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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[_]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-14331
MERISTAR HOTELS & RESORTS, INC.
(Exact name of issuer as specified in its charter)
Delaware 1010 Wisconsin Avenue, N.W., 52-2101815
(State or other Washington, D.C. 20007 (I.R.S. Employer
jurisdiction of Identification Number)
(Address of principal executive offices)
incorporation or (Zip code)
organization)
(202) 965-4455
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered:
------------------- ------------------------------------------
<S> <C>
Common Stock, par value $.01 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Based on the average sale price at March 17, 1999, the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
$69,835,000.
The number of shares of the Registrant's common stock outstanding as of
March 17, 1999 was 25,525,400.
DOCUMENTS INCORPORATED BY REFERENCE:
Part III--Those portions of the Registrant's definitive proxy statement
relating to Registrant's 1999 Annual Meeting of Stockholders which are
incorporated into Items 10, 11, 12, and 13.
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<PAGE>
PART I
ITEM 1. BUSINESS
THE COMPANY
MeriStar Hotels & Resorts, Inc. (the "Company") is the lessee, manager and
operator of various hotel assets, including nearly all of the hotel assets
owned by MeriStar Hospitality Corporation (the "REIT"). The Company was formed
on August 3, 1998 when it was spun off (the "Spin-off") by CapStar Hotel
Company ("CapStar"). CapStar transferred or caused to be transferred certain
assets and liabilities constituting the hotel management and leasing business
operated by CapStar and its subsidiaries to the Company, which was a wholly
owned subsidiary of CapStar. CapStar distributed, on a share-for-share basis,
to its stockholders of record on August 3, 1998, all of the outstanding
capital stock of the Company.
After the Spin-Off, 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"), and certain of its affiliates and CapStar and certain of its
affiliates, CapStar merged with AGH (the "Merger") creating the REIT. The
Company then acquired 100% of the partnership interests in AGH Leasing, Inc.
("AGH Leasing"), the third party lessee of most of the hotels owned by AGH and
substantially all of the assets and certain liabilities of American General
Hospitality Inc. ("AGHI"), the third-party manager of most of the hotels owned
by AGH (the "Acquisitions"). CapStar and AGHI were two of the fastest growing
operators of upscale, full-service hotels in North America, based on rooms
under management. The Company is the successor-in-interest and has assumed all
of the rights and liabilities with respect to hotel management contracts and
operating leases of CapStar, AGHI and AGH Leasing.
The Company is one of the largest independent hotel management companies in
the United States, based on rooms under management. As of December 31, 1998,
the Company leased and/or managed 203 hotels (the "MeriStar Hotels")
containing 42,466 rooms. Of the MeriStar Hotels, the Company (i) leases and
manages 109 REIT owned hotels (the "REIT Owned Hotels"), containing 28,058
rooms, (ii) leases 53 additional hotels containing 7,608 rooms, (the "Leased
Hotels") and (iii) manages an additional 41 hotels containing 6,800 rooms (the
"Managed Hotels"). The MeriStar Hotels are located throughout the United
States and Canada including most major metropolitan areas and rapidly growing
secondary cities. The MeriStar Hotels include hotels operated under nationally
recognized brand names such as Hilton(R), Sheraton(R), Westin(R), Marriott(R),
Doubletree(R), Embassy Suites(R) and Holiday Inn(R). The Company's business
strategy is to manage the renovation, repositioning and operations of each
hotel according to a business plan specifically tailored to the
characteristics of the hotel and its market.
The Company has capitalized 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 more than 20 years of lodging industry
experience, has successfully managed hotels in all segments of the lodging
industry. Management attributes its management success to its ability to
analyze each hotel as a unique property and to identify particular cash flow
growth opportunities present at each hotel. The Company's principal operating
objectives are to continue to analyze each hotel as a unique property in order
to generate higher revenue per available room ("RevPAR"), increase average
daily rates ("ADR") and increase net operating incomes 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,
the Company assumed CapStar's interests in two joint ventures. The Company
expects to form additional strategic alliances with institutional and private
hotel owners and to secure additional management fee 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.
The Company currently operates in various sectors within the hospitality
industry. The Company leases and manages properties primarily within the
upscale full-service and premium limited-service sectors, and performs
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third-party management services for owners of both sectors as well. Management
believes concentrating on the upscale, full-service and premium limited-
service sectors of the lodging industry for leasing and management activities
is appropriate because these sectors are among the most attractive available
in today's current hospitality market. These sectors are attractive for
several reasons. First, these hotels appeal to a wide variety of customers,
thus reducing the risk of decreasing demand from any particular customer
group. Secondly, such hotels have appeal to both business executives and
upscale leisure travelers, customers who are generally less price sensitive
than travelers who use non-premium, limited-service hotels. Finally, full-
service and premium limited-service hotels require a greater depth of
management expertise than non-premium limited-service hotels, and the Company
believes that its superior management skills provide it with a significant
competitive advantage in their operation.
The Company expects to expand into related sectors of the hospitality
industry such as leasing and/or managing additional resort properties, time
share properties, golf courses and conference centers. The Company believes
these parts of the hospitality industry are currently characterized by
fragmented, relatively smaller management companies without the broad range of
management, operational, and financial resources the Company possesses. By
bringing its expertise in other property management activities and these
resources to bear, management believes it can realize significant economic
benefit for the owners/lessors of such properties through increased
profitability of the properties' operations.
THE INTERCOMPANY AGREEMENT
The Company and the REIT have entered into an intercompany agreement (the
"Intercompany Agreement") which aligns the interests of the two companies with
the objective of benefiting the shareholders of both Companies.
Rights of First Refusal
The Intercompany Agreement provides that the Company has a right of first
refusal to become the lessee of any real property acquired by the REIT if the
REIT determines that, consistent with its status as a real estate investment
trust, the REIT is required to enter into a lease; provided that the Company
or an entity controlled by the Company is qualified to be the lessee based on
experience in the industry and financial and legal qualifications.
The Intercompany Agreement provides that the REIT must provide the Company
with written notice of a lessee opportunity. During the 30 days following such
notice, the Company has a right of first refusal with regard to the offer to
become a lessee and the right to negotiate with the REIT on an exclusive basis
regarding the terms and conditions of the lease. If after 30 days, the Company
and the REIT are unable to agree on the terms of a lease or if the Company
indicates that it is not interested in pursuing the opportunity, the REIT may
offer the opportunity to other hotel operators for a period of one year
thereafter, at a price and on terms and conditions that are not more favorable
than the price and terms and conditions proposed to the Company. After this
one year period, if the REIT has not leased the property, the REIT must again
offer the opportunity to the Company in accordance with the procedures
specified above.
Each company has established a leasing committee that reviews all hotel
leases to be entered into between the companies. Both leasing committees
consist of directors that are not directors of the other company.
The Company has agreed not to acquire or make (i) investments in real estate
or (ii) any other investments that may be made by the REIT under the federal
income tax rules governing real estate investment trusts unless they have
provided written notice to the REIT of the material terms and conditions of
the acquisition or investment opportunity, and the REIT has determined not to
pursue such acquisitions or investments either by providing written notice to
the Company rejecting the opportunity within 20 days or by allowing such 20-
day period to lapse. The Company has also agreed to assist the REIT in
structuring and consummating any acquisition or investment that the REIT
elects to pursue.
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The Intercompany Agreement provides the Company and the REIT with a
symbiotic relationship so that investors in both companies may enjoy the
economic benefit of the entire enterprise. Investors should be aware, however,
that because of the independent trading of the shares of the Company and the
shares of the REIT, stockholders of 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 relationship
between the two companies.
Provision of Services
The Company provides the REIT with certain services as the REIT may
reasonably request from time to time, including administrative, corporate,
accounting, financial, insurance, legal, tax, data processing, human
resources, acquisition identification and due diligence, and operational
services. The REIT compensates the Company for services provided in an amount
determined in good faith by the Company as the amount an unaffiliated third
party would charge the REIT for comparable services.
Equity Offerings
If either the Company or the REIT desires to engage in a securities
issuance, such issuing party will give notice to such other party as promptly
as practicable of its desire to engage in a securities issuance. Any such
notice will include the proposed material terms of such issuance, to the
extent determined by the issuing party, including whether such issuance is
proposed to be pursuant to a public or private offering, the amount of
securities proposed to be issued and the manner of determining the offering
price and other terms thereof. The non-issuing party will cooperate with the
issuing party in every way 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) August 3,
2008, or (b) a change in ownership or control of the Company.
Intercompany Loan
The REIT may lend the Company up to $75 million for general corporate
purposes pursuant to a revolving credit agreement. Amounts outstanding under
the facility bear interest at the 30-day London Interbank Offered Rate plus
350 basis points. As of December 31, 1998, the interest rate was 8.56% and the
Company had drawn $67 million on the facility.
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BUSINESS
The Company seeks to increase shareholder value by (i) implementing its
operating strategy to improve hotel operations and increase cash flow; (ii)
expanding its leasing and management business in its three existing operating
segments--upscale, full-service hotels, premium limited-service hotels and
inns, and resort properties; and (iii) utilizing its property management
expertise to expand into related areas such as golf course and conference
center management.
Segments
During 1998, the Company operated within three segments of the hospitality
industry: (a) upscale, full-service hotels ("Hotels"), (b) premium limited-
service hotels and inns ("Inns") and (c) resort properties ("Resorts"). The
Company's has senior executives that specialize in each of these segments and
uses its primary strategy of creating and executing management plans that are
specifically tailored for each individual property to create and realize each
property's full potential.
The Company's financial position and results of operations as of and for
each of the three years in the three-year period ended December 31, 1998,
reflect significantly differing numbers of managed and leased hotels
throughout the periods. Consequently, the Company has determined that it is
not practicable to present the segment information of the management and
leasing operations of CapStar, its predecessor entity, for the years ended
December 31, 1997 and December 31, 1996. Also, prior to the Spin-Off, the
management and leasing operations of CapStar conducted its business primarily
in only one operating segment. Therefore, the segment disclosures presented
below are for the period August 3, 1998 through December 31, 1998.
The following table summarizes certain segment financial data as of December
31, 1998 and for the period August 3, 1998 through December 31, 1998 (amounts
in thousands):
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------
Total
Hotels Inns Resorts Segments
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenues.................................... $322,720 $72,267 $73,878 $468,865
Participating Lease Expense................. $101,423 $29,430 $24,187 $155,040
EBITDA...................................... $ 4,710 $ 172 $ (882) $ 4,000
Total Assets................................ $ 48,264 $42,091 $16,276 $106,631
</TABLE>
The Company leased and managed 4 properties in Canada as of December 31,
1998. Revenues for Canadian operations totaled $8,865 for the period August 3,
1998 through December 31, 1998.
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 seeks to expand its management operations
into other hospitality-related businesses, such as time share properties,
resorts, golf courses and conference centers. The Company attempts to identify
properties that are 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 selects
those expansion targets where it believes selective capital improvements and
intensive management will increase the hotel's ability to attract key demand
segments, enhance hotel operations and increase long-term value. In order to
evaluate the relative merits of each investment opportunity, senior management
and individual operations teams create detailed plans covering all areas of
renovation and operation. These plans serve as the basis for the Company's
expansion decisions and guide subsequent renovation and operating plans.
The Company seeks to lease and/or manage hotels that meet the following
criteria:
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Market Criteria
Economic Growth. The Company focuses on metropolitan areas that are
approaching, or have already entered, periods of economic growth. Such areas
generally show above average growth in the business community as measured by
(i) job formation rates, (ii) population growth rates, (iii) tourism and
convention activity, (iv) airport traffic volume, (v) local commercial real
estate occupancy, and (vi) retail sales volume. Markets that exhibit these
characteristics typically have strong demand for hotel facilities and
services.
Supply Constraints. The Company seeks lodging markets with favorable supply
dynamics for hotel owners and operators, including an absence of current new
hotel development and barriers to future development such as zoning
constraints, the need to undergo lengthy local development approval processes
and a limited number of suitable sites. Other factors limiting the supply of
new hotels are the current lack of financing available for new development and
the inability to generate adequate returns on investment to justify new
development.
Geographic Diversification. The MeriStar Hotels are located in 32 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 seeks 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 seeks to operate hotels that are
situated near both business and leisure centers that generate a broad base of
demand for hotel accommodations and facilities. These demand generators
include (i) airports, (ii) convention centers, (iii) business parks, (iv)
shopping centers and other retail areas, (v) sports arenas and stadiums, (vi)
major highways, (vii) tourist destinations, (viii) major universities, and
(ix) cultural and entertainment centers with nightlife and restaurants. The
confluence of nearby business and leisure centers enables the Company to
attract both weekday business travelers and weekend leisure guests. Attracting
a balanced mix of business, group and leisure guests to the Hotels helps to
maintain stable occupancy rates and high ADRs.
Size and Facilities. The Company seeks to operate hotels that contain 200 to
500 guest rooms and include accommodations and facilities that are, or are
capable of being made, attractive to key demand segments such as business,
group and leisure travelers. These facilities typically include large, upscale
guest rooms, food and beverage facilities, extensive meeting and banquet
space, and amenities such as health clubs, swimming pools and adequate
parking.
Potential Performance Improvements. 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. The Company has a record of
successfully managing the renovation and repositioning of hotels, in
situations with varying levels of service, room rates and market types, and
the Company plans to continue to manage such renovation programs as its
acquires new leases and management contracts.
Operating Strategy
The Company's principal operating objectives are to generate higher RevPAR
and to increase net operating income while providing its hotel guests with
high-quality service and value. The Company seeks to achieve these objectives
by creating and executing management plans that are specifically tailored for
each individual MeriStar 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
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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 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, is headed
by an executive with significant experience in that area. These departments
support decentralized decision-making by the hotel operating executives by
providing accounting and budgeting services, property management software and
other resources which cannot be economically maintained at the individual
MeriStar Hotels.
Key elements of 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
MeriStar 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 is able to monitor actual
performance and rapidly adjust prices, staffing levels and sales efforts to
take advantage of changes in the market and to improve yield.
Targeted Sales and Marketing. The Company employs a systematic approach
toward identifying and targeting segments of demand for each Hotel in order to
maximize market penetration. Executives at the Company's corporate
headquarters and property-based managers divide such segments into smaller
subsegments, typically ten or more for each MeriStar Hotel, and develop
narrowly tailored marketing plans to suit each such segment. The Company
supports each MeriStar Hotel's local sales efforts with corporate sales
executives who develop new marketing concepts and monitor and respond to
specific market needs and preferences. These executives are active in
implementing on-site marketing programs developed in the central management
office. The Company employs computerized revenue yield management systems to
manage each MeriStar Hotel's use of the various distribution channels in the
lodging industry. Management control over those channels, which include
franchisor reservation systems and toll-free numbers, travel agent and airline
global distribution systems, corporate travel offices and office managers, and
convention and visitor bureaus, enables the Company to maximize revenue yields
on a day-to-day basis. Sales teams are recruited locally and receive
incentive-based compensation bonuses. All of the Company's sales managers
complete a highly developed sales training program.
Strategic Capital Improvements. The Company and the REIT (through the
Intercompany Agreement) and other third-party owners plan renovations
primarily to enhance a MeriStar Hotel's appeal to targeted market segments,
thereby attracting new customers and generating increased revenue and cash
flow. For example, in many of the MeriStar Hotels, the banquet and meeting
spaces have been or are intended to be renovated and guest rooms have been
upgraded with computer ports and comfortable work spaces to better accommodate
the needs of business travelers and to increase ADRs. Capital spending
decisions will be based on both strategic needs and potential rate of return
on a given capital investment. Owners of the MeriStar Hotels are 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 selects brands based on
local market factors such as local presence of the franchisor, brand
recognition, target demographics and efficiencies offered by franchisors.
Management believes that its relationships with many major hotel franchisors
places 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.
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The following chart summarizes certain information with respect to the
national franchise affiliations of the MeriStar Hotels:
<TABLE>
<CAPTION>
REIT Owned Hotels
and
Leased Hotels Managed Hotels
------------------- ------------------
Guest % of Guest % of
Franchise Rooms Hotels Rooms Rooms Hotels Rooms
- --------- ------ ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Hilton(R).............................. 6,309 23 17.7% 225 1 3.3%
Sheraton(R)............................ 3,501 10 9.8% 167 1 2.4%
Radisson(R)............................ 2,988 10 8.4% 569 2 8.4%
Holiday Inn(R)......................... 2,936 14 8.2% 1,078 6 15.9%
Hampton Inn(R)......................... 2,257 18 6.3% -- -- --
Independent............................ 2,136 13 6.0% 1,017 9 15.0%
Doubletree(R).......................... 2,014 6 5.7% 643 3 9.5%
Courtyard(R)........................... 1,648 9 4.6% 455 2 6.7%
Marriott(R)............................ 1,500 4 4.2% -- -- --
Holiday Inn Select(R).................. 1,488 5 4.2% -- -- --
Comfort Inn(R)......................... 1,293 9 3.6% -- -- --
Westin(R).............................. 1,289 4 3.6% 226 1 3.3%
Wyndham(R)............................. 850 3 2.4% -- -- --
Homewood Suites(R)..................... 795 7 2.2% -- -- --
Embassy Suites(R)...................... 728 3 2.0% 248 1 3.6%
Crowne Plaza(R)........................ 715 3 2.0% 318 1 4.7%
Ramada(R).............................. 660 3 1.9% 309 2 4.5%
Hilton Garden Inn(R)................... 474 3 1.3% -- -- --
Holiday Inn Express(R)................. 367 3 1.0% 83 1 1.2%
Doubletree Guest Suites(R)............. 292 2 0.8% -- -- --
Comfort Suites(R)...................... 277 2 0.8% 244 2 3.6%
Best Western(R)........................ 254 2 0.7% 75 1 1.1%
Four Points(R)......................... 213 1 0.6% -- -- --
Quality Suites(R)...................... 168 1 0.5% 281 2 4.1%
Residence Inn(R)....................... 168 1 0.5% 223 2 3.3%
Hampton Inn & Suites(R)................ 136 1 0.4% -- -- --
Fairfield Inn(R)....................... 110 1 0.3% 200 1 2.9%
Howard Johnson(R)...................... 100 1 0.3% -- -- --
Quality Inn(R)......................... -- -- -- 265 2 3.9%
Hilton Suites(R)....................... -- -- -- 174 1 2.6%
------ --- ----- ----- --- -----
Total................................ 35,666 162 100.0% 6,800 41 100.0%
====== === ===== ===== === =====
</TABLE>
Emphasis on Food and Beverage. Management believes popular food and beverage
ideas are a critical component in the overall success of a hotel. The Company
utilizes its food and beverage operations to create local awareness of its
hotel facilities, to improve the profitability of its hotel operations and to
enhance customer satisfaction. The Company is committed to competing for
patrons with restaurants and catering establishments by offering high-quality
restaurants that garner positive reviews and strong local and/or national
reputations. The Company has engaged food and beverage experts to develop
several proprietary restaurant concepts. The REIT Owned Hotels contain
restaurants ranging from Michel Richard's highly acclaimed CITRONELLE(R), to
Morgan's(R), a Company-designed concept which offers popular, moderately-
priced American cuisine. The Company has also successfully placed national
food franchises such as Starbuck's Coffee(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.
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Commitment to Service and Value. The Company is dedicated to providing
exceptional service and value to its customers on a consistent basis. The
Company conducts extensive employee training programs to ensure personalized
service at the highest levels. Programs such as "Be A Star" have been created
and implemented by the Company to ensure the efficacy and uniformity of its
employee training. The Company's practice of tracking customer comments,
through the recording of guest comment cards and the direct solicitation
(during check-in and check-out) of guest opinions regarding specific items,
allows investment in services and amenities where they are most effective. The
Company's focus on these areas has enabled it to attract lucrative group
business.
Distinct Management Culture. The Company has a distinct management culture
that stresses creativity, loyalty and entrepreneurship. Management believes in
realistic solutions to problems, and innovation is always encouraged.
Incentive programs and awards have been established to encourage individual
property managers to seek new ways of increasing revenues and operating cash
flow. This creative, entrepreneurial spirit is prevalent from the corporate
staff and the general managers down to the operations staff. Individual
general managers work closely with the corporate staff and they and their
employees are rewarded for achieving target operating and financial goals.
Computerized Reporting Systems. The Company employs computerized reporting
systems at each of the MeriStar Hotels and at its corporate offices to monitor
the financial and operating performance of the hotels. Management information
services have been fully integrated through the installation of Novell and
Unix networks at many of the REIT Owned Hotels. Management also utilizes daily
reporting and electronic mail programs to facilitate daily communication
between the MeriStar Hotels and the Company's corporate headquarters. Such
programs enable the Company to create and implement detailed reporting systems
at each of the MeriStar Hotels and its corporate headquarters. Corporate
executives utilize information systems that track each MeriStar Hotel's daily
occupancy, ADR, and revenue from rooms, food and beverage. By having the
latest hotel operating information available at all times, management is
better able to respond to changes in the market of each hotel.
Competition
The Company competes primarily in the following segments of the lodging
industry: (a) the upscale full-service segment, (b) the premium limited-
service segment and (c) resorts. In each geographic market in which the
MeriStar Hotels are located, there are other full- and limited-service hotels
and/or resorts that compete with the hotels. Competition in the U.S. lodging
industry is based generally on convenience of location, brand affiliation,
price, range of services and guest amenities offered and quality of customer
service and overall product.
Employees
As of December 31, 1998, the Company employed approximately 27,000 persons,
of whom approximately 24,300 were compensated on an hourly basis. Some of the
employees at 22 of the MeriStar Hotels are represented by labor unions.
Management believes that labor relations with its employees are generally
good. The REIT reimburses the Company for work performed by the Company's
employees on behalf of the REIT. During 1998, the REIT reimbursed the Company
$781,000 for worked performed by the Company's employees on behalf of the
REIT.
Franchises
The Company employs a flexible branding strategy based on a particular
hotel's market environment and the hotel's unique characteristics.
Accordingly, the Company uses various national trade names pursuant to
licensing arrangements with national franchisors.
Governmental Regulation
A number of states regulate the licensing of hotels and restaurants,
including liquor license grants, by requiring registration, disclosure
statements and compliance with specific standards of conduct. The Company
believes that it is substantially in compliance with these requirements.
Managers of hotels are also subject to
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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 Hotels and could otherwise adversely affect the Company's
operations.
Americans with Disability Act--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 MeriStar Hotels, a
determination that the Company is not in compliance with the ADA could result
in a judicial order requiring compliance, imposition of fines or an award of
damages to private litigants. The Company is likely to incur additional costs
of complying with the ADA; however, such costs are not expected to have a
material adverse effect on the Company's results of operations or financial
condition.
Environmental Laws--Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be liable for the costs of removal or remediation of
hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. In
addition, the presence of hazardous or toxic substances, or the failure to
remediate such property properly, may adversely affect the owner's ability to
use the property, sell the property or borrow by using such real property as
collateral. Persons who arrange for the disposal or treatment of hazardous or
toxic substances may also be liable for the costs of removal or remediation of
such substances at the disposal or treatment facility, whether or not such
facility is or ever was owned or operated by such person. Certain
environmental laws and common law principles could impose liability for
releases of hazardous materials, including asbestos-containing materials
("ACMs"), into the environment, and third parties may seek recovery from
owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials.
Phase I environmental site assessments ("ESA") have been conducted at all of
the REIT Owned Hotels, and Phase II ESAs have been conducted at some of the
REIT Owned Hotels by qualified independent environmental engineers. The
purpose of the ESA is to identify potential sources of contamination for which
the Hotels may be responsible and to assess the status of environmental
regulatory compliance. The ESAs have not revealed any environmental liability
or compliance concerns that the Company believes would have a material adverse
effect on the Company's business, assets, results of operations or liquidity,
nor is the Company aware of any material environmental liability or concerns.
Nevertheless, it is possible that these ESAs did not reveal all environmental
liabilities or compliance concerns or that material environmental liabilities
or compliance concerns exist of which the Company is currently unaware.
In reliance upon the Phase I and Phase II ESAs, the Company believes the
REIT Owned Hotels are in material compliance with all federal, state and local
ordinances and regulations regarding hazardous or toxic substances and other
environmental matters. The Company has not been notified by any governmental
authority of any material noncompliance, liability or claim relating to
hazardous or toxic substances or other environmental substances in any of the
REIT Owned Hotels.
10
<PAGE>
THE OPERATING PARTNERSHIP
The following summary information is qualified in its entirety by the
provisions of the amended and restated agreement of Limited Partnership, as
amended, of MeriStar H&R Operating Company, L.P., a copy of which has been
filed as an exhibit to this Form 10-K.
Substantially all of the Company's assets are held indirectly by MeriStar
H&R Operating Company, L.P. (the "Operating Partnership"), the Company's
subsidiary operating partnership. The Company is the sole general partner of
the Operating Partnership, and the Company, two officers and directors of the
Company and approximately 85 independent third-parties are limited partners of
the Operating Partnership. The partnership agreement of the Operating
Partnership gives the general partner full control over the business and
affairs of the Operating Partnership. The general partner is also given the
right, in connection with the contribution of property to the Operating
Partnership or otherwise, to issue additional partnership interests in the
Operating Partnership in one or more classes or series, with such
designations, preferences and participating or other special rights and powers
(including rights and powers senior to those of the existing partners) as the
general partner may determine.
The Operating Partnership's partnership agreement currently has three
classes of partnership interests ("OP Units"): Class A OP Units, Class B OP
Units and Preferred OP Units. As of March 17, 1999, the partners of the
Operating Partnership own the following aggregate numbers of OP Units: (i) the
Company and its wholly-owned subsidiaries own a number of Common OP Units
equal to the number of issued and outstanding shares of the Company's common
stock, par value $0.01, (the "Common Stock") (ii) the officers and directors
of the Company own 1,409,753 Class A OP Units and (ii) independent third
parties own 4,366,362 OP Units (consisting of 1,325,753 Class A OP Units,
2,648,452 Class B OP Units and 392,157 Preferred OP Units). No dividend was
paid during 1998 and no dividend is expected to be paid during 1999 to the
Class A OP Units and Class B OP Units. Preferred OP Units receive a 6.5%
cumulative annual preferred return based on an assumed price per Common Share
of $3.34, compounded quarterly to the extent not paid on a current basis, and
are entitled to a liquidation preference of $3.34 per Preferred OP Unit. All
net income and capital proceeds earned by the Operating Partnership, after
payment of the annual preferred return and, if applicable, the liquidation
preference, will be shared by the holders of the Class A OP Units and Class B
OP Units in proportion to the number of OP Units owned by each such holder.
Each OP Unit held by the two officers and directors and the independent
third-parties is redeemable by the holder for one share of Common Stock (or,
at the Company's option, for cash in an amount equal to the market value of a
share of Common Stock). In addition, the Preferred OP Units may be redeemed by
the Operating Partnership at a price of $3.34 per Preferred OP Unit (or, at
the Company's option, for a number of shares of Common Stock having a value
equal to such redemption price) at any time after April 1, 2000 or by the
holders of the Preferred OP Units at a price of $3.34 per Preferred OP Unit
(in cash or, at the holder's option, for a number of shares of Common Stock
having a value equal to the redemption price) at any time after April 1, 2004.
FORWARD-LOOKING INFORMATION
Certain information both included and incorporated by reference in this
annual report on Form 10-K may contain forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, and as such may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. Forward-
looking statements, which are based on certain assumptions and describe our
future plans, strategies and expectations are generally identifiable by use of
the words "may," "will," "should," "expect," "anticipate," "estimate,"
"believe," "intend" or "project" or the negative thereof or other variations
thereon or comparable terminology. Factors which could have a material adverse
effect on the operations and future prospects of our Company include, but are
not limited to, changes in: economic conditions generally and the real estate
market specifically,
11
<PAGE>
legislative/regulatory changes (including changes to laws governing the
taxation of real estate investment trusts), availability of capital, interest
rates, competition, supply and demand for hotel rooms in our current and
proposed market areas and general accounting principles, policies and
guidelines applicable to real estate investment trusts. These risks and
uncertainties should be considered in evaluating any forward-looking
statements contained or incorporated by reference herein.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Washington, D.C. with
satellite offices in Florida, North Carolina and Texas. The Company leases its
offices. The Company leases and/or manages hotel properties throughout the
United States and Canada. No one leased or managed hotel property is material
to the operation of the Company. A typical full-service MeriStar Hotel has
meeting and banquet facilities, food and beverage facilities and guest rooms
and suites.
The REIT Owned Hotels and Leased Hotels feature, or after contemplated
renovation programs have been completed will feature, comfortable, modern
guest rooms, extensive meeting and (for Hotels and Resorts) 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 1998 operating information
with respect to the REIT Owned Hotels and Leased Hotels:
<TABLE>
<CAPTION>
Guest
Type Number of Hotels Rooms ADR Occupancy RevPAR
- ---- ---------------- ------ ------ --------- ------
<S> <C> <C> <C> <C> <C>
Inns............................ 57 8,299 $72.93 74.2% $54.12
Hotels.......................... 83 22,365 94.28 71.3% 67.22
Resorts......................... 22 5,002 97.44 70.7% 68.89
--- ------ ------ ---- ------
Total/weighted average........ 162 35,666 $90.12 71.8% $64.71
=== ====== ====== ==== ======
</TABLE>
The following table sets forth the 1998 operating information with respect
to the hotels managed by the Company:
<TABLE>
<CAPTION>
Guest
Type Number of Hotels Rooms
- ---- ---------------- -----
<S> <C> <C>
Inns..................................................... 27 3,857
Hotels................................................... 11 2,620
Resorts.................................................. 3 323
--- -----
Total.................................................. 41 6,800
=== =====
</TABLE>
The Participating Leases
Subsidiaries of the Company are the lessees (each, a "Lessee") of 109 of the
REIT's 117 hotels. Each lease (a "Participating Lease") provides for an
initial term of 12 years. Each Participating Lease provides the 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) the Lessee will not have the right to a renewal if a change in the
tax law has occurred that would permit the REIT to operate the hotel directly;
(b) if the Lessee elects not to renew a Participating Lease for any applicable
Hotel, then the REIT has 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 is adjusted to reflect the then fair market rental value of the
hotel. If the Lessee and the REIT are unable to agree upon the then fair
market rental value of a hotel, the Participating Lease terminates upon the
expiration of the then current term and the Lessee then has 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.
12
<PAGE>
Base Rent; Participating Rent; Additional Charges
Each Participating Lease requires the Lessee to pay (i) fixed monthly base
rent (the "Base Rent"), (ii) participating rent ("Participating Rent") which
is payable monthly and based on certain percentages of room revenue, food and
beverage revenue and telephone and other revenue at each hotel in excess of
Base Rent, 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 percentage increase plus
0.75% in the case of the Participating Rent departmental revenue threshold)
compared to the prior 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.
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), that
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.
Capitalization Requirements of the Company
The Participating Leases require the Company, as guarantor of the
Participating Leases, to maintain a book net worth of not less than $40
million. Further, commencing January 1, 1999, for so long as the tangible net
worth of the Company is less than 17.5% of the aggregate rents payable under
the Participating Leases for the prior calendar year, the Company is
prohibited from paying dividends or making distributions other than dividends
or distributions made for the purpose of permitting the partners of the
Operating Partnership to pay taxes on the taxable income of the Operating
Partnership attributable to its partners plus any required preferred
distributions existing to partners.
Termination
The REIT has 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 the Lessee of the fair market value
of the leasehold estate (except for properties identified by the Company and
the REIT at the Merger as properties slated to be sold). The fair market value
of the leasehold estate is 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 the Lessee under the applicable Participating Lease for the 12-
month period preceding the termination date. The REIT will receive as a credit
against any such termination payments an amount equal to any outstanding "New
Lease Credits," which means the projected cash flow (determined on the same
basis as the termination payment) of any new Participating Leases entered into
between the Company and the REIT 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 has 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) the Lessee can reasonably demonstrate that the gross revenue
shortfall was caused by general market conditions beyond the Lessee's control
or (b) the Lessee "cures" the shortfall by paying to
13
<PAGE>
the Company 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. The Lessee does not have
such a cure right for more than two consecutive years.
The Participating Leases also require that the 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
The Lessees do 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 the Company or the Lessees 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.
ITEM 3. LEGAL PROCEEDINGS
In the course of the Company's normal business activities, various lawsuits,
claims and proceedings have been or may be instituted or asserted against the
Company. Based on currently available facts, management believes that the
disposition of matters that are pending or asserted will not have a material
adverse effect on the consolidated financial position, results of operations
or liquidity of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted to a vote of security holders during the
fourth quarter of 1998.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "MMH." The following table sets forth for the periods indicated the
high and low closing sale prices for the Common Stock on the NYSE.
<TABLE>
<CAPTION>
Price
---------------
High Low
------- -------
<S> <C> <C>
1999:
First Quarter (through March 17, 1999)....................... $3 3/16 $2 3/8
1998:
Fourth Quarter (ended December 31, 1998)..................... 2 11/16 1 15/16
Third Quarter (from Spin-Off on August 3, 1998 through
September 30, 1998)......................................... 3 3/4 2
</TABLE>
The last reported sale price of the Common Stock on the NYSE on March 17,
1999 was $2 13/16. As of March 17, 1999, there were approximately 149 holders
of record of the Common Stock.
The Company has not paid any cash dividends on the Common Stock and does not
anticipate that it will do so in the foreseeable future. The Company intends
to retain earnings to provide funds for the continued growth and development
of the Company's business. The Company's lease agreements with the REIT
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.
Recent Sales of Unregistered Securities
On August 3, 1998, the Company privately issued 3,414,872 Class B OP Units
as part of the purchase of 100% of the partnership interests in AGH Leasing
and substantially all of the assets and certain liabilities of AGHI.
On October 1, 1998, the Company privately issued 916,230 Class A OP Units as
part of the purchase of a portfolio of assets from South Seas Properties
Company Limited Partnership and its affiliates.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial information for
the Company. The selected Operating Results and Balance Sheet Data have been
extracted from the consolidated financial statements for each of the periods
presented. The following information should be read in conjunction with the
consolidated financial statements and notes thereto for the Company and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
---------- --------- --------- --------- ---------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues:
Rooms.................. $ 395,633 $ 9,880 $ -- $ -- $ --
Food, beverage, office
rental and other...... 152,276 1,871 -- -- --
Management services and
other revenues........ 14,528 12,088 7,050 5,354 4,418
---------- --------- --------- -------- --------
Total revenues........ 562,437 23,839 7,050 5,354 4,418
---------- --------- --------- -------- --------
Operating expenses:
Departmental expenses:
Rooms.................. 95,627 2,533 -- -- --
Food, beverage and
other................. 107,860 1,170 -- -- --
Undistributed operating
expenses:
Administrative and
general............... 84,881 10,473 6,140 4,745 4,508
Participating lease
expense............... 186,601 4,135 -- -- --
Property and other
operating costs....... 76,300 1,917 -- -- --
Depreciation and
amortization.......... 3,372 636 349 84 23
---------- --------- --------- -------- --------
Total operating
expenses............. 554,641 20,864 6,489 4,829 4,531
---------- --------- --------- -------- --------
Net operating income
(loss)................. 7,796 2,975 561 525 (113)
Interest expense, net... 2,017 56 123 44 --
Minority interest....... 155 103 -- -- --
Provision for income
taxes(A)............... 337 -- -- -- --
Equity in earnings of
affiliates............. (1,337) 46 -- -- --
---------- --------- --------- -------- --------
Net income (loss)..... $ 3,950 $ 2,862 $ 438 $ 481 $ (113)
---------- --------- --------- -------- --------
Basic earnings per
share(B)............... $ 0.02 -- -- -- --
Diluted earnings per
share(B)............... $ 0.02 -- -- -- --
Number of shares of
common stock issued and
outstanding(C)......... 25,437 -- -- -- --
Other Financial Data:
EBITDA(D)............... $ 11,168 $ 3,611 $ 910 $ 609 $ (90)
Net cash provided by
operating activities... 10,125 11,167 19,069 208 66
Net cash used in
investing activities... (102,105) (6,501) (1,826) (61) (41)
Net cash provided by
financing activities... 76,113 4,208 699 59 --
Balance Sheet Data:
Total assets............ $ 247,529 $ 84,419 $ 24,366 $ 2,881 $ 1,232
Debt.................... 67,812 981 885 950 --
</TABLE>
- --------
(A) No provision for federal income taxes was included prior to 1998 because
the Company's predecessor entities were partnerships and all federal
income tax liabilities were passed through to the individual partners.
(B) Basic and diluted earnings per share for the year ended December 31, 1998
is based on earnings for the period from August 3, 1998 through December
31, 1998.
(C) As of December 31 for the period presented.
(D) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. Management believes that EBITDA is a useful
measure of operating performance because (i) it is industry practice to
evaluate hotel properties based on operating income before interest,
depreciation and amortization and minority interests of common and
preferred OP Unit holders, which is generally equivalent to EBITDA, and
(ii) EBITDA is unaffected by the debt and equity structure of the entity.
EBITDA does not represent cash flow from operations as defined by
generally accepted accounting principles ("GAAP"), is not necessarily
indicative of cash available to fund all cash flow needs, and should not
be considered as an alternative to net income under GAAP for purposes of
evaluating the Company's results of operations and may not be comparable
to other similarly titled measures used by other companies.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
On August 3, 1998, the management and leasing operations of CapStar Hotel
Company ("CapStar") were spun-off (the "Spin-Off") in a taxable transaction in
which CapStar distributed on a share-for-share basis all shares of common
stock, par value $0.01 per share, ("Common Stock") of MeriStar Hotels &
Resorts, Inc. (the "Company"). The Company thereby became the lessee, manager
and operator of various hotel assets, including those which were previously
owned, leased and managed by CapStar and certain of its affiliates. On August
3, 1998, CapStar merged (the "Merger") with and into American General
Hospitality Corporation ("AGH"), a Maryland corporation operating as a real
estate investment trust, to form MeriStar Hospitality Corporation (the
"REIT").
Immediately following the Spin-Off and the Merger, the Company acquired 100%
of the partnership interests in AGH Leasing, L.P., ("AGH Leasing"), the third-
party lessee of most of the hotels owned by AGH, and substantially all of the
assets and liabilities of American General Hospitality, Inc. ("AGHI"), the
third-party manager of most of the AGH hotels. As a result, the Company became
the lessee and manager of most of the hotels owned by the REIT. The purchase
price of $95.0 million was paid with a combination of cash and units of
limited partnership interest ("OP Units") in the Company's subsidiary
operating partnerships. In accordance with generally accepted accounting
principles, the acquisitions have been accounted for as a purchase and
therefore, the operating results of AGHI and AGH Leasing have been included in
the Company's consolidated financial statements since the date of acquisition.
The Company's financial statements include the historical results of the
Company's predecessor entity, the management and leasing operations of
CapStar, for all periods and include the operating results of AGH Leasing and
AGHI since August 3, 1998. In addition, prior to August 3, 1998, the Company
managed substantially all of the hotels owned by CapStar and received
management fee revenues from such hotels. Since August 3, 1998, the Company
has leased these hotels from the REIT and therefore records no management fees
from such hotels but instead records room, food and beverage and other
operating department revenues and expenses from such leases. Therefore, the
Company's financial condition and results of operations as of December 31,
1998 and December 31, 1997 and for the periods ended December 31, 1998, 1997
and 1996 reflect significantly differing numbers of managed and leased hotels
throughout the periods. The following table outlines the Company's historical
portfolio of managed and leased hotels:
<TABLE>
<CAPTION>
REIT CapStar Third Party Other
Leased Owned Managed Leased Total
------------- ------------- ------------ ------------ -------------
Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
------ ------ ------ ------ ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998....... 109 28,058 -- -- 41 6,800 53 7,608 203 42,466
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
</TABLE>
Financial Condition
December 31, 1998 compared with December 31, 1997
Total assets increased by $163.1 million to $247.5 million at December 31,
1998 from $84.4 million at December 31, 1997. Total liabilities increased by
$143.4 million to $183.1 million from $39.7 million. The increases in assets
and liabilities result primarily from the August 3, 1998 purchase of AGHI and
AGH Leasing. Minority interests increased by $15.9 million from $3.8 million
to $19.7 million primarily due to the issuance of OP Units in conjunction with
the acquisitions of AGHI and AGH Leasing.
