INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
FILED PURSUANT TO RULE 424(B)(5)
REGISTRATION NO. 333-34253
SUBJECT TO COMPLETION, DATED SEPTEMBER 22, 1997
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 10, 1997)
5,273,518 SHARES
[LOGO]
COMMON STOCK
----------------
Of the 5,273,518 shares of common stock, par value $.01 per share (the
"Common Stock") offered hereby, 4,000,000 are being sold by the Company and
1,273,518 are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Selling Stockholders." The Common Stock is listed on the
New York Stock Exchange ("NYSE"), under the symbol "CHO." On September 19, 1997,
the last reported sale price of the Common Stock was $36 1/4.
---------------------
Concurrent with this offering of Common Stock by the Company (the "Equity
Offering"), the Company is offering $125,000,000 aggregate principal amount of
its % convertible subordinated notes due 2004 (the "Convertible Notes")
(excluding an additional $18,750,000 principal amount if the Underwriters'
over-allotment option is exercised in full) by a separate prospectus supplement
(the "Convertible Notes Offering" and, together with the Equity Offering, the
"Offerings"). The consummation of the Equity Offering is not contingent upon the
consummation of the Convertible Notes Offering or vice versa.
-------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING ON PAGE 4
OF THE ACCOMPANYING PROSPECTUS.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
Per Share.......................... $ $ $
Total(3)........................... $ $ $
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
791,027 additional shares on the same terms and conditions as set forth
above solely to cover over-allotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Company will be $ , $ and $ . See
"Underwriting."
-------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, to withdrawal, cancellation or modification of the offer without
notice, to delivery to and acceptance by the Underwriters and to certain further
conditions. It is expected that delivery of the shares will be made at the
offices of Lehman Brothers Inc., in New York, New York on or about ,
1997.
-------------------
LEHMAN BROTHERS
BT ALEX. BROWN
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
-------------------
, 1997.
[PHOTOGRAPHS/MAPS AND CAPTIONS]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK PRIOR TO THE
PRICING OF THIS OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON
STOCK, THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING THE PRICING OF THIS
OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE
PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES
HEREIN TO "CAPSTAR" OR THE "COMPANY" INCLUDE CAPSTAR HOTEL COMPANY AND ITS
SUBSIDIARIES (INCLUDING THE COMPANY'S SUBSIDIARY OPERATING PARTNERSHIPS, THROUGH
WHICH THE COMPANY OPERATES ALL OF ITS BUSINESSES).
THE COMPANY
CapStar Hotel Company is a leading owner and manager of upscale,
full-service hotels in the United States and Canada. CapStar currently owns
and/or manages 69 hotels which contain 15,449 rooms (the "Hotels"). Of the
Hotels, the Company owns and manages 41 upscale, full-service hotels which
contain 10,521 rooms (the "Owned Hotels") and manages an additional 28 hotels
owned by third parties which contain 4,928 rooms (the "Managed Hotels"). The
Owned Hotels are located in major metropolitan areas or rapidly growing
secondary cities and are well-located within these markets. The Owned Hotels
include hotels operated under nationally recognized brand names such as
Hilton-Registered Trademark-, Sheraton-Registered Trademark-,
Westin-Registered Trademark-, Marriott-Registered Trademark-,
Doubletree-Registered Trademark- and Embassy Suites-Registered Trademark-. The
Company's business strategy is to opportunistically acquire hotel properties
with the potential for cash flow growth and to renovate, reposition and operate
each hotel according to a business plan specifically tailored to the
characteristics of the hotel and its market.
CapStar is one of the fastest growing owner/operators of upscale,
full-service hotels in North America, having more than tripled its hotel
portfolio since its initial public offering in August 1996 (the "IPO"). Since
June 30, 1997, the Company has continued to expand its portfolio by completing
the purchase of nine upscale, full-service hotels containing 2,481 rooms for an
aggregate purchase price, including planned initial renovations (the
"Acquisition Cost"), of $248.0 million. Additionally, the Company has entered
into an agreement with affiliates of Medallion Hotels, Inc. ("Medallion Hotels")
to acquire a portfolio of six upscale, full-service hotels containing 1,960
rooms (the "Medallion Portfolio") for an Acquisition Cost of $167.5 million,
consisting of a purchase price of $150.0 million and proposed renovations of
$17.5 million. The Company has also entered into two contracts and a letter of
intent to acquire three additional hotels containing 556 rooms for an
Acquisition Cost of $58.1 million (the "Additional Acquisitions"). The Company
believes that its acquisitions represent attractive investment opportunities
because (i) they are located in major metropolitan or growing secondary markets
and are well-located within these markets, (ii) they were acquired at
significant discounts to replacement cost, and (iii) they have attractive
current returns and potential for significant revenue and cash flow growth
through implementation of the Company's operating strategy.
As a fully integrated owner and manager, CapStar intends to capitalize on
its management experience and expertise by continuing to make opportunistic
acquisitions of full-service hotels, securing additional management contracts
and improving the operating performance of the Hotels. The Company's senior
management team, with an average of 19 years of lodging industry experience, has
successfully managed hotels in all segments of the lodging industry, with
particular emphasis on upscale, full-service hotels. Since the inception of the
Company's management business in 1987, the Company has achieved consistent
revenue and portfolio growth, even during periods of relative industry weakness.
The Company attributes its management success to its ability to analyze each
hotel as a unique property and identify those particular cash flow growth
opportunities which each hotel presents. The Company's principal operating
objectives are to generate higher revenue per available room ("RevPAR"), to
increase average daily rates ("ADR") and to increase net operating income while
providing its hotel guests with high-quality service and value.
In addition to the acquisition or proposed acquisition of hotels, since the
IPO, the Company has invested in two joint ventures and, including the
management contract associated with these joint ventures, the Company has
entered into ten new long-term management agreements. The Company expects to
form additional joint ventures and strategic alliances with institutional and
private hotel owners to invest in future acquisitions, and to secure additional
fee management arrangements. See "Special Note Regarding Forward-Looking
Statements."
S-1
The Company believes that the upscale, full-service segment of the lodging
industry is the most attractive segment in which to own, manage and acquire
hotels and further believes that there are currently many attractive
opportunities to acquire properties in this segment of the industry at prices
below replacement cost. The upscale, full-service segment is attractive for
several reasons. First, the Company expects that there will be no significant
increases in the supply of upscale, full-service hotels in the next several
years because the cost of new construction generally does not justify new hotel
development. Second, upscale, full-service hotels appeal to a wide variety of
customers, thus reducing the risk of decreasing demand from any particular
customer group. Additionally, such hotels have particular appeal to both
business executives and upscale leisure travelers, customers who are generally
less price sensitive than travelers who use limited-service hotels. Finally,
full-service hotels require a greater depth of management expertise than
limited-service hotels, and the Company believes that its superior management
skills provide it with a significant competitive advantage in their operation.
RECENT DEVELOPMENTS
RECENT ACQUISITIONS
Since June 30, 1997, the Company has completed the purchase of nine upscale,
full-service hotels containing 2,481 rooms for an Acquisition Cost of $248.0
million. These nine hotels are located in cities such as: Austin, Texas;
Chicago, Illinois; Palm Springs, California; Philadelphia, Pennsylvania; and
Washington, D.C.
The Company has entered into an agreement with Medallion Hotels to acquire
the Medallion Portfolio for an Acquisition Cost of $167.5 million, consisting of
a purchase price of $150.0 million and proposed renovations of $17.5 million.
The Medallion Portfolio consists of six upscale, full-service hotels with 1,960
rooms, located in cities such as Austin, Texas, Dallas, Texas, Houston, Texas,
Louisville, Kentucky and Oklahoma City, Oklahoma. Two of the hotels are operated
under the Hilton flag, three are operated as Medallion hotels and one is
operated as an independent hotel. One of the hotels includes a contiguous
83-room limited-service hotel. Consistent with its operating strategy, the
Company is evaluating conditions in each hotel's local market and intends to
affiliate certain of the Medallion hotels with upscale national franchises upon
consummation of the acquisition. For a description of the hotels in the
Medallion Portfolio, see "--The Properties."
The Company has also entered into two contracts and a letter of intent to
acquire the Additional Acquisitions, including: the 204-room Embassy Suites
Tucson International Airport in Tucson, Arizona, for an Acquisition Cost of
$14.7 million, the 151-room Detroit Metro Airport Hilton Suites in Detroit,
Michigan, for an Acquisition Cost of $15.9 million and the 201-room Governor
Morris Hotel & Conference Center in Morristown, New Jersey, for an Acquisition
Cost of $27.5 million. The Company also intends to affiliate the Governor Morris
Hotel & Conference Center with an upscale national franchise upon consummation
of the acquisition.
FINANCING ACTIVITIES
In July 1997, the Company entered into a $450.0 million senior secured
credit facility (the "1997 Credit Facility") with Lehman Brothers Holdings Inc.
("Lehman Holdings"), BankBoston, N.A., Bankers Trust Company and Wells Fargo
Bank, N.A., as agents (together, the "Banks"). The 1997 Credit Facility is
structured as a $350.0 million, 5-year revolving credit facility and a $100.0
million, 7-year term loan facility. Borrowings under the 1997 Credit Facility
bear interest at variable rates. At September 19, 1997, the 1997 Credit Facility
had an aggregate outstanding balance of $235.2 million and bore interest at a
weighted average rate of 7.27%. The proceeds of the 1997 Credit Facility have
been and will be used to fund new acquisitions, repay outstanding indebtedness
and for general corporate purposes.
S-2
In August 1997, the Company completed the offering of $150.0 million
aggregate principal amount of its 8 3/4% senior subordinated notes due 2007 (the
"Subordinated Notes"), generating net proceeds of approximately $145.0 million
to the Company.
In August 1997, the Company entered into a $100.0 million non-recourse
credit facility (the "Non-Recourse Facility") with Lehman Holdings. The
Non-Recourse Facility has an 18-month term and bears interest at a rate of
between 175 and 270 basis points over 30-day LIBOR, based on certain debt
service ratios. At September 19, 1997, the Company had borrowed $52.8 million
under the Non-Recourse Facility.
S-3
THE PROPERTIES
The following table sets forth certain information for each of the Owned
Hotels, the Medallion Portfolio and the Additional Acquisitions for the twelve
months ended June 30, 1997:
TWELVE MONTHS ENDED
JUNE 30, 1997
----------------------------
GUEST AVERAGE DAILY AVERAGE
HOTEL LOCATION ROOMS RATE OCCUPANCY
- ---------------------------------------------------- ------------------------ ----------- ------------- -------------
OWNED HOTELS
Orange County Airport Hilton........................ Irvine, CA 290 $ 81.53 69.7%
Doubletree Resort................................... Palm Springs, CA 289 76.12 52.2
Sacramento Hilton................................... Sacramento, CA 326 80.46 72.8
San Pedro Hilton.................................... San Pedro, CA 226 65.52 68.1
Santa Barbara Inn................................... Santa Barbara, CA 71 135.14 79.5
Holiday Inn-Registered Trademark-................... Colorado Springs, CO 201 62.06 73.8
Sheraton Hotel...................................... Colorado Springs, CO 502 69.71 73.6
Embassy Suites Denver............................... Englewood, CO 236 106.39 74.0
Embassy Row Hilton.................................. Washington, D.C. 195 116.74 67.4
Georgetown Inn...................................... Washington, D.C. 95 138.10 69.3
The Latham Hotel.................................... Washington, D.C. 143 114.35 73.9
Westin Atlanta Airport.............................. Atlanta, GA 496 81.58 75.5
Jekyll Inn.......................................... Jekyll Island, GA 265 60.00 47.2
Radisson Hotel & Suites............................. Chicago, IL 341 133.03 76.5
Radisson Hotel...................................... Schaumburg, IL 202 78.41 75.0
Doubletree Guest Suites............................. Indianapolis, IN 137 83.67 73.6
Radisson Plaza...................................... Lexington, KY 367 76.18 62.4
Lafayette Hilton & Towers........................... Lafayette, LA 328 72.12 74.4
Holiday Inn Sports Complex.......................... Kansas City, MO 163 66.00 75.3
Sheraton Airport Plaza.............................. Charlotte, NC 226 87.37 67.8
Four Points Hotel................................... Cherry Hill, NJ 213 72.73 61.1
Marriott Hotel...................................... Somerset, NJ 434 109.50 73.4
Holiday Inn......................................... Tinton Falls, NJ 171 75.48 69.6
Doubletree Hotel.................................... Albuquerque, NM 294 77.84 66.7
Holiday Inn......................................... Cleveland, OH 237 72.95 67.7
Great Valley Sheraton............................... Frazer, PA 154 94.88 74.2
Embassy Suites Center City.......................... Philadelphia, PA 288 123.92 76.3
Doubletree Hotel.................................... Austin, TX 350 81.67 75.0
Arlington Hilton.................................... Arlington, TX 310 83.44 72.1
Holiday Inn Select.................................. Dallas, TX 348 61.72 61.6
Radisson Hotel...................................... Dallas, TX 305 61.77 72.7
Houston Southwest Hilton............................ Houston, TX 293 72.54 60.7
Westchase Hilton & Towers........................... Houston, TX 295 92.20 79.1
Salt Lake Airport Hilton............................ Salt Lake City, UT 287 80.78 75.5
Arlington Hilton.................................... Arlington, VA 209 111.76 75.3
National Airport Hilton............................. Arlington, VA 386 104.71 56.7
Bellevue Hilton..................................... Bellevue, WA 180 100.75 80.6
Holiday Inn Calgary Airport......................... Calgary, Alberta 170 51.72 66.7
Sheraton Hotel...................................... Guildford, B.C. 280 70.83 75.2
Holiday Inn-Metrotown............................... Vancouver, B.C. 100 74.04 87.8
Ramada-Registered Trademark- Vancouver Centre....... Vancouver, B.C. 118 71.85 80.5
----------- ------------- ---
Subtotal/Weighted Average--Owned Hotels......... 10,521 $ 85.33 70.3%
MEDALLION PORTFOLIO
Seelbach Hotel...................................... Louisville, KY 321 $ 107.13 63.6%
Medallion Hotel..................................... Oklahoma City, OK 399 70.82 46.7
Austin Hilton & Towers.............................. Austin, TX 320 74.04 69.5
Medallion Hotel..................................... Dallas, TX 289 92.43 52.6
Medallion Hotel..................................... Houston, TX 382 81.45 52.7
Midland Hilton & Towers............................. Midland, TX 249 70.66 56.4
----------- ------------- ---
Subtotal/Weighted Average--Medallion
Portfolio..................................... 1,960 $ 83.05 56.5%
ADDITIONAL ACQUISITIONS
Embassy Suites Tucson International Airport......... Tucson, AZ 204 $ 73.98 81.0%
Detroit Metro Airport Hilton Suites................. Detroit, MI 151 80.83 84.9
Governor Morris Hotel & Conference Center........... Morristown, NJ 201 123.59 61.5
----------- ------------- ---
Subtotal/Weighted Average--Additional
Acquisitions.................................. 556 $ 90.79 75.0%
----------- ------------- ---
Total/Weighted Average.......................... 13,037 $ 85.31 68.4%
----------- ------------- ---
----------- ------------- ---
S-4
THE OFFERING
Common Stock Offered by the
Company........................... 4,000,000 shares(1)
Common Stock Offered by the Selling
Stockholders...................... 1,273,518 shares
Common Stock to be Outstanding after
the Equity Offering............... 22,905,952 shares(1)(2)
Use of Proceeds..................... The net proceeds of the Offerings will be used to
fund the acquisition of the Medallion Portfolio and
the Additional Acquisitions, to retire outstanding
balances under the 1997 Credit Facility and for
general corporate purposes.
NYSE Symbol......................... "CHO"
Concurrent Offering................. Concurrent with the Equity Offering, the Company is
offering the Convertible Notes by a separate
prospectus supplement in an aggregate principal
amount of $125.0 million. The consummation of the
Convertible Notes Offering is not contingent upon the
consummation of the Equity Offering or vice versa.
- ------------------------
(1) Does not include up to 791,027 shares of Common Stock subject to an
over-allotment option granted to the Underwriters by the Company. See
"Underwriting."
(2) Does not include (i) 801,680 shares of Common Stock issuable upon the
conversion of limited partnership units in the Company's subsidiary
operating partnerships, (ii) 1,740,000 shares of Common Stock reserved for
issuance under the Company's Equity Incentive Plan under which the Company
has currently granted 745,254 options to purchase shares of Common Stock and
(iii) shares of Common Stock issuable upon conversion of the Convertible
Notes.
S-5
USE OF PROCEEDS
The gross proceeds to the Company from the Equity Offering are estimated to
be $144.0 million. The net proceeds of the Offerings will be used to fund the
acquisition of the Medallion Portfolio and the Additional Acquisitions, to
reduce outstanding indebtedness under the 1997 Credit Facility and for general
corporate purposes. The indebtedness to be repaid bears interest at variable
rates, with a weighted average annual rate of 7.21%, and matures on June 30,
2002.
