described in the Prospectus, the Company has not sold or
issued any shares of Common Stock during the six-month period preceding the date
of the Prospectus, including any sales pursuant to Rule 144A under, or
Regulations D or S of, the Securities Act, other than shares issued pursuant to
employee benefit plans, qualified stock options plans or other employee
compensation plans or pursuant to outstanding options, rights or warrants.
(z) None of the Company, any of its subsidiaries or any Predecessor Entity
has sustained, since the date of the latest audited financial statements
included in the Prospectus, any material loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Prospectus; and,
since such date, other than as set forth or contemplated in the Prospectus, (i)
there has been no material adverse change in the financial condition, results of
operation or business of the Company, any subsidiary of the Company or any
Predecessor Entity, whether or not arising in the ordinary course of business,
(ii) there have been no transactions or acquisition agreements entered into by
the Company or any subsidiary of the Company other than those in the ordinary
course of business, which are material with respect to such entity, (iii) there
has been no dividend or distribution of any kind declared, paid or made by the
Company or any subsidiary on any class of its capital stock or any partnership
or other interest and (iv) there has been no change in the capital stock of the
Company or any partnership or other interest of any subsidiary, or any increase
in the indebtedness of the Company or any subsidiary.
(aa) No relationship, direct or indirect, exists between or among the
Company, any subsidiary of the Company or any Predecessor Entity, on the one
hand, and the directors, officers, stockholders of the Company, or customers or
suppliers of the Company or any subsidiary, on the other hand, which is required
to be described in the Prospectus which is not so described.
(bb) None of the Company, any subsidiary or any Predecessor Entity has
violated any safety or similar law applicable to its business nor any federal,
state or local law relating to discrimination in the hiring, promotion or pay of
employees nor any applicable federal or state wages and hours laws which in each
case might result in a Material Adverse Effect.
-11-
<PAGE>
(cc) The Company, its subsidiaries and each Predecessor Entity are in
compliance in all material respects with all presently applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"); no "reportable
-----
event" (as defined in ERISA) has occurred with respect to any "pension plan" (as
defined in ERISA) for which the Company, any of its subsidiaries or any
Predecessor Entity would have any liability; the Company, its subsidiaries and
each Predecessor Entity have not incurred and do not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal from,
any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of
1986, as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company, any of
----
its subsidiaries or any Predecessor Entity would have any liability that is
intended to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
(dd) The Company, each of its subsidiaries and each Predecessor Entity has
filed all federal, state and local income and franchise tax returns required to
be filed through the date hereof and has paid all taxes due thereon, and no tax
deficiency has been determined adversely to the Company, any of its subsidiaries
or any Predecessor Entity which has had (nor does the Company have any knowledge
of) any tax deficiency which, if determined adversely to the Company, any of its
subsidiaries or any Predecessor Entity, might have a Material Adverse Effect;
the amounts currently set up as provisions for taxes or otherwise by the Company
and its subsidiaries on their books and records are sufficient for the payment
of all their unpaid federal, foreign, state, county and local taxes accrued
through the dates as of which they speak, and for which the Company and its
subsidiaries may be liable in their own right or as a transferee of the assets
of, or as successor to any other corporation, association, partnership, joint
venture or other entity.
(ee) There has been no storage, disposal, generation, manufacture,
refinement, installation, transportation, handling or treatment of toxic wastes,
medical wastes, hazardous wastes, petroleum or petroleum products (including
crude oil or any fraction thereof), hazardous substances or any other substances
which pose a hazard to human health, safety, natural resources, industrial
hygiene or the environment or which cause or threaten to cause a nuisance by the
Company, any of its subsidiaries, or any Predecessor Entity (or, to the
knowledge of the Company, by any of their predecessors in interest or by any
other entity) at, upon or from any of the property now or previously owned or
leased by the Company, its subsidiaries or any Predecessor Entity except to the
extent commonly used in the normal operations of such property, in violation of
any applicable law, ordinance, rule, regulation, order, judgment, decree or
permit or
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<PAGE>
which would require investigation, monitoring, removal action, corrective
action, remedial action or other response action ("response action") under any
---------------
applicable law, ordinance, rule, regulation, order, judgment, decree or permit,
except for any violation or response action which would not have, or could not
be reasonably likely to have, singularly or in the aggregate with all such
violations and response actions, a Material Adverse Effect; there has been no
material spill, discharge, leak, emission, injection, escape, dumping or release
or threatened release of any kind onto such property or into the environment
surrounding such property of any toxic wastes, medical wastes, solid wastes,
hazardous wastes, petroleum or petroleum products (including crude oil or any
fraction thereof), hazardous substances or any other substances which pose a
hazard to human health, safety, natural resources, industrial hygiene or the
environment or which cause or threaten to cause a nuisance, except for any such
spill, discharge, leak, emission, injection, escape, dumping or release or
threatened release which would not have or would not be reasonably likely to
have, singularly or in the aggregate with all such spills, discharges, leaks,
emissions, injections, escapes, dumpings, releases and threatened releases, a
Material Adverse Effect; and the terms "hazardous wastes," "solid wastes,"
"toxic wastes," "hazardous substances," "petroleum," "petroleum products" and
"medical wastes" shall have the meanings specified in any applicable local,
state, federal and foreign laws or regulations with respect to environmental
protection.
2. Agreement to Act as Dealer Manager.
----------------------------------
(a) On the basis of the representations and warranties contained herein:
(i) The Company hereby appoints the Dealer Manager to solicit, in
accordance with the Securities Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and their customary practice, the exercise of the
------------
Rights, subject to the terms and conditions of this Agreement, the procedures
described in the Registration Statement, the Prospectus; and
(ii) The Company agrees to cause each of the REIT and the REIT Operating
Partnership to furnish, or cause to be furnished, to the Dealer Manager lists
showing the names and addresses of the applicable Rightholders as of the Record
Date, and the Dealer Manager agrees to use such information only in connection
with the Rights Offering, and not to furnish the information to any other person
except for securities brokers and dealers that have been requested by the Dealer
Manager to solicit exercises of Rights.
(b) The Company and the Dealer Manager agree that the Dealer Manager is an
independent contractor with respect to the solicitation of the exercise of
Rights, and the performance of financial advisory and marketing services for the
Company contemplated by this Agreement.
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<PAGE>
(c) In rendering the services contemplated by this Agreement, the Dealer
Manager will not be subject to any liability to the Company or any of its
affiliates for any act or omission on the part of any soliciting broker or
dealer (except with respect to the Dealer Manager acting in such capacity) or
any other person, and the Dealer Manager will not be liable for acts or
omissions in performing its obligations under this Agreement, except for any
losses, claims, damages, liabilities and expenses that are finally judicially
determined to have resulted primarily from the bad faith, willful misconduct or
gross negligence of the Dealer Manager or by reason of the reckless disregard of
the obligations and duties of the Dealer Manager under this Agreement.
(d) The Dealer Manager acknowledges that the Board of Directors of the
Company has authorized and directed that the Prospectus be delivered to each
beneficial owner of REIT Common Stock and REIT OP Units, and the Dealer Manager
agrees to deliver or cause to be delivered the Prospectus to each beneficial
owner of REIT Common Stock and REIT OP Units for which the Dealer Manager holds
such shares of record or as nominee, consistent with the applicable provisions
of the Exchange Act and the rules of the NYSE.
3. Dealer Manager and Solicitation Fees. In full payment for the
------------------------------------
financial advisory, marketing and soliciting services rendered and to be
rendered hereunder by the Dealer Manager, the Company agrees to pay the Dealer
Manager an aggregate fee (the "Transaction Fee") equal to the greater of (a) 1%
---------------
of the aggregate Subscription Price for all Shares sold in the Rights Offering,
or (b) $50,000, regardless of whether the Rights Offering is commenced, or is
withdrawn, terminated or rescinded for any reason whatsoever. Payment of the
Transaction Fee to the Dealer Manager by the Company shall be made on each date
on which the Company issues Shares in the form of a wire transfer of same day
funds to an account or accounts identified by the Dealer Manager.
4. Other Agreements. The Company covenants with the Dealer Manager as
----------------
follows:
(a) To use its best efforts to maintain the effectiveness of the
Registration Statement under the Securities Act through the Issue Date.
(b) To prepare the Prospectus in a form approved by the Dealer Manager and
to file such Prospectus pursuant to Rule 424(b) under the Securities Act; to
make no further amendment or any supplement to the Registration Statement or to
the Prospectus except as permitted herein; to advise the Dealer Manager,
promptly after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any supplement to
the Prospectus or any amended Prospectus has been filed and to furnish the
Dealer Manager with copies thereof; to advise the Dealer Manager,
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<PAGE>
promptly after it receives notice thereof, of the issuance by the Commission of
any stop order or of any order preventing or suspending the use of any
preliminary prospectus or the Prospectus, of the suspension of the qualification
of the Shares or the Rights for offering or sale in any jurisdiction, of the
initiation or threatening of any proceeding for any such purpose, or of any
request by the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; and, in the event of
the issuance of any stop order or of any order preventing or suspending the use
of any preliminary prospectus or the Prospectus or suspending any such
qualification, to use promptly its best efforts to obtain its withdrawal.
(c) To give the Dealer Manager notice of its intention to file any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus, and will furnish the Dealer Manager with copies of any such
amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such amendment or
supplement to which the Dealer Manager or counsel for the Dealer Manager shall
reasonably object.
(d) To furnish promptly to the Dealer Manager and to counsel for the Dealer
Manager a signed copy of the Registration Statement as originally filed with the
Commission, and each amendment thereto filed with the Commission, including all
consents and exhibits filed therewith.
(e) To deliver promptly to the Dealer Manager such number of the following
documents as the Dealer Manager shall reasonably request: (i) conformed copies
of the Registration Statement as originally filed with the Commission and each
amendment thereto (in each case excluding exhibits other than this Agreement)
and (ii) each preliminary prospectus, the Prospectus and any amended or
supplemented Prospectus.
(f) If the delivery of a Prospectus is required at any time after the
Effective Date in connection with the offering or sale of the Rights and the
Shares or any other securities relating thereto and if at such time any events
shall have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be necessary
to amend or supplement the Prospectus in order to comply with the Securities
Act, to notify the Dealer Manager and, upon their request, to prepare and
furnish without charge to the Dealer Manager and to any dealer in securities as
many copies as the Dealer Manager may from time to time reasonably request of an
amended or supplemented Prospectus which will correct such statement or omission
or effect such compliance.
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<PAGE>
(g) To file promptly with the Commission any amendment to the Registration
Statement or the Prospectus or any supplement to the Prospectus that may, in the
judgment of the Company or the Dealer Manager, be required by the Securities Act
or requested by the Commission.
(h) Promptly from time to time to take such action as the Dealer Manager
may reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as the Dealer Manager may request and to
comply with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to complete the
Rights Offering, provided that in connection therewith the Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction.
(i) As soon as practicable after the Effective Date, but in any event not
later than 410 days or, if the fourth quarter following the fiscal quarter that
includes the Effective Date is the last fiscal quarter of the Company's fiscal
year, 455 days after the end of the Company's current fiscal quarter, to make
generally available to the Company's security holders and to deliver to the
Representatives an earning statement of the Company and its subsidiaries (which
need not be audited) complying with Section 11(a) of the Securities Act and the
Rules and Regulations (including, at the option of the Company, Rule 158).
(j) Until the earlier of the expiration of the period of five years
following the Effective Date and the date on which the Company ceases to be
subject to the reporting requirements of the Exchange Act, to furnish to the
Dealer Manager copies of all materials furnished by the Company to its
shareholders and all public reports and all reports and financial statements
furnished by the Company to the principal national securities exchange upon
which the Common Stock may be listed pursuant to requirements of or agreements
with such exchange or to the Commission pursuant to the Exchange Act or any rule
or regulation of the Commission thereunder.
(k) To apply the net proceeds from the Rights Offering as set forth in the
Prospectus.
(l) Prior to the Effective Date, to use its best efforts to complete the
listing of the Shares on the NYSE, subject only to official notice of issuance
and evidence of satisfactory distribution, prior to the Issue Date.
(m) The Company will advise or cause the Subscription Agent to advise the
Dealer Manager from day to day during the period of the Rights Offering and
promptly after the termination of the Rights Offering, as to the names and
addresses of all Rightholders exercising Rights, the total number of Rights
exercised and the number of Shares related thereto by each Rightholder during
the
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<PAGE>
immediately preceding day, indicating the total number of Rights verified to be
in proper form for exercise, rejected for exercise and being processed and, for
the Dealer Manager, the number of Rights exercised and the number of Shares
related thereto on subscription certificates indicating the Dealer Manager as
the broker-dealer with respect thereto, and as to such other information as the
Dealer Manager may reasonably request; and will notify the Dealer Manager, not
later than 5:00 P.M., New York City time, on the third business day following
the Expiration Date of the total number of Rights exercised during the
subscription period and the number of Shares related thereto, the total number
of Rights verified to be in proper form for exercise, rejected for exercise and
being processed and, for the Dealer Manager, the number of Rights exercised and
the number of Shares related thereto on subscription certificates indicating the
Dealer Manager as the broker-dealer with respect thereto, and as to such other
information as the Dealer Manager may reasonably request.
(n) To take such steps as shall be necessary to ensure that neither the
Company nor any subsidiary shall become an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
(o) Except as stated in this Agreement and in the Prospectus, to not take,
nor cause or permit any subsidiary to take, directly or indirectly, any action
designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate the
sale or resale of the Shares.
5. Payment of Expenses.
-------------------
(a) The Company will pay, or reimburse the Dealer Manager, all expenses
incident to the Rights Offering and the performance of the Company's obligations
under this Agreement, including, but not limited to, expenses relating to (i)
the printing and filing of the Registration Statement as originally filed and of
each amendment thereto, (ii) the preparation, issuance and delivery of the
certificates for the Shares and subscription certificates relating to the
Rights, (iii) the fees and disbursements of the Company's counsel (including the
fees and disbursements of local counsel, if any) and accountants, (iv) the
qualification of the Shares under securities laws in accordance with the
provisions of Section 4(h) of this Agreement, including filing fees and the fees
------------
relating to the preparation of the Blue Sky Survey by counsel to the Dealer
Manager, (v) the printing or other production and delivery to the Dealer Manager
of copies of the Registration Statement and of each amendment thereto and of the
Prospectus and any amendments or supplements thereto, (vi) the printing and
other production and delivery of copies of the Blue Sky Survey, (vii) the fees
and expenses incurred with respect to filing with the NASD, (viii) the fees and
expenses incurred in connection with the listing of the Shares on the NYSE, (ix)
the printing or other production,
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<PAGE>
mailing and delivery expenses incurred in connection with Offering Materials and
(x) the fees and expenses incurred with respect to the Subscription Agent.
(b) In addition to any fees that may be payable to the Dealer Manager under
this Agreement, the Company agrees to reimburse the Dealer Manager upon request
made from time to time for its reasonable expenses incurred in connection with
its activities under this Agreement, including the reasonable fees and
disbursements of its legal counsel (excluding Blue Sky fees and expenses which
are paid directly by the Company).
(c) The Company shall be liable for the foregoing payments whether or not
the Rights Offering is commenced, withdrawn, terminated or canceled or whether
the Dealer Manager terminates this Agreement or withdraws as Dealer Manager.
6. Conditions of the Dealer Manager's Obligations. The obligations of the
----------------------------------------------
Dealer Manager hereunder are subject to the accuracy of the respective
representations and warranties of the Company and Hotels OP contained herein, to
the performance by the Company and Hotels OP of their respective obligations
hereunder, and to the following further conditions:
(a) Notification that the Registration Statement has become effective shall
be received by the Dealer Manager not later than 5:00 p.m., New York City time,
on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Dealer Manager; the Prospectus shall have been
timely filed with the Commission in accordance with Section 5(a); no stop order
------------
suspending the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and any request of the Commission for
inclusion of additional information in the Registration Statement or the
Prospectus or otherwise shall have been complied with.
(b) The Dealer Manager shall not have discovered and disclosed to the
Company on or prior to the Issue Date that the Registration Statement or the
Prospectus or any amendment or supplement thereto contains an untrue statement
of a fact which, in the opinion of Hogan & Hartson L.L.P., counsel for the
Dealer Manager, is material or omits to state a fact which, in the opinion of
such counsel, is material and is required to be stated therein or is necessary
to make the statements therein not misleading.
(c) All proceedings and other legal matters incident to the authorization,
form and validity of this Agreement, the Rights, the Shares, the Registration
Statement and the Prospectus, and all other legal matters relating to this
Agreement and the transactions contemplated hereby shall be reasonably
satisfactory in all material respects to counsel for the Dealer Manager, and the
-18-
<PAGE>
Company shall have furnished to such counsel all documents and information that
they may reasonably request to enable them to pass upon such matters.
(d) (i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus or (ii) since such date there shall not
have been any change in the capital stock or long-term debt of the Company or
any of its subsidiaries or any change, or any development involving a
prospective change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii), is, in the
judgment of the Dealer Manager, so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered on the Issue Date on the terms and in the manner
contemplated in the Prospectus.
(e) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company or any of its Subsidiaries or
any of their respective officers or directors in their capacities as such,
before or by any Federal, state or local court, commission, regulatory body,
administrative agency or other governmental body, domestic or foreign, in which
litigation or proceeding, an unfavorable ruling, decision or finding could
materially and adversely affect the business, properties, business prospects,
condition (financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole, or the ability of the Company, any of its
subsidiaries or any Predecessor Entity to fulfill its obligations under this
Agreement, the Intercompany Agreement, the Lessee Manager Acquisition Agreement,
the agreements contemplated by the Formation Transactions and each of the other
agreements contemplated hereby and thereby.
(f) Each of the representations and warranties of the Company and Hotels OP
contained herein shall be true and correct in all material respects and all
covenants and agreements herein contained to be performed on the part of the
Company and Hotels OP and all conditions herein contained to be fulfilled or
complied with by the Company and Hotels OP shall have been duly performed,
fulfilled or complied with.
(g) The Dealer Manager shall have received an opinion, dated the date
hereof and the Issue Date, and satisfactory in form and substance to counsel for
the Dealer Manager, from Paul, Weiss, Rifkind, Wharton & Garrison, counsel to
the Company and Hotels OP to the effect set forth in Exhibit A.
---------
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<PAGE>
(h) The Dealer Manager shall have received an opinion, dated the date
hereof and the Issue Date, from Hogan & Hartson L.L.P., counsel to the Dealer
Manager, with respect to [the Registration Statement, the Prospectus and this
Agreement], which opinion shall be satisfactory in all respects to the Dealer
Manager.
(i) At the time of execution of this Agreement, the Dealer Manager shall
have received from each of KPMG Peat Marwick LLP and Coopers & Lybrand L.L.P. a
letter, in form and substance satisfactory to the Dealer Manager, addressed to
the Dealer Manager and dated the date hereof (i) confirming that they are
independent public accountants within the meaning of the Securities Act and are
in compliance with the applicable requirements relating to the qualification of
accountants under Rule 2-01 of Regulation S-X of the Commission, (ii) stating,
as of the date hereof (or, with respect to matters involving changes or
developments since the respective dates as of which specified financial
information is given in the Prospectus, as of a date not more than five days
prior to the date hereof), the conclusions and findings of such firm with
respect to the financial information and other matters ordinarily covered by
accountants' "comfort letters" to underwriters and dealer managers in connection
with registered public offerings.
(j) With respect to the letters of KPMG Peat Marwick LLP and Coopers &
Lybrand L.L.P. referred to in Section 6(i) and delivered to the Dealer Manager
------------
concurrently with the execution of this Agreement (the "initial letters"), the
---------------
Company shall have furnished to the Dealer Manager letters (the "bring-down
----------
letters") of such accountants, addressed to the Dealer Manager and dated the
- -------
Issue Date each (i) confirming that they are independent public accountants
within the meaning of the Securities Act and are in compliance with the
applicable requirements relating to the qualification of accountants under Rule
2-01 of Regulation S-X of the Commission, (ii) stating, as of the date of such
bring-down letter (or, with respect to matters involving changes or developments
since the respective dates as of which specified financial information is given
in the Prospectus, as of a date not more than five days prior to the date of
such bring-down letter), the conclusions and findings of such firm with respect
to the financial information and other matters covered by its initial letter and
(iii) confirming in all material respects the conclusions and findings set forth
in its initial letter.
(k) The Company shall have furnished to the Dealer Manager a certificate,
dated the date hereof and the Issue Date, of its Chairman of the Board, its
President or a Vice President and its chief financial officer stating that:
(i) The representations, warranties and agreements of the Company and
Hotels OP in Section 1 are true and correct as of such date; the Company and
---------
Hotels OP has complied with all its agreements contained herein; and the
conditions set forth in Sections 6(a) and 6(d) have been fulfilled; and
------------- ----
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<PAGE>
(ii) They have carefully examined the Registration Statement and the
Prospectus and, in their opinion (A) as of the Effective Date, the Registration
Statement and Prospectus did not include any untrue statement of a material fact
and did not omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (B) since the
Effective Date no event has occurred which should have been set forth in a
supplement or amendment to the Registration Statement or the Prospectus.
(l) The Shares shall be qualified for sale in such states as the Dealer
Manager may reasonably request, each such qualification shall be in effect and
not subject to any stop order or other proceeding on the Issue Date.
(m) The NYSE shall have approved the Shares for listing, subject only to
official notice of issuance and evidence of satisfactory distribution.
(n) The Company, each of its subsidiaries and each Predecessor Entity shall
have executed and delivered to each other party thereto this Agreement, the
Intercompany Agreement, the Lessee Manager Acquisition Agreement, the agreements
contemplated by the Formation Transactions and each of the other agreements
contemplated hereby and thereby.
7. Indemnification and Contribution.
--------------------------------
(a) Each of the Company and Hotels OP, jointly and severally, agrees to
hold harmless and indemnify the Dealer Manager and its affiliates and any
officer, director, employee or agent of the Dealer Manager or any such
affiliates and any person controlling (within the meaning of Section 15 of the
Securities Act and Section 20(a) of the Exchange Act) the Dealer Manager or any
of such affiliates (collectively, the "Dealer Manager Indemnified Persons") from
----------------------------------
and against any and all losses, claims, damages, liabilities and expenses
whatsoever (as incurred or suffered, and including, but not limited to, any and
all legal or other expenses incurred in connection with investigating, preparing
to defend or defending any lawsuit, claim or other proceeding, commenced or
threatened, whether or not resulting in any liability, which legal or other
expenses shall be reimbursed by the Company and Hotels OP promptly after receipt
of any invoices therefor from the Dealer Manager), (i) arising out of or based
upon (A) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement, the
Prospectus or the Offering Materials or any amendment or supplement to the
Registration Statement, the Prospectus or the Offering Materials or in any
documents filed under the Exchange Act and deemed to be incorporated by
reference into the Prospectus, or in any application or other document executed
by or on behalf of the Company or Hotels OP or based on written information
furnished by or on behalf of the Company or Hotels OP filed in any jurisdiction
in order to qualify the Shares under the securities laws thereof or filed with
the Commission, or arising out of or based upon
-21-
<PAGE>
the omission or alleged omission to state in any such document a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading (other than statements or omissions made in reliance upon and in
conformity with information relating to the Dealer Manager furnished by the
Dealer Manager in writing to the Company expressly for use therein), (B) any
withdrawal, rescission or termination by the Company of, or failure by the
Company to make or consummate, the Rights Offering, (C) any actions taken or
omitted to be taken by a Dealer Manager Indemnified Person with the consent of
the Company or Hotels OP or in conformity with actions taken or omitted to be
taken by the Company or Hotels OP or (D) any breach by the Company or Hotels OP
of any representation or warranty, or any failure by the Company or Hotels OP to
comply with any agreement or covenant, contained in this Agreement or (ii)
arising out of, relating to or in connection with or alleged to arise out of,
relate to or be in connection with the Rights Offering, any of the other
transactions contemplated by any preliminary prospectus, the Registration
Statement, the Prospectus or the Offering Materials or any amendment or
supplement to the Registration Statement, the Prospectus or the Offering
Materials or in any documents filed under the Exchange Act and deemed to be
incorporated by reference into the Prospectus, or in any application or other
document executed by or on behalf of the Company or Hotels OP or based on
written information furnished by or on behalf of the Company or Hotels OP filed
in any jurisdiction in order to qualify the Shares under the securities laws
thereof or filed with the Commission, or the performance of the Dealer Manager's
services as financial advisor or Dealer Manager with respect to the Rights
Offering. However, the Company and Hotels OP will not be obligated to indemnify
a Dealer Manager Indemnified Person for any loss, claim, damage, liability or
expense pursuant to clause (ii) of the preceding sentence which has been
determined in a final judgment by a court of competent jurisdiction to have
resulted directly from willful misconduct or gross negligence on the part of
such Dealer Manager Indemnified Person.
(b) The Dealer Manager agrees to indemnify and hold harmless the Company,
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act, each director of the
Company and each officer of the Company who signs the Registration Statement
(collectively, the "Company Indemnified Persons") from and against any and all
---------------------------
losses, claims, damages, liabilities and expenses but only to the extent such
losses, claims, damages and liabilities and expenses arise out of or based on
any untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to the Dealer Manager
furnished in writing to the Company by the Dealer Manager expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectus;
provided, however, that in no case shall the Dealer Manager be liable or
- -------- -------
responsible for an amount in excess of the fees actually received by the Dealer
Manager pursuant to this Agreement.