17
<PAGE>
Results of Operations
Year Ended December 31, 1998 compared with the Year Ended December 31, 1997
Total revenue increased by $538.6 million or 2,259% to $562.4 million in
1998 compared to $23.8 million in 1997. This increase results from the
increase in the number of hotels leased as described above.
Operating expenses increased $533.7 to $554.6 million in 1998 compared to
$20.9 million in 1997. The increase reflects the increase in the number of
leased and managed hotels, 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 $4.8 million, or 162%, to $7.8 million in
1998 compared to $3.0 million in 1997. Earnings before interest, taxes,
depreciation and amortization ("EBITDA") increased $7.6 million to $11.2
million in 1998 compared to $3.6 million in 1997. These increases resulted
primarily from the increase in the number of leased and managed hotels, offset
partially by the costs of additional personnel and other administrative costs
incurred as described above.
EBITDA for the Company's three operating segments for the period August 3,
1998 through December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Total
Hotels Inns Resorts Segments
------ ---- ------- --------
<S> <C> <C> <C> <C>
EBITDA............................................. $4,710 $172 $(882) $4,000
</TABLE>
Year Ended December 31, 1997 compared with the Year Ended December 31, 1996
Total revenue increased by $16.7 million or 235% to $23.8 million 1997
compared to $7.1 million in 1996. This 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 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, offset partially by the costs of additional
personnel and other administrative costs incurred as described above.
Net operating income increased by 430% to $3.0 million in 1997 compared to
$0.6 million in 1996 and EBITDA grew to $3.6 million in 1997 from $0.9 million
in 1996. The increases resulted primarily from the increase in the number of
managed hotels and the leases acquired in 1997, offset partially by the costs
of additional personnel and other administrative costs incurred as described
above.
Liquidity and Capital Resources
The Company's continuing operations are funded through cash generated from
hotel management and leasing operations. Business acquisitions and investments
in affiliates are financed through a combination of internally generated cash,
external borrowings and the issuance of OP Units and/or common stock.
On August 3, 1998, the Company entered into a three-year, $75.0 million
revolving credit facility (the "Credit Facility") with the REIT. The Credit
Facility contains certain covenants, including maintenance of financial
ratios, reporting requirements and other customary restrictions. Interest on
the facility is the 30-day London Interbank Offered Rate plus 350 basis
points. As of December 31, 1998, the Company had $67.0 million in outstanding
borrowings under the Credit Facility, at an interest rate of 8.56%. The
Company incurred interest expense of $2.0 million on this facility during
1998.
Operating activities provided $10.1 million of net cash in 1998, mainly due
to higher levels of net income, depreciation and amortization, and accrued
expenses and other liabilities due to the increase in hotels leased.
18
<PAGE>
The Company used $102.1 million of cash in investing activities for 1998,
primarily for the purchase of AGHI and AGH Leasing. Net cash provided by
financing activities of $76.1 million resulted from borrowings under the
Credit Facility and contributions from CapStar. In conjunction with the Spin-
Off, the operating assets and liabilities of the hotels leased from the REIT
were transferred to the Company, resulting in a payable to the REIT of $7.4
million at December 31, 1998.
Under the terms of the participating leases between the Company and its
lessors, the lessors will generally be required to fund significant capital
expenditures at the hotels leased by the Company.
The Company believes cash generated by operations, together with anticipated
borrowing capacity under the credit facility, will be sufficient to fund its
existing working capital, ongoing capital expenditures, and debt service
requirements. In addition, the Company expects to continue to seek
acquisitions of hotel management businesses and management contracts. The
Company expects to finance these future acquisitions through a combination of
anticipated borrowing capacity under its 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. 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.
Year 2000 Conversion
The Company is in the process of conducting a review of its computer systems
to identify the systems that could be affected by the "Year 2000" problem and
has initiated an implementation plan to address the problem. The Year 2000
problem is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. If not corrected, this could result in a major
systems failure or miscalculations.
The Company's leased and managed hotel properties contain various
information technology and embedded technology systems. Both types of systems
contain microprocessors and microcontrollers that must be assessed for Year
2000 compliance. The Company has developed a comprehensive implementation plan
to address the potential Year 2000 problems caused by such systems. This plan
involves six stages: increase awareness of issue; assign responsibility for
coordinating response to issue; information collection; analysis;
modification, repair or replacement; and testing. The Company is currently in
its analysis stage, and expects to complete this stage by March 1999. The
following stages are expected to be completed as follows: modification, repair
or replacement--June 1999; and testing--August 1999. As an additional part of
its implementation plan to address the Year 2000 problem, the Company has also
initiated communications with third parties with which it has material
relationships to determine the extent of potential Year 2000 problems with
these parties' services provided to the Company.
The most critical of these services involve such items as reservations
systems for the Company's hotels. Without such systems, the Company could
suffer a material decline in business at many of its properties. The Company
expects to complete its communications and assessment of third parties'
services by March 1999. Also, the Company expects to develop contingency plans
in 1999 to allow for manual or other alternative operation of certain
computerized systems, in the event that modification, repair, and replacement
efforts are not completed timely.
19
<PAGE>
The Company anticipates completing its Year 2000 implementation plan no
later than September 30, 1999, which is prior to any anticipated impact on its
operating systems. As of December 31, 1998, historical costs incurred to
address the Year 2000 problem approximate $0.2 million. The Company expects
that essentially all of the future expenditures required to modify, repair,
and replace computerized systems at its leased and managed hotel properties
will be the financial responsibility of the owners of those properties. The
Company has not yet developed a final cost estimate related to fixing Year
2000 issues, but an initial estimate of these remediation costs for all of its
leased and managed properties (including those properties leased from the
REIT) is $15-25 million. This cost estimate is based on the Company's
preliminary assessment, and will be refined and adjusted as the Company
continues to complete the stages of its implementation plan to address the
potential Year 2000 problems.
Based on its preliminary assessment, the Company believes that its risks of
Year 2000 non-compliance (that is, its "most reasonably likely worst case
scenario"), with modifications to existing software and converting to new
software, will not pose significant operational problems for the Company's
computer systems as so modified and converted. If, however, such modifications
and conversions are not completed timely, the Year 2000 problem could have a
material impact on the Company's financial position and operations. The
Company's operations are highly dependent upon efficient operating systems at
its properties. To the extent that the Year 2000 problems materially affect
the conduct of operations at those properties, it is likely that the Company's
ability to efficiently manage operations would be materially affected. Also,
as discussed above, the vast majority of expenditures related to Year 2000
problems at the Company's leased and managed properties will be the financial
responsibility of the owners of those properties. To the extent that those
owners are unable or unwilling to modify, repair, and replace systems with
potential Year 2000 problems, the Company could suffer material adverse
financial consequences.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on its
Credit Facility that impacts the fair value of this obligation. The Company's
interest rate risk management objective is to limit the impact of interest
rate changes on earnings and cash flows and to lower its overall borrowing
costs. The Company has not entered into any derivative or interest rate
transactions.
The table below presents the principal amounts, weighted average interest
rates, and fair values by year of expected maturity to evaluate the expected
cash flows and sensitivity to interest rate changes. All items described are
non-trading (in thousands of dollars).
<TABLE>
<CAPTION>
Variable Average
Expected Maturity Rate Interest Rate
- ----------------- -------- -------------
<S> <C> <C>
1999.................................................... $ -- $--
2000.................................................... -- --
2001.................................................... 67,000 8.6%
2002.................................................... -- --
2003.................................................... -- --
Thereafter.............................................. -- --
------- ----
Total................................................... $67,000 8.6%
======= ====
Fair Value at 12/31/98.................................. $67,000 8.6%
======= ====
</TABLE>
Although the Company conducts business in Canada, the Canadian operations
were not material to the Company's consolidated financial position, results of
operations or cash flows as of December 31, 1998. Additionally, foreign
currency transaction gains and losses were not material to the Company's
results of operations for the year ended December 31, 1998. Accordingly, the
Company was not subject to material foreign currency exchange rate risk from
the effects that exchange rate movements of foreign currencies would have on
the Company's future costs or on future cash flows it would receive from its
foreign subsidiaries. To date, the
20
<PAGE>
Company has not entered into any significant foreign currency forward exchange
contracts or other derivative financial instruments to hedge the effects of
adverse fluctuations in foreign currency exchange rates.
ITEM 8. FINANCIAL STATEMENTS
The following Consolidated Financial Statements are filed as part of this
Annual Report on Form 10-K:
<TABLE>
<S> <C>
MeriStar Hotels & Resorts, Inc.
Independent Auditors' Report.............................................. 22
Consolidated Balance Sheets as of December 31, 1998 and 1997.............. 23
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996...................................................... 24
Consolidated Statements of Stockholders' Equity and Owners' Equity for the
Years Ended December 31, 1998, 1997 and 1996............................. 25
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996...................................................... 26
Notes to the Consolidated Financial Statements............................ 27
</TABLE>
All Financial Statement Schedules are omitted because they are not
applicable or the required information is shown in the Consolidated Financial
Statements or the Notes thereto.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
MeriStar Hotels & Resorts, Inc.:
We have audited the accompanying consolidated balance sheets of MeriStar
Hotels & Resorts, Inc. and subsidiaries as of December 31, 1998 and 1997 and
the related consolidated statements of operations, stockholders' equity and
owners' equity, and cash flows for each of the years in the three-year period
ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MeriStar
Hotels & Resorts, Inc. and subsidiaries as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Washington, D.C.
February 1, 1999
22
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
INCLUDING PREDECESSOR ENTITY
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents.................................. $ 11,155 $27,022
Accounts receivable, net of allowance for doubtful accounts
of $2,285 and $72......................................... 61,987 7,162
Prepaid expenses........................................... 4,193 1,097
Deposits and other......................................... 11,085 2,856
-------- -------
Total current assets........................................ 88,420 38,137
Fixed assets:
Furniture, fixtures, and equipment......................... 7,325 2,701
Accumulated depreciation................................... (1,099) (418)
-------- -------
Total fixed assets, net..................................... 6,226 2,283
Investments in and advances to affiliates................... 5,495 8,058
Intangible assets, net of accumulated amortization of $3,338
and $719................................................... 146,782 35,941
Restricted cash............................................. 606 --
-------- -------
$247,529 $84,419
======== =======
Liabilities, Minority Interests, Stockholders' Equity and
Owners' Equity
Current Liabilities:
Accounts payable........................................... $ 28,401 $ 2,082
Accrued expenses and other liabilities..................... 70,016 14,360
Due to affiliates, net..................................... 7,437 22,287
Income taxes payable....................................... 69 --
Long-term debt, current portion............................ 27 392
-------- -------
Total current liabilities................................... 105,950 39,121
Deferred income taxes....................................... 9,367 --
Long-term debt.............................................. 67,785 589
-------- -------
Total liabilities........................................... 183,102 39,710
Minority interests.......................................... 19,693 3,800
Commitments and contingencies
Stockholders' equity:
Common stock, par value $.01 per share:
Authorized--100,000 shares Issued and outstanding--25,437
shares 254 --
Paid-in capital........................................... 43,929 --
Retained earnings......................................... 551 --
-------- -------
Total Stockholders' equity.................................. 44,734 --
-------- -------
Owners' equity.............................................. -- 40,909
-------- -------
$247,529 $84,419
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
INCLUDING PREDECESSOR ENTITY
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- ------
<S> <C> <C> <C>
Revenue:
Rooms................................................ $395,633 $ 9,880 --
Food and beverage.................................... 119,295 1,397 --
Other operating departments.......................... 32,981 474 --
Management and other fees............................ 14,528 12,088 7,050
-------- ------- ------
Total revenue......................................... 562,437 23,839 7,050
-------- ------- ------
Operating expenses by department:
Rooms................................................ 95,627 2,533 --
Food and beverage.................................... 90,662 909 --
Other operating expenses............................. 17,198 261 --
Undistributed operating expenses:
Administrative and general........................... 84,881 10,473 6,140
Participating lease expense.......................... 186,601 4,135 --
Property operating costs............................. 76,300 1,917 --
Depreciation and amortization........................ 3,372 636 349
-------- ------- ------
Total operating expenses.............................. 554,641 20,864 6,489
-------- ------- ------
Net operating income.................................. 7,796 2,975 561
Interest expense, net................................. 2,017 56 123
Equity in earnings of affiliates...................... (1,337) 46 --
-------- ------- ------
Income before minority interests and income taxes..... 4,442 2,965 438
Minority interests.................................... 155 103 --
Income taxes.......................................... 337 -- --
-------- ------- ------
Net income............................................ $ 3,950 $ 2,862 $ 438
======== ======= ======
Earnings per share:
Basic............................................... $ 0.02 -- --
Diluted............................................. $ 0.02 -- --
======== ======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND OWNERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
INCLUDING PREDECESSOR ENTITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
------------- Paid-in Retained Owners'
Shares Amount Capital Earnings Equity Total
------ ------ ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996.. -- $-- $ -- $-- $ 763 $ 763
Capital contributions..... -- -- -- -- 1,806 1,806
Net income for the year... -- -- -- -- 438 438
------ ---- ------- ---- ------- -------
Balance, December 31,
1996..................... -- -- -- -- 3,007 3,007
Capital contributions..... -- -- -- -- 35,040 35,040
Net income for the year... -- -- -- -- 2,862 2,862
------ ---- ------- ---- ------- -------
Balance, December 31,
1997..................... -- -- -- -- 40,909 40,909
Net income for period
January 1, 1998 through
August 2, 1998........... -- -- -- -- 3,399 3,399
Spin-Off and Issuances of
common stock............. 24,952 249 42,949 -- (44,308) (1,110)
Issuances of common stock
under Stock Purchase
Plan..................... 5 -- 11 -- -- 11
Rights offering........... 480 5 952 -- -- 957
Proceeds from exercise of
stock options, net....... -- -- 17 -- -- 17
Net income for period
August 3, 1998 through
December 31, 1998........ -- -- -- 551 -- 551
------ ---- ------- ---- ------- -------
Balance, December 31,
1998..................... 25,437 $254 $43,929 $551 $ -- $44,734
====== ==== ======= ==== ======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
25
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
INCLUDING PREDECESSOR ENTITY
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- ------- -------
<S> <C> <C> <C>
Operating activities:
Net income....................................... $ 3,950 $ 2,862 $ 438
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation and amortization................... 3,372 636 349
Equity in earnings of affiliates................ 1,337 (46) --
Minority interests.............................. 155 103 --
Deferred income taxes........................... 267 -- --
Changes in operating assets and liabilities:
Accounts receivable, net....................... (54,825) (5,459) (412)
Prepaid expenses............................... (3,096) (320) (724)
Deposits and other............................. (8,229) (645) (111)
Accounts payable............................... 26,319 1,539 276
Due to affiliates, net......................... (14,850) 3,638 18,344
Accrued expenses and other liabilities......... 55,656 8,859 909
Income taxes payable........................... 69 -- --
--------- ------- -------
Net cash provided by operating activities......... 10,125 11,167 19,069
--------- ------- -------
Investing activities:
Purchases of fixed assets........................ (4,624) (2,046) (382)
Purchases of intangible assets................... (99,438) (924) (824)
Investments in and advances to affiliates........ 2,563 (2,078) (150)
Distribution from investments in affiliates...... -- 147 30
Additions to notes receivable.................... -- (1,600) (500)
Change in escrows and restricted funds........... (606) -- --
--------- ------- -------
Net cash used in investing activities............. (102,105) (6,501) (1,826)
--------- ------- -------
Financing activities:
Proceeds from long-term debt..................... 67,000 96 662
Principal payments on long-term debt............. (169) 4,112 --
Repayments to affiliate.......................... -- -- (950)
Repayments of loans to management................ -- -- 987
Proceeds from issuances of common stock, net..... 974 -- --
Contributions from CapStar....................... 8,383 -- --
Distributions to minority investors.............. (75) -- --
--------- ------- -------
Net cash provided by financing activities......... 76,113 4,208 699
--------- ------- -------
Net increase (decrease) in cash and cash
equivalents...................................... (15,867) 8,874 17,942
Cash and cash equivalents, beginning of year...... 27,022 18,148 206
--------- ------- -------
Cash and cash equivalents, end of year............ $ 11,155 $27,022 $18,148
========= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(dollars in thousands, except per share amounts)
1. Organization
MeriStar Hotels & Resorts, Inc. (the "Company") was spun off by CapStar
Hotel Company ("CapStar") on August 3, 1998 (the "Spin-Off") to become the
lessee, manager and operator of various hotel assets, including those which
were previously owned, leased and managed by CapStar and certain of its
affiliates. CapStar distributed to its stockholders, on a share-for-share
basis, all of the outstanding shares of the Company's common stock, par value
$0.01 per share ("Common Stock"). On August 3, 1998, CapStar merged (the
"Merger") with and into American General Hospitality Corporation ("AGH"), a
Maryland corporation operating as a real estate investment trust, to form
MeriStar Hospitality Corporation (the "REIT").
Immediately following the Spin-Off and the Merger, the Company acquired 100%
of the partnership interests in AGH Leasing L.P. ("AGH Leasing"), the third-
party lessee of most of the hotels owned by AGH, and acquired substantially
all of the assets and certain liabilities of American General Hospitality,
Inc. ("AGHI"), the third-party manager of most of the hotels owned by AGH and
certain other hotels. The Company thereby became the lessee, manager and
operator of most of the hotels owned by AGH. The purchase price of $95,000 was
funded with a combination of cash and units of limited partnership interest
("OP Units") in the Company's subsidiary operating partnership. In accordance
with generally accepted accounting principles ("GAAP"), the acquisitions have
been accounted for as purchases and, therefore, the operating results of AGHI
and AGH Leasing are included in the Company's consolidated financial
statements from the date of acquisition.
The Company's financial statements include the historical results of the
Company's predecessor entity, the management and leasing operations of
CapStar, for all periods and include the operating results of AGH Leasing and
AGHI since August 3, 1998. In addition, prior to August 3, 1998, the Company
managed substantially all of the hotels owned by CapStar and received
management fee revenues from such hotels. Since August 3, 1998, the Company
has leased these hotels from the REIT and therefore records no management fees
from such hotels but instead records room, food and beverage and other
operating department revenues and expenses from such leased properties.
Therefore, the Company's results of operations for each of the years in the
three-year period ended December 31, 1998 reflect significantly differing
numbers of managed and leased hotels throughout the periods. The following
table outlines the Company's historical portfolio of managed and leased
hotels:
<TABLE>
<CAPTION>
REIT CapStar Third Party Other
Leased Owned Managed Leased Total
------------- ------------- ------------ ------------ -------------
Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
------ ------ ------ ------ ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1998....... 109 28,058 -- -- 41 6,800 53 7,608 203 42,466
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
</TABLE>
Pursuant to an intercompany agreement, the Company and the REIT provide each
other with, among other things, reciprocal rights to participate in certain
transactions entered into by each party. In particular, the Company has a
right of first refusal to become the lessee of any real property acquired by
the REIT. The Company also provides the REIT with certain services including
administrative, corporate, accounting, financial, insurance, legal, tax, data
processing, human resources, acquisition identification and due diligence, and
operational services, for which the Company is compensated in an amount that
the REIT would be charged by an unaffiliated third party for comparable
services.
27
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
2. Summary of Significant Accounting Policies
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and all of its majority owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Investments in unconsolidated joint ventures and affiliated companies in
which the Company holds a voting interest of 50% or less and exercises
significant influence are accounted for using the equity method. The Company
uses the cost method to account for its investment in entities in which it
does not have the ability to exercise significant influence.
Cash Equivalents and Restricted Cash--The Company considers all highly
liquid investments with an original maturity of three months or less to be
cash equivalents. Restricted cash represents amounts required to be maintained
in escrow.
Fixed Assets--Fixed assets are recorded at cost and are depreciated using
the straight-line method over lives ranging from five to seven years.
Intangible Assets--Intangible assets consist of the value of goodwill and
lease contracts purchased, franchise costs, and costs incurred to obtain
management contracts. Goodwill represents the excess of cost over the fair
value of the net assets of the acquired businesses. Intangible assets are
amortized on a straight-line basis over the estimated useful lives of the
underlying assets ranging from five to 40 years.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of--The
carrying values of long-lived intangible assets are evaluated periodically in
relation to the operating performance and expected future undiscounted cash
flows of the underlying assets. Adjustments are made if the sum of expected
future undiscounted net cash flows 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 1998, 1997 or 1996.
Income Taxes--Prior to the Spin-Off, no provision for income taxes was made
since the Company's predecessor entities were partnerships and limited
liability companies, and, therefore, all income, losses, and credits for tax
purposes were passed through to the individual partners. Concurrent with the
Spin-Off, the Company implemented Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes." Deferred income taxes reflect
the tax consequences on future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts.
Foreign Currency Translation--Results of operations for the Company's
Canadian leased and managed hotels are maintained in Canadian dollars and
translated using the average exchange rates during the period. Assets and
liabilities are translated to U.S. dollars using the exchange rate in effect
at the balance sheet date. Resulting translation adjustments are reflected in
stockholders' equity as a cumulative foreign currency translation adjustment.
At December 31, 1998, the translation adjustment was $35. Transaction gains
and losses are included in the results of operations as incurred.
Stock-Based Compensation--The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
Accordingly, the Company applies Accounting Principles Board Opinion No. 25 in
accounting for its stock-based plans and therefore no compensation cost has
been recognized for these plans.
28
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
Revenue Recognition--Revenue is earned through the operations and management
of the hotel properties and is recognized when earned.
Participating Lease Agreements--The Company's participating leases have non-
cancelable initial terms ranging from 10 to 15 years, subject to earlier
termination on the occurrence of certain contingencies, as defined. The rent
payable under each participating lease is the greater of base rent or
percentage rent, as defined. Percentage rent applicable to room and food and
beverage revenue varies by lease and is calculated by multiplying fixed
percentages by the total amounts of such revenues over specified threshold
amounts. Both the minimum rent and the revenue thresholds used in computing
percentage rents are subject to annual adjustments based on increases in the
United States Consumer Price Index. Percentage rent applicable to other
revenues is calculated by multiplying fixed percentages by the total amounts
of such revenues.
In May 1998, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue No. 98-9, "Accounting for Contingent Rent in Interim Financial Periods".
EITF No. 98-9 affects the recognition of contingent rental expense in interim
periods. This pronouncement requires a lessee to recognize contingent rental
expense in interim periods prior to the achievement of the specified target
that triggers the contingent rental expense, if the achievement of that target
by the end of the fiscal year is considered probable. This new accounting
pronouncement relates only to the Company's recognition of lease expense in
interim periods for financial reporting purposes; it has no effect on the
timing of rent payments under the Company's leases or the Company's annual
lease expense calculations. The Company adopted EITF No. 98-9 effective July
1, 1998.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications--Certain 1997 and 1996 amounts have been reclassified to
conform to 1998 presentation.
3. Investments in and Advances to Affiliates
The Company has ownership interests in certain unconsolidated corporate
joint ventures and affiliated companies. The Company's net investment in and
advances to these corporate joint ventures and affiliated companies are
summarized as follows:
<TABLE>
<CAPTION>
December 31,
-------------
1998 1997
------ ------
<S> <C> <C>
CapStar Wyandotte Company LLC................................. $1,837 $3,023
HGI Holdings, LLC............................................. -- 1,895
BoyStar Ventures, L.P. ....................................... 1,367 1,175
Ballston Parking Associates................................... 1,629 1,629
Other......................................................... 662 336
------ ------
$5,495 $8,058
====== ======
</TABLE>
29
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
Combined summarized financial information of the Company's unconsolidated
corporate joint ventures and affiliated companies is as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
<S> <C> <C>
Balance sheet data:
Current assets............................................. $ 902 $ 1,773
Non-current assets......................................... 18,332 32,766
Current liabilities........................................ 1,082 1,094
Non-current liabilities.................................... 157 7,000
Operating data:
Revenue.................................................... $11,159 $ 1,742
Net loss................................................... (933) (110)
</TABLE>
4. Intangible Assets
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
-------- -------
<S> <C> <C>
Goodwill.................................................. $109,213 $27,605
Lease contracts........................................... 33,216 6,576
Management contracts...................................... 2,992 867
Other..................................................... 4,699 1,612
-------- -------
150,120 36,660
-------- -------
Less accumulated amortization............................. (3,338) (719)
$146,782 $35,941
======== =======
</TABLE>
5. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------- -----
<S> <C> <C>
Credit Facility.............................................. $67,000 $ --
Other........................................................ 812 981
------- -----
67,812 981
Less current portion......................................... (27) (392)
------- -----
$67,785 $ 589
======= =====
</TABLE>
Credit Facility--On August 3, 1998, the Company entered into a three-year,
$75,000, unsecured revolving credit facility (the "Credit Facility") with the
REIT. The Credit Facility contains certain covenants, including maintenance of
financial ratios, reporting requirements and other customary restrictions.
Interest on the facility is variable, based on the 30-day London Interbank
Offered Rate plus 350 basis points. As of December 31, 1998, the Company had
$67,000 in outstanding borrowings under the Credit Facility, at an interest
rate of 8.56%. The Company has determined that the fair value of this note
payable approximates its carrying value. The Company incurred interest expense
of $1,967 on this facility during 1998.
30
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
Future Maturities--Aggregate future maturities of the above obligations are
as follows: 1999-$27; 2001-$67,785.
6. Income Taxes
Prior to the Spin-Off, the Company's predecessor entity conducted its
operations in partnerships and limited liability companies; these operations,
therefore, were not subject to income taxes. The Company is taxable as a C
Corporation. Accordingly, the Company's 1998 income taxes are based on pretax
income since the Spin-Off. Pretax income for the period August 3, 1998 through
December 31, 1998 was $887.
The Company's effective income tax rate for the period from August 3, 1998
through December 31, 1998 differs from the federal statutory income tax rate
as follows:
<TABLE>
<S> <C>
Statutory tax rate.................................................... 35.0%
State and local taxes................................................. 4.2
Difference in rates on foreign subsidiaries........................... 2.3
Business meals and entertainment...................................... 5.2
Compensation expense.................................................. (77.8)
Valuation allowance................................................... 69.0
-----
37.9%
=====
</TABLE>
The components of income tax expense are as follows:
<TABLE>
<S> <C>
Current:
Federal............................................................... $--
State................................................................. 27
Foreign............................................................... 42
----
69
----
Deferred:
Federal............................................................... 234
State................................................................. 33
Foreign............................................................... --
----
267
----
$336
====
</TABLE>
31
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
The tax effects of the temporary differences and carryforwards that give
rise to the Company's net deferred tax liability at December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts.................................. $ 236
Accrued vacation................................................. 545
Net operating loss............................................... 613
--------
Total gross deferred tax assets.................................. 1,394
Less valuation allowance......................................... (613)
--------
Net deferred tax assets.......................................... 781
--------
Deferred tax liabilities:
Accrued expenses................................................. (7)
OP Units......................................................... (9,100)
Amortization expense............................................. (580)
Prepaid expenses................................................. (461)
--------
Total gross deferred tax liabilities............................. (10,148)
--------
Net deferred tax liability........................................ $ (9,367)
========
</TABLE>
At December 31, 1998, the Company had potential federal income tax benefits
of $613 from a net operating loss carryforward that expires in 2018. For
financial reporting purposes, the Company has established a valuation
allowance of $613 due to the uncertainty associated with realizing this
deferred tax asset.
As part of the Spin-Off, the Company received certain assets that CapStar
had acquired, in part, through the issuance of OP Units. These assets were
acquired by CapStar prior to August 3, 1998. At August 3, 1998 the tax basis
of these assets differed from the financial reporting amounts that the Company
recorded as part of the Spin-Off. The Company has recorded a deferred income
tax liability of $9,100 for the estimated future tax effect of this basis
difference. The amount of the basis difference and corresponding deferred
income tax liability have been estimated based on information available as of
the date of the Spin-Off. The deferred income tax liability may be adjusted
upon the final determination of the basis difference. Any such adjustment,
however, would be recorded as an increase or decrease to the deferred income
tax liability balance, and a corresponding decrease or increase in the capital
CapStar contributed to the Company as part of the Spin-Off.
7. Stockholders' Equity and Minority Interests
Common Stock--In conjunction with the Spin-Off, CapStar distributed to its
stockholders, on a share-for-share basis, all of the 24,948,754 outstanding
shares of the Company's Common Stock.
In connection with the Spin-Off the Company distributed to holders of the
REIT's common stock and the REIT's OP Units, one right for every six shares or
units owned. Each right entitled its holder to purchase a share of Common
Stock at a subscription price of $2.84 per share, during a subscription period
from August 13, 1998 through August 31, 1998. The Rights Offering resulted in
the sale of approximately 480,000 shares of Common Stock with net proceeds to
the Company of $957.
In November 1998, the Company implemented a stock purchase plan that allows
eligible employees to purchase the Company's common stock at a discount to
market value. The Company has reserved 1,500,000 shares of Common Stock for
issuance under this plan. The Company has sold 5,384 shares under this plan in
1998.
OP Units--Substantially all of the Company's assets are held indirectly by
MeriStar H&R Operating Company, L.P. (the "Operating Partnership"), the
Company's subsidiary operating partnership.
32
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
The Operating Partnership's partnership agreement currently has three
classes of OP Units: Class A OP Units, Class B OP Units and Preferred OP
Units. No dividends were paid during 1998 and no dividends are expected to be
paid during 1999 to the Class A OP Unit holders and Class B OP Unit holders.
Preferred OP Unit holders receive a 6.5% cumulative annual preferred return
based on an assumed price per Common Share of $3.34, compounded quarterly to
the extent not paid on a current basis, and are entitled to a liquidation
preference of $3.34 per Preferred OP Unit. All net income and capital proceeds
earned by the Operating Partnership, after payment of the annual preferred
return and, if applicable, the liquidation preference, will be shared by the
holders of the Class A OP Units and Class B OP Units in proportion to the
number OP Units owned by each such holder.
Each Class A and Class B OP Unit is redeemable by the holder for one share
of Common Stock (or, at the Company's option, for cash in an amount equal to
the market value of a share of Common Stock). In addition, the Preferred OP
Units may be redeemed by the Operating Partnership at a price of $3.34 per
Preferred OP Unit (or, at the Company's option, for a number of shares of
Common Stock having a value equal to such redemption price) at any time after
April 1, 2000 or by the holders of the Preferred OP Units at a price of $3.34
per Preferred OP Unit (in cash or, at the holder's option, for a number of
shares of Common Stock having a value equal to the redemption price) at any
time after April 1, 2004.
In conjunction with the Spin-Off and Merger, the Company issued to holders
of CapStar OP Units, 1,083,759 Class A and B OP Units and 392,157 Class C OP
Units.
Immediately following the Spin-Off and the Merger, the Company acquired 100%
of the partnership interests in AGH Leasing and acquired substantially all of
the assets and certain liabilities of AGHI. The purchase price of $95,000 was
funded with a combination of cash and the issuance of 3,414,872 Class B OP
Units.
In October 1998, in conjunction with the purchase of certain assets of South
Seas Properties Company, L.P., the Company issued 916,230 Class A OP Units.
8. Earnings Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share ("EPS") computations for net income for
the period August 3, 1998 through December 31, 1998:
<TABLE>
<S> <C>
Basic EPS Computation:
Net income.......................................................... $ 551
Weighted average number of shares of Common Stock outstanding....... 25,335
-------
Basic EPS........................................................... $ .02
=======
Diluted EPS Computation:
Net income.......................................................... $ 551
Minority interest, net of tax....................................... (90)
-------
Adjusted net income................................................. $ 461
-------
Weighted average number of shares of Common Stock outstanding....... 25,335
Common Stock equivalents:
Stock options..................................................... 18
OP Units.......................................................... 1,308
-------
Total weighted average number of diluted shares of Common Stock
outstanding........................................................ 26,661
-------
Diluted EPS......................................................... $ .02
=======
</TABLE>
Certain OP Units were not included in the computation of diluted EPS as
their effect was anti-dilutive.
33
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
EPS for 1998 has been calculated using net income amounts for the period
from the Spin-Off on August 3, 1998 through December 31, 1998. EPS is not
presented for periods prior to the Spin-Off because the Company's predecessor
entities were partnerships.
9. Related-Party Transactions
Pursuant to an intercompany agreement, the Company and the REIT provide each
other with, among other things, reciprocal rights to participate in certain
transactions entered into by each party. In particular, the Company has a
right of first refusal to become the lessee of any real property acquired by
the REIT. The Company also provides the REIT with certain services including
administrative, corporate, accounting, finance, insurance, legal, tax, data
processing, human resources, acquisition identification and due diligence, and
operational services, for which the Company is compensated in an amount that
the REIT would be charged by an unaffiliated third party for comparable
services. During the year ended December 31, 1998, the Company provided $781
of such services to the REIT.
10. Stock-Based Compensation
On August 3, 1998, the Company adopted an equity incentive plan that
authorized the Company to issue and award up to 4,000,000 shares of common
stock. Awards under the plan may be granted to directors, officers, or other
key employees.
On August 8, 1998, the Company adopted an equity incentive plan for non-
employee directors that authorized the Company to issue and award options for
up to 125,000 shares of common stock. These options will vest in three annual
installments beginning on the date of grant and on subsequent anniversaries
thereof, provided the eligible director continues to serve as a director of
the Company on each such anniversary. Options granted under the Plan are
exercisable for ten years from the grant date.
In November 1998, the Company implemented a stock purchase plan that allows
eligible employees to purchase the Company's common stock at a discount to
market value. The Company has reserved 1,500,000 shares of Common Stock for
issuance under this plan.
Stock option activity for 1998 is as follows:
<TABLE>
<CAPTION>
Equity Incentive Plan Directors' Plan
----------------------- ----------------------
Number Average Number Average
of Shares Option Price of Shares Option Price
--------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Balance, August 3, 1998..... -- -- -- $ --
Granted..................... 2,805,955 $3.37 45,000 $3.28
Exercised................... (2,235) -- -- --
Forfeited................... -- -- -- --
--------- ----- ------ -----
Balance, December 31, 1998.. 2,803,720 $3.37 45,000 $3.28
========= ===== ====== =====
Shares exercisable at
December 31, 1998.......... 1,415,044 $3.43 -- $ --
========= ===== ====== =====
</TABLE>
34
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------
Weighted Weighted
Average Weighted Average
Range of Number Remaining Average Number Exercise
exercise prices outstanding Contractual Life Exercise Price exercisable Price
--------------- ----------- ---------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$2.00 to $2.36.......... 737,892 6.87 $2.36 602,515 $2.36
$2.38 to $3.28.......... 1,115,753 9.55 3.21 39,317 2.72
$3.44 to $3.93.......... 211,750 7.19 3.74 178,217 3.72
$4.06 to $5.01.......... 783,325 8.91 4.45 594,995 4.46
--------- ---- ----- --------- -----
$2.00 to $5.01.......... 2,848,720 8.50 $3.37 1,415,044 $3.43
========= ==== ===== ========= =====
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, the Company applies
Accounting Principles Board Opinion No. 25 in accounting for the Equity
Incentive Plan and therefore no compensation cost has been recognized for the
Equity Incentive Plan.
Pro forma information regarding net income and EPS is required by SFAS No.
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions for 1998:
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Risk-free interest rate.......................................... 5.51%
Dividend rate.................................................... --
Volatility factor................................................ 0.50
Weighted average expected life................................... 6.15 years
</TABLE>
The Company's pro forma net loss and basic EPS as if the fair value method
had been applied were $(2,324) and $(0.09) for 1998. The effects of applying
SFAS No. 123 for disclosing compensation costs may not be representative of
the effects on reported net income and EPS for future years.
11. Commitments and Contingencies
The Company leases certain hotels under non-cancelable participating leases
with initial terms ranging from 10 to 15 years, expiring through 2013. The
total amount payable on these participating leases was $11,100 and $5,682 at
December 31, 1998 and December 31, 1997, respectively. The Company also leases
corporate office space. Future minimum lease payments required under these
operating leases as of December 31, 1998 were as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 254,797
2000.............................................................. 261,648
2001.............................................................. 268,353
2002.............................................................. 275,395
2003.............................................................. 282,651
Thereafter........................................................ 2,217,099
----------
$3,559,943
==========
</TABLE>
35
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
The Company also leases office equipment under non-cancelable operating
leases. These amounts are insignificant to the financial statements.
In the course of the Company's normal business activities, various lawsuits,
claims and proceedings have been or may be instituted or asserted against the
Company. Based on currently available facts, management believes that the
disposition of matters that are pending or asserted will not have a material
adverse effect on the consolidated financial position, results of operations
or liquidity of the Company.
12. Segments
The Company is organized into three primary operating divisions. Each
division is managed separately because of its distinctive products and
services offered by the hotel properties within the operating division. These
operating divisions are the Company's three reportable operating segments:
upscale, full-service hotels ("Hotels"); premium limited-service hotels and
inns ("Inns"); and resort properties ("Resorts"). The Company's management
evaluates performance of each segment based on earnings before interest taxes,
depreciation, and amortization ("EBITDA"). The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies.
The Company's financial condition and results of operations as of December
31, 1998 and December 31, 1997 and for the years ended December 31, 1998, 1997
and 1996 reflect significantly differing numbers of managed and leased hotels
throughout the periods. Consequently, the Company has determined that it is
not practicable to present the segment information of the management and
leasing operations of CapStar, its predecessor entity, for the years ended
December 31, 1997 and December 31, 1996. Also, prior to the Spin-Off, the
management and leasing operations of CapStar conducted its business primarily
in only one operating segment. Therefore, the segment disclosures presented
below are for the period August 3, 1998 through December 31, 1998.
<TABLE>
<CAPTION>
Total
Hotels Inns Resorts Segments
-------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenues.................................... $322,720 $72,267 $73,878 $468,865
Participating Lease Expense................. $101,423 $29,430 $24,187 $155,040
EBITDA...................................... $ 4,710 $ 172 $ (882) $ 4,000
Total Assets................................ $ 48,264 $42,091 $16,276 $106,631
</TABLE>
The following is a reconciliation of the segment information to the
Company's consolidated data:
<TABLE>
<CAPTION>
Participating
Lease
Revenues Expense EBITDA Assets
-------- ------------- ------- --------
<S> <C> <C> <C> <C>
Total Segments..................... $468,865 $155,040 $ 4,000 $106,631
Other Items........................ 7,526 -- 1,164 140,898
-------- -------- ------- --------
Total August 3, 1998 through
December 31, 1998................. $476,391 $155,040 $ 5,164 $247,529
-------- -------- ------- --------
Total Pre-Spin-Off (January 1, 1998
through August 2, 1998)........... 86,046 31,561 6,004 --
-------- -------- ------- --------
Per Financial Statements........... $562,437 $186,601 $11,168 $247,529
======== ======== ======= ========
</TABLE>
The other items in the table above represent non-operating segment activity
and assets. These are primarily unallocated corporate expenses and non-segment
activities, and intangible and other miscellaneous assets.
36
<PAGE>
MERISTAR HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
DECEMBER 31, 1998, 1997 AND 1996
Revenues for Canadian operations totaled $8,865 for the period August 3,
1998 through December 31, 1998.
13. Acquisitions
Pursuant to the Spin-Off and Merger, the Company acquired 100% of the
partnership interests in AGH Leasing, the third-party lessee of most of the
hotels owned by AGH, and substantially all of the assets and liabilities of
AGHI, the third-party manager of most of the AGH hotels. As a result, the
Company became the lessee and manager of most of the hotels owned by the REIT.