PRICE RANGE OF COMMON STOCK
The Common Stock has been listed on the NYSE since August 20, 1996 under the
symbol "CHO." The following table sets forth for the periods indicated the high
and low closing sale prices for the Common Stock on the NYSE.
PRICE
--------------------
HIGH LOW
--------- ---------
1997:
Third Quarter (through September 19, 1997)................................. $ 36 /16 $ 3057/64
Second Quarter (ended June 30, 1997)....................................... 315/8 241/4
First Quarter (ended March 31, 1997)....................................... 281/8 193/8
1996:
Fourth Quarter (ended December 31, 1996)................................... 195/8 167/8
Third Quarter (ended September 30, 1996)................................... 183/8 161/2
The last reported sale price of the Common Stock on the NYSE on September
19, 1997 was $36 1/4. As of September 19, 1997, there were approximately 51
holders of record of the Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock and does not
anticipate that it will do so in the foreseeable future. The Company intends to
retain earnings to provide funds for the continued growth and development of the
Company's business. The 1997 Credit Facility and the Subordinated Notes 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 Company's
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 Company's Board of Directors.
S-6
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of June 30, 1997 and pro forma to give effect to the 1997 Credit Facility, the
Subordinated Notes, the Non-Recourse Facility (collectively, the "Prior Debt
Financings"), the Offerings, and the acquisition of nine of the Owned Hotels
since June 30, 1997, the Medallion Portfolio and the Additional Acquisitions
(for a pro forma total of 50 hotels). The information below should be read in
conjunction with the consolidated financial statements and notes thereto
incorporated by reference into this Prospectus and the Unaudited Pro Forma
Condensed Consolidated Financial Statements and notes thereto contained
elsewhere in this Prospectus.
AS OF JUNE 30, 1997
-------------------------
HISTORICAL PRO FORMA
------------ -----------
(IN THOUSANDS, EXCEPT
SHARE DATA)
DEBT:
Senior secured credit facility.................................................... $ 168,500 $ --
1997 Credit Facility.............................................................. -- 182,183
Non-Recourse Facility............................................................. -- 52,750
Subordinated Notes................................................................ -- 150,000
Convertible Notes................................................................. -- 125,000
Other debt........................................................................ 66,495 16,495
------------ -----------
Total debt........................................................................ 234,995 526,428
Minority interest................................................................. 22,270 22,270
STOCKHOLDERS' EQUITY:
Preferred Stock ($.01 par value, 25,000,000 shares authorized, no shares issued or
outstanding).................................................................... -- --
Common Stock ($.01 par value, 49,000,000 shares authorized, 18,905,952 shares and
22,905,952 shares, respectively, issued and outstanding)........................ 189 229
Additional paid-in capital........................................................ 303,564 440,184
Retained earnings................................................................. 12,142 5,695
Cumulative foreign currency translation adjustment................................ (420) (420)
------------ -----------
Total stockholders' equity.................................................... 315,475 445,688
------------ -----------
Total capitalization.......................................................... $ 572,740 $ 994,386
------------ -----------
------------ -----------
S-7
SELECTED FINANCIAL AND OTHER DATA
The following table sets forth selected historical and pro forma financial
information for the Company. The Balance Sheet Data of the Company as of June
30, 1997, December 31, 1996, 1995 and 1994, and the Operating Results and Other
Financial Data for the years ended December 31, 1996, 1995, 1994, 1993 and the
six months ended June 30, 1997 and 1996 have been derived from the consolidated
financial statements which are incorporated by reference into this Prospectus.
The Operating Results and Other Financial Data for the year ended December 31,
1992 and the Balance Sheet Data as of June 30, 1996, December 31, 1993 and 1992
have been derived from financial statements not required to be included or
incorporated by reference in this Prospectus. 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" incorporated by reference into this
Prospectus, and the Unaudited Pro Forma Condensed Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
The pro forma Operating Results, Other Financial Data and Operating Data for
the year ended December 31, 1996 and the six months ended June 30, 1997 have
been prepared as if the IPO, the March 1997 equity offering, the Prior Debt
Financings (collectively, the "Prior Financings"), the Offerings, and the
acquisition of all of the Owned Hotels, the Medallion Portfolio and the
Additional Acquisitions had been consummated at the beginning of the periods
presented, and the pro forma Balance Sheet Data as of June 30, 1997 have been
prepared as if the Prior Debt Financings, the Offerings, and the acquisition of
nine of the Owned Hotels since June 30, 1997, the Medallion Portfolio and the
Additional Acquisitions had been consummated on such date. The pro forma
financial information is not necessarily indicative of what the actual financial
position and results of operations of the Company would have been as of and for
the periods indicated, nor does it purport to represent the Company's future
financial position and results of operations.
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------------- --------------------
PRO
FORMA
1992 1993 1994 1995 1996 1996(A) 1996 1997
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING RESULTS:
Revenues:
Rooms............................. $ 0 $ 0 $ 0 $ 14,456 $ 68,498 $ 269,755 $ 28,120 $ 79,254
Food, beverage and other.......... 0 0 0 7,471 36,949 131,597 12,989 34,676
Office rental and other........... 0 0 0 0 0 6,197 3,059 5,664
Management services and other..... 3,479 4,234 4,418 4,436 4,345 2,858 2,088 2,225
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues................ 3,479 4,234 4,418 26,363 109,792 410,407 46,256 121,819
--------- --------- --------- --------- --------- --------- --------- ---------
Operating expenses:
Departmental expenses:
Rooms............................. 0 0 0 4,190 17,509 67,942 7,365 18,954
Food, beverage and other.......... 0 0 0 5,437 27,102 100,472 10,302 27,338
Office rental and other........... 0 0 0 0 0 2,683 1,089 3,008
Undistributed operating expenses:
Selling, general and
administrative.................. 2,836 4,065 4,508 8,078 20,448 75,844 9,457 19,839
Property operating costs.......... 0 0 0 3,934 17,151 70,184 7,497 19,024
Depreciation and amortization..... 12 14 23 2,097 8,248 33,942 3,919 8,220
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating expenses...... 2,848 4,079 4,531 23,736 90,458 351,067 39,629 96,383
--------- --------- --------- --------- --------- --------- --------- ---------
Net operating income (loss)......... 631 155 (113) 2,627 19,334 59,340 6,627 25,436
Interest expense, net............... 0 0 0 2,414 12,346 37,184 7,290 8,440
Minority interest................... 0 0 0 18 39 (1,027) 69 (620)
Income tax provision(B)............. 0 0 0 0 2,674 8,450 0 6,288
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item.............................. 631 155 (113) 231 4,353 12,679 (594) 10,088
Extraordinary item(C)............... 0 0 0 (888) (1,956) 0 0 0
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)............. $ 631 $ 155 $ (113) $ (657) $ 2,397 $ 12,679 $ (594) $ 10,088
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Earnings per share from continuing
operations........................ -- -- -- -- $ 0.31 $ 0.55 -- $ 0.62
--------- --------- ---------
--------- --------- ---------
PRO
FORMA
1997(A)
---------
OPERATING RESULTS:
Revenues:
Rooms............................. $ 146,195
Food, beverage and other.......... 69,811
Office rental and other........... 3,061
Management services and other..... 2,127
---------
Total revenues................ 221,194
---------
Operating expenses:
Departmental expenses:
Rooms............................. 36,267
Food, beverage and other.......... 53,138
Office rental and other........... 1,218
Undistributed operating expenses:
Selling, general and
administrative.................. 37,782
Property operating costs.......... 36,958
Depreciation and amortization..... 17,146
---------
Total operating expenses...... 182,509
---------
Net operating income (loss)......... 38,685
Interest expense, net............... 18,486
Minority interest................... (893)
Income tax provision(B)............. 7,413
---------
Income (loss) before extraordinary
item.............................. 11,893
Extraordinary item(C)............... 0
---------
Net income (loss)............. $ 11,893
---------
---------
Earnings per share from continuing
operations........................ $ 0.52
---------
---------
S-8
SIX MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------------- --------------------
PRO
FORMA
1992 1993 1994 1995 1996 1996(A) 1996 1997
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT OPERATING DATA)
OTHER FINANCIAL DATA:
EBITDA(D).......................... $ 643 $ 169 $ (90) $ 4,741 $ 27,621 $ 92,255 $ 10,615 $ 33,036
Net cash provided by (used in)
operating activities............. 87 (101) 66 4,357 13,373 46,505 3,891 2,745
Net cash used in investing
activities....................... (65) (24) (41) (116,573) (225,251) (816,864) (95,625) (164,567)
Net cash provided by (used in)
financing activities............. (219) 244 0 119,048 226,830 793,232 89,809 151,532
BALANCE SHEET DATA:
Total assets....................... $ 586 $ 1,458 $ 1,232 $ 132,650 $ 379,161 -- $ 231,736 $ 608,073
Total debt......................... 0 0 0 76,242 200,361 -- 168,112 234,995
Stockholders' equity............... -- -- -- -- 160,715 -- -- 315,475
OPERATING DATA:
Owned Hotels:
Number of hotels................. -- -- -- 6 19 50 11 32
Number of guest rooms............ -- -- -- 2,101 5,166 13,037 3,307 8,040
Total revenues (in thousands).... -- -- -- $ 21,927 $ 105,447 $ 401,352 $ 44,168 $ 119,594
Average occupancy................ -- -- -- 72.3% 71.6% 67.9% 72.7% 74.5%
ADR(E)........................... -- -- -- $ 71.58 $ 82.84 $ 82.48 $ 80.56 $ 86.04
RevPAR........................... -- -- -- $ 51.75 $ 59.31 $ 55.97 $ 58.57 $ 64.08
All Hotels(F):
Number of hotels(G).............. 34 34 39 46 47 -- -- --
Number of guest rooms(G)......... 5,918 5,971 5,847 7,895 9,785 -- -- --
Total revenues (in thousands).... $ 109,837 $ 123,124 $ 128,151 $ 170,888 $ 193,092 -- -- --
PRO
FORMA
1997(A)
----------
OTHER FINANCIAL DATA:
EBITDA(D).......................... $ 54,938
Net cash provided by (used in)
operating activities............. 13,424
Net cash used in investing
activities....................... (594,462)
Net cash provided by (used in)
financing activities............. 564,835
BALANCE SHEET DATA:
Total assets....................... $1,032,885
Total debt......................... 526,428
Stockholders' equity............... 445,688
OPERATING DATA:
Owned Hotels:
Number of hotels................. 50
Number of guest rooms............ 13,037
Total revenues (in thousands).... $ 216,006
Average occupancy................ 70.1%
ADR(E)........................... $ 87.38
RevPAR........................... $ 61.29
All Hotels(F):
Number of hotels(G).............. --
Number of guest rooms(G)......... --
Total revenues (in thousands).... --
- ------------------------------
(A) The pro forma Operating Results, Other Financial Data and Operating Data for
the six months ended June 30, 1997 and the year ended December 31, 1996 have
been prepared as if the Prior Financings, the Offerings, and the acquisition
of all of the Owned Hotels, the Medallion Portfolio and the Additional
Acquisitions had been consummated at the beginning of the periods presented,
and the pro forma Balance Sheet Data as of June 30, 1997 have been prepared
as if the Prior Debt Financings, the Offerings, and the acquisition of all
of the Owned Hotels, the Medallion Portfolio and the Additional Acquisitions
had been consummated on such date.
(B) No provision for federal income taxes is included in the historical data
other than for 1996 and 1997 because the Company's predecessor entities,
CapStar Management Company, L.P. and EquiStar Hotel Investors, L.P., were
partnerships and all federal income tax liabilities were passed through to
the individual partners.
(C) During 1995 and 1996, certain loan facilities were refinanced and the
write-offs of deferred costs associated with the prior facilities were
recorded as extraordinary losses.
(D) EBITDA represents earnings before interest income taxes, depreciation and
amortization. Management believes that EBITDA is a useful measure of
operating performance because it is industry practice to evaluate hotel
properties based on operating income before interest, income taxes,
depreciation and amortization, which is generally equivalent to EBITDA, and
EBITDA is unaffected by the debt and equity structure of the property owner.
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.
(E) Represents total room revenues divided by total number of rooms occupied by
hotel guests on a paid basis.
(F) Represents operating data for all hotels managed by the Company during all
or a portion of the periods presented.
(G) As of December 31 for the periods presented.
S-9
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Unaudited Pro Forma Condensed Consolidated Balance Sheet of the Company
as of June 30, 1997 is presented assuming: (i) all of the Owned Hotels, the
Medallion Portfolio and the Additional Acquisitions were owned at June 30, 1997
(for a pro forma total of 50 hotels) and (ii) the Prior Debt Financings, the
Offerings and the application of the net proceeds therefrom were completed at
June 30, 1997.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations of
the Company for the six months ended June 30, 1997 and for the year ended
December 31, 1996 are presented assuming: (i) all of the Owned Hotels, the
Medallion Portfolio and the Additional Acquisitions were owned at the beginning
of the periods presented (for a pro forma total of 50 hotels); and (ii) the
Prior Financings, the Offerings and the application of the net proceeds
therefrom were completed at the beginning of the periods presented.
In management's opinion, all material adjustments necessary to reflect the
transactions are presented in the pro forma adjustments columns, which are
further described in the notes to the Unaudited Pro Forma Condensed Consolidated
Financial Statements. The Unaudited Pro Forma Condensed Consolidated Financial
Statements are not necessarily indicative of what the Company's financial
position or results of operations actually would have been if all the Owned
Hotels, the Medallion Portfolio and the Additional Acquisitions were, in fact,
owned on such dates and if the Prior Financings and the Offerings occurred on
such dates. Additionally, the pro forma information does not purport to project
the Company's financial position or results of operations at any future date or
for any future period. The Unaudited Pro Forma Condensed Consolidated Financial
Statements should be read in conjunction with the consolidated financial
statements and related notes thereto of the Company, which are incorporated by
reference into this Prospectus.
S-10
CAPSTAR HOTEL COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
PRO FORMA ADJUSTMENTS
----------------------------------------------
MEDALLION
OWNED HOTELS PORTFOLIO AND
AND PRIOR DEBT ADDITIONAL
HISTORICAL(A) FINANCINGS(B)(C) ACQUISITIONS(C)(E) OFFERINGS(C) PRO FORMA
------------ -------------- ----------------- ----------- -----------
ASSETS
Cash and cash equivalents........... $ 11,489 $ (5,547) $ -- $ -- $ 5,942
Property and equipment, net:
Land.............................. 81,683 38,445 30,790 -- 150,918
Building and improvements......... 404,798 169,298 153,951 -- 728,047
Furniture, fixtures and
equipment....................... 44,556 20,045 20,527 -- 85,128
Construction-in-progress.......... 5,314 5 -- -- 5,319
------------ -------------- -------- ----------- -----------
Total property and equipment, net... 536,351 227,793 205,268 -- 969,412
Deposits and other assets........... 60,233 (6,077)(D) -- 3,375 57,531
------------ -------------- -------- ----------- -----------
Total assets........................ $ 608,073 $ 216,169 $ 205,268 $ 3,375 $1,032,885
------------ -------------- -------- ----------- -----------
------------ -------------- -------- ----------- -----------
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY
Other liabilities................... $ 35,333 $ 3,166 $ -- $ -- $ 38,499
Long-term debt:
Senior secured credit facility.... 168,500 (168,500) -- -- --
1997 Credit Facility.............. -- 235,200 205,268 (258,285) 182,183
Non-Recourse Facility............. -- 52,750 -- -- 52,750
Convertible Notes................. -- -- -- 125,000 125,000
Subordinated Notes................ -- 150,000 -- -- 150,000
Other debt........................ 66,495 (50,000) -- -- 16,495
------------ -------------- -------- ----------- -----------
Total liabilities................... 270,328 222,616 205,268 (133,285) 564,927
Minority interest................... 22,270 -- -- -- 22,270
Stockholders' equity................ 315,475 (6,447)(D) -- 136,660 445,688
------------ -------------- -------- ----------- -----------
Total liabilities, minority interest
and stockholders' equity.......... $ 608,073 $ 216,169 $ 205,268 $ 3,375 $1,032,885
------------ -------------- -------- ----------- -----------
------------ -------------- -------- ----------- -----------
- ------------------------------
(A) Reflects the historical unaudited condensed consolidated balance sheet of
the Company as of June 30, 1997.
(B) Reflects the Company's cost basis and financing for the nine Owned Hotels
acquired subsequent to June 30, 1997.
(C) A schedule of sources and uses of funds related to the Company's various
financing activities is as follows:
SOURCES
Net proceeds from the Equity Offering.............................................. $136,660
Proceeds from the Convertible Notes Offering....................................... 125,000
Proceeds from the Subordinated Notes and net draws on credit facilities............ 384,933
-----------
Total sources...................................................................... $646,593
-----------
-----------
USES
Repayment of credit facilities..................................................... $(218,500)
Purchase of certain Owned Hotels, the Medallion Portfolio and the Additional
Acquisitions...................................................................... (413,843)
Advisory and other transaction expenses for the Prior Debt Financings and the
Convertible Notes Offering........................................................ (14,250)
-----------
Total uses......................................................................... $(646,593)
-----------
-----------
(D) Reflects the write-off of deferred financing fees of $6,447 at June 30, 1997
related to the senior secured and senior subordinated credit facilities that
were refinanced. Deposits and other assets also reflect the deferral of
financing fees of $10,875 related to the Prior Debt Financings and the use
of purchase deposits recorded at June 30, 1997.
