SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934

Filed by the Registrant /X/

Filed by a Party other than the Registrant / /

Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as Permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

CAPSTAR HOTEL COMPANY
- --------------------------------------------------------------------------------
(Name of Registrant as specified in its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
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previously. Identify the previous filing by registration statement number,
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[LOGO]

1010 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20007

Dear Stockholder:

You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of CapStar Hotel Company (the "Company"), which will be held at the Embassy Row
Hilton Hotel, 2015 Massachusetts Avenue, N.W., Washington, D.C. 20036, on
Tuesday, May 13, 1997, at 10:00 a.m., Eastern Time. All holders of the Company's
outstanding common stock, par value $.01 per share, as of the close of business
on March 24, 1997, are entitled to vote at the Annual Meeting.

Enclosed for your information are copies of the Company's Proxy Statement
and Annual Report to Stockholders. We hope that you find these materials
informative.

We hope you will be able to attend the Annual Meeting. Whether or not you
expect to attend, you are urged to complete, sign, date and return the enclosed
proxy card in the enclosed envelope as promptly as possible in order to make
certain that your shares will be represented at the Annual Meeting.

/s/ PAUL W. WHETSELL

Paul W. Whetsell
PRESIDENT, CHIEF EXECUTIVE
OFFICER AND CHAIRMAN OF THE BOARD

[LOGO]

1010 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20007

---------------------------------------------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON TUESDAY, MAY 13, 1997

---------------------------------------------------

To the Stockholders of CAPSTAR HOTEL COMPANY:

Notice is hereby given that the 1997 Annual Meeting of Stockholders (the
"Annual Meeting") of CapStar Hotel Company (the "Company") will be held at the
Embassy Row Hilton Hotel, 2015 Massachusetts Avenue, N.W., Washington, D.C.
20036, on Tuesday, May 13, 1997 at 10:00 a.m., Eastern Time. The Annual Meeting
will be held for the following purposes:

1. To elect ten directors to serve until the next Annual Meeting and
until their successors have been duly elected and qualified;

2. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company for the fiscal year ending December 31, 1997; and

3. To transact such other business as may properly come before the
Annual Meeting and any adjournment thereof.

The Board of Directors has fixed the close of business on March 24, 1997, as
the record date for the determination of stockholders entitled to notice of and
to vote at the Annual Meeting or any adjournment thereof.

ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND IN PERSON, IT IS REQUESTED THAT YOU PROMPTLY
FILL IN, SIGN AND RETURN THE ENCLOSED PROXY CARD.

By Order of the Board of Directors

/s/JOHN EMERY

John Emery
SECRETARY

March 28, 1997

[LOGO]

1010 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20007

---------------------------------------

PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
TUESDAY, MAY 13, 1997

---------------------------------------

INTRODUCTION

The Board of Directors (the "Board of Directors" or the "Board") of CapStar
Hotel Company, a Delaware corporation (the "Company"), is soliciting proxies
from holders of the Company's common stock, par value $.01 per share (the
"Common Stock"), to be voted at the 1997 Annual Meeting of Stockholders (the
"Annual Meeting") to be held at the Embassy Row Hilton Hotel, 2015 Massachusetts
Avenue, N.W., Washington, D.C. 20036, on May 13, 1997 at 10:00 a.m. Eastern
Time, and at any adjournment thereof. This Proxy Statement and the enclosed
proxy are first being mailed to stockholders on or about March 28, 1997.

SOLICITATION AND REVOCABILITY OF PROXIES

The enclosed proxy is solicited on behalf of the Board of Directors for use
at the Annual Meeting. Any stockholder giving a proxy for the meeting has the
power to revoke it any time prior to its use by (i) granting a subsequently
dated proxy, (ii) attending the Annual Meeting and voting in person, or (iii)
otherwise giving notice in person or in writing to the Secretary of the Company.
If a proxy in the accompanying form is duly executed and returned, the shares
represented thereby will be voted at the Annual Meeting and, where a choice is
specified, the proxy will be voted in accordance with such specification. The
representation in person or by proxy of a majority of the shares entitled to
vote shall constitute a quorum at the Annual Meeting. Directors will be elected
by a plurality of the votes cast. With respect to the election of directors,
votes may be cast in favor or withheld. Votes that are withheld will be excluded
entirely from the calculation of votes and will have no effect. The affirmative
vote of a majority of the shares present in person or by proxy is required for
each of the other proposals. If a proxy card indicates an abstention or a broker
non-vote on a particular matter, then the shares represented by such proxy will
be counted for quorum purposes. If a quorum is present, an abstention will have
the effect of a vote against the matter and broker non-votes will have no
effect.

OUTSTANDING SHARES AND VOTING RIGHTS

Only holders of record of Common Stock at the close of business on March 24,
1997 shall be entitled to vote at the Annual Meeting. At the close of business
on March 24, 1997, the Company had 17,754,321 shares of Common Stock
outstanding.

PROPOSAL NO. 1
MANAGEMENT--ELECTION OF DIRECTORS

Properly executed proxies will be voted as marked and, if not marked, will
be voted in favor of the election of the persons named below as directors to
serve until the next Annual Meeting of Stockholders and until their successors
are duly elected and qualified. All of the nominees are currently directors of
the Company, except for Mahmood Khimji, who the Company has agreed to nominate
as a director in connection with the acquisition of a portfolio of six hotels
from Highgate Hotels, Inc. (the "Highgate Portfolio"). The Board of Directors
has no reason to believe that any nominee will be unable to serve if

elected. However, if the Company does not consummate the acquisition of the
Highgate Portfolio, Mr. Khimji will not stand for election as a director of the
Company. In the event any nominee shall become unavailable to stand for
election, the proxies named in the accompanying proxy may vote for the election
of a substitute nominee designated by the Board of Directors. Certain
information concerning such nominees is set forth below.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES IDENTIFIED BELOW. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED
EXCEPT WHERE AUTHORITY HAS BEEN WITHHELD. PROXIES CANNOT BE VOTED FOR MORE
PEOPLE THAN THE NUMBER OF NOMINEES NAMED BELOW.

NAME, PRINCIPAL OCCUPATION SERVED AS A
AND BUSINESS EXPERIENCE DIRECTOR SINCE AGE
- --------------------------------------------------------------------------------------------- --------------- ---

BRADFORD E. BERNSTEIN 1996 30

BRADFORD E. BERNSTEIN has served as a Principal and Vice President of Oak Hill Partners,
Inc., the investment advisor to several private investment funds (including Acadia Partners,
L.P.), since 1992. From 1991 until 1992, Mr. Bernstein worked at Patricof & Co. Ventures.
Prior to that, from 1989 to 1991, he worked at Merrill, Lynch & Co. Mr. Bernstein serves as a
director of Pinnacle Brands, Inc., Payroll Transfers, Inc. and Caliber Collision Centers,
Inc.