The purchase price of $95,000 was paid with a combination of cash and OP Units
in the Company's subsidiary operating partnerships.
The following unaudited pro forma summary presents information if AGH
Leasing and AGHI had been acquired, and the Spin-Off had occurred, at the
beginning of the periods presented. The pro forma information is provided for
informational purposes only. It is based on historical information and does
not necessarily reflect the actual results that would have occurred nor is it
necessarily indicative of future results of operations of the Company.
PRO FORMA INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Total revenue............................................... $1,083,348 $938,613
Net income.................................................. $ 3,295 $ 3,097
Diluted EPS................................................. $ 0.13 $ 0.12
</TABLE>
14. Quarterly Financial Information (Unaudited)
The following is a summary of the Company's quarterly results of operations:
<TABLE>
<CAPTION>
1998 1997
--------------------------------- -------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenue........... $30,130 $41,101 $195,498 $295,708 $1,838 $2,816 $4,794 $14,391
Total operating
expenses............... 28,798 38,462 187,890 299,491 1,390 2,129 3,911 13,434
Net operating income
(loss)................. 1,332 2,639 7,608 (3,783) 448 687 883 957
Net income (loss)....... 758 2,223 3,605 (2,636) 424 650 861 927
Diluted earnings (loss)
per share.............. -- -- $ 0.12 $ (0.10) -- -- -- --
</TABLE>
15. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ----
<S> <C> <C> <C>
Cash paid for interest and income taxes:
Interest............................................... $ 2,017 $ 56 $138
Income taxes........................................... -- -- --
Non-cash investing and financing activities:
OP Units issued in purchase of intangible assets....... $14,022 $ -- $--
Assets contributed by CapStar............................ $ 2,605 $38,844 $--
Liabilities contributed by CapStar....................... (7,549) (4,219) --
Debt contributed by CapStar.............................. (1,116) -- --
------- ------- ----
Net assets contributed by CapStar........................ $(6,060) $34,625 $--
======= ======= ====
</TABLE>
37
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 405 of Regulation S-K with respect to
Directors and Executive Officers of the Company is incorporated herein by
reference to the sections entitled "Management" and "Principal Stockholders"
in the Company's definitive proxy for its 1999 Annual Meeting of Stockholders
(the "1999 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the sections entitled "Executive Compensation," "Compensation of Directors"
and "Stock Option Grants" in the 1999 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the section entitled "Principal Stockholders" in the 1999 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the section entitled "Certain Relationships and Related Transactions" in the
1999 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. Index to Financial Statements and Financial Statement Schedules
1. Financial Statements
The Financial Statements included in the Annual Report on Form 10-K are
listed in Item 8.
2. Financial Statement Schedules
The Financial Statement Schedules included in the Annual Report on Form 10-K
are listed in Item 8.
38
<PAGE>
3. Exhibits
All Exhibits listed below are filed with this Annual Report on Form 10-K
unless specifically stated to be incorporated by reference to other documents
previously filed with the Commission.
<TABLE>
<CAPTION>
Exhibit No. Description of Document
----------- -----------------------
<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.
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.
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.
2.5* Form of Dealer-Manager Agreement
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2* By-laws of the Company
4.1* Specimen Common Stock certificate
4.4* Form of Rights Agreement
10.1* Form of Employment Agreement between the Company and Paul W.
Whetsell
10.2* Form of Employment Agreement between the Company and Steven D.
Jorns
10.3* Form of Employment Agreement between the Company and David E.
McCaslin
10.4* Form of Employment Agreement between the Company and James A.
Calder
10.5* Form of Employment Agreement between the Company and John E.
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.
10.9 Revolving Credit Agreement, dated as of August 3, 1998 between
MeriStar H&R Operating Company, L.P., and MeriStar Hospitality
Operating Partnership, L.P.
10.10**** Form of Employee Stock Purchase Plan
10.11 Amended and Restated Agreement of Limited Partnership, Agreement
of MeriStar H&R Operating Company, L.P., dated as of August 3,
1998
21 Subsidiaries of the Company
23.1 Consent of KPMG LLP
27 Financial Data Schedule
29 Power of Attorney (see signature page)
</TABLE>
- --------
* Incorporated by reference to the Company's Registration Statement on Form S-
1 (File No. 333-49881), filed with the Securities and Exchange Commission on
August 12, 1998.
** Incorporated by reference to Exhibit 99.4 to CapStar Hotel Company's Report
on Form 8-K dated March 17, 1998, No. 1-11903.
*** Incorporated by reference to American General Hospitality Corporation's
Registration Statement on Form S-4 (File No. 333-49611), filed with the
Securities and Exchange Commission on June 22, 1998.
**** Incorporated by reference to the Company's Registration Statement on Form
S-8, filed with the Securities and Exchange Commission on August 18,
1998.
B. Reports on Form 8-K:
A current report on Form 8-K was filed with the Securities and Exchange
Commission on October 16, 1998, as amended, reporting events required to be
reported pursuant to Items 5 and 7 of the current report on Form 8-K.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, MeriStar Hotels & Resorts, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MERISTAR HOTELS & RESORTS, INC.
BY: /s/ Paul W. Whetsell_____________
Paul W. Whetsell
Chief Executive Officer and
Chairman of the Board
Dated: March , 1999
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul W. Whetsell and David E. McCaslin, such
person's true and lawful attorneys-in-fact and agents, with full power of
substitution and revocation, for such person and in such person's name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this report filed pursuant to the requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, and to file the
same with all exhibits thereto, and the other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and things requisite and necessary to be done,
as fully to all intents and purposes as such person might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report and the foregoing Power of Attorney have been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Paul W. Whetsell Chief Executive Officer March 22, 1999
______________________________________ and Chairman of the Board
Paul W. Whetsell of Directors (Principal
Executive Officer)
/s/ Steven D. Jorns Vice Chairman of the Board March 22, 1999
______________________________________ of Directors
Steven D. Jorns
/s/ David E. McCaslin President and Director March 22, 1999
______________________________________
David E. McCaslin
/s/ James A. Calder Chief Financial Officer March 22, 1999
______________________________________ (Principal Financial and
James A. Calder Accounting Officer)
/s/ Daniel L. Doctoroff Director March 22, 1999
______________________________________
Daniel L. Doctoroff
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director March 22, 1999
______________________________________
Kent R. Hance
/s/ S. Kirk Kinsell Director March 22, 1999
______________________________________
S. Kirk Kinsell
/s/ Joseph McCarthy Director March 22, 1999
______________________________________
Joseph McCarthy
Director March 22, 1999
______________________________________
James McCurry
/s/ James R. Worms Director March 22, 1999
______________________________________
</TABLE> James R. Worms
41
<PAGE>
March 22, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549-1004
Re: MeriStar Hotels & Resorts, Inc.-Form 10-K for the year ended December
31, 1998
Ladies and Gentlemen:
We are electronically transmitting herewith for filing with the Securities
and Exchange Commission, pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 and Rule 901(d) of Regulation S-T, the Form 10-K of
MeriStar Hotels & Resorts, Inc. for the year ended December 31, 1998.
One copy of the enclosed Form 10-K has also been sent to the New York Stock
Exchange, the only exchange on which the Company's common stock, par value
$.01 per share, is listed.
Sincerely,
/s/ Christopher L. Bennett
-------------------------------------
Christopher L. Bennett
Secretary
42
<PAGE>
U.S. $75,000,000
REVOLVING CREDIT AGREEMENT
Dated as of August 3, 1998
between
MERISTAR H & R OPERATING COMPANY, L.P.,
as the Borrower,
---------------
and
MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.,
as the Lender
-------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
Section 1.01 Certain Defined Terms 1
Section 1.02 Computation of Time Periods 15
Section 1.03 Accounting Terms; Changes in GAAP 15
Section 1.04 Miscellaneous 16
ARTICLE II ADVANCES
Section 2.01 Advances 16
Section 2.02 Method of Borrowing 17
Section 2.03 Reduction of the Commitment 17
Section 2.04 Repayment of Advances 17
Section 2.05 Interest, Late Payment Fee 18
Section 2.06 Prepayments 19
Section 2.07 Payments and Computations 20
Section 2.08 Taxes 21
ARTICLE III CONDITIONS OF LENDING
Section 3.01 Conditions Precedent to Initial Advance 22
Section 3.02 Conditions Precedent for Each Borrowing 22
ARTICLE IV REPRESENTATIONS AND WARRANTIES
Section 4.01 Existence; Qualification; Partners; Subsidiaries 23
Section 4.02 Partnership and Corporate Power 23
Section 4.03 Authorization and Approvals 24
Section 4.04 Enforceable Obligations 24
Section 4.05 Financial Statements and Registration Statement 24
Section 4.06 True and Complete Disclosure 24
Section 4.07 Litigation 25
Section 4.08 Use of Proceeds 25
Section 4.09 Investment Company Act 25
Section 4.10 Taxes 25
Section 4.11 Pension Plans 25
Section 4.12 No Burdensome Restrictions; No Defaults 26
Section 4.13 Environmental Condition 26
Section 4.14 Legal Requirements, Zoning, Utilities, Access 27
Section 4.15 Existing Indebtedness 28
Section 4.16 Leases and Management Agreements 28
ARTICLE V AFFIRMATIVE COVENANTS
Section 5.01 Compliance with Laws, Etc. 28
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Section 5.02 Preservation of Existence; Separateness, Etc. 29
Section 5.03 Payment of Taxes, Etc. 29
Section 5.04 Reporting Requirements 29
Section 5.05 Insurance 31
Section 5.06 Material Documents 31
ARTICLE VI NEGATIVE COVENANTS
Section 6.01 Liens, Etc. 32
Section 6.02 Indebtedness 32
Section 6.03 Agreements Restricting Distributions From Subsidiaries 33
Section 6.04 Fundamental Changes; Asset Dispositions 33
Section 6.05 Investments, Loans, Future Properties 33
Section 6.06 Affiliate Transactions 33
Section 6.07 Sale or Discount of Receivables 33
Section 6.08 Restricted Payments 33
ARTICLE VII FINANCIAL COVENANTS
Section 7.01 Senior Interest Coverage Ratio. 35
Section 7.02 Total Interest Coverage Ratio. 35
Section 7.03 Senior Fixed Charge Ratio. 35
Section 7.04 Total Fixed Charge Ratio. 35
Section 7.05 Senior Indebtedness Leverage Ratio 35
Section 7.06 Leverage Ratio. 35
ARTICLE VIII SUBORDINATION
Section 8.01 Agreement to Subordinate. 36
Section 8.02 Liquidation; Dissolution; Bankruptcy. 36
Section 8.03 Default on Financial Institution Senior Indebtedness. 36
Section 8.04 Acceleration of Notes. 38
Section 8.05 When Distribution Must Be Paid Over. 38
Section 8.06 Notice by Borrower. 38
Section 8.07 Subrogation. 38
Section 8.08 Relative Rights. 38
ARTICLE IX EVENTS OF DEFAULT; REMEDIES
Section 9.01 Events of Default 38
Section 9.02 Optional Acceleration of Maturity; Other Actions 40
Section 9.03 Automatic Acceleration of Maturity 41
ARTICLE X MISCELLANEOUS
Section 10.01 Amendments, Etc. 41
Section 10.02 Notices, Etc. 41
Section 10.03 No Waiver; Remedies 41
Section 10.04 Costs and Expenses 42
Section 10.05 Binding Effect 42
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Section 10.06 Indemnification 42
Section 10.07 Execution in Counterparts 43
Section 10.08 Survival of Representations, Indemnifications, etc 43
Section 10.09 Severability 43
Section 10.10 Usury Not Intended 44
Section 10.11 GOVERNING LAW 44
Section 10.12 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL 45
Section 10.13 Knowledge of Borrower 46
Section 10.14 Lender Not in Control 46
Section 10.15 Headings Descriptive 46
Section 10.16 Time is of the Essence 46
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EXHIBITS:
Exhibit A - Form of Note
Exhibit B - Form of Guaranty
SCHEDULES:
Schedule 1.01 Guarantors
Schedule 4.07 Litigation
Schedule 4.14 Environmental Condition
Schedule 4.15 Legal Requirements; Zoning; Utilities; Access
Schedule 4.16 Existing Indebtedness
Schedule 4.17 Management Agreements
Schedule 9.02 Notice Information
<PAGE>
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT, dated as of August 3, 1998, (this
"Agreement"), between MERISTAR H & R OPERATING COMPANY, L.P., a Delaware limited
partnership, as the Borrower, and MERISTAR HOSPITALITY OPERATING PARTNERSHIP,
L.P., as the Lender.
PRELIMINARY STATEMENTS:
WHEREAS, the Borrower desires that the Lender extend a credit facility, the
proceeds of which will be used to provide financing for working capital and
general corporate purposes, including the acquisition of management contracts,
leases and entities owning such assets;
WHEREAS, the Borrower intends to obtain financing (the "Financial
Institution Senior Indebtedness") from certain third party financial lending
institutions (the "Financial Institution Lenders") and desires that borrowings
under this credit facility with Lender be subordinated to borrowings under the
Financial Institution Senior Indebtedness; and
WHEREAS, the Lender has agreed to extend such credit facility as more
specifically described in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
provisions contained in this Agreement, the parties hereto do hereby agree as
follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (unless otherwise indicated,
such meanings to be equally applicable to both the singular and plural forms of
the terms defined):
"Advance" means any advance by the Lender to the Borrower pursuant to
this Agreement or a continuation of an existing Advance.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such Person or any Subsidiary of such Person.
The term "control" (including the terms "controlled by" or "under common control
with") means the
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possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"AGH OP" means American General Hospitality Operating Partnership,
L.P., a Delaware limited partnership.
"AGH REIT" means American General Hospitality Corporation, a Maryland
corporation.
"Agreement" has the meaning given such term in the initial paragraph
of this agreement.
"Applicable Margin" means 3.5% per annum.
"Asset Disposition" means any conveyance, exchange, transfer, or
assignment of any Investment or Property by the Borrower or a Guarantor to a
Person other than the Borrower or a Guarantor which term shall not include the
termination of any Lease or Management Agreement.
"Borrower" means MeriStar H & R Operating Company, L.P., a Delaware
limited partnership.
"Borrowing" means a borrowing consisting of Advances made by the
Lender pursuant to Section 2.01.
"Business Day" means a day of the year on which banks are not required
or authorized to close in New York City and, if the applicable Business Day
relates to any Advances, any day other than a Saturday or Sunday or a day on
which banking institutions are generally authorized or obligated by law or
executive order to close in the City of London, England.
"Capital Lease" means, for any Person, any lease of any Property
(whether real, personal or mixed) by that Person as lessee which, in accordance
with GAAP, is or should be accounted for as a capital lease on the balance sheet
of that Person.
"Capitalized Lease Obligations" means, as to any Person, the
capitalized amount of all obligations of such Person or any of its Subsidiaries
under Capitalized Leases, as determined on a consolidated basis in conformity
with GAAP.
"CapStar" means CapStar Hotel Company, a Delaware corporation.
"CapStar Hotel I" means CapStar Hotel Operating Company, LLC, a
Delaware limited liability company.
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"CapStar Hotel II" means CapStar Hotel Operating Company II, LLC, a
Delaware limited liability company.
"CERCLA" means the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, state and local analogs, and all rules
and regulations and requirements thereunder in each case as now or hereafter in
effect.
"Change in Control" means for any Person a change in ownership or
control of such Person effected through either of the following transactions:
(a) any Person or related group of Persons (other than such Person or
an Affiliate of such Person) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of such Person's outstanding securities; or
(b) there is a change in the composition of such Person's Board of
Directors over a period of thirty-six (36) consecutive months (or less) such
that a majority of Board members (rounded up to the nearest whole number) ceases
to be comprised of individuals who either (i) have been Board members
continuously since the beginning of such period or (ii) have been elected or
nominated for election as Board members during such period by at least a
majority of the Board members described in clause (i) who were still in office
at the time such election who were elected in compliance with this clause (ii).
"Closing Date" means August 3, 1998.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute.
"Commitment" means $75,000,000.
"Compliance Certificate" means a certificate of the Borrower in the
form reasonably acceptable to the Lender.
"Consolidated" refers to the consolidation of the accounts of the
Parent with the Parent's Subsidiaries in accordance with GAAP, including
principles of consolidation consistent with those applied in the preparation of
the Registration Statement.
"Controlled Group" means all members of the controlled group of
corporations and all trades (whether or not incorporated) under common control
which,
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together with the Borrower, are treated as a single employer under Section 414
of the Code.
"Credit Documents" means this Agreement, the Notes, the Guaranties,
and each other agreement, instrument or document executed by the Borrower or any
of its Subsidiaries at any time in connection with this Agreement.
"Default" means (a) an Event of Default or (b) any event or condition
which with notice or lapse of time or both would, unless cured or waived, become
an Event of Default.
"Dollars" and "$" means lawful money of the United States of America.
"EBITDA" means for any Person or Hotel Property, as applicable, for
any period for which such amount is being determined, an amount equal to (a) the
Net Income for such Person or Hotel Property, as applicable, for such period
plus (b) to the extent deducted in determining Net Income, Interest Expense,
income taxes, depreciation, amortization, and other non-cash items for such
period, as determined on a Consolidated basis in accordance with GAAP.
"Effective Date" means the date all of the conditions precedent set
forth in Section 3.01 have been satisfied.
"Environment" or "Environmental" shall have the meanings set forth in
42 U.S.C. (S) 9601(8), as amended.
"Environmental Claim" means any third party (including governmental
agencies and employees) action, lawsuit, claim, demand, regulatory action or
proceeding, order, decree, consent agreement or notice of potential or actual
responsibility or violation (including claims or proceedings under the
Occupational Safety and Health Acts or similar laws or requirements relating to
health or safety of employees) which seeks to impose liability under any
Environmental Law.
"Environmental Law" means all Legal Requirements arising from,
relating to, or in connection with the Environment, health, or safety, including
without limitation CERCLA, relating to (a) pollution, contamination, injury,
destruction, loss, protection, cleanup, reclamation or restoration of the air,
surface water, groundwater, land surface or subsurface strata, or other natural
resources; (b) solid, gaseous or liquid waste generation, treatment, processing,
recycling, reclamation, cleanup, storage, disposal or transportation; (c)
exposure to pollutants, contaminants, hazardous, medical, infectious, or toxic
substances, materials or wastes; (d) the safety or health of employees; or (e)
the manufacture, processing, handling, transportation, distribution in commerce,
use, storage or disposal of hazardous, medical, infectious, or toxic substances,
materials or wastes.
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"Environmental Permit" means any permit, license, order, approval or
other authorization under Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default" has the meaning set forth in Section 9.01.
"Exchange Act" means the Securities Exchange Act of 1934, 15 U.S.C.
(S)78a et. seq.
"Facility" means the $75,000,000 revolving credit facility between
Borrower and the Lender.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any of its successors.
"Financial Institution Senior Indebtedness" means up to $75,000,000 of
Senior Indebtedness obtained by the Borrower subsequent to the execution of this
Agreement from a Financial Institution Lender and designated by the Borrower as
Financial Institution Senior Indebtedness.
"Financial Institution Lender" means a third party financial lending
institution which provides the Borrower with Financial Institution Senior
Indebtedness.
"Fiscal Quarter" means each of the three-month periods ending on March
31, June 30, September 30 and December 31.
"Fiscal Year" means the twelve-month period ending on December 31.
"Fixed Charges" means, for any Person for the period for which such
amount is being determined, the amount (without duplication) for such Person and
its Subsidiaries of all scheduled principal payments on Indebtedness (excluding
optional prepayments and scheduled principal payments in respect of any such
Indebtedness which is payable in a single installment at final maturity), Total
or Senior (as applicable) Interest Expense during such period, all payments
scheduled to be made in respect of Capital Leases on a Consolidated basis during
such period, and all preferred stock dividends paid during such period.
"Fund," "Trust Fund," or "Superfund" means the Hazardous Substance
Response Trust Fund, established pursuant to 42 U.S.C. (S) 9631 (1988) and the
Post-closure Liability Trust Fund, established pursuant to 42 U.S.C. (S) 9641
(1988), which statutory provisions have been amended or repealed by the
Superfund Amendments and Reauthorization Act of 1986, and the "Fund," "Trust
Fund," or "Superfund" that are now maintained pursuant to 42 U.S.C. (S) 9507.
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"GAAP" means United States generally accepted accounting principles as
in effect from time to time, applied on a basis consistent with the requirements
of Section 1.03.
"Governmental Authority" means any foreign governmental authority, the
United States of America, any state of the United States of America and any
subdivision of any of the foregoing, and any agency, department, commission,
board, authority or instrumentality, bureau or court having jurisdiction over
the Lender, the Parent, the Borrower, any Subsidiaries of the Borrower or the
Parent, an Approved Participating Lessee, a property manager or any of their
respective Properties.
"Guarantor" means each of the Parent and each Subsidiary of the
Borrower and "Guarantors" means all of such Persons. The Guarantors on the
Effective Date are identified on Schedule 1.01.
"Guaranty" means one or more Guaranty in substantially the form of the
attached Exhibit B executed by the Borrower, the Parent and all of the
Subsidiaries of the Borrower, evidencing the joint and several guaranty by the
signatories thereto of the obligations of Borrower in respect of the Credit
Documents, and any future guaranty and contribution agreement executed to secure
Advances, as any of such agreements may be amended hereafter in accordance with
the terms of such agreements.
"Hazardous Substance" means the substances identified as such pursuant
to CERCLA and those regulated under any other Environmental Law, including
without limitation pollutants, contaminants, petroleum, petroleum products,
radio nuclides, radioactive materials, and medical and infectious waste.
"Hazardous Waste" means the substances regulated as such pursuant to
any Environmental Law.
"Hospitality/Leisure Management Business" shall mean the leasing,
management or operation of a full-service and limited-service hotel or resort,
executive conference center, condominium rental pool, time share program, an
extended stay lodging, or a convention center, and other businesses incidental
to, or in support of, such business, including without limitation, (a) leasing,
managing or operating lodging facilities, restaurants and other food-service
facilities, golf facilities or other entertainment facilities or club,
convention or meeting facilities and marketing services or reservation systems
related thereto, and (b) leasing, managing or operating real estate ancillary or
connected to any lodging facilities, restaurants and other food-service
facilities, golf facilities or other entertainment facilities or club,
convention or meeting facilities and marketing services or reservation system
leased, managed or operated (or proposed to be leased, managed or operated) by
the Borrowers, the Guarantors or any of
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their Subsidiaries at any time (and debt or equity investments in any of the
foregoing, which are leased, managed or operated by the Borrower or a
Subsidiary).
"Hotel Property" for any hotel operated or managed by Borrower or its
Subsidiaries means the real property and the personal property for such hotel.
"Improvements" for any hotel means all buildings, structures,
fixtures, tenant improvements and other improvements of every kind and
description now or hereafter located in or on or attached to the Land for such
hotel; and all additions and betterments thereto and all renewals, substitutions
and replacements thereof.
"Indebtedness" means (without duplication), at any time and with
respect to any Person, (a) indebtedness of such Person for borrowed money
(whether by loan or the issuance and sale of debt securities) or for the
deferred purchase price of property or services purchased (other than amounts
constituting trade payables, accruals or bank drafts arising in the ordinary
course of business); (b) indebtedness of others in the amount which such Person
has directly or indirectly assumed or guaranteed or otherwise provided credit
support therefor or for which such Person is liable as a partner of such Person;
(c) indebtedness of others in the amount secured by a Lien on assets of such
Person, whether or not such Person shall have assumed such indebtedness; (d)
obligations of such Person in respect of letters of credit, acceptance
facilities, or drafts or similar instruments issued or accepted by banks and
other financial institutions for the account of such Person (other than trade
payables or bank drafts arising in the ordinary course); (e) obligations of such
Person under Capital Leases; and (f) to the extent required by GAAP, obligations
under interest rate swap agreements, interest rate cap agreements, interest rate
collar agreements or other similar agreements or arrangements designed to
protect against fluctuations in interest rates.
"Intercompany Agreement" means the Intercompany Agreement, dated as of
August 3, 1998, by and among the Parent, the Borrower, MeriStar, and MeriStar
Hospitality Operating Partnership, L.P., a Delaware limited partnership.
"Interest Period" means, for each Advance comprising part of the same
Borrowing, the period commencing on the date of such Advance and ending on the
last day of the period selected by the Borrower pursuant to the provisions below
and Section 2.02 and, thereafter, each subsequent period commencing on the last
day of the immediately preceding Interest Period and ending on the last day of
the period selected by the Borrower pursuant to the provisions below and Section
2.02. The duration of each such Interest Period shall be one, two, three or six
months, in each case as the Borrower may select, upon notice received by the
Lender not later than 11:00 a.m. (New York, New York time) on the second
Business Day prior to the first day of such Interest Period, pro vided,
however, that:
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(a) whenever the last day of any Interest Period would otherwise occur
on a day other than a Business Day, the last day of such Interest Period shall
be extended to occur on the next succeeding Business Day; provided that if such
extension would cause the last day of such Interest Period to occur in the next
following calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day;
(b) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month;
(c) each successive Interest Period shall commence on the day on which
the next preceding Interest Period expires; and
(d) no Interest Period with respect to any portion of any Advance
shall extend beyond the Maturity Date.
"Interest Rate Agreements" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect the Borrower, the Parent or any of
their respective Subsidiaries against fluctuations in interest rates.
"Investment" means, with respect to any Person, (a) any loan or
advance to any other Person, (b) the ownership, purchase or other acquisition
of, (i) any Stock, Stock Equivalents, other equity interest, obligations or
other securities of, any other Person, (ii) or all or substantially all of the
assets of any other Person, or (iii) all or substantially all of the assets
constituting the business of a division, branch or other unit operation of any
other Person, or (c) any joint venture or partnership with, or any capital
contribution to, or other investment in, any other Person or any real property.
"Investment Amount" means for any Investment, the aggregate purchase
price paid by the Borrower or its Subsidiary for such Investment (giving effect
to any securities used to purchase such Investment at the fair market value of
the securities at the time of purchase based upon the price at which such
securities could be exchanged into the Parent's common stock assuming such
exchange occurred on the date of acquiring such Investment).
"Land" for any hotel means the real property upon which the hotel is
located, together with all rights, title and interests appurtenant to such real
property, including without limitation all rights, title and interests to (a)
all strips and gores within or adjoining such property, (b) the streets, roads,
sidewalks, alleys, and ways adjacent thereto, (c) all of the tenements,
hereditaments, easements, reciprocal easement agreements, rights-of-way and
other rights, privileges and appurtenances thereunto
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belonging or in any way pertaining thereto, (d) all reversions and remainders,
(e) all air space rights, and all water, sewer and wastewater rights, (e) all
mineral, oil, gas, hydrocarbon substances and other rights to produce or share
in the production of anything related to such property, and (f) all other
appurtenances appurtenant to such property, including without limitation, any
now or hereafter belonging or in any way appertaining thereto.
"Lease" means a participating lease by and between a lessor and
Borrower or its Subsidiary pursuant to which the lessee operates a Hotel
Property.
"Legal Requirement" means any law, statute, ordinance, decree,
requirement, order, judgment, rule, regulation (or official interpretation of
any of the foregoing) of, and the terms of any license or permit issued by, any
Governmental Authority.
"Lender" means MeriStar Hospitality Operating Partnership, L.P., a
Delaware limited partnership.
"Leverage Ratio" means the ratio on any date of (a) the Parent's Total
Indebtedness on such date to (b) the EBITDA of the Parent and the Parent's
Subsidiaries on a Consolidated basis for the Rolling Period immediately
preceding such date; provided that if the Borrower or one of its Subsidiary's
enters into a Lease or Management Agreement with projected revenue in excess of
$100,000, or an Investment with an Investment Amount in excess of $250,000, on
or prior to such date, the EBITDA arising from such Lease, Management Agreement
or Investment, as applicable, for the applicable Rolling Period, shall be
included in the calculation of EBITDA solely for calculation of EBITDA of the
Leverage Ratio (adjusted upward or downward to provide for a deemed lease or
management fee equal to a two and one-half percent (2.5%) of gross revenues from
such Lease, Management Agreement or Investment incurred before the date of
acquisition of such Lease, Management Agreement or Investment regardless of the
actual lease management fees paid in connection with such Lease, Management
Agreement or Investment incurred before the date of acquisition of such Lease,
Management Agreement or Investment); and provided further that if such a Lease
or Management Agreement with projected revenue in excess of $100,000, or an
Investment with an Investment Amount in excess of $250,000, is assigned or sold
on or prior to such date, the EBITDA arising from such Lease, Management
Agreement or Investment, as applicable, for the applicable Rolling Period, shall
be included in the calculation of EBITDA solely for calculation of EBITDA of the
Leverage Ratio.
"LIBOR" means, for the Interest Period for each Advance comprising
part of the same Borrowing, an interest rate per annum (rounded upward to the
nearest whole multiple of 1/16 of 1% per annum) equal to (A) the rate per annum
at which deposits in Dollars are offered to prime banks in the London interbank
market at 11:00 a.m. (London time) two Business Days before the first day of
such Interest Period as shown on the
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display designated "British Banker's Association Interest Settlement Rates" on
the Telerate System ("Telerate") at Page 3750 or Page 3740, or such other page
or pages as may replace such pages on Telerate for purposes of displaying such
rate, in an amount substantially equal to the Advance comprising part of such
Borrowing and for a period equal to such Interest Period divided by (B) one
minus the LIBOR Reserve Requirement; provided, however, that if such rate is not
available on Telerate then such offered rate shall be otherwise independently
determined by the Lender from an alternate, substantially similar source
available to the Lender or shall be calculated by the Lender by a substantially
similar methodology as that theretofore used to determine such offered rate in
Telerate. It is agreed that for purposes of this definition, Advance made
hereunder shall be deemed to constitute Eurocurrency liabilities as defined in
Regulation D and to be subject to the reserve requirements of Regulation D.
"LIBOR Reserve Requirement" shall mean, on any day, that percentage
(expressed as a decimal fraction) which is in effect on such date, as provided
by the Federal Reserve System for determining the maximum reserve requirements
generally applicable to financial institutions regulated by the Federal Reserve
Board (including, without limitation, basic, supplemental, marginal and
emergency reserves) under Regulation D with respect to "Eurocurrency
liabilities" as currently defined as Regulation D, or under any similar or
successor regulation with respect to Eurocurrency liabilities or Eurocurrency
funding (or other category of liabilities which includes deposits by reference
to which the interest rate on an Advance is determined). Each determination by
the Lender of the LIBOR Reserve Requirement, shall, in the absence of manifest
error, be conclusive and binding upon the Borrower.
"Lien" means any mortgage, lien, pledge, charge, deed of trust,
security interest, encumbrance or other type of preferential arrangement to
secure or provide for the payment of any obligation of any Person, whether
arising by contract, operation of law or otherwise (including, without
limitation, the interest of a vendor or lessor under any conditional sale
agreement, Capital Lease or other title retention agreement).
"Management Agreements" means, collectively, all Hotel Property
management agreements under which the Borrower or one of its Subsidiaries is
named or acts as manager, as any such hotel management agreement may be amended,
restated, supplemented or otherwise modified in accordance with the terms
thereof.
"Material Adverse Change" means a material adverse change in the
business, financial condition, or results of operations of the Borrower, the
Parent or any Guarantor taken as a whole, in each case since the date of the
most recent financial statements of the Borrower or the Parent delivered to the
Lender.
"Material Subsidiary" means any Subsidiary of the Parent having assets
or annual revenues in excess of $5,000,000, and "Material Subsidiaries" means
all such Subsidiaries, collectively.
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"Maturity Date" means three years from the Closing Date.
"Maximum Rate" means the maximum nonusurious interest rate under
applicable law.
"Merger" means the merger of CapStar with and into AGH REIT and the
merger of CapStar Hotel I and CapStar Hotel II with and into AGH OP pursuant to
the Merger Agreement, and the other related transactions contemplated by the
Merger Agreement.
"Merger Agreement" means the Agreement and Plan of Merger among
CapStar, AGH REIT, AGH OP and the other parties specified therein, dated March
15, 1998, as amended.
"MeriStar" means MeriStar Hospitality Corporation, a Maryland
corporation.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Parent, the Borrower or any member of
the Controlled Group is making or accruing an obligation to make contributions.
"Net Cash Proceeds" means (a) the aggregate cash proceeds received by
the Parent, the Borrower or any of their respective Subsidiaries (as applicable)
in connection with any Asset Disposition or incurrence of Indebtedness, minus
(b) the reasonable expenses (including, without limitation, taxes) of such
Person in connection with such Asset Disposition or such incurrence of
Indebtedness and (c) any amounts required to be repaid under existing Leases or
Indebtedness.
"Net Income" means, for any Person or Hotel Property, as applicable,
for any period for which such amount is being determined, the net income of such
Person or Hotel Property, as applicable (on a Consolidated basis), after taxes,
as determined in accordance with GAAP, excluding, however, extraordinary items,
including but not limited to (i) any net gain or loss during such period arising
from the sale, exchange, or other disposition of capital assets (such term to
include all fixed assets and all securities) other than in the ordinary course
of business and (ii) any write-up or write-down of assets.
"Note" means a promissory note of the Borrower payable to the order of
the Lender, in substantially the form of the attached Exhibit A, evidencing
indebtedness of the Borrower to the Lender resulting from Advances from the
Lender, and "Notes" means all of such promissory notes.
"Notice of Borrowing" means a notice of borrowing signed by a
Responsible Officer of the Borrower.
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"Obligations" means all Advances and other amounts payable by the
Borrower to the Lender under the Credit Documents.
"Parent" means MeriStar Hotels & Resorts, Inc., a Delaware
corporation.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Hazardous Substances" means (a) Hazardous Substances,
petroleum and petroleum products which are (i) used in the ordinary course of
business and in typical quantities for a property operated or managed by the
Borrower and its Subsidiaries and (ii) generated, used and disposed of in
accordance with all Legal Requirements and good industry practice and (b) non-
friable asbestos to the extent (i) that no applicable Legal Requirements require
removal of such asbestos from the property on which it is located and (ii) such
asbestos is encapsulated in accordance with all applicable Legal Requirements.
"Permitted Asset Disposition" means an Asset Disposition which occurs
at a time in which no Default has occurred and is continuing and which would not
cause a Default to occur upon the consummation of such Asset Disposition.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, limited
liability company, joint venture or other entity, or a government or any
political subdivision or agency thereof or any trustee, receiver, custodian or
similar official.
"Plan" means an employee benefit plan (other than a Multiemployer
Plan) maintained for employees of the Parent, the Borrower or any member of the
Controlled Group and covered by Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Code.
"Property" of any Person means any property or assets (whether real,
personal, or mixed, tangible or intangible) of such Person.
"Registration Statement" means the Registration Statement on Form S-4
(Registration No. 333-49611) filed with the Securities and Exchange Commission
on April 7, 1998, as amended.
"Release" shall have the meaning set forth in CERCLA or under any
other Environmental Law.
"Repayment Event" means the occurrence of any of the following:
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(a) the incurrence by the Parent, the Borrower or any of their
respective Subsidiaries of any Indebtedness after the date of this Agreement
except:
(i) the Obligations; and
(ii) Indebtedness permitted pursuant to the provisions of Section
6.02.
(b) the occurrence of an Asset Disposition after the date of this
Agreement except Asset Dispositions for which the aggregate Net Cash Proceeds do
not exceed $5,000,000; except for any Asset Disposition included in such
calculation the Net Cash Proceeds which have been used to make an Investment in
the Hospitality/Leisure Management Business within one year of the date of such
Asset Disposition.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA.
"Response" shall have the meaning set forth in CERCLA or under any
other Environmental Law.
"Responsible Officer" means the Chief Executive Officer, Chief
Operating Officer, President, Executive Vice President or Chief Financial
Officer of any Person.
"Restricted Payment" means (a) any direct or indirect payment,
prepayment, redemption, purchase, or deposit of funds or Property for the
payment (including any sinking fund or defeasance), prepayment, redemption or
purchase of Indebtedness not permitted by this Agreement, and (b) the making by
any Person of any dividends or other distributions (in cash, property, or
otherwise) on, or payment for the purchase, redemption or other acquisition of,
any shares of any capital stock, any limited liability company interests or any
partnership interests of such Person, other than dividends or distributions
payable in such Person's stock, limited liability company interests or any
partnership interests.
"Rolling Period" means, as of any date, the four Fiscal Quarters
ending immediately preceding such date.
"Senior Fixed Charge Ratio" means, as of the end of any Rolling
Period, a ratio of (a) the Parent's EBITDA for such Rolling Period to (b)
Parent's Fixed Charges (which shall include Parent's Senior Interest Expense)
for such Rolling Period.
"Senior Indebtedness" means Total Indebtedness minus Subordinate
Indebtedness.
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"Senior Indebtedness Leverage Ratio" means the ratio on any date of
(a) the Parent's Senior Indebtedness on such date to (b) the Parent's EBITDA on
a Consolidated basis for the Rolling Period immediately preceding such date.
"Senior Interest Coverage Ratio" means, as of the end of any Rolling
Period, a ratio of (a) Parent's EBITDA for the Rolling Period to (b) Parent's
Senior Interest Expense for such Rolling Period.
"Senior Interest Expense" means for any Person for any period for
which such amount is being determined Total Interest Expense minus interest
expense on any Subordinate Indebtedness.
"Stock" means shares of capital stock, beneficial or partnership
interests, participations or other equivalents (regardless of how designated) of
or in a corporation or equivalent entity, whether voting or non-voting, and
includes, without limitation, common stock and preferred stock.
"Stock Equivalents" means all securities (other than Stock)
convertible into or exchangeable for Stock and all warrants, options or other
rights to purchase or subscribe for any stock, whether or not presently
convertible, exchangeable or exercisable.
"Subordinate Indebtedness" means Indebtedness of the Borrower, the
Parent and their respective Subsidiaries which (a) shall not mature, become
payable or require the payment of any principal amount thereof (or any amount in
lieu thereof) or be mandatorily redeemable, pursuant to a sinking fund or
otherwise redeemable at the option of the holder thereof, in any case in whole
or in part, before the date that is 91 days after the Maturity Date and (b)
shall be junior and subordinate to the Obligations and subject to an
intercreditor agreement or subordination provisions which are in accordance with
the then prevailing customary market terms and conditions.
"Subsidiary" of a Person means any corporation, association,
partnership or other business entity of which more than 50% of the outstanding
shares of capital stock (or other equivalent interests) having by the terms
thereof ordinary voting power under ordinary circumstances to elect a majority
of the board of directors or Persons performing similar functions (or, if there
are no such directors or Persons, having general voting power) of such entity
(irrespective of whether at the time capital stock (or other equivalent
interests) of any other class or classes of such entity shall or might have
voting power upon the occurrence of any contingency) is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more
Subsidiaries of such Person or by one or more Subsidiaries of such Person.
"Termination Event" means (a) the occurrence of a Reportable Event
with respect to a Plan, as described in Section 4043 of ERISA and the
regulations issued
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thereunder (other than a Reportable Event not subject to the provision for 30-
day notice to the PBGC under such regulations), (b) the withdrawal of the
Borrower or any of the Controlled Group from a Plan during a plan year in which
it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, (c)
the giving of a notice of intent to terminate a Plan under Section 4041(c) of
ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or
(e) any other event or condition which constitutes grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan.
"Total Fixed Charge Ratio" means, as of the end of any Rolling Period,
a ratio of (a) the Parent's EBITDA for such Rolling Period to (b) Parent's Fixed
Charges (which shall include Parent's Total Interest Expense) for such Rolling
Period.
"Total Indebtedness" of any Person means the sum of the following
(without duplication): (a) all Indebtedness of such Person and its Subsidiaries,
plus (b) the pro rata share of the Indebtedness of such Person's non-
Consolidated Subsidiaries (including non-recourse Indebtedness), plus (c) to the
extent not already included in the calculation of either of the preceding
clauses (a) or (b), the aggregate amount of letters of credit for which such
Person or any of its Subsidiaries would have a direct or contingent obligation
to reimburse the issuers of such letters of credit upon a drawing under such
letters of credit.