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<PAGE>
(c) If any lawsuit, claim or proceeding is brought against any Dealer
Manager Indemnified Person or Company Indemnified Person (an "Indemnified
-----------
Person") in respect of which indemnification may be sought pursuant to this
Section 7, such Indemnified Person shall promptly notify the indemnifying party
- ---------
of the commencement of such lawsuit, claim or proceeding; provided, however,
-------- -------
that the failure so to notify the indemnifying party shall not relieve the
indemnifying party from any obligation or liability which it may have under this
Section 7 except to the extent that it has been prejudiced in any material
- ---------
respect by such failure and in any event shall not relieve the indemnifying
party from any other obligation or liability which it may have to such
Indemnified Person otherwise than under this Section 7. In case any such
---------
lawsuit, claim or proceeding shall be brought against any Indemnified Person and
such Indemnified Person shall notify the indemnifying party of the commencement
of such lawsuit, claim or proceeding, the indemnifying party shall be entitled
to participate in such lawsuit, claim or proceeding, and, after written notice
from the indemnifying party to such Indemnified Person, to assume the defense of
such lawsuit, claim or proceeding with counsel of its choice at its expense;
provided, however, that such counsel shall be satisfactory to the Indemnified
- -------- -------
Person in the exercise of its reasonable judgment. Notwithstanding the election
of the indemnifying party to assume the defense of such lawsuit, claim or
proceeding, such Indemnified Person shall have the right to employ separate
counsel and to participate in the defense of such lawsuit, claim or proceeding,
and the indemnifying party shall bear the fees, costs and expenses of such
separate counsel (and shall pay such fees, costs and expenses promptly after
receipt of any invoice therefor from the Indemnified Person) if (i) the use of
counsel chosen by the indemnifying party to represent such Indemnified Person
would present such counsel with a conflict of interest; (ii) the defendants in,
or targets of, any such lawsuit, claim or proceeding include both an Indemnified
Person and the indemnifying party, and such Indemnified Person shall have
reasonably concluded that there may be legal defenses available to it or to
other Indemnified Persons which are different from or in addition to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to direct the defense of such action on behalf of the
Indemnified Person); (iii) the indemnifying party shall not have employed
counsel satisfactory to such Indemnified Person, in the exercise of such
Indemnified Person's reasonable judgment, to represent such Indemnified Person
within a reasonable time after notice of the institution of any such lawsuit,
claim or proceeding; or (iv) the indemnifying party shall authorize such
Indemnified Person to employ separate counsel at the expense of the indemnifying
party. The foregoing indemnification commitments shall apply whether or not the
Indemnified Person is a formal party to any such lawsuit, claim or proceeding.
The indemnifying party shall be liable for any settlement of any lawsuit, claim
or proceeding effected without their consent (which consent will not be
unreasonably withheld), but if settled with such consent, the indemnifying party
agrees, subject to the provisions of this Section 7, to indemnify the
Indemnified Person from and against any loss, damage or liability by reason of
such settlement.
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<PAGE>
The Company and Hotels OP agree to notify the Dealer Manager promptly, or cause
the Dealer Manager to be notified promptly, of the assertion of any lawsuit,
claim or proceeding against the Company or Hotels OP, any of their respective
officers or directors or any person who controls any of the foregoing within the
meaning of Section 15 of the Securities Act and Section 20(a) of the Exchange
Act, arising out of or relating to the Rights Offering. The Company and Hotels
OP further agree that any settlement of a lawsuit, claim or proceeding against
the Company or Hotels OP arising out of or relating to the Rights Offering shall
include an explicit and unconditional release from the parties bringing such
lawsuit, claim or proceeding of all Dealer Manager Indemnified Persons, which
release shall be reasonably satisfactory to the Dealer Manager.
(d) The Company and Hotels OP, jointly and severally, and the Dealer
Manager agree that if any indemnification sought by any Indemnified Person
pursuant to this Section 7 is held by a court to be unavailable for any reason,
---------
other than that specified in the second sentence of Section 7(a), then (whether
------------
or not the Dealer Manager is the Indemnified Person) the Company and Hotels OP,
on the one hand, and the Dealer Manager, on the other hand, shall contribute to
the losses, claims, damages, liabilities and expenses for which such
indemnification is held unavailable (i) in such proportion as is appropriate to
reflect the relative benefits to the Company and Hotels OP, on the one hand, and
the Dealer Manager, on the other hand, in connection with the matter giving rise
to such losses, claims, damages, liabilities and expenses, or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by applicable
law, in such proportions as is appropriate to reflect not only the relative
benefits referred to in clause (i) but also the relative faults of the Company
and Hotels OP, on the one hand, and the Dealer Manager, on the other hand, in
connection with the matter giving rise to such losses, claims, damages,
liabilities and expenses and other equitable considerations, subject to the
limitation that in any event the Dealer Manager's aggregate contribution to all
losses, claims, damages, liabilities and expenses with respect to which
contribution is available hereunder shall not exceed the amount of fees actually
received by the Dealer Manager pursuant to this Agreement. It is hereby agreed
that the relative benefits to the Company and Hotels OP, on the one hand, and
the Dealer Manager, on the other hand, with respect to the Rights Offering and
the other transactions contemplated thereby shall be deemed to be in the same
proportion as (i) the total net proceeds from the Rights Offering (before
deducting expenses) received (or anticipated to be received) by the Company
(whether or not the Rights Offering is consummated) bears to (ii) the fees
actually received by the Dealer Manager from the Company in connection with the
Dealer Manager's engagement hereunder. It is further agreed that the relative
faults of the Company and Hotels OP, on the one hand, and the Dealer Manager, on
the other hand, (i) in the case of an untrue or alleged untrue statement of a
material fact or an omission or an alleged omission to state a material fact,
shall be determined by reference to, among other things, whether such statement
or omission relates to information supplied by the Company or
-24-
<PAGE>
Hotels OP or by the Dealer Manager and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission and (ii) in the case of any other action or omission, shall be
determined by reference to, among other things, whether such action or omission
was taken or omitted to be taken by the Company or Hotels OP or the Dealer
Manager and the parties' relative intent, knowledge, access to information and
opportunity to prevent such action or omission.
(e) The amount paid or payable by an Indemnified Person as a result of the
losses, claims, damages, liabilities or expenses referred to in Section 7(d)
------------
shall be deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such Indemnified Person in
connection with investigating, preparing to defend or defending any such action
or claim.
(f) The Company and Hotels OP also agree that no Dealer Manager Indemnified
Person shall have any liability to the Company or Hotels OP or any person
asserting claims on behalf of or in right of the Company or Hotels OP in
connection with this Agreement or the Dealer Manager acting as financial advisor
and Dealer Manager hereunder, except for liabilities determined in a final
judgment by a court of competent jurisdiction to have resulted directly from any
acts or omissions undertaken or omitted to be taken by such Dealer Manager
Indemnified Person through its gross negligence or willful misconduct.
(g) The foregoing rights to indemnification and contribution shall be in
addition to any other rights which the Dealer Manager and the other Dealer
Manager Indemnified Persons may have against the Company and Hotels OP under
common law or otherwise.
(h) The indemnity and contribution agreements contained in this Section 7
---------
and the representations and warranties of the Company and Hotels OP contained in
this Agreement shall remain operative and in full force and effect regardless of
(i) any investigation made by or on behalf of the Dealer Manager, (ii)
acceptance of the Shares and payment therefore or (iii) any termination of this
Agreement.
(i) The Dealer Manager confirms and the Company acknowledges that
______________________________ are correct and constitute the only information
concerning the Dealer Manager furnished in writing to the Company by or on
behalf of the Dealer Manager specifically for inclusion in the Registration
Statement and the Prospectus.
8. Representations, Warranties and Agreements to Survive Delivery. The
--------------------------------------------------------------
rights to indemnification and contribution contained in Section 7 and the
---------
representations, warranties and agreements of the Company and Hotels OP set
forth in this Agreement shall survive and remain operative and in full force and
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<PAGE>
effect regardless of any investigation made by or on behalf of any party hereto
or any person controlling any party hereto within the meaning of Section 15 of
the Securities Act and Section 20(a) of the Exchange Act. The provisions of
Sections 5, 7, 8, 12, 13 and 16 hereof shall survive the termination or
- ------------------------ --
cancellation of this Agreement.
9. Withdrawal. In the event that (a) the Company uses or permits the use
----------
of any preliminary prospectus, the Registration Statement, the Prospectus or the
Offering Materials or any amendment or supplement to the Registration Statement,
the Prospectus or the Offering Materials or in any documents filed under the
Exchange Act and deemed to be incorporated by reference into the Prospectus, or
in any application or other document executed by or on behalf of the Company or
based on written information furnished by or on behalf of the Company filed in
any jurisdiction in order to qualify the Shares under the securities laws
thereof or filed with the Commission in connection with the Rights Offering or
files any such material with the Commission without the Dealer Manager's prior
approval, (b) the Company or Hotels OP shall have breached in any material
respect any of its representations, warranties, agreements or covenants herein
(including without limitation the agreements set forth in Section 6 hereof), (c)
---------
at any time during the subscription period, a stop order suspending the
effectiveness of the Registration Statement shall have been issued or a
proceeding for that purpose shall have been instituted or shall be pending or
threatened in writing by the Commission, or a request for additional information
on the part of the Commission shall not have been satisfied to the Dealer
Manager's reasonable satisfaction or there shall have been issued, at any time
during the Rights Offering, any temporary restraining order or injunction
restraining or enjoining the Dealer Manager from acting in its capacity as
Dealer Manager hereunder and such temporary restraining order or injunction is
then in effect and has not been stayed or vacated, (d) the Company shall have
amended the terms of the Rights Offering without the Dealer Manager's prior
consent, or (e) this Agreement shall have been terminated by the Dealer Manager
pursuant to Section 10 hereof, then the Dealer Manager shall be entitled to
----------
withdraw by written notice as Dealer Manager in connection with the Rights
Offering without any liability or penalty to the Company or any Dealer Manager
Indemnified Person for such withdrawal, and without loss of any right to the
indemnification provided in Section 7 hereof, the payment of all fees and
---------
expenses payable under this Agreement [and the Engagement Letter] which have
accrued to the date of such withdrawal or would otherwise be due to the Dealer
Manager on such date, or the benefit of any other provisions surviving such
withdrawal pursuant to Section 8 hereof. If the Dealer Manager withdraws as
---------
Dealer Manager pursuant to this Section 9, the fees accrued and reimbursement
---------
for the Dealer Manager's expenses through the date of such withdrawal shall be
paid to the Dealer Manager on or promptly after such date, unless such fees or
expenses are due at some later date in accordance with the express terms of any
applicable agreement.
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<PAGE>
10. Termination of Agreement.
------------------------
(a) This Agreement shall be subject to termination in the absolute
discretion of the Dealer Manager, by notice given to the Company prior to the
expiration of the Rights Offering, if prior to such time (i) trading in
securities generally on the NYSE or the American Stock Exchange or in the over-
the-counter market, or trading in any securities of the Company on any exchange
or in the over-the-counter market, shall have been suspended or minimum prices
shall have been established on any such exchange or such market by the
Commission, by such exchange or by any other regulatory body or governmental
authority having jurisdiction, (ii) a banking moratorium shall have been
declared by Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there shall have been an escalation in
hostilities involving the United States or there shall have been a declaration
of a national emergency or war by the United States or (iv) there shall have
occurred such a material adverse change in general economic, political or
financial conditions (or the effect of international conditions on the financial
markets in the United States shall be such) as to make it, in the judgment of
the Dealer Manager, impracticable or inadvisable to proceed with the Rights
Offering.
(b) Subject to Section 8 hereof, if this Agreement is terminated pursuant
---------
to this Section, such termination shall be without liability of any party to any
other party except as provided in Section 5.
---------
11. Notices. All notices and other communications required or permitted
-------
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by registered or certified mail,
return receipt requested, postage prepaid, to the parties hereto as follows:
(a) if to the Dealer Manager:
Lehman Brothers Inc.
Three World Financial Center
200 Vesey Street
New York, NY 10285
Attention:
with copy to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attention: Alan L. Dye
(b) if to the Company:
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<PAGE>
MeriStar Hotels & Resorts, Inc.
1010 Wisconsin Ave., N.W.
Washington, D.C. 20007
Attention: James A. Calder
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, N.Y. 10019-6064
Attention: Richard S. Borisoff
12. Successors. This Agreement, including any right to indemnification and
----------
contribution hereunder, shall inure to the benefit of and be binding upon the
parties hereto and the other Indemnified Persons, and their respective
successors and assigns. Nothing in this Agreement, expressed or implied, is
intended to confer or does confer on any other person or entity any rights or
remedies hereunder or by virtue hereof.
13. Applicable Law. This Agreement will be governed by and construed in
--------------
accordance with the laws of the State of New York without reference to conflict
of law principles thereof.
14. Severability. The invalidity or unenforceability of any provisions of
------------
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
15. Amendment. This Agreement may not be amended or modified except in
---------
writing signed by each of the parties.
16. Consent to Jurisdiction. The parties hereby irrevocably and
-----------------------
unconditionally consent to submit to the exclusive jurisdiction of the courts of
the State of New York and of the United States District Courts located in the
City of New York for any lawsuits, actions or other proceedings arising out of
or relating to this Agreement and agree not to commence any such lawsuit, action
or other proceeding except in such courts. The Company and Hotels OP further
agree that service of any process, summons, notice or document by mail to the
address set forth above shall be effective service of process for any lawsuit,
action or other proceeding brought against the Company or Hotels OP in any such
court. The parties hereby irrevocably and unconditionally waive any objection
to the laying of venue of any lawsuit, action or other proceeding arising out of
or relating to this Agreement in the courts of the State of New York or the
United States District Courts located in the City of New York, and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such lawsuit, action or
-28-
<PAGE>
other proceeding brought in any such court has been brought in an inconvenient
forum. Any right to trial by jury with respect to any lawsuit, claim, action or
other proceeding arising out of or relating to this Agreement or the services to
be rendered by the Dealer Manager hereunder is expressly and irrevocably waived.
17. References. All references to sections or to exhibits or schedules in
----------
this Agreement, unless otherwise indicated, are to sections of or exhibits or
schedules to this Agreement.
18. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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<PAGE>
Please indicate your willingness to act as Dealer Manager and financial
advisor and your acceptance of the foregoing provisions by signing in the space
provided below for that purpose and returning to the Company and Hotels OP a
copy of this letter so signed, whereupon this letter and your acceptance shall
constitute a binding agreement between us.
Very truly yours,
MERISTAR HOTELS & RESORTS, INC.
By:________________________________
Name:
Title:
MERISTAR H & R OPERATING
COMPANY, L.P.
By: MeriStar Hotels & Resorts, Inc.,
it general partner
By:___________________________
Name:
Title:
Accepted and agreed as of the date
first written above:
LEHMAN BROTHERS INC.
By:_______________________________
Name:
Title:
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<PAGE>
EXHIBIT A
OPINION OF
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1. The Registration Statement and the Prospectus (other than the financial
statements and related schedules and statistical data therein, as to which we
express no opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations.
2. The Registration Statement was declared effective as of __________ on
__________, 1998, the Prospectus was filed with the Commission pursuant to
subparagraph (1) of Rule 424(b) of the Rules and Regulations on __________, 1998
and, to the best of our knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued and no proceeding for that purpose is
pending or threatened by the Commission.
3. The Company and each of its subsidiaries and each Predecessor Entity have
been duly organized and are validly existing as corporations, general or limited
partnerships or limited liability companies, as the case may be, in good
standing under the laws of their respective jurisdictions of organization, are
duly qualified to do business and are in good standing as foreign corporations,
general or limited partnerships or limited liability companies, as the case may
be, in each jurisdiction in which their respective ownership or lease of
property or the conduct of their respective businesses requires such
qualification, and have all power and authority necessary to own or hold their
respective properties and to conduct the businesses in which they are engaged.
4. The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-assessable
and conform to the description thereof contained in the Prospectus; and all of
the shares of Common Stock that are outstanding as of the date hereof were
offered and sold in compliance with all applicable laws (including, without
limitation, federal and state securities laws); and all of the issued shares of
capital stock, partnership interests or limited liability company membership
interests, as the case may be, of each subsidiary of the Company have been duly
and validly authorized and issued and (except for partnership interests of
general partners and except to the extent the limited liability company
agreements governing the respective limited liability companies provide
otherwise) are fully paid and non-assessable and are owned directly or
indirectly by the Company, to the best of our knowledge, free and clear of all
liens, encumbrances, equities or claims. Except for the interests in the
subsidiaries of the Company and as disclosed in the Registration Statement, to
the
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<PAGE>
best of our knowledge the Company does not own, directly or indirectly, any
shares of stock or any other equity or long-term debt securities of any
corporation or have any equity interest in any firm, partnership, joint venture,
association or other entity.
5. The Rights have been duly authorized by all requisite action on the part
of the Company for delivery to the Rightholders pursuant to the Rights Offering;
the Shares have been duly authorized by all requisite action on the part of the
Company and reserved for issuance and sale pursuant to the terms of the Rights
Offering and, when issued and delivered by the Company pursuant to the terms of
the Rights Offering against payment of the consideration set forth in the
Prospectus, will be validly issued, fully paid and non-assessable; the Shares
and the Rights conform in all material respects to all statements relating
thereto contained in the Registration Statement and the Prospectus; and the
issuance of the Shares is not subject to any preemptive rights. Except as set
forth in the Prospectus, to the best of our knowledge there are no options to
purchase, or any rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts, commitments, plans or
arrangements to issue or sell, or any restrictions upon the voting of, any
shares of capital stock of the Company, any shares of capital stock or any other
interests of any subsidiary or any such warrants, convertible securities or
obligations.
6. Neither the Company nor any subsidiary is, or will be as a result of the
Rights Offering or the purchase of the Shares by the holders of the Rights,
pursuant to the terms of the Rights Offering, an "investment company" within the
meaning of such term under the Investment Company Act of 1940 and the rules and
regulations of the Commission thereunder.
7. To the best of our knowledge, there are no legal or governmental
proceedings pending to which the Company, any of its subsidiaries or any
Predecessor Entity is a party or of which any property or assets of the Company,
any of its subsidiaries or any Predecessor Entity is the subject which could
reasonably be expected to have a Material Adverse Effect; and to the best of our
knowledge no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
8. None of the Company, any of its subsidiaries or any Predecessor Entity is,
or will be, as a result of the Rights Offering, the Formation Transactions or
any transactions contemplated thereby (i) in violation of its charter, by-laws,
partnership agreement or operating agreement, (ii) to the best of our knowledge,
in default in any material respect, and no event has or will have occurred
which, with notice or lapse of time or both, would constitute such a default, in
the due performance or observance of any term, covenant or condition contained
in any material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which it is a party or by which it is bound or to
which any of its
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<PAGE>
properties or assets is subject or (iii) in violation of any law, ordinance,
governmental rule, regulation or court decree to which it or its property or
assets may be subject or has or will have failed to obtain any material license,
permit, certificate, franchise or other governmental authorization or permit
necessary to the ownership of its property or to the conduct of its business,
which violation or failure could reasonably be expected to have a Material
Adverse Effect.
9. The Company, each subsidiary and each Predecessor Entity, as applicable,
has full power and authority to enter into the Dealer Manager Agreement, the
Intercompany Agreement, the Lessee Manager Acquisition Agreement, the agreements
contemplated by the Formation Transactions, and each of the other agreements
contemplated thereby. Each such agreement has been duly authorized, executed and
delivered by the Company, such subsidiary and/or such Predecessor Entity, as
applicable, and constitutes a valid and binding agreement of the Company, such
subsidiary and/or such Predecessor Entity, as applicable, and is enforceable
against the Company, such subsidiary and/or such Predecessor Entity, as
applicable, in accordance with its terms, except as the enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization and similar
laws affecting creditors' rights generally and moratorium laws in effect from
time to time and by equitable principles restricting the availability of
equitable remedies. The execution and delivery by the Company, such subsidiary
and/or such Predecessor Entity, as applicable, and the performance by the
Company, such subsidiary and/or such Predecessor Entity, as applicable, of its
obligations thereunder, the consummation of the transactions contemplated
thereby and the application of the net proceeds from the offering and sale of
the Shares to be sold by the Company in the manner set forth in the Prospectus
under the caption "Use of Proceeds" will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of the
Company, any subsidiary or any Predecessor Entity pursuant to the terms or
provisions of, or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or give any other party a right to
terminate any of its obligations under, or result in the acceleration of any
obligation under, (i) the charter, by-laws, partnership agreement or other
organizational documents of the Company or any of its subsidiaries, (ii) to the
best of our knowledge, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company or any of its subsidiaries or
any Predecessor Entity is a party or by which the Company or any of its
subsidiaries or any Predecessor Entity or any of their respective properties is
bound or affected, or (iii) violate or conflict with any judgment, ruling,
decree, order, statute, rule or regulation of any court or other governmental
agency or body applicable to the business or properties of the Company or any of
its subsidiaries or any Predecessor Entity. No consent, approval, authorization
or order of, or any filing or declaration with, any court or governmental agency
or body or any other person is required in connection with the authorization,
issuance, transfer, sale or delivery of the Shares by the Company, in connection
with the execution, delivery and performance of the Dealer Manager Agreement or
such other agreements by the Company, any such
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<PAGE>
subsidiary or any Predecessor Entity or in connection with the taking by the
Company, any such subsidiary or any Predecessor Entity of any other action
contemplated thereby, except such as have been obtained under the Securities Act
or the Rules and Regulations and such as may be required under state securities
or Blue Sky laws or the by-laws and rules of the NASD.
10. In connection with the Formation Transactions, the Company and it
subsidiaries have acquired, or will acquire, the direct and indirect interests
of each of the Predecessor Entities as described in the Registration Statement
and the Prospectus, in each case free and clear of any liens, encumbrances or
defects (i) set forth in the charter, limited liability company agreement or
limited partnership agreement, as the case may be, governing such Predecessor
Entities, or (ii) reflected on the books or registry of any Predecessor Entity.
None of the interests held by any person in any Predecessor Entity and being
acquired by the Company and its subsidiaries are evidenced by certificate and no
such interests constitute "certificated" securities under the Uniform Commercial
Code.
11. To the best of our knowledge, there are no contracts or other documents
which are required to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and Regulations
which have not been described in the Prospectus or filed as exhibits to the
Registration Statement.
12. Except as disclosed in the Prospectus, to the best of our knowledge there
are no contracts, agreements or understandings between the Company and any
person granting such person the right (other than rights which have been waived
or satisfied) to require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company owned or to be
owned by such person or to require the Company to include such securities in the
securities registered pursuant to the Registration Statement or in any
securities being registered pursuant to any other registration statement filed
by the Company under the Securities Act. To the best of our knowledge, no
holder of securities of the Company has rights to the registration of any
securities of the Company because of the filing of the Registration Statement.
13. The statements under the captions "The Merger and the Spin-Off," "The
Rights Offering," "Description of Capital Stock" and "Certain Antitakeover
Provisions" in the Prospectus, insofar as such statements constitute a summary
of legal matters, documents or proceedings referred to therein are correct in
all material respects.
In connection with the preparation of the Registration Statement and the
Prospectus, we have participated in conferences with certain officers and other
representatives of the Company, at which the contents of the Registration
Statement and the Prospectus and related matters were discussed, and, based on
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such participation, no facts have come to our attention which cause us to
believe that the Registration Statement (except for financial statements and
schedules and other statistical data included therein or omitted therefrom, as
to which we make no statement), as of its effective date or on the date hereof,
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein not misleading, or that the Prospectus (except for financial statements
and schedules and other statistical data included therein or omitted therefrom,
as to which we make no statement), as of its date or on the date hereof,
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
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<PAGE>
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
of
MERISTAR HOTELS & RESORTS, INC.
(Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware)
The undersigned Chief Financial Officer of MeriStar Hotels & Resorts,
Inc., a corporation organized and existing under the laws of the State of
Delaware (the "Corporation"), hereby certifies as follows:
FIRST. The Corporation's present name is MeriStar Hotels & Resorts,
Inc.;
SECOND. The Corporation was originally incorporated under the name
CMC Operating Company, and its original Certificate of Incorporation was duly
filed with the Secretary of State of the State of Delaware on March 13, 1998.
The Certificate of Amendment to change the name of the Corporation to MeriStar
Hotels & Resorts, Inc. was duly filed with the Secretary of State of the State
of Delaware on April 9, 1998;
THIRD. This Restated Certificate of Incorporation restates,
integrates and further amends the Certificate of Incorporation, as heretofore
amended and now in effect;
FOURTH. This Restated Certificate of Incorporation of the Corporation
has been duly adopted in accordance with the provisions of Sections 242 and 245
of the General Corporation Law of the State of Delaware; and
<PAGE>
2
FIFTH. The text of the Corporation's Certificate of Incorporation is
hereby amended and restated to read in full as follows:
ARTICLE I
NAME
The name of the corporation is MeriStar Hotels & Resorts, Inc. (the
"Corporation").
ARTICLE II
ADDRESS; REGISTERED AGENT AND ADDRESS
The address of the Corporation's registered office is
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle, State of Delaware; and its registered agent at such address is
Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE IV
CAPITALIZATION
A. Number of Shares. The total number of shares of stock that the
----------------
Corporation shall have authority to issue is: one hundred ten million
(110,000,000), which shall be one hundred million (100,000,000) shares of common
stock, par value of one cent ($0.01) per share (the "Common Stock"), and ten
million (10,000,000) shares of preferred stock, par value of one cent ($0.01)
per share (the "Preferred Stock").
B. Designation of Classes; Relative Rights, Etc. The designation,
---------------------------------------------
relative rights, preferences and limitations of the shares of each class are as
follows:
1. Preferred Stock. The Board of Directors (the "Board") is
---------------
authorized, subject to any limitations prescribed by law, to provide for the
issuance of shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable
<PAGE>
3
law of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the terms of any Preferred Stock Designation.