EDWARD T. BURTON, III 1996 54

EDWARD T. BURTON, III has served as President of Windermere Consulting Company since
April 1995 and Chairman of the Commonwealth of Virginia Retirement System since March 1997
and Trustee since 1994. From 1994 to April 1995, he served as Managing Director and a member
of the Board of Interstate Johnson Lane, Inc. Prior to that, from 1987 to 1993, he was
President of Rothschild Financial Services, Inc. Mr. Burton is a Visiting Professor of
Economics at the University of Virginia in Charlottesville, Virginia.

EDWARD L. COHEN 1996 51

EDWARD L. COHEN has served as an Executive Officer of Lerner Corporation, a real estate
management and leasing company located in Bethesda, Maryland, since 1985. Mr. Cohen is also a
Principal of Lerner Enterprises, a real estate development and investment company. Prior to
his participation with the Lerner organization, he was a lawyer in private practice in
Washington, D.C.

DANIEL L. DOCTOROFF 1996 38

DANIEL L. DOCTOROFF has been Managing Director of Oak Hill Partners, Inc., the investment
advisor to several private investment funds (including Acadia Partners, L.P.), and its
predecessor since August 1987; Vice President and Director of Acadia Partners MGP, Inc. since
March 1992; Vice President of Keystone, Inc. since March 1992; and a Managing Partner of
Insurance Partners Advisors, L.P. since February 1994. All of such entities are affiliates of
Acadia Partners. Mr. Doctoroff is also a Director of Bell & Howell Holdings Company, Kemper
Corporation and Specialty Foods Corporation.

NAME, PRINCIPAL OCCUPATION SERVED AS A
AND BUSINESS EXPERIENCE DIRECTOR SINCE AGE
- --------------------------------------------------------------------------------------------- --------------- ---

EDWARD P. DOWD 1996 54

EDWARD P. DOWD has served as a Senior Vice President of John Hancock Real Estate
Investment Group of John Hancock Financial Services since 1992. Prior to that, from 1970 to
1992, Mr. Dowd served in various capacities at John Hancock Realty. Mr. Dowd serves as
Director of John Hancock Realty Investors, Inc., John Hancock Realty Services Inc. and
Maritime Life Assurance Co.

WILLIAM S. JANES 1996 43

WILLIAM S. JANES has served as a Principal and Director of RMB Realty, Inc. since 1990.
Prior to that, from 1984 to 1989, Mr. Janes served as Regional General Partner of Lincoln
Property Company. Mr. Janes serves as a Director of Paragon Group, Inc., a publicly-traded
real estate investment trust, as well as Brazos Asset Management, Brazos Fund, Paragon
Property Services, Inc. and Carr Real Estate Services. Mr. Janes maintains professional
affiliations as a member of the National Association of Real Estate Investment Trusts, the
Society of Industrial and Office Realtors and the Urban Land Institute.

MAHMOOD KHIMJI N/A 36

MAHMOOD KHIMJI has served as Senior Vice President of Highgate Hotels, Inc., an owner and
operator of hotel and commercial properties throughout North America, since 1988. Prior to
that, from 1986 to 1988, Mr. Khimji was an associate at the law firm of Paul, Weiss, Rifkind,
Wharton & Garrison. Mr. Khimji serves as a Director of the Texas Hotel/Motel Association.

JOSEPH MCCARTHY 1996 64

JOSEPH MCCARTHY has been retired since 1994. From 1993 to 1994 he has served as Chairman
of the Board for Motel 6. From 1985 to 1993, he served as President and Chief Executive
Officer for Motel 6. From 1980 to 1985, he served as President and Chief Executive Officer of
Lincoln Hotels. From 1976 to 1980, he served as President and Chief Executive Officer of
Quality Inns International. Prior to that, from 1971 to 1976, he served as Senior Vice
President of the Sheraton Corporation.

DAVID E. MCCASLIN 1996 39

DAVID E. MCCASLIN has served as Chief Operating Officer of the Company since 1994. Mr.
McCaslin joined the Company in 1987 as a General Manager and was named Vice President of
Operations in 1988. From 1985 to 1987, Mr. McCaslin served as General Manager for Lincoln
Hotels. Prior to that, from 1979 to 1985, he worked for Westin Hotels in various capacities,
including Assistant General Manager, Rooms Division Manager and Food & Beverage Manager.

PAUL W. WHETSELL 1996 46

PAUL W. WHETSELL has served as President and Chief Executive Officer of the Company since
its founding in 1987. From 1981 to 1986, Mr. Whetsell served as Vice President of Development
for Lincoln Hotels in Dallas, Texas. Prior to that, from 1973 to 1981, Mr. Whetsell worked
for Quality Inns in various capacities in its franchise division, culminating in Vice
President of Franchise.

MANAGEMENT--THE BOARD OF DIRECTORS AND ITS COMMITTEES

During the four month period beginning on August 20, 1996, the date of the
Company's initial public offering (the "IPO"), the full Board met two times.
Each director attended all meetings of the Board held while he was a director
except Mr. Doctoroff was absent from one Board meeting.

BOARD COMMITTEES

The Board currently has three committees, an Audit Committee, a Compensation
Committee and an Investment Committee.

The Audit Committee consists of three directors who are not employees of the
Company ("Independent Directors"). The Audit Committee is responsible for making
recommendations concerning the engagement of independent auditors, reviewing
with the independent auditors the plans and results of the audit engagement,
approving professional services provided by the independent auditors, reviewing
the independence of the independent auditors, considering the range of audit and
non-audit fees and reviewing the adequacy of the Company's internal accounting
controls. During 1996, the Audit Committee met one time. The current members of
the Audit Committee are Messrs. Bernstein, Burton and Cohen.

The Compensation Committee consists of four Independent Directors. The
Compensation Committee is responsible for the determination of compensation of
the Company's executive officers and the administration of the Equity Incentive
Plan (as defined herein). The Compensation Committee met one time during 1996.
The current members of the Compensation Committee are Messrs. Bernstein,
Doctoroff, Janes and McCarthy.

The Investment Committee consists of the Chairman of the Board and three
Independent Directors. The Investment Committee is responsible for the review
and approval of investments proposed to be made by the Company. The Investment
Committee met four times during 1996. The current members of this committee are
Messrs. Doctoroff, Dowd, McCarthy and Whetsell.

The entire Board of Directors acts as the nominating committee for directors
and will consider nominations by stockholders for directors. The Board would be
pleased to receive suggestions from stockholders about persons it should
consider as possible members of the Board of Directors. Any such suggestion
should be mailed to the Secretary of the Company by December 31, 1997.