"Total Interest Coverage Ratio" means, as of the end of any Rolling
Period, a ratio of (a) the Parent's EBITDA for such Rolling Period to (b)
Parent's Total Interest Expense for such Rolling Period.
"Total Interest Expense" means, for any Person for any period for
which such amount is being determined, the total interest expense (including
that properly attributable to Capital Leases in accordance with GAAP) and all
charges incurred with respect to letters of credit determined on a Consolidated
basis in conformity with GAAP, plus (without duplication) capitalized interest
of such Person and its Subsidiaries.
Section 1.02 Computation of Time Periods. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding".
Section 1.03 Accounting Terms; Changes in GAAP.
1. All accounting terms not specifically defined in this Agreement shall
be construed in accordance with GAAP applied on a consistent basis.
2. Unless otherwise indicated, all financial statements, all calculations
for compliance with covenants in this Agreement, and all calculations of any
amounts to
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be calculated under the definitions in Section 1.01 shall be based upon the
Consolidated accounts of Parent and its Subsidiaries (as applicable) in
accordance with GAAP.
3. If any changes in accounting principles after June 30, 1998 required
by GAAP or the Financial Accounting Standards Board of the American Institute of
Certified Public Accountants or similar agencies results in a change in the
method of calculation of, or affects the results of such calculation of, any of
the financial covenants, standards or terms found in this Agreement, then the
parties shall enter into and diligently pursue negotiations in order to amend
such financial covenants, standards or terms so as to equitably reflect such
change, with the desired result that the criteria for evaluating the financial
condition of the Parent and its Subsidiaries (determined on a Consolidated
basis) shall be the same after such change as if such change had not been made.
Section 1.04 Miscellaneous. Article, Section, Schedule and Exhibit
references are to Articles and Sections of and Schedules and Exhibits to this
Agreement, unless otherwise specified.
ARTICLE II.
ADVANCES
Section 2.01 Advances. The Lender agrees, on the terms and conditions
set forth in this Agreement, to make Advances to the Borrower from time to time
on any Business Day up to 15 days prior to the Maturity Date in an aggregate
amount not to exceed at any time outstanding an amount equal to the Commitment.
Within the limits of the Commitment, the Borrower may from time to time prepay
pursuant to Section 2.06 and reborrow under this Section 2.01.
Advances are permitted under the facility; provided that:
a. No Default which has not been cured or waived in writing by the Lender
as set forth in Section 9.01 shall have occurred; and
b. All representations and warranties are true, both before and after each
advance under the Facility.
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Section 2.02 Method of Borrowing.
1. Notice. Each Borrowing shall be made pursuant to a Notice of
Borrowing, given not later than 11:00 a.m. (New York, New York time) on the
third Business Day before the date of the proposed Borrowing by the Borrower to
the Lender, which shall give the Lender prompt notice on the day of receipt of
such timely Notice of Borrowing of such proposed Borrowing by telecopier. Each
Notice of Borrowing shall be in writing or by telecopier specifying the
requested (i) date of such Borrowing, (ii) aggregate amount of such Borrowing
(which, in any case, shall not be less than $1,000,000 or an integral multiple
thereof), and (iii) the Interest Period for each such Advance. Upon fulfillment
of the applicable conditions set forth in Article III, the Lender will make such
funds available to the Borrower.
2. Certain Limitations. Except for Borrowings for the acquisition of new
Leases or Management Agreements by the Borrower or its Subsidiary, the Borrower
may not request Borrowings on more than four days in any calender month.
3. Notes. The indebtedness of the Borrower to the Lender resulting from
Advances owing to the Lender shall be evidenced by a Note of the Borrower
payable to the order of the Lender in substantially the form of Exhibit A.
Section 2.03 Reduction of the Commitment.
1. Upon the occurrence of a Change in Control, then, in such event the
Lender may, at its sole option upon written notice to the Borrower (a
"Termination Notice"), declare the obligation of the Lender to make Advances to
be terminated, whereupon the same shall forthwith terminate and the Commitment
shall reduce to zero.
2. The Borrower may, upon at least two Business Days' prior notice to the
Lender, permanently terminate in whole or permanently reduce ratably in part the
Commitment of the Lender; provided, however, that (i) each partial reduction
shall be in the aggregate amount of not less than $1,000,000 or an integral
multiple of $100,000 in excess thereof, and (ii) no such reduction shall result
in an overdraft status as provided in Section 2.06(c)(ii).
3. If the Borrower receives a commitment from a Financial Institution
Lender for Financial Institution Senior Indebtedness, then, upon the funding of
the first advance under such Financial Institution Senior Indebtedness, the
Lender may, at its sole discretion, reduce the amount of its Commitment pro rata
in an amount equal to the amount of the commitment for Financial Institution
Senior Indebtedness received by the Borrower.
Section 2.04 Repayment of Advances. The Borrower shall repay the
outstanding principal amount of each Advance on the Maturity Date.
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Section 2.05 Interest, Late Payment Fee. The Borrower shall pay
interest on the unpaid principal amount of each Advance made by the Lender from
the date of such Advance until such principal amount shall be paid in full, at a
rate per annum (computed on the actual number of days elapsed, including the
first day and excluding the last, based on a 360 day year) equal at all times
during the Interest Period for such Advance to the lesser of (i) the LIBOR for
such Interest Period plus the Applicable Margin and (ii) the Maximum Rate,
payable in arrears on the last day of such Interest Period, and on the date such
Advance shall be paid in full, and, with respect to an Advance having an
Interest Period in excess of 30 days, the last day of each calendar month during
such Interest Period excluding the month in which such Advance shall be paid in
full; provided that during the continuance of an Event of Default, Advances
shall bear interest at a rate per annum equal at all times to the lesser of (i)
the rate required to be paid on such Advance immediately prior to the date on
which such amount became due plus three percent (3%) and (ii) the Maximum Rate.
1. Usury Recapture. In the event the rate of interest chargeable under
this Agreement or the Notes at any time is greater than the Maximum Rate, the
unpaid principal amount of the Notes shall bear interest at the Maximum Rate
until the total amount of interest paid or accrued on the Notes equals the
amount of interest which would have been paid or accrued on the Notes if the
stated rates of interest set forth in this Agreement had at all times been in
effect. In the event, upon payment in full of the Notes, the total amount of
interest paid or accrued under the terms of this Agreement and the Notes is less
than the total amount of interest which would have been paid or accrued if the
rates of interest set forth in this Agreement had, at all times, been in effect,
then the Borrower shall, to the extent permitted by applicable law, pay the
Lender for the account of the Lender an amount equal to the difference between
(i) the lesser of (A) the amount of interest which would have been charged on
the Notes if the Maximum Rate had, at all times, been in effect and (B) the
amount of interest which would have accrued on the Notes if the rates of
interest set forth in this Agreement had at all times been in effect and (ii)
the amount of interest actually paid or accrued under this Agreement on the
Notes. In the event the Lender ever receives, collects or applies as interest
any sum in excess of the Maximum Rate, such excess amount shall, to the extent
permitted by law, be applied to the reduction of the principal balance of the
Notes, and if no such principal is then outstanding, such excess or part thereof
remaining shall be paid to the Borrower.
2. Other Amounts Overdue. If any amount payable under this Agreement
other than the Advances is not paid when due and payable, including without
limitation, accrued interest, then such overdue amount shall accrue interest
hereon due and payable on demand at a rate per annum equal to the LIBOR Rate
plus three percent (3%), from the date such amount became due until the date
such amount is paid in full.
3. Late Payment Fee. Subject to the provisions of Section 10.10, if any
interest payable under this Agreement is not paid when due and payable (after
taking into account any applicable grace period), then the Borrower will pay to
the Lender
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contemporaneously with the payment of such past due interest a late payment fee
equal to an amount equal to the product of (i) such overdue interest times (ii)
three percent (3%).
Section 2.06 Prepayments.
1. Right to Prepay. The Borrower shall have no right to prepay any
principal amount of any Advance except as provided in this Section 2.06.
2. Optional Prepayments. The Borrower may elect to prepay any of the
Advances, after giving by 11:00 a.m. (New York, New York time) at least one
Business Days' prior written notice to the Lender stating the proposed date and
aggregate principal amount of such prepayment, and if applicable, the relevant
Interest Period for the Advances to be prepaid. If any such notice is given,
the Borrower shall prepay Advances comprising part of the same Borrowing in
whole or ratably in part in an aggregate principal amount equal to the amount
specified in such notice, and shall also pay accrued interest to the date of
such prepayment on the principal amount prepaid and amounts, if any, required to
be paid pursuant to Section 2.07 as a result of such prepayment being made on
such date; provided, however, that each partial prepayment shall be in an
aggregate principal amount not less than $500,000.
3. Mandatory Prepayments.
a. Change of Control. On the fifth Business Day following the Borrower's
receipt of a Termination Notice pursuant to Section 2.03(a) hereof, the Borrower
shall be required to prepay all outstanding Advances in full.
b. Overdraft. On any date on which the outstanding principal amount of
the Advances exceeds the aggregate Commitment, the Borrower agrees to make a
prepayment of the Advances in the amount of such excess.
c. Repayment Event. Upon the occurrence of any Repayment Event, the
Borrower shall prepay Advances on the Business Day the Net Cash Proceeds from
such Repayment Event are received by the Borrower or the Parent, as applicable,
in an amount equal to the lesser of (A) the amount of the outstanding Advances
on such Business Day and (B) 100% of the Net Cash Proceeds of such Repayment
Event. If, in connection with an Asset Disposition which qualifies as a
Repayment Event for which the Borrower has not used the Net Cash Proceeds to
repay the Obligations, the Borrower has failed to make an Investment or
Investments in the Hospitality/Leisure Management Business with such Net Cash
Proceeds within one year from the date of such Asset Disposition, then the
Borrower shall prepay Advances on the first anniversary of the Business Day such
Net Cash Proceeds are received by the Borrower or the Parent, as applicable, in
the amount equal to the lesser of (A) the amount of the outstanding Advances on
such first anniversary and (B) 100% of the Net Cash Proceeds of such
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Repayment Event which have not been used to make an Investment or investments in
the Hospitality/Leisure Management Business.
d. Accrued Interest. Each prepayment pursuant to this Section 2.06(c)
shall be accompanied by accrued interest on the amount prepaid to the date of
such prepayment and amounts, if any, required to be paid pursuant to Section
2.07 as a result of such prepayment being made on such date.
4. Ratable Payments. Each payment of any Advance pursuant to this
Section 2.06 or any other provision of this Agreement shall be made in a manner
such that all Advances comprising part of the same Borrowing are paid in whole
or ratably in part.
5. Effect of Notice. All notices given pursuant to this Section 2.06
shall be irrevocable and binding upon the Borrower.
Section 2.07 Payments and Computations.
1. Payment Procedures. Except if otherwise set forth herein, the
Borrower shall make each payment under this Agreement and under the Notes not
later than 11:00 a.m. (New York, New York time) on the day when due in Dollars
to the Lender at the location referred to in the Notes (or such other location
as the Lender shall designate in writing to the Borrower) in same day funds.
2. Computations. All computations of interest based on the LIBOR shall
be made by the Lender on the basis of a year of 360 days, in each case for the
actual number of days (including the first day, but excluding the last day)
occurring in the period for which such interest or fees are payable. Each
determination by the Lender of an interest rate shall be conclusive and binding
for all purposes, absent manifest error.
3. Non-Business Day Payments. Whenever any payment shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
provided, however, that if such extension would cause payment of interest on or
principal of Advances to be made in the next following calendar month, such
payment shall be made on the next preceding Business Day.
4. Application of Payments. Unless otherwise specified in Section 2.06
hereof, whenever any payment received by the Lender under this Agreement is
insufficient to pay in full all amounts then due and payable under this
Agreement and the Notes, such payment shall be distributed and applied by the
Lender in the following order: first, to the payment of expenses due and
payable under Section 2.09(c), to the Lender in accordance with the aggregate
amount of such payments owed to the Lender;
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and third, to the payment of all other amounts due and payable under this
Agreement and the Notes.
Section 2.08 Taxes.
1. No Deduction for Certain Taxes. Any and all payments by the Borrower
shall be made, in accordance with Section 2.07, free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in
the case of the Lender, taxes imposed on it, by the jurisdiction under the laws
of which the Lender is organized or any political subdivision of the
jurisdiction (all such nonexcluded taxes, levies, imposts, deductions, charges,
withholdings and liabilities being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable to the Lender, (i) the sum payable shall be increased as may be
necessary so that, after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.08), the Lender
receives an amount equal to the sum it would have received had no such
deductions been made; (ii) the Borrower shall make such deductions; and (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable Legal Requirements.
2. Other Taxes. In addition, the Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes, charges
or similar levies which arise from any payment made or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
Notes, or the other Credit Documents (hereinafter referred to as "Other Taxes").
3. Indemnification. The Borrower indemnifies the Lender for the full
amount of Taxes or Other Taxes (including, without limitation, any Taxes or
Other Taxes imposed by any Governmental Authority on amounts payable under this
Section 2.08) paid by the Lender and any liability (including interest and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted.
4. Evidence of Tax Payments. The Borrower will pay prior to delinquency
all Taxes and Other Taxes payable in respect of any payment. Within 30 days
after the date of any payment of Taxes, the Borrower will furnish to the Lender,
at its address referred to in Section 9.02, the original or a certified copy of
a receipt evidencing payment of such Taxes or Other Taxes.
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ARTICLE III.
CONDITIONS OF LENDING
Section 3.01 Conditions Precedent to Initial Advance. The
effectiveness of this Agreement and the obligation of the Lender to make any
Advance hereunder are subject to the following conditions precedent being
satisfied on or prior to August 3, 1998:
1. Documentation. The Lender shall have received counterparts of this
Agreement executed by the Borrower, and the following duly executed by all the
parties thereto, in form and substance satisfactory to the Lender:
a. the Notes and the Guaranties;
b. evidence reasonably satisfactory to the Lender that the Merger and the
other transactions contemplated by the Merger Agreement and the Registration
Statement (including the Lessee-Manager Purchase Agreement described therein)
have been consummated in accordance with the terms of the Merger Agreement, all
Legal Requirements and all corporate and partnership governance requirements;
and
c. such other documents, governmental certificates, agreements and lien
searches as the Lender may reasonably request.
2. Representations and Warranties. The representations and warranties
contained in Article IV hereof and the Guaranties shall be true and correct in
all material respects.
Section 3.02 Conditions Precedent for Each Borrowing. The obligation
of the Lender to fund an Advance on the occasion of each Borrowing shall be
subject to the further conditions precedent that on the date of such Borrowing:
1. the following statements shall be true (and each of the giving of the
applicable Notice of Borrowing and the acceptance by the Borrower of the
proceeds of such Borrowing shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing such statements are true):
2. the representations and warranties contained in Article IV hereof and
the Guaranties, as such representations and warranties may change based upon
events or activities permitted by this Agreement, are true and correct in all
material respects on and as of the date of such Borrowing, before and after
giving effect to such Borrowing and to the application of the proceeds from such
Borrowing, as though made on and as of such date; and
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b. no Default has occurred and is continuing or would result from such
Borrowing or from the application of the proceeds therefrom.
2. the Lender shall have received such other approvals, opinions or
documents deemed necessary or desirable by the Lender.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows:
Section 4.01 Existence; Qualification; Partners; Subsidiaries.
1. The Borrower is a limited partnership duly organized, validly
existing, and in good standing under the laws of Delaware and in good standing
and qualified to do business in each jurisdiction where its ownership or lease
of property or conduct of its business requires such qualification, except where
the failure to so qualify would not have a material adverse effect on the
Borrower.
2. Parent is a corporation duly organized, validly existing, and in good
standing under the laws of Delaware and in good standing and qualified to do
business in each jurisdiction where its ownership or lease of property or
conduct of its business requires such qualification, except where the failure to
so qualify would not have a material adverse effect on the Borrower.
3. Each Subsidiary of the Borrower is a corporation, limited partnership,
general partnership or limited liability company duly organized, validly
existing, and in good standing under the laws of its jurisdiction of formation
and in good standing and qualified to do business in each jurisdiction where
conduct of its business requires such qualification, except where the failure to
so qualify would not have a material adverse effect on such Subsidiary.
Section 4.02 Partnership and Corporate Power. The execution, delivery,
and performance by the Borrower and each Guarantor of the Credit Documents to
which it is a party and the consummation of the transactions contemplated hereby
and thereby (a) are within such Persons' partnership, limited liability company
and corporate powers, as applicable, (b) have been duly authorized by all
necessary corporate, limited liability company and partnership action, as
applicable, (c) do not contravene (i) such Person's certificate or articles, as
the case may be, of incorporation or by-laws, operating agreement or partnership
agreement, as applicable, or (ii) any law or any contractual restriction binding
on or affecting any such Person, the contravention of which could reasonably be
expected to cause a Material Adverse Change, and (d) will not result in or
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require the creation or imposition of any Lien prohibited by this Agreement. At
the time of each Borrowing, such Borrowing and the use of the proceeds of such
Borrowing will be within the Borrower's partnership powers, will have been duly
authorized by all necessary partnership action, (a) will not contravene (i) the
Borrower's partnership agreement or (ii) any law or any contractual restriction
binding on or affecting the Borrower, the contravention of which could
reasonably be expected to cause a Material Adverse Change, and (b) will not
result in or require the creation or imposition of any Lien prohibited by this
Agreement.
Section 4.03 Authorization and Approvals. No authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority is required for the due execution, delivery and performance by the
Borrower or any Guarantor of the Credit Documents to which it is a party or the
consummation of the transactions contemplated thereby.
Section 4.04 Enforceable Obligations. This Agreement, the Notes, and
the other Credit Documents to which the Borrower is a party have been duly
executed and delivered by the Borrower; each Guaranty and the other Credit
Documents to which each Guarantor is a party have been duly executed and
delivered by such Guarantor. Each Credit Document is the legal, valid, and
binding obligation of the Borrower and each Guarantor which is a party to it
enforceable against the Borrower and each such Guarantor in accordance with its
terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium, or similar law affecting
creditors' rights generally and by general principles of equity (whether
considered in proceeding at law or in equity).
Section 4.05 Financial Statements and Registration Statement. The
respective Consolidated balance sheets of the Parent and the respective related
Consolidated statements of operations, shareholders' equity and cash flows, of
the Parent contained in the Registration Statement, and the corresponding pro
forma financial statements for the Borrower, fairly present the financial
condition and results of operation in all material respects for the periods
indicated, and such balance sheets and statements were prepared in accordance
with GAAP, subject to year-end adjustments. Since the date of such statements,
no Material Adverse Change has occurred.
Section 4.06 True and Complete Disclosure. No representation,
warranty, or other statement made by the Borrower (or on behalf of the Borrower)
in this Agreement or any other Credit Document contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which they were made as of the date of this Agreement.
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Section 4.07 Litigation. Except as set forth in Schedule 4.07, there
is no pending or, to the best knowledge of the Borrower, threatened action or
proceeding affecting the Borrower or the Parent or any of their respective
Subsidiaries before any court, Governmental Authority or arbitrator in which the
amount of the dispute is over $500,000 or, in the Borrower's good faith
judgment, the anticipated loss is over $500,000 (provided that with respect to
the giving of this representation after the date of this Agreement, the
representation shall only be deemed to apply to those matters for which Lender
would have been entitled to notice under Section 5.04(f)).
Section 4.08 Use of Proceeds.
1. Advances. The proceeds of the Advances shall be used by the Borrower
to (i) to make Investments permitted pursuant to the provisions of Section 6.05
and (ii) for general corporate purposes of the Borrower and its Subsidiaries.
2. Regulations. No proceeds of Advances will be used to purchase or
carry any margin stock in violation of Regulations G, T, U or X of the Federal
Reserve Board, as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof. The Borrower is not engaged
in the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation U of the Federal Reserve Board).
Section 4.09 Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
Section 4.10 Taxes. All federal, state, local and foreign tax
returns, reports and statements required to be filed (after giving effect to any
extension granted in the time for filing) by the Parent, the Borrower or its
Subsidiaries, or any member of a Controlled Group have been filed with the
appropriate governmental agencies in all jurisdictions in which such returns,
reports and statements are required to be filed, and where the failure to file
could reasonably be expected to cause a Material Adverse Change, except where
contested in good faith and by appropriate proceedings; and all taxes and other
impositions due and payable (which are material in amount) have been timely paid
prior to the date on which any fine, penalty, interest, late charge or loss
(which are material in amount) may be added thereto for non-payment thereof
except where contested in good faith and by appropriate proceedings. Proper and
accurate amounts have been withheld by the Parent, the Borrower and all members
of each Controlled Group from their employees for all periods to comply in all
material respects with the tax, social security and unemployment withholding
provisions of applicable federal, state, local and foreign law. Timely payment
of all material sales and use taxes required by applicable law have been made by
the Borrower and all other members of the Controlled Group, the failure to
timely pay of which could reasonably be expected to cause a Material Adverse
Change. The amounts shown on all tax returns to be due and payable have been
paid in full or adequate provision therefor is included on the books of the
appropriate member of the applicable Controlled Group.
Section 4.11 Pension Plans. All Plans are in compliance in all
material respects with all applicable provisions of ERISA. No Termination Event
has occurred with respect to any Plan which could reasonably be expected to
cause a Material Adverse Change, and each Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. No "accumulated funding deficiency" (as defined in
Section 302 of ERISA) has occurred and there has
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been no excise tax imposed under Section 4971 of the Code. No Reportable Event
has occurred with respect to any Multiemployer Plan, and each Multiemployer Plan
has complied with and been administered in all material respects with applicable
provisions of ERISA and the Code. Neither the Borrower, nor any member of a
Controlled Group has had a complete or partial withdrawal from any Multiemployer
Plan for which there is any material withdrawal liability. As of the most recent
valuation date applicable thereto, neither the Borrower nor any member of a
Controlled Group has received notice that any Multiemployer Plan is insolvent or
in reorganization.
Section 4.12 No Burdensome Restrictions; No Defaults.
1. Except in connection with Indebtedness which is (i) either permitted
pursuant to the provisions of Section 6.02, or (ii) being repaid with the
proceeds of the initial Borrowing, neither the Borrower nor any of its
Subsidiaries is a party to any indenture, loan or credit agreement. Neither the
Borrower, the Parent nor any of their respective Subsidiaries is a party to any
agreement or instrument or subject to any charter or corporate restriction or
provision of applicable law or governmental regulation which could reasonably be
expected to cause a Material Adverse Change. Neither the Borrower, the Parent
nor any of their Subsidiaries is in default under or with respect to (i) any
contract, agreement, lease or other instrument which could reasonably be
expected to cause a Material Adverse Change or (ii) any ground lease,
participating lease, franchise agreement, license agreement or management
agreement which could reasonably be expected to cause a Material Adverse Change,
except as disclosed to the Lender in writing prior to the date such
representation is deemed given. Neither the Borrower, the Parent nor any of
their Subsidiaries has received any notice of default under any material
contract, agreement, lease or other instrument which is continuing and which, if
not cured, could reasonably be expected to cause a Material Adverse Change.
2. No Default has occurred and is continuing (or with respect to the
giving of this representation after the date of this Agreement, as otherwise
disclosed to the Lender in writing after the date of this Agreement and prior to
the date such representation is deemed given).
Section 4.13 Environmental Condition.
1. Except as disclosed in Schedule 4.14, to the knowledge of the
Borrower, the Borrower and its Subsidiaries (or with respect to the giving of
this representation after the date of this Agreement, as otherwise disclosed to
the Lender in writing after the date of this Agreement and prior to the date
such representation is deemed given)(i) have obtained all Environmental Permits
material for the operation of their respective Properties and the conduct of
their respective businesses; (ii) have been and are in material compliance with
all terms and conditions of such Environmental Permits and with all other
requirements of applicable Environmental Laws; (iii) have not received notice of
any violation or alleged violation of any Environmental Law or
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Environmental Permit; and (iv) are not subject to any actual or contingent
Environmental Claim. To the knowledge of the Borrower (or with respect to the
giving of this representation after the date of this Agreement, as otherwise
disclosed to the Lender in writing after the date of this Agreement and prior to
the date such representation is deemed given), the Borrower and its Subsidiaries
are not subject to any actual or contingent Environmental Claim which the
Borrower believes in good faith will involve cost or expense to the Borrower or
its Subsidiaries in excess of $1,000,000 for any single Environmental Claim, or
in excess of $10,000,000 for all such Environmental Claims in the aggregate.
2. Except as disclosed in Schedule 4.14, to the knowledge of Borrower,
none of the present or previously owned or operated Property of the Borrower or
of any of its present or former Subsidiaries, wherever located, (i) has been
placed on or proposed to be placed on the National Priorities List, the
Comprehensive Environmental Response Compensation Liability Information System
list, or their state or local analogs, or have been otherwise investigated,
designated, listed, or identified as a potential site for removal, remediation,
cleanup, closure, restoration, reclamation, or other response activity under any
Environmental Laws which could reasonably be expected to cause a Material
Adverse Change; (ii) is subject to a Lien, arising under or in connection with
any Environmental Laws, that attaches to any revenues or to any Property
operated by the Borrower or any of its Subsidiaries, wherever located; (iii) has
been the site of any Release, use or storage of Hazardous Substances or
Hazardous Wastes from present or past operations except for Permitted Hazardous
Substances, which Permitted Hazardous Substances have not caused at the site or
at any third-party site any condition that has resulted in or could reasonably
be expected to result in the need for Response or (iv) none of the Improvements
are constructed on land designated by any Governmental Authority having land use
jurisdiction as wetlands.
Section 4.14 Legal Requirements, Zoning, Utilities, Access. Except as
set forth on Schedule 4.15, the use and operation of each Hotel Property as a
commercial hotel with related uses constitutes a legal use under applicable
zoning regulations (as the same may be modified by special use permits or the
granting of variances) and complies in all material respects with all Legal
Requirements, and does not violate in any material respect any material
approvals, material restrictions of record or any material agreement affecting
any Hotel Property (or any portion thereof). The Borrower and its Subsidiaries
possess all certificates of public convenience, authorizations, permits,
licenses, patents, patent rights or licenses, trademarks, trademark rights,
trade names rights and copyrights (collectively "Permits") required by
Governmental Authority to operate the Hotel Properties, except for those Permits
which if not obtained would not cause a Material Adverse Change. The Borrower
and its Subsidiaries own and operate their business in material compliance with
all applicable Legal Requirements. To the extent necessary for the full
utilization of each Hotel Property in accordance with its current use, telephone
services, gas, steam, electric power, storm sewers, sanitary sewers and water
facilities and all other utility services are available to each Hotel Property,
are adequate to serve each
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such Hotel Property, exist at the boundaries of the Land and are not subject to
any conditions, other than normal charges to the utility supplier, which would
limit the use of such utilities. All streets and easements necessary for the
occupancy and operation of each Hotel Property are available to the boundaries
of the Land.
Section 4.15 Existing Indebtedness. Except for the Obligations or as
reflected in the financial statements contained in the Registration Statement,
there is no Indebtedness of the Borrower or any of its Subsidiaries existing as
of the Effective Date. No "default" or "event of default", however defined, has
occurred and is continuing under any such Indebtedness (or with respect to the
giving of this representation after the date of this Agreement, as otherwise
disclosed to the Lender in writing after the date of this Agreement and prior to
the date such representation is deemed given).
Section 4.16 Leases and Management Agreements. To the knowledge of
the Borrower, the Leases and the Management Agreements are in full force and
effect and no material defaults exist thereunder (or with respect to the giving
of this representation after the date of this Agreement, as otherwise disclosed
to the Lender in writing after the date of this Agreement and prior to the date
such representation is deemed given). Copies of all material Leases and
Management Agreements of the Borrower and its Subsidiaries have been delivered
by the Borrower to the Lender.
ARTICLE V.
AFFIRMATIVE COVENANTS
So long as any Note or any amount under any Credit Document shall remain
unpaid, or the Lender shall have any Commitment hereunder, unless the Lender
shall otherwise consent in writing, the Borrower agrees to comply with the
following covenants.
Section 5.01 Compliance with Laws, Etc. The Borrower will comply,
and cause the Parent and each of its Subsidiaries to comply, in all material
respects with all Legal Requirements.
Section 5.02 Preservation of Existence; Separateness, Etc.
1. The Borrower will preserve and maintain, and cause the Parent and each
of its Subsidiaries to preserve and maintain, its partnership, limited liability
company or corporate (as applicable) existence, rights, franchises and
privileges in the jurisdiction of its formation, and qualify and remain
qualified, and cause the Parent and each such Subsidiary to qualify and remain
qualified, as a foreign partnership or corporation as applicable in each
jurisdiction in which qualification is necessary or desirable in view of its
business and operations or the ownership of its properties, and, in
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each case, where failure to qualify or preserve and maintain its rights and
franchises could reasonably be expected to cause a Material Adverse Change.
2. The Parent Common Stock shall at all times be duly listed on the New
York Stock Exchange, Inc. and (ii) the Parent shall timely file all reports
required to be filed by it with the New York Stock Exchange, Inc. and the
Securities and Exchange Commission.
3. The Borrower shall hold itself out, and shall continue to hold itself
out, to the public and to its creditors as a legal entity, separate and distinct
from all other entities, and shall continue to take all steps reasonably
necessary to avoid misleading any other Person as to the identity of the entity
with which such Person is transacting business.
Section 5.03 Payment of Taxes, Etc. The Borrower will pay and
discharge, and cause the Parent and each of its Subsidiaries to pay and
discharge, before the same shall become delinquent (a) all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or profits
or Property that are material in amount, prior to the date on which penalties
attach thereto and (b) all lawful claims that are material in amount which, if
unpaid, might by Legal Requirement become a Lien upon its Property; provided,
however, that neither the Borrower, the Parent nor any such Subsidiary shall be
required to pay or discharge any such tax, assessment, charge, levy, or claim
(a) which is being contested in good faith and by appropriate proceedings, (b)
with respect to which reserves in conformity with GAAP have been provided, (c)
if such charge or claim does not constitute and is not secured by any choate
Lien on any portion of any Hotel Property and no portion of any Hotel Property
is in jeopardy of being sold, forfeited or lost during or as a result of such
contest, (d) if the Lender could not become subject to any civil fine or penalty
or criminal fine or penalty, in each case as a result of non-payment of such
charge or claim and (e) if such contest does not, and could not reasonably be
expected to, result in a Material Adverse Change.
Section 5.04 Reporting Requirements. The Borrower will furnish to the
Lender:
1. Quarterly Financials. As soon as available and in any event not later
than 50 days after the end of each Fiscal Quarter of the Parent, the unaudited
Consolidated balance sheets of the Parent and its Subsidiaries as of the end of
such quarter and the related unaudited statements of income, shareholders'
equity and cash flows of the Parent and its Subsidiaries for such Fiscal quarter
and the period commenc ing at the end of the previous year and ending with the
end of such Fiscal Quarter, and the corresponding figures as at the end of, and
for, the corresponding periods in the preceding Fiscal Year, all duly certified
with respect to such statements (subject to year-end audit adjustments) by a
Responsible Officer of the Parent as having been prepared in
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accordance with GAAP, together with a Compliance Certificate duly executed by a
Responsible Officer of the Parent.
2. Annual Financials. As soon as available and in any event not later
than 95 days after the end of each Fiscal Year of the Parent, a copy of the
Consolidated balance sheets of the Parent and its Subsidiaries as of the end of
such Fiscal Year and the related Consolidated statements of income,
shareholders' equity and cash flows of the Parent and its Subsidiaries for such
Fiscal Year, and the corresponding figures as at the end of, and for, the
preceding Fiscal Year, and certified by the Company's independent certified
public accountants of nationally recognized standing in an opinion, without
qualification as to the scope, and including any management letters delivered by
such accountants to the Parent in connection with such audit, together with a
Compliance Certificate duly executed by a Responsible Officer of the Parent.
3. Securities Law Filings. Promptly and in any event within 15 days
after the sending or filing thereof, copies of all proxy material, reports and
other information which the Borrower, the Parent or any of their respective
Subsidiaries sends to or files with the United States Securities and Exchange
Commission or sends to all of the shareholders of the Parent or partners of the
Borrower.
4. Defaults. As soon as possible and in any event within five days after
the occurrence of each Default known to a Responsible Officer of the Parent, the
Borrower or any of their respective Subsidiaries, a statement of an authorized
financial officer or Responsible Officer of the Borrower setting forth the
details of such Default and the actions which the Borrower has taken and
proposes to take with respect thereto.
5. ERISA Notices. As soon as possible and in any event (i) within 30
days after the Parent, the Borrower or any member of a Controlled Group knows
to know that any Termination Event described in clause (a) of the definition of
Termination Event with respect to any Plan has occurred, (ii) within 10 days
after the Parent, the Borrower or any member of a Controlled Group knows that
any other Termination Event with respect to any Plan has occurred, a statement
of the Chief Financial Officer of the Parent describing such Termination Event
and the action, if any, which the Parent, the Borrower or such member of such
Controlled Group proposes to take with respect thereto; (iii) within 10 days
after receipt thereof by the Parent, the Borrower or any member of a Controlled
Group from the PBGC, copies of each notice received by the Parent, the Borrower
or any such member of such Controlled Group of the PBGC's intention to terminate
any Plan or to have a trustee appointed to administer any Plan; and (iv) within
10 days after receipt thereof by the Parent, the Borrower or any member of a
Controlled Group from a Multiemployer Plan sponsor, a copy of each notice
received by the Parent, the Borrower or any member of such Controlled Group
concerning the imposition or amount of withdrawal liability pursuant to Section
4202 of ERISA.
6. Environmental Notices. Promptly upon the knowledge of any Responsible
Officer of the Borrower of receipt thereof by the Borrower or any of its
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Subsidiaries, a copy of any form of notice, summons or citation received from
the United States Environmental Protection Agency, or any other Governmental
Authority concerning (i) violations or alleged violations of Environmental Laws,
which seeks to impose liability therefor, (ii) any action or omission on the
part of the Parent or the Borrower or any of their present or former
Subsidiaries in connection with Hazardous Waste or Hazardous Substances which,
based upon information reasonably available to the Borrower, could reasonably be
expected to cause a Material Adverse Change or an Environmental Claim in excess
of $10,000,000, (iii) any notice of potential responsibility under CERCLA, or
(iv) concerning the filing of a Lien upon, against or in connection with the
Parent, Borrower, their present or former Subsidiaries, or any of their leased
or owned Property, wherever located.
7. Other Governmental Notices or Actions. Promptly and in any event
within five Business Days after receipt thereof by the Parent, Borrower or any
of their respective Subsidiaries, (i) a copy of any notice, summons, citation,
or proceeding seeking to adversely modify in any material respect, revoke, or
suspend any license, permit, or other authorization from any Governmental
Authority, which action could reasonably be expected to cause a Material Adverse
Change, and (ii) any revocation or involuntary termination of any license,
permit or other authorization from any Governmental Authority, which revocation
or termination could reasonably be expected to cause a Material Adverse Change.
8. Material Litigation. As soon as possible and in any event within five
days of any Responsible Officer of the Borrower, the Parent or any of their
respective Subsidiaries having knowledge thereof, notice of any litigation,
claim or any other event which could reasonably be expected to cause a Material
Adverse Change.
9. Other Information. Such other information respecting the business or
Properties, or the condition or operations, financial or otherwise, of the
Borrower, the Parent or any of their respective Subsidiaries, as the Lender may
from time to time reasonably request.
Section 5.05 Insurance. The Borrower will maintain, and cause each of
its Subsidiaries to maintain, adequate insurance consistent with commercial
practices in the industry.
Section 5.06 Material Documents. The Borrower will not, nor will it
permit any of its Subsidiaries to (a) amend the Borrower's partnership agreement
in any material respect, (b) admit a new general partner to the Borrower, or (c)
enter into any termination, material modification or amendment of the
Intercompany Agreement and any other material agreement. Any termination,
modification or amendment prohibited under this Section 5.06 without the
Lender's written consent shall, to the extent permitted by applicable law, be
void and of no force and effect.
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ARTICLE VI.
NEGATIVE COVENANTS
So long as any Note or any amount under any Credit Document shall remain
unpaid or the Lender shall have any Commitment, the Borrower agrees, unless the
Lender shall otherwise consent in writing, to comply with the following
covenants:
Section 6.01 Liens, Etc. The Borrower, the Parent and their respective
Subsidiaries will not create, assume, incur or suffer to exist, any Lien on or
in respect of any of its Property whether now owned or hereafter acquired, or
assign any right to receive income, except that the Borrower and its
Subsidiaries may create, incur, assume or suffer to exist Liens:
1. securing the Obligations;
2. securing the Financial Institution Senior Indebtedness;
3. for taxes, assessments or governmental charges or levies on
Property of the Borrower or any Guarantor to the extent not required to be paid
pursuant to Sections 5.03;
4. imposed by law (such as landlords', carriers', warehousemen's and
mechanics' liens or otherwise arising from litigation) (i) which are being
contested in good faith and by appropriate proceedings, (ii) with respect to
which reserves in conformity with GAAP have been provided, (iii) which have not
resulted in any Hotel Property being in jeopardy of being sold, forfeited or
lost during or as a result of such contest, (iv) neither the Lender nor the
Borrower could become subject to any civil fine or penalty or criminal fine or
penalty, in each case as a result of non-payment of such charge or claim and (v)
such contest does not, and could not reasonably be expected to, result in a
Material Adverse Change;
5. on leased personal property to secure solely the lease
obligations associated with such property;
Section 6.02 Indebtedness. The Borrower, the Parent and their
respective Subsidiaries will not incur or permit to exist any Indebtedness other
than the Obligations, the Financial Institution Senior Indebtedness and the
following:
1. Indebtedness in an amount that does not cause a breach at any
time of the covenants contained in Article VII;
2. Capital Leases in an amount in excess of $10,000,000;
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3. Interest Rate Agreements; provided that (i) such agreements shall be
unsecured, (ii) the dollar amount of indebtedness subject to such agreements and
the indebtedness subject to Interest Rate Agreements in the aggregate shall not
exceed the sum of the amount of the Commitment and the amount of the other
Indebtedness of the Borrower or its Affiliates which bears interest at a
variable rate, and (iii) the agreements shall be at such interest rates and
otherwise in form and substance reasonably acceptable to the Lender.
4. Any of the following Indebtedness incurred by the Parent:
a. indemnities for certain acts of malfeasance, misappropriation and
misconduct and an environmental indemnity for the lender under Indebtedness
permitted under to this Agreement; and
b. guaranties of any obligations of the Borrower or its Subsidiaries
permitted by this Agreement, including without limitation guaranties of Leases
and Management Agreements.
5. extensions, renewals and refinancing of any of the Indebtedness
specified in paragraphs (b) - (d) above so long as the principal amount of such
Indebtedness is not thereby increased.
Section 6.03 Agreements Restricting Distributions From Subsidiaries.
Except as required by the Leases, the Borrower will not, nor will it permit any
of its Subsidiaries to, enter into any agreement (other than a Credit Document)
which limits distributions to or any advance by any of the Borrower's
Subsidiaries to the Borrower.