(E) Reflects the Company's cost basis and financing for the Medallion Portfolio
and the Additional Acquisitions. The estimated total cost is $231,010,
including the purchase prices totaling $199,800, renovation programs of
$25,742 and other costs of $5,468.
S-11
CAPSTAR HOTEL COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS
-------------------------------------------------
MEDALLION
OWNED HOTELS PORTFOLIO AND
AND PRIOR ADDITIONAL
HISTORICAL(A) FINANCINGS(B) ACQUISITIONS(B) OFFERINGS PRO FORMA
------------ --------------- ------------------- ----------- ----------
Revenue from hotel operations:
Rooms..................................... $ 79,254 $ 41,440 $ 25,501 $ -- $ 146,195
Food and beverage......................... 34,676 13,502 11,111 -- 59,289
Other..................................... 5,664 3,226 1,632 -- 10,522
Office rental and other..................... -- 2,844 217 -- 3,061
Hotel management, accounting and other...... 2,225 (98) -- -- 2,l27
------------ ------- ------- ----------- ----------
Total revenue............................. 121,819 60,914 38,461 -- 221,194
Hotel operating expenses by department:
Rooms..................................... 18,954 10,857 6,456 -- 36,267
Food and beverage......................... 27,338 10,984 8,859 -- 47,181
Other operating departments............... 3,008 1,857 1,092 -- 5,957
Office rental and other..................... -- 1,184 34 -- 1,218
Undistributed operating expenses:
Administrative and general................ 19,839 10,119 7,824 -- 37,782
Property operating costs.................. 13,960 8,222 4,640 -- 26,822
Property taxes, insurance and other....... 5,064 3,760 1,312 -- 10,136
Depreciation and amortization............. 8,220 4,968 3,717 241(D) 17,146
------------ ------- ------- ----------- ----------
Total operating expenses.................. 96,383 51,951 33,934 241 182,509
Interest expense, net....................... 8,440 13,097(C) 2,988(C) (6,039)(C) 18,486
------------ ------- ------- ----------- ----------
Total expenses.............................. 104,823 65,048 36,922 (5,798) 200,995
------------ ------- ------- ----------- ----------
Income (loss) before minority interest and
income taxes.............................. 16,996 (4,134) 1,539 5,798 20,199
Minority interest........................... (620) (273) -- -- (893)
------------ ------- ------- ----------- ----------
Income (loss) before income taxes........... 16,376 (4,407) 1,539 5,798 19,306
Income tax provision........................ 6,288 (1,692) 591 2,226 7,413
------------ ------- ------- ----------- ----------
Net income (loss)(E)...................... $ 10,088 $ (2,715) $ 948 $ 3,572 $ 11,893
------------ ------- ------- ----------- ----------
------------ ------- ------- ----------- ----------
Earnings per share(F): $ 0.62 $ 0.52
Weighted average shares outstanding: 16,356,343 23,547,910
- ------------------------------
(A) Reflects the historical unaudited condensed consolidated statement of
operations of the Company for the six months ended June 30, 1997.
(B) Reflects the pre-acquisition operations of the Owned Hotels, the Medallion
Portfolio and Additional Acquisitions to provide six months of hotel
operations. For each hotel, the pre-acquisition operations were obtained
from the hotel's pre-acquisition financial statements. Also reflects
adjustments to (i) eliminate management fee revenues for the Owned Hotels
for services that were provided by the Company, (ii) reflect federal and
state income taxes (assuming a 38.4% combined effective rate) and (iii)
reflect pro forma depreciation and amortization expense as if the hotels had
been acquired as of the beginning of the period.
(C) Reflects the adjustments needed to record a full period of interest for the
Owned Hotels, the Medallion Portfolio and Additional Acquisitions, assuming
the Prior Debt Financings and the March 1997 equity offering occurred at the
beginning of the period. Adjustments are also recorded to reflect the net
effect of the Offerings and repayment of existing credit facilities.
(D) Adjustment reflects amortization of costs associated with the Convertible
Notes Offering.
(E) After giving effect to the 1997 Credit Facility, the Company incurred
expenses associated with the write-off of deferred financing costs related
to the refinanced senior secured and senior subordinated credit facilities.
These extraordinary costs are charged to operations as incurred and have not
been included in the Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
(F) In computing earnings per share, net income has been adjusted for certain
minority interests.
S-12
CAPSTAR HOTEL COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA ADJUSTMENTS
----------------------------------------------
MEDALLION
OWNED HOTELS PORTFOLIO AND
AND PRIOR ADDITIONAL
HISTORICAL(A) FINANCINGS (B) ACQUISITIONS(B) OFFERINGS PRO FORMA
------------ ------------------ -------------- ---------- ----------
Revenue from hotel operations:
Rooms..................................... $ 68,498 $ 155,255 $ 46,002 $ -- $ 269,755
Food and beverage......................... 30,968 56,584 21,402 -- 108,954
Other..................................... 5,981 13,341 3,321 -- 22,643
Office rental and other..................... -- 5,668 529 -- 6,197
Hotel management, accounting and other...... 4,345 (1,487) -- -- 2,858
------------ ------------------ -------------- ---------- ----------
Total revenue............................. 109,792 229,361 71,254 -- 410,407
Hotel operating expenses by department:
Rooms..................................... 17,509 37,921 12,512 -- 67,942
Food and beverage......................... 24,589 45,022 17,729 -- 87,340
Other operating departments............... 2,513 8,497 2,122 -- 13,132
Office rental and other..................... -- 2,683 -- -- 2,683
Undistributed operating expenses:
Administrative and general................ 20,448 40,239 15,157 -- 75,844
Property operating costs.................. 12,586 28,027 9,235 -- 49,848
Property taxes, insurance and other....... 4,565 13,316 2,455 -- 20,336
Depreciation and amortization............. 8,248 18,431 6,781 482(D) 33,942
------------ ------------------ -------------- ---------- ----------
Total operating expenses.................. 90,458 194,136 65,991 482 351,067
Interest expense, net....................... 12,346 30,567(C) 5,987(C) (11,716 (C) 37,184
------------ ------------------ -------------- ---------- ----------
Total expenses.............................. 102,804 224,703 71,978 (11,234) 388,251
------------ ------------------ -------------- ---------- ----------
Income (loss) before minority interest and
income taxes.............................. 6,988 4,658 (724) 11,234 22,156
Minority interest........................... 39 (1,066) -- -- (1,027)
------------ ------------------ -------------- ---------- ----------
Income (loss) before income taxes........... 7,027 3,592 (724) 11,234 21,129
Income tax provision........................ 2,674 1,573 (290) 4,493 8,450
------------ ------------------ -------------- ---------- ----------
Net income (loss)(E)...................... $ 4,353 $ 2,019 $ (434) $ 6,741 $ 12,679
------------ ------------------ -------------- ---------- ----------
------------ ------------------ -------------- ---------- ----------
Earnings per share(F): $ 0.31 $ 0.55
Weighted average shares outstanding: 12,754,321 23,313,844
- ------------------------------
(A) Reflects the historical consolidated statement of operations of the Company
for the year ended December 31, 1996.
(B) Reflects the pre-acquisition operations of the Owned Hotels, the Medallion
Portfolio and Additional Acquisitions to provide a full year of hotel
operations. For each hotel, the pre-acquisition operations were obtained
from the hotel's pre-acquisition financial statements. Also reflects
adjustments to (i) eliminate management fee revenues for the Owned Hotels
for services that were provided by the Company, (ii) reflect federal and
state income taxes (assuming a 40.0% combined effective rate), (iii) reflect
the estimated incremental general and administrative expenses associated
with public ownership (these additional expenses include insurance,
additional executive salaries, directors' fees and related expenses, legal
expenses, expenses associated with preparing quarterly and annual reports,
and other miscellaneous expenses) and (iv) reflect pro forma depreciation
and amortization expense as if the hotels had been acquired as of the
beginning of the period.
(C) Reflects the adjustments needed to record a full year of interest for the
Owned Hotels, the Medallion Portfolio and the Additional Acquisitions,
assuming the Prior Financings occurred at the beginning of the period.
Adjustments are also recorded to reflect the net effect of the Offerings and
repayment of existing credit facilities.
(D) Adjustment reflects amortization of costs associated with the Convertible
Notes Offering.
(E) After giving effect to the 1997 Credit Facility, the Company incurred
expenses associated with the write-off of deferred financing costs related
to the refinanced senior secured and senior subordinated credit facilities.
These extraordinary costs are charged to operations as incurred and have not
been included in the Unaudited Pro Forma Condensed Consolidated Statement of
Operations.
(F) Historical earnings per share have been calculated using actual income for
the period from the IPO through December 31, 1996. In computing pro forma
earnings per share, net income has been adjusted for certain minority
interests.
S-13
BUSINESS AND PROPERTIES
The Company seeks to increase shareholder value by (i) continuing to acquire
upscale, full-service hotels at prices below replacement cost in selected
markets throughout the United States and Canada, (ii) implementing its operating
strategy to improve hotel operations and increase cash flow, and (iii) expanding
its management business.
ACQUISITION STRATEGY
The Company intends to continue acquiring upscale, full-service hotels. In
addition to the direct acquisition of hotels, the Company anticipates that it
may make investments in hotels through joint ventures with strategic partners or
through equity contributions, sale and leasebacks or secured loans. The Company
identifies acquisition candidates located in markets with economic, demographic
and supply dynamics favorable to hotel owners and operators. Through its
extensive due diligence process, the Company chooses those acquisition targets
where it believes selective capital improvements and intensive management will
increase the hotel's ability to attract key demand segments, enhance hotel
operations and increase long-term value. In order to evaluate the relative
merits of each investment opportunity, senior management and individual
operations teams create detailed plans covering all areas of renovation and
operation. These plans serve as the basis for the Company's acquisition
decisions and guide subsequent renovation and operating plans. At the Owned
Hotels, the Company has been able to implement these plans and apply its system
of management to create improvements in revenue and profitability.
The Company will seek to acquire and invest in hotels that meet the
following criteria:
MARKET CRITERIA
ECONOMIC GROWTH. The Company focuses on metropolitan areas that are
approaching, or have already entered, periods of economic growth. Such areas
generally show above average growth in the business community as measured by (i)
job formation rates, (ii) population growth rates, (iii) tourism and convention
activity, (iv) airport traffic volume, (v) local commercial real estate
occupancy, and (vi) retail sales volume. Markets that exhibit these
characteristics typically have strong demand for hotel facilities and services.
SUPPLY CONSTRAINTS. The Company seeks lodging markets with favorable supply
dynamics for hotel owners and operators, including an absence of current new
hotel development and barriers to future development such as zoning constraints,
the need to undergo lengthy local development approval processes and a limited
number of suitable sites. Other factors limiting the supply of new hotels are
the current lack of financing available for new development and the inability to
generate adequate returns on investment to justify new development.
GEOGRAPHIC DIVERSIFICATION. The Company seeks to maintain a geographically
diverse portfolio of hotels to offset the effects of regional economic cycles.
The hotels are located in 29 states across the nation, the District of Columbia,
the U.S. Virgin Islands and Canada, with ten hotels located in Texas, nine in
California, five in Washington, D.C., four in Colorado, four in New Jersey, four
in Virginia, three in British Columbia, three in Georgia, three in Maryland,
three in New York, three in Pennsylvania, two in Illinois, two in Kentucky, two
in Louisiana, two in Michigan, two in Missouri and one hotel each in 15
additional states, one U.S. territory and one additional Canadian province.
HOTEL CRITERIA
LOCATION AND MARKET APPEAL. The Company seeks to acquire upscale,
full-service hotels that are situated near both business and leisure centers
which generate a broad base of demand for hotel accommodations and facilities.
These demand generators include (i) business parks, (ii) airports, (iii)
shopping centers and other retail areas, (iv) convention centers, (v) sports
arenas and stadiums, (vi) major
S-14
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 acquire well-constructed hotels
that are less than 20 years old, contain 200 to 500 guest rooms and include
accommodations and facilities that are, or are capable of being made, attractive
to key demand segments such as business, group and leisure travelers. These
facilities typically include large, upscale guest rooms, food and beverage
facilities, extensive meeting and banquet space, and amenities such as health
clubs, swimming pools and adequate parking.
POTENTIAL PERFORMANCE IMPROVEMENTS. The Company seeks to acquire 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 and its
acquisition staff located on both coasts of the United States will continue to
provide it with a competitive advantage in identifying, evaluating and
purchasing hotels which meet its acquisition criteria. The Company has a record
of successfully renovating and repositioning hotels, both at the Owned Hotels
and at the Managed Hotels (which vary in levels of service, room rates and
market types). As a public company, the Company believes it has improved access
to various debt and equity financing sources to fund acquisitions. In addition,
in consummating acquisitions the Company expects that it will benefit from its
ability to utilize OP Units or Common Stock as an alternative to cash. The
Company currently expects to retain earnings for future acquisitions and the
renovation and maintenance of the hotels it owns.
OPERATING STRATEGY
The Company's principal operating objectives are to generate higher RevPAR
and to increase net operating income while providing its hotel guests with
high-quality service and value. The Company seeks to achieve these objectives by
creating and executing management plans that are specifically tailored for each
individual Hotel rather than by implementing an operating strategy that is
designed to maintain a uniform corporate image or brand. Management believes
that its custom-tailored business plans are the most effective means of
addressing the needs of a given hotel or market. The Company believes that
skilled management of hotel operations is the most critical element in
maximizing revenue and cash flow in full-service hotels.
The Company's corporate headquarters carries out financing and acquisition
activities and provides services to support as well as monitor the Company's
on-site hotel operating executives. Each of the Company's executive departments,
including Sales and Marketing, Human Resources and Training, Food and Beverage,
Technical Services, Development, and Corporate Finance, is headed by an
executive with significant experience in that area. These departments support
decentralized decision-making by the hotel operating executives by providing
accounting and budgeting services, property management software and other
resources which cannot be economically maintained at the individual Hotels.
Key elements of the Company's management programs include the following:
COMPREHENSIVE BUDGETING AND MONITORING. The Company's operating strategy
begins with an integrated budget planning process that is implemented by
individual on-site managers and monitored by the Company's corporate staff.
Management sets targets for cost and revenue categories at each of the Hotels
based on historical operating performance, planned renovations, operational
efficiencies and local market conditions. On-site managers coordinate with the
central office staff to ensure that such targets are realistic. Through
effective and timely use of its comprehensive financial information and
reporting
S-15
systems, the Company can monitor actual performance and rapidly adjust prices,
staffing levels and sales efforts to take advantage of changes in the market and
to improve yield.
TARGETED SALES AND MARKETING. The Company employs a systematic approach
toward identifying and targeting segments of demand for each Hotel in order to
maximize market penetration. Executives at the Company's corporate headquarters
and property-based managers divide such segments into smaller subsegments,
typically ten or more for each Hotel, and develop narrowly tailored marketing
plans to suit each such segment. The Company supports each Hotel's local sales
efforts with corporate sales executives who develop new marketing concepts and
monitor and respond to specific market needs and preferences. These executives
are active in implementing on-site marketing programs developed in the central
management office. The Company employs computerized revenue yield management
systems to manage each Hotel's use of the various distribution channels in the
lodging industry. Management control over those channels, which include
franchisor reservation systems and toll-free numbers, travel agent and airline
global distribution systems, corporate travel offices and office managers, and
convention and visitor bureaus, enables the Company to maximize revenue yields
on a day-to-day basis. Sales teams are recruited locally and receive
incentive-based compensation bonuses. All of the Company's sales managers
complete a highly developed sales training program.
STRATEGIC CAPITAL IMPROVEMENTS. The Company plans renovations primarily to
enhance a Hotel's appeal to targeted market segments, thereby attracting new
customers and generating increased revenue and cash flow. For example, at all of
the Owned Hotels, the Company has renovated banquet and meeting spaces and
upgraded guest rooms with computer ports and comfortable work spaces to better
accommodate the needs of business travelers and to increase ADRs. Capital
spending decisions are based on both strategic needs and potential rate of
return on a given capital investment.
SELECTIVE USE OF MULTIPLE BRAND NAMES. The Company believes that the
selection of an appropriate franchise brand is essential in positioning a hotel
optimally within its local market. The Company selects brands based on local
market factors such as local presence of the franchisor, brand recognition,
target demographics and efficiencies offered by franchisors. The Company
believes that its relationships with many major hotel franchisors, established
both as a manager and an owner of hotels operated under their respective
franchises, places the Company in a favorable position when dealing with those
franchisors and allows it to negotiate favorable franchise agreements with
franchisors. The Company believes that its growth through acquisition of
additional hotels will further strengthen its relationship with franchisors.