COMPENSATION OF DIRECTORS

Independent Directors are paid an annual fee of $12,000. In addition, each
Independent Director is paid $750 for attendance at each meeting of the Board
and $500 for attendance at each meeting of a committee of the Board of which
such director is a member. Directors who are employees of the Company do not
receive any fees for their service on the Board or a committee thereof. The
Company reimburses directors for their out-of-pocket expenses in connection with
their service on the Board. In connection with the IPO, each Independent
Director was granted options to purchase 5,000 shares of Common Stock at the IPO
price of $18 per share. On the date of the Company's Annual Meeting of
Stockholders beginning with the 1997 Annual Meeting, each Independent Director
will be granted options to purchase 5,000 shares of Common Stock at the then
current market price. All options granted to directors will vest in equal
installments over a three year period from the date of grant. Any Independent
Director who ceases to be a director will forfeit the right to receive any
options not previously vested or granted.

MANAGEMENT--THE EXECUTIVE OFFICERS

The names of the executive officers of the Company as of the date of this
Proxy Statement other than Messrs. Whetsell and McCaslin, who are also members
of the Board (see "--Election of Directors" above), their positions and offices,
business experience, terms of office and ages are as follows:

NAMES, POSITIONS AND OFFICES, SERVED AS AN EXECUTIVE
AND BUSINESS EXPERIENCE OFFICER SINCE AGE
- ------------------------------------------------------------------------------------- ----------------------- ---

JOHN EMERY 1995 32

JOHN EMERY has served as Treasurer and Secretary of the Company since March 1996.
From September 1995 to March 1996, he served as Director of Finance of the Company.
Prior to that, from January 1987 to September 1995, he worked for Deloitte & Touche
LLP in various capacities, culminating with Senior Manager for the hotel and real
estate industries.

ROBERT GAUTHIER 1993 43

ROBERT GAUTHIER has served as Senior Vice President, Operations of the Company
and General Manager of the Sheraton, Colorado Springs since 1996. From 1993 to 1996,
he served as Vice President, Operations for CapStar Management Company, L.P. Prior to
that, from 1987 to 1993, Mr. Gauthier served as Area Manager and General Manager for
Drexel Burnham Lambert Realty, Inc.

MICHAEL T. GEORGE 1995 38

MICHAEL T. GEORGE has served as Senior Vice President, Operations since 1995.
From 1990 to 1995, Mr. George served as Vice President of Operations and ultimately
as Chief Operating Officer for Devon Hotels Ltd. in Montreal. From 1989 to 1990, Mr.
George served as a General Manager and Vice President for Radisson Hotels
International, Inc. Prior to that, from 1986 to 1989, Mr. George served in various
capacities with Radisson Hotels, Hilton Hotels and Sheraton Hotels.

WILLIAM M. KARNES 1996 50

WILLIAM M. KARNES has served as Senior Executive Vice President, Finance and
Chief Financial Officer of the Company since April 1996. From 1994 to 1996, Mr.
Karnes served as Senior Vice President and Chief Financial Officer of Tucker
Properties Corporation, a publicly traded real estate investment trust. From 1991 to
1994, Mr. Karnes served as Senior Vice President Finance and Administration for
Banyan Management Corp., a company that provides management services for five public
real estate investment trusts and three master limited partnerships. Prior to that,
from 1989 to 1991, Mr. Karnes served as Chief Operating Officer of Miglin-Beitler,
Inc., a private real estate development, management and leasing firm.

D. SCOTT LIVCHAK 1990 42

D. SCOTT LIVCHAK has served as Senior Vice President, Operations since 1990. From
1985 to 1989, Mr. Livchak served as a General Manager for The Adam's Mark Hotel in
Washington, D.C., owned by HBE Corporation. From 1983 to 1985, Mr. Livchak worked for
the Sheraton Atlanta Hotel in the capacity of Resident Manager. From 1977 to 1983,
Mr. Livchak held various management positions with Sheraton Corporation.

JOHN E. PLUNKET 1993 41

JOHN E. PLUNKET has served as Executive Vice President, Finance and Development
since November 1993. From September 1991 to October 1993, Mr. Plunket served as Vice
President and Principal Broker for CIG International, an investment and hotel asset
management company. From February 1988 to August 1991, Mr. Plunket served as Managing
Director of Cassidy & Pinkard Inc., a commercial real estate services company. From
1985 to 1987, Mr. Plunket served as Senior Vice President for Oxford Development
Corporation. Prior to that, from December 1979 to April 1985, Mr. Plunket worked for
Marriott Corporation in various capacities, culminating in Director of Project
Finance.

EXECUTIVE COMPENSATION

The following table sets forth all compensation paid by the Company during
1996 with respect to the Chief Executive Officer and the four most highly
compensated executive officers (the "Named Executive Officers").

LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ -------------
OTHER ANNUAL OPTIONS
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION GRANTED
- ---------------------------------------------------- --------- ---------- --------- ------------- -------------

Paul W. Whetsell.................................... 1996 $ 215,081 $ -- $ 2,312 150,000
President, Chief Executive Officer
and Chairman of the Board
David E. McCaslin................................... 1996 179,748 30,000 2,312 87,500
Chief Operating Officer
and Director
John E. Plunket..................................... 1996 185,691 10,000 -- 73,129
Executive Vice President, Finance
and Development
William M. Karnes................................... 1996 154,549 30,000 -- 50,000
Senior Executive Vice President
and Chief Financial Officer
Michael T. George................................... 1996 132,000 13,000 20,500(1) 18,282
Senior Vice President, Operations

- ------------------------

(1) Represents moving expenses paid to Mr. George pursuant to an agreement with
the Company.

STOCK OPTION GRANTS

The following table sets forth certain information with respect to the
options granted to the Named Executive Officers during 1996.

OPTION GRANTS IN FISCAL YEAR 1996

POTENTIAL VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM (2)
OPTIONS TO EMPLOYEES IN OR EXPIRATION --------------------------
NAME GRANTED 1996 FISCAL YEAR BASE PRICE DATE 5% 10%
- -------------------------------- ----------- ----------------- ------------- ------------------ ------------ ------------

Paul W. Whetsell................ 150,000 20.1% $ 18 August 20, 2006 $ 1,698,015 $ 4,303,105
David E. McCaslin............... 87,500 11.7 18 August 20, 2006 990,509 2,510,144
John E. Plunket................. 73,129 9.8 18 August 20, 2006 827,828 2,097,878
William M. Karnes............... 50,000 6.7 18 August 20, 2006 566,005 1,434,368
Michael T. George............... 18,282 2.5 18 August 20, 2006 206,954 524,462

- ------------------------

(1) All of these options vest in equal installments over three years except
10,000 of the options granted to Mr. Plunket which vested immediately upon
their grant.

(2) In accordance with rules of the Securities and Exchange Commission, these
amounts are the hypothetical gains or "options spreads" that would exist for
the respective options based on assumed rates of annual compound stock price
appreciation of 5% and 10% from the date the options were granted over the
full option term.

COMPENSATION PLANS

MANAGEMENT BONUS PLAN. The Company has established a management bonus plan
(the "Management Bonus Plan") under which certain officers and employees of the
Company, including the Named Executive Officers, are eligible to receive cash
bonuses based upon the achievement of predetermined corporate and individual
goals. Bonuses awarded under the Management Bonus Plan may not exceed 100% of
the officer or employee's annual base salary. The Management Bonus Plan is
administered by the Compensation Committee.