Section 6.04 Fundamental Changes; Asset Dispositions. Neither the
Parent, the Borrower, nor any of their respective Subsidiaries will, (a) merge
or consolidate with or into any other Person, unless (i) a Guarantor is merged
into the Borrower and the Borrower is the surviving Person or a Subsidiary is
merged into any Subsidiary, and (ii) immediately after giving effect to any such
proposed transaction no Default would exist; (b) sell, transfer, or otherwise
dispose of all or any of the such Person's material property except for a
Permitted Asset Disposition, or dispositions or replacements of personal
property in the ordinary course of business; (c) sell or otherwise dispose of
any material shares of capital stock, membership interests or partnership
interests of any Subsidiary; (d) except for sales of ownership interests
permitted under this Agreement and the issuance of limited partnership interests
in the Borrower in exchange for ownership interests in Subsidiaries and non-
Consolidated Subsidiaries to the extent permitted pursuant to the provisions of
Section 6.03, materially alter the corporate, capital or legal structure of any
such Person; (e) liquidate, wind-up or dissolve itself (or suffer any
liquidation or dissolution) provided that nothing herein shall prohibit the
Borrower from dissolving any Subsidiary which has no assets on the date of
dissolution or (f) materially alter the character of their respective businesses
from that
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conducted as of the date of this Agreement or otherwise engage in any material
business activity outside of the Hospitality/Leisure Management Business.
Section 6.05 Investments, Loans, Future Properties. Neither the Parent
nor the Borrower shall, or shall permit any of their respective Subsidiaries to,
acquire by purchase or otherwise any business, property or fixed assets of any
Person or any Hotel Property, make or permit to exist any loans, advances or
capital contributions to, or make any Investments in (including without
limitation, loans and advances to, and other Investments in, Subsidiaries) or
purchase or commit to purchase any evidences of indebtedness of, stock or other
securities, partnership interests, member interests or other interests in any
Person, except (provided that after giving effect thereto there shall exist no
Default) Investments in the Hospitality/Leisure Management Business; provided,
however, that the Borrower shall be required to obtain the consent of the Lender
prior to making an Investment in the Hospitality/Leisure Management Business in
an amount that exceeds $50,000,000. Notwithstanding the foregoing, neither the
Borrower, nor the Parent, nor their respective Subsidiaries shall make an
Investment which would (a) cause a Default, or (b) cause or result in the
Borrower or the Parent failing to comply with any of the financial covenants
contained herein.
Section 6.06 Affiliate Transactions. Except for the Intercompany
Agreement, certain liquor license agreements and the transactions described in
Section 6.04(i), the Borrower will not, and will not permit any of its
Subsidiaries to, make, directly or indirectly: (a) any transfer, sale, lease,
assignment or other disposal of any assets to any Affiliate of the Borrower
which is not a Guarantor or any purchase or acquisition of assets from any such
Affiliate except for sales of new personal property (i) which in any calendar
year do not exceed $10,000,000 in the aggregate and (ii) for which the sales
price is the actual cost to the party selling; or (b) any arrangement or other
transaction directly or indirectly with or for the benefit of any such Affiliate
(including without limitation, guaranties and assumptions of obligations of an
Affiliate), other than in the ordinary course of business and at market rates.
Section 6.07 Sale or Discount of Receivables. The Borrower will not,
and will not permit any of its Subsidiaries to, directly or indirectly, sell
with recourse, or discount or otherwise sell for less than the face value
thereof, any of its notes or accounts receivable.
Section 6.08 Restricted Payments. Neither the Parent, nor the
Borrower, nor any of their respective Subsidiaries, will make any Restricted
Payment;
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ARTICLE VII.
FINANCIAL COVENANTS
So long as any Note or any amount under any Credit Document shall remain
unpaid, or the Lender shall have any Commitment hereunder, unless the Lender
shall otherwise consent in writing, the Borrower agrees to cause the Parent to
comply with the following covenants:
Section 7.01 Senior Interest Coverage Ratio. The Parent shall maintain
at the end of each Rolling Period (a) for the Rolling Periods ending on
September 30, 1998 through September 30, 1999 a Senior Interest Coverage Ratio
of not less than 2.5 to 1.0, and (b) for any Rolling Period thereafter, a Senior
Interest Coverage Ratio of not less than 2.75 to 1.0.
Section 7.02 Total Interest Coverage Ratio. The Parent shall maintain
at the end of each Rolling Period (a) for the Rolling Periods ending on
September 30, 1998 through December 31, 1999, a Total Interest Coverage Ratio of
not less than 2.0 to 1.0 and (b) for any Rolling Period thereafter, a Total
Interest Coverage Ratio of not less than 2.5 to 1.0.
Section 7.03 Senior Fixed Charge Ratio. The Parent shall maintain at
the end of each Rolling Period (a) for the Rolling Periods ending on September
30, 1998 through September 30, 1999 a Senior Fixed Charge Ratio of not less than
2.0 to 1.0, (b) for the Rolling Periods ending on December 31, 1999 through
September 30, 2000 a Senior Fixed Charge Ratio of not less than 2.5 to 1.0, and
(c) for any Rolling Period thereafter, a Senior Fixed Charge Ratio of not less
than 2.25 to 1.0.
Section 7.04 Total Fixed Charge Ratio. The Parent shall maintain at
the end of each Rolling Period (a) for the Rolling Periods ending on September
30, 1998 to September 30, 1999, a Total Fixed Charge Ratio of not less than 1.75
to 1.0, (b) for the Rolling Periods ending on December 31, 1999 to September 30,
2000, a Total Fixed Charge Ratio of not less than 2.0 to 1.0, and (c) for any
Rolling Period thereafter, a Total Fixed Charge Ratio of not less than 2.25 to
1.0.
Section 7.05 Senior Indebtedness Leverage Ratio. The Parent shall not
on any date permit the Senior Indebtedness Leverage Ratio to exceed (a) for the
Rolling Periods ending on September 30, 1998 through September 30, 1999, 4.0 to
1.0, (b) for any Rolling Period thereafter, 3.5 to 1.0.
Section 7.06 Leverage Ratio. The Parent shall not on any date permit
the Leverage Ratio to exceed (a) prior to December 31, 1998 5.5 to 1, (b) from
December 31, 1998 to June 30, 1999, 5.0 to 1.0, (c) from July 1, 1999 to June
30, 2000 4.5 to 1.0, and (d) after June 30, 2000 4.0 to 1.0.
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ARTICLE VIII.
SUBORDINATION
Section 8.01 Agreement to Subordinate. The Lender agrees that
Indebtedness for Borrowings under this Agreement represented by the Notes shall
be subordinated in right of payment, to the extent and in the manner provided in
this Article, to the prior payment in full of all Financial Institution Senior
Indebtedness and that the subordination is for the benefit of the Financial
Institution Lenders.
Section 8.02 Liquidation; Dissolution; Bankruptcy. Upon any
distribution to creditors of the Borrower in a liquidation or dissolution of the
Borrower or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Borrower or its Property:
(a) the holders of Financial Institution Senior Indebtedness shall be
entitled to receive payment in full in cash of the principal of and interest
(including interest accruing after the commencement of any such proceeding) to
the date of payment on the Financial Institution Senior Indebtedness before the
Lender shall be entitled to receive any payment of principal of or interest on
the Notes; and
(b) until the Financial Institution Senior Indebtedness is paid in full in
cash, any distribution to which the Lender would be entitled but for this
Article shall be made to the holders of Financial Institution Senior
Indebtedness as their interests may appear, except that the Lender may receive
securities that are subordinated to Financial Institution Senior Indebtedness to
at least the same extent as the Notes.
Section 8.03 Default on Financial Institution Senior Indebtedness. The
Borrower may not pay principal of or interest on the Notes and may not acquire
any securities for cash or property other than capital stock of the Borrower if:
(a) a default on Financial Institution Senior Indebtedness occurs and is
continuing that permits holders of such Financial Institution Senior
Indebtedness to accelerate its maturity; and
(b) the default is the subject of judicial proceedings or the Borrower
receives a notice of the default. If the Borrower receives any such notice, a
similar notice received within nine months thereafter relating to the same
default on the same issue of Financial Institution Senior Indebtedness shall not
be effective for purposes of this Section.
The Borrower may resume payments on the Notes and may acquire them
when (1) the default is cured or waived, or (2) 20 days pass after the notice is
given if the default is not the subject of judicial proceedings, if this Article
otherwise permits the payment or acquisition at that time.
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Section 8.04 Acceleration of Notes. If payment of the Notes is
accelerated because of an Event of Default, the Borrower shall promptly notify
holders of Financial Institution Senior Indebtedness of the acceleration. The
Borrower may pay the Notes when 120 days pass after the acceleration occurs if
this Article permits the payment at that time.
Section 8.05 When Distribution Must Be Paid Over. If a distribution is
made to the Lender that because of this Article should not have been made to it,
the Lender shall hold it in trust for holders of Financial Institution Senior
Indebtedness and pay it over to them as their interests may appear.
Section 8.06 Notice by Borrower. The Borrower shall promptly notify
the Lender of any facts known to the Borrower that would cause a payment of
principal of or interest on Notes to violate this Article.
Section 8.07 Subrogation. After all Financial Institution Senior
Indebtedness is paid in full and until the Notes are paid in full, the Lender
shall be subrogated to the rights of holders of Financial Institution Senior
Indebtedness to receive distributions applicable to Financial Institution Senior
Indebtedness to the extent that distributions otherwise payable to the Lender
have been applied to the payment of Financial Institution Senior Indebtedness.
A distribution made under this Article to holders of Financial Institution
Senior Indebtedness which otherwise would have been made to the Lender is not,
as between the Borrower and the Lender, a payment by the Borrower on Financial
Institution Senior Indebtedness.
Section 8.08 Relative Rights. This Article defines the relative rights
of the Lender and holders of Financial Institution Senior Indebtedness. Nothing
in this Indenture shall:
(a) impair, as between the Borrower and the Lender, the obligation of the
Borrower, which is absolute and unconditional, to pay principal of and interest
on the Notes in accordance with their terms;
(b) affect the relative rights of the Lender and creditors of the Borrower
other than holders of Financial Institution Senior Indebtedness; or
(c) prevent the Lender from exercising its available remedies upon an
Event of Default, subject to the rights of holders of Financial Institution
Senior Indebtedness to receive distributions otherwise payable to the Lender.
If the Borrower fails because of this Article to pay principal of or
interest on a Note on the due date, the failure is still an Event of Default as
provided elsewhere herein.
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ARTICLE IX.
EVENTS OF DEFAULT; REMEDIES
Section 9.01 Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default" under any Credit Document:
1. Principal Payment. The Borrower or any Guarantor shall fail to pay
any principal of any Note when the same becomes due and payable as set forth in
this Agreement;
2. Interest or Other Obligation Payment. The Borrower or any Guarantor
shall fail to pay any interest on any Note or any other amount payable hereunder
or under any other Credit Document when the same becomes due and payable as set
forth in this Agreement; provided, however, that the Borrower and the Guarantors
will have a grace period of ten days after the payments covered by this Section
9.01(b) becomes due and payable for the first two defaults of such Persons
collectively under this Section 9.01(b) in every calendar year;
3. Representation and Warranties. Any representation or warranty made or
deemed to be made (i) by the Borrower in this Agreement or in any other Credit
Document, (ii) by the Borrower (or any of its officers) in connection with this
Agreement or any other Credit Document, or (iii) by the Parent or any Subsidiary
in any Credit Document shall prove to have been incorrect in any material
respect when made or deemed to be made;
4. Covenant Breaches. (i) The Borrower shall fail to perform or observe
any covenant contained in Section 5.02, Article VI or Article VII of this Agree
ment or the Borrower shall fail to perform or observe, or shall fail to cause
any Guarantor to perform or observe any covenant in any Credit Document beyond
any notice and/or cure period for such default expressly provided in such Credit
Document or (ii) the Borrower or any Guarantor shall fail to perform or observe
any term or covenant set forth in any Credit Document which is not covered by
clause (i) above or any other provision of this Section 9.01, in each case if
such failure shall remain unremedied for 30 days after the earlier of the date
written notice of such default shall have been given to the Borrower or such
Guarantor by the Lender or the date a Responsible Officer of the Borrower or any
Guarantor has actual knowledge of such default, unless such default in this
clause (ii) cannot be cured in such 30 day period and the Borrower is diligently
proceeding to cure such default, in which event the cure period shall be
extended to 90 days;
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5. Cross-Defaults.
(i) with respect to Indebtedness of the Borrower in excess of $5,000,000
or any amount of Financial Institution Senior Indebtedness (but excluding
Indebtedness evidenced by the Notes) which is outstanding:
(1) any such Indebtedness shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof;
(2) the Borrower, the Parent or any of their respective Subsidiaries
shall fail to pay any principal of or premium or interest of any of such
Indebtedness (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue after
the applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness; or
(3) any other event shall occur or condition shall exist under any
agreement or instrument relating to such Indebtedness, and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to permit the
holders of such Indebtedness to accelerate the maturity of such
Indebtedness;
6. Insolvency. The Borrower, the Parent or any of their respective
material Subsidiaries shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against the Borrower, the Parent or any of their
respective material Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against the
Borrower, the Parent or any of their respective material Subsidiaries, either
such proceeding shall remain undismissed for a period of 60 days or any of the
actions sought in such proceeding shall occur; or the Borrower, the Parent or
any of their respective material Subsidiaries shall take any corporate action to
authorize any of the actions set forth above in this paragraph (e);
7. ERISA. (i) Any Person shall engage in any "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of
ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a
Reportable Event shall occur with respect to, or proceedings shall commence to
have a trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is likely
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to result in the termination of such Plan for purposes of Title IV of ERISA,
unless such Reportable Event, proceedings or appointment are being contested by
the Borrower in good faith and by appropriate proceedings, (iv) any Plan shall
terminate for purposes of Title IV of ERISA, (v)the Borrower or any member of a
Controlled Group shall incur any liability in connection with a withdrawal from
a Multiemployer Plan or the insolvency (within the meaning of Section 4245 of
ERISA) or reorganization (within the meaning of Section 4241 of ERISA) of a
Multiemployer Plan, unless such liability is being contested by the Borrower in
good faith and by appropriate proceedings, or (vi) any other event or condition
shall occur or exist, with respect to a Plan; and in each case in clauses (i)
through (vi) above, such event or condition, together with all other such events
or conditions, if any, could subject the Borrower or any Guarantor to any tax,
penalty or other liabilities in the aggregate exceeding $10,000,000;
8. Guaranty. Any material provision of any Guaranty shall for any reason
cease to be valid and binding on any Guarantor or any Guarantor shall so state
in writing;
9. Environmental Condition. The terms and conditions of Section 4.14 of
this Agreement shall for any reason cease to be valid and binding on any Person
party thereto or any such Person shall so state in writing; or
10. Change in Management. Any of the following occur without the written
consent of the Required Lenders: (a) a Change of Control occurs for either the
Parent or the Borrower; (b) the Parent, and any wholly-owned Subsidiary of the
Parent collectively owns less than 70% of the legal or beneficial interest in
the Borrower; or (c) the Parent shall cease to employ either Paul W. Whetsell or
Steven D. Jorns as chairman and chief executive officer of the Parent and,
within 180 days following such occurrence for any reason, another person
acceptable to the Lenders in their sole discretion is not employed as the
Chairman and Chief Executive Officer of the Parent.
Section 9.02 Optional Acceleration of Maturity; Other Actions. If any
Event of Default (other than an Event of Default pursuant to paragraph (f) of
Section 9.01) shall have occurred and be continuing, then, and in any such
event:
1. the Lender (i) may, by notice to the Borrower, declare the obligation
to make Advances to be terminated, whereupon the same shall forthwith terminate,
and (ii) may, by notice to the Borrower, declare the Notes, all interest
thereon, and all other amounts payable under this Agreement to be forthwith due
and payable, whereupon the Notes, all such interest and all such amounts shall
become and be forthwith due and payable in full, without presentment, demand,
protest or further notice of any kind (including, without limitation, any notice
of intent to accelerate or notice of acceleration), all of which are hereby
expressly waived by the Borrower; and
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2. the Lender may proceed to enforce its rights and remedies under
the Credit Documents by appropriate proceedings.
Section 9.03 Automatic Acceleration of Maturity. If any Event of
Default pursuant to paragraph (f) of Section 9.01 shall occur, the obligation of
the Lender to make Advances shall immediately and automatically be terminated
and the Notes, all interest on the Notes, and all other amounts payable under
this Agreement shall immediately and automatically become and be due and payable
in full, without presentment, demand, protest or any notice of any kind
(including, without limitation, any notice of intent to accelerate or notice of
acceleration), all of which are hereby expressly waived by the Borrower.
ARTICLE X.
MISCELLANEOUS
Section 10.01 Amendments, Etc. No amendment or waiver of any provision
of this Agreement, the Notes, or any other Credit Document, nor consent to any
departure by the Borrower or any Guarantor therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Lender, as
specified in the particular provisions of the Credit Documents, and the
Borrower, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given
Section 10.02 Notices, Etc. All notices and other communications shall
be in writing (including telecopy or telex) and mailed, telecopied, telexed,
hand delivered or delivered by a nationally recognized overnight courier, if to
the Borrower, at its address at 1010 Wisconsin Avenue, N.W., Suite 650,
Washington, D.C. 20007, Attn: Mr. James C. Calder; if to the Lender, at its
address at 1010 Wisconsin Avenue, N.W., Suite 650, Washington, D.C. 20007, Attn:
Mr. John Emery; or, as to each party, at such other address or teletransmission
number as shall be designated by such party in a written notice to the other
parties. All such notices and communications shall, when mailed, telecopied,
telexed or hand delivered or delivered by overnight courier, be effective three
days after deposited in the mails, when telecopy transmission is completed, when
confirmed by telex answer-back or when delivered, respectively, except that
notices and communications to the Lender pursuant to Article II or Article VIII
shall not be effective until received by the Lender.
Section 10.03 No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder or under any
Note shall operate as a waiver thereof; nor shall any single or partial exercise
of any such right preclude any other or further exercise thereof or the exercise
of any other right. The remedies provided in this Agreement and the other Credit
Documents are cumulative and not exclusive of any remedies provided by law.
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Section 10.4 Costs and Expenses. The Borrower agrees to pay on demand
all out-of-pocket costs and expenses of the Lender in connection with the
preparation, execution, delivery, due diligence, administration, modification
and amendment of this Agreement, the Notes and the other Credit Documents of the
Obligations including, without limitation, all reasonable out-of-pocket costs
and expenses, if any, of the Lender in connection with the enforcement (whether
through negotiations, legal proceedings or otherwise) of this Agreement and the
other Credit Documents.
Section 10.05 Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower and the Lender, and when the
Lender shall have, as to the Lender, either received a counterpart hereof
executed by the Lender or been notified by the Lender that the Lender has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Lender and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights or delegate its
duties under this Agreement or any interest in this Agreement without the prior
written consent of the Lender.
Section 10.06 Indemnification. The Borrower shall indemnify the Lender
and each of its affiliates, directors, officers, employees and agents from, and
discharge, release, and hold each of them harmless against, any and all losses,
liabilities, claims or damages to which any of them may become subject, insofar
as such losses, liabilities, claims or damages arise out of or result from (i)
any actual or proposed use by the Borrower or any Affiliate of the Borrower of
the proceeds of any Advance, (ii) any breach by the Borrower or any Guarantor of
any provision of this Agreement or any other Credit Document, (iii) any
investigation, litigation or other proceeding (including any threatened
investigation or proceeding) relating to the foregoing, or (iv) any
Environmental Claim or requirement of Environmental Laws concerning or relating
to the present or previously-owned or operated properties, or the operations or
business, of the Parent, the Borrower or any of its Subsidiaries, and the
Borrower shall reimburse the Lender, each affiliate and their respective
directors, officers, employees and agents, upon demand for any reasonable
out-of-pocket expenses (including legal fees) incurred in connection with any
such investigation, litigation or other proceeding; and expressly including any
such losses, liabilities, claims, damages, or expense incurred by reason of the
Person being indemnified's own negligence, but excluding any such losses,
liabilities, claims, damages or expenses incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified.
THE BORROWER ACKNOWLEDGES AND AGREES THAT CERTAIN OF ITS OBLIGATIONS AND
INDEMNITIES UNDER THIS AGREEMENT INCLUDE ANY CLAIMS RESULTING FROM THE
NEGLIGENCE OR ALLEGED NEGLIGENCE OF THE LENDER, OR ANY OTHER PERSON BEING
INDEMNIFIED.
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Section 10.07 Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
Section 10.08 Survival of Representations, Indemnifications, etc. All
representations, warranties contained in this Agreement or made in writing by or
on behalf of the Borrower in connection herewith shall survive the execution and
delivery of this Agreement and the Credit Documents, the making of the Advances
and any investigation made by or on behalf of the Lender, none of which
investigations shall diminish the Lender's right to rely on such representations
and warranties. All obligations of the Borrower provided for in Sections 2.07,
2.10(c) and 9.06 shall survive any termination of this Agreement and repayment
in full of the Obligations.
Section 10.09 Severability. In case one or more provisions of this
Agreement or the other Credit Documents shall be invalid, illegal or
unenforceable in any respect under any applicable law, the validity, legality
and enforceability of the remaining provisions contained herein or therein shall
not be affected or impaired thereby.
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Section 10.10 Usury Not Intended. It is the intent of the Borrower and
the Lender in the execution and performance of this Agreement and the other
Credit Documents to contract in strict compliance with applicable usury laws,
including conflicts of law concepts, governing the Advances of the Lender
including such applicable laws of the State of New York and the United States of
America from time to time in effect. In furtherance thereof, the Lender and the
Borrower stipulate and agree that none of the terms and provisions contained in
this Agreement or the other Credit Documents shall ever be construed to create a
contract to pay, as consideration for the use, forbearance or detention of
money, interest at a rate in excess of the Maximum Rate and that for purposes
hereof "interest" shall include the aggregate of all charges which constitute
interest under such laws that are contracted for, charged or received under this
Agreement; and in the event that, notwithstanding the foregoing, under any
circumstances the aggregate amounts taken, reserved, charged, received or paid
on the Advances, include amounts which by applicable law are deemed interest
which would exceed the Maximum Rate, then such excess shall be deemed to be a
mistake and the Lender shall credit the same on the principal of its Notes (or
if such Notes shall have been paid in full, refund said excess to the Borrower).
In the event that the maturity of the Notes is accelerated by reason of any
election of the holder thereof resulting from any Event of Default under this
Agreement or otherwise, or in the event of any required or permitted prepayment,
then such consideration that constitutes interest may never include more than
the Maximum Rate and excess interest, if any, provided for in this Agreement or
otherwise shall be canceled automatically as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited on the applicable Notes
(or, if the applicable Notes shall have been paid in full, refunded to the
Borrower). In determining whether or not the interest paid or payable under any
specific contingencies exceeds the Maximum Rate, the Borrower and the Lender
shall to the maximum extent permitted under applicable law amortize, prorate,
allocate and spread in equal parts during the period of the full stated term of
the Notes all amounts considered to be interest under applicable law at any time
contracted for, charged, received or reserved in connection with the
Obligations. The provisions of this Section shall control over all other
provisions of this Agreement or the other Credit Documents which may be in
apparent conflict herewith.
Section 10.11 GOVERNING LAW. ANY DISPUTE BETWEEN THE BORROWER, THE
LENDER, OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS
AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS, AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL
LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS
LAW, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE
STATE OF NEW YORK.
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Section 10.12 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.
(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF
THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS WHETHER
ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY
BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL
DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE
TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE LENDER OR ANY
INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY
IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL
JURISDICTION OVER THE BORROWER OR (2) ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT
ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO ENFORCE
A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES
ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON
HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B).
(C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY
PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS,
PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY
THE LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER
ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO
LIMIT THE ABILITY OF THE LENDER TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN
ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. THE BORROWER IRREVOCABLY WAIVES
ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
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AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET
FORTH ABOVE.
(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY
SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
Section 10.13 Knowledge of Borrower. For purposes of this Agreement,
"knowledge of the Borrower" means the actual knowledge of any of the executive
officers and all other Responsible Officers of the Parent.
Section 10.14 Lender Not in Control. None of the covenants or other
provisions contained in the Credit Documents shall or shall be deemed to, give
the Lender the rights or power to exercise control over the affairs and/or
management of the Borrower, any of its Subsidiaries or any Guarantor, the power
of the Lender being limited to the right to exercise the remedies provided in
the Credit Documents; provided, however, that if the Lender becomes the owner of
any stock, or other equity interest in, any Person whether through foreclosure
or otherwise, the Lender shall be entitled (subject to requirements of law) to
exercise such legal rights as it may have by being owner of such stock, or other
equity interest in, such Person.
Section 10.15 Headings Descriptive. The headings of the several
Sections and paragraphs of the Agreement are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
Section 10.16 Time is of the Essence. Time is of the essence under
----------------------------
the Credit Documents.
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EXECUTED as of the date first referenced above.
-----------------------------------------------
BORROWER:
---------
MERISTAR H & R OPERATING COMPANY, L.P.
--------------------------------------
By: MeriStar Hotels & Resorts, Inc., its general
--- --------------------------------------------
partner
-------
By:
-------------------------------------
Name:
Title:
LENDER:
MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P.
By: MeriStar Hospitality Corporation, its general
partner
By:
-------------------------------------
Name:
Title:
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MERISTAR H & R OPERATING COMPANY, L.P.
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF MERISTAR
H & R OPERATING COMPANY, L.P. (the "Partnership"), dated as of August 3, 1998,
is entered into by and among MeriStar Hotels & Resorts, Inc., a Delaware
corporation, as the General Partner, and MeriStar Hotels & Resorts and CapStar
Management Company, L.L.C., a Delaware limited liability company, as the Limited
Partners, together with any other Persons who become Partners in the Partnership
as provided herein.
WHEREAS, the Partnership was formed pursuant to an Agreement of Limited
Partnership, dated as of March 13, 1998 (the "Initial Agreement");
WHEREAS, prior to the execution of this Agreement, CapStar Management
Company L.L.C. and CapStar Management Company II L.L.C., each a Delaware limited
liability company, entered into contribution agreements (the "Contribution
Agreements"), whereby the assets of each such limited liability company were
contributed to the Partnership and MeriStar H & R Operating Company II, L.P., a
Delaware limited partnership, in exchange for certain interests in such limited
partnerships;
WHEREAS, prior to the execution of this Agreement, (i) CapStar Management
Company II L.L.C. merged with and into CapStar Management Company L.L.C. and
(ii) MeriStar H & R Operating Company II, L.P. merged with and into the
Partnership; and
WHEREAS, in connection with the foregoing, the parties hereto desire to
amend and restate the Initial Agreement in its entirety;
NOW, THEREFORE, in consideration of the mutual covenants set forth herein,
and for other good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree to amend and
restate the Initial Agreement in its entirety as follows:
ARTICLE I.
DEFINED TERMS
The following definitions shall be for all purposes, unless otherwise
clearly indicated to the contrary, applied to the terms used in this Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership Act, as it may
---
be amended from time to time, and any successor to such statute.
<PAGE>
"Additional Limited Partner" means a Person admitted to the Partnership as
--------------------------
a Limited Partner pursuant to Section 4.2 hereof and who is shown as such on the
books and records of the Partnership.
"Adjusted Capital Account" means the Capital Account maintained for each
------------------------
Partner as of the end of each Partnership Year (i) increased by any amounts
which such Partner is obligated to restore pursuant to any provision of this
Agreement, or is treated as being obligated to restore pursuant to Regulations
Section 1.704-1(b)(2)(ii)(c), or is deemed to be obligated to restore pursuant
to the penultimate sentences of Regulations Sections 1.704-2(g)(1),
1.704-1(i)(5), and (ii) decreased by the items described in Regulations Sections
1.704-1(b)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), and 1.704-1(b)(2)(ii)(d)(6). The
foregoing definition of Adjusted Capital Account is intended to comply with the
provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall be interpreted
consistently therewith.
"Adjusted Capital Account Deficit" means, with respect to any Partner, the
--------------------------------
deficit balance, if any, in such Partner's Adjusted Capital Account as of the
end of the relevant Partnership Year.
"Adjusted Property" means any property the Carrying Value of which has been
-----------------
adjusted pursuant to Exhibit B hereof.
---------
"Affiliate" means, with respect to any Person, (i) any Person directly or
---------
indirectly controlling, controlled by or under common control with such Person,
(ii) any Person owning or controlling ten percent (10%) or more of the
outstanding voting interests of such Person, (iii) any Person of which such
Person owns or controls ten percent (10%) or more of the voting interests, or
(iv) any officer, director, general partner, member, or trustee of such Person
or of any Person referred to in clauses (i), (ii), and (iii) above. For the
purposes of this definition, "control" when used with respect to any Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreed Value" means (i) in the case of any Contributed Property set forth
------------
in Exhibit D and as of the time of its contribution to the Partnership, the
---------
Agreed Value of such property as set forth in Exhibit D; (ii) in the case of any
---------
Contributed Property not set forth in Exhibit D and as of the time of its
---------
contribution to the Partnership, the 704(c) Value of such property, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed, and (iii) in the case of any
property distributed to a Partner by the Partnership, the Partnership's Carrying
Value of such property at the time such property is distributed, reduced by any
indebtedness either assumed by such Partner upon such distribution or to which
such property is subject at the time of distribution as determined under Section
752 of the Code and the Regulations thereunder.
2
<PAGE>
"Agreement" means this Agreement of Limited Partnership, as it may be
---------
amended, supplemented or restated from time to time.
"Assignee" means a Person to whom one or more Partnership Units have been
--------
transferred in a manner permitted under this Agreement, but who has not become a
Substituted Limited Partner, and who has the rights set forth in Section 11.5.
"Book-Tax Disparities" means, with respect to any item of Contributed
--------------------
Property or Adjusted Property, as of the date of any determination, the
difference between the Carrying Value of such Contributed Property or Adjusted
Property and the adjusted basis thereof for federal income tax purposes as of
such date. A Partner's share of the Partnership's Book-Tax Disparities in all of
its Contributed Property and Adjusted Property will be reflected by the
difference between such Partner's Capital Account balance as maintained pursuant
to Exhibit B and the hypothetical balance of such Partner's Capital Account
---------
computed as if it had been maintained strictly in accordance with federal income
tax accounting principles.
"Business Day" means any day except a Saturday, Sunday or other day on
------------
which commercial banks in New York, New York are authorized or required by law
to close.
"Capital Account" means the Capital Account maintained for a Partner
---------------
pursuant to Exhibit B hereof.
---------
"Capital Contribution" means, with respect to any partner, any cash, cash
--------------------
equivalents or the Agreed Value of Contributed Property which such Partner
contributes or is deemed to contribute to the Partnership pursuant to Section
4.2 or 4.3 hereof. The principal amount of a promissory note which is not
readily traded on an established securities market and which is contributed by a
Partner as the maker of the note shall not be considered a capital contribution
until the Partnership makes a taxable disposition of the note or until (and to
the extent) principal payments are made on the note, all in accordance with
Treasury Regulation Section 1.704-1(b)(2)(iv)(d)(2).
"Carrying Value" means (i) with respect to a Contributed Property or
--------------
Adjusted Property, the 704(c) Value of such property, or the Carrying Value of
such property as determined pursuant to Exhibit B hereof, as the case may be;
reduced (but not below zero) by all Depreciation with respect to such Property
charged to the Partners' Capital Accounts following the contribution of or
adjustment with respect to such Property, and (ii) with respect to any other
Partnership property, the adjusted basis of such property for federal income tax
purposes, all as of the time of determination. The Carrying Value of any
property shall be adjusted from time to time in accordance with Exhibit B
---------
hereof, and to reflect changes, additions or other adjustments to the Carrying
Value for dispositions and acquisitions of Partnership properties, as deemed
appropriate by the General Partner.
"Cash Amount" means an amount of cash per Partnership Unit equal to the
-----------
Value on the Valuation Date of the OPCO Shares Amount.
3
<PAGE>
"Certificate" means the Certificate of Limited Partnership relating to the
-----------
Partnership filed in the office of the Delaware Secretary of State, as amended
from time to time in accordance with the terms hereof and the Act.
"Certificate of Incorporation" means the Amended and Restated Certificate
----------------------------
of Incorporation of the General Partner filed in the State of Delaware on July
22, 1998, as amended or restated from time to time.
"Class A MHR Unit" means a Partnership Unit having the rights, preferences
----------------
and privileges assigned to Class A MHR Units pursuant to the further provisions
of this Agreement. The ownership of Class A MHR Units is as set forth in Exhibit
A annexed hereto, as such Exhibit may be amended from time to time.
"Class B MHR Unit" means a Partnership Unit having the rights, preferences
----------------
and privileges assigned to Class B MHR Units pursuant to the further provisions
of this Agreement. The ownership of Class B MHR Units is as set forth in Exhibit
A annexed hereto, as such Exhibit may be amended from time to time.
"Code" means the Internal Revenue Code of 1986, as amended and in effect
----
from time to time, as interpreted by the applicable regulations thereunder. Any
reference herein to a specific section or sections of the Code shall be deemed
to include a reference to any corresponding provision of future law.
"Consent" means the consent or approval of a proposed action by a Partner
-------
given in accordance with Section 14.2 hereof.
"Contributed Property" means each property or other asset contributed to
--------------------
the Partnership, in such form as may be permitted by the Act, but excluding cash
contributed or deemed contributed to the Partnership. Once the Carrying Value of
a Contributed Property is adjusted pursuant to Section 1.D of Exhibit B hereof,
---------
such property shall no longer constitute a Contributed Property for purposes of
Exhibit B hereof, but shall be deemed an Adjusted Property for such purposes.
- ---------
"Contribution Agreements" means the agreements whereby certain assets of
-----------------------
CapStar Management LLC and CapStar Management II LLC were contributed to the
Partnership and MeriStar H & R Operating Company II, L.P., respectively, in
exchange for interests in such limited partnerships.
"Conversion Factor" means 1.0; provided that in the event that the General
----------------- --------
Partner (i) declares or pays a dividend on its outstanding OPCO Shares in the
form of OPCO Shares or makes a distribution to all holders of its outstanding
OPCO Shares in OPCO Shares; (ii) subdivides its outstanding OPCO Shares; or
(iii) combines its outstanding OPCO Shares into a smaller number of OPCO Shares,
the Conversion Factor shall be adjusted by multiplying the Conversion Factor by
a fraction, the numerator of which shall be the number of OPCO Shares issued and
outstanding on the record date for such dividend, distribution, subdivision or
combination (assuming for such purposes that such dividend, distribution,
subdivision or combination has occurred as of such time), and
4
<PAGE>
the denominator of which shall be the actual number of OPCO Shares (determined
without the above assumption) issued and outstanding on the record date for such
dividend, distribution, subdivision or combination. Any adjustment to the
Conversion Factor shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
"Debt" means, as to any Person, as of any date of determination, (i) all
----
indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all amounts owed by such Person to banks or
other Persons in respect of reimbursement obligations under letters of credit,
surety bonds and other similar instruments guaranteeing payment or other
performance of obligations by such Person; (iii) all indebtedness for borrowed
money or for the deferred purchase price of property or services secured by any
lien on any property owned by such Person, to the extent attributable to such
Person's interest in such property, even though such Person has not assumed or
become liable for the payment thereof; and (iv) lease obligations of such Person
which, in accordance with generally accepted accounting principles, should be
capitalized.
"Depreciation" means, for each Partnership year, an amount equal to the
------------
federal income tax depreciation, amortization, or other cost recovery deduction
allowable with respect to an asset for such year, except that if the Carrying
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such year or other period, Depreciation shall be an
amount which bears the same ratio to such beginning Carrying Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such year bears to such beginning adjusted tax basis; provided, however,
-------- -------
that if the federal income tax depreciation, amortization, or other cost
recovery deduction for such year is zero, Depreciation shall be determined with
reference to such beginning Carrying Value using any reasonable method selected
by the General Partner.
"Distribution Amount" means, with respect to any period for which there is
-------------------
a Distribution Event, an amount equal to the aggregate amount that the
Partnership would have paid in income taxes had it been a C corporation during
the period to which the Distribution Event relates.
"Distribution Event" means any quarter in which the General Partner incurs
------------------
an income tax liability as a result of its status as the General Partner of the
partnership.
"Effective Tax Rate" means, for any year, the percentage determined by the
------------------
General Partner to be a reasonable estimate of the combined effective rate of
Federal, state and local income tax (giving effect to the deduction of state and
local income taxes, as applicable, for Federal and state income tax purposes)
that would be applicable to the Partnership if it were a C corporation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time (or any corresponding provisions of succeeding laws).
5
<PAGE>
"Final Determination" means (i) a decision, judgment, decree or other order
-------------------
by a court of original jurisdiction which has become final (i.e., the time for
filing an appeal shall have expired without any appeal having been filed), (ii)
a closing agreement made under Section 7121 of the Code or any other settlement
agreement entered into in connection with an administrative or judicial
proceeding, (iii) the expiration of the time for instituting a claim for refund,
or if a claim was filed, the expiration of the time for instituting suit with
respect thereto, or (iv) in any case where judicial review shall be unavailable,
a decision, judgment, decree or other order of an administrative official or
agency which has become final.
"General Partner" means MeriStar Hotels & Resorts, Inc., a Delaware
---------------
corporation, or its successors as general partner of the Partnership.
"General Partner Distribution Amount" means an amount necessary to satisfy
-----------------------------------
any income tax obligations of the General Partner incurred due to its status as
the General Partner of the Partnership.
"General Partner Interest" means a Partnership Interest held by the General
------------------------
Partner that is a general partnership interest. A General Partner Interest may
be expressed as a number of Partnership Units.
"IRS" means the Internal Revenue Service, which administers the internal
---
revenue laws of the United States.
"Immediate Family" means, with respect to any natural Person, such natural
----------------
Person's spouse and such natural Person's natural or adoptive parents,
descendants, nephews, nieces, brothers, and sisters.
"Incapacity" or "Incapacitated" means, (i) as to any individual Partner,
---------- -------------
death, total physical disability or entry by a court of competent jurisdiction
adjudicating him incompetent to manage his Person or his estate; (ii) as to any
corporation which is a Partner, the filing of a certificate of dissolution, or
its equivalent, for the corporation or the revocation of its charter; (iii) as
to any partnership or limited liability company which is a Partner, the
dissolution and commencement of winding up of the partnership or limited
liability company; (iv) as to any estate which is a Partner, the distribution by
the fiduciary of the estate's entire interest in the Partnership; (v) as to any
trustee of a trust which is a Partner, the termination of the trust (but not the
substitution of a new trustee); or (vi) as to any Partner, the bankruptcy of
such Partner. For purposes of this definition, bankruptcy of a Partner shall be
deemed to have occurred when (a) the Partner commences a voluntary proceeding
seeking liquidation, reorganization or other relief under any bankruptcy,
insolvency or other similar law now or hereafter in effect, (b) the Partner is
adjudged as bankrupt or insolvent, or a final and nonappealable order for relief
under any bankruptcy, insolvency or similar law now or hereafter in effect has
been entered against the Partner, (c) the Partner executes and delivers a
general assignment for the benefit of the Partner's creditors, (d) the Partner
files an answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner
6
<PAGE>
seeks, consents to or acquiesces in the appointment of a trustee, receive or
liquidator for the Partner or for all or any substantial part of the Partner's
properties, (f) any proceeding seeking liquidation, reorganization or other
relief of or against such Partner under any bankruptcy, insolvency or other
similar law now or hereafter in effect has not been dismissed within one hundred
twenty (120) days after the commencement thereof, (g) the appointment without
the Partner's consent or acquiescence of a trustee, receiver or liquidator has
not been vacated or stayed within ninety (90) days of such appointment, or (h)
an appointment referred to in clause (g) which has been stayed is not vacated
within ninety (90) days after the expiration of any such stay.
"Indemnitee" means (i) any Person made a party to a proceeding by reason of
----------
his status as (A) the General Partner or a Limited Partner, or (B) a director or
officer of the Partnership or the General Partner or a Limited Partner, or (C)
his or its liability, pursuant to a loan guarantee or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken assets subject to), and (ii) such other
Persons (including Affiliates of the General Partner or the Partnership) as the
General Partner may designate from time to time (whether before or after the
event giving rise to potential liability), in its sole and absolute discretion.
"Institutional Lender" has the meaning as defined in Section 11.7 hereof.