2. Common Stock. Subject to the provisions of any applicable
------------
law or of the by-laws of the Corporation (the "By-laws"), as from time to time
amended, with respect to the closing of the transfer books or the fixing of a
record date for the determination of stockholders entitled to vote and except as
otherwise provided by law or by the resolution or resolutions providing for the
issue of any series of shares of Preferred Stock, the holders of outstanding
shares of Common Stock shall exclusively possess voting power for the election
of directors and for all other purposes, each holder of record of shares of
Common Stock being entitled to one vote for each share of Common Stock
outstanding in his or her name on the books of the Corporation.
3. 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 may from time to time determine.
ARTICLE V
BOARD OF DIRECTORS
A. General Powers. This Article is inserted for the management of
--------------
the business and for the conduct of the affairs of the Corporation, and it is
expressly provided that it is intended to be in furtherance and not in
limitation or exclusion of the powers conferred by the statutes of the State of
Delaware. The business and affairs of the Corporation shall be managed by
or under the direction of the board of directors of the Corporation (the
"Board").
B. Number. The Board shall consist of not less than three (3) and
------
not more than fifteen (15) members. The exact number of directors within the
minimum and maximum limitations specified in the preceding sentence shall be
fixed from time to time by resolution adopted by a majority of the entire Board
that would be in office, if no vacancy existed, whether or not present at a
meeting.
<PAGE>
4
C. Election. Members of the Board need not be elected by written
--------
ballot. The directors shall be elected at the annual meeting of stockholders by
such stockholders as have the right to vote on such election.
D. Classes. The Board shall be divided into three Classes,
-------
designated "Class I," "Class II" and "Class III," respectively.
E. Term. The initial term of office of Class I shall expire at the
----
first annual meeting of stockholders of the Corporation following the end of the
Corporation's fiscal year ending December 31, 1998. The initial term of office
of Class II shall expire at the first annual meeting of stockholders of the
Corporation following the end of the Corporation's fiscal year ending December
31, 1999, and the initial term of office of Class III shall expire at the first
annual meeting of stockholders of the Corporation following the end of the
Corporation's fiscal year ending December 31, 2000. Commencing with the annual
meeting of stockholders of the Corporation at which the initial term of office
of the Class I 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.
F. Vacancies. In the event of any increase or decrease in the
---------
authorized number of directors, 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.
G. Filling Vacancies and Newly-Created Directors. Subject to the
---------------------------------------------
rights of the holders of any series of Preferred Stock then outstanding, newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall, unless
otherwise provided by law or by resolution of the Board, be filled only by a
majority vote of the directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
chosen expires. No decrease in the authorized number of directors shall shorten
the term of any incumbent director.
H. Removal. A director may be removed, with cause, by the
-------
affirmative vote of not less than two-thirds of the 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 the
stockholders called for the purpose of removing such director.
I. Holders of Preferred Stock. Notwithstanding Sections D through H,
--------------------------
the holders of Preferred Stock shall be entitled to elect and remove directors
on such terms as are set forth in any Preferred Stock Designation.
<PAGE>
5
ARTICLE VI
DIRECTOR LIABILITY
A. 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.
Any repeal or modification of the foregoing provision shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
B. 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 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.
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 under-
<PAGE>
6
taking, 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.
C. Rights Not Exclusive. The rights to indemnification and reim
--------------------
bursement or advancement of expenses provided by, or granted pursuant to, this
Section C 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, this Certificate of Incorporation, the
By-laws, 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.
The rights to indemnification and reimbursement or advancement of
expenses provided by, or granted pursuant to, this Section C 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.
D. 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, the By-laws or under Section 145
of the Delaware General Corporation Law or any other provision of law.
E. 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
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.
F. Procedural Rights. The rights to indemnification and reim
-----------------
bursement or advancement of expenses provided by, or granted pursuant to, this
Article 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
<PAGE>
7
(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.
G. Service Deemed at Corporation's Request. Any director or officer
---------------------------------------
of the Corporation serving in any capacity of (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 VII
STOCKHOLDER MEETINGS
A. Notice and Place of Meeting. 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 By-laws.
B. Stockholder Action. Any action required or permitted to be taken
------------------
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
C. Special Meetings. Special meetings of stockholders of the
----------------
Corporation 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 President 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.
ARTICLE VIII
STOCKHOLDER NOMINATIONS AND INTRODUCTION OF BUSINESS ETC.
Advance notice of stockholder nominations for election of directors
and other business to be brought by stockholders before a meeting of
stockholders, shall be given in the manner provided in the By-laws.
<PAGE>
8
ARTICLE IX
AMENDMENTS
A. Certificate of Incorporation. Notwithstanding any other
----------------------------
provisions of law, this Certificate of Incorporation or the By-laws, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders 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 an election of directors shall be required to amend, repeal,
or adopt any amendment to Sections D, E, F, G, H or I of Article V, Article VI
or this Article IX of the Certificate of Incorporation.
B. By-Laws. The By-laws may be altered or repealed and new By-laws
-------
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 2.3, 2.13 or 2.14
of Article 2 of the By-laws, or any provision of Article 3 of the By-laws, 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 an election of directors, or (ii) by the affirmative
vote of a majority of the Board.
ARTICLE X
OWNERSHIP AND TRANSFER RESTRICTIONS
A. Definitions. For the purposes of this Article the following
-----------
terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Shares by a
--------------------
Covered 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 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.
"Covered Person" Shall mean (i) 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,
who or which (ii) Beneficially Owns outstanding shares of MeriStar REIT Equity
Stock in excess of 9.8% of the value of the total outstanding shares of MeriStar
REIT Equity Stock.
"Excess Shares" shall mean Shares resulting from an event
-------------
described in Section C of this Article.
"Excess Share Trust" shall mean the trust created pursuant to
------------------
<PAGE>
9(1)
Section C and Section K of this Article.
"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 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.
"MeriStar REIT Equity Stock" shall mean all outstanding shares of
--------------------------
stock of MeriStar Hospitality Corporation, including, without limitation, common
stock, par value $.01 per share, of MeriStar Hospitality Corporation, and shall
include shares of such common stock or other 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 9.9%, of either (i) the total
---------------
combined voting power of all outstanding shares entitled to vote or (ii) the
total number of outstanding Shares of the Corporation. The number and voting
power of the outstanding Shares of any class or series of the Corporation shall
be determined by the Board in good faith, which determination shall be
conclusive for all purposes hereof.
"Purported Beneficial Transferee" shall mean, with respect to
-------------------------------
any Excess Shares, the Covered Person who would have been the beneficial holder
of the Shares, if the Shares had not been transferred to the Trust.
"Purported Record Transferee" shall mean, with respect to any
---------------------------
purported Transfer which results in Excess Shares, the Covered Person who would
have been the record holder of the Shares, if the Shares had not been
transferred to the 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
<PAGE>
10
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 as the date on which the ownership and transfer
restrictions set forth in this Article 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,
leases property to the Corporation, intends to qualify as a REIT.
"Shares" shall mean the shares of the Corporation as may be
------
authorized and issued from time to time pursuant to Article IV.
"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.
B. Ownership Limitation.
--------------------
1. Subject to Clause 3 of this Section B, until the Restriction
Termination Date, no Covered Person, or Covered Persons acting as a group, shall
Beneficially Own Shares in excess of the Ownership Limit;
2. Subject to Clause 3 of this Section B, until the Restriction
Termination Date, any Transfer that, if effective, would result in any Covered
Person Beneficially Owning Shares of any class in excess of the Ownership Limit
shall be void ab initio as to the Transfer of such Shares which would be
otherwise Beneficially Owned by such Covered Person in excess of the Ownership
Limit; and the intended transferee shall acquire no rights in such Shares; and
3. Nothing contained in this Article 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 and any transferee in
such a transaction shall be subject to all of the provisions and limitations set
forth in this Article.
C. Excess Shares.
-------------
<PAGE>
11
1. If, notwithstanding the other provisions contained in this
Article, at any time prior to the Restriction Termination Date, there is a
Purported Transfer such that any Covered Person would Beneficially Own Shares of
any class in excess of the applicable Ownership Limit, then Shares Beneficially
Owned by such Covered Person in excess of the Ownership Limit shall be
automatically designated as Excess Shares (without reclassification) until such
Covered Person does not own Shares in excess of the applicable 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, such Covered Person still owns Shares in excess of the
applicable Ownership Limit, Shares Beneficially Owned by such Covered Person
constructively in excess of the Ownership Limit shall be designated as Excess
Shares until such Covered Person does not own Shares in excess of the applicable
Ownership Limit. Where such Covered Person owns Shares constructively through
one or more Covered Persons and the Shares held by such other Covered Persons
must be designated as Excess Shares, the designation of Shares held by such
other Covered Persons as Excess Shares shall be pro rata.
2. If, at any time prior to the Restriction Termination Date,
an event other than a purported Transfer (an "Event") occurs which would cause
any Covered Person to Beneficially Own Shares of any class in excess of the
Ownership Limit, then, Shares Beneficially Owned by such Covered Person in
excess of the Ownership Limit 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 2 of this Section C of this Article, Shares beneficially
held by such Covered Person shall first be designated before Shares Beneficially
Owned constructively are designated. Where such Covered Person owns Shares
constructively through one or more Covered Persons and the Shares held by such
other Covered Persons must be designated as Excess Shares, the designation of
Shares held by such other Covered Persons as Excess Shares shall be pro rata.
D. Prevention of Transfer. If the Board or its designee shall at
----------------------
any time determine in good faith that a Transfer has taken place in violation of
Section B of this Article or that a Covered 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 B of this Article,
the Board 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 B of this Article shall
<PAGE>
12
automatically result in the designation and treatment described in Section C of
this Article, irrespective of any action (or non-action) by the Board.
E. Notice to Corporation. Any Covered Person who acquires or
---------------------
attempts to acquire Shares in violation of Section B of this Article, or any
Covered Person who is a transferee such that Excess Shares result under Section
C 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 Covered 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 deems advisable
to preserve the status of MeriStar Hospitality Corporation or any affiliate of
MeriStar Hospitality Corporation as a REIT.
F. 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 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, to comply with the requirements
of any taxing authority or governmental agency or to determine any such
compliance.
G. Other Action by Board. Subject to Section B of this Article,
---------------------
nothing contained in this Article shall limit the authority of the Board 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.
H. Ambiguities. In the case of an ambiguity in the application of
-----------
any of the provisions of this Article, including any definition contained in
Section A, the Board shall have the power to determine the application of the
provisions of this Article with respect to any situation based on the facts
known to it. In the event this Article requires or permits an action by the
Board and the Certificate of Incorporation fails to provide specific guidance
with respect to such action, the Board 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.
I. Legend. Each certificate for Shares shall bear substantially the
------
following legend:
<PAGE>
13
The securities represented by this certificate are subject to
restrictions on ownership and transfer. This description is summary
only, and is qualified in its entirety by reference to the full
transfer restrictions in the Certificate of Incorporation of the
Corporation, a copy of which will be supplied free of charge at any
stockholder request. Except as otherwise provided pursuant to the
Certificate of Incorporation of the Corporation, no Covered Person may
Beneficially Own Shares in excess of 9.9% of either (i) the total
combined voting power of all outstanding shares entiled to vote or
(ii) the total number the outstanding Shares of the Corporation. Any
Covered Person who attempts or proposes to Beneficially Own Shares in
excess of the above limitations must notify the Corporation in writing
at least 15 days prior to such proposed or attempted Transfer. All
capitalized terms 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.
J. Severability. If any provision of this Article 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.
K. Transfer of Excess Shares. Upon any purported Transfer that
-------------------------
results in Excess Shares pursuant to Section C of this Article, 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 or
Purported Record Holder shall have no rights in such Excess Shares except as
expressly provided in this Article.
L. 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,
<PAGE>
14
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 or (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.
M. 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, 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.
N. Non-Transferability of Excess Shares. Excess Shares shall be
------------------------------------
transferable only as provided in this Section N. At the direction of the Board
of the 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 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, or (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
<PAGE>
15
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 N. It is expressly understood that the Purported Record Transferee
may enforce the provisions of this Section 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.
O. 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
or (y) the date the Board 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 E of this Article but in
no event later than a permitted Transfer pursuant to and in compliance with the
terms of Section N of this Article. Unless the Board determines that it is in
the interests 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 at any time up to
but not later than the 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.
P. 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 Beneficially Owns (x) less than 10% of the value of the outstanding
shares of MeriStar Hospitality Corporation and (y) less than 10% of the value of
the outstanding shares of any affiliate of MeriStar Hospitality Corporation that
is a REIT.
Q. Enforcement. The Corporation is authorized specifically to seek
-----------
equitable relief, including injunctive relief, to enforce the provisions of this
Article.
<PAGE>
16
R. Non-Waiver. No delay or failure on the part of the Corporation
----------
or the Board in exercising any right hereunder shall operate as a waiver of any
right of the Corporation or the Board, as the case may be, except to the extent
specifically waived in writing.
IN WITNESS WHEREOF, MeriStar Hotels & Resorts, Inc. has caused this
certificate to be signed on this 22nd day of July, 1998.
/s/ James A. Calder
------------------------------------
Name: James A. Calder
Title: Chief Financial Officer
<PAGE>
Exhibit 3.2
BY-LAWS
of
MERISTAR HOTELS & RESORTS, INC.
(A Delaware Corporation)
________________________
ARTICLE 1
DEFINITIONS
-----------
As used in these By-laws, 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 "By-laws" means the initial by-laws of the Corporation, as
amended from time to time.
1.5 "Certificate of Incorporation" means the initial 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 "Corporation" means MeriStar Hotels & Resorts, Inc.
1.8 "Directors" means directors of the Corporation.
1.9 "Entire Board" means all directors of the Corporation in office,
whether or not present at a meeting of the Board, but disregarding vacancies.
1.10 "General Corporation Law" means the General Corporation Law of
the State of Delaware, as amended from time to time.
<PAGE>
2
1.11 "Office of the Corporation" means the executive office of the
Corporation, anything in Section 131 of the General Corporation Law to the
contrary notwithstanding.
1.12 "President" means the President of the Corporation.
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.
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
President 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 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
<PAGE>
3
(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 Sections 2.4.1 shall be at the close of business on
the day on which the Board adopts the resolution relating thereto.
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 By-laws, 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 by-laws, 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
meet ing 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 By-laws, 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
<PAGE>
4
to notice. Attendance by a stockholder at a meeting shall constitute a waiver of
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 By-laws.
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
By-laws, 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
- -------
<PAGE>
5
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 By-laws 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
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 By-laws,
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
<PAGE>
6
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 President,
------------
or in the absence of the President, 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 meting of such holders and may not be
taken by any consent in writing by such stockholders.
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 By-laws. Notice of any proposal to be
presented by any
<PAGE>
7
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 By-laws 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.
<PAGE>
8
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 By-
laws 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 By-laws, the Board may exercise all powers and perform all
acts that are not required, by these By-laws or the Certificate of Incorporation
or by statute, to be exercised and performed by the stockholders.
3.2 Number; Qualification. The Board shall consist of not less than
---------------------
three (3) and not more than fifteen (15) members. The exact number of Directors
within the minimum and maximum limitations specified in the preceding sentence
shall be fixed from time to time by resolution adopted by a majority of the
Entire Board that would be in office, if no vacancy existed, whether or not
present at a meeting. Directors need not be stockholders.
3.3 Classes; Term; Vacancies. 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 at the
first annual meeting of stockholders of the Corporation following the end of the
Corporation's fiscal year ending December 31, 1998. The initial term of office
of Class II shall expire at the first annual meeting of stockholders of the
Corporation following the end of the Corporation's fiscal year ending December
31, 1999, and the initial term of office of Class III shall expire at the first
annual meeting of stockholders of the Corporation following the end of the
Corporation's fiscal year ending December 31, 2000. Commencing with the annual
meeting of stockholders of the Corporation at which the initial term of office
of the Class I 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.
<PAGE>
9
3.4 Election. Directors shall, except as otherwise required by
--------
statute or by the Certificate of Incorporation, be elected by a plurality of the
votes cast at a meeting of stockholders by the holders of shares entitled to
vote in the election.
3.5 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.
3.6 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 3.6 shall preclude any Director from
serving the Corporation or its subsidiaries in any other capacity and receiving
proper compensation therefor.
3.7 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.
3.8 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 other time and place specified in a notice given as provided
in Section 3.11 hereof for special meetings of the Board or in a waiver of
notice thereof.
3.9 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.
3.10 Special Meetings. Special meetings of the Board may be called by
----------------
the Chairman, the President 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
<PAGE>
10
specified in Section 3.13 hereof other than by mail, or on at least three days'
notice if given by mail. Special meetings shall be called by the Chairman,
President or Secretary in like manner and on like notice on the written request
of any two or more of the Directors then serving.
3.11 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 3.11 shall constitute
presence in person at such meeting.
3.12 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 3.14 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.
3.13 Notice Procedure. Subject to Sections 3.10 and 3.16 hereof,
----------------
whenever, under the provisions of any statute, the Certificate of Incorporation
or these By-laws, 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.
3.14 Waiver of Notice. Whenever the giving of any notice is required
----------------
by statute, the Certificate of Incorporation or these By-laws, 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 By-laws.
3.15 Organization. At each meeting of the Board, the Chairman, or in
------------
the absence of the Chairman, the President, or in the absence of the President,
a chairman chosen by a majority of the Directors present, shall preside. The
Secretary
<PAGE>
11
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.
3.16 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.
3.17 Action by Majority Vote. Except as otherwise expressly required
-----------------------
by statute, the Certificate of Incorporation or these By-laws, 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.
3.18 Action Without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation or these By-laws, 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
-----------------------
The Board may designate one or more committees, each committee to
consist of one or more of the Directors. The Board may designate 1 or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the Board
to act at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board, or in
the By-laws, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, 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 by-law of the Corporation.
<PAGE>
12
ARTICLE 5
OFFICERS
--------
5.1 Positions. The officers of the Corporation shall be a President,
---------
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 By-laws 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.
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. Any officer elected or
appointed by the Board may be removed at any time, with or without cause, by
vote of a majority of the Entire Board. Any vacancy occurring in any office of
the Corporation shall be filled by the Board. The removal of an officer without
cause shall be without prejudice to the officer's contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights.
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.
<PAGE>
13
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.
5.8 President. The President shall be the Chief Executive Officer of
---------
the Corporation 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 President 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 President 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 By-laws 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 President shall perform all duties incident to the office
of President of a corporation and such other duties as may from time to time be
assigned to the President by the Board.
5.9 Vice Presidents. At the request of the President, or, in the
---------------
President'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 President and, in so performing, shall have all the powers of, and be
subject to all restrictions upon, the President. 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 By-laws 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 President.
5.10 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 shall give, or cause to be given, notice of all 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 President, 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
<PAGE>
14
officer's signature. The Secretary or an Assistant Secretary may also attest all
instruments signed by the President 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 President.
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
President or the Board, whenever the President 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
President.
5.12 Assistant Secretaries and Assistant Treasurers. Assistant
----------------------------------------------
Secretaries and Assistant Treasurers shall perform such duties as shall be
assigned to them by the Secretary or by the Treasurer, respectively, or by the
Board or by the President.
ARTICLE 6
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
----------------------------------------------
6.1 Execution of Contracts. The Board, except as otherwise provided
----------------------
in these By-laws, 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.
<PAGE>
15
6.2 Loans. The Board may prospectively or retroactively authorize
-----
the President 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.
6.3 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.
6.4 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 7
STOCK AND DIVIDENDS
-------------------
7.1 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
President 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
<PAGE>
16
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.
7.2 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. A person in whose name shares of capital stock shall stand
on the books of the Corporation shall be deemed the owner thereof to receive
dividends, to vote as such owner and for all other purposes as respects the
Corporation.
7.3 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.
7.4 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.
7.5 Rules and Regulations. The Board may make such rules and
---------------------
regulations as it may deem expedient, not inconsistent with these By-laws or
with the
<PAGE>
17
Certificate of Incorporation, concerning the issue, transfer and registration of
certificates representing shares of its capital stock.
ARTICLE 8
INDEMNIFICATION
---------------
8.1 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
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 8.
8.2 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.
8.3 Rights Not Exclusive. The rights to indemnification and
--------------------
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 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 By-laws, any agreement, any vote of stockholders or
disinterested Directors or otherwise, both as to action
<PAGE>
18
in his or her official capacity and as to action in another capacity while
holding such office.
8.4 Continuation of Benefits. The rights to indemnification and
------------------------
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 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.
8.5 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 8, the Certificate of
Incorporation or under Section 145 of the General Corporation Law or any other
provision of law.
8.6 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
8 shall affect any rights or obligations with respect to any state of facts then
or theretofore existing or there after arising or any proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such state
of facts.
8.7 Procedural Rights. The rights to indemnification and
-----------------
reimbursement or advancement of expenses provided by, or granted pursuant to,
this Article 8 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.
<PAGE>
19
8.8 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 9
BOOKS AND RECORDS
-----------------
9.1 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.
9.2 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.
9.3 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 10
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.
<PAGE>
20
ARTICLE 11
FISCAL YEAR
-----------
The fiscal year of the Corporation shall be fixed, and may be changed,
by resolution of the Board.
ARTICLE 12
PROXIES AND CONSENTS
--------------------
Unless otherwise directed by the Board, the Chairman, the President,
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 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 13
OFFICES
-------
13.1 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.
13.2 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 14
EMERGENCY BY-LAWS
-----------------
Unless the Certificate of Incorporation provides otherwise, the
following provisions of this Article 13 shall be effective during an emergency,
which is defined as
<PAGE>
21
when a quorum of the Corporation's directors cannot be readily assembled because
of some catastrophic event. During such emergency:
14.1 Notice to Board Members. Any one member of the Board or any one
-----------------------
of the following officers: Chairman, President, 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.
14.2 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.
14.3 Actions Permitted To Be Taken. The Board as constituted in
-----------------------------
Section 13.2, and after notice as set forth in Section 13.1 may:
14.3.1 prescribe emergency powers to any officer of the
Corporation;
14.3.2 delegate to any officer or Director, any of the powers of
the Board;
14.3.3 designate lines of succession of officers and agents, in
the event that any of them are unable to discharge their duties;
14.3.4 relocate the principal place of business, or designate
successive or simultaneous principal places of business; and
14.3.5 take any other convenient, helpful or necessary action to
carry on the business of the Corporation.
ARTICLE 15
AMENDMENTS
----------
These By-laws of the Corporation may be altered or repealed and new
By-laws 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,
<PAGE>
22
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
By-laws, 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 of Article 3 of these By-laws, 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 June, 1998.
___________________________
Secretary,
MeriStar Hotels & Resorts, Inc.
<PAGE>
Exhibit 4.1
[FRONT OF COMMON STOCK CERTIFICATE]
COMMON STOCK COMMON STOCK
PAR VALUE $.01 PAR VALUE $.01
Number __________ CUSIP 589988104
SEE REVERSE FOR CERTAIN DEFINITIONS
Shares __________
MERISTAR HOTELS & RESORTS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT __________________________________________________
is the owner of
___________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
MeriStar Hotels & Resorts, Inc., (hereinafter called the "Corporation"),
transferable on the books of the Corporation by the registered holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
In Witness Whereof, the Corporation has caused the facsimile signatures of
its duly authorized officers and its facsimile seal to be affixed hereto.
Dated: _________________ _______________________________
Chairman and Chief Executive Officer
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY (JERSEY CITY, NJ) _______________________________
Treasurer and Secretary
Transfer Agent
and Registrar
By ____________________________________
Authorized Officer
[Corporate Seal]
<PAGE>
[BACK OF COMMON STOCK CERTIFICATE]
MERISTAR HOTELS & RESORTS, INC.
A FULL STATEMENT OF THE DESIGNATION AND ANY PREFERENCES, CONVERSION AND OTHER
RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS TO DIVIDENDS, QUALIFICATIONS
AND TERMS AND CONDITIONS OF REDEMPTION OF THE SHARES OF CAPITAL STOCK MAY BE
OBTAINED FROM THE CORPORATION BY ANY STOCKHOLDER UPON REQUEST AND WITHOUT
CHARGE.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT ___________ Custodian
________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right ______________________________
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
For value received, [ ] ________________________________ hereby
sell, assign and transfer unto _______________________________________________
_________________________________________________________________________
________________________________________________________________________
_____________________________________________________________________shares of
capital stock represented by the within Certificate and do hereby irrevocably
constitute and appoint ________________________________________________________
<PAGE>
2
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated: ___________________
Signature(s) ________________________________
NOTICE: The signature(s) of this
assignment must correspond with the
name as written upon the face of
the Certificate, in every
particular, without alteration or
enlargement, or any change
whatever.
Signature Guaranteed By:
__________________________
The securities represented by this certificate are subject to restrictions on
ownership and transfer. This description is summary only, and is qualified in
its entirety by reference to the full transfer restrictions in the Certificate
of Incorporation of 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, no Covered Person may
Beneficially Own Shares in excess of 9.9% of either (i) the total combined
voting power of all outstanding shares entitled to vote or (ii) the total number
of outstanding Shares of the Corporation. Any Covered Person who attempts or
proposes to Beneficially Own Shares in excess of the above limitations must
notify the Corporation in writing at least 15 days prior to such proposed or
attempted Transfer. All capitalized terms 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.
This certificate also evidences and entitles the holder hereof to certain Rights
as set forth in a Rights Agreement between MeriStar Hotels & Resorts, Inc. and
Continental Stock Transfer & Trust Company dated as of July 23, 1998 (the
"Rights Agreement"), as amended from time to time, the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the principal
executive offices of MeriStar Hotels & Resorts, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. MeriStar Hotels & Resorts, Inc. will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt of a
written request therefor. Under certain circumstances, as set forth in the
Rights Agreement, Rights issued to any Person who becomes an Acquiring Person
(as defined in the Rights Agreement) and certain other Rights may become null
and void.