STOCK PURCHASE PLAN. Each employee of the Company customarily employed at
least 20 hours or more per week by the Company or an affiliate (as defined in
the Company's stock purchase plan (the "Stock Purchase Plan")), other than an
employee who owns beneficially 5% or more of the outstanding Common Stock, is
eligible to participate in the Stock Purchase Plan. Under the Stock Purchase
Plan, participating employees may elect to authorize the Company to withhold a
minimum of $200 per quarter and a maximum of 8% or $25,000 (whichever is less)
of the participating employee's base pay, which amounts will be used to purchase
Common Stock from the Company on a monthly basis. The purchase price of Common
Stock will equal a designated percentage from 85% to 100% of the closing sales
price for Common Stock as reported on the Composite Transactions Tape of the
NYSE (except as described below) on the first trading day of the month or on the
last trading day of the month, whichever is less. The designated percentage will
be established annually by the Compensation Committee which is responsible for
the administration of the Stock Purchase Plan.

Common Stock purchased under the Stock Purchase Plan is held in custodial
accounts until sold or distributed at the participant's request. The custodian
may charge a fee for the execution of any such sale or for the delivery of share
certificates. The participant may not elect to purchase stock under the Stock
Purchase Plan for three months after a withdrawal or sale of Common Stock under
the Stock Purchase Plan. Shares purchased under the Stock Purchase Plan may not
be sold for six months after their purchase. Any cash dividends paid on Common
Stock held in a participant's account will be reinvested in additional Common
Stock (at 100% of fair market value). Non-cash distributions on Common Stock
held in a participant's account will be distributed to the participant.

The Company has reserved 500,000 shares of Common Stock for issuance under
the Stock Purchase Plan. Such shares may be from authorized and unissued shares,
treasury shares or a combination thereof. The Stock Purchase Plan will remain in
effect until terminated by the Board, or until all shares authorized for
issuance thereunder have been issued. The Stock Purchase Plan may be amended
from time to time by the Board. No amendment will increase the aggregate number
of shares of Common Stock that may be issued and sold under the Stock Purchase
Plan (except for authorizations pursuant to the anti-dilution provisions of the
Stock Purchase Plan) without further approval by the Company's shareholders.

EQUITY INCENTIVE PLAN. The Company's Equity Incentive Plan (the "Equity
Incentive Plan") is designed to attract and retain qualified directors, officers
and other key employees of the Company and its affiliates (as defined in the
Equity Incentive Plan). The Equity Incentive Plan authorizes the grant of
options to purchase shares of Common Stock ("Options"), stock appreciation
rights ("Appreciation Rights") and restricted shares ("Restricted Shares"). The
Compensation Committee administers the Equity Incentive Plan and determines to
whom Options, Appreciation Rights and Restricted Shares are to be granted and
the terms and conditions thereof, including the number of shares relating to
each award and the period of exercisability or restricted period, as the case
may be. Notwithstanding the foregoing, the Board may resolve to administer the
Equity Incentive Plan itself, in which case the term Compensation Committee
shall be deemed to mean the Board.

Subject to adjustment as provided in the Equity Incentive Plan, the number
of shares of Common Stock that may be issued or transferred and covered by
outstanding awards granted under the Equity Incentive Plan may not in the
aggregate exceed 1,740,000 shares. To the extent that an award is canceled,
terminates, expires or lapses for any reason without the payment of
consideration, any shares of Common Stock subject to the award will again be
available for the grant of awards. Common Stock subject to Appreciation Rights
that are settled in cash will thereafter be available for the grant of awards.
Common Stock issued under the Equity Incentive Plan may be from authorized and
unissued shares, treasury shares or a combination thereof. Awards may be granted
to directors, officers or other key employees of the Company or an affiliate, as
determined by the Compensation Committee.

In connection with the IPO, the Company granted certain executive officers
and other members of management options to purchase up to 745,254 shares of
Common Stock at the IPO price of $18 per share. Certain of these options were
exercisable immediately upon their grant, while the remaining options become
exercisable in three annual installments.

The Compensation Committee may grant Options at a per share price equal to,
greater than or less than fair market value of the Common Stock on the date of
grant. The exercisability of Options may be conditioned on continued service
and/or the achievement of specified performance objectives ("Management
Objectives"). Subject to adjustment as provided in the Equity Incentive Plan, no
participant shall be granted awards relating to more than 200,000 shares during
any calendar year. The Compensation Committee shall determine the method of
exercising options and the form of payment, which may include, without
limitation, cash, shares of Common Stock that are already owned by the optionee,
other property or "cashless exercise" arrangements. Any grant may provide for
automatic "reload option rights", except that the term of any reload options
shall not extend beyond the term of the Options originally exercised. The
Compensation Committee may specify at the time Options are granted that shares
of Common Stock will not be accepted in payment of the option price until they
have been owned by the optionee for a specified period; however, the Equity
Incentive Plan does not require any such holding period. Options granted under
the Equity Incentive Plan may be intended to qualify as "incentive stock
options" within the meaning of Section 422 of the of the Internal Revenue Code
of 1986, as amended (the "Code"), or Options that are not intended to so
qualify. No incentive stock option may be exercised more than ten years from the
date of grant. Each grant must specify the period, if any, of continuous service
with the Company or any affiliate that is necessary before the Options will
become exercisable and may provide for the earlier exercise of the Options in
the event of a change of control of the Company or other event. More than one
grant may be made to the same optionee.

Appreciation Rights granted under the Equity Incentive Plan may be either
free-standing Appreciation Rights or Appreciation Rights that are granted in
tandem with Options. An Appreciate Right represents the right to receive from
the Company the difference (the "Spread"), or a percentage thereof not in excess
of 100%, between the base price per share of Common Stock in the case of a
free-standing Appreciation Right, or the option price of the related Option
Right in the case of a tandem Appreciation Right, and the market value of the
Common Stock on the date of exercise of the Appreciation Right. Tandem
Appreciation Rights may only be exercised at a time when the related Option
Right is exercisable and the Spread is positive, and the exercise of a tandem
Appreciation Right requires the surrender of the related Option Right for
cancellation. A free-standing Appreciation Right must specify a base price,
which may be equal to, greater than or less than the fair market value of a
share of Common Stock on the date of grant, must specify the period of
continuous service that is necessary before the Appreciation Right becomes
exercisable (except that it may provide for its earlier exercise in the event of
a change in control of the Company or other event) and, in the case of an
Appreciation Right awarded in tandem with an incentive stock option, may not be
exercised more than ten years from the date of grant. Any grant of Appreciation
Rights may specify that the amount payable by the Company upon exercise may be
paid in cash, Common Stock or a combination thereof. In addition, any grant may
specify that an Appreciation Right may be exercised only in the event of a
change in control of the Company. The Compensation Committee may condition the
award of Appreciation Rights on continued service and/or the achievement of one
or more Management Objectives.