--------------------
"Limited Partner" means CapStar Management Company, L.L.C., a Delaware
---------------
limited liability company and MeriStar Hotels & Resorts, Inc., in its capacity
as a Limited Partner, or any Substituted Limited Partner or Additional Limited
Partner, in such Person's capacity as a Limited Partner in the Partnership.
"Limited Partner Distribution Amount" means the Distribution Amount less
-----------------------------------
the General Partner Distribution Amount.
"Limited Partner Interest" means a Partnership Interest of a Limited
------------------------
Partner in the Partnership and includes any and all benefits to which the holder
of such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partner Interest may be expressed as a
number of Partnership Units.
"Liquidator" has the meaning set forth in Section 13.2.
----------
"Net Income" means, for any taxable period, the excess, if any, of the
----------
Partnership's items of income and gain for such taxable period over the
Partnership's items of loss and deduction for such taxable period. The items
included in the calculation of Net Income shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit B. Once an item of income, gain, loss or deduction that
---------
has been included in the initial computation of Net Income is subjected to the
special allocation rules in Exhibit C, Net Income or the resulting Net Loss,
---------
whichever the case may be, shall be recomputed without regard to such item.
7
<PAGE>
"Net Loss" means, for any taxable period, the excess, if any, of the
--------
Partnership's items of loss and deduction for such taxable period over the
Partnership's items of income and gain for such taxable period. The items
included in the calculation of Net Loss shall be determined in accordance with
federal income tax accounting principles, subject to the specific adjustments
provided for in Exhibit B. Once an item of income, gain, loss or deduction that
---------
has been included in the initial computation of Net Loss is subjected to the
special allocation rules in Exhibit C, Net Loss or the resulting Net Income,
---------
whichever the case may be, shall be recomputed without regard to such item.
"Nonrecourse Built-in Gain" means, with respect to any Contributed
-------------------------
Properties or Adjusted Properties that are subject to a mortgage or negative
pledge securing a Nonrecourse Liability, the amount of any taxable gain that
would be allocated to the Partners pursuant to Section 2.B of Exhibit C if such
---------
properties were disposed of in a taxable transaction in full satisfaction of
such liabilities and for no other consideration.
"Nonrecourse Deductions" has the meaning set forth in Regulations Section
----------------------
1.704-2(b)(1), and the amount of Nonrecourse Deductions for a Partnership Year
shall be determined in accordance with the rules of Regulations Section
1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulations Section
---------------------
1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption substantially in the
--------------------
form of Exhibit E to this Agreement.
---------
"OPCO" means MeriStar Hotels & Resorts, Inc., a Delaware corporation.
----
"OPCO Share" means a share of common stock, par value $0.01 per share, of
----------
the General Partner.
"OPCO Shares Amount" means a whole number of OPCO Shares equal to the
------------------
product of the number of Partnership Units offered for redemption by a Redeeming
Partner, multiplied by the Conversion Factor (rounded down to the nearest whole
number in the event such product is not a whole number); provided that in the
-------------
event the General Partner at any time issues to all holders of OPCO Shares
rights, options, warrants or convertible or exchangeable securities entitling
the shareholders to subscribe for or purchase OPCO Shares or any other
securities or property (collectively, the "rights"), which rights have not
expired pursuant to their terms, then the OPCO Shares Amount thereafter shall
also include such rights that a holder of that number of OPCO Shares would be
entitled to receive.
"Ownership Excess" means direct or indirect ownership of an interest of 10
----------------
percent or more in the assets or net profits of the Partnership, within the
meaning of Section 856(d)(2)(B)(ii) of the Code.
8
<PAGE>
"Partner" means a General Partner or a Limited Partner, and "Partners"
------- --------
means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each Partner
--------------------
Nonrecourse Debt, equal to the Partnership Minimum Gain that would result if
such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" has the meaning set forth in Regulations Section
------------------------
1.704-2(b)(4).
"Partner Nonrecourse Deductions" has the meaning set forth in Regulations
------------------------------
Section 1.704-2(i)(2), and the amount of Partner Nonrecourse Deductions with
respect to a Partner Nonrecourse Debt for a Partnership Year shall be determined
in accordance with the rules of Regulations Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the Act and
-----------
pursuant to the Initial Agreement and any successor thereto.
"Partnership Interest" means an ownership interest in the Partnership and
--------------------
includes any and all benefits to which the holder of such a Partnership Interest
may be entitled as provided in this Agreement, together with all obligations of
such Person to comply with the terms and provisions of this Agreement. A
Partnership Interest may be expressed as a number of Partnership Units.
"Partnership Minimum Gain" has the meaning set forth in Regulations Section
------------------------
1.704-2(b)(2), and the amount of Partnership Minimum Gain, as well as any net
increase or decrease in Partnership Minimum Gain, for a Partnership Year shall
be determined in accordance with the rules of Regulations Section 1.704-2(d).
"Partnership Record Date" means the record date established by the General
-----------------------
Partner for any distribution pursuant to Section 5.1 hereof.
"Partnership Unit" means (i) a fractional undivided share of the
----------------
Partnership Interests of all Partners (other than the Preferred Units); and (ii)
each Preferred Unit. The total number of Partnership Units outstanding,
including the number of Class A MHR Units and Class B MHR Units, and the
Percentage Interests in the Partnership represented by such Partnership Units
are set forth in Exhibit A hereto, as such exhibit may be amended from time to
time. The ownership of Partnership Units may be evidenced by such form of
certificate for units as the General Partner adopts from time to time.
"Partnership Year" means the fiscal year of the Partnership, which shall
----------------
end on the Friday nearest December 31.
"Percentage Interest" means, as to a Partner, its interest in the
-------------------
Partnership as determined by dividing the Partnership Units (other than
Preferred Units) owned by
9
<PAGE>
such Partner by the total number of Partnership Units (other than Preferred
Units) then outstanding.
"Person" means an individual or a corporation, partnership, trust, limited
------
liability company, unincorporated organization, association or other entity.
"Preferred Capital," with respect to each Preferred Unit, means an amount
-----------------
equal to $3.34.
"Preferred Return," with respect to each Preferred Unit, means a preferred
----------------
distribution right at the rate of 6.5% per annum, compounded quarterly to the
extent not distributed pursuant to Section 5.1.A(1), on the Preferred Capital
with respect to such Preferred Unit and includes any Preferred Return accrued
prior to the date of this Agreement.
"Preferred Sub-Account," with respect to a Preferred Unitholder, means an
---------------------
account maintained on the same basis as the Partners' Capital Accounts, but
taking into account only the aggregate Preferred Capital, allocations of Net
Income and Net Loss and distributions with respect to its Preferred Units
(including distributions of Preferred Return).
"Preferred Unit" means a Partnership Unit having the rights, preferences
--------------
and privileges assigned to Preferred Units pursuant to the further provisions of
this Agreement. Class A MHR Units and Class B MHR Units shall not constitute
Preferred Units. The ownership of Preferred Units by the Partners is as set
forth in Exhibit A annexed hereto, as such Exhibit may be amended from time to
time.
"Preferred Unitholder" means a Limited Partner that holds one or more
--------------------
Preferred Units.
"Recapture Income" means any gain recognized by the Partnership upon the
----------------
disposition of any property or asset of the Partnership, which gain is
characterized as ordinary income because it represents the recapture of
deductions previously taken with respect to such property or asset.
"Redeeming Partner" has the meaning set forth in Section 8.6 hereof.
-----------------
"Redemption Right" shall have the meaning set forth in Section 8.6 hereof.
----------------
"Regulations" means the Income Tax Regulations promulgated under the Code,
-----------
as such regulations may be amended from time to time (including corresponding
provisions of succeeding regulations).
"Residual Gain" or "Residual Loss" means any item of gain or loss, as the
------------- -------------
case may be, of the Partnership recognized for federal income tax purposes
resulting from a sale, exchange or other disposition of Contributed Property or
Adjusted Property, to the
10
<PAGE>
extent such item of gain or loss is not allocated pursuant to Section 2.B.1(a)
or 2.B.2(a) of Exhibit C to eliminate Book-Tax Disparities.
---------
"Rights Offering" means that certain rights offering by the General Partner
---------------
described in the General Partner's Registration Statement on Form S-1
(Registration No. 333-49881) filed with the Securities and Exchange Commission
on April 10, 1998, as amended and supplemented through the date hereof.
"704(c) Value" of any Contributed Property means the value of such property
------------
as set forth in Exhibit D or if no value is set forth in Exhibit D, the fair
--------- ---------
market value of such property or other consideration at the time of contribution
as determined by the General Partner using such reasonable method of valuation
as it may adopt. Subject to Exhibit B hereof, the General Partner shall, in its
---------
sole and absolute discretion, use such method as it deems reasonable and
appropriate to allocate the aggregate of the 704(c) Values of contributed
Properties in a single or integrated transactions among the separate properties
on a basis proportional to their respective fair market values.
"Specified Redemption Date" means the tenth (10th) Business Day after
-------------------------
receipt by the General Partner of a Notice of Redemption; provided that if the
General Partner combines its outstanding OPCO Shares, no Specified Redemption
Date shall occur after the record date and prior to the effective date of such
combination.
"Subsidiary" means, with respect to any Person, any corporation,
----------
partnership, or other entity of which a majority of (i) the voting power of the
voting equity securities or (ii) the outstanding equity interests is owned,
directly or indirectly, by such Person.
"Substituted Limited Partner" means a Person who is admitted as a Limited
---------------------------
Partner to the Partnership pursuant to Section 11.4.
"Terminating Capital Transaction" means any sale or other disposition of
-------------------------------
all or substantially all of the assets of the Partnership or its Subsidiaries or
a related series of transactions that, taken together, result in the sale or
other disposition of all or substantially all of the assets of the Partnership
or its Subsidiaries.
"Unpaid Preferred Return," with respect to each Preferred Unit, means an
-----------------------
amount equal to the excess, if any, of (x) the aggregate Preferred Return on the
Preferred Capital with respect to such Preferred Unit over (y) the aggregate of
all amounts previously distributed with respect to such Preferred Unit pursuant
to Section 5.1.A(1).
"Unrealized Gain" attributable to any item of Partnership property means,
---------------
as of any date of determination, the excess, if any, of (i) the fair market
value of such property (as determined under Exhibit B hereof) as of such date,
---------
over (ii) the Carrying Value of such property (prior to any adjustment to be
made pursuant to Exhibit B hereof) as of such date.
---------
11
<PAGE>
"Unrealized Loss" attributable to any item of Partnership property means,
---------------
as of any date of determination, the excess, if any, of (i) the Carrying Value
of such property (prior to any adjustment to be made pursuant to Exhibit B
---------
hereof) as of such date, over (ii) the fair market value of such property (as
determined under Exhibit B hereof) as of such date.
---------
"Valuation Date" means the date of receipt by the General
--------------
Partner of a Notice of Redemption or, if such date is not a Business Day, the
first Business Day thereafter.
"Value" means, with respect to an OPCO Share, the average of the daily
-----
market price for the ten (10) consecutive trading days immediately preceding the
Valuation Date. The market price for each such trading day shall be: (i) if the
OPCO Shares are listed or admitted to trading on any securities exchange or the
NASDAQ National Market, the closing price, regular way, on such day, or if no
such sale takes place on such day, the average of the closing bid and asked
prices on such day; (ii) if the OPCO Shares are not listed or admitted to
trading on any securities exchange or the Nasdaq National Market, the last
reported sale price on such day or, if no sale takes place on such day, the
average of the closing bid and asked prices on such day, as reported by a
reliable quotation source designated by the General Partner; or (iii) if the
OPCO Shares are not listed or admitted to trading on any securities exchange or
the NASDAQ National Market System and no such last reported sale price or
closing bid and asked prices are available, the average of the reported high bid
and low asked prices on such day, as reported by a reliable quotation source
designated by the General Partner, or if there shall be no bid and asked prices
on such day, the average of the high bid and low asked prices, as so reported,
on the most recent day (not more than ten (10) days prior to the date in
question) for which prices have been so reported; provided that if there are no
--------
bid and asked prices reported during the ten (10) days prior to the date in
question, the Value of the OPCO Shares shall be determined by the General
Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate. In the
event the OPCO Shares Amount includes rights that a holder of OPCO Shares would
be entitled to receive, and the General Partner acting in good faith determines
that the value of such rights is not reflected in the Value of the OPCO Shares
determined as aforesaid, then the Value of such rights shall be determined by
the General Partner acting in good faith on the basis of such quotations and
other information as it considers, in its reasonable judgment, appropriate.
ARTICLE II.
ORGANIZATIONAL MATTERS
Section 2.1. Organization
------------
The Partnership is a limited partnership organized pursuant to the
provisions of the Act and upon the terms and conditions set forth herein. Except
as expressly provided herein to the contrary, the rights and obligations of the
Partners and
12
<PAGE>
the administration and termination of the Partnership shall be governed by the
Act. The Partnership Interest of each Partner shall be personal property for all
purposes.
Section 2.2 Name
----
The name of the Partnership shall be MeriStar H & R Operating Company,
L.P. The Partnership's business may be conducted under any other name or names
deemed advisable by the General Partner, including the name of the General
Partner or any Affiliate thereof. The words "Limited Partnership," "L.P.,"
"Ltd." or similar words or letters shall be included in the Partnership's name
where necessary for the purposes of complying with the laws of any jurisdiction
that so requires. The General Partner in its sole and absolute discretion may
change the name of the Partnership at any time and from time to time and shall
notify the Limited Partners of such change in the next regular communication to
the Limited Partners.
Section 2.3 Registered Office and Agent; Principal Office
---------------------------------------------
The address of the registered office of the Partnership in the State of
Delaware is CT Corporation, 1209 Orange Street, Wilmington, Delaware 19801, and
the registered agent for service of process on the Partnership in the State of
Delaware at such registered office shall be CT Corporation, 1209 Orange Street,
Wilmington, Delaware 19801. The principal office of the Partnership shall be
1010 Wisconsin Avenue, N.W., Suite 650, Washington, DC 20007, or such other
place as the General Partner may from time to time designate by notice to the
Limited Partners. The Partnership may maintain offices at such other place or
places within or outside the State of Delaware as the General Partner deems
advisable.
Section 2.4 Power of Attorney
-----------------
A. Each Limited Partner and each Assignee who accepts Partnership
Units (or any rights, benefits or privileges associated therewith) is deemed to
irrevocably constitute and appoint the General Partner, any Liquidator, and
authorized officers and attorneys-in-fact of each, and each of those acting
singly, in each case with full power of substitution, as its true and lawful
agent and attorney-in-fact, with full power and authority in its name, place and
stead to:
(1) execute, swear to, acknowledge, deliver, file and record in
the appropriate public offices (a) all certificates, documents and other
instruments (including, without limitation, this Agreement and the
Certificate and all amendments or restatements thereof) that the General
Partner or the Liquidator deems appropriate or necessary to form, qualify
or continue the existence or qualification of the Partnership as a limited
partnership (or a partnership in which the limited partners have limited
liability) in the State of Delaware and in all jurisdictions in which the
Partnership may or plans to conduct business or own property; (b) all
instruments that the General Partner or the Liquidator deems appropriate or
necessary to reflect any amendment, change, modification or restatement of
this Agreement in accordance with its terms; (c) all conveyances
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and other instruments or documents that the General Partner deems
appropriate or necessary to reflect the dissolution and liquidation of the
Partnership pursuant to the terms of this Agreement, including, without
limitation, a certificate of cancellation; (d) all instruments relating to
the admission, withdrawal, removal or substitution of any Partner pursuant
to, or other events described in, Article 11, 12 or 13 hereof or the
Capital Contribution of any Partner; and (e) all certificates, documents
and other instruments relating to the determination of the rights,
preferences and privileges of Partnership Interests; and
(2) execute, swear to, seal, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other instruments
appropriate or necessary, in the sole and absolute discretion of the
General Partner or any Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or other action which is made
or given by the Partners hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole discretion of the
General Partner or any Liquidator, to effectuate the terms or intent of
this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
hereof or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
and any Liquidator to act as contemplated by this Agreement in any filing or
other action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney, and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or the Liquidator, within fifteen (15) days after receipt of the
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the General Partner or the
Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
Section 2.5. Term
----
The term of the Partnership commenced on March 13, 1998, the date the
Certificate was filed in the office of the Secretary of State of Delaware in
accordance with the Act and shall continue until December 31, 2095, unless the
Partnership is dissolved sooner pursuant to the provisions of Article 13 or as
otherwise provided by law.
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ARTICLE III.
PURPOSE
Section 3.1 Purpose and Business
--------------------
(a) The purpose and nature of the business to be conducted by the
Partnership, directly or indirectly through subsidiaries (including, without
limitation, partnerships for which the Partnership is a general partner), is to
conduct any business that may be lawfully conducted by a limited partnership
organized pursuant to the Act including, without limitation, to engage in the
following activities:
(i) to acquire, invest in, hold, own, develop, construct,
improve, maintain, operate, manage, purchase, sell, lease, transfer,
encumber, convey, exchange, and otherwise dispose of or deal with real and
person property of all kinds;
(ii) to engage in all phases of the hotel and hotel
management business;
(iii) to enter into any partnership, joint venture or other
similar arrangement to engage in any of the foregoing;
(iv) to undertake such other activities as may be necessary,
advisable, desirable or convenient to the business of the Partnership; and
(v) to engage in such other ancillary activities as shall be
necessary or desirable to effectuate the foregoing purposes.
(b) In connection with the foregoing, but subject to all of the
terms, covenants, conditions and limitations contained in this Agreement, the
Partnership shall have full power and authority to enter into, perform, and
carry out contracts of any kind, to borrow money and to issue evidences of
indebtedness, whether or not secured by mortgage, trust deed, pledge or other
Lien, and directly or indirectly, to acquire and construct additional properties
necessary or useful in connection with its business.
Section 3.2 Powers
------
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness, whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire and develop real
property, and manage, lease, sell, transfer and dispose of real property.
15
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ARTICLE IV.
CAPITAL CONTRIBUTIONS
Section 4.1 Capital Contributions of the Partners
-------------------------------------
The Partners have made: (i) certain Capital Contributions to the
Partnership; and (ii) certain capital contributions to MeriStar H & R Operating
Company II, L.P. (which capital contributions shall be deemed to be Capital
Contributions for purposes of this Agreement). To the extent the Partnership
acquires any property by the merger of any person into the Partnership, Persons
who receive Partnership Interests in exchange for their interests in the Person
merging into the Partnership shall become Partners and shall be deemed to have
made Capital Contributions as provided in the applicable merger agreement and as
set forth in Exhibit A, as amended to reflect such deemed Capital Contributions.
The Partners shall own Partnership Units as set forth in Exhibit A and shall
have Percentage Interests in the Partnership as set forth in Exhibit A, which
Percentage Interests shall be adjusted from time to time by the General Partner
to the extent necessary to accurately reflect redemptions, Capital
Contributions, the issuance of additional Partnership Units, or similar events
having an effect on a Partner's Percentage Interest. A number of Partnership
Units held by the General Partner equal to one percent (1%) of all outstanding
Partnership Units (other than Preferred Units) shall be the General Partner
Interest. Except as provided in Sections 4.2 and 10.5, the Partners shall have
no obligation to make Capital Contributions or loans to the Partnership.
Section 4.2 Issuances of Additional Interests
---------------------------------
A. The General Partner is hereby authorized to cause the
Partnership from time to time to issue to the Partners (including the General
Partner) or other persons (including, without limitation, in connection with the
contribution of property to the Partnership) additional Partnership Units or
other Partnership Interests in one or more classes, or one or more series of any
of such classes, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties, including
rights, powers and duties senior to Limited Partnership Interests, all as shall
be determined by the General Partner in its sole and absolute discretion subject
to Delaware law, including, without limitation, (i) the allocations of items of
Partnership income, gain, loss, deduction and credit to each such class or
series of Partnership Interests; (ii) the right of each such class or series of
Partnership Interests to share in Partnership distributions; and (iii) the
rights of each such class or series of Partnership Interests upon dissolution
and liquidation of the Partnership; provided that no such additional Partnership
-------------
Units or other Partnership Interests shall be issued to the General Partner
unless either (a)(1) the additional Partnership Interests are issued in
connection with the grant, award, or issuance of shares of the General Partner,
which shares have designations, preferences and other rights (except for voting
rights) such that the economic interests attributable to such shares are
substantially similar to the designations, preferences and other rights of the
additional Partnership Interests issued to the General Partner in accordance
with this Section 4.2.A, and (2) the General Partner shall make a Capital
Contribution to the Partnership in an amount equal to the proceeds, if any,
raised
16
<PAGE>
in connection with the issuance of such shares of the General Partner, or (b)
the additional Partnership Interests are issued to all Partners in proportion to
their respective Percentage Interests.
B. After the date hereof, the General Partner shall not grant,
award, or issue any additional OPCO Shares (other than OPCO Shares issued
pursuant to Sections 8.6 or 8.7), or rights, options, warrants or convertible or
exchangeable securities containing the right to subscribe for or purchase OPCO
Shares (collectively "New Securities"), other than to all holders of OPCO Shares
unless (i) the General Partner shall cause the Partnership to issue to the
General Partner Partnership Interests or rights, options, warrants or
convertible or exchangeable securities of the Partnership having designations,
preferences and other rights, all such that the economic interests are
substantially the same as those of the New Securities, and (ii) the General
Partner contributes the net proceeds from the grant, award or issuance of such
New Securities and from the exercise of rights contained in such New Securities
to the Partnership. Without limiting the foregoing, the General Partner is
expressly authorized to issue New Securities for less than fair market value,
and to cause the Partnership to issue to the General Partner corresponding
Partnership Interests, so long as (x) the General Partner concludes in good
faith that such issuance is in the interests of the General Partner and the
Partnership (for example, and not by way of limitation, the issuance of OPCO
Shares and corresponding Partnership Units pursuant to an employee stock
purchase plan providing for employee purchases of OPCO Shares at a discount from
fair market value or employee stock options that have an exercise price that is
less than the fair market value of the OPCO Shares, either at the time of
issuance or at the time of exercise), and (y) the General Partner contributes
all proceeds from such issuance and exercise to the Partnership.
Section 4.3 Contribution of Proceeds of Issuance of OPCO Shares
---------------------------------------------------
In connection with any grant, award, or issuance of OPCO Shares or
rights, options, warrants, or convertible or exchangeable securities pursuant to
Section 4.2, and to the extent the proceeds in each case are required to be
contributed to the Partnership as provided in Section 4.2.B hereof, the General
Partner shall make a Capital Contribution to the Partnership of the proceeds
raised in connection with such grant, award, or issuance; provided that if the
proceeds actually received by the General Partner are less than the gross
proceeds of such grant, award, or issuance as a result of any underwriter's
discount, commission, or fee or other expenses paid or incurred in connection
with such grant, award, or issuance, then the General Partner shall be deemed to
have made a Capital Contribution to the Partnership in the amount of the gross
proceeds of such issuance and the Partnership shall be deemed simultaneously to
have reimbursed the General Partner pursuant to Section 7.4.C for the amount of
such underwriter's discount or other expenses.
Section 4.4 No Preemptive Rights
--------------------
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No existing Limited Partner shall have any preemptive, preferential or
other similar right with respect to (i) additional Capital Contributions or
loans to the Partnership; or (ii) issuance or sale of any Partnership Units or
other Partnership Interests.
Section 4.5 No Interest on Capital
----------------------
No Partner shall be entitled to interest on its Capital Contribution
or its Capital Account.
ARTICLE V.
DISTRIBUTIONS
Section 5.1 Requirement and Characterization of Distributions
-------------------------------------------------
A. Distributions shall be made to the Partners as follows and in the
following order of priority:
(1) First, except to the extent the General Partner, by
resolution of its Board of Directors, determines that the Partnership does
not have cash available for distribution, to the Preferred Unitholders with
respect to their Preferred Units, in proportion to and to the extent of
their respective amounts of Unpaid Preferred Return on such Preferred Units
at such time; and
(2) Thereafter, to the extent that the General Partner
determines that the Partnership has cash available for distribution, to the
Partners in accordance with their respective Percentage Interests.
Distributions made pursuant to clause (1) shall be made on a quarterly basis.
B. (1) Notwithstanding the provisions of Section 5.1.A, if it is
anticipated that the Partners will recognize taxable income with respect to
the Partnership for any year, the General Partner shall make a good faith
estimate of the amount of such taxable income to be recognized by each of
the Partners (other than any taxable income recognized as a result of the
allocations of Net Income Pursuant to Sections 6.l.A(1), (2) and (3)), and
distributions of Partnership cash shall be made to the Partners, in
proportion to their respective Percentage Interests, in an aggregate amount
sufficient to permit each of the Partners to pay taxes (calculated at a
rate equal to the Effective Tax Rate) on their distributive shares of such
taxable income; provided, however, that if, as a result of the remedial
allocations of taxable income to the holders of Class B MHR Units as
required by Section 2.C of Exhibit C, the amounts otherwise distributable
to the holders of Class B MHR Units pursuant to this sentence with respect
to any year ending on or prior to December 31, 2000 would be insufficient
to permit the holders of Class B MHR Units to pay taxes, calculated using a
rate determined in the same manner as the Effective Tax Rate but using the
highest marginal tax rates applicable to individuals rather than the tax
applicable to C corporations, on
18
<PAGE>
their respective distributive shares of the Partnership's taxable income
for such year, the amounts otherwise distributable to the holders of Class
B MHR Units pursuant to this sentence shall be increased as necessary to
permit the holders of Class B MHR Units to pay such taxes. Distributions
required to be made pursuant to this Section 5.1.B(1) shall be made at such
times as may be appropriate to permit the Partners to make estimated tax
payments; provided that if any Partner has its Partnership Units redeemed
pursuant to Section 8.6 or 8.7, the fact that such Partner may no longer
hold any Partnership Units after such redemption shall not affect such
Partner's right to receive any distributions required pursuant to this
Section 5.1.B(1) with respect to the applicable taxable income allocated to
such Partnership Unit up to and including the date of such redemption.
(2) The computation of the amounts required to be distributed
pursuant to Section 5.1.B(1) for any year shall be adjusted (i) prior to
each distribution of such year, (ii) upon the filing of the Partnership's
Federal income tax return for such year, (iii) upon any Final Determination
of the Partnership's taxable income for such year and (iv) at any other
time when in the good faith judgment of the General Partner it appears that
a prior estimate has been incorrect, in each case so as to take into
account actual determinations and/or revised estimates of the Partners'
shares of taxable income for such year for Federal income tax purposes.
Following any such adjustment, the amounts to be distributed pursuant to
Section 5.1.B(1) shall be adjusted appropriately, or additional
distributions shall be made, so as to give effect to such actual
determinations and/or revised estimates.
Section 5.2. Amounts Withheld
----------------
All amounts withheld pursuant to the Code or any provisions of any
state or local tax law and Section 10.5 hereof with respect to any allocation,
payment or distribution to the General Partner, the Limited Partners or
Assignees shall be treated as amounts distributed to the General Partner,
Limited Partners, or Assignees pursuant to Section 5.1 for all purposes under
this Agreement.
Section 5.3 Distributions Upon Liquidation
------------------------------
Proceeds from a Terminating Capital Transaction and any other cash
received or reductions in reserves made after commencement of the liquidation of
the Partnership, shall be distributed to the Partners in accordance with Section
13.2.
ARTICLE VI.
ALLOCATIONS
Section 6.1 Allocations For Capital Account Purposes
----------------------------------------
19
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For purposes of maintaining the Capital Accounts and in determining
the rights of the Partners among themselves, the Partnership's items of income,
gain, loss and deduction (computed in accordance with Exhibit B hereof) shall be
allocated among the Partners in each taxable year (or portion thereof) as
provided herein below.
A. Net Income. After giving effect to the special allocations set
----------
forth in Section 1 of Exhibit C, Net Income shall be allocated as follows and in
the following order of priority:
(1) First, to the General Partner until the aggregate amount of
Net Income allocated to it pursuant to this clause (1) for the current and
all prior years equals the aggregate amount of Net Loss previously
allocated to it pursuant to the proviso of Section 6.1.B(3);
(2) Second, to the Partners, in proportion to and to the extent
of any deficit balances in their respective Capital Accounts;
(3) Third, to the Preferred Unitholders with respect to their
Preferred Units, in proportion to and to the extent of the excess, if any,
of (x) each such Preferred Unitholder's aggregate Preferred Capital with
respect to such Preferred Units over (y) the balance of such Preferred
Unitholder's Preferred Sub-Account; and
(4) Thereafter, to the Partners in accordance with their
respective Percentage Interests.
B. Net Loss. After giving effect to the special allocations set
--------
forth in Section 1 of Exhibit C, Net Loss shall be allocated as follows and in
the following order of priority:
(1) First, to the Partners in proportion to and to the extent of
the excess, if any, of (x) each such Partner's Capital Account balance over
(y) such Partner's aggregate Preferred Capital with respect to such
Partner's Preferred Units (if any);
(2) Second, to the Preferred Unitholders, in proportion to and
to the extent of their remaining Capital Account balances; and
(3) Thereafter, to the Partners in accordance with their
respective Percentage Interests; provided that, to the extent any such
allocation to a Limited Partner would (after giving effect to the
allocations required under Sections 1.A and 1.B of Exhibit C) give such
Limited Partner an Adjusted Capital Account Deficit, such amount of Net
Loss shall instead be allocated to the General Partner.
20
<PAGE>
C. Allocation of Nonrecourse Debt. For purposes of Regulations
------------------------------
Section 1.752-3(a), the Partners agree that Nonrecourse Liabilities of the
Partnership in excess of the sum of (i) the amount of Partnership Minimum Gain
and (ii) the total amount of Nonrecourse Built-in Gain shall be allocated among
the Partners in accordance with their respective Percentage Interests.
D. Recapture Income. Any gain allocated to the Partners upon the
----------------
sale or other taxable disposition of any Partnership asset shall to the extent
possible, after taking into account other required allocations of gain pursuant
to Exhibit C, be characterized as Recapture Income in the same proportions and
---------
to the same extent as such Partners have been allocated any deductions directly
or indirectly giving rise to the treatment of such gains as Recapture Income
(including deductions taken by any Partner with respect to Contributed Property
prior to the time such Property was contributed to the Partnership).
E. Allocations to Reflect Issuance of Additional Partnership
---------------------------------------------------------
Interests. In the event that the Partnership issues additional Partnership
- ---------
Interests to the General Partner or any Additional Limited Partner under Section
4.2 hereof, the General Partner shall make such revisions to Sections 6.1.A and
B above as it determines are necessary to reflect the issuance of such
additional Partnership Interests.
ARTICLE VII.
MANAGEMENT AND OPERATIONS OF BUSINESS
Section . Management
----------
7.1 Except as otherwise expressly provided in this Agreement, all
management powers over the business and affairs of the Partnership are and shall
be exclusively vested in the General Partner, and no Limited Partner shall have
any right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause. In addition to the powers now or
hereafter granted a general partner of a limited partnership under applicable
law or which are granted to the General Partner under any other provision of
this Agreement, the General Partner, subject to Section 7.3 hereof, shall have
full power and authority to do all things deemed necessary or desirable by it to
conduct the business of the Partnership, to exercise all powers set forth in
Section 3.2 hereof and to effectuate the purposes set forth in Section 3.1
hereof, including, without limitation:
(1) the making of any expenditures, the lending or borrowing of money
(including, without limitation, making prepayments on loans), the
assumption or guarantee of, or other contracting for,
indebtedness and other liabilities, the issuance of evidences of
indebtedness (including the securing of same by deed to secure
debt, mortgage, deed of trust or other lien or encumbrance on the
21
<PAGE>
Partnership's assets) and the incurring of any obligations it
deems necessary for the conduct of the activities of the
Partnership;
(2) the making of tax, regulatory and other filings, or rendering of
periodic or other reports to governmental or other agencies
having jurisdiction over the business or assets of the
Partnership;
(3) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership
(including the exercise or grant of any conversion, option,
privilege, or subscription right or other right available in
connection with any assets at any time held by the Partnership)
or the merger or other combination of the Partnership with or
into another entity;
(4) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent with the
terms of this Agreement and on any terms it sees fit, including,
without limitation, the financing of the conduct of the
operations of the General Partner, the Partnership or any of the
Partnership's Subsidiaries, the lending of funds to other Persons
(including, without limitation, the Partnership's Subsidiaries)
and the repayment of obligations of the Partnership and its
Subsidiaries and any other Person in which it has an equity
investment and the making of capital contributions to its
Subsidiaries;
(5) the management, operation, leasing, landscaping, repair,
alteration, demolition or improvement of any real property or
improvements owned by the General Partner, the Partnership or any
of the Partnership's Subsidiaries;
(6) the negotiation, execution, and performance of any contracts,
conveyances or other instruments that the General Partner
considers useful or necessary to the conduct of the Partnership's
operations or the implementation of the General Partner's powers
under this Agreement, including contracting with contractors,
developers, consultants, accountants, legal counsel, other
professional advisors and other agents and the payment of their
expenses and compensation out of the Partnership's assets;
(7) the distribution of Partnership cash or other Partnership assets
in accordance with this Agreement;
(8) holding, managing, investing and reinvesting cash and other
assets of the Partnership;
22
<PAGE>
(9) the collection and receipt of revenues and income of the
Partnership;
(10) the establishment of one or more divisions of the Partnership,
the selection and dismissal of employees of the Partnership, any
division of the Partnership, or the General Partner (including,
without limitation, employees having titles such as "president,"
"vice president," "secretary" and "treasurer" of the Partnership,
any division of the Partnership, or the General Partner), and
agents, outside attorneys, accountants, consultants and
contractors of the General Partner, the Partnership or any
division of the Partnership, and the determination of their
compensation and other terms of employment or hiring;
(11) the maintenance of such insurance for the benefit of the
Partnership and the Partners as it deems necessary or
appropriate;
(12) the formation of, or acquisition of an interest in, and the
contribution of property to, any further limited or general
partnerships, joint ventures or other relationships that it deems
desirable (including, without limitation, the acquisition of
interests in, and the contributions of property to, its
Subsidiaries and any other Person in which it has an equity
investment from time to time);
(13) the control of any matters affecting the rights and obligations
of the Partnership, including the settlement, compromise,
submission to arbitration or any other form of dispute
resolution, or abandonment of any claim, cause of action,
liability, debt or damages due or owing to or from the
Partnership, the commencement or defense of suits, legal
proceedings, administrative proceedings, arbitrations or other
forms of dispute resolution, and the representation of the
Partnership in all suits or legal proceedings, administrative
proceedings, arbitrations or other forms of dispute resolution,
the incurring of legal expense, and the indemnification of any
Person against liabilities and contingencies to the extent
permitted by law;
(14) the undertaking of any action in connection with the
Partnership's direct or indirect investment in its Subsidiaries
or any other Person (including, without limitation, the
contribution or loan of funds by the Partnership to such
Persons);
(15) the determination of the fair market value of any Partnership
property distributed in kind using such reasonable method of
valuation as it may adopt;
23
<PAGE>
(16) the exercise, directly or indirectly through any attorney-in-fact
acting under a general or limited power of attorney, of any
right, including the right to vote, appurtenant to any asset or
investment held by the Partnership;
(17) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of or in connection with
any Subsidiary of the Partnership or any other Person in which
the Partnership has a direct or indirect interest, or jointly
with any such Subsidiary or other Person;
(18) the exercise of any of the powers of the General Partner
enumerated in this Agreement on behalf of any Person in which the
Partnership does not have an interest pursuant to contractual or
other arrangements with such Person;
(19) the making, execution and delivery of any and all deeds, leases,
notes, deeds to secure debt, mortgages, deeds of trust, security
agreements, conveyances, contracts, guarantees, warranties,
indemnities, waivers, releases or legal instruments or agreements
in writing necessary or appropriate in the judgment of the
General Partner for the accomplishment of any of the powers of
the General Partner; and
(20) the distribution of cash to acquire Partnership Units held by a
Limited Partner in connection with a Limited Partner's exercise
of its Redemption Right under Section 8.6 or the exercise by the
General Partner of its rights under Section 8.7.
B. Each of the Limited Partners agrees that the General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Partners, notwithstanding any other provision of this Agreement, the
Act or any applicable law, rule or regulation, to the fullest extent permitted
under the Act or other applicable law. The execution, delivery or performance by
the General Partner or the Partnership of any agreement authorized or permitted
under this Agreement shall not constitute a breach by the General Partner of any
duty that the General Partner may owe the Partnership or the Limited Partners or
any other Persons under this Agreement or of any duty stated or implied by law
or equity.
C. At all times from and after the date hereof, the General Partner
at the expense of the Partnership, may or may not cause the Partnership to
obtain and maintain (i) casualty, liability and other insurance on the
properties of the Partnership and (ii) liability insurance for the Indemnitees
hereunder.
D. At all times from and after the date hereof, the General Partner
may cause the Partnership to establish and maintain at any and all times working
capital
24
<PAGE>
accounts and other cash or similar balances in such amounts as the
General Partner, in its sole and absolute discretion, deems appropriate and
reasonable from time to time.
E. Notwithstanding anything to the contrary contained in this Agreement,
any agreement of merger or consolidation of the Partnership entered into in
accordance with the provisions of this Agreement may, as provided in Section
17-211(g) of the Delaware Revised Uniform Limited Partnership Act, (1) effect
any amendment to this Agreement or (2) effect the adoption of a new partnership
agreement for the Partnership if it is the surviving or resulting limited
partnership in the merger or consolidation (provided that no such amendment
shall be so effected if it would, under Section 14.1.C hereof, require the
consent of the Limited Partners (unless the requisite consent or consents shall
be obtained), and no provision shall be included in any such new partnership
agreement if such provision would, under Section 14.1.C hereof, require the
consent of the Limited Partners if it were being incorporated in this Agreement
by amendment (unless the requisite consent shall be obtained)).
Section 7.2 Certificate of Limited Partnership
----------------------------------
The Partnership has previously filed the Certificate with the Secretary of
State of Delaware as required by the Act. The General Partner shall use all
reasonable efforts to cause to be filed such other certificates or documents as
may be reasonable and necessary or appropriate for the formation, continuation,
qualification and operation of a limited partnership (or a partnership in which
the limited partners have limited liability) in the State of Delaware and any
other state, or the District of Columbia, in which the Partnership may elect to
do business or own property. To the extent that such action is determined by the
General Partner to be reasonable and necessary or appropriate, the General
Partner shall file amendments to and restatements of the Certificate and do all
the things to maintain the Partnership as a limited partnership (or a
partnership in which the limited partners have limited liability) under the laws
of the State of Delaware and each other state or the District of Columbia, in
which the Partnership may elect to do business or own property. Subject to the
terms of Section 8.5.A(4) hereof, the General Partner shall not be required,
before or after filing, to deliver or mail a copy of the Certificate or any
amendment thereto to any Limited Partner.
Section 7.3 Restrictions on General Partner's Authority
-------------------------------------------
Subject to Section 14.1, the General Partner may not take any action in
contravention of an express prohibition or limitation of this Agreement without
the written Consent of a majority in interest of the Limited Partners (including
Limited Partnership Interests held by the General Partner) (or such lower
percentage of the Limited Partners as may be specifically provided for under a
provision of this Agreement or the Act).
Section 7.4 Reimbursement of the General Partner
------------------------------------
A. Except as provided in this Section 7.4 and elsewhere in this Agreement
(including the provisions of Articles 5 and 6 regarding distributions,
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payments, and allocations to which it may be entitled), the General Partner
shall not be compensated for its services as general partner of the Partnership.