<PAGE>
Exhibit 4.3
Form of Right Certificate
Certificate No. MSR-
_________________ Rights
NOT EXERCISABLE AFTER _____ __, 2008 OR
EARLIER IF REDEMPTION OR EXCHANGE OCCURS.
THE RIGHTS ARE SUBJECT TO REDEMPTION
AT $.01 PER RIGHT AND TO EXCHANGE
ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT
UNDER CERTAIN CIRCUMSTANCES, RIGHTS THAT ARE OR WERE
ACQUIRED OR BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR
ANY ASSOCIATES OR AFFILIATES THEREOF (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDERS
OF SUCH RIGHTS MAY BECOME NULL AND VOID.
Right Certificate
MERISTAR HOTELS & RESORTS, INC.
This certifies that ______________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entities
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of _____ __, 1998 (the "Rights Agreement"), between MeriStar
Hotels & Resorts, Inc., a Delaware corporation (the "Company"), and Continental
Stock Transfer & Trust Company (the "Rights Agent"), to purchase from the
Company at any time after the Rights Distribution Date (as such term is defined
in the Rights Agreement) and prior to 5:00 P.M., New York time, on _____ __,
2008 at the principal office of the Rights Agent, or at the office of its
successor as Rights Agent, one one-hundredth of a fully paid non-assessable
share of Series A Junior Participating Preferred Stock, par value $.01 per
share, of the Company (the "Preferred Shares"), at a purchase price of $__ per
one one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation
and surrender of this Right Certificate with the Form of Election to Purchase
duly executed. The number of Rights evidenced by this Right Certificate (and
the number of one one-hundredths of a Preferred Share which may be purchased
upon exercise hereof) set forth above, and the Purchase Price set forth above,
are the number and Purchase Price as of _____ __, 1998, based on the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number of one one-hundredths of a Preferred Share which
may be purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events. This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the
<PAGE>
2
Company and the holders of the Right Certificates. Copies of the Rights
Agreement are on file at the principal executive offices of the Company and the
offices of the Rights Agent.
From and after the occurrence of an event described in Section
11(a)(ii) of the Rights Agreement, if the Rights evidenced by this Right
Certificate are or were at any time acquired or beneficially owned by an
Acquiring Person or an Associate or Affiliate of an Acquiring Person (as such
terms are defined in the Rights Agreement), such Rights shall become void, and
any holder of such Rights shall thereafter have no right to exercise such
Rights.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Right or (ii) may be exchanged in whole or in part
for Preferred Shares or shares of the Company's Common Stock, par value $.01 per
share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but, in lieu thereof, a
cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
<PAGE>
3
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal.
Date as of ___________________.
MERISTAR HOTELS & RESORTS, INC.
By:
Name:
Title:
Attest:
By:
Countersigned: CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:
Name:
Title:
Attest:
By:
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if
such holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED __________________ hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ___________________, Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: ____________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States or by another eligible guarantor institution, as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934.
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
Signature
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: MERISTAR HOTELS & RESORTS, INC.
The undersigned hereby irrevocably elects to exercise ______________ Rights
represented by this Right Certificate to purchase the Preferred Shares issuable
upon the exercise of such Rights and requests that certificates for such
Preferred Shares be issued in the name of:
Please insert social security or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other identifying number
(Please print name and address)
Dated: ________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States or by another eligible guarantor institution, as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934. The undersigned hereby
certifies that the Rights evidenced by this Right Certificate are not
beneficially owned by an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement).
Signature
<PAGE>
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase,
as the case may be, must conform to the name as written upon the face of this
Right Certificate in every particular, without alteration or enlargement or any
change whatsoever.
In the event the certification set forth above in the Form of Assignment
or the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
<PAGE>
Exhibit 4.4
PREFERRED SHARE PURCHASE RIGHTS AGREEMENT
Dated as of July 23, 1998
Between
MERISTAR HOTELS & RESORTS, INC.
and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
Rights Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Certain Definitions....................................................................1
Section 2. Appointment of Rights Agent ..........................................................5
Section 3. Issue of Right Certificates ..........................................................6
Section 4. Form of Right Certificates ............................................................7
Section 5. Countersignature and Registration .....................................................8
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right Certificates...........................................8
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Right ..........................9
Section 8. Cancellation and Destruction of Right Certificates ...................................10
Section 9. Availability of Preferred Shares .....................................................10
Section 10. Preferred Shares Record Date..........................................................11
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights....................11
Section 12. Certificate of Adjusted Purchase Price or Number of Shares ...........................19
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power..................19
Section 14. Fractional Rights and Fractional Shares...............................................20
Section 15. Rights of Action......................................................................21
Section 16. Agreement of Right Holders............................................................21
Section 17. Right Certificate Holder Not Deemed a Stockholder.....................................22
Section 18. Concerning the Rights Agent...........................................................22
Section 19. Merger or Consolidation or Change of Name of Rights Agent.............................23
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 20. Duties of Rights Agent................................................................23
Section 21. Change of Rights Agent................................................................25
Section 22. Issuance of New Right Certificates....................................................26
Section 23. Redemption............................................................................26
Section 24. Exchange..............................................................................26
Section 25. Notice of Events......................................................................28
Section 26. Notices...............................................................................28
Section 27. Supplements and Amendments............................................................29
Section 28. Successors............................................................................29
Section 29. Benefits of this Agreement............................................................29
Section 30. Severability..........................................................................30
Section 31. Governing Law.........................................................................30
Section 32. Counterparts..........................................................................30
Section 33. Descriptive Headings..................................................................30
Section 34. Administration........................................................................30
Exhibit A..............................................................................................A-1
Exhibit B..............................................................................................B-1
Exhibit C..............................................................................................C-1
</TABLE>
ii
<PAGE>
This Rights Agreement (the "Agreement"), dated as of July 23, 1998,
between MeriStar Hotels & Resorts, Inc., a Delaware corporation (the "Company"
or "MeriStar"), and Continental Stock Transfer & Trust Company, as Rights Agent
(the "Rights Agent").
The board of directors of the Company (the "Board of Directors") has
authorized and declared a dividend of one preferred share purchase right (a
"Right") for each Common Share (as hereinafter defined) of the Company
outstanding on August 1, 1998 (the "Record Date"), each Right representing the
right to purchase one one-hundredth of a Preferred Share (as hereinafter
defined), or such different amount and/or kind of securities as shall be
hereinafter provided, upon the terms and subject to the conditions herein set
forth, and has further authorized and directed the issuance of one Right with
respect to each Common Share Rights that shall become outstanding between the
Record Date and the earliest of the Close of Business on the Rights Distribution
Date, the Redemption Date and the Close of Business on the Final Expiration Date
(as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 20% or more of the Common Shares of the Company then outstanding but shall
not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any
employee benefit plan of the Company or of any Subsidiary of the Company, or any
entity holding Common Shares for or pursuant to the terms of any such plan, (iv)
MeriStar and its affiliates or (v) CapStar Hotel Company, a Delaware
corporation, before the Company is spun off from CapStar Hotel Company.
Notwithstanding anything in this definition of Acquiring Person to the contrary,
no Person shall become an "Acquiring Person" as the result of an acquisition of
Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
such Person to 20% or more of the Common Shares of the Company then outstanding;
provided, however, that if a Person shall become the Beneficial Owner of 20% or
more of the Common Shares of the Company then outstanding by reason of share
purchases by the Company and shall, after such share purchases by the Company,
become the Beneficial Owner of any additional Common Shares of the Company, then
such Person shall be deemed to be an "Acquiring Person." Notwithstanding
anything in this definition of Acquiring Person to the contrary, if the Board of
Directors determines in good faith that a Person who would otherwise be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of Common Shares so that such Person
would no longer be an "Acquiring Person," as
<PAGE>
2
defined pursuant to the foregoing provisions of this paragraph (a), then such
Person shall not be deemed to be an "Acquiring Person" for any purposes of this
Agreement.
(b) "Affiliate" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations (the "Rules") under the Exchange Act
as in effect on the date of this Agreement.
(c) "Associate" shall have the meaning ascribed to such term in Rule
12b-2 of the Rules.
(d) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
(i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, now or hereafter owns or has (or by
agreement with the Company is, on the date of this Agreement, entitled to
receive) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights (other than the
Rights), warrants or options, or otherwise; provided, however, that a
-------- -------
Person shall not be deemed to be the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made pursuant to and in accordance with the Rules by or on behalf of
such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange.
(ii) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote (except as
hereinafter provided) or dispose of, or of which any of them, directly or
indirectly, has "beneficial ownership" (as determined pursuant to Rule 13d-
3 of the Rules, as in effect on the Record Date) (including, except as
hereinafter provided, pursuant to any agreement, arrangement or
understanding, whether or not in writing); provided, however, that a Person
-------- -------
shall not be deemed to be the Beneficial Owner of, or to beneficially own,
any security under this subparagraph (ii) as a result of an agreement,
arrangement or understanding to vote such security if such agreement,
arrangement or understanding arises solely from a revocable proxy given in
response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the Rules, and is not also
then reportable by such Person (or by the Person with whom such Person has
made such agreement, arrangement or understanding) on Schedule 13D under
the Exchange Act (or any comparable or successor report); and who or which
on the date of this Agreement;
(iii) that are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such
Person (or any of such Person's Affiliates or Associates) has any
agreement,
<PAGE>
3
arrangement or understanding (whether or not in writing), for the purpose
of, or with respect to, acquiring, holding, voting (except as described in
the proviso to subparagraph (ii) of this paragraph (c)) or disposing of any
voting securities of the Company; or
(iv) that are, pursuant to the foregoing subparagraphs of this
paragraph (d), or otherwise (except as set forth in the proviso to
subparagraph (ii) of this paragraph (d)), deemed to be beneficially owned
by a voting trust, voting agent, recipient of a proxy that is not
immediately revocable (a "Non-Revocable Proxy") or any other Person to whom
such Person (the "Grantor Person") has contributed, conveyed, delegated,
given, granted, tendered, transferred or otherwise assigned or conferred
(collectively, "given") some or all of the voting rights attributable to
the Common Shares of which the Grantor Person (alone or in conjunction with
any other Person) is also deemed to be a Beneficial Owner. Solely for
purposes of this Agreement, the Grantor Person shall be deemed to be the
Beneficial Owner of all Common Shares that such voting trust, voting agent,
proxy holder or other Person has the right, by Non-Revocable Proxy,
agreement, assignment, tender, grant or otherwise, to exercise some or all
of the voting rights attributable thereto, whether or not the Grantor
Person shall have contributed or given voting rights that constitute all or
less (even substantially less) than all of the voting rights held by the
voting trust, voting agent, proxy holder or other Person to whom or to
which the Grantor Person has given some or all of the voting rights
attributable to Common Shares otherwise beneficially owned by the Grantor
Person;
provided, however, that nothing in this paragraph (d) shall cause a person
- -------- -------
engaged in business as an underwriter of securities to be the "Beneficial Owner"
of or to "beneficially own" any securities acquired through such person's
participation in good faith in a firm commitment underwriting until the
expiration of forty (40) days after the date of such acquisition.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding," when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder.
(e) "Board of Directors" shall have the meaning set forth in the
preamble hereof.
(f) "Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in New York are authorized or obligated
by law or executive order to close.
<PAGE>
4
(g) "Close of Business" on any given date shall mean 5:00 P.M., New
York time, on such date; provided, however, that, if such date is not a Business
Day, it shall mean 5:00 P.M., New York time, on the next succeeding Business
Day.
(h) "Common Shares" when used with reference to the Company shall mean
the shares of common stock, par value $.01 per share, of the Company. "Common
Shares" when used with reference to any Person other than the Company shall mean
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
(i) "Company" shall have the meaning set forth in the preamble hereof.
(j) "Current Per Share Market Price" shall have the meaning set forth
in Section 11(d)(i) hereof.
(k) "Equivalent Preferred Shares" shall have the meaning set forth in
Section 11(b) hereof.
(l) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(m) "Exchange Ratio" shall have the meaning set forth in Section 24(a)
hereof.
(n) "Final Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(o) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such entity.
(p) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company having
the rights and preferences set forth in the Form of Certificate of Designation
attached to this Agreement as Exhibit A.
(q) "Purchase Price" shall have the meaning set forth in Section 4
hereof.
(r) "Record Date" shall have the meaning set forth in the preamble
hereof.
(s) "Redemption Date" shall have the meaning set forth in Section
23(b) hereof.
<PAGE>
5
(t) "Redemption Price" shall have the meaning set forth in Section
23(a) hereof.
(u) "Right" shall have the meaning set forth in the preamble hereof.
(v) "Rights Agent" shall have the meaning set forth in the preamble
hereof.
(w) "Right Certificate" shall have the meaning set forth in Section
3(a) hereof.
(x) "Rights Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(y) "Security" shall have the meaning set forth in Section 11(d)(i)
hereof.
(z) "Shares Acquisition Date" shall mean the first date of public
announcement (including, without limitation, a report filed pursuant to Section
13(d) or 14(d) under the Exchange Act) by the Company or an Acquiring Person
that an Acquiring Person has become such or the public disclosure of facts by
the Company or an Acquiring Person so indicating.
(aa) "Subsidiary" of any Person shall mean any corporation or other
entity of which a majority of the voting power of the voting equity securities
or equity interest is owned, directly or indirectly, by such Person.
(bb) "Summary of Rights" shall have the meaning set forth in Section
3(b) hereof.
(cc) "Trading Day" shall have the meaning set forth in Section 11(d)
hereof.
Section 2. Appointment of Rights Agent. The Company hereby
---------------------------
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall, prior to the Rights
Distribution Date also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable, upon ten (10) days' prior written notice to
the Rights Agent. The Rights Agent shall have no duty to supervise, and in no
event be liable for, the acts or omissions of any such co-Rights Agent.
Section 3. Issue of Right Certificates. (a) Until the earlier of
---------------------------
(i) the tenth day after the Shares Acquisition Date or (ii) the tenth Business
Day (or
<PAGE>
6
such later date as may be determined by action of the Board of Directors prior
to such time as any Person becomes an Acquiring Person) after the date of the
commencement by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, any entity holding Common Shares for or pursuant to the terms of any
such plan, or, any MeriStar Affiliate) of, or of the first public announcement
of the intention of any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of the
Company, any entity holding Common Shares for or pursuant to the terms of any
such plan or, any MeriStar Affiliate) to commence, a tender or exchange offer
the consummation of which would result in any Person becoming the Beneficial
Owner of Common Shares aggregating 20% or more of the then outstanding Common
Shares (the earlier of such dates being herein referred to as the "Rights
Distribution Date"), (x) the Rights will be evidenced (subject to the provisions
of Section 3(b) hereof) by the certificates for Common Shares registered in the
names of the holders thereof (which certificates shall also be deemed to be
Right Certificates) and not by separate Right Certificates, and (y) the right to
receive Right Certificates will be transferable only in connection with the
transfer of Common Shares. As soon as practicable after the Rights Distribution
Date, the Company will prepare and execute, the Rights Agent will countersign,
and the Company will send or cause to be sent (and the Rights Agent will, if
requested, send) by first-class, postage-prepaid mail, to each record holder of
Common Shares as of the Close of Business on the Rights Distribution Date, at
the address of such holder shown on the records of the Company, a Right
Certificate, in substantially the form of Exhibit B hereto (a "Right
Certificate"), evidencing one Right for each Common Share so held. From and
after the Rights Distribution Date, the Rights will be evidenced solely by such
Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Preferred Shares, in
substantially the form of Exhibit C hereto (the "Summary of Rights"), by first-
class, postage-prepaid mail, to each record holder of Common Shares as of the
Close of Business on the Record Date, at the address of such holder shown on the
records of the Company. With respect to certificates for Common Shares
outstanding as of the Record Date, until the Rights Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with a copy of the Summary of Rights attached thereto.
Until the Rights Distribution Date (or the earlier of the Redemption Date or the
Final Expiration Date), the surrender for transfer of any certificate for Common
Shares outstanding on the Record Date, with or without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Rights Distribution Date, the Redemption Date or the Final Expiration
Date,
<PAGE>
7
shall have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between MeriStar
Hotels & Resorts, Inc. and Continental Stock Transfer & Trust Company
dated as of July 23, 1998 (the "Rights Agreement"), as amended from
time to time, the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive
offices of MeriStar Hotels & Resorts, Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. MeriStar Hotels & Resorts, Inc. will mail to the
holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights issued to
any Person who becomes an Acquiring Person (as defined in the Rights
Agreement) and certain other Rights may become null and void.
With respect to such certificates containing the foregoing legend,
until the Rights Distribution Date, the Rights associated with the Common Shares
represented by such certificates shall be evidenced by such certificates alone,
and the surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Rights Distribution Date, any Rights associated
with such Common Shares shall be deemed canceled and retired so that the Company
shall not be entitled to exercise any Rights associated with the Common Shares
which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates
--------------------------
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of his Agreement, or
as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or automated quotation system on which the Rights may from time to time
be listed, or to conform to usage. Subject to the provisions of Section 22
hereof, the Right Certificates shall entitle the holders thereof to purchase
such number of one one-hundredths of a Preferred Share as shall be set forth
therein at the price per one one-hundredth of a Preferred Share set forth
therein (the "Purchase Price"), but the number of such one one-hundredths of a
Preferred Share and the Purchase Price shall be subject to adjustment as
provided herein.
<PAGE>
8
Section 5. Countersignature and Registration. The Right Certificates
---------------------------------
shall be executed on behalf of the Company by its Chairman of the Board, its
Vice Chairman of the Board, its Chief Executive Officer, its President, any of
its Vice Presidents, or its Treasurer, either manually or by facsimile
signature, shall have affixed thereto the Company's seal or a facsimile thereof,
and shall be attested by the Secretary or an Assistant Secretary of the Company,
either manually or by facsimile signature. The Right Certificates shall be
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. Any signature on the Rights Certificate may be facsimile. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the individual who signed such Right Certificates had not ceased to be such
officer of the Company; and any Right Certificate may be signed on behalf of the
Company by any individual who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate although at the date of the execution of this Agreement any such
individual was not such an officer.
Following the Rights Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
-----------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. Subject
- ---------------------------------------------------------------------
to the provisions of Section 14 hereof, at any time after the Close of Business
on the Rights Distribution Date, and prior to the earlier of the Redemption Date
or the Close of Business on the Final Expiration Date, any Right Certificate or
Right Certificates (other than Right Certificates representing Rights that have
become void pursuant to Section 11(a)(ii) hereof or that have been exchanged
pursuant to Section 24 hereof) may be transferred, split up, combined, or
exchanged for another Right Certificate or other Right Certificates entitling
the registered holder to purchase a like number of one one-hundredths of a
Preferred Share as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the principal office of the Rights Agent. Thereupon
the Rights Agent shall countersign and deliver to the Person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
<PAGE>
9
Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Right
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
------------------------------------------------------
Right. (a) The registered holder of any Right Certificate may exercise the
- -----
Rights evidenced thereby (except as otherwise provided herein), in whole or in
part, at any time after the Rights Distribution Date, upon surrender of the
Right Certificate, with the form of election to purchase on the reverse side
thereof duly executed, to the Rights Agent at the principal office of the Rights
Agent, together with payment of the Purchase Price for each one one-hundredth of
a Preferred Share as to which the Rights are exercised, prior to the earliest of
(i) the Close of Business on the date which is the tenth anniversary of the
Record Date (the "Final Expiration Date"), (ii) the time at which the right to
exercise the Rights terminates pursuant to Section 23 hereof, or (iii) the time
at which the right to exercise the Rights terminates pursuant to Section 24
hereof.
(b) The Purchase Price for each one one-hundredth of a Preferred Share
purchasable pursuant to the exercise of a Right shall initially be $35, and
shall be subject to adjustment from time to time as provided in Section 11 or 13
hereof and shall be payable in lawful money of the United States of America in
accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof by certified check, cashier's
check or money order payable to the order of the Company, the Rights Agent shall
thereupon promptly (i)(A) requisition from any transfer agent of the Preferred
Shares certificates for the number of Preferred Shares to be purchased and the
Company hereby irrevocably authorizes any such transfer agent to comply with all
such requests, or (B) requisition from the depositary agent depositary receipts
representing such number of one one-hundredths of a Preferred Share as are to be
purchased (in which case certificates for the Preferred Shares represented by
such receipts shall be deposited by the transfer agent of the Preferred Shares
with such depositary agent) and the Company hereby directs such depositary agent
to comply with such request; (ii) when appropriate, requisition from the Company
the amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof; (iii) promptly after receipt of such
certificates or depositary receipts, cause the same to be delivered to or
<PAGE>
10
upon the order of the registered holder of such Right Certificate, registered in
such name or names as may be designated by such holder; and (iv) when
appropriate, after receipt, promptly deliver such cash to or upon the order of
the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate following the form of election to
purchase set forth on the reverse side of the Right Certificate surrendered for
such exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates.
--------------------------------------------------
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent, shall be canceled by it, and no
Right certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such canceled Right Certificates, and, in such
case, shall deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company
--------------------------------
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
<PAGE>
11
The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Right Certificates or of
any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
Section 10. Preferred Shares Record Date. Each Person in whose
----------------------------
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Shares transfer books of the Company
are closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Shares transfer books of the Company are open.
Prior to the exercise of the Rights evidenced thereby, the holder of a
Right Certificate shall not be entitled to any rights of a holder of Preferred
Shares for which the Rights shall be exercisable, including, without limitation,
the right to vote, to receive dividends or other distributions or to exercise
any preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
-------------------------------------------------
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
- ----------------
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the date
of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
combine the outstanding Preferred Shares into a smaller number of Preferred
Shares or (D) issue any shares of its capital stock in a reclassification
of the Preferred Shares (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a),
the Purchase Price in effect
<PAGE>
12
at the time of the record date for such dividend or of the effective date
of such subdivision, combination or reclassification, and the number and
kind of shares of capital stock issuable on such date, shall be
proportionately adjusted so that the holder of any Right exercised after
such time shall be entitled to receive the aggregate number and kind of
shares of capital stock which, if such Right had been exercised immediately
prior to such date and at a time when the Preferred Shares transfer books
of the Company were open, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right.
(ii) Subject to the following paragraph of this Section 11(a)(ii)
and Section 24 of this Agreement, in the event any Person becomes an
Acquiring Person and there shall have been a Rights Distribution Date, each
holder of a Right shall thereafter have a right to receive, upon exercise
thereof at a price equal to the then current Purchase Price multiplied by
the number of one one-hundredths of a Preferred Share for which a Right is
then exercisable, in accordance with the terms of this Agreement and in
lieu of Preferred Shares, such number of Common Shares of the Company as
shall equal the result obtained by (A) multiplying the then current
Purchase Price by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable and dividing that product by (B) 50% of
the then Current Per Share Market Price of the Company's Common Shares
(determined pursuant to Section 11(d)(i) hereof) on the date of the
occurrence of such event. In the event that any Person shall become an
Acquiring Person and the Rights shall then have been distributed pursuant
to Section 3 hereof, the Company shall not take any action which would
eliminate or diminish the benefits intended to be afforded by the Rights.
From and after the occurrence of such event, any Rights that are
or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void and any
holder of such Rights shall thereafter have no right to exercise such
Rights under any provision of this Agreement. No Right Certificate shall
be issued pursuant to Section 3 hereof that represents Rights beneficially
owned by an Acquiring Person whose Rights would be void pursuant to the
preceding sentence, or any Associate or Affiliate thereof; no Right
Certificate shall be issued at any time upon the transfer of any Rights to
an Acquiring Person whose Rights would be void pursuant to the preceding
sentence or any Associate or Affiliate thereof or to any nominee of such
Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person whose
Rights would be void pursuant to the preceding sentence shall be canceled.
<PAGE>
13
(iii) In the event that the number of Common Shares which are
authorized by the Company's certificate of incorporation and not
outstanding or subscribed for, or reserved or otherwise committed for
issuance for purposes other than upon exercise of the Rights, are not
sufficient to permit the holder of each Right to purchase the number of
Common Shares to which he would be entitled upon the exercise in full of
the Rights in accordance with Section 11(a)(ii), or should the Board of
Directors so elect, the Company shall: (A) determine the excess of (1) the
value of the Common Shares issuable upon the exercise of a Right
(calculated as provided in the last sentence of this subparagraph (iii))
pursuant to Section 11(a)(ii) hereof (the "Current Value") over (2) the
Purchase Price (such excess, the "Spread"), and (B) with respect to each
Right, make adequate provision to substitute for such Common Shares, upon
payment of the applicable Purchase Price, any one or more of the following
having an aggregate value determined by the Board of Directors to be equal
to the Current Value: (1) cash, (2) a reduction in the Purchase Price, (3)
Common Shares or other equity securities of the Company (including, without
limitation, shares, or units of shares, of preferred stock which the Board
of Directors of the Company has determined to have the same value as shares
of Common Stock (such shares of preferred stock, "common stock
equivalents")), (4) debt securities of the Company, or (5) other assets;
provided, however, if the Company shall not have made adequate provision to
-------- -------
deliver value pursuant to clause (B) above within thirty (30) days
following the first occurrence of an event triggering the rights to
purchase Common Shares described in Section 11(a)(ii) (the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver,
upon the surrender for exercise of a Right and without requiring payment of
the Purchase Price, shares of Common Stock (to the extent available) and
then, if necessary, cash, which shares and cash have an aggregate value
equal to the Spread. If the Board of Directors of the Company shall
determine in good faith that it is likely that sufficient additional Common
Shares could be authorized for issuance upon exercise in full of the
Rights, the thirty (30) day period set forth above may be extended to the
extent necessary, but not more than ninety (90) days after the Section
11(a)(ii) Trigger Date, in order that the Company may seek stockholder
approval for the authorization of such additional shares (such period, as
it may be extended, the "Substitution Period"). To the extent that the
Company determines that some action need be taken pursuant to the first
and/or second sentences of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(e) hereof and the last paragraph of Section
11(a)(ii) hereof, that such action shall apply uniformly to all outstanding
Rights, and (y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek any authorization of
additional shares and/or to decide the appropriate form of distribution to
be made pursuant to such first sentence and to determine the value thereof.