The Compensation Committee may award Restricted Shares to participants in
such amounts and subject to such terms and conditions as may be determined by
the Compensation Committee. The participant may be entitled to voting, dividend
and other ownership rights prior to the vesting of the shares. The Compensation
Committee may condition the vesting of an award on the achievement of specified
management objectives.

No Options, Appreciation Rights or other awards are transferable by a
participant except by will or the laws of descent and distribution. Options and
Appreciation Rights may not be exercised during a participant's lifetime except
by the participant or, in the event of the participant's incapacity, by the
participant's guardian or legal representative acting in a fiduciary capacity on
behalf of the participant under state law and court supervision.

In the event of certain stock dividends, stock splits, combinations of
shares, recapitalizations, mergers, consolidations, spin-offs, reorganizations,
liquidations, issuances of rights or warrants, and similar transactions or
events, the Compensation Committee, in its sole discretion, may adjust (i) the
maximum number of shares that may be issued or transferred under the Equity
Incentive Plan, (ii) the number of shares covered by outstanding awards, (iii)
the exercise price of outstanding options and (iv) base prices of outstanding
SARs. The Compensation Committee may also, as it determines to be appropriate in
order to reflect any such transaction or event, make or provide for such
adjustments in the number of shares that may be issued or transferred and
covered by outstanding awards granted under the Equity Incentive Plan and the
number of shares permitted to be covered by Options and Appreciation Rights
granted to any one participant during any calendar year.

In connection with its administration of the Equity Incentive Plan, the
Compensation Committee is authorized to interpret the Equity Incentive Plan,
related agreements and other documents. With the approval of the Board, the
Equity Incentive Plan may be amended from time to time by the Compensation
Committee but, without further approval by the shareholders of the Company, no
such amendment may (i) increase the total number of shares of Common Stock that
may be issued under the Equity Incentive Plan (except as otherwise provided in
the plan), (ii) modify the Equity Incentive Plan's eligibility requirements or
(iii) materially increase the benefits accruing to participants under the Equity
Incentive Plan.

EMPLOYMENT AGREEMENTS

Each of Paul Whetsell, David McCaslin, William Karnes and John Plunket are
parties to employment agreements with the Company which will expire on December
31, 1999. Mr. Whetsell's and Mr. McCaslin's agreements provide for automatic one
year extensions thereafter unless either the executive or the Company gives
notice to the other at least 120 days prior to the end of any such period that
he or it, as the case may be, does not wish to extend the agreement for an
additional period. The employment agreements provide for annual base salaries of
$225,000, in the case of Mr. Whetsell, $215,000, in the case of Mr. McCaslin and
Mr. Karnes, and $150,000, in the case of Mr. Plunket, subject, in each such
case, to periodic increases. Each executive will be eligible to receive annual
bonuses and will be entitled to participate in all existing or future plans for
the benefit of the Company's employees and management, on the same basis as
other senior executive officers of the Company.

Under the employment agreements of Messrs. Whetsell and McCaslin, each is
entitled to receive (i) a lump sum payment equal to the product of (a) his total
cash compensation for the previous fiscal year and (b) the greater of (1) the
number of full and fractional years remaining in the agreement and (2) the
number two, if his employment is terminated by the Company without Cause (as
defined below) or is terminated by the executive for Good Reason (as defined
below), or (ii) a lump sum payment equal to two times his total cash
compensation for the previous fiscal year if the Company elects not to extend
his contract for an additional year at the end of its initial term (which ends
December 31, 1999) or any subsequent term. The events constituting "Good Reason"
include the assignment to the executive of duties materially inconsistent with
his position and a material breach of the employment agreement by the Company.
As used in the employment agreements of Messrs. Whetsell and McCaslin, the term
"Cause" includes (i) the executive's willful and intentional failure or refusal
to perform or observe any of his material duties set forth in his employment
agreement, if such breach is not cured within 30 days of notice from the
Company; (ii) any willful and intentional act of the executive involving theft,
fraud, embezzlement or dishonesty affecting the Company; and (iii) the
executive's conviction of an offense which is a felony in the jurisdiction
involved. Messrs. Whetsell's and McCaslin's employment agreements also provide
that if (i) the executive elects to terminate his employment within six months
of a Change in Control (as defined below) of the Company or (ii) within one year
of any such change in control, the executive is terminated without Cause or the
executive terminates his employment for Good Reason, the executive is entitled
to receive a lump sum payment equal to the product of (a) his total cash
compensation for the previous fiscal year and (b) the greater of (1) the number
of full and fractional years remaining in the agreement and (2) the number
three. As used in the employment agreements of Messrs. Whetsell and McCaslin,
the term "Change in Control" means the occurrence of one of the following
events: (i) any person or entity other than Acadia Partners becoming beneficial
owner of greater than 35% of the Common Stock; (ii) the Company adopts a plan of
liquidation; (iii) the Company merges or combines with another company and,
immediately thereafter, the stockholders of the Company prior to the merger or
combination hold 50% or less of the Common Stock; (iv) the Company sells all or
substantially all of its assets; or (v) the Company ceases to act as general
partner of CapStar Management. Amounts received by the executive upon
termination of employment will increase to compensate the executive for any
excise tax payable by him under the Code. These employment agreements prohibit
the executives from using or disclosing any confidential information about the
Company and its operations for a period of three years after the term of
employment and from engaging in any competitive hotel business for a period of
one year after the term of employment.

Under the employment agreements of Messrs. Karnes and Plunket, each is
entitled to receive a lump sum payment equal to his annual base salary for the
greater of one year or the remaining unexpired term of employment, if his
employment is terminated by the Company without Cause (as defined below). Each
of these executives will be entitled to receive his annual base salary for a
period of two years if his employment is terminated by the executive as a result
of the occurrence of a Material Adverse Change (as defined below) or likely
occurrence of a Material Adverse Change following a Change in Control (as

defined below). The events constituting "Cause" under the employment agreements
of Messrs. Karnes and Plunket include: (i) the executive's inability to perform
his duties under the agreement for more than a 120-day period, whether or not
continuous, during any 365-day period; (ii) acts of willful misfeasance or gross
negligence in connection with the executive's employment; (iii) the executive's
conviction of (or plea of no contest to) an offense which is a felony in the
jurisdiction involved; (iv) repeated failure, after written notice thereof, by
the executive to perform any of his duties under the employment agreement; and
(v) a breach of a specific provision of the employment agreement and, if such
breach is curable, failure to cure same within 30 days of written notice
thereof. As used in the employment agreements of Messrs. Karnes and Plunket, the
term "Change in Control" means: any person or entity, other than Acadia
Partners, becoming beneficial owner of greater than 35% of the Common Stock, so
long as no Change in Control will be deemed to have occurred if the executive
continues to report to Paul W. Whetsell. As used in the employment agreements of
Messrs. Karnes and Plunket, the term "Material Adverse Change" means a material
reduction or material adverse change in the executive's working conditions if,
after such reduction or change, the executive's authority or working conditions
are not commensurate with those of executives holding chief financial officer
positions at companies comparable to the Company in the lodging industry.

COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION

The Company's executive compensation program provides competitive levels of
compensation designed to integrate pay with the Company's annual and long-term
performance goals. Underlying this objective are the following concepts:
supporting an individual pay-for-performance policy that differentiates
compensation levels based on corporate and individual performance; motivating
key senior officers to achieve strategic business objectives and rewarding them
for that achievement; providing compensation opportunities which are competitive
to those offered in the marketplace, thus allowing the Company to compete for
and retain talented executives who are critical to the Company's long term
success; and, aligning the interest of executives with the long-term interests
of the Company's stockholders.

In the interest of balancing all key stockholder interests, the Compensation
Committee believes that the compensation of the executive officers of the
Company, along with the compensation of other officers, should be comprised of a
combination of base salary, short-term annual incentive bonus under the
Management Bonus Plan and long-term stock options under the Equity Incentive
Plan. While these elements are balanced in total in comparison to other
comparable organizations, the Compensation Committee believes that potential
compensation in the form of performance-related variable compensation should be
emphasized. Variable compensation will be both short-term and long-term based.
The resulting total package has been designed to reward officers for the
creation of long-term stockholder value in excess of other comparable
organizations.

BASE SALARY

In determining the appropriate amount of fixed base pay for officers, the
Compensation Committee compared the officers' base salaries with those paid to
other executives in the hotel industry.

INCENTIVE BONUS

Under the Management Bonus Plan, certain officers and employees of the
Company are eligible to receive cash bonuses upon fulfillment of predetermined
corporate and individual goals. Each of the executive officers received bonuses
for fiscal 1996 in accordance with the terms of a previously existing bonus
plan. Annual bonus payouts in 1997 to other officers will range up to 100% of
base salary, in accordance with the Management Bonus Plan. Full bonus payouts
will be made only if the Company's performance goals are exceeded. Bonuses will
not be available if minimum performance goals are not met.

STOCK OPTIONS

Stock options, stock appreciation rights and restricted shares are granted
to officers and other key employees of the Company under the Equity Incentive
Plan as incentives to promote long-term growth and to increase stockholder
value. The Compensation Committee believes that the grant of options focuses
attention on managing the Company from the perspective of an owner with an
equity stake in the business. The Company granted certain executive officers and
other members of management options to purchase up to 745,254 shares of Common
Stock. All options granted were at the fair market value as of the date of
grant, which was the IPO price of $18 per share. Since the value of an option
bears a direct relationship to the Company's stock price, it serves as an
effective long-term incentive, which is highly compatible with the interests of
stockholders, and is therefore an important element of the Company's
compensation policy.

CHIEF EXECUTIVE OFFICER COMPENSATION

Mr. Whetsell's compensation as Chairman of the Board and Chief Executive
Officer for 1996 was $215,081 per year, which is below comparable compensation
for other chief executive officers in the hotel industry. This compensation was
established by the Compensation Committee. Mr. Whetsell's compensation for 1997
will be $250,000 per year, which will continue to be below other chief executive
officers in the hotel industry. This compensation was established by the
Compensation Committee. See "Management-- The Executive Officers--Employment
Agreements."

TAX DEDUCTIBILITY OF COMPENSATION

Section 162(m) of the Code, generally limits the deductibility on the
Company's tax return of compensation over $1 million to any of the officers of
the Company unless the compensation is paid pursuant to a plan which is
performance-related, non-discriminatory and has been approved by the Company's
stockholders. The Compensation Committee's policy with respect to Section 162(m)
is to make every reasonable effort to ensure that compensation is deductible to
the extent permitted, while simultaneously providing the Company's officers with
appropriate rewards for their performance. The Company did not pay any
compensation during 1996 that would be subject to Section 162(m).

THE COMPENSATION COMMITTEE
Bradford E. Bernstein
Daniel L. Doctoroff
William S. Janes
Joseph McCarthy

PERFORMANCE GRAPH

The following graph compares the cumulative annual return of the Common
Stock since August 20, 1996, the date of the IPO, with the cumulative total
return of the New York Stock Exchange Market Value Index and the Company's peer
group (the "Peer Group") index over the same period, assuming an initial
investment of $100 on August 20, 1996, with all dividends reinvested. The Peer
Group consists of Bristol Hotel Company, Interstate Hotels Company, John Q.
Hammons Hotels Company, Prime Hospitality Corporation and Servico Inc. The
Company believes that the Peer Group represents the Company's principal
competitors in the hotel ownership and management segment of the hospitality
industry. In addition, the Peer Group is comprised of publicly traded Companies
whose market capitalizations and principal lines of business are comparable to
those of the Company.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

08/20/96 09/30/96 12/31/96

CapStar Hotel Company $ 100.00 93.75 109.03
Peer Group Index $ 100.00 104.52 108.89
NYSE Market Index $ 100.00 104.66 111.89

CapStar Hotel Company
Peer Group Index
NYSE Market Index

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ACQUISITIONS

In March 1996, the Company acquired The Latham Hotel in Washington, D.C. for
a purchase price of $12,000,000 from LCP Hotel Ventures, L.P. ("LCP"). At the
time of the acquisition, the general partner of LCP was Latham Hotels, Inc.
("LHI"), a corporation owned 80% by Paul W. Whetsell, President and Chief
Executive Officer of the Company, and 10% by David E. McCaslin, Chief Operating
Officer of the Company. Including their interests in LHI, Mr. Whetsell and Mr.
McCaslin owned, directly or indirectly, 9.18% and 0.52%, respectively, of the
beneficial interest in LCP and received $763,000 and $42,000, respectively, of
the net proceeds of the purchase price paid to LCP. The purchase price for The
Latham Hotel was determined through arm's-length negotiations between the
Company, on the one hand, and representatives of the holders of the majority of
the beneficial interests in LCP, on the other hand; such representatives are not
affiliated with the Company.

Since November 1995, the Company has acquired 85.2% of the limited
partnership interests in the partnership ("Atlanta Partners") that owns the
Westin Atlanta Airport. In November 1995, the Company acquired, for a purchase
price of $56,000, the 1% general partnership interest in Atlanta Partners
previously held by a corporation in which E. Robert Roskind owned an equity
interest ("LHP"). At the time of such acquisition, Mr. Roskind was a principal
of both CapStar Management Company, L.P. (one of

the Company's predecessor entities, which now functions as the Company's
subsidiary operating partnership, "CapStar Management") and EquiStar Hotel
Investors, L.P. (one of the Company's predecessor entities, "EquiStar"). LHP was
also paid a fee of $893,000 in connection with the acquisition of the
partnership interests in Atlanta Partners, and is entitled to an additional
$161,000 upon the ultimate disposition of Atlanta Partners. The LCP Group, L.P.,
in which Mr. Roskind owns an equity interest is entitled to an annual fee of
$30,000 for providing certain administrative services relating to the outside
limited partners of the Westin Atlanta Airport. All of the compensation paid or
payable to affiliates of Mr. Roskind in connection with the Westin Atlanta
Airport transaction was negotiated between Mr. Roskind, on the one hand, and
other principals of EquiStar, on the other hand, who believed the compensation
to have been at fair market value. Mr. Roskind is no longer associated with the
Company.