B. The General Partner shall be reimbursed on a monthly basis, or such
other basis as the General Partner may determine in its sole and absolute
discretion, for all expenses it incurs relating to the ownership and operation
of, or for the benefit of, the Partnership; provided that the amount of any such
-------------
reimbursement shall be reduced by any interest earned by the General Partner
with respect to bank accounts or other instruments or accounts held by it on
behalf of the Partnership as permitted in Section 7.5.A. The Limited Partners
acknowledge that, for purposes of this Section 7.4.B, all of the General
Partner's expenses (including without limitation, costs and expenses associated
with compliance with the periodic reporting requirements and all other rules and
regulations of the Securities and Exchange Commission or any other federal,
state or local regulatory body, salaries payable to officers and employees of
the General Partner, fees and expenses payable to directors of the General
Partner, and all other operating or administrative costs of the General Partner)
are deemed incurred for the benefit of the Partnership and shall be paid by or
reimbursed by the Partnership as provided in this Section 7.4.B. Such
reimbursements shall be in addition to any reimbursement to the General Partner
as a result of indemnification pursuant to Section 7.7 hereof. All payments and
reimbursements hereunder will be characterized for federal income tax purposes
as expenses of the Partnership incurred on its behalf, and not expenses of the
General Partner.
C. The General Partner shall also be reimbursed for all expenses it incurs
relating to the organization and/or reorganization of the Partnership and the
General Partner, the Rights Offering and any issuance of additional Partnership
Interests, OPCO Shares, New Securities, or rights, options, warrants, or
convertible or exchangeable securities pursuant to Section 4.2 hereof
(including, without limitation, all costs, expenses, damages, and other payments
resulting from or arising in connection with litigation related to any of the
foregoing).
D. In the event that the General Partner shall elect to purchase from its
shareholders OPCO Shares for the purpose of delivering such shares to satisfy an
obligation under any dividend reinvestment program adopted by the General
Partner, any employee stock purchase plan adopted by the General Partner, or any
similar obligation or arrangement undertaken by the General Partner in the
future, the purchase price paid by the General Partner for such OPCO Shares and
any other expenses incurred by the General Partner in connection with such
purchase shall be considered expenses of the Partnership and shall be reimbursed
to the General Partner by the Partnership, subject to the condition that: (i) if
such OPCO Shares subsequently are to be sold by the General Partner, the General
Partner shall pay to the Partnership any proceeds received by the General
Partner for such OPCO Shares (provided that a transfer of OPCO Shares for
Partnership Units pursuant to Section 8.6 or Section 8.7 shall not be considered
a sale for such purposes); and (ii) if such OPCO Shares are not retransferred by
the General Partner within 30 days after the purchase thereof, the General
Partner shall cause the Partnership to cancel a number of Partnership Units
(rounded to the nearest whole Partnership Unit) held by the General Partner
equal to the product obtained by multiplying the number of
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such OPCO Shares by a fraction, the numerator of which is one and the
denominator of which is the Conversion Factor.
Section 7.5 Outside Activities of the General Partner
-----------------------------------------
A. The General Partner shall not directly or indirectly enter into or
conduct any business, other than in connection with the ownership, acquisition
and disposition, directly or indirectly, of interests in the Partnership, the
management of the businesses of the Partnership and such activities as are
incidental thereto. The General Partner shall not incur any debts other than (i)
debt of the Partnership for which it may be liable in its capacity as General
Partner of the Partnership or as guarantor or co-borrower, and (ii) indebtedness
for borrowed money the proceeds from which borrowing are loaned to the
Partnership on the same terms and conditions as the borrowing by the General
Partner. The General Partner shall not hold any assets other than the
partnership interests herein above referred to or such bank accounts or similar
instruments or accounts as it deems necessary to carry out its responsibilities
contemplated under this Agreement and the General Partner's organizational
documents and other activities consistent with the foregoing provisions of this
Section 7.5.A. The General Partner and any Affiliates of the General Partner may
acquire Limited Partner Interests and shall be entitled to exercise all rights
of a Limited Partner relating to such Limited Partner Interests.
B. The General Partner may, from time to time, purchase and/or redeem OPCO
Shares (including, without limitation, in connection with a stock repurchase or
similar program), if the General Partner determines that it is in the interest
of the Partnership for the General Partner to purchase and/or redeem OPCO
Shares. In the event that the General Partner purchases and/or redeems OPCO
Shares, then the General Partner shall cause the Partnership to purchase from
the General Partner, concurrently with the OPCO Share purchase or redemption,
Partnership Units for the same consideration (including any fees, concessions
and expenses payable by the General Partner in connection therewith) and on the
same terms as those applicable to the purchase or redemption by the General
Partner of the related OPCO Shares.
Section 7.6. Contracts with Affiliates
-------------------------
A. The Partnership may lend or contribute funds or other assets to its
Subsidiaries or other Persons in which it has an equity investment, and such
Persons may borrow funds from the Partnership, on terms and conditions
established in the sole and absolute discretion of the General Partner. The
foregoing authority shall not create any right or benefit in favor of any
Subsidiary or any other Person.
B. The Partnership may transfer assets to joint ventures, other
partnerships, corporations or other business entities in which it is or thereby
becomes a participant upon such terms and subject to such conditions consistent
with this Agreement and applicable law as the General Partner, in its sole and
absolute discretion, believes are advisable.
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C. Except as expressly permitted by this Agreement, neither the General
Partner nor any of its Affiliates shall sell, transfer or convey any property
to, or purchase any property from, the Partnership, directly or indirectly,
except pursuant to transactions that are determined by the General Partner in
good faith to be fair and reasonable and no less favorable to the Partnership
than would be obtained from an unaffiliated third party.
D. The General Partner, in its sole and absolute discretion and without the
approval of the Limited Partners, may propose and adopt on behalf of the
Partnership employee benefit plans, stock option plans, and similar plans funded
by the Partnership for the benefit of employees of the General Partner, the
Partnership, Subsidiaries of the Partnership or any Affiliate of any of them in
respect of services performed, directly or indirectly, for the benefit of the
Partnership, the General Partner, or any of the Partnership's Subsidiaries.
E. The General Partner is expressly authorized to enter into, in the name
and on behalf of the Partnership, a right of first opportunity arrangement and
other conflict avoidance agreements with various Affiliates of the Partnership
and the General Partner, on such terms as the General Partner, in its sole and
absolute discretion, believes are advisable.
Section 7.7 Indemnification
---------------
A. The Partnership shall indemnify each Indemnitee from and against any and
all losses, claims, damages, liabilities, joint or several, expenses (including,
without limitation, attorneys fees and other legal fees and expenses),
judgments, fines, settlements, and other amounts arising from any and all
claims, demands, actions, suits or proceedings, civil, criminal, administrative
or investigative, that relate to the Partnership in which such Indemnitee may be
involved, or is threatened to be involved, as a party or otherwise, unless it is
established that: (i) the act or omission of the Indemnitee was material to the
matter giving rise to the proceeding and either was committed in bad faith or
was the result of active and deliberate dishonesty; (ii) the Indemnitee actually
received an improper personal benefit in money, property or services; or (iii)
in the case of any criminal proceeding, the Indemnitee had reasonable cause to
believe that the act or omission was unlawful. Without limitation, the foregoing
indemnity shall extend to any liability of any Indemnitee, pursuant to a loan
guaranty or otherwise, for any indebtedness of the Partnership or any Subsidiary
of the Partnership (including, without limitation, any indebtedness which the
Partnership or any Subsidiary of the Partnership has assumed or taken subject
to), and the General Partner is hereby authorized and empowered, on behalf of
the Partnership, to enter into one or more indemnity agreements consistent with
the provisions of this Section 7.7 in favor of any Indemnitee having or
potentially having liability for any such indebtedness. The termination of any
proceeding, by judgment, order or settlement does not create a presumption that
the Indemnitee did not meet the requisite standard of conduct set forth in this
Section 7.7.A . The termination of any proceeding by conviction of an Indemnitee
or upon a plea of nolo contendere or its equivalent by an Indemnitee, or an
entry of an order of probation against an Indemnitee prior to judgment, creates
a rebuttable presumption that such Indemnitee acted in a
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manner contrary to that specified in this Section 7.7.A with respect to the
subject matter of such proceeding. Any indemnification pursuant to this Section
7.7 shall be made only out of the assets of the Partnership, and neither the
General Partner nor any Limited Partner shall have any obligation to contribute
to the capital of the Partnership or otherwise provide funds to enable the
Partnership to fund its obligations under this Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a party to a
proceeding may be paid or reimbursed by the Partnership in advance of the final
disposition of the proceeding upon receipt by the Partnership of (i) a written
affirmation by the Indemnitee of the Indemnitee's good faith belief that the
standard of conduct necessary for indemnification by the Partnership as
authorized in this Section 7.7.A has been met, and (ii) a written undertaking by
or on behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be in addition to
any other rights to which an Indemnitee or any other Person may be entitled
under any agreement, pursuant to any vote of the Partners, as a matter of law or
otherwise, and shall continue as to an Indemnitee who has ceased to serve in
such capacity unless otherwise provided in a written agreement pursuant to which
such Indemnitee is indemnified.
D. The Partnership may, but shall not be obligated to, purchase and
maintain insurance, on behalf of the Indemnitees and such other Persons as the
General Partner shall determine, against any liability that may be asserted
against or expenses that may be incurred by such Person in connection with the
Partnership's activities, regardless of whether the Partnership would have the
power to indemnify such Person against such liability under the provisions of
this Agreement.
E. For purposes of this Section 7.7, the Partnership shall be deemed to
have requested an Indemnitee to serve as fiduciary of an employee benefit plan
whenever the performance by it of its duties to the Partnership also imposes
duties on, or otherwise involves services by, it to the plan or participants or
beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect
to an employee benefit plan pursuant to applicable law shall constitute fines
within the meaning of Section 7.7; and actions taken or omitted by the
Indemnitee with respect to an employee benefit plan in the performance of its
duties for a purpose reasonably believed by it to be in the interest of the
participants and beneficiaries of the plan shall be deemed to be for a purpose
which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject any of the Partners to personal
liability by reason of the indemnification provisions set forth in this
Agreement.
G. An Indemnitee shall not be denied indemnification in whole or in part
under this Section 7.7 because the Indemnitee had an interest in the transaction
with respect to which the indemnification applies if the transaction was
otherwise permitted by the terms of this Agreement.
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H. The provisions of this Section 7.7 are for the benefit of the
Indemnitees, their heirs, successors, assigns and administrators and shall not
be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
Section 7.8 Liability of the General Partner
--------------------------------
A. Notwithstanding anything to the contrary set forth in this Agreement,
the General Partner shall not be liable for monetary damages to the Partnership,
any Partners or any Assignees for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the General Partner
acted in good faith.
B. The Limited Partners expressly acknowledge that the General Partner is
acting on behalf of the Partnership and the General Partner's shareholders
collectively, that the General Partner is under no obligation to consider the
separate interests of the Limited Partners (including, without limitation, the
tax consequences to Limited Partners or Assignees) in deciding whether to cause
the Partnership to take (or decline to take) any actions, and that the General
Partner shall not be liable to the Partnership or to any Partner for monetary
damages for losses sustained, liabilities incurred, or benefits not derived by
Limited Partners in connection with such decisions, provided that the General
Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner set forth in
Section 7.1.A hereof, the General Partner may exercise any of the powers granted
to it by this Agreement and perform any of the duties imposed upon it hereunder
either directly or by or through its agents. The General Partner shall not be
responsible for any misconduct or negligence on the part of any such agent
appointed by it in good faith.
D. Any amendment, modification or repeal of this Section 7.8 or any
provision hereof shall be prospective only and shall not in any way affect the
limitations on the General Partner's liability to the Partnership and the
Limited Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9 Other Matters Concerning the General Partner
--------------------------------------------
A. The General Partner may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement, instrument,
opinion,
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report, notice, request, consent, order, bond, debenture, or other paper or
document believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties.
B. The General Partner may consult with legal counsel, accountants,
appraisers, management consultants, investment bankers, architects, engineers,
environmental consultants and other consultants and advisers selected by it, and
any act taken or omitted to be taken in reliance upon the opinion of such
Persons as to matters which such General Partner reasonably believes to be
within such Person's professional or expert competence shall be conclusively
presumed to have been done or omitted in good faith and in accordance with such
opinion.
C. The General Partner shall have the right, in respect of any of its
powers or obligations hereunder, to act through any of its duly authorized
officers and a duly appointed attorney or attorneys-in-fact. Each such attorney
shall, to the extent provided by the General Partner in the power of attorney,
have full power and authority to do and perform all and every act and duty which
is permitted or required to be done by the General Partner hereunder.
Section 7.10 Title to Partnership Assets
---------------------------
Title to Partnership assets, whether real, personal or mixed and whether
tangible or intangible, shall be deemed to be owned by the Partnership as an
entity, and no Partner, individually or collectively, shall have any ownership
interest in such Partnership assets or any portion thereof. Title to any or all
of the Partnership assets may be held in the name of the Partnership, the
General Partner or one or more nominees, as the General Partner may determine,
including Affiliates of the General Partner. The General Partner hereby declares
and warrants that any Partnership assets for which legal title is held in the
name of the General Partner or any nominee or Affiliate of the General Partner
shall be held by the General Partner for the use and benefit of the Partnership
in accordance with the provisions of this Agreement; provided, however, that the
-------- -------
General Partner shall use its best efforts to cause beneficial and record title
to such assets to be vested in the Partnership as soon as reasonably
practicable. All Partnership assets shall be recorded as the property of the
Partnership in its books and records, irrespective of the name in which legal
title to such Partnership assets is held.
Section 7.11 Reliance by Third Parties
-------------------------
Notwithstanding anything to the contrary in this Agreement, any Person
dealing with the Partnership shall be entitled to assume that the General
Partner has full power and authority, without consent or approval of any other
Partner or Person, to encumber, sell or otherwise use in any manner any and all
assets of the Partnership and to enter into any contracts on behalf of the
Partnership, and take any and all actions on behalf of the Partnership and such
Person shall be entitled to deal with the General Partner as if the General
Partner were the Partnership's sole party in interest, both legally and
beneficially. Each Limited Partner hereby waives any and all defenses or other
remedies which may be available against such Person to contest, negate or
disaffirm any
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action of the General Partner in connection with any such dealing. In no event
shall any Person dealing with the General Partner or its representatives be
obligated to ascertain that the terms of this Agreement have been complied with
or to inquire into the necessity or expedience of any act or action of the
General Partner or its representatives. Each and every certificate, document or
other instrument executed on behalf of the Partnership by the General Partner or
its representatives shall be conclusive evidence in favor of any and every
Person relying thereon or claiming thereunder that (i) at the time of the
execution and delivery of such certificate, document or instrument, this
Agreement was in full force and effect, (ii) the Person executing and delivering
such certificate, document or instrument was duly authorized and empowered to do
so for and on behalf of the Partnership and (iii) such certificate, document or
instrument was duly executed and delivered in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership.
ARTICLE VIII.
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1 Limitation of Liability
-----------------------
The Limited Partners shall have no liability under this Agreement except as
expressly provided in this Agreement, including Section 10.5 hereof, or under
the Act.
Section 8.2 Management of Business
----------------------
No Limited Partner or Assignee (other than the General Partner, any of its
Affiliates or any officer, director, employee, partner, agent or trustee of the
General Partner, the Partnership or any of their Affiliates, in their capacity
as such) shall take part in the operation, management or control (within the
meaning of the Act) of the Partnership's business, transact any business in the
Partnership's name or have the power to sign documents for or otherwise bind the
Partnership. The transaction of any such business by the General Partner, any of
its Affiliates or any officer, director, employee, partner, agent or trustee of
the General Partner, the Partnership or any of their Affiliates, in their
capacity as such, shall not affect, impair or eliminate the limitations on the
liability of the Limited Partners or Assignees under this Agreement.
Section 8.3 Outside Activities of Limited Partners
--------------------------------------
Subject to Section 7.5 hereof and any other agreements entered into by a
Limited Partner or its Affiliates with the Partnership or a Subsidiary, any
Limited Partner and any officer, director, employee, agent, trustee, member,
Affiliate or shareholder of any Limited Partner shall be entitled to and may
have business interests and engage in business activities in addition to those
relating to the Partnership, including business interests and activities that
are in direct competition with the Partnership or that are enhanced by the
activities of the Partnership. Neither the Partnership nor any Partners shall
have any rights by virtue of this Agreement in any business ventures of any
Limited Partner or Assignee. None of the Limited Partners nor any other Person
shall have any
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rights by virtue of this Agreement or the Partnership relationship established
hereby in any business ventures of any other Person (other than the General
Partner to the extent expressly provided herein) and such Person shall have no
obligation pursuant to this Agreement to offer any interest in any such business
ventures to the Partnership, any Limited Partner or any such other Person, even
if such opportunity is of a character which, if presented to the Partnership,
any Limited Partner or such other Person, could be taken by such Person.
Section 8.4 Return of Capital
-----------------
Except pursuant to the right of redemption set forth in Section 8.6
(including any such right exercised after the giving of a Mandatory Redemption
Notice as provided in Section 8.7), no Limited Partner shall be entitled to the
withdrawal or return of its Capital Contribution, except to the extent of
distributions made pursuant to this Agreement or upon termination of the
Partnership as provided herein. Nothing in this Section 8.4 shall be interpreted
as limiting the Partnership's right to redeem all or a portion of the
Partnership Units held by a Limited Partner, with the consent of such Limited
Partner, on such terms and for such consideration as determined by the General
Partner to be in the interests of the Partnership. Except to the extent provided
by Exhibit C hereof or as permitted by Section 4.2 (relating to preferred
---------
interests issued subsequent to the date hereof), or otherwise expressly provided
in this Agreement, no Limited Partner or Assignee shall have priority over any
other Limited Partner or Assignee either as to the return of Capital
Contributions or as to profits, losses or distributions.
Section 8.5 Rights of Limited Partners Relating to the Partnership
------------------------------------------------------
A. In addition to other rights provided by this Agreement or by the Act,
and except as limited by Section 8.5.C hereof, each Limited Partner shall have
the right, for a purpose reasonably related to such Limited Partner's interest
as a limited partner in the Partnership, upon written demand with a statement of
the purpose of such demand and at such Limited Partner's own expense (including
such copying and administrative charges as the General Partner may establish
from time to time):
(1) to obtain a copy of the most recent annual and quarterly reports filed
with the Securities and Exchange Commission by the General Partner
pursuant to the Securities Exchange Act of 1934;
(2) to obtain a copy of the Partnership's federal, state and local income
tax returns for each Partnership Year;
(3) to obtain a current list of the name and last known business,
residence or mailing address of each Partner;
(4) to obtain a copy of this Agreement and the Certificate and all
amendments thereto, together with executed copies of all powers of
attorney pursuant to which this Agreement, the Certificate and all
amendments thereto have been executed; and
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(5) to obtain true and full information regarding the amount of cash and a
description and statement of any other property or services
contributed by each Partner and which each Partner has agreed to
contribute in the future, and the date on which each became a Partner.
B. The Partnership shall notify each Limited Partner, upon request, of
the then current Conversion Factor and any change therein.
C. Notwithstanding any other provision of this Section 8.5, the General
Partner may keep confidential from the Limited Partners, for such period of time
as the General Partner determines in its sole and absolute discretion to be
reasonable, any information that (i) the General Partner reasonably believes to
be in the nature of trade secrets or other information the disclosure of which
the General Partner in good faith believes is not in the best interests of the
Partnership or could damage the Partnership or its business or (ii) the
Partnership is required by law or by agreements with an unaffiliated third party
to keep confidential.
Section 8.6 Redemption Right
----------------
A. Subject to Section 8.6.B, each Limited Partner, other than the General
Partner, shall have the right (the "Redemption Right"), on or after the date
specified in Exhibit A, as amended from time to time, to require the Partnership
to redeem on a Specified Redemption Date all or a portion of the Partnership
Units that are allocable to such Limited Partner at a redemption price equal to
and in the form of the Cash Amount to be paid by the Partnership. The Redemption
Right shall be exercised pursuant to a Notice of Redemption delivered to the
Partnership (with a copy to the General Partner) by the Limited Partner who is
exercising the redemption right (the "Redeeming Partner"). A Limited Partner may
not exercise the Redemption Right for less than one thousand (1,000) Partnership
Units or, if such Limited Partner holds less than one thousand (1,000)
Partnership Units, all of the Partnership Units that are allocable to such
Partner. The Assignee of any Limited Partner may exercise the rights of such
Limited Partner pursuant to this Section 8.6, and such Limited Partner shall be
deemed to have assigned such rights to such Assignee and shall be bound by the
exercise of such rights by such Limited Partner's Assignee. In connection with
any exercise of such rights by such Assignee on behalf of such Limited Partner,
the Cash Amount shall be paid by the Partnership directly to such Assignee and
not to such Limited Partner. Except as otherwise provided herein, neither the
Redeeming Partner nor any Assignee of any Limited Partner shall have any right
with respect to any Partnership Units so redeemed to receive any distributions
if the record date for such distribution is after the Specified Redemption Date.
Notwithstanding anything to the contrary set forth above, if any Preferred
Unitholder shall exercise the Redemption Right with respect to any Preferred
Units, the Partnership shall be obligated to pay to such Preferred Unitholder,
together with the Cash Amount, the Unpaid Preferred Return attributable to the
Preferred Units being redeemed as of the date such payment is made.
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B. Notwithstanding the provisions of Section 8.6.A, in the event a Limited
Partner elects to exercise the Redemption Right, the General Partner may, in its
sole and absolute discretion, elect to assume directly and satisfy a Redemption
Right by paying to the Redeeming Partner either the Cash Amount or the OPCO
Shares Amount, as elected by the General Partner (in its sole and absolute
discretion) on the Specified Redemption Date, whereupon the General Partner
shall acquire the Partnership Units offered for redemption by the Redeeming
Partner and shall be treated for all purposes of this Agreement as the owner of
such Partnership Units. Unless the General Partner (in its sole and absolute
discretion) shall exercise its right to assume directly and satisfy the
Redemption Right, the General Partner itself shall have no obligation to the
Redeeming Partner or to the Partnership with respect to the Redeeming Partner's
exercise of the Redemption Right. In the event the General Partner shall
exercise its right to satisfy the Redemption Right in the manner described in
the first sentence of this Section 8.6.B, the Partnership shall have no
obligation to pay any amount to the Redeeming Partner with respect to such
Redeeming Partner's exercise of the Redemption Right, and each of the Redeeming
Partner, the Partnership, and the General Partner shall treat the transaction
between the General Partner and the Redeeming Partner for federal income tax
purposes as a sale of the Redeeming Partner's Partnership Units to the General
Partner. Each Redeeming Partner agrees to execute such documents as the General
Partner may reasonably require in connection with the issuance of OPCO Shares
upon exercise of the Redemption Right. If the Redemption Right is satisfied by
the delivery of OPCO Shares, the Redeeming Partner shall be deemed to become a
holder of OPCO Shares as of the close of business on the Specified Redemption
Date.
Notwithstanding anything to the contrary contained in the foregoing or in
Section 8.6.A, if the Cash Amount with respect to a redemption of Partnership
Units is, pursuant to Section 8.6.D hereof, paid after the Specified Redemption
Date, then (i) such redemption shall not occur until the Cash Amount is paid and
(ii) the Limited Partner in question (or its Assignee) shall have the right to
continue receiving distributions hereunder until the date of such redemption or
as otherwise provided in Section 5.1.B(1).
In addition, notwithstanding anything to the contrary contained in Section
8.6.A, if the General Partner exercises its right to satisfy the Redemption
Right pursuant to this Section 8.6.B, then, if the Redeeming Partner is a
Preferred Unitholder: (i) the General Partner shall be obligated to pay to such
Preferred Unitholder, together with the payment of the Cash Amount or the
delivery of OPCO Shares, an amount equal to the Unpaid Preferred Return
attributable to such Preferred Units as of the date such payment is made; and
(ii) if the General Partner has elected to deliver OPCO Shares to such Preferred
Unitholder, the General Partner shall have the right to satisfy its obligation
under clause (i) of this sentence by delivering to such Preferred Unitholder a
number of OPCO Shares equal to the amount of such Unpaid Preferred Return
divided by the Value on the Valuation Date of one OPCO Share (rounded down to
the nearest whole number of OPCO Shares if such quotient is not a whole number).
C. Each Limited Partner covenants and agrees with the General Partner that
all Partnership Units delivered for redemption shall be delivered to the
Partnership or the General Partner, as the case may be, free and clear of all
liens and, notwithstanding anything herein contained to the contrary, neither
the General Partner nor
35
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the Partnership shall be under any obligation to acquire Partnership Units which
are or may be subject to any liens. Each Limited Partner further agrees that, in
the event any state or local property transfer tax is payable as a result of the
transfer of its Partnership Units to the Partnership or the General Partner,
such Limited Partner shall assume and pay such transfer tax.
D. Any Cash Amount to be paid to a Redeeming Partner pursuant to this
Section 8.6 shall be paid within 60 days after the initial date of receipt by
the Partnership of the Notice of Redemption relating to the Partnership Units to
be redeemed; provided, however, that such 60-day period may be extended for up
-------- -------
to an additional 30-day period to the extent required for the Partnership to
cause additional OPCO Shares to be issued to provide financing to be used to
make such payment of the Cash Amount. Notwithstanding the foregoing, the
Partnership and the General Partner agree to use their best efforts to cause the
closing of the acquisition of redeemed Partnership Units hereunder to occur as
quickly as reasonably possible.
E. Notwithstanding anything to the contrary hereinabove contained, except
as provided in Section 8.7.A, no Limited Partner shall be entitled to exercise
the Redemption Right with respect to any Preferred Unit as to which the
Mandatory Redemption Notice (as hereinafter defined) has been given.
F. In addition to the right of redemption provided for in this Section 8.6,
the Preferred Unitholders shall have the right, on one occasion only on or after
April 1, 2004, to require the Partnership to redeem all of their Preferred Units
then outstanding at a redemption price equal to $3.34 per Preferred Unit. If
such right is exercised, then, for purposes of this Agreement but subject to the
further provisions of this Section 8.6.F, (i) such exercise shall be deemed to
constitute, as to each Preferred Unitholder, the exercise of the Redemption
Right, (ii) each such Preferred Unitholder shall be deemed a Redeeming Partner
and (iii) such redemption shall, except as provided above and except as
hereinafter provided, be treated in the same manner as a redemption pursuant to
Section 8.6.A hereof; provided that (A) the Notice of Redemption shall be signed
by all such Preferred Unitholders, (B) each Notice of Redemption shall state
specifically that it is being given under this Section 8.6.F and (C) such
Preferred Unitholders shall be entitled to elect (which election shall be
indicated in the Notice of Redemption) whether to be paid the Cash Amount (which
term, for purposes of this Section 8.6.F, shall mean the redemption price
provided for above) or to receive OPCO Shares in exchange for their Preferred
Units (the number of OPCO Shares so to be delivered to such Preferred
Unitholders to be computed in accordance with Section 8.7.B hereof). In the
event such Preferred Unitholders elect to receive OPCO Shares in exchange for
their Preferred Units, the provisions of Section 8.6.B shall apply (except that
references therein to the General Partner's election to deliver OPCO Shares to
the Redeeming Partners shall instead be deemed references to the election of the
Preferred Unitholders to receive OPCO Shares).
Section 8.7 Mandatory Redemption
--------------------
A. Except as otherwise provided in the last sentence of this Section 8.7.A,
the Partnership shall have the right ("Mandatory Redemption Right"), at
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any time on or after April 1, 2000, to redeem all or any portion of the
Preferred Units at a redemption price equal to $3.34 per Preferred Unit;
provided, however, that any such redemption shall be effected on a pro rata
--- ----
basis among all of the Preferred Unitholders. The Mandatory Redemption Right
shall be exercised pursuant to a notice (the "Mandatory Redemption Notice")
delivered by the Partnership to the Preferred Unitholders whose Preferred Units
are being redeemed. If the Mandatory Redemption Notice is given to a Preferred
Unitholder, then the redemption of such Preferred Unitholder's Preferred Units
shall take place on the tenth Business Date after the giving of such Notice. On
such tenth Business Day, the Partnership shall pay to such Preferred Unitholder
the redemption price hereinabove provided for, and such Preferred Unitholder
shall deliver to the Partnership such instruments of transfer as the Partnership
shall reasonably require assigning to the Partnership the Preferred Units being
redeemed, free and clear of all liens and encumbrances. Such Preferred
Unitholder shall pay any state or local property tax payable in connection with
such transfer. Notwithstanding anything to the contrary contained in the
foregoing, if, within 5 Business Days after the giving of the Mandatory
Redemption Notice, any Preferred Unitholder gives the Redemption Notice with
respect to the Preferred Units specified in such Mandatory Redemption Notice,
then such Mandatory Redemption Notice shall be deemed null and void and the
provisions of Section 8.6 shall apply with respect to such Preferred Units.
B. (i) Notwithstanding anything to the contrary contained in Section 8.7.A,
the General Partner shall have the right (the "Share Exchange Right") to
purchase all or any portion of the Preferred Units in lieu of the Partnership's
exercise of its Mandatory Redemption Right. Any such purchase by the General
Partner of the Preferred Units shall be on the terms and conditions set forth in
Section 8.7.A, with the General Partner performing the obligations of the
Partnership under such section; provided, however, that the General Partner
shall have the right, in lieu of paying to the Preferred Unitholder in question
the redemption price provided for in Section 8.7.A, to deliver to such Preferred
Unitholder a number of OPCO Shares equal to (i) the number of Preferred Units
being purchased, multiplied by (ii) $3.34, divided by (iii) the Value per OPCO
Share on the Valuation Date (which amount shall be rounded down to the nearest
whole number if it is not a whole number). For purposes of this Section 8.7, the
term "Valuation Date" shall mean the date on which the Mandatory Redemption
Notice is delivered to the Preferred Unitholder in question or, if such date is
not a Business Day, the First Business Day thereafter. If the General Partner
purchases Preferred Units pursuant to this Section 8.7.B, the General Partner
shall thereafter be treated for all purposes as the owner of such Preferred
Units.
(ii) Notwithstanding anything to the contrary contained in clause (i)
this Section 8.7.B, if the General Partner shall exercise the Share Exchange
Right with respect to a Preferred Unitholder on or after April 1, 2000, such
Preferred Unitholder shall have the right, by notice given to the General
Partner within five Business Days after the giving of the Mandatory Redemption
Notice, to receive cash for its Preferred Units in lieu of accepting delivery of
OPCO Shares therefor. If any Preferred Unitholder shall exercise such right,
then the Partnership or the General Partner shall pay to such Preferred
Unitholder the redemption price for the Preferred Units being redeemed as
provided in Section 8.7.A or clause (i) of this Section 8.7.B, as applicable.
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In addition to the foregoing, if the General Partner shall exercise the
Mandatory Redemption Right on or after April 1, 2000, and shall not exercise the
Share Exchange Right as to a Preferred Unitholder, such Preferred Unitholder
shall have the right, by notice given to the General Partner within five
Business Days after the giving of the Mandatory Redemption Notice, to require
the General Partner to deliver OPCO Shares to such Preferred Unitholder in
exchange for such Preferred Unitholder's Preferred Units. If any Preferred
Unitholder shall exercise such right, then the General Partner shall so deliver
such OPCO Shares on the terms and conditions set forth in clause (i) of this
Section 8.7.B.
C. If the Mandatory Redemption Right is exercised or the General Partner
purchases Preferred Units pursuant to Section 8.7.B, then the Partnership or the
General Partner, as the case may be, shall be required to pay to the Preferred
Unitholder in question, in addition to the payment or the delivery of OPCO
Shares hereinabove provided for, an amount equal to the Unpaid Preferred Return
(as of the date such payment is made) attributable to the Preferred Units being
so redeemed or purchased; provided, however, that if the General Partner has
elected to purchase Preferred Units by delivery of OPCO Shares and a Preferred
Unitholder has not elected pursuant to Section 8.7.B, to receive cash in lieu of
such OPCO Shares, or if a Preferred Unitholder has elected to Section 8.7.B to
receive OPCO Shares in exchange for its Preferred Units, the General Partner
shall have the right, in lieu of paying an amount equal to such Unpaid Preferred
Return, to deliver to such Preferred Unitholder a whole number of OPCO Shares
equal to the amount of such Unpaid Preferred Return (as of the date such payment
is made) divided by the Value on the Valuation Date of one OPCO Share (rounded
----------
down to the nearest whole number of OPCO Shares if such quotient is not a whole
number).
D. Notwithstanding the foregoing, in no event shall the Mandatory
Redemption Right be exercisable with respect to any Preferred Unit as to which a
Redemption Notice has been given as provided in Section 8.6.
Section 8.8. Special Rights of Class B MHR Units
-----------------------------------
Notwithstanding anything to the contrary contained in this Agreement:
A. In the event a holder of Class B MHR Units exercises the Redemption
Right with respect to all or a portion of its Partnership Units and the
Partnership fails to redeem such Partnership Units as required under Section
8.6, the General Partner shall assume and satisfy said Redemption Right as
provided in Section 8.6(B) (except that such assumption and satisfaction shall
be mandatory rather than elective as provided in said Section).
B. In the event a holder of Class B MHR Units exercises the Redemption
Right and the General Partner elects to satisfy the Redemption Right as provided
in Section 8.6(B), it shall so advise such holder within 5 Business Days after
receipt by the Partnership of the Notice of Redemption and, in addition, shall
advise such holder within such 5 Business-Day period as to whether it will pay
such holder the Cash Amount or the OPCO Shares Amount in satisfaction of the
Redemption Right.
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C. At the request of any holder of Class B MHR Units, the General Partner
shall notify such holder of the then current Conversion Factor. In addition, the
General Partner shall, promptly after any adjustment of the Conversion Factor
pursuant to the provisions of this Agreement, notify the holders of Class B MHR
Units of such adjustment and of the Conversion Factor as so adjusted.
D. In the event the General Partner wishes to effect a Transaction (as
defined in Section 11.2.B), the General Partner shall give notice of such
Transaction to the holders of Class B MHR Units simultaneously with the giving
of any such notice to the shareholders of the General Partner. Such notice to
the holders of Class B MHR Units shall contain substantially the same
information with respect to such Transaction as the notice to the General
Partner's shareholders.
E. The holders of Class B MHR Units shall have the right to transfer or
pledge all or any portion of their Partnership Units without the consent of the
General Partner; provided, however, that (i) no such transfer or pledge shall be
made unless such holders deliver to the General Partner a certificate, the form
of which is attached hereto as Exhibit F, (ii) the General Partner shall have
the right to prohibit any such transfer pursuant to Section 11.3.E and (iii) the
provisions of Section 11.3.D shall apply with respect to any such transfer. Any
transferee of Partnership Units pursuant to a transfer permitted hereunder shall
have the right to be admitted as a Substituted Limited Partner, provided that
such transferee complies with the provisions of Section 11.4.B.
F. If the General Partner intends either (i) to liquidate the Partnership
or (ii) to declare or pay a dividend or other distribution on its OPCO Shares
(other than (a) ordinary cash dividends or (b) dividends payable in OPCO Shares
that give rise to an adjustment in the Conversion Factor pursuant to the
provisions of this Agreement), then the General Partner shall notify the holders
of Class B MHR Units of such action, dividend or distributions at least 10 days
in advance of the record date for determining the holders of OPCO Shares
entitled to participate in the same and the holders of Class B MHR Units shall
thereupon have the right to exercise the Redemption Right notwithstanding that
the applicable period referred to in Section 8.9 hereof may not have elapsed.
Notwithstanding anything to the contrary contained in this Agreement, in the
event a holder of Class B MHR Units so exercises the Redemption Right within 5
Business Days after such notification, the Partnership and the General Partner
shall take such actions as are necessary in order that the Partnership Units in
question may be redeemed on or prior to such record date.
39
<PAGE>
G. If a Bankruptcy Event shall occur with respect to the Partnership,
the holders of Class B MHR Units shall have the right to exercise the Redemption
Right notwithstanding that the applicable period referred to in Section 8.9
hereof may not have elapsed. As used herein, the term "Bankruptcy Event" shall
mean any of the following events:
(i) A court having proper jurisdiction shall enter a decree or
order for relief in respect of the Partnership in an involuntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law nor or hereafter in effect, which decree or order is not stayed; or any
other similar relief shall be granted under any applicable federal or state law;
or (ii) an involuntary case shall be commenced against the Partnership under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law nor or hereafter in effect; or a decree or order of a court having proper
jurisdiction for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the Partnership,
or over all or a substantial part of its property, shall have been entered; or
there shall have occurred the involuntary appointment of an interim receiver,
trustee or other custodian of the Partnership for all or a substantial part of
its property; or a warrant of attachment, execution or similar process shall
have been issued against any substantial part of the property of the
Partnership, and any such event described in this clause (ii) shall continue for
60 days unless dismissed, bonded or discharged; or (iii) the Partnership shall
have an order for relief entered with respect to it or commence a voluntary case
under the Bankruptcy Code or under any other applicable bankruptcy, insolvency
or similar law now or hereafter in effect, or shall consent to the entry of an
order for relief in an involuntary case, or to the conversion of an involuntary
case to a voluntary case, under any such law, or shall consent to the
appointment of or taking possession by a receiver, trustee or other custodian
for all or a substantial part of its property; or (iv) the Partnership shall
make any assignment for the benefit of creditors; or (v) the Partnership shall
be unable, or shall fail generally, or shall admit in writing its inability, to
pay its debts as such debts become due. The General Partner shall promptly
notify the holders of Class B MHR Units of the occurrence of any Bankruptcy
Event with respect to the Partnership.
Section 8.9 Redemption Date
---------------
Notwithstanding anything to the contrary contained in Section 8.6.A, the
respective dates before which the Redemption Right may not be exercised by those
Partners who are Limited Partners are as set forth in Exhibit A annexed hereto.
ARTICLE IX.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1 Records and Accounting
----------------------
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The General Partner shall keep or cause to be kept at the principal
office of the Partnership those records and documents required to be maintained
by the Act and other books and records deemed by the General Partner to be
appropriate with respect to the Partnership's business, including, without
limitation, all books and records necessary to provide to the Limited Partners
any information, lists and copies of documents required to be provided pursuant
to Section 9.3 hereof. Any records maintained by or on behalf of the Partnership
in the regular course of its business may be kept on, or be in the form of,
punch cards, magnetic tape, photographs, micro graphics or any other information
storage device, provided that the records so maintained are convertible into
-------------
clearly legible written form within a reasonable period of time. The books of
the Partnership shall be maintained, for financial and tax reporting purposes,
on an accrual basis in accordance with generally accepted accounting principles,
or other such basis as the General Partner determines to be necessary or
appropriate.
Section 9.2 Fiscal Year
-----------
The fiscal year of the Partnership shall end on the Friday nearest
December 31 of each calendar year.
Section 9.3 Reports
-------
A. As soon as practicable, but in no event later than one hundred
five (105) days after the close of each Partnership Year, the General Partner
shall cause to be mailed to each Limited Partner as of the close of the
Partnership Year, an annual report containing financial statements of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated basis with the General Partner, for such Partnership Year,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.
B. As soon as practicable, but in no event later than one hundred
five (105) days after the close of each calendar quarter (except the last
calendar quarter of each year), the General Partner shall cause to be mailed to
each Limited Partner as of the last day of the calendar quarter, a report
containing unaudited financial statements of the Partnership, or of the General
Partner, if such statements are prepared solely on a consolidated basis with the
General Partner, and such other information as may be required by applicable law
or regulation, or as the General Partner determines to be appropriate.
ARTICLE X.
TAX MATTERS
Section 10.1. Preparation of Tax Returns
--------------------------
The General Partner shall arrange for the preparation and timely
filing of all returns of Partnership income, gains, deductions, losses and other
items required of the
41
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Partnership for federal and state income tax purposes and shall use all
reasonable efforts to furnish, within ninety (90) days of the close of each
taxable year, the tax information reasonably required by Limited Partners for
federal and state income tax reporting purposes.