In the event of any such suspension, the Company shall make a public
announcement, and shall deliver to the Rights Agent a statement, stating
that the exercisability of the Rights has been temporarily suspended. At
such time as the suspension is no longer in effect,
<PAGE>
14
the Company shall make another public announcement, and deliver to the
Rights Agent a statement, so stating. For purposes of this Section
11(a)(iii), the value of the Common Shares shall be the Current Per Share
Market Price (as determined pursuant to Section 11(d)(i) hereof) of the
Common Shares on the Section 11(a)(ii) Trigger Date and the value of any
common stock equivalent shall be deemed to have the same value as the
Common Shares on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then Current Per
Share Market Price of the Preferred Shares on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of Preferred Shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of additional
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent and holders of the Rights.
Preferred Shares owned by or held for the account of the Company shall not be
deemed outstanding for the purpose of any such computation. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such rights, options or warrants are not so issued, the Purchase
Price shall be adjusted to be the Purchase Price which would then be in effect
if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or
<PAGE>
15
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the then Current Per
Share Market Price of the Preferred Shares on such record date, less the fair
market value (as determined in good faith by the Board of Directors, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and holders of the Rights) of the portion
of the assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one Preferred Share and the
denominator of which shall be such Current Per Share Market Price of the
Preferred Shares; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"Current Per Share Market Price" of any security (a "Security" for the
purpose of this Section 11(d)(i)) on any date shall be deemed to be the
average of the daily closing prices per share of such Security for the 30
consecutive Trading Days immediately prior to such date; provided, however,
that in the event that the Current Per Share Market Price of the Security
is determined during a period following the announcement by the issuer of
such Security of (A) a dividend or distribution on such Security payable in
shares of such Security or securities convertible into such shares, or (B)
any subdivision, combination or reclassification of such Security and prior
to the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Current
Per Share Market Price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The closing
price for each day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case, as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the Security
is not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security
is not listed or admitted to trading on any national securities exchange,
the last quoted price or, if not so quoted, the average of the high bid and
low asked prices in the over-the-counter market, as reported on the NASDAQ
National Market or such other system then in use, or, if on any such date
the Security is not quoted by any such organization, the average of the
closing bid and
<PAGE>
16
asked prices as furnished by a professional market maker making a market in
the Security selected by the Board of Directors. The term "Trading Day"
shall mean a day on which the principal national securities exchange on
which the Security is listed or admitted to trading is open for the
transaction of business or, if the Security is not listed or admitted to
trading on any national Securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the "Current
Per Share Market Price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "Current Per Share Market Price" of the
Preferred Shares shall be conclusively deemed to be the Current Per Share
Market Price of the Common Shares as determined pursuant to Section
11(d)(i) (appropriately adjusted to reflect any stock split, stock dividend
or similar transaction occurring after the date hereof), multiplied by one
hundred. If neither the Common Shares nor the Preferred Shares are
publicly held or so listed or traded, "Current Per Share Market Price"
shall mean the fair value per share as determined in good faith by the
Board of Directors, whose determination shall be described in a statement
filed with the Rights Agent and shall be binding on the Rights Agent and
the holders of the Rights.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred
<PAGE>
17
Share purchasable from time to time hereunder upon exercise of the Rights, all
subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11 (b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
Preferred Share (calculated to the nearest one one-millionth of a Preferred
Share) obtained by (A) multiplying (x) the number of one one-hundredths of a
share covered by a Right immediately prior to this adjustment by (y) the
Purchase Price in effect immediately prior to such adjustment of the Purchase
Price and (B) dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price.
The Company shall make a public announcement of its election to adjust the
number of Rights, indicating the record date for the adjustment, and, if known
at the time, the amount of the adjustment to be made. This record date may be
the date on which the Purchase Price is adjusted or any day thereafter, but, if
the Right Certificates have been issued, shall be at least 10 days later than
the date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates to be so distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the exercise
<PAGE>
18
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
nonassessable Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it, in its sole discretion, shall determine to be advisable in
order that any combination or subdivision of the Preferred Shares; issuance
wholly for cash of any Preferred Shares at less than the current market price;
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares; dividends on
Preferred Shares payable in Preferred Shares; or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.
(n) In the event that at any time after the date of this Agreement and
prior to the Rights Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares, or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common Shares
outstanding immediately before such event and the denominator of which is the
number of
<PAGE>
19
Common Shares outstanding immediately after such event, and (B) each Common
Share outstanding immediately after such event shall have issued with respect to
it that number of Rights which each Common Share outstanding immediately prior
to such event had issued with respect to it. The adjustments provided for in
this Section 11(n) shall be made successively whenever such a dividend is
declared or paid or such a subdivision, combination or consolidation is
effected.
Section 12. Certificate of Adjusted Purchase Price or Number of
---------------------------------------------------
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof
- ------
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power. In the event, directly or indirectly, at any time after a Person
- -------------
has become an Acquiring Person and there shall have been a Rights Distribution
Date, (a) the Company shall consolidate with, or merge with and into, any other
Person, (b) any Person shall consolidate with the Company, or merge with and
into the Company and the Company shall be the continuing or surviving
corporation of such merger and, in connection with such merger, all or part of
the Common Shares shall be changed into or exchanged for stock or other
securities of any other Person (or the Company) or cash or any other property,
or (c) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or more transactions,
assets or earning power aggregating 50% or more of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any other Person other
than the Company or one or more of its wholly owned Subsidiaries (except, in the
case of each of (a), (b) and (c) above, where such other Person is a MeriStar
Affiliate other than the Acquiring Person), then, and in each such case, proper
provision shall be made so that (i) each holder of a Right (except as otherwise
provided herein) shall thereafter have the right to receive, upon the exercise
thereof at a price equal to the then current Purchase Price multiplied by the
number of one one-hundredths of a Preferred Share for which a Right is then
exercisable, in accordance with the terms of this Agreement and in lieu of
Preferred Shares, such number of Common Shares of such other Person (including
the Company as successor thereto or as the surviving corporation) as shall equal
the result obtained by (A) multiplying the then current Purchase Price by the
number of one one-hundredths of a Preferred Share for which a Right is then
exercisable and dividing that product by (B) 50% of the then Current Per Share
Market Price of the Common Shares of such other Person (determined pursuant to
Section 11(d) hereof) on the date of consummation of such consolidation, merger,
sale or transfer; (ii) the issuer of such Common Shares shall thereafter be
liable for, and shall assume, by virtue of such consolidation, merger, sale or
transfer, all the obligations and duties of the Company pursuant to this
Agreement; (iii) the term "Company" shall thereafter be deemed to refer to such
issuer; and (iv) such issuer shall take such steps (including, but not limited
to, the
<PAGE>
20
reservation of a sufficient number of its Common Shares in accordance with
Section 9 hereof) in connection with such consummation as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the Common Shares thereafter deliverable upon
the exercise of the Rights. The Company covenants and agrees that it shall not
consummate any such consolidation, merger, sale or transfer unless prior thereto
the Company and such issuer shall have executed and delivered to the Rights
Agent a supplemental agreement so providing. The Company shall not enter into
any transaction of the kind referred to in this Section 13 if at the time of
such transaction there are any rights, warrants, instruments or securities
outstanding or any agreements or arrangements which, as a result of the
consummation of such transaction, would eliminate or substantially diminish the
benefits intended to be afforded by the Rights. The provisions of this Section
13 shall similarly apply to successive mergers or consolidations or sales or
other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The
---------------------------------------
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the Current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case, as reported in
the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or, if
the Rights are not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported on the NASDAQ National Market
or such other system then in use or, if on any such date the Rights are not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Rights
selected by the Board of Directors. If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board of Directors shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred
<PAGE>
21
Shares in integral multiples of one one-hundredth of a Preferred Share may, at
the election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it;
provided that such agreement shall provide that the holders of such depositary
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Shares represented by such
depositary receipts. In lieu of fractional Preferred Shares that are not
integral multiples of one one-hundredth of a Preferred Share, the Company shall
pay to the registered holders of Right Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one one-hundredth of a Preferred Share as the fraction
of one one-hundredth of a Preferred Share that such holder would otherwise
receive upon the exercise of the aggregate number of Rights exercised by such
holder. For the purposes of this Section 14(b), the current market value of a
Preferred Share shall be the closing price of a Preferred Share (as determined
pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect of
----------------
this agreement, excepting the rights of action given to the Rights Agent under
section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Rights Distribution Date, the registered holders
of the Common Shares), and any registered holder of any Right Certificate (or,
prior to the Rights Distribution Date, of the Common Shares),without the consent
of the Rights Agent or of the holder of any other Right Certificate (or, prior
to the Rights Distribution Date, of the Common Shares),may, in his own behalf
and for his own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Company to enforce, or otherwise act in respect
of his right to exercise the Rights evidenced by such Right Certificate in the
manner provided in such Right Certificate and in this agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will be entitled to specific
performance of the obligations under, and injunctive relief against actual or
threatened violations of the obligations of any Person subject to, this
Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right,
--------------------------
by accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Rights Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
<PAGE>
22
(b) after the Rights Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer with a completed form of certification; and
(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Rights Distribution Date, the
associated Common Shares Certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
-------------------------------------------------
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to pay
---------------------------
to the Rights Agent reasonable compensation for all services tendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in connection therewith. The Rights
Agent shall be protected and shall incur no liability for, or in respect of any
action taken, suffered or omitted by it in connection with its administration of
this Agreement in reliance upon any Right Certificate or certificate for the
Preferred Shares or Common Shares or for other securities of the Company,
instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or
document believed by it to be genuine and to be signed, executed and,
<PAGE>
23
where necessary, verified or acknowledged, by the proper person or persons, or
otherwise upon the advice of counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights
---------------------------------------------------
Agent. Any corporation into which the Rights Agent or any successor Rights
- -----
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust powers of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, and such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and, in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent, and in all such cases such
Right Certificates shall have the full force provided in the Right Certificates
and in this Agreement. In case at any time the name of the Rights Agent shall
be changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name, and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes
----------------------
the duties and obligations imposed by this Agreement upon the following terms
and conditions, by all of which the Company and the holders of Right
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Vice Chairman of the Board, the Chief Executive Officer, the President, any Vice
<PAGE>
24
President, the Treasurer or the Secretary of the Company and delivered to the
Rights Agent and such certificate shall be full authorization to the Rights
Agent for any action taken or suffered in good faith by it under the provisions
of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate, nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights (including the manner, method or amount thereof)
provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Right Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer, the President, any Vice President, the Secretary or the
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions.
<PAGE>
25
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
----------------------
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the holders of the Right Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon 30 days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Common Shares or
Preferred Shares by registered or certified mail, and to the holders of the
Right Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall appoint
a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
appointment of a successor Rights Agent by such a court shall be subject to the
prior approval of the Company, which approval shall not be unreasonably
withheld. After appointment, the successor Rights Agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been
originally named, as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares or Preferred Shares, and mail a notice thereof in writing to
the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity
<PAGE>
26
of the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding
----------------------------------
any of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by the Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
Section 23. Redemption. (a) The Board of Directors may, at its
----------
option, at any time prior to the tenth day after the Shares Acquisition Date,
redeem all but not less than all the then outstanding Rights at a redemption
price of $.01 per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the "Redemption Price"). The
redemption of the Rights by the Board of Directors may be made effective at such
time, on such basis and with such conditions as the Board of Directors, in its
sole discretion, may establish.
(b) Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23 (the date
of such action, the "Redemption Date"), and without any further action and
without any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the Redemption
Price. The Company shall promptly give public notice of any such redemption;
provided, however, that the failure to give, or any defect in, any such notice
shall not affect the validity of such redemption. Within 10 days after such
action of the Board of Directors ordering the redemption of the Rights, the
Company shall mail a notice of redemption to all the holders of the then
outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Rights Distribution Date, on the
registry books of the transfer agent for the Common Shares. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made. Neither the
Company nor any of its Affiliates or Associates may redeem, acquire or purchase
for value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in connection
with the purchase of Common Shares prior to the Rights Distribution Date.
Section 24. Exchange. (a) The Board of Directors may, at its
--------
option, at any time after any Person becomes an Acquiring Person and there shall
have been a Rights Distribution Date, exchange all or part of the then
outstanding and exercisable Rights (which shall not include Rights that have
become void pursuant to the provisions of Section 11(a)(ii) hereof) for Common
Shares at an exchange ratio of one Common Share per Right, appropriately
adjusted to reflect any stock split, stock
<PAGE>
27
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding
the foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or of any Subsidiary of
the Company or any entity holding Common Shares for or pursuant to the terms of
any such plan or, any MeriStar Affiliate), together with all Affiliates and
Associates of such Person, becomes the Beneficial Owner of 50% or more of the
Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors ordering the
exchange of any Rights pursuant to paragraph (a) of this Section 24 and without
any further action and without any notice, the right to exercise such Rights
shall terminate and the only right thereafter of a holder of such Rights shall
be to receive that number of Common Shares equal to the number of such Rights
held by such holder multiplied by the Exchange Ratio. The Company shall
promptly give public notice of any such exchange; provided, however, that the
failure to give, or any defect in, such notice shall not affect the validity of
such exchange. The Company promptly shall mail a notice of any such exchange to
all of the holders of such Rights at their last addresses as they appear upon
the registry books of the Rights Agent. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives
the notice. Each such notice of exchange will state the method by which the
exchange of the Common Shares for Rights will be effected and, in the event of
any partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common Shares
issued but not outstanding or authorized but unissued to permit any exchange of
Rights as contemplated in accordance with this Section 24, the Company shall
take all such action as may be necessary to authorize additional Common Shares
for issuance upon exchange of the Rights. In the event the Company shall, after
good faith effort, be unable to take all such action as may be necessary to
authorize such additional Common Shares, the Company shall substitute, for each
Common Share that would otherwise be issuable upon exchange of a Right, a number
of Preferred Shares or fraction thereof such that the Current Per Share Market
Price of one Preferred Share multiplied by such number or fraction is equal to
the Current Per Share Market Price of one Common Share as of the date of
issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares.
In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same
<PAGE>
28
fraction of the current market value of a whole Common Share. For the purposes
of this paragraph (d), the current market value of a whole Common Share shall be
the closing price of a Common Share (as determined pursuant to the second
sentence of Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of exchange pursuant to this Section 24.
Section 25. Notice of Events. (a) In case the Company shall
----------------
propose (i) to pay any dividend payable in stock of any class to the holders of
its Preferred Shares or to make any other distribution to the holders of its
Preferred Shares(other than a regular quarterly cash dividend), (ii) to offer to
the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred shares, if any such
date is to be fixed, and such notice shall be so given in the case of any action
covered by clause (i) or (ii) above at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action, and
in the case of any such other action, at least 10 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of the Common Shares and/or Preferred shares, whichever shall be the
earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof shall
occur, then the Company shall as soon as practicable thereafter give to each
holder of a Right Certificate, in accordance with Section 26 hereof, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices. Notices or demands authorized by this
-------
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
<PAGE>
29
MeriStar Hotels & Resorts, Inc.
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
it sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
Continental Stock Transfer & Trust Company
2 Broadway, 19th Floor
New York, N.Y. 10004
Attention: Compliance Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Rights Agent.
Section 27. Supplements and Amendments. The Company may from time
--------------------------
to time supplement or amend this Agreement without the approval of any holders
of Right Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
other provisions herein, or to make any change to or delete any provision
hereof, or to adopt any other provisions with respect to the Rights which the
Company may deem necessary or desirable, any such supplement or amendment to be
evidenced by a writing signed by the Company and the Rights Agent; provided,
however, that from and after the tenth day after the Shares Acquisition Date,
this Agreement shall not be amended in any manner which would adversely affect
the interests of the holders of Rights.
Section 28. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Benefits of this Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Rights Distribution Date, the Common Shares) any legal or equitable right,
remedy or claim under this Agreement, but this Agreement shall be for the sole
and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Rights Distribution Date,
the Common Shares).
<PAGE>
30
Section 30. Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right
-------------
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
--------------------
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
Section 34. Administration. The Board of Directors of the Company
--------------
shall have the exclusive power and authority to administer and interpret the
provisions of this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors or the Company or as may be necessary or
advisable in the administration of this Agreement. All such actions,
calculations, determinations and interpretations which are done or made by the
Board of Directors in good faith shall be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights and all other parties and
shall not subject the Board of Directors to any liability to the holders of the
Rights.
<PAGE>
31
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the day and year first above written.
MERISTAR HOTELS & RESORTS, INC.
By:
------------------------------------
Name:
Title:
Attest:
By:
----------------------------------
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:
------------------------------------
Name:
Title:
Attest:
By:
----------------------------------
<PAGE>
Exhibit A
FORM
of
CERTIFICATE OF DESIGNATION
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
MERISTAR HOTELS & RESORTS, INC.
(Pursuant to Section 151 of the Delaware General Corporation Law)
MeriStar Hotels & Resorts, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (hereinafter called
the "Corporation"), hereby certifies that the following resolution was adopted
by unanimous written consent of the Board of Directors of the Corporation as of
July 21, 1998:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Restated
Certificate of Incorporation, the Board of Directors hereby creates a series of
Preferred Stock, par value $.01 per share, of the Corporation (the "Preferred
Stock") and hereby states the designation and number of shares, and fixes the
relative rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall be
----------------------
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 500,000. Such number of shares may be increased or decreased
by resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
A-1
<PAGE>
Section 2. Dividends and Distributions.
---------------------------
(a) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to the
Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock, par
value $.01 per share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (i) $1 or (ii) subject to the provision for adjustment hereinafter set forth,
100 times the aggregate per share amount of all cash dividends, and 100 times
the aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under clause (ii) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(b) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (a) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
A-2
<PAGE>
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series A Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
-------------
Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to 100
votes on all matters submitted to a vote of the stockholders of the Corporation.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the number of votes per share to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any other Certificate of
Designation creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series A Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Corporation having general
voting rights shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(c) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
A-3
<PAGE>
Section 4. Certain Restrictions.
--------------------
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking on a
parity with the Series A Preferred Stock, except in accordance with a
purchase offer made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective series
and classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (a) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
-----------------
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation and the filing of a proper certificate with
the Secretary of State
A-4
<PAGE>
of the State of Delaware become authorized but unissued shares of Preferred
Stock subject to the conditions and restrictions on issuance set forth herein,
in the Certificate of Incorporation, or in any other Certificate of Designations
creating a series of Preferred Stock or any similar stock or as otherwise
required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
--------------------------------------
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any time
declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the provision in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
---------------------------
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with
A-5
<PAGE>
respect to the exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
-------------
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
----
to the payment of dividends and the distribution of assets, and upon
liquidation, dissolution and winding up, junior to all series of any other class
of the Corporation's Preferred Stock.
Section 10. Amendment. The Certificate of Incorporation of the
---------
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the Holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its _______________________ and attested by
its_________________ this ____ day of _________________, 1998.
MERISTAR HOTELS & RESORTS, INC.
By:
---------------------------
Name:
Title:
Attest:
By:
---------------------------
A-6
<PAGE>
Exhibit B
Form of Right Certificate
Certificate No. MSR-
_________________ Rights
NOT EXERCISABLE AFTER _____ __, 2008 OR
EARLIER IF REDEMPTION OR EXCHANGE OCCURS.
THE RIGHTS ARE SUBJECT TO REDEMPTION
AT $.01 PER RIGHT AND TO EXCHANGE
ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT
UNDER CERTAIN CIRCUMSTANCES, RIGHTS THAT ARE OR WERE
ACQUIRED OR BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR
ANY ASSOCIATES OR AFFILIATES THEREOF (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDERS
OF SUCH RIGHTS MAY BECOME NULL AND VOID.
Right Certificate
MERISTAR HOTELS & RESORTS, INC.
This certifies that ______________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entities
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of _____ __, 1998 (the "Rights Agreement"), between MeriStar
Hotels & Resorts, Inc., a Delaware corporation (the "Company"), and Continental
Stock Transfer & Trust Company (the "Rights Agent"), to purchase from the
Company at any time after the Rights Distribution Date (as such term is defined
in the Rights Agreement) and prior to 5:00 P.M., New York time, on _____ __,
2008 at the principal office of the Rights Agent, or at the office of its
successor as Rights Agent, one one-hundredth of a fully paid non-assessable
share of Series A Junior Participating Preferred Stock, par value $.01 per
share, of the Company (the "Preferred Shares"), at a purchase price of $__ per
one one-hundredth of a Preferred Share (the "Purchase Price"), upon presentation
and surrender of this Right Certificate with the Form of Election to Purchase
duly executed. The number of Rights evidenced by this Right Certificate (and
the number of one one-hundredths of a Preferred Share which may be purchased
upon exercise hereof) set forth above, and the Purchase Price set forth above,
are the number and Purchase Price as of _____ __, 1998, based on the Preferred
Shares as constituted at such date. As provided in the Rights Agreement, the
Purchase Price and the number of one one-hundredths of a Preferred Share which
may be purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events. This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights
B-1
<PAGE>
Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the offices of the Rights Agent.
From and after the occurrence of an event described in Section 11(a)(ii)
of the Rights Agreement, if the Rights evidenced by this Right Certificate are
or were at any time acquired or beneficially owned by an Acquiring Person or an
Associate or Affiliate of an Acquiring Person (as such terms are defined in the
Rights Agreement), such Rights shall become void, and any holder of such Rights
shall thereafter have no right to exercise such Rights.
This Right Certificate, with or without other Right Certificates, upon
surrender at the principal office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Right Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for
Preferred Shares or shares of the Company's Common Stock, par value $.01 per
share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but, in lieu thereof, a
cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of the Preferred Shares or of
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of meetings or
other actions affecting stockholders (except as provided in the Rights
Agreement), or to receive dividends or subscription rights, or otherwise, until
the Right or Rights evidenced by this Right Certificate shall have been
exercised as provided in the Rights Agreement.
B-2
<PAGE>
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
B-3
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Date as of ___________________.
MERISTAR HOTELS & RESORTS, INC.
By:
----------------------------------
Name:
Title:
Attest:
By:
----------------------------------
Countersigned: CONTINENTAL STOCK TRANSFER & TRUST COMPANY
By:
----------------------------------
Name:
Title:
Attest:
By:
----------------------------------
B-4
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if
such holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED __________________ hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ___________________, Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: ____________________________
Signature
___________________________________
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States or by another eligible guarantor institution, as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934.
The undersigned hereby certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).
Signature
___________________________________
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: MERISTAR HOTELS & RESORTS, INC.
The undersigned hereby irrevocably elects to exercise ______________ Rights
represented by this Right Certificate to purchase the Preferred Shares issuable
upon the exercise of such Rights and requests that certificates for such
Preferred Shares be issued in the name of:
Please insert social security or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other identifying number
(Please print name and address)
Dated: ________________________
Signature
___________________________________
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States or by another eligible guarantor institution, as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934. The undersigned hereby
certifies that the Rights evidenced by this Right Certificate are not
beneficially owned by an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement).
Signature
___________________________________
<PAGE>
NOTICE
The signature in the Form of Assignment or Form of Election to Purchase,
as the case may be, must conform to the name as written upon the face of this
Right Certificate in every particular, without alteration or enlargement or any
change whatsoever.
In the event the certification set forth above in the Form of Assignment
or the Form of Election to Purchase, as the case may be, is not completed, the
Company and the Rights Agent will deem the beneficial owner of the Rights
evidenced by this Right Certificate to be an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement) and such Assignment or
Election to Purchase will not be honored.
<PAGE>
Exhibit C
FORM OF SUMMARY OF RIGHTS
TO PURCHASE PREFERRED SHARES
On July 21, 1998, the Board of Directors of MeriStar Hotels &
Resorts, Inc. (the "Company") declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock, par value
$.01 per share, of the Company (the "Common Shares"). The dividend is payable on
August 1, 1998 (the "Record Date") to the stockholders of record on that date.
Each Right entitles the registered holder to purchase from the Company one one-
hundredth of a share of Series A Junior Participating Preferred Stock, par value
$.01 per share, of the Company (the "Preferred Shares") at a price of $35 per
one one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and Continental Stock
Transfer & Trust Company, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired beneficial ownership of 20% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors of the Company prior to such time
as any person or group of affiliated persons becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding Common Shares
(the earlier of such dates being the "Rights Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate with a copy
of this Summary of Rights attached thereto.
The Rights Agreement contains exceptions from its operating provision
for the Company and its affiliates and associates. The Rights Agreement
provides that, until the Rights Distribution Date (or earlier redemption or
expiration of the Rights), the Rights will be transferred with and only with the
Common Shares. Until the Rights Distribution Date (or earlier redemption or
expiration of the Rights), new Common Share certificates issued after the Record
Date upon transfer or new issuance of Common Shares will contain a notation
incorporating the Rights Agreement by reference. Until the Rights Distribution
Date (or earlier redemption or expiration of the Rights), the surrender for
transfer of any certificates for Common Shares outstanding as of the Record
Date, even without such notation or a copy of this Summary of Rights being
attached thereto, will also constitute the transfer of the Rights associated
with the Common Shares represented by such certificates. As soon as practicable
following the Rights Distribution Date, separate certificates evidencing
C-1
<PAGE>
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the Close of Business on the Rights Distribution Date and
such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Rights Distribution Date.
The Rights will expire on the date which is the tenth anniversary of the Record
Date (the "Final Expiration Date"), unless the Final Expiration Date is extended
or unless the Rights are earlier redeemed or exchanged by the Company, in each
case, as described below.