OWNERSHIP INTERESTS IN CERTAIN MANAGED HOTELS

Mr. Whetsell and Mr. McCaslin and corporations owned by them own, directly
or indirectly, (i) a leasehold interest, expiring on December 31, 2001, in two
of the hotels which the company manages for third party owners (the "Managed
Hotels") and (ii) minority equity interests in eight of the Managed Hotels. Mr.
Whetsell and Mr. McCaslin exercise management control over the entities that own
four of these Managed Hotels (the "Affiliated Owners") through their ownership
of certain entities which serve as general partners of the Affiliated Owners.
Such interests were acquired prior to the formation of CapStar Management and
EquiStar. During 1996, the Company received approximately $824,070 in management
fees from those Managed Hotels in which Messrs. Whetsell and McCaslin own an
equity interest, including approximately $554,896 in management fees from the
Affiliated Owners. Under the terms of their employment agreements, Messrs.
Whetsell and McCaslin are prohibited from hereafter acquiring any interests in
hotels or hotel management companies while they serve as officers of the
Company. See "The Executive Officers--Employment Agreements."

INDEBTEDNESS OF CERTAIN MEMBERS OF MANAGEMENT

In connection with the initial formation and capitalization of EquiStar,
CapStar Management made loans to certain directors and executive officers of the
Company, which loans were used to make capital contributions to EquiStar. Such
loans were made from August 1995 through April 1996 and bore interest at the
prime rate through December 31, 1995 and at a rate of 1.5% above the prime rate
thereafter. The largest aggregate amounts of the loans to such directors and
executive officers outstanding at any time (where such aggregate amount exceeded
$60,000) were $300,000 to Mr. Whetsell and $147,500 to Mr. McCaslin. All such
loans were repaid in September 1996.

SUBORDINATED DEBT

One member of the syndicate of lenders of the Company's $50 million of
subordinated indebtedness is Oak Hill Securities Fund, L.P. ("Oak Hill
Securities"). The investment advisor to Oak Hill Securities is Oak Hill
Advisors, Inc., one of the principal stockholders of which is Daniel L.
Doctoroff, a director of the Company. Mr. Doctoroff is also a principal
stockholder of Oak Hill Partners which is the investment advisor to Acadia
Partners, L.P., a principal stockholder of the Company. The Company has borrowed
an aggregate of $25 million from Oak Hill Securities. See "Principal
Stockholders."

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of March 24, 1997 by (i) all persons known by the
Company to own beneficially more than 5% of the Common Stock, (ii) each director
who is a stockholder, (iii) each of the Named Executive Officers, and (iv) all
directors and executive officers as a group.

SHARES BENEFICIALLY
OWNED
--------------------------
NAME & ADDRESS OF BENEFICIAL OWNER NUMBER PERCENTAGE
- ------------------------------------------------------------------------------------------ --------- ---------------

Acadia Partners, L.P.(1)................................................................ 1,426,102 8.0%
RCM Capital Management, L.L.C.(2)....................................................... 1,424,500 8.0
LaSalle Advisors Limited Partnership and ABKB/LaSalle
Securities Limited Partnership(3)..................................................... 1,154,700 6.5
Franklin Resources, Inc.(4)............................................................. 987,500 5.6
Paul W. Whetsell(5)..................................................................... 970,503 5.5
David E. McCaslin(6).................................................................... 472,236 2.7
John E. Plunket(6)...................................................................... 462,729 2.6
William M. Karnes(7).................................................................... 0 --
John Emery(7)........................................................................... 0 --
Michael T. George(7).................................................................... 0 --
D. Scott Livchak(7)..................................................................... 0 --
Robert Gauthier(7)...................................................................... 0 --
Daniel L. Doctoroff(7).................................................................. 0 --
Bradford E. Bernstein(7)................................................................ 0 --
William S. Janes(7)..................................................................... 0 --
Joseph McCarthy(7)...................................................................... 0 --
Edward L. Cohen......................................................................... 0 --
Edwin T. Burton, III.................................................................... 0 --
Edward P. Dowd.......................................................................... 0 --
All directors and executive officers as a group (15 persons)............................ 980,010 5.5%

- --------------------------
(1) The business address of Acadia Partners, L.P. is 201 Main Street, Suite
3100, Fort Worth, TX 76102. Includes 1,373,034 shares owned by Acadia
Partners, L.P. and 53,068 shares owned by Cherwell Investors, Inc.
("Cherwell"), a wholly owned subsidiary of Acadia Partners. The general
partner of Acadia Partners, L.P. is Acadia FW Partners, L.P., the managing
general partner of which is Acadia MGP, Inc. ("Acadia MGP"). J. Taylor
Crandall is the sole stockholder of Acadia MGP and may be deemed to
beneficially own the shares owned by Acadia Partners, L.P. and Cherwell. In
addition, Mr. Crandall is the sole stockholder of each of PTJ, Inc. ("PTJ")
and Group 31, Inc. ("Group 31"). PTJ is the managing general partner of PTJ
Merchant Banking Partners, L.P., which is the general partner of Penobscot
Partners, L.P. ("Penobscot"), which together with MC Investment Corporation
("MC Investment"), Penobscot's wholly owned subsidiary, owns 275,299 shares.
Group 31 is the general partner of FWHY Coinvestments VIII Partners, L.P.
("FWHY"), which owns 406,702 shares. As a result of his ownership of PTJ and
Group 31, Mr. Crandall may also be deemed to beneficially own the 732,951
shares owned by Penobscot, MC Investment and FWHY, which shares are not
included in the number of shares set forth as being owned by Acadia
Partners, L.P. in the Principal Stockholders chart, above. The number of
shares set forth as being owned by Acadia Partners, L.P. in the Principal
Stockholders chart above also excludes 406,701 shares held by OHP EquiStar
Partners, L.P. ("OHP") and OHP EquiStar Partners II, L.P. ("OHP II"). Oak
Hill Partners, Inc. ("Oak Hill Partners"), which is the investment advisor
to Acadia Partners, L.P., is the general partner of each of OHP and OHP II.

(2) The business address of RCM Capital Management, L.L.C. ("RCM Capital") is
Four Embarcadero Center, Suite 2900, San Francisco, CA 94111. The Managing
Agent of RCM Capital is RCM Limited L.P. ("RCM Limited"). The General
Partner of RCM Limited is RCM General Corporation ("RCM General"). As such,
RCM Limited and RCM General may be deemed to beneficially own such shares
within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934,
as amended ("Rule 13d-3"). In addition, RCM Capital is a wholly-owned
subsidiary of Dresdner Bank AG ("Dresdner"). As such, Dresdner Bank also may
be deemed to beneficially own the shares held by RCM Limited.