S-16
The following chart summarizes certain information with respect to the
national franchise affiliations of the Hotels, the Medallion Portfolio and the
Additional Acquisitions:
OWNED HOTELS, MEDALLION PORTFOLIO
AND ADDITIONAL ACQUISITIONS MANAGED HOTELS
----------------------------------------- --------------------------
NUMBER OF NUMBER NUMBER OF NUMBER
GUEST OF % OF TOTAL GUEST OF
FRANCHISE ROOMS HOTELS ROOMS ROOMS HOTELS
- ---------------------------------------------------- ----------- --------------- ----------- ----------- -------------
Hilton.............................................. 4,045 15 31.0% -- --
Medallion........................................... 1,391 4 10.7 -- --
Radisson............................................ 1,215 4 9.3 126 1
Sheraton............................................ 1,162 4 8.9 -- --
Holiday Inn......................................... 1,042 6 8.0 744 3
Doubletree.......................................... 933 3 7.2 208 1
Independent......................................... 775 5 5.9 468 5
Embassy Suites...................................... 728 3 5.6 -- --
Westin.............................................. 496 1 3.8 -- --
Marriott............................................ 434 1 3.3 288 1
Holiday Select...................................... 348 1 2.7 -- --
Four Points......................................... 213 1 1.6 596 2
Doubletree Guest Suites............................. 137 1 1.1 -- --
Ramada.............................................. 118 1 0.9 309 2
Crowne Plaza........................................ -- -- -- 730 2
Best Western........................................ -- -- -- 287 2
Comfort Suites...................................... -- -- -- 244 2
Clarion............................................. -- -- -- 226 1
Quality Suites...................................... -- -- -- 177 1
Budget Inn.......................................... -- -- -- 147 1
Residence Inn....................................... -- -- -- 104 1
Quality Inn......................................... -- -- -- 100 1
Days Inn............................................ -- -- -- 96 1
Holiday Inn Express................................. -- -- -- 78 1
-- --
----------- ----- -----
13,037 50 100.0% 4,928 28
-- --
-- --
----------- ----- -----
----------- ----- -----
% OF TOTAL
FRANCHISE ROOMS
- ---------------------------------------------------- -----------
Hilton.............................................. --%
Medallion........................................... --
Radisson............................................ 2.6
Sheraton............................................ --
Holiday Inn......................................... 15.1
Doubletree.......................................... 4.2
Independent......................................... 9.5
Embassy Suites...................................... --
Westin.............................................. --
Marriott............................................ 5.8
Holiday Select...................................... --
Four Points......................................... 12.1
Doubletree Guest Suites............................. --
Ramada.............................................. 6.3
Crowne Plaza........................................ 14.8
Best Western........................................ 5.8
Comfort Suites...................................... 5.0
Clarion............................................. 4.6
Quality Suites...................................... 3.6
Budget Inn.......................................... 3.0
Residence Inn....................................... 2.1
Quality Inn......................................... 2.0
Days Inn............................................ 1.9
Holiday Inn Express................................. 1.6
-----
100.0%
-----
-----
EMPHASIS ON FOOD AND BEVERAGE. Management believes popular food and
beverage ideas are a critical component in the overall success of a hotel. The
Company utilizes its food and beverage operations to create local awareness of
its hotel facilities, to improve the profitability of its hotel operations and
to enhance customer satisfaction. The Company is committed to competing for
patrons with restaurants and catering establishments by offering high-quality
restaurants that garner positive reviews and strong local and/or national
reputations. The Company has engaged food and beverage experts to develop
several proprietary restaurant concepts. The Owned Hotels contain restaurants
ranging from Michel Richard's highly acclaimed CITRONELLE-Registered Trademark-,
to Morgan's, a Company-designed concept which offers popular, moderately-priced
American cuisine. The Company has also successfully placed national food
franchises such as Starbuck's Coffee-Registered Trademark- and
"TCBY"-Registered Trademark- Yogurt in casual, delicatessen-style restaurants in
several of the Owned Hotels. Popular food concepts have strengthened the
Company's ability to attract business travelers and group meetings and improved
the name recognition of the Owned Hotels.
COMMITMENT TO REINVESTMENT. The Company is committed to reinvesting
adequate capital on an ongoing basis to maintain the quality of the hotels it
owns. Reinvestment is expected to include room and facilities refurbishments,
renovations and furniture and equipment replacements that are designed to
maintain attractive accommodations, updated restaurants and modern equipment.
The Company believes that these investments will enhance the Company's
competitive position.
S-17
COMPUTERIZED REPORTING SYSTEMS. The Company employs computerized reporting
systems at each of the Hotels and at its corporate offices to monitor the
financial and operating performance of the Hotels. Management information
services have been fully integrated through the installation of Novell and Unix
networks. Management also utilizes programs like Data Plus-Registered Trademark-
and cc:Mail-Registered Trademark- to facilitate daily communication. Such
programs have enabled the Company to create and implement detailed reporting
systems at each of the Hotels and its corporate headquarters. Corporate
executives utilize information systems that track each Hotel's daily occupancy,
ADR, and revenue from rooms, food and beverage. By having the latest hotel
operating information available at all times, management is better able to
respond to changes in the market of each Hotel.
COMMITMENT TO SERVICE AND VALUE. The Company is dedicated to providing
exceptional service and value to its customers on a consistent basis. The
Company conducts extensive employee training programs to ensure personalized
service at the highest levels. Programs such as "Be A Star" have been created
and implemented by the Company to ensure the efficacy and uniformity of its
employee training. The Company's practice of tracking customer comments, through
the recording of guest comment cards and the direct solicitation (during
check-in and check-out) of guest opinions regarding specific items, allows
investment in services and amenities where they are most effective. The
Company's focus on these areas has enabled it to attract lucrative group
business.
DISTINCT MANAGEMENT CULTURE. The Company has a distinct management culture
that stresses creativity, loyalty and entrepreneurship and was developed to
emphasize operations from an owner's perspective. Management believes in
realistic solutions to problems, and innovation is always encouraged. Incentive
programs and awards have been established to encourage individual property
managers to seek new ways of increasing revenues and operating cash flow. This
creative, entrepreneurial spirit is prevalent from the corporate staff and the
general managers down to the operations staff. Individual general managers work
closely with the corporate staff and they and their employees are rewarded for
achieving target operating and financial goals.
THE PROPERTIES
The Owned Hotels, the Medallion Portfolio and the Additional Acquisitions
feature, or after the Company's renovation programs have been completed will
feature, comfortable, modern guest rooms, extensive meeting and convention
facilities and full-service restaurant and catering facilities that attract
meeting and convention functions from groups and associations, upscale business
and vacation travelers as well as banquets and receptions from the local
community.
RECENT ACQUISITIONS
The following is a brief description of the Owned Hotels acquired subsequent
to June 30, 1997:
DOUBLETREE RESORT, PALM SPRINGS, CA. Built in 1985, the 289-room resort at
Desert Princess Country Club is located in Cathedral City, five minutes from the
Palm Springs Airport and one mile from the Date Palm Drive exit off Interstate
10. The hotel offers a wide array of recreational facilities, including a nine-
hole golf course, 10 tennis courts, two swimming pools, a health club, a
racquetball court and workout room, and access to the adjacent 18-hole, David
Rainville-designed golf course. The property has 15,000 square feet of meeting
space, including two large ballrooms, two restaurants, the Promenade Cafe and
Princess Restaurant and two entertainment facilities, the Oasis Nightclub and
Vista Lounge. The Company has also obtained management contracts for 45
condominiums, which are contiguous to the hotel, increasing the property's
potential room capacity to 334.
GEORGETOWN INN, WASHINGTON, D.C. Built in 1962, the six story, 95-room
hotel is located in Georgetown, an historic district in central Washington D.C..
The hotel combines a high level of quality found in luxury hotels with a more
personalized level of service not usually found at larger hotels.
S-18
JEKYLL INN, JEKYLL ISLAND, GA. Built in 1971, the Jekyll Inn is a 265-room
oceanfront resort hotel on Jekyll Island off the coast of Georgia. The hotel has
an advantageous location near a 27-hole public golf course and is in close
proximity to the recently renovated and expanded convention center. The hotel
has more guest rooms and more extensive meeting space than any other hotel on
Jekyll Island or the nearby Sea Island and St. Simons.
RADISSON HOTEL & SUITES, CHICAGO, IL. Built in 1971, the 341-room hotel is
located in downtown Chicago, a half-block off North Michigan Avenue and the
city's renowned "Magnificent Mile" shopping area. The hotel is a 40-story,
mixed-use hotel and office tower, comprising its guest quarters, 93,000 square
feet of office space and a 170-space parking facility. The hotel's rooftop pool
and its oversized guest rooms and suites offer spectacular views of the city and
Lake Michigan. The hotel's meeting and banquet facilities total in excess of
18,000 square feet, including the recently completed RadiCenter 7, a 5,500
square foot conference facility that is ideal for small to mid-size groups and
one of the most advanced conference sites in the Midwest.
RADISSON PLAZA, LEXINGTON, KY. Built in 1982, the Radisson Plaza is a major
mixed-use development located in downtown Lexington directly across from and
connected by skywalk to Rupp Arena, the Lexington Convention Center and Festival
Market Place. The development consists of the 22-story, 367-room Radisson Hotel
and the Vine Center, which consists of a 17-story office tower containing
242,528 square feet and 38 privately owned condominium units on floors 18
through 22.
EMBASSY SUITES CENTER CITY, PHILADELPHIA, PA. Built in 1963, the 288-unit
Embassy Suites Center City has a premier location in Center City Philadelphia at
1776 Ben Franklin Parkway in the heart of the Market Street West corridor,
adjacent to Logan Circle. The property has prominent visibility along the
Parkway and is located in the city's top Class A office corridor, adjacent to
the Bell Atlantic Tower, one of the preeminent office towers in the Philadelphia
skyline. The hotel is conveniently located within a nine block radius of several
attractions including the recently built 622,000 square foot Philadelphia
Convention Center, the Philadelphia Museum of Art, City Hall, the Franklin
Institute and the Rodin Museum and Academy of Natural Sciences.
DOUBLETREE HOTEL, AUSTIN, TX. Built in 1984, the Doubletree Hotel is a
350-room, full-service hotel located in the city's high tech growth corridor
along Interstate 35. Austin, the capital of the State of Texas and home to the
nation's third largest university, has added to its economy more than 400 high
tech manufacturing and software companies over the past ten years. The
Doubletree is the premier commercial hotel adjacent to Austin's "golden
triangle" high tech area. The property enjoys excellent visibility and access
via I-35, which connects Austin to Dallas to the north and San Antonio to the
south.
NATIONAL AIRPORT HILTON, ARLINGTON, VA. Built in 1974, the 386-room hotel
is located one-half mile from National Airport in Crystal City, one of the
largest and most successful mixed-use developments in the United States. The
hotel has excellent accessibility by car, taxi and Metro, and generates demand
from many parts of the metropolitan D.C. area.
HOLIDAY INN-METROTOWN, VANCOUVER, B.C. Built in 1989, the 100-room hotel is
located adjacent to the skytrain station and physically integrated into the
Metrotown Mall, the largest shopping mall in British Columbia. The hotel
features a jogging track, outdoor pool and tennis courts as well as 3,800 square
feet of meeting space and two restaurants.
THE MEDALLION PORTFOLIO
SEELBACH HOTEL, LOUISVILLE, KY. Originally built in 1905 and extensively
renovated in 1982 and 1995, the 321-room hotel is located in downtown
Louisville, adjacent to the Galleria shopping complex, and features guestrooms
that are furnished with 18th-century reproduction armoires and four-poster beds.
The
S-19
hotel also features meeting space and ballrooms totaling 30,000 square feet, a
health club and swimming pool privileges, as well as The Oak Room restaurant,
the Seelbach Cafe and the Old Seelbach Bar.
MEDALLION HOTEL, OKLAHOMA CITY, OK. Built in 1977, the 399-room,
fifteen-story hotel is the only major hotel located in downtown Oklahoma City
and is adjacent to the Myriad Convention Center. The hotel, which underwent an
$8.0 million renovation in early 1997, includes 18,000 square feet of meeting
space, a 6,000 square foot ballroom and the 154,000 square foot Century City
Mall. Amenities include a swimming pool, a health club, and the Aria Grill and
Lounge.
AUSTIN HILTON & TOWERS, AUSTIN, TX. Built in 1974, the 237-room hotel is
located at the northwest quadrant of the intersection of Interstate 35 and US
Highway 290, one mile northwest of Mueller Municipal Airport and five miles
north of the University of Texas at Austin. The property includes a nine-story
guestroom tower containing 190 rooms and the Garden Court containing 47 rooms.
The property offers over 17,000 square feet in flexible meeting space and an
8,000 square foot ballroom. Amenities include a restaurant and lounge, fitness
center, swimming pool, gift shop and airport transportation. In addition,
contiguous to the property is an 83-room limited-service hotel.
MEDALLION HOTEL, DALLAS, TX. Built in 1979, the 289-room hotel is located
in the prestigious North Dallas Corridor at the intersection of the LBJ Freeway
and Midway Road, one mile west of the Dallas Galleria and 12 miles east of the
DFW International Airport. The hotel offers over 28,000 square feet of meeting
space, a 7,350 square foot ballroom, the Seasons restaurant, the Palm Terrace
lounge, a fitness center, an outdoor swimming pool, a business center and
complimentary transportation to the Galleria.
MEDALLION HOTEL, HOUSTON, TX. Build in 1979, the 382-room hotel is located
at the intersection of the Loop Freeway (Interstate 610) and the Northwest
Freeway (US Highway 290), one mile north of Interstate 10 and four miles north
of the Houston Galleria. The hotel features a ten-story atrium lobby, almost
14,000 square feet of meeting space and an 8,000 square foot ballroom. Amenities
include a full service restaurant and two lounges, gift shop, fitness center and
a swimming pool.
MIDLAND HILTON & TOWERS, MIDLAND, TX. Built in 1976, the 249-room hotel is
located in the heart of downtown Midland, across the street from Midland
Convention Center and ten miles east of Midland International Airport. The
property features over 10,000 square feet in flexible meeting space, a 6,000
square foot ballroom, a fitness center and an outdoor swimming pool.
THE ADDITIONAL ACQUISITIONS
EMBASSY SUITES TUCSON INTERNATIONAL AIRPORT, TUCSON, AZ. Built in 1982, the
hotel has 204 two-room guest suites, and is located at the entrance to the
Tucson International Airport. The property is built around a heavily landscaped
courtyard, which contains a swimming pool and outdoor seating. The hotel has a
restaurant and lounge, an amphitheater, a ballroom and several breakout meeting
rooms.
DETROIT METRO AIRPORT HILTON SUITES, DETROIT, MI. Built in 1989, the hotel
contains 151 suites and is located one-quarter mile north of Detroit Metro
Airport. The hotel has 3,281 square feet of meeting space, an indoor and outdoor
swimming pool, exercise facilities, gameroom, business center and gift shop.
GOVERNOR MORRIS HOTEL & CONFERENCE CENTER, MORRISTOWN, NJ. Built in 1962,
the 201-room hotel is located 25 minutes from Newark International Airport and
45 minutes from Manhattan. The hotel has 18,503 square feet of meeting and
banquet space, four food and beverage outlets, a fitness center, a business
center, an outdoor swimming pool and a paddle tennis court.
THE MANAGED HOTELS
The Company operates 28 Managed Hotels owned by third parties containing
4,928 rooms. Of the Managed Hotels, 21 are full-service properties, and seven
are limited-service properties. Of the Managed
S-20
Hotels, 23 are operated under nationally-recognized brand names and five are
independent properties. The brand names of the Managed Hotels include Crowne
Plaza, Four Points, Clarion, Holiday Inn and
Best Western. See "Certain Relationships and Related Transactions" and "Risk
Factors--Potential Conflicts of Interest."
The Management Agreements (as defined herein) have remaining terms ranging
from one month to nine years. Substantially all of the Management Agreements
permit the owners of the Managed Hotels to terminate such agreements prior to
the stated expiration dates if the applicable hotel is sold and several of the
Management Agreements permit the owners of the Managed Hotels to terminate such
agreements prior to the stated expiration date without cause or by reason of the
failure of the applicable hotel to obtain specified levels of performance. For
the twelve months ended December 31, 1996 and the six months ended June 30,
1997, the Company's pro forma revenue from Management Agreements was $2.9
million and $2.1 million, respectively, constituting 0.7% and 1.0%,
respectively, of the Company's total pro forma revenue for such periods. No
single Management Agreement (or group of Management Agreements for hotels under
common ownership or control) currently accounts for more than 0.1% of the total
revenue of the Company on a pro forma basis. See "Risk Factors--Termination of
Management Agreements."
The Company intends to continue its efforts to add to its portfolio of
Managed Hotels by aggressively pursuing new management agreements. The Company
believes that, in addition to adding to the Company's revenues and profits, the
business of operating hotels for third parties benefits the Company by (i)
increasing the Company's operating experience in, and knowledge of, hotel
markets throughout North America, (ii) broadening the Company's relationships
with hotel owners and thus enhancing the Company's opportunities to identify,
evaluate and negotiate hotel acquisitions prior to the active marketing of a
hotel for sale, and (iii) improving the Company's ability to attract, train and
retain highly-qualified operating employees by offering them the opportunity to
work in a broader variety of hotels and markets.