The Purchase Price payable, and the number of Preferred Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares; (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares; or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Rights Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each
Preferred Share will have 100 votes, voting together with the Common Shares.
Finally, in the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
100 times the amount received per Common Share. These rights are protected by
customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
C-2
<PAGE>
From and after the occurrence of an event described in Section
11(a)(ii) of the Rights Agreement, if the Rights evidenced by this Right
Certificate are or were at any time acquired or beneficially owned by an
Acquiring Person or an Associate or Affiliate of an Acquiring person (as such
terms are defined in the Rights Agreement), such Rights shall become void, and
any holder of such Rights shall thereafter have no right to exercise such
Rights.
In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold at any time after a person or group has become an
Acquiring Person and there shall have been a Rights Distribution Date, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right. In the event that any person or group of
affiliated or associated persons becomes an Acquiring Person and there shall
have been a Rights Distribution Date, proper provision shall be made so that
each holder of a Right, other than Rights beneficially owned by the Acquiring
Person and its Affiliates and Associates (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right.
If the Company does not have sufficient Common Shares to satisfy such
obligation to issue Common Shares, or if the Board of Directors so elects, the
Company shall deliver upon payment of the exercise price of a Right an amount of
cash or securities equivalent in value to the Common Shares issuable upon
exercise of a Right; provided that, if the Company fails to meet such obligation
within 30 days following the first occurrence of an event triggering the right
to purchase Common Shares, the Company must deliver, upon exercise of a Right
but without requiring payment of the exercise price then in effect, Common
Shares (to the extent available) and cash equal in value to the difference
between the value of the Common Shares otherwise issuable upon the exercise of a
Right and the exercise price then in effect. The Board of Directors may extend
the 30-day period described above for up to an additional 60 days to permit the
taking of action that may be necessary to authorize sufficient additional Common
Shares to permit the issuance of Common Shares upon the exercise in full of the
Rights.
At any time after any person or group becomes an Acquiring Person and
there shall have been a Rights Distribution Date and prior to the acquisition by
such person or group of 50% or more of the outstanding Common Shares, the Board
of Directors of the Company may exchange the Rights (other than Rights owned by
such person or group which will have become void), in whole or in part, at an
exchange ratio of one Common Share, or one one-hundredth of a Preferred Share,
per Right (subject to adjustment).
C-3
<PAGE>
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.
No fractional Preferred Shares will be issued (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share, which
may, at the election of the Company, be evidenced by depositary receipts) and,
in lieu thereof, an adjustment in cash will be made based on the market price of
the Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the tenth day after the first date of public
announcement (including, without limitation, a report filed pursuant to Section
13(d) or 14(d) and the Securities Exchange Act of 1934, as amended) by the
Company or an Acquiring Person that an Acquiring Person has become such or the
public disclosure of facts by the Company or an Acquiring Person so indicating,
the Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"). The redemption of
the Rights may be made effective at such time on such basis with such conditions
as the Board of Directors in its sole discretion may establish. Immediately
upon any redemption of the Rights, the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights, except that from
and after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitations the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form S-1
(Registration No. 333-49881). A copy of the Rights Agreement is available free
of charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is hereby incorporated herein by reference.
C-4
<PAGE>
Exhibit 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, made as of July ___, 1998 by and
between MERISTAR HOTELS & RESORTS, INC., a Delaware corporation (the "Company"),
MERISTAR H & R OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (the
"Partnership"), and DAVID E. MCCASLIN (the "Executive"), an individual residing
at 5814 Cheshire Drive, Bethesda, Maryland 22182.
The Company and the Partnership desire to employ the Executive in the
capacity of President, and the Executive desires to be so employed, on the terms
and subject to the conditions set forth in this agreement (the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth
herein and other good and valuable consideration the parties hereto hereby agree
as follows:
1. Employment; Term. The Company and the Partnership each hereby
----------------
employ the Executive, and the Executive agrees to be employed by the Company and
the Partnership, upon the terms and subject to the conditions set forth herein,
for an initial term of three (3) years, commencing on the Spin Off Record Date
(the "Commencement Date") as such term is defined in the Company's Registration
Statement on Form S-1 (Registration Number 333-49881) (the "Registration
Statement"), unless terminated earlier in accordance with Section 5 of this
Agreement; provided that such term shall automatically be extended from time to
-------- ----
time for additional periods of one calendar year from the date on which it would
otherwise expire unless the Executive, on one hand, or the Company and the
Partnership, on the other, gives notice to the other party or parties not less
than 120 days prior to such date that it elects to permit the term of this
Agreement to expire without extension on such date. (The initial term of this
Agreement as the same may be extended in accordance with the terms of this
Agreement is hereinafter referred to as the "Term").
2. Position; Conduct.
-----------------
(a) During the Term, the Executive will hold the title and office of,
and serve in the position of, President of the Company and the Partnership. The
Executive shall undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons situated in a similar
executive capacity, and shall perform such other specific duties and services
(including service as an officer, director or equivalent position of any direct
or indirect subsidiary without additional compensation) as they shall reasonably
request consistent with the Executive's position.
(b) During the Term, the Executive agrees to devote his full business
time and attention to the business and affairs of the Company and the
Partnership and to faithfully and diligently perform, to the best of his
ability, all of his duties and responsibilities
<PAGE>
hereunder; provided, that the Executive may devote his business time to
--------
providing services to MeriStar Hospitality Corporation, and may provide services
as described in Schedule A attached hereto, so long as such activity does not
----------
interfere with the performance of the Executive's duties hereunder. Nothing in
this Agreement shall preclude the Executive from devoting reasonable time and
attention to (i) serving, with the approval of the Board, as a director, trustee
or member of any committee of any organization, (ii) engaging in charitable and
community activities and (iii) managing his personal investments and affairs;
provided that such activities do not involve any material conflict of interest
- -------- ----
with the interests of the Company or, individually or collectively, interfere
materially with the performance by the Executive of his duties and
responsibilities under this Agreement. Notwithstanding the foregoing and except
as expressly provided herein, during the Term, the Executive may not accept
employment with any other individual or entity, or engage in any other venture
which is directly or indirectly in conflict or competition with the business of
the Company or the Partnership.
(c) The Executive's office and place of rendering his services under
this Agreement shall be in the principal executive offices of the Company which
shall be in the Washington, D.C. metropolitan area. Under no circumstances
shall the Executive be required to relocate from the Washington, D.C.
metropolitan area or provide services under this Agreement in any other location
other than in connection with reasonable and customary business travel. During
the Term, the Company shall provide the Executive with executive office space,
and administrative and secretarial assistance and other support services
consistent with his position as President and with his duties and
responsibilities hereunder.
3. Board of Directors. While it is understood that the right to
------------------
elect directors of the Company is by law vested in the stockholders and
directors of the Company, it is nevertheless mutually contemplated that, subject
to such rights, during the Term the Executive will serve as a member of the
Company's Board of Directors.
4. Salary; Additional Compensation; Perquisites and Benefits.
---------------------------------------------------------
(a) During the Term, the Company and the Partnership will pay the
Executive a base salary at an aggregate annual rate of not less than $300,000
per annum, subject to annual review by the Compensation Committee of the Board
(the "Compensation Committee"), and in the discretion of such Committee,
increased from time to time. Once increased, such base salary may not be
decreased. Such salary shall be paid in periodic installments in accordance
with the Company's standard practice, but not less frequently than semi-monthly.
(b) For each fiscal year during the Term, the Executive will be
eligible to receive a bonus from the Company. The award and amount of such
bonus shall be based upon the achievement of predefined operating or performance
goals and other criteria established by the Compensation Committee, which goals
shall give the Executive the opportunity to earn a
2
<PAGE>
bonus in the following amounts: threshold target - 25% of base salary; target -
100% of base salary; and maximum bonus amount - 125% of base salary.
(c) During the Term, the Executive will participate in all plans now
existing or hereafter adopted by the Company or the Partnership for their
management employees or the general benefit of their employees, such as any
pension, profit-sharing, bonuses, stock option or other incentive compensation
plans, life and health insurance plans, or other insurance plans and benefits on
the same basis and subject to the same qualifications as other senior executive
officers.
(d) (1) The Executive shall be eligible for stock option grants from
time to time pursuant to the Company's Incentive Plan in accordance with the
terms thereof.
(2) In connection with the spin-off of the Company from CapStar Hotel
Company, the Executive received options to purchase 137,500 shares of common
stock of the Company (the "Pre-Spinoff Awards"). The Pre-Spinoff Awards will
become fully vested if the Executive's employment is terminated voluntarily or
involuntarily within twenty-four (24) months of the Spin-Off Date.
(3) The Compensation Committee has granted to the Executive,
effective on the Commencement Date, options to purchase 87,500 shares of the
common stock of the Company at an exercise price equal to the fair market value
at the time of grant. Subject to the terms of this Agreement as to the
acceleration of vesting of stock options, such options shall vest as follows:
First Anniversary of the Commencement Date 33-1/3%
vested Second Anniversary of the
Commencement Date 66-2/3%
vested Third Anniversary of the
Commencement Date 100% vested
Such options shall be exercisable, subject to vesting and continued service, for
ten (10) years from the date of grant and in all other respects shall be subject
to the terms and conditions of the Incentive Plan.
(e) The Company and the Partnership will reimburse the Executive, in
accordance with their standard policies from time to time in effect, for all
out-of-pocket business expenses as may be incurred by the Executive in the
performance of his duties under this Agreement.
3
<PAGE>
(f) The Executive shall be entitled to vacation time to be credited
and taken in accordance with the Company's policy from time to time in effect
for senior executives, which in any event shall not be less than a total of four
weeks per calendar year.
(g) The Executive shall be granted a car allowance of up to $700 per
month for the lease of an automobile to be leased by the Company for the use of
the Executive.
(h) To the fullest extent permitted by applicable law, the Executive
shall be indemnified and held harmless by the Company and the Partnership
against any and all judgments, penalties, fines, amounts paid in settlement, and
other reasonable expenses (including, without limitation, reasonable attorneys'
fees and disbursements) actually incurred by the Executive in connection with
any threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative, investigative or other) for any action or omission in
his capacity as a director, officer or employee of the Company or the
Partnership.
Indemnification under this Section 4(h) shall be in addition to, and
not in substitution of, any other indemnification by the Company or the
Partnership of its officers and directors. Expenses incurred by the Executive
in defending an action, suit or proceeding for which he claims the right to be
indemnified pursuant to this Section 4(h) shall be paid by the Company or the
Partnership, as the case may be, in advance of the final disposition of such
action suit or proceeding upon the Company's or the Partnership's receipt of (x)
a written affirmation by the Executive of his good faith belief that the
standard of conduct necessary for his indemnification hereunder and under the
provisions of applicable law has been met and (y) a written undertaking by or on
behalf of the Executive to repay the amount advanced if it shall ultimately be
determined by a court that the Executive engaged in conduct which precludes
indemnification under the provisions of such applicable law. Such written
undertaking in clause (y) shall be accepted by the Company or the Partnership,
as the case may be, without security therefor and without reference to the
financial ability of the Executive to make repayment thereunder. The Company
and the Partnership shall use commercially reasonable efforts to maintain in
effect for the Term of this Agreement a directors' and officers' liability
insurance policy, with a policy limit of at least $5,000,000, subject to
customary exclusions, with respect to claims made against officers and directors
of the Company or the Partnership; provided, however, the Company or the
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Partnership, as the case may be, shall be relieved of this obligation to
maintain directors' and officers' liability insurance if, in the good faith
judgment of the Company or the Partnership, it cannot be obtained at a
reasonable cost.
5. Termination.
-----------
(a) The Term will terminate immediately upon the Executive's death or,
upon thirty (30) days' prior written notice by the Company, in the case of a
determination of the Executive's Disability. As used herein the term
"Disability" means the Executive's inability to perform his duties and
responsibilities under this Agreement for a period of more than 120 consecutive
days, or for more than 180 days, whether or not continuous, during any
4
<PAGE>
365-day period, due to physical or mental incapacity or impairment. A
determination of Disability will be made by a physician reasonably satisfactory
to both the Executive and the Company and paid for by the Company or the
Partnership whose decision shall be final and binding on the Executive and the
Company; provided that if they cannot agree as to a physician, then each shall
-------- ----
select and pay for a physician and these two together shall select a third
physician whose fee shall be borne equally by the Executive and either the
Company or the Partnership and whose determination of Disability shall be
binding on the Executive and the Company. Should the Executive become
incapacitated, his employment shall continue and all base and other compensation
due the Executive hereunder shall continue to be paid through the date upon
which the Executive's employment is terminated for Disability in accordance with
this section.
(b) The Term may be terminated by the Company upon notice to the
Executive upon the occurrence of any event constituting "Cause" as defined
herein.
(c) The Term may be terminated by the Executive upon notice to the
Company of any event constituting "Good Reason" as defined herein.
6. Severance.
---------
(a) If the Term is terminated by the Company for Cause, the Company
and the Partnership will pay to the Executive an aggregate amount equal to the
Executive's accrued and unpaid base salary through the date of such termination,
and all unvested options will terminate immediately and any vested options
issued pursuant to the Company's Incentive Plan and held by the Executive at
termination, will expire ninety (90) days after the termination date.
(b) If the Term is terminated by the Executive other than because of
death, Disability or for Good Reason, the Company and the Partnership will pay
to the Executive an aggregate amount equal to the Executive's accrued and unpaid
base salary through the date of such termination, and all unvested options will
terminate immediately and any vested options issued pursuant to the Company's
Incentive Plan and held by the Executive at termination, will expire ninety (90)
days after the termination date.
(c) If the Term is terminated upon the Executive's death or
Disability, the Company and the Partnership will pay to the Executive's estate
or the Executive, as the case may be, a lump sum payment equal to the
Executive's base salary through the termination date, plus a pro rata portion of
the Executive's bonus for the fiscal year in which the termination occurred. In
addition, the Company will make payments for one (1) year of all compensation
otherwise payable to the Executive pursuant to this Agreement, including, but
not limited to, base salary, bonus and welfare benefits. In addition, all of
the Executive's unvested stock options and restricted stock awards will
immediately vest and become exercisable for a period of one (1) year thereafter
and shares of restricted stock of the Company previously granted to the
Executive shall become free from all contractual restrictions.
5
<PAGE>
(d) Subject to Section 6(e) hereof, if the Term is terminated by the
Company without Cause or other than by reason of his death or Disability, in
addition to any other remedies available, or if the Executive terminates the
Term for Good Reason, the Company and the Partnership shall pay the Executive a
lump sum equal to the product of one (1) times the sum of (A) the Executive's
then annual base salary and (B) the amount of the Executive's bonus for the
preceding year, or if the Term is terminated prior to December 31, 1999 the
Executive's target bonus for such year. In addition, all of the Executive's
unvested stock options and restricted stock awards will immediately vest and
become exercisable for a period of one (1) year thereafter and shares of
restricted stock of the Company previously granted to the Executive shall become
free from all contractual restrictions, and the Company shall continue in effect
the Executive's health insurance benefits until the earlier of (x) one (1) year
from the end of the Term or (y) the date on which the Executive obtains health
insurance coverage from a subsequent employer.
(e) If, within eighteen (18) months following a Change in Control, the
Term is terminated by the Executive for Good Reason or by the Company without
Cause, in addition to any other rights which the Executive may have under law or
otherwise, the Executive shall receive the same payments and benefits provided
for under Section 6(d) hereof; provided, that the amount of the multiplier
--------
described in clause (d) of Section 6 hereof shall be increased from one (1)
times to two (2) times.
(f) Notwithstanding anything in this Section 6 to the contrary if the
Term is terminated for any reason within twenty-four (24) months following the
Spin-Off Date, the Pre-Spinoff Awards will immediately vest and remain
exercisable in accordance with their respective terms; provided, however, such
-------- -------
Pre-Spinoff Awards will have an exercise period of at least one-year from the
date of termination.
(g) As used herein, the term "Cause" means:
(i) the Executive's willful and intentional failure or refusal to
perform or observe any of his material duties, responsibilities or
obligations set forth in this Agreement; provided, however, that the
-------- -------
Company shall not be deemed to have Cause pursuant to this clause (i)
unless the Company gives the Executive written notice that the specified
conduct has occurred and making specific reference to this Section 6(g)(i)
and the Executive fails to cure the conduct within thirty (30) days after
receipt of such notice;
(ii) any willful and intentional act of the Executive involving
malfeasance, fraud, theft, misappropriation of funds, embezzlement or
dishonesty affecting the Company or the Partnership; or
6
<PAGE>
(iii) the Executive's conviction of, or a plea of guilty or nolo
contendere to, an offense which is a felony in the jurisdiction involved.
Termination of the Executive for Cause shall be communicated by a Notice of
Termination. For purposes of this Agreement, a "Notice of Termination" shall
mean delivery to the Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Company's Board at a meeting of the Board called and held for the purpose (after
reasonable notice to the Executive and reasonable opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board prior to
such vote) of finding that in the good faith opinion of the Board, the Executive
was guilty of conduct constituting Cause and specifying the particulars thereof
in detail, including, with respect to any termination based upon conduct
described in clause (i) above, that the Executive failed to cure such conduct
during the thirty-day period following the date on which the Company gave
written notice of the conduct referred to in such clause (i). For purposes of
this Agreement, no such purported termination of the Executive's employment
shall be effective without such Notice of Termination;
(h) As used herein, the term "Good Reason" means the occurrence of any
of the following, without the prior written consent of the Executive:
(i) assignment of the Executive of duties materially inconsistent
with the Executive's positions as described in Section 2(a) hereof, or any
significant diminution in the Executive's duties or responsibilities, other
than in connection with the termination of the Executive's employment for
Cause, Disability or as a result of the Executive's death or by the
Executive other than for Good Reason;
(ii) the failure of the Company to nominate the Executive to the
Board or the failure of the Executive to be elected to the Board;
(iii) the change in the location of the Company's principal
executive offices or the Executive's principal place of employment to a
location outside the Washington, D.C. metropolitan area; or
(iv) any material breach of this Agreement by the Company or the
Partnership which is continuing;
provided, however, that the Executive shall not be deemed to have Good Reason
- -------- -------
pursuant to clauses (i), (ii) or (iv) above unless the Executive gives the
Company or the Partnership, as the case may be, written notice that the
specified conduct or event has occurred and the Company or the Partnership fails
to cure such conduct or event within thirty (30) days of the receipt of such
notice.
7
<PAGE>
(i) As used herein, the term "Change in Control" means the occurrence
of any one of the following events:
(i) the acquisition (other than from the Company) by any "Person"
(as the term is used for purposes of Sections 13(d) or 14(d) of the
Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of fifty (50%) percent or more of the
combined voting power of the Company's then outstanding voting securities;
or
(ii) the individuals who were members of the Board (the
"Incumbent Board") during the previous twelve (12) month period, cease for
any reason to constitute at least a majority of the Board; provided,
--------
however, that if the election, or nomination for election by the Company's
-------
stockholders, of any new director was approved by a vote of at least two-
thirds of the Incumbent Board, such new director shall, for purposes of
this Agreement, be considered as a member of the Incumbent Board; or
(iii) approval by stockholders of the Company of (a) merger or
consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than seventy
(70%) percent of the combined voting power of the then outstanding voting
securities of the corporation resulting from such merger or consolidation
in substantially the same proportion as their ownership of the combined
voting power of the voting securities of the Company outstanding
immediately before such merger or consolidation or (b) a complete
liquidation or dissolution of the Company or an agreement for the sale or
other disposition of all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur pursuant to clause (i) above solely because fifty (50%) percent or
more of the combined voting power of the Company's then outstanding
securities is acquired by (a) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained by the
Company or any of its subsidiaries or (b) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by
the stockholders of the Company in the same proportion as their ownership
of stock in the Company immediately prior to such acquisition.
(j) The amounts required to be paid and the benefits required to be
made available to the Executive under this Section 6 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any other way
limit or reduce the obligations of the Company under this Section 6.
8
<PAGE>
(k) Notwithstanding the previous provisions, if payments made pursuant
to this Section 6 are considered "parachute payments" under Section 280G of the
Internal Revenue Code of 1986, then the sum of such parachute payments plus any
other payments made by the Company to the Executive which are considered
parachute payments shall be limited to the greatest amount which may be paid to
the Executive under Section 280G without causing any loss of deduction to the
Company under such section; but only if, by reason of such reduction, the net
after tax benefit of Executive shall exceed the net after tax benefit if such
reduction were not made. "Net after tax benefit" for purposes of this Agreement
shall mean the sum of (i) the total amounts payable to Executive under Section
6, plus (ii) all other payments and benefits which the Executive receives or is
then entitled to receive from the Company that would constitute a "parachute
payment" within the meaning of Section 280G of the Code, less (iii) the amount
of federal income taxes payable with respect to the foregoing calculated at the
maximum marginal income tax rate for each year in which the foregoing shall be
paid to Executive (based upon the rate in effect for such year as set forth in
the Code at the time of termination of Executives's employment), less (iv) the
amount of excise taxes imposed with respect to the payments and benefits
described in (i) and (ii) above by Section 4999 of the Code.
7. Confidential Information.
------------------------
(a) The Executive acknowledges that the Company and its subsidiaries
or affiliated ventures ("Company Affiliates") own and have developed and
compile, and will in the future own, develop and compile certain Confidential
Information and that during the course of his rendering services hereunder
Confidential Information will be disclosed to the Executive by the Company
Affiliates. The Executive hereby agrees that, during the Term and for a period
of three years thereafter, he will not use or disclose, furnish or make
accessible to anyone, directly or indirectly, any Confidential Information of
the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any
trade secrets, confidential or proprietary information, or other knowledge,
know-how, information, documents or materials, owned, developed or possessed by
a Company Affiliate pertaining to its businesses the confidentiality of which
such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques, know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research, developments, test results, reports,
specifications, data, formats, marketing data and business plans and strategies,
agreements and other forms of documents, expansion plans, budgets, projections,
and salary, staffing and employment information. Notwithstanding the foregoing,
Confidential Information shall not in any event include information which (i)
was generally known or generally available to the public prior to its disclosure
to the Executive, (ii) becomes generally known or generally available to the
public subsequent to its disclosure to the Executive through no wrongful act of
the Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates
9
<PAGE>
which sources are not known to the Executive to be under any duty of
confidentiality with respect thereto or (iv) the Executive is required to
disclose by applicable law or regulation or by order of any court or federal,
state or local regulatory or administrative body (provided that the Executive
provides the Company with prior notice of the contemplated disclosure and
reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
8. Specific Performance.
--------------------
(a) The Executive acknowledges that the services to be rendered by him
hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 7 hereof. Therefore, in addition to any
other remedies available, the Company shall be entitled to specific enforcement
and/or an injunction from any court of competent jurisdiction restraining the
Executive from committing or continuing any such violation of this Agreement
without proving actual damages or posting a bond or other security. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages.
(b) If any of the restrictions on activities of the Executive
contained in Section 7 hereof shall for any reason be held by a court of
competent jurisdiction to be excessively broad, such restrictions shall be
construed so as thereafter to be limited or reduced to be enforceable to the
maximum extent compatible with the applicable law as it shall then appear; it
being understood that by the execution of this Agreement the parties hereto
regard such restrictions as reasonable and compatible with their respective
rights.
(c) Notwithstanding anything in this Agreement to the contrary, in the
event that the Company fails to make any payment of any amounts or provide any
of the benefits to the Executive when due as called for under Section 6 of this
Agreement and such failure shall continue for twenty (20) days after notice
thereof from the Executive, all restrictions on the activities of the Executive
under Section 7 hereof shall be immediately and permanently terminated.
9. Withholding. The parties agree that all payments to be made to
-----------
the Executive by the Company pursuant to the Agreement shall be subject to all
applicable withholding obligations of such company.
10. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed given and received when delivered personally, four
(4) days after being mailed if sent by registered or certified mail, postage
pre-paid, or by one (1) day after delivery if sent by air courier (for next-day
delivery) with evidence of receipt thereof or by facsimile with receipt
confirmed by the addressee. Such notices shall be addressed respectively:
10
<PAGE>
If to the Executive, to:
5814 Cheshire Drive
Bethesda, Maryland 22182
If to the Company or to the Partnership, to:
MeriStar Hotel & Resorts, Inc.
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
11. Miscellaneous.
-------------
(a) This Agreement is a personal contract calling for the provision of
unique services by the Executive, and the Executive's rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company and the Partnership
hereunder will be binding upon and run in favor of their respective successors
and assigns. The Company will not be deemed to have breached this Agreement if
any obligations of the Company to make payments to the Executive are satisfied
by the Partnership.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware, without regard to
conflict of laws principles.
(c) Any controversy arising out of or relating to this Agreement or
any breach hereof shall be settled by arbitration in Washington, D.C. by a
single neutral arbitrator in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Judgment upon any award rendered may be
entered in any court having jurisdiction thereof, except in the event of a
controversy relating to any alleged violation by the Executive of Section 7
hereof, in which case the Company shall be entitled to seek injunctive relief
from a court of competent jurisdiction without the requirement to seek
arbitration.
(d) The headings of the various sections of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
(e) The provisions of this Agreement which by their terms call for
performance subsequent to the expiration or termination of the Term shall
survive such expiration or termination.
11
<PAGE>
(f) The Company and the Partnership shall reimburse the Executive for
all costs incurred by the Executive in any proceeding for the successful
enforcement of the terms of this Agreement, including without limitation all
costs of investigation and reasonable attorneys fees and expenses.
(g) This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and undertakings, both written and oral, among the parties with
respect to the subject matter hereof, all of which shall be terminated on the
Commencement Date. In addition, the parties hereto hereby waive all rights such
party may have under all other prior agreements and undertakings, both written
and oral, among the parties hereto, or among the Executive, CapStar Hotel
Company and CapStar Management Co., L.P., with respect to the subject matter
hereof.