Section 10.2 Tax Elections
-------------
Except as otherwise provided herein, the General Partner shall, in its
sole and absolute discretion, determine whether to make any available election
pursuant to the Code; provided, however, that the General Partner shall make the
--------
election under Section 754 of the Code in accordance with applicable regulations
thereunder effective for the first calendar year following the date hereof. The
General Partner shall have the right to seek to revoke any such election
(including, without limitation, the election under Section 754 of the Code) upon
the General Partner's determination in its sole and absolute discretion that
such revocation is in the best interests of the Partners.
Section 10.3 Tax Matters Partner
-------------------
A. The General Partner shall be the "tax matters partner" of the
Partnership for federal income tax purposes. Pursuant to Section 6230(e) of the
Code, upon receipt of notice from the IRS of the beginning of an administrative
proceeding with respect to the Partnership, the tax matters partner shall
furnish the IRS with the name, address, taxpayer identification number, and
profit interest of each of the Limited Partners and the Assignees; provided,
--------
however, that such information is provided to the Partnership by the Limited
Partners and the Assignees.
B. The tax matters partner is authorized, but not required:
(1) to enter into any settlement with the IRS with respect to any
administrative or judicial proceedings for the adjustment of
Partnership items required to be taken into account by a Partner
for income tax purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial proceedings being
referred to as "judicial review"), and in the settlement
agreement the tax matters partner may expressly state that such
agreement shall bind all Partners, except that such settlement
agreement shall not bind any Partner (i) who (within the time
prescribed pursuant to the Code and Regulations) files a
statement with the IRS providing that the tax matters partner
shall not have the authority to enter into a settlement agreement
on behalf of such Partner or (ii) who is a "notice partner" (as
defined in Section 6231(a)(8) of the Code) or a member of a
"notice group" (as defined in Section 6223(b)(2) of the Code);
(2) in the event that a notice of a final administrative adjustment
at the Partnership level of any item required to be taken into
account by a Partner for tax purposes (a "final adjustment") is
mailed to the tax matters partner, to seek judicial review of
such final adjustment,
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<PAGE>
including the filing of a petition for readjustment with the Tax
Court or the filing of a complaint for refund with the United
States Claims Court or the District Court of the United States
for the district in which the Partnership's principal place of
business is located;
(3) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the IRS
and, if any part of such request is not allowed by the IRS, to
file an appropriate pleading (petition or complaint) for judicial
review with respect to such request;
(5) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to
be taken into account by a Partner for tax purposes, or an item
affected by such item; and
(6) to take any other action on behalf of the Partners of the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or
regulations.
The taking of any action and the incurring of any expense by the tax
matters partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole and absolute discretion of the tax
matters partner and the provisions relating to indemnification of the General
Partner set forth in Section 7.7 of this Agreement shall be fully applicable to
the tax matters partner in its capacity as such.
C. The tax matters partner shall receive no compensation for its
services. All third party costs and expenses incurred by the tax matters partner
in performing its duties as such (including legal and accounting fees and
expenses) shall be borne by the Partnership. Nothing herein shall be construed
to restrict the Partnership from engaging an accounting or legal firm to assist
the tax matters partner in discharging its duties hereunder, so long as the
compensation paid by the Partnership for such services is reasonable.
Section 10.4 Organizational Expenses
-----------------------
The Partnership shall elect to deduct expenses, if any, incurred by it
in organizing the Partnership ratably over a sixty (60) month period as provided
in Section 709 of the Code.
Section 10.5 Withholding
-----------
Each Limited Partner hereby authorizes the Partnership to withhold
from or pay on behalf of or with respect to such Limited Partner any amount of
federal, state,
43
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local, or foreign taxes that the General Partner determines that the Partnership
is required to withhold or pay with respect to any amount distributable or
allocable to such Limited Partner pursuant to this Agreement, including, without
limitation, any taxes required to be withheld or paid by the Partnership
pursuant to Sections 1441, 1442, 1445, or 1446 of the Code. Any amount paid on
behalf of or with respect to a Limited Partner shall constitute a loan by the
Partnership to such Limited Partner, which loan shall be repaid by such Limited
Partner within fifteen (15) days after notice from the General Partner that such
payment must be made unless (i) the Partnership withholds such payment from a
distribution which would otherwise be made to the Limited Partner or (ii) the
General Partner determines, in its sole and absolute discretion, that such
payment may be satisfied out of the available funds of the Partnership which
would, but for such payment, be distributed to the Limited Partner. Any amounts
withheld pursuant to the foregoing clauses (i) or (ii) shall be treated as
having been distributed to such Limited Partner. Each Limited Partner hereby
unconditionally and irrevocably grants to the Partnership a security interest in
such Limited Partner's Partnership Interest to secure such Limited Partner's
obligation to pay to the Partnership any amounts required to be paid pursuant to
this Section 10.5. In the event that a Limited Partner fails to pay any amounts
owed to the Partnership pursuant to this Section 10.5 when due, the General
Partner may, in its sole and absolute discretion, elect to make the payment to
the Partnership on behalf of such defaulting Limited Partner, and in such event
shall be deemed to have loaned such amount to such defaulting Limited Partner
and shall succeed to all rights and remedies of the Partnership as against such
defaulting Limited Partner. Without limitation, in such event the General
Partner shall have the right to receive distributions that would otherwise be
distributable to such defaulting Limited Partner until such time as such loan,
together with all interest thereon, has been paid in full, and any such
distributions so received by the General Partner shall be treated as having been
distributed to the defaulting Limited Partner and immediately paid by the
defaulting Limited Partner to the General Partner in repayment of such loan. Any
amounts payable by a Limited Partner hereunder shall bear interest at the lesser
of (A) the base rate on corporate loans at large United States money center
commercial banks, as published from time to time in the Wall Street Journal,
-------------------
plus four (4) percentage points, or (B) the maximum lawful rate of interest on
such obligation, such interest to accrue from the date such amount is due (i.e.,
fifteen (15) days after demand) until such amount is paid in full. Each Limited
Partner shall take such actions as the Partnership or the General Partner shall
request in order to perfect or enforce the security interest created hereunder.
ARTICLE XI.
TRANSFERS AND WITHDRAWALS
Section 11.1 Transfer
--------
A. The term "transfer," when used in this Article 11 with respect to
a Partnership Interest or Partnership Unit, shall be deemed to refer to a
transaction by which the General Partner purports to assign all or any part of
its General Partner Interest to another Person or by which a Limited Partner
purports to assign all or any part of its Limited Partner Interest to another
Person, and includes a sale, assignment, gift, pledge,
44
<PAGE>
encumbrance, hypothecation, mortgage, exchange or any other disposition by law
or otherwise. The term "transfer" when used in this Article 11 does not include
any redemption of Partnership Units by a Limited Partner or acquisition of
Partnership Units from a Limited Partner by the General Partner pursuant to
Section 8.6 or Section 8.7.
B. No Partnership Interest shall be transferred, in whole or in
part, except in accordance with the terms and conditions set forth in this
Article 11. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article 11 shall be null and void.
Section 11.2 Transfer of General Partner's Partnership Interest
--------------------------------------------------
A. The General Partner may not transfer any of its General Partner
Interest or withdraw as General Partner except in connection with a transaction
described in Section 11.2.B, 11.2.C or 11.2.D.
B. Except as otherwise provided in Section 11.2.C or 11.2.D, the
General Partner shall not engage in any merger, consolidation or other
combination with or into another Person or sale of all or substantially all of
its assets, or any reclassification, or recapitalization or change of
outstanding OPCO Shares (other than a change in par value, or from par value to
no par value, or as a result of a subdivision or combination as described in the
definition of "Conversion Factor") ("Transaction"), unless the Transaction also
includes a merger of the Partnership or sale of substantially all of the assets
of the Partnership and as a result of which all Limited Partners will receive
for each Partnership Unit an amount of cash, securities, or other property equal
to the product of the Conversion Factor and the greatest amount of cash,
securities or other property paid to a holder of one OPCO Share in consideration
of one OPCO Share at any time during the period from and after the date on which
the Transaction is consummated.
C. Notwithstanding anything to the contrary contained in Section
11.2.B, the General Partner may merge with another entity if immediately after
such merger substantially all of the assets of the surviving entity other than
Partnership Units held by the General Partner (whether such Partnership Units
constitute the General Partner Interest or a Limited Partner Interest), are
contributed to the Partnership as a Capital Contribution in exchange for Class A
MHR Units having a fair market value, as reasonably determined by the General
Partner, equal to the 704(c) Value of the assets so contributed to the
Partnership.
D. Notwithstanding Sections 11.2.A and 11.2.B, the General Partner
may pledge its General Partner Interest, in connection with any borrowing of the
Partnership which is guaranteed by or otherwise recourse to the General Partner,
and any transfer of the General Partner Interest (or of such rights) pursuant or
subsequent to the exercise of rights or remedies in connection with such pledge
shall be permitted hereunder.
Section 11.3 Limited Partners' Rights to Transfer
------------------------------------
45
<PAGE>
A. Subject to the provisions of Section 11.3.F and Section 11.7 and
except as otherwise provided in Section 8.8.E, no Limited Partner shall have the
right to transfer all or any portion of his Partnership Interest, or any of such
Limited Partner's rights as a Limited Partner, without the prior written consent
of the General Partner, which consent may be given or withheld by the General
Partner in its sole and absolute discretion. Any purported transfer of a
Partnership Interest by a Limited Partner in violation of this Section 11.3.A
shall be void ab initio and shall not be given effect for any purpose by the
Partnership.
B. If a Limited Partner is subject to Incapacity, the executor,
administrator, trustee, committee, guardian, conservator or receiver of such
Limited Partner's estate shall have all the rights of a Limited Partner, but not
more rights than those enjoyed by other Limited Partners, for the purpose of
settling or managing the estate and such power as the Incapacitated Limited
Partner possessed to transfer all or any part of his or its interest in the
Partnership. The Incapacity of a Limited Partner, in and of itself, shall not
dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer by a Limited
Partner of his Partnership Units otherwise permitted under Section 11.3.F or
Section 11.7 if, in the opinion of legal counsel to the Partnership, such
transfer would require filing of a registration statement under the Securities
Act of 1933 or would otherwise violate any federal, state or foreign securities
laws or regulations applicable to the Partnership or the Partnership Unit.
D. Subject to the provisions of Section 11.3.F, no transfer by a
Limited Partner of his Partnership Units may be made to any Person if (i) in the
opinion of legal counsel for the Partnership, it would result in the Partnership
being treated as an association taxable as a corporation for federal income tax
purposes, or would result in a termination of the Partnership for federal income
tax purposes or (ii) such transfer is effectuated through an "established
securities market" or a "secondary market (or the substantial equivalent
thereof)" within the meaning of Section 7704 of the Code.
E. Subject to the provisions of Section 11.3.F, no transfer of any
Partnership Units may be made to a lender to the Partnership or any Person who
is related (within the meaning of Section 1.752-4(b) of the Regulations) to any
lender to the Partnership if, in either case, such loan constitutes a
Nonrecourse Liability, without the consent of the General Partner, which consent
may be given or withheld by the General Partner in its sole and absolute
discretion, provided that as a condition to such consent being granted the
lender will be required to enter into an arrangement with the Partnership and
the General Partner to exchange or redeem for the OPCO Shares Amount any
Partnership Units in which a security interest is held simultaneously with the
time at which such lender would be deemed to be a partner in the Partnership for
purposes of allocating liabilities to such lender under Section 752 of the Code.
F. Notwithstanding the foregoing provisions of this Section 11.3, a
Limited Partner may pledge its Partnership Interest, or any of such Limited
Partner's rights as a Limited Partner, in connection with any borrowing of the
Partnership which is
46
<PAGE>
guaranteed by or otherwise recourse to such Limited Partner, and any transfer of
such Partnership Interest (or of such rights) pursuant or subsequent to the
exercise of rights or remedies in connection with such pledge shall be permitted
hereunder.
G. No transfer by a Limited Partner of its Partnership Units may be
made to any Person if: (i) in the opinion of legal counsel for the Partnership,
it would result in the Partnership being treated as an association taxable as a
corporation for federal income tax purposes; (ii) such transfer would cause the
Partnership to become, with respect to any employee benefit subject to Title I
of ERISA, a "party-in-interest" (as defined in Section 3(14) of ERISA) or a
"disqualified person" (as defined in Section 4975(c) of the Code); (iii) such
transfer would, in the opinion of legal counsel for the Partnership, cause any
portion of the assets of the Partnership to constitute assets of any employee
benefit plan pursuant to Department of Labor Regulations Section 2510.2-101;
(iv) such transfer would subject the Partnership to regulation under the
Investment Company Act of 1940, the Investment Advisors Act of 1940 or the
Employee Retirement Income Security Act of 1974, each as amended; (v) without
the consent of the General Partner, which consent may be withheld in its sole
and absolute discretion, such transfer is a sale or exchange, and such sale or
exchange would, when aggregated with all other sales and exchanges during the
12-month period ending on the date of the proposed transfer, result in 50% or
more of the interests in Partnership capital and profits being sold or exchanged
during such 12-month period; or (vi) such transfer is effectuated through an
"established securities market" or a "secondary market (or the substantial
equivalent thereof)" within the meaning of Section 7704 of the Code.
H. Notwithstanding the other provisions of this Article 11, no
transfer by a Limited Partner of its Partnership Units may be made to any Person
if such transfer would result in an Ownership Excess by such transferee. If an
Ownership Excess results from the acquisition of OPCO Shares by any Person, the
Partnership shall have the right to redeem a number of Partnership Units
sufficient to cause such Ownership Excess not to exist, for an amount of cash
per Partnership Unit equal to the Value of an OPCO Share on the date of
acquisition by such Person divided by the Conversion Factor.
Section 11.4 Substituted Partners
--------------------
A. Except as provided in Section 11.4.C hereof, no Limited Partner
shall have the right to substitute a transferee as a Limited Partner in his
place. The General Partner shall, however, have the right to consent to the
admission of a transferee of the interest of a Limited Partner pursuant to this
Section 11.4 as a Substituted Limited Partner, which consent may be given or
withheld by the General Partner in its sole and absolute discretion. The General
Partner's failure or refusal to permit a transferee of any such interests to
become a Substituted Limited Partner shall not give rise to any cause of action
against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and powers
and be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement. The admission of any transferee as a Substituted Limited
Partner shall be subject to the
47
<PAGE>
transferee executing and delivering to the Partnership an acceptance of all of
the terms and conditions of this Agreement (including, without limitation, the
provisions of Section 2.4) and such other documents or instruments as may be
required to effect the admission.
C. Any transferee by way of an exercise of the rights and remedies
in connection with the pledge of a General Partner Interest pursuant to Section
11.2.D shall have the right, at the election of such transferee, to be admitted
as a substituted General Partner, and (ii) any transferee of a Limited Partner
Interest pursuant to Section 11.3.F or Section 11.7 shall have the right, at the
election of such transferee, to be admitted as a Substituted Limited Partner.
Section 11.5 Assignees
---------
If the General Partner, in its sole and absolute discretion, does not
consent to the admission of any permitted transferee under Section 11.3 as a
Substituted Limited Partner, as described in Section 11.4, such transferee shall
be considered an Assignee for purposes of this Agreement. An Assignee shall be
deemed to have had assigned to it, and shall be entitled to receive
distributions from the Partnership and the share of Net Income, Net Losses,
Recapture Income, and any other items of gain, loss, deduction and credit of the
Partnership attributable to the Partnership Units assigned to such transferee,
but shall not be deemed to be a holder of Partnership Units for any other
purpose under this Agreement, and shall not be entitled to vote such Partnership
Units in any matter presented to the Limited Partners for a vote (such
Partnership Units being deemed to have been voted on such matter in the same
proportion as all other Partnership Units held by Limited Partners are voted).
In the event any such transferee desires to make a further assignment of any
such Partnership Units, such transferee shall be subject to all the provisions
of this Article 11 to the same extent and in the same manner as any Limited
Partner desiring to make an assignment of Partnership Units.
Section 11.6 General Provisions
------------------
A. No Limited Partner may withdraw from the Partnership other than
as a result of a permitted transfer of all of such Limited Partner's Partnership
Units in accordance with this Article 11 or pursuant to redemption of all of its
Partnership Units under Section 8.6 or Section 8.7.
B. Any Limited Partner who shall transfer all of his Partnership
Units in a transfer permitted pursuant to this Article 11 shall cease to be a
Limited Partner upon the admission of all Assignees of such Partnership Units as
Substitute Limited Partners. Similarly, any Limited Partner who shall transfer
all of his Partnership Units pursuant to a redemption of all of his Partnership
Units under Section 8.6 or Section 8.7 shall cease to be a Limited Partner.
C. Transfers (other than transfers pursuant to a redemption of
Partnership Units under Section 8.6 or 8.7) pursuant to this Article 11 may only
be made
48
<PAGE>
on the first day of a fiscal quarter of the Partnership, unless the General
Partner otherwise agrees.
D. If any Partnership Interest is transferred or assigned in
compliance with the provisions of this Article 11 or redeemed or transferred
pursuant to Section 8.6 or Section 8.7, on any day other than the first day of a
Partnership Year, then Net Income, Net Losses, each item thereof and all other
items attributable to such interest for such Partnership Year shall be divided
and allocated between the transferor Partner and the transferee Partner by
taking into account their varying interests during the fiscal year in accordance
with Section 706(d) of the Code, using the interim closing of the books method
(unless the General Partner, in its sole and absolute discretion, elects to
adopt a daily, weekly or monthly proration method, in which event Net Income,
Net Losses and each item thereof for such Partnership Year shall be prorated
based upon the applicable period selected by the General Partner). Solely for
purposes of making such allocations, each of such items for the calendar month
in which the transfer or assignment occurs shall be allocated to the transferee
Partner, and none of such items for the calendar month in which a redemption
occurs shall be allocated to the Redeeming Partner. Without derogating from the
provisions of Section 5.1.B, all distributions attributable to such Partnership
Unit with respect to which the Partnership Record Date is before the date of
such transfer, assignment or redemption shall be made to the transferor Partner
or the Redeeming Partner or the Partner whose Preferred Units are being redeemed
pursuant to Section 8.7, as the case may be.
Section 11.7 Pledges of Partnership Interests. Except as provided in
--------------------------------
Section 11.3.F, no Limited Partner shall pledge, hypothecate or grant a security
interest in all or any portion of its Partnership Interest; provided, however,
that any Limited Partner shall have the right, as security for a borrowing from
a bank, insurance company or other commercial lending institution (an
"Institutional Lender"), to pledge or hypothecate to such Institutional Lender,
--------------------
or to grant and/or sell to and/or purchase from such Institutional Lender or an
Affiliate thereof an option with respect to, or grant to such Institutional
Lender a security interest in, all or a portion of its Partnership Units, and
any transfer of such pledged Partnership Units to such Institutional Lender (or
to its transferee in any public or private sale by such Institutional Lender)
pursuant to the exercise of rights or remedies in connection with such pledge or
option shall be permitted hereunder.
ARTICLE XII.
ADMISSION OF PARTNERS
Section 12.1 Admission of Successor General Partner
--------------------------------------
A successor to all of the General Partner Interest (i) pursuant to
Section 11.2.D hereof shall be admitted to the Partnership as a successor
General Partner in accordance with the provisions of Section 11.4.C, and (ii)
pursuant to Section 11.2.C hereof who is proposed to be admitted as a successor
General Partner shall be admitted to the Partnership as the General Partner,
effective upon such transfer. Any such transferee shall carry on the business of
the Partnership without dissolution. In each case, the admission shall be
subject to the successor General Partner executing and delivering to
49
<PAGE>
the Partnership an acceptance of all of the terms and conditions of this
Agreement and such other documents or instruments as may be required to effect
the admission. In the case of such admission on any day other than the first day
of a Partnership Year, all items attributable to the General Partner Interest
for such Partnership Year shall be allocated between the transferring General
Partner and such successor as provided in Section 11.6.D hereof.
Section 12.2 Admission of Additional Limited Partners
----------------------------------------
A. A Person who makes a Capital Contribution to the Partnership in
accordance with this Agreement or who exercises an option to receive Partnership
Units shall be admitted to the Partnership as an Additional Limited Partner only
upon furnishing to the General Partner (i) evidence of acceptance in form
satisfactory to the General Partner of all of the terms and conditions of this
Agreement, including, without limitation, the power of attorney granted in
Section 2.4 hereof and (ii) such other documents or instruments as may be
required in the discretion of the General Partner in order to effect such
Person's admission as an Additional Limited Partner.
B. Notwithstanding anything to the contrary in this Section 12.2, no Person
shall be admitted as an Additional Limited Partner without the consent of the
General Partner, which consent may be given or withheld in the General Partner's
sole and absolute discretion. The admission of any Person as an Additional
Limited Partner shall become effective on the date upon which the name of such
Person is recorded on the books and records of the Partnership, following the
consent of the General Partner to such admission.
C. If any Additional Limited Partner is admitted to the Partnership on any
day other than the first day of a Partnership Year, then Net Income, Net Losses,
each item thereof and all other items allocable among Partners and Assignees for
such Partnership Year shall be allocated among such Additional Limited Partner
and all other Partners and Assignees by taking into account their varying
interests during the Partnership Year in accordance with Section 706(d) of the
Code, using the interim closing of the books method. Solely for purposes of
making such allocations, each of such items for the calendar month in which an
admission of any Additional Limited Partner occurs shall be allocated among all
the Partners and Assignees including such Additional Limited Partner. All
distributions pursuant to Section 5.1.B before the date of such admission shall
be made solely to Partners and Assignees other than the Additional Limited
Partner, and all distributions pursuant to Section 5.1.B thereafter shall be
made to all the Partners and Assignees including such Additional Limited
Partner.
Section 12.3 Amendment of Agreement and Certificate of Limited Partnership
-------------------------------------------------------------
For the admission to the Partnership of any Partner, the General Partner
shall take all steps necessary and appropriate under the Act to amend the
records of the Partnership and, if necessary, to prepare as soon as practical an
amendment of this Agreement and, if required by law, shall prepare and file an
amendment to the Certificate
50
<PAGE>
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4 hereof.
ARTICLE XIII.
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 13.1 Dissolution
-----------
Except as set forth in this Article 13, no Partner shall have the right to
dissolve the Partnership. The Partnership shall not be dissolved by the
admission of Substituted Limited Partners or Additional Limited Partners or by
the admission of a successor General Partner in accordance with the terms of
this Agreement. Upon the withdrawal of the General Partner, any successor
General Partner shall continue the business of the Partnership. The Partnership
shall dissolve, and its affairs shall be wound up, upon the first to occur of
any of the following ("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5 hereof;
B. (i) a final and non-appealable judgment is entered by a court of
competent jurisdiction ruling that the General Partner is bankrupt or insolvent,
or a final and non-appealable order for relief is entered by a court with
appropriate jurisdiction against the General Partner, in each case under any
federal or state bankruptcy or insolvency laws as now or hereafter in effect,
unless prior to the entry of such order or judgment all of the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of a date prior to the date of such order or judgment,
of a substitute General Partner, or (ii) any other event of withdrawal of the
General Partner, as defined in the Act (other than an event of bankruptcy),
unless, within ninety (90) days after such event of withdrawal all the remaining
Partners agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a successor General
Partner;
C. on or after December 31, 2015, an election to dissolve the Partnership
made by the General Partner, in its sole and absolute discretion;
D. entry of a decree of judicial dissolution of the Partnership pursuant to
the provisions of the Act; or
E. the sale of all or substantially all of the assets and properties of the
Partnership.
Section 13.2. Winding Up
----------
A. Upon the occurrence of a Liquidating Event, the Partnership shall
continue solely for the purposes of winding up its affairs in an orderly manner,
liquidating its assets, and satisfying the claims of its creditors and Partners.
No Partner shall take any action that is inconsistent with, or not necessary to
or appropriate for, the
51
<PAGE>
winding up of the Partnership's business and affairs. The General Partner, or,
in the event there is no remaining General Partner, any Person elected by a
majority in interest of the Limited Partners (the General Partner or such other
Person being referred to herein as the "Liquidator") shall be responsible for
overseeing the winding up and dissolution of the Partnership and shall take full
account of the Partnership's liabilities and property and the Partnership
property shall be liquidated as promptly as is consistent with obtaining the
fair value thereof, and the proceeds therefrom (which may, to the extent
determined by the General Partner, include shares of stock in the General
Partner) shall be applied and distributed in the following order:
(1) First, to the payment and discharge of all of the Partnership's debts
and liabilities to creditors other than the Partners;
(2) Second, to the payment and discharge of all of the Partnership's debts
and liabilities to the General Partner;
(3) Third, to the payment and discharge of all of the Partnership's debts
and liabilities to the other Partners; and
(4) The balance, if any, to the General Partner and Limited Partners in
accordance with their Capital Accounts, after giving effect to all
contributions, distributions, and allocations for all periods.
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13.
B. Notwithstanding the provisions of Section 13.2.A hereof which require
liquidation of the assets of the Partnership, but subject to the order of
priorities set forth therein, if prior to or upon dissolution of the Partnership
the Liquidator determines that an immediate sale of part or all of the
Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A hereof, undivided interests in
such Partnership assets as the Liquidator deems not suitable for liquidation.
Any such distributions in kind shall be made only if, in the good faith judgment
of the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable and to any agreements governing the operation of such properties at
such time. The Liquidator shall determine the fair market value of any property
distributed in kind using such reasonable method of valuation as it may adopt.
C. In the discretion of the Liquidator, a pro rata portion of the
distributions that would otherwise be made to the General Partner and Limited
Partners pursuant to this Article 13 may be:
52
<PAGE>
1. distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purposes of liquidating
Partnership assets, collecting amounts owed to the Partnership, and paying
any contingent or unforeseen liabilities or obligations of the Partnership
or of the General Partner arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the
General Partner and Limited Partners from time to time, in the reasonable
discretion of Liquidator, in the same proportions as the amount distributed
to such trust by the Partnership would otherwise have been distributed to
the General Partner and Limited Partners pursuant to this Agreement; or
2. withheld or escrowed to provide a reasonable reserve for
Partnership liabilities (contingent or otherwise) and to reflect the
unrealized portion of any installment obligations owed to the Partnership,
provided that such withheld or escrowed amounts shall be distributed to the
General Partner and Limited Partners in the manner and order of priority
set forth in Section 13.2.A as soon as practicable.
Section 13.3. Compliance with Timing Requirements of Regulations
--------------------------------------------------
In the event the Partnership is "liquidated" within the meaning of
Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made pursuant
to this Article 13 to the General Partner and Limited Partners who have positive
Capital Accounts in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(2).
If any Partner has a deficit balance in his Capital Account (after giving effect
to all contributions, distributions and allocations for all taxable years,
including the year during which such liquidation occurs), such Partner shall
have no obligation to make any contribution to the capital of the Partnership
with respect to such deficit, and such deficit shall not be considered a debt
owed to the Partnership or to any other Person for any purpose whatsoever.
Section 13.4 Rights of Limited Partners
--------------------------
Except as otherwise provided in this Agreement, each Limited Partner shall
look solely to the assets of the Partnership for the return of its Capital
Contributions and shall have no right or power to demand or receive property
other than cash from the Partnership. Except as otherwise provided in this
Agreement, no Limited Partner shall have priority over any other Partner as to
the return of its Capital Contributions, distributions, or allocations.
Section 13.5 Notice of Dissolution
---------------------
In the event a Liquidating Event occurs or an event occurs that would, but
for an election or objection by one or more Partners pursuant to Section 13.1,
result in a dissolution of the Partnership, the General Partner shall, within
thirty (30) days thereafter, provide written notice thereof to each of the
Partners.
53
<PAGE>
Section 13.6 Termination of Partnership and Cancellation of Certificate of
-------------------------------------------------------------
Limited Partnership
-------------------
Upon the completion of the liquidation of the Partnership cash and property
as provided in Section 13.2 hereof, the Partnership shall be terminated, a
certificate of cancellation shall be filed, and all qualifications of the
Partnership as a foreign limited partnership in jurisdictions other than the
State of Delaware shall be canceled and such other actions as may be necessary
to terminate the Partnership shall be taken.
Section 13.7. Reasonable Time for Winding-Up
------------------------------
A reasonable time shall be allowed for the orderly winding-up of the
business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2 hereof, in order to minimize any losses otherwise
attendant upon such winding-up, and the provisions of this Agreement shall
remain in effect between the Partners during the period of liquidation.
Section 13.8 Waiver of Partition
-------------------
Each Partner hereby waives any right to partition of the Partnership
property.
Section 13.9 Liability of the Liquidator
---------------------------
The Liquidator shall be indemnified and held harmless by the Partnership
from and against any and all claims, demands, liabilities, costs, damages and
cause of action of any nature whatsoever arising out of or incidental to the
Liquidator's taking of any action authorized under or within the scope of this
Agreement; provided, however, that the Liquidator shall not be entitled to
-------- -------
indemnification, and shall not be held harmless, where the claim, demand,
liability, cost, damage or cause of action at issue arises out of:
(i) a matter entirely unrelated to the Liquidator's action or conduct
pursuant to the provisions of this Agreement; or
(ii) the proven willful misconduct or gross negligence of the Liquidator.
ARTICLE XIV.
AMENDMENT OF PARTNERSHIP AGREEMENT; MEETINGS
Section 14.1 Amendments
----------
A. Amendments to this Agreement may be proposed by the General Partner or
by any Limited Partners holding twenty-five percent (25%) or more of the
Percentage Interests. Following such proposal, the General Partner shall submit
any
54
<PAGE>
proposed amendment to the Limited Partners. Subject to Section 14.2.B, the
General Partner shall seek the written vote of the Partners on the proposed
amendment or shall call a meeting to vote thereon and to transact any other
business that it may deem appropriate. For purposes of obtaining a written vote,
the General Partner may require a response within a reasonable specified time,
but not less than fifteen (15) days, and failure to respond in such time period
shall constitute a vote which is consistent with the General Partner's
recommendation with respect to the proposal. Except as provided in Section
14.1.B, 14.1.C or 14.1.D, a proposed amendment shall be adopted and be effective
as an amendment hereto if it is approved by the General Partner and it receives
the Consent of Partners holding a majority of the Percentage Interests of the
Limited Partners (including Limited Partner Interests held by the General
Partner).
B. Notwithstanding Section 14.1.A but subject to Section 14.1.C, the
General Partner shall have the power, without the consent of the Limited
Partners, to amend this Agreement (i) as permitted under Section 7.1(F) or (ii)
as may be required to facilitate or implement any of the following purposes:
(1) to add to the obligations of the General Partner or surrender any
right or power granted to the General Partner or any Affiliate of the
General Partner for the benefit of the Limited Partners;
(2) to reflect the admission, substitution, termination, or withdrawal of
Partners in accordance with this Agreement;
(3) to set forth the designations, rights, powers, duties, and preferences
of the holders of any additional Partnership Interests issued pursuant
to Section 4.2.A hereof;
(4) to reflect a change that does not adversely affect any of the Limited
Partners in any material respect, or to cure any ambiguity, correct or
supplement any provision in this Agreement not inconsistent with law
or with other provisions, or make other changes with respect to
matters arising under this Agreement that will not be inconsistent
with law or with the provisions of this Agreement; and
(5) to satisfy any requirements, conditions, or guidelines contained in
any order, directive, opinion, ruling or regulation of a federal or
state agency or contained in federal or state law.
The General Partner shall provide notice to the Limited Partners when any action
under this Section 14.1.B is taken.
C. Notwithstanding Section 14.1.A and 14.1.B hereof, this Agreement shall
not be amended without the Consent of each Partner adversely affected if such
amendment would (i) convert a Limited Partner's interest in the Partnership into
a general partner interest; (ii) modify the limited liability of a Limited
Partner in a manner adverse to such Limited Partner, including an amendment that
would impose on such Limited Partner any obligation to make capital
contributions in the Partnership; (iii) alter rights of
55
<PAGE>
the Partner to receive distributions pursuant to Article 5, or the allocations
specified in Article 6 (except as permitted pursuant to Section 4.2 and Section
14.1.B(3) hereof) in a manner adverse to such Partner; (iv) alter or modify the
Redemption Right or Mandatory Redemption Right and OPCO Shares Amount as set
forth in Section 8.6 or 8.7, and related definitions hereof; (v) cause the
termination of the Partnership prior to the time set forth in Sections 2.5 or
13.1; (vi) amend Section 11.7 (as to any then existing Limited Partner) or this
Section 14.1.C; (vii) amend Section 2 of Exhibit C in a manner adverse to such
Partner; or (viii) alter or modify in any material respect the definition of
"Conversion Factor." Further, no amendment may alter the restrictions on the
General Partner's authority set forth in Section 7.3 without the Consent
specified in that section.
D. Notwithstanding Section 14.1.A or Section 14.1.B hereof, the General
Partner shall not amend Sections 4.2.A, 7.5, 7.6, 11.2 or 14.2 without the
Consent of a majority of the Percentage Interests of the Limited Partners
excluding Limited Partnership Interests held directly or indirectly by the
General Partner.
Section 14.2 Meetings of the Partners
------------------------
A. Meetings of the Partners may be called by the General Partner and shall
be called upon the receipt by the General Partner of a request by Limited
Partners holding twenty-five percent (25%) or more of the Percentage Interests.
The call shall state the nature of the business to be transacted. Notice of any
such meeting shall be given to all Partners not less than seven (7) days nor
more than thirty (30) days prior to the date of such meeting. Partners may vote
in person or by proxy at such meeting. Whenever the vote or Consent of the
Partners is permitted or required under this Agreement, such vote or Consent may
be given at a meeting of the Partners or may be given in accordance with the
procedure prescribed in Section 14.1.A hereof. Except as otherwise expressly
provided in this Agreement, the Consent of holders of a majority of the
Percentage Interests held by Limited Partners (including Limited Partnership
Interests held by the General Partner) shall control.
B. Any action required or permitted to be taken at a meeting of the
Partners may be taken without a meeting if a written consent setting forth the
action so taken is signed by a majority of the Percentage Interests of the
Partners (or such other percentage as is expressly required by this Agreement)
such consent may be in one instrument or in several instruments, and shall have
the same force and effect as a vote of a majority of the Percentage Interests of
the Partners (or such other percentage as is expressly required by this
Agreement). Such consent shall be filed with the General Partner. An action so
taken shall be deemed to have been taken at a meeting held on the effective date
so certified.
C. Each Limited Partner may authorize any Person or Persons to act for him
by proxy on all matters in which a Limited Partner is entitled to participate,
including waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited
56
<PAGE>
Partner executing it, such revocation to be effective upon the Partnership's
receipt of written notice of such revocation from the Limited Partner executing
such proxy.
D. Each meeting of Partners shall be conducted by the General Partner or
such other Person as the General Partner may appoint pursuant to such rules for
the conduct of the meeting as the General Partner or such other Person deems
appropriate in its sole discretion. Without limitation, meetings of Partners may
be conducted in the same manner as meetings of the shareholders of the General
Partner and may be held at the same time as, and as part of, meetings of the
shareholders of the General Partner.
ARTICLE XV.
GENERAL PROVISIONS
Section 15.1 Addresses and Notice
--------------------
Any notice, demand, request or report required or permitted to be given or
made to a Partner or Assignee under this Agreement shall be in writing and shall
be deemed given or made when delivered in person or when sent by first class
United States mail or by other means of written communication to the Partner or
Assignee. Such communications shall be deemed sufficiently given, served, sent
or received for all purposes at such time as delivered to the addressee (with
the return receipt or delivery receipt being deemed conclusive evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
Section 15.2 Titles and Captions
-------------------
All article or section titles or captions in this Agreement are for
convenience only. They shall not be deemed part of this Agreement and in no way
define, limit, extend or describe the scope or intent of any provisions hereof.
Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3 Pronouns and Plurals
--------------------
Whenever the context may require, any pronoun used in this Agreement shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 15.4 Further Action
--------------
The parties shall execute and deliver all documents, provide all
information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5 Binding Effect
--------------
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<PAGE>
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, executors, administrators, successors, legal
representatives and permitted assigns.
Section 15.6 Creditors
---------
Other than as expressly set forth herein with respect to the Indemnitees,
none of the provisions of this Agreement shall be for the benefit of, or shall
be enforceable by, any creditor of the Partnership.
Section 15.7 Waiver
------
No failure by any party to insist upon the strict performance of any
covenant, duty, agreement or condition of this Agreement or to exercise any
right or remedy consequent upon a breach thereof shall constitute waiver of any
such breach or any other covenant, duty, agreement or condition.
Section 15.8 Counterparts
------------
This Agreement may be executed in counterparts, all of which together shall
constitute one agreement binding on an the parties hereto, notwithstanding that
all such parties are not signatories to the original or the same counterpart.
Each party shall become bound by this Agreement immediately upon affixing its
signature hereto.
Section 15.9 Applicable Law
--------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.10 Invalidity of Provisions
------------------------
If any provision of this Agreement is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
Section 15.11 Entire Agreement
----------------
This Agreement contains the entire understanding and agreement among the
Partners with respect to the subject matter hereof and supersedes any other
prior written or oral understandings or agreements among them with respect
thereto.
Section 15.12 No Rights as Shareholders
-------------------------
Nothing contained in this Agreement shall be construed as conferring upon
the holders of the Partnership Units any rights whatsoever as shareholders of
the General Partner, including without limitation any right to receive dividends
or other
58
<PAGE>
distributions made to shareholders of the General Partner or to vote or
to consent or to receive notice as shareholders in respect of any meeting of
shareholders for the election of directors of the General Partner or any other
matter.
59
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first written above.
AS GENERAL PARTNER:
MERISTAR HOTELS & RESORTS, INC.
By:
----------------------------
Name:
Title:
AS LIMITED PARTNERS:
MERISTAR HOTELS & RESORTS, INC.
By:
----------------------------
Name:
Title:
CAPSTAR MANAGEMENT COMPANY, L.L.C
By: MeriStar Hotels & Resorts, Inc.,
Its Manager
By:
----------------------------
Name:
Title:
60
<PAGE>
<TABLE>
<CAPTION>
NAME JURISDICTION OF
INCORPORATION OR
ORGANIZATION
<S> <C>
AGH Leasing, L.P. Delaware
Ballston Parking Associates, L.P. Delaware
CapStar BK Company, L.L.C. Delaware
CapStar California Beverage Corporation California
CapStar Dallas Beverage Corporation Texas
CapStar KC Company II, L.L.C. Delaware
CapStar Management Company, L.L.C. Delaware
CapStar Metro Beverage Corporation Texas
CapStar New Mexico Beverage Corporation New Mexico
CapStar Winston Beverage Corporation Texas
CapStar Winston Company, L.L.C. Delaware
CMC Airport, Inc. Delaware
EquiStar Schaumburg Beverage Company Illinois
EquiStar Texas Beverage Corporation Texas
MeriStar AGH Company, L.L.C. Delaware
MeriStar H&R Operating Company, L.P. Delaware
MeriStar Louisiana Beverage Corporation Louisiana
MeriStar Management Company, L.L.C. Delaware
Riverside Beverage Corporation Louisiana
S.D. Bridgeworks, L.L.C. Delaware
</TABLE>
<PAGE>
ACCOUNTANTS' CONSENT
--------------------
The Board of Directors
MeriStar Hotels & Resorts, Inc.:
We consent to incorporation by reference in the registration statement
(No. 333-60545) on Form S-8 (for the Non-Employee Directors' Incentive Plan),
the registration statement (No. 333-60539) on Form S-8 (for the Incentive Plan),
and the registration statement (No. 333-61731) on Form S-8 (for the Employee
Stock Purchase Plan) of MeriStar Hotels & Resorts, Inc. of our report dated
February 1, 1999 relating to the consolidated balance sheets of MeriStar Hotels
& Resorts, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and owners' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998,
which report appears in the December 31, 1998 annual report on Form 10-K of
MeriStar Hotel & Resorts, Inc.
KPMG LLP
Washington, D.C.
March 22, 1999
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