COMPETITION
The Company competes primarily in the upscale and mid-priced sectors of the
full-service segment of the lodging industry. In each geographic market in which
the Hotels are located, there are other full- and limited-service hotels that
compete with the Hotels. In addition, the Company's food and beverage operations
compete with local free-standing restaurants and bars. Competition in the U.S.
lodging industry is based generally on convenience of location, brand
affiliation, price, range of services and guest amenities offered and quality of
customer service and overall product.
EMPLOYEES
As of June 30, 1997, the Company employed approximately 7,700 persons, of
whom approximately 6,500 were compensated on an hourly basis. Approximately 70
employees work at the corporate headquarters.
Employees at ten of the Hotels are represented by labor unions. Management
believes that labor relations with its employees are good.
TRADEMARKS
The Company employs a flexible branding strategy based on a particular
Hotel's market environment and the Hotel's unique characteristics. Accordingly,
the Company uses various national trade names pursuant to licensing arrangements
with national franchisors.
DOUBLETREE-Registered Trademark-, EMBASSY SUITES-Registered Trademark-,
HILTON-Registered Trademark- HOLIDAY INN-Registered Trademark-,
MARRIOTT-Registered Trademark-, RADISSON-Registered Trademark-,
RAMADA-Registered Trademark-, SHERATON-Registered Trademark- AND
WESTIN-Registered Trademark- ARE REGISTERED TRADEMARKS OF THIRD PARTIES, NONE OF
WHICH SHALL BE DEEMED AN ISSUER OR UNDERWRITER OF THE
S-21
NOTES OFFERED HEREBY NOR HAVE ANY OF SUCH FRANCHISORS ENDORSED OR APPROVED THE
OFFERING. SUCH FRANCHISORS HAVE NOT ASSUMED AND SHALL NOT HAVE ANY LIABILITY OR
RESPONSIBILITY FOR ANY FINANCIAL STATEMENTS OR OTHER FINANCIAL INFORMATION
CONTAINED HEREIN OR ANY PROSPECTUS OR ANY WRITTEN OR ORAL COMMUNICATIONS
REGARDING THE SUBJECT MATTER HEREOF. A GRANT OF ANY SUCH FRANCHISE LICENSE FOR
CERTAIN OF THE COMPANY'S HOTELS IS NOT INTENDED AS, AND SHOULD NOT BE
INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL OR ENDORSEMENT BY ANY OF SUCH
FRANCHISORS (OR ANY OF THEIR AFFILIATES, SUBSIDIARIES OR DIVISIONS) OF THE
COMPANY OR THE NOTES OFFERED HEREBY.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the normal course of
business. The Company believes that the ultimate outcome of these lawsuits will
not have a material adverse effect on the Company.
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 laws governing their relationship with
hotel employees, including minimum wage requirements, overtime, working
conditions and work permit requirements. Compliance with, or changes in, these
laws could reduce the revenue and profitability of the Owned Hotels and could
otherwise adversely affect the Company's operations.
Under the ADA (as defined herein), all public accommodations are required to
meet certain requirements related to access and use by disabled persons. These
requirements became effective in 1992. Although significant amounts have been
and continue to be invested in ADA required upgrades to the Owned Hotels, a
determination that the Company is not in compliance with the ADA could result in
a judicial order requiring compliance, imposition of fines or an award of
damages to private litigants. The Company is likely to incur additional costs of
complying with the ADA; however, such costs are not expected to have a material
adverse effect on the Company's results of operations or financial condition.
See "Risk Factors--Governmental Regulation."
For a description of certain environmental regulations to which the Company
is subject, see "Risk Factors--Environmental Risks."
S-22
SELLING STOCKHOLDERS
The following table sets forth the names of the Selling Stockholders, the
number of shares of Common Stock which may be deemed to be beneficially owned by
each Selling Stockholder as of the date hereof and the maximum number of shares
which may be offered by each Selling Stockholder.
NUMBER OF MAXIMUM
SHARES NUMBER OF
BENEFICIALLY SHARES TO BE
SELLING STOCKHOLDER OWNED OFFERED
- --------------------------------------------------------------------------------------- ----------- ------------
The Equitable Life Assurance Society of the United States(1)........................... 467,339 467,339
Overseas Assets Holdings, Inc.(1)...................................................... 172,654 172,654
Umpawaug Corporation(1)................................................................ 113,931 113,931
Xerox Credit Corporation(1)............................................................ 98,575 98,575
Mitsui Nevitt Capital Corporation(1)................................................... 92,201 92,201
Wells Fargo & Co.(1)................................................................... 59,144 59,144
The Bank of New York Company, Inc.(1).................................................. 56,595 56,595
David G. Offensend(2)(3)............................................................... 61,949 40,000
Paribas North America, Inc.(1)......................................................... 39,430 39,430
Neuville Company, Inc.(1).............................................................. 35,177 35,177
Anthony P. Scotto(2)(3)................................................................ 36,405 27,023
John Hancock Mutual Life Insurance Company(1).......................................... 25,387 25,387
Fort Worth Zoological Association...................................................... 18,134 18,134
Peter G. Mulvihill(2)(3)............................................................... 16,646 12,717
R. David Andrews(2)(3)................................................................. 8,752 8,752
Oak Hill Investment Partners, L.P.(2)(3)............................................... 3,685 3,685
Nicholas Orum(2)(3).................................................................... 1,404 1,404
OHP EquiStar, L.P.(3).................................................................. 800 800
OHP EquiStar II, L.P.(3)............................................................... 570 570
----------- ------------
Total.............................................................................. 1,308,778 1,273,518
- ------------------------
(1) Such Selling Stockholder is a limited partner of both Acadia Partners, L.P.,
a principal stockholder of the Company, and Penobscot Partners, L.P., and
received such shares in a liquidating distribution from Acadia Partners,
L.P. and Penobscot Partners, L.P. immediately prior to the date hereof.
(2) Such Selling Stockholder is a limited partner of OHP EquiStar, L.P., and
received such shares in a liquidating distribution from OHP EquiStar, L.P.
immediately prior to the date hereof.
(3) Daniel L. Doctoroff, a director of the Company, is a principal stockholder
of Oak Hill Partners, Inc. Bradford E. Bernstein, a director of the Company,
is a principal of Oak Hill Partners, Inc. Oak Hill Partners, Inc. is the
general partner of OHP EquiStar, L.P. and OHP EquiStar II, L.P. Oak Hill
Partners, Inc. is also the investment advisor to Acadia Partners, L.P.
S-23
UNDERWRITING
The Underwriters of the Equity Offering (the "Underwriters"), for whom
Lehman Brothers Inc. ("Lehman"), BT Alex. Brown Incorporated, Goldman, Sachs &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Montgomery Securities
and Smith Barney Inc. are serving as representatives (the "Representatives")
have severally agreed, subject to the terms and conditions of the underwriting
agreement, the form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part (the "Underwriting Agreement"), to
purchase from the Company, and the Company has agreed to sell to the
Underwriters, the aggregate number of shares of Common Stock set forth opposite
their respective names below.
NUMBER
UNDERWRITERS OF SHARES
- --------------------------------------------------------------------------------- ----------
Lehman Brothers Inc..............................................................
BT Alex. Brown Incorporated......................................................
Goldman, Sachs & Co..............................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................................
Montgomery Securities............................................................
Smith Barney Inc.................................................................
----------
Total............................................................................
----------
----------
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase shares of Common Stock are subject to the approval of certain legal
matters by counsel and to certain other conditions and that if any of the shares
of Common Stock are purchased by the Underwriters pursuant to the Underwriting
Agreement, all the shares of Common Stock agreed to be purchased by the
Underwriters pursuant to the Underwriting Agreement, must be so purchased.
The Company has been advised that the Underwriters propose to offer shares
of Common Stock directly to the public initially at the public offering price
set forth on the cover page of this Prospectus Supplement and to certain
selected dealers (who may include the Underwriters) at such public offering
price less a selling concession not to exceed $ per share. The selected
dealers may reallow a concession not to exceed $ per share. After the initial
offering of the Common Stock, the concession to selected dealers and the
reallowance to other dealers may be changed by the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
the payments they may be required to make in respect thereto.
The Company has granted to the Underwriters an option to purchase up to an
additional 791,027 shares of Common Stock, at the public offering price, less
the aggregate underwriting discounts and commissions, shown on the cover page of
this Prospectus Supplement, solely to cover over-allotments, if any. Such option
may be exercised at any time within 30 days after the date of the Underwriting
Agreement. To the extent the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase a
number of the additional shares of Common Stock proportionate to such
Underwriter's initial commitment as indicated in the preceding table.
In connection with the Offerings, the Company has agreed not to offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable for Common Stock for a period of 180
days after the date of this Prospectus Supplement, without the prior written
consent of Lehman. In addition, certain executive officers of the Company have
agreed not to offer, sell, contract to sell or otherwise dispose of any shares
of Common Stock or any securities convertible into or exercisable for Common
Stock for a period of 180 days after the date of this Prospectus Supplement
without the prior written consent of Lehman. Such restriction will not apply to
any shares purchased in the Equity Offering or otherwise on the open market. See
"Risk Factors--Shares Available for Future Sale."
S-24
The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Until the distributions of the Common Stock and Convertible Notes are
completed, rules of the Securities and Exchange Commission may limit the ability
of the Underwriters to bid for and purchase shares of Common Stock or
Convertible Notes. As an exception to these rules, the Representatives are
permitted to engage in certain transactions that stabilize the price of the
Common Stock or Convertible Notes. Such transactions may consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock or Convertible Notes.
If the Underwriters create a short position in the Common Stock or
Convertible Notes in connection with the Offerings, (i.e., if they sell more
shares of Common Stock or Convertible Notes than are set forth on the cover page
of the Prospectus Supplements), the Representatives may reduce the short
position by purchasing Common Stock or Convertible Notes in the open market. The
Representatives may elect to reduce any short position by exercising all or part
of the over-allotment option described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock or Convertible Notes in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock or
Convertible Notes, they may reclaim the amount of the selling concession from
the Underwriters and selling group members who sold those shares or Convertible
Notes as part of the Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offerings.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock or Convertible Notes.
In addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
In July 1997, the Banks, including Lehman Holdings, an affiliate of Lehman,
and Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated, entered
into the 1997 Credit Facility with the Company ($235.2 million was outstanding
thereunder as of September 19, 1997), which facility is expected to be partially
repaid with the net proceeds from the Offerings. See "Use of Proceeds." In
August 1997, Lehman Holdings entered into the Non-Recourse Facility with the
Company ($52.8 million was outstanding thereunder as of September 19, 1997),
which facility is not expected to be repaid with proceeds from the Offerings.
An affiliate of Lehman owns a minority equity interest in Acadia Partners,
L.P. In connection with a liquidating distribution of Acadia Partners, L.P.,
immediately prior to the date hereof, this affiliate of Lehman will receive
approximately 170,000 shares of Common Stock which are not being sold in the
Offerings. In addition, an affiliate of BT Alex. Brown Incorporated owns
approximately 120,000 shares of Common Stock.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Hogan & Hartson L.L.P.,
Washington, D.C.
EXPERTS
The Company's financial statements as of December 31, 1996 and 1995, and for
the years then ended, and the supplemental schedule and the financial statements
of CapStar Management Company, L.P. as of
S-25
December 31, 1994, and for the years ended December 31, 1994 and 1993,
incorporated by reference herein and in the Registration Statement, have been
incorporated by reference in reliance on the reports of KPMG Peat Marwick LLP,
independent accountants, incorporated by reference herein and in the
Registration Statement, given on the authority of said firm as experts in
accounting and auditing. The financial statements of certain other entities,
incorporated by reference herein and in the Registration Statement, have been
incorporated by reference in reliance on the reports of KPMG Peat Marwick LLP,
Wertheim & Company, King Griffin & Adamson P.C., Coopers & Lybrand L.L.P., Mann
Frankfort Stein & Lipp, P.C., Pinsker, Goldberg & Company and Pannell Kerr
Forster PC as the case may be, independent accountants, incorporated by
reference herein and in the Registration Statement, given on the authority of
said firms as experts in accounting and auditing.
Any financial statements and schedules hereafter incorporated by reference
in the Registration Statement of which this Prospectus is a part that have been
audited and are the subject of a report by independent accountants will be so
incorporated by reference in reliance upon such reports and upon the authority
of such firms as experts in accounting and auditing to the extent covered by
consents filed with the Securities and Exchange Commission.
S-26
PROSPECTUS
$600,000,000
[LOGO]
COMMON STOCK
PREFERRED STOCK
DEBT SECURITIES
WARRANTS
----------------
CapStar Hotel Company ("CapStar" or the "Company") may offer from time to
time, together or separately, (i) shares of its Common Stock ("Common Stock"),
(ii) shares of its Preferred Stock ("Preferred Stock"), (iii) debt securities
consisting of notes, debentures or other evidences of indebtedness in one or
more series ("Debt Securities"), and (iv) warrants or other rights to purchase
Common Stock, Preferred Stock, Debt Securities or any combination thereof, as
may be designated by the Company at the time of the offering ("Warrants") in
amounts, at prices and on terms to be determined at the time of the offering. In
addition, certain stockholders of the Company (collectively, the "Selling
Stockholders") may offer from time to time up to 1,285,650 shares of Common
Stock in amounts, at prices and on terms to be determined at the time of the
offering. The Common Stock, Preferred Stock, Debt Securities and Warrants are
collectively referred to as the "Securities."
The Securities may be offered in separate series or issuances at an
aggregate initial public offering price not to exceed $600,000,000 or, if
applicable, the equivalent thereof in other currencies, at prices and on terms
to be determined at the time or times of offering.
The specific terms of the Securities with respect to which this Prospectus
is being delivered are set forth in the accompanying Prospectus Supplement and
include, where applicable, (i) in the case of Common Stock, the number of
shares, the initial public offering price and whether the shares are being sold
by the Company or Selling Stockholders; (ii) in the case of Preferred Stock, the
number of shares, the specific title, the aggregate amount, any dividend
(including the method of calculating payment of dividends), seniority,
liquidation, redemption, voting and other rights, any terms for any conversion
or exchange into other Securities, any listing on a securities exchange, the
initial public offering price and any other terms; (iii) in the case of Debt
Securities, the specific designation, aggregate principal amount, ranking as
senior debt ("Senior Securities") or subordinated debt ("Subordinated
Securities"), purchase price, maturity, rate (or method of calculation thereof)
and time of payment of interest, if any, any conversion or exchange provisions,
any redemption provisions, any subordination provisions and any other specific
terms of the Debt Securities offered hereby not set forth herein under the
caption "Description of Debt Securities" in this Prospectus, and any listing
thereof on a securities exchange; and (iv) in the case of Warrants, the
designation and number, the issue price, the exercise price, any listing of the
Warrants or the underlying Securities on a securities exchange and any other
terms in connection with the offering, sale and exercise of the Warrants.
---------------------
The Common Stock is listed on the New York Stock Exchange ("NYSE"), under
the symbol "CHO." Any Common Stock sold pursuant to a Prospectus Supplement will
be listed on the NYSE, subject to official notice of issuance.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE SECURITIES, SEE "RISK FACTORS" COMMENCING ON PAGE 4.
Any statement contained in this Prospectus will be deemed to be modified or
superseded by any inconsistent statement contained in the accompanying
Prospectus Supplement.
September 10, 1997
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials can also be obtained at prescribed rates from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such materials can also be inspected on the Internet at
http://www.sec.gov. The Common Stock is listed on the NYSE, and reports, proxy
statements and other information concerning the Company can be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus omits certain of the information contained in
the Registration Statement, and reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the Securities offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and in each instance reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement is qualified in its entirety by such references.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into this Prospectus (i) the
Company's Annual Report on Form 10-K for the year ended December 31, 1996; (ii)
the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997; (iii) the Company's Current Reports on Form 8-K filed
December 31, 1996, as amended, April 4, 1997, July 30, 1997, as amended, August
13, 1997, September 2, 1997, September 8, 1997 and September 9, 1997; and (iv)
the description of the Company's Common Stock contained in the Company's
Registration Statement on Form 8-A (Commission File No. 1-12017) filed August 2,
1996.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering
made hereby, shall be deemed incorporated by reference in this Prospectus and to
be a part of this Prospectus from the date of the filing of such reports.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
Any person receiving a copy of this Prospectus may obtain, without charge,
upon written or oral request, a copy of any of the documents incorporated by
reference herein, except for the exhibits to such documents (other than the
exhibits expressly incorporated in such documents by reference). Requests should
be directed to: CapStar Hotel Company, 1010 Wisconsin Avenue, N.W., Suite 650,
Washington, D.C. 20007, (202) 965-4455, Attention: John Emery, Corporate
Secretary.