(h) This Agreement is conditioned upon and subject to the occurrence
of the Spin-Off as defined in the Registration Statement and shall not be
effective until the Spin-Off has occurred.
[SIGNATURE PAGE FOLLOWS]
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EXECUTIVE:
_____________________________________
David E. McCaslin
COMPANY:
MERISTAR HOTELS & RESORTS, INC.
By:___________________________________
Name:
Title:
PARTNERSHIP:
MERISTAR H & R OPERATING PARTNERSHIP L.P.
By:____________________________,
its general partner
By:___________________________________
Name:
Title:
<PAGE>
SCHEDULE A
----------
Executive may act as an officer of CapStar Hotels, Inc. and Latham
Hotels, Inc. and their respective subsidiaries in connection with their general
affairs and in connection with the ownership, management, financing and sale of
their interests (and the interests of entities in which they are general
partners or principals) in the following hotels.
1. Inn at Morro Bay, Morro Bay, California
2. Residence Inn, Orange, California
3. Ramada Inn, Slidell, Louisiana
4. Radisson Inn North Country, West Lebanon, New Hampshire
5. Ramada Hotel LaGuardia Airport, Queens, New York
<PAGE>
Exhibit 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, made as of July ___, 1998 by and
between MERISTAR HOTELS & RESORTS, INC., a Delaware corporation (the "Company"),
MERISTAR H & R OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (the
"Partnership"), and JAMES A. CALDER (the "Executive"), an individual residing at
18513 Meadowland Terrace, Olney, Maryland 20832.
The Company and the Partnership desire to employ the Executive in the
capacity of Chief Financial Officer, and the Executive desires to be so
employed, on the terms and subject to the conditions set forth in this agreement
(the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth
herein and other good and valuable consideration the parties hereto hereby agree
as follows:
1. Employment; Term. The Company and the Partnership each hereby
----------------
employ the Executive, and the Executive agrees to be employed by the Company and
the Partnership, upon the terms and subject to the conditions set forth herein,
for an initial term of three (3) years, commencing on the Spin Off Record Date
(the "Commencement Date") as such term is defined in the Company's Registration
Statement on Form S-1 (Registration Number 333-49881) (the "Registration
Statement"), unless terminated earlier in accordance with Section 4 of this
Agreement; provided that such term shall automatically be extended from time to
-------- ----
time for additional periods of one calendar year from the date on which it would
otherwise expire unless the Executive, on one hand, or the Company and the
Partnership, on the other, gives notice to the other party or parties not less
than 120 days prior to such date that it elects to permit the term of this
Agreement to expire without extension on such date. (The initial term of this
Agreement as the same may be extended in accordance with the terms of this
Agreement is hereinafter referred to as the "Term").
2. Position; Conduct.
-----------------
(a) During the Term, the Executive will hold the title and office of,
and serve in the position of, Chief Financial Officer of the Company and the
Partnership. The Executive shall undertake the responsibilities and exercise
the authority customarily performed, undertaken and exercised by persons
situated in a similar executive capacity, and shall perform such other specific
duties and services (including service as an officer, director or equivalent
position of any direct or indirect subsidiary without additional compensation)
as they shall reasonably request consistent with the Executive's position.
(b) During the Term, the Executive agrees to devote his full business
time and attention to the business and affairs of the Company and the
Partnership and to faithfully and diligently perform, to the best of his
ability, all of his duties and responsibilities
<PAGE>
hereunder; provided, that the Executive may devote his business time to
--------
providing services to MeriStar Hospitality Corporation, and may provide services
as described in Schedule A attached hereto, so long as such activity does not
----------
interfere with the performance of the Executive's duties hereunder. Nothing in
this Agreement shall preclude the Executive from devoting reasonable time and
attention to (i) serving, with the approval of the Board, as a director, trustee
or member of any committee of any organization, (ii) engaging in charitable and
community activities and (iii) managing his personal investments and affairs;
provided that such activities do not involve any material conflict of interest
- -------- ----
with the interests of the Company or, individually or collectively, interfere
materially with the performance by the Executive of his duties and
responsibilities under this Agreement. Notwithstanding the foregoing and except
as expressly provided herein, during the Term, the Executive may not accept
employment with any other individual or entity, or engage in any other venture
which is directly or indirectly in conflict or competition with the business of
the Company or the Partnership.
(c) The Executive's office and place of rendering his services under
this Agreement shall be in the principal executive offices of the Company which
shall be in the Washington, D.C. metropolitan area. Under no circumstances
shall the Executive be required to relocate from the Washington, D.C.
metropolitan area or provide services under this Agreement in any other location
other than in connection with reasonable and customary business travel. During
the Term, the Company shall provide the Executive with executive office space,
and administrative and secretarial assistance and other support services
consistent with his position as Chief Financial Officer and with his duties and
responsibilities hereunder.
3. Salary; Additional Compensation; Perquisites and Benefits.
---------------------------------------------------------
(a) During the Term, the Company and the Partnership will pay the
Executive a base salary at an aggregate annual rate of not less than $200,000
per annum, subject to annual review by the Compensation Committee of the Board
(the "Compensation Committee"), and in the discretion of such Committee,
increased from time to time. Once increased, such base salary may not be
decreased. Such salary shall be paid in periodic installments in accordance
with the Company's standard practice, but not less frequently than semi-monthly.
(b) For each fiscal year during the Term, the Executive will be
eligible to receive a bonus from the Company. The award and amount of such
bonus shall be based upon the achievement of predefined operating or performance
goals and other criteria established by the Compensation Committee, which goals
shall give the Executive the opportunity to earn a bonus in the following
amounts: threshold target - 25% of base salary; target - 85% of base salary;
and maximum bonus amount - 100% of base salary.
(c) During the Term, the Executive will participate in all plans now
existing or hereafter adopted by the Company or the Partnership for their
management employees or the general benefit of their employees, such as any
pension, profit-sharing, bonuses, stock
2
<PAGE>
option or other incentive compensation plans, life and health insurance plans,
or other insurance plans and benefits on the same basis and subject to the same
qualifications as other senior executive officers.
(d) (1) The Executive shall be eligible for stock option grants from
time to time pursuant to the Company's Incentive Plan in accordance with the
terms thereof.
(2) In connection with the spin-off of the Company from CapStar Hotel
Company, the Executive received options to purchase 27,500 shares of common
stock of the Company (the "Pre-Spinoff Awards"). The Pre-Spinoff Awards will
become fully vested if the Executive's employment is terminated voluntarily or
involuntarily within twenty-four (24) months of the Spin-Off Date.
(3) The Compensation Committee has granted to the Executive,
effective on the Commencement Date, options to purchase 47,500 shares of the
common stock of the Company at an exercise price equal to the fair market value
at the time of grant. Subject to the terms of this Agreement as to the
acceleration of vesting of stock options, such options shall vest as follows:
First Anniversary of the Commencement Date 33-1/3%
vested Second Anniversary of the
Commencement Date 66-2/3%
vested Third Anniversary of the
Commencement Date 100% vested
Such options shall be exercisable, subject to vesting and continued service, for
ten (10) years from the date of grant and in all other respects shall be subject
to the terms and conditions of the Incentive Plan.
(e) The Company and the Partnership will reimburse the Executive, in
accordance with their standard policies from time to time in effect, for all
out-of-pocket business expenses as may be incurred by the Executive in the
performance of his duties under this Agreement.
(f) The Executive shall be entitled to vacation time to be credited
and taken in accordance with the Company's policy from time to time in effect
for senior executives, which in any event shall not be less than a total of four
weeks per calendar year.
(g) To the fullest extent permitted by applicable law, the Executive
shall be indemnified and held harmless by the Company and the Partnership
against any and all judgments, penalties, fines, amounts paid in settlement, and
other reasonable expenses
3
<PAGE>
(including, without limitation, reasonable attorneys' fees and disbursements)
actually incurred by the Executive in connection with any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative,
investigative or other) for any action or omission in his capacity as a
director, officer or employee of the Company or the Partnership.
Indemnification under this Section 3(g) shall be in addition to, and
not in substitution of, any other indemnification by the Company or the
Partnership of its officers and directors. Expenses incurred by the Executive
in defending an action, suit or proceeding for which he claims the right to be
indemnified pursuant to this Section 3(g) shall be paid by the Company or the
Partnership, as the case may be, in advance of the final disposition of such
action suit or proceeding upon the Company's or the Partnership's receipt of (x)
a written affirmation by the Executive of his good faith belief that the
standard of conduct necessary for his indemnification hereunder and under the
provisions of applicable law has been met and (y) a written undertaking by or on
behalf of the Executive to repay the amount advanced if it shall ultimately be
determined by a court that the Executive engaged in conduct which precludes
indemnification under the provisions of such applicable law. Such written
undertaking in clause (y) shall be accepted by the Company or the Partnership,
as the case may be, without security therefor and without reference to the
financial ability of the Executive to make repayment thereunder. The Company
and the Partnership shall use commercially reasonable efforts to maintain in
effect for the Term of this Agreement a directors' and officers' liability
insurance policy, with a policy limit of at least $5,000,000, subject to
customary exclusions, with respect to claims made against officers and directors
of the Company or the Partnership; provided, however, the Company or the
-------- -------
Partnership, as the case may be, shall be relieved of this obligation to
maintain directors' and officers' liability insurance if, in the good faith
judgment of the Company or the Partnership, it cannot be obtained at a
reasonable cost.
4. Termination.
-----------
(a) The Term will terminate immediately upon the Executive's death or,
upon thirty (30) days' prior written notice by the Company, in the case of a
determination of the Executive's Disability. As used herein the term
"Disability" means the Executive's inability to perform his duties and
responsibilities under this Agreement for a period of more than 120 consecutive
days, or for more than 180 days, whether or not continuous, during any 365-day
period, due to physical or mental incapacity or impairment. A determination of
Disability will be made by a physician reasonably satisfactory to both the
Executive and the Company and paid for by the Company or the Partnership whose
decision shall be final and binding on the Executive and the Company; provided
--------
that if they cannot agree as to a physician, then each shall select and pay for
- ----
a physician and these two together shall select a third physician whose fee
shall be borne equally by the Executive and either the Company or the
Partnership and whose determination of Disability shall be binding on the
Executive and the Company. Should the Executive become incapacitated, his
employment shall continue and all base and other compensation due the Executive
hereunder shall continue to be paid through
4
<PAGE>
the date upon which the Executive's employment is terminated for Disability in
accordance with this section.
(b) The Term may be terminated by the Company upon notice to the
Executive upon the occurrence of any event constituting "Cause" as defined
herein.
(c) The Term may be terminated by the Executive upon notice to the
Company of any event constituting "Good Reason" as defined herein.
5. Severance.
---------
(a) If the Term is terminated by the Company for Cause, the Company
and the Partnership will pay to the Executive an aggregate amount equal to the
Executive's accrued and unpaid base salary through the date of such termination,
and all unvested options will terminate immediately and any vested options
issued pursuant to the Company's Incentive Plan and held by the Executive at
termination, will expire ninety (90) days after the termination date.
(b) If the Term is terminated by the Executive other than because of
death, Disability or for Good Reason, the Company and the Partnership will pay
to the Executive an aggregate amount equal to the Executive's accrued and unpaid
base salary through the date of such termination, and all unvested options will
terminate immediately and any vested options issued pursuant to the Company's
Incentive Plan and held by the Executive at termination, will expire ninety (90)
days after the termination date.
(c) If the Term is terminated upon the Executive's death or
Disability, the Company and the Partnership will pay to the Executive's estate
or the Executive, as the case may be, a lump sum payment equal to the
Executive's base salary through the termination date, plus a pro rata portion of
the Executive's bonus for the fiscal year in which the termination occurred. In
addition, the Company will make payments for one (1) year of all compensation
otherwise payable to the Executive pursuant to this Agreement, including, but
not limited to, base salary, bonus and welfare benefits. In addition, all of
the Executive's unvested stock options and restricted stock awards will
immediately vest and become exercisable for a period of one (1) year thereafter
and shares of restricted stock of the Company previously granted to the
Executive shall become free from all contractual restrictions.
(d) Subject to Section 5(e) hereof, if the Term is terminated by the
Company without Cause or other than by reason of his death or Disability, in
addition to any other remedies available, or if the Executive terminates the
Term for Good Reason, the Company and the Partnership shall pay the Executive a
lump sum equal to the product of one (1) times the sum of (A) the Executive's
then annual base salary and (B) the amount of the Executive's bonus for the
preceding year, or if the Term is terminated prior to December 31, 1999 the
Executive's target bonus for such year. In addition, all of the Executive's
unvested stock options and restricted stock awards will immediately vest and
become exercisable for a period
5
<PAGE>
of one (1) year thereafter and shares of restricted stock of the Company
previously granted to the Executive shall become free from all contractual
restrictions, and the Company shall continue in effect the Executive's health
insurance benefits until the earlier of (x) one (1) year from the end of the
Term or (y) the date on which the Executive obtains health insurance coverage
from a subsequent employer.
(e) If, within eighteen (18) months following a Change in Control, the
Term is terminated by the Executive for Good Reason or by the Company without
Cause, in addition to any other rights which the Executive may have under law or
otherwise, the Executive shall receive the same payments and benefits provided
for under Section 5(d) hereof; provided, that the amount of the multiplier
--------
described in clause (d) of Section 5 hereof shall be increased from one (1)
times to two (2) times.
(f) Notwithstanding anything in this Section 5 to the contrary if the
Term is terminated for any reason within twenty-four (24) months following the
Spin-Off Date, the Pre-Spinoff Awards will immediately vest and remain
exercisable in accordance with their respective terms; provided, however, such
-------- -------
Pre-Spinoff Awards will have an exercise period of at least one-year from the
date of termination.
(g) As used herein, the term "Cause" means:
(i) the Executive's willful and intentional failure or refusal to
perform or observe any of his material duties, responsibilities or
obligations set forth in this Agreement; provided, however, that the
-------- -------
Company shall not be deemed to have Cause pursuant to this clause (i)
unless the Company gives the Executive written notice that the specified
conduct has occurred and making specific reference to this Section 5(g)(i)
and the Executive fails to cure the conduct within thirty (30) days after
receipt of such notice;
(ii) any willful and intentional act of the Executive involving
malfeasance, fraud, theft, misappropriation of funds, embezzlement or
dishonesty affecting the Company or the Partnership; or
(iii) the Executive's conviction of, or a plea of guilty or nolo
contendere to, an offense which is a felony in the jurisdiction involved.
Termination of the Executive for Cause shall be communicated by a Notice of
Termination. For purposes of this Agreement, a "Notice of Termination" shall
mean delivery to the Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Company's Board at a meeting of the Board called and held for the purpose (after
reasonable notice to the Executive and reasonable opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board prior to
such vote) of finding that in the good faith opinion of the Board, the Executive
was guilty of
6
<PAGE>
conduct constituting Cause and specifying the particulars thereof in detail,
including, with respect to any termination based upon conduct described in
clause (i) above, that the Executive failed to cure such conduct during the
thirty-day period following the date on which the Company gave written notice of
the conduct referred to in such clause (i). For purposes of this Agreement, no
such purported termination of the Executive's employment shall be effective
without such Notice of Termination;
(h) As used herein, the term "Good Reason" means the occurrence of any
of the following, without the prior written consent of the Executive:
(i) assignment of the Executive of duties materially inconsistent
with the Executive's positions as described in Section 2(a) hereof, or any
significant diminution in the Executive's duties or responsibilities, other
than in connection with the termination of the Executive's employment for
Cause, Disability or as a result of the Executive's death or by the
Executive other than for Good Reason;
(ii) the change in the location of the Company's principal
executive offices or the Executive's principal place of employment to a
location outside the Washington, D.C. metropolitan area; or
(iii) any material breach of this Agreement by the Company or
the Partnership which is continuing;
provided, however, that the Executive shall not be deemed to have Good Reason
- -------- -------
pursuant to clauses (i) or (iii) above unless the Executive gives the Company or
the Partnership, as the case may be, written notice that the specified conduct
or event has occurred and the Company or the Partnership fails to cure such
conduct or event within thirty (30) days of the receipt of such notice.
(i) As used herein, the term "Change in Control" means the occurrence
of any one of the following events:
(i) the acquisition (other than from the Company) by any "Person"
(as the term is used for purposes of Sections 13(d) or 14(d) of the
Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of fifty (50%) percent or more of the
combined voting power of the Company's then outstanding voting securities;
or
(ii) the individuals who were members of the Board (the
"Incumbent Board") during the previous twelve (12) month period, cease for
any reason to constitute at least a majority of the Board; provided,
--------
however, that if the election, or nomination for election by the Company's
-------
stockholders, of any new director was approved by a vote of at least two-
thirds of the Incumbent Board, such new director
7
<PAGE>
shall, for purposes of this Agreement, be considered as a member of the
Incumbent Board; or
(iii) approval by stockholders of the Company of (a) merger or
consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than seventy
(70%) percent of the combined voting power of the then outstanding voting
securities of the corporation resulting from such merger or consolidation
in substantially the same proportion as their ownership of the combined
voting power of the voting securities of the Company outstanding
immediately before such merger or consolidation or (b) a complete
liquidation or dissolution of the Company or an agreement for the sale or
other disposition of all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur pursuant to clause (i) above solely because fifty (50%) percent or
more of the combined voting power of the Company's then outstanding
securities is acquired by (a) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained by the
Company or any of its subsidiaries or (b) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by
the stockholders of the Company in the same proportion as their ownership
of stock in the Company immediately prior to such acquisition.
(j) The amounts required to be paid and the benefits required to be
made available to the Executive under this Section 5 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any other way
limit or reduce the obligations of the Company under this Section 5.
(k) Notwithstanding the previous provisions, if payments made pursuant
to this Section 5 are considered "parachute payments" under Section 280G of the
Internal Revenue Code of 1986, then the sum of such parachute payments plus any
other payments made by the Company to the Executive which are considered
parachute payments shall be limited to the greatest amount which may be paid to
the Executive under Section 280G without causing any loss of deduction to the
Company under such section; but only if, by reason of such reduction, the net
after tax benefit of Executive shall exceed the net after tax benefit if such
reduction were not made. "Net after tax benefit" for purposes of this Agreement
shall mean the sum of (i) the total amounts payable to Executive under Section
5, plus (ii) all other payments and benefits which the Executive receives or is
then entitled to receive from the Company that would constitute a "parachute
payment" within the meaning of Section 280G of the Code, less (iii) the amount
of federal income taxes payable with respect to the foregoing calculated at the
maximum marginal income tax rate for each year in which the foregoing shall
8
<PAGE>
be paid to Executive (based upon the rate in effect for such year as set forth
in the Code at the time of termination of Executives's employment), less (iv)
the amount of excise taxes imposed with respect to the payments and benefits
described in (i) and (ii) above by Section 4999 of the Code.
6. Confidential Information.
------------------------
(a) The Executive acknowledges that the Company and its subsidiaries
or affiliated ventures ("Company Affiliates") own and have developed and
compile, and will in the future own, develop and compile certain Confidential
Information and that during the course of his rendering services hereunder
Confidential Information will be disclosed to the Executive by the Company
Affiliates. The Executive hereby agrees that, during the Term and for a period
of three years thereafter, he will not use or disclose, furnish or make
accessible to anyone, directly or indirectly, any Confidential Information of
the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any
trade secrets, confidential or proprietary information, or other knowledge,
know-how, information, documents or materials, owned, developed or possessed by
a Company Affiliate pertaining to its businesses the confidentiality of which
such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques, know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research, developments, test results, reports,
specifications, data, formats, marketing data and business plans and strategies,
agreements and other forms of documents, expansion plans, budgets, projections,
and salary, staffing and employment information. Notwithstanding the foregoing,
Confidential Information shall not in any event include information which (i)
was generally known or generally available to the public prior to its disclosure
to the Executive, (ii) becomes generally known or generally available to the
public subsequent to its disclosure to the Executive through no wrongful act of
the Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates which sources are not known to the Executive to be
under any duty of confidentiality with respect thereto or (iv) the Executive is
required to disclose by applicable law or regulation or by order of any court or
federal, state or local regulatory or administrative body (provided that the
Executive provides the Company with prior notice of the contemplated disclosure
and reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
7. Specific Performance.
--------------------
(a) The Executive acknowledges that the services to be rendered by him
hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 6 hereof. Therefore, in addition to any
other remedies available, the Company shall be entitled to specific enforcement
and/or an injunction from any court of competent jurisdiction
9
<PAGE>
restraining the Executive from committing or continuing any such violation of
this Agreement without proving actual damages or posting a bond or other
security. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of damages.
(b) If any of the restrictions on activities of the Executive
contained in Section 6 hereof shall for any reason be held by a court of
competent jurisdiction to be excessively broad, such restrictions shall be
construed so as thereafter to be limited or reduced to be enforceable to the
maximum extent compatible with the applicable law as it shall then appear; it
being understood that by the execution of this Agreement the parties hereto
regard such restrictions as reasonable and compatible with their respective
rights.
(c) Notwithstanding anything in this Agreement to the contrary, in the
event that the Company fails to make any payment of any amounts or provide any
of the benefits to the Executive when due as called for under Section 5 of this
Agreement and such failure shall continue for twenty (20) days after notice
thereof from the Executive, all restrictions on the activities of the Executive
under Section 6 hereof shall be immediately and permanently terminated.
8. Withholding. The parties agree that all payments to be made to
-----------
the Executive by the Company pursuant to the Agreement shall be subject to all
applicable withholding obligations of such company.
9. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed given and received when delivered personally, four
(4) days after being mailed if sent by registered or certified mail, postage
pre-paid, or by one (1) day after delivery if sent by air courier (for next-day
delivery) with evidence of receipt thereof or by facsimile with receipt
confirmed by the addressee. Such notices shall be addressed respectively:
If to the Executive, to:
18513 Meadowland Terrace
Olney, Maryland 20832
If to the Company or to the Partnership, to:
MeriStar Hotel & Resorts, Inc.
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
10
<PAGE>
10. Miscellaneous.
-------------
(a) This Agreement is a personal contract calling for the provision of
unique services by the Executive, and the Executive's rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company and the Partnership
hereunder will be binding upon and run in favor of their respective successors
and assigns. The Company will not be deemed to have breached this Agreement if
any obligations of the Company to make payments to the Executive are satisfied
by the Partnership.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware, without regard to
conflict of laws principles.
(c) Any controversy arising out of or relating to this Agreement or
any breach hereof shall be settled by arbitration in Washington, D.C. by a
single neutral arbitrator in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Judgment upon any award rendered may be
entered in any court having jurisdiction thereof, except in the event of a
controversy relating to any alleged violation by the Executive of Section 6
hereof, in which case the Company shall be entitled to seek injunctive relief
from a court of competent jurisdiction without the requirement to seek
arbitration.
(d) The headings of the various sections of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
(e) The provisions of this Agreement which by their terms call for
performance subsequent to the expiration or termination of the Term shall
survive such expiration or termination.
(f) The Company and the Partnership shall reimburse the Executive for
all costs incurred by the Executive in any proceeding for the successful
enforcement of the terms of this Agreement, including without limitation all
costs of investigation and reasonable attorneys fees and expenses.
(g) This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and undertakings, both written and oral, among the parties with
respect to the subject matter hereof, all of which shall be terminated on the
Commencement Date. In addition, the parties hereto hereby waive all rights such
party may have under all other prior agreements and undertakings, both written
and oral, among the parties hereto, or among the Executive, CapStar Hotel
Company and CapStar Management Co., L.P., with respect to the subject matter
hereof.
11
<PAGE>
(h) This Agreement is conditioned upon and subject to the occurrence
of the Spin-Off as defined in the Registration Statement and shall not be
effective until the Spin-Off has occurred.
[SIGNATURE PAGE FOLLOWS]
12
<PAGE>
\ IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EXECUTIVE:
_____________________________________
James A. Calder
COMPANY:
MERISTAR HOTELS & RESORTS, INC.
By:___________________________________
Name:
Title:
PARTNERSHIP:
MERISTAR H & R OPERATING PARTNERSHIP L.P.
By:____________________________,
its general partner
By:___________________________________
Name:
Title:
13
<PAGE>
SCHEDULE A
----------
Executive may act as an officer of CapStar Hotels, Inc. and Latham
Hotels, Inc. and their respective subsidiaries in connection with their general
affairs and in connection with the ownership, management, financing and sale of
their interests (and the interests of entities in which they are general
partners or principals) in the following hotels.
1. Inn at Morro Bay, Morro Bay, California
2. Residence Inn, Orange, California
3. Ramada Inn, Slidell, Louisiana
4. Radisson Inn North Country, West Lebanon, New Hampshire
5. Ramada Hotel LaGuardia Airport, Queens, New York
14
<PAGE>
Exhibit 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, made as of July ___, 1998 by and
between MERISTAR HOTELS & RESORTS, INC., a Delaware corporation (the "Company"),
MERISTAR H & R OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (the
"Partnership"), and JOHN E. PLUNKET (the "Executive"), an individual residing at
5066 MacArthur Boulevard, N.W., Washington, D.C. 20016.
The Company and the Partnership desire to employ the Executive in the
capacity of Executive Vice President - Finance and Development, and the
Executive desires to be so employed, on the terms and subject to the conditions
set forth in this agreement (the "Agreement");
Now, therefore, in consideration of the mutual covenants set forth
herein and other good and valuable consideration the parties hereto hereby agree
as follows:
1. Employment; Term. The Company and the Partnership each hereby
----------------
employ the Executive, and the Executive agrees to be employed by the Company and
the Partnership, upon the terms and subject to the conditions set forth herein,
for an initial term of three (3) years, commencing on the Spin Off Record Date
(the "Commencement Date") as such term is defined in the Company's Registration
Statement on Form S-1 (Registration Number 333-49881) (the "Registration
Statement"), unless terminated earlier in accordance with Section 4 of this
Agreement; provided that such term shall automatically be extended from time to
-------- ----
time for additional periods of one calendar year from the date on which it would
otherwise expire unless the Executive, on one hand, or the Company and the
Partnership, on the other, gives notice to the other party or parties not less
than 120 days prior to such date that it elects to permit the term of this
Agreement to expire without extension on such date. (The initial term of this
Agreement as the same may be extended in accordance with the terms of this
Agreement is hereinafter referred to as the "Term").