(3) The business address of La Salle Advisors Limited Partnership and
ABKB/LaSalle Securities Limited Partnership (collectively, the "LaSalle
Partnerships") is 11 South LaSalle Street, Chicago, IL 60603. The LaSalle
Partnerships are registered investment advisors and may be deemed to
beneficially own such shares within the meaning of Rule 13d-3. William K.
Morrill, Jr. and Keith R. Pauley are employees of the LaSalle Partnerships
and, in such capacity, also may be deemed to beneficially own such shares
within the meaning of Rule 13d-3.

(4) The business address of Franklin Resources, Inc. ("FRI") is 777 Mariners
Island Blvd., San Mateo, CA 94404. Such shares are owned by one or more open
or closed-ended investment companies or other managed accounts

which are advised by direct or indirect advisory subsidiares of FRI. Such
advisory subsidiaries may be deemed to beneficially own such shares within
the meaning of Rule 13d-3. Charles B. Johnson and Rupert H. Johnson, Jr.
each own in excess of 10% of FRI and, as such, also may be deemed to own
such shares held, directly or indirectly, by FRI within the meaning of Rule
13d-3.

(5) Includes shares held by entities over which Mr. Whetsell has beneficial
ownership within the meaning of Rule 13d-3.

(6) Includes shares held by entities over which Messrs. McCaslin and Plunket
have beneficial ownership within the meaning of Rule 13d-3.

(7) Such individuals own interests in entities which own shares of Common Stock,
but these individuals do not have beneficial ownership of such shares of
Common Stock within the meaning of Rule 13d-3.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires directors and executive officers
of the Company, and persons who own more than 10% of the issued and outstanding
shares of Common Stock, to file reports of beneficial ownership and changes in
beneficial ownership with the Securities and Exchange Commission ("SEC").
Directors, executive officers and greater than 10% stockholders are required by
SEC regulation to furnish the Company copies of all Section 16(a) forms they
file.

Based on a review of the copies of the forms furnished to the Company or
representations by reporting persons, all of the filing requirements applicable
to its officers, directors and greater than 10% stockholders were met for fiscal
year 1996.

PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

At the Annual Meeting, the stockholders will vote on the ratification of the
appointment of KPMG Peat Marwick LLP, certified public accountants, as
independent auditors to audit the accounts of the Company and its subsidiaries
for the fiscal year ended December 31, 1997. A representative of KPMG will be
present at the Annual Meeting and will have an opportunity to make a statement
if he desires. He will be available to answer appropriate questions.

THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF THE INDEPENDENT AUDITORS.

MISCELLANEOUS

PROXY SOLICITATION

The cost of soliciting proxies will be borne by the Company. In addition to
soliciting proxies by mail, directors, executive officers and employees of the
Company, without receiving additional compensation, may solicit proxies by
telephone, by telegram or in person. Arrangements will also be made with
brokerage firms and other custodians, nominees and fiduciaries to forward
solicitation materials to the beneficial owners of shares of the Common Stock,
and the Company will reimburse such brokerage firms and other custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection with forwarding such materials.

ANNUAL REPORT

The Annual Report of the Company, including financial statements for the
fiscal year ended December 31, 1996, is being forwarded to each stockholder with
this Proxy Statement.

STOCKHOLDER'S PROPOSALS FOR NEXT ANNUAL MEETING

If any stockholder of the Company intends to present a proposal for
consideration at the next Annual Meeting of Stockholders and wishes to have such
proposal in the proxy statement and form of proxy

distributed by the Board of Directors with respect to such meeting, such
proposal must be received at the Company's principal executive offices, 1010
Wisconsin Avenue, N.W., Washington, D.C. 20007, Attention: John Emery,
Secretary, no later than December 15, 1997. In addition, any stockholder
intending to present a proposal for consideration at the next Annual Meeting of
Stockholders must also comply with certain provisions of the Company's current
Certificate of Incorporation and By-Laws.

OTHER MATTERS

The Board does not know of any business to be presented for consideration at
the Annual Meeting or any adjournment thereof other than as stated in the Notice
of Annual Meeting of Stockholders. The affirmative vote of the holders of a
majority of the shares of Common Stock represented at the Annual Meeting or any
adjournment thereof and actually voted would be required with respect to any
such other matter that is properly presented and brought to a stockholder vote.

/s/ JOHN EMERY

John Emery
SECRETARY

March 28, 1997

COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE COMPANY'S FISCAL YEAR
ENDED DECEMBER 31, 1996 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE PROVIDED TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO JOHN
EMERY, SECRETARY, CAPSTAR HOTEL COMPANY, 1010 WISCONSIN AVENUE, N.W.,
WASHINGTON, D.C. 20007.

DETACH HERE
P R O X Y

CAPSTAR HOTEL COMPANY

1010 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20007

SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS

The undersigned hereby appoints Paul W. Whetsell, David M. McCaslin and
William M. Karnes, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated on the reverse side, all
shares of common stock of CapStar Hotel Company (the "Company") held of record
by the undersigned on March 24, 1997 at the Annual Meeting of Stockholders to be
held on May 13, 1997 and any adjournments thereof.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL.

PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE NO POSTAGE IS REQUIRED IF MAILED IN TH UNITED STATES.

CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE

Dear Stockholder:

Please take note of the important information enclosed in this
mailing. There are a number of issues related to the operation of the Company
that require your immediate attention.

Your vote counts, and you are strongly encouraged to exercise your
right to vote your shares.

Please mark the boxes on the proxy card to indicate how your shares
will be voted. Then sign the card, detach it and return your proxy in the
enclosed postage paid envelope.

Thank you in advance for your prompt consideration of these matters.

Sincerely,

CAPSTAR HOTEL COMPANY

DETACH HERE

/X/ Please mark votes as in this example

1. Election of Directors 2. Ratify the appointment of
Nominees: Bradford E. Bernstein, KPMG Peat Marwick LLP
Edward T. Burton, III, Edward L. as independent auditors.
Cohen, Daniel L. Doctoroff, Edward for against abstain
P. Dowd, William S. Janes, Mahmood / / / / / /
Khimji, Joseph McCarthy, David E.
McCaslin and Paul W. Whetsell
for withheld 3. In their discretion, the
/ / / / proxies are authorized to
vote upon any other
business that may
properly come before the
meeting.

/ /
- --------------------------------------
For all nominees except as noted above

/ / Mark here for address
change change and note at
left.

Please sign exactly as name
appears hereon. Joint owners
should each sign. Executors,
administrators, trustees,
guardians or other fiduciaries
should give full title as
such. If signing for a
corporation, please sign in
full corporate name by a duly
authorized officer.