2
THE COMPANY
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES HEREIN TO "CAPSTAR" OR THE
"COMPANY" INCLUDE CAPSTAR HOTEL COMPANY AND ITS SUBSIDIARIES (INCLUDING THE
COMPANY'S SUBSIDIARY OPERATING PARTNERSHIPS, THROUGH WHICH THE COMPANY OPERATES
ALL OF ITS BUSINESSES).
CapStar Hotel Company owns and manages hotels throughout the United States
and Canada. As of September 9, 1997, CapStar owned and/or managed 69 hotels with
15,449 rooms (the "Hotels"). Of the Hotels, the Company owned and managed 41
upscale, full-service hotels with 10,521 rooms (the "Owned Hotels") and managed
an additional 28 hotels owned by third parties with 4,928 rooms (the "Managed
Hotels"). The Owned Hotels are located in markets that have recently experienced
strong economic growth, including Albuquerque, Atlanta, Charlotte, Chicago,
Cleveland, Dallas, Denver, Houston, Los Angeles, Salt Lake City, Seattle and
Washington, D.C. The Owned Hotels include hotels operated under nationally
recognized brand names such as Hilton-Registered Trademark-,
Sheraton-Registered Trademark-, Westin-Registered Trademark-,
Marriott-Registered Trademark-, Doubletree-Registered Trademark- and Embassy
Suites-Registered Trademark-. The Company's business strategy is to acquire
hotel properties with the potential for cash flow growth and to renovate,
reposition and operate each hotel according to a business plan specifically
tailored to the characteristics of the hotel and its market.
As a fully integrated owner and manager, CapStar intends to capitalize on
its management experience and expertise by continuing to make opportunistic
acquisitions of full-service hotels, securing additional management contracts
and improving the operating performance of the Hotels. The Company's senior
management team, with significant lodging industry experience, has successfully
managed hotels in all segments of the lodging industry, with particular emphasis
on upscale, full-service hotels. Since the inception of the Company's management
business in 1987, the Company has achieved consistent revenue and portfolio
growth, even during periods of relative industry weakness. The Company
attributes its management success to its ability to analyze each hotel as a
unique property and identify those particular cash flow growth opportunities
which each hotel presents. The Company's principal operating objectives are to
generate higher revenue per available room and to increase net operating income
while providing its hotel guests with high-quality service and value.
The Company's principal executive offices are located at 1010 Wisconsin
Avenue, N.W., Suite 650, Washington, DC 20007, and its telephone number is (202)
965-4455.
3
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH ELSEWHERE OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISK FACTORS PRIOR TO PURCHASING THE SECURITIES OFFERED HEREBY.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
As of September 9, 1997, the Company's outstanding indebtedness (including
current portion) was $454.4 million.
The degree to which the Company is leveraged could have important
consequences, including: (i) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, acquisitions
or general corporate purposes may be impaired; (ii) a substantial portion of the
Company's cash flow from operations may be dedicated to the payment of principal
and interest on its indebtedness, thereby reducing the funds available to the
Company for its operation; (iii) certain of the Company's debt instruments
contain financial and other restrictive covenants, including those restricting
the incurrence of additional indebtedness, the creation of liens, the payment of
dividends and sales of assets; (iv) the Company may be hindered in its ability
to adjust rapidly to changing market conditions; and (v) the Company's
substantial degree of leverage could make it more vulnerable in the event of a
downturn in general economic conditions or in its business. The Company's
ability to satisfy its obligations will be dependent upon its future
performance, which is subject to prevailing economic conditions and financial,
business and other factors, including factors beyond the Company's control.
There can be no assurance that the Company's operating cash flow will be
sufficient to meet its debt service requirements or to repay its obligations at
maturity or that the Company will be able to refinance its indebtedness at
maturity.
RISKS ASSOCIATED WITH THE LODGING INDUSTRY
OPERATING RISKS. The Company's business is subject to all of the operating
risks inherent in the lodging industry. These risks include the following:
changes in general and local economic conditions; cyclical overbuilding in the
lodging industry; varying levels of demand for rooms and related services;
competition from other hotels, motels and recreational properties; changes in
travel patterns; the recurring need for renovations, refurbishment and
improvements of hotel properties; changes in governmental regulations that
influence or determine wages, prices and construction and maintenance costs; and
changes in interest rates and the availability of credit. Demographic,
geographic or other changes in one or more of the Company's markets could impact
the convenience or desirability of the sites of certain hotels, which would in
turn affect the operations of those hotels. In addition, due to the level of
fixed costs required to operate full-service hotels, certain significant
expenditures necessary for the operation of hotels generally cannot be reduced
when circumstances cause a reduction in revenue.
COMPETITION IN THE LODGING INDUSTRY. The lodging industry is highly
competitive. There is no single competitor or small number of competitors of the
Company that are dominant in the industry. The Hotels operate in areas that
contain numerous competitors, many of which have substantially greater resources
than the Company. Competition in the lodging industry is based generally on
location, room rates and range and quality of services and guest amenities
offered. New or existing competitors could significantly lower rates or offer
greater conveniences, services or amenities or significantly expand, improve or
introduce new facilities in markets in which the Hotels compete, thereby
adversely affecting the Company's operations.
SEASONALITY. The lodging industry is seasonal in nature. Generally, hotel
revenues are greater in the second and third quarters than in the first and
fourth quarters. This seasonality can be expected to cause quarterly
fluctuations in the revenues of the Company. Quarterly earnings also may be
adversely affected
4
by events beyond the Company's control, such as extreme weather conditions,
economic factors and other considerations affecting travel.
FRANCHISE AGREEMENTS. Certain of the Owned Hotels are operated pursuant to
existing franchise or license agreements (the "Franchise Agreements"). The
Franchise Agreements generally contain specific standards for, and restrictions
and limitations on, the operation and maintenance of a hotel in order to
maintain uniformity within the franchisor system. Those limitations may conflict
with the Company's philosophy of creating specific business plans tailored to
each hotel and to each market. Such standards are often subject to change over
time, in some cases at the discretion of the franchisor, and may restrict a
franchisee's ability to make improvements or modifications to a hotel without
the consent of the franchisor. In addition, compliance with such standards could
require a franchisee to incur significant expenses or capital expenditures. In
connection with changing the franchise affiliation of an Owned Hotel or a
subsequently acquired hotel, the Company may be required to incur significant
expenses or capital expenditures. The Franchise Agreements covering the Owned
Hotels expire or terminate, without specified renewal rights, at various times
and have differing remaining terms. As a condition to renewal, the Franchise
Agreements frequently contemplate a renewal application process, which may
require substantial capital improvements to be made to the hotel.
RISKS ASSOCIATED WITH EXPANSION
COMPETITION FOR EXPANSION OPPORTUNITIES. The Company competes for the
acquisition of hotels with entities that have substantially greater financial
resources than the Company. The Company believes that, as a result of the
downturn experienced by the lodging industry from the late 1980s through the
early 1990s and the significant number of foreclosures and bankruptcies created
thereby, the prices for many hotels have for several years been at historically
low levels and often well below the cost to build new hotels. The recent
economic recovery in the lodging industry and the resulting increase in funds
available for hotel acquisitions may cause additional investors to enter the
hotel acquisition market, which may in turn cause hotel acquisition costs to
increase and the number of attractive hotel acquisition opportunities to
decrease.
FAILURE TO CONSUMMATE ACQUISITIONS. From time to time, the Company enters
into contracts to acquire additional hotels and in the future may enter into
contracts to acquire other hotels as well. There can be no assurance that the
Company will be able to consummate the acquisition of any such hotels. Failure
to consummate such acquisitions could affect the Company's ability to implement
its acquisition strategy.
INTEGRATION RISKS. To successfully implement its acquisition strategy, the
Company must be able to continue to successfully integrate new hotels into its
existing operations. For the twelve months ended September 9, 1997, the Company
acquired 29 hotels. The Company expects to continue to grow through the
acquisition of additional hotels. The consolidation of functions and integration
of departments, systems and procedures of the new hotels with the Company's
existing operations presents a significant management challenge, and the failure
to integrate new hotels into the Company's management and operating structures
could have a material adverse effect on the results of operations and financial
condition of the Company. There can be no assurance that the Company will be
able to achieve operating results in its new hotels comparable to the historical
performance of its hotels.
RISKS ASSOCIATED WITH OWNING REAL ESTATE
As of September 9, 1997, the Company owned 41 hotels. Accordingly, the
Company will be subject to varying degrees of risk generally incident to the
ownership of real estate. These risks include, among other things, changes in
national, regional and local economic conditions, changes in local real estate
market conditions, changes in interest rates and in the availability, cost and
terms of financing, the potential for uninsured casualty and other losses, the
impact of present or future environmental legislation and adverse changes in
zoning laws and other regulations. Many of these risks are beyond the control of
the Company.
5
In addition, real estate investments are relatively illiquid, resulting in a
limited ability of the Company to vary its portfolio of hotels in response to
changes in economic and other conditions.
HOTEL RENOVATION RISKS
The renovation of hotels involves risks associated with construction and
renovation of real property, including the possibility of construction cost
overruns and delays due to various factors (including the inability to obtain
regulatory approvals, inclement weather, labor or material shortages and the
unavailability of construction and permanent financing) and market or site
deterioration after acquisition or renovation. Any unanticipated delays or
expenses in connection with the renovation of hotels could have an adverse
effect on the results of operations and financial condition of the Company.
SUBSTANTIAL RELIANCE ON KEY PERSONNEL
The Company will place substantial reliance on the lodging industry
knowledge and experience and the continued services of its senior management,
led by Paul W. Whetsell and David E. McCaslin. The Company's future success and
its ability to manage future growth depend in large part upon the efforts of
these persons and on the Company's ability to attract and retain other highly
qualified personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in attracting and retaining
such personnel. The loss of services of Messrs. Whetsell or McCaslin or the
Company's inability to attract and retain other highly qualified personnel may
adversely affect the results of operations and financial condition of the
Company. The Company currently has employment agreements with Messrs. Whetsell
and McCaslin for terms of three years each expiring in December 1999, which
contain certain non-compete clauses.
POTENTIAL FOR CONFLICTS OF INTEREST
Mr. Whetsell and Mr. McCaslin and entities owned by them own, directly or
indirectly, certain leasehold and minority equity interests in certain of the
Managed Hotels. Mr. Whetsell and Mr. McCaslin exercise management control over
the entities that own certain 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 Company's
formation.
Conflicts may arise in the future between the Company and the Affiliated
Owners with respect to certain Management Agreements (as defined below) between
the Company and such Affiliated Owners. These conflicts may arise in connection
with the exercise of any rights or the conduct of any negotiations to extend,
renew, terminate or amend such agreements. There can be no assurance that such
conflicts will be resolved in favor of the Company. Transactions involving the
Company and the Affiliated Owners will be passed on for the Company by a
majority of the Company's non-employee, independent directors.
Although none of the Managed Hotels owned by Affiliated Owners now competes
with the Owned Hotels, the Company may in the future acquire a hotel in a market
in which a hotel owned by an Affiliated Owner now operates.
Under the terms of their employment agreements, Messrs. Whetsell and
McCaslin are prohibited from acquiring any additional interests in hotels or
hotel management companies while they serve as officers of the Company.
TERMINATION OF MANAGEMENT AGREEMENTS
The Company operates the Managed Hotels pursuant to third party management
agreements (the "Management Agreements") with the owners of such Managed Hotels.
The Management Agreements have remaining terms ranging from one month to nine
years. Substantially all of the Management Agreements permit the owners of the
Managed Hotels to terminate such agreements prior to the stated
6
expiration dates if the applicable hotel is sold, and several of the Management
Agreements permit the owners of the Managed Hotels to terminate such agreements
prior to the stated expiration date without cause or by reason of the failure of
the applicable hotel to obtain specified levels of performance. The early
termination of the Management Agreements or the inability of the Company to
negotiate renewals of Management Agreements upon the expiration of their stated
terms would have an adverse impact on the revenues received by the Company from
its management business.
ENVIRONMENTAL RISKS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In addition, the presence of contamination from
hazardous or toxic substances, or the failure to properly remediate such
contaminated property, may adversely affect the owner's ability to sell or rent
such real property or to borrow using such real property as collateral. Persons
who arrange for the disposal or treatment of hazardous or toxic substances may
also be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility, whether or not such facility is or ever was
owned or operated by such person. The operation and removal of certain
underground storage tanks are also regulated by federal and state laws. In
connection with the ownership and operation of the Hotels, the Company could be
held liable for the costs of remedial action with respect to such regulated
substances and storage tanks and claims related thereto. Activities have been
undertaken to close or remove storage tanks located on the property of two of
the Owned Hotels.
As of September 9, 1997, all of the Owned Hotels had undergone Phase I
environmental site assessments ("Phase Is"), which generally provide a physical
inspection and database search but not soil or groundwater analyses, by a
qualified independent environmental engineer within approximately the prior 12
months. Phase Is identify potential sources of contamination for which the Owned
Hotels may be responsible and to assess the status of environmental regulatory
compliance. The Phase Is have not revealed any environmental liability or
compliance concerns that the Company believes would have a material adverse
effect on the Company's results of operation or financial condition, nor is the
Company aware of any such liability or concerns.
In addition, the Owned Hotels have been inspected to determine the presence
of asbestos. Federal, state and local environmental laws, ordinances and
regulations also require abatement or removal of certain asbestos-containing
materials ("ACMs") and govern emissions of and exposure to asbestos fibers in
the air. Limited quantities of ACMs are present in various building materials
such as sprayed-on ceiling treatments, roofing materials or floor tiles at the
Owned Hotels. Operations and maintenance programs for maintaining such ACMs have
been or are in the process of being designed and implemented, or the ACMs have
been scheduled to be or have been abated, at such hotels. Based on third party
environmental assessments and due diligence investigations recently conducted by
the Company and its lenders, the Company believes that the presence of ACMs in
its Owned Hotels will not have a material adverse effect on the Company's
results of operations or financial condition. However, there can be no assurance
that this will be the case. Any liability resulting from non-compliance or other
claims relating to environmental matters could have a material adverse effect on
the Company's results of operations or financial condition.
GOVERNMENTAL REGULATION
A number of states regulate the licensing of hotels and restaurants,
including liquor license grants, by requiring registration, disclosure
statements and compliance with specific standards of conduct. The Company
believes that it is substantially in compliance with these requirements.
Managers of hotels are also subject to laws governing their relationship with
hotel employees, including minimum wage requirements, overtime, working
conditions and work permit requirements. Compliance with, or changes in, these
7
laws could reduce the revenue and profitability of the Owned Hotels and could
otherwise adversely affect the Company's results of operations or financial
condition.
Under the Americans with Disabilities Act (the "ADA"), all public
accommodations are required to meet certain requirements related to access and
use by disabled persons. These requirements became effective in 1992. Although
significant amounts have been and continue to be invested in ADA required
upgrades to the Owned Hotels, a determination that the Company is not in
compliance with the ADA could result in a judicial order requiring compliance,
imposition of fines or an award of damages to private litigants. The Company is
likely to incur additional costs of complying with the ADA; however, such costs
are not expected to have a material adverse effect on the Company's results of
operations or financial condition.
ABSENCE OF PUBLIC MARKET FOR THE DEBT SECURITIES AND WARRANTS
All of the Securities when issued will be a new issue of securities with no
established trading market, other than the Common Stock, which is listed on the
NYSE. Any Common Stock sold pursuant to a Prospectus Supplement will be listed
on the NYSE, subject to official notice of issuance. Any underwriters to whom
Securities are sold by the Company for public offering and sale may make a
market in such Securities, but such underwriters will not be obligated to do so
and may discontinue any market making at any time without notice. No assurance
can be given as to the liquidity of the secondary market for any such
Securities.
8
USE OF PROCEEDS
Except as set forth in an accompanying Prospectus Supplement, the net
proceeds from the sale of the Securities by the Company will be applied for
general corporate purposes, which may include the repayment of indebtedness
outstanding from time to time, the financing of future acquisitions, the
improvement of hotels owned by the Company and other general corporate purposes.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
the Company and its consolidated subsidiaries for each of the periods indicated.
To date, the Company has not issued any Preferred Stock; therefore, the ratios
of earnings to combined fixed charges and preferred stock dividends are the same
as the ratios of earnings to fixed charges set forth below.
YEAR ENDED DECEMBER 31, SIX MONTHS
------------------------------------------------------------- ENDED
1992(1) 1993(1) 1994(1) 1995 1996 JUNE 30, 1997
----------- ----------- ----------- ---------- ---------- -------------
Ratio of earnings to fixed charges(2)............... -- -- -- 1.05x 1.46x 2.68x
- ------------------------
(1) Prior to 1995, the Company's predecessor entities had no fixed charges and
therefore the ratio of earnings to fixed charges was not applicable.
(2) For purposes of computing the ratios of earnings to fixed charges, earnings
consist of income before minority interest, income tax expense and
extraordinary items plus fixed charges (excluding capitalized interest and
preferred distributions to minority interest). Fixed charges represent
interest incurred (including capitalized interest), amortization of debt
expense, preferred distributions to minority interest and the portion of
rental expense on operating leases deemed to be the equivalent of interest.