2. Position; Conduct.
-----------------
(a) During the Term, the Executive will hold the title and office of,
and serve in the position of, Executive Vice President - Finance and Development
of the Company and the Partnership. The Executive shall undertake the
responsibilities and exercise the authority customarily performed, undertaken
and exercised by persons situated in a similar executive capacity, and shall
perform such other specific duties and services (including service as an
officer, director or equivalent position of any direct or indirect subsidiary
without additional compensation) as they shall reasonably request consistent
with the Executive's position.
<PAGE>
(b) During the Term, the Executive agrees to devote his full business
time and attention to the business and affairs of the Company and the
Partnership and to faithfully and diligently perform, to the best of his
ability, all of his duties and responsibilities hereunder; provided, that the
--------
Executive may devote his business time to providing services to MeriStar
Hospitality Corporation, and may provide services as described in Schedule A
----------
attached hereto, so long as such activity does not interfere with the
performance of the Executive's duties hereunder. Nothing in this Agreement
shall preclude the Executive from devoting reasonable time and attention to (i)
serving, with the approval of the Board, as a director, trustee or member of any
committee of any organization, (ii) engaging in charitable and community
activities and (iii) managing his personal investments and affairs; provided
--------
that such activities do not involve any material conflict of interest with the
- ----
interests of the Company or, individually or collectively, interfere materially
with the performance by the Executive of his duties and responsibilities under
this Agreement. Notwithstanding the foregoing and except as expressly provided
herein, during the Term, the Executive may not accept employment with any other
individual or entity, or engage in any other venture which is directly or
indirectly in conflict or competition with the business of the Company or the
Partnership.
(c) The Executive's office and place of rendering his services under
this Agreement shall be in the principal executive offices of the Company which
shall be in the Washington, D.C. metropolitan area. Under no circumstances
shall the Executive be required to relocate from the Washington, D.C.
metropolitan area or provide services under this Agreement in any other location
other than in connection with reasonable and customary business travel. During
the Term, the Company shall provide the Executive with executive office space,
and administrative and secretarial assistance and other support services
consistent with his position as Executive Vice President - Finance and
Development and with his duties and responsibilities hereunder.
3. Salary; Additional Compensation; Perquisites and Benefits.
---------------------------------------------------------
(a) During the Term, the Company and the Partnership will pay the
Executive a base salary at an aggregate annual rate of not less than $162,000
per annum, subject to annual review by the Compensation Committee of the Board
(the "Compensation Committee"), and in the discretion of such Committee,
increased from time to time. Once increased, such base salary may not be
decreased. Such salary shall be paid in periodic installments in accordance
with the Company's standard practice, but not less frequently than semi-monthly.
(b) For each fiscal year during the Term, the Executive will be
eligible to receive a bonus from the Company. The award and amount of such
bonus shall be based upon the achievement of predefined operating or performance
goals and other criteria established by the Compensation Committee, which goals
shall give the Executive the opportunity to earn a bonus in the following
amounts: threshold target - 25% of base salary; target - 85% of base salary;
and maximum bonus amount - 100% of base salary.
2
<PAGE>
(c) During the Term, the Executive will participate in all plans now
existing or hereafter adopted by the Company or the Partnership for their
management employees or the general benefit of their employees, such as any
pension, profit-sharing, bonuses, stock option or other incentive compensation
plans, life and health insurance plans, or other insurance plans and benefits on
the same basis and subject to the same qualifications as other senior executive
officers.
(d) (1) The Executive shall be eligible for stock option grants from
time to time pursuant to the Company's Incentive Plan in accordance with the
terms thereof.
(2) In connection with the spin-off of the Company from CapStar Hotel
Company, the Executive received options to purchase 108,129 shares of common
stock of the Company (the "Pre-Spinoff Awards"). The Pre-Spinoff Awards will
become fully vested if the Executive's employment is terminated voluntarily or
involuntarily within twenty-four (24) months of the Spin-Off Date.
(3) The Compensation Committee has granted to the Executive,
effective on the Commencement Date, options to purchase 10,000 shares of the
common stock of the Company at an exercise price equal to the fair market value
at the time of grant. Subject to the terms of this Agreement as to the
acceleration of vesting of stock options, such options shall vest as follows:
First Anniversary of the Commencement Date 33-1/3%
vested Second Anniversary of the
Commencement Date 66-2/3%
vested Third Anniversary of the
Commencement Date 100% vested
Such options shall be exercisable, subject to vesting and continued service, for
ten (10) years from the date of grant and in all other respects shall be subject
to the terms and conditions of the Incentive Plan.
(e) The Company and the Partnership will reimburse the Executive, in
accordance with their standard policies from time to time in effect, for all
out-of-pocket business expenses as may be incurred by the Executive in the
performance of his duties under this Agreement.
(f) The Executive shall be entitled to vacation time to be credited
and taken in accordance with the Company's policy from time to time in effect
for senior executives, which in any event shall not be less than a total of four
weeks per calendar year.
3
<PAGE>
(g) To the fullest extent permitted by applicable law, the Executive
shall be indemnified and held harmless by the Company and the Partnership
against any and all judgments, penalties, fines, amounts paid in settlement, and
other reasonable expenses (including, without limitation, reasonable attorneys'
fees and disbursements) actually incurred by the Executive in connection with
any threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative, investigative or other) for any action or omission in
his capacity as a director, officer or employee of the Company or the
Partnership.
Indemnification under this Section 3(g) shall be in addition to, and
not in substitution of, any other indemnification by the Company or the
Partnership of its officers and directors. Expenses incurred by the Executive
in defending an action, suit or proceeding for which he claims the right to be
indemnified pursuant to this Section 3(g) shall be paid by the Company or the
Partnership, as the case may be, in advance of the final disposition of such
action suit or proceeding upon the Company's or the Partnership's receipt of (x)
a written affirmation by the Executive of his good faith belief that the
standard of conduct necessary for his indemnification hereunder and under the
provisions of applicable law has been met and (y) a written undertaking by or on
behalf of the Executive to repay the amount advanced if it shall ultimately be
determined by a court that the Executive engaged in conduct which precludes
indemnification under the provisions of such applicable law. Such written
undertaking in clause (y) shall be accepted by the Company or the Partnership,
as the case may be, without security therefor and without reference to the
financial ability of the Executive to make repayment thereunder. The Company
and the Partnership shall use commercially reasonable efforts to maintain in
effect for the Term of this Agreement a directors' and officers' liability
insurance policy, with a policy limit of at least $5,000,000, subject to
customary exclusions, with respect to claims made against officers and directors
of the Company or the Partnership; provided, however, the Company or the
-------- -------
Partnership, as the case may be, shall be relieved of this obligation to
maintain directors' and officers' liability insurance if, in the good faith
judgment of the Company or the Partnership, it cannot be obtained at a
reasonable cost.
4. Termination.
-----------
(a) The Term will terminate immediately upon the Executive's death or,
upon thirty (30) days' prior written notice by the Company, in the case of a
determination of the Executive's Disability. As used herein the term
"Disability" means the Executive's inability to perform his duties and
responsibilities under this Agreement for a period of more than 120 consecutive
days, or for more than 180 days, whether or not continuous, during any 365-day
period, due to physical or mental incapacity or impairment. A determination of
Disability will be made by a physician reasonably satisfactory to both the
Executive and the Company and paid for by the Company or the Partnership whose
decision shall be final and binding on the Executive and the Company; provided
--------
that if they cannot agree as to a physician, then each shall select and pay for
- ----
a physician and these two together shall select a third physician whose fee
shall be borne equally by the Executive and either the Company or
4
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the Partnership and whose determination of Disability shall be binding on the
Executive and the Company. Should the Executive become incapacitated, his
employment shall continue and all base and other compensation due the Executive
hereunder shall continue to be paid through the date upon which the Executive's
employment is terminated for Disability in accordance with this section.
(b) The Term may be terminated by the Company upon notice to the
Executive upon the occurrence of any event constituting "Cause" as defined
herein.
(c) The Term may be terminated by the Executive upon notice to the
Company of any event constituting "Good Reason" as defined herein.
5. Severance.
---------
(a) If the Term is terminated by the Company for Cause, the Company
and the Partnership will pay to the Executive an aggregate amount equal to the
Executive's accrued and unpaid base salary through the date of such termination,
and all unvested options will terminate immediately and any vested options
issued pursuant to the Company's Incentive Plan and held by the Executive at
termination, will expire ninety (90) days after the termination date.
(b) If the Term is terminated by the Executive other than because of
death, Disability or for Good Reason, the Company and the Partnership will pay
to the Executive an aggregate amount equal to the Executive's accrued and unpaid
base salary through the date of such termination, and all unvested options will
terminate immediately and any vested options issued pursuant to the Company's
Incentive Plan and held by the Executive at termination, will expire ninety (90)
days after the termination date.
(c) If the Term is terminated upon the Executive's death or
Disability, the Company and the Partnership will pay to the Executive's estate
or the Executive, as the case may be, a lump sum payment equal to the
Executive's base salary through the termination date, plus a pro rata portion of
the Executive's bonus for the fiscal year in which the termination occurred. In
addition, the Company will make payments for one (1) year of all compensation
otherwise payable to the Executive pursuant to this Agreement, including, but
not limited to, base salary, bonus and welfare benefits. In addition, all of
the Executive's unvested stock options and restricted stock awards will
immediately vest and become exercisable for a period of one (1) year thereafter
and shares of restricted stock of the Company previously granted to the
Executive shall become free from all contractual restrictions.
(d) Subject to Section 5(e) hereof, if the Term is terminated by the
Company without Cause or other than by reason of his death or Disability, in
addition to any other remedies available, or if the Executive terminates the
Term for Good Reason, the Company and the Partnership shall pay the Executive a
lump sum equal to the product of one (1) times the sum of (A) the Executive's
then annual base salary and (B) the amount of the Executive's
5
<PAGE>
bonus for the preceding year, or if the Term is terminated prior to December 31,
1999 the Executive's target bonus for such year. In addition, all of the
Executive's unvested stock options and restricted stock awards will immediately
vest and become exercisable for a period of one (1) year thereafter and shares
of restricted stock of the Company previously granted to the Executive shall
become free from all contractual restrictions, and the Company shall continue in
effect the Executive's health insurance benefits until the earlier of (x) one
(1) year from the end of the Term or (y) the date on which the Executive obtains
health insurance coverage from a subsequent employer.
(e) If, within eighteen (18) months following a Change in Control, the
Term is terminated by the Executive for Good Reason or by the Company without
Cause, in addition to any other rights which the Executive may have under law or
otherwise, the Executive shall receive the same payments and benefits provided
for under Section 5(d) hereof; provided, that the amount of the multiplier
--------
described in clause (d) of Section 5 hereof shall be increased from one (1)
times to two (2) times.
(f) Notwithstanding anything in this Section 5 to the contrary if the
Term is terminated for any reason within twenty-four (24) months following the
Spin-Off Date, the Pre-Spinoff Awards will immediately vest and remain
exercisable in accordance with their respective terms; provided, however, such
-------- -------
Pre-Spinoff Awards will have an exercise period of at least one-year from the
date of termination.
(g) As used herein, the term "Cause" means:
(i) the Executive's willful and intentional failure or refusal to
perform or observe any of his material duties, responsibilities or
obligations set forth in this Agreement; provided, however, that the
-------- -------
Company shall not be deemed to have Cause pursuant to this clause (i)
unless the Company gives the Executive written notice that the specified
conduct has occurred and making specific reference to this Section 5(g)(i)
and the Executive fails to cure the conduct within thirty (30) days after
receipt of such notice;
(ii) any willful and intentional act of the Executive involving
malfeasance, fraud, theft, misappropriation of funds, embezzlement or
dishonesty affecting the Company or the Partnership; or
(iii) the Executive's conviction of, or a plea of guilty or nolo
contendere to, an offense which is a felony in the jurisdiction involved.
Termination of the Executive for Cause shall be communicated by a Notice of
Termination. For purposes of this Agreement, a "Notice of Termination" shall
mean delivery to the Executive of a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Company's Board at a meeting of the Board called
6
<PAGE>
and held for the purpose (after reasonable notice to the Executive and
reasonable opportunity for the Executive, together with the Executive's counsel,
to be heard before the Board prior to such vote) of finding that in the good
faith opinion of the Board, the Executive was guilty of conduct constituting
Cause and specifying the particulars thereof in detail, including, with respect
to any termination based upon conduct described in clause (i) above, that the
Executive failed to cure such conduct during the thirty-day period following the
date on which the Company gave written notice of the conduct referred to in such
clause (i). For purposes of this Agreement, no such purported termination of
the Executive's employment shall be effective without such Notice of
Termination;
(h) As used herein, the term "Good Reason" means the occurrence of any
of the following, without the prior written consent of the Executive:
(i) assignment of the Executive of duties materially inconsistent
with the Executive's positions as described in Section 2(a) hereof, or any
significant diminution in the Executive's duties or responsibilities, other
than in connection with the termination of the Executive's employment for
Cause, Disability or as a result of the Executive's death or by the
Executive other than for Good Reason;
(ii) the change in the location of the Company's principal
executive offices or the Executive's principal place of employment to a
location outside the Washington, D.C. metropolitan area; or
(iii) any material breach of this Agreement by the Company or
the Partnership which is continuing;
provided, however, that the Executive shall not be deemed to have Good Reason
- -------- -------
pursuant to clauses (i) or (iii) above unless the Executive gives the Company or
the Partnership, as the case may be, written notice that the specified conduct
or event has occurred and the Company or the Partnership fails to cure such
conduct or event within thirty (30) days of the receipt of such notice.
(i) As used herein, the term "Change in Control" means the
occurrence of any one of the following events:
(i) the acquisition (other than from the Company) by any "Person"
(as the term is used for purposes of Sections 13(d) or 14(d) of the
Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of fifty (50%) percent or more of the
combined voting power of the Company's then outstanding voting securities;
or
(ii) the individuals who were members of the Board (the
"Incumbent Board") during the previous twelve (12) month period, cease for
any reason to
7
<PAGE>
constitute at least a majority of the Board; provided, however, that if the
-------- -------
election, or nomination for election by the Company's stockholders, of any
new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board; or
(iii) approval by stockholders of the Company of (a) merger or
consolidation involving the Company if the stockholders of the Company,
immediately before such merger or consolidation do not, as a result of such
merger or consolidation, own, directly or indirectly, more than seventy
(70%) percent of the combined voting power of the then outstanding voting
securities of the corporation resulting from such merger or consolidation
in substantially the same proportion as their ownership of the combined
voting power of the voting securities of the Company outstanding
immediately before such merger or consolidation or (b) a complete
liquidation or dissolution of the Company or an agreement for the sale or
other disposition of all or substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur pursuant to clause (i) above solely because fifty (50%) percent or
more of the combined voting power of the Company's then outstanding
securities is acquired by (a) a trustee or other fiduciary holding
securities under one or more employee benefit plans maintained by the
Company or any of its subsidiaries or (b) any corporation which,
immediately prior to such acquisition, is owned directly or indirectly by
the stockholders of the Company in the same proportion as their ownership
of stock in the Company immediately prior to such acquisition.
(j) The amounts required to be paid and the benefits required to be
made available to the Executive under this Section 5 are absolute. Under no
circumstances shall the Executive, upon the termination of his employment
hereunder, be required to seek alternative employment and, in the event that the
Executive does secure other employment, no compensation or other benefits
received in respect of such employment shall be set-off or in any other way
limit or reduce the obligations of the Company under this Section 5.
(k) Notwithstanding the previous provisions, if payments made pursuant
to this Section 5 are considered "parachute payments" under Section 280G of the
Internal Revenue Code of 1986, then the sum of such parachute payments plus any
other payments made by the Company to the Executive which are considered
parachute payments shall be limited to the greatest amount which may be paid to
the Executive under Section 280G without causing any loss of deduction to the
Company under such section; but only if, by reason of such reduction, the net
after tax benefit of Executive shall exceed the net after tax benefit if such
reduction were not made. "Net after tax benefit" for purposes of this Agreement
shall mean the sum of (i) the total amounts payable to Executive under Section
5, plus (ii) all other payments and benefits which the Executive receives or is
then entitled to receive from the
8
<PAGE>
Company that would constitute a "parachute payment" within the meaning of
Section 280G of the Code, less (iii) the amount of federal income taxes payable
with respect to the foregoing calculated at the maximum marginal income tax rate
for each year in which the foregoing shall be paid to Executive (based upon the
rate in effect for such year as set forth in the Code at the time of termination
of Executives's employment), less (iv) the amount of excise taxes imposed with
respect to the payments and benefits described in (i) and (ii) above by Section
4999 of the Code.
6. Confidential Information.
------------------------
(a) The Executive acknowledges that the Company and its subsidiaries
or affiliated ventures ("Company Affiliates") own and have developed and
compile, and will in the future own, develop and compile certain Confidential
Information and that during the course of his rendering services hereunder
Confidential Information will be disclosed to the Executive by the Company
Affiliates. The Executive hereby agrees that, during the Term and for a period
of three years thereafter, he will not use or disclose, furnish or make
accessible to anyone, directly or indirectly, any Confidential Information of
the Company Affiliates.
(b) As used herein, the term "Confidential Information" means any
trade secrets, confidential or proprietary information, or other knowledge,
know-how, information, documents or materials, owned, developed or possessed by
a Company Affiliate pertaining to its businesses the confidentiality of which
such company takes reasonable measures to protect, including, but not limited
to, trade secrets, techniques, know-how (including designs, plans, procedures,
processes and research records), software, computer programs, innovations,
discoveries, improvements, research, developments, test results, reports,
specifications, data, formats, marketing data and business plans and strategies,
agreements and other forms of documents, expansion plans, budgets, projections,
and salary, staffing and employment information. Notwithstanding the foregoing,
Confidential Information shall not in any event include information which (i)
was generally known or generally available to the public prior to its disclosure
to the Executive, (ii) becomes generally known or generally available to the
public subsequent to its disclosure to the Executive through no wrongful act of
the Executive, (iii) is or becomes available to the Executive from sources other
than the Company Affiliates which sources are not known to the Executive to be
under any duty of confidentiality with respect thereto or (iv) the Executive is
required to disclose by applicable law or regulation or by order of any court or
federal, state or local regulatory or administrative body (provided that the
Executive provides the Company with prior notice of the contemplated disclosure
and reasonably cooperates with the Company, at the Company's sole expense, in
seeking a protective order or other appropriate protection of such information).
9
<PAGE>
7. Specific Performance.
--------------------
(a) The Executive acknowledges that the services to be rendered by him
hereunder are of a special, unique, extraordinary and personal character and
that the Company Affiliates would sustain irreparable harm in the event of a
violation by the Executive of Section 6 hereof. Therefore, in addition to any
other remedies available, the Company shall be entitled to specific enforcement
and/or an injunction from any court of competent jurisdiction restraining the
Executive from committing or continuing any such violation of this Agreement
without proving actual damages or posting a bond or other security. Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies available to it for such breach or threatened breach, including the
recovery of damages.
(b) If any of the restrictions on activities of the Executive
contained in Section 6 hereof shall for any reason be held by a court of
competent jurisdiction to be excessively broad, such restrictions shall be
construed so as thereafter to be limited or reduced to be enforceable to the
maximum extent compatible with the applicable law as it shall then appear; it
being understood that by the execution of this Agreement the parties hereto
regard such restrictions as reasonable and compatible with their respective
rights.
(c) Notwithstanding anything in this Agreement to the contrary, in the
event that the Company fails to make any payment of any amounts or provide any
of the benefits to the Executive when due as called for under Section 5 of this
Agreement and such failure shall continue for twenty (20) days after notice
thereof from the Executive, all restrictions on the activities of the Executive
under Section 6 hereof shall be immediately and permanently terminated.
8. Withholding. The parties agree that all payments to be made to
-----------
the Executive by the Company pursuant to the Agreement shall be subject to all
applicable withholding obligations of such company.
9. Notices. All notices required or permitted hereunder shall be in
-------
writing and shall be deemed given and received when delivered personally, four
(4) days after being mailed if sent by registered or certified mail, postage
pre-paid, or by one (1) day after delivery if sent by air courier (for next-day
delivery) with evidence of receipt thereof or by facsimile with receipt
confirmed by the addressee. Such notices shall be addressed respectively:
If to the Executive, to:
5066 MacArthur Boulevard, N.W.
Washington, D.C. 20016
10
<PAGE>
If to the Company or to the Partnership, to:
MeriStar Hotel & Resorts, Inc.
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
or to any other address of which such party may have given notice to the other
parties in the manner specified above.
10. Miscellaneous.
-------------
(a) This Agreement is a personal contract calling for the provision of
unique services by the Executive, and the Executive's rights and obligations
hereunder may not be sold, transferred, assigned, pledged or hypothecated by the
Executive. The rights and obligations of the Company and the Partnership
hereunder will be binding upon and run in favor of their respective successors
and assigns. The Company will not be deemed to have breached this Agreement if
any obligations of the Company to make payments to the Executive are satisfied
by the Partnership.
(b) This Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Delaware, without regard to
conflict of laws principles.
(c) Any controversy arising out of or relating to this Agreement or
any breach hereof shall be settled by arbitration in Washington, D.C. by a
single neutral arbitrator in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. Judgment upon any award rendered may be
entered in any court having jurisdiction thereof, except in the event of a
controversy relating to any alleged violation by the Executive of Section 6
hereof, in which case the Company shall be entitled to seek injunctive relief
from a court of competent jurisdiction without the requirement to seek
arbitration.
(d) The headings of the various sections of this Agreement are for
convenience of reference only and shall not define or limit any of the terms or
provisions hereof.
(e) The provisions of this Agreement which by their terms call for
performance subsequent to the expiration or termination of the Term shall
survive such expiration or termination.
(f) The Company and the Partnership shall reimburse the Executive for
all costs incurred by the Executive in any proceeding for the successful
enforcement of the terms of this Agreement, including without limitation all
costs of investigation and reasonable attorneys fees and expenses.
11
<PAGE>
(g) This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and undertakings, both written and oral, among the parties with
respect to the subject matter hereof, all of which shall be terminated on the
Commencement Date. In addition, the parties hereto hereby waive all rights such
party may have under all other prior agreements and undertakings, both written
and oral, among the parties hereto, of among the Executive, CapStar Hotel
Company and CapStar Management Co., L.P., with respect to the subject matter
hereof.
(h) This Agreement is conditioned upon and subject to the occurrence
of the Spin-Off as defined in the Registration Statement and shall not be
effective until the Spin-Off has occurred.
[SIGNATURE PAGE FOLLOWS]
12
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
EXECUTIVE:
_____________________________________
John E. Plunket
COMPANY:
MERISTAR HOTELS & RESORTS, INC.
By:___________________________________
Name:
Title:
PARTNERSHIP:
MERISTAR H & R OPERATING PARTNERSHIP L.P.
By:____________________________,
its general partner
By:___________________________________
Name:
Title:
13
<PAGE>
SCHEDULE A
----------
Executive may act as an officer of CapStar Hotels, Inc. and Latham
Hotels, Inc. and their respective subsidiaries in connection with their general
affairs and in connection with the ownership, management, financing and sale of
their interests (and the interests of entities in which they are general
partners or principals) in the following hotels.
1. Inn at Morro Bay, Morro Bay, California
2. Residence Inn, Orange, California
3. Ramada Inn, Slidell, Louisiana
4. Radisson Inn North Country, West Lebanon, New Hampshire
5. Ramada Hotel LaGuardia Airport, Queens, New York
14
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
CapStar Hotel Company:
We consent to the use of our report dated May 19, 1998 related to the
balance sheet of MeriStar Hotels & Resorts, Inc. as of March 31, 1998 and the
use of our report dated March 30, 1998 related to the combined balance sheets
of the management and leasing business of CapStar Hotel Company and
subsidiaries ("OpCo") as of December 31, 1997 and 1996 and the related
combined statements of operations, owners' equity and cash flows for each of
the years in the three-year period ended December 31, 1997, included in the
registration statement on Form S-1 of MeriStar Hotels & Resorts, Inc.
We also consent to the reference to our firm under the heading "Experts" in
the registration statement.
/s/ KPMG Peat Marwick LLP
Washington, D.C.
July 23, 1998
<PAGE>
EXHIBIT 23.2.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 5 to Registration
Statement of MeriStar Hotels & Resorts, Inc. on Form S-1 (File No. 333-49881)
of our report dated January 30, 1998, except for Note 6, as to which the date
is March 16, 1998, on our audits of the financial statements of AGH Leasing,
L.P. and our report dated April 1, 1998, on our audits of the financial
statements of American General Hospitality, Inc., included in the Report on
Form 8-K dated and filed on April 17, 1998 and the Form 8-K/A filed on May 22,
1998. We also consent to the references to our firm under the caption
"Experts".
/s/ PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
July 23, 1998
<PAGE>
EXHIBIT 23.2.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 5 to Registration
Statement of MeriStar Hotels & Resorts, Inc. on Form S-1 (File No. 333-49881)
of our report dated February 6, 1998 on our audits of the financial statements
of Winston Hospitality, Inc. as of October 31, 1997 and December 31, 1996 and
for the ten months ended October 31, 1997 and the years ended December 31,
1996 and 1995. We also consent to the references to our firm under the caption
"Experts".
/s/ PRICEWATERHOUSECOOPERS LLP
Raleigh, North Carolina
July 23, 1998