9
SELLING STOCKHOLDERS
The following table sets forth the names of the Selling Stockholders, the
number of shares of Common Stock which may be deemed to be beneficially owned by
each Selling Stockholder as of the date hereof and the maximum number of shares
which may be offered by each Selling Stockholder.
NUMBER OF MAXIMUM
SHARES NUMBER OF
BENEFICIALLY SHARES TO BE
SELLING STOCKHOLDER OWNED OFFERED
- --------------------------------------------------------------------------------------- ----------- ------------
The Equitable Life Assurance Society of the United States(1)........................... 467,339 467,339
Overseas Assets Holdings, Inc.(1)...................................................... 172,654 172,654
Umpawaug Corporation(1)................................................................ 113,931 113,931
Xerox Credit Corporation(1)............................................................ 98,575 98,575
Mitsui Nevitt Capital Corporation(1)................................................... 92,201 92,201
Wells Fargo & Co.(1)................................................................... 59,144 59,144
The Bank of New York Company, Inc.(1).................................................. 56,595 56,595
David G. Offensend(2)(3)............................................................... 61,949 40,000
Paribas North America, Inc.(1)......................................................... 39,430 39,430
Neuville Company, Inc.(1).............................................................. 35,177 35,177
Anthony P. Scotto(2)(3)................................................................ 36,405 27,023
John Hancock Mutual Life Insurance Company(1).......................................... 25,387 25,387
Fort Worth Zoological Association...................................................... 18,134 18,134
Peter G. Mulvihill(2)(3)............................................................... 16,646 12,717
Oak Hill Partners, Inc.(3)............................................................. 12,132 12,132
R. David Andrews(2)(3)................................................................. 8,752 8,752
Oak Hill Investment Partners, L.P.(2)(3)............................................... 3,685 3,685
Nicholas Orum(2)(3).................................................................... 1,404 1,404
OHP EquiStar, L.P.(3).................................................................. 800 800
OHP EquiStar II, L.P.(3)............................................................... 570 570
----------- ------------
Total.............................................................................. 1,320,910 1,285,650
----------- ------------
----------- ------------
- ------------------------
(1) Such Selling Stockholder is a limited partner of both Acadia Partners, L.P.,
a principal stockholder of the Company, and Penobscot Partners, L.P., and
received such shares in a liquidating distribution from Acadia Partners,
L.P. and Penobscot Partners, L.P. immediately prior to the date hereof.
(2) Such Selling Stockholder is a limited partner of OHP EquiStar, L.P., and
received such shares in a liquidating distribution from OHP EquiStar, L.P.
immediately prior to the date hereof.
(3) Daniel L. Doctoroff, a director of the Company, is a principal stockholder
of Oak Hill Partners, Inc. Bradford E. Bernstein, a director of the Company,
is a principal of Oak Hill Partners, Inc. Oak Hill Partners, Inc. is the
general partner of OHP EquiStar, L.P. and OHP EquiStar II, L.P. Oak Hill
Partners, Inc. is also the investment advisor to Acadia Partners, L.P.
10
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 49,000,000 shares of
Common Stock, par value $.01 per share, and 25,000,000 shares of Preferred
Stock. As of September 9, 1997, there were 18,907,821 shares of Common Stock and
no shares of Preferred Stock outstanding.
COMMON STOCK
VOTING RIGHTS. The Company's Certificate of Incorporation provides that
holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of stockholders. The stockholders are not entitled to vote
cumulatively for the election of directors.
DIVIDENDS. Each share of Common Stock is entitled to receive dividends if,
as and when declared by the Board of Directors. Under Delaware law, a
corporation may declare and pay dividends out of surplus, or if there is no
surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding year. No dividends may be declared, however, if
the capital of the corporation has been diminished by depreciation in the value
of its property, losses or otherwise to an amount less than the aggregate amount
of capital represented by any issued and outstanding stock having a preference
on the distribution of assets.
OTHER RIGHTS. Stockholders of the Company have no preemptive or other
rights to subscribe for additional shares. Subject to any rights of the holders
of any Preferred Stock that may be issued subsequent to the date of this
Prospectus, all holders of Common Stock are entitled to share equally on a
share-for-share basis in any assets available for distribution to stockholders
on liquidation, dissolution or winding up of the Company. No shares of Common
Stock are subject to redemption or a sinking fund. All outstanding shares of
Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Company's Board is authorized to issue, without further authorization
from stockholders, up to 25,000,000 shares of Preferred Stock in one or more
series and to determine, at the time of creating each series, the distinctive
designation of, and the number of shares in, the series, its dividend rate, the
number of votes, if any, for each share of such series, the price and terms on
which such shares may be redeemed, the terms of any applicable sinking fund, the
amount payable upon liquidation, dissolution or winding up, the conversion
rights, if any, and such other rights, preferences and priorities of such series
as the Board may be permitted to fix under the laws of the State of Delaware as
in effect at the time such series is created. The issuance of Preferred Stock
could adversely affect the voting power of the holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of the
Company.
SECTION 203 OF THE DELAWARE LAW
Section 203 of the Delaware General Corporation Law (the "Delaware Law")
prohibits publicly held Delaware corporations from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date of the transaction in which the person or entity became an
interested stockholder, unless (i) prior to such date, either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder is approved by the Board, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the outstanding
voting stock of the corporation (excluding for this purpose certain shares owned
by persons who are directors and also officers of the corporation and by certain
employee benefit plans) or (iii) on or after such date the business combination
is approved by the Board and by the affirmative vote (and not by written
consent) of at least 66 2/3% of the outstanding voting stock which is not owned
by the interested stockholder. For the purposes of Section
11
203, a "business combination" is broadly defined to include mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within the immediately preceding three years
did own) 15% or more of the corporation's voting stock.
REGISTRATION RIGHTS
The Company has entered into registration rights agreements with (i) persons
receiving shares of Common Stock in connection with the Company's initial
formation and (ii) parties receiving units of limited partnership interest in
its subsidiary operating partnerships as consideration for the acquisition of
certain of the Owned Hotels which, under certain circumstances, may be converted
into Common Stock (the "Registration Rights Agreements"), pursuant to which the
Company has agreed (with certain limitations) to register for sale any shares of
Common Stock that are held by the parties thereto (collectively, the
"Registrable Securities"). The Registration Rights Agreements provide that any
holder of Registrable Securities may require the Company to register such
Registrable Securities for sale (a "Demand Registration"), provided that the
total amount of Registrable Securities to be included in the Demand Registration
has a market value of at least $10.0 million and provided that notice is not
given prior to six months after the effective date of a previous Demand
Registration. If Registrable Securities are going to be registered by the
Company pursuant to a Demand Registration, the Company must provide written
notice to the other holders of Registrable Securities and permit them to include
any or all Registrable Securities that they hold in the Demand Registration,
provided that the amount of Registrable Securities requested to be registered
may be limited by the underwriters in an underwritten offering based on such
underwriters' determination that inclusion of the total amount of Registrable
Securities requested for registration would materially and adversely affect the
success of the offering. Certain management-controlled entities that received
shares in connection with the Company's initial formation have a one-time right
to require the Company to register the Registrable Securities that they hold in
connection with the distribution of the Registrable Securities to their members
or in connection with a resale of such shares. In order to demand any such
registration the market value of the securities to be sold by such entities must
be at least $2.0 million.
The Registration Rights Agreements also provide that, with certain limited
exceptions, in the event the Company proposes to file a registration statement
with respect to an offering of any class of equity securities the Company will
offer the holders of Registrable Securities the opportunity to register the
number of Registrable Securities they request to include (the "Piggyback
Registration"), provided that the amount of Registrable Securities requested to
be registered may be limited by the underwriters in an underwritten offering
based on such underwriters' determination that inclusion of the total amount of
Registrable Securities requested for registration would materially and adversely
affect the success of the offering. The Company is generally required to pay all
of the expenses of Demand Registrations and Piggyback Registrations, other than
underwriting discounts and commissions.
TRANSFER AGENT AND REGISTRAR
The Company has appointed The First National Bank of Boston as the transfer
agent and registrar for the Common Stock.
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DESCRIPTION OF DEBT SECURITIES
GENERAL
The Senior Securities will be issued under one or more indentures dated as
of a date prior to the first issuance of Senior Securities, as supplemented from
time to time (the "Senior Indenture"), between the Company and a trustee to be
named in the applicable Prospectus Supplement (the "Senior Trustee"), and the
Subordinated Securities will be issued under an indenture to be dated as of a
date prior to the first issuance of Subordinated Securities, as supplemented
from time to time (the "Subordinated Indenture"), between the Company and a
trustee to be named in the applicable Prospectus Supplement (the "Subordinated
Trustee"). The term "Indenture" as used herein refers to either the Senior
Indenture or the Subordinated Indenture, as appropriate, and the term "Trustee"
as used herein refers to either the Senior Trustee or the Subordinated Trustee,
as appropriate. The Indentures will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The statements
made under this heading relating to the Debt Securities and the Indentures are
summaries of the anticipated provisions thereof, do not purport to be complete
and are qualified in their entirety by reference to the Debt Securities and
Indentures.
The Debt Securities will be direct, unsecured obligations of the Company.
The indebtedness represented by the Senior Securities will rank equally with all
other unsecured and unsubordinated indebtedness of the Company. The indebtedness
represented by the Subordinated Securities will be subordinated in right of
payment to the prior payment in full of senior indebtedness of the Company as
described under "--Subordination" below. The Debt Securities may be issued from
time to time in one or more series. A supplemental indenture to the applicable
Indenture (a "Supplemental Indenture") will be entered into by the Company and
the applicable Trustee with respect to the issuance of each series of Debt
Securities, which will set forth the terms and provisions of such series of Debt
Securities. Reference is made to the Prospectus Supplement relating to the Debt
Securities being offered for the specific terms thereof, including: (i) the
title of such Debt Securities and whether they are Senior Securities or
Subordinated Securities; (ii) any limit on the aggregate principal amount of
such Debt Securities; (iii) the date or dates (or manner of determining the
same) on which the principal of such Debt Securities will be payable; (iv) the
rate or rates (or manner of determining the same) at which such Debt Securities
will bear interest, if any, and the date or dates from which such interest will
accrue; (v) the dates (or the manner of determining the same) on which such
interest will be payable, the record dates for such interest payment dates (or
the manner of determining the same), the persons to whom such interest will be
payable and the basis upon which interest will be calculated; (vi) the place or
places where the principal of and any premium and interest on such Debt
Securities will be payable; (vii) the period or periods, if any, within which,
and the price or prices at which, such Debt Securities may be redeemed, in whole
or in part, at the option of the Company; (viii) any mandatory or optional
sinking fund or analogous provisions; (ix) the denominations in which any Debt
Securities will be issuable; (x) the currency or currency units, if other than
currency of the United States, in which payment of the principal of and any
premium or interest on such Debt Securities will be payable, and the terms and
conditions of any elections that may be made available with respect thereto;
(xi) any index or formula used to determine the amount of payments of principal
of and any premium or interest on such Debt Securities; (xii) whether the Debt
Securities are to be issued in whole or in part in the form of one or more
global securities ("Global Securities") and, if so, the identity of the
depositary, if any, for such Global Securities; (xiii) the terms and conditions,
if any, pursuant to which such Debt Securities are convertible into or
exchangeable for Common Stock or other securities; (xiv) the applicability of
the provisions described in "--Defeasance" below; (xv) any subordination
provisions applicable to such Debt Securities in addition to or different than
those described under "--Subordination" below; (xvi) any addition to, or
modification or deletion of, any Events of Default (as defined in the applicable
Indenture) or covenants with respect to such Debt Securities, including without
limitation the amount to be specified in connection with clause (v) under
"--Events of Default" below; and (xvii) any other terms of the Debt Securities.
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The Debt Securities may be issued at a discount from their stated principal
amount. Certain federal income tax considerations and other special
considerations applicable to any Debt Security issued with original issue
discount (an "Original Issue Discount Security") will be described in an
applicable Prospectus Supplement.
If the purchase price of any Debt Securities is denominated, or any premium
or interest on Debt Securities is payable, in a foreign currency, the
restrictions, elections, general tax considerations, specific terms and other
information with respect to such issue of Debt Securities and such foreign
currency will be set forth in an applicable Prospectus Supplement.
Unless otherwise indicated in an applicable Prospectus Supplement, (i) the
Debt Securities will be issued only in fully registered form in denominations of
$1,000 or integral multiples thereof and (ii) payment of principal, premium (if
any) and interest on the Debt Securities will be payable, and the exchange,
conversion and transfer of Debt Securities will be registerable, at the office
or agency of the Company maintained for such purposes and at any other office or
agency maintained for such purpose. No service charge will be made for any
registration of transfer or exchange of the Debt Securities, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
CERTAIN COVENANTS IN THE INDENTURES
EXISTENCE. Except as permitted as described under "--Limitations on Merger
and Certain Other Transactions," the Company will be required to preserve and
keep in full force its existence, charter rights, statutory rights and
franchises, except to the extent that failure to do so would not have a material
adverse effect on the business, assets, financial condition or results of
operations of the Company (a "Material Adverse Effect"), except that the Company
will not be required to preserve any right or franchise if it determines that
the preservation is no longer desirable in the conduct of its business.
MAINTENANCE OF PROPERTIES. The Company will be required to cause all
properties used in its business to be maintained and kept in good condition,
repair and working order, except to the extent that the failure to do so would
not have a Material Adverse Effect, except that the Company will not be required
to continue the operation or maintenance of any such property or be prevented
from disposing of such property if the Company determines that such
discontinuance or disposal is desirable in the conduct of its business.
PAYMENT OF TAXES AND OTHER CLAIMS. The Company will be required to pay and
discharge, before the same become delinquent, (i) all taxes, assessments and
governmental charges levied or imposed upon the Company or its properties and
(ii) all claims that if unpaid would result in a lien on its property and have a
Material Adverse Effect, unless the same is being contested by proper
proceedings.
ADDITIONAL COVENANTS. Any additional covenants applicable to any series of
Debt Securities will be described in an applicable Prospectus Supplement.
EVENTS OF DEFAULT
Each Indenture will provide that certain events will constitute Events of
Default with respect to the Debt Securities, which Events of Default may include
the following: (i) default in the payment of the principal of, or premium, if
any, on, the Debt Security when it becomes due and payable; (ii) default in the
payment of any interest on the Debt Security when it becomes due and payable,
and continuance of such default for a period of 30 calendar days; (iii) default
in the making of any sinking fund payment as and when due by the terms of the
Debt Securities; (iv) default in the performance, or breach, of any other
covenant or warranty of the Company in such Indenture (other than a covenant
included in such Indenture solely for the benefit of a series of Debt Securities
other than that series) and continuance of such default for a period of 90
calendar days after written notice thereof has been given to the Company as
provided in
14
such Indenture; (v) certain events of bankruptcy, insolvency or reorganization
involving the Company; and (vi) any other Event of Default provided with respect
to Debt Securities of that series. Pursuant to the Trust Indenture Act, the
applicable Trustee will be required, within 90 calendar days after the
occurrence of a default under the applicable Indenture, to give to the holders
of the Debt Securities notice of all such uncured defaults known to it (except
that, in the case of a default in the performance of any covenant of the
character contemplated in clause (iv) of the preceding sentence, no such notice
to holders of the Debt Securities of such series will be given until at least 30
calendar days after the occurrence thereof), except that, other than in the case
of a default of the character contemplated in clause (i), (ii) or (iii) of the
preceding sentence, the applicable Trustee may withhold such notice if and so
long as it in good faith determines that the withholding of such notice is in
the interest of the holders of the Debt Securities.
If an Event of Default occurs and is continuing, either the applicable
Trustee or the holders of at least 25% in principal amount of the Debt
Securities of that series by notice as provided in the applicable Indenture may
declare the principal amount (or, if the Debt Securities are Original Issue
Discount Securities, such portion of the principal amount as may be specified in
the terms of that series) of all Debt Securities of that series to be due and
payable immediately. However, at any time after a declaration of acceleration
with respect to Debt Securities has been made, but before a judgment or decree
based on such acceleration has been obtained, the holders of a majority in
principal amount of the Debt Securities of that series may, under certain
circumstances, rescind and annul such acceleration. See "--Modification and
Waiver" below. If an Event of Default under clause (v) of the immediately
preceding paragraph occurs, then the principal of and premium, if any, and
accrued interest on the Debt Securities will become immediately due and payable
without any declaration or other act on the part of the applicable Trustee of
any holder of the Debt Securities.
An Indenture may provide that, subject to the duty of the applicable Trustee
thereunder during an Event of Default to act with the required standard of care,
such Trustee will be under no obligation to exercise any of its rights or powers
under the applicable Indenture at the request or direction of any of the holders
of the Debt Securities, unless such holders have offered to such Trustee
reasonable security or indemnity. Subject to certain provisions, including those
requiring security or indemnification of the applicable Trustee, the holders of
a majority in principal amount of the Debt Securities of any series will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to such Trustee, or exercising any trust or power conferred
on such Trustee, with respect to the Debt Securities of that series.
No holder of a Debt Security will have any right to institute any proceeding
with respect to the applicable Indenture or for any remedy thereunder unless
such holder has previously given to the applicable Trustee written notice of a
continuing Event of Default and unless the holders of at least 25% in aggregate
principal amount of the outstanding Debt Securities of the same series have also
made written request, and offered reasonable indemnity, to such Trustee to
institute such proceeding as trustee, and such Trustee has received from the
holders of a majority in aggregate principal amount of the outstanding Debt
Securities of the same series a direction inconsistent with such request and has
failed to institute such proceeding within 60 calendar days. However, such
limitations will not apply to a suit instituted by a holder of a Debt Security
for enforcement of payment of the principal of and interest on such Debt
Security on or after the respective due dates expressed in such Debt Security.
The Company will be required to furnish to each Trustee annually a statement
as to the performance by the Company of its obligations under the applicable
Indenture and as to any default in such performance thereunder.
Any additional Events of Default with respect to Debt Securities, and any
variations from the foregoing Events of Default, will be described in an
applicable Prospectus Supplement.
15
MODIFICATION AND WAIVER
Modifications and amendments of an Indenture may be made by the Company and
the applicable Trustee with the consent of the holders of not less than a
majority in aggregate principal amount of the Debt Securities series affected
thereby, except that no such modification or amendment may, without the consent
of the holder of each Debt Security affected thereby, (i) change the stated
maturity of, or any installment of principal of, or interest on, any Debt
Security; (ii) reduce the principal amount of, the rate of interest on, or the
premium, if any, payable upon the redemption of, any Debt Security; (iii) reduce
the amount of principal of an Original Issue Discount Security payable upon
acceleration of the maturity thereof; (iv) change the place or currency of
payment of principal of, or premium, if any, or interest on, any Debt Security;
(v) impair the right to institute suit for the enforcement of any payment on or
with respect to any Debt Security on or after the stated maturity or prepayment
date thereof; (vi) reduce the percentage in principal amount of Debt Securities
of any series, the consent of the holders of which is required for modification
or amendment of the applicable Indenture or for waiver of compliance with
certain provisions of such Indenture or for waiver of certain defaults; or (vii)
in the case of the Subordinated Indenture, modify any of the provisions relating
to the subordination of the Subordinated Securities in a manner adverse to the
holders thereof.
The holders of at least a majority in aggregate principal amount of the Debt
Securities of any series may on behalf of the holders of all Debt Securities of
that series waive compliance by the Company with certain covenants of the
applicable Indenture. The holders of not less than a majority in principal
amount of the Debt Securities of any series may, on behalf of the holders of all
Debt Securities of that series, waive any past default under the applicable
Indenture with respect to that series, except a default in the payment of the
principal of, or premium, if any, or interest on, any Debt Security of that
series or in respect of a provision which under such Indenture cannot be
modified or amended without the consent of the holder of each Debt Security of
that series affected thereby.
DEFEASANCE
An Indenture may provide that the Company may elect either (i) to defease
and be discharged from any and all obligations with respect to the Debt
Securities of any series pursuant to such Indenture, except for the obligation
to pay additional amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charge with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities and to maintain an office or agency in respect of such Debt
Securities and to hold moneys for payment in trust or (ii) to be released from
its obligations with respect to such Debt Securities under certain sections of
such Indenture (including the restrictions described under "--Certain Covenants
in the Indentures") and, if provided pursuant to such Indenture, its obligations
with respect to any other covenant, and any failure to comply with such
obligations will not constitute an Event of Default with respect to such Debt
Securities if, in either case, the Company irrevocably deposits with the
applicable Trustee, in trust, money or direct obligations of the United States
for the payment of which the full faith and credit of the United States is
pledged or obligations of an agency or instrumentality of the United States the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States, which, in either case, are not callable at the
issuer's option ("U.S. Government Obligations") or certain depositary receipts
therefor that through the payment of interest thereon and principal thereof in
accordance with their terms will provide money in an amount sufficient to pay
all the principal of and premium, if any, and any interest on, the Debt
Securities on the dates such payments are due in accordance with the terms of
such Debt Securities. Such defeasance may be effected only if, among other
things, (a) no Event of Default or event which with the giving of notice or
lapse of time, or both, would become an Event of Default under the applicable
Indenture has occurred and is continuing on the date of such deposit, (b) no
Event of Default described under clause (v) under "--Events of Default" above or
event that with the giving of notice or lapse of time, or both, would become an
Event of Default described
16
under such clause (v) has occurred and is continuing at any time on or prior to
the 90th calendar day following such date of deposit, (c) in the event of
defeasance under clause (i) above, the Company has delivered an opinion of
counsel, stating that (1) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (2) since the date of the
applicable Indenture there has been a change in applicable federal law, in
either case to the effect that, the holders of the Debt Securities will not
recognize gain or loss for United States federal income tax purposes as a result
of such deposit or defeasance and will be subject to United States federal
income tax in the same manner as if such defeasance had not occurred and (d) in
the event of defeasance under clause (ii) above, the Company has delivered an
opinion of counsel to the effect that, among other things, the holders of the
Debt Securities will not recognize gain or loss for United States federal income
tax purposes as a result of such deposit or defeasance and will be subject to
United States federal income tax in the same manner as if such defeasance had
not occurred. In the event the Company fails to comply with its remaining
obligations under the applicable Indenture after a defeasance of such Indenture
with respect to Debt Securities as described under clause (ii) above and the
Debt Securities are declared due and payable because of the occurrence of any
undefeased Event of Default, the amount of money and U.S. Government Obligations
on deposit with the applicable Trustee may be insufficient to pay amounts due on
the Debt Securities of such series at the time of the acceleration resulting
from such Event of Default. However, the Company will remain liable in respect
of such payments.
SATISFACTION AND DISCHARGE
The Company may be permitted under the applicable Indenture to discharge
certain obligations to holders of Debt Securities that have not already been
delivered to the Trustee for cancellation and that either have become due and
payable or will become due and payable within one year (or scheduled for
redemption within one year) by irrevocably depositing with the Trustee, in
trust, funds in such currency in which such Debt Securities are payable in an
amount sufficient to pay the entire indebtedness on such Debt Securities in
respect of principal, and premium, if any and interest to the date of such
deposit (if such Debt Securities have become due and payable) or to the stated
maturity or redemption date, as the case may be.
SUBORDINATION
Upon any distribution of assets of the Company upon the dissolution, winding
up, liquidation or reorganization of the Company, the payment of the principal
of (and premium, if any) and interest on the Subordinated Securities will be
subordinated to the extent provided in the Subordinated Indenture in right of
payment to the prior payment in full of all senior indebtedness, including
Senior Securities, but the obligation of the Company to make payment of
principal (and premium, if any) or interest on the Subordinated Securities will
not otherwise be affected. No payment on account of principal (or premium, if
any), sinking fund or interest may be made on the Subordinated Securities at any
time when there is a default in the payment of principal, premium, if any,
sinking fund or interest on senior indebtedness. In the event that,
notwithstanding the foregoing, any payment by the Company described in the
foregoing sentence is received by the Subordinated Trustee under the
Subordinated Indenture or the holders of any of the Subordinated Securities
before all senior indebtedness is paid in full, such payment or distribution
will be paid over to the holders of such senior indebtedness or on their behalf
for application to the payment of all senior indebtedness remaining unpaid until
all such senior indebtedness has been paid in full, after giving effect to any
concurrent payment or distribution to the holders of such senior indebtedness.
Subject to payment in full of senior indebtedness, the holders of the
Subordinated Securities will be subrogated to the rights of the holders of the
senior indebtedness to the extent of payments made to the holders of such senior
indebtedness out of the distributive share of the Subordinated Securities.
By reason of such subordination, in the event of a distribution of assets
upon insolvency, certain general creditors of the Company may recover more,
ratably, than holders of the Subordinated Securities.
17
A Subordinated Indenture may provide that the subordination provisions thereof
will not apply to money and securities held in trust pursuant to the
satisfaction and discharge and the legal defeasance provisions of the
Subordinated Indenture.
If this Prospectus is being delivered in connection with the offering of a
series of Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated by reference therein will set forth the approximate
amount of senior indebtedness outstanding as of a recent date.
LIMITATIONS ON MERGER AND CERTAIN OTHER TRANSACTIONS
An Indenture may provide that, prior to the satisfaction and discharge of
the Company's obligations to holders of Debt Securities, the Company may not
consolidate with or merge with or into any other person, or transfer all or
substantially all of its properties and assets to another person, unless (i)
either (a) the Company is the continuing or surviving person in such a
consolidation or merger or (b) the person (if other than the Company) formed by
such consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company are transferred
(the Company or such other person being referred to as the "Surviving Person")
is a corporation organized and validly existing under the laws of the United
States, any state thereof or the District of Columbia, and expressly assumes, by
an indenture supplement, all the obligations of the Company under the Debt
Securities and the applicable Indenture and (ii) immediately after the
transaction and the incurrence or anticipated incurrence of any indebtedness to
be incurred in connection therewith, no Event of Default exists. The Surviving
Person will succeed to and be substituted for the Company with the same effect
as if it had been named in the applicable Indenture as a party thereto, and
thereafter the predecessor corporation will be relieved of all obligations and
covenants under such Indenture and the Debt Securities.
CONVERSION RIGHTS
The terms and conditions, if any, on which Debt Securities being offered are
convertible into Common Stock or other Securities of the Company will be set
forth in an applicable Prospectus Supplement relating thereto. Such terms will
include the conversion price, the conversion period, provisions as to whether
conversion will be at the option of the holder or the Company, the events
requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such Debt Securities.
GLOBAL SECURITIES
The Debt Securities may be issued in whole or in part in the form of one or
more Global Securities that will be deposited with, or on behalf of, a
depositary or its nominee identified in an applicable Prospectus Supplement. In
such a case, one or more Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of the Debt Securities to be represented by such Global Securities. The specific
terms of the depositor arrangement with respect to Debt Securities to be
represented by a Global Security will be described in an applicable Prospectus
Supplement.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Common Stock, Debt
Securities, Preferred Stock or any combination thereof. Warrants may be issued
independently or together with any other Securities offered in an applicable
Prospectus Supplement and may be attached to or separate from such Securities.
Warrants may be issued under warrant agreements (each, a "Warrant Agreement") to
be entered into between the Company and a warrant agent specified in the
applicable Prospectus Supplement (the "Warrant Agent"). The Warrant Agent will
act solely as an agent of the Company in connection with the Warrants of a
particular series and will not assume any obligation or relationship of agency
or trust for
18
or with any holders or beneficial owners of Warrants. The following sets forth
certain general terms and provisions of Warrants which may be offered. Further
terms of the Warrants and the applicable Warrant Agreement will be set forth in
an applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of the Warrants
in respect of which the Prospectus is being delivered, including, where
applicable, the following: (i) the title of such Warrants; (ii) the aggregate
number of such Warrants; (iii) the price or prices at which such Warrants will
be issued; (iv) the designation, number and terms of the Common Stock, Preferred
Stock, Debt Securities, or combination thereof, purchasable upon exercise of
such Warrants; (v) the designation and terms of the other Securities, if any,
with which such Warrants are issued and the number of such Warrants issued with
each such Security; (vi) the date, if any, on and after which such Warrants and
the related underlying Securities will be separately transferable; (vii) the
price at which each underlying Security purchasable upon exercise of such
Warrants may be purchased; (viii) the date on which the right to exercise such
Warrants will commence and the date on which such right will expire; (ix) the
minimum amount of such Warrants which may be exercised at any one time; (x)
information with respect to book-entry procedures, if any; (xi) a discussion of
any applicable federal income tax considerations; (xii) the amount of Warrants
outstanding; (xiii) provision for changes to or adjustments in the exercise
price; and (xiv) any other terms of such Warrants, including terms, procedures
and limitations relating to the transferability, exchange and exercise of such
Warrants.
PLAN OF DISTRIBUTION
The Company and the Selling Stockholders may sell the Securities in any one
or more of the following ways: (i) through one or more underwriters, (ii)
through one or more dealers or agents (which may include one or more
underwriters), (iii) directly to one or more purchasers, or (iv) through an
exchange distribution in accordance with the rules of such exchange, including
the NYSE, or in transactions in the over-the-counter market.
The distribution of the Securities may be effected from time to time in one
or more transactions, including negotiated transactions, at a fixed public
offering price or at varying prices determined at the time of sale. In
connection with the sale of the Securities, underwriters, dealers and agents may
receive compensation from the Company, the Selling Stockholders or purchasers of
the Securities in the form of discounts, concessions or commissions.
Underwriters, dealers and agents who participate in the distribution of the
Securities may be deemed to be underwriters, and any discounts or commissions
received by them from the Company or the Selling Stockholders and any profit on
the resale of Securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter, dealer or agent will
be identified and any such compensation received from the Company or the Selling
Stockholders will be described in an applicable Prospectus Supplement. Any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
Under agreements which may be entered into by the Company and the Selling
Stockholders, underwriters, dealers and agents who participate in the
distribution of the Securities may be entitled to indemnification by the Company
or the Selling Stockholders against certain liabilities, including under the
Securities Act, or contribution from the Company or the Selling Stockholders to
payments which the underwriters, dealers or agents may be required to make in
respect thereof. The underwriters, dealers and agents may engage in transactions
with, or perform services for, the Company and the Selling Stockholders in the
ordinary course of business.
All of the Securities when issued will be a new issue of securities with no
established trading market, other than the Common Stock, which is listed on the
NYSE. Any Common Stock sold pursuant to a Prospectus Supplement will be listed
on the NYSE, subject to official notice of issuance. Any underwriters to whom
Securities are sold by the Company for public offering and sale may make a
market in such
19
Securities, but such underwriters will not be obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of the secondary market for any such Securities.
LEGAL MATTERS
The validity of the Securities offered hereby has been passed upon for the
Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York.
EXPERTS
The Company's financial statements as of December 31, 1996 and 1995, and for
the years then ended, and the supplemental schedule and the financial statements
of CapStar Management as of December 31, 1994, and for the years ended December
31, 1994 and 1993, incorporated by reference herein and in the Registration
Statement, have been incorporated by reference in reliance on the reports of
KPMG Peat Marwick LLP, independent accountants, incorporated by reference herein
and in the Registration Statement, given on the authority of said firm as
experts in accounting and auditing. The financial statements of certain other
entities, incorporated by reference herein and in the Registration Statement,
have been incorporated by reference in reliance on the reports of KPMG Peat
Marwick LLP, Wertheim & Company, King Griffin & Adamson P.C., Coopers & Lybrand
L.L.P. and Mann Frankfort Stein & Lipp, P.C., as the case may be, independent
accountants, incorporated by reference herein and in the Registration Statement,
given on the authority of said firms as experts in accounting and auditing.
Any financial statements and schedules hereafter incorporated by reference
in the Registration Statement of which this Prospectus is a part that have been
audited and are the subject of a report by independent accountants will be so
incorporated by reference in reliance upon such reports and upon the authority
of such firms as experts in accounting and auditing to the extent covered by
consents filed with the Commission.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performances or achievements
of the Company to be materially different from any future results, performances
or achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the following: the ability of the Company
to successfully implement its acquisition strategy and operating strategy; the
Company's ability to manage rapid expansion; changes in economic cycles;
competition from other hospitality companies; and changes in the laws and
government regulations applicable to the Company.
20
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No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement or the Prospectus and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company or any of the Underwriters. Neither this Prospectus Supplement nor the
Prospectus constitutes an offer of any securities other than those to which it
relates or an offer to sell, or a solicitation of an offer to buy, to any person
in any jurisdiction where such an offer or solicitation would be unlawful.
Neither the delivery of this Prospectus Supplement or the Prospectus nor any
sale made hereunder shall, under any circumstances, create any implication that
the information contained herein is correct as of any time subsequent to its
date.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUPPLEMENT
Prospectus Summary.............................. S-1
Use of Proceeds................................. S-6
Price Range of Common Stock..................... S-6
Dividend Policy................................. S-6
Capitalization.................................. S-7
Selected Financial and Other Data............... S-8
Unaudited Pro Forma Condensed Consolidated
Financial Statements.......................... S-10
Business and Properties......................... S-14
Selling Stockholders............................ S-23
Underwriting.................................... S-24
Legal Matters................................... S-25
Experts......................................... S-25
PROSPECTUS
Available Information........................... 2
Incorporation of Certain Documents by
Reference..................................... 2
The Company..................................... 3
Risk Factors.................................... 4
Use of Proceeds................................. 9
Ratio of Earnings to Fixed Charges.............. 9
Selling Stockholders............................ 10
Description of Capital Stock.................... 11
Description of Debt Securities.................. 13
Description of Warrants......................... 18
Plan of Distribution............................ 19
Legal Matters................................... 20
Experts......................................... 20
Special Note Regarding Forward-Looking
Statements.................................... 20
5,273,518 Shares
[LOGO]
Common Stock
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PROSPECTUS SUPPLEMENT
, 1997
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LEHMAN BROTHERS
BT ALEX. BROWN
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
SMITH BARNEY INC.